What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 160 added, 84 removed, 134 unchanged (65% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

is a global diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies primarily for the electrical, automotive, general industrial, aerospace and defense, and medical markets.

As used in this Quarterly Report, the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc.

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currency and other risks associated with international trade;

our dependence on certain major customers;

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;

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Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the three months ended March 31, 2021, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

The following paragraphs describe factors that have influenced results of operations for the six months ended June 30, 2021, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

Global COVID-19 Pandemic

The COVID-19 pandemic continues to disrupt the United States and global economy, and we cannot predict when a full economic recovery will occur, but product volumes are beginning to return to more normalized levels.

Our operating results in the first quarter reflect momentum in the recovery of our business from the effects of COVID-19.

Although vaccinations are in process and economies across the globe have reopened, many public health experts warn there may be additional COVID-19 surges in 2021.

Further surges in the COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations.

Thus, the spread of COVID-19 and the responses thereto have created a disruption in the manufacturing, delivery, and overall supply chain of automobile manufacturers and suppliers, as well as disruption within the power industry.

Global vehicle production decreased significantly in 2020, but production has since been ramping back up.

The COVID-19 pandemic continues to disrupt the United States and global economy, and we cannot predict when a full economic recovery will occur.

Although product volumes are beginning to return to more normalized levels and our operating results in 2021 reflect momentum in the recovery of our business from the effects of the COVID-19 pandemic, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread in the United States and across the globe.

The impact of the Delta variant cannot be predicted at this time and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant, and the response by governmental bodies and regulators.

Further surges in COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations.

The spread of COVID-19 and the responses thereto have created a disruption in the manufacturing, delivery, and overall supply chain of automobile manufacturers and suppliers, as well as disruption within the power industry.

Global vehicle production decreased significantly in 2020, but production has since ramped back up.

Disruptions of normal supply chains have caused challenges in obtaining raw materials we use in the manufacture of some of our products.

We have been increasing our inventories in the first quarter to mitigate the risk of supply chain disruption for our customers.

A worldwide semiconductor chip shortage is beginning to affect original equipment manufacturers, causing unpredictable volumes.

We have been increasing our inventories in the current year to mitigate the risk of supply chain disruption for our customers.

A worldwide semiconductor chip shortage is beginning to affect automotive original equipment manufacturers, causing unpredictable volumes.

The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on our business, financial condition, results of operations, and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 pandemic.

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We have developed and implemented processes to ensure a safe environment for our employees and

any visitors to our facilities, including providing personal protective equipment to our employees and establishing social distancing protocols and temperature checks.

any visitors to our facilities, including providing personal protective equipment and establishing social distancing protocols and temperature checks.

We are actively promoting vaccination among our employees.

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Capital expenditures and travel costs remain at relatively low levels.

We refinanced our credit facility and preferred stock in the first quarter as discussed above.

We refinanced our credit facility and preferred stock in the first quarter as discussed below.

Credit Facilities

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Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR (subject to a 1.000% floor) plus an applicable margin of 6.875% or 2) the greater of various benchmark rates plus an applicable margin of 5.875%.

At March 31, 2021, the Term Loan Facility bore interest based on one-month LIBOR at 7.875%.

At June 30, 2021, the Term Loan Facility bore interest, based on one-month LIBOR, at 7.875%.

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.

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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.

We were in compliance with all requirements under the Term Loan Facility as of March 31, 2021.

We were in compliance with all requirements under the Term Loan Facility as of June 30, 2021.

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.

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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 March 31, 2021, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility would have been 2.25% if there had been any balance outstanding.

At June 30, 2021, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility would have been 2.25% if there had been any balance outstanding.

We pay a commitment fee of 0.375% for unused capacity under the ABL Facility and a 0.125% fee on the amount of letters of credit outstanding.

The final maturity date of the ABL Facility is March 22, 2026.

We had no outstanding borrowings under the ABL Facility at March 31, 2021.

Total capacity under the ABL Facility was $47.3 million as of March 31, 2021, with $32.9 million available for future borrowings after reductions for outstanding letters of credit as of March 31, 2021.

We had no outstanding borrowings under the ABL Facility at June 30, 2021.

Total capacity under the ABL Facility was $44.2 million as of June 30, 2021, of which $30.2 million was available for future borrowings after reductions for outstanding letters of credit as of June 30, 2021.

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 March 31, 2021.

We were in compliance with all requirements under the ABL Facility as of June 30, 2021.

Preferred Stock

On March 22, 2021, we completed a private placement of 65 thousand 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 Series D Preferred Stock has a liquidation preference of $1,000 per share and is redeemable at our option in cash, subject to the applicable redemption premium.

The Series D Preferred Stock has an initial liquidation preference of $1,000 per share and is 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.

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Cash dividends are required beginning on September 30, 2027.

Net cash proceeds of $61.8 million from the issuance of the Series D Preferred Stock, along with part of the proceeds from the Term Loan Credit Facility, were used to redeem all of the outstanding shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”).

Net cash proceeds of $61.8 million from the issuance of the Series D Preferred Stock, along with part of the proceeds 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”).

The total redemption cash payment was $118.4 million.

Sales Concentration

We recognized sales from a single customer of $13.1 million, or 10% of consolidated net sales, during the three months ended March 31, 2021.

We recognized sales from another customer of $11.1 million, or 10% of consolidated net sales, during the three months ended March 31, 2020.

Revenues from these customers are primarily in our Mobile Solutions segment.

Three Months Ended March 31, 2021, compared to the Three Months Ended March 31, 2020

Three Months Ended March 31,

We recognized sales from a single customer of $13.2 million, or 11% and $26.2 million, or 11%, of consolidated net sales, during the three and six months ended June 30, 2021, respectively.

We recognized sales from this customer of $9.2 million, or 12% of consolidated net sales, during the three months ended June 30, 2020.

Revenues from this customer are primarily in our Mobile Solutions segment.

Three Months Ended June 30, 2021, compared to the Three Months Ended June 30, 2020

Three Months Ended June 30,

2021 2020 $ Change

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Depreciation and amortization 11,687 11,327 360

Other operating income, net (324) (949) 625

Loss from operations (1,588) (11,177) 9,589

Interest expense 3,573 6,356 (2,783)

Other expense (income), net 1,680 (1,215) 2,895

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture (6,841) (16,318) 9,477

Benefit (provision) for income taxes 231 (2,175) 2,406

Share of net income from joint venture 1,219 927 292

Loss from continuing operations (5,391) (17,566) 12,175

Loss from discontinued operations, net of tax — (4,182) 4,182

Net loss $ (5,391) $ (21,748) $ 16,357

Net sales increased by $44.6 million, or 57%, during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to higher demand within all markets that were negatively impacted by the COVID-19 pandemic in the prior year and new business in the general industrial market.

In addition, sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared with the same period of 2020.

These increases were partially offset by decreased demand for smart meter components due to inventory adjustments at a key customer.

Sales of components to the medical industry experienced recovery in the current period compared to the same period of 2020 when many elective surgeries were delayed as a result of the COVID-19 pandemic.

We also realized favorable foreign exchange effects of $2.5 million.

Cost of Sales.

Cost of sales increased by $34.7 million, or 53%, during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to variable costs associated with the above-noted sales increase.

In addition, cost of sales increased due to the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as benefits and overtime hours.

These increases were partially offset by favorable overhead absorption due to the increase in inventory.

Selling, General, and Administrative Expense.

Selling, general, and administrative expense decreased by $0.7 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to cost reduction initiatives that drove decreases in personnel and professional fees.

Other Operating Income, Net.

Other operating income, net, changed unfavorably by $0.6 million primarily due to a gain on the sale of a building in Fairfield, Ohio, during the three months ended June 30, 2020.

Interest Expense.

Interest expense decreased by $2.8 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to settlements on the interest rate swap in the prior year that were recognized in interest expense while the hedge was effective.

Three Months Ended June 30,

Interest on debt $ 3,110 $ 2,304

Interest rate swap settlements — 3,436

Amortization of debt issuance costs and discount 313 445

Capitalized interest (80) (45)

Other 230 216

Total interest expense $ 3,573 $ 6,356

Other Expense (Income), Net.

Other expense (income), net, changed unfavorably by $2.9 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, due to noncash derivative mark-to-market losses, less favorable foreign exchange effects associated with intercompany borrowings, and a litigation settlement reached during the current quarter.

Benefit (Provision) For Income Taxes.

Our effective tax rate was 3.4% for the three months ended June 30, 2021, compared to (13.3)% for the three months ended June 30, 2020.

The difference in rates is primarily due to the estimated impacts of GILTI and the CARES Act.

Note 8 in the Notes to Condensed Consolidated Financial Statements describes the effective income tax rate for each period presented.

Share of Net Income from Joint Venture.

Our share of net income from the joint venture increased during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to improved profits resulting from higher sales volumes, expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Results by Segment

MOBILE SOLUTIONS

Three Months Ended June 30,

2021 2020 $ Change

Net sales $ 73,886 $ 41,037 $ 32,849

Organic growth $ 31,013

Foreign exchange effects 1,836

Income (loss) from operations $ 2,509 $ (4,592) $ 7,101

Net sales increased by $32.8 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, new business in the general industrial market, and favorable foreign exchange effects of $1.8 million.

Income from operations increased by $7.1 million during the three months ended June 30, 2021, compared to the same period in the prior year primarily due to the contribution generated from the above-noted sales increase.

Moreover, we built up inventory in the three months ended June 30, 2021, which resulted in favorable overhead absorption during the quarter.

These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

POWER SOLUTIONS

Three Months Ended June 30,

2021 2020 $ Change

Net sales $ 49,271 $ 37,491 $ 11,780

Organic growth $ 11,114

Foreign exchange effects 666

Income from operations $ 2,875 $ 1,454 $ 1,421

Net sales increased by $11.8 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020 primarily due to higher demand within the end markets which were negatively impacted by the COVID-19 pandemic in the prior year.

Sales were also positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared with the same period in 2020.

Sales of components to

the medical industry experienced recovery in the current period compared to the same period of 2020 when many elective surgeries were delayed as a result of the COVID-19 pandemic.

Income from operations increased by $1.4 million compared to the same period in the prior year primarily due to the contribution generated from the above-noted sales increase, partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

Six Months Ended June 30, 2021, compared to the Six Months Ended June 30, 2020

Six Months Ended June 30,

2021 2020 $ Change

Net sales $ 249,961 $ 194,745 $ 55,216

Organic growth $ 53,371

Foreign exchange effects 1,845

Cost of sales (exclusive of depreciation and amortization shown separately below) 199,485 159,536 39,949

Selling, general, and administrative expense 28,160 30,433 (2,273)

Depreciation and amortization 23,255 22,684 571

Goodwill impairment — 92,942 (92,942)

Other operating expense (income), net (329) 4,177 (4,506)

Income (loss) from operations 978 (103,850) 104,828

Loss from operations (610) (115,027) 114,417

Interest expense 5,597 10,163 (4,566)

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Loss on interest rate swap 2,033 — 2,033

Other expense (income), net (122) 1,544 (1,666)

Loss from continuing operations before benefit for income taxes and share of net income (loss) from joint venture (7,064) (109,201) 102,137

Benefit for income taxes 756 1,395 (639)

Share of net income (loss) from joint venture 1,395 (271) 1,666

Other expense, net 1,558 329 1,229

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture (13,905) (125,519) 111,614

Benefit (provision) for income taxes 987 (780) 1,767

Share of net income from joint venture 2,614 656 1,958

Loss from continuing operations (10,304) (125,643) 115,339

Income (loss) from discontinued operations, net of tax — (140,114) 140,114

Loss from discontinued operations, net of tax — (144,296) 144,296

Net loss $ (10,304) $ (269,939) $ 259,635

Net sales increased by $10.6 million, or 9%, during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to an increase in organic volume of $11.2 million, as a result of increased demand in the automotive industry as the economy begins to recover from the impact of the COVID-19 pandemic.

Sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs since the second half of 2020.

These increases were partially offset by decreased demand for smart meter components due to inventory adjustments at a key customer.

Sales of components to the medical industry were also negatively impacted by delays in elective surgeries caused by the COVID-19 pandemic.

We also realized unfavorable foreign exchange effects of $0.7 million.

Net sales increased by $55.2 million, or 28%, during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to higher demand within all markets that were negatively impacted by the COVID-19 pandemic in the prior year and favorable foreign exchange effects of $1.8 million.

Cost of Sales.

Cost of sales increased by $5.2 million, or 6%, during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to variable costs associated with the above-referenced sales volume increase, partially offset by variable and fixed cost reduction initiatives.

Cost of sales increased by $39.9 million, or 25%, during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to variable costs associated with the above-noted sales increase.

In addition, cost of sales increased due to the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours, which was partially offset by favorable overhead absorption due to the increase in inventory.

Selling, General, and Administrative Expense.

Selling, general and administrative expense decreased by $1.6 million during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to cost reduction initiatives that drove decreases in personnel and travel costs.

Selling, general, and administrative expense decreased by $2.3 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to cost reduction initiatives that drove decreases in personnel costs and professional fees.

Goodwill Impairment.

We recognized goodwill impairment of $92.9 million at Power Solutions during the three months ended March 31, 2020, which resulted in no remaining goodwill balance.

We recognized goodwill impairment of $92.9 million at Power Solutions in 2020, resulting in no remaining goodwill balance.

Other Operating Expense (Income), Net.

Other operating expense (income), net, changed favorably by $5.1 million primarily due to charges and costs associated with asset disposals and elimination of a portion of lease obligations as a result of vacating a portion of our corporate headquarters building during the three months ended March 31, 2020.

Other operating expense (income), net, changed favorably by $4.5 million primarily due to charges and costs associated with asset disposals and elimination of a portion of our lease obligation as a result of our

decision to vacate a portion of our corporate headquarters building in 2020.

These charges were partially offset by a gain on the sale of a building in Fairfield, Ohio, in the second quarter of 2020.

Interest Expense.

Interest expense decreased by $1.8 million during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to settlements on the interest rate swap in the prior year that were recognized in interest expense while the hedge was effective.

Commitment fees on our Senior Secured Revolver decreased due to a lower available capacity after the sale of our Life Sciences business in October 2020.

Three Months Ended March 31,

Interest expense decreased by $4.6 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to settlements on the interest rate swap the prior year that were recognized in interest expense while the hedge was effective.

Six Months Ended June 30,

Interest on debt $ 4,549 $ 4,155

Interest rate swap settlements — 4,806

Amortization of debt issuance costs 405 426

Amortization of debt issuance costs and discount 718 871

Capitalized interest (111) (134)

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Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs.

Loss on extinguishment of debt and write-off of debt issuance costs represents unamortized debt issuance costs that were associated with the credit facility that was terminated in March 2021.

We recognized $2.4 million for the write-off of unamortized debt issuance costs that were associated with the credit facility that was terminated in March 2021.

Derivative Payments on Interest Rate Swap.

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Prior to October 2020, interest rate swap settlements were recognized in interest expense.

The interest rate swap was terminated in the first quarter of 2021.

Loss on Interest Rate Swap .

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Upon termination of the interest rate swap in March 2021, we recognized in earnings the remaining $3.3 million loss that had been deferred in accumulated other comprehensive income.

Benefit For Income Taxes.

Our effective tax rate was 10.7% for the three months ended March 31, 2021, compared to 1.3% for the three months ended March 31, 2020.

The difference in rates is primarily due to the impact of the impairment of nondeductible goodwill in 2020, and the estimated impacts of GILTI and the CARES Act.

Other Expense, Net.

Other expense, net, changed unfavorably by $1.2 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, due to a litigation settlement reached during the current quarter, partially offset by more favorable foreign exchange effects associated with intercompany borrowings.

Benefit (Provision) for Income Taxes.

Our effective tax rate was 7.1% for the six months ended June 30, 2021, compared to (0.6)% for the six months ended June 30, 2020.

The difference in rates is primarily due to the estimated impacts of GILTI and the CARES Act.

Note 8 in the Notes to Condensed Consolidated Financial Statements describes the effective income tax rate for each period presented.

Share of Net Income from Joint Venture.

Our share of net income from the joint venture increased during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to improved profits resulting from higher sales volumes, expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Share of net income from the JV increased during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to improved profits from expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Results by Segment

MOBILE SOLUTIONS

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 $ Change

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Foreign exchange effects 1,152

Income from operations $ 6,090 $ 264 $ 5,826

Net sales increased by $7.9 million during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year and new business in the general industrial market.

The increase in volume was partially offset by unfavorable foreign exchange effects of $0.7 million.

Income from operations increased by $5.8 million during the three months ended March 31, 2021, compared to the same period in the prior year primarily due to the above-noted increase in revenue and variable and fixed cost reduction initiatives.

Moreover, we built inventory in the three months ended March 31, 2021, which resulted in favorable overhead absorption during the quarter.

Income (loss) from operations $ 8,599 $ (4,328) $ 12,927

Net sales increased by $40.7 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, new business in the general industrial market, and favorable foreign exchange effects.

Income (loss) from operations increased by $12.9 million compared to the same period in the prior year primarily due to contribution generated from the above-noted sales increase.

Moreover, we built up inventory in the six months ended June 30, 2021, which resulted in favorable overhead absorption during the period.

These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

POWER SOLUTIONS

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 $ Change

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Income (loss) from operations $ 5,307 $ (88,880) $ 94,187

Net sales increased by $2.7 million during the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs since the second half of 2020.

Furthermore, demand in the automotive market rebounded to more normalized levels after COVID-19.

These increases were partially offset by decreased demand for smart meter components due to inventory adjustments at a key customer.

Sales of components to the medical industry were also negatively impacted by delays in elective surgeries caused by the COVID-19 pandemic.

The Power Solutions group generally began experiencing the impact of the COVID-19 pandemic on its operating results during the second quarter of 2020.

Income from operations increased by $92.8 million compared to the same period in the prior year primarily due to the $92.9 million goodwill impairment lost recognized in the first quarter of 2020.

Because increased pricing for precious metals was offset by equivalent increased raw materials cost based on commodity pricing, the increase in sales did not have a proportionate effect on income from operations.

Changes in Financial Condition from December 31, 2020, to March 31, 2021

From December 31, 2020, to March 31, 2021, total assets decreased by $2.6 million primarily due to normal depreciation and amortization of fixed assets, lease right-of-use assets, and intangible assets.

These decreases were offset by increases in accounts receivable and inventories during the three months ended March 31, 2021.

Accounts receivable increased as a result of increasing sales, and inventories increased as a result of a strategic decision to mitigate potential supply chain issues for our customers.

From December 31, 2020, to March 31, 2021, total liabilities increased by $75.0 million, primarily due to the refinancing of our credit facilities and Series B Preferred Stock.

Working capital, which consists of current assets less current liabilities, was $124.4 million as of March 31, 2021, compared to $112.0 million as of December 31, 2020.

The increase in working capital was primarily due to the increases in accounts receivable and inventories discussed above.

Cash provided by operations was $7.9 million for the three months ended March 31, 2021, compared with cash provided by operations of $10.2 million for the three months ended March 31, 2020.

The difference was primarily due to building inventory levels during the three months ended March 31, 2021, to mitigate potential supply chain issues for our customers.

Cash used in investing activities was $20.9 million for the three months ended March 31, 2021, compared with cash used in investing activities of $11.2 million for the three months ended March 31, 2020.

The decrease was primarily due to cash settlement of the interest rate swap, partially offset by lower capital expenditures in the current year.

Cash provided by financing activities was $9.6 million for the three months ended March 31, 2021, compared with cash provided by financing activities of $53.9 million for the three months ended March 31, 2020.

Net sales increased by $14.5 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to higher demand within the end markets which were negatively impacted by the COVID-19 pandemic in the prior year.

Income (loss) from operations increased by $94.2 million compared to the same period in the prior year primarily due to a goodwill impairment loss of $92.9 million recognized in the first quarter of 2020.

In addition, income from operations increased due to the contribution generated from the above-noted sales increase and higher precious metals commodities prices.

These favorable impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

Changes in Financial Condition from December 31, 2020, to June 30, 2021

From December 31, 2020, to June 30, 2021, total assets decreased by $11.4 million primarily due to normal depreciation and amortization of fixed assets, lease right-of-use assets, and intangible assets.

These decreases were partially offset by capital expenditures and increases in inventories during the six months ended June 30, 2021.

Inventories increased as a result of a strategic decision to mitigate potential supply chain issues for our customers.

From December 31, 2020, to June 30, 2021, total liabilities increased by $66.4 million, primarily due to the refinancing of our credit facilities and redeeming the Series B Preferred Stock with debt.

Working capital, which consists of current assets less current liabilities, was $122.5 million as of June 30, 2021, compared to $112.0 million as of December 31, 2020.

The increase in working capital was primarily due to the increase in inventories discussed above.

Cash provided by operations was $5.9 million for the six months ended June 30, 2021, compared with cash provided by operations of $15.9 million for the six months ended June 30, 2020.

The difference was primarily due to $8.0 million in current year income tax payments and building inventory levels during the current year to mitigate potential supply chain issues for our customers.

Cash used in investing activities was $30.2 million for the six months ended June 30, 2021, compared with cash used in investing activities of $12.5 million for the six months ended June 30, 2020.

The difference was primarily due to cash paid to settle the interest rate swap and post-closing adjustment on the sale of the Life Sciences business, partially offset by lower capital expenditures in the current year.

Cash provided by financing activities was $6.9 million for the six months ended June 30, 2021, compared with cash provided by financing activities of $53.4 million for the six months ended June 30, 2020.

The difference was primarily due to $11.9 million net inflow from the debt and preferred stock refinancing in the current year compared to the $62.5 million draw on the Senior Secured Revolver in the prior year.

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Credit Facilities

The principal amount outstanding under our Term Loan Facility as of March 31, 2021, was $150.0 million, without regard to unamortized debt issuance costs.

As of March 31, 2021, we had unused borrowing capacity of $32.9 million under the ABL Facility, subject to certain limitations.

This amount of borrowing capacity is net of $14.5 million of outstanding letters of credit at March 31, 2021, which are considered as usage of the ABL Facility.

The principal amount outstanding under our Term Loan Facility as of June 30, 2021, was $149.6 million, without regard to unamortized debt issuance costs and discount.

As of June 30, 2021, we had unused borrowing capacity of $30.2 million under

the ABL Facility, subject to certain limitations.

This amount of borrowing capacity is net of $14.0 million of outstanding letters of credit at June 30, 2021, which are considered as usage of the ABL Facility.

This amount includes approximately $0.8 million of duplicate letters of credit that remained outstanding at June 30 but were terminated during the third quarter after transition to a new guarantor bank was completed.

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.

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If one-month LIBOR exceeds 1.000%, then we pay the variable one-month LIBOR plus an applicable margin of 6.875%.

Based on the interest rate in effect at March 31, 2021, annual interest payments would be approximately $11.8 million.

Based on the interest rate in effect at June 30, 2021, annual interest payments would be approximately $11.8 million.

On July 22, 2021, we entered into a new interest rate swap as discussed in Note 18 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

Based on the interest rate in effect at June 30, 2021, and the fixed rate on the new interest rate swap, annual interest payments would be approximately $12.0 million.

The ABL Facility bears interest on a variable rate structure with borrowings bearing interest at one-month LIBOR plus an applicable margin of 1.75%.

The interest rate in effect at March 31, 2021, was 2.25%.

The interest rate in effect at June 30, 2021, was 2.25%.

We pay a commitment fee of 0.375% for unused capacity under the ABL Facility.

We were in compliance as of March 31, 2021, with all requirements under our Term Loan Facility and ABL Facility.

We were in compliance as of June 30, 2021, with all requirements under our Term Loan Facility and ABL Facility.

Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions.

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Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the 2020 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2020 Annual Report.

There have been no changes to these policies during the three months ended March 31, 2021, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

There have been no changes to these policies during the six months ended June 30, 2021, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis