What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-11 compared with 2021-03-15 · 497 added, 614 removed, 1017 unchanged (52% of the section changed)

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Index to Financial Statements

Report s of Independent Registered Public Accounting Firm s

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Statements of Operations and Comprehensive Income (Loss)

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Investment in Joint Venture

Restructuring and Integration

Commitments and Contingencies

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Fair Value Measurements

Quarterly Results of Operations (Unaudited)

Reports of Independent Registered Public Accounting Firm

Subsequent Event

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

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Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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March 11, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Opinion on the consolidated financial statements

We have audited the accompanying consolidated balance sheet of NN Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of NN, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 11, 2022 expressed an unqualified opinion.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Valuation – Power Solutions

As described in Note 8 to the consolidated financial statements, the Company’s market capitalization declined to a level that was less than the net book value of the stockholders’ equity during the first quarter of 2020.

The decline in market capitalization was a triggering event that resulted in the Company performing an interim quantitative goodwill impairment analysis as of March 31, 2020.

As a result of the interim goodwill impairment analysis, it was determined that the carrying value of the Power Solutions reporting unit exceeded its estimated fair value resulting in an impairment charge of $92.9 million.

We identified goodwill valuation as a critical audit matter because of the significant judgements made by management to estimate the fair value of goodwill.

Estimates of future performance and market conditions used to arrive at the net present value of future cash flows, which is used within the goodwill impairment analysis, are subjective in nature.

In particular, the Company’s fair value estimate was sensitive to assumptions including the revenue growth rate and discount rate used by the Company, which are affected by expectations about future market or economic conditions.

These assumptions proved more subjective during the March 31, 2020 goodwill impairment analysis as a result of the uncertainty surrounding the immediate and long-term impact of the COVID-19 pandemic.

Our audit procedures related to the goodwill impairment analysis included the following, among others:

• We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls related to the accounting for the March 31, 2020 goodwill impairment, which included the Company’s review over revenue growth rates and discount rate used to determine the fair value estimate of the Power Solutions reporting unit.

• We tested the reasonableness of the revenue growth rates by (1) comparing projected amounts to prior historical periods and trends and (2) obtaining an understanding of drivers underlying projected amounts, including consideration of industry information and economic trends.

• We utilized valuation specialists to assess the Company’s methodologies and assess the appropriateness of the discount rate used in the March 31, 2020 goodwill impairment analysis.

Our specialists calculated a range of rates using market participant inputs and performed analysis to test sensitivity to changes in the discount rate.

Valuation of Power Solutions Segment for Tax Distribution

As described further in Note 11 to the consolidated financial statements, prior to the sale of the Life Sciences business, the Company completed a tax restructuring in which Precision Engineered Products Holdings, Inc., a wholly owned U.S.

domestic subsidiary, distributed to NN, Inc., all of its assets and equity holdings related to the Power Solutions segment.

The restructuring process created a deferred gain, required to be realized upon the sale of Life Sciences, equal to the fair market value of the distributed assets over tax basis.

We identified the valuation of the Power Solutions segment as a critical audit matter because of the significant judgements made by management to estimate the fair value.

The distribution resulted in a step-up in tax basis and a taxable gain, both of which were directly impacted by the valuation.

Estimates of future performance and market conditions used to arrive at the net present value of future cash flows, which is used in the valuation of Power Solutions segment, are subjective in nature.

Our audit procedures related to the valuation of the Power Solutions segment included the following, among others:

• We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls related to the valuation of the Power Solutions segment, including the Company’s review over revenue growth rates and discount rate used to determine the fair value estimate.

• We tested the reasonableness of the growth rates by (1) comparing projected amounts to prior historical periods and trends, and (2) obtaining an understanding of drivers underlying projected amounts, including consideration of industry information and economic trends.

• We utilized valuation specialists to assess the Company’s methodologies and assess the appropriateness of the discount rate used in the valuation.

Our specialists calculated a range of rates using market participant inputs and performed analysis to test sensitivity to changes in the discount rate.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Classification of Series D Perpetual Preferred Stock and the bifurcated detachable warrants

As described further in Note 14 to the financial statements, the Company completed a private placement of 65 thousand shares of newly designated Series D Perpetual Preferred Stock at a price of $1,000 per share, together with detachable warrants to purchase up to 1.9 million shares of common stock at an exercise price of $0.01 per share on March 22, 2021.

The Series D Perpetual Preferred Stock had an initial liquidation preference of $1,000 per share and is redeemable at the Company’s option in cash at a redemption price equal to the liquidation preference then in effect.

Certain features were bifurcated and accounted for separately from the Series D Perpetual Preferred Stock and were recorded as derivatives.

We identified the classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants as a critical audit matter.

The determination of the classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants involves an evaluation of the relevant terms and provisions within the Securities Purchase Agreement and Common Stock Warrant Agreement.

The relevant accounting literature is complex;

therefore, the interpretation and application of the accounting literature is subjective and requires specialized skills and knowledge.

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management’s conclusions related to the classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants involved especially challenging auditor judgment to determine the proper classification.

Our audit procedures related to the classification issuance of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants included the following, among others.

• We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls related to the accounting for the issuance of the Series D Perpetual Preferred Stock, which included classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants.

• We utilized personnel with specialized skill and knowledge to assist in evaluating the appropriateness of management’s conclusions by (1) inspecting and assessing the relevant terms and provisions of the Securities Purchase Agreement and Common Stock Warrant Agreement;

(2) comparing the relevant terms and provisions to management’s analysis;

and (3) assessing the appropriateness of management’s application of the relevant accounting literature.

/s/ GRANT THORNTON LLP

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March 11, 2022

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Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of NN, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We have audited the consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows of NN, Inc.

and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

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These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

Emphasis of Matter

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Atlanta, Georgia

March 16, 2020, except for the effect of discontinued operations discussed in Note 2 to the consolidated financial statements, as to which the date is March 15, 2021.

March 16, 2020, except for the effect of discontinued operations discussed in Note 2 to the consolidated financial statements, as to which the date is March 15, 2021, and except for the 2019 summarized financial information of the unconsolidated joint venture in Note 9 to the consolidated financial statements, as to which the date is March 11, 2022.

We served as the Company's auditor from 2003 to 2020.

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Consolidated Statements of Operations and Comprehensive Income (Loss)

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Goodwill impairment — 92,942 —

Other operating expense, net 4,720 846 6,826

Other operating expense (income), net ( 1,091 ) 4,720 846

Loss from operations ( 9,004 ) ( 117,457 ) ( 17,593 )

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Other expense (income), net ( 5,366 ) ( 213 ) 962

Loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture ( 152,088 ) ( 32,125 ) ( 208,378 )

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture ( 22,442 ) ( 152,088 ) ( 32,125 )

Benefit (provision) for income taxes 1,756 8,972 ( 305 )

Share of net income (loss) from joint venture 3,626 1,681 ( 14,390 )

Share of net income from joint venture 6,261 3,626 1,681

Loss from continuing operations ( 14,425 ) ( 139,490 ) ( 30,749 )

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See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheets

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Income tax receivable 11,808 8,800

Current assets of discontinued operations — 117,000

Other current assets 9,372 11,148

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Operating lease right-of-use assets 46,443 50,264

Goodwill — 94,779

Intangible assets, net 88,718 103,065

Investment in joint venture 34,045 26,983

Non-current assets of discontinued operations — 695,054

Deferred tax assets 314 —

Other non-current assets 4,194 5,742

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Current portion of operating lease liabilities 5,704 4,797

Current liabilities of discontinued operations — 41,546

Other current liabilities 8,718 31,261

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Deferred tax liabilities 7,456 11,178

Non-current income tax payable — 1,272

Long-term debt, net of current portion 151,052 79,025

Operating lease liabilities, net of current portion 51,295 55,053

Non-current liabilities of discontinued operations — 84,199

Other non-current liabilities 17,289 17,237

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Commitments and contingencies (Note 13)

Series B convertible preferred stock - $ 0.01 par value per share, 100 shares authorized, 100 shares issued and outstanding at December 31, 2019, and December 31, 2020

105,086 93,012

Series D perpetual preferred stock - $ 0.01 par value per share, 65 shares authorized, issued and outstanding at December 31, 2021

Series B convertible preferred stock - $ 0.01 par value per share, 100 shares authorized, issued and outstanding at December 31, 2020

Stockholders’ equity:

Common stock - $ 0.01 par value per share, 90,000 shares authorized, 42,313 and 42,686 shares issued and outstanding at December 31, 2019, and December 31, 2020, respectively

Common stock - $ 0.01 par value per share, 90,000 shares authorized, 42,686 and 43,027 shares issued and outstanding at December 31, 2020 and 2021, respectively

Additional paid-in capital 474,757 493,332

Warrants — 1,076

Accumulated deficit ( 219,100 ) ( 205,875 )

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See Notes to Consolidated Financial Statements.

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Consolidated Statements of Changes in Stockholders’ Equity

Common Stock Retained earnings (Accumulated deficit) Accumulated other comprehensive income (loss)

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)

(in thousands) Number

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Dividends declared or accrued for common stock — — ( 8,933 ) — — — ( 8,933 )

Shares issued 14,375 144 217,168 — — — 217,312

Dividends accrued for preferred stock — — ( 642 ) — — — ( 642 )

Shares issued for option exercises 5 — 21 — — — 21

Share-based compensation expense 248 2 3,931 — — — 3,933

Restricted shares and performance shares forgiven for taxes and forfeited ( 35 ) — ( 805 ) — — — ( 805 )

Restricted shares forgiven for taxes ( 44 ) — ( 365 ) — — — ( 365 )

Change in estimate of share-based award vesting — — ( 1,052 ) — — — ( 1,052 )

Proceeds from issuance of warrants — — — 1,076 — — 1,076

Change in fair value of interest rate swap, net of tax of $ 3,166

— — — — — ( 10,479 ) ( 10,479 )

Reclassification of interest rate swap settlement to net loss, net of tax of $ 327

— — — — — 1,084 1,084

Foreign currency translation loss — — — — — ( 3,845 ) ( 3,845 )

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Net loss — — — — ( 100,592 ) — ( 100,592 )

Dividends declared or accrued for common stock — — ( 8,933 ) — — — ( 8,933 )

Dividends accrued for preferred stock — — ( 12,373 ) — — — ( 12,373 )

Shares issued for option exercises 5 — 21 — — — 21

Share-based compensation expense 417 4 4,965 — — — 4,969

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Change in estimate of share-based award vesting — — ( 718 ) — — — ( 718 )

Proceeds from issuance of warrants — — — 1,076 — — 1,076

Reclassification of warrants to liabilities (Note 19) — — — ( 1,076 ) — — ( 1,076 )

Change in fair value of interest rate swap, net of tax of $ 3,764

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Foreign currency translation loss — — — — — ( 1,683 ) ( 1,683 )

Adoption of new accounting standard — — — — ( 51 ) — ( 51 )

Sale of discontinued operations — — — — — 5,961 5,961

Balance, December 31, 2020 42,686 $ 427 $ 493,332 $ — $ ( 205,875 ) $ ( 33,732 ) $ 254,152

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Dividends accrued for preferred stock — — ( 21,478 ) — — — ( 21,478 )

Shares issued for option exercises 6 — 48 — — — 48

Share-based compensation expense 387 4 3,835 — — — 3,839

1 unchanged sentence

Change in estimate of share-based award vesting — — ( 618 ) — — — ( 618 )

Reclassification of warrants to liabilities (Note 21) — — — ( 1,076 ) — — ( 1,076 )

Change in fair value of interest rate swap, net of tax of $ 19

— — — — — 59 59

Reclassification of interest rate swap to net loss, net of tax of $ 5,742

Reclassification of interest rate swap settlement to net loss, net of tax of $ 879

— — — — — 2,906 2,906

Foreign currency translation loss — — — — — ( 1,135 ) ( 1,135 )

Sale of discontinued operations — — — — — 5,961 5,961

Balance, December 31, 2021 43,027 $ 430 $ 474,757 $ — $ ( 219,100 ) $ ( 31,902 ) $ 224,185

See Notes to Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

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Depreciation and amortization of discontinued operations — 35,731 46,950

Amortization of debt issuance costs 15,692 4,789 4,845

Amortization of debt issuance costs and discount 1,381 15,692 4,789

Goodwill impairment of continuing operations — 92,942 —

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Loss on extinguishment of debt and write-off of debt issuance costs 2,390 1,532 3,293

Total derivative loss, net of cash settlements 15,802 — —

Share of net income (loss) from joint venture, net of cash dividends received ( 3,626 ) ( 1,681 ) 642

Total derivative loss (gain), net of cash settlements ( 3,259 ) 15,309 —

Share of net income from joint venture ( 6,261 ) ( 3,626 ) ( 1,681 )

Gain on disposal of discontinued operations, net of tax and cost to sell ( 1,200 ) ( 233,824 ) —

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Proceeds from liquidation of short-term investment — — 8,000

Proceeds from sale of business, net of cash sold 743,178 — 838

Cash paid to acquire businesses, net of cash received — — ( 399,009 )

Proceeds from (cash paid for post-closing adjustments on) sale of business, net of cash sold ( 3,880 ) 743,178 —

Proceeds from sale of property, plant, and equipment 1,418 3,317 7,287

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Dividends paid — — ( 8,879 )

Proceeds from issuance of common stock — — 217,312

Proceeds from issuance of preferred stock 61,793 — 95,741

Redemption of preferred stock ( 122,434 ) — —

Proceeds from long-term debt 171,000 66,195 54,209

Repayments of long-term debt ( 93,729 ) ( 776,331 ) ( 108,157 )

Proceeds from (repayments of) short-term debt, net ( 924 ) ( 12,564 ) 10,305

Repayments of short-term debt, net ( 1,563 ) ( 924 ) ( 12,564 )

Other ( 5,150 ) ( 3,133 ) ( 3,715 )

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Non-cash additions to property, plant and equipment 4,438 9,644 23,281

Restructuring charges in other current and non-current liabilities — ( 12 ) 2,071

Supplemental disclosures:

Cash paid for interest $ 10,739 $ 51,542 $ 50,514

Cash paid (received) for income taxes 2,241 6,428 ( 32,582 )

Cash paid for income taxes 7,624 2,241 6,428

_______________________________

(1) Cash and cash equivalents include $ 13.8 million, $ 10.2 million, and $ 0.2 million of cash and cash equivalents that were included in current assets of discontinued operations as of December 31, 2019;

December 31, 2018;

and December 31, 2017, respectively.

(1) Cash and cash equivalents include $ 13.8 million and $ 10.2 million of cash and cash equivalents that were included in current assets of discontinued operations as of December 31, 2019 and December 31, 2018, respectively.

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

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Nature of Business

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.

is a diversified industrial company that combines in-depth materials science expertise with advanced engineering and production capabilities to design and manufacture high-precision metal and plastic components and assemblies for a variety of end markets on a global basis.

As used in this Annual Report on Form 10-K (this “Annual Report”), the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries.

We have 32 facilities in North America, Europe, South America, and China.

We have 31 facilities in North America, Europe, South America, and Asia.

Basis of Presentation

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Certain prior period amounts have been reclassified to conform to the current year’s presentation.

Historical periods presented reflect reclassifications for discontinued operations (see Note 2).

Except for per share data or as otherwise indicated, all U.S.

dollar amounts presented in the tables in these Notes to Consolidated Financial Statements are in thousands.

Going Concern

In July 2020, we amended our Credit Agreement to waive compliance with our Consolidated Net Leverage Ratio (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 (see Note 2).

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.

The full extent of the effect of the COVID-19 pandemic on our customers, our supply chain, and our business cannot be reasonably assessed at this time.

We have developed a plan to mitigate the impact of COVID-19, which includes the implementation of a series of specific and identified cost reductions in both our corporate and business groups, in addition to actions already taken, including further reducing our direct and indirect labor costs and benefits.

The impact of COVID-19 on our operating results will depend on future developments, which are highly uncertain and cannot be predicted, including governmental and business reactions to the pandemic.

We have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date.

If there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued.

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.

Principles of Consolidation

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Accounting Standards Recently Adopted

Financial Instruments - Credit Losses .

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments and the timing of when such losses are recorded.

In November 2019, the SEC issued Staff Accounting Bulletin (“SAB”) No.

119, codified in Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments-Credit Losses, which provides guidance on accounting of credit losses.

We adopted ASU 2016-13 on January 1, 2020, using the modified retrospective transition method, which resulted in no material impact on our consolidated financial statements.

Fair Value Disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) , that modifies fair value disclosure requirements.

The new guidance streamlines disclosures of Level 3 fair value measurements.

The modified disclosures were effective for us beginning in the first quarter of 2020.

ASU 2018-13 changes disclosures only and does not impact our consolidated financial statements.

Internal-Use Software.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) (“ASU 2018-15”) , that provides guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor.

Under the new guidance, customers apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license.

We adopted ASU 2018-15 as of January 1, 2020, prospectively.

We have had no such costs after the adoption date, and we do not expect the new guidance to have a material impact on our consolidated financial statements.

Reference Rate Reform.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

Among other things, for all types of hedging relationships, the guidance allows an entity to change the reference rate and other critical terms related to reference rate reform without having to remeasure the value or reassess a previous accounting determination.

The amendments in this guidance should be applied on a prospective basis and, for companies with a fiscal year ending December 31, are effective from January 1, 2020, through December 31, 2022.

We adopted this guidance effective January 1, 2020.

When the transition occurs, we expect to apply this expedient to new transactions that reference LIBOR or another reference rate that is discontinued, through December 31, 2022.

The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, (“ASU 2019-12”) as part of its initiative to reduce complexity in accounting standards.

ASU 2019-12 removes certain exceptions and provides simplification to specific tax items to improve consistent application.

This standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period for which consolidated financial statements have not yet been issued.

Adoption methods vary based on the specific items impacted.

We are currently evaluating the impact on our consolidated financial statements and related disclosures.

This standard was effective for us beginning January 1, 2021.

The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, (“ASU 2020-06”) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity.

Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current U.S.

In addition, ASU 2020-06 removes certain settlement conditions that are required for

equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception.

In addition, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception.

Further, for the diluted earnings-per-share calculation, the new guidance requires entities to use the if-converted method for all convertible instruments and generally requires entities to include the effect of share settlement for instruments that may be settled in cash or shares, among other things.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

Early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

We plan to adopt ASU 2020-06 effective January 1, 2022 using the modified retrospective adoption method.

We do not anticipate that the adoption will have a material impact on our consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options , (“ASU 2021-04”) which clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange.

Specifically, ASU 2021-04 requires the issuer to treat a modification of an equity-classified warrant as an exchange of the original warrant.

The difference between the fair value of the modified warrant and the fair value of the warrant immediately before modification is then recognized as an issuance cost or discount of the related transaction.

ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted.

ASU 2021-04 should be applied prospectively to modifications or exchanges occurring after the effective date.

Either the full or modified retrospective adoption method is allowed.

We are currently evaluating the impact on our consolidated financial statements and related disclosures.

We do not have any equity-classified written call options that would be subject to this guidance.

Therefore, we do not expect any impact on our consolidated financial statements and related disclosures.

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In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance, (“ASU 2021-10”) which requires business entities to provide certain annual disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance.

Such disclosures include the nature of the transactions, significant terms and conditions, accounting policies, and affected financial statement line items.

ASU 2021-10 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

ASU 2021-10 may be applied either prospectively or retrospectively.

We are in the process of assessing the impact ASU 2021-10 may have on our annual disclosures.

Cash and Cash Equivalents

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Estimated useful lives for leasehold improvements are based on the life of the lease.

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.

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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.

Impairment of Long-Lived Assets

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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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When we have an accumulated deficit, dividends are recorded as a reduction of additional paid-in capital.

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Foreign Currency Translation

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Diluted net income (loss) per common share includes the effect of warrants, convertible preferred stock, stock options and the respective tax benefits unless inclusion would not be dilutive.

Business Combinations

We allocate the total purchase price of tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill.

The purchase price allocation process requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date.

Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company.

Our assumptions and estimates are also partially based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain.

Valuations are performed by management or third-party valuation specialists under management’s supervision.

In determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods:

the income approach (including discounted cash flows, relief from royalty and excess earnings model), the market approach, or the replacement cost approach.

Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:

• sales volume, pricing, and future cash flows of the business overall;

• future expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels, rates of increase in revenue, and appropriate attrition rate;

• the acquired company’s brand and competitive position, royalty rate quantum, as well as assumptions about the period of time the acquired brand will continue to benefit the combined company’s product portfolio;

• cost of capital, risk-adjusted discount rates, and income tax rates.

Different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of asset and liability.

The valuations of property, plant and equipment, intangible assets, goodwill and deferred income tax liabilities depend heavily on assumptions.

Subsequent assessment could result in future impairment charges.

We refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at the acquisition date.

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 October 2020, we sold our Life Sciences business under the terms of a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for $ 753.3 million cash.

The Life Sciences business included facilities that were engaged in the production of 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 furthered management’s strategy to improve liquidity and create the financial flexibility to pursue key growth areas in the Mobile Solutions and Power Solutions segments.

The SPA includes a potential earnout payment of up to $ 70.0 million based on the performance of the Life Sciences business during the year ending December 31, 2022, measured by Adjusted EBITDA targets, as defined by the SPA.

After working capital and other closing adjustments, we received cash proceeds at closing of $ 757.2 million in 2020 and paid $ 3.9 million to the buyer during the year ended December 31, 2021, for post-closing adjustments.

Under the terms of a transition services agreement, we provided certain support services after the sale.

In accordance with the terms of the SPA, we agreed to indemnify the buyer for certain tax liabilities on its consolidated federal income tax return related to the Life Sciences business during the portion of the year ended December 31, 2020, prior to the change in ownership on October 6, 2020.

We estimate that the tax indemnification will result in a payment of approximately $ 1.2 million to the buyer during the year ending December 31, 2021, and we have recorded this estimated obligation in the “Other current liabilities” line item on the Consolidated Balance Sheets at December 31, 2020.

We recognized a tax indemnification of $ 1.2 million during the year ending December 31, 2020.

During the year ended December 31, 2021, we recognized a gain on disposal of discontinued operations of $ 1.2 million related to the tax indemnification as the actual tax liability was determined to be $ 0 .

In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the operating results of the Life Sciences business are classified as discontinued operations.

The presentation of discontinued operations includes revenues and expenses of the 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 presentation of discontinued operations includes revenues and expenses of the discontinued operations and the 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.

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

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The following table presents the results of operations of the discontinued operations.

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Selling, general, and administrative expense — 20,779 34,328

Acquisition related costs excluded from selling, general and administrative expense — — 5,763

Depreciation and amortization — 35,731 46,950

Restructuring and integration expense, net — — 1,438

Goodwill impairment — 146,757 —

Other operating expense (income), net 41 20 ( 737 )

Other operating expense, net — 41 20

Income (loss) from operations — ( 138,517 ) 27,482

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Benefit for income taxes — 12,468 3,582

Loss from discontinued operations before gain on disposal ( 176,008 ) ( 15,992 ) ( 41,767 )

Loss from discontinued operations before costs of disposal — ( 176,008 ) ( 15,992 )

Gain on disposal of discontinued operations 1,200 212,319 —

Benefit for income taxes on gain on disposal 2,587 — —

Benefit for income taxes on costs of disposal — 2,587 —

Income (loss) from discontinued operations, net of tax $ 1,200 $ 38,898 $ ( 15,992 )

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 decline in market capitalization was a triggering event that caused us to perform a goodwill impairment analysis as of March 31, 2020.

The carrying value of the Life Sciences reporting unit exceeded its estimated fair value as of March 31, 2020.

As a result of our analysis, we recorded an impairment loss on goodwill of $ 146.8 million for Life Sciences.

As a result of our analysis, we recorded an impairment loss on goodwill of $ 146.8 million for Life Sciences during the year ended December 31, 2020.

The judgments, assumptions, and estimates involved in the goodwill impairment analysis for the Life Sciences reporting unit are consistent with those discussed in Note 7.

Our 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.

Write-offs of credit facility debt issuance costs that have been allocated to discontinued operations are presented in the “Loss on extinguishment of debt and write-off of debt issuance costs” line the table above.

The following table summarizes the amount of interest expense related to the credit facility that has been reclassified to discontinued operations.

Our previous credit facility, which was in place at the time, required us to use proceeds from the sale of the Life Sciences business to prepay a portion of our previous debt.

We paid $ 700.0 million in the aggregate on our term loans during the fourth quarter of 2020.

The prepayment was applied to debt in accordance with the prepayment provisions of the previous credit agreement, which was in place at the time.

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

The following table summarizes the amount of interest expense related to the previous credit facility that was reclassified to discontinued operations .

Years Ended December 31,

2020 2019 2018

Interest on debt $ 35,147 $ 40,996

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Total interest expense of discontinued operations $ 48,893 $ 44,125

The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented.

December 31, 2020 December 31, 2019

Cash and cash equivalents $ — $ 13,792

Accounts receivable, net — 48,318

Inventories — 51,644

Other current assets — 3,246

Total current assets of discontinued operations — 117,000

Property, plant and equipment, net — 118,536

Operating lease right-of-use assets — 20,044

Goodwill — 344,316

Intangible assets, net — 211,847

Other non-current assets — 311

Total non-current assets of discontinued operations — 695,054

Total assets of discontinued operations $ — $ 812,054

Accounts payable $ — $ 16,367

Accrued salaries, wages and benefits — 14,844

Income tax payable — 344

Current portion of operating lease liabilities — 2,364

Other current liabilities — 7,627

Total current liabilities of discontinued operations — 41,546

Deferred tax liabilities — 61,338

Operating lease liabilities, net of current portion — 18,405

Other non-current liabilities — 4,456

Total non-current liabilities of discontinued operations — 84,199

Total liabilities of discontinued operations $ — $ 125,745

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The following table presents the significant noncash items and cash paid for capital expenditures of discontinued operations for each period presented.

Years Ended December 31,

2020 2019 2018

Depreciation and amortization $ 35,731 $ 46,950

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_______________________________

(1) Includes new leases, renewals, and modifications after the adoption of ASC Topic 842, Leases, on January 1, 2019.

Paragon Medical, Inc.

On May 7, 2018, we acquired 100 % of the stock of PMG Intermediate Holding Corporation, the parent company of Paragon Medical, Inc.

(“Paragon Medical”).

For accounting purposes, Paragon Medical met the definition of a business and was accounted for as a business combination.

Paragon Medical is a medical device manufacturer which focuses on the orthopaedic, case and tray, implant, and instrument markets.

We finalized the purchase price allocation and recorded measurement period adjustments to the initial allocation as disclosed in our 2018 Annual Report.

Operating results of Paragon Medical were included in our historical consolidated financial statements after the date of acquisition as part of our Life Sciences business.

The Life Sciences business was subsequently sold on October 6, 2020, and is included in discontinued operations as discussed in Note 2.

Bridgemedica, LLC

On February 22, 2018, we completed the acquisition of 100 % of the assets of Bridgemedica, LLC (“Bridgemedica”).

For accounting purposes, Bridgemedica met the definition of a business and was accounted for as a business combination.

Bridgemedica is a medical device company that provides concept to supply solutions through design, development engineering, and manufacturing.

We finalized our valuation related to the assets acquired and liabilities assumed during 2019 with no material changes to the initial allocation.

Operating results of Bridgemedica were included in our historical consolidated financial statements report after the acquisition date as part of our Life Sciences business.

The Life Sciences business was subsequently sold on October 6, 2020, and is included in discontinued operations as discussed in Note 2.

Southern California Technical Arts, Inc.

On August 9, 2018, we completed the acquisition of 100 % of the capital stock of Southern California Technical Arts, Inc.

(“Technical Arts”).

For accounting purposes, Technical Arts met the definition of a business and was accounted for as a business combination.

Technical Arts is an industrial machining company that manufactures tight tolerance metal components and assemblies.

The acquisition of Technical Arts expands our presence in the aerospace and defense end market.

Operating results of Technical Arts are reported in our Power Solutions group after the acquisition date.

We finalized our valuation related to the assets acquired and liabilities assumed during 2019 with no material changes to the initial allocation.

(1) Includes new leases, renewals, and modifications.

Segment Information

Our business has historically been aggregated into the following three reportable segments.

Our business is aggregated into the following two reportable segments.

• Mobile Solutions.

Mobile Solutions is focused on growth in the general industrial and automotive end markets.

We have developed an expertise in manufacturing highly complex, system critical components for fuel systems, engines and transmissions, power steering systems, and electromechanical motors on a high-volume basis.

This expertise has been gained through investment in technical capabilities, processes and systems, and skilled program management and product launch capabilities.

Mobile Solutions is focused on growth in the automotive and general industrial end markets.

We have developed an expertise in manufacturing highly complex, tight tolerance, system critical components.

Our technical capabilities can be utilized in numerous applications including for use in battery electric, hybrid electric, and internal combustion engine vehicles.

The group currently manufactures components on a high-volume basis for use in power steering, braking, transmissions, and gasoline fuel system applications, along with components utilized in heating, ventilation and air conditioning and diesel injection and diesel emissions treatment applications.

This expertise has been gained through investment in technical capabilities, processes and systems, and allows us to provide skilled program management and product launch capabilities.

• Power Solutions.

Power Solutions is focused on growth in the electrical and aerospace and defense end markets, while

also serving the automotive and medical end markets.

Power Solutions is focused on growth in the electrical, general industrial, automotive, aerospace, defense, and medical end markets.

Within this group we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies, and finished devices used in applications ranging from power control to flight control and for military devices.

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Our medical business includes the production of a variety of tools and instruments for the orthopaedics and medical/surgical end markets.

• Life Sciences.

Life Sciences was focused on growth in the medical end market, primarily in the orthopaedics and medical/surgical end markets.

Within this group we combined advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies, and finished devices.

We manufactured 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.

These divisions have historically been considered our three operating segments as each has engaged in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and assessing performance.

See Note 2 for information regarding the sale of the Life Sciences business on October 6, 2020.

The results of the Life Sciences business are classified as discontinued operations for all periods in the consolidated financial statements and accompanying notes unless otherwise stated.

Accordingly, results of the Life Sciences business are not included in the tabular presentation below.

These divisions are considered our two operating segments as each has engaged in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and assessing performance.

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The following tables present results of continuing operations by reportable segment.

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Depreciation and amortization 28,769 15,892 1,534 46,195

Goodwill impairment — 92,942 — 92,942

Income (loss) from operations 9,039 6,493 ( 24,536 ) $ ( 9,004 )

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Depreciation and amortization 28,298 15,730 1,652 45,680

Goodwill impairment — 92,942 — 92,942

Income (loss) from operations 5,228 ( 85,983 ) ( 36,702 ) $ ( 117,457 )

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Expenditures for long-lived assets 12,400 2,754 203 15,357

Total assets 373,256 (b) 310,545 858,183 (c) 1,541,984

Total assets 370,985 (b) 197,348 56,629 624,962

Solutions Power

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Depreciation and amortization 27,146 15,301 2,449 44,896

Goodwill impairment 73,442 109,100 — 182,542

Loss from operations ( 55,079 ) ( 95,115 ) ( 44,853 ) $ ( 195,047 )

Income (loss) from operations 9,553 13,881 ( 41,027 ) $ ( 17,593 )

Interest expense ( 13,030 )

Other ( 1,502 )

Loss from continuing operations before income taxes and share of net loss from joint venture $ ( 208,378 )

Share of net loss from joint venture $ ( 14,390 ) $ — $ — $ ( 14,390 )

Loss from continuing operations before income taxes and share of net income from joint venture $ ( 32,125 )

Share of net income from joint venture $ 1,681 $ — $ — $ 1,681

Expenditures for long-lived assets 24,969 4,457 2,743 32,169

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(b) Total assets in Mobile Solutions includes $ 34.0 million and $ 27.0 million as of December 31, 2021 and 2020, respectively, related to the investment in our 49 % owned joint venture (Note 9).

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The following table summarizes long-lived tangible assets by geographical region.

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The following table presents changes in allowance for credit losses.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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Additions 78 505 231

Write-offs ( 562 ) ( 692 ) ( 400 )

Write-offs and other ( 734 ) ( 562 ) ( 692 )

Currency impact ( 36 ) 57 ( 12 )

Balance at end of year $ 1,352 $ 2,044 $ 2,044

As of December 31, 2020, one customer represented 11 % of consolidated accounts receivable from continuing operations.

As of December 31, 2019, another customer represented 10 % of consolidated accounts receivable from continuing operations.

Amounts due from these customers are primarily related to Mobile Solutions.

As of December 31, 2021, no customer represented greater than 10% of consolidated accounts receivable.

As of December 31, 2020, one customer represented 11 % of consolidated accounts receivable, which is primarily related to Mobile Solutions.

Inventories are comprised of the following amounts:

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Total inventories $ 75,027 $ 62,517

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Property, Plant and Equipment

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As of December 31,

Property, plant and equipment

Land and buildings $ 57,991 $ 58,296

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We monitor property, plant and equipment for any indicators of potential impairment.

We recognized impairment charges of $ 4.1 million, $ 0.6 million, and $ 5.2 million for the years ended December 31, 2020, 2019, and 2018, respectively, related to the early retirement of identified fixed assets.

The impairment charges were recorded to the “Other operating expense, net,” line item on the Consolidated Statements of Operations and Comprehensive Income (Loss).

We recognized impairment charges of $ 4.1 million and $ 0.6 million for the years ended December 31, 2020 and 2019, respectively, related to the early retirement of identified fixed assets.

There were no impairment charges for the year ended December 31, 2021.

The impairment charges were recorded to the “Other operating expense (income), net,” line item on the Consolidated Statements of Operations and Comprehensive Income (Loss).

The impairment charges were determined by writing the assets down to the estimated salvage value, less disposal costs.

For the years ended December 31, 2021, 2020, and 2019, we recorded depreciation expense of $ 31.8 million, $ 31.3 million, and $ 30.4 million, respectively.

All of our net goodwill is recorded in the Power Solutions reportable segment, and no goodwill is recorded in the Mobile Solutions reportable segment.

All of our net goodwill was recorded in the Power Solutions reportable segment.

The following table shows changes in the carrying amount of Power Solutions goodwill.

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Currency impact and other ( 1,837 )

Balance as of December 31, 2019 94,779

Currency impact and other ( 1,837 )

Impairments ( 92,942 )

Balance as of December 31, 2020 $ —

The following table presents the gross carrying amount of goodwill and accumulated impairment charges as of December 31, 2020, and 2019.

December 31, 2020 December 31, 2019

Gross Carrying Amount Accumulated Impairment Charges Net Book Value Gross Carrying Amount Accumulated Impairment Charges Net Book Value

Mobile Solutions 78,254 ( 78,254 ) — 77,458 ( 77,458 ) —

Power Solutions 213,791 ( 213,791 ) — 215,628 ( 120,849 ) 94,779

Total goodwill $ 292,045 $ ( 292,045 ) $ — $ 293,086 $ ( 198,307 ) $ 94,779

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.

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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).

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

During the fourth quarter of 2018, our market capitalization declined to a level that was less than the net book value of our stockholders’ equity.

We performed our annual goodwill impairment analysis as of October 1, 2018, and elected to early adopt ASU 2017-4, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

As a result of our analysis, we recorded an impairment loss on goodwill in 2018 of $ 73.4 million and $ 109.1 million for Mobile Solutions and Power Solutions, respectively, to the “Goodwill impairment” line on the Consolidated Statements of Operations and Comprehensive Income (Loss).

As of December 31, 2021 and 2020, there was no remaining goodwill balance.

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Intangible Assets, Net

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Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable.

As of December 31, 2020 and 2019, there were no indications of impairment.

At December 31, 2021, 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 an impairment analysis on our long-lived assets as of December 31, 2021.

Based on our analysis, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the year ended December 31, 2021.

Investment in Joint Venture

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Balance as of December 31, 2021 $ 34,045

During the fourth quarter of 2018, as a result of changing market conditions, the fair value of the JV was assessed, and we recorded an impairment of $ 16.6 million against our investment in the JV.

The fair value assessment was significantly affected by changes in our assessment of future growth rates.

During the first quarter of 2020, the goodwill impairment testing trigger caused us to test the JV for impairment as well.

Based on our analysis, no impairment charge was deemed necessary.

It is reasonably possible that material deviation of future performance from the estimates used in the March 31, 2020, impairment test could result in additional impairment to our investment in the JV in subsequent periods.

The following table summarizes the loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture.

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The following tables show summarized financial information of the unconsolidated JV.

Year Ended December 31,

2021 2020 2019

Net sales 94,846 68,216 58,906

Cost of sales 77,620 56,669 52,757

Income from operations 15,429 10,202 4,745

Net income 12,777 7,401 3,432

Current assets 65,465 50,794

Noncurrent assets 75,222 64,635

Current liabilities 67,206 47,905

Noncurrent liabilities 10,006 10,279

We recognized sales to the JV of $ 0.4 million, $ 0.1 million, and $ 0.2 million during the years ended December 31, 2021, 2020, and 2019, respectively.

Amounts due to us from the JV as of December 31, 2021 were $ 4.4 million, which includes a $ 4.0 million dividend declared by the JV in 2021 and paid to us in January 2022.

The following table summarizes the loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture.

Years Ended December 31,

2021 2020 2019

United States $ ( 35,325 ) $ ( 146,963 ) $ ( 31,760 )

Foreign 12,883 ( 5,125 ) ( 365 )

Loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture $ ( 152,088 ) $ ( 32,125 ) $ ( 208,378 )

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture $ ( 22,442 ) $ ( 152,088 ) $ ( 32,125 )

The following table summarizes total income tax expense (benefit) recognized in each year.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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State ( 1,099 ) ( 5,368 ) 3,850

federal and foreign valuation allowance 2,066 ( 592 ) 2,263

Foreign ( 154 ) ( 1,852 ) 522

federal and foreign valuation allowance 5,538 2,066 ( 592 )

Total deferred tax expense (benefit) ( 4,136 ) ( 15,522 ) 2,350

Total income tax expense (benefit) $ ( 1,756 ) $ ( 8,972 ) $ 305

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The following table presents a reconciliation of income taxes based on the U.S.

federal statutory income tax rate.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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Change in uncertain tax positions 0.7 % 2.2 % 4.3 %

Impact of tax reform:

Toll charge, net of foreign tax credit — % — % 0.7 %

Remeasurement of deferred taxes pursuant to tax reform — % — % ( 1.2 ) %

Impact of 2019 Treasury regulations — % — % ( 18.4 ) %

CARES Act — % 2.7 % — %

Divestiture of business segment, exclusive of tax reform — % — % ( 1.1 ) %

Return to provision 0.8 % ( 0.5 ) % ( 0.2 ) %

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Restructuring gain — % ( 2.6 ) % — %

Intercompany lending ( 5.3 ) % — % — %

Warrant revaluation 6.5 % — % — %

Other adjustments, net ( 1.7 ) % ( 0.9 ) % 3.3 %

Effective tax rate 7.8 % 5.9 % ( 1.0 ) %

Our effective tax rate for continuing operations was 7.8 % for 2021.

The 2021 effective tax rate for continuing operations differs from the U.S.

federal statutory tax rate of 21 % primarily due to the impact of our valuation allowance change during the year.

Our effective tax rate for continuing operations was 5.9 % for 2020.

The 2020 effective tax rate for continuing operations differs from the U.S.

federal statutory tax rate of 21 % primarily due to (1) the impact of the impairment of nondeductible goodwill which is treated as a permanent difference and (2) the accrual of taxes on unremitted earnings of foreign subsidiaries which may be repatriated.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted.

Among other provisions, the CARES Act allows for the carryback of certain tax losses and favorably impacts the deductibility of interest expense and depreciation.

The CARES Act had a material impact on our consolidated financial statements, primarily due to enacted federal rate difference in the carryback periods, and has been accounted for in the benefit for income taxes for the twelve months ended December 31, 2020.

The CARES Act had a material impact on our consolidated financial statements, primarily due to a higher enacted federal rate in the carryback periods, and has been accounted for in the benefit for income taxes for the year ended December 31, 2020.

On October 6, 2020, we sold our Life Sciences business via a sale of our equity interest in Precision Engineered Products Holdings, Inc., a wholly owned U.S.

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federal, state, and foreign tax impacts are reflected in the tables within this footnote.

The tax impacts of the sale of the Life Sciences business are included in income from discontinued operations and excluded from the tables presented within this footnote.

For comparative purposes, the prior period information contained in the tables in this footnote have been adjusted to exclude the Life Sciences business, unless otherwise noted.

Our effective tax rate for continuing operations was ( 1.0 )% for 2019.

The 2019 effective tax rate for continuing operations differs from the U.S.

federal statutory tax rate of 21 % primarily due to (1) the impact of the impairment of nondeductible goodwill which is treated as a permanent difference and (2) the company’s accrual of taxes on unremitted earnings of foreign subsidiaries which may be repatriated.

Our effective tax rate for continuing operations was ( 1.0 )% for 2019.

The 2019 effective tax rate for continuing operations differs from the U.S.

federal statutory tax rate of 21 % principally due to a discrete tax charge of $ 6.0 million related to final tax regulations published by the Department of the Treasury and Internal Revenue Service on February 4, 2019.

The tax rate was also impacted by valuation of its state tax attributes.

Our effective tax rate for continuing operations was 0.7 % for 2018.

The 2018 effective tax rate for continuing operations differs from the U.S.

federal statutory income tax rate of 21 % primarily due to the impact of goodwill impairment which was nondeductible for tax purposes.

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The following table summarizes the principal components of the deferred tax assets and liabilities.

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Operating leases 10,473 11,149

Interest rate swap 37 —

Taxes on unremitted foreign earnings 5,630 6,601

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Interest rate swap — 3,611

Pension/Personnel accruals 2,909 1,669

Pension and personnel accruals 2,422 2,909

Operating leases 12,834 13,209

Net operating loss carryforwards 23,629 18,659

R&D credit carryforwards — 2,463

Unrealized losses 2,143 1,529

Credit carryforwards 3,044 3,574

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Net deferred income tax liabilities $ 7,142 $ 11,178

As of December 31, 2020, we had no U.S.

federal net operating loss (“NOL”) carryover, $ 3.8 million of consolidated state NOL carryovers, and $ 234.8 million of separate state NOL carryovers.

The state NOLs begin to expire in 2030.

As of December 31, 2021, we had a $ 26.4 million U.S.

federal net operating loss (“NOL”) carryover.

The federal NOL has an indefinite life, but utilization within any tax year is limited to 80% of taxable income.

Therefore, a valuation allowance of $ 1.3 million has been established to reduce the attribute balance to the amount expected to be utilized.

As of December 31, 2021, we had $ 251.5 million of state NOL carryovers, which begin to expire in 2030.

Management believes that certain of the state NOL carryovers will more likely than not expire prior to utilization.

As such, a valuation allowance of $ 12.6 million (net of federal benefit) has been established to reduce the state attribute balance to the amount

expected to be utilized before expiration.

As such, a valuation allowance of $ 13.1 million (net of federal benefit) has been established to reduce the state attribute balance to the amount expected to be utilized before expiration.

We also have $ 5.0 million, tax-effected, of foreign NOL carryovers at December 31, 2021.

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Therefore, we have established a valuation allowance of $ 2.3 million to reduce the carrying value of the asset related to foreign NOLs to the amount that has been determined to be more likely than not realized.

We have $ 0.2 million of state credit carryforwards and $ 0.7 million of other consolidated state deferred tax assets for which we believe recognition is not appropriate.

In addition, we have $ 3.4 million of tax credits in other foreign jurisdictions as of December 31, 2020.

The tax credits in these jurisdictions begin to expire in 2026.

Valuation allowances have been recorded for these state and foreign items accordingly.

We have $ 0.2 million and $ 2.8 million of U.S.

federal tax credits and tax credits in foreign jurisdictions, respectively, as of December 31, 2021.

We have recognized a valuation allowance of $ 2.1 million for the foreign tax credits.

In addition, we have $ 1.0 million of state deferred tax assets for which we believe recognition is not appropriate.

We have a U.S.

federal and state deferred tax asset related to currency losses on intercompany loans.

Management believes it is more likely than not that the benefit for the asset will not be realized based on timing of expected repayment of the intercompany loans.

We have established a valuation allowance of $ 1.7 million to eliminate the carrying value of this asset.

federal and state deferred tax asset related to currency losses on intercompany loans and interest expense carryforwards.

Management believes it is more likely than not that the benefit for these assets will not be realized based on timing of expected repayment of the intercompany loans.

We have established a valuation allowance of $ 2.1 million and $ 4.0 million, respectively, to eliminate the carrying value of these assets.

Management assesses available positive and negative evidence to estimate whether it is more likely than not sufficient future taxable income will be generated to provide use of the existing deferred tax assets.

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

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

On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $ 25.8 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized without consideration of future earnings growth.

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Management believes all remaining tax assets will more likely than not be realized.

However, the amount of the deferred tax considered realizable could be reduced based on changing conditions.

During 2020, the state valuation allowance increased by approximately $ 3.1 million, primarily due to a valuation allowance recorded to offset the current year generation of separate state loss carryforwards that management does not believe are realizable given anticipated changes in state nexus.

The federal valuation allowance increased by approximately $ 1.0 million, to offset current year changes in unrealized exchange losses on intercompany loans.

The foreign valuation allowance increased by $ 2.2 million in 2020 primarily to offset current year loss generation in jurisdictions where realization of the asset is not more likely than not.

As a result of the deemed mandatory repatriation provisions in the Tax Act and our recognition in income of GILTI as part of the changes from the Tax Act, we do not have material basis differences related to cumulative unremitted earnings for U.S.

However, the amount of the deferred tax asset realized will change based on future conditions, and the amount considered realizable will be adjusted if objective negative evidence in the form of cumulative losses is no longer present allowing additional weight to be given to subjective evidence such as our projections for growth.

During 2021, the valuation allowance increased by $ 4.1 million, primarily due to allowances recorded against U.S.

federal net operating loss carryforwards and carryforwards of disallowed interest expense which are subject to certain annual deduction limitations.

The increase was partially offset by utilization of previously reserved net operating loss carryforwards in certain foreign jurisdictions.

As a result of the deemed mandatory repatriation provisions in the U.S.

Tax Cuts and Jobs Act of 2017 and subsequent recognition in income of GILTI, we do not have material basis differences related to cumulative unremitted earnings for U.S.

income tax purposes.

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As of December 31, 2021, we have recorded a liability of $ 5.6 million for the anticipated withholding taxes that would be due upon repatriation of the unremitted earnings of those subsidiaries for which management does not intend to permanently reinvest all earnings.

In 2021, the Company asserted that it was permanently reinvested in certain jurisdictions for which it previously was unable to assert permanent reinvestment.

Prior to the Company’s debt refinancing in 2021, the Company had recorded a liability on all unremitted earnings.

However, upon completion of the debt refinancing, the Company reevaluated repatriation plans, changed its assertion for certain jurisdictions and recorded the resulting tax benefit of $ 2.4 million.

We are subject to U.S.

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federal examination for periods before 2017.

During 2020 we concluded, with no material findings, an audit by French tax authorities for the 2016 tax year.

We regularly assess the outcomes of both ongoing and future examinations for the current or prior years to ensure our provision for income taxes is sufficient.

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The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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Balance at end of year $ 125 $ 247 $ 2,589

The reduction to unrecognized tax benefits in 2020 is related to (1) expiring statutes of limitations in certain U.S.

state and foreign jurisdictions and (2) the remeasurement of previously unrecognized tax benefits.

The reduction to unrecognized tax benefits in 2021 is related to the remeasurement of previously unrecognized tax benefits.

As of December 31, 2021, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $ 0.7 million, inclusive of the impact of interest and penalties.

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The tax holidays are conditional upon our meeting certain employment and investment thresholds.

The impact of these tax holidays decreased foreign taxes by $ 0.2 million for 2020.

The tax holidays had no impact on our 2019 and 2018 foreign taxes.

Collectively, our credit facility is comprised of a term loan with a face amount of $ 545.0 million, maturing on October 19, 2022 (the “Senior Secured Term Loan”);

a term loan with a face amount of $ 300.0 million, maturing on October 19, 2022 (the “Incremental Term Loan”);

and a revolving line of credit with a face amount of $ 60.0 million, maturing on July 20, 2022 (the “Senior Secured Revolver”).

The credit facility is collateralized by all of our assets.

The impact of these tax holidays decreased foreign taxes by $ 0.2 million and $ 0.2 million for 2021 and 2020, respectively.

The tax holidays had no impact on our 2019 foreign taxes.

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

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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.

The following table presents outstanding debt balances as of December 31, 2021 and 2020.

As of December 31,

Term Loan Facility $ 148,875 $ —

Senior Secured Term Loan — 47,728

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Principal, net of current portion 156,731 79,977

Less-unamortized debt issuance costs (1) 952 16,647

Less-unamortized debt issuance costs and discount (1) 5,679 952

Long-term debt, net of current portion $ 151,052 $ 79,025

_______________________________

(1) In addition to this amount, costs of $ 1.8 million and $ 3.0 million related to the Senior Secured Revolver are recorded in other non-current assets as of December 31, 2020, and December 31, 2019, respectively.

(1) In addition to this amount, costs of $ 0.7 million related to the ABL Facility were recorded in other non-current assets as of December 31, 2021, and $ 1.8 million related to the Senior Secured Revolver are recorded in other non-current assets as of December 31, 2020.

We capitalized interest costs of $ 0.3 million, $ 0.2 million, and $ 1.5 million in the years ended December 31, 2021, 2020, and 2019, respectively, related to construction in progress.

In August 2020, we entered into an agreement to sell our Life Sciences business (see Note 2).

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.

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.

See Note 2 for a description of the methodology for allocating debt-related costs in historical periods to discontinued operations.

Term Loan Facility

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 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 (see Note 20).

The Term Loan Facility was issued at a $ 3.8 million discount.

We capitalized an additional $ 2.8 million in new debt issuance costs related to the Term Loan Facility.

Debt issuance costs and original issue discount related to the Term Loan Facility are recorded as a direct reduction to the carrying amount of the associated long-term debt and amortized over the term of the debt.

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.

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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.

We capitalized a total of $ 0.8 million in new debt issuance costs related to the ABL Facility.

Costs related to the ABL Facility are recorded in other non-current assets and amortized over the term of the agreement.

Senior Secured Term Loan

Outstanding borrowings under the Senior Secured Term Loan bear interest at one-month LIBOR (subject to a 0.75 % floor) plus an applicable margin of 5.75 %.

At December 31, 2020, the Senior Secured Term Loan bore interest at 6.50 %.

Outstanding borrowings under the Senior Secured Term Loan bore interest at one-month LIBOR (subject to a 0.75 % floor) plus an applicable margin of 5.75 %.

During 2021 until termination, the Senior Secured Term Loan bore interest at 6.50 %.

Incremental Term Loan

Outstanding borrowings under the Incremental Term Loan bear interest at one-month LIBOR plus an applicable margin of 5.75 %.

At December 31, 2020, the Incremental Term Loan bore interest at 5.90 %.

Outstanding borrowings under the Incremental Term Loan bore interest at one-month LIBOR plus an applicable margin of 5.75 %.

During 2021 until termination, the Incremental Term Loan bore interest at 5.90 %.

Senior Secured Revolver

Outstanding borrowings under the Senior Secured Revolver bear interest on a variable rate structure at either 1) one-month LIBOR plus an applicable margin of 4.00 % or 2) 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 outstanding borrowings under the Senior Secured Revolver at December 31, 2020 or 2019.

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 of $ 14.6 million.

Our credit facility is subject to certain financial covenants based on a consolidated net leverage ratio, becoming more restrictive over time.

We were in compliance with all covenants under our credit facility at December 31, 2020.

Debt Amendments

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 could have a material, adverse impact on our financial position.

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.

The amendment required a minimum of $ 675.0 million in cash proceeds from the sale.

All cash proceeds, less certain allowable costs, were required by the amendment to be used to prepay the Senior Secured Term Loan and the Incremental Term Loan.

The amendment also required a minimum $ 15.0 million payment on the Senior Secured Revolver and reduced total capacity from $ 75.0 million to $ 60.0 million immediately after the sale of the Life Sciences business.

The capacity will decrease to $ 50.0 million on June 30, 2021.

The amendment 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.

Liquidity thresholds were amended so that the threshold decreases commensurate with any principal payment on the Senior Secured Revolver.

We were in compliance with all covenants under our credit facility at December 31, 2020.

We capitalized a total of $ 0.4 million in new debt issuance costs related to the July 2020 and August 2020 amendments.

Costs related to the Senior Secured Term Loan and the Incremental Term Loan are recorded as a direct reduction to the carrying amount of the associated long-term debt.

Costs related to the Senior Secured Revolver are recorded in other non-current assets.

Additionally, $ 1.5 million of unamortized debt issuance costs were written off in the twelve months ended December 31, 2020, in connection with the July 2020 and August 2020 amendments.

See Note 2 for a description of the methodology for allocating amortization and write-offs of debt issuance costs in historical periods to discontinued operations.

International Lines of Credit and Other Loans

International lines of credit and other loans consist of loans with financial institutions in France, Brazil, China, and the United States with a weighted average interest rate of 2.77 % as of December 31, 2020.

These sources are used to fund working capital and equipment purchases for our manufacturing plants and have a weighted average remaining term of 6.7 years.

As of December 31, 2020, the international lines of credit and other loans had $ 14.4 million outstanding of which $ 4.5 million is classified as “Current maturities of long-term debt” on the Consolidated Balance Sheets.

Interest Rate Swap

In February 2019, we entered into a $ 700.0 million amortizing notional amount fixed-rate interest rate swap agreement to manage the interest rate risk associated with our long-term variable-rate debt until 2022.

The fixed-rate interest rate swap agreement calls for us to receive interest monthly at a variable rate equal to one-month LIBOR and to pay interest monthly at a fixed rate of 2.4575 %.

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 contract.

Refer to Note 21 for further discussion of the interest rate swap agreement.

Outstanding borrowings under the Senior Secured Revolver bore interest on a variable rate structure at either 1) one-month LIBOR plus an applicable margin of 4.00 % or 2) the prime lending rate plus an applicable margin of 3.00 %.

We had no outstanding borrowings under the Senior Secured Revolver during 2021.

We incurred a commitment fee of 0.50 % for unused capacity under the Senior Secured Revolver until it was terminated.

Debt Issuance Costs

We recognized a $ 2.4 million loss on extinguishment for unamortized debt issuance costs that were written off in the year ended December 31, 2021, in connection with the termination of our previous credit facility.

Interest Rate Swaps

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 the Term Loan Facility to a fixed rate of 1.291 %.

The interest rate swap has a notional amount of $ 60.0 million and a maturity date of July 31, 2024.

A portion of the proceeds from the Term Loan Facility was used to settle and terminate our previous fixed-rate interest rate swap agreement with a cash payment of $ 13.7 million during the first quarter of 2021.

Refer to Note 19 for further discussion of the interest rate swap agreements.

Future Maturities

The following table lists aggregate maturities of long-term debt for the next five years and thereafter.

Year Ending December 31, Aggregate

Thereafter 3,654

Years Ending December 31, Aggregate

Total outstanding principal $ 159,805

We adopted ASC 842 on January 1, 2019, and elected the modified retrospective approach in which the new standard is applied to all leases existing at the date of adoption through a cumulative-effect adjustment of less than $ 0.1 million to accumulated deficit.

Consequently, financial information is not updated, and the disclosures required under the new standard are not provided for periods prior to January 1, 2019.

As part of the adoption, we elected the package of practical expedients, the short-term lease exemption, and the practical expedient to not separate lease and non-lease components.

Accordingly, we accounted for our existing operating leases as operating leases under the new standard, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement.

Accordingly, we accounted for our existing operating leases as operating leases under the new standard, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether

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classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement.

We determine whether an arrangement is a lease at inception.

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We recognize short-term leases on a straight-line basis and do not record a related lease asset or liability for such leases.

Finance lease ROU assets consist primarily of equipment used in the manufacturing process with terms greater than two years to seven years .

Finance lease ROU assets consist primarily of equipment used in the manufacturing process with terms three years to eight years .

Operating lease ROU assets consist of the following:

• Equipment used in the manufacturing process as well as office equipment with terms two years to five years ;

• Manufacturing plants and office facilities with terms two years to twenty years .

• Manufacturing plants and office facilities with terms three years to 20 years.

The following table presents components of lease expense:

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Total lease liabilities $ 65,556 $ 70,960

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The following table contains supplemental cash flow information related to leases of continuing operations.

Years Ended December 31,

2021 2020 2019

Cash paid for amounts included in the measurement of lease liabilities:

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Years Ended December 31,

Weighted-average remaining lease term - finance leases 3.2 years 4.0 years

Weighted-average remaining lease term - operating leases 11.7 years 11.0 years

2021 2020 2019

Weighted-average remaining lease term - finance leases 3.3 years 3.2 years 4.0 years

Weighted-average remaining lease term - operating leases 11.1 years 11.7 years 11.0 years

Weighted-average discount rate - finance leases 3.0 % 2.2 % 2.2 %

Weighted-average discount rate - operating leases 7.0 % 7.0 % 5.7 %

The maturities of lease liabilities greater than twelve months as of December 31, 2020, is as follows:

The maturities of lease liabilities as of December 31, 2021, is as follows:

Operating Leases Finance Leases

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Total lease liabilities $ 56,999 $ 8,557

As of December 31, 2019, we had an operating lease commitment that had not yet commenced.

In March 2020, the operating lease for the manufacturing facility commenced and requires us to pay a total of approximately $ 27.5 million base rent payments over the lease term of 15 years.

We began making rent payments in the third quarter of 2020.

In March 2020, we amended the lease of our corporate headquarters building to exit over half of the previously leased space and reduce annual base rent payments by approximately $ 1.3 million over the remaining lease term which ends in 2030.

In March 2020, we amended the lease of our corporate headquarters building to exit over half of the previously leased space and reduce annual base rent payments.

The amendment was accounted for as a lease modification, and the remeasurement of the lease resulted in an $ 8.1 million decrease in the operating lease right-of-use (“ROU”) asset, a $ 10.5 million decrease in the noncurrent portion of the operating lease liability, and a $ 0.6 million decrease in the current portion of the operating lease liability.

The $ 3.0 million difference between the change in the operating lease ROU asset and the operating lease liabilities was recognized in “Other operating expense, net,” on the Consolidated Statements of Operations and Comprehensive Income (Loss).

In connection with the discontinued use of the previously leased space, we also recognized a $ 4.4 million termination charge and a $ 2.9 million impairment charge on the associated leasehold improvements, all of which were also recognized in “Other operating expense, net.”

The $ 3.0 million difference between the change in the operating lease ROU asset and the operating lease liabilities was recognized in “Other operating expense (income), net,” on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2020.

During the second quarter of 2020 and as part of our overall plan to improve liquidity during the COVID-19 pandemic, we negotiated with certain lessors to defer rent payments on leased buildings.

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The deferral of rent payments did not result in a substantial change in total lease payments over the individual lease terms.

We have elected to apply lease accounting relief announced by the FASB in April 2020 and have treated these lease concessions as if they existed in the original contracts rather than applying lease modification accounting.

The net impact on cash flows from operating activities on the Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020, was $ 0.7 million in cash savings which includes $ 0.4 million related to continuing operations.

During the year ended December 31, 2018, we recognized rent expense of $ 8.7 million in continuing operations.

Restructuring and Integration

The following table presents restructuring and integration charges for the years ended December 31, 2019 and 2018.

There were no restructuring and integration charges for the year ended December 31, 2020.

Solutions Corporate and

Consolidations Total

Year Ended December 31, 2019

Site closure and other associated costs $ ( 12 ) $ — $ ( 12 )

Total $ ( 12 ) $ — $ ( 12 )

Year Ended December 31, 2018

Severance and other employee costs $ — $ 626 $ 626

Site closure and other associated costs 63 — 63

Total $ 63 $ 626 $ 689

The following tables present restructuring and integration reserve activity for the years ended December 31, 2019 and 2018.

There was no restructuring and integration reserve activity for the year ended December 31, 2020.

Reserve Balance

December 31, 2018 Charges Non-cash

Adjustments Cash

Reductions Reserve Balance

December 31, 2019

Severance and other employee costs $ 129 $ — $ — $ ( 129 ) $ —

Site closure and other associated costs 24 ( 12 ) — ( 12 ) —

Total $ 153 $ ( 12 ) $ — $ ( 141 ) $ —

Reserve Balance

December 31, 2017 Charges Non-cash

Adjustments Cash

Reductions Reserve Balance

December 31, 2018

Severance and other employee costs $ — $ 626 $ — $ ( 497 ) $ 129

Site closure and other associated costs 1,099 63 ( 56 ) ( 1,082 ) 24

Total $ 1,099 $ 689 $ ( 56 ) $ ( 1,579 ) $ 153

In 2018, we recognized severance and other employee costs of $ 0.6 million at corporate headquarters related to the restructuring of our former Precision Engineered Products Group, effective January 2, 2018.

We elected to apply lease accounting relief announced by the FASB in April 2020 and treated these lease concessions as if they existed in the original contracts rather than applying lease modification accounting.

The net impact on cash flows from operating activities on the Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020, was $( 0.2 ) million and $ 0.7 million, respectively.

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Commitments and Contingencies

Brazil ICMS Tax Matter

Prior to the acquisition of Autocam Corporation in 2014 (“Autocam”), Autocam’s Brazilian subsidiary (“Autocam Brazil”) received notification from the Brazilian tax authority regarding ICMS (state value added tax or “VAT”) tax credits claimed on intermediary materials (e.g., tooling and perishable items) used in the manufacturing process.

Prior to the acquisition of Autocam Corporation (“Autocam”) in 2014, Autocam’s Brazilian subsidiary (“Autocam Brazil”) received notification from the Brazilian tax authority regarding ICMS (state value added tax or “VAT”) tax credits claimed on intermediary materials (e.g., tooling and perishable items) used in the manufacturing process.

The Brazilian tax authority notification disallowed state ICMS tax credits claimed on intermediary materials based on the argument that these items are not intrinsically related to the manufacturing processes.

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The complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 in connection with the Offering.

The plaintiffs seek to represent a class of stockholders who purchased shares of the

Company’s common stock in the Offering.

The complaint seeks unspecified monetary damages and other relief.

The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions.

The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations, or cash flows.

All Other Legal Matters

On October 26, 2020, Corre Opportunities Qualified Master Fund, LP, and Corre Horizon Fund, LP, filed a complaint in the Chancery Court of the State of Delaware against the Company.

The complaint alleges that the Company’s sale of its Life Sciences business without obtaining the prior consent of the plaintiffs was a breach of the terms of the Series B Preferred Stock.

The plaintiffs seek to represent a class of stockholders who purchased shares of the Company’s common stock in the Offering.

The complaint seeks unspecified monetary damages and other relief.

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The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations, or cash flows.

Other Legal Matters

On October 26, 2020, Corre Opportunities Qualified Master Fund, LP, and Corre Horizon Fund, LP, (collectively, “Corre Partners”) filed a complaint in the Chancery Court of the State of Delaware against the Company.

The complaint alleged that the Company’s sale of its Life Sciences business without obtaining the prior consent of the plaintiffs was a breach of the terms of the Series B Preferred Stock.

On May 13, 2021, the Company entered into a cooperation agreement with Corre Partners.

In connection with the cooperation agreement, on May 13, 2021, the Company also entered into a settlement agreement with Corre Partners, which resolved the complaint.

All other legal proceedings are of an ordinary and routine nature and are incidental to our operations.

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In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes.

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Preferred Stock and Stockholders' Equity

Series B Convertible Preferred Stock

On December 11, 2019, we issued to affiliates of existing common stockholders in a private placement 0.1 million shares of contingently redeemable Series B convertible preferred stock (“Preferred Stock”), par value of $ 0.01 per share and at a price of $ 1,000 per share, together with detachable warrants (the “Warrants”) to purchase up to 1.5 million shares of our common stock at an exercise price of $ 12.00 per share.

The Preferred Stock has a liquidation preference of $ 1,000 per share;

is redeemable at our option in cash (or, under certain circumstances, in stock), subject to the applicable redemption premium;

is convertible into a variable number of common shares on certain terms and conditions on or after March 31, 2023;

and is subject to certain other rights and obligations.

In connection with the issuance of Preferred Stock, we entered into a registration rights agreement with the purchasers to provide certain customary demand registration rights exercisable beginning on March 31, 2021, with respect to their shares of common stock, including those underlying the Preferred Stock and Warrants, shares of Preferred Stock, and the Warrants.

Net cash proceeds of $ 95.7 million from the issuance of the Preferred Stock were used for debt repayment, fees associated with the amendment and extension of our credit facility, and for general corporate purposes.

Preferred Stock shares earn cumulative dividends at a rate of 10.625 % per year, payable quarterly in arrears if declared, and accrue whether or not earned or declared.

If a Preferred Stock dividend is declared by the Board of Directors, then it will be paid in cash.

Additionally, holders of Preferred Stock participate in any dividends paid on shares of our common stock on an as-converted basis at a fixed conversion rate.

Our common stockholders approved a proposal at our 2020 annual stockholder meeting to issue common stock in excess of thresholds established by certain Nasdaq stock market rules upon the exercise of Warrants or the conversion or redemption of Preferred Stock.

Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity, because certain features of the Preferred Stock could require redemption of some or all Preferred Stock upon events that are considered not solely within our control, including a leverage ratio threshold and the passage of time.

For initial recognition in 2019, the Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and bifurcated embedded derivatives.

The aggregate discount is amortized as a deemed dividend through December 31, 2023, which is the date the holders have a non-contingent conversion option into a variable number of common shares equal to the liquidation preference plus accrued and unpaid dividends.

Series D Perpetual 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 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.

The Series D Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity, because certain features of the Series D Preferred Stock could require redemption of the Series D Preferred Stock upon a change of control event that is considered not solely within our control.

For initial recognition, the Series D Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and a bifurcated embedded derivative.

The aggregate discount is amortized as a deemed dividend through March 22, 2026, which is the date the dividend rate begins to increase by 2.5 % per year.

Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital).

In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives, (“ASC 815-15”) certain features of the Preferred Stock were bifurcated and accounted for as derivatives separate from the Preferred Stock.

In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives, certain features of the Series D Preferred Stock were bifurcated and accounted for as derivatives separately.

Note 19 discusses the accounting for these features.

As of December 31, 2020, the carrying value of the Preferred Stock shares was $ 105.1 million which included $ 13.0 million of accumulated unpaid and deemed dividends.

The following table presents the change in the Preferred Stock carrying value during the year ended December 31, 2020.

As of December 31, 2021, the carrying value of the Series D Preferred Stock shares was $ 53.8 million, which included $ 7.1 million of accumulated unpaid and deemed dividends.

The following table presents the change in the Series D Preferred Stock carrying value during the year ended December 31, 2021.

Year Ended December 31,

Beginning balance $ —

Proceeds from issuance of shares, net of issuance costs 61,793

Fair value of 2021 Warrants issued ( 14,839 )

Recognition of bifurcated embedded derivative ( 282 )

Accrual of in-kind dividends 6,222

Amortization 913

Ending balance $ 53,807

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”).

Series B Convertible Preferred Stock

The Series B Preferred Stock had a liquidation preference of $ 1,000 per share and was redeemable in cash at our option, subject to the applicable redemption premium.

Series B Preferred Stock shares earned cumulative dividends at a rate of 10.625 % per year, and accrued whether or not earned or declared.

The Series B Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and bifurcated embedded derivatives.

The aggregate discount was amortized as a deemed dividend through December 31, 2023, which is the date the holders had a non-contingent conversion option into a variable number of common shares equal to the liquidation preference plus accrued and unpaid dividends.

Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital).

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At redemption on March 22, 2021, the carrying value of the Series B Preferred Stock shares included $ 14.3 million of accumulated unpaid and deemed dividends.

The following table presents the change in the Series B Preferred Stock carrying value during the years ended December 31, 2021, 2020 and 2019.

Years Ended December 31,

2021 2020 2019

Beginning balance $ 105,086 $ 93,012 $ —

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Accrual of in-kind dividends 14,008 11,121 590

Amortization and other 953 52

Amortization 335 953 52

Redemption ( 119,429 ) — —

Ending balance $ — $ 105,086 $ 93,012

In September 2018, we issued 14.4 million shares of our common stock in a public offering under our shelf registration statement at a price of $ 16.00 per share.

Net proceeds of $ 217.3 million were used to repay debt.

Preferred Share Purchase Rights

On April 15, 2020, our Board of Directors authorized and declared a dividend of one preferred share purchase right for each outstanding share of common stock to shareholders of record on April 27, 2020.

The rights will become exercisable if a person or group becomes the beneficial owner of 15 % or more of our outstanding common stock (including in the form of synthetic ownership through derivative positions).

In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder to purchase one thousandth of a share of Series C Junior Participating Preferred Stock for $ 31.50 per share.

Rights held by the triggering person or entity will become void and will not be exercisable.

The Board of Directors may, rather than permitting the exercise of the rights, exchange each right (other than rights held by the triggering person or entity) for one share of common stock per right, subject to adjustment.

The Board of Directors will, prior to the rights becoming exercisable, in general be entitled to redeem the rights for $ 0.001 per right.

The rights expire on March 31, 2021.

The rights expired on March 31, 2021.

Revenue from Contracts with Customers

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Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or services.

The following tables summarize revenue by customer geographical region.

Year Ended December 31, 2021

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Total net sales $ 256,360 $ 171,269 $ ( 95 ) $ 427,534

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Year Ended December 31, 2019

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Total net sales $ 297,749 $ 192,100 $ ( 335 ) $ 489,514

The following tables summarize revenue by customer industry for the years ended December 31, 2021 and 2020.

Comparable sales data by customer industry is not available prior to 2020.

Our products in the automotive industry include high-precision components and assemblies for electric power steering systems, electric braking, electric motors, fuel systems, emissions control, transmissions, moldings, stampings, sensors, and electrical contacts.

Our products in the general industrial industry include high-precision metal and plastic components for a variety of industrial applications including diesel industrial motors, heating and cooling systems, fluid power systems, power tools, and more.

While many of the industries we serve include electrical components, our products in the residential/commercial electrical industry category in the following tables include components used in smart meters, charging stations, circuit breakers, transformers, electrical contact assemblies, precision stampings, welded contact assemblies, and specification plating and surface finishing.

Year Ended December 31, 2021

Solutions Power

Solutions Intersegment

Eliminations Total

Automotive $ 182,094 $ 38,779 $ — $ 220,873

General Industrial 90,290 60,312 — 150,602

Residential/Commercial Electrical — 61,748 — 61,748

Other 13,479 30,961 ( 79 ) 44,361

Total net sales $ 285,863 $ 191,800 $ ( 79 ) $ 477,584

Year Ended December 31, 2020

Solutions Power

Solutions Intersegment

Eliminations Total

Automotive $ 170,389 $ 31,422 $ — $ 201,811

General Industrial 75,610 52,714 — 128,324

Residential/Commercial Electrical — 58,143 — 58,143

Other 10,361 28,990 ( 95 ) 39,256

Total net sales $ 256,360 $ 171,269 $ ( 95 ) $ 427,534

Product Sales

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The amount of consideration we receive and the revenue we recognize varies with volume rebates and incentives we offer to our customers.

We estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method depending on the nature of the variable consideration.

We estimate the amount of variable consideration that should be included in the

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transaction price utilizing the expected value method or the most likely amount method depending on the nature of the variable consideration.

Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

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These contracts generally have an original expected duration of less than one year.

The following table provides information about contract liabilities from contracts with customers.

Balance at December 31, 2020 $ 766

Balance at December 31, 2021 $ 489

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer advances and deposits (e.g.

contract liability) on the Consolidated Balance Sheets.

These contract liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period as deferred revenue.

Deferred revenue relates to payments received in advance of performance under the contract and recognized as revenue as (or when) we perform under the contract.

Changes in the contract liability balances during the year ended December 31, 2021, were not materially impacted by any other factors.

Revenue recognized for the year ended December 31, 2021, from amounts included in deferred revenue at the beginning of the period for performance obligations satisfied or partially satisfied during the period was $ 0.8 million.

Deferred revenue is reported in the “Other current liabilities” line on the Consolidated Balance Sheets.

Transaction Price Allocated to Future Performance Obligations

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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, 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.

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.

Share-Based Compensation

We recognize compensation expense of all employee and non-employee director share-based compensation awards in the consolidated financial statements based upon the grant-date fair value of the awards over the requisite service or vesting period, less any expense incurred for estimated forfeitures.

As of December 31, 2020, we have 2.7 million maximum shares available that can be issued as options, stock appreciation rights, and other share-based awards.

As of December 31, 2021, we have 2.2 million maximum shares available

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that can be issued as options, stock appreciation rights, and other share-based awards.

Shares of our common stock delivered upon exercise or vesting may consist of newly issued shares of our common stock or shares acquired in the open market.

Share-based compensation expense is recognized in the “Selling, general, and administrative expense” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) except for $ 0.8 million, $ 0.4 million, and $ 0.2 million attributable to discontinued operations for the twelve months ended December 31, 2020, 2019, and 2018, respectively.

Share-based compensation expense is recognized in the “Selling, general, and administrative expense” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) except for $ 0.8 million and $ 0.4 million attributable to discontinued operations for the years ended December 31, 2020, and 2019, respectively.

The following table lists the components of share-based compensation expense by type of award.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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Stock Options

Option awards are typically granted to key employees on an annual basis.

A single option grant is typically awarded to eligible employees each year by the Compensation Committee of the Board of Directors.

The Compensation Committee occasionally awards additional individual grants to eligible employees.

All employees are awarded options at an exercise price equal to the closing price of our stock on the date of grant.

Option awards were typically granted to key employees on an annual basis by the Compensation Committee of the Board of Directors.

All options have an exercise price equal to the closing price of our stock on the date of grant.

The term life of options is generally ten years with a vesting period of generally three years .

During the years ended 2020, 2019, and 2018, we granted options to purchase 158,700 , 210,400 , and 57,800 shares, respectively, to certain key employees.

During the years ended 2020 and 2019, we granted options to purchase 159 thousand, and 210 thousand shares, respectively, to certain key employees.

The weighted average grant-date fair value of the options granted during 2020 and 2019 was $ 4.76 , and $ 2.77 per share, respectively.

The fair value of our options cannot be determined by market

value because they are not traded in an open market.

No options were granted in 2021.

The fair value of our options cannot be determined by market value because they are not traded in an open market.

Accordingly, we utilized the Black Scholes financial pricing model to estimate the fair value.

The following table shows the weighted average assumptions relevant to determining the fair value of stock options granted in each year.

2020 2019 2018

Expected term 6 years 6 years 6 years

Expected term 6 years 6 years

Average risk-free interest rate 1.42 % 2.47 %

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While the expected forfeiture rate is not an input of the Black Scholes financial pricing model for determining the fair value of the options, it is an important determinant of stock option compensation expense to be recorded.

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The following table presents stock option activity for the year ended December 31, 2021.

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Outstanding at January 1, 2021 871 $ 12.41

Granted 159 9.44

Forfeited or expired ( 63 ) 15.09

Exercised ( 6 ) 7.93 $ 8

Forfeited ( 22 ) 9.29

Expired ( 222 ) 13.31

Outstanding at December 31, 2021 621 $ 12.24 3.8 years $ — (1)

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The intrinsic value is the amount by which the closing market price of our stock at December 31, 2021, was greater than the exercise price of any individual option grant.

No options were exercised during the year ended December 31, 2020.

Cash proceeds from the exercise of options in the years ended December 31, 2019 and 2018, totaled less than $ 0.1 million and $ 0.3 million, respectively.

The tax benefit recognized from stock option exercises was less than $ 0.1 million and $ 0.1 million in the years ended December 31, 2019 and 2018, respectively.

For the years ended December 31, 2019 and 2018, proceeds from stock options are presented exclusive of tax benefits in cash flows from financing activities in the Consolidated Statements of Cash Flows.

The total intrinsic value of options exercised during the years ended December 31, 2019 and 2018, was $ 7.0 thousand and $ 0.5 million, respectively.

Restricted Stock

During the years ended December 31, 2020, 2019, and 2018, we granted 460,255 , 339,498 , and 86,516 shares of restricted stock to non-executive directors, officers, and certain other key employees.

During the years ended December 31, 2021, 2020, and 2019, we granted 459 thousand, 460 thousand, and 339 thousand shares of restricted stock to non-executive directors, officers, and certain other key employees.

The shares of restricted stock granted during the years ended December 31, 2021, 2020, and 2019, vest pro-rata generally over three years for officers and certain other key employees and over one year for non-executive directors and certain key employees.

We determined the fair value of the shares awarded by using the closing price of our common stock as of the date of grant.

The weighted average grant-date fair value of

restricted stock granted in the years ended December 31, 2020, 2019, and 2018, was $ 9.35 , $ 7.74 , and $ 24.55 per share, respectively.

The weighted average grant-date fair value of restricted stock granted in the years ended December 31, 2021, 2020, and 2019, was $ 6.84 , $ 9.35 , and $ 7.74 per share, respectively.

The total grant-date fair value of restricted stock that vested in the years ended December 31, 2021, 2020, and 2019, was $ 2.8 million, $ 1.9 million, and $ 2.9 million, respectively.

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Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value.

PSUs granted in 2020 were made pursuant to the NN, Inc.

2019 Omnibus Incentive Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”).

PSUs granted in 2021 and 2020 were made pursuant to the NN, Inc.

2019 Omnibus Incentive Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”).

PSUs granted in 2019 were made pursuant to the NN, Inc.

2016 Omnibus Incentive Plan and a Performance Share Unit Agreement (the “2016 Omnibus Agreement”).

Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”).

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If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically.

Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the award recipient’s continued employment.

Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the award recipient’s continued

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The actual number of shares of common stock to be issued to each award recipient at the end of the performance periods will be interpolated between a threshold and maximum payout amount based on actual performance results.

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however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the performance periods.

With respect to the TSR Awards, a participant will earn 50 % of the target number of PSUs for “Threshold Performance,” 100 % of the target number of PSUs for “Target Performance,” and 150 % of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35 % of the target number of PSUs for “Threshold Performance,” 100 % of the target number of PSUs for “Target Performance,” and 150 % of the target number of PSUs for “Maximum Performance.” For performance levels falling between the values shown below, the percentages will be determined by interpolation.

With respect to the TSR Awards, a participant will earn 50 % of the target number of PSUs for “Threshold Performance,” 100 % of the target number of PSUs for “Target Performance,” and 150 % of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35 % or 50 % of the target number of PSUs for “Threshold Performance,” 100 % of the target number of PSUs for “Target Performance,” and 150 % of the target number of PSUs for “Maximum Performance.” For performance levels falling between the values shown below, the percentages will be determined by interpolation.

The following tables present the goals with respect to TSR Awards and ROIC Awards granted in 2021, 2020, and 2019.

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Threshold Performance

(35% of Shares) Target Performance

(35% or 50% of Shares) (1)

Target Performance

(100% of Shares) Maximum Performance

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_______________________________

(1) Threshold performance for the 2021 grants and 2020 grants will earn 50 % of the target number of PSUs.

Threshold performance for the 2019 grants is 35 % of the target number of PSUs.

(2) The performance levels for 2020 grants were modified by the compensation committee of the board of directors in the first quarter of 2021 to adjust for the sale of the Life Sciences business and the ongoing effects of the COVID-19 pandemic.

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We generally recognize an expense for ROIC Awards based on the Target Performance threshold of 100 % because, at the date of grant, the Target Performance is the probable level of performance achievement.

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The following table presents the status of unvested PSUs as of December 31, 2021, and changes during the year then ended.

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Change in Vesting Estimates

During the year ended December 31, 2020, we recognized a decrease in share-based compensation expense in continuing operations of $ 0.3 million in the “Selling, general, and administrative expense” line of the Consolidated Statements of Operations and Comprehensive Income (Loss) to reverse cumulative expense for option, restricted stock, and PSU awards that

were forfeited upon termination of employment and for ROIC Awards that were granted in 2019 and are not expected to achieve Threshold Performance.

During the year ended December 31, 2021, we recognized a decrease in share-based compensation expense of $ 0.6 million in the “Selling, general, and administrative expense” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) to reverse cumulative expense for restricted stock and PSU awards that were forfeited upon termination of employment in excess of our estimated forfeiture rate and for ROIC Awards that were granted in 2020 and are now expected to achieve threshold performance rather than the target performance level.

In 2020 we also recognized a decrease in share-based compensation expense of $ 0.5 million in the “Income (loss) from discontinued operations, net of tax” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) to reverse cumulative expense for option, restricted stock, and PSU awards that were forfeited upon termination of employees related to the Life Sciences business.

During the year ended December 31, 2019, we recognized a decrease in share-based compensation expense in continuing operations of $ 1.1 million in the “Selling, general, and administrative expense” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) to reverse cumulative expense for option, restricted stock, and PSU awards that were forfeited upon termination of employment.

During the year ended December 31, 2018, we determined that the probability of performance achievement for ROIC Awards that were granted in 2016, 2017, and 2018 diminished to below the “Threshold Performance” level as defined by the grant agreements, and we recognized a decrease in share-based compensation expense in continuing operations of $ 1.8 million in “Selling, general, and administrative expense” and $ 0.2 million in “Income (loss) from discontinued operations, net of tax” on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Related accrued dividend equivalents of less than $ 0.1 million, $ 0.1 million, and $ 0.1 million were also reversed in 2020, 2019, and 2018, respectively, for awards that are not expected to vest.

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Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income (“AOCI”) are as follows:

The components of accumulated other comprehensive income (loss) (“AOCI”) are as follows:

Foreign Currency Translation Interest rate swap Income taxes (1) Total

Balance at December 31, 2018 $ ( 31,314 ) $ — $ — $ ( 31,314 )

Current-period other comprehensive income (loss) activity ( 13,609 ) — — ( 13,609 )

Other comprehensive income (loss) before reclassifications ( 3,845 ) ( 13,645 ) 3,166 ( 14,324 )

Amounts reclassified from AOCI to interest expense (2) — 1,411 ( 327 ) 1,084

Net other comprehensive income (loss) ( 3,845 ) ( 12,234 ) 2,839 ( 13,240 )

Balance at December 31, 2019 $ ( 35,159 ) $ ( 12,234 ) $ 2,839 $ ( 44,554 )

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Amounts reclassified from AOCI to interest expense (2) — 8,906 ( 2,068 ) 6,838

Amounts reclassified from AOCI to loss on interest rate swap (3) — 15,823 ( 3,674 ) 12,149

Sale of discontinued operations 5,961 — — 5,961

Net current-period other comprehensive income (loss) 4,278 8,522 ( 1,978 ) 10,822

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Amounts reclassified from AOCI to loss on interest rate swap (3) — 3,712 ( 861 ) 2,851

Sale of discontinued operations 5,961 — — 5,961

Net current-period other comprehensive income (loss) ( 1,135 ) 3,863 ( 898 ) 1,830

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(1) Income tax effect of changes in interest rate swap.

(2) Represents settlements on the interest rate swap while the hedge was effective.

(2) Represents interest rate swap settlements of effective hedge.

(3) Represents reclassification of derivative loss and settlements after discontinuation of hedge accounting.

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Net Income (Loss) Per Common Share

In accordance with ASC 260, Earnings Per Share, a company that has participating securities (for example, our Preferred Stock) is required to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS.

In accordance with ASC 260, Earnings Per Share, a company that has participating securities is required to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS.

The two-class method is an allocation of earnings between the holders of common stock and a company’s participating securities.

Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options, Warrants, and Preferred Stock.

To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options, warrants, and convertible preferred stock.

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The following table summarizes the computation of basic and diluted net income (loss) per common share.

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Numerator for basic and diluted undistributed net loss per common share (1) $ ( 34,703 ) $ ( 112,965 ) $ ( 47,383 )

Weighted average common shares outstanding, basic and diluted 42,199 42,030 31,678

Weighted average common shares outstanding 42,991 42,692 42,299

Adjustment for unvested restricted common stock ( 461 ) ( 493 ) ( 269 )

Adjustment for 2021 Warrants outstanding (2) 1,481 — —

Shares used to calculate income (loss) per share, basic and diluted 44,011 42,199 42,030

Per common share net loss:

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(1) Preferred Stock does not participate in losses.

(2) Weighted average 2021 Warrants outstanding are included in shares outstanding for calculation of basic earnings per share because they are exercisable at an exercise price of $ 0.01 per share, subject to certain adjustments (see Note 19).

The following table presents potentially dilutive securities that were excluded from the calculation of diluted net income (loss) per common share because they had an anti-dilutive effect.

Year Ended December 31,

Years Ended December 31,

2021 2020 2019

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2019 Warrants 1,500 1,500 1,500

Preferred Stock, as-converted 19,021 12,976 —

Series B Preferred Stock, as-converted — 19,021 12,976

2,266 21,392 15,053

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As there was no undistributed income for the years ended December 31, 2021, 2020, and 2019, no such allocation was necessary.

In addition, given the undistributed loss from continuing operations in the years ended December 31, 2020, 2019, and 2018, all options and warrants are considered anti-dilutive and were excluded from the calculation of diluted net income (loss) per share.

Stock options excluded from the calculations of diluted net income (loss) per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the year ended December 31, 2020, $ 8.54 to $ 25.16 for year ended December 31, 2019, and $ 4.42 to $ 25.16 for the year ended December 31, 2018.

Warrants excluded from the calculation of diluted net income (loss) per share for the years ended December 31, 2020 and 2019, had a per share exercise price of $ 12.00 .

Preferred Stock excluded from the calculation of diluted net income (loss) per share for the years ended December 31, 2020 and 2019, was calculated on an as-converted basis.

Holders of Preferred Stock will have the right to convert up to 25 % of their Preferred Stock into common shares per quarter after December 31, 2023, at a conversion price that equals a 30-day volume weighted average price per common share.

Under certain conditions, holders of Preferred Stock may elect to convert their Preferred Stock into common shares at an earlier date after March 31, 2023, at a conversion price that equals 90 % of the volume weighted average market price per common share.

The potentially dilutive Preferred Stock in the preceding table presents the more dilutive result of these conversion prices as if the Preferred Stock were converted on December 31, 2020.

In addition, given the undistributed loss from continuing operations in the years ended December 31, 2021, 2020, and 2019, all options and the 2019 Warrants are considered anti-dilutive and were excluded from the calculation of diluted net income (loss) per share.

Stock options excluded from the calculations of diluted net income (loss) per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the year ended December 31, 2021 and 2020, and $ 8.54 to $ 25.16 for the year ended December 31, 2019.

The 2019 Warrants excluded from the calculation of diluted net income (loss) per share for the year ended December 31, 2021 had a per share exercise price of $ 11.49 , and for the years ended December 31, 2020 and 2019, had a per share exercise price of $ 12.00 .

Series B Preferred Stock excluded from the calculation of diluted net income (loss) per share for the years ended December 31, 2020 and 2019, was calculated on an as-converted basis.

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Fair Value Measurements

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As of December 31, 2021, the carrying values of these financial instruments approximated fair value.

The fair value of floating-rate debt approximates the carrying amount because the interest rates paid are based on short-term maturities.

Derivative Financial Instruments

As described in Note 16, in connection with the issuance of Preferred Stock in December 2019 and in accordance with ASC 815-15, certain features of the Preferred Stock were bifurcated and accounted for separate from the Preferred Stock.

The following features are recorded as derivatives.

Certain features were bifurcated and accounted for separately from the Series B Preferred Stock.

The following features were recorded as derivatives.

• Leverage ratio put feature.

The Preferred Stock includes a redemption option based on a leverage ratio threshold that provides the preferred holder the option to convert the Preferred Stock to a variable number of shares of common stock at a discount to the then fair value of our common stock.

The conversion feature is considered a redemption right at a premium which is not clearly and closely related to the debt host.

• Contingent dividends.

The feature that allowed for the dividend rate to increase to 11.625 % in 2020 if shareholder approval was not obtained is not considered clearly and closely related to the debt host.

Because shareholder approval was obtained during 2020, the contingent dividends feature no longer exists as of December 31, 2020.

The Series B Preferred Stock included a redemption option based on a leverage ratio threshold that provided the preferred holder the option to convert the Series B Preferred Stock to a variable number of shares of common stock at a discount to the then fair value of our common stock.

The conversion feature was considered a redemption right at a premium which was not clearly and closely related to the debt host.

The conversion feature was terminated upon redemption of the Series B Preferred Stock in March 2021.

• Dividends withholding.

The Preferred Stock bears a feature that could require us to make an effective distribution to purchasers which is indexed to the tax rate of the purchasers.

The Series B Preferred Stock bore a feature that could require us to make an effective distribution to purchasers which is indexed to the tax rate of the purchasers.

This distribution would be partially offset by an adjustment to the redemption price and/or conversion rate.

The dividends withholding feature is not clearly and closely related to the debt host.

The Warrants issued with the Preferred Stock are exercisable, in full or in part, at any time prior to the seventh anniversary of their issuance at an exercise price of $ 12.00 per share, subject to customary anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events.

The following tables show the liabilities measured at fair value for the Preferred Stock derivatives above as of December 31, 2020, and December 31, 2019.

The dividends withholding feature was not clearly and closely related to the debt host.

Upon redemption of the Series B Preferred Stock in March 2021, we made a net cash distribution of $ 3.0 million to settle this withholding feature after effectively receiving a $ 1.0 million offset from the purchasers upon redemption of the Series B Preferred Stock.

In conjunction with our placement of the Series B Preferred Stock, we issued detachable warrants to purchase up to 1.5 million shares of our common stock (the “2019 Warrants”), which are exercisable, in full or in part, at any time prior to December 11, 2026.

The original exercise price was $ 12.00 per share, subject to anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events.

The issuance of the 2021 Warrants resulted in an adjusted exercise price of $ 11.49 per share for the 2019 Warrants because the new warrants have an exercise price below market value.

Certain features were bifurcated and accounted for separately from the Series D Preferred Stock that was issued on March 22, 2021.

The following features were recorded as derivatives.

• Change-in-control put feature.

The Series D Preferred Stock includes a put feature that allows the holder to redeem the Series D Preferred Stock upon a change in control at the greater of 1) the liquidation preference plus accrued dividends or 2) 140 % of the liquidation preference.

The put feature is considered a redemption right at a premium and is not clearly and closely related to the debt host.

In conjunction with our placement of the Series D Preferred Stock, we issued detachable warrants to purchase up to 1.9 million shares of our common stock.

The 2021 Warrants are exercisable, in full or in part, at any time prior to March 22, 2027, at an exercise price of $ 0.01 per share, subject to anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events.

The following tables show the liabilities measured at fair value for the above derivatives above as of December 31, 2021, and 2020.

Fair Value Measurements as of December 31, 2021

Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs

Derivative liability - other current liabilities $ — $ — $ 2,453

Derivative liability - other non-current liabilities 7,771 — 453

Description $ — $ — $ 3,117

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Fair Value Measurements as of December 31, 2020

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Total $ — $ — $ 3,117

The following table presents the change in the Preferred Stock derivatives during the twelve months ended December 31, 2020 and 2019.

The following table presents the change in the Preferred Stock derivatives during the years ended December 31, 2021 and 2020.

Years Ended December 31,

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Change in fair value (1) ( 7,009 ) ( 493 )

Settlements ( 3,005 ) —

Other (2) — 1,315

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(1) Changes in the fair value are recognized in the “Other expense (income), net” line in the Consolidated Statements of Operations and Comprehensive Income (Loss).

All of the change in fair value relates to the derivative liability held at December 31, 2020.

(2) In 2020, we determined that certain anti-dilution provisions of the Warrants require liability accounting;

therefore, we reclassified the $ 1.1 million value of the Warrants recorded in Stockholders’ Equity as of December 31, 2019, to a liability during the twelve months ended December 31, 2020.

The fair value of the leverage ratio put feature, the dividends withholding feature, and the contingent dividends feature utilizes unobservable inputs based on the best information available to determine the probability of the preferred stock remaining outstanding for future periods.

These inputs include probability assessments of how long the Preferred Stock will remain outstanding, whether the leverage ratio threshold will be exceeded, and, as of December 31, 2019, whether approval would be obtained from common stockholders for issuance of common stock upon exercise of the Warrants and conversion or redemption of the Preferred Stock.

Inputs also include the percentage of Preferred Stock held by non-U.S.

therefore, we reclassified the $ 1.1 million value of the Warrants recorded in Stockholders’ Equity as of December 31, 2019, to a liability during the year ended December 31, 2020.

The fair value of the change-in-control put feature utilizes unobservable inputs based on the Company’s assessment of the probability of a change-in-control event occurring in a future period.

The probability of a change-in-control event ranged from 1 % to 10 % as of December 31, 2021.

The leverage ratio put feature and the dividends withholding feature utilized unobservable inputs based on the best information available to determine the probability of the Series B Preferred Stock remaining outstanding for future periods.

These inputs included probability assessments of how long the Series B Preferred Stock would remain outstanding and whether the leverage ratio threshold would be exceeded.

Inputs also included the percentage of Series B Preferred Stock held by non-U.S.

resident holders and the applicable tax withholding rates for those holders.

The probability of the Preferred Stock remaining in future periods ranged from 3 % to 2 % as of December 31, 2020, and from 97 % to 2 % as of December 31, 2019.

The leverage ratio put feature also utilizes unobservable inputs to determine the probability of the leverage ratio put being exercisable as of March 31, 2023, which ranged from 10 % to 1 % as of December 31, 2020, and from 20 % to 1 % at December 31, 2019.

These probabilities are determined based on management’s assessment of facts and circumstances at each reporting date.

An increase in these probabilities would result in an increase in the derivative liability fair value.

Given the Preferred Stock value changes by period as a result of dividends and redemption premiums, weighted average values for these assumptions are not meaningful.

The fair value of the Warrants feature is determined using a valuation model, which utilizes unobservable inputs to determine the probability that the Warrants will remain outstanding for future periods.

The probabilities ranged from 80 % to 5 % and resulted in a weighted average term of 2.4 years as of December 31, 2020.

An increase in these probabilities would result in an increase in the derivative liability fair value.

As of December 31, 2019, the Warrants were classified in equity and valued using a term of 1.3 years.

Interest Rate Swap

The probability of the Series B Preferred Stock remaining in future periods ranged from 3 % to 2 % as of December 31, 2020.

The leverage ratio put feature also utilized unobservable inputs to determine the probability of the leverage ratio put being exercisable as of March 31, 2023, which ranged from 10 % to 1 % as of December 31, 2020.

These probabilities were determined based on management’s assessment of facts and circumstances at each reporting date.

An increase in these probabilities would have resulted in an increase in the derivative liability fair value.

Given the Series B Preferred Stock value changed by period as a result of dividends and redemption premiums, weighted average values for these assumptions are not meaningful.

The fair value of the 2019 Warrants is determined using a valuation model that utilizes unobservable inputs to determine the probability that the 2019 Warrants will remain outstanding for future periods.

The probabilities resulted in a weighted average term of 3.6 years as of December 31, 2021, and 2.4 years as of December 31, 2020.

The fair value of the 2021 Warrants is determined using the observable market price of a share of our common stock, less the $ 0.01 per share exercise price.

Interest Rate Swaps

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt.

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 “interest rate swap”).

The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022 (the “interest rate swap term”).

The interest rate swap effectively mitigated our exposures to the risks and variability of changes in LIBOR.

The notional amount of the interest rate swap decreases over time as presented in the following table:

Notional Amount

February 12, 2019 - December 30, 2020 $ 700,000,000

December 31, 2020 - December 30, 2021 466,667,000

December 31, 2021 - October 19, 2022 233,333,000

The objective of the interest rate swap was to eliminate the variability of cash flows in interest payments on the first $ 700.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates.

The hedged risk was the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term.

If one-month LIBOR were greater than the minimum percentage under the Senior Secured Term Loan, then the changes in cash flows of the interest rate swap were expected to exactly offset changes in cash flows of the variable rate debt.

The interest rate swap was designated as a cash flow hedge at inception.

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.

The following table presents the effect of the interest rate swap on the Consolidated Statements of Operations and Comprehensive Income (Loss).

We utilize fixed-rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable rate debt.

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

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cash flows in interest payments on the first $ 60.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates.

The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term.

The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt.

We designated the 2021 Swap as a cash flow hedge at inception.

Cash settlements of the 2021 Swap are recognized in interest expense.

On March 22, 2021, we terminated the 2019 Swap with a $ 13.7 million cash payment in connection with the extinguishment of our previously outstanding long-term variable-rate debt.

The 2019 Swap was designated as a cash flow hedge at inception.

However, in the fourth quarter of 2020, the 2019 Swap no longer qualified as an effective hedge, and subsequent changes in fair value of the 2019 Swap were recognized in earnings.

Amounts recognized in earnings related to the 2019 Swap are recorded in the “Loss on interest rate swap” line on the Consolidated Statements of Operations and Comprehensive Income (Loss) except that cash settlements prior to termination are recognized in “Derivative payments on interest rate swap.” Cash settlements during 2021 and the fourth quarter of 2020 are presented in investing activities on the Consolidated Statements of Cash Flows.

The following table presents the effect of the interest rate swaps on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Years Ended December 31,

2021 2020 2019

Interest expense (1) $ 73 $ 8,906 $ 1,411

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

As of December 31, 2020 and 2019, we reported a $ 2.9 million loss and a $ 9.4 million loss, respectively, net of tax, in accumulated other comprehensive income related to the interest rate swap.

The following tables present the liabilities measured at fair value on a recurring basis for the interest rate swap as of December 31, 2020, and December 31, 2019.

_______________________________

(1) Represents settlements on the interest rate swaps while the hedges are effective.

(2) Represents settlements and changes in fair value on the 2019 Swap while the hedge was ineffective.

As of December 31, 2021 and 2020, we reported a $ 0.1 million gain and a $ 2.9 million loss, respectively, net of tax, in accumulated other comprehensive income related to the interest rate swap.

The following tables present the assets and liabilities measured at fair value on a recurring basis for the interest rate swap as of December 31, 2021 and 2020.

Fair Value Measurements as of December 31, 2021

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(Level 2) Significant Unobservable Inputs

Derivative asset - other non-current assets $ — $ 284 $ —

Derivative liability - other current liabilities — ( 129 ) —

Derivative liability - other non-current liabilities — 4,357 —

Total $ — $ 155 $ —

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Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance.

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Fixed Rate Debt

The fair value of our outstanding fixed-rate debt included in the “International lines of credit and other loans” line item within Note 12 to these Notes to Consolidated Financial Statements was $ 14.4 million and $ 9.6 million as of December 31, 2020 and 2019, respectively.

The fair value of our outstanding fixed-rate debt included in the “International lines of credit and other loans” line item within Note 11 to these Notes to Consolidated Financial Statements approximated carrying value as of December 31, 2021 and 2020, respectively.

These fair values represent Level 2 under the three-tier hierarchy described above.

The carrying value of this fixed-rate debt was $ 10.9 million and $ 14.4 million as of December 31, 2021 and 2020, respectively.

Quarterly Results of Operations (Unaudited)

The following tables present the quarterly results of operations for the years ended December 31, 2020 and 2019.

Quarter Second

Quarter Third

Quarter Fourth

Net sales $ 116,213 $ 78,532 $ 113,761 $ 119,028

Cost of sales (exclusive of depreciation and amortization) 94,478 65,058 90,076 93,982

Income (loss) from continuing operations ( 108,077 ) ( 17,566 ) 1,640 ( 15,487 )

Income (loss) from discontinued operations, net of tax ( 140,114 ) ( 4,182 ) 20,330 162,864

Net income (loss) ( 248,191 ) ( 21,748 ) 21,970 147,377

Comprehensive income (loss) ( 272,690 ) ( 19,371 ) 31,851 170,440

Basic loss from continuing operations per common share $ ( 2.64 ) $ ( 0.49 ) $ ( 0.04 ) $ ( 0.44 )

Basic net income (loss) per common share $ ( 5.96 ) $ ( 0.59 ) $ 0.45 $ 3.41

Diluted loss from continuing operations per common share $ ( 2.64 ) $ ( 0.49 ) $ ( 0.04 ) $ ( 0.44 )

Diluted net income (loss) per common share $ ( 5.96 ) $ ( 0.59 ) $ 0.45 $ 3.41

Quarter Second

Quarter Third

Quarter Fourth

Net sales $ 127,528 $ 130,851 $ 120,459 $ 110,676

Cost of sales (exclusive of depreciation and amortization) 101,369 102,643 96,654 91,816

Loss from continuing operations ( 11,517 ) ( 4,453 ) ( 4,836 ) ( 9,943 )

Loss from discontinued operations, net of tax ( 8,001 ) ( 2,830 ) ( 1,019 ) ( 4,142 )

Net loss ( 19,518 ) ( 7,283 ) ( 5,855 ) ( 14,085 )

Comprehensive loss ( 22,053 ) ( 15,742 ) ( 17,976 ) ( 4,210 )

Basic loss from continuing operations per common share $ ( 0.27 ) $ ( 0.11 ) $ ( 0.12 ) $ ( 0.25 )

Basic net loss per common share $ ( 0.47 ) $ ( 0.17 ) $ ( 0.14 ) $ ( 0.35 )

Diluted loss from continuing operations per common share $ ( 0.27 ) $ ( 0.11 ) $ ( 0.12 ) $ ( 0.25 )

Diluted net loss per common share $ ( 0.47 ) $ ( 0.17 ) $ ( 0.14 ) $ ( 0.35 )

Subsequent Event

Debt Amendment

On March 3, 2022, we amended the Term Loan Facility to adjust certain covenants under the agreement.

The amendment increases the maximum total leverage ratio for all quarters of 2022 and 2023.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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On May 29, 2020, the Audit Committee of our Board of Directors dismissed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm.

The reports of PwC on our consolidated financial statements as of and for the years ended December 31, 2019 and 2018, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

During the years ended December 31, 2019 and 2018, and during the interim period through May 29, 2020, there were (i) no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K between the Company and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, any of which, if not resolved to PwC’s satisfaction, would have caused PwC to make reference thereto in their reports, and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except as noted below.

The reports of PwC on our consolidated financial statements as of and for the year ended December 31, 2019, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

During the year ended December 31, 2019, and during the interim period through May 29, 2020, there were (i) no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K between the Company and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, any of which, if not resolved to PwC’s satisfaction, would have caused PwC to make reference thereto in their reports, and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except as noted below.

For the year ended December 31, 2019, the material weaknesses in the Company’s internal control over financial reporting previously reported in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020, related to (a) an ineffective control environment due to a lack of a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with our financial reporting requirements and (b) ineffective design and maintenance of monitoring controls over our Paragon Medical business.

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Additionally, for the fiscal year ended December 31, 2019, we did not maintain effective control activities at one of our smaller foreign subsidiaries in which certain employees intentionally did not operate the controls related to inventory quantities as designed that resulted in the creation of unsupported physical inventory counts and inventory quantity adjustments.

For the year ended December 31, 2018, the material weakness in the Company’s internal control over financial reporting previously reported in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 18, 2019, related to an ineffective control environment due to a lack of a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with our financial reporting requirements.

Appointment of New Independent Registered Public Accounting Firm

On May 29, 2020, the Audit Committee approved the engagement of Grant Thornton LLP (“Grant Thornton”) as our independent registered public accounting firm for the year ending December 31, 2020, effective immediately.

During the Company’s two most recent years ended December 31, 2019 and 2018, and during the interim period through May 29, 2020, neither the Company nor anyone acting on its behalf consulted with Grant Thornton regarding any of the matters described in Items 304(a)(2)(i) and (ii) of Regulation S-K.

During the year ended December 31, 2019, and during the interim period through May 29, 2020, neither the Company nor anyone acting on its behalf consulted with Grant Thornton regarding any of the matters described in Items 304(a)(2)(i) and (ii) of Regulation S-K.

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 8. Financial Statements and Supplementary Data