On August 6, 2013, the Audit and Ethics Committee of the Company's Board of Directors, based upon a recommendation from management, determined that its unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2013 should no longer be relied upon because they contained an error with respect to the reconciliation of its physical inventory to the general ledger, which resulted in a cumulative overstatement of costs of sales and understatement of current inventory of approximately $16.0 million. This error also caused the income tax benefit in the first quarter of 2013 to be overstated by approximately $6.5 million, the disclosure of the consolidated assessment of normal production levels to be understated by approximately $17.4 million, and the consolidated total write-down of inventory to be overstated by $18.0 million. The misstatement had no effect on the net cash used in operating activities or cash and cash equivalent at the end of the first quarter of 2013.
What the numbers say is that they took about $16 million from the operating expenses figure and added about $16 million to inventory figure. The phrase "physical inventory" leads me to think they did an actual count of inventory and found the materials. That led to the discovery that they produced some cerium oxide, put it on the shelves, and expensed it incorrectly as a production cost. The taxes change as a consequence.
I don't know that a physical inventory count was performed but that would be one explanation.
The other error relates to severance charges that were miscalculated. It looks like a stock issue because it does not affect the cash numbers.