10-K

FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended January 31, 2003
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                                to                               .

Commission File: 0-3136

RAVEN INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

South Dakota	46-0246171
(State of incorporation)	(IRS Employer Identification No.)

205 E. 6th Street, P.O. Box 5107
Sioux Falls, South Dakota 57117-5107

(Address of principal executive offices)

(605) 335-2750

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $1 par value

(Title of each class)

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days.

  [X]  Yes    [   ]   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

Indicate by check mark (“X”) whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act.)

[X]  Yes    [   ]   No

The aggregate market value of the registrant’s common stock held by nonaffiliates at July 31, 2002 was approximately $77,387,241. The aggregate market value was computed by reference to the closing price as reported on the NASDAQ National Market System, $11.63 (as adjusted for the two-for-one stock split January 15, 2003), on July 31, 2002, which was as of the last business day of the registrant’s most recently completed second fiscal quarter.

Shares of common stock outstanding at April 10, 2003: 9,048,810.

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TABLE OF CONTENTS

DOCUMENTS INCORPORATED BY REFERENCE
FORWARD-LOOKING STATEMENTS
	Item 1. Business
	Item 2. Properties
	Item 3. Pending Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 4A. Executive Officers of the Registrant
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
	Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EX-13 2003 Annual Report to Shareholders
EX-21 Subsidiaries of the Registrant
EX-23 Consent of Independent Accountants
EX-99.1 Certification Pursuant to Section 906

DOCUMENTS INCORPORATED BY REFERENCE

The following terms — the company, Raven or the registrant — are intended to apply to Raven Industries, Inc. and its consolidated subsidiaries listed in Exhibit 21 to this report.

The following table shows, except as otherwise noted, the location of information, required in this Form 10-K, in the registrant’s Annual Report to Shareholders for the year ended January 31, 2003 and Proxy Statement for the registrant’s 2003 annual meeting, a definitive copy of which was filed on April 18, 2003. All such information set forth under the heading “Reference” below is included herein or incorporated herein by reference. A copy of the registrant’s Annual Report to Shareholders for the year ended January 31, 2003 is included as an exhibit to this report.

	ITEM IN FORM 10-K	REFERENCE
PART I.
Item 1.	Business	Business, pages 4-8, this document; Business Segments       pages 5 and 16 of the Annual Report to Shareholders
Item 2.	Properties	Properties, pages 8-9, this document
Item 3.	Pending Legal Proceedings	Pending Legal Proceedings, page 9, this document
Item 4.	Submission of Matters to a Vote of Security Holders	Submission of Matters to a Vote of Security Holders, page 9,      this document
Item 4A.	Executive Officers of the Registrant	Executive Officers of the Registrant, page 9, this document
PART II.
Item 5.	Market for the Registrant’s Common Equity and Related      Stockholder Matters	Quarterly Information (unaudited), page 26, Eleven-year      Financial Summary, pages 14-15, and inside back cover,      Annual Report to Shareholders
Item 6.	Selected Financial Data	Eleven-year Financial Summary, pages 14-15, Annual Report      to Shareholders
Item 7.	Management’s Discussion and Analysis of Financial      Condition and Results of Operations	Financial Review and Analysis, pages 17-25, Annual Report      to Shareholders
Item 7A.	Quantitative and Qualitative Disclosures About Market      Risk	Page 9, this document
Item 8.	Financial Statements and Supplementary Data	Pages 27-39, Annual Report to Shareholders

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	ITEM IN FORM 10-K	REFERENCE
Item 9.	Changes in and Disagreements with       Accountants on Accounting and Financial Disclosure	Changes in and Disagreements with Accountants on       Accounting and Financial Disclosure, page 10, this       document
PART III.
Item 10.	Directors and Executive Officers of the Registrant	Election of Directors and Executive Compensation, Proxy       Statement
		Executive Officers of Registrant, Item 4A, page 9, this       document and Other Matters, Proxy Statement
Item 11.	Executive Compensation	Executive Compensation, Proxy Statement
Item 12.	Security Ownership of Certain Beneficial Owners and       Management and Related Stockholder Matters	Ownership of Common Stock, Proxy Statement, page 36,       Annual Report to Shareholders and page 10, this       document
Item 13.	Certain Relationships and Related Transactions	Election of Directors, Proxy Statement
Item 14.	Control Procedures	Control Procedures, page 11, this document
PART IV.
Item 15.	Exhibits, Financial Statement Schedule and Reports on       Form 8-K	Exhibits, Financial Statement Schedule and Reports on      Form 8-K, pages 11-13, this document.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act provides a “safe harbor” for forward-looking statements. Certain information included in this Form 10-K and other materials filed or to be filed by the company with the Securities and Exchange Commission (as well as information included in statements made or to be made by the company) contains statements that are forward-looking. Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there is no assurance that such expectations will be achieved. Such assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to general economic and weather conditions, which could affect certain of the company’s primary markets, such as agriculture and construction, or changes in competition, technology or the company’s customer base, any of which could adversely impact any of the company’s product lines.

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RAVEN INDUSTRIES, INC.
FORM 10-K
fiscal year ended January 31, 2003

Item 1.       Business

General

Raven Industries, Inc., was incorporated in February 1956 under the laws of the State of South Dakota and began operations later that same year. Raven is an industrial manufacturer providing a variety of products to customers throughout North America. The company began operations as a manufacturer of high-altitude research balloons before diversifying into the industrial, agricultural, construction and military/aerospace markets. The company employs approximately 750 persons on active status in four states and is headquartered at 205 E. Sixth Street, Sioux Falls, SD 57104 — telephone (605) 336-2750. The company’s Internet address is located at http//www.ravenind.com and trades on the NASDAQ National Market System under the symbol RAVN.

All reports (including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K) and proxy and information statements filed with the Securities and Exchange Commission (SEC) are available through a link from the company’s web site to the SEC web site. All such information is available as soon as reasonably practicable after it has been electronically filed. Filings can also be obtained free of charge by contacting the company, the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549, through their web site at http://www.sec.gov, or by calling the SEC at 1-800-SEC-0330.

The company has four ongoing business segments consisting of three Raven divisions and one subsidiary: Electronic Systems Division, Flow Controls Division, Engineered Films Division, and Aerostar International, Inc. (Aerostar). Beta Raven, a wholly owned subsidiary, was partially merged into the Electronic Systems Division in fiscal 2002 and the remaining operating assets were sold to a third party or liquidated into Raven Industries, Inc. in fiscal 2003. Substantially all of the company’s plastic tank product lines were sold in the third quarter of fiscal 2001. Many of the past and present product lines are an extension of technology and production methods developed in the original balloon business. Product lines have been grouped in these segments based on common technologies, production methods and raw materials; however, more than one business segment may serve each of the product markets identified above. Page 16 of the company’s Annual Report to Shareholders, incorporated herein by reference, provides financial information concerning the business segments, including sold businesses.

Following is a summary of company net sales by principal product categories (dollars in thousands):

		FY 2003		FY 2002		FY 2001
Electronics manufacturing services		$	38,589	$	32,289	$	32,039
Flow control devices and accessories			28,496		23,178		16,758
Reinforced plastic sheeting			35,096		35,796		35,403
Specialty apparel			7,049		11,001		19,102
Other			10,359		9,754		10,058
Total ongoing operation sales			119,589		112,018		113,360
Businesses sold:
	Plastic tanks		—		3,500		16,232
	Feedmill controls		1,314		2,997		3,266
Total sales		$	120,903	$	118,515	$	132,858

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Business Segments

     Flow Controls — Products in this segment are electronic speed and global positioning system (GPS)-based, location compensated application control products. They are used primarily for precision farming applications, as well as roadside and turf chemical spraying. The company has developed new products for field location control and chemical injection. The acquisition of Starlink in fiscal 2002 enhanced the company’s GPS capabilities. The combined technologies are expected to provide a competitive advantage in the support of precision agriculture in future years.

     Home office personnel sell flow control devices directly to original equipment manufacturers (OEMs) and independent third-party distributors. In fiscal 2004, the segment plans to expand on marketing and distribution through on-site marketing representatives in key geographic areas. The company’s competitive advantage in this segment is product reliability, ease of use, product availability and service after the sale.

     Engineered Films — This segment produces rugged reinforced plastic sheeting for industrial, construction and agricultural applications and high altitude balloons for public and commercial research.

     The company’s sales force sells plastic sheeting to independent third-party distributors in each of the various markets it serves. The company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest sheeting converters in the United States. A number of suppliers of sheeting compete with Raven on both price and product availability. To increase production, a $7.3 million two-year capital investment plan was completed in fiscal 2003 including a new extruder believed to be one of the largest in North America, nearly doubling capacity.

     High-altitude research balloons are sold directly to public agencies (usually funded by the National Aeronautics and Space Administration) or commercial users. Demand for these products is small but stable. Raven is the largest balloon supplier for high-altitude research in the United States.

     Electronic Systems — The company has focused this segment’s capabilities in electronics manufacturing services (EMS) for commercial customers. Historically, the company’s Electronic Systems segment provided a variety of assemblies and controls to the United States Department of Defense and other military contractors. Assemblies manufactured by the Electronic Systems segment include communication, environmental control, computer and other products where high quality is critical. The Electronic Systems segment expanded its capacity in fiscal 2002 by purchasing System Integrators and moving it into its EMS facility in St. Louis, Missouri.

     EMS sales are made in response to competitive bid requests by commercial customers and military contractors. The level and nature of competition varies with the type of product, but the company frequently competes with a number of EMS manufacturers on any given bid request. The markets in which the company participates are highly competitive, with customers having many suppliers to choose from.

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     Aerostar — The Aerostar subsidiary produces and sells custom-shaped advertising inflatables that have a number of uses including parade floats and advertising media. The company is the originator of modern hot-air ballooning and continues to be a leader in design and technical expertise. Aerostar also manufactures other sewn and sealed products on a contract basis. In fiscal 2003, the subsidiary was awarded a $7.65 million contract to produce cargo parachutes for the US Army. The subsidiary was previously in the cold-weather commercial outerwear business, but with the closure of a sewing plant in fiscal 2003 and prior plant sales, has now exited that business. It continues to produce uniforms for US government agencies as a subcontractor.

     The Aerostar segment sells inflatable displays directly to corporate customers, advertising agencies, and public relations firms, and are subject to varying levels of competition. Generally, the more customized the product, the greater the company’s market share. Hot-air balloons are sold through an independent third-party dealer network. Government sales are made in response to competitive bid requests.

     Sold Businesses — The Beta Raven Industrial Controls Division produced and sold computerized process-control systems directly to feedmills and to other markets. The business was sold during fiscal 2003. In prior years, the company has disposed of its pickup-truck topper and plastic tank businesses.

Major Customer Information

     One customer in the Electronic Systems segment, General Dynamics, accounted for 10.7% ($12.9 million) of consolidated sales in fiscal 2003. No customer accounted for more than 10 percent of the company’s consolidated accounts receivable at January 31, 2003. Additionally, General Dynamics and two other customers in the Electronic Systems segment accounted for more than 68% of the segment’s sales. The loss of these accounts would adversely affect profitability; however, the company believes its relationships with these customers are strong. In addition, the breadth of the company’s product lines helps protect it from the impact of losing any single customer.

Seasonal Working Capital Requirements

     Some seasonal demand exists in Flow Control’s agricultural market. The Flow Controls Division builds product in the fall for winter/spring delivery. Certain sales to agricultural customers offer spring dating terms for late fall and early winter shipments. The resulting fluctuations in inventory and accounts receivable balances may require, and have required, seasonal short-term financing.

Financial Instruments

     The principal financial instruments the company maintains are in short-term investments, accounts receivable and long-term debt. The company believes that the interest rate, credit and market risk related to these accounts is not significant. The company manages the risk associated with these accounts through periodic reviews of the carrying value assets and liabilities and establishment of appropriate allowances in connection with the company policies. Except for operating leases, the company does not enter into hedging, derivative instruments, or off balance sheet financing.

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Raw Materials

     The company obtains a wide variety of materials from numerous vendors. Principal materials include numerous electronic components for the Electronic Systems and Flow Controls segments, various plastic resins for the Engineered Films segment and fabrics for the Aerostar segment. The company has not experienced any significant shortages or other problems in purchasing raw materials to date, and alternative sources of supply are generally available. However, predicting future material shortages and the related potential impact on Raven is not possible.

Patents

     The company owns a number of patents. However, Raven does not believe that its business, as a whole, is materially dependent on any one patent or related group of patents. It believes the successful manufacture and sale of its products generally depend more upon its technical expertise and manufacturing skills.

Research and Development

     The business segments conduct ongoing research and development efforts. Most of the company’s research and development expenditures are directed toward new products in the Flow Controls segment. Total company research and development costs are disclosed in Note 1 to the Consolidated Financial Statements located on page 31 of the 2003 Annual Report to Shareholders, incorporated herein by reference.

Environmental Matters

     Except as described below, the company believes that, in all material respects, it is in compliance with applicable federal, state and local environmental laws and regulations. Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected the company’s capital expenditures, earnings or competitive position.

     In connection with the sale of substantially all of the assets of the company’s Glasstite, Inc. subsidiary in fiscal 2000, the company has agreed to assume responsibility for the investigation and remediation of any pre-October 29, 1999 environmental contamination at the company’s Glasstite pickup-truck topper facility in Dunnell, Minnesota as required by the Minnesota Pollution Control Agency (MPCA) or the United States Environmental Protection Agency (EPA).

     Also, in connection with the sale of substantially all of the assets of the company’s Plastic Tank Division in fiscal 2001, the company has agreed to assume responsibility for the investigation and remediation of any pre-August 28, 2000 environmental contamination at the property located at 1813 E Avenue, Sioux Falls, S.D. in accordance with the South Dakota Department of Environment and Natural Resources (DENR).

     The company and the purchasers of the company’s Glasstite subsidiary and Plastic Tank Division have conducted preliminary environmental assessments of the properties used in these businesses. Although these assessments are still being evaluated by the MPCA and DENR, respectively, on the basis of the preliminary data available, there is no reason to believe that any activities which might be required as a result of the findings of the assessments will have a material effect on the company’s results of operations, financial position or cash flow of the company. The company had accrued approximately $60,000 at January 31, 2003, its best estimate of probable costs to be incurred related to these matters.

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Backlog

     As of February 1, 2003, the company’s backlog of firm orders totaled $42.8 million. Backlog amounts as of February 1, 2002 and 2001 were $33.8 million and $38.2 million, respectively. Orders in the Flow Controls Division account for the majority of the increase.

Employees

     As of January 31, 2003, the company had approximately 765 employees, 750 in an active status. Following is a summary of active employees by segment: Electronic Systems — 210; Flow Controls — 170; Engineered Films — 130; Aerostar - - 195; Administration — 45. Management believes its employee relations are satisfactory.

Item 2.        Properties

     The company maintains the following properties in connection with its operations, all of which the company owns, unless indicated otherwise:

Location	Square Feet	Function	Business Segments
Sioux Falls, SD	150,000	Corporate office; electronics manufacturing	All
	69,300	Plastic sheeting manufacturing	Engineered Films
	59,000	Plastic sheeting and hot-air balloon manufacturing	Engineered Films; Aerostar
	30,800	Warehouse	Engineered Films
	27,000	Offices and material handling facility	Aerostar
	25,300	Inflatable manufacturing	Aerostar
	24,000	Electronics manufacturing	Electronic Systems
	10,200	Machine shop	Flow Controls
	*9,000	Warehouse	Engineered Films
	6,200	Training/meeting center	All
Sulphur Springs, TX	*63,900	Research balloon manufacturing	Engineered Films
Springfield, OH	30,000	Plastic sheeting manufacturing	Engineered Films
Huron, SD	24,100	Sewing plant	Aerostar
St. Louis, MO	21,000	Electronics manufacturing	Electronic Systems
	*3,600	Warehouse	Electronic Systems
Madison, SD	20,000	Sewing plant	Aerostar
Parkston, SD	14,000	Held for sale	Aerostar
Austin, TX	*12,000	Product development and manufacturing	Flow Controls

* Leased

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Most of the company’s manufacturing plants also serve as distribution centers and contain offices for sales, engineering and manufacturing support staff. The company believes that its properties are, in all material respects, in good condition and are adequate to meet existing production needs. The company owns 6.95 acres of undeveloped land adjacent to the other owned property in Sioux Falls, which is available for expansion.

Item 3.        Pending Legal Proceedings

The company is responsible for investigation and remediation of environmental contamination at two of its sold facilities as described under “Environmental Matters” on page 7. In addition, the company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.

Item 4.        Submission of Matters to a Vote of Security Holders

There were no matters submitted during the fourth quarter to a vote of security holders of the company.

Item 4A.        Executive Officers of the Registrant

Name	Age		Position
Ronald M. Moquist		57	President and Chief
			Executive Officer
Thomas Iacarella		49	Vice President and
			Chief Financial Officer

Each of the above named individuals serves at the pleasure of the Board of Directors on a year-to-year basis.

     Mr. Moquist was named President and Chief Executive Officer of the company effective August 1, 2000. He served as the Executive Vice President of Raven from 1985 through July 2000. He joined the company in 1975 as Sales and Marketing Manager.

     Mr. Iacarella has been the company’s Chief Financial Officer, Secretary and Treasurer since 1998. He joined Raven as Corporate Controller, in 1991. Prior to joining the company, he held positions with Tonka Corporation and Ernst & Young, LLP.

Item 7A.        Quantitative and Qualitative Disclosures About Market Risk

The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents and short-term investments. The company’s debt consists of capital leases, all of which have fixed interest rates. The company does not expect operating results or cash flows to be significantly affected by changes in interest rates. Additionally, the company has no derivative contracts or foreign currency exchange risk.

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Item 9.        Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 10.        Directors and Executive Officers of the Registrant

Incorporated by reference to the sections entitled “Election of Directors”, “Executive Compensation” and “Other Matters,” within the company’s Proxy Statement relating to its 2003 Annual Meeting of Shareholders. Executive Officers of Registrant, Item 4A, page 9, this document.

Item 11.        Executive Compensation

Incorporated by reference to the section entitled “Executive Compensation” within the company’s Proxy Statement relating to its 2003 Annual Meeting of Shareholders.

Item 12.        Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference to the section entitled “Ownership of Common Stock of Directors” within the company’s Proxy Statement relating to its 2003 Annual Meeting of Shareholders.

The number of shares to be issued upon exercise and the number of shares remaining available for future issuance under the Company’s equity compensation plans at January 31, 2003 were as follows:

Equity Compensation Plan Information

	Number of securities		Weighted-average
	to be issued upon		exercise price of		Number of
	exercise of		outstanding		securities available
Plan Category	outstanding options		options		for future issuance
Equity compensation plans approved by security holders (1)		436,056		$7.43		428,900
Equity compensation plans not approved by security holders		None		None		None

⁽¹⁾ Description of plan is included in Note 10 to the Consolidated Financial Statements located on page 36 of the 2003 Annual Report to Shareholders incorporated herein by reference.

Item 13.        Certain Relationships and Related Transactions

Incorporated by reference to the section entitled “Election of Directors,” contained in the company’s Proxy Statement relating to its 2003 Annual Meeting of Shareholders.

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Item 14. Controls and Procedures

Under the supervision and with the participation of the company’s management, including the Chief Executive Officer and Chief Financial Officer, the company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-14(c) within 90 days of the filing of this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no significant changes in the company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced above, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K

(a)           Consolidated Financial Statements and Schedule

1. Incorporated by reference from the attached exhibit containing the 2003 Annual Report to Shareholders:

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Consolidated Statements of Cash Flows

Notes to Financial Statements

Report of Independent Accountants

2. Included in Part II:

Report of Independent Accountants on Financial Statement Schedule
 
Schedule II — Valuation and Qualifying Accounts

The following schedules are omitted as they are not applicable or are not required: I, III and IV.

(b)	Reports on Form 8-K
	None
(c)	Exhibits Filed
	The following exhibits are filed as part of this report:

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Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K, continued:

Exhibit
Number	Description
2(a)	Asset Purchase Agreement dated December 5, 2001 by and among Raven Industries, Starlink Incorporated and the shareholders of Starlink Incorporated (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K dated December 5, 2001).
3(a)	Articles of Incorporation of Raven Industries, Inc. and all amendments thereto.*
3(b)	By-Laws of Raven Industries, Inc.*
3(c)	Extract of Shareholders Resolution adopted on April 7, 1962 with respect to the by-laws of Raven Industries, Inc.*
10(a)	Raven Industries, Inc. 2000 Stock Option and Compensation Plan adopted May 24, 2000 (incorporated by reference to Exhibit A to the company’s definitive Proxy Statement filed April 19, 2000).
10(b)	Raven Industries, Inc. 1990 Stock Plan adopted January 30, 1990 (incorporated by reference to Exhibit A to the company’s definitive Proxy Statement filed April 25, 1990).
10(c)	Change in Control Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of March 17, 1989.*
10(d)	Change in Control Agreement between Raven Industries, Inc. and Thomas Iacarella dated as of August 1, 1998 (incorporated by reference to Exhibit 10.1 of the company’s Form 10-Q for the quarter ended July 31, 1998).
10(e)	Employment Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of November 29, 1999 (incorporated by reference to Exhibit 10(j) of the company’s Form 10-K for the year ended January 31, 2001).
10(f)	Schedule identifying material details of other Employment Agreements between Raven Industries, Inc. and other executive officers substantially identical to the Employment Agreement filed as Exhibit 10(e) (incorporated by reference to Exhibit 10(k) of the company’s Form 10-K for the year ended January 31, 2001).
10(g)	Schedule A to Employment Agreement between Raven Industries, Inc. and Ronald M. Moquist dated as of November 14, 2000 (incorporated by reference to Exhibit 10(l) of the company’s Form 10-K for the year ended January 31, 2001).
10(h)	Deferred Compensation Plan between Raven Industries, Inc. and David A. Christensen dated as of February 1, 1997 (incorporated by reference to Exhibit 10(h) of the company’s Form 10-K for the year ended January 31, 1999).

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Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K, continued:

Exhibit
Number	Description
10(i)	Trust Agreement between Raven Industries, Inc. and Norwest Bank South Dakota, N.A. dated April 26, 1989. *
13	2003 Annual Report to Shareholders (only those portions specifically incorporated herein by reference shall be deemed filed with the Commission).
21	Subsidiaries of the Registrant.
23	Consent of Independent Accountants.
99	Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

* Incorporated by reference to corresponding Exhibit Number of the company’s Form 10-K for the year ended January 31, 1989.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		RAVEN INDUSTRIES, INC. (Registrant)
April 23, 2003         Date	By:	/S/ Ronald M. Moquist Ronald M. Moquist President (Principal Executive Officer and         Director)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

April 23, 2003         Date	By:	/S/ Ronald M. Moquist Ronald M. Moquist President (Principal Executive Officer and Director)
April 23, 2003         Date		/S/ Thomas Iacarella Thomas Iacarella Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
		Directors:
April 23, 2003         Date		/S/ Conrad J. Hoigaard Conrad J. Hoigaard
April 23, 2003         Date		/S/ Anthony W. Bour Anthony W. Bour
April 23, 2003         Date		/S/ David A. Christensen David A. Christensen
April 23, 2003         Date		/S/ Thomas S. Everist Thomas S. Everist
April 23, 2003         Date		/S/ Mark E. Griffin Mark E. Griffin
April 23, 2003         Date		/S/ Cynthia H. Milligan Cynthia H. Milligan

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CERTIFICATIONS

I, Ronald M. Moquist, certify that:

1.	I have reviewed this annual report on Form 10-K of Raven Industries, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and we have:

a.	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c.	Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or others performing the equivalent function):

a.	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 23, 2003	/s/ Ronald M. Moquist
	Ronald M. Moquist President and Chief Executive Officer

15

I, Thomas Iacarella, certify that:

1.	I have reviewed this annual report on Form 10-K of Raven Industries, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and we have:

a.	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c.	Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or others performing the equivalent function):

a.	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 23, 2003	/s/ Thomas Iacarella
	Thomas Iacarella Vice President and Chief Financial Officer

16

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of Raven Industries, Inc.:

     Our audits of the consolidated financial statements referred to in our report dated March 7, 2003 appearing in the 2003 Annual Report to Stockholders of Raven Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 7, 2003

17

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

for the years ended January 31, 2003, 2002 and 2001

(Dollars in thousands)

Column A		Column B		Column C				Column D			Column E
				Additions
		Balance at		Charged to			Charged to	Deductions
		Beginning		Costs and			Other	From			Balance at
Description		of Year		Expenses			Accounts	Reserves (1)			End of Year
Deducted in the balance sheet from the asset to which it applies:
	Allowance for doubtful accounts:
	Year ended January 31, 2003	$	310	$	(125	) (2)	None	$	(55	)	$	240
	Year ended January 31, 2002	$	400	$	126		None	$	216		$	310
	Year ended January 31, 2001	$	400	$	552		None	$	552		$	400

Note:

(1)  Represents uncollectible accounts receivable written off during the year, net of recoveries.
(2) $100 was included as a reduction in bad debt expense and $25 as an increase in the net gain on sale of assets.

18 EX-13 3 c75422exv13.txt EX-13 2003 ANNUAL REPORT TO SHAREHOLDERS BUSINESS PROFILE Founded in 1956, Raven today is an industrial manufacturer with four operating units. The company has divested lower-performing assets, simplified its product bases, and enhanced profitability (cash return on invested capital) and shareholder value-a strategy of "Improve, innovate, grow."

OPERATING UNIT PRODUCTS MARKETS COMPETITIVE STRENGTHS OUTLOOK - -------------- -------- ------- --------------------- ------- FLOW CONTROLS o Computerized control o Agriculture OEMs and o Market leader for o Technology-leading Sales: hardware and software sprayer manufacturers ag sprayer controls new products drive FY03 - $28 million for precision farming growth in agriculture FY02 - $23 million o Turf management o Strong brand recognition FY01 - $17 million o Leading developer of equipment manufacturers and distribution network o Integration of new GPS-based control GPS applications systems o Departments of o New Precision spurs growth in new Transportation (DOTs) Solutions(TM) product markets o Precision application line of pesticides, fertilizer o Environmental concerns and road de-icers dictate precision application of chemicals ENGINEERED FILMS o Rugged reinforced o Manufactured housing o Vertically integrated o Moderate growth as new Sales: plastic sheeting and RVs manufacturing capabilities capacity comes on-line FY03 - $40 million FY02 - $40 million o Temporary grain covers o Broad product line o Price volatility for FY01 - $40 million for agriculture polyethylene resin o Superior target marketing o Temporary building construction enclosures o High productivity and low-cost structure o Pond lining and containment for oil exploration o High-altitude o NASA o Sole source in US o Continued demand research balloons for scientific for research balloons o Universities balloons o Worldwide reputation for leadership ELECTRONIC SYSTEMS o Electronics Manufacturing o Primarily industrial o Advanced manufacturing, o Substantial topline Sales: Services (EMS) OEMs in North America technology growth based on FY03 - $39 million outsourcing trend FY02 - $32 million o Fortune 500 companies o Full-service provider, and new supplier FY01 - $32 million that contract their from engineering and agreements low-volume, high-mix manufacturing to production customer service o Customer emphasis on fewer suppliers o ISO 9001 with turnkey capabilities and financial strength AEROSTAR o Custom-shaped o Promotional and o Best technology in o Growth in advertising Sales: advertising inflatables advertising markets advertising inflatables and promotional markets FY03 - $13 million in US, including for custom inflatables FY02 - $16 million o Specialized sewing Disney and Macy's o Reputation for innovation FY01 - $25 million applications and quality o New US Army contract o Service uniforms and for cargo parachutes defense applications

RAVEN 2003 ANNUAL REPORT page 5 ELEVEN-YEAR FINANCIAL SUMMARY

For the years ended January 31 Dollars in thousands, except per-share data 2003 2002 2001 ------------ ------------ ------------ OPERATIONS FOR THE YEAR Net sales Ongoing operations .................................. $ 119,589 $ 112,018 $ 113,360 Sold businesses(a) .................................. 1,314 6,497 19,498 Total ............................................. 120,903 118,515 132,858 Gross profit .......................................... 27,515 23,851 21,123 Operating income Ongoing operations .................................. 16,861 13,788 7,417(b) Sold businesses(a) .................................. 204 (613) 3,331(c) Total ............................................. 17,065 13,175 10,748 Income before income taxes ............................ 17,254 13,565 10,924 Net income ............................................ $ 11,185 $ 8,847 $ 6,411 Net income % of sales ................................. 9.3% 7.5% 4.8% Net income % of beginning equity ...................... 21.5% 18.4% 11.8% Cash dividends ........................................ $ 2,563 $ 2,371 $ 2,399 FINANCIAL POSITION Current assets ........................................ $ 49,351 $ 45,308 $ 51,817 Current liabilities ................................... 13,167 13,810 13,935 Working capital ....................................... $ 36,184 $ 31,498 $ 37,882 Current ratio ......................................... 3.75 3.28 3.72 Property, plant and equipment ......................... $ 16,455 $ 14,059 $ 11,647 Total assets .......................................... 72,816 67,836 65,656 Long-term debt, less current portion .................. 151 280 2,013 Shareholders' equity .................................. $ 58,236 $ 52,032 $ 47,989 Long-term debt / total capitalization ................. 0.3% 0.5% 4.0% Inventory turnover (CGS / year-end inventory) ......... 4.4 5.0 5.9 CASH FLOWS PROVIDED BY (USED IN) Operating activities .................................. $ 12,735 $ 18,496 $ 9,441 Investing activities .................................. (9,166) (13,152) 9,752 Financing activities .................................. (5,830) (8,539) (14,227) Increase (decrease) in cash ........................... (2,261) (3,195) 4,966 COMMON STOCK DATA Net income per share - basic .......................... $ 1.22 $ 0.95 $ 0.62 Net income per share - diluted ........................ 1.20 0.93 0.62 Cash dividends per share .............................. 0.28 0.25 0.23 Book value per share .................................. 6.42 5.65 5.06 Stock price range during year High ................................................ $ 18.40 $ 11.75 $ 6.95 Low ................................................. $ 8.75 $ 6.04 $ 3.75 Shares outstanding, year-end (in thousands) ........... 9,066 9,212 9,478 Number of shareholders, year-end ...................... 2,781 2,387 2,460 OTHER DATA Price / earnings ratio ................................ 13.2 12.1 9.8 Average number of employees ........................... 758 838 1,043 Sales per employee .................................... $ 160 $ 141 $ 127 Backlog ............................................... $ 42,826 $ 33,834 $ 38,239

All per-share, shares outstanding and market price data reflect the January 2003 two-for-one stock split and the July 2001 three-for-two stock split. All other figures are as reported. Price / earnings ratio is determined as closing stock price divided by net income per share-diluted. (a) During the second quarter of fiscal 2003, the company sold its Beta Raven Industrial Controls Division. In the third quarter of fiscal 2001, the company sold its Plastic Tank Division. In fiscal 2000 and 1996, the company sold its Glasstite and Astoria businesses, respectively. (b) Includes $2.6 million of business repositioning charges, net of gains on plant sales, primarily in Electronic Systems Division and Aerostar (See Note 5). page 14 RAVEN 2003 ANNUAL REPORT

For the years ended January 31 - ----------------------------------------------------------------------------------------------------------------- 2000(g) 1999(g) 1998(g) 1997(g) 1996(g) 1995(g) 1994(g) 1993(g) - --------- --------- --------- --------- --------- --------- --------- --------- $ 107,862 $ 108,408 $ 104,489 $ 101,869 $ 84,379 $ 87,458 $ 88,608 $ 85,181 42,523 46,798 47,679 39,576 38,010 35,889 34,279 27,367 150,385 155,206 152,168 141,445 122,389 123,347 122,887 112,548 24,217 24,441 24,929 25,287 22,660 23,968 23,574 21,048 7,971 8,220 9,555 9,321 7,692 10,470 8,054 7,758 2,606(d) 1,453 1,007 2,650 1,869 466(f) 2,386 1,388 10,577 9,673 10,562 11,971 9,561 10,936 10,440 9,146 10,503 9,649 12,540(e) 11,915 9,566 9,372 10,638 9,182 $ 6,762 $ 6,182 $ 8,062 $ 7,688 $ 6,197 $ 6,088 $ 6,954 $ 6,030 4.5% 4.0% 5.3% 5.4% 5.1% 4.9% 5.7% 5.4% 10.9% 10.0% 14.2% 15.6% 13.6% 14.8% 19.6% 19.7% $ 2,895 $ 2,944 $ 2,709 $ 2,367 $ 2,130 $ 1,843 $ 1,545 $ 1,316 $ 55,371 $ 60,279 $ 57,285 $ 56,696 $ 45,695 $ 43,795 $ 45,037 $ 42,476 14,702 15,128 17,816 20,016 14,771 15,078 16,088 15,253 $ 40,669 $ 45,151 $ 39,469 $ 36,680 $ 30,924 $ 28,717 $ 28,949 $ 27,223 3.77 3.98 3.22 2.83 3.09 2.90 2.80 2.78 $ 15,068 $ 19,563 $ 19,817 $ 18,142 $ 18,069 $ 18,570 $ 13,371 $ 10,457 74,047 83,657 82,066 80,662 67,553 65,636 60,597 54,813 3,024 4,572 1,128 3,181 2,816 4,179 2,539 3,224 $ 54,519 $ 62,293 $ 61,563 $ 56,729 $ 49,151 $ 45,526 $ 41,100 $ 35,530 5.3% 6.8% 1.8% 5.3% 5.4% 8.4% 5.8% 8.3% 5.2 4.9 4.8 4.5 4.1 4.4 4.4 3.8 $ 10,375 $ 8,326 $ 9,274 $ 7,088 $ 9,687 $ 7,452 $ 11,257 $ 3,475 6,323 (3,127) (4,979) (5,090) (4,158) (10,000) (5,908) (3,107) (16,326) (2,714) (4,884) (2,363) (4,029) 406 (2,042) (1,659) 372 2,485 (589) (365) 1,500 (2,142) 3,307 (1,291) $ 0.52 $ 0.43 $ 0.55 $ 0.54 $ 0.44 $ 0.43 $ 0.49 $ 0.43 0.52 0.43 0.55 0.54 0.43 0.42 0.48 0.42 0.22 0.21 0.19 0.17 0.15 0.13 0.11 0.09 4.64 4.42 4.25 3.91 3.47 3.20 2.92 2.53 $ 6.08 $ 7.58 $ 8.58 $ 7.83 $ 6.92 $ 8.17 $ 7.83 $ 7.17 $ 4.50 $ 5.08 $ 6.54 $ 5.33 $ 5.17 $ 6.00 $ 6.00 $ 4.61 11,748 14,082 14,472 14,508 14,148 14,205 14,082 14,028 2,749 3,014 3,221 3,011 3,190 3,031 3,173 3,147 9.2 12.4 13.7 13.9 14.9 14.9 13.9 11.8 1,320 1,445 1,511 1,387 1,368 1,414 1,435 1,316 $ 114 $ 107 $ 101 $ 102 $ 89 $ 87 $ 86 $ 86 $ 44,935 $ 47,431 $ 47,154 $ 38,102 $ 32,539 $ 29,661 $ 36,403 $ 49,033

(c) Includes the $3.1 million pretax gain ($1.4 million net of tax) on the sale of the company's Plastic Tank Division (See Note 5). (d) Includes the $1.2 million pretax gain ($764,000 net of tax) on the sale of assets of the company's Glasstite subsidiary. (e) Includes the $1.8 million pretax gain ($1.2 million net of tax) on sale of an investment in an affiliate. (f) Includes $1.8 million of business repositioning charges at the company's Beta Raven Industrial Controls Division. (g) Amounts for these years are unaudited. RAVEN 2003 ANNUAL REPORT page 15 BUSINESS SEGMENTS

For the years ended January 31 --------------------------------------------------------------------------------------- Dollars in thousands 2003 2002 2001 2000(h) 1999(h) 1998(h) --------- --------- --------- --------- --------- --------- FLOW CONTROLS DIVISION Sales ............................. $ 28,496 $ 23,178 $ 16,758 $ 13,520 $ 15,311 $ 16,852 Operating income .................. 6,897 5,509(a) 3,985 2,873 2,810 3,829 Assets ............................ 21,483 20,313 9,578 7,096 8,553 10,679 Capital expenditures .............. 729 677 327 202 501 210 Depreciation & amortization ....... 948 443 353 351 329 322 ENGINEERED FILMS DIVISION Sales ............................. $ 39,975 $ 40,280 $ 40,004 $ 35,889 $ 32,514 $ 28,322 Operating income .................. 11,447 9,886 8,810 7,464 5,836 3,336 Assets ............................ 18,507 14,847 13,031 13,472 13,177 13,504 Capital expenditures .............. 4,111 3,182 674 792 566 1,511 Depreciation & amortization ....... 1,495 1,085 1,033 1,075 1,136 1,140 ELECTRONIC SYSTEMS DIVISION Sales ............................. $ 38,589 $ 32,289 $ 32,039 $ 30,176 $ 24,958 $ 23,968 Operating income (loss) ........... 4,022 2,264 (542)(c) 1,632 2,322 3,319 Assets ............................ 14,528 13,910 15,359 18,846 15,591 12,994 Capital expenditures .............. 395 774 1,492 1,168 1,399 1,614 Depreciation & amortization ....... 978 1,101 1,089 1,032 959 834 AEROSTAR Sales ............................. $ 12,529 $ 16,271 $ 24,559 $ 28,277 $ 35,625 $ 35,347 Operating income (loss) ........... (405) 1,278(b) 1,583 2,092 2,724 4,300 Assets ............................ 5,769 5,994 7,361 11,307 14,446 14,065 Capital expenditures .............. 539 252 122 117 308 556 Depreciation & amortization ....... 354 263 280 372 464 489 SOLD BUSINESSES Sales ............................. $ 1,314 $ 6,497 $ 19,498 $ 42,523 $ 46,798 $ 47,679 Operating income (loss)(f) ........ 204 (613) 3,331(d) 2,606(e) 1,453 1,007 Assets ............................ -- 1,102 4,805 13,475 22,048 22,693 Capital expenditures .............. 7 52 246 1,172 1,585 2,217 Depreciation & amortization ....... 20 76 718 1,831 2,004 2,136 CORPORATE & OTHER(g) Operating (loss) .................. $ (5,100) $ (5,149) $ (6,419) $ (6,090) $ (5,472) $ (5,229) Assets ............................ 12,529 11,670 15,522 9,851 9,842 8,131 Capital expenditures .............. 252 157 229 188 247 433 Depreciation & amortization ....... 171 177 194 223 241 216 TOTAL COMPANY Sales ............................. $ 120,903 $ 118,515 $ 132,858 $ 150,385 $ 155,206 $ 152,168 Operating income .................. 17,065 13,175(a,b) 10,748(c,d) 10,577(e) 9,673 10,562 Assets ............................ 72,816 67,836 65,656 74,047 83,657 82,066 Capital expenditures .............. 6,033 5,094 3,090 3,639 4,606 6,541 Depreciation & amortization ....... 3,966 3,145 3,667 4,884 5,133 5,137

(a) Includes a $550,000 in-process research and development charge, related to the Starlink acquisition. (b) Includes $414,000 of pretax gains on plant sales. (c) Includes $1.8 million of business repositioning charges in the Electronic Systems Division and $2.6 million for the total company (See Note 5). (d) Includes a $3.1 million pretax gain on the sale of the company's Plastic Tank Division (See Note 5). (e) Includes a $1.2 million pretax gain on the sale of the company's Glasstite business. (f) Operating income for sold businesses includes administrative expenses directly attributable to the sold businesses. (g) Operating loss consists of administrative expenses -- assets are principally cash, investments, deferred taxes and notes receivable. (h) Amounts for 2000, 1999 and 1998 are unaudited. page 16 RAVEN 2003 ANNUAL REPORT FINANCIAL REVIEW AND ANALYSIS RESULTS OF OPERATIONS The following table presents comparative financial performance for the past three years:

For the years ended January 31 --------------------------------------------------------------------------------------- 2003 2002 2001 -------------------------- --------------------------- ---------------------------- % % % % % % In thousands, except per-share data Sales Change Sales Change Sales Change --------- ----- ------ --------- ----- ------ --------- ----- ------ Net sales .............................. $ 120,903 100.0 +2.0 $ 118,515 100.0 -10.8 $ 132,858 100.0 -11.7 Gross profit ........................... 27,515 22.8 +15.4 23,851 20.1 +12.9 21,123 15.9 -12.8 Operating expenses ..................... 10,629 8.8 - 3.7 11,043 9.3 -20.5 13,883 10.4 -6.4 Gain on sale of businesses and assets .. (179) (367) (3,508) Operating income ....................... 17,065 14.1 +29.5 13,175 11.1 +22.6 10,748 8.1 +1.6 Income before income taxes ............. 17,254 14.3 +27.2 13,565 11.4 +24.2 10,924 8.2 +4.0 Income taxes ........................... 6,069 5.0 +28.6 4,718 4.0 +4.5 4,513 3.4 +20.6 Net income ............................. $ 11,185 9.3 +26.4 $ 8,847 7.5 +38.0 $ 6,411 4.8 -5.2 Net income per share - diluted ......... $ 1.20 +29.0 $ 0.93 +50.0 $ 0.62 +20.4 Effective income tax rate .............. 35.2% +1.1 34.8% -15.8 41.3% +16.0

CONSOLIDATED OPERATING RESULTS The company's record performance in fiscal 2003 was attributable to the December 2001 acquisition in the Flow Controls Division, operating improvements and an acquisition in the Electronic Systems Division and strong gross profit rates in the Engineered Films Division. Net income rose $2.3 million to $11.2 million over fiscal 2002, a record $1.20 per diluted share. Quarterly dividends per share were increased from $.065 to $.070 per share and stock repurchases continued, delivering more cash back to shareholders. The company also effected a two-for-one stock split in January 2003. Fiscal 2002 was an equally impressive year for the company with net income growth of 38.0% over fiscal 2001 to $8.8 million, or $0.93 per diluted share, in addition to a three-for-two stock split. The following discussion highlights the consolidated operating results. Results at the divisional and subsidiary level are more fully explained in the segment discussions that follow. In addition, the company has undertaken a number of divestitures and repositioning activities in the past three fiscal years which are more fully explained under "Divestitures and Repositioning Activities." FISCAL 2003 VERSUS FISCAL 2002 Net sales of $120.9 million grew 2.0% over fiscal 2002 while operating income increased 29.5% to $17.1 million as compared to fiscal 2002. Gross profit increases and minimal growth in selling and general expenses, resulted in the operating income gains. Realizing the benefits of the Starlink acquisition, Flow Controls net sales increased $5.3 million from fiscal 2002 and gross profit increased $1.4 million. Electronic Systems net sales of $38.6 million grew 19.5% over fiscal 2002 while gross profits grew $2.0 million, or 70.9%, due to the acquisition of System Integrators and improved operating efficiencies. Engineered Films net sales declined slightly, but gross profit grew $1.7 million from lower raw material costs and improving product mix. Aerostar net sales continued to decline, dropping $3.7 million as the subsidiary withdrew from the cold-weather outerwear business, negatively impacting gross profit by $1.4 million. Net sales from sold businesses declined $5.2 million, with a $103,000 decline in gross profit. FISCAL 2002 VERSUS FISCAL 2001 Fiscal 2002 net sales of $118.5 million were $14.3 million less than fiscal 2001 net sales while operating income increased $2.4 million over fiscal 2001. Gross profit growth and lower selling and general expenses were the driving factors increasing operating income, partially offset by a $3.1 million decrease in gain on sales of businesses and assets. Growth within the Flow Controls Division from new products increased sales $6.4 million while improving gross profits $1.6 million. Countering that growth was an $8.3 million decline in Aerostar net sales and a $520,000 decline in gross profit from a planned reduction in outerwear sales. Net sales from the other divisions had little growth, but Electronic Systems grew gross profits $829,000 exclusive of repositioning charges, from improved processes and a stronger customer base while Engineered Films added $1.2 million in gross profit through favorable material costs and shifts in product mix. Included in fiscal 2002 and 2001 net sales was $6.5 million and $19.5 million, respectively, attributable to sold businesses (see following discussion under "Divestitures and Other Repositioning Activities"). Gross profit from sold businesses contributed $331,000 in fiscal 2002 compared to $2.3 million in fiscal 2001. RAVEN 2003 ANNUAL REPORT page 17 FINANCIAL REVIEW AND ANALYSIS (Continued) FISCAL 2003 PERFORMANCE MEASURES Record net income reached 9.3% of net sales for fiscal 2003. The company continued to effectively and efficiently utilize assets to generate profits, increasing net income as a percent of average assets to 15.9% for fiscal 2003. As a percentage of beginning equity, net income reached 21.5%, evidence of the company's commitment to generating value to shareholders. The company also repurchased 251,230 shares during fiscal 2003 and effected a two-for-one stock split in January 2003.

2003 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- Net income as % of Net sales .................... 9.3% 7.5% 4.8% 4.5% 4.0% 5.3% Average assets ............... 15.9% 13.3% 9.2% 8.6% 7.4% 9.9% Beginning equity ............. 21.5% 18.4% 11.8% 10.9% 10.0% 14.2%

DIVESTITURES AND OTHER REPOSITIONING ACTIVITIES The company has, in the past four years, been closing and downsizing business units that did not provide proper returns on investment. While the company will continue to review the utilization of invested capital, this activity was substantially completed in fiscal 2003. FISCAL 2003 ACTIVITIES Effective May 31, 2002, the company sold its Beta Raven Industrial Controls Division. This completed the disposal and repositioning of that subsidiary. A pretax gain of $104,000 was recognized on the sale which resulted in cash proceeds of $577,000 and the buyer's assumption of certain liabilities of the company. The Beta Raven Industrial Controls Division accounted for net sales of $1.3 million and gross profit of $228,000 during fiscal 2003. During the third quarter of fiscal 2003, the company also closed an Aerostar sewing plant. The remaining $75,000 of pretax net gain for fiscal 2003 relates to the collection of a previously discounted $350,000 note receivable and adjustment to accruals in relation to businesses sold in prior years. FISCAL 2002 ACTIVITIES In fiscal 2002, the company recorded a net pretax gain of $367,000, before income taxes, related to the sale of its former Sportswear Division warehouse and the November 2001 closure of its remaining Plastic Tank Division operations in Tacoma, Washington. The company also incurred $249,000 of pretax charges (reflected as part of cost of goods sold in the Sold Businesses segment) to reposition the Industrial Controls Division of Beta Raven, including the closing of its Alabama plant. Beta Raven's electronic manufacturing services operations in Missouri were merged into the company's Electronic Systems Division. FISCAL 2001 ACTIVITIES In fiscal 2001, the company sold substantially all of the assets of its Plastic Tank Division. The proceeds of the sale were $12.3 million, consisting primarily of cash and a note receivable, and the buyers assumed certain liabilities totaling approximately $388,000 of the company. Assets sold included property, plant and equipment, accounts receivable and inventories totaling approximately $6.4 million. In addition, the company recorded approximately $813,000 to accrue for severance, legal and other costs related to the Plastic Tank Division sale, reflecting the company's best estimate of costs that it will incur until these matters are resolved. The sale did not include the company's operations in Tacoma, Washington, which were closed in November 2001. The Tacoma assets, primarily inventories and manufacturing equipment, were written down to their estimated net realizable value requiring a charge of approximately $585,000. The company also recorded a charge of approximately $1.8 million related to the write-off of goodwill related to the Plastic Tank Division. As a result of the above, the company recognized a pretax gain of approximately $3.1 million in fiscal 2001. In fiscal 2001, the company reduced the number of customers in its Electronic Systems Division, resulting in write-downs of inventory and accounts receivable, severance and other pretax charges totaling $1.8 million. Other repositioning costs totaled approximately $400,000. Also in fiscal 2001, the company reorganized its former Sewn Products segment, combining its former Sportswear Division with Aerostar. The company incurred pretax charges of $767,000 related to the combination and sold three former Sportswear Division plants for a pretax gain of $393,000. SOLD BUSINESSES Net sales from Sold Businesses in fiscal 2003 were $1.3 million, all attributable to the Beta Raven Industrial Controls Division. Operating income of $204,000 included $179,000 of gains on asset sales. Fiscal 2002 net sales of $6.5 million were attributed to Beta Raven ($3.0 million) and the Plastic Tank Division ($3.5 million). Operating losses of $613,000 included $47,000 of losses on asset sales. Fiscal 2001 net sales were $19.5 million, with $16.2 million from the Plastic Tank Division and $3.3 million from Beta Raven. Operating income of $3.3 million included $3.1 million of gain on asset sales, principally from the Plastic Tank Division. page 18 RAVEN 2003 ANNUAL REPORT SEGMENT ANALYSIS SALES AND OPERATING INCOME BY SEGMENT

2003 2002 2001 --------------------------------------------------------------------- % % % Dollars in thousands amount change amount change amount change ------------ ------ ------------ ------ ------------ ------ SALES Flow Controls ........... $ 28,496 +22.9 $ 23,178 +38.3 $ 16,758 +23.9 Engineered Films ........ 39,975 -0.8 40,280 + 0.7 40,004 +11.5 Electronic Systems ...... 38,589 +19.5 32,289 + 0.8 32,039 + 6.2 Aerostar ................ 12,529 -23.0 16,271 -33.7 24,559 -13.1 ------------ ------------ ------------ Total ongoing ........... 119,589 + 6.8 112,018 -1.2 113,360 +5.1 Sold businesses ......... 1,314 -79.8 6,497 -66.7 19,498 -54.1 ------------ ------------ ------------ Total ................... $ 120,903 + 2.0 $ 118,515 -10.8 $ 132,858 -11.7 ============ ============ ============

2003 2002 2001 ----------------------------------------------------------------- % % % Dollars in thousands amount sales amount sales amount sales --------- ------ --------- ------ --------- ------- OPERATING INCOME (LOSS) Flow Controls ........... $ 6,897 24.2 $ 5,509 23.8 $ 3,985 23.8 Engineered Films ........ 11,447 28.6 9,886 24.5 8,810 22.0 Electronic Systems ...... 4,022 10.4 2,264 7.0 (542) (1.7) Aerostar ................ (405) (3.2) 1,278 7.9 1,583 6.4 Corporate expenses ...... (5,100) (5,149) (6,419) --------- --------- --------- Total ongoing ........... 16,861 14.1 13,788 12.3 7,417 6.5 Sold businesses ......... 204 (613) 3,331 --------- --------- --------- Total ................... $ 17,065 14.1 $ 13,175 11.1 $ 10,748 8.1 ========= ========= =========

FLOW CONTROLS The Flow Controls Division (FCD) provides electronic speed and Global Positioning System (GPS)-based, location-compensated application-control products for the agriculture, turf management and other niche markets. FISCAL 2003 VERSUS FISCAL 2002 Net sales increased 22.9% to $28.5 million over fiscal 2002 net sales. The Starlink acquisition from December 2001 was the principal contributor to the increase. Those operations, combined with increased sales from new products helped propel the division to new operating levels. Operating income of $6.9 million posted a $1.4 million increase over fiscal 2002. Gross profits from increased sales were the driver of the increase. Selling and general expenses increased only $29,000 as a result of the collection of a receivable for which an allowance had previously been established, which partially offset selling expense increases. Gross profits as a percentage of net sales were 29.8% as compared to 32.9% in fiscal 2002 (excluding the write-off of $550,000 in acquired research and development) in fiscal 2002. The decline reflects the impact of the higher fixed-cost structure principally related to the acquired Starlink operations. Fourth quarter sales under a special program for chemical injection systems were $523,000 in fiscal 2003 and $1.9 million in fiscal 2002, respectively. The lower sales under this program negatively impacted operating income. Changes to the distribution channel combined with slower demand by growers delayed shipments beyond the fourth quarter of fiscal 2003. Orders under the current program are more than $6.0 million compared to more than $4.5 million for the previous program. (GRAPH) FLOW CONTROLS

NET SALES (dollars in millions) 2001 16.76 2002 23.18 2003 28.50

OPERATING INCOME (dollars in millions) 2001 3.99 2002 5.51 2003 6.90

FISCAL 2002 VERSUS FISCAL 2001 Net sales for fiscal 2002 of $23.2 million experienced strong growth, increasing 38.3% when compared to fiscal 2001 levels. The two main factors in the growth were a special order for chemical injection systems and the continued commitment to new product introductions. FCD's operating income topped $5.5 million versus $4.0 million for fiscal 2001. Fiscal 2002 operating income was negatively impacted by a write-off (part of cost of goods sold) of $550,000 in acquired research and development costs. The operating income growth was entirely attributable to stronger gross profits as selling and general expenses were virtually flat. As a percentage of net sales, gross profits were flat at 32.9% (excluding the write-off) for both fiscal years. PROSPECTS FCD looks to focus more on marketing and distribution of its precision agriculture products in fiscal 2004. FCD faces a challenge given the difficult agricultural environment, but several strategic partner alliances and a shift in divisional focus will help to drive those sales. This new initiative calls for simplifying product interfaces and placing on-site marketing representatives around the country to support and develop FCD's dealer network. RAVEN 2003 ANNUAL REPORT page 19 FINANCIAL REVIEW AND ANALYSIS (Continued) Selling expense as a percent of sales is expected to increase by one and one-half percentage points in fiscal 2004 to support this initiative. FCD targets sales growth in excess of 10%. ENGINEERED FILMS The Engineered Films Division (EFD) produces rugged reinforced plastic sheeting for industrial, construction, manufactured housing and agriculture applications and high altitude balloons for public and commercial research. (GRAPH) ENGINEERED FILMS

NET SALES (dollars in millions) 2001 40.00 2002 40.28 2003 39.98

OPERATING INCOME (dollars in millions) 2001 8.81 2002 9.89 2003 11.45

FISCAL 2003 VERSUS FISCAL 2002 Net sales for EFD changed little for fiscal 2003 at $40.0 million, a $305,000 decrease over fiscal 2002. Pit lining, land fill and manufactured housing film sales all declined in fiscal 2003. Low commodity prices for natural gas and crude oil reduced oil and gas exploration and the need for plastic sheeting. Industrial and construction markets remained strong, and combined with an 8.8% increase in research balloon sales, helped to partially offset the other market declines. Operating income grew $1.6 million to $11.4 million, despite the decline in net sales. Lower raw material costs helped generate a gross profit rate of 33.7%, as compared to 29.1% for fiscal 2002, and drove the operating income improvements. Selling and general expenses were higher due mainly to increased salaries and related costs, as well as increased product improvement costs. These additional expenses partially offset the increases from gross profit growth. FISCAL 2002 VERSUS FISCAL 2001 Net sales experienced little growth in fiscal 2002 at $40.3 million, a $276,000 increase over fiscal 2001 sales. Sales were maintained despite several shifts in customer demand for products. Foreign research balloon and manufactured housing sales declined. These declines were offset by stronger pit lining sales for the first half of fiscal 2002, and a strong construction film market through most of the fiscal year. Operating income of $9.9 million grew $1.1 million, or 12.2%, over fiscal 2001. This was achieved through gross profit gains generated by lower material prices and shifts in product mix, partially offset by an increase in selling and general expenses. As a percentage of net sales, gross profits increased from 26.3% to 29.1% as a result. PROSPECTS A new extrusion line began producing its full range of products in the fourth quarter of fiscal 2003 and has nearly doubled EFD's extrusion capacity. This added capacity will allow for increased sales of existing products, as well as the capability of producing new products for the existing markets. There can be no assurance that market demands or new products will fully utilize the additional capacity, but management remains confident market demand will be cultivated. An increase in natural gas and crude oil prices could increase drilling activity and generate more demand for pit lining materials, but could also adversely impact raw material costs and gross profit rates, more than offsetting the profit impact of any sales gains. Plastic resin is made from natural gas and oil supplies. New products are expected to carry lower gross profit rates upon initial introduction, as market penetration may require targeted price-cutting. (GRAPH) ELECTRONIC SYSTEMS

NET SALES (dollars in millions) 2001 32.04 2002 32.29 2003 38.59

OPERATING INCOME (dollars in millions) 2001 (0.54) 2002 2.26 2003 4.02

ELECTRONIC SYSTEMS The Electronic Systems Division (ESD) is a total-solutions provider of electronics manufacturing services, primarily to North American original equipment manufacturers. FISCAL 2003 VERSUS FISCAL 2002 Net sales improved $6.3 million over fiscal 2002 to reach $38.6 million. Net sales growth from the former Beta Raven electronic manufacturing services operation that was integrated into ESD in mid-fiscal 2002 and contributions from the December 2001 System Integrators acquisition were the driving factors in increased net sales for ESD. Partially offsetting the increase has been a decline in government contract sales. Operating income improved substantially for fiscal page 20 RAVEN 2003 ANNUAL REPORT 2003 as compared to fiscal 2002, increasing $1.8 million. The acquired System Integrators operations and the continued implementation of Six Sigma methodology have improved capacity utilization and efficiencies. Gross profit as a percentage of sales improved from 8.7% in fiscal 2002 to 12.4% for fiscal 2003. FISCAL 2002 VERSUS FISCAL 2001 Net sales of $32.3 million were achieved in fiscal 2002, as compared to $32.0 million for 2001 even with a nearly 50% reduction in customer base. Measures taken to reposition ESD during fiscal 2001 resulted in an improved customer base and operating income, but the customer reduction limited growth. Operating income for fiscal 2002 was $2.3 million. This is comparable to $1.3 million of income in fiscal 2001 after excluding $1.8 million of costs incurred in the repositioning of ESD. Gross profits growth was responsible for the majority of the increase, in addition to a decrease in selling and general expenses mainly from personnel reductions as a result of reduced customer levels and restructuring. As a percentage of net sales, gross profits increased from 6.3% for fiscal 2001 (excluding repositioning costs) to 8.7% for fiscal 2002. PROSPECTS During the fourth quarter of fiscal 2003, ESD signed supplier agreements with three accounts that management expects will increase sales by more than 10% annually for the next two years. These agreements do not guarantee any specific revenue level, but position ESD to be the sole supplier for specific product lines. Start-up costs may initially reduce gross profit percentages from the strong levels obtained over the last half of fiscal 2003, but profit rates are expected to recover by the end of fiscal 2004. AEROSTAR Aerostar manufactures custom-shaped advertising inflatable display products, hot-air sport balloons and other sewn and sealed products on a contract basis. FISCAL 2003 VERSUS FISCAL 2002 Net sales in fiscal 2003 declined 23.0% over fiscal 2002 to $12.5 million caused primarily by the decision to exit the cold-weather outerwear business. Hot air balloon sales declined another 20% again in fiscal 2003 while reduced advertising expenditures by companies depressed sales of inflatable displays. The reduced level of outerwear sales resulted in the closure of another sewing plant during the third quarter of fiscal 2003, leaving only two remaining plants. Operating losses of $405,000 were posted for fiscal 2003 as compared to income of $864,000 for fiscal 2002 (excluding a $414,000 gain realized on the sale of a building). Gross profits declined across all product lines, and as a percentage of net sales, decreased from 11.9% for fiscal 2002 to 4.5% in fiscal 2003. Increases in product liability insurance had a negative impact to profit margins of 2.6 percentage points, and start-up costs for parachute manufacturing further depressed margins. Inventory obsolescence charges, resulting from the restructuring of hot air balloon and apparel operations, of $306,000 and $275,000 were taken in fiscal 2003 and 2002, respectively. (GRAPH) AEROSTAR

NET SALES (dollars in millions) 2001 24.56 2002 16.27 2003 12.53

OPERATING INCOME (dollars in millions) 2001 1.58 2002 1.28 2003 -0.41

FISCAL 2002 VERSUS FISCAL 2001 Net sales of $16.3 million declined 33.7% as compared to fiscal 2001 net sales levels. Specialty apparel sales declined $8.1 million due to the closures of two sewing plants in late fiscal 2001 and a planned reduction in that line of business. Hot air balloon sales decreased 25% while there was a small increase in custom-inflatable products. Operating income declined from $1.6 million in fiscal 2001 to $1.3 million for fiscal 2002. Excluding the gain from the sale of a building, fiscal 2002 operating income was actually $864,000. The decline is attributable to gross profit decreases, due to the sales levels. As a percentage of sales, gross profits increased from 10.0% to 11.9% for fiscal 2002. PROSPECTS Significant restructuring during fiscal 2003 at Aerostar has reduced its costs to allow it to be profitable at reduced sales levels. The addition of a $7.65 million US Army cargo parachute contract and expected reorders RAVEN 2003 ANNUAL REPORT page 21 FINANCIAL REVIEW AND ANALYSIS (Continued) should help sales rebound by more than 20% in fiscal 2004. Start-up costs on this contract have reduced margin gains, but Aerostar expects to be a positive contributor to operating income in fiscal 2004. A long-term plan for reducing further liability exposure has also been established for the hot air balloon market. EXPENSES, INCOME TAXES AND OTHER Corporate expenses decreased $49,000 to $5.1 million in fiscal 2003, while expenses decreased nearly 20% between fiscal 2001 and fiscal 2002. Reductions in personnel and related costs were the principal driver of the decrease. These reductions are substantially complete and expenses are not expected to fall in fiscal 2004. Interest expense declined $66,000 to $63,000 for fiscal 2003 due to minimal debt. Expense for fiscal 2002 was 50% less than fiscal 2001 as a result of the reduction in debt levels resulting from the prepayment of notes. Other income is principally composed of interest income, which declined $352,000 due to lower cash balances and interest rates. Interest income for fiscal 2002 was $105,000 higher than fiscal 2001 due to higher invested cash balances countered by declining interest rates. The effective tax rate for fiscal 2003 of 35.2% was higher than the effective rate of 34.8% for fiscal 2002 due to slightly higher state taxes and nondeductible expenses. The fiscal 2001 effective tax rate of 41.3% included the impact of nondeductible goodwill write-offs. The company's effective income tax rate in fiscal 2004 is expected to increase as the impact of graduated rates is reduced by higher taxable income. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes cash provided by (used in) the company's business activities for the past three fiscal years:

Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Operating activities ........... $ 12,735 $ 18,496 $ 9,441 Investing activities ........... (9,166) (13,152) 9,752 Financing activities ........... (5,830) (8,539) (14,227)

(GRAPH)

CASH FLOWS FROM OPERATIONS (dollars in millions) 1998 9.27 1999 8.33 2000 10.38 2001 9.44 2002 18.50 2003 12.74

OPERATING ACTIVITIES AND CASH POSITION Cash flow from operations for fiscal 2003 were $12.7 million as compared to an exceptional $18.5 million for fiscal 2002, and the company continues to maintain a strong cash position. Accounts receivable and inventory were the principal drivers in the decrease. Fiscal 2002 cash flows included accounts receivable and inventory liquidation from the closed Plastic Tank Division, as well as higher overall turnover. Inventory levels in fiscal 2003 are higher to take advantage of low material costs and a build-up for future shipments under a chemical injection systems order. Cash flows in fiscal 2002 were particularly strong, increasing $9.1 million over fiscal 2001. Inventory declines, accounts receivable liquidation and better accounts receivable turnover rates were the principal drivers of the increase. Total cash, cash equivalents and short-term investments at January 31, 2003, were $9.2 million, as compared to $7.5 million at January 31, 2002, and $10.7 million at January 31, 2001. Cash and investments at January 31, 2003, increased due mainly to a decrease in cash utilized for investing activities, principally for acquisitions. The cash position at January 31, 2002, reflects the use of cash during the year for acquisitions and increased capital expenditures. The company expects that current cash and short-term investments, combined with continued positive operating cash flows will continue to be sufficient to fund day-to-day operations. INVESTING ACTIVITIES The decrease in cash used for investing activities highlights the absence of acquisitions in fiscal 2003. Cash of $8.7 million was expended in fiscal 2002 to purchase page 22 RAVEN 2003 ANNUAL REPORT Starlink and System Integrators. No acquisitions were completed during fiscal 2003. Partially offsetting this decrease was an increase in investments and capital expenditures. Excess cash of $4.0 million was used to purchase short-term investments during fiscal 2003. The Engineered Films Division completed construction of a new $4.4 million extrusion line and additional warehouse space in fiscal 2003. Cash flows from investing activities in fiscal 2002 declined $22.9 million as compared to fiscal 2001. The decrease is a result of the use of cash for acquisitions during fiscal 2002 and $12.8 million of proceeds received in fiscal 2001 from the sale of businesses and assets. (GRAPH)

BOOK VALUE PER SHARE (dollars) 1998 4.25 1999 4.42 2000 4.64 2001 5.06 2002 5.65 2003 6.42

FINANCING ACTIVITIES Cash used in financing activities declined $2.7 million over fiscal 2002. This reflects the prepayment in fiscal 2002 of a $3.0 million outstanding long-term note, leaving the company nearly debt-free. The company's main financing activities continue to be the payment of dividends and the repurchase of company stock. Purchases of 251,230 shares at an average price of $13.23 were made during the year and the dividend was increased 9.8% over fiscal 2002. Financing activities in fiscal 2002 consumed $5.7 million less in cash over fiscal 2001. This was due principally to a decline in stock repurchases. In fiscal 2002, 346,618 shares were repurchased at an average price of $8.22, while 2.3 million shares at an average price of $4.74 were repurchased in fiscal 2001. As anticipated, short-term borrowing needs were minimal in fiscal 2003. Aerostar drew on its short-term line of credit with a maximum borrowing of $575,000 and an average daily borrowing of $227,000. There were no borrowings outstanding at January 31, 2003. The remaining debt of the company consists of capital leases assumed in the acquisition of Starlink and System Integrators which are scheduled to be repaid by fiscal 2006. Contractual obligations consist of capital leases and non-cancelable operating leases for facilities and equipment, deferred acquisition payments related to the Starlink and System Integrators acquisitions and unconditional purchase obligations primarily for raw materials. The letters of credit have been issued for worker's compensation insurance obligations that remain from the period of self-insurance (February 1, 2001 and prior.) In the event the bank chooses not to renew the line of credit, the letters of credit would cease and alternative methods of support for the insurance obligations would be necessary that would be more expensive and require additional cash outlays. The company believes the chances of such an event are remote. A summary of the obligations and commitments at January 31, 2003, for the next five years is shown below.

FY 2005- FY 2007- Dollars in thousands Total FY 2004 FY 2006 FY 2008 ------------ ------------ ------------ ------------ Contractual Obligations: Line of Credit(a) ............................ $ -- $ -- $ -- $ -- Capital Leases ............................... 307 141 166 -- Deferred Acquisition Obligations ............. 350 -- 350 -- Operating Leases ............................. 1,532 338 604 590 Unconditional Purchase Obligations ........... 14,953 14,953 -- -- ------------ ------------ ------------ ------------ 17,142 15,432 1,120 590 Other Commercial Commitments: Letters of Credit ............................ 1,582 1,582 -- -- ------------ ------------ ------------ ------------ $ 18,724 $ 17,014 $ 1,120 $ 590 ============ ============ ============ ============

(a) $7.0 million line bears interest at 4.25% and expires July 2003. CAPITAL REQUIREMENTS The company maintains an excellent financial condition and capacity for growth. Management continues to look for opportunities to expand its core businesses through acquisitions or internal growth. The company has the capacity to assume additional financing and will do so if the appropriate strategic opportunity presents itself. Capital expenditures for fiscal 2004 are expected to be less than depreciation of approximately $4.0 million. RAVEN 2003 ANNUAL REPORT page 23 FINANCIAL REVIEW AND ANALYSIS (Continued) Stock repurchases are anticipated to continue as a means to return additional cash to shareholders and increase the leverage of the company's balance sheet. The cash generated from operations and the availability under existing credit facilities is anticipated to be sufficient to fund these initiatives. (GRAPH)

RETURN ON AVERAGE ASSETS (percent) 1998 9.9 1999 7.4 2000 8.6 2001 9.2 2002 13.3 2003 15.9

CRITICAL ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS CRITICAL ACCOUNTING POLICIES Critical accounting policies for the company are those policies that require the application of judgment when valuing assets and liabilities on the company's balance sheet. The company, other than utilizing operating leases, does not enter into off balance sheet financing or derivatives. The company's most difficult accounting decision is determining inventory value at the lower of cost or market. Typically, when a product reaches the end of its life cycle, inventory value declines slowly or the product has alternative uses. Management uses its computerized manufacturing resources planning data to help determine if inventory is slow moving or has become obsolete due to an engineering change. The company has been unable to develop a mathematical model to predict obsolescence, but closely reviews items that have balances in excess of the prior year's requirements or that have been dropped from production requirements. Despite these reviews, technological or strategic decisions, made by management or the company's customers, may result in unexpected excess material. In the Electronic Systems Division, the company typically has recourse to customers for obsolete or excess material. In every operating unit of the company, management must manage obsolete inventory risk. The accounting judgment ultimately made is an evaluation of the success that division management will have in controlling inventory risk and mitigating the impact of obsolescence when it does occur. Determining the level of the allowance for doubtful accounts, warranty and self-insurance accruals represent management's best estimate of future events. Historical levels of activity or actuarial assistance may be used in certain circumstances, but knowledge of the current financial climate or the impact of a new product on these accruals always tempers evaluation of the historical data. In fiscal 2002, the significance of the intangible assets associated with the Starlink acquisition led management to obtain the assistance of an outside specialist to determine the values of the intangible assets acquired. This valuation required management to estimate future revenues and cash flows associated with various intangibles outlined by Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations." The specialist provided a comprehensive report to management, outlining the value of the intangible assets and their estimated useful lives. These intangibles and other intangibles must be evaluated at least annually hereafter to determine if any impairment exists. This will require evaluation of current performance and assumptions and estimates concerning future revenues and cash flows at the segment level. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" in January 2003. The Statement provided alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation. It also amended the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." The company announced in fiscal year 2003 it would volun- page 24 RAVEN 2003 ANNUAL REPORT (GRAPH)

OPERATING INCOME MARGIN (percent) 1998 6.9 1999 6.2 2000 7.0 2001 8.1 2002 11.1 2003 14.1

tarily begin expensing stock options and therefore began applying SFAS No. 123, and subsequently SFAS No. 148, utilizing the modified prospective method. Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS No. 34)" was issued in November 2002. This Interpretation addresses the disclosures to be made by a guarantor about its obligations and clarifies the requirements related to the initial recognition and measurement of a liability by a guarantor. This includes product warranties, which are subject to the disclosure requirements of the Interpretation. The recognition and measurement provisions are effected for fiscal periods ending after December 31, 2002, and the disclosure requirements for fiscal periods ending after December 15, 2002. The company has adopted the disclosure requirement provisions of the Interpretation for fiscal 2003 with no material impact on the company's consolidated financial statements. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued in June 2002. Under this Statement, the liabilities for costs associated with exit or disposal activities can only be recognized when incurred rather than at the date of a commitment to an exit or disposal plan. While SFAS No. 146 is required for exit or disposal activities initiated after December 31, 2002, the company chose to adopt the Statement early and applied it to any exit or disposal activities initiated after July 31, 2002. SFAS No. 142, "Goodwill and Other Intangible Assets" establishes new guidance on accounting for goodwill and intangible assets after a business combination is completed (i.e., post acquisition accounting). Significant changes are required by SFAS No. 142 including (1) discontinued amortization of goodwill and indefinite-lived intangible assets, (2) at least annual impairment testing of goodwill and indefinite-lived assets, and (3) amortization period of intangible assets with finite lives will no longer be limited to 40 years. The non-amortization and amortization provisions of the Statement were adopted, as required, for all acquisitions closed after June 30, 2001, and to the company in its entirety on February 1, 2002. No impairments have been recognized and the discontinuance of amortization has had a minimal impact on the financial statements. RECENTLY PASSED LEGISLATION On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Act"), which immediately impacts Securities and Exchange Commission registrants, public accounting firms, lawyers and securities analysts. This legislation is one of the most comprehensive since the passage of the Securities Acts of 1933 and 1934. It has far reaching effects on the standards of integrity for corporate management, boards of directors and executive management. Additional disclosures and procedures will be required. The company does not expect any material adverse effect as a result of the passage of this legislation; however, the full scope of the Act has not been determined. The Act provides for additional regulations and requirements of publicly traded companies, some of which have yet to be issued. RAVEN 2003 ANNUAL REPORT page 25 MONTHLY CLOSING STOCK PRICE & VOLUME (GRAPH)

SHARES TRADED CLOSING STOCK PRICE (in thousands) (in dollars) FEB02 423.20 11.025 MAR02 351.80 11.795 APR02 253.80 11.875 MAY02 354.00 13.325 JUN02 450.20 13.500 JUL02 260.20 11.625 AUG02 331.40 13.500 SEP02 273.68 13.350 OCT02 240.50 13.280 NOV02 259.94 16.160 DEC02 348.65 17.224 JAN03 370.53 15.811

QUARTERLY INFORMATION (Unaudited)

Dollars in thousands, Net Income Common Stock Cash except per-share Net Gross Operating Pretax Net Per Share(a)(b) Market Price(b) Dividends(b) data Sales Profit Income Income Income Basic Diluted High Low Per Share -------- -------- -------- -------- -------- ------ ------- ------ ------ ------------ FISCAL 2003 First Quarter ... $ 30,974 $ 8,150 $ 5,304 $ 5,320 $ 3,458 $ 0.38 $ 0.37 $12.18 $ 8.75 $ 0.070 Second Quarter .. 29,692 5,996 3,532 3,569 2,320 0.25 0.25 14.43 10.75 0.070 Third Quarter ... 31,423 7,332 4,872 4,939 3,210 0.35 0.34 14.00 11.65 0.070 Fourth Quarter .. 28,814 6,037 3,357 3,426 2,197 0.24 0.24 18.40 13.40 0.070 -------- -------- -------- -------- -------- ------ ------ ------ ------ -------- Total Year ...... $120,903 $ 27,515 $ 17,065 $ 17,254 $ 11,185 $ 1.22 $ 1.20 $18.40 $ 8.75 $ 0.280 ======== ======== ======== ======== ======== ====== ====== ====== ====== ======== FISCAL 2002 First Quarter ... $ 30,972 $ 6,239 $ 3,294 $ 3,415 $ 2,209 $ 0.23 $ 0.23 $ 6.42 $ 6.04 $ 0.060 Second Quarter .. 28,157 5,299 3,020 3,157 2,043 0.22 0.22 9.09 6.34 0.065 Third Quarter ... 28,780 6,391 3,762 3,879 2,510 0.27 0.27 9.06 7.23 0.065 Fourth Quarter .. 30,606 5,922(c) 3,099(c) 3,114(c) 2,085(c) 0.23 0.22 11.75 8.55 0.065 -------- -------- -------- -------- -------- ------ ------ ------ ------ -------- Total Year ...... $118,515 $ 23,851 $ 13,175 $ 13,565 $ 8,847 $ 0.95 $ 0.93 $11.75 $ 6.04 $ 0.255 ======== ======== ======== ======== ======== ====== ====== ====== ====== ======== FISCAL 2001 First Quarter ... $ 32,168 $ 6,159 $ 2,599 $ 2,621 $ 1,677 $ 0.15 $ 0.15 $ 5.00 $ 3.75 $ 0.057 Second Quarter .. 33,178 5,073 1,851 1,832 1,173 0.11 0.11 5.00 4.33 0.057 Third Quarter ... 35,210 3,734 3,576(d) 3,592(d) 1,663(d) 0.17 0.17 6.95 4.83 0.060 Fourth Quarter .. 32,302 6,157 2,722(d) 2,879(d) 1,898(d) 0.20 0.20 6.13 5.17 0.060 -------- -------- -------- -------- -------- ------ ------ ------ ------ -------- Total Year ...... $132,858 $ 21,123 $ 10,748 $ 10,924 $ 6,411 $ 0.62 $ 0.62 $ 6.95 $ 3.75 $ 0.233 ======== ======== ======== ======== ======== ====== ====== ====== ====== ========

(a) Net income per share is computed discretely by quarter and may not add to the full year. (b) All per-share and market price data reflect the January 2003 two-for-one stock split and the July 2001 three-for-two stock split. (c) Includes a pretax $550,000 ($350,000 net of tax) acquired in-process research and development charge (See Note 4). (d) Includes a $3.1 million third-quarter pretax gain ($1.4 million net of tax) and a $393,000 fourth-quarter pretax gain ($253,000 net of tax) on the sale of the company's Plastic Tank Division and certain sewing plants. Also includes a $2.2 million third-quarter pretax charge ($1.4 million net of tax) and a $767,000 fourth-quarter pretax charge ($493,000 net of tax) for exiting certain business activities (See Note 5). page 26 RAVEN 2003 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS

As of January 31 --------------------------------- Dollars in thousands, except per-share data 2003 2002 2001 --------- --------- --------- ASSETS Current assets Cash and cash equivalents ........................................ $ 5,217 $ 7,478 $ 10,673 Short-term investments ........................................... 4,000 -- -- Accounts receivable, net ......................................... 16,468 16,427 19,274 Inventories, net ................................................. 21,366 19,082 18,983 Deferred income taxes ............................................ 1,493 1,927 2,516 Prepaid expenses and other current assets ........................ 807 394 371 --------- --------- --------- Total current assets ......................................... 49,351 45,308 51,817 Property, plant and equipment, net ................................. 16,455 14,059 11,647 Goodwill ........................................................... 5,933 5,863 642 Other assets, net .................................................. 1,077 2,606 1,550 --------- --------- --------- Total assets ................................................. $ 72,816 $ 67,836 $ 65,656 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt ................................ $ 119 $ 127 $ 1,012 Accounts payable ................................................. 5,291 4,801 3,490 Accrued liabilities .............................................. 7,157 8,179 8,727 Customer advances ................................................ 600 703 706 --------- --------- --------- Total current liabilities .................................... 13,167 13,810 13,935 Long-term debt, less current portion ............................... 151 280 2,013 Other liabilities, primarily compensation and benefits ............. 1,262 1,714 1,719 Commitments and contingencies Stockholders' equity Common shares, par value $1.00 per share Authorized - 100,000,000 Outstanding - 2003: 9,066,362; 2002: 4,605,569; 2001: 3,159,432 58,236 52,032 47,989 --------- --------- --------- Total liabilities and stockholders' equity .................. $ 72,816 $ 67,836 $ 65,656 ========= ========= =========

The accompanying notes are an integral part of the consolidated financial statements. RAVEN 2003 ANNUAL REPORT page 27 CONSOLIDATED STATEMENTS OF INCOME

For the years ended January 31 -------------------------------------------- Dollars in thousands, except per-share data 2003 2002 2001 ------------ ------------ ------------ Net sales .............................................. $ 120,903 $ 118,515 $ 132,858 Cost of goods sold ..................................... 93,388 94,664 111,735 ------------ ------------ ------------ Gross profit ......................................... 27,515 23,851 21,123 Selling, general and administrative expenses ........... 10,629 11,043 13,883 Gain on sales of businesses and assets ................. (179) (367) (3,508) ------------ ------------ ------------ Operating income ..................................... 17,065 13,175 10,748 Interest expense ....................................... (63) (129) (258) Other income, net ...................................... 252 519 434 ------------ ------------ ------------ Income before income taxes ........................... 17,254 13,565 10,924 Income taxes ........................................... 6,069 4,718 4,513 ------------ ------------ ------------ Net income ........................................... $ 11,185 $ 8,847 $ 6,411 ============ ============ ============ Net income per common share - basic ............................................ $ 1.22 $ 0.95 $ 0.62 ============ ============ ============ - diluted .......................................... $ 1.20 $ 0.93 $ 0.62 ============ ============ ============

The accompanying notes are an integral part of the consolidated financial statements. page 28 RAVEN 2003 ANNUAL REPORT CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

Treasury Stock Common Paid-in ---------------------- Retained Dollars in thousands, except per-share data Stock Capital Shares Cost Earnings Total -------- ------- ---------- -------- -------- -------- Balance January 31, 2000 ............................ $ 5,218 $ 3,177 (1,302,007) $(18,112) $ 64,236 $ 54,519 Net and comprehensive income ...................... -- -- -- -- 6,411 6,411 Cash dividends ($.233 per share)(a) ............... -- -- -- -- (2,399) (2,399) Purchase of stock ................................. -- -- (761,800) (10,829) -- (10,829) Employees' stock options exercised ................ 2 42 -- -- -- 44 Employee stock grant .............................. 3 39 -- -- -- 42 Stock option cash bonus forfeitures, net of tax ... -- 201 -- -- -- 201 -------- ------- ---------- -------- -------- -------- Balance January 31, 2001 ............................ 5,223 3,459 (2,063,807) (28,941) 68,248 47,989 Net and comprehensive income ...................... -- -- -- -- 8,847 8,847 Cash dividends ($.255 per share)(a) ............... -- -- -- -- (2,371) (2,371) Three-for-two stock split ......................... 2,612 (2,614) (1,031,903) -- -- (2) Purchase of stock ................................. -- -- (173,309) (2,848) -- (2,848) Purchase and retirement of stock .................. (70) (1,134) -- -- -- (1,204) Employees' stock options exercised ................ 110 1,378 -- -- -- 1,488 Tax benefit from exercise of stock options ........ -- 133 -- -- -- 133 -------- ------- ---------- -------- -------- -------- Balance January 31, 2002 ............................ 7,875 1,222 (3,269,019) (31,789) 74,724 52,032 SFAS No. 123 adoption adjustment .................. -- 478 -- -- -- 478 Net and comprehensive income ...................... -- -- -- -- 11,185 11,185 Cash dividends ($.280 per share)(a) ............... -- -- -- -- (2,563) (2,563) Two-for-one stock split ........................... 7,875 (1,682) (3,269,019) -- (6,193) -- Purchase of stock ................................. -- -- (251,230) (3,324) -- (3,324) Purchase and retirement of stock .................. (70) (835) -- -- -- (905) Employees' stock options exercised ................ 176 917 -- -- -- 1,093 Stock compensation expense ........................ -- 174 -- -- -- 174 Tax benefit from exercise of stock options ........ -- 66 -- -- -- 66 -------- ------- ---------- -------- -------- -------- Balance January 31, 2003 ............................ $ 15,856 $ 340 (6,789,268) $(35,113) $ 77,153 $ 58,236 ======== ======= ========== ======== ======== ========

(a) Restated to reflect July 2001 three-for-two stock split and January 2003 two-for-one stock split. The accompanying notes are an integral part of the consolidated financial statements. RAVEN 2003 ANNUAL REPORT page 29 CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended January 31 -------------------------------------------- Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Cash flows from operating activities Net income .......................................................... $ 11,185 $ 8,847 $ 6,411 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ...................................................... 3,541 2,975 3,394 Amortization ...................................................... 425 170 273 Acquired in-process research and development charge ............... -- 550 -- Provision for losses on accounts receivable, net of recoveries .... (100) 126 552 Gain on sales of businesses and assets ............................ (179) (367) (3,508) Deferred income taxes ............................................. 1,157 586 (684) Stock compensation expense ........................................ 174 76 252 Change in operating assets and liabilities, net of effects from the acquisition and sale of businesses ............................. (3,470) 5,453 2,662 Other operating activities, net ................................... 2 80 89 ------------ ------------ ------------ Net cash provided by operating activities ........................... 12,735 18,496 9,441 ------------ ------------ ------------ Cash flows from investing activities Capital expenditures ................................................ (6,033) (5,094) (3,090) Purchase of short-term investments .................................. (5,000) -- -- Sale of short-term investments ...................................... 1,000 -- -- Acquisition of businesses ........................................... (57) (8,735) -- Sales of businesses and assets, net of cash sold .................... 927 677 12,805 Other investing activities, net ..................................... (3) -- 37 ------------ ------------ ------------ Net cash provided by (used in) investing activities ................. (9,166) (13,152) 9,752 ------------ ------------ ------------ Cash flows from financing activities Proceeds from borrowing under line of credit ........................ 1,025 1,470 3,500 Repayment on borrowing under line of credit ......................... (1,025) (1,470) (3,500) Long-term debt principal payments ................................... (131) (3,602) (1,043) Net proceeds from exercise of stock options ......................... 188 284 44 Dividends paid ...................................................... (2,563) (2,371) (2,399) Purchase of treasury stock .......................................... (3,324) (2,848) (10,829) Other financing activities, net ..................................... -- (2) -- ------------ ------------ ------------ Net cash used in financing activities ............................... (5,830) (8,539) (14,227) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents .................. (2,261) (3,195) 4,966 Cash and cash equivalents at beginning of year ........................ 7,478 10,673 5,707 ------------ ------------ ------------ Cash and cash equivalents at end of year .............................. $ 5,217 $ 7,478 $ 10,673 ============ ============ ============

The accompanying notes are an integral part of the consolidated financial statements. page 30 RAVEN 2003 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Raven Industries, Inc. and its wholly owned subsidiaries (the "company"). The company is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, construction and military/aerospace markets throughout North America. The company operates three divisions (Flow Controls, Engineered Films and Electronic Systems) in addition to a wholly owned subsidiary, Aerostar International, Inc. (Aerostar). The company's Beta Raven subsidiary was liquidated into Raven during fiscal 2003. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of the company's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS The company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash and cash equivalent balances are principally concentrated in a money market fund and savings account with Wells Fargo Bank. SHORT-TERM INVESTMENTS Short-term investments consist of fully insured certificates of deposit with varying maturities, all less than 12 months from the balance sheet date. Rates on the deposits at January 31, 2003, range from 1.80% to 2.15%. INVENTORY VALUATION Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and are depreciated over the estimated useful lives of the assets using accelerated methods. The estimated useful lives used for computing depreciation areas follows: Buildings and improvements........ 7 to 39 years Machinery and equipment........... 3 to 7 years Maintenance and repairs are charged to expense in the year incurred and renewals and betterments are capitalized. The cost and related accumulated depreciation of assets sold or disposed of are removed from the accounts and the resulting gain or loss is reflected in operations. INTANGIBLE ASSETS Intangible assets, primarily comprised of technologies acquired through acquisition, are recorded at cost net of accumulated amortization. Amortization is computed on a straight-line basis over estimated useful lives ranging from 3 to 20 years. The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in each reporting period. The company assesses the recoverability of long-lived and intangible assets whenever events indicate the carrying amount of the assets may not be recoverable. Any impaired assets are written down to fair value. GOODWILL Goodwill related to acquisitions completed prior to June 30, 2001, was previously amortized over lives ranging from 15 to 20 years. As required by Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," amortization ceased on February 1, 2002, and no goodwill resulting from acquisitions after June 30, 2001, has been amortized. Goodwill is instead evaluated in terms of its fair value at least annually and any impairment recognized at that time. INSURANCE OBLIGATIONS The company employs deductible insurance policies covering workers compensation, employee healthcare and general liability costs. Costs are accrued related to the risk retained under these policies based on claims filed and estimates for claims incurred but not reported. In addition, accruals are maintained to cover the company's partial self-insurance status for worker's compensation prior to February 1, 2001, and healthcare prior to January 1, 2002. RAVEN 2003 ANNUAL REPORT page 31 NOTES TO FINANCIAL STATEMENTS (Continued) WARRANTIES Accruals necessary for product warranties are estimated based upon historical warranty costs and average time elapsed between purchase and returns for each division. Any warranty issues that are unusual in nature are accrued individually. CONTINGENCIES The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. An estimate of the loss on these matters is charged to operations when it is probable that an asset has been impaired or a liability has been incurred, and the amount of the loss can be reasonably estimated. The settlement of such claims cannot be determined at this time; however, management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe that the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows. REVENUE RECOGNITION The company recognizes revenue and records any related returns, allowances and warranty charges only after shipment of a product. The company does not typically require collateral from its customers. Shipping and handling costs are classified as a component of cost of goods sold. RESEARCH AND DEVELOPMENT Research and development expenditures of $1.3 million in fiscal 2003, $1.4 million in fiscal 2002, and $617,000 in fiscal 2001 were charged to cost of goods sold in the year incurred. Expenditures are principally composed of labor and material costs. Fiscal 2002 expenditures include the $550,000 acquired research and development charge related to the acquisition of Starlink. STOCK-BASED COMPENSATION In fiscal 2003, the company began recording compensation expense related to its stock-based compensation plan using the fair value method permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" under the modified prospective method outlined by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Previous fiscal years' compensation expense was measured under the intrinsic value method. Note 10 to the consolidated financial statements includes significant assumptions and disclosures used in determining the underlying fair value of options and the related compensation cost. INCOME TAXES Deferred income taxes reflect temporary differences between assets and liabilities reported on the company's balance sheet and their tax bases. These differences are measured using enacted tax laws and statutory tax rates applicable to the periods when the temporary differences will impact taxable income. Deferred tax assets are reduced by a valuation allowance to reflect realizable value, when necessary. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities, adjusted for any change in deferred taxes related to the expiration of certain stock options. STOCK SPLITS The company completed a two-for-one stock split effected in the form of a 100% stock dividend on January 15, 2003. Previously, the company completed a three-for-two stock split effected in the form of a 50% stock dividend on July 13, 2001. All per-share information reflects the effect of these stock splits. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" in January 2003. The Statement provided alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation. It also amended the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" to require disclosure in both annual and interim financial statements. The company has chosen to voluntarily begin expensing stock options in fiscal 2003, and has adopted this change in accounting method using the modified prospective method. Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS No. 34)" was issued in November 2002. This Interpretation addresses the disclosures to be made by a guarantor about its obligations. It also clarifies the requirements related to the initial recognition and measurement of a liability by a guarantor. This includes page 32 RAVEN 2003 ANNUAL REPORT product warranties, which are subject to the disclosure requirements of the Interpretation. The company has adopted the disclosure requirement provisions of the Interpretation for fiscal 2003 with no material impact on the company's consolidated financial statements. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued in June 2002. Under this Statement, the liabilities for costs associated with exit or disposal activities can only be recognized when incurred rather than at the date of a commitment to an exit or disposal plan. While SFAS No. 146 is required for exit or disposal activities initiated after December 31, 2002, the company chose to adopt the Statement early and applied it to any exit or disposal activities initiated after July 31, 2002. The impact on the company's consolidated financial statements was not material. NOTE 2. SELECTED BALANCE SHEET INFORMATION Following are the components of selected balance sheet items:

As of January 31 -------------------------------------------- Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Accounts receivable, net: Trade accounts ............................. $ 16,708 $ 16,737 $ 19,674 Allowance for doubtful accounts ............ (240) (310) (400) ------------ ------------ ------------ $ 16,468 $ 16,427 $ 19,274 ============ ============ ============ Inventories, net: Finished goods ............................. $ 5,290 $ 4,509 $ 4,170 In process ................................. 2,275 1,732 2,496 Materials .................................. 13,801 12,841 12,317 ------------ ------------ ------------ $ 21,366 $ 19,082 $ 18,983 ============ ============ ============ Property, plant and equipment, net: Land ....................................... $ 1,091 $ 1,091 $ 1,004 Building and improvements .................. 12,154 10,614 9,357 Machinery and equipment .................... 32,248 29,219 27,517 Accumulated depreciation ................... (29,038) (26,865) (26,231) ------------ ------------ ------------ $ 16,455 $ 14,059 $ 11,647 ============ ============ ============ Other assets, net: Amortizable assets: Purchased technology ..................... $ 1,080 $ 1,080 $ -- Other intangibles ........................ 884 1,116 680 Accumulated amortization ................. (1,027) (705) (617) ------------ ------------ ------------ 937 1,491 63 Deferred income taxes .................... 6 696 693 Other, net ............................... 134 419 794 ------------ ------------ ------------ $ 1,077 $ 2,606 $ 1,550 ============ ============ ============ Accrued liabilities: Salaries and benefits ...................... $ 1,766 $ 2,109 $ 2,163 Vacation ................................... 1,627 1,731 1,711 401(k) contributions ....................... 782 825 979 Self-insurance obligations ................. 1,045 1,627 2,386 Income taxes ............................... 276 144 68 Profit sharing ............................. 406 284 -- Other ...................................... 1,255 1,459 1,420 ------------ ------------ ------------ $ 7,157 $ 8,179 $ 8,727 ============ ============ ============

NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION

For the years ended January 31 -------------------------------------------- Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Changes in operating assets and liabilities, net of effects from the purchase and sale of businesses: Accounts receivable .......................... $ (304) $ 4,510 $ 128 Inventories .................................. (2,671) 1,506 3,552 Prepaid expenses and other assets ............ 15 386 195 Accounts payable ............................. 560 681 (1,501) Accrued and other liabilities ................ (1,153) (1,299) 200 Customer advances ............................ 83 (331) 88 ------------ ------------ ------------ $ (3,470) $ 5,453 $ 2,662 ============ ============ ============ Cash paid during the year for: Interest ....................................... $ 44 $ 149 $ 265 Income taxes ................................... 4,852 3,923 4,983

NOTE 4. ACQUISITIONS On December 5, 2001, the company acquired the operating assets and assumed certain liabilities of Starlink, Incorporated and System Integrators, Inc. The results of operations for these businesses have been included in the consolidated financial statements since that date. The transactions were both accounted for as required by SFAS No. 141, "Business Combinations" which was effective for all acquisitions closed after June 30, 2001. Starlink provides GPS-based guidance systems for the agriculture and marine markets. As a result of the acquisition, the company's ability to integrate new technology into its control systems for precision agriculture has been strengthened. This operation has been combined into the company's Flow Controls Division. The purchase price of Starlink was $7.9 million, including $7.5 million of cash and a payment deferred until December 2004, which was valued at the time of purchase at $399,000. System Integrators is an electronics manufacturing services (EMS) provider and has been combined into the company's Electronic Systems Division. The adjusted purchase price of $1.2 million included a deferred payment valued at purchase of $66,000. RAVEN 2003 ANNUAL REPORT page 33 NOTES TO FINANCIAL STATEMENTS (Continued) The following table summarizes the final fair values allocations of the assets acquired and liabilities assumed at the date of acquisition.

System Dollars in thousands Starlink Integrators ------------ ------------ Current assets ................................... $ 1,731 $ 1,669 Property, plant, and equipment ................... 364 142 Intangible assets ................................ 1,710 210 Goodwill ......................................... 4,940 433 ------------ ------------ Total assets acquired .......................... 8,745 2,454 ------------ ------------ Notes payable .................................... -- 572 Other current liabilities ........................ 618 479 Long-term debt ................................... 253 159 ------------ ------------ Total liabilities assumed ...................... 871 1,210 ------------ ------------ Net assets acquired ............................ $ 7,874 $ 1,244 ============ ============

Of the $1.9 million of acquired intangible assets, $550,000 was assigned to Starlink in-process research and development assets that were written off at the date of acquisition in accordance FASB Interpretation No. 4, "Applicability of SFAS No. 2 to Business Combinations Accounted for by the Purchase Method." Those write-offs were included in cost of goods sold in the Flow Controls segment. The remaining $1.4 million of acquired intangible assets consist primarily of existing GPS technologies and have a weighted-average useful life of approximately three years. Goodwill recognized in these transactions amounted to $5.4 million, and is fully deductible for tax purposes. Goodwill related to Starlink and System Integrators was assigned to the Flow Controls and Electronic Systems segments, respectively. NOTE 5. DIVESTITURES AND OTHER REPOSITIONING ACTIVITIES Effective May 31, 2002, the company sold its Beta Raven Industrial Controls Division. This completed the repositioning of that subsidiary. A pretax gain of $104,000 was recognized on the sale which resulted in cash proceeds of $577,000 and the buyer's assumption of certain liabilities of the company. The company closed an Aerostar sewing plant in the third quarter of fiscal year 2003. The remaining $75,000 of pretax net gain for fiscal 2003 relates to the collection of a previously discounted $350,000 note receivable and adjustment to accruals in relation to businesses sold in prior years. In fiscal 2002, the company recorded a net pretax gain of $367,000 related to the sale of its former Sportswear Division warehouse and the closure of its remaining Plastic Tank Division operations in Tacoma, Washington. The company also incurred $249,000 of pretax charges to reposition the Industrial Controls Division of Beta Raven, including the closing of its Alabama plant. This charge was included in cost of goods sold in the Sold Businesses segment. In fiscal 2001, the company sold substantially all of the assets of its Plastic Tank Division. The proceeds of the sale were $12.3 million including primarily cash and a note receivable and the buyers also assumed certain liabilities of the company. Assets sold included property, plant and equipment (approximately $2.6 million), accounts receivable (approximately $2.5 million) and inventories (approximately $1.3 million). The purchaser assumed liabilities totaling approximately $388,000, primarily accounts payable. In addition, the company recorded approximately $813,000 to accrue for severance, legal, environmental and other costs related to the Plastic Tank Division sale, reflecting the company's best estimate of costs to be incurred in resolving these matters. The Plastic Tank Division sale did not include the company's operations in Tacoma, Washington, which were closed in November 2001. The Tacoma assets, primarily inventories and manufacturing equipment, were written down to their estimated net realizable value requiring a charge of approximately $585,000. The company also recorded a charge of approximately $1.8 million related to the write-off of goodwill associated with the Plastic Tank Division. While the closure occurred in fiscal 2002, the losses were recognized in fiscal 2001 concurrent with the sale. The Plastic Tank Division transactions resulted in a net pretax gain of approximately $3.1 million in fiscal 2001. In fiscal 2001, the company reduced the number of customers in its Electronic Systems Division resulting in write-downs of inventory and accounts receivable, severance and other pretax charges totaling $1.8 million. Other repositioning costs totaled approximately $400,000. Also in fiscal 2001, the company reorganized its former Sewn Products segment, combining its former Sportswear Division with Aerostar. The company incurred pretax charges of $767,000 related to the combination and sold three former Sportswear Division plants for a pretax gain of $393,000. page 34 RAVEN 2003 ANNUAL REPORT NOTE 6. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles are accounted for under SFAS No. 142 as adopted February 1, 2002, for all previously acquired or internally developed intangibles and goodwill, and as of June 30, 2001, for any acquisitions completed after that date. Under the Statement, amortization of goodwill and any indefinite-lived intangibles ceased. All existing goodwill was tested for impairment as of February 1, 2002, on a reporting unit basis. The reporting units are the operating segments with the exception of Engineered Films for which the reporting units are scientific research balloons and flexible films. The fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. No impairment of goodwill was indicated. Excluding goodwill amortization expense and related taxes, net income and net income per share would have been as follows:

As of January 31 ------------------------------------------ Dollars in thousands, except per-share amounts 2003 2002 2001 ------------ ------------ ------------ Net Income: As reported .......................................... $ 11,185 $ 8,847 $ 6,411 Goodwill amortization, net of taxes .................. -- 61 147 ------------ ------------ ------------ As adjusted .......................................... $ 11,185 $ 8,908 $ 6,558 ============ ============ ============ Basic net income per share: As reported .......................................... $ 1.22 $ 0.95 $ 0.62 Goodwill amortization, net of taxes .................. -- 0.01 0.01 ------------ ------------ ------------ As adjusted .......................................... $ 1.22 $ 0.96 $ 0.63 ============ ============ ============ Diluted net income per share: As reported .......................................... $ 1.20 $ 0.93 $ 0.62 Goodwill amortization, net of taxes .................. -- 0.01 0.01 ------------ ------------ ------------ As adjusted .......................................... $ 1.20 $ 0.94 $ 0.63 ============ ============ ============

The effect of discontinuing the amortization of goodwill for the year ended January 31, 2003, was to increase net income by approximately $61,000 or $0.01 for basic and diluted earnings per share. The changes in the carrying amount of goodwill by reporting segment are shown below:

Flow Engineered Electronic Sold Dollars in thousands Controls Films Systems Businesses Total ------------ ------------ ------------ ------------ ------------ Balance at January 31, 2000 ............ $ -- $ 723 $ -- $ 1,856 $ 2,579 Amortization ......................... -- (81) -- (90) (171) Goodwill write-off ................... -- -- -- (1,766) (1,766) ------------ ------------ ------------ ------------ ------------ Balance at January 31, 2001 ............ -- 642 -- -- 642 Goodwill acquired during year ........ 4,947 -- 356 -- 5,303 Amortization ......................... -- (82) -- -- (82) ------------ ------------ ------------ ------------ ------------ Balance at January 31, 2002 ............ 4,947 560 356 -- 5,863 Purchase price adjustments ........... (7) -- 77 -- 70 ------------ ------------ ------------ ------------ ------------ Balance at January 31, 2003 ............ $ 4,940 $ 560 $ 433 $ -- $ 5,933 ============ ============ ============ ============ ============

Estimated future amortization expense based on the current carrying value of amortizable intangible assets for fiscal periods 2004 through 2007 is $418,000, $358,000, $58,000 and $48,000, respectively. NOTE 7. EMPLOYEE RETIREMENT BENEFITS The company has a 401(k) plan covering substantially all employees and contributed 3% of qualified payroll. The company's contribution expense was $715,000, $727,000 and $943,000 for fiscal 2003, 2002 and 2001, respectively. In addition, the company provides postretirement medical and other benefits to officers and certain employees. The company accounts for these benefits in accordance with SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions." The accumulated benefit obligation was approximately $2.2 million, $2.3 million and $2.0 million at January 31, 2003, 2002 and 2001, respectively. Annual expense related to these benefits was $306,000, $482,000 and $436,000 for fiscal 2003, 2002 and 2001, respectively. NOTE 8. INCOME TAXES The reconciliation of income tax computed at the federal statutory rate to the company's effective income tax rate is as follows:

For the years ended January 31 ---------------------------------- 2003 2002 2001 ---- ---- ---- Tax at U.S. federal statutory rate ............ 35.0% 35.0% 35.0% Nondeductible goodwill amortization and write-off .................................... -- 0.1 6.0 State and local income taxes, net of U.S. federal benefit .................. 0.4 0.2 0.7 Nondeductible stock option expense ............ 0.3 -- -- Impact of graduated rates ..................... (0.6) (0.7) (0.9) Other, net .................................... 0.1 0.2 0.5 ---- ---- ---- 35.2% 34.8% 41.3% ==== ==== ====

Significant components of the company's income tax provision are as follows:

For the years ended ------------------------------------------ January 31 Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Income taxes: Currently payable .......... $ 4,912 $ 4,132 $ 5,197 Deferred ................... 1,157 586 (684) ------------ ------------ ------------ $ 6,069 $ 4,718 $ 4,513 ============ ============ ============

RAVEN 2003 ANNUAL REPORT page 35 NOTES TO FINANCIAL STATEMENTS (Continued) Significant components of the company's deferred tax assets and liabilities are as follows:

As of January 31 ------------------------------------------- Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Current deferred tax assets: Accounts receivable ........................................... $ 84 $ 109 $ 98 Inventory valuation ........................................... 194 271 530 Accrued vacation .............................................. 508 525 498 Insurance obligations ......................................... 369 549 782 Other accrued liabilities ..................................... 338 473 608 ------------ ------------ ------------ 1,493 1,927 2,516 ------------ ------------ ------------ Net non-current deferred tax assets (liabilities): Accrued compensation and benefits ............................. 333 417 602 Depreciation and amortization ................................. (380) 244 91 Other ......................................................... 53 35 -- ------------ ------------ ------------ 6 696 693 ------------ ------------ ------------ Net deferred tax asset .......................................... $ 1,499 $ 2,623 $ 3,209 ============ ============ ============

NOTE 9. FINANCING ARRANGEMENTS Long-term debt consisted of the following:

As of January 31 -------------------------------------------- Dollars in thousands 2003 2002 2001 ------------ ------------ ------------ Total long-term debt ......... $ 270 $ 407 $ 3,025 Current portion .............. (119) (127) (1,012) ------------ ------------ ------------ $ 151 $ 280 $ 2,013 ============ ============ ============

Raven has an uncollateralized credit agreement providing a line of credit of $7.0 million which expires in July 2003. Letters of credit totaling $1.6 million have been issued under the line, primarily to support self-insured workers compensation bonding requirements. Aerostar had a $2.0 million secured seasonal line of credit which was terminated January 31, 2003. No borrowings were outstanding as of January 31, 2003, 2002 or 2001, respectively and $5.4 million was available at January 31, 2003. The credit agreement contains certain restrictive covenants that, among other things, require maintenance of certain levels of net worth and working capital. Borrowings on the credit line bore interest as of January 31, 2003, 2002 and 2001 at 4.25%, 4.75% and 8.50%, respectively. The weighted-average interest rates for borrowing under the short-term credit lines in fiscal 2003, 2002, and 2001 were 4.6%, 6.3% and 9.0%, respectively. Wells Fargo Bank South Dakota N.A. provides the company's line of credit. Two members of the company's board of directors are also on the board of directors of Wells Fargo & Co., the parent company of Wells Fargo Bank South Dakota N.A. As described in Note 4, the company assumed $572,000 of short-term notes payable and $412,000 of capital lease obligations in connection with its fiscal 2002 acquisitions. In December 2001, the company paid the notes in full. The capital lease obligations expire through 2006, with annual payments averaging $100,000. The company believes the fair market value of its long-term debt approximates its carrying value based on quoted market prices for similar debt. The company leases certain transportation, equipment and facilities under operating leases. Total rent and lease expense was $446,000, $575,000 and $636,000 in fiscal 2003, 2002 and 2001, respectively. Future minimum lease payments under non-cancelable operating leases total approximately $300,000 annually and all expire by fiscal 2010. NOTE 10. STOCK OPTIONS Officers and key employees of the company have been granted options to purchase stock under the company's 2000 Stock Option and Compensation Plan ("Plan"). The Plan, administered by the board of directors, allows for a fixed cash bonus when options are exercised and may grant either incentive or non-qualified options with terms not to exceed ten years. Options granted after fiscal 1999 do not include a fixed cash bonus. There are 428,900 shares of the company's common stock reserved for issue under the Plan at January 31, 2003. Options are granted with exercise prices not less than market value at the date of grant. These stock options vest over a four-year period and expire after five years. Prior to fiscal year 2003, the company accounted for the Plan under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," which utilized the intrinsic value method to recognize compensation expense. Compensation expense related to the Plan's cash bonus feature was $76,000 page 36 RAVEN 2003 ANNUAL REPORT and $252,000 in fiscal 2002 and 2001, respectively. Effective February 1, 2002, the company adopted the fair value recognition provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." Under the modified prospective method of adoption selected by the company pursuant to the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," compensation cost recognized in fiscal year 2003 is the same as that which would have been recognized had the recognition provisions of SFAS No. 123 been applied from its original effective date. Results for the prior years have not been restated. The effect of adopting the fair value recognition provisions of SFAS No. 123 for the year ended January 31, 2003, was to decrease net income by approximately $154,000 or $0.02 for basic and diluted net income per share. Had the company used the fair value-based method of accounting to measure compensation expense for its stock option plan and charged compensation expense against income over the vesting periods, net income and the related basic and diluted per common share amounts would have been, on a pro forma basis:

For the years ended January 31 ------------------------------------- Dollars in thousands, except per-share amounts 2003 2002 2001 ---------- ---------- ---------- Net income ............................................ $ 11,185 $ 8,847 $ 6,411 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects ........................... -- 50 148 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ................... -- (95) (108) ---------- ---------- ---------- Pro forma net income ................................... $ 11,185 $ 8,802 $ 6,451 ========== ========== ========== Net income per share: Basic - as reported .................................. $ 1.22 $ 0.95 $ 0.62 ========== ========== ========== Basic - pro forma .................................... $ 1.22 $ 0.95 $ 0.62 ========== ========== ========== Diluted - as reported ................................ $ 1.20 $ 0.93 $ 0.62 ========== ========== ========== Diluted - pro forma .................................. $ 1.20 $ 0.93 $ 0.62 ========== ========== ==========

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield of 3.0-4.8%; expected volatility of 20-33%; risk-free interest rate of 4.1-6.2%; and expected lives of 4.5 years. The weighted average grant date fair value of each option granted was $3.70, $1.87 and $1.01 in fiscal 2003, 2002 and 2001, respectively. Information regarding option activity follows:

For the years ended January 31 ------------------------------------------------------------------------------------- 2003 2002 2001 ----------------------- ----------------------- ----------------------- weighted weighted weighted average average average exercise exercise exercise options price options price options price ------- ------------ ------- ------------ ------- ------------ Outstanding at beginning of year .......... 551,304 $ 6.09 701,250 $ 5.98 744,300 $ 6.10 Granted ............ 76,400 14.00 88,400 8.75 155,850 5.33 Exercised .......... (176,946) 6.18 (219,672) 6.77 (7,500) 5.96 Forfeited .......... (14,702) 6.27 (18,674) 6.23 (191,400) 5.94 -------- -------- -------- Outstanding at end of year .......... 436,056 $ 7.43 551,304 $ 6.09 701,250 $ 5.98 ======== ======== ======== Options exercisable at year-end ......... 207,073 $ 5.55 282,322 $ 5.83 376,350 $ 6.49

The following table contains information about stock options outstanding at January 31, 2003:

Remaining Exercise Contractual Number Number Price Life (Years) Outstanding Exercisable -------- ------------ ----------- ----------- $ 5.29 0.75 67,426 67,426 4.75 1.75 59,530 44,647 5.33 2.75 147,300 73,650 8.75 3.75 85,400 21,350 14.00 4.75 76,400 -- ------- ------- 436,056 207,073 ======= =======

NOTE 11. NET INCOME PER SHARE Basic net income per share is computed by dividing net income by the weighted-average common shares outstanding. Common shares outstanding represent common shares issued less shares purchased and held in treasury. Share and per-share data have been restated to reflect the January 15, 2003, two-for-one stock split and the July 13, 2001, three-for-two stock split. Diluted net income per share is computed by dividing net income by the weighted-average common and common equivalent shares outstanding, which includes the shares issuable upon exercise of employee stock options, net of shares assumed purchased with the option proceeds. Certain outstanding options were excluded from the diluted net income per-share calculations because their exercise prices were greater than the average market price of the RAVEN 2003 ANNUAL REPORT page 37 NOTES TO FINANCIAL STATEMENTS (Continued) company's common stock during those periods. For fiscal 2003, 2002 and 2001, 19,100, 22,100 and 640,188 options, respectively, were excluded from the diluted net income per-share calculation. Details of the computation are presented below.

For the years ended January 31 --------------------------------------------- in thousands 2003 2002 2001 ------------- ------------- ------------- Net income ................................... $ 11,185 $ 8,847 $ 6,411 ============= ============= ============= Weighted-average common shares outstanding ................................. 9,151,465 9,310,590 10,333,278 Dilutive impact of stock options ............. 196,360 181,004 4,410 ------------- ------------- ------------- Weighted-average common and common-equivalent shares outstanding ................................. 9,347,825 9,491,594 10,337,688 ============= ============= ============= Net income per common share: - basic .................................... $ 1.22 $ 0.95 $ 0.62 ============= ============= ============= - diluted .................................. $ 1.20 $ 0.93 $ 0.62 ============= ============= =============

NOTE 12. BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION The company's reportable segments are defined by their common technologies, production processes and inventories. These segments reflect the organization of the company into three Raven divisions, each with a Divisional Vice President, and one subsidiary. In the second quarter of fiscal 2002, the electronics manufacturing services operation of Beta Raven was combined with the Electronic Systems segment. The Industrial Controls Division of Beta Raven, sold in fiscal 2003, is included under the caption "Sold Businesses." The company measures the performance of its segments based on their operating income exclusive of administrative and general expenses. Segment information is reported consistent with the company's management reporting structure as required by SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." One customer within the Electronic Systems segment accounted for $12.9 million, or 10.7%, of the company's consolidated sales. No other customers reached the 10% threshold. Market and segment information is presented on pages 5 and 16 of this annual report. NOTE 13. QUARTERLY INFORMATION (UNAUDITED) The company's quarterly information is presented on page 26. page 38 RAVEN 2003 ANNUAL REPORT REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RAVEN INDUSTRIES, INC.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and comprehensive income and of cash flows present fairly, in all material respects, the financial position of Raven Industries, Inc. as of January 31, 2003, 2002 and 2001, and the results of its operations and its cash flow for each of the three years in the period ended January 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Raven Industries, Inc.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Notes 6 and 10 to the consolidated financial statements, the company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets," and Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," on February 1, 2002. /s/ PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota March 7, 2003 RAVEN 2003 ANNUAL REPORT page 39 INVESTOR INFORMATION INDEPENDENT ACCOUNTANTS STOCK QUOTATIONS PRICEWATERHOUSECOOPERS LLP Listed on the Nasdaq Stock Market-- Minneapolis, MN RAVN STOCK TRANSFER AGENT & REGISTRAR ANNUAL MEETING WELLS FARGO BANK MINNESOTA N.A. May 21, 2003, 9:00 a.m. 161 N. Concord Exchange Ramkota Inn P.O. Box 64854 Hwy 38 & I-29 S. St. Paul, MN 55164-0854 Sioux Falls, SD Phone: 1-800-468-9716 Raven Industries, Inc. is an Equal Employment Opportunity Employer with an FORM 10-K approved affirmative action plan. Upon written request, Raven Industries, DIVIDEND REINVESTMENT PLAN Inc.'s form 10-K for the fiscal year ended January 31, 2003, which has been Raven Industries sponsors a Dividend filed with the Securities and Exchange Reinvestment Plan whereby shareholders Commission, is available free of charge. can purchase additional Raven common stock without the payment of any brokerage commission or fees. For more DIRECT INQUIRES TO: information on how you can take RAVEN INDUSTRIES, INC. advantage of this plan, contact your Attention: Investor Relations broker, our stock transfer agent or P.O. Box 5107 write: Investor Relations; P.O. Box Sioux Falls, SD 57117-5107 5107, Sioux Falls, SD 57117-5107 Phone: 605-336-2750 SIC CODES: RAVEN WEBSITE 3672, 3081, 3829 www.ravenind.com FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act provides a "safe harbor" for forward-looking statements. Certain information included in this Annual Report and other materials filed or to be filed by the company with the Securities and Exchange Commission (as well as information included in statements made or to be made by the company) contains statements that are forward-looking. Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there is no assurance that such expectations will be achieved. Such assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to general economic and weather conditions, which could affect certain of the company's primary markets, such as agriculture and construction, or changes in competition, technology or the company's customer base, any of which could adversely impact any of the company's product lines. Design: Creative Design Board, Chicago, IL EX-21 4 c75422exv21.txt EX-21 SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT

NAME OF SUBSIDIARY STATE OF INCORPORATION - ----------------------------------- ---------------------- Aerostar International, Inc. South Dakota GTH, Inc. Minnesota (formerly known as Glasstite, Inc.)

EX-23 5 c75422exv23.txt EX-23 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 33-38614 and 333-41352) of Raven Industries, Inc. of our report dated March 7, 2003 relating to the consolidated financial statements of Raven Industries, Inc. as of January 31, 2003, 2002 and 2001 and for the years then ended, which appears in the 2003 Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 7, 2003 relating to the financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Minneapolis, Minnesota April 23, 2003 EX-99 6 c75422exv99.txt EX-99.1 CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99 CERTIFICATION PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002 In connection with this Annual Report of Raven Industries, Inc. (the "company") on Form 10-K for the year ending January 31, 2003, the undersigned, Ronald M. Moquist and Thomas Iacarella, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the company. April 23, 2003 /S/ Ronald M. Moquist - -------------------- ---------------------------- Date Ronald M. Moquist President (Principal Executive Officer and Director) April 23, 2003 /S/ Thomas Iacarella - -------------------- ----------------------------- Date Thomas Iacarella Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----

EX-13

BUSINESS PROFILE

Founded in 1956, Raven today is an industrial manufacturer with four operating
units. The company has divested lower-performing assets, simplified its product
bases, and enhanced profitability (cash return on invested capital) and
shareholder value-a strategy of "Improve, innovate, grow."




OPERATING UNIT      PRODUCTS                      MARKETS                   COMPETITIVE STRENGTHS        OUTLOOK
- --------------      --------                      -------                   ---------------------        -------
                                                                                             
FLOW CONTROLS       o Computerized control        o Agriculture OEMs and    o Market leader for          o Technology-leading
Sales:                hardware and software         sprayer manufacturers     ag sprayer controls          new products drive
FY03 - $28 million    for precision farming                                                                growth in agriculture
FY02 - $23 million                                o Turf management         o Strong brand recognition
FY01 - $17 million  o Leading developer of          equipment manufacturers   and distribution network   o Integration of new
                      GPS-based control                                                                    GPS applications
                      systems                     o Departments of          o New Precision                spurs growth in new
                                                    Transportation (DOTs)     Solutions(TM) product        markets
                    o Precision application                                   line
                      of pesticides, fertilizer                                                          o Environmental concerns
                      and road de-icers                                                                    dictate precision
                                                                                                           application of chemicals

ENGINEERED FILMS    o Rugged reinforced           o Manufactured housing    o Vertically integrated      o Moderate growth as new
Sales:                plastic sheeting              and RVs                   manufacturing capabilities   capacity comes on-line
FY03 - $40 million
FY02 - $40 million                                o Temporary grain covers  o Broad product line         o Price volatility for
FY01 - $40 million                                  for agriculture                                        polyethylene resin
                                                                            o Superior target marketing
                                                  o Temporary building
                                                    construction enclosures o High productivity and
                                                                              low-cost structure
                                                  o Pond lining and
                                                    containment for oil
                                                    exploration

                    o High-altitude               o NASA                    o Sole source in US          o Continued demand
                      research balloons                                       for scientific               for research balloons
                                                  o Universities              balloons

                                                                            o Worldwide reputation
                                                                              for leadership

ELECTRONIC SYSTEMS  o Electronics Manufacturing   o Primarily industrial    o Advanced manufacturing,    o Substantial topline
Sales:                Services (EMS)                OEMs in North America     technology                   growth based on
FY03 - $39 million                                                                                         outsourcing trend
FY02 - $32 million                                o Fortune 500 companies   o Full-service provider,       and new supplier
FY01 - $32 million                                  that contract their       from engineering and         agreements
                                                    low-volume, high-mix      manufacturing to
                                                    production                customer service           o Customer emphasis
                                                                                                           on fewer suppliers
                                                                            o ISO 9001                     with turnkey
                                                                                                           capabilities and
                                                                                                           financial strength

AEROSTAR            o Custom-shaped               o Promotional and         o Best technology in         o Growth in advertising
Sales:                advertising inflatables       advertising markets       advertising inflatables      and promotional markets
FY03 - $13 million                                  in US, including                                        for custom inflatables
FY02 - $16 million  o Specialized sewing            Disney and Macy's       o Reputation for innovation
FY01 - $25 million    applications                                            and quality                o New US Army contract
                                                  o Service uniforms and                                   for cargo parachutes
                                                    defense applications



                         RAVEN 2003 ANNUAL REPORT page 5



ELEVEN-YEAR FINANCIAL SUMMARY




                                                                       For the years ended January 31
Dollars in thousands, except per-share data                     2003              2002                2001
                                                            ------------       ------------       ------------
                                                                                         
OPERATIONS FOR THE YEAR
Net sales
  Ongoing operations ..................................     $    119,589       $    112,018       $    113,360
  Sold businesses(a) ..................................            1,314              6,497             19,498
    Total .............................................          120,903            118,515            132,858
Gross profit ..........................................           27,515             23,851             21,123
Operating income
  Ongoing operations ..................................           16,861             13,788              7,417(b)
  Sold businesses(a) ..................................              204               (613)             3,331(c)
    Total .............................................           17,065             13,175             10,748
Income before income taxes ............................           17,254             13,565             10,924
Net income ............................................     $     11,185       $      8,847       $      6,411
Net income % of sales .................................              9.3%               7.5%               4.8%
Net income % of beginning equity ......................             21.5%              18.4%              11.8%
Cash dividends ........................................     $      2,563       $      2,371       $      2,399
FINANCIAL POSITION
Current assets ........................................     $     49,351       $     45,308       $     51,817
Current liabilities ...................................           13,167             13,810             13,935
Working capital .......................................     $     36,184       $     31,498       $     37,882
Current ratio .........................................             3.75               3.28               3.72
Property, plant and equipment .........................     $     16,455       $     14,059       $     11,647
Total assets ..........................................           72,816             67,836             65,656
Long-term debt, less current portion ..................              151                280              2,013
Shareholders' equity ..................................     $     58,236       $     52,032       $     47,989
Long-term debt / total capitalization .................              0.3%               0.5%               4.0%
Inventory turnover (CGS / year-end inventory) .........              4.4                5.0                5.9
CASH FLOWS PROVIDED BY (USED IN)
Operating activities ..................................     $     12,735       $     18,496       $      9,441
Investing activities ..................................           (9,166)           (13,152)             9,752
Financing activities ..................................           (5,830)            (8,539)           (14,227)
Increase (decrease) in cash ...........................           (2,261)            (3,195)             4,966
COMMON STOCK DATA
Net income per share - basic ..........................     $       1.22       $       0.95       $       0.62
Net income per share - diluted ........................             1.20               0.93               0.62
Cash dividends per share ..............................             0.28               0.25               0.23
Book value per share ..................................             6.42               5.65               5.06
Stock price range during year
  High ................................................     $      18.40       $      11.75       $       6.95
  Low .................................................     $       8.75       $       6.04       $       3.75
Shares outstanding, year-end (in thousands) ...........            9,066              9,212              9,478
Number of shareholders, year-end ......................            2,781              2,387              2,460
OTHER DATA
Price / earnings ratio ................................             13.2               12.1                9.8
Average number of employees ...........................              758                838              1,043
Sales per employee ....................................     $        160       $        141       $        127
Backlog ...............................................     $     42,826       $     33,834       $     38,239


All per-share, shares outstanding and market price data reflect the January 2003
two-for-one stock split and the July 2001 three-for-two stock split. All other
figures are as reported.

Price / earnings ratio is determined as closing stock price divided by net
income per share-diluted.

(a)  During the second quarter of fiscal 2003, the company sold its Beta Raven
     Industrial Controls Division. In the third quarter of fiscal 2001, the
     company sold its Plastic Tank Division. In fiscal 2000 and 1996, the
     company sold its Glasstite and Astoria businesses, respectively.

(b)  Includes $2.6 million of business repositioning charges, net of gains on
     plant sales, primarily in Electronic Systems Division and Aerostar (See
     Note 5).



                        page 14 RAVEN 2003 ANNUAL REPORT










                                            For the years ended January 31
- -----------------------------------------------------------------------------------------------------------------
 2000(g)         1999(g)       1998(g)          1997(g)      1996(g)        1995(g)         1994(g)      1993(g)
- ---------       ---------     ---------       ---------     ---------     ---------       ---------     ---------
                                                                                   
$ 107,862       $ 108,408     $ 104,489       $ 101,869     $  84,379     $  87,458       $  88,608     $  85,181
   42,523          46,798        47,679          39,576        38,010        35,889          34,279        27,367
  150,385         155,206       152,168         141,445       122,389       123,347         122,887       112,548
   24,217          24,441        24,929          25,287        22,660        23,968          23,574        21,048

    7,971           8,220         9,555           9,321         7,692        10,470           8,054         7,758
    2,606(d)        1,453         1,007           2,650         1,869           466(f)        2,386         1,388
   10,577           9,673        10,562          11,971         9,561        10,936          10,440         9,146
   10,503           9,649        12,540(e)       11,915         9,566         9,372          10,638         9,182
$   6,762       $   6,182     $   8,062       $   7,688     $   6,197     $   6,088       $   6,954     $   6,030
      4.5%            4.0%          5.3%            5.4%          5.1%          4.9%            5.7%          5.4%
     10.9%           10.0%         14.2%           15.6%         13.6%         14.8%           19.6%         19.7%
$   2,895       $   2,944     $   2,709       $   2,367     $   2,130     $   1,843       $   1,545     $   1,316

$  55,371       $  60,279     $  57,285       $  56,696     $  45,695     $  43,795       $  45,037     $  42,476
   14,702          15,128        17,816          20,016        14,771        15,078          16,088        15,253
$  40,669       $  45,151     $  39,469       $  36,680     $  30,924     $  28,717       $  28,949     $  27,223
     3.77            3.98          3.22            2.83          3.09          2.90            2.80          2.78
$  15,068       $  19,563     $  19,817       $  18,142     $  18,069     $  18,570       $  13,371     $  10,457
   74,047          83,657        82,066          80,662        67,553        65,636          60,597        54,813
    3,024           4,572         1,128           3,181         2,816         4,179           2,539         3,224
$  54,519       $  62,293     $  61,563       $  56,729     $  49,151     $  45,526       $  41,100     $  35,530
      5.3%            6.8%          1.8%            5.3%          5.4%          8.4%            5.8%          8.3%
      5.2             4.9           4.8             4.5           4.1           4.4             4.4           3.8

$  10,375       $   8,326     $   9,274       $   7,088     $   9,687     $   7,452       $  11,257     $   3,475
    6,323          (3,127)       (4,979)         (5,090)       (4,158)      (10,000)         (5,908)       (3,107)
  (16,326)         (2,714)       (4,884)         (2,363)       (4,029)          406          (2,042)       (1,659)
      372           2,485          (589)           (365)        1,500        (2,142)          3,307        (1,291)

$    0.52       $    0.43     $    0.55       $    0.54     $    0.44     $    0.43       $    0.49     $    0.43
     0.52            0.43          0.55            0.54          0.43          0.42            0.48          0.42
     0.22            0.21          0.19            0.17          0.15          0.13            0.11          0.09
     4.64            4.42          4.25            3.91          3.47          3.20            2.92          2.53

$    6.08       $    7.58     $    8.58       $    7.83     $    6.92     $    8.17       $    7.83     $    7.17
$    4.50       $    5.08     $    6.54       $    5.33     $    5.17     $    6.00       $    6.00     $    4.61
   11,748          14,082        14,472          14,508        14,148        14,205          14,082        14,028
    2,749           3,014         3,221           3,011         3,190         3,031           3,173         3,147

      9.2            12.4          13.7            13.9          14.9          14.9            13.9          11.8
    1,320           1,445         1,511           1,387         1,368         1,414           1,435         1,316
$     114       $     107     $     101       $     102     $      89     $      87       $      86     $      86
$  44,935       $  47,431     $  47,154       $  38,102     $  32,539     $  29,661       $  36,403     $  49,033


(c)  Includes the $3.1 million pretax gain ($1.4 million net of tax) on the sale
     of the company's Plastic Tank Division (See Note 5).

(d)  Includes the $1.2 million pretax gain ($764,000 net of tax) on the sale of
     assets of the company's Glasstite subsidiary.

(e)  Includes the $1.8 million pretax gain ($1.2 million net of tax) on sale of
     an investment in an affiliate.

(f)  Includes $1.8 million of business repositioning charges at the company's
     Beta Raven Industrial Controls Division.

(g)  Amounts for these years are unaudited.



                        RAVEN 2003 ANNUAL REPORT page 15






BUSINESS SEGMENTS



                                                                  For the years ended January 31
                                      ---------------------------------------------------------------------------------------
Dollars in thousands                    2003         2002              2001             2000(h)         1999(h)      1998(h)
                                      ---------    ---------         ---------         ---------       ---------    ---------
                                                                                                  
FLOW CONTROLS DIVISION
Sales .............................   $  28,496    $  23,178         $  16,758         $  13,520       $  15,311    $  16,852
Operating income ..................       6,897        5,509(a)          3,985             2,873           2,810        3,829
Assets ............................      21,483       20,313             9,578             7,096           8,553       10,679
Capital expenditures ..............         729          677               327               202             501          210
Depreciation & amortization .......         948          443               353               351             329          322

ENGINEERED FILMS DIVISION
Sales .............................   $  39,975    $  40,280         $  40,004         $  35,889       $  32,514    $  28,322
Operating income ..................      11,447        9,886             8,810             7,464           5,836        3,336
Assets ............................      18,507       14,847            13,031            13,472          13,177       13,504
Capital expenditures ..............       4,111        3,182               674               792             566        1,511
Depreciation & amortization .......       1,495        1,085             1,033             1,075           1,136        1,140

ELECTRONIC SYSTEMS DIVISION
Sales .............................   $  38,589    $  32,289         $  32,039         $  30,176       $  24,958    $  23,968
Operating income (loss) ...........       4,022        2,264              (542)(c)         1,632           2,322        3,319
Assets ............................      14,528       13,910            15,359            18,846          15,591       12,994
Capital expenditures ..............         395          774             1,492             1,168           1,399        1,614
Depreciation & amortization .......         978        1,101             1,089             1,032             959          834

AEROSTAR
Sales .............................   $  12,529    $  16,271         $  24,559         $  28,277       $  35,625    $  35,347
Operating income (loss) ...........        (405)       1,278(b)          1,583             2,092           2,724        4,300
Assets ............................       5,769        5,994             7,361            11,307          14,446       14,065
Capital expenditures ..............         539          252               122               117             308          556
Depreciation & amortization .......         354          263               280               372             464          489

SOLD BUSINESSES
Sales .............................   $   1,314    $   6,497         $  19,498         $  42,523       $  46,798    $  47,679
Operating income (loss)(f) ........         204         (613)            3,331(d)          2,606(e)        1,453        1,007
Assets ............................          --        1,102             4,805            13,475          22,048       22,693
Capital expenditures ..............           7           52               246             1,172           1,585        2,217
Depreciation & amortization .......          20           76               718             1,831           2,004        2,136

CORPORATE & OTHER(g)
Operating (loss) ..................   $  (5,100)   $  (5,149)        $  (6,419)        $  (6,090)      $  (5,472)   $  (5,229)
Assets ............................      12,529       11,670            15,522             9,851           9,842        8,131
Capital expenditures ..............         252          157               229               188             247          433
Depreciation & amortization .......         171          177               194               223             241          216

TOTAL COMPANY
Sales .............................   $ 120,903    $ 118,515         $ 132,858         $ 150,385       $ 155,206    $ 152,168
Operating income ..................      17,065       13,175(a,b)       10,748(c,d)       10,577(e)        9,673       10,562
Assets ............................      72,816       67,836            65,656            74,047          83,657       82,066
Capital expenditures ..............       6,033        5,094             3,090             3,639           4,606        6,541
Depreciation & amortization .......       3,966        3,145             3,667             4,884           5,133        5,137


(a)  Includes a $550,000 in-process research and development charge, related to
     the Starlink acquisition.

(b)  Includes $414,000 of pretax gains on plant sales.

(c)  Includes $1.8 million of business repositioning charges in the Electronic
     Systems Division and $2.6 million for the total company (See Note 5).

(d)  Includes a $3.1 million pretax gain on the sale of the company's Plastic
     Tank Division (See Note 5).

(e)  Includes a $1.2 million pretax gain on the sale of the company's Glasstite
     business.

(f)  Operating income for sold businesses includes administrative expenses
     directly attributable to the sold businesses.

(g)  Operating loss consists of administrative expenses -- assets are
     principally cash, investments, deferred taxes and notes receivable.

(h)  Amounts for 2000, 1999 and 1998 are unaudited.




                        page 16 RAVEN 2003 ANNUAL REPORT




FINANCIAL REVIEW AND ANALYSIS


RESULTS OF OPERATIONS

The following table presents comparative financial performance for the past
three years:




                                                                         For the years ended January 31
                                           ---------------------------------------------------------------------------------------
                                                       2003                          2002                         2001
                                           --------------------------   ---------------------------   ----------------------------
                                                         %        %                    %       %                      %       %
In thousands, except per-share data                    Sales   Change                Sales   Change                 Sales   Change
                                           ---------   -----   ------   ---------    -----   ------   ---------     -----   ------
                                                                                                 
Net sales ..............................   $ 120,903   100.0     +2.0   $ 118,515    100.0    -10.8   $ 132,858     100.0    -11.7
Gross profit ...........................      27,515    22.8    +15.4      23,851     20.1    +12.9      21,123      15.9    -12.8
Operating expenses .....................      10,629     8.8    - 3.7      11,043      9.3    -20.5      13,883      10.4     -6.4
Gain on sale of businesses and assets ..        (179)                        (367)                       (3,508)
Operating income .......................      17,065    14.1    +29.5      13,175     11.1    +22.6      10,748       8.1     +1.6
Income before income taxes .............      17,254    14.3    +27.2      13,565     11.4    +24.2      10,924       8.2     +4.0
Income taxes ...........................       6,069     5.0    +28.6       4,718      4.0     +4.5       4,513       3.4    +20.6
Net income .............................   $  11,185     9.3    +26.4   $   8,847      7.5    +38.0   $   6,411       4.8     -5.2
Net income per share - diluted .........   $    1.20            +29.0   $    0.93             +50.0   $    0.62              +20.4
Effective income tax rate ..............        35.2%            +1.1        34.8%            -15.8        41.3%             +16.0




CONSOLIDATED OPERATING RESULTS

The company's record performance in fiscal 2003 was attributable to the December
2001 acquisition in the Flow Controls Division, operating improvements and an
acquisition in the Electronic Systems Division and strong gross profit rates in
the Engineered Films Division. Net income rose $2.3 million to $11.2 million
over fiscal 2002, a record $1.20 per diluted share. Quarterly dividends per
share were increased from $.065 to $.070 per share and stock repurchases
continued, delivering more cash back to shareholders. The company also effected
a two-for-one stock split in January 2003. Fiscal 2002 was an equally impressive
year for the company with net income growth of 38.0% over fiscal 2001 to $8.8
million, or $0.93 per diluted share, in addition to a three-for-two stock split.

The following discussion highlights the consolidated operating results. Results
at the divisional and subsidiary level are more fully explained in the segment
discussions that follow. In addition, the company has undertaken a number of
divestitures and repositioning activities in the past three fiscal years which
are more fully explained under "Divestitures and Repositioning Activities."

FISCAL 2003 VERSUS FISCAL 2002

Net sales of $120.9 million grew 2.0% over fiscal 2002 while operating income
increased 29.5% to $17.1 million as compared to fiscal 2002. Gross profit
increases and minimal growth in selling and general expenses, resulted in the
operating income gains. Realizing the benefits of the Starlink acquisition, Flow
Controls net sales increased $5.3 million from fiscal 2002 and gross profit
increased $1.4 million. Electronic Systems net sales of $38.6 million grew 19.5%
over fiscal 2002 while gross profits grew $2.0 million, or 70.9%, due to the
acquisition of System Integrators and improved operating efficiencies.
Engineered Films net sales declined slightly, but gross profit grew $1.7 million
from lower raw material costs and improving product mix. Aerostar net sales
continued to decline, dropping $3.7 million as the subsidiary withdrew from the
cold-weather outerwear business, negatively impacting gross profit by $1.4
million. Net sales from sold businesses declined $5.2 million, with a $103,000
decline in gross profit.

FISCAL 2002 VERSUS FISCAL 2001

Fiscal 2002 net sales of $118.5 million were $14.3 million less than fiscal 2001
net sales while operating income increased $2.4 million over fiscal 2001. Gross
profit growth and lower selling and general expenses were the driving factors
increasing operating income, partially offset by a $3.1 million decrease in gain
on sales of businesses and assets. Growth within the Flow Controls Division from
new products increased sales $6.4 million while improving gross profits $1.6
million. Countering that growth was an $8.3 million decline in Aerostar net
sales and a $520,000 decline in gross profit from a planned reduction in
outerwear sales. Net sales from the other divisions had little growth, but
Electronic Systems grew gross profits $829,000 exclusive of repositioning
charges, from improved processes and a stronger customer base while Engineered
Films added $1.2 million in gross profit through favorable material costs and
shifts in product mix. Included in fiscal 2002 and 2001 net sales was $6.5
million and $19.5 million, respectively, attributable to sold businesses (see
following discussion under "Divestitures and Other Repositioning Activities").
Gross profit from sold businesses contributed $331,000 in fiscal 2002 compared
to $2.3 million in fiscal 2001.


                        RAVEN 2003 ANNUAL REPORT page 17




FINANCIAL REVIEW AND ANALYSIS (Continued)


FISCAL 2003 PERFORMANCE MEASURES

Record net income reached 9.3% of net sales for fiscal 2003. The company
continued to effectively and efficiently utilize assets to generate profits,
increasing net income as a percent of average assets to 15.9% for fiscal 2003.
As a percentage of beginning equity, net income reached 21.5%, evidence of the
company's commitment to generating value to shareholders. The company also
repurchased 251,230 shares during fiscal 2003 and effected a two-for-one stock
split in January 2003.



                                         2003          2002          2001          2000          1999      1998
                                         ----          ----          ----          ----          ----      ----
                                                                                        
Net income as % of
  Net sales ....................          9.3%          7.5%          4.8%          4.5%          4.0%      5.3%
  Average assets ...............         15.9%         13.3%          9.2%          8.6%          7.4%      9.9%
  Beginning equity .............         21.5%         18.4%         11.8%         10.9%         10.0%     14.2%



DIVESTITURES AND OTHER REPOSITIONING ACTIVITIES

The company has, in the past four years, been closing and downsizing business
units that did not provide proper returns on investment. While the company will
continue to review the utilization of invested capital, this activity was
substantially completed in fiscal 2003.

FISCAL 2003 ACTIVITIES

Effective May 31, 2002, the company sold its Beta Raven Industrial Controls
Division. This completed the disposal and repositioning of that subsidiary. A
pretax gain of $104,000 was recognized on the sale which resulted in cash
proceeds of $577,000 and the buyer's assumption of certain liabilities of the
company. The Beta Raven Industrial Controls Division accounted for net sales of
$1.3 million and gross profit of $228,000 during fiscal 2003. During the third
quarter of fiscal 2003, the company also closed an Aerostar sewing plant. The
remaining $75,000 of pretax net gain for fiscal 2003 relates to the collection
of a previously discounted $350,000 note receivable and adjustment to accruals
in relation to businesses sold in prior years.

FISCAL 2002 ACTIVITIES

In fiscal 2002, the company recorded a net pretax gain of $367,000, before
income taxes, related to the sale of its former Sportswear Division warehouse
and the November 2001 closure of its remaining Plastic Tank Division operations
in Tacoma, Washington. The company also incurred $249,000 of pretax charges
(reflected as part of cost of goods sold in the Sold Businesses segment) to
reposition the Industrial Controls Division of Beta Raven, including the closing
of its Alabama plant. Beta Raven's electronic manufacturing services operations
in Missouri were merged into the company's Electronic Systems Division.

FISCAL 2001 ACTIVITIES

In fiscal 2001, the company sold substantially all of the assets of its Plastic
Tank Division. The proceeds of the sale were $12.3 million, consisting primarily
of cash and a note receivable, and the buyers assumed certain liabilities
totaling approximately $388,000 of the company. Assets sold included property,
plant and equipment, accounts receivable and inventories totaling approximately
$6.4 million. In addition, the company recorded approximately $813,000 to accrue
for severance, legal and other costs related to the Plastic Tank Division sale,
reflecting the company's best estimate of costs that it will incur until these
matters are resolved. The sale did not include the company's operations in
Tacoma, Washington, which were closed in November 2001. The Tacoma assets,
primarily inventories and manufacturing equipment, were written down to their
estimated net realizable value requiring a charge of approximately $585,000. The
company also recorded a charge of approximately $1.8 million related to the
write-off of goodwill related to the Plastic Tank Division. As a result of the
above, the company recognized a pretax gain of approximately $3.1 million in
fiscal 2001.

In fiscal 2001, the company reduced the number of customers in its Electronic
Systems Division, resulting in write-downs of inventory and accounts receivable,
severance and other pretax charges totaling $1.8 million. Other repositioning
costs totaled approximately $400,000. Also in fiscal 2001, the company
reorganized its former Sewn Products segment, combining its former Sportswear
Division with Aerostar. The company incurred pretax charges of $767,000 related
to the combination and sold three former Sportswear Division plants for a pretax
gain of $393,000.

SOLD BUSINESSES

Net sales from Sold Businesses in fiscal 2003 were $1.3 million, all
attributable to the Beta Raven Industrial Controls Division. Operating income of
$204,000 included $179,000 of gains on asset sales. Fiscal 2002 net sales of
$6.5 million were attributed to Beta Raven ($3.0 million) and the Plastic Tank
Division ($3.5 million). Operating losses of $613,000 included $47,000 of losses
on asset sales. Fiscal 2001 net sales were $19.5 million, with $16.2 million
from the Plastic Tank Division and $3.3 million from Beta Raven. Operating
income of $3.3 million included $3.1 million of gain on asset sales, principally
from the Plastic Tank Division.


                        page 18 RAVEN 2003 ANNUAL REPORT






SEGMENT ANALYSIS

SALES AND OPERATING INCOME BY SEGMENT




                                      2003                     2002                   2001
                            ---------------------------------------------------------------------
                                             %                        %                       %
Dollars in thousands           amount      change      amount      change      amount      change
                            ------------   ------   ------------   ------   ------------   ------
                                                                         
SALES
Flow Controls ...........   $     28,496    +22.9   $     23,178    +38.3   $     16,758    +23.9
Engineered Films ........         39,975     -0.8         40,280    + 0.7         40,004    +11.5
Electronic Systems ......         38,589    +19.5         32,289    + 0.8         32,039    + 6.2
Aerostar ................         12,529    -23.0         16,271    -33.7         24,559    -13.1
                            ------------            ------------            ------------
Total ongoing ...........        119,589    + 6.8        112,018     -1.2        113,360     +5.1
Sold businesses .........          1,314    -79.8          6,497    -66.7         19,498    -54.1
                            ------------            ------------            ------------
Total ...................   $    120,903    + 2.0   $    118,515    -10.8   $    132,858    -11.7
                            ============            ============            ============





                                     2003                   2002                 2001
                            -----------------------------------------------------------------
                                            %                      %                     %
Dollars in thousands         amount       sales      amount      sales    amount       sales
                            ---------    ------    ---------    ------   ---------    -------
                                                                    
OPERATING
  INCOME (LOSS)
Flow Controls ...........   $   6,897      24.2    $   5,509      23.8   $   3,985       23.8
Engineered Films ........      11,447      28.6        9,886      24.5       8,810       22.0
Electronic Systems ......       4,022      10.4        2,264       7.0        (542)      (1.7)
Aerostar ................        (405)     (3.2)       1,278       7.9       1,583        6.4
Corporate expenses ......      (5,100)                (5,149)               (6,419)
                            ---------              ---------             ---------
Total ongoing ...........      16,861      14.1       13,788      12.3       7,417        6.5
Sold businesses .........         204                   (613)                3,331
                            ---------              ---------             ---------
Total ...................   $  17,065      14.1    $  13,175      11.1   $  10,748        8.1
                            =========              =========             =========


FLOW CONTROLS

The Flow Controls Division (FCD) provides electronic speed and Global
Positioning System (GPS)-based, location-compensated application-control
products for the agriculture, turf management and other niche markets.

FISCAL 2003 VERSUS FISCAL 2002

Net sales increased 22.9% to $28.5 million over fiscal 2002 net sales. The
Starlink acquisition from December 2001 was the principal contributor to the
increase. Those operations, combined with increased sales from new products
helped propel the division to new operating levels. Operating income of $6.9
million posted a $1.4 million increase over fiscal 2002. Gross profits from
increased sales were the driver of the increase. Selling and general expenses
increased only $29,000 as a result of the collection of a receivable for which
an allowance had previously been established, which partially offset selling
expense increases. Gross profits as a percentage of net sales were 29.8% as
compared to 32.9% in fiscal 2002 (excluding the write-off of $550,000 in
acquired research and development) in fiscal 2002. The decline reflects the
impact of the higher fixed-cost structure principally related to the acquired
Starlink operations. Fourth quarter sales under a special program for chemical
injection systems were $523,000 in fiscal 2003 and $1.9 million in fiscal 2002,
respectively. The lower sales under this program negatively impacted operating
income. Changes to the distribution channel combined with slower demand by
growers delayed shipments beyond the fourth quarter of fiscal 2003. Orders under
the current program are more than $6.0 million compared to more than $4.5
million for the previous program.

                                    (GRAPH)

                                 FLOW CONTROLS



NET SALES
(dollars in millions)
             
2001            16.76
2002            23.18
2003            28.50





OPERATING
INCOME
(dollars in millions)
             
2001            3.99
2002            5.51
2003            6.90



FISCAL 2002 VERSUS FISCAL 2001

Net sales for fiscal 2002 of $23.2 million experienced strong growth, increasing
38.3% when compared to fiscal 2001 levels. The two main factors in the growth
were a special order for chemical injection systems and the continued commitment
to new product introductions. FCD's operating income topped $5.5 million versus
$4.0 million for fiscal 2001. Fiscal 2002 operating income was negatively
impacted by a write-off (part of cost of goods sold) of $550,000 in acquired
research and development costs. The operating income growth was entirely
attributable to stronger gross profits as selling and general expenses were
virtually flat. As a percentage of net sales, gross profits were flat at 32.9%
(excluding the write-off) for both fiscal years.

PROSPECTS

FCD looks to focus more on marketing and distribution of its precision
agriculture products in fiscal 2004. FCD faces a challenge given the difficult
agricultural environment, but several strategic partner alliances and a shift in
divisional focus will help to drive those sales. This new initiative calls for
simplifying product interfaces and placing on-site marketing representatives
around the country to support and develop FCD's dealer network.


                        RAVEN 2003 ANNUAL REPORT page 19



FINANCIAL REVIEW AND ANALYSIS (Continued)

Selling expense as a percent of sales is expected to increase by one and
one-half percentage points in fiscal 2004 to support this initiative. FCD
targets sales growth in excess of 10%.

ENGINEERED FILMS

The Engineered Films Division (EFD) produces rugged reinforced plastic sheeting
for industrial, construction, manufactured housing and agriculture applications
and high altitude balloons for public and commercial research.


                                    (GRAPH)

                                ENGINEERED FILMS



NET SALES
(dollars in millions)
             
2001            40.00
2002            40.28
2003            39.98





OPERATING
INCOME
(dollars in millions)
             
2001             8.81
2002             9.89
2003            11.45


FISCAL 2003 VERSUS FISCAL 2002

Net sales for EFD changed little for fiscal 2003 at $40.0 million, a $305,000
decrease over fiscal 2002. Pit lining, land fill and manufactured housing film
sales all declined in fiscal 2003. Low commodity prices for natural gas and
crude oil reduced oil and gas exploration and the need for plastic sheeting.
Industrial and construction markets remained strong, and combined with an 8.8%
increase in research balloon sales, helped to partially offset the other market
declines. Operating income grew $1.6 million to $11.4 million, despite the
decline in net sales. Lower raw material costs helped generate a gross profit
rate of 33.7%, as compared to 29.1% for fiscal 2002, and drove the operating
income improvements. Selling and general expenses were higher due mainly to
increased salaries and related costs, as well as increased product improvement
costs. These additional expenses partially offset the increases from gross
profit growth.

FISCAL 2002 VERSUS FISCAL 2001

Net sales experienced little growth in fiscal 2002 at $40.3 million, a $276,000
increase over fiscal 2001 sales. Sales were maintained despite several shifts in
customer demand for products. Foreign research balloon and manufactured housing
sales declined. These declines were offset by stronger pit lining sales for the
first half of fiscal 2002, and a strong construction film market through most of
the fiscal year. Operating income of $9.9 million grew $1.1 million, or 12.2%,
over fiscal 2001. This was achieved through gross profit gains generated by
lower material prices and shifts in product mix, partially offset by an increase
in selling and general expenses. As a percentage of net sales, gross profits
increased from 26.3% to 29.1% as a result.

PROSPECTS

A new extrusion line began producing its full range of products in the fourth
quarter of fiscal 2003 and has nearly doubled EFD's extrusion capacity. This
added capacity will allow for increased sales of existing products, as well as
the capability of producing new products for the existing markets. There can be
no assurance that market demands or new products will fully utilize the
additional capacity, but management remains confident market demand will be
cultivated. An increase in natural gas and crude oil prices could increase
drilling activity and generate more demand for pit lining materials, but could
also adversely impact raw material costs and gross profit rates, more than
offsetting the profit impact of any sales gains. Plastic resin is made from
natural gas and oil supplies. New products are expected to carry lower gross
profit rates upon initial introduction, as market penetration may require
targeted price-cutting.


                                    (GRAPH)

                               ELECTRONIC SYSTEMS



NET SALES
(dollars in millions)
             
2001            32.04
2002            32.29
2003            38.59





OPERATING
INCOME
(dollars in millions)
             
2001            (0.54)
2002             2.26
2003             4.02


ELECTRONIC SYSTEMS

The Electronic Systems Division (ESD) is a total-solutions provider of
electronics manufacturing services, primarily to North American original
equipment manufacturers.

FISCAL 2003 VERSUS FISCAL 2002

Net sales improved $6.3 million over fiscal 2002 to reach $38.6 million. Net
sales growth from the former Beta Raven electronic manufacturing services
operation that was integrated into ESD in mid-fiscal 2002 and contributions from
the December 2001 System Integrators acquisition were the driving factors in
increased net sales for ESD. Partially offsetting the increase has been a
decline in government contract sales. Operating income improved substantially
for fiscal

                        page 20 RAVEN 2003 ANNUAL REPORT





2003 as compared to fiscal 2002, increasing $1.8 million. The acquired System
Integrators operations and the continued implementation of Six Sigma methodology
have improved capacity utilization and efficiencies. Gross profit as a
percentage of sales improved from 8.7% in fiscal 2002 to 12.4% for fiscal 2003.

FISCAL 2002 VERSUS FISCAL 2001

Net sales of $32.3 million were achieved in fiscal 2002, as compared to $32.0
million for 2001 even with a nearly 50% reduction in customer base. Measures
taken to reposition ESD during fiscal 2001 resulted in an improved customer base
and operating income, but the customer reduction limited growth. Operating
income for fiscal 2002 was $2.3 million. This is comparable to $1.3 million of
income in fiscal 2001 after excluding $1.8 million of costs incurred in the
repositioning of ESD. Gross profits growth was responsible for the majority of
the increase, in addition to a decrease in selling and general expenses mainly
from personnel reductions as a result of reduced customer levels and
restructuring. As a percentage of net sales, gross profits increased from 6.3%
for fiscal 2001 (excluding repositioning costs) to 8.7% for fiscal 2002.

PROSPECTS

During the fourth quarter of fiscal 2003, ESD signed supplier agreements with
three accounts that management expects will increase sales by more than 10%
annually for the next two years. These agreements do not guarantee any specific
revenue level, but position ESD to be the sole supplier for specific product
lines. Start-up costs may initially reduce gross profit percentages from the
strong levels obtained over the last half of fiscal 2003, but profit rates are
expected to recover by the end of fiscal 2004.

AEROSTAR

Aerostar manufactures custom-shaped advertising inflatable display products,
hot-air sport balloons and other sewn and sealed products on a contract basis.

FISCAL 2003 VERSUS FISCAL 2002

Net sales in fiscal 2003 declined 23.0% over fiscal 2002 to $12.5 million caused
primarily by the decision to exit the cold-weather outerwear business. Hot air
balloon sales declined another 20% again in fiscal 2003 while reduced
advertising expenditures by companies depressed sales of inflatable displays.
The reduced level of outerwear sales resulted in the closure of another sewing
plant during the third quarter of fiscal 2003, leaving only two remaining
plants. Operating losses of $405,000 were posted for fiscal 2003 as compared to
income of $864,000 for fiscal 2002 (excluding a $414,000 gain realized on the
sale of a building). Gross profits declined across all product lines, and as a
percentage of net sales, decreased from 11.9% for fiscal 2002 to 4.5% in fiscal
2003. Increases in product liability insurance had a negative impact to profit
margins of 2.6 percentage points, and start-up costs for parachute manufacturing
further depressed margins. Inventory obsolescence charges, resulting from the
restructuring of hot air balloon and apparel operations, of $306,000 and
$275,000 were taken in fiscal 2003 and 2002, respectively.


                                    (GRAPH)

                                    AEROSTAR



NET SALES
(dollars in millions)
             
2001            24.56
2002            16.27
2003            12.53





OPERATING
INCOME
(dollars in millions)
             
2001             1.58
2002             1.28
2003            -0.41




FISCAL 2002 VERSUS FISCAL 2001

Net sales of $16.3 million declined 33.7% as compared to fiscal 2001 net sales
levels. Specialty apparel sales declined $8.1 million due to the closures of two
sewing plants in late fiscal 2001 and a planned reduction in that line of
business. Hot air balloon sales decreased 25% while there was a small increase
in custom-inflatable products. Operating income declined from $1.6 million in
fiscal 2001 to $1.3 million for fiscal 2002. Excluding the gain from the sale of
a building, fiscal 2002 operating income was actually $864,000. The decline is
attributable to gross profit decreases, due to the sales levels. As a percentage
of sales, gross profits increased from 10.0% to 11.9% for fiscal 2002.

PROSPECTS

Significant restructuring during fiscal 2003 at Aerostar has reduced its costs
to allow it to be profitable at reduced sales levels. The addition of a $7.65
million US Army cargo parachute contract and expected reorders

                        RAVEN 2003 ANNUAL REPORT page 21





FINANCIAL REVIEW AND ANALYSIS (Continued)

should help sales rebound by more than 20% in fiscal 2004. Start-up costs on
this contract have reduced margin gains, but Aerostar expects to be a positive
contributor to operating income in fiscal 2004. A long-term plan for reducing
further liability exposure has also been established for the hot air balloon
market.

EXPENSES, INCOME TAXES AND OTHER

Corporate expenses decreased $49,000 to $5.1 million in fiscal 2003, while
expenses decreased nearly 20% between fiscal 2001 and fiscal 2002. Reductions in
personnel and related costs were the principal driver of the decrease. These
reductions are substantially complete and expenses are not expected to fall in
fiscal 2004. Interest expense declined $66,000 to $63,000 for fiscal 2003 due to
minimal debt. Expense for fiscal 2002 was 50% less than fiscal 2001 as a result
of the reduction in debt levels resulting from the prepayment of notes. Other
income is principally composed of interest income, which declined $352,000 due
to lower cash balances and interest rates. Interest income for fiscal 2002 was
$105,000 higher than fiscal 2001 due to higher invested cash balances countered
by declining interest rates. The effective tax rate for fiscal 2003 of 35.2% was
higher than the effective rate of 34.8% for fiscal 2002 due to slightly higher
state taxes and nondeductible expenses. The fiscal 2001 effective tax rate of
41.3% included the impact of nondeductible goodwill write-offs. The company's
effective income tax rate in fiscal 2004 is expected to increase as the impact
of graduated rates is reduced by higher taxable income.



LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes cash provided by (used in) the company's business
activities for the past three fiscal years:



Dollars in thousands                   2003             2002           2001
                                   ------------    ------------    ------------
                                                          
Operating activities ...........   $     12,735    $     18,496    $      9,441
Investing activities ...........         (9,166)        (13,152)          9,752
Financing activities ...........         (5,830)         (8,539)        (14,227)




                                    (GRAPH)




CASH FLOWS FROM OPERATIONS
(dollars in millions)
           
1998            9.27
1999            8.33
2000           10.38
2001            9.44
2002           18.50
2003           12.74


OPERATING ACTIVITIES AND CASH POSITION

Cash flow from operations for fiscal 2003 were $12.7 million as compared to an
exceptional $18.5 million for fiscal 2002, and the company continues to maintain
a strong cash position. Accounts receivable and inventory were the principal
drivers in the decrease. Fiscal 2002 cash flows included accounts receivable and
inventory liquidation from the closed Plastic Tank Division, as well as higher
overall turnover. Inventory levels in fiscal 2003 are higher to take advantage
of low material costs and a build-up for future shipments under a chemical
injection systems order.

Cash flows in fiscal 2002 were particularly strong, increasing $9.1 million over
fiscal 2001. Inventory declines, accounts receivable liquidation and better
accounts receivable turnover rates were the principal drivers of the increase.

Total cash, cash equivalents and short-term investments at January 31, 2003,
were $9.2 million, as compared to $7.5 million at January 31, 2002, and $10.7
million at January 31, 2001. Cash and investments at January 31, 2003, increased
due mainly to a decrease in cash utilized for investing activities, principally
for acquisitions. The cash position at January 31, 2002, reflects the use of
cash during the year for acquisitions and increased capital expenditures. The
company expects that current cash and short-term investments, combined with
continued positive operating cash flows will continue to be sufficient to fund
day-to-day operations.

INVESTING ACTIVITIES

The decrease in cash used for investing activities highlights the absence of
acquisitions in fiscal 2003. Cash of $8.7 million was expended in fiscal 2002 to
purchase

                        page 22 RAVEN 2003 ANNUAL REPORT





Starlink and System Integrators. No acquisitions were completed during fiscal
2003. Partially offsetting this decrease was an increase in investments and
capital expenditures. Excess cash of $4.0 million was used to purchase
short-term investments during fiscal 2003. The Engineered Films Division
completed construction of a new $4.4 million extrusion line and additional
warehouse space in fiscal 2003. Cash flows from investing activities in fiscal
2002 declined $22.9 million as compared to fiscal 2001. The decrease is a result
of the use of cash for acquisitions during fiscal 2002 and $12.8 million of
proceeds received in fiscal 2001 from the sale of businesses and assets.


                                    (GRAPH)




BOOK VALUE
PER SHARE (dollars)
           
1998            4.25
1999            4.42
2000            4.64
2001            5.06
2002            5.65
2003            6.42



FINANCING ACTIVITIES

Cash used in financing activities declined $2.7 million over fiscal 2002. This
reflects the prepayment in fiscal 2002 of a $3.0 million outstanding long-term
note, leaving the company nearly debt-free. The company's main financing
activities continue to be the payment of dividends and the repurchase of company
stock. Purchases of 251,230 shares at an average price of $13.23 were made
during the year and the dividend was increased 9.8% over fiscal 2002. Financing
activities in fiscal 2002 consumed $5.7 million less in cash over fiscal 2001.
This was due principally to a decline in stock repurchases. In fiscal 2002,
346,618 shares were repurchased at an average price of $8.22, while 2.3 million
shares at an average price of $4.74 were repurchased in fiscal 2001.

As anticipated, short-term borrowing needs were minimal in fiscal 2003. Aerostar
drew on its short-term line of credit with a maximum borrowing of $575,000 and
an average daily borrowing of $227,000. There were no borrowings outstanding at
January 31, 2003. The remaining debt of the company consists of capital leases
assumed in the acquisition of Starlink and System Integrators which are
scheduled to be repaid by fiscal 2006.

Contractual obligations consist of capital leases and non-cancelable operating
leases for facilities and equipment, deferred acquisition payments related to
the Starlink and System Integrators acquisitions and unconditional purchase
obligations primarily for raw materials. The letters of credit have been issued
for worker's compensation insurance obligations that remain from the period of
self-insurance (February 1, 2001 and prior.) In the event the bank chooses not
to renew the line of credit, the letters of credit would cease and alternative
methods of support for the insurance obligations would be necessary that would
be more expensive and require additional cash outlays. The company believes the
chances of such an event are remote. A summary of the obligations and
commitments at January 31, 2003, for the next five years is shown below.




                                                                                  FY 2005-       FY 2007-
Dollars in thousands                                 Total         FY 2004        FY 2006        FY 2008
                                                 ------------   ------------   ------------   ------------
                                                                                  
Contractual Obligations:
Line of Credit(a) ............................   $         --   $         --   $         --   $         --
Capital Leases ...............................            307            141            166             --
Deferred Acquisition Obligations .............            350             --            350             --
Operating Leases .............................          1,532            338            604            590
Unconditional Purchase Obligations ...........         14,953         14,953             --             --
                                                 ------------   ------------   ------------   ------------
                                                       17,142         15,432          1,120            590
Other Commercial Commitments:
Letters of Credit ............................          1,582          1,582             --             --
                                                 ------------   ------------   ------------   ------------
                                                 $     18,724   $     17,014   $      1,120   $        590
                                                 ============   ============   ============   ============


(a)  $7.0 million line bears interest at 4.25% and expires July 2003.

CAPITAL REQUIREMENTS

The company maintains an excellent financial condition and capacity for growth.
Management continues to look for opportunities to expand its core businesses
through acquisitions or internal growth. The company has the capacity to assume
additional financing and will do so if the appropriate strategic opportunity
presents itself. Capital expenditures for fiscal 2004 are expected to be less
than depreciation of approximately $4.0 million.



                        RAVEN 2003 ANNUAL REPORT page 23






FINANCIAL REVIEW AND ANALYSIS (Continued)

Stock repurchases are anticipated to continue as a means to return additional
cash to shareholders and increase the leverage of the company's balance sheet.
The cash generated from operations and the availability under existing credit
facilities is anticipated to be sufficient to fund these initiatives.


                                    (GRAPH)




RETURN ON
AVERAGE ASSETS
(percent)
           
1998           9.9
1999           7.4
2000           8.6
2001           9.2
2002          13.3
2003          15.9




CRITICAL ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

CRITICAL ACCOUNTING POLICIES

Critical accounting policies for the company are those policies that require the
application of judgment when valuing assets and liabilities on the company's
balance sheet. The company, other than utilizing operating leases, does not
enter into off balance sheet financing or derivatives.

The company's most difficult accounting decision is determining inventory value
at the lower of cost or market. Typically, when a product reaches the end of its
life cycle, inventory value declines slowly or the product has alternative uses.
Management uses its computerized manufacturing resources planning data to help
determine if inventory is slow moving or has become obsolete due to an
engineering change. The company has been unable to develop a mathematical model
to predict obsolescence, but closely reviews items that have balances in excess
of the prior year's requirements or that have been dropped from production
requirements. Despite these reviews, technological or strategic decisions, made
by management or the company's customers, may result in unexpected excess
material. In the Electronic Systems Division, the company typically has recourse
to customers for obsolete or excess material. In every operating unit of the
company, management must manage obsolete inventory risk. The accounting judgment
ultimately made is an evaluation of the success that division management will
have in controlling inventory risk and mitigating the impact of obsolescence
when it does occur.

Determining the level of the allowance for doubtful accounts, warranty and
self-insurance accruals represent management's best estimate of future events.
Historical levels of activity or actuarial assistance may be used in certain
circumstances, but knowledge of the current financial climate or the impact of a
new product on these accruals always tempers evaluation of the historical data.

In fiscal 2002, the significance of the intangible assets associated with the
Starlink acquisition led management to obtain the assistance of an outside
specialist to determine the values of the intangible assets acquired. This
valuation required management to estimate future revenues and cash flows
associated with various intangibles outlined by Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 141 "Business
Combinations." The specialist provided a comprehensive report to management,
outlining the value of the intangible assets and their estimated useful lives.
These intangibles and other intangibles must be evaluated at least annually
hereafter to determine if any impairment exists. This will require evaluation of
current performance and assumptions and estimates concerning future revenues and
cash flows at the segment level.

NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure" in January 2003. The
Statement provided alternative methods of transition for a voluntary change to
fair value based method of accounting for stock-based employee compensation. It
also amended the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation." The company announced in fiscal year 2003 it would
volun-

                        page 24 RAVEN 2003 ANNUAL REPORT






                                    (GRAPH)




OPERATING INCOME
MARGIN (percent)
           
1998           6.9
1999           6.2
2000           7.0
2001           8.1
2002          11.1
2003          14.1




tarily begin expensing stock options and therefore began applying SFAS No. 123,
and subsequently SFAS No. 148, utilizing the modified prospective method.

Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS No.
34)" was issued in November 2002. This Interpretation addresses the disclosures
to be made by a guarantor about its obligations and clarifies the requirements
related to the initial recognition and measurement of a liability by a
guarantor. This includes product warranties, which are subject to the disclosure
requirements of the Interpretation. The recognition and measurement provisions
are effected for fiscal periods ending after December 31, 2002, and the
disclosure requirements for fiscal periods ending after December 15, 2002. The
company has adopted the disclosure requirement provisions of the Interpretation
for fiscal 2003 with no material impact on the company's consolidated financial
statements.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
was issued in June 2002. Under this Statement, the liabilities for costs
associated with exit or disposal activities can only be recognized when incurred
rather than at the date of a commitment to an exit or disposal plan. While SFAS
No. 146 is required for exit or disposal activities initiated after December 31,
2002, the company chose to adopt the Statement early and applied it to any exit
or disposal activities initiated after July 31, 2002.

SFAS No. 142, "Goodwill and Other Intangible Assets" establishes new guidance on
accounting for goodwill and intangible assets after a business combination is
completed (i.e., post acquisition accounting). Significant changes are required
by SFAS No. 142 including (1) discontinued amortization of goodwill and
indefinite-lived intangible assets, (2) at least annual impairment testing of
goodwill and indefinite-lived assets, and (3) amortization period of intangible
assets with finite lives will no longer be limited to 40 years. The
non-amortization and amortization provisions of the Statement were adopted, as
required, for all acquisitions closed after June 30, 2001, and to the company in
its entirety on February 1, 2002. No impairments have been recognized and the
discontinuance of amortization has had a minimal impact on the financial
statements.

RECENTLY PASSED LEGISLATION

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Act"), which immediately impacts Securities and Exchange Commission
registrants, public accounting firms, lawyers and securities analysts. This
legislation is one of the most comprehensive since the passage of the Securities
Acts of 1933 and 1934. It has far reaching effects on the standards of integrity
for corporate management, boards of directors and executive management.
Additional disclosures and procedures will be required. The company does not
expect any material adverse effect as a result of the passage of this
legislation; however, the full scope of the Act has not been determined. The Act
provides for additional regulations and requirements of publicly traded
companies, some of which have yet to be issued.



                        RAVEN 2003 ANNUAL REPORT page 25





MONTHLY CLOSING STOCK PRICE & VOLUME



                                    (GRAPH)




                         SHARES TRADED         CLOSING STOCK PRICE
                         (in thousands)        (in dollars)
                                         

FEB02                    423.20                11.025
MAR02                    351.80                11.795
APR02                    253.80                11.875
MAY02                    354.00                13.325
JUN02                    450.20                13.500
JUL02                    260.20                11.625
AUG02                    331.40                13.500
SEP02                    273.68                13.350
OCT02                    240.50                13.280
NOV02                    259.94                16.160
DEC02                    348.65                17.224
JAN03                    370.53                15.811



QUARTERLY INFORMATION (Unaudited)



Dollars in thousands,                                                                 Net Income       Common Stock       Cash
except per-share       Net      Gross        Operating     Pretax         Net       Per Share(a)(b)   Market Price(b)  Dividends(b)
data                  Sales     Profit        Income       Income        Income     Basic   Diluted    High     Low    Per Share
                    --------   --------      --------     --------      --------    ------  -------   ------   ------  ------------
                                                                                         
FISCAL 2003
First Quarter ...   $ 30,974   $  8,150      $  5,304     $  5,320      $  3,458    $ 0.38   $ 0.37   $12.18   $ 8.75  $  0.070
Second Quarter ..     29,692      5,996         3,532        3,569         2,320      0.25     0.25    14.43    10.75     0.070
Third Quarter ...     31,423      7,332         4,872        4,939         3,210      0.35     0.34    14.00    11.65     0.070
Fourth Quarter ..     28,814      6,037         3,357        3,426         2,197      0.24     0.24    18.40    13.40     0.070
                    --------   --------      --------     --------      --------    ------   ------   ------   ------  --------
Total Year ......   $120,903   $ 27,515      $ 17,065     $ 17,254      $ 11,185    $ 1.22   $ 1.20   $18.40   $ 8.75  $  0.280
                    ========   ========      ========     ========      ========    ======   ======   ======   ======  ========
FISCAL 2002
First Quarter ...   $ 30,972   $  6,239      $  3,294     $  3,415      $  2,209    $ 0.23   $ 0.23   $ 6.42   $ 6.04  $  0.060
Second Quarter ..     28,157      5,299         3,020        3,157         2,043      0.22     0.22     9.09     6.34     0.065
Third Quarter ...     28,780      6,391         3,762        3,879         2,510      0.27     0.27     9.06     7.23     0.065
Fourth Quarter ..     30,606      5,922(c)      3,099(c)     3,114(c)      2,085(c)   0.23     0.22    11.75     8.55     0.065
                    --------   --------      --------     --------      --------    ------   ------   ------   ------  --------
Total Year ......   $118,515   $ 23,851      $ 13,175     $ 13,565      $  8,847    $ 0.95   $ 0.93   $11.75   $ 6.04  $  0.255
                    ========   ========      ========     ========      ========    ======   ======   ======   ======  ========

FISCAL 2001
First Quarter ...   $ 32,168   $  6,159      $  2,599     $  2,621      $  1,677    $ 0.15   $ 0.15   $ 5.00   $ 3.75  $  0.057
Second Quarter ..     33,178      5,073         1,851        1,832         1,173      0.11     0.11     5.00     4.33     0.057
Third Quarter ...     35,210      3,734         3,576(d)     3,592(d)      1,663(d)   0.17     0.17     6.95     4.83     0.060
Fourth Quarter ..     32,302      6,157         2,722(d)     2,879(d)      1,898(d)   0.20     0.20     6.13     5.17     0.060
                    --------   --------      --------     --------      --------    ------   ------   ------   ------  --------
Total Year ......   $132,858   $ 21,123      $ 10,748     $ 10,924      $  6,411    $ 0.62   $ 0.62   $ 6.95   $ 3.75  $  0.233
                    ========   ========      ========     ========      ========    ======   ======   ======   ======  ========



(a)  Net income per share is computed discretely by quarter and may not add to
     the full year.

(b)  All per-share and market price data reflect the January 2003 two-for-one
     stock split and the July 2001 three-for-two stock split.

(c)  Includes a pretax $550,000 ($350,000 net of tax) acquired in-process
     research and development charge (See Note 4).

(d)  Includes a $3.1 million third-quarter pretax gain ($1.4 million net of tax)
     and a $393,000 fourth-quarter pretax gain ($253,000 net of tax) on the sale
     of the company's Plastic Tank Division and certain sewing plants. Also
     includes a $2.2 million third-quarter pretax charge ($1.4 million net of
     tax) and a $767,000 fourth-quarter pretax charge ($493,000 net of tax) for
     exiting certain business activities (See Note 5).

                        page 26 RAVEN 2003 ANNUAL REPORT



CONSOLIDATED BALANCE SHEETS



                                                                                 As of January 31
                                                                       ---------------------------------
Dollars in thousands, except per-share data                               2003       2002         2001
                                                                       ---------   ---------   ---------
                                                                                      
ASSETS
Current assets
  Cash and cash equivalents ........................................   $   5,217   $   7,478   $  10,673
  Short-term investments ...........................................       4,000          --          --
  Accounts receivable, net .........................................      16,468      16,427      19,274
  Inventories, net .................................................      21,366      19,082      18,983
  Deferred income taxes ............................................       1,493       1,927       2,516
  Prepaid expenses and other current assets ........................         807         394         371
                                                                       ---------   ---------   ---------
      Total current assets .........................................      49,351      45,308      51,817

Property, plant and equipment, net .................................      16,455      14,059      11,647
Goodwill ...........................................................       5,933       5,863         642
Other assets, net ..................................................       1,077       2,606       1,550
                                                                       ---------   ---------   ---------
      Total assets .................................................   $  72,816   $  67,836   $  65,656
                                                                       =========   =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Current portion of long-term debt ................................   $     119   $     127   $   1,012
  Accounts payable .................................................       5,291       4,801       3,490
  Accrued liabilities ..............................................       7,157       8,179       8,727
  Customer advances ................................................         600         703         706
                                                                       ---------   ---------   ---------
      Total current liabilities ....................................      13,167      13,810      13,935

Long-term debt, less current portion ...............................         151         280       2,013
Other liabilities, primarily compensation and benefits .............       1,262       1,714       1,719

Commitments and contingencies

Stockholders' equity
  Common shares, par value $1.00 per share
    Authorized - 100,000,000
    Outstanding - 2003: 9,066,362; 2002: 4,605,569; 2001: 3,159,432       58,236      52,032      47,989
                                                                       ---------   ---------   ---------
       Total liabilities and stockholders' equity ..................   $  72,816   $  67,836   $  65,656
                                                                       =========   =========   =========




The accompanying notes are an integral part of the consolidated financial
statements.

                        RAVEN 2003 ANNUAL REPORT page 27




CONSOLIDATED STATEMENTS OF INCOME




                                                                   For the years ended January 31
                                                           --------------------------------------------
Dollars in thousands, except per-share data                    2003            2002            2001
                                                           ------------    ------------    ------------
                                                                                  
Net sales ..............................................   $    120,903    $    118,515    $    132,858
Cost of goods sold .....................................         93,388          94,664         111,735
                                                           ------------    ------------    ------------
  Gross profit .........................................         27,515          23,851          21,123
Selling, general and administrative expenses ...........         10,629          11,043          13,883
Gain on sales of businesses and assets .................           (179)           (367)         (3,508)
                                                           ------------    ------------    ------------
  Operating income .....................................         17,065          13,175          10,748
Interest expense .......................................            (63)           (129)           (258)
Other income, net ......................................            252             519             434
                                                           ------------    ------------    ------------
  Income before income taxes ...........................         17,254          13,565          10,924
Income taxes ...........................................          6,069           4,718           4,513
                                                           ------------    ------------    ------------
  Net income ...........................................   $     11,185    $      8,847    $      6,411
                                                           ============    ============    ============

Net income per common share
    - basic ............................................   $       1.22    $       0.95    $       0.62
                                                           ============    ============    ============
    - diluted ..........................................   $       1.20    $       0.93    $       0.62
                                                           ============    ============    ============



The accompanying notes are an integral part of the consolidated financial
statements.


                        page 28 RAVEN 2003 ANNUAL REPORT




CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME




                                                                                   Treasury Stock
                                                         Common     Paid-in    ----------------------    Retained
Dollars in thousands, except per-share data              Stock      Capital      Shares        Cost      Earnings      Total
                                                        --------    -------    ----------    --------    --------    --------
                                                                                                   
Balance January 31, 2000 ............................   $  5,218    $ 3,177    (1,302,007)   $(18,112)   $ 64,236    $ 54,519

  Net and comprehensive income ......................         --         --            --          --       6,411       6,411
  Cash dividends ($.233 per share)(a) ...............         --         --            --          --      (2,399)     (2,399)
  Purchase of stock .................................         --         --      (761,800)    (10,829)         --     (10,829)
  Employees' stock options exercised ................          2         42            --          --          --          44
  Employee stock grant ..............................          3         39            --          --          --          42
  Stock option cash bonus forfeitures, net of tax ...         --        201            --          --          --         201
                                                        --------    -------    ----------    --------    --------    --------
Balance January 31, 2001 ............................      5,223      3,459    (2,063,807)    (28,941)     68,248      47,989

  Net and comprehensive income ......................         --         --            --          --       8,847       8,847
  Cash dividends ($.255 per share)(a) ...............         --         --            --          --      (2,371)     (2,371)
  Three-for-two stock split .........................      2,612     (2,614)   (1,031,903)         --          --          (2)
  Purchase of stock .................................         --         --      (173,309)     (2,848)         --      (2,848)
  Purchase and retirement of stock ..................        (70)    (1,134)           --          --          --      (1,204)
  Employees' stock options exercised ................        110      1,378            --          --          --       1,488
  Tax benefit from exercise of stock options ........         --        133            --          --          --         133
                                                        --------    -------    ----------    --------    --------    --------
Balance January 31, 2002 ............................      7,875      1,222    (3,269,019)    (31,789)     74,724      52,032

  SFAS No. 123 adoption adjustment ..................         --        478            --          --          --         478
  Net and comprehensive income ......................         --         --            --          --      11,185      11,185
  Cash dividends ($.280 per share)(a) ...............         --         --            --          --      (2,563)     (2,563)
  Two-for-one stock split ...........................      7,875     (1,682)   (3,269,019)         --      (6,193)         --
  Purchase of stock .................................         --         --      (251,230)     (3,324)         --      (3,324)
  Purchase and retirement of stock ..................        (70)      (835)           --          --          --        (905)
  Employees' stock options exercised ................        176        917            --          --          --       1,093
  Stock compensation expense ........................         --        174            --          --          --         174
  Tax benefit from exercise of stock options ........         --         66            --          --          --          66
                                                        --------    -------    ----------    --------    --------    --------
Balance January 31, 2003 ............................   $ 15,856    $   340    (6,789,268)   $(35,113)   $ 77,153    $ 58,236
                                                        ========    =======    ==========    ========    ========    ========



(a)  Restated to reflect July 2001 three-for-two stock split and January 2003
     two-for-one stock split.

The accompanying notes are an integral part of the consolidated financial
statements.

                        RAVEN 2003 ANNUAL REPORT page 29




CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                 For the years ended January 31
                                                                          --------------------------------------------
Dollars in thousands                                                          2003            2002            2001
                                                                          ------------    ------------    ------------
                                                                                                 
Cash flows from operating activities
  Net income ..........................................................   $     11,185    $      8,847    $      6,411
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation ......................................................          3,541           2,975           3,394
    Amortization ......................................................            425             170             273
    Acquired in-process research and development charge ...............             --             550              --
    Provision for losses on accounts receivable, net of recoveries ....           (100)            126             552
    Gain on sales of businesses and assets ............................           (179)           (367)         (3,508)
    Deferred income taxes .............................................          1,157             586            (684)
    Stock compensation expense ........................................            174              76             252
    Change in operating assets and liabilities, net of effects from the
       acquisition and sale of businesses .............................         (3,470)          5,453           2,662
    Other operating activities, net ...................................              2              80              89
                                                                          ------------    ------------    ------------
  Net cash provided by operating activities ...........................         12,735          18,496           9,441
                                                                          ------------    ------------    ------------
Cash flows from investing activities
  Capital expenditures ................................................         (6,033)         (5,094)         (3,090)
  Purchase of short-term investments ..................................         (5,000)             --              --
  Sale of short-term investments ......................................          1,000              --              --
  Acquisition of businesses ...........................................            (57)         (8,735)             --
  Sales of businesses and assets, net of cash sold ....................            927             677          12,805
  Other investing activities, net .....................................             (3)             --              37
                                                                          ------------    ------------    ------------
  Net cash provided by (used in) investing activities .................         (9,166)        (13,152)          9,752
                                                                          ------------    ------------    ------------
Cash flows from financing activities
  Proceeds from borrowing under line of credit ........................          1,025           1,470           3,500
  Repayment on borrowing under line of credit .........................         (1,025)         (1,470)         (3,500)
  Long-term debt principal payments ...................................           (131)         (3,602)         (1,043)
  Net proceeds from exercise of stock options .........................            188             284              44
  Dividends paid ......................................................         (2,563)         (2,371)         (2,399)
  Purchase of treasury stock ..........................................         (3,324)         (2,848)        (10,829)
  Other financing activities, net .....................................             --              (2)             --
                                                                          ------------    ------------    ------------
  Net cash used in financing activities ...............................         (5,830)         (8,539)        (14,227)
                                                                          ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents ..................         (2,261)         (3,195)          4,966
Cash and cash equivalents at beginning of year ........................          7,478          10,673           5,707
                                                                          ------------    ------------    ------------
Cash and cash equivalents at end of year ..............................   $      5,217    $      7,478    $     10,673
                                                                          ============    ============    ============


The accompanying notes are an integral part of the consolidated financial
statements.



                        page 30 RAVEN 2003 ANNUAL REPORT





NOTES TO FINANCIAL STATEMENTS


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Raven Industries,
Inc. and its wholly owned subsidiaries (the "company"). The company is an
industrial manufacturer providing a variety of products to customers within the
industrial, agricultural, construction and military/aerospace markets throughout
North America. The company operates three divisions (Flow Controls, Engineered
Films and Electronic Systems) in addition to a wholly owned subsidiary, Aerostar
International, Inc. (Aerostar). The company's Beta Raven subsidiary was
liquidated into Raven during fiscal 2003. All significant intercompany balances
and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of the company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.

CASH AND CASH EQUIVALENTS

The company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalent balances are principally concentrated in a money market fund and
savings account with Wells Fargo Bank.

SHORT-TERM INVESTMENTS

Short-term investments consist of fully insured certificates of deposit with
varying maturities, all less than 12 months from the balance sheet date. Rates
on the deposits at January 31, 2003, range from 1.80% to 2.15%.

INVENTORY VALUATION

Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out basis.


PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets using accelerated methods. The estimated
useful lives used for computing depreciation areas follows:

Buildings and improvements........  7 to 39 years
Machinery and equipment...........  3 to 7 years

Maintenance and repairs are charged to expense in the year incurred and renewals
and betterments are capitalized. The cost and related accumulated depreciation
of assets sold or disposed of are removed from the accounts and the resulting
gain or loss is reflected in operations.

INTANGIBLE ASSETS

Intangible assets, primarily comprised of technologies acquired through
acquisition, are recorded at cost net of accumulated amortization. Amortization
is computed on a straight-line basis over estimated useful lives ranging from 3
to 20 years. The straight-line method of amortization reflects an appropriate
allocation of the cost of the intangible assets to earnings in each reporting
period. The company assesses the recoverability of long-lived and intangible
assets whenever events indicate the carrying amount of the assets may not be
recoverable. Any impaired assets are written down to fair value.

GOODWILL

Goodwill related to acquisitions completed prior to June 30, 2001, was
previously amortized over lives ranging from 15 to 20 years. As required by
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets," amortization ceased on February 1, 2002, and no goodwill
resulting from acquisitions after June 30, 2001, has been amortized. Goodwill is
instead evaluated in terms of its fair value at least annually and any
impairment recognized at that time.

INSURANCE OBLIGATIONS

The company employs deductible insurance policies covering workers compensation,
employee healthcare and general liability costs. Costs are accrued related to
the risk retained under these policies based on claims filed and estimates for
claims incurred but not reported. In addition, accruals are maintained to cover
the company's partial self-insurance status for worker's compensation prior to
February 1, 2001, and healthcare prior to January 1, 2002.


                        RAVEN 2003 ANNUAL REPORT page 31





NOTES TO FINANCIAL STATEMENTS (Continued)


WARRANTIES

Accruals necessary for product warranties are estimated based upon historical
warranty costs and average time elapsed between purchase and returns for each
division. Any warranty issues that are unusual in nature are accrued
individually.

CONTINGENCIES

The company is involved as a defendant in lawsuits, claims or disputes arising
in the normal course of business. An estimate of the loss on these matters is
charged to operations when it is probable that an asset has been impaired or a
liability has been incurred, and the amount of the loss can be reasonably
estimated. The settlement of such claims cannot be determined at this time;
however, management believes that any liability resulting from these claims will
be substantially mitigated by insurance coverage. Accordingly, management does
not believe that the ultimate outcome of these matters will be significant to
its results of operations, financial position or cash flows.

REVENUE RECOGNITION

The company recognizes revenue and records any related returns, allowances and
warranty charges only after shipment of a product. The company does not
typically require collateral from its customers. Shipping and handling costs are
classified as a component of cost of goods sold.

RESEARCH AND DEVELOPMENT

Research and development expenditures of $1.3 million in fiscal 2003, $1.4
million in fiscal 2002, and $617,000 in fiscal 2001 were charged to cost of
goods sold in the year incurred. Expenditures are principally composed of labor
and material costs. Fiscal 2002 expenditures include the $550,000 acquired
research and development charge related to the acquisition of Starlink.

STOCK-BASED COMPENSATION

In fiscal 2003, the company began recording compensation expense related to its
stock-based compensation plan using the fair value method permitted by SFAS No.
123, "Accounting for Stock-Based Compensation" under the modified prospective
method outlined by SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." Previous fiscal years' compensation
expense was measured under the intrinsic value method. Note 10 to the
consolidated financial statements includes significant assumptions and
disclosures used in determining the underlying fair value of options and the
related compensation cost.

INCOME TAXES

Deferred income taxes reflect temporary differences between assets and
liabilities reported on the company's balance sheet and their tax bases. These
differences are measured using enacted tax laws and statutory tax rates
applicable to the periods when the temporary differences will impact taxable
income. Deferred tax assets are reduced by a valuation allowance to reflect
realizable value, when necessary. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and liabilities,
adjusted for any change in deferred taxes related to the expiration of certain
stock options.

STOCK SPLITS

The company completed a two-for-one stock split effected in the form of a 100%
stock dividend on January 15, 2003. Previously, the company completed a
three-for-two stock split effected in the form of a 50% stock dividend on July
13, 2001. All per-share information reflects the effect of these stock splits.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure" in January 2003. The
Statement provided alternative methods of transition for a voluntary change to
fair value based method of accounting for stock-based employee compensation. It
also amended the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation" to require disclosure in both annual and interim
financial statements. The company has chosen to voluntarily begin expensing
stock options in fiscal 2003, and has adopted this change in accounting method
using the modified prospective method.

Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS No.
34)" was issued in November 2002. This Interpretation addresses the disclosures
to be made by a guarantor about its obligations. It also clarifies the
requirements related to the initial recognition and measurement of a liability
by a guarantor. This includes



                        page 32 RAVEN 2003 ANNUAL REPORT





product warranties, which are subject to the disclosure requirements of the
Interpretation. The company has adopted the disclosure requirement provisions of
the Interpretation for fiscal 2003 with no material impact on the company's
consolidated financial statements.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
was issued in June 2002. Under this Statement, the liabilities for costs
associated with exit or disposal activities can only be recognized when incurred
rather than at the date of a commitment to an exit or disposal plan. While SFAS
No. 146 is required for exit or disposal activities initiated after December 31,
2002, the company chose to adopt the Statement early and applied it to any exit
or disposal activities initiated after July 31, 2002. The impact on the
company's consolidated financial statements was not material.

NOTE 2. SELECTED BALANCE SHEET INFORMATION

Following are the components of selected balance sheet items:




                                                                As of January 31
                                                 --------------------------------------------
Dollars in thousands                                 2003            2002            2001
                                                 ------------    ------------    ------------
                                                                        
Accounts receivable, net:
  Trade accounts .............................   $     16,708    $     16,737    $     19,674
  Allowance for doubtful accounts ............           (240)           (310)           (400)
                                                 ------------    ------------    ------------
                                                 $     16,468    $     16,427    $     19,274
                                                 ============    ============    ============

Inventories, net:
  Finished goods .............................   $      5,290    $      4,509    $      4,170
  In process .................................          2,275           1,732           2,496
  Materials ..................................         13,801          12,841          12,317
                                                 ------------    ------------    ------------
                                                 $     21,366    $     19,082    $     18,983
                                                 ============    ============    ============

Property, plant and equipment, net:
  Land .......................................   $      1,091    $      1,091    $      1,004
  Building and improvements ..................         12,154          10,614           9,357
  Machinery and equipment ....................         32,248          29,219          27,517
  Accumulated depreciation ...................        (29,038)        (26,865)        (26,231)
                                                 ------------    ------------    ------------
                                                 $     16,455    $     14,059    $     11,647
                                                 ============    ============    ============

Other assets, net:
  Amortizable assets:
    Purchased technology .....................   $      1,080    $      1,080    $         --
    Other intangibles ........................            884           1,116             680
    Accumulated amortization .................         (1,027)           (705)           (617)
                                                 ------------    ------------    ------------
                                                          937           1,491              63
    Deferred income taxes ....................              6             696             693
    Other, net ...............................            134             419             794
                                                 ------------    ------------    ------------
                                                 $      1,077    $      2,606    $      1,550
                                                 ============    ============    ============

Accrued liabilities:
  Salaries and benefits ......................   $      1,766    $      2,109    $      2,163
  Vacation ...................................          1,627           1,731           1,711
  401(k) contributions .......................            782             825             979
  Self-insurance obligations .................          1,045           1,627           2,386
  Income taxes ...............................            276             144              68
  Profit sharing .............................            406             284              --
  Other ......................................          1,255           1,459           1,420
                                                 ------------    ------------    ------------
                                                 $      7,157    $      8,179    $      8,727
                                                 ============    ============    ============



NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION



                                                                  For the years ended
                                                                      January 31
                                                     --------------------------------------------
Dollars in thousands                                     2003             2002           2001
                                                     ------------    ------------    ------------
                                                                            
Changes in operating assets and liabilities,
 net of effects from the purchase and
 sale of businesses:
    Accounts receivable ..........................   $       (304)   $      4,510    $        128
    Inventories ..................................         (2,671)          1,506           3,552
    Prepaid expenses and other assets ............             15             386             195
    Accounts payable .............................            560             681          (1,501)
    Accrued and other liabilities ................         (1,153)         (1,299)            200
    Customer advances ............................             83            (331)             88
                                                     ------------    ------------    ------------
                                                     $     (3,470)   $      5,453    $      2,662
                                                     ============    ============    ============

Cash paid during the year for:
  Interest .......................................   $         44    $        149    $        265
  Income taxes ...................................          4,852           3,923           4,983


NOTE 4. ACQUISITIONS

On December 5, 2001, the company acquired the operating assets and assumed
certain liabilities of Starlink, Incorporated and System Integrators, Inc. The
results of operations for these businesses have been included in the
consolidated financial statements since that date. The transactions were both
accounted for as required by SFAS No. 141, "Business Combinations" which was
effective for all acquisitions closed after June 30, 2001.

Starlink provides GPS-based guidance systems for the agriculture and marine
markets. As a result of the acquisition, the company's ability to integrate new
technology into its control systems for precision agriculture has been
strengthened. This operation has been combined into the company's Flow Controls
Division. The purchase price of Starlink was $7.9 million, including $7.5
million of cash and a payment deferred until December 2004, which was valued at
the time of purchase at $399,000.

System Integrators is an electronics manufacturing services (EMS) provider and
has been combined into the company's Electronic Systems Division. The adjusted
purchase price of $1.2 million included a deferred payment valued at purchase of
$66,000.



                        RAVEN 2003 ANNUAL REPORT page 33





NOTES TO FINANCIAL STATEMENTS (Continued)

The following table summarizes the final fair values allocations of the assets
acquired and liabilities assumed at the date of acquisition.



                                                                          System
Dollars in thousands                                    Starlink     Integrators
                                                     ------------   ------------
                                                              
Current assets ...................................   $      1,731   $      1,669
Property, plant, and equipment ...................            364            142
Intangible assets ................................          1,710            210

Goodwill .........................................          4,940            433
                                                     ------------   ------------
  Total assets acquired ..........................          8,745          2,454
                                                     ------------   ------------

Notes payable ....................................             --            572
Other current liabilities ........................            618            479
Long-term debt ...................................            253            159
                                                     ------------   ------------
  Total liabilities assumed ......................            871          1,210
                                                     ------------   ------------
  Net assets acquired ............................   $      7,874   $      1,244
                                                     ============   ============


Of the $1.9 million of acquired intangible assets, $550,000 was assigned to
Starlink in-process research and development assets that were written off at the
date of acquisition in accordance FASB Interpretation No. 4, "Applicability of
SFAS No. 2 to Business Combinations Accounted for by the Purchase Method." Those
write-offs were included in cost of goods sold in the Flow Controls segment. The
remaining $1.4 million of acquired intangible assets consist primarily of
existing GPS technologies and have a weighted-average useful life of
approximately three years.

Goodwill recognized in these transactions amounted to $5.4 million, and is fully
deductible for tax purposes. Goodwill related to Starlink and System Integrators
was assigned to the Flow Controls and Electronic Systems segments, respectively.

NOTE 5. DIVESTITURES AND OTHER REPOSITIONING ACTIVITIES

Effective May 31, 2002, the company sold its Beta Raven Industrial Controls
Division. This completed the repositioning of that subsidiary. A pretax gain of
$104,000 was recognized on the sale which resulted in cash proceeds of $577,000
and the buyer's assumption of certain liabilities of the company. The company
closed an Aerostar sewing plant in the third quarter of fiscal year 2003. The
remaining $75,000 of pretax net gain for fiscal 2003 relates to the collection
of a previously discounted $350,000 note receivable and adjustment to accruals
in relation to businesses sold in prior years.

In fiscal 2002, the company recorded a net pretax gain of $367,000 related to
the sale of its former Sportswear Division warehouse and the closure of its
remaining Plastic Tank Division operations in Tacoma, Washington. The company
also incurred $249,000 of pretax charges to reposition the Industrial Controls
Division of Beta Raven, including the closing of its Alabama plant. This charge
was included in cost of goods sold in the Sold Businesses segment.

In fiscal 2001, the company sold substantially all of the assets of its Plastic
Tank Division. The proceeds of the sale were $12.3 million including primarily
cash and a note receivable and the buyers also assumed certain liabilities of
the company. Assets sold included property, plant and equipment (approximately
$2.6 million), accounts receivable (approximately $2.5 million) and inventories
(approximately $1.3 million). The purchaser assumed liabilities totaling
approximately $388,000, primarily accounts payable. In addition, the company
recorded approximately $813,000 to accrue for severance, legal, environmental
and other costs related to the Plastic Tank Division sale, reflecting the
company's best estimate of costs to be incurred in resolving these matters. The
Plastic Tank Division sale did not include the company's operations in Tacoma,
Washington, which were closed in November 2001. The Tacoma assets, primarily
inventories and manufacturing equipment, were written down to their estimated
net realizable value requiring a charge of approximately $585,000. The company
also recorded a charge of approximately $1.8 million related to the write-off of
goodwill associated with the Plastic Tank Division. While the closure occurred
in fiscal 2002, the losses were recognized in fiscal 2001 concurrent with the
sale. The Plastic Tank Division transactions resulted in a net pretax gain of
approximately $3.1 million in fiscal 2001.

In fiscal 2001, the company reduced the number of customers in its Electronic
Systems Division resulting in write-downs of inventory and accounts receivable,
severance and other pretax charges totaling $1.8 million. Other repositioning
costs totaled approximately $400,000. Also in fiscal 2001, the company
reorganized its former Sewn Products segment, combining its former Sportswear
Division with Aerostar. The company incurred pretax charges of $767,000 related
to the combination and sold three former Sportswear Division plants for a pretax
gain of $393,000.

                        page 34 RAVEN 2003 ANNUAL REPORT



NOTE 6. GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangibles are accounted for under SFAS No. 142 as adopted
February 1, 2002, for all previously acquired or internally developed
intangibles and goodwill, and as of June 30, 2001, for any acquisitions
completed after that date. Under the Statement, amortization of goodwill and any
indefinite-lived intangibles ceased. All existing goodwill was tested for
impairment as of February 1, 2002, on a reporting unit basis. The reporting
units are the operating segments with the exception of Engineered Films for
which the reporting units are scientific research balloons and flexible films.
The fair value approach is used to test goodwill for impairment. An impairment
charge is recognized for the amount, if any, by which the carrying amount of
goodwill exceeds its implied fair value. No impairment of goodwill was
indicated.

Excluding goodwill amortization expense and related taxes, net income and net
income per share would have been as follows:



                                                                         As of January 31
                                                           ------------------------------------------
Dollars in thousands, except per-share amounts                 2003            2002          2001
                                                           ------------   ------------   ------------
                                                                                
Net Income:
  As reported ..........................................   $     11,185   $      8,847   $      6,411
  Goodwill amortization, net of taxes ..................             --             61            147
                                                           ------------   ------------   ------------
  As adjusted ..........................................   $     11,185   $      8,908   $      6,558
                                                           ============   ============   ============
Basic net income per share:
  As reported ..........................................   $       1.22   $       0.95   $       0.62
  Goodwill amortization, net of taxes ..................             --           0.01           0.01
                                                           ------------   ------------   ------------
  As adjusted ..........................................   $       1.22   $       0.96   $       0.63
                                                           ============   ============   ============
Diluted net income per share:
  As reported ..........................................   $       1.20   $       0.93   $       0.62
  Goodwill amortization, net of taxes ..................             --           0.01           0.01
                                                           ------------   ------------   ------------
  As adjusted ..........................................   $       1.20   $       0.94   $       0.63
                                                           ============   ============   ============


The effect of discontinuing the amortization of goodwill for the year ended
January 31, 2003, was to increase net income by approximately $61,000 or $0.01
for basic and diluted earnings per share.

The changes in the carrying amount of goodwill by reporting segment are shown
below:



                                               Flow         Engineered      Electronic       Sold
Dollars in thousands                         Controls          Films           Systems     Businesses        Total
                                           ------------    ------------    ------------   ------------    ------------
                                                                                           
Balance at January 31, 2000 ............   $         --    $        723    $         --   $      1,856    $      2,579
  Amortization .........................             --             (81)             --            (90)           (171)
  Goodwill write-off ...................             --              --              --         (1,766)         (1,766)
                                           ------------    ------------    ------------   ------------    ------------
Balance at January 31, 2001 ............             --             642              --             --             642
  Goodwill acquired during year ........          4,947              --             356             --           5,303
  Amortization .........................             --             (82)             --             --             (82)
                                           ------------    ------------    ------------   ------------    ------------
Balance at January 31, 2002 ............          4,947             560             356             --           5,863
  Purchase price adjustments ...........             (7)             --              77             --              70
                                           ------------    ------------    ------------   ------------    ------------
Balance at January 31, 2003 ............   $      4,940    $        560    $        433   $         --    $      5,933
                                           ============    ============    ============   ============    ============


Estimated future amortization expense based on the current carrying value of
amortizable intangible assets for fiscal periods 2004 through 2007 is $418,000,
$358,000, $58,000 and $48,000, respectively.

NOTE 7. EMPLOYEE RETIREMENT BENEFITS

The company has a 401(k) plan covering substantially all employees and
contributed 3% of qualified payroll. The company's contribution expense was
$715,000, $727,000 and $943,000 for fiscal 2003, 2002 and 2001, respectively.

In addition, the company provides postretirement medical and other benefits to
officers and certain employees. The company accounts for these benefits in
accordance with SFAS No. 106, "Accounting for Postretirement Benefits Other Than
Pensions." The accumulated benefit obligation was approximately $2.2 million,
$2.3 million and $2.0 million at January 31, 2003, 2002 and 2001, respectively.
Annual expense related to these benefits was $306,000, $482,000 and $436,000 for
fiscal 2003, 2002 and 2001, respectively.

NOTE 8. INCOME TAXES

The reconciliation of income tax computed at the federal statutory rate to the
company's effective income tax rate is as follows:



                                                               For the years ended
                                                                    January 31
                                                        ----------------------------------
                                                        2003           2002           2001
                                                        ----           ----           ----
                                                                             
Tax at U.S. federal statutory rate ............         35.0%          35.0%          35.0%
Nondeductible goodwill amortization and
 write-off ....................................           --            0.1            6.0
State and local income taxes,
 net of U.S. federal benefit ..................          0.4            0.2            0.7
Nondeductible stock option expense ............          0.3             --             --
Impact of graduated rates .....................         (0.6)          (0.7)          (0.9)
Other, net ....................................          0.1            0.2            0.5
                                                        ----           ----           ----
                                                        35.2%          34.8%          41.3%
                                                        ====           ====           ====


Significant components of the company's income tax provision are as follows:



                                             For the years ended
                                 ------------------------------------------
                                                 January 31
Dollars in thousands                 2003           2002            2001
                                 ------------   ------------   ------------
                                                      
Income taxes:
  Currently payable ..........   $      4,912   $      4,132   $      5,197
  Deferred ...................          1,157            586           (684)
                                 ------------   ------------   ------------
                                 $      6,069   $      4,718   $      4,513
                                 ============   ============   ============


                        RAVEN 2003 ANNUAL REPORT page 35

NOTES TO FINANCIAL STATEMENTS (Continued)

Significant components of the company's deferred tax assets and liabilities are
as follows:



                                                                                   As of January 31
                                                                    -------------------------------------------
Dollars in thousands                                                    2003             2002           2001
                                                                    ------------    ------------   ------------
                                                                                          
Current deferred tax assets:
  Accounts receivable ...........................................   $         84    $        109   $         98
  Inventory valuation ...........................................            194             271            530
  Accrued vacation ..............................................            508             525            498
  Insurance obligations .........................................            369             549            782
  Other accrued liabilities .....................................            338             473            608
                                                                    ------------    ------------   ------------
                                                                           1,493           1,927          2,516
                                                                    ------------    ------------   ------------
Net non-current deferred tax assets (liabilities):
  Accrued compensation and benefits .............................            333             417            602
  Depreciation and amortization .................................           (380)            244             91
  Other .........................................................             53              35             --
                                                                    ------------    ------------   ------------
                                                                               6             696            693
                                                                    ------------    ------------   ------------
Net deferred tax asset ..........................................   $      1,499    $      2,623   $      3,209
                                                                    ============    ============   ============


NOTE 9. FINANCING ARRANGEMENTS

Long-term debt consisted of the following:



                                                As of January 31
                                 --------------------------------------------
Dollars in thousands                 2003            2002            2001
                                 ------------    ------------    ------------
                                                        
Total long-term debt .........   $        270    $        407    $      3,025
Current portion ..............           (119)           (127)         (1,012)
                                 ------------    ------------    ------------
                                 $        151    $        280    $      2,013
                                 ============    ============    ============


Raven has an uncollateralized credit agreement providing a line of credit of
$7.0 million which expires in July 2003. Letters of credit totaling $1.6 million
have been issued under the line, primarily to support self-insured workers
compensation bonding requirements. Aerostar had a $2.0 million secured seasonal
line of credit which was terminated January 31, 2003. No borrowings were
outstanding as of January 31, 2003, 2002 or 2001, respectively and $5.4 million
was available at January 31, 2003. The credit agreement contains certain
restrictive covenants that, among other things, require maintenance of certain
levels of net worth and working capital. Borrowings on the credit line bore
interest as of January 31, 2003, 2002 and 2001 at 4.25%, 4.75% and 8.50%,
respectively. The weighted-average interest rates for borrowing under the
short-term credit lines in fiscal 2003, 2002, and 2001 were 4.6%, 6.3% and 9.0%,
respectively.

Wells Fargo Bank South Dakota N.A. provides the company's line of credit. Two
members of the company's board of directors are also on the board of directors
of Wells Fargo & Co., the parent company of Wells Fargo Bank South Dakota N.A.

As described in Note 4, the company assumed $572,000 of short-term notes payable
and $412,000 of capital lease obligations in connection with its fiscal 2002
acquisitions. In December 2001, the company paid the notes in full. The capital
lease obligations expire through 2006, with annual payments averaging $100,000.
The company believes the fair market value of its long-term debt approximates
its carrying value based on quoted market prices for similar debt.

The company leases certain transportation, equipment and facilities under
operating leases. Total rent and lease expense was $446,000, $575,000 and
$636,000 in fiscal 2003, 2002 and 2001, respectively. Future minimum lease
payments under non-cancelable operating leases total approximately $300,000
annually and all expire by fiscal 2010.

NOTE 10. STOCK OPTIONS

Officers and key employees of the company have been granted options to purchase
stock under the company's 2000 Stock Option and Compensation Plan ("Plan"). The
Plan, administered by the board of directors, allows for a fixed cash bonus when
options are exercised and may grant either incentive or non-qualified options
with terms not to exceed ten years. Options granted after fiscal 1999 do not
include a fixed cash bonus. There are 428,900 shares of the company's common
stock reserved for issue under the Plan at January 31, 2003. Options are granted
with exercise prices not less than market value at the date of grant. These
stock options vest over a four-year period and expire after five years.

Prior to fiscal year 2003, the company accounted for the Plan under the
recognition and measurement provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," which utilized the intrinsic value method to
recognize compensation expense. Compensation expense related to the Plan's cash
bonus feature was $76,000


                        page 36 RAVEN 2003 ANNUAL REPORT



and $252,000 in fiscal 2002 and 2001, respectively. Effective February 1, 2002,
the company adopted the fair value recognition provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Under the modified prospective method
of adoption selected by the company pursuant to the provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure,"
compensation cost recognized in fiscal year 2003 is the same as that which would
have been recognized had the recognition provisions of SFAS No. 123 been applied
from its original effective date. Results for the prior years have not been
restated. The effect of adopting the fair value recognition provisions of SFAS
No. 123 for the year ended January 31, 2003, was to decrease net income by
approximately $154,000 or $0.02 for basic and diluted net income per share. Had
the company used the fair value-based method of accounting to measure
compensation expense for its stock option plan and charged compensation expense
against income over the vesting periods, net income and the related basic and
diluted per common share amounts would have been, on a pro forma basis:




                                                                   For the years ended
                                                                        January 31
                                                           -------------------------------------
Dollars in thousands, except per-share amounts                2003         2002          2001
                                                           ----------   ----------    ----------
                                                                             
 Net income ............................................   $   11,185   $    8,847    $    6,411
 Add: Stock-based employee compensation
  expense included in reported net income,
  net of related tax effects ...........................           --           50           148
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method for all
  awards, net of related tax effects ...................           --          (95)         (108)
                                                           ----------   ----------    ----------
Pro forma net income ...................................   $   11,185   $    8,802    $    6,451
                                                           ==========   ==========    ==========
Net income per share:
  Basic - as reported ..................................   $     1.22   $     0.95    $     0.62
                                                           ==========   ==========    ==========
  Basic - pro forma ....................................   $     1.22   $     0.95    $     0.62
                                                           ==========   ==========    ==========
  Diluted - as reported ................................   $     1.20   $     0.93    $     0.62
                                                           ==========   ==========    ==========
  Diluted - pro forma ..................................   $     1.20   $     0.93    $     0.62
                                                           ==========   ==========    ==========


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 3.0-4.8%; expected volatility of 20-33%; risk-free interest rate of
4.1-6.2%; and expected lives of 4.5 years. The weighted average grant date fair
value of each option granted was $3.70, $1.87 and $1.01 in fiscal 2003, 2002 and
2001, respectively.



Information regarding option activity follows:



                                                        For the years ended January 31
                            -------------------------------------------------------------------------------------
                                    2003                          2002                            2001
                            -----------------------        -----------------------        -----------------------
                                         weighted                        weighted                      weighted
                                         average                         average                       average
                                         exercise                        exercise                      exercise
                            options        price           options        price           options        price
                            -------    ------------        -------    ------------        -------    ------------
                                                                                   
Outstanding
  at beginning
  of year ..........        551,304    $       6.09        701,250    $       5.98        744,300    $       6.10
Granted ............         76,400           14.00         88,400            8.75        155,850            5.33
Exercised ..........       (176,946)           6.18       (219,672)           6.77         (7,500)           5.96
Forfeited ..........        (14,702)           6.27        (18,674)           6.23       (191,400)           5.94
                           --------                       --------                       --------
Outstanding
  at end
  of year ..........        436,056    $       7.43        551,304    $       6.09        701,250    $       5.98
                           ========                       ========                       ========
Options
  exercisable at
  year-end .........        207,073    $       5.55        282,322    $       5.83        376,350    $       6.49



The following table contains information about stock options outstanding at
January 31, 2003:



                Remaining
   Exercise    Contractual       Number        Number
    Price      Life (Years)    Outstanding   Exercisable
   --------    ------------    -----------   -----------
                                    
    $ 5.29        0.75           67,426        67,426
      4.75        1.75           59,530        44,647
      5.33        2.75          147,300        73,650
      8.75        3.75           85,400        21,350
     14.00        4.75           76,400            --
                                -------       -------
                                436,056       207,073
                                =======       =======



NOTE 11. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the
weighted-average common shares outstanding. Common shares outstanding represent
common shares issued less shares purchased and held in treasury. Share and
per-share data have been restated to reflect the January 15, 2003, two-for-one
stock split and the July 13, 2001, three-for-two stock split. Diluted net income
per share is computed by dividing net income by the weighted-average common and
common equivalent shares outstanding, which includes the shares issuable upon
exercise of employee stock options, net of shares assumed purchased with the
option proceeds. Certain outstanding options were excluded from the diluted net
income per-share calculations because their exercise prices were greater than
the average market price of the



                        RAVEN 2003 ANNUAL REPORT page 37


NOTES TO FINANCIAL STATEMENTS (Continued)


company's common stock during those periods. For fiscal 2003, 2002 and 2001,
19,100, 22,100 and 640,188 options, respectively, were excluded from the diluted
net income per-share calculation. Details of the computation are presented
below.




                                                               For the years ended
                                                                   January 31
                                                 ---------------------------------------------
in thousands                                          2003            2002          2001
                                                 -------------   -------------   -------------
                                                                        
Net income ...................................   $      11,185   $       8,847   $       6,411
                                                 =============   =============   =============

Weighted-average common shares
 outstanding .................................       9,151,465       9,310,590      10,333,278
Dilutive impact of stock options .............         196,360         181,004           4,410
                                                 -------------   -------------   -------------
Weighted-average common and
 common-equivalent shares
 outstanding .................................       9,347,825       9,491,594      10,337,688
                                                 =============   =============   =============

Net income per common share:
  - basic ....................................   $        1.22   $        0.95   $        0.62
                                                 =============   =============   =============

  - diluted ..................................   $        1.20   $        0.93   $        0.62
                                                 =============   =============   =============



NOTE 12. BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION

The company's reportable segments are defined by their common technologies,
production processes and inventories. These segments reflect the organization of
the company into three Raven divisions, each with a Divisional Vice President,
and one subsidiary. In the second quarter of fiscal 2002, the electronics
manufacturing services operation of Beta Raven was combined with the Electronic
Systems segment. The Industrial Controls Division of Beta Raven, sold in fiscal
2003, is included under the caption "Sold Businesses."

The company measures the performance of its segments based on their operating
income exclusive of administrative and general expenses. Segment information is
reported consistent with the company's management reporting structure as
required by SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." One customer within the Electronic Systems segment
accounted for $12.9 million, or 10.7%, of the company's consolidated sales. No
other customers reached the 10% threshold. Market and segment information is
presented on pages 5 and 16 of this annual report.

NOTE 13. QUARTERLY INFORMATION (UNAUDITED)

The company's quarterly information is presented on page 26.

                        page 38 RAVEN 2003 ANNUAL REPORT



REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RAVEN INDUSTRIES, INC.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Raven Industries, Inc. as of January 31, 2003, 2002 and 2001, and
the results of its operations and its cash flow for each of the three years in
the period ended January 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of Raven Industries, Inc.'s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
presentation. We believe that our audits provide a reasonable basis for our
opinion.

As discussed in Notes 6 and 10 to the consolidated financial statements, the
company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and other Intangible Assets," and Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
on February 1, 2002.

/s/ PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 7, 2003

                        RAVEN 2003 ANNUAL REPORT page 39




INVESTOR INFORMATION

                                                           
INDEPENDENT ACCOUNTANTS                                       STOCK QUOTATIONS

PRICEWATERHOUSECOOPERS LLP                                    Listed on the Nasdaq Stock Market--
Minneapolis, MN                                               RAVN

STOCK TRANSFER AGENT & REGISTRAR                              ANNUAL MEETING

WELLS FARGO BANK MINNESOTA N.A.                               May 21, 2003, 9:00 a.m.
161 N. Concord Exchange                                       Ramkota Inn
P.O. Box 64854                                                Hwy 38 & I-29
S. St. Paul, MN 55164-0854                                    Sioux Falls, SD
Phone: 1-800-468-9716                                         Raven Industries, Inc. is an Equal
                                                              Employment Opportunity Employer with an
FORM 10-K                                                     approved affirmative action plan.

Upon written request, Raven Industries,                       DIVIDEND REINVESTMENT PLAN
Inc.'s form 10-K for the fiscal year
ended January 31, 2003, which has been                        Raven Industries sponsors a Dividend
filed with the Securities and Exchange                        Reinvestment Plan whereby shareholders
Commission, is available free of charge.                      can purchase additional Raven common
                                                              stock without the payment of any
                                                              brokerage commission or fees. For more
DIRECT INQUIRES TO:                                           information on how you can take
RAVEN INDUSTRIES, INC.                                        advantage of this plan, contact your
Attention: Investor Relations                                 broker, our stock transfer agent or
P.O. Box 5107                                                 write: Investor Relations; P.O. Box
Sioux Falls, SD 57117-5107                                    5107, Sioux Falls, SD 57117-5107
Phone:  605-336-2750
                                                              SIC CODES:
RAVEN WEBSITE                                                 3672, 3081, 3829

www.ravenind.com




FORWARD-LOOKING STATEMENTS


The Private Securities Litigation Reform Act provides a "safe harbor" for
forward-looking statements. Certain information included in this Annual Report
and other materials filed or to be filed by the company with the Securities and
Exchange Commission (as well as information included in statements made or to be
made by the company) contains statements that are forward-looking. Although the
company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, there is no assurance that such
expectations will be achieved. Such assumptions involve important risks and
uncertainties that could significantly affect results in the future. These risks
and uncertainties include, but are not limited to, those relating to general
economic and weather conditions, which could affect certain of the company's
primary markets, such as agriculture and construction, or changes in
competition, technology or the company's customer base, any of which could
adversely impact any of the company's product lines.


Design: Creative Design Board, Chicago, IL

EX-21

                                                                               .
                                                                               .
                                                                               .
EXHIBIT 21

                         SUBSIDIARIES OF THE REGISTRANT


NAME OF SUBSIDIARY                                        STATE OF INCORPORATION
- -----------------------------------                       ----------------------
                                                       
Aerostar International, Inc.                              South Dakota

GTH, Inc.                                                 Minnesota
(formerly known as Glasstite, Inc.)

EX-23

EXHIBIT 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Registration Nos. 33-38614 and 333-41352) of Raven
Industries, Inc. of our report dated March 7, 2003 relating to the consolidated
financial statements of Raven Industries, Inc. as of January 31, 2003, 2002 and
2001 and for the years then ended, which appears in the 2003 Annual Report to
Stockholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated March 7, 2003
relating to the financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 23, 2003

EX-99

EXHIBIT 99

                            CERTIFICATION PURSUANT TO
                    SECTION 906 OF SARBANES-OXLEY ACT OF 2002

In connection with this Annual Report of Raven Industries, Inc. (the "company")
on Form 10-K for the year ending January 31, 2003, the undersigned, Ronald M.
Moquist and Thomas Iacarella, hereby certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that: (1) this report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and (2) the information contained
in this report fairly presents, in all material respects, the financial
condition and results of operations of the company.

April 23, 2003                            /S/ Ronald M. Moquist
- --------------------                      ----------------------------
       Date                               Ronald M. Moquist
                                          President (Principal Executive
                                          Officer and Director)

April 23, 2003                            /S/ Thomas Iacarella
- --------------------                      -----------------------------
       Date                               Thomas Iacarella
                                          Vice President and Chief Financial
                                          Officer (Principal Financial and
                                          Accounting Officer)