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Original and Further Restatement of the Consolidated Financial Statements | 12 Months Ended
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Dec. 31, 2013
Text Block [Abstract] |
Original and Further Restatement of the Consolidated Financial Statements |
2. | Original and Further Restatement of the Consolidated Financial Statements
These consolidated financial statements reflect two restatements, which we refer to herein respectively as the “Original Restatement” and the “Further Restatement.” The Original Restatement, which was contained in the financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014 (the “Original Form 10-K”), reflected the restatement of the Company’s previously filed consolidated financial statements for the fiscal years ended December 31, 2012 and 2011, as well as the fiscal quarter ended March 31, 2013. The Original Restatement is further described below under the subheading “– Original Restatement.” In connection with the Company’s preparation of its consolidated interim quarterly financial statements for the fiscal quarter ended June 30, 2014, the Company determined that certain entries with respect to the previously filed financial statements contained in the Original Form 10-K were not properly accounted for under U.S. GAAP. As further described below, these additional errors affect the fiscal years ended December 31, 2013, 2012 and 2011 and quarterly reporting periods contained within the fiscal years ended December 31, 2013 and 2012, as well as the fiscal quarter ended March 31, 2014. Due to these errors, the Company determined in August 2014 to restate its consolidated financial statements for the fiscal years ended December 31, 2013, 2012 and 2011 (including the interim quarterly periods contained within the fiscal years ended December 31, 2013 and 2012) and the fiscal quarter ended March 31, 2014, and that the previously filed financial statements for these periods should no longer be relied upon. The Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (this “Amended Form 10-K”), to which these consolidated financial statements form a part, corrects these additional errors. We refer to these additional corrections as the “Further Restatement.” The Further Restatement is further described below under the subheading “Further Restatement,” which follows the description of the Original Restatement contained directly below. Original Restatement Background of Original Restatement In July 2013, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) commenced an independent review with the assistance of outside professionals into whether the Company had properly recognized revenue under U.S. GAAP in connection with certain revenue that had been recorded in 2012 and 2011 (the “Independent Review”). In conjunction with the Independent Review, the Company concluded that errors existed in the Company’s previously issued financial statements for the fiscal years ended December 31, 2012 and 2011, the interim quarterly period ended March 31, 2013, and certain other prior periods. In reaching these conclusions, the Company considered information obtained in the Independent Review, including emails, data and interviews with current and former employees that indicated (i) the existence of extra-contractual terms or arrangements at the onset of the sale and concessions agreed to subsequent to the initial sale, such as extended payment terms and return and exchange rights for sales to distributors with respect to certain transactions, (ii) that at the time of some sales collection was not reasonably assured, and (iii) that certain amounts previously characterized as commissions were paid to related parties of the applicable customer. The Company assessed the information derived from the Independent Review in making determinations with respect to accounting adjustments reflected in the restated consolidated financial statements contained in the Amendments and in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and such determinations are consistent with the findings of the Independent Review. In addition to the matters that were the subject of the Independent Review, certain other adjustments identified by management, including revisions to inventory reserves and royalties, were made to the consolidated financial statements in connection with the restatement. The correction of these errors had the following impact: decreased net sales by $14.7 million and $28.2 million for the years ended December 31, 2012 and 2011, respectively; and decreased net income from continuing operations by $8.9 million and $14.5 million for the years ended December 31, 2012 and 2011, respectively. The following include descriptions of the significant adjustments to the Company’s financial position and results of operations from the previously reported consolidated financial statements. Distributor Revenue Recognition The Company has determined that it previously recognized revenue with respect to certain distributor relationships before all revenue recognition criteria were met. Specifically, the Company has determined that a fixed or determinable sales price did not exist, and/or collection was not reasonably assured, with respect to certain transactions where revenue had previously been recognized at the time of shipment. Specifically, the Company’s review revealed arrangements, or extra-contractual terms, with certain of the Company’s distributors regarding extended payment terms, return or exchange rights, and contingent payment obligations for sales to such distributors with respect to certain transactions. There were also concessions being made subsequent to the shipment of inventory to the distributors and the related revenue recognition. Based on the results of this review, it was determined that these arrangements were not appropriately evaluated under the appropriate revenue recognition criteria applicable under U.S. GAAP. Distributor sales represented approximately 11–13% of the Company’s net sales (prior to the restatement) of approximately $462 million and $470 million for the years ended December 31, 2012 and 2011, respectively. The Company previously recognized distributor revenue as title and risk of loss passed at either shipment from the Company’s facilities or receipt at the distributor’s facility, assuming all other revenue recognition criteria had been achieved (the “sell-in method”). Based on review of all facts and circumstances related to the arrangements described above, the Company determined that in many instances the revenue recognition criteria under the sell-in method were not satisfied at the time of shipment or receipt; specifically, the existence of extra-contractual terms or arrangements caused the Company not to meet the fixed or determinable criteria for revenue recognition in some cases, and in others collectability had not been established. In situations where the Company is unable to reasonably estimate the effects of these extra-contractual terms, it is precluded from recognizing revenue relating to distributor arrangements until the product is delivered to the end customer. This method is commonly referred to as the “sell-through” revenue recognition method because the vendor does not recognize revenue until the transaction consideration is fixed or determinable, which coincides with the selling of the product through the distribution channel to the end customer. Because the Company does not have reliable information about when its distributors sell the product through to end customers, the Company will use cash collection from distributors as a basis for revenue recognition under the sell-through method. Although in many cases the Company is legally entitled to the accounts receivable at the time of shipment, since the revenue recognition criteria has not been met, the Company has not recognized accounts receivables or any corresponding deferred revenues associated with these transactions. As part of the review, the Company also considered the accounting treatment for the related cost of sales when distributor revenue is recognized on a sell-through basis. Previously, cost of sales were recognized upon shipment; however, the Company believes the matching of the recognition of costs of sales with revenue is preferred and therefore considered if such costs should be deferred until revenue is recognized on a sell-through basis. In making this assessment, the Company considered the financial viability of its distributors based on their creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped was reasonably assured at the time of shipment to these distributors. In instances where the distributor was determined to be financially viable, the Company determined that costs of sales should be deferred until the revenue is recognized. For those distributors where the Company has concluded that collectability was not reasonably assured, the Company has expensed the related cost of sales upon shipment. Based on the results of the Independent Review, the Company determined that all distributor transactions should be transitioned to the sell-through method of accounting as of the dates described below:
| • |  | For distributor transactions within the Company’s Orthopedics division, the Company has determined that sell-through accounting should be applied within the Brazil subsidiary for all prior periods given the frequency with which the Company conducted business under extra-contractual and undocumented terms, as well as the Company’s inability to fully access underlying transactional and other information that would be necessary to evaluate transactions under a sell-in basis. For distributor transactions within the division outside the Brazil subsidiary, there were also sales to four distributors that did not meet the fixed or determinable or collectability revenue recognition criteria and therefore, such sales were adjusted to sell-through accounting in the restatement.
| • |  | For distributor transactions within the Company’s U.S. Spine division, the Company has determined that sell-through accounting should be applied beginning January 1, 2011. Following its consideration of the information provided from the Independent Review, the Company believes that January 1, 2011 is the date extra-contractual terms became pervasive in the Company’s U.S. business, and it is unaware of circumstances existing prior to that date that would require it to broadly apply sell-through accounting to all distributor transactions within the U.S. Spine division. Additionally, there were sales in 2012 and 2011 for which revenue was previously recognized that did not meet the fixed or determinable criteria and the product associated with such sales was subsequently returned in 2013 (i) under the terms of negotiated agreements whereby the Company terminated its relationships with two distributors and (ii) by an additional distributor who returned certain product sold pursuant to a contingent sales arrangement. Such sales represented approximately $3.3 million and $4.1 million for the years ended December 31, 2012 and 2011, respectively. Due to the return of the product, no revenue will be recognized for these transactions.
| • |  | The Company has determined that stimulation products sold to distributors within the Company’s U.S. Spine division during 2012 did not meet the fixed or determinable (and in some cases, collectability) revenue recognition criterion at the time of shipment. Therefore, the Company has determined that sell-through accounting should be applied for these sales. Management also determined that many of these distributors (or affiliates thereof) received commission payments as part of the sales transactions, which the Company previously recorded as sales and marketing expense. The Company has recorded adjustments in the restatement to net these commission expenses against revenue, as they represented product discounts.
| • |  | The Company has determined that it will prospectively apply sell-through accounting for all remaining distributor arrangements (which entails arrangements within the Company’s Orthopedics division outside the Brazil subsidiary) beginning April 1, 2013, the earliest date for which financial statements had not previously been issued by the Company at the time of the determination. Although the Independent Review did not provide information to indicate extra-contractual terms or that historical revenue recognition was inappropriate in these remaining instances, the Company believes the information from the Independent Review indicating that the Company has a history of extra-contractual arrangements for distributor transactions, as described above, provides additional information which should be considered in reassessing the application of sell-through accounting on a prospective basis, particularly given that the Company believes that there is a higher risk associated with distributor arrangements generally.
The effect of adjustments made to the Company’s previously filed consolidated statements of operations as a result of these matters are shown in the tables below. These adjustments also had the following effects on the Company’s previously filed consolidated balance sheets:
| • |  | Accounts receivable decreased as of December 31, 2012 by $41.3 million related to the de-recognition of receivables for which revenue has been deferred and will now be recognized on a sell-through basis, based on cash collections.
| • |  | Inventory increased as of December 31, 2012 by $11.0 million to recognize the costs of inventory shipments to distributors determined to be financially viable as discussed previously.
Inventory Reserves The Company also identified material errors in inventory reserves. One error related to the Company recording an increase of $1.2 million to the Company’s excess and obsolete reserve in the second quarter of 2012 related to a product within the Spine business that was subsequently reversed by the Company in the fourth quarter of 2012. During the Company’s review, it was determined that removing the reserve in the fourth quarter of 2012 was not correct; therefore the reserve has been reinstated. The Company has also determined that certain inconsistencies existed with respect to how the Company previously computed and recorded inventory reserves. As a result, the Company has reviewed the methodologies used to compute and record inventory reserves and determined that errors in the application of U.S. GAAP existed in prior periods, which required adjustment in these financial statements. Based on this review, the Company has determined that it previously made reductions to previously recorded reserves based on changes in forecasted demand, which it believes was contrary to guidance set forth in ASC Topic 330, Inventory (specifically ASC 330-10-35-14), which states that a write-down of inventory to the lower-of-cost-or-market value at the close of a fiscal year creates a new cost basis that subsequently should not be marked up based on changes in underlying circumstances. The restated consolidated financial statements contain several adjustments to reflect recomputed inventory reserves in each of the relevant periods. These adjustments resulted in a decrease to inventory (due to an increase in reserves) as of December 31, 2012, by $14.8 million. Royalties The Company also reviewed the accounting for royalties and determined there were royalties classified as sales and marketing expense; however, such royalties were based on sales of products and were paid to doctors who consulted on development of those products. Given these amounts are attributable to the cost of producing the Company’s products, the Company determined they are correctly classified as cost of goods sold. Other Adjustments In addition to the adjustments recorded to address the Company’s errors in accounting for distributor revenue recognition, inventory reserves, and royalties, the Company has identified other errors that are generally not material, individually or in the aggregate, but have been recorded in connection with the restatement. Included in Other Adjustments are adjustments to reclassify interest expense from continuing operations to discontinued operations of $3.9 million for the year ended December 31, 2011. The reclassification was necessary as the Company used a portion of the proceeds from the sale of Breg, Inc. to repay in full the remaining $87.5 million balance on the Term Loan Facility and pay down $57.5 million of amounts outstanding under the Revolving Credit Facility. Further Restatement Background of Further Restatement During the second quarter of 2014, the Company’s management noted that the Company’s bad debt expense for its BioStim strategic business unit (“SBU”) during the first quarter of 2014 was higher than internally budgeted. As a result, the Company’s internal finance department reviewed bad debt expense entries in prior periods. In connection with this review, the Company also further considered its accounting methodology with respect to certain prior revenue adjustments related to uncollectible patient co-pay and self-pay amounts. As further described below, after performing this review, the Company determined that errors existed relating to the accounting for uncollectible patient co-pay and self-pay amounts, and that certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods in the Original Restatement in connection with the change to sell-through accounting for certain distributors. After analyzing these errors, the Company determined to further restate its financial statements as described herein. In addition to these matters, certain other adjustments identified by management, including revisions to inventory reserves, intercompany profit adjustments and accounts receivable reserves, were made to the consolidated financial statements in connection with the Further Restatement, as discussed below. Co-Pay and Self-Pay Revenue Adjustments A majority of revenue from the Company’s BioStim SBU is derived from third parties, which is subject to change due to contractual adjustments related to commercial insurance carriers, and may include certain patient co-pay amounts. In addition, certain patient purchasers are without insurance, with revenue derived from “self-pay” arrangements. In previously issued financial statements, the Company recorded these co-pay and self-pay amounts as revenue with estimated uncollectible portions being recognized as bad debt expense. Upon further analysis, it was determined that because collectability of co-pay and self-pay amounts was not reasonably assured, the conditions for revenue recognition had not been met and revenue for those amounts should not have been recognized until collected. Adjustments to correct the foregoing reduce equally both the Company’s historical net sales and its sales and marketing expense by approximately $2.2 million, $9.0 million and $6.0 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. These adjustments have no effect on net income from continuing operations, net income or total assets in any period. Bad Debt Timing Adjustments In connection with the foregoing, the Company determined to review bad debt expense trends more broadly across all of its business units. As a result of this process, the Company determined that certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods in the Original Restatement in connection with the change to sell-through accounting for certain distributors. Because the Original Restatement transferred these transactions to sell-through accounting (as opposed to sell-in accounting, which had been used when the original bad debt reserves were recorded), the bad debt reserve was reversed as part of the Original Restatement, as the receivable that was being reserved for was no longer recognized. Adjustments to correct this error result in an increase of sales and marketing expense of $1.5 million and $1.1 million for the fiscal years ended December 31, 2013 and 2012 and a decrease of sales and marketing expense of $2.1 million for the fiscal year ended December 31, 2011. These adjustments resulted in no impact to the accounts receivable balance as of December 31, 2013 and an increase in accounts receivable by $1.5 million as of December 31, 2012. Accounts Receivable Reserve Adjustments As part of analyzing collections experience on accounts receivable, the Company identified that it had incorrectly considered certain deferred revenue amounts included in gross accounts receivable when calculating estimated reserves. Specifically, the computation of the contractual allowances and bad debt allowances, which serves to adjust accounts receivable to the estimated collectible amount, incorrectly assumed that some percentage of the deferred amounts would be collected, rather than fully deferring these amounts. Adjustments to correct this error resulted in a net decrease in operating income of $0.7 million and $0.2 million for the fiscal years ended December 31, 2013 and 2011, respectively, and a net increase in operating income of $2.1 million for the fiscal year ended December 31, 2012. This adjustment resulted in a decrease in accounts receivable, net (due to an increase in reserves) as of December 31, 2013 and 2012, by $4.2 million and $3.5 million, respectively. Intercompany Profit Adjustments The Company has two manufacturing facilities which support the inventory needs of other subsidiaries through intercompany sales transactions. These intercompany sales include a profit margin for the selling subsidiary (“intercompany profit”) that is eliminated by the Company as part of its consolidated financial reporting process. The elimination of intercompany profit requires determining the affected net inventory amounts and their related intercompany profit margin to eliminate all intercompany profit, resulting in all inventories being carried at historical cost in the Company’s consolidated financial statements. As described further above under “Original Restatement – Inventory Reserves,” as part of the Original Restatement the Company made certain corrections to prior period excess and obsolete inventory reserves. The effect of these corrections was not properly considered when determining the adjustments needed to eliminate intercompany profits from inventories in the Original Restatement. Adjustments to correct this error resulted in an increase to cost of sales of $1.1 million, $0.2 million and $0.3 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. This adjustment resulted in a decrease in inventory as of December 31, 2013 and 2012, by $2.6 million and $1.5 million, respectively. Inventory Inventory Existence As part of the remediation activities that followed the Original Restatement, the Company expanded its procedures in the second quarter of 2014 to validate the existence of field inventory held by independent sales representatives and noted that, in many cases, this inventory had higher rates of missing inventory (“shrinkage”) than previously estimated. To determine whether these higher error rates were pervasive across its field inventory, the Company counted approximately 90% of its field inventory during the third and fourth fiscal quarters of 2014. These counts resulted in the identification of errors relating to previous estimates of shrinkage. Adjustments in the Further Restatement to correct these errors, net of the related effect on previously recorded excess and obsolete inventory reserves, resulted in an increase to cost of sales of $0.4 million, $0.3 million and $0.2 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. These adjustments resulted in a decrease in inventory as of December 31, 2013 and 2012, by $1.0 million and $0.6 million, respectively. Inventory Reserves In connection with its remediation efforts associated with the material weakness noted in the Original Restatement related to inventory reserves the Company concluded that it was not appropriately calculating inventory reserves, including its consideration of demand assumptions for “kits”, which contain a variety of “piece part” components to be used during surgery that have various demand considerations, as well as inventory held by third parties under inventory purchase obligations. Adjustments to correct these errors resulted in an increase to cost of sales of $3.2 million, 1.5 million and $0.1 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. These adjustments resulted in a decrease to inventory (due to an increase in reserves) as of December 31, 2013 and 2012, by $14.4 million and $11.8 million, respectively. Other Adjustments In addition to the adjustments described above, the Company is correcting certain other items. Principally, these items consist of a decrease to income tax expense of $0.5 million and $1.1 million for the fiscal years ended December 31, 2013 and 2012, respectively, these adjustments are separate from the tax effect of the errors described above. The effect of the Further Restatement adjustments made to the Company’s previously filed consolidated statements of operations as a result of these matters are shown in the tables below. These adjustments also resulted in a decrease of total assets of $11.2 million as of December 31, 2013, resulting primarily from a decrease of $17.9 million to inventory and $4.8 million to trade accounts receivable, partially offset by an increase of $6.0 million in deferred income taxes. For further discussion of the effect of these entries on retained earnings, see the “Cumulative Adjustments to Shareholders’ Equity at January 1, 2011” table below. The tables below show the effects of the Original Restatement for each of the fiscal years ended December 31, 2012 and 2011, as well as the effects of the Further Restatement for each of the fiscal years ended December 31, 2013, 2012 and 2011. In each case, the tax effect of the adjustments is estimated based on the Company’s estimated tax rate.
|  | Year Ended December 31, 2013 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | Originally Reported |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 400,534 |  |  | $ | (2,242 | ) |  | $ | — |  |  | $ | (582 | ) |  | $ | — |  |  | $ | — |  |  | $ | (99 | ) |  | $ | (2,923 | ) |  | $ | 397,611 |
Cost of sales |  |  | 102,300 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,090 |  |  |  | 3,688 |  |  |  | (166 | ) |  |  | 4,612 |  |  |  | 106,912 |
Gross profit |  |  | 298,234 |  |  |  | (2,242 | ) |  |  | — |  |  |  | (582 | ) |  |  | (1,090 | ) |  |  | (3,688 | ) |  |  | 67 |  |  |  | (7,535 | ) |  |  | 290,699 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 176,581 |  |  |  | (2,242 | ) |  |  | 1,455 |  |  |  | 122 |  |  |  | — |  |  |  | — |  |  |  | (448 | ) |  |  | (1,113 | ) |  |  | 175,468 |
General and administrative |  |  | 65,147 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (317 | ) |  |  | (317 | ) |  |  | 64,830 |
Research and development |  |  | 26,768 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 26,768 |
Amortization of intangible assets |  |  | 2,687 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,687 |
Costs related to the accounting review and restatement |  |  | 12,945 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 12,945 |
Impairment of Goodwill |  |  | 19,193 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 19,193 |
|  |  | 303,321 |  |  |  | (2,242 | ) |  |  | 1,455 |  |  |  | 122 |  |  |  | — |  |  |  | — |  |  |  | (765 | ) |  |  | (1,430 | ) |  |  | 301,891 |
Operating (loss) income |  |  | (5,087 | ) |  |  | — |  |  |  | (1,455 | ) |  |  | (704 | ) |  |  | (1,090 | ) |  |  | (3,688 | ) |  |  | 832 |  |  |  | (6,105 | ) |  |  | (11,192 | )
Other income and (expense) |  |  | 295 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 294 |  |  |  | 294 |  |  |  | 589 |
Loss before income taxes |  |  | (4,792 | ) |  |  | — |  |  |  | (1,455 | ) |  |  | (704 | ) |  |  | (1,090 | ) |  |  | (3,688 | ) |  |  | 1,126 |  |  |  | (5,811 | ) |  |  | (10,603 | )
Income tax expense |  |  | (10,116 | ) |  |  | — |  |  |  | 509 |  |  |  | 246 |  |  |  | 381 |  |  |  | 1,290 |  |  |  | 88 |  |  |  | 2,514 |  |  |  | (7,602 | )
Net loss from continuing operations |  | $ | (14,908 | ) |  | $ | — |  |  | $ | (946 | ) |  | $ | (458 | ) |  | $ | (709 | ) |  | $ | (2,398 | ) |  | $ | 1,214 |  |  | $ | (3,297 | ) |  | $ | (18,205 | )
|  | Year Ended December 31, 2012 |
|  |  |  |  | Original Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Distributor Revenue |  |  | Inventory Reserves |  |  | Royalties |  |  | Other |  |  | Total Original Restatement Adjustments |  |  | As Originally Restated in 2012 Form 10-K/A |
Net sales |  | $ | 462,320 |  |  | $ | (14,777 | ) |  | $ | — |  |  | $ | — |  |  | $ | 38 |  |  | $ | (14,739 | ) |  | $ | 447,581 |
Cost of sales |  |  | 86,492 |  |  |  | (2,032 | ) |  |  | 5,647 |  |  |  | 8,190 |  |  |  | (44 | ) |  |  | 11,761 |  |  |  | 98,253 |
Gross profit |  |  | 375,828 |  |  |  | (12,745 | ) |  |  | (5,647 | ) |  |  | (8,190 | ) |  |  | 82 |  |  |  | (26,500 | ) |  |  | 349,328 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,343 |  |  |  | (6,629 | ) |  |  | — |  |  |  | (8,190 | ) |  |  | 1,607 |  |  |  | (13,212 | ) |  |  | 187,131 |
General and administrative |  |  | 53,827 |  |  |  | (2 | ) |  |  | — |  |  |  | — |  |  |  | (434 | ) |  |  | (436 | ) |  |  | 53,391 |
Research and development |  |  | 28,577 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28,577 |
Amortization of intangible assets |  |  | 2,098 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 200 |  |  |  | 200 |  |  |  | 2,298 |
Charges related to U.S. Government resolutions |  |  | 1,973 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (678 | ) |  |  | (678 | ) |  |  | 1,295 |
|  |  | 286,818 |  |  |  | (6,631 | ) |  |  | — |  |  |  | (8,190 | ) |  |  | 695 |  |  |  | (14,126 | ) |  |  | 272,692 |
Operating income |  |  | 89,010 |  |  |  | (6,114 | ) |  |  | (5,647 | ) |  |  | — |  |  |  | (613 | ) |  |  | (12,374 | ) |  |  | 76,636 |
Other income and (expense) |  |  | (6,282 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (166 | ) |  |  | (166 | ) |  |  | (6,448 | )
Income before income taxes |  |  | 82,728 |  |  |  | (6,114 | ) |  |  | (5,647 | ) |  |  | — |  |  |  | (779 | ) |  |  | (12,540 | ) |  |  | 70,188 |
Income tax expense |  |  | (28,792 | ) |  |  | 1,782 |  |  |  | 1,645 |  |  |  | — |  |  |  | 227 |  |  |  | 3,654 |  |  |  | (25,138 | )
Net income from continuing operations |  | $ | 53,936 |  |  | $ | (4,332 | ) |  | $ | (4,002 | ) |  | $ | — |  |  | $ | (552 | ) |  | $ | (8,886 | ) |  | $ | 45,050 |
|  | Year Ended December 31, 2012 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Originally Restated in 2012 Form 10-K/A |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 447,581 |  |  | $ | (9,049 | ) |  | $ | — |  |  | $ | 1,653 |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | (7,392 | ) |  | $ | 440,189 |
Cost of sales |  |  | 98,253 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 207 |  |  |  | 1,774 |  |  |  | 492 |  |  |  | 2,473 |  |  |  | 100,726 |
Gross profit |  |  | 349,328 |  |  |  | (9,049 | ) |  |  | — |  |  |  | 1,653 |  |  |  | (207 | ) |  |  | (1,774 | ) |  |  | (488 | ) |  | $ | (9,865 | ) |  |  | 339,463 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 187,131 |  |  |  | (9,049 | ) |  |  | 1,097 |  |  |  | (408 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  | $ | (8,360 | ) |  |  | 178,771 |
General and administrative |  |  | 53,391 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 259 |  |  |  | 259 |  |  |  | 53,650 |
Research and development |  |  | 28,577 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28,577 |
Amortization of intangible assets |  |  | 2,298 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,298 |
Charges related to U.S. Government resolutions |  |  | 1,295 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,295 |
|  |  | 272,692 |  |  |  | (9,049 | ) |  |  | 1,097 |  |  |  | (408 | ) |  |  | — |  |  |  | — |  |  |  | 259 |  |  |  | (8,101 | ) |  |  | 264,591 |
Operating income |  |  | 76,636 |  |  |  | — |  |  |  | (1,097 | ) |  |  | 2,061 |  |  |  | (207 | ) |  |  | (1,774 | ) |  |  | (747 | ) |  |  | (1,764 | ) |  |  | 74,872 |
Other income and (expense) |  |  | (6,448 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 641 |  |  |  | 641 |  |  | $ | (5,807 | )
Income before income taxes |  |  | 70,188 |  |  |  | — |  |  |  | (1,097 | ) |  |  | 2,061 |  |  |  | (207 | ) |  |  | (1,774 | ) |  |  | (106 | ) |  |  | (1,123 | ) |  |  | 69,065 |
Income tax expense |  |  | (25,138 | ) |  |  | — |  |  |  | 384 |  |  |  | (721 | ) |  |  | 72 |  |  |  | 621 |  |  |  | 838 |  |  |  | 1,194 |  |  | $ | (23,944 | )
Net income from continuing operations |  | $ | 45,050 |  |  | $ | — |  |  | $ | (713 | ) |  | $ | 1,340 |  |  | $ | (135 | ) |  | $ | (1,153 | ) |  | $ | 732 |  |  | $ | 71 |  |  | $ | 45,121 |
|  | Year Ended December 31, 2011 |
|  |  |  |  | Original Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Distributor Revenue |  |  | Inventory Reserves |  |  | Royalties |  |  | Other |  |  | Total Original Restatement Adjustments |  |  | As Originally Restated in 2012 Form 10-K/A |
Net sales |  | $ | 470,121 |  |  | $ | (29,135 | ) |  | $ | — |  |  | $ | — |  |  | $ | 985 |  |  | $ | (28,150 | ) |  | $ | 441,971 |
Cost of sales |  |  | 92,619 |  |  |  | (8,289 | ) |  |  | 3,377 |  |  |  | 7,713 |  |  |  | 107 |  |  |  | 2,908 |  |  |  | 95,527 |
Gross profit |  |  | 377,502 |  |  |  | (20,846 | ) |  |  | (3,377 | ) |  |  | (7,713 | ) |  |  | 878 |  |  |  | (31,058 | ) |  |  | 346,444 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,145 |  |  |  | (1,216 | ) |  |  | — |  |  |  | (7,713 | ) |  |  | 2,295 |  |  |  | (6,634 | ) |  |  | 193,511 |
General and administrative |  |  | 64,374 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 107 |  |  |  | 107 |  |  |  | 64,481 |
Research and development |  |  | 22,861 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 22,861 |
Amortization of intangible assets |  |  | 2,350 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 200 |  |  |  | 200 |  |  |  | 2,550 |
Charges related to U.S. Government resolutions |  |  | 56,463 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 678 |  |  |  | 678 |  |  |  | 57,141 |
|  |  | 346,193 |  |  |  | (1,216 | ) |  |  | — |  |  |  | (7,713 | ) |  |  | 3,280 |  |  |  | (5,649 | ) |  |  | 340,544 |
Operating income |  |  | 31,309 |  |  |  | (19,630 | ) |  |  | (3,377 | ) |  |  | — |  |  |  | (2,402 | ) |  |  | (25,409 | ) |  |  | 5,900 |
Other income and (expense) |  |  | (11,868 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,915 |  |  |  | 3,915 |  |  |  | (7,953 | )
Income (loss) before income taxes |  |  | 19,441 |  |  |  | (19,630 | ) |  |  | (3,377 | ) |  |  | — |  |  |  | 1,513 |  |  |  | (21,494 | ) |  |  | (2,053 | )
Income tax expense |  |  | (21,181 | ) |  |  | 6,408 |  |  |  | 1,102 |  |  |  | — |  |  |  | (494 | ) |  |  | 7,016 |  |  |  | (14,165 | )
Net loss from continuing operations |  | $ | (1,740 | ) |  | $ | (13,222 | ) |  | $ | (2,275 | ) |  | $ | — |  |  | $ | 1,019 |  |  | $ | (14,478 | ) |  | $ | (16,218 | )
|  | Year Ended December 31, 2011 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Originally Restated in 2012 Form 10-K/A |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 441,971 |  |  | $ | (5,960 | ) |  | $ | — |  |  | $ | (439 | ) |  | $ | — |  |  | $ | — |  |  | $ | (53 | ) |  | $ | (6,452 | ) |  | $ | 435,519 |
Cost of sales |  |  | 95,527 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 253 |  |  |  | 321 |  |  |  | 314 |  |  |  | 888 |  |  |  | 96,415 |
Gross profit |  |  | 346,444 |  |  |  | (5,960 | ) |  |  | — |  |  |  | (439 | ) |  |  | (253 | ) |  |  | (321 | ) |  |  | (367 | ) |  |  | (7,340 | ) |  |  | 339,104 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 193,511 |  |  |  | (5,960 | ) |  |  | (2,143 | ) |  |  | (252 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,355 | ) |  |  | 185,156 |
General and administrative |  |  | 64,481 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 304 |  |  |  | 304 |  |  |  | 64,785 |
Research and development |  |  | 22,861 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 22,861 |
Amortization of intangible assets |  |  | 2,550 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,550 |
Charges related to U.S. Government resolutions |  |  | 57,141 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 57,141 |
|  |  | 340,544 |  |  |  | (5,960 | ) |  |  | (2,143 | ) |  |  | (252 | ) |  |  | — |  |  |  | — |  |  |  | 304 |  |  |  | (8,051 | ) |  |  | 332,493 |
Operating income |  |  | 5,900 |  |  |  | — |  |  |  | 2,143 |  |  |  | (187 | ) |  |  | (253 | ) |  |  | (321 | ) |  |  | (671 | ) |  |  | 711 |  |  |  | 6,611 |
Other income and (expense) |  |  | (7,953 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (21 | ) |  |  | (21 | ) |  |  | (7,974 | )
Loss before income taxes |  |  | (2,053 | ) |  |  | — |  |  |  | 2,143 |  |  |  | (187 | ) |  |  | (253 | ) |  |  | (321 | ) |  |  | (692 | ) |  |  | 690 |  |  |  | (1,363 | )
Income tax expense |  |  | (14,165 | ) |  |  | — |  |  |  | (752 | ) |  |  | 66 |  |  |  | 89 |  |  |  | 113 |  |  |  | 206 |  |  |  | (278 | ) |  |  | (14,443 | )
Net loss from continuing operations |  | $ | (16,218 | ) |  | $ | — |  |  | $ | 1,391 |  |  | $ | (121 | ) |  | $ | (164 | ) |  | $ | (208 | ) |  | $ | (486 | ) |  | $ | 412 |  |  | $ | (15,806 | )
The effects of the Further Restatement on the Company’s consolidated balance sheet as of December 31, 2013 are as follows:
|  | As of December 31, 2013 |
(U.S. Dollars, in thousands except share and per share data) |  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 30,486 |  |  | $ | (1,562 | ) |  | $ | 28,924 |
Restricted cash |  |  | 23,761 |  |  |  | — |  |  |  | 23,761 |
Trade accounts receivable, less allowances of $9,111 |  |  | 75,567 |  |  |  | (4,756 | ) |  |  | 70,811 |
Inventories |  |  | 90,577 |  |  |  | (17,899 | ) |  |  | 72,678 |
Deferred income taxes |  |  | 33,947 |  |  |  | 6,052 |  |  |  | 39,999 |
Prepaid expenses and other current assets |  |  | 25,906 |  |  |  | 3,027 |  |  |  | 28,933 |
Total current assets |  |  | 280,244 |  |  |  | (15,138 | ) |  |  | 265,106 |
Property, plant and equipment, net |  |  | 54,606 |  |  |  | (234 | ) |  |  | 54,372 |
Patents and other intangible assets, net |  |  | 9,046 |  |  |  | — |  |  |  | 9,046 |
Goodwill |  |  | 53,565 |  |  |  | — |  |  |  | 53,565 |
Deferred income taxes |  |  | 18,336 |  |  |  | 4,058 |  |  |  | 22,394 |
Other long-term assets |  |  | 7,385 |  |  |  | 107 |  |  |  | 7,492 |
Total assets |  | $ | 423,182 |  |  | $ | (11,207 | ) |  | $ | 411,975 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts payable |  | $ | 20,674 |  |  | $ | — |  |  | $ | 20,674 |
Other current liabilities |  |  | 46,146 |  |  |  | 3,530 |  |  |  | 49,676 |
Total current liabilities |  |  | 66,820 |  |  |  | 3,530 |  |  |  | 70,350 |
Long-term debt |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |
Deferred income taxes |  |  | 13,132 |  |  |  | (106 | ) |  |  | 13,026 |
Other long-term liabilities |  |  | 12,736 |  |  |  | — |  |  |  | 12,736 |
Total liabilities |  |  | 112,688 |  |  |  | 3,424 |  |  |  | 116,112 |
Contingencies (Note 17) |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common shares $0.10 par value; 50,000,000 shares authorized; 18,102,335 issued and outstanding |  |  | 1,810 |  |  |  | — |  |  |  | 1,810 |
Additional paid-in capital |  |  | 216,653 |  |  |  | — |  |  |  | 216,653 |
Retained earnings |  |  | 89,332 |  |  |  | (15,435 | ) |  |  | 73,897 |
Accumulated other comprehensive income |  |  | 2,699 |  |  |  | 804 |  |  |  | 3,503 |
Total shareholders’ equity |  |  | 310,494 |  |  |  | (14,631 | ) |  |  | 295,863 |
Total liabilities and shareholders’ equity |  | $ | 423,182 |  |  | $ | (11,207 | ) |  | $ | 411,975 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated balance sheet as of December 31, 2012 are as follows:
|  | As of December 31, 2012 |
(U.S. Dollars, in thousands except share and per share data) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 31,055 |  |  | $ | — |  |  | $ | 31,055 |  |  | $ | (288 | ) |  | $ | 30,767 |
Restricted cash |  |  | 21,314 |  |  |  | — |  |  |  | 21,314 |  |  |  | — |  |  |  | 21,314 |
Trade accounts receivable, less allowances of $6,673 |  |  | 150,316 |  |  |  | (43,004 | ) |  |  | 107,312 |  |  |  | (3,510 | ) |  |  | 103,802 |
Inventories |  |  | 88,744 |  |  |  | (5,371 | ) |  |  | 83,373 |  |  |  | (13,560 | ) |  |  | 69,813 |
Deferred income taxes |  |  | 16,959 |  |  |  | 16,491 |  |  |  | 33,450 |  |  |  | 5,037 |  |  |  | 38,487 |
Prepaid expenses and other current assets |  |  | 32,056 |  |  |  | 2,023 |  |  |  | 34,079 |  |  |  | 2,370 |  |  |  | 36,449 |
Total current assets |  |  | 340,444 |  |  |  | (29,861 | ) |  |  | 310,583 |  |  |  | (9,951 | ) |  |  | 300,632 |
Property, plant and equipment, net |  |  | 51,362 |  |  |  | 2,473 |  |  |  | 53,835 |  |  |  | (1,042 | ) |  |  | 52,793 |
Patents and other intangible assets, net |  |  | 6,880 |  |  |  | 410 |  |  |  | 7,290 |  |  |  | — |  |  |  | 7,290 |
Goodwill |  |  | 74,388 |  |  |  | — |  |  |  | 74,388 |  |  |  | — |  |  |  | 74,388 |
Deferred income taxes |  |  | 19,904 |  |  |  | (1,023 | ) |  |  | 18,881 |  |  |  | 2,642 |  |  |  | 21,523 |
Other long-term assets |  |  | 11,303 |  |  |  | (3,383 | ) |  |  | 7,920 |  |  |  | — |  |  |  | 7,920 |
Total assets |  | $ | 504,281 |  |  | $ | (31,384 | ) |  | $ | 472,897 |  |  | $ | (8,351 | ) |  | $ | 464,546 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Bank borrowings |  | $ | 16 |  |  | $ | — |  |  | $ | 16 |  |  | $ | — |  |  | $ | 16 |
Trade accounts payable |  |  | 21,812 |  |  |  | 763 |  |  |  | 22,575 |  |  |  | — |  |  |  | 22,575 |
Other current liabilities |  |  | 46,969 |  |  |  | (7,375 | ) |  |  | 39,594 |  |  |  | 3,148 |  |  |  | 42,742 |
Total current liabilities |  |  | 68,797 |  |  |  | (6,612 | ) |  |  | 62,185 |  |  |  | 3,148 |  |  |  | 65,333 |
Long-term debt |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |
Deferred income taxes |  |  | 11,456 |  |  |  | — |  |  |  | 11,456 |  |  |  | (106 | ) |  |  | 11,350 |
Other long-term liabilities |  |  | 4,930 |  |  |  | 6,494 |  |  |  | 11,424 |  |  |  | — |  |  |  | 11,424 |
Total liabilities |  |  | 105,183 |  |  |  | (118 | ) |  |  | 105,065 |  |  |  | 3,042 |  |  |  | 108,107 |
Contingencies (Note 17) |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common shares $0.10 par value; 50,000,000 shares authorized; 19,339,329 issued and outstanding |  |  | 1,934 |  |  |  | — |  |  |  | 1,934 |  |  |  | — |  |  |  | 1,934 |
Additional paid-in capital |  |  | 246,111 |  |  |  | 195 |  |  |  | 246,306 |  |  |  | — |  |  |  | 246,306 |
Retained earnings |  |  | 148,549 |  |  |  | (33,702 | ) |  |  | 114,847 |  |  |  | (12,138 | ) |  |  | 102,709 |
Accumulated other comprehensive income |  |  | 2,504 |  |  |  | 2,241 |  |  |  | 4,745 |  |  |  | 745 |  |  |  | 5,490 |
Total shareholders’ equity |  |  | 399,098 |  |  |  | (31,266 | ) |  |  | 367,832 |  |  |  | (11,393 | ) |  |  | 356,439 |
Total liabilities and shareholders’ equity |  | $ | 504,281 |  |  | $ | (31,384 | ) |  | $ | 472,897 |  |  | $ | (8,351 | ) |  | $ | 464,546 |
The effects of the Further Restatement on the Company’s consolidated statement of operations and comprehensive income for the year ended December 31, 2013 are as follows:
|  | Year Ended December 31, 2013 |
(U.S. Dollars, in thousands, except share and per share data) |  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 352,796 |  |  | $ | (3,244 | ) |  | $ | 349,552 |
Marketing service fees |  |  | 47,738 |  |  |  | 321 |  |  |  | 48,059 |
Net sales |  |  | 400,534 |  |  |  | (2,923 | ) |  |  | 397,611 |
Cost of sales |  |  | 102,300 |  |  |  | 4,612 |  |  |  | 106,912 |
Gross profit |  |  | 298,234 |  |  |  | (7,535 | ) |  |  | 290,699 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 176,581 |  |  |  | (1,113 | ) |  |  | 175,468 |
General and administrative |  |  | 65,147 |  |  |  | (317 | ) |  |  | 64,830 |
Research and development |  |  | 26,768 |  |  |  | — |  |  |  | 26,768 |
Amortization of intangible assets |  |  | 2,687 |  |  |  | — |  |  |  | 2,687 |
Costs related to the accounting review and restatement |  |  | 12,945 |  |  |  | — |  |  |  | 12,945 |
Impairment of Goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
|  |  | 303,321 |  |  |  | (1,430 | ) |  |  | 301,891 |
Operating loss |  |  | (5,087 | ) |  |  | (6,105 | ) |  |  | (11,192 | )
Other income and (expense) |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (1,925 | ) |  |  | 98 |  |  |  | (1,827 | )
Other expense |  |  | 2,220 |  |  |  | 196 |  |  |  | 2,416 |
|  |  | 295 |  |  |  | 294 |  |  |  | 589 |
Loss before income taxes |  |  | (4,792 | ) |  |  | (5,811 | ) |  |  | (10,603 | )
Income tax expense |  |  | (10,116 | ) |  |  | 2,514 |  |  |  | (7,602 | )
Net loss from continuing operations |  |  | (14,908 | ) |  |  | (3,297 | ) |  |  | (18,205 | )
Discontinued operations (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Loss from discontinued operations |  |  | (15,510 | ) |  |  | — |  |  |  | (15,510 | )
Income tax benefit (expense) |  |  | 4,903 |  |  |  | — |  |  |  | 4,903 |
Net loss from discontinued operations |  |  | (10,607 | ) |  |  | — |  |  |  | (10,607 | )
Net loss |  | $ | (25,515 | ) |  | $ | (3,297 | ) |  | $ | (28,812 | )
Net loss per common share—basic: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.80 | ) |  | $ | (0.17 | ) |  | $ | (0.97 | )
Net loss from discontinued operations |  |  | (0.57 | ) |  |  | — |  |  |  | (0.57 | )
Net loss per common share—basic |  | $ | (1.37 | ) |  | $ | (0.17 | ) |  | $ | (1.54 | )
Net loss per common share—diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.80 | ) |  | $ | (0.17 | ) |  | $ | (0.97 | )
Net loss from discontinued operations |  |  | (0.57 | ) |  |  | — |  |  |  | (0.57 | )
Net loss per common share—diluted |  | $ | (1.37 | ) |  | $ | (0.17 | ) |  | $ | (1.54 | )
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,697,228 |  |  |  | — |  |  |  | 18,697,228 |
Diluted |  |  | 18,697,228 |  |  |  | — |  |  |  | 18,697,228 |
Other comprehensive loss, before tax: |  |  |  |  |  |  |  |  |  |  |  |
Translation adjustment |  | $ | (1,768 | ) |  | $ | 60 |  |  | $ | (1,708 | )
Unrealized gain on derivative instrument |  |  | (442 | ) |  |  | (1 | ) |  |  | (443 | )
Other comprehensive loss, before tax |  |  | (2,210 | ) |  |  | 59 |  |  |  | (2,151 | )
Income tax expense related to components of other comprehensive income |  |  | 164 |  |  |  | — |  |  |  | 164 |
Other comprehensive loss, net of tax |  |  | (2,046 | ) |  |  | 59 |  |  |  | (1,987 | )
Comprehensive loss |  | $ | (27,561 | ) |  | $ | (3,238 | ) |  | $ | (30,799 | )
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of operations and comprehensive income for the year ended December 31, 2012 are as follows:
|  | Year Ended December 31, 2012 |
(U.S. Dollars, in thousands, except share and per share data) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 415,850 |  |  | $ | (14,811 | ) |  | $ | 401,039 |  |  | $ | (7,392 | ) |  | $ | 393,647 |
Marketing service fees |  |  | 46,470 |  |  |  | 72 |  |  |  | 46,542 |  |  |  | — |  |  |  | 46,542 |
Net sales |  |  | 462,320 |  |  |  | (14,739 | ) |  |  | 447,581 |  |  |  | (7,392 | ) |  |  | 440,189 |
Cost of sales |  |  | 86,492 |  |  |  | 11,761 |  |  |  | 98,253 |  |  |  | 2,473 |  |  |  | 100,726 |
Gross profit |  |  | 375,828 |  |  |  | (26,500 | ) |  |  | 349,328 |  |  |  | (9,865 | ) |  |  | 339,463 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,343 |  |  |  | (13,212 | ) |  |  | 187,131 |  |  |  | (8,360 | ) |  |  | 178,771 |
General and administrative |  |  | 53,827 |  |  |  | (436 | ) |  |  | 53,391 |  |  |  | 259 |  |  |  | 53,650 |
Research and development |  |  | 28,577 |  |  |  | — |  |  |  | 28,577 |  |  |  | — |  |  |  | 28,577 |
Amortization of intangible assets |  |  | 2,098 |  |  |  | 200 |  |  |  | 2,298 |  |  |  | — |  |  |  | 2,298 |
Charges related to U.S. Government resolutions (Note 17) |  |  | 1,973 |  |  |  | (678 | ) |  |  | 1,295 |  |  |  | — |  |  |  | 1,295 |
|  |  | 286,818 |  |  |  | (14,126 | ) |  |  | 272,692 |  |  |  | (8,101 | ) |  |  | 264,591 |
Operating income |  |  | 89,010 |  |  |  | (12,374 | ) |  |  | 76,636 |  |  |  | (1,764 | ) |  |  | 74,872 |
Other income and (expense) |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (4,577 | ) |  |  | (166 | ) |  |  | (4,743 | ) |  |  | 582 |  |  |  | (4,161 | )
Other expense |  |  | (1,705 | ) |  |  | — |  |  |  | (1,705 | ) |  |  | 59 |  |  |  | (1,646 | )
|  |  | (6,282 | ) |  |  | (166 | ) |  |  | (6,448 | ) |  |  | 641 |  |  |  | (5,807 | )
Income before income taxes |  |  | 82,728 |  |  |  | (12,540 | ) |  |  | 70,188 |  |  |  | (1,123 | ) |  |  | 69,065 |
Income tax expense |  |  | (28,792 | ) |  |  | 3,654 |  |  |  | (25,138 | ) |  |  | 1,194 |  |  |  | (23,944 | )
Net income from continuing operations |  |  | 53,936 |  |  |  | (8,886 | ) |  |  | 45,050 |  |  |  | 71 |  |  |  | 45,121 |
Discontinued operations (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Gain on sale of Breg, Inc., |  |  | 1,345 |  |  |  | — |  |  |  | 1,345 |  |  |  | — |  |  |  | 1,345 |
Loss from discontinued operations |  |  | (4,012 | ) |  |  | 1,018 |  |  |  | (2,994 | ) |  |  | (500 | ) |  |  | (3,494 | )
Income tax benefit (expense) |  |  | 26 |  |  |  | (589 | ) |  |  | (563 | ) |  |  | 443 |  |  |  | (120 | )
Net loss from discontinued operations |  |  | (2,641 | ) |  |  | 429 |  |  |  | (2,212 | ) |  |  | (57 | ) |  |  | (2,269 | )
Net income |  | $ | 51,295 |  |  | $ | (8,457 | ) |  | $ | 42,838 |  |  | $ | 14 |  |  | $ | 42,852 |
Net income (loss) per common share—basic: |  |  |  |  |  |  |  |  |  |  |  |
Net income from continuing operations |  | $ | 2.84 |  |  | $ | (0.47 | ) |  | $ | 2.37 |  |  | $ | 0.01 |  |  | $ | 2.38 |
Net loss from discontinued operations |  |  | (0.14 | ) |  |  | 0.02 |  |  |  | (0.12 | ) |  |  | — |  |  |  | (0.12 | )
Net income per common share—basic |  | $ | 2.70 |  |  | $ | (0.45 | ) |  | $ | 2.25 |  |  | $ | 0.01 |  |  | $ | 2.26 |
Net income (loss) per common share—diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net income from continuing operations |  | $ | 2.78 |  |  | $ | (0.46 | ) |  | $ | 2.32 |  |  | $ | 0.01 |  |  | $ | 2.33 |
Net loss from discontinued operations |  |  | (0.14 | ) |  |  | 0.03 |  |  |  | (0.11 | ) |  |  | (0.01 | ) |  |  | (0.12 | )
Net income per common share—diluted: |  | $ | 2.64 |  |  | $ | (0.43 | ) |  | $ | 2.21 |  |  | $ | 0.00 |  |  | $ | 2.21 |
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,977,263 |  |  |  | — |  |  |  | 18,977,263 |  |  |  | — |  |  |  | 18,977,263 |
Diluted |  |  | 19,390,413 |  |  |  | — |  |  |  | 19,390,413 |  |  |  | — |  |  |  | 19,390,413 |
Other comprehensive income, before tax: |  |  |  |  |  |  |  |  |  |  |  |
Translation adjustment |  | $ | 480 |  |  | $ | 288 |  |  | $ | 768 |  |  | $ | 363 |  |  | $ | 1,131 |
Unrealized gain on derivative instrument |  |  | 416 |  |  |  | — |  |  |  | 416 |  |  |  | — |  |  |  | 416 |
Other comprehensive income, before tax |  |  | 896 |  |  |  | 288 |  |  |  | 1,184 |  |  |  | 363 |  |  |  | 1,547 |
Income tax expense related to components of other comprehensive income |  |  | (153 | ) |  |  | — |  |  |  | (153 | ) |  |  | — |  |  |  | (153 | )
Other comprehensive income, net of tax |  |  | 743 |  |  |  | 288 |  |  |  | 1,031 |  |  |  | 363 |  |  |  | 1,394 |
Comprehensive income |  | $ | 52,038 |  |  | $ | (8,169 | ) |  | $ | 43,869 |  |  | $ | 377 |  |  | $ | 44,246 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2011 are as follows:
|  | Year Ended December 31, 2011 |
(U.S. Dollars, in thousands, except share and per share data) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 432,975 |  |  | $ | (27,828 | ) |  | $ | 405,147 |  |  |  | (6,452 | ) |  | $ | 398,695 |
Marketing service fees |  |  | 37,146 |  |  |  | (322 | ) |  |  | 36,824 |  |  |  | — |  |  |  | 36,824 |
Net sales |  |  | 470,121 |  |  |  | (28,150 | ) |  |  | 441,971 |  |  |  | (6,452 | ) |  |  | 435,519 |
Cost of sales |  |  | 92,619 |  |  |  | 2,908 |  |  |  | 95,527 |  |  |  | 888 |  |  |  | 96,415 |
Gross profit |  |  | 377,502 |  |  |  | (31,058 | ) |  |  | 346,444 |  |  |  | (7,340 | ) |  |  | 339,104 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,145 |  |  |  | (6,634 | ) |  |  | 193,511 |  |  |  | (8,355 | ) |  |  | 185,156 |
General and administrative |  |  | 64,374 |  |  |  | 107 |  |  |  | 64,481 |  |  |  | 304 |  |  |  | 64,785 |
Research and development |  |  | 22,861 |  |  |  | — |  |  |  | 22,861 |  |  |  | — |  |  |  | 22,861 |
Amortization of intangible assets |  |  | 2,350 |  |  |  | 200 |  |  |  | 2,550 |  |  |  | — |  |  |  | 2,550 |
Charges related to U.S. Government resolutions (Note 17) |  |  | 56,463 |  |  |  | 678 |  |  |  | 57,141 |  |  |  | — |  |  |  | 57,141 |
|  |  | 346,193 |  |  |  | (5,649 | ) |  |  | 340,544 |  |  |  | (8,051 | ) |  |  | 332,493 |
Operating income |  |  | 31,309 |  |  |  | (25,409 | ) |  |  | 5,900 |  |  |  | 711 |  |  |  | 6,611 |
Other income and (expense) |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (9,456 | ) |  |  | 3,915 |  |  |  | (5,541 | ) |  |  | 100 |  |  |  | (5,441 | )
Other expense |  |  | (2,412 | ) |  |  | — |  |  |  | (2,412 | ) |  |  | (121 | ) |  |  | (2,533 | )
|  |  | (11,868 | ) |  |  | 3,915 |  |  |  | (7,953 | ) |  |  | (21 | ) |  |  | (7,974 | )
Income (loss) before income taxes |  |  | 19,441 |  |  |  | (21,494 | ) |  |  | (2,053 | ) |  |  | 690 |  |  |  | (1,363 | )
Income tax expense |  |  | (21,181 | ) |  |  | 7,016 |  |  |  | (14,165 | ) |  |  | (278 | ) |  |  | (14,443 | )
Net loss from continuing operations |  |  | (1,740 | ) |  |  | (14,478 | ) |  |  | (16,218 | ) |  |  | 412 |  |  |  | (15,806 | )
Discontinued operations (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) from discontinued operations |  |  | 1,263 |  |  |  | (3,968 | ) |  |  | (2,705 | ) |  |  | — |  |  |  | (2,705 | )
Income tax (expense) benefit |  |  | (596 | ) |  |  | 1,409 |  |  |  | 813 |  |  |  | — |  |  |  | 813 |
Net income (loss) from discontinued operations |  |  | 667 |  |  |  | (2,559 | ) |  |  | (1,892 | ) |  |  | — |  |  |  | (1,892 | )
Net loss |  | $ | (1,073 | ) |  | $ | (17,037 | ) |  | $ | (18,110 | ) |  |  | 412 |  |  | $ | (17,698 | )
Net (loss) income per common share—basic: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.10 | ) |  | $ | (0.79 | ) |  | $ | (0.89 | ) |  | $ | 0.02 |  |  | $ | (0.87 | )
Net income (loss) from discontinued operations |  |  | 0.04 |  |  |  | (0.14 | ) |  |  | (0.10 | ) |  |  | — |  |  |  | (0.10 | )
Net loss per common share—basic |  | $ | (0.06 | ) |  | $ | (0.93 | ) |  | $ | (0.99 | ) |  | $ | 0.02 |  |  | $ | (0.97 | )
Net (loss) income per common share—diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.10 | ) |  | $ | (0.79 | ) |  | $ | (0.89 | ) |  | $ | 0.02 |  |  | $ | (0.87 | )
Net income (loss) from discontinued operations |  |  | 0.04 |  |  |  | (0.14 | ) |  |  | (0.10 | ) |  |  | — |  |  |  | (0.10 | )
Net loss per common share—diluted: |  | $ | (0.06 | ) |  | $ | (0.93 | ) |  | $ | (0.99 | ) |  | $ | 0.02 |  |  | $ | (0.97 | )
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |
Diluted |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |
Other comprehensive loss, before tax: |  |  |  |  |  |  |  |  |  |  |  |
Translation adjustment |  | $ | (3,192 | ) |  | $ | 913 |  |  | $ | (2,279 | ) |  | $ | 382 |  |  | $ | (1,897 | )
Unrealized loss on derivative instrument |  |  | (693 | ) |  |  | — |  |  |  | (693 | ) |  |  | — |  |  |  | (693 | )
Other comprehensive loss, before tax |  |  | (3,885 | ) |  |  | 913 |  |  |  | (2,972 | ) |  |  | 382 |  |  |  | (2,590 | )
Income tax benefit related to components of other comprehensive income |  |  | 256 |  |  |  | — |  |  |  | 256 |  |  |  | — |  |  |  | 256 |
Other comprehensive loss, net of tax |  |  | (3,629 | ) |  |  | 913 |  |  |  | (2,716 | ) |  |  | 382 |  |  |  | (2,334 | )
Comprehensive loss |  | $ | (4,702 | ) |  | $ | (16,124 | ) |  | $ | (20,826 | ) |  |  | 794 |  |  | $ | (20,032 | )
The effects of Further Restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2013 are as follows:
(U.S. Dollars, in thousands) |  | Year Ended December 31, 2013 |
|  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (25,515 | ) |  | $ | (3,297 | ) |  | $ | (28,812 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 22,659 |  |  |  | 163 |  |  |  | 22,822 |
Amortization of debt costs |  |  | 720 |  |  |  | — |  |  |  | 720 |
Amortization of exclusivity agreements |  |  | 1,546 |  |  |  | — |  |  |  | 1,546 |
Provision for doubtful accounts |  |  | 6,003 |  |  |  | (1,413 | ) |  |  | 4,590 |
Deferred income taxes |  |  | (1,986 | ) |  |  | 4,815 |  |  |  | 2,829 |
Share-based compensation |  |  | 6,267 |  |  |  | — |  |  |  | 6,267 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
Gain on sale of Breg, Inc., net of tax |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | (82 | ) |  |  | — |  |  |  | (82 | )
Income tax benefit (expense) on employee stock-based awards |  |  | 795 |  |  |  | (795 | ) |  |  | — |
Other |  |  | 4,442 |  |  |  | 94 |  |  |  | 4,536 |
Changes in operating assets and liabilities, net of effect of dispositions: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | 25,747 |  |  |  | 2,815 |  |  |  | 28,562 |
Inventories |  |  | (6,626 | ) |  |  | 3,413 |  |  |  | (3,213 | )
Escrow receivable |  |  | — |  |  |  | — |  |  |  | — |
Prepaid expenses and other current assets |  |  | 6,791 |  |  |  | 1,973 |  |  |  | 8,764 |
Trade accounts payable |  |  | (2,280 | ) |  |  | — |  |  |  | (2,280 | )
Charges related to U.S. Government resolutions |  |  | — |  |  |  | — |  |  |  | — |
Other current liabilities |  |  | 8,018 |  |  |  | (1,049 | ) |  |  | 6,969 |
Other long-term assets |  |  | 2,750 |  |  |  | (8,079 | ) |  |  | (5,329 | )
Other long-term liabilities |  |  | (1,561 | ) |  |  | 1,521 |  |  |  | (40 | )
Net cash provided by operating activities |  |  | 66,881 |  |  |  | 161 |  |  |  | 67,042 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (24,787 | ) |  |  | — |  |  |  | (24,787 | )
Capital expenditures for intangible assets |  |  | (4,891 | ) |  |  | — |  |  |  | (4,891 | )
Purchase of other investments |  |  | — |  |  |  | (1,374 | ) |  |  | (1,374 | )
Net proceeds from sale of Breg, Inc. |  |  | — |  |  |  | — |  |  |  | — |
Net cash (used in) provided by investing activities |  |  | (29,678 | ) |  |  | (1,374 | ) |  |  | (31,052 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 3,450 |  |  |  | — |  |  |  | 3,450 |
Payment of refinancing fees and debt issuance costs |  |  | — |  |  |  | — |  |  |  | — |
Repayments of long-term debt |  |  | (16 | ) |  |  | — |  |  |  | (16 | )
Repayment of bank borrowings, net |  |  | — |  |  |  | — |  |  |  | — |
Changes in restricted cash |  |  | (2,375 | ) |  |  | — |  |  |  | (2,375 | )
Purchase of common stock |  |  | (39,494 | ) |  |  | — |  |  |  | (39,494 | )
Cash payment for purchase of minority interest in subsidiary |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | 82 |  |  |  | — |  |  |  | 82 |
Net cash used in financing activities |  |  | (38,353 | ) |  |  | — |  |  |  | (38,353 | )
Effect of exchange rate changes on cash |  |  | 581 |  |  |  | (61 | ) |  |  | 520 |
Net (decrease) increase in cash and cash equivalents |  |  | (569 | ) |  |  | (1,274 | ) |  |  | (1,843 | )
Cash and cash equivalents at the beginning of the year |  |  | 31,055 |  |  |  | (288 | ) |  |  | 30,767 |
Cash and cash equivalents at the end of the year |  | $ | 30,486 |  |  | $ | (1,562 | ) |  | $ | 28,924 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 2,046 |  |  | $ | — |  |  | $ | 2,046 |
Income taxes |  | $ | 8,773 |  |  | $ | — |  |  | $ | 8,773 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2012 are as follows:
(U.S. Dollars, in thousands) |  | Year Ended December 31, 2012 |
|  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 51,295 |  |  | $ | (8,457 | ) |  | $ | 42,838 |  |  | $ | 14 |  |  | $ | 42,852 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 20,261 |  |  |  | 319 |  |  |  | 20,580 |  |  |  | 152 |  |  |  | 20,732 |
Amortization of debt costs |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |
Amortization of exclusivity agreements |  |  | 1,289 |  |  |  | — |  |  |  | 1,289 |  |  |  | — |  |  |  | 1,289 |
Provision for doubtful accounts |  |  | 13,302 |  |  |  | (2,730 | ) |  |  | 10,572 |  |  |  | (8,360 | ) |  |  | 2,212 |
Deferred income taxes |  |  | 871 |  |  |  | (2,123 | ) |  |  | (1,252 | ) |  |  | 5,023 |  |  |  | 3,771 |
Share-based compensation |  |  | 6,303 |  |  |  | — |  |  |  | 6,303 |  |  |  | — |  |  |  | 6,303 |
Impairment of goodwill |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Gain on sale of Breg, Inc, net of tax |  |  | (1,345 | ) |  |  | — |  |  |  | (1,345 | ) |  |  | — |  |  |  | (1,345 | )
Excess income tax benefit on employee stock-based awards |  |  | — |  |  |  | (1,020 | ) |  |  | (1,020 | ) |  |  | — |  |  |  | (1,020 | )
Income tax benefit on employee-stock-based awards |  |  | — |  |  |  | 2,910 |  |  |  | 2,910 |  |  |  | (2,910 | ) |  |  | — |
Other |  |  | 2,125 |  |  |  | 2,011 |  |  |  | 4,136 |  |  |  | 662 |  |  |  | 4,798 |
Changes in operating assets and liabilities, net of effect of dispositions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | (31,600 | ) |  |  | 13,162 |  |  |  | (18,438 | ) |  |  | 7,310 |  |  |  | (11,128 | )
Inventories |  |  | (6,341 | ) |  |  | 3,846 |  |  |  | (2,495 | ) |  |  | 2,111 |  |  |  | (384 | )
Escrow receivable |  |  | 41,537 |  |  |  | — |  |  |  | 41,537 |  |  |  | — |  |  |  | 41,537 |
Prepaid expenses and other current assets |  |  | (6,191 | ) |  |  | (9,386 | ) |  |  | (15,577 | ) |  |  | 1,002 |  |  |  | (14,575 | )
Trade accounts payable |  |  | 5,554 |  |  |  | (979 | ) |  |  | 4,575 |  |  |  | — |  |  |  | 4,575 |
Charges related to U.S. Government resolutions |  |  | (82,500 | ) |  |  | (678 | ) |  |  | (83,178 | ) |  |  | — |  |  |  | (83,178 | )
Other current liabilities |  |  | (2,842 | ) |  |  | (2,887 | ) |  |  | (5,729 | ) |  |  | 490 |  |  |  | (5,239 | )
Other long-term assets |  |  | (2,114 | ) |  |  | 4,241 |  |  |  | 2,127 |  |  |  | (5,518 | ) |  |  | (3,391 | )
Other long-term liabilities |  |  | (135 | ) |  |  | 751 |  |  |  | 616 |  |  |  | — |  |  |  | 616 |
Net cash provided by operating activities |  |  | 11,206 |  |  |  | (1,020 | ) |  |  | 10,186 |  |  |  | (24 | ) |  |  | 10,162 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (27,994 | ) |  |  | — |  |  |  | (27,994 | ) |  |  | — |  |  |  | (27,994 | )
Capital expenditures for intangible assets |  |  | (780 | ) |  |  | — |  |  |  | (780 | ) |  |  | — |  |  |  | (780 | )
Purchase of other investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (714 | ) |  |  | (714 | )
Proceeds from sale of other investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 878 |  |  |  | 878 |
Net proceeds from sale of Breg Inc. |  |  | 153,773 |  |  |  | — |  |  |  | 153,773 |  |  |  | — |  |  |  | 153,773 |
Net cash provided by (used in) investing activities |  |  | 124,999 |  |  |  | — |  |  |  | 124,999 |  |  |  | 164 |  |  |  | 125,163 |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 25,586 |  |  |  | — |  |  |  | 25,586 |  |  |  | — |  |  |  | 25,586 |
Payment of refinancing fees and debt issuance costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Repayments of long-term debt |  |  | (188,695 | ) |  |  | — |  |  |  | (188,695 | ) |  |  | — |  |  |  | (188,695 | )
Proceeds of bank borrowings, net |  |  | (1,297 | ) |  |  | — |  |  |  | (1,297 | ) |  |  | — |  |  |  | (1,297 | )
Changes in restricted cash |  |  | 25,799 |  |  |  | — |  |  |  | 25,799 |  |  |  | — |  |  |  | 25,799 |
Cash payment for purchase of minority interest in subsidiary |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | — |  |  |  | 1,020 |  |  |  | 1,020 |  |  |  | — |  |  |  | 1,020 |
Net cash used in financing activities |  |  | (138,607 | ) |  |  | 1,020 |  |  |  | (137,587 | ) |  |  | — |  |  |  | (137,587 | )
Effect of exchange rates changes on cash |  |  | 250 |  |  |  | — |  |  |  | 250 |  |  |  | 36 |  |  |  | 286 |
Net increase (decrease) in cash and cash equivalents |  |  | (2,152 | ) |  |  | — |  |  |  | (2,152 | ) |  |  | 176 |  |  |  | (1,976 | )
Cash and cash equivalents at the beginning of the year |  |  | 33,207 |  |  |  | — |  |  |  | 33,207 |  |  |  | (464 | ) |  |  | 32,743 |
Cash and cash equivalents at the end of the year |  | $ | 31,055 |  |  | $ | — |  |  | $ | 31,055 |  |  | $ | (288 | ) |  | $ | 30,767 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 4,569 |  |  | $ | — |  |  | $ | 4,569 |  |  | $ | — |  |  | $ | 4,569 |
Income taxes |  | $ | 18,268 |  |  | $ | — |  |  | $ | 18,268 |  |  | $ | — |  |  | $ | 18,268 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2011 are as follows:
(U.S. Dollars, in thousands) |  | Year Ended December 31, 2011 |
|  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (1,073 | ) |  | $ | (17,037 | ) |  | $ | (18,110 | ) |  | $ | 412 |  |  | $ | (17,698 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 22,776 |  |  |  | 241 |  |  |  | 23,017 |  |  |  | 165 |  |  |  | 23,182 |
Amortization of debt costs |  |  | 1,239 |  |  |  | — |  |  |  | 1,239 |  |  |  | — |  |  |  | 1,239 |
Amortization of exclusivity agreements |  |  | 374 |  |  |  | — |  |  |  | 374 |  |  |  | — |  |  |  | 374 |
Provision for doubtful accounts |  |  | 11,532 |  |  |  | 1,404 |  |  |  | 12,936 |  |  |  | (8,356 | ) |  |  | 4,580 |
Deferred income taxes |  |  | 936 |  |  |  | (988 | ) |  |  | (52 | ) |  |  | (13,889 | ) |  |  | (13,941 | )
Share-based compensation |  |  | 6,648 |  |  |  | — |  |  |  | 6,648 |  |  |  | — |  |  |  | 6,648 |
Impairment of goodwill |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Gain on sale of Breg, Inc, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | (1,737 | ) |  |  | — |  |  |  | (1,737 | ) |  |  | — |  |  |  | (1,737 | )
Income tax benefit on employee-stock-based awards |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other |  |  | 4,906 |  |  |  | (415 | ) |  |  | 4,491 |  |  |  | (2,193 | ) |  |  | 2,298 | )
Changes in operating assets and liabilities, net of effect of dispositions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | (25,818 | ) |  |  | 26,111 |  |  |  | 293 |  |  |  | 6,352 |  |  |  | 6,645 |
Inventories |  |  | (8,349 | ) |  |  | (4,275 | ) |  |  | (12,624 | ) |  |  | (81 | ) |  |  | (12,705 | )
Escrow receivable |  |  | (32,562 | ) |  |  | — |  |  |  | (32,562 | ) |  |  | — |  |  |  | (32,562 | )
Prepaid expenses and other current assets |  |  | (4,057 | ) |  |  | 6,886 |  |  |  | 2,829 |  |  |  | (447 | ) |  |  | 2,382 |
Trade accounts payable |  |  | 576 |  |  |  | 1,746 |  |  |  | 2,322 |  |  |  | — |  |  |  | 2,322 |
Charges related to U.S. Government resolutions |  |  | 88,463 |  |  |  | 638 |  |  |  | 89,101 |  |  |  | — |  |  |  | 89,101 |
Other current liabilities |  |  | 3,384 |  |  |  | (1,965 | ) |  |  | 1,419 |  |  |  | 2,097 |  |  |  | 3,516 |
Other long-term assets |  |  | (1,588 | ) |  |  | (16,093 | ) |  |  | (17,681 | ) |  |  | 15,364 |  |  |  | (2,317 | )
Other long-term liabilities |  |  | (869 | ) |  |  | 3,747 |  |  |  | 2,878 |  |  |  | 525 |  |  |  | 3,403 |
Net cash provided by operating activities |  |  | 64,781 |  |  |  | — |  |  |  | 64,781 |  |  |  | (51 | ) |  |  | 64,730 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (24,965 | ) |  |  | — |  |  |  | (24,965 | ) |  |  | — |  |  |  | (24,965 | )
Capital expenditures for intangible assets |  |  | (793 | ) |  |  | — |  |  |  | (793 | ) |  |  | — |  |  |  | (793 | )
Payment made in connection with acquisition |  |  | (5,250 | ) |  |  | — |  |  |  | (5,250 | ) |  |  | — |  |  |  | (5,250 | )
Purchase of other investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (468 | ) |  |  | (468 | )
Net cash provided by (used in) investing activities |  |  | (31,008 | ) |  |  | — |  |  |  | (31,008 | ) |  |  | (468 | ) |  |  | (31,476 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 20,113 |  |  |  | — |  |  |  | 20,113 |  |  |  | — |  |  |  | 20,113 |
Payment of refinancing fees and debt issuance costs |  |  | (758 | ) |  |  | — |  |  |  | (758 | ) |  |  | — |  |  |  | (758 | )
Repayments of long-term debt |  |  | (7,500 | ) |  |  | — |  |  |  | (7,500 | ) |  |  | — |  |  |  | (7,500 | )
Proceeds of bank borrowings, net |  |  | (2,561 | ) |  |  | — |  |  |  | (2,561 | ) |  |  | — |  |  |  | (2,561 | )
Changes in restricted cash |  |  | (24,178 | ) |  |  | — |  |  |  | (24,178 | ) |  |  | — |  |  |  | (24,178 | )
Cash payment for purchase of minority interest in subsidiary |  |  | (517 | ) |  |  | — |  |  |  | (517 | ) |  |  | — |  |  |  | (517 | )
Excess income tax benefit on employee stock-based awards |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |
Net cash used in financing activities |  |  | (13,664 | ) |  |  | — |  |  |  | (13,664 | ) |  |  | — |  |  |  | (13,664 | )
Effect of exchange rates changes on cash |  |  | (463 | ) |  |  | — |  |  |  | (463 | ) |  |  | 55 |  |  |  | (408 | )
Net increase (decrease) in cash and cash equivalents |  |  | 19,646 |  |  |  | — |  |  |  | 19,646 |  |  |  | (464 | ) |  |  | 19,182 |
Cash and cash equivalents at the beginning of the year |  |  | 13,561 |  |  |  | — |  |  |  | 13,561 |  |  |  | — |  |  |  | 13,561 |
Cash and cash equivalents at the end of the year |  | $ | 33,207 |  |  | $ | — |  |  | $ | 33,207 |  |  | $ | (464 | ) |  | $ | 32,743 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 17,088 |  |  | $ | — |  |  | $ | 17,088 |  |  | $ | — |  |  | $ | 17,088 |
Income taxes |  | $ | 26,227 |  |  | $ | — |  |  | $ | 26,227 |  |  | $ | — |  |  | $ | 26,227 |
2. | Original and Further Restatement of the Consolidated Financial Statements
These consolidated financial statements reflect two restatements, which we refer to herein respectively as the “Original Restatement” and the “Further Restatement.” The Original Restatement, which was contained in the financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014 (the “Original Form 10-K”), reflected the restatement of the Company’s previously filed consolidated financial statements for the fiscal years ended December 31, 2012 and 2011, as well as the fiscal quarter ended March 31, 2013. The Original Restatement is further described below under the subheading “– Original Restatement.” In connection with the Company’s preparation of its consolidated interim quarterly financial statements for the fiscal quarter ended June 30, 2014, the Company determined that certain entries with respect to the previously filed financial statements contained in the Original Form 10-K were not properly accounted for under U.S. GAAP. As further described below, these additional errors affect the fiscal years ended December 31, 2013, 2012 and 2011 and quarterly reporting periods contained within the fiscal years ended December 31, 2013 and 2012, as well as the fiscal quarter ended March 31, 2014. Due to these errors, the Company determined in August 2014 to restate its consolidated financial statements for the fiscal years ended December 31, 2013, 2012 and 2011 (including the interim quarterly periods contained within the fiscal years ended December 31, 2013 and 2012) and the fiscal quarter ended March 31, 2014, and that the previously filed financial statements for these periods should no longer be relied upon. The Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (this “Amended Form 10-K”), to which these consolidated financial statements form a part, corrects these additional errors. We refer to these additional corrections as the “Further Restatement.” The Further Restatement is further described below under the subheading “Further Restatement,” which follows the description of the Original Restatement contained directly below. Original Restatement Background of Original Restatement In July 2013, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) commenced an independent review with the assistance of outside professionals into whether the Company had properly recognized revenue under U.S. GAAP in connection with certain revenue that had been recorded in 2012 and 2011 (the “Independent Review”). In conjunction with the Independent Review, the Company concluded that errors existed in the Company’s previously issued financial statements for the fiscal years ended December 31, 2012 and 2011, the interim quarterly period ended March 31, 2013, and certain other prior periods. In reaching these conclusions, the Company considered information obtained in the Independent Review, including emails, data and interviews with current and former employees that indicated (i) the existence of extra-contractual terms or arrangements at the onset of the sale and concessions agreed to subsequent to the initial sale, such as extended payment terms and return and exchange rights for sales to distributors with respect to certain transactions, (ii) that at the time of some sales collection was not reasonably assured, and (iii) that certain amounts previously characterized as commissions were paid to related parties of the applicable customer. The Company assessed the information derived from the Independent Review in making determinations with respect to accounting adjustments reflected in the restated consolidated financial statements contained in the Amendments and in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and such determinations are consistent with the findings of the Independent Review. In addition to the matters that were the subject of the Independent Review, certain other adjustments identified by management, including revisions to inventory reserves and royalties, were made to the consolidated financial statements in connection with the restatement. The correction of these errors had the following impact: decreased net sales by $14.7 million and $28.2 million for the years ended December 31, 2012 and 2011, respectively; and decreased net income from continuing operations by $8.9 million and $14.5 million for the years ended December 31, 2012 and 2011, respectively. The following include descriptions of the significant adjustments to the Company’s financial position and results of operations from the previously reported consolidated financial statements. Distributor Revenue Recognition The Company has determined that it previously recognized revenue with respect to certain distributor relationships before all revenue recognition criteria were met. Specifically, the Company has determined that a fixed or determinable sales price did not exist, and/or collection was not reasonably assured, with respect to certain transactions where revenue had previously been recognized at the time of shipment. Specifically, the Company’s review revealed arrangements, or extra-contractual terms, with certain of the Company’s distributors regarding extended payment terms, return or exchange rights, and contingent payment obligations for sales to such distributors with respect to certain transactions. There were also concessions being made subsequent to the shipment of inventory to the distributors and the related revenue recognition. Based on the results of this review, it was determined that these arrangements were not appropriately evaluated under the appropriate revenue recognition criteria applicable under U.S. GAAP. Distributor sales represented approximately 11–13% of the Company’s net sales (prior to the restatement) of approximately $462 million and $470 million for the years ended December 31, 2012 and 2011, respectively. The Company previously recognized distributor revenue as title and risk of loss passed at either shipment from the Company’s facilities or receipt at the distributor’s facility, assuming all other revenue recognition criteria had been achieved (the “sell-in method”). Based on review of all facts and circumstances related to the arrangements described above, the Company determined that in many instances the revenue recognition criteria under the sell-in method were not satisfied at the time of shipment or receipt; specifically, the existence of extra-contractual terms or arrangements caused the Company not to meet the fixed or determinable criteria for revenue recognition in some cases, and in others collectability had not been established. In situations where the Company is unable to reasonably estimate the effects of these extra-contractual terms, it is precluded from recognizing revenue relating to distributor arrangements until the product is delivered to the end customer. This method is commonly referred to as the “sell-through” revenue recognition method because the vendor does not recognize revenue until the transaction consideration is fixed or determinable, which coincides with the selling of the product through the distribution channel to the end customer. Because the Company does not have reliable information about when its distributors sell the product through to end customers, the Company will use cash collection from distributors as a basis for revenue recognition under the sell-through method. Although in many cases the Company is legally entitled to the accounts receivable at the time of shipment, since the revenue recognition criteria has not been met, the Company has not recognized accounts receivables or any corresponding deferred revenues associated with these transactions. As part of the review, the Company also considered the accounting treatment for the related cost of sales when distributor revenue is recognized on a sell-through basis. Previously, cost of sales were recognized upon shipment; however, the Company believes the matching of the recognition of costs of sales with revenue is preferred and therefore considered if such costs should be deferred until revenue is recognized on a sell-through basis. In making this assessment, the Company considered the financial viability of its distributors based on their creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped was reasonably assured at the time of shipment to these distributors. In instances where the distributor was determined to be financially viable, the Company determined that costs of sales should be deferred until the revenue is recognized. For those distributors where the Company has concluded that collectability was not reasonably assured, the Company has expensed the related cost of sales upon shipment. Based on the results of the Independent Review, the Company determined that all distributor transactions should be transitioned to the sell-through method of accounting as of the dates described below:
| • |  | For distributor transactions within the Company’s Orthopedics division, the Company has determined that sell-through accounting should be applied within the Brazil subsidiary for all prior periods given the frequency with which the Company conducted business under extra-contractual and undocumented terms, as well as the Company’s inability to fully access underlying transactional and other information that would be necessary to evaluate transactions under a sell-in basis. For distributor transactions within the division outside the Brazil subsidiary, there were also sales to four distributors that did not meet the fixed or determinable or collectability revenue recognition criteria and therefore, such sales were adjusted to sell-through accounting in the restatement.
| • |  | For distributor transactions within the Company’s U.S. Spine division, the Company has determined that sell-through accounting should be applied beginning January 1, 2011. Following its consideration of the information provided from the Independent Review, the Company believes that January 1, 2011 is the date extra-contractual terms became pervasive in the Company’s U.S. business, and it is unaware of circumstances existing prior to that date that would require it to broadly apply sell-through accounting to all distributor transactions within the U.S. Spine division. Additionally, there were sales in 2012 and 2011 for which revenue was previously recognized that did not meet the fixed or determinable criteria and the product associated with such sales was subsequently returned in 2013 (i) under the terms of negotiated agreements whereby the Company terminated its relationships with two distributors and (ii) by an additional distributor who returned certain product sold pursuant to a contingent sales arrangement. Such sales represented approximately $3.3 million and $4.1 million for the years ended December 31, 2012 and 2011, respectively. Due to the return of the product, no revenue will be recognized for these transactions.
| • |  | The Company has determined that stimulation products sold to distributors within the Company’s U.S. Spine division during 2012 did not meet the fixed or determinable (and in some cases, collectability) revenue recognition criterion at the time of shipment. Therefore, the Company has determined that sell-through accounting should be applied for these sales. Management also determined that many of these distributors (or affiliates thereof) received commission payments as part of the sales transactions, which the Company previously recorded as sales and marketing expense. The Company has recorded adjustments in the restatement to net these commission expenses against revenue, as they represented product discounts.
| • |  | The Company has determined that it will prospectively apply sell-through accounting for all remaining distributor arrangements (which entails arrangements within the Company’s Orthopedics division outside the Brazil subsidiary) beginning April 1, 2013, the earliest date for which financial statements had not previously been issued by the Company at the time of the determination. Although the Independent Review did not provide information to indicate extra-contractual terms or that historical revenue recognition was inappropriate in these remaining instances, the Company believes the information from the Independent Review indicating that the Company has a history of extra-contractual arrangements for distributor transactions, as described above, provides additional information which should be considered in reassessing the application of sell-through accounting on a prospective basis, particularly given that the Company believes that there is a higher risk associated with distributor arrangements generally.
The effect of adjustments made to the Company’s previously filed consolidated statements of operations as a result of these matters are shown in the tables below. These adjustments also had the following effects on the Company’s previously filed consolidated balance sheets:
| • |  | Accounts receivable decreased as of December 31, 2012 by $41.3 million related to the de-recognition of receivables for which revenue has been deferred and will now be recognized on a sell-through basis, based on cash collections.
| • |  | Inventory increased as of December 31, 2012 by $11.0 million to recognize the costs of inventory shipments to distributors determined to be financially viable as discussed previously.
Inventory Reserves The Company also identified material errors in inventory reserves. One error related to the Company recording an increase of $1.2 million to the Company’s excess and obsolete reserve in the second quarter of 2012 related to a product within the Spine business that was subsequently reversed by the Company in the fourth quarter of 2012. During the Company’s review, it was determined that removing the reserve in the fourth quarter of 2012 was not correct; therefore the reserve has been reinstated. The Company has also determined that certain inconsistencies existed with respect to how the Company previously computed and recorded inventory reserves. As a result, the Company has reviewed the methodologies used to compute and record inventory reserves and determined that errors in the application of U.S. GAAP existed in prior periods, which required adjustment in these financial statements. Based on this review, the Company has determined that it previously made reductions to previously recorded reserves based on changes in forecasted demand, which it believes was contrary to guidance set forth in ASC Topic 330, Inventory (specifically ASC 330-10-35-14), which states that a write-down of inventory to the lower-of-cost-or-market value at the close of a fiscal year creates a new cost basis that subsequently should not be marked up based on changes in underlying circumstances. The restated consolidated financial statements contain several adjustments to reflect recomputed inventory reserves in each of the relevant periods. These adjustments resulted in a decrease to inventory (due to an increase in reserves) as of December 31, 2012, by $14.8 million. Royalties The Company also reviewed the accounting for royalties and determined there were royalties classified as sales and marketing expense; however, such royalties were based on sales of products and were paid to doctors who consulted on development of those products. Given these amounts are attributable to the cost of producing the Company’s products, the Company determined they are correctly classified as cost of goods sold. Other Adjustments In addition to the adjustments recorded to address the Company’s errors in accounting for distributor revenue recognition, inventory reserves, and royalties, the Company has identified other errors that are generally not material, individually or in the aggregate, but have been recorded in connection with the restatement. Included in Other Adjustments are adjustments to reclassify interest expense from continuing operations to discontinued operations of $3.9 million for the year ended December 31, 2011. The reclassification was necessary as the Company used a portion of the proceeds from the sale of Breg, Inc. to repay in full the remaining $87.5 million balance on the Term Loan Facility and pay down $57.5 million of amounts outstanding under the Revolving Credit Facility. Further Restatement Background of Further Restatement During the second quarter of 2014, the Company’s management noted that the Company’s bad debt expense for its BioStim strategic business unit (“SBU”) during the first quarter of 2014 was higher than internally budgeted. As a result, the Company’s internal finance department reviewed bad debt expense entries in prior periods. In connection with this review, the Company also further considered its accounting methodology with respect to certain prior revenue adjustments related to uncollectible patient co-pay and self-pay amounts. As further described below, after performing this review, the Company determined that errors existed relating to the accounting for uncollectible patient co-pay and self-pay amounts, and that certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods in the Original Restatement in connection with the change to sell-through accounting for certain distributors. After analyzing these errors, the Company determined to further restate its financial statements as described herein. In addition to these matters, certain other adjustments identified by management, including revisions to inventory reserves, intercompany profit adjustments and accounts receivable reserves, were made to the consolidated financial statements in connection with the Further Restatement, as discussed below. Co-Pay and Self-Pay Revenue Adjustments A majority of revenue from the Company’s BioStim SBU is derived from third parties, which is subject to change due to contractual adjustments related to commercial insurance carriers, and may include certain patient co-pay amounts. In addition, certain patient purchasers are without insurance, with revenue derived from “self-pay” arrangements. In previously issued financial statements, the Company recorded these co-pay and self-pay amounts as revenue with estimated uncollectible portions being recognized as bad debt expense. Upon further analysis, it was determined that because collectability of co-pay and self-pay amounts was not reasonably assured, the conditions for revenue recognition had not been met and revenue for those amounts should not have been recognized until collected. Adjustments to correct the foregoing reduce equally both the Company’s historical net sales and its sales and marketing expense by approximately $2.2 million, $9.0 million and $6.0 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. These adjustments have no effect on net income from continuing operations, net income or total assets in any period. Bad Debt Timing Adjustments In connection with the foregoing, the Company determined to review bad debt expense trends more broadly across all of its business units. As a result of this process, the Company determined that certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods in the Original Restatement in connection with the change to sell-through accounting for certain distributors. Because the Original Restatement transferred these transactions to sell-through accounting (as opposed to sell-in accounting, which had been used when the original bad debt reserves were recorded), the bad debt reserve was reversed as part of the Original Restatement, as the receivable that was being reserved for was no longer recognized. Adjustments to correct this error result in an increase of sales and marketing expense of $1.5 million and $1.1 million for the fiscal years ended December 31, 2013 and 2012 and a decrease of sales and marketing expense of $2.1 million for the fiscal year ended December 31, 2011. These adjustments resulted in no impact to the accounts receivable balance as of December 31, 2013 and an increase in accounts receivable by $1.5 million as of December 31, 2012. Accounts Receivable Reserve Adjustments As part of analyzing collections experience on accounts receivable, the Company identified that it had incorrectly considered certain deferred revenue amounts included in gross accounts receivable when calculating estimated reserves. Specifically, the computation of the contractual allowances and bad debt allowances, which serves to adjust accounts receivable to the estimated collectible amount, incorrectly assumed that some percentage of the deferred amounts would be collected, rather than fully deferring these amounts. Adjustments to correct this error resulted in a net decrease in operating income of $0.7 million and $0.2 million for the fiscal years ended December 31, 2013 and 2011, respectively, and a net increase in operating income of $2.1 million for the fiscal year ended December 31, 2012. This adjustment resulted in a decrease in accounts receivable, net (due to an increase in reserves) as of December 31, 2013 and 2012, by $4.2 million and $3.5 million, respectively. Intercompany Profit Adjustments The Company has two manufacturing facilities which support the inventory needs of other subsidiaries through intercompany sales transactions. These intercompany sales include a profit margin for the selling subsidiary (“intercompany profit”) that is eliminated by the Company as part of its consolidated financial reporting process. The elimination of intercompany profit requires determining the affected net inventory amounts and their related intercompany profit margin to eliminate all intercompany profit, resulting in all inventories being carried at historical cost in the Company’s consolidated financial statements. As described further above under “Original Restatement – Inventory Reserves,” as part of the Original Restatement the Company made certain corrections to prior period excess and obsolete inventory reserves. The effect of these corrections was not properly considered when determining the adjustments needed to eliminate intercompany profits from inventories in the Original Restatement. Adjustments to correct this error resulted in an increase to cost of sales of $1.1 million, $0.2 million and $0.3 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. This adjustment resulted in a decrease in inventory as of December 31, 2013 and 2012, by $2.6 million and $1.5 million, respectively. Inventory Inventory Existence As part of the remediation activities that followed the Original Restatement, the Company expanded its procedures in the second quarter of 2014 to validate the existence of field inventory held by independent sales representatives and noted that, in many cases, this inventory had higher rates of missing inventory (“shrinkage”) than previously estimated. To determine whether these higher error rates were pervasive across its field inventory, the Company counted approximately 90% of its field inventory during the third and fourth fiscal quarters of 2014. These counts resulted in the identification of errors relating to previous estimates of shrinkage. Adjustments in the Further Restatement to correct these errors, net of the related effect on previously recorded excess and obsolete inventory reserves, resulted in an increase to cost of sales of $0.4 million, $0.3 million and $0.2 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. These adjustments resulted in a decrease in inventory as of December 31, 2013 and 2012, by $1.0 million and $0.6 million, respectively. Inventory Reserves In connection with its remediation efforts associated with the material weakness noted in the Original Restatement related to inventory reserves the Company concluded that it was not appropriately calculating inventory reserves, including its consideration of demand assumptions for “kits”, which contain a variety of “piece part” components to be used during surgery that have various demand considerations, as well as inventory held by third parties under inventory purchase obligations. Adjustments to correct these errors resulted in an increase to cost of sales of $3.2 million, 1.5 million and $0.1 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. These adjustments resulted in a decrease to inventory (due to an increase in reserves) as of December 31, 2013 and 2012, by $14.4 million and $11.8 million, respectively. Other Adjustments In addition to the adjustments described above, the Company is correcting certain other items. Principally, these items consist of a decrease to income tax expense of $0.5 million and $1.1 million for the fiscal years ended December 31, 2013 and 2012, respectively, these adjustments are separate from the tax effect of the errors described above. The effect of the Further Restatement adjustments made to the Company’s previously filed consolidated statements of operations as a result of these matters are shown in the tables below. These adjustments also resulted in a decrease of total assets of $11.2 million as of December 31, 2013, resulting primarily from a decrease of $17.9 million to inventory and $4.8 million to trade accounts receivable, partially offset by an increase of $6.0 million in deferred income taxes. For further discussion of the effect of these entries on retained earnings, see the “Cumulative Adjustments to Shareholders’ Equity at January 1, 2011” table below. The tables below show the effects of the Original Restatement for each of the fiscal years ended December 31, 2012 and 2011, as well as the effects of the Further Restatement for each of the fiscal years ended December 31, 2013, 2012 and 2011. In each case, the tax effect of the adjustments is estimated based on the Company’s estimated tax rate.
|  | Year Ended December 31, 2013 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | Originally Reported |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 400,534 |  |  | $ | (2,242 | ) |  | $ | — |  |  | $ | (582 | ) |  | $ | — |  |  | $ | — |  |  | $ | (99 | ) |  | $ | (2,923 | ) |  | $ | 397,611 |
Cost of sales |  |  | 102,300 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,090 |  |  |  | 3,688 |  |  |  | (166 | ) |  |  | 4,612 |  |  |  | 106,912 |
Gross profit |  |  | 298,234 |  |  |  | (2,242 | ) |  |  | — |  |  |  | (582 | ) |  |  | (1,090 | ) |  |  | (3,688 | ) |  |  | 67 |  |  |  | (7,535 | ) |  |  | 290,699 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 176,581 |  |  |  | (2,242 | ) |  |  | 1,455 |  |  |  | 122 |  |  |  | — |  |  |  | — |  |  |  | (448 | ) |  |  | (1,113 | ) |  |  | 175,468 |
General and administrative |  |  | 65,147 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (317 | ) |  |  | (317 | ) |  |  | 64,830 |
Research and development |  |  | 26,768 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 26,768 |
Amortization of intangible assets |  |  | 2,687 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,687 |
Costs related to the accounting review and restatement |  |  | 12,945 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 12,945 |
Impairment of Goodwill |  |  | 19,193 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 19,193 |
|  |  | 303,321 |  |  |  | (2,242 | ) |  |  | 1,455 |  |  |  | 122 |  |  |  | — |  |  |  | — |  |  |  | (765 | ) |  |  | (1,430 | ) |  |  | 301,891 |
Operating (loss) income |  |  | (5,087 | ) |  |  | — |  |  |  | (1,455 | ) |  |  | (704 | ) |  |  | (1,090 | ) |  |  | (3,688 | ) |  |  | 832 |  |  |  | (6,105 | ) |  |  | (11,192 | )
Other income and (expense) |  |  | 295 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 294 |  |  |  | 294 |  |  |  | 589 |
Loss before income taxes |  |  | (4,792 | ) |  |  | — |  |  |  | (1,455 | ) |  |  | (704 | ) |  |  | (1,090 | ) |  |  | (3,688 | ) |  |  | 1,126 |  |  |  | (5,811 | ) |  |  | (10,603 | )
Income tax expense |  |  | (10,116 | ) |  |  | — |  |  |  | 509 |  |  |  | 246 |  |  |  | 381 |  |  |  | 1,290 |  |  |  | 88 |  |  |  | 2,514 |  |  |  | (7,602 | )
Net loss from continuing operations |  | $ | (14,908 | ) |  | $ | — |  |  | $ | (946 | ) |  | $ | (458 | ) |  | $ | (709 | ) |  | $ | (2,398 | ) |  | $ | 1,214 |  |  | $ | (3,297 | ) |  | $ | (18,205 | )
|  | Year Ended December 31, 2012 |
|  |  |  |  | Original Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Distributor Revenue |  |  | Inventory Reserves |  |  | Royalties |  |  | Other |  |  | Total Original Restatement Adjustments |  |  | As Originally Restated in 2012 Form 10-K/A |
Net sales |  | $ | 462,320 |  |  | $ | (14,777 | ) |  | $ | — |  |  | $ | — |  |  | $ | 38 |  |  | $ | (14,739 | ) |  | $ | 447,581 |
Cost of sales |  |  | 86,492 |  |  |  | (2,032 | ) |  |  | 5,647 |  |  |  | 8,190 |  |  |  | (44 | ) |  |  | 11,761 |  |  |  | 98,253 |
Gross profit |  |  | 375,828 |  |  |  | (12,745 | ) |  |  | (5,647 | ) |  |  | (8,190 | ) |  |  | 82 |  |  |  | (26,500 | ) |  |  | 349,328 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,343 |  |  |  | (6,629 | ) |  |  | — |  |  |  | (8,190 | ) |  |  | 1,607 |  |  |  | (13,212 | ) |  |  | 187,131 |
General and administrative |  |  | 53,827 |  |  |  | (2 | ) |  |  | — |  |  |  | — |  |  |  | (434 | ) |  |  | (436 | ) |  |  | 53,391 |
Research and development |  |  | 28,577 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28,577 |
Amortization of intangible assets |  |  | 2,098 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 200 |  |  |  | 200 |  |  |  | 2,298 |
Charges related to U.S. Government resolutions |  |  | 1,973 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (678 | ) |  |  | (678 | ) |  |  | 1,295 |
|  |  | 286,818 |  |  |  | (6,631 | ) |  |  | — |  |  |  | (8,190 | ) |  |  | 695 |  |  |  | (14,126 | ) |  |  | 272,692 |
Operating income |  |  | 89,010 |  |  |  | (6,114 | ) |  |  | (5,647 | ) |  |  | — |  |  |  | (613 | ) |  |  | (12,374 | ) |  |  | 76,636 |
Other income and (expense) |  |  | (6,282 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (166 | ) |  |  | (166 | ) |  |  | (6,448 | )
Income before income taxes |  |  | 82,728 |  |  |  | (6,114 | ) |  |  | (5,647 | ) |  |  | — |  |  |  | (779 | ) |  |  | (12,540 | ) |  |  | 70,188 |
Income tax expense |  |  | (28,792 | ) |  |  | 1,782 |  |  |  | 1,645 |  |  |  | — |  |  |  | 227 |  |  |  | 3,654 |  |  |  | (25,138 | )
Net income from continuing operations |  | $ | 53,936 |  |  | $ | (4,332 | ) |  | $ | (4,002 | ) |  | $ | — |  |  | $ | (552 | ) |  | $ | (8,886 | ) |  | $ | 45,050 |
|  | Year Ended December 31, 2012 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Originally Restated in 2012 Form 10-K/A |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 447,581 |  |  | $ | (9,049 | ) |  | $ | — |  |  | $ | 1,653 |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | (7,392 | ) |  | $ | 440,189 |
Cost of sales |  |  | 98,253 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 207 |  |  |  | 1,774 |  |  |  | 492 |  |  |  | 2,473 |  |  |  | 100,726 |
Gross profit |  |  | 349,328 |  |  |  | (9,049 | ) |  |  | — |  |  |  | 1,653 |  |  |  | (207 | ) |  |  | (1,774 | ) |  |  | (488 | ) |  | $ | (9,865 | ) |  |  | 339,463 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 187,131 |  |  |  | (9,049 | ) |  |  | 1,097 |  |  |  | (408 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  | $ | (8,360 | ) |  |  | 178,771 |
General and administrative |  |  | 53,391 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 259 |  |  |  | 259 |  |  |  | 53,650 |
Research and development |  |  | 28,577 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28,577 |
Amortization of intangible assets |  |  | 2,298 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,298 |
Charges related to U.S. Government resolutions |  |  | 1,295 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,295 |
|  |  | 272,692 |  |  |  | (9,049 | ) |  |  | 1,097 |  |  |  | (408 | ) |  |  | — |  |  |  | — |  |  |  | 259 |  |  |  | (8,101 | ) |  |  | 264,591 |
Operating income |  |  | 76,636 |  |  |  | — |  |  |  | (1,097 | ) |  |  | 2,061 |  |  |  | (207 | ) |  |  | (1,774 | ) |  |  | (747 | ) |  |  | (1,764 | ) |  |  | 74,872 |
Other income and (expense) |  |  | (6,448 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 641 |  |  |  | 641 |  |  | $ | (5,807 | )
Income before income taxes |  |  | 70,188 |  |  |  | — |  |  |  | (1,097 | ) |  |  | 2,061 |  |  |  | (207 | ) |  |  | (1,774 | ) |  |  | (106 | ) |  |  | (1,123 | ) |  |  | 69,065 |
Income tax expense |  |  | (25,138 | ) |  |  | — |  |  |  | 384 |  |  |  | (721 | ) |  |  | 72 |  |  |  | 621 |  |  |  | 838 |  |  |  | 1,194 |  |  | $ | (23,944 | )
Net income from continuing operations |  | $ | 45,050 |  |  | $ | — |  |  | $ | (713 | ) |  | $ | 1,340 |  |  | $ | (135 | ) |  | $ | (1,153 | ) |  | $ | 732 |  |  | $ | 71 |  |  | $ | 45,121 |
|  | Year Ended December 31, 2011 |
|  |  |  |  | Original Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Distributor Revenue |  |  | Inventory Reserves |  |  | Royalties |  |  | Other |  |  | Total Original Restatement Adjustments |  |  | As Originally Restated in 2012 Form 10-K/A |
Net sales |  | $ | 470,121 |  |  | $ | (29,135 | ) |  | $ | — |  |  | $ | — |  |  | $ | 985 |  |  | $ | (28,150 | ) |  | $ | 441,971 |
Cost of sales |  |  | 92,619 |  |  |  | (8,289 | ) |  |  | 3,377 |  |  |  | 7,713 |  |  |  | 107 |  |  |  | 2,908 |  |  |  | 95,527 |
Gross profit |  |  | 377,502 |  |  |  | (20,846 | ) |  |  | (3,377 | ) |  |  | (7,713 | ) |  |  | 878 |  |  |  | (31,058 | ) |  |  | 346,444 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,145 |  |  |  | (1,216 | ) |  |  | — |  |  |  | (7,713 | ) |  |  | 2,295 |  |  |  | (6,634 | ) |  |  | 193,511 |
General and administrative |  |  | 64,374 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 107 |  |  |  | 107 |  |  |  | 64,481 |
Research and development |  |  | 22,861 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 22,861 |
Amortization of intangible assets |  |  | 2,350 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 200 |  |  |  | 200 |  |  |  | 2,550 |
Charges related to U.S. Government resolutions |  |  | 56,463 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 678 |  |  |  | 678 |  |  |  | 57,141 |
|  |  | 346,193 |  |  |  | (1,216 | ) |  |  | — |  |  |  | (7,713 | ) |  |  | 3,280 |  |  |  | (5,649 | ) |  |  | 340,544 |
Operating income |  |  | 31,309 |  |  |  | (19,630 | ) |  |  | (3,377 | ) |  |  | — |  |  |  | (2,402 | ) |  |  | (25,409 | ) |  |  | 5,900 |
Other income and (expense) |  |  | (11,868 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,915 |  |  |  | 3,915 |  |  |  | (7,953 | )
Income (loss) before income taxes |  |  | 19,441 |  |  |  | (19,630 | ) |  |  | (3,377 | ) |  |  | — |  |  |  | 1,513 |  |  |  | (21,494 | ) |  |  | (2,053 | )
Income tax expense |  |  | (21,181 | ) |  |  | 6,408 |  |  |  | 1,102 |  |  |  | — |  |  |  | (494 | ) |  |  | 7,016 |  |  |  | (14,165 | )
Net loss from continuing operations |  | $ | (1,740 | ) |  | $ | (13,222 | ) |  | $ | (2,275 | ) |  | $ | — |  |  | $ | 1,019 |  |  | $ | (14,478 | ) |  | $ | (16,218 | )
|  | Year Ended December 31, 2011 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | As Originally Restated in 2012 Form 10-K/A |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 441,971 |  |  | $ | (5,960 | ) |  | $ | — |  |  | $ | (439 | ) |  | $ | — |  |  | $ | — |  |  | $ | (53 | ) |  | $ | (6,452 | ) |  | $ | 435,519 |
Cost of sales |  |  | 95,527 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 253 |  |  |  | 321 |  |  |  | 314 |  |  |  | 888 |  |  |  | 96,415 |
Gross profit |  |  | 346,444 |  |  |  | (5,960 | ) |  |  | — |  |  |  | (439 | ) |  |  | (253 | ) |  |  | (321 | ) |  |  | (367 | ) |  |  | (7,340 | ) |  |  | 339,104 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 193,511 |  |  |  | (5,960 | ) |  |  | (2,143 | ) |  |  | (252 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,355 | ) |  |  | 185,156 |
General and administrative |  |  | 64,481 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 304 |  |  |  | 304 |  |  |  | 64,785 |
Research and development |  |  | 22,861 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 22,861 |
Amortization of intangible assets |  |  | 2,550 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,550 |
Charges related to U.S. Government resolutions |  |  | 57,141 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 57,141 |
|  |  | 340,544 |  |  |  | (5,960 | ) |  |  | (2,143 | ) |  |  | (252 | ) |  |  | — |  |  |  | — |  |  |  | 304 |  |  |  | (8,051 | ) |  |  | 332,493 |
Operating income |  |  | 5,900 |  |  |  | — |  |  |  | 2,143 |  |  |  | (187 | ) |  |  | (253 | ) |  |  | (321 | ) |  |  | (671 | ) |  |  | 711 |  |  |  | 6,611 |
Other income and (expense) |  |  | (7,953 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (21 | ) |  |  | (21 | ) |  |  | (7,974 | )
Loss before income taxes |  |  | (2,053 | ) |  |  | — |  |  |  | 2,143 |  |  |  | (187 | ) |  |  | (253 | ) |  |  | (321 | ) |  |  | (692 | ) |  |  | 690 |  |  |  | (1,363 | )
Income tax expense |  |  | (14,165 | ) |  |  | — |  |  |  | (752 | ) |  |  | 66 |  |  |  | 89 |  |  |  | 113 |  |  |  | 206 |  |  |  | (278 | ) |  |  | (14,443 | )
Net loss from continuing operations |  | $ | (16,218 | ) |  | $ | — |  |  | $ | 1,391 |  |  | $ | (121 | ) |  | $ | (164 | ) |  | $ | (208 | ) |  | $ | (486 | ) |  | $ | 412 |  |  | $ | (15,806 | )
The effects of the Further Restatement on the Company’s consolidated balance sheet as of December 31, 2013 are as follows:
|  | As of December 31, 2013 |
(U.S. Dollars, in thousands except share and per share data) |  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 30,486 |  |  | $ | (1,562 | ) |  | $ | 28,924 |
Restricted cash |  |  | 23,761 |  |  |  | — |  |  |  | 23,761 |
Trade accounts receivable, less allowances of $9,111 |  |  | 75,567 |  |  |  | (4,756 | ) |  |  | 70,811 |
Inventories |  |  | 90,577 |  |  |  | (17,899 | ) |  |  | 72,678 |
Deferred income taxes |  |  | 33,947 |  |  |  | 6,052 |  |  |  | 39,999 |
Prepaid expenses and other current assets |  |  | 25,906 |  |  |  | 3,027 |  |  |  | 28,933 |
Total current assets |  |  | 280,244 |  |  |  | (15,138 | ) |  |  | 265,106 |
Property, plant and equipment, net |  |  | 54,606 |  |  |  | (234 | ) |  |  | 54,372 |
Patents and other intangible assets, net |  |  | 9,046 |  |  |  | — |  |  |  | 9,046 |
Goodwill |  |  | 53,565 |  |  |  | — |  |  |  | 53,565 |
Deferred income taxes |  |  | 18,336 |  |  |  | 4,058 |  |  |  | 22,394 |
Other long-term assets |  |  | 7,385 |  |  |  | 107 |  |  |  | 7,492 |
Total assets |  | $ | 423,182 |  |  | $ | (11,207 | ) |  | $ | 411,975 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts payable |  | $ | 20,674 |  |  | $ | — |  |  | $ | 20,674 |
Other current liabilities |  |  | 46,146 |  |  |  | 3,530 |  |  |  | 49,676 |
Total current liabilities |  |  | 66,820 |  |  |  | 3,530 |  |  |  | 70,350 |
Long-term debt |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |
Deferred income taxes |  |  | 13,132 |  |  |  | (106 | ) |  |  | 13,026 |
Other long-term liabilities |  |  | 12,736 |  |  |  | — |  |  |  | 12,736 |
Total liabilities |  |  | 112,688 |  |  |  | 3,424 |  |  |  | 116,112 |
Contingencies (Note 17) |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common shares $0.10 par value; 50,000,000 shares authorized; 18,102,335 issued and outstanding |  |  | 1,810 |  |  |  | — |  |  |  | 1,810 |
Additional paid-in capital |  |  | 216,653 |  |  |  | — |  |  |  | 216,653 |
Retained earnings |  |  | 89,332 |  |  |  | (15,435 | ) |  |  | 73,897 |
Accumulated other comprehensive income |  |  | 2,699 |  |  |  | 804 |  |  |  | 3,503 |
Total shareholders’ equity |  |  | 310,494 |  |  |  | (14,631 | ) |  |  | 295,863 |
Total liabilities and shareholders’ equity |  | $ | 423,182 |  |  | $ | (11,207 | ) |  | $ | 411,975 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated balance sheet as of December 31, 2012 are as follows:
|  | As of December 31, 2012 |
(U.S. Dollars, in thousands except share and per share data) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 31,055 |  |  | $ | — |  |  | $ | 31,055 |  |  | $ | (288 | ) |  | $ | 30,767 |
Restricted cash |  |  | 21,314 |  |  |  | — |  |  |  | 21,314 |  |  |  | — |  |  |  | 21,314 |
Trade accounts receivable, less allowances of $6,673 |  |  | 150,316 |  |  |  | (43,004 | ) |  |  | 107,312 |  |  |  | (3,510 | ) |  |  | 103,802 |
Inventories |  |  | 88,744 |  |  |  | (5,371 | ) |  |  | 83,373 |  |  |  | (13,560 | ) |  |  | 69,813 |
Deferred income taxes |  |  | 16,959 |  |  |  | 16,491 |  |  |  | 33,450 |  |  |  | 5,037 |  |  |  | 38,487 |
Prepaid expenses and other current assets |  |  | 32,056 |  |  |  | 2,023 |  |  |  | 34,079 |  |  |  | 2,370 |  |  |  | 36,449 |
Total current assets |  |  | 340,444 |  |  |  | (29,861 | ) |  |  | 310,583 |  |  |  | (9,951 | ) |  |  | 300,632 |
Property, plant and equipment, net |  |  | 51,362 |  |  |  | 2,473 |  |  |  | 53,835 |  |  |  | (1,042 | ) |  |  | 52,793 |
Patents and other intangible assets, net |  |  | 6,880 |  |  |  | 410 |  |  |  | 7,290 |  |  |  | — |  |  |  | 7,290 |
Goodwill |  |  | 74,388 |  |  |  | — |  |  |  | 74,388 |  |  |  | — |  |  |  | 74,388 |
Deferred income taxes |  |  | 19,904 |  |  |  | (1,023 | ) |  |  | 18,881 |  |  |  | 2,642 |  |  |  | 21,523 |
Other long-term assets |  |  | 11,303 |  |  |  | (3,383 | ) |  |  | 7,920 |  |  |  | — |  |  |  | 7,920 |
Total assets |  | $ | 504,281 |  |  | $ | (31,384 | ) |  | $ | 472,897 |  |  | $ | (8,351 | ) |  | $ | 464,546 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Bank borrowings |  | $ | 16 |  |  | $ | — |  |  | $ | 16 |  |  | $ | — |  |  | $ | 16 |
Trade accounts payable |  |  | 21,812 |  |  |  | 763 |  |  |  | 22,575 |  |  |  | — |  |  |  | 22,575 |
Other current liabilities |  |  | 46,969 |  |  |  | (7,375 | ) |  |  | 39,594 |  |  |  | 3,148 |  |  |  | 42,742 |
Total current liabilities |  |  | 68,797 |  |  |  | (6,612 | ) |  |  | 62,185 |  |  |  | 3,148 |  |  |  | 65,333 |
Long-term debt |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |
Deferred income taxes |  |  | 11,456 |  |  |  | — |  |  |  | 11,456 |  |  |  | (106 | ) |  |  | 11,350 |
Other long-term liabilities |  |  | 4,930 |  |  |  | 6,494 |  |  |  | 11,424 |  |  |  | — |  |  |  | 11,424 |
Total liabilities |  |  | 105,183 |  |  |  | (118 | ) |  |  | 105,065 |  |  |  | 3,042 |  |  |  | 108,107 |
Contingencies (Note 17) |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common shares $0.10 par value; 50,000,000 shares authorized; 19,339,329 issued and outstanding |  |  | 1,934 |  |  |  | — |  |  |  | 1,934 |  |  |  | — |  |  |  | 1,934 |
Additional paid-in capital |  |  | 246,111 |  |  |  | 195 |  |  |  | 246,306 |  |  |  | — |  |  |  | 246,306 |
Retained earnings |  |  | 148,549 |  |  |  | (33,702 | ) |  |  | 114,847 |  |  |  | (12,138 | ) |  |  | 102,709 |
Accumulated other comprehensive income |  |  | 2,504 |  |  |  | 2,241 |  |  |  | 4,745 |  |  |  | 745 |  |  |  | 5,490 |
Total shareholders’ equity |  |  | 399,098 |  |  |  | (31,266 | ) |  |  | 367,832 |  |  |  | (11,393 | ) |  |  | 356,439 |
Total liabilities and shareholders’ equity |  | $ | 504,281 |  |  | $ | (31,384 | ) |  | $ | 472,897 |  |  | $ | (8,351 | ) |  | $ | 464,546 |
The effects of the Further Restatement on the Company’s consolidated statement of operations and comprehensive income for the year ended December 31, 2013 are as follows:
|  | Year Ended December 31, 2013 |
(U.S. Dollars, in thousands, except share and per share data) |  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 352,796 |  |  | $ | (3,244 | ) |  | $ | 349,552 |
Marketing service fees |  |  | 47,738 |  |  |  | 321 |  |  |  | 48,059 |
Net sales |  |  | 400,534 |  |  |  | (2,923 | ) |  |  | 397,611 |
Cost of sales |  |  | 102,300 |  |  |  | 4,612 |  |  |  | 106,912 |
Gross profit |  |  | 298,234 |  |  |  | (7,535 | ) |  |  | 290,699 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 176,581 |  |  |  | (1,113 | ) |  |  | 175,468 |
General and administrative |  |  | 65,147 |  |  |  | (317 | ) |  |  | 64,830 |
Research and development |  |  | 26,768 |  |  |  | — |  |  |  | 26,768 |
Amortization of intangible assets |  |  | 2,687 |  |  |  | — |  |  |  | 2,687 |
Costs related to the accounting review and restatement |  |  | 12,945 |  |  |  | — |  |  |  | 12,945 |
Impairment of Goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
|  |  | 303,321 |  |  |  | (1,430 | ) |  |  | 301,891 |
Operating loss |  |  | (5,087 | ) |  |  | (6,105 | ) |  |  | (11,192 | )
Other income and (expense) |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (1,925 | ) |  |  | 98 |  |  |  | (1,827 | )
Other expense |  |  | 2,220 |  |  |  | 196 |  |  |  | 2,416 |
|  |  | 295 |  |  |  | 294 |  |  |  | 589 |
Loss before income taxes |  |  | (4,792 | ) |  |  | (5,811 | ) |  |  | (10,603 | )
Income tax expense |  |  | (10,116 | ) |  |  | 2,514 |  |  |  | (7,602 | )
Net loss from continuing operations |  |  | (14,908 | ) |  |  | (3,297 | ) |  |  | (18,205 | )
Discontinued operations (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Loss from discontinued operations |  |  | (15,510 | ) |  |  | — |  |  |  | (15,510 | )
Income tax benefit (expense) |  |  | 4,903 |  |  |  | — |  |  |  | 4,903 |
Net loss from discontinued operations |  |  | (10,607 | ) |  |  | — |  |  |  | (10,607 | )
Net loss |  | $ | (25,515 | ) |  | $ | (3,297 | ) |  | $ | (28,812 | )
Net loss per common share—basic: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.80 | ) |  | $ | (0.17 | ) |  | $ | (0.97 | )
Net loss from discontinued operations |  |  | (0.57 | ) |  |  | — |  |  |  | (0.57 | )
Net loss per common share—basic |  | $ | (1.37 | ) |  | $ | (0.17 | ) |  | $ | (1.54 | )
Net loss per common share—diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.80 | ) |  | $ | (0.17 | ) |  | $ | (0.97 | )
Net loss from discontinued operations |  |  | (0.57 | ) |  |  | — |  |  |  | (0.57 | )
Net loss per common share—diluted |  | $ | (1.37 | ) |  | $ | (0.17 | ) |  | $ | (1.54 | )
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,697,228 |  |  |  | — |  |  |  | 18,697,228 |
Diluted |  |  | 18,697,228 |  |  |  | — |  |  |  | 18,697,228 |
Other comprehensive loss, before tax: |  |  |  |  |  |  |  |  |  |  |  |
Translation adjustment |  | $ | (1,768 | ) |  | $ | 60 |  |  | $ | (1,708 | )
Unrealized gain on derivative instrument |  |  | (442 | ) |  |  | (1 | ) |  |  | (443 | )
Other comprehensive loss, before tax |  |  | (2,210 | ) |  |  | 59 |  |  |  | (2,151 | )
Income tax expense related to components of other comprehensive income |  |  | 164 |  |  |  | — |  |  |  | 164 |
Other comprehensive loss, net of tax |  |  | (2,046 | ) |  |  | 59 |  |  |  | (1,987 | )
Comprehensive loss |  | $ | (27,561 | ) |  | $ | (3,238 | ) |  | $ | (30,799 | )
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of operations and comprehensive income for the year ended December 31, 2012 are as follows:
|  | Year Ended December 31, 2012 |
(U.S. Dollars, in thousands, except share and per share data) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 415,850 |  |  | $ | (14,811 | ) |  | $ | 401,039 |  |  | $ | (7,392 | ) |  | $ | 393,647 |
Marketing service fees |  |  | 46,470 |  |  |  | 72 |  |  |  | 46,542 |  |  |  | — |  |  |  | 46,542 |
Net sales |  |  | 462,320 |  |  |  | (14,739 | ) |  |  | 447,581 |  |  |  | (7,392 | ) |  |  | 440,189 |
Cost of sales |  |  | 86,492 |  |  |  | 11,761 |  |  |  | 98,253 |  |  |  | 2,473 |  |  |  | 100,726 |
Gross profit |  |  | 375,828 |  |  |  | (26,500 | ) |  |  | 349,328 |  |  |  | (9,865 | ) |  |  | 339,463 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,343 |  |  |  | (13,212 | ) |  |  | 187,131 |  |  |  | (8,360 | ) |  |  | 178,771 |
General and administrative |  |  | 53,827 |  |  |  | (436 | ) |  |  | 53,391 |  |  |  | 259 |  |  |  | 53,650 |
Research and development |  |  | 28,577 |  |  |  | — |  |  |  | 28,577 |  |  |  | — |  |  |  | 28,577 |
Amortization of intangible assets |  |  | 2,098 |  |  |  | 200 |  |  |  | 2,298 |  |  |  | — |  |  |  | 2,298 |
Charges related to U.S. Government resolutions (Note 17) |  |  | 1,973 |  |  |  | (678 | ) |  |  | 1,295 |  |  |  | — |  |  |  | 1,295 |
|  |  | 286,818 |  |  |  | (14,126 | ) |  |  | 272,692 |  |  |  | (8,101 | ) |  |  | 264,591 |
Operating income |  |  | 89,010 |  |  |  | (12,374 | ) |  |  | 76,636 |  |  |  | (1,764 | ) |  |  | 74,872 |
Other income and (expense) |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (4,577 | ) |  |  | (166 | ) |  |  | (4,743 | ) |  |  | 582 |  |  |  | (4,161 | )
Other expense |  |  | (1,705 | ) |  |  | — |  |  |  | (1,705 | ) |  |  | 59 |  |  |  | (1,646 | )
|  |  | (6,282 | ) |  |  | (166 | ) |  |  | (6,448 | ) |  |  | 641 |  |  |  | (5,807 | )
Income before income taxes |  |  | 82,728 |  |  |  | (12,540 | ) |  |  | 70,188 |  |  |  | (1,123 | ) |  |  | 69,065 |
Income tax expense |  |  | (28,792 | ) |  |  | 3,654 |  |  |  | (25,138 | ) |  |  | 1,194 |  |  |  | (23,944 | )
Net income from continuing operations |  |  | 53,936 |  |  |  | (8,886 | ) |  |  | 45,050 |  |  |  | 71 |  |  |  | 45,121 |
Discontinued operations (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Gain on sale of Breg, Inc., |  |  | 1,345 |  |  |  | — |  |  |  | 1,345 |  |  |  | — |  |  |  | 1,345 |
Loss from discontinued operations |  |  | (4,012 | ) |  |  | 1,018 |  |  |  | (2,994 | ) |  |  | (500 | ) |  |  | (3,494 | )
Income tax benefit (expense) |  |  | 26 |  |  |  | (589 | ) |  |  | (563 | ) |  |  | 443 |  |  |  | (120 | )
Net loss from discontinued operations |  |  | (2,641 | ) |  |  | 429 |  |  |  | (2,212 | ) |  |  | (57 | ) |  |  | (2,269 | )
Net income |  | $ | 51,295 |  |  | $ | (8,457 | ) |  | $ | 42,838 |  |  | $ | 14 |  |  | $ | 42,852 |
Net income (loss) per common share—basic: |  |  |  |  |  |  |  |  |  |  |  |
Net income from continuing operations |  | $ | 2.84 |  |  | $ | (0.47 | ) |  | $ | 2.37 |  |  | $ | 0.01 |  |  | $ | 2.38 |
Net loss from discontinued operations |  |  | (0.14 | ) |  |  | 0.02 |  |  |  | (0.12 | ) |  |  | — |  |  |  | (0.12 | )
Net income per common share—basic |  | $ | 2.70 |  |  | $ | (0.45 | ) |  | $ | 2.25 |  |  | $ | 0.02 |  |  | $ | 2.26 |
Net income (loss) per common share—diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net income from continuing operations |  | $ | 2.78 |  |  | $ | (0.46 | ) |  | $ | 2.32 |  |  | $ | 0.01 |  |  | $ | 2.33 |
Net loss from discontinued operations |  |  | (0.14 | ) |  |  | 0.03 |  |  |  | (0.11 | ) |  |  | (0.01 | ) |  |  | (0.12 | )
Net income per common share—diluted: |  | $ | 2.64 |  |  | $ | (0.43 | ) |  | $ | 2.21 |  |  | $ | 0.00 |  |  | $ | 2.21 |
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,977,263 |  |  |  | — |  |  |  | 18,977,263 |  |  |  | — |  |  |  | 18,977,263 |
Diluted |  |  | 19,390,413 |  |  |  | — |  |  |  | 19,390,413 |  |  |  | — |  |  |  | 19,390,413 |
Other comprehensive income, before tax: |  |  |  |  |  |  |  |  |  |  |  |
Translation adjustment |  | $ | 480 |  |  | $ | 288 |  |  | $ | 768 |  |  | $ | 363 |  |  | $ | 1,131 |
Unrealized gain on derivative instrument |  |  | 416 |  |  |  | — |  |  |  | 416 |  |  |  | — |  |  |  | 416 |
Other comprehensive income, before tax |  |  | 896 |  |  |  | 288 |  |  |  | 1,184 |  |  |  | 363 |  |  |  | 1,547 |
Income tax expense related to components of other comprehensive income |  |  | (153 | ) |  |  | — |  |  |  | (153 | ) |  |  | — |  |  |  | (153 | )
Other comprehensive income, net of tax |  |  | 743 |  |  |  | 288 |  |  |  | 1,031 |  |  |  | 363 |  |  |  | 1,394 |
Comprehensive income |  | $ | 52,038 |  |  | $ | (8,169 | ) |  | $ | 43,869 |  |  | $ | 377 |  |  | $ | 44,246 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2011 are as follows:
|  | Year Ended December 31, 2011 |
(U.S. Dollars, in thousands, except share and per share data) |  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 432,975 |  |  | $ | (27,828 | ) |  | $ | 405,147 |  |  |  | (6,452 | ) |  | $ | 398,695 |
Marketing service fees |  |  | 37,146 |  |  |  | (322 | ) |  |  | 36,824 |  |  |  | — |  |  |  | 36,824 |
Net sales |  |  | 470,121 |  |  |  | (28,150 | ) |  |  | 441,971 |  |  |  | (6,452 | ) |  |  | 435,519 |
Cost of sales |  |  | 92,619 |  |  |  | 2,908 |  |  |  | 95,527 |  |  |  | 888 |  |  |  | 96,415 |
Gross profit |  |  | 377,502 |  |  |  | (31,058 | ) |  |  | 346,444 |  |  |  | (7,340 | ) |  |  | 339,104 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 200,145 |  |  |  | (6,634 | ) |  |  | 193,511 |  |  |  | (8,355 | ) |  |  | 185,156 |
General and administrative |  |  | 64,374 |  |  |  | 107 |  |  |  | 64,481 |  |  |  | 304 |  |  |  | 64,785 |
Research and development |  |  | 22,861 |  |  |  | — |  |  |  | 22,861 |  |  |  | — |  |  |  | 22,861 |
Amortization of intangible assets |  |  | 2,350 |  |  |  | 200 |  |  |  | 2,550 |  |  |  | — |  |  |  | 2,550 |
Charges related to U.S. Government resolutions (Note 17) |  |  | 56,463 |  |  |  | 678 |  |  |  | 57,141 |  |  |  | — |  |  |  | 57,141 |
|  |  | 346,193 |  |  |  | (5,649 | ) |  |  | 340,544 |  |  |  | (8,051 | ) |  |  | 332,493 |
Operating income |  |  | 31,309 |  |  |  | (25,409 | ) |  |  | 5,900 |  |  |  | 711 |  |  |  | 6,611 |
Other income and (expense) |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (9,456 | ) |  |  | 3,915 |  |  |  | (5,541 | ) |  |  | 100 |  |  |  | (5,441 | )
Other expense |  |  | (2,412 | ) |  |  | — |  |  |  | (2,412 | ) |  |  | (121 | ) |  |  | (2,533 | )
|  |  | (11,868 | ) |  |  | 3,915 |  |  |  | (7,953 | ) |  |  | (21 | ) |  |  | (7,974 | )
Income (loss) before income taxes |  |  | 19,441 |  |  |  | (21,494 | ) |  |  | (2,053 | ) |  |  | 690 |  |  |  | (1,363 | )
Income tax expense |  |  | (21,181 | ) |  |  | 7,016 |  |  |  | (14,165 | ) |  |  | (278 | ) |  |  | (14,443 | )
Net loss from continuing operations |  |  | (1,740 | ) |  |  | (14,478 | ) |  |  | (16,218 | ) |  |  | 412 |  |  |  | (15,806 | )
Discontinued operations (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) from discontinued operations |  |  | 1,263 |  |  |  | (3,968 | ) |  |  | (2,705 | ) |  |  | — |  |  |  | (2,705 | )
Income tax (expense) benefit |  |  | (596 | ) |  |  | 1,409 |  |  |  | 813 |  |  |  | — |  |  |  | 813 |
Net income (loss) from discontinued operations |  |  | 667 |  |  |  | (2,559 | ) |  |  | (1,892 | ) |  |  | — |  |  |  | (1,892 | )
Net loss |  | $ | (1,073 | ) |  | $ | (17,037 | ) |  | $ | (18,110 | ) |  |  | 412 |  |  | $ | (17,698 | )
Net (loss) income per common share—basic: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.10 | ) |  | $ | (0.79 | ) |  | $ | (0.89 | ) |  | $ | 0.02 |  |  | $ | (0.87 | )
Net income (loss) from discontinued operations |  |  | 0.04 |  |  |  | (0.14 | ) |  |  | (0.10 | ) |  |  | — |  |  |  | (0.10 | )
Net loss per common share—basic |  | $ | (0.06 | ) |  | $ | (0.93 | ) |  | $ | (0.99 | ) |  | $ | 0.02 |  |  | $ | (0.97 | )
Net (loss) income per common share—diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.10 | ) |  | $ | (0.79 | ) |  | $ | (0.89 | ) |  | $ | 0.02 |  |  | $ | (0.87 | )
Net income (loss) from discontinued operations |  |  | 0.04 |  |  |  | (0.14 | ) |  |  | (0.10 | ) |  |  | — |  |  |  | (0.10 | )
Net loss per common share—diluted: |  | $ | (0.06 | ) |  | $ | (0.93 | ) |  | $ | (0.99 | ) |  | $ | 0.02 |  |  | $ | (0.97 | )
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |
Diluted |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |  |  |  | — |  |  |  | 18,219,343 |
Other comprehensive loss, before tax: |  |  |  |  |  |  |  |  |  |  |  |
Translation adjustment |  | $ | (3,192 | ) |  | $ | 913 |  |  | $ | (2,279 | ) |  | $ | 382 |  |  | $ | (1,897 | )
Unrealized loss on derivative instrument |  |  | (693 | ) |  |  | — |  |  |  | (693 | ) |  |  | — |  |  |  | (693 | )
Other comprehensive loss, before tax |  |  | (3,885 | ) |  |  | 913 |  |  |  | (2,972 | ) |  |  | 382 |  |  |  | (2,590 | )
Income tax benefit related to components of other comprehensive income |  |  | 256 |  |  |  | — |  |  |  | 256 |  |  |  | — |  |  |  | 256 |
Other comprehensive loss, net of tax |  |  | (3,629 | ) |  |  | 913 |  |  |  | (2,716 | ) |  |  | 382 |  |  |  | (2,334 | )
Comprehensive loss |  | $ | (4,702 | ) |  | $ | (16,124 | ) |  | $ | (20,826 | ) |  |  | 794 |  |  | $ | (20,032 | )
The effects of Further Restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2013 are as follows:
(U.S. Dollars, in thousands) |  | Year Ended December 31, 2013 |
|  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (25,515 | ) |  | $ | (3,297 | ) |  | $ | (28,812 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 22,659 |  |  |  | 163 |  |  |  | 22,822 |
Amortization of debt costs |  |  | 720 |  |  |  | — |  |  |  | 720 |
Amortization of exclusivity agreements |  |  | 1,546 |  |  |  | — |  |  |  | 1,546 |
Provision for doubtful accounts |  |  | 6,003 |  |  |  | (1,413 | ) |  |  | 4,590 |
Deferred income taxes |  |  | (1,986 | ) |  |  | 4,815 |  |  |  | 2,829 |
Share-based compensation |  |  | 6,267 |  |  |  | — |  |  |  | 6,267 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
Gain on sale of Breg, Inc., net of tax |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | (82 | ) |  |  | — |  |  |  | (82 | )
Income tax benefit (expense) on employee stock-based awards |  |  | 795 |  |  |  | (795 | ) |  |  | — |
Other |  |  | 4,442 |  |  |  | 94 |  |  |  | 4,536 |
Changes in operating assets and liabilities, net of effect of dispositions: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | 25,747 |  |  |  | 2,815 |  |  |  | 28,562 |
Inventories |  |  | (6,626 | ) |  |  | 3,413 |  |  |  | (3,213 | )
Escrow receivable |  |  | — |  |  |  | — |  |  |  | — |
Prepaid expenses and other current assets |  |  | 6,791 |  |  |  | 1,973 |  |  |  | 8,764 |
Trade accounts payable |  |  | (2,280 | ) |  |  | — |  |  |  | (2,280 | )
Charges related to U.S. Government resolutions |  |  | — |  |  |  | — |  |  |  | — |
Other current liabilities |  |  | 8,018 |  |  |  | (1,049 | ) |  |  | 6,969 |
Other long-term assets |  |  | 2,750 |  |  |  | (8,079 | ) |  |  | (5,329 | )
Other long-term liabilities |  |  | (1,561 | ) |  |  | 1,521 |  |  |  | (40 | )
Net cash provided by operating activities |  |  | 66,881 |  |  |  | 161 |  |  |  | 67,042 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (24,787 | ) |  |  | — |  |  |  | (24,787 | )
Capital expenditures for intangible assets |  |  | (4,891 | ) |  |  | — |  |  |  | (4,891 | )
Purchase of other investments |  |  | — |  |  |  | (1,374 | ) |  |  | (1,374 | )
Net proceeds from sale of Breg, Inc. |  |  | — |  |  |  | — |  |  |  | — |
Net cash (used in) provided by investing activities |  |  | (29,678 | ) |  |  | (1,374 | ) |  |  | (31,052 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 3,450 |  |  |  | — |  |  |  | 3,450 |
Payment of refinancing fees and debt issuance costs |  |  | — |  |  |  | — |  |  |  | — |
Repayments of long-term debt |  |  | (16 | ) |  |  | — |  |  |  | (16 | )
Repayment of bank borrowings, net |  |  | — |  |  |  | — |  |  |  | — |
Changes in restricted cash |  |  | (2,375 | ) |  |  | — |  |  |  | (2,375 | )
Purchase of common stock |  |  | (39,494 | ) |  |  | — |  |  |  | (39,494 | )
Cash payment for purchase of minority interest in subsidiary |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | 82 |  |  |  | — |  |  |  | 82 |
Net cash used in financing activities |  |  | (38,353 | ) |  |  | — |  |  |  | (38,353 | )
Effect of exchange rate changes on cash |  |  | 581 |  |  |  | (61 | ) |  |  | 520 |
Net (decrease) increase in cash and cash equivalents |  |  | (569 | ) |  |  | (1,274 | ) |  |  | (1,843 | )
Cash and cash equivalents at the beginning of the year |  |  | 31,055 |  |  |  | (288 | ) |  |  | 30,767 |
Cash and cash equivalents at the end of the year |  | $ | 30,486 |  |  | $ | (1,562 | ) |  | $ | 28,924 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 2,046 |  |  | $ | — |  |  | $ | 2,046 |
Income taxes |  | $ | 8,773 |  |  | $ | — |  |  | $ | 8,773 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2012 are as follows:
(U.S. Dollars, in thousands) |  | Year Ended December 31, 2012 |
|  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 51,295 |  |  | $ | (8,457 | ) |  | $ | 42,838 |  |  | $ | 14 |  |  | $ | 42,852 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 20,261 |  |  |  | 319 |  |  |  | 20,580 |  |  |  | 152 |  |  |  | 20,732 |
Amortization of debt costs |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |
Amortization of exclusivity agreements |  |  | 1,289 |  |  |  | — |  |  |  | 1,289 |  |  |  | — |  |  |  | 1,289 |
Provision for doubtful accounts |  |  | 13,302 |  |  |  | (2,730 | ) |  |  | 10,572 |  |  |  | (8,360 | ) |  |  | 2,212 |
Deferred income taxes |  |  | 871 |  |  |  | (2,123 | ) |  |  | (1,252 | ) |  |  | 5,023 |  |  |  | 3,771 |
Share-based compensation |  |  | 6,303 |  |  |  | — |  |  |  | 6,303 |  |  |  | — |  |  |  | 6,303 |
Impairment of goodwill |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Gain on sale of Breg, Inc, net of tax |  |  | (1,345 | ) |  |  | — |  |  |  | (1,345 | ) |  |  | — |  |  |  | (1,345 | )
Excess income tax benefit on employee stock-based awards |  |  | — |  |  |  | (1,020 | ) |  |  | (1,020 | ) |  |  | — |  |  |  | (1,020 | )
Income tax benefit on employee-stock-based awards |  |  | — |  |  |  | 2,910 |  |  |  | 2,910 |  |  |  | (2,910 | ) |  |  | — |
Other |  |  | 2,125 |  |  |  | 2,011 |  |  |  | 4,136 |  |  |  | 662 |  |  |  | 4,798 |
Changes in operating assets and liabilities, net of effect of dispositions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | (31,600 | ) |  |  | 13,162 |  |  |  | (18,438 | ) |  |  | 7,310 |  |  |  | (11,128 | )
Inventories |  |  | (6,341 | ) |  |  | 3,846 |  |  |  | (2,495 | ) |  |  | 2,111 |  |  |  | (384 | )
Escrow receivable |  |  | 41,537 |  |  |  | — |  |  |  | 41,537 |  |  |  | — |  |  |  | 41,537 |
Prepaid expenses and other current assets |  |  | (6,191 | ) |  |  | (9,386 | ) |  |  | (15,577 | ) |  |  | 1,002 |  |  |  | (14,575 | )
Trade accounts payable |  |  | 5,554 |  |  |  | (979 | ) |  |  | 4,575 |  |  |  | — |  |  |  | 4,575 |
Charges related to U.S. Government resolutions |  |  | (82,500 | ) |  |  | (678 | ) |  |  | (83,178 | ) |  |  | — |  |  |  | (83,178 | )
Other current liabilities |  |  | (2,842 | ) |  |  | (2,887 | ) |  |  | (5,729 | ) |  |  | 490 |  |  |  | (5,239 | )
Other long-term assets |  |  | (2,114 | ) |  |  | 4,241 |  |  |  | 2,127 |  |  |  | (5,518 | ) |  |  | (3,391 | )
Other long-term liabilities |  |  | (135 | ) |  |  | 751 |  |  |  | 616 |  |  |  | — |  |  |  | 616 |
Net cash provided by operating activities |  |  | 11,206 |  |  |  | (1,020 | ) |  |  | 10,186 |  |  |  | (24 | ) |  |  | 10,162 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (27,994 | ) |  |  | — |  |  |  | (27,994 | ) |  |  | — |  |  |  | (27,994 | )
Capital expenditures for intangible assets |  |  | (780 | ) |  |  | — |  |  |  | (780 | ) |  |  | — |  |  |  | (780 | )
Purchase of other investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (714 | ) |  |  | (714 | )
Proceeds from sale of other investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 878 |  |  |  | 878 |
Net proceeds from sale of Breg Inc. |  |  | 153,773 |  |  |  | — |  |  |  | 153,773 |  |  |  | — |  |  |  | 153,773 |
Net cash provided by (used in) investing activities |  |  | 124,999 |  |  |  | — |  |  |  | 124,999 |  |  |  | 164 |  |  |  | 125,163 |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 25,586 |  |  |  | — |  |  |  | 25,586 |  |  |  | — |  |  |  | 25,586 |
Payment of refinancing fees and debt issuance costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Repayments of long-term debt |  |  | (188,695 | ) |  |  | — |  |  |  | (188,695 | ) |  |  | — |  |  |  | (188,695 | )
Proceeds of bank borrowings, net |  |  | (1,297 | ) |  |  | — |  |  |  | (1,297 | ) |  |  | — |  |  |  | (1,297 | )
Changes in restricted cash |  |  | 25,799 |  |  |  | — |  |  |  | 25,799 |  |  |  | — |  |  |  | 25,799 |
Cash payment for purchase of minority interest in subsidiary |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | — |  |  |  | 1,020 |  |  |  | 1,020 |  |  |  | — |  |  |  | 1,020 |
Net cash used in financing activities |  |  | (138,607 | ) |  |  | 1,020 |  |  |  | (137,587 | ) |  |  | — |  |  |  | (137,587 | )
Effect of exchange rates changes on cash |  |  | 250 |  |  |  | — |  |  |  | 250 |  |  |  | 36 |  |  |  | 286 |
Net increase (decrease) in cash and cash equivalents |  |  | (2,152 | ) |  |  | — |  |  |  | (2,152 | ) |  |  | 176 |  |  |  | (1,976 | )
Cash and cash equivalents at the beginning of the year |  |  | 33,207 |  |  |  | — |  |  |  | 33,207 |  |  |  | (464 | ) |  |  | 32,743 |
Cash and cash equivalents at the end of the year |  | $ | 31,055 |  |  | $ | — |  |  | $ | 31,055 |  |  | $ | (288 | ) |  | $ | 30,767 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 4,569 |  |  | $ | — |  |  | $ | 4,569 |  |  | $ | — |  |  | $ | 4,569 |
Income taxes |  | $ | 18,268 |  |  | $ | — |  |  | $ | 18,268 |  |  | $ | — |  |  | $ | 18,268 |
The effects of the Original Restatement and the Further Restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2011 are as follows:
(U.S. Dollars, in thousands) |  | Year Ended December 31, 2011 |
|  | As Reported in the 2012 Form 10-K Prior to Original Restatement |  |  | Original Restatement Adjustments |  |  | As Originally Restated in the 2012 Form 10-K/A |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (1,073 | ) |  | $ | (17,037 | ) |  | $ | (18,110 | ) |  | $ | 412 |  |  | $ | (17,698 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 22,776 |  |  |  | 241 |  |  |  | 23,017 |  |  |  | 165 |  |  |  | 23,182 |
Amortization of debt costs |  |  | 1,239 |  |  |  | — |  |  |  | 1,239 |  |  |  | — |  |  |  | 1,239 |
Amortization of exclusivity agreements |  |  | 374 |  |  |  | — |  |  |  | 374 |  |  |  | — |  |  |  | 374 |
Provision for doubtful accounts |  |  | 11,532 |  |  |  | 1,404 |  |  |  | 12,936 |  |  |  | (8,356 | ) |  |  | 4,580 |
Deferred income taxes |  |  | 936 |  |  |  | (988 | ) |  |  | (52 | ) |  |  | (13,889 | ) |  |  | (13,941 | )
Share-based compensation |  |  | 6,648 |  |  |  | — |  |  |  | 6,648 |  |  |  | — |  |  |  | 6,648 |
Impairment of goodwill |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Gain on sale of Breg, Inc, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Excess income tax benefit on employee stock-based awards |  |  | (1,737 | ) |  |  | — |  |  |  | (1,737 | ) |  |  | — |  |  |  | (1,737 | )
Income tax benefit on employee-stock-based awards |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other |  |  | 4,906 |  |  |  | (415 | ) |  |  | 4,491 |  |  |  | (4,833 | ) |  |  | (342 | )
Changes in operating assets and liabilities, net of effect of dispositions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | (25,818 | ) |  |  | 26,111 |  |  |  | 293 |  |  |  | 6,352 |  |  |  | 6,645 |
Inventories |  |  | (8,349 | ) |  |  | (4,275 | ) |  |  | (12,624 | ) |  |  | (81 | ) |  |  | (12,705 | )
Escrow receivable |  |  | (32,562 | ) |  |  | — |  |  |  | (32,562 | ) |  |  | — |  |  |  | (32,562 | )
Prepaid expenses and other current assets |  |  | (4,057 | ) |  |  | 6,886 |  |  |  | 2,829 |  |  |  | (447 | ) |  |  | 2,382 |
Trade accounts payable |  |  | 576 |  |  |  | 1,746 |  |  |  | 2,322 |  |  |  | — |  |  |  | 2,322 |
Charges related to U.S. Government resolutions |  |  | 88,463 |  |  |  | 638 |  |  |  | 89,101 |  |  |  | — |  |  |  | 89,101 |
Other current liabilities |  |  | 3,384 |  |  |  | (1,965 | ) |  |  | 1,419 |  |  |  | 2,097 |  |  |  | 3,516 |
Other long-term assets |  |  | (1,588 | ) |  |  | (16,093 | ) |  |  | (17,681 | ) |  |  | 15,364 |  |  |  | (2,317 | )
Other long-term liabilities |  |  | (869 | ) |  |  | 3,747 |  |  |  | 2,878 |  |  |  | 525 |  |  |  | 3,403 |
Net cash provided by operating activities |  |  | 64,781 |  |  |  | — |  |  |  | 64,781 |  |  |  | (51 | ) |  |  | 64,730 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (24,965 | ) |  |  | — |  |  |  | (24,965 | ) |  |  | — |  |  |  | (24,965 | )
Capital expenditures for intangible assets |  |  | (793 | ) |  |  | — |  |  |  | (793 | ) |  |  | — |  |  |  | (793 | )
Payment made in connection with acquisition |  |  | (5,250 | ) |  |  | — |  |  |  | (5,250 | ) |  |  | — |  |  |  | (5,250 | )
Purchase of other investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (468 | ) |  |  | (468 | )
Net cash provided by (used in) investing activities |  |  | (31,008 | ) |  |  | — |  |  |  | (31,008 | ) |  |  | (468 | ) |  |  | (31,476 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 20,113 |  |  |  | — |  |  |  | 20,113 |  |  |  | — |  |  |  | 20,113 |
Payment of refinancing fees and debt issuance costs |  |  | (758 | ) |  |  | — |  |  |  | (758 | ) |  |  | — |  |  |  | (758 | )
Repayments of long-term debt |  |  | (7,500 | ) |  |  | — |  |  |  | (7,500 | ) |  |  | — |  |  |  | (7,500 | )
Proceeds of bank borrowings, net |  |  | (2,561 | ) |  |  | — |  |  |  | (2,561 | ) |  |  | — |  |  |  | (2,561 | )
Changes in restricted cash |  |  | (24,178 | ) |  |  | — |  |  |  | (24,178 | ) |  |  | — |  |  |  | (24,178 | )
Cash payment for purchase of minority interest in subsidiary |  |  | (517 | ) |  |  | — |  |  |  | (517 | ) |  |  | — |  |  |  | (517 | )
Excess income tax benefit on employee stock-based awards |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |  |  |  | — |  |  |  | 1,737 |
Net cash used in financing activities |  |  | (13,664 | ) |  |  | — |  |  |  | (13,664 | ) |  |  | — |  |  |  | (13,664 | )
Effect of exchange rates changes on cash |  |  | (463 | ) |  |  | — |  |  |  | (463 | ) |  |  | 55 |  |  |  | (408 | )
Net increase (decrease) in cash and cash equivalents |  |  | 19,646 |  |  |  | — |  |  |  | 19,646 |  |  |  | (464 | ) |  |  | 19,182 |
Cash and cash equivalents at the beginning of the year |  |  | 13,561 |  |  |  | — |  |  |  | 13,561 |  |  |  | — |  |  |  | 13,561 |
Cash and cash equivalents at the end of the year |  | $ | 33,207 |  |  | $ | — |  |  | $ | 33,207 |  |  | $ | (464 | ) |  | $ | 32,743 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the year for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | 17,088 |  |  | $ | — |  |  | $ | 17,088 |  |  | $ | — |  |  | $ | 17,088 |
Income taxes |  | $ | 26,227 |  |  | $ | — |  |  | $ | 26,227 |  |  | $ | — |  |  | $ | 26,227 |
The results of the Further Restatement adjustments to the Company’s previously filed consolidated shareholders’ equity as of January 1, 2011, by category as discussed above under the subheadings “Bad Debt Timing Adjustments”, “Accounts Receivable Reserves”, “Intercompany Profit Adjustments”, “Piece Parts Inventory”, “Inventory Reserves” and “Other Adjustments” are summarized in the table below.
|  | Cumulative Adjustments to Shareholders’ Equity at January 1, 2011 |
|  | (U.S. Dollars, in thousands) |
Further Restatement Adjustments by Category Increase (decrease) to Retained earnings |  | Further Restatement Adjustments for Years ended December 31, 2009 and Prior |  |  | Further Restatement Adjustments to Year ended December 31, 2010 |  |  | Total Cumulative Adjustments through December 31, 2010 |
Bad debt timing adjustments |  | $ | — |  |  | $ | 409 |  |  | $ | 409 |
Accounts receivable reserves |  |  | (4,383 | ) |  |  | (1,037 | ) |  |  | (5,420 | )
Intercompany profit adjustments |  |  | (812 | ) |  |  | (203 | ) |  |  | (1,015 | )
Inventory existence |  |  | (68 | ) |  |  | (16 | ) |  |  | (84 | )
Inventory reserves |  |  | (13,352 | ) |  |  | 2,581 |  |  |  | (10,771 | )
Other adjustments |  |  | (1,426 | ) |  |  | (285 | ) |  |  | (1,711 | )
Income tax benefit (expense) |  |  | 7,416 |  |  |  | (1,388 | ) |  |  | 6,028 |
Retained earnings decrease |  | $ | (12,625 | ) |  | $ | 61 |  |  | $ | (12,564 | )
The results of the Further Restatement adjustments to the Company’s previously filed consolidated shareholders’ equity as of January 1, 2011, by category as discussed above under the subheadings “Bad Debt Timing Adjustments”, “Accounts Receivable Reserves”, “Intercompany Profit Adjustments”, “Piece Parts Inventory”, “Inventory Reserves” and “Other Adjustments” are summarized in the table below.
|  | Cumulative Adjustments to Shareholders’ Equity at January 1, 2011 |
|  | (U.S. Dollars, in thousands) |
Further Restatement Adjustments by Category Increase (decrease) to Retained earnings |  | Further Restatement Adjustments for Years ended December 31, 2009 and Prior |  |  | Further Restatement Adjustments to Year ended December 31, 2010 |  |  | Total Cumulative Adjustments through December 31, 2010 |
Bad debt timing adjustments |  | $ | — |  |  | $ | 409 |  |  | $ | 409 |
Accounts receivable reserves |  |  | (4,383 | ) |  |  | (1,037 | ) |  |  | (5,420 | )
Intercompany profit adjustments |  |  | (812 | ) |  |  | (203 | ) |  |  | (1,015 | )
Inventory existence |  |  | (68 | ) |  |  | (16 | ) |  |  | (84 | )
Inventory reserves |  |  | (13,352 | ) |  |  | 2,581 |  |  |  | (10,771 | )
Other adjustments |  |  | (1,426 | ) |  |  | (285 | ) |  |  | (1,711 | )
Income tax benefit (expense) |  |  | 7,416 |  |  |  | (1,388 | ) |  |  | 6,028 |
Retained earnings decrease |  | $ | (12,625 | ) |  | $ | 61 |  |  | $ | (12,564 | )

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