NN INC 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 248 ) 31 Consolidated Statements of Operations and Comprehensive Income (Loss) 33 Consolidated Balance Sheets 34 Consolidated Statements of Cash Flows 35 Consolidated Statements of Changes in Stockholders’ Equity 37 Notes to Consolidated Financial Statements 38 Note 1. Significant Accounting Policies 38 Note 2. Discontinued Operations 41 Note 3. Segment Information 41 Note 4 . Revenue from Contracts with Customers 43 Note 5 . Accounts Receivable 44 Note 6 . Inventories 45 Note 7 . Property, Plant and Equipment 45 Note 8. Intangible Assets 45 Note 9. Investment in Joint Venture 46 Note 1 0 . Debt 46 Note 1 1 . Preferred Stock 48 Note 12. Leases 49 Note 13. Commitments and Contingencies 50 Note 14 . Income Taxes 51 Note 1 5 . Net Income (Loss) Per Common Share 54 Note 16. Share-Based Compensation 55 Note 17. Accumulated Other Comprehensive Income 57 Note 18 . Fair Value Measurements 57 30 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders NN, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of NN, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the financial statements of the Company as of and for the year ended December 31, 2023, and our report dated March 12, 2024 expressed an unqualified opinion on those consolidated financial statements. 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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Charlotte, North Carolina March 12, 2024 31 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders NN, Inc. 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, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 12, 2024 expressed unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2020. Charlotte, North Carolina March 12, 2024 32 Table of Contents NN, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) Years Ended December 31, (in thousands, except per share data) 2023 2022 2021 Net sales $ 489,270 $ 498,738 $ 477,584 Cost of sales (exclusive of depreciation and amortization shown separately below) 419,175 421,105 389,995 Selling, general, and administrative expense 47,436 49,635 51,489 Depreciation and amortization 46,120 47,231 46,195 Other operating expense (income), net ( 1,657 ) 1,859 ( 1,091 ) Loss from operations ( 21,804 ) ( 21,092 ) ( 9,004 ) Interest expense 21,137 15,041 12,664 Loss on extinguishment of debt and write-off of debt issuance costs — — 2,390 Derivative payments on interest rate swap — — 1,717 Loss on interest rate swap — — 2,033 Other expense (income), net 10,730 ( 5,064 ) ( 5,366 ) Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture ( 53,671 ) ( 31,069 ) ( 22,442 ) Benefit (provision) for income taxes ( 2,285 ) ( 1,621 ) 1,756 Share of net income from joint venture 5,806 6,592 6,261 Loss from continuing operations ( 50,150 ) ( 26,098 ) ( 14,425 ) Income from discontinued operations, net of tax (Note 2) — — 1,200 Net loss $ ( 50,150 ) $ ( 26,098 ) $ ( 13,225 ) Other comprehensive income (loss): Foreign currency translation gain (loss) $ 1,410 $ ( 8,156 ) $ ( 1,135 ) Interest rate swap: Change in fair value, net of tax ( 230 ) 3,358 59 Reclassification adjustments included in net loss, net of tax ( 1,815 ) ( 420 ) 2,906 Other comprehensive income (loss) $ ( 635 ) $ ( 5,218 ) $ 1,830 Comprehensive loss $ ( 50,785 ) $ ( 31,316 ) $ ( 11,395 ) Basic and diluted net loss per common share: Loss from continuing operations per common share $ ( 1.35 ) $ ( 0.83 ) $ ( 0.82 ) Income from discontinued operations per common share $ — $ — $ 0.03 Basic and diluted net loss per common share $ ( 1.35 ) $ ( 0.83 ) $ ( 0.79 ) Shares used to calculate basic and diluted net loss per share 46,738 44,680 44,011 See Notes to Consolidated Financial Statements. 33 Table of Contents NN, Inc. Consolidated Balance Sheets December 31, (in thousands, except per share data) 2023 2022 Assets Current assets: Cash and cash equivalents $ 21,903 $ 12,808 Accounts receivable, net 65,545 74,129 Inventories 71,563 80,682 Income tax receivable 11,885 12,164 Prepaid assets 2,464 2,794 Other current assets 9,194 9,123 Total current assets 182,554 191,700 Property, plant and equipment, net 185,812 197,637 Operating lease right-of-use assets 43,357 46,713 Intangible assets, net 58,724 72,891 Investment in joint venture 32,701 31,802 Deferred tax assets 734 102 Other non-current assets 7,003 5,282 Total assets $ 510,885 $ 546,127 Liabilities, Preferred Stock, and Stockholders’ Equity Current liabilities: Accounts payable $ 45,480 $ 45,871 Accrued salaries, wages and benefits 15,464 11,671 Income tax payable 524 926 Short-term debt and current maturities of long-term debt 3,910 3,321 Current portion of operating lease liabilities 5,735 5,294 Other current liabilities 10,506 11,723 Total current liabilities 81,619 78,806 Deferred tax liabilities 4,988 5,596 Long-term debt, net of current maturities 149,369 149,389 Operating lease liabilities, net of current portion 47,281 51,411 Other non-current liabilities 24,827 9,960 Total liabilities 308,084 295,162 Commitments and contingencies (Note 13) Series D perpetual preferred stock - $ 0.01 par value per share, 65 shares authorized, issued and outstanding at December 31, 2023 and 2022, respectively 77,799 64,701 Stockholders’ equity: Common stock - $ 0.01 par value per share, 90,000 shares authorized, 47,269 and 43,856 shares issued and outstanding at December 31, 2023 and 2022, respectively 473 439 Additional paid-in capital 457,632 468,143 Accumulated deficit ( 295,348 ) ( 245,198 ) Accumulated other comprehensive loss ( 37,755 ) ( 37,120 ) Total stockholders’ equity 125,002 186,264 Total liabilities, preferred stock, and stockholders’ equity $ 510,885 $ 546,127 See Notes to Consolidated Financial Statements. 34 Table of Contents NN, Inc. Consolidated Statements of Cash Flows Years Ended December 31, (in thousands) 2023 2022 2021 Cash flows from operating activities Net loss $ ( 50,150 ) $ ( 26,098 ) $ ( 13,225 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 46,120 47,231 46,195 Amortization of debt issuance costs and discount 1,941 1,361 1,381 Paid-in-kind interest 2,239 — — Loss on extinguishment of debt and write-off of debt issuance costs — — 2,390 Total derivative loss (gain), net of cash settlements 11,933 ( 5,265 ) ( 3,259 ) Share of net income from joint venture, net of cash dividends received ( 1,868 ) ( 347 ) ( 6,261 ) Gain on disposal of discontinued operations, net of tax — — ( 1,200 ) Share-based compensation expense 2,821 4,377 3,216 Deferred income taxes ( 1,273 ) ( 1,814 ) ( 4,845 ) Other ( 785 ) ( 3,207 ) ( 2,611 ) Changes in operating assets and liabilities: Accounts receivable 9,087 ( 4,920 ) 13,698 Inventories 9,997 ( 6,672 ) ( 12,959 ) Accounts payable 1,142 8,619 343 Income taxes receivable and payable, net ( 89 ) ( 1,457 ) ( 4,516 ) Other ( 1,771 ) ( 4,091 ) ( 2,761 ) Net cash provided by operating activities 29,344 7,717 15,586 Cash flows from investing activities Acquisition of property, plant and equipment ( 20,496 ) ( 17,952 ) ( 18,221 ) Proceeds from sale of property, plant, and equipment 2,898 460 1,418 Cash paid for post-closing adjustments on sale of business — — ( 3,880 ) Cash settlements of interest rate swap — — ( 15,420 ) Net cash used in investing activities ( 17,598 ) ( 17,492 ) ( 36,103 ) Cash flows from financing activities Proceeds from long-term debt 61,000 46,000 171,000 Repayments of long-term debt ( 65,395 ) ( 47,958 ) ( 93,729 ) Cash paid for debt issuance costs ( 169 ) ( 136 ) ( 7,360 ) Proceeds from issuance of preferred stock — — 61,793 Redemption of preferred stock — — ( 122,434 ) Proceeds from (repayments of) short-term debt 3,648 — ( 1,563 ) Other ( 1,967 ) ( 3,092 ) ( 5,150 ) Net cash provided by (used in) financing activities ( 2,883 ) ( 5,186 ) 2,557 Effect of exchange rate changes on cash flows 232 ( 887 ) ( 1,522 ) Net change in cash and cash equivalents 9,095 ( 15,848 ) ( 19,482 ) Cash and cash equivalents at beginning of year 12,808 28,656 48,138 Cash and cash equivalents at end of year $ 21,903 $ 12,808 $ 28,656 See Notes to Consolidated Financial Statements. 35 Table of Contents NN, Inc. Consolidated Statements of Cash Flows Years Ended December 31, (in thousands) 2023 2022 2021 Supplemental schedule of non-cash investing activities: Non-cash additions to property, plant and equipment 2,743 1,266 4,438 Non-cash additions to debt issuance costs 2,712 — — Supplemental disclosures: Cash paid for interest, net of capitalized interest 15,272 13,344 10,739 Cash paid for income taxes 3,083 4,739 7,624 See Notes to Consolidated Financial Statements. 36 Table of Contents NN, Inc. Consolidated Statements of Changes in Stockholders’ Equity Common Stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) (in thousands) Number of shares Par value Total Balance as of December 31, 2020 42,686 $ 427 $ 493,332 $ ( 205,875 ) $ ( 33,732 ) $ 254,152 Net loss — — — ( 13,225 ) — ( 13,225 ) Dividends accrued for preferred stock — — ( 21,478 ) — — ( 21,478 ) Shares issued under stock incentive plans, net of forfeitures 387 4 ( 4 ) — — — Share-based compensation expense — — 3,221 — — 3,221 Restricted shares surrendered for tax withholdings under stock incentive plans ( 52 ) ( 1 ) ( 362 ) — — ( 363 ) Shares issued for option exercises 6 — 48 — — 48 Other comprehensive income — — — — 1,830 1,830 Balance as of December 31, 2021 43,027 $ 430 $ 474,757 $ ( 219,100 ) $ ( 31,902 ) $ 224,185 Net loss — — — ( 26,098 ) — ( 26,098 ) Dividends accrued for preferred stock — — ( 10,894 ) — — ( 10,894 ) Shares issued under stock incentive plans, net of forfeitures 860 9 ( 9 ) — — — Share-based compensation expense — — 4,377 — — 4,377 Restricted shares surrendered for tax withholdings under stock incentive plans ( 31 ) — ( 88 ) — — ( 88 ) Other comprehensive loss — — — — ( 5,218 ) ( 5,218 ) Balance as of December 31, 2022 43,856 $ 439 $ 468,143 $ ( 245,198 ) $ ( 37,120 ) $ 186,264 Net loss — — — ( 50,150 ) — ( 50,150 ) Dividends accrued for preferred stock — — ( 13,098 ) — — ( 13,098 ) Shares issued under stock incentive plans, net of forfeitures and tax withholdings 3,561 36 ( 57 ) — — ( 21 ) Share-based compensation expense — — 2,821 — — 2,821 Restricted shares surrendered for tax withholdings under stock incentive plans ( 148 ) ( 2 ) ( 177 ) — — ( 179 ) Other comprehensive loss — — — — ( 635 ) ( 635 ) Balance as of December 31, 2023 47,269 $ 473 $ 457,632 $ ( 295,348 ) $ ( 37,755 ) $ 125,002 See Notes to Consolidated Financial Statements. 37 Table of Contents NN, Inc. Notes to Consolidated Financial Statements Note 1. Significant Accounting Policies Nature of Business NN, Inc. is a 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 for a variety of end markets on a global basis. As used in the Notes to Consolidated Financial Statements, the terms the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries. As of December 31, 2023, we had 27 facilities in North America, South America, Europe, and China. Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current year’s presentation. 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. Principles of Consolidation Our consolidated financial statements include the accounts of NN, Inc., and its wholly owned subsidiaries. We own a 49 % investment in a joint venture (the “JV”) which we account for using the equity method (see Note 9). All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates in the Preparation of Consolidated Financial Statements The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to use estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less. We maintain cash balances in transaction accounts with various financial institutions that are insured by the Federal Deposit Insurance Corporation. Although we maintain balances that exceed the federally insured limit, we have not experienced any losses related to these balances, and we believe credit risk to be minimal. We had $ 13.5 million and $ 12.5 million in cash and cash equivalents as of December 31, 2023 and 2022, respectively, held at foreign financial institutions. Accounts Receivable and Allowance for Credit Losses Trade accounts receivable are recorded at their net realizable value. We maintain allowances for estimated losses resulting from the inability of our customers to make required payments. The allowances are based on the amount that we ultimately expect to collect from our customers. We evaluate the collectability of accounts receivable based on a combination of factors including number of days receivables are past due, historical collection experience, current market conditions, and forecasted direction of economic and business environment. Accounts receivable are written off at the time a customer receivable is deemed uncollectible. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs, which approximates the average cost method. Our policy is to expense abnormal amounts of idle facility expense, freight, handling cost, and waste included in cost of products sold. In addition, we allocate fixed production overheads based on the normal production capacity of our facilities. Inventory valuations were developed using normalized production capacities for each of our manufacturing locations. The costs from excess capacity or under-utilization of fixed production overheads were expensed in the period incurred and are not included as a component of inventory. Inventories also include tools, molds, and dies in progress that we are producing and will ultimately sell to our customers. These inventories are also carried at the lower of cost or net realizable value. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Assets to be disposed of are stated at the lower of depreciated cost or fair market value less estimated selling costs. Expenditures for maintenance and repairs are charged to expense as incurred. Major renewals and improvements are capitalized. When a property item is retired, its cost and related accumulated depreciation are removed from the property accounts and any gain or loss is recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss). We review the carrying values of long-lived assets for 38 Table of Contents impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Property, plant and equipment also includes tools, molds, and dies used in manufacturing. Depreciation is calculated based on historical cost using the straight-line method over the estimated useful lives of the depreciable assets. Estimated useful lives for buildings and land improvements generally range from 10 years to 40 years. Estimated useful lives for machinery and equipment generally range from 3 years to 12 years. Estimated useful lives for leasehold improvements are based on the life of the lease. Leases We determine whether an arrangement is a lease at inception. Lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the implicit rate is not readily determinable, we use the estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Amortization of lease ROU assets is recognized in expense on a straight-line basis over the lease term. We recognize short-term leases, which have a term of twelve months or less, on a straight-line basis and do not record a related lease asset or liability for such leases. Finance lease ROU assets consist primarily of equipment used in the manufacturing process with terms of four years to eight years . Operating lease ROU assets consist of the following: • Equipment used in the manufacturing process as well as office equipment with terms of five years ; and • Manufacturing plants and office facilities with terms of four years to 20 years. We sublease certain leased buildings or portions of leased buildings when no longer needed for our current operational needs. Since we retain the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the lease term. Impairment of Long-Lived Assets Long-lived tangible and intangible assets subject to depreciation or amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets, or asset groups, may not be recoverable. A test for recoverability is also performed when management has committed to a plan to dispose of a reporting unit or asset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible or intangible asset, or asset group, is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is deemed not recoverable, then the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaining useful life. Assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal. Equity Method Investments Our equity method investment is subject to a review for impairment if, and when, circumstances indicate that a decline in value below its carrying amount may have occurred. Examples of such circumstances include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee; a significant adverse change in the regulatory, economic or technological environment of the investee; a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates; and recurring negative cash flows from operations. If management considers the decline to be other than temporary, we would write down the investment to its estimated fair market value. Revenue Recognition We generally transfer control and recognize revenue when we ship the product from our manufacturing facility to our customer at a point in time, as this is when our customer obtains the ability to direct use of, and obtain substantially all of the remaining benefits from, the product. In limited circumstances, we recognize revenue over time as services are rendered. We have elected to recognize the cost for freight and shipping when control over products has transferred to the customer as a component of cost of sales. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus-margin approach when an observable price is not available. The expected duration of our contracts is one year or less, and we have elected to apply the practical expedient that allows entities to disregard the effects of financing when the contract length is less than one year. The amount of consideration we receive and the revenue we recognize varies with volume rebates and incentives we offer to our customers. We estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. 39 Table of Contents We utilize the portfolio approach practical expedient to evaluate sales-related discounts on a portfolio basis to contracts with similar characteristics. The effect on our consolidated financial statements of applying the portfolio approach would not differ materially from evaluation of individual contracts. We give our customers the right to return only defective products in exchange for functioning products or rework of the product. These transactions are evaluated and accounted for under ASC Topic 460, Guarantees , and we estimate the impact to the transaction price based on an analysis of historical experience. Share Based Compensation The cost of restricted stock awards, performance share units, and stock options is recognized as compensation expense over the vesting periods based on the grant date fair value, as determined under ASC Topic 718, Compensation – stock compensation . The grant-date fair value of restricted stock awards is based on the closing price of our common stock on the date of grant. We use a Monte Carlo simulation for performance share units that include a market condition. The grant-date fair value of performance share units that include performance conditions is based on the closing price of our common stock on the date of grant and compensation expense is recognized based on the estimated outcome of the performance condition. Stock options are valued using the Black Scholes financial pricing model. Common Stock and Preferred Stock Dividends Dividends are recorded as a reduction to retained earnings. When we have an accumulated deficit, dividends are recorded as a reduction of additional paid-in capital. Foreign Currency Translation Assets and liabilities of our foreign subsidiaries are translated at current exchange rates. Revenue, costs, and expenses are translated at average rates prevailing during each reporting period. Translation adjustments arising from the translation of foreign subsidiary financial statements are reported as a component of other comprehensive income (loss) and accumulated other comprehensive income (loss) within stockholders’ equity. Transactions denominated in foreign currencies, including intercompany transactions, are initially recorded at the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or losses are recognized as incurred in the “ Other expense (income), net ” line in the Consolidated Statements of Operations and Comprehensive Income (Loss). For the years ended December 31, 2023, 2022, and 2021, transaction gains (losses) were $ 0.3 million, $ 0.2 million, and $( 0.5 ) million, respectively. Net Income (Loss) Per Common Share In accordance with ASC 260, Earnings Per Share, we allocate earnings or losses to common stockholders and participating securities using the two-class method to compute earnings per share (“EPS”) unless the treasury stock method results in a lower EPS. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available to common stockholders. Participating securities may participate in undistributed earnings with common stock whether or not that participation is conditioned upon the occurrence of a specified event. Under the two-class method, our net income (loss) is reduced (or increased) by the amount that has been or will be distributed to our participating security holders. We have elected to allocate undistributed income to participating securities based on year-to-date results. Our participating securities, which include restricted stock awards and preferred stock, do not participate in losses. Basic net income (loss) per common share is computed by dividing net income (loss) allocable to common shares by the weighted average number of common shares outstanding, adjusted for participating securities and certain outstanding warrants. Diluted net income (loss) per common share includes the effect of warrants and stock options unless inclusion would not be dilutive. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of certain foreign subsidiaries as these earnings are not deemed to be permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes. We treat global intangible low-taxed income (“GILTI”) as a periodic charge in the year in which it arises and therefore do not record deferred taxes for basis differences associated with GILTI. We eliminate disproportionate tax effects from accumulated other comprehensive income (loss) when the circumstances upon which they are premised cease to exist. 40 Table of Contents Fair Value Measurements Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Government Assistance For the years ended December 31, 2023 and 2022, we received $ 0.7 million and $ 1.4 million, respectively, in grants and other programs from various governments outside of the U.S. These amounts were received as employment programs, rent abatements, and incentives for capital expenditures in specific locations. Amounts received were recognized as reductions to the underlying expense or capital assets. Note 2. Discontinued Operations In October 2020, we sold our Life Sciences business under the terms of a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for $ 753.3 million cash. In accordance with the terms of the SPA, we agreed to indemnify the buyer for certain tax liabilities on its consolidated federal income tax return related to the Life Sciences business during the portion of the year ended December 31, 2020, prior to the change in ownership on October 6, 2020. We recognized a tax indemnification of $ 1.2 million during the year ended December 31, 2020 which was reversed during the year ended December 31, 2021, as the actual tax liability was determined to be $ 0 . Note 3. Segment Information Our business is aggregated into the following two reportable segments. • Mobile Solutions. Mobile Solutions is focused on growth in the automotive, general industrial, and medical 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, general industrial, automotive, and medical end markets. Within this group we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies, and finished devices used in applications ranging from power control to transportation electrification. We manufacture a variety of products including electrical contacts, connectors, contact assemblies, and precision stampings for the electrical end market and high precision products for the aerospace and defense end market utilizing our extensive process technologies for optical grade plastics, thermally conductive plastics, titanium, Inconel, magnesium, and electroplating. Our medical business includes the production of a variety of tools and instruments for the orthopaedics and medical/surgical end markets. 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. 41 Table of Contents The following table presents our financial performance by reportable segment. Year Ended December 31, 2023 2022 2021 Net sales: Mobile Solutions $ 303,335 $ 293,536 $ 285,863 Power Solutions 185,948 205,204 191,800 Intersegment sales eliminations ( 13 ) ( 2 ) ( 79 ) Total $ 489,270 $ 498,738 $ 477,584 Income (loss) from operations: Mobile Solutions $ ( 11,749 ) $ ( 2,165 ) $ 9,039 Power Solutions 11,096 3,536 6,493 Corporate ( 21,151 ) ( 22,463 ) ( 24,536 ) Total $ ( 21,804 ) $ ( 21,092 ) $ ( 9,004 ) Depreciation and amortization: Mobile Solutions $ 29,156 $ 28,192 $ 28,769 Power Solutions 15,318 17,483 15,892 Corporate 1,646 1,556 1,534 Total $ 46,120 $ 47,231 $ 46,195 Expenditures for long-lived assets: Mobile Solutions $ 15,387 $ 14,590 $ 15,411 Power Solutions 3,643 2,401 2,200 Corporate 1,466 961 610 Total $ 20,496 $ 17,952 $ 18,221 The following table summarizes total assets by reportable segment. As of December 31, 2023 2022 Mobile Solutions (1) $ 329,610 $ 338,338 Power Solutions 147,155 178,129 Corporate 34,120 29,660 Total $ 510,885 $ 546,127 _______________________________ (1) Total assets in Mobile Solutions includes $ 32.7 million and $ 31.8 million as of December 31, 2023 and 2022, respectively, related to our investment in the JV. The following table summarizes long-lived tangible assets by country. As of December 31, 2023 2022 United States $ 127,186 $ 141,652 China 36,188 37,934 France 24,298 24,536 Mexico 14,038 15,235 Brazil 17,088 15,919 Poland 10,371 9,074 All foreign countries $ 101,983 $ 102,698 Total $ 229,169 $ 244,350 42 Table of Contents The following table summarizes revenue by country, based on our customers’ shipping destination. Year Ended December 31, 2023 2022 2021 United States $ 294,045 $ 301,823 $ 293,235 China 58,195 51,556 56,972 Brazil 48,696 48,216 35,455 Mexico 26,683 40,645 35,697 Germany 8,700 5,506 5,776 Poland 6,161 5,042 3,761 Other 46,790 45,950 46,688 Total net sales $ 489,270 $ 498,738 $ 477,584 Note 4. Revenue from Contracts with Customers Revenue is recognized when control of the good or service is transferred to the customer either at a point in time or, in limited circumstances, as our services are rendered over time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or services. During the year ended December 31, 2022, we received equipment from a customer as part of the selling price of goods transferred. This noncash consideration was recognized as revenue equal to the fair value of the equipment received. The following tables summarize revenue by customer industry. 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, specification plating, and surface finishing. Year Ended December 31, 2023 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total Automotive $ 212,582 $ 34,959 $ — $ 247,541 General Industrial 73,350 52,276 — 125,626 Residential/Commercial Electrical — 67,546 — 67,546 Other 17,403 31,167 ( 13 ) 48,557 Total net sales $ 303,335 $ 185,948 $ ( 13 ) $ 489,270 Year Ended December 31, 2022 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total Automotive $ 197,341 $ 40,890 $ — $ 238,231 General Industrial 78,142 61,828 — 139,970 Residential/Commercial Electrical — 70,055 — 70,055 Other 18,053 32,431 ( 2 ) 50,482 Total net sales $ 293,536 $ 205,204 $ ( 2 ) $ 498,738 Year Ended December 31, 2021 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total Automotive $ 182,094 $ 38,779 $ — $ 220,873 General Industrial 90,290 60,312 — 150,602 Residential/Commercial Electrical — 61,748 — 61,748 Other 13,479 30,961 ( 79 ) 44,361 Total net sales $ 285,863 $ 191,800 $ ( 79 ) $ 477,584 43 Table of Contents Other Sources of Revenue We provide pre-production activities related to engineering efforts to develop molds, dies, and machines that are owned by our customers. We may receive advance payments from customers which are deferred until satisfying our performance obligations by compliance with customer-specified milestones, recognizing revenue at a point in time. These contracts generally have an original expected duration of less than one year. Deferred Revenue The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer advances and deposits (e.g. contract liability) on the 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, which is reported in the “Other current liabilities” line on the Consolidated Balance Sheets. Deferred revenue relates to payments received in advance of performance under the contract and recognized as revenue as (or when) we perform under the contract. Changes in the contract liability balances during the year ended December 31, 2023, were not materially impacted by any other factors. The balance of deferred revenue was $ 0.4 million and $ 0.7 million as of December 31, 2023 and December 31, 2022, respectively. Revenue recognized for performance obligations satisfied or partially satisfied during the year ended December 31, 2023 included $ 0.7 million that was included in deferred revenue as of December 31, 2022. Transaction Price Allocated to Future Performance Obligations We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2023, unless our contracts meet one of the practical expedients. Our contracts met the practical expedient for a performance obligation that is part of a contract that has an original expected duration of one year or less. Costs to Obtain and Fulfill a Contract We recognize commissions paid to internal sales personnel that are incremental to obtaining customer contracts as an expense when incurred since the amortization period is less than one year. Costs to obtain a contract are expensed as selling, general and administrative expense. Sales, VAT, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Sales Concentration No single customer accounted for 10% or more of consolidated net sales, during the years ended December 31, 2023, 2022, and 2021. Note 5. Accounts Receivable The following table presents changes in the allowance for credit losses. Years Ended December 31, 2023 2022 2021 Balance at beginning of year $ 1,469 $ 1,352 $ 2,044 Additions 118 326 78 Write-offs and other ( 353 ) ( 182 ) ( 734 ) Currency impact 7 ( 27 ) ( 36 ) Balance at end of year $ 1,241 $ 1,469 $ 1,352 As of December 31, 2023, one customer represented greater than 10 % of our consolidated accounts receivable balance. Accounts Receivable Sales Programs We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution. During the years ended December 31, 2023 and 2022, we incurred fees of $ 1.1 million and $ 0.6 million, respectively, related to the sale of receivables which is recorded in the Other expense (income), net line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). 44 Table of Contents Note 6. Inventories Inventories are comprised of the following amounts: As of December 31, 2023 2022 Raw materials $ 25,456 $ 32,146 Work in process 22,942 24,610 Finished goods 23,165 23,926 Total inventories $ 71,563 $ 80,682 Note 7. Property, Plant and Equipment Property, plant and equipment are comprised of the following amounts: As of December 31, 2023 2022 Land and buildings $ 61,007 $ 58,256 Machinery and equipment 375,352 353,364 Construction in progress 3,466 11,063 Gross cost 439,825 422,683 Less: Accumulated depreciation 254,013 225,046 Property, plant and equipment, net $ 185,812 $ 197,637 For the years ended December 31, 2023, 2022, and 2021, we recorded depreciation expense of $ 32.0 million, $ 31.4 million, and $ 31.8 million, respectively. We monitor property, plant and equipment for any indicators of potential impairment. There were no impairment charges for the years ended December 31, 2023, 2022 and 2021. Note 8. Intangible Assets The following table shows changes in the carrying amount of intangible assets, net, by reportable segment. Mobile Solutions Power Solutions Total Balance as of December 31, 2021 $ 25,709 $ 63,009 $ 88,718 Amortization ( 3,353 ) ( 12,474 ) ( 15,827 ) Balance as of December 31, 2022 22,356 50,535 72,891 Amortization ( 3,353 ) ( 10,814 ) ( 14,167 ) Balance as of December 31, 2023 $ 19,003 $ 39,721 $ 58,724 The following table shows the cost and accumulated amortization of our intangible assets as of December 31, 2023 and 2022. December 31, 2023 December 31, 2022 Gross Carrying Value as of Acquisition Date Accumulated Amortization Net Carrying Value Gross Carrying Value as of Acquisition Date Accumulated Amortization Net Carrying Value Customer relationships $ 171,846 $ ( 114,671 ) $ 57,175 $ 173,746 $ ( 103,021 ) $ 70,725 Trademark and trade name 7,527 ( 5,978 ) 1,549 7,527 ( 5,361 ) 2,166 Total identified intangible assets $ 179,373 $ ( 120,649 ) $ 58,724 $ 181,273 $ ( 108,382 ) $ 72,891 Intangible assets that are fully amortized are removed and no longer represented in the gross carrying value or accumulated amortization. The following table shows estimated future amortization expense for each of the next five years. Year Ending December 31, 2024 $ 13,824 2025 13,824 2026 13,824 2027 11,663 2028 3,353 45 Table of Contents Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. There were no impairment charges for the years ended December 31, 2023, 2022 and 2021. Note 9. Investment in Joint Venture We own a 49 % investment in Wuxi Weifu Autocam Precision Machinery Company, Ltd., a joint venture located in Wuxi, China. The JV is jointly controlled and managed, and we account for it under the equity method, with the share of net income from the joint venture recorded in the Mobile Solutions segment. The following table shows changes in our investment in the JV. Balance as of December 31, 2022 $ 31,802 Share of earnings 5,806 Dividends paid by joint venture ( 3,938 ) Foreign currency translation loss ( 969 ) Balance as of December 31, 2023 $ 32,701 The following tables show summarized financial information of the unconsolidated JV. Year Ended December 31, 2023 2022 2021 Net sales 109,630 101,565 94,846 Cost of sales 93,609 84,654 77,620 Income from operations 14,175 15,111 15,429 Net income 11,848 13,453 12,777 December 31, 2023 2022 Current assets 68,508 63,141 Noncurrent assets 77,554 79,473 Current liabilities 68,665 66,960 Noncurrent liabilities 8,662 8,695 We recognized sales to the JV of $ 0 , $ 0.1 million, and $ 0.4 million during the years ended December 31, 2023, 2022, and 2021, respectively. Note 10. Debt On March 22, 2021, we entered into a $ 150.0 million term loan facility (as amended from time to time, the “Term Loan Facility”) and a new $ 50.0 million asset backed credit facility (as amended from time to time, the “ABL Facility”). On March 3, 2023, we amended the Term Loan Facility (the “Term Loan Amendment”) and ABL Facility to adjust certain covenants under the agreements, as well as to replace references to LIBOR with secured overnight finance rate (“SOFR”) for interest rate calculations. The following table presents the outstanding debt balances. As of December 31, 2023 2022 Term Loan Facility $ 148,114 $ 147,375 ABL Facility — 1,000 International loans 10,655 8,729 Unamortized debt issuance costs and discount (1) ( 5,490 ) ( 4,394 ) Total debt $ 153,279 $ 152,710 _______________________________ (1) In addition to this amount, costs of $ 0.5 million and $ 0.6 million related to the ABL Facility were recorded in other non-current assets as of December 31, 2023 and 2022, respectively. We capitalized interest costs of $ 1.3 million, $ 0.6 million, and $ 0.3 million in the years ended December 31, 2023, 2022, and 2021, respectively, related to construction in progress. 46 Table of Contents Term Loan Facility Effective March 31, 2023, outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month, three-month, or six-month SOFR with a duration adjustment (“Adjusted SOFR”), 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 %. Beginning in the second quarter of 2023, interest was increased on a paid-in-kind basis at a rate between 1.00 % and 2.00 % (“PIK interest”), dependent on the Company’s leverage ratio. The PIK interest is payable on the loan maturity date of September 22, 2026. At December 31, 2023, the Term Loan Facility bore interest, including PIK interest, based on one-month Adjusted SOFR, at 14.331 %. The Term Loan Facility requires quarterly principal payments of $ 0.4 million with the remaining unpaid principal amount due at the loan maturity date. We may be required to make additional principal payments annually that are calculated as a percentage of our excess cash flow, as defined by the lender, based on our net leverage ratio. The Term Loan Facility is collateralized by all of our assets. The Term Loan Facility has a first lien on all domestic assets other than accounts receivable and inventory and has a second lien on domestic accounts receivable and inventory. We were in compliance with all requirements under the Term Loan Facility as of December 31, 2023. The Term Loan Facility was issued at a $ 3.8 million discount and we capitalized an additional $ 5.4 million in new debt issuance costs. These costs are recorded as a direct reduction to the carrying amount of the associated long-term debt and amortized over the term of the debt. We had an interest rate swap that changed the one-month LIBOR to a fixed rate of 1.291 % on $ 60.0 million of the outstanding balance of the Term Loan Facility. During the first quarter of 2023, we terminated the interest rate swap and received cash proceeds of $ 2.5 million which was equal to its fair value. ABL Facility The ABL Facility provides for a senior secured revolving credit facility, with an original commitment amount of $ 50.0 million, of which a maximum of $ 30.0 million is available in the form of letters of credit and a maximum of $ 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. The maximum commitment amount may be increased or decreased from time to time based on the terms of conditions of the ABL Facility. 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. Effective March 3, 2023, the variable borrowing rate is either 1) Adjusted SOFR 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 Adjusted SOFR. At December 31, 2023, using one-month Adjusted SOFR plus a 2.00 % margin, the interest rate on outstanding borrowings under the ABL Facility would have been 7.445 %. We pay a commitment fee of 0.375 % for unused capacity under the ABL Facility and a 2.125 % fee on the amount of letters of credit outstanding. The final maturity date of the ABL Facility is March 22, 2026. As of December 31, 2023, we had no outstanding borrowings under the ABL Facility, $ 10.9 million of outstanding letters of credit, and $ 26.4 million available for future borrowings under the ABL Facility. The ABL Facility has a first lien on domestic accounts receivable and inventory. We were in compliance with all requirements under the ABL Facility as of December 31, 2023. Future Maturities The following table lists aggregate maturities of debt for each of the next five years. 2024 $ 3,910 2025 6,075 2026 146,156 2027 376 2028 382 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. 47 Table of Contents Note 11. Preferred Stock Series D Perpetual Preferred Stock On March 22, 2021, we completed a private placement of 65,000 shares of newly designated Series D Perpetual Preferred Stock, with a par value of $ 0.01 per share (the “Series D Preferred Stock”), at a price of $ 1,000 per share, together with detachable warrants (the “2021 Warrants”) to purchase up to 1.9 million shares of our common stock at an exercise price of $ 0.01 per share. The 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 additional paid-in capital due to the absence of retained earnings. 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 18 discusses the accounting for these features. As of December 31, 2023, the carrying value of the Series D Preferred Stock shares was $ 77.8 million, which included $ 31.1 million of accumulated unpaid and deemed dividends. The following table presents the change in the Series D Preferred Stock carrying value. Years Ended December 31, 2023 2022 2021 Balance at beginning of year $ 64,701 $ 53,807 $ — Proceeds from issuance of shares, net of issuance costs — — 61,793 Fair value of 2021 Warrants issued — — ( 14,839 ) Recognition of bifurcated embedded derivative — — ( 282 ) Accrual of in-kind dividends 10,085 8,961 6,222 Amortization 3,013 1,933 913 Balance at end of year $ 77,799 $ 64,701 $ 53,807 Series B Convertible Preferred Stock On December 11, 2019, we issued 100,000 shares of contingently redeemable Series B convertible preferred stock (the “Series B Preferred Stock”), together with detachable warrants (the “2019 Warrants”) to purchase up to 1.5 million shares of our common stock at an original exercise price of $ 12.00 per share. The Series B Preferred Stock had a liquidation preference of $ 1,000 per share and earned cumulative dividends at a rate of 10.625 % per year, and accrued whether or not earned or declared. On March 22, 2021, we used the 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, to redeem all of the outstanding shares of the Series B Preferred Stock. The following table presents the change in the Series B Preferred Stock carrying value for the year ended December 31, 2021. Balance as of December 31, 2020 $ 105,086 Accrual of in-kind dividends 14,008 Amortization 335 Redemption ( 119,429 ) Balance as of December 31, 2021 $ — 48 Table of Contents Note 12. Leases The following table presents components of lease expense: Years Ended December 31, 2023 2022 2021 Operating lease cost $ 8,077 $ 8,285 $ 8,015 Finance lease cost: Amortization of right-of-use assets 1,600 1,318 1,451 Interest expense 345 351 213 Short-term lease cost (1) 604 438 655 Sublease income ( 2,284 ) ( 195 ) — Total lease cost $ 8,342 $ 10,197 $ 10,334 _______________________________ (1) Excludes expenses related to leases with a lease term of one month or less. The following table presents lease-related assets and liabilities recorded on the balance sheet. As of December 31, Financial Statement Line Item 2023 2022 Assets: Operating lease assets Operating lease right-of-use assets $ 43,357 $ 46,713 Finance lease assets Property, plant and equipment, net 13,599 12,989 Total lease assets $ 56,956 $ 59,702 Liabilities: Current liabilities: Operating lease liabilities Current portion of operating lease liabilities $ 5,735 $ 5,294 Finance lease liabilities Other current liabilities 2,047 2,610 Non-current liabilities: Operating lease liabilities Operating lease liabilities, net of current portion 47,281 51,411 Finance lease liabilities Other non-current liabilities 4,488 3,828 Total lease liabilities $ 59,551 $ 63,143 The following table contains supplemental cash flow information related to leases. Years Ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in operating leases $ 8,462 $ 14,214 $ 13,434 Operating cash flows used in finance leases 345 351 213 Financing cash flows used in finance leases 1,766 3,003 4,836 Right-of-use assets obtained in exchange for new operating lease liabilities (1) 1,028 5,181 — Right-of-use assets obtained in exchange for new finance lease liabilities 1,619 1,263 2,814 _______________________________ (1) Includes new leases, renewals, and modifications. The weighted average remaining lease term and weighted-average discount rate for operating and finance leases were as follows: As of December 31, 2023 2022 Weighted-average remaining lease term - operating leases 9.2 years 10.1 years Weighted-average remaining lease term - finance leases 3.1 years 3.1 years Weighted-average discount rate - operating leases 7.7 % 7.5 % Weighted-average discount rate - finance leases 5.2 % 5.3 % 49 Table of Contents The maturities of lease liabilities as of December 31, 2023, is as follows: Operating Leases Finance Leases 2024 $ 9,524 $ 2,341 2025 8,683 2,225 2026 8,524 1,647 2027 8,327 868 2028 6,782 96 Thereafter 30,697 — Total future minimum lease payments 72,537 7,177 Less: imputed interest 19,521 642 Total lease liabilities $ 53,016 $ 6,535 Subleases We have entered into subleases for certain leased buildings or portions of leased buildings when no longer needed for our current operational needs. The weighted-average remaining lease term of our subleases is 10.9 years. In June 2023, we began subleasing our Taunton and Irvine sites, under subleases that extend through the lease termination dates of the respective head leases. In August 2022, we began subleasing a portion of our leased corporate headquarters office space. The undiscounted cash flows to be received under operating subleases subsequent to December 31, 2023, is as follows: 2024 $ 3,353 2025 3,458 2026 3,567 2027 3,541 2028 3,237 Thereafter 22,603 Note 13. Commitments and Contingencies Brazil ICMS Tax Matter 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) 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. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualify for an ICMS tax credit, contending that the intermediary materials are directly related to the manufacturing process. We believe that we have substantial legal and factual defenses, and we plan to defend our interests in this matter vigorously. The matter encompasses several lawsuits filed with the Brazilian courts requesting declaratory actions that no tax is due or seeking a stay of execution on the collection of the tax. In 2018, we obtained a favorable decision in one of the declaratory actions for which the period for appeal has expired. We have filed actions in each court requesting dismissal of the matter based on the earlier court action. In May 2020, we received an unfavorable decision in one of the lawsuits, and as a result have recorded a liability to the Brazilian tax authorities and a receivable from the former shareholders of Autocam for the same amount. Although we anticipate a favorable resolution to the remaining matters, we can provide no assurances that we will be successful in achieving dismissal of all pending cases. The U.S. dollar amount that would be owed in the event of an unfavorable decision is subject to interest, penalties, and currency impacts and therefore is dependent on the timing of the decision. For the remaining open lawsuits, we currently believe the cumulative potential liability in the event of unfavorable decisions on all matters will be less than $ 5.0 million, inclusive of interest and penalties. We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement and plan of merger relating to the Autocam acquisition. Management believes the indemnification would include amounts owed for the tax, interest, and penalties related to this matter. Accordingly, we do not expect to incur a loss related to this matter even in the event of an unfavorable decision and, therefore, have not accrued an amount for the remaining matters as of December 31, 2023. 50 Table of Contents Other Legal Matters All other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes. Note 14. Income Taxes The following table summarizes the income (loss) from continuing operations before benefit (provision) for income taxes and share of net income from joint venture. Years Ended December 31, 2023 2022 2021 United States $ ( 64,394 ) $ ( 40,543 ) $ ( 35,325 ) Foreign 10,723 9,474 12,883 Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture $ ( 53,671 ) $ ( 31,069 ) $ ( 22,442 ) The following table summarizes total income tax expense (benefit) recognized in each year. Years Ended December 31, 2023 2022 2021 Current taxes: U.S. Federal $ ( 580 ) $ ( 545 ) $ ( 19 ) State 126 ( 625 ) ( 615 ) Foreign 3,901 4,576 3,014 Total current tax expense 3,447 3,406 2,380 Deferred taxes: U.S. Federal $ ( 9,057 ) $ ( 6,245 ) $ ( 8,421 ) State ( 1,833 ) 70 ( 1,099 ) Foreign ( 721 ) ( 986 ) ( 154 ) U.S. federal, state and foreign valuation allowance 10,449 5,376 5,538 Total deferred tax benefit ( 1,162 ) ( 1,785 ) ( 4,136 ) Total income tax expense (benefit) $ 2,285 $ 1,621 $ ( 1,756 ) The following table presents a reconciliation of income taxes based on the U.S. federal statutory income tax rate. Years Ended December 31, 2023 2022 2021 U.S federal statutory income tax rate 21.0 % 21.0 % 21.0 % Change in valuation allowance, exclusive of state ( 16.1 ) % ( 17.5 ) % ( 20.0 ) % State taxes, net of federal taxes, exclusive of tax reform ( 0.2 ) % 1.6 % 4.5 % Non-U.S. earnings taxed at different rates 1.1 % 0.7 % 3.0 % Global intangible low-taxed income ( 2.3 ) % ( 3.9 ) % ( 6.0 ) % Deferred true-up ( 0.8 ) % ( 6.4 ) % — % Research and development tax credit 0.2 % 0.3 % 1.0 % Change in uncertain tax positions — % — % 0.7 % Interest on CARES Act refund 1.1 % 1.8 % — % Return to provision 0.1 % 1.3 % 0.8 % Taxes on unremitted foreign earnings ( 2.4 ) % ( 3.9 ) % 2.0 % Intercompany lending ( 1.3 ) % ( 2.7 ) % ( 5.3 ) % Warrant revaluation ( 4.3 ) % 3.6 % 6.5 % Other adjustments, net ( 0.4 ) % ( 1.1 ) % ( 0.4 ) % Effective tax rate ( 4.3 ) % ( 5.2 ) % 7.8 % 51 Table of Contents Our effective tax rate was ( 4.3 )% and ( 5.2 )% for the years ended December 31, 2023 and 2022, respectively. The effective tax rates differed 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 7.8 % for the year ended December 31, 2021, which differed from the U.S. federal statutory tax rate of 21 % primarily due to the impact of our valuation allowance change during the year. In 2021, we filed a refund claim with the IRS as a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). During the years ended December 31, 2023 and 2022, we accrued $ 0.6 million and $ 0.6 million, respectively, of interest on the CARES Act refund. Including interest accrued on the initial refund amount, we have a $ 11.6 million tax refund receivable at December 31, 2023, which is in the process of IRS review and approval. The timing of the receipt of the refund remains uncertain at December 31, 2023. The following table summarizes the principal components of the deferred tax assets and liabilities. As of December 31, 2023 2022 Deferred income tax liabilities: Tax in excess of book depreciation $ 21,497 $ 24,045 Intangible assets 13,659 16,978 Operating leases 9,970 10,669 Interest rate swap — 754 Taxes on unremitted foreign earnings 4,658 4,961 Other deferred tax liabilities 725 761 Total deferred income tax liabilities 50,509 58,168 Deferred income tax assets: Interest expense limitation 14,920 10,723 Goodwill 20,419 22,277 Inventories 2,456 2,292 Section 174 research and development costs 2,400 1,859 Pension and personnel accruals 1,818 1,717 Operating leases 12,238 12,852 Net operating loss carryforwards 32,043 24,299 Interest rate swap 251 — Credit carryforwards 3,235 2,803 Accruals and reserves 904 978 Other deferred tax assets 3,099 3,086 Deferred income tax assets before valuation allowance 93,783 82,886 Valuation allowance on deferred tax assets ( 47,528 ) ( 30,212 ) Total deferred income tax assets 46,255 52,674 Net deferred income tax liabilities $ 4,254 $ 5,494 As of December 31, 2023, we had a $ 37.9 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. Management has determined it is more likely than not this NOL will not be realized and has established a full valuation allowance against the deferred tax asset. As of December 31, 2023, we had $ 16.2 million of tax effected, state NOL carryovers, which begin to expire in 2030. Management has determined it is more likely than not these state NOL’s will not be realized and has established a full valuation allowance against these deferred tax assets. We also have $ 11.3 million, tax-effected, of foreign NOL carryovers at December 31, 2023. The foreign NOLs have an indefinite life; however, management believes that benefit for certain of the foreign NOLs may not be realized. Therefore, we have established a valuation allowance of $ 8.1 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 $ 0.4 million and $ 2.9 million of U.S. federal tax credits and tax credits in foreign jurisdictions, respectively, as of December 31, 2023. We have recognized a full valuation allowance against these tax credits. In addition, we have other federal and state deferred tax assets of $ 2.0 million that we believe it is more likely than not will not be realized for which we have established a full valuation allowance. 52 Table of Contents We have a U.S. federal and state deferred tax asset related to interest expense carryforwards. Management believes it is more likely than not that the benefit for this asset will not be realized. We have established a valuation allowance of $ 14.9 million to eliminate the carrying value of this asset. Management assesses available positive and negative evidence to estimate whether it is more likely than not sufficient future taxable income will be generated to provide use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2023. 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, 2023, a valuation allowance of $ 47.5 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized without consideration of future earnings growth. Management believes all remaining tax assets will more likely than not be realized. However, the amount of the deferred tax 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 2023, the valuation allowance increased by $ 17.3 million, primarily due to allowances recorded against U.S. federal net operating loss carryforwards, foreign net operating loss carryforwards, and carryforwards of disallowed interest expense which are subject to certain annual deduction limitations. The increase was partially offset by the release of valuation allowance in Brazil. As of December 31, 2023, Brazil had emerged from a recent history of cumulative losses and management has confidence in the operations ability to sustain profits in the future. 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. However, we continue to evaluate the impact that repatriation of foreign earnings would have on withholding and other taxes. As of December 31, 2023, we have recorded a liability of $ 4.7 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. 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. federal income tax as well as tax in several foreign jurisdictions. We are also subject to tax by various state authorities. The tax years subject to examination vary by jurisdiction. We are no longer subject to U.S. federal examination for periods before 2017. We are currently under federal examination for tax years 2017, 2018 and 2019. 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. We recognize liabilities based on estimates of whether additional taxes will be due, and we believe our reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next twelve months, is not expected to have a material impact on our financial position or results of operations. Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties of $ 0.5 million and $ 0.5 million are included in other non-current liabilities as of December 31, 2023 and 2022, respectively. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties. Years Ended December 31, 2023 2022 2021 Balance at beginning of year $ 118 $ 125 $ 247 Additions for tax positions of prior years 3 — — Reductions for tax positions of prior years — ( 7 ) ( 122 ) Balance at end of year $ 121 $ 118 $ 125 The increase to unrecognized tax benefits in 2023 is related to the foreign currency remeasurement of previously unrecognized tax benefits. As of December 31, 2023, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $ 0.7 million, inclusive of the impact of interest and penalties. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits, including interest and penalties, may not decrease during the next twelve months as no statutes are expected to lapse within the period. 53 Table of Contents We operate under tax holidays in other countries, which are effective through December 31, 2026, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The tax holidays did not impact our 2023 or 2022 foreign taxes and decreased foreign taxes by $ 0.2 million for the year ended December 31, 2021. Note 15. Net Income (Loss) Per Common Share The following table summarizes the computation of basic and diluted net income (loss) per common share. Years Ended December 31, 2023 2022 2021 Numerator: Loss from continuing operations $ ( 50,150 ) $ ( 26,098 ) $ ( 14,425 ) Adjustment for preferred stock cumulative dividends and deemed dividends ( 13,098 ) ( 10,894 ) ( 21,478 ) Numerator for basic and diluted net loss from continuing operations per common share ( 63,248 ) ( 36,992 ) ( 35,903 ) Income from discontinued operations, net of tax — — 1,200 Numerator for basic and diluted net loss per common share $ ( 63,248 ) $ ( 36,992 ) $ ( 34,703 ) Denominator: Weighted average common shares outstanding 46,174 43,738 42,991 Adjustment for participating securities ( 2,636 ) ( 951 ) ( 461 ) Adjustment for warrants outstanding (1) 3,200 1,893 1,481 Shares used to calculate basic and diluted net loss per share 46,738 44,680 44,011 Basic and diluted net loss from continuing operations per common share $ ( 1.35 ) $ ( 0.83 ) $ ( 0.82 ) Basic and diluted net income from discontinued operations per common share — — 0.03 Basic and diluted net loss per common share $ ( 1.35 ) $ ( 0.83 ) $ ( 0.79 ) Cash dividends declared per common share $ — $ — $ — _______________________________ (1) Outstanding warrants that are exercisable at an exercise price of $ 0.01 per share, are included in shares outstanding for calculation of basic earnings per share (see Note 18). 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. Years Ended December 31, 2023 2022 2021 Options 381 557 766 2019 Warrants 1,500 1,500 1,500 1,881 2,057 2,266 Stock options excluded from the EPS calculations had a per share exercise price ranging from $ 7.93 to $ 25.16 for the year ended December 31, 2023. The 2019 Warrants excluded from the EPS calculations for the year ended December 31, 2023 had a per share exercise price of $ 11.03 . 54 Table of Contents Note 16. Share-Based Compensation As of December 31, 2023, we have 1.5 million shares available that can be issued to employees and non-executive directors under the NN, Inc. 2022 Omnibus Incentive Plan and prior plans (collectively, the “Incentive Plans”), 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). The following table lists the components of share-based compensation expense by type of award. Years Ended December 31, 2023 2022 2021 Restricted stock $ 2,237 $ 3,635 $ 2,166 Performance share units 570 602 797 Stock options 14 140 253 Share-based compensation expense $ 2,821 $ 4,377 $ 3,216 Unrecognized compensation cost related to unvested awards was $ 7.0 million as of December 31, 2023, which will be recognized over a weighted-average period of 4.0 years. Restricted Stock During the years ended December 31, 2023, 2022, and 2021, we granted 3,782,000 , 897,000 , and 459,000 shares of restricted stock with weighted average grant-date fair values of $ 1.37 , $ 3.31 , and $ 6.84 per share, respectively. The total grant-date fair value of restricted stock that vested in the years ended December 31, 2023, 2022, and 2021, was $ 4.2 million, $ 2.1 million, and $ 2.8 million, respectively. The following table presents the status of unvested restricted stock awards as of December 31, 2023 and changes during the year then ended. Nonvested Restricted Shares Weighted Average Grant-Date Fair Value Unvested at January 1, 2023 1,038 $ 4.03 Granted 3,782 1.37 Vested ( 1,146 ) 3.65 Forfeited ( 269 ) 1.43 Unvested at December 31, 2023 3,405 $ 1.41 During the year ended December 31, 2023, we granted 1,952,000 shares of restricted stock to non-executive directors, officers and certain other employees under the Incentive Plans. These shares vest pro-rata generally over three years for employees and over one year for non-executive directors. During the year ended December 31, 2023, we granted 1,830,000 shares of restricted stock, outside of the Incentive Plans, to new executive officers as inducement awards, which vest pro-rata over five years . Performance Share Units Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. PSUs vest upon achieving specified performance targets over a performance period, which are based on total shareholder return (“TSR Awards”), return on invested capital (“ROIC Awards”), or on the Company’s stock price meeting specified thresholds. If the performance metric thresholds are not met at the end of performance period, the PSUs expire automatically. The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of a specified index, as defined by the Incentive Plans, during the performance periods. The ROIC Awards vest, if at all, upon our achieving a specified average return on invested capital during the performance periods. The performance periods for TSR Awards and ROIC Awards begins on January 1st of the year of grant and ends three years later on December 31st. PSUs that vest will be settled by the issuance of shares of our common stock with the actual number of shares interpolated between a threshold and maximum payout amount based on actual performance results. No dividends will be paid on outstanding PSUs during the performance period; however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the performance periods. 55 Table of Contents The following table presents the status of unvested PSUs as of December 31, 2023 and activity during the year then ended. Nonvested PSU Awards Weighted Average Grant-Date Fair Value Nonvested at January 1, 2023 1,032 $ 3.80 Granted 3,621 1.14 Vested ( 67 ) 4.63 Forfeited ( 635 ) 2.47 Expired ( 162 ) 7.82 Nonvested at December 31, 2023 3,789 $ 1.29 During the year ended December 31, 2023, we granted 561,000 TSR Awards to executive officers under the Incentive Plans for the 2023 to 2025 performance period. During the year ended December 31, 2023, we granted 3,060,000 PSUs, outside of the Incentive Plans, to new executive officers as inducement awards. The inducement award PSUs cliff-vest after five years and are contingent on the Company’s stock price meeting specified thresholds. During the years ended December 31, 2022 and 2021, we granted 790,000 and 314,000 PSUs with weighted average grant-date fair values of $ 2.58 and $ 7.82 per share, respectively. During the year ended December 31, 2023, 67,000 PSUs were subject to accelerated vesting upon a participant’s termination that was a qualifying event under the terms of the Incentive Plans. The total grant date fair value of PSUs that vested in the year ended December 31, 2023, was $0.3 million. No other PSUs were vested during the years ended December 31, 2023, 2022 and 2021. Stock Options Stock options, which were last granted in 2020, have an exercise price equal to the closing price of our stock on the date of grant, an exercise term of ten years with a vesting period of three years . The following table presents stock option activity for the year ended December 31, 2023. Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2023 538 $ 12.63 Expired ( 242 ) 10.39 Outstanding and exercisable at December 31, 2023 296 $ 14.46 2.9 years $ — (1) _______________________________ (1) The aggregate intrinsic value is the sum of intrinsic values for each exercisable individual option grant. The intrinsic value is the amount by which the closing market price of our stock at December 31, 2023, was greater than the exercise price of any individual option grant . 56 Table of Contents Note 17. Accumulated Other Comprehensive Income The components of accumulated other comprehensive income (loss) (“AOCI”) are as follows: Foreign Currency Translation Interest rate swap Income taxes (1) Total Balance as of December 31, 2020 $ ( 30,881 ) $ ( 3,712 ) $ 861 $ ( 33,732 ) Other comprehensive income (loss) before reclassifications ( 1,135 ) 78 ( 19 ) ( 1,076 ) Amounts reclassified from AOCI to interest expense (2) — 73 ( 18 ) 55 Amounts reclassified from AOCI to loss on interest rate swap (3) — 3,712 ( 861 ) 2,851 Net other comprehensive income (loss) ( 1,135 ) 3,863 ( 898 ) 1,830 Balance as of December 31, 2021 $ ( 32,016 ) $ 151 $ ( 37 ) $ ( 31,902 ) Other comprehensive income (loss) before reclassifications ( 8,156 ) 3,426 ( 68 ) ( 4,798 ) Amounts reclassified from AOCI to interest expense (2) — ( 428 ) 8 ( 420 ) Net other comprehensive income (loss) ( 8,156 ) 2,998 ( 60 ) ( 5,218 ) Balance as of December 31, 2022 $ ( 40,172 ) $ 3,149 $ ( 97 ) $ ( 37,120 ) Other comprehensive income (loss) before reclassifications 1,410 ( 327 ) 97 1,180 Amounts reclassified from AOCI to interest expense (2) — ( 1,815 ) — ( 1,815 ) Net other comprehensive income (loss) 1,410 ( 2,142 ) 97 ( 635 ) Balance as of December 31, 2023 $ ( 38,762 ) $ 1,007 $ — $ ( 37,755 ) _______________________________ (1) Income tax effect of changes in interest rate swap. (2) Represents (gain) loss recognized in interest expense on effective interest rate swap. (3) Represents reclassification of derivative loss and settlements after discontinuation of hedge accounting. Note 18. Fair Value Measurements Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. We followed consistent methods and assumptions to estimate fair values as more fully described in Note 1. Embedded Derivatives In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives , certain features of our preferred stock and long-term debt were bifurcated and accounted for as derivatives separately. In conjunction with the Term Loan Amendment, we issued warrants to purchase up to 2.0 million shares of our common stock at an exercise price of $ 0.01 per share (the “2023 Warrants”). The 2023 Warrants are exercisable, in full or in part, at any time prior to June 30, 2033. The 2023 Warrants include anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events. In conjunction with our placement of the Series D Preferred Stock, we issued the 2021 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. On February 5, 2024, all of the 2021 Warrants were exercised on a cashless basis, resulting in the issuance of 1,896,000 shares. 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 was considered a redemption right at a premium and is not clearly and closely related to the debt host. Since the liquidation preference plus accrued dividends was greater than 140% of the liquidation preference at December 31, 2023, the put feature is no longer applicable. In conjunction with our placement of the Series B Preferred Stock, we issued the 2019 Warrants to purchase up to 1.5 million shares of our common stock. The 2019 Warrants, are exercisable, in full or in part, at any time prior to December 11, 2026, at an exercise price of $ 11.03 per share, and are subject to anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events. 57 Table of Contents The following table presents the changes in the liability balance of the embedded derivatives. Years Ended December 31, 2023 2022 Balance at beginning of year $ 2,959 $ 8,224 Issuances 2,712 — Change in fair value (1) 10,885 ( 5,265 ) Balance at end of year $ 16,556 $ 2,959 _______________________________ (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). The following tables show the fair values of the embedded derivatives within the fair value hierarchy. December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative liability - other non-current liabilities 15,421 — 1,135 December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative liability - other non-current liabilities 2,831 — 128 The fair value of the 2023 Warrants and 2021 Warrants is determined using the observable market price of a share of our common stock, less the $ 0.01 per share exercise price. The fair value of the change-in-control put feature utilized 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 was 3 % to 10 % as of December 31, 2022. 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 2.9 years as of December 31, 2023 and 2022. 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 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. We designated the 2021 Swap as a cash flow hedge at inception with cash settlements recognized in interest expense. During the first quarter of 2023, we terminated the 2021 Swap and received cash proceeds of $ 2.5 million which was the fair value of the 2021 Swap. Since the 2021 Swap was an effective cash flow hedge and the forecasted interest payments remaining probable of occurring, the gain will be recognized as a reduction to interest expense through the original maturity date of July 31, 2024. 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 “2019 Swap”). On March 22, 2021, we terminated the 2019 Swap with a $ 13.7 million cash payment in connection with the extinguishment of our previously outstanding long-term variable-rate debt. The 2019 Swap was designated as a cash flow hedge at inception. However, in the fourth quarter of 2020, the 2019 Swap no longer qualified as an effective hedge, and subsequent changes in fair value of the 2019 Swap were recognized in earnings. Cash settlements during 2021 are presented in investing activities on the Consolidated Statements of Cash Flows. 58 Table of Contents 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, 2023 2022 2021 Interest expense (benefit) (1) $ ( 1,815 ) $ ( 428 ) $ 73 Derivative payments on interest rate swap (2) — — 1,717 Loss on interest rate swap (2) — — 2,033 _______________________________ (1) Represents (gain) loss recognized in interest expense on effective interest rate swap. (2) Represents settlements and changes in fair value on the 2019 Swap while the hedge was ineffective. As of December 31, 2023 and 2022, we reported $ 1.0 million and $ 3.1 million gains, respectively, net of tax, in accumulated other comprehensive income related to the interest rate swap. The following table shows the fair values of the interest rate swaps within the fair value hierarchy. December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative asset - other current assets $ — $ 2,130 $ — Derivative asset - other non-current assets $ — $ 1,023 $ — Total $ — $ 3,153 $ — The fair value of the interest rate swap was calculated through standard pricing models which used inputs derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. The counterparty to the derivative contract is a highly rated financial institution which we believe carried only a minimal risk of nonperformance. Fair Value Disclosures Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. As of December 31, 2023 and 2022, the carrying values of these financial instruments, except for debt, approximated fair value. The fair value of our debt was $ 162.2 million and $ 155.2 million, with a carrying amount of $ 153.3 million and $ 152.7 million, as of December 31, 2023 and 2022, respectively. The fair value of debt was calculated by discounting the future cash flows to its present value using prevailing market interest rates for debt with similar creditworthiness, terms and maturities and is considered a Level 3 fair value measurement. Note 19. Subsequent Event On March 5, 2024, we entered into a Purchase and Sale and Escrow Agreement to sell and leaseback three of our properties (the “Properties”). The sale is expected to close on or around March 15, 2024, with the buyer’s obligation to close subject to inspection, due diligence and other customary closing conditions. The aggregate purchase price for the Properties is $ 16.8 million, the net proceeds from which will be used to repay a portion of the outstanding borrowings under the Term Loan Facility. We plan to continue operations at the Properties uninterrupted by entering into a 20 year lease upon the closing of the sale. 59 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.