Other (expense), net consists mainly of activity related to the company's equity investment, interest income and foreign currency transaction gains or losses.
Raven continues to become a more technology-focused Company - centered on solving the specific great challenges of hunger, security, energy independence and natural resource preservation and serving our core markets. Raven is transitioning from a company with a strong contract manufacturing orientation to one that is driven by proprietary products and services. During this #17 -------------------------------------------------------------------------------- evolution, management anticipates some volatility in our results. And, as expected, the economic headwinds and near-term challenges faced in the fiscal first quarter persisted in our second quarter. Aerostar in particular continued to be impacted by reduced demand from U.S. agency customers and planned transition away from electronic manufacturing services for avionics customers that do not fit our business model. Management is working to compensate for government uncertainty by focusing on expanding proprietary technology revenues, including advanced radar systems, high altitude research balloons and aerostats to international markets. Over the past three years, the Company has been allocating capital to these three breakout growth drivers, believing that over the course of the next two to three years any one of these more speculative, higher risk growth opportunities could double or triple the size of the division, or any of them could deliver just enough revenue to cover their cost of capital. As a diversified company, management considers this Aerostar role a benefit, believing that Applied Technology and
Engineered Filmsare well positioned to deliver more incremental growth, and Aerostar provides the potential for strong upside, albeit with a higher risk of uncertainty. Management expects to see strength across each of the divisions during the third quarter. Applied Technology will be driven by sales of new products and improving market conditions. Engineered Filmswill continue to leverage opportunity in agricultural barrier films and move forward with new film capabilities while working to increase sales in the energy market which management believes is stabilizing. Aerostar will continue to experience reduced demand from Raven's U.S. government customers, but the Company has opportunities to substantially offset this by increasing Vista and other proprietary product sales. The Company's strong balance sheet and technological leadership in its chosen markets gives management confidence for the long-term, despite potentially volatile results as we transition to a more technology-driven company. Management continues to expect a stronger second-half performance on a year-over-year comparative basis, but does not believe that will be enough to deliver profit growth for the full year. Management expects to achieve attractive returns on equity and will continue to deliver strong returns to shareholders through dividends and long-term growth. 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.