SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2004
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File: 0-3136
RAVEN INDUSTRIES, INC.
| South Dakota | 46-0246171 | |
| (State of incorporation) | (IRS Employer Identification No.) |
205 East 6th Street
P.O. Box 5107
Sioux Falls, SD 57117-5107
(Address of principal executive offices)
(605) 336-2750
(Registrant’s telephone number including area code)
Indicate by check mark (“x”) 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 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark (“x”) whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). þ Yes o No
As of May 26, 2004, there were 9,061,321 shares of common stock of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.
RAVEN INDUSTRIES, INC.
INDEX
| Page |
||||||||
Item 1. – Financial Statements (unaudited) |
||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6-8 | ||||||||
| 8-11 | ||||||||
| 12 | ||||||||
| 12 | ||||||||
| 13 | ||||||||
| 13 | ||||||||
| Employment Agreement - Daniel Rykhus | ||||||||
| Change in Control Agreement - Daniel Rykhus | ||||||||
| Certification of CEO Pursuant to Section 302 | ||||||||
| Certification of CFO Pursuant to Section 302 | ||||||||
| Certifications Pursuant to Section 906 | ||||||||
2
PART I – FINANCIAL INFORMATION
(in thousands except share data)
| ASSETS | Apr 30, 2004 |
Jan 31, 2004 |
Apr 30, 2003 |
|||||||||
Cash and cash equivalents |
$ | 15,282 | $ | 14,442 | $ | 8,248 | ||||||
Short-term investments |
4,000 | 4,000 | 4,000 | |||||||||
Accounts receivable, net of allowance for doubtful
accounts of $265, $265 and $250, respectively |
22,007 | 18,454 | 17,422 | |||||||||
Inventories: |
||||||||||||
Materials |
13,411 | 12,143 | 14,168 | |||||||||
In process |
2,977 | 2,120 | 1,830 | |||||||||
Finished goods |
2,150 | 2,500 | 4,871 | |||||||||
Total inventories |
18,538 | 16,763 | 20,869 | |||||||||
Deferred income taxes |
1,378 | 1,313 | 1,458 | |||||||||
Prepaid expenses and other current assets |
1,085 | 738 | 920 | |||||||||
Total current assets |
62,290 | 55,710 | 52,917 | |||||||||
Property, plant and equipment |
47,300 | 46,638 | 45,758 | |||||||||
Accumulated depreciation |
(31,588 | ) | (30,688 | ) | (29,840 | ) | ||||||
Property, plant and equipment, net |
15,712 | 15,950 | 15,918 | |||||||||
Goodwill, net |
6,781 | 6,776 | 5,933 | |||||||||
Amortizable intangible assets, net |
766 | 892 | 973 | |||||||||
Other assets, net |
173 | 180 | 129 | |||||||||
Total assets |
$ | 85,722 | $ | 79,508 | $ | 75,870 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current portion of long-term debt |
$ | 72 | $ | 72 | $ | 116 | ||||||
Accounts payable |
4,470 | 3,666 | 3,440 | |||||||||
Dividend payable |
11,327 | — | — | |||||||||
Accrued 401(k) contributions |
380 | 906 | 295 | |||||||||
Income taxes payable |
2,730 | 267 | 1,986 | |||||||||
Customer advances |
431 | 373 | 2,083 | |||||||||
Accrued liabilities |
5,420 | 6,611 | 5,564 | |||||||||
Total current liabilities |
24,830 | 11,895 | 13,484 | |||||||||
Long-term debt, less current portion |
39 | 57 | 125 | |||||||||
Other liabilities, primarily compensation and benefits |
1,218 | 1,085 | 1,281 | |||||||||
Total liabilities |
26,087 | 13,037 | 14,890 | |||||||||
Stockholders’ equity: |
||||||||||||
Common stock, $1 par value, authorized shares
100,000,000; issued 15,998,764; 15,953,987; and
15,883,253, respectively |
15,999 | 15,954 | 15,883 | |||||||||
Paid in capital |
920 | 784 | 489 | |||||||||
Retained earnings |
81,010 | 87,914 | 80,610 | |||||||||
| 97,929 | 104,652 | 96,982 | ||||||||||
Less treasury stock, at cost, 6,937,443; 6,933,443
and 6,843,443 shares, respectively |
38,294 | 38,181 | 36,002 | |||||||||
Total stockholders’ equity |
59,635 | 66,471 | 60,980 | |||||||||
Total liabilities and stockholders’ equity |
$ | 85,722 | $ | 79,508 | $ | 75,870 | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial information.
3
RAVEN INDUSTRIES, INC.
(in thousands except per share data)
| For the Three Months Ended |
||||||||
| Apr 30, 2004 |
Apr 30, 2003 |
|||||||
Net sales |
$ | 38,408 | $ | 36,942 | ||||
Cost of sales |
26,730 | 27,505 | ||||||
Gross profit |
11,678 | 9,437 | ||||||
Selling, general and administrative expenses |
3,227 | 2,902 | ||||||
Gain on sales of businesses and assets |
— | (9 | ) | |||||
Operating income |
8,451 | 6,544 | ||||||
Interest expense |
8 | 12 | ||||||
Other (income) expense, net |
(32 | ) | (24 | ) | ||||
Income before income taxes |
8,475 | 6,556 | ||||||
Income taxes |
3,060 | 2,373 | ||||||
Net income and comprehensive income |
$ | 5,415 | $ | 4,183 | ||||
Net income per common share: |
||||||||
Basic |
$ | 0.60 | $ | 0.46 | ||||
Diluted |
$ | 0.59 | $ | 0.45 | ||||
Cash dividend paid per common share |
$ | 0.11 | $ | 0.08 | ||||
The accompanying notes are an integral part of the unaudited consolidated financial information.
4
RAVEN INDUSTRIES, INC.
(in thousands)
| For the Three Months Ended |
||||||||
| Apr 30, 2004 |
Apr 30, 2003 |
|||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 5,415 | $ | 4,183 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Depreciation |
900 | 969 | ||||||
Amortization |
126 | 105 | ||||||
Provision for losses on accounts receivable, net of recoveries |
7 | (15 | ) | |||||
Gain on sale of businesses and assets |
— | (9 | ) | |||||
Deferred income taxes |
5 | 42 | ||||||
Stock compensation expense |
43 | 26 | ||||||
Change in operating assets and liabilities, net of effects from
acquisition and sale of businesses: |
||||||||
Accounts receivable |
(3,560 | ) | (939 | ) | ||||
Inventories |
(1,775 | ) | 497 | |||||
Prepaid expenses and other current assets |
(712 | ) | (563 | ) | ||||
Operating liabilities |
2,081 | 866 | ||||||
Other, net |
7 | 14 | ||||||
Net cash provided by operating activities |
2,537 | 5,176 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(662 | ) | (433 | ) | ||||
Proceeds from sale of businesses and assets |
— | 30 | ||||||
Purchase of short-term investments |
(1,000 | ) | (1,000 | ) | ||||
Sale of short-term investments |
1,000 | 1,000 | ||||||
Other, net |
(5 | ) | (150 | ) | ||||
Net cash provided by (used in) investing activities |
(667 | ) | (553 | ) | ||||
Cash flows from financing activities: |
||||||||
Long-term debt principal payments |
(18 | ) | (29 | ) | ||||
Proceeds from exercise of stock options |
94 | 52 | ||||||
Dividend paid |
(993 | ) | (726 | ) | ||||
Purchase of treasury stock |
(113 | ) | (889 | ) | ||||
Net cash provided by (used in) financing activities |
(1,030 | ) | (1,592 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
840 | 3,031 | ||||||
Cash and cash equivalents at beginning of period |
14,442 | 5,217 | ||||||
Cash and cash equivalents at end of period |
$ | 15,282 | $ | 8,248 | ||||
Supplemental cash flow information |
||||||||
Cash paid (received) for: |
||||||||
Income taxes |
$ | — | $ | — | ||||
Interest |
$ | 3 | $ | 7 | ||||
The accompanying notes are an integral part of the unaudited consolidated financial information.
5
RAVEN INDUSTRIES, INC.
(1) Basis of Presentation and Description of Business
The accompanying unaudited consolidated financial information has been prepared by Raven Industries, Inc. (the “company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair representation have been included. Financial results for the interim three-month period ended April 30, 2004 are not necessarily indicative of the results that may be expected for the year ending January 31, 2005. The January 31, 2004 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. This financial information should be read in conjunction with the consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended January 31, 2004.
(2) Earnings Per Share
Basic net income per share is computed by dividing net income by the weighted-average common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted-average common and common equivalent shares outstanding, which includes the shares issuable upon exercise of employee stock options, net of shares assumed purchased with the option proceeds. Certain outstanding options were excluded from the diluted net income per share calculations because their exercise prices were greater than the average market price of the company’s common stock during those periods. For the quarter ended April 30, 2004, 64,067 shares were excluded and none were excluded for the quarter ended April 30, 2003. Details of the earnings per share computation are presented below.
| For the Three Months Ended |
||||||||
| (dollars in thousands except share and per share data) | Apr 30, 2004 |
Apr 30, 2003 |
||||||
Net income |
$ | 5,415 | $ | 4,183 | ||||
Weighted average common shares outstanding |
9,038,258 | 9,073,658 | ||||||
Dilutive impact of stock options |
175,649 | 171,070 | ||||||
Weighted average common and common equivalent
shares outstanding |
9,213,907 | 9,244,728 | ||||||
Net income per share: |
||||||||
Basic |
$ | 0.60 | $ | 0.46 | ||||
Diluted |
$ | 0.59 | $ | 0.45 | ||||
(3) Segment Reporting
The company’s reportable segments are defined by their common technologies, production processes and inventories. These segments are consistent with the company’s management reporting structure. The company measures the performance of its segments based on their operating income exclusive of administrative and general expenses. The results of these segments are shown on the following table:
6
| For the Three Months Ended |
||||||||
| (in thousands) | Apr 30, 2004 |
Apr 30, 2003 |
||||||
Net Sales |
||||||||
Flow Controls |
$ | 13,197 | $ | 11,761 | ||||
Engineered Films |
10,413 | 10,001 | ||||||
Electronic Systems |
9,082 | 10,053 | ||||||
Aerostar |
5,716 | 5,127 | ||||||
Total |
$ | 38,408 | $ | 36,942 | ||||
Operating Income (Loss) |
||||||||
Flow Controls |
$ | 5,111 | $ | 3,619 | ||||
Engineered Films |
2,986 | 2,692 | ||||||
Electronic Systems |
702 | 1,097 | ||||||
Aerostar |
1,228 | 619 | ||||||
Sold Businesses |
— | (20 | ) | |||||
Total Segment Income |
10,027 | 8,007 | ||||||
Administrative and general expenses |
(1,576 | ) | (1,463 | ) | ||||
Total |
$ | 8,451 | $ | 6,544 | ||||
During the quarter ended April 30, 2004, the company’s high-altitude research balloon operation, formerly in the Engineered Films segment, moved under the management of Aerostar. As a result of this change in the company’s organizational structure, the financial results of those operations have been included in Aerostar’s segment disclosures. The following table shows revised segment sales, operating income, assets, capital expenditures, and depreciation and amortization for Engineered Films and Aerostar segments for the prior six fiscal years.
(in thousands) (unaudited)
| Engineered Films |
Aerostar |
|||||||||||||||
| As Reported |
As Revised |
As Reported |
As Revised |
|||||||||||||
Sales |
||||||||||||||||
FY 2004 |
$ | 46,408 | $ | 42,636 | $ | 16,953 | $ | 20,725 | ||||||||
FY 2003 |
39,975 | 35,096 | 12,529 | 17,408 | ||||||||||||
FY 2002 |
40,280 | 35,796 | 16,271 | 20,755 | ||||||||||||
FY 2001 |
40,004 | 35,403 | 24,559 | 29,160 | ||||||||||||
FY 2000 |
35,889 | 30,868 | 28,277 | 33,298 | ||||||||||||
FY 1999 |
32,514 | 28,641 | 35,625 | 39,498 | ||||||||||||
Operating Income (Loss) |
||||||||||||||||
FY 2004 |
$ | 11,701 | $ | 10,563 | $ | 1,954 | $ | 3,092 | ||||||||
FY 2003 |
11,447 | 10,030 | (405 | ) | 1,012 | |||||||||||
FY 2002 |
9,886 | 8,257 | 1,278 | 2,907 | ||||||||||||
FY 2001 |
8,810 | 7,397 | 1,583 | 2,996 | ||||||||||||
FY 2000 |
7,464 | 6,274 | 2,092 | 3,282 | ||||||||||||
FY 1999 |
5,836 | 4,641 | 2,724 | 3,919 | ||||||||||||
Assets |
||||||||||||||||
FY 2004 |
$ | 18,108 | $ | 15,941 | $ | 5,589 | $ | 7,756 | ||||||||
FY 2003 |
18,507 | 17,244 | 5,769 | 7,032 | ||||||||||||
FY 2002 |
14,847 | 13,691 | 5,994 | 7,150 | ||||||||||||
FY 2001 |
13,031 | 11,520 | 7,361 | 8,872 | ||||||||||||
FY 2000 |
13,472 | 12,001 | 11,307 | 12,778 | ||||||||||||
FY 1999 |
13,177 | 11,430 | 14,446 | 16,193 | ||||||||||||
7
Capital Expenditures |
||||||||||||||||
FY 2004 |
$ | 1,707 | $ | 712 | $ | 135 | $ | 1,130 | ||||||||
FY 2003 |
4,111 | 4,080 | 539 | 570 | ||||||||||||
FY 2002 |
3,182 | 3,178 | 252 | 256 | ||||||||||||
FY 2001 |
674 | 633 | 122 | 163 | ||||||||||||
FY 2000 |
792 | 764 | 117 | 145 | ||||||||||||
FY 1999 |
566 | 538 | 308 | 336 | ||||||||||||
Depreciation and Amortization |
||||||||||||||||
FY 2004 |
$ | 1,664 | $ | 1,611 | $ | 383 | $ | 436 | ||||||||
FY 2003 |
1,495 | 1,475 | 354 | 374 | ||||||||||||
FY 2002 |
1,085 | 1,001 | 263 | 347 | ||||||||||||
FY 2001 |
1,033 | 946 | 280 | 367 | ||||||||||||
FY 2000 |
1,075 | 993 | 372 | 454 | ||||||||||||
FY 1999 |
1,136 | 1,059 | 464 | 541 |
(4) Financing Transactions
The company has an uncollateralized credit agreement providing a line of credit of $7.0 million which was renewed in May 2004 and expires in May 2005. Letters of credit totaling $1.7 million have been issued under the line, primarily to support self-insured workers compensation bonding requirements. The credit agreement contains certain restrictive covenants that, among other things, require maintenance of certain levels of net worth and working capital. No borrowings were outstanding on the line at April 30, 2004.
(5) Short-term Investments
At April 30, 2004, the company has invested $4.0 million of excess cash into certificates of deposit with face values of $100,000 and rates ranging from 1.3% to 1.6%. The investments have varying maturity dates which extend over the next 12 months.
(6) Subsequent Events
The company paid a special one-time dividend of $1.25 per share or $11.3 million on May 20, 2004 to shareholders of record at May 3, 2004. Also in May, the company entered into an agreement to purchase a building owned by Design Tanks, Inc. to be used for the Engineered Films division. The $1.8 million purchase price was less than the independently appraised value. Design Tanks’ owner was hired as the Engineered Films Division Vice-President subsequent to the building purchase. The agreement required an earnest payment of $25,000 at signing with the remainder due upon closing, on or before May 1, 2006.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Raven Industries, Inc. is an industrial manufacturer providing a variety of products to customers within the industrial, agricultural, construction and military/aerospace markets throughout North America. The company operates three divisions (Flow Controls, Engineered Films and Electronic Systems) in addition to a wholly owned subsidiary, Aerostar International, Inc. (Aerostar). Flow Controls provides electronic speed and Global Positioning System (GPS)-based, location-compensated application-control products for the agriculture, marine navigation and other niche markets. Engineered Films produces rugged reinforced plastic sheeting for industrial, construction, manufactured housing and agriculture applications. Electronic Systems is a total-solutions provider of electronics manufacturing services. Aerostar manufactures military cargo parachutes, government service uniforms, high-altitude research balloons and other large-scale inflatable products. Management of the high altitude balloon operations was moved to Aerostar in April 2004. Segment results have been revised to reflect this organizational change.
8
EXECUTIVE SUMMARY
Earnings for the three months ended April 30, 2004 grew $1.2 million to $5.4 million as compared to earnings of $4.2 million for the quarter ended April 30, 2003. In terms of diluted earnings per share, net income per share increased 14 cents per share from 45 cents to 59 cents. Strong gross profit growth on higher sales levels resulted in the increase.
Consolidated sales grew 4.0% over sales for the quarter ended April 30, 2003, to reach $38.4 million for the current quarter. Flow Controls was responsible for the majority of the increase, increasing sales $1.4 million. Engineered Films increased sales $412,000 while Aerostar grew $589,000. Only Electronic Systems experienced a decline in sales, falling 9.7% or $971,000.
Consolidated operating income increased $1.9 million to $8.5 million for the quarter ended April 30, 2004 as compared to the first quarter ended April 30, 2003. As with sales, Flow Controls comprised most of the growth with additional increases from Engineered Films and Aerostar. The decline in sales negatively impacted Electronic Systems’ operating income while administrative expenses increased $113,000. The higher operating income is a result of gross profit growth, particularly in Flow Controls and Aerostar. As a percentage of consolidated sales, gross profits increased from 25.5% for the quarter ended April 30, 2003 to 30.4% for the quarter ended April 30, 2004. The main contributors to the improved gross profit percentage were production efficiencies and changes in product mix. Partially offsetting the gross profit gains were increased selling expenses and administrative expenses due to higher personnel costs.
Consolidated interest expense and other income are composed of interest expense from capital leases and interest income earned on excess cash, respectively. Interest income increased between the quarters due to increased excess cash while declining debt resulted in lower interest expense. The effective income tax rate of 36.1% for the current quarter end was virtually the same as the effective rate for the period ended April 30, 2003.
The company is projecting positive earnings growth for the three and six months ended July 31, 2004 as compared to the three and six months ended July 31, 2003. Flow Controls is expected to continue to receive higher levels of orders, although it must overcome the loss of last year’s second quarter deliveries of $3.9 million under a special order for chemical-injection systems. The material shortages and delayed customer orders in Electronic Systems will likely be fulfilled during the second quarter. Aerostar is expected to continue shipments under their cargo parachute contract and Engineered Films sales should be able to maintain or grow their sales levels.
Cash and short-term investments of $19.3 million remains adequate to meet the company’s operational and investment needs and to fund the $11.3 million special cash dividend paid on May 20, 2004. The dividend should improve returns on equity and assets in future periods without affecting the company’s growth prospects.
RESULTS OF OPERATIONS
FLOW CONTROLS
Sales of $13.2 million for the segment increased $1.4 million over sales for the quarter ended April 30, 2003. Sales increased despite the loss of $2.1 million in revenues under a special order chemical injection system order shipped in the first quarter of 2003. The sales were achieved as a result of new product introductions, execution of the precision agriculture distribution plan and existing product enhancements and improvements, all augmented by a stronger farm economy.
Operating income of $5.1 million for the current quarter was up $1.5 million compared to the quarter ended April 30, 2003. The increased sales levels and improved profitability on the sales resulted in higher operating income. As a percentage of sales, gross profit margins increased to 44.0% from 35.2%. This improvement resulted from operating efficiencies and a higher margin product mix. Selling expenses were higher due to personnel and marketing expenses mainly associated with the precision agriculture distribution plan.
9
ENGINEERED FILMS
Segment sales of $10.4 million grew 4.1% over sales for the first quarter 2004. Pit lining sales were flat while manufactured housing and agriculture markets increased substantially. The growth was partially offset by a decline in sales within the industrial market.
Operating income increased $294,000 to $3.0 million for the three months ended April 30, 2004 as compared to the quarter ended April 30, 2003. The growth was from increased sales levels which produced similar growth in gross margins, and a decrease in selling expenses related to product improvement expenditures. Gross profit as a percentage of sales was 33.7% for the current quarter as compared to 32.6% for the quarter ended April 30, 2003. The improvement in gross profit rates was a result of favorable material prices and improved production efficiencies.
ELECTRONIC SYSTEMS
Sales for the segment declined $971,000 for the current quarter as compared to sales of $10.1 million for the quarter ended April 30, 2003. Customer delays on orders and isolated material shortages resulted in the lower sales.
For the quarter ended April 30, 2004, operating income of $702,000 declined $395,000 from income for the quarter ended April 30, 2003. The decline is a result of lower gross profit margins and increased selling expenses from personnel costs. Gross profit margins as a percentage of sales were negatively impacted for the quarter, declining from 12.6% to 10.3% comparing quarters ended April 30, 2003 and 2004. The gross margin erosion is a result of unfavorable product mix and production inefficiencies from material shortages and delays.
AEROSTAR
Sales for the quarter ended April 2004 reached $5.7 million, $589,000 higher than sales for the quarter ended April 2003. Shipments under the US Army cargo parachute contract and strong military decoy and service uniform orders increased sales $1.6 million. Higher military sales were partially offset by lower hot-air balloon sales and scientific research balloon sales.
Operating income for the current quarter almost doubled that of the quarter ending April 30, 2003, coming in at $1.2 million. The increase is due to higher sales levels and a strong improvement in gross profit percentages. As a percentage of sales, gross profits increased from 15.0% for the quarter ended April 2003 to 25.0% for the current quarter. The higher percentage is due to operating efficiencies realized in cargo parachute production and military decoy sales, partially offset by a large decline in hot-air balloon and commercial inflatables gross profit percentages on lower sales.
SOLD BUSINESSES
This segment consists of the operations of businesses sold, primarily the company’s ongoing liability for environmental or legal issues of these businesses. Included in the results for the three months ended April 30, 2003 was an additional $20,000 provision for changes in estimated remaining costs resulting from information received by the company from its advisors.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities and Cash Position
Net cash provided by operations was $2.5 million, a decrease of over 50% as compared to cash generated of $5.2 million for the quarter ended April 30, 2003. The decrease is due to a rise in accounts receivable resulting from strong sales in the last month of the quarter, particularly
10
within the Flow Controls division. Last year’s sales under the special order for chemical injection systems were paid in advance, improving cash flows. Cash used for inventory also increased, principally in the Electronic Systems division from an increase in raw materials for orders that have been delayed by customers and key material delays causing increase in work in process balances. It is anticipated that those orders will be fulfilled during the second quarter of fiscal 2005. Strong earnings helped to partially counter the cash decreases noted above.
Total cash, cash equivalents and short-term investments at April 30, 2004 were $19.3 million, as compared to $18.4 million at January 31, 2004 and $12.2 million at April 30, 2003. The increased cash balances are a result of continued earnings growth. The company expects that current cash and short-term investments, combined with continued positive operating cash flows, will be sufficient to fund day-to-day operations. Current cash on-hand funded the $11.3 million special dividend payment made May 20, 2004.
Investing and Financing Activities
Investing activities consumed $667,000 of cash as compared to $553,000 for the first quarter of fiscal 2004. The principal use was capital equipment investments mainly in equipment within the Engineered Films division. Subsequent to April 30, 2004, the company also signed a contract to purchase a building for the Engineered Films division for $1.8 million on or before May 1, 2006.
Cash used for financing activities of $1.0 million and $1.6 million for the quarters ended April 30, 2004 and 2003 was mainly directed at quarterly dividend payments and repurchase of company stock. Quarterly dividends per share increased 22.2% from nine cents to 11 cents, beginning with the April 15, 2004 quarterly payment. The company plans to continue its practice of returning cash to shareholders by buying back stock and increasing its dividend payments every year.
At April 30, 2004, the company had no borrowings outstanding on its line of credit. The line was renewed in May 2004 and expires in May 2005. The company’s remaining debt includes capital leases assumed in the acquisition of Starlink, Inc. and System Integrators, Inc. in December 2001.
Stock Repurchases
Repurchases of the company’s common stock during the first quarter of fiscal 2005 were as follows:
| Period |
Total number |
Average price |
|||||||||
February 2004 |
— | $ | — | ||||||||
March 2004 |
4,000 | $ | 28.42 | ||||||||
April 2004 |
— | $ | — | ||||||||
Total First Quarter |
4,000 | $ | 28.42 | ||||||||
The company repurchases stock under an authorization from its Board of Directors. It has not publicly announced its repurchase plans, other than to indicate a willingness to buy less than 2% of shares outstanding on an annual basis. Under a resolution from the Board of Directors, dated May 26, 2004, the company has authority to repurchase up to $1.5 million of stock on the open market. The Board of Directors has renewed these authorizations quarterly; there is no assurance the Board will continue this practice.
Commitments and Contingencies
In May 2004, the company entered into an agreement to purchase a building to be used for the Engineered Films division. The agreement required an earnest payment of $25,000 at signing, with the remaining $1.78 million due on or before May 1, 2006. There have been no other material changes to the company’s commitments and contingencies since the obligations disclosed in its Form 10-K for the fiscal year ended January 31, 2004.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents and short-term investments. The company’s debt consists of capital leases, all of which have fixed interest rates. The company does not expect operating results or cash flows to be significantly affected by changes in interest rates. Additionally, the company has no derivative contracts and typically buys materials and sells products in US dollars.
ITEM 4. INTERNAL CONTROLS AND PROCEDURES
Under the supervision and with the participation of the company’s management, including the Chief Executive Officer and Chief Financial Officer, the company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e) and 15(d)-15(e) as of April 30, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no significant changes in the company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced above, including any corrective actions with regard to significant deficiencies and material weaknesses.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act provides a “safe harbor” for forward-looking statements. Certain information included in this Form 10-Q and other materials filed or to be filed by the company with the Securities and Exchange Commission (as well as information included in statements made or to be made by the company) contains statements that are forward-looking. Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there is no assurance that such expectations will be achieved. Such assumptions involve important risks and uncertainties that could significantly affect results in the future. These risks and uncertainties include, but are not limited to, those relating to weather conditions, which could affect certain of the company’s primary markets, such as agriculture and construction, or changes in competition, material availability, technology or relationships with the company’s largest customers, any of which could adversely impact any of the company’s product lines. The foregoing list is not exhaustive and the company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements.
12
RAVEN INDUSTRIES, INC.
Item 1. Legal Proceedings:
The company is involved as a defendant in lawsuits, claims or disputes arising in the normal course of business. The settlement of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.
Item 2. Changes in Securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. (a) Exhibits Filed:
10(a)
|
Employment Agreement between Raven Industries, Inc. and Daniel Rykhus dated as of April 1, 2004 | |
10(b)
|
Change in Control Agreement between Raven Industries, Inc. and Daniel Rykhus dated as of April 1, 2004 | |
31(a)
|
Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act | |
31(b)
|
Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act | |
32
|
Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8-K:
We furnished a Form 8-K dated March 9, 2004 under Item 12 to disclose our year-end press release.
SIGNATURES
Pursuant to the requirements 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. |
||||
| /s/ Thomas Iacarella | ||||
| Thomas Iacarella | ||||
| Vice President & CFO, Secretary and Treasurer (Principal Financial and Accounting Officer) | ||||
Date: June 1, 2004
13