

NOTE 2	RESTATEMENT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Management has identified certain financial statement errors as further described below.

Vista

In conjunction with the identification of the material weakness in internal controls related to the Company’s accounting for goodwill and long-lived assets, including finite-lived assets, the Company reassessed the impairment analysis of the Vista reporting unit that had been performed during the quarter ended October 31, 2015. Based on that reassessment, the Company concluded that there were errors in certain forecast assumptions and in the determination of the unit of account for long-lived asset impairment testing which resulted in a $3,813 understatement of impairment charges related to certain long-lived assets that should have been recorded in the quarter ended October 31, 2015. The Company has corrected this error by recording an impairment charge of $3,813, reported as "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income. Of the total long-lived asset impairment adjustment, $3,259 was related to amortizable intangible assets related to radar technology, radar customers and patents and $554 was related to property, plant, and equipment. As a result of such errors and the incremental impairment charges in the quarter ended October 31, 2015, the Company has also recorded adjustments to reverse $378 and $95 of amortization and depreciation expense, respectively, and recorded an additional impairment charge to "Long-lived asset impairment loss" of $13 in the quarter and year ended January 31, 2016.

The Company also determined that the forecast assumption errors resulted in an understatement of the amount of goodwill impairment originally recognized in the quarter ended October 31, 2015 and that the tax-deductible goodwill of the Vista reporting unit should have been fully impaired as of that date. The Company has corrected this error by recording an additional goodwill impairment charge of $4,084.

In connection with the acquisition of Vista in 2012, the Company entered into an agreement to make annual payments based upon percentages of specific revenue streams for seven years after the acquisition date. In connection with the errors in the forecast assumptions noted above, the Company determined that there was also an error in determining the fair value of the acquisition-related contingent consideration liability in the quarter ended October 31, 2015. The Company has corrected this error by recording a reduction in the "Accrued liability" (acquisition-related contingent consideration) of $44, "Other liability" (acquisition-related contingent consideration) of $746, and "Cost of sales" of $790 for the quarter ended October 31, 2015. The Company also recorded an immaterial adjustment to "Cost of sales" of $23 in the fourth quarter ended January 31, 2016 to reverse the impact of the fiscal 2016 third quarter acquisition-related contingent consideration error noted above.

As a result of the material weakness in internal controls related to the Company’s monitoring of inventory existence, the Company identified a net $49 overstatement of the carrying value of inventory as of January 31, 2016. The Company has corrected the error by recognizing the net write-off of such inventory in the year ended January 31, 2016.

Other

The financial statements are also being adjusted to correct the income tax benefit for the impact of the goodwill, intangibles and acquisition-related contingent consideration liability and other error corrections noted above, as well as to correct for other tax accounting errors. The aggregate impact of tax accounting errors resulted in a $2,988 reduction of “Income tax (benefit) provision”, a reduction “Other Current Assets” (income tax receivable) of $455, a reduction of “Other Liabilities” (deferred income taxes) of $2,179, a reduction of "Other liabilities" (uncertain tax positions) of $340, and a $923 reduction of "Paid-in capital" as of and for the year ended January 31, 2016.

The effects of the restatement on the Company's consolidated balance sheets as of January 31, 2016 are as follows (in thousands):



	January 31, 2016
Consolidated Balance Sheet:	As Previously Reported		Restatement Adjustments			As Restated
Inventories	$	45,888	$	(49	)	$	45,839
Other current assets	4,884		(455		)	4,429
Total current assets	125,733		(504		)	125,229
Property, plant and equipment, net	116,162		(458		)	115,704
Goodwill	44,756		(4,084		)	40,672
Amortizable intangible assets, net	15,832		(2,876		)	12,956
Total assets	306,610		(7,922		)	298,688
Other liabilities	18,926		(3,286		)	15,640
Paid-in capital	54,830		(923		)	53,907
Retained earnings	233,156		(3,713		)	229,443
Total Raven Industries, Inc. shareholders' equity	268,791		(4,636		)	264,155
Total shareholders' equity	268,865		(4,636		)	264,229
Total liabilities and shareholders' equity	306,610		(7,922		)	298,688

The effects of the restatement on the Company's consolidated statements of income and comprehensive income for the year ended January 31, 2016 are as follows (in thousands):



	Year Ended January 31, 2016
Consolidated Statements of Income and Comprehensive Income:	As Previously Reported		Restatement Adjustments			As Restated
Cost of sales	$	192,444	$	(1,189	)	$	191,255
Gross profit	65,785		1,189			66,974
Selling, general and administrative expenses	32,594		(20		)	32,574
Goodwill impairment loss	7,413		4,084			11,497
Long-lived asset impairment loss	—		3,826			3,826
Operating income	11,092		(6,701		)	4,391
Income before income taxes	10,782		(6,701		)	4,081
Income taxes (benefit) provision	2,221		(2,988		)	(767		)
Net income	8,561		(3,713		)	4,848
Net income attributable to Raven Industries, Inc.	8,489		(3,713		)	4,776
Net income per common share:
─ Basic	$	0.23	$	(0.10	)	$	0.13
─ Diluted	$	0.23	$	(0.10	)	$	0.13

Comprehensive income	10,909		(3,713		)	7,196
Comprehensive income attributable to Raven Industries, Inc.	10,837		(3,713		)	7,124

The effects of the restatement on the Company's consolidated statements of shareholders' equity as of or for the year ended January 31, 2016 are as follows (in thousands):



	Year Ended January 31, 2016
Consolidated Statements of Shareholders' Equity:	As Previously Reported			Restatement Adjustments			As Restated
Net income	$	8,561		$	(3,713	)	$	4,848
Income tax impact related to share-based compensation	(308		)	(923		)	(1,231		)
Total shareholders' equity as of January 31, 2016	268,865			(4,636		)	264,229

The effects of the restatement on the Net cash provided by operating activities of our consolidated statements of cash flows for the year ended January 31, 2016 are as follows (in thousands):



	Year Ended January 31, 2016
Consolidated Statements of Cash Flows:	As Previously Reported			Restatement Adjustments			As Restated
Net income	$	8,561		$	(3,713	)	$	4,848
Depreciation	13,951			(95		)	13,856
Amortization of intangible assets	3,658			(378		)	3,280
Goodwill impairment loss	7,413			4,084			11,497
Long-lived asset impairment loss	—			3,826			3,826
Change in fair value of acquisition-related contingent consideration	(721		)	(767		)	(1,488		)
Deferred income taxes	(3,021		)	(3,018		)	(6,039		)
Change in operating assets and liabilities	9,847			41			9,888
Other operating activities, net	2,092			20			2,112
Net cash provided by operating activities	44,008			—			44,008

There were no impacts to Net cash used in investing activities or Net cash used in financing activities within our consolidated statement of cash flows nor was there an impact on the Net (decrease) increase in cash and cash equivalents resulting from restatement.

The impacts of the restatements have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.

As a result of the restatement of the Company's Quarterly Report on Form 10-Q for the three and nine months ended October 31, 2015 and for the fiscal year ended January 31, 2016 on this Form 10-K/A, the Company has been unable to timely file its Quarterly Reports on Form 10-Q for the three and six months ended July 31, 2016 and the three and nine months ended October 31, 2016, and, therefore, the Company is currently non-compliant with NASDAQ Listing Rule 5250( c)(1). In addition, the Company has requested and received covenant waivers from its lender related to its credit agreement due to its late filing of financial statement information during fiscal 2017.