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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 0-3136
RAVEN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
South Dakota 46-0246171
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 E. 6th Street, Sioux Falls, South Dakota 57117
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(Address of principal offices)(Zip Code)
Registrant's telephone number, including area code (605) 336-2750
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.
Yes _X_ 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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant, based on the closing price of $14.03215 per share as reported on the
NASDAQ National Market System on April 14, 1999 was $57,947,952.
Shares of common stock outstanding at April 14, 1999: 4,641,686.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
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, 1999 and Proxy Statement for the
registrant's 1999 annual meeting, a definitive copy of which was filed on April
26, 1999. 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, 1999 is included as
an exhibit to this report.
PART I. ITEM IN FORM 10-K REFERENCE
- ------- ----------------- ---------
Item 1. Business Business, pages 4-7, this
document; Business
Segments, page 12, and
Sales by Markets, page
13, Annual Report to
Shareholders
Item 2. Properties Properties, pages 7-8, this
document
Item 3. Pending Legal Pending Legal Proceedings,
Proceedings page 8, this document
Item 4. Submission of Matters Submission of Matters to a
to a Vote of Vote of Security
Security Holders Holders, page 8, this
document
PART II.
- --------
Item 5. Market for the Regis- Quarterly Information
trant's Common (unaudited), page 24,
Equity and Related Eleven-year Financial
Stockholder Matters Summary, pages 18-19,
and inside back cover,
Annual Report to
Shareholders
Item 6. Selected Financial Data Eleven-Year Financial
Summary, pages 18-19,
Annual Report to
Shareholders
Item 7. Management's Discussion Financial Review and
and Analysis of Analysis, pages 20-23,
Financial Condition Annual Report to Share-
and Results of holders
Operations
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ITEM IN FORM 10-K REFERENCE
----------------- ---------
Item 8. Financial Statements and Pages 25-36, Annual Report
Supplementary Data to Shareholders.
Item 9. Changes in and Disagree- Changes in and Disagree-
ments with Account- ments with Accountants
ants on Accounting on Accounting and
and Financial Financial Disclosure,
Disclosure page 8, this document
PART III.
- ---------
Item 10. Directors of the Regis- Election of Directors and
trant Executive Compensation,
Proxy Statement
Executive Officers of Executive Officers of
the Registrant Registrant, page 9,
this document and Other
Matters, Proxy
Statement
Item 11. Executive Compensation Executive Compensation,
Proxy Statement
Item 12. Voting Securities and Ownership of Common Stock,
Principal Holders Proxy Statement
Thereof
Item 13. Certain Relationships Election of Directors,
and Related Proxy Statement
Transactions
PART IV.
- --------
Item 14. Exhibits, Financial Exhibits, Financial
Statement Schedule Statement Schedule
and Reports on Form and Reports on Form
8-K. 8-K, pages 9-10, this
document.
SAFE HARBOR STATEMENT
Certain sections of this report contain discussions of items which may
constitute forward-looking statements within the meaning of federal securities
laws. Although Raven Industries believes that expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurances that its expectations will be achieved. Factors that could cause
actual results to differ from expectations include general economic conditions,
weather conditions which could affect certain of the company's primary markets
such as the agricultural market or its market for outerwear or changes in
competition which could impact any of the company's product lines.
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RAVEN INDUSTRIES, INC.
FORM 10-K
year ended January 31, 1999
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. 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. Raven is headquartered in Sioux Falls, South Dakota, employing
approximately 1,500 persons in nine states.
The company began operations as a manufacturer of high-altitude
research balloons. It has diversified over the years to supply specialized
products for a number of markets, including industrial, recreation, agriculture,
automotive and defense. Many of these product lines are an extension of
technology and production methods developed in the original balloon business.
The automotive product line was added via acquisition in fiscal 1987. Page 13 of
the company's Annual Report to Shareholders, incorporated herein by reference,
provides financial information regarding sales by markets.
The company has three business segments: Electronics, Plastics and Sewn
Products. 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 12
of the company's Annual Report to Shareholders, incorporated herein by
reference, provides financial information concerning the three business
segments.
Business Segments
Electronics - Historically, this segment provided a variety of
assemblies and controls to the U.S. Department of Defense and other defense
contractors. The company is expanding this segment's capabilities in contract
electronics assembly for commercial customers to offset a decline in defense
contracts. Assemblies manufactured by the Electronics segment include
communication, computer and other products where high quality is critical. Flow
control devices, used primarily for precision farming applications, are designed
and produced within this business segment. These devices are also used for
roadside and turf spraying. Management believes that acquisition of new
technologies for height and depth control will expand the company's capabilities
to support precision farming in future years. The segment also builds and
installs automated control systems for use in feedmills.
Contract electronics assembly sales are made in response to competitive
bid requests by defense agencies or other contractors. The level and nature of
competition vary with the type of product, but the company frequently competes
with a number of assembly manufacturers on any given bid request. Home office
personnel sell
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flow control devices directly to original equipment manufacturers (OEMs) and
distributors. Company sales representatives sell automated systems directly to
feedmills. All the product markets the company participates in are competitive,
with customers having a number of suppliers to choose from.
Plastics - Products in this segment include heavy-duty sheeting for
industrial and agricultural applications; fiberglass, polyethylene and
dual-laminate tanks for industrial and agricultural use; high altitude balloons
for public and commercial research; and pickup-truck toppers sold in the small
truck aftermarket.
The company sells plastic sheeting to 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 U.S. A number of suppliers of sheeting compete with
Raven on both price and product availability.
Home office personnel and manufacturer's representatives sell storage
tanks to OEMs and through distributors. Competition comes not only from many
other plastic tank manufacturers, but also from manufacturers using other
materials (aluminum and steel). The company makes a number of custom fiberglass
and dual-laminate products, but polyethylene tanks tend to be commodity products
and subject to intense price competition.
The company sells research balloons directly to public agencies
(usually funded by the National Aeronautics and Space Administration) or
commercial users. Demand is small but stable. Raven is the largest balloon
supplier for high-altitude research in the United States.
Pickup-truck toppers are sold throughout the U.S., using a dealer
network. The overall market for toppers has declined since the late 1980's as
alternatives to pickups with toppers, primarily minivans and sport-utility
vehicles, increased in popularity. The number of topper manufacturers has fallen
but is still substantial.
Sewn Products - This segment produces and sells outerwear for a variety
of recreational activities, including skiing, hunting and fishing. The segment
also manufactures sport balloons principally for recreational use. Another major
product is large inflatable devices, which enjoy a number of uses, such as
parade floats and advertising media.
Recreational outerwear is sold both to retailers through an independent
sales representative network, and by home office personnel to catalog retailers.
There are many outerwear manufacturers in the U.S. and abroad, and considerable
competition exists. The company competes successfully in the medium-to-higher
priced range of the market where specialty fabrics such as Gore-Tex(R) are
involved, emphasizing quality, service and manufacturing expertise.
The segment sells balloons through a dealer network. Raven is the
originator of modern hot-air ballooning and continues to be a leader in design
and technical expertise. The company believes it has approximately 40 percent of
the U.S. hot-air balloon market, although others are able to compete with
lower-cost products. Inflatables are sold directly to corporate customers and
are subject to varying levels of competition. Generally, the more
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customized the product, the greater the company's market share.
Major Customer Information
No customer accounted for more than 10 percent of consolidated sales in
fiscal 1999. However, the company sells sewn products to several large
customers. In fiscal 1999, the top five customers in the Sewn Products segment
accounted for more than two-thirds of the sales in that segment. Although the
loss of these accounts would adversely affect profitability, the company
believes that, over the long term, addition of new customers and sales growth
from existing customers would replace any lost sales.
Seasonality/Working Capital Requirements
Some seasonality in demand exists for the company's outerwear products,
many of which are produced in spring/summer for summer/fall delivery. Most of
these sales carry net thirty day terms, although some winter-dated terms are
offered. Sales to the agricultural market (flow controls, plastic tanks) also
experience some seasonality, building 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
accounts receivable, notes 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 for non-collectability of assets and
establishment of appropriate allowances in connection with the company's
internal controls and policies. The company does not enter into hedging or
derivative instruments.
Raw Materials
The company obtains a wide variety of materials from numerous vendors.
Principal materials include numerous electronic components for the Electronics
segment; various plastic resins for the Plastics segment; and fabric for the
Sewn Products 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 noted above conduct ongoing research and
development efforts. Most of the company's research and development expenditures
are directed toward new products in the
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Electronics and Plastics segments. Total company research and development costs
are disclosed in Note 1 to the consolidated financial statements located on page
29 of the Annual Report to Shareholders, incorporated herein by reference.
Environmental Matters
Raven believes that it is in compliance in all material respects with
applicable federal, state and local environmental laws and regulations.
Expenditures relating to compliance for operating facilities incurred in the
past and anticipated in the future have not significantly affected capital
expenditures, earnings or competitive position.
Backlog
As of February 1, 1999, the company's backlog of firm orders totaled
$47.4 million. Comparable backlog amounts as of February 1, 1998 and 1997 were
$47.2 million and $38.1 million, respectively. Approximately $4 million of the
February 1, 1999 backlog is not scheduled for shipment by January 31, 2000.
Item 2. Properties
All properties, unless otherwise indicated are owned by Raven.
Square Business
Location Feet Use Segments
- -------- ---- --- --------
Sioux Falls, SD 150,000 Corporate office and All
electronics manufacturing
73,300 Storage tank Plastics
manufacturing
68,400 Sewn products warehouse Sewn Products
62,300 Plastic sheeting Plastics
manufacturing
59,000 Plastic sheeting and hot- Plastics
air balloon manufacturing Sewn Products
31,400 Storage tank Plastics
manufacturing
27,000 Offices and material Sewn Products
handling facility
25,300 Inflatable manufacturing Sewn Products
24,000 Prototype manufacturing Electronics
10,200 Machine Shop Electronics
6,200 Training/meeting center All
Dunnell, MN 81,500 Pickup-truck topper Plastics
manufacturing
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Square Business
Location Feet Use Segments
- -------- ---- --- --------
Eloy, AZ 51,600 Pickup-truck topper Plastics
manufacturing
Albertville, AL 49,600 Storage tank Plastics
manufacturing
Tacoma, WA *46,650 Storage tank Plastics
manufacturing
Sulphur Springs, TX *45,400 Research balloon Plastics
manufacturing
Springfield, OH 30,000 Plastic sheeting Plastics
manufacturing
Huron, SD 24,100 Sewing plant Sewn Products
Washington Court 21,500 Storage tank Plastics
House, OH manufacturing
St. Louis, MO 21,000 Electronics manufacturing Electronics
Gordo, AL *20,000 Feedmill automation Electronics
equipment manufacturing
Beresford, SD 20,000 Sewing plant Sewn Products
Madison, SD 20,000 Sewing plant Sewn Products
DeSmet, SD 15,000 Electronics manufacturing Electronics
Salem, SD 15,000 Sewing plant Sewn Products
Parkston, SD 14,000 Sewing plant Sewn Products
* Leased, short-term
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
There are no pending legal proceedings wherein the claim for damages exceeds 10%
of the registrant's current assets.
Item 4. Submission of Matters to a Vote of Security Holders
There was no matter submitted during the fourth quarter to a vote of security
holders.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
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Item 10. Executive Officers of the Registrant
Name Age Position Period Served
---- --- -------- -------------
David A. Christensen 64 President and Chief April 1971 to present
Executive Officer
Gary L. Conradi 59 Vice President, January 1980 to present
Corporate Services
Thomas Iacarella 45 Vice President, August 1998 to present
Finance, Secretary
and Treasurer
Ronald M. Moquist 53 Executive Vice January 1979 to present
President
Each of the above named individuals serves at the pleasure of the Board of
Directors. Each serves on a year-to-year basis.
Item 14. 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 1999 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 for the reason that they are not
applicable or are not required: I, III and IV.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth quarter
ended January 31, 1999.
(c) Exhibits filed
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.*
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Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K,
continued:
Exhibit
Number Description
------ -----------
10(a) Change in Control Agreement between Raven Industries, Inc. and
David A. Christensen dated as of March 17, 1989.*
10(b) Change in Control Agreement between Raven Industries, Inc. and
Gary L. Conradi dated as of March 17, 1989.*
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 David
A. Christensen dated as of May 20, 1998.
10(f) Schedule identifying material details of other Employment
Agreements between Raven Industries and other executive
officers substantially identical to the Employment Agreement
filed as Exhibit 10(e).
10(g) Raven Industries, Inc. 1990 Stock Option Plan adopted January
30, 1990 (incorporated by reference to Exhibit A to the
Company's definitive Proxy Statement filed April 25, 1990).
10(h) Deferred Compensation Plan between Raven Industries, Inc. and
David A. Christensen dated as of February 1, 1997.
10(i) Trust Agreement between Raven Industries, Inc. and Norwest
Bank South Dakota, N.A. dated April 26, 1989.*
13 1999 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.
27 Financial Data Schedule.
* 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 26, 1999 By: /S/ David A. Christensen
- ----------------------- --------------------------------------
Date David A. Christensen
President (Principal Executive
Officer and Director)
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.
April 26, 1999 By: /S/ David A. Christensen
- ----------------------- --------------------------------------
Date David A. Christensen
President (Principal Executive
Officer and Director)
April 26, 1999 /S/ Thomas Iacarella
- ----------------------- --------------------------------------
Date Thomas Iacarella
Vice President, Finance,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
Directors:
April 26, 1999 /S/ Conrad J. Hoigaard
- ----------------------- --------------------------------------
Date Conrad J. Hoigaard
April 26, 1999 /S/ John C. Skoglund
- ----------------------- --------------------------------------
Date John C. Skoglund
April 26, 1999 /S/ Mark E. Griffin
- ----------------------- --------------------------------------
Date Mark E. Griffin
April 26, 1999 /S/ Kevin T. Kirby
- ----------------------- --------------------------------------
Date Kevin T. Kirby
April 26, 1999 /S/ Anthony W. Bour
- ----------------------- --------------------------------------
Date Anthony W. Bour
April 26, 1999 /S/ Thomas S. Everist
- ----------------------- --------------------------------------
Date Thomas S. Everist
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REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Raven Industries, Inc.:
Our report on the consolidated financial statements of Raven
Industries, Inc. has been incorporated by reference in this Annual Report on
Form 10-K from page 36 of the 1999 Annual Report to Shareholders of Raven
Industries, Inc. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in Item
14.(a)2. on page 9 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 11, 1999
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
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
----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Deducted in the balance sheet
from the asset to which it
applies:
Allowance for doubtful
accounts:
Year ended January 31, 1999 $390 $135 None $125 $400
==== ==== ==== ====
Year ended January 31, 1998 $340 $193 None $143 $390
==== ==== ==== ====
Year ended January 31, 1997 $340 $ 88 None $ 88 $340
==== ==== ==== ====
</TABLE>
Note:
- -----
(1) Represents uncollectible accounts receivable written off during the
year, net of recoveries.
13
EXHIBIT 10(e)
RAVEN INDUSTRIES, INC.
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 28, 1998 between RAVEN INDUSTRIES, INC., a
South Dakota corporation (the "Company"), and David A. Christensen, (the
"Executive").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that Executive's contribution to the growth and success of the Company and its
subsidiaries has been substantial; and
WHEREAS, the Board has determined that it is appropriate to memorialize
in writing the terms and conditions of Executive's employment and Executive's
entitlement to certain benefits upon his retirement;
NOW THEREFORE, in consideration of the mutual covenants and conditions
herein contained and in further consideration of services performed and to be
performed by Executive for the Company, the parties agree as follows:
1. Employment. Executive shall continue in the employ of the
Company in a senior executive capacity, with such duties, powers and authority
as are assigned to Executive from time to time by the Board.
2. Term. This Agreement shall commence on the date first above
written and, except as otherwise provided in paragraph 7, shall continue in
effect until terminated by either the Company or Executive on 30 days' advance
written notice, either with or without any reason. Except for such 30-day notice
requirement, nothing contained in this Agreement shall affect the Company's
ability to terminate Executive's employment with or without any reason
notwithstanding the preceding. Termination of this Agreement shall not terminate
Executive's benefits or the Executive's right to benefits under paragraph 4 or 5
if, at the date of termination, Executive has either (I) attained age 65 or (ii)
the sum of Executive's age (as of his nearest birthday) and years of service
with the company (to the nearest whole year) equal 80 or more.
3. Compensation. As full compensation for his services under this
Agreement, Executive shall receive such Compensation as determined by the Board,
and Executive shall be eligible for such fringe benefits as are provided
generally to all senior executives of the Company. The fringe benefits provided
at the date of this Agreement are listed on Schedule A, attached hereto and made
a part hereof. The Company may change or terminate any fringe benefit from time
to time while Executive is employed, so long as the change affects all senior
executives.
<PAGE>
4. Benefits on Termination in Certain Cases. If at the date
Executive terminates employment with the Company, Executive has either (i)
attained age 65 or (ii) the sum of Executive's age (as of his nearest birthday)
and years of service with the Company (to the nearest whole year) equal 80 or
more, Executive shall be entitled, at the Company's expense, to the following
benefits in addition to any retirement benefits to which Executive may be
entitled under any qualified or non-qualified retirement plan maintained by the
Company:
(a) Until the later to die of Executive or his spouse,
continuation of coverage under the Company's group hospital, medical and dental
plans ("Medical Plan") for himself, his spouse and eligible dependents ("Covered
Group"); provided that if Executive and his spouse are divorced, the benefits
for such spouse shall be discontinued; and further provided that if such spouse
remarries after the death of Executive, such coverage shall continue for such
spouse after the date of remarriage only if the spouse pays to the Company the
group premium for such coverage. Prior to a member of the Covered Group becoming
eligible for Medicare, the benefits to which that member of the Covered Group is
entitled shall be at least equal to the benefits to which that member of the
Covered Group would have been entitled under the Medical Plan at Executive's
separation from service. Upon eligibility of a member of the Covered Group for
Medicare, coverage provided by Medicare shall be primary and the Medical Plan
shall provide additional benefits such that the total benefits (I.E., Medicare
and the Medical Plan) are at least equal to the benefits that members of the
Covered Group would have been entitled under the Medical Plan at Executive's
separation from service.
(b) Until Executive's death, group life insurance coverage
in the same amount as in effect at the date of Executive's retirement;
(c) Until the death of the last to die of Executive or his
spouse, payment of uninsured medical expenses (including, but not limited to any
deductibles and coinsurance) for Executive, his spouse and his eligible
dependents up to an annual limit of 10% of Executive's highest annual
compensation during any one of his last five calendar years of employment;
provided that if Executive and his spouse are divorced, or if such spouse
remarries after the death of Executive, such coverage shall be discontinued for
such spouse. The medical expenses to be covered and the timing of payment of
such medical expenses shall be based on the terms of the Raven Industries, Inc.
Officers Employee Medical Reimbursement Plan as in effect at the date of
Executive's separation from service. If such plan is not in effect at the date
of Executive's separation from service and has not been replaced by a similar
plan, medical expenses reimbursed shall be those expenses that would be
deductible under Section 213 of the Internal Revenue Code of 1986 as in effect
at the date of this Agreement (without regard to any provisions making such
expenses deductible only to the extent they exceed a percentage of adjusted
gross income and without regard to any limitation on expenses for cosmetic
surgery), and all such expenses shall be paid or reimbursed within 15 days after
presentation of invoices.
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(d) Until Executive's death and thereafter until the filing
of a federal estate tax return for his estate, if such a return is to be filed,
payment of personal estate planning, estate tax return and probate expenses, up
to an annual limit of 2% of Executive's highest annual compensation during any
one of his last five calendar years of employment; provided that any amount up
to such 2% limitation not paid in any calendar year may be carried forward for
two succeeding years.
(e) Until the last to die of Executive or his spouse,
payment of premiums for long term care insurance for the remainder of
Executive's and his spouse's lives; provided that if Executive and his spouse
are divorced, or Executive's spouse remarries after his death, premium payments
for such spouse shall be discontinued.
5. Limitation on Amendment or Termination. If for any reason after
the date of Executive's retirement, Executive is not permitted to participate in
any of the plans or programs referred to in paragraph 4, or if any such plans or
programs are amended to provide lesser benefits or are terminated, the Company,
at its sole expense, shall arrange to provide Executive with benefits
substantially similar to those to which Executive would otherwise have been
entitled but for such amendment or termination.
6. Tax Gross-Up. To the extent that all or any of the payments
under paragraph 4 or 5 made in a calendar year are subject to federal, state, or
local income tax, the Company shall pay to Executive (or his spouse if Executive
is deceased or his estate if he is not survived by a spouse) a Gross-Up Amount
before April 15 of the following year. The term "Gross-Up Amount" means an
amount, after the payment of federal, state and local income tax on such amount,
that is necessary to pay the federal, state and local income tax on the taxable
payments for such calendar year. For purposes of determining the Gross-Up
Amount, Executive shall be considered to pay federal, state and local income
taxes at the highest marginal rate, net of the maximum reduction in federal
income taxes that could be obtained from the deduction of state and local taxes.
7. Termination For Cause. Notwithstanding paragraphs 2, 4 and 5,
if the Company discharges Executive "For Cause"(as defined below) the Company
shall not be required to provide 30 days' advance written notice of termination
and the Company may elect, in its discretion, not to pay the benefits provided
under paragraphs 4 and 5. A discharge shall be considered "For Cause" if
Executive is terminated from employment for willful misconduct that materially
injures or causes a material loss to the Company and a material benefit to
Executive or third parties, as for example, by embezzlement, appropriation of
corporate opportunity, conversion of tangible or intangible corporate property
or the making of agreements with third parties in which Executive or anyone
related to or associated with him has a direct or indirect interest. The term
"For Cause" does not include a termination occasioned by
3
<PAGE>
ill-advised good faith judgment or negligence in connection with the Company's
business.
8. Confidentiality. So long as Executive is employed and
thereafter so long as Executive is entitled to and is receiving the benefits to
which he is entitled under paragraphs 4 and 5, he may not either directly or
indirectly, except in the course of carrying out the business of the Company or
as authorized in writing on behalf of the Company, disclose or communicate to
any person, individual, firm or corporation, any information of any kind
concerning any matters affecting or relating to the business of the Company or
any of its subsidiaries, including without limitation, any of the customers,
prices, sales, manner of operation, plans, trade secrets, processes, financial
or other data of the Company or any of its subsidiaries, without regard to
whether any or all of such information would otherwise be deemed confidential or
material.
9. Non-Competition. So long as Executive is employed and
thereafter so long as Executive is entitled to and is receiving the benefits to
which he is entitled under paragraphs 4 and 5, he may not engage or participate
directly or indirectly, either as principal, agent, employee, employer,
consultant, stockholder, director, co-partner, or any other individual or
representative capacity, in the conduct or management of, or own any stock or
other proprietary interest in, any business that competes with the business of
the Company or any subsidiary of the Company unless he has obtained prior
written consent of the Board, except that Executive shall be free without such
consent to make investments in any publicly-owned company so long as he does not
become a controlling party in such company.
10. Consequences of Violation of Confidentiality on Non-Compete
Provision. If the Company, in good faith, determines that Executive has violated
paragraph 8 or 9 of this Agreement, then in addition to any remedy the Company
may be entitled at law or in equity, it may discontinue payments under
paragraphs 4 and 5 upon written notice to Executive of the violation of
paragraph 8 or 9.
11. No Affect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish Executive's existing rights, or rights
that would accrue solely as a result of the passage of time, under any benefit
plan, change in control agreement or other contract, plan or arrangement.
12. Successors to the Corporation. The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. As used in this Agreement, "Company" means Raven Industries, Inc.
and any subsidiary or successor or assign to its business
4
<PAGE>
or assets that otherwise becomes bound by the terms and provisions of this
Agreement by operation of law. In such event, the Company shall pay or shall
cause such employer to pay any amounts owed to Executive pursuant to this
Agreement.
13. Agreement Binding. This Agreement shall inure to the benefit
of and be enforceable by Executive's spouse, personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive dies while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's spouse, devisee,
legatee, or other designee or, if there is no such designee, to Executive's
estate.
14. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or when mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Raven Industries, Inc.
205 East 6th Street
P.O. Box 5107
Sioux Falls, SD
Attention: President
If to Executive:
David A. Christensen
P.O. Box 5107
Sioux Falls, SD 57117-5107
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
15. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in a writing signed by Executive and such officer of the Company as
may be specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provision or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter of this
Agreement have been made by either party that are not set forth expressly in
this Agreement. This Agreement shall be governed by and construed in accordance
with the laws of the state of South Dakota.
5
<PAGE>
16. Validity. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Fees and Expenses. The Company shall pay all fees and expenses
(including reasonable attorney's fees and costs) that Executive may incur as a
result of the Company's contesting the validity, enforceability or Executive's
interpretation of, or determinations under, this Agreement, regardless of
whether the Company is successful in such contest.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
RAVEN INDUSTRIES, INC.
By: /s/ David A. Christensen
President and Chief Executive Officer
EXECUTIVE:
/s/ David A. Christensen
6
<PAGE>
SCHEDULE A
POLICIES AND PROCEDURES NO. RS-01
DATE: 1 August, 1998 REVISED
SUBJECT: CORPORATE OFFICER BENEFITS
In addition to all of the fringe benefits provided to salaried employees,
Corporate Officers will have the following additional benefits:
1. Insurance premiums will be paid in full for all individual and family
health, life, disability and dental insurance coverage.
2. Supplemental health insurance benefits for the officers and his dependents
up to 5% of the total current base salary and the previous year's incentive
bonus.
3. Remote access to the WATS lines for personal use.
4. Officers receive the following memberships:
David A. Christensen, President & C.E.O. - 100% Full
Membership, Minnehaha Country Club.
Ronald M. Moquist, Exec. V.P. - 100% Social Membership,
Minnehaha Country Club.
Thomas Iacarella, V.P.-Finance - 100% Social Membership,
Westward Ho Country Club.
Gary L. Conradi, V.P.- Corporate Services - 100% Social Membership,
Westward Ho Country Club & 50% of the difference between the Social and
Executive Golf membership.
5. 100% reimbursement of membership in the S.D. Symphony and the Sioux Falls
Community Playhouse.
6. Inclusion in the Group Life Insurance and A.D. & D. policy at $50,000 of
benefits.
7. Outside of the group, individual term policies for each officer will be
provided according to the following schedule:
<PAGE>
POLICIES AND PROCEDURES PAGE 2 NO. RS-01
CORPORATE OFFICER BENEFITS
1 AUGUST, 1998
DAC President & CEO $750,000
RMM Executive Vice President 375,000
TI Vice President-Treasurer 300,000
GLC Vice President-Corporate Services 300,000
The above policies are funded by the company for the period of time employed by
the company. The officer will have the option to convert or continue at his
expense upon termination or retirement.
8. In addition, a second-to-die life policy will be provided to each officer
in the amounts listed above. Premiums on this policy will be paid by the
company until the policy is fully funded (the point where dividends of the
policy are sufficient to pay the entire premium) provided that the officer
is employed until "normal retirement" age or qualifies for "early
retirement" in accordance with Raven policies and procedures.
Upon the officers retirement at the normal retirement age or if qualifying
for early retirement in accordance with Raven Policies & Procedures the
second-to-die life policy will be paid up by Raven at the time of the
officers retirement. The premium benefit for the paid up policy will be
grossed up at the end of the calendar year.
If the officer terminates his employment before qualifying for either normal or
early retirement he will have the option to continue the policy by paying the
premiums or he may exercise one of the conversion features available in the
policy.
9. Long term care insurance will be provided to the officer and officer's
spouse.
10. Full pay for sick leave up to a point where disability insurance coverage
begins. Disability insurance is 60% of base salary non-integrated with
Social Security. Provisions of the actual policy will govern the exact
amount of payments.
11. Two additional weeks of paid vacation to the regular established vacation
policy.
12. Reimbursement under a formula of up to 2% of total annual
<PAGE>
POLICIES AND PROCEDURES PAGE 3 NO. RS-01
CORPORATE OFFICER BENEFITS
1 AUGUST, 1998
compensation (base salary & previous year's incentive bonus) with up to a
three-year accumulation of benefit dollars available for personal estate
planning.
13. Physical examinations provided by the company will be given on a biennial
basis to age 60 on individuals who are asymptomatic, annually if
symptomatic. Above age 60 examinations will be annually.
14. Officers annual base salary will be grossed up at the end of the calendar
year to compensate for the additional tax burden created by the treatment
of the officers benefits as additional income.
15. Officer Retirement & Benefits
Full retirement benefits will be available to any officer who retires
between the ages of 65 and 70, or who chooses early retirement. Early
retirement is defined as the first day of any month after the officer's
years of service, plus his attained age equals or exceeds the sum of 80, or
any date between then and age 65.
Those benefits are:
(A) Continued group hospital, medical, and dental coverage for the
officer, spouse and eligible dependents until the officer attains the
age at which he is eligible for Medicare (presently age 65 or
disabled).
(B) Upon Medicare eligibility, the officer and spouse will be provided
supplemental hospital and medical coverage to Medicare which would
result in the same coverage that is provided to full-time active
officers of the company. This coverage, as well as group dental
coverage, will continue for the rest of the officer's and spouse's
life.
The spouse's coverage will be discontinued in the event an officer's
spouse remarries after the death of an officer. However, the spouse
would then be provided
<PAGE>
POLICIES AND PROCEDURES PAGE 4 NO. RS-O1
CORPORATE OFFICER BENEFITS
1 AUGUST, 1998
the option of continued coverage by paying the Raven group premium for
such coverage.
(C) At retirement, group life insurance coverage will continue to be
provided at the amount in effect at retirement ($100,000 maximum -
excludes A D & D). At age 65 this amount would be reduced to 67% or
$67,000, and then reduced to 67% or $45,000 at age 70. Life insurance
coverage will continue for the rest of the officer's life. This
reduction provision applies only to the retired officers, Kaliszewski
and Winker.
The life insurance coverage may be provided through a term policy
outside of the Raven group plan.
(D) Upon retirement, supplemental health insurance benefits for the
officers and his dependents will be provided annually for the rest of
the officer's and spouse's lives at an amount of up to 10% of the
officer's highest total annual compensation during any one of the
officer's last 5 years of employment with the company.
(E) Upon retirement, personal estate planning benefits will be available
in an amount up to 2% of the officers highest total annual
compensation during any one of the officer's last 5 years of
employment with the company with up to a three year accumulation of
benefit dollars available for personal estate planning. The estate
plan may be upgraded when conditions warrant, but with prior approval
of the C.E.O.
(F) Long term care insurance will continue for the rest of the officer's
and spouse's life. The spouse's coverage will be discontinued in the
event an officer's spouse remarries after the death of an officer.
EXHIBIT 10(f)
MATERIAL DETAILS OF EMPLOYMENT AGREEMENTS
----------
Name of Executive Date of Employment Agreement
- ----------------- ----------------------------
Gary L. Conradi May 20, 1998
Ronald M. Moquist May 20, 1998
Thomas Iacarella August 1, 1998
EXHIBIT 10(h)
RAVEN INDUSTRIES, INC.
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN AND AGREEMENT
THIS AGREEMENT made this 1st day of February, 1997, by and between
RAVEN INDUSTRIES, INC., a South Dakota corporation (the "Company") and DAVID A.
CHRISTENSEN, a resident of Sioux Falls, South Dakota, (the "Employee").
WHEREAS, Employee and the Company entered into a certain Deferred
Compensation Plan and Agreement on June 1, 1986; and
WHEREAS, Employee and the Company entered into a certain Amendment to
the Raven Industries Deferred Compensation Plan and Agreement on May 22, 1990;
and
WHEREAS, Employee and the Company entered into a certain Second
Amendment to the Raven Industries, Inc. Deferred Compensation Plan and Agreement
on February 1, 1997; and
WHEREAS, Paragraph 9 of said Deferred Compensation Plan and Agreement
allows the Company the discretion to amend the Plan at any time, provided no
amendment would have the effect of reducing the account balance of the Employee;
and
WHEREAS, the parties desire to amend and restate the Deferred
Compensation Plan and Agreement in order to assist in administration of the
Plan; and
WHEREAS, the Employee is currently employed by the Company and is
compensated in the form of a salary (adjusted periodically
<PAGE>
and paid periodically during the year) and potentially certain
cash and other incentive bonuses; and
WHEREAS, The parties desire to defer payment of part of each year's
total compensation of the Employee until after the Employee's expected
retirement or other earlier termination of employment; and
WHEREAS, the parties desire that the Employee be compensated for
certain benefit reductions under the Raven Industries, Inc. Profit Sharing Plan
(the "Profit Sharing Plan");
NOW THEREFORE, In consideration of the premises and mutual promises
stated in this Plan and Agreement, the parties agree as follows:
1. DEFERRED COMPENSATION. As used herein, "deferred compensation" shall
mean any amounts attributable to compensation deferred pursuant to (a) and/or
(b) and/or (c) below.
a. ELECTION TO DEFER COMPENSATION.
(i) Beginning effective June 1, 1986, the Employee may elect to
defer all or a portion of his total compensation for the year
(or in the case of the first year of the Agreement, the
remainder of the calendar year) by filing herewith an election
on a Deferral Election Form provided by the Company.
(ii) For each subsequent calendar year, the Employee may change the
election by filing with the Company a new Deferral Election
Form on or before December 31 of the prior calendar year. Such
annual elections shall affect only subsequent compensation. If
no such election is made by the Employee in any year, the
deferral for the subsequent year shall remain unchanged, and
the latest Deferral Election Form duly filed shall continue in
effect. Each election made
-2-
<PAGE>
shall be irrevocable for each year to which it is applicable.
(iii) In the event an Employee should die or otherwise separate from
service prior to the last day of a calendar year, the amount
of his elected deferral for such year shall be automatically
pro-rated on the basis of the ratio of his base salary
actually received as of the date of separation from service
over his annualized base salary for such year; provided
however, that if he has deferred as of his date of separation
from service an amount greater than such pro-rated amount, the
amount of his elected deferral for such year shall be
automatically revised to equal the amount actually deferred.
b. SUPPLEMENTAL DEFERRED COMPENSATION. The Company shall, effective as of
each date upon which it makes a contribution to the Profit Sharing
Plan, credit to the Deferred Compensation Account of the Employee in
accordance with Section 2, an amount equal to the difference between
(i) and (ii) below:
(i) The amount of the Company's contribution under the Profit
Sharing Plan which would have been allocated to the Employee's
account under the Profit Sharing Plan had the Employee not
elected to defer compensation pursuant to Section l(a), and
(ii) The amount of the Company's contribution under the Profit
Sharing Plan actually allocated to the Employee's account
under the Profit Sharing Plan.
c. ADDITIONAL SUPPLEMENTAL DEFERRED COMPENSATION. The Company shall,
effective February 1, 1990, and as of each date thereafter upon which
it makes a contribution to the Profit Sharing Plan, credit to the
Deferred Compensation Account of the Employee in accordance with
Section 2 an additional amount equal to the difference between (i) and
(ii) below:
(i) the amount of the Company's contribution under the Profit
Sharing Plan which would have been allocated to the Employee's
account under the Profit Sharing Plan had the Employee's
compensation used to compute the Company's contribution not
been limited to the amount prescribed by Internal Revenue
Service Code Section
-3-
<PAGE>
401(a)(17), as amended by the Secretary of the Treasury
from time to time, and
(ii) the amount of the Company's contribution under the Profit
Sharing Plan actually allocated to the Employee's account
under the Profit Sharing Plan.
2. DEFERRED COMPENSATION ACCOUNT. The Company shall maintain a Deferred
Compensation Account (the "Account") in the name of the Employee (or in the name
of the designated beneficiaries upon the death of the Employee) which shall be
credited with the amounts of compensation deferred under Section 1. Until and
except to the extent that deferred benefits are distributed to the Employee or
beneficiary, the interest of the Employee or any beneficiary in such Account is
contingent only. Title to and beneficial ownership of any assets, whether cash
or investments, which the Company may set aside or earmark to meet its deferred
obligation hereunder, shall at all times remain in the Company, and neither the
Employee nor any beneficiary shall under any circumstances acquire any property
interest in any specific assets of the Company. The Company shall have full and
unrestricted use of funds credited to the Account.
3. INVESTMENT OF DEFERRED COMPENSATION ACCOUNT. The Company may, but
shall be under no obligation to, have amounts allocated to the Employee's
Account set aside or earmarked to meet the Company's deferred obligation
hereunder. The Company shall be under no obligation to invest amounts allocated
to the Account, and may in its sole discretion apply part or all of such amounts
toward the Company's normal business operations. The Company shall also have
discretion to invest a part or all of such amounts in annuities, life insurance
contracts, stocks, bonds or other securities selected by the Company in its sole
discretion provided, however, that no portion of such funds shall be invested in
any securities of the Company. In the exercise of the foregoing discretionary
investment powers, the Company may solicit investment counsel and, if it so
desires, may solicit such counsel from the Employee or the Employee's advisors.
The cost of any such advice, if any, shall be charged as an expense of
administering the Account and shall be paid out of the Account.
The Company shall annually increase the Employee's Account by an
accounting factor representing interest income. Such factor shall reflect a
simple interest rate compounded annually (pro-rated for a partial year). The
interest income accounting
-4-
<PAGE>
factor shall be determined each year by the Company in its sole discretion, and
the Company shall notify the Employee of such factor within 30 days prior to the
date of the Employee's election to defer compensation for such year. In the
event that the Company should either fail to determine an interest income
accounting factor for a particular year, or should fail to notify the Employee
of such factor as provided herein, the prior year's factor shall remain in
effect for such year.
The Company shall have discretion, after consultation with the
Employee, to use all or a portion of amounts allocated to the Employee's Account
to purchase and pay premiums on one or more life insurance policies on the life
of the Employee. The Employee's Account balance shall be decreased, prior to the
application of an interest income accounting factor for the period, by any such
premium payments made for such period.
4. PAYMENT OF DEFERRED COMPENSATION. The Company shall pay to the
Employee, or to his beneficiary in the event of his death, the full accounting
balance credited to his Account at the time and in the manner provided in this
Agreement and in accordance with the beneficiary designation elected by the
Employee in the payment form elected by the Employee (or designated by the
Company if the Company has designated a payment form preempting the Employee's
election).
Notwithstanding anything herein to the contrary, at any time after
payments to the Employee or beneficiary have commenced, the Company shall have
discretion to cash out the Account of the Employee by making a single lump sum
payment to the Employee or beneficiary of the remaining unpaid balance of the
Account (including an adjustment representing interest income to the date of
such payment).
Payment of the first installment of the Employee's Account shall be
made as of the first day of the month following the date of the Employee's
separation from the service of the Company. Subsequent installments, if any,
adjusted to reflect interest on the unpaid balance of his Account from time to
time, shall be payable in accordance with the payment form in effect for the
Employee.
5. ELECTION OF PAYMENT FORM. Each Deferral Election Form shall include
the Employee's election of the form in which payment of the compensation
deferred under this Agreement shall be made. Amounts deferred pursuant to such
Deferred Election Form shall be paid pursuant to the payment form thus elected
and such
-5-
<PAGE>
election shall be irrevocable. The following payment forms are permitted:
a. A lump sum, or
b. Substantially equal monthly installments (adjusted to reflect
interest on the unpaid Account balance) over a selected period
of up to 10 years.
The Employee may elect a different payment form for compensation
deferred in each calendar year under this Agreement; provided that the election
with respect to any year's amount shall be made by the first day of the year the
deferral is effective (or prior to the first day the deferral is effective in
the case of the first year of this Agreement). If no payment form election is
made for any year, the prior year's election shall remain in effect.
Notwithstanding anything herein to the contrary, the Company retains
discretion to:
a. At any time prior to the date distribution is to
commence, designate a payment form pre-empting the
payment form elected by the Participant, and
b. At any time after payments to the Employee or beneficiary have
commenced, cash-out the Account of the Employee by making a
single lump sum payment to the Employee or beneficiary of the
remaining unpaid balance of the Account (including the amount
of an adjustment representing interest income to the date of
such payment).
6. DEATH BENEFIT: BENEFICIARY DESIGNATION. In the event of the death of
the Employee, his Account (or any unpaid balance thereof) shall be paid to the
person or persons designated by the Employee as his beneficiary. If at the time
of his death the Company has in effect one or more life insurance policies on
the life of the Employee, purchased with amounts allocated to the Employee's
account, the death benefit herein payable shall equal to the sum of: (a) the
Employee's Account balance (exclusively of any amounts applied as premium
payments), and (b) the proceeds of any such life insurance policies.
The Employee shall designate his beneficiary (or contingent
beneficiary, if applicable) by written notice submitted to the Company, and he
may amend his beneficiary designation at any time
-6-
<PAGE>
by filing a new beneficiary designation with the Company. In the absence of a
beneficiary designation, or if the designated beneficiary should predecease the
Employee, any unpaid balance of the Account (and the proceeds of any insurance
policies) shall be paid to the contingent beneficiary named by the Employee, or
if none should survive the Employee, to the estate of the beneficiary.
7. EMPLOYEE'S RIGHTS. Nothing contained in this Agreement shall be
construed as a contract of employment between the Company and the Employee or as
a right of the Employee to be continued in the employment of the Company or as a
limitation of the rights of the Company to discharge the Employee, with or
without cause. Notwithstanding the foregoing, nothing contained in this
Agreement shall affect either the timing of the Employee's pay increases or the
normal amount of gross compensation except as judged reasonable and prudent by
the Company to reflect corporate and/or general economic conditions.
Amounts credited to the Employee's Account under this Agreement shall
be for bookkeeping purposes only, and the assets represented by such Account
shall remain the sole property of the Company. The right of the Employee to
receive distributions hereunder shall be unsecured claim against the general
assets of the Company, and the Employee shall not have any rights in or against
any security or other asset acquired by the Company with the proceeds of his
Account.
In the event that any claim for benefits is denied (in whole or in
part) hereunder, the claimant shall receive from the Company notice in writing,
written in a manner calculated to be understood by the claimant, setting forth
the specific reasons for denial with specific reference to pertinent provisions
of this Agreement. The interpretations and construction hereof by the Board of
Directors shall be binding and conclusive on all persons and for all purposes.
Any disagreements about such interpretations and construction shall be submitted
to an arbitrator subject to the rules ant procedures established by the American
Arbitration Association. No member of the Board of Directors shall be liable to
any person for any action taken hereunder except those actions undertaken with
lack of good faith.
8. INALIENABILITY. No benefit payable under this Agreement shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge prior to actual receipt thereof by the payee; and
any
-7-
<PAGE>
attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge prior to such receipt shall be void; nor shall the Company be in any
manner liable for or subject to the debts, contracts, liabilities, engagements,
or torts of any person entitled to any benefit.
9. AMENDMENT AND TERMINATION. The Company retains sole discretion to
amend or terminate this Plan and Agreement at any time; provided however, that
no amendment shall have the effect of reducing the Account balance of an
Employee, determined as of the date of the amendment. In the event the Plan is
terminated, the Employee's Deferral Elections shall remain in effect for the
remainder of that calendar year and then shall cease. Upon termination, the
Employee's Account shall continue to be maintained and shall continue to be
adjusted by the appropriate interest factor. Payment to the Employee or
beneficiary shall be made at such time and in such form as if the Plan and
Agreement had not been terminated; provided however, that the Company shall, at
any time after the Plan and Agreement is terminated, have sole discretion to
commence payments to the Employee under a form of payment determined at the sole
discretion of the Company.
10. APPLICABLE LAW. This Agreement shall constitute "a plan which is
unfunded and is maintained by an employer primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees", as defined by Section 301(a)(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"). The provisions of this Agreement shall be
construed and applied in accordance with ERISA and the laws of the State of
South Dakota.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
this 1st day of February , 1997.
RAVEN INDUSTRIES, INC.
By: /s/ Gary L. Conradi
-----------------------------------
Gary L. Conradi, Vice President
EMPLOYEE:
/s/ David A. Christensen
--------------------------------------
David A. Christensen
-8-
EXHIBIT 13
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
For the years ended January 31
-----------------------------------------------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997 1996 1995 1994
=======================================================================
<S> <C> <C> <C> <C> <C> <C>
ELECTRONICS
Sales ..................... $ 46,328 $ 45,947 $ 43,861 $ 32,962 $ 31,959 $ 35,771
Operating income .......... 4,161 5,844 4,913 4,600 2,753(a) 4,529
Identifiable assets ....... 25,972 25,599 23,251 19,204 16,912 18,838
Capital expenditures ...... 2,084 2,005 1,089 817 579 1,023
Depreciation & amortization 1,446 1,345 1,298 1,099 895 823
PLASTICS
Sales ..................... $ 70,845 $ 68,325 $ 59,158 $ 55,281 $ 48,971 $ 40,386
Operating income .......... 4,429 1,998 4,187 3,267 3,470 2,815
Identifiable assets ....... 33,674 34,583 33,879 26,092 25,817 16,796
Capital expenditures ...... 2,151 3,869 2,540 2,973 6,394 3,601
Depreciation & amortization 3,160 3,248 2,682 2,418 1,849 1,266
SEWN PRODUCTS
Sales ..................... $ 35,625 $ 35,347 $ 36,422 $ 32,201 $ 40,790 $ 45,311
Operating income .......... 1,083 2,720 2,871 1,694 2,913 3,096
Identifiable assets ....... 14,547 14,157 14,990 13,934 16,384 16,510
Capital expenditures ...... 371 667 380 396 780 1,160
Depreciation & amortization 527 544 586 725 838 808
CORPORATE & OTHER
Identifiable assets(b) .... $ 9,481 $ 8,251 $ 8,542 $ 8,323 $ 6,523 $ 8,453
TOTAL COMPANY
Sales ..................... $152,798 $149,619 $139,441 $120,444 $121,720 $121,468
Operating income .......... 9,673 10,562 11,971 9,561 9,136(a) 10,440
Identifiable assets ....... 83,674 82,590 80,662 67,553 65,636 60,597
Capital expenditures ...... 4,606 6,541 4,009 4,186 7,753 5,784
Depreciation & amortization 5,133 5,137 4,566 4,242 3,582 2,897
</TABLE>
(a) INCLUDES A $1.8 MILLION CHARGE AT THE COMPANY'S BETA RAVEN SUBSIDIARY.
(b) CORPORATE & OTHER ASSETS ARE PRINCIPALLY CASH, INVESTMENTS, DEFERRED TAXES,
AND NOTES RECEIVABLE.
PRODUCT LINES BY BUSINESS SEGMENT
ELECTRONICS: Contract electronics manufacturing, Flow controls--precision
farming, Feedmill and bakery automation
PLASTICS: Sheeting, Storage/sprayer tanks, Research balloons, Pickup-truck
toppers
SEWN PRODUCTS: Performance outerwear, Sport balloons, Inflatables
ELECTRONICS SEGMENT SALES PLASTICS SEGMENT SALES
DOLLARS IN MILLIONS DOLLARS IN MILLIONS
[PLOT POINTS CHART] [PLOT POINTS CHART]
1994...... 35.771 1994...... 40.386
1995...... 31.959 1995...... 48.971
1996...... 32.962 1996...... 55.281
1997...... 43.861 1997...... 59.158
1998...... 45.947 1998...... 68.325
1999...... 46.328 1999...... 70.845
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 12
<PAGE>
SALES BY MARKETS
For the years ended January 31
--------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
================================
INDUSTRIAL
Plastic sheeting ............... $ 25,877 $ 23,043 $ 21,276
Industrial tanks ............... 9,632 12,405 7,070
Electronics .................... 20,189 18,765 16,574
Research balloons .............. 3,873 3,150 3,268
Inflatables .................... 3,319 3,085 3,515
--------------------------------
$ 62,890 $ 60,448 $ 51,703
RECREATION
Performance outerwear .......... $ 30,202 $ 29,803 $ 29,901
Sport balloons ................. 2,104 2,459 2,790
--------------------------------
$ 32,306 $ 32,262 $ 32,691
AGRICULTURE
Flow controls--precision farming $ 15,311 $ 16,852 $ 16,689
Feedmill automation ............ 6,059 5,128 5,039
Storage/sprayer tanks .......... 9,740 9,869 8,632
Plastic sheeting ............... 1,730 1,251 1,255
--------------------------------
$ 32,840 $ 33,100 $ 31,615
AUTOMOTIVE
Pickup-truck toppers ........... $ 19,993 $ 18,607 $ 17,657
DEFENSE
Electronics .................... $ 4,769 $ 5,202 $ 5,559
Other .......................... 216
--------------------------------
$ 4,769 $ 5,202 $ 5,775
TOTAL COMPANY SALES
Industrial ..................... $ 62,890 $ 60,448 $ 51,703
Recreation ..................... 32,306 32,262 32,691
Agriculture .................... 32,840 33,100 31,615
Automotive ..................... 19,993 18,607 17,657
Defense ........................ 4,769 5,202 5,775
--------------------------------
TOTAL ....................... $152,798 $149,619 $139,441
================================
SEWN PRODUCTS SEGMENT SALES
DOLLARS IN MILLIONS
[PLOT POINTS CHART]
1994...... 45.311
1995...... 40.790
1996...... 32.201
1997...... 36.422
1998...... 35.347
1999...... 35.625
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 13
<PAGE>
ELEVEN-YEAR FINANCIAL SUMMARY
OF OPERATIONS, FINANCIAL POSITION, CASH FLOW, PER-SHARE RESULTS AND OTHER DATA
<TABLE>
<CAPTION>
--------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1999 1998 1997 1996
========================================================
<S> <C> <C> <C> <C>
OPERATIONS FOR YEAR
Net sales ........................................ $ 152,798 $ 149,619 $ 139,441 $ 120,444
Gross profit ..................................... 24,815 24,929 25,287 22,660
Operating income ................................. 9,673 10,562 11,971 9,561
Income before income taxes ....................... 9,649 12,540(a) 11,915 9,566
Net income ....................................... 6,182 8,062 7,688 6,197
Net income % of sales ............................ 4.0% 5.4% 5.5% 5.1%
Net income % of beginning equity ................. 10.0% 14.2% 15.6% 13.6%
Cash dividends ................................... $ 2,944 $ 2,709 $ 2,367 $ 2,130
FINANCIAL POSITION
Current assets ................................... $ 60,861 $ 57,831 $ 56,696 $ 45,695
Current liabilities .............................. 16,792 19,375 20,016 14,771
Working capital .................................. 44,069 38,456 36,680 30,924
Current ratio .................................... 3.62 2.98 2.83 3.09
Property, plant and equipment, net ............... 19,563 19,817 18,142 18,069
Total assets ..................................... 83,674 82,590 80,662 67,553
Long-term debt, less current portion ............. 4,572 1,128 3,181 2,816
Shareholders' equity ............................. 62,293 61,563 56,729 49,151
Long-term debt/total capitalization .............. 6.8% 1.8% 5.3% 5.4%
Inventory turnover (CGS/year-end inventory)....... 4.9 4.8 4.5 4.1
CASH FLOWS PROVIDED BY (USED IN)
Operating activities ............................. $ 8,326 $ 9,274 $ 7,088 $ 9,687
Investing activities ............................. (3,127) (4,979) (5,090) (4,158)
Financing activities ............................. (2,714) (4,884) (2,363) (4,029)
Increase (decrease) in cash and equivalents....... 2,485 (589) (365) 1,500
COMMON STOCK DATA
Net income per share--basic ...................... $ 1.30 $ 1.66 $ 1.62 $ 1.31
Net income per share--diluted .................... 1.30 1.65 1.61 1.30
Cash dividends per share ......................... 0.62 0.56 0.50 0.45
Book value per share ............................. 13.27 12.76 11.73 10.42
Stock price range during year
High ......................................... $ 22.75 $ 25.75 $ 23.50 $ 20.75
Low .......................................... $ 15.25 $ 19.63 $ 16.00 $ 15.50
Shares outstanding, year-end (in thousands)....... 4,694 4,825 4,836 4,716
Number of shareholders, year-end ................. 3,014 3,221 3,011 3,190
OTHER DATA
Average number of employees ...................... 1,463 1,511 1,387 1,368
Sales per employee ............................... $ 104 $ 99 $ 101 $ 88
Backlog .......................................... $ 47,431 $ 47,154 $ 38,102 $ 32,539
</TABLE>
ALL PER SHARE, SHARES OUTSTANDING AND MARKET PRICE DATA REFLECT THE OCTOBER 1992
THREE-FOR-TWO AND THE JULY 1989 TWO-FOR-ONE STOCK SPLITS. ALL OTHER FIGURES ARE
AS REPORTED.
(a) INCLUDES THE $1.8 MILLION GAIN ON SALE OF AN INVESTMENT IN AN AFFILIATE (SEE
NOTE FIVE).
(b) INCLUDES A $1.8 MILLION CHARGE AT THE COMPANY'S BETA RAVEN SUBSIDIARY.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 18
<PAGE>
<TABLE>
<CAPTION>
For the years ended January 31
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$ 121,720 $ 121,468 $ 111,214 $ 100,609 $ 85,502 $ 90,973 $ 77,563
23,968 23,574 21,048 19,109 17,685 18,177 14,857
9,136(b) 10,440 9,146 8,138 7,311 7,461 5,127
9,372 10,638 9,182 8,067 7,071 6,831 4,578
6,088 6,954 6,030 5,306 4,605 4,235 2,930
5.0% 5.7% 5.4% 5.3% 5.4% 4.7% 3.8%
14.8% 19.6% 19.7% 20.2% 20.2% 19.7% 15.3%
$ 1,843 $ 1,545 $ 1,316 $ 1,165 $ 1,014 $ 849 $ 732
$ 43,795 $ 45,037 $ 42,476 $ 34,798 $ 33,900 $ 30,570 $ 24,976
15,078 16,088 15,253 11,284 12,147 11,247 9,633
28,717 28,949 27,223 23,514 21,753 19,323 15,342
2.90 2.80 2.78 3.08 2.79 2.72 2.59
18,570 13,371 10,457 9,947 8,368 7,163 8,702
65,636 60,597 54,813 46,528 44,103 39,547 35,892
4,179 2,539 3,224 3,676 4,679 4,966 4,115
45,526 41,100 35,530 30,601 26,236 22,802 21,448
8.4% 5.8% 8.3% 10.7% 15.1% 17.5% 15.7%
4.4 4.4 3.8 4.2 3.4 4.1 4.6
$ 7,452 $ 11,257 $ 3,475 $ 7,489 $ 5,583 $ 2,404 $ 3,908
(10,000) (5,908) (3,107) (3,886) (3,113) (1,308) (1,331)
406 (2,042) (1,659) (2,518) (2,071) (1,875) (1,869)
(2,142) 3,307 (1,291) 1,085 399 (779) 708
$ 1.29 $ 1.48 $ 1.30 $ 1.15 $ 1.00 $ 0.90 $ 0.61
1.27 1.45 1.27 1.13 0.98 0.87 0.61
0.39 0.33 0.28 0.25 0.22 0.18 0.15
9.62 8.76 7.60 6.63 5.77 5.01 4.48
$ 24.50 $ 23.50 $ 21.50 $ 15.83 $ 9.75 $ 10.00 $ 5.75
$ 18.00 $ 18.00 $ 13.83 $ 8.00 $ 6.42 $ 5.33 $ 4.37
4,735 4,694 4,676 4,629 4,559 4,554 4,785
3,031 3,173 3,147 2,775 2,526 1,898 1,925
1,414 1,435 1,316 1,252 1,141 1,234 1,138
$ 86 $ 85 $ 85 $ 80 $ 75 $ 74 $ 68
$ 29,661 $ 36,403 $ 49,033 $ 48,200 $ 53,587 $ 42,078 $ 33,436
</TABLE>
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 19
<PAGE>
FINANCIAL REVIEW & ANALYSIS
RESULTS OF OPERATIONS: MARGIN ANALYSIS
<TABLE>
<CAPTION>
For the years ended January 31
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
% % % % % %
-------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER-SHARE DATA Amount Sales Change Amount Sales Change Amount Sales Change
=====================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $152,798 100.0 + 2.1 $149,619 100.0 + 7.3 $139,441 100.0 + 15.8
Gross profit......................... 24,815 16.2 - 0.5 24,929 16.7 - 1.4 25,287 18.1 + 11.6
Operating expenses................... 15,142 9.9 + 5.4 14,367 9.6 + 7.9 13,316 9.5 + 1.7
Operating income..................... 9,673 6.3 - 8.4 10,562 7.1 - 11.8 11,971 8.6 + 25.2
Income before income taxes........... 9,649 6.3 - 23.1 12,540 8.4 + 5.2 11,915 8.5 + 24.6
Income taxes......................... 3,467 2.3 - 22.6 4,478 3.0 + 5.9 4,227 3.0 + 25.5
Net income........................... 6,182 4.0 - 23.3 8,062 5.4 + 4.9 7,688 5.5 + 24.1
Net income per share-diluted......... $ 1.30 - 21.2 $ 1.65 + 2.5 $ 1.61 + 23.8
Effective income tax rate............ 35.9% + 0.6 35.7% + 0.6 35.5% + 0.9
</TABLE>
LONG-TERM PERFORMANCE
Although the company achieved record sales in fiscal 1999, net income fell. Net
income was $6.2 million or $1.30 per share on a diluted basis. Fiscal 1998 net
income was $8.1 million, which included a $1.8 million pretax gain on the sale
of an investment in an affiliated company. Absent this gain, net income for
fiscal 1998 would have been $6.9 million or $1.41 per share. The more accurate
comparison between fiscal 1998 and fiscal 1999 is to compare the $6.9 million to
the $6.2 million. Based on this comparison, the shortfall for fiscal 1999 net
income was 10.1%. A number of factors contributed to this unfavorable result.
First, the Electronics Segment's agricultural controls product line and the
Plastics Segment's storage tank line were adversely affected by the poor farm
economy and its associated low commodity prices. Second, the Plastics Segment
was also hit with a downturn in the semiconductor manufacturing market which
directly affected the dual-laminate tank product line. Third, competitive
pressures forced gross margins down in the contract product lines of the Sewn
Products Segment. Fourth, gross margins in the Electronics Segment's contract
products declined, due primarily to customer delays in deliveries.
In fiscal 1999, the company's return was over 10% on stockholders' equity and 4%
on sales. The company also increased its book value by 4% on a per-share basis;
repurchased 135,000 shares of its stock for a total cost of $2.6 million; paid
record dividends; and continued to invest in its business. For fiscal 1999 the
company's debt-to-capitalization ratio was 6.8%.
<TABLE>
<CAPTION>
For the years ended January 31
-------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
===================================================================
<S> <C> <C> <C> <C> <C> <C>
Net income as % of
Sales............... 4.0% 5.4% 5.5% 5.1% 5.0% 5.7%
Average assets...... 7.4% 9.9% 10.4% 9.3% 9.6% 12.1%
Beginning equity.... 10.0% 14.2% 15.6% 13.6% 14.8% 19.6%
</TABLE>
SEGMENT ANALYSIS
The following table summarizes sales and gross profits in the company's three
business segments for each of the past three fiscal years.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------
DOLLARS IN THOUSANDS Amount % Change Amount % Change Amount % Change
========================================================================
<S> <C> <C> <C> <C> <C> <C>
SALES
Electronics............ $ 46,328 + 0.8 $ 45,947 + 4.8 $ 43,861 + 33.1
Plastics............... 70,845 + 3.7 68,325 + 15.5 59,158 + 7.0
Sewn Products.......... 35,625 + 0.8 35,347 - 3.0 36,422 + 13.1
-------- -------- --------
Total.................. $152,798 + 2.1 $149,619 + 7.3 $139,441 + 15.8
======== ======== ========
</TABLE>
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 20
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------
DOLLARS IN THOUSANDS Amount % Sales Amount % Sales Amount % Sales
===============================================================
GROSS PROFITS
<S> <C> <C> <C> <C> <C> <C>
Electronics........... $ 8,657 18.7 $10,083 21.9 $ 8,617 19.6
Plastics.............. 11,600 16.4 8,791 12.9 10,154 17.2
Sewn Products......... 4,558 12.8 6,055 17.1 6,516 17.9
------- ------- -------
Total................. $24,815 16.2 $24,929 16.7 $25,287 18.1
======= ======= =======
</TABLE>
ELECTRONICS SEGMENT
FISCAL 1999 VERSUS FISCAL 1998
Sales for this segment were up slightly when compared to fiscal 1998, reaching
$46.3 million in fiscal 1999. Due to increased market share, fiscal 1999 sales
of Beta Raven feedmill systems and subcontract assemblies rose to $12.2 million;
up from $10.1 million in fiscal 1998. Sales of precision-farming control devices
declined by $1.5 million to $15.3 million. The primary agricultural markets were
hard hit by a poor farm economy. Contract manufacturing deliveries ended the
year at $18.8 million, down $200,000 from fiscal 1998. Customer delays in the
delivery of certain contracts kept this product line from exceeding fiscal 1998
sales figures. Operating income for the segment was $4.1 million, down from $5.8
million in fiscal 1998. Gross margin rates on precision-farming control devices
in fiscal 1999 were down from fiscal 1998. This resulted from lower volumes and
a poor performance in the precision depth-control product line. Contract
manufacturing margins were affected by delivery delays, and new contract
start-up costs. Feedmill automation systems generated higher gross margin rates
in fiscal 1999 than in fiscal 1998 due to better utilization of resources
resulting from increased sales volume.
FISCAL 1998 VERSUS FISCAL 1997
Electronics Segment sales were up 5% compared with fiscal 1997, totaling $45.9
million in fiscal 1998. Sales growth occurred in all the product lines in this
segment, with the smallest increase of $163,000 being in the precision-farming
control device product line. Contract manufacturing and feedmill automation
systems sales increased by $1.0 million and $927,000, respectively. Contract
manufacturing increases resulted from market growth. Feedmill automation systems
saw higher market demand and increased market share. Gross profit rates improved
in this segment as a higher percentage of repeat business lessened the impact of
start-up costs in contract manufacturing.
PROSPECTS
There was a substantial backlog increase in the Electronics Segment at the end
of fiscal 1999. This backlog supports management's expectation of sales growth
over 10% in this segment for fiscal 2000. Contract manufacturing already has
received $5.0 million in new circuit-board assemblies from a single computer
manufacturer, and management expects an additional $3.0 million from the same
customer. Sales growth in the precision-farming control devices product line
will depend on the farm economy in the United States and abroad. A sound backlog
in feedmill automation systems as well as prospects of additional sales due to
the replacement of old equipment support management's expectation of a sales
increase for this product line in fiscal 2000. Gross margin rates are expected
to partially recover in fiscal 2000.
ELECTRONICS SEGMENT
DOLLARS IN MILLIONS
[PLOT POINTS CHART]
SALES GROSS PROFITS
1997....... 43.861 8.617
1998....... 45.947 10.083
1999....... 46.328 8.657
PLASTICS SEGMENT
FISCAL 1999 VERSUS FISCAL 1998
Sales in the Plastics Segment rose from $68.3 million in fiscal 1998 to $70.8
million in fiscal 1999. The engineered films product line generated a $4.0
million increase in sales over fiscal 1998's $27.4 million. Included in fiscal
1999 sales was $2.5 million of construction film shipped to various
storm-devastated areas. Plastic storage tank sales of $19.4 million were $3.1
million below fiscal 1998. The primary factor responsible for the reduction in
sales was a weak semiconductor market that affected the dual-laminate tank
product line. Sales in the pickup-truck topper product line increased by over 7%
due primarily to higher unit deliveries. Even though sales of agricultural tanks
held steady, gross margins were down due to the poor farm economy. This, in
conjunction with low volume in dual-laminate tanks, accounted for lower gross
margins on plastic storage tanks. Overall, the Plastics Segment generated gross
margins of 16.4% compared to 12.9% for fiscal 1998. This increase was due to
strong performances in the company's engineered films and pickup-truck topper
operations as a result of better unitization of capacity due to increased sales
volume.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 21
<PAGE>
FINANCIAL REVIEW & ANALYSIS
FISCAL 1998 VERSUS FISCAL 1997
Sales in the Plastics Segment rose from $59.2 million in fiscal 1997 to $68.3
million in fiscal 1998, due primarily to the acquisition of Norcore Plastics,
Inc. in January 1997. Storage tank sales were $22.3 million in fiscal 1998 and
$15.7 million in fiscal 1997. The company's industrial plastic tank operations
experienced unfavorable market conditions in the second half of fiscal 1998.
Sales of engineered films and research balloons were 6% higher in fiscal 1998
than in fiscal 1997, reaching $27.4 million. Expanded sales in new markets
helped attain these increases. Pickup-truck topper sales increased by 5% due
primarily to increased market share. Most of the decline in the gross profit
rates resulted from the decline in plastic tank margins, but all product lines
showed some reduction.
PROSPECTS
Management's expectation is that Plastics Segment sales will rise 5-10% in
fiscal 2000. Engineered films, plastic tanks and pickup-truck toppers are
expected to show sales increases due to increased market share. Management
expects Plastics Segment gross margin rates to remain flat in fiscal 2000. Lower
gross margins on the engineered films product line are expected to be offset by
higher gross margins on plastic tanks and pickup-truck toppers in fiscal 2000.
PLASTICS SEGMENT
DOLLARS IN MILLIONS
[PLOT POINTS CHART]
SALES GROSS PROFITS
1997...... 59.158 10.154
1998...... 68.325 8.791
1999...... 70.845 11.600
SEWN PRODUCTS SEGMENT
FISCAL 1999 VERSUS FISCAL 1998
Sales were $35.6 million in the Sewn Products Segment in fiscal 1999, less than
1% more than fiscal 1998. Sales of performance outerwear increased by $400,000
to end fiscal 1999 at $30.2 million. Sales of hot-air balloons and inflatable
displays declined due to lower demand. The change in the Sewn Products Segment's
gross profit rate, from 17% in fiscal 1998 to 13% in fiscal 1999, was due
primarily to increased competitive pressures in the contract sewing product line
along with significant style-changeover costs.
FISCAL 1998 VERSUS FISCAL 1997
Sales for this segment were down 3% in fiscal 1998 from fiscal 1997. Sales of
performance outerwear were essentially unchanged at $29.8 million while sales of
hot-air balloons and inflatable displays declined due to lower demand. The gross
profit rate of 17% for fiscal 1998 was one percentage point lower than the 18%
rate of fiscal 1997. The decline was due primarily to lower sales of relatively
higher-margin products.
PROSPECTS
The company is projecting a sales decline in the Sewn Products Segment of
10-15%. Competitive pressures are evidenced by a portion of the fiscal 1999
performance outerwear sales moving offshore in fiscal 2000, which accounts for
most of the decline. Management projects that the Sewn Products Segment will see
an improvement in its gross profit rate, due primarily to reduced sales of
relatively low-margin products and the impact of a lower cost structure.
SEWN PRODUCTS SEGMENT
DOLLARS IN MILLIONS
[PLOT POINTS CHART]
SALES GROSS PROFITS
1997...... 36.422 6.516
1998...... 35.347 6.055
1999...... 35.625 4.558
EXPENSES, INCOME TAXES AND OTHER
FISCAL 1999 VERSUS FISCAL 1998
Selling expenses increased by 4% in fiscal 1999 when compared with fiscal 1998
levels, basically the same rate as salary increases. Administration expense was
up 7% to $6.6 million in fiscal 1999 compared to $6.2 million in fiscal 1998.
Administration expense was higher due primarily to salary increases and
settlement of a legal issue. Interest expense was up from 1998 by $151,000 due
to higher borrowing levels. Fiscal 1999 "other income" was $450,000, which
included interest income on a note related to the sale of an affiliated company
in January 1998. The company's effective income tax rate increased from 35.7% in
fiscal 1998 to 35.9% in fiscal 1999 due to higher state income taxes.
FISCAL 1998 VERSUS FISCAL 1997
Selling expenses increased by 13% in fiscal 1998 when compared with fiscal 1997
levels. Increased selling efforts to penetrate new markets in the Plastics and
Electronics segments contributed to the increase. Administrative and interest
expenses were relatively unchanged. Other income included improved results at
the company's 50%-owned affiliate, which was sold in January 1998 for $3.8
million generating a pretax gain of $1.8 million. The company's effective income
tax rate rose from 35.5% to 35.7% as the goodwill amortization associated with
the Norcore merger was not deductible for federal income tax purposes.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 22
<PAGE>
PROSPECTS
Operating expenses are expected to remain relatively constant as a percentage of
sales in fiscal 2000. Interest expense should decline slightly as total
borrowing is reduced. The company's effective income tax rate is expected to
rise slightly, to the 36% range for fiscal 2000.
YEAR 2000
All of the company's business software has been changed to be
2000-date-compliant and will be fully tested by July 1, 1999. The platform on
which this software runs is 2000-compliant. Production equipment is being
checked, and this procedure should be completed by August 1, 1999. Building
equipment has been checked, and only one problem was found, which was corrected
in March of 1999. Since the company does not run its primary business software
on personal computers, management does not expect any material problems from
non-compliant personal computers. Vendors and service providers are being
surveyed to ensure that they are 2000-compliant and will be able to continue to
meet the company's demands.
Management believes total year 2000 costs will not exceed $250,000. Unforeseen
year 2000 problems may arise, and the company believes it has sufficient
resources to respond.
ANALYSIS OF FINANCIAL POSITION, 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 1999 1998 1997
==============================
Operating activities ............. $ 8,326 $ 9,274 $ 7,088
Investing activities.............. (3,127) (4,979) (5,090)
Financing activities.............. (2,714) (4,884) (2,363)
Increase (decrease) in cash....... $ 2,485 $ (589) $ (365)
OPERATING ACTIVITIES
The company's cash flow from operations totaled $24.7 million over the past
three years, compared with net income of $21.9 million over the same period.
Accounts receivable and inventory levels increased slightly in fiscal 1999 due
to slightly higher sales. Working capital requirements are projected to grow
along with revenues in fiscal 2000.
INVESTING ACTIVITIES
In December 1998, the company received the second payment of $1.2 million from
the sale of its investment in an affiliated company. The last installment is due
December 1999. Capital expenditures totaled $4.6 million in fiscal 1999, $1.9
million less than the prior year. Capital expenditures in fiscal 1999 ran
$527,000 less than depreciation and amortization. Expenditures were fairly
evenly divided between the Electronics and Plastics segments in support of
expected growth. Capital spending is expected to exceed depreciation and
amortization by $1.0 million in fiscal 2000 to support growth of the company's
engineered films business.
FINANCING ACTIVITIES AND CREDIT LINES
The company increased its dividend on a per-share basis for the twelfth
consecutive year. Cash also was used to repurchase 135,000 shares of company
stock at an average price of $19.32. As of January 31,1999, the company had
repurchased 169,000 shares of its common stock under a 500,000-share
authorization from the board of directors. These shares were repurchased to
return additional cash to the shareholders and increase the leverage of the
company's balance sheet. The company may repurchase additional shares depending
on its own internal cash requirements.
The company uses its short-term line of credit to finance seasonal borrowing
needs. Maximum borrowings under the company's line of credit were $4.0 million
during fiscal 1999 and the average daily borrowing was $704,000. Short-term
borrowing required for fiscal 2000 should be lower because of the company's
higher opening cash balance. Management believes its existing credit facility
will be sufficient to fund its requirements in the coming fiscal year.
CAPITAL STRUCTURE AND LONG-TERM FINANCING
The company's long-term debt-to-total capitalization ratio was 6.8% at January
31, 1999. Refer to Note Eight to the consolidated financial statements for the
types and sources of long-term debt. The company secured an additional $5.0
million in long-term financing during fiscal 1999. The proceeds of this loan
were used to retire $4.0 million in short-term borrowings and to repurchase
company stock. The terms of the loan call for repayment over five years at $1.0
million per year ending in 2003. Interest is at a fixed 7.25%, payable quarterly
during the life of the loan.
The company's solid financial condition and capacity to assume additional
financing, if needed, provide the company a strategic advantage over many of its
competitors. Management has the capacity to, and will, leverage the company to
acquire businesses that fit its strategic direction. Additional cash for
acquisition purposes could also be raised by using proceeds from a disposition.
In the opinion of management, the company is well-positioned to take on new
opportunities in its core businesses with emphasis on those that build on the
company's strengths of customer service and manufacturing.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 23
<PAGE>
STOCK & QUARTERLY PERFORMANCE
WEEKLY CLOSING STOCK PRICE, VOLUME & P/E
[PLOT POINTS CHART]
CLOSING
DATE PRICE VOLUME P/E
02-06-98 22 1/4 6,700 13.323
02-13-98 22 3/8 H 28,900 13.398
02-20-98 22 1/4 18,700 13.323
02-27-98 22 1/4 74,200 13.323
03-06-98 22 1/8 16,800 13.249
03-13-98 22 1/8 11,200 13.249
03-20-98 20 89,800 11.976
03-27-98 20 3/4 46,500 12.425
04-03-98 21 47,000 12.575
04-10-98 20 3/4 22,600 12.425
04-17-98 20 3/4 43,100 12.425
04-24-98 20 1/4 21,300 12.126
05-01-98 19 3/4 39,300 13.715
05-08-98 19 11/16 11,500 13.672
05-15-98 20 52,900 13.889
05-22-98 20 3/8 15,300 14.149
05-29-98 20 23,800 13.889
06-05-98 19 3/4 110,800 13.715
06-12-98 19 1/8 36,000 13.281
06-19-98 19 1/8 13,400 13.281
06-26-98 19 1/8 6,200 13.281
07-03-98 19 1/8 28,800 13.281
07-10-98 19 1/4 7,600 13.368
07-17-98 19 1/8 23,500 13.281
07-24-98 19 7/32 73,200 13.346
07-31-98 19 3/16 21,600 13.512
08-07-98 19 1/8 14,500 13.468
08-14-98 18 7/8 50,200 13.292
08-21-98 18 3/4 16,300 13.204
08-28-98 18 3/4 12,800 13.204
09-04-98 18 1/16 49,600 12.720
09-11-98 18 1/8 3,900 12.764
09-18-98 18 14,400 12.676
09-25-98 17 3/4 11,900 12.500
10-02-98 15 7/8 21,500 11.180
10-09-98 15 7/8 41,600 11.180
10-16-98 16 13,600 11.268
10-23-98 16 1/4 24,000 11.444
10-30-98 16 3/8 3,500 10.773
11-06-98 16 31,500 10.526
11-13-98 17 3/4 35,000 11.678
11-20-98 17 3/8 12,200 11.431
11-27-98 17 1/8 17,000 11.266
12-04-98 17 1/8 14,400 11.266
12-11-98 16 15/16 13,300 11.143
12-18-98 16 18,900 10.526
12-25-98 15 7/8 19,100 10.444
01-01-99 16 1/8 28,800 10.609
01-08-99 16 21,000 10.526
01-15-99 16 24,100 10.526
01-22-99 15 5/8 L 32,500 10.280
01-29-99 16 44,900 10.526
QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Net income(a) Common stock
per share market price
DOLLARS IN THOUSANDS, Net Gross Operating Pretax Net ------------------- ------------------- Dividends
EXCEPT PER-SHARE DATA sales profit income income income Basic Diluted High Low per share
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1999
1ST QUARTER ....... $ 32,162 $ 5,420 $ 1,606 $ 1,601 $ 1,024 $ 0.21 $ 0.21 $ 22.75 $ 19.25 $ 0.15
2ND QUARTER ....... 36,208 6,033 2,383 2,341 1,502 0.31 0.31 20.38 19.00 0.15
3RD QUARTER ....... 44,787 7,041 3,197 3,202 2,053 0.44 0.44 19.38 15.63 0.16
4TH QUARTER ....... 39,641 6,321 2,487 2,505 1,603 0.34 0.34 18.00 15.25 0.16
--------------------------------------------------------------------------- --------
TOTAL YEAR ........ $152,798 $ 24,815 $ 9,673 $ 9,649 $ 6,182 $ 1.30 $ 1.30 $ 22.75 $ 15.25 $ 0.62
=========================================================================== ========
FISCAL 1998
1st quarter ....... $ 35,666 $ 6,827 $ 3,288 $ 3,334 $ 2,134 $ 0.44 $ 0.44 $ 24.00 $ 21.75 $ 0.13
2nd quarter ....... 34,075 6,075 2,407 2,476 1,602 0.33 0.33 24.50 22.38 0.13
3rd quarter ....... 41,321 6,113 2,505 2,548 1,641 0.34 0.33 25.75 22.50 0.15
4th quarter ....... 38,557 5,914 2,362 4,182(b) 2,685 0.56 0.55 23.75 19.63 0.15
--------------------------------------------------------------------------- --------
Total year ........ $149,619 $ 24,929 $ 10,562 $ 12,540 $ 8,062 $ 1.66 $ 1.65 $ 25.75 $ 19.63 $ 0.56
=========================================================================== ========
FISCAL 1997
1st quarter ....... $ 30,875 $ 6,086 $ 2,826 $ 2,797 $ 1,808 $ 0.38 $ 0.38 $ 18.75 $ 16.00 $ 0.12
2nd quarter ....... 31,270 5,398 2,215 2,191 1,409 0.30 0.30 22.00 16.00 0.12
3rd quarter ....... 38,943 7,055 3,598 3,571 2,303 0.49 0.48 22.75 18.25 0.13
4th quarter ....... 38,353 6,748 3,332 3,356 2,168 0.45 0.45 23.50 20.88 0.13
--------------------------------------------------------------------------- --------
Total year ........ $139,441 $ 25,287 $ 11,971 $ 11,915 $ 7,688 $ 1.62 $ 1.61 $ 23.50 $ 16.00 $ 0.50
=========================================================================== ========
</TABLE>
(a) NET INCOME PER SHARE IS COMPUTED DISCRETELY BY QUARTER AND MAY NOT ADD TO
THE FULL-YEAR.
(b) INCLUDES THE $1.8 MILLION GAIN ON SALE OF AN INVESTMENT IN AN
AFFILIATE (SEE NOTE FIVE).
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 24
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of January 31
-----------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
ASSETS =============================
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................................... $ 5,335 $ 2,850 $ 3,439
Accounts and note receivable, net ............................ 27,399 26,973 25,637
Inventories, net ............................................. 25,978 25,816 25,125
Deferred income taxes ........................................ 1,732 1,686 2,064
Prepaid expenses and other current assets .................... 417 506 431
-----------------------------
Total current assets ..................................... 60,861 57,831 56,696
Property, plant and equipment, net ............................... 19,563 19,817 18,142
Note receivable, less current portion ............................ 1,259
Other assets, net ................................................ 3,250 3,683 5,824
-----------------------------
Total assets ............................................. $83,674 $82,590 $80,662
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ............................ $ 1,060 $ 1,765 $ 1,366
Accounts payable ............................................. 5,993 7,480 7,849
Accrued liabilities .......................................... 9,245 9,327 10,197
Customer advances ............................................ 494 803 604
-----------------------------
Total current liabilities ................................ 16,792 19,375 20,016
Long-term debt, less current portion ............................. 4,572 1,128 3,181
Deferred income taxes ............................................ 17 524 736
Commitments and contingencies
Stockholders' equity ............................................. 62,293 61,563 56,729
-----------------------------
Common shares
Authorized-100,000,000
Outstanding-1999: 4,694,086: 1998: 4,824,429; 1997: 4,835,558
Total liabilities and stockholders' equity ................... $83,674 $82,590 $80,662
=============================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 25
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended January 31
-------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1999 1998 1997
=====================================
<S> <C> <C> <C>
Net sales ............................. $ 152,798 $ 149,619 $ 139,441
Cost of goods sold .................... 127,983 124,690 114,154
-------------------------------------
Gross profit ...................... 24,815 24,929 25,287
Operating expenses
Selling ........................... 8,502 8,149 7,211
Administrative .................... 6,640 6,218 6,105
-------------------------------------
Operating income .............. 9,673 10,562 11,971
Interest expense ...................... (474) (323) (310)
Gain on sale of investment of affiliate 1,794
Other income, net ..................... 450 507 254
-------------------------------------
Income before income taxes .... 9,649 12,540 11,915
Income taxes .......................... 3,467 4,478 4,227
-------------------------------------
Net income .................... $ 6,182 $ 8,062 $ 7,688
=====================================
Net income per common share:
-basic ............................. $ 1.30 $ 1.66 $ 1.62
=====================================
-diluted ........................... $ 1.30 $ 1.65 $ 1.61
=====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 26
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
$1 Par Treasury stock
common Paid-in --------------------- Retained
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA stock capital Shares At cost earnings Total
========================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance January 31, 1996.......................... $ 5,068 $ 536 (352,403) $ (2,910) $ 46,457 $49,151
Net and comprehensive income...................... 7,688 7,688
Cash dividends ($.50 per share)................... (2,367) (2,367)
Shares issued for acquisition..................... 94 1,956 2,050
Purchase and retirement of stock.................. (30) (624) (654)
Employees' stock options exercised................ 56 618 674
Tax benefit from exercise
of stock options.............................. 187 187
------------------------------------------------------------------------
Balance January 31, 1997.......................... 5,188 2,673 (352,403) (2,910) 51,778 56,729
Net and comprehensive income...................... 8,062 8,062
Cash dividends ($.56 per share)................... (2,709) (2,709)
Purchase of stock for treasury.................... (34,000) (713) (713)
Purchase and retirement of stock.................. (33) (771) (804)
Employees' stock options exercised................ 56 742 798
Tax benefit from exercise
of stock options.............................. 200 200
------------------------------------------------------------------------
Balance January 31, 1998.......................... 5,211 2,844 (386,403) (3,623) 57,131 61,563
Net and comprehensive income...................... 6,182 6,182
Cash dividends ($.62 per share)................... (2,944) (2,944)
Purchase of stock for treasury.................... (135,000) (2,608) (2,608)
Purchase and retirement of stock.................. (53) (982) (1,035)
Employees' stock options exercised................ 57 1,078 1,135
------------------------------------------------------------------------
BALANCE JANUARY 31, 1999.......................... $ 5,215 $ 2,940 (521,403) $ (6,231) $ 60,369 $62,293
========================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended January 31
--------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................................... $ 6,182 $ 8,062 $ 7,688
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ............................................... 5,133 5,137 4,566
Provision for losses on accounts receivable ................................. 135 193 88
Deferred income taxes ....................................................... (553) 166 (514)
Equity in earnings of affiliate, net of dividends ........................... (204) (6)
Gain on sale of investment of affiliate ..................................... (1,794)
Interest earned on note receivable .......................................... (203) (10)
Change in operating assets and liabilities, net of
effects from acquisition of a business .................................. (2,299) (2,254) (4,808)
Other operating activities, net ................................................. (69) (22) 74
--------------------------------
Net cash provided by operating activities ....................................... 8,326 9,274 7,088
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................................ (4,606) (6,541) (4,009)
Proceeds on installment sale of investment ...................................... 1,250 1,300
Acquisition of a business ....................................................... (1,105)
Other investing activities, net ................................................. 229 262 24
--------------------------------
Net cash used in investing activities ........................................... (3,127) (4,979) (5,090)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term debt ..................................................... 4,000 2,000
Payment of short-term debt ...................................................... (4,000) (2,000)
Retire debt of acquired business ................................................ (890)
Long-term debt principal payments ............................................... (2,262) (1,656) (813)
Proceeds from issuance of long-term debt ........................................ 5,000 1,500
Net proceeds from exercise of stock options ..................................... 100 194 207
Dividends paid .................................................................. (2,944) (2,709) (2,367)
Purchase of treasury stock ...................................................... (2,608) (713)
--------------------------------
Net cash used in financing activities ........................................... (2,714) (4,884) (2,363)
--------------------------------
Net increase (decrease) in cash and cash equivalents ................................ 2,485 (589) (365)
Cash and cash equivalents at beginning of year ...................................... 2,850 3,439 3,804
--------------------------------
Cash and cash equivalents at end of year ............................................ $ 5,335 $ 2,850 $ 3,439
================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE ONE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Raven Industries,
Inc. ("Raven") and its wholly-owned subsidiaries (the "company"), Aerostar
International, Inc. ("Aerostar"); Beta Raven Inc. ("Beta"); and Glasstite, Inc.
("Glasstite"). All intercompany balances and transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of the company's financial statements 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 with
Norwest Bank Minnesota, N.A.
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 is stated at cost and is depreciated over the
estimated useful life of the asset using accelerated methods. The estimated
useful lives used for computing depreciation are as 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 income.
INTANGIBLE ASSETS
Intangible assets are primarily comprised of goodwill and patents which are
recorded at cost net of accumulated amortization. Amortization is computed on a
straight-line basis over estimated useful lives ranging from 5 to 20 years.
INSURANCE OBLIGATIONS
The company employs large deductible insurance policies covering workers
compensation, employee health care and general liability costs. Costs are
accrued up to the limits of these policies based on claims filed and estimates
for claims incurred but not reported.
CONTINGENCIES
The company may from time to time be involved as a defendant in lawsuits, claims
or disputes in the normal course of business. An estimated loss is charged to
operations when it is probable that an asset has been impaired or a liability
incurred and the amount of the loss can be reasonably estimated.
RESEARCH AND DEVELOPMENT
Research and development expenditures of $608,000 in fiscal 1999, $660,000 in
fiscal 1998, and $678,000 in fiscal 1997 were charged to cost of goods sold in
the year incurred.
STOCK OPTIONS
The company records compensation expense related to its stock option plan using
the intrinsic value method.
INCOME TAXES
Deferred income taxes reflect temporary differences between assets and
liabilities reported on the company's balance sheet and their tax basis. 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.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE TWO
SELECTED BALANCE SHEET INFORMATION
Following are the components of selected balance sheet items:
<TABLE>
<CAPTION>
As of January 31
----------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
==================================
<S> <C> <C> <C>
Accounts and note receivable, net:
Trade accounts ....................... $ 26,336 $ 26,113 $ 25,977
Current portion of note receivable ... 1,463 1,250
Allowance for doubtful accounts ...... (400) (390) (340)
----------------------------------
Total ............................ $ 27,399 $ 26,973 $ 25,637
==================================
Inventories, net:
Finished goods ....................... $ 4,055 $ 4,133 $ 4,275
In process ........................... 3,662 3,882 4,574
Materials ............................ 18,261 17,801 16,276
----------------------------------
Total ............................ $ 25,978 $ 25,816 $ 25,125
==================================
Property, plant, and equipment, net:
Land ................................. $ 1,265 $ 1,265 $ 1,185
Building and improvements ............ 15,429 14,742 13,988
Machinery and equipment .............. 40,582 37,798 33,142
----------------------------------
Property, plant and equipment, at cost 57,276 53,805 48,315
Accumulated depreciation ............. (37,713) (33,988) (30,173)
----------------------------------
Total ............................ $ 19,563 $ 19,817 $ 18,142
==================================
Other assets, net:
Intangible assets, net of amortization $ 3,097 $ 3,447 $ 3,732
Investment in affiliate .............. 1,802
Other non-current assets ............. 153 236 290
----------------------------------
Total ............................ $ 3,250 $ 3,683 $ 5,824
==================================
Accrued liabilities:
Profit sharing and 401(k) contribution $ 973 $ 1,255 $ 1,654
Vacation ............................. 1,979 1,941 1,786
Salaries and wages ................... 2,573 2,407 2,514
Insurance obligations ................ 1,921 2,247 2,070
Other ................................ 1,799 1,477 2,173
----------------------------------
Total ............................ $ 9,245 $ 9,327 $ 10,197
==================================
</TABLE>
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 30
<PAGE>
NOTE THREE
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the years ended January 31
-------------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
=====================================
<S> <C> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable..................................... $ (348) $ (279) $ (8,112)
Inventories............................................. (162) (727) (393)
Prepaid expenses and other current assets............... 89 (76) 53
Accounts payable........................................ (1,487) (369) 2,450
Accrued liabilities..................................... (82) (1,003) 1,588
Customer advances....................................... (309) 200 (394)
-------------------------------------
$ (2,299) $ (2,254) $ (4,808)
=====================================
Cash paid during the year for:
Interest................................................ $ 450 $ 335 $ 309
Income taxes............................................ 4,276 4,227 4,201
</TABLE>
NOTE FOUR
ACQUISITION
In January 1997, the company acquired all the outstanding shares of Norcore
Plastics, Inc., a manufacturer of large industrial storage tanks utilizing "dual
laminate" technology. Consideration paid included $1.1 million of cash and the
issuance of 93,701 shares of unregistered common stock. Raven acquired assets of
$3.0 million and assumed liabilities of $2.1 million in connection with the
merger.
The acquisition was accounted for as a purchase. The cost in excess of net
tangible and intangible assets acquired resulted in goodwill of $2.7 million.
The consolidated statements of income include the results of operations of this
business subsequent to the acquisition date.
NOTE FIVE
SALE OF INVESTMENT IN AFFILIATE
In January 1998, the company sold its 50% equity investment in a corporation
engaged in the manufacture of injection-molded plastic products for $3.8 million
and recognized a pre-tax gain of $1.8 million. The company had accounted for
this investment using the equity method. Under the Stock Redemption Agreement,
the company received cash of $1.3 million in fiscal 1998 and an 8.5% interest
bearing note for the remaining $2.5 million. This note receivable was payable to
the company in two installments. The first installment of principal only was
received in fiscal 1999 and the balance, including interest, is due in fiscal
2000.
NOTE SIX
BUSINESS SEGMENTS AND MAJOR CUSTOMER INFORMATION
The company's three segments (Electronics, Plastics, and Sewn Products) were
defined by their common technologies and production processes. These segments
are consistent with the company's management reporting structure as required by
Statement of Financial Accounting Standards 131 adopted by the company at the
end of fiscal 1999. The company's customers (distributors or original equipment
manufactures) provide opportunities for each segment to serve various markets.
Distribution methods are similar across and within segments. No customer
accounted for more than 10% of consolidated sales or accounts receivable in any
fiscal year presented. Segment and product sales by market information is
presented on pages 12 and 13 of the annual report.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE SEVEN
QUARTERLY INFORMATION (UNAUDITED)
The company's quarterly information is presented on page 24.
NOTE EIGHT
FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
As of January 31
-------------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
===============================
<S> <C> <C> <C>
Norwest bank notes payable in installments
through 2003 with interest fixed at 7.25% .............. $ 5,500 $ 2,560 $ 3,620
Contracts, notes and mortgages payable in installments
through FY 2003 with interest ranging from 7.0% to 14.0% 55 212 762
Industrial revenue bonds payable in installments
through 2001 with interest at 83% of the prime rate .... 77 121 165
-------------------------------
Total long-term debt ............................... 5,632 2,893 4,547
Current portion .................................... (1,060) (1,765) (1,366)
-------------------------------
Long-term debt, less current portion ............... $ 4,572 $ 1,128 $ 3,181
===============================
</TABLE>
Certain long-term debt is collateralized by land, buildings and equipment having
an aggregate net book value at January 31, 1999 of $948,000. Norwest Bank South
Dakota N.A. provides the company's unsecured notes payable and unsecured line of
credit. One member of the company's board of directors is also on the board of
directors of Wells Fargo & Co., the parent company of Norwest Bank South Dakota
N.A.
The company believes the fair market value of its long-term debt approximates
its carrying value. Long-term debt will be repaid as follows: $1.1 million in
fiscal 2000, $1.5 million in fiscal 2001 and approximately $1 million per year
thereafter.
The company has a $5.0 million line of credit available as of January 31, 1999;
no borrowings were outstanding as of that date. Borrowings on this line bear
interest as of January 31, 1999, 1998 and 1997 at 7.25%, 8.5% and 8.25%,
respectively. In fiscal 1997, there were no borrowings under the credit line.
The weighted average interest rates under short-term credit lines in fiscal 1999
and 1998 were 8.4% and 8.5%, respectively.
The company leases certain transportation and other equipment and facilities
under operating leases. Total rent expense under these leases were $1.0 million,
$802,000 and $445,000 in fiscal 1999, 1998 and 1997, respectively.
NOTE NINE
SHARE PURCHASE RIGHTS PLAN
The company had a Share Purchase Rights Plan which expired in March 1999.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 32
<PAGE>
NOTE TEN
STOCK OPTIONS
Officers and key employees of the company have been granted options to purchase
stock under the 1990 Stock Option 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 stock options with terms not to
exceed ten years. There are 86,842 shares of the Company's common stock reserved
for issue under the Plan at January 31, 1999. Options have been 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. Compensation
expense related to the cash bonus was $387,000, $383,000 and $343,000 in fiscal
1999, 1998 and 1997 respectively.
In accordance with Statement of Financial Accounting Standards No. 123, the
company has elected to continue to use the intrinsic value method to recognize
compensation expense for stock options. If compensation expense had been
recognized in accordance with the fair value method, the company's net income
and net income per share would have been:
<TABLE>
<CAPTION>
For the years ended January 31
---------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------
As Reported Pro Forma As reported Pro forma As reported Pro forma
===========================================================================
<S> <C> <C> <C> <C> <C> <C>
Net income (in thousands).......... $ 6,182 $ 6,055 $ 8,062 $ 7,904 $ 7,688 $ 7,573
Net income per share:
-basic.......................... $ 1.30 $ 1.27 $ 1.66 $ 1.63 $ 1.62 $ 1.60
-diluted........................ $ 1.30 $ 1.26 $ 1.65 $ 1.61 $ 1.61 $ 1.59
</TABLE>
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 2.5-4.0%; expected volatility of 23-25%; risk-free interest rate of
4.5-5.9%; and expected lives of 4.5 years. The fair value of each option
granted, including the cash bonus, was $5.29, $7.98 and $8.75 in fiscal 1999,
1998 and 1997, respectively.
Information regarding option activity follows:
<TABLE>
<CAPTION>
For the years ended January 31
-----------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
=======================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 298,500 $ 19.47 287,750 $ 18.35 280,292 $ 16.50
Granted ........................... 46,400 15.88 68,900 20.00 65,100 21.00
Exercised ......................... (57,185) 19.85 (55,650) 14.32 (55,642) 12.11
Forfeited ......................... (11,515) 19.64 (2,500) 19.30 (2,000) 18.51
------- ------- -------
Outstanding at end of year ........ 276,200 18.79 298,500 19.47 287,750 18.35
======= ======= =======
Options exercisable at year-end... 138,100 $ 18.94 138,775 $ 19.14 135,400 $ 17.05
</TABLE>
The following table contains information about stock options outstanding at
January 31, 1999:
<TABLE>
<CAPTION>
Remaining
Exercise contractual Number Number
price life (years) outstanding exercisable
================================================================
<S> <C> <C> <C>
$ 18.25 0.75 51,400 51,400
17.87 1.75 54,300 40,725
21.00 2.75 59,300 29,650
20.00 3.75 65,300 16,325
15.88 4.75 45,900 --
------- -------
276,200 138,100
======= =======
</TABLE>
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE ELEVEN
EMPLOYEE RETIREMENT PLANS
The company has a profit sharing and 401(k) plan covering substantially all
employees. Contributions to the profit sharing plan, not to exceed 15% of total
eligible compensation, are made by Raven and each subsidiary, at the discretion
of each entity's Board of Directors. The company's contributions to the 401(k)
plan, initiated on January 1, 1999, are 3% of qualified payroll. The company's
contribution to the plans was $973,000, $1,255,000 and $1,654,000, for fiscal
1999, 1998 and 1997, respectively.
NOTE TWELVE
INCOME TAXES
Significant components of the company's income tax provision are as follows:
For the years ended January 31
-----------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
============================
Income taxes
Currently payable ........................... $ 4,020 $4,312 $ 4,741
Deferred .................................... (553) 166 (514)
----------------------------
Total ................................... $ 3,467 $4,478 $ 4,227
============================
Significant components of the company's deferred tax assets and liabilities are
as follows:
As of January 31
-----------------------------
DOLLARS IN THOUSANDS 1999 1998 1997
=============================
Current deferred tax assets (liabilities):
Accounts receivable ......................... $ 27 $ (137) $ 119
Installment sale of investment in affiliate.. (436) (365)
Inventory valuation ......................... 395 335 256
Accrued vacation ............................ 522 513 478
Insurance obligations ....................... 629 779 718
Other accrued liabilities ................... 595 561 493
-----------------------------
Total ................................... 1,732 1,686 2,064
-----------------------------
Non-current deferred tax liabilities:
Installment sale of investment in affiliate.. 510
Carrying value of investment in affiliate ... 626
Depreciation ................................ 17 14 76
Safe-harbor lease ........................... 34
-----------------------------
Total ................................... 17 524 736
-----------------------------
Net deferred tax asset .......................... $ 1,715 $ 1,162 $1,328
=============================
The company's effective tax rate was 35.9%, 35.7% and 35.5%, in fiscal 1999,
1998 and 1997, respectively. The tax rate varies from the statutory rate of 35%
due primarily to the effect of state income taxes and non-deductible expenses,
partially offset by the impact of graduated income tax rates.
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 34
<PAGE>
NOTE THIRTEEN
NET INCOME PER SHARE COMPUTATION
Basic net income per share is computed by dividing net income by weighted
average common shares outstanding. Common shares outstanding represent common
shares issued less shares purchased and held in treasury. Diluted net income per
share is computed by dividing net income by weighted average common and common
equivalent shares outstanding, which includes the dilutive effect of shares
issuable upon exercise of employee stock options (net of shares assumed
purchased with the option proceeds). Details of the computation are presented
below:
<TABLE>
<CAPTION>
For the years ended January 31
--------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA 1999 1998 1997
======================================
<S> <C> <C> <C>
Net Income ............................................ $ 6,182 $ 8,062 $ 7,688
======================================
Average common shares outstanding ..................... 4,751,367 4,842,622 4,738,511
======================================
Dilutive impact of stock options ...................... 5,496 48,778 36,649
--------------------------------------
Average common and common equivalent shares outstanding 4,756,863 4,891,400 4,775,160
======================================
Net income per share:
-basic ............................................. $ 1.30 $ 1.66 $ 1.62
======================================
-diluted ........................................... $ 1.30 $ 1.65 $ 1.61
======================================
</TABLE>
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 35
<PAGE>
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, stockholders' equity and comprehensive income
and cash flows present fairly, in all material respects, the financial position
of Raven Industries, Inc. as of January 31, 1999, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1999, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 11, 1999
Minneapolis, Minnesota
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 36
<PAGE>
CORPORATE & INVESTOR INFORMATION
DIRECTORS & OFFICERS
DIRECTORS
CONRAD J. HOIGAARD (2,3) CHAIRMAN OF THE BOARD, Raven Industries, Inc.;
CHAIRMAN OF THE BOARD, Hoigaard's Inc., Minneapolis,
MN; Age: 62
DAVID A. CHRISTENSEN (3) PRESIDENT & CHIEF EXECUTIVE OFFICER, Raven Industries,
Inc., Sioux Falls; SD, Age: 64
ANTHONY W. BOUR (1) BROKER ASSOCIATE, COMMERCIAL REAL ESTATE, Hegg
Companies, Sioux Falls, SD; Age: 61
THOMAS S. EVERIST (1) PRESIDENT, L.G. Everist, Sioux Falls, SD; Age: 49
MARK E. GRIFFIN (2) PRESIDENT & CHIEF EXECUTIVE OFFICER, Lewis Drugs,
Inc., Sioux Falls, SD; Age: 48
KEVIN T. KIRBY (1) PRESIDENT, KIRBY INVESTMENT CORP., Sioux Falls, SD;
Age: 44
JOHN C. SKOGLUND (2,3) CHAIRMAN, Skoglund Communications, Duluth, MN; Age:66
Audit Committee(1) Compensation Committee(2) Executive Committee(3)
OFFICERS
DAVID A. CHRISTENSEN PRESIDENT & CHIEF EXECUTIVE OFFICER, Age: 64, Service:
36 years
GARY L. CONRADI VICE PRESIDENT, CORPORATE SERVICES; Age: 59, Service:
32 years
THOMAS IACARELLA VICE PRESIDENT, FINANCE, SECRETARY & TREASURER;
Age: 45, Service: 7 years
RONALD M. MOQUIST EXECUTIVE VICE PRESIDENT; Age: 53, Service: 23 years
INVESTOR INFORMATION
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
Minneapolis, MN
STOCK TRANSFER AGENT & REGISTRAR
NORWEST BANK, MINNESOTA N.A.
161 N. Concord Exchange
P. O. Box 64854
S. St. Paul, MN 55164-0854
NORWEST TRUST COMPANY
New York, NY
FORM 10-K
Upon written request, Raven Industries, Inc.'s Form 10-K for the fiscal year
ended January 31, 1999, which has been filed with the Securities and Exchange
Commission, is available free of charge.
DIRECT INQUIRIES TO:
RAVEN INDUSTRIES, INC.
Attention: Vice President, Finance
P. O. Box 5107
Sioux Falls, SD 57117-5107
STOCK QUOTATIONS
Listed on the Nasdaq Stock Market--RAVN
ANNUAL MEETING
May 26, 1999, 9:00 a.m.
Sheraton Sioux Falls
1211 N. West Avenue
Sioux Falls, SD
Raven Industries, Inc. is an Equal Employment Opportunity Employer with an
approved affirmative action plan.
REPORT DESIGNED BY GRAPHIC CONCEPTS UNLIMITED, OKEMOS, MICHIGAN
PULLING TOGETHER, PUSHING PERFORMANCE PAGE 37
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
---------
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Aerostar International, Inc. South Dakota
Beta Raven, Inc. Missouri
Glasstite, Inc. Minnesota
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of Raven Industries, Inc. on Form S-8 Registration No. 33-38614) of
our reports dated March 11, 1999, on our audits of the consolidated financial
statements and related financial statement schedule of Raven Industries, Inc. as
of January 31, 1999, 1998 and 1997, and for the years ended January 31, 1999,
1998 and 1997, which reports are included or incorporated by reference in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 5,335
<SECURITIES> 0
<RECEIVABLES> 26,336
<ALLOWANCES> 400
<INVENTORY> 25,978
<CURRENT-ASSETS> 60,861
<PP&E> 57,276
<DEPRECIATION> 37,713
<TOTAL-ASSETS> 83,674
<CURRENT-LIABILITIES> 16,792
<BONDS> 4,572
0
0
<COMMON> 5,215
<OTHER-SE> 57,078
<TOTAL-LIABILITY-AND-EQUITY> 83,674
<SALES> 152,798
<TOTAL-REVENUES> 152,798
<CGS> 127,983
<TOTAL-COSTS> 127,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474
<INCOME-PRETAX> 9,649
<INCOME-TAX> 3,467
<INCOME-CONTINUING> 6,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,182
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
