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, 2017~~April 30, 2019



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.~~INC

(Exact name of registrant as specified in its charter)



South Dakota (State or other jurisdiction of incorporation or organization)		46-0246171 (I.R.S. 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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1 par value	RAVN	The Nasdaq Global Select Market

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 Website, 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," ~~“smaller~~"smaller reporting ~~company”~~company" and "emerging growth 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
		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 17, 2017~~May 24, 2019, there were ~~35,755,646~~36,026,302 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 of 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	1920
Item 3. Quantitative and Qualitative Disclosures about Market Risks	3029
Item 4. Controls and Procedures	3029

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	3230
Item 1A. Risk Factors	3230
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3230
Item 3. Defaults Upon Senior Securities	3331
Item 4. Mine Safety Disclosures	3331
Item 5. Other Information	3331
Item 6. Exhibits	3331
Signatures	3432

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, 2017			January 31, 2017			October 31, 2016			April 30, 2019			January 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	36,873		$	50,648		$	46,313		$	61,370		$	65,787
Accounts receivable, net	59,573			43,143			39,554			67,792			54,472
Inventories	53,481			42,336			42,813			58,042			54,076
Other current assets	3,910			2,689			2,747			7,263			8,736
Total current assets	153,837			138,816			131,427			194,467			183,071

Property, plant and equipment, net	105,651			106,324			108,948			105,236			106,615
Goodwill	46,752			40,649			40,703			50,845			50,942
Amortizable intangible assets, net	11,375			12,048			12,511			15,978			16,293
Other assets	2,926			3,672			3,746			7,624			3,324
TOTAL ASSETS	$	320,541		$	301,509		$	297,335		$	374,150		$	360,245

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	13,383		$	8,467		$	9,377		$	16,179		$	8,272
Accrued liabilities	21,645			18,055			14,708			19,437			23,478
Customer advances	908			1,860			1,154
Other current liabilities										2,839			1,303
Total current liabilities	35,936			28,382			25,239			38,455			33,053

Other liabilities	13,456			13,696			12,134			23,012			18,235

Commitments and contingencies	—			—			—
Commitments and contingencies (see Note 12)										—			—

Shareholders' equity
Common stock, $1 par value, authorized shares 100,000; issued 67,088; 67,060; and 67,060, respectively	67,088			67,060			67,060
Common stock, $1 par value, authorized shares 100,000; issued 67,417 and 67,289, respectively										67,417			67,289
Paid-in capital	58,484			55,795			55,703			57,369			59,655
Retained earnings	249,034			230,649			230,957			294,450			285,969
Accumulated other comprehensive income (loss)	(3,058		)	(3,676		)	(3,361		)	(3,872		)	(3,556		)
Treasury stock at cost, 31,332; 30,984; and 30,984 shares, respectively	(100,402		)	(90,402		)	(90,402		)
Treasury stock at cost, 31,393 and 31,332 shares, respectively										(102,683		)	(100,402		)
Total Raven Industries, Inc. shareholders' equity	271,146			259,426			259,957			312,681			308,955
Noncontrolling interest	3			5			5			2			2
Total equity	271,149			259,431			259,962			312,683			308,957
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	320,541		$	301,509		$	297,335		$	374,150		$	360,245

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, 2017			October 31, 2016			October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Net sales	$	101,349		$	72,522		$	281,494		$	208,480		$	98,178		$	111,129
Cost of sales	68,016			52,683			189,692			149,609			63,112			71,131
Gross profit	33,333			19,839			91,802			58,871			35,066			39,998

Research and development expenses	4,083			4,151			12,319			12,475			7,271			5,285
Selling, general, and administrative expenses	11,421			8,212			31,476			24,174			12,674			13,182
Long-lived asset impairment loss	—			87			259			87
Operating income	17,829			7,389			47,748			22,135			15,121			21,531

Other income (expense), net	(34		)	(273		)	(327		)	(579		)	(69		)	5,679
Income before income taxes	17,795			7,116			47,421			21,556			15,052			27,210

Income tax expense	5,798			1,375			14,842			5,802			1,842			5,063
Net income	11,997			5,741			32,579			15,754			13,210			22,147

Net income (loss) attributable to the noncontrolling interest	(1		)	—			(2		)	1			—			12

Net income attributable to Raven Industries, Inc.	$	11,998		$	5,741		$	32,581		$	15,753		$	13,210		$	22,135

Net income per common share:
─ Basic	$	0.33		$	0.16		$	0.90		$	0.43		$	0.37		$	0.62
─ Diluted	$	0.33		$	0.16		$	0.89		$	0.43		$	0.36		$	0.61

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

Comprehensive income (loss):
Net income	$	11,997		$	5,741		$	32,579		$	15,754		$	13,210		$	22,147

Other comprehensive income (loss):
Foreign currency translation	(185		)	(201		)	637			146			(304		)	(480		)
Postretirement benefits, net of income tax benefit (expense) of $4, $2, $11 and $4, respectively	(6		)	(2		)	(19		)	(6		)
Postretirement benefits, net of income tax benefit of $4 and $2 respectively													(12		)	(6		)
Other comprehensive income (loss), net of tax	(191		)	(203		)	618			140			(316		)	(486		)

Comprehensive income	11,806			5,538			33,197			15,894
Comprehensive income (loss)													12,894			21,661

Comprehensive income (loss) attributable to noncontrolling interest	(1		)	—			(2		)	1			—			12

Comprehensive income attributable to Raven Industries, Inc.	$	11,807		$	5,538		$	33,199		$	15,893
Comprehensive income (loss) attributable to Raven Industries, Inc.													$	12,894		$	21,649

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, 2016	$	67,006	$	53,907		30,500	$	(82,700	)	$	229,443		$	(3,501	)	$	264,155		$	74		$	264,229
Balance January 31, 2018																									$	67,124	$	59,143		31,332	$	(100,402	)	$	252,772		$	(2,573	)	$	276,064		$	2	$	276,066
Net income																									—		—			—	—			22,135			—			22,135			12		22,147
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment																									—		—			—	—			—			(480		)	(480		)	—		(480		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $2																									—		—			—	—			—			(6		)	(6		)	—		(6		)
Reclassification due to ASU 2018-02 adoption																									—		—			—	—			280			(280		)	—			—		—
Cash dividends ($0.13 per share)																									—		50			—	—			(4,708		)	—			(4,658		)	—		(4,658		)
Shares issued on stock options exercised, net of shares withheld for employee taxes																									12		(129		)	—	—			—			—			(117		)	—		(117		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes																									41		(694		)	—	—			—			—			(653		)	—		(653		)
Share-based compensation																									—		787			—	—			—			—			787			—		787
Balance April 30, 2018																									$	67,177	$	59,157		31,332	$	(100,402	)	$	270,479		$	(3,339	)	$	293,072		$	14	$	293,086

Balance January 31, 2019																									$	67,289	$	59,655		31,332	$	(100,402	)	$	285,969		$	(3,556	)	$	308,955		$	2	$	308,957
Net income	—		—			—	—			15,753			—			15,753			1			15,754			—		—			—	—			13,210			—			13,210			—		13,210
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			146			146			—			146			—		—			—	—			—			(304		)	(304		)	—		(304		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4	—		—			—	—			—			(6		)	(6		)	—			(6		)	—		—			—	—			—			(12		)	(12		)	—		(12		)
Cash dividends ($0.39 per share)	—		161			—	—			(14,239		)	—			(14,078		)	—			(14,078		)
Dividends of less than wholly-owned subsidiary attributable to non-controlling interest	—		—			—	—			—			—			—			(70		)	(70		)
Cash dividends ($0.13 per share)																									—		47			—	—			(4,729		)	—			(4,682		)	—		(4,682		)
Shares issued on stock options exercised, net of shares withheld for employee taxes																									26		(693		)	—	—			—			—			(667		)	—		(667		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	35		(291		)	—	—			—			—			(256		)	—			(256		)	102		(2,422		)	—	—			—			—			(2,320		)	—		(2,320		)
Director shares issued	19		(19		)	—	—			—			—			—			—			—
Shares repurchased	—		—			484	(7,702		)	—			—			(7,702		)	—			(7,702		)	—		—			61	(2,281		)	—			—			(2,281		)	—		(2,281		)
Share-based compensation	—		2,291			—	—			—			—			2,291			—			2,291			—		782			—	—			—			—			782			—		782
Income tax impact related to share-based compensation	—		(346		)	—	—			—			—			(346		)	—			(346		)
Balance October 31, 2016	$	67,060	$	55,703		30,984	$	(90,402	)	$	230,957		$	(3,361	)	$	259,957		$	5		$	259,962


Balance January 31, 2017	$	67,060	$	55,795		30,984	$	(90,402	)	$	230,649		$	(3,676	)	$	259,426		$	5		$	259,431
Net income	—		—			—	—			32,581			—			32,581			(2		)	32,579
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			637			637			—			637
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $11	—		—			—	—			—			(19		)	(19		)	—			(19		)
Cash dividends ($0.39 per share)	—		164			—	—			(14,196		)	—			(14,032		)	—			(14,032		)
Shares issued on stock options exercised, net of shares withheld for employee taxes	13		(170		)	—	—			—			—			(157		)	—			(157		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	11		(162		)	—	—			—			—			(151		)	—			(151		)
Director shares issued	4		(4		)	—	—			—			—			—			—			—
Shares repurchased	—		—			348	(10,000		)	—			—			(10,000		)	—			(10,000		)
Share-based compensation	—		2,861			—	—			—			—			2,861			—			2,861
Balance October 31, 2017	$	67,088	$	58,484		31,332	$	(100,402	)	$	249,034		$	(3,058	)	$	271,146		$	3		$	271,149
Balance April 30, 2019																									$	67,417	$	57,369		31,393	$	(102,683	)	$	294,450		$	(3,872	)	$	312,681		$	2	$	312,683

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, 2017			October 31, 2016			April 30, 2019			April 30, 2018
OPERATING ACTIVITIES:
Net income	$	32,579		$	15,754		$	13,210		$	22,147
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,985			11,526			4,082			3,683
Change in fair value of acquisition-related contingent consideration	198			(41		)	94			152
Long-lived asset impairment loss	259			87
Loss from equity investment	247			223
Gain from sale of equity method investment							—			(5,785		)
Deferred income taxes	(1,035		)	(290		)	1,511			(293		)
Share-based compensation expense	2,861			2,291			782			787
Other operating activities, net	868			8			32			(2,102		)
Change in operating assets and liabilities:
Accounts receivable	(8,160		)	(1,620		)	(13,510		)	(8,893		)
Inventories	(9,213		)	3,048			(4,092		)	134
Other assets	(897		)	(135		)	1,373			(42		)
Operating liabilities	2,142			7,834			5,280			3,815
Net cash provided by operating activities	30,834			38,685			8,762			13,603

INVESTING ACTIVITIES:
Capital expenditures	(7,003		)	(3,901		)	(1,570		)	(4,164		)
Payments related to business acquisitions	(12,700		)	—
Proceeds from sale or maturity of investments	250			250			—			6,556
Purchases of investments	(255		)	(750		)	(843		)	(79		)
(Disbursements) proceeds from settlement of liabilities, sale of assets	(333		)	1,145
Proceeds (disbursements) from sale of assets, settlement of liabilities							—			832
Other investing activities	(36		)	(498		)	(28		)	40
Net cash used in investing activities	(20,077		)	(3,754		)
Net cash (used in) provided by investing activities							(2,441		)	3,185

FINANCING ACTIVITIES:
Dividends paid	(14,032		)	(14,148		)	(4,682		)	(4,658		)
Payments for common shares repurchased	(10,000		)	(7,702		)	(2,281		)	—
Payments of acquisition-related contingent liability	(364		)	(318		)	(620		)	(295		)
Restricted stock units vested and issued	(151		)	(256		)
Restricted stock unit issuances							(2,320		)	(653		)
Employee stock option exercises	(157		)	—			(667		)	(117		)
Other financing activities							(95		)	(52		)
Net cash used in financing activities	(24,704		)	(22,424		)	(10,665		)	(5,775		)

Effect of exchange rate changes on cash	172			24			(73		)	(231		)

Net increase (decrease) in cash and cash equivalents	(13,775		)	12,531			(4,417		)	10,782
Cash and cash equivalents at beginning of year	50,648			33,782			65,787			40,535
Cash and cash equivalents at end of period	$	36,873		$	46,313		$	61,370		$	51,317

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

(dollars in thousands, except per-share amounts)

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~~("the Company" or ~~Raven)~~"Raven") is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, commercial lighter-than-air and aerospace/defense markets. The Company is comprised of three unique operating units, or divisions, classified into reportable segments: Applied Technology, Engineered Films, and Aerostar.

The accompanying interim unaudited consolidated financial statements, which includes the accounts of Raven and its wholly-owned or controlled subsidiaries, net of intercompany balances and transactions, has been prepared by the Company in accordance with generally accepted accounting principles in the United States (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, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present this financial information have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, ~~2017.~~2019.

Financial results for the interim ~~three- and nine-month periods~~three-month period ended ~~October 31, 2017~~April 30, 2019, are not necessarily indicative of the results that may be expected for the year ending January 31, ~~2018.~~2020. The January 31, ~~2017~~2019, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required in an annual report on Form 10-K. 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~~controlling financial 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 interest in the net assets and operations of the business venture.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, ~~2017~~2019, other than described ~~below~~ in the Accounting Standards Adopted ~~section.~~

section below.

Accounting Pronouncements

Accounting Standards Adopted

In the fiscal ~~2018~~2020 first quarter, the Company ~~early~~ adopted ~~Accounting Standards Update (ASU) No. 2017-04 (issued by the~~ Financial Accounting Standards Board (FASB) in January 2017), "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" (ASU 2017-04) on a prospective basis . This ASU removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, a goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value. The amount of any impairment may not exceed the carrying amount of goodwill. The amendments should be applied on a prospective basis. As discussed in Note 7 ~~Goodwill, Long-lived Assets, and Other Intangibles~~, management performed an assessment in the fiscal 2018 first, second and third quarters and determined no triggering events had occurred for any of its three reporting units; therefore, the early adoption of this guidance did not have any impact on the consolidated financial statements or the results of operations as of and for the three- or nine-month periods ended October 31, 2017.

In the fiscal 2018 first quarter when it became effective, the Company adopted FASB ASU 2016-09 (issued in March 2016), "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09). 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 discrete income tax expense or benefit in the income statement in the reporting period in which they occur. This guidance also requires that all tax-related cash flows resulting from share-based awards be disclosed as operating cash flows in the statement of cash flows and that cash paid to taxing authorities on the behalf of employees for withheld shares be classified as a financing activity in the statement of cash flows. Finally, this ASU allows

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

companies to make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with current GAAP, or account for forfeitures when they occur. The Company accounts for forfeitures as they occur. The Company is prospectively recognizing excess tax benefits or deficits on vesting or settlement of awards, when they occur, as a discrete income tax benefit or expense instead of as additional paid-in capital as required under previous guidance. This change to the Company's accounting policies resulted in recognition of income tax expense of $2 and $571 for the three- and nine-month periods ended October 31, 2017. These tax-related cash flows are now classified within operating activities. The Company classifies tax payments made to taxing authorities on the employee's behalf for withheld shares as a financing activity on the statement of cash flows, as such the adoption of this guidance had no impact. Under the new guidance, excess tax benefits are no longer included in assumed proceeds under the treasury stock method of calculating earnings per share. The increase in incremental shares used in the weighted average diluted shares calculation was not material to the Company's diluted earnings per share calculation.

In the fiscal 2018 first quarter when it became effective, the Company adopted the FASB ASU No. 2015-11 (issued in July 2015), "Inventory (Topic 330) Simplifying the Measurement of Inventory" (ASU 2015-11) on a prospective basis. 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 price 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. Previously the Company reported its inventory at the lower of cost or market. Market was defined as replacement cost with a ceiling of net realizable value and a floor of net realizable value less a normal profit margin. The Company evaluates its inventory in all three reporting segments quarterly to determine if cost exceeds net realizable value and records a write-down, if necessary. The adoption of this guidance did not have any impact on the consolidated financial statements or the results of operations as of and for the three- and nine-month periods ended October 31, 2017.

~~New~~ Accounting Standards ~~Not Yet Adopted~~

In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting" (ASU 2017-09). The guidance amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards as equity instruments or a liability instruments are the same immediately before and after the modification to the award. The guidance is effective for annual periods, including interim periods, in fiscal years beginning after December 15, 2017. Early adoption is permitted and the amendments should be applied prospectively to an award modified on or after the adoption date. The Company currently has no plans to modify any of its outstanding awards. The Company will consider early adopting this guidance if modifications to its share-based compensation arrangements are likely to occur. The Company does not expect the adoption of this guidance will have a significant impact on its consolidated financial statements, results of operations, and disclosures.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Postretirement Benefit Cost" (ASU 2017-07). The guidance clarifies where the cost components of the net benefit cost should be reported in the income statement and it allows only the service cost to be capitalized. Currently the Company reports all of the components of the net benefit cost in "Operating income" in the Consolidated Statement of Income and Comprehensive Income. The net benefit cost for participants that are active employees is reported in the same manner as each participant's compensation cost is classified in the Consolidated Statement of Income and Comprehensive Income. The net benefit cost attributable to retired (inactive) participants is reported in "Selling, general, and administrative expenses" in the Consolidated Statement of Income and Comprehensive Income. Under the new guidance only the service cost component of the net benefit cost will be classified the same as the participant's compensation cost. The other components of the net benefit cost are required to be reported separately as a non-operating income (expense). The guidance is effective for annual periods, including interim periods, in fiscal years beginning after December 15, 2017. Early adoption is permitted and the amendments should be applied retrospectively. The Company does not expect this guidance will have a significant impact on its consolidated financial statements, results of operations and disclosures since it primarily will only change how the net benefit cost is classified in the Company's Consolidated Statements of Income and Comprehensive Income.

~~In February 2016 the FASB issued ASU~~Update (ASU) No. 2016-02, "Leases (Topic 842)" (ASU 2016-02)., issued in February 2016 and the subsequently-issued codification improvements to Topic 842. 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 lease liability to(to make lease ~~payments (the lease liability)~~payments) and a right-of-use asset ~~representing~~(representing its right to use the underlying asset for the lease ~~term. When measuring assets~~term) on the balance sheet with terms greater than 12 months. The Company adopted ASU 2016-02 on a modified retrospective basis for all agreements existing as of February 1, 2019. Prior comparative periods have not been adjusted and ~~liabilities arising from a lease, a lessee (and a lessor) should include payments~~continue to be ~~made~~reported and disclosed under ASC Topic 840. This adoption did not have a material impact to the Company. As of February 1, 2019, the Company recognized a right-of-use asset for finance leases and operating leases of $233 and $3,807, respectively and a current and non-current lease liability of $1,446 and $2,571, respectively. As part of the adoption of ASU 2016-02, the Company elected the following practical expedient: short-term recognition exemption for all leases that qualify. Note disclosures required in ~~optional periods only if~~Topic 842 are reported in Note 11 Leases of the ~~lessee is reasonably~~Notes to the Consolidated Financial Statements in this Form 10-Q.

New Accounting Standards Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606" (ASU 2018-18). The amendments in ASU 2018-18 clarify that 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~~transactions between participants in collaborative arrangements 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~~accounted for as revenue under Topic 606, "Revenue from Contracts 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~~

(dollars in thousands, except per-share amounts)

~~assets~~ Customers,"and ~~lease liabilities. If~~precludes certain transactions that are not with a ~~lessee makes~~customer from using Topic 606. The amendments in this ~~election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is~~update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018. Lessees~~2019. Early adoption of this guidance is permitted in any interim period. The amendments should be applied retrospectively to the date Topic 606 was adopted. The Company is examining specific collaborative agreements to determine the impact, if any, the new guidance will have on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" (ASU 2018-13). The amendments in ASU 2018-13 remove, modify and ~~lessors~~add disclosures for companies required to make disclosures about recurring or nonrecurring fair value measurements under Topic 820. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of this guidance is permitted; however, the Company has the option to delay the adoption of the additional disclosures required until the effective date. Certain amendments in this guidance are required to ~~recognize~~be applied prospectively, and ~~measure leases~~others are to be applied retrospectively. The Company is evaluating the amendments in ASU 2018-13 to determine when it will adopt this guidance and the impact the guidance will have on the Company's disclosures for assets and liabilities reported at fair value on a recurring or nonrecurring basis.

In June 2016, the ~~beginning~~FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). Current GAAP generally delays recognition of the ~~earliest period presented using a modified retrospective approach.~~full amount of credit losses until the loss is probable of occurring. The ~~modified retrospective approach includes a number~~amendments in this guidance eliminate the probable initial recognition threshold and, instead, reflect an entity’s current estimate of ~~optional practical expedients that~~all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new standard is effective for annual reporting periods beginning after December 15, 2019. All entities may elect to ~~apply. An entity that elects to apply the practical expedients will, in effect, continue to account~~early adopt ASU 2016-13 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 eachannual reporting ~~date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.~~periods beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of ~~this guidance~~ASU 2016-13, including all subsequent amendments and improvements to ASC Topic 326 issued by FASB, will have on its consolidated financial statements ~~results of operations,~~ and associated disclosures.

In May 2014 the FASB issued ASU No. 2014-09, "Revenue from Contracts with 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. 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. The effective date and transition requirements for these amendments to Topic 606 are the same as ASU 2014-09. The Company is in its final stages of evaluating the impact that the standard will have on revenue recognition. The Company has reviewed contracts for all material revenue streams across the Company's three divisions, held discussions with key stakeholders, and assessed potential impacts on the Company’s consolidated financial statements, results of operations, disclosures, and internal controls over financial reporting. The Company currently recognizes a significant majority of its revenue across all three divisions at a point-in-time with some exceptions that are recognized over time. These exceptions primarily relate to certain revenue streams within the Aerostar Division and installation sales within the Engineered Films Division. Management expects that this will remain materially consistent upon adoption of the new standard, but has identified a few exceptions for which further evaluation is necessary, and for which the timing of revenue recognition could be impacted. Additionally, the Company expects to make additional disclosures related to the revenues arising from contracts with customers as required by the new standard. The Company will adopt this guidance in the first quarter of fiscal 2019 using the modified retrospective approach.

(dollars in thousands, except per-share amounts)

(3) SELECTED BALANCE SHEET INFORMATION

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



	April 30, 2019			January 31, 2019
Accounts receivable, net:
Trade accounts	$	62,539		$	53,820
Unbilled receivables	6,033			1,391
Allowance for doubtful accounts	(780		)	(739		)
	$	67,792		$	54,472
Inventories:
Finished goods	7,980			7,629
In process	1,219			1,103
Materials	48,843			45,344
	$	58,042		$	54,076
Other current assets:
Insurance policy benefit	318			336
Income tax receivable	1,418			1,045
Receivable from sale of investment	1,014			1,055
Prepaid expenses and other	4,513			6,300
	$	7,263		$	8,736
Property, plant and equipment, net:^(a)
Land	$	3,234		$	3,234
Buildings and improvements	81,527			81,381
Machinery and equipment	156,745			155,463
Right-of-use assets - finance	665			—
Accumulated depreciation	(136,935		)	(133,724		)
	105,236			106,354
Property, plant and equipment subject to capital leases:
Machinery and equipment	—			510
Accumulated amortization for capitalized leases	—			(249		)
	$	105,236		$	106,615
Other assets:
Equity investments	$	1,223		$	345
Right-of-use assets - operating	3,420			—
Deferred income taxes	60			16
Other	2,921			2,963
	$	7,624		$	3,324
Accrued liabilities:
Salaries and related	$	3,360		$	8,244
Benefits	5,097			4,751
Insurance obligations	1,856			1,963
Warranties	1,391			890
Income taxes	831			328
Other taxes	940			2,434
Acquisition-related contingent consideration	1,306			1,796
Lease liability	1,978			—
Other	2,678			3,072
	$	19,437		$	23,478
Other liabilities:
Postretirement benefits	$	7,652		$	7,678
Acquisition-related contingent consideration	2,650			2,376
Lease liability	2,648			—
Deferred income taxes	3,211			1,659
Uncertain tax positions	2,681			2,670
Other	4,170			3,852
	$	23,012		$	18,235

^(a) The amount of assets held for sale at April 30, 2019, and January 31, 2019, were not material.

(dollars in thousands, except per-share amounts)

(4) NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average common shares and fully vested 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 if their inclusion would have an antidilutive effect.~~

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

Three Months Ended Nine Months Ended
October 31,
2017 October 31,
2016 October 31,
2017 October 31,
2016
Anti-dilutive options and restricted stock units 338,244 653,513 385,157 922,041



	Three Months Ended
	April 30, 2019	April 30, 2018
Anti-dilutive options and restricted stock units	29,796	16,304

~~(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, 2017		October 31, 2016		October 31, 2017		October 31, 2016		April 30, 2019		April 30, 2018
Numerator:
Net income attributable to Raven Industries, Inc.	$	11,998	$	5,741	$	32,581	$	15,753	$	13,210	$	22,135

Denominator:
Weighted average common shares outstanding	35,829,880		36,076,259		36,002,024		36,164,468		35,962,066		35,826,096
Weighted average fully vested stock units outstanding	109,558		97,716		105,830		100,595		105,341		87,716
Denominator for basic calculation	35,939,438		36,173,975		36,107,854		36,265,063		36,067,407		35,913,812

Weighted average common shares outstanding	35,829,880		36,076,259		36,002,024		36,164,468		35,962,066		35,826,096
Weighted average fully vested stock units outstanding	109,558		97,716		105,830		100,595		105,341		87,716
Dilutive impact of stock options and restricted stock units	380,997		122,270		369,339		70,102		325,831		466,768
Denominator for diluted calculation	36,320,435		36,296,245		36,477,193		36,335,165		36,393,238		36,380,580

Net income per share ─ basic	$	0.33	$	0.16	$	0.90	$	0.43	$	0.37	$	0.62
Net income per share ─ diluted	$	0.33	$	0.16	$	0.89	$	0.43	$	0.36	$	0.61

(5) REVENUE

Disaggregation of Revenues

Revenue is disaggregated by major product category and geography, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following table includes a reconciliation of the disaggregated revenue by reportable segments. Service revenues are not material and are not separately disclosed.

(dollars in thousands, except per-share amounts)



	Revenue by Product Category
	Three Months Ended April 30, 2019											Three Months Ended April 30, 2018
	ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total
Lighter-than-Air
Domestic	$	—	$	—	$	7,029	$	—		$	7,029	$	—	$	—	$	6,548	$	—		$	6,548
International	—		—		34		—			34		—		—		454		—			454
Plastic Films & Sheeting
Domestic	—		41,762		—		(29		)	41,733		—		55,297		—		(194		)	55,103
International	—		2,530		—		—			2,530		—		4,695		—		—			4,695
Precision Agriculture Equipment
Domestic	29,584		—		—		—			29,584		29,525		—		—		—			29,525
International	12,141		—		—		—			12,141		10,905		—		—		—			10,905
Other
Domestic	—		—		5,122		—			5,122		—		—		3,899		—			3,899
International	—		—		5		—			5		—		—		—		—			—
Totals	$	41,725	$	44,292	$	12,190	$	(29	)	$	98,178	$	40,430	$	59,992	$	10,901	$	(194	)	$	111,129

~~(4) SELECTED BALANCE SHEET INFORMATION~~^(a)Intersegment sales for both fiscal 2020 and 2019 were primarily sales from Engineered Films to Aerostar.

~~Following~~Contract Balances

Contract balances consist of contract assets and contract liabilities. Contract assets primarily relate to the Company’s rights to consideration for work completed but not yet billed for at the reporting date, or retainage provisions on billings that have been issued. Contract liabilities primarily relate to consideration received from customers prior to transferring goods or services to the customer. Contract assets and contract liabilities are ~~the components of selected items from~~reported in "Accounts receivable, net" and "Other current liabilities" in the Consolidated Balance ~~Sheets:~~Sheets, respectively.

During the three months ended April 30, 2019, the Company’s contract assets and liabilities increased by $4,642 and $1,536, respectively. The increase was primarily a result of the contract terms which include timing of customer payments, timing of invoicing, and progress made on open contracts. Due to the short-term nature of the Company’s contracts, substantially all contract liabilities are recognized as revenue during the twelve months thereafter. Changes in our contract assets and liabilities were as follows:

October 31, 2017 January 31, 2017 October 31, 2016
Accounts receivable, net:
     Trade accounts $ 60,621
$ 43,834
$ 40,257
     Allowance for doubtful accounts (1,048 ) (691 ) (703 )
$ 59,573
$ 43,143
$ 39,554
Inventories:
Finished goods $ 7,063
$ 5,438
$ 5,686
In process 1,035
2,288
2,325
Materials 45,383
34,610
34,802

$ 53,481

$ 42,336

$ 42,813
Other current assets:
Insurance policy benefit $ 593
$ 802
$ 776
     Income tax receivable 269
604
228
Receivable from sale of business 17
28
71
     Prepaid expenses and other 3,031
1,255
1,672
$ 3,910
$ 2,689
$ 2,747
Property, plant and equipment, net:
Land $ 3,234
$ 3,054
$ 3,054
Buildings and improvements 80,009
77,817
78,674
Machinery and equipment 147,723
142,471
142,946
     Accumulated depreciation (125,315 ) (117,018 ) (115,726 )
$ 105,651
$ 106,324
$ 108,948
Other assets:
Equity method investments $ 1,884
$ 2,371
$ 2,346
Deferred income taxes 18
18
65
Other 1,024
1,283
1,335
$ 2,926
$ 3,672
$ 3,746
Accrued liabilities:
Salaries and related $ 6,464
$ 6,286
$ 3,931
Benefits 4,128
3,960
3,720
Insurance obligations 3,106
2,400
2,022
Warranties 1,217
1,547
1,852
Income taxes 1,668
498
332
Other taxes 1,446
1,540
1,230
Acquisition-related contingent consideration 815
445
396
Other 2,801
1,379
1,225
$ 21,645
$ 18,055
$ 14,708
Other liabilities:
Postretirement benefits $ 8,110
$ 8,054
$ 7,714
Acquisition-related contingent consideration 2,016
1,397
1,385
Deferred income taxes 393
1,421
257
Uncertain tax positions 2,584
2,610
2,778
Other 353
214
—
$ 13,456
$ 13,696
$ 12,134



	April 30, 2019		January 31, 2019		$ Change		% Change
Contract assets	$	6,669	$	2,027	$	4,642	229.0	%

Contract liabilities	$	2,839	$	1,303	$	1,536	117.9	%

Remaining Performance Obligations

~~(5) ASSETS HELD FOR SALE~~

The Company continually analyzes its product and service offerings to ensure we serve market segments with attractive near- and long-term growth prospects that are consistent with our core capabilities. Through this continued evaluation the Company's Aerostar segment finalized a plan ("the Plan") to actively market the saleAs of ~~its client private and radar product lines, which it has determined constitutes a business. During the second quarter of fiscal 2018~~April 30, 2019, the Company ~~determined that it was probable that these product lines would be sold within~~did not have any remaining performance obligations related to customer contracts with an original expected duration of one ~~year. The Company has identified specific assets and liabilities likely to be sold, including an allocation of goodwill based on~~year or more. Revenue recognized during the ~~relative fair value of~~three-month period ending April 30, 2019, from performance obligations satisfied in the ~~business to be sold. Currently, the Company estimates~~

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

the fair value of the net assets held for sale is in excess of their net book value. As such there is no impact to the Consolidated Statement of Income for the three- or nine-month periods ended October 31, 2017.

~~Under the Plan, Aerostar will remain focused on serving the aerospace/defense market with its stratospheric balloon product and service offerings.~~

~~Amounts classified as held for sale are as follows:~~

October 31, 2017
Assets held for sale
Inventories $ 3,000
Other current assets 79
Total current assets held for sale 3,079
Property, plant and equipment, net 227
Goodwill 102
Amortizable intangible assets, net 358
Other assets 17
Total assets held for sale $ 3,783

Liabilities held for sale

Current liabilities $ 392
Other long-term liabilities 127
Total liabilities held for sale $ 519

prior period were not material.

(6) ACQUISITIONS AND DIVESTITURES OF AND INVESTMENTS IN BUSINESSES AND TECHNOLOGIES

~~Colorado Lining International, Inc.~~Fiscal year 2020

There were no significant business acquisitions and divestitures or purchases of technologies in the three-month period ended April 30, 2019.

Fiscal year 2019

On ~~September~~January 1, ~~2017~~2019, the Company completed the acquisition of substantially all of the assets ("~~the acquisition"~~AgSync Acquisition") of ~~Colorado Lining International,~~AgSync Inc. ("AgSync"), ~~a Colorado~~an Indiana corporation, headquartered in ~~Parker, CO (“CLI”). The~~Wakarusa, Indiana. This acquisition ~~will immediately align~~was aligned under the Company’s ~~Engineered Films Division.~~Applied Technology Division and is expected to enhance its Slingshot® platform by delivering a more seamless logistics solution

(dollars in thousands, except per-share amounts)

for ag retailers, aerial applicators, custom applicators and enterprise farms. The acquisition enhances the Company’s geomembrane market position through extended service and product offerings with the addition of new design-build and installation service components, and will advance Engineered Films’ business model into a vertically-integrated, full-service solutions provider for the geomembrane market. The acquisitionAgSync Acquisition constitutes a business and, as such, was accounted for as a business ~~combination.~~combination; however, the business combination was not significant enough to warrant pro-forma financial information.

The purchase price was approximately ~~$15,088. This~~$9,700, which includes potential earn-out payments with an estimated fair value of ~~$1,256 which are~~$2,052. The earn-out is contingent upon achieving certain ~~revenues and operational synergies.~~revenue milestones. The ~~acquisition includes a working capital adjustment to be settled within ninety days after acquisition.~~

~~In the initial acquisition accounting, the fair value~~purchase price of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value of the identifiable assets acquired and liabilities assumed is reflected as ~~goodwill. Goodwill~~goodwill, which is fully tax deductible. The Company completed the valuation and the purchase price allocation during the first quarter of fiscal 2020. This resulted in an adjustment in the fiscal 2020 first quarter that increased the purchase price and the estimated fair value of the contingent earn-outs payments by approximately $300. The goodwill and identifiable intangible assets recorded as part of the purchase price allocation ~~was $5,941, all~~at April 30, 2019, were $4,526 and $5,700, respectively.

During the first quarter of fiscal 2019, Aerostar sold its client private business for $832, which ~~is tax deductible. Identifiable intangible assets acquired~~resulted in an immaterial gain in the three-months ended April 30, 2018. In fiscal 2018, Aerostar actively marketed the sale of its client private business and as ~~part~~such, classified it as held for sale.

In the first quarter of the acquisition were $610, including definite-lived intangibles, such as customer relationships and order backlog. The estimated fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted asfiscal 2019, the Company obtains additional information, primarily related to adjustments for the true up of acquired net working capital in accordance with the asset purchase agreement. If there are adjustments made for these items, the fair value of intangible assets and goodwill could be impacted. Thus, the provisional measurements of fair value are subject to change.

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

~~In February 2016, the Applied Technology Division acquired an~~sold its ownership interest of approximately 5%22% in ~~AgEagle Aerial Systems,~~Site-Specific Technology Development Group, Inc. ~~(AgEagle). AgEagle is~~(SST) with a ~~privately held company that is a provider~~carrying value of ~~unmanned aerial systems (UAS) used~~$1,937. This investment was being accounted 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 exclusive distributor of the existing AgEagle system as it pertains to the agriculture market. The Company’s equity ownership interest is considered a variable interest and it accounts for this investment under thean equity method investment. Raven received $6,556 in cash at closing which was reported as "Proceeds from sale or maturity of ~~accounting.~~investments" in the Consolidated Statements of Cash Flows. The Company ~~is not~~recognized a gain on 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~~

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

~~right to receive benefits~~sale of ~~the VIE that could potentially be significant to the entity. The purchase price was allocated between the equity ownership interest and an intangible asset~~$5,785 for the ~~exclusive distribution agreement. In~~three-months ended April ~~2017,~~30, 2018. The gain was reported in "Other income (expense), net" in the ~~Company determined that the investment~~Consolidated Statements of Income and Comprehensive Income. The gain included a fifteen percent hold-back provision held in ~~AgEagle, was fully impaired, further described~~an escrow account and is expected to be paid in ~~Note 7~~ ~~Goodwill, Long-lived Assets and Other Intangibles, due to lower than expected cash flows. The Company has no commitments or guarantees related to this equity method investment.~~fiscal 2020.

Acquisition-related Contingent Consideration

The Company has contingent liabilities related to the ~~recent~~ acquisition of ~~CLI,~~AgSync in fiscal 2019 as well as ~~the~~ prior acquisitions of Colorado Lining International, Inc. (CLI) in fiscal 2018; SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG) in ~~May 2014~~fiscal 2015; and Aerostar Technical Solutions, Inc. (ATS), formerly named Vista Research, Inc. ~~(Vista)~~or "Vista," completed in ~~January~~fiscal 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 cash flows. Projecting 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 as well as the appropriate discount rate. Such valuation techniques include one or more significant inputs that are not observable (Level 3 fair value measures).

Changes in the fair value of the liability for acquisition-related contingent consideration are as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Beginning balance	$	1,567		$	1,901		$	1,741		$	2,059		$	4,172		$	3,046
Fair value of contingent consideration acquired	1,256			—			1,256			—			310			—
Change in fair value of the liability	52			(165		)	198			(41		)	94			152
Contingent consideration earn-out paid	(44		)	(36		)	(364		)	(318		)	(620		)	(295		)
Ending balance	$	2,831		$	1,700		$	2,831		$	1,700		$	3,956		$	2,903

Classification of liability in the Consolidated balance sheet
Accrued Liabilities							$	815		$	315
Other Liabilities, long-term							2,016			1,385
Balance at October 31, 2017							$	2,831		$	1,700

Classification of liability in the consolidated balance sheet
Accrued liabilities													$	1,306		$	1,483
Other liabilities, long-term													2,650			1,420
Balance at April 30													$	3,956		$	2,903

For the AgSync Acquisition, the Company entered into a contingent earn-out agreement, not to exceed $3,500. The earn-out is to be paid annually over three years after the purchase date, contingent upon achieving certain revenue milestones. The Company has made no payments on this potential earn-out liability as of April 30, 2019.

In the ~~recent~~acquisition of CLI, ~~acquisition,~~ the Company entered into a contingent earn-out agreement, not to exceed $2,000. The earn-out is paid annually for three years after the purchase date, contingent upon achieving certain revenues and operational synergies. To date, the Company has ~~made no payments on~~paid a total of $667 of this potential earn-out liability.

(dollars in thousands, except per-share amounts)

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. To date, the Company has paid a total of ~~$847~~$1,564 of this potential earn-out liability.

Related to the acquisition of ~~Vista~~ATS in 2012, the Company iswas committed to making annual payments based upon earn-out percentages on specific revenue streams for seven years after the purchase ~~date, not~~date. The Company made the final payment in the first quarter of fiscal 2020 and has no further contingent obligations related to ~~exceed $15,000. To date, the Company has paid a total~~acquisition of ~~$1,572 of this potential earn-out liability.~~ATS.

(7) GOODWILL, LONG-LIVED ASSETS, AND OTHER CHARGES

Goodwill

~~Fiscal 2018~~

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. Management performed an assessment in the first quarter of fiscal ~~2018 third quarter~~2020 and determined that no triggering events had occurred for any of the Company's reporting units. There were no goodwill impairment losses reported in the ~~three-~~three-month periods ending April 30, 2019 and ~~nine-month periods ended October 31, 2017.~~

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

~~Fiscal 2017~~

In the fiscal 2017 third quarter the Company determined that a triggering event occurred for its Aerostar reporting unit, which had $789 of goodwill as of October 31, 2016. The triggering event was caused by lowering the financial expectations for net sales and operating income of the reporting unit and certain asset groups due to delays and uncertainties regarding the reporting unit’s pursuit of certain opportunities, including aerostat orders, certain classified stratospheric balloon pursuits, and radar pursuits. Aerostar was still actively pursuing these opportunities and some were in active negotiations, but the timing of certain aerostat and classified stratospheric balloon opportunities are being delayed more than previously expected and the likelihood of radar sales is lower due to the Company's decision to no longer actively pursue certain radar product opportunities.

AStep 1 impairment analysis was completed using fair value techniques as of October 31, 2016. In determining the estimated fair value of the Aerostar 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, 2016 analysis indicated that the estimated fair value of the Aerostar reporting unit exceeded the reporting unit carrying value by approximately $9,000, or approximately 30.0%. There were no goodwill impairment losses reported in the three- and nine-month periods ended October 31, 2016.2018, respectively.

The changes in the carrying amount of goodwill by reporting unit were as follows:

Applied
Technology

Engineered
Films
Aerostar Total
Balance at January 31, 2017 $ 12,342
$ 27,518
$ 789
$ 40,649
Additions due to business combinations —
5,941
—
5,941
Divestiture of business —
—
(52 ) (52 )
Foreign currency translation adjustment 214
—
—
214
Balance at October 31, 2017 $ 12,556
$ 33,459
$ 737
$ 46,752

Balance at January 31, 2016 $ 12,365
$ 27,518
$ 789
$ 40,672
Foreign currency translation adjustment 31
—
—
31
Balance at October 31, 2016 $ 12,396
$ 27,518
$ 789
$ 40,703



	Applied Technology			Engineered Films		Aerostar		Total
Balance at January 31, 2019	$	17,076		$	33,232	$	634	$	50,942
Changes due to business combinations	(33		)	—		—		(33		)
Foreign currency translation adjustment	(64		)	—		—		(64		)
Balance at April 30, 2019	$	16,979		$	33,232	$	634	$	50,845

Long-lived Assets and Other Intangibles

~~Fiscal 2018~~

The Company assesses the recoverability of long-lived assets, including definite-lived intangibles ~~equity method investments,~~ and property plant and equipment, if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, ~~the Company~~management performs impairment reviews by asset ~~groups.~~ group. Management periodically assesses for triggering events and discusses any significant changes in the utilization of long-lived assets. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

When performing long-lived asset testing, the fair values of assets are determined based on valuation techniques using the best available information. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures). An impairment loss is recognized when the ~~carrying amount of an asset is above the~~ estimated undiscounted cash flows used in determining the fair value of the ~~asset.~~asset are less than its carrying amount.

~~During~~Fiscal 2020 and 2019

Management performed an assessment in the fiscal 2020 and fiscal 2019 first quarter ~~of fiscal 2018, the Company~~and determined that there were no impairment indicators identified for any of the ~~investment in AgEagle, further described in Note 6~~ ~~Acquisitions of and Investments in Businesses and Technologies,~~ was impaired due to lower than expected cash flows. This impairment was determined to be other-than-temporary and an accelerated equity method investment loss of $72 was reported in "Other (expense), net" in the Consolidated Statements of Income and Comprehensive Income for the nine-month period ended October 31, 2017. The Company also determined the customer relationship intangibleCompany's asset related to the Ag Eagle exclusive distribution agreement was fully impaired. The total impairment loss reported related to this intangible asset was $259 and was reported in "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income for the nine-month period ended October 31, 2017.groups. There were no long-lived asset ~~impairments or accelerated equity method investment~~impairment losses reported in the three-month period ~~ended October 31, 2017.~~

~~Fiscal 2017~~

~~The Company evaluated the triggering events described in the goodwill impairment analysis~~ending April 30, 2019 and determined there were also triggering events with respect to the assets associated with the aerostat and stratospheric programs (Lighter than Air) and Radar asset groups in the Aerostar reporting unit in the third quarter, which resulted in an asset impairment test.

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

Using the sum of the undiscounted cash flows associated with each of the two asset groups, a Step 1 test was performed for each asset group. The undiscounted cash flows for the Lighter than Air asset group exceeded the carrying value of the long-lived assets by approximately $110,000, or 800%, and no Step 2 test was deemed to be necessary based on the recoverability of the long-lived assets. For the Radar asset group, however, the undiscounted cash flows did not exceed the carrying value of the long-lived assets and the Company performed a Step 2 impairment analysis for the long-lived assets.

In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the Radar asset group. The resulting estimated fair value of the Radar asset group long-lived assets was $175 compared to the carrying value of $262 for the asset group. The shortfall of $87 was recorded in the fiscal 2017 third quarter as an impairment charge to operating income reported as "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income. The total impairment loss related to property, plant, and equipment and patents was $62 and $25,2018, respectively.

The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets:


	October 31, 2017							January 31, 2017							October 31, 2016							April 30, 2019							January 31, 2019
			Accumulated							Accumulated							Accumulated							Accumulated							Accumulated
	Amount		amortization			Net		Amount		amortization			Net		Amount		amortization			Net		Amount		amortization			Net		Amount		amortization			Net
Existing technology	$	7,218	$	(6,854	)	$	364	$	7,136	$	(6,553	)	$	583	$	7,157	$	(6,490	)	$	667	$	9,179	$	(7,345	)	$	1,834	$	9,203	$	(7,216	)	$	1,987
Customer relationships	13,220		(4,503		)	8,717		12,987		(3,680		)	9,307		13,000		(3,421		)	9,579		16,076		(5,848		)	10,228		15,791		(5,508		)	10,283
Patents and other intangibles	4,708		(2,414		)	2,294		4,378		(2,220		)	2,158		4,427		(2,162		)	2,265		5,941		(2,025		)	3,916		5,908		(1,885		)	4,023
Total	$	25,146	$	(13,771	)	$	11,375	$	24,501	$	(12,453	)	$	12,048	$	24,584	$	(12,073	)	$	12,511	$	31,196	$	(15,218	)	$	15,978	$	30,902	$	(14,609	)	$	16,293

~~Inventory write-downs~~

~~During the fiscal 2017 third quarter, the Company wrote-down radar inventory, purchased primarily during fiscal 2016, due to the Company's decision~~

(dollars in the fiscal 2017 third quarter to no longer actively pursue certain radar opportunities. The decision to write-down this inventory is consistent with the triggering event identified during the fiscal 2017 third quarter relating to the Aerostar reporting unit and the radar product and radar services (Radar) asset group. This radar specific inventory write-down increased "Cost of sales" by $2,278 for the three- and nine-month periods ended October 31, 2016. There were no material inventory write-downs in the three- and nine-month periods ended October 31, 2017.thousands, except per-share amounts)

(8) EMPLOYEE POSTRETIREMENT BENEFITS

The Company provides postretirement medical and other benefits to certain current and past senior executive officers and senior managers. These plan obligations are unfunded. 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, 2017			October 31, 2016			October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Service cost	$	21		$	20		$	64		$	60		$	7		$	7
Interest cost	83			83			247			249			83			79
Amortization of actuarial losses	30			36			90			110			24			32
Amortization of unrecognized gains in prior service cost	(40		)	(40		)	(120		)	(120		)	(40		)	(40		)
Net periodic benefit cost	$	94		$	99		$	281		$	299		$	74		$	78

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 in accordance with ASU 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Postretirement Benefit Cost." Service cost is 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. Interest cost, amortization of actuarial gains or losses, and amortization of prior service cost are classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.

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

(9) 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, 2017			October 31, 2016			October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Beginning balance	$	2,265		$	2,076		$	1,547		$	1,835		$	890		$	1,163
Change in provision	(274		)	202			1,504			1,288			822			157
Settlements made	(774		)	(426		)	(1,834		)	(1,271		)	(321		)	(223		)
Ending balance	$	1,217		$	1,852		$	1,217		$	1,852		$	1,391		$	1,097

(10) FINANCING ARRANGEMENTS

The Company entered into a credit facility on April 15, 2015, with JPMorgan Chase Bank, N.A., Toronto Branch as Canadian Administrative Agent, JPMorgan Chase Bank, National Association, as administrative agent, and each lender from time to time a 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. Loan proceeds may be utilized by Raven for strategic business purposes, such as business acquisitions, and for net working capital needs. The Company expects to enter into a new credit facility prior to the Credit Agreement maturing in fiscal 2021.

Simultaneous with execution of the Credit Agreement, Raven and its subsidiaries 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.

~~Unamortized~~The unamortized debt issuance costs associated with this Credit Agreement were ~~$270, $352 and $379 at October 31, 2017, January 31, 2017, and October 31, 2016, respectively~~as follows:



	April 30, 2019		January 31, 2019
Unamortized debt issuance costs^(a)	$	105	$	132

^(a)Unamortized debt issuance costs are amortized over the term of the Credit Agreement and are ~~included in~~reported as "Other assets" in the Consolidated Balance Sheets.

(dollars in thousands, except per-share amounts)

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 includes annual administrative and unborrowed capacity fees. The Credit Agreement also 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. ~~The Company requested and received the necessary covenant waivers relating to its late filing of financial information in fiscal 2017.~~ Financial covenants include an interest coverage ratio and funded indebtedness to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. ~~The loan proceeds may be utilized by Raven for strategic business purposes and for working capital needs.~~

Letters of credit ~~(LOCs) totaling $1,103~~(LOC) issued and outstanding were ~~outstanding at October 31, 2017. Letters of Credit totaling $514 were outstanding at January 31, 2017, and October 31, 2016.~~ as follows:



	April 30, 2019		January 31, 2019
Letters of credit outstanding^(a)	$	314	$	514

^(a)Any draws required under the ~~LOCs~~LOC would be settled with available cash or borrowings under the Credit Agreement.

There were no borrowings under the 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 ~~October 31, 2017~~April 30, 2019, was ~~$123,947.~~$124,736.

(11) LEASES

The Company enters into operating and finance lease contracts related to facilities, vehicles and equipment. Operating leases are primarily related to facilities to support production, research and development, and sales efforts. Finance leases are primarily related to vehicles and equipment to support general business operations. Lease payments are typically fixed and carry lease terms of one to six years, some of which have an option to terminate or extend up to an additional ten years. For purposes of the quantitative disclosures below related to the calculation of operating and finance leases, lease terms did not include options to terminate or extend, as the Company is reasonably certain it would not exercise the options. Most of the Company's leases do not contain a purchase option, material residual value guarantee, or material restrictive covenants.

The Company is primarily a lessee in all lease arrangements but may become a lessor and lease or sublease certain assets to other entities if not fully utilized. These lessor activities are not material and are not separately disclosed.

To determine whether a contract is or contains a lease, the Company assessed its right to control the use of the identified asset, whether explicitly or implicitly stated, for a period of time while considering all facts and circumstances for each individual arrangement. The Company also has leases with non-lease components which are separately stated within the agreement and not included in the recognition of the right-of use asset and lease liability balances.

The discount rate used to calculate the present value of the lease liabilities is based upon the implied rate within each contract. If the rate is unknown or cannot be determined, the Company uses an incremental borrowing rate, which is determined by the length of the contract, asset class, and the Company's borrowing rates as of the commencement date of the contract.

Components of Company lease costs, including operating, finance, and short-term leasing are included in the table below. Depreciation of right-of-use assets, operating leases cost, and short-term lease costs are reported in net income as "Cost of sales," "Research and development expenses," or "Selling, general, and administrative expenses," depending on what business function the asset primarily supports. Interest on lease liabilitiesare classified as a non-operating expense in "Other income (expense), net" on the Consolidated Statements of Income and Comprehensive Income.

(dollars in thousands, except per-share amounts)



	Three Months Ended April 30, 2019
Lease Costs:
Finance Leases
Depreciation of right-of-use assets	$	95
Interest on lease liabilities	5
Total finance lease cost	$	100

Operating Leases
Operating lease cost	$	360
Short-term lease cost	105
Total operating lease cost	$	465
Total finance and operating lease cost	$	565

Supplemental unaudited balance sheet information related to operating and finance leases include:



	April 30, 2019
Operating Leases
Operating lease right-of-use assets	$	3,420

Current lease liability	$	1,689
Non-current lease liability	2,367
Total operating lease liabilities	$	4,056

Finance Leases
Property, plant and equipment, at cost	$	665
Accumulated depreciation	(95		)
Property, plant and equipment, net	$	570

Current lease liability	$	289
Non-current lease liability	281
Total finance lease liabilities	$	570

Weighted average remaining lease terms and discount rates include:



	April 30, 2019
Weighted Average Remaining Lease Term:
Operating leases	3 years
Finance leases	2 years
Weighted Average Discount Rate:
Operating leases	3.5	%
Finance leases	3.5	%

(dollars in thousands, except per-share amounts)

Supplemental unaudited cash flow information related to operating and finance leases include:



	Three Months Ended April 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	360
Operating cash flows from finance leases	5
Financing cash flows from finance leases	95

Right-of-use assets obtained in exchange for lease obligations:
Finance leases	$	190
Operating leases	—

Future operating and finance lease obligations that have not yet commenced as of April 30, 2019, were immaterial and excluded from the lease liability schedule below accordingly.



	Three Months Ended April 30, 2019
	Operating Leases			Finance Leases
Remainder of Fiscal 2020	$	1,353		$	284
Fiscal 2021	1,844			184
Fiscal 2022	679			101
Fiscal 2023	315			36
Fiscal 2024	99			6
Thereafter	—			—
Total lease payments	$	4,290		$	611
Less imputed interest	(234		)	(41		)
Total lease liabilities	$	4,056		$	570

Prior to the Company's adoption of ASU 2016-02 in the first quarter of fiscal year 2020, future minimum lease payments reported in the Company’s Annual Report on Form 10-K for the year ended January 31, 2019, were as follows:



	Twelve Months Ended January 31, 2019
	Operating Leases		Capital Leases
Fiscal 2020	$	2,213	$	182
Fiscal 2021	1,939		102
Fiscal 2022	728		44
Fiscal 2023	356		2
Fiscal 2024	140		—
Thereafter	—		—
Total lease payments	$	5,376	$	330
Less amount representing estimated executory costs such as taxes, license and insurance including profit thereon.			(14		)
Less amounts representing interest			(32		)
Present value of net minimum lease payments			$	284

(dollars in thousands, except per-share amounts)

(12) COMMITMENTS AND CONTINGENCIES

The Company is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its ~~business, the~~business; potential costs and ~~liability~~liabilities of which cannot be determined at this time. Among these matters is a patent infringement lawsuit filed in federal district court in Kansas, in which Capstan Ag Systems, Inc. has made certain infringement claims against the Company and one of its customers, CNH Industrial America LLC, related to the Applied Technology Division’s Hawkeye^®~~Nozzle Control System.~~ Management does not believe the ultimate outcomes of its legal proceedings are likely to be ~~significant~~material to its results of operations, financial position, or cash flows. ~~Additionally, because of~~In addition, the ~~present status of the lawsuit, management cannot determine the potential impact, if any, of the patent infringement lawsuit described above.~~

~~The~~ Company has insurance policies that provide coverage to various degrees for potential liabilities arising from legal proceedings.

The Company entered into a Gift Agreement ("the Agreement") effective in January 2018 with the South Dakota State University Foundation, Inc. ("the Foundation"). This gift will be used by South Dakota State University (SDSU), located in Brookings, SD, for the establishment of a precision agriculture facility to support SDSU's Precision Agriculture degrees and curriculum. This facility will assist the Company in further collaboration with faculty, staff and students on emerging technology in support of the growing need for precision agriculture practices and tools.

The Agreement states that the Company will make a $5,000 gift to the Foundation, conditional on certain actions. Management concluded that the contingencies related to this gift were substantially met during the three-month period ended April 30, 2018, and a liability had been incurred. As such, $4,503 of selling, general, and administrative expense was recognized in the three-month period ending April 30, 2018, with interest expense to be recognized in periods thereafter. The fair value of this contingency at April 30, 2019, was $3,230 (measured based on the present value of the expected future cash outflows), of which $697 was classified as "Accrued liabilities" and $2,533 was classified as "Other liabilities." As of April 30, 2019, the Company has made payments related to the commitment totaling $1,430.

In addition to commitments disclosed elsewhere in the Notes to the ~~unaudited~~ Consolidated Financial Statements, the Company has other unconditional purchase obligations that arise in the normal course of business operations. The majority of these obligations are related to the purchase of raw material inventory for the Applied Technology and Engineered Films divisions.

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

~~(12)~~(13) INCOME TAXES

The Company’s effective tax rate varies from the federal statutory rate, primarily due to state and local taxes, research and development tax credit, ~~tax benefits on qualified production activities,~~foreign-derived intangible income deduction, and tax-exempt insurance premiums. The Company’s effective tax rates ~~for the nine-month periods ended October 31, 2017 and 2016~~ were ~~31.3% and 26.9%, respectively.~~ as follows:



	Three Months Ended
	April 30, 2019		April 30, 2018
Effective tax rate	12.2	%	18.6	%

The ~~increase~~decrease in the effective tax rate year-over-year is primarily due to ~~higher pre-tax income~~discrete items in the current ~~year~~year. The Company’s effective tax rates, excluding discrete items, in the three-month periods ended April 30, 2019, and ~~recognition of~~2018, were 20.0 percent and 19.5 percent, respectively.

The Company’s total discrete tax ~~expense related~~items for both three-month periods in the table below relate to the ~~Company's adoption~~vesting or settlement of ~~ASU 2016-09 in the fiscal 2018 as further discussed in Note 2~~ equity awards.



	Three Months Ended
	April 30, 2019		April 30, 2018
Total discrete tax benefit	$	1,168	$	243

~~Summary~~

The Company operates both domestically and internationally. As of ~~Significant Accounting Policies. This ASU requires that the tax effects resulting~~April 30, 2019, undistributed earnings from the ~~settlement of stock-based awards be recognized as a discrete income tax expense or benefit in the income statement in the reporting period in which they occur.~~Company's foreign subsidiaries were considered to have been reinvested indefinitely.

~~(13)~~

(dollars in thousands, except per-share amounts)

(14) DIVIDENDS AND TREASURY STOCK

Dividends paid to Raven shareholders ~~for the three- and nine-month periods ended October 31, 2017~~ were $4,648 and $14,032, or 13.0 cents and 39.0 cents per share, respectively. Dividends paid to Raven shareholders for the three- and nine-month periods ended October 31, 2016 were $4,690 and $14,078, or 13.0 cents and 39.0 cents per share, respectively. as follows:



	Three Months Ended
	April 30, 2019		April 30, 2018
Dividends paid^(a)	$	4,682	$	4,658

Dividends paid per share (in cents per share)^(a)	13.0		13.0

^(a)There were no declared and unpaid shareholder dividends at ~~October 31, 2017~~April 30, 2019 or ~~2016.~~2018.

~~Effective March 21, 2016~~On November 3, 2014, the Company announced that its Board of Directors ~~(Board)~~("Board") had authorized ~~an extension and increase of the authorized~~a $40,000 stock buyback program. Since that time, the Board has provided additional authorizations to increase the total amount authorized under the program ~~in place at that time.An additional $10,000 was authorized for share repurchases once the $40,000 authorization limit is reached.~~

~~Pursuant~~ to ~~these authorizations, the Company repurchased 348,286 shares, or $10,000, in the three- and nine-month periods ended~~ ~~October 31, 2017.~~ ~~The Company repurchased~~ 484,252 shares, or $7,702, in the nine-month period ended October 31, 2016. None of these shares were repurchased in the three-month period ended October 31, 2016. There were no share repurchases unpaid at October 31, 2017 or October 31, 2016. ~~The remaining dollar value authorized for share repurchases at~~ ~~October 31, 2017~~ ~~is $2,959~~.$75,000. 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~~Pursuant to these authorizations, the Company ~~reserves~~repurchased60,700 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 months endedOctober 31, 2017~~ ~~and~~ ~~October 31, 2016~~.

~~Stock Option Awards~~

The Company granted 85,800 non-qualified stock options during the nine-month period ended October 31, 2017. The Company granted 274,200 non-qualified stock options during the nine-month period ended October 31, 2016. None of these options were granted$2,281 in the three-month ~~periods~~period ended October 31, 2017 and October 31, 2016, respectively. Options are granted with exercise prices based upon the closing market price of the Company's common stock on the day prior to 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, as well as termination without cause provisions for certain executive officers, which 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.

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

Nine Months Ended
October 31, 2017 October 31, 2016
Risk-free interest rate 1.68 % 1.05 %
Expected dividend yield 1.78 % 3.33 %
Expected volatility factor 33.87 % 32.61 %
Expected option term (in years) 4.25
4.00

Weighted average grant date fair value $7.35 $3.05

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

~~Restricted Stock Unit Awards (RSUs)~~

The Company granted 4,593 and 60,413 time-vested RSUs to employees in the three- and nine-month periods ended October 31, 2017, respectively. The Company granted 4,577 and 70,947 time-vested RSUs to employees in the three- and nine-month periods ended October 31, 2016, respectively. 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 periods ended October 31, 2017 and 2016, respectively, was $29.25 and $15.94. 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, as well as termination without cause provisions for certain executive officers, which 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 periods ended~~ ~~October 31, 2017~~ ~~and 2016, respectively. The exact number of performance~~April 30, 2019. There were no 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 2017 and 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 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, as well as termination without cause provisions for certain executive officers, which 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 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. During the nine-month periods ended ~~October 31, 2017~~ ~~and~~ ~~2016, the Company granted 22,745 and 72,950 performance-based RSUs, respectively. None of these awards were granted~~repurchased in the three-month ~~periods~~period ended ~~October 31, 2017 and 2016.~~ April 30, 2018. There were no share repurchases unpaid at April 30, 2019, or April 30, 2018. The ~~weighted average grant date fair~~remaining dollar value ~~per~~authorized for share ~~of these performance-based RSUs granted in the periods ended October 31, 2017 and 2016, respectively, was $29.20 and $15.61.~~repurchases at April 30, 2019, is$25,679.

(15) SHARE-BASED COMPENSATION

Share-based compensation expense is recognized based on the fair value of the share-based awards expected to vest during the period.

The share-based compensation expense was as follows:



	Three Months Ended
	April 30, 2019		April 30, 2018
Cost of sales	$	76	$	80
Research and development expenses	35		31
Selling, general, and administrative expenses	671		676
Total stock-based compensation expense	$	782	$	787

(16) SEGMENT REPORTING

The Company's operating segments, which are also its reportable segments, are defined by their product lines which have been generally grouped ~~in these segments~~ based on technology, manufacturing processes, and end-use application. ~~Raven's~~The Company's reportable segments are Applied Technology Division, Engineered Films Division, and Aerostar. The Company measures the performance of its segments based on their operating income excluding general and administrative 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.Aerostar Division. Separate financial information is available for each reportable segment and regularly evaluated by the Company's chief operating decision-maker, ~~(CODM),~~ the President and Chief Executive Officer, in making resource allocation decisions for the Company's reportable segments. The Company measures the performance of its segments based on their operating income excluding administrative and general expenses. Other income, interest expense, and income taxes are not allocated to individual operating segments. Segment information is reported consistent with the Company's management reporting structure.

(dollars in thousands, except per-share amounts)

Business segment ~~net sales~~financial performance and ~~operating income results are~~other information is as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Net sales
Applied Technology	$	25,319		$	25,203		$	94,233		$	79,327		$	41,725		$	40,430
Engineered Films(a)	65,108			38,551			157,691			104,307			44,292			59,992
Aerostar	11,103			9,003			30,078			25,313			12,190			10,901
Intersegment eliminations ^(a)(b)	(181		)	(235		)	(508		)	(467		)	(29		)	(194		)
Consolidated net sales	$	101,349		$	72,522		$	281,494		$	208,480		$	98,178		$	111,129

Operating income (loss)^(b)
Operating income^(c)
Applied Technology	$	5,357		$	6,415		$	25,447		$	20,280		$	13,236		$	15,948
Engineered Films	17,115			7,129			35,386			17,666			6,363			13,196
Aerostar^(c)	1,359			(1,375		)	4,165			(1,804		)	1,996			2,805
Intersegment eliminations	(12		)	(16		)	(3		)	(21		)	1			(15		)
Total reportable segment income	23,819			12,153			64,995			36,121			21,596			31,934
General and administrative expenses^(d)(c)	(5,990		)	(4,764		)	(17,247		)	(13,986		)	(6,475		)	(10,403		)
Consolidated operating income	$	17,829		$	7,389		$	47,748		$	22,135		$	15,121		$	21,531

^(a) Hurricane recovery film sales for the three-month period ended April 30, 2019 and 2018, were $17and$8,919, respectively.

^(b)Intersegment sales for both fiscal ~~2018~~2020 and ~~2017~~2019 were primarily sales from Engineered Films to Aerostar.

^(b)(c)At the segment level, operating income ~~(loss) does not include an allocation of general and administrative expenses.~~

^(c)~~The three- and nine-month periods ended October 31, 2016 include inventory write-downs of $2,278 as a result of a strategic decision to narrow certain radar product offerings.~~

^(d) ~~At the segment level, operating income (loss)~~ does not include an allocation of general and administrative expenses and, as a result, "General and administrative expenses" are reported as a deduction from "Total reportable segment income" to reconcile to "Operating income" reported in the Consolidated Statements of Income and Comprehensive Income.

~~(16)~~(17) SUBSEQUENT EVENTS

The Company has evaluated events up to the filing date of this Quarterly Report on Form 10-Q and concluded that no subsequent events have occurred that would require recognition or disclosure in the Notes to the Consolidated Financial Statements.

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, ~~2017.~~2019.

The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is organized as follows:

Executive Summary

Results of Operations - Segment Analysis

Outlook

Liquidity and Capital Resources

Off-Balance Sheet Arrangements and Contractual Obligations

Critical Accounting Policies and Estimates

Accounting Pronouncements

EXECUTIVE SUMMARY

Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, geomembrane, construction, aerospace/defense and ~~situational awareness~~commercial lighter-than-air markets. The Company is comprised of three unique operating ~~divisions,~~units, classified into reportable segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films), and Aerostar Division (Aerostar). Segment information is reported consistent with the Company's management reporting structure.

Management uses a number of metrics to assess the Company's performance:

Consolidated net sales, gross margin, operating income, operating margin, net income, and diluted earnings per ~~share~~share.

Cash flow from operations and shareholder ~~returns~~returns.

Return on sales, average assets and average equity.

Segment net sales, gross profit, gross margin ~~operating income,~~ and operating ~~margin.~~income. At the segment level, operating income does not include an allocation of general and administrative expenses.

Vision and Strategy

~~At Raven, our~~Raven's purpose is to solve great challenges. Great challenges require great solutions. Raven’s three unique ~~operating units~~divisions 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.

The Raven business model is our platform for success. ~~Our~~Raven's 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~~diverse market segments with ~~attractive near-~~strong short- and long-term growth ~~prospects;~~prospects.

~~Consistently manage a pipeline~~Diversified portfolio of ~~growth initiatives within our market segments;~~businesses provide balance, opportunity and risk mitigation.

~~Aggressively compete on quality, service, innovation,~~Invest in market-leading technologies and ~~peak performance;~~manufacturing capabilities.

~~Hold ourselves accountable for continuous improvement;~~

~~Value our balance~~Balance sheet ~~as a source of~~ strength and stability ~~with which~~enables strategic investments and acquisitions to ~~pursue strategic acquisitions; and~~enhance shareholder returns.

~~Make corporate~~Corporate responsibility is a top ~~priority.~~priority; it attracts great team members, customers and opportunities.

Continuous process improvements and value engineering.

The following discussion highlights the consolidated operating results for the ~~three-~~three-month period ended April 30, 2019 and ~~nine-month periods ended October 31, 2017 and 2016.~~2018. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.


	Three Months Ended								Nine Months Ended									Three Months Ended
(dollars in thousands, except per-share data)	October 31, 2017			October 31, 2016			% Change		October 31, 2017			October 31, 2016			% Change			April 30, 2019			April 30, 2018			% Change
Net sales	$	101,349		$	72,522		39.7	%	$	281,494		$	208,480		35.0	%		$	98,178		$	111,129		(11.7	)%
Gross profit	33,333			19,839			68.0	%	91,802			58,871			55.9	%		35,066			39,998			(12.3	)%
Gross margin ⁽^a⁾	32.9		%	27.4		%			32.6		%	28.2		%				35.7		%	36.0		%
Operating income	$	17,829		$	7,389		141.3	%	$	47,748		$	22,135		115.7	%		$	15,121		$	21,531		(29.8	)%
Operating margin ⁽^a⁾	17.6		%	10.2		%			17.0		%	10.6		%				15.4		%	19.4		%
Other income (expense), net																		$	(69	)	$	5,679
Net income attributable to Raven Industries, Inc.	$	11,998		$	5,741		109.0	%	$	32,581		$	15,753		106.8	%		$	13,210		$	22,135		(40.3	)%
Diluted earnings per share	$	0.33		$	0.16				$	0.89		$	0.43					$	0.36		$	0.61

Cash flow from operating activities	$	10,973		$	13,127		(16.4	)%	$	30,834		$	38,685		(20.3	)%		$	8,762		$	13,603		(35.6	)%
Cash outflow for capital expenditures	$	1,780		$	1,733		2.7	%	$	7,003		$	3,901		79.5	%		$	(1,570	)	$	(4,164	)	(62.3	)%
Cash dividends	$	4,648		$	4,720		(1.5	)%	$	14,032		$	14,148		(0.8	)%		$	(4,682	)	$	(4,658	)	0.5	%
Common share repurchases	$	10,000		$	—				$	10,000		$	7,702		29.8	%		$	(2,281	)	$	—

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

Consolidated Results

For the fiscal ~~2018 third~~2020 first quarter, net sales were ~~$101.3~~$98.2 million, ~~up $28.8~~down $13.0 million, or ~~39.7%~~11.7%, from ~~$72.5~~$111.1 million in last year’s ~~third~~first quarter. Hurricane recovery film sales declined $8.9 million in the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019. Both Applied Technology and Aerostar achieved year-over-year sales growth, but the decline in net sales from Engineered Films drove the consolidated result. Engineered Films' net sales were adversely impacted in the first quarter by temporary operational inefficiencies associated with the go-live on a new enterprise resource planning (ERP) platform and weather related impacts which forced production shutdowns and delayed delivery of certain raw materials. The Company estimates these factors negatively impacted Engineered Films' net sales in the first quarter by approximately $4.5 million.

The Company's operating income for the ~~third~~first quarter of fiscal ~~2018~~2019 was ~~$17.8~~$15.1 million, ~~up $10.4~~down $6.4 million, or ~~141.3%~~29.8%, compared to the ~~third~~first quarter of fiscal ~~2017.~~2019. The ~~increase~~year-over-year decrease was primarily due to negative operating leverage as a result of lower sales volume. Sales volume was down significantly in Engineered Films due to prior year abnormally high hurricane recovery film sales, the post go-live temporary operational inefficiencies, and weather related impacts to production. Increased investment in research and development activities in both Applied Technology and Aerostar also negatively impacted operating income ~~was principally due to improved operating leverage on higher sales volume.~~ versus the prior year.

Net income for the ~~third~~first quarter of fiscal ~~2018~~2020 was ~~$12.0~~$13.2 million, or ~~$0.33~~$0.36 per diluted share, compared to net income of ~~$5.7~~$22.1 million, or ~~$0.16~~$0.61 per diluted share, ~~in last year's third quarter.~~

For the nine-month period, net sales were $281.5 million compared to $208.5 million, up 35.0% from one year earlier. The Company's operating income was $47.7 million, up 115.7% from the prior year period. The increase in operating income was principally due to improved operating leverage on higher sales volume. Net income for the first nine months of fiscal 2018 was $32.6 million, or $0.89 per diluted share, compared to net income of $15.8 million, or $0.43 per diluted share, for the first nine

months of fiscal 2017. The year-to-date increase in earnings per share was driven by improved performance in all three of the Company's reporting segments, with each making significant contributions to the growth.

Net sales for Applied Technology in the third quarter of fiscal 2018 were $25.3 million, up slightly compared to fiscal 2017 third quarter net sales of $25.2 million. Sales in the original equipment manufacturer (OEM) channel were up 10.3% while sales in the aftermarket channel were down 10.1% for the fiscal 2018 third quarter. Geographically, domestic sales were up 3.2% year-over-year while international sales decreased 8.8% year-over-year. Operating income was $5.4 million, down 16.5% compared to $6.4 million in the third quarter of fiscal 2017. The decrease in operating income was primarily driven by higher investment in the sales function and research and development activities, and higher legal expenses. These strategic investments will support the Company's long-term growth through new product introductions and an enhanced sales function.

Applied Technology's net sales for the first nine months of fiscal 2018 were $94.2 million, up 18.8% compared to the first nine months of fiscal 2017. For the nine-month period ended October 31, 2017, sales in the OEM channel were up 39.2% while sales in the aftermarket channel were up 3.1%. Geographically, domestic sales were up 26.3% year-over-year and international sales were up 0.4% year-over-year. Operating income for the nine-month year-to-date period was $25.4 million, up 25.5% compared to the nine-month year-to-date period of fiscal 2017. The increase in operating income was primarily driven by improved operating leverage on higher sales volume.

Engineered Films’ fiscal 2018 third quarter net sales were $65.1 million, an increase of $26.5 million, or 68.9%, compared to fiscal 2017 third quarter net sales of $38.6 million. Volume, measured in pounds sold, increased 52.6% and average selling price increased 4.5%. There was a significant increase in net sales to all markets. Operating income for the third quarter of fiscal 2018 increased 140.1% to $17.1 million as compared to $7.1 million for the prior year third quarter. This increase in operating income was driven primarily by higher sales volume, improved capacity utilization, and continued spending discipline.

For the nine-month period ended October 31, 2017, Engineered Films' net sales were $157.7 million, an increase of $53.4 million, or 51.2%, versus the prior year comparative period. All markets contributed to the division's higher sales versus the prior year. Operating income for the first nine months of fiscal 2018 increased 100.3% to $35.4 million as compared to $17.7 million in the prior year comparative period. Included in the prior year's first quarter results on a pre-tax basis was an expense associated with a gift to South Dakota State University of $4.5 million ($3.7 million after-tax, or $0.10 per diluted share) and a non-operating gain on the sale of the Company's ownership interest in Site-Specific Technologies (SST) of $5.8 million ($4.7 million after-tax, or $0.13 per diluted share). The ~~year-over-year increase~~net impact of these two non-recurring events to the prior year's first quarter was a favorable $0.03 per diluted share. In addition, this year's first quarter net income benefited from approximately $1 million ($0.03 per diluted share) in ~~operating income was driven principally~~favorable discrete tax items which reduced the Company's effective tax rate by ~~higher sales volume, improved capacity utilization, and continued spending discipline.~~approximately 6 percentage points year-over-year.

~~Net~~Applied Technology Division Results

Applied Technology's net sales ~~for Aerostar~~ in the ~~third~~first quarter of fiscal ~~2018~~2020 were ~~$11.1~~$41.7 million, ~~an increase of $2.1~~up $1.3 million from last year's first quarter. Geographically, international sales were up 11.3% year-over-year, and domestic sales were flat year-over-year. International sales growth was driven primarily by strong growth in Latin America, particularly Brazil.

Operating income for Applied Technology was $13.2 million, down $2.7 million or ~~23.3%~~17.0% compared to $15.9 million in the first quarter of fiscal 2019. Increased research and development investment along with integration and acquisition expenses related to the acquisition of AgSync, Inc. (AgSync) drove the year-over-year decrease. In addition, first quarter operating income in the prior year benefited from favorable legal recoveries which did not repeat in the first quarter of this year.

Engineered Films Division Results

Engineered Films’ fiscal 2020 first quarter net sales were $44.3 million, a decrease of $15.7 million, or 26.2%, compared to fiscal ~~2017 third~~2019 first quarter net sales of ~~$9.0~~$60.0 million. ~~The increase~~Included in the prior year's first quarter net sales was ~~primarily driven by growth~~$8.9 million of hurricane recovery film sales which did not reoccur in the ~~stratospheric balloon platform. Operating income in the third~~first quarter of fiscal ~~2018 was $1.4 million compared to an~~2020. During the first quarter, the division went live on its new ERP platform and experienced a temporary reduction in operating ~~loss of ($1.4)~~efficiencies. This resulted in delays in processing and fulfilling certain orders during the first quarter. The Company estimates that approximately $2.5 million in sales were pushed into future quarters as a result. Additionally, power outages caused by an ice storm resulted in an unexpected two-day plant shutdown in the ~~third~~first quarter. The Company estimates this shutdown reduced division sales in the first quarter of ~~last year. Fiscal 2018 third~~fiscal year 2020 by approximately $2 million. Together, these temporary operational challenges are estimated to have negatively impacted the division's first quarter ~~results include charges of~~net sales by approximately $0.9 million related primarily to a strategic decision to narrow aerostat offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. Fiscal 2017 third quarter results include an inventory write-down adjustment of $2.3 million related to certain radar inventory. The remaining increase in operating income was driven by higher sales and reductions to operating expenses while maintaining a more focused approach to research and development spending.$4.5 million.

~~Aerostar net sales for the first nine months of fiscal 2018 were $30.1 million, an increase of $4.8 million, or 18.8%, compared to the first nine months of fiscal 2017.~~ Operating income for Engineered Films in the ~~nine-month year-to-date period~~first quarter of fiscal ~~2018 was $4.2~~2020 decreased 51.8% to $6.4 million as compared to ~~operating loss of ($1.8)~~$13.2 million in the prior year ~~comparative period.~~first quarter. The year-over-year decrease was driven primarily by lower sales volume, including the significant reduction in hurricane recovery film sales, and the corresponding negative operating leverage. In addition, the temporary operational challenges also had an unfavorable impact to division operating income.

Aerostar Division Results

Aerostar net sales in the first ~~nine months~~quarter of fiscal ~~2018 include charges~~2020 were $12.2 million, an increase of ~~approximately $0.9~~$1.3 million, ~~related primarily~~or 11.8%, compared to ~~a strategic decision to narrow aerostat offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. The~~fiscal 2019 first ~~nine months~~quarter net sales of ~~fiscal 2017 include an inventory write-down adjustment of $2.3 million related to certain radar inventory. The remaining~~$10.9 million. This increase ~~in operating income~~ was driven by improved stratospheric balloon and radar sales. Deliveries on the previously announced five-year $36 million radar contract drove growth in radar sales in the first quarter.

Operating income for Aerostar in the first quarter of fiscal 2020 was $2.0 million compared to $2.8 million in the first quarter of last year. The division achieved year-over-year growth in gross profit on higher sales ~~and reductions~~volume; however, division profit decreased due to ~~operating expenses while maintaining a more focused approach to~~purposeful increased investment in research and development ~~spending.~~activities to further advance its engineering services and flight operations capabilities.

RESULTS OF OPERATIONS - SEGMENT ANALYSIS

Applied Technology

Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools, which are collectively referred to as precision agriculture equipment, that help ~~growers~~farmers reduce costs, more precisely control inputs, and improve ~~crop~~farm yields for the global agriculture market. ~~Applied Technology’s operations include operations of SBG Innovatie BV and its affiliate, Navtronics BVBA (collectively, SBG), based in the Netherlands.~~


	Three Months Ended											Nine Months Ended											Three Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			$ Change			% Change		October 31, 2017			October 31, 2016			$ Change		% Change			April 30, 2019			April 30, 2018			$ Change			% Change
Net sales	$	25,319		$	25,203		$	116		0.5	%	$	94,233		$	79,327		$	14,906	18.8	%		$	41,725		$	40,430		$	1,295		3.2	%
Gross profit	10,790			10,636			154			1.4	%	41,554			32,911			8,643		26.3	%		21,337			21,186			151			0.7	%
Gross margin	42.6		%	42.2		%						44.1		%	41.5		%						51.1		%	52.4		%
Operating expenses	$	5,433		$	4,221		$	1,212		28.7	%	$	15,848		$	12,631		$	3,217	25.5	%		$	8,101		$	5,238		$	2,863		54.7	%
Operating expenses as % of sales	21.5		%	16.7		%						16.8		%	15.9		%						19.4		%	13.0		%
Long-lived asset impairment loss	$	—		$	—							$	259		$	—
Operating income (loss)⁽¹⁾	$	5,357		$	6,415		$	(1,058	)	(16.5	)%	$	25,447		$	20,280		$	5,167	25.5	%
Operating income^(a)																							$	13,236		$	15,948		$	(2,712	)	(17.0	)%
Operating margin	21.2		%	25.5		%						27.0		%	25.6		%						31.7		%	39.4		%
⁽¹⁾ At the segment level, operating income does not include an allocation of general and administrative expenses.
^(a)At the segment level, operating income does not include an allocation of general and administrative expenses.																						^(a)At the segment level, operating income does not include an allocation of general and administrative expenses.

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

•

Market conditions. ~~Aftermarket sales channel demand remains subdued,~~The U.S. ag market is experiencing a very challenging start to the 2019 growing season. Wet, cool weather and ~~growth~~abnormal flooding in North America have delayed and shortened the 2019 planting season. This has unfavorably impacted Applied Technology, as the division's core customers, ag retailers, were limited in the ~~OEM sales channel has become more challenging in~~amount of field application activities that could be performed during the ~~third~~first quarter of fiscal ~~2018. Although agriculture end market~~2020. Due to these challenging field conditions, ~~deteriorated~~some ag retailers expect to experience double-digit declines in sales during calendar year 2019, and this will likely impact the amount they invest in new machines or technology upgrades in the ~~third quarter~~aftermarket. We expect this to impact the planned number of ~~fiscal 2018,~~new machine builds for some OEMs this year. While unfavorable, these circumstances are expected to be short-term in nature, as the ~~Company believes that overall the division~~long-term demand for precision agriculture technology is holding market share across product lines. Despite these challenging conditions, Applied Technology's marketplace strategy has capitalized on new product introductions through the first nine months of fiscal 2018. Successful new product introductions and expanded relationships with OEM partners are driving improved sales and market share gains versus the prior year.expected to grow considerably.

•

Sales ~~volume.~~volume and selling prices. ~~Third~~First quarter fiscal ~~2018~~2020 net sales ~~were up slightly compared~~increased $1.3 million or 3.2%, to $25.2 million in the third quarter of the prior year. Sales in the original equipment manufacturer (OEM) channel were up 10.3% while sales in the aftermarket channel were down 10.1% for the fiscal 2018 third quarter. Year-to-date sales increased 18.8% to $94.2$41.7 million compared to ~~$79.3~~$40.4 million in the prior year. ~~For~~Higher sales volume of both new and existing products, rather than a change in selling price, was the ~~nine months ended October 31, 2017,~~primary driver of this increase. Geographically, international sales were up 11.3% year-over-year, and domestic sales were flat year-over-year. International sales growth was driven primarily by strong growth in Latin America, particularly Brazil. The Company does not generally model comparative market share position for its divisions, but the Company believes Applied Technology has increased its market share in the OEM channel were up 39.2% while sales in the aftermarket channel were up 3.1% versus the prior year comparative period. The increases in net sales in the three- and nine-month periods were primarily driven by volume as pricing had minimal impact.first quarter of fiscal 2020.

•

International sales. For the ~~three-month period,~~first quarter of fiscal 2020, international sales totaled ~~$5.2~~$12.1 million, ~~down 8.8%~~up 11.3% from ~~$5.7~~$10.9 million in the prior year comparative period. ~~Lower sales volume in Canada, and Europe were the primary drivers of this decrease.~~ International sales represented ~~20.7%~~29.1% of segment revenue compared to ~~22.8%~~27.0% of segment revenue in the prior year comparative period. Year-to-date, international sales totaled $23.2 million, an increase of $0.1 million from a year ago. Year-to-date international sales represented 24.6% of segment sales compared to 29.1% in the prior year comparative period. Higher salesStrong growth in Latin America, ~~Europe,~~particularly Brazil, drove the year-over-year increase. Sales to this key agricultural region are growing largely due to the investment in and ~~Australia were mostly offset by a decrease~~establishment of the division's Latin America headquarters in ~~Canada. The sales increases~~Brazil in ~~Europe reflect commercial synergies realized by~~ the ~~acquisition~~first quarter of ~~SBG in fiscal 2015 as Applied Technology products are increasingly sold into this market.~~last year.

•

Gross margin. Gross margin ~~increased to 42.6% for the three months ended October 31, 2017~~decreased from ~~42.2%~~52.4% in the prior year ~~comparative period. For the nine-month period ended October 31, 2017 gross margin increased~~first quarter to ~~44.1% from 41.5%~~51.1% in the first quarter of fiscal ~~2017 comparative period.~~2020. The ~~nine-month~~year-over-year decrease in profitability for the three-month period ~~benefited more from~~was driven primarily by higher ~~sales volume and improved operating leverage.~~material related expenses.

•

Operating expenses. Fiscal ~~2018 third~~2020 first quarter operating expense as a percentage of net sales was ~~21.5%~~19.4%, up from 16.7% in the prior year third quarter. This increase is primarily driven by higher investment in the sales function and research and development activities, and higher legal expenses. These strategic investments will support the Company's long-term growth through new product introductions and an enhanced sales function. Year-to-date operating expense as a percentage of net sales was 16.8%, up from 15.9%13.0% in the prior year comparative period. The increase infor the ~~nine-month~~three-month period iswas driven primarily by ~~investment in~~increased research and development investment along with integration and ~~selling and marketing~~acquisition expenses related to ~~new product introductions and to enhance our customer experience.~~

•

~~Long-lived asset impairment loss. As described~~the acquisition of AgSync. Additionally, prior year operating expenses benefited from favorable legal recoveries which did not repeat in ~~Note 7~~ ~~Goodwill, Long-lived Assets, and Other Intangibles~~ ~~of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q, during~~ the first quarter of fiscal 2018 the Company determined that the intangible asset related to the investment in AgEagle was fully impaired due to the decrease in expected future cash flows. No impairments were recognized in the three-month period ended October 31, 2017 or the three- or nine-month periods ended October 31, 2016.this year.

Engineered Films

Engineered Films ~~manufactures high performance~~produces high-performance plastic films and sheeting for geomembrane, agricultural, construction, and industrial ~~applications. Engineered Films' ability to develop value-added innovative products is expanded by its fabrication, conversion,~~applications and also offers design-build and installation ~~capabilities.~~services of these plastic films and sheeting. Plastic film and sheeting can be purchased separately or together with installation services.


	Three Months Ended										Nine Months Ended											Three Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			$ Change		% Change		October 31, 2017			October 31, 2016			$ Change		% Change			April 30, 2019			April 30, 2018			$ Change			% Change
Net sales	$	65,108		$	38,551		$	26,557	68.9	%	$	157,691		$	104,307		$	53,384	51.2	%		$	44,292		$	59,992		$	(15,700	)	(26.2	)%
Gross profit	19,358			8,711			10,647		122.2	%	41,631			22,334			19,297		86.4	%		8,847			15,186			(6,339		)	(41.7	)%
Gross margin	29.7		%	22.6		%					26.4		%	21.4		%						20.0		%	25.3		%
Operating expenses	$	2,243		$	1,582		$	661	41.8	%	$	6,245		$	4,668		$	1,577	33.8	%		$	2,484		$	1,990		$	494		24.8	%
Operating expenses as % of sales	3.4		%	4.1		%					4.0		%	4.5		%						5.6		%	3.3		%
Operating income (loss)⁽¹⁾	$	17,115		$	7,129		$	9,986	140.1	%	$	35,386		$	17,666		$	17,720	100.3	%
Operating income^(a)																						$	6,363		$	13,196		$	(6,833	)	(51.8	)%
Operating margin	26.3		%	18.5		%					22.4		%	16.9		%						14.4		%	22.0		%
⁽¹⁾ At the segment level, operating income does not include an allocation of general and administrative expenses.
^(a)At the segment level, operating income does not include an allocation of general and administrative expenses.																					^(a)At the segment level, operating income does not include an allocation of general and administrative expenses.

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

•

Market conditions. ~~End-market conditions~~Oil prices have remained relatively strong since the start of 2019, and although Engineered Films is more diversified and less dependent on the energy market compared to recent years, the energy market still plays an important role in the division's overall success. One of the leading indicators, other than oil prices, is Permian Basin rig counts, which were relatively flat year-over-year in the first quarter. If strength in oil prices is sustained and rig counts follow, this is expected to favorably impact the division's growth in the geomembrane market ~~which constituted approximately 29 percent of the division's sales~~ in ~~the third quarter of~~ fiscal 2018, have continued to improve from the market-bottom conditions reached last year. At the end of the third quarter of fiscal 2018, U.S. land-based rig counts have increased approximately 66% versus the third quarter of fiscal 2017. For the three- and nine-month periods ended October 31, 2017, sales into the geomembrane market were up approximately 125% and 135% year-over-year, respectively. As described in Note 6 ~~Acquisitions of and Investments in Businesses and Technologies~~ of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q, during the third quarter of fiscal 2018 the Company closed on the acquisition of Colorado Lining International Inc. (CLI), further strengthening Engineered Films' presence in the geomembrane market. CLI contributed $5.2 million in sales during the three- and nine-month periods ended October 31, 2017 which was split between the geomembrane market and installation sales. For the three- and nine-month periods ended October 31, 2017, sales into the construction market were up approximately 61.8% and 27.5% year-over-year, respectively, which included $8.4 million in sales of hurricane recovery film. It has been several years since the Company last received a substantial increase in demand for hurricane recovery film. Sales of such film are generally less than $2.0 million on an annual basis. In April 2017, Engineered Films expanded its fabrication capabilities of geomembrane liner materials in south Texas by purchasing a new facility in Pleasanton, Texas and increased fabrication at the Company's location in Midland, Texas by adding production team members to service the increased demand in the geomembrane market.2020. The Company does not generally model comparative market share position for its divisions, but ~~based on the growth in the first nine months of fiscal 2018,~~ the Company believes Engineered Films ~~achieved sales growth due to improved end-market demand conditions and increased~~has maintained its market ~~share.~~share in the first quarter of fiscal 2020.

•

Sales volume and selling prices. ~~Third~~First quarter net sales were ~~$65.1~~$44.3 million, ~~an increase~~a decrease of ~~$26.5~~$15.7 million, or ~~68.9%~~26.2%, compared to fiscal ~~2017 third~~2019 first quarter net sales of ~~$38.6~~$60.0 million. ~~Volume,~~A larger decrease in sales volume, measured in pounds sold, ~~increased 52.6% and average~~rather than the change in selling price ~~increased 4.5%. For~~was the ~~nine-month period ended October 31, 2017, Engineered Films'~~primary driver of this year-over-year decline. Included in prior year's first quarter net sales was $8.9 million of hurricane recovery film sales which did not reoccur in the first quarter of fiscal 2020. The division also went live on its new ERP platform and experienced temporary operating inefficiencies. This resulted in delays in processing and fulfilling certain orders during the first quarter of fiscal 2020 and the Company estimates that approximately $2.5 million in sales were ~~$157.7 million,~~pushed into future quarters as a result. Additionally, power outages caused by an ~~increase of $53.4 million, or 51.2%, compared to~~ice storm resulted in an unexpected two-day plant shutdown in the ~~nine-month period ended October 31, 2016. Volume, measured in pounds sold, increased 44.5% and average selling price increased 2.2%. All markets contributed to the higher~~first quarter. The Company estimates this shutdown reduced division sales in the ~~three- and nine-month periods ended October 31, 2017.~~first quarter of fiscal year 2020 by approximately $2 million. Together, these temporary operational challenges are estimated to have negatively impacted first quarter net sales by approximately $4.5 million.

•

Gross margin. For the ~~three- and nine-month periods~~three-month period ended ~~October 31, 2017,~~April 30, 2019, gross margin was ~~29.7% and 26.4%, respectively.~~20.0%. Gross margin for the three-month period ended April 30, 2018, was 25.3%. The year-over-year decrease in gross margin for the ~~three- and nine-month periods ended October 31, 2016 was 22.6% and 21.4%, respectively. The improvement in gross margin~~three-month period was primarily ~~due to higher~~driven by lower sales volume, including the significant reduction in hurricane recovery film sales, and the ~~resulting improvement in capacity utilization, but also benefited from continued spending discipline.~~corresponding negative operating leverage. In addition, the temporary operational challenges had an unfavorable impact to division gross margin.

•

Operating expenses.~~Third quarter operating expenses were up $0.6 million or 41.8% compared to the prior year third quarter.~~ As a percentage of net sales, operating ~~expense was 3.4%~~expenses were 5.6% in the current year three-month period as compared to ~~4.1% in the prior year comparative period. Year-to-date operating expenses were 4.0% as a percentage of net sales as compared to 4.5%~~3.3% in the prior year comparative period. The year-over-year increase was led by higher legal expenses and a decrease in sales volume in the three- and nine-month periods more than offset the additional costs to support sales growth and drove operating expenses as percentage of sales down 0.7 and 0.5 percentage points year-over-year, respectively.volume.

Aerostar

Aerostar serves the aerospace/defense and ~~situational awareness~~commercial lighter-than-air markets. ~~Aerostar designs~~Aerostar's core products include high-altitude stratospheric balloons and ~~manufactures proprietary products including high-altitude (stratospheric) balloon systems, tethered aerostats, and~~ radar ~~processing~~ systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. ~~Aerostar pursues product and support services contracts with agencies and instrumentalities of the U.S. government.~~


	Three Months Ended											Nine Months Ended												Three Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			$ Change			% Change		October 31, 2017			October 31, 2016			$ Change			% Change			April 30, 2019			April 30, 2018			$ Change			% Change
Net sales	$	11,103		$	9,003		$	2,100		23.3	%	$	30,078		$	25,313		$	4,765		18.8	%		$	12,190		$	10,901		$	1,289		11.8	%
Gross profit	3,197			508			2,689			529.3	%	8,620			3,647			4,973			136.4	%		4,881			3,641			1,240			34.1	%
Gross margin	28.8		%	5.6		%						28.7		%	14.4		%							40.0		%	33.4		%
Operating expenses	$	1,838		$	1,796		$	42		2.3	%	$	4,455		$	5,364		$	(909	)	(16.9	)%		$	2,885		$	836		$	2,049		245.1	%
Operating expenses as % of sales	16.6		%	19.9		%						14.8		%	21.2		%							23.7		%	7.7		%
Long-lived asset impairment loss	—			87			(87		)			—			87			$	(87	)
Operating income (loss)⁽¹⁾	$	1,359		$	(1,375	)	$	2,734		(198.8	)%	$	4,165		$	(1,804	)	$	5,969		(330.9	)%
Operating income^(a)																								$	1,996		$	2,805		$	(809	)	(28.8	)%
Operating margin	12.2		%	(15.3		)%						13.8		%	(7.1		)%							16.4		%	25.7		%
⁽¹⁾ At the segment level, operating income does not include an allocation of general and administrative expenses.
^(a)At the segment level, operating income does not include an allocation of general and administrative expenses.																							^(a)At the segment level, operating income does not include an allocation of general and administrative expenses.

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

•

Market conditions. ~~Some~~Aerostar’s business consists of ~~Aerostar's markets are subject to significant variability due to government spending~~proprietary products and ~~the timing of awards. Such conditions result in delays and uncertainties in certain opportunities important~~services to the division's growth strategy. Despite these uncertainties, Aerostar is pioneering new markets with leading-edge applications of its stratospheric balloon platform. While it is particularly challenging to measure market share information for the Aerostar divisionaerospace/defense and ~~the~~commercial lighter-than-air markets. The Company does not generally model comparative market share position for ~~any of~~ its divisions, but the Company believes ~~that Aerostar's sales growth~~Aerostar has maintained its market share in the ~~three- and nine-month periods was primarily the result~~first quarter of ~~market share gains rather than overall growth of the market.~~fiscal 2020.

•

Sales volume. Net sales increased ~~23.3%~~11.8% from ~~$9.0~~$10.9 million for the three-month period ended ~~October 31, 2016~~April 30, 2018, to ~~$11.1~~$12.2 million for the three-month period ended ~~October 31, 2017. Year-to-date sales were $30.1 million, up $4.8 million year-over-year, or 18.8%. The~~April 30, 2019. This increase ~~in both periods~~ was driven ~~principally~~ by improved stratospheric balloon and radar sales. Deliveries on the previously announced five-year $36 million radar contract drove growth in radar sales in the ~~stratospheric balloon platform.~~first quarter.

•

Gross margin. For the three-month period, gross margin increased from ~~5.6%~~33.4% to ~~28.8%~~40.0%. ~~Gross margin increased from 14.4% to 28.7% in the nine-month period.~~ The three- and nine-month periods ended October 31, 2017 include an inventory write-down adjustment of $0.4 million related to certain aerostat inventory. The three- and nine-month periods ended October 31, 2016 include an inventory write-down adjustment of $2.3 million related to certain radar inventory. The inventory write downs in the current and prior year were driven by strategic decisions to narrow certain offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. The remaining increase in ~~gross margin~~profitability for ~~both periods~~the three-month period was primarily ~~driven by~~due to increased leverage on higher sales ~~volume and the implementation of cost reductions as compared to the previous year.~~volume.

•

Operating expenses. ~~Third~~First quarter fiscal ~~2018~~2020 operating expense was ~~$1.8~~$2.9 million, or ~~16.6%~~23.7% of net sales, ~~a decrease~~an increase from ~~19.9%~~7.7% of net sales in the ~~third~~first quarter of fiscal ~~2017. Year-to-date operating expense as a percentage of net sales was 14.8%, down from 21.2%~~2019. The division increased investment in the prior year. The three- and nine-month periods ended October 31, 2017 include a $0.5 million loss on the disposal of certain demonstration related equipment driven by strategic decisions to narrow certain offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. The decrease as a percentage of sales in both periods is primarily driven by higher sales and adjustments in operating expenses while focusing on strategic research and development ~~spending.~~activities to further enhance its engineering services and flight operations capabilities.

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


	Three Months Ended						Nine Months Ended						Three Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Administrative expenses	$	5,990		$	4,764		$	17,247		$	13,986		$	6,475		$	10,403
Administrative expenses as a % of sales	5.9		%	6.6		%	6.1		%	6.7		%	6.6		%	9.4		%
Other income (expense), net	$	(34	)	$	(273	)	$	(327	)	$	(579	)	$	(69	)	$	5,679
Effective tax rate	32.6		%	19.3		%	31.3		%	26.9		%	12.2		%	18.6		%

Administrative spending for the ~~three- and nine-month periods~~three-month period of fiscal ~~2018~~2020 was ~~up $1.2~~down $3.9 million ~~and $3.2 million, respectively,~~ compared to fiscal ~~2017. The increase for~~2019. Administrative spending in the three-month period ~~is primarily due to higher employee compensation and costs incurred in the beginning stages~~ended April 30, 2018, included an expense of a company-wide initiative called Project Atlas. Project Atlas is a strategic long-term investment to replace the Company’s existing enterprise resource planning platform. The increase for nine-month period is primarily due to higher employee compensation, director compensation, due diligence related expenses as the Company continues to pursue strategic acquisitions, and costs incurred$4.5 million related to ~~Project Atlas. Costs incurred related~~a gift to ~~Project Atlas were $0.3 million for both the three- and nine-month periods ended October 31, 2017.~~South Dakota State University.

Other income (expense), net consists primarily of activity related to the Company's equity method investments, interest income and expense, and foreign currency transaction gains or losses. There were no significant items in other income (expense), net for the three-month period in fiscal year 2020. Fiscal 2019 first quarter other income (expense), net included a $5.8 million gain on the sale of the Company's equity interest in SST.

The Company’s effective tax rates for the ~~nine-month~~three-month periods ended ~~October 31, 2017~~April 30, 2019 and ~~2016~~2018, were ~~31.3%~~12.2% and ~~26.9%~~18.6%, respectively. The ~~increase~~year-over-year decrease in the effective tax rate iswas driven primarily ~~due to higher pre-tax income in the current year and recognition of~~by favorable discrete tax ~~expense~~items related to the ~~Company's adoption~~settlement and vesting of ~~ASU 2016-09 in the fiscal 2018 as further discussed in~~equity compensation awards. Refer to Note 2 ~~Summary of Significant Accounting Policies~~. This ASU requires that the tax effects resulting from the settlement of stock-based awards be recognized as a discrete income tax expense or benefit in the income statement in the reporting period in which they occur.

~~Other items causing the Company's effective tax rate to differ from the statutory tax rate are more fully described in Note 12~~13 Income Taxes of the Notes to the Consolidated Financial Statements included in Item 1 of this Form ~~10-Q.~~10-Q for more information on these impacts to the effective tax rate.

OUTLOOK

Temporary conditions impacting Applied Technology and short-term operational challenges in Engineered Films held down first quarter results. While unfortunate, the Company does not believe the first quarter performance will be indicative of the performance for the rest of the year. To the contrary, at this time the Company expects growth in both sales and operating income in each division this fiscal year.

Applied ~~Technology has faced a more~~Technology’s slower start to fiscal 2020 was directly related to extremely challenging ~~agriculture market than expected at~~spring planting conditions and the ~~beginning of the year, and we don't foresee anything changing in the next twelve months to improve market conditions. However, its continued focus~~corresponding impacts this had on ~~new products and expanding OEM relationships is successfully driving additional market share gains and enabling~~ag retailers. With that said, the division was able to ~~outperform~~endure these challenges and still achieve modest revenue growth through leveraging its prior year investment in Latin America and by continuing to introduce new technologies to the market. At the same time, Applied Technology has made the strategic decision to fund several long-term investments for growth, knowing this reduces profit in the short-term. Management believes strongly in the long-term margin potentialmarketplace. Core fundamentals remain strong for Applied Technology, and ~~expects improved margins over time with these investments, even if~~the division continues to appropriately focus on innovation and international expansion to drive market share gains regardless of end-market conditions ~~remain challenging.~~they may face.

~~For~~

Engineered Films ~~end~~faced some unfortunate short-term operational challenges during the first quarter, but these are temporary situations. The short-term impact to operational efficiency as a result of going live on a new ERP platform was expected. Overall, this implementation has been very successful and the division fully expects to return to pre-go-live efficiency soon and achieve even stronger efficiencies over time. The division expects the energy market ~~conditions~~to remain strong this year, sales from Line 15 to increase throughout the year, and for geomembrane installation revenues to remain strong.

Aerostar is capitalizing on their market-leading technology and customers are responding with positive feedback regarding the division’s service and execution. The division is investing heavily in new product innovations and advancing its flight operation capabilities, and the Company is very optimistic about the division's future business prospects. These investments have been purposeful and are indicative of the future growth potential within its core stratospheric balloon and radar product platforms. The overall profitability of the division remains healthy despite increased investment, and the Company is very pleased with the strategic direction of this division.

Overall, the Company's long-term strategy remains sound and its strong position in attractive markets, combined with research and development investments, geographic market expansion, and acquisitions, provide confidence in the Company's ability to perform well for the remainder of the year. The underlying businesses are expected to ~~remain favorable and prior capital~~grow with strong margins, while making key investments to ~~serve~~enable future growth. In order to meet the ~~industrial and geomembrane markets are expected~~Company's objective of 10 percent annual earnings growth over the long term, more aggressive investments to ~~continue to drive growth. Additionally, Engineered Films’ integration of CLI~~support the three divisions will likely be needed. The Company is ~~progressing as expected. This acquisition is expected to be slightly accretive to earnings~~actively evaluating the best opportunities for this increased resource allocation in a way that builds on the success achieved in fiscal ~~year 2018 and contribute approximately 5 cents per share~~2019, delivers strong results in fiscal ~~2019. The sale of recovery film to support hurricane relief efforts favorably impacted~~2020 and positions the division’s operating leverage in the third quarter of fiscal 2018. We expect approximately $8 to $9 million in sales of such film in fourth quarter of fiscal 2018. Improved volume, together with cost controls, are expected to result in sustained strong profitabilityCompany well for the ~~division.~~

For Aerostar, the division is expecting improved volume in the stratospheric balloon platform, driven by increased demand from Google for Project Loon and stratospheric balloon contracts with new customers. Additionally, Aerostar was awarded a $6.8 million aerostat contract with the U.S. Department of Defense and management expects the majority of the revenue from this contract to be realized in fiscal year 2019. Success in growing sales in the stratospheric balloon platform combined with continued cost discipline, are important to delivering sustained division profitability.

For the Company's administrative function, the Company launched a company-wide initiative during the third quarter called Project Atlas. This is a strategic long-term investment to replace the Company’s existing enterprise resource planning platform. Project Atlas is expected to take approximately three years to complete and cost between $8 and $10 million. Of this amount, Management expects that approximately $2 million will be capitalized as a fixed asset with the rest being recognized as expense in the period in which it is incurred. All of the costs associated with this project will be reported within corporate expenses. Project Atlas costs are expected to be approximately $1 million per quarter in fiscal year 2019. This investment will drive efficiencies across the enterprise, enable faster integration of future acquisitions, automate a significant portion of internal controls, and enhance the enterprise’s execution of its long-term growth strategy.

Management expects to expand the meaningful growth in revenues and operating profit for fiscal 2018 through the fourth quarter and continues to invest in research and development activities to continue to drive new product momentum for the intermediate and long term.

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 beyond the next twelve months. Additionally, the Company has a credit facility of up to $125.0 million with a maturity date of April 15, 2020.

The Company’s cash balances and cash flows were as follows:


(dollars in thousands)	October 31, 2017		January 31, 2017		October 31, 2016		April 30, 2019		January 31, 2019		April 30, 2018
Cash and cash equivalents	$	36,873	$	50,648	$	46,313	$	61,370	$	65,787	$	51,317


	Nine Months Ended						Three Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			April 30, 2019			April 30, 2018
Cash provided by operating activities	$	30,834		$	38,685		$	8,762		$	13,603
Cash used in investing activities	(20,077		)	(3,754		)
Cash (used in) provided by investing activities							(2,441		)	3,185
Cash used in financing activities	(24,704		)	(22,424		)	(10,665		)	(5,775		)
Effect of exchange rate changes on cash and cash equivalents	172			24			(73		)	(231		)
Net increase in cash and cash equivalents	$	(13,775	)	$	12,531
Net increase (decrease) in cash and cash equivalents							$	(4,417	)	$	10,782

Cash and cash equivalents totaled ~~$36.9~~$61.4 million at ~~October 31, 2017,~~April 30, 2019, a decrease of ~~$13.7~~$4.4 million from ~~$50.6~~$65.8 million at January 31, ~~2017.~~2019. The comparable balance ~~one year earlier~~as of April 30, 2018 was ~~$46.3~~$51.3 million. The sequential decrease ~~from fiscal 2017 year-end~~in cash was ~~primarily driven by cash outlays for the acquisition of CLI and share repurchases, partially offset~~led by an increase in net ~~income.~~working capital requirements and share repurchase activity in the first quarter of fiscal 2020.

Operating Activities

Operating cash ~~flows result~~flow results were primarily from cash received from customers, which iswere offset by cash payments for inventories, services, employee compensation, and income taxes. ~~Strong cash flow from operating activities was sustained year-over year.~~ Cash provided by operating activities was ~~$30.8~~$8.8 million for the first ~~nine~~three months of fiscal ~~2018~~2020 compared with ~~$38.7~~$13.6 million in the first ~~nine~~three months of fiscal ~~2017.~~2019. The decrease in operating cash flows year-over-year was driven primarily ~~due to the~~by lower net income and an increase in net working capital ~~demands which were substantially offset by the increase in net income.~~requirements.

The Company's cash needs have minimal seasonal trends. As a result, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in net working capital. Net working capital and net working capital percentage are metrics used by management as a guide in measuring the efficient use of cash resources to support business activities and growth. The Company's net working capital for the comparative periods was as follows:


(dollars in thousands)		October 31, 2017			October 31, 2016				April 30, 2019			April 30, 2018
Accounts receivable, net		$	59,573		$	39,554			$	67,792		$	66,812
Plus: Inventories		53,481			42,813				58,042			55,162
Less: Accounts payable		13,383			9,377				16,179			14,714
Net working capital^(a)		$	99,671		$	72,990			$	109,655		$	107,260

Annualized net sales^(b)		$	405,396		$	290,088			392,712			444,516
Net working capital percentage^(c)		24.6		%	25.2		%		27.9		%	24.1		%
^(a) Net working capital is defined as accounts receivable (net) plus inventories less accounts payable.
^(a) Net working capital is defined as accounts receivable, (net) plus inventories less accounts payable.								^(a) Net working capital is defined as accounts receivable, (net) plus inventories less accounts payable.
^(b) Annualized net sales is defined as the most recent quarter net sales times four for each of the fiscal periods, respectively.	^(b) Annualized net sales is defined as the most recent quarter net sales times four for each of the fiscal periods, respectively.							^(b) Annualized net sales is defined as the most recent quarter net sales times four for each of the fiscal periods, respectively.
^(c) Net working capital percentage is defined as Net working capital divided by Annualized net sales for each of the fiscal periods, respectively.
^(c) Net working capital percentage is defined as net working capital divided by annualized net sales.								^(c) Net working capital percentage is defined as net working capital divided by annualized net sales.

~~The net~~Net working capital percentage decreased from 25.2% at October 31, 2016 to 24.6% at October 31, 2017. The decrease was driven by an increase in accounts payable balances as well as managing inventory and receivables proactively with the substantial increase in sales versus the prior year. To emphasize the management of efficient levels of inventory during periods of significant change in sales volume, the Company assembled teams within each operating division. Similar emphasis was placed on managing accounts payable and to a lesser extent, accounts receivable.

~~Inventory increased $10.7 million, or 25.0%,~~deteriorated 380 basis points year-over-year from $42.8 million at October 31, 2016 to $53.5 million at October 31, 2017. In comparison, net sales increased $28.8 million, or 39.7%, year-over-year in the third quarter. The increase in inventory was primarily driven by growth in net sales and backlog in the Engineered Films Division, offset somewhat by actions to reduce inventory in all three divisions.

Accounts receivable increased $20.0 million, or 50.5%, year-over-year to $59.6 million at October 31, 2017 from $39.6 million at October 31, 2016. In comparison, net sales increased $28.8 million, or 39.7%, year-over-year in the third quarter. The increase in accounts receivable was due primarily to increased sales volume.

Accounts payable increased $4.0 million, or 42.6%, year-over-year from $9.4 million at October 31, 2016 to $13.4 million at October 31, 2017. In comparison, net sales increased $28.8 million, or 39.7%, year-over-year in the third quarter. This increase in accounts payable was due to improved timing of payments to suppliers, as well as additional purchases of raw materials to support the increase in sales year-over-year.

~~Investing Activities~~

Cash used for investing activities for the first nine months of fiscal 2018 was up $16.3 million compared with the first nine months of fiscal 2017. The primary drivers of the increase in current year cash outflows were payments related to the acquisition of CLI, as further described in Note 6 ~~Acquisitions of and Investments in Businesses and Technologies~~ of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q, and increased capital expenditures. Net capital outlay related to the CLI business acquisition in third quarter of fiscal 2018 was $12.7 million. There were no businesses acquired in the prior fiscal year. Capital expenditures included $1.7 million for the Pleasanton, Texas facility purchased by Engineered Films in the first quarter of fiscal 2020. This year-over-year change was driven primarily by an increase in inventory and accounts receivable within the Applied Technology division.

Inventory levels increased $2.8 million, or 5.2%, year-over-year from $55.2 million at April 30, 2018, to $58.0 million at April 30, 2019. In comparison, consolidated net sales decreased $13.0 million, or 11.7%, year-over-year in the first quarter. Applied Technology's inventory increased year-over-year as the division built up inventory to support its international expansion and in preparation for the spring season in North America. However, first quarter sales in North America were less than expected due to the very challenging start to the 2019 planting season.

Accounts receivable increased $1.0 million, or 1.5%, year-over-year to $67.8 million at April 30, 2019, from $66.8 million at April 30, 2018. In ~~addition,~~comparison, consolidated net sales decreased $13.0 million, or 11.7%, year-over-year in the ~~comparative period~~first quarter. Timing of invoicing and cash receipts within Applied Technology was the primary driver of the year-over-year increase in accounts receivable.

Accounts payable increased $1.5 million, or 10.0%, year-over-year from $14.7 million at April 30, 2018, to $16.2 million at April 30, 2019. The increase in accounts payable year-over-year was primarily due to timing of purchases and cash payments.

Investing Activities

Cash used by investing activities was $2.4 million for the first three months of fiscal 2020 compared with cash provided of $3.2 million in the first three months of fiscal 2019. The primary driver for the year-over-year change was $6.6 million in cash receipts

in the prior year ~~2017 included $1.1 million cash inflows from~~due to the sale of ~~assets while there were no significant cash inflows from~~ the ~~sale of assets~~Company's ownership interest in ~~the current year.~~

Management anticipates fiscal 2018 capital spending to be approximately $10 million. The Company continues to maintain a disciplined approach to capital spending. Maintaining Engineered Films' capacity and Applied Technology's capital spending to advance product development are expected to continue. In addition, management will continue to evaluate strategic acquisitions that result in expanded capabilities and improved competitive advantages.SST.

Financing Activities

Cash used for financing activities for the first ~~nine~~three months of fiscal ~~2018~~2019 was up ~~$2.3~~$4.9 million compared ~~with~~to the first ~~nine~~three months of fiscal ~~2017.~~2019. The ~~primary driver of the increase year-over-year was the~~ increase in cash outflows included $2.3 million of share ~~repurchases.~~

~~The Company repurchased approximately 0.3 million shares at an average price of $28.71 for a total of $10.0 million~~repurchases in the first ~~nine months~~quarter of fiscal ~~2018. The Company repurchased approximately 0.5 million shares at an average price of $15.91 for a total of $7.7 million~~2020. There were no share repurchases in the first ~~nine months~~quarter of ~~the prior~~ fiscal ~~year.~~2019.

Dividends per share ~~were flat at 39.0~~was 13.0 cents per ~~share.~~share in the first quarter of fiscal year 2020. Total cash outflows for dividends in the ~~nine-month~~three-month periods ended ~~October 31, 2017~~April 30, 2019, and ~~2016~~2018, were ~~$14.0 million and $14.1 million, respectively.~~

~~During the nine months ended October 31, 2017 and October 31, 2016, the Company made payments of $0.4 million and $0.3 million, respectively, on acquisition-related contingent liabilities.~~each $4.7 million.

No borrowing or repayment occurred on the Credit Agreement during the first ~~nine~~three months of fiscal ~~2018~~2020 or fiscal ~~2017.~~

Financing cash outflows in the first nine months of fiscal 2018 and 2017 included employee taxes paid in relation to net settlement of restricted stock units that vested during the first quarter and stock options exercised in the period.2019.

Other Liquidity and Capital Resources

The Company entered into a credit agreement dated April 15, 2015. This agreement (Credit Agreement), more fully described in Note 10 Financing Arrangements of the Notes to the Consolidated Financial Statements included in Item 1 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 under the Credit Agreement for any of the fiscal periods covered by this Form 10-Q. Availability under the Credit Agreement for borrowings as of ~~October 31, 2017~~April 30, 2019 was ~~$123.9~~$124.7 million. The Company expects to enter into a new credit facility prior to the Credit Agreement maturing in fiscal 2021.

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. ~~The Company requested and received the necessary covenant waivers relating to its late filing of financial information in the prior fiscal year.~~ Financial covenants include an interest coverage ratio and funded indebtedness to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. The Company is in compliance with all financial covenants set forth in the Credit Agreement.

Letters of credit (LOCs) totaling ~~$1.1~~$0.3 million and $0.5 million were outstanding at ~~October 31, 2017~~April 30, 2019 and ~~October 31, 2016,~~April 30, 2018, respectively. Any draws required under the LOCs would be settled with available cash or borrowings under the Credit Agreement.

The acquisition of CLI included a contingent consideration arrangement with potential to pay up to $2.0 million in additional earn-out payments over the next three years contingent upon achieving certain revenues and operational synergies. To date, the Company has not made any payments on this potential earn-out liability.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

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, ~~2017.~~2019, other than item discussed below.

Raven is eligible to receive earn-out payments related to the disposition of Aerostar's client private business and the Company's ownership interest in SST in fiscal 2019 if certain post-closing performance benchmarks are satisfied. The Company will recognize the earn-out payments as income in the period they are realized under the terms of the respective agreement.

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~~For a description of our critical accounting policies ~~as described~~and estimates, see Note 1 Summary of Significant Accounting Policies to our consolidated financial statements in ~~the Company’s~~our Annual Report on Form 10-K for the year ended January 31, ~~2017.~~

~~Goodwill and Long-lived and Intangible Assets~~

~~Long-lived and Intangible Assets~~

~~The Company assesses~~2019, filed with the ~~recoverability of long-lived assets, including definite-lived intangibles, equity method investments, and property plant and equipment, using fair value measurement techniques if events or~~SEC. There have been no material changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, the Company performs impairment reviews by asset groups. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures). An impairment loss is recognized when the carrying amount of an asset is above the estimated undiscounted cash flows used in determining the fair value of the asset.

~~Fiscal 2018~~

~~During the first quarter of fiscal 2018, the Company determined that the investment in AgEagle, further described in Note 6~~ ~~Acquisitions of and Investments in Businesses and Technologies~~ ~~of the Notes~~ to ~~the unaudited Consolidated Financial Statements included in Item 1 of this form 10-Q~~, was impaired due to lower than expected cash flows and continued operating losses. This impairment was determined to be other-than-temporary and an accelerated equity method investment loss of $72 was reported in "Other (expense), net" in the Consolidated Statements of Income and Comprehensive Income for the nine-month period ended October 31, 2017. The Company also determined the customer relationship intangible asset related to the Ag Eagle exclusive distribution agreement was fully impaired. The total impairment loss related to this intangible asset was $259 and was reported in "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income for the nine-month period ended October 31, 2017. There were no long-lived asset impairments or accelerated equity method investment losses reported in the three-month period ended October 31, 2017.

~~Goodwill~~

The Company assesses the recoverability of long-lived assets, including definite-lived intangibles, equity method investments, and property plant and equipment, using fair value measurement techniques if events or changes in circumstances indicate that an asset might be impaired. For long-lived and intangible assets, the Company performs impairment reviews by asset groups. Such valuations are derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures). An impairment loss is recognized when the carrying amount of an asset is above the estimated undiscounted cash flows used in determining the fair value of the asset.

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).

~~Based on the Company's review, management concluded there were no triggering events for the Company's reporting units~~our critical accounting policies during the ~~three- and nine-month periods~~three months ended ~~October 31, 2017 and no impairments to goodwill were recorded.~~April 30, 2019.

ACCOUNTING PRONOUNCEMENTS

See Note 2 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q for a summary of recent accounting pronouncements.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are ~~“forward-looking statements”~~"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, not past or historical events. Without limiting the foregoing, the words "anticipates," "believes," "expects," "intends," "may," "plans," "should," "estimate," "predict," "project," "would," "will," "potential," and similar expressions are intended to identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. The Company intends that all forward-looking statements be subject to the safe harbor provisions of the Private Securities Litigation Reform Act.

Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions when made, there is no assurance that such 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 and construction and oil and gas drilling; or changes in ~~competition,~~ raw material availability, commodity prices, competition, 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, ~~risks of litigation,~~ ability to scale production of new products without negatively impacting quality and cost, risks of operating in foreign markets, risks relating to acquisitions, including risks of integration or unanticipated liabilities or contingencies, and ability to finance investment and net working capital needs for new development projects, any of which could adversely impact any of the Company's product lines, risks of litigation, as well as other risks described in Item 1A., Risk Factors, of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, ~~2017.~~2019. 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. 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 outstanding long-term debt but does have an immaterial amount of ~~capital~~finance lease obligations as of ~~October~~April 30, 2019 and capital leases as of January 31, ~~2017.~~2019. The Company does not expect operating results or cash flows to be significantly affected by changes in interest rates.

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. Cash and cash equivalents held in foreign currency (primarily Euros and Canadian dollars) totaled ~~$5.0~~$4.1 million and ~~$2.6~~$4.6 million at ~~October~~April 30, 2019 and January 31, ~~2017 and October 31, 2016,~~2019, respectively. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in "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

Our management, under the supervision of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~October 31, 2017.~~April 30, 2019. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under 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 are 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 and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were ~~not~~ effective as of ~~October 31, 2017 due to the material weaknesses in internal control over financial reporting which existed at that date, as described below.~~

Notwithstanding the existence of the material weaknesses described below, management has concluded that the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our consolidated financial position, results of operations and cash flows for the periods presented herein in conformity with accounting principles generally accepted in the United States of America.

~~Material Weaknesses~~

A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

The Company has identified five control deficiencies which existed since October 31, 2016 which constitute material weaknesses and resulted in ineffective disclosure controls and procedures. The Company is actively engaged in the planning for, and implementation of, remediation efforts to address the underlying causes of the control deficiencies that gave rise to the material weaknesses. These remediation efforts are intended to address the identified material weaknesses and to enhance our overall financial control environment. Management has determined that two of the material weaknesses have been remediated, and three of the material weaknesses remain open as of October 31, 2017 as further described below.

~~Remediation Efforts on Material Weaknesses that remain open as of October 31, 2017~~

With the oversight of the Company’s Audit Committee, management is taking steps intended to address the underlying causes of the remaining open material weaknesses, primarily through the following remediation activities achieved during the first, second and third quarters of fiscal 2018:

~~The Company’s controls relating to the response to the risks of material misstatement were not effectively designed.~~


◦	During the second quarter of fiscal 2018, we have redesigned and enhanced our controls and procedures around timely and appropriate identification, assessment, and response to risks of material misstatement. This included formalizing and redefining the risk categorization and risk rating methodology to appropriately assess and monitor identified risks on a quarterly basis.

The Company’s controls over the accounting for goodwill and long-lived assets, including finite-lived intangible assets, were not effectively designed and maintained, specifically, the controls related to the identification of the proper unit of account as well as the development and review of assumptions used in interim and annual impairment tests. This control deficiency resulted in the restatement of the Company’s financial statements for the three- and nine-month periods ended October 31, 2015, the fiscal year ended January 31, 2016, and the three-month period ended April 30, ~~2016.~~


◦	~~During the first quarter of fiscal 2018, management completed the following remediation efforts around the design deficiency:~~


▪	~~We have redesigned our specific procedures and controls associated with the identification of the proper unit of account.~~


▪	~~We have developed an enhanced risk assessment evaluation for the reporting unit for which a goodwill impairment analysis is being conducted.~~


▪	We have redesigned our controls associated with the development of a more precise revenue forecast for use in interim and annual impairment tests. For Aerostar, this specifically includes more precise contract-based revenue assumptions.


▪	We have redesigned our controls associated with all significant assumptions, model and data used in management's estimates relevant to assessing the valuation of goodwill and long-lived assets, including finite-lived intangible assets.


▪	~~Internal Audit has completed a design walkthrough of redesigned controls.~~

~~The Company’s controls over the completeness and accuracy of spreadsheets and system-generated reports used in internal control over financial reporting were not effectively designed and maintained~~


◦	During the second quarter of fiscal 2018, we have redesigned our controls for the identification and assessment of the completeness and accuracy of spreadsheets and system-generated reports used in internal control over financial reporting.


◦	During the second quarter of fiscal 2018, we have developed governance policy and procedures that will be used consistently by the organization to appropriately identify, assess, and manage risks related to the data integrity of spreadsheets and system-generated reports in internal control over financial reporting.


◦	During the third quarter of fiscal 2018, we have completed the baseline testing for those system-generated reports utilized in internal control over financial reporting that are subject to change management.


◦	~~During the third quarter of fiscal 2018, we have redesigned our controls to perform an analysis to identify changes made to system-generated reports utilized in the internal controls.~~

~~Efforts on Material Weaknesses that have been Remediated as of October 31, 2017~~2019.

With the oversight of the Company’s Audit Committee, management took steps to address the underlying causes of the material weaknesses. Implementation of the actions taken and the resulting improvements in controls have strengthened our internal control over financial reporting. As part of our assessment of internal control over financial reporting during the third quarter of fiscal 2018, management tested and evaluated related internal controls to assess whether they are designed and operating effectively as of October 31, 2017. Management determined that for the material weaknesses related to the Company's controls over the existence of inventories and the Company's controls related to the accounting for income taxes, the controls were designed and operating effectively to prevent and detect a material misstatement due to error or fraud and therefore concluded that these two material weaknesses were remediated as of October 31, 2017. The actions taken are further described below:

The Company’s controls related to the accounting for income taxes were not effectively designed and maintained, specifically the controls to assess that the income tax provision and related tax assets and liabilities are complete and accurate. This control deficiency resulted in adjustments to the income tax provision and related tax asset and liability

~~accounts and related disclosures for the three- and nine-month periods ended October 31, 2015, the fiscal year ended January 31, 2016, and the three-month period ended April 30, 2016.~~


◦	~~Management completed the following remediation efforts around the deficiency:~~

We have redesigned specific processes and controls to augment the review of significant or unusual transactions performed by finance leadership to ensure that the relevant tax accounting implications are identified and considered.

~~Our Director of Taxation has improved our tax models and implemented multiple reconciliations to ensure the Company’s tax provision is properly reconciled and rolled-forward.~~

The Company’s controls over the existence of inventories were not effectively designed and maintained. Specifically, the controls to monitor that inventory subject to the cycle count program was counted at the frequency levels and accuracy rates required under the Company’s policy, and the controls to verify the existence of inventory held at third-party locations were not effectively designed and maintained.


◦	~~Management completed the following remediation efforts around the deficiency:~~

~~We have completed the transfer of the vast majority of inventory held at third-party locations to Company-owned facilities.~~

~~We have redesigned our controls over the completeness and accuracy of underlying information to monitor count dates for each item by location.~~

We have redesigned our controls over the completeness and accuracy of underlying information to calculate and monitor the historical cycle count accuracy results. We have also formalized procedures to establish specific accountability for investigation and analysis of identified variances.

~~We have redesigned our controls over baseline testing for all system-generated reports utilized in the internal controls over existence of inventories subject to the cycle count program.~~

~~We have completed an analysis to validate that inventory subject to the cycle count program is being counted at the frequency levels and accuracy rates required under the Company’s policy.~~

Although we have remediated two material weaknesses and implemented several remediation actions on the remaining material weaknesses, we are still in the process of implementing certain actions and validating the impact of such actions on the material weaknesses that remain open as of October 31, 2017. Additionally, for newly implemented control activities a certain number of instances need to be completed in order to validate operating effectiveness. The number of instances needed is determined based on the frequency with which the control operates. These remediation actions are subject to ongoing review by management, as well as oversight by the Audit Committee of our Board of Directors. We plan to complete this remediation process as diligently as possible, and we will continue to make progress on the remediation of the remaining open material weaknesses in the fourth quarter of fiscal 2018. However, uncertainties exist as to when such remediation may occur, and our initiatives may not prove successful in remediating the material weaknesses. Management may decide to enhance other existing controls and/or implement additional controls as part of the implementation progresses. It will take time to determine whether the additional controls we are implementing will be sufficient and functioning as designed to accomplish their intended purpose;

We are committed to improving our internal control over financial reporting and processes and intend to proactively review and improve our financial reporting controls and procedures incorporating best practices and leveraging external resources to facilitate periodic evaluations of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or modify certain of the remediation measures.

Changes in Internal Control over Financial Reporting

~~As described above under "Management's Remediation Initiatives," there~~In fiscal year 2018, the Company began a multi-year transition from its legacy enterprise resources planning (ERP) system to a new ERP system. At the start of fiscal year 2020, the Company completed the migration of its Engineered Films Division to the new ERP system. In connection with this implementation, the Company updated the processes that constitute its internal control over financial reporting, as necessary, to accommodate related changes in its business processes.

The Company believes it has maintained appropriate internal controls during its initial implementation period and will continue to evaluate, test and monitor its internal controls over financial reporting for effectiveness.

There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the ~~three- and nine-month~~three-month period ended ~~October 31, 2017~~April 30, 2019, 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 party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its ~~business,~~business; the potential costs and liability of which cannot be determined at this time. Among these matters is a patent infringement lawsuit filed in federal district court in Kansas, in which Capstan Ag Systems, Inc. has made certain infringement claims against the Company and one of its customers, CNH Industrial America LLC, related to the Applied Technology Division’s Hawkeye^®~~Nozzle Control System.~~ Management does not believe the ultimate outcomes of its legal proceedings are likely to be significant to its results of operations, financial position, or cash flows. ~~Additionally, because of the present status of the lawsuit, management cannot determine the potential impact, if any, of the patent infringement lawsuit described above.~~

The Company has insurance policies that provide coverage to various degrees for potential liabilities arising from legal proceedings.

Item 1A. Risk Factors:

The Company’s business is subject to a number of risks, including those identified in Item 1A ~~“Risk Factors”~~"Risk Factors" of the Company’s Annual Report on Form 10-K for the year ended January 31, ~~2017,~~2019, 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 exhaustive. Additional risks we currently deem to be immaterial or are unknown to us at this time also could materially affect our business, results of operations, financial condition, and/or liquidity.

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

Issuer purchases of equity securities

On November 3, 2014 the Company's Board of Directors (Board) authorized a $40.0 million stock buyback program. ~~Effective March 21, 2016~~Since that time, the Board has provided additional authorizations to increase the total amount authorized ~~an extension and increase of this stock buyback program.An additional $10.0 million was authorized for share repurchases once~~under the ~~$40.0 million authorization limit is reached.~~program to $75.0 million. 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 (recorded on trade date basis) of its own equity securities during the third quarter of fiscal 2018 as follows~~:

(dollars in thousands, except per-share amounts)

The Company made purchases of its own equity securities during the first quarter of fiscal year 2020 (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, 2017 124,700
$ 27.66
$ 3,448,795

September 1 to September 30, 2017 223,586
29.30
6,551,197

October 1 to October 31, 2017 —
—

Total as of and for the fiscal quarter ended October 31, 2017 348,286
$ 28.71
$ 9,999,992
$ 2,959,349



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 28, 2019	—	$	—	$	—
March 1 to March 31, 2019	60,700	37.57		2,280,420
April 1 to April 30, 2019	—	—		—
Total as of and for the fiscal quarter ended April 30, 2019	60,700	$	37.57	$	2,280,420	$	25,678,930

Item 3. Defaults Upon Senior Securities: None

Item 4. Mine Safety Disclosures: None

Item 5. Other Information: None

Item 6. Exhibits:



Exhibit Number		Description

2.1*		~~Asset Purchase Agreement by and among Colorado Lining International, Inc., John B. Heap, Patrick Elliott, and Raven Industries, Inc. dated August 22, 2017.~~

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		Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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

* The exhibits and schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Raven Industries, Inc. will furnish copies of such exhibits and schedules to the Securities and Exchange Commission upon request.

3331

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: ~~November 21, 2017~~May 30, 2019

~~#34~~#32



	October 31, 2017
Assets held for sale
Inventories	$	3,000
Other current assets	79
Total current assets held for sale	3,079
Property, plant and equipment, net	227
Goodwill	102
Amortizable intangible assets, net	358
Other assets	17
Total assets held for sale	$	3,783

Liabilities held for sale
Current liabilities	$	392
Other long-term liabilities	127
Total liabilities held for sale	$	519