What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-11 compared with 2021-03-15 · 195 added, 327 removed, 145 unchanged (78% of the section changed)

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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, 2020 compared to the year ended December 31, 2019 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, 2020, filed with the SEC on March 15, 2021.

Overview and Management Focus

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• Efficient capital deployment;

• Reduced overall debt and debt leverage ratio improvement

• Debt leverage ratio improvement;

• Capital management initiatives;

• Employee safety and satisfaction

• Employee health, safety, and satisfaction;

Management generally focuses on these trends and relevant market indicators

• Global industrial growth and economics;

• Residential and non-residential construction rates;

• Global automotive production rates;

• Defense spending;

• Trends related to the geographic migration of competitive manufacturing, electric vehicles, and electrification;

• Costs subject to the global inflationary environment, including, but not limited to:

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• Regulatory compliance;

• Trends related to the geographic migration of competitive manufacturing, electric vehicles, and electrification;

• Global automotive production rates;

• Defense spending;

• Global industrial growth and economics;

• Residential and non-residential construction rates;

• Regulatory environment for United States public companies and manufacturing companies;

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• Changes in tariff regulations.

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Management generally focuses on the following key indicators of operating performance

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• Return on invested capital;

• Income from operations and adjusted income from operations;

• Net income and adjusted net income;

• Income from operations;

• 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;

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• Employee development.

Critical Accounting Policies

Our critical 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 applied in all material respects and address such matters as revenue recognition, inventory valuation, and asset impairment recognition.

Due to the estimation processes involved, management considers the following summarized 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.

Goodwill and Other Indefinite Lived Intangible Assets

Goodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurs.

The impairment analysis is performed at the reporting unit level.

An impairment charge is calculated based on a reporting unit’s carrying amount in excess of its fair value (i.e., step 1 of the two-step impairment test).

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.

Reporting units for the purpose of goodwill impairment testing are the same as our operating segments (Mobile Solutions and Power Solutions).

Based on the results of the quantitative measurement performed, which indicated a fair value less than the carrying amount for Power Solutions, we concluded there was a $92.9 million impairment of goodwill for the year ended December 31, 2020.

Critical Accounting Estimates

Our significant accounting policies, including the assumptions and judgment underlying them, are disclosed in Note 1 of the Notes to Consolidated Financial Statements.

As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about 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 portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.

Goodwill was tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurred.

The impairment analysis was performed at the reporting unit level.

As of December 31, 2021 and 2020, there was no remaining goodwill balance due to impairments recognized during the year ended December 31, 2020.

An impairment charge was calculated based on a reporting unit’s carrying amount in excess of its fair value (i.e., step 1 of the two-step impairment test).

If the carrying value of the reporting unit including goodwill was less than the fair value of the reporting unit, the goodwill was not considered impaired.

Reporting units for the purpose of goodwill impairment testing were the same as our operating segments (Mobile Solutions and Power Solutions).

Income taxes are accounted for under the asset and liability method.

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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, many of our positions are based on future estimates of taxable income and deductibility of tax positions.

Specifically, the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon

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management weighting the current positive and negative evidence for recording tax benefits and expenses.

A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2021.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future earnings growth.

We have recorded a U.S.

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Recoverability of a long-lived tangible 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 not recoverable, then the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaining useful life.

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.

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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

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

Consistent with actions taken by governmental authorities and in response to reduced customer demand, in late March 2020, we idled manufacturing operations in certain regions around the world, other than China, where manufacturing operations began to resume in March 2020.

During the year, we experienced supplier and customer disruption, which adversely affected our results of operations and cash flows in 2020.

In Europe and North America, sales began declining in the second half of March as the pandemic led to customer plant closures.

The situation grew more challenging in the second and third quarters of fiscal 2020, as customer closures affected much of our operations.

Although much of the United States and the global economies 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, just as some jurisdictions rolled back reopening plans in the summer of 2020 during one of the initial COVID-19 surges.

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, and some vehicle manufacturers completely shut down manufacturing operations in some countries and regions, including the United States and Europe.

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 outbreak.

We have undertaken a number of permanent and temporary actions to manage the evolving situation, including the continuation of previously announced cost savings initiatives.

Initiatives announced in 2019:

• Streamlining facilities and reducing overall selling, general and administrative costs;

• Eliminated the quarterly dividend;

• Reduced capital expenditures;

• Issued $100 million of Preferred Stock and used net proceeds for debt repayment;

• Refinanced senior credit facilities to extend maturities and provide additional liquidity.

Additional actions taken in 2020 in response to the economic effects of the pandemic:

• In March 2020, we drew down $60 million in cash under our Senior Secured Revolver to strengthen our near-term cash position.

This debt was repaid immediately following the sale of the Life Sciences business in October 2020.

• Beginning in April 2020, executives reduced their base salaries by 20% to 25%, non-executive employee salaries were reduced by 5% to 15%.

In October 2020, these salary reductions were repaid, and salaries were reinstated to their original levels.

• The 401(k) employer match was suspended through December 2020.

• Non-employee board members deferred their cash compensation to later in the year.

• Employee merit increases were not made in 2020, bonus payouts were deferred to later in the year, and the gainsharing plan for 2020 was suspended through December 2020.

• Travel was significantly reduced beginning in the first quarter of 2020.

• In response to government orders and reduced demand, we adjusted production and work week hours, reduced or suspended non-critical discretionary spending, and furloughed personnel, many of whom are eligible to participate in government supported programs.

• Inventory levels and collection of receivables are being closely monitored.

• We entered into rent deferral arrangements with landlords of several of our leased facilities.

• As allowed by the CARES Act, we deferred payments of the employer share of U.

payroll taxes and will begin making payments in 2021 through 2022.

• In July 2020, we amended our credit agreement with Truist Bank;

JPMorgan Chase Bank, N.A.;

KeyBank National Association;

and Hometrust Bank (as amended, the “Credit Agreement”) to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020.

Further actions taken or expected in 2021:

• We expect to restructure our debt by refinancing our term loans and revolver.

• We expect to terminate our existing interest rate swap.

• We are taking advantage of other provisions of the CARES Act that could result in reduced income tax obligation and a positive impact on cash.

• We continue to focus on further general cost reduction actions.

New and more easily transmitted variants of COVID-19, such as the Delta and Omicron variants, have emerged and spread in the United States and across the globe.

The impact of these variants 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 new variants, 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 ramped back up in 2021.

However, production continues to be impacted by disruptions of global supply chains, which have caused challenges in obtaining raw materials we use in the manufacture of some of our products.

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

In addition, power shortages in China have resulted in widespread blackouts, often without any or little notice.

These blackouts caused us and other manufacturers in the region to shut down production until power was restored.

Supply chain and COVID-19 related disruptions are expected to continue into 2022.

Inflation triggered by the unprecedented economic impact of the COVID-19 pandemic has increased our manufacturing cost, particularly labor and materials, and is expected to continue into future periods.

A worldwide semiconductor chip shortage is affecting automotive original equipment manufacturers, causing unpredictable volumes.

The rapid development and fluidity of

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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.

While managing decreased demand in many regions across the globe, we are now operating at all of our business locations.

We are coordinating with our customers and suppliers to make the necessary preparations.

We are focused on the safety of our employees, customers and suppliers when re-starting.

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, establishing social distancing protocols and temperature checks.

These processes include recommendations based on guidelines from the Centers for Disease Control and Prevention and the World Health Organization as well as from our experience with ramp-ups at our plants in China, the United States, Mexico, Poland, France, and Brazil.

We have implemented training and recruiting programs to address labor shortages.

We are focused on the health and safety of our employees, customers, and suppliers.

These processes include recommendations based on guidelines from the Centers for Disease Control and Prevention and the World Health Organization.

The health and safety of our employees remains our top priority.

Discontinued Operations

In August 2020, we entered into a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for the sale of our Life Sciences business for an aggregate purchase price of up to $825 million, which includes a $755 million cash base purchase price and a potential earnout payment of up to $70 million.

The cash base purchase price was subject to certain adjustments and was payable at the closing of the transaction, which occurred on October 6, 2020.

The earnout payment is subject to the performance of the Life Sciences business during the year ending December 31, 2022, measured by Adjusted EBITDA targets, as defined by the SPA.

The Life Sciences business includes facilities that are engaged in the production of a variety of components, assemblies, and instruments, such as surgical knives, bioresorbable implants, surgical staples, cases and trays, 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 furthers management’s strategy to improve liquidity and creates the financial flexibility to pursue key growth areas in the Mobile Solutions and Power Solutions segments.

After working capital and other closing adjustments, the final cash purchase price was approximately $753.3 million.

We received cash proceeds at closing of $757.2 million and recorded a $3.9 million payable at December 31, 2020, for the balance.

We prepaid $700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan immediately following the sale.

We also paid in full the outstanding balance on the Senior Secured Revolver.

We recognized a gain on sale of $214.9 million, net of income taxes.

Under the terms of a transition services agreement, we are providing certain support services for up to 180 days from the closing date of the sale.

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 discontinued operations and will also include any 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 the consolidated financial statements and the accompanying notes unless otherwise stated.

The Consolidated Statements of Cash Flows include cash flows of the Life Sciences business in each line item unless otherwise stated.

Our credit facility required us to use proceeds from the sale of the Life Sciences business to prepay a portion of our existing debt.

We paid $700 million in the aggregate on our term loans as described in Note 12.

The prepayment was applied to debt in accordance with the prepayment provisions of the Credit Agreement immediately after the transaction closed on October 6, 2020.

Average quarterly interest rates were multiplied by the required prepayment amounts to calculate interest expense to be reclassified to discontinued operations for all periods presented.

Write-offs of credit facility debt issuance costs were allocated to discontinued operations by multiplying the ratio of the required prepayment amounts as a percentage of total outstanding principal by the total write-off charges in each period.

See Note 2 in the Notes to Consolidated Financial Statements for more information on discontinued operations.

Goodwill Impairment

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 capital.

Our forecasts used in the goodwill impairment analysis reflected our expectations of declines in sales resulting from COVID-19.

Significant assumptions and estimates 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).

See Note 8 in the Notes to Consolidated Financial Statements for more information on the impairment charge.

As of December 31, 2020, there is no remaining goodwill balance.

While we are actively promoting vaccination among our employees, vaccination status may affect workforce availability ranging from absences for vaccinations, booster shots, and recovery from side-effects.

Significant workforce availability challenges could have a material effect on our business operations, financial results, liquidity, and financial position.

We have undertaken a number of permanent and temporary actions to manage the evolving situation.

We continue to streamline facilities and implement cost savings initiatives.

Capital expenditures and travel costs remain at relatively low levels.

We refinanced our credit facility and preferred stock in the first quarter of 2021 as discussed below.

Credit Facilities

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 proceeds from the Term Loan Facility were used to prepay the amounts outstanding on our previous term loans.

The previous credit facility was terminated and consisted of a Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver.

No amounts were outstanding on the Senior Secured Revolver at the time of termination.

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 December 31, 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.

The Term Loan Facility is collateralized by all of 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.

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

On July 22, 2021, we entered into a new fixed-rate interest rate swap agreement to change the LIBOR-based component of the interest rate on $60.0 million of our variable rate debt to a fixed rate of 1.291%.

The interest rate swap, which has been designated as a cash flow hedge, has a notional amount of $60.0 million and a maturity date of July 31, 2024.

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, 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 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, 2021, we had no outstanding borrowings under the ABL Facility, $11.2 million of outstanding letters of credit, and $36.0 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, 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 an initial liquidation preference of $1,000 per share and is redeemable at our

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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 in-kind dividend rate increase by 2.5% per year.

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 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 $49.7 million, or 10% of consolidated net sales, during the year ended December 31, 2019.

Revenues from this customer are in our Mobile Solutions segment and were less than 10% of consolidated net sales during the years ended December 31, 2021 and 2020.

Financial Data as a Percentage of Net Sales

The following table presents the percentage of our net sales represented by statement of operations line item.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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Depreciation and amortization 9.7 % 10.7 % 9.2 %

Restructuring and integration expense, net — % — % 0.1 %

Goodwill impairment — % 21.7 % — %

Other operating expense, net 1.1 % 0.2 % 1.3 %

Other operating expense (income), net (0.2) % 1.1 % 0.2 %

Loss from operations (1.9) % (27.5) % (3.6) %

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Other expense (income), net (1.1) % — % 0.2 %

Loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture (35.6) % (6.6) % (39.8) %

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture (4.7) % (35.6) % (6.6) %

Benefit (provision) for income taxes 0.4 % 2.1 % (0.1) %

Share of net income (loss) from joint venture 0.8 % 0.3 % (2.7) %

Share of net income from joint venture 1.3 % 0.8 % 0.3 %

Loss from continuing operations (3.0) % (32.6) % (6.3) %

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Net loss (2.8) % (23.5) % (9.5) %

Sales Concentration

During 2020, sales to various U.S.

and foreign divisions of our ten largest customers accounted for approximately 45% 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 have a corresponding negative impact on our income from operations and operating cash flows or cause us to incur additional restructuring and/or impairment costs.

We recognized sales from a single customer of $49.7 million, or 10% of consolidated net sales, during the year ended December 31, 2019, and $65.3 million, or 12% of consolidated net sales, during the year ended December 31, 2018.

Revenues from this customer are in our Mobile Solutions segment and were less than 10% of consolidated net sales during the year ended December 31, 2020.

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Year Ended December 31, 2021, compared to the Year Ended December 31, 2020

Year Ended December 31,

Years Ended December 31,

2021 2020 $ Change

Net sales $ 477,584 $ 427,534 $ 50,050

Organic decline $ (55,735)

Organic growth $ 47,862

Foreign exchange effects 2,188

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Depreciation and amortization 46,195 45,680 515

Restructuring and integration expense, net — (12) 12

Goodwill impairment — 92,942 (92,942)

Other operating expense, net 4,720 846 3,874

Other operating expense (income), net (1,091) 4,720 (5,811)

Loss from operations (9,004) (117,457) 108,453

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Loss on interest rate swap 2,033 11,669 (9,636)

Other expense (income), net (213) 962 (1,175)

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture (152,088) (32,125) (119,963)

Benefit (provision) for income taxes 8,972 (305) 9,277

Other income, net (5,366) (213) (5,153)

Loss from continuing operations before benefit for income taxes and share of net income from joint venture (22,442) (152,088) 129,646

Benefit for income taxes 1,756 8,972 (7,216)

Share of net income from joint venture 6,261 3,626 2,635

Loss from continuing operations (14,425) (139,490) 125,065

Income (loss) from discontinued operations, net of tax 38,898 (15,992) 54,890

Income from discontinued operations, net of tax 1,200 38,898 (37,698)

Net loss $ (13,225) $ (100,592) $ 87,367

Net sales decreased by $62.0 million, or 13%, during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to a decrease in organic volume of $55.7 million as a result of decreased demand due to the COVID-19 pandemic.

Unfavorable foreign exchange effects of $6.2 million also contributed to the decrease.

Net sales increased by $50.1 million, or 12%, during the year ended December 31, 2021, compared to the year ended December 31, 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 $2.2 million.

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 year ended December 31, 2020.

Cost of Sales.

Cost of sales decreased by $48.9 million, or 12%, during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to variable costs associated with the above-referenced sales volume decline and variable and fixed cost reduction initiatives that were implemented.

Cost of sales increased by $46.4 million, or 14%, during the year ended December 31, 2021, compared to the year ended December 31, 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 COVID-19 pandemic, such as travel, benefits and overtime hours.

Finally, cost of sales increased due to variable cost inefficiencies associated with global supply chain interruptions, uneven customer ordering patterns (particularly in the automotive market), and inflation.

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

Selling, General, and Administrative Expense.

Selling, general and administrative expense decreased by $10.8 million during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to cost reduction initiatives that drove decreases in personnel and travel costs.

Depreciation and Amortization.

Depreciation and amortization increased by $0.8 million during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, as the full year depreciation impact of prior year capital expenditures exceeded the reduction due to lower capital expenditures in 2020.

Selling, general, and administrative expense decreased by $6.6 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to cost reduction initiatives that drove decreases in personnel costs, professional fees, and office occupancy costs.

Goodwill Impairment.

The increase in goodwill impairment during the year ended December 31, 2020, was the result of a $92.9 million goodwill impairment charge at Power Solutions.

See Note 8 in the Notes to Consolidated Financial Statements for more information on the impairment charge.

Other Operating Expense, Net .

Other operating expense, net, changed unfavorably by $3.9 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to charges and costs associated with asset impairments and 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.

These charges were partially offset by a $0.8 million gain on the sale of a building in Fairfield, Ohio, in the year ended December 31, 2020.

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 $5.8 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.

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Interest Expense.

Interest expense increased by $5.9 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to an increase in settlements on the interest rate swap and an increase in the interest rate margin over one-month LIBOR on the Senior Secured Term Loan and the Incremental Term Loan as a result of amendments executed in 2019.

These increases were partially offset by a reduction in one-month LIBOR.

Interest on our Senior Secured Revolver decreased due to a low outstanding principal balance throughout most of the first quarter of 2020 after using proceeds from the Preferred Stock offering to repay the balance in December 2019.

We repaid the entire outstanding balance on the Senior Secured Revolver after the sale of the Life Sciences business.

Year Ended December 31,

Interest expense decreased by $6.2 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to settlements on the interest rate swap that was terminated in connection with our debt refinancing in 2021.

This decrease was partially offset by higher interest rates on debt in the current year.

Years Ended December 31,

Interest on debt $ 10,800 $ 7,714

Interest rate swap settlements 77 8,906

Amortization of debt issuance costs 1,702 1,421

Amortization of debt issuance costs and discount 1,381 1,702

Capitalized interest (300) (204)

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Total interest expense $ 12,664 $ 18,898

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

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.

See Note 21 in the Notes to Consolidated Financial Statements for more discussion about the interest rate swap.

The previous interest rate swap 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 .

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Prior to October 2020, mark-to-market adjustments on the interest rate swap were recognized in accumulated other comprehensive income.

Other Expense (Income), Net.

Other expense (income), net, changed favorably by $1.2 million during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to more favorable foreign exchange effects associated with intercompany borrowings compared to the prior year.

Benefit (Provision) for Income Taxes .

Upon termination of the previous 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.

Other Income, Net.

Other income, net, changed favorably by $5.2 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, due to noncash derivative mark-to-market gains and more favorable foreign exchange effects associated with intercompany borrowings, partially offset by a litigation settlement reached during the second quarter of 2021.

Benefit for Income Taxes.

Our effective tax rate was 7.8% for the year ended December 31, 2021, compared to 5.9% for the year ended December 31, 2020.

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

Note 11 in the Notes to Consolidated Financial Statements describes the components of income taxes for each period presented.

The difference in rates is primarily due to the limitation on the amount of tax benefit recorded for loss carryforwards in 2021 and the impact of the impairment of nondeductible goodwill in 2020.

Note 10 in the Notes to 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 year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to increased sales and improved profits from expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

These favorable impacts were partially offset by the shutdown of manufacturing operations in China during the first quarter of 2020 due to the COVID-19 pandemic.

Income (Loss) from Discontinued Operations, Net of Tax .

The largest component of income (loss) from discontinued operations, net of tax, in 2020 was the $214.9 million gain on sale of our Life Sciences business.

Note 2 in the Notes to Consolidated Financial Statements provides details of the results of discontinued operations.

Results by Segment

MOBILE SOLUTIONS

Year Ended December 31,

2020 2019 $ Change

Net sales $ 256,360 $ 297,749 $ (41,389)

Organic decline $ (34,849)

Foreign exchange effects (6,540)

Income from operations $ 5,228 $ 9,553 $ (4,325)

Net sales decreased by $41.4 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower demand within the global automotive markets resulting from the COVID-19 pandemic, contractual price reductions, and unfavorable foreign exchange effects.

Income from operations decreased by $4.3 million compared to prior year due to lost variable margin on the above-referenced sales volume decline, partially offset by fixed cost reduction actions taken in response to the decline in sales volume.

Additionally, the twelve months ended December 31, 2019, were impacted by a $1.4 million one-time favorable litigation settlement.

POWER SOLUTIONS

Year Ended December 31,

2020 2019 $ Change

Net sales $ 171,269 $ 192,100 $ (20,831)

Organic decline $ (21,126)

Foreign exchange effects 295

Goodwill impairment $ (92,942) $ — $ (92,942)

Income (loss) from operations $ (85,983) $ 13,881 $ (99,864)

Net sales decreased by $20.8 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower demand in the electrical products, automotive, and oil and gas end markets resulting from the COVID-19 pandemic, partially offset by increased pass-through pricing on products utilizing precious metals.

Income (loss) from operations decreased by $99.9 million compared to prior year primarily due to a goodwill impairment loss of $92.9 million recognized in the first quarter of 2020 and lost variable margin on the above-referenced sales volume decline.

These unfavorable impacts were partially offset by fixed cost reduction actions taken in response to the decline in sales volume.

Year Ended December 31, 2019, compared to the Year Ended December 31, 2018

Year Ended December 31,

2019 2018 $ Change

Net sales $ 489,514 $ 524,194 $ (34,680)

Acquisitions $ 3,959

Organic decline (31,451)

Foreign exchange effects (7,188)

Cost of sales (exclusive of depreciation and amortization shown separately below) 392,482 413,394 (20,912)

Selling, general, and administrative expense 68,895 72,764 (3,869)

Depreciation and amortization 44,896 43,026 1,870

Restructuring and integration expense, net (12) 689 (701)

Goodwill impairment — 182,542 (182,542)

Other operating expense, net 846 6,826 (5,980)

Loss from operations (17,593) (195,047) 177,454

Interest expense 13,030 11,315 1,715

Loss on extinguishment of debt and write-off of debt issuance costs 540 — 540

Other expense, net 962 2,016 (1,054)

Loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture (32,125) (208,378) 176,253

Benefit (provision) for income taxes (305) 1,548 (1,853)

Share of net income (loss) from joint venture 1,681 (14,390) 16,071

Loss from continuing operations (30,749) (221,220) 190,471

Loss from discontinued operations, net of tax (15,992) (41,767) 25,775

Net loss $ (46,741) $ (262,987) $ 216,246

Net sales decreased by $34.7 million, or 7%, in 2019 compared to 2018, primarily due to a decrease in demand in the automotive end market and unfavorable foreign exchange effects of $7.2 million.

Cost of Sales.

Cost of sales decreased by $20.9 million, or 5%, in 2019 compared to 2018, primarily due to the relative contribution margin impact of sales in the Mobile Solutions group.

The decrease in cost of sales was partially offset by favorable foreign exchange effects of $5.2 million.

Selling, General, and Administrative Expense .

Selling, general and administrative expense decreased by $3.9 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to lower costs for professional services as a result of cost savings initiatives.

Depreciation and Amortization .

Depreciation and amortization increased by $1.9 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, consistent with capital expenditure activity.

Goodwill Impairment.

Goodwill impairment decreased by $182.5 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, as a result of goodwill impairment charges at Mobile Solutions and Power Solutions.

Other Operating Expense, Net .

Other operating expense, net, decreased by $6.0 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a reduction in asset impairment charges.

Interest Expense .

Interest expense increase by $1.7 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to higher average interest rates, increased borrowings under the Senior Secured Revolver during 2019, and unfavorable interest rate swap settlements.

Year Ended December 31,

Interest on debt $ 10,971 $ 10,570

Interest rate swap settlements 1,411 —

Amortization of debt issuance costs 1,421 1,274

Capitalized interest (1,458) (1,089)

Other 685 560

Total interest expense $ 13,030 $ 11,315

Other Expense, Net.

Other expense, net, decreased during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a decrease in interest income from short-term investments in 2018 and currency effects on intercompany loans.

Benefit (Provision) for Income Taxes .

Our effective tax rate from continuing operations was (1.0)% for the year ended December 31, 2019, compared to 0.7% for the year ended December 31, 2018.

Note 11 in the Notes to Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income (Loss) from Joint Venture.

Our share of net income (loss) from the joint venture increased by $16.1 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a partial impairment of the investment in the joint venture of $16.6 million during the year ended December 31, 2018.

Loss from Discontinued Operations, Net of Tax .

Loss from discontinued operations, net of tax, represents the results of operations of our Life Sciences business.

Share of net income from the JV increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to recovery from the effects of the COVID-19 pandemic on prior year sales.

The JV, in which we own a 49% investment, recognized net sales of $94.8 million and $68.2 million for the years ended December 31, 2021 and 2020, respectively.

Additionally, profits improved from expanding variable margins as a result of successful process improvement initiatives, improved product mix, and fixed cost reduction actions.

Income from Discontinued Operations, Net of Tax .

The largest component of income from discontinued operations, net of tax, during the year ended December 31, 2020, was the $214.9 million gain on sale of our Life Sciences business.

Note 2 in the Notes to Consolidated Financial Statements provides details of the results of discontinued operations.

We recognized a gain of $1.2 million during the year ended December 31, 2021, due to the favorable resolution of a tax indemnity.

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Results by Segment

MOBILE SOLUTIONS

Year Ended December 31,

Years Ended December 31,

2021 2020 $ Change

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Foreign exchange effects 1,854

Goodwill impairment $ — $ (73,442) $ 73,442

Income (loss) from operations $ 9,553 $ (55,079) $ 64,632

Net sales decreased by $37.3 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to lower demand within the North American and European automotive markets, unfavorable foreign exchange effects, reduced demand for components associated with programs nearing the end of the product lifecycle, and delays in new product launches, partially offset by higher demand within the South American automotive market.

Income (loss) from operations increased by $64.6 million compared to prior year primarily due to the $73.4 million goodwill impairment in the prior year.

Absent the effect of the goodwill impairment, income (loss) from operations decreased by $8.8 million due to lost variable margin on the above-referenced sales volume decline and costs associated with the launch of new fuel systems business within our European operations.

These unfavorable impacts were partially offset by favorable foreign exchange effects and fixed cost reduction initiatives implemented in response to the decline in sales volume.

Income from operations $ 9,039 $ 5,228 $ 3,811

Net sales increased by $29.5 million during the year ended December 31, 2021, compared to the year ended December 31, 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.

In the fourth quarter of 2021, we recognized a customer pricing settlement.

Income from operations increased by $3.8 million compared to the same period in the prior year primarily due to contribution generated from the above-noted sales increase and customer pricing settlement.

Moreover, we built up inventory in the year ended December 31, 2021, which resulted in favorable overhead absorption during the current year compared to the prior year.

These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the COVID-19 pandemic (such as travel, benefits, and overtime hours), material and labor inflation, and variable cost inefficiencies associated with global supply chain interruptions and uneven customer ordering patterns, particularly in the automotive market.

POWER SOLUTIONS

Year Ended December 31,

Years Ended December 31,

2021 2020 $ Change

Net sales $ 191,800 $ 171,269 $ 20,531

Acquisitions $ 3,959

Organic growth $ 20,197

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Income (loss) from operations $ 6,493 $ (85,983) $ 92,476

Net sales increased by $2.3 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to $4.0 million of net sales attributable to the Technical Arts business that was acquired in the third quarter of 2018.

The increase in net sales was partially offset by lower demand in the electrical products end market and unfavorable foreign exchange effects.

Income (loss) from operations increased by $109.0 million compared to prior year primarily due to the $109.1 million goodwill impairment in the prior year.

Net sales increased by $20.5 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher demand within our end markets, all of which were negatively impacted by the COVID-19 pandemic in the prior year.

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 to the year ended December 31, 2020.

In addition, revenue increased during the fourth quarter of 2021 due to prices increases with certain customers.

Income (loss) from operations increased by $92.5 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 above-noted higher sales volume.

These favorable impacts were partially offset by an adverse shift in sales mix;

higher material costs as a result of inflation;

operating inefficiencies in our aerospace, defense, and medical business;

and the reintroduction of employee-related costs suspended in the prior year due to the COVID-19 pandemic, such as travel, benefits and overtime hours.

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

From December 31, 2019, to December 31, 2020, total assets decreased by $917.0 million primarily due to the sale of the Life Sciences business and use of cash proceeds to pay down debt.

The $92.9 million impairment of Power Solutions goodwill in the first quarter of 2020 and normal depreciation and amortization of fixed assets and intangible assets also contributed to the decrease.

From December 31, 2019, to December 31, 2020, total liabilities decreased by $830.0 million primarily due to the prepayment of long-term debt with cash proceeds from the sale of the Life Sciences business.

Working capital of continuing operations, which consists of cash, accounts receivable, inventories, income taxes receivable, and other current assets offset by accounts payable, accrued personnel costs, income taxes payable, current maturities of long-term debt, current portion of lease liabilities, and other current liabilities, was $112.0 million as of December 31, 2020, compared to $88.0 million as of December 31, 2019.

The increase in working capital was primarily due to cash proceeds from the sale of the Life Sciences business and a reduction in the current maturities of long-term debt due to the prepayment of the Senior Secured Term Loan and the Incremental Term Loan.

Cash provided by operations was $15.5 million for the twelve months ended December 31, 2020, compared with cash provided by operations of $49.2 million for the twelve months ended December 31, 2019.

The difference was primarily due to a decrease in sales volumes and higher interest expense, partially offset by improvement in working capital.

Cash provided by investing activities was $719.3 million for the twelve months ended December 31, 2020, compared with cash used in investing activities of $39.4 million for the twelve months ended December 31, 2019.

The increase was primarily due to cash received from the sale of the Life Sciences business as well as lower capital expenditures in 2020 as part of our cash savings initiatives.

Cash received from the liquidation of the short-term investment during 2019 partially offset the decrease in capital expenditures on a year-over-year basis.

Cash used in financing activities was $714.9 million for the twelve months ended December 31, 2020, compared with cash provided by financing activities of $5.3 million for the twelve months ended December 31, 2019.

The difference was primarily due to the prepayment of debt with proceeds from the sale of the Life Sciences business.

From December 31, 2020, to December 31, 2021, total assets decreased by $45.9 million primarily due to normal depreciation and amortization of fixed assets, lease right-of-use assets, and intangible assets.

We used $15.4 million of cash to settle the ineffective interest rate swap as part of our refinancing during the first quarter of 2021.

Accounts receivable decreased as a result of successful collection efforts, accelerated payment terms, and lower sales in the fourth quarter of 2021 compared with the fourth quarter of 2020.

These decreases were partially offset by capital expenditures and increases in inventories during the year ended December 31, 2021.

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

The investment in the Chinese joint venture also increased as a result of undistributed earnings of the joint venture.

Table of Content s

From December 31, 2020, to December 31, 2021, total liabilities increased by $35.4 million, primarily due to the refinancing of our credit facilities, partially offset by the termination of the ineffective interest rate swap.

Cash provided by operations was $15.6 million for the year ended December 31, 2021, compared with cash provided by operations of $15.5 million for the year ended December 31, 2020.

Operating activities during 2021 included building inventory levels as a result of a strategic decision to mitigate potential supply chain issues for our customers.

Net payments for income taxes were $5.4 million higher in the year ended December 31, 2021 when compared to 2020.

The increased bonus payout to our employees during 2021 also impacted operating activities.

Operating activities were positively impacted by the timing of disbursements on accounts payable compared to 2020, as well as increased income generated from operations during the year ended December 31, 2021.

Cash used in investing activities was $36.1 million for the year ended December 31, 2021, compared with cash provided by investing activities of $719.3 million for the year ended December 31, 2020.

The difference was primarily due to cash received from the sale of the Life Sciences business in 2020.

Cash provided by financing activities was $2.6 million for the year ended December 31, 2021, compared with cash used by financing activities of $714.9 million for the year ended December 31, 2020.

The difference was primarily due to $11.6 million net inflow from the debt and preferred stock refinancing in the current year compared to the prepayment of debt in 2020 with proceeds from the sale of the Life Sciences business.

Liquidity and Capital Resources

On October 21, 2019, we announced expense reduction and cash savings initiatives to help pay down our debt and support greater growth by reinvesting in our businesses.

The expense reduction and cash saving initiatives include streamlining facilities and reducing overall selling, general and administrative costs;

elimination of quarterly dividend payments;

and a reduction in capital expenditures from 2019 spending levels as we return to a more normalized level of capital spending after several years of higher investment.

As described in the “Results of Operations, Factors That May Influence Results of Operations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, we have taken additional actions in response to the economic effects of the COVID-19 pandemic and in order to enhance our liquidity position during this difficult period.

In November 2019, we initiated a strategic review to evaluate a broad range of operational, financial, and strategic options to reduce leverage and enhance shareholder value, and we retained external advisors to assist in this effort.

The strategic options we have evaluated included further cost savings and cash generation initiatives, more efficient capital deployment, changes to our debt and equity structure to improve financial flexibility and liquidity, and the sale of part or all of NN, among others.

As discussed in Note 16 in the Notes to Consolidated Financial Statements, on December 11, 2019, we issued Series B Convertible Preferred Stock (“Preferred Stock” for net proceeds of $95.7 million and used a portion of the proceeds to repay amounts due at that time on our Senior Secured Revolver.

In December 2019, we amended our Credit Agreement which, in turn, extended the due date of our Senior Secured Revolver to July 20, 2022, reduced the total capacity under the Senior Secured Revolver to $75.0 million, and extended the due date of our Incremental Term Loan to October 19, 2022, matching the date of our longer-dated Senior Secured Term Loan.

Additionally, as part of this amendment our debt covenants were amended to establish more restrictive leverage ratios that also become more restrictive over time.

Our Consolidated Net Leverage Ratio (the “financial leverage ratio”) covenant is required to be complied with on a quarterly basis at the end of each of our quarterly reporting periods.

Our financial leverage ratio covenant is based upon our consolidated net indebtedness at each quarter end and our trailing twelve-month Adjusted EBITDA as defined in our Credit Agreement.

In July 2020, we amended our Credit Agreement to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020.

During this period, we were required to maintain minimum liquidity levels, provide certain financial and other information, and take certain other action as specified in the amendment.

Failure to maintain the required minimum liquidity levels or satisfy other requirements set forth in the amendment would allow the revolving credit lenders, the Senior Secured Term loan lenders, and the Incremental Term Loan lenders to cause amounts outstanding under our credit facility to become immediately due and payable and would have a material, adverse impact on our financial position.

In August 2020, we entered into an agreement to sell our Life Sciences business.

The sale closed on October 6, 2020, at which time we received cash proceeds of $757.2 million.

We immediately prepaid $700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan.

We also paid in full the outstanding balance on the Senior Secured Revolver.

Additionally, in August 2020, we amended our Credit Agreement to obtain the lenders’ consent to the sale of the Life Sciences business, subject to certain terms and conditions.

We rely on cash flow generated from operations and available borrowings under our Senior Secured Revolver to fund our working capital and other operating and investing needs.

Our ability to borrow under our Senior Secured Revolver is based on our continued compliance with the minimum liquidity requirements and, for periods beginning in the fourth quarter of 2020, the financial leverage ratio covenant, as defined, which became more restrictive upon the occurrence of a qualified sale transaction, which closed on October 6, 2020.

Based on available borrowing capacity of the Senior Secured Revolver, the reduction in debt service costs as a result of the debt prepayment with net proceeds from the sale of the Life Sciences business in October 2020, and cash flows expected to be generated from operations and investing activities, we anticipate that our cash and cash equivalents are sufficient to support our operations and meet our obligations, and that we will be able to maintain compliance with the existing financial leverage ratio covenant for the next twelve months from issuance of these consolidated financial statements.

As the term of our Credit Agreement ends in the second half of 2022, we are in the process of evaluating financing alternatives.

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 on a portion of our variable rate debt to a fixed rate of 2.4575%.

The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022, with a declining notional amount over the term of the interest rate swap.

Credit Facility

The principal amount outstanding under our Term Loan Facility as of December 31, 2021, was $148.9 million, without regard to unamortized debt issuance costs and discount.

As of December 31, 2021, we had $36.0 million available for future borrowings under the ABL Facility.

This amount of borrowing capacity is net of $11.2 million of outstanding letters of credit at December 31, 2021, which are considered as usage of the ABL Facility.

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.

If one-month LIBOR is less than 1.000%, then we pay 7.875% per annum in interest.

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 December 31, 2021, and the fixed rate on the 2021 interest rate swap, annual interest payments would be approximately $11.9 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 December 31, 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 December 31, 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.

On March 3, 2022, we amended our Term Loan Facility, which increases the quarterly maximum consolidated net leverage ratio beginning with the first quarter of 2022.

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.

Refer to Note 19 in the Notes to Consolidated Financial Statements for further discussion about the interest rate swap.

In connection with the prepayment of debt on October 6, 2020, with proceeds from the sale of our Life Sciences business, the outstanding balance of our variable rate debt fell below the $700.0 million notional amount of the interest rate swap.

After the prepayment, a majority of the hedged forecasted transactions (i.e.

interest payments) were probable of not occurring, resulting in the recognition in earnings of $14.8 million of the hedging loss in accumulated other comprehensive income in the fourth quarter of 2020.

The remaining $2.9 million of the hedging loss in accumulated other comprehensive income will be amortized into earnings as settlements occur.

Finally, as the interest rate swap no longer qualifies as an effective hedge subsequent to October 6, 2020, changes in fair value of the interest rate swap are recognized in earnings each period.

All amounts recognized in earnings related to the interest rate 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 were recognized in “Interest expense” prior to October 6, 2020, and in “Derivative payments on interest rate swap” after October 6, 2020.

Cash settlements are presented in operating activities on the Consolidated Statements of Cash Flows prior to October 6, 2020, and in investing activities after October 6, 2020.

Our arrangements with customers typically provide that payments are due within 30 to 60 days following the date of shipment.

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dollar against foreign currencies could impair our ability to compete with international competitors for foreign as well as domestic sales.

Credit Facility

Aggregate principal amounts outstanding under our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver as of December 31, 2020, were $70.4 million, without regard to unamortized debt issuance costs.

As of December 31, 2020, we had unused borrowing capacity of $45.4 million under the Senior Secured Revolver, subject to certain limitations.

This amount of borrowing capacity is net of $14.6 million of outstanding letters of credit at December 31, 2020, which are considered as usage of the Senior Secured Revolver.

Collectively, our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver comprise our credit facility.

Total capacity under the Senior Secured Revolver was $60.0 million as of December 31, 2020, and will decrease to $50.0 million on June 30, 2021.

The Senior Secured Revolver matures on July 20, 2022.

The credit agreement requires cash in excess of $35.0 million on the last day of each month to be used to pay down the Senior Secured Revolver.

The Senior Secured Term Loan requires quarterly principal payments of $0.1 million through October 19, 2022, with the remaining principal amount due on the maturity date.

If one-month LIBOR is less than 0.75%, then we pay 6.50% per annum in interest.

If one-month LIBOR exceeds 0.75%, then we pay the variable one-month LIBOR plus an applicable margin of 5.75%.

Based on the interest rate in effect at December 31, 2020, annual interest payments would be approximately $3.1 million.

The Incremental Term Loan requires quarterly principal payments of $0.3 million through October 19, 2022, with the remaining principal amount due on the maturity date.

The Incremental Term Loan bears interest at the variable one-month LIBOR plus an applicable margin of 5.75%.

Based on the interest rate in effect at December 31, 2020, annual interest payments would be approximately $1.3 million.

The Senior Secured Revolver bears interest on a variable rate structure with borrowings bearing interest at either one-month LIBOR plus an applicable margin of 4.00% or the prime lending rate plus an applicable margin of 3.00%.

We pay a commitment fee of 0.50% for unused capacity under the Senior Secured Revolver.

We had no borrowings outstanding under the Senior Secured Revolver at December 31, 2020.

Total capacity under the Senior Secured Revolver was $60.0 million as of December 31, 2020, with $45.4 million available for future borrowings after reductions for outstanding letters of credit.

In July 2020, we amended our Credit Agreement to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020.

During this period, we were required to maintain minimum liquidity levels, provide certain financial and other information, and take certain other action as specified in the amendment.

We were in compliance as of December 31, 2020, with all requirements under our credit facility.

Contractual Obligations

The following table presents our contractual obligations and commercial commitments as of December 31, 2020:

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 $ 84,862 $ 4,885 $ 73,296 $ 3,027 $ 3,654

Expected interest payments (1)

9,067 4,764 3,916 173 214

Expected derivative payments (2)

15,379 11,022 4,357 — —

Operating leases 88,196 9,348 15,855 14,470 48,523

Finance leases 11,469 4,442 5,472 1,345 210

Total contractual cash obligations $ 208,973 $ 34,461 $ 102,896 $ 19,015 $ 52,601

_______________________________

(1) Expected interest payments on our variable-rate Senior Secured Term Loan and Incremental Term Loan are based on one-month LIBOR as of December 31, 2020.

(2) Expected derivative payments are estimated based on the fair value of the interest rate swap as of December 31, 2020.

We have approximately $0.8 million in unrecognized tax benefits 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.

(See Note 11 of the Notes to Consolidated Financial Statements).

Table of Content s

Functional Currencies

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However, as a whole, we are not materially impacted by seasonality.

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.

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-K

Item 7. Management’s Discussion and Analysis