RESTATEMENT OF THE UNAUDITED 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.

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 the quarter ended October 31, 2015.

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 "Accrued liabilities" (acquisition-related contingent consideration) of $44, "Other liabilities" (acquisition-related contingent consideration) of $746, and "Cost of sales" of $790 for the quarter ended October 31, 2015.

As a result of the material weakness in internal controls related to the Company’s monitoring of inventory existence, the Company identified a net $12 understatement of the carrying value of inventory as of October 31, 2015. The Company corrected the error by increasing inventory and reducing "Cost of sales" for the quarter ended October 31, 2015.

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 error corrections noted above, as well as to correct for other tax accounting errors. The aggregate impact of tax accounting errors resulted in a $2,489 increase of "Income tax (benefit) provision", a reduction of "Accrued liabilities" (income tax payable) of $265, a reduction of "Other Liabilities" (deferred income taxes) of $1,460, a reduction of "Other liabilities" (uncertain tax positions) of $340, and a $423 reduction of "Paid-in capital" for the quarter ended October 31, 2015.

The effects of the restatement on the Company's unaudited consolidated balance sheets as of October 31, 2015 are as follows (in thousands):



	October 31, 2015
Consolidated Balance Sheets (unaudited):	As Previously Reported		Restatement Adjustments			As Restated
Inventories	$	48,624	$	12		$	48,636
Total current assets	126,665		12			126,677
Property, plant and equipment, net	117,760		(554		)	117,206
Goodwill	44,796		(4,084		)	40,712
Amortizable intangible assets, net	16,586		(3,259		)	13,327
Total assets	309,666		(7,885		)	301,781
Accrued liabilities	11,906		(309		)	11,597
Total current liabilities	19,973		(309		)	19,664
Other liabilities	17,057		(2,546		)	14,511
Paid-in capital	54,342		(423		)	53,919
Retained earnings	236,922		(4,607		)	232,315
Total Raven Industries, Inc. shareholders' equity	272,544		(5,030		)	267,514
Total shareholders' equity	272,636		(5,030		)	267,606
Total liabilities and shareholders' equity	309,666		(7,885		)	301,781

The effects of the restatement on the Company's unaudited consolidated statements of income and comprehensive income for the three and nine months ended October 31, 2015 are as follows (in thousands):



	Three Months Ended October 31, 2015									Nine Months Ended October 31, 2015
Consolidated Statements of Income and Comprehensive Income (unaudited):	As Previously Reported			Restatement Adjustments			As Restated			As Previously Reported		Restatement Adjustments			As Restated
Cost of sales	$	51,440		$	(801	)	$	50,639		$	151,014	$	(801	)	$	150,213
Gross profit	16,171			801			16,972			54,388		801			55,189
Goodwill impairment loss	7,413			4,084			11,497			7,413		4,084			11,497
Long-lived asset impairment loss	—			3,813			3,813			—		3,813			3,813
Operating (loss) income	(2,727		)	(7,096		)	(9,823		)	10,916		(7,096		)	3,820
(Loss) income before income taxes	(2,850		)	(7,096		)	(9,946		)	10,483		(7,096		)	3,387
Income taxes (benefit) provision	(1,291		)	(2,489		)	(3,780		)	2,960		(2,489		)	471
Net (loss) income	(1,559		)	(4,607		)	(6,166		)	7,523		(4,607		)	2,916
Net (loss) income attributable to Raven Industries, Inc.	(1,581		)	(4,607		)	(6,188		)	7,465		(4,607		)	2,858
Net (loss) income per common share:
─ Basic	(0.04		)	(0.13		)	(0.17		)	0.20		(0.12		)	0.08
─ Diluted	(0.04		)	(0.13		)	(0.17		)	0.20		(0.12		)	0.08
Comprehensive income (loss)	1,237			(4,607		)	(3,370		)	10,346		(4,607		)	5,739
Comprehensive income attributable to Raven Industries, Inc.	1,215			(4,607		)	(3,392		)	10,288		(4,607		)	5,681

The effects of the restatement on the Company's consolidated statements of shareholders' equity as of and for the nine months ended October 31, 2015 are as follows (in thousands):



	Nine Months Ended October 31, 2015
Consolidated Statements of Shareholders' Equity (unaudited):	As Previously Reported		Restatement Adjustments		As Restated
Net income	7,523		(4,607	)	2,916
Income tax impact related to share-based compensation	(267	)	(423	)	(690	)
Total shareholders' equity as of October 31, 2015	272,636		(5,030	)	267,606

The effects of the restatement on the Net Cash provided by operating activities of the Company's unaudited consolidated statements of cash flows for the nine months ended October 31, 2015 are as follows (in thousands):



	Nine Months Ended October 31, 2015
Consolidated Statements of Cash Flows (unaudited):	As Previously Reported			Restatement Adjustments			As Restated
Net income	$	7,523		$	(4,607	)	$	2,916
Change in fair value of acquisition-related contingent consideration	(930		)	(790		)	(1,720		)
Goodwill impairment loss	7,413			4,084			11,497
Long-lived asset impairment loss	—			3,813			3,813
Deferred income taxes	(4,765		)	(1,920		)	(6,685		)
Change in inventories	4,832			(12		)	4,820
Operating liabilities	(12,012		)	(568		)	(12,580		)
Net cash provided by operating activities	35,181			—			35,181

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 these unaudited financial statements, including the applicable footnotes, as appropriate.

As 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, 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 lenders related to its credit agreement due to its late filing of financial statement information during fiscal 2017.