What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 68 added, 142 removed, 86 unchanged (71% of the section changed)

1 unchanged sentence

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of NN, Inc.

and its consolidated subsidiaries for the three and nine months ended September 30, 2023.

The financial information as of September 30, 2023, should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022, contained in our Annual Report on Form 10-K for the year ended December 31, 2022, and the Condensed Consolidated Financial Statements included in this Quarterly Report.

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

and its consolidated subsidiaries for the three months ended March 31, 2024.

The financial information as of March 31, 2024, should be read in conjunction with the consolidated financial statements for the year ended December 31, 2023, contained in our 2023 Annual Report, and the Condensed Consolidated Financial Statements included in this Quarterly Report.

NN, Inc., a Delaware corporation, 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 this Quarterly Report, the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc.

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Such factors include, among others, general economic conditions and economic conditions in the industrial sector;

the impacts of pandemics, epidemics, disease outbreaks and other public health crises, including the COVID-19 pandemic, on our financial condition, business operations and liquidity;

the impacts of pandemics, epidemics, disease outbreaks and other public health crises on our financial condition, business operations and liquidity;

competitive influences;

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material changes in the costs and availability of raw materials;

economic, social, political and geopolitical instability, military conflict (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, the possible expansion of such conflicts and the geopolitical and economic consequences associated therewith), currency fluctuation, and other risks of doing business outside of the United States;

economic, social, political and geopolitical instability, military conflict, currency fluctuation, and other risks of doing business outside of the United States;

inflationary pressures and changes in the cost or availability of materials, supply chain shortages and disruptions, the availability of labor and labor disruptions along the supply chain;

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Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the nine months ended September 30, 2023, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

The following paragraphs describe factors that have influenced results of operations for the three months ended March 31, 2024, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

Macroeconomic Conditions

We continue to monitor the ongoing impacts of current macroeconomic and geopolitical events, including changing conditions from the COVID-19 pandemic, the ongoing global conflicts, inflationary cost pressures, rising interest rates, supply chain disruptions, and labor shortages and disruptions.

The COVID-19 pandemic and governmental responses thereto, including COVID-19 lockdowns in China, has impacted our business operations and our customers' and suppliers' ability to operate at normal levels.

Disruptions in normal operating levels created supply chain disruptions and inflationary cost pressures within our end-markets.

As of the date of this filing, we cannot predict the extent to which our operations, or those of our customers or suppliers, will be impacted in the future, or the ways in which COVID-19 may impact our business, financial condition, results of operations and cash flow.

The ongoing global conflicts continue to create volatility in global financial and energy markets, creating energy and supply chain shortages, which has added to the inflationary pressures experienced by the global economy.

We continue to actively work with our suppliers to minimize impacts of supply shortages on our manufacturing capabilities.

Although our business has not been materially impacted by the ongoing global conflicts as of the date of this filing, we cannot reasonably predict the extent to which our operations, or those of our customers or suppliers, will be impacted in the future, or the ways in which the conflict may impact our business, financial condition, results of operations and cash flows.

economy is experiencing inflationary increases and rising interest rates, as well as supply issues in materials, services, and labor due to economic policy, the COVID-19 pandemic and global conflicts.

These impacts are likely to persist into 2024.

We cannot predict the impact on our end-markets or input costs nor our ability to recover cost increases through pricing.

In September 2023, the United Auto Workers (the “UAW”) initiated a strike at certain U.S.

facilities of General Motors, Ford and Stellantis North America (the “Detroit Three Automakers”) following the expiration of the collective bargaining agreement between the UAW and the Detroit Three Automakers.

Certain of our customers in the automotive end market are suppliers to the Detroit Three Automakers.

While the duration and scope of the initial and any future UAW strikes against the Detroit Three Automakers, as well as the corresponding impact on the business of suppliers to the Detroit Three Automakers and the impact on our own business, financial position, results of operations and cash flow, are impossible to predict at this time, the prolonged idling of our customers’ production facilities in response to the strikes could have a material adverse impact on us.

Footprint Optimization

In 2022, we took specific steps to consolidate our footprint by identifying less profitable end markets and focusing our strategic growth initiatives in markets where we believe we will be able to maximize profitability.

During the first half of 2023, we closed our Taunton and Irvine sites from the Power Solutions group and three underutilized Mobile Solutions sites to reduce operating costs.

Additionally, we continue to evaluate our global footprint, which may result in further consolidation or expansion actions to further improve our overall cost structure.

Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022

Consolidated Results

Three Months Ended September 30,

2023 2022 $ Change

Net sales $ 124,443 $ 127,297 $ (2,854)

Cost of sales (exclusive of depreciation and amortization shown separately below) 104,543 108,033 $ (3,490)

Selling, general, and administrative expense 11,693 10,205 1,488

Depreciation and amortization 11,577 11,193 384

Other operating income, net (631) (17) (614)

Loss from operations (2,739) (2,117) (622)

Interest expense 5,739 3,746 1,993

Other income, net (1,463) (1,156) (307)

Loss before benefit for income taxes and share of net income from joint venture (7,015) (4,707) (2,308)

Benefit for income taxes 245 1,068 (823)

Share of net income from joint venture 1,713 1,424 289

Net loss $ (5,057) $ (2,215) $ (2,842)

Net sales decreased by $2.9 million, or 2.2%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to reduced volume, partially offset by higher customer pricing and favorable foreign exchange effects of $0.8 million.

The closure of the Taunton and Irvine facilities contributed to the lower sales volume during the three months ended September 30, 2023.

Cost of Sales.

Cost of sales decreased by $3.5 million, or 3.2%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to lower sales volume and lower costs associated with facility

closures in the third quarter.

These decreases were partially offset by higher material and labor costs and unfavorable foreign exchange effects.

Selling, General, and Administrative Expense.

Selling, general, and administrative expense increased by $1.5 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to increased wages and higher stock compensation expense, partially offset by lower travel and professional fees.

Other Operating Income, Net.

Other operating income, net increased by $0.6 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to sublease income related to the facilities that closed during the second quarter of 2023.

Interest Expense.

Interest expense increased by $2.0 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to higher interest rates and the addition of a 2.00% PIK interest rate in connection with the Term Loan Amendment.

Three Months Ended September 30,

Interest on debt $ 5,779 $ 3,639

Gain recognized on interest rate swap (449) (146)

Amortization of debt issuance costs and discount 529 359

Capitalized interest (350) (272)

Other 230 166

Total interest expense $ 5,739 $ 3,746

Other Income, Net.

Other income, net increased by $0.3 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to higher noncash derivative mark-to-market gains recognized during the current quarter compared to the third quarter of 2022.

Benefit (Provision) For Income Taxes .

Our effective tax rate was 3.5% for the three months ended September 30, 2023, compared to 22.7% for the three months ended September 30, 2022.

The rate for the three months ended September 30, 2023 and September 30, 2022 was unfavorably impacted due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized.

In addition, the effective tax rate for the three months ended September 30, 2023, was favorably impacted by a net valuation allowance release based on management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized.

Share of Net Income from Joint Venture.

Share of net income from the JV increased by $0.3 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to higher sales partially offset by higher depreciation and interest expense in the current quarter.

The JV, in which we own a 49% investment, recognized net sales of $30.3 million and $27.0 million for the three months ended September 30, 2023 and 2022, respectively.

Results by Segment

MOBILE SOLUTIONS

Three Months Ended September 30,

2023 2022 $ Change

Net sales $ 78,961 $ 76,122 $ 2,839

Loss from operations $ (1,283) $ (474) $ (809)

Net sales increased by $2.8 million, or 3.7%, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to higher customer pricing, a customer settlement in the quarter, and favorable foreign exchange effects of $0.9 million, partially offset by lower volume.

Loss from operations changed unfavorably by $0.8 million during the three months ended September 30, 2023, compared to the same period in the prior year, primarily due to lower volume, unfavorable foreign exchange effects on costs, and increased depreciation expense.

These were partially offset by the impact of a customer settlement in the quarter.

POWER SOLUTIONS

Three Months Ended September 30,

2023 2022 $ Change

Net sales $ 45,484 $ 51,124 $ (5,640)

Income from operations $ 3,936 $ 2,582 $ 1,354

Net sales decreased by $5.6 million, or 11.0%, during the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

The decrease in sales was primarily due to lower volume, partially offset by higher pricing.

The closure of the Taunton and Irvine sites contributed to the lower sales volume during the three months ended September 30, 2023.

Income from operations increased by $1.4 million during the three months ended September 30, 2023 compared to the same period in the prior year, primarily due to lower costs associated with the facilities that closed in the second quarter, higher pricing, and sublease income earned on the closed facilities, partially offset by the impact of lower sales volume.

Nine Months Ended September 30, 2023, compared to the Nine Months Ended September 30, 2022

We continue to monitor the ongoing impacts of current macroeconomic and geopolitical events, including changing conditions from ongoing military conflicts, inflationary cost pressures, elevated interest rates, supply chain disruptions, and labor shortages and disruptions.

Ongoing military conflicts continue to create volatility in global financial and energy markets, creating energy and supply chain shortages, which has added to the inflationary pressures experienced by the global economy.

We continue to actively work with

our suppliers to minimize impacts of supply shortages on our manufacturing capabilities.

Although our business has not been materially impacted by these ongoing military conflicts as of the date of this filing, we cannot reasonably predict the extent to which our operations, or those of our customers or suppliers, will be impacted in the future, or the ways in which the conflicts may impact our business, financial condition, results of operations and cash flows.

economy has experienced inflationary increases and elevated interest rates, as well as supply issues in materials, services, and labor due to economic policy, the COVID-19 pandemic and military conflicts.

We cannot predict the future impact on our end-markets or input costs nor our ability to recover cost increases through pricing.

Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023

Consolidated Results

Nine Months Ended September 30,

Three Months Ended March 31,

2024 2023 $ Change

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Net loss $ (12,537) $ (10,175) $ (2,362)

Net sales decreased by $4.0 million, or 1.0%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to reduced volume, primarily from the closure of the Taunton and Irvine facilities, lower customer settlements and unfavorable foreign exchange effects of $1.5 million.

These decreases were partially offset by higher customer pricing and premium pricing on a certain customer project.

Net sales decreased by $5.9 million, or 4.6%, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to lower customer pricing, rationalized volume at plants undergoing turnarounds, and the absence of premium pricing received during the first quarter of 2023.

Cost of Sales.

Cost of sales increased by $4.1 million, or 1.3%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher material and labor costs and lower favorable overhead absorption.

These increases were partially offset by lower sales volume and lower labor costs associated with facility closures.

Cost of sales decreased by $7.3 million, or 6.8%, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to a reduction in indirect manufacturing costs related to actions taken in 2023 to optimize plant operations as well as the impact of lower sales volume .

Selling, General, and Administrative Expense.

Selling, general, and administrative expense decreased by $2.6 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to lower stock compensation expense and lower professional fees and travel costs.

Other Operating Expense (Income), Net.

Other operating expense (income), net changed favorably by $2.4 million primarily due to a legal settlement reached during the first quarter of 2022 and sublease income earned on closed facilities during the nine months ended September 30, 2023.

Selling, general, and administrative expense increased by $0.2 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due higher travel, marketing and stock compensation expense, partially offset by lower wages due to headcount reductions.

Other Operating Income, Net.

Other operating expense (income), net changed favorably by $2.1 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to sublease income related to the facilities that closed during the second quarter of 2023 and losses on sales of machinery and equipment during the first quarter of 2023.

Interest Expense.

Interest expense increased by $4.8 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher interest rates and the addition of a 2.00% PIK interest rate in connection with the Term Loan Amendment.

These increases were partially offset by the recognition of gains from the interest rate swap and a higher amount of interest expense that was capitalized in the current quarter compared with the third

quarter of 2022.

Nine Months Ended September 30,

Interest expense increased by $1.1 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to higher interest rates during the current year.

Three Months Ended March 31,

Interest on debt $ 5,676 $ 4,619

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Other Expense (Income), Net.

Other expense (income), net changed unfavorably by $6.2 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to noncash derivative mark-to-market losses recognized during the first three quarters of 2023 compared to gains recognized during the first three quarters of 2022.

Other expense (income), net changed unfavorably by $6.4 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to higher noncash derivative mark-to-market gains recognized during the current quarter compared to the first quarter of 2023.

Benefit (Provision) For Income Taxes .

Our effective tax rate was (4.4)% for the nine months ended September 30, 2023, compared to (9.2)% for the nine months ended September 30, 2022.

The rate for the nine months ended September 30, 2023 and September 30, 2022 was unfavorably impacted by the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized.

In addition, the effective rate for the nine months ended September 30, 2023, was favorably impacted by a net valuation allowance release based on management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized.

Our effective tax rate was (3.5)% for the three months ended March 31, 2024, compared to (14.2)% for the three months ended March 31, 2023.

The rate for the three months ended March 31, 2024 was unfavorably impacted due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized.

The effective tax rate was unfavorably impacted by the U.S.

tax on the earnings of foreign subsidiaries under the global intangible low-taxed income regime.

Share of Net Income from Joint Venture.

Share of net income from the JV decreased by $0.8 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher manufacturing costs and increased depreciation and interest expense.

The JV, in which we own a 49% investment, recognized net sales of $75.9 million and $76.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Share of net income from the JV increased by $2.0 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to higher sales partially offset by higher income tax expense in the current quarter.

The JV, in which we own a 49% investment, recognized net sales of $31.1 million and $20.6 million for the three months ended March 31, 2024 and 2023, respectively.

Results by Segment

MOBILE SOLUTIONS

Nine Months Ended September 30,

Three Months Ended March 31,

2024 2023 $ Change

Net sales $ 73,060 $ 78,018 $ (4,958)

Income (loss) from operations $ (6,063) $ 3,224 $ (9,287)

Net sales increased by $8.6 million, or 3.8%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to higher customer pricing, partially offset by lower volume, lower customer settlements and unfavorable foreign exchange effects of $1.3 million.

Income (loss) from operations changed unfavorably by $9.3 million during the nine months ended September 30, 2023 compared to the same period in the prior year, primarily due to higher material and labor costs, lower sales volume, lower customer settlement and unfavorable foreign exchange effects.

In addition, costs increased due to production challenges in two facilities associated with new business launches

Loss from operations $ (2,143) $ (3,319) $ 1,176

Net sales decreased by $5.0 million, or 6.4%, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to lower volume at facilities undergoing turnarounds and contractual reduction in customer pricing, partially offset by organic growth volume and favorable foreign exchange effects.

Loss from operations decreased by $1.2 million during the three months ended March 31, 2024, compared to the same period in the prior year, primarily due to a reduction in indirect manufacturing costs related to actions taken in 2023 to optimize plant operations.

These reductions were partially offset by the impact of lower sales.

POWER SOLUTIONS

Nine Months Ended September 30,

Three Months Ended March 31,

2024 2023 $ Change

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Income from operations $ 3,979 $ 1,747 $ 2,232

Net sales decreased by $12.6 million, or 8.1%, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due to lower volumes, primarily from the closure of the Taunton and Irvine facilities.

These decreases were partially offset by higher customer pricing and premium pricing on a certain customer project.

Income from operations increased by $3.9 million during the nine months ended September 30, 2023 compared to the same period in the prior year, primarily due to lower costs associated with the facilities that closed in the second quarter of 2023, premium pricing on a certain customer project in the first quarter of 2023, a legal settlement reached during the first quarter of 2022, and sublease income earned on closed facilities.

These increases were partially offset by lower sales volume.

Changes in Financial Condition from December 31, 2022 to September 30, 2023

From December 31, 2022 to September 30, 2023, total assets decreased by $25.4 million primarily due to decreases in inventory, property, plant and equipment and intangible assets.

The closure of two Power Solutions facilities contributed to the decrease in inventory and property, plant and equipment, and the decline in intangible assets is due to amortization.

From December 31, 2022 to September 30, 2023, total liabilities increased by $7.5 million, primarily due to increases in accounts payable and other non-current liabilities, partially offset by a decrease in long-term debt.

The increase in other non-current liabilities is primarily due to warrants issued in the first two quarters of 2023.

Working capital, which consists of current assets less current liabilities, was $104.7 million as of September 30, 2023, compared to $112.9 million as of December 31, 2022.

The decrease in working capital was primarily due to a decrease in inventory and increases in accounts payable and current maturities of long-term debt.

Cash provided by operations was $23.9 million for the nine months ended September 30, 2023, compared with cash used by operations of $2.7 million for the nine months ended September 30, 2022.

The difference was primarily due to decreases in accounts receivable and inventory during the nine months ended 2023 compared to increases in these balance during the corresponding period of 2022.

Cash used in investing activities increased by $0.1 million primarily due to higher expenditures for property, plant and equipment during the nine months ended September 30, 2023, partially offset by the proceeds from the sale of equipment at the Taunton and Irvine facilities in the first half of 2023.

Cash used in financing activities was $1.2 million for the nine months ended September 30, 2023, compared with cash provided by financing activities of $1.4 million for the nine months ended September 30, 2022.

The difference was primarily due to lower borrowings on the ABL Facility during the nine months ended September 30, 2023 compared to the prior year.

This was partially offset by proceeds from new international loans for working capital needs during 2023.

Net sales decreased by $0.8 million, or 1.7%, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to premium pricing received during the first quarter of 2023, partially offset by higher volume during the current quarter.

Income from operations increased by $2.2 million during the three months ended March 31, 2024 compared to the same period in the prior year, primarily due to lower costs associated with the facilities that closed in 2023 and sublease income earned on the closed facilities, partially offset by premium pricing received during the first quarter of 2023.

Changes in Financial Condition from December 31, 2023 to March 31, 2024

From December 31, 2023 to March 31, 2024, total assets increased by $1.9 million primarily due to increases in accounts receivable, inventory and other current assets, partially offset by decreases property, plant and equipment and intangible assets.

From December 31, 2023 to March 31, 2024, total liabilities increased by $7.1 million, primarily due to increases in accounts payable and long-term debt.

This was partially offset by a decrease in other non-current liabilities due to the exercise of warrants in the first quarter of 2024.

Working capital, which consists of current assets less current liabilities, was $98.7 million as of March 31, 2024, compared to $100.9 million as of December 31, 2023.

The decrease in working capital was primarily due to increases in accounts payable, accrued salaries and wages and current maturities of long-term debt.

This was partially offset by increases in accounts receivable and inventory.

Cash provided by operations increased by $0.5 million primarily due to an increase in accounts payable which was partially offset by increases in accounts receivable and inventory during the three months ended March 31, 2023.

Cash used in investing activities increased by $1.4 million primarily due to the proceeds from the sale of equipment at the Taunton and Irvine facilities in the first quarter of 2023.

Cash provided by financing activities increased by $2.3 million primarily due to proceeds from the sale-leaseback transactions, partially offset by higher repayments of long-term debt.

Liquidity and Capital Resources

Credit Facilities

The principal amount outstanding under our Term Loan Facility as of September 30, 2023, was $147.7 million, without regard to unamortized debt issuance costs and discount.

As of September 30, 2023, we had $28.7 million available for future borrowings under the ABL Facility.

This amount of borrowing capacity is net of $10.9 million of outstanding letters of credit at September 30, 2023, which are considered as usage of the ABL Facility.

The principal amount outstanding under our Term Loan Facility as of March 31, 2024, was $132.5 million, without regard to unamortized debt issuance costs and discount.

As of March 31, 2024, we had $26.4 million available for future borrowings under the ABL Facility.

This amount of borrowing capacity is net of $9.9 million of outstanding letters of credit at March 31, 2024, which are considered as usage of the ABL Facility.

The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026.

Effective March 31, 2023, outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month, three-month, or six-month 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 with the second quarter of 2023, interest is increased on a paid-in-kind basis at a rate between 1.00% and 2.00%, dependent on the Company’s leverage ratio.

Based on the interest rate in effect at September 30, 2023, annual cash interest payments would be approximately $18.2 million.

The ABL Facility bears interest on a variable borrowing rate based on 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 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.

Outstanding borrowings under the Term Loan Facility bear interest at either:

1) one-month, three-month, or six-month 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 with the second quarter of 2023, interest is increased on a paid-in-kind basis at a rate between 1.00% and 2.00%, dependent on the our leverage ratio.

Based on the interest rate in effect at March 31, 2024, annual cash interest payments would be approximately $16.3 million.

The ABL Facility bears interest on a variable borrowing rate based on 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 pay a commitment fee of 0.375% for unused capacity under the ABL Facility.

We were in compliance with all requirements under our Term Loan Facility and ABL Facility as of September 30, 2023.

We were in compliance with all requirements under our Term Loan Facility and ABL Facility as of March 31, 2024.

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

Sale Leaseback Transactions

During the three months ended March 31, 2024, we entered into two separate sale-leaseback transactions.

We received $16.9 million from the sale and leaseback of three properties, with the net proceeds used to repay a portion of the outstanding borrowings under the Term Loan Facility.

The effective interest rate of the transaction, which terminates in 20 years, is lower than the current borrowings on the Term Loan Facility.

We received $4.9 million from the sale and leaseback of equipment, with the net proceeds used for ongoing operational investments.

Accounts Receivable Sales Programs

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In exchange, we receive payment on the receivables, less a discount, sooner than under the customary credit terms we have extended to that customer.

These programs allow us to improve working capital and cash flows.

These programs allow us to improve working capital and cash flows at the same or lower interest rates as available on our ABL Facility.

Our access to these programs is dependent on our customers ongoing agreements with the third-parties.

Our participation in these programs is based on our specific cash needs throughout the year, the discount charged to receive payment earlier, the length of the payment terms with our customers, as well being subject to limits in our ABL Facility and Term Loan Facility agreements.

Sale of Business

We are in the process of making final determinations in the matter of the sale of our Life Sciences business in October 2020 to American Securities LLC and its associated earnout provision.

It has been represented that no earnout is due and we are verifying this matter per the terms of the agreement.

Other Receivables

In 2021, we filed a refund claim with the IRS as a result of the Coronavirus Aid, Relief, and Economic Security Act.

Including interest accrued on the initial refund amount, we have a $11.4 million tax refund receivable at September 30, 2023, which is in the process of IRS review and approval.

Including interest accrued on the initial refund amount, we have a $11.7 million tax refund receivable at March 31, 2024, which is in the process of IRS review and approval.

The timing of the receipt of the refund remains uncertain.

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Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the 2023 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2023 Annual Report.

There have been no material changes to these policies during the nine months ended September 30, 2023.

There have been no material changes to these policies during the three months ended March 31, 2024.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis