What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-07 · 190 added, 171 removed, 183 unchanged (66% of the section changed)

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

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

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 aerospace and defense, electrical, automotive, medical, and general industrial markets.

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

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Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the six months ended June 30, 2020, 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 nine months ended September 30, 2020, that management believes are important to provide an understanding of the business and results of operations, or that may influence operations in the future.

Global COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (“COVID-19”) began to impact the population of China, where several of our manufacturing facilities are located.

In late January and early February 2020, in an effort to contain the spread of the virus and maintain the wellbeing of our employees and in accordance with governmental requirements, we temporarily closed our production facilities in China.

In late January and early February 2020, in an effort to contain the spread of the virus and maintain the well-being of our employees and in accordance with governmental requirements, we temporarily closed our production facilities in China.

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures.

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

Consistent with actions taken by governmental

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

We have experienced supplier and customer disruption, which has affected our results of operations and cash flows this year.

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

The situation grew more challenging in the second quarter, as customer closures have affected much of our operations and may continue for an unknown period of time.

The spread of COVID-19 has created a disruption in the manufacturing, delivery and overall supply chain of automobile manufacturers and suppliers.

In June 2020, the National Bureau of Economic Research officially declared that the United States economy has fallen into a recession.

The situation grew more challenging in the second and third quarters, as customer closures have affected much of our operations and may continue for an unknown period of time.

Although much of the United States and the global economies have reopened, the COVID-19 pandemic is intensifying in many parts of the United States and the world, and many public health experts anticipate a COVID-19 surge in the coming weeks and months of fall and winter.

Reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations remains a possibility, just as some jurisdictions rolled back reopening plans in the summer of 2020.

Further, the continuing uncertainty as to whether the federal government will address the resulting fiscal condition in both the near and long-term with measures such as additional fiscal stimulus, as well as other geopolitical issues relating to the global economic slowdown, has increased domestic and global instability.

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

Global vehicle production has decreased significantly, and some vehicle manufacturers have completely shut down manufacturing operations in some countries and regions, including the United States and Europe.

Stay-at-home orders issued by federal, state, and local governmental authorities to combat the spread of COVID-19 have resulted in hospitals’ cancelling, deferring, or limiting elective surgeries, which has negatively impacted demand from our Life Sciences customers.

Although many stay-at-home orders have been lifted, the COVID-19 pandemic continues to have a negative impact on elective surgeries and on the demand from our Life Sciences customers.

On April 6, 2020, we withdrew our previously issued full year 2020 financial guidance until the effects of the COVID-19 pandemic can be better assessed.

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

Previously announced initiatives:

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

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

Initiatives announced in 2019:

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

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

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

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

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

• Beginning in April 2020, executives reduced their base salaries by 20% to 25%, non-executive employee salaries were reduced by 5% to 15%, and the 401(k) employer match was suspended.

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

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

These salary reductions were repaid in October 2020, and salaries were reinstated to their original levels.

• The 401(k) employer match was suspended.

• Non-employee board members suspended their cash compensation.

• Employee merit increases and bonus payouts have been deferred, and the gainsharing plan for 2020 has been suspended.

• Employee merit increases and bonus payouts were deferred, and the gainsharing plan for 2020 has been suspended.

• Travel was significantly reduced beginning in the first quarter.

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

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

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

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

• As allowed by the CARES Act, we have begun to defer payments of the employer share of U.

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

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

payroll taxes and intend to defer the payment of remaining obligations through the end of 2020 and will begin making payments in 2021 through 2022.

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

While managing decreased demand in many regions across the globe, we are also preparing to restart and ramp up our businesses.

While managing decreased demand in many regions across the globe, we have begun to restart and ramp up our businesses.

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

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

We have developed and implemented processes to ensure a safe environment for our employees and any visitors to our facilities, including providing personal protective equipment to our employees, establishing social distancing protocols and temperature checks.

We have developed and implemented processes to ensure a safe environment for our employees and any visitors to our facilities, including providing personal protective equipment to our

employees, establishing social distancing protocols and temperature checks.

These processes include recommendations based on guidelines from the Centers for Disease Control and Prevention and the World Health Organization as well as from our recent ramp-up in China.

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

Discontinued Operations

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

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

We received cash proceeds at closing of $757.2 million.

The purchase price is subject to customary post-closing adjustments and is expected to be finalized in the first quarter of 2021.

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

The Life Sciences business includes facilities that are engaged in the production of a variety of components, assemblies, and instruments, such as surgical knives, bioresorbable implants, surgical staples, cases and trays, orthopaedic implants and tools, laparoscopic devices, and drug delivery devices for the orthopaedics and medical/surgical end markets.

The sale of the Life Sciences business furthers management’s strategy to improve liquidity and creates the financial flexibility to pursue key growth areas in the Mobile Solutions and Power Solutions segments.

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

The presentation of discontinued operations includes revenues and expenses of the discontinued operations and will also include any gain on the disposition of the business, all net of tax, as one line item on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented have been revised to reflect this presentation.

Accordingly, the results of the Life Sciences business have been excluded from continuing operations and segment results for all periods presented in the condensed consolidated financial statements and the accompanying notes unless otherwise stated.

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

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

We paid $700 million in the aggregate on our term loans immediately following the sale.

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

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

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

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

Goodwill Impairment

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

The goodwill impairment analysis required significant judgments to calculate the fair value for each of Life Sciences and Power Solutions, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for each operating segment, and determination of weighted average cost of capital.

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

The goodwill impairment analysis required significant judgments to calculate the fair value for the Power Solutions reporting unit, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for each operating segment, and determination of weighted average cost of capital.

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

Significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, costs to produce, discount rate, and estimated capital needs.

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Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity.

Changes in assumptions and estimates may affect the fair value of goodwill and could result in impairment charges in future periods.

Management’s judgment used in the assessment of fair value is more significant under the current market conditions and economic uncertainty created by COVID-19.

The carrying values of the Life Sciences and Power Solutions reporting units exceeded their estimated fair values as of the March 31, 2020, analysis.

As a result of our analysis, we recorded an impairment loss on goodwill of $146.8 million and $92.9 million for Life Sciences and Power Solutions, respectively, to the “Goodwill impairment” line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The carrying value of the Power Solutions reporting unit exceeded the estimated fair value as of the March 31, 2020, analysis.

As a result of our analysis, we recorded an impairment loss on goodwill of $92.9 million to the “Goodwill impairment” line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Prior Periods’ Financial Statement Revision

Certain prior period amounts have been revised to reflect the impact of corrections of misstatements and to correct the timing of previously recorded out-of-period adjustments.

Refer to Note 1 and Note 2 in the Notes to Condensed Consolidated Financial Statements for more information.

Refer to Note 3 in the Notes to Condensed Consolidated Financial Statements for more information.

Sales Concentration

We recognized sales from a single customer of $20.0 million, or 13% of consolidated net sales, during the three months ended June 30, 2020, and $23.0 million, or 10% of consolidated net sales, during the three months ended June 30, 2019.

We recognized sales from this customer of $45.5 million, or 13% of consolidated net sales, during the six months ended June 30, 2020, and $45.1 million, or 10% of consolidated net sales, during the six months ended June 30, 2019.

Revenues from this customer are in our Life Sciences and Power Solutions groups.

Three Months Ended June 30, 2020, compared to the Three Months Ended June 30, 2019

Three Months Ended June 30,

We recognized sales from a single customer of $12.2 million, or 10% of consolidated net sales, during the three months ended September 30, 2019.

We recognized sales from this customer of $39.0 million, or 10% of consolidated net sales, during the nine months ended September 30, 2019.

Revenues from this customer are in our Mobile Solutions segment and were less than 10% of consolidated net sales, during the nine months ended September 30, 2020.

Three Months Ended September 30, 2020, compared to the Three Months Ended September 30, 2019

Three Months Ended September 30,

2020 2019 $ Change

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Depreciation and amortization 11,435 11,284 151

Other operating (income) expense, net (955) 388 (1,343)

Income (loss) from operations (8,206) 7,512 (15,718)

Other operating income, net (39) (1,161) 1,122

Loss from operations (1,456) (1,811) 355

Interest expense 6,873 3,805 3,068

Other (income) expense, net (881) 57 (938)

Loss before benefit (provision) for income taxes and share of net income (loss) from joint venture (26,021) (6,503) (19,518)

Benefit (provision) for income taxes 3,346 (577) 3,923

Share of net income (loss) from joint venture 927 (203) 1,130

Net loss $ (21,748) $ (7,283) $ (14,465)

Net sales decreased by $71.2 million, or 32%, during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to a decrease in organic volume of $69.9 million, as a result of decreased demand due to the COVID-19 pandemic and unfavorable foreign exchange effects of $1.3 million.

Loss on extinguishment of debt and write-off of debt issuance costs 144 — 144

Other expense (income), net (262) 633 (895)

Loss from continuing operations before benefit for income taxes and share of net income from joint venture (8,211) (6,249) (1,962)

Benefit for income taxes 8,715 1,134 7,581

Share of net income from joint venture 1,136 279 857

Income (loss) from continuing operations 1,640 (4,836) 6,476

Income (loss) from discontinued operations, net of tax 20,330 (1,019) 21,349

Net income (loss) $ 21,970 $ (5,855) $ 27,825

Net sales decreased by $6.7 million, or 6%, during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to a decrease in organic volume of $4.3 million, as a result of decreased demand due to the COVID-19 pandemic and unfavorable foreign exchange effects of $2.4 million.

Cost of Sales.

Cost of sales decreased by $48.7 million, or 30%, during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to variable costs associated with the above-referenced sales volume decline and fixed cost savings initiatives.

Cost of sales decreased by $6.6 million, or 7%, during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to variable costs associated with the above-referenced sales volume decline and variable and fixed cost reduction initiatives that were implemented.

Selling, General and Administrative Expense.

Selling, general and administrative expense decreased by $5.8 million during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to cost reduction initiatives that drove decreases in personnel costs and travel costs.

Other Operating (Income) Expense, Net.

Other operating (income) expense, net, changed favorably by $1.3 million primarily due to a $0.8 million gain on the sale of a building in Fairfield, Ohio, during the three months ended June 30, 2020.

Selling, general and administrative expense decreased by $1.7 million during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to cost reduction initiatives that drove decreases in personnel costs and travel costs.

Other Operating Income, Net.

Other operating income, net, changed unfavorably by $1.1 million primarily due to a one-time $1.4 million litigation settlement received during the three months ended September 30, 2019.

Interest Expense.

Interest expense increased by $4.7 million during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to an increase in the interest rate on our credit facility as a result of amendments executed in 2019, settlements on the interest rate swap that were not fully offset by reductions in interest on our Senior Secured Term Loan because of the interest rate floor on the Loan, and the amortization of the associated amendment costs.

Three Months Ended June 30,

Interest expense increased by $3.1 million during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to an increase in settlements on the interest rate swap and an increase in the interest rate margin over one-month LIBOR on the Senior Secured Term Loan and the Incremental Term Loan as a result of amendments executed in 2019.

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

Interest on our Senior Secured Revolver decreased due to lower one-month LIBOR in 2020 and due to a lower available capacity after the December 2019 amendment to the credit agreement.

Three Months Ended September 30,

Interest on debt $ 2,198 $ 3,135

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Total interest expense $ 6,873 $ 3,805

Other (Income) Expense, Net.

Other (income) expense, net, changed favorably by $0.9 million during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to more favorable foreign exchange effects associated with intercompany borrowings compared to the prior year.

Benefit/Provision for Income Taxes.

Our effective tax rate was 12.9% for the three months ended June 30, 2020, compared to (8.9)% for the three months ended June 30, 2019.

The difference in rates is primarily due to the impact of the impairment of

nondeductible goodwill in 2020 and a discrete tax charge in 2019 related to final tax regulations.

Other Expense (Income), Net.

Other expense (income), net, changed favorably by $0.9 million during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to more favorable foreign exchange effects associated with intercompany borrowings compared to the prior year.

Benefit For Income Taxes.

Our effective tax rate was 106.1% for the three months ended September 30, 2020, compared to 18.2% for the three months ended September 30, 2019.

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

Note 9 in the Notes to Condensed Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income (Loss) from Joint Venture.

Our share of net income (loss) from the JV increased during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to improved profits resulting from higher sales, expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Share of Net Income from Joint Venture.

Our share of net income from the joint venture increased during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to improved profits resulting from higher sales volumes, expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Results by Segment

LIFE SCIENCES

Three Months Ended June 30,

2020 2019 $ Change

Net sales $ 72,399 $ 91,332 $ (18,933)

Organic decline $ (18,343)

Foreign exchange effects (590)

Income from operations $ 4,333 $ 9,305 $ (4,972)

Net sales decreased by $18.9 million during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to a decrease in organic volume of $18.3 million as a result of reduced customer demand within the orthopaedic end market driven by the decrease in demand for elective surgeries as a result of the COVID-19 pandemic and delays in new product launches.

Sales for the quarter were also unfavorably impacted by the change in currency rates.

Income from operations decreased by $5.0 million compared to the same period in the prior year primarily due to the variable margin on lower sales and higher depreciation expense attributable to the capital investments made during 2019 to support the business growth.

These unfavorable impacts were partially offset by savings from continuous improvement initiatives and overall reductions in manufacturing and selling, general, and administrative costs resulting from significant cost savings initiatives implemented to respond to the unfavorable impacts of the COVID-19 pandemic.

Lower amortization expense also contributed to income from operations due to the backlog intangible asset acquired in the Paragon acquisition that became fully amortized last year.

MOBILE SOLUTIONS

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 $ Change

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Foreign exchange effects (2,098)

Income (loss) from operations $ (4,592) $ 3,506 $ (8,098)

Net sales decreased by $38.4 million during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to lower demand within global automotive markets resulting from the COVID-19 pandemic, price reductions, the impact of reduced demand for components associated with programs nearing the end of life, and unfavorable foreign exchange effects.

Income from operations decreased by $8.1 million compared to the same period in the prior year primarily due to lost variable margin on the above-referenced sales volume decline, partially offset by fixed cost reduction actions taken in response to the decline in sales volume.

Income from operations $ 4,953 $ 3,423 $ 1,530

Net sales decreased by $2.7 million during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to unfavorable foreign exchange effects and lower demand within global automotive markets resulting from the COVID-19 pandemic.

Income from operations increased by $1.5 million compared to the same period in the prior year as new product launches that began in the prior year begin to mature and become more profitable.

Additionally, certain of the fixed cost reduction actions initiated in the first half of 2020 in response to the decline in sales volume caused by the COVID-19 pandemic remained in place during the three months ended September 30, 2020.

These favorable impacts were partially offset by the prior year impact of a one-time $1.4 million favorable litigation settlement.

POWER SOLUTIONS

Three Months Ended June 30,

Three Months Ended September 30,

2020 2019 $ Change

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Income from operations $ 1,143 $ 3,351 $ (2,208)

Net sales decreased by $13.9 million during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily due to lower demand in the electrical products, automotive, and oil and gas end markets resulting from the COVID-19 pandemic.

Net sales decreased by $4.0 million during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, primarily due to lower demand in the electrical products, automotive, and oil and gas end markets resulting from the COVID-19 pandemic.

Income from operations decreased by $2.2 million compared to the same period in the prior year primarily due to lost variable margin on the above-referenced sales volume decline.

Commodity prices on precious metals, particularly gold and silver,

dramatically increased during the current period, driving up materials costs and decreasing profitability of certain products.

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

Six Months Ended June 30, 2020, compared to the Six Months Ended June 30, 2019

Six Months Ended June 30,

Nine Months Ended September 30, 2020, compared to the Nine Months Ended September 30, 2019

Nine Months Ended September 30,

2020 2019 $ Change

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Goodwill impairment 92,942 — 92,942

Other operating (income) expense, net 4,174 236 3,938

Income (loss) from operations (253,538) 7,195 (260,733)

Other operating expense (income), net 4,138 (905) 5,043

Loss from operations (116,483) (7,457) (109,026)

Interest expense 17,036 8,829 8,207

Loss on extinguishment of debt and write-off of debt issuance costs 144 308 (164)

Other (income) expense, net 239 786 (547)

Loss before benefit (provision) for income taxes and share of net income (loss) from joint venture (289,550) (24,049) (265,501)

Other expense, net 67 863 (796)

Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture (133,730) (17,457) (116,273)

Benefit (provision) for income taxes 7,935 (3,694) 11,629

Share of net income (loss) from joint venture 656 66 590

Share of net income from joint venture 1,792 345 1,447

Loss from continuing operations (124,003) (20,806) (103,197)

Loss from discontinued operations, net of tax (123,966) (11,850) (112,116)

Net loss $ (247,969) $ (32,656) $ (215,313)

Net sales decreased by $84.8 million, or 19.5%, during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to a decrease in organic volume of $81.3 million, as a result of decreased demand due to the COVID-19 pandemic and unfavorable foreign exchange effects of $3.4 million.

Net sales decreased by $70.3 million, or 19%, during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to a decrease in organic volume of $65.5 million, as a result of decreased demand due to the COVID-19 pandemic and unfavorable foreign exchange effects of $4.9 million.

Cost of Sales.

Cost of sales decreased by $58.7 million, or 18.0%, during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to variable costs associated with the above-referenced sales volume decline and fixed cost savings initiatives.

Cost of sales decreased by $51.1 million, or 17%, during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to variable costs associated with the above-referenced sales volume decline and variable and fixed cost reduction initiatives that were implemented.

Selling, General and Administrative Expense.

Selling, general and administrative expense decreased by $9.1 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to cost reduction initiatives that drove decreases in personnel costs and travel costs.

Selling, general and administrative expense decreased by $8.8 million during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to cost reduction initiatives that drove decreases in personnel costs and travel costs.

Goodwill Impairment.

The increase in goodwill impairment in the six months ended June 30, 2020, was the result of goodwill impairment charges at Life Sciences and Power Solutions.

See Note 5 in the Notes to Condensed Consolidated Financial Statements for more information on the impairment charges.

Other Operating (Income) Expense, Net.

Other operating (income) expense, net, changed unfavorably by $3.9 million primarily due to charges and costs associated with asset disposals and elimination of a portion of our lease obligation as a result of our decision to vacate a portion of our corporate headquarters building.

These charges were partially offset by a $0.8 million gain on the sale of a building in Fairfield, Ohio, in the six months ended June 30, 2020.

The increase in goodwill impairment in the nine months ended September 30, 2020, was the result of a goodwill impairment charge at Power Solutions.

See Note 6 in the Notes to Condensed Consolidated Financial Statements for more information on the impairment charge.

Other Operating Expense (Income), Net.

Other operating expense (income), net, changed unfavorably by $5.0 million primarily due to charges and costs associated with asset disposals and elimination of a portion of our lease obligation as a result of our decision to vacate a portion of our corporate headquarters building.

These charges were partially offset by a $0.8 million gain on the sale of a building in Fairfield, Ohio, in the nine months ended September 30, 2020.

Interest Expense.

Interest expense increased by $8.0 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to an increase in the interest rate on our credit facility as a result of amendments executed in 2019, settlements on the interest rate swap that were not fully offset by reductions in interest on our Senior Secured Term Loan because of the interest rate floor on the Loan, and the amortization of the associated amendment costs.

Six Months Ended June 30,

Interest expense increased by $8.2 million during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to an increase in settlements on the interest rate swap and an increase in the interest rate margin over one-month LIBOR on the Senior Secured Term Loan and the Incremental Term Loan as a result of amendments executed in 2019.

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

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

Nine Months Ended September 30,

Interest on debt $ 6,381 $ 8,047

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Total interest expense $ 17,036 $ 8,829

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

Loss on extinguishment of debt and write-off of unamortized debt issuance costs decreased by $2.7 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, due to costs written off as a result of the March 2019 amendment to our credit facility.

Other (Income) Expense, Net.

Other (income) expense, net, changed favorably by $0.5 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to more favorable foreign exchange effects associated with intercompany borrowings compared to the prior year.

Provision/Benefit for Income Taxes.

Our effective tax rate was 6.6% for the six months ended June 30, 2020, compared to 11.7% for the six months ended June 30, 2019.

The difference in rates is primarily due to the impact of the impairment of nondeductible goodwill in 2020 and a discrete tax charge in 2019 related to final tax regulations.

Other Expense, Net.

Other expense, net, changed favorably by $0.8 million during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to more favorable foreign exchange effects associated with intercompany borrowings compared to the prior year.

Benefit (Provision) For Income Taxes.

Our effective tax rate was 5.9% for the nine months ended September 30, 2020, compared to (21.2)% for the nine months ended September 30, 2019.

The difference in rates is primarily due to the impact of the impairment of nondeductible goodwill in 2020, the CARES Act, anticipated withholding taxes which would be due upon repatriation of the unremitted earnings of foreign subsidiaries, and the impact of losses in jurisdictions where it is more likely than not that a tax benefit will not be realized.

Note 9 in the Notes to Condensed Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income from Joint Venture.

Share of net income (loss) from the JV increased during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to improved profits from expanding variable margins, as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

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

Share of net income from the JV increased during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to improved profits from expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

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

Results by Segment

LIFE SCIENCES

Six Months Ended June 30,

2020 2019 $ Change

Net sales $ 156,447 $ 177,340 $ (20,893)

Organic decline (19,948)

Foreign exchange effects (945)

Goodwill impairment $ (146,757) $ — $ (146,757)

Income (loss) from operations $ (136,646) $ 13,151 $ (149,797)

Net sales decreased by $20.9 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to a decrease in organic volume of $19.9 million as a result of a reduced customer demand within the orthopaedic end market, the decrease in demand for elective surgeries as a result of the COVID-19 pandemic, and delays in product launches.

Sales for the period were also unfavorably impacted by the change in currency rates.

Income from operations decreased by $149.8 million compared to the same period in the prior year primarily due to a goodwill impairment loss of $146.8 million recognized in the first quarter of 2020.

Lost variable margin on lower sales and higher depreciation expense attributable to the capital investments made during 2019 to support the business growth also contributed to the decrease in income from operations.

These unfavorable impacts were partially offset by savings from continuous

improvement initiatives and overall reductions in manufacturing and selling, general, and administrative costs resulting from significant cost savings initiatives implemented to respond to the unfavorable impacts of the COVID-19 pandemic.

Lower amortization expense also contributed to income from operations due to the backlog intangible asset acquired in the Paragon acquisition that became fully amortized last year.

MOBILE SOLUTIONS

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 $ Change

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Foreign exchange effects (5,271)

Income (loss) from operations $ (4,328) $ 6,695 $ (11,023)

Net sales decreased by $46.6 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to lower demand within global automotive markets resulting from the COVID-19 pandemic, price reductions, the impact of reduced demand for components associated with programs nearing the end of life, and unfavorable foreign exchange effects.

Income from operations $ 625 $ 10,118 $ (9,493)

Net sales decreased by $49.3 million during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to lower demand within global automotive markets resulting from the COVID-19 pandemic, price reductions, the impact of reduced demand for components associated with programs nearing the end of life, and unfavorable foreign exchange effects.

Income from operations decreased by $9.5 million compared to the same period in the prior year due to lost variable margin on the above-referenced sales volume decline, partially offset by fixed cost reduction actions taken in response to the decline in sales volume.

Additionally, the nine months ended September 30, 2019, were impacted by a $1.4 million one-time favorable litigation settlement.

POWER SOLUTIONS

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 $ Change

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Income (loss) from operations $ (87,737) $ 12,857 $ (100,594)

Net sales decreased by $17.2 million during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to lower demand in the electrical products, automotive, and oil and gas end markets resulting from the COVID-19 pandemic.

Income from operations decreased by $98.4 million compared to the same period in the prior year primarily due to a goodwill impairment loss of $92.9 million recognized in the first quarter of 2020, and lost variable margin on the above-referenced sales volume decline.

Net sales decreased by $21.2 million during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to lower demand in the electrical products, automotive, and oil and gas end markets resulting from the COVID-19 pandemic.

Income from operations decreased by $100.6 million compared to the same period in the prior year primarily due to a goodwill impairment loss of $92.9 million recognized in the first quarter of 2020, lost variable margin on the above-referenced sales volume decline, and increased precious metals commodity prices.

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

Changes in Financial Condition from December 31, 2019, to June 30, 2020

From December 31, 2019, to June 30, 2020, total assets decreased by $246.0 million primarily due to the $239.7 million impairment of goodwill in the first quarter of 2020.

Accounts receivable decreased by $25.9 million as a result of decreased sales volume and improved cash collections.

These decreases were partially offset by cash reserves from the drawdown of $62.5 million on our Senior Secured Revolver during the six months ended June 30, 2020.

From December 31, 2019, to June 30, 2020, total liabilities increased by $43.7 million, primarily due to the drawdown on our Senior Secured Revolver.

Working capital, which consists of cash, accounts receivable, inventories, income taxes receivable, and other current assets offset by accounts payable, accrued personnel costs, income taxes payable, current maturities of long-term debt, current portion of lease liabilities, and other current liabilities, was $204.5 million as of June 30, 2020, compared to $163.5 million as of December 31, 2019.

The increase in working capital was due primarily to the increase in cash resulting from the drawdown on our Senior Secured Revolver, which was partially offset by a decrease in accounts receivable.

Cash provided by operations was $15.9 million for the six months ended June 30, 2020, compared with cash provided by operations of $4.4 million for the six months ended June 30, 2019.

The difference was primarily due to cost savings initiatives, improvements in cash collections on accounts receivable, and lower spending due to lower production volumes as a result of the COVID-19 pandemic.

Cash used in investing activities was $12.5 million for the six months ended June 30, 2020, compared with cash used in investing activities of $19.8 million for the six months ended June 30, 2019.

The decrease was primarily due to lower capital expenditures in 2020 as part of our cost savings initiatives.

Changes in Financial Condition from December 31, 2019, to September 30, 2020

From December 31, 2019, to September 30, 2020, total assets decreased by $225.8 million primarily due to the $92.9 million impairment of Power Solutions goodwill in the first quarter of 2020 and an additional $146.8 million impairment of Life Sciences goodwill in the first quarter of 2020, which is included in discontinued operations.

Normal depreciation and amortization of fixed assets and intangible assets also contributed to the decrease.

These decreases were partially offset by cash reserves from the drawdown of $59.0 million on our Senior Secured Revolver during the nine months ended September 30, 2020.

From December 31, 2019, to September 30, 2020, total liabilities increased by $32.3 million, primarily due to the drawdown on our Senior Secured Revolver.

Working capital of continuing operations, which consists of cash, accounts receivable, inventories, income taxes receivable, and other current assets offset by accounts payable, accrued personnel costs, income taxes payable, current maturities of long-term debt, current portion of lease liabilities, and other current liabilities, was $(573.7) million as of September 30, 2020, compared to $88.0 million as of December 31, 2019.

The decrease in working capital was primarily due to an increase in the current portion of long-term debt that was reasonably expected to be paid with proceeds from the sale of the Life Sciences business as required by the credit agreement.

This decrease was partially offset by the increase in cash resulting from the drawdown on our Senior Secured Revolver.

Cash provided by operations was $19.3 million for the nine months ended September 30, 2020, compared with cash provided by operations of $33.6 million for the nine months ended September 30, 2019.

The difference was primarily due to a decrease in sales volumes and higher interest expense.

Cash used in investing activities was $17.4 million for the nine months ended September 30, 2020, compared with cash used in investing activities of $31.0 million for the nine months ended September 30, 2019.

The decrease was primarily due to lower capital expenditures in 2020 as part of our cash savings initiatives.

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

Cash provided by financing activities was $53.4 million for the six months ended June 30, 2020, compared with cash provided by financing activities of $19.7 million for the six months ended June 30, 2019.

The difference was primarily due to higher net borrowings under our credit facility during the six months ended June 30, 2020.

Cash provided by financing activities was $43.9 million for the nine months ended September 30, 2020, compared with cash provided by financing activities of $6.9 million for the nine months ended September 30, 2019.

The difference was primarily due to higher net borrowings under our credit facility during the nine months ended September 30, 2020.

Impairment Analysis

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

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

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

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Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity.

Changes in assumptions and estimates may affect the fair value of goodwill and could result in impairment charges in future periods.

Management’s judgment used in the assessment of fair value is more significant under the current market conditions and economic uncertainty created by COVID-19.

The carrying values of the Life Sciences and Power Solutions reporting units exceeded their estimated fair values as of the March 31, 2020, analysis.

Life Sciences goodwill as of June 30, 2020, was $196.5 million.

In conjunction with the goodwill impairment test performed during the first quarter of 2020, Life Sciences goodwill was impaired by $146.8 million, resulting in the carrying value of the reporting unit being equal to its fair value as of the date of the assessment.

If our assessment of the relevant facts and circumstances changes, or if the actual performance falls short of expected results, an additional impairment charge will be required.

An impairment of goodwill may also lead us to record an impairment of other intangible assets.

The carrying value of finite-lived intangible assets for the Life Sciences group as of June 30, 2020, was $196.3 million.

The carrying value of the Power Solutions reporting unit exceeded the estimated fair value as of the March 31, 2020, analysis.

Liquidity and Capital Resources

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

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

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

On December 11, 2019, we issued Preferred Stock for net proceeds of $95.7 million and used a portion of the proceeds to repay amounts due at that time on our Senior Secured Revolver.

In December 2019, we amended our Credit Agreement which, in turn, extended the due date of our Senior Secured Revolver to July 20, 2022, reduced the total capacity under the Senior

Secured Revolver to $75.0 million, and extended the due date of our Incremental Term Loan to October 19, 2022, matching the date of our longer-dated Senior Secured Term Loan.

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

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

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

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

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

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

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

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

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

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

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

Based on available borrowing capacity of the Senior Secured Revolver, as well as cash flows expected to be generated from operations and investing activities, we anticipate that we may not be able to maintain compliance with the existing financial leverage ratio covenant for the next twelve months.

If we are unable to comply with our financial leverage ratio covenant, then the revolving credit lenders, the Senior Secured Term Loan lenders, and the Incremental Term Loan lenders could take action to cause amounts due under our credit facility to become due and payable unless we are able to amend such covenants or otherwise refinance our debt.

Our ability to amend our covenants or refinance our debt is dependent upon several factors, and therefore there can be no assurance that we would be successful in these efforts.

If we are unable to access future borrowings or be required to pay amounts due under our credit facilities prior to their normal maturity dates, this would have a material impact to our financial position.

Accordingly, we believe there is substantial doubt about our ability to continue as a going concern for the twelve-month period following the date of this Quarterly Report.

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

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

Accordingly, we believe that the conditions that raised substantial doubt about our ability to continue as a going concern as disclosed in our Quarterly Report for the period ended June 30, 2020, have been resolved.

On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575%.

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

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

After the prepayment, a portion of the hedged interest payments were no longer probable of occurring, and the hedging relationship on this portion was no longer highly effective.

Therefore, part of the

interest rate swap no longer qualified for hedge accounting after the debt prepayment.

After the discontinuation of hedge accounting, changes in the fair value of this portion of the swap will be recognized in earnings rather than in accumulated other comprehensive income.

During the fourth quarter of 2020, the accumulated loss in accumulated other comprehensive income related to the hedged interest payments that are no longer probable of occurring will be reclassified to earnings.

Refer to Note 18 in the Notes to Condensed Consolidated Financial Statements for further discussion about the interest rate swap.

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Various strategies to manage this risk are available to management, including producing and selling in local currencies and hedging programs.

As of June 30, 2020, no currency derivatives were in place.

As of September 30, 2020, no currency derivatives were in place.

In addition, a strengthening of the U.S.

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Credit Facility

Aggregate principal amounts outstanding under our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver as of June 30, 2020, were $837.3 million, without regard to unamortized debt issuance costs.

Aggregate principal amounts outstanding under our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver as of September 30, 2020, were $829.4 million, without regard to unamortized debt issuance costs.

Of this amount, $700.0 million was hedged with the interest rate swap.

As of June 30, 2020, we had unused borrowing capacity of $0.7 million under the Senior Secured Revolver, subject to certain limitations.

This amount of borrowing capacity is net of $11.8 million of outstanding letters of credit at June 30, 2020, which are considered as usage of the Senior Secured Revolver.

As of September 30, 2020, we had unused borrowing capacity of $1.4 million under the Senior Secured Revolver, subject to certain limitations.

This amount of borrowing capacity is net of $14.6 million of outstanding letters of credit at September 30, 2020, which are considered as usage of the Senior Secured Revolver.

On October 6, 2020, we used proceeds from the sale of the Life Sciences business to prepay $700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan.

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

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

Total capacity under the Senior Secured Revolver was $75.0 million as of June 30, 2020.

Total capacity under the Senior Secured Revolver was $75.0 million as of September 30, 2020.

The Senior Secured Revolver matures on July 20, 2022.

The Senior Secured Term Loan requires quarterly principal payments of $1.4 million through October 19, 2022, with the remaining principal amount due on the maturity date.

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

Among other things, the amendment reduced total capacity of the Senior Secured Revolver to $60.0 million immediately after the sale of the Life Sciences business.

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

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

On October 7, 2020, immediately after paying the entire outstanding balance of the Senior Secured Revolver, we had unused borrowing capacity of $45.4 million.

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

After the sale of the Life Sciences, quarterly principal payments are $0.1 million.

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

If one-month LIBOR exceeds 0.75%, then we pay the variable one-month LIBOR plus an

applicable margin of 5.75% on the unhedged balance.

Based on the interest rate in effect at June 30, 2020, annual interest payments on the hedged balance would be approximately $43.2 million.

The Incremental Term Loan requires quarterly principal payments of approximately $2.9 million through October 19, 2022, with the remaining principal amount due on the maturity date.

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

Based on the interest rate in effect at June 30, 2020, annual interest payments on hedged and unhedged balances would be $17.9 million.

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

Based on the interest rate in effect at September 30, 2020, after the $474.3 million principal payment on October 6, 2020, annual interest payments on the remaining balance would be approximately $3.1 million.

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

After the sale of the Life Sciences, quarterly principal payments are $0.3 million.

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

Based on the interest rate in effect at September 30, 2020, after the $225.7 million principal payment on October 6, 2020, annual interest payments on the remaining balance would be approximately $1.3 million.

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

Based on the interest rate in effect at June 30, 2020, annual interest payments would be $2.6 million.

Based on the interest rate in effect at September 30, 2020, annual interest payments would be approximately $2.4 million.

We paid in full the outstanding Senior Secured Revolver balance on October 7, 2020.

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

We had $62.5 million outstanding under the Senior Secured Revolver at June 30, 2020.

Total capacity under the Senior Secured Revolver was $75.0 million as of June 30, 2020, with $0.7 million available for future borrowings after reductions for outstanding letters of credit and outstanding borrowings as of June 30, 2020.

We had $59.0 million outstanding under the Senior Secured Revolver at September 30, 2020.

Total capacity under the Senior Secured Revolver was $75.0 million as of September 30, 2020, with $1.4 million available for future borrowings after reductions for outstanding letters of credit and outstanding borrowings as of September 30, 2020.

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

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

We were in compliance as of June 30, 2020, with all requirements under our credit facility.

Failure to maintain the required minimum liquidity levels or satisfy other requirements set forth in the amendment would allow the revolving credit lenders, the Senior Secured Term loan lenders,

and the Incremental Term Loan lenders to cause amounts outstanding under our credit facility to become immediately due and payable and would have a material, adverse impact on our financial position.

As discussed above, we amended our Credit Agreement again in August 2020 in conjunction with the planned sale of the Life Sciences business.

We were in compliance as of September 30, 2020, with all requirements under our credit facility.

Seasonality and Fluctuation in Quarterly Results

General economic conditions impact our business and financial results, and certain businesses experience seasonal and other trends related to the industries and end markets that they serve.

For example, European sales are often weaker in the summer months as customers slow production, medical device sales are often stronger in the fourth calendar quarter, and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products.

For example, European sales are often weaker in the summer months as customers slow production and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products.

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

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Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the 2019 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2019 Annual Report.

There have been no changes to these policies during the six months ended June 30, 2020, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

There have been no changes to these policies during the nine months ended September 30, 2020, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis