| Restatement of Previously Issued Financial Statements | Restatement During the quarter ended March 31, 2020, the Company discovered certain accounting irregularities at its Mexican subsidiaries. The Company’s Audit Review Committee commenced an internal investigation, with the assistance of outside counsel and other third party experts. As a result of this investigation, the Company, along with the Audit Review Committee and its third party experts, concluded that certain former employees of one of the Company’s Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries that resulted in expenditures being deferred on the balance sheet beyond the period for which the costs pertained. As a result, the Company recorded a non-cash write-off for certain amounts included in the Company’s historical consolidated financial statements in trade receivables and prepaid expenses and other current assets, among other corrections, related to these transactions, and restated its consolidated financial statements as of December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017 and each of the quarters during the years ended December 31, 2019 and 2018 on Form 10-K/A for the year ended December 31, 2019. During the course of the investigation, certain expenses at the Company's Mexican subsidiaries were found to be incorrectly classified within the consolidated statement of operations and have also been corrected in the restatement. These misstatements are described in restatement reference (a) through (d) below. The restatement also includes corrections for other errors previously identified as immaterial, individually and in the aggregate, to our consolidated financial statements. Description of Misstatements (a) Write-off of Assets: Certain former employees of one of the Company's Mexican subsidiaries engaged in unauthorized transactions with the Company’s Mexican subsidiaries and vendors in which the employees had an interest. In doing so, expenditures were deferred on the balance sheet beyond the period for which the costs pertained. The amounts were recorded as trade receivables, prepaid expenses and other current assets, and reductions in accrued liabilities. The amounts have been written off to selling, general and administrative expense. Where these write-offs caused prepaid assets and other current assets balance to become a liability, the balance has been reclassed from prepaid expenses and other assets to other current liabilities. (b) Reversal of Revenue: Certain former employees of one of our Mexican subsidiaries engaged in sales activities to customers in which the employees had an interest. The Company concluded that these unauthorized transactions did not meet the criteria for revenue recognition at the time of sale and the revenue has been reversed. (c) Correction of misclassification of Selling and Marketing Expenses: Certain former employees of one of the Mexican subsidiaries engaged a third-party, in which the employees had an interest, to perform selling and marketing activities on behalf of the Mexican subsidiaries. Amounts paid for the selling and marketing activities had previously been treated as variable consideration and reflected as a reduction to revenue; however, the amounts should be reflected as selling, general and administrative expenses. (d) Correction for the timing of recognition of customer price concessions: Customer price concessions at our Mexican subsidiaries were not accrued timely in order to obscure the increased expenses due to unauthorized transactions as described above. (e) Tax adjustments for corrections: The tax impacts of the corrections have been recorded. (f) Correction of other immaterial errors Restatement Tables The restatement tables below present a reconciliation from the previously reported to the restated values as of and for the three months ended March 31, 2019 and as of December 31, 2019. The values as previously reported were derived from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 filed on April 25, 2019 and from our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 26, 2020. Additionally, in the fourth quarter of 2019, KC met the requirements to be reported as a discontinued operation. The following consolidated financial tables present a reconciliation to reflect KC as a discontinued operation for all periods presented and are labeled "Recast". See Note 3, Discontinued Operations for more information. CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2019 As Previously Reported Restatement Impacts Restatement Reference As Restated Assets Current assets Cash and cash equivalents $ 2,142 $ — $ 2,142 Trade receivables, net 113,781 (5,400 ) a,b,d 108,381 Inventory 109,621 185 f 109,806 Prepaid expenses and other current assets 23,102 (11,757 ) a,b,f 11,345 Current assets of discontinued operations 5,383 — 5,383 Total current assets 254,029 (16,972 ) 237,057 Property, plant and equipment, net 22,324 — 22,324 Goodwill 6,253 — 6,253 Other intangible assets, net 3,141 — 3,141 Deferred income taxes 3,853 2,395 e 6,248 Deferred costs 10,941 — 10,941 Other non-current assets 2,085 — 2,085 Non-current assets of discontinued operations 614 — 614 Total assets $ 303,240 $ (14,577 ) $ 288,663 Liabilities and stockholders' equity Current liabilities Accounts payable $ 111,117 $ 231 f $ 111,348 Accounts payable to NACCO Industries, Inc. 496 — 496 Revolving credit agreements 23,497 — 23,497 Accrued compensation 14,277 750 f 15,027 Accrued product returns 8,697 — 8,697 Other current liabilities 12,873 (339 ) a,e 12,534 Current liabilities of discontinued operations 29,723 — 29,723 Total current liabilities 200,680 642 201,322 Revolving credit agreements 35,000 — 35,000 Other long-term liabilities 12,501 3,574 e 16,075 Non-current liabilities of discontinued operations — — — Total liabilities 248,181 4,216 252,397 Stockholders’ equity Preferred stock, par value $0.01 per share — — — Class A Common stock, par value $0.01 per share; 9,805 shares issued as of December 31, 2019 98 — 98 Class B Common stock, par value $0.01 per share, convertible into Class A on a one-for-one basis; 4,076 shares issued as of December 31, 2019 41 — 41 Capital in excess of par value 54,344 165 f 54,509 Treasury stock (5,960 ) — (5,960 ) Retained earnings 22,524 (18,814 ) a,b,d,e,f 3,710 Accumulated other comprehensive loss (15,988 ) (144 ) a,b,d,e (16,132 ) Total stockholders’ equity 55,059 (18,793 ) 36,266 Total liabilities and stockholders' equity $ 303,240 $ (14,577 ) $ 288,663 (a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $2.5 million , a reduction to prepaid expenses and other current assets of $12.4 million , and an increase to other current liabilities of $0.9 million (b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to trade receivables of $1.3 million and an increase to prepaid expenses and other current assets of $0.2 million (d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in a decrease to trade receivables of $1.6 million (e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to deferred income taxes of $2.4 million , and a decrease to other current liabilities of $1.2 million , and an increase to other long-term liabilities of $3.6 million (f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to prepaid expenses and other current assets of $0.5 million , an increase to inventory of $0.2 million , an increase to accounts payable of $0.2 million , an increase to accrued compensation of $0.7 million , and an increase to capital in excess of par of $0.2 million CONDENSED CONSOLIDATED BALANCE SHEETS ` March 31, 2019 As Previously Reported Restatement Impacts Restatement Reference As Restated Recasting Impacts As Restated and Recast Assets Current assets Cash and cash equivalents $ 1,721 $ — $ 1,721 $ (85 ) $ 1,636 Trade receivables, net 92,534 (2,768 ) a,f 89,766 (10,664 ) 79,102 Inventory 142,261 — 142,261 (21,554 ) 120,707 Prepaid expenses and other current assets 16,373 (6,605 ) a 9,768 7,611 17,379 Current assets of discontinued operations — — — 24,692 24,692 Total current assets 252,889 (9,373 ) 243,516 — 243,516 Property, plant and equipment, net 22,566 — 22,566 (1,582 ) 20,984 Goodwill 6,253 — 6,253 — 6,253 Other intangible assets, net 4,174 — 4,174 — 4,174 Deferred income taxes 5,493 385 e 5,878 (2,712 ) 3,166 Deferred costs 8,447 — 8,447 (131 ) 8,316 Other non-current assets 2,424 — 2,424 (21 ) 2,403 Non-current assets of discontinued operations — — — 4,446 4,446 Total assets $ 302,246 $ (8,988 ) $ 293,258 $ — $ 293,258 Liabilities and stockholders' equity Current liabilities Accounts payable $ 80,649 $ — $ 80,649 $ (6,929 ) $ 73,720 Accounts payable to NACCO Industries, Inc. 2,425 — 2,425 — 2,425 Revolving credit agreements 62,212 — 62,212 (7,400 ) 54,812 Accrued compensation 8,903 370 f 9,273 (875 ) 8,398 Accrued product returns 9,314 — 9,314 — 9,314 Other current liabilities 24,109 (135 ) a,d,e,f 23,974 (6,269 ) 17,705 Current liabilities of discontinued operations — — — 21,473 21,473 Total current liabilities 187,612 235 187,847 — 187,847 Revolving credit agreements 32,000 — 32,000 (2,000 ) 30,000 Other long-term liabilities 19,555 898 e 20,453 (1,834 ) 18,619 Non-current liabilities of discontinued operations — — — 3,834 3,834 Total liabilities 239,167 1,133 240,300 — 240,300 Stockholders’ equity Class A Common stock 95 — 95 — 95 Class B Common stock 44 — 44 — 44 Capital in excess of par value 52,520 — 52,520 — 52,520 Retained earnings 27,959 (10,453 ) a,d,e,f 17,506 — 17,506 Accumulated other comprehensive loss (17,539 ) 332 a,d (17,207 ) — (17,207 ) Total stockholders’ equity 63,079 (10,121 ) 52,958 — 52,958 Total liabilities and stockholders' equity $ 302,246 $ (8,988 ) $ 293,258 $ — $ 293,258 (a) Write-off of Assets: The correction of these misstatements resulted in a decrease to trade receivables of $1.6 million , a reduction to prepaid expenses and other current assets of $6.6 million , and an increase to other current liabilities of $1.4 million (d) Correction for the timing of recognition of customer price concessions: The correction of these misstatements resulted in an increase to other current liabilities of $0.2 million (e) Tax adjustments for corrections: The correction of these misstatements resulted in a decrease to prepaid expenses and other current assets of $0.1 million , an increase to deferred income taxes of $0.4 million , a decrease to other current liabilities of $0.3 million , and an increase to other long-term liabilities of $0.9 million (f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to trade receivables of $1.1 million , an increase to accrued compensation of $0.4 million and a decrease to other current liabilities of $1.4 million CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2019 As Previously Reported Restatement Impacts Restatement References As Restated Recasting Impacts As Restated and Recast Revenue $ 145,377 $ 518 c,f $ 145,895 $ (19,253 ) $ 126,642 Cost of sales 110,654 (65 ) f 110,589 (10,649 ) 99,940 Gross profit 34,723 583 35,306 (8,604 ) 26,702 Selling, general and administrative expenses 36,507 1,972 a,c,f 38,479 (12,233 ) 26,246 Amortization of intangible assets 345 — 345 — 345 Operating profit (loss) (2,129 ) (1,389 ) (3,518 ) 3,629 111 Interest expense, net 746 — 746 (83 ) 663 Other expense (income), net (332 ) 144 f (188 ) (9 ) (197 ) Income (loss) from continuing operations before income taxes (2,543 ) (1,533 ) (4,076 ) 3,721 (355 ) Income tax expense (benefit) (782 ) 91 e (691 ) 998 307 Net income (loss) from continuing operations (1,761 ) (1,624 ) (3,385 ) 2,723 (662 ) Loss from discontinued operations, net of tax — — — (2,723 ) (2,723 ) Net loss $ (1,761 ) $ (1,624 ) $ (3,385 ) $ — $ (3,385 ) Basic and diluted earnings (loss) per share: Continuing operations $ (0.13 ) $ (0.12 ) $ (0.25 ) $ 0.20 $ (0.05 ) Discontinued operations — — — (0.20 ) (0.20 ) Basic and diluted earnings (loss) per share $ (0.13 ) $ (0.12 ) $ (0.25 ) $ — $ (0.25 ) Basic weighted average shares outstanding 13,786 — 13,786 — 13,786 Diluted weighted average shares outstanding 13,786 — 13,786 — 13,786 (a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $1.4 million (c) Correction of misclassification of Selling and Marketing Expenses: The correction of these misstatements resulted in an increase to revenue and an increase to SG&A expense of $0.4 million (e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to tax expense of $0.1 million (f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.1 million , a decrease to cost of sales of $0.1 million , an increase to SG&A expense of $0.2 million , and an increase in other expense of $0.1 million CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Three Months Ended March 31, 2019 As Previously Reported Restatement Impacts As Restated Net income (loss) $ (1,761 ) $ (1,624 ) $ (3,385 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 330 (116 ) 214 (Loss) gain on long-term intra-entity foreign currency transactions 15 — 15 Cash flow hedging activity (566 ) 144 (422 ) Reclassification of hedging activities into earnings 2 — 2 Pension plan adjustment — — — Reclassification of pension adjustments into earnings (10 ) 94 84 Total other comprehensive loss, net of tax (229 ) 122 (107 ) Comprehensive income (loss) $ (1,990 ) $ (1,502 ) $ (3,492 ) See description of the net income impacts in the consolidated statement of operations for the three months ended March 31, 2019 section above. The decrease to foreign currency translation adjustments is the result of the translation impacts of restatements in the write-off of assets, reversal of revenue and timing of recognition of customer pricing concessions categories. The increase to cash flow hedging is from the correction of other immaterial errors. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS March 31, 2019 As Previously Reported Restatement Impacts As Restated Recasting Impacts As Restated and Recast Operating activities Net income from continuing operations $ (1,761 ) $ (1,624 ) $ (3,385 ) $ 2,723 $ (662 ) Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 1,249 — 1,249 (201 ) 1,048 Deferred income taxes 2,178 110 2,288 23 2,311 Stock compensation expense 807 — 807 — 807 Other 23 (59 ) (36 ) 5 (31 ) Net changes in operating assets and liabilities: Affiliate payable 6 — 6 3 9 Trade receivables 20,323 344 20,667 (778 ) 19,889 Inventory 2,593 111 2,704 (441 ) 2,263 Other assets (1,824 ) (742 ) (2,566 ) (132 ) (2,698 ) Accounts payable (52,353 ) (15 ) (52,368 ) 6,775 (45,593 ) Other liabilities (21,376 ) 1,875 (19,501 ) 1,919 (17,582 ) Net cash provided by operating activities from continuing operations (50,135 ) — (50,135 ) 9,896 (40,239 ) Investing activities Expenditures for property, plant and equipment (862 ) — (862 ) 8 (854 ) Other 29 — 29 (29 ) — Net cash used for investing activities from continuing operations (833 ) — (833 ) (21 ) (854 ) Financing activities Net additions (reductions) to revolving credit agreements 47,565 — 47,565 (9,400 ) 38,165 Cash dividends paid (1,177 ) — (1,177 ) — (1,177 ) Net cash provided by (used for) financing activities from continuing operations 46,388 — 46,388 (9,400 ) 36,988 Cash flows from discontinued operations Net cash provided by (used for) operating activities from discontinued operations — — — (9,896 ) (9,896 ) Net cash provided by (used for) investing activities from discontinued operations — — — 21 21 Net cash used for financing activities from discontinued operations — — — 9,400 9,400 Cash provided by (used for) discontinued operations — — — (475 ) (475 ) Effect of exchange rate changes on cash (51 ) — (51 ) — (51 ) Cash and Cash Equivalents (Decrease) increase for the year from continuing operations (4,631 ) — (4,631 ) 475 (4,156 ) Increase (decrease) for the year from discontinued operations — — — (475 ) (475 ) Balance at the beginning of the year 6,352 — 6,352 6,352 Balance at the end of the year $ 1,721 $ — $ 1,721 $ 1,721 See description of the net income impacts in the consolidated statement of operations for the year ended March 31, 2019 section above. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Three Months Ended March 31, 2019 Class A common stock Class B common stock Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Total stockholders' equity As Previously Reported Balance, January 1, 2019 $ 93 $ 44 $ 51,714 $ 30,897 $ (17,310 ) $ 65,438 Net loss — — — (1,761 ) — (1,761 ) Issuance of common stock, net of conversions 2 — (1 ) — — 1 Purchase of treasury stock — — — — — — Share-based compensation expense — — 807 — — 807 Cash dividends, $0.085 per share — — — (1,177 ) — (1,177 ) Other comprehensive loss — — — — (221 ) (221 ) Reclassification adjustment to net loss — — — — (8 ) (8 ) Balance, March 31, 2019 $ 95 $ 44 $ 52,520 $ 27,959 $ (17,539 ) $ 63,079 Restatement Impacts Balance, January 1, 2019 $ — $ — $ — $ (8,829 ) $ 209 $ (8,620 ) Net loss (1,624 ) — (1,624 ) Issuance of common stock, net of conversions — — — — — — Purchase of treasury stock — — — — — — Share-based compensation expense — — — — — — Cash dividends, $0.085 per share — — — — — — Other comprehensive loss — — — — 29 29 Reclassification adjustment to net loss — — — — 94 94 Balance, March 31, 2019 $ — $ — $ — $ (10,453 ) $ 332 $ (10,121 ) As Restated Balance, January 1, 2019 $ 93 $ 44 $ 51,714 $ 22,068 $ (17,101 ) $ 56,818 Net loss — — — (3,385 ) — (3,385 ) Issuance of common stock, net of conversions 2 — (1 ) — — 1 Purchase of treasury stock — — — — — — Share-based compensation expense — — 807 — — 807 Cash dividends, $0.085 per share — — — (1,177 ) — (1,177 ) Other comprehensive loss — — — — (192 ) (192 ) Reclassification adjustment to net loss — — — — 86 86 Balance, March 31, 2019 $ 95 $ 44 $ 52,520 $ 17,506 $ (17,207 ) $ 52,958 See description of the net income and other comprehensive income (loss) impacts in the consolidated statement of operations and consolidated statement of comprehensive income (loss) for the three months ended March 31, 2019 sections above. The quarter ended March 31, 2019 included a change to the reclassification adjustment to net loss of $0.1 million . |
