Document

 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment 1)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2016
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number: 001-07982
RAVEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
South Dakota
 
46-0246171
 
 
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
 
205 E. 6th Street, P.O. Box 5107, Sioux Falls, SD
 
57117- 5107
 
 
(Address of principal executive offices)
 
(Zip Code)
 
 
Registrant's telephone number including area code (605) 336-2750
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class:
 
Name of each exchange on which registered
 
 
Common Stock, $1 par value
 
The NASDAQ Stock Market
 
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o
Yes
þ
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o
Yes
þ
No
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.
o
Yes
þ
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).
o
Yes
þ
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
þ
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
Accelerated filer
o
Non-accelerated filer
o
 
 
Smaller reporting company
o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o
Yes
þ
No
The aggregate market value of the registrant's common stock held by non-affiliates at July 31, 2015 was approximately $724,165,854. The aggregate market value was computed by reference to the closing price as reported on the NASDAQ Global Select Market, $19.43, on July 31, 2015, which was as of the last business day of the registrant's most recently completed second fiscal quarter. The number of shares outstanding on March 22, 2016 was 36,279,928.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting of Shareholders, to be held May 24, 2016, is incorporated by reference into Part III to the extent described therein.
 
 
 
 
 




    


Explanatory Note
This Amendment No. 1 to Form 10-K (this Amendment) amends the Annual Report on Form 10-K for the fiscal year ended January 31, 2016 originally filed with the Securities and Exchange Commission (SEC) on March 29, 2016 (the Original Filing) by Raven Industries, Inc. (the Company).

Restatement
As further discussed in Note 2 to our consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this 2016 Annual Report on Form 10-K/A subsequent to the issuance of the Original Filing, we and our Audit Committee concluded that we should restate our previously issued consolidated financial statements to correct for errors related to (i) the impairment of goodwill, finite-lived intangibles, and other long-lived assets related to our Vista reporting unit; (ii) the fair value of acquisition-related contingent consideration; and (iii) income tax accounting. In connection with the restatement, the Company also recorded adjustments for certain other errors which management has concluded are immaterial. These corrections will also result in the restatements of our unaudited condensed consolidated financial statements for the quarters ended October 31, 2015 and April 30, 2016. We will file amended Forms 10-Q to address these corrections.

Disclosure Controls and Procedures
Management has reassessed its evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of January 31, 2016. As a result of that reassessment, management has concluded that the Company did not maintain effective disclosure controls and procedures due to the material weaknesses in internal control over financial reporting which existed at that date. For a description of the material weaknesses in internal control over financial reporting and actions taken, and to be taken, to address the material weaknesses, see Part II, Item 9A. "Controls and Procedures" of this Amended Annual Report on Form 10-K/A.

Internal Control Over Financial Reporting
Management has reassessed its evaluation of the effectiveness of its internal control over financial reporting as of January 31, 2016, based on the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of that reassessment, management identified material weaknesses and, accordingly, has concluded that the Company did not maintain effective internal control over financial reporting as of January 31, 2016. For a description of the material weaknesses in internal control over financial reporting and actions taken, and to be taken, to address the material weaknesses, see Part II, Item 9A. “Controls and Procedures” of this 2016 Annual Report on Form 10-K/A. In addition, our independent registered public accounting firm has restated their report on the Company’s internal control over financial reporting and issued an adverse opinion.

Amendment
Accordingly, the purpose of this Amendment is to (i) restate our previously issued consolidated financial statements and related disclosures in Part II, Item 8. "Financial Statements and Supplementary Data" for the year ended January 31, 2016 as well as related disclosures in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," to reflect the correction of the errors described above and which were described in the Company’s Form 8-K filed with the SEC on November 23, 2016 and (ii) to amend and restate in its entirety Part II, Item 9A. "Controls and Procedures" including "Management's Report on Internal Control Over Financial Reporting" of the Original Filing to reflect the conclusions by the Company’s management that internal control over financial reporting and disclosure controls and procedures were not effective as of January 31, 2016 due to the identification of the material weaknesses which resulted in the errors described above and which were described in the Company’s Form 8-K filed with the SEC on November 23, 2016.

Except as expressly set forth herein, this Amendment does not reflect events occurring after the date of the Original Filing or modify or update any of the other disclosures contained therein in any way other than as required to reflect the amendment discussed above. Accordingly, this Amendment should be read in conjunction with the Original Filing and our other filings with the SEC.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment.

References in this Amendment to Raven Industries, Inc., the Company, "we", "our" or "us" refer to Raven Industries, Inc. and its wholly-owned and consolidated subsidiaries, net of a noncontrolling interest recorded for the noncontrolling investor’s interests in the net assets of a 75% owned business venture.

Items Amended in this Filing
For reasons discussed above, we are filing this Amendment in order to amend the following items in our Original Report to the extent necessary to reflect the adjustments discussed above and make corresponding revisions to our financial data cited elsewhere in this Amendment:
 
Ÿ
 
Part I, Item 1A. Risk Factors
 



Ÿ
 
Part II, Item 6. Selected Financial Data
 
Ÿ
 
Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Ÿ
 
Part II, Item 8. Financial Statements and Supplementary Data
 
Ÿ
 
Part II, Item 9A. Controls and Procedures
In accordance with applicable SEC rules, this Amended Report includes new certifications required by Rule 13a-14 under the Securities Exchange Act of 1934 from our Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amended Report.
 
Forward-Looking Statements
This Annual Report on Form 10-K/A (Annual Report) contains forward-looking statements that involve risk and uncertainties. Generally, forward-looking statements can be identified by words such as "may," "will," "plan," "believe," "expect," "intend," "anticipate," "potential," “should,” “estimate,” “predict,” “project,” “would,” and similar expressions, which are generally not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future - including statements relating to our future operating or financial performance or events, our strategy, goals, plans and projections regarding our financial position, our liquidity and capital resources, and our product development - are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain known and unknown risks, uncertainties and factors that may cause actual results to differ materially from our Company’s historical experience and our present expectations or projections.
Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important risk factors in the cautionary statements included in this Annual Report, particularly in Part 1 - Item 1A and in our other public filings with the SEC that could cause actual results or events to differ materially from the forward-looking statements that we make.
You should read this Annual Report and the documents that we have filed as exhibits to the Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.








PART I
 
 
Item 1.
BUSINESS
 
Item 1A.
RISK FACTORS
 
Item 1B.
UNRESOLVED STAFF COMMENTS
 
Item 2.
PROPERTIES
 
Item 3.
LEGAL PROCEEDINGS
 
Item 4.
MINE SAFETY DISCLOSURES
 
 
 
 
 
PART II
 
 
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 
Quarterly Information
 
 
Stock Performance
 
Item 6.
SELECTED FINANCIAL DATA
 
 
Eleven-year Financial Summary
 
 
Business Segments
 
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
Executive Summary
 
 
Results of Operations - Segment Analysis
 
 
Outlook
 
 
Liquidity and Capital Resources
 
 
Off-Balance Sheet Arrangements and Contractual Obligations
 
 
Critical Accounting Estimates
 
 
Accounting Pronouncements
 
 
Forward-Looking Statements
 
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
Management's Report on Internal Control Over Financial Reporting
 
 
Report of Independent Registered Public Accounting Firm
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Income and Comprehensive Income
 
 
Consolidated Statements of Shareholders' Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Item 9A.
CONTROLS AND PROCEDURES
 
Item 9B.
OTHER INFORMATION
 
 
 
 
 
PART III
 
 
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Item 11.
EXECUTIVE COMPENSATION
 
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
 
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES 
 
 
 
 
 
PART IV
 
 
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULE
 
INDEX TO EXHIBITS
 
SIGNATURES
 
SCHEDULE II
 






PART I
 
 
 
ITEM 1.
BUSINESS
Raven Industries, Inc. (the Company or Raven) was incorporated in February 1956 under the laws of the State of South Dakota and began operations later that same year. The Company is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy, construction, and defense markets. The Company markets its products around the world and has its principal operations in the United States of America. Raven began operations as a manufacturer of high-altitude research balloons before diversifying into product lines that extended from technologies and production methods of this original balloon business. The Company employs approximately 910 people and is headquartered at 205 E. Sixth Street, Sioux Falls, SD 57104 - telephone (605) 336-2750. The Company's Internet address is http://www.ravenind.com and its common stock trades on the NASDAQ Global Select Market under the ticker symbol RAVN. The Company has adopted a Code of Conduct applicable to all officers, directors and employees, which is available on the website. Information on the Company's website is not part of this filing.

All reports (including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K) and proxy and information statements filed with the Securities and Exchange Commission (SEC) are available through a link from the Company's website to the SEC website. All such information is available as soon as reasonably practicable after it has been electronically filed. Filings can also be obtained free of charge by contacting the Company or the SEC. The SEC can be contacted through its website at http://www.sec.gov or through the SEC's Office of FOIA/PA Operations at 100 F Street N.E., Washington, DC 20549-2736, or by calling the SEC at 1-800-732-0330.

BUSINESS SEGMENTS

The Company has three unique operating units, or divisions, that are also its reportable segments: Applied Technology Division (Applied Technology), Engineered Films Division (Engineered Films), and Aerostar Division (Aerostar). Many of the past and present product lines are an extension of technology and production methods developed in the original balloon business. Product lines have been grouped in these segments based on common technologies, production methods, and inventories; however, more than one business segment may serve each of the product markets identified above. The Company measures the profitability performance of its segments primarily based on their operating income excluding administrative and general expenses. Other expense and income taxes are not allocated to individual operating segments, and assets not identifiable to an individual segment are included as corporate assets. Segment information is reported consistent with the Company's management reporting structure.
Business segment financial information is found on the following pages of this Annual Report on Form 10-K/A (Form 10-K/A):
Business Segments
Results of Operations – Segment Analysis
Note 16 Business Segments and Major Customer Information

Applied Technology
Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs, decrease inputs, and improve farm yields around the world.  The Applied Technology product families include field computers, application controls, GPS-guidance and assisted-steering systems, automatic boom controls, planter controls, and harvest controls. Applied Technology's services include high-speed in-field Internet connectivity and cloud-based data management. The Company's investment in Site-Specific Technology Development Group, Inc. (SST), a software company, and the continued build-out of the Slingshot™ platform have positioned Applied Technology as an information platform that improves grower decision-making and business efficiencies for our agriculture retail partners.

Applied Technology sells its precision agriculture control products to both original equipment manufacturers (OEMs) and through aftermarket distribution partners in the United States and in most major agricultural areas around the world. Applied Technology has personnel and third-party distribution representatives located in the U.S. and key geographic areas throughout the world. The Company's competitive advantage in this segment is designing and selling easy to use, reliable, and innovative value-added products that are supported by an industry-leading service and support team.


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

Engineered Films primarily sells plastic sheeting to independent third-party distributors in each of the various markets it serves. Through the acquisition of Integra Plastics, Inc. (Integra) in November 2014, Engineered Films also leverages a direct sales channel in the division’s energy market. The Company extrudes a significant portion of the film converted for its commercial products and believes it is one of the largest sheeting converters in the United States in the markets it serves. Engineered Films believes its ability to both extrude and convert films allows it to provide a more customized solution to customers. A number of suppliers of sheeting compete with the Company on both price and product availability. Engineered Films is the Company's most capital-intensive business segment, and historically has made sizable investments in new extrusion capacity and conversion equipment. This segment's capital expenditures were $10.8 million in fiscal 2016, $8.2 million in fiscal 2015, and $6.7 million in fiscal 2014.

Aerostar
Aerostar serves the defense/aerospace and situational awareness markets. Aerostar's products include high-altitude balloons, tethered aerostats, and radar processing systems. These products can be integrated with additional third-party sensors to provide research, communications, and situational awareness capabilities to governmental and commercial customers. Aerostar’s growth strategy emphasizes the design and manufacture of proprietary products in these markets. In previous years, Aerostar also provided contract manufacturing services. During this last year the Company largely exited this business. Net sales from contract manufacturing in fiscal 2016 were $4.7 million, compared to $31.7 million in fiscal 2015 and $51.3 million in fiscal 2014. The planned wind-down of contract manufacturing is now complete.

The acquisition of Vista Research, Inc. (Vista) in January 2012 positioned the Company to meet global demand for lower-cost target detection and tracking systems used by government agencies. Through Vista and a separate business venture that is majority-owned by the Company, Aerostar pursues potential product and support services contracts for agencies and instrumentalities of the U.S. government as well as sales of advanced radar systems, high-altitude balloons, and aerostats in international markets. In some cases, such sales will be Direct Commercial Sales to foreign governments rather than Foreign Military Sales through the U.S. government.

Aerostar sells to government agencies or commercial users primarily as a sub-contractor. The projects Aerostar bids on can be large-scale, with opportunities in the $10-$50 million range. Further, Direct Commercial Sales to foreign governments often involve large contracts subject to frequent delays because of budget uncertainties, regional military conflicts, and protracted negotiation processes. The timing of contract wins results in volatility in Aerostar’s results.

MAJOR CUSTOMER INFORMATION

No customers accounted for 10% or more of consolidated sales in fiscal 2016. Sales to Brawler Industrial Fabrics, a customer in the Engineered Films Division, accounted for 14%, and 13% of consolidated sales in fiscal years 2015 and 2014.

SEASONAL WORKING CAPITAL REQUIREMENTS

Some seasonal demand exists in Applied Technology's agricultural market. Applied Technology builds product in the fall for winter and spring delivery. Certain sales to agricultural customers offer spring payment terms for fall and early winter shipments. The resulting fluctuations in inventory and accounts receivable have required, and may require, seasonal short-term financing.

Engineered Films also sees seasonal demand peak in the second and third fiscal quarters.

FINANCIAL INSTRUMENTS

The principal financial instruments that the Company maintains are cash, cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities, and acquisition-related contingent payments. The Company manages the interest rate, credit, and market risks associated with these accounts through periodic reviews of the carrying value of assets and liabilities and establishment of appropriate allowances in accordance with Company policies. The Company does not use off-balance sheet financing, except to enter into operating leases.

The Company uses derivative financial instruments to manage foreign currency risk. The use of these financial instruments has had no material effect on consolidated results of operations, financial condition, or cash flows.


4

                           

RAW MATERIALS

The Company obtains a wide variety of materials from numerous vendors. Principal materials include electronic components for Aerostar and Applied Technology, various plastic resins for Engineered Films, and fabrics for Aerostar. Engineered Films has experienced volatile resin prices over the past three years. Price increases could not always be passed on to customers due to weak demand and a competitive pricing environment. Predicting future material volatility and the related potential impact on the Company is not possible.

PATENTS

The Company owns a number of patents. The Company does not believe that its business, as a whole, is materially dependent on any one patent or related group of patents. As the Company continues to develop more technology-based offerings, protection of the Company’s intellectual property has become an increasingly important strategic objective. Along with a more aggressive posture toward patenting new technology and protecting trade secrets, the Company has restrictions on the disclosure of our technology to industry and business partners to ensure that our intellectual property is maintained and protected.

RESEARCH AND DEVELOPMENT

The business segments conduct ongoing research and development efforts. Most of the Company's research and development expenditures are directed toward new product development, particularly in the Applied Technology Division. Total Company research and development costs are presented in the Consolidated Statements of Income and Comprehensive Income.

ENVIRONMENTAL MATTERS

The Company believes that, in all material respects, it is in compliance with applicable federal, state and local environmental laws and regulations. Expenditures incurred in the past relating to compliance for operating facilities have not significantly affected the Company's capital expenditures, earnings, or competitive position.

In connection with the sale of substantially all of the assets of the Company's Glasstite, Inc. subsidiary in fiscal 2000, the Company agreed to assume responsibility for the investigation and remediation of any pre-October 29, 1999, environmental contamination at the Company's former Glasstite pickup-truck topper facility in Dunnell, Minnesota, as required by the Minnesota Pollution Control Agency (MPCA) or the United States Environmental Protection Agency.

The Company and the purchasers of the Company's Glasstite subsidiary conducted environmental assessments of the properties. Although these assessments continue to be evaluated by the MPCA on the basis of the data available, the Company believes that any activities that might be required as a result of the findings of the assessments will not have a material effect on the Company's results of operations, financial position, or cash flows. The Company had $37 thousand accrued at January 31, 2016, representing its best estimate of probable costs to be incurred related to this and all other environmental matters.

BACKLOG

As of February 1, 2016, the Company's order backlog totaled approximately $18.6 million. Backlog amounts as of February 1, 2015 and 2014 were $26.7 million and $51.8 million, respectively. Because the length of time between order and shipment varies considerably by business segment and customers can change delivery schedules or potentially cancel orders, the Company does not believe that backlog, as of any particular date, is necessarily indicative of actual net sales for any future period.

EMPLOYEES

As of January 31, 2016, the Company had approximately 910 employees. Following is a summary of active employees by segment: Applied Technology - 363; Engineered Films - 298; Aerostar - 175; and Corporate Services - 75. Management believes its employee relations are satisfactory.


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EXECUTIVE OFFICERS
 
 
 
 
 
Name, Age and Position
 
Biographical Data
Daniel A. Rykhus, 51
 
Mr. Rykhus became the Company's President and Chief Executive Officer in 2010. He joined the Company in 1990 as Director of World Class Manufacturing, was General Manager of the Applied Technology Division from1998 through 2009, and served as Executive Vice President from 2004 through 2010.
President and Chief Executive Officer
 
 
 
 
 
 
Steven E. Brazones, 42
 
Mr. Brazones joined the Company in December 2014 as its Vice President, Chief Financial Officer, and Treasurer. From 2002 to 2014, Mr. Brazones held a variety of positions with H.B. Fuller Company. Most recently, he served as H.B. Fuller's Americas Region Finance Director. Previously, he served as the Assistant Treasurer and the Director of Investor Relations. Prior to his tenure with H.B. Fuller, Mr. Brazones held various roles at Northwestern Growth.
Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
Stephanie Herseth Sandlin, 45
 
Ms. Herseth Sandlin joined the Company in August 2012 as General Counsel and Vice President of Corporate Development and also became the Company's Secretary in March 2013. Prior to joining the Company, Ms. Herseth Sandlin was a partner at OFW Law in Washington, D.C. from 2011 to 2012 and served as South Dakota's lone member of the United States House of Representatives from 2004 through 2011.  
General Counsel and Vice President of Corporate Development
 
 
 
 
 
 
Janet L. Matthiesen, 58
 
Ms. Matthiesen joined the Company in 2010 as Director of Administration and has been the Company's Vice President of Human Resources since 2012. Prior to joining Raven, Ms. Matthiesen was a Human Resource Manager at Science Applications International Corporation from 2002 to 2010.


Vice President of Human Resources
 
 
 
 
 
 
Brian E. Meyer, 53
 
Mr. Meyer was named Division Vice President and General Manager of the Applied Technology Division in May 2015. He joined the Company in 2010 as Chief Information Officer. Prior to joining the Company, Mr. Meyer was an information and technology executive in the health insurance industry and vice president of systems development in the property and casualty insurance industry.

Division Vice President and General Manager -
 
Applied Technology Division
 
 
 
 
Anthony D. Schmidt, 44
 
Mr. Schmidt was named Division Vice President and General Manager of the Engineered Films Division in 2012. He joined the Company in 1995 in the Applied Technology Division performing various leadership roles within manufacturing and engineering. He transitioned to Engineered Films Division in 2011 as Manufacturing Manager.
Division Vice President and General Manager -
 
Engineered Films Division
 

ITEM 1A.
RISK FACTORS

RISKS RELATING TO THE COMPANY

The Company's business is subject to many risks. Set forth below are the most important risks we face. In evaluating our business and your investment in us, you should also consider the other information presented in or incorporated by reference into this Annual Report on Form 10-K/A.

We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our consolidated financial statements. We may be unable to develop, implement, and maintain appropriate controls in future periods which could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. In Item 9A, "Controls and Procedures” of this Amendment, management reported the existence of material weaknesses in our internal control over financial reporting. The material weaknesses resulted in errors in our previously filed annual audited and interim unaudited consolidated financial statements.


6



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

As a result of the material weaknesses, management concluded that our internal control over financial reporting was not effective as of January 31, 2016 and remains ineffective as of the date of this amended filing. The assessment was based on criteria described by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Also as a result of the material weaknesses, we concluded that our disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were not effective as of January 31, 2016 and remain ineffective as of the date of this amended filing. We are actively engaged in remediation activities designed to address the material weaknesses, but our remediation efforts are not complete and are ongoing. If our remediation measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, material misstatements in our consolidated financial statements could occur which could result in a further restatement of our consolidated financial statements and may materially adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. Although we continually review and evaluate our internal controls, we cannot assure you that we will not discover additional material weaknesses in our internal control over financial reporting. The next time we evaluate our internal control over financial reporting, if we identify one or more new material weaknesses or are unable to timely remediate our existing material weaknesses, we may be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.

As a result of our inability to timely file our Quarterly Report on Form 10-Q for the three- and six-month periods ended July 31, 2016 or the Quarterly Report on Form 10-Q for the three- and nine-month periods ended October 31, 2016, the Company has become non-compliant with the Nasdaq Stock Market LLC (NASDAQ) Listing Rule 5250(c) (1). This rule requires the Company to file its Forms 10-Q with the SEC within 45 days of the end of the quarter. Although the Company has filed a plan with NASDAQ to become compliant and expects to make the required filings, if we continue to be unable to comply with the NASDAQ requirements, our common stock may be delisted.

We could also become subject to private litigation or investigations, or one or more government enforcement actions, arising out of the errors in our previously issued financial statements. Our management may be required to devote significant time and attention to these matters, and these and any additional matters that arise could have a material adverse impact on our results of operations, financial condition, liquidity, and cash flows.

The restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations, and cash flows.
We have incurred expenses, including audit, legal, consulting and other professional fees in connection with the restatement of our previously issued financial statements and the ongoing remediation of weaknesses in our internal control over financial reporting. We have taken a number of steps, including adding significant internal resources and have implemented a number of additional procedures in order to strengthen our internal control and risk assessment function. To the extent these steps are not successful, we could be forced to incur additional time and expense. Our management’s attention has also been diverted from the operation of our business in connection with the restatements and ongoing remediation of material weaknesses in our internal controls.

Weather conditions could affect certain of the Company's markets such as agriculture and construction.
The Company's Applied Technology Division is largely dependent on the ability of farmers, agricultural service providers, and custom operators to purchase agricultural equipment that includes its products. If such farmers experience adverse weather conditions resulting in poor growing conditions, or experience unfavorable crop prices or expenses, potential buyers may be less likely to purchase agricultural equipment. Conversely, if farmers experience favorable weather and growing conditions, high yields could result in unfavorable crop prices and lower farm income making potential buyers less likely to purchase agricultural equipment. Accordingly, weather conditions may adversely affect sales in the Applied Technology Division.

Weather conditions can also adversely affect sales in the Company's Engineered Films Division. To the extent weather conditions curtail construction or agricultural activity, such as a late spring or drought, sales of the segment's plastic sheeting would likely decrease.

Seasonal, weather-related and market demand variation could also affect quarterly results. If expected sales are deferred in a fiscal quarter while inventory has been built and operating expenses incurred, financial results could be negatively impacted.

7




Price fluctuations in and shortages of raw materials could have a significant impact on the Company's ability to sustain and grow earnings.
The Company's Engineered Films Division consumes significant amounts of plastic resin, the cost of which depends upon market prices for natural gas and oil and other market forces. These prices are subject to worldwide supply and demand as well as other factors beyond the control of the Company. Although the Engineered Films Division is sometimes able to pass on such price increases to its customers, significant variations in the cost of plastic resins can affect the Company's operating results from period to period. Unusual supply disruptions, such as one caused by a natural disaster, could cause suppliers to invoke “force majeure” clauses in their supply agreements, causing shortages of material. Success in offsetting higher raw material costs with price increases is largely influenced by competitive and economic conditions and could vary significantly depending on the market served. If the Company is not able to fully offset the effects of adverse materials availability and correspondingly higher costs, financial results could be adversely affected.

Electronic components used by both the Applied Technology Division and Aerostar Division, are sometimes in short supply, impacting our ability to meet customer demand.

If a supplier of raw materials or components was unable to deliver due to shortage or financial difficulty, any of the Company's segments could be adversely affected.

Fluctuations in commodity prices can increase our costs and decrease our sales.
Agricultural income levels are affected by agricultural commodity prices and input costs. As a result, changes in commodity prices that reduce agricultural income levels could have a negative effect on the ability of growers and their service providers to purchase the Company's precision agriculture products manufactured by its Applied Technology Division.

Exploration for oil and natural gas fluctuates with their price and recent energy market conditions suggest that while end-market conditions are not likely to deteriorate further, they are not likely to improve in the near term. Plastic sheeting manufactured and sold by our Engineered Films Division is sold as pit and pond liners to contain water used in the drilling process. Lower prices for oil and natural gas could reduce exploration activities and demand for our products.

Plastic sheeting manufacturing uses plastic resins, which can be subject to changes in price as the cost of natural gas or oil changes. Accordingly, volatility in oil and natural gas prices may negatively affect our raw material costs and cost of goods sold and potentially cause us to increase prices, which could adversely affect our sales and/or profitability.

Failure to develop and market new technologies and products could impact the Company's competitive position and have an adverse effect on the Company's financial results.
The Company's operating results in Applied Technology, Engineered Films, and Aerostar depend upon the ability to renew the pipeline of new products and to bring those products to market. This ability could be adversely affected by difficulties or delays in product development such as the inability to identify viable new products, successfully complete research and development, obtain relevant regulatory approvals, obtain intellectual property protection or gain market acceptance of new products and services. Because of the lengthy development process, technological challenges, and intense competition, there can be no assurance that any of the products the Company is currently developing, or could begin to develop in the future, will achieve substantial commercial success. Technical advancements in products may also increase the risk of product failure, increasing product returns or warranty claims and settlements. In addition, sales of the Company's new products could replace sales of some of its current products, offsetting the benefit of even a successful product introduction.

The Company's sales of products which are specialized and highly technical in nature are subject to uncertainties, start-up costs and inefficiencies, as well as market, competitive, and compliance risks.
The Company’s growth strategy relies on the design and manufacture of proprietary products. Highly technical, specialized product inventories may be more susceptible to fluctuations in market demand. If demand is unexpectedly low, write-downs or impairments of such inventory may become necessary. Either of these outcomes could adversely affect our results of operations. Start-up costs and inefficiencies can adversely affect operating results and such costs may not be recoverable in a proprietary product environment because the Company may not receive reimbursement from its customers for such costs.

Competition in agriculture markets could come from our current customers if original equipment manufacturers develop and integrate precision agriculture technology products themselves rather than purchasing from third parties, reducing demand for Applied Technology’s products.


8



Regulatory restrictions could be placed on hydraulic fracturing because of environmental and health concerns, reducing demand for Engineered Film’s products. For Engineered Films, the development of alternative technologies, such as closed loop drilling processes that would reduce the need for pit liners in energy exploration, could also reduce demand for the Company’s products.

Aerostar’s future growth relies on sales of high-altitude balloons, advanced radar systems, and aerostats to international markets. In some cases, such sales will be Direct Commercial Sales to foreign governments rather than Foreign Military Sales through the U.S. government. Direct Commercial Sales to foreign governments often involve large contracts subject to frequent delays because of budget uncertainties, regional military conflicts, and protracted negotiation processes. Such delays could adversely affect our results of operations. The nature of these markets for Vista's radar systems and Aerostar's aerostats makes these products particularly susceptible to fluctuations in market demand. Demand fluctuations and the likelihood of delays in sales involving large contracts for such products also increase the risk of these products becoming obsolete, increasing risk associated with expected sales of such products. The value of aerostat and radar systems inventory at January 31, 2016 is approximately $12 million. This valuation is based on an estimate that the market demand for these products will be sufficient in future periods such that these inventories will be sold at a price greater than carrying value. Write-downs or impairment of the value of such products carried in inventory could adversely affect our results of operations. To the extent products become obsolete or anticipated sales are not realized, our expected future cash flows could be adversely impacted. An impairment could adversely impact the Company's results of operations and financial condition.
  
Sales of certain of Aerostar’s products into international markets increase the compliance risk associated with regulations such as The International Traffic in Arms Regulations (ITAR), as well as others, exposing the Company to fines and its employees to fines, imprisonment, or civil penalties. Potential consequences of a material violation of such regulations include damage to our reputation, litigation, and increased costs.

The Company's Aerostar segment depends on the U.S. government for a significant portion of its sales, creating uncertainty in the timing of and funding for projected contracts.
A significant portion of Aerostar's sales are to the U.S. government or U.S. government agencies as a prime or sub-contractor. Government spending has historically been cyclical. A decrease in U.S. government defense or near-space research spending or changes in spending allocations could result in one or more of the Company's programs being reduced, delayed, or terminated. Reductions in the Company's existing programs, unless offset by other programs and opportunities, could adversely affect its ability to sustain and grow its future sales and earnings. The Company's U.S. government sales are funded by the federal budget, which operates on an October-to-September fiscal year. Changes in congressional schedules, negotiations for program funding levels, reduced program funding due to U.S government debt limitations, automatic budget cuts ("sequestration") or unforeseen world events can interrupt the funding for a program or contract. Funds for multi-year contracts can be changed in subsequent years in the appropriations process.

In addition, many U.S. government contracts are subject to a competitive bidding and funding process even after the award of the basic contract, adding an additional element of uncertainty to future funding levels. Delays in the funding process or changes in funding can impact the timing of available funds or can lead to changes in program content or termination at the government's convenience. The loss of anticipated funding or the termination of multiple or large programs could have an adverse effect on the Company's future sales and earnings.

The Company derives a portion of its revenues from foreign markets, which subjects the Company to business risks, including risk of changes in government policies and laws or worldwide economic conditions.
The Company's sales outside the U.S. were $27.8 million in fiscal 2016, representing 11% of consolidated net sales. The Company's financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations, along with changes in worldwide economic conditions. These conditions include, but are not limited to, changes in a country's or region's economic or political condition; trade regulations affecting production, pricing, and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights in some countries; changes in the regulatory or legal environment; restrictions on currency exchange activities; the impact of fluctuations in foreign currency exchange rates, which may affect product demand and may adversely affect the profitability of our products in U.S. dollars in foreign markets where payments are made in the local currency; burdensome taxes and tariffs; and other trade barriers. International risks and uncertainties also include changing social and economic conditions, terrorism, political hostilities and war, difficulty in enforcing agreements or collecting receivables, and increased transportation or other shipping costs. Any of these such risks could lead to reduced sales and reduced profitability associated with such sales.


9



Adverse economic conditions in the major industries the Company serves may materially affect segment performance and consolidated results of operations.
The Company's results of operations are impacted by the market fundamentals of the primary industries served. Significant declines of economic activity in the agricultural, oil and gas exploration, construction, industrial, aerospace/aviation, defense and other major markets served may adversely affect segment performance and consolidated results of operations.

The Company may pursue or complete acquisitions which represent additional risk and could impact future financial results.
The Company's business strategy includes the potential for future acquisitions. Acquisitions involve a number of risks including integration of the acquired company with the Company's operations and unanticipated liabilities or contingencies related to the acquired company. Further, business strategies supported by the acquisition may be in perceived, or actual, opposition to strategies of certain of our customers and our business could be materially adversely affected if those relationships are terminated and the expected strategic benefits are delayed or are not achieved. The Company cannot ensure that the expected benefits of any acquisition will be realized. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could significantly impact the operating results, financial condition, or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Other acquisition risks include delays in realizing benefits from the acquired companies or products; difficulties due to lack of or limited prior experience in any new product or geographic markets we enter; unforeseen adjustments, charges or write-offs; unforeseen losses of customers of, or suppliers to, acquired businesses; difficulties in retaining key employees of the acquired businesses; or challenges arising from increased geographic diversity and complexity of our operations and our information technology systems.

After the restatement and correction of goodwill and long-lived asset impairments reported in this form 10-K/A and explained in detail in Note 2 Restatement of the Audited Consolidated Financial Statements, total goodwill and intangible assets account for approximately $53.6 million, or 18%, of the Company's total assets as of January 31, 2016. The Company evaluates goodwill and intangible assets for impairment annually, or when evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Principally, a significant decrease in expected cash flows or changes in market conditions may indicate potential impairment of recorded goodwill or intangible assets. Our expected future cash flows are dependent on several factors including revenue growth in certain of our product lines and an expectation that the pricing in commodities markets will recover in future periods. Our expected future cash flows could be adversely impacted if our anticipated revenue growth is not realized or if pricing in commodities markets does not recover in future periods. An impairment could adversely impact the Company's results of operations and financial condition.

The Company may fail to continue to attract, develop and retain key management and other key employees, which could negatively impact our operating results.
We depend on the performance of our senior management team and other key employees, including experienced and skilled technical personnel.  The loss of certain members of our senior management, including our Chief Executive Officer, could negatively impact our operating results and ability to execute our business strategy.  Our future success will also depend in part upon our ability to attract, train, motivate, and retain qualified personnel.

The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others.
The Company has developed significant proprietary technology and other rights that are used in its businesses. The Company relies on trade secret, copyright, trademark, and patent laws and contractual provisions to protect the Company's intellectual property. While the Company takes enforcement of these rights seriously, other companies such as competitors or persons in related markets in which the Company does not participate may attempt to copy or use the Company's intellectual property for their own benefit.

In addition, intellectual property of others also has an impact on the Company's ability to offer some of its products and services for specific uses or at competitive prices. Competitors' patents or other intellectual property may limit the Company's ability to offer products and services to its customers. Any infringement or claimed infringement of the intellectual property rights of others could result in litigation and adversely affect the Company's ability to continue to provide, or could increase the cost of providing, products and services.

Intellectual property litigation is very costly and could result in substantial expense and diversions of the Company's resources, both of which could adversely affect its businesses and financial condition and results. In addition, there may be no effective legal recourse against infringement of the Company's intellectual property by third parties, whether due to limitations on enforcement of rights in foreign jurisdictions or as a result of other factors.


10



Technology failures or cyber-attacks on the Company's systems could disrupt the Company's operations or the functionality of its products and negatively impact the Company's business.
The Company increasingly relies on information technology systems to process, transmit, and store electronic information. In addition, a significant portion of internal communications, as well as communication with customers and suppliers depends on information technology. Further, the products in our Applied Technology segment depend upon GPS and other systems through which our products interact with government computer systems and other centralized information sources. We are exposed to the risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional events. Like most companies, the Company's information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. Further, attacks on centralized information sources could affect the operation of our products or cause them to malfunction. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company's risk to these vulnerabilities, but these measures may not be adequate or implemented properly to ensure that the Company's operations are not disrupted. Potential consequences of a material cyber incident include damage to our reputation, litigation, and increased cyber security protection and remediation costs. Such consequences could adversely affect our results of operations.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.

ITEM 2.
PROPERTIES

Raven's corporate office is located in Sioux Falls, South Dakota. Along with the corporate headquarters building, the Company also owns separate manufacturing facilities for each of our business segments as well as various warehouses, training, and product development facilities in the immediate Sioux Falls area.

In addition to its Sioux Falls facilities, Applied Technology owns a product development facility in Austin, Texas and an idle manufacturing facility in St. Louis, Missouri that is actively being marketed for sale. Applied Technology also leases manufacturing, research, and office facilities in Middenmeer, Netherlands and Geel, Belgium and office/warehouse space in Stockholm, Saskatchewan Canada. In addition, Applied Technology leases smaller research and office facilities in South Dakota.
 
Engineered Films has additional owned production and conversion facilities located in Madison and Brandon, South Dakota and Midland, Texas.

Aerostar owns manufacturing, sewing, and research facilities located in Madison, South Dakota, and Sulphur Springs, Texas. Aerostar's subsidiary Vista also leases facilities in Arlington, Virginia and in Monterey, Chatsworth, and Sunnyvale, California.

Most of the Company's manufacturing plants also serve as distribution centers and contain offices for sales, engineering, and manufacturing support staff. The Company believes that its properties are suitable and adequate to meet existing production needs. Although there is idle capacity available in the Engineered Films Division, the productive capacity in the Company's facilities is substantially being used. The Company also owns approximately 29.6 acres of undeveloped land adjacent to the other owned property, which is available for expansion.

The following is the approximate square footage of the Company's owned or leased facilities by segment: Applied Technology - 182,000; Engineered Films - 606,000; Aerostar - 331,000; and Corporate - 150,000.

ITEM 3.
LEGAL PROCEEDINGS

The Company is responsible for investigation and remediation of environmental contamination at one of its sold facilities (see Item 1, Business - Environmental Matters of this Form 10-K/A). In addition, the Company is involved as a party in lawsuits, claims, regulatory inquiries, or disputes arising in the normal course of its business. The potential costs and liability of such claims cannot be determined at this time. Management believes that any liability resulting from these claims will be substantially mitigated by insurance coverage. Accordingly, management does not believe the ultimate outcome of these matters will be significant to its results of operations, financial position or cash flows.


11



ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


PART II
 
 
 
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company's common stock is traded on the NASDAQ Global Select Market under the ticker symbol RAVN. The following table shows quarterly unaudited financial results, quarterly high and low trade prices per share of the Company's common stock, as reported by NASDAQ, and dividends declared for the periods indicated:

# 12



QUARTERLY INFORMATION (UNAUDITED)
(Dollars in thousands, except per-share amounts)
 
Net Sales
Gross Profit
Operating Income
Pre-tax Income
Net Income Attributable to Raven
Net Income Per Share(a)
Common Stock Market Price
Cash Dividends Per Share
 
 
Basic
Diluted
High
Low
FISCAL 2016 (As Restated)
 
 
 
 
 
 
 
 
First Quarter
$
70,273

$
20,359

$
7,214

$
7,170

$
4,855

$
0.13

$
0.13

$
22.85

$
16.91

$
0.13

Second Quarter
67,518

17,858

6,429

6,163

4,191

0.11

0.11

22.36

18.52

0.13

Third Quarter(as restated)(b)
67,611

16,972

(9,823
)
(9,946
)
(6,188
)
(0.17
)
(0.17
)
19.53

15.77

0.13

Fourth Quarter (as restated)(c)
52,827

11,785

571

694

1,918

0.05

0.05

19.61

13.87

0.13

Total Year (as restated)(d)
$
258,229

$
66,974

$
4,391

$
4,081

$
4,776

$
0.13

$
0.13

$
22.85

$
13.87

$
0.52

 
 
 
 
 
 
 
 
 
 
 
FISCAL 2015
 
 
 
 
 
 
 
 
 
 
First Quarter
$
102,510

$
31,766

$
16,532

$
16,453

$
11,038

$
0.30

$
0.30

$
40.06

$
30.29

$
0.12

Second Quarter
94,485

25,658

10,696

10,637

7,719

0.21

0.21

34.56

27.75

0.12

Third Quarter
91,292

24,339

10,159

10,087

6,783

0.19

0.18

30.74

22.13

0.13

Fourth Quarter
89,866

21,483

6,414

6,324

6,193

0.16

0.16

26.56

20.75

0.13

Total Year
$
378,153

$
103,246

$
43,801

$
43,501

$
31,733

$
0.86

$
0.86

$
40.06

$
20.75

$
0.50

 
 
 
 
 
 
 
 
 
 
 
FISCAL 2014
 
 
 
 
 
 
 
 
 
 
First Quarter
$
103,680

$
34,916

$
20,934

$
20,736

$
14,003

$
0.38

$
0.38

$
34.04

$
25.46

$
0.12

Second Quarter
93,421

26,735

12,568

12,349

8,333

0.23

0.23

35.68

28.82

0.12

Third Quarter
104,938

31,940

18,132

18,089

12,289

0.34

0.34

34.83

28.38

0.12

Fourth Quarter
92,638

25,763

12,360

12,449

8,278

0.23

0.23

42.99

32.64

0.12

Total Year
$
394,677

$
119,354

$
63,994

$
63,623

$
42,903

$
1.18

$
1.17

$
42.99

$
25.46

$
0.48

(a) Net income per share is computed discretely by quarter and may not add to the full year.
(b) The three-month period ended October 31, 2015 includes pre-contract cost write-offs of $2,933 (which is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015), a goodwill impairment loss of $11,497, a long-lived asset impairment loss of $3,813, and a reduction of $2,273 acquisition-related contingent liability for Vista. Certain of these amounts reflect the impact of restatement adjustments. Specifically, the three-month period ended October 31, 2015 includes restatement adjustments increasing Gross Profit, and reducing Operating Income, Pre-tax Income, Net Income Attributable to Raven and Net Income per share of $801, $7,096, $7,096 $4,607 and $0.13, respectively. The restatement adjustments resulted in a (i) $4,084 increase in the Vista goodwill impairment, (ii) $3,813 impairment of long-lived assets, (iii) $790 reduction in the fair value of a contingent obligation, (iv) $2,489 reduction in the provision for income taxes to tax effect the misstatements and to correct for other tax accounting errors and (v) certain other immaterial errors. For further information regarding the restatement of the financial statements for the year ended January 31, 2016 see Note 2 “Restatement of the Consolidated Financial Statements” included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K/A.

(c) The three-month period ended January 31, 2016 includes restatement adjustments increasing Gross Profit, Operating Income, Pre-tax Income, and Net Income Attributable to Raven of $388, $395, $395 and $894, respectively. The restatement adjustments resulted in a (i) $470 reversal of depreciation and amortization expense resulting from the restatement in the three-month period ended October 31, 2015 to correct for the impairment of intangibles and long-lived assets as noted in (b) above, (ii) $499 reduction in the provision for income taxes to correct for tax accounting errors and (iii) certain other immaterial errors. For further information regarding the restatement of the financial statements for the year ended January 31, 2016 see Note 2 “Restatement of the Consolidated Financial Statements” included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K/A.

(d) The fiscal year ended January 31, 2016 includes restatement adjustments increasing Gross Profit by $1,189, and reducing Operating Income, Pre-tax Income, and Net Income Attributable to Raven by $6,701,$6,701, and $3,713, respectively. Such restatement adjustments, further described in Note 2 "Restatement of the Consolidated Financial Statements" included in Part II, Item 8 "Financial Statements and Supplementary Data" of the Form 10-K/A, also reduced both Basic and Diluted Net Income Per Share by $0.10.
As of January 31, 2016, the Company had approximately 12,800 beneficial holders, which includes a substantial amount of the Company's common stock held of record by banks, brokers, and other financial institutions.

On November 3, 2014, the Company announced that its Board of Directors (Board) had authorized a $40.0 million stock buyback program. During fiscal 2016, the Company made purchases of 1,602,545 common shares under this plan for a total cost of $29.3 million or $18.31 per share. None of these common shares were repurchased during the fourth quarter of fiscal 2016. There is approximately $10.7 million still available for share repurchases under this Board-authorized program which remains in place until such time as the authorized spending limit is reached or is otherwise revoked by the Board.


# 13

                           

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG RAVEN INDUSTRIES, INC.,
S&P 1500 INDUSTRIAL MACHINERY INDEX AND RUSSELL 2000 INDEX
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11360040&doc=14

The above graph compares the cumulative total shareholders return on the Company's stock with the cumulative return of the S&P 1500 Industrial Machinery Index and the Russell 2000 index. Investors who bought $100 of the Company's stock on January 31, 2011, held this for five years and reinvested the dividends would have seen its value decrease to $69.48. Stock performance on the graph is not necessarily indicative of future price performance.
 
 
Years Ended January 31,
 
5-Year
Company / Index
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
CAGR(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Raven Industries, Inc.
 
$
100.00

 
$
139.18

 
$
117.20

 
$
165.39

 
$
96.45

 
$
69.48

 
(7.0
)%
S&P 1500 Industrial Machinery Index
 
100.00

 
99.63

 
120.00

 
151.19

 
156.74

 
142.97

 
7.4
 %
Russell 2000 Index
 
100.00

 
102.86

 
118.78

 
150.88

 
157.53

 
141.90

 
7.3
 %
(a)  compound annual growth rate (CAGR)
 
 
 
 
 
 
 
 
 
 
 
 


# 14

                           


(This page is intentionally left blank)







# 15

                           

ITEM 6.
SELECTED FINANCIAL DATA
ELEVEN-YEAR FINANCIAL SUMMARY
(In thousands, except employee counts and per-share amounts)
 
For the years ended January 31,
 
 
2016 (As Restated)(a)
 
2015
 
2014
OPERATIONS
 
 
 
 
 
 
 Net sales
 
$
258,229

 
$
378,153

 
$
394,677

 Gross profit
 
66,974

 
103,246

 
119,354

 Operating income(b)
 
4,391

 
43,801

 
63,994

 Income before income taxes(b)
 
4,081

 
43,501

 
63,623

 Net income attributable to Raven Industries, Inc.
 
4,776

 
31,733

 
42,903

 Net income % of sales
 
1.8
%
 
8.4
%
 
10.9
%
 Net income % of average equity
 
1.7
%
 
11.4
%
 
18.2
%
 Cash dividends(c)
 
$
19,426

 
$
18,519

 
$
17,465

FINANCIAL POSITION
 
 
 
 
 
 
 Current assets
 
$
125,229

 
$
170,979

 
$
169,405

 Current liabilities
 
18,819

 
31,843

 
29,819

 Working capital
 
$
106,410

 
$
139,136

 
$
139,586

 Current ratio
 
6.65

 
5.37

 
5.68

 Property, plant and equipment
 
$
115,704

 
$
117,513

 
$
98,076

 Total assets
 
298,688

 
362,873

 
301,819

 Long-term debt, less current portion
 

 

 

 Raven Industries, Inc. shareholders' equity
 
$
264,155

 
$
305,153

 
$
251,362

 Long-term debt / total capitalization
 
%
 
%
 
%
 Inventory turnover (cost of sales / average inventory)
 
3.6

 
4.9

 
5.2

CASH FLOWS PROVIDED BY (USED IN)
 
 
 
 
 
 
 Operating activities
 
$
44,008

 
$
60,083

 
$
52,836

 Investing activities
 
(11,074
)
 
(29,986
)
 
(31,615
)
 Financing activities
 
(50,684
)
 
(30,665
)
 
(17,354
)
 Change in cash and cash equivalents
 
(18,167
)
 
(1,038
)
 
3,634

COMMON STOCK DATA
 
 
 
 
 
 
 EPS — basic
 
$
0.13

 
$
0.86

 
$
1.18

 EPS — diluted
 
0.13

 
0.86

 
1.17

 Cash dividends per share(c)
 
0.52

 
0.50

 
0.48

 Book value per share(d)
 
7.22

 
8.01

 
6.89

 Stock price range during the year
 
 
 
 
 
 
   High
 
$
22.85

 
$
40.06

 
$
42.99

   Low
 
13.87

 
20.75

 
25.46

   Close
 
$
15.01

 
$
21.44

 
$
37.45

 Shares and stock units outstanding, year-end
 
36,600

 
38,119

 
36,492

 Number of shareholders, year-end
 
12,791

 
13,861

 
11,764

OTHER DATA
 
 
 
 
 
 
 Price / earnings ratio(e)
 
115.5

 
24.9

 
32.0

 Average number of employees
 
936

 
1,251

 
1,264

 Sales per employee
 
$
276

 
$
302

 
$
312

 Backlog
 
$
18,567

 
$
26,718

 
$
51,793

All per-share, shares outstanding and market price data reflect the July 2012 two-for-one stock split.
(a) Includes the effects of the restatement on the Company's consolidated financial statements as of January 31, 2016 further disclosed in Note 2 "Restatement of the Consolidated Financial Statements" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Form 10-K/A.

(b)  The fiscal year ended January 31, 2016 includes pre-contract cost write-offs of $2,933, a goodwill impairment loss of $11,497, a long-lived asset impairment loss of $3,826, and a reduction of $2,273 acquisition-related contingent liability for Vista.
(c) Includes special dividends of $0.625 per share in fiscal 2011 and 2009.
(d)  Raven Industries, Inc. shareholders' equity, excluding equity attributable to noncontrolling interests, divided by common shares and stock units outstanding.
(e) Closing stock price divided by EPS — diluted.

# 16



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
2008
 
2007
 
2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
406,175

 
$
381,511

 
$
314,708

 
$
237,782

 
$
279,913

 
$
233,957

 
$
217,529

 
$
204,528

127,673

 
116,192

 
91,429

 
67,852

 
73,448

 
63,676

 
57,540

 
55,714

77,692

 
75,641

 
60,203

 
43,220

 
46,394

 
41,145

 
38,302

 
37,284

77,646

 
75,698

 
60,282

 
43,322

 
46,901

 
42,224

 
38,835

 
37,494

52,545

 
50,569

 
$
40,537

 
$
28,574

 
$
30,770

 
$
27,802

 
$
25,441

 
$
24,262

12.9
%
 
13.3
%
 
12.9
%
 
12.0
%
 
11.0
%
 
11.9
%
 
11.7
%
 
11.9
%
26.2
%
 
31.4
%
 
29.5
%
 
23.2
%
 
26.6
%
 
25.7
%
 
27.9
%
 
32.3
%
$
15,244

 
$
13,025

 
$
34,095

 
$
9,911

 
$
31,884

 
$
7,966

 
$
6,507

 
$
5,056

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
156,748

 
$
147,559

 
$
128,181

 
$
117,747

 
$
98,073

 
$
100,869

 
$
73,219

 
$
71,345

33,061

 
40,646

 
34,335

 
25,960

 
23,322

 
22,108

 
16,464

 
20,050

$
123,687

 
$
106,913

 
$
93,846

 
$
91,787

 
$
74,751

 
$
78,761

 
$
56,755

 
$
51,295

4.74

 
3.63

 
3.73

 
4.54

 
4.21

 
4.56

 
4.45

 
3.56

$
81,238

 
$
61,894

 
$
41,522

 
$
33,029

 
$
35,880

 
$
35,743

 
$
36,264

 
$
25,602

273,210

 
245,703

 
187,760

 
170,309

 
144,415

 
147,861

 
119,764

 
106,157


 

 

 

 

 

 

 
9

$
221,346

 
$
180,499

 
$
141,214

 
$
133,251

 
$
113,556

 
$
118,275

 
$
98,268

 
$
84,389

%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
5.4

 
5.4

 
5.6

 
5.3

 
5.2

 
5.3

 
5.4

 
5.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
76,456

 
$
43,831

 
$
42,085

 
$
47,643

 
$
39,037

 
$
27,151

 
$
26,313

 
$
21,189

(29,930
)
 
(40,313
)
 
(11,418
)
 
(13,396
)
 
(7,000
)
 
(4,433
)
 
(18,664
)
 
(11,435
)
(23,007
)
 
(15,234
)
 
(33,834
)
 
(9,867
)
 
(36,969
)
 
(8,270
)
 
(10,277
)
 
(6,946
)
23,511

 
(11,721
)
 
(3,121
)
 
24,417

 
(5,005
)
 
14,489

 
(2,626
)
 
2,790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1.45

 
$
1.40

 
$
1.12

 
$
0.79

 
$
0.86

 
$
0.77

 
$
0.71

 
$
0.67

1.44

 
1.39

 
1.12

 
0.79

 
0.85

 
0.77

 
0.70

 
0.66

0.42

 
0.36

 
0.95

 
0.28

 
0.89

 
0.22

 
0.18

 
0.14

6.09

 
4.97

 
3.91

 
3.69

 
3.15

 
3.26

 
2.73

 
2.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
37.73

 
$
34.65

 
$
24.80

 
$
16.59

 
$
23.91

 
$
22.93

 
$
21.35

 
$
16.58

23.01

 
21.62

 
13.27

 
7.69

 
10.30

 
13.10

 
12.73

 
8.27

$
26.93

 
$
32.45

 
$
23.62

 
$
14.29

 
$
10.91

 
$
15.01

 
$
14.22

 
$
15.80

36,326

 
36,284

 
36,178

 
36,102

 
36,054

 
36,260

 
36,088

 
36,144

10,439

 
10,618

 
7,456

 
7,767

 
8,268

 
8,700

 
8,992

 
9,263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18.7

 
23.4

 
21.1

 
18.1

 
12.8

 
19.6

 
20.5

 
23.9

1,350

 
1,252

 
1,036

 
930

 
1,070

 
930

 
884

 
845

$
301

 
$
305

 
$
304

 
$
256

 
$
262

 
$
252

 
$
246

 
$
242

$
51,121

 
$
66,641

 
$
75,972

 
$
74,718

 
$
80,361

 
$
66,628

 
$
44,237

 
$
43,619

 
 
 
 
 

# 17

                           

BUSINESS SEGMENTS
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the years ended January 31,
 
 
2016 (As Restated)(a)
 
2015
 
2014
 
2013
 
2012
 
2011
APPLIED TECHNOLOGY DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
92,599

 
$
142,154

 
$
170,461

 
$
171,778

 
$
145,261

 
$
107,910

Operating income(b)
 
18,319

 
34,557

 
57,000

 
59,590

 
49,750

 
33,197

Assets(c)
 
65,490

 
88,764

 
93,395

 
84,224

 
73,872

 
55,740

Capital expenditures
 
664

 
3,478

 
9,324

 
10,780

 
11,971

 
1,947

Depreciation and amortization
 
4,428

 
5,569

 
4,332

 
3,874

 
2,571

 
2,483

ENGINEERED FILMS DIVISION
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
129,465

 
$
166,634

 
$
147,620

 
$
141,976

 
$
133,481

 
$
105,838

Operating income(d)
 
17,892

 
21,802

 
18,154

 
25,115

 
21,501

 
19,622

Assets(c)
 
134,942

 
140,023

 
71,602

 
65,801

 
65,100

 
46,519

Capital expenditures
 
10,780

 
8,241

 
6,681

 
11,539

 
10,937

 
8,450

Depreciation and amortization
 
7,735

 
6,096

 
5,808

 
5,814

 
4,313

 
3,452

AEROSTAR DIVISION (as restated)
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
36,368

 
$
80,772

 
$
90,605

 
$
102,051

 
$
107,811

 
$
104,384

Operating income(e)
 
(14,801
)
 
8,983

 
7,816

 
10,341

 
18,308

 
17,209

Assets(c)
 
32,689

 
59,274

 
63,017

 
60,689

 
72,089

 
38,366

Capital expenditures
 
941

 
2,799

 
7,507

 
2,081

 
4,105

 
2,621

Depreciation and amortization
 
3,297

 
3,474

 
2,616

 
2,272

 
1,684

 
1,335

INTERSEGMENT ELIMINATIONS
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
 
 
 
 
 
 
 
 
 
 
 
   Applied Technology Division
 
$
(8
)
 
$
(231
)
 
$
(386
)
 
$
(974
)
 
$
(460
)
 
$
(226
)
Engineered Films Division
 
(195
)
 
(652
)
 
(505
)
 
(124
)
 
(193
)
 
(307
)
Aerostar Division
 

 
(10,524
)
 
(13,118
)
 
(8,532
)
 
(4,389
)
 
(2,891
)
Operating income
 
91

 
163

 
(111
)
 
(61
)
 
(188
)
 
(41
)
Assets
 
(57
)
 
(148
)
 
(311
)
 
(347
)
 
(286
)
 
(98
)
CORPORATE & OTHER (as restated)
 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) from administrative expenses
 
$
(17,110
)
 
$
(21,704
)
 
$
(18,865
)
 
$
(17,293
)
 
$
(13,730
)
 
$
(9,784
)
Assets(c)(f)
 
65,624

 
74,960

 
74,116

 
62,843

 
34,928

 
47,233

Capital expenditures
 
661

 
2,523

 
7,189

 
5,275

 
2,002

 
954

Depreciation and amortization
 
1,676

 
2,230

 
1,439

 
1,138

 
700

 
361

TOTAL COMPANY (as restated)
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
258,229

 
$
378,153

 
$
394,677

 
$
406,175

 
$
381,511

 
$
314,708

Operating income(b)(d)(e)
 
4,391

 
43,801

 
63,994

 
77,692

 
75,641

 
60,203

Assets
 
298,688

 
362,873

 
301,819

 
273,210

 
245,703

 
187,760

Capital expenditures
 
13,046

 
17,041

 
30,701

 
29,675

 
29,015

 
13,972

Depreciation and amortization
 
17,136

 
17,369

 
14,195

 
13,098

 
9,268

 
7,631

(a) The effects of the restatement on the Company's consolidated financial statements as of January 31, 2016 are further disclosed in Note 2 "Restatement of the Consolidated Financial Statements".

(b)  The year ended January 31, 2016 includes gains of $611 on disposal of assets related to the exit of contract manufacturing operations.
(c) Certain facilities owned by the Company are shared by more than one reporting segment. Beginning with fiscal year 2016 all facilities are reported as an asset based on the business segment that acquired the asset as we believe this better reflects the total assets of the business segment. In prior fiscal years (which have not been recast in this table), the book value of certain shared facilities was allocated across reporting segments based on usage. Expenses and costs related to these facilities, including depreciation expense, are allocated and reported in each reporting segment's operating income for each fiscal year presented.
(d)  The fiscal year ended January 31, 2011 includes a $451 pre-tax gain on disposition of assets.
(e)  The fiscal year ended January 31, 2016 includes pre-contract cost write-offs of $2,933, a goodwill impairment loss of $11,497, a long-lived asset impairment loss of $3,826, and a reduction of $2,273 acquisition-related contingent liability for Vista.
(f)  Assets are principally cash, investments, deferred taxes, and other receivables.

# 18



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to enhance overall financial disclosure with commentary on the operating results, liquidity, capital resources, and financial condition of Raven Industries, Inc. (the Company or Raven). This commentary provides management's analysis of the primary drivers of year-over-year changes in key financial statement elements, business segment results, and the impact of accounting principles on the Company's financial statements. The most significant risks and uncertainties impacting the operating performance and financial condition of the Company are discussed in Item 1A., Risk Factors, of this Annual Report on Form 10-K/A (Form 10-K/A).

This discussion should be read in conjunction with Raven's Consolidated Financial Statements and notes thereto in Item 8 of this Form 10-K/A.

The MD&A is organized as follows:

Restatement of the Consolidated Financial Statement
Executive Summary
Results of Operations - Segment Analysis
Outlook
Liquidity and Capital Resources
Off-Balance Sheet Arrangements and Contractual Obligations
Critical Accounting Estimates
Accounting Pronouncements

RESTATEMENT OF THE CONSOLIDATED FINANCIAL STATEMENTS
As discussed in the Explanatory Note, this Amendment No. 1 to Form 10-K (this Amendment), amends and restates the Company’s consolidated financial statements and related disclosures in Part II, Item 8. “Financial Statements and Supplementary Data” for the fiscal year ended January 31, 2016 to reflect the correction of certain errors discussed in Note 2 Restatement of the Consolidated Financial Statements. Accordingly, the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below reflects the effects of these restatements.

EXECUTIVE SUMMARY
Raven is a diversified technology company providing a variety of products to customers within the industrial, agricultural, energy, construction, defense/aerospace, and situational awareness markets. The Company is comprised of three unique operating units, classified into reportable segments: Applied Technology Division, Engineered Films Division, and Aerostar Division. As strategic actions, such as the wind-down of its contract manufacturing business, have changed the Company’s business over the last several years, Raven has remained committed to providing high-quality, high-value products.

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

Consolidated net sales, gross margin, operating income, operating margins, net income, and earnings per share
Cash flow from operations and shareholder returns
Return on sales, average assets, and average equity
Segment net sales, gross profit, gross margin, operating income, and operating margins

Raven's growth strategy focuses on its proprietary product lines and the Company made the decision in fiscal year 2015 to largely wind-down its non-strategic contract manufacturing business. To assess the effectiveness of this strategy during the transition period, management has used two additional measures:
Consolidated net sales excluding contract manufacturing sales (adjusted sales)
Segment net sales excluding contract manufacturing sales (adjusted sales)

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

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

# 19

                           


Segment operating income excluding Vista charges (adjusted operating income)
Consolidated operating income excluding Vista charges (consolidated adjusted operating income)
Net income excluding Vista charges (adjusted net income)

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

Non-GAAP measures should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. This non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables that follow.
Vision and Strategy
At Raven, our purpose is to solve great challenges. Great challenges require great solutions. Raven’s three unique divisions 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 business model is defensible, sustainable, and gives us a consistent approach in the pursuit of quality financial results. This overall approach to creating value, which is employed across the three business segments, is summarized as follows:
Intentionally serve a set of diversified market segments with attractive near- and long-term growth prospects;
Consistently manage a pipeline of growth initiatives within our market segments;
Aggressively compete on quality, service, innovation, and peak performance;
Hold ourselves accountable for continuous improvement;
Value our balance sheet as a source of strength and stability with which to pursue strategic acquisitions; and
Make corporate responsibility a top priority.


# 20

                           

 
 
For the years ended January 31,
dollars in thousands, except per-share data
 
2016 (As Restated)
 
%
change
 
2015
 
%
change
 
2014
Results of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
258,229

 
(31.7
)%
 
$
378,153

 
(4.2
)%
 
$
394,677

Gross margin(a)
 
25.9
%
 
 
 
27.3
%
 
 
 
30.2
%
Operating income
 
$
4,391

 
(90.0
)%
 
$
43,801

 
(31.6
)%
 
$
63,994

Operating margin(a)
 
1.7
%
 
 
 
11.6
%
 
 
 
16.2
%
Net income attributable to Raven Industries, Inc.
 
$
4,776

 
(84.9
)%
 
$
31,733

 
(26.0
)%
 
$
42,903

Diluted income per share
 
$
0.13

 
(84.9
)%
 
$
0.86

 
(26.5
)%
 
$
1.17

 
 
 
 
 
 
 
 
 
 
 
Consolidated net sales, excluding contract
    manufacturing sales(b)
 
$
252,982

 
(28.0
)%
 
$
351,205

 
1.8
 %
 
$
344,919

 
 
 
 
 
 
 
 
 
 
 
Adjusted net income attributable to Raven Industries, Inc.(b)
 
$
15,053

 
(52.6
)%
 
$
31,733

 
(26.0
)%
 
$
42,903

 
 
 
 
 
 
 
 
 
 
 
Cash Flows and Shareholder Returns
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
$
44,008

 
 
 
$
60,083

 
 
 
$
52,836

Cash outflows for capital expenditures
 
$
13,046

 
 
 
$
17,041

 
 
 
$
30,701

Cash dividends
 
$
19,426

 
 
 
$
18,519

 
 
 
$
17,465

Common share repurchases
 
$
29,338

 
 
 
$

 
 
 
$

 
 
 
 
 
 
 
 
 
 
 
Performance Measures
 
 
 
 
 
 
 
 
 
 
Return on net sales(c)
 
1.8
%
 
 
 
8.4
%
 
 
 
10.9
%
Return on average assets(d)
 
1.4
%
 
 
 
9.5
%
 
 
 
14.9
%
Return on average equity(e)
 
1.7
%
 
 
 
11.4
%
 
 
 
18.2
%
 
(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.
(b)  Non-GAAP measure reconciled to GAAP in the applicable table below.
(c)  Net income divided by sales.
(d)  Net income divided by average assets.
(e)  Net income divided by average equity.

# 21

                           

The following table reconciles the reported net sales to adjusted sales, a non-GAAP financial measure. Adjusted sales excludes contract manufacturing and represents the Company's sales from proprietary products.
 
 
For the years ended January 31,
 
 
 
 
%
change
 
 
 
%
change
 
 
dollars in thousands
 
2016
 
 
2015
 
 
2014
Applied Technology
 
 
 
 
 
 
 
 
 
 
Reported net sales
 
$
92,599

 
(34.9
)%
 
$
142,154

 
(16.6
)%
 
$
170,461

Less: Contract manufacturing sales
 
546

 
(90.6
)%
 
5,832

 
(48.5
)%
 
11,324

Applied Technology net sales, excluding
    contract manufacturing sales
 
$
92,053

 
(32.5
)%
 
$
136,322

 
(14.3
)%
 
$
159,137

 
 
 
 
 
 
 
 
 
 
 
Aerostar
 
 
 
 
 
 
 
 
 
 
Reported net sales
 
$
36,368

 
(55.0
)%
 
$
80,772

 
(10.9
)%
 
$
90,605

Less: Contract manufacturing sales
 
4,701

 
(85.2
)%
 
31,669

 
(38.3
)%
 
51,311

Aerostar net sales, excluding contract
    manufacturing sales
 
$
31,667

 
(35.5
)%
 
$
49,103

 
25.0
 %
 
$
39,294

 
 
 
 
 
 
 
 
 
 
 
Consolidated Raven
 
 
 
 
 
 
 
 
 
 
Reported net sales
 
$
258,229

 
(31.7
)%
 
$
378,153

 
(4.2
)%
 
$
394,677

Less: Contract manufacturing sales
 
5,247

 
(86.0
)%
 
37,501

 
(40.1
)%
 
62,635

Plus: Aerostar sales to Applied Technology
 

 
(100.0
)%
 
10,553

 
(18.0
)%
 
12,877

Consolidated net sales, excluding contract
    manufacturing sales
 
$
252,982

 
(28.0
)%
 
$
351,205

 
1.8
 %
 
$
344,919


The following table reconciles the reported operating (loss) income to adjusted operating income, a non-GAAP financial measure. On both a segment and consolidated basis, adjusted operating income excludes the goodwill impairment loss, long-lived asset impairment loss, and associated financial impacts (pre-contract cost write-off and an acquisition-related contingent consideration benefit) all of which relate to the Vista Research, Inc. business within the Aerostar Division and all of which occurred in the fiscal 2016 third quarter.
 
 
For the years ended January 31,
 
 
 
 
%
change
 
 
 
%
change
 
 
(dollars in thousands)
 
2016 (As Restated)
 
 
2015