EXECUTIVE SUMMARY
Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy, construction and military/aerospace markets. The Company is comprised of unique operating units, classified into three reportable segments: Applied Technology Division, Engineered Films Division and Aerostar Division. While each segment has distinct characteristics, the products and technologies are largely extensions of durable competitive advantages rooted in the original research balloon business. Effective June 1, 2012, the Company realigned the assets and team members of its Electronic Systems Division and deployed them into the Company's Aerostar and Applied Technology Divisions. The realigned divisions will better align the Company's corporate structure with its mission and long-term growth strategies. Electronic Systems net sales of electronic manufacturing assemblies were realigned to Aerostar and the remaining proprietary products, after adjustments to intersegment eliminations, to Applied Technology. The Company retrospectively adjusted its segment information for all periods presented to reflect this change in segment reporting. This unaudited, adjusted segment information was derived from audited financial statements as of and for the years ended January 31, 2012, 2011, and 2010 as well as the unaudited financial statements for the nine months ended October 31, 2011.
Management uses a number of metrics to assess the Company's performance:
• Consolidated net sales, gross margins, operating income, operating margins, net income and earnings per share

• Cash flow from operations and shareholder returns

• Return on sales, assets and equity

• Segment net sales, gross profit, gross margins, operating income and operating margins

Vision and Strategy
Raven envisions serving the world with technology that helps grow more food, produce more energy, protect the environment and help people live safely. These are great challenges of today and of our near future which the Company will help to solve.
The Company's primary strategy to achieve this vision is the maintenance of a diversified portfolio of businesses that share a common purpose but serve different markets providing balance, opportunity and risk mitigation. Diversification has enabled the Company to consistently generate cash, achieve profitability and maintain financial strength by limiting the impact of market disruptions and facilitating growth in both strong and weak economic cycles. Additionally, the Company continues to achieve increased geographic, product and market diversification.

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The Company's overall approach to creating value, which is employed across the three unique business segments, is summarized as follows:
• Expand in market segments that have strong prospects for growth and above-average profit margins.

• Compete on quality, service, innovation and peak performance.

• Reinvest cash generated from operations to fuel growth. Capital is allocated aggressively when the prospects are high for above-average risk-adjusted returns on capital. If the Company accumulates cash in excess of investment opportunities for above-average risk-adjusted returns, it will be returned to shareholders.

• Make corporate responsibility a top priority.

• Continue to increase the quarterly dividend on an annual basis.

Results of Operations
Consolidated financial highlights for the third quarter and nine months ended
October 31 of fiscal 2013 and fiscal 2012 include the following:
                                             Three Months Ended                             Nine Months Ended
(dollars in thousands, except     October 31,      October 31,                  October 31,      October 31,
per-share data)                       2012             2011        % Change         2012             2011         % Change
Net sales                        $     97,011     $     93,300        4  %     $    316,600     $    285,185         11 %
Gross profit                           29,575           27,254        9  %          100,774           88,320         14 %
Gross margins(a)                         30.5 %           29.2 %                       31.8 %           31.0 %
Operating income                 $     16,372     $     16,875       (3 )%     $     62,211     $     59,082          5 %
Operating margins                        16.9 %           18.1 %                       19.6 %           20.7 %
Net income attributable to Raven
Industries, Inc.                 $     10,859     $     11,390       (5 )%     $     41,448     $     39,567          5 %
Diluted earnings per share       $       0.30     $       0.31                 $       1.13     $       1.09

Operating cash flow                                                            $     58,046     $     37,729
Cash dividends                                                                 $     11,430     $      9,766

The Company's gross and operating margins may not be comparable to industry
(a) peers due to the diversity of its operations and variability in the classification of expenses across industries in which the Company operates.

Net sales for the three months ended October 31, 2012 were up 4% to $97.0 million, from $93.3 million in the prior-year comparative period. Revenue growth resulted from strength in the Applied Technology Division and in the Aerostar Division as a result of revenues from Vista Research, Inc. (Vista) acquired in January 2012. Engineered Films sales declined slightly from record levels in the year-ago third quarter. Third quarter net income attributable to Raven declined 5% to $10.9 million, or $0.30 per diluted share, versus fiscal 2012 third quarter net income of $11.4 million, or $0.31 per diluted share. Additional operating expenses due to investment in corporate services, sales and marketing and research and development were the main drivers for the decrease. For the nine-month period, net sales increased 11% to $316.6 million, from $285.2 million one year earlier. Net income of $41.4 million, or $1.13 per diluted share, in fiscal 2013, was up 5% from $39.6 million, or $1.09 per diluted share, in fiscal 2012. Engineered Films and Applied Technology Divisions reported double-digit net sales and operating gains. Aerostar Division operating margins were negatively impacted by lack of tethered aerostat sales. Applied Technology
Third quarter fiscal 2013 net sales of $39.5 million were up $4.3 million (12%) year-over-year and operating income increased by $0.7 million, or 6%, to $12.3 million. For the nine-month periods, net sales grew $20.6 million (18%) to $133.3 million and operating income of $47.2 million increased $6.3 million, or 15%. The favorable year-over year revenue comparisons reflect strong sales growth across majority of the division's product offerings, including boom controls, application controls, and in particular, guided steering systems that enhance farm yields and reduce operating cost. International sales continued to be strong. Operating income was up during the third quarter of fiscal 2013 compared to the prior year third quarter due to higher sales levels but was partially offset by higher investment in research, marketing and product development, along with additional bad debt expense.

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Engineered Films
For the third quarter, net sales were $33.3 million, down $1.6 million (5%) as compared to the third quarter of last year. Third quarter operating income decreased 15% to $4.7 million year-over-year. Net sales for the nine months ended October 31, 2012 increased $13.7 million (14%) to $111.2 million and operating income was up significantly to $20.7 million, an increase of 38% from the prior year comparative period. For the third quarter, lower selling prices impacted overall net sales. Sales declines in the energy and agriculture markets were offset by an increase in construction film deliveries. Year-to-date, sales in the energy and agriculture markets and deliveries of geomembrane films for environmental protection drove net sales upward. Higher year-over-year profitability for the nine-month periods ended October 31, 2012 compared to October 31, 2011 related to margin expansion due to improved operating efficiencies and more aggressive pricing strategies in the first half of the year.

Aerostar
Fiscal 2013 third quarter net sales were $26.4 million versus $24.2 million in the previous year's third quarter, a $2.2 million increase (9%). Operating income increased by $0.6 million, or 20%, to $3.8 million from the previous year third quarter results.
Fiscal 2013 year-to-date net sales of $78.9 million were up $0.7 million (1%) and operating income of $7.6 million was lower by $5.4 million, or 42%, than fiscal 2012 year-to-date comparative results. Higher T-11 Army parachutes and protective wear and Vista sales offset the difficult federal spending environment impacting aerostat orders for the nine-month period. This change in product mix was the main driver of the operating income fluctuation for the year.

RESULTS OF OPERATIONS - SEGMENT ANALYSIS

Applied Technology
Applied Technology designs, manufactures, sells and services innovative
precision agriculture products and information management tools that help
growers reduce costs and improve farm yields around the world.
                                           Three Months Ended                                            Nine Months Ended
                        October 31,      October 31,                                  October 31,      October 31,
(dollars in thousands)      2012             2011          $ Change      % Change         2012             2011         $ Change      % Change
Net sales              $     39,534     $     35,263     $    4,271         12 %     $    133,346     $    112,716     $  20,630         18 %
Gross profit                 18,069           16,056          2,013         13 %           63,318           53,376         9,942         19 %
Gross margins                  45.7 %           45.5 %                                       47.5 %           47.4 %
Operating income       $     12,289     $     11,547     $      742          6 %     $     47,248     $     40,950     $   6,298         15 %
Operating margins              31.1 %           32.7 %                                       35.4 %           36.3 %

The following factors were the primary drivers of the three- and nine-month year-over-year changes in net sales and operating income:

• Market conditions. Global market fundamentals were healthy as population and income growth in emerging economies have increased demand for food. The drought domestically has created some uncertainty in the marketplace, but overall, this has been substantially offset by higher commodity prices. The Company continues to cultivate and deepen relationships with key original equipment manufacturing (OEM) partners, which expands market share and extends Raven's technology to a broader range of customers.

• Sales volume. The favorable net sales comparisons for the third quarter and year-to-date results reflect strong sales growth across the majority of the division's product offerings, including application controls, guidance and steering products and boom controls, and to a lesser extent higher bed control demand.

• International sales. For the three-month period, international sales totaled $8.5 million, an increase of 9% from the prior year three-month period and represents 21% of segment revenue compared to 22% in the prior year. International sales rose $5.7 million to $34.3 million in the first nine months of fiscal 2013 as compared to the prior year. These sales accounted for 26% of division revenue versus 25% for the first nine months of fiscal 2012. Products delivered to Canada, South America, Eastern Europe and South Africa generated the majority of the international sales growth.

• Gross margins. Gross margins for the three and nine months ended October 31, 2012 were up slightly from the three and nine-month periods ended October 31, 2011. The increase in both periods reflect the higher sales volume during the comparative periods.

• Operating expenses. Third quarter operating expense as a percentage of net sales was 14.6%, up from 12.8% in the prior year's third quarter. The increase is attributable to higher selling expenses, additional spending in research and development (R&D), and bad debt expense associated with an international customer. Year-to-date operating expense as a percentage of net sales was 12.1% compared to 11.0% for fiscal 2012. Similar to the quarter, this higher operating expense relates to the division's investment in R&D and selling expenses.

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Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial,
energy, construction, geomembrane and agricultural applications.

                                           Three Months Ended                                           Nine Months Ended
                         October 31,      October 31,                                October 31,      October 31,
(dollars in thousands)       2012             2011         $ Change     % Change         2012             2011         $ Change      % Change
Net sales               $     33,316     $     34,947     $ (1,631 )      (5 )%     $    111,195     $     97,497     $  13,698         14 %
Gross profit                   6,348            6,688         (340 )      (5 )%           25,119           18,139         6,980         38 %
Gross margins                   19.1 %           19.1 %                                     22.6 %           18.6 %
Operating income        $      4,729     $      5,574     $   (845 )     (15 )%     $     20,727     $     14,987     $   5,740         38 %
Operating margins               14.2 %           15.9 %                                     18.6 %           15.4 %

The following factors were the primary drivers of the changes in the three- and nine-month year-over-year net sales and operating income:

• Market conditions. Economic growth in emerging markets continues to support high oil prices, though declining oil prices beginning in the second half of 2012 have decreased demand for pit liners in our energy market. The geomembrane market reported higher sales as environmental and water conservation projects have increased demand for the division's containment liners.

• Sales volume and selling prices. Third quarter net sales were down year-over-year driven by a decline in selling prices of approximately 4-5%, as sales volume measured by pounds shipped was flat. Growth in fiscal 2013 year-to-date net sales was predominately driven by increased demand. Sales volume was up 10% for the fiscal 2013 nine-month period due to stronger demand earlier in the fiscal year combined with additional extrusion capacity, which went into production in the fourth quarter of last fiscal year. Selling prices for the nine months ended October 31, 2012 were up approximately 4-5% compared to the prior-year period.

• Gross margin increase. For the three-month period, margins were consistent with the third quarter of the prior year. Year-to-date gross margins increased four percentage points as compared to the prior year due to improved operating efficiencies, positive operating leverage and a more favorable price versus material spread. Material cost as a percentage of sales was 61% for the nine months ended October 31, 2012 compared with 66% for the same prior year period.

• Operating expenses. Third quarter operating expense as a percentage of net sales was 4.9% compared to 3.2% in the prior year quarter. Higher investment in R&D spending drove the increase. Year-to-date operating expenses of $4.4 million were up $1.2 million, or 39%, over the prior year primarily due to higher R&D spending. As with the quarter, year-to-date operating expense as a percentage of net sales was up to 3.9% compared to 3.2% in the prior year comparative period.

Aerostar
Aerostar designs and sells tethered aerostats and radar systems for situational
awareness. This division produces military parachutes, uniforms and protective
wear and other sewn and sealed products as well as being a total-solutions
provider of electronics manufacturing services, primarily to North American
customers.

                                           Three Months Ended                                            Nine Months Ended
                        October 31,      October 31,                                  October 31,      October 31,
(dollars in thousands)      2012             2011          $ Change      % Change         2012             2011         $ Change     % Change
Net sales              $     26,385     $     24,173     $    2,212          9 %     $     78,865     $     78,126     $    739          1  %
Gross profit                  5,183            4,504            679         15 %           12,424           16,799       (4,375 )      (26 )%
Gross margins                  19.6 %           18.6 %                                       15.8 %           21.5 %
Operating income       $      3,830     $      3,198     $      632         20 %     $      7,581     $     12,972     $ (5,391 )      (42 )%
Operating margins              14.5 %           13.2 %                                        9.6 %           16.6 %

The following factors were the primary drivers of the year-over-year changes in net sales and operating income for the three and nine-month periods:

• Sales volumes. Net sales for the third quarter increased $2.2 million, or 9%, to $26.4 million compared to $24.2 million in the prior year third quarter. Increases in high altitude research balloon sales and Vista net sales of $3.7 million were

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partially offset by a decrease in electronics manufacturing sales and tethered aerostat deliveries. For the nine-month periods, net sales were up slightly to $78.9 million as compared to the prior year. Vista sales and higher parachute and protective wear shipments were offset by a decrease of aerostat deliveries. Aerostat sales can vary significantly from quarter-to-quarter as reflected in the nine-months year-over-year comparisons.
• Gross margin change. For the three-month period, margins increased one percentage point compared to the prior year. Fiscal 2013 third quarter results were favorably impacted by sales of Vista smart sensing radar systems, a favorable mix of electronics manufacturing services revenue and recognition of a $0.7 million gain on the settlement of an outstanding tethered aerostat insurance claim. Year-to-date, margins declined from 21.5% to 15.8% for the nine-months ended October 31, 2012. The change in product mix negatively impacted gross margins as last year's margins were favorably impacted by higher-margin aerostat sales. Aerostat sales accounted for roughly 17% of net sales in the prior year-to-date period compared to approximately 2% in the comparable fiscal 2013 year-to-date period.

• Operating expenses. Third quarter operating expenses were $1.4 million, or 5.1% of net sales, a slight decrease from 5.4% of net sales in the third quarter of fiscal 2012. Year-to-date operating expenses of $4.8 million were 6.1% of net sales versus 4.9% one year earlier. Current year operating expenses primarily reflect increased investment in R&D to support next generation aerostat and Vista radar technology.

Corporate Expenses (administrative expenses; other (expense), net; and income

taxes)

                                                  Three Months Ended                  Nine Months Ended
                                              October 31,      October 31,       October 31,      October 31,
(dollars in thousands)                           2012             2011              2012             2011
Administrative expenses                     $      4,451      $     3,450      $      13,258     $     9,833
Administrative expenses as a % of sales              4.6 %            3.7 %              4.2 %           3.4 %
Other (expense), net                        $        (56 )    $        (4 )    $        (204 )   $       (93 )
Effective tax rate                                  33.4 %           32.4 %             33.1 %          32.9 %

Administrative expenses increased for both the three- and nine-month periods as compared to the prior year by 29% and 35%, respectively, due to continued investments in additional finance, legal, human resources and information technology personnel to support current and future growth strategies through a strengthened corporate infrastructure.
Other (expense), net consists mainly of activity related to the company's equity investment, interest income and foreign currency transaction gain or losses. The effective tax rates for the quarter and nine-month periods ended October 31, 2012 increased from the prior year as the prior year was favorably impacted by tax benefits associated with the U.S. research and development tax credit. These credits were not available in the current year.

OUTLOOK

Management anticipates continued positive trends in Applied Technology. Within Engineered Films, the Company anticipates a challenging environment and difficult year-over-year comparison. Although the Company is looking to new customer initiatives that will expand the use of persistent surveillance technologies to border and other non-military applications, Aerostar will be impacted by a lack of aerostat orders for the near-term. Given the Company's year-to-date performance and a mixed fourth-quarter outlook, reaching the Company's long-term earnings growth rate target of 10-15% is unlikely in the current year. Management continues to believe that it can reach this target longer-term but for this fiscal year, it will likely be a rate of growth in the single digits.

Applied Technology
Applied Technology expects to continue to build on its investments in international growth and integration of hardware and software solutions to improve agricultural efficiency. Worldwide agriculture conditions are expected to remain healthy for this segment, with rising global demand for food, heightened environmental concerns and broadening recognition of Raven's suite of productivity tools as a cost-effective investment. The domestic agriculture market is becoming more cautious as a result of drought conditions which have created uncertainty in the marketplace. Although the drought has been a very difficult situation for growers in certain regions and their yields were adversely impacted, the value proposition for the division's products can be more apparent in difficult conditions. These factors indicate that sales growth in the high-teens is still achievable for the full year. Profitability growth could be tempered by investments in new initiatives, both from a product development and geographic expansion perspective. International business opportunities continue to act as a counter balance to drought which may be experienced in the U.S.

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Engineered Films
With increased capacity and capabilities but without the boost from selling prices realized earlier in the year along with lower energy market demand for films, management expects year-over-year sales growth to temper during the remainder of fiscal 2013 to a growth rate approaching 10% for Engineered Films. While the energy and agricultural markets were weaker in the third quarter of fiscal 2013, deliveries of construction films increased. Management continues to believe that geomembrane films will be an increasing part of this division's market mix due to the critical need to protect water and other environmental resources. Extrusion capacity exists to further grow this business, which management intends to do through R&D investments in new growth opportunities and enhancements to the existing product line. Within Engineered Films, the Company is focused on further enhancing margins and profitability through improved operating efficiencies and a sound pricing strategy. Aerostar
Even with the Vista contributions to the top line in fiscal 2013, sales growth for the year is unlikely. Aerostar shipped $5.1 million of tethered aerostats in the fourth quarter of fiscal 2012, and that is not expected to reoccur. Although Aerostar has breakout potential, it is also subject to significant variability due to federal spending. New opportunities in tethered aerostats to provide cost-effective persistent surveillance for the military and border security are critical to Aerostar's success. Despite strong showings by Aerostar's protective wear, military parachute and high-altitude research balloon operations, Aerostar will continue to show lower profits without additional aerostat or smart sensing radar system orders in Vista. Management is pursuing new market opportunities to add stability and mitigate volatility for its aerostat business. Through Vista, the Company is working on a number of initiatives to broaden its customer base and sell into new markets. With the integration of Electronic Systems into Aerostar's operations, bid opportunities for electronics manufacturing are increasing. Management intends to continue to manage the short-term responsibly, carefully monitoring discretionary spending, staffing levels and R&D.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet continues to reflect significant liquidity and a strong capital base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been Raven's primary source of liquidity. Management expects that current cash, combined with the generation of positive operating cash flows, will be sufficient to fund the Company's normal operating, investing and financing activities. Sufficient borrowing capacity also exists if necessary for a large acquisition or major business expansion.

Raven's cash needs are seasonal, with working capital demands strongest in the first quarter. As a result, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in working capital.

Cash and cash equivalents totaled $48.1 million at October 31, 2012, an increase of $22.3 million from $25.8 million at January 31, 2012. The comparable balance one year earlier was $44.2 million. Increases in capital expenditures and a $12.0 million payment to acquire Vista in the fourth quarter last year were offset by cash flows from operations.

Raven has an uncollateralized credit agreement that provides a $10.5 million line of credit and expires November 30, 2013. There is no outstanding balance under the line of credit at October 31, 2012. The line of credit is reduced by outstanding letters of credit totaling $1.0 million as of October 31, 2012.

Operating Activities
Operating cash flows result primarily from cash received from customers, which . . .