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~~

For the quarterly period endedJuly 31, 2019



o☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the transition period from to~~

For the transition period from to

Commission File Number: 001-07982

RAVEN INDUSTRIES ~~INC.~~INC

(Exact name of registrant as specified in its charter)

~~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		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 filerþ	☑	Accelerated filero	☐
Non-accelerated filero ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting companyo	☐
~~Emerging growth company~~ o		Emerging growth company	☐

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~~August 16, 2019, there were ~~35,755,646~~35,927,047 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)	67
Notes to Consolidated Financial Statements (unaudited)	78
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1921
Item 3. Quantitative and Qualitative Disclosures about Market Risks	3031
Item 4. Controls and Procedures	3031

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	3332
Item 4. Mine Safety Disclosures	3332
Item 5. Other Information	3332
Item 6. Exhibits	33
Signatures	34

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			July 31, 2019			January 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	36,873		$	50,648		$	46,313		$	69,131		$	65,787
Accounts receivable, net	59,573			43,143			39,554			60,700			54,472
Inventories	53,481			42,336			42,813			61,311			54,076
Other current assets	3,910			2,689			2,747			8,727			8,736
Total current assets	153,837			138,816			131,427			199,869			183,071

Property, plant and equipment, net	105,651			106,324			108,948			104,654			106,615
Goodwill	46,752			40,649			40,703			50,827			50,942
Amortizable intangible assets, net	11,375			12,048			12,511			15,373			16,293
Other assets	2,926			3,672			3,746			5,789			3,324
TOTAL ASSETS	$	320,541		$	301,509		$	297,335		$	376,512		$	360,245

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	13,383		$	8,467		$	9,377		$	15,722		$	8,272
Accrued liabilities	21,645			18,055			14,708			21,292			23,478
Customer advances	908			1,860			1,154
Other current liabilities										1,704			1,303
Total current liabilities	35,936			28,382			25,239			38,718			33,053

Other liabilities	13,456			13,696			12,134			22,816			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 67,420 and 67,289, respectively										67,420			67,289
Paid-in capital	58,484			55,795			55,703			59,127			59,655
Retained earnings	249,034			230,649			230,957			298,496			285,969
Accumulated other comprehensive income (loss)	(3,058		)	(3,676		)	(3,361		)	(3,884		)	(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, 31,496 and 31,332 shares, respectively										(106,183		)	(100,402		)
Total Raven Industries, Inc. shareholders' equity	271,146			259,426			259,957			314,976			308,955
Noncontrolling interest	3			5			5			2			2
Total equity	271,149			259,431			259,962
Total shareholders' equity										314,978			308,957
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	320,541		$	301,509		$	297,335		$	376,512		$	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						Six Months Ended
(dollars in thousands, except per-share data)	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Net sales	$	101,349		$	72,522		$	281,494		$	208,480		$	98,058		$	102,684		$	196,236		$	213,813
Cost of sales	68,016			52,683			189,692			149,609			66,720			68,076			129,832			139,207
Gross profit	33,333			19,839			91,802			58,871			31,338			34,608			66,404			74,606

Research and development expenses	4,083			4,151			12,319			12,475			7,067			6,151			14,338			11,436
Selling, general, and administrative expenses	11,421			8,212			31,476			24,174			13,701			11,828			26,375			25,010
Long-lived asset impairment loss	—			87			259			87
Operating income	17,829			7,389			47,748			22,135			10,570			16,629			25,691			38,160

Other income (expense), net	(34		)	(273		)	(327		)	(579		)	383			(139		)	314			5,540
Income before income taxes	17,795			7,116			47,421			21,556			10,953			16,490			26,005			43,700

Income tax expense	5,798			1,375			14,842			5,802			2,187			2,769			4,029			7,832
Net income	11,997			5,741			32,579			15,754			8,766			13,721			21,976			35,868

Net income (loss) attributable to the noncontrolling interest	(1		)	—			(2		)	1			—			44			—			56

Net income attributable to Raven Industries, Inc.	$	11,998		$	5,741		$	32,581		$	15,753		$	8,766		$	13,677		$	21,976		$	35,812

Net income per common share:
─ Basic	$	0.33		$	0.16		$	0.90		$	0.43		$	0.24		$	0.38		$	0.61		$	1.00
─ Diluted	$	0.33		$	0.16		$	0.89		$	0.43		$	0.24		$	0.38		$	0.60		$	0.98

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		$	8,766		$	13,721		$	21,976		$	35,868

Other comprehensive income (loss):
Foreign currency translation	(185		)	(201		)	637			146			1			(357		)	(303		)	(837		)
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 $3, $2, $7, and $4 respectively													(13		)	(6		)	(25		)	(12		)
Other comprehensive income (loss), net of tax	(191		)	(203		)	618			140			(12		)	(363		)	(328		)	(849		)

Comprehensive income	11,806			5,538			33,197			15,894
Comprehensive income (loss)													8,754			13,358			21,648			35,019

Comprehensive income (loss) attributable to noncontrolling interest	(1		)	—			(2		)	1			—			44			—			56

Comprehensive income attributable to Raven Industries, Inc.	$	11,807		$	5,538		$	33,199		$	15,893
Comprehensive income (loss) attributable to Raven Industries, Inc.													$	8,754		$	13,314		$	21,648		$	34,963

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)


																									Three Months Ended July 31, 2019
	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 April 30, 2019																									$	67,417	$	57,369		31,393	$	(102,683	)	$	294,450		$	(3,872	)	$	312,681		$	2	$	312,683
Net income	—		—			—	—			15,753			—			15,753			1			15,754			—		—			—	—			8,766			—			8,766			—		8,766
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			146			146			—			146			—		—			—	—			—			1			1			—		1
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4	—		—			—	—			—			(6		)	(6		)	—			(6		)
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		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $3																									—		—			—	—			—			(13		)	(13		)			(13		)
Cash dividends ($0.13 per share)																									—		49			—	—			(4,720		)	—			(4,671		)	—		(4,671		)
Shares issued on stock options exercised, net of shares withheld for employee taxes																									3		(57		)	—	—			—			—			(54		)	—		(54		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	35		(291		)	—	—			—			—			(256		)	—			(256		)	—		—			—	—			—			—			—			—		—
Director shares issued	19		(19		)	—	—			—			—			—			—			—
Shares repurchased	—		—			484	(7,702		)	—			—			(7,702		)	—			(7,702		)	—		—			103	(3,500		)	—			—			(3,500		)	—		(3,500		)
Share-based compensation	—		2,291			—	—			—			—			2,291			—			2,291			—		1,766			—	—			—			—			1,766			—		1,766
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 July 31, 2019																									$	67,420	$	59,127		31,496	$	(106,183	)	$	298,496		$	(3,884	)	$	314,976		$	2	$	314,978

																									Six Months Ended July 31, 2019
Balance January 31, 2017	$	67,060	$	55,795		30,984	$	(90,402	)	$	230,649		$	(3,676	)	$	259,426		$	5		$	259,431
																									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
Balance January 31, 2019																									$	67,289	$	59,655		31,332	$	(100,402	)	$	285,969		$	(3,556	)	$	308,955		$	2	$	308,957
Net income	—		—			—	—			32,581			—			32,581			(2		)	32,579			—		—			—	—			21,976			—			21,976			—		21,976
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			637			637			—			637			—		—			—	—			—			(303		)	(303		)	—		(303		)
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		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $7																									—		—			—	—			—			(25		)	(25		)	—		(25		)
Cash dividends ($0.26 per share)																									—		96			—	—			(9,449		)	—			(9,353		)	—		(9,353		)
Shares issued on stock options exercised, net of shares withheld for employee taxes	13		(170		)	—	—			—			—			(157		)	—			(157		)	29		(750		)	—	—			—			—			(721		)	—		(721		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	11		(162		)	—	—			—			—			(151		)	—			(151		)	102		(2,422		)	—	—			—			—			(2,320		)	—		(2,320		)
Director shares issued	4		(4		)	—	—			—			—			—			—			—
Shares repurchased	—		—			348	(10,000		)	—			—			(10,000		)	—			(10,000		)	—		—			164	(5,781		)	—			—			(5,781		)	—		(5,781		)
Share-based compensation	—		2,861			—	—			—			—			2,861			—			2,861			—		2,548			—	—			—			—			2,548			—		2,548
Balance October 31, 2017	$	67,088	$	58,484		31,332	$	(100,402	)	$	249,034		$	(3,058	)	$	271,146		$	3		$	271,149
Balance July 31, 2019																									$	67,420	$	59,127		31,496	$	(106,183	)	$	298,496		$	(3,884	)	$	314,976		$	2	$	314,978

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

RAVEN INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)



	Three Months Ended July 31, 2018
	$1 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
Balance April 30, 2018	$	67,177	$	59,157		31,332	$	(100,402	)	$	270,479		$	(3,339	)	$	293,072		$	14	$	293,086
Net income	—		—			—	—			13,677			—			13,677			44		13,721
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			(357		)	(357		)	—		(357		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $2	—		—			—	—			—			(6		)	(6		)	—		(6		)
Cash dividends ($0.13 per share)	—		50			—	—			(4,718		)	—			(4,668		)	—		(4,668		)
Shares issued on stock options exercised, net of shares withheld for employee taxes	51		(1,185		)	—	—			—			—			(1,134		)	—		(1,134		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	1		(27		)	—	—			—			—			(26		)	—		(26		)
Share-based compensation	—		1,494			—	—			—			—			1,494			—		1,494
Balance July 31, 2018	$	67,229	$	59,489		31,332	$	(100,402	)	$	279,438		$	(3,702	)	$	302,052		$	58	$	302,110

	Six Months Ended July 31, 2018
	$1 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
Balance January 31, 2018	$	67,124	$	59,143		31,332	$	(100,402	)	$	252,772		$	(2,573	)	$	276,064		$	2	$	276,066
Net income	—		—			—	—			35,812			—			35,812			56		35,868
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			(837		)	(837		)	—		(837		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $4	—		—			—	—			—			(12		)	(12		)	—		(12		)
Reclassification due to ASU 2018-02 adoption	—		—			—	—			280			(280		)	—			—		—
Cash dividends ($0.26 per share)	—		100			—	—			(9,426		)	—			(9,326		)	—		(9,326		)
Shares issued on stock options exercised, net of shares withheld for employee taxes	63		(1,314		)	—	—			—			—			(1,251		)	—		(1,251		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	42		(721		)	—	—			—			—			(679		)	—		(679		)
Share-based compensation	—		2,281			—	—			—			—			2,281			—		2,281
Balance July 31, 2018	$	67,229	$	59,489		31,332	$	(100,402	)	$	279,438		$	(3,702	)	$	302,052		$	58	$	302,110

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						Six Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018
OPERATING ACTIVITIES:
Net income	$	32,579		$	15,754		$	21,976		$	35,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,985			11,526			8,122			7,401
Change in fair value of acquisition-related contingent consideration	198			(41		)	243			403
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		)	1,575			(439		)
Share-based compensation expense	2,861			2,291			2,548			2,281
Other operating activities, net	868			8			1,544			(1,987		)
Change in operating assets and liabilities:
Accounts receivable	(8,160		)	(1,620		)	(6,762		)	(2,982		)
Inventories	(9,213		)	3,048			(7,326		)	(792		)
Other assets	(897		)	(135		)	107			74
Operating liabilities	2,142			7,834			4,133			4,610
Net cash provided by operating activities	30,834			38,685			26,160			38,652

INVESTING ACTIVITIES:
Capital expenditures	(7,003		)	(3,901		)	(3,784		)	(6,853		)
Payments related to business acquisitions	(12,700		)	—
Proceeds from sale or maturity of investments	250			250			993			6,668
Purchases of investments	(255		)	(750		)	(907		)	(164		)
(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		)	20			(1,971		)
Net cash used in investing activities	(20,077		)	(3,754		)	(3,678		)	(1,488		)

FINANCING ACTIVITIES:
Dividends paid	(14,032		)	(14,148		)	(9,353		)	(9,326		)
Payments for common shares repurchased	(10,000		)	(7,702		)	(5,781		)	—
Payments of acquisition-related contingent liability	(364		)	(318		)	(717		)	(499		)
Restricted stock units vested and issued	(151		)	(256		)
Restricted stock unit issuances							(2,320		)	(679		)
Employee stock option exercises	(157		)	—			(722		)	(1,251		)
Other financing activities							(199		)	(102		)
Net cash used in financing activities	(24,704		)	(22,424		)	(19,092		)	(11,857		)

Effect of exchange rate changes on cash	172			24			(46		)	(403		)

Net increase (decrease) in cash and cash equivalents	(13,775		)	12,531
Net increase in cash and cash equivalents							3,344			24,904
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		$	69,131		$	65,439

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~~six-month period ended ~~October~~July 31, ~~2017~~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. Certain amendments in this guidance are required to ~~recognize~~be applied prospectively, and ~~measure leases at~~others are to be applied retrospectively. The Company is currently evaluating the ~~beginning~~impact of the ~~earliest period presented using~~adoption of ASU 2018-13 to determine the impact the guidance will have on the Company's disclosures for assets and liabilities reported at fair value on a ~~modified retrospective approach.~~recurring or nonrecurring basis.

In June 2016, the 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 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:



	July 31, 2019			January 31, 2019
Accounts receivable, net:
Trade accounts	$	58,032		$	53,820
Unbilled receivables	3,802			1,391
Allowance for doubtful accounts	(1,134		)	(739		)
	$	60,700		$	54,472
Inventories:
Finished goods	7,274			7,629
In process	2,481			1,103
Materials	51,556			45,344
	$	61,311		$	54,076
Other current assets:
Insurance policy benefit	73			336
Income tax receivable	2,837			1,045
Receivable from sale of investment	—			1,055
Prepaid expenses and other	5,817			6,300
	$	8,727		$	8,736
Property, plant and equipment, net:^(a)
Land	$	3,234		$	3,234
Buildings and improvements	81,017			81,381
Machinery and equipment	158,475			155,463
Right-of-use assets - finance	873			—
Accumulated depreciation	(138,945		)	(133,724		)
	104,654			106,354
Property, plant and equipment subject to capital leases:
Machinery and equipment	—			510
Accumulated amortization for capitalized leases	—			(249		)
	$	104,654		$	106,615
Other assets:
Equity investments	$	1,283		$	345
Right-of-use assets - operating	3,121			—
Deferred income taxes	15			16
Other	1,370			2,963
	$	5,789		$	3,324
Accrued liabilities:
Salaries and related	$	5,453		$	8,244
Benefits	4,826			4,751
Insurance obligations	1,812			1,963
Warranties	1,739			890
Income taxes	273			328
Other taxes	1,632			2,434
Acquisition-related contingent consideration	1,013			1,796
Lease liability	2,064			—
Other	2,480			3,072
	$	21,292		$	23,478
Other liabilities:
Postretirement benefits	$	7,691		$	7,678
Acquisition-related contingent consideration	2,566			2,376
Lease liability	2,301			—
Deferred income taxes	3,228			1,659
Uncertain tax positions	2,691			2,670
Other	4,339			3,852
	$	22,816		$	18,235

^(a) The amount of assets held for sale at July 31, 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		Six Months Ended
	July 31, 2019	July 31, 2018	July 31, 2019	July 31, 2018
Anti-dilutive options and restricted stock units	92,974	55,810	29,976	36,384

~~(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				Six Months Ended
	October 31, 2017		October 31, 2016		October 31, 2017		October 31, 2016		July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Numerator:
Net income attributable to Raven Industries, Inc.	$	11,998	$	5,741	$	32,581	$	15,753	$	8,766	$	13,677	$	21,976	$	35,812

Denominator:
Weighted average common shares outstanding	35,829,880		36,076,259		36,002,024		36,164,468		35,933,618		35,893,132		35,947,842		35,859,614
Weighted average fully vested stock units outstanding	109,558		97,716		105,830		100,595		128,128		102,339		116,734		95,027
Denominator for basic calculation	35,939,438		36,173,975		36,107,854		36,265,063		36,061,746		35,995,471		36,064,576		35,954,641

Weighted average common shares outstanding	35,829,880		36,076,259		36,002,024		36,164,468		35,933,618		35,893,132		35,947,842		35,859,614
Weighted average fully vested stock units outstanding	109,558		97,716		105,830		100,595		128,128		102,339		116,734		95,027
Dilutive impact of stock options and restricted stock units	380,997		122,270		369,339		70,102		184,873		429,409		260,323		455,595
Denominator for diluted calculation	36,320,435		36,296,245		36,477,193		36,335,165		36,246,619		36,424,880		36,324,899		36,410,236

Net income per share ─ basic	$	0.33	$	0.16	$	0.90	$	0.43	$	0.24	$	0.38	$	0.61	$	1.00
Net income per share ─ diluted	$	0.33	$	0.16	$	0.89	$	0.43	$	0.24	$	0.38	$	0.60	$	0.98

(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 July 31, 2019											Three Months Ended July 31, 2018
	ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total
Lighter-than-Air
Domestic	$	—	$	—	$	8,130	$	—		$	8,130	$	—	$	—	$	11,199	$	—		$	11,199
International	—		—		15		—			15		—		—		82		—			82
Plastic Films & Sheeting
Domestic	—		54,843		—		(18		)	54,825		—		54,921		—		(70		)	54,851
International	—		2,673		—		—			2,673		—		3,954		—		—			3,954
Precision Agriculture Equipment
Domestic	20,374		—		—		—			20,374		23,592		—		—		—			23,592
International	6,997		—		—		—			6,997		6,770		—		—		—			6,770
Other
Domestic	—		—		4,966		—			4,966		—		—		2,221		—			2,221
International	—		—		78		—			78		—		—		15		—			15
Totals	$	27,371	$	57,516	$	13,189	$	(18	)	$	98,058	$	30,362	$	58,875	$	13,517	$	(70	)	$	102,684

	Six Months Ended July 31, 2019											Six Months Ended July 31, 2018
	ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total
Lighter-than-Air
Domestic	$	—	$	—	$	15,159	$	—		$	15,159	$	—	$	—	$	17,747	$	—		$	17,747
International	—		—		49		—			49		—		—		536		—			536
Plastic Films & Sheeting
Domestic	—		96,605		—		(47		)	96,558		—		110,218		—		(264		)	109,954
International	—		5,203		—		—			5,203		—		8,649		—		—			8,649
Precision Agriculture Equipment
Domestic	49,958		—		—		—			49,958		53,117		—		—		—			53,117
International	19,138		—		—		—			19,138		17,675		—		—		—			17,675
Other
Domestic	—		—		10,088		—			10,088		—		—		6,120		—			6,120
International	—		—		83		—			83		—		—		15		—			15
Totals	$	69,096	$	101,808	$	25,379	$	(47	)	$	196,236	$	70,792	$	118,867	$	24,418	$	(264	)	$	213,813

~~(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:~~

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

Sheets, respectively.

~~(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 sale of its client private and radar product lines, which it has determined constitutes a business. During the second quarter of fiscal 2018 the Company determined that it was probable that these product lines would be sold within one year. The Company has identified specific assets and liabilities likely to be sold, including an allocation of goodwill based on the relative fair value of the business to be sold. Currently, the Company estimates

(dollars in thousands, except per-share amounts)

During the ~~fair value~~six months ended July 31, 2019, the Company’s contract assets and liabilities increased by $2,362 and $401, respectively. The increase was primarily a result of the ~~net assets held for sale is in excess~~contract terms which include timing of ~~their net book value. As such there is no impact~~customer payments, timing of invoicing, and progress made on open contracts. Due to the ~~Consolidated Statement~~short-term nature of ~~Income for~~ the ~~three- or nine-month periods ended October 31, 2017.~~

~~Under~~Company’s contracts, substantially all contract liabilities are recognized as revenue during the ~~Plan, Aerostar will remain focused on serving the aerospace/defense market with its stratospheric balloon product~~twelve months thereafter. Changes in our contract assets and ~~service offerings.~~

~~Amounts classified as held for sale are~~liabilities were 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



	July 31, 2019		January 31, 2019		$ Change		% Change
Contract assets	$	4,389	$	2,027	$	2,362	116.5	%

Contract liabilities	$	1,704	$	1,303	$	401	30.8	%

Remaining Performance Obligations

As of July 31, 2019, the Company did not have any remaining performance obligations related to customer contracts with an original expected duration of one year or more. Revenue recognized from performance obligations satisfied in the prior period during the three- and six-month period ending July 31, 2019, 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- and six-month period ended July 31, 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~~is 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 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 includes~~$9,700, which included 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. This increased the purchase price and the estimated fair value of the contingent earn-out payments by approximately $300. The goodwill and identifiable intangible assets recorded as part of the purchase price allocation ~~was $5,941, all~~at July 31, 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~~Consolidated Statements of Income and Comprehensive Income. The gain included a fifteen percent hold-back provision held in an escrow account which was received in the ~~investment in AgEagle, was fully impaired, further described 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.~~second quarter of 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; Raven Europe B.V. (Raven Europe), formerly named 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), 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

(dollars in thousands, except per-share amounts)

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						Six Months Ended
	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Beginning balance	$	1,567		$	1,901		$	1,741		$	2,059		$	3,956		$	2,903		$	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		)	149			251			243			403
Contingent consideration earn-out paid	(44		)	(36		)	(364		)	(318		)	(526		)	(204		)	(1,146		)	(499		)
Ending balance	$	2,831		$	1,700		$	2,831		$	1,700		$	3,579		$	2,950		$	3,579		$	2,950

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													$	1,013		$	1,709		$	1,013		$	1,709
Other liabilities, long-term													2,566			1,241			2,566			1,241
Balance at July 31													$	3,579		$	2,950		$	3,579		$	2,950

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 July 31, 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~~revenue milestones and operational synergies. To date, the Company has ~~made no payments on~~paid a total of $667 of this potential earn-out liability.

In connection with the acquisition of ~~SBG,~~ Raven ~~is committed to making additional~~Europe, the Company entered into a contingent earn-out ~~payments,~~agreement, not to exceed $2,500, calculated and paid quarterly for ten years after the purchase date, contingent upon achieving certain ~~revenues.~~revenue milestones. To date, the Company has paid a total of ~~$847~~$2,090 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 fiscal 2018 third quarter 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- and ~~nine-month~~six-month periods ~~ended October~~ending July 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 sales2019 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	(82		)	—		—		(82		)
Balance at July 31, 2019	$	16,961		$	33,232	$	634	$	50,827

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

(dollars in thousands, except per-share amounts)

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~~not recoverable and exceeds the fair value of the asset.

~~During first quarter of fiscal 2018, the Company determined that the investment in AgEagle, further described in Note 6~~ ~~Acquisitions of~~Fiscal 2020 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 intangible 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. There were no long-lived asset impairments or accelerated equity method investment 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 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, respectively.

2019

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							July 31, 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	$	9,172	$	(7,463	)	$	1,709	$	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		16,072		(6,188		)	9,884		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		5,942		(2,162		)	3,780		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	$	31,186	$	(15,813	)	$	15,373	$	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 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~~long-lived asset impairment losses reported in the three- and ~~nine-month periods ended October~~six-month period ending July 31, ~~2017.~~2019 and 2018, respectively.

(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						Six Months Ended
	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Service cost	$	21		$	20		$	64		$	60		$	7		$	7		$	14		$	14
Interest cost	83			83			247			249			84			79			167			158
Amortization of actuarial losses	30			36			90			110			24			32			48			64
Amortization of unrecognized gains in prior service cost	(40		)	(40		)	(120		)	(120		)	(40		)	(40		)	(80		)	(80		)
Net periodic benefit cost	$	94		$	99		$	281		$	299		$	75		$	78		$	149		$	156

Postretirement benefit cost components are reclassified in their entirety from accumulated other comprehensive loss to net periodic benefit cost. ~~Net periodic benefit costs are~~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						Six Months Ended
	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Beginning balance	$	2,265		$	2,076		$	1,547		$	1,835		$	1,391		$	1,097		$	890		$	1,163
Change in provision	(274		)	202			1,504			1,288			1,032			329			1,854			486
Settlements made	(774		)	(426		)	(1,834		)	(1,271		)	(684		)	(289		)	(1,005		)	(512		)
Ending balance	$	1,217		$	1,852		$	1,217		$	1,852		$	1,739		$	1,137		$	1,739		$	1,137

(dollars in thousands, except per-share amounts)

(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:



	July 31, 2019		January 31, 2019
Unamortized debt issuance costs^(a)	$	78	$	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.

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:



	July 31, 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~~July 31, ~~2017~~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.

(dollars in thousands, except per-share amounts)

Components of Company lease costs, including operating, finance, and short-term leases 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.



	Three Months Ended July 31, 2019		Six Months Ended July 31, 2019
Lease Costs:
Finance Leases
Depreciation of right-of-use assets	$	104	$	199
Interest on lease liabilities	6		11
Total finance lease cost	$	110	$	210

Operating Leases
Operating lease cost	$	362	$	722
Short-term lease cost	101		206
Total operating lease cost	$	463	$	928
Total finance and operating lease cost	$	573	$	1,138

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



	July 31, 2019
Operating Leases
Operating lease right-of-use assets	$	3,121

Current lease liability	$	1,721
Non-current lease liability	1,951
Total operating lease liabilities	$	3,672

Finance Leases
Property, plant and equipment, at cost	$	873
Accumulated depreciation	(180		)
Property, plant and equipment, net	$	693

Current lease liability	$	343
Non-current lease liability	350
Total finance lease liabilities	$	693

Weighted average remaining lease terms and discount rates include:



	July 31, 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 July 31, 2019		Six Months Ended July 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	362	$	722
Operating cash flows from finance leases	6		11
Financing cash flows from finance leases	104		199

Right-of-use assets obtained in exchange for lease obligations:
Finance leases	$	208	$	398
Operating leases	—		—

Future operating and finance lease obligations that have not yet commenced as of July 31, 2019, were immaterial and excluded from the lease liability schedule below accordingly.



	July 31, 2019
	Operating Leases			Finance Leases
Remainder of Fiscal 2020	$	902		$	215
Fiscal 2021	1,850			243
Fiscal 2022	680			160
Fiscal 2023	316			84
Fiscal 2024	98			21
Thereafter	—			—
Total lease payments	$	3,846		$	723
Less imputed interest	(174		)	(30		)
Total lease liabilities	$	3,672		$	693

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:



	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 July 31, 2019, was $3,261 (measured based on the present value of the expected future cash outflows), of which $704 was classified as "Accrued liabilities" and $2,557 was classified as "Other liabilities." As of July 31, 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~~were as follows:



	Three Months Ended				Six Months Ended
	July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Effective tax rate	20.0	%	16.8	%	15.5	%	17.9	%

Timing of discrete items related to the ~~nine-month periods ended October 31, 2017 and 2016 were 31.3% and 26.9%, respectively. The increase~~vesting or settlement of equity awards was the primary driver of the year-over-year changes in the effective tax rate ~~is primarily due to higher pre-tax income~~for the three- and six-month periods ended July 31, 2019. The Company’s effective tax rates, excluding discrete items, in the ~~current year~~three-month periods ended July 31, 2019, and ~~recognition of~~2018, were 19.1 percent and 19.5 percent, respectively. The Company’s effective tax rates, excluding discrete items, in the six-month periods ended July 31, 2019, and 2018, were 19.6 percent and 19.5 percent, respectively.

The Company recognized a discrete tax ~~expense~~benefit related to the ~~Company's adoption~~vesting or settlement of ~~ASU 2016-09 in the fiscal 2018~~equity awards as ~~further discussed in Note 2~~ follows:



	Three Months Ended				Six Months Ended
	July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Discrete tax benefit	$	22	$	471	$	1,190	$	714

~~Summary~~

The Company operates both domestically and internationally. As of ~~Significant Accounting Policies. This ASU requires that the tax effects resulting~~July 31, 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				Six Months Ended
	July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Dividends paid^(a)	$	4,671	$	4,668	$	9,353	$	9,326

Dividends paid per share (in cents per share)^(a)	13.0		13.0		26.0		26.0

^(a)There were no declared and unpaid shareholder dividends at ~~October~~July 31, ~~2017~~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~~repurchased102,477 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$3,500 in the three-month ~~periods~~period ended ~~October~~July 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. 2019. The Company ~~uses historical data to estimate option exercises and employee terminations within this valuation model.~~

~~The weighted average assumptions used~~repurchased163,177 shares for $5,781 in 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~~six-month period ended July 31, 2019. There were no shares repurchased in the three- and ~~nine-month~~six-month periods ended ~~October~~July 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~~2018. There were no share repurchases unpaid at July 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 October2019, or July 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.

2018. The ~~Company also granted performance-based RSUs in the nine-month periods ended~~remaining dollar value authorized for share repurchases at ~~October~~July 31, ~~2017~~ and 2016, respectively. The exact number of performance shares to be issued will vary from 0% to 150% of the target award, depending on the Company's actual performance over the three-year period in comparison to the target award. The target award for the fiscal 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~~2019, the Company granted 22,745 and 72,950 performance-based RSUs, respectively. None of these awards were granted in the three-month periods ended October 31, 2017 and 2016. The weighted average grant date fair value per share of these performance-based RSUs granted in the periods ended October 31, 2017 and 2016, respectively, was $29.20 and $15.61.is$22,179.

(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				Six Months Ended
	July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Cost of sales	$	99	$	103	$	175	$	183
Research and development expenses	46		36		81		67
Selling, general, and administrative expenses	1,621		1,355		2,292		2,031
Total stock-based compensation expense	$	1,766	$	1,494	$	2,548	$	2,281

(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						Six Months Ended
	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Net sales
Applied Technology	$	25,319		$	25,203		$	94,233		$	79,327		$	27,371		$	30,362		$	69,096		$	70,792
Engineered Films(a)	65,108			38,551			157,691			104,307			57,516			58,875			101,808			118,867
Aerostar	11,103			9,003			30,078			25,313			13,189			13,517			25,379			24,418
Intersegment eliminations ^(a)(b)	(181		)	(235		)	(508		)	(467		)	(18		)	(70		)	(47		)	(264		)
Consolidated net sales	$	101,349		$	72,522		$	281,494		$	208,480		$	98,058		$	102,684		$	196,236		$	213,813

Operating income (loss)^(b)
Operating income^(c)
Applied Technology	$	5,357		$	6,415		$	25,447		$	20,280		$	4,849		$	8,788		$	18,085		$	24,736
Engineered Films	17,115			7,129			35,386			17,666			10,150			10,806			16,513			24,002
Aerostar^(c)	1,359			(1,375		)	4,165			(1,804		)	2,943			3,835			4,939			6,640
Intersegment eliminations	(12		)	(16		)	(3		)	(21		)	1			19			2			4
Total reportable segment income	23,819			12,153			64,995			36,121			17,943			23,448			39,539			55,382
General and administrative expenses^(d)(c)	(5,990		)	(4,764		)	(17,247		)	(13,986		)	(7,373		)	(6,819		)	(13,848		)	(17,222		)
Consolidated operating income	$	17,829		$	7,389		$	47,748		$	22,135		$	10,570		$	16,629		$	25,691		$	38,160

^(a) Hurricane recovery film sales were $823 and $8,919 for the six-month periods ended July 31, 2019 and 2018. Hurricane recovery film sales were not significant in the three-month periods ended July 31, 2019 and 2018, 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 other than event disclosed above 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- and ~~nine-month~~six-month periods ended ~~October~~July 31, ~~2017~~2019 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								Six Months Ended
(dollars in thousands, except per-share data)	October 31, 2017			October 31, 2016			% Change		October 31, 2017			October 31, 2016			% Change			July 31, 2019			July 31, 2018			% Change		July 31, 2019			July 31, 2018			% Change
Net sales	$	101,349		$	72,522		39.7	%	$	281,494		$	208,480		35.0	%		$	98,058		$	102,684		(4.5	)%	$	196,236		$	213,813		(8.2	)%
Gross profit	33,333			19,839			68.0	%	91,802			58,871			55.9	%		31,338			34,608			(9.4	)%	66,404			74,606			(11.0	)%
Gross margin ⁽^a⁾	32.9		%	27.4		%			32.6		%	28.2		%				32.0		%	33.7		%			33.8		%	34.9		%
Operating income	$	17,829		$	7,389		141.3	%	$	47,748		$	22,135		115.7	%		$	10,570		$	16,629		(36.4	)%	$	25,691		$	38,160		(32.7	)%
Operating margin ⁽^a⁾	17.6		%	10.2		%			17.0		%	10.6		%				10.8		%	16.2		%			13.1		%	17.8		%
Other income (expense), net																		$	383		$	(139	)			$	314		$	5,540
Net income attributable to Raven Industries, Inc.	$	11,998		$	5,741		109.0	%	$	32,581		$	15,753		106.8	%		$	8,766		$	13,677		(35.9	)%	$	21,976		$	35,812		(38.6	)%
Diluted earnings per share	$	0.33		$	0.16				$	0.89		$	0.43					$	0.24		$	0.38				$	0.60		$	0.98

Cash flow from operating activities	$	10,973		$	13,127		(16.4	)%	$	30,834		$	38,685		(20.3	)%		$	17,398		$	25,049		(30.5	)%	$	26,160		$	38,652		(32.3	)%
Cash outflow for capital expenditures	$	1,780		$	1,733		2.7	%	$	7,003		$	3,901		79.5	%		$	(2,214	)	$	(2,689	)	(17.7	)%	$	(3,784	)	$	(6,853	)	(44.8	)%
Cash dividends	$	4,648		$	4,720		(1.5	)%	$	14,032		$	14,148		(0.8	)%		$	(4,671	)	$	(4,668	)	0.1	%	$	(9,353	)	$	(9,326	)	0.3	%
Common share repurchases	$	10,000		$	—				$	10,000		$	7,702		29.8	%		$	(3,500	)	$	—				$	(5,781	)	$	—

^(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 second quarter, net sales were ~~$101.3~~$98.1 million, ~~up $28.8~~down $4.6 million, or ~~39.7%~~4.5%, from ~~$72.5~~$102.7 million in last year’s ~~third~~second quarter. Each division experienced a year-over-year decline, but the majority of the decrease in net sales was driven primarily by Applied Technology. Applied Technology's ag market conditions deteriorated significantly compared to the division's expectations at the beginning of the second quarter. Abnormal wet weather in the U.S. caused challenging field conditions which negatively impacted planting and application activities in the field and drove reductions in customer demand.

The Company's operating income for the ~~third~~second quarter of fiscal ~~2018~~2020 was ~~$17.8~~$10.6 million, ~~up $10.4~~down $6.1 million, or ~~141.3%~~36.4%, compared

to the ~~third~~second quarter of fiscal ~~2017.~~2019. The ~~increase in operating income~~year-over-year decline was ~~principally due to improved~~primarily driven by negative operating leverage ~~on higher~~as a result of lower sales volume. Operating income also reflected increased investment in research and development activities in both the Applied Technology and Aerostar divisions.

Net income for the ~~third~~second quarter of fiscal ~~2018~~2020 was ~~$12.0~~$8.8 million, or ~~$0.33~~$0.24 per diluted share, compared to net income of ~~$5.7~~$13.7 million, or ~~$0.16~~$0.38 per diluted share, in the prior year comparative period. The Company's effective tax rate, excluding discrete items, was consistent with the second quarter of last year at approximately 19 percent. The prior year's ~~third quarter.~~second quarter net income benefited from approximately $0.5 million of favorable discrete tax items that did not reoccur in the second quarter of fiscal 2020.

For the ~~nine-month~~six-month period ended July 31, 2019, net sales were ~~$281.5~~$196.2 million compared to ~~$208.5~~$213.8 million, ~~up 35.0% from one~~down 8.2% versus the prior year ~~earlier.~~ comparative period. Engineered Films was the primary driver for the year-over-year decrease in net sales due to its $8.1 million decrease in hurricane recovery film sales and end-market challenges in the industrial and geomembrane markets.

The Company's operating income was ~~$47.7~~$25.7 million, ~~up 115.7%~~down 32.7% from the prior year six-month period. The ~~increase in operating income~~year-over-year decrease was ~~principally~~primarily due to ~~improved~~negative operating leverage ~~on higher~~as a result of lower sales volume. Operating income also included increased investment in research and development activities in both Applied Technology and Aerostar compared to the first six months of the prior year.

Net income for the first ~~nine~~six months of fiscal ~~2018~~2020 was ~~$32.6~~$22.0 million, or ~~$0.89~~$0.60 per diluted share, compared to net income of ~~$15.8~~$35.8 million, or ~~$0.43~~$0.98 per diluted share, in the prior year comparative period. Results 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~~six-month period ended July 31, 2018, on a pre-tax basis included a non-operating gain on the sale of the Company's ~~reporting segments,~~ownership interest in SST of $5.8 million ($4.6 million after-tax, or $0.13 per diluted share) and an expense associated with ~~each making significant contributions~~the previously announced gift to South Dakota State University of $4.5 million ($3.6 million after-tax, or $0.10 per diluted share). Year-to-date net income benefited from an increase in favorable discrete tax items of $0.5 million compared to the ~~growth.~~prior year, which reduced the Company's effective tax rate by 2 percentage points.

Applied Technology Division Results

Applied Technology's net sales in the second quarter of fiscal 2020 were $27.4 million, down $3.0 million from last year's second quarter. Geographically, international sales were up 3.4% year-over-year, but domestic sales were down $3.2 million, or 13.6%, year-over-year. International sales growth was driven primarily by strong growth in Latin America as a result of the division's investment into the region and strong OEM relationships. Challenging field conditions in the U.S. led to lower levels of field application activities by ag retailers and extended OEM plant shutdowns, which primarily caused the decrease in domestic sales.

Operating income for Applied Technology was $4.8 million, down $4.0 million or 44.8% compared to $8.8 million in the second quarter of fiscal 2019. Lower sales volume and corresponding negative operating leverage primarily drove the decrease in operating income. Operating income also included increased investment in research and development activities compared to the prior year. Part of the year-over-year increase included investments in selling and research and development related to AgSync, acquired in January of 2019.

Net sales for Applied Technology in the ~~third quarter~~first six months of fiscal ~~2018~~2020 were ~~$25.3~~$69.1 million, ~~up slightly~~down 2.4% compared to the first six months of fiscal ~~2017 third quarter net~~2019. Geographically, international 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,~~8.3% year-over-year and domestic sales were ~~up 3.2% year-over-year while international~~down 5.9% year-over-year. International sales ~~decreased 8.8% year-over-year.~~ growth was driven primarily by strong growth in Latin America as a result of the division's investment into the region and strong OEM relationships. Challenging field conditions in the U.S. led to lower levels of field application activities by ag retailers and extended OEM plant shutdowns, which caused the decrease in domestic sales.

Operating income for the first six months of fiscal 2020 was ~~$5.4~~$18.1 million, down ~~16.5%~~26.9% compared to ~~$6.4 million in~~ the ~~third quarter~~first six months of fiscal ~~2017. The decrease in operating~~2019. Operating income ~~was primarily driven by higher~~includes increased 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~~The increased investment in research and development activities included incremental investments related to the acquisition of AgSync. Prior year operating income also included favorable legal recoveries that did not reoccur in the first six months of fiscal 2020.

Engineered Films Division Results

Engineered Films’ fiscal 2020 second quarter net sales were $57.5 million, a decrease of $1.4 million, or 2.3%, compared to fiscal 2019 second quarter net sales of $58.9 million. The division experienced end-market challenges during the second quarter in the geomembrane market as well as lower than anticipated customer demand in the industrial market. These challenges were partially offset as the division caught up on the fulfillment of sales orders that were delayed from the first quarter due to the implementation of the new enterprise resource planning (ERP) platform.

Operating income for Engineered Films in the second quarter of fiscal 2020 decreased 6.1% to $10.2 million as compared to $10.8

million in the prior year second quarter. Operating inefficiencies experienced in the first quarter of fiscal 2020 from the implementation of the Company's new ERP platform were largely resolved in the second quarter; however, higher operating expenses had an unfavorable impact to the division's ~~higher~~operating income. The division expects to generate additional efficiency gains as it grows and matures in its use of the new system.

Net sales ~~versus~~for Engineered Films in the first six months of fiscal 2020 were $101.8 million, a decrease of $17.1 million, or 14.4%, compared to the year-to-date six-month period of fiscal 2019. Hurricane recovery film sales were down $8.1 million in the first six-months of fiscal 2020 compared to the prior year. The division also experienced end-market challenges in the geomembrane market as well as lower than anticipated customer demand in the industrial market.

Operating income for the first ~~nine~~six months of fiscal ~~2018 increased 100.3%~~2020 decreased 31.2% to ~~$35.4~~$16.5 million as compared to ~~$17.7~~$24.0 million in the prior year comparative period. The year-over-year ~~increase~~decrease in operating income was driven ~~principally~~primarily by ~~higher~~negative operating leverage on lower sales ~~volume, improved capacity utilization,~~volume.

Aerostar Division Results

Aerostar net sales in the second quarter of fiscal 2020 were $13.2 million, a decrease of $0.3 million, or 2.4%, compared to fiscal 2019 second quarter net sales of $13.5 million. The division achieved year-over-year growth in its core stratospheric balloon and ~~continued spending discipline.~~radar product lines; however, aerostat sales declined $3.8 million versus the prior year's second quarter and drove the year-over-year decline in division net sales.

Operating income for Aerostar in the second quarter of fiscal 2020 was $2.9 million compared to $3.8 million in the second quarter of last year. The decrease was driven primarily by reduced aerostat sales that generated above division average margins. In addition, the division increased investment in research and development and selling expenses to focus on advancing its engineering services and flight operations capabilities and to support a consistent cadence of fulfilling future contracts.

Net sales for Aerostar in the ~~third quarter~~first six months of fiscal ~~2018~~2020 were ~~$11.1~~$25.4 million, an increase of ~~$2.1~~$1.0 million, or 23.3%, compared to fiscal 2017 third quarter net sales of $9.0 million. The increase in net sales was primarily driven by growth in the stratospheric balloon platform. Operating income in the third quarter of fiscal 2018 was $1.4 million compared to an operating loss of ($1.4) million in the third quarter of last year. Fiscal 2018 third quarter results include charges of 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.

~~Aerostar net sales for the first nine months of fiscal 2018 were $30.1 million, an increase of $4.8 million, or 18.8%~~3.9%, compared to the first ~~nine~~six months of fiscal ~~2017.~~ 2019. Strong growth in the division's core stratospheric balloon and radar sales drove the year-over-year increase.

Operating income for the ~~nine-month~~six-month year-to-date period of fiscal ~~2018~~2020 was ~~$4.2~~$4.9 million compared to operating ~~loss~~income of ~~($1.8)~~$6.6 million in the prior year comparative period. The first nine months of fiscal 2018 include charges of 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. The first nine months of fiscal 2017 include an inventory write-down adjustment of $2.3 million related to certain radar inventory. The remainingDespite the increase in net sales, operating income ~~was driven by higher sales and reductions~~decreased due to ~~operating expenses while maintaining a more focused approach to~~increased investment in research and development ~~spending.~~and selling expenses to focus on advancing its engineering services and flight operations capabilities and to support a consistent cadence of fulfilling future contracts.

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											Six Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			$ Change			% Change		October 31, 2017			October 31, 2016			$ Change		% Change			July 31, 2019			July 31, 2018			$ Change			% Change		July 31, 2019			July 31, 2018			$ Change			% Change
Net sales	$	25,319		$	25,203		$	116		0.5	%	$	94,233		$	79,327		$	14,906	18.8	%		$	27,371		$	30,362		$	(2,991	)	(9.9	)%	$	69,096		$	70,792		$	(1,696	)	(2.4	)%
Gross profit	10,790			10,636			154			1.4	%	41,554			32,911			8,643		26.3	%		12,997			15,815			(2,818		)	(17.8	)%	34,334			37,001			(2,667		)	(7.2	)%
Gross margin	42.6		%	42.2		%						44.1		%	41.5		%						47.5		%	52.1		%						49.7		%	52.3		%
Operating expenses	$	5,433		$	4,221		$	1,212		28.7	%	$	15,848		$	12,631		$	3,217	25.5	%		$	8,148		$	7,027		$	1,121		16.0	%	$	16,249		$	12,265		$	3,984		32.5	%
Operating expenses as % of sales	21.5		%	16.7		%						16.8		%	15.9		%						29.8		%	23.1		%						23.5		%	17.3		%
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)																							$	4,849		$	8,788		$	(3,939	)	(44.8	)%	$	18,085		$	24,736		$	(6,651	)	(26.9	)%
Operating margin	21.2		%	25.5		%						27.0		%	25.6		%						17.7		%	28.9		%						26.2		%	34.9		%
⁽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~~six-month year-over-year changes:

•

Market conditions. ~~Aftermarket sales channel demand remains subdued, and growth~~Market conditions in the ~~OEM sales channel has become more challenging in~~ag market deteriorated significantly compared to the third quarter of fiscal 2018. Although agriculture end market conditions deteriorated in the third quarter of fiscal 2018, the Company believes that overall the division 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.division's expectations

at the beginning of the second quarter. Abnormal wet weather in the U.S. caused challenging field conditions which negatively impacted planting and application activities in the field and drove reductions in customer demand. Given the challenges being faced, several key OEMs responded with plant shutdowns in order to recalibrate production levels to align with a lower forecast of new machine sales. This temporarily halted sprayer unit production. As a result, Applied Technology's OEM and aftermarket demand in the first half of fiscal 2020 experienced a significant decline. The Company does not generally model comparative market share position for its divisions, but the Company believes Applied Technology maintained its market share in the second quarter of fiscal 2020.

•

Sales ~~volume.~~volume and selling prices. ~~Third~~Second quarter fiscal ~~2018~~2020 net sales ~~were up slightly compared~~decreased $3.0 million or 9.9%, 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$27.4 million compared to ~~$79.3~~$30.4 million in the prior year. Year-to-date sales decreased 2.4% to $69.1 million compared to $70.8 million in the prior year. Lower sales volume of both new and existing products, rather than a change in selling price, was the primary driver of this decrease. Geographically in the second quarter, international sales were up 3.4% year-over-year, and domestic sales were down 13.6% year-over-year. For the ~~nine months ended October 31, 2017,~~six-month period, international sales totaled $19.1 million, an increase of 8.3% from prior year. International sales growth for both periods was driven primarily by significant growth in Latin America as a result of the division's investment into the region and strong OEM ~~channel were up 39.2% while~~relationships. Longer than expected OEM plant shutdowns and limited application activities by ag retailers drove a decline in 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.domestically.

•

International sales. For the ~~three-month period,~~second quarter of fiscal 2020, international sales totaled ~~$5.2~~$7.0 million, ~~down 8.8%~~up 3.4% from ~~$5.7~~$6.8 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%~~25.6% of segment revenue compared to ~~22.8%~~22.3% of segment revenue in the prior year comparative period. Year-to-date, international sales totaled ~~$23.2~~$19.1 million, an increase of ~~$0.1~~$1.5 million from a year ago. Year-to-date international sales represented ~~24.6%~~27.7% of segment sales compared to ~~29.1%~~25.0% in the prior year comparative period. ~~Higher~~The year-to-date increase in international sales was driven primarily by significant growth in Latin America ~~Europe,~~as a result of the division's investment into the region. The division's commitment to increase its Latin America presence and ~~Australia were mostly offset by~~introduce its market-leading technologies to one of the world's largest ag economies is expected to be a ~~decrease in Canada. The sales increases in Europe reflect commercial synergies realized by~~strong contributor to the ~~acquisition of SBG in fiscal 2015 as Applied Technology products are increasingly sold into this market.~~division's future growth.

•

Gross margin. Gross margin ~~increased~~decreased from 52.1% in the prior year second quarter to ~~42.6% for~~47.5% in the ~~three months ended October 31, 2017~~second quarter of fiscal 2020. Year-to-date fiscal 2020 gross margin decreased from ~~42.2% in~~52.3% to 49.7% compared to the prior year comparative period. ~~For~~The year-over-year decrease in profitability for the ~~nine-month period ended October 31, 2017 gross margin increased to 44.1% from 41.5% in the fiscal 2017 comparative period. The nine-month period benefited more from higher~~three- and six-month periods was driven primarily by lower sales volume and ~~improved~~a corresponding reduction in operating leverage.

•

Operating expenses. Fiscal ~~2018 third~~2020 second quarter operating ~~expense~~expenses as a percentage of net sales was ~~21.5%~~29.8%, up from ~~16.7%~~23.1% 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.comparative period. Year-to-date operating expense as a percentage of net sales ~~was 16.8%,~~were up from ~~15.9% in the prior year comparative period.~~17.3% to 23.5%. The year-over-year increase in operating expenses for the ~~nine-month period is~~three- and six-month periods was driven primarily by ~~investment~~incremental investments in selling and research and development activities to accelerate the integration and ~~selling and marketing expenses related to new product introductions and to enhance our customer experience.~~

•

~~Long-lived asset impairment loss. As described in Note 7~~ ~~Goodwill, Long-lived Assets, and Other Intangibles~~growth of the ~~Notes to~~recently acquired AgSync. Incremental investments are increasing the ~~Consolidated Financial Statements included~~speed of product integration and adoption into the marketplace. Additionally, prior year operating expenses benefited from favorable legal recoveries which did not repeat 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, 2016.2020.

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
(dollars in thousands) October 31,
2017 October 31,
2016 $ Change % Change October 31,
2017 October 31,
2016 $ Change % Change
Net sales $ 65,108
$ 38,551
$ 26,557
68.9 % $ 157,691
$ 104,307
$ 53,384
51.2 %
Gross profit 19,358
8,711
10,647
122.2 % 41,631
22,334
19,297
86.4 %
Gross margin 29.7 % 22.6 % 26.4 % 21.4 %
Operating expenses $ 2,243
$ 1,582
$ 661
41.8 % $ 6,245
$ 4,668
$ 1,577
33.8 %
Operating expenses as % of sales 3.4 % 4.1 % 4.0 % 4.5 %
Operating income (loss)⁽¹⁾
$ 17,115
$ 7,129
$ 9,986
140.1 % $ 35,386
$ 17,666
$ 17,720
100.3 %
Operating margin 26.3 % 18.5 % 22.4 % 16.9 %
⁽¹⁾ At the segment level, operating income does not include an allocation of general and administrative expenses.



	Three Months Ended											Six Months Ended
(dollars in thousands)	July 31, 2019			July 31, 2018			$ Change			% Change		July 31, 2019			July 31, 2018			$ Change			% Change
Net sales	$	57,516		$	58,875		$	(1,359	)	(2.3	)%	$	101,808		$	118,867		$	(17,059	)	(14.4	)%
Gross profit	12,697			12,756			(59		)	(0.5	)%	21,544			27,942			(6,398		)	(22.9	)%
Gross margin	22.1		%	21.7		%						21.2		%	23.5		%
Operating expenses	$	2,547		$	1,950		$	597		30.6	%	$	5,031		$	3,940		$	1,091		27.7	%
Operating expenses as % of sales	4.4		%	3.3		%						4.9		%	3.3		%
Operating income^(a)	$	10,150		$	10,806		$	(656	)	(6.1	)%	$	16,513		$	24,002		$	(7,489	)	(31.2	)%
Operating margin	17.6		%	18.4		%						16.2		%	20.2		%
^(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~~six-month year-over-year changes:

•

Market conditions. ~~End-market conditions~~The energy market in the ~~geomembrane market, which constituted approximately 29 percent of the division's sales in the third~~second quarter ~~of fiscal 2018, have continued~~experienced slower demand compared to ~~improve from the market-bottom conditions reached last year. At the end of the third~~prior year's second quarter ~~of fiscal 2018, U.S. land-based~~as West Texas Intermediate (WTI) oil prices and Permian Basin rig counts ~~have increased approximately 66% versus the third quarter of fiscal 2017. For the three-~~decreased 17 percent and ~~nine-month periods ended October 31, 2017, sales into the geomembrane market were up approximately 125% and 135%~~6 percent 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~~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 geomembraneexpects energy 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 inrelated 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. The Company does not 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 market share.follow Permian

Basin rig counts in the second half of the year.

•

Sales volume and selling prices. ~~Third~~Second quarter net sales were ~~$65.1~~$57.5 million, ~~an increase~~a decrease of ~~$26.5~~$1.4 million, or ~~68.9%~~2.3%, compared to fiscal ~~2017 third~~2019 second quarter net sales of ~~$38.6~~$58.9 million. ~~Volume,~~First half fiscal 2020 net sales were down $17.1 million, or 14.4%, to $101.8 million compared to $118.9 million in the first half of fiscal 2019. A year-over-year decrease in sales volume, as opposed to a decrease in selling price, was the primary driver for the decline in net sales. Sales volume, measured in pounds sold, ~~increased 52.6%~~decreased approximately 3% and ~~average selling price increased 4.5%. For~~11% year-over-year for the ~~nine-month period ended October~~three- and six-month periods ending July 31, ~~2017, Engineered Films'~~2019, respectively. Included in prior year's first half net sales ~~were $157.7~~was $8.9 million ~~an increase~~ of $53.4 million, or 51.2%, compared to 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 higherhurricane recovery film sales. Hurricane recovery film sales in the first half of fiscal 2020 was approximately $0.8 million. The division also experienced end-market challenges during the three- and ~~nine-month periods ended October 31, 2017.~~six-month period in the geomembrane market as well as lower than anticipated customer demand in the industrial market.

•

Gross margin. For the ~~three-~~three-month period ending July 31, 2019 and ~~nine-month periods ended October 31, 2017,~~2018, gross margin was ~~29.7%~~relatively flat at 22.1% and ~~26.4%~~21.7%, respectively. For the six-month period ending July 31, 2019 and 2018, gross margin was 21.2% and 23.5%, respectively. The ~~gross margin for the three- and nine-month periods ended October 31, 2016 was 22.6% and 21.4%, respectively. The improvement~~year-over-year decrease in gross margin 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.

•

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 4.4% in the current year three-month period as compared to ~~4.1%~~3.3% in the prior year comparative period. Year-to-date operating expenses were ~~4.0%~~4.9% 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 driven primarily by higher legal expenses in ~~sales volume in~~both 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.~~six-month periods.

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											Six Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			$ Change			% Change		October 31, 2017			October 31, 2016			$ Change			% Change			July 31, 2019			July 31, 2018			$ Change			% Change		July 31, 2019			July 31, 2018			$ Change			% Change
Net sales	$	11,103		$	9,003		$	2,100		23.3	%	$	30,078		$	25,313		$	4,765		18.8	%		$	13,189		$	13,517		$	(328	)	(2.4	)%	$	25,379		$	24,418		$	961		3.9	%
Gross profit	3,197			508			2,689			529.3	%	8,620			3,647			4,973			136.4	%		5,643			6,018			(375		)	(6.2	)%	10,524			9,659			865			9.0	%
Gross margin	28.8		%	5.6		%						28.7		%	14.4		%							42.8		%	44.5		%						41.5		%	39.6		%
Operating expenses	$	1,838		$	1,796		$	42		2.3	%	$	4,455		$	5,364		$	(909	)	(16.9	)%		$	2,700		$	2,183		$	517		23.7	%	$	5,585		$	3,019		$	2,566		85.0	%
Operating expenses as % of sales	16.6		%	19.9		%						14.8		%	21.2		%							20.5		%	16.2		%						22.0		%	12.4		%
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)																								$	2,943		$	3,835		$	(892	)	(23.3	)%	$	4,939		$	6,640		$	(1,701	)	(25.6	)%
Operating margin	12.2		%	(15.3		)%						13.8		%	(7.1		)%							22.3		%	28.4		%						19.5		%	27.2		%
⁽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~~six-month year-over-year changes:

•

Market conditions. ~~Some~~Aerostar’s business consists of ~~Aerostar's~~proprietary products and services to the aerospace/defense and commercial lighter-than-air markets. These markets are subject to significant variability in demand due to government spending uncertainties and the timing of contract awards. Such conditions result in delays and uncertainties in certain opportunities important 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 division and theThe 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-~~second quarter and ~~nine-month periods was primarily the result~~first half of ~~market share gains rather than overall growth of the market.~~fiscal 2020.

•

Sales volume. Net sales ~~increased 23.3%~~decreased 2.4% from ~~$9.0~~$13.5 million for the three-month period ended ~~October~~July 31, ~~2016~~2018, to ~~$11.1~~$13.2 million for the three-month period ended ~~October~~July 31, ~~2017.~~2019. Year-to-date sales were ~~$30.1~~$25.4 million, up ~~$4.8~~$1.0 million year-over-year, or ~~18.8%~~3.9%. ~~The increase~~Prior year net sales for the three- and six-month periods included aerostat sales of $3.8 million and $4.8 million, respectively. Although aerostat sales were immaterial in ~~both periods~~fiscal 2020, the division was ~~driven principally by growth~~able to drive significant increases in ~~the~~radar and stratospheric balloon ~~platform.~~sales. Aerostat sales vary significantly from year-to-year as customer demand tends to be inherently inconsistent. The division's aerostat product line is very competitive and can generate above division average margins. The division will continue to supply aerostats as demand requires.

•

Gross margin. For the three-month period, gross margin ~~increased~~decreased from ~~5.6%~~44.5% to ~~28.8%. Gross~~42.8% due to unfavorable sales mix. For the six-month period, 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 infor the current ~~and prior~~ year ~~were driven by strategic decisions~~from 39.6% to ~~narrow certain offerings and thereby further enhance Aerostar’s focus on its stratospheric balloon platform. The remaining increase in gross margin for both periods was primarily driven by higher~~41.5% due to favorable sales ~~volume and the implementation of cost reductions as compared to the previous year.~~mix.

•

Operating expenses. ~~Third~~Second quarter fiscal ~~2018~~2020 operating expense was ~~$1.8~~$2.7 million, or ~~16.6%~~20.5% of net sales, ~~a decrease~~an increase from ~~19.9%~~16.2% of net sales in the ~~third~~second quarter of fiscal ~~2017.~~2019. Year-to-date operating expense as a percentage of net sales was ~~14.8%~~22.0%, ~~down~~up from ~~21.2%~~12.4% in the prior year. The ~~three- and nine-month periods ended October 31, 2017 include a $0.5 million loss on~~division increased operating expenses during the ~~disposal~~first half of ~~certain demonstration related equipment driven by strategic decisions~~fiscal 2020 to ~~narrow certain offerings and thereby further enhance Aerostar’s~~ focus on advancing its ~~stratospheric balloon platform. The decrease as~~engineering services and flight operations capabilities and to support a ~~percentage~~consistent cadence of ~~sales in both periods is primarily driven by higher sales and adjustments in operating expenses while focusing on strategic research and development spending.~~

fulfilling future contracts. The division has significantly increased its balloon launches during the three- and six-month periods of fiscal 2020 compared to fiscal 2019.

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Administrative expenses	$	5,990		$	4,764		$	17,247		$	13,986		$	7,373		$	6,819		$	13,848		$	17,222
Administrative expenses as a % of sales	5.9		%	6.6		%	6.1		%	6.7		%	7.5		%	6.6		%	7.1		%	8.1		%
Other income (expense), net	$	(34	)	$	(273	)	$	(327	)	$	(579	)	$	383		$	(139	)	$	314		$	5,540
Effective tax rate	32.6		%	19.3		%	31.3		%	26.9		%	20.0		%	16.8		%	15.5		%	17.9		%

Administrative spending for the ~~three- and nine-month periods~~three-month period of fiscal ~~2018~~2020 was up ~~$1.2~~$0.6 million ~~and $3.2 million, respectively,~~ compared to fiscal ~~2017. The increase~~2019 driven primarily by merger and acquisition (M&A) related activities. Administrative spending for ~~three-month~~the six-month period ~~is primarily due~~of fiscal 2020 was down $3.4 million compared to ~~higher employee compensation and costs incurred in the beginning stages~~fiscal 2019 as prior year's spending 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- and six-month periods in fiscal year 2020. Fiscal 2019 other income (expense), net for the six-month period 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~~July 31, ~~2017~~2019 and ~~2016~~2018, were ~~31.3%~~20.0% and ~~26.9%~~16.8%, respectively. The ~~increase~~Company’s effective tax rates for the six-month periods ended July 31, 2019 and 2018, were15.5% and 17.9%, respectively. The year-over-year change in the effective tax rate isfor the three- and six-month period was primarily due to ~~higher pre-tax income in~~ the ~~current year and recognition~~timing of 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

End-market conditions impacting our Applied Technology ~~has faced a~~division during the second quarter were significantly more challenging ~~agriculture~~than expected. Because of this and other challenges experienced in the first half of fiscal 2020, we have updated our previous expectations of achieving year-over-year growth in both sales and division profit for the full-year in each division. These updates are outlined by division below.

Applied Technology experienced challenging conditions in the first half of fiscal 2020 that were far worse than we expected three months ago. These market ~~than expected at~~conditions resulted in a 10 percent decline in sales during the ~~beginning~~second quarter. As we begin the second half of the year, we expect OEM machine production rates to improve relative to the first half of fiscal 2020, and market share gains from new product growth, international expansion and continued success with recently-acquired AgSync to help offset the challenging U.S. end-market conditions. At this time, we expect the division’s fiscal 2020 second half sales and division profit to exceed the prior year’s second half results. Additionally, we believe our strong OEM relationships and best-in-class technology have positioned us for significant growth and success over the long term.

Engineered Films also had end-market challenges in the first half of fiscal 2020 primarily due to weakness in the Industrial and Geomembrane markets. In addition, the division experienced difficult year-over-year comparisons due to prior year hurricane recovery film sales. However, the division is well positioned to capitalize on the investments it has made over the past two years, and we expect year-over-year sales growth in the second half of this year.

Aerostar continues to achieve new milestones and lead the industry with its stratospheric balloon capabilities. The division showed strength in its core markets during the first half of the year and ~~we don't foresee anything changing~~invested more aggressively in ~~the next twelve months to improve market conditions. However, its continued focus on new products~~research and expanding OEM relationships is successfully driving additional market share gains and enabling the division to outperform 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 potential for Applied Technology and expects improved margins over time with these investments, even if end-market conditions remain challenging.

For Engineered Films, end market conditions are expected to remain favorable and prior capital investments to serve the industrial and geomembrane markets are expected to continue to drive growth. Additionally, Engineered Films’ integration of CLI is progressing as expected. This acquisition is expected to be slightly accretive to earnings in fiscal year 2018 and contribute approximately 5 cents per share in fiscal 2019. The sale of recovery filmdevelopment to support hurricane relief efforts favorably impacted 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 profitability 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~~opportunities. We are excited about the ~~meaningful growth in revenues and operating profit for fiscal 2018 through the fourth quarter and~~division's future as it continues to invest in both its product and technical service offerings.

While the Company experienced unexpected near-term challenges in the second quarter, the fundamentals of the Company remain very strong and we continue to improve our competitive positioning in each of our operating divisions. We will continue to invest

for the long term through research and development ~~activities to continue~~ to drive new product ~~momentum~~innovation, capital equipment to improve and augment our unique production capabilities, and the pursuit and closure of additional strategic acquisitions.

While we will not achieve the growth in sales and division profit in every division this fiscal year as we previously expected, we do expect a stronger second half sales performance for each division, relative to the ~~intermediate~~prior year.

More importantly, we firmly believe we are much better positioned today to face end-market challenges due to the investment discipline we maintained during the previous end-market challenges we experienced. Our disciplined approach to continual investment is supported by the confidence we have in our ability to improve our market-leading positions and ~~long term.~~drive long-term growth.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet continues to reflect significant liquidity and a strong capital base. Management focuses on the current cash balance and operating cash flows in considering liquidity, as operating cash flows have historically been 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		July 31, 2019		January 31, 2019		July 31, 2018
Cash and cash equivalents	$	36,873	$	50,648	$	46,313	$	69,131	$	65,787	$	65,439


	Nine Months Ended						Three Months Ended						Six Months Ended
(dollars in thousands)	October 31, 2017			October 31, 2016			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Cash provided by operating activities	$	30,834		$	38,685		$	17,398		$	25,049		$	26,160		$	38,652
Cash used in investing activities	(20,077		)	(3,754		)	(1,237		)	(4,673		)	(3,678		)	(1,488		)
Cash used in financing activities	(24,704		)	(22,424		)	(8,427		)	(6,082		)	(19,092		)	(11,857		)
Effect of exchange rate changes on cash and cash equivalents	172			24			27			(172		)	(46		)	(403		)
Net increase in cash and cash equivalents	$	(13,775	)	$	12,531
Net increase (decrease) in cash and cash equivalents							$	7,761		$	14,122		$	3,344		$	24,904

Cash and cash equivalents totaled ~~$36.9~~$69.1 million at ~~October~~July 31, ~~2017, a decrease~~2019, an increase of ~~$13.7~~$3.3 million from ~~$50.6~~$65.8 million at January 31, ~~2017.~~2019. The comparable balance ~~one year earlier~~as of July 31, 2018 was ~~$46.3~~$65.4 million. The ~~decrease from fiscal 2017 year-end was primarily driven by cash outlays for the acquisition of CLI and share repurchases, partially offset by an~~sequential increase in ~~net income.~~cash was led by the collection of accounts receivable.

Operating Activities

~~Operating cash flows result~~Cash provided by operating activities was 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~~$26.2 million for the first ~~nine~~six months of fiscal ~~2018~~2020 compared with $38.7 million in the first ~~nine~~six 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				July 31, 2019			July 31, 2018
Accounts receivable, net		$	59,573		$	39,554			$	60,700		$	61,348
Plus: Inventories		53,481			42,813				61,311			55,993
Less: Accounts payable		13,383			9,377				15,722			14,882
Net working capital^(a)		$	99,671		$	72,990			$	106,289		$	102,459

Annualized net sales^(b)		$	405,396		$	290,088			392,232			410,736
Net working capital percentage^(c)		24.6		%	25.2		%		27.1		%	24.9		%
^(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.

Net working capital percentage deteriorated 220 basis points year-over-year in the second quarter of fiscal 2020. The increase in net working capital ~~percentage decreased from 25.2% at October 31, 2016 to 24.6% at October 31, 2017. The decrease~~ was ~~driven~~led by an increase in ~~accounts payable balances as well as managing~~ inventory within Engineered Films and ~~receivables proactively with~~Applied Technology. Both divisions expected higher sales demand in the ~~substantial increase in sales versus the prior year. To emphasize the management of efficient~~second quarter and prepared inventory 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.~~meet those expectations.

Inventory levels increased ~~$10.7~~$5.3 million, or ~~25.0%~~9.5%, year-over-year from ~~$42.8~~$56.0 million at ~~October~~July 31, ~~2016~~2018, to ~~$53.5~~$61.3 million at ~~October~~July 31, ~~2017.~~2019. In comparison, consolidated net sales ~~increased $28.8~~decreased $4.6 million, or ~~39.7%~~4.5%, year-over-year in the ~~third~~second quarter. The increase in inventory was ~~primarily~~ driven by ~~growth in net~~Engineered Films and Applied Technology as each division expected higher sales ~~and backlog~~demand in the ~~Engineered Films Division, offset somewhat by actions~~second quarter and prepared inventory levels to ~~reduce inventory in all three divisions.~~meet those expectations.

Accounts receivable ~~increased $20.0~~decreased $0.6 million or ~~50.5%~~1.1%, year-over-year to ~~$59.6~~$60.7 million at ~~October~~July 31, ~~2017~~2019, from ~~$39.6~~$61.3 million at ~~October~~July 31, ~~2016.~~2018. In comparison, consolidated net sales ~~increased $28.8~~decreased $4.6 million, or ~~39.7%~~4.5%, year-over-year in the ~~third~~second quarter. ~~The increase~~Lower sales volume and the timing of cash receipts were the primary drivers of the year-over-year decrease in accounts ~~receivable was due primarily to increased sales volume.~~receivable.

Accounts payable increased ~~$4.0~~$0.8 million, or ~~42.6%~~5.6%, year-over-year from ~~$9.4~~$14.9 million at ~~October~~July 31, ~~2016~~2018, to ~~$13.4~~$15.7 million at ~~October~~July 31, ~~2017. In comparison, net sales increased $28.8 million, or 39.7%, year-over-year in the third quarter. This~~2019. The increase in accounts payable year-over-year was primarily 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.~~and cash payments.

Investing Activities

Cash used ~~for~~by investing activities was $3.7 million for the first ~~nine~~six months of fiscal ~~2018 was up $16.3 million~~2020 compared with cash used of $1.5 million in the first ~~nine~~six months of fiscal ~~2017.~~2019. 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 milliondriver for the ~~Pleasanton, Texas facility purchased by Engineered Films in the first quarter~~year-over-year change was cash receipts of ~~fiscal 2018. In addition, the comparative period in fiscal year 2017 included $1.1~~$6.6 million ~~cash inflows~~ from the sale of ~~assets while there were no significant cash inflows from~~ the ~~sale of assets~~Company's ownership interest in SST in the ~~current~~prior year.

~~Management anticipates fiscal 2018 capital~~ Capital expenditure spending was down $3.1 million compared to ~~be approximately $10 million. The Company continues~~the prior year six-month period primarily due to ~~maintain a disciplined approach~~prior year investments related 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.new extrusion line (Line 15).

Financing Activities

Cash used for financing activities for the first ~~nine~~six months of fiscal ~~2018~~2020 was up ~~$2.3~~$7.2 million compared ~~with~~to the first ~~nine~~six months of fiscal ~~2017.~~2019. The ~~primary driver of the increase year-over-year was the~~ increase in cash outflows included $5.8 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~~six months 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~~six months of ~~the prior~~ fiscal ~~year.~~

2019. Dividends per share for the first six months of fiscal 2020 and 2019 were ~~flat~~consistent at ~~39.0~~26.0 cents per share. Total cash outflows for dividends in the ~~nine-month~~six-month periods ended ~~October~~July 31, ~~2017~~2019, and ~~2016~~2018, were ~~$14.0~~$9.4 million and ~~$14.1~~$9.3 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.~~

No borrowing or repayment occurred on the Credit Agreement during the first ~~nine~~six 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~~July 31, ~~2017~~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~~July 31, ~~2017~~2019 and ~~October~~July 31, ~~2016,~~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 Critical Accounting Policies and Estimates in ~~the Company’s~~Item 7 of 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~~six- month periods ended ~~October~~July 31, ~~2017 and no impairments to goodwill were recorded.~~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~~July 31, ~~2017.~~2019 and capital leases as of January 31, 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~~$4.3 million and ~~$2.6~~$4.6 million at ~~October~~July 31, ~~2017~~2019 and ~~October~~January 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~~July 31, ~~2017.~~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~~July 31, ~~2017 due to the material weaknesses in internal control over financial reporting which existed at that date, as described below.~~2019.

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~~

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 period~~six-month periods ended ~~October~~July 31, ~~2017~~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~~second quarter of fiscal ~~2018~~year 2020 (recorded on trade date basis) as ~~follows~~:

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

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
May 1 to May 31, 2019	73,100	$	34.17	$	2,497,778
June 1 to June 30, 2019	29,377	34.12		1,002,211
July 1 to July 31, 2019	—	—		—
Total as of and for the fiscal quarter ended July 31, 2019	102,477	$	34.15	$	3,499,989	$	22,178,941

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*31.1	~~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		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover page Interactive Data File is formatted in Inline XBRL and is contained in Exhibits 101

* 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.

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~~August 22, 2019

#34



	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

~~South Dakota~~46-0246171

(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