SECURITIES AND EXCHANGE COMMISSION
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☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20162022
☐ | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto Commission file number 000-23486
001-39268 (Exact name of registrant as specified in its charter)
| | 62-1096725 | | | | | | |
Delaware | | 62-1096725 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
207 Mockingbird Lane
Johnson City, Tennessee
6210 Ardrey Kell Road, Suite 600 Charlotte, North Carolina | | 3760428277 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (423) 434-8300code
(980) 264-4300 Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading symbol | | Name of each exchange on which registered |
Common Stock, par value $0.01 | | NNBR | | The NASDAQNasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:None(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒☑ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☑ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data fileFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)file).
Yes ☒☑ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting
company, or an emerging growth company. See
definitionthe definitions of “large accelerated filer,” “accelerated
filer”filer,” “smaller reporting company,” and
“smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one): | | | | | | | | | | | | | | |
Large accelerated filer | ☐ | ☐ | | Accelerated filer | ☑ |
Non-accelerated filer | ☒☐ | | Smaller reporting company | ☑ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| | |
Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒☑ The aggregate market value of the voting
and non-voting common stock held by non-affiliates of the registrant
atwas approximately $67.5 million as of June 30,
2016, based on2022, the last business day of the registrant’s most recently completed second fiscal quarter, computed using the closing price
of the registrant’s common stock as quoted on the
NASDAQNasdaq Stock Market LLC on that date
was approximately $379,000,000The number of $2.53. Solely for purposes of making this calculation, shares of the registrant’s common stock outstanding on March 1, 2017 was 27,292,646.
held by named executive officers, directors and 5% or greater stockholders of the registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purposes.
As of February 28, 2023, there were 43,846,073 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the
20172023 Annual Meeting of Stockholders are incorporated by reference in Part III, Items 10 to 14 of this Annual Report on Form 10-K as indicated herein.
Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2022.
PART I
NN, Inc.
INDEX
Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K
(this “Annual Report”) contains forward-looking statements
thatwithin the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are
made pursuantintended to
be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of
1995.1995 and include this statement for purposes of complying with these safe harbor provisions. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to
us,NN, Inc. (the “Company”), based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that are outside of
ourmanagement’s control and that may cause actual results to be materially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial
sector,sector; the impacts of pandemics, epidemics, disease outbreaks and other public health crises, including the COVID-19 pandemic, on our financial condition, business operations and liquidity; competitive
influences,influences; risks that current customers will commence or increase captive
production,production; risks of capacity
underutilization,underutilization; quality
issues,issues; material changes in the costs and availability of raw
materials,materials; economic, social, political and geopolitical instability, currency
fluctuation, and other risks
associated with international trade,of doing business outside of the United States; inflationary pressures and changes in the cost or availability of materials, supply chain shortages and disruptions, and the availability of labor; our dependence on certain major customers,
some of whom are not parties to long-term agreements (and/or are terminable on short notice); the impact of acquisitions and
divestitures,divestitures; our ability to hire or retain key personnel; the level of our indebtedness; the restrictions contained in our debt agreements; our ability to obtain financing at favorable rates, if at all, and to refinance existing debt as it matures; unanticipated difficulties integrating
acquisitions, and realizing anticipated cost savings and operating efficiencies, risks associated with joint ventures,acquisitions; new laws and governmental
regulations,regulations; the impact of climate change on our operations; and
other riskcyber liability or potential liability for breaches of our or our service providers’ information technology systems or business operations disruptions. The foregoing factors
should be not be construed as exhaustive and
cautionary statements listed from time to timeshould be read in
our periodic reports filedconjunction with the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report, and in any of the Company’s subsequent filings made with the Securities and Exchange
Commission. We disclaim anyCommission (the “SEC”). Any forward-looking statement speaks only as of the date of this Annual Report, and the Company undertakes no obligation to
publicly update
or review any
such factors or to publicly announce theforward-looking statement, whether as a result of
any revisionsnew information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to
any oftime, and it is not possible for the
Company to predict their occurrence or how they will affect the Company. The Company qualifies all forward-looking statements
included herein or therein to reflect future events or developments.All dollar amounts presented in tables that follow are in thousands (except for share data) unless otherwise indicated.
by these cautionary statements.
PART I
Item 1. Business
NN, Inc. is a diversified industrial company
and a leading global manufacturer of high precision bearing components, industrial plastic products and precision metal components to a variety of markets on a global basis. We have 40 manufacturing plants in North America, Western Europe, Eastern Europe, South America and China. As used in this Annual Report on Form 10-K, the terms “NN,” “the Company,” “we,” “our,” or “us” mean NN, Inc. and its subsidiaries.Our business is aggregated into three reportable segments, the Precision Bearing Components Group, the Precision Engineered Products Group and the Autocam Precision Components Group. Our business segments and acquisition activity are described further below.
Acquisition Activity
2015
On May 29, 2015, we completed the acquisition of Caprock Manufacturing, Inc. and Caprock Enclosures, LLC (collectively referred to as “Caprock”). Caprock was a privately held plastic components supplier located in Lubbock, Texas. Caprock serves multiple end markets; including aerospace, medical and general industrial. The acquisition provided further balancing of our end markets and represented the first step in our strategic plan related to transforming our plastics business. The results of Caprock have been consolidated with NN since the date of acquisition as part of the Precision Engineered Products Group.
On October 19, 2015, we completed the acquisition (the “PEP Acquisition”) of Precision Engineered Products Holdings, Inc. (“PEP”). As a result of the PEP Acquisition, PEP became a wholly owned subsidiary of NN. PEP is a global manufacturer of highly engineered precision customized solutions serving the medical, electrical, automotive and aerospace end markets. PEPthat combines in-depth materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components and assemblies and finished devices. Following the PEP Acquisition and the divestiture of Delta Rubber Company (described below), we combined the operations of PEP with our Plastics and Rubber Components Group, and renamed the group as the Precision Engineered Products Group.
On November 30, 2015, we completed the divestiture of Delta Rubber Company, a wholly owned subsidiary (“Delta Rubber”). The sale of Delta Rubber was in furtherance of our strategic plan and provided further balance to our portfolio of businesses.
2014
On January 20, 2014, we acquired V-S Industries (“V-S”), a manufacturer of precision metal components with locations in Wheeling, Illinois and Juarez, Mexico. The acquisition of V-S provided us with a broader product offering, allowing for penetration into adjacent markets. V-S’s products serve a variety of industries including electric motors, HVAC, power tools, automotive and medical. V-S’s operations were integrated withend markets on a global basis. As used in this Annual Report, the Autocam Precision Components Group.
On June 20, 2014, we acquired RFK Industries (“RFK”terms “NN,” the “Company,” “we,” “our,” or the “Konjic Plant”), a manufacturer of tapered rollers located in Konjic, Bosnia and Herzegovina. RFK’s products are complementary“us” refer to our existing roller bearing products and broaden our product offerings and allows penetration into adjacent markets. RFK currently exports all of its products to customers serving the European truck, industrial vehicle and railway markets. RFK’s operations were integrated with our Precision Bearing Components Group.
On July 15, 2014, we acquired Chelsea Grinding Company (“Chelsea”)NN, Inc., a manufacturer of cylindrical rollers used primarily in the hydraulic pump industry. Following the acquisition of Chelsea, we relocated Chelsea’s operations to our Erwin, Tennessee plant. Chelsea’s operations were integrated with the Precision Bearing Components Group.
On August 29, 2014, we acquired Autocam Corporation (“Autocam”), a manufacturer of high precision metal components serving primarily the automotive and commercial vehicle HVAC and fluid power industries. Based in Kentwood, Michigan, Autocam manufactures and assembles highly complex, system critical components for fuel systems, engines, transmission, power steering and electric motors. Autocam and its subsidiaries employ over 2,100 employees with 15 manufacturingsubsidiaries. As of December 31, 2022, we had 31 facilities in the U.S.,North America, Europe, South America, and Asia. With
Our enterprise and management structure is designed to accelerate growth and further balance our portfolio by aligning our strategic assets and businesses. Our businesses are organized into the
acquisition of Autocam, we combined our WhirlawayMobile Solutions and
V-S businesses under the renamed Autocam Precision Components Group.Corporate Information
We were founded in October 1980Power Solutions groups and are incorporatedbased principally on the end markets they serve.
Business Segments and Products
Mobile Solutions
Mobile Solutions is focused on growth in
Delaware.the automotive and general industrial end markets. We have developed an expertise in manufacturing highly complex, tight tolerance, system critical components. Our
principal executive offices are located at 207 Mockingbird Lane, Johnson City, Tennessee,technical capabilities can be utilized in numerous applications including for use in battery electric, hybrid electric, and
our telephone number is (423) 434-8300. Our website address is www.nninc.com. Information contained on our website is not part of this Annual Report on Form 10-K. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and related amendments are available via a link to www.sec.gov on our website under “Investor Relations.” Additionally, all required interactive data files pursuant to Item 405 of Regulation S-T are posted on our website.Business Segments
Net sales, income from operations and assets for each of our business segments is presented in Management’s Discussion and Analysis of Financial Condition Results of Operations and Note 12 of the Notes to the Consolidated Financial Statements. Additional information regarding our three business segments (Precision Bearing Components Group, Precision Engineered Products Group and Autocam Precision Components Group) is presented below.
Precision Bearing Components Group
Within our Precision Bearing Components Group, we manufacture and supply high precision bearinginternal combustion engine vehicles. The group currently manufactures components consisting of balls, cylindrical rollers, tapered rollers, spherical rollers and metal retainers, for leading bearing and CV-joint manufacturers on a global basis. We are a leading independent manufacturer of precision steel bearing ballshigh-volume basis for use in power steering, braking, transmissions, and rollers forgasoline fuel system applications, along with components utilized in heating, ventilation and air conditioning and diesel injection and diesel emissions treatment applications. This expertise has been gained through investment in technical capabilities, processes and systems, and allows us to provide skilled program management and product launch capabilities.
Power Solutions
Power Solutions is focused on growth in the
North American, Europeanelectrical, general industrial, automotive, and
Asianmedical end markets.
We offer one of the industry’s most complete lines of commercially available bearing components. We emphasize application-specific engineered products that take advantage of competencies in product design and tight tolerance manufacturing processes. Our customers use our components in fully assembled ball and roller bearings and CV-joints, which serve a wide variety of end markets, including automotive, agricultural, construction, machinery, heavy truck, and rail.Precision Engineered Products Group
Following the PEP Acquisition, we combined the operations of PEP with our Plastics and Rubber Components Segment. Within our Precision Engineered Products Group,this group we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies, and finished devices for the medical, electrical, automotive and aerospace end markets.
Autocam Precision Components Group
Within our Autocam Precision Components Group, we manufacture highly engineered, difficult-to-manufacture precision metal components and subassemblies for the automotive, HVAC, fluid power and diesel engine end markets. Our entry into the precision metal components market began in 2006 with the acquisition of Whirlaway Corporation. We dramatically expanded the segment in 2014 with the acquisitions of Autocam and V-S. These acquisitions furthered our strategy to diversify our end markets and build upon our core manufacturing competency of high-precision metal machining.
Products
Precision Bearing Components Group
Precision Steel Balls. At our Precision Bearing Components Group facilities (with the exception of our Veenendaal plant), we manufacture and sell high quality, precision steel balls. Our steel balls are used primarily by manufacturers of anti-friction bearings and constant velocity joints where precise spherical, tolerance and surface finish accuracies are required.
Steel Rollers. We manufacture tapered rollers at our Veenendaal, Erwin, and Konjic plants and cylindrical rollers at our Erwin plant. Rollers are an alternative rolling element used instead of balls in anti-friction bearings that typically have heavier loading or different speed requirements. Our roller products are used primarily for applications similar to those of our precision steel ball product line, plus certain non-bearing applications such as hydraulic pumps and motors. Tapered rollers are a component in tapered roller bearings that are used in a variety of applications including automotive gearbox applications, automotive wheel bearings and a wide variety of industrial applications. Most cylindrical rollers are maderanging from power control to specific customer requirements for diameter and length and are used in a variety of industrial applications.
Metal Retainers. We manufacture and sell precision metal retainers for roller bearings used in a wide variety of industrial applications. Retainers are used to separate and space the rolling elements within a fully assembled bearing. We manufacture metal retainers at our Veenendaal plant.
Precision Engineered Products Group
Precision Solutions.transportation electrification. We manufacture a variety of components, assemblies and instruments, such as surgical knives, bioresorbable implants, surgical staples, orthopedic system tools, laparoscopic devices, drug delivery devices and catheter components for the medical end market,products including electrical contacts, connectors, contact assemblies, and precision stampings for the electrical control end market, precision components, assemblies and electrical contacts for the automotive end market and a variety of engineered materialshigh precision products for the aerospace and defense end market includingutilizing our extensive process technologies for optical grade plastics, thermally conductive plastics, and titanium, Inconel, magnesium, and gold electroplating. At our Lubbock plant, we manufacture and sell precision plastic retainers for ball and roller bearings used inOur medical business includes the production of a wide variety of industrial applications. We also manufacturetools and sell a wide range of specialized plastic products including automotive under-the-hood components, electronic instrument casesinstruments for the orthopaedics and precision electronic connectors and lenses.
Autocam Precision Components Group
Precision Components. We sell a wide range of highly engineered, extremely close tolerance, precision-machined metal components and subassemblies primarily to the consumer transportation, industrial technology, HVAC, fluid power and diesel enginemedical/surgical end markets.
Competitive Strengths
High-precision manufacturing capabilities
We
have developed an expertise in manufacturing highly complex, system critical components for fuel systems, engines and transmissions, power steering systems and electromechanical motors. This expertise has been gained through investment in technical capabilities, processes and systems, and skilled program management and product launch capabilities.Research and Development and Product Engineering
Our research and development and product engineering efforts focus on enhancingbelieve our existing products and developing patented products, particularlyability to produce high-precision parts at high production volumes is among the best in the medical industry,market. Our technology platform consists of high precision machining, progressive stamping, injection molding, laser welding, material science, assembly, and design optimization. In-house tool design and process know-how create trade secrets that can be presentedenable consistent production tolerances of less than one micron while producing millions of parts per day. Parts are manufactured to application-specific customer design and soldco-design standards that are developed for a specific use. The high-precision capabilities are part of our zero-defect design process, which seeks to eliminate variability and manufacturing defects throughout the entire product lifecycle. We believe our production capabilities provide a competitive advantage as few other manufacturers are capable of meeting tolerance demands at any volume level requested by our customers. As the need for tight-tolerance precision parts, subassemblies, and devices continues to increase, we believe that our production capabilities will place us at the forefront of the industry. We have differentiated ourselves among our competitors by providing customers engineered solutions and a broad reach and breadth of manufacturing capabilities. We believe it is for these reasons, and because of our proven ability to produce high-quality, precision parts and components on a cost-effective basis, that customers choose us to meet their manufacturing needs.
Differentiated, system-critical products
The tight-tolerance and high-quality nature of our precision products is specifically suited for use in the most demanding applications that require superior reliability. Our products are critical components to the operation and reliability of larger mechanical systems. Precision Engineered Products Groupparts are difficult to manufacture and the high cost of failure motivates our customers to focus on quality. Our products are developed for specific uses within critical systems and are typically designed in conjunction with the system designer. Our parts are often qualified for, or specified in, customer designs, reducing the ability for customers to change suppliers.
Our ability to make products with tight-tolerance and extreme precision requirements enables our customers to satisfy the critical functionality and performance requirements of their products. We are included in customer designs and deployed in critical systems that involve high cost of failure applications and significant regulatory certification processes, including those for the Underwriters Laboratories (“UL”).
Complete product lifecycle focus
Our engineering expertise and deep knowledge of precision manufacturing processes adds proprietary value throughout the complete lifecycle of our products. Our in-house engineering team works closely with our customers to provide parts that meet specific design specifications for a given application. The relationship with the customer begins early in the conceptual design process when we provide feedback on potential cost, manufacturability, and estimated reliability of the parts. Part designs are then prototyped, tested, and qualified in coordination with the customer design process before going to full-scale production. The close working relationship with our customers early in the product lifecycle helps to secure business, increase industry knowledge, and develop significant trade secrets. Performance verification, product troubleshooting, and post-production engineering services further deepen relationships with our customers as well as provide additional industry knowledge that is applicable to future design programs and provide continuous manufacturing process improvement.
Prototype products are developed for testing, and process validation procedures are instituted. In certain instances, we will file for regulatory production approval and include the customer’s proprietary processes, further reducing supplier changes. We will assist the customer with continuous supply chain management and comprehensive customer support for the lifetime of the product and continuously seek to identify new operational efficiencies to reduce the product’s cost and improve its quality. Once our solution is designed into a platform, it is often embedded through the multi-year manufacturing lifecycle and has developed a competitive advantage in supporting subsequent platforms. As an added benefit, customers generally fund development, prototypes, and manufacturing tooling expenses. This discourages supplier changes and drives recurring revenue for us.
Long-term blue-chip customer base
We maintain relationships with hundreds of customers around the world. Our customers are typically sophisticated, engineering-driven, mechanical systems manufacturers with long histories of product development and reputations for quality. We have no significant retail exposure, which limits volatility and provides enhanced sales visibility. Relationships with our top ten customers, in terms of revenue, average more than ten years. We have significant exposure to emerging markets in Asia, South America, and Europe through these global customers as well as key local manufacturers. The diverse nature, size, and reach of our customer base provides resistance to localized market and geographic fluctuations and helps stabilize overall product demand.
Strategic global footprint
Our 31 facilities, on four continents, are strategically located to serve our customer base and provide local service and expertise. Our global footprint provides flexibility to locally supply identical products for global customers, reducing shipping time and expense, allowing us to match costs to revenue and to capitalize on industry localization trends. In total, we operate more than 2.1 million square feet of manufacturing space. North America constitutes the largest portion of our manufacturing operations with facilities in the U.S. and Mexico. The North American facilities are strategically located to serve major customers in the United States and Mexico. Our foreign facilities are located in regional manufacturing hubs in France, Poland, China, and Brazil, and primarily serve global customers in those local markets. We believe that the Asian and South American facilities have significant growth potential as local customer bases expand and the markets for high-precision products grow in those regions.
Synergies
We continue to realize synergy effects between Mobile Solutions and Power Solutions by pairing our experienced engineering resources and wide-ranging portfolio of
patented medical products that we manufacture for customers and that are sold under their brand. Our Autocam Precision Products Group engineering team focuses on lowering the cost of manufacturing existing products and developing engineered solutionsprocess technologies from each business to
improveserve our customers’
products. Our Precision Bearing Components Group operates two innovation centers, oneever evolving needs. Recent solutions developed in the
Netherlands for rollerselectrical, electric vehicle, and
onegeneral industrial markets leveraged the deep experience and expertise from each business to respond to tight, stringent requirements - all of which in
Italy for balls, which focusesa custom and innovative manner to meet each customer’s unique demand requirements. In addition, we continue to experience customer demand that utilizes multiple facilities from both businesses on
improving the performancea global basis due to our track record of
the rolling element, operating lifequality and
friction generation and reducing manufacturing costs.strong performance.
Our products are supplied primarily to manufacturers for use in a broad range of industrial applications, including
automotive, electrical, agricultural, construction, machinery, heavy truck, rail, medical,automotive; electrical; agricultural; construction; residential devices and equipment; aerospace and
defense, HVAC,defense; medical; heating, ventilation, and air conditioning; and fluid power and diesel engines.
Our top ten customers account for approximately 48% of our revenue. Sales to each of
theseour top ten customers are made to multiple customer locations and divisions throughout the world.
Only one of theseIn 2022, our top ten customers
AB SKF (“SKF”), had sales levels that were over 10% of total net sales. Sales to various U.S. and foreign divisions of SKF accounted for approximately
13%48% of
our net
sales in 2016.sales. In
2016, 63%2022, 70% of our products were sold to customers in North America,
21% to customers in Europe, 12%13% to customers in Asia,
and the remaining 4%10% to customers in South
America.America, and 7% to customers in Europe.
We sell our products to most of our largest customers under either sales contracts or agreed upon commercial terms. In general, we pass through material cost fluctuations when incurred to our customers in the form of changes in selling prices. We ordinarily ship our products directly to customers within 60 days, and in many cases, during the same calendar month of the date on which a sales order is placed.
Accordingly, we generally have an insignificant amount of open (backlog) orders from customers at month end.See Note 12 of the Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for additional segment financial information.
A primary emphasis of our marketing strategy is to expand key customer relationships by offering high quality, high-precision, application-specific customer solutions with the value of a single supply chain partner for a wide variety of products and components. Due to the technical nature of many of our products, our engineers and manufacturing management personnel also provide technical sales support functions, while internal sales employees handle customer orders and other general sales support activities.
Each of our groups use a distinct direct sales force supported by senior segment management and engineering involvement. Our Precision Bearing Components Group marketing strategy focuses on our ability to provide consistent, high quality products that meet the most precise specifications of leading global brands. Our marketing strategy
for the Precision Engineered Products Group and the Autocam Precision Components Group is to offer custom manufactured, high quality, precision products to markets with high value-added characteristics at competitive price levels. This strategy focuses on relationships with key customers that require the production of technically difficult parts and assemblies, enabling us to take advantage of our strengths in custom product development, equipment and tool design, component assembly, and machining processes.
The following table presents a breakdown
Human Capital Management
Core Principles
Our success depends in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent. Factors that may affect our ability to attract and retain qualified employees include employee morale, our reputation, competition from other employers, and availability of
our net sales for fiscal years 2016, 2015 and 2014: | | | | | | | | | | | | |
| | 2016 | | | 2015 | | | 2014 | |
Precision Bearing Components Group | | $ | 248,534 | | | $ | 261,837 | | | $ | 278,026 | |
Percentage of Total Sales | | | 30 | % | | | 39 | % | | | 57 | % |
Precision Engineered Products Group | | | 258,816 | | | | 77,183 | | | | 33,351 | |
Percentage of Total Sales | | | 31 | % | | | 12 | % | | | 7 | % |
Autocam Precision Components Group | | | 326,138 | | | | 328,260 | | | | 177,224 | |
Percentage of Total Sales | | | 39 | % | | | 49 | % | | | 36 | % |
| | | | | | | | | | | | |
Total | | $ | 833,488 | | | $ | 667,280 | | | $ | 488,601 | |
| | | | | | | | | | | | |
Percentage of Total Sales | | | 100 | % | | | 100 | % | | | 100 | % |
During 2015, followingqualified individuals in the PEP Acquisition and the divestiture of Delta Rubber,communities in which we combined the operations of PEP with our Plastics and Rubber Components Group, and renamed the segment as the Precision Engineered Products Group. The Precision Engineered Products Group includes the Plastic and Rubber Components Group as presented in our previous filings. Net sales for the fiscal years 2014 solely relate to our former Plastic and Rubber Components Segment.
Employees
operate.
Headcount
As of December 31,
2016,2022, we employed a total of
4,730 full-time3,363 full and part-time employees and
569 full time equivalent298 temporary
workers.workers, which includes 1,335 employees in the U.S. and 2,326 employees in other countries employed by our international subsidiaries. Of our total employment,
17%approximately 12% are management/
staff/government/statutorystaff employees and
83%88% are production employees.
TheOur employees
atin the
Pinerolo, Veenendaal, Autocam France,
Brazil, and
Brainin de Mexico
City plants are
unionized. A small group of employees at Lacey Manufacturing Company are also unionized.subject to labor council relationships that vary due to the diverse countries in which we operate. We believe we have a good working relationship with our employees and the unions that represent them.
Competition
Precision Bearing Components Group
Diversity, Equity, and Inclusion (“DE&I”)
Diversity, equity, and inclusion are at the core of our values and strategic business priorities. Throughout our business, we champion equality, supporting parity for women and under-represented groups as we work to create ethical, safe, and supportive workplaces where our employees thrive. We believe a diverse and inclusive workplace results in business growth and encourages increased innovation, retention of talent, and a more engaged workforce. Respect for human rights is fundamental to our business and our commitment to ethical business conduct, as is embodied by our Human Rights Policy, which sets forth our expectations related to workplace discrimination; diversity, equity and inclusion; workplace conditions; and freedom of association.
Compensation, Benefits, and Employee Health and Safety
Our Precision Bearing Components Group operates in intensely competitive markets.compensation programs are based on a strong alignment between pay and performance, and are designed to reward both financial and operational successes and support actions that drive stockholder value creation at all organizational levels. We use a combination of programs (which vary by geography and level) to attract and retain our employees, including annual performance bonuses, quarterly gainsharing bonuses, and equity awards.
We also provide our employees and their families access to a range of benefits, including health insurance benefits, employer-paid life and disability insurance, health savings and flexible spending accounts, 401(k) match, vacation and paid time off, wellness offerings, education assistance, and an employee assistance program.
The health and safety of our employees and anyone who conducts business on our behalf is very important to us. Our domestic competitors include Hoover Precision Products, Inc.,commitment to safety starts at the top levels of our organization. We believe a wholly owned subsidiary of Tsubaki Nakashima Co., LTD.,safe and Amatsuji Steel Ball Manufacturing Company, Ltd. (Japan), a wholly owned division of NSK LTD.secure workplace is fundamental to our success. We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance. In addition Jiangsu General Ballwe offer training programs on a regular basis. We maintain comprehensive safety programs focused on identifying hazards and Roller Co., LTD (China) (JGBR)eliminating risks that can lead to work-place injuries.
In addition to the strong safety focus that we maintain within our operations, our emphasis during the COVID-19 pandemic has
announced plans to open a manufacturing facility inbeen on protecting the
United States to begin production in early 2017. Our foreign competitors include Tsubaki Nakashima Co., LTD. (Japan)health and
JGBR. Additionally, we compete with bearing manufacturers’ in-house (captive) production, which represents the majoritysafety of
total production.We believe that competition within the Precision Bearing Components Group is based principally on quality, priceour employees and the abilitycommunities in which we operate. Our team monitors country, state, and local guidance, and uses these to consistently meet customer delivery requirements. Management believes that our competitive strengths are our precision manufacturing capabilities, our wide product assortment, our reputationimplement best practice guidelines for consistent qualityemployees and reliability,visitors. Throughout the COVID-19 pandemic, we increased communications, including the addition of virtual “town hall” style meetings at the
group and organizational level. This has helped employees across our global
manufacturing footprint
and the productivitystay connected, whether working from home or at one of our
workforce.Precision Engineered Products Group
manufacturing sites.
Talent Development
We invest resources in professional development to improve employee motivation, performance and engagement. Our Precision Engineered Products Groupannual talent management program helps identify needs at multiple levels, enabling us to provide employees with the resources they need to help achieve their career goals, build skills and lead their organizations. Further, annual goal-setting and development opportunities for employees and leaders helps our people align their professional experience with the Company’s business objectives and encourages them to take ownership of their development and career paths.
We use regular talent management and performance evaluation processes to inform the Company’s internal development processes and to calibrate assessment of individual performance organizationally. These activities form the basis for succession planning activities, up to and including the senior leadership level.
We also
operateshave apprenticeships, internships, and cooperative education programs in
intensely competitive markets. We must compete with numerous companies in each industry market segment. Manyplace at certain locations, which we intend to expand more broadly across the company. These programs allow us to provide a combination of
these companies have substantially greater financial resources than we doeducation and
many currently offer competing products nationallyemployment options that deliver depth and
internationally.Our primary competitors in the plastic bearing retainer market are Nakanishi Manufacturing Corporationcontext and Precimold, Inc. Domestically, National Plastics and Sales, Inc., Nypro, Inc., Thermotec, Inc., GW Plastics, Inc., C&J Industries, Inc., and Nyloncraft, Inc., are amongst the largest players in the precision plastic components markets. Our primary competitors in the medical device market are Tecomet, Inc., Lake Region Medical, Inc., and Vention Medical, Inc. Our primary competitors in the electrical market are Deringer-Ney, Inc., Doduco GmbH and Metalor Technologies International. Our primary competitors in the automotive and aerospace market are Interplex Industries, Inc. and Accu-Mold, LLC.
We believe that competition within the plastic injection molding, plastic bearing retainer, precision plastic components, medical device, electrical, automotive and aerospace markets is based principally on quality, price, design capabilities and speed of responsiveness and delivery. Management believes that our competitive strengths are product development, tool design, fabrication, and tight tolerance molding processes. With these strengths, we have built our reputation in the marketplace ashelp them build a quality producer of technically difficult products.
Autocam Precision Components Group
long-term career path.
Competition
Mobile Solutions
In the market in which
our Autocam Precision Components GroupMobile Solutions operates, internal production of components by our customers can impact our business as the customers weigh the risk of outsourcing strategically critical components or producing in-house. Our primary
outside competitors
areare: Anton Häring
KG,KG; A. Berger Holding
GmbhGmbH & Co.
KG, C&A Tool Engineering, Inc., American Turned Products, Inc., Camcraft, Inc.,KG; Brovedani Group, Burgmaier Technologies GmbH & Co. KG; CIE Automotive, S.A.; IMS Companies; and
A.B. Heller, Inc.MacLean-Fogg Component Solutions. We
believe that we generally win new business on the basis of
our technical competence,
and our proven track record of successful product
development.Raw Materials
development and global platform, as well as on quality, price, and service.
Power Solutions
Power Solutions operates in intensely competitive but very fragmented supply chains. We must compete with numerous companies in each industry market segment. Our primary competitors are: Checon Corporation; Deringer-Ney, Inc.; Electrical Contacts, Ltd.; Interplex Industries, Inc.; J&J Machining, LLC; Norstan, Inc.; Owens Industries, Inc.; and Precinmac Precision
Bearing Components GroupThe primary raw material used in our core ball and roller business of the Precision Bearing Components Group is 52100 Steel, which is high quality chromium steel. Our other steel requirements include metal strip, stainless steel, and type S2 rock bit steel.
The Precision Bearing Components Group businesses purchase substantially all of their 52100 Steel requirements from suppliers in Europe and Japan, and all of their metal strip requirements from European suppliers and traders.Machining. We purchase steel on the basis of composition, quality, availability and price. For precision steel balls, the pricing arrangements with our suppliers are typically subject to adjustment every three to six months in North America and contractually adjusted on an annual basisbelieve that competition within the European locations forelectrical end market is based principally on quality, price, design capabilities, and speed of responsiveness and delivery. We believe that our competitive strengths are product development, tool design, fabrication, tight tolerance processes, and customer solutions. With these strengths, we have built our reputation in the base steel price and quarterly for surcharge adjustments. If any of our current suppliers were unable to supply 52100 Steel to us, higher costs and/or production interruptions could occurmarketplace as a resultquality producer of obtaining 52100 Steel from alternate sources. Our operating results would be negatively affected in the event that North American or European governments impose any significant quotas, tariffs or other duties or restrictions on the import of such steel, if the U.S. dollar decreases in value relative to foreign currencies or if supplies available to us would significantly decrease.
Precision Engineered Products Group
The Precision Engineered Products Group uses a wide variety of metals in various forms, including precious metals like gold, silver, palladium and platinum. Through our diverse network of suppliers, we minimize supplier concentration risk and provide a stable supply of raw materials at competitive pricing. This group also procures resins and metal stampings from several domestic and foreign suppliers.
For the Precision Engineered Products Group, we base purchase decisions on quality, service and price. Generally, we do not enter into written supply contracts with our suppliers or commit to maintain minimum monthly purchases of materials. However, we carefully manage raw material price volatility, particularly with respect to precious metals, through the use of consignment agreements. In effect, we lease the precious metals for our own stock and buy the raw materials on the same day customer shipments are priced, thereby eliminating speculation. In addition, our products with precious metal content are priced with a margin on the raw material cost to further protect against raw material price volatility and to provide incremental profit.
Autocam Precision Components Group
The Autocam Precision Components Grouptechnically difficult products.
Raw Materials
Mobile Solutions
Mobile Solutions produces products from a wide variety of metals in various forms from various sources located in the North America, Europe,
South America, and
Japan.Asia. Basic types include hot rolled steel, cold rolled steel (both carbon and alloy), stainless, extruded aluminum, die cast aluminum, gray and ductile iron castings, hot and cold forgings, and mechanical tubing. Some material is purchased directly under contracts, some is consigned by the customer, and some is purchased directly from the steel mills.
Power Solutions
Power Solutions uses a wide variety of metals in various forms, including precious metals like gold, silver, palladium, and platinum, as well as plastics. Through our diverse network of suppliers, we minimize supplier concentration risk and provide a stable supply of raw materials at competitive pricing. This group also procures resins and metal stampings from several domestic and foreign suppliers. Power Solutions bases purchase decisions on quality, service and price. Generally, we do not enter into written supply contracts with our suppliers or commit to maintain minimum monthly purchases of materials. However, we carefully manage raw material price volatility, particularly with respect to precious metals, through the use of consignment agreements. In effect, we contract the precious metals for our own stock and buy the raw materials on the same day customer shipments are priced, thereby eliminating risk of price changes from procurement to product shipment.
Supply and Cost Pressures
In each of our
three segments, we have historically been affected by upward price pressure on steel principally due to general increases in global demand. In general, we pass through material cost fluctuations to our customers in the form of changes in selling price.
Most of the raw materials we use are purchased from various suppliers and are typically available from numerous sources, some of which are located in China and Europe. The COVID-19 pandemic and ongoing supply chain disruptions, resulting in supply shortages and higher shipping charges, have impacted our suppliers and could continue to impact our ability
to maintain supplies of products and the costs associated with obtaining raw materials and key components. We continue to monitor the effects of these impacts on our supply chain in order to maintain regular and timely supply of raw materials to our business segments.
Patents, Trademarks and Licenses
Historically, we
We have not owned anyseveral U.S. or foreign patents, trademarks or licenses that are material to our business; however, in our Precision Engineered Products Group, we have six U.S. patents, four patent applications and trademarks for various trade names. However, we cannot be certain that we would be able to protect and enforce our intellectual property rights against third parties, and if we cannot do so, we may face increased competition and diminished net sales.
Furthermore,
third parties may assert infringement claims against us based on their patents or other intellectual property, and we
intendmay have to
develop patentedpay substantial damages and/or redesign our products
that canif we are ultimately found to infringe. Even if such intellectual property claims against us are without merit, investigating and defending these types of lawsuits takes significant time, may be
presented toexpensive and
sold by our customers.may divert management attention from other business concerns.
Additionally, we rely on certain data and processes, including trade secrets and know-how, and the success of our business depends, to some extent, on such information remaining confidential. Each
executive officer is subject to a non-competition and confidentiality agreement that seeks to protect this information. Additionally, all employees are subject to company code of ethics policies that prohibit the disclosure of information critical to the operations of our business.
Seasonal Nature of Business
General economic conditions impact our business and financial results, and certain
of our businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, European sales are often weaker in the summer months
medical deviceas customers slow production, automotive sales
are often strongertend to slow in
the fourth calendar quarterJuly and December, and sales to
OEMsoriginal equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not
subject to materialmaterially impacted by seasonality.
Government Regulations and Environmental
ComplianceMatters
Our operations and products are subject to extensive federal, state, local, and foreign regulatory requirements, including those intended to protect public health and the environment. In the U.S. certain of our products and operations are regulated by the Environmental Protection Agency. Similar regulations have been adopted by authorities in foreign countries where we sell our products, and by state and local regulatory requirements both domesticallyauthorities in the U.S. In order to conduct our operations in compliance with these laws and abroad relatingregulations we must obtain and maintain numerous permits, approvals and certificates from various federal, state, local, and foreign governmental authorities.
We are also required to
pollution controlcomply with increasingly complex and changing laws and regulations enacted to protect business and personal data in the U.S. and other jurisdictions regarding privacy, data protection, and data security, including those related to the collection, storage, use, transmission, and protection of
the environment. Thesepersonal information and other customer, supplier or employee data. Such privacy and data protection laws and regulations,
govern, among other things, discharges to air or water, the generation, storage, handling, and use of automotive hazardous materials and the
handlinginterpretation and
disposalenforcement of
hazardous waste generated at our facilities. Under such laws and regulations,
we are
requiredcontinuously developing and evolving and there is significant uncertainty with respect to
obtain permits from governmental authorities for some of our operations. If we violate or fail to complyhow compliance with these laws
regulations or permits, we could be fined or otherwise sanctioned by regulators. Under some environmental laws and regulations
we could also be held responsible for allmay evolve and the costs
relating to any contamination at our past or present facilities and
at third-party waste disposal sites. We maintain a compliance program to assist in preventing and, if necessary, correcting environmental problems. In the Precision Bearing Components Group, the Kysucke plant, the Veenendaal plant, the Pinerolo plant and Kunshan plant are ISO 14000 or 14001 certified and all received the EPD (Environmental Product Declaration), except for the Veenendaal plant’s stamped metal parts business.complexity of future compliance.
Based on information compiled to date, management believes that our current operations are in substantial compliance with applicable environmentalgovernmental laws and regulations, the violation of which could have a material adverse effect on our business and financial condition. We have assessed conditional asset retirement obligations and have found them to be immaterial toAs of the consolidated financial statements. We cannot assure that currently unknown matters, newdate hereof, compliance with these laws and regulations has not had a material effect on our capital expenditures, results of operations, and competitive position. For additional information, see “Item 1A - Risk Factors.”
The potential impact of climate change on our operations is unclear. Climate change could result in an increase in severe weather events, such as hurricanes, tropical storms, blizzards and ice storms, which often results in delays or stricter interpretationsother negative consequences for our manufacturing operations, which could negatively impact our financial results. We have not identified any, and we do not believe there to be in the near term, material impacts on our business, financial condition or results of existing lawsoperations as a result of compliance with legislation or regulatory rules regarding climate change or from the known physical effects of climate change. Increased regulation and regulations will not materiallyother climate change concerns, however, could subject us to additional costs and restrictions and could negatively affect our business, operations and financial results.
On May 5, 2022, we released our 2021 Sustainability Report which established our global sustainability strategy. We conducted a comprehensive environmental, social and governance (“ESG”) materiality assessment to identify our most significant economic, environmental and social impacts. The material ESG topics identified during this process enable our organization to prioritize our investments and actions and provide meaningful disclosures throughout this report. We intend to regularly review and update our ESG priorities on an ongoing basis to ensure they continue to reflect our evolving business operations. The information provided in our 2021 Sustainability Report as well as on our website, is not part of this Annual Report, and is therefore not incorporated by reference into this Annual Report or operations in the future. More specifically, although we believe that we dispose of waste in material compliance with applicable environmental laws and regulations, we cannot be certain that we will not incur significant liabilities in the future in connectionother filings with the clean-upSEC.
Information about our
subsidiaries, including PEP, are required to register as such with the U.S. Food and Drug Administration (“FDA”). Each of our facilities that manufacture finished medical devices is registered with the FDA. To maintain our registration, we deploy a robust quality management system across all of our manufacturing facilities.With respect to medical products that we are specifically developing to sell to our customers, before these devices can be marketed, we will seek to obtain a marketing clearance from the FDA under Section 510(k) of the United States Federal Food, Drug, and Cosmetic Act. The FDA typically grants a 510(k) clearance if the applicant can establish that the device is substantially equivalent to a predicate device. Clearance under Section 510(k) typically takes about three months from the date of submission.
Executive Officers of the Registrant
Our executive officers are:
| | | | | | | | | | | | | | |
Name | | Age | | Position |
Richard D. HolderWarren A. Veltman | | 5461 | | | President and Chief Executive Officer and President |
J. Robert AtkinsonMichael C. Felcher | | 3650 | | Vice President, Corporate Treasurer and Manager of Investor Relations |
Thomas C. Burwell, Jr. | | 48 | | Senior Vice President – Chief Financial Officer |
John R. Buchan | | 61 | | | Executive Vice President – Mobile Solutions and Power Solutions |
Matthew S. Heiter | | 5662 | | | Senior Vice President, General Counsel and Secretary |
D. Gail Nixon | | 52 | | | Senior Vice President and General CounselChief Human Resources Officer |
L. Jeffery ManzagolJ. Andrew Wall | | 6144 | | | Senior Vice President –and Chief Commercial Officer |
Warren A. Veltman was appointed President and Chief Executive Officer in September 2019, having previously served as Executive Vice President of Mobile Solutions since January 2018. Mr. Veltman joined NN as part of the Autocam acquisition in 2014 as the Senior Vice President and General Manager
of the Precision Bearing Components GroupJohn A. Manzi | | 52 | | Senior Vice President – General Manager, Precision Engineered Products Group |
Warren Veltman | | 55 | | Senior Vice President – General Manager Autocam Precision Components Group |
James R. Widders | | 60 | | Senior Vice President – Integration and Corporate Transformation |
Set forth below is certain additional information with respect to each of our executive officers.
Richard D. Holder joined usformer Autocam Precision Components Group. Prior to the acquisition, Mr. Veltman served as Chief Financial Officer of Autocam Corporation from 1990 and Secretary and Treasurer since 1991. As previously announced, Mr. Veltman will retire as President and Chief Executive Officer on March 31, 2023; however, such date may be extended in June 2013. Priororder to joining us, Mr. Holder served as President of Eaton Electrical Components Group of Eaton Corporation’s Electrical Sector from 2010 to 2013, Executive Vice President of the Eaton Business Systems from 2007 to 2010, Vice President and General Manager of the Power Distribution and Assemblies Division from 2004 to 2006 and Vice President Supply Chain and Operational Excellence from 2001 to 2004. Prior to joining Eaton, Mr. Holder served as Director of Aircraft & Technical Purchasing for US Airways from 1999 to 2001. Prior to this position, Mr. Holder held a variety of leadership positions at Allied Signal Corporation,facilitate an aerospace, automotive and engineering company, and Parker Hannifin Corporation, a global motion and control technology manufacturer.
J. Robert Atkinson joined us as Vice President, Corporate Treasurer and Manager of Investor Relations in 2014. Prior to joining us, Mr. Atkinsonorderly transition.
Michael C. Felcher was
with Regions Bank, one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, mortgage, and insurance products and services. He most recently served as vice president and commercial relationship manager in Regions Corporate Bank Group, where he was responsible for marquee corporate relationships, developing treasury management solutions and negotiating terms and conditions for new and renewal credit facilities. Prior to that position, he served as Vice President of business services. Mr. Atkinson also served as a project coordinator for the Electrical Group of Eaton Corporation. Mr. Atkinson is a member of the Association of Financial Professions and earned his certified treasury professional designation.Thomas C. Burwell, Jr. joined us as Corporate Controller in September 2005. He was promoted to Vice President Chief Accounting Officer and Corporate Controller in 2011, and toappointed Senior Vice President and Chief Financial Officer in November 2016.July 2021 having previously served as Vice President, Chief Accounting Officer since June 2018. Prior to joining NN,the Company, Mr. Burwell held various positions at Coats, PLC from 1997 to 2005 ultimately becomingFelcher served as the Vice President, North America Chief Financial Officer for JELD-WEN, Inc., a publicly held, global manufacturer of doors and windows, from 2013 to 2017. Before assuming his role at JELD-WEN, Inc., Mr. Felcher served as a Director of Finance for the U.S. Industrial Division. From 1992 to 1997,United Technologies Corp. following its acquisition of Goodrich Corporation in 2012. Previously, Mr. Burwell held various positionsFelcher served in a variety of finance roles at the international accounting firm BDO Seidman, LLP.Goodrich. Mr. BurwellFelcher began his career at PricewaterhouseCoopers and is a Certified Public Accountant.
licensed CPA.
John R. Buchan was appointed Executive Vice President of Mobile Solutions in September 2019 and Executive Vice President of Mobile Solutions and Power Solutions in November 2019 having previously served as Vice President of Operations of Mobile Solutions. Mr. Buchan joined NN as part of the Autocam acquisition in 2014, where he served as the Chief Operations Officer. Prior to joining Autocam in 2002, Mr. Buchan held a variety of technical leadership roles at Benteler Automotive, culminating in his appointment as Executive Vice President of the Exhaust Products Group. Mr. Buchan has spent his entire career in operations roles, beginning with General Motors Central Foundry and Rochester Products Divisions. As previously announced, Mr. Buchan will retire as Executive Vice President of Mobile Solutions and Power Solutions on March 31, 2023; however, such date may be extended in order to facilitate an orderly transition.
Matthew S. Heiter joined us as Senior Vice President,
and General Counsel
and Secretary in July 2015. Prior to joining
us,NN, Mr. Heiter was a shareholder in the law firm of Baker, Donelson, Bearman, Caldwell and Berkowitz,
PCP.C. from May 1996 to December 1999 and from July 2002 to July 2015, where he served as chairman of the firm’s Securities and Corporate Governance Practice Group. From January 2000 to July 2002, Mr. Heiter served as the Executive Vice President, General Counsel, and Secretary of Internet Pictures Corporation, a publicly traded internet technology company.
L. Jeffery Manzagol
D. Gail Nixon joined us
asin 2007 and was appointed Senior Vice
President—General Manager of the Precision Bearing Components Group in October 2014. Manzagol stepped into his role with more than 36 years of metal bearings and high precision manufacturing experience. He most recently served as President of the Bearings Division at Kaydon Corporation. Previously, Manzagol held various leadership positions at SKF Group, including President and General Manager at the Armada, Michigan facility.John Manzi joined us as Senior Vice President—General Manager of Precision Engineered Products Group in October 2015 in connection with the completion of the PEP Acquisition. Previously, Mr. Manzi served as the President and Chief ExecutiveHuman Resources Officer of PEP. Mr. Manzi was instrumental in leading PEP’s development and, together with PEP’s management team, has successfully enhanced PEP’s end market reach, expanded its product breadth and executed on key strategic acquisitions. Mr. Manzi has 20 years of experience with PEP. Prior to joining PEP’s management team, Mr. Manzi held various positions including President of PEP’s Attleboro operations,January 2018. Ms. Nixon previously served as our Vice President of Operations,Human Resources as well as Corporate Human Resources Manager. Ms. Nixon is a member of the Society for Human Resource Management (“SHRM”) and Engineering Manager.
Warren Veltmanhas earned her Senior Professional in Human Resources and SHRM – Senior Certified Professional designations. From 2000 to 2007, she held various accounting and human resources positions with a multi-state healthcare organization, ultimately serving as its corporate human resources director.
J. Andrew Wall joined us as Senior Vice President and
General Manager of our Autocam Precision Components GroupChief Commercial Officer in
September 2014. Veltman served as Chief Financial Officer of Autocam Corporation from 1990 and Secretary and Treasurer since 1991. Prior to Mr. Veltman’s service at Autocam, Mr. Veltman was an Audit Manager with Deloitte & Touche LLP.James R. Widders was appointed us as Senior Vice President of Integration and Corporate Transformation in September 2014. Prior to that appointment, Mr. Widders was Vice President and General Manager of our then-named Metal Bearing Components Group beginning in December 2010. Mr. Widders had 13 years of service at Whirlaway prior to its acquisition by NN.January 2022. Prior to joining us,NN, he served in numerous management positions for ABB, Ltd. (“ABB”), a publicly held, global manufacturer of heavy electrical equipment and automation technology. Mr. Wall served as ABB’s Vice President, Product Marketing and Sales, Electrification U.S. from January 2018 through December 2021, where he was responsible for leading the creation and implementation of ABB's U.S. product marketing strategy. Before that, Mr. Wall served as Vice President and General Manager, at Technifab, Inc. a manufacturerPower Products Services U.S. for ABB from July 2015 through December 2017.
Available Information - SEC Filings
We make available free of molded foam components forcharge, in the Aerospace industry“Investor Relations” section of our website (www.nninc.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and in various management positionsamendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing such material with, GE Superabrasives, a divisionor furnishing it to, the SEC.
Item 1A. Risk Factors
The following
are risk factors thatrisks and uncertainties may have a material affect
on our business, prospects, financial condition, results of operations, and cash flows,
some of which are beyond our control. These risk factorsand should be considered in connection with
evaluating the
forward-looking statementsother information contained in this Annual Report on Form 10-K. If any of the events described below were to actually occur, our business, prospects, financial condition, results of operations, or cash flows could be adversely affected, and results could differ materially from expected and historical results.
The risks and uncertainties described below are not the only risks facing our company. Risks Relatedand uncertainties not currently known to Our Operations
A recession impacting our end marketsus or the geographic regions in whichthat we or our customers operate could have a material adverse effect on our abilitycurrently deem to finance our operations and implement our growth strategy.
During the three month period ended December 31, 2008 and the year ended December 31, 2009, we experienced a sudden and significant reduction in customer orders driven by reductions in automotive and industrial end market demand across all our businesses. Additionally, during the latter part of 2011 and all of 2012, we experienced the impacts of a European recession in our European businesses. Prior to this time, we had never been affected by a recession that had impacted both of our key geographic markets of the U.S. and Europe simultaneously. If we are impacted by a global recession in the future, this could have a material adverse effect onbe immaterial also may materially adversely affect our business, prospects, financial condition, results of operations, orand cash flowsflows.
Risks Related to Our Operations
Pandemics, epidemics, disease outbreaks and
other public health crises, such as the COVID-19 pandemic, could
lead to additional restructuring and/or impairment charges being incurred and our ability to implement our growth strategy.The cyclical demand for our products and the seasonalitymaterially adversely impact on our production could adversely affect our revenues.
The end markets for fully assembled bearings and industrial and automotive components are cyclical and tend to decline in response to overall declines in industrial and automotive production. As a result, the market for the bearing components and precision metal and industrial plastic products we sell is also cyclical and impacted by overall levels of industrial and automotive production. Our sales have been, and can be in the future, negatively affected by adverse conditions in the industrial and/or automotive production sectors of the economy or by adverse global or national economic conditions generally. Similarly, any inflation in oil prices and any resulting increase in gasoline prices could have a negative impact on demand for our products as a result of consumer and corporate spending reductions.
In addition, seasonality may have a negative impact on our production. Due to the typical slower summer manufacturing season in Europe, we expect that revenues in the third fiscal quarter of each year will be lower than in the other quarters of the year.
We depend on a very limited number of sources for our primary raw material and are subject to risks of shortages and price fluctuation.
The steel that we use to manufacture our precision bearing components is of an extremely high quality and is available from only a limited number of producers on a global basis. Due to quality constraints in the U.S. steel industry, we obtain substantially all of the steel used in our U.S. operations of our Precision Bearing Components Group from non-U.S. suppliers. In addition, we obtain most of the steel used in our European operations from a single European source. If we had to obtain steel from sources other than our current suppliers, we could face higher prices and automotive costs, increased duties or taxes and shortages of steel. Problems in obtaining steel, particularly 52100 chrome steel in the quantities that we require, on commercially reasonable terms, could increase our costs and have a material adverse effect on our business, prospects, financial condition, results of operations orand cash flows.
Pandemics, epidemics or disease outbreaks in the U.S. or globally, including the COVID-19 pandemic, have disrupted, and may in the future disrupt, our business, which could materially affect our results of financial condition, results of operations and cash flows. Any such events may adversely impact our global supply chain and global manufacturing operations and cause us to again suspend our operations in countries and states where we operate. In particular, we have experienced, and could continue to experience, among other things: (1) global supply disruptions, especially in China; (2) labor disruptions; (3) an inability to manufacture; (4) an inability to sell and distribute our products to our customers; (5) a decline in customer demand during and following the pandemic, whether as a result of our inability to satisfy customer demand in a timely manner due to raw material shortages, supply chain disruptions, inflationary cost pressures, or work stoppages experienced by one or more of our customers; and (6) an impaired ability to access credit and the capital markets, especially in light of the rising interest rates. Any new pandemic or other public health crises, or future public health crises, could have a material impact on our business, financial condition, results of operations and cash flows going forward. To the extent any new pandemic or other public health crises adversely affects our business, financial condition, results of operation and cash flows, it may also have the effect of heightening other risks and uncertainties disclosed below.
We depend heavily on a relatively limited number of customers, and the loss of any major customer would have a material adverse effect on our business.
Sales to various U.S. and foreign divisions of SKF, one of the largest bearing manufacturers in the world, accounted for approximately 13% of consolidated net sales in 2016. No other customers accounted for more than 10% of sales.
During
2016,2022, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 48% of our consolidated net sales. The loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and would lower our operating profit margin and cash flows from operations.
Work stoppages or similar difficulties
and unanticipated business disruptions could significantly disrupt our operations, reduce our revenues and materially affect our earnings.
A work stoppage at one or more of our facilities could
We have a
complex network of suppliers, owned and leased manufacturing locations, co-manufacturing locations, distribution networks, and information systems that support our ability to consistently provide our products to our customers. Factors that are hard to predict or beyond our control, such as supply chain disruptions, weather, raw material
adverse effect onshortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, or public health crises, such as the COVID-19 pandemic, could damage or disrupt our
business, prospects,operations or our customers’, suppliers’, co-manufacturers’ or distributors’ operations. These disruptions may require additional resources to restore our supply chain or distribution network. If we cannot respond to disruptions in our operations, whether by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or if we are unable to quickly repair damage to our information, production, or supply systems, we may be late in delivering, or be unable to deliver, products to our customers and may also be unable to track orders, inventory, receivables, and payables. If that occurs, our customers’ confidence in us and long-term demand for our products could decline. Any of these events could materially and adversely affect our product sales, financial condition,
results of operations, or cash flows. Also, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.and operating results.
We operate in and sell products to customers outside the U.S. and are subject to several risks related to doing business internationally.
Because we
We obtain a majority of our raw materials from overseas suppliers, actively participate in overseas manufacturing operations and sell to a large number of international customers. During the year ended December 31, 2022, sales to customers located outside of the U.S. accounted for 39% of our consolidated net sales. As a result of doing business internationally, we face risks associated with the following: •changes in tariff regulations, which may make our products more costly to export or import;
•changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations;
Recessions•recessions or marked declines specific to a particular country or region;
•the potential imposition of trade restrictions or prohibitions;
a U.S. federal tax code that discourages the repatriation of funds to the U.S.;
•the potential imposition of import tariffs or other duties or taxes;
•difficulties establishing and maintaining relationships with local original equipment manufacturers, distributors and dealers;
•difficulty in staffing and managing geographically diverse operations;
•political uncertainty, instability, civil unrest, government controls over certain sectors and
unstable governments or legal systems human rights concerns in countries, including but not limited to, China, in which our suppliers, manufacturing operations, and customers are located.located; and
•changes in the geopolitical environment, wars, conflicts, or trade barriers or blockades in the European Union and Asia, which may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial and foreign exchange markets, as well as disrupt the free movement of goods, services, and people between countries.
These and other risks may also increase the relative price of our products compared to those manufactured in other countries, thereby reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.
In addition, we could be adversely affected by violations of the Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws, as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures will always protect us from the improper acts committed by our employees or agents. If we are found to be liable for FCPA, export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our international business, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.
The prices we pay for raw materials used in our products may be impacted by tariffs. The tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 resulted in increased metals prices in the United States. We cannot predict whether, and to what extent, there may be changes to international trade agreements or whether quotas, duties, tariffs, exchange controls or other restrictions on our products will be changed or imposed. In addition, an open conflict or war across any region could affect our ability to obtain raw materials. The current military conflict between Russia and Ukraine, and related sanctions, export controls or other actions that may be initiated by nations could adversely affect our business and our supply chain or our business partners or customers in other countries. Although we currently do not source raw materials directly from Russia or Ukraine, if we are unable to source our products from the countries where we wish to purchase them, either because of the occurrence or threat of wars or other conflicts, regulatory changes or for any other reason, or if the cost of doing so increases, it could have a material adverse effect on our business, financial condition and results of operations. Disruptions in the supply of raw materials and components could temporarily impair our ability to manufacture our products for our customers or require us to pay higher prices to obtain these raw materials or components from other sources, which could have a material adverse effect on our business and our results of operations.
Failure of our products could result in a product recall.
The majority of our products are components of our customers’ products that are used in
the automotive industry and other critical industrial applications. A failure of our components could lead to a product recall. If a recall were to happen as a result of our components failing, we could bear a substantial part of the cost of correction. In addition to the cost of fixing the parts affected by the component, a recall could result in the loss of a portion of or all of the customer’s
business.business and damage our reputation. A successful product recall claim requiring that we bear a substantial part of the cost of correction or the loss of a key customer could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.
Our growth strategy depends in part on companies outsourcing critical components, and if outsourcing does not continue, our business could be adversely affected.
Our growth strategy depends in part on major customers continuing to outsource components and expanding the number of components being outsourced. This requires manufacturers to depart significantly from their traditional methods of operations. If major customers do not continue to expand outsourcing efforts or determine to reduce their use of outsourcing, our ability to grow our business could be materially adversely affected.
Our markets are highly competitive, and many of our competitors have significant advantages that could adversely affect our business.
We face substantial competition in the sale of
electrical, medicalcomponents, system subassemblies, and
aerospace and defensefinished devices in the vertical end markets into which we sell our products.
In addition, the global markets for precision bearing components and precision metal and plastic components are highly competitive, with a majority of production represented by the captive production operations of large manufacturers. Captive manufacturers make components for internal use and for sale to third parties. All of the captive manufacturers, and many of our independent competitors, are significantly larger and have greater resources than we do. Our competitors are continuously exploring and implementing improvements in technology and manufacturing processes in order to improve product quality, and our ability to remain competitive will depend, among other things, on whether we are able to keep pace with such quality improvements in a
cost effectivecost-effective manner. Due to this competitiveness, we may not be able to increase prices for our products to cover cost increases. In many cases we face pressure from our customers to reduce prices, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows. In addition, our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows.
Our production capacity has been expanded geographically in recent years to operate in the same markets as our customers.
We have expanded our precision bearing components production facilities and capacity over the last several years. Historically, precision bearing component production facilities have not always operated at full capacity. Over the past several years, we have undertaken steps to address a portion
Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.
We are dependent on the continued services of key executives and personnel. The departure of our key personnel without adequate replacement could severely disrupt our business operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience to operate our businesses successfully. From time to time, there may be shortages of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations would be materially adversely affected.
Any security breach or disruption to our information technology systems could materially adversely affect our business, financial condition, results of operations, and reputation.
We rely on proprietary and third-party information technology systems to process, transmit and store information and to manage or support our business processes. We store and maintain confidential financial and business information regarding us and persons with whom we do business on our information technology systems. We also collect and hold personally identifiable information of our employees in connection with their employment. In addition, we engage third-party service providers that may collect and hold personally identifiable information of our employees in connection with providing business services to us, including web hosting, accounting, payroll and benefit services. The protection of the information technology systems on which we rely is critically important to us. We take steps, and generally require third-party service providers to take steps, to protect the security of the information maintained in our and our service providers’ information technology systems, including the use of systems, software, tools, and monitoring to provide security for processing, transmitting, and storing of the information. Despite our security measures and business continuity plans, we face risks associated with security breaches or disruptions to the information technology systems on which we rely, which could result from, among other incidents, attacks by hackers, computer viruses, malware (including “ransomware”), phishing attacks or breaches due to errors or malfeasance by employees, contractors and others who have access to these systems. Our third-party service providers could also be the source of a cybersecurity attack on, or breach of, our information technology systems. Techniques used in cybersecurity attacks to obtain unauthorized access, disable or sabotage information technology systems change frequently, as data breaches and other cybersecurity events have become increasingly commonplace, including as a result of the intensification of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine.
The security measures put in place by us and our service providers cannot provide absolute security and there can be no assurance that we or our service providers will not suffer a data security incident in the future, that unauthorized parties will not gain access to sensitive information stored on our or our service providers’ systems, that such access will not, whether temporarily or permanently, impact, interfere with, or interrupt our operations, or that any such incident will be discovered in a timely manner. Even the most well-protected information, networks, systems, and facilities remain potentially vulnerable as the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected.In addition, third-party information technology providers may not provide us with fixes or updates to hardware or software in a manner as to avoid an unauthorized loss or disclosure or to address a known vulnerability, which may subject us to known threats or downtime as a result of those delays.Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures. Further, we may be required to expend significant additional resources to continue to enhance information security measures and internal processes and procedures or to investigate and remediate any information security vulnerabilities.
A data security incident could compromise our or our service providers’ information technology systems, and the information stored by us or our service providers, including personally identifiable information of employees, could be accessed, misused, publicly disclosed, corrupted, lost, or stolen. Any failure to prevent a data breach or a security failure of our or our service providers’ information technology systems could interrupt our operations, result in downtime, divert our planned efforts and resources from other projects, damage our reputation and brand, damage our competitive position, subject us to liability claims or regulatory penalties under laws protecting the privacy of personal information. Similarly, if our third-party service providers fail to use adequate security or data protection processes, or use personal information in an unpermitted or improper manner, we may be liable for certain losses and it may damage our reputation. Various events described above have occurred in the past and may occur in the future. Although impacts of past events have been immaterial, the impacts of such events in the future may materially and adversely affect our business, financial condition, or results of operations.
Our international operations and business, financial condition, and prospects may be adversely affected by the current military conflict between Russia and Ukraine, other future social and geopolitical instability and resulting domestic and foreign economic instability.
We are exposed to the risk of changes in social, geopolitical, legal, and economic conditions. The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine. As a result of Russia’s invasion of Ukraine, the
United States, the European Union, the United Kingdom, and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia. Broad restrictions on exports to Russia have also been imposed. These measures include: (i) comprehensive financial sanctions against major Russian banks; (ii) additional designations of Russian individuals with significant business interests and government connections; (iii) designations of individuals and entities involved in Russian military activities; and (iv) enhanced export controls and trade sanctions limiting Russia’s ability to import various goods. The negative impacts arising from the conflict and these sanctions and export restrictions, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials. Although none of our operations are physically located in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition, results of operations and prospects.
Physical effects of climate change or legal, regulatory or market measures intended to address climate change could materially adversely affect our business and operations.
Risks associated with climate change are subject to increasing societal, regulatory and political focus in the U.S. and globally. Shifts in weather patterns caused by climate change could increase the frequency, severity, or duration of certain adverse weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires, droughts, extreme temperatures, or flooding, which could result in more significant business and supply chain interruptions, damage to our products and facilities as well as the infrastructure of our customers, reduced workforce availability, increased costs of raw materials and components, increased liabilities, and decreased revenues than what we have experienced in the past from such events. In addition, increased public concern over climate change could result in new legal or regulatory requirements designed to mitigate the effects of climate change, which could include the adoption of more stringent environmental laws and regulations or stricter enforcement of existing laws and regulations. Such developments could result in increased compliance costs and adverse impacts on raw material sourcing, manufacturing operations, and the distribution of our products, which could adversely affect our business and operations.
Risks Related to Legal and Regulatory Compliance
Environmental, health and safety laws and regulations impose substantial costs and limitations on our operations, environmental compliance may be more costly than we expect, and any adverse regulatory action may materially adversely affect our business.
We are subject to extensive federal, state, local, and foreign environmental, health, and safety laws and regulations concerning matters such as air emissions, wastewater discharges, solid and hazardous waste handling, and disposal and the investigation and remediation of contamination. The risks of substantial costs, liabilities, and limitations on our operations related to compliance with these laws and regulations are an inherent part of our business, and future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs.
Our business activities are subject to various laws and regulations relating to pollution control and protection of the environment. These laws and regulations govern, among other things, discharges to air or water, the generation, storage, handling, and use of automotive hazardous materials, and the handling and disposal of hazardous waste generated at our facilities. Under such laws and regulations, we are required to obtain permits from governmental authorities for some of our operations. If we violate or fail to comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. Under some environmental laws and regulations, we could also be held responsible for all the costs relating to any contamination at our past or present facilities and at third-party waste disposal sites. We maintain a compliance program to assist in preventing and, if necessary, correcting environmental problems.
Compliance with environmental, health, and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate. To date, we have committed significant expenditures in our efforts to achieve and maintain compliance with these requirements at our facilities, and we expect that we will continue to make significant expenditures related to such compliance in the future. From time to time, we may be subject to legal proceedings brought by private parties or governmental authorities with respect to environmental matters, including matters involving alleged noncompliance with or liability under environmental, health and safety laws, property damage or personal injury. New laws and regulations, including those which may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.
Our medical devices are subject to regulation by numerous government agencies, including the FDAFood and Drug Administration (“FDA”) and comparable agencies outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices. We cannot guarantee that we will be able to obtain marketing clearance for our new products or enhancements or modifications to existing products. If such approval is obtained, it may:
•take a significant amount of time;
•require the expenditure of substantial resources;
•involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance;
•involve modifications, repairs or replacements of our products; and
•result in limitations on the proposed uses of our products.
Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. We are also subject to periodic inspections by the FDA to determine compliance with the FDA’s requirements, including primarily the quality system regulations and medical device reporting regulations. The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. Since 2009, the FDA has significantly increased its oversight of companies subject to its regulations, including medical device companies, by hiring new investigators and stepping up inspections of manufacturing facilities. The FDA has also significantly increased the number of warning letters issued to companies. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of foreign governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also impose operating restrictions on a company-wide basis, enjoin and/or restrain certain conduct resulting in violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products.
Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s non-compliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on us.
Recent developments relating to the United Kingdom’s referendum vote in favor of leaving the European Union could adversely affect us.
The United Kingdom held a referendum in June 2016 in which a majority voted for the United Kingdom’s withdrawal from the European Union. As a result of this vote, negotiations are expected to commence to determine the terms of the United Kingdom’s withdrawal from (“Brexit”) the European Union as well as its relationship with the European Union going forward, including the terms of trade between the United Kingdom
Increasing scrutiny and the European Union. The effects of Brexit have been and are expected to continue to be far-reaching. Brexit, and the perceptions as to its impact, may adversely affect business activity and economic conditions in Europe and globally and could continue to contribute to instability in global financial and foreign exchange markets. The full effects of Brexit are uncertain and will depend on any agreements the United Kingdom may make to retain access to European Union markets. Lastly, as a result of the Brexit, other countries in the European Union may seek to conduct referendaevolving expectations with respect to their continuing membership withour environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
In addition to the
European Union. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, prospects, financial condition, results of operations, or cash flows could be adversely affected by Brexit is uncertain.Changes in legislation, regulation and government policy as a result of the 2016 U.S. presidential and congressional elections may have a material adverse effect on our business in the future.
The recent presidential and congressional elections in the United States could result in significant changes in, and uncertainty with respect to, legislation, regulation and government policy directly affecting our business or indirectly affecting us because of impacts on our customers and suppliers. Legislativeincreased legislative and regulatory proposals discussed duringattention to climate change, customer, investor, and after the election that couldemployee expectations in ESG have a material direct or indirect impact on us include, but are not limited to, a disallowance of the deduction for net interest expense, a tax on existing unrepatriated foreign earnings, restrictions on importsbeen rapidly evolving and exports, modifications to international trade policy, including withdrawal from trade agreements, environmental regulation, changes to immigration policy, changes to health insurance legislation and the imposition of tariffs and other taxes on imports. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. To the extent that such changes have a negative impact on us, our suppliers or our customers, including as a result of related uncertainty, these changes may materially and adversely impact our business, prospects, financial condition, results of operations, or cash flows.
We have identifiedmaterialweaknessesin our internalcontrol over financialreporting which could,if not remediated, resultinmaterial misstatements in ourfinancialstatements.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. As disclosed in Item 9A, management identified certain material weaknesses in our internal control over financial reporting. Because of these material weaknesses, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2016. With the oversight of senior management and the audit committee, we have begun taking steps to remediate the underlying cause of these material weaknesses and improve the design of controls.
While we expect to take the measures necessary to address the underlying causes of these material weaknesses, we cannot at this time estimate how long it will take and our efforts may not prove to be successful in remediating these material weaknesses.increasing. While we have not incurredbeen committed to continuous improvements to our product portfolio to meet anticipated regulatory standard levels, if customers, regulators or investors demand we increase our greenhouse gas emission or renewable energy disclosures or our ESG initiatives, we may have to implement additional reporting standards and do not expect to incur material expenses specifically related to the remediation of these material weaknesses, actual expenses may exceed our current estimates and overall costs of compiling the system and processing documentation necessary to assess the effectiveness of our internal control over financial reporting may be material.
requirements. If we are unablefail to successfully remediate these material weaknesses in our internal control over financial reporting,meet customer, investor, or identify any additional material weaknesses that may exist, the accuracy and timing of our financial reporting may be adversely affected,employee expectations, we may be unable to maintain complianceattract or retain our consumer base or talent. Further, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact or that economic returns will reflect our investments in new product development.
The standards by which ESG efforts and related matters are measured are developing and evolving, and we could be criticized for the scope of our initiatives and goals, or lack thereof. If we fail to comply with
securities law requirements regarding timely filing of periodic reports in additionthe evolving customer or investor or employee expectations and standards, or if we are perceived to
applicable stock exchange listing requirements,have failed to adequately respond to such expectations and
our stock pricestandards, we may
decline materially as a result, all ofsuffer from reputational damage, which could have
a materialan adverse
effectimpact on our business
prospects,or financial
condition, results of operations, or cash flows.condition.
Risks Related to Our Capitalization
Our indebtedness could adversely affect our business, prospects, financial condition, results of operations, or cash flows.
As of December 31, 2016,2022, we had approximately $826$157.1 million of indebtedness outstanding and had an additional $104.6$35.3 million available for borrowingfuture borrowings under our asset backed credit facility (the “ABL Facility”). Our debt agreements. Our high degree of leverageobligations could have important consequences, including: •increasing our vulnerability to adverse economic, industry, or competitive developments;
•requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund operations, capital expenditures, and future business opportunities;
•exposing us to the risk of increased interest rates, which could cause our debt service obligations to increase significantly;
•making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under our debt agreements;
•restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
•limiting our ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions, and general corporate or other purposes; and
•limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage may prevent us from exploiting.
If any one of these events were to occur, our business, prospects, financial condition, results of operations, or cash flows could be materially and adversely affected. For more information regarding our indebtedness, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
Despite our
high indebtedness level, we
willmay still be able to incur substantial additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our debt agreements contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ debt levels, the related risks that we now face could increase.
Our debt agreements contain restrictions that will limit our flexibility in operating our business.
Our debt agreements contain various incurrence covenants that limit our ability to engage in specified types of transactions. These incurrence covenants will limit our ability to, among other things: •incur additional indebtedness or issue certain preferred equity;
•pay dividends on, repurchase, or make distributions in respect of our capital stock, prepay, redeem, or repurchase certain debt or make other restricted payments;
•make certain investments and acquisitions;
•create certain liens;
•enter into agreements restricting our subsidiaries’ ability to pay dividends to us;
•consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets;
•alter our existing businesses; and
•enter into certain transactions with our affiliates.
In addition, the
incurrence covenants in our debt agreements require us to meet specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond our control. A breach of any of these covenants could result in a default under one or more of our debt agreements and permit our lenders to cease making loans to us under our credit
facilities.facility (as defined below) or to accelerate the maturity date of the indebtedness incurred thereunder. Furthermore, if we were unable to repay the amounts due and payable under our secured debt agreements, our secured lenders could proceed against the collateral granted to them to secure our borrowings. Such actions by the lenders could also cause cross defaults under our other debt agreements.
We may not be able to generate sufficient cash to service all of our indebtedness, and we may not be able to refinance our debt obligations as they mature.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
We regularly review our capital structure, various financing alternatives and conditions in the debt and equity markets in order to opportunistically enhance our capital structure. In connection therewith, we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equity or equity-linked securities, in each case, depending on market and other conditions. As our debt obligations mature or if our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.
We have international operations that are subject to foreign economic uncertainties and foreign currency fluctuation.
Approximately
34%25% of our revenues are denominated in foreign currencies, which may result in additional risk of fluctuating currency values and exchange rates and controls on currency exchange. Changes in the value of foreign currencies could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could affect our profits. In
2016,2022, the U.S. dollar
continued to strengthen compared to the euro,strengthened against foreign currencies which
adverselyunfavorably affected our revenue by
$5.4$4.2 million.
Further strengtheningIn contrast, a weakening of the U.S. dollar may
adverselybeneficially affect our business, prospects, financial condition, results of operations, or cash flows.
The price of our common stock may be volatile.
The market price of our common stock could be subject to significant fluctuations and may decline. Among the factors that could affect our stock price are:
•macro or micro-economic factors;
•our operating and financial performance and prospects;
•quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income and revenues;
•changes in revenue or earnings estimates or publication of research reports by analysts;
•loss of any member of our senior management team;
•speculation in the press or investment community;
•strategic actions by us or our competitors, such as acquisitions or restructuring;
•sales of our common stock by stockholders;
•general market conditions;
•domestic and international economic, legal, and regulatory factors unrelated to our performance;
•loss of a major customer; and
•the declaration and payment of a dividend.
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, due to the market capitalization of our stock, our stock tends to be more volatile than large capitalization stocks that comprise the Dow Jones Industrial Average or Standard and Poor’s 500 Index.
Provisions in our charter documents and Delaware law may inhibit a takeover, which could adversely affect the value of our common stock.
Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable and may prevent
shareholdersstockholders from receiving a takeover premium for their shares. These provisions include, for example,
a classified board of directors and the authorization of our board of directors to issue up to five million preferred shares without a stockholder
vote. In addition, our certificate of incorporation providesvote and that stockholders may not call a special meeting.
We are a Delaware corporation subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. Generally, this statute prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which such person became an interested stockholder, unless the business combination is approved in a prescribed manner. A business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. We anticipate that the provisions of Section 203 may encourage parties interested in acquiring us to negotiate in advance with our board of directors, because the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction that results in the stockholder becoming an interested stockholder.
These provisions apply even if the offer may be considered beneficial by some of our stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.
Risks Related to Acquisitions and Divestitures
Acquisitions may constitute an important part of our future growth strategy.
Acquiring businesses that complement or expand our operations has been and may continue to be a key element of our business strategy. We regularly evaluate acquisition transactions, sign non-disclosure agreements, and participate in processes with respect to acquisitions, some of which may be material to us. We cannot assure you that we will be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms in the future. In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels.levels or diluting our existing stockholders’
ownership interest in us. Our inability to acquire businesses, or to operate them profitably once acquired, could have a material adverse effect on our business, financial
position,condition, results of operations, and cash flows. Our borrowing agreements limit our ability to complete acquisitions without prior approval of our lenders.
We have had difficulty with purchase accounting and other aspects related to the accounting for our acquisitions, which resulted in material weaknesses in our internal control over financial reporting. Although we have remediated these material weaknesses, there can be no assurances we will not face similar issues with respect to any future acquisitions.
We may not realize all of the anticipated benefits from
acquired companiescompleted acquisitions or any future strategic portfolio acquisition, or those benefits may take longer to realize than expected.
We either may not realize all of the anticipated benefits from acquired companiescompleted acquisitions or any future strategic portfolio acquisition, or those benefitsit may take longer to realize than expected.such benefits. Achieving those benefits depends on the timely, efficient, and successful execution of a number of post-acquisition events, including integrating the acquired businesses into our existing businesses. The integration process may disrupt the businesses and, if implemented ineffectively, would preclude the realization of the full benefits expected.anticipated benefits. The difficulties of combining the operations of acquired companies include, among others: •the diversion of management’s attention to integration matters;
•difficulties in the integration of operations and systems, including, without limitation, the complexities associated with managing the expanded operations of a significantly larger and more complex company, addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks, and other assets of each of the acquired companies;
•difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from combining the acquired businesses with our own;
•the inability to implement effective internal controls, procedures, and policies for acquired businesses as required by the Sarbanes-Oxley Act of 2002 within the time periods prescribed thereby;
•the exposure to potential unknown liabilities and unforeseen increased expenses or delays associated with acquired businesses;
•challenges in keeping existing customers and obtaining new customers;
•challenges in attracting and retaining key personnel; and
•the disruption of, or the loss of momentum in, ongoing operations or inconsistencies in standards, controls, procedures and policies.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, prospects, financial condition, results of operations, or cash flows.
Additionally, we incurred a significant amount of debt in connection with our acquisitions in the past few years. Finally, in relation to such acquisitions, we have significantly higher amounts of intangible
assets, including goodwill.assets. These intangible assets will be subject to impairment testing, and we could incur a significant impact to our financial statements in the form of an impairment if assumptions and expectations related to our acquisitions are not realized.
We have and will continue to incur expenses in relation to our acquisitions and the integration of our acquired companies.
We have and will continue to incur expenses in relation to our acquisitions and the integration of our acquired companies. While we have assumed that a certain level of expenses will be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These integration expenses may result in us taking charges against earnings, and the amount of any future charges are uncertain at present.
We may be unable to realize the anticipated cost or capital expenditure savings or may incur additional and/or unexpected costs in order to realize them.
There can be no assurance that we will be able to realize the anticipated cost or capital expenditure savings from our acquisitions in the anticipated amounts or within the anticipated timeframes or at all. We anticipate implementing a series of cost savings initiatives that we expect to result in recurring, annual run-rate cost savings. We expect to incur one-time, non-recurring costs to achieve such synergies, including certain costs during 2015 and 2016. These or any other cost or capital expenditure savings that we realize may differ materially from our estimates. We cannot provide assurances that these anticipated savings will be achieved or that our programs and improvements will be completed as anticipated or at all. In addition, any cost savings that we realize may be offset, in whole or in part, by reductions in revenues or through increases in other expenses.
Our projections and assumptions related to cost savings are based on our current estimates, but they involve risks, uncertainties, projections and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements, express or implied. Neither our independent auditors nor any other independent auditors, have examined, compiled or performed any procedures with respect to these projections, nor have they expressed any opinion, or any other form of assurance on such information or their achievability. Assumptions relating to our projections involve subjective decisions and judgments with respect to, among other things, the estimated impact of certain operational adjustments, including Six Sigma/OpEx optimization programs, product grouping and rationalization, facility rationalization and shared services cost savings and other cost and savings adjustments, as well as future economic, competitive, industry and market conditions and future business decisions, all of which are inherently uncertain and may be beyond the control of our management.
Failure to realize the expected costs savings and operating synergies related to our acquisitions could result in increased costs and have an adverse effect on our business, prospects, financial condition, results of operations, or cash flows.
Our future results could suffer if we cannot effectively manage our expanded operations, which are significantly larger and more complex following our acquisitions.
As a result of our acquisitions over the past few years, the size and scope of our operations were significantly increased. Our future success depends, in part, upon our ability to manage the expanded operations, which will pose challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We may not have the expertise, experience and resources to pursue or successfully operate all of our businesses at once. The administration of our businesses requires implementation and oversight of appropriate operations, management, compliance and financial reporting systems and controls. We may experience difficulties in effectively implementing and overseeing these and other systems. Such implementation and initial oversight will require the focused attention of our management team, including a significant commitment of its time and resources. The need for management to focus on these matters could have a material and adverse impact on our revenues and operating results. There can be no assurance that we will be successful or that we will realize any operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from our acquisitions.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and may result in unexpected liabilities.
Certain of the acquisition agreements from past acquisitions require the former owners to indemnify us against certain liabilities related to the operation of each of their companies before we acquired it. In most of these agreements, however, the liability of the former owners is limited in amount and duration and certain former owners may not be able to meet their indemnification responsibilities. These indemnification provisions may not fully protect us, and as a result we may face unexpected liabilities that adversely affect our profitability and financial position.
Our participation in joint ventures could expose us to additional risks from time to time.
We currently have a 49% investment in a Chinese joint venture and may participate in additional joint ventures from time to time. Our participation in joint ventures is subject to risks that may not be present with other methods of ownership, including: •our joint venture partners could have investment and financing goals that are not consistent with our objectives, including the timing, terms, and strategies for any investments, and what levels of debt to incur or carry;
•we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving such impasses or potential disputes, including litigation or arbitration;
•our ability to transfer our interest in a joint venture to a third party may be restricted and the market for our interest may be limited;
•our joint venture partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their obligations as a joint venture partner, which may require us to infuse our own capital into the venture on behalf of the partner despite other competing uses for such capital; and
•our joint venture partners may have competing interests in our markets that could create conflict of interest issues.
Any divestitures and discontinued operations could negatively impact our business and retained liabilities from businesses that we may sell could adversely affect our financial results.
As part of our portfolio management process, we review our operations for businesses which may no longer be aligned with our strategic initiatives and long-term objectives. Divestitures pose risks and challenges that could negatively impact our business, including required separation or carve-out activities and costs, disputes with buyers, or potential impairment charges. We may also dispose of a business at a price or on terms that are less than we had previously anticipated. After reaching an agreement with a buyer for the disposition of a business, we are also subject to satisfaction of pre-closing conditions, as well as necessary regulatory and governmental approvals on acceptable terms, which may prevent us from completing a transaction. Dispositions may also involve continued financial involvement, as we may be required to retain responsibility for, or agree to indemnify buyers against contingent liabilities related to
a businesses sold, such as lawsuits, tax liabilities, lease payments, product liability claims, or environmental matters. Under these types of arrangements, performance by the divested businesses or other conditions outside of our control could affect future financial results.
General Risk Factors
Damage to our reputation could harm our business, including our competitive position and business prospects.
Our ability to attract and retain customers, suppliers, investors, and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including employee misconduct, security breaches, unethical behavior, litigation, or regulatory outcomes. The consequences of damage to our reputation include, among other things, increasing the number of litigation claims and the size of damages asserted or subjecting us to enforcement actions, fines, and penalties, all of which would cause us to incur significant defense related costs and expenses.
Changes in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations, and financial condition.
The U.S. tax laws and regulations, as well as the administrative interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive effect. No assurance can be given as to whether, when, or in what form changes to the U.S. tax laws applicable to us may be enacted. Changes in U.S. tax laws, tax rulings, or interpretations of existing laws could materially affect our business, cash flow, results of operations, and financial condition.
| Item 1B. | Unresolved Staff Comments |
None
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2022, we owned or leased 31 facilities in a total of six countries, which includes a 49% equity interest in a manufacturing joint venture in China. Utilization of these sites may vary with product mix and economic, seasonal, and other business conditions. Our plants generally have sufficient capacity for existing needs and expected near-term growth. These plants are generally well maintained, in good operating condition, and suitable and adequate for their use. Due to a strategic shift to focus on growth opportunities and ongoing efforts to optimize the Company’s manufacturing footprint, we plan to cease manufacturing operations at several facilities during 2023. The
manufacturing plants for eachfollowing table lists the current locations of our
segments are listed below. In addition, we lease an office building in Johnson City, Tennessee which serves as our corporate offices.Precision Bearing Componentsfacilities by segment.
| | | | | | | | | | | | | | | | | | | | |
Manufacturing Operation Location | | CountryGeneral Character | | Country | | Owned or Leased |
Erwin PlantBoituva, Brazil (1) | | U.S.A.Plant | | OwnedBrazil | | Leased |
Kunshan PlantCampinas, Brazil | | ChinaOffice | | Brazil | | Leased |
Kysucke PlantDowagiac, Michigan | | SlovakiaPlant | | U.S.A. | | Owned |
Mountain City PlantJuarez, Mexico | | U.S.A.Plant | | OwnedMexico | | Leased |
Pinerolo PlantKamienna Gora, Poland | | ItalyPlant | | Poland | | Owned |
RFK Valjcici d. d. Konjic PlantKentwood, Michigan | | BosniaPlant 1 | | OwnedU.S.A. | | Leased |
Veenendaal PlantKentwood, Michigan | | The NetherlandsPlant 2 | | U.S.A. | | Leased |
Kentwood, Michigan | | Plant 3, Warehouse | | U.S.A. | | Leased |
Kentwood, Michigan | | Office | | U.S.A. | | Owned |
Marnaz, France | | Plant | | France | | Owned |
Marshall, Michigan | | Plant 1 | | U.S.A. | | Leased |
Marshall, Michigan (1) | | Plant 2 | | U.S.A. | | Leased |
Sao Joao da Boa Vista, Brazil | | Plant 1 | | Brazil | | Leased |
Sao Joao da Boa Vista, Brazil | | Plant 2 | | Brazil | | Leased |
Wellington, Ohio | | Plant 1 | | U.S.A. | | Leased |
Wellington, Ohio (1) | | Plant 2 | | U.S.A. | | Leased |
Wuxi, China | | Plant | | China | | Leased |
Precision Engineered Products
| | | | | | | | | | | | | | | | | | | | |
Manufacturing Operation Location | | CountryGeneral Character | | Country | | Owned or Leased |
Algonquin, PlantIllinois | | U.S.A.Plant | | U.S.A. | | Owned |
Attleboro, Massachusetts | | Plant 1 | | U.S.A. | | Owned |
Attleboro, Massachusetts | | Plant 2 | | U.S.A. | | Owned & Leased |
Attleboro, OfficeMassachusetts | | U.S.A.Plant 3 | | LeasedU.S.A. | | Owned |
Aurora PlantAttleboro, Massachusetts | | U.S.A.Office, Warehouse | | LeasedU.S.A. | | Owned |
Bridgeport PlantFoshan City, China | | U.S.A.Plant | | OwnedChina | | Leased |
Caprock Manufacturing PlantIrvine, California (1) | | U.S.A.Plant | | OwnedU.S.A. | | Leased |
East Providence PlantLubbock, Texas | | U.S.A.Plant | | LeasedU.S.A. | | Owned |
Fairfield PlantMexico City, Mexico | | U.S.A.Plant | | Mexico | | Owned |
Foshan City PlantNorth Attleboro, Massachusetts | | ChinaPlant | | LeasedU.S.A. | | Owned |
Franklin PlantPalmer, Massachusetts | | U.S.A.Plant | | U.S.A. | | Leased |
Hingham PlantTaunton, Massachusetts (1) | | U.S.A.Plant | | Leased |
Lubbock PlantU.S.A. | | U.S.A. | | Owned |
Medsorb Clean Room | | Dominican Republic | | Leased |
Mexico City Plant | | Mexico | | Owned |
North Attleboro Plant | | U.S.A. | | Owned |
Palmer Plant | | U.S.A. | | Leased |
Wallingford Plant | | U.S.A. | | Leased |
Warsaw Plant | | U.S.A. | | Leased |
Autocam Precision Components Group
Joint Venture
| | | | | | | | | | | | | | | | | | | | |
Manufacturing Operation Location | | Country General Character | | Country | | Owned or Leased |
Autocam Boutuva Plant | | Brazil | | Leased |
AutocamWuxi, China Plant | | China | | Leased |
Autocam Dowagiac Plant | | U.S.A. | | Owned |
Autocam Kentwood Plant 1 | | U.S.A. | | Leased |
Autocam Kentwood Plant 2 | | U.S.A. | | Leased |
Autocam Marshall Plant 1 | | U.S.A. | | Leased |
Autocam Marshall Plant 2 | | U.S.A. | | Leased |
Autocam Poland Plant | | Poland | | Owned |
Autocam Sao Joao da Boa Plant 1 | | Brazil | | Leased |
Autocam Sao Joao da Boa Plant 2 | | Brazil | | Leased |
Bouverat Industries Plant | | France | | Owned |
V-S Products Juarez Plant | | Mexico | | Leased |
V-S Products Wheeling Plant | | U.S.A. | | Leased |
Wellington Plant 1 | | U.S.A. | | Leased |
Wellington Plant 2 | | U.S.A. | | Leased |
Joint Venture
| | Plant | | |
Manufacturing Operation China | | Country | | Owned or Leased |
Wuxi Weifu Autocam Precision Machinery Company, Ltd. Facility Plant | | China | | N/A |
For more information, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
(1) Facilities that we plan to close during 2023.
In addition to these manufacturing plants, we lease office space in Charlotte, North Carolina, which serves as our corporate headquarters.
All
Item 3. Legal Proceedings
As disclosed in Note 13 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report, we are engaged in certain legal proceedings,
are of an ordinary and
routine naturethe disclosure set forth in Note 13 relating to certain commitments and
are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes. The procedures performed include reviewing attorney and plaintiff correspondence, reviewing any filings made and discussing the facts of the case with local management and legal counsel. We have not recognized any loss contingencies
at December 31, 2016 and 2015.is incorporated herein by reference. | Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures
Not
applicablePartapplicable.
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Our common stock is traded on
the NASDAQ Stock Market LLC (“NASDAQ”)Nasdaq under the trading symbol “NNBR.” As of
March 1, 2017,February 24, 2023, there were
approximately 6,6863,878 beneficial owners of record of our common
stock and the closing per share stock price as reported by NASDAQ was $20.70.The following table sets forth the high and low closing sales prices of the common stock, as reported by NASDAQ for our two most recent fiscal years.
| | | | | | | | |
| | Close Price | |
| | High | | | Low | |
2016 | | | | | | |
First Quarter | | $ | 14.90 | | | $ | 10.58 | |
Second Quarter | | | 19.16 | | | | 12.77 | |
Third Quarter | | | 18.81 | | | | 13.48 | |
Fourth Quarter | | | 20.21 | | | | 13.65 | |
| | |
2015 | | | | | | |
First Quarter | | $ | 28.18 | | | $ | 19.49 | |
Second Quarter | | | 29.86 | | | | 22.50 | |
Third Quarter | | | 26.97 | | | | 18.29 | |
Fourth Quarter | | | 19.54 | | | | 12.92 | |
stock.
The following graph and table below comparescompare the cumulative total shareholder return on our common stock with the cumulative total shareholder return of: (i) the Value Line MachineryRussell 2000® Index, (“Machinery Index”);which is a broad equity market index, and (ii) the Standard & Poors 500 Stock Index; (iii) the Standard & PoorsS&P SmallCap 600; and (iv)600® Industrials Index, which is a customized peer group,published industry index, for the period from December 31, 20112017, to December 31, 2016. The Machinery Index is an industry index comprised of 80 companies engaged in manufacturing of machinery and machine parts, a list of which may be obtained by writing to NN, Inc., Attention: Secretary, 207 Mockingbird Lane, Johnson City, Tennessee 37604. The customized peer group consists of the following companies, which we believe are in similar lines of business: Actuant Corporation, Altra Industrial Motion Corp., Ametek Inc., CIRCOR International, Inc., Colfax Corporation, Crane, Kaman Corporation, Park-Ohio Holdings Corp. and Worthington Industries, Inc. (collectively, the “Peer Group”).2022. The following graph and table assumesassume that a $100 investment was made at the close of trading on December 31, 2011 in our common stock and in the Machinery Index, the Standard & Poors 500 Stock Index, the Standard & Poors SmallCap 600 and the Peer Group.2017. We cannot assure you that the performance of our common stock will continue in the future with the same or similar trend depicted on the graph.In our Annual Report on Form 10-K for the year ended December 31, 2014, we used the Standard & Poors 500 Stock Index as our broad equity market index and the Machinery Index as our line of business index for our performance graph comparison. However, we have determined that the Standard & Poors SmallCap 600 is a more appropriate broad equity market index because it has more companies that have a market capitalization similar to us. Additionally we have determined that the Peer Group is a more appropriate comparative group than the Machinery Index, as the companies comprising the Peer Group include diversified industrial manufacturers like NN. In light of the diversification of our end markets and the broadening of our portfolio of products, services and solutions over the last two years, primarily due to the acquisitions of Autocam and PEP, we believe the Peer Group is comprised of companies that better reflect our current business.
Comparison of Five-Year Cumulative Total Return
NN Inc., S&P 500, S&P 600, Value Line Machinery and Peer Group
(Performance results through
12/31/16)
December 31, 2022)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
NN, Inc. | $ | 100.00 | | | $ | 24.78 | | | $ | 35.02 | | | $ | 24.87 | | | $ | 15.52 | | | $ | 5.68 | |
Russell 2000 | $ | 100.00 | | | $ | 88.99 | | | $ | 111.70 | | | $ | 134.00 | | | $ | 153.85 | | | $ | 122.41 | |
S&P SmallCap 600 Industrials | $ | 100.00 | | | $ | 87.85 | | | $ | 113.89 | | | $ | 127.53 | | | $ | 160.56 | | | $ | 145.46 | |
Source:
Value Line Publishing LLCZachs Investment Research, Inc.
The declaration and payment of dividends are subject to the sole discretion of our Board of Directors and depend upon our profitability, financial condition, capital needs, credit agreement restrictions, future prospects, and other factors deemed relevant by the Board of Directors.
The following table sets forth the dividends per share paid during the last two fiscal years. | | | | |
2016 | | Dividend | |
First Quarter | | $ | 0.07 | |
Second Quarter | | $ | 0.07 | |
Third Quarter | | $ | 0.07 | |
Fourth Quarter | | $ | 0.07 | |
| |
2015 | | Dividend | |
First Quarter | | $ | 0.07 | |
Second Quarter | | $ | 0.07 | |
Third Quarter | | $ | 0.07 | |
Fourth Quarter | | $ | 0.07 | |
See Part III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report
on Form 10-K for information required by Item 201 (d) of Regulation S-K.
| Item 6. | Selected Financial Data |
The following selected financial data has been derived from our audited financial statements. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Consolidated Financial Statements, including the Notes thereto.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
Statement of Income Data: | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 833,488 | | | $ | 667,280 | | | $ | 488,601 | | | $ | 373,206 | | | $ | 370,084 | |
Cost of products sold (exclusive of depreciation shown separately below) | | | 621,022 | | | | 525,993 | | | | 384,889 | | | | 295,136 | | | | 294,859 | |
Selling, general and administrative | | | 80,266 | | | | 51,745 | | | | 43,756 | | | | 33,281 | | | | 31,561 | |
Acquisition related costs excluded from selling, general and administrative | | | — | | | | 11,682 | | | | 9,248 | | | | — | | | | — | |
Depreciation and amortization | | | 62,488 | | | | 44,482 | | | | 22,146 | | | | 16,957 | | | | 17,643 | |
(Gain) loss on disposal of assets | | | 288 | | | | (687 | ) | | | — | | | | 5 | | | | (17 | ) |
Restructuring and integration | | | 10,024 | | | | 7,268 | | | | 875 | | | | — | | | | 967 | |
| | | | | | | | | | | | | | | | | | | | |
Income from operations | | | 59,400 | | | | 26,797 | | | | 27,687 | | | | 27,827 | | | | 25,071 | |
Interest expense | | | 63,154 | | | | 29,899 | | | | 10,895 | | | | 2,374 | | | | 3,878 | |
Write-off of unamortized debt issuance cost | | | 3,089 | | | | 18,673 | | | | 1,398 | | | | — | | | | — | |
Derivative payments on interest rate swap | | | 609 | | | | — | | | | — | | | | — | | | | — | |
Derivative losses on change in interest rate swap fair value | | | 2,448 | | | | — | | | | — | | | | — | | | | — | |
Other (income) expense, net | | | (2,591 | ) | | | 1,175 | | | | 2,222 | | | | 275 | | | | 852 | |
| | | | | | | | | | | | | | | | | | | | |
Income before provision (benefit) for income taxes | | | (7,309 | ) | | | (22,950 | ) | | | 13,172 | | | | 25,178 | | | | 20,341 | |
Provision (benefit) for income taxes | | | (9,313 | ) | | | (10,518 | ) | | | 5,786 | | | | 8,000 | | | | (3,927 | ) |
Share of net income from joint venture | | | 5,938 | | | | 5,001 | | | | 831 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 7,942 | | | $ | (7,431 | ) | | $ | 8,217 | | | $ | 17,178 | | | $ | 24,268 | |
| | | | | | | | | | | | | | | | | | | | |
Basic income per share: | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 0.29 | | | $ | (0.35 | ) | | $ | 0.46 | | | $ | 1.00 | | | $ | 1.43 | |
| | | | | | | | | | | | | | | | | | | | |
Diluted income per share: | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 0.29 | | | $ | (0.35 | ) | | $ | 0.45 | | | $ | 1.00 | | | $ | 1.42 | |
| | | | | | | | | | | | | | | | | | | | |
Dividends paid | | $ | 0.28 | | | $ | 0.28 | | | $ | 0.28 | | | $ | 0.18 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding—Basic | | | 27,016 | | | | 21,181 | | | | 17,887 | | | | 17,176 | | | | 17,009 | |
| | | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding – Diluted | | | 27,154 | | | | 21,181 | | | | 18,253 | | | | 17,260 | | | | 17,114 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, | |
| | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Current assets | | $ | 280,555 | | | $ | 280,181 | | | $ | 242,799 | | | $ | 125,674 | | | $ | 127,296 | |
Current liabilities | | | 138,616 | | | | 133,351 | | | | 137,598 | | | | 69,384 | | | | 58,758 | |
Total assets | | | 1,360,386 | | | | 1,380,567 | | | | 712,713 | | | | 262,402 | | | | 265,343 | |
Long-term debt | | | 785,713 | | | | 795,400 | | | | 328,026 | | | | 26,000 | | | | 63,715 | |
Stockholders’ equity | | | 315,199 | | | | 313,881 | | | | 173,699 | | | | 152,760 | | | | 128,560 | |
The year ended December 31, 2016 reflects fully all the acquisition activity from 2015 and 2014. Line items such as Selling, general and administrative costs, Depreciation and amortization, Restructuring and impairment charges, excluding goodwill impairment, and Interest expense all increased because of increased basis in assets and higher debt and employee levels. There were no acquisitions made during 2016.
The year ended December 31, 2015 was significantly impacted by certain costs related to the PEP Acquisition and to a lesser extent the Caprock acquisition completed in 2015, as well as the issuance of shares of our common stock. The total impact of these costs was $43.0 million (before tax) and $29.4 million (after tax). The balance sheet for the year ended December 31, 2015 includes the impact of these costs. With these acquisitions, we acquired current assets and total assets of $71.2 million and $741.6 million, respectively, and assumed current liabilities and total liabilities of $21.7 million and $111.3 million, respectively.
On July 1, 2015 we closed a registered follow-on offering of public common stock. The total number of shares of common stock sold was approximately 7.6 million at a public offering price of $24.00 per share. The net proceeds received from the offering, after deducting underwriter discounts, commissions and offering expenses, were approximately $173.1 million. Of these proceeds, $148.7 million was used for repayment of principal and interest on existing debt.
On October 19, 2015, concurrent with the PEP Acquisition, we: (i) entered into a new senior secured term loan credit facility in the amount of up to $525.0 million (with a $100.0 million accordion feature) and a seven year maturity (as amended, supplemented and/or restated from time to time, the “Term Loan Credit Facility”); (ii) entered into a new senior secured revolving credit facility in the amount of up to $100.0 million with a five year maturity (as amended, supplement and/or restated from time to time, the “Senior Secured Revolving Credit Facility”, and together with the Term Loan Credit Facility, the “Senior Credit Facilities”); and (iii) issued $300.0 million of 10.25% senior notes due 2020 (the “Senior Notes”). Proceeds from the Term Loan Credit Facility and the Senior Notes were used to finance the purchase price of the PEP Acquisition and pay down debt. The Senior Credit Facilities replaced our existing credit facilities. On November 9, 2015, an incremental term loan of $50.0 million was drawn on the Term Loan Credit Facility, and the proceeds were used to repurchase approximately $50.0 million of the Senior Notes. On September 30, 2016, we amended and restated the Senior Credit Facilities, which lowered the interest rate and rate floor on the Company’s Senior Secured Term Loan B (the “Term Loan B”). The new applicable rate for the Term Loan B is London Inter Bank Offering Rate (“LIBOR”), subject to a 0.75% rate floor, plus 4.25%, which in combination is 75 basis points lower (or 0.75%) than the previous rate. Concurrent with the amended and restated Term Loan B, the Senior Secured Revolving Credit Facility was upsized from $100 million to $133 million. Proceeds were drawn under the Senior Secured Revolving Credit Facility to pay down debt under the Term Loan B, reducing the debt under the Term Loan B to $545 million. During October 2016, an incremental amendment was executed increasing the $133 million Senior Secured Revolving Credit Facility to $143 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 7 of the Notes to Consolidated Financial Statements for more information. Additional details regarding the financing of the PEP Acquisition may be found in our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 20, 2015.
The year ended December 31, 2014 was significantly impacted by certain costs related to the Autocam acquisition and to a lesser extent the three other acquisitions completed in 2014. The total impact of these costs was $14.8 million (before tax) and $13.6 million (after tax). In addition, related to the Autocam acquisition, we discontinued use of certain trade names and incurred a $0.9 million impairment charge. The balance sheet for the year ended December 31, 2014 includes the impact of four acquisitions closed during 2014. With these acquisitions, we acquired current assets and total assets of $92.9 million and $433.9 million, respectively, and assumed current liabilities and total liabilities of $52.9 million and $124.4 million, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.
The year ended December 31, 2012 was impacted by a favorable tax benefit of a net $7.3 million from removing valuation allowances on deferred tax assets in the U.S. Additionally, results for the year ended December 31, 2012 were negatively impacted by impairments of $1.0 million and after tax foreign exchange losses of $1.1 million related to intercompany notes.
Item 6. Reserved
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the Notes thereto and the Selected Financial Data included elsewhere in this Annual Report on Form 10-K.Report. Historical
operating results and percentage relationships among any amounts included in the Consolidated Financial Statements are not necessarily indicative of trends in operating results for any future period. Unless otherwise noted herein, all amounts are in thousands, except per share numbers.
A detailed discussion of our results of operations and liquidity and capital resources for the year ended December 31, 2021 compared to the year ended December 31, 2020 are not included herein and can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 11, 2022. Overview and Management Focus
Our strategy and management focus
isare based upon the following long-term objectives
•Organic and acquisitive growth within all our segments;
Sales growth in adjacent markets;•Improved operating margins;
Sales growth through acquisitions; and•Cost reduction;
Global expansion•optimization of our manufacturing base to better address the global requirements of our customers.footprint;
•Efficient capital deployment;
•Debt leverage ratio improvement;
•Capital management initiatives; and
•Employee health, safety, and satisfaction;
Management generally focuses on these trends and relevant market indicators
Global industrial growth and economics;
Global automotive production rates;
Costs subject to the global inflationary environment, including, but not limited to:
Raw material;
Wages and benefits, including health care costs;
Regulatory compliance; and
Energy;
•Trends related to the geographic migration of competitive manufacturing;manufacturing, electric vehicles, and electrification;
•Costs subject to regional and global inflationary environments, including, but not limited to:
•Raw materials;
•Wages and benefits, including health care costs;
•Regulatory compliance; and
•Energy;
•Global automotive production rates;
•Global industrial growth and economics;
•Residential and non-residential construction rates;
•Regulatory environment for United States public companies and manufacturing companies;
•Currency and exchange rate movements and trends; and
•Interest rate levels and expectations.expectations; and
•Changes in tariff regulations.
Management generally focuses on the following key indicators of operating performance
•Sales growth;
•Cost of products sold;sales;
•Gross margin;
•Selling, general and administrative expense;
•Earnings before interest, taxes, depreciation and amortization;
•Return on invested capital;
•Income from operations and adjusted income from operations;
•Net income and adjusted net income;
•Leverage ratio
•Cash flow from operations and capital spending;
•Certain non-GAAP measures as defined in our quarterly earnings releases and investor presentations;
•Customer service reliability;
•External and internal quality indicators; and
•Employee development.
Critical Accounting
PoliciesEstimates
Our significant accounting policies, including the assumptions and judgment underlying them, are disclosed in Note 1 of the Notes to Consolidated Financial Statements.
These policies have been consistently appliedAs disclosed in
all material respects and address such matters as revenue recognition, inventory valuation and asset impairment recognition. Due toNote 1, the
estimation processes involved, management considers the following summarizedpreparation of financial statements in conformity with generally accepted accounting
policies and their application to be critical to understanding our business operations, financial condition and results of operations. We cannot assure you that actual results will not significantly differ from the estimates used in these critical accounting policies.Business Combinations. We allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill. The purchase price allocation process required us to use significant estimates and assumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company, in part based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations are performed by management or third party valuation specialists under management’s supervision. In determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: the income approach (including discounted cash flows from relief from royalty and excess earnings model), the market approach and/or the replacement cost approach.
Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:
sales volume, pricing and future cash flows of the business overall;
future expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels, rates of increase in revenue and appropriate attrition rate;
the acquired company’s brand and competitive position, royalty rate quantum, as well as assumptions about the period of time the acquired brand will continue to benefit to the combined company’s product portfolio; and
cost of capital, risk-adjusted discount rates and income tax rates.
However, different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of assets and liabilities, mainly between property plant and equipment, intangibles assets, goodwill and deferred income tax liabilities and subsequent assessment could result in future impairment charges. The purchase price allocation process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at acquisition date.
Goodwill and Acquired Intangibles. For new acquisitions, we use estimates, assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill. These estimates are based on market analyses and comparisons to similar assets. Annual procedures are required to be performed to assess whether recorded goodwill is impaired. The annual tests requireprinciples requires management to make estimates and assumptions with regardabout future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the futureportrayal of our financial condition and results of operations of its reporting units, and the expected cash flows that they will generate. These estimatesrequire management’s most difficult, subjective, and assumptions could impact the recorded value of assets acquired in a business combination, including goodwill, and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment.
Goodwill is tested for impairment on an annual basis as of October 1 and between annual tests if a triggering event occurs. The impairment procedures are performed at the reporting unit level. In testing goodwill, we have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount including goodwill, the quantitative impairment test is required. Otherwise, no further testing is required. The decision to perform a qualitative assessment or a complete step 1 analysis is an annual decision made by management based on several factors including budget to actual performance, economic, market and industry considerations such as automotive production rates in the geographic markets we serve and cash flow from operations.
Generally accepted accounting principles in the U.S. (“GAAP”) prescribes a quantitative two-step process of testing for goodwill impairments. The first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit. We considered three main approaches to value (cost, market and income) the fair value of the reporting unit and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies. We believe this methodology of valuation is consistent with how market participants would value reporting units. The discount rate and market based multiples used are specifically developed for the units tested regarding the level of risk and end markets served. Even though we do use other observable inputs (Level 2 inputs under the GAAP hierarchy), the calculation of fair value for goodwill would be most consistent with Level 3 under the GAAP hierarchy. We conducted tests for goodwill impairment for the years ended December 31, 2016 and 2015 and concluded no impairment of goodwill had occurred.
As of fourth quarter testing, the PEP Acquisition (the “PEP reporting unit”) had an estimated fair value that exceeded the carrying value including goodwill by 4 percent. As of December 31, 2016, goodwill of $368.3 million is allocated to the PEP reporting unit. Cash flows from the PEP reporting unit are susceptible to changes in demand due to cyclicality and timing of customer project completions primarily in the electrical and medical markets. Weakened demand in these markets could decrease the estimated fair value of the PEP reporting unit. Two of the most critical assumptions used in the calculation of the fair value of the PEP reporting unit are the target market long-term growth rate and the discount rate. Although management believes its estimate of fair value is reasonable, if the PEP reporting unit’s financial performance falls below expectation or there are negative revisions to key assumptions, the Company may be required to recognize an impairment charge.
If the carrying value of the reporting unit, including goodwill, is less than fair value of the reporting unit, the goodwill is not considered impaired. If the carrying value is greater than fair value, then the potential for impairment of goodwill exists. The potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination. The fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value.
Our indefinite lived intangible asset is accounted for similarly to goodwill. This asset is tested for impairment at least annually by comparing the fair value to the carrying value, using the relief from royalty rate method, and if the fair value is less than the carrying value, an impairment charge is recognized for the difference. The indefinite lived intangible asset was impaired during the year ended December 31, 2014, as management is in the process of phasing out the use of the trade name as a result of the Autocam acquisition.
complex judgments.
Income taxes.Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carry forwards.carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of certain foreign subsidiaries as these earnings are not deemed to be permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes. We eliminate disproportionate tax effects from accumulated other comprehensive income (loss) when the circumstances upon which they are premised cease to exist.
The calculation of tax assets, liabilities, and expenses under U.S. GAAP is largely dependent on management judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely than not threshold. Specifically, the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon management weighting the current positive and negative evidence for recording tax benefits and expenses. Additionally, manyA significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our positionsprojections for future earnings growth. We have recorded a U.S. deferred tax liability for foreign earnings which are based on future estimates of taxablenot indefinitely reinvested. We treat global intangible low-taxed income (“GILTI”) as a periodic charge in the year in which it arises and deductibility of tax positions. Particularly, our assertion of permanent reinvestment of foreign undistributed earnings is largely based on management’s future estimates of domestic and foreign cash flows and current strategic foreign investment plans. therefore do not record deferred taxes for basis differences associated with GILTI.
In the event that the actual outcome from future tax consequences differs from management estimates and assumptions or management plans and positions are amended, the resulting change to the provision for income taxes could have a material impact on the consolidated results of operations and
statement of financial position.
(See Notes 1 and 13 of the Notes to Consolidated Financial Statements).We did not record a U.S. deferred tax liability for the excess of the book basis over the tax basis of our investments in foreign subsidiaries to the extent the foreign earnings meet the indefinite reversal criteria. As of the year ended December 31, 2016, we consider the unremitted foreign earnings of our foreign subsidiaries to be reinvested indefinitely. We base this assertion on two factors. First, our intention to invest in foreign countries that are strategically important to our Precision Bearing Components Group, Autocam Precision Components Group and customers. With the acquisitions completed in 2015 and 2014, we have expanded our domestic and international base of operations adding subsidiaries in Mexico and China, which will require more foreign investment. Second, we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic operational and investment needs. As such, we do not expect unrepatriated foreign earnings to become subject to U.S. taxation.
Impairment of Long-Lived Assets. Our
Long-lived tangible and intangible assets subject to depreciation or amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets may not be recoverable. A test for recoverability is also performed when management has committed to a plan to dispose of a reporting unit or asset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived
assets include property, planttangible or intangible asset is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is deemed not recoverable, then the asset is considered impaired and
equipment. The recoverabilityadjusted to fair value which is then depreciated or amortized over its remaining useful life. Assets to be disposed of
are recorded at the
long-term assets is dependent on the performancelesser of
the companies which we have acquiredcarrying value or
built, as well as the performancefair value less costs of
the markets in which these companies operate.disposal. In assessing potential impairment for
theselong-lived assets, we
will consider
these factors as well as forecasted financial performance based, in large part, on management business plans and projected financial information which are subject to a high degree of management judgment and complexity. Future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized.
Fair Value Measurements
Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. Fair value principles prioritize valuation inputs across three broad levels. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.
Results of Operations
During
Factors That May Influence Results of Operations
The following paragraphs describe factors that have influenced results of operations for the year ended December 31, 2014, we completed2022, that management believes are important to provide an understanding of the acquisition of four companies: V-S, RFK, Chelseabusiness and Autocam. The acquisitions of V-S, RFK, Chelsea and Autocam occurred on January 20, 2014, June 20, 2014, July 15, 2014 and August 29, 2014, respectively. As such, only eleven, six, five, and four monthsresults of operations were includedor that may influence operations in the year ended December 31, 2014future.
Macroeconomic Conditions
We continue to monitor the ongoing impacts of current macroeconomic and geopolitical events, including changing conditions from the COVID-19 pandemic, the ongoing Russia-Ukraine conflict, inflationary cost pressures, rising interest rates, supply chain disruptions, and labor shortages.
The COVID-19 pandemic and governmental responses thereto, including COVID-19 lockdowns in China, continue to impact our business operations and our customers' and suppliers' ability to operate at normal levels. Disruptions in normal operating levels continue to create supply chain disruptions and inflationary cost pressures within our end-markets. We anticipate that supply chain constraints and the inflationary environment, as impacted by the COVID-19 pandemic, will continue into 2023.
The Russia-Ukraine conflict also continues to create volatility in global financial and energy markets, creating energy and supply chain shortages, which has added to the inflationary pressures experienced by the global economy. We continue to actively work with respectour suppliers to V-S, RFK, Chelsea and Autocam, respectively. Duringminimize impacts of supply shortages on our manufacturing capabilities. Although our business has not been materially impacted by the year ended December 31, 2015,ongoing Russia-Ukraine conflict we completedcannot predict the acquisitionextent to which our operations, or those of two companies: Caprock and PEP. We acquired Caprock on May 29, 2015 and PEP on October 19, 2015. As such, seven and two monthsour customers or suppliers, will be impacted in the future, or the ways in which the conflict may impact our business, financial condition, results of operations were includedand cash flows.
The U.S. economy is experiencing broad and rapid inflation and rising interest rates, as well as supply issues in materials, services, and labor due to economic policy, the year ended December 31, 2015 with respectCOVID-19 pandemic and, more recently, the Russia-Ukraine conflict. These impacts are likely to Caprockpersist into 2023 and PEP. In an effort to enhancebeyond. We cannot predict the comparabilityimpact on the Company’s end-markets or input costs nor the ability of the current and prior year periods, we have aggregated into “acquisitions” within each financial line item comparison forCompany to recover cost increases through pricing.
Sales Concentration
During the years ended December 31,
2016, 20152022, 2021 and
2014 that were not included in the comparative prior year period. The remaining changes related to our legacy business.Devaluation2020, no single customer accounted for 10% or more of the Euro against the U.S. Dollar
The euro devalued against the U.S. dollar beginning in the latter partconsolidated net sales.
Financial Data as a Percentage of
the third quarter of 2014 and accelerated during the fourth quarter of 2014 and into the first quarter of 2015. During these periods, the euro to U.S. dollar dropped from approximately $1.36 in June 2014 to $1.08 in March 2015, representing an approximate 21% decline in value. The exchange rate ranged between $1.08 and $1.12 for the remainder of the 2015. The exchange rates ranged between $1.05 and $1.09 during 2016, with $1.05 being the exchange rate at December 31, 2016. The devaluation of the euro significantly impacted the translation of our euro denominated sales and costs when comparing year over year activity. The euro translation impact, and the translation impact of other currencies, is highlighted below in the overall results as “foreign exchange effects”. In addition to translation effects, the devaluation of the euro impacted the value of certain intercompany loan receivables denominated in euros.Net Sales
The following table
shows fluctuations in exchange rates in 2016, 2015 and 2014.
The following table sets forth for the periods indicated selected financial data andpresents the percentage of our net sales represented by each income statement of operations line item presented.
As a Percentageitem.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales (exclusive of depreciation and amortization shown separately below) | 84.4 | % | | 81.7 | % | | 80.4 | % |
Selling, general, and administrative expense | 10.0 | % | | 10.8 | % | | 13.6 | % |
| | | | | |
Depreciation and amortization | 9.5 | % | | 9.7 | % | | 10.7 | % |
| | | | | |
Goodwill impairment | — | % | | — | % | | 21.7 | % |
Other operating expense (income), net | 0.4 | % | | (0.2) | % | | 1.1 | % |
Loss from operations | (4.2) | % | | (1.9) | % | | (27.5) | % |
Interest expense | 3.0 | % | | 2.7 | % | | 4.4 | % |
Loss on extinguishment of debt and write-off of debt issuance costs | — | % | | 0.5 | % | | — | % |
Derivative payments on interest rate swap | — | % | | 0.4 | % | | 1.0 | % |
Loss on interest rate swap | — | % | | 0.4 | % | | 2.7 | % |
Other income, net | (1.0) | % | | (1.1) | % | | — | % |
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture | (6.2) | % | | (4.7) | % | | (35.6) | % |
Benefit (provision) for income taxes | (0.3) | % | | 0.4 | % | | 2.1 | % |
Share of net income from joint venture | 1.3 | % | | 1.3 | % | | 0.8 | % |
Loss from continuing operations | (5.2) | % | | (3.0) | % | | (32.6) | % |
Income from discontinued operations, net of tax | — | % | | 0.3 | % | | 9.1 | % |
Net loss | (5.2) | % | | (2.8) | % | | (23.5) | % |
Year Ended December 31,
2016 Compared2022 compared to the Year Ended December 31,
2015.The2021
| | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | $ Change |
Net sales | $ | 498,738 | | | $ | 477,584 | | | $ | 21,154 | | |
| | | | | | |
| | | | | | |
Cost of sales (exclusive of depreciation and amortization shown separately below) | 421,105 | | | 389,995 | | | $ | 31,110 | | |
Selling, general, and administrative expense | 49,635 | | | 51,489 | | | (1,854) | | |
| | | | | | |
Depreciation and amortization | 47,231 | | | 46,195 | | | 1,036 | | |
| | | | | | |
Other operating expense (income), net | 1,859 | | | (1,091) | | | 2,950 | | |
Loss from operations | (21,092) | | | (9,004) | | | (12,088) | | |
Interest expense | 15,041 | | | 12,664 | | | 2,377 | | |
Loss on extinguishment of debt and write-off of debt issuance costs | — | | | 2,390 | | | (2,390) | | |
Derivative payments on interest rate swap | — | | | 1,717 | | | (1,717) | | |
Loss on interest rate swap | — | | | 2,033 | | | (2,033) | | |
Other income, net | (5,064) | | | (5,366) | | | 302 | | |
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture | (31,069) | | | (22,442) | | | (8,627) | | |
Benefit (provision) for income taxes | (1,621) | | | 1,756 | | | (3,377) | | |
Share of net income from joint venture | 6,592 | | | 6,261 | | | 331 | | |
Loss from continuing operations | (26,098) | | | (14,425) | | | (11,673) | | |
Income from discontinued operations, net of tax | — | | | 1,200 | | | (1,200) | | |
Net loss | $ | (26,098) | | | $ | (13,225) | | | $ | (12,873) | | |
Net Sales. Net sales increased by $21.2 million, or 4.4%, during the year ended December 31, 2016 was significantly impacted by certain costs related to past acquisitions and higher debt levels. The net of tax impact of these costs was $31.5 million. The following is a summary of these costs: | | | | |
$ | 30,919 | | | Intangible asset amortization cost related to a acquisition activities and deferred financing costs |
| 10,024 | | | Reorganization and impairment charges |
| 4,651 | | | Acquisition and integration costs |
| 3,785 | | | Write-off of interest rate swap |
| 3,089 | | | Write-off of unamortized debt issuance costs |
| (1,219 | ) | | Foreign exchange loss on inter-company charges |
| (19,773 | ) | | Tax effect of identified items |
| | | | |
$ | 31,476 | | | Total |
| | | | |
OVERALL RESULTS
| | | | | | | | | | | | | | | | |
| | Consolidated NN, Inc. Year ended December 31, | |
| | 2016 | | | 2015 | | | Change | | | | |
Net sales | | $ | 833,488 | | | $ | 667,280 | | | $ | 166,208 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 192,182 | |
Foreign exchange effects | | | | | | | | | | | | | | | (5,377 | ) |
Sale of a plant | | | | | | | | | | | | | | | (8,173 | ) |
Volume | | | | | | | | | | | | | | | 1,214 | |
Price/material inflation pass-through/mix | | | | | | | | | | | | | | | (13,638 | ) |
Cost of products sold (exclusive of depreciation and amortization shown separately below) | | | 621,022 | | | | 525,993 | | | | 95,029 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 119,157 | |
Foreign exchange effects | | | | | | | | | | | | | | | (4,186 | ) |
Sale of a plant | | | | | | | | | | | | | | | (6,375 | ) |
Volume | | | | | | | | | | | | | | | (1,255 | ) |
Cost reduction projects | | | | | | | | | | | | | | | (12,312 | ) |
Selling, general and administrative | | | 80,266 | | | | 51,745 | | | | 28,521 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 15,514 | |
Foreign exchange effects | | | | | | | | | | | | | | | (352 | ) |
Integration related costs | | | | | | | | | | | | | | | 2,984 | |
Infrastructure and staffing costs | | | | | | | | | | | | | | | 10,375 | |
Acquisition related costs excluded from selling, general and administrative | | | — | | | | 11,682 | | | | (11,682 | ) | | | | |
Depreciation and amortization | | | 62,488 | | | | 44,482 | | | | 18,006 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 16,979 | |
Foreign exchange effects | | | | | | | | | | | | | | | (328) | |
Increase in expense | | | | | | | | | | | | | | | 1,355 | |
Restructuring and impairment charges | | | 10,024 | | | | 7,268 | | | | 2,756 | | | | | |
(Gain)/Loss on disposal of assets | | | 288 | | | | (687 | ) | | | 975 | | | | | |
| | | | | | | | | | | | | | | | |
Income from operations | | | 59,400 | | | | 26,797 | | | | 32,603 | | | | | |
Interest expense | | | 63,154 | | | | 29,899 | | | | 33,255 | | | | | |
Write-off of unamortized debt issuance cost | | | 3,089 | | | | 18,673 | | | | (15,584 | ) | | | | |
Derivative payments (receipts) on interest rate swap | | | 609 | | | | — | | | | 609 | | | | | |
Derivative (gains) losses on change in interest rate swap fair value | | | 2,448 | | | | — | | | | 2,448 | | | | | |
Other (income) expense, net | | | (2,591 | ) | | | 1,175 | | | | (3,766 | ) | | | | |
| | | | | | | | | | | | | | | | |
Income (loss) before provision (benefit) for income taxes and share of net income from joint venture | | | (7,309 | ) | | | (22,950 | ) | | | 15,641 | | | | | |
Provision (benefit) expense for income taxes | | | (9,313 | ) | | | (10,518 | ) | | | 1,205 | | | | | |
Share of net income from joint venture | | | 5,938 | | | | 5,001 | | | | 937 | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 7,942 | | | $ | (7,431 | ) | | $ | 15,373 | | | | | |
| | | | | | | | | | | | | | | | |
Net Sales.Net sales increased during 20162022, compared to 2015the year ended December 31, 2021, primarily due to increased pricing partially offset by lower volume and unfavorable foreign exchange effects of $4.2 million.
Cost of Sales. Cost of sales from PEP business that was acquired inincreased by $31.1 million, or 8.0%, during the fourthyear ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to inflationary costs and unfavorable overhead absorption, partially offset by lower sales volume and favorable foreign exchange effects.
Selling, General, and Administrative Expense. Selling, general, and administrative expense decreased by $1.9 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower incentive compensation, severance and retention expense. These decreases were partially offset by higher stock compensation expense, higher professional fees and increased travel costs.
Other Operating Expense (Income), Net. Other operating expense (income), net changed unfavorably by $3.0 million primarily due to a legal settlement reached during the first quarter of 2015. Partially offsetting these increases were both2022 and the gain on the sale of a facility that was recognized in the Delta Rubber plant in November 2015third quarter of 2021.
Interest Expense. Interest expense increased by $2.4 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher interest rates and the impact of devaluationa larger average debt balance as a result of the eurocredit facility and other currency denominated sales, as discussed above. Additionally, we had lower sales prices and changes in product mix, offset by volumes. The reduction in value relatespreferred stock refinance that occurred during the first quarter of 2021. In addition, borrowings on the ABL Facility during the year ended December 31, 2022 contributed to global industrial weaknesshigher interest expense. These increases were partially offset by growtha
higher amount of interest expense that was capitalized in
2022 compared with the
markets we serve.Cost of Products Sold (exclusive of depreciationprior year and amortization shown separately below). The increase in cost of products sold was primarily due to the addition of production costs from the acquired PEP business, as discussed above. Partially offsetting these increases was thepositive impact of the devaluationinterest rate swap.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
Interest on debt | $ | 14,071 | | | $ | 10,800 | |
Interest rate swap settlements | (428) | | | 77 | |
Amortization of debt issuance costs and discount | 1,361 | | | 1,381 | |
Capitalized interest | (610) | | | (300) | |
Other | 647 | | | 706 | |
Total interest expense | $ | 15,041 | | | $ | 12,664 | |
Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs. We recognized $2.4 million in the euro and other currency denominated costs, as discussed above. Additionally,first quarter of 2021 for the decrease was incurred due to savings from cost reduction projects partially offset by changes in price, product mix, and material inflation pass-through.Selling, General and Administrative. Much of the increase during 2016 was due to the selling, general and administrative costs from the acquired PEP business. Additionally, administrative costs were incurred for infrastructure and staffing costs related to our strategic initiatives.
Acquisition related costs excluded from selling, general and administrative. Acquisition related costs are third party legal, accounting, valuation consulting and investment banking advisory fees incurred directly related to the PEP Acquisition and the Caprock acquisition in 2015.
Depreciation and Amortization. The increase in 2016 was primarily due to depreciation and amortization from the acquired PEP business. This additional depreciation and amortization includes the related step-ups of certain property, plant and equipment to fair value and the addition of intangible assets principally for customer relationships and trade names related to the purchase price allocation of the new acquisitions.
Interest expense. Interest expense increased in 2016 from the interest on the debt we undertook to complete the PEP Acquisition and the Caprock acquisition.
Write-offwrite-off of unamortized debt issuance costs associated with the credit facility that was terminated in March 2021.
Derivative Payments on Interest Rate Swap. Derivative payments on interest rate swap represent cash settlements of an interest rate swap which was terminated in the first quarter of 2021. We entered into a new interest rate swap in the third quarter of 2021, which is designated as a cash flow hedge with the impact of settlements recognized in interest expense.
Loss on Interest Rate Swap. Write-offWe recognized a $2.0 million loss in the first quarter of debt issuance costs was incurred2021 related to the termination of the previous interest rate swap in March 2021.
Other Income, Net. Other income, net changed unfavorably by $0.3 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower derivative mark-to-market gains recognized in 2022, partially offset by the refinancingimpact of debta litigation settlement in both 20162021 and 2015.more favorable foreign exchange effects associated with intercompany borrowings.
Benefit (Provision) for Income Taxes. Our effective tax rate was (5.2)% for the year ended December 31, 2022, compared to 7.8% for the year ended December 31, 2021. Our effective tax rate for the year ended December 31, 2022 was unfavorably impacted by the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized. The effective tax rate for the year ended December 31, 2022 was favorably impacted by the recording of interest income on the Company’s federal income tax refund requested as a result of the Coronavirus Aid, Relief, and Economic Security Act, as well as the recording of a benefit of a pending state refund claim. Our effective tax rate for the year ended December 31, 2021 was favorably impacted by the change in assertion and reduction in the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and unfavorably impacted by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized.
Share of Net Income from Joint Venture. Share of net income from joint venture. Net income from our joint venturethe JV increased by $0.3 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily increased due to increasedhigher sales partially offset by higher operating costs in the current year. The JV, in which were up $10 million between the years. Their primary customer is Bosch, and Bosch continues to gain market share and we continue to win new business from them.Provision for Income Taxes. Fromown a dollar standpoint, the provision for both periods was a Benefit49% investment, recognized net sales of $9.3$101.6 million and $10.5$94.8 million for the years ended December 31, 20162022 and 2015,2021, respectively. However,
Income from Discontinued Operations, Net of Tax. We recognized a percentage basis,gain of $1.2 million during the effective tax rate in 2016 was much greateryear ended December 31, 2021, due to the proportionate sharefavorable resolution of income wasa tax indemnity that resulted from the foreign entities and the utilizationsale of net operating lossesour Life Sciences business in U.S.RESULTS BY SEGMENT
PRECISION BEARING COMPONENTS GROUP
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | Change | | | | |
Net sales | | $ | 248,534 | | | $ | 261,837 | | | $ | (13,303 | ) | | | | |
Foreign exchange effects | | | | | | | | | | | | | | | (2,287) | |
Volume | | | | | | | | | | | | | | | (5,795) | |
Price/material inflation pass-through/mix | | | | | | | | | | | | | | | (5,221) | |
Income from operations | | $ | 22,985 | | | $ | 26,310 | | | $ | (3,325 | ) | | | | |
| | | | | | | | | | | | | | | | |
2020.
Results by Segment
MOBILE SOLUTIONS
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | $ Change |
Net sales | $ | 293,536 | | | $ | 285,863 | | | $ | 7,673 | | |
| | | | | | |
| | | | | | |
Income (loss) from operations | $ | (2,165) | | | $ | 9,039 | | | $ | (11,204) | | |
Net sales
decreasedincreased by $7.7 million, or 2.7%, during
2016the year ended December 31, 2022, compared to
2015 principally due to devaluation of the
Euro and other currencies, lower volumes and changes to product mix. The lower volumes wereyear ended December 31, 2021, primarily due to
global industrial market weaknessincreased pricing, partially offset by
growthlower sales of diesel components due to lower European demand which was impacted by the war in
automotive markets.The decreaseUkraine, COVID-19 interruptions in incomeChina, lost sales associated with certain fuel systems reaching end of production, and unfavorable foreign exchange effects of $4.1 million.
Income (loss) from operations was consistentdecreased by $11.2 million during the year ended December 31, 2022 compared to the prior year, primarily due to inflationary costs not fully recovered in customer pricing, unfavorable overhead absorption, start-up costs associated with Mexico new business launches, and variable cost inefficiencies associated with supply chain interruptions,
uneven customer ordering patterns, and labor constraints caused by pandemic interruptions. These decreases were partially offset by lower incentive compensation expense.
POWER SOLUTIONS
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | $ Change |
Net sales | $ | 205,204 | | | $ | 191,800 | | | $ | 13,404 | | |
| | | | | | |
| | | | | | |
Income from operations | $ | 3,536 | | | $ | 6,493 | | | $ | (2,957) | | |
Net sales increased by $13.4 million, or 7.0%, during the decreaseyear ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher customer pricing.
Income from operations decreased by $3.0 million during the year ended December 31, 2022 compared to the same period in
net sales, andthe prior year, primarily due to a $1.8 million litigation settlement to resolve a claim from 2016, an increase in
restructuring charges related to personnel reductionsamortization expense, and the absence of
$4.4 million.PRECISION ENGINEERED PRODUCTS GROUP
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | Change | | | | |
Net sales | | $ | 258,816 | | | $ | 77,183 | | | $ | 181,633 | | | | | |
Acquisition | | | | | | | | | | | | | | | 174,176 | |
Sale of a plant | | | | | | | | | | | | | | | (2,298) | |
Price/material inflation pass-through/mix | | | | | | | | | | | | | | | 9,755 | |
Income from operations | | $ | 34,744 | | | $ | (3,718 | ) | | $ | 38,462 | | | | | |
| | | | | | | | | | | | | | | | |
The increase in net sales and income from operations was due primarily to the acquisition of PEP anda gain on the sale of Delta Rubbera facility in the fourththird quarter of 2015.
AUTOCAM PRECISION COMPONENTS GROUP
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | Change | | | | |
Net sales | | $ | 326,138 | | | $ | 328,260 | | | $ | (2,122 | ) | | | | |
Volume | | | | | | | | | | | | | | | 6,995 | |
Foreign exchange effects | | | | | | | | | | | | | | | (3,090) | |
Price/material inflation pass-through/mix | | | | | | | | | | | | | | | (6,027) | |
Income from operations | | $ | 29,516 | | | $ | 31,700 | | | $ | (2,184 | ) | | | | |
| | | | | | | | | | | | | | | | |
The decrease in net sales in 2016 was due to the devaluation of the Brazilian real and changes to the product mix,2021. These decreases were partially offset by the increase in volume. The growth in volume was within CAFE Technologies within automotive.
The decrease in income from operations was consistent with the decrease in net sales and due to restructuring charges in 2016 related to our Wheeling plant closure of $4.3 million.
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014.
The year ended December 31, 2015 was significantly impacted by certain costs related to the PEP Acquisition and, to a lesser extent, the Caprock acquisition. The net of tax impact of these costs was $43.2 million. The following is a summary of these costs:
| | | | |
$ | 11,682 | | | Third party legal, accounting, valuation consulting and investment banking advisory fees, which are reported in acquisition related costs excluded from selling, general and administrative |
| 4,300 | | | Inventory purchase price adjustment related to the PEP Acquisition reported in cost of products sold |
| 5,202 | | | Intangible asset amortization cost related to a backlog purchase price adjustment reported in depreciation and amortization |
| 18,673 | | | Debt issuance costs related to credit facilities refinanced as part of the PEP Acquisition, reported as write-off of debt issuance costs |
| 3,368 | | | Integration costs related to acquisitions reported in cost of products sold |
| (15,129 | ) | | Tax effect of identified items |
| | | | |
$ | 28,096 | | | Total |
| | | | |
OVERALL RESULTS
| | | | | | | | | | | | | | | | |
| | Consolidated NN, Inc. | |
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | Change | | | | |
Net sales | | $ | 667,280 | | | $ | 488,601 | | | $ | 178,679 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 212,463 | |
Foreign exchange effects | | | | | | | | | | | | | | | (39,086 | ) |
Volume | | | | | | | | | | | | | | | 10,159 | |
Price/material infation pass-through/mix | | | | | | | | | | | | | | | (4,857 | ) |
Cost of products sold (exclusive of depreciation and amortization shown separately below) | | | 525,993 | | | | 384,889 | | | | 141,104 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 163,482 | |
Foreign exchange effects | | | | | | | | | | | | | | | (33,673 | ) |
Volume | | | | | | | | | | | | | | | 7,631 | |
Price/material infation pass-through/mix | | | | | | | | | | | | | | | (3,861 | ) |
Acquisition integration costs and inventory step-up | | | | | | | | | | | | | | | 7,525 | |
Selling, general and administrative | | | 51,745 | | | | 43,756 | | | | 7,989 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 12,455 | |
Foreign exchange effects | | | | | | | | | | | | | | | (2,408 | ) |
Other | | | | | | | | | | | | | | | (2,058 | ) |
Acquisition related costs excluded from selling, general and administrative | | | 11,682 | | | | 9,248 | | | | 2,434 | | | | | |
Depreciation and amortization | | | 44,482 | | | | 22,146 | | | | 22,336 | | | | | |
Acquisitions | | | | | | | | | | | | | | | 22,430 | |
Foreign exchange effects | | | | | | | | | | | | | | | (1,283 | ) |
Increase in expense | | | | | | | | | | | | | | | 1,189 | |
Restructuring and impairment charges | | | 7,268 | | | | 875 | | | | 6,393 | | | | | |
(Gain)/Loss on disposal of assets | | | (687 | ) | | | — | | | | (687 | ) | | | | |
| | | | | | | | | | | | | | | | |
Income from operations | | | 26,797 | | | | 27,687 | | | | (890 | ) | | | | |
Interest expense | | | 29,899 | | | | 10,895 | | | | 19,004 | | | | | |
Write-off of unamortized debt issuance cost | | | 18,673 | | | | 1,398 | | | | 17,275 | | | | | |
Other (income) expense, net | | | 1,175 | | | | 2,222 | | | | (1,047 | ) | | | | |
| | | | | | | | | | | | | | | | |
Income (loss) before provision (benefit) for income taxes and share of net income from joint venture | | | (22,950 | ) | | | 13,172 | | | | (36,122 | ) | | | | |
Provision (benefit) expense for income taxes | | | (10,518 | ) | | | 5,786 | | | | (16,304 | ) | | | | |
Share of net income from joint venture | | | 5,001 | | | | 831 | | | | 4,170 | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | (7,431 | ) | | $ | 8,217 | | | $ | (15,648 | ) | | | | |
| | | | | | | | | | | | | | | | |
Net Sales Net sales increased during 2015 compared to 2014 principally due to sales from the companies acquired in 2014 and 2015. Three of the four companies acquired during 2014 were acquired subsequent to the first half of 2014 and two were acquired during 2015. Additionally, sales growth came from overall volume growth in the markets we serve, from new sales programs with existing customers and sales with new customers in each of these geographic markets. Partially offsetting these increases was the impact of devaluation of the euro on euro denominated sales, as discussed above.
Cost of Products Sold (exclusive of depreciation and amortization shown separately below). Cost of products sold was primarily impacted by the addition of production costs added with the 2015 and 2014 acquisitions, as discussed above. Additionally, the total was impacted by increased production costs at those units that experienced higher sales volumes, as discussed above. Finally, we incurred $7.5 million of costs directly related to acquisitions and integrations and specifically $4.3 million related to a step-up in value of inventory of an acquired company and $3.3 million related to integration costs. Partially offsetting these increases was the impact of devaluation of the euro on euro denominated costs, as discussed above.
Selling, General and Administrative. The majority of the increase during 2015 was due to the selling, general and administrative costs carried over from the companies acquired in 2015 and 2014.
Acquisition related costs excluded from selling, general and administrative. Acquisition related costs are third party legal, accounting, valuation consulting and investment banking advisory fees incurred directly related to the PEP Acquisition and the Caprock acquisition in 2015, and Autocam acquisition and our other acquisitions in 2014.
Depreciation and Amortization. The increase in 2015 was due to depreciation and amortization from the 2015 and 2014 acquisitions. The additional depreciation and amortization includes the related step-ups of certain property, plant and equipment to fair value and the addition of intangible assets principally for customer relationships and trade names related to the purchase price allocation of the new acquisitions. Additionally, 2015 included a $5.2 million charge related to amortizing a large portion of a backlog intangible asset acquired in 2015.
Interest expense. Interest expense increased in 2015 from the interest on the debt we undertook to complete our acquisitions.
Write-off of unamortized debt issuance costs. Write-off of debt issuance costs increased due to the refinancing of acquisitions in both 2015 and 2014.
Provision for Income Taxes. The 2015 effective tax rate of 46% is consistent with the 2014 effective rate of 44%. Both rates are impacted by non-deductible mergers and acquisition cost.
RESULTS BY SEGMENT
PRECISION BEARING COMPONENTS GROUP
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | Change | | | | |
Net sales | | $ | 261,837 | | | $ | 278,026 | | | $ | (16,189 | ) | | | | |
Foreign exchange effects | | | | | | | | | | | | | | | (33,914 | ) |
Acquisition | | | | | | | | | | | | | | | 7,753 | |
Volume | | | | | | | | | | | | | | | 11,501 | |
Price/material infation pass-through/mix | | | | | | | | | | | | | | | (1,529 | ) |
Income from operations | | $ | 26,310 | | | $ | 31,872 | | | $ | (5,562 | ) | | | | |
| | | | | | | | | | | | | | | | |
Net sales decreased from 2014 to 2015 principally due to the impact of devaluation of the euro on euro denominated sales, as discussed above. Partially offsetting the unfavorable foreign exchange effects was greater demand for our products in the North American, Asian and European automotive and general industrial markets. This greater demand was from market share gains with our customers and from winning business with new customers. Additionally, sales increased with the addition of the companies the segment acquired subsequent to the first half of 2014.
Segment income from operations was unfavorably impacted by $3.3 million due to the depreciation in value of Euro denominated income from operations relative to the U.S. Dollar. Additionally, the segment incurred $1.8 million in restructuring costs related to reduce headcount at certain European plants.
PRECISION ENGINEERED PRODUCTS GROUP
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | Change | | | | |
Net sales | | $ | 77,183 | | | $ | 33,351 | | | $ | 43,832 | | | | | |
Acquisition | | | | | | | | | | | | | | | 44,742 | |
Price/material infation pass-through/mix | | | | | | | | | | | | | | | (910 | ) |
Income from operations | | $ | (3,718 | ) | | $ | 1,231 | | | $ | (4,949 | ) | | | | |
| | | | | | | | | | | | | | | | |
The Precision Engineered Products Group includes the Plastic and Rubber Components Segment as presented in previous filings. The name of this segment was changed during 2015 after the PEP Acquisition and disposal of Delta Rubber. The increase in sales was primarily due to the acquisition of Caprock during the second quarter of 2015 and the PEP Acquisition in the fourth quarter of 2015. Loss from operations was primarily due to increased depreciation and amortization related to the PEP Acquisition. Specifically included in income from operations was $4.3 million related to a step-up in value of inventory of an acquired company, a charge of $5.2 million related to amortizing a large portion of a backlog intangible asset of an acquired company and $1.6 million of acquisition and integration costs directly attributable to acquisitions within the segment.
AUTOCAM PRECISION COMPONENTS GROUP
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | Change | | | | |
Net sales | | $ | 328,260 | | | $ | 177,224 | | | $ | 151,036 | | | | | |
Acquisition | | | | | | | | | | | | | | | 159,168 | |
Volume | | | | | | | | | | | | | | | (1,383 | ) |
Foreign exchange effects | | | | | | | | | | | | | | | (5,172 | ) |
Price/material inflation pass-through/mix | | | | | | | | | | | | | | | (1,577 | ) |
Income from operations | | $ | 31,700 | | | $ | 15,732 | | | $ | 15,968 | | | | | |
| | | | | | | | | | | | | | | | |
The increased sales from 2014 to 2015 were due to sales added with the acquisition during 2014. The increase in income from operations was primarily from the companies acquired in 2014 partially offset by $2.6 million in restructuring costs related to the Wheeling Plant closure.
pricing.
Changes in Financial Condition from December 31,
20152021 to December 31,
2016.2022
Overview
From December 31, 20152021 to December 31, 2016, our2022, total assets decreased by $20.2$33.0 million and our current assets increased by $0.4 million. The majority of the decrease wasprimarily due to $26.2 millionnormal depreciation and amortization of intangiblefixed assets and a $7.4 reclassification of deferred tax assets to non-current deferred taxintangible assets. OffsettingThese decreases were partially offset by increases in accounts receivable and inventories during the decrease is $16.5 millionyear ended December 31, 2022. The increase in accounts receivable net,is due to higher sales during the end of the current year compared with the end of 2021. The value of inventory increased sales volume. Foreign exchange translation impacted the balance sheetdue to higher material and labor costs as well as higher quantities to maintain customer safety stock due to ongoing supply chain interruptions, especially in comparing changes in account balances fromChina.
From December 31,
20152021 to December 31,
2016 by decreasing total assets $5.0 million and current assets $3.9 million.From December 31, 2016 to December 31, 2015, our2022, total liabilities decreased $21.5 million. The majorityby $5.9 million, primarily due to lower employee incentive compensation accruals and a decrease in the valuation of the decrease was from the utilization of deferred tax and payment on current tax, amortization of debt issuance costs and payments on long term debt.
certain derivatives. These decreases were offset by an increase in accounts payable attributed to higher inventory balances at December 31, 2022.
Working capital, which consists
principally of
accounts receivable and inventories offset bycurrent assets less current liabilities, was $112.9 million as of December 31, 2022, compared to $122.3 million as of December 31, 2021. The decrease was primarily due to increases in accounts payable and
other current
maturities of long-term debt, was $141.9 million at December 31, 2016 and $146.8 for 2015. It remained relative consistent with the increaseliabilities, partially offset by increases in accounts receivable and
payment of taxes, offset by reductions in accounts payable and reclassification of deferred taxes.inventory.
Cash Flows
Cash provided by operations was
$69.3$7.7 million
in 2016for the year ended December 31, 2022, compared with cash provided by operations of
$33.3$15.6 million
for the year ended December 31, 2021. The decrease was primarily due to an increase in
2015. The difference was a full year of results of operations from late 2015 acquisitions,net loss and increases in accounts receivable and inventory, partially offset by
higher interest costs incurred servicing the debt for the acquisitions. Cash flow provided by operations was $33.3 million for 2015 compared with $30.7 million for 2014. The difference was increased results of operations, offset by higher interest costs incurred servicing the debt for the acquisitionsdividends received from our unconsolidated joint venture and lower income tax payments in 2022.
Cash used
byin investing activities was
$41.3$17.5 million
in 2016for the year ended December 31, 2022, compared with cash used
byin investing activities of
$665.8$36.1 million
in 2015.for the year ended December 31, 2021. The decrease
was due to no acquisitions made in 2016 and capital expenditures were within planned amounts. Cash used by investing activities was $665.8 million in 2015 compared with cash used by investing activities of $281.6 million in 2014. The difference was primarily due to
the $628.2 million in cash paid to
acquire PEP and Caprock, netsettle the interest rate swap in the first quarter of
cash received.2021.
Cash used in financing activities was
$24.3$5.2 million for
2016the year ended December 31, 2022, compared with cash provided by financing activities of
$611.9$2.6 million
in 2015.for the year ended December 31, 2021. The difference was primarily
related obtaining financing for 2015 acquisitions compareddue to
a yearthe debt and preferred stock refinancing in the first quarter of
debt repayments in 2016. Cash provided by financing activities was $611.9 million in 2015, compared with cash used by financing activities of $287.0 million in 2014. The difference was primarily related to using debt to fund the PEP Acquisition and the offering of our common stock.2021.
Liquidity and Capital Resources
Amounts
Credit Facility
The principal amount outstanding under our
Termterm loan facility (the “Term Loan
Credit Facility, Senior Notes, and Senior Secured Revolving Credit FacilityFacility”) as of December 31,
2016 were $821.52022, was $147.4 million,
(withoutwithout regard to
unamortized debt issuance
costs).costs and discount. As of December 31,
2016,2022, we
could borrow up to $104.6had $35.3 million
available for future borrowings under
our Senior Secured Revolving Credit Facility subject to certain limitations. The $104.6 millionthe ABL Facility. This amount of
availabilityborrowing capacity is net of
$10.4$1.0 million of outstanding borrowings and $11.0 million of outstanding letters of credit at December 31,
2016,2022, which are considered as usage of the
Senior Secured Revolving CreditABL Facility.
Our
The Term Loan
BFacility requires
us to pay quarterly
0.25% (or $1.4 million)principal payments of
the initial principal amount through September 30, 2022$0.4 million with the remaining
unpaid principal amount due on the
final maturity
date. Additionally,date of September 22, 2026. We may be required to make additional principal payments annually that are calculated as
longa percentage of our excess cash flow, as
defined by the lender, based on our net leverage ratio. Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR
stays below 0.75%, we will be paying 5.00% per annum in interest. If the LIBOR exceeds 0.75%, then the rate will be the variable LIBOR rate(subject to a 1.000% floor) plus an applicable margin of
4.25%6.875% or 2) the greater of various benchmark rates plus an applicable margin of 5.875%.
Based on the outstanding balance
interest rate in effect at December 31,
2016,2022, and the
fixed rate on the 2021 interest rate swap, annual interest payments would
have been $27.3be approximately $14.7 million.
Our Senior Notes require us to pay annual
The ABL Facility bears interest
of 10.25% payable semi-annually in arrears on
May 1 and November 1 of each year. Based on the outstanding balancea variable rate structure with borrowings bearing interest at
December 31, 2016, the annual interest payments would have been $25.6 million.Our Senior Secured Revolving Credit Facility requires us to pay interest rate ofone-month LIBOR plus an applicable margin of 3.50%1.75%. Based on the outstanding balanceThe interest rate in effect at December 31, 2016,2022, was 6.00%. We pay a commitment fee of 0.375% for unused capacity under the annual interest payments would have been $1.1 million.
ABL Facility.
We
believe that funds generated from our consolidated operations will provide sufficient cash flow to service these required debt and interest payments under these facilities.Our arrangements with our domestic customers typically provide that payments are due within 30 to 60 days following the date of our shipment of goods, while arrangements with foreign customers of our domestic business (other than foreign customers that have entered into an inventory management program with us) generally provide that payments are due within 60 to 120 days following the date of shipment to allow for additional transit time and customs clearance. Under the Precision Bearing Components Group’s inventory management program with certain customers, payments typically are due within 30 days after the customer uses the product. Our arrangements with European customers regarding due dates vary from 30 to 90 days following date of sale for European based customers and 60 to 120 days from customers outside of Europe to allow for additional transit time and customs clearance.
Certain of our businesses experience seasonal and other trends related to the industries and end markets that they serve. However, as a whole, we are not subject to material seasonality.
We invoice and receive payment from many of our customers in euros as well as other currencies. Additionally, we are party to various third party and intercompany loans, payables and receivables denominated in currencies other than the U.S. dollar. As a result of these sales, loans, payables and receivables, our foreign exchange transaction and translation risk has increased. Various strategies to manage this risk are available to management including producing and selling in local currencies and hedging programs. As of December 31, 2016, no currency hedges were in place. In addition, a strengthening of the U.S. dollar and/or euro against foreign currencies could impaircompliance with all requirements under our ability to compete with international competitors for foreign as well as domestic sales.
For the next twelve months, we expect capital expenditures to remain relatively consistent, the majority of which relate to new or expanded business. We believe that funds generated from operationsTerm Loan Facility and borrowings from the credit facilities will be sufficient to finance our capital expenditures and working capital needs through this period. We base this assertion on our current availability for borrowing of up to $104.6 million and our forecasted positive cash flow from operations for the next twelve months.
The table below sets forth our contractual obligations and commercial commitmentsABL Facility as of December 31, 2016:
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period | |
Certain Contractual Obligations | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | After 5 years | |
Long-term debt including current portion | | $ | 825,090 | | | $ | 12,751 | | | $ | 11,936 | | | $ | 285,591 | | | $ | 514,812 | |
Expected interest payments | | | 254,908 | | | | 54,030 | | | | 106,632 | | | | 73,571 | | | | 20,675 | |
Operating leases | | | 31,272 | | | | 7,824 | | | | 12,615 | | | | 7,684 | | | | 3,149 | |
Capital leases | | | 9,024 | | | | 3,955 | | | | 4,201 | | | | 868 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total contractual cash obligations | | $ | 1,120,294 | | | $ | 78,560 | | | $ | 135,384 | | | $ | 367,714 | | | $ | 538,636 | |
| | | | | | | | | | | | | | | | | | | | |
There are $4.7 million2022. Both credit facilities allow for optional expansion of long-term post-employment benefits,available borrowings, subject to certain terms and conditions. On March 3, 2023, we amended our Term Loan Facility and ABL Facility to adjust certain covenants under the payment ofagreements, as well as to change the applicable base rate on which depends on various factors including the date of the employee’s termination. Based on the best available information, we believe the vast majority of these payments will be made after 5 years.
We have approximately $5.8 million in unrecognized tax benefits and related penalties and interest accrued within the liabilities section of our balance sheet. We are unsure when or if at all these amounts might be paid to U.S. and/or foreign taxing authorities. Accordingly, these amounts have been excluded from the table above. (Seeexpense is determined. See Note 1311 of the Notes to the Consolidated Financial Statements).
Statements.
Accounts Receivable Sales Programs
We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution. In exchange, we receive payment on the receivables, less a discount, sooner than under the customary credit terms we have extended to that customer. These programs allow us to improve working capital and cash flows at the same or lower interest rates as available on our ABL Facility. Our access to these programs is dependent on our customers ongoing agreements with the third-parties. Our participation in these programs is based on our specific cash needs throughout the year, the discount charged to receive payment earlier, the length of the payment terms with our customers, as well being subject to limits in our ABL Facility and Term Loan Facility agreements.
We currently have
foreign operations in
Slovakia, Italy, NetherlandsBrazil, China, France, Mexico, and
France, all of which are euro participating countries. Each of our European facilities sell product to customers in many of the euro participating countries.Poland. The
euro has been adopted as the functional currency at all of our locations in Europe. The functionallocal currency of
both NN Asia and Autocam Asia are the Chinese yuan and Autocam, Polandeach foreign facility is
the zloty.also its functional currency.
Seasonality and Fluctuation in Quarterly Results
General economic conditions impact our business and financial results, and certain
of our businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, European sales are often weaker in the summer months
medical device sales are often stronger in the fourth calendar quarteras customers slow production and sales to
OEMsoriginal equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not
subject to materialmaterially impacted by seasonality.
For information concerning our quarterly results of operations for the years ended December 31, 2016 and 2015, see Note 17 of the Notes to the Consolidated Financial Statements.Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Inflation and Changes in Prices
The cost base of our operations has been materially affected by steel inflation during recent years. Due to the ability to pass on this steel inflation to our customers the overall financial impact has been minimized. The prices for steel, engineered resins and other raw materials which we purchase are subject to material change. Our typical pricing arrangements with steel suppliers are subject to adjustment every three to six months in the U.S. and annually in Europe for base prices but quarterly for scrap surcharge adjustments. In the past, we have been able to minimize the impact on our operations resulting from the steel price fluctuations by adjusting selling prices to our customers periodically in the event of changes in our raw material costs.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in financial market conditions in the normal course of
our business due to
our outstanding debt balancesuse of certain financial instruments as well as
from transacting
business in various foreign currencies. To mitigate
ourthe exposure to these market risks, we have established policies, procedures, and internal processes governing
ourthe management of financial market risks. We are exposed to changes in interest rates primarily as a result of
our borrowing activities.
At December 31, 2016, we had $571.6 million outstanding under the variable rate credit facilities and $250.0 million outstanding under the fixed rate 10.25% Senior Notes. At December 31, 2016, a one-percent increase in the interest rate charged on our outstanding variable rate borrowings would result in interest expense increasing annually by approximately $5.7 million.Interest Rate Risk
Our policy is to manage interest expense using a
mixmixture of fixed and variable rate debt.
As such,To manage this mixture of fixed and variable rate debt effectively and mitigate interest rate risk, we
entered into a $150.0 millionmay use interest rate swap
on December 16, 2014 that went into effect on December 29, 2015 and fixed our interest rate at 6.966%. As of December 31, 2016 and as a result of post-amendments to the derivative, our interest rate is now fixed at 6.466% through December 31, 2018.agreements. The nature and amount of
our borrowings may vary as a result of future business requirements, market conditions, and other factors.
On July 22, 2021, we entered into a fixed-rate interest rate swap agreement to change the LIBOR-based component of the interest rate on a portion of our variable rate debt to a fixed rate of 1.291% (the “2021 Swap”). The 2021 Swap has a notional amount of $60.0 million and a maturity date of July 31, 2024. The objective of the 2021 Swap is to eliminate the variability of cash flows in interest payments on the first $60.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt. We designated the 2021 Swap as a cash flow hedge at inception. Cash settlements of the 2021 Swap are recognized in interest expense. Refer to Note 19 in the Notes to Consolidated Financial Statements included in this Annual Report for further discussion about the interest rate swap.
At December 31, 2022, we had $147.4 million of principal outstanding under the Term Loan Facility without regard to capitalized debt issuance costs. A one-percent increase in one-month LIBOR would have resulted in a net increase in interest expense of $0.9 million on an annualized basis.
At December 31, 2022, using one-month LIBOR plus a 1.75% spread, the interest rate on the $1.0 million of outstanding borrowings under the ABL Facility was 6.00%.
Foreign Currency Risk
Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. Our Precision Bearing Components Group invoicesWe invoice and receivesreceive payment from many of our customers in currenciesvarious other than the U.S. dollar including the euro.currencies. Additionally, we participate in variousare party to third party and intercompany loans, payables, and receivables denominated in currencies other than the U.S. dollar. To help reduce exposure to foreign currency fluctuation, we have incurred debt in euros in the pastpast. Various strategies to manage this risk are available to management, including producing and have, from time to time, used foreign currency hedges to hedge currency exposures when these exposures meet certain discretionary levels.selling in local currencies and hedging programs. We did not use any currency hedges in 2016, nor did we hold a position in any foreign currency hedging instrumentsderivatives as of December 31, 2016.2022.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
ReportTable of Independent Registered Public Accounting FirmTo the Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
NN, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of NN, Inc.In our opinion, (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, based on our audits andcriteria established in the report2013
Internal Control—Integrated Framework issued by the Committee of other auditors with respect to the consolidated financial statements as of and for the year ended December 31, 2016, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of NN, Inc. and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for eachSponsoring Organizations of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also inTreadway Commission (“COSO”). In our opinion, the Company did not maintain,maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,2022, based on criteria established in the 2013 Internal Control - Control—Integrated Framework (2013) issued by COSO. We also have audited, in accordance with the Committee of Sponsoring Organizationsstandards of the Treadway Commission (COSO) because material weaknesses in internal control over financial reporting existed as of that date related toPublic Company Accounting Oversight Board (United States) (“PCAOB”), the Company not maintaining an effective control environment due to a lack of a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with the Company’s financial reporting requirements. The material weakness in the control environment contributed to the following material weaknesses: the Company did not design and maintain effective internal control over (i) the accounting for business combinations, including (a) allocating goodwill to its international businesses and (b) deferred income taxes recorded in connection with business combinations, and (ii) the accounting for income taxes. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2016 consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect ourreport dated March 10, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for opinion
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report referred to above.the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements andan opinion on the Company’s internal control over financial reporting based on our integrated audits.audit. We did not auditare a public accounting firm registered with the financial statements of Wuxi Weifu Autocam Precision Machinery Co. Ltd, a 49% equity investmentPCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Company, as ofSecurities and forExchange Commission and the year ended December 31, 2016, which is reflected in the consolidated financial statements of the Company as an investment in joint venture of $40,694,000 as of December 31, 2016 and share of net income from joint venture of $6,427,000 for the year ended December 31, 2016. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Wuxi Weifu Autocam Precision Machinery Co. Ltd as of and for the year ended December 31, 2016, is based solely on the report of the other auditors. PCAOB.
We conducted our
auditsaudit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the
auditsaudit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audits and the report of other auditors provideaudit provides a reasonable basis for our
opinions.As discussed in Note 1 to the consolidatedopinion.
Definition and limitations of internal control over financial
statements, the Company changed the manner in which it accounts for inventory and the manner in which it classifies deferred income taxes in 2016.reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopersGRANT THORNTON LLP
Charlotte, North Carolina
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
NN, Inc.
Consolidated Balance Sheets
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of NN, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31,
20162022 and
2015(2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In thousands, except per share data)
| | | | | | | | |
(in thousands, except per share data) | | | | | | |
| | 2016 | | | 2015 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash | | $ | 14,405 | | | $ | 15,087 | |
Accounts receivable, net | | | 139,547 | | | | 123,005 | |
Inventories | | | 114,851 | | | | 119,836 | |
Income tax receivable | | | — | | | | 3,989 | |
Current deferred tax assets | | | — | | | | 6,696 | |
Other current assets | | | 11,752 | | | | 11,568 | |
| | | | | | | | |
Total current assets | | | 280,555 | | | | 280,181 | |
Property, plant and equipment, net | | | 322,953 | | | | 318,968 | |
Goodwill, net | | | 450,311 | | | | 449,898 | |
Intangible assets, net | | | 255,981 | | | | 282,169 | |
Non-current deferred tax assets | | | — | | | | 742 | |
Investment in joint venture | | | 40,694 | | | | 38,462 | |
Other non-current assets | | | 9,892 | | | | 10,147 | |
| | | | | | | | |
Total assets | | $ | 1,360,386 | | | $ | 1,380,567 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 75,719 | | | $ | 69,101 | |
Accrued salaries, wages and benefits | | | 24,996 | | | | 21,125 | |
Income taxes payable | | | 2,125 | | | | 5,350 | |
Current maturities of long-term debt | | | 12,751 | | | | 11,714 | |
Current portion of obligation under capital lease | | | 3,762 | | | | 4,786 | |
Other current liabilities | | | 19,263 | | | | 21,275 | |
| | | | | | | | |
Total current liabilities | | | 138,616 | | | | 133,351 | |
Non-current deferred tax liabilities | | | 99,591 | | | | 117,459 | |
Long-term debt, net of current portion | | | 785,713 | | | | 795,400 | |
Accrued post-employment benefits | | | 5,765 | | | | 6,157 | |
Obligation under capital lease, net of current portion | | | 5,851 | | | | 9,573 | |
Other | | | 9,651 | | | | 4,746 | |
| | | | | | | | |
Total liabilities | | | 1,045,187 | | | | 1,066,686 | |
Commitments and Contingencies (Note 15) | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock—$0.01 par value, authorized 45,000 shares, issued and outstanding 27,249 in 2016 and 26,849 in 2015 | | | 272 | | | | 269 | |
Additional paid-in capital | | | 284,508 | | | | 277,582 | |
Retained earnings | | | 55,509 | | | | 55,151 | |
Accumulated other comprehensive income | | | (25,122 | ) | | | (19,153 | ) |
Non-controlling interest | | | 32 | | | | 32 | |
| | | | | | | | |
Total stockholders’ equity | | | 315,199 | | | | 313,881 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,360,386 | | | $ | 1,380,567 | |
| | | | | | | | |
See accompanying notes to consolidatedour opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 10, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2020.
Charlotte, North Carolina
March 10, 2023
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years ended December 31, 2016, 2015 and 2014
(In thousands, except per share data)
| | | | | | | | | | | | |
(in thousands, except per share data) | | 2016 | | | 2015 | | | 2014 | |
Net sales | | $ | 833,488 | | | $ | 667,280 | | | $ | 488,601 | |
Cost of products sold (exclusive of depreciation and amortization shown separately below) | | | 621,022 | | | | 525,993 | | | | 384,889 | |
Selling, general and administrative | | | 80,266 | | | | 51,745 | | | | 43,756 | |
Acquisition related costs excluded from selling, general and administrative | | | — | | | | 11,682 | | | | 9,248 | |
Depreciation and amortization | | | 62,488 | | | | 44,482 | | | | 22,146 | |
(Gain) loss on disposal of assets | | | 288 | | | | (687 | ) | | | — | |
Restructuring and integration | | | 10,024 | | | | 7,268 | | | | 875 | |
| | | | | | | | | | | | |
Income from operations | | | 59,400 | | | | 26,797 | | | | 27,687 | |
Interest expense | | | 63,154 | | | | 29,899 | | | | 10,895 | |
Write-off of unamortized debt issuance costs | | | 3,089 | | | | 18,673 | | | | 1,398 | |
Derivative payments on interest rate swap | | | 609 | | | | — | | | | — | |
Derivative losses on change in interest rate swap fair value | | | 2,448 | | | | — | | | | — | |
Other (income) expense, net | | | (2,591 | ) | | | 1,175 | | | | 2,222 | |
| | | | | | | | | | | | |
Income (loss) before provision (benefit) for income taxes and share of net income from joint venture | | | (7,309 | ) | | | (22,950 | ) | | | 13,172 | |
Provision (benefit) expense for income taxes | | | (9,313 | ) | | | (10,518 | ) | | | 5,786 | |
Share of net income from joint venture | | | 5,938 | | | | 5,001 | | | | 831 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 7,942 | | | $ | (7,431 | ) | | $ | 8,217 | |
| | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Change in fair value of interest rate hedge | | | 3,015 | | | | (2,584 | ) | | | (431 | ) |
Foreign currency translation gain (loss) | | | (8,984 | ) | | | (21,936 | ) | | | (17,731 | ) |
| | | | | | | | | | | | |
Other comprehensive income (loss) | | | (5,969 | ) | | | (24,520 | ) | | | (18,162 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 1,973 | | | $ | (31,951 | ) | | $ | (9,945 | ) |
| | | | | | | | | | | | |
Basic income per share: | | | | | | | | | | | | |
Net income | | $ | 0.29 | | | $ | (0.35 | ) | | $ | 0.46 | |
| | | | | | | | | | | | |
Weighted average shares outstanding | | | 27,016 | | | | 21,181 | | | | 17,887 | |
| | | | | | | | | | | | |
Diluted income per share: | | | | | | | | | | | | |
Net income | | $ | 0.29 | | | $ | (0.35 | ) | | $ | 0.45 | |
| | | | | | | | | | | | |
Weighted average shares outstanding | | | 27,154 | | | | 21,181 | | | | 18,253 | |
| | | | | | | | | | | | |
Cash dividends per common share | | $ | 0.28 | | | $ | 0.28 | | | $ | 0.28 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands, except per share data) | 2022 | | 2021 | | 2020 |
Net sales | $ | 498,738 | | | $ | 477,584 | | | $ | 427,534 | |
Cost of sales (exclusive of depreciation and amortization shown separately below) | 421,105 | | | 389,995 | | | 343,594 | |
Selling, general, and administrative expense | 49,635 | | | 51,489 | | | 58,055 | |
| | | | | |
Depreciation and amortization | 47,231 | | | 46,195 | | | 45,680 | |
| | | | | |
Goodwill impairment | — | | | — | | | 92,942 | |
Other operating expense (income), net | 1,859 | | | (1,091) | | | 4,720 | |
Loss from operations | (21,092) | | | (9,004) | | | (117,457) | |
Interest expense | 15,041 | | | 12,664 | | | 18,898 | |
Loss on extinguishment of debt and write-off of debt issuance costs | — | | | 2,390 | | | 144 | |
Derivative payments on interest rate swap | — | | | 1,717 | | | 4,133 | |
Loss on interest rate swap | — | | | 2,033 | | | 11,669 | |
Other income, net | (5,064) | | | (5,366) | | | (213) | |
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture | (31,069) | | | (22,442) | | | (152,088) | |
Benefit (provision) for income taxes | (1,621) | | | 1,756 | | | 8,972 | |
Share of net income from joint venture | 6,592 | | | 6,261 | | | 3,626 | |
Loss from continuing operations | (26,098) | | | (14,425) | | | (139,490) | |
Income from discontinued operations, net of tax (Note 2) | — | | | 1,200 | | | 38,898 | |
Net loss | $ | (26,098) | | | $ | (13,225) | | | $ | (100,592) | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation loss | $ | (8,156) | | | $ | (1,135) | | | $ | (1,683) | |
Reclassification adjustment for discontinued operations | — | | | — | | | 5,961 | |
Interest rate swap: | | | | | |
Change in fair value, net of tax | 3,358 | | | 59 | | | (12,443) | |
Reclassification adjustment for (gains) losses included in net loss, net of tax | (420) | | | 2,906 | | | 18,987 | |
Other comprehensive income (loss) | $ | (5,218) | | | $ | 1,830 | | | $ | 10,822 | |
Comprehensive loss | $ | (31,316) | | | $ | (11,395) | | | $ | (89,770) | |
Basic net loss per common share: | | | | | |
Loss from continuing operations per common share | $ | (0.83) | | | $ | (0.82) | | | $ | (3.60) | |
Income from discontinued operations per common share | — | | | 0.03 | | | 0.92 | |
Net loss per common share | $ | (0.83) | | | $ | (0.79) | | | $ | (2.68) | |
Weighted average common shares outstanding | 44,680 | | | 44,011 | | | 42,199 | |
Diluted net loss per common share: | | | | | |
Loss from continuing operations per common share | $ | (0.83) | | | $ | (0.82) | | | $ | (3.60) | |
Income from discontinued operations per common share | — | | | 0.03 | | | 0.92 | |
Net loss per common share | $ | (0.83) | | | $ | (0.79) | | | $ | (2.68) | |
Weighted average common shares outstanding | 44,680 | | | 44,011 | | | 42,199 | |
See
accompanying notesNotes to
consolidated financial statementsConsolidated Financial Statements.
Consolidated Balance Sheets
| | | | | | | | | | | |
| December 31, |
(in thousands, except per share data) | 2022 | | 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 12,808 | | | $ | 28,656 | |
Accounts receivable, net of allowances of $1,469 and $1,352 at December 31, 2022 and 2021, respectively | 74,129 | | | 71,419 | |
Inventories | 80,682 | | | 75,027 | |
Income tax receivable | 12,164 | | | 11,808 | |
| | | |
Prepaid assets | 2,794 | | | 2,172 | |
Other current assets | 9,123 | | | 7,200 | |
Total current assets | 191,700 | | | 196,282 | |
Property, plant and equipment, net | 197,637 | | | 209,105 | |
Operating lease right-of-use assets | 46,713 | | | 46,443 | |
Intangible assets, net | 72,891 | | | 88,718 | |
Investment in joint venture | 31,802 | | | 34,045 | |
Deferred tax assets | 102 | | | 314 | |
| | | |
Other non-current assets | 5,282 | | | 4,194 | |
Total assets | $ | 546,127 | | | $ | 579,101 | |
Liabilities, Preferred Stock, and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 45,871 | | | $ | 36,710 | |
Accrued salaries, wages and benefits | 11,671 | | | 17,739 | |
Income tax payable | 926 | | | 2,072 | |
Current maturities of long-term debt | 3,321 | | | 3,074 | |
Current portion of operating lease liabilities | 5,294 | | | 5,704 | |
| | | |
Other current liabilities | 11,723 | | | 8,718 | |
Total current liabilities | 78,806 | | | 74,017 | |
Deferred tax liabilities | 5,596 | | | 7,456 | |
| | | |
Long-term debt, net of current portion | 149,389 | | | 151,052 | |
Operating lease liabilities, net of current portion | 51,411 | | | 51,295 | |
| | | |
Other non-current liabilities | 9,960 | | | 17,289 | |
Total liabilities | 295,162 | | | 301,109 | |
Commitments and contingencies (Note 13) | | | |
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at December 31, 2022 and 2021, respectively | 64,701 | | | 53,807 | |
Stockholders’ equity: | | | |
Common stock - $0.01 par value per share, 90,000 shares authorized, 43,856 and 43,027 shares issued and outstanding at December 31, 2022 and 2021, respectively | 439 | | | 430 | |
Additional paid-in capital | 468,143 | | | 474,757 | |
Accumulated deficit | (245,198) | | | (219,100) | |
Accumulated other comprehensive loss | (37,120) | | | (31,902) | |
Total stockholders’ equity | 186,264 | | | 224,185 | |
Total liabilities, preferred stock, and stockholders’ equity | $ | 546,127 | | | $ | 579,101 | |
See Notes to Consolidated Financial Statements.
NN, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2016, 2015 and 2014
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | Accumulated | | | | | | | |
| | Number | | | | | | Additional | | | | | | other | | | Non- | | | | |
| | of | | | Par | | | paid in | | | Retained | | | comprehensive | | | controlling | | | | |
(in thousands of dollars and shares) | | shares | | | value | | | capital | | | earnings | | | income | | | interest | | | Total | |
Balance, December 31, 2013 | | | 17,630 | | | $ | 176 | | | $ | 63,126 | | | $ | 65,929 | | | $ | 23,529 | | | $ | — | | | $ | 152,760 | |
Net income | | | — | | | | — | | | | — | | | | 8,217 | | | | — | | | | — | | | | 8,217 | |
Dividends declared | | | — | | | | — | | | | — | | | | (5,131 | ) | | | — | | | | — | | | | (5,131 | ) |
Stock option expense | | | — | | | | — | | | | 1,274 | | | | — | | | | — | | | | — | | | | 1,274 | |
Shares issued for option exercises | | | 152 | | | | 2 | | | | 1,669 | | | | — | | | | — | | | | — | | | | 1,671 | |
Shares issued for acquisition | | | 1,087 | | | | 11 | | | | 31,706 | | | | — | | | | — | | | | — | | | | 31,717 | |
Restricted stock compensation expense | | | 114 | | | | 1 | | | | 1,320 | | | | — | | | | — | | | | — | | | | 1,321 | |
Non-controlling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | 32 | | | | 32 | |
Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | (17,731 | ) | | | — | | | | (17,731 | ) |
Change in fair value of interest rate hedge | | | — | | | | — | | | | — | | | | — | | | | (431 | ) | | | — | | | | (431 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | | | 18,983 | | | $ | 190 | | | $ | 99,095 | | | $ | 69,015 | | | $ | 5,367 | | | $ | 32 | | | $ | 173,699 | |
Net loss | | | — | | | | — | | | | — | | | | (7,431 | ) | | | — | | | | — | | | | (7,431 | ) |
Dividends declared | | | — | | | | — | | | | — | | | | (6,433 | ) | | | — | | | | — | | | | (6,433 | ) |
Stock option expense | | | — | | | | — | | | | 915 | | | | — | | | | — | | | | — | | | | 915 | |
Shares issued for option exercises | | | 179 | | | | 2 | | | | 2,039 | | | | — | | | | — | | | | — | | | | 2,041 | |
Shares issued in public offering | | | 7,590 | | | | 76 | | | | 172,976 | | | | — | | | | — | | | | — | | | | 173,052 | |
Restricted stock compensation expense | | | 115 | | | | 1 | | | | 2,788 | | | | — | | | | — | | | | — | | | | 2,789 | |
Restricted shares forgiven for taxes | | | (18 | ) | | | — | | | | (231 | ) | | | — | | | | — | | | | — | | | | (231 | ) |
Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | (21,936 | ) | | | — | | | | (21,936 | ) |
Change in fair value of interest rate hedge | | | — | | | | — | | | | — | | | | — | | | | (2,584 | ) | | | — | | | | (2,584 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2015 | | | 26,849 | | | $ | 269 | | | $ | 277,582 | | | $ | 55,151 | | | $ | (19,153 | ) | | $ | 32 | | | $ | 313,881 | |
Net income | | | — | | | | — | | | | — | | | | 7,942 | | | | — | | | | — | | | | 7,942 | |
Dividends paid | | | — | | | | — | | | | — | | | | (7,584 | ) | | | — | | | | — | | | | (7,584 | ) |
Stock option expense | | | — | | | | — | | | | 687 | | | | — | | | | — | | | | — | | | | 687 | |
Shares issued for option exercises | | | 270 | | | | 3 | | | | 2,829 | | | | — | | | | — | | | | — | | | | 2,832 | |
Restricted and performance based stock compensation expense | | | 142 | | | | — | | | | 3,583 | | | | — | | | | — | | | | — | | | | 3,583 | |
Restricted shares forgiven for taxes and forfeited | | | (12 | ) | | | — | | | | (173 | ) | | | — | | | | — | | | | — | | | | (173 | ) |
Foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | (8,984 | ) | | | — | | | | (8,984 | ) |
Change in fair value of interest rate swap | | | — | | | | — | | | | — | | | | — | | | | 3,015 | | | | — | | | | 3,015 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2016 | | | 27,249 | | | $ | 272 | | | $ | 284,508 | | | $ | 55,509 | | | $ | (25,122 | ) | | $ | 32 | | | $ | 315,199 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | Accumulated deficit | | Accumulated other comprehensive income (loss) | | |
(in thousands) | Number of shares | | Par value | | Additional paid-in capital | | Warrants | | | | Total |
Balance as of December 31, 2019 | 42,313 | | | $ | 423 | | | $ | 501,615 | | | $ | 1,076 | | | $ | (105,283) | | | $ | (44,554) | | | $ | 353,277 | |
Net loss | — | | | — | | | — | | | — | | | (100,592) | | | — | | | (100,592) | |
| | | | | | | | | | | | | |
Dividends accrued for preferred stock | — | | | — | | | (12,373) | | | — | | | — | | | — | | | (12,373) | |
Shares issued under stock incentive plans, net of forfeitures | 417 | | | 4 | | | (4) | | | — | | | — | | | — | | | — | |
Share-based compensation expense | — | | | — | | | 4,251 | | | — | | | — | | | — | | | 4,251 | |
Restricted shares forgiven for taxes | (44) | | | — | | | (157) | | | — | | | — | | | — | | | (157) | |
| | | | | | | | | | | | | |
Reclassification of warrants to liabilities | — | | | — | | | — | | | (1,076) | | | — | | | — | | | (1,076) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 10,822 | | | 10,822 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of December 31, 2020 | 42,686 | | | $ | 427 | | | $ | 493,332 | | | $ | — | | | $ | (205,875) | | | $ | (33,732) | | | $ | 254,152 | |
Net loss | — | | | — | | | — | | | — | | | (13,225) | | | — | | | (13,225) | |
| | | | | | | | | | | | | |
Dividends accrued for preferred stock | — | | | — | | | (21,478) | | | — | | | — | | | — | | | (21,478) | |
Shares issued under stock incentive plans, net of forfeitures | 387 | | | 4 | | | (4) | | | — | | | — | | | — | | | — | |
Share-based compensation expense | — | | | — | | | 3,221 | | | — | | | — | | | — | | | 3,221 | |
Restricted shares forgiven for taxes | (52) | | | (1) | | | (362) | | | — | | | — | | | — | | | (363) | |
Shares issued for option exercises | 6 | | | — | | | 48 | | | — | | | — | | | — | | | 48 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 1,830 | | | 1,830 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of December 31, 2021 | 43,027 | | | $ | 430 | | | $ | 474,757 | | | $ | — | | | $ | (219,100) | | | $ | (31,902) | | | $ | 224,185 | |
Net loss | — | | | — | | | — | | | — | | | (26,098) | | | — | | | (26,098) | |
| | | | | | | | | | | | | |
Dividends accrued for preferred stock | — | | | | | (10,894) | | | — | | | — | | | — | | | (10,894) | |
Shares issued under stock incentive plans, net of forfeitures | 860 | | | 9 | | | (9) | | | — | | | — | | | — | | | — | |
Share-based compensation expense | | | | | 4,377 | | | — | | | — | | | — | | | 4,377 | |
Restricted shares forgiven for taxes | (31) | | | — | | | (88) | | | — | | | — | | | — | | | (88) | |
| | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (5,218) | | | (5,218) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of December 31, 2022 | 43,856 | | | $ | 439 | | | $ | 468,143 | | | $ | — | | | $ | (245,198) | | | $ | (37,120) | | | $ | 186,264 | |
See
accompanying notesNotes to
consolidated financial statementsConsolidated Financial Statements.
Consolidated Statements of Cash Flows
Years ended
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2022 | | 2021 | | 2020 |
Cash flows from operating activities | | | | | |
Net loss | (26,098) | | | (13,225) | | | (100,592) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Depreciation and amortization of continuing operations | 47,231 | | | 46,195 | | | 45,680 | |
Depreciation and amortization of discontinued operations | — | | | — | | | 35,731 | |
Amortization of debt issuance costs and discount | 1,361 | | | 1,381 | | | 15,692 | |
Goodwill impairment of continuing operations | — | | | — | | | 92,942 | |
Goodwill impairment of discontinued operations | — | | | — | | | 146,757 | |
Impairments of property, plant and equipment | — | | | — | | | 4,148 | |
Loss on extinguishment of debt and write-off of debt issuance costs | — | | | 2,390 | | | 1,532 | |
Total derivative loss (gain), net of cash settlements | (5,265) | | | (3,259) | | | 15,309 | |
Share of net income from joint venture, net of cash dividends received | (347) | | | (6,261) | | | (3,626) | |
Gain on disposal of discontinued operations, net of tax and cost to sell | — | | | (1,200) | | | (233,824) | |
Share-based compensation expense | 4,377 | | | 3,216 | | | 4,226 | |
Deferred income taxes | (1,814) | | | (4,845) | | | (21,697) | |
Other | (3,207) | | | (2,611) | | | (4,730) | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | (4,920) | | | 13,698 | | | 10,831 | |
Inventories | (6,672) | | | (12,959) | | | 5,114 | |
Accounts payable | 8,619 | | | 343 | | | (8,606) | |
Income taxes receivable and payable, net | (1,457) | | | (4,516) | | | (633) | |
Other | (4,091) | | | (2,761) | | | 11,295 | |
Net cash provided by operating activities | 7,717 | | | 15,586 | | | 15,549 | |
Cash flows from investing activities | | | | | |
Acquisition of property, plant and equipment | (17,952) | | | (18,221) | | | (23,773) | |
| | | | | |
Proceeds from (cash paid for post-closing adjustments on) sale of business, net of cash sold | — | | | (3,880) | | | 743,178 | |
| | | | | |
Proceeds from sale of property, plant, and equipment | 460 | | | 1,418 | | | 3,317 | |
Cash settlements of interest rate swap | — | | | (15,420) | | | (4,133) | |
Other | — | | | — | | | 695 | |
Net cash provided by (used in) investing activities | (17,492) | | | (36,103) | | | 719,284 | |
Cash flows from financing activities | | | | | |
Cash paid for debt issuance costs | (136) | | | (7,360) | | | (661) | |
| | | | | |
| | | | | |
Proceeds from issuance of preferred stock | — | | | 61,793 | | | — | |
Redemption of preferred stock | — | | | (122,434) | | | — | |
Proceeds from long-term debt | 46,000 | | | 171,000 | | | 66,195 | |
Repayments of long-term debt | (47,958) | | | (93,729) | | | (776,331) | |
Repayments of short-term debt, net | — | | | (1,563) | | | (924) | |
Other | (3,092) | | | (5,150) | | | (3,133) | |
Net cash provided by (used in) financing activities | (5,186) | | | 2,557 | | | (714,854) | |
Effect of exchange rate changes on cash flows | (887) | | | (1,522) | | | (3,544) | |
Net change in cash and cash equivalents | (15,848) | | | (19,482) | | | 16,435 | |
Cash and cash equivalents at beginning of year (1) | 28,656 | | | 48,138 | | | 31,703 | |
Cash and cash equivalents at end of year | 12,808 | | | 28,656 | | | 48,138 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements.
NN, Inc.
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2022 | | 2021 | | 2020 |
Supplemental schedule of non-cash investing activities: | | | | | |
Non-cash additions to property, plant and equipment | 1,266 | | | 4,438 | | | 9,644 | |
| | | | | |
| | | | | |
Supplemental disclosures: | | | | | |
Cash paid for interest | 13,344 | | | 10,739 | | | 51,542 | |
Cash paid for income taxes | 4,739 | | | 7,624 | | | 2,241 | |
_______________________________
(1) Cash and cash equivalents include $13.8 million of cash and cash equivalents that were included in current assets of discontinued operations as of December 31,
2016, 2015 and 2014(In thousands)
| | | | | | | | | | | | |
(in thousands of dollars) | | 2016 | | | 2015 | | | 2014 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 7,942 | | | $ | (7,431 | ) | | $ | 8,217 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 62,488 | | | | 44,482 | | | | 22,146 | |
Amortization of debt issuance costs | | | 4,168 | | | | 1,754 | | | | 844 | |
Interest rate swap: | | | | | | | | | | | | |
Total derivative losses (gains), net | | | 2,563 | | | | — | | | | — | |
Debt issuance costs write-off | | | 3,089 | | | | 18,673 | | | | 1,398 | |
Joint venture net income in excess of cash received | | | (2,232 | ) | | | (3,672 | ) | | | (831 | ) |
(Gain) loss on disposals of property, plant and equipment | | | 288 | | | | (687 | ) | | | — | |
Allowance for doubtful accounts | | | 142 | | | | 745 | | | | 208 | |
Compensation expense from issuance of restricted stock and incentive stock options | | | 4,270 | | | | 3,704 | | | | 2,595 | |
Deferred income tax benefit | | | (10,430 | ) | | | (16,878 | ) | | | (1,333 | ) |
Restructuring and impairment charges | | | | | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | (18,505 | ) | | | (1,343 | ) | | | (3,283 | ) |
Inventories | | | 4,377 | | | | (1,843 | ) | | | (9,836 | ) |
Other current assets | | | (269 | ) | | | (944 | ) | | | (1,624 | ) |
Other non-current assets | | | 1,833 | | | | (1,501 | ) | | | (4,828 | ) |
Accounts payable | | | 7,633 | | | | (6,748 | ) | | | 9,497 | |
Other liabilities | | | 1,946 | | | | 4,999 | | | | 7,538 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 69,303 | | | | 33,310 | | | | 30,708 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Acquisition of property, plant and equipment | | | (43,820 | ) | | | (38,553 | ) | | | (27,602 | ) |
Proceeds from measurement period adjustments to previous acquisition | | | 1,635 | | | | — | | | | — | |
Proceeds from disposals of property, plant and equipment | | | 839 | | | | 2,995 | | | | 1,374 | |
Cash paid to acquire businesses, net of cash received | | | — | | | | (628,281 | ) | | | (257,664 | ) |
Capital contributions to joint venture | | | — | | | | (1,999 | ) | | | — | |
Dividend received from joint venture | | | — | | | | — | | | | 2,284 | |
| | | | | | | | | | | | |
Net cash used by investing activities | | | (41,346 | ) | | | (665,838 | ) | | | (281,608 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Debt issue costs paid | | | (3,952 | ) | | | (35,189 | ) | | | (9,380 | ) |
Dividends Paid | | | (7,584 | ) | | | (6,433 | ) | | | (5,131 | ) |
Proceeds from long-term debt | | | — | | | | 885,000 | | | | 344,750 | |
Repayment of long-term debt | | | (30,000 | ) | | | (401,438 | ) | | | (40,880 | ) |
Proceeds from short-term debt, net | | | 18,544 | | | | (84 | ) | | | 359 | |
Proceeds from shares issued | | | 2,832 | | | | 173,052 | | | | — | |
Proceeds from issuance of stock and exercise of stock options | | | — | | | | 2,041 | | | | 1,671 | |
Payment for acquisition of non-controlling interest | | | — | | | | — | | | | (2,528 | ) |
Principal payments on capital lease | | | (4,148 | ) | | | (5,098 | ) | | | (1,888 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (24,308 | ) | | | 611,851 | | | | 286,973 | |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash flows | | | (4,331 | ) | | | (1,553 | ) | | | (1,795 | ) |
Net change in cash and cash equivalents | | | (682 | ) | | | (22,230 | ) | | | 34,278 | |
Cash and cash equivalents at beginning of year | | | 15,087 | | | | 37,317 | | | | 3,039 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 14,405 | | | $ | 15,087 | | | $ | 37,317 | |
| | | | | | | | | | | | |
Supplemental schedule of non-cash operating, investing and financing activities: | | | | | | | | | | | | |
Compensation expense for stock awards, ($2,285 in 2016, $2,399 in 2015, and $1,321 in 2014) stock option expense ($825 in 2016, $915 in 2015, and $1,274 in 2014), performance based stock units ($1,159 in 2016, $393 in 2015) included in stockholders’ equity | | $ | 4,270 | | | $ | 3,704 | | | $ | 2,595 | |
Shares issued in acquisition of Autocam | | $ | — | | | $ | — | | | $ | 37,717 | |
Restructuring charges in Other Liabilities | | $ | 283 | | | $ | 4,362 | | | $ | 875 | |
Cash paid for interest and income taxes: | | | | | | | | | | | | |
Interest | | $ | 59,158 | | | $ | 20,146 | | | $ | 8,307 | |
Income taxes | | $ | 889 | | | $ | 6,377 | | | $ | 5,747 | |
2019.
See
accompanying notesNotes to
consolidated financial statementsConsolidated Financial Statements.
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(In thousands, except per share data)
1) | Summary of Significant Accounting Policies and Practices |
| a) | Description of Business |
Note 1. Significant Accounting Policies
Nature of Business
NN, Inc. is a diversified industrial company
that combines in-depth materials science expertise with advanced engineering and
a leading global manufacturer of high precision bearingproduction capabilities to design and manufacture high-precision metal and plastic components
industrial plastic products and
precision metal components toassemblies for a variety of
end markets on a global basis.
We have 40 manufacturing plants in North America, Western Europe, Eastern Europe, South America and Asia. As used in this Annual Report on Form 10-K
(this “Annual Report”), the terms “NN,” the “Company,” “we,” “our,” or “us”
meanrefer to NN, Inc.
, and its subsidiaries.
Included We have 31 facilities in North America, Europe, South America, and Asia.
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
Selling, general and administrative expense line item inUnited States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the
Consolidated Statement of Operations during the years ended December 31, 2015 and 2014 are out of period adjustments in the amounts of approximately $0.2 million, respectively, to correct compensation expense recorded with respect tocurrent year’s presentation. Except for per share
based awards previously granted to executives who, either at the time of such grantdata or
during the applicable vesting period, were eligible to retire from the Company, upon which the vesting ofas otherwise indicated, all
or a portion of these awards would be accelerated.AllU.S. dollar amounts presented in the tables that followin these Notes to Consolidated Financial Statements are in thousands (except for share data) unless otherwise indicated.
We consider all highly liquid investments with an original maturitythousands.
Principles of
three months or less as cash equivalents.Inventories are stated at the lower of cost or net realizable value. Cost is determined using the average cost method which approximates the first in first out method. Our policy is to expense abnormal amounts of idle facility expense, freight, handling cost, and waste included in cost of products sold. In addition, we allocate fixed production overheads based on the normal production capacity of our facilities. Inventory valuations were developed using normalized production capacities for each of our manufacturing locations and the costs from excess capacity or under-utilization of fixed production overheads were expensed in the period incurred and are not included as a component of inventory valuation.
Inventories also include tools, molds and dies in progress that we are producing and will ultimately sell to our customers. This activity is principally related to our Autocam Precision Components and Precision Engineered Products Groups. These inventories are carried at the lower of cost or net realizable value.
| d) | Property, Plant and Equipment |
Property, plant and equipment are stated at cost less accumulated depreciation. Assets to be disposed of are stated at lower of depreciated cost or fair market value less estimated selling costs. Expenditures for maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized. When a property item is retired, its cost and related accumulated depreciation are removed from the property accounts and any gain or loss is recorded in the consolidated Statements of Operations and comprehensive income. We review the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Property, plant and equipment includes tools, molds and dies principally used in our Autocam Precision Components and Precision Engineered Products Groups that are our property.
Depreciation is provided on the straight-line method over the estimated useful lives of the depreciable assets for financial reporting purposes. For leasehold improvements and buildings under capital lease, we depreciate these over the shorter of useful lives or the lease term. In the event we abandon and cease to use certain property, plant, and equipment, depreciation estimates are revised and, in most cases, depreciation expense will be accelerated to reflect the shortened useful life of the asset.
We recognize revenues based on the stated shipping terms with customers when these terms are satisfied and the risks of ownership are transferred to the customers. We have an inventory management program for certain Precision Bearing Components Group customers whereby revenue is recognized when products are used by customers from consigned stock, rather than at the time of shipment. Under both circumstances, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sellers’ price is fixed and determinable and collectability is reasonably assured.
Accounts receivable are recorded upon recognition of a sale of goods and ownership and risk of loss is assumed by the customer. Substantially all of our accounts receivable are due primarily from the core served markets. In establishing allowances for doubtful accounts, we perform credit evaluations of our customers, considering numerous inputs when available including the customers’ financial position, past payment history, relevant industry trends, cash flows, management capability, historical loss experience and economic conditions and prospects. Accounts receivable are written off or allowances established when considered to be uncollectible or at risk of being uncollectible, respectively.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has not been made for income taxes on unremitted earnings of foreign subsidiaries as these earnings are deemed to be permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes.
| h) | Net Income Per Common Share |
Basic income per share reflects reported earnings divided by the weighted average number of common shares outstanding. Diluted income per share include the effect of dilutive stock options and the respective tax benefits, unless inclusion would not be dilutive.
| i) | Share Based Compensation |
The cost of stock options, stock awards and performance based stock units are expensed as compensation expense over the vesting periods based on the fair value at the grant date. (See Note 9 of the Notes to the Consolidated Financial Statements) We use the Black Scholes financial pricing model for our stock options, and a Monte Carlo simulation for the performance based stock units to determine the fair value as these awards as they are not traded in open markets.
We account for stock awards by recognizing compensation expense ratably over the vesting period as specified in the award. Compensation expense to be recognized is based on the stock price at date of grant.
| j) | Principles of Consolidation |
Consolidation
Our consolidated financial statements include the accounts of NN, Inc., and its wholly owned subsidiaries. All of our subsidiaries are 100% owned (except for RFKWe own a 49% interest in a joint venture which we own 99.7% and our Chinese joint venture noted below) and all are included inaccount for using the consolidated financial statements for the years ended December 31, 2016, 2015 and 2014.equity method (see Note 9). All significant intercompany profits, transactions and balances have been eliminated in consolidation. With
Use of Estimates in the
acquisitionPreparation of
Autocam Corporation (“Autocam”) during 2014, we acquired a 49% interest in a Chinese joint venture. This joint venture is not consolidated within the financial statements of NN, Inc. and is accounted for under the equity method (see Note 16 of the Notes to the Consolidated Financial
Statements). | k) | Foreign Currency Translation |
Assets and liabilities of our foreign subsidiaries are translated at current exchange rates, while revenue, costs and expenses are translated at average rates prevailing during each reporting period. Translation adjustments arising from the translation of foreign subsidiary financial statements are reported as a component of other comprehensive income and accumulated other comprehensive income within stockholders’ equity. In addition, transactions denominated in foreign currencies, including intercompany transactions, are initially recorded at the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or losses, excluding intercompany loan transactions, are expensed in either cost of products sold or selling, general and administrative lines in the Consolidated Statements of Operations and Comprehensive Income (Loss) as incurred and were immaterial to the years ended December 31, 2016, 2015 and 2014. Transaction gains or losses on intercompany loan transactions are recognized in the other income, net line in the Consolidated Statements of Operations and Comprehensive Income (Loss) as incurred.
| l) | Goodwill and Other Indefinite Lived Intangible Assets |
We recognize the excess of the purchase price of an acquired entity over the fair value of the net identifiable assets as goodwill. Goodwill is tested for impairment on an annual basis as of October 1 and between annual tests if a triggering event occurs. The impairment procedures are performed at the reporting unit level for the reporting units that have goodwill. In September 2011, the FASB issued a revised accounting standard, intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. For the years ended, December 31, 2016 and 2015, we determined it was more appropriate to perform a full step 1 goodwill test. The decision to perform a qualitative assessment or a complete step 1 analysis is an annual decision made by management. Based on the results of the step 1 analysis fair value of the reporting units exceeded the carrying value of the reporting units at December 31, 2016 and 2015.
If the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying value, GAAP prescribes a two-step process for testing for goodwill impairments. The first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit. We consider three main approaches to value (cost, market and income) the fair value of the reporting unit and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies. We believe this methodology of valuation is consistent with how market participants would value reporting units. The discount rate and market based multiples used are specifically developed for the unit tested regarding the level of risk and end markets served. Even though we do use other observable inputs (Level 2 inputs) the calculation of fair value for goodwill would be most consistent with Level 3 inputs.
If the carrying value of the reporting unit including goodwill is less than fair value of the reporting unit, the goodwill is not considered impaired. If the carrying value is greater than fair value then the potential for impairment of goodwill exists. The potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination. The fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value.
We base our fair value estimates, in large part, on management business plans and projected financial information which are subject to a high degree of management judgment and complexity. Actual results may differ from projections and the differences may be material.
| m) | Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of |
Long-lived tangible and intangible assets subject to amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets may not be recoverable. A test for recoverability is also performed when management has committed to a plan to dispose of a reporting unit or asset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible and intangible asset is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is not recoverable the asset is considered impaired and adjusted to fair value which is then depreciated/amortized over its remaining useful life. Assets to be disposed of are carried at the lesser of carrying value or fair value less costs of disposal.
| n) | Use of Estimates in the Preparation of Financial Statements |
The preparation of
consolidated financial statements in
conformityaccordance with
accounting principles generally accepted in the United StatesU.S. GAAP requires management to
makeuse estimates and assumptions that affect the reported amounts of
certain assets and liabilities,
and disclosure of contingent assets and liabilities,
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.expenses. Actual results
couldmay differ from those estimates.
| o) | Fair Value Measurements |
Accounting Standards Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. In addition, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. Further, for the diluted earnings-per-share calculation, the new guidance requires entities to use the if-converted method for all convertible instruments and generally requires entities to include the effect of share settlement for instruments that may be settled in cash or shares, among other things. The adoption of ASU 2020-06 effective January 1, 2022 did not have a material impact on our consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, ASU 2021-04 requires the issuer to treat a modification of an equity-classified warrant as an exchange of the original warrant. The difference between the fair value of the modified warrant and the fair value of the warrant immediately before modification is then recognized as an issuance cost or discount of the related transaction. Since we do not have any equity-classified written call options that would be subject to this guidance, the adoption of ASU 2021-04 did not have any impact on our consolidated financial statements and related disclosures during the year ended December 31, 2022.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which requires business entities to provide certain annual disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance. We have adopted ASU 2021-10 prospectively for the year ended December 31, 2022.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less. We maintain cash balances in transaction accounts with various financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). Although we maintain balances that exceed the federally insured limit, we have not experienced any losses related to these balances, and we believe credit risk to be minimal. We had $12.5 million and $17.6 million in cash and cash equivalents as of December 31, 2022 and 2021, respectively, held at foreign financial institutions.
Fair Value Measurements
Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.
| p) | Recently Issued Accounting Standards |
In 2014,
Accounts Receivable and Allowance for Credit Losses
Trade accounts receivable are recorded at their net realizable value. We maintain allowances for estimated losses resulting from the
Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued the joint revenue recognition standard. Since its release, there have been multiple proposed and finalized amendments madeinability of our customers to
the revenue recognition standard.make required payments. The
revenue recognition standard is effective for public companies beginning January 1, 2018 with full retrospective or modified retrospective adoption permitted. This standard will change current revenue practices, processes, systems, controls, and disclosures and take time and resources to adopt. Factors that will affect pre and post-implementation include, butallowances are
not limited to, identifying all the contracts that exist and whether incidental obligations or marketing incentives included in those contracts are performance obligations. The revenue recognition standard may impact the timing of when revenue received under these performance obligations is recognized. We are in the scoping, performing contract analysis and the development phase of understanding the likely impacts of the standard change that can affect key processes, systems and controls.On February 25, 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 creates Topic 842, Leases, in the FASB Accounting Standards Codification (“FASB ASC”) and supersedes FASB ASC 840, Leases. Entities that hold numerous equipment and real estate leases, in particular those with numerous operating leases, will be most affected by the new guidance. The leasing accounting standard is effective for public companies beginning January 1, 2019 with modified retrospective adoption required and early adoption permitted. The amendments in ASU 2016-02 are expected to impact balance sheets at many companies by adding lease-related assets and liabilities. This may affect compliance with contractual agreements and loan covenants. As noted in Item 2. Properties, we list various leased locations. We have also carried out inquiries within segment locations compiling information on operating and capital leases. We are currently evaluating the impacts of the lease accounting standards regarding these and other leases identified on our financial position or results of operations and related disclosures.
On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern, (“ASU 2014-15”) which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We adopted ASU 2014-15 beginning December 31, 2016, which involved adding policies and procedures around our assessments to continue as a going concern. Per our quantitative and qualitative analysis, currently there is no substantial doubt as to our ability to continue as a going concern within the next twelve months.
During March 2016, ASU 2016-09–Improvements to Employee Share-Based Payment Accounting was issued regarding he guidance of how companies will account for certain aspects of share-based payments to employees. Entities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled (i.e., additional paid-in capital or APIC pools will be eliminated). The guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing. The guidance is effective for public business entities for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after 15 December 2017, and interim periods within fiscal years beginning after 15 December 2018. Early adoption is permitted in any annual or interim period for which financial statements haven’t been issued or made available for issuance, but all of the guidance must be adopted in the same period. If an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period.
The FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). This ASU provides clarification on how certain cash receipts and cash payments are presented and classified on the statement of cash flows. This ASU is effective for annual and interim periods beginning in 2018 and is required to be adopted using a retrospective approach if practicable, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Statement of Cash Flows. We are currently evaluating the impact this new guidance is expected to have on our financial position or results of operations and related disclosures.
During January 2017, the FASB issued ASU 2017-04 – Simplifying the Test for Goodwill Impairment that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excessamount that we ultimately expect to collect from our customers. We evaluate the collectability of a reporting unit’s carrying amount over its fair value (i.e., measure the chargeaccounts receivable based on today’s Step 1). The standard has tiered effective dates, starting in 2020 for calendar-year publica combination of factors including number of days receivables are past due, historical collection experience, current market conditions, and forecasted direction of economic and business entities that meetenvironment. Accounts receivable are written off at the definition of an SEC filer. Early adoptiontime a customer receivable is permitted for interim and annual goodwill impairment testing dates after 1 January 2017. Wedeemed uncollectible.
Inventories
Inventories are
currently evaluating the impact this new guidance is expected to have on our financial position or results of operations and related disclosures.We adopted ASU No. 2015-11, Inventory (Topic 330)-Simplifying the Measurement of Inventory (“ASU 2015-11”), which simplifies the subsequent measurement of inventories by replacingstated at the lower of cost or market test with a lower of cost and net realizable value test. The subsequent measurement of inventory test, historically three measurements under lower of cost or market, is replaced by lower of cost and net realizable value test. Thus, we will compare the cost of inventory to only one measure, its net realizable value. When evidence exists thatCost is determined using standard costs, which approximates the net realizable valueaverage cost method. Our policy is to expense abnormal amounts of inventory is less than itsidle facility expense, freight, handling cost, (due to damage, physical deterioration, obsolescence, changesand waste included in price levels or other causes), we will recognize the difference as a loss in earnings in the period in which it occurs. In accordance with ASU 2015-11, we are applying the new guidance on a prospective basis.
We adopted ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classificationcost of Deferred Taxes (“ASU 2015-17”). We will classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts.products sold. In addition, we will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. We have elected to apply ASU 2015-17 on a prospective basis. Therefore, the prior periods were not retroactively adjusted.
We allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumedfixed production overheads based on their estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill. The purchase price allocation process required us to use significant estimates and assumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company, in part based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations are performed by management or third party valuation specialists under management’s supervision. In determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: the income approach (including discounted cash flows from relief from royalty and excess earnings model), the market approach and/or the replacement cost approach.
Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:
sales volume, pricing and future cash flows of the business overall;
future expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels, rates of increase in revenue and appropriate attrition rate;
the acquired company’s brand and competitive position, royalty rate quantum, as well as assumptions about the period of time the acquired brand will continue to benefit to the combined company’s product portfolio; and
cost of capital, risk-adjusted discount rates and income tax rates.
However, different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of assets and liabilities, mainly between property plant and equipment, intangibles assets, goodwill and deferred income tax liabilities and subsequent assessment could result in future impairment charges. The purchase price allocation process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at acquisition date.
2) Acquisitions
As reported in our 2015 Annual Report, we completed the acquisition (the “PEP Acquisition”) of Precision Engineered Products Holdings, Inc. (“PEP”) on October 19, 2015. During the nine months ended September 30, 2016, we finalized all issues related to customary working capital adjustments, fixed assets and income taxes. The changes primarily arose from differences noted during acquisition integration and finalizing return to provision adjustments. As a result, we adjusted the preliminary allocation of the purchase price initially recorded at the PEP Acquisition date to reflect these measurement period adjustments.
The following table summarizes the final purchase price allocation for the PEP Acquisition:
| | | | | | | | | | | | |
| | As Reported | | | Subsequent | | | Final | |
| | on | | | Adjustments | | | as of | |
| | December 31, | | | to fair | | | September 30, | |
| | 2015 | | | value | | | 2016 | |
Consideration: | | | | | | | | | | | | |
Cash paid | | $ | 621,196 | | | $ | — | | | $ | 621,196 | |
Cash adjustment | | | — | | | | (1,635 | ) | | | (1,635 | ) |
| | | | | | | | | | | | |
Total consideration | | $ | 621,196 | | | $ | (1,635 | ) | | $ | 619,561 | |
| | | | | | | | | | | | |
Fair value of assets acquired and liabilities assumed on October 19, 2015: | | | | | | | | | | | | |
Current assets | | $ | 69,331 | | | $ | 452 | | | $ | 69,783 | |
Property, plant and equipment | | | 56,163 | | | | (962 | ) | | | 55,201 | |
Intangible assets subject to amortization | | | 240,490 | | | | — | | | | 240,490 | |
Other non-current assets | | | 1,500 | | | | — | | | | 1,500 | |
Goodwill | | | 364,450 | | | | (1,805 | ) | | | 362,645 | |
| | | | | | | | | | | | |
Total assets acquired | | | 731,934 | | | | (2,315 | ) | | | 729,619 | |
| | | | | | | | | | | | |
Current liabilities | | | 21,131 | | | | — | | | | 21,131 | |
Non-current deferred tax liabilities | | | 87,578 | | | | (680 | ) | | | 86,898 | |
Other non-current liabilities | | | 2,029 | | | | — | | | | 2,029 | |
| | | | | | | | | | | | |
Total liabilities assumed | | | 110,738 | | | | (680 | ) | | | 110,058 | |
| | | | | | | | | | | | |
Net assets acquired | | $ | 621,196 | | | $ | (1,635 | ) | | $ | 619,561 | |
| | | | | | | | | | | | |
In accordance with generally accepted accounting principles, we have recognized measurement-period adjustments during the period in which we determine the amount of the adjustment, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date.
3) Restructuring, Impairment and Integration Charges, excluding Goodwill Impairments, and Divestitures
Restructuring and integration costs totaling $10.0 million and $7.3 million were recognized in the years ended December 31, 2016 and 2015, comprised of initiatives impacting eachnormal production capacity of our segments.
Within the Precision Bearing Components Group, restructuring initiatives to optimize operations in the U.S., Italy, the Netherlands, Mexico and at segment headquarters resulted in a charge of $4.4 and $2.0 million for the years ended December 31, 2016 and 2015, respectively. These charges consisted primarily of severance and other employee costs relating to personnel reductions.
Within the Autocam Precision Components Group, certain restructuring programs, including the closure of one facility, the Wheeling Plant, resulted in a charge of $4.3 and $2.6 million for the years ended December 31, 2016 and 2015, respectively. These charges consisted of severance costs of $0.8 million, fixed asset impairment of $0.3 million and site closure costs of $3.2 million for 2016.
Within the Precision Engineered Products (“PEP”) Group, initiatives resulted in integration, site closure and employee costs of $1.3 and $0.9 million for the years ended December 31, 2016 and 2015, respectively.
Within the Corporate and Consolidated Segment, a charge of $1.8 million was incurred for an accounting and reporting system that was ultimately never deployed and abandoned for the year ended December 31, 2015.
The following table summarizes restructuring and integration activity related to actions incurred for the years ended December 31, 2016 and 2015:
| | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2016 | | | 2015 | |
Severance and other employee costs | | $ | 5,776 | | | $ | 2,019 | |
Site closure and other associated costs | | | 3,970 | | | | 4,399 | |
Integration and other associated costs | | | 278 | | | | 850 | |
| | | | | | | | |
Total | | $ | 10,024 | | | $ | 7,268 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Reserve | | | | | | | | | Reserve | |
| | Balance at | | | | | | Paid in | | | Balance at | |
| | December 31, 2015 | | | Charges | | | 2016 | | | December 31, 2016 | |
Severance and other employee costs | | $ | 2,517 | | | $ | 5,776 | | | $ | (5,274 | ) | | $ | 3,019 | |
Site closure and other associated costs | | | 1,845 | | | | 3,970 | | | | (4,189 | ) | | | 1,626 | |
Integration and other associated costs | | | — | | | | 278 | | | | (278 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 4,362 | | | $ | 10,024 | | | $ | (9,741 | ) | | $ | 4,645 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Reserve | | | | | | Paid in | | | Reserve | |
| | Balance at | | | | | | | Balance at | |
| | December 31, 2014 | | | Charges | | | 2015 | | | December 31, 2015 | |
Severance and other employee costs | | $ | — | | | $ | 2,691 | | | $ | (174 | ) | | $ | 2,517 | |
Site closure and other associated costs | | | — | | | | 1,925 | | | $ | (80 | ) | | | 1,845 | |
Impairment and write-off charges | | | — | | | | 2,652 | | | $ | — | | | | — | |
Integration and other associated costs | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | — | | | $ | 7,268 | | | $ | (254 | ) | | $ | 4,362 | |
| | | | | | | | | | | | | | | | |
The total restructuring and impairment costs are still being identified at the various segments; therefore, we are not able to estimate the ultimate costs at this time. We will include in future filings updates to these activities along with a reconciliation of beginning and ending liabilities recorded. The amounts recorded for the year ended December 31, 2016 for restructuring charges that have been incurred are primarily expected to be paid out during 2017. Some amounts related to foreign locations extend through 2021.
4) Accounts Receivable and Sales Concentrations
| | | | | | | | |
| | December 31, | |
| | 2016 | | | 2015 | |
Trade | | $ | 140,754 | | | $ | 124,226 | |
| | |
Less—allowance for doubtful accounts | | | 1,207 | | | | 1,221 | |
| | | | | | | | |
Accounts receivable, net | | $ | 139,547 | | | $ | 123,005 | |
| | | | | | | | |
Activity in the allowance for doubtful accounts is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Balance at | | | | | | | | | | | | | |
| | Beginning | | | | | | Write- | | | Currency | | | Balance at | |
Description | | of Year | | | Additions | | | offs | | | Impacts | | | End of Year | |
December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 1,221 | | | $ | 142 | | | $ | (75 | ) | | $ | (81 | ) | | $ | 1,207 | |
December 31, 2015 | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 520 | | | $ | 745 | | | $ | (8 | ) | | $ | (36 | ) | | $ | 1,221 | |
December 31, 2014 | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 445 | | | $ | 208 | | | $ | (123 | ) | | $ | (10 | ) | | $ | 520 | |
For the years ended December 31, 2016, 2015 and 2014, sales to AB SKF (“SKF”) amounted to $104.2 million, $105.7 million, and $128.0 million, respectively, or 13%, 16%, and 26% of consolidated revenues, respectively. None of our other customers accounted for more than 10% of our net sales in 2016, 2015 or 2014. SKF was the only customer with accounts receivable concentration in excess of 10% in 2016 and 2015. The outstanding balance as of December 31, 2016 and 2015 for SKF was $20.5 million and $16.2 million, respectively. All revenues and receivables related to SKF are in the Precision Bearing Components Group and Precision Engineered Products Group.
5) Inventories
| | | | | | | | |
| | December 31, | | | December 31, | |
| | 2016 | | | 2015 | |
Raw materials | | $ | 49,205 | | | $ | 50,204 | |
Work in process | | | 31,348 | | | | 30,604 | |
Finished goods | | | 34,298 | | | | 39,028 | |
| | | | | | | | |
Inventories | | $ | 114,851 | | | $ | 119,836 | |
| | | | | | | | |
Finished goods inventory on consignment at customers’ sites at December 31, 2016 and 2015 was approximately $5.0 million and $5.1 million, respectively.
The inventoryfacilities. Inventory valuations above were developed using normalized production capacities for each of our manufacturing locations. AnyThe costs from abnormal excess capacity or under-utilization of fixed production overheads arewere expensed in the period incurred and are not included as a component of inventory valuation.
6) inventory.
Inventories also include tools, molds, and dies in progress that we are producing and will ultimately sell to our customers. These inventories are also carried at the lower of cost or net realizable value.
Property, Plant and Equipment
| | | | | | | | | | | | |
| | Estimated | | | December 31, | |
| | Useful Life | | | 2016 | | | 2015 | |
Land and buildings | | | 15-40 years | | | | 96,173 | | | | 97,322 | |
Machinery and equipment | | | 3-12 years | | | | 464,291 | | | | 432,841 | |
Construction in process | | | | | | | 21,045 | | | | 16,049 | |
| | | | | | | | | | | | |
| | | | | | | 581,509 | | | | 546,212 | |
Less—accumulated depreciation | | | | | | | 258,556 | | | | 227,244 | |
| | | | | | | | | | | | |
Property, plant and equipment, net | | | | | | $ | 322,953 | | | $ | 318,968 | |
| | | | | | | | | | | | |
During the year ended December 31, 2015, we acquired $59.1 million in property,
Property, plant and equipment
with the two acquisitions completed during 2015.For the years ended December 31, 2016, 2015, and 2014, depreciation expense was $36.0 million, $ 31.5 million and $20.8 million, respectively.
7) Debt
Long-term debt and short-term debtare stated at December 31, 2016 and December 31, 2015 consisted of the following:
| | | | | | | | |
| | | | | Amended | |
| | December 31, | | | December 31, | |
| | 2016 | | | 2015 | |
Borrowings under our $545.0 million Senior Secured Term Loan B bearing interest at the greater of 0.75% or 1 month LIBOR (0.77% at December 31, 2016) plus an applicable margin of 4.25% at September 30, 2016, expiring October 19, 2022, net of debt issuance costs of $19.0 million at December 31, 2016 and $20.6 million at December 31, 2015. | | $ | 524,539 | | | $ | 552,957 | |
Borrowings under our $143.0 million Senior Secured Revolver bearing interest at LIBOR (0.77% at December 31, 2016) plus an applicable margin of 3.50% at September 30, 2016, expiring October 19, 2020, net of debt issuance costs of $2.7 million at December 31, 2016 and $2.9 million at December 31, 2015. | | | 25,298 | | | | 3,547 | |
Borrowings under our $250.0 million Senior Notes bearing interest at 10.25%, maturing on November 1, 2020, net of debt issuance costs of $4.9 million at December 31, 2016 and $5.9 million at December 31, 2015. | | | 245,077 | | | | 244,088 | |
French Safeguard Obligations (Autocam) | | | 358 | | | | 2,000 | |
Brazilian lines of credit and equipment notes (Autocam) | | | 573 | | | | 826 | |
Chinese line of credit (Autocam) | | | 2,619 | | | | 3,696 | |
| | | | | | | | |
| | |
Total debt | | | 798,464 | | | | 807,114 | |
| | |
Less current maturities of long-term debt | | | 12,751 | | | | 11,714 | |
| | | | | | | | |
| | |
Long-term debt, excluding current maturities of long-term debt | | $ | 785,713 | | | $ | 795,400 | |
| | | | | | | | |
On October 19, 2015, we: (i) entered into a new senior secured term loan credit facility in the amount of up to $525.0 million (with a $100.0 million accordion feature) and a seven year maturity (as amended, supplemented and/or restated from time to time, the “Term Loan Credit Facility”); (ii) entered into a new senior secured revolving credit facility in the amount of up to $100.0 million with a five year maturity (as amended, supplement and/or restated from time to time, the “Senior Secured Revolving Credit Facility”, and together with the Term Loan Credit Facility, the “Senior Credit Facilities”); and (iii) issued $300.0 million of 10.25% senior notes due 2020 (the “Senior Notes”). On September 30, 2016, we amended and restated the Senior Credit Facilities, which lowered the interest rate and rate floor on the Company’s Senior Secured Term Loan B (the “Term Loan B”). The new applicable rate for the Term Loan B is London Inter Bank Offering Rate (“LIBOR”), subject to a 0.75% rate floor, plus 4.25%, which in combination is 75 basis points lower (or 0.75%) than the previous rate. There were no changes to the maturities or covenants under the Term Loan B. Concurrent with the amended and restated Term Loan B, the Senior Secured Revolving Credit Facility was upsized from $100 million to $133 million. Proceeds were drawn under the Senior Secured Revolving Credit Facility to pay down debt under the Term Loan B, reducing the debt under the Term Loan B to $545 million. During October 2016, an incremental amendment was executed increasing the $133 million Senior Secured Revolving Credit Facility to $143 million. There were no changes to the Senior Secured Revolving Credit Facility maturities, and the covenant threshold was increased from $30 million to $42.9 million (30% drawn threshold). The outcome of the refinancing and debt transactions was lower principal amounts outstanding on the Term Loan B, increased borrowings under the Senior Secured Revolving Credit Facility, resulting in a lower effective interest rate for the overall debt holdings.
In conjunction with the amended and restated Senior Credit Facilities, we incurred $4.0 million in debt issuance costs. We wrote off a total of $2.6 million in debt issuance costs related to the modification and extinguishment of debt.
As part of the merger with Autocam in 2014, we assumed certain foreign credit facilities. These facilities relate to local borrowings in France, Brazil and China. These facilities are with financial institutions in the countries in which foreign plants operate and are used to fund working capital and equipment purchases in those countries. The following paragraphs describe these foreign credit facilities.
Our French operation (acquired with Autocam) has liabilities with certain creditors subject to Safeguard protection. The liabilities are being paid annually over a 10-year period until 2019 and carry a zero percent interest rate. Amounts due as of December 31, 2016 to those creditors optingcost less accumulated depreciation. Assets to be paid over a 10-year period totaled $0.4 million,disposed of which $0.1 million is included in current maturities of long-term debt and $0.3 million is included in long-term debt, net of current portion, on the Condensed Consolidated Balance Sheet.
The Brazilian equipment notes represent borrowings from certain Brazilian banks to fund equipment purchases for Autocam’s Brazilian plants. These credit facilities have annual interest rates ranging from 2.5% to 9.1%.
The Chinese line of credit is a working capital line of credit with a Chinese bank bearing an annual interest rate ranging from 1.4% to 4.6%.
In accordance with generally accepted accounting principles, we have adopted ASU 2015-03, which provides guidance on simplifying the presentation of debt issuance costs on the balance sheet. To simplify presentation of debt issuance costs, the amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The following table displays the debt amounts reported as of December 31, 2015, restated for the adoption of ASU 2015-03. The debt issuance costs were reclassified from other non-current assets and directly applied to the associated liability.
| | | | | | | | | | | | |
| | Reported December 31, 2015 | | | ASU 2015-13 Reclass | | | Amended December 31, 2015 | |
Borrowings under our $575.0* million Senior Secured Term Loan B | | $ | 562,580 | | | $ | (9,623 | ) | | $ | 552,957 | |
Borrowings under our $100.0** million Senior Secured Revolver | | | 6,462 | | | | (2,915 | ) | | | 3,547 | |
Borrowings under our $250.0 million Senior Notes | | | 244,509 | | | | (421 | ) | | | 244,088 | |
French Safeguard Obligations (Autocam) | | | 2,000 | | | | | | | | 2,000 | |
Brazilian lines of credit and equipment notes (Autocam) | | | 826 | | | | | | | | 826 | |
Chinese line of credit (Autocam) | | | 3,696 | | | | | | | | 3,696 | |
| | | | | | | | | | | | |
Total debt | | | 820,073 | | | | | | | | 807,114 | |
Less current maturities of long-term debt | | | 11,714 | | | | | | | | 11,714 | |
| | | | | | | | | | | | |
Long-term debt, excluding current maturities of long-term debt | | $ | 808,359 | | | | | | �� | $ | 795,400 | |
| | | | | | | | | | | | |
* | Amended from $575 million down to $545 million on September 30, 2016. |
** | Amended from $100 million up to $133 million on September 30, 2016; incremental amendment from $133 million up to $143 million in October 2016. |
The aggregate maturities of long-term debt including current portion for each of the five years subsequent to December 31, 2016 are as follows:
| | | | |
Year ending December 31, | |
2017 | | $ | 12,751 | |
2018 | | | 5,968 | |
2019 | | | 5,968 | |
2020 | | | 279,841 | |
2021 | | | 5,750 | |
Thereafter | | | 514,812 | |
| | | | |
Total debt | | $ | 825,090 | |
Less debt issuance costs | | | (26,626 | ) |
| | | | |
Total debt, net of debt issuance cost | | $ | 798,464 | |
| | | | |
On June 1, 2004, our wholly owned subsidiary, NN Asia, entered into a twenty-year lease agreement with Kunshan Tian Li Steel Structure Co. LTD for the lease of land and building (approximately 110,000 square feet) in the Kunshan Economic and Technology Development Zone, Jiangsu, The People’s Republic of China. The fair value of the land and building was estimated to be approximately $0.5 million and $1.9 million (at current exchange rates), respectively and undiscounted annual lease payments are approximately $0.3 million (approximately $5.6 million aggregate non-discounted lease payments over the twenty year term). The lease is cancelable after the fifth, ninth, and fourteenth years without payment or penalty by us. In addition, after the end of year five and each succeeding year we can buy the land for a preset price per square meter value and the building for actual cost less depreciation.
On October 1, 2011, our wholly owned subsidiary, NN Asia, entered into a twenty year lease agreement with Kunshan Tian Li Steel Structure Co. LTD for the lease of land and building adjacent to the current leased facility (approximately 75,000 square feet) in the Kunshan Economic and Technology Development Zone, Jiangsu, The People’s Republic of China. This lease was entered into to expand the production capacity of our current leased facility. The fair value of the land and building was estimated to be approximately $0.8 million and $1.1 million (at current exchange rates), respectively and undiscounted annual lease payments are approximately $0.2 million (approximately $3.6 million aggregate non-discounted lease payments over the twenty year term). The lease is cancelable after the fifth, ninth, and fourteenth years without payment or penalty by us. In addition, after the end of year five and each succeeding year we can buy the land for a preset price per square meter value and the building for actual cost less depreciation.
Below are the aggregate minimum future lease payments under both capital leases together with the present value of the net minimum lease payments as of December 31, 2016:
| | | | |
Year ending December 31, | |
2017 | | $ | 434 | |
2018 | | | 434 | |
2019 | | | 434 | |
2020 | | | 434 | |
2021 | | | 434 | |
Thereafter | | | 2,601 | |
| | | | |
Total minimum lease payments | | | 4,771 | |
Less interest included in payments above | | | (1,462 | ) |
| | | | |
Present value of minimum lease payments | | $ | 3,309 | |
| | | | |
With the Autocam acquisition, we assumed capital leases on certain buildings and equipment. The cost of the assets subject to capital lease obligations as reflected in Property, Plant and Equipment, net in our Consolidated Balance Sheet was $25.0 million as of December 31, 2014. The accumulated depreciation of such assets as reflected in Property, Plant and Equipment, net in our Consolidated Balance Sheet was $3.6 million and $2.6 million as of December 31, 2016 and 2015, respectively.
Below are the minimum future lease payments under the assumed capital leases together with the present value of the net minimum lease payments as of December 31, 2016:
| | | | |
Year ending December 31, | |
2017 | | $ | 3,521 | |
2018 | | | 2,530 | |
2019 | | | 803 | |
2020 | | | 0 | |
2021 | | | 0 | |
Thereafter | | | 0 | |
| | | | |
Total minimum lease payments | | | 6,854 | |
Less interest included in payments above | | | (282 | ) |
| | | | |
Present value of minimum lease payments | | $ | 6,572 | |
| | | | |
We have defined contribution 401(k) profit sharing plans covering substantially all U.S. employees. All eligible employees may enroll in the plans on the first day of the month following their employment date. A participant may elect to contribute between 1% and 60% of their compensation to the plans, subject to Internal Revenue Service (“IRS”) dollar limitations. Participants age 50 and older may defer an additional amount up to the applicable IRS Catch Up Provision Limit. We provide a matching contribution, which is determined on an individual, participating company basis. All participant contributions are immediately vested at 100%. Contributions for all U.S. employees were $2.3 million, $0.2 million and $0.8 million in 2016, 2015, and 2014, respectively.
Post-Employment Benefit Liabilities
We provide certain post-employment benefits to employees at our Pinerolo and Veenendaal plants that are either required by law or are local labor practice. There is a plan at each of our Pinerolo and Veenendaal plants, which are described below.
In accordance with Italian law, we have an unfunded severance plan under which all Italian employees are entitled to receive severance indemnities (Trattamento di Fine Rapporto or “TFR”) upon termination of their employment.
Effective January 1, 2007, the amount payable, based on salary paid, is remitted to a pension fund managed by a third party. The severance indemnities paid to the pension fund accrue approximatelystated at the ratelower of 1/13.5 of the gross salaries paid during the year. The amounts accrued become payable upon termination of the individual employee, for any reason, e.g., retirement, dismissaldepreciated cost or reduction in work force. Employees are fully vested in TFR benefits after their first year of service.
We have a plan that covers our Veenendaal plant employees that provides an award for employees who achieve 25 or 40 years of service and an award for employees upon retirement. The plan is unfunded and the benefits are based on years of service and rate of compensation at the time the award is paid.
The amounts shown in the table below represent the actual liabilities at December 31, 2016 and 2015 reported under accrued post-employment benefits in the Consolidated Balance Sheets for both plans combined.
| | | | | | | | |
| | 2016 | | | 2015 | |
Beginning balance | | $ | 5,189 | | | $ | 6,024 | |
Amounts accrued | | | 135 | | | | 53 | |
Payments to employees/government managed plan | | | (452 | ) | | | (266 | ) |
Foreign currency impacts | | | (165 | ) | | | (622 | ) |
| | | | | | | | |
Ending balance | | $ | 4,707 | | | $ | 5,189 | |
| | | | | | | | |
Defined Benefit Plan
Effective with the Autocam acquisition on August 29, 2014, we sponsor a defined benefit pension plan (the “Pension Plan”) for substantially all employees of the Bouverat, France plant. These benefits are calculated based on each employee’s years of credited service and most recent monthly compensation and service category. Employees become vested in accordance with governmental regulations in place at the time of retirement.
For the purpose of calculating the 2016 actuarial present value of the benefit obligation under the Pension Plan, the discount rates assumed were 1.6%. The compensation growth rate was assumed was 3.0% for 2016. The measurement date was December 31, 2016.
For the purpose of calculating the 2015 actuarial present value of the benefit obligation under the Pension Plan, the discount rates assumed were 2.2%. The compensation growth rate was assumed was 3.0% for 2015. The measurement date was December 31, 2016.
Set forth below is projected benefit obligation information for the Pension Plan and the plan activity for the years ended December 31, 2016 and 2015:
| | | | | | | | |
| | 2016 | | | 2015 | |
Accumulated benefit obligation at measurement date | | $ | 949 | | | $ | 950 | |
Effect of salary increases | | | 533 | | | | 494 | |
| | | | | | | | |
Projected benefit obligation at measurement date | | $ | 1,482 | | | $ | 1,444 | |
| | | | | | | | |
Projected benefit obligation at date of acquisition | | $ | 1,444 | | | $ | 1,537 | |
Service and interest costs | | | 113 | | | | 103 | |
Actuarial gains (losses) | | | 118 | | | | (15 | ) |
Benefits paid | | | (141 | ) | | | (22 | ) |
Effect of foreign currency translation gains and other | | | (50 | ) | | | (159 | ) |
| | | | | | | | |
Projected benefit obligation at measurement date | | $ | 1,484 | | | $ | 1,444 | |
| | | | | | | | |
Set forth below is net periodic benefit cost information for the Pension Plan for the years ended December 31, 2016 and 2015:
| | | | | | | | |
| | 2016 | | | 2015 | |
Service and interest costs | | $ | 113 | | | $ | 103 | |
Expected return on plan assets | | | (10 | ) | | | (11 | ) |
Amortization of prior service costs | | | 27 | | | | 28 | |
| | | | | | | | |
Net periodic benefit cost | | $ | 130 | | | $ | 120 | |
| | | | | | | | |
We expect benefit payments under the Pension Plan to be:
| | | | |
Year ending December 31, | |
2017 | | $ | 14 | |
2018 | | | 7 | |
2019 | | | — | |
2020 | | | 25 | |
2021 | | | 9 | |
2022-2026 | | | 213 | |
| | | | |
Total benefit payments | | | 268 | |
| | | | |
Set forth below is plan asset information for the Pension Plan:
| | | | | | | | |
| | 2016 | | | 2015 | |
Plan assets at fair value at measurement date | | $ | 426 | | | $ | 515 | |
Projected benefit obligations at measurement date | | | (1,482 | ) | | | (1,444 | ) |
| | | | | | | | |
Funded status | | $ | (1,056 | ) | | $ | (929 | ) |
| | | | | | | | |
Plan assets at fair value at date of acquisition | | $ | 515 | | | $ | 589 | |
Actual return on plan assets | | | 64 | | | | 9 | |
Benefits paid | | | (141 | ) | | | (22 | ) |
Effect of foreign currency translation gains | | | (13 | ) | | | (61 | ) |
| | | | | | | | |
Plan assets at fair value at measurement date | | $ | 425 | | | $ | 515 | |
| | | | | | | | |
The assumed rate of return on assets of the Pension Plan was 2.0% for all periods presented. We have a targeted goal of allocating plan assets one-third to equity and two-thirds to fixed income securities. Actual allocations of Pension Plan assets between equity and fixed income securities were 35% and 65%, respectively, as of December 31, 2016. Our expected funding obligations under the Pension Plan in 2017 is approximately $0.1 million.
Even though we do use other observable inputs (Level 2 inputs under the GAAP hierarchy), the calculation of fair value for pension plan assets and liabilities would be most consistent with Level 3 under the GAAP hierarchy.
9) | Stock Based Compensation |
We recognize compensation expense of all employee and non-employee director share-based compensation awards in the financial statements based upon the fair value of the awards over the requisite service or vesting period, less anticipated forfeitures. We account for stock awards by recognizing the fair value of the awarded stock at the grant date as compensation expense over the vesting period, less anticipated forfeitures.
In the years ended December 31, 2016, 2015, and 2014, approximately $4.3 million, $3.7 million, and $2.6 million, respectively of compensation expense was recognized in selling, general and administrative expense for all share-based awards. The compensation expense recognized in the years ended December 31, 2016, 2015 and 2014 related to stock options was $0.8 million, $0.9 million and $1.3 million, respectively. The compensation expense related to stock awards in the years ended December 31, 2016, 2015 and 2014 was $2.3 million, $2.4 million and $1.3 million, respectively. The compensation expense related to performance based awards in the year ended December 31, 2016 and 2015, was $1.2 and $0.4 million, respectively.
As of December 31, 2016, we have approximately 2,300 maximum shares that can be issued as options, stock appreciation rights, and/or other stock based awards.
Stock Option Awards
Option awards are typically granted to non-executive directors and key employees on an annual basis. A single option grant is typically awarded to eligible employees and non-executive directors each year if and when granted by the Compensation Committee of the Board of Directors and occasionally individual grants are awarded to eligible employees. All employee and non-executive directors are awarded options at an exercise price equal to the closing price of our stock on the date of grant. The term life of options is ten years with vesting periods of generally three years for key employees and one year for non-executive directors. The fair value of our options cannot be determined by market value as they are not traded in an open market. Accordingly, the Black Scholes financial pricing model is utilized to determine fair value based on certain assumptions discussed below.
During 2016, 2015 and 2014, we granted options to purchase 167,000, 54,600, and 108,620 shares, respectively, to certain key employees and non-employee directors. The weighted average grant date fair value of the options granted during the years ended December 31, 2016, 2015 and 2014 was $5.02, $12.61 and $9.48, respectively. Upon exercise of stock options, new shares of our stock are issued. The weighted average assumptions relevant to determining the fair value at the dates of grant are below:
| | | | | | | | | | | | |
| | 2016 | | | 2015 | | | 2014 | |
Term | | | 6 years | | | | 6 years | | | | 6 years | |
Risk free interest rate | | | 1.43 | % | | | 1.43 | % | | | 1.75 | % |
Dividend yield | | | 2.48 | % | | | 1.11 | % | | | 1.43 | % |
Expected volatility | | | 59.23 | % | | | 59.22 | % | | | 56.75 | % |
Expected forfeiture rate | | | 3.00 | % | | | 3.00 | % | | | 3.00 | % |
The expected volatility rate is derived from our actual common stock historical volatility over the same time period as the expected term. The volatility rate is derived by mathematical formula utilizing daily closing price data.
The expected dividend yield is derived by a mathematical formula which uses the expected annual dividends over the expected term divided by the fair market value of our common stock at the grant date.
The average risk-free interest rateless estimated selling costs. Expenditures for maintenance and repairs are charged to expense as incurred. Major renewals and improvements are capitalized. When a property item is derived from United States Department of Treasury published interest rates of daily yield curves for the same time period as the expected term.
The forfeiture rate is determined from examining the historical pre-vesting forfeiture patterns of past option issuances to key employees. While the forfeiture rate is not an input of the Black Scholes model for determining the fair value of the options, it is an important determinant of stock option compensation expense to be recorded.
The term is derived from using the “Simplified Method” of determining stock option terms as described under the Securitiesretired, its cost and Exchange Commission’s Staff Accounting Bulletin 107.
The following table provides a reconciliation of option activity for the year ended December 31, 2016:
| | | | | | | | | | | | | | | | |
Options | | Shares (000) | | | Weighted- Average Exercise Price | | | Weighted- Average Remaining Contractual Term (years) | | | Aggregate Intrinsic Value | |
Outstanding at January 1, 2016 | | | 1,034 | | | $ | 12.09 | | | | | | | | | |
Granted | | | 167 | | | $ | 11.31 | | | | | | | | | |
Exercised | | | (270 | ) | | $ | 10.49 | | | | | | | | | |
Forfeited or expired | | | (34 | ) | | $ | 17.52 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2016 | | | 897 | | | $ | 12.22 | | | | 5.9 | | | | 6,479 | (1) |
| | | | | | | | | | | | | | | | |
Exercisable at December 31, 2016 | | | 686 | | | $ | 11.59 | | | | 4.9 | | | | 5,267 | (1) |
| | | | | | | | | | | | | | | | |
(1) | The intrinsic value is the amount by which the market price of our stock was greater than the exercise price of any individual option grant at December 31, 2016. |
As of December 31, 2016, there was approximately $0.6 million, $1.0 million and $2.0 million of unrecognized compensation costs for stock options, restricted stock and performance based awards, respectively, to be recognized over approximately two years.
Cash proceedsrelated accumulated depreciation are removed from the exercise of options in the years ended December 31, 2016, 2015,property accounts and 2014 totaled approximately $2.6 million, $2.0 million, and $1.7 million, respectively. For the years ended December 31, 2016, 2015 and 2014, proceeds from stock options were presented exclusive of tax benefits in the Financing Activities section of the Consolidated Statements of Cash Flows. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $2.9 million, $2.6 million and $2.0 million, respectively.
Stock Awards
During the year ended December 31, 2016, 2015 and 2014, we issued 152,510, 114,475 and 114,300 shares, respectively, of our common stock as awards to key employees and non-executive directors. The fair value of the 2016 shares issued was determined by using the grant date price of our common stock with a weighted average grant date value of $11.39. The recognized compensation expense for stock awards in the years ended December 31, 2016, 2015, and 2014 was approximately $2.3 million, $2.4 million, and $1.3 million, respectively. The shares issued in 2016, 2015 and 2014 vest over three years.
Performance Based Awards
On March 16, 2016 and April 30, 2015, we awarded performance share units (the “PSUs”) to our executive officers. The PSUs are a form of long-term incentive compensation designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. The awards were made pursuant to the NN, Inc. 2011 Stock Incentive Plan and a Performance Share Unit Agreement.
There were two tranches of PSUs awarded, PSUs based on total shareholder return (“TSR Awards”) and PSUs based on return on invested capital (“ROIC Awards”). The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of the S&P SmallCap 600 Index during the period beginning on March 16, 2016 and ending December 31, 2018 for the 2016 awards and the period beginning February 1, 2015 and ending December 31, 2017 for the 2015 awards (the “Performance Periods”). The ROIC Awards will vest, if at all, upon our achieving a specified average return on invested capital during the Performance Periods. If the PSUs do not vest at the end of the Performance Periods, the PSUs will expire automatically. Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the executive officer’s continued employment. The actual number of shares of common stock will be issued to each award recipient at the end of the Performance Periods will be interpolated between a threshold and maximum payout amount based on actual performance results. No dividends will be paid on outstanding PSUs during the Performance Period; however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the Performance Periods.
With respect to the TSR Awards, a participant will earn 50% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance. For performance levels falling between the values shown below, the percentages will be determined by interpolation. The following table establish the goals with respect to TSR and ROIC:
TSR:
| | | | | | | | |
Threshold Performance
(50% of Shares)
| | Target Performance
(100% of Shares) | | | Maximum Performance
(150% of Shares) | |
35th Percentile
| | | 50th Percentile | | | | 75th Percentile | |
ROIC:
| | | | | | | | | | |
Threshold Performance (35% of Shares) | | | Target Performance (100% of Shares) | | | Maximum Performance (150% of Shares) | |
| 11% | | | | 12.5 | % | | | 14 | % |
During 2016 and 2015, we awarded 101,165 and 35,775 TSR Awards and 101,165 and 35,775 ROIC Awards with a grant date fair value of $9.38 and $28.61 for TSR Awards and $11.31 and $25.16 per unit for ROIC Awards, respectively. We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metricany gain or loss is considered a market condition under ASC 718. The grant date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant.
The recognized compensation expense for the year ended December 31, 2016 and 2015 was $1.2 million and $0.4 million, respectively, for all PSUs. Unrecognized compensation expense at December 31, 2016 was $2.0 million to be recognized over approximately two years.
During the three months ended June 30, 2016, we recorded an out of period adjustment to correct compensation expense recoded with respect to share-based awards previously granted to executives who, either at the time of such grant or during the applicable vesting period, were eligible to retire from the Company, upon which the vesting of all or a portion of these awards would be accelerated. If the out of period amounts would have been recorded in the appropriate periods, then the Selling, general and administrative expense line item in the Consolidated State of Operations for the years ended December 31, 2015 and 2014 would have been effected by $0.1 million and $32 thousand pre-tax amounts, respectively, increasing expense.
We completed our annual goodwill impairment review during the fourth quarters of 2016 and 2015. For the years ended December 31, 2016, 2015 and 2014, we concluded that there were no indicators of impairment at the reporting units with goodwill.
The changes in the carrying amount of goodwill for the years ended December 31, 2016, 2015 and 2014 are as follows:
| | | | | | | | | | | | | | | | |
| | Precision Bearing Components Group | | | Autocam Precision Components Group | | | Precision Engineered Products Group | | | Total | |
Balance as of December 31, 2014 | | $ | 9,949 | | | $ | 73,992 | | | $ | — | | | $ | 83,941 | |
Currency impacts | | | (838 | ) | | | — | | | | — | | | | (838 | ) |
Goodwill acquired in acquisition | | | — | | | | — | | | | 366,795 | | | | 366,795 | |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2015 | | $ | 9,111 | | | $ | 73,992 | | | $ | 366,795 | | | $ | 449,898 | |
Currency impacts | | | (202 | ) | | | (601 | ) | | | (2,051 | ) | | | (2,854 | ) |
Adjustments to goodwill | | | — | | | | — | | | | (1,805 | ) | | | (1,805 | ) |
Other adjustments (a) | | | — | | | | (2,674 | ) | | | 7,746 | | | | 5,072 | |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2016 | | $ | 8,909 | | | $ | 70,717 | | | $ | 370,685 | | | $ | 450,311 | |
| | | | | | | | | | | | | | | | |
(a) | During the year ended December 31, 2016, the Company identified certain prior period errors primarily relating to the initial recognition of goodwill and deferred taxes in purchase accounting (see Note 13) and the subsequent foreign currency translation of goodwill. The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors in 2016 as reflected above. |
The accumulated impairment charges included in the reported goodwill balances at December 31, 2016, 2015 and 2014 were $40.0 million all of which were recorded during the years ended December 31, 2008 and 2007.
The goodwill acquired in the 2015 acquisitions within the Precision Engineered Products Group was primarily related to the PEP Acquisition. (See Note 2 of the Notes to Consolidated Financial Statements). The goodwill balance related to the PEP Acquisition is derived from the value of the Precision Engineered Products Group. This fair value was based in large part on management business plans and projected financial information which are subject to a high degree of management judgment and complexity. Actual results may differ from these projections, and the differences may be material leading to a potential impairment of this goodwill if this reporting unit’s future results are not as forecasted.
11) | Intangible Assets, Net |
The change in the carrying amount of intangible assets, net, for the years ended December 31, 2016 and 2015 are as follows:
| | | | | | | | | | | | | | | | |
| | Precision Bearing Components Group | | | Autocam Precision Components Group | | | Precision Engineered Products Group | | | Total | |
Balance as of December 31, 2014 | | $ | 2,328 | | | $ | 50,499 | | | $ | — | | | $ | 52,827 | |
Additions | | | — | | | | — | | | | 242,980 | | | | 242,980 | |
Amortization | | | (238 | ) | | | (3,625 | ) | | | (9,180 | ) | | | (13,043 | ) |
Currency impacts | | | (138 | ) | | | (457 | ) | | | — | | | | (595 | ) |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2015 | | $ | 1,952 | | | $ | 46,417 | | | $ | 233,800 | | | $ | 282,169 | |
Amortization | | | (207 | ) | | | (3,533 | ) | | | (22,465 | ) | | | (26,205 | ) |
Currency impacts | | | (27 | ) | | | 44 | | | | — | | | | 17 | |
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2016 | | $ | 1,718 | | | $ | 42,928 | | | $ | 211,335 | | | $ | 255,981 | |
| | | | | | | | | | | | | | | | |
With the PEP Acquisition, the Precision Engineered Products Group acquired a customer relationship intangible asset of $226.5 million, a trade name intangible asset of $6.3 million, a backlog and unfavorable leasehold intangible of $7.7 million. The intangible assets have estimated useful lives of 12 years for customer relationships and 8 years for trade name, and the backlog and unfavorable leases will be amortized over the fourth quarter of 2015 and first quarter of 2016. After the estimated useful lives of the backlog and inventory, the estimated amortization of intangibles will be approximately $19.7 million a year.
With the Caprock acquisition, the Precision Engineered Products Group acquired $2.5 million of intangibles, approximately $0.1 in trade names and $2.4 million in customer relationships. The intangibles have estimated useful lives of one year for trade names and 12 years for customer relationships. The estimated amortization of the intangibles will be approximately $0.2 million per year.
The Autocam Precision Components Group has an intangible asset not subject to amortization of $0.9 million related to the value of the trade names of Whirlaway. This indefinite lived intangible asset was impaired during the year ended December 31, 2014 as management is in the process of phasing out the use of the trade name as a result of the Autocam acquisition. As such, an impairment charge of $0.9 million was included in the restructuring and impairment charges line of the Consolidated Statements of Operations and Comprehensive Income (Loss).
With We review the Autocam acquisition,carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate the Autocam Precision Components Group acquired a customer contract intangiblecarrying amount of an asset of $46.2 million, a trade name intangible asset of $4.1 million, a developed technology intangible asset of $0.9 million,may not be recoverable. Property, plant and net favorable leasehold intangible of $0.4 million. The trade namesequipment also includes tools, molds, and customer relationship intangible assets havedies used in manufacturing.
Depreciation is calculated based on historical cost using the straight-line method over the estimated useful lives of
15 years, and the
remaining intangibles have a five year useful life. The estimated amortization for the first five year will be approximately $3.5 million per year.The Precision Bearing Components Group acquired two customer contract intangible assets related to the acquisition of RKF and Chelsea and a trade name intangible asset related to the acquisition of RFK with an aggregate estimated fair value of $2.7 million. These intangible assets have weighted averagedepreciable assets. Estimated useful lives offor buildings and land improvements generally range from 10 yearsto 40 years. Estimated useful lives for machinery and are subjectequipment generally range from 3 to amortization of approximately $0.3 million per year.
We determined our reportable segments under the provisions of GAAP related to disclosures about segments of an enterprise. Our three reportable segments12 years. Estimated useful lives for leasehold improvements are based on differences in product lines.
Allthe life of the facilitieslease.
Leases
We determine whether an arrangement is a lease at inception. Lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the implicit rate is not readily determinable, we use the estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Amortization of lease ROU assets is recognized in expense on a straight-line basis over the lease term.
We recognize short-term leases, which have a term of twelve months or less, on a straight-line basis and do not record a related lease asset or liability for such leases. Finance lease ROU assets consist primarily of equipment used in the Precision Bearing Components Groupmanufacturing process with terms of four years to eight years. Operating lease ROU assets consist of the following:
•Equipment used in the manufacturing process as well as office equipment with terms of two years to five years; and
•Manufacturing plants and office facilities with terms of four years to 20 years.
Impairment of Long-Lived Assets
Long-lived tangible and intangible assets subject to depreciation or amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets, or asset groups, may not be recoverable. A test for recoverability is also performed when management has committed to a plan to dispose of a reporting unit or asset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible or
intangible asset, or asset group, is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is deemed not recoverable, then the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaining useful life. Assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal.
Equity Method Investments
Our equity method investment is subject to a review for impairment if, and when, circumstances indicate that a decline in value below its carrying amount may have occurred. Examples of such circumstances include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee; a significant adverse change in the regulatory, economic or technological environment of the investee; a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates; and recurring negative cash flows from operations. If management considers the decline to be other than temporary, we would write down the investment to its estimated fair market value.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of certain foreign subsidiaries as these earnings are not deemed to be permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes. We treat global intangible low-taxed income (“GILTI”) as a periodic charge in the year in which it arises and therefore do not record deferred taxes for basis differences associated with GILTI. We eliminate disproportionate tax effects from accumulated other comprehensive income (loss) when the circumstances upon which they are premised cease to exist.
Revenue Recognition
We generally transfer control and recognize revenue when we ship the product from our manufacturing facility to our customer at a point in time, as this is when our customer obtains the ability to direct use of, and obtain substantially all of the remaining benefits from, the product. In limited circumstances, we recognize revenue over time as services are rendered. We have elected to recognize the cost for freight and shipping when control over products has transferred to the customer as a component of cost of sales.
We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus-margin approach when an observable price is not available. The expected duration of our contracts is one year or less, and we have elected to apply the practical expedient that allows entities to disregard the effects of financing when the contract length is less than one year. The amount of consideration we receive and the revenue we recognize varies with volume rebates and incentives we offer to our customers. We estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
We utilize the portfolio approach practical expedient to evaluate sales-related discounts on a portfolio basis to contracts with similar characteristics. The effect on our consolidated financial statements of applying the portfolio approach would not differ materially from evaluation of individual contracts.
We give our customers the right to return only defective products in exchange for functioning products or rework of the product. These transactions are evaluated and accounted for under ASC Topic 460, Guarantees, and we estimate the impact to the transaction price based on an analysis of historical experience.
Share Based Compensation
The cost of stock options, restricted stock, and performance share units is recognized as compensation expense over the vesting periods based on the grant date fair value, net of expected forfeitures. We determine grant date fair value using the Black Scholes financial pricing model for stock options and a Monte Carlo simulation for performance share units that include a market condition for vesting because these awards are not traded in open markets. We determine grant date fair value using the closing price of our common stock on the date of grant for restricted stock and performance share units that include performance conditions for vesting.
Common Stock and Preferred Stock Dividends
Dividends are recorded as a reduction to retained earnings. When we have an accumulated deficit, dividends are recorded as a reduction of additional paid-in capital.
Foreign Currency Translation
Assets and liabilities of our foreign subsidiaries are translated at current exchange rates. Revenue, costs, and expenses are translated at average rates prevailing during each reporting period. Translation adjustments arising from the translation of foreign subsidiary financial statements are reported as a component of other comprehensive income (loss) and accumulated other comprehensive income (loss) within stockholders’ equity. Transactions denominated in foreign currencies, including intercompany transactions, are initially recorded at the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or losses, excluding intercompany loan transactions, are expensed as incurred in either cost of sales or selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) and were immaterial to the years ended December 31, 2022, 2021, and 2020. Transaction gains or losses on intercompany loan transactions are recognized as incurred in the “Other expense (income), net” line in the Consolidated Statements of Operations and Comprehensive Income (Loss). For the years ended December 31, 2022, 2021, and 2020, transaction gains (losses) on intercompany loan transactions were $0.2 million, $(0.5) million, and $(0.8) million, respectively.
Net Income (Loss) Per Common Share
In accordance with ASC 260, Earnings Per Share, we allocate earnings or losses to common stockholders and participating securities using the two-class method to compute earnings per share (“EPS”) unless the treasury stock method results in a lower EPS. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available to common stockholders. Participating securities may participate in undistributed earnings with common stock whether or not that participation is conditioned upon the occurrence of a specified event. Under the two-class method, our net income (loss) is reduced (or increased) by the amount that has been or will be distributed to our participating security holders. We have elected to allocate undistributed income to participating securities based on year-to-date results. Our participating securities, which include preferred stock, do not participate in losses.
Basic net income (loss) per common share is computed by dividing net income (loss) allocable to common shares by the weighted average number of common shares outstanding. Diluted net income (loss) per common share includes the effect of warrants, convertible preferred stock, and stock options unless inclusion would not be dilutive.
Government Assistance
For the year ended December 31, 2022, we received $1.4 million in grants and other programs from various governments outside of the U.S. These amounts were received as employment programs, rent abatements, and incentives for capital expenditures in specific locations. Amounts received were recognized as reductions to the underlying expense or capital assets.
Note 2. Discontinued Operations
In October 2020, we sold our Life Sciences business under the terms of a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for $753.3 million cash. The Life Sciences business included facilities that were engaged in the production of precision steel balls, steel rollers,a variety of components, assemblies, and metal retainersinstruments, such as surgical knives, bioresorbable implants, surgical staples, cases and automotive specialty products used primarilytrays, orthopaedic implants and tools, laparoscopic devices, and drug delivery devices for the orthopaedics and medical/surgical end markets. The sale of the Life Sciences business furthered management’s strategy to improve liquidity and create the financial flexibility to pursue key growth areas in the bearing industry.Mobile Solutions and Power Solutions segments. The Precision Engineered Products GroupSPA included a potential earnout payment of up to $70.0 million based on the performance of the Life Sciences business during the year ended December 31, 2022. Since the sold Life Sciences business did not meet the minimum threshold as defined by the SPA, no earnout payment will be received.
After working capital and other closing adjustments, we received cash proceeds at closing of $757.2 million in 2020 and paid $3.9 million to the buyer during the year ended December 31, 2021, for post-closing adjustments. Under the terms of a transition services agreement, we provided certain support services after the sale. In accordance with the terms of the SPA, we agreed to indemnify the buyer for certain tax liabilities on its consolidated federal income tax return related to the Life Sciences business during the portion of the year ended December 31, 2020, prior to the change in ownership on October 6, 2020. We recognized a tax indemnification of $1.2 million during the year ended December 31, 2020 which was reversed during the year ended December 31, 2021, as the actual tax liability was determined to be $0.
In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the operating results of the Life Sciences business are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the Plasticdiscontinued operations and Rubber Components Groupthe gain on the disposition of the business, all net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). The Consolidated Statements of Operations and
Comprehensive Income (Loss) for all periods presented have been revised to reflect this presentation. Accordingly, the results of the Life Sciences business have been excluded from continuing operations and segment results for all periods presented in previous filings.the consolidated financial statements and the accompanying notes unless otherwise stated. The nameConsolidated Statements of this segment was changed during 2015 after the PEP Acquisition and disposal of Delta Rubber. With the completionCash Flows include cash flows of the PEP Acquisition,Life Sciences business in each line item unless otherwise stated.
The following table presents the results of operations of the discontinued operations.
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2021 | | 2020 |
Net sales | | | $ | — | | | $ | 225,255 | |
Cost of sales (exclusive of depreciation and amortization shown separately below) | | | — | | | 160,464 | |
Selling, general, and administrative expense | | | — | | | 20,779 | |
| | | | | |
Depreciation and amortization | | | — | | | 35,731 | |
| | | | | |
Goodwill impairment | | | — | | | 146,757 | |
Other operating expense, net | | | — | | | 41 | |
Income from operations | | | — | | | (138,517) | |
Interest expense | | | — | | | 48,893 | |
Loss on extinguishment of debt and write-off of debt issuance costs | | | — | | | 1,388 | |
| | | | | |
Other expense, net | | | — | | | (322) | |
Loss from discontinued operations before costs of disposal and benefit for income taxes | | | — | | | (188,476) | |
Benefit for income taxes | | | — | | | 12,468 | |
Loss from discontinued operations before costs of disposal | | | — | | | (176,008) | |
Gain on disposal of discontinued operations | | | 1,200 | | | 212,319 | |
Benefit for income taxes on costs of disposal | | | — | | | 2,587 | |
Income (loss) from discontinued operations, net of tax | | | $ | 1,200 | | | $ | 38,898 | |
During the first quarter of 2020, our market capitalization declined to a level that was less than the net book value of our stockholders’ equity. The decline in market capitalization was a triggering event that caused us to perform a goodwill impairment analysis as of March 31, 2020. The carrying value of the Life Sciences reporting unit exceeded its estimated fair value as of March 31, 2020. As a result of our analysis, we addedrecorded an impairment loss on goodwill of $146.8 million for Life Sciences during the year ended December 31, 2020. The judgments, assumptions, and estimates involved in the goodwill impairment analysis for the Life Sciences reporting unit are consistent with those discussed in Note 7.
Our previous credit facility, which was in place at the time, required us to use proceeds from the sale of the Life Sciences business to prepay a global manufacturerportion of our previous debt. We paid $700.0 million in the aggregate on our term loans during the fourth quarter of 2020. The prepayment was applied to debt in accordance with the prepayment provisions of the previous credit agreement, which was in place at the time.Average quarterly interest rates were multiplied by the required prepayment amounts to calculate interest expense to be reclassified to discontinued operations for historical periods presented.
The following table summarizes the amount of interest expense related to the previous credit facility that was reclassified to discontinued operations.
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2021 | | 2020 |
Interest on debt | | | $ | — | | | $ | 35,147 | |
Amortization of debt issuance costs | | | — | | | 13,990 | |
Capitalized interest and other | | | — | | | (244) | |
Total interest expense of discontinued operations | | | $ | — | | | $ | 48,893 | |
The following table presents the significant noncash items and cash paid for capital expenditures of discontinued operations for each period presented.
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2021 | | 2020 |
Depreciation and amortization | | | $ | — | | | $ | 35,731 | |
Goodwill impairment | | | — | | | 146,757 | |
Amortization of debt issuance costs | | | — | | | 13,990 | |
Loss on extinguishment of debt and write-off of debt issuance costs | | | — | | | 1,388 | |
Acquisition of property, plant and equipment | | | — | | | 8,416 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | | — | | | 695 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | | | — | | | 6,174 | |
(1) Includes new leases, renewals, and modifications.
Note 3. Segment Information
Our business is aggregated into the following two reportable segments.
•Mobile Solutions. Mobile Solutions is focused on growth in the automotive and general industrial end markets. We have developed an expertise in manufacturing highly engineeredcomplex, tight tolerance, system critical components. Our technical capabilities can be utilized in numerous applications including for use in battery electric, hybrid electric, and internal combustion engine vehicles. The group currently manufactures components on a high-volume basis for use in power steering, braking, transmissions, and gasoline fuel system applications, along with components utilized in heating, ventilation and air conditioning and diesel injection and diesel emissions treatment applications. This expertise has been gained through investment in technical capabilities, processes and systems, and allows us to provide skilled program management and product launch capabilities.
•Power Solutions. Power Solutions is focused on growth in the electrical, general industrial, automotive, and medical end markets. Within this group we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies, and finished devices used in applications ranging from power control to transportation electrification. We manufacture a variety of products including electrical contacts, connectors, contact assemblies, and precision customized solutions servingstampings for the medical, electrical automotive,end market and high precision products for the aerospace and defense end market utilizing our extensive process technologies for optical grade plastics, thermally conductive plastics, titanium, Inconel, magnesium, and electroplating. Our medical business includes the production of a variety of tools and instruments for the orthopaedics and medical/surgical end markets. The Autocam Precision Components Group is
These divisions are considered our two operating segments as each has engaged in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the designlevel at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and manufactureassessing performance.
The following table presents our financial performance by reportable segment.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net sales: | | | | | |
Mobile Solutions | $ | 293,536 | | | $ | 285,863 | | | $ | 256,360 | |
Power Solutions | 205,204 | | | 191,800 | | | 171,269 | |
Corporate and Consolidations (1) | (2) | | | (79) | | | (95) | |
Total | $ | 498,738 | | | $ | 477,584 | | | $ | 427,534 | |
Income (loss) from operations: | | | | | |
Mobile Solutions | $ | (2,165) | | | $ | 9,039 | | | $ | 5,228 | |
Power Solutions | 3,536 | | | 6,493 | | | (85,983) | |
Corporate and Consolidations | (22,463) | | | (24,536) | | | (36,702) | |
Total | $ | (21,092) | | | $ | (9,004) | | | $ | (117,457) | |
Depreciation and amortization: | | | | | |
Mobile Solutions | $ | 28,192 | | | $ | 28,769 | | | $ | 28,298 | |
Power Solutions | 17,483 | | | 15,892 | | | 15,730 | |
Corporate and Consolidations | 1,556 | | | 1,534 | | | 1,652 | |
Total | $ | 47,231 | | | $ | 46,195 | | | $ | 45,680 | |
Expenditures for long-lived assets: | | | | | |
Mobile Solutions | $ | 14,590 | | | $ | 15,411 | | | $ | 12,400 | |
Power Solutions | 2,401 | | | 2,200 | | | 2,754 | |
Corporate and Consolidations | 961 | | | 610 | | | 203 | |
Total | $ | 17,952 | | | $ | 18,221 | | | $ | 15,357 | |
(1) Includes eliminations of intersegment transactions which occur during the ordinary course of business.
The following table summarizes total assets by reportable segment.
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| | | |
Mobile Solutions (1) | $ | 338,338 | | | $ | 357,171 | |
Power Solutions | 178,129 | | | 184,196 | |
Corporate and Consolidations | 29,660 | | | 37,734 | |
Total | $ | 546,127 | | | $ | 579,101 | |
(1) Total assets in Mobile Solutions includes $31.8 million and $34.0 million as of December 31, 2022 and 2021, respectively, related to the investment in our 49% owned joint venture (Note 9).
The following table summarizes long-lived tangible assets by country.
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
United States | $ | 104,360 | | | $ | 112,430 | |
China | 29,603 | | | 32,605 | |
France | 24,536 | | | 26,977 | |
Mexico | 15,235 | | | 12,056 | |
Brazil | 14,829 | | | 15,042 | |
Poland | 9,074 | | | 9,995 | |
All foreign countries | $ | 93,277 | | | $ | 96,675 | |
Total | $ | 197,637 | | | $ | 209,105 | |
Note 4. Accounts Receivable
The following table presents changes in the allowance for credit losses.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Balance at beginning of year | $ | 1,352 | | | $ | 2,044 | | | $ | 2,044 | |
Additions | 326 | | | 78 | | | 505 | |
Write-offs and other | (182) | | | (734) | | | (562) | |
Currency impact | (27) | | | (36) | | | 57 | |
Balance at end of year | $ | 1,469 | | | $ | 1,352 | | | $ | 2,044 | |
As of December 31, 2022 and 2021, no customer represented greater than 10% of our consolidated accounts receivable balance.
Accounts Receivable Sales Programs
We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution. During the year ended December 31, 2022, we
manufacture components for useincurred fees of $0.6 million related to the sale of receivables which is recorded in
fuel delivery, electromechanical motor, steeringthe Other income, net line item on the Consolidated Statements of Operations and
braking systems for the automotive industry and highly engineered shafts, mechanical components, complex precision assembled and tested parts and fluid system components for the HVAC and fluid power industries. This segment was renamed with the acquisition of Autocam. | | | | | | | | | | | | | | | | | | | | |
| | Precision Bearing Components Group | | | Precision Engineered Products Group | | | Autocam Precision Components Group | | | Corporate and Consolidations | | | Total | |
December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 248,534 | | | $ | 258,816 | | | $ | 326,138 | | | $ | — | | | $ | 833,488 | |
Depreciation and amortization | | | 11,676 | | | | 28,020 | | | | 22,189 | | | | 603 | | | | 62,488 | |
Income from operations | | | 22,985 | | | | 34,744 | | | | 29,516 | | | | (27,845 | ) | | | 59,400 | |
Interest expense | | | | | | | | | | | | | | | 63,154 | | | | 63,154 | |
Income tax (benefit) expense | | | | | | | | (9,313 | ) | | | (9,313 | ) |
Net income (loss) | | | | | | | | | | | | | | | 7,942 | | | | 7,942 | |
Assets | | $ | 220,152 | | | $ | 715,575 | | | $ | 416,490 | | | $ | 8,169 | | | $ | 1,360,386 | |
Expenditures for long-lived assets | | $ | 11,926 | | | $ | 5,352 | | | $ | 23,077 | | | $ | 3,465 | | | $ | 43,820 | |
December 31, 2015 | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 261,837 | | | $ | 77,183 | | | $ | 328,260 | | | $ | — | | | $ | 667,280 | |
Depreciation and amortization | | | 11,496 | | | | 11,295 | | | | 21,472 | | | | 219 | | | | 44,482 | |
Income from operations | | | 26,310 | | | | (3,718 | ) | | | 31,700 | | | | (27,495 | ) | | | 26,797 | |
Interest expense | | | | | | | | | | | | | | | 29,899 | | | | 29,899 | |
Income tax (benefit) expense | | | | | | | | (10,518 | ) | | | (10,518 | ) |
Net income (loss) | | | | | | | | | | | | | | | (7,431 | ) | | | (7,431 | ) |
Assets | | $ | 215,163 | | | $ | 743,191 | | | $ | 417,853 | | | $ | 17,319 | | | $ | 1,393,526 | |
Expenditures for long-lived assets | | $ | 15,111 | | | $ | 728 | | | $ | 21,341 | | | $ | 1,373 | | | $ | 38,553 | |
December 31, 2014 | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 278,026 | | | $ | 33,351 | | | $ | 177,224 | | | $ | — | | | $ | 488,601 | |
Depreciation and amortization | | | 12,000 | | | | 1,160 | | | | 9,070 | | | | (84 | ) | | | 22,146 | |
Income from operations | | | 31,872 | | | | 1,231 | | | | 15,732 | | | | (21,148 | ) | | | 27,687 | |
Interest Expense | | | | | | | | | | | | | | | 10,895 | | | | 10,895 | |
Income tax (benefit) expense | | | | | | | | 5,786 | | | | 5,786 | |
Net income (loss) | | | | | | | | | | | | | | | 8,217 | | | | 8,217 | |
Assets | | $ | 214,291 | | | $ | 17,196 | | | $ | 444,548 | | | $ | 36,678 | | | $ | 712,713 | |
Expenditures for long- lived assets | | $ | 10,941 | | | $ | 673 | | | $ | 10,947 | | | $ | 5,041 | | | $ | 27,602 | |
The vast majorityComprehensive Income (Loss).
Note 5. Inventories
Inventories are comprised of the acquisition related costs forfollowing amounts:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
Raw materials | $ | 32,146 | | | $ | 27,221 | |
Work in process | 24,610 | | | 24,960 | |
Finished goods | 23,926 | | | 22,846 | |
Total inventories | $ | 80,682 | | | $ | 75,027 | |
Note 6. Property, Plant and Equipment
Property, plant and equipment are comprised of the PEP Acquisitionfollowing amounts:
| | | | | | | | | | | |
| As of December 31, |
2022 | | 2021 |
Land and buildings | $ | 58,256 | | | $ | 57,991 | |
Machinery and equipment | 353,364 | | | 344,041 | |
Construction in progress | 11,063 | | | 5,009 | |
Total | 422,683 | | | 407,041 | |
Less: Accumulated depreciation | 225,046 | | | 197,936 | |
Property, plant and equipment, net | $ | 197,637 | | | $ | 209,105 | |
For the years ended December 31, 2022, 2021, and Caprock acquisition in 2015, and the Autocam acquisition and the other three acquisitions in 2014 are reported under Corporate and Consolidations. These costs impacted income from operations at Corporate by $10.92020, we recorded depreciation expense of $31.4 million, $31.8 million, and $9.8$31.3 million, respectively.
We monitor property, plant and equipment for any indicators of potential impairment. There were no impairment charges for the years ended December 31, 20152022 and 2014, respectively. Beginning October 20, 2015 and September 1, 2014, the Precision Engineered Products Group and Autocam Precision Components Group, respectively, include the results2021. We recognized an impairment charge of the acquired PEP and Autocam businesses. Since the date of the PEP Acquisition, 2015 sales revenue of $40.7 million and net loss of $(2.6) million (including the $4.3$4.1 million for the one-time increaseyear ended December 31, 2020, related to the early retirement of identified fixed assets. The impairment charge was recorded to the “Other operating expense (income), net,” line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). The impairment charge was determined by writing the assets down to the estimated salvage value, less disposal costs.
Note 7. Goodwill
During the first quarter of 2020, our market capitalization declined to a level that was less than the net book value of our stockholders’ equity. The decline in market capitalization was a triggering event that caused us to perform a goodwill impairment analysis as of March 31, 2020. The goodwill impairment analysis required significant judgments to calculate the fair value for the Power Solutions reporting unit, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for each operating segment, and determination of weighted average cost of goods sold for inventory step-up,capital. Our forecasts used in the goodwill impairment analysis reflected our expectations of declines in sales resulting from the COVID-19 pandemic. Significant assumptions and $5.2estimates are involved in the application of the discounted cash flow model
to forecast operating cash flows, including market growth and market share, sales volumes and prices, costs to produce, discount rate, and estimated capital needs. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. The carrying value of the Power Solutions reporting unit exceeded the estimated fair value as of the March 31, 2020, analysis. As a result of our analysis, we recorded an impairment loss on goodwill of $92.9 million to the “Goodwill impairment” line on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2020. As of December 31, 2022 and 2021, there was no remaining goodwill balance.
Note 8. Intangible Assets
The following table shows changes in the carrying amount of intangible assets, net, by reportable segment.
| | | | | | | | | | | | | | | | | |
| Mobile Solutions | | Power Solutions | | Total |
Balance as of December 31, 2020 | $ | 29,062 | | | $ | 74,003 | | | $ | 103,065 | |
Amortization | (3,353) | | | (10,994) | | | (14,347) | |
Balance as of December 31, 2021 | 25,709 | | | 63,009 | | | 88,718 | |
Amortization | (3,353) | | | (12,474) | | | (15,827) | |
Balance as of December 31, 2022 | $ | 22,356 | | | $ | 50,535 | | | $ | 72,891 | |
The following table shows the cost and accumulated amortization of backlog intangible) has been includedour intangible assets as of December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| | | Gross Carrying Value as of Acquisition Date | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value as of Acquisition Date | | Accumulated Amortization | | Net Carrying Value |
Customer relationships | | | $ | 173,746 | | | $ | (103,021) | | | $ | 70,725 | | | $ | 173,746 | | | $ | (87,895) | | | $ | 85,851 | |
Trademark and trade name | | | 7,527 | | | (5,361) | | | 2,166 | | | 7,527 | | | (4,660) | | | 2,867 | |
| | | | | | | | | | | | | |
Total identified intangible assets | | | $ | 181,273 | | | $ | (108,382) | | | $ | 72,891 | | | $ | 181,273 | | | $ | (92,555) | | | $ | 88,718 | |
At December 31, 2022, the estimated useful life of customer relationships and trademarks and trade names was 5.3 years and 5.7 years, respectively. Intangible assets that are fully amortized are removed and no longer represented in this segment. During 2014 and since the dategross carrying value or accumulated amortization.
The following table shows estimated future amortization expense for each of the next five years.
| | | | | |
Year Ending December 31, | |
2023 | $ | 14,167 | |
2024 | 13,824 | |
2025 | 13,824 | |
2026 | 13,824 | |
2027 | 11,663 | |
| |
| |
Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. As of December 31, 2022, our market capitalization was at a level that was less than the net book value of our stockholders’ equity, which was deemed a triggering event that caused us to perform impairment analyses on our long-lived assets. Based on our analyses, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the year ended December 31, 2022.
Note 9. Investment in Joint Venture
We own a 49% investment in Wuxi Weifu Autocam acquisition,Precision Machinery Company, Ltd. (the “JV”), a joint venture located in Wuxi, China. The JV is jointly controlled and managed, and we account for it under the equity method, with the share of net income from the joint venture recorded in the Mobile Solutions segment.
The following table shows changes in our investment in the JV.
| | | | | |
Balance as of December 31, 2021 | $ | 34,045 | |
Share of earnings | 6,592 | |
Dividends paid by joint venture | (6,245) | |
| |
Foreign currency translation loss | (2,590) | |
| |
Balance as of December 31, 2022 | $ | 31,802 | |
The following tables show summarized financial information of the unconsolidated JV.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net sales | 101,565 | | | 94,846 | | | 68,216 | |
Cost of sales | 84,654 | | | 77,620 | | | 56,669 | |
Income from operations | 15,111 | | | 15,429 | | | 10,202 | |
Net income | 13,453 | | | 12,777 | | | 7,401 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Current assets | 63,141 | | | 65,465 | |
Noncurrent assets | 79,473 | | | 75,222 | |
Current liabilities | 66,960 | | | 67,206 | |
Noncurrent liabilities | 8,695 | | | 10,006 | |
We recognized sales
revenueto the JV of
$80.8$0.1 million, $0.4 million, and
net income of $3.7$0.1 million
(including the $1.2 million for the one-time increase in cost of goods sold for inventory step-up) has been included in this segment. | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | | December 31, 2015 | | | December 31, 2014 | |
| | Net Sales | | | Property, Plant and Equipment, Net | | | Net Sales | | | Property, Plant and Equipment, Net | | | Net Sales | | | Property, Plant and Equipment, Net | |
United States | | $ | 456,102 | | | $ | 176,632 | | | $ | 326,747 | | | $ | 183,226 | | | $ | 204,360 | | | $ | 129,232 | |
Europe | | | 172,895 | | | | 78,664 | | | | 170,921 | | | | 77,147 | | | | 167,665 | | | | 82,783 | |
Asia | | | 102,853 | | | | 33,867 | | | | 86,564 | | | | 35,345 | | | | 58,470 | | | | 32,848 | |
Canada | | | 10,980 | | | | — | | | | 9,759 | | | | — | | | | 8,657 | | | | — | |
Mexico | | | 54,390 | | | | 6,308 | | | | 39,118 | | | | 2,971 | | | | 25,900 | | | | 2,637 | |
S. America | | | 36,268 | | | | 27,482 | | | | 34,171 | | | | 20,279 | | | | 23,549 | | | | 30,942 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
All foreign countries | | | 377,386 | | | | 146,321 | | | | 340,533 | | | | 135,742 | | | | 284,241 | | | | 149,210 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 833,488 | | | $ | 322,953 | | | $ | 667,280 | | | $ | 318,968 | | | $ | 488,601 | | | $ | 278,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Due to the large number of countries in which we sell our products, sales to external customers and long-lived assets utilized by us are reported in the above geographical regions.
Income (loss) before provision (benefit) for income taxes forduring the years ended December 31, 2016, 20152022, 2021, and 2014 was as follows:
| | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | 2014 | |
Income (loss) before provision (benefit) for income taxes: | | | | | | | | | | | | |
United States | | $ | (32,498 | ) | | $ | (42,450 | ) | | $ | (9,341 | ) |
Foreign | | | 25,189 | | | | 19,500 | | | | 22,513 | |
| | | | | | | | | | | | |
Total | | $ | (7,309 | ) | | $ | (22,950 | ) | | $ | 13,172 | |
| | | | | | | | | | | | |
The loss of $32.5 million from domestic operations during 2016, was primarily driven from an increase in interest expense2020, respectively. Amounts due to higher debt levels associated withus from the 2015 PEP acquisition.
JV as of December 31, 2022 were $0.1 million.
Note 10. Income Taxes
The
lossfollowing table summarizes the income (loss) from continuing operations before benefit (provision) for income taxes and share of
$42.5 millionnet income from
domestic operations during 2015, was primarily driven from acquisition related charges (included in selling, general and administrative of $11.7 million, cost of products sold $7.5 million and write-off of debt issuance costs of $18.7 million) of which approximately $3.8 million was non-deductible as these costs were directly facilitative to the acquisitions.joint venture.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
United States | $ | (40,543) | | | $ | (35,325) | | | $ | (146,963) | |
Foreign | 9,474 | | | 12,883 | | | (5,125) | |
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture | $ | (31,069) | | | $ | (22,442) | | | $ | (152,088) | |
The
loss of $9.3 million from domestic operations during 2014, was primarily driven from acquisition related charges of $14.8 million (included in selling, general and administrative, cost of products sold, and interest expense) of which approximately $6.0 million were non-deductible as these costs were directly facilitative to the acquisitions.Totalfollowing table summarizes total income tax expense (benefit) for the years ended December 31, 2016, 2015, and 2014 was as follows:
| | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | 2014 | |
Current: | | | | | | | | | | | | |
U.S. Federal | | $ | — | | | $ | — | | | $ | — | |
State | | | 1,017 | | | | 420 | | | | 37 | |
Foreign | | | 6,968 | | | | 5,940 | | | | 7,082 | |
| | | | | | | | | | | | |
Total current expense | | $ | 7,985 | | | $ | 6,360 | | | $ | 7,119 | |
| | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | |
U.S. Federal | | $ | (11,033 | ) | | $ | (13,391 | ) | | $ | 1,625 | |
State | | | (6,440 | ) | | | (1,869 | ) | | | (382 | ) |
U.S. deferred tax valuation allowance | | | 1,882 | | | | — | | | | (1,434 | ) |
Foreign | | | (1,707 | ) | | | (1,618 | ) | | | (1,142 | ) |
| | | | | | | | | | | | |
Total deferred expense (benefit) | | | (17,298 | ) | | | (16,878 | ) | | | (1,333 | ) |
| | | | | | | | | | | | |
Total expense (benefit) (a) | | $ | (9,313 | ) | | $ | (10,518 | ) | | $ | 5,786 | |
| | | | | | | | | | | | |
(a) | During the year ended December 31, 2016, the Company identified certain prior period tax expense (benefit) errors. The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors as out of period adjustments in 2016, resulting in $998 of tax benefit being recognized in 2016 that should have been recognized in 2015. |
Arecognized in each year.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Current taxes: | | | | | |
U.S. Federal | $ | (545) | | | $ | (19) | | | $ | (299) | |
State | (625) | | | (615) | | | 4,599 | |
Foreign | 4,576 | | | 3,014 | | | 2,250 | |
Total current tax expense | 3,406 | | | 2,380 | | | 6,550 | |
Deferred taxes: | | | | | |
U.S. Federal | $ | (6,245) | | | $ | (8,421) | | | $ | (10,368) | |
State | 70 | | | (1,099) | | | (5,368) | |
Foreign | (986) | | | (154) | | | (1,852) | |
U.S. federal, state and foreign valuation allowance | 5,376 | | | 5,538 | | | 2,066 | |
Total deferred tax benefit | (1,785) | | | (4,136) | | | (15,522) | |
Total income tax expense (benefit) | $ | 1,621 | | | $ | (1,756) | | | $ | (8,972) | |
The following table presents a reconciliation of income taxes based on the U.S. federal statutory
rate of 34% for each of the years ended December 31, 2016, 2015 and 2014 is summarized as follows: | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | 2014 | |
Income taxes at the federal statutory rate | | $ | (2,490 | ) | | $ | (7,803 | ) | | $ | 4,478 | |
Decrease in U.S. valuation allowance | | | 1,882 | | | | — | | | | (1,434 | ) |
Foreign tax credit (additions) expiration | | | (2,545 | ) | | | (1,343 | ) | | | 2,736 | |
State taxes, net of federal taxes | | | (1,558 | ) | | | (1,592 | ) | | | (362 | ) |
Non-U.S. earnings taxed at different rates | | | (2,938 | ) | | | (2,308 | ) | | | (1,714 | ) |
Non-deductible mergers and acquisition costs | | | — | | | | 1,299 | | | | 1,971 | |
R&D Tax credit | | | (282 | ) | | | (623 | ) | | | (529 | ) |
Change in uncertain tax positions | | | (994 | ) | | | — | | | | — | |
Other permanent differences, net | | | (388 | ) | | | 1,852 | | | | 640 | |
| | | | | | | | | | | | |
| | $ | (9,313 | ) | | $ | (10,518 | ) | | $ | 5,786 | |
| | | | | | | | | | | | |
The 2016 effectiveincome tax rate of 127% reflects the impact of foreign earnings taxed at lower rates. The higher 2016rate.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
U.S federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
Change in valuation allowance, exclusive of state | (17.5) | % | | (20.0) | % | | (1.3) | % |
| | | | | |
State taxes, net of federal taxes, exclusive of tax reform | 1.6 | % | | 4.5 | % | | 0.2 | % |
Non-U.S. earnings taxed at different rates | 0.7 | % | | 3.0 | % | | 1.4 | % |
| | | | | |
GILTI | (3.9) | % | | (6.0) | % | | (0.1) | % |
Goodwill impairment | — | % | | — | % | | (12.7) | % |
Deferred true-up | (6.4) | % | | — | % | | — | % |
| | | | | |
| | | | | |
Research and development tax credit | 1.5 | % | | 2.3 | % | | 0.4 | % |
Change in uncertain tax positions | — | % | | 0.7 | % | | 2.2 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
CARES Act | — | % | | — | % | | 2.7 | % |
Interest on CARES Act refund | 1.8 | % | | — | % | | — | % |
| | | | | |
Return to provision | 1.3 | % | | 0.8 | % | | (0.5) | % |
| | | | | |
Taxes on unremitted foreign earnings | (3.9) | % | | 2.0 | % | | (3.9) | % |
Restructuring gain | — | % | | — | % | | (2.6) | % |
| | | | | |
| | | | | |
Intercompany lending | (2.7) | % | | (5.3) | % | | — | % |
Warrant revaluation | 3.6 | % | | 6.5 | % | | — | % |
Other adjustments, net | (2.3) | % | | (1.7) | % | | (0.9) | % |
Effective tax rate | (5.2) | % | | 7.8 | % | | 5.9 | % |
Our effective tax rate was driven by a unique mix(5.2)% for 2022 which differed from the U.S. federal statutory tax rate of lower U.S. losses with higher earnings attributed21% primarily due to foreign subsidiaries. Excluding the effectimpact of foreign earnings,our valuation allowance change during the 2016year.
Our effective tax rate
would have been 45%.for continuing operations was 7.8% for 2021. The 20152021 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 46%21% primarily reflectsdue to the impact of foreign earnings being taxed at lower rates.
The 2014our valuation allowance change during the year.
Our effective tax rate for continuing operations was 5.9% for 2020. The 2020 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 44% reflects21% primarily due to (1) the impact of two itemsthe impairment of nondeductible goodwill which is treated as a permanent difference and (2) the accrual of taxes on unremitted earnings of the foreign subsidiaries which may be repatriated.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. Among other provisions, the CARES Act allows for the carryback of certain tax losses and favorably impacts the deductibility of interest expense and depreciation. The CARES Act had a material impact on our consolidated financial statements, primarily due to enacted federal rate difference in the carryback periods, and has been accounted for in the benefit for income taxes for the year ended December 31, 2020.
On October 6, 2020, we sold our Life Sciences business via a sale of our equity interest in Precision Engineered Products Holdings, Inc., a wholly owned U.S. domestic subsidiary. Prior to the sale, we completed tax restructuring in which Precision Engineered Products Holdings, Inc., distributed to NN, Inc., all of its asset and equity holdings related to the merger and acquisition activity in 2014, including: (1) $2.0 million for non-deductiblePower Solutions segment. The restructuring process created a deferred gain, required to be realized upon the third party merger and acquisition costs, as these costs were directly facilitativeequity sale, equal to the acquisitions;fair market value of the distributed assets over tax basis. The associated U.S. federal, state, and (2) $1.3foreign tax impacts are reflected in the tables within this footnote.
The following table summarizes the principal components of the deferred tax assets and liabilities.
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
Deferred income tax liabilities: | | | |
Tax in excess of book depreciation | $ | 24,045 | | | $ | 25,732 | |
| | | |
Intangible assets | 16,978 | | | 20,812 | |
| | | |
| | | |
Operating leases | 10,669 | | | 10,473 | |
Interest rate swap | 754 | | | 37 | |
Taxes on unremitted foreign earnings | 4,961 | | | 5,630 | |
Other deferred tax liabilities | 761 | | | 1,007 | |
Total deferred income tax liabilities | 58,168 | | | 63,691 | |
Deferred income tax assets: | | | |
Interest expense limitation | 10,723 | | | 7,141 | |
Goodwill | 22,277 | | | 24,262 | |
Inventories | 2,292 | | | 3,368 | |
Section 174 research and development costs | 1,859 | | | — | |
| | | |
Pension and personnel accruals | 1,717 | | | 2,422 | |
Operating leases | 12,852 | | | 12,834 | |
Net operating loss carryforwards | 24,299 | | | 23,629 | |
| | | |
| | | |
Credit carryforwards | 2,803 | | | 3,044 | |
Accruals and reserves | 978 | | | 1,435 | |
Other deferred tax assets | 3,086 | | | 4,223 | |
Deferred income tax assets before valuation allowance | 82,886 | | | 82,358 | |
Valuation allowance on deferred tax assets | (30,212) | | | (25,809) | |
Total deferred income tax assets | 52,674 | | | 56,549 | |
Net deferred income tax liabilities | $ | 5,494 | | | $ | 7,142 | |
As of December 31, 2022, we had a $33.4 million forU.S. federal net operating loss (“NOL”) carryover. The federal NOL has an indefinite life, but utilization within any tax year is limited to 80% of taxable income. Therefore, a valuation allowance of $4.4 million has been established to reduce the expirationattribute balance to the amount expected to be utilized. As of December 31, 2022, we had $239.5 million of state NOL carryovers, which begin to expire in 2030. Management believes that certain of the state NOL carryovers will more likely than not expire prior to utilization. As such, a valuation allowance of $15.8 million (prior to federal benefit) has been established to reduce the state attribute balance to the amount expected to be utilized before expiration. We also have $4.8 million, tax-effected, of foreign NOL carryovers at December 31, 2022. The foreign NOLs have an indefinite life; however, management believes that benefit for certain of the foreign NOLs may not be realized. Therefore, we have established a valuation allowance of $1.8 million to reduce the carrying value of the asset related to foreign NOLs to the amount that has been determined to be more likely than not realized.
We have $0.2 million and $2.6 million of U.S. federal tax credits
that could not be utilized during 2014 because of the merger related acquisition costs as discussed below. In addition, the rate reflects an offset to the items above for the impact ofand tax credits in foreign
earnings taxed at lower rates of $1.7 million.The tax effects of the temporary differencesjurisdictions, respectively, as of December 31, 2016, 2015 and 2014 are as follows:
| | | | | | | | | | | | |
| | December 31, | |
| | 2016 | | | 2015 | | | 2014 | |
Deferred income tax liabilities: | | | | | | | | | | | | |
Tax in excess of book depreciation | | $ | 43,336 | | | $ | 42,345 | | | $ | 35,411 | |
Goodwill | | | 1,580 | | | | 1,554 | | | | 1,949 | |
Intangible assets | | | 86,492 | | | | 91,947 | | | | 15,944 | |
Other deferred tax liabilities | | | 1,771 | | | | 897 | | | | 1,924 | |
| | | | | | | | | | | | |
Gross deferred income tax liabilities | | | 133,179 | | | | 136,743 | | | | 55,228 | |
Deferred income tax assets: | | | | | | | | | | | | |
Goodwill | | | 1,165 | | | | 1,666 | | | | 2,411 | |
Inventories | | | 960 | | | | 4,490 | | | | 2,035 | |
Pension/Personnel accruals | | | 1,602 | | | | 2,778 | | | | 3,029 | |
Net operating loss carry forwards | | | 10,296 | | | | 8,313 | | | | 1,196 | |
Foreign tax credits | | | 5,759 | | | | 3,242 | | | | 290 | |
Guarantee claim deduction | | | 414 | | | | 1,141 | | | | 1,141 | |
Credit carry forwards | | | 4,581 | | | | 4,958 | | | | 1,853 | |
Accruals and reserves | | | 1,741 | | | | — | | | | — | |
Other deferred tax assets | | | 11,160 | | | | 2,510 | | | | 1,926 | |
| | | | | | | | | | | | |
Gross deferred income tax assets | | | 37,678 | | | | 29,098 | | | | 13,881 | |
Valuation allowance on deferred tax assets | | | (4,090 | ) | | | (2,376 | ) | | | — | |
| | | | | | | | | | | | |
Net deferred income tax assets | | | 33,588 | | | | 26,722 | | | | 13,881 | |
| | | | | | | | | | | | |
Net deferred income tax assets (liabilities) (b) | | $ | (99,591 | ) | | $ | (110,021 | ) | | $ | (41,347 | ) |
| | | | | | | | | | | | |
(b) | During the year ended December 31, 2016, the Company identified certain prior period errors related to the initial recognition of goodwill and deferred taxes in purchase accounting (see Note 10) as well as prior period errors in the 2015 tax provision as further described above. The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected2022. We have recognized a valuation allowance of $1.9 million for such errors in 2016. The impact of these purchase accounting and tax provision errors resulted in an understatement (overstatement) of net deferred income tax liabilities of $4,469 and $(1,444) as of December 31, 2015 and 2014. |
With the PEP Acquisition during 2015,foreign tax credits. In addition, we assumed $87.6have $2.1 million in net deferred tax liabilities primarily related(prior to book and tax basis difference in fixed assets and intangibles (excluding goodwill).
With the Autocam acquisition during 2014, we assumed $43.8 million in net deferred tax liabilities primarily related to book and tax basis differences in fixed assets and intangibles (excluding goodwill).
As realizationfederal benefit) of certainstate deferred tax assets for which we believe recognition is not assured, managementappropriate.
We have a U.S. federal and state deferred tax asset related to interest expense carryforwards. Management believes it is more likely than not that those netthe benefit for this assets will not be realized. We have established a valuation allowance of $8.0 million to eliminate the carrying value of this asset.
Management assesses available positive and negative evidence to estimate whether it is more likely than not sufficient future taxable income will be generated to provide use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future earnings growth. On the basis of this evaluation, as of December 31, 2022, a valuation allowance of $30.2 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized without consideration of future earnings growth.
Management believes all remaining tax assets will more likely than not be realized. However, the amount of the deferred tax assetsasset realized will change based on future conditions, and the amount considered realizable couldwill be reduced based on changing conditions. Below is a summaryadjusted if objective
negative evidence in the
total valuation allowances during the years ended December 31, 2016, 2015 and 2014: | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | | Additions | | | Recoveries | | | Balance at End of Year | |
2016 | | $ | 2,376 | | | $ | 1,882 | | | $ | (168 | ) | | $ | 4,090 | |
2015 | | $ | — | | | $ | 2,376 | | | $ | — | | | $ | 2,376 | |
2014 | | $ | 1,434 | | | $ | — | | | $ | (1,434 | ) | | $ | — | |
form of cumulative losses is no longer present allowing additional weight to be given to subjective evidence such as our projections for growth.
During
2016,2022, the valuation allowance increased by
approximately $1.7$4.4 million,
consisting of a $1.9 million increaseprimarily due to
the uncertainty of realizing certain stateallowances recorded against U.S. federal net operating loss carryforwards and
a decreasecarryforwards of
$0.2 million.disallowed interest expense which are subject to certain annual deduction limitations. The
decrease reflectsincrease was partially offset by utilization of previously reserved net operating loss carryforwards in certain foreign jurisdictions, the
Company’s expectation that it is more likely than not that it will generate future taxable income to utilize this amountwrite-off of
net deferred tax
assets.During 2015, the valuation allowance increased by approximately $2.4 million, consisting solely of an increase dueassets and adjustments to the uncertainty of realizing certain local tax credits ofstate net operating losses resulting from amended returns for which a foreign subsidiary.
During 2014, the valuation allowance of $1.4 million on our previously recognized foreign tax credits was reduced by the full $1.4 million for credits which expired as of December 31, 2014. In addition to the foreign tax credits with the full valuation allowance $1.3 million in foreign tax credits expired unused as of December 31, 2014. These foreign tax credits were not utilized during 2014, as management expected, due to the large amount of non-deductible mergers and acquisition costs incurred related to the four acquisitions completed in 2014. The remaining foreign tax credits, net operating loss and credit carry forwards are expected to be utilized before expiration. We recordwas recorded.
As a
valuation allowance when it is “more likely than not” that some portion or allresult of the
deferred income tax assets will not be realized. In reaching this determination, we consider the future reversals of taxable temporary differences, future taxable income, exclusive of taxable temporary differences and carry forwards, taxable incomedeemed mandatory repatriation provisions in
prior carryback years and tax planning strategies.Unremitted earnings of subsidiaries outside the U.S. are considered to be reinvested indefinitely at December 31, 2016. It isTax Cuts and Jobs Act of 2017 and subsequent recognition in income of GILTI, we do not practicable to determine the deferred tax liability for temporaryhave material basis differences related to thosecumulative unremitted earnings. There has been no change in our long term international expansion plans asearnings for U.S. income tax purposes. However, we continue to evaluate the impact that repatriation of December 31, 2016,foreign earnings would have on withholding and our intent and ability is to indefinitely reinvest our foreign earnings. We base this assertion on two factors. The first factor is our intention to invest in foreign countries that are strategically important to our Precision Bearing Components, Precision Engineered Products and Autocam Precision Components Groups. With the acquisitions completed in 2015 and 2014, we have significantly expanded our international base of operations adding subsidiaries in Mexico, Bosnia and Herzegovina, Brazil, Poland, France and China which will require more foreign investment. Second, we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our U.S. credit facilities to fund currently anticipated domestic operational and investment needs.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties for the years ended December 31, 2016, 2015 and 2014 is as follows:
| | | | | | | | | | | | |
| | 2016 | | | 2015 | | | 2014 | |
Beginning balance | | $ | 5,724 | | | $ | 3,834 | | | $ | 873 | |
Additions for tax positions of prior years | | | 179 | | | | 2,516 | | | | 3,589 | |
Reductions for tax positions of prior years | | | (1,162 | ) | | | (626 | ) | | | (628 | ) |
| | | | | | | | | | | | |
Ending balance | | $ | 4,741 | | | $ | 5,724 | | | $ | 3,834 | |
| | | | | | | | | | | | |
other taxes. As of December 31, 2016,2022, we have recorded a liability of $5.0 million for the $4.7 millionanticipated withholding taxes that would be due upon repatriation of unrecognizedthe unremitted earnings of those subsidiaries for which management does not intend to permanently reinvest.
In 2021, the Company asserted that it was permanently reinvested in certain jurisdictions for which it previously was unable to assert permanent reinvestment. Prior to the Company’s debt refinancing in 2021, the Company had recorded a liability on all unremitted earnings. However, upon completion of the debt refinancing, the Company reevaluated repatriation plans, changed its assertion for certain jurisdictions and recorded the resulting tax benefits would, if recognized, impact our effectivebenefit of $2.4 million.
We are subject to U.S. federal income tax
rate.as well as tax in several foreign jurisdictions. We are also subject to tax by various state authorities. The
additiontax years subject to examination vary by jurisdiction. We are no longer subject to U.S. federal examination for
tax positionsperiods before 2017. We regularly assess the outcomes of
both ongoing and future examinations for the current or prior years
was added as partto ensure our provision for income taxes is sufficient. We recognize liabilities based on estimates of
whether additional taxes will be due, and we believe our reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the
purchase price allocationnext twelve months, is not expected to have a material impact on our financial position or results of
PEP in 2015 of $2.2 million and Autocam in 2014 of $2.8 million and was included in the fair value of assets acquired and liabilities assumed. (See Note 2 of Notes to Consolidated Financial Statements.)operations.
Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations. During 2016,Operations and Comprehensive Income (Loss). Accrued interest and penalties of $0.5 million, $0.5 million, and $0.6 million are included in other non-current liabilities as of December 31, 2022, 2021, and 2020, respectively. In 2022, we released $65 thousandaccrued $0.6 million of interest on IRS refunds relating to the CARES Act. We initially filed refund claims in 2021 and will be accruing interest quarterly until refunds are received.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Balance at beginning of year | $ | 125 | | | $ | 247 | | | $ | 2,589 | |
Additions for tax positions of prior years | — | | | — | | | 121 | |
| | | | | |
Reductions for tax positions of prior years | (7) | | | (122) | | | (2,463) | |
Balance at end of year | $ | 118 | | | $ | 125 | | | $ | 247 | |
The reduction to unrecognized tax benefits in 2022 is related to the foreign currency remeasurement of previously
accrued foreign interest and accrued $0.2 million in U.S. interest. During 2015, we accrued $30 thousand in foreign interest and $0.3 million in U.S. interest. During 2014, we accrued $31 thousand in foreign interest and $17 thousand in U.S. interest.unrecognized tax benefits. As of December 31,
2016,2022, the
totalunrecognized tax benefits would, if recognized, impact our effective tax rate by $0.6 million, inclusive of the impact of interest and penalties. Management believes that it is reasonably possible that the amount
accrued forof unrecognized income tax benefits, including interest and penalties,
was $ 1.1 million.We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years before 2013. We are no longer subject to non-U.S. income tax examinations within various European Union countries for years before 2011. We domay not foresee any significant changes to our unrecognized tax benefits withindecrease during the next twelve months.months as no statutes are expected to lapse within the period.
We operate under tax holidays in other countries, which are effective through December 31, 2026, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The tax holidays did not impact our 2022 foreign taxes. The impact of these tax holidays decreased foreign taxes by $0.2 million and $0.2 million for 2021 and 2020, respectively.
Note 11. Debt
On March 22, 2021, we entered into a new $150.0 million term loan facility (the “Term Loan Facility”) and a new $50.0 million asset backed credit facility (the “ABL Facility”). The following table presents the outstanding debt balances.
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
Term Loan Facility | $ | 147,375 | | | $ | 148,875 | |
ABL Facility | 1,000 | | | — | |
International loans | 8,729 | | | 10,930 | |
Total principal | 157,104 | | | 159,805 | |
Less-current maturities of long-term debt | 3,321 | | | 3,074 | |
Principal, net of current portion | 153,783 | | | 156,731 | |
Less-unamortized debt issuance costs and discount (1) | 4,394 | | | 5,679 | |
Long-term debt, net of current portion | $ | 149,389 | | | $ | 151,052 | |
(1) In November 2015,addition to this amount, costs of $0.6 million and $0.7 million related to the FASB issued ASU 2015-17, intended to improve how deferred taxes are classified on organizations’ balance sheets. The guidance eliminates the requirement for organizations to present deferred tax liabilities andABL Facility were recorded in other non-current assets as currentof December 31, 2022 and noncurrent2021, respectively.
We capitalized interest costs of $0.6 million, $0.3 million, and $0.2 million in the years ended December 31, 2022, 2021, and 2020, respectively, related to construction in progress.
Term Loan Facility
Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR (subject to a classified1.000% floor) plus an applicable margin of 6.875% or 2) the greater of various benchmark rates plus an applicable margin of 5.875%. At December 31, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at 11.259%. We have an interest rate swap, which expires in July 2024, that changes the one-month LIBOR to a fixed rate of 1.291% on $60.0 million of the outstanding balance sheet. Instead, organizations areof the Term Loan Facility. Refer to Note 19 for further discussion of the interest rate swap agreement.
The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026. We may be required to classifymake additional principal payments annually that are calculated as a percentage of our excess cash flow, as defined by the lender, based on our net leverage ratio. The Term Loan Facility is collateralized by all deferred taxof our assets. The Term Loan Facility has a first lien on all assets other than accounts receivable and inventory and has a second lien on accounts receivable and inventory. On March 3, 2022, we amended our Term Loan Facility, which increased the quarterly maximum consolidated net leverage ratio. We were in compliance with all requirements under the Term Loan Facility as of December 31, 2022.
The Term Loan Facility was issued at a $3.8 million discount and we capitalized an additional $2.8 million in new debt issuance costs. These costs are recorded as a direct reduction to the carrying amount of the associated long-term debt and amortized over the term of the debt.
ABL Facility
The ABL Facility provides for a senior secured revolving credit facility in the amount of $50.0 million, of which $30.0 million is available in the form of letters of credit and $5.0 million is available for the issuance of short-term swingline loans. The availability of credit under the ABL Facility is limited by a borrowing base calculation derived from accounts receivable and inventory held in the United States. Outstanding borrowings under the ABL Facility bear interest on a variable rate structure plus an interest rate spread that is based on the average amount of aggregate revolving commitment available. The variable borrowing rate is either 1) LIBOR plus an applicable margin of 1.75% or 2.00%, depending on availability, or 2) the greater of the federal funds rate or prime, plus an applicable margin of 0.75% or 1.00%, depending on availability. We may elect whether to use one-month, three-month, or six-month LIBOR, subject to a 0.50% floor. Interest payments are due monthly on borrowings that utilize one-month LIBOR and quarterly on borrowings that utilize three-month or six-month LIBOR. At December 31, 2022, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility was 6.00%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility and a 1.875% fee on the amount of letters of credit outstanding. The final maturity date of the ABL Facility is March 22, 2026.
As of December 31, 2022, we had $1.0 million of outstanding borrowings under the ABL Facility, $11.0 million of outstanding letters of credit, and $35.3 million available for future borrowings under the ABL Facility. The ABL Facility has a first lien on accounts receivable and inventory. We were in compliance with all requirements under the ABL Facility as of December 31, 2022.
Loan Amendments
On March 3, 2023, we amended our Term Loan Facility (the “Term Loan Amendment”) and ABL Facility (the “ABL Amendment”) to adjust certain covenants under the agreements, as well as to change the applicable base rate on which interest expense is determined.
The Term Loan Amendment increases the quarterly maximum consolidated net leverage ratio covenant beginning in 2023 and waived the required excess cash flow payment that would have been paid in 2023. The Term Loan Amendment provides for increased utilization of customer programs to accelerate payment terms and also introduces a quarterly domestic liquidity covenant. Interest under the Term Loan Amendment is increased on a paid-in-kind basis at a rate dependent on the Company’s leverage ratio and whether the Company completes a qualifying junior equity raise by June 30, 2023. The Company also issued penny warrants in connection with the Term Loan Amendment. In addition, the base rate for interest expense has been changed from LIBOR to the secured overnight financing rate (“SOFR”).
The ABL Amendment provides for increased utilization of customer programs to accelerate payment terms and also introduces a quarterly domestic liquidity covenant. In addition, the base rate for interest expense has been changed from LIBOR to SOFR.
Future Maturities
The following table lists aggregate maturities of long-term debt for the next five years.
| | | | | |
Years Ending December 31, | |
2023 | $ | 3,321 | |
2024 | 3,166 | |
2025 | 3,181 | |
2026 | 143,887 | |
2027 | 364 | |
| |
| |
Debt Issuance Costs
We recognized a $2.4 million loss on extinguishment for unamortized debt issuance costs that were written off in the year ended December 31, 2021, in connection with the termination of our previous credit facility.
Note 12. Leases
The following table presents components of lease expense:
| | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
| | | | 2022 | | 2021 | | 2020 |
Finance lease cost: | | | | | | | | |
Amortization of right-of-use assets | | | | $ | 1,318 | | | $ | 1,451 | | | $ | 1,272 | |
Interest expense | | | | 351 | | | 213 | | | 192 | |
Operating lease cost | | | | 8,285 | | | 8,015 | | | 8,397 | |
Short-term lease cost (1) | | | | 438 | | | 655 | | | 591 | |
| | | | | | | | |
Sublease income | | | | (195) | | | — | | | — | |
Total lease cost | | | | $ | 10,197 | | | $ | 10,334 | | | $ | 10,452 | |
(1) Excludes expenses related to leases with a lease term of one month or less.
The following table presents lease-related assets and liabilities recorded on the balance sheet.
| | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, |
| | Financial Statement Line Item | | 2022 | | 2021 |
Assets: | | | | | | |
Operating lease assets | | Operating lease right-of-use assets | | $ | 46,713 | | | $ | 46,443 | |
Finance lease assets | | Property, plant and equipment, net | | 12,989 | | | 13,641 | |
Total lease assets | | | | $ | 59,702 | | | $ | 60,084 | |
| | | | | | |
Liabilities: | | | | | | |
Current liabilities: | | | | | | |
Operating lease liabilities | | Current portion of operating lease liabilities | | $ | 5,294 | | | $ | 5,704 | |
Finance lease liabilities | | Other current liabilities | | 2,610 | | | 3,111 | |
Non-current liabilities: | | | | | | |
Operating lease liabilities | | Operating lease liabilities, net of current portion | | 51,411 | | | 51,295 | |
Finance lease liabilities | | Other non-current liabilities | | 3,828 | | | 5,446 | |
Total lease liabilities | | | | $ | 63,143 | | | $ | 65,556 | |
The following table contains supplemental cash flow information related to leases.
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows used in finance leases | | $ | 351 | | | $ | 213 | | | $ | 192 | |
Operating cash flows used in operating leases | | 14,214 | | | 13,434 | | | 13,498 | |
Financing cash flows used in finance leases | | 3,003 | | | 4,836 | | | 2,018 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | $ | 1,263 | | | $ | 2,814 | | | $ | 728 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | | 5,181 | | | — | | | 8,682 | |
(1) Includes new leases, renewals, and modifications.
The weighted average remaining lease term and weighted-average discount rate for finance and operating leases were as noncurrent. follows:
| | | | | | | | | | | | | |
| As of December 31, | | |
| 2022 | | 2021 | | |
Weighted-average remaining lease term - finance leases | 3.1 years | | 3.3 years | | |
Weighted-average remaining lease term - operating leases | 10.1 years | | 11.1 years | | |
Weighted-average discount rate - finance leases | 5.3 | % | | 3.0 | % | | |
Weighted-average discount rate - operating leases | 7.5 | % | | 7.0 | % | | |
The new standardmaturities of lease liabilities as of December 31, 2022, is effective foras follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
2023 | | $ | 9,250 | | | $ | 2,913 | |
2024 | | 8,419 | | | 1,819 | |
2025 | | 8,352 | | | 1,017 | |
2026 | | 8,193 | | | 950 | |
2027 | | 7,983 | | | 509 | |
Thereafter | | 37,655 | | | — | |
Total future minimum lease payments | | 79,852 | | | 7,208 | |
Less: imputed interest | | 23,147 | | | 770 | |
Total lease liabilities | | $ | 56,705 | | | $ | 6,438 | |
In August 2022, we began subleasing a portion of our leased corporate headquarters office space. Since the Company retains the obligation to the lessor, the underlying lease continues to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the lease terms.
In March 2020, we amended the lease of our corporate headquarters building to exit over half of the previously leased space and reduce annual base rent payments. The amendment was accounted for as a lease modification, and the remeasurement of the lease resulted in an $8.1 million decrease in the
first quarter of 2017, and may be applied retrospectively or prospectively. The Company has elected to adopt the standard early, beginningoperating lease ROU asset, a $10.5 million decrease in the
first quarter of 2016, and applies prospectively. The adoptionnoncurrent portion of the
new accounting rules does not haveoperating lease liability, and a
material effect$0.6 million decrease in the current portion of the operating lease liability. The $3.0 million difference between the change in the operating lease ROU asset and the operating lease liabilities was recognized in “Other operating expense (income), net,” on the
Company’s financial condition, resultsConsolidated Statements of
operations or cash flows.14) | Reconciliation of NetOperations and Comprehensive Income (Loss) Per Share |
| | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2016 | | | 2015 | | | 2014 | |
Net income (loss) | | $ | 7,942 | | | $ | (7,431 | ) | | $ | 8,217 | |
Weighted average shares outstanding | | | 27,016 | | | | 21,181 | | | | 17,887 | |
Effect of dilutive stock options | | | 138 | | | | — | | | | 366 | |
| | | | | | | | | | | | |
Diluted shares outstanding | | | 27,154 | | | | 21,181 | | | | 18,253 | |
| | | | | | | | | | | | |
Basic net income (loss) per share | | $ | 0.29 | | | $ | (0.35 | ) | | $ | 0.46 | |
| | | | | | | | | | | | |
Diluted net income (loss) per share | | $ | 0.29 | | | $ | (0.35 | ) | | $ | 0.45 | |
| | | | | | | | | | | | |
Excluded from the dilutive shares outstanding for the year ended December 31, 20162020. In connection with the discontinued use of the previously leased space, we also recognized a $4.4 million termination charge and a $2.9 million impairment charge on the associated leasehold improvements, all of which were 163,200 of anti-dilutive options, which had per share exercise prices ranging from of $19.63 to $25.16. Given the net lossalso recognized in “Other operating expense (income), net” for the year ended December 31, 2015, all options are considered anti-dilutive. Excluded2020.
During the second quarter of 2020 and as part of our overall plan to improve liquidity during the COVID-19 pandemic, we negotiated with certain lessors to defer rent payments on leased buildings. In total, $0.5 million of operating lease payments were deferred over a period ranging from April 2020 to December 2020 and were repaid from June 2020 through December 2022. The deferral of rent payments did not result in a substantial change in total lease payments over the dilutive shares outstandingindividual lease terms. We elected to apply lease accounting relief announced by the FASB in April 2020 and treated these lease concessions as if they existed in the original contracts rather than applying lease modification accounting. The net impact on cash flows from operating activities on the Consolidated Statements of Cash Flows for the yearyears ended December 31, 2014 were 98,000 of anti-dilutive options, which had per share exercise prices ranging from of $19.63 to $22.49.15) | Commitments and Contingencies |
We have operating lease commitments for machinery, office equipment, vehicles, manufacturing2022, 2021, and office space which expire on varying dates. Rent expense for 2016, 2015 and 20142020, was $8.6$(0.3) million, $5.8$(0.2) million, and $4.5$0.7 million, respectively. The following is a schedule by year of future minimum lease payments as of December 31, 2016 under operating leases that have initial or remaining non-cancelable lease terms in excess of one year.
| | | | |
Year ending December 31, | | | |
2017 | | $ | 7,824 | |
2018 | | | 6,830 | |
2019 | | | 5,785 | |
2020 | | | 4,882 | |
2021 | | | 2,802 | |
Thereafter | | | 3,149 | |
| | | | |
Total minimum lease payments | | $ | 31,272 | |
| | | | |
Note 13. Commitments and Contingencies
Prior to
ourthe acquisition of Autocam
Corporation (“Autocam”) in 2014, Autocam’s Brazilian subsidiary
(“Autocam Brazil”) received notification from the Brazilian tax
authoritiesauthority regarding ICMS (state value added
tax or VAT)tax) tax credits claimed on intermediary materials
(tooling(e.g., tooling and perishable items) used in the manufacturing process. The Brazilian tax authority notification disallowed state ICMS
tax credits claimed on intermediary materials based on the argument that these items are not intrinsically related to the manufacturing
process.processes. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualify for an ICMS tax credit, contending that the intermediary materials are directly related to the manufacturing process.
We believe that we have substantial legal and factual defenses, and
we plan to defend our interests
in this matter vigorously.
WhileThe matter encompasses several lawsuits filed with the Brazilian courts requesting declaratory actions that no tax is due or seeking a stay of execution on the collection of the tax. In 2018, we
obtained a favorable decision in one of the declaratory actions for which the period for appeal has expired. We have filed actions in each court requesting dismissal of the matter based on the earlier court action. In May 2020, we received an unfavorable decision in one of the lawsuits, and as a result have recorded a liability to the Brazilian tax authorities and a receivable from the former shareholders of Autocam for the same amount. Although we anticipate a favorable resolution to the remaining matters, we can provide no assurances that we will be successful in achieving dismissal of all pending cases. The U.S. dollar amount that would be owed in the event of an unfavorable decision is subject to interest, penalties, and currency impacts and therefore is dependent on the timing of the decision. For the remaining open lawsuits, we currently believe
a loss is not probable we estimate the
rangecumulative potential liability in the event of
possible loss related to this assessment is from $0 to $6.0 million. No amount has been accrued at December 31, 2016 for this matter.unfavorable decisions on all matters will be less than $5.0 million, inclusive of interest and penalties.
We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement and plan of
merger.merger relating to the Autocam acquisition. Management believes the indemnification would include amounts owed for the tax, interest, and penalties related to
this matter. Accordingly, we do not expect to incur a loss related to this matter even in the
Brazil ICMS matter.Allevent of an unfavorable decision and, therefore, have not accrued an amount for the remaining matters as of December 31, 2022.
Securities Offering Matter
On November 1, 2019, Erie County Employees’ Retirement System, on behalf of a purported class of plaintiffs, filed a complaint in the Supreme Court of the State of New York, County of New York against us, certain of our current and former officers and directors, and each of the underwriters involved in our public offering and sale of 14.4 million shares of our common stock pursuant to a preliminary prospectus supplement, dated September 10, 2018, a final prospectus supplement, dated September 13, 2018, and a base prospectus, dated April 19, 2017, relating to our effective shelf registration statement on Form S-3 (File No. 333-216737) (the “Offering”). The amended complaint alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act in connection with the Offering.
On July 25, 2022, the parties filed a Stipulation of Settlement to settle the securities offering action. Under the terms of the Stipulation of Settlement, which was approved and finalized by the court on December 1, 2022, the Company and/or its insurance carriers were to make cash payments to the plaintiff in the amount of $9.5 million (the “Settlement Amount”), in exchange for which the Company and the other
legal mattersnamed defendants were released from all claims related to the securities offering action. Since we had previously paid covered expenses totaling $1.0 million meeting our directors' and officers' retention requirement, the Settlement Amount was covered and paid by our directors' and officers' insurance carriers during the fourth quarter of 2022.
Other Legal Matters
On April 25, 2022, we reached an agreement to settle breach of contract claims brought by a former customer regarding the sale of products by us in 2016. Under the agreement, we are paying $1.8 million to the customer in specified installments through July 2023. The $1.8 million settlement is included in the “Other operating expense (income), net” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
All other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes.
Note 14. Preferred Stock and Stockholders' Equity
Series D Perpetual Preferred Stock
On March 22, 2021, we completed a private placement of 65,000 shares of newly designated Series D Perpetual Preferred Stock, with a par value of $0.01 per share (the “Series D Preferred Stock”), at a price of $1,000 per share, together with detachable warrants (the “2021 Warrants”) to purchase up to 1.9 million shares of our common stock at an exercise price of $0.01 per share. The procedures performed include reviewing attorneySeries D Preferred Stock has an initial liquidation preference of $1,000 per share and plaintiff correspondence, reviewing any filings madeis redeemable at our option in cash at a redemption price equal to the liquidation preference then in effect. Series D Preferred Stock shares earn cash dividends at a rate of 10.0% per year, payable quarterly in arrears, accruing whether or not earned or declared. If no cash dividend is paid, then the liquidation preference per share effective on the dividend date increases by 12.0% per year. On March 22, 2026, the cash dividend rate and discussing the factsin-kind dividend rate increase by 2.5% per year. Cash dividends are required beginning on September 30, 2027.
The Series D Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity, because certain features of the caseSeries D Preferred Stock could require redemption of the Series D Preferred Stock upon a change of control event that is considered not solely within our control. For initial recognition, the Series D Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and a bifurcated embedded derivative. The aggregate discount is amortized as a deemed dividend through March 22, 2026, which is the date the dividend rate begins to increase by 2.5% per year. Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital).
In accordance with local managementASC 815-15, Derivatives and legal counsel. We have not recognized any loss contingenciesHedging - Embedded Derivatives, certain features of the Series D Preferred Stock were bifurcated and accounted for as derivatives separately. Note 19 discusses the accounting for these features.
As of December 31,
20162022, the carrying value of the Series D Preferred Stock shares was $64.7 million, which included $18.0 million of accumulated unpaid and
2015.16) | Investment in Non-Consolidated Joint Venture |
Asdeemed dividends. The following table presents the change in the Series D Preferred Stock carrying value.
| | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | |
Balance at beginning of year | $ | 53,807 | | | $ | — | | | |
Proceeds from issuance of shares, net of issuance costs | — | | | 61,793 | | | |
Fair value of 2021 Warrants issued | — | | | (14,839) | | | |
Recognition of bifurcated embedded derivative | — | | | (282) | | | |
Accrual of in-kind dividends | 8,961 | | | 6,222 | | | |
Amortization | 1,933 | | | 913 | | | |
| | | | | |
Balance at end of year | $ | 64,701 | | | $ | 53,807 | | | |
Net cash proceeds of $61.8 million from the issuance of the Series D Preferred Stock, along with part of the Autocam acquisition, we acquiredproceeds from the Term Loan Facility, were used to redeem all of the outstanding shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”).
Series B Convertible Preferred Stock
The Series B Preferred Stock had a 49% investmentliquidation preference of $1,000 per share and was redeemable in cash at our option, subject to the applicable redemption premium. Series B Preferred Stock shares earned cumulative dividends at a joint venture with an unrelated entity called Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the “JV”),rate of 10.625% per year, and accrued whether or not earned or declared. The Series B Preferred Stock was recognized at a Chinese company locateddiscounted value, net of issuance costs and allocation to warrants and bifurcated embedded derivatives. The aggregate discount was amortized as a deemed dividend through December 31, 2023, which is the date the holders had a non-contingent conversion option into a variable number of common shares equal to the liquidation preference plus accrued and unpaid dividends. Deemed dividends adjust retained earnings (or in the cityabsence of Wuxi, China.retained earnings, additional paid-in capital).
At redemption on March 22, 2021, the carrying value of the Series B Preferred Stock shares included $14.3 million of accumulated unpaid and deemed dividends. The JVfollowing table presents the change in the Series B Preferred Stock carrying value.
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2021 | | 2020 |
Balance at beginning of year | | | $ | 105,086 | | | $ | 93,012 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Accrual of in-kind dividends | | | 14,008 | | | 11,121 | |
Amortization | | | 335 | | | 953 | |
Redemption | | | (119,429) | | | — | |
Balance at end of year | | | $ | — | | | $ | 105,086 | |
Note 15. Revenue from Contracts with Customers
Revenue is
jointly controlled and managed andrecognized when control of the good or service is
being accountedtransferred to the customer either at a point in time or, in limited circumstances, as our services are rendered over time. Revenue is measured as the amount of consideration we expect to receive in exchange for
undertransferring goods or services. During the
equity method.Below are the components of our JV investment balance and activity for the years ended December 31, 2016, 2015 and 2014:
| | | | |
Balance as of August 29, 2014 | | $ | 35,595 | |
Dividends received | | | (2,538 | ) |
Our share of cumulative earnings | | | 1,646 | |
Accretion of basis difference from purchase accounting | | | (372 | ) |
| | | | |
Balance as of December 31, 2014 | | $ | 34,331 | |
Capital contributions | | | 1,999 | |
Dividends received | | | (2,868 | ) |
Our share of cumulative earnings | | | 5,440 | |
Accretion of basis difference from purchase accounting | | | (440 | ) |
| | | | |
Balance as of December 31, 2015 | | $ | 38,462 | |
Our share of cumulative earnings | | | 6,427 | |
Dividends declared and paid by joint venture | | | (3,706 | ) |
Accretion of basis difference from purchase accounting | | | (489 | ) |
| | | | |
Balance as of December 31, 2016 | | $ | 40,694 | |
| | | | |
Set forth below is summarized balance sheet information for the JV:
| | | | | | | | |
| | December 31, | | | December 31, | |
| | 2016 | | | 2015 | |
Current assets | | $ | 31,295 | | | $ | 24,663 | |
Non-current assets | | | 22,522 | | | | 22,847 | |
| | | | | | | | |
Total assets | | $ | 53,817 | | | $ | 47,510 | |
| | | | | | | | |
Current liabilities | | $ | 13,549 | | | $ | 11,171 | |
| | | | | | | | |
Total liabilities | | $ | 13,549 | | | $ | 11,171 | |
| | | | | | | | |
Dividends of $3.7 million were declared for year ended December 31, 20152022, we received equipment from a customer as part of the selling price of goods transferred. This noncash consideration was recognized as revenue equal to the fair value of the equipment received.
The following tables summarize revenue by customer geographical region.
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2022 | Mobile Solutions | | Power Solutions | | Intersegment Sales Eliminations | | Total |
United States and Puerto Rico | $ | 140,931 | | | $ | 160,894 | | | $ | (2) | | | $ | 301,823 | |
China | 46,045 | | | 5,511 | | | — | | | 51,556 | |
Brazil | 47,266 | | | 950 | | | — | | | 48,216 | |
Mexico | 23,348 | | | 17,297 | | | — | | | 40,645 | |
Germany | 5,158 | | | 348 | | | — | | | 5,506 | |
Poland | 5,031 | | | 11 | | | — | | | 5,042 | |
Other | 25,757 | | | 20,193 | | | — | | | 45,950 | |
Total net sales | $ | 293,536 | | | $ | 205,204 | | | $ | (2) | | | $ | 498,738 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2021 | Mobile Solutions | | Power Solutions | | Intersegment Sales Eliminations | | Total |
United States and Puerto Rico | $ | 140,383 | | | $ | 152,931 | | | $ | (79) | | | $ | 293,235 | |
China | 52,227 | | | 4,745 | | | — | | | 56,972 | |
Brazil | 34,644 | | | 811 | | | — | | | 35,455 | |
Mexico | 19,520 | | | 16,177 | | | — | | | 35,697 | |
Germany | 5,230 | | | 546 | | | — | | | 5,776 | |
Poland | 3,743 | | | 18 | | | — | | | 3,761 | |
Other | 30,116 | | | 16,572 | | | — | | | 46,688 | |
Total net sales | $ | 285,863 | | | $ | 191,800 | | | $ | (79) | | | $ | 477,584 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2020 | Mobile Solutions | | Power Solutions | | Intersegment Sales Eliminations | | Total |
United States and Puerto Rico | $ | 129,147 | | | $ | 139,499 | | | $ | (95) | | | $ | 268,551 | |
China | 46,442 | | | 5,563 | | | — | | | 52,005 | |
Brazil | 27,055 | | | 689 | | | — | | | 27,744 | |
Mexico | 16,465 | | | 13,400 | | | — | | | 29,865 | |
Germany | 5,846 | | | 378 | | | — | | | 6,224 | |
Poland | 4,913 | | | 14 | | | — | | | 4,927 | |
Other | 26,492 | | | 11,726 | | | — | | | 38,218 | |
Total net sales | $ | 256,360 | | | $ | 171,269 | | | $ | (95) | | | $ | 427,534 | |
The following tables summarize revenue by customer industry. Our products in the automotive industry include high-precision components and paidassemblies for electric power steering systems, electric braking, electric motors, fuel systems, emissions control, transmissions, moldings, stampings, sensors, and electrical contacts. Our products in the general industrial industry include high-precision metal and plastic components for a variety of industrial applications including diesel industrial motors, heating and cooling systems, fluid power systems, power tools, and more. While many of the industries we serve include electrical components, our products in the residential/commercial electrical industry category in the following tables include components used in smart meters, charging stations, circuit breakers, transformers, electrical contact assemblies, precision stampings, welded contact assemblies, and specification plating and surface finishing.
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2022 | Mobile Solutions | | Power Solutions | | Intersegment Sales Eliminations | | Total |
Automotive | $ | 197,341 | | | $ | 40,890 | | | $ | — | | | $ | 238,231 | |
General Industrial | 78,142 | | | 61,828 | | | — | | | 139,970 | |
Residential/Commercial Electrical | — | | | 70,055 | | | — | | | 70,055 | |
Other | 18,053 | | | 32,431 | | | (2) | | | 50,482 | |
Total net sales | $ | 293,536 | | | $ | 205,204 | | | $ | (2) | | | $ | 498,738 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2021 | Mobile Solutions | | Power Solutions | | Intersegment Sales Eliminations | | Total |
Automotive | $ | 182,094 | | | $ | 38,779 | | | $ | — | | | $ | 220,873 | |
General Industrial | 90,290 | | | 60,312 | | | — | | | 150,602 | |
Residential/Commercial Electrical | — | | | 61,748 | | | — | | | 61,748 | |
Other | 13,479 | | | 30,961 | | | (79) | | | 44,361 | |
Total net sales | $ | 285,863 | | | $ | 191,800 | | | $ | (79) | | | $ | 477,584 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2020 | Mobile Solutions | | Power Solutions | | Intersegment Sales Eliminations | | Total |
Automotive | $ | 170,389 | | | $ | 31,422 | | | $ | — | | | $ | 201,811 | |
General Industrial | 75,610 | | | 52,714 | | | — | | | 128,324 | |
Residential/Commercial Electrical | — | | | 58,143 | | | — | | | 58,143 | |
Other | 10,361 | | | 28,990 | | | (95) | | | 39,256 | |
Total net sales | $ | 256,360 | | | $ | 171,269 | | | $ | (95) | | | $ | 427,534 | |
Other Sources of Revenue
We provide pre-production activities related to engineering efforts to develop molds, dies, and machines that are owned by our customers. We may receive advance payments from customers which are deferred until satisfying our performance obligations by compliance with customer-specified milestones, recognizing revenue at a point in time. These contracts generally have an original expected duration of less than one year.
Deferred Revenue
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer advances and deposits (e.g. contract liability) on the JVConsolidated Balance Sheets. These contract liabilities are reported on the
Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period as deferred revenue, which is reported in the “Other current liabilities” line on the Consolidated Balance Sheets.
Deferred revenue relates to payments received in advance of performance under the contract and recognized as revenue as (or when) we perform under the contract. Changes in the contract liability balances during the year ended December 31, 2016. 2022, were not materially impacted by any other factors. The balance of deferred revenue was $0.7 million and $0.5 million as of December 31, 2022 and December 31, 2021, respectively. Revenue recognized for performance obligations satisfied or partially satisfied during the year ended December 31, 2022 included $0.5 million that was included in deferred revenue as of December 31, 2021.
Transaction Price Allocated to Future Performance Obligations
We hadare required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2022, unless our contracts meet one of the practical expedients. Our contracts met the practical expedient for a performance obligation that is part of a contract that has an original expected duration of one year or less.
Costs to Obtain and Fulfill a Contract
We recognize commissions paid to internal sales personnel that are incremental to obtaining customer contracts as an expense when incurred since the JVamortization period is less than one year. Costs to obtain a contract are expensed as selling, general and administrative expense.
Sales, VAT, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of $0.1the contract are recognized as expense.
Sales Concentration
No single customer accounted for 10% or more of consolidated net sales, during the years ended December 31, 2022, 2021, and 2020.
Note 16. Share-Based Compensation
As of December 31, 2022, we have 3.4 million shares available that can be issued to employees and non-executive directors under the 2022 Omnibus Incentive Plan as options, stock appreciation rights, and other share-based awards. Shares of our common stock delivered upon exercise or vesting may consist of newly issued shares of our common stock or shares acquired in the open market.
Share-based compensation expense is recognized in the “Selling, general, and administrative expense” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) except for $0.8 million attributable to discontinued operations for the year ended December 31, 2016. Amounts due2020. The following table lists the components of share-based compensation expense by type of award.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Restricted stock | 3,635 | | | 2,166 | | | 3,393 | |
Performance share units | 602 | | | 797 | | | 199 | |
Stock options | $ | 140 | | | $ | 253 | | | $ | 634 | |
| | | | | |
Share-based compensation expense | $ | 4,377 | | | $ | 3,216 | | | $ | 4,226 | |
Unrecognized compensation cost related to
us from the JV were $0.1unvested awards was $3.1 million as of December 31,
2016. The JV had net sales in 20162022, which will be recognized over a weighted-average period of
$65.7 million and net income of $13.1 million.Dividends of $2.8 million were declared for year1.7 years.
Restricted Stock
During the years ended December 31, 20142022, 2021, and paid2020, we granted 897,000, 459,000, and 460,000 shares of restricted stock to non-executive directors, officers, and certain other key employees. Shares of restricted stock vest pro-rata generally over three years for employees and over one year for non-executive directors. The fair value of restricted stock awards is based on the closing price of our common stock as of the date of grant. The weighted average grant-date fair value of restricted stock granted in the years ended December 31, 2022, 2021, and 2020, was $3.31, $6.84, and $9.35 per share, respectively. The total grant-date fair value of restricted stock that vested in the years ended December 31, 2022, 2021, and 2020, was $2.1 million, $2.8 million, and $1.9 million, respectively.
The following table presents the status of unvested restricted stock awards as of December 31, 2022 and changes during the year then ended.
| | | | | | | | | | | |
| Nonvested Restricted Shares | | Weighted Average Grant-Date Fair Value |
Unvested at January 1, 2022 | 469,000 | | | $ | 7.28 | |
Granted | 897,000 | | | 3.31 | |
Vested | (291,000) | | | 7.05 | |
Forfeited | (37,000) | | | 3.93 | |
Unvested at December 31, 2022 | 1,038,000 | | | $ | 4.03 | |
Performance Share Units
Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”). TSR Awards granted in 2022, 2021, and 2020 were made pursuant to the 2019 Omnibus Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”). ROIC Awards granted in 2022 were made pursuant to the 2022 Omnibus Incentive Plan and a Performance Share Unit Agreement. ROIC Awards granted in 2021 and 2020 were made pursuant to the 2019 Omnibus Agreement.
The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of a specified index during specified performance periods as defined in the 2019 Omnibus Agreement. The ROIC Awards vest, if at all, upon our achieving a specified average return on invested capital during the performance periods. Each performance period generally begins on January 1 of the year of grant and ends 3 years later on December 31. If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically.
PSUs that vest will be settled by the JVissuance of shares of our common stock with the actual number of shares interpolated between a threshold and maximum payout amount based on actual performance results. No dividends will be paid on outstanding PSUs during the performance period; however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the performance periods.
A participant will earn 25% or 50% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance.” For performance levels falling between the values shown below, the percentages will be determined by interpolation.
The following tables present the goals with respect to TSR Awards and ROIC Awards granted in 2022, 2021, and 2020.
| | | | | | | | | | | | | | | | | |
TSR Awards: | Threshold Performance (25% or 50% of Shares)(1) | | Target Performance (100% of Shares) | | Maximum Performance (150% of Shares) |
2022 grants | 25 | th Percentile | | 55 | th Percentile | | 75 | th Percentile |
2021 grants | 35 | th Percentile | | 50 | th Percentile | | 75 | th Percentile |
2020 grants | 35 | th Percentile | | 50 | th Percentile | | 75 | th Percentile |
| | | | | | | | | | | | | | | | | |
ROIC Awards: | Threshold Performance (50% of Shares) | | Target Performance (100% of Shares) | | Maximum Performance (150% of Shares) |
2022 grants | 6.4 | % | | 8.6 | % | | 10.0 | % |
2021 grants | 6.3 | % | | 7.0 | % | | 8.6 | % |
2020 grants | 6.7 | % | | 7.9 | % | | 8.7 | % |
(1)Threshold performance will earn 25% of the target number of PSUs for the 2022 grants and 50% for the 2021 grants and 2020 grants.
The following table presents the number of PSUs granted and the grant-date fair value of each award in the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TSR Awards | | ROIC Awards |
Award Year | | Performance Units | | Grant-Date Fair Value | | Performance Units | | Grant-Date Fair Value |
2022 | | 382,000 | | | $ | 2.53 | | | 408,000 | | | $ | 2.62 | |
2021 | | 142,000 | | | $ | 8.58 | | | 172,000 | | | $ | 7.20 | |
2020 | | 139,000 | | | $ | 10.88 | | | 157,000 | | | $ | 9.44 | |
The grant-date fair value of TSR Awards is determined using the Monte Carlo simulation model, as the total shareholder return metric is considered a market condition under ASC Topic 718, Compensation – stock compensation, and expense is recognized over the performance period regardless of actual award payout. The grant-date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant and compensation expense is recognized over the performance period based on the estimated outcome of the performance condition.
The following table presents the status of unvested PSUs as of December 31, 2022 and changes during the year then ended.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nonvested TSR Awards | | Nonvested ROIC Awards |
| Number of Performance Units | | Weighted Average Grant-Date Fair Value | | Number of Performance Units | | Weighted Average Grant-Date Fair Value |
Nonvested at January 1, 2022 | 194,000 | | | $ | 9.59 | | | 228,000 | | | $ | 8.14 | |
Granted | 382,000 | | | 2.53 | | | 408,000 | | | 2.62 | |
| | | | | | | |
Expired | (84,000) | | | 10.88 | | | (96,000) | | | 9.44 | |
Nonvested at December 31, 2022 | 492,000 | | | $ | 3.87 | | | 540,000 | | | $ | 3.74 | |
None of the PSUs that were granted in 2018, 2019, and 2020 vested in 2020, 2021, and 2022, respectively, because the actual performance achieved was below the “Threshold Performance” level as defined by the grant agreements.
Stock Options
Stock options have an exercise price equal to the closing price of our stock on the date of grant, an exercise term of ten years with a vesting period of three years. No options were granted in 2022 or 2021. We granted 159,000 options during the year ended December 31, 2015. Our 49% ownership interest in this amount is net2020 with a weighted average grant-date fair value of a 10% withholding tax levied by the Chinese government. We had sales to the JV of $0.1 million$4.76 per share.
The following table presents stock option activity for the year ended December 31, 2015. Amounts due to us from2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value | | |
Outstanding at January 1, 2022 | 621,000 | | | $ | 12.24 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Forfeited | (4,000) | | | 9.44 | | | | | | | |
Expired | (79,000) | | | 9.71 | | | | | | | |
Outstanding at December 31, 2022 | 538,000 | | | $ | 12.63 | | | 3.0 years | | $ | — | | | (1) |
Exercisable at December 31, 2022 | 515,000 | | | $ | 12.77 | | | 2.8 years | | $ | — | | | (1) |
(1)The aggregate intrinsic value is the JV were $0.2 millionsum of intrinsic values for each exercisable individual option grant. The intrinsic value is the amount by which the closing market price of our stock at December 31, 2015. 2022, was greater than the exercise price of any individual option grant.
Note 17. Accumulated Other Comprehensive Income
The
JV had net sales in 2015components of
$55.4 million and net income of $11.1 million.No dividends were declared by the JV for the four months ended December 31, 2014. We had sales to the JV of $36 thousand during the four months ended December 31, 2014. Amounts due to us from JV were $0.2 million as of December 31, 2014. The JV had net sales in 2014 of $50.5 million and net income of $9.0 million.
17) | Quarterly Results of Operations (Unaudited) |
The following summarizes the unaudited quarterly results of operations for the years ended December 31, 2016 and 2015.
| | | | | | | | | | | | | | | | |
| | Year ended December 31, 2016 | |
| | March 31 | | | June 30 | | | Sept. 30 | | | Dec. 31 | |
Net sales | | $ | 212,226 | | | $ | 214,272 | | | $ | 204,961 | | | $ | 202,029 | |
Income from operations | | $ | 11,874 | | | $ | 16,703 | | | $ | 18,727 | | | $ | 12,096 | |
Net income (a) | | $ | (1,299 | ) | | $ | 2,031 | | | $ | 4,147 | | | $ | 3,063 | |
Comprehensive income (loss)(a) | | $ | 4,418 | | | $ | (973 | ) | | $ | 8,740 | | | $ | (10,212 | ) |
Basic net income per share | | $ | (0.05 | ) | | $ | 0.08 | | | $ | 0.15 | | | $ | 0.11 | |
Diluted net income per share | | $ | (0.05 | ) | | $ | 0.07 | | | $ | 0.15 | | | $ | 0.11 | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic number of shares | | | 26,869 | | | | 27,024 | | | | 27,159 | | | | 27,241 | |
Effect of dilutive stock options | | | — | | | | 163 | | | | 163 | | | | 180 | |
| | | | | | | | | | | | | | | | |
Diluted number of shares | | | 26,869 | | | | 27,187 | | | | 27,322 | | | | 27,421 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Year ended December 31, 2015 | |
| | March 31 | | | June 30 | | | Sept. 30 | | | Dec. 31 | |
Net sales | | $ | 163,746 | | | $ | 164,856 | | | $ | 154,824 | | | $ | 183,854 | |
Income from operations | | $ | 13,934 | | | $ | 13,589 | | | $ | 10,122 | | | $ | (10,848 | ) |
Net income (a) | | $ | 6,001 | | | $ | 6,953 | | | $ | 4,630 | | | $ | (25,015 | ) |
Comprehensive income (loss)(a) | | $ | (11,856 | ) | | $ | 10,955 | | | $ | (2,121 | ) | | $ | (28,929 | ) |
Basic net income per share | | $ | 0.32 | | | $ | 0.36 | | | $ | 0.17 | | | $ | (0.93 | ) |
Diluted net income per share | | $ | 0.31 | | | $ | 0.36 | | | $ | 0.17 | | | $ | (0.93 | ) |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
Basic number of shares | | | 18,996 | | | | 19,215 | | | | 26,839 | | | | 26,840 | |
Effect of dilutive stock options | | | 384 | | | | 367 | | | | 328 | | | | — | |
| | | | | | | | | | | | | | | | |
Diluted number of shares | | | 19,380 | | | | 19,582 | | | | 27,167 | | | | 26,840 | |
| | | | | | | | | | | | | | | | |
(a) | During the fourth quarter ended December 31, 2016, the Company identified certain prior period tax errors. The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors as out of period adjustments in 2016, resulting in $998 of tax benefit being recognized in the fourth quarter of 2016 that should have been recognized in the fourth quarter of 2015. During 2016 the Company identified certain prior period comprehensive income errors which primarily related to the accounting for deferred taxes related to unrealized gains (losses) of the fair value of derivatives and the accounting for the foreign currency translation of goodwill (see Note 10). The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors as out of period adjustments. The impact of these errors on other comprehensive income resulted in an increase (decrease) to comprehensive income of $582, $(517), $(2,542), $3,104, $91, $166, $345, $(955) for the quarters ended March 31, 2016, June 30, 2016, September 31, 2016, December 31, 2016, March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015. |
The year ended December 31, 2016 fully reflects the acquisition activity from 2015 and 2014. Line items such as Selling, general and administrative costs, Depreciation and amortization, Restructuring and impairment charges, excluding goodwill impairment, and Interest expense, all increased as a result of increased bases in assets and higher debt and employee levels. There were no acquisitions made during 2016.
The fourth quarter of 2015 was impacted by merger and acquisition related costs of $18.7 million pre-tax, and $11.6 million after-tax primarily related to the PEP Acquisition. Additionally, the fourth quarter was negatively impacted by $18.7 million in pre-tax costs and $12.0 million in after-tax costs incurred related to writing-off debt issuance costs to our former lenders related to the new debt entered into for the PEP Acquisition.
18) | Accumulated Other Comprehensive Income |
The majority of our Accumulatedaccumulated other comprehensive income balance relates(loss) (“AOCI”) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Interest rate swap | | Income taxes (1) | | Total |
Balance as of December 31, 2019 | $ | (35,159) | | | $ | (12,234) | | | $ | 2,839 | | | $ | (44,554) | |
Other comprehensive income (loss) before reclassifications | (1,683) | | | (16,207) | | | 3,764 | | | (14,126) | |
Amounts reclassified from AOCI to interest expense (2) | — | | | 8,906 | | | (2,068) | | | 6,838 | |
Amounts reclassified from AOCI to loss on interest rate swap (3) | — | | | 15,823 | | | (3,674) | | | 12,149 | |
Sale of discontinued operations | 5,961 | | | — | | | — | | | 5,961 | |
Net other comprehensive income (loss) | 4,278 | | | 8,522 | | | (1,978) | | | 10,822 | |
Balance as of December 31, 2020 | $ | (30,881) | | | $ | (3,712) | | | $ | 861 | | | $ | (33,732) | |
Other comprehensive income (loss) before reclassifications | (1,135) | | | 78 | | | (19) | | | (1,076) | |
Amounts reclassified from AOCI to interest expense (2) | — | | | 73 | | | (18) | | | 55 | |
Amounts reclassified from AOCI to loss on interest rate swap (3) | — | | | 3,712 | | | (861) | | | 2,851 | |
Net other comprehensive income (loss) | (1,135) | | | 3,863 | | | (898) | | | 1,830 | |
Balance as of December 31, 2021 | $ | (32,016) | | | $ | 151 | | | $ | (37) | | | $ | (31,902) | |
Other comprehensive income (loss) before reclassifications | (8,156) | | | 3,426 | | | (68) | | | (4,798) | |
Amounts reclassified from AOCI to interest expense (2) | — | | | (428) | | | 8 | | | (420) | |
| | | | | | | |
Net other comprehensive income (loss) | (8,156) | | | 2,998 | | | (60) | | | (5,218) | |
Balance as of December 31, 2022 | $ | (40,172) | | | $ | 3,149 | | | $ | (97) | | | $ | (37,120) | |
(1) Income tax effect of changes in interest rate swap.
(2) Represents interest rate swap settlements of effective hedge.
(3) Represents reclassification of derivative loss and settlements after discontinuation of hedge accounting. See Note 19 for further discussion of the interest rate swap.
Note 18. Net Income (Loss) Per Common Share
The following table summarizes the computation of basic and diluted net income (loss) per common share.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Numerator: | | | | | |
Loss from continuing operations | $ | (26,098) | | | $ | (14,425) | | | $ | (139,490) | |
| | | | | |
Adjustment for preferred stock cumulative dividends and deemed dividends | (10,894) | | | (21,478) | | | (12,373) | |
| | | | | |
Numerator for basic and diluted net loss from continuing operations per common share | (36,992) | | | (35,903) | | | (151,863) | |
Income from discontinued operations, net of tax | — | | | 1,200 | | | 38,898 | |
Numerator for basic and diluted net loss per common share | $ | (36,992) | | | $ | (34,703) | | | $ | (112,965) | |
| | | | | |
Denominator: | | | | | |
Weighted average common shares outstanding | 43,738 | | | 42,991 | | | 42,692 | |
Adjustment for participating securities | (951) | | | (461) | | | (493) | |
Adjustment for 2021 Warrants outstanding (1) | 1,893 | | | 1,481 | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Shares used to calculate basic and diluted net loss per share | 44,680 | | | 44,011 | | | 42,199 | |
| | | | | |
Per common share net income (loss): | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Basic and diluted net loss from continuing operations per common share | $ | (0.83) | | | $ | (0.82) | | | $ | (3.60) | |
Basic and diluted net income from discontinued operations per common share | — | | | 0.03 | | | 0.92 | |
Basic and diluted net loss per common share | $ | (0.83) | | | $ | (0.79) | | | $ | (2.68) | |
Cash dividends declared per common share | $ | — | | | $ | — | | | $ | — | |
(1) Weighted average 2021 Warrants outstanding are included in shares outstanding for calculation of basic earnings per share because they are exercisable at an exercise price of $0.01 per share, subject to foreign currency translationcertain adjustments (see Note 19).
The following table presents potentially dilutive securities that were excluded from the calculation of our foreign subsidiary balances. Duringdiluted net income (loss) per common share because they had an anti-dilutive effect.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Options | 557 | | | 766 | | | 871 | |
2019 Warrants | 1,500 | | | 1,500 | | | 1,500 | |
Series B Preferred Stock, as-converted | — | | | — | | | 19,021 | |
| 2,057 | | | 2,266 | | | 21,392 | |
Stock options excluded from the EPS calculations had a per share exercise price ranging from $7.93 to $25.16 for the year ended December 31,
2016, we had other comprehensive loss of $9.0 million due to foreign currency translations and $3.0 million loss due to change in fair value of2022. The 2019 Warrants excluded from the
interest rate swap. The interest rate swap amounts were reclassified out of accumulated other comprehensive income during the three months ended September 30, 2016. Amounts were reclassified due to the forecasted transactions no longer being probable. DuringEPS calculations for the year ended December 31,
2015, we2022 had
other comprehensive lossa per share exercise price of
$21.9 million due to foreign currency translations and a $2.6 million loss due to change in fair value of interest rate hedge. During the year ended December 31, 2014, we had other comprehensive loss of $17.7 million due to foreign currency translations and a $0.4 million loss due to change in fair value of interest rate hedge.19) | Fair Value Measurements |
We present fair value measurements and disclosures applicable to both our financial and nonfinancial assets and liabilities that are measured and reported on a fair value basis. $11.49.
Note 19. Fair Value Measurements
Fair value is an exit price representing the expected amount wethat an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. We have followed consistent methods and assumptions to estimate the fair values as more fully described in Note 11.
Preferred Stock Related Derivatives
Certain features were bifurcated and accounted for separately from the Series B Preferred Stock. The following features were recorded as derivatives.
•Warrants. In conjunction with our placement of the NotesSeries B Preferred Stock, we issued detachable warrants to Consolidated Financial Statements.Our financial instruments thatpurchase up to 1.5 million shares of our common stock (the “2019 Warrants”), which are exercisable, in full or in part,
at any time prior to December 11, 2026. The original exercise price was $12.00 per share, subject to anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events. The issuance of the 2021 Warrants resulted in an adjusted exercise price of $11.49 per share for the 2019 Warrants because the new warrants have an exercise price below market value.
Certain features were bifurcated and accounted for separately from the Series D Preferred Stock. The following features were recorded as derivatives.
•Warrants. In conjunction with our placement of the Series D Preferred Stock, we issued detachable warrants to purchase up to 1.9 million shares of our common stock. The 2021 Warrants are exercisable, in full or in part, at any time prior to March 22, 2027, at an exercise price of $0.01 per share, subject to anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events.
•Change-in-control put feature. The Series D Preferred Stock includes a put feature that allows the holder to redeem the Series D Preferred Stock upon a change in control at the greater of 1) the liquidation preference plus accrued dividends or 2) 140% of the liquidation preference. The put feature is considered a redemption right at a premium and is not clearly and closely related to the debt host.
The following table presents the changes in liability balance of the preferred stock related derivatives.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
Balance at beginning of year | $ | 8,224 | | | $ | 3,117 | |
Issuances | — | | | 15,121 | |
Change in fair value (1) | (5,265) | | | (7,009) | |
Settlements | — | | | (3,005) | |
| | | |
Balance at end of year | $ | 2,959 | | | $ | 8,224 | |
(1) Changes in the fair value disclosure consistare recognized in the “Other income, net” line in the Consolidated Statements of cashOperations and cash equivalents, accounts receivable, accounts payable, derivatives and long-term debt. At September 30, 2016,Comprehensive Income (Loss).
The following tables show the carryingfair values of all of these financial instruments, except the long-term debt with fixed interest rates, approximatedpreferred stock related derivatives within the fair value. value hierarchy.
| | | | | | | | | | | | | | | | | |
| |
December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | |
Derivative liability - other non-current liabilities | 2,831 | | | — | | | 128 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| |
December 31, 2021 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | |
Derivative liability - other non-current liabilities | 7,771 | | | — | | | 453 | |
| | | | | |
The fair value of floating-rate debt approximates the carrying amount because2019 Warrants is determined using a valuation model that utilizes unobservable inputs to determine the interest rates paid are based on short-term maturities. probability that the 2019 Warrants will remain outstanding for future periods. The probabilities resulted in a weighted average term of 2.9 years as of December 31, 2022 and 3.6 years as of December 31, 2021.
The fair value of the 2021 Warrants is determined using the observable market price of a share of our fixed-rate long-term debt is estimatedcommon stock, less the $0.01 per share exercise price.
The fair value of the change-in-control put feature utilizes unobservable inputs based on the Bloomberg algorithm, which takes into account similar sized and industry debt (a Level 2 category fair value measurement). AsCompany’s assessment of the probability of a change-in-control event occurring in a future period. The probability of a change-in-control event ranged from 3% to 10% as of December 31, 2016, the fair value2022 and 1% to 10% as of December 31, 2021.
Interest Rate Swaps
We manage our
fixed-rate debt was $265.3 million, and $260.4 net of debt issuance costs.Recurring Fair Value Measurements
The following table summarizes the assets and liabilities measured at fair value on a recurring basis for ourexposure to fluctuations in interest rate swap derivative financial instrument:
Our policy is to manage interest expenserates using a mix of fixed and variable rate debt. To manage this mix effectively, we may enter into anWe utilize fixed-rate interest rate swap in which we agreeagreements to exchangechange the difference between fixed and variable interest amounts calculated by referencerate to an agreed upon notional principal amount.
Effective December 16, 2014,a fixed rate on a portion of our variable rate debt.
On July 22, 2021, we entered into a
$150 million swap that went into effect on December 29, 2015 (one year delayed start), at which time our rate was locked at 6.966% until December 31, 2018. As of December 31, 2016 and as a result of post-effective amendments to the derivative, our interest rate is now fixed at 6.466% through December 31, 2018. Prior to December 16, 2014, we did not have any existing interest rate hedges. The hedge instrument will be 100% effective and as such the mark to market gains or losses on this hedge will be included in accumulated other comprehensive income (loss), to the extent effective, and reclassified into interest expense over the term of the related debt instruments.The tables below summarizing the fair value measurement of this swap valued on a recurring basis on a gross basis:
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at December 31, 2016 | |
Description | | December 31, 2016 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
Derivative asset—current | | $ | 69 | | | $ | — | | | $ | 69 | | | $ | — | |
Derivative asset—noncurrent | | | 6 | | | | — | | | | 6 | | | | — | |
Derivative liability—current | | | (1,903 | ) | | | — | | | | (1,903 | ) | | | — | |
Derivative liability—noncurrent | | | (1,028 | ) | | | — | | | | (1,028 | ) | | | — | |
| | | | | | | | | | | | | | | | |
| | $ | (2,856 | ) | | $ | — | | | $ | (2,856 | ) | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at December 31, 2015 | |
Description | | December 31, 2015 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
Derivative asset—current | | $ | 388 | | | $ | — | | | $ | 388 | | | $ | — | |
Derivative asset—noncurrent | | | 368 | | | | — | | | | 368 | | | | — | |
Derivative liability—current | | | (2,098 | ) | | | — | | | | (2,098 | ) | | | — | |
Derivative liability—noncurrent | | | (1,673 | ) | | | — | | | | (1,673 | ) | | | — | |
| | | | | | | | | | | | | | | | |
| | $ | (3,015 | ) | | $ | — | | | $ | (3,015 | ) | | $ | — | |
| | | | | | | | | | | | | | | | |
Our policy is to manage interest expense using a mix of fixed and variable rate debt. To manage this mix effectively, we may enter into interest rate swaps in which we agree to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.
Our $150 millionfixed-rate interest rate swap went into effect on December 29, 2015, at which time ouragreement to change the LIBOR-based component of the interest rate was effectively 6.966%on a portion of our variable rate debt to a fixed rate of 1.291% (the “2021 Swap”). The 2021 Swap has a notional amount of $60.0 million and a maturity date of July 31, 2024. The objective of the hedge was2021 Swap is to eliminate the variability of cash flows in interest payments on the first $150$60.0 million of variable interest rate debt (the Term Loan B).attributable to changes in benchmark one-month
LIBOR interest rates. The variable rate benchmark was the three month LIBOR rate for both the Term Loan B andhedged risk is the interest rate swap.risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap wereare expected to exactly offset the changes in cash flows of the Term Loan B. The hedged risk wasvariable rate debt. We designated the 2021 Swap as a cash flow hedge at inception. Cash settlements of the 2021 Swap are recognized in interest expense.
On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate risk exposureon a portion of our variable rate debt to a fixed rate of 2.4575% (the “2019 Swap”). On March 22, 2021, we terminated the 2019 Swap with a $13.7 million cash payment in connection with the extinguishment of our previously outstanding long-term variable-rate debt. The 2019 Swap was designated as a cash flow hedge at inception. However, in the fourth quarter of 2020, the 2019 Swap no longer qualified as an effective hedge, and subsequent changes in fair value of the 2019 Swap were recognized in earnings. Amounts recognized in earnings related to the 2019 Swap are recorded in the “Loss on interest rate swap” line on the Consolidated Statements of Operations and Comprehensive Income (Loss) except that cash settlements prior to termination are recognized in “Derivative payments on interest rate swap.” Cash settlements during 2021 and the fourth quarter of 2020 are presented in investing activities on the Consolidated Statements of Cash Flows.
The following table presents the effect of the interest payments, attributable torate swaps on the Consolidated Statements of Operations and Comprehensive Income (Loss).
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Interest expense (benefit) (1) | $ | (428) | | | $ | 73 | | | $ | 8,906 | |
Derivative payments on interest rate swap (2) | — | | | 1,717 | | | 4,133 | |
Loss on interest rate swap (2) | — | | | 2,033 | | | 11,669 | |
(1) Represents settlements on the interest rate swaps while the hedges are effective.
(2) Represents settlements and changes in fair value on the benchmark three month LIBOR interest rates (subject to a 1.0% LIBOR index floor) from December 29, 2015 through2019 Swap while the hedge was ineffective.
As of December 31,
2018. As disclosed in Note 72022 and 2021, we reported a $3.1 million gain and a $0.1 million gain, respectively, net of
the Notes to Consolidated Financial Statements, Long-Term Debt, the LIBOR floor index was loweredto 0.75% on September 30, 2016, and our intent regarding future interest rate resets changed. Three-month LIBOR was above the floor, and it was more economical to use one month LIBOR. Therefore, our intensions called into question the probability of the amounts deferredtax, in accumulated other comprehensive income (“AOCI”) as the forested transactions would not be probable. As a result, we choserelated to discontinue hedge accounting, reclassified all amounts in AOCI to earnings, and began to account for the interest rate swap on a mark-to-market basis. swap.
The
change in reporting will have no impact on our reported cash flows, although future resultsfollowing tables show the fair values of
operations on a generally accepted accounting principles basis will be affected by the
potential volatility of mark-to-market gains and losses which fluctuate with changes in interest
rates.rate swaps within the fair value hierarchy.
| | | | | | | | | | | | | | | | | |
December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Derivative asset - other current assets | $ | — | | | $ | 2,130 | | | $ | — | |
Derivative asset - other non-current assets | — | | | 1,023 | | | — | |
| | | | | |
| | | | | |
Total | $ | — | | | $ | 3,153 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
December 31, 2021 | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | |
Derivative asset - other non-current assets | $ | — | | | $ | 284 | | | $ | — | |
Derivative liability - other current liabilities | — | | | (129) | | | — | |
| | | | | |
Total | $ | — | | | $ | 155 | | | $ | — | |
The
inputs for determining fair value of the interest rate swap
are classified as Level 2 inputs. Level 2 fair value is
based on estimates using standard pricing models. Thesecalculated through standard pricing models
which use inputs
which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces.
CounterpartiesThe counterparty to these derivative contracts
areis a highly rated financial
institutionsinstitution which we believe
carrycarries only a minimal risk of nonperformance.
We have elected
Fair Value Disclosures
Our financial instruments that are subject to
presentfair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. As of December 31, 2022, the
derivative contracts oncarrying values of these financial instruments, except for debt, approximated fair value. The fair value of our debt was $155.2 million with a
gross basis in the Consolidated Balance Sheet included within other current assets and other non-current assets and other current liabilities and other non-current liabilities. To the extent we presented the derivative contract on a net basis, we would have a derivative in a net liability positioncarrying amount of
$2.9$152.7 million as of December 31,
2016. We do not have any2022. The fair value of debt was calculated by discounting the future cash
collateral due under such agreements.As of December 31, 2016, we reported no gains or losses in AOCI relatedflows to the interest rate swaps. In connection with lowering the LIBOR index floor from 1.0% to 0.75% within the $150 million interest rate swap, we received a $0.3 million payment that reduced the net liability position on the $150 million interest rate swap. The payment was reported as Derivative payments (receipts) on interest rate swap on the Condensed Consolidated Balance Sheet. Additionally, during 2016 when the interest rate swap was accounted for in accordance with hedge accounting, the periodic settlements and related reclassification of other comprehensive income was $1.4 million of net hedging losses on the interest rate swap in the interest expense line on the Consolidated Statements of Operations. We recognized $0.6 million of interest rate swap settlements for the third quarter of 2016 in Derivative payments (receipts) on interest rate swap line on the Consolidated Statement of Operations. If there are no changes in theits present value using prevailing market interest rates for the next twelve months, we expect $1.8 million in cash payments related to the interest rates swap. See the following “Derivatives’ Hedging Relationships” section of this Note for more information regarding the impact of the interest rate swaps on our Condensed Consolidated Financial Statements.
Derivatives’ Hedging Relationships
| | | | | | | | | | | | | | | | | | | | |
| | Amount recognized in Other Comprehensive Income (effective portion) | | | Location of gain/(loss) reclassified from AOCI into Net Income (effective portion) | | | Pre-tax amount of gain/(loss) reclassified from AOCI in Net Income (effective portion) | |
Derivatives’ Cash Flow Hedging Relationships | | December 31, 2016 | | | December 31, 2015 | | | | December 31, 2016 | | | December 31, 2015 | |
Forward starting interest rate swap contract | | $ | — | | | $ | (3,015 | ) | | | Interest Expense | | | $ | (1,393 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | — | | | $ | (3,015 | ) | | | | | | $ | (1,393 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
As of December 31, 2016, we did not own derivative instruments that were classified asdebt with similar creditworthiness, terms and maturities and is considered a Level 3 fair value hedges or trading securities. In addition, asmeasurement.
Table of December 31, 2016, we did not own derivative instruments containing credit risk contingencies.On July 1, 2015, we closed an underwritten registered public offering of common stock offered pursuant to a shelf registration statement on Form S-3 that was previously filed with, and declared effective by, the Securities Exchange Commission. The total number of shares of common stock sold was 7,590,000 at a public offering price of $24.00 per share. All of the shares in the offering were sold by us. Our net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses, were approximately $173.1 million. Of these proceeds, $148.7 million was used for repayment of principal and interest on our existing debt.
Contents | Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
| Item 9A. | Controls and Procedures |
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, under
Under the supervision and with the participation of
themanagement, including our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation ofwe evaluated the effectiveness of
the design and operation of our disclosure controls and procedures
as(as defined
under Rule l3a-15(e) promulgated underin Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange
Act of 1934, as amended (the “Exchange Act”)Act). Based upon that evaluation,
because of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
not effective as of December 31,
20162022, to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to management, including
ourthe Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of NN, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016,2022, based on the criteria described in Internal Control-IntegratedControl – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected Based on a timely basis.
As of December 31, 2016, management identified the following material weaknesses. We did not maintain an effective control environment due to a lack of a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with our financial reporting requirements. This material weakness in the control environment contributed to the following material weaknesses: we did not design and maintain effective internal control over: (i) the accounting for business combinations, which specifically included not designing and maintaining controls over the (a) accuracy, valuation and presentation and disclosure for allocating goodwill to its international businesses and (b) completeness, accuracy and valuation of deferred income taxes recorded in connection with business combinations; and (ii) the accounting for income taxes, which specifically included not designing and maintaining controls over the completeness, accuracy, valuation and presentation and disclosure of deferred income tax accounts, income tax provision and related disclosures. These material weaknesses resulted in immaterial errors to goodwill, non-current deferred tax liabilities, income taxes and other comprehensive income in our consolidated financial statements for the years ended December 31, 2016, 2015 and 2014. Additionally, these control deficiencies could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, ourthis assessment, management has determined that these control deficiencies constitute material weaknesses.
Based on its evaluation, and as a result of the material weaknesses discussed above, management concluded that ourCompany's internal control over financial reporting was not effective as of December 31, 2016.
The2022.
Grant Thornton LLP, the independent registered public accounting firm that has audited our consolidated financial statements, has audited the effectiveness of
ourthe Company’s internal control over financial reporting as of December 31,
2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm,2022, as stated in their report
which appears herein.Remediation Plan for Material Weaknesses
In response to the identified material weaknesses, our management, with the oversightincluded in Item 8 of the Audit Committee of our board of directors, has dedicated significant resources and efforts to improve our control environment and has taken immediate action to remediate the material weaknesses identified. While certain remedial actions have been completed, we continue to actively plan for and implement additional control procedures. The remediation efforts, outlined below, are intended both to address the identified material weaknesses and to enhance our overall financial control environment.
this Annual Report. Have hired additional personnel, which includes persons with knowledge of and technical expertise in SEC reporting and tax matters, including a Tax Director during the 4th quarter of 2016, and established appropriate roles and responsibilities within our finance and accounting organization to improve our knowledge and expertise over financial reporting. In 2017, we will continue to augment the personnel within our finance and accounting organization;
Instituted, and will continue to provide, additional training programs for our finance and accounting personnel; and
Strengthening our business combination and income tax control process with improved accounting policies, documentation standards, technical oversight and training.
These material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
We believe the measures described above will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.
Changes in Internal Control overOver Financial Reporting
As discussed in the “Remediation Plan for Material Weaknesses” section above, there were
There have been no changes in our internal control over financial reporting
(as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended December 31,
20162022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk Factor Insert:
We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. As disclosed in Item 9A, management identified certain material weaknesses in our internal control over financial reporting. Because of these material weaknesses, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2016. With the oversight of the audit committee, we have begun taking steps to remediate the underlying cause of these material weaknesses and improve the design of controls.
While we expect to take the measures necessary to address the underlying causes of these material weaknesses, we cannot at this time estimate how long it will take and our efforts may not prove to be successful in remediating these material weaknesses. While we have not incurred and do not expect to incur material expenses specifically related to the remediation of these material weaknesses, actual expenses may exceed our current estimates and overall costs of compiling the system and processing documentation necessary to assess the effectiveness of our internal control over financial reporting may be material.
If we are unable to successfully remediate these material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses that may exist, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, and our stock price may decline materially as a result, all of which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.
| Item 9B. | Other Information |
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
| Item 10. | Directors, Executive Officers and Corporate Governance |
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this Item 10 of Form 10-K concerning our directors is contained in
the sections entitled “Information about the Directors” and “Beneficial Ownership of Common Stock” of our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after December 31,
2016,2022 (“our definitive proxy statement”), and in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
Our Code of Conduct/Ethics Statement, as amended (the “Code”),
was most recently approved by our Board on August 11, 2016. The Code is applicable to all officers, directors, and employees. The Code is posted on our website at www.nninc.com. Information contained on our website is not part of this Annual
Report on Form 10-K.Report. We will satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, any provision of the Code with respect to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions by disclosing the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.
| Item 11. | Executive Compensation |
Item 11. Executive Compensation
The information required by Item 11 of Form 10-K is contained in the sections entitled “Information about the Directors
and the Director Nominees — Compensation of Directors” and “Executive Compensation” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 of Form 10-K is contained in the section entitled “Beneficial Ownership of Common Stock” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
Information required by Item 201(d) of Regulation S-K concerning our equity compensation plans is set forth in the table
below:Table of Equity Compensation Plan Information
| | | | | | | | | | | | |
(in thousands, except per share data) | |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted –average exercise price of outstanding options, warrants and rights(b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
Equity compensation plans approved by security holders | | | 897 | | | $ | 12.22 | | | | 2,300 | |
Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
Total | | | 897 | | | $ | 12.22 | | | | 2,300 | |
below. | | | | | | | | | | | | | | | | | |
| Table of Equity Compensation Plan Information (in thousands, except per share data) |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) | | Weighted-average exercise price of outstanding options, warrants, and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | 538 | | | $ | 12.63 | | | 3,421 | |
Equity compensation plans not approved by security holders | — | | | — | | | — | |
Total | 538 | | | $ | 12.63 | | | 3,421 | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Information
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 of Form 10-K regarding review, approval, or ratification of transactions with related persons is contained in
athe section entitled “Certain Relationships and Related Transactions” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
Information
The information required by this Item 13 of Form 10-K regarding director independence is contained in
athe section entitled “Information about the
Directors”Directors and the Director Nominees” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
| Item 14. | Principal Accountant Fees and Services |
Information
Item 14. Principal Accountant Fees and Services
The information required by this
itemItem 14 of Form 10-K concerning our accounting fees and services is contained in the section entitled “Fees Paid to
Registered Independent
Registered Public Accounting Firm” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
Part
| Item 15. | Exhibits and Financial Statement Schedules |
(a) | List of Documents Filed as Part of this Report |
Item 15. Exhibit and Financial Statement Schedules
(a) Documents Filed as Part of this Report
The
consolidated financial statements of NN, Inc. filed as part of this Annual Report on Form 10-K begin on the following pages hereof:
2. Financial Statement Schedules
The required information is reflected in the Notes to Consolidated Financial Statements within Item 8.
3.
See Index to Exhibits
(attached hereto)(b) | Exhibits: See Index to Exhibits (attached hereto). |
NN, Inc. will provide without charge to any person, upon the written request of such person, a copy of any of the following Exhibits to this Form 10-K.None.
SIGNATURES
Pursuant to the requirements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Description of Exhibit | | Form | | SEC File No. | | Exhibit | | Filing Date |
2.1 | | | | 8-K | | 000-23486 | | 2.1 | | July 22, 2014 |
2.2 | | | | 8-K | | 000-23486 | | 2.1 | | August 18, 2015 |
2.3 | | | | 8-K | | 000-23486 | | 2.1 | | July 10, 2017 |
2.4 | | | | 8-K | | 000-23486 | | 2.1 | | April 3, 2018 |
2.5 | | | | 8-K | | 001-39268 | | 2.1 | | August 24, 2020 |
3.1 | | | | S-3 | | 333-89950 | | 3.1 | | June 6, 2002 |
3.2 | | | | 8-K | | 000-23486 | | 3.1 | | May 20, 2019 |
3.3 | | | | 8-K | | 000-23486 | | 3.2 | | May 20, 2019 |
3.4 | | | | 8-K | | 000-23486 | | 3.1 | | December 18, 2008 |
3.5 | | | | 8-K | | 000-23486 | | 3.1 | | December 11, 2019 |
3.6 | | | | 8-K | | 000-23486 | | 3.1 | | April 16, 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Description of Exhibit | | Form | | SEC File No. | | Exhibit | | Filing Date |
3.7 | | | | 8-K | | 001-39268 | | 3.1 | | January 20, 2023 |
3.8 | | | | 8-K | | 000-39268 | | 3.1 | | March 22, 2021 |
4.1 | | | | S-3 | | 333-89950 | | 4.1 | | June 6, 2002 |
4.2 | | | | 8-K | | 000-23486 | | 4.1 | | September 2, 2014 |
4.3 | | | | 8-K | | 000-23486 | | 4.1 | | December 11, 2019 |
4.4 | | | | 8-K | | 000-23486 | | 4.1 | | April 16, 2020 |
4.5 | | | | 10-K | | 000-39268 | | 4.5 | | March 15, 2021 |
4.6 | | | | 8-K | | 000-39268 | | 4.1 | | March 22, 2021 |
10.1* | | | | S-8 | | 333-130395 | | 4.1 | | December 16, 2005 |
10.2* | | | | DEF14A | | 000-23486 | | Appendix A | | April 1, 2016 |
10.3* | | | | S-3/A | | 333-89950 | | 10.6 | | July 15, 2002 |
10.4* | | | | 10-K | | 000-23486 | | 10.16 | | March 31, 1999 |
10.5 | | | | 8-K | | 000-23486 | | 10.3 | | September 2, 2014 |
10.6 | | | | 8-K | | 000-23486 | | 10.4 | | September 2, 2014 |
10.7* | | | | 10-K | | 000-23486 | | 10.27 | | March 16, 2015 |
10.8 | | | | 8-K | | 000-23486 | | 10.1 | | October 3, 2016 |
10.9 | | Incremental Amendment to Amended and Restated Credit Agreement, dated as of October 31, 2016, among NN, Inc., the Guarantors, HomeTrust Bank, as 2016 Revolving Credit Increase Lender, KeyBank National Association, as an L/C Issuer, Regions Bank, as Swing Line Lender and an L/C Issuer, and SunTrust Bank, as Administrative Agent and an L/C Issuer | | 8-K | | 000-23486 | | 10.1 | | November 4, 2016 |
10.10 | | | | DEF14A | | 000-23486 | | Appendix A | | November 10, 2016 |
10.11 | | | | 10-K | | 000-23486 | | 10.18 | | March 16, 2017 |
10.12 | | | | 10-K | | 000-23486 | | 10.19 | | March 16, 2017 |
10.13 | | | | 10-K | | 000-23486 | | 10.20 | | March 16, 2017 |
10.14 | | | | 10-K | | 000-23486 | | 10.21 | | March 16, 2017 |
10.15* | | | | 10-Q | | 000-23486 | | 10.2 | | May 4, 2017 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Description of Exhibit | | Form | | SEC File No. | | Exhibit | | Filing Date |
10.16 | | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of April 3, 2017, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, SunTrust Bank, JPMorgan Chase Bank, N.A., KeyBank National Association and Regions Bank | | 8-K | | 000-23486 | | 10.1 | | April 4, 2017 |
10.17 | | Amendment No. 2 to Amended and Restated Credit Agreement, dated as of August 15, 2017, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, and SunTrust Bank, Regions Bank, JPMorgan Chase Bank, N.A., HomeTrust Bank and Key Bank National Association, collectively, the Revolving Credit Lenders, and SunTrust Bank, as the Administrative Agent. | | 8-K | | 000-23486 | | 10.1 | | August 18, 2017 |
10.18 | | | | 8-K | | 000-23486 | | 10.1 | | November 24, 2017 |
10.19 | | | | 8-K | | 000-23486 | | 10.1 | | April 3, 2018 |
10.20 | | | | 8-K | | 000-23486 | | 10.1 | | May 7, 2018 |
10.21 | | | | 8-K | | 000-23486 | | 10.1 | | December 26, 2018 |
10.22 | | | | 8-K | | 000-23486 | | 10.1 | | February 26, 2019 |
10.23 | | | | 8-K | | 000-23486 | | 10.1 | | March 18, 2019 |
10.24* | | | | DEF14A | | 000-23486 | | Appendix C | | April 8, 2019 |
10.25* | | | | 10-Q | | 000-23486 | | 10.1 | | May 10, 2019 |
10.26 | | | | 8-K | | 000-23486 | | 10.1 | | June 12, 2019 |
10.27* | | | | 10-Q | | 000-23486 | | 10.4 | | August 9, 2019 |
10.28* | | | | 10-Q | | 000-23486 | | 10.5 | | August 9, 2019 |
10.29* | | | | 10-Q | | 000-23486 | | 10.6 | | August 9, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Description of Exhibit | | Form | | SEC File No. | | Exhibit | | Filing Date |
10.30* | | | | 10-Q | | 000-23486 | | 10.7 | | August 9, 2019 |
10.31* | | | | 8-K | | 000-23486 | | 10.1 | | August 27, 2019 |
10.32* | | | | 8-K | | 000-23486 | | 10.2 | | August 27, 2019 |
10.33* | | | | 8-K | | 000-23486 | | 10.1 | | September 24, 2019 |
10.34 | | | | 8-K | | 000-23486 | | 10.1 | | December 11, 2019 |
10.35 | | | | 8-K | | 000-23486 | | 10.2 | | December 11, 2019 |
10.36 | | | | 8-K | | 000-23486 | | 10.1 | | December 19, 2019 |
10.37* | | | | 8-K | | 000-23486 | | 10.1 | | February 20, 2020 |
10.38* | | | | 10-Q | | 001-39268 | | 10.1 | | May 11, 2020 |
10.39 | | Amendment No. 1 to Second Amended and Restated Credit Agreement, dated as of July 29, 2020, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, Truist Bank, JPMorgan Chase Bank, N.A., KeyBank National Association and HomeTrust Bank | | 8-K | | 001-39268 | | 10.1 | | July 31, 2020 |
10.40 | | Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as of August 22, 2020, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, Truist Bank, JPMorgan Chase Bank, N.A., KeyBank National Association and HomeTrust Bank | | 8-K | | 001-39268 | | 10.1 | | August 24, 2020 |
10.41* | | | | 8-K | | 001-39268 | | 10.1 | | October 19, 2020 |
10.42 | | | | 8-K | | 001-39268 | | 10.1 | | March 22, 2021 |
10.43 | | | | 8-K | | 001-39268 | | 10.2 | | March 22, 2021 |
10.44 | | | | 8-K | | 001-39268 | | 10.3 | | March 22, 2021 |
10.45 | | | | 8-K | | 001-39268 | | 10.4 | | March 22, 2021 |
10.46 | | | | 8-K | | 001-39268 | | 10.1 | | May 14, 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Description of Exhibit | | Form | | SEC File No. | | Exhibit | | Filing Date |
10.47* | | | | 8-K | | 001-39268 | | 10.1 | | June 15, 2021 |
10.48* | | | | 8-K | | 001-39268 | | 10.2 | | June 15, 2021 |
10.49 | | Amendment No. 1 to Term Loan Credit Agreement, dated as of March 3, 2022, by and among NN, Inc., certain subsidiaries of NN, Inc., the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent. | | 8-K | | 001-39268 | | 10.1 | | March 4, 2022 |
10.50* | | | | DEF14A | | 001-39268 | | Appendix A | | April 15, 2022 |
21.1# | | | | | | | | | | |
23.1# | | | | | | | | | | |
31.1# | | | | | | | | | | |
31.2# | | | | | | | | | | |
32.1## | | | | | | | | | | |
32.2## | | | | | | | | | | |
101.INS# | | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | | | | | | | | |
101.SCH# | | XBRL Taxonomy Extension Schema Document | | | | | | | | |
101.CAL# | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | |
101.LAB# | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | |
101.PRE# | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
101.DEF# | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | |
104# | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | |
_______________________________
| | |
NN, Inc. |
| |
By: | | /S/ RICHARD D. HOLDER
|
| | Richard D. Holder |
| | Chief Executive Officer, President and Director |
| |
| | Dated: March 16, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
| | | | |
Name and Signature * | | Title
| | Date Management contract or compensatory plan or arrangement. |
/s/ RICHARD D. HOLDER # | | Chief Executive Officer, President and Director | | March 16, 2017Filed herewith |
Richard D. Holder## | This certification is being furnished solely to accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filings. |
Item 16. Form 10-K Summary
None.
SIGNATURES
| | |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
| | | | | | | | |
NN, Inc. | |
| | |
/S/ THOMAS C. BURWELL, JR. By: | /s/ Warren A. Veltman | Senior Vice President- Chief Financial Officer | | March 16, 2017 |
Thomas C. Burwell, Jr. | Warren A. Veltman | |
| President, Chief Executive Officer and Director | |
| | |
/S/ G. RONALD MORRIS Date: | | Non-Executive Chairman, Director | | March 16, 2017 |
G. Ronald Morris | | | 10, 2023 | |
| | |
/s/ ROBERT E. BRUNNER
| | Director | | March 16, 2017Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
Robert E. Brunner | | | | |
| | |
/S/ WILLIAM DRIES
| | Director | | March 16, 2017 |
William Dries | | | | |
| | |
/S/ DAVID K. Floyd
| | Director | | March 16, 2017 |
David K. Floyd | | | | |
| | |
/S/ DAVID L. PUGH
| | Director | | March 16, 2017 |
David L. Pugh | | | | |
| | |
/S/ STEVEN T. WARSHAW
| | Director | | March 16, 2017 |
Steven T. Warshaw | | | | |
Index to Exhibits
| | | | | | | | | | |
| | | | Incorporation by Reference |
Exhibit Number | | Exhibit Description | | Form | | SEC File No. | | Exhibit | | Filing Date |
| | | | | |
2.1 | | Agreement and Plan of Merger, dated as of July 18, 2014, by and among NN, Inc., PMC Global Acquisition Corporation, Autocam Corporation, Newport Global Advisors, L.P., and John C. Kennedy | | 8-K | | 000-23486 | | 2.1 | | July 22, 2014 |
| | | | | |
2.2 | | Stock Purchase Agreement, dated as of August 17, 2015, by and among NN, Inc., Precision Engineered Products Holdings, Inc. and PEP Industries, LLC | | 8-K | | 000-23486 | | 2.1 | | August 18, 2015 |
| | | | | |
3.1 | | Restated Certificate of Incorporation of NN, Inc. | | S-3 | | 333-89950 | | 3.1 | | June 6, 2002 |
| | | | | |
3.2 | | Certificate of Designation of Series A Junior Participating Preferred Stock of NN, Inc., as filed with the Secretary of the State of Delaware | | 8-K | | 000-23486 | | 3.1 | | December 18, 2008 |
| | | | | |
3.3 | | Amended and Restated By-Laws of NN, Inc. | | 8-K | | 000-23486 | | 3.1 | | November 20, 2015 |
| | | | | |
4.1 | | The specimen stock certificate representing NN, Inc.’s Common Stock, par value $0.01 per share | | S-3 | | 333-89950 | | 4.1 | | June 6, 2002 |
| | | | | |
4.2 | | Stockholders’ Agreement, effective as of August 29, 2014, by and between NN, Inc. and John C. Kennedy | | 8-K | | 000-23486 | | 4.1 | | September 2, 2014 |
| | | | | |
4.3 | | Indenture, dated as of October 19, 2015, by and among NN, Inc., the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee | | 8-K | | 000-23486 | | 4.1 | | October 20, 2015 |
| | | | | |
4.4 | | Form of the NN, Inc. 10.25% Senior Notes due 2020 | | 8-K | | 000-23486 | | 4.2 | | October 20, 2015 |
| | | | | |
4.5 | | Supplemental Indenture, dated as of October 19, 2015, by and among NN, Inc., certain direct and indirect subsidiaries of NN, Inc., as additional subsidiary guarantors, and U.S. Bank National Association, as trustee | | 8-K | | 000-23486 | | 4.3 | | October 20, 2015 |
| | | | | |
10.1* | | NN, Inc. 2005 Stock Incentive Plan | | S-8 | | 333-130395 | | 4.3 | | December 16, 2005 |
| | | | | |
10.2* | | NN, Inc. 2011 Amended and Restated Stock Incentive Plan | | DEF14A | | 000-23486 | | Appendix A | | April 1, 2016 |
| | | | | |
10.3* | | Form of Indemnification Agreement | | S-3/A | | 333-89950 | | 10.6 | | July 15, 2002 |
| | | | | |
10.4* | | Elective Deferred Compensation Plan, dated February 26, 1999 | | 10-K | | 000-23486 | | 10.16 | | March 31, 1999 |
| | | | | |
10.5* | | Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between NN, Inc. and James H. Dorton | | 8-K | | 000-23486 | | 10.2 | | September 18, 2012 |
| | | | | |
10.6* | | Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between NN, Inc. and Thomas C. Burwell | | 8-K | | 000-23486 | | 10.3 | | September 18, 2012 |
| | | | | | | | | | |
| | | | | |
10.7* | | Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the Whirlaway and James R. Widders | | 8-K | | 000-23486 | | 10.6 | | September 18, 2012 |
| | | | | |
10.8* | | Executive Employment Agreement, dated May 8, 2013, between NN, Inc. and Richard D. Holder | | 8-K | | 000-23486 | | 10.1 | | May 10, 2013 |
| | | | | |
10.9 | | Escrow Agreement, effective as of August 29, 2014, by and among NN, Inc., Newport Global Advisors, L.P., John C. Kennedy and Computershare Trust Company, N.A. | | 8-K | | 000-23486 | | 10.3 | | September 2, 2014 |
| | | | | |
10.10 | | Indemnity Agreement, effective as of August 29, 2014, by and among NN, Inc. and each of the shareholders of Autocam Corporation identified therein | | 8-K | | 000-23486 | | 10.4 | | September 2, 2014 |
| | | | | |
10.11* | | Executive Employment Agreement, dated September 9, 2014, between NN, Inc. and Warren A. Veltman | | 10-K | | 000-23486 | | 10.27 | | March 16, 2015 |
| | | | | |
10.12* | | Executive Employment Agreement, dated October 6, 2014, between NN, Inc. and L. Jeffrey Manzagol | | 10-K | | 000-23486 | | 10.28 | | March 16, 2015 |
| | | | | |
10.13* | | Separation Agreement and Release, dated as of April 4, 2016, by and between James H. Dorton and NN, Inc. | | 8-K | | 000-23486 | | 10.1 | | April 4, 2016 |
| | | | | |
10.14 | | Amended and Restated Registration Rights Agreement, dated as of June 10, 2016, by and among NN, Inc., the guarantors party thereto, SunTrust Robinson Humphrey, Inc., on behalf of itself and as representative of the initial purchasers, Spring Capital II Subsidiary, L.P., Summit Partners Credit Fund II, L.P, Summit Partners Credit Fund B-2, L.P., Summit Partners Credit Fund A-2, L.P., Summit Investors Credit II, LLC, Summit Investors Credit II (UK), L.P. and Summit Partners Credit Offshore Intermediate Fund II, L.P. | | 8-K | | 000-23486 | | 10.1 | | June 10, 2016 |
| | | | | |
10.15 | | Amendment and Restatement Agreement, dated as of September 30, 2016, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, SunTrust Bank, KeyBank National Association and Regions Bank | | 8-K | | 000-23486 | | 10.1 | | October 3, 2016 |
| | | | | |
10.16 | | Incremental Amendment to Amended and Restated Credit Agreement, dated as of October 31, 2016, among NN, Inc., the Guarantors, HomeTrust Bank, as 2016 Revolving Credit Increase Lender, KeyBank National Association, as an L/C Issuer, Regions Bank, as Swing Line Lender and an L/C Issuer, and SunTrust Bank, as Administrative Agent and an L/C Issuer | | 8-K | | 000-23486 | | 10.1 | | November 4, 2016 |
| | | | | |
10.17 | | NN, Inc. 2016 Omnibus Incentive Plan | | DEF14A | | 000-23486 | | Appendix A | | November 10, 2016 |
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10.18# | | Form of Incentive Stock Option Agreement under the 2016 Omnibus Incentive Plan | | | | | | | | |
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10.19# | | Form of Nonqualified Stock Option Agreement under the 2016 Omnibus Incentive Plan | | | | | | | | |
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10.20# | | Form of Restricted Share Award Agreement under the 2016 Omnibus Incentive Plan | | | | | | | | |
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10.21# | | Form of Performance Share Unit Award Agreement under the 2016 Omnibus Incentive Plan | | | | | | | | |
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Name and Signature | | Title | | Date |
| | | | |
12.1#
| | Calculation of Ratios of Earnings to Fixed Charges | /s/ Warren A. Veltman | | President, Chief Executive Officer and Director (Principal Executive Officer) | | March 10, 2023 |
Warren A. Veltman | | | | | |
| | | | |
/s/ Michael C. Felcher | | Senior Vice President – Chief Financial Officer (Principal Financial and Accounting Officer) | | March 10, 2023 |
21.1#
| | List of Subsidiaries of NN, Inc. | | | | | | | | |
Michael C. Felcher | | | | | |
23.1#
| | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm | | | | | | | | |
| | | | |
/s/ Jeri J. Harman | | Non-Executive Chairman, Director | | March 10, 2023 |
23.2#
| | Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, Independent Registered Public Accounting Firm | Jeri J. Harman | | | | | | | |
| | | | |
/s/ Raynard D. Benvenuti | | Director | | March 10, 2023 |
31.1#
| | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act | Raynard D. Benvenuti | | | | | | | |
| | | | |
/s/ Robert E. Brunner | | Director | | March 10, 2023 |
31.2#
| | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act | Robert E. Brunner | | | | | | | |
| | | | |
/s/ Christina E. Carroll | | Director | | March 10, 2023 |
32.1##
| | Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act | Christina E. Carroll | | | | | | | |
| | | | |
/s/ João Faria | | Director | | March 10, 2023 |
32.2##
| | Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act | João Faria | | | | | | | |
| | | | |
/s/ Rajeev Gautam, Ph.D. | | Director | | March 10, 2023 |
99.1#
| | Financial Statements of Wuxi Weifu Autocam Precision Machinery Co., Ltd. | Rajeev Gautam, Ph.D. | | | | | | | |
| | | | |
/s/ Shihab Kuran, Ph.D. | | Director | | March 10, 2023 |
101.INS#
| | XBRL Instance Document | Shihab Kuran, Ph.D. | | | | | | | |
| | | | |
/s/ Tom H. Wilson, Jr. | | Director | | March 10, 2023 |
101.SCH#
| | XBRL Taxonomy Extension Service | | | | | | | | |
| Tom H. Wilson, Jr. | | | | |
101.CAL#
| | Taxonomy Calculation Linkbase | | | | | | | | |
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101LAB#
| | XBRL Taxonomy Label Linkbase | | | | | | | | |
| | | | | |
101.PRE#
| | XBRL Presentation Linkbase Document | | | | | | | | |
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101.DEF#
| | XBRL Definition Linkbase Document | | | | | | | | |
* | Management contract or compensatory plan or arrangement. |
74