NN INC 10-Q

Item 1. Financial Statements NN, Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2020 2019 2020 2019 Net sales $ 113,761 $ 120,459 $ 308,506 $ 378,838 Cost of sales (exclusive of depreciation and amortization shown separately below) 90,076 96,654 249,612 300,666 Selling, general and administrative expense 13,745 15,493 44,178 52,994 Depreciation and amortization 11,435 11,284 34,119 33,552 Restructuring and integration expense, net — — — ( 12 ) Goodwill impairment — — 92,942 — Other operating expense (income), net ( 39 ) ( 1,161 ) 4,138 ( 905 ) Loss from operations ( 1,456 ) ( 1,811 ) ( 116,483 ) ( 7,457 ) Interest expense 6,873 3,805 17,036 8,829 Loss on extinguishment of debt and write-off of debt issuance costs 144 — 144 308 Other expense (income), net ( 262 ) 633 67 863 Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture ( 8,211 ) ( 6,249 ) ( 133,730 ) ( 17,457 ) Benefit (provision) for income taxes 8,715 1,134 7,935 ( 3,694 ) Share of net income from joint venture 1,136 279 1,792 345 Income (loss) from continuing operations 1,640 ( 4,836 ) ( 124,003 ) ( 20,806 ) Income (loss) from discontinued operations, net of tax (Note 2) 20,330 ( 1,019 ) ( 123,966 ) ( 11,850 ) Net income (loss) $ 21,970 $ ( 5,855 ) $ ( 247,969 ) $ ( 32,656 ) Other comprehensive income (loss): Foreign currency translation gain (loss) $ 6,712 $ ( 11,178 ) $ ( 6,636 ) $ ( 11,354 ) Interest rate swap: Change in fair value, net of tax 21 ( 1,181 ) ( 12,443 ) ( 11,999 ) Reclassification adjustment for losses included in net income (loss), net of tax 3,148 238 6,838 238 Other comprehensive income (loss) $ 9,881 $ ( 12,121 ) $ ( 12,241 ) $ ( 23,115 ) Comprehensive income (loss) $ 31,851 $ ( 17,976 ) $ ( 260,210 ) $ ( 55,771 ) Basic net income (loss) per common share: Income (loss) from continuing operations per common share $ ( 0.04 ) $ ( 0.12 ) $ ( 3.16 ) $ ( 0.50 ) Income (loss) from discontinued operations per common share 0.49 ( 0.02 ) ( 2.94 ) ( 0.28 ) Net income (loss) per common share $ 0.45 $ ( 0.14 ) $ ( 6.10 ) $ ( 0.78 ) Weighted average common shares outstanding 42,202 42,038 42,170 42,013 Diluted net income (loss) per common share: Income (loss) from continuing operations per common share $ ( 0.04 ) $ ( 0.12 ) $ ( 3.16 ) $ ( 0.50 ) Income (loss) from discontinued operations per common share 0.49 ( 0.02 ) ( 2.94 ) ( 0.28 ) Net income (loss) per common share $ 0.45 $ ( 0.14 ) $ ( 6.10 ) $ ( 0.78 ) Weighted average common shares outstanding 42,202 42,038 42,170 42,013 See notes to condensed consolidated financial statements (unaudited). 3 Table of Contents NN, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except per share data) September 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 56,131 $ 17,911 Accounts receivable, net 87,411 83,240 Inventories 63,718 67,078 Income tax receivable 13,640 5,973 Current assets held for sale 630,900 117,000 Other current assets 11,753 11,778 Total current assets 863,553 302,980 Property, plant and equipment, net 225,514 255,977 Operating lease right-of-use assets 51,601 45,452 Goodwill — 94,779 Intangible assets, net 106,652 117,413 Investment in joint venture 24,147 21,755 Deferred tax assets 38,026 — Non-current assets held for sale — 695,054 Other non-current assets 6,716 8,574 Total assets $ 1,316,209 $ 1,541,984 Liabilities, Preferred Stock, and Stockholders’ Equity Current liabilities: Accounts payable $ 42,890 $ 40,973 Accrued salaries, wages and benefits 19,159 15,584 Income tax payable 810 684 Current maturities of long-term debt 713,350 19,106 Current portion of operating lease liabilities 5,005 4,288 Current liabilities held for sale 120,832 41,546 Other current liabilities 25,113 17,300 Total current liabilities 927,159 139,481 Deferred tax liabilities 2,127 24,461 Non-current income tax payable — 1,272 Long-term debt, net of current portion 117,482 757,250 Operating lease liabilities, net of current portion 56,111 48,575 Non-current liabilities held for sale — 84,199 Other non-current liabilities 25,137 40,457 Total liabilities 1,128,016 1,095,695 Commitments and contingencies (Note 12) Series B convertible preferred stock - $ 0.01 par value per share, 100 shares authorized, 100 shares issued and outstanding at December 31, 2019, and September 30, 2020 101,846 93,012 Stockholders' equity: Common stock - $ 0.01 par value per share, 90,000 shares authorized, 42,313 and 42,739 shares issued and outstanding at December 31, 2019, and September 30, 2020, respectively 427 423 Additional paid-in capital 495,967 501,615 Warrants — 1,076 Accumulated deficit ( 353,252 ) ( 105,283 ) Accumulated other comprehensive loss ( 56,795 ) ( 44,554 ) Total stockholders’ equity 86,347 353,277 Total liabilities, preferred stock, and stockholders’ equity $ 1,316,209 $ 1,541,984 See notes to condensed consolidated financial statements (unaudited). 4 Table of Contents NN, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity Three Months Ended September 30, 2020 and 2019 (Unaudited) Common Stock (in thousands) Number of shares Par value Additional paid-in capital Warrants Retained earnings (Accumulated deficit) Accumulated other comprehensive income (loss) Total Balance, June 30, 2020 42,747 $ 427 $ 498,294 $ 1,076 $ ( 375,222 ) $ ( 66,676 ) $ 57,899 Net income — — — — 21,970 — 21,970 Dividends accrued for preferred stock — — ( 3,139 ) — — — ( 3,139 ) Share-based compensation expense — — 1,435 — — — 1,435 Restricted shares forgiven for taxes ( 8 ) — ( 46 ) — — — ( 46 ) Change in estimate of share-based award vesting — — ( 577 ) — — — ( 577 ) Reclassification of warrants to liabilities (Note 18) — — — ( 1,076 ) — — ( 1,076 ) Change in fair value of interest rate swap, net of tax of $ 6 — — — — — 21 21 Reclassification of interest rate swap settlement to net income, net of tax of $ 952 — — — — — 3,148 3,148 Foreign currency translation gain — — — — — 6,712 6,712 Balance, September 30, 2020 42,739 $ 427 $ 495,967 $ — $ ( 353,252 ) $ ( 56,795 ) $ 86,347 Common Stock (in thousands) Number of shares Par value Additional paid-in capital Retained earnings (Accumulated deficit) Accumulated other comprehensive income (loss) Total Balance, June 30, 2019 42,367 $ 424 $ 504,556 $ ( 85,343 ) $ ( 42,308 ) $ 377,329 Net loss — — — ( 5,855 ) — ( 5,855 ) Dividends declared or accrued for common stock — — ( 2,973 ) — — ( 2,973 ) Shares issued for options exercised 5 — 21 — — 21 Share-based compensation expense ( 50 ) ( 1 ) 1,152 — — 1,151 Restricted shares forgiven for taxes ( 25 ) — ( 10 ) — — ( 10 ) Change in estimate of share-based award vesting — — ( 1,240 ) — — ( 1,240 ) Change in fair value of interest rate swap, net of tax of $ 375 — — — — ( 1,181 ) ( 1,181 ) Reclassification of interest rate swap settlement to net loss, net of tax of $ 68 — — — — 238 238 Foreign currency translation loss — — — — ( 11,178 ) ( 11,178 ) Balance, September 30, 2019 42,297 $ 423 $ 501,506 $ ( 91,198 ) $ ( 54,429 ) $ 356,302 See notes to condensed consolidated financial statements (unaudited). 5 Table of Contents NN, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity Nine Months Ended September 30, 2020 and 2019 (Unaudited) Common Stock (in thousands) Number of shares Par value Additional paid-in capital Warrants Retained earnings (Accumulated deficit) Accumulated other comprehensive income (loss) Total Balance, December 31, 2019 42,313 $ 423 $ 501,615 $ 1,076 $ ( 105,283 ) $ ( 44,554 ) $ 353,277 Net loss — — — — ( 247,969 ) — ( 247,969 ) Dividends accrued for preferred stock — — ( 9,133 ) — — — ( 9,133 ) Share-based compensation expense 442 4 4,138 — — — 4,142 Restricted shares forgiven for taxes ( 16 ) — ( 76 ) — — — ( 76 ) Change in estimate of share-based award vesting — — ( 577 ) — — — ( 577 ) Reclassification of warrants to liabilities (Note 18) — — — ( 1,076 ) — — ( 1,076 ) Change in fair value of interest rate swap, net of tax of $ 3,764 — — — — — ( 12,443 ) ( 12,443 ) Reclassification of interest rate swap settlement to net loss, net of tax of $ 2,068 — — — — — 6,838 6,838 Foreign currency translation loss — — — — — ( 6,636 ) ( 6,636 ) Balance, September 30, 2020 42,739 $ 427 $ 495,967 $ — $ ( 353,252 ) $ ( 56,795 ) $ 86,347 Common Stock (in thousands) Number of shares Par value Additional paid-in capital Retained earnings (Accumulated deficit) Accumulated other comprehensive income (loss) Total Balance, December 31, 2018 42,104 $ 421 $ 508,655 $ ( 58,491 ) $ ( 31,314 ) $ 419,271 Net loss — — — ( 32,656 ) — ( 32,656 ) Dividends declared or accrued for common stock — — ( 8,907 ) — — ( 8,907 ) Shares issued for option exercises 5 — 21 — — 21 Share-based compensation expense 231 2 3,128 — — 3,130 Restricted shares forgiven for taxes ( 43 ) — ( 151 ) — — ( 151 ) Change in estimate of share-based award vesting — — ( 1,240 ) — — ( 1,240 ) Change in fair value of interest rate swap, net of tax of $ 3,472 — — — — ( 11,999 ) ( 11,999 ) Reclassification of interest rate swap settlement to net loss, net of tax of $ 68 — — — — 238 238 Foreign currency translation loss — — — — ( 11,354 ) ( 11,354 ) Adoption of new accounting standard — — — ( 51 ) — ( 51 ) Balance, September 30, 2019 42,297 423 501,506 ( 91,198 ) ( 54,429 ) 356,302 See notes to condensed consolidated financial statements (unaudited). 6 Table of Contents NN, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, (in thousands) 2020 2019 Cash flows from operating activities Net loss $ ( 247,969 ) $ ( 32,656 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of continuing operations 34,119 33,552 Depreciation and amortization of discontinued operations 35,731 35,418 Amortization of debt issuance costs 4,981 3,538 Goodwill impairment of continuing operations 92,942 — Goodwill impairment of discontinued operations 146,757 — Loss on extinguishment of debt and write-off of debt issuance costs 1,532 2,699 Share of net income from joint venture, net of cash dividends received ( 1,792 ) ( 345 ) Compensation expense from issuance of share-based awards 3,565 1,855 Deferred income taxes ( 61,889 ) ( 11,024 ) Other ( 1,516 ) 2,091 Changes in operating assets and liabilities: Accounts receivable 4,894 ( 9,929 ) Inventories 4,149 ( 4,825 ) Accounts payable ( 1,702 ) ( 334 ) Income taxes receivable and payable, net ( 10,753 ) 1,696 Other 16,295 11,871 Net cash provided by operating activities 19,344 33,607 Cash flows from investing activities Acquisition of property, plant and equipment ( 20,518 ) ( 40,720 ) Proceeds from liquidation of short-term investment — 8,000 Proceeds from sale of property, plant, and equipment 3,153 2,435 Other — ( 712 ) Net cash used in investing activities ( 17,365 ) ( 30,997 ) Cash flows from financing activities Cash paid for debt issuance costs ( 661 ) ( 1,016 ) Dividends paid — ( 8,879 ) Proceeds from long-term debt 64,716 52,144 Repayments of long-term debt ( 17,123 ) ( 26,634 ) Proceeds from (repayments of) short-term debt, net ( 849 ) ( 6,086 ) Other ( 2,142 ) ( 2,636 ) Net cash provided by financing activities 43,941 6,893 Effect of exchange rate changes on cash flows ( 5,506 ) ( 3,082 ) Net change in cash and cash equivalents 40,414 6,421 Cash and cash equivalents at beginning of period (1) 31,703 17,988 Cash and cash equivalents at end of period (1) $ 72,117 $ 24,409 _______________________________ (1) Cash and cash equivalents include $ 16.0 million, $ 13.8 million, $ 13.2 million, and $ 10.2 million of cash and cash equivalents that were included in current assets held for sale as of September 30, 2020, December 31, 2019, September 30, 2019, and December 31, 2018, respectively. See notes to condensed consolidated financial statements (unaudited). 7 Table of Contents NN, Inc. Notes to Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Amounts in thousands, except per share data Note 1. Interim Financial Statements Nature of Business NN, Inc. 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 on Form 10-Q (this “Quarterly Report”), the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries. Basis of Presentation and Going Concern The accompanying condensed consolidated financial statements have not been audited, except that the Condensed Consolidated Balance Sheet as of December 31, 2019, was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”), which we filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2020. Historical periods presented reflect reclassifications for discontinued operations (see Note 2). Historical periods also reflect revisions that we disclosed in our 2019 Annual Report (see Note 3). In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to fairly state our results of operations for the three and nine months ended September 30, 2020 and 2019; financial position as of September 30, 2020, and December 31, 2019; and cash flows for the nine months ended September 30, 2020 and 2019, on a basis consistent with our audited consolidated financial statements other than the adoption of new accounting standards (see Accounting Standards Recently Adopted section below). These adjustments are of a normal recurring nature and are, in the opinion of management, necessary to state fairly the Company’s financial position and operating results for the interim periods. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted from the interim financial statements presented in this Quarterly Report. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the 2019 Annual Report. The results for the three and nine months ended September 30, 2020, are not necessarily indicative of results for the year ending December 31, 2020, or any other future periods. Except for per share data or as otherwise indicated, all U.S. dollar amounts presented in the tables in these Notes to Condensed Consolidated Financial Statements are in thousands. In November 2019, we initiated a strategic review to evaluate a broad range of operational, financial, and strategic options to reduce leverage and enhance shareholder value, and we retained external advisors to assist in this effort. The strategic options we have evaluated included further cost savings and cash generation initiatives, more efficient capital deployment, changes to our debt and equity structure to improve financial flexibility and liquidity, and the sale of part or all of NN, among others. As discussed in our 2019 Annual Report, on December 11, 2019, we issued Series B Convertible Preferred Stock (“Preferred Stock”) for net proceeds of $ 95.7 million and used a portion of the proceeds to repay amounts due at that time on our Senior Secured Revolver. In December 2019, we amended our Credit Agreement which, in turn, extended the due date of our Senior Secured Revolver to July 20, 2022, reduced the total capacity under the Senior Secured Revolver to $ 75.0 million, and extended the due date of our Incremental Term Loan to October 19, 2022, matching the date of our longer-dated Senior Secured Term Loan. Additionally, as part of this amendment, our debt covenants were amended to establish more restrictive leverage ratios that also become more restrictive over time. Our Consolidated Net Leverage Ratio (the “financial leverage ratio”) covenant is required to be complied with on a quarterly basis at the end of each of our quarterly reporting periods. Our financial leverage ratio covenant is based upon our consolidated net indebtedness at each quarter end and our trailing twelve-month Adjusted EBITDA as defined in our Credit Agreement. In July 2020, we amended our Credit Agreement to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020. During this period, we 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 outstanding under our credit facility to become immediately due and payable and would have a material, adverse impact on our financial position. 8 Table of Contents 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. 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. In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued. We rely on cash flow generated from operations and available borrowings under our Senior Secured Revolver to fund our working capital and other operating and investing needs. Our ability to borrow under 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. The full extent of the effect of the coronavirus (“COVID-19”) pandemic on our customers, our supply chain and our business cannot be reasonably assessed at this time although we expect our full year 2020 results of operations to be adversely affected. We have developed a plan to mitigate the impact of COVID-19, which includes the implementation of a series of specific and identified cost reductions in both our corporate and business groups, in addition to actions already taken, including further reducing our direct and indirect labor costs and benefits. The impact of COVID-19 on our operating results will depend on future developments, which are highly uncertain and cannot be predicted, including governmental and business reactions to the pandemic. We have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. If there are differences between these estimates and actual results, our consolidated financial statements may be materially affected. 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. Accounting Standards Recently Adopted Financial Instruments - Credit Losses . In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments and the timing of when such losses are recorded. In November 2019, the SEC issued Staff Accounting Bulletin (“SAB”) No. 119, codified in ASC Topic 326, Financial Instruments-Credit Losses, which provides guidance on accounting of credit losses. We adopted ASU 2016-13 on January 1, 2020, using the modified retrospective transition method which resulted in no material adjustment to our financial statements as of January 1, 2020. Fair Value Disclosures. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) , that modifies fair value disclosure requirements. The new guidance streamlines disclosures of Level 3 fair value measurements. The modified disclosures were effective for us beginning in the first quarter of 2020. ASU 2018-13 changes disclosures only and does not impact our financial condition, results of operations, or cash flows. Internal-Use Software. In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) (“ASU 2018-15”) , that provides guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor. Under the new guidance, customers apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. We adopted ASU 2018-15 as of January 1, 2020, prospectively. We have had no such costs after the adoption date, and we do not expect the new guidance to have a material impact on our financial statements. Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. Among other things, for all types of hedging relationships, the guidance allows an entity to change the reference rate and other critical terms related 9 Table of Contents to reference rate reform without having to remeasure the value or reassess a previous accounting determination. The amendments in this guidance should be applied on a prospective basis and, for companies with a fiscal year ending December 31, are effective from January 1, 2020, through December 31, 2022. We adopted this guidance effective January 1, 2020. When the transition occurs, we expect to apply this expedient to new transactions that reference LIBOR or another reference rate that is discontinued, through December 31, 2022. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements. Accounting Standards Not Yet Adopted Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, (“ASU 2019-12”) as part of its initiative to reduce complexity in accounting standards. ASU 2019-12 removes certain exceptions and provides simplification to specific tax items to improve consistent application. This standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Adoption methods vary based on the specific items impacted. We are currently evaluating the impact on our financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, (“ASU 2020-06”) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. In addition, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. Further, for the diluted earnings-per-share calculation, the new guidance requires entities to use the if-converted method for all convertible instruments and generally requires entities to include the effect of share settlement for instruments that may be settled in cash or shares, among other things. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Either the full or modified retrospective adoption method is allowed. We are currently evaluating the impact on our financial statements and related disclosures. Note 2. 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. See Note 19 for more information about the closing of the transaction. 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. 10 Table of Contents The following table presents the results of operations of the discontinued operations. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net sales $ 68,525 $ 93,438 $ 223,944 $ 269,981 Cost of sales (exclusive of depreciation and amortization shown separately below) 50,444 64,420 158,538 186,694 Selling, general and administrative expense 6,164 8,550 20,189 25,917 Depreciation and amortization 12,030 11,337 35,731 35,418 Goodwill impairment — — 146,757 — Other operating expense (income), net 24 ( 94 ) 20 ( 114 ) Income (loss) from operations ( 137 ) 9,225 ( 137,291 ) 22,066 Interest expense 12,248 10,928 37,857 33,663 Loss on extinguishment of debt and write-off of debt issuance costs 1,388 — 1,388 2,391 Other expense (income), net ( 234 ) ( 535 ) ( 325 ) 21 Loss from discontinued operations before costs of disposal and benefit for income taxes ( 13,539 ) ( 1,168 ) ( 176,211 ) ( 14,009 ) Benefit for income taxes 39,954 149 59,598 2,159 Income (loss) from discontinued operations before costs of disposal 26,415 ( 1,019 ) ( 116,613 ) ( 11,850 ) Costs of disposal of discontinued operations (1) ( 6,598 ) — ( 7,956 ) — Benefit for income taxes on disposal costs 513 — 603 — Income (loss) from discontinued operations, net of tax $ 20,330 $ ( 1,019 ) $ ( 123,966 ) $ ( 11,850 ) _______________________________ (1) Represents legal, accounting, and other incremental direct costs related to the sale of the Life Sciences business that were incurred prior to the closing of the sale. Our credit facility required us to use proceeds from the sale of the Life Sciences business to prepay a portion of our existing debt. We paid $ 700 million in the aggregate on our term loans as described in Note 10. The prepayment was applied to debt in accordance with the prepayment provisions of the credit agreement immediately after the transaction closed on October 6, 2020. Average quarterly interest rates were multiplied by the required prepayment amounts to calculate interest expense to be reclassified to discontinued operations for all periods presented. Write-offs of credit facility debt issuance costs were allocated to discontinued operations by multiplying the ratio of the required prepayment amounts as a percentage of total outstanding principal by the total write-off charges in each period. Write-offs of credit facility debt issuance costs that have been allocated to discontinued operations are presented in the “Loss on extinguishment of debt and write-off of debt issuance costs” line the table above. The following table summarizes the amount of interest expense related to the credit facility that has been reclassified to discontinued operations. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Interest on debt $ 11,060 $ 10,217 $ 34,410 $ 31,490 Amortization of debt issuance costs 1,215 812 3,692 2,478 Capitalized interest and other ( 27 ) ( 101 ) ( 245 ) ( 305 ) Total interest expense of discontinued operations $ 12,248 $ 10,928 $ 37,857 $ 33,663 11 Table of Contents The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented. September 30, 2020 December 31, 2019 Cash and cash equivalents $ 15,986 $ 13,792 Accounts receivable, net 37,465 48,318 Inventories 49,646 51,644 Other current assets 3,042 3,246 Total current assets 106,139 117,000 Property, plant and equipment, net 114,364 118,536 Operating lease right-of-use assets 24,199 20,044 Goodwill 197,353 344,316 Intangible assets, net 188,584 211,847 Other non-current assets 261 311 Total non-current assets 524,761 695,054 Total assets held for sale (1) $ 630,900 $ 812,054 Accounts payable $ 11,362 $ 16,367 Accrued salaries, wages and benefits 15,709 14,844 Income tax payable 218 344 Current portion of operating lease liabilities 2,768 2,364 Other current liabilities 5,962 7,627 Total current liabilities 36,019 41,546 Deferred tax liabilities 55,728 61,338 Operating lease liabilities, net of current portion 22,333 18,405 Other non-current liabilities 6,752 4,456 Total non-current liabilities 84,813 84,199 Total liabilities held for sale (1) $ 120,832 $ 125,745 _______________________________ (1) As of September 30, 2020, all assets and liabilities held for sale are classified as current on the Condensed Consolidated Balance Sheet because they were expected to be sold within twelve months. The following table presents the significant noncash items and cash paid for capital expenditures of discontinued operations for each period presented. Nine Months Ended September 30, 2020 2019 Depreciation and amortization $ 35,731 $ 35,418 Goodwill impairment 146,757 — Amortization of debt issuance costs 3,692 2,478 Loss on extinguishment of debt and write-off of debt issuance costs 1,388 2,391 Acquisition of property, plant and equipment 7,626 16,358 Right-of-use assets obtained in exchange for new finance lease liabilities 695 1,208 Right-of-use assets obtained in exchange for new operating lease liabilities (1) 6,174 115 _______________________________ (1) Includes new leases, renewals, and modifications. 12 Table of Contents Note 3. Prior Periods' Financial Statement Revisions As disclosed in our 2019 Annual Report, we identified various misstatements in our previously issued financial statements as of and for the years ended December 31, 2018 and 2017, as well as the interim periods in 2018 and the first three quarters of 2019. These misstatements primarily related to (i) intentional misstatements in the accounting for inventory at one of our smaller foreign subsidiaries and (ii) the tax accounting associated with the 2018 impairment of our joint venture. We assessed the materiality of the misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Materiality , codified in Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections , (“ASC 250”) and concluded that the misstatements were not material to the prior annual or interim periods. However, we revised our previously issued 2018 and 2017 annual consolidated financial statements to correct for these misstatements. In connection with such revision, we also corrected for other immaterial misstatements. In connection with the filing of this Quarterly Report, we have revised the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Changes in Stockholders’ Equity, and Cash Flows for the three and nine months ended September 30, 2019, and the related notes to revise for those misstatements that impacted such period. The following tables present the effect of the correction of the misstatements and the resulting revision on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) as well as the effect of recasting the prior periods for the Life Sciences discontinued operations (see Note 2). Three Months Ended September 30, 2019 As Originally Reported Adjustment Discontinued Operations Adjustment As Revised Cost of sales (exclusive of depreciation and amortization) $ 160,816 $ 258 $ ( 64,420 ) $ 96,654 Income (loss) from operations 7,672 ( 258 ) ( 9,225 ) ( 1,811 ) Loss before (provision) benefit for income taxes and share of net income from joint venture ( 7,159 ) ( 258 ) 1,168 ( 6,249 ) Loss from continuing operations ( 5,597 ) ( 258 ) 1,019 ( 4,836 ) Net loss ( 5,597 ) ( 258 ) — ( 5,855 ) Foreign currency translation loss ( 11,448 ) 270 — ( 11,178 ) Comprehensive loss ( 17,988 ) 12 — ( 17,976 ) Basic loss from continuing operations per common share $ ( 0.13 ) $ ( 0.01 ) $ 0.02 $ ( 0.12 ) Basic net loss per common share $ ( 0.13 ) $ ( 0.01 ) $ — $ ( 0.14 ) Diluted loss from continuing operations per common share $ ( 0.13 ) $ ( 0.01 ) $ 0.02 $ ( 0.12 ) Diluted net loss per common share $ ( 0.13 ) $ ( 0.01 ) $ — $ ( 0.14 ) Nine Months Ended September 30, 2019 As Originally Reported Adjustment Discontinued Operations Adjustment As Revised Cost of sales (exclusive of depreciation and amortization) $ 485,598 $ 1,762 $ ( 186,694 ) $ 300,666 Income (loss) from operations 16,371 ( 1,762 ) ( 22,066 ) ( 7,457 ) Loss before provision for income taxes and share of net income from joint venture ( 29,704 ) ( 1,762 ) 14,009 ( 17,457 ) Loss from continuing operations ( 30,894 ) ( 1,762 ) 11,850 ( 20,806 ) Net loss ( 30,894 ) ( 1,762 ) — ( 32,656 ) Foreign currency translation loss ( 11,620 ) 266 — ( 11,354 ) Comprehensive loss ( 54,275 ) ( 1,496 ) — ( 55,771 ) Basic loss from continuing operations per common share $ ( 0.74 ) $ ( 0.04 ) $ 0.28 $ ( 0.50 ) Basic net loss per common share $ ( 0.74 ) $ ( 0.04 ) $ — $ ( 0.78 ) Diluted loss from continuing operations per common share $ ( 0.74 ) $ ( 0.04 ) $ 0.28 $ ( 0.50 ) Diluted net loss per common share $ ( 0.74 ) $ ( 0.04 ) $ — $ ( 0.78 ) 13 Table of Contents The following table presents the effect of the correction of the misstatements on the Condensed Consolidated Statements of Changes in Stockholders’ Equity. As Originally Reported Adjustment As Revised As of and for the three months ended September 30, 2019 Additional paid-in capital $ 513,268 $ ( 11,762 ) $ 501,506 Net loss ( 5,597 ) ( 258 ) ( 5,855 ) Accumulated deficit ( 98,888 ) 7,690 ( 91,198 ) Foreign currency translation loss ( 11,448 ) 270 ( 11,178 ) Accumulated other comprehensive loss ( 55,006 ) 577 ( 54,429 ) Total stockholders' equity 359,797 ( 3,495 ) 356,302 As of and for the nine months ended September 30, 2019 Additional paid-in capital $ 513,268 $ ( 11,762 ) $ 501,506 Net loss ( 30,894 ) ( 1,762 ) ( 32,656 ) Accumulated deficit ( 98,888 ) 7,690 ( 91,198 ) Foreign currency translation loss ( 11,620 ) 266 ( 11,354 ) Accumulated other comprehensive loss ( 55,006 ) 577 ( 54,429 ) Total stockholders' equity 359,797 ( 3,495 ) 356,302 The following table presents the effect of the correction of the misstatements on the Condensed Consolidated Statements of Cash Flows. Nine Months Ended September 30, 2019 As Originally Reported Adjustment As Revised Net loss $ ( 30,894 ) $ ( 1,762 ) $ ( 32,656 ) Changes in operating assets and liabilities, net of acquisitions: Inventories ( 5,794 ) 969 ( 4,825 ) Other 11,078 793 11,871 Note 4. Segment Information Our business has historically been aggregated into the following three reportable segments: • Mobile Solutions, which is focused on growth in the general industrial and automotive end markets; • Power Solutions, which is focused on growth in the electrical and aerospace and defense end markets; and • Life Sciences, which is focused on growth in the medical end market, primarily in the orthopaedics and medical/surgical end markets and was sold on October 6, 2020. These divisions have historically been considered our three operating segments as each engages in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and assessing performance. See Note 2 and Note 19 for information regarding the sale of the Life Sciences business on October 6, 2020. The results of the Life Sciences business are classified as discontinued operations for all periods in the condensed consolidated financial statements and accompanying notes unless otherwise stated. Accordingly, results of the Life Sciences business are not included in the tabular presentation below. 14 Table of Contents The following tables present results of continuing operations by reportable segment. Mobile Solutions Power Solutions Corporate and Consolidations Total Three Months Ended September 30, 2020 Net sales $ 70,371 $ 43,415 $ ( 25 ) (a) $ 113,761 Income (loss) from operations 4,953 1,143 ( 7,552 ) $ ( 1,456 ) Interest expense ( 6,873 ) Other 118 Loss from continuing operations before income taxes and share of net income from joint venture $ ( 8,211 ) Three Months Ended September 30, 2019 Net sales $ 73,071 $ 47,430 $ ( 42 ) (a) $ 120,459 Income (loss) from operations 3,423 3,351 ( 8,585 ) $ ( 1,811 ) Interest expense ( 3,805 ) Other ( 633 ) Loss from continuing operations before income taxes and share of net income from joint venture $ ( 6,249 ) Mobile Solutions Power Solutions Corporate and Consolidations Total Nine Months Ended September 30, 2020 Net sales $ 181,292 $ 127,307 $ ( 93 ) (a) $ 308,506 Goodwill impairment — 92,942 — $ 92,942 Income (loss) from operations 625 ( 87,737 ) ( 29,371 ) ( 116,483 ) Interest expense ( 17,036 ) Other ( 211 ) Loss from continuing operations before income taxes and share of net income from joint venture $ ( 133,730 ) Nine Months Ended September 30, 2019 Net sales $ 230,590 $ 148,480 $ ( 232 ) (a) $ 378,838 Income (loss) from operations 10,118 12,857 ( 30,432 ) $ ( 7,457 ) Interest expense ( 8,829 ) Other ( 1,171 ) Loss from continuing operations before income taxes and share of net income from joint venture $ ( 17,457 ) _______________________________ (a) Includes elimination of intersegment transactions occurring during the ordinary course of business. The following table presents total assets by reportable segment as of September 30, 2020, and December 31, 2019. Total Assets September 30, 2020 December 31, 2019 Mobile Solutions $ 369,939 $ 373,256 Power Solutions 199,906 310,545 Corporate and Consolidations 746,364 858,183 Total $ 1,316,209 $ 1,541,984 As of September 30, 2020, and December 31, 2019, one customer represented 12 % and 10 %, respectively, of consolidated accounts receivable from continuing operations. Amounts due from this customer are primarily related to Mobile Solutions. 15 Table of Contents Note 5. Inventories Inventories are comprised of the following amounts: September 30, 2020 December 31, 2019 Raw materials $ 21,238 $ 34,816 Work in process 21,715 17,810 Finished goods 20,765 14,452 Total inventories $ 63,718 $ 67,078 Note 6. Goodwill The following table shows changes in the carrying amount of goodwill. Balance as of December 31, 2019 $ 94,779 Currency impact and other ( 1,837 ) Impairments ( 92,942 ) Balance as of September 30, 2020 $ — As of December 31, 2019, all goodwill related to the Power Solutions reportable segment, and no goodwill was recorded in the Mobile Solutions reportable segment. During the first quarter of 2020, our market capitalization declined to a level that was less than the net book value of our stockholders’ equity. The decline in market capitalization was a triggering event that caused us to perform a goodwill impairment analysis as of March 31, 2020. The goodwill impairment analysis required significant judgments to calculate the fair value for the Power Solutions reporting unit, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for each operating segment, and determination of weighted average cost of capital. Our forecasts used in the goodwill impairment analysis reflected our expectations of declines in sales resulting from COVID-19. Significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, costs to produce, discount rate, and estimated capital needs. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. The carrying value of the Power Solutions reporting unit exceeded the estimated fair value as of the March 31, 2020, analysis. As a result of our analysis, we recorded an impairment loss on goodwill of $ 92.9 million to the “Goodwill impairment” line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). As of September 30, 2020, there is no remaining goodwill balance. Note 7. Intangible Assets, Net The following table shows changes in the carrying amount of intangible assets, net, by reportable segment. Mobile Solutions Power Solutions Total Balance as of December 31, 2019 $ 32,416 $ 84,997 $ 117,413 Amortization ( 2,516 ) ( 8,245 ) ( 10,761 ) Balance as of September 30, 2020 $ 29,900 $ 76,752 $ 106,652 Intangible assets are tested for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. As of March 31, 2020, the goodwill impairment testing trigger caused us to test intangible assets in all of our reportable segments for impairment as well, and based on our analysis no impairment charge was deemed necessary. Note 8. Investment in Joint Venture We own a 49 % investment in Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the “JV”), a joint venture located in Wuxi, China. The JV is jointly controlled and managed, and we account for it under the equity method. 16 Table of Contents The following table shows changes in our investment in the JV. Balance as of December 31, 2019 $ 21,755 Share of earnings 1,792 Foreign currency translation gain 600 Balance as of September 30, 2020 $ 24,147 During the fourth quarter of 2018, as a result of changing market conditions, the fair value of the JV was assessed, and we recorded an impairment of $ 16.6 million against our investment in the JV. The fair value assessment was significantly affected by changes in our assessment of future growth rates. During the first quarter of 2020, the goodwill impairment testing trigger caused us to test the JV for impairment as well. Based on our analysis, no impairment charge was deemed necessary. It is reasonably possible that material deviation of future performance from the estimates used in the March 31, 2020, impairment test could result in additional impairment to our investment in the JV in subsequent periods. We recognized sales to the JV of less than $ 0.1 million and $ 0.1 million during the three and nine months ended September 30, 2020, respectively, and less than $ 0.1 million and $ 0.1 million during the three and nine months ended September 30, 2019, respectively. Note 9. Income Taxes On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. Among other provisions, the CARES Act allows for the carryback of certain tax losses and favorably impacts the deductibility of interest expense and depreciation. The CARES Act had a material impact on our financial statements and has been accounted for in the benefit/provision for income taxes for the nine months ended September 30, 2020. Our effective tax rate for continuing operations was 106.1 % and 5.9 % for the three and nine months ended September 30, 2020, respectively, and 18.2 % and ( 21.2 )% for the three and nine months ended September 30, 2019, respectively. The 2020 year-to-date effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21 % primarily due to the impact of the impairment of nondeductible goodwill which is treated as a permanent difference. The year-to-date effective tax rate was also impacted by the CARES Act, the 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. The effective tax rate for the three months ended September 30, 2020, was primarily impacted by the effect of the impairment of nondeductible goodwill on the estimated annual effective tax rate and a change in the estimated impact of the CARES Act. The 2019 effective tax rate differs from the U.S. federal statutory tax rate of 21 % principally due to a discrete tax charge of $ 6.0 million related to final tax regulations published by the Department of the Treasury and Internal Revenue Service on February 4, 2019. The effective tax rate for the three months ended September 30, 2019, was primarily impacted by changes in the full year forecast book income (loss) within each jurisdiction in which we operate. During the three months ended September 30, 2020, we realized a tax benefit in discontinued operations related to estimated tax in excess of book outside basis in a subsidiary held for sale. The related deferred tax asset is not included in current assets held for sale given it will be retained and settled by NN, Inc. Note 10. Debt Collectively, our credit facility is comprised of a term loan with a face amount of $ 545.0 million, maturing on October 19, 2022 (the “Senior Secured Term Loan”); a term loan with a face amount of $ 300.0 million, maturing on October 19, 2022 (the “Incremental Term Loan”); and a revolving line of credit with a face amount of $ 75.0 million, maturing on July 20, 2022 (the “Senior Secured Revolver”). The credit facility is collateralized by all of our assets. 17 Table of Contents The following table presents debt balances as of September 30, 2020, and December 31, 2019. September 30, 2020 December 31, 2019 Senior Secured Term Loan $ 522,000 $ 526,313 Incremental Term Loan 248,444 257,111 Senior Secured Revolver 59,000 — International lines of credit and other loans (1) 12,756 9,579 Total principal 842,200 793,003 Less-current maturities of long-term debt (2) 713,350 19,106 Principal, net of current portion 128,850 773,897 Less-unamortized debt issuance costs (3) 11,368 16,647 Long-term debt, net of current portion $ 117,482 $ 757,250 _______________________________ (1) Excludes $ 1.0 million and $ 0.2 million of equipment loans directly attributable to the Life Sciences business which have been reclassified to liabilities held for sale as of September 30, 2020, and December 31, 2019, respectively. (2) As of September 30, 2020, includes $ 474.3 million of Senior Secured Term Loan principal and $ 225.7 million of Incremental Term Loan principal that is classified as current because of management’s expectation that proceeds from the liquidation of assets held for sale will be required to retire the obligation within twelve months as required by the credit agreement (see Note 2). Also includes $ 9.0 million of outstanding borrowings on the Senior Secured Revolver as of September 30, 2020, which represents the excess over the $ 50.0 million available capacity that will be in effect twelve months after the balance sheet date. (3) In addition to this amount, costs of $ 2.1 million and $ 3.0 million related to the Senior Secured Revolver are recorded in other non-current assets as of September 30, 2020, and December 31, 2019, respectively. We capitalized interest costs of less than $ 0.1 million and $ 0.3 million in the three months ended September 30, 2020 and 2019, respectively, and $ 0.2 million and $ 1.2 million in the nine months ended September 30, 2020 and 2019, respectively, related to construction in progress. In August 2020, we entered into an agreement to sell our Life Sciences business (see Note 2). The sale closed on October 6, 2020, at which time we received cash proceeds of $ 757.2 million. We immediately prepaid $ 700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan. We also paid in full the outstanding balance on the Senior Secured Revolver. The prepayment was applied to debt in accordance with the prepayment provisions of the credit agreement immediately after the transaction closed on October 6, 2020. See Note 2 for a description of the methodology for allocating debt-related costs in historical periods to discontinued operations. Senior Secured Term Loan Outstanding borrowings under the Senior Secured Term Loan bear interest at one-month LIBOR (subject to a 0.75 % floor) plus an applicable margin of 5.75 %. At September 30, 2020, the Senior Secured Term Loan bore interest at 6.50 %. Incremental Term Loan Outstanding borrowings under the Incremental Term Loan bear interest at one-month LIBOR plus an applicable margin of 5.75 %. At September 30, 2020, the Incremental Term Loan bore interest of 5.90 %. Senior Secured Revolver Outstanding borrowings under the Senior Secured Revolver bear interest on a variable rate structure at either 1) one-month LIBOR plus an applicable margin of 4.00 % or 2) the prime lending rate plus an applicable margin of 3.00 %. At September 30, 2020, the weighted average interest rate on outstanding borrowings under the Senior Secured Revolver was 4.11 %. We pay a commitment fee of 0.50 % for unused capacity under the Senior Secured Revolver. 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. Debt Amendments In July 2020, we amended our Credit Agreement to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020. During this period, we are required to maintain minimum liquidity levels, provide certain financial 18 Table of Contents and other information, and take certain other action as specified in the amendment. Failure to maintain the required minimum liquidity levels or satisfy other requirements set forth in the amendment would allow the revolving credit lenders, the Senior Secured Term loan lenders, and the Incremental Term Loan lenders to cause amounts outstanding under our credit facility to become immediately due and payable and would have a material, adverse impact on our financial position. In August 2020, we amended our Credit Agreement to obtain the lenders’ consent to the sale of the Life Sciences business, subject to certain terms and conditions. The amendment required a minimum of $ 675.0 million in cash proceeds from the sale. All cash proceeds, less certain allowable costs, were required by the amendment to be used to prepay the Senior Secured Term Loan and the Incremental Term Loan. The amendment also required a minimum $ 15.0 million payment on the Senior Secured Revolver and reduced total capacity to $ 60.0 million immediately after the sale of the Life Sciences business. The capacity will decrease to $ 50.0 million on June 30, 2021. The amendment requires cash in excess of $ 35.0 million on the last day of each month to be used to pay down the Senior Secured Revolver. Liquidity thresholds were amended so that the threshold decreases commensurate with any principal payment on the Senior Secured Revolver. We were in compliance with all requirements under our credit facility as of September 30, 2020. We capitalized a total of $ 0.4 million in new debt issuance costs related to the July 2020 and August 2020 amendments. Costs related to the Senior Secured Term Loan and the Incremental Term Loan are recorded as a direct reduction to the carrying amount of the associated long-term debt. Costs related to the Senior Secured Revolver are recorded in other non-current assets. Additionally, $ 1.5 million of unamortized debt issuance costs were written off in the nine months ended September 30, 2020, in connection with the July 2020 and August 2020 amendments. See Note 2 for a description of the methodology for allocating amortization and write-offs of debt issuance costs in historical periods to discontinued operations. Interest Rate Swap In February 2019, we entered into a $ 700.0 million amortizing notional amount fixed-rate interest rate swap agreement to manage the interest rate risk associated with our long-term variable-rate debt until 2022. The fixed-rate interest rate swap agreement calls for us to receive interest monthly at a variable rate equal to one-month LIBOR and to pay interest monthly at a fixed rate of 2.4575 %. Refer to Note 18 for further discussion of the interest rate swap agreement. Note 11. Leases The following table contains supplemental cash flow information related to leases of continuing operations. Nine Months Ended September 30, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from finance leases $ 127 $ 164 Operating cash flows from operating leases 10,739 10,553 Financing cash flows from finance leases 1,203 2,435 Right-of-use assets obtained in exchange for new finance lease liabilities 733 5,185 Right-of-use assets obtained in exchange for new operating lease liabilities (1) 9,328 8,562 _______________________________ (1) Includes new leases, renewals, and modifications. As disclosed in our 2019 Annual Report, we had an operating lease commitment that had not yet commenced. In March 2020, the operating lease for the manufacturing facility commenced and requires us to pay a total of approximately $ 27.5 million base rent payments over the lease term of 15 years. We began making rent payments in the third quarter of 2020. In March 2020, we amended the lease of our corporate headquarters building to exit over half of the previously leased space and reduce annual base rent payments by approximately $ 1.3 million over the remaining lease term which ends in 2030. The amendment was accounted for as a lease modification, and the remeasurement of the lease resulted in an $ 8.1 million decrease in the operating lease right-of-use (“ROU”) asset, a $ 10.5 million decrease in the noncurrent portion of the operating lease liability, and a $ 0.6 million decrease in the current portion of the operating lease liability. The $ 3.0 million difference between the change in the operating lease ROU asset and the operating lease liabilities was recognized in “Other operating expense (income), net,” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). In connection with the discontinued use of the previously leased space, we also recognized a $ 4.4 million termination charge and a $ 2.9 19 Table of Contents million impairment charge on the associated leasehold improvements, all of which were also recognized in “Other operating expense (income), net.” During the second quarter of 2020 and as part of our overall plan to improve liquidity during the COVID-19 pandemic, we negotiated with certain lessors to defer rent payments on leased buildings. In total, $ 0.5 million of operating lease payments for continuing operations are being deferred over a period ranging from April 2020 to December 2020 and will be repaid over a period ranging from June 2020 through December 2022. The deferral of rent payments did not result in a substantial change in total lease payments over the individual lease terms. We have elected to apply lease accounting relief announced by the FASB in April 2020 and have treated these lease concessions as if they existed in the original contracts rather than applying lease modification accounting. The net impact on cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020, was $ 0.6 million in cash savings which includes $ 0.4 million related to continuing operations. Note 12. Commitments and Contingencies Brazil ICMS Tax Matter Prior to the acquisition of Autocam Corporation in 2014 (“Autocam”), Autocam’s Brazilian subsidiary (“Autocam Brazil”) received notification from the Brazilian tax authority regarding ICMS (state value added tax or “VAT”) tax credits claimed on intermediary materials (e.g., tooling and perishable items) used in the manufacturing process. The Brazilian tax authority notification disallowed state ICMS tax credits claimed on intermediary materials based on the argument that these items are not intrinsically related to the manufacturing processes. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualify for an ICMS tax credit, contending that the intermediary materials are directly related to the manufacturing process. We believe that we have substantial legal and factual defenses, and we plan to defend our interests in this matter vigorously. The matter encompasses several lawsuits filed with the Brazilian courts requesting declaratory actions that no tax is due or seeking a stay of execution on the collection of the tax. In 2018, we obtained a favorable decision in one of the declaratory actions for which the period for appeal has expired. We have filed actions in each court requesting dismissal of the matter based on the earlier court action. In May 2020, we received an unfavorable decision in one of the lawsuits, and as a result have recorded a liability to the Brazilian tax authorities and a receivable from the former shareholders of Autocam for the same amount. Although we anticipate a favorable resolution to the remaining matters, we can provide no assurances that we will be successful in achieving dismissal of all pending cases. The U.S. dollar amount that would be owed in the event of an unfavorable decision is subject to interest, penalties, and currency impacts and therefore is dependent on the timing of the decision. For the remaining open lawsuits, we currently believe the cumulative potential liability in the event of unfavorable decisions on all matters will be less than $ 5.0 million, inclusive of interest and penalties. We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement and plan of merger relating to the Autocam acquisition. Management believes the indemnification would include amounts owed for the tax, interest, and penalties related to this matter. Accordingly, we don’t expect to incur a loss related to this matter even in the event of an unfavorable decision and, therefore, have not accrued an amount for the remaining matters as of September 30, 2020. Securities Offering Matter On November 1, 2019, Erie County Employees’ Retirement System, on behalf of a purported class of plaintiffs, filed a complaint in the Supreme Court of the State of New York, County of New York, against the Company, certain of the Company’s current and former officers and directors, and each of the underwriters involved in the Company’s public offering and sale of 14.4 million shares of its common stock pursuant to a preliminary prospectus supplement, dated September 10, 2018, a final prospectus supplement, dated September 13, 2018, and a base prospectus, dated April 19, 2017, relating to the Company’s effective shelf registration statement on Form S-3 (File No. 333-216737) (the “Offering”), which complaint was amended on January 24, 2020. The complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 in connection with the Offering. The plaintiffs seek to represent a class of stockholders who purchased shares of the Company’s common stock in the Offering. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations, or cash flows. Other Legal Matters On October 26, 2020, Corre Opportunities Qualified Master Fund, LP, and Corre Horizon Fund, LP, filed a complaint in the Chancery Court of the State of Delaware against the Company. The complaint alleges that the Company’s sale of its Life 20 Table of Contents Sciences business without obtaining the prior consent of the plaintiffs was a breach of the terms of the Series B Preferred Stock. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations, or cash flows. All other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes. Note 13. Preferred Stock and Stockholders' Equity Series B Convertible Preferred Stock Preferred Stock has a liquidation preference of $ 1,000 per share; is redeemable at our option in cash (or, under certain circumstances, in stock), subject to the applicable redemption premium; is convertible into a variable number of common shares on certain terms and conditions on or after March 31, 2023; and is subject to certain other rights and obligations. Preferred Stock shares earn cumulative dividends at a rate of 10.625 % per year, payable quarterly in arrears if declared, and accrue whether or not earned or declared. If a Preferred Stock dividend is declared by the Board of Directors, then it will be paid in cash. Additionally, holders of Preferred Stock participate in any dividends paid on shares of our common stock on an as-converted basis at a fixed conversion rate. Our common stockholders approved a proposal at our 2020 annual stockholder meeting to issue common stock in excess of thresholds established by certain Nasdaq stock market rules upon the exercise of warrants or the conversion or redemption of Preferred Stock. Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity, because certain features of the Preferred Stock could require redemption of some or all Preferred Stock upon events that are considered not solely within our control, including a leverage ratio threshold and the passage of time. For initial recognition in 2019, the Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and bifurcated embedded derivatives. The aggregate discount is amortized as a deemed dividend through December 31, 2023, which is the date the holders have a non-contingent conversion option into a variable number of common shares equal to the liquidation preference plus accrued and unpaid dividends. Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital). As of September 30, 2020, the carrying value of the Preferred Stock shares was $ 101.8 million which included $ 9.1 million of accumulated unpaid and deemed dividends. The following table presents the change in the Preferred Stock carrying value during the nine months ended September 30, 2020. Nine Months Ended September 30, 2020 Beginning balance $ 93,012 Accrual of in-kind dividends 8,230 Amortization and other 604 Ending balance $ 101,846 Preferred Share Purchase Rights On April 15, 2020, our Board of Directors authorized and declared a dividend of one preferred share purchase right for each outstanding share of common stock to shareholders of record on April 27, 2020. The rights will become exercisable if a person or group becomes the beneficial owner of 15 % or more of our outstanding common stock (including in the form of synthetic ownership through derivative positions). In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder to purchase one thousandth of a share of Series C Junior Participating Preferred Stock for $ 31.50 per share. Rights held by the triggering person or entity will become void and will not be exercisable. The Board of Directors may, rather than permitting the exercise of the rights, exchange each right (other than rights held by the triggering person or entity) for one share of common stock per right, subject to adjustment. The Board of Directors will, prior to the rights becoming exercisable, in general be entitled to redeem the rights for $ 0.001 per right. The rights expire on March 31, 2021. 21 Table of Contents Note 14. Revenue from Contracts with Customers Revenue is recognized when control of the good or service is transferred to the customer either at a point in time or, in limited circumstances, as our services are rendered over time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or services. Three Months Ended September 30, 2020 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total United States and Puerto Rico $ 37,116 $ 35,299 $ ( 25 ) $ 72,390 China 12,785 1,580 — 14,365 Brazil 7,100 253 — 7,353 Mexico 4,454 3,239 — 7,693 Germany 1,400 132 — 1,532 Poland 1,342 4 — 1,346 Other 6,174 2,908 — 9,082 Total net sales $ 70,371 $ 43,415 $ ( 25 ) $ 113,761 Three Months Ended September 30, 2019 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total United States and Puerto Rico $ 40,147 $ 38,750 $ ( 42 ) $ 78,855 China 9,109 1,870 — 10,979 Brazil 9,414 72 — 9,486 Mexico 4,700 3,832 — 8,532 Germany 1,768 17 — 1,785 Poland 1,371 5 — 1,376 Other 6,562 2,884 — 9,446 Total net sales $ 73,071 $ 47,430 $ ( 42 ) $ 120,459 Nine Months Ended September 30, 2020 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total United States and Puerto Rico $ 94,482 $ 104,455 $ ( 93 ) $ 198,844 China 31,203 3,989 — 35,192 Brazil 17,815 446 — 18,261 Mexico 11,746 9,501 — 21,247 Germany 4,401 261 — 4,662 Poland 3,441 11 — 3,452 Other 18,204 8,644 — 26,848 Total net sales $ 181,292 $ 127,307 $ ( 93 ) $ 308,506 22 Table of Contents Nine Months Ended September 30, 2019 Mobile Solutions Power Solutions Intersegment Sales Eliminations Total United States and Puerto Rico $ 129,116 $ 120,445 $ ( 232 ) $ 249,329 China 27,580 5,306 — 32,886 Brazil 27,432 221 — 27,653 Mexico 15,144 10,776 — 25,920 Germany 4,490 54 — 4,544 Poland 4,868 14 — 4,882 Other 21,960 11,664 — 33,624 Total net sales $ 230,590 $ 148,480 $ ( 232 ) $ 378,838 Deferred Revenue The following table provides information about contract liabilities from contracts with customers. Deferred Revenue Balance at January 1, 2020 $ 797 Balance at September 30, 2020 933 Revenue recognized during the nine months ended September 30, 2020, from amounts included in deferred revenue at the beginning of the period for performance obligations satisfied or partially satisfied during the period, was $ 0.3 million. Deferred revenue is reported in the “Other current liabilities” line on the Condensed Consolidated Balance Sheets. Transaction Price Allocated to Future Performance Obligations We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of September 30, 2020, unless our contracts meet one of the practical expedients. Our contracts met the practical expedient for a performance obligation that is part of a contract that has an original expected duration of one year or less. Sales Concentration 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. Note 15. Share-Based Compensation Share-based compensation cost is recognized in the “Selling, general and administrative expense” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) except for $( 0.2 ) million and $ 0.1 million, attributable to discontinued operations for the three months ended September 30, 2020 and 2019, respectively, and $ 0.2 million and $ 0.3 million attributable to discontinued operations for the nine months ended September 30, 2020 and 2019, respectively. The following table lists the components of share-based compensation expense by type of award. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Stock options $ 132 $ 371 $ 453 $ 732 Restricted stock 963 446 2,791 1,407 Performance share units 340 334 898 991 Change in estimate of share-based award vesting ( 577 ) ( 1,275 ) ( 577 ) ( 1,275 ) Share-based compensation expense $ 858 $ ( 124 ) $ 3,565 $ 1,855 23 Table of Contents Stock Options During the nine months ended September 30, 2020, we granted options to purchase 158,700 shares to certain key employees. The weighted average grant date fair value of the options granted during the nine months ended September 30, 2020, was $ 4.76 per share. The fair value of our options cannot be determined by market value because they are not traded in an open market. Accordingly, we utilized the Black Scholes financial pricing model to estimate the fair value. The following table shows the weighted average assumptions relevant to determining the fair value of stock options granted in 2020. Expected term 6 years Risk free interest rate 1.42 % Dividend yield — % Expected volatility 52.80 % The expected term is derived from using the simplified method of determining stock option terms as described under SAB Topic 14, Share-based payment . The simplified method was used because sufficient historical stock option exercise experience was not available, primarily due to the transformation of the management structure over the past several years. The average risk-free interest rate is derived from the United States Department of Treasury published interest rates of daily yield curves for the same time period as the expected term. The expected dividend yield reflects no expected annual dividends over the expected term because we discontinued dividends in 2019. The expected volatility rate is derived from our actual common stock historical volatility over the same time period as the expected term. The volatility rate is derived by a mathematical formula utilizing daily closing price data. The following table presents stock option activity for the nine months ended September 30, 2020. Number of Options (in thousands) Weighted- Average Exercise Price (per share) Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2020 775 $ 13.24 Granted 159 9.44 Forfeited or expired ( 60 ) 15.00 Outstanding at September 30, 2020 874 $ 12.43 5.5 years $ — (1) Exercisable at September 30, 2020 589 $ 13.85 3.8 years $ — (1) _______________________________ (1) The aggregate intrinsic value is the sum of intrinsic values for each exercisable individual option grant. The intrinsic value is the amount by which the closing market price of our stock at September 30, 2020, was greater than the exercise price of any individual option grant. Restricted Stock During the nine months ended September 30, 2020, we granted 460,255 shares of restricted stock to non-executive directors, officers and certain other key employees. The shares of restricted stock granted during the nine months ended September 30, 2020, vest pro-rata generally over three years for employees and over one year for non-executive directors and certain key employees. We determined the fair value of the shares awarded by using the closing price of our common stock as of the date of grant. The weighted average grant date value of restricted stock granted in the nine months ended September 30, 2020, was $ 9.35 per share. Total grant-date fair value of restricted stock that vested in the nine months ended September 30, 2020, was $ 1.2 million. 24 Table of Contents The following table presents the status of unvested restricted stock awards as of September 30, 2020, and changes during the nine months then ended. Nonvested Restricted Shares (in thousands) Weighted Average Grant-Date Fair Value (per share) Unvested at January 1, 2020 222 $ 9.33 Granted 460 9.35 Vested ( 145 ) 8.61 Forfeited ( 18 ) 9.32 Unvested at September 30, 2020 519 $ 9.28 Performance Share Units Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. PSUs granted in 2020 were made pursuant to the NN, Inc. 2019 Omnibus Incentive Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”). Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”). The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of the S&P SmallCap 600 Index during specified performance periods as defined in the 2019 Omnibus Agreement. The ROIC Awards vest, if at all, upon our achieving a specified average return on invested capital during the performance periods. Each performance period generally begins on January 1 of the year of grant and ends 36 months later on December 31. We recognize compensation expense over the performance period in which the performance and market conditions are measured. If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically. Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the award recipient’s continued employment. The actual number of shares of common stock to be issued to each award recipient at the end of the performance periods will be interpolated between a threshold and maximum payout amount based on actual performance results. No dividends will be paid on outstanding PSUs during the performance period; however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the performance periods. With respect to the TSR Awards, a participant will earn 50 % of the target number of PSUs for “Threshold Performance,” 100 % of the target number of PSUs for “Target Performance,” and 150 % of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35 % of the target number of PSUs for “Threshold Performance,” 100 % of the target number of PSUs for “Target Performance,” and 150 % of the target number of PSUs for “Maximum Performance.” For performance levels falling between the values shown below, the percentages will be determined by interpolation. The following table presents the goals with respect to TSR Awards and ROIC Awards granted in 2020. TSR Awards: Threshold Performance (50% of Shares) Target Performance (100% of Shares) Maximum Performance (150% of Shares) 2020 grants 35 th Percentile 50 th Percentile 75 th Percentile ROIC Awards: Threshold Performance (35% of Shares) Target Performance (100% of Shares) Maximum Performance (150% of Shares) 2020 grants 4.9 % 5.1 % 5.6 % We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metric is considered a market condition under ASC Topic 718, Compensation – stock compensation . The grant date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant. 25 Table of Contents The following table presents the number of PSUs granted and the grant date fair value in the period presented. TSR Awards ROIC Awards Award Year Shares (in thousands) Grant Date Fair Value (per share) Shares (in thousands) Grant Date Fair Value (per share) 2020 139 $ 10.88 157 $ 9.44 We recognize expense for ROIC Awards based on the probable outcome of the associated performance condition. We generally recognize an expense for ROIC Awards based on the Target Performance threshold of 100 % because, at the date of grant, the Target Performance is the probable level of performance achievement. The following table presents the status of unvested PSUs as of September 30, 2020, and changes during the nine months then ended. Nonvested TSR Awards Nonvested ROIC Awards Shares (in thousands) Weighted Average Grant-Date Fair Value (per share) Shares (in thousands) Weighted Average Grant-Date Fair Value (per share) Nonvested at January 1, 2020 65 $ 13.27 79 $ 11.50 Granted 139 10.88 157 9.44 Forfeited ( 19 ) 11.43 ( 21 ) 12.88 Nonvested at September 30, 2020 185 $ 11.55 215 $ 10.04 Note 16. Accumulated Other Comprehensive Income The following tables present the components of accumulated other comprehensive income (“AOCI”). Foreign Currency Translation Interest rate swap Income taxes (1) Total Balance at June 30, 2020 $ ( 48,507 ) $ ( 23,662 ) $ 5,493 $ ( 66,676 ) Other comprehensive income (loss) before reclassifications 6,712 27 ( 6 ) 6,733 Amounts reclassified from AOCI to interest expense (2) — 4,100 ( 952 ) 3,148 Net current-period other comprehensive income (loss) 6,712 4,127 ( 958 ) 9,881 Balance at September 30, 2020 $ ( 41,795 ) $ ( 19,535 ) $ 4,535 $ ( 56,795 ) Balance at June 30, 2019 $ ( 31,490 ) $ ( 13,915 ) $ 3,097 $ ( 42,308 ) Other comprehensive income (loss) before reclassifications ( 11,178 ) ( 1,556 ) 375 ( 12,359 ) Amounts reclassified from AOCI to interest expense (2) — 306 ( 68 ) 238 Net current-period other comprehensive income (loss) ( 11,178 ) ( 1,250 ) 307 ( 12,121 ) Balance at September 30, 2019 $ ( 42,668 ) $ ( 15,165 ) $ 3,404 $ ( 54,429 ) 26 Table of Contents Foreign Currency Translation Interest rate swap Income taxes (1) Total Balance at December 31, 2019 $ ( 35,159 ) $ ( 12,234 ) $ 2,839 $ ( 44,554 ) Other comprehensive income (loss) before reclassifications ( 6,636 ) ( 16,207 ) 3,764 ( 19,079 ) Amounts reclassified from AOCI to interest expense (2) — 8,906 ( 2,068 ) 6,838 Net current-period other comprehensive income (loss) ( 6,636 ) ( 7,301 ) 1,696 ( 12,241 ) Balance at September 30, 2020 $ ( 41,795 ) $ ( 19,535 ) $ 4,535 $ ( 56,795 ) Balance at December 31, 2018 $ ( 31,314 ) $ — $ — $ ( 31,314 ) Other comprehensive income (loss) before reclassifications ( 11,354 ) ( 15,471 ) 3,472 ( 23,353 ) Amounts reclassified from AOCI to interest expense (2) — 306 ( 68 ) 238 Net current-period other comprehensive income (loss) ( 11,354 ) ( 15,165 ) 3,404 ( 23,115 ) Balance at September 30, 2019 $ ( 42,668 ) $ ( 15,165 ) $ 3,404 $ ( 54,429 ) _______________________ (1) Income tax effect of changes in interest rate swap. (2) Represents settlements on the interest rate swap. Note 17. Net Income (Loss) Per Common Share In accordance with ASC 260, Earnings Per Share, a company that has participating securities (for example, our Preferred Stock) is required to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings between the holders of common stock and a company’s participating securities. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options, warrants, and Preferred Stock. 27 Table of Contents The following table summarizes the computation of basic and diluted net income (loss) per common share. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Income (loss) from continuing operations $ 1,640 $ ( 4,836 ) $ ( 124,003 ) $ ( 20,806 ) Less: Preferred Stock cumulative dividends and deemed dividends ( 3,139 ) — ( 9,133 ) — Numerator for basic and diluted income (loss) from continuing operations per common share (1) ( 1,499 ) ( 4,836 ) ( 133,136 ) ( 20,806 ) Income (loss) from discontinued operations, net of tax (Note 2) 20,330 ( 1,019 ) ( 123,966 ) ( 11,850 ) Numerator for basic and diluted undistributed net loss per common share (1) $ 18,831 $ ( 5,855 ) $ ( 257,102 ) $ ( 32,656 ) Denominator: Weighted average common shares outstanding, basic and diluted 42,202 42,038 42,170 42,013 Per common share net loss: Basic income (loss) from continuing operations per common share $ ( 0.04 ) $ ( 0.12 ) $ ( 3.16 ) $ ( 0.50 ) Basic income (loss) from discontinued operations per common share 0.49 ( 0.02 ) ( 2.94 ) ( 0.28 ) Basic net income (loss) per common share $ 0.45 $ ( 0.14 ) $ ( 6.10 ) $ ( 0.78 ) Diluted income (loss) from continuing operations per common share $ ( 0.04 ) $ ( 0.12 ) $ ( 3.16 ) $ ( 0.50 ) Diluted income (loss) from discontinued operations per common share 0.49 ( 0.02 ) ( 2.94 ) ( 0.28 ) Diluted net income (loss) per common share $ 0.45 $ ( 0.14 ) $ ( 6.10 ) $ ( 0.78 ) Cash dividends declared per common share $ — $ 0.07 $ — $ 0.21 _______________________________ (1) Preferred Stock does not participate in losses. The following table presents potentially dilutive securities that were excluded from the calculation of diluted net income (loss) per common share because they had an anti-dilutive effect. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Options 875 837 875 627 Warrants 1,500 — 1,500 — Preferred Stock, as-converted 23,573 — 23,573 — 25,948 837 25,948 627 We have elected to allocate undistributed income to participating securities based on year-to-date results. As there was no undistributed income for the nine months ended September 30, 2020, no such allocation was necessary. In addition, given the undistributed loss from continuing operations in the three and nine months ended September 30, 2020 and 2019, all options and warrants are considered anti-dilutive and were excluded from the calculation of diluted net income (loss) per share. Stock options excluded from the calculations of diluted net income (loss) per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the three months ended September 30, 2020, and $ 7.93 to $ 25.16 for three months ended September 30, 2019. Stock options excluded from the calculations of diluted net income (loss) per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the nine months ended September 30, 2020, and $ 8.54 to $ 25.16 for nine months ended September 30, 2019. Warrants excluded from the calculation of diluted net income (loss) per share for the three and nine months ended September 30, 2020, had a per share exercise price of $ 12.00 . Preferred Stock excluded from the calculation of diluted net income (loss) per share for the three and nine months ended September 30, 2020, was calculated on an as-converted basis. Holders of Preferred Stock will have the right to convert up to 25 % of their Preferred Stock into common shares per quarter after December 31, 2023, at a conversion price that equals a 30 -day volume weighted average price per common share. Under 28 Table of Contents certain conditions, holders of Preferred Stock may elect to convert their Preferred Stock into common shares at an earlier date after March 31, 2023, at a conversion price that equals 90 % of the volume weighted average market price per common share. The potentially dilutive Preferred Stock in the preceding table presents the more dilutive result of these conversion prices as if the Preferred Stock were converted on September 30, 2020. Note 18. Fair Value Measurements Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. We followed consistent methods and assumptions to estimate fair values as more fully described in the 2019 Annual Report. Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives, and long-term debt. As of September 30, 2020, the carrying values of these financial instruments approximated fair value. Derivative Financial Instruments Certain features were bifurcated and accounted for separately from the Preferred Stock. The following features are recorded as derivatives. • Leverage ratio put feature. The Preferred Stock includes a redemption option based on a leverage ratio threshold that provides the preferred holder the option to convert the Preferred Stock to a variable number of shares of common stock at a discount to the then fair value of our common stock. The conversion feature is considered a redemption right at a premium which is not clearly and closely related to the debt host. • Contingent dividends. The feature that allowed for the dividend rate to increase to 11.625 % in 2020 if shareholder approval was not obtained is not considered clearly and closely related to the debt host. Our common stockholders approved a proposal at our 2020 annual stockholder meeting to issue common stock in excess of thresholds established by certain Nasdaq stock market rules upon the exercise of warrants or the conversion or redemption of Preferred Stock. Because the annual stockholder meeting has already occurred, the contingent dividends feature no longer exists as of September 30, 2020. • Dividends withholding. The Preferred Stock bears a feature that could require us to make an effective distribution to purchasers which is indexed to the tax rate of the purchasers. This distribution would be partially offset by an adjustment to the redemption price and/or conversion rate. The dividends withholding feature is not clearly and closely related to the debt host. • Warrants. The warrants issued with the Preferred Stock are exercisable, in full or in part, at any time prior to the seventh anniversary of their issuance at an exercise price of $ 12.00 per share, subject to customary anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events. The following tables show the liabilities measured at fair value for the Preferred Stock derivative above as of September 30, 2020, and December 31, 2019. Fair Value Measurements as of September 30, 2020 Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative liability - other current liabilities $ — $ — $ 1,920 Derivative liability - other non-current liabilities — — 1,536 Total $ — $ — $ 3,456 29 Table of Contents Fair Value Measurements as of December 31, 2019 Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative liability - other current liabilities $ — $ — $ 60 Derivative liability - other non-current liabilities — — 2,235 Total $ — $ — $ 2,295 The following table presents the change in the Preferred Stock derivative during the nine months ended September 30, 2020. Nine Months Ended September 30, 2020 Beginning balance $ 2,295 Change in fair value (1) ( 154 ) Other (2) 1,315 Ending balance $ 3,456 _______________________________ (1) Changes in the fair value are recognized in the “Other expense (income), net” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). All of the change in fair value relates to the derivative liability held at September 30, 2020. (2) In 2020, we determined that certain anti-dilution provisions of the warrants require liability accounting; therefore, we reclassified the $ 1.1 million value of the warrants recorded in Stockholders’ Equity as of December 31, 2019, to a liability during the nine months ended September 30, 2020. The fair value of the leverage ratio put feature, the dividends withholding feature, and the contingent dividends feature utilizes unobservable inputs based on the best information available to determine the probability of the preferred stock remaining outstanding for future periods. These inputs include probability assessments of how long the Preferred Stock will remain outstanding, whether the leverage ratio threshold will be exceeded, and, as of December 31, 2019, whether approval would be obtained from common stockholders for issuance of common stock upon exercise of the warrants and conversion or redemption of the Preferred Stock. Inputs also include the percentage of Preferred Stock held by non-U.S. resident holders and the applicable tax withholding rates for those holders. The probability of the Preferred Stock remaining in future periods ranged from 50 % to 2 % as of September 30, 2020, and from 97 % to 2 % as of December 31, 2019. The leverage ratio put feature also utilizes unobservable inputs to determine the probability of the leverage ratio put being exercisable as of March 31, 2023, which ranged from 20 % to 1 % as of September 30, 2020, and December 31, 2019. These probabilities are determined based on management’s assessment of facts and circumstances at each reporting date. An increase in these probabilities would result in an increase in the derivative liability fair value. Given the Preferred Stock value changes by period as a result of dividends and redemption premiums, weighted average values for these assumptions are not meaningful. The fair value of the warrants feature is determined using a valuation model, which utilizes unobservable inputs to determine the probability that the warrants will remain outstanding for future periods. The probabilities ranged from 80 % to 5 % and resulted in a weighted average term of 2.35 years as of September 30, 2020. An increase in these probabilities would result in an increase in the derivative liability fair value. As of December 31, 2019, the warrants were classified in equity and valued using a term of 1.25 years. Interest Rate Swap We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt. We have a $ 700.0 million fixed-rate interest rate swap agreement that changes the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575 % (the “interest rate swap”) through October 19, 2022. The notional amount of the interest rate swap will decrease over time as presented in the following table. Notional Amount February 12, 2019 - December 30, 2020 $ 700,000 December 31, 2020 - December 30, 2021 466,667 December 31, 2021 - October 19, 2022 233,333 30 Table of Contents The objective of the interest rate swap is to eliminate the variability of cash flows in interest payments on the first $ 700.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term. If one-month LIBOR is greater than the minimum percentage under the Senior Secured Term Loan, the changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt. The interest rate swap was designated as a cash flow hedge at inception. As of September 30, 2020, we reported a cumulative $ 15.0 million loss, net of tax, in accumulated other comprehensive income related to the interest rate swap. The following tables present the liabilities measured at fair value on a recurring basis for the interest rate swap as of September 30, 2020, and December 31, 2019. Fair Value Measurements as of September 30, 2020 Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative liability - other current liabilities $ — $ 12,331 $ — Derivative liability - other non-current liabilities — 7,202 — Total $ — $ 19,533 $ — Fair Value Measurements as of December 31, 2019 Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative liability - other current liabilities $ — $ 5,943 $ — Derivative liability - other non-current liabilities — 6,290 — Total $ — $ 12,233 $ — The inputs for determining fair value of the interest rate swap are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance. Fixed Rate Debt The fair value of our outstanding fixed-rate debt included in the “International lines of credit and other loans” line item within Note 10 to these Notes to Condensed Consolidated Financial Statements was $ 12.8 million and $ 9.6 million as of September 30, 2020, and December 31, 2019, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The carrying value of this fixed-rate debt was $ 12.8 million and $ 9.6 million as of September 30, 2020 and December 31, 2019, respectively. Note 19. Subsequent Events Divestiture of Life Sciences Business The sale of our Life Sciences business closed 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. We prepaid $ 700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan immediately following the sale. We also paid in full the outstanding balance on the Senior Secured Revolver. We expect to recognize a gain on sale of greater than $ 100 million, net of income taxes, in the fourth quarter of 2020. Under the terms of a transition services agreement, we are providing certain support services for up to 180 days from the closing date of the sale. Senior Secured Revolver On October 6, 2020, the total borrowing capacity of the Senior Secured Revolver was reduced to $ 60.0 million from $ 75.0 million, and we repaid the entire principal balance outstanding. 31 Table of Contents Discontinuation of Hedge Accounting 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.