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 July 31, 2018~~

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 reporting 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 August ~~17, 2018~~16, 2019, there were ~~35,902,427~~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	2831
Item 4. Controls and Procedures	2931

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	2932
Item 1A. Risk Factors	2932
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2932
Item 3. Defaults Upon Senior Securities	2932
Item 4. Mine Safety Disclosures	3032
Item 5. Other Information	3032
Item 6. Exhibits	3033
Signatures	3134

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAVEN INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


(dollars and shares in thousands, except per-share data)	July 31, 2018			January 31, 2018			July 31, 2019			January 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	65,439		$	40,535		$	69,131		$	65,787
Accounts receivable, net	61,348			58,532			60,700			54,472
Inventories	55,993			55,351			61,311			54,076
Other current assets	5,372			5,861			8,727			8,736
Total current assets	188,152			160,279			199,869			183,071

Property, plant and equipment, net	106,716			106,280			104,654			106,615
Goodwill	46,438			46,710			50,827			50,942
Amortizable intangible assets, net	11,772			10,584			15,373			16,293
Other assets	2,837			2,950			5,789			3,324
TOTAL ASSETS	$	355,915		$	326,803		$	376,512		$	360,245

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	14,882		$	13,106		$	15,722		$	8,272
Accrued liabilities	21,875			21,946			21,292			23,478
Other current liabilities	733			1,890			1,704			1,303
Total current liabilities	37,490			36,942			38,718			33,053

Other liabilities	16,315			13,795			22,816			18,235

Commitments and contingencies (see Note 11)	—			—
Commitments and contingencies (see Note 12)							—			—

Shareholders' equity
Common stock, $1 par value, authorized shares 100,000; issued 67,229 and 67,124, respectively	67,229			67,124
Common stock, $1 par value, authorized shares 100,000; issued 67,420 and 67,289, respectively							67,420			67,289
Paid-in capital	59,489			59,143			59,127			59,655
Retained earnings	279,438			252,772			298,496			285,969
Accumulated other comprehensive income (loss)	(3,702		)	(2,573		)	(3,884		)	(3,556		)
Treasury stock at cost, 31,332 and 31,332 shares, respectively	(100,402		)	(100,402		)
Treasury stock at cost, 31,496 and 31,332 shares, respectively							(106,183		)	(100,402		)
Total Raven Industries, Inc. shareholders' equity	302,052			276,064			314,976			308,955
Noncontrolling interest	58			2			2			2
Total equity	302,110			276,066
Total shareholders' equity							314,978			308,957
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	355,915		$	326,803		$	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						Six Months Ended						Three Months Ended						Six Months Ended
(dollars in thousands, except per-share data)	July 31, 2018			July 31, 2017			July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Net sales	$	102,684		$	86,610		$	213,813		$	180,145		$	98,058		$	102,684		$	196,236		$	213,813
Cost of sales	68,076			60,097			139,207			121,676			66,720			68,076			129,832			139,207
Gross profit	34,608			26,513			74,606			58,469			31,338			34,608			66,404			74,606

Research and development expenses	6,151			4,256			11,436			8,236			7,067			6,151			14,338			11,436
Selling, general, and administrative expenses	11,828			10,557			25,010			20,055			13,701			11,828			26,375			25,010
Long-lived asset impairment loss	—			—			—			259
Operating income	16,629			11,700			38,160			29,919			10,570			16,629			25,691			38,160

Other (expense) income, net	(139		)	(63		)	5,540			(293		)
Other income (expense), net													383			(139		)	314			5,540
Income before income taxes	16,490			11,637			43,700			29,626			10,953			16,490			26,005			43,700

Income tax expense	2,769			3,403			7,832			9,044			2,187			2,769			4,029			7,832
Net income	13,721			8,234			35,868			20,582			8,766			13,721			21,976			35,868

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

Net income attributable to Raven Industries, Inc.	$	13,677		$	8,235		$	35,812		$	20,583		$	8,766		$	13,677		$	21,976		$	35,812

Net income per common share:
─ Basic	$	0.38		$	0.23		$	1.00		$	0.57		$	0.24		$	0.38		$	0.61		$	1.00
─ Diluted	$	0.38		$	0.23		$	0.98		$	0.56		$	0.24		$	0.38		$	0.60		$	0.98

Cash dividends paid per common share	$	0.13		$	0.13		$	0.26		$	0.26

Comprehensive income (loss):
Net income	$	13,721		$	8,234		$	35,868		$	20,582		$	8,766		$	13,721		$	21,976		$	35,868

Other comprehensive income (loss):
Foreign currency translation	(357		)	810			(837		)	822			1			(357		)	(303		)	(837		)
Postretirement benefits, net of income tax benefit of $2, $3, $4 and $7 respectively	(6		)	(7		)	(12		)	(13		)
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	(363		)	803			(849		)	809			(12		)	(363		)	(328		)	(849		)

Comprehensive income	13,358			9,037			35,019			21,391
Comprehensive income (loss)													8,754			13,358			21,648			35,019

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

Comprehensive income attributable to Raven Industries, Inc.	$	13,314		$	9,038		$	34,963		$	21,392
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, 2017	$	67,060	$	55,795		30,984	$	(90,402	)	$	230,649		$	(3,676	)	$	259,426		$	5		$	259,431
Balance April 30, 2019																									$	67,417	$	57,369		31,393	$	(102,683	)	$	294,450		$	(3,872	)	$	312,681		$	2	$	312,683
Net income																									—		—			—	—			8,766			—			8,766			—		8,766
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment																									—		—			—	—			—			1			1			—		1
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																									—		—			—	—			—			—			—			—		—
Shares repurchased																									—		—			103	(3,500		)	—			—			(3,500		)	—		(3,500		)
Share-based compensation																									—		1,766			—	—			—			—			1,766			—		1,766
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
																									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	—		—			—	—			20,583			—			20,583			(1		)	20,582			—		—			—	—			21,976			—			21,976			—		21,976
Other comprehensive income (loss):
Cumulative foreign currency translation adjustment	—		—			—	—			—			822			822			—			822			—		—			—	—			—			(303		)	(303		)	—		(303		)
Postretirement benefits reclassified from accumulated other comprehensive income (loss) after tax benefit of $7	—		—			—	—			—			(13		)	(13		)	—			(13		)	—		—			—	—			—			(25		)	(25		)	—		(25		)
Cash dividends ($0.26 per share)	—		109			—	—			(9,493		)	—			(9,384		)	—			(9,384		)	—		96			—	—			(9,449		)	—			(9,353		)	—		(9,353		)
Shares issued on stock options exercised, net of shares withheld for employee taxes	12		(160		)	—	—			—			—			(148		)	—			(148		)	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																									—		—			164	(5,781		)	—			—			(5,781		)	—		(5,781		)
Share-based compensation	—		1,932			—	—			—			—			1,932			—			1,932			—		2,548			—	—			—			—			2,548			—		2,548
Balance July 31, 2017	$	67,087	$	57,510		30,984	$	(90,402	)	$	241,739		$	(2,867	)	$	273,067		$	4		$	273,071
Balance July 31, 2019																									$	67,420	$	59,127		31,496	$	(106,183	)	$	298,496		$	(3,884	)	$	314,976		$	2	$	314,978


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	42		(721		)	—	—			—			—			(679		)	—			(679		)
Shares issued on vesting of stock units, net of shares withheld for employee taxes	63		(1,314		)	—	—			—			—			(1,251		)	—			(1,251		)
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 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)


	Six Months Ended						Six Months Ended
(dollars in thousands)	July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018
OPERATING ACTIVITIES:
Net income	$	35,868		$	20,582		$	21,976		$	35,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,401			7,184			8,122			7,401
Change in fair value of acquisition-related contingent consideration	403			145			243			403
Long-lived asset impairment loss	—			259
Loss from equity investment	—			154
Gain from sale of equity method investment	(5,785		)	—			—			(5,785		)
Deferred income taxes	(439		)	(942		)	1,575			(439		)
Share-based compensation expense	2,281			1,932			2,548			2,281
Other operating activities, net	(1,987		)	174			1,544			(1,987		)
Change in operating assets and liabilities:
Accounts receivable	(2,982		)	(3,279		)	(6,762		)	(2,982		)
Inventories	(792		)	(8,466		)	(7,326		)	(792		)
Other assets	74			(1,257		)	107			74
Operating liabilities	4,610			3,375			4,133			4,610
Net cash provided by operating activities	38,652			19,861			26,160			38,652

INVESTING ACTIVITIES:
Capital expenditures	(6,853		)	(5,223		)	(3,784		)	(6,853		)
Proceeds from sale or maturity of investments	6,668			250			993			6,668
Purchases of investments	(164		)	(255		)	(907		)	(164		)
Proceeds (disbursements) from sale of assets, settlement of liabilities	832			(344		)	—			832
Other investing activities	(1,971		)	(17		)	20			(1,971		)
Net cash used in investing activities	(1,488		)	(5,589		)	(3,678		)	(1,488		)

FINANCING ACTIVITIES:
Dividends paid	(9,326		)	(9,384		)	(9,353		)	(9,326		)
Payments for common shares repurchased							(5,781		)	—
Payments of acquisition-related contingent liability	(499		)	(320		)	(717		)	(499		)
Restricted stock units vested and issued	(679		)	(151		)
Restricted stock unit issuances							(2,320		)	(679		)
Employee stock option exercises	(1,251		)	(148		)	(722		)	(1,251		)
Other financing activities	(102		)	—			(199		)	(102		)
Net cash used in financing activities	(11,857		)	(10,003		)	(19,092		)	(11,857		)

Effect of exchange rate changes on cash	(403		)	280			(46		)	(403		)

Net increase in cash and cash equivalents	24,904			4,549			3,344			24,904
Cash and cash equivalents at beginning of year	40,535			50,648			65,787			40,535
Cash and cash equivalents at end of period	$	65,439		$	55,197		$	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 ~~construction, geomembrane, industrial, and stratospheric balloon~~ 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, ~~2018.~~2019.

Financial results for the interim three- and six-month ~~periods~~period ended July 31, ~~2018~~2019, are not necessarily indicative of the results that may be expected for the year ending January 31, ~~2019.~~2020. The January 31, ~~2018~~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 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, ~~2018~~2019, other than described in the Accounting Standards Adopted section below.

Accounting Pronouncements

Accounting Standards Adopted

In the fiscal ~~2019~~2020 first quarter, the Company ~~early~~ adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" (ASU 2018-02) issued in February 2018. The amendments in this guidance allow for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (TCJA). Consequently, the amendments eliminate the stranded tax effects resulting from the TCJA and are intended to improve the usefulness of information reported. The Company elected to apply the amendments in the period of adoption. The Company recorded a $280 reclassification entry for the stranded tax effects in Accumulated Other Comprehensive Income related to Raven's post-retirement plan further disclosed in the Company's Annual Report in the Form 10-K filed March 23, 2018. The impact of the reclassification is reported as "Reclassification due to ASU 2018-02 adoption" in the Consolidated Statements of Shareholders' Equity.

In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting" (ASU 2017-09) on a prospective basis. 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 liability instruments are the same immediately before and after the modification

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

to the award. The Company did not modify any of its outstanding awards during the six-month period ended July 31, 2018; therefore, the adoption of this guidance had no impact on its consolidated financial statements, results of operations, or disclosures.

In the fiscal 2019 first quarter when it became effective, the Company adopted, the FASB 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. The adoption of this guidance resulted in $7 and $14 of the net periodic benefit cost being reported as a charge to operating income and $71 and $142 reported as a charge to non-operating income (expense) for the three- and six-months ended July 31, 2018, respectively. The classification of this charge on the Consolidated Statements of Income and Comprehensive Income is described in Note 8 ~~Employee Retirement Benefits~~ ~~in the Notes to the Consolidated Financial Statements. The net periodic benefit cost for the prior fiscal year was not material.~~

In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU 2016-16, "Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory" (ASU 2016-16). Previous GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. This new guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. The Company did not have any intra-entity transfers of assets impacted by this guidance, as such the adoption of this guidance had no impact on its consolidated financial statements, results of operations, or disclosures.

In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU 2016-15, "Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments" (ASU 2016-15). The specific classification issues clarified in the guidance either were not applicable to the Company or are consistent with how the Company previously classified them, therefore the adoption of this guidance had no impact on its consolidated financial statements, results of operations, or disclosures.

In the fiscal 2019 first quarter when it became effective, the Company adopted FASB ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" (ASU 2016-01).The updated accounting guidance requires equity securities to be measured at fair value with changes in the fair value recognized through net income. An entity’s equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this update. The impacted financial instruments held at the time of adoption were not material, as such, the adoption of this guidance and the subsequent changes to Subtopic 825-10 in ASU 2018-03 "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," did not have a material impact on the Company's consolidated financial statements, results of operations, or disclosures.

In the fiscal 2019 first quarter, the Company adopted 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 which a 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. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The Company adopted ASU 2014-09 on a modified retrospective basis. The comparative historical information has not been adjusted and continues to be reported under ASC Topic 605 as previously presented. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements or results of operations as of the adoption date and for the three- or six months ended July 31, 2018 as a significant majority of our sales revenue is recognized when products are shipped from our manufacturing facilities. As part of our adoption of ASU 2014-09 we have elected the following practical expedients: modified retrospective basis was applied for all contracts that were not completed as of February 1, 2018; shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are considered fulfillment costs included within cost of sales; and taxes that are collected by the Company from a customer, which are assessed by governmental authorities that are both imposed upon and concurrent with a specific revenue-producing transaction, are excluded from revenues. Additional disclosures related to the revenues arising from contracts with customers as required by Topic 606 are included in Note 5 ~~Revenue~~.

~~New Accounting Standards Not Yet Adopted~~

~~In February 2016 the FASB issued 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 a lease liability (to make lease payments) and a right-of-use asset (representing its right to use the underlying asset for the lease term) on the balance sheet with terms greater than 12 months. The Company adopted ASU 2016-02 ~~is effective~~on a modified retrospective basis for ~~fiscal years beginning after December 15, 2018.~~ all agreements existing as of February 1, 2019. Prior comparative periods have not been adjusted and continue to be 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 Topic 842 are reported in Note 11 Leases of the Notes to the Consolidated Financial Statements in this Form 10-Q.

New Accounting Standards Not Yet Adopted

In ~~July~~November 2018, the FASB ~~amended~~issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic ~~842 to provide entities additional guidance on transition to adopt using either a modified retrospective approach~~808 and Topic 606" (ASU 2018-18). The amendments in ASU 2018-18 clarify that certain transactions between participants in collaborative arrangements should be accounted for ~~leases~~as revenue under Topic 606, "Revenue from Contracts with

(dollars in thousands, except per-share amounts)

Customers,"and precludes certain transactions that ~~exist upon~~are not with a customer from using Topic 606. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption ~~and~~of this guidance is permitted in any interim period. The amendments should be applied retrospectively to the ~~comparative periods presented, or an optional approach~~date Topic 606 was adopted. The Company is examining specific collaborative agreements to ~~initially apply~~determine the impact, if any, the new ~~lease~~ guidance ~~upon~~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 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 ~~date without adjusting the comparative periods presented.~~of this guidance is permitted. Certain amendments in this guidance are required to be applied prospectively, and others are to be applied retrospectively. The Company is currently evaluating the ~~method and~~impact of the 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 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 amendments in this guidance eliminate the probable initial recognition threshold and, instead, reflect an entity’s current estimate of 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 early adopt ASU 2016-13 for annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of 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.

(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, 2018 January 31, 2018
Accounts receivable, net:
     Trade accounts $ 59,138
$ 57,063
     Unbilled receivables 3,167
2,447
     Allowance for doubtful accounts (957 ) (978 )
$ 61,348
$ 58,532
Inventories:
Finished goods $ 6,709
$ 8,054
In process 1,406
961
Materials 47,878
46,336

$ 55,993

$ 55,351
Other current assets:
Insurance policy benefit $ 714
$ 759
     Income tax receivable 16
1,397
Receivable from sale of investment 1,055
—
     Prepaid expenses and other 3,587
3,705
$ 5,372
$ 5,861
Property, plant and equipment, net:
Land $ 3,234
$ 3,234
Buildings and improvements 81,092
80,299
Machinery and equipment 155,515
149,847
     Accumulated depreciation (133,482 ) (127,523 )
106,359
105,857
Property, plant and equipment subject to capital leases:
Machinery and equipment 510
488
Accumulated amortization for capitalized leases (153 ) (65 )
$ 106,716
$ 106,280
Other assets:
Equity investments $ 175
$ 1,955
Deferred income taxes 20
19
Other 2,642
976
$ 2,837
$ 2,950
Accrued liabilities:
Salaries and related $ 5,759
$ 9,409
Benefits 4,045
4,225
Insurance obligations 2,488
1,992
Warranties 1,137
1,163
Income taxes 1,667
226
Other taxes 1,357
1,880
Acquisition-related contingent consideration 1,709
1,036
Other 3,713
2,015
$ 21,875
$ 21,946
Other liabilities:
Postretirement benefits $ 8,260
$ 8,264
Acquisition-related contingent consideration 1,241
2,010
Deferred income taxes 168
615
Uncertain tax positions 2,636
2,634
Other 4,010
272
$ 16,315
$ 13,795



	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.

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 Six Months Ended
July 31,
2018 July 31,
2017 July 31,
2018 July 31,
2017
Anti-dilutive options and restricted stock units 55,810 209,400 36,384 409,136



	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

The computation of earnings per share is presented below:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	July 31, 2018		July 31, 2017		July 31, 2018		July 31, 2017		July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Numerator:
Net income attributable to Raven Industries, Inc.	$	13,677	$	8,235	$	35,812	$	20,583	$	8,766	$	13,677	$	21,976	$	35,812

Denominator:
Weighted average common shares outstanding	35,893,132		36,096,048		35,859,614		36,088,095		35,933,618		35,893,132		35,947,842		35,859,614
Weighted average fully vested stock units outstanding	102,339		109,146		95,027		103,966		128,128		102,339		116,734		95,027
Denominator for basic calculation	35,995,471		36,205,194		35,954,641		36,192,061		36,061,746		35,995,471		36,064,576		35,954,641

Weighted average common shares outstanding	35,893,132		36,096,048		35,859,614		36,088,095		35,933,618		35,893,132		35,947,842		35,859,614
Weighted average fully vested stock units outstanding	102,339		109,146		95,027		103,966		128,128		102,339		116,734		95,027
Dilutive impact of stock options and restricted stock units	429,409		348,795		455,595		322,661		184,873		429,409		260,323		455,595
Denominator for diluted calculation	36,424,880		36,553,989		36,410,236		36,514,722		36,246,619		36,424,880		36,324,899		36,410,236

Net income per share ─ basic	$	0.38	$	0.23	$	1.00	$	0.57	$	0.24	$	0.38	$	0.61	$	1.00
Net income per share ─ diluted	$	0.38	$	0.23	$	0.98	$	0.56	$	0.24	$	0.38	$	0.60	$	0.98

(5) REVENUE

~~Nature of goods and services~~

The Company is comprised of three unique operating divisions, classified into reportable segments: Applied Technology (ATD), Engineered Films (EFD), and Aerostar (AERO). The following is a description of principal activities, separated by reportable segment, from which the Company generates revenue. Note that service revenues are not material and are not separately disclosed.

~~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 reduce costs, more precisely control inputs, and improve crop yields for the global agriculture market. Customers can purchase precision agriculture equipment individually or in large quantities. For purchases made in large quantities, the Company accounts for each piece of equipment separately, as each is a distinct performance obligation from which the customer derives benefit. The stand-alone selling prices are determined based on the prices at which the Company charges other customers for similar products in similar circumstances. Kits or bundles, which can consist of various pieces of equipment, are shipped together and therefore allocation of transaction price does not impact timing of revenue recognition. In the normal course of business the customer agrees to a stated price that does not vary upon purchase and revenue is recognized when control has transferred to the customer.

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

~~Engineered Films~~

Engineered Films manufactures 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, and installation capabilities. Plastic film and sheeting can be purchased separately or together with installation services. The majority of transactions within Engineered Films are considered non-customized product-only sales. The Company accounts for each product separately, as each is a distinct performance obligation from which the customer derives benefit. The stand-alone selling prices are determined based on the prices at which the Company charges other customers for similar products in similar circumstances. In the normal course of business the customer agrees to a stated price that does not vary upon purchase and revenue is recognized when control has transferred to the customer.

The remaining transactions within Engineered Films are related to installation and/or customized product sales. Installation revenues are recognized over time using the cost incurred input method (i.e., costs incurred to date relative to total estimated costs at completion) because of continuous transfer of control to our customers. For customized product-only sales, the Company recognizes revenue over time by applying an output method, such as units delivered, to measure progress.

~~Aerostar~~

Aerostar serves the aerospace/defense and stratospheric balloon markets. Aerostar designs and manufactures proprietary products including high-altitude (stratospheric) balloon systems, and tethered aerostats, which are collectively referred to as lighter-than-air products, and offers radar processing systems and related services. 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. Product sales to customers for which we do not continuously transfer control are recognized based on a point-in-time. Contracts with customers which include elements of service, and are considered to be single performance obligations, are recognized over time. The stand-alone selling prices are determined based on the prices at which the Company charges other customers for similar products or services in similar circumstances. In the normal course of business the customer agrees to a stated price that does not vary upon purchase. For revenues recognized at a point-in-time, the Company recognizes revenue when control has transferred to the customer. Certain lighter-than-air contracts are recognized over time using the cost incurred input method. The remaining transactions are recognized over time applying an output method, such as units delivered, to measure progress.

Disaggregation of Revenues

~~In the following table, revenue~~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 ~~also~~ includes a reconciliation of the disaggregated revenue ~~with~~by reportable segments. Service revenues are not material and are not separately disclosed.

(dollars in thousands, except per-share amounts)


	Revenue by Product Category																						Revenue by Product Category
	Three Months Ended July 31, 2018											Three Months Ended July 31, 2017											Three Months Ended July 31, 2019											Three Months Ended July 31, 2018
	ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total
Lighter-than-Air
Domestic	$	—	$	—	$	11,199	$	—		$	11,199	$	—	$	—	$	5,460	$	—		$	5,460	$	—	$	—	$	8,130	$	—		$	8,130	$	—	$	—	$	11,199	$	—		$	11,199
International	—		—		82		—			82		—		—		28		—			28		—		—		15		—			15		—		—		82		—			82
Plastic Films & Sheeting
Domestic	—		54,921		—		(70		)	54,851		—		45,243		—		(211		)	45,032		—		54,843		—		(18		)	54,825		—		54,921		—		(70		)	54,851
International	—		3,954		—		—			3,954		—		3,785		—		—			3,785		—		2,673		—		—			2,673		—		3,954		—		—			3,954
Precision Agriculture Equipment
Domestic	23,592		—		—		—			23,592		20,742		—		—		—			20,742		20,374		—		—		—			20,374		23,592		—		—		—			23,592
International	6,770		—		—		—			6,770		7,682		—		—		—			7,682		6,997		—		—		—			6,997		6,770		—		—		—			6,770
Other
Domestic	—		—		2,221		—			2,221		—		—		3,881		—			3,881		—		—		4,966		—			4,966		—		—		2,221		—			2,221
International	—		—		15		—			15		—		—		—		—			—		—		—		78		—			78		—		—		15		—			15
Totals	$	30,362	$	58,875	$	13,517	$	(70	)	$	102,684	$	28,424	$	49,028	$	9,369	$	(211	)	$	86,610	$	27,371	$	57,516	$	13,189	$	(18	)	$	98,058	$	30,362	$	58,875	$	13,517	$	(70	)	$	102,684

	Six Months Ended July 31, 2018											Six Months Ended July 31, 2017											Six Months Ended July 31, 2019											Six Months Ended July 31, 2018
	ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total		ATD		EFD		AERO		ELIM^(a)			Total
Lighter-than-Air
Domestic	$	—	$	—	$	17,747	$	—		$	17,747	$	—	$	—	$	11,666	$	—		$	11,666	$	—	$	—	$	15,159	$	—		$	15,159	$	—	$	—	$	17,747	$	—		$	17,747
International	—		—		536		—			536		—		—		54		—			54		—		—		49		—			49		—		—		536		—			536
Plastic Films & Sheeting
Domestic	—		110,218		—		(264		)	109,954		—		86,354		—		(327		)	86,027		—		96,605		—		(47		)	96,558		—		110,218		—		(264		)	109,954
International	—		8,649		—		—			8,649		—		6,229		—		—			6,229		—		5,203		—		—			5,203		—		8,649		—		—			8,649
Precision Agriculture Equipment
Domestic	53,117		—		—		—			53,117		51,000		—		—		—			51,000		49,958		—		—		—			49,958		53,117		—		—		—			53,117
International	17,675		—		—		—			17,675		17,914		—		—		—			17,914		19,138		—		—		—			19,138		17,675		—		—		—			17,675
Other
Domestic	—		—		6,120		—			6,120		—		—		7,213		—			7,213		—		—		10,088		—			10,088		—		—		6,120		—			6,120
International	—		—		15		—			15		—		—		42		—			42		—		—		83		—			83		—		—		15		—			15
Totals	$	70,792	$	118,867	$	24,418	$	(264	)	$	213,813	$	68,914	$	92,583	$	18,975	$	(327	)	$	180,145	$	69,096	$	101,808	$	25,379	$	(47	)	$	196,236	$	70,792	$	118,867	$	24,418	$	(264	)	$	213,813

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

Contract Balances

Contract ~~assets~~balances consist of ~~unbilled receivables~~contract assets and ~~retainage.~~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 assets are converted to receivables when the right to collect becomes unconditional.~~

~~Contract liabilities consist of customer advances and deferred revenue.~~ Contract liabilities primarily relate to consideration received from customers prior to transferring goods or services to the customer. Contract assets and contract liabilities are reported in "Accounts receivable, net" and "Other current liabilities" in the Consolidated Balance Sheets, respectively.

(dollars in thousands, except per-share amounts)

~~The changes in our contract assets and liabilities were as follows:~~

July 31,
2018 January 31,
2018 $ Change % Change
Contract assets^(a)
$ 3,167
$ 3,119
$ 48
1.5 %

Contract liabilities^(b)
$ 733
$ 1,890
$ (1,157 ) (61.2 )%

^(a) ~~Contract assets are reported in "Accounts receivable, net" in the Consolidated Balance Sheet.~~

^(b) ~~Contract liabilities are reported in "Other current liabilities" in the Consolidated Balance Sheet.~~

During the six months ended July 31, ~~2018,~~2019, the Company’s contract assets and liabilities increased by ~~$48~~$2,362 and ~~contract liabilities decreased by $1,157,~~$401, respectively. The increase was primarily as a result of the contract terms which include timing of customer payments, timing of invoicing, and progress made on open contracts. Due to the short-term nature of the Company’s contracts, substantially all ~~of the contract assets that existed as of January 31, 2018 were converted to receivables and~~ contract liabilities ~~that existed as of January 31, 2018 were~~are recognized as revenue during the ~~first quarter of fiscal 2019.~~twelve months thereafter. Changes in our contract assets and liabilities were as follows:



	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~~Performance Obligations

As of July 31, ~~2018,~~2019, the Company did not have any remaining performance obligations related to customer contracts ~~that had~~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 ~~was immediately~~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 enhanced the Company’s geomembrane market position through extended service and product offerings with the addition of new design-build and installation service components, and advanced Engineered Films’ business model into a vertically-integrated, full-service solutions provider for the geomembrane market. The acquisition constitutedAgSync 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 ~~of $14,938~~was approximately $9,700, which included a potential earn-out payments with an estimated fair value of ~~$1,256.~~$2,052. The earn-out ~~payments are~~is contingent upon achieving certain revenue ~~targets and operational synergies.~~milestones. 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 ~~was recorded~~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 $5,714, 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. Intangible assets acquired~~resulted in an immaterial gain in the ~~acquisition related to customer relationships, order backlog and non-compete agreements were valued at $610.~~

~~Aerostar's Client Private Business~~

three-months ended April 30, 2018. In fiscal 2018, Aerostar actively marketed the sale of its client private business and as such, classified it as held for sale. ~~During~~

In the first quarter of fiscal 2019, ~~the client private business was sold for $832 which resulted in an immaterial gain in the six-months ended July 31, 2018. No gain was recognized during the three-months ended July 31, 2018.~~

~~Site-Specific Technology Development Group, Inc. (SST)~~

~~In February 2018~~ the Company sold its ownership interest of approximately 22% in ~~SST~~Site-Specific Technology Development Group, Inc. (SST) with a carrying value of $1,937. This investment was being accounted for as an equity method investment. Raven received $6,556 in cash at closing which was reported as "Proceeds from sale or maturity of investments" in the Consolidated Statements of Cash Flows. The Company recognized a gain on the sale of $5,785 for the ~~six-months ended July 31, 2018. No gain was recognized during the~~ three-months ended ~~July 31,~~April 30, 2018. The gain was reported in "Other income (expense) ~~income,~~, net" in the Consolidated Statements of Income and Comprehensive Income. ~~This amount includes~~The gain included a fifteen percent hold-back provision held in an escrow account which ~~is expected to be settled~~was received in the second quarter of fiscal 2020.

Acquisition-related Contingent Consideration

The Company has contingent liabilities related to the acquisition of ~~CLI~~AgSync in ~~September 2017,~~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).

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

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


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	July 31, 2018			July 31, 2017			July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Beginning balance	$	2,903		$	1,672		$	3,046		$	1,742		$	3,956		$	2,903		$	4,172		$	3,046
Fair value of contingent consideration acquired													—			—			310			—
Change in fair value of the liability	251			54			403			145			149			251			243			403
Contingent consideration earn-out paid	(204		)	(159		)	(499		)	(320		)	(526		)	(204		)	(1,146		)	(499		)
Ending balance	$	2,950		$	1,567		$	2,950		$	1,567		$	3,579		$	2,950		$	3,579		$	2,950

Classification of liability in the Consolidated balance sheet
Classification of liability in the consolidated balance sheet
Accrued liabilities	$	1,709		$	385		$	1,709		$	385		$	1,013		$	1,709		$	1,013		$	1,709
Other liabilities, long-term	1,241			1,182			1,241			1,182			2,566			1,241			2,566			1,241
Balance at July 31	$	2,950		$	1,567		$	2,950		$	1,567		$	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 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 ~~$1,178~~$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 ~~$1,783 of this potential earn-out liability.~~ATS.

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

Goodwill

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 second quarter of fiscal 2019 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 six-month periods ending July 31, ~~2018~~2019 and ~~2017,~~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, 2018 $ 12,741
$ 33,232
$ 737
$ 46,710
Divestiture of business —
—
(103 ) (103 )
Foreign currency translation adjustment (169 ) —
—
(169 )
Balance at July 31, 2018 $ 12,572
$ 33,232
$ 634
$ 46,438



	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 2019~~

The Company assesses the recoverability of long-lived assets, including definite-lived intangibles and property plant and equipment, if events or changes in circumstances indicate that an asset might be ~~impaired~~impaired. For long-lived and intangible assets, management performs impairment reviews by asset 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 ~~estimated undiscounted cash flows used in determining~~carrying amount is not recoverable and exceeds the fair value of the ~~asset are less than its carrying amount.~~

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

Management performed an assessment in the fiscal 2019 second quarter and determined that there were no impairment indicators identified for any of the Company's asset groups. There were no long-lived asset impairment losses reported in the three- and six month periods ending July 31, 2018.asset.

Fiscal ~~2018~~

During first quarter of fiscal 2018, the Company determined that the investment in AgEagle Aerial Systems, Inc. (AgEagle) was impaired due to lower than expected cash flows. This impairment was determined to be other-than-temporary2020 and an accelerated equity method investment loss of $72 was reported in "Other (expense) income, net" in the Consolidated Statements of Income and Comprehensive Income for the six-month period ended July 31, 2017. The Company also determined the customer relationship intangible asset related to the AgEagle 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 six-month period ended July 31, 2017. There were no long-lived asset impairments or equity method investment losses reported in the second quarter of fiscal 2018.

2019

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


	July 31, 2018							January 31, 2018							July 31, 2019							January 31, 2019
			Accumulated							Accumulated							Accumulated							Accumulated
	Amount		amortization			Net		Amount		amortization			Net		Amount		amortization			Net		Amount		amortization			Net
Existing technology	$	7,225	$	(7,088	)	$	137	$	7,290	$	(6,996	)	$	294	$	9,172	$	(7,463	)	$	1,709	$	9,203	$	(7,216	)	$	1,987
Customer relationships	12,504		(4,978		)	7,526		13,264		(4,834		)	8,430		16,072		(6,188		)	9,884		15,791		(5,508		)	10,283
Patents and other intangibles	5,741		(1,632		)	4,109		4,241		(2,381		)	1,860		5,942		(2,162		)	3,780		5,908		(1,885		)	4,023
Total	$	25,470	$	(13,698	)	$	11,772	$	24,795	$	(14,211	)	$	10,584	$	31,186	$	(15,813	)	$	15,373	$	30,902	$	(14,609	)	$	16,293

There were no long-lived asset impairment losses reported in the three- and six-month period ending July 31, 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						Six Months Ended						Three Months Ended						Six Months Ended
	July 31, 2018			July 31, 2017			July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Service cost	$	7		$	21		$	14		$	43		$	7		$	7		$	14		$	14
Interest cost	79			82			158			164			84			79			167			158
Amortization of actuarial losses	32			30			64			60			24			32			48			64
Amortization of unrecognized gains in prior service cost	(40		)	(40		)	(80		)	(80		)	(40		)	(40		)	(80		)	(80		)
Net periodic benefit cost	$	78		$	93		$	156		$	187		$	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 reported in net income in accordance with ASU 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Postretirement Benefit Cost" (ASU 2017-07) further described in Note 2 ~~Summary of Significant Accounting Policies~~ ~~of the Notes to the Consolidated Financial Statements.~~ 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 isare classified as a non-operating expense in "Other income (expense) ~~income,~~, 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						Six Months Ended						Three Months Ended						Six Months Ended
	July 31, 2018			July 31, 2017			July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Beginning balance	$	1,097		$	2,405		$	1,163		$	1,547		$	1,391		$	1,097		$	890		$	1,163
Change in provision	329			401			486			1,778			1,032			329			1,854			486
Settlements made	(289		)	(541		)	(512		)	(1,060		)	(684		)	(289		)	(1,005		)	(512		)
Ending balance	$	1,137		$	2,265		$	1,137		$	2,265		$	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.

The unamortized debt issuance costs associated with this Credit Agreement were as follows:

July 31, 2018 January 31, 2018
Unamortized debt issuance costs^(a)
$ 187
$ 242



	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 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 is in compliance with all covenants as of July 31, 2018.~~ 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 (LOC) issued and outstanding were as follows:

July 31, 2018 January 31, 2018
Letters of credit outstanding^(a)
$ 514
$ 1,097



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

^(a)~~All of these LOC are outstanding under the Credit Agreement except one LOC for $50 that is outstanding with Wells Fargo.~~ Any draws required under the 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 July 31, ~~2018~~2019, was ~~$124,536.~~$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 ~~may be~~is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its ~~business. Such items may result in~~business; potential costs and liabilities of which cannot be determined at this time. ~~The~~Management does not believe the ultimate outcomes of its legal proceedings are likely to be material to its results of operations, financial position, or cash flows. In addition, the Company has insurance policies that provide coverage to various degrees for potential liabilities arising from legal proceedings.

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

The Company entered into a Gift Agreement ~~(the Agreement)~~("the Agreement") effective in January 2018 with the South Dakota State University Foundation, Inc. ~~(the Foundation)~~("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 ~~contribution~~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, ~~2018~~2019, was ~~$4,546~~$3,261 (measured based on the present value of the expected future cash outflows), of which ~~$1,407~~$704 was classified as "Accrued liabilities" and ~~$3,139~~$2,557 was classified as "Other ~~liabilities". For the six-month period ended~~liabilities." As of July 31, ~~2018,~~2019, the Company ~~reported $4,503 of selling, general, and administrative expenses for contributions~~has made payments related to ~~be made and $43 of interest expense. 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.~~commitment totaling $1,430.

In addition to commitments disclosed elsewhere in the Notes to the 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.

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

The U.S. Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017 and reduced the U.S. federal statutory tax rate to 21 percent effective January 1, 2018. In addition, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the TCJA, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. The Company considers the accounting for the transition tax to be incomplete due to its ongoing analysis of final year-end data and tax positions. The Company expects to complete its accounting for the transition tax in the third quarter of fiscal 2019. Also, the Company has determined that it will elect to recognize Global Intangible Low Taxed Income (GILTI) as a period cost if, and when, incurred. As of July 31, 2018, undistributed earnings of the Canadian and European subsidiaries were considered to have been reinvested indefinitely.

The Company’s effective tax rate varies from the federal statutory rate, primarily due to state and local taxes, research and development tax credit, foreign-derived intangible income deduction, and tax-exempt insurance premiums. The Company’s effective tax rates were as follows:

Three Months Ended Six Months Ended
July 31,
2018 July 31,
2017 July 31,
2018 July 31,
2017
Effective tax rate 16.8 % 29.2 % 17.9 % 30.5 %



	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	%

~~The decrease in the effective tax rate year-over-year is primarily due to the decrease in the federal statutory tax rate pursuant to the TCJA. The Company also recognized a~~Timing of discrete ~~tax benefit (expense)~~items related to the vesting or settlement of ~~stock~~equity awards was the primary driver of the year-over-year changes in the effective tax rate for the three- and six-month periods ended July 31, 2019. The Company’s effective tax rates, excluding discrete items, in the three-month periods ended July 31, 2019, and 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 benefit related to the vesting or settlement of equity awards as follows:

Three Months Ended Six Months Ended
July 31,
2018 July 31,
2017 July 31,
2018 July 31,
2017
Discrete tax benefit (expense) $ 471
$ (90 ) $ 714
$ (569 )



	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

The Company operates both domestically and internationally. As of July 31, 2019, undistributed earnings from the 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 were as follows:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	July 31, 2018		July 31, 2017		July 31, 2018		July 31, 2017		July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Dividends paid^(a)	$	4,668	$	4,693	$	9,326	$	9,384	$	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		13.0		13.0		26.0		26.0

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

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

On November 3, 2014, the Company announced that its Board of Directors ~~(Board)~~("Board") had 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 to $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.

Pursuant to these authorizations, the Company repurchased102,477 shares for $3,500 in the three-month period ended July 31, 2019. The Company repurchased163,177 shares for $5,781 in the six-month period ended July 31, 2019. There were no shares repurchased ~~pursuant to these authorizations~~ in the three- and six-month periods ended July 31, ~~2018 and~~2018. There were no share repurchases unpaid at July 31, ~~2017.~~2019, or July 31, 2018. The remaining dollar value authorized for share repurchases at July 31, ~~2018~~2019, is ~~is $27,959~~$22,179.

~~(14)~~(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				Three Months Ended				Six Months Ended
	July 31, 2018		July 31, 2017		July 31, 2018		July 31, 2017		July 31, 2019		July 31, 2018		July 31, 2019		July 31, 2018
Cost of sales	$	103	$	55	$	183	$	113	$	99	$	103	$	175	$	183
Research and development expenses	36		31		67		68		46		36		81		67
Selling, general, and administrative expenses	1,355		1,055		2,031		1,751		1,621		1,355		2,292		2,031
Total stock-based compensation expense	$	1,494	$	1,141	$	2,281	$	1,932	$	1,766	$	1,494	$	2,548	$	2,281

~~(15)~~(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 certain metrics such as net sales and operating income excluding general and administrative expenses. Other (expense) income 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.

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

Three Months Ended Six Months Ended
July 31,
2018 July 31,
2017 July 31,
2018 July 31,
2017
Net sales
Applied Technology $ 30,362
$ 28,424
$ 70,792
$ 68,914
Engineered Films^(a)
58,875
49,028
118,867
92,583
Aerostar 13,517
9,369
24,418
18,975
Intersegment eliminations^(b)
(70 ) (211 ) (264 ) (327 )
Consolidated net sales $ 102,684
$ 86,610
$ 213,813
$ 180,145

Operating income^(c)

Applied Technology
$ 8,788
$ 6,637
$ 24,736
$ 20,090
Engineered Films 10,806
9,551
24,002
18,271
Aerostar 3,835
1,388
6,640
2,806
Intersegment eliminations
19
11
4
9
Total reportable segment income 23,448
17,587
55,382
41,176
General and administrative expenses^(c)
(6,819 ) (5,887 ) (17,222 ) (11,257 )
Consolidated operating income $ 16,629
$ 11,700
$ 38,160
$ 29,919

^(a)~~Fiscal year 2019 Net sales includes approximately~~ ~~$10,276~~ ~~and~~ ~~$18,373~~ in net sales for the three- and six-month periods ended July 31, 2018, respectively, related to the CLI acquisition further described in Note 6 "Acquisitions and Divestitures of and Investments in Businesses and Technologies". The division generated $1,283 and $3,608 in sales to CLI for the three- and six-month periods ended July 31, 2017, respectively. Fiscal year 2019 Net sales includes $0

(dollars in thousands, except per-share amounts)

Business segment financial performance and ~~$8,919 of~~other information is as follows:



	Three Months Ended						Six Months Ended
	July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Net sales
Applied Technology	$	27,371		$	30,362		$	69,096		$	70,792
Engineered Films^(a)	57,516			58,875			101,808			118,867
Aerostar	13,189			13,517			25,379			24,418
Intersegment eliminations^(b)	(18		)	(70		)	(47		)	(264		)
Consolidated net sales	$	98,058		$	102,684		$	196,236		$	213,813

Operating income^(c)
Applied Technology	$	4,849		$	8,788		$	18,085		$	24,736
Engineered Films	10,150			10,806			16,513			24,002
Aerostar	2,943			3,835			4,939			6,640
Intersegment eliminations	1			19			2			4
Total reportable segment income	17,943			23,448			39,539			55,382
General and administrative expenses^(c)	(7,373		)	(6,819		)	(13,848		)	(17,222		)
Consolidated operating income	$	10,570		$	16,629		$	25,691		$	38,160

^(a) Hurricane recovery film sales were $823 and $8,919 for the ~~three- and~~ six-month periods ended July 31, ~~2018, respectively, related to the hurricane recovery effort. No hurricane~~2019 and 2018. Hurricane recovery film sales ~~occurred during~~were not significant in the ~~three- and six-month~~three-month periods ended July 31, ~~2017.~~2019 and 2018, respectively.

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

^(c)At the segment level, operating income 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, ~~2018.~~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 ~~construction, geomembrane, industrial,~~ and ~~stratospheric balloon~~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~~ 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 six-month periods ended July 31, ~~2018~~2019 and ~~2017.~~2018. Segment operating results are more fully explained in the Results of Operations - Segment Analysis section.


	Three Months Ended								Six Months Ended									Three Months Ended								Six Months Ended
(dollars in thousands, except per-share data)	July 31, 2018			July 31, 2017			% Change		July 31, 2018			July 31, 2017			% Change			July 31, 2019			July 31, 2018			% Change		July 31, 2019			July 31, 2018			% Change
Net sales	$	102,684		$	86,610		18.6	%	$	213,813		$	180,145		18.7	%		$	98,058		$	102,684		(4.5	)%	$	196,236		$	213,813		(8.2	)%
Gross profit	34,608			26,513			30.5	%	74,606			58,469			27.6	%		31,338			34,608			(9.4	)%	66,404			74,606			(11.0	)%
Gross margin ⁽^a⁾	33.7		%	30.6		%			34.9		%	32.5		%				32.0		%	33.7		%			33.8		%	34.9		%
Operating income	$	16,629		$	11,700		42.1	%	$	38,160		$	29,919		27.5	%		$	10,570		$	16,629		(36.4	)%	$	25,691		$	38,160		(32.7	)%
Operating margin ⁽^a⁾	16.2		%	13.5		%			17.8		%	16.6		%				10.8		%	16.2		%			13.1		%	17.8		%
Other (expense) income, net	$	(139	)	$	(63	)			$	5,540		$	(293	)
Other income (expense), net																		$	383		$	(139	)			$	314		$	5,540
Net income attributable to Raven Industries, Inc.	$	13,677		$	8,235		66.1	%	$	35,812		$	20,583		74.0	%		$	8,766		$	13,677		(35.9	)%	$	21,976		$	35,812		(38.6	)%
Diluted earnings per share	$	0.38		$	0.23				$	0.98		$	0.56					$	0.24		$	0.38				$	0.60		$	0.98

Cash flow from operating activities	$	25,049		$	12,159		106.0	%	$	38,652		$	19,861		94.6	%		$	17,398		$	25,049		(30.5	)%	$	26,160		$	38,652		(32.3	)%
Cash outflow for capital expenditures	$	(2,689	)	$	(2,433	)	10.5	%	$	(6,853	)	$	(5,223	)	31.2	%		$	(2,214	)	$	(2,689	)	(17.7	)%	$	(3,784	)	$	(6,853	)	(44.8	)%
Cash dividends	$	(4,668	)	$	(4,693	)	(0.5	)%	$	(9,326	)	$	(9,384	)	(0.6	)%		$	(4,671	)	$	(4,668	)	0.1	%	$	(9,353	)	$	(9,326	)	0.3	%
Common share repurchases	$	—		$	—				$	—		$	—					$	(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 ~~2019~~2020 second quarter, net sales were ~~$102.7~~$98.1 million, ~~up $16.1~~down $4.6 million, or ~~18.6%~~4.5%, from ~~$86.6~~$102.7 million in last year’s 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 second quarter of fiscal ~~2019~~2020 was ~~$16.6~~$10.6 million, ~~up $4.9~~down $6.1 million, or ~~42.1%~~36.4%, compared

to the second quarter of fiscal ~~2018.~~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. ~~Included~~Operating income also reflected increased investment in ~~fiscal 2019 second quarter operating income was approximately $0.8 million of ongoing expenses related to Project Atlas. Project Atlas is a strategic long-term investment to replace~~research and development activities in both the ~~Company’s existing enterprise resource planning platform. Project Atlas did not start until the third quarter of fiscal 2018,~~Applied Technology and ~~as such, no costs were incurred in the second quarter of fiscal 2018.~~Aerostar divisions.

Net income for the second quarter of fiscal ~~2019~~2020 was ~~$13.7~~$8.8 million, or ~~$0.38~~$0.24 per diluted share, compared to net income of ~~$8.2~~$13.7 million, or ~~$0.23~~$0.38 per diluted share, in the prior year comparative period. Included in the results for the three-month period ended July 31, 2018 on a pre-tax basis were Project Atlas related expenses of $0.8 million ($0.7 million after-tax, or $0.02 per diluted share). Additionally, the 12.4 percentage point reduction in theThe Company's effective tax rate, ~~year-over-year resulted~~excluding discrete items, was consistent with the second quarter of last year at approximately 19 percent. The prior year's second quarter net income benefited from approximately $0.5 million of favorable discrete tax items that did not reoccur in ~~a tax benefit relative to~~ the ~~prior year~~second quarter of ~~$2.0 million, or $0.05 per diluted share.~~fiscal 2020.

For the six-month period ended July 31, ~~2018,~~2019, net sales were ~~$213.8~~$196.2 million compared to ~~$180.1~~$213.8 million, ~~up 18.7%~~down 8.2% versus the prior year 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 ~~$38.2~~$25.7 million, ~~up 27.5%~~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. ~~Included~~Operating income also included increased investment in ~~fiscal 2019 operating income for the six-month period was an expense of $4.5 million related~~research and development activities in both Applied Technology and Aerostar compared to the ~~previously announced gift to SDSU, all~~first six months of ~~which was recognized in~~ the ~~first quarter of fiscal 2019, and approximately $1.7 million of ongoing expenses related to Project Atlas.~~prior year.

Net income for the first six months of fiscal ~~2019~~2020 was ~~$35.8~~$22.0 million, or ~~$0.98~~$0.60 per diluted share, compared to net income of ~~$20.6~~$35.8 million, or ~~$0.56~~$0.98 per diluted share, in the prior year comparative period. ~~Included in the results~~Results for the six-month period ended July 31, 2018, on a pre-tax basis ~~were:~~included a non-operating gain on the sale of the Company's ownership interest in SST of $5.8 million ($4.6 million after-tax, or $0.13 per diluted share); and an expense associated with the previously announced gift to South Dakota State University of $4.5 million ($3.6 million after-tax, or $0.10 per diluted share)~~; and Project Atlas related expenses~~. Year-to-date net income benefited from an increase in favorable discrete tax items of ~~$1.7~~$0.5 million ~~($1.4 million after-tax, or $0.04 per diluted share). Additionally,~~compared to the ~~12.6 percentage point reduction in~~prior year, which reduced the

Company's effective tax rate ~~year-over-year resulted in a tax benefit relative to the prior year of $5.5 million, or $0.15 per diluted share.~~by 2 percentage points.

Applied Technology Division Results

Applied Technology's net sales in the second quarter of fiscal ~~2019~~2020 were ~~$30.4~~$27.4 million, ~~up $1.9~~down $3.0 million from last year's second quarter. Geographically, international sales were up 3.4% year-over-year, but domestic sales were ~~up 13.7% year-over-year while international~~down $3.2 million, or 13.6%, year-over-year. International sales ~~decreased 11.9% 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 primarily caused the decrease in domestic sales.

Operating income for Applied Technology was ~~$8.8~~$4.8 million, ~~up $2.2~~down $4.0 million or ~~32.4%~~44.8% compared to ~~$6.6~~$8.8 million in the second quarter of fiscal ~~2018. The increase versus the prior year was primarily driven by leverage on higher~~2019. Lower sales volume and ~~lower engineering support costs.~~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 first six months of fiscal ~~2019~~2020 were ~~$70.8~~$69.1 million, ~~up 2.7%~~down 2.4% compared to the first six months of fiscal ~~2018.~~2019. Geographically, international sales were up 8.3% year-over-year and domestic sales were ~~up 4.2% year-over-year~~down 5.9% 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 ~~international sales were down 1.3% year-over-year.~~ 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 ~~six-month year-to-date period~~first six months of fiscal 2020 was ~~$24.7~~$18.1 million, ~~up 23.1%~~down 26.9% compared to the ~~six-month year-to-date period~~first six months of fiscal ~~2018. This increase~~2019. Operating income includes increased investment in ~~division profit was primarily driven by~~research and development activities compared to the prior year comparative period. The increased ~~leverage on higher sales volume, lower warranty expense, value engineering~~investment in research and ~~sourcing efforts which reduced materials costs, and~~development activities included incremental investments related to the acquisition of AgSync. Prior year operating income also included favorable legal ~~recoveries.~~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 ~~were~~of $58.9 ~~million, an increase of $9.8 million, or 20.1%, compared to fiscal 2018~~million. The division experienced end-market challenges during the second quarter ~~net sales of $49.0 million. The acquisition of CLI, which occurred~~ in the ~~third~~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 ~~fiscal 2018, contributed net sales of $10.3 million~~the new enterprise resource planning (ERP) platform.

Operating income for Engineered Films in the second quarter of fiscal ~~2019. In the second quarter of fiscal 2018 the division generated $1.3 million in sales~~2020 decreased 6.1% to ~~CLI. Operating income for the second quarter of fiscal 2019 increased 13.1% to $10.8~~$10.2 million as compared to ~~$9.6~~ $10.8

million in the prior year second quarter. ~~This increase~~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 ~~income was driven by leverage on higher sales volume.~~expenses had an unfavorable impact to the division's operating income. The division expects to generate additional efficiency gains as it grows and matures in its use of the new system.

~~For~~Net sales for Engineered Films in the ~~year-to-date six-month period~~first six months of fiscal ~~2019, Engineered Films' net sales~~2020 were ~~$118.9~~$101.8 million, ~~an increase~~a decrease of ~~$26.3~~$17.1 million, or ~~28.4%~~14.4%, compared to the year-to-date six-month period of fiscal ~~2018. CLI contributed a total of $18.4~~2019. Hurricane recovery film sales were down $8.1 million in ~~sales for~~ the first ~~six months~~six-months of fiscal ~~2019. For~~2020 compared to the ~~first six months of fiscal 2018~~prior year. The division also experienced end-market challenges in the ~~division generated $3.6 million~~geomembrane market as well as lower than anticipated customer demand in ~~sales to CLI.~~ the industrial market.

Operating income for the first six months of fiscal ~~2019 increased 31.4%~~2020 decreased 31.2% to ~~$24.0~~$16.5 million as compared to ~~$18.3~~$24.0 million in the prior year comparative period. The year-over-year ~~increase~~decrease in operating income was driven ~~principally~~primarily by negative operating leverage on ~~higher~~lower sales volume.

Aerostar Division Results

Aerostar net sales in the second quarter of fiscal ~~2019~~2020 were ~~$13.5~~$13.2 million, ~~an increase~~a decrease of ~~$4.1~~$0.3 million, or ~~44.3%~~2.4%, compared to fiscal ~~2018~~2019 second quarter net sales of ~~$9.4~~$13.5 million. ~~In the first quarter of fiscal 2019 the~~The division ~~sold~~achieved year-over-year growth in its client private business which generated sales of $1.4 million and $3.0 million in the three- and six-month prior year comparative periods, respectively. The increase in net sales was driven by improved sales volume in Aerostar'score stratospheric balloon ~~platform~~ and ~~also benefited from~~radar product lines; however, aerostat sales declined $3.8 million ~~of aerostat contract deliveries.~~ 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 ~~2019~~2020 was ~~$3.8~~$2.9 million compared to ~~an operating income of $1.4~~$3.8 million in the second quarter of last year. ~~This increase~~The decrease was driven primarily by reduced aerostat sales that generated above division average margins. In addition, the division increased investment in ~~division profit was primarily driven by favorable product mix~~research and development and selling expenses to focus on advancing its engineering services and flight operations capabilities and to support a ~~higher proportion~~consistent cadence of ~~costs being allocated to specific stratospheric balloon~~fulfilling future contracts.

~~For~~Net sales for Aerostar in the first six months of fiscal ~~2019, Aerostar net sales~~2020 were ~~$24.4~~$25.4 million, an increase of ~~$5.4~~$1.0 million, or ~~28.7%~~3.9%, compared to the first six months of fiscal ~~2018.~~ 2019. Strong growth in the division's core stratospheric balloon and radar sales drove the year-over-year increase.

Operating income for the six-month year-to-date period of fiscal ~~2019~~2020 was ~~$6.6~~$4.9 million compared to operating income of ~~$2.8~~$6.6 million in the prior year comparative period. ~~This~~Despite the increase in ~~division profit was primarily driven by favorable product mix~~net sales, operating income decreased due to increased investment in research and development and selling expenses to focus on advancing its engineering services and flight operations capabilities and to support a ~~higher proportion~~consistent cadence of ~~costs being allocated to specific stratospheric balloon~~fulfilling future contracts.

RESULTS OF OPERATIONS - SEGMENT ANALYSIS

Applied Technology


		Three Months Ended										Six Months Ended											Three Months Ended											Six Months Ended
(dollars in thousands)		July 31, 2018			July 31, 2017			$ Change		% Change		July 31, 2018			July 31, 2017			$ Change		% Change			July 31, 2019			July 31, 2018			$ Change			% Change		July 31, 2019			July 31, 2018			$ Change			% Change
Net sales		$	30,362		$	28,424		$	1,938	6.8	%	$	70,792		$	68,914		$	1,878	2.7	%		$	27,371		$	30,362		$	(2,991	)	(9.9	)%	$	69,096		$	70,792		$	(1,696	)	(2.4	)%
Gross profit		15,815			12,242			3,573		29.2	%	37,001			30,764			6,237		20.3	%		12,997			15,815			(2,818		)	(17.8	)%	34,334			37,001			(2,667		)	(7.2	)%
Gross margin		52.1		%	43.1		%					52.3		%	44.6		%						47.5		%	52.1		%						49.7		%	52.3		%
Operating expenses		$	7,027		$	5,605		$	1,422	25.4	%	$	12,265		$	10,674		$	1,591	14.9	%		$	8,148		$	7,027		$	1,121		16.0	%	$	16,249		$	12,265		$	3,984		32.5	%
Operating expenses as % of sales		23.1		%	19.7		%					17.3		%	15.5		%						29.8		%	23.1		%						23.5		%	17.3		%
Long-lived asset impairment loss		$	—		$	—						$	—		$	259
Operating income^(a)		$	8,788		$	6,637		$	2,151	32.4	%	$	24,736		$	20,090		$	4,646	23.1	%		$	4,849		$	8,788		$	(3,939	)	(44.8	)%	$	18,085		$	24,736		$	(6,651	)	(26.9	)%
Operating margin		28.9		%	23.3		%					34.9		%	29.2		%						17.7		%	28.9		%						26.2		%	34.9		%
^(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.																					^(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 six-month year-over-year changes:

•

Market conditions. ~~Commodity prices remain unfavorable; however,~~Market conditions in the ~~division continues~~ag market deteriorated significantly compared to ~~drive growth due to innovative new product introductions and building on key OEM relationships. The Company does not model comparative market share position for its divisions, but~~ the ~~Company believes Applied Technology has maintained or increased its market share in fiscal 2019.~~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. Second quarter fiscal ~~2019~~2020 net sales ~~increased $1.9~~decreased $3.0 million or ~~6.8%~~9.9%, to ~~$30.4~~$27.4 million compared to ~~$28.4~~$30.4 million in the prior year. Year-to-date sales ~~increased 2.7%~~decreased 2.4% to ~~$70.8~~$69.1 million compared to ~~$68.9~~$70.8 million in the prior year. ~~The increases~~Lower sales volume of both new and existing products, rather than a change in ~~net sales~~selling price, was the primary driver of this decrease. Geographically in the ~~three-~~second quarter, international sales were up 3.4% year-over-year, and domestic sales were down 13.6% year-over-year. For the six-month period, international sales totaled $19.1 million, an increase of 8.3% from prior year. International sales growth for both periods ~~were led~~was driven primarily by ~~increases~~significant growth in Latin America as a result of the division's investment into the region and strong OEM relationships. Longer than expected OEM plant shutdowns and limited application activities by ag retailers drove a decline in sales ~~volume for its core product lines and favorable exchange rates in Europe and Canada.~~domestically.

•

International sales. For the second quarter of fiscal ~~2019,~~2020, international sales totaled ~~$6.8~~$7.0 million, ~~down 11.9%~~up 3.4% from ~~$7.7~~$6.8 million in the prior year comparative period. International sales represented ~~22.3%~~25.6% of segment revenue compared to ~~27.0%~~22.3% of segment revenue in the prior year comparative period. Year-to-date, international sales totaled ~~$17.7~~$19.1 million, ~~a decrease~~an increase of ~~$0.2~~$1.5 million from a year ago. Year-to-date international sales represented ~~25.0%~~27.7% of segment sales compared to ~~26.0%~~25.0% in the prior year comparative period. The year-to-date ~~decrease~~increase in international sales was driven primarily ~~driven~~ by ~~timing~~significant growth in Latin America as a result of ~~significant purchases by a specific customer which~~ the ~~Company does not expect~~division's investment into the region. The division's commitment to increase its Latin America presence and introduce its market-leading technologies to one of the world's largest ag economies is expected to be ~~indicative of~~a strong contributor to the division's future ~~trends.~~growth.

•

Gross margin. Gross margin ~~increased~~decreased from 52.1% in the prior year second quarter to ~~52.1% for~~47.5% in the second quarter of fiscal ~~2019, up~~2020. Year-to-date fiscal 2020 gross margin decreased from ~~43.1% in~~52.3% to 49.7% compared to the prior year comparative period. ~~Fiscal 2019 first-half gross margin increased to 52.3% from 44.6%~~The year-over-year decrease in profitability for the ~~fiscal 2018 comparative period. Lower raw materials costs, operational efficiencies,~~three- and six-month periods was driven primarily by lower sales volume and a corresponding reduction of manufacturing related engineering support were the primary drivers of this increase year-over-year. Engineering support related expenses may be allocated to overhead, and thus cost of sales, or research and development expenses based on the focus of the engineering effort.in operating leverage.

•

Operating expenses. Fiscal ~~2019~~2020 second quarter operating ~~expense~~expenses as a percentage of net sales was ~~23.1%~~29.8%, up from ~~19.7%~~23.1% in the prior year comparative period. Year-to-date operating expense as a percentage of net sales were up from ~~15.5%~~17.3% to ~~17.3%~~23.5%. ~~These increases were~~The year-over-year increase in operating expenses for the three- and six-month periods was driven primarily ~~driven~~ by ~~higher investment~~incremental investments in selling and research and development activities to accelerate the integration and growth of the ~~start-up related costs to establish the division's Latin American headquarters in Brazil. These strategic~~recently acquired AgSync. Incremental investments are ~~expected to support~~increasing the ~~division's long-term growth through new~~speed of product ~~introductions~~integration and ~~expanded geographic presence. Division~~adoption into the marketplace. Additionally, prior year operating margin for the three-month period increased 560 basis points. This increase in division profit was primarily driven by increased leverage on higher sales volume and lower engineering support costs. Division operating margin for the six-month period increased 570 basis points. This increase in division profit was primarily driven by increased leverage on higher sales volume, lower warranty expense, value engineering and sourcing efforts which reduced materials costs, andexpenses benefited from favorable legal ~~recoveries.~~

•

~~Long-lived asset impairment loss. As described~~recoveries which did not repeat in ~~Note 7~~ ~~Goodwill, Long-lived Assets, and Other Intangibles~~ ~~of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q, during the first quarter of~~ fiscal 2018 the Company determined that the intangible asset related to the investment in AgEagle was fully impaired due to the decrease in expected future cash flows. No impairments were recognized in the three- or six-month periods ended July 31, 2018 or the three-month period ended July 31, 2017.2020.

Engineered Films

Engineered Films ~~manufactures high performance~~produces high-performance plastic films and sheeting for geomembrane, agricultural, construction, ~~geomembrane,~~ 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 Six Months Ended
(dollars in thousands) July 31,
2018 July 31,
2017 $ Change % Change July 31,
2018 July 31,
2017 $ Change % Change
Net sales $ 58,875
$ 49,028
$ 9,847
20.1 % $ 118,867
$ 92,583
$ 26,284
28.4 %
Gross profit 12,756
11,526
1,230
10.7 % 27,942
22,273
5,669
25.5 %
Gross margin 21.7 % 23.5 % 23.5 % 24.1 %
Operating expenses $ 1,950
$ 1,975
$ (25 ) (1.3 )% $ 3,940
$ 4,002
$ (62 ) (1.5 )%
Operating expenses as % of sales 3.3 % 4.0 % 3.3 % 4.3 %
Operating income^(a)
$ 10,806
$ 9,551
$ 1,255
13.1 % $ 24,002
$ 18,271
$ 5,731
31.4 %
Operating margin 18.4 % 19.5 % 20.2 % 19.7 %
^(a)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-month~~three- and six-month year-over-year changes:

•

Market conditions. ~~End-market conditions~~The energy market in ~~the geomembrane market have continued to improve over the last twelve months. At the end of~~ the second quarter ~~of fiscal 2019, U.S. land-based~~experienced slower demand compared to prior year's second quarter as West Texas Intermediate (WTI) oil prices and Permian Basin rig counts ~~have increased approximately 10% versus the second quarter of fiscal 2018. Net sales included $8.9 million in deliveries of hurricane recovery film in the six-month period ending July 31, 2018~~decreased 17 percent and ~~there were no significant deliveries of hurricane recovery film in the three months ended July 31, 2018. Sales of such film are generally less than $2.0 million on an annual basis.~~6 percent year-over-year, respectively. The Company ~~does not presently expect any additional hurricane recovery film sales in fiscal 2019. The Company does not model comparative~~expects energy market ~~share position~~related demand for ~~its divisions, but the Company believes~~ Engineered Films ~~has maintained or increased market share in its core business.~~to follow Permian

Basin rig counts in the second half of the year.

•

Sales volume and selling prices. Second quarter net sales were ~~$58.9~~$57.5 million, ~~an increase~~a decrease of ~~$9.8~~$1.4 million, or ~~20.1%~~2.3%, compared to fiscal ~~2018~~2019 second quarter net sales of ~~$49.0~~$58.9 million. First half fiscal ~~2019~~2020 net sales were ~~up $26.3~~down $17.1 million, or ~~28.4%~~14.4%, to ~~$118.9~~$101.8 million compared to ~~$92.6~~$118.9 million in the first half of fiscal ~~2018. As described~~2019. A year-over-year decrease in ~~Note 6~~ ~~Acquisitions~~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, decreased approximately 3% and ~~Divestitures of and Investments in Businesses and Technologies~~ of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q, during the third quarter of fiscal 2018 the Company closed on the acquisition of CLI, further strengthening Engineered Films' presence in the geomembrane market. CLI contributed $10.3 million and $18.4 million in sales11% year-over-year for the three- and six-month periods ~~ended~~ending July 31, ~~2018,~~2019, respectively. InIncluded in prior year's first half net sales was $8.9 million of hurricane 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 six-month ~~periods ended July 31, 2017, the division generated $1.3 million and $3.6 million~~period in ~~sales to CLI, respectively. Drivers of the increase in the underlying business include improved market conditions within~~ the geomembrane market ~~new business wins~~as well as lower than anticipated customer demand in the industrial market and the delivery of hurricane recovery films. One of the key capital investments in fiscal 2019 is a new blown film line (Line 15). The installation process is progressing according to schedule and start-up of the new line is anticipated in the fourth quarter of this fiscal year. The Company expects Line 15 to be a strong contributor to organic growth in Engineered Films next year and over the long-term.market.

•

Gross margin. For the ~~three- and six-month periods ended~~three-month period ending July 31, 2019 and 2018, gross margin was relatively flat at 22.1% and 21.7%, respectively. For the six-month period ending July 31, 2019 and 2018, gross margin was 21.2% and 23.5%, respectively. The year-over-year decrease in gross margin ~~for~~was driven by lower sales volume including the ~~three-~~significant reduction in hurricane recovery film sales and ~~six-month period ended July 31, 2017 was 23.5% and 24.1%, respectively. Strong division profit margins were sustained even with the heavier mix of installation services~~corresponding negative operating leverage.

•

Operating expenses. ~~Second quarter operating expenses were down 1.3% compared to the prior year second quarter.~~ As a percentage of net sales, operating expenses were ~~3.3%~~4.4% in the current year three-month period as compared to ~~4.0%~~3.3% in the prior year comparative period. Year-to-date operating expenses were ~~3.3%~~4.9% as a percentage of net sales as compared to ~~4.3%~~3.3% in the prior year comparative period. ~~Expense discipline constrained costs while sales grew substantially.~~The year-over-year increase was driven primarily by higher legal expenses in both the three- and six-month periods.

Aerostar

Aerostar serves the aerospace/defense and commercial lighter-than-air markets. Aerostar's core products include high-altitude stratospheric balloon markets. Aerostar designs and manufactures proprietary products including high-altitude (stratospheric) balloon systems, and tethered aerostats, which are collectively referred to as lighter-than-air products,balloons and radar systems. ~~Aerostar sells~~These products can be integrated with additional third-party sensors to ~~various aerospace, defense,~~provide research, communications, and situational awareness capabilities to governmental and commercial markets related to its proprietary products and manufacturing capabilities. Aerostar provides services for U.S. government contracts including planning, integration, and support operations for its proprietary stratospheric balloon platforms and radar systems.customers.


	Three Months Ended										Six Months Ended											Three Months Ended											Six Months Ended
(dollars in thousands)	July 31, 2018			July 31, 2017			$ Change		% Change		July 31, 2018			July 31, 2017			$ Change		% Change			July 31, 2019			July 31, 2018			$ Change			% Change		July 31, 2019			July 31, 2018			$ Change			% Change
Net sales	$	13,517		$	9,369		$	4,148	44.3	%	$	24,418		$	18,975		$	5,443	28.7	%		$	13,189		$	13,517		$	(328	)	(2.4	)%	$	25,379		$	24,418		$	961		3.9	%
Gross profit	6,018			2,734			3,284		120.1	%	9,659			5,423			4,236		78.1	%		5,643			6,018			(375		)	(6.2	)%	10,524			9,659			865			9.0	%
Gross margin	44.5		%	29.2		%					39.6		%	28.6		%						42.8		%	44.5		%						41.5		%	39.6		%
Operating expenses	$	2,183		$	1,346		$	837	62.2	%	$	3,019		$	2,617		$	402	15.4	%		$	2,700		$	2,183		$	517		23.7	%	$	5,585		$	3,019		$	2,566		85.0	%
Operating expenses as % of sales	16.2		%	14.4		%					12.4		%	13.8		%						20.5		%	16.2		%						22.0		%	12.4		%
Operating income^(a)	$	3,835		$	1,388		$	2,447	176.3	%	$	6,640		$	2,806		$	3,834	136.6	%		$	2,943		$	3,835		$	(892	)	(23.3	)%	$	4,939		$	6,640		$	(1,701	)	(25.6	)%
Operating margin	28.4		%	14.8		%					27.2		%	14.8		%						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-month~~three- and six-month year-over-year changes:

•

Market conditions. Aerostar’s business consists of proprietary products and services to the ~~aerospace,~~ aerospace/defense and commercial lighter-than-air markets. ~~It is particularly challenging~~These markets are subject to ~~measure market share information across the product and service offerings~~significant variability in demand due to government spending uncertainties and the timing of contract awards. The Company does not generally model comparative market share position for ~~any of~~ its ~~divisions. However,~~divisions, but the Company believes ~~that the sales growth~~Aerostar has maintained its market share in the ~~three-~~second quarter and ~~six-month periods was driven by market share gains and overall growth in the markets served.~~first half of fiscal 2020.

•

Sales volume. Net sales ~~increased 44.3%~~decreased 2.4% from ~~$9.4 million for the three-month period ended July 31, 2017 to~~ $13.5 million for the three-month period ended July 31, ~~2018.~~2018, to $13.2 million for the three-month period ended July 31, 2019. Year-to-date sales were ~~$24.4~~$25.4 million, up ~~$5.4~~$1.0 million year-over-year, or ~~28.7%~~3.9%. ~~In the first quarter of fiscal 2019 the division sold its client private business. Aerostar's client private business generated~~Prior year net sales ~~of $0.0 million and $0.3 million~~ for the three- and six-month periods ~~in 2019 fiscal year, respectively, and $1.4~~included aerostat sales of $3.8 million and ~~$3.0~~$4.8 million, respectively. Although aerostat sales were immaterial in fiscal 2020, the ~~prior comparative three-~~division was able to drive significant increases in radar and ~~six-month periods, respectively. The increase in net sales was driven by improved sales volume in Aerostar's~~ 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 ~~also benefited from aerostat contract deliveries.~~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 ~~29.2%~~44.5% to ~~44.5%. Gross~~42.8% due to unfavorable sales mix. For the six-month period, gross margin increased for the current year from ~~28.6%~~39.6% to ~~39.6% in the six-month period. The increase in gross margin year-over-year was primarily the result of a~~41.5% due to favorable sales ~~mix and and a higher proportion of costs being allocated to specific stratospheric balloon contracts.~~mix.

•

Operating expenses. Second quarter fiscal ~~2019~~2020 operating expense was ~~$2.2~~$2.7 million, or ~~16.2%~~20.5% of net sales, an increase from ~~14.4%~~16.2% of net sales in the second quarter of fiscal ~~2018. The increase in operating expenses for the second quarter was driven by higher internal research and development spending as compared to the prior year comparative period.~~2019. Year-to-date operating expense as a percentage of net sales was ~~12.4%~~22.0%, ~~down~~up from ~~13.8%~~12.4% in the prior year. ~~Expense discipline constrained costs while sales grew substantially.~~The division increased operating expenses during the first half of fiscal 2020 to focus on advancing its engineering services and flight operations capabilities and to support a consistent cadence of

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						Six Months Ended						Three Months Ended						Six Months Ended
(dollars in thousands)	July 31, 2018			July 31, 2017			July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Administrative expenses	$	6,819		$	5,887		$	17,222		$	11,257		$	7,373		$	6,819		$	13,848		$	17,222
Administrative expenses as a % of sales	6.6		%	6.8		%	8.1		%	6.2		%	7.5		%	6.6		%	7.1		%	8.1		%
Other (expense) income, net	$	(139	)	$	(63	)	$	5,540		$	(293	)
Other income (expense), net													$	383		$	(139	)	$	314		$	5,540
Effective tax rate	16.8		%	29.2		%	17.9		%	30.5		%	20.0		%	16.8		%	15.5		%	17.9		%

Administrative spending for the ~~three- and six-month periods~~three-month period of fiscal ~~2019~~2020 was up ~~$0.9~~$0.6 million ~~and $6.0 million, respectively,~~ compared to fiscal ~~2018. Second quarter~~2019 driven primarily by merger and acquisition (M&A) related activities. Administrative spending for the six-month period of fiscal 2020 was down $3.4 million compared to fiscal 2019 ~~administrative spending included approximately $0.8 million of expenses related to Project Atlas. Year-to-date fiscal 2019 administrative~~as prior year's spending included an expense of $4.5 million related to ~~the previously announced~~a gift to ~~SDSU, all of which was recognized in the first quarter of fiscal 2019, and approximately $1.7 million of expenses related to Project Atlas.~~South Dakota State University.

Other income (expense) ~~income,~~, 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) ~~income,~~, net for the ~~six months includes~~six-month period included a $5.8 million gain on the sale of the Company's equity interest in SST. ~~There were no significant items in other (expense) income, net for the first six months of fiscal 2018.~~

The Company’s effective tax rates for the three-month periods ended July 31, 2019 and 2018, were 20.0% and ~~2017 were~~ 16.8% ~~and 29.2%~~, respectively. The Company’s effective tax ~~rate~~rates for the six-month ~~period~~periods ended July 31, 2019 and 2018, ~~was~~were15.5% and 17.9% ~~compared to 30.5% in the prior year.~~, respectively. The ~~decrease~~year-over-year change in the effective tax rate isfor the three- and six-month period was primarily due to the ~~decrease in the federal statutory~~timing of discrete tax ~~rate pursuant~~items related to the ~~TCJA.~~

~~Other items causing the Company's effective tax rate~~settlement and vesting of equity compensation awards. Refer to ~~differ from the statutory tax rate are more fully described in~~ Note 1213 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

~~During~~End-market conditions impacting our Applied Technology division during the second quarter were significantly more challenging than expected. Because of this and other challenges experienced in the first half of fiscal ~~2019, Organic~~2020, we have updated our previous expectations of achieving year-over-year growth ~~was strong~~in both sales and division profit for ~~Aerostar, new product success drove growth for~~ the full-year in each division. These updates are outlined by division below.

Applied Technology ~~and Engineered Films executed well and has realized~~experienced challenging conditions in the ~~benefits~~first half of fiscal 2020 that were far worse than we expected three months ago. These market conditions resulted in a 10 percent decline in sales during the ~~CLI acquisition. The Company expects the underlying strength of our business to continue in~~second quarter. As we begin the second half of the year, ~~and~~ we ~~are on track~~expect OEM machine production rates to ~~deliver another strong year~~improve relative to the first half of ~~growth~~fiscal 2020, and ~~improved profitability.~~

~~Applied Technology has achieved organic growth through~~ market share gains from new product growth, international expansion and ~~leveraging~~continued success with recently-acquired AgSync to help offset the ~~strength of its product portfolio. Our expectation is that~~challenging U.S. end-market conditions. At this time, we expect the ~~division will continue to grow sales and drive further margin improvement in the~~division’s fiscal 2020 second half ~~of fiscal 2019.~~

~~During the first six months of fiscal 2019, Engineered Films generated strong growth in both~~ sales and division ~~profit. The division is investing in new capabilities and leveraging its acquisition of CLI~~profit to ~~drive growth. In~~exceed the prior year’s second half ~~of fiscal 2019 sales comparisons~~results. Additionally, we believe our strong OEM relationships and best-in-class technology have positioned us for ~~Engineered Films will be negatively impacted by~~significant growth and success over the non-recurring nature of hurricane recovery film sales. In the second half of last year the division realized $24.2 million in sales of hurricane recovery film, $8.4 million of which occurred in the third quarter. Substantial sales related to hurricane disaster recovery is not typical for the division as sales of such film are generally less than $2.0 million on an annual basis. In the third and fourth quarters of the current fiscal year, the division does not expect significant sales from hurricane recovery film. As a result, year-over-year sales comparisons in the third and fourth quarter of this fiscal year will be negatively impacted. Excluding the impact of hurricane recovery film, we expect the division to continue to grow sales and to generate profit margins in-line with our long-term expectations.long term.

~~Aerostar has had a really strong first six months of fiscal 2019. The division is expected to continue to drive long-term profitable growth led by new contract wins for its core product offerings.~~

For the Company, Project Atlas related expenses are expected to be approximately $4 million in fiscal 2019. This investment is expected to 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. Capital spending is expected to be approximately $22 million in fiscal 2019. These capital expenditures will include a new extrusion line for Engineered Films ~~with an expected completion date toward the end of fiscal 2019. The effective tax rate for the full-year is expected to be approximately 20%, excluding discrete items.~~

~~Overall financial performance was strong~~also had end-market challenges in the first half of fiscal ~~2019.~~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 invested more aggressively in research and development to support long-term growth opportunities. We are ~~executing~~excited about the 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 ~~long-term strategic plan.~~competitive positioning in each of our operating divisions. We ~~are investing heavily in~~will continue to invest

for the long term through research and development to drive new product ~~development in Applied Technology, new manufacturing capacity in Engineered Films,~~innovation, capital equipment to improve and augment our unique production capabilities, and the ~~commercialization~~pursuit and closure of ~~our stratospheric balloon platforms~~additional strategic acquisitions.

While we will not achieve the growth in sales and ~~radar systems~~division profit in ~~Aerostar. As~~every division this fiscal year as we ~~approach~~previously expected, we do expect a stronger second half sales performance for each division, relative to the ~~anniversary of acquiring CLI, acquisitions remain a strategic focus and~~prior year.

More importantly, we ~~are optimistic about the existing pipeline of opportunities. We have a strong platform for organic growth and we are making the right investments and expanding margins. We~~firmly believe we are ~~on track~~much better positioned today to ~~deliver another strong performance~~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 ~~fiscal year 2019.~~our ability to improve our market-leading positions and 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)	July 31, 2018		January 31, 2018		July 31, 2017		July 31, 2019		January 31, 2019		July 31, 2018
Cash and cash equivalents	$	65,439	$	40,535	$	55,197	$	69,131	$	65,787	$	65,439


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(dollars in thousands)	July 31, 2018			July 31, 2017			July 31, 2018			July 31, 2017			July 31, 2019			July 31, 2018			July 31, 2019			July 31, 2018
Cash provided by operating activities	$	25,049		$	12,159		$	38,652		$	19,861		$	17,398		$	25,049		$	26,160		$	38,652
Cash used in investing activities	(4,673		)	(2,753		)	(1,488		)	(5,589		)	(1,237		)	(4,673		)	(3,678		)	(1,488		)
Cash used in financing activities	(6,082		)	(5,010		)	(11,857		)	(10,003		)	(8,427		)	(6,082		)	(19,092		)	(11,857		)
Effect of exchange rate changes on cash and cash equivalents	(172		)	324			(403		)	280			27			(172		)	(46		)	(403		)
Net increase in cash and cash equivalents	$	14,122		$	4,720		$	24,904		$	4,549
Net increase (decrease) in cash and cash equivalents													$	7,761		$	14,122		$	3,344		$	24,904

Cash and cash equivalents totaled ~~$65.4~~$69.1 million at July 31, ~~2018,~~2019, an increase of ~~$24.9~~$3.3 million from ~~$40.5~~$65.8 million at January 31, ~~2018.~~2019. The comparable balance as of July 31, ~~2017~~2018 was ~~$55.2~~$65.4 million. ~~Cash proceeds from the sale of SST and continued strength in operating cash flows principally drove the~~The sequential increase in cash ~~versus~~was led by the ~~prior year end.~~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 ~~$38.7~~$26.2 million for the first six months of fiscal ~~2019~~2020 compared with ~~$19.9~~$38.7 million in the first six months of fiscal ~~2018.~~2019. The ~~increase~~decrease in operating cash flows year-over-year was driven primarily ~~due to the~~by lower net income and an increase in net ~~income.~~working capital 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)		July 31, 2018			July 31, 2017				July 31, 2019			July 31, 2018
Accounts receivable, net		$	61,348		$	46,398			$	60,700		$	61,348
Plus: Inventories		55,993			50,844				61,311			55,993
Less: Accounts payable		14,882			12,597				15,722			14,882
Net working capital^(a)		$	102,459		$	84,645			$	106,289		$	102,459

Annualized net sales^(b)		410,736			346,440				392,232			410,736
Net working capital percentage^(c)		24.9		%	24.4		%		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.

~~The net~~Net working capital percentage ~~increased 50~~deteriorated 220 basis points year-over-year in the second quarter of fiscal ~~2019.~~2020. The increase in net working capital was ~~primarily driven~~led by an increase in ~~receivables~~inventory within Engineered Films ~~as a result of~~and Applied Technology. Both divisions expected higher sales demand in the ~~acquisition of CLI~~second quarter and ~~an increase in~~prepared inventory ~~in response~~levels to significantly higher energy market demand. The Company remains focused on managing efficient levels of receivables, inventories, and accounts payable and will continue to take actions to reduce net working capital requirements.meet those expectations.

Inventory levels increased ~~$5.1~~$5.3 million, or ~~10.1%~~9.5%, year-over-year from ~~$50.8 million at July 31, 2017 to~~ $56.0 million at July 31, ~~2018.~~2018, to $61.3 million at July 31, 2019. In comparison, consolidated net sales ~~increased $16.1~~decreased $4.6 million, or ~~18.6%~~4.5%, year-over-year in the second quarter. The increase in inventory was ~~primarily to support the growth in net~~driven by Engineered Films and Applied Technology as each division expected higher sales ~~and backlog~~demand in the ~~Engineered Films Division.~~second quarter and prepared inventory levels to meet those expectations.

Accounts receivable ~~increased $15.0~~decreased $0.6 million or ~~32.2%~~1.1%, year-over-year to ~~$61.3~~$60.7 million at July 31, ~~2018~~2019, from $46.4 million at July 31, 2017. In comparison, net sales increased $16.1 million, or 18.6%, year-over-year in the second quarter. The increase in accounts receivable was led by an increase in receivables within Engineered Films as a result of the acquisition of CLI and increased sales volume.

~~Accounts payable increased $2.3 million, or 18.1%, year-over-year from $12.6 million at July 31, 2017 to $14.9~~$61.3 million at July 31, 2018. In comparison, consolidated net sales ~~increased $16.1~~decreased $4.6 million, or ~~18.6%~~4.5%, year-over-year in the second quarter. Lower sales volume and the timing of cash receipts were the primary drivers of the year-over-year decrease in accounts receivable.

Accounts payable increased $0.8 million, or 5.6%, year-over-year from $14.9 million at July 31, 2018, to $15.7 million at July 31, 2019. The increase in accounts

payable year-over-year was primarily ~~driven by higher inventory purchases during the quarter. Accounts payable increased less than inventory~~ due to ~~the~~ timing of purchases and cash payments.

Investing Activities

Cash ~~provided~~used by investing activities was ~~$1.5~~$3.7 million for the first six months of fiscal ~~2019~~2020 compared with cash used of ~~$5.6~~$1.5 million in the first six months of fiscal ~~2018.~~2019. The ~~first six months~~primary driver for the year-over-year change was cash receipts of ~~fiscal 2019 cash flows included $6.7~~$6.6 million from the sale of the Company's ownership interest in ~~SST.~~SST in the prior year. Capital ~~expenditures increased $1.6~~expenditure spending was down $3.1 million ~~versus~~compared to the ~~first six months of fiscal 2018~~prior year six-month period primarily due to ~~expenditures~~prior year investments related to aEngineered Films' new ~~Engineered Films~~ extrusion line ~~that is expected to be completed toward the end of fiscal year 2019.~~

Management anticipates fiscal 2019 capital spending to be approximately $22 million. The Company continues to maintain a disciplined approach to capital spending. Expanding Engineered Films' capacity and maintaining 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.(Line 15).

Financing Activities

Cash used for financing activities for the first six months of fiscal ~~2019~~2020 was up ~~$1.9~~$7.2 million compared ~~with~~to the first six months of fiscal ~~2018.~~

2019. The increase in cash outflows included $5.8 million of share repurchases in the first six months of fiscal 2020. There were no share repurchases in the first six months of fiscal 2019. Dividends per share for the first six months of fiscal 2020 and 2019 were ~~flat~~consistent at 26.0 cents per share. Total cash outflows for dividends in the six-month periods ended July 31, 2019, and 2018, were $9.4 million and ~~2017 were~~ $9.3 million, ~~and $9.4 million,~~ respectively.

~~During the six months ended July 31, 2018 and July 31, 2017, the Company made payments of $0.5 million and $0.3 million, respectively, on acquisition-related contingent liabilities.~~

No borrowing or repayment occurred on the Credit Agreement during the first six months of fiscal ~~2019~~2020 or fiscal ~~2018.~~

Financing cash outflows in the first six months of fiscal 2019 and 2018 included employee taxes paid in relation to net settlement of restricted stock units that vested during the first six months 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 July 31, ~~2018~~2019 was ~~$124.5~~$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. 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 $0.3 million and $0.5 million were outstanding at July 31, ~~2018~~2019 and July 31, ~~2017,~~2018, respectively. Any draws required under the LOCs would be settled with available cash or borrowings under the Credit Agreement.

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, ~~2018~~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. For a description of our critical accounting policies and estimates, ~~affecting revenue recognition,~~ see ~~Note 2~~ ~~Summary of Significant~~Critical Accounting Policies and ~~Note 5~~ ~~Revenue~~ ~~to our consolidated financial statements included~~Estimates in ~~this Quarterly Report on Form 10-Q. For a description~~Item 7 of ~~other critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to~~ our Annual Report on Form 10-K for the year ended January 31, ~~2018~~2019, filed with the SEC. ~~With the exception of the changes to our revenue recognition policies referenced above, there~~There have been no material changes to our critical accounting policies during the ~~six months~~three- and six- month periods ended July 31, ~~2018.~~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" 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, ~~2018.~~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 July 31, ~~2018~~2019 and capital leases as of January 31, ~~2018.~~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 ~~$5.8~~$4.3 million and ~~$4.1~~$4.6 million at July 31, ~~2018~~2019 and January 31, ~~2018,~~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) ~~income,~~, 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 July 31, ~~2018.~~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 effective as of July 31, ~~2018~~2019.

Changes in Internal Control over Financial Reporting

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 six-month ~~period~~periods ended July 31, ~~2018~~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. 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.

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" of the Company’s Annual Report on Form 10-K for the year ended January 31, ~~2018,~~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. Since that time, the Board has provided additional authorizations to increase the total amount authorized under the program to $75.0 million. The Company made no purchases (recorded on trade date basis) of its own equity securities during the first six months of fiscal 2019. There is $28.0 million still available for share repurchases under this Board-authorized program whichThis authorization remains in place until such time as the authorized spending limit is reached or is revoked by the Board.

The Company made purchases of its own equity securities during the second quarter of fiscal year 2020 (recorded on trade date basis) as follows:



Period	Total number of shares purchased under the plan	Weighted average price paid per share (or unit)		Total amount purchased including commissions		Dollar value of shares (or units) that may be purchased under the plan
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

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

Item 4. Mine Safety Disclosures: None

Item 5. Other Information: None

Item 6. Exhibits:



Exhibit Number		Description

~~10.1~~31.1	Amended and Restated Deferred Stock Compensation Plan for Directors of Raven Industries, Inc., effective July 11, 2018 (incorporated herein by reference to Exhibit 10.1 of the Company's Form 8-K filed July 12, 2018).

~~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

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: August ~~23, 2018~~22, 2019

~~#31~~#34

~~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