| Restatement of Previously Issued Financial Statements | Restatement of Previously Issued Financial Statements 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 expenses. 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 and nine months ended September 30, 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 September 30, 2019 filed on November 7, 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 (In thousands) 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 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, 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 ` September 30, 2019 As Previously Reported Restatement Impacts Restatement Reference As Restated Recasting Impacts As Restated and Recast (In thousands) Assets Current assets Cash and cash equivalents $ 1,866 $ — $ 1,866 $ (307) $ 1,559 Trade receivables, net 106,135 (2,179) a,b 103,956 (865) 103,091 Inventory 181,847 — 181,847 (20,804) 161,043 Prepaid expenses and other current assets 22,445 (7,505) a,b 14,940 (854) 14,086 Current assets of discontinued operations — — — 22,830 22,830 Total current assets 312,293 (9,684) 302,609 — 302,609 Property, plant and equipment, net 22,653 — 22,653 (460) 22,193 Goodwill 6,253 — 6,253 — 6,253 Other intangible assets, net 3,483 — 3,483 — 3,483 Deferred income taxes 6,161 634 e 6,795 (1,155) 5,640 Deferred costs 8,925 — 8,925 (121) 8,804 Other non-current assets 1,561 — 1,561 (8) 1,553 Non-current assets of discontinued operations — — — 1,744 1,744 Total assets $ 361,329 $ (9,050) $ 352,279 $ — $ 352,279 Liabilities and stockholders' equity Current liabilities Accounts payable $ 147,206 $ 16 $ 147,222 $ (7,211) $ 140,011 Accounts payable to NACCO Industries, Inc. 220 — 220 — 220 Revolving credit agreements 59,702 — 59,702 (9,550) 50,152 Accrued compensation 15,568 389 f 15,957 (1,307) 14,650 Accrued product returns 8,266 — 8,266 — 8,266 Other current liabilities 30,651 1,874 a,d,e 32,525 (6,645) 25,880 Current liabilities of discontinued operations — — — 24,713 24,713 Total current liabilities 261,613 2,279 263,892 — 263,892 Revolving credit agreements 30,000 — 30,000 — 30,000 Other long-term liabilities 14,961 882 e 15,843 (1,585) 14,258 Non-current liabilities of discontinued operations — — — 1,585 1,585 Total liabilities 306,574 3,161 309,735 — 309,735 Stockholders’ equity Class A Common stock 95 — 95 — 95 Class B Common stock 44 — 44 — 44 Capital in excess of par value 54,143 — 54,143 — 54,143 Treasury stock (5,960) — (5,960) — (5,960) Retained earnings 24,955 (12,724) a,b,c,d,e,f 12,231 — 12,231 Accumulated other comprehensive loss (18,522) 513 a,b,d (18,009) — (18,009) Total stockholders’ equity 54,755 (12,211) 42,544 — 42,544 Total liabilities and stockholders' equity $ 361,329 $ (9,050) $ 352,279 $ — $ 352,279 (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 $7.6 million, and an increase to other current liabilities of $2.1 million (b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to trade receivables of $0.6 million and an increase to prepaid expenses and other current assets of $0.1 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 an increase to deferred income taxes of $0.6 million, a decrease to other current liabilities of $0.4 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 an increase to accrued compensation of $0.4 million CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended September 30, 2019 As Previously Reported Restatement Impacts Restatement References As Restated Recasting Impacts As Restated and Recast (In thousands) Revenue $ 169,778 $ 18 b,c $ 169,796 $ (20,288) $ 149,508 Cost of sales 129,194 — 129,194 (10,632) 118,562 Gross profit 40,584 18 40,602 (9,656) 30,946 Selling, general and administrative expenses 36,182 2,570 a,c,f 38,752 (12,590) 26,162 Amortization of intangible assets 345 — 345 — 345 Operating profit (loss) 4,057 (2,552) 1,505 2,934 4,439 Interest expense, net 864 — 864 (108) 756 Other expense (income), net 688 — 688 (7) 681 Income (loss) from continuing operations before income taxes 2,505 (2,552) (47) 3,049 3,002 Income tax expense (benefit) 2,108 45 e 2,153 296 2,449 Net income (loss) from continuing operations 397 (2,597) (2,200) 2,753 553 Loss from discontinued operations, net of tax — — — (2,753) (2,753) Net income (loss) $ 397 $ (2,597) $ (2,200) $ — $ (2,200) Basic and diluted earnings (loss) per share: Continuing operations $ 0.03 $ (0.19) $ (0.16) $ 0.20 $ 0.04 Discontinued operations — — — (0.20) (0.20) Basic and diluted earnings (loss) per share $ 0.03 $ (0.19) $ (0.16) $ — $ (0.16) Basic weighted average shares outstanding 13,579 — 13,579 — 13,579 Diluted weighted average shares outstanding 13,595 — 13,595 — 13,595 (a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $2.2 million (b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to revenue of $0.5 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 $0.5 million (e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense (f) Correction of other immaterial errors: The correction of these misstatements resulted in a decrease to SG&A expense of $0.1 million CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Nine Months Ended September 30, 2019 As Previously Reported Restatement Impacts Restatement References As Restated Recasting Impacts As Restated and Recast (In thousands) Revenue $ 463,582 $ 1,458 b,c,f $ 465,040 $ (57,824) $ 407,216 Cost of sales 352,618 (64) f 352,554 (31,493) 321,061 Gross profit 110,964 1,522 112,486 (26,331) 86,155 Selling, general and administrative expenses 108,306 5,137 a,c,f 113,443 (36,058) 77,385 Amortization of intangible assets 1,036 — 1,036 — 1,036 Operating profit (loss) 1,622 (3,615) (1,993) 9,727 7,734 Interest expense, net 2,514 — 2,514 (306) 2,208 Other expense (income), net 230 144 f 374 (22) 352 Income (loss) from continuing operations before income taxes (1,122) (3,759) (4,881) 10,055 5,174 Income tax expense (benefit) 1,186 136 e 1,322 2,063 3,385 Net income (loss) from continuing operations (2,308) (3,895) (6,203) 7,992 1,789 Loss from discontinued operations, net of tax — — — (7,992) (7,992) Net income (loss) $ (2,308) $ (3,895) $ (6,203) $ — $ (6,203) Basic and diluted earnings (loss) per share: Continuing operations $ (0.17) $ (0.28) $ (0.45) $ 0.58 $ 0.13 Discontinued operations — — — (0.58) (0.58) Basic and diluted earnings (loss) per share $ (0.17) $ (0.28) $ (0.45) $ — $ (0.45) Basic weighted average shares outstanding 13,726 — 13,726 — 13,726 Diluted weighted average shares outstanding 13,726 — 13,726 5 13,731 (a) Write-off of Assets: The correction of these misstatements resulted in an increase to selling, general and administrative ("SG&A") expense of $3.3 million (b) Reversal of Revenue: The correction of these misstatements resulted in a decrease to revenue of $0.5 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 $1.8 million (e) Tax adjustments for corrections: The correction of these misstatements resulted in an increase to income tax expense of $0.1 million (f) Correction of other immaterial errors: The correction of these misstatements resulted in an increase to revenue of $0.2 million, a decrease to cost of sales of $0.1 million, and an increase to other expense of $0.1 million. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Three Months Ended September 30, 2019 As Previously Reported Restatement Impacts As Restated (In thousands) Net income (loss) $ 397 $ (2,597) $ (2,200) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (312) 294 (18) (Loss) gain on long-term intra-entity foreign currency transactions (509) — (509) Cash flow hedging activity (127) — (127) Reclassification of hedging activities into earnings 122 — 122 Pension plan adjustment — — — Reclassification of pension adjustments into earnings 127 — 127 Total other comprehensive loss, net of tax (699) 294 (405) Comprehensive income (loss) $ (302) $ (2,303) $ (2,605) See description of the net income (loss) impacts in the consolidated statement of operations for the three months ended September 30, 2019 section above. The increase 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. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Nine Months Ended September 30, 2019 As Previously Reported Restatement Impacts As Restated (In thousands) Net income (loss) $ (2,308) $ (3,895) $ (6,203) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 244 65 309 (Loss) gain on long-term intra-entity foreign currency transactions (373) — (373) Cash flow hedging activity (1,570) 144 (1,426) Reclassification of hedging activities into earnings 268 — 268 Pension plan adjustment — — — Reclassification of pension adjustments into earnings 219 94 313 Total other comprehensive loss, net of tax (1,212) 303 (909) Comprehensive income (loss) $ (3,520) $ (3,592) $ (7,112) See description of the net income (loss) impacts in the consolidated statement of operations for the nine months ended September 30, 2019 section above. The increase 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 increases to cash flow hedging and the reclassification of pension adjustments are from the correction of other immaterial errors. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS September 30, 2019 As Previously Reported Restatement Impacts As Restated Recasting Impacts As Restated and Recast Operating activities Net income (loss) from continuing operations $ (2,308) $ (3,895) $ (6,203) $ 7,992 $ 1,789 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 3,279 — 3,279 (466) 2,813 Deferred income taxes 2,969 32 3,001 17 3,018 Stock compensation expense 2,430 — 2,430 — 2,430 Other 1,117 (24) 1,093 (995) 98 Net changes in operating assets and liabilities: Affiliate payable (2,199) — (2,199) 3 (2,196) Trade receivables (4,897) (294) (5,191) (906) (6,097) Inventory (37,641) 169 (37,472) (1,190) (38,662) Other assets (231) 430 199 (1,349) (1,150) Accounts payable 14,927 10 14,937 6,493 21,430 Other liabilities (12,577) 3,604 (8,973) 1,360 (7,613) Net cash provided by (used for) operating activities from continuing operations (35,131) 32 (35,099) 10,959 (24,140) Investing activities Expenditures for property, plant and equipment (3,305) — (3,305) 149 (3,156) Other 37 — 37 (37) — Net cash used for investing activities from continuing operations (3,268) — (3,268) 112 (3,156) Financing activities Net additions (reductions) to revolving credit agreements 43,074 — 43,074 (9,550) 33,524 Purchase of treasury stock (5,960) — (5,960) — (5,960) Cash dividends paid (3,634) — (3,634) — (3,634) Net cash provided by (used for) financing activities from continuing operations 33,480 — 33,480 (9,550) 23,930 Cash flows from discontinued operations Net cash used for operating activities from discontinued operations — — — (10,959) (10,959) Net cash used for investing activities from discontinued operations — — — (112) (112) Net cash used for financing activities from discontinued operations — — — 9,550 9,550 Cash provided by (used for) discontinued operations — — — (1,521) (1,521) Effect of exchange rate changes on cash 433 (32) 401 — 401 Cash and Cash Equivalents (Decrease) increase for the year from continuing operations (4,486) — (4,486) 1,521 (2,965) Increase (decrease) for the year from discontinued operations — — — (1,521) (1,521) Balance at the beginning of the year 6,352 — 6,352 — 6,352 Balance at the end of the period $ 1,866 $ — $ 1,866 $ — $ 1,866 See description of the net income (loss) impacts in the consolidated statement of operations for the nine months ended September 30, 2019 section above. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Class A common stock Class B common stock Capital in excess of par value Treasury stock 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 — — (2,308) — (2,308) Issuance of common stock, net of conversions 2 — (1) — — — 1 Purchase of treasury stock — (5,960) — — (5,960) Share-based compensation expense 2,430 — — — 2,430 Cash dividends, $0.085 per share — — (3,634) — (3,634) Other comprehensive loss — — — (1,699) (1,699) Reclassification adjustment to net loss — — — 487 487 Balance, September 30, 2019 $ 95 $ 44 $ 54,143 $ (5,960) $ 24,955 $ (18,522) $ 54,755 Restatement Impacts Balance, January 1, 2019 $ — $ — $ — $ — $ (8,829) $ 209 $ (8,620) Net loss — — (3,895) — (3,895) Issuance of common stock, net of conversions — — — — — — — Purchase of treasury stock — — — — — Share-based compensation expense — — — — — Cash dividends, $0.085 per share — — — — — Other comprehensive loss — — — 210 210 Reclassification adjustment to net loss — — — 94 94 Balance, September 30, 2019 $ — $ — $ — $ — $ (12,724) $ 513 $ (12,211) As Restated Balance, January 1, 2019 $ 93 $ 44 $ 51,714 $ — $ 22,068 $ (17,101) $ 56,818 Net loss — — — — (6,203) — (6,203) Issuance of common stock, net of conversions 2 — (1) — — — 1 Purchase of treasury stock — — — (5,960) — — (5,960) Share-based compensation expense — — 2,430 — — — 2,430 Cash dividends, $0.085 per share — — — — (3,634) — (3,634) Other comprehensive loss — — — — — (1,489) (1,489) Reclassification adjustment to net loss — — — — — 581 581 Balance, September 30, 2019 $ 95 $ 44 $ 54,143 $ (5,960) $ 12,231 $ (18,009) $ 42,544 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 nine months ended September 30, 2019 sections above. |
