UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 ~~October 31, 2015~~April 30, 2016



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 Number: 001-07982

RAVEN INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



South Dakota (State or other jurisdiction of incorporation or organization)		46-0246171 (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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of ~~November 27, 2015~~May 23, 2016 there were ~~36,505,845~~36,158,806 shares of common stock, $1 par value, of Raven Industries, Inc. outstanding. There were no other classes of stock outstanding.

RAVEN INDUSTRIES, INC.

INDEX



	PAGE

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:
Consolidated Balance Sheets (unaudited)	3
Consolidated Statements of Income and Comprehensive Income (unaudited)	4
Consolidated Statements Shareholders' Equity (unaudited)	5
Consolidated Statements of Cash Flows (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2017
Item 3. Quantitative and Qualitative Disclosures about Market Risks	3527
Item 4. Controls and Procedures	3527

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	3627
Item 1A. Risk Factors	3627
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3628
Item 3. Defaults Upon Senior Securities	3628
Item 4. Mine Safety Disclosures	3628
Item 5. Other Information	3628
Item 6. Exhibits	3728
Signatures	3829

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAVEN INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


(Dollars and shares in thousands, except per-share data)	October 31, 2015			January 31, 2015			October 31, 2014			April 30, 2016			January 31, 2016			April 30, 2015
ASSETS
Current assets
Cash and cash equivalents	$	32,287		$	51,949		$	66,358		$	32,790		$	33,782		$	47,452
Short-term investments	250			250			250			—			—			250
Accounts receivable, net	39,293			56,576			54,533			41,013			38,069			45,233
Inventories	48,624			55,152			51,800			46,950			45,888			58,981
Deferred income taxes	3,296			3,958			3,299			—			3,110			3,581
Other current assets	2,915			3,094			2,881			5,343			4,884			6,361
Total current assets	126,665			170,979			179,121			126,096			125,733			161,858

Property, plant and equipment, net	117,760			117,513			100,369			113,767			116,162			118,429
Goodwill	44,796			52,148			25,234			44,900			44,756			52,216
Amortizable intangible assets, net	16,586			18,490			9,005			15,660			15,832			17,735
Other assets	3,859			3,743			3,734			4,245			4,127			4,359
TOTAL ASSETS	$	309,666		$	362,873		$	317,463		$	304,668		$	306,610		$	354,597

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	7,160		$	11,545		$	11,614		$	9,356		$	6,038		$	9,123
Accrued liabilities	11,906			19,187			16,922			12,739			12,042			16,735
Customer advances	907			1,111			1,540			809			739			1,008
Total current liabilities	19,973			31,843			30,076			22,904			18,819			26,866

Other liabilities	17,057			25,793			20,432			17,259			18,926			25,581

Commitments and contingencies

Shareholders' equity
Common stock, $1 par value, authorized shares 100,000; issued 67,006; 66,947; and 65,400, respectively	67,006			66,947			65,400
Common stock, $1 par value, authorized shares 100,000; issued 67,041; 67,006; and 66,999, respectively										67,041			67,006			66,999
Paid-in capital	54,342			53,237			14,579			54,755			54,830			53,275
Retained earnings	236,922			244,180			242,973			233,926			233,156			244,055
Accumulated other comprehensive loss	(3,026		)	(5,849		)	(2,693		)	(2,891		)	(3,501		)	(5,863		)
Treasury stock at cost, 30,500; 28,897; and 28,897 shares, respectively	(82,700		)	(53,362		)	(53,362		)
Treasury stock at cost, 30,882; 30,500; and 29,047 shares, respectively										(88,402		)	(82,700		)	(56,406		)
Total Raven Industries, Inc. shareholders' equity	272,544			305,153			266,897			264,429			268,791			302,060
Noncontrolling interest	92			84			58			76			74			90
Total shareholders' equity	272,636			305,237			266,955			264,505			268,865			302,150
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	309,666		$	362,873		$	317,463		$	304,668		$	306,610		$	354,597

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
(Dollars in thousands, except per-share data)	October 31, 2015			October 31, 2014			October 31, 2015			October 31, 2014			April 30, 2016			April 30, 2015
Net sales	$	67,611		$	91,292		$	205,402		$	288,287		$	68,360		$	70,273
Cost of sales	51,440			66,953			151,014			206,524			48,684			49,914
Gross profit	16,171			24,339			54,388			81,763			19,676			20,359

Research and development expenses	4,005			4,318			10,757			13,675			4,409			3,536
Selling, general, and administrative expenses	7,480			9,862			25,302			30,701			7,660			9,609
Goodwill impairment loss	7,413			—			7,413			—
Operating (loss) income	(2,727		)	10,159			10,916			37,387
Operating income													7,607			7,214

Other (expense), net	(123		)	(72		)	(433		)	(210		)	(97		)	(44		)
(Loss) income before income taxes	(2,850		)	10,087			10,483			37,177
Income before income taxes													7,510			7,170

Income taxes	(1,291		)	3,290			2,960			11,599			1,985			2,309
Net (loss) income	(1,559		)	6,797			7,523			25,578
Net income													5,525			4,861

Net income attributable to the noncontrolling interest	22			14			58			38			2			6

Net (loss) income attributable to Raven Industries, Inc.	$	(1,581	)	$	6,783		$	7,465		$	25,540
Net income attributable to Raven Industries, Inc.													$	5,523		$	4,855

Net (loss) income per common share:
Net income per common share:
─ Basic	$	(0.04	)	$	0.19		$	0.20		$	0.70		$	0.15		$	0.13
─ Diluted	$	(0.04	)	$	0.18		$	0.20		$	0.70		$	0.15		$	0.13

Cash dividends paid per common share	$	0.13		$	0.13		$	0.39		$	0.37		$	0.13		$	0.13

Comprehensive income:
Net (loss) income	$	(1,559	)	$	6,797		$	7,523		$	25,578
Net income													$	5,525		$	4,861

Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:
Foreign currency translation	2			(463		)	(172		)	(588		)	612			(69		)
Postretirement benefits, net of income tax benefit of $1,606, $14, $1,572, and $40, respectively	2,794			24			2,995			74
Other comprehensive income (loss), net of tax	2,796			(439		)	2,823			(514		)
Postretirement benefits, net of income tax (expense) benefit of $(1) and $29, respectively													(2		)	55
Other comprehensive income, net of tax													610			(14		)

Comprehensive income	1,237			6,358			10,346			25,064			6,135			4,847

Comprehensive income attributable to noncontrolling interest	22			14			58			38			2			6

Comprehensive income attributable to Raven Industries, Inc.	$	1,215		$	6,344		$	10,288		$	25,026		$	6,133		$	4,841

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)



	td Par Common Stock		Paid-in Capital			Treasury Stock				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Raven Industries, Inc. Equity			Non- controlling Interest			Total Equity			td Par Common Stock		Paid-in Capital			Treasury Stock				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Raven Industries, Inc. Equity			Non- controlling Interest		Total Equity
(Dollars in thousands, except per-share amounts)						Shares	Cost																							Shares	Cost
Balance January 31, 2014	$	65,318	$	10,556		28,897	$	(53,362	)	$	231,029		$	(2,179	)	$	251,362		$	100		$	251,462
Net income	—		—			—	—			25,540			—			25,540			38			25,578
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			(588		)	(588		)	—			(588		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $40	—		—			—	—			—			74			74			—			74
Cash dividends ($0.37 per share)	—		104			—	—			(13,596		)	—			(13,492		)	—			(13,492		)
Dividends of less than wholly-owned subsidiary attributable to non-controlling interest	—		—			—	—			—			—			—			(80		)	(80		)
Director shares issued	18		(18		)	—	—			—			—			—			—			—
Shares issued on stock options exercised, net of shares withheld for employee taxes	64		510			—	—			—			—			574			—			574
Share-based compensation	—		3,336			—	—			—			—			3,336			—			3,336
Tax benefit from exercise of stock options	—		91			—	—			—			—			91			—			91
Balance October 31, 2014	$	65,400	$	14,579		28,897	$	(53,362	)	$	242,973		$	(2,693	)	$	266,897		$	58		$	266,955


Balance January 31, 2015	$	66,947	$	53,237		28,897	$	(53,362	)	$	244,180		$	(5,849	)	$	305,153		$	84		$	305,237		$	66,947	$	53,237		28,897	$	(53,362	)	$	244,180		$	(5,849	)	$	305,153		$	84	$	305,237
Net income	—		—			—	—			7,465			—			7,465			58			7,523			—		—			—	—			4,855			—			4,855			6		4,861
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			(172		)	(172		)	—			(172		)	—		—			—	—			—			(69		)	(69		)	—		(69		)
Change in postretirement benefits due to plan amendments after tax benefit of $1,591	—		—			—	—			—			2,770			2,770			—			2,770
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax (expense) of ($19)	—		—			—	—			—			225			225			—			225
Cash dividends ($0.39 per share)	—		125			—	—			(14,723		)	—			(14,598		)	—			(14,598		)
Dividends of less than wholly-owned subsidiary paid to noncontrolling interest	—		—			—	—			—			—			—			(50		)	(50		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $29																									—		—			—	—			—			55			55			—		55
Cash dividends ($0.13 per share)																									—		40			—	—			(4,980		)	—			(4,940		)	—		(4,940		)
Share issuance costs related to fiscal 2015 business combination	—		(15		)	—	—			—			—			(15		)	—			(15		)	—		(15		)	—	—			—			—			(15		)	—		(15		)
Shares issued on stock options exercised, net of shares withheld for employee taxes	7		(54		)	—	—			—			—			(47		)	—			(47		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	52		(510		)	—	—			—			—			(458		)	—			(458		)	52		(510		)	—	—			—			—			(458		)	—		(458		)
Shares repurchased	—		—			1,603	(29,338		)	—			—			(29,338		)	—			(29,338		)	—		—			150	(3,044		)	—			—			(3,044		)	—		(3,044		)
Share-based compensation	—		1,826			—	—			—			—			1,826			—			1,826			—		752			—	—			—			—			752			—		752
Income tax impact related to share-based compensation	—		(267		)	—	—			—			—			(267		)	—			(267		)	—		(229		)	—	—			—			—			(229		)	—		(229		)
Balance October 31, 2015	$	67,006	$	54,342		30,500	$	(82,700	)	$	236,922		$	(3,026	)	$	272,544		$	92		$	272,636
Balance April 30, 2015																									$	66,999	$	53,275		29,047	$	(56,406	)	$	244,055		$	(5,863	)	$	302,060		$	90	$	302,150


Balance January 31, 2016																									$	67,006	$	54,830		30,500	$	(82,700	)	$	233,156		$	(3,501	)	$	268,791		$	74	$	268,865
Net income																									—		—			—	—			5,523			—			5,523			2		5,525
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment																									—		—			—	—			—			612			612			—		612
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax (expense) of ($1)																									—		—			—	—			—			(2		)	(2		)	—		(2		)
Cash dividends ($0.13 per share)																									—		52			—	—			(4,753		)	—			(4,701		)	—		(4,701		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes																									35		(291		)	—	—			—			—			(256		)	—		(256		)
Shares repurchased																									—		—			382	(5,702		)	—			—			(5,702		)	—		(5,702		)
Share-based compensation																									—		456			—	—			—			—			456			—		456
Income tax impact related to share-based compensation																									—		(292		)	—	—			—			—			(292		)	—		(292		)
Balance April 30, 2016																									$	67,041	$	54,755		30,882	$	(88,402	)	$	233,926		$	(2,891	)	$	264,429		$	76	$	264,505

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended						Three Months Ended
(Dollars in thousands)	October 31, 2015			October 31, 2014			April 30, 2016			April 30, 2015
OPERATING ACTIVITIES:
Net income	$	7,523		$	25,578		$	5,525		$	4,861
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	13,201			12,538			4,186			4,363
Change in fair value of acquisition-related contingent consideration	(930		)	514			82			212
Goodwill impairment loss	7,413			—
Loss from equity investment	126			138
Loss (gain) from equity investment							3			(2		)
Deferred income taxes	(4,765		)	(2,420		)	1,554			110
Share-based compensation expense	1,826			3,336			456			752
Change in operating assets and liabilities:
Accounts receivable	16,144			2,108			(2,648		)	10,756
Inventories	4,832			2,768			(980		)	(4,496		)
Other assets	228			(555		)	(1,071		)	(3,218		)
Operating liabilities	(12,012		)	1,623			4,075			(4,105		)
Other operating activities, net	1,595			67			(78		)	(210		)
Net cash provided by operating activities	35,181			45,695			11,104			9,023

INVESTING ACTIVITIES:
Capital expenditures	(10,771		)	(12,797		)	(791		)	(5,000		)
Proceeds (payments) related to business acquisitions	351			(4,711		)
Proceeds from sales of short-term investments	—			250
Purchase of short-term investments	—			(250		)
Proceeds related to business acquisitions							—			351
Purchases of investments							(500		)	—
Proceeds from sale of assets	1,960			—			50			380
Other investing activities	(506		)	(604		)	(194		)	(164		)
Net cash used in investing activities	(8,966		)	(18,112		)	(1,435		)	(4,433		)

FINANCING ACTIVITIES:
Dividends paid	(14,648		)	(13,572		)	(4,701		)	(4,940		)
Payments for common shares repurchased	(29,338		)	—			(5,702		)	(2,563		)
Payments of acquisition-related debt	—			(648		)
Payments of acquisition-related contingent liability	(773		)	(491		)	(138		)	(614		)
Debt issuance costs paid	(548		)	—			—			(454		)
Restricted stock units vested and issued	(458		)	—			(256		)	(458		)
Employee stock option exercises net of tax benefit	(85		)	665
Other financing activities, net	(15		)	—			—			(15		)
Net cash used in financing activities	(45,865		)	(14,046		)	(10,797		)	(9,044		)

Effect of exchange rate changes on cash	(12		)	(166		)	136			(43		)

Net (decrease) increase in cash and cash equivalents	(19,662		)	13,371			(992		)	(4,497		)
Cash and cash equivalents at beginning of year	51,949			52,987			33,782			51,949
Cash and cash equivalents at end of period	$	32,287		$	66,358		$	32,790		$	47,452

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

RAVEN INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollars in thousands, except per-share amounts)

(1) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

Raven Industries, Inc. (the Company or 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 three unique operating units, or divisions, classified into reportable segments: Applied Technology, Engineered Films, and Aerostar.

The accompanying unaudited consolidated financial information, which includes the accounts of Raven and its wholly-owned or controlled subsidiaries, net of intercompany balances and transactions which have been eliminated, has been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (GAAP) 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 GAAP for complete financial statements. This financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, ~~2015~~2016.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of this financial information have been included. Financial results for the interim ~~nine~~three-month period ended ~~October 31, 2015~~April 30, 2016 are not necessarily indicative of the results that may be expected for the year ending January 31, ~~2016~~2017. The January 31, ~~2015~~2016 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. Preparing financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These 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 period. Actual results could differ from those estimates.

Noncontrolling interests represent capital contributions, income and loss attributable to the owners of less than wholly-owned consolidated entities. The Company owns a 75% interest in an entity consolidated under the Aerostar business segment. Given the Company's majority ownership interest, the accounts of the business venture have been consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for the noncontrolling investor interests in the net assets and operations of the business venture.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company prospectively adopted the straight-line method of depreciation for manufacturing equipment, office equipment, and furniture and fixtures placed in service on or after February 1, 2015. This change was made as a straight-line method of depreciation more accurately reflects the economic consumption of these assets than did the accelerated method previously used. This prospective change in the depreciation method did not have a material effect on the Company’s financial position or results of operations for the three- or nine-month periods ended October 31, 2015.

As described in Note 1 Summary of Significant Accounting Policies of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, ~~2015,~~2016, the Company recognizes goodwill as the excess cost of an acquired business over the net amount assigned to assets acquired and liabilities assumed. Management assesses goodwill for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. Impairment tests of goodwill are done at the reporting unit level. When performing goodwill impairment testing, the fair values of reporting units are determined based on valuation techniques using the best available information, primarily discounted cash flow projections. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures).

~~In the fiscal 2016 second quarter the Company performed a Step 1 impairment analysis using fair value techniques~~

Based on the ~~Engineered Films reporting unit as a result~~Company’s review of changes in market conditions indicating that goodwill might be impaired. The reporting unit's fair value was estimated based on discounted cash flows and that fair value amount was compared to the carrying value of the reporting unit. This analysis indicated that the estimated fair value of the Engineered Films reporting unit exceeded the net book value by approximately $50,700 or 37.2%. No significant changes were noted in the market conditions in fiscal 2016 third quarter and operating income was consistent with expectations at the end of second quarter. Although oil prices continue to be lower and sales are down, the profitability of the division continues to be higher than the trailing months at the time of the impairment analysis given the lower material costs in comparison to the selling price. As such, the Company concluded a triggering event did not occur in the current quarter for Engineered Films.

In the fiscal 2016 third quarter the Company determined that a triggering event occurred for its Vista reporting unit, a subsidiary of the Aerostar Division. In addition to the Company making a change in the executive leadership of the Vista reporting unit

~~(Dollars in thousands, except per-share amounts)~~

~~during the quarter, financial expectations for sales and operating income of the reporting unit were lowered due to delays and uncertainties regarding the~~each reporting unit’s pursuit of large international opportunities, one of which was expected to be awarded during the current quarter. While Vista has been in the process of negotiating a large international contract, the contract did not materialize in the fiscal 2016 third quarter as expected. The likelihood of being awarded this or other such contracts in the next twelve months is now lower than it was in the second quarter. The Company continues to pursue these international opportunities, but the timing of any contract award is less certain. As a result of a delay in being awarded this large international contract, the Company lowered its financial forecastoperating results for the ~~business. As a result of these factors, the Company performed a Step 1 impairment analysis using fair value techniques as of October 31, 2015.~~

~~The reporting unit's fair value was estimated based on discounted cash flows~~three-month period ended April 30, 2016, no triggering events were identified and that fair value amount was compared to the carrying value of the reporting unit. The analysis indicated that the estimated fair value of the Vista reporting unit was less than the carrying value by $8,357, or 35.0%. Based on these results, a Step 2no further impairment analysis was ~~performed. The fair value determined in Step 1 was allocated to~~required under the assets and liabilities of the reporting unit. Based on the Step 2 impairment analysis the Company determined that the goodwill balance was impaired as of October 31, 2015 and an impairment loss of $7,413 was recorded. This goodwill impairment loss is described further in Note 6 ~~Goodwill Impairment Loss And Other Charges~~.

Although the profitability of the Company’s other two reporting units, Aerostar (all operations other than Vista) and Applied Technology, has been down as compared to the prior year, the Company identified no triggering events requiring a Step 1 impairment analysis for either of these reporting units. The Company will conduct its planned annual assessment of goodwill for impairment in the fourth quarter.applicable accounting guidance.

There have been no material changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, ~~2015.~~2016.

(3) NET ~~(LOSS)~~ INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average common shares and stock units 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), stock units, and restricted stock units outstanding. Performance share awards are included in the diluted calculation based upon what would be issued if the end of the most recent reporting period was the end of the term of the award. ~~Weighted average common and common equivalent shares outstanding are excluded from the diluted loss per share calculation as their inclusion would have an antidilutive effect.~~

Certain outstanding options and restricted stock units were excluded from the diluted net income per-share calculations because their effect would have been anti-dilutive under the treasury stock method.

(Dollars in thousands, except per-share amounts)

The options and restricted stock units excluded from the diluted net income per-share share calculation were as follows:

Three Months Ended Nine Months Ended
October 31,
2015 October 31,
2014 October 31,
2015 October 31,
2014
Anti-dilutive options and restricted stock units 1,216,318 846,205 1,150,227 574,631



	Three Months Ended
	April 30, 2016	April 30, 2015
Anti-dilutive options and restricted stock units	1,005,163	1,103,707

~~(Dollars in thousands, except per-share amounts)~~

The computation of earnings per share is presented below:


	Three Months Ended					Nine Months Ended				Three Months Ended
	October 31, 2015			October 31, 2014		October 31, 2015		October 31, 2014		April 30, 2016		April 30, 2015
Numerator:
Net (loss) income attributable to Raven Industries, Inc.	$	(1,581	)	$	6,783	$	7,465	$	25,540
Net income attributable to Raven Industries, Inc.										$	5,523	$	4,855

Denominator:
Weighted average common shares outstanding	36,785,140			36,499,018		37,481,675		36,462,441		36,319,918		38,000,775
Weighted average stock units outstanding	92,470			68,721		84,597		69,616		93,986		69,492
Denominator for basic calculation	36,877,610			36,567,739		37,566,272		36,532,057		36,413,904		38,070,267

Weighted average common shares outstanding	36,785,140			36,499,018		37,481,675		36,462,441		36,319,918		38,000,775
Weighted average stock units outstanding	92,470			68,721		84,597		69,616		93,986		69,492
Dilutive impact of stock options and restricted stock units	—			165,504		47,773		188,713		52,234		131,637
Denominator for diluted calculation	36,877,610			36,733,243		37,614,045		36,720,770		36,466,138		38,201,904

Net (loss) income per share - basic	$	(0.04	)	$	0.19	$	0.20	$	0.70
Net (loss) income per share - diluted	$	(0.04	)	$	0.18	$	0.20	$	0.70
Net income per share - basic										$	0.15	$	0.13
Net income per share - diluted										$	0.15	$	0.13

(Dollars in thousands, except per-share amounts)

(4) SELECTED BALANCE SHEET INFORMATION

Following are the components of selected items from the Consolidated Balance Sheets:


	October 31, 2015			January 31, 2015			October 31, 2014			April 30, 2016			January 31, 2016			April 30, 2015
Accounts receivable, net:
Trade accounts	$	40,062		$	56,895		$	54,889		$	42,041		$	39,103		$	45,686
Allowance for doubtful accounts	(769		)	(319		)	(356		)	(1,028		)	(1,034		)	(453		)
	$	39,293		$	56,576		$	54,533		$	41,013		$	38,069		$	45,233

Inventories:
Finished goods	$	5,211		$	8,127		$	7,981		$	4,570		$	4,896		$	9,127
In process	2,157			1,317			2,063			1,751			1,845			2,533
Materials	41,256			45,708			41,756			40,629			39,147			47,321
	$	48,624		$	55,152		$	51,800		$	46,950		$	45,888		$	58,981

Other current assets:
Insurance policy benefit	$	728		$	733		$	517		$	742		$	716		$	683
Federal tax receivable	—			713			—			1,719			2,176			—
Receivable from sale of business	420			—			—			205			255			789
Prepaid expenses and other	1,767			1,648			2,364			2,677			1,737			4,889
	$	2,915		$	3,094		$	2,881		$	5,343		$	4,884		$	6,361

Property, plant and equipment, net:
Held for use:
Land	$	2,974		$	3,246		$	2,077		$	3,054		$	3,054		$	3,246
Buildings and improvements	76,775			78,140			69,353			77,901			77,827			78,661
Machinery and equipment	138,921			131,766			124,057			141,798			140,995			135,154
Accumulated depreciation	(102,263		)	(96,545		)	(95,118		)	(109,786		)	(106,514		)	(99,538		)
	$	116,407		$	116,607		$	100,369		$	112,967		$	115,362		$	117,523

Held for sale:
Land	$	324		$	11		$	—		$	244		$	244		$	11
Buildings and improvements	2,597			1,522			—			1,595			1,595			1,522
Machinery and equipment	639			—			—			329			329			—
Accumulated depreciation	(2,207		)	(627		)	—			(1,368		)	(1,368		)	(627		)
	1,353			906			—			800			800			906
	$	117,760		$	117,513		$	100,369		$	113,767		$	116,162		$	118,429

Other assets, net:
Investment in affiliate	$	2,720		$	3,217		$	3,175
Other, net	1,139			526			559
Other assets:
Equity investments										$	2,813		$	2,805		$	3,095
Deferred income taxes										25			—			—
Other										1,407			1,322			1,264
	$	3,859		$	3,743		$	3,734		$	4,245		$	4,127		$	4,359

Accrued liabilities:
Salaries and related	$	1,177		$	4,063		$	1,875		$	1,874		$	1,883		$	3,035
Benefits	3,925			5,001			5,778			3,945			3,864			4,655
Insurance obligations	1,852			1,590			1,426			1,893			1,730			1,629
Warranties	1,639			3,120			2,456			2,316			1,835			2,285
Income taxes	1,013			536			1,140			654			475			1,824
Other taxes	977			1,240			1,052			1,008			1,117			936
Acquisition-related contingent consideration	492			1,375			1,191			454			407			938
Other	831			2,262			2,004			595			731			1,433
	$	11,906		$	19,187		$	16,922		$	12,739		$	12,042		$	16,735

Other liabilities:
Postretirement benefits	$	7,898		$	11,812		$	8,264		$	7,678		$	7,662		$	11,976
Acquisition-related contingent consideration	2,229			3,631			3,587			2,338			2,499			3,046
Deferred income taxes	3,665			7,091			1,406			4,202			5,426			7,278
Uncertain tax positions	3,265			3,259			7,175			3,041			3,339			3,281
	$	17,057		$	25,793		$	20,432		$	17,259		$	18,926		$	25,581

~~#10~~

(Dollars in thousands, except per-share amounts)

(5) ACQUISITIONS OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES

~~Integra~~Ag-Eagle Aerial Systems, Inc.

~~Related~~In February 2016, the Applied Technology Division acquired an interest of approximately 5% in AgEagle Aerial Systems, Inc. (AgEagle). AgEagle is a privately held company that is a leading provider of unmanned aerial systems (UAS) used for agricultural applications. Contemporaneously with the execution of this agreement, AgEagle and the Company entered into a distribution agreement whereby the Company was appointed as the sole and exclusive distributor worldwide of the existing AgEagle system as it pertains to the ~~fourth quarter fiscal 2015 acquisition of Integra Plastics, Inc. (Integra),~~agriculture market. This investment and distribution agreement will allow the Company ~~received $351~~to expand into the UAS market for agriculture, enhancing its existing product offerings to provide actionable data that customers can use to make important input decisions.

AgEagle is considered a variable interest entity (VIE) and the Company’s equity ownership interest in ~~settlement~~AgEagle is considered a variable interest. The Company accounts for its investment in AgEagle under the equity method of accounting as the Company has the ability to exercise significant influence over the operating policies of AgEagle through the Company's representation on AgEagle's Board of Directors and the distribution agreement. However, the Company is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the ~~working capital adjustment~~VIE that could potentially be significant to the ~~purchase price and finalized deferred tax calculations in fiscal 2016 first quarter. These transactions~~entity.

At the acquisition date, the Company determined that the exclusivity of the distribution agreement resulted in an ~~adjustment of about $20 to the~~intangible asset. The purchase price ~~allocation. As~~was allocated between the equity ownership interest and this intangible asset which will be amortized on a straight-line basis over the four-year life of ~~as October 31, 2015,~~ the ~~purchase price valuation was $48,262 with fair value of goodwill of $27,422. None of this goodwill is tax deductible.~~distribution agreement.

Acquisition-related Contingent Consideration

The Company has contingent liabilities related to prior year acquisitions of SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG) in May 2014 and Vista in January ~~2012 .~~2012. The fair value of such contingent consideration is estimated as of the acquisition date, and subsequently at the end of each reporting period, using forecasted ~~discounted~~ cash flows. Projecting ~~discounted~~ future cash flows requires the Company to make significant estimates and assumptions regarding future events, conditions, or revenues being achieved under the subject contingent agreement ~~and~~as well as the appropriate discount rate. Such valuations techniques include one or more significant inputs that are not observable (Level 3 fair value measures).

In connection with the acquisition of SBG, Raven is committed to making additional earn-out payments, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date contingent upon achieving certain revenues. At ~~October 31, 2015,~~April 30, 2016, the fair value of this contingent consideration was ~~$1,338,~~$1,491, of which ~~$329~~$237 was classified as "Accrued liabilities" and ~~$1,009~~$1,254 was classified as "Other liabilities" in the Consolidated Balance Sheets. At ~~October 31, 2014,~~April 30, 2015, the fair value of this contingent consideration was ~~$1,583,~~$1,410, of which ~~$298~~$287 was classified as "Accrued liabilities" and ~~$1,285~~$1,123 as "Other liabilities." The Company paid ~~$38~~$59 and ~~$188~~$29 in earn-out payments in the ~~three- and nine-month~~three-month periods ended ~~October 31, 2015. There were $37~~April 30, 2016 and 2015, respectively. To date, the Company has paid a total of $367 of this potential earn-out ~~payments in the three- and nine-month periods ended October 31, 2014.~~liability.

Related to the acquisition of Vista in 2012, the Company is committed to making annual payments based upon earn-out percentages on specific revenue streams for seven years after the purchase date, not to exceed $15,000.

~~As a result of the triggering event described in Note 2~~ ~~Significant Accounting Policies, the Company performed a Step 1 and Step 2 impairment analysis for the Vista reporting unit. The result of the Step 2 analysis is more fully described in Note 6~~ ~~Goodwill Impairment Loss And Other Charges.~~ Prior to performing the Step 2 analysis, the Company evaluated the fair value of the remaining assets and liabilities including acquisition-related contingent consideration. This analysis included a reduction of $1,483 in At April 30, 2016, the fair value of this contingent ~~consideration. This benefit~~consideration was ~~recognized~~$1,279, of which $195 was classified in ~~"Cost of sales"~~"Accrued liabilities" and $1,084 as "Other liabilities" in the Consolidated ~~Statements of Income and Comprehensive Income for the three- and nine-month periods ended October 31, 2015.~~Balance Sheets. At ~~October 31,~~April 30, 2015 the fair value of this contingent consideration was ~~$1,340,~~$2,571, of which $120 was classified in "Accrued liabilities" and $1,220 as "Other liabilities" in the Consolidated Balance Sheets. At October 31, 2014 the fair value of this contingent consideration was $2,841, of which $539$648 was classified as "Accrued liabilities" and ~~$2,302~~$1,923 as "Other liabilities" in the Consolidated Balance Sheets. The Company paid ~~$585~~$79 and ~~$454 in the nine-month periods ended October 31, 2015 and 2014, respectively. The Company made no earn-out payments~~$585 in the three-month periods ended ~~October 31,~~April 30, 2016 and 2015, ~~or 2014,~~ respectively. To date, the Company has paid a total of $1,471 of this potential earn-out liability.

(6) GOODWILL AND OTHER INTANGIBLES

The Company performs impairment reviews of goodwill by reporting unit. At the end of fiscal 2016, the Company determined it had four reporting units: Engineered Films Division; Applied Technology Division; and two separate reporting units in the Aerostar Division, one of which is Vista and one of which is all other Aerostar operations (Aerostar excluding Vista).

During the first quarter of fiscal 2017, management implemented operations and reporting changes within Vista and Aerostar to further integrate the operations of Vista into Aerostar operations. Integration actions included leadership re-alignment, including selling and business development functions; re-deployment of employees across the division; and consolidation of administrative functions, among other actions. Based on the changes made, the Company has consolidated the two separate reporting units within the Aerostar Division into one reporting unit for the purposes of goodwill impairment review. As such as of April 30, 2016, the Company has three reporting units: Engineered Films Division, Applied Technology Division, and Aerostar Division.

~~(6) GOODWILL IMPAIRMENT LOSS AND OTHER CHARGES~~

~~Pre-contract Deferred Cost Write-offs~~

From time to time, the Company incurs costs before a contract is finalized and such pre-contract costs are deferred to the balance sheet to the extent they relate to a specific project and the Company has concluded that is probable that the contract will be awarded for more than the amount deferred. Pre-contract cost deferrals are common with Vista's business pursuits. As described in Note 2 ~~Summary of Significant Accounting Policies,~~ Vista has been pursuing international opportunities and was in the process of negotiating a large international contract that did not materialize in the fiscal 2016 third quarter as expected. Expectations were lowered as the timing and likelihood of completing certain international pursuits became less certain. While the Company continues to pursue international opportunities, it is not likely that major contracts will be successfully executed within the next twelve months as previously expected. Corresponding to these lower expectations, the pre-contract costs associated with these pursuits were written off during the fiscal 2016 third quarter. Vista recorded a charge of $2,933, (which is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015) for the write-off of these pre-contract costs. This charge is recorded in “Cost of sales” in the Consolidated Statements of Income and Comprehensive Income.

~~Goodwill Impairment Loss~~

In the fiscal 2016 third quarter the Company determined that a triggering event occurred for its Vista reporting unit, a subsidiary of the Aerostar division. The triggering event was caused by the lowering of financial expectations for sales and operating income of the reporting unit due to delays and uncertainties regarding the reporting unit’s pursuit of large international opportunities, one of which was expected to be awarded during the quarter. In addition, the Company made a change in the executive leadership of

~~#11~~

(Dollars in thousands, except per-share amounts)

the reporting unit during the quarter. As previously discussed, the Step 1 impairment analysis was completed using fair value techniques as of October 31, 2015. In determining the estimated fair value of the Vista reporting unit, the Company was required to estimate a number of factors, including projected revenue growth rates, projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. On the basis of these estimates, the October 31, 2015 analysis indicated that the estimated fair value of the Vista reporting unit was less than the carrying value. The carrying value exceeded the estimated fair value by $8,357, or 35.0%.

Pursuant to the applicable accounting guidance, the Company performed a Step 2 impairment analysis. In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the reporting unit. The resulting implied fair value of the Vista goodwill was $4,084 compared to the carrying value recorded for the reporting unit, $11,497. This $7,413 shortfall was recorded in the current quarter as an impairment charge to operating income reported as "Goodwill impairment loss" in the Consolidated Statements of Income and Comprehensive Income.

There were no impairment losses reported in the three- or nine-month periods ended October 31, 2014 nor were there any accumulated impairment losses prior to October 31, 2015. Goodwill gross and net of accumulated impairment losses at October 31, 2015 was $52,209 and $44,796, respectively. Goodwill gross and net of accumulated impairment losses at October 31, 2014 was $25,234.

(7) EMPLOYEE POSTRETIREMENT BENEFITS

The Company provides postretirement medical and other benefits to certain senior executive officers and senior managers. These plan obligations are unfunded. On August 25, 2015 the Company amended the employment agreements with five of its senior executive officers eliminating the postretirement medical benefits to these individuals and their spouses. In consideration of eliminating this retiree benefit, the senior executive officers received lump sum payments in amounts ranging from $8 to $15 based on each officer’s years of service to the Company. The Company’s current senior executive officers that either already qualified for retirement or had twenty or more years of service to the Company are still eligible for benefits under their employment agreements.

The reduction in active plan participants was accounted for as a negative plan amendment and eliminated the accrual for defined benefits for future services from these individuals and resulted in the subsequent remeasurement of the Company's benefit obligation as of August 31, 2015. The effect of the August 31, 2015 remeasurement of the benefit obligation is as follows:

Benefit obligation at January 31, 2015 $ 12,125
Service cost 252
Interest cost 244
Prior service (credit) due to plan amendment (958 )
Actuarial (gain) due to assumption changes (3,403 )
Retiree benefits paid (89 )
Benefit obligation at August 31, 2015 $ 8,171
Fair value of plan assets —
Funded status at August 31, 2015 $ (8,171 )
Net actuarial loss in accumulated other comprehensive income 2,710
Unrecognized prior service (credit) (958 )
Accrued postretirement benefit cost at August 31, 2015 $ (6,419 )

~~#12~~

~~(Dollars in thousands, except per-share amounts)~~

The actuarial gain from assumptions changes is primarily the result of an increase in the discount rate at the measurement date. The discount rate is based on matching rates of return on high-quality fixed-income investments with the timing and amount of expected benefit payments. Medical trend rates were developed using a combination of a trend survey and a trend rate model. For the years 2015 through 2017, the rates are based on survey data and client market expectations. The trend rate model was then used to determine the trend rates between the years 2017 through 2030, based on reasonable macro-economic assumptions for the growth of health care expenditures during this period relative to the general economy. The assumptions used to measure the benefit obligation were as follows:

Assumptions used to calculate benefit obligation:
Measurement date August 31, 2015
January 31, 2015
Discount rate 4.25 % 3.50 %
Wage inflation rate 4.00 % 4.00 %
Average remaining years of service 15.14
16.05
Health care cost trend rates:
Health care cost trend rate assumed for next year 7.00 % 7.20 %
Ultimate health care cost trend rate 4.50 % 5.00 %
Year that the rate reaches the ultimate trend rate 2030
2025

~~The negative plan amendment and assumption changes will reduce the net periodic benefit cost for fiscal year 2016 by approximately $300 compared to the amount expected prior to the remeasurement.~~ The components of the net periodic benefit cost for postretirement benefits are as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended
	October 31, 2015		October 31, 2014		October 31, 2015		October 31, 2014		April 30, 2016			April 30, 2015
Service cost	$	49	$	49	$	265	$	147	$	20		$	108
Interest cost	92		91		302		274		83			105
Amortization of actuarial losses	38		38		206		114		37			84
Amortization of unrecognized prior service cost									(40		)	—
Net periodic benefit cost	$	179	$	178	$	773	$	535	$	100		$	297

Postretirement benefit cost components are reclassified in their entirety from accumulated other comprehensive loss to net periodic benefit cost. Net periodic benefit costs are reported in net income as “Cost of sales” or “Selling, general, and administrative expenses” in a manner consistent with the classification of direct labor and personnel costs of the eligible employees.

(8) WARRANTIES

Accruals necessary for product warranties are estimated based on historical warranty costs and average time elapsed between purchases and returns for each division. Additional accruals are made for any significant, discrete warranty issues. Changes in the warranty accrual were as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 31, 2015			October 31, 2014			October 31, 2015			October 31, 2014			April 30, 2016			April 30, 2015
Beginning balance	$	1,752		$	2,617		$	3,120		$	2,525		$	1,835		$	3,120
Accrual for warranties	571			676			1,319			2,065			824			359
Settlements made	(684		)	(837		)	(2,800		)	(2,134		)	(343		)	(1,194		)
Ending balance	$	1,639		$	2,456		$	1,639		$	2,456		$	2,316		$	2,285

(9) FINANCING ARRANGEMENTS

OnThe Company entered into a credit facility on April 15, 2015 ~~the Company's uncollateralized credit agreement~~ with ~~Wells Fargo Bank, N.A. (Wells Fargo) providing a line of credit of $10,500 and maturing on November 30, 2016 was terminated upon the Company's entering into a new credit facility.~~

~~This new credit facility, the Credit Agreement dated as of April 15, 2015 among Raven Industries, Inc.,~~ JPMorgan Chase Bank, N.A., Toronto Branch as Canadian Administrative Agent, JPMorgan Chase Bank, National Association, as administrative agent,

~~#13~~

~~(Dollars in thousands, except per-share amounts)~~

and each lender from time to time party thereto (the Credit Agreement),. The Credit Agreement provides for a syndicated senior revolving credit facility up to $125,000 with a maturity date of April 15, 2020. Wells Fargo Bank, N.A. (Wells Fargo), a participating lender under the Credit Agreement, holds the majority of the Company's cash and cash equivalents. One member of the Company's Board of Directors is also on the Board of Directors of Wells Fargo & Company, the parent company of Wells Fargo.

Unamortized debt issuance costs associated with this Credit Agreement were ~~$489~~$434 and $548 at ~~October 31,~~April 30, 2016 and 2015.

Loans or borrowings defined under the Credit Agreement bear interest and fees at varying rates and terms defined in the Credit Agreement based on the type of borrowing as defined. The Credit Agreement contains customary affirmative and negative covenants, including those relating to financial reporting and notification, limits on levels of indebtedness and liens, investments, mergers and acquisitions, affiliate transactions, sales of assets, restrictive agreements, and change in control as defined in the Credit Agreement. Financial covenants include an interest coverage ratio and funded indebtedness to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. ~~$125,000 was available under the Credit Agreement for borrowings as of October 31, 2015.~~ The loan proceeds may be utilized by Raven for strategic business purposes and for working capital needs.

Simultaneous with execution of the Credit Agreement, Raven, Aerostar, Vista, and Integra entered into a guaranty agreement in favor of JPMorgan Chase Bank National Association in its capacity as administrator under the Credit Agreement for the benefit of JPMorgan Chase Bank N.A., Toronto Branch and the lenders and their affiliates under the Credit Agreement.

Letters of credit (LOCs) totaling $850 issued under ~~the~~a previous line of credit with Wells Fargo were outstanding at April 30, 2015. These LOCs, which primarily to support self-insured workers' compensation bonding requirements, ~~remain~~are being transitioned to the Credit Agreement. As such, LOCs totaling $1,114 issued under each credit facility were outstanding at April 30, 2016, including

(Dollars in ~~place. The Company expects to have these outstanding letters~~thousands, except per-share amounts)

$464 of ~~credit~~LOCs issued under the ~~credit facility.~~Credit Agreement. Until such time as ~~that~~the transition of the remaining LOCs is complete, any draws required under ~~these letters of credit~~the Wells Fargo LOCs would be settled with available cash or borrowings under the Credit Agreement.

There were no borrowings under either credit agreement for any of the fiscal periods covered by this Quarterly Report on Form 10-Q. Availability under the Credit Agreement for borrowings as of April 30, 2016 was $124,536.

(10) CONTINGENCIES

In the normal course of business, the Company is subject to various claims and litigation. The Company has concluded that the ultimate outcome of these matters is not expected to be ~~significant~~material to the Company’s results of operations, financial position, or cash flows.

(11) INCOME TAXES

The Company’s effective tax rate varies from the federal statutory rate primarily due to state and local taxes, ~~tax-exempt captive insurance premiums,~~research and development tax credit, tax benefits on qualified production ~~activities.~~activities, and tax-exempt insurance premiums. The Company’s effective tax rates for the ~~nine-month~~three-month periods ended ~~October 31,~~April 30, 2016 and 2015 were 26.4% and ~~2014 were 28.2% and 31.2%~~32.2%, respectively. ~~Although~~The decrease in the ~~fiscal 2015~~ effective tax ~~rates include~~rate is primarily due to the ~~impact~~permanent extension of ~~recognition of a $709~~the research and development tax credit in ~~the fiscal second~~fourth quarter ~~based upon a tax study undertaken for fiscal years 2011 through 2014, the~~of fiscal 2016 ~~rate decreased 3.0 percentage points from~~and a discrete tax benefit related to the prior ~~year. The decrease~~fiscal year that was recorded in the effective rate is primarily due to an increased tax benefit for qualified production activities. While pre-tax income is lower in the current year, this benefit is based on estimated taxable income. Taxable income is higher in comparison to pre-tax income for the three- and nine-month periods ended October 31, 2015 due to the goodwill impairment loss recorded. This impairment, described further in Note 6 ~~Goodwill Impairment Loss And Other Charges, does not reduce taxable income. Rather, goodwill is amortized over 15 years for tax purposes.~~fiscal 2017 first quarter.

As of ~~October 31, 2015,~~April 30, 2016, undistributed earnings of approximately ~~$1,720~~$3,243 of the Canadian ~~subsidiary~~and European subsidiaries were considered to have been reinvested indefinitely and, accordingly, the Company has not provided United States income taxes on such earnings. This estimated tax liability would be approximately ~~$270~~$539 net of foreign tax credits.

(12) RESTRUCTURING COSTS

~~On March 10,~~At April 30, 2016, there are no ongoing restructuring plans or unpaid restructuring costs. No restructuring costs were incurred in the three-month period ended April 30, 2016.

In the fiscal 2015 fourth quarter, the Company announced and implemented a restructuring plan to lower Applied Technology’s cost structure. In the same period, Engineered Films implemented a preemptive restructuring plan to address the decline in demand in the energy sector as the result of falling oil prices. The Company also initiated the exit of Applied Technology’s non-strategic St. Louis, Missouri contract manufacturing facility.

Exit activities related to this sale and transfer of these contract manufacturing operations were substantially completed during the fiscal 2016 first quarter. Gains of $364 were recorded for the three-month period ended April 30, 2015 as a result of the exit activity. Receivables for inventory and estimated future royalties pursuant to the sale agreements of $789 were included in "Other current assets" in the Consolidated Balance Sheet at April 30, 2015. At April 30, 2016, such receivables were $205.

The land, building, and remaining equipment in St. Louis is still owned and held for sale at April 30, 2016. The Company is actively marketing this facility at a sales price above the net book value of $800. Based on such activity, the Company does not believe an impairment is indicated as of April 30, 2016.

In the fiscal 2016 first quarter, the Company announced and implemented a restructuring plan to further lower its cost structure. The cost reductions covered all divisions and included the corporate offices, but were weighted to Applied Technology as a result of the decline in this business and the expectation of continued end-market weakness for this division. This action was taken in addition to a preemptive restructuring of the Engineered Films Division in the fourth quarter of fiscal 2015 to address the expected decline in demand in the energy sector as the result of falling oil prices, as well as the Applied Technology restructuring announced in November 2014.

The Company incurred restructuring costs for severance benefits of ~~$588~~$477 in ~~the nine-month period ended October 31, 2015. This restructuring plan was completed during fiscal 2016 second quarter so no costs were incurred related to this restructuring plan in~~

~~#14~~

~~(Dollars in thousands, except per-share amounts)~~

the three-month period ended ~~October 31,~~April 30, 2015, ~~and there were no~~including $55 of unpaid costs at ~~October 31,~~April 30, 2015. The Company reported ~~$407~~$393 of this expense in "Cost of sales" and the remaining ~~$181~~$84 in "Selling, general, and administrative expenses" in the Consolidated Statements of Income and Comprehensive Income. Substantially all of these restructuring costs related to the Applied Technology Division. ~~The Company incurred no restructuring costs in the three- or nine-month periods ended October 31, 2014.~~

Subsequent to the end of fiscal 2015, the Company announced that Applied Technology's remaining contract manufacturing operations in the St. Louis, Missouri area had been successfully sold and transferred. The exit activities related to this sale and transfer were substantially completed during the first quarter. There were no impairments recorded as a result of the exit activity and gains of $611 were recorded in the nine-month period ended October 31, 2015. There were no gains recorded in the three-month period ended October 31, 2015. Receivables for inventory and estimated future royalties pursuant to the sale agreements were $420 and were reflected in "Other current assets" in the Consolidated Balance Sheet at October 31, 2015.

~~Aerostar Division (Vista) restructuring plan~~

In addition to the restructuring plan announced in first quarter, the Company's Aerostar segment implemented a restructuring plan at Vista in October 2015 due to reduced demand expectations primarily related to delays and uncertainty surrounding international pursuits. The lower cost structure will preserve the Company's capabilities to pursue domestic and international opportunities for Vista's radar products and technology.

~~Vista incurred restructuring costs for severance benefits of $73 in the three- and nine-month periods ended October 31, 2015. The~~This restructuring plan was implemented late in third quarter so virtually all of these costs were unpaid at October 31, 2015. The Company reported $58 of this expense in "Cost of sales" and the remaining $15 in "Research and development expenses" in the Consolidated Statements of Income and Comprehensive Income. In addition to these restructuring costs, Vista incurred a goodwill impairment loss and a write-off of some deferred pre-contract costs. These one-time charges are further described in Note 6 ~~Goodwill Impairment Loss And Other Charges. Vista incurred no restructuring costs in the three- or nine-month periods ended October 31, 2014.~~completed during fiscal 2016 second quarter.

(13) DIVIDENDS AND TREASURY STOCK

Dividends paid to Raven shareholders ~~for the three and nine months ended October 31, 2015~~ were ~~$4,764 and $14,598,~~$4,701 or 13.0 cents ~~and 39.0 cents~~ per share ~~respectively. Dividends paid to Raven shareholders for~~during the three ~~and nine~~ months ended ~~October 31, 2014 were $4,745~~April 30, 2016 and ~~$13,492,~~$4,940, or 13.0 cents ~~and 37.0 cents per share, respectively.~~during the three months ended April 30, 2015.

(Dollars in thousands, except per-share amounts)

~~On November 30, 2014~~Effective March 21, 2016 the ~~Company announced that its~~ Board of Directors ~~had~~(Board) authorized aan extension and increase of the authorized $40,000 stock buyback ~~program. The~~program in place.An additional $10,000 was authorized for share repurchases once the $40,000 authorization limit is reached.

Pursuant to these authorizations, the Company repurchased ~~1,052,587~~382,065 and ~~1,602,545~~149,359 shares in the ~~three- and nine-month~~three-month periods ended ~~October 31,~~April 30, 2016 and 2015, respectively. These purchases totaled ~~$18,513~~$5,702 and ~~$29,338,~~$3,044, respectively. All such share repurchases were paid at April 30, 2016. At April 30, 2015, $481 of such share repurchases were unpaid. The remaining dollar value ~~that may be purchased under the plan~~authorized for share repurchases at ~~October 31, 2015~~April 30, 2016 is ~~$10,662.~~$14,959. This authorization remains in place until such time as the authorized spending limit is reached or such authorization is revoked by the Board.

(14) SHARE-BASED COMPENSATION

The Company reserves shares for issuance pursuant to the Amended and Restated 2010 Stock Incentive Plan effective March 23, 2012, administered by the Personnel and Compensation Committee of the Board of Directors. Two types of awards, stock options and restricted stock units, were granted during the ~~nine~~three months ended ~~October 31, 2015~~April 30, 2016 and ~~October 31, 2014~~April 30, 2015.

Stock Option Awards

The Company granted ~~289,600~~274,200 and ~~194,900~~280,200 non-qualified stock options during the ~~nine-month periods ended October 31, 2015 and 2014, respectively. None of these options were granted during the~~ three-month periods ended ~~October 31,~~April 30, 2016 and 2015, ~~or October 31, 2014.~~respectively. Options are granted with exercise prices not less than the market value of the Company's common stock at the date of grant. The stock options vest over a four-year period and expire after five years. Options contain retirement and change-in-control provisions that may accelerate the vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company uses historical data to estimate option exercises and employee terminations within this valuation model.

~~#15~~

~~(Dollars in thousands, except per-share amounts)~~

The weighted average assumptions used for the Black-Scholes option pricing model by grant year are as follows:


	Nine Months Ended				Three Months Ended
	October 31, 2015		October 31, 2014		April 30, 2016		April 30, 2015
Risk-free interest rate	1.33	%	1.32	%	1.05	%	1.34	%
Expected dividend yield	2.59	%	1.53	%	3.33	%	2.59	%
Expected volatility factor	36.81	%	38.65	%	32.61	%	36.81	%
Expected option term (in years)	3.75		4.00		4.00		3.75

Weighted average grant date fair value	$4.77		$9.18		$3.05		$4.78

Restricted Stock Unit Awards (RSUs)

The Company granted ~~27,696~~66,370 and ~~19,040~~19,250 time-vested RSUs to employees in the ~~nine-month~~three-month periods ended ~~October 31,~~April 30, 2016 and 2015, ~~and 2014,~~ respectively. The ~~Company granted 8,446 awards in the three-month period ended October 31, 2015. There were no awards granted during the three-month period ended October 31, 2014. The~~grant date fair value of a time-vested RSU is measured based upon the closing market price of the Company's common stock on the day prior to the date of grant. The ~~weighted average~~ grant date fair value per share of the time-vested RSUs granted in the ~~nine~~three months ended ~~October 31,~~April 30, 2016 and 2015 was ~~$19.90. The weighted average grant date fair value per share of the time-vested RSUs granted for the nine-month period ended October 31, 2014 was $32.75.~~$15.61 and $20.10, respectively. Time-vested RSUs will vest if, at the end of the three-year period, the employee remains employed by the Company. RSUs contain retirement and change-in-control provisions that may accelerate the vesting period. Dividends are cumulatively earned on the time-vested RSUs over the vesting period.

The Company also granted performance-based RSUs in the ~~nine-month~~three-month period ended ~~October 31, 2015~~April 30, 2016. The exact number of performance shares to be issued will vary from 0% to 150% of the target award, depending on the Company's actual performance over the three-year period in comparison to the target award. The target award for the fiscal ~~2016~~2017 and ~~2015~~2016 grants are based on return on equity (ROE), which is defined as net income divided by the average of beginning and ending shareholders' equity. The performance-based RSUs will vest if, at the end of the ~~three-year~~three-year performance period, the Company has achieved certain performance goals and the employee remains employed by the Company. RSUs contain retirement and change-in-control provisions that may accelerate the vesting period. Dividends are cumulatively earned on performance-based RSUs over the vesting period. The number of RSUs that will vest is determined by an estimated ROE target over the ~~three-year~~three-year performance period. The estimated ROE performance factors used to estimate the number of restricted stock units expected to vest are evaluated at least quarterly. The number of restricted stock units issued at the vesting date will be based on actual results.

The fair value of the performance-based restricted stock units is based upon the closing market price of the Company's common stock on the day prior to the grant date. The number of performance-based RSUs granted is based on 100% of the target award.

(Dollars in thousands, except per-share amounts)

During the ~~nine-month~~three-month periods ended ~~October 31, 2015~~April 30, 2016 and ~~2014~~2015, the Company granted ~~68,570~~72,950 and ~~54,490~~66,330 performance-based RSUs, respectively. ~~None of the performance-based RSUs were granted in the three-month period ended October 31, 2015 or October 31, 2014.~~ The weighted average grant date fair value per share of these performance-based RSUs was ~~$20.10~~$15.61 and ~~$32.75,~~$20.10, respectively.

(15) SEGMENT REPORTING

The Company's reportable segments are defined by their product lines which have been grouped in these segments based on common technologies, production methods, and inventories. Raven's reportable segments are Applied Technology, ~~Division,~~ Engineered Films, ~~Division,~~ and ~~Aerostar Division.~~Aerostar. The Company measures the performance of its segments based on their operating income excluding administrative and general expenses. Other expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets. Segment information is reported consistent with the Company's management reporting structure.

~~#16~~

~~(Dollars in thousands, except per-share amounts)~~

Business segment net sales and operating income results are as follows:

Three Months Ended Nine Months Ended
October 31,
2015 October 31,
2014 October 31,
2015 October 31,
2014
Net sales
Applied Technology Division $ 21,344
$ 33,161
$ 74,165
$ 115,696
Engineered Films Division 36,919
41,249
104,029
125,755
Aerostar Division 9,456
19,257
27,338
56,179
Intersegment eliminations ^(a)
(108 ) (2,375 ) (130 ) (9,343 )
Consolidated net sales $ 67,611
$ 91,292
$ 205,402
$ 288,287

Operating income (loss)
Applied Technology Division ^(b)
$ 3,299
$ 6,447
$ 16,081
$ 31,132
Engineered Films Division 6,145
5,486
15,981
17,165
Aerostar Division ^(c)
(8,378 ) 3,027
(7,917 ) 4,666
Intersegment eliminations^(a)
9
134
93
114
Total reportable segment income 1,075
15,094
24,238
53,077
Administrative and general expenses (3,802 ) (4,935 ) (13,322 ) (15,690 )
Consolidated operating (loss) income $ (2,727 ) $ 10,159
$ 10,916
$ 37,387



	Three Months Ended
	April 30, 2016			April 30, 2015
Net sales
Applied Technology	$	31,456		$	32,410
Engineered Films	29,100			31,321
Aerostar	7,895			6,554
Intersegment eliminations ^(a)	(91		)	(12		)
Consolidated net sales	$	68,360		$	70,273

Operating income
Applied Technology	$	8,693		$	8,741
Engineered Films	3,878			4,471
Aerostar	(621		)	(853		)
Intersegment eliminations^(a)	(5		)	59
Total reportable segment income	11,945			12,418
Administrative and general expenses	(4,338		)	(5,204		)
Consolidated operating income	$	7,607		$	7,214

^(a)~~Fiscal~~Intersegment sales for both fiscal 2017 and 2016~~intersegment sales~~ were primarily sales from Engineered Films to Aerostar. ~~Fiscal 2015 intersegment sales were comprised primarily of contract manufacturing sales from Aerostar to Applied Technology.~~

^(b)~~Includes gains of $611 for the nine-month period ended October 31, 2015 on disposal of assets related to the exit of contract manufacturing operations.~~

^(c) The three- and nine-month periods ended October 31, 2015 include pre-contract cost write-offs of $2,933 (which is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015), a goodwill impairment loss of $7,413, and a reduction of $1,483 of an acquisition-related contingent liability for Vista as a result of changes in expected sales and cash flows.

(16) NEW ACCOUNTING STANDARDS

Accounting Standards Adopted

In ~~April~~November 2015 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-04, "Compensation—Retirement Benefits (Topic 715) Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets" (ASU 2015-04). The amendments in ASU 2015-04 allow a reporting entity that may incur more costs than other entities when measuring the fair value of plan assets of a defined benefit pension or other postretirement benefit plan at other than a month-end to measure defined benefit plan assets and obligations using the month-end date that is closest to the date of event (such as a plan amendment, settlement, or curtailment that calls for a remeasurement in accordance with existing requirements) that is triggering the remeasurement. In addition, if a contribution or significant event occurs between the month-end date used to measure defined benefit plan assets and obligations and an entity’s fiscal year-end, the entity should adjust the measurement of defined benefit plan assets and obligations to reflect the effects of those contributions or significant events. However, an entity should not adjust the measurement of defined benefit plan assets and obligations for other events that occur between the month-end measurement and the entity’s fiscal year-end that are not caused by the entity (for example, changes in market prices or interest rates). This practical expedient for the measurement date also applies to significant events that trigger a remeasurement in an interim period. An entity electing the practical expedient for the measurement date is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in ASU 2015-04. ASU 2015-04 is effective for fiscal years beginning after December 15, 2015. The Company may adopt the standard prospectively. Early adoption is permitted. In the fiscal 2016 first quarter the Company elected to early adopt ASU 2015-04 and apply it on a prospective basis. The Company's plan that provides postretirement medical and other benefits was amended on August 25, 2015. As a result of this plan amendment, the Company elected the practical expedient pursuant to this guidance and a valuation was completed using an August 31, 2015 measurement date.

~~#17~~

—Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" (ASU 2015-15). The guidance in ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. Given the absence of authoritative guidance, in ASU 2015-15, issued in August 2015, FASB adopted SEC staff comments that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. ASU 2015-03 and 2015-15 are both effective for fiscal years beginning after December 15, 2015. The amendments are required to be applied retrospectively to all prior periods presented and early adoption is permitted. The Company elected to early adopt ASU 2015-03 in fiscal 2016 first quarter and ASU 2015-15 in fiscal 2016 third quarter. Adoption of this guidance did not have a significant impact on the Company's consolidated financial statements, or results of operations for the period since there were no prior period costs it applied to. Debt issuance costs associated with the credit facility discussed further in Note 9 Financing Arrangements have been presented as an asset and are being amortized ratably over the term of the line of credit arrangement. The adoption of this guidance did not have an impact on the Company's results of operations for the period.

In April 2014 the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" (ASU No. 2014-08). ASU No. 2014-08 changes the criteria for determining which disposals should be presented as discontinued operations and modifies the related disclosure requirements. Additionally, this guidance requires that a business that qualifies as held for sale upon acquisition should be reported as discontinued operations. This guidance became effective for the Company on February 1, 2015 and applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The adoption of this guidance did not have an impact on the Company's consolidated financial statements, results of operations, or disclosures for the period.

In addition to the accounting pronouncements adopted and described above, the Company adopted various other accounting pronouncements that became effective in first, second and third quarter fiscal 2016. None of this guidance had a significant impact on the Company's consolidated financial statements, results of operations, or disclosures for the period.

~~New Accounting Standards Not Yet Adopted~~

~~In November 2015 the FASB~~ issued Accounting Standards Update (ASU) No. 2015-17, "Income Taxes (Topic 740) Balance Sheet Classification of Deferred ~~Taxes “~~Taxes" (ASU 2015-17). ~~Current~~Currently GAAP requires the deferred taxes for each jurisdiction (or tax-paying component of a jurisdiction) to be presented as a net current asset or liability and net ~~noncurren~~tnoncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. ~~Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets.~~ To simplify presentation, ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction - that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The Company early adopted ASU 2015-17 ~~is effective for~~in the fiscal ~~years beginning after December 15, 2016. The Company may apply~~2017 first quarter using the ~~standard either prospectively to all~~prospective method. No current deferred tax ~~liabilities and~~ assets or liabilities are recorded on the balance sheet. Since the Company adopted the guidance prospectively, the prior periods were not retrospectively ~~to all periods presented. Early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and working capital.~~ adjusted.

In September 2015 the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period ~~Adjustments“~~Adjustments" (ASU 2015-16). The amendments in ASU 2015-16 apply to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and, during the measurement period, have an adjustment to provisional amounts recognized. ASU 2015-16 requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires

that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted ASU 2015-16 iswhen it became effective ~~for~~in the fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. ASU 2015-16 is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the update2017 first quarter with ~~earlier application permitted for financial statements that have not been issued. The Company is evaluating the~~no impact ~~the adoption of this guidance will have~~ on its consolidated financial statements or results of ~~operations, and disclosures.~~

~~#18~~

In July 2015 the FASB issued ASU No. 2015-11, "Inventory (Topic 330) Simplifying the Measurement of Inventory" (ASU 2015-11). The amendments in ASU 2015-11 clarify that an entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Substantial and unusual losses that result from subsequent measurement of inventory should be disclosed in the financial statements. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments are to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements, results of operations, and disclosures.operations.

In April 2015 the FASB issued ASU No. 2015-05, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing ~~Arrangement"~~Arrangement (CCA)" (ASU 2015-05). The amendments in ASU 2015-05 clarify existing GAAP guidance about a customer’s accounting for fees paid in a ~~cloud computing arrangement~~CCA with or without a software license. Examples of cloud computing arrangements include software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements. Under ASU 2015-05, ~~adds guidance to Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software, which will help entities evaluate the accounting for~~ fees paid by a customer in a ~~cloud computing arrangement. If a cloud computing arrangement includes~~CCA for a software license then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance does not change GAAP for a customer’s accounting for service contracts. All software licensesare within the scope of ~~Subtopic 350-40 will be~~the internal-use software guidance if certain criteria are met. If the criteria are not met the fees paid are accounted for ~~consistent with other licenses of intangible assets.~~as a prepaid service contract and expensed. The Company has historically accounted for all fees in a CCA as a prepaid service contract. The Company adopted ASU 2015-05 isin first quarter fiscal 2017 when it became effective ~~for fiscal years beginning after December 15, 2015. The amendments may be applied prospectively to all arrangements entered into or materially altered after~~using the ~~effective date or retrospectively to all prior periods presented. Early adoption is permitted.~~prospective method. The Company ~~is evaluating~~did not pay any fees in a CCA in the current period that met the criteria to be in scope of the internal-use software guidance and it had no impact ~~the adoption of this guidance will have~~ on ~~its~~the consolidated financial ~~position,~~statements, results of operations, ~~and~~or cash flows.

In February 2015 the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) Amendments to the Consolidation Analysis" (ASU 2015-02). The amendments in ASU 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: 1. Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; 2. Eliminate the presumption that a general partner should consolidate a limited partnership; 3. Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and 4. Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940. The Company adopted ASU 2015-02 when it became effective in first quarter fiscal 2017. The Company reevaluated all of it legal entities and one investment accounted for using the equity method during the first quarter. In addition, this guidance was applied to the evaluation of the Company's investment in Ag Eagle in first quarter fiscal 2017 further discussed in Note 5 Acquisitions of and Investments in Businesses and Technologies of this Form 10-Q. Under ASU 2015-02 neither of these equity method investments qualify for consolidation. The adoption of this guidance had no impact on the legal entities consolidated or the Company's consolidated financial position, results of operations, or cash flows. No prior period retrospective adjustments were required.

In January 2015 the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items" (ASU 2015-01). The amendments in ASU 2015-01 eliminate the GAAP concept of extraordinary items and no longer requires that transactions that met the criteria for classification as extraordinary items be separately classified and reported in the financial statements. ASU 2015-01 retains the presentation and disclosure guidance for items that are unusual in nature or occur infrequently and expands them to include items that are both unusual in nature and infrequently occurring. The Company adopted ASU 2015-01when it became effective in fiscal 2017 first quarter using the prospective method. The adoption of this guidance did not have any impact on the Company's consolidated financial statements or disclosures.

In August 2014 the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern" (ASU 2014-15). The amendments in ASU 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. ASU 2014-15 requires certain financial statement disclosures when there is "substantial doubt about the entity's ability to continue as a going concern" within one year after the date that the financial statements are issued (or available to be issued). The Company adopted ASU 2014-15 in the fiscal 2017 first quarter when it became effective. The adoption of this guidance did not have any impact on the Company's consolidated financial statements or disclosures.

In addition to the accounting pronouncements adopted and described above, the Company adopted various other accounting pronouncements that became effective in fiscal 2017 first quarter. None of this guidance had a significant impact on the Company's consolidated financial statements, results of operations, cash flows, or disclosures for the period.

New Accounting Standards Not Yet Adopted

In March 2016 the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". ASU 2016-09 amends the accounting for employee share-based payment transactions to require recognition of the tax effects resulting from the settlement of stock-based awards as income tax expense or benefit in the income statement in the reporting period in which they occur. In addition, this guidance requires that all tax-related cash flows resulting from share-based payments, including the excess tax benefits related to the settlement of stock-based awards, be classified as cash flows from operating activities in the statement of cash flows. The guidance also requires that cash paid by directly withholding shares for tax withholding purposes be classified as a financing activity in the statement of cash flows. In addition, the guidance also allows companies to make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with current U.S. GAAP, or account for forfeitures when they occur. The new standard is effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. ASU 2016-09 requires that the various amendments be adopted using different methods. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements, results of operations, and disclosures.

In February 2016 the FASB issued ASU No. 2016-02, "Leases (Topic 842)" (ASU 2016-02). The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, ~~2015. Early adoption is permitted. ASU 2015-02 may be applied retrospectively or~~2018. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The Company is evaluating the impact the adoption of this guidance ~~on its consolidated legal entities and~~will have on its consolidated financial ~~position,~~statements, results of operations, and ~~cash flows.~~disclosures.

In May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with ~~Customers”~~Customers (Topic 606)” (ASU 2014-09). ASU 2014-09 provides a comprehensive new recognition model that requires recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for those goods or services. This guidance supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, companies will need to use more judgment and make more estimates than under the current guidance. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB approved a one-year deferral of the effective date (ASU 2015-14) and the standard is now effective for the Company for fiscal 2019 and interim periods therein. ASU 2014-09 may be adopted as of the original effective date, which for the Company is fiscal 2018. The guidance may be applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In addition, FASB has amended Topic 606 prior to it becoming effective. In April 2016 FASB issued (ASU) No. 2016-10, "Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing" and in March 2016 FASB issued (ASU) No. 2016-08, "Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net)". The effective date and transition requirements for these amendments to Topic 606 are same as ASU 2014-09. The Company is currently evaluating the method and date of adoption and the impact the adoption of ASU 2014-09 and all subsequent amendments to Topic 606, will have on the Company’s consolidated financial position, results of operations, and disclosures.

~~#19~~

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary on the operating results, liquidity, capital resources, and financial condition of Raven Industries, Inc. (the Company or Raven) should be read in conjunction with the unaudited Consolidated Financial Statements in Item 1 of Part 1 of this Quarterly Report on Form 10-Q (Form 10-Q) and the Company's Annual Report on Form 10-K for the year ended January 31, ~~2015.~~2016.

EXECUTIVE SUMMARY

Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy, construction, defense/aerospace, and situational awareness markets. The Company is comprised of three unique operating ~~units,~~divisions, classified into reportable segments: Applied Technology, ~~Division,~~ Engineered Films, ~~Division,~~ and ~~Aerostar Division.~~Aerostar. As strategic actions have changed the Company’s business over the last several years, Raven has remained committed to providing high-quality, high-value products. The Company’s performance reflects our ongoing adjustment to conditions and opportunities.

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

Raven's growth strategy focuses on its proprietary product lines and the Company has made an intentional choice to move away from non-strategic product lines such as contract manufacturing. To assess the effectiveness of this strategy during the transition period, management is using two additional measures:

~~Consolidated net sales excluding contract manufacturing sales (adjusted sales)~~

~~Segment net sales excluding contract manufacturing sales (adjusted sales)~~

Information reported as net sales excluding contract manufacturing sales on both a consolidated and segment basis exclude sales generated from contract manufacturing activities and do not conform to generally accepted accounting principles (GAAP). As such, these are non-GAAP measures.

As described in the Notes to the Financial Statements of this Quarterly Report on Form 10-Q, three significant one-time charges were recorded in the Aerostar Division in the fiscal 2016 third quarter. To allow evaluation of operating income and net income for the Company’s core business, the Company used two additional measures. The additional measurements are:

~~Segment operating income excluding Vista charges (adjusted operating income)~~

~~Net income excluding Vista charges (adjusted net income)~~

~~Information reported as adjusted operating income and adjusted net income excluding Vista charges, on both a consolidated and segment basis, do not conform to GAAP and are non-GAAP measures.~~

Non-GAAP measures should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. This non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables that follow.

Vision and Strategy

At Raven, our purpose is to solve great challenges. Great challenges require great solutions. Raven’s three unique ~~divisions~~operating units share resources, ideas, and a passion to create technology that helps the world grow more food, produce more energy, protect the environment, and live safely.

~~#20~~

The Raven business model is our platform for success. Our business model is defensible, sustainable, and gives us a consistent approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three business segments, is summarized as follows:

Intentionally serve a set of diversified market segments with attractive near- and long-term growth prospects;

Consistently manage a pipeline of growth initiatives within our market segments;

Aggressively compete on quality, service, innovation, and peak performance;

Hold ourselves accountable for continuous improvement;

Value our balance sheet as a source of strength and stability with which to pursue strategic acquisitions; and

Make corporate responsibility a top priority.

~~This diversified business model enables us to better weather near-term challenges, while continuing to grow and build for our future. It is our culture and it is woven into how we do business.~~

The following discussion highlights the consolidated operating results for the ~~three- and nine-month~~three-month periods ended ~~October 31, 2015~~April 30, 2016 and ~~2014.~~2015. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.

Three Months Ended Nine Months Ended
(dollars in thousands, except per-share data) October 31,
2015 October 31,
2014 % Change October 31,
2015 October 31,
2014 % Change
Net sales $ 67,611
$ 91,292
(25.9 )% $ 205,402
$ 288,287
(28.8 )%
Gross profit 16,171
24,339
(33.6 )% 54,388
81,763
(33.5 )%
Gross margins^(a)
23.9 % 26.7 % 26.5 % 28.4 %
Operating (loss) income $ (2,727 ) $ 10,159
(126.8 )% $ 10,916
$ 37,387
(70.8 )%
Operating margins (4.0 )% 11.1 % 5.3 % 13.0 %
Net (loss) income attributable to Raven Industries, Inc. $ (1,581 ) $ 6,783
(123.3 )% $ 7,465
$ 25,540
(70.8 )%
Diluted earnings per share $ (0.04 ) $ 0.18
$ 0.20
$ 0.70

Consolidated net sales excluding contract manufacturing sales ^(b)
$ 66,981
$ 85,121
(21.3 )% $ 201,142
$ 269,653
(25.4 )%

Adjusted net income attributable to Raven Industries, Inc. ^(b)
$ 4,783
$ 6,783
(29.5 )% $ 13,829
$ 25,540
(45.9 )%

Adjusted operating income ^(b)
$ 6,136
$ 10,159
(39.6 )% $ 19,779
$ 37,387
(47.1 )%

Operating cash flow $ 35,181
$ 45,695
(23.0 )%
Capital expenditures $ (10,771 ) $ (12,797 ) (15.8 )%
Cash dividends $ (14,648 ) $ (13,572 ) 7.9 %

^(a)The Company's gross and operating margins may not be comparable to industry peers due to the diversity of its operations and variability in the classification of expenses across industries in which the Company operates.
^(b)Non-GAAP measure reconciled to GAAP in the following tables.

~~#21~~

The following table reconciles the reported net sales to adjusted sales, a non-GAAP financial measure. Adjusted sales exclude contract manufacturing and represent the Company's sales from proprietary products.

Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2015 October 31,
2014 % Change October 31,
2015 October 31,
2014
%
Change
Applied Technology
Reported net sales $ 21,344
$ 33,161
(35.6 )% $ 74,165
$ 115,696
(35.9 )%
Less: Contract manufacturing sales —
1,535
(100.0 )% 546
4,317
(87.4 )%
Applied Technology net sales, excluding
    contract manufacturing sales
$ 21,344
$ 31,626
(32.5 )% $ 73,619
$ 111,379
(33.9 )%

Aerostar
Reported net sales $ 9,456
$ 19,257
(50.9 )% $ 27,338
$ 56,179
(51.3 )%
Less: Contract manufacturing sales 630
6,841
(90.8 )% 3,714
22,875
(83.8 )%
Aerostar net sales, excluding contract
    manufacturing sales
$ 8,826
$ 12,416
(28.9 )% $ 23,624
$ 33,304
(29.1 )%

Consolidated Raven
Reported net sales $ 67,611
$ 91,292
(25.9 )% $ 205,402
$ 288,287
(28.8 )%
Less: Contract manufacturing sales 630
8,376
(92.5 )% 4,260
27,192
(84.3 )%
Plus: Aerostar sales to Applied Technology —
2,205
(100.0 )% —
8,558
(100.0 )%
Consolidated net sales, excluding contract
    manufacturing sales
$ 66,981
$ 85,121
(21.3 )% $ 201,142
$ 269,653
(25.4 )%

The following table reconciles the reported operating (loss) income to adjusted operating income, a non-GAAP financial measure. On both a consolidated and segment basis, adjusted operating income excludes the goodwill impairment loss, pre-contract cost write-offs, and an acquisition-related contingent consideration benefit, all of which relate to the Vista Research, Inc. business within the Aerostar Division.

Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2015 October 31,
2014
%
Change
October 31,
2015 October 31,
2014
%
Change
Aerostar
Reported operating (loss) income $ (8,378 ) $ 3,027
(376.8 )% $ (7,917 ) $ 4,666
(269.7 )%
Plus:
Goodwill impairment loss 7,413
—
7,413
—

Pre-contract costs written off ^(a)
2,933
—
2,933
—

Less:
Acquisition-related contingent liability benefit 1,483
—
1,483
—

Aerostar adjusted operating income $ 485
$ 3,027
(84.0 )% $ 946
$ 4,666
(79.7 )%
Aerostar adjusted operating income % of net sales 5.1 % 15.7 %
3.5 % 8.3 %

Consolidated Raven
Reported operating (loss) income $ (2,727 ) 10,159
(126.8 )% $ 10,916
37,387
(70.8 )%
Plus:
Goodwill impairment loss 7,413
—
7,413
—

Pre-contract costs written off ^(a)
2,933
—
2,933
—

Less:
Acquisition-related contingent liability benefit 1,483
—
1,483
—

Consolidated adjusted operating income $ 6,136
$ 10,159
(39.6 )% $ 19,779
$ 37,387
(47.1 )%
Consolidated adjusted operating income % of net sales

9.1 % 11.1 % 9.6 % 13.0 %

^(a) The $2,933 pre-contract costs written off is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015.

~~#22~~

The following table reconciles the reported net (loss) income to adjusted net income, a non-GAAP financial measure. Adjusted net income excludes the goodwill impairment loss, pre-contract cost write-offs, an acquisition-related contingent consideration benefit, and the income tax effect of these items, all of which relate to the Vista Research, Inc. business within the Aerostar Division.

Three Months Ended Nine Months Ended
(dollars in thousands) October 31,
2015 October 31,
2014
%
Change
October 31,
2015 October 31,
2014
%
Change
Consolidated Raven
Reported net (loss) income attributable to Raven Industries, Inc. $ (1,581 ) $ 6,783
(123.3 )% $ 7,465
$ 25,540
(70.8 )%
Plus:
Goodwill impairment loss 7,413
—
7,413
—

Pre-contract costs written off ^(a)
2,933
—
2,933
—

Less:
Acquisition-related contingent liability benefit 1,483
—
1,483
—

Net tax benefit on adjustments 2,499
—
2,499
—

Adjusted net income attributable to Raven
   Industries, Inc.
$ 4,783
$ 6,783
(29.5 )% $ 13,829
$ 25,540
(45.9 )%

Adjusted net income per common share:
      ─ Basic $ 0.13
$ 0.19
(31.6 )% $ 0.37
$ 0.70
(47.1 )%
      ─ Diluted $ 0.13
$ 0.18
(27.8 )% $ 0.37
$ 0.70
(47.1 )%

^(a)  The $2,933 pre-contract costs written off is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015.



	Three Months Ended
(dollars in thousands, except per-share data)	April 30, 2016			April 30, 2015			% Change
Net sales	$	68,360		$	70,273		(2.7	)%
Gross profit	19,676			20,359			(3.4	)%
Gross margin	28.8		%	29.0		%
Operating income	$	7,607		$	7,214		5.4	%
Operating margin	11.1		%	10.3		%
Net income attributable to Raven Industries, Inc.	$	5,523		$	4,855		13.8	%
Diluted earnings per share	$	0.15		$	0.13

Operating cash flow	$	11,104		$	9,023		23.1	%
Capital expenditures	$	(791	)	$	(5,000	)	(84.2	)%
Cash dividends	$	(4,701	)	$	(4,940	)	(4.8	)%
Common share repurchases	$	(5,702	)	$	(3,044	)	87.3	%

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

For the fiscal ~~2016 third~~2017 first quarter, net sales were ~~$67.6~~$68.4 million, down ~~$23.7~~$1.9 million, or ~~25.9%~~2.7%, from ~~$91.3~~$70.3 million in ~~the comparative period.~~last year’s first quarter. The Company's operating loss for the third quarter of fiscal 2016 was $2.7 million versus operating income of $10.2 million in the third quarter of fiscal 2015. This year’s third quarter results include a goodwill impairment charge of $7.4 million, deferred pre-contract cost write-offs of $2.9 million (of which $2.1 million was related to amounts deferred in prior periods), and a benefit of $1.5 million as the result of a reduction of an acquisition-related contingent liability (earn-out liability), all of which are related to the Company’s Vista Research, Inc. (Vista) business. Excluding these specific Vista items, adjusted operating income for the third quarter was $6.1 million, down $4.0 million or 39.6% compared to the third quarter of last year. The decline in adjusted operating income was principally due to lower sales volumes in all three divisions, partially offset by lower corporate spending. Consistent with the first half of the year, depressed market conditions within the agriculture and energy markets have continued to heavily impact the sales developments of both Applied Technology and Engineered Films. Vista’s lack of radar sales led to sales declines in Aerostar. In the third quarter of fiscal ~~2016, net sales excluding contract manufacturing sales decreased $18.1~~2017 was $7.6 million ~~or 21.3%, to $67.0 million as~~ compared to ~~$85.1~~operating income of $7.2 million in the ~~prior year third quarter.~~first quarter of fiscal 2016. The net ~~loss~~income for the ~~third~~first quarter of ~~2016~~2017 was ~~$1.6~~$5.5 million, or ~~$0.04~~$0.15 per diluted share, compared to net income of ~~$6.8~~$4.9 million, or ~~$0.18~~$0.13 per diluted share, in last year's ~~third~~first quarter. ~~Excluding~~

Net sales for Applied Technology in the ~~goodwill impairment, pre-contract cost write-offs, and earn-out reduction benefit related to Vista, adjusted net income attributable to Raven for the third~~first quarter of ~~2016 was $4.8~~fiscal 2017 were $31.5 million, ~~or $0.13 per diluted share.~~

~~For the nine-month period, net sales were $205.4 million~~down 2.9% compared to ~~$288.3 million, down 28.8% from one year earlier. The Company’s year-to-date operating income was $10.9 million, down 70.8% from~~the first quarter of fiscal 2016. Sales to the aftermarket channel increased 5.7% compared to the prior year ~~period. Like~~while the ~~third~~original equipment manufacturer (OEM) channel sales decreased 11.9% year-over-year. Geographically, domestic sales were down 16.3% year-over-year and international sales were up 26.3% year-over-year. Operating income was $8.7 million, essentially flat compared to the first quarter ~~results, the~~of fiscal 2016 ~~year-to-date results~~as the impacts from lower sales volumes were ~~heavily impacted by the Vista goodwill impairment and write-off of deferred pre-contract costs, partially~~virtually offset by the ~~reduction~~benefits of ongoing expense controls and the prior year restructuring.

In February 2016, the Applied Technology Division acquired an interest of approximately 5% in AgEagle Aerial Systems, Inc. (AgEagle). AgEagle is a privately held company that is a leading provider of unmanned aerial systems (UAS) used for agricultural applications. Contemporaneously with the execution of this agreement, AgEagle and the Company entered into a distribution agreement whereby the Company was appointed as the sole and exclusive distributor worldwide of the ~~earn-out liability, but were also impacted by weakness~~existing AgEagle system as it pertains to the agriculture market. This investment and distribution agreement will allow the Company to expand into the UAS market for agriculture, enhancing its existing product offerings to provide actionable data that customers can use to make important input decisions. The investment in ~~Applied Technology~~AgEagle is more fully described in Note 5Acquisitions of and ~~Engineered Films due to weak end-market demand conditions~~Investments in Businesses and in Aerostar the planned exit of contract manufacturing business and lower sales of proprietary products. For the nine-month period, net sales excluding contract manufacturing sales decreased $68.5 million, or 25.4%, to $201.1 million as compared to $269.7 millionTechnologies in the ~~prior year. For~~Notes to the ~~same period, adjusted net income attributable to Raven was $13.8 million, or $0.37 per diluted share, down 47.1% from $25.5 million, or $0.70 per diluted share, in fiscal 2015.~~Consolidated Financial Statements of this Form 10-Q.

Engineered Films’ fiscal ~~2016 third~~2017 first quarter net sales were ~~$36.9~~$29.1 million, a decrease of ~~$4.3~~$2.2 million, or ~~10.5%~~7.1%, compared to the fiscal ~~2015 third~~2016 first quarter. ~~Fiscal 2016 year-to-date net sales decreased $21.7 million, or 17.3%, to $104.0 million as compared to the prior year.~~ The decline in sales ~~in both periods~~ was ~~primarily~~principally driven by the continuation of the substantial decline in energy market demand as a result of lower oil prices year-over-year, partially offset by the benefit to sales due to the acquisition of Integra Plastics, Inc. (Integra) in November 2015.

~~Engineered Films’ operating income for the third quarter of fiscal 2016 increased 12.0% compared to the prior year third quarter.~~

~~#23~~

~~The increase in operating income was driven primarily by the sales attributable to the Integra acquisition and favorable raw material cost developments, offset somewhat by markedly~~ lower sales into the energy ~~market. For the fiscal 2016 nine-month period, operating~~and geomembrane markets. Energy markets deteriorated with active U.S. land-based rig counts declining approximately 55% year-over-year. Operating income was down $1.2 million, or 6.9%, from the prior year period. While value engineering efforts, favorable raw material comparisons, and expense reductions benefited operating income, they were not enough to offset the impact of lower sales volume.

Applied Technology's fiscal 2016 third quarter net sales were $21.3 million, a decrease of $11.8 million, or 35.6%, compared to the fiscal 2015 third quarter. Fiscal 2016 net sales for the nine-month period decreased $41.5 million, or 35.9%, to $74.2 million from $115.7 million. These declines in sales were driven by a significant contraction in end-market demand. Year-over-year sales to original equipment manufacturer (OEM) and aftermarket customers declined by 41.1% and 25.9%, respectively, for the three months ended October 31, 2015 and 44.2% and 24.5%, respectively, for the first ~~nine months~~quarter of fiscal ~~2016.~~

~~Applied Technology’s operating income~~2017 decreased ~~48.8% and 48.3%, respectively, for the third quarter and year-to-date fiscal 2016 as compared~~13.3% to ~~the fiscal 2015 comparable periods. These declines in operating income were primarily due to lower volume, partially offset by savings from cost reduction actions beginning in March 2015.~~

Aerostar's fiscal 2016 third quarter net sales were $9.5 million, a decrease of $9.8 million, or 50.9%, compared to the fiscal 2015 third quarter. This decrease was due to the shift away from Aerostar’s contract manufacturing business and the timing of contract wins in Vista. Fiscal 2016 year-to-date net sales were $27.3 million compared to $56.2 million, down $28.8 million. In addition to the shift away from Aerostar's contract manufacturing business and the timing of contract wins within Vista, lower sales of stratospheric balloons contributed to the year-to-date decline in sales for the division. Excluding contract manufacturing sales, Aerostar's net sales for third quarter fiscal 2016 were down $3.6 million, or 28.9%, to $8.8$3.9 million as compared to ~~$12.4~~$4.5 million for the prior year first quarter. The primary driver of the decrease was lower production volumes.

Net sales for Aerostar in the ~~prior year. On a year-to-date basis, Aerostar’s net sales excluding contract manufacturing sales decreased 29.1%, or $9.7~~first quarter of fiscal 2017 were $7.9 million, up $1.3 million compared to ~~$23.6~~the first quarter of fiscal 2016. This increase was driven primarily by growth in stratospheric balloon business. Operating loss in the first quarter of fiscal 2017 was $0.6 million ~~in fiscal 2015.~~

~~Aerostar reported~~compared to an operating loss of ~~$8.4~~$0.9 million in the ~~third~~first quarter of ~~fiscal 2016 compared to operating income of $3.0 million~~last year. Benefits from the restructuring actions taken in the ~~prior third quarter. The~~fourth quarter of last year, together with improved sales volumes, principally led to the reduction in operating loss is due to a goodwill impairment charge of $7.4 million and deferred pre-contract cost write-offs of $2.9 million (of which $2.1 million was related to amounts deferred in prior periods) partially offset by a benefit of $1.5 million as the result of a reduction of an acquisition-related contingent liability (earn-out liability), all of which are related to Vista business. Excluding these specific items, adjusted Aerostar operating income was $0.5 million for the fiscal 2016 third quarter. For the nine months ended October 31, 2015, adjusted operating income was $0.9 million, or 79.7% below the prior year-to-date operating income of $4.7 million. The decline of adjusted operating income in both periods was primarily due to the lower sales volume of proprietary products, particularly sales declines at Vista.year-over-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, precisely control inputs, and improve yields for the global agriculture market.

Applied Technology’s operations include operations of SBG Innovatie BV and its affiliate (collectively, SBG) based in the Netherlands.


	Three Months Ended											Nine Months Ended											Three Months Ended
(dollars in thousands)	October 31, 2015			October 31, 2014			$ Change			% Change		October 31, 2015			October 31, 2014			$ Change			% Change		April 30, 2016			April 30, 2015			$ Change			% Change
Net sales	$	21,344		$	33,161		$	(11,817	)	(35.6	)%	$	74,165		$	115,696		$	(41,531	)	(35.9	)%	$	31,456		$	32,410		$	(954	)	(2.9	)%
Gross profit	7,309			12,597			(5,288		)	(42.0	)%	28,067			49,457			(21,390		)	(43.2	)%	13,147			13,251			(104		)	(0.8	)%
Gross margins	34.2		%	38.0		%						37.8		%	42.7		%
Gross margin																							41.8		%	40.9		%
Operating expenses	$	4,010		$	6,150		$	(2,140	)	(34.8	)%	$	11,986		$	18,325		$	(6,339	)	(34.6	)%	$	4,454		$	4,510		$	(56	)	(1.2	)%
Operating expenses as % of sales	18.8		%	18.5		%						16.2		%	15.8		%						14.2		%	13.9		%
Operating income	$	3,299		$	6,447		$	(3,148	)	(48.8	)%	$	16,081		$	31,132		$	(15,051	)	(48.3	)%	$	8,693		$	8,741		$	(48	)	(0.5	)%
Operating margins	15.5		%	19.4		%						21.7		%	26.9		%

Applied Technology net sales, excluding contract manufacturing sales	$	21,344		$	31,626		$	(10,282	)	(32.5	)%	$	73,619		$	111,379		$	(37,760	)	(33.9	)%
Operating margin																							27.6		%	27.0		%

The following factors were the primary drivers of the ~~three- and nine-month~~three-month year-over-year changes:

~~#24~~

Market conditions. C~~Deterioratingconditions~~onditions in the agriculture market ~~put~~appear to be stabilizing, but the underlying market strength has been subdued, keeping pressure on Applied Technology ~~during~~through the first ~~nine months~~quarter of fiscal ~~2016. End-market~~2017. OEM demand ~~has deteriorated from~~remained challenging. In the ~~beginning of~~aftermarket sales channel, new product introductions and enhanced sales force effectiveness led to increased sales versus the ~~year and the Company believes these conditions will continue through our fiscal year 2016, and may persist into next~~prior year. Corn prices have stabilized since the beginning of the year. Farmer sentiment is weak and productivity investments are being delayed. With the world’s population growing toward nine billion and income growth in emerging economies, greater demand for food will ultimately support healthy growth.

Sales volume. ~~Third~~ Firstquarter fiscal ~~2016~~2017 net sales decreased ~~$11.8 million, or 35.6%,~~2.9% to ~~$21.3~~$31.5 million compared to ~~$33.2~~$32.4 million in the prior year ~~third~~first quarter. Year-to-date sales declined 35.9% to $74.2 million as compared to $115.7 million in the prior year. These sales declines were driven by continued lower demand, OEM shutdowns, and customers managing down inventory levels. Sales in the aftermarket channel were up 5.7%, while OEM ~~and aftermarket channels~~sales were down ~~about 41.1% and 25.9%, respectively, for the fiscal 2016 third quarter and 44.2% and 24.5%, respectively, for the nine months ended October 31, 2015.~~

~~Strategic sales~~11.9%. Applied Technology’s net sales, excluding contract manufacturing sales, for fiscal 2016 third quarter were $21.3 million, a decrease of $10.3 million, or 32.5%, compared to fiscal 2015 third quarter net sales, excluding contract manufacturing sales, of $31.6 million. Fiscal 2016 year-to-date net sales, excluding contract manufacturing sales, were $73.6 million compared to $111.4 million in the prior year period, a 33.9% decrease.

International sales. For the three-month period, international sales totaled ~~$4.3~~$11.2 million, ~~down 40.5%~~up 26.3% from the prior year comparative ~~period and represent 20%~~period. International sales represented 35.7% of segment revenue compared to ~~22%~~27.4% of segment revenue in the comparative period. ~~Year-to-date international sales totaled $18.7 million, a decrease of $9.3 million from a year ago. The three-month decline was primarily due to lower~~Higher sales in ~~Brazil and Canada. The nine-month sales decline was also driven by lower sales in Brazil~~Europe and Canada ~~but these declines~~ were ~~partially offset~~the main drivers of the increase. The sales increases in Europe reflect commercial synergies realized by ~~$3.4 million~~the acquisition of ~~European revenues contributed~~SBG in ~~the current year by SBG which was not acquired until the~~ fiscal 2015 ~~second quarter. Year-to-date net sales outside the U.S. accounted for 25% of segment sales compared to 24% in the comparable prior year period.~~as Applied Technology products are increasingly sold into this market.

Gross ~~margins.~~margin. Gross ~~margins decreased~~margin increased to ~~34.2%~~41.8% for the three months ended ~~October 31, 2015~~April 30, 2016 from ~~38.0%~~40.9% for the three months ended ~~October 31, 2014. Year-to-date gross margins declined to 37.8% from 42.7% in the comparative period in fiscal~~April 30, 2015. Lower ~~sales volumes and a reduced leverage of fixed~~ manufacturing costs contributed to ~~these lower margins.~~

~~Restructuring expenses.~~ ~~Year-to-date fiscal 2016 results included severance and other related exit activity totaling $0.6 million. These costs were offset by completion of~~ the St. Louis contract manufacturing exit activities which resulted in gains of $0.6 million recorded in the nine-month period ended October 31, 2015. There were no impairments recorded as a result of the exit of this business. No restructuring or exit costs were incurred in the three-month period ended October 31, 2015 or the three- or nine-month periods ended October 31, 2014.higher margin.

Operating expenses. Fiscal ~~2016 third~~2017 first quarter operating expense as a percentage of net sales was ~~18.8%~~14.2%, up slightly from ~~18.5%~~13.9% in the prior year ~~third~~first quarter. ~~Restructuring efforts~~Lower selling expense, the result of prior year restructuring actions in the fiscal 2016 first quarter, were not enough to offset lower sales volumes and cost containment actions are reducing expenses as planned but sales development for the period was below expectations. Year-to-date operating expenses as a percentage of net sales was 16.2% compared to 15.8% for fiscal 2015. Lower spending levels in bothincreased research and development (R&D) ~~and selling expense as a result of the costs savings initiatives were not enough to offset the lower sales volumes for the year-to-date comparison.~~spending.

Engineered Films

Engineered Films manufactures high performance plastic films and sheeting for energy, agricultural, construction, geomembrane, and industrial applications.

The Company acquired Integra in November 2014. This acquisition expanded Engineered Films’ production capacity, broadened its product offerings, and enhanced converting capabilities. Adding Integra's fabrication and conversion skill sets with Raven's ability to develop value-added innovative products enhanced customer service and expanded the converting capabilities of the division.

~~#25~~


	Three Months Ended											Nine Months Ended											Three Months Ended
(dollars in thousands)	October 31, 2015			October 31, 2014			$ Change			% Change		October 31, 2015			October 31, 2014			$ Change			% Change		April 30, 2016			April 30, 2015			$ Change			% Change
Net sales	$	36,919		$	41,249		$	(4,330	)	(10.5	)%	$	104,029		$	125,755		$	(21,726	)	(17.3	)%	$	29,100		$	31,321		$	(2,221	)	(7.1	)%
Gross profit	7,705			7,091			614			8.7	%	21,266			21,492			(226		)	(1.1	)%	5,384			6,278			(894		)	(14.2	)%
Gross margins	20.9		%	17.2		%						20.4		%	17.1		%
Gross margin																							18.5		%	20.0		%
Operating expenses	$	1,560		$	1,605		$	(45	)	(2.8	)%	$	5,285		$	4,327		$	958		22.1	%	$	1,506		$	1,807		$	(301	)	(16.7	)%
Operating expenses as % of sales	4.2		%	3.9		%						5.1		%	3.4		%						5.2		%	5.8		%
Operating income	$	6,145		$	5,486		$	659		12.0	%	$	15,981		$	17,165		$	(1,184	)	(6.9	)%	$	3,878		$	4,471		$	(593	)	(13.3	)%
Operating margins	16.6		%	13.3		%						15.4		%	13.6		%
Operating margin																							13.3		%	14.3		%

The following factors were the primary drivers of the ~~three and nine month~~three-month year-over-year changes:

Market conditions. ~~The fiscal 2015 acquisition of Integra better positioned Engineered Films to adapt to sales channel changes and customers' complex conversion needs emerging in the energy market. However, challenging~~Challenging end-market conditions have persisted in the energy market for Engineered ~~Films' energy market. The decline~~Films. Declines in oil prices ~~has~~ resulted in a decrease of approximately 55% in land-based U.S. rig counts ~~decreasing more than 60% year-over-year, significantly~~in first quarter fiscal 2017 compared to the prior year first quarter. The sustained decline resulted in decreasing demand for films in the energy market. While the decline in oil prices has reduced demand for products in the energy market, it has also led to favorable raw material cost comparisons versus the prior year. Despite the overall contraction in demand in the agricultural equipment market served by Applied Technology, demand has continued to strengthen for both Engineered Films' agricultural barrier films used in high-value crop production and grain and silage covers used to protect grain and feed.

Sales volume and selling prices. ~~Third~~First quarter net sales were down ~~10.5%~~7.1% to ~~$36.9~~$29.1 million compared to prior year ~~third~~first quarter net sales of ~~$41.2~~$31.3 million. ~~For the first nine months of fiscal 2016, net sales were down 17.3% to $104.0 million compared to $125.8 million in the comparative period.~~ The decline in sales ~~for both periods~~ was driven primarily by sharp declines, approximately ~~80%~~61%, in energy market sales. These declines were partially offset by 29.3% sales growth in the ~~acquisition of Integra.~~industrial market. Sales volume ~~for the fiscal 2016 nine-month period was down 24.1%. Average~~and average selling prices for the ~~same period~~fiscal first quarter were upeach down approximately 9%4% compared to the prior year ~~period primarily due to product mix.~~period.

Gross ~~margins.~~margin. For the ~~three- and nine-month periods, margins of 20.9% and 20.4%, respectively, continued the trend of higher gross margins that started during the last half~~first quarter of fiscal ~~2015. These margins reflect~~2017 gross margin was 18.5% which was down 1.5 percentage points from the ~~impact~~20.0% gross margin in the first quarter of ~~value engineering~~fiscal 2016 driven principally by lower production volumes and ~~favorable raw material cost comparisons.~~spending on new production lines.

Operating expenses. ~~Third~~First quarter operating expense ~~spending~~ was down ~~2.8%~~$0.3 million, or 16.7%, due to continued focus on cost ~~containment.~~containment and benefits from the prior year restructuring actions. As a percentage of net sales, ~~however,~~ operating expense was ~~4.2%~~5.2% in the current three-month period as compared to ~~3.9%~~5.8% in the prior year comparative period. The dollar level decrease was due to continued focus on cost containment given the lower sales levels. The year-to-date operating expense as a percentage of net sales was 5.1% compared to 3.4% in the prior year. Higher selling expense incurred earlier in the year due to costs associated with the Integra acquisition over lower sales volumes increased operating expense as a percentage of sales.

Aerostar

Aerostar serves the defense/aerospace and situational awareness ~~markets and produces products as a~~markets. Aerostar also provided significant contract manufacturing services ~~provider. These contract manufacturing products have included military parachutes, uniforms, and protective wear as well as electronics manufacturing services.~~in the past, but largely exited this business in fiscal 2016. Aerostar designs and manufactures proprietary products including stratospheric balloons, tethered aerostats, and radar processing systems for aerospace and situational awareness markets. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. ~~Like Applied Technology, Aerostar has largely completed~~Through its ~~planned exit of low-growth contract manufacturing business to focus on growing strategic proprietary product sales.~~

~~Through~~ Vista Research, Inc. (Vista) operations and a separate ~~business~~ venture that is majority-owned by the Company, Aerostar pursues potential product and support services contracts for agencies and instrumentalities of the U.S. and foreign governments. Vista positions the Company to meet growing global demand for lower-cost detection and tracking systems used by government and law enforcement agencies. As a leading provider of surveillance systems that enhance the effectiveness of radar using sophisticated algorithms, Vista products and services enhance Aerostar’s security solutions.

~~#26~~


	Three Months Ended											Nine Months Ended											Three Months Ended
(dollars in thousands)	October 31, 2015			October 31, 2014			$ Change			% Change		October 31, 2015			October 31, 2014			$ Change			% Change		April 30, 2016			April 30, 2015			$ Change		% Change
Net sales	$	9,456		$	19,257		$	(9,801	)	(50.9	)%	$	27,338		$	56,179		$	(28,841	)	(51.3	)%	$	7,895		$	6,554		$	1,341	20.5	%
Gross profit	1,148			4,517			(3,369		)	(74.6	)%	4,962			10,700			(5,738		)	(53.6	)%	1,150			771			379		49.2	%
Gross margins	12.1		%	23.5		%						18.2		%	19.0		%
Gross margin																							14.6		%	11.8		%
Operating expenses	$	2,113		$	1,490		$	623		41.8	%	$	5,466		$	6,034		$	(568	)	(9.4	)%	$	1,771		$	1,624		$	147	9.1	%
Operating expenses as % of sales	22.3		%	7.7		%						20.0		%	10.7		%						22.4		%	24.8		%
Goodwill impairment loss	$	7,413		$	—		$	7,413				$	7,413		$	—		$	7,413
Operating (loss) income	(8,378		)	3,027			(11,405		)	(376.8	)%	(7,917		)	4,666			(12,583		)	(269.7	)%	$	(621	)	$	(853	)	$	232	(27.2	)%
Operating margins	(88.6		)%	15.7		%						(29.0		)%	8.3		%

Aerostar net sales, excluding contract manufacturing sales	$	8,826		$	12,416		$	(3,590	)	(28.9	)%	23,624			33,304			$	(9,680	)	(29.1	)%

Aerostar adjusted operating income	$	485		$	3,027		$	(2,542	)	(84.0	)%	$	946		$	4,666		$	(3,720	)	(79.7	)%
Operating margin																							(7.9		)%	(13.0		)%

The following factors were the primary drivers of the three-month year-over-year ~~changes for the three- and nine-month periods:~~changes:

Market conditions. Aerostar’s growth strategy emphasizes proprietary products and its focus is on proprietary technology including stratospheric balloons, advanced radar systems, and sales of aerostats in international markets. Certain of Aerostar's markets are subject to significant variability due to government spending. Uncertain demand in these markets continues in fiscal ~~2016.~~2017. Aerostar continues to pursue substantial targeted international opportunities but the conflicts plaguing the Middle East North Africa region makes these opportunities and their timing less certain. ~~As part of its strategy to sell proprietary products into~~Aerostar is pioneering new markets ~~Aerostar is pioneering~~with leading-edge applications of its high-altitude balloons and remains in active collaboration with Google on Project Loon. ~~Project Loon is a program to provide high-speed wireless Internet accessibility and telecommunications to rural, remote, and under-served areas of the world.~~

Sales volumes. ~~Net sales for the current~~Fiscal 2017 first quarter ~~did not reach last year's third quarter levels, declining 50.9% from $19.3 million to $9.5 million. Year-to-date~~net sales were ~~$27.3~~$7.9 million, ~~down $28.8~~up 20.5% from $6.6 million ~~a year-over-year decrease of 51.3%. The decline was the result of both lower sales of proprietary products, particularly Vista radar sales, and the planned reduction in contract manufacturing sales.~~

~~Proprietary revenues.~~ As discussed previously, Aerostar's growth strategy centers on proprietary products. Fiscal 2016 third quarter proprietary sales were $8.8 million or $3.6 million less than the comparative period despite including additional aerostat sales. Aerostat sales for the three months ended October 31, 2015 were $2.9 million compared to $1.8 million in the comparable prior year period. For the fiscal 2016 nine-month period, net sales of proprietary products were $23.6 million; down $9.7 million, or 29.1%, versus the prior year period. Sales of proprietary products were impacted partially by the timing of orders and contract wins relative to the prior year ~~within~~first quarter. The increase was primarily the ~~Vista radar business and to a lesser extent, lower~~result of higher sales ~~volumes~~of stratospheric balloons. These sales were led by Project Loon, but Aerostar also generated sales from two new government customers, validating alternative uses of stratospheric balloons.

Gross ~~margins.~~margin. For the ~~three- and nine- month periods, margins decreased 11.4~~three-month period, gross margin increased 2.8 percentage points, ~~and 0.8 percentage points, respectively,~~ compared to the prior year periods. Fiscal 2016 third quarter margins reflect net charges of $1.4 million. Vista has been pursuing international opportunities and was in the process of negotiating a large international contract that did not materialize in the fiscal 2016 third quarter as expected. Expectations were lowered as the timing and likelihood of completing certain international pursuits became less certain. Corresponding to these lower expectations, the pre-contract costs associated with these pursuits were written off during the fiscal 2016 thirdfirst quarter. Vista recorded a charge of $2.9 million for the write-off of these pre-contract costs. Partially offsetting this impairment charge, Vista recorded a benefit of $1.5 million to reflect a reduction in acquisition-related contingent liabilities due to lower expected payouts.

~~Goodwill impairment loss.~~ Aerostar recorded a goodwill impairment loss of $7.4 million for the three- and nine-month periods ended October 31, 2015 compared to no impairment in the fiscal 2015 comparable periods. The goodwill impairment charge was recorded on the Vista reporting unit. This impairment loss is described more fully in Note 6 ~~Goodwill Impairment Loss And Other Charges~~ ~~to the Consolidated Financial Statements in Part 1 of this Quarterly Report on Form 10-Q and the Critical Accounting Estimates in Item 2. of this Quarterly Report on Form 10-Q.~~

Operating expenses. ~~Third~~First quarter operating expense was ~~$2.1~~$1.8 million, or ~~22.3%~~22.4% of net sales, ~~an increase~~a decrease from ~~7.7%~~24.8% of net sales in the ~~third~~first quarter of fiscal ~~2015. Year-to-date operating expense as~~2016. The decrease was a ~~percentage~~result of ~~net sales was 20.0%, up~~

~~#27~~

~~from 10.7%~~the restructuring action taken in the ~~prior year period. The increase in both~~fourth quarter of fiscal 2016 periods is due to strategic R&D spending on radar and stratospheric technologies over lower sales. Operating expenses for the fiscal 2016 year-to-date includes a loss of $0.1 million on the sale of the Huron, South Dakota facility.together with higher sales volumes.

~~Aerostar adjusted operating income.~~ Excluding the unusual items discussed above, the fiscal 2016 third quarter operating income was $0.5 million compared to $3.0 million in the prior year third quarter. Year-to-date fiscal 2016 adjusted operating income was $0.9 million, down from $4.7 million in the comparative fiscal 2015 period. These operating income declines were driven primarily by the significant declines in sales from the comparative periods.

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


	Three Months Ended							Nine Months Ended						Three Months Ended
(dollars in thousands)	October 31, 2015			��	October 31, 2014			October 31, 2015			October 31, 2014			April 30, 2016			April 30, 2015
Administrative expenses	$	3,802			$	4,935		$	13,322		$	15,690		$	4,338		$	5,204
Administrative expenses as a % of sales	5.6		%		5.4		%	6.5		%	5.4		%	6.3		%	7.4		%
Other (expense), net	$	(123	)		$	(72	)	$	(433	)	$	(210	)	$	(97	)	$	(44	)
Effective tax rate	45.3		%		32.6		%	28.2		%	31.2		%	26.4		%	32.2		%

Administrative spending for the ~~three- and nine-month~~three-month periods ended ~~October 31, 2015~~April 30, 2016 was down ~~$1.1~~$0.9 million ~~and $2.4 million, respectively,~~ as compared to the fiscal ~~2015~~2016 comparable ~~periods. Both fiscal 2016 periods reflect~~period. This decrease reflects the Company's continued emphasis on cost control measures ~~put in place starting in~~and the ~~fiscal 2015 second quarter to manage expenses relative to anticipated lower sales levels plus reductions in management incentive and performance-based restricted stock unit expenses based upon~~benefits of the ~~fiscal 2016 results.~~prior year restructuring actions.

Other income (expense), net consists primarily of activity related to the Company's equity ~~investment,~~investments, interest income and expense, and foreign currency transaction gains or losses.

The Company's year-to-date effective tax rate decreased to ~~28.2%~~26.4% compared to ~~31.2%~~32.2% in the prior year. Although the fiscal 2015 effective tax rates include the impact of recognition of a $709 research and development tax credit in the fiscal second quarter based upon a tax study undertaken for fiscal years 2011 through 2014, the fiscal 2016 rate decreased 3.0 percentage points from the prior year. The decrease in the effective tax rate is primarily due to inclusion of an ~~increased~~estimate of the fiscal 2017 R&D tax ~~benefit~~credit resulting from Congress enacting this credit into law permanently in the fourth quarter of fiscal 2016. No estimate of the R&D tax credit was included in the provision for ~~qualified production activities. While pre-tax~~ income ~~is lower~~taxes at April 30, 2015. $268 of discrete tax benefits were also recorded in the current year, this benefit is based on estimated taxable income. Taxable income is higher in comparison to pre-tax income for the three- and nine-month periods ended October 31, 2015 due to the goodwill impairment loss recorded. This impairment, described further in Note 6 ~~Goodwill Impairment Loss And Other Charges, does not reduce taxable income. Rather, goodwill is amortized over 15 years for tax purposes.~~fiscal year.

OUTLOOK

At Raven our enduring success is built on our ability to balance the Company’s purpose and core values with necessary shifts in business strategy demanded by an ever-changing world.

For Applied Technology, ~~end-market demand has deteriorated since~~ the beginning of the year and the Company believes conditions are not likely to improve significantly for the foreseeable future. The fourth quarter will be challenging for the division given planned OEM shutdowns,precision agricultural market remains subdued but ~~management believes the division may be reaching a market bottom and the velocity of sales declines~~ appears to be ~~easing. While the Company~~stabilizing. With steady market conditions, new products are gaining traction and showing early success in growing market share position. The enhanced quality of Applied Technology’s product portfolio is expected to continue to improve OEM sales both domestically and internationally. Through fiscal 2017, Applied Technology will continue ~~its focus on managing expenses, management has proactively made~~to expand OEM relationships and grow share in a down market and drive for growth by leveraging the ~~decision not~~new product portfolio and investing intently to ~~execute additional cost-cutting measures. With optimism in new products and opportunities for~~drive international growth, the Company is preserving its technical capabilities and enhancing its sales focus to capitalize on opportunities in anticipation of expected market share gains and growth from new products in fiscal 2017.sales.

For Engineered Films, the ~~prolonged, dramatic~~ decline in oil prices and drilling activities continues to negatively impact ~~rig counts~~the energy market and ~~oil well completion rates.~~the Company is expecting this to continue throughout fiscal 2017. Engineered Films is ~~not anticipating a quick recovery and year-over-year comparisons will be difficult~~working to capitalize on its production capabilities to expand market share in the ~~fourth quarter, which was particularly~~other markets. Sales in the construction and industrial markets were strong in the first quarter of fiscal ~~2015 as~~2017 and management is focused on building on this momentum and making meaningful progress during the ~~division transitioned~~year toward returning Engineered Films to ~~a new distribution model prior to the energy market decline which had not yet fully occurred. Improvement~~growth. Engineered Films is focused on ramping up sales in the ~~energy~~industrial market, is most likely delayed until sometime in fiscal 2017, with a strong rebound probably a few years out. Although sales to the remaining markets, in aggregate, are growing, the division faces a sales development challenge due to the depressed energy market. A recently completedleveraging its new production line, ~~providing new product capabilities is expected~~and driving strong performances in the agricultural and construction markets to ~~contribute growth in fiscal 2017.~~increase sales volumes.

For Aerostar, ~~with lower expectations as to~~ the timing and likelihood of completing certain international pursuits and a challenging comparison for Vista in the fourth quarter as a result of last year’s strong radar sales levels, the division’s fiscal 2016 fourth quarter

~~#28~~

is likely to be similar to the just-ended third quarter. Aerostar continues to develop new opportunities and make progress on key strategic programs relating to both stratospheric balloon and radar opportunities. Management continues to see growth opportunity for the Vista business and will continue pursuit of international opportunities on a more measured basis. This approach will likely push-out the development of sizable Vista business pursuits over a period of time. Following the third quarter restructuring activities in Vista, management will focus on managing expenses as the year’s challenges persist. At the same time, management expects to drive key initiatives such as continuing the design and manufacturing improvementssecond half of the ~~stratospheric balloon~~year is the seasonally-stronger half for proprietary products and the Company expects momentum to build throughout the year, but uncertainties remain. The pipeline of new business opportunities has improved significantly with the number of radar-related proposals increasing significantly versus the prior year. Aerostar must continue progress made towards improved financial performance. To sustain this progress, the division must establish a regular cadence of new business wins across product ~~line~~platforms. Resources are aligned to continue the progress, but Aerostar must be successful in ~~Aerostar.~~turning these opportunities into revenue in order to achieve our expectations.

In ~~aggregate,~~addition to each division’s sales initiatives, the Company will remain vigilant on costs, drive down inventory levels, and generate additional value engineering benefits. Driving growth when end-market conditions are weak, while maintaining operational discipline, is the Company’s ~~consolidated businesses continue to face difficult end-market demand challenges. These conditions are expected to persist and~~focus for the rest of the year. Given the performance in the first quarter, the Company ~~does not expect~~is on track to deliver revenues and operating profit consistent with prior year revenue and adjusted operating profit with the potential to achieve modest growth in both for the full year.

Adjusted operating profit is a non-GAAP measure. On both a segment and consolidated basis, adjusted operating income excludes a goodwill impairment loss and associated financial impacts (pre-contract cost write-off and an acquisition-related contingent consideration benefit) all of which relate to the Vista Research, Inc. business within Aerostar and all of which occurred in the fiscal 2016 ~~consolidated sales~~third quarter. Such adjusted operating profit relates to ~~grow over the prior~~ fiscal ~~year. As a result~~2016results and is more fully described in Item 7.Management’s

Discussion and Analysis of Financial Condition and Results of Operations of the ~~actions~~Company’s Annual Report on Form 10-K for the Company has taken to adjust its cost structure by focusing on the most promising projects with high-growth potential and delivering process improvements, management expects revenue and profit growth in fiscal ~~2017.~~year ended January 31, 2016.

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 the Company'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.

The Company'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 ~~$32.3~~$32.8 million at ~~October 31, 2015,~~April 30, 2016, a decrease of ~~$19.6~~$1.0 million from ~~$51.9~~$33.8 million at January 31, ~~2015.~~2016. The comparable balance one year earlier was ~~$66.4~~$47.5 million. The decrease from fiscal 2016 year-end was primarily driven by increased cash outflow for shares repurchased under the authorized ~~$40.0~~$50.0 million share buyback plan. In the current quarter the Company repurchased approximately ~~1.1~~0.4 million shares at an average price of ~~$17.59~~$14.93 for a total of ~~$18.5 million. Year-to-date, the Company has repurchased 1.6~~$5.7 million, ~~shares at an average price of $18.31 for a total of $29.3 million.~~but this impact was largely offset by free cash flow generation driven by lower net working capital requirements and reduction in capital spending.

At ~~October 31, 2015~~April 30, 2016 the Company held cash and cash equivalents of ~~$3.9~~$2.6 million and ~~$0.3 million of short-term investments~~ in accounts outside the United States. These balances included undistributed earnings of foreign subsidiaries we consider to be indefinitely reinvested. If repatriated, undistributed earnings of approximately ~~$1.7~~$3.2 million would be subject to United States federal taxation. This estimated tax liability is approximately ~~$0.3~~$0.5 million net of foreign tax credits. Our liquidity is not materially impacted by the amount held in accounts outside of the United States.

The Company entered into a credit agreement dated April 15, 2015. This agreement (Credit Agreement), more fully described in Note 9 Financing Arrangements of this Form 10-Q, provides for a syndicated senior revolving credit facility up to $125 million with a maturity date of April 15, 2020. There were no borrowings ~~against the Credit Agreement in the fiscal quarter ended October 31, 2015 or outstanding balance~~ under the Credit Agreement ~~at October 31, 2015.~~for any of the fiscal periods covered by this Form 10-Q. Availability under the Credit Agreement for borrowings as of April 30, 2016 was $124.5 million.

Letters of credit (LOCs) totaling ~~$0.9~~$0.6 million ~~as of October 31, 2015,~~ issued under ~~the~~a previous line of credit with Wells Fargo Bank, N.A. were outstanding at April 30, 2016. These LOCs, which primarily to support self-insured workers' compensation bonding requirements, ~~remain in place. The Company expects~~are being transitioned to ~~have these~~the Credit Agreement. As such, LOCs totaling $1.1 million issued under each credit facility were outstanding ~~letters~~at April 30, 2016, including $0.5 million of ~~credit~~LOCs issued under the ~~new credit facility.~~Credit Agreement. Until such time as ~~that~~the transition of the remaining LOCs is complete, any draws required under ~~these letters of credit~~the Wells Fargo LOCs would be settled with available cash or borrowings under the Credit Agreement.

Operating Activities

Operating cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, services, employee compensation, and income taxes. Operating cash flows are evaluated based on net working capital. Net working capital is defined as accounts receivable (net) plus inventories less accounts payable. Management evaluates net working capital levels through the computation of average days sales outstanding and inventory turnover. Average days sales outstanding is a measure of the Company's efficiency in enforcing its credit ~~policy.~~policy and managing credit terms. The inventory turnover ratio is a metric used to evaluate the effectiveness of inventory management, with further consideration given to balancing the disadvantages of excess inventory with the risk of delayed customer deliveries.

Cash provided by operating activities was ~~$35.2~~$11.1 million for the first ~~nine~~three months of fiscal ~~2016~~2017 compared with ~~$45.7~~$9.0 million in the first ~~nine~~three months of fiscal ~~2015. Changes in inventory and accounts receivable generated $21.0 million~~2016. This increase is primarily the result of ~~cash~~lower net working capital requirements in the ~~first nine months of fiscal 2016 compared to generating $4.9 million one year ago. Inventory~~three-month period ended April 30, 2016.

Accounts receivable levels have ~~decreased~~increased from ~~$55.2~~$38.1 million at January 31, ~~2015~~2016 to ~~$48.6~~$41.0 million at ~~October~~April 30, 2016. The trailing 12 months days sales outstanding was 57 days at April 30, 2016 and 55 days at April 30, 2015. This increase reflects the impact of conditions within Engineered Films’ energy market as the end-market strategy continues to impact accounts receivable, extending cash collections and increasing days sales outstanding. This ratio has been stable sequentially versus the fourth quarter of fiscal 2016.

Inventory levels have increased from $45.9 million at January 31, ~~2015.~~2016 to $47.0 million at April 30, 2016. The Company's inventory turnover rate decreased from the prior year (trailing 12-month inventory turn of ~~3.9X~~3.7X at ~~October 31, 2015~~April 30, 2016 versus ~~5.0X~~4.5X at ~~October 31, 2014)~~

April 30, 2015) primarily due to higher average inventory levels at Aerostar and Engineered ~~Films. From an accounts receivable perspective,~~Films for a substantial part of the ~~end-market strategy for the energy market~~

~~#29~~

will continue to impact accounts receivable by stretching out cash collections and increasing days sales outstanding during fiscal 2016. The trailing 12 months days sales outstanding was 58 days at October 31, 2015 and 52 days at October 31, 2014.12-month period.

Investing Activities

Cash used in investing activities decreased from ~~$18.1~~$4.4 million in the first ~~nine~~three months of fiscal ~~2015~~2016 to ~~$9.0~~$1.4 million in the first ~~nine~~three months of fiscal ~~2016.~~2017. The prior year ~~was~~cash outflows included a higher ~~due to the $4.7 million acquisition~~level of SBG. This year benefited from $2.0 million in cash provided by the disposal of assets related to the exit of contract manufacturing in Applied Technology and Aerostar. The cash inflows from the exit of contract manufacturing were from selling the Company's St. Louis operations and related assets as well as our idle facility in Huron, South Dakota.capital expenditures. Capital expenditures totaled ~~$10.8~~$0.8 million and ~~$12.8~~$5.0 million in the first ~~nine~~three months of fiscal ~~2016~~2017 and fiscal ~~2015,~~2016, respectively. The fiscal 2016 spending primarily ~~relates~~related to Engineered Films capacity expansion. Management anticipates fiscal ~~2016~~2017 capital spending to be approximately ~~$13 million with~~$9 million. There are no significant capacity expansions planned for Engineered Films and the ~~remaining spending including final payments on the recently completed Engineered Films' production line and Applied Technology and Aerostar spending~~other divisions are expected to ~~advance product development.~~maintain a disciplined approach to capital spending. In addition, management will evaluate strategic acquisitions that result in expanded capabilities and improved competitive advantages.

Cash outflow for purchases of investments in fiscal 2017 reflect the Company’s investment in AgEagle more fully described in Note 5 Acquisitions of and Investments in Businesses and Technologies in the Notes to the Consolidated Financial Statements of this Form 10-Q.

Cash inflow related to business acquisitions in fiscal 2016 relate to the Company receiving a $0.4 million settlement offor the working capital adjustment to the Integra purchase price. ~~Cash outflow related to business acquisition in the prior year related to the SBG business acquisition, totaling $4.7 million.~~

Financing Activities

Cash used in financing activities was ~~$45.9~~$10.8 million for the ~~nine~~three months ended ~~October 31, 2015~~April 30, 2016 compared to ~~$14.0~~$9.0 million one year ago. Dividends of $14.6 million, or 39.0 cents per share, were paid to Raven shareholders in the current year compared to dividends of $13.6 million, or 37.0 cents per share in the prior year. During the nine months ended October 31, 2015 and October 31, 2014, the Company made payments of $0.8 million and $0.5 million respectively, on acquisition-related contingent liabilities.

~~The~~In the fiscal 2016 first quarter, the Company began purchasing common shares as part of the $40.0 million share repurchase plan authorized by the Company’s Board of Directors. In fiscal 2017 first quarter, the Board of Directors authorized a $10.0 million increase, bringing the total authorized under the plan to $50.0 million. The Company repurchased $5.7 million and $3.0 million in ~~fiscal 2015. Year-to-date,~~shares in the ~~Company~~three-month periods ended April 30, 2016 and 2015, respectively. All such share repurchases were paid ~~$29.3~~at April 30, 2016. At April 30, 2015, $0.4 million of such share repurchases were unpaid.

Dividends per share were flat at 13.0 cents per share, while total cash outflows for dividends declined $0.2 million in the three-month period ended April 30, 2016 as compared to the prior year period due to the decrease in outstanding shares as a result of share ~~purchases. No shares were repurchased during~~repurchases made since the ~~first nine months~~end of ~~fiscal 2015.~~the prior year period.

During the ~~nine~~three months ended ~~October 31,~~April 30, 2016 and April 30, 2015, the Company made payments of $0.1 million and $0.6 million respectively, on acquisition-related contingent liabilities.

During the three months ended April 30, 2015, the Company paid $0.5 million of debt issuance costs associated with the Credit Agreement previously discussed. No ~~debt issuance costs were paid during the nine months ended October 31, 2014. No borrowings~~borrowing or repayment ~~has~~ occurred on the Credit Agreement during the first ~~nine~~three months of fiscal ~~2016. Long-term debt of $0.6 million, consisting of a bank note and debts to the former owners assumed in the acquisition of SBG, was repaid in the first nine months of~~2017 or fiscal ~~2015.~~2016.

Financing cash outflows in the first ~~nine~~three months of fiscal 2017 and 2016 included employee taxes paid in relation to net settlement of restricted stock units ~~(RSUs)~~ that vested during the year. ~~No RSUs vested during the nine months ended October 31, 2014.~~

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Except as described above, ~~and in Note 5~~ ~~Acquisitions of and Investments in Businesses and Technologies~~ ~~along with Note 7~~ ~~Employee Post Retirement Benefits~~ ~~of the Notes to Consolidated Financial Statements in Part 1 of this Quarterly Report on Form 10-Q,~~ there have been no material changes in the Company’s known off-balance sheet debt and other unrecorded obligations since the fiscal year ended January 31, ~~2015.~~

As a result of the amendment of the postretirement benefit plan, the undiscounted accumulated postretirement benefit obligation of the plan decreased approximately $10.2 million. As a result of the lower revenue expectations for Vista, expected earn-out payments related to the acquisition of Vista decreased approximately $2.9 million. In a transaction separate from the Vista acquisition, the Company agreed to fund a revenue-based bonus pool, not to exceed $15.0 million, which is being accrued (using the same earn-out percentages as the acquisition-related contingent liability) when the revenue stream is recorded. Accordingly, the expected payout of this obligation also decreased $2.9 million. The table below shows the updated amounts for these obligations at October 31, 2015.

~~#30~~

dollars in thousands Total
Less than
1 year

1-3
years

3-5
years

More than
5 years
Postretirement benefits $ 19,270
$ 209
$ 703
$ 712
$ 17,646
Acquisition-related contingent payments -Vista^(a)
3,466
250
1,202
2,014
—

^(a) Excludes future earn-out payments for SBG of $1,978 included in January 31, 2015 acquisition-related contingent payments as these did not materially change.
2016.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting policies are those that require the application of judgment when valuing assets and liabilities on the Company's balance sheet. There have been no material changes to the Company’s critical accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended January 31, ~~2015.~~2016.

As described in those policies, the Company recognizes goodwill as the excess cost of an acquired business over the net amount assigned to assets acquired and liabilities assumed. Management assesses goodwill for impairment annually during the fourth quarter and between annual tests whenever a triggering event indicates there may be an impairment. ~~Impairment tests~~When performing goodwill impairment testing, the fair values of reporting units are determined based on valuation techniques using the best available

information, primarily discounted cash flow projections. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures).

The Company performs impairment reviews of goodwill ~~are done at~~by reporting unit. At the ~~reporting unit level.~~

~~In the~~end of fiscal 2016, ~~third quarter~~ the Company determined ~~that a triggering event occurred for its Vista~~it had four reporting ~~unit, a subsidiary of~~units: Engineered Films Division; Applied Technology Division; and two separate reporting units in the Aerostar Division. The triggering event was caused by the lowering of financial expectations for sales and operating income of the reporting unit due to delays and uncertainties regarding the reporting unit’s pursuit of large international opportunities,Division, one of which was ~~expected~~Vista and one of which was all other Aerostar operations (Aerostar excluding Vista).

During the first quarter of fiscal 2017, management implemented operations and reporting changes within Vista and Aerostar to ~~be awarded during~~further integrate the ~~quarter. In addition,~~operations of Vista into Aerostar operations. Integration actions included leadership re-alignment, including selling and business development functions; re-deployment of employees across the division; and consolidation of administrative functions, among other actions. Based on the changes made, the Company ~~made a change in~~has consolidated the ~~executive leadership of~~two separate reporting units within the Aerostar Division into one reporting unit ~~during~~for the ~~quarter. While Vista has been in the process~~purposes of ~~negotiating a large international contract, the contract did not materialize in the fiscal~~goodwill impairment review. As such as of April 30, 2016, third quarter as expected. The likelihood of being awarded this or other such contracts in the next twelve months is now lower than it was in the second quarter. The Company continues to pursue these international opportunities, but the timing of any contract award is less certain. As a result of a delay in being awarded this large international contract, the Company ~~lowered its financial forecast for the business. As a result of these factors, the Company performed a Step 1 impairment analysis using fair value techniques as of October 31, 2015.~~

~~The Company compared the carrying value of the~~has three reporting unit, including goodwill, to its estimated fair value. In calculating the estimated fair value, the Company used the income approach. The income approach is a valuation technique under which the Company estimated future cash flows using the reporting unit's financial forecast from the perspective of an unrelated market participant. Using historical trending and internal forecasting techniques, the Company projected revenues and applied projected gross margins and operating expense ratios to the projected revenue to arrive at the future cash flows. A terminal value was then applied to the projected cash flow stream. Future estimated cash flows were discounted to their present value to calculate the estimated fair value. The discount rate used was the Company’s estimated weighted average cost of capital derived using both known and estimated customary market metrics. The estimated fair value was also compared to comparable market information for reasonableness.

In determining the estimated fair value of the Vista reporting unit, the Company was required to estimate a number of factors, including projected revenue growth rates, projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. On the basis of these estimates, the October 31, 2015 analysis indicated that the estimated fair value of the Vista reporting unit was less than the carrying value. The carrying value exceeded the estimated fair value by $8.4 million or 35.0%. Using the discount rate to illustrate the sensitivity of this estimated fair value to each of the estimates previously described, a one-half percentage point increase in the discount rate would reduce the estimated fair value of the Vista reporting unit by approximately $0.5 million.

~~The Company completed a Step 2 analysis by allocating the enterprise value calculated in Step 1 to the fair value of the remaining assets and liabilities as of the October 31~~^st balance sheet date. Prior to performing the Step 2 analysis, the Company also evaluated the fair value of the remaining assets and liabilities including acquisition-related contingent consideration, or contingent earn-out liability, based on the revised forecast. This liability is more fully described in Note 5 ~~Acquisitions and Investments in Business Technologies~~. The reduction in Vista's estimated future discounted cash flows resulted in a reduction in the liability and a benefit of $1.5 million recorded in “Cost of sales” in the Consolidated Statements of Income and Comprehensive Income.

In the Step 2 impairment analysis, the fair value determined in Step 1 was allocated to the remaining assets and liabilities of the reporting unit. The focus of the Step 2 analysis was the fair valuation of the intangible assets, which include existing technology, customer relationships, and non-compete agreements. The resulting implied fair value of the Vista goodwill was $4.1 compared to the carrying value recorded for the reporting unit, $11.5 million. This $7.4 million shortfall was recorded in the current quarter

~~#31~~

~~as an impairment charge to operating income reported as "Goodwill impairment loss" in the Consolidated Statement of Income and Comprehensive Income.~~

~~In the previous quarter, the Company evaluated each of its reporting units and determined the Engineered Films reporting unit had experienced a triggering event based on the following:~~

~~The Company's~~units: Engineered Films Division, energy market sales constituted about 35% of its net sales for the past two fiscal years. Oil prices had continued to decline since the fourth quarter of fiscal 2015 and were at levels that had not been seen since 2003. The economic outlook indicated oil prices were not likely to recover and lead to increased drilling activity during fiscal 2016.

The Company acquired Integra in November 2014, prior to the decline in oil prices, to help expand Engineered Films' production capacity, broaden its product offerings and enhance its conversion capabilities. The former Integra business was fully integrated into the Engineered FilmsApplied Technology Division, and ~~is included in the Engineered Films reporting unit. A significant part of the Company's acquisition strategy was growth into the energy market, which was impacted by the price of oil.~~

The model used for the most recent valuation, the fiscal 2015 fourth quarter valuation, of the goodwill resulting from the Integra acquisition did not factor in a prolonged decrease of this magnitude in the price of oil.

Engineered Films' sales in the energy market were down approximately 75% in the first six months of fiscal 2016 compared to the first six months of fiscal 2015. Internal sales outlooks for this market did not include an expected recovery in end-market demand during fiscal 2016.Aerostar Division.

As a result of these changes in circumstances indicating that this asset might be impaired, the Company concluded that an interim goodwill impairment assessment for the Engineered Films reporting unit was necessary. The Company compared the carrying value of the Engineered Films reporting unit, including goodwill, to its estimated fair value. In calculating the estimated fair value, the Company used the income approach.

In determining the estimated fair value of the Engineered Films reporting unit, the Company was required to estimate a number of factors, including projected revenue growth rates, projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. On the basis of these estimates the July 31, 2015 analysis indicated that the estimated fair value of the Engineered Films reporting unit exceeded its carrying values by $50.7 million or 37.2%. Using the discount rate to illustrate the sensitivity of this estimated fair value to each of the estimates previously described, a one-half percentage point increase in the discount rate would reduce the estimated fair value of the Engineered Films reporting unit by approximately $9.7 million.

The Company concluded that no triggering events occurred for Engineered Films in the third quarter. No significant changes were noted in the energy market conditions since last quarter. Although oil prices continue to be lower and Engineered Film's business is still down 75 to 80% year-over-year in the energy market, the profitability of the reporting unit continues to be higher than the date of the last impairment test given the lower material costs in comparison to the selling price.

~~Although the profitability of~~Based on the Company’s other two reporting units, Aerostar (all operations other than Vista) and Applied Technology, has been down as compared to the prior year, the Company identified no triggering events requiring a Step 1 impairment analysis for either of these reporting units. Further, the fiscal 2015 fourth quarter calculated fair valuereview of each of these three reporting ~~units significantly exceeded~~unit’s operating results for the ~~carrying value of its net assets. The Company will conduct its planned annual assessment of goodwill for~~three-month period ended April 30, 2016, no triggering events were identified and no further impairment inanalysis was required under the ~~fourth quarter.~~applicable accounting guidance.

ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted

~~#32~~

market prices or interest rates). This practical expedient for the measurement date also applies to significant events that trigger a remeasurement in an interim period. An entity electing the practical expedient for the measurement date is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in ASU 2015-04. ASU 2015-04 is effective for fiscal years beginning after December 15, 2015. The Company may adopt the standard prospectively. Early adoption is permitted. In the fiscal 2016 first quarter the Company elected to early adopt ASU 2015-04 and apply it on a prospective basis. The Company's plan that provides postretirement medical and other benefits was amended on August 25, 2015. As a result of this plan amendment, the Company elected the practical expedient pursuant to this guidance and a valuation was completed using an August 31, 2015 measurement date.

In April 2015 the FASB issued ASU No. 2015-03, "Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs" (ASU 2015-03). The amendments in ASU 2015-03 simplify the presentation of debt issuance costs and require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. In August 2015 the FASB issued ASU No. 2015-15 "Interest—Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" (ASU 2015-15). The guidance in ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. Given the absence of authoritative guidance, in ASU 2015-15, issued in August 2015, FASB adopted SEC staff comments that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. ASU 2015-03 and 2015-15 are both effective for fiscal years beginning after December 15, 2015. The amendments are required to be applied retrospectively to all prior periods presented and early adoption is permitted. The Company elected to early adopt ASU 2015-03 in fiscal 2016 first quarter and ASU 2015-15 in fiscal 2016 third quarter. Adoption of this guidance did not have a significant impact on the Company's consolidated financial statements, or results of operations for the period since there were no prior period costs it applied to. Debt issuance costs associated with the credit facility discussed further in Note 9 ~~Financing Arrangements~~ have been presented as an asset and are being amortized ratably over the term of the line of credit arrangement. The adoption of this guidance did not have an impact on the Company's results of operations for the period.

~~New Accounting Standards Not Yet Adopted~~

~~In November 2015 the FASB~~ issued Accounting Standards Update (ASU) No. 2015-17, "Income Taxes (Topic 740) Balance Sheet Classification of Deferred ~~Taxes “~~Taxes" (ASU 2015-17). ~~Current GAAP~~Currently generally accepted accounting principles (GAAP) requires the deferred taxes for each jurisdiction (or tax-paying component of a jurisdiction) to be presented as a net current asset or liability and net ~~noncurren~~tnoncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. ~~Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets.~~ To simplify presentation, ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction - that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The Company early adopted ASU 2015-17 ~~is effective for~~in the fiscal ~~years beginning after December 15, 2016. The Company may apply~~2017 first quarter using the ~~standard either prospectively to all~~prospective method. No current deferred tax ~~liabilities and~~ assets or liabilities are recorded on the balance sheet. Since the Company adopted the guidance prospectively, the prior periods were not retrospectively ~~to all periods presented. Early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and working capital.~~ adjusted.

~~#33~~

provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and, during the measurement period, have an adjustment to provisional amounts recognized. ASU 2015-16 requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted ASU 2015-16 iswhen it became effective ~~for~~in the fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. ASU 2015-16 is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the update2017 first quarter with ~~earlier application permitted for financial statements that have not been issued. The Company is evaluating the~~no impact ~~the adoption of this guidance will have~~ on its consolidated financial statements or results of ~~operations, and disclosures.~~operations.

New Accounting Standards Not Yet Adopted

~~#34~~

the Company for fiscal 2019 and interim periods therein. ASU 2014-09 may be adopted as of the original effective date, which for the Company is fiscal 2018. The guidance may be applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In addition, FASB has amended Topic 606 prior to it becoming effective. In April 2016 FASB issued (ASU) No. 2016-10, "Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing" and in March 2016 FASB issued (ASU) No. 2016-08, "Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net)". The effective date and transition requirements for these amendments to Topic 606 are same as ASU 2014-09. The Company is currently evaluating the method and date of adoption and the impact the adoption of ASU 2014-09 and all subsequent amendments to Topic 606, will have on the Company’s consolidated financial position, results of operations, and disclosures.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. Without limiting the foregoing, the words “anticipates,” “believes,” “expects,” “intends,” “may,” “plans” and similar expressions are intended to identify forward-looking statements. The Company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act. Although management believes that the expectations reflected in forward-looking statements are based on reasonable assumptions, there is no assurance that these assumptions are correct or that these expectations will be achieved. 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 and commodity prices, which could affect sales and profitability in some of the Company’s primary markets, such as agriculture, construction, and energy; or changes in competition, raw material availability, technology or relationships with the Company’s largest customers, risks and uncertainties relating to development of new technologies to satisfy customer requirements, possible development of competitive technologies, ability to scale production of new products without negatively impacting quality and cost, and ability to finance investment and working capital needs for new development projects, any of which could adversely impact any of the Company's product lines, as well as other risks described in the Company's 10-K for the fiscal year ended January 31, ~~2015~~2016 under Item 1A. 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 are made. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The exposure to market risks pertains mainly to changes in interest rates on cash and cash equivalents and short-term investments. The Company has no debt outstanding as of ~~October 31, 2015~~April 30, 2016. The Company does not expect operating results or cash flows to be significantly affected by changes in interest rates. Additionally, the Company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, the Company does utilize derivative financial instruments to manage the economic impact of fluctuation in foreign currency exchange rates on those transactions that are denominated in currency other than its functional currency, which is the U.S. dollar. The use of these financial instruments had no material effect on the Company's financial condition, results of operations, or cash flows.

The Company's subsidiaries that operate outside the United States use their local currency as the functional currency. The functional currency is translated into U.S. dollars for balance sheet accounts using the period-end exchange rates, and average exchange rates for the statement of income. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in ~~accumulated~~"Accumulated other comprehensive income (loss)" within shareholders' equity. Foreign currency transaction gains or losses are recognized in the period incurred and are included in "Other income (expense), net" in the Consolidated Statements of Income and Comprehensive Income. Foreign currency fluctuations had no material effect on the Company's financial condition, results of operations, or cash flows.

The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. However, the Company does utilize derivative financial instruments to manage the economic impact of fluctuation in foreign currency exchange rates on those transactions that are denominated in currency other than its functional currency, which is the U.S. dollar. Such transactions are principally Canadian dollar-denominated transactions. The use of these financial instruments had no material effect on the Company's financial condition, results of operations, or cash flows.



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated

~~#35~~

and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.

As of ~~October 31, 2015~~April 30, 2016, the end of the period covered by this report, management evaluated the effectiveness of the Company's disclosure controls and procedures as of such date.

Based on their evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of ~~October 31, 2015~~April 30, 2016.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~October 31, 2015~~April 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

RAVEN INDUSTRIES, INC.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings:

The Company is involved as a ~~defendant~~party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will ~~in many cases~~ be substantially mitigated by insurance ~~coverage. Management~~coverage or would be immaterial. Accordingly, management does not believe the ultimate outcome of ~~any pending~~these matters will be significant to its results of operations, financial position, or cash flows.

Item 1A. Risk Factors:

The Company’s business is subject to a number of risks, including those identified in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended January 31, ~~2015,~~2016, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from fiscal period to fiscal period. The risks described in the Annual Report on Form 10-K are not the only risks we face. Additional risks and

uncertainties not currently known to us, or that we currently deem to be immaterial, also could have a material effect on our business, results of operations, financial condition and/or liquidity.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:

On November 3, 2014 the ~~Company announced that its~~Company's Board of Directors ~~had~~(Board) authorized a ~~$40.0 million~~$40,000 stock buyback program. Effective March 21, 2016 the Board authorized an extension and increase of this stock buyback program.An additional $10,000 was authorized for share repurchases once the $40,000 authorization limit is reached. This authorization remains in place until such time as the authorized spending limit is reached or is revoked by the Board.

The Company made purchases of its own equity securities during the ~~third~~first quarter of ~~2016~~2017 (recorded on trade date basis) as follows:

Period Total number of shares purchased under the plan Weighted average price paid per share (or unit) Total amount purchased including commissions Dollar value of shares (or units) that may be purchased under the plan
August 1 to August 31, 2015 386,068
$ 18.01
$ 6,954,158

September 1 to September 30, 2015 495,152
17.05
8,444,452

October 1 to October 31, 2015 171,367
18.17
3,114,190

Total as of and for the fiscal quarter ended October 31, 2015 1,052,587
$ 17.59
$ 18,512,800
$ 10,662,179



Period	Total number of shares purchased under the plan	Weighted average price paid per share (or unit)		Total amount purchased including commissions		Dollar value of shares (or units) that may be purchased under the plan
February 1 to February 29, 2016	—	$	—	$	—
March 1 to March 31, 2016	245,770	14.63		3,596,413
April 1 to April 30, 2016	136,295	15.45		2,106,435
Total as of and for the fiscal quarter ended April 30, 2016	382,065	$	14.93	$	5,702,848	$	14,959,331

Item 3. Defaults Upon Senior Securities: None

Item 4. Mine Safety Disclosures: None

Item 5. Other Information: None

~~#36~~

Item 6. Exhibits:



Exhibit Number			Description

~~4.1~~			Raven Industries, Inc. Amended and Restated 2010 Stock Incentive Plan filed on June 8, 2015 as Exhibit 4.1 of Raven Industries, Inc. Registration Statement on Form S-8, and incorporated herein by reference.

~~10.1~~			Amended Employment agreements between Raven Industries, Inc. and the following senior executive officers: Lon E. Stroschein, Brian E. Meyer, Janet L. Matthiesen, Stephanie Herseth Sandlin, and Steven E. Brazones dated August 25, 2015 (incorporated herein by reference to Exhibit 10.1 of the Company's 8-K filed August 31, 2015). †

~~10.2~~			Schedule A to the Amended Employment Agreements between Raven Industries, Inc. and the following senior executive officers: Lon E. Stroschein, Brian E. Meyer, Janet L. Matthiesen, Stephanie Herseth Sandlin, and Steven E. Brazones dated August 25, 2015 (incorporated herein by reference to Exhibit 10.2 of the Company's 8-K filed August 31, 2015). †

31.1			Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema

101.CAL			XBRL Taxonomy Extension Calculation Linkbase

101.DEF			XBRL Taxonomy Extension Definition Linkbase

101.LAB			XBRL Taxonomy Extension Label Linkbase

101.PRE			XBRL Taxonomy Extension Presentation Linkbase

~~† Management contract or compensatory plan arrangement~~

~~#37~~

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/ Steven E. Brazones
	Steven E. Brazones
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Date: ~~December 4, 2015~~May 27, 2016

~~#38~~#29



Benefit obligation at January 31, 2015	$	12,125
Service cost	252
Interest cost	244
Prior service (credit) due to plan amendment	(958		)
Actuarial (gain) due to assumption changes	(3,403		)
Retiree benefits paid	(89		)
Benefit obligation at August 31, 2015	$	8,171
Fair value of plan assets	—
Funded status at August 31, 2015	$	(8,171	)
Net actuarial loss in accumulated other comprehensive income	2,710
Unrecognized prior service (credit)	(958		)
Accrued postretirement benefit cost at August 31, 2015	$	(6,419	)



Assumptions used to calculate benefit obligation:
Measurement date	August 31, 2015		January 31, 2015
Discount rate	4.25	%	3.50	%
Wage inflation rate	4.00	%	4.00	%
Average remaining years of service	15.14		16.05
Health care cost trend rates:
Health care cost trend rate assumed for next year	7.00	%	7.20	%
Ultimate health care cost trend rate	4.50	%	5.00	%
Year that the rate reaches the ultimate trend rate	2030		2025



dollars in thousands	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Postretirement benefits	$	19,270	$	209	$	703	$	712	$	17,646
Acquisition-related contingent payments -Vista^(a)	3,466		250		1,202		2,014		—

^(a) Excludes future earn-out payments for SBG of $1,978 included in January 31, 2015 acquisition-related contingent payments as these did not materially change.