RESTATEMENT OF THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Management has identified certain financial statement errors as further described below which resulted in this restatement of the Company’s unaudited interim financial statements for the quarter ended April 30, 2016, and the previous restatement of the audited financial statements for the year ended January 31, 2016 and the unaudited interim financial statements for the quarter and nine months ended October 31, 2015.

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. An impairment charge of $3,813 was recorded in the fiscal 2016 third quarter to correct the previously issued unaudited consolidated financial statements for the periods ended October 31, 2015 and the audited consolidated financial statements for the period ended January 31, 2016.

The correction of these errors in the periods ended October 31, 2015 and January 31, 2016 resulted in the correction of related accounts for the three-month period ended April 30, 2016. The impairment of long-lived assets in fiscal 2016 reduced the depreciation and amortization expense calculated for the quarter ended April 30, 2016. The total reduction in depreciation and amortization expense was $424, of which $422 was recorded in “Cost of sales” and $2 was recorded in “Selling, general, and administrative expenses” in the quarter ended April 30, 2016. The balance sheet adjustments for the long-lived asset impairment errors noted above also corrected the overstatement of "Property, plant and equipment, net" by $393, "Amortizable intangible assets, net" by $2,518, and "Retained earnings" by $2,911 as of April 30, 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 recorded this income statement adjustment in fiscal 2016 and there were no additional income statement adjustments to Vista's goodwill impairment for the quarter ended April 30, 2016. The balance sheet adjustments in the prior year for the goodwill impairment error noted above corrected the overstatement of "Goodwill" and "Retained earnings" by $4,084, respectively, as of April 30, 2016.

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 liability. The reduction of the fair value of the acquisition-related contingent liability in fiscal 2016 reduced the fair value accretion expense calculated for the current quarter. The total reduction in accretion expense, recorded in "Cost of sales", was $19 for the three months ended April 30, 2016. The balance sheet adjustments for the acquisition-related contingent liability noted above also corrected the overstatement of "Accrued liabilities" (acquisition-related contingent consideration) by $90, "Other liabilities" (acquisition-related contingent consideration) by $696, and the understatement of "Retained earnings" by $786 as of April 30, 2016.

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 recorded this adjustment in fiscal 2016 and there were no additional inventory errors in the quarter ended April 30, 2016.

Other

The financial statements are also being adjusted to correct the income tax 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 $449 increase in the provision for income taxes in the quarter ended April 30, 2016. The balance sheet adjustments for the tax errors noted above also correct for the overstatement of "Other current assets" (income tax receivable) of $454, "Other liabilities" (deferred income taxes) of $2,082, "Other liabilities" (uncertain tax positions) of $42, "Paid-in capital" of $923, and the understatement of "Accrued liabilities" (income tax payable) by $54 and "Retained earnings" by $2,539 as of April 30, 2016.

The effects of the restatement on the Company's unaudited consolidated balance sheets as of April 30, 2016 are as follows (in thousands):



	April 30, 2016
	As Previously Reported		Restatement Adjustments			As Restated
Consolidated Balance Sheets (unaudited):
Inventories	$	46,950	$	(49	)	$	46,901
Other current assets	5,343		(454		)	4,889
Total current assets	126,096		(503		)	125,593
Property, plant and equipment, net	113,767		(393		)	113,374
Goodwill	44,900		(4,084		)	40,816
Amortizable intangible assets, net	15,660		(2,518		)	13,142
Total assets	304,668		(7,498		)	297,170
Accrued liabilities	12,739		(36		)	12,703
Total current liabilities	22,904		(36		)	22,868
Other liabilities	17,259		(2,820		)	14,439
Paid-in capital	54,755		(923		)	53,832
Retained earnings	233,926		(3,719		)	230,207
Total Raven Industries, Inc. shareholders' equity	264,429		(4,642		)	259,787
Total shareholders' equity	264,505		(4,642		)	259,863
Total liabilities and shareholders' equity	304,668		(7,498		)	297,170

The effects of the restatement on the Company's unaudited consolidated statements of income and comprehensive income for the three months ended April 30, 2016 are as follows (in thousands):



	Three Months Ended April 30, 2016
	As Previously Reported		Restatement Adjustments			As Restated
Consolidated Statements of Income and Comprehensive Income (unaudited):
Cost of sales	$	48,684	$	(441	)	$	48,243
Gross profit	19,676		441			20,117
Selling, general and administrative expenses	7,660		(2		)	7,658
Operating income	7,607		443			8,050
Income before income taxes	7,510		443			7,953
Income taxes	1,985		449			2,434
Net income	5,525		(6		)	5,519
Net income attributable to Raven Industries, Inc.	5,523		(6		)	5,517
Comprehensive income	6,135		(6		)	6,129
Comprehensive income attributable to Raven Industries, Inc.	6,133		(6		)	6,127

The effects of the restatement on the Company's consolidated statements of shareholders' equity as of and for the three months ended April 30, 2016 are as follows (in thousands):



	Three Months Ended April 30, 2016
	As Previously Reported	Restatement Adjustments		As Restated
Consolidated Statements of Shareholders' Equity (unaudited):
Net income	5,525	(6	)	5,519
Paid-in capital	54,755	(923	)	53,832
Retained Earnings	233,926	(3,719	)	230,207
Total shareholders' equity as of April 30, 2016	264,505	(4,642	)	259,863

The effects of the restatement on the Company's unaudited consolidated statements of cash flows for the three months ended April 30, 2016 are as follows (in thousands):



	Three Months Ended April 30, 2016
	As Previously Reported		Restatement Adjustments			As Restated
Consolidated Statements of Cash Flows (unaudited):
Net income	$	5,525	$	(6	)	$	5,519
Depreciation and amortization	4,186		(424		)	3,762
Change in fair value of acquisition-related contingent consideration	82		(19		)	63
Deferred income taxes	1,554		97			1,651
Operating liabilities	4,075		352			4,427
Net cash provided by operating activities	11,104		—			11,104

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 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.