NNBR US Equity☆

Item 1A.Risk Factors

The following are risk factors that affect our business, prospects, financial condition, results of operations, and cash flows, some of which are beyond our control. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K. If any of the events described below were to actually occur, our business, prospects, financial condition, results of operations, or cash flows could be adversely affected, and results could differ materially from expected and historical results.

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Risks Related to Our Operations

The COVID-19 pandemic and mitigation efforts to control the spread of the disease have and are expected to continue to materially impact our business, and our financial condition, results of operations and cash flows could be materially adversely affected by factors relating to COVID-19.

The COVID-19 pandemic has created significant volatility in the global economy and led to significant reduced market and economic activity and employment and has disrupted, and may continue to disrupt, the end markets we serve. The spread of COVID-19 has created a disruption in the manufacturing, delivery and overall supply chain of automobile manufacturers and suppliers. Global vehicle production has decreased, and as a result, we have modified our production schedules and have experienced, and may continue to experience, delays in the production and distribution of our products and the loss of sales to our customers. During the pandemic, our production volumes may be volatile, and we will be required to modify our production environment to ensure the health and safety of our workers. Additionally, if the global economic effects caused by the pandemic continue or increase, overall customer demand may continue to decrease, which could have a material and adverse effect on our business, results of operations, and financial condition. COVID-19 vaccines have received emergency use authorization from the United States government, but vaccine distribution has been slower than public officials hoped. Many jurisdictions continue to enforce orders restricting businesses’ normal operations, and reinstatement of broader “stay-at-home” directives and mandates remains a possibility. Additionally, the federal emergency supplemental unemployment benefit is scheduled to expire in March 2021. In addition, if a significant portion of our workforce or our customers’ workforces are affected by COVID-19 either directly or due to government closures or otherwise, associated work stoppages or facility closures would halt or delay production.

The full extent of the future effects of the pandemic on us, our customers, our supply chain, and our business cannot be assessed at this time, although we expect our 2021 results of operations are likely to be adversely affected. Our business, results of operations and financial condition could continue to be affected even after the pandemic subsides. In addition to the risks specifically described above, the impact of COVID-19 is likely to heighten other risks disclosed below.

We depend heavily on a relatively limited number of customers, and the loss of any major customer would have a material adverse effect on our business.

During 2020, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 45% of our consolidated net sales. The loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and would lower our operating profit margin and cash flows from operations.

Work stoppages or similar difficulties and unanticipated business disruptions could significantly disrupt our operations, reduce our revenues and materially affect our earnings.

A work stoppage at one or more of our facilities could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows. Also, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products. For example, increased demand for semiconductor chips in 2020, due in part to the COVID-19 pandemic and an increased use of laptop computers, 5G phones, gaming systems and other IT equipment that use these chips, has resulted in a severe shortage of chips in early 2021.These same chips are used in automobiles in a variety of parts and information and entertainment systems.As a result, various automotive manufacturers have been forced to delay or stall new vehicle production.If efforts to address the chip shortage by the industry and the U.S government are unsuccessful, there may be further delays in new vehicle production, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

We have a complex network of suppliers, owned and leased manufacturing locations, co-manufacturing locations, distribution networks, and information systems that support our ability to consistently provide our products to our customers. Factors that are hard to predict or beyond our control, such as weather, raw material shortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, or health pandemics, such as COVID-19, could damage or disrupt our operations or our customers’, suppliers’, co-manufacturers’ or distributors’ operations. These disruptions may require additional resources to restore our supply chain or distribution network. If we cannot respond to disruptions in our operations, whether by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or if we are unable to quickly repair damage to our information, production, or supply systems, we may be late in delivering, or be unable to deliver, products to our customers and may also be unable to track orders, inventory, receivables, and payables. If that occurs, our customers’ confidence in us and long-term demand for our products could decline. Any of these events could materially and adversely affect our product sales, financial condition, and operating results.

We operate in and sell products to customers outside the U.S. and are subject to several risks related to doing business internationally.

We obtain a majority of our raw materials from overseas suppliers, actively participate in overseas manufacturing operations and sell to a large number of international customers. During the year ended December 31, 2020, sales to customers located

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outside of the U.S. accounted for approximately 37% of our consolidated net sales. As a result of doing business internationally, we face risks associated with the following:

•changes in tariff regulations, which may make our products more costly to export or import;

•changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations;

•recessions or marked declines specific to a particular country or region;

•the potential imposition of trade restrictions or prohibitions;

•the potential imposition of import tariffs or other duties or taxes;

•difficulties establishing and maintaining relationships with local original equipment manufacturers, distributors and dealers;

•difficulty in staffing and managing geographically diverse operations; and

•unstable governments or legal systems in countries in which our suppliers, manufacturing operations, and customers are located.

These and other risks may also increase the relative price of our products compared to those manufactured in other countries, thereby reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

In addition, we could be adversely affected by violations of the Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws, as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures will always protect us from the improper acts committed by our employees or agents. If we are found to be liable for FCPA, export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our international business, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

In addition, the prices we pay for raw materials used in our products may be impacted by tariffs. The tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 resulted in increased metals prices in the United States. Any future tariffs or quotas imposed on steel and aluminum imports may increase the price of metal, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Failure of our products could result in a product recall.

The majority of our products are components of our customers’ products that are used in critical industrial applications. A failure of our components could lead to a product recall. If a recall were to happen as a result of our components failing, we could bear a substantial part of the cost of correction. In addition to the cost of fixing the parts affected by the component, a recall could result in the loss of a portion of or all of the customer’s business and damage our reputation. A successful product recall claim requiring that we bear a substantial part of the cost of correction or the loss of a key customer could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Our markets are highly competitive, and many of our competitors have significant advantages that could adversely affect our business.

We face substantial competition in the sale of components, system subassemblies, and finished devices in the vertical end markets into which we sell our products. Our competitors are continuously exploring and implementing improvements in technology and manufacturing processes in order to improve product quality, and our ability to remain competitive will depend, among other things, on whether we are able to keep pace with such quality improvements in a cost-effective manner. Due to this competitiveness, we may not be able to increase prices for our products to cover cost increases. In many cases we face pressure from our customers to reduce prices, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows. In addition, our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

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Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.

We are dependent on the continued services of key executives and personnel. The departure of our key personnel without adequate replacement could severely disrupt our business operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience to operate our businesses successfully. From time to time, there may be shortages of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations would be materially adversely affected.

Risks Related to Legal and Regulatory Compliance

Environmental, health and safety laws and regulations impose substantial costs and limitations on our operations, environmental compliance may be more costly than we expect, and any adverse regulatory action may materially adversely affect our business.

We are subject to extensive federal, state, local, and foreign environmental, health, and safety laws and regulations concerning matters such as air emissions, wastewater discharges, solid and hazardous waste handling, and disposal and the investigation and remediation of contamination. The risks of substantial costs, liabilities, and limitations on our operations related to compliance with these laws and regulations are an inherent part of our business, and future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs.

Compliance with environmental, health, and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate. To date, we have committed significant expenditures in our efforts to achieve and maintain compliance with these requirements at our facilities, and we expect that we will continue to make significant expenditures related to such compliance in the future. From time to time, we may be subject to legal proceedings brought by private parties or governmental authorities with respect to environmental matters, including matters involving alleged noncompliance with or liability under environmental, health and safety laws, property damage or personal injury. New laws and regulations, including those which may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable agencies outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices. We cannot guarantee that we will be able to obtain marketing clearance for our new products or enhancements or modifications to existing products. If such approval is obtained, it may:

•take a significant amount of time;

•require the expenditure of substantial resources;

•involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance;

•involve modifications, repairs or replacements of our products; and

•result in limitations on the proposed uses of our products.

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. We are also subject to periodic inspections by the FDA to determine compliance with the FDA’s requirements, including primarily the quality system regulations and medical device reporting regulations. The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. Since 2009, the FDA has significantly increased its oversight of companies subject to its regulations, including medical device companies, by hiring new investigators and stepping up inspections of manufacturing facilities. The FDA has also significantly increased the number of warning letters issued to companies. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of foreign governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also impose operating restrictions on a company-wide basis, enjoin and/or restrain certain conduct resulting in violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products.

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Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s non-compliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on us.

Risks Related to Our Capitalization

Our indebtedness could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

As of December 31, 2020, we had approximately $84.9 million of indebtedness outstanding and an additional $45.4 million of unused borrowing capacity under our debt agreements. Our debt obligations could have important consequences, including:

•increasing our vulnerability to adverse economic, industry, or competitive developments;

•requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund operations, capital expenditures, and future business opportunities;

•exposing us to the risk of increased interest rates, which could cause our debt service obligations to increase significantly;

•making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under our debt agreements;

•restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

•limiting our ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions, and general corporate or other purposes; and

•limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage may prevent us from exploiting.

If any one of these events were to occur, our business, prospects, financial condition, results of operations, or cash flows could be materially and adversely affected. For more information regarding our indebtedness, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Despite our indebtedness level, we may still be able to incur substantial additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our debt agreements contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ debt levels, the related risks that we now face could increase.

Our debt agreements contain restrictions that will limit our flexibility in operating our business.

Our debt agreements contain various incurrence covenants that limit our ability to engage in specified types of transactions. These incurrence covenants will limit our ability to, among other things:

•incur additional indebtedness or issue certain preferred equity;

•pay dividends on, repurchase, or make distributions in respect of our capital stock, prepay, redeem, or repurchase certain debt or make other restricted payments;

•make certain investments and acquisitions;

•create certain liens;

•enter into agreements restricting our subsidiaries’ ability to pay dividends to us;

•consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets;

•alter our existing businesses; and

•enter into certain transactions with our affiliates.

In addition, the covenants in our debt agreements require us to meet specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests will depend on our ongoing financial and operating

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performance, which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond our control. A breach of any of these covenants could result in a default under one or more of our debt agreements and permit our lenders to cease making loans to us under our credit facility (as defined below) or to accelerate the maturity date of the indebtedness incurred thereunder. Furthermore, if we were unable to repay the amounts due and payable under our secured debt agreements, our secured lenders could proceed against the collateral granted to them to secure our borrowings. Such actions by the lenders could also cause cross defaults under our other debt agreements.

We may not be able to generate sufficient cash to service all of our indebtedness, and we may not be able to refinance our debt obligations as they mature.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

We regularly review our capital structure, various financing alternatives and conditions in the debt and equity markets in order to opportunistically enhance our capital structure. In connection therewith, we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equity or equity-linked securities, in each case, depending on market and other conditions. As our debt obligations mature or if our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

We have international operations that are subject to foreign economic uncertainties and foreign currency fluctuation.

Approximately 37% of our revenues are denominated in foreign currencies, which may result in additional risk of fluctuating currency values and exchange rates and controls on currency exchange. Changes in the value of foreign currencies could increase our U.S. dollar costs for, or reduce our U.S. dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could affect our profits. In 2020, the U.S. dollar strengthened against foreign currencies which unfavorably affected our revenue by $6.2 million. In contrast, a weakening of the U.S. dollar may beneficially affect our business, prospects, financial condition, results of operations, or cash flows.

The price of our common stock may be volatile.

The market price of our common stock could be subject to significant fluctuations and may decline. Among the factors that could affect our stock price are:

•macro or micro-economic factors;

•our operating and financial performance and prospects;

•quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income and revenues;

•changes in revenue or earnings estimates or publication of research reports by analysts;

•loss of any member of our senior management team;

•speculation in the press or investment community;

•strategic actions by us or our competitors, such as acquisitions or restructuring;

•sales of our common stock by stockholders;

•general market conditions;

•domestic and international economic, legal, and regulatory factors unrelated to our performance;

•loss of a major customer; and

•the declaration and payment of a dividend.

The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition,

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due to the market capitalization of our stock, our stock tends to be more volatile than large capitalization stocks that comprise the Dow Jones Industrial Average or Standard and Poor’s 500 Index.

Provisions in our charter documents and Delaware law may inhibit a takeover, which could adversely affect the value of our common stock.

Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable and may prevent shareholders from receiving a takeover premium for their shares. These provisions include, for example, a classified board of directors and the authorization of our board of directors to issue up to five million preferred shares without a stockholder vote. In addition, our certificate of incorporation provides that stockholders may not call a special meeting.

We are a Delaware corporation subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. Generally, this statute prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which such person became an interested stockholder, unless the business combination is approved in a prescribed manner. A business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. We anticipate that the provisions of Section 203 may encourage parties interested in acquiring us to negotiate in advance with our board of directors, because the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction that results in the stockholder becoming an interested stockholder.

These provisions apply even if the offer may be considered beneficial by some of our stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.

Risks Related to Acquisitions and Divestitures

Acquisitions may constitute an important part of our future growth strategy.

Acquiring businesses that complement or expand our operations has been and may continue to be a key element of our business strategy. We regularly evaluate acquisition transactions, sign non-disclosure agreements, and participate in processes with respect to acquisitions, some of which may be material to us. We cannot assure you that we will be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms in the future. In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels or diluting our existing stockholders’ ownership interest in us. Our inability to acquire businesses, or to operate them profitably once acquired, could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Our borrowing agreements limit our ability to complete acquisitions without prior approval of our lenders. We have had difficulty with purchase accounting and other aspects related to the accounting for our acquisitions, which resulted in material weaknesses in our internal control over financial reporting. Although we have remediated these material weaknesses, there can be no assurances we will not face similar issues with respect to any future acquisitions.

We may not realize all of the anticipated benefits from completed acquisitions or any future strategic portfolio acquisition, or those benefits may take longer to realize than expected.

We either may not realize all of the anticipated benefits from completed acquisitions or any future strategic portfolio acquisition, or it may take longer to realize such benefits. Achieving those benefits depends on the timely, efficient, and successful execution of a number of post-acquisition events, including integrating the acquired businesses into our existing businesses. The integration process may disrupt the businesses and, if implemented ineffectively, would preclude the realization of the full anticipated benefits. The difficulties of combining the operations of acquired companies include, among others:

•the diversion of management’s attention to integration matters;

•difficulties in the integration of operations and systems, including, without limitation, the complexities associated with managing the expanded operations of a significantly larger and more complex company, addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks, and other assets of each of the acquired companies;

•difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from combining the acquired businesses with our own;

•the inability to implement effective internal controls, procedures, and policies for acquired businesses as required by the Sarbanes-Oxley Act of 2002 within the time periods prescribed thereby;

•the exposure to potential unknown liabilities and unforeseen increased expenses or delays associated with acquired businesses;

•challenges in keeping existing customers and obtaining new customers;

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•challenges in attracting and retaining key personnel; and

•the disruption of, or the loss of momentum in, ongoing operations or inconsistencies in standards, controls, procedures and policies.

Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, prospects, financial condition, results of operations, or cash flows.

Additionally, we incurred a significant amount of debt in connection with our acquisitions in the past few years. Finally, in relation to such acquisitions, we have significantly higher amounts of intangible assets. These intangible assets will be subject to impairment testing, and we could incur a significant impact to our financial statements in the form of an impairment if assumptions and expectations related to our acquisitions are not realized.

The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and may result in unexpected liabilities.

Certain of the acquisition agreements from past acquisitions require the former owners to indemnify us against certain liabilities related to the operation of each of their companies before we acquired it. In most of these agreements, however, the liability of the former owners is limited in amount and duration and certain former owners may not be able to meet their indemnification responsibilities. These indemnification provisions may not fully protect us, and as a result we may face unexpected liabilities that adversely affect our profitability and financial position.

Our participation in joint ventures could expose us to additional risks from time to time.

We currently have a 49% investment in a Chinese joint venture and may participate in additional joint ventures from time to time. Our participation in joint ventures is subject to risks that may not be present with other methods of ownership, including:

•our joint venture partners could have investment and financing goals that are not consistent with our objectives, including the timing, terms, and strategies for any investments, and what levels of debt to incur or carry;

•we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving such impasses or potential disputes, including litigation or arbitration;

•our ability to transfer our interest in a joint venture to a third party may be restricted and the market for our interest may be limited;

•our joint venture partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their obligations as a joint venture partner, which may require us to infuse our own capital into the venture on behalf of the partner despite other competing uses for such capital; and

•our joint venture partners may have competing interests in our markets that could create conflict of interest issues.

Any divestitures and discontinued operations could negatively impact our business and retained liabilities from businesses that we may sell could adversely affect our financial results.

As part of our portfolio management process, we review our operations for businesses which may no longer be aligned with our strategic initiatives and long-term objectives. Divestitures pose risks and challenges that could negatively impact our business, including required separation or carve-out activities and costs, disputes with buyers, or potential impairment charges. We may also dispose of a business at a price or on terms that are less than we had previously anticipated. After reaching an agreement with a buyer for the disposition of a business, we are also subject to satisfaction of pre-closing conditions, as well as necessary regulatory and governmental approvals on acceptable terms, which may prevent us from completing a transaction. Dispositions may also involve continued financial involvement, as we may be required to retain responsibility for, or agree to indemnify buyers against contingent liabilities related to businesses sold, such as lawsuits, tax liabilities, lease payments, product liability claims, or environmental matters. Under these types of arrangements, performance by the divested businesses or other conditions outside of our control could affect future financial results.

General Risk Factors

Damage to our reputation could harm our business, including our competitive position and business prospects.

Our ability to attract and retain customers, suppliers, investors, and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including employee misconduct, security breaches, unethical behavior, litigation, or regulatory outcomes. The consequences of damage to our reputation include, among other things, increasing the number of litigation claims and the size of damages asserted or subjecting us to enforcement actions, fines, and penalties, all of which would cause us to incur significant defense related costs and expenses.

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Changes in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations, and financial condition.

Changes in U.S. tax laws, tax rulings, or interpretations of existing laws could materially affect our business, cash flow, results of operations, and financial condition. In particular, on December 22, 2017, the U.S. government enacted comprehensive Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “U.S. Tax Cuts and Jobs Act of 2017”). The U.S. Tax Cuts and Jobs Act of 2017 introduces significant changes to U.S. income tax law that have a meaningful impact on our provision for income taxes. Accounting for the income tax effects of the U.S. Tax Cuts and Jobs Act of 2017 requires significant judgments and estimates in the interpretation and calculations of the provisions of the U.S. Tax Cuts and Jobs Act of 2017.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

As of December 31, 2020, we owned or leased 32 facilities in a total of six countries, which includes a 49% equity interest in a manufacturing joint venture in China. Utilization of these sites may vary with product mix and economic, seasonal, and other business conditions. Our plants generally have sufficient capacity for existing needs and expected near-term growth. These plants are generally well maintained, in good operating condition, and suitable and adequate for their use. The following table lists the locations of our facilities by segment.

Mobile Solutions Group

Location General Character Country Owned or Leased

Boituva, Brazil Plant Brazil Leased

Campinas, Brazil Office Brazil Leased

Dowagiac, Michigan Plant U.S.A. Owned

Juarez, Mexico Plant Mexico Leased

Kamienna Gora, Poland Plant Poland Owned

Kentwood, Michigan Plant 1 U.S.A. Leased

Kentwood, Michigan Plant 2 U.S.A. Leased

Kentwood, Michigan Plant 3, Warehouse U.S.A. Leased

Kentwood, Michigan Office U.S.A. Owned

Marnaz, France Plant France Owned

Marshall, Michigan Plant 1 U.S.A. Leased

Marshall, Michigan Plant 2 U.S.A. Leased

Sao Joao da Boa Vista, Brazil Plant 1 Brazil Leased

Sao Joao da Boa Vista, Brazil Plant 2 Brazil Leased

Wellington, Ohio Plant 1 U.S.A. Leased

Wellington, Ohio Plant 2 U.S.A. Leased

Wuxi, China Plant China Leased

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Power Solutions Group

Location General Character Country Owned or Leased

Algonquin, Illinois Plant U.S.A. Owned

Attleboro, Massachusetts Plant 1 U.S.A. Owned

Attleboro, Massachusetts Plant 2 U.S.A. Leased

Attleboro, Massachusetts Plant 3 U.S.A. Owned

Attleboro, Massachusetts Office, Warehouse U.S.A. Owned

Foshan City, China Plant China Leased

Irvine, California Plant U.S.A. Leased

Lubbock, Texas Plant 1 U.S.A. Owned

Lubbock, Texas Plant 2 U.S.A. Owned

Mexico City, Mexico Plant Mexico Owned

North Attleboro, Massachusetts Plant U.S.A. Owned

Palmer, Massachusetts Plant U.S.A. Leased

Taunton, Massachusetts Plant U.S.A. Leased

Joint Venture

Location General Character Country Owned or Leased

Wuxi, China Plant China Leased

In addition to these manufacturing plants, we lease office space in Charlotte, North Carolina, which serves as our corporate headquarters.

Item 3.Legal Proceedings

As disclosed in Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report, we are engaged in certain legal proceedings, and the disclosure set forth in Note 15 relating to certain commitments and contingencies is incorporated herein by reference.

Item 4.Mine Safety Disclosures

Not applicable.

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PART II

Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our common stock is traded on Nasdaq under the trading symbol “NNBR.” As of March 5, 2021, there were approximately 6,363 beneficial owners of record of our common stock, and the closing per share stock price as reported by Nasdaq was $6.73. The following graph and table compare the cumulative total shareholder return on our common stock with the cumulative total shareholder return of: (i) the S&P SmallCap 600 Index and (ii) a customized peer group, for the period from December 31, 2015, to December 31, 2020. The customized peer group consists of the following companies, which we believe are in similar lines of business: Altra Industrial Motion Corp., Ametek Inc., CIRCOR International, Inc., Colfax Corporation, Crane, Enerpac Tool Group Corp, Kaman Corporation, Park-Ohio Holdings Corp. and Worthington Industries, Inc. (collectively, the “Peer Group”). The following graph and table assume that a $100 investment was made at the close of trading on December 31, 2015, in our common stock and in the S&P SmallCap Index and the Peer Group. We cannot assure you that the performance of our common stock will continue in the future with the same or similar trend depicted on the graph.

Comparison of Five-Year Cumulative Total Return

NN, Inc., Peer Group, and S&P SmallCap 600 Index

(Performance results through December 31, 2020)

Source: Value Line Publishing LLC

The declaration and payment of dividends are subject to the sole discretion of our Board of Directors and depend upon our profitability, financial condition, capital needs, credit agreement restrictions, future prospects, and other factors deemed relevant by the Board of Directors.

See Part III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for information required by Item 201 (d) of Regulation S-K.

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Item 6.Selected Financial Data

The following selected financial data has been derived from our audited financial statements. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of this Annual Report and the audited Consolidated Financial Statements, including the Notes thereto, in Part II, Item 8, of this Annual Report. Amounts reflect the reclassification of discontinued operations, as disclosed in Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this report.

Year Ended December 31,

Statement of Operations Data:

Cash dividends declared per common share $ — $ 0.21 $ 0.28 $ 0.28 $ 0.28

As of December 31,

Balance Sheet Data:

During 2020, we experienced a decline in sales volume as a result of lower demand during the COVID-19 pandemic. We executed strategic initiatives to improve liquidity, including selling our Life Sciences business and using the proceeds to pay down debt. We recognized goodwill impairment charges of $92.9 million in our Power Solutions business.

During 2019, we adopted new lease accounting guidance that requires operating leases to be included on the balance sheet. As a result of this new guidance, $45.5 million of operating lease right-of-use assets are included in total assets as of December 31, 2019. Additionally, we issued convertible preferred stock in December 2019 and used the net cash proceeds of $95.7 million to pay down debt and to pay debt amendment costs.

During 2018, we recognized goodwill impairment charges of $182.5 million and issued shares of common stock in a public offering.

During 2017, we completed the sale of our global precision bearing components business (the “PBC Business”) and recorded an after-tax gain on sale of $127.7 million.

The year ended December 31, 2016, was the first full year following the acquisition of our former Precision Engineered Products Group.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the Notes thereto and the Selected Financial Data included elsewhere in this Annual Report. Historical operating results and percentage relationships among any amounts included in the Consolidated Financial Statements are not necessarily indicative of trends in operating results for any future period. Unless otherwise noted herein, all amounts are in thousands, except per share numbers.

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Overview and Management Focus

Our strategy and management focus are based upon the following long-term objectives

•Organic growth within our segments;

•Improved operating margins

•Cost reduction

•Efficient capital deployment

•Reduced overall debt and debt leverage ratio improvement

•Capital management initiatives

•Employee safety and satisfaction

Management generally focuses on these trends and relevant market indicators

•Global industrial growth and economics;

•Residential and non-residential construction rates;

•Global automotive production rates;

•Defense spending;

•Costs subject to the global inflationary environment, including, but not limited to:

•Raw materials;

•Wages and benefits, including health care costs;

•Regulatory compliance; and

•Energy;

•Trends related to the geographic migration of competitive manufacturing, electric vehicles, and electrification;

•Regulatory environment for United States public companies and manufacturing companies;

•Currency and exchange rate movements and trends;

•Interest rate levels and expectations; and

•Changes in tariff regulations.

Management generally focuses on the following key indicators of operating performance

•Sales growth;

•Cost of sales;

•Gross margin;

•Selling, general and administrative expense;

•Earnings before interest, taxes, depreciation and amortization;

•Return on invested capital;

•Income from operations and adjusted income from operations;

•Net income and adjusted net income;

•Leverage ratio

•Cash flow from operations and capital spending;

•Customer service reliability;

•External and internal quality indicators; and

•Employee development.

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Critical Accounting Policies

Our critical accounting policies, including the assumptions and judgment underlying them, are disclosed in Note 1 of the Notes to Consolidated Financial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition, inventory valuation, and asset impairment recognition. Due to the estimation processes involved, management considers the following summarized accounting policies and their application to be critical to understanding our business operations, financial condition and results of operations. We cannot assure you that actual results will not significantly differ from the estimates used in these critical accounting policies.

Goodwill and Other Indefinite Lived Intangible Assets

Goodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurs. The impairment analysis is performed at the reporting unit level. An impairment charge is calculated based on a reporting unit’s carrying amount in excess of its fair value (i.e., step 1 of the two-step impairment test). If the carrying value of the reporting unit including goodwill is less than fair value of the reporting unit, the goodwill is not considered impaired. Reporting units for the purpose of goodwill impairment testing are the same as our operating segments (Mobile Solutions and Power Solutions). Based on the results of the quantitative measurement performed, which indicated a fair value less than the carrying amount for Power Solutions, we concluded there was a $92.9 million impairment of goodwill for the year ended December 31, 2020.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of certain foreign subsidiaries as these earnings are not deemed to be permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes. We eliminate disproportionate tax effects from accumulated other comprehensive income (loss) when the circumstances upon which they are premised cease to exist.

The calculation of tax assets, liabilities, and expenses under U.S. GAAP is largely dependent on management judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely than not threshold. Specifically, the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon management weighting the current positive and negative evidence for recording tax benefits and expenses. Additionally, many of our positions are based on future estimates of taxable income and deductibility of tax positions. We have recorded a U.S. deferred tax liability for foreign earnings which are not indefinitely reinvested. We treat global intangible low-taxed income (“GILTI”) as a periodic charge in the year in which it arises and therefore do not record deferred taxes for basis differences associated with GILTI.

In the event that the actual outcome from future tax consequences differs from management estimates and assumptions or management plans and positions are amended, the resulting change to the provision for income taxes could have a material impact on the consolidated results of operations and financial position. (See Note 1 and Note 11 of the Notes to Consolidated Financial Statements).

Impairment of Long-Lived Assets

Long-lived tangible and intangible assets subject to depreciation or amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets may not be recoverable. A test for recoverability is also performed when management has committed to a plan to dispose of a reporting unit or asset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible or intangible asset is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is not recoverable, then the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaining useful life. Assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal. In assessing potential impairment for long-lived assets, we consider forecasted financial performance based, in large part, on management business plans and projected financial information which are subject to a high degree of management judgment and complexity. Future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized.

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Results of Operations

Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the year ended December 31, 2020, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

Global COVID-19 Pandemic

The COVID-19 pandemic continues to disrupt the United States and global economy, and we cannot predict when a full economic recovery will occur. Consistent with actions taken by governmental authorities and in response to reduced customer demand, in late March 2020, we idled manufacturing operations in certain regions around the world, other than China, where manufacturing operations began to resume in March 2020. During the year, we experienced supplier and customer disruption, which adversely affected our results of operations and cash flows in 2020. In Europe and North America, sales began declining in the second half of March as the pandemic led to customer plant closures. The situation grew more challenging in the second and third quarters of fiscal 2020, as customer closures affected much of our operations. Although much of the United States and the global economies have reopened, many public health experts warn there may be additional COVID-19 surges in 2021. Further surges in the COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations, just as some jurisdictions rolled back reopening plans in the summer of 2020 during one of the initial COVID-19 surges. Thus, the spread of COVID-19 and the responses thereto have created a disruption in the manufacturing, delivery, and overall supply chain of automobile manufacturers and suppliers, as well as disruption within the power industry. Global vehicle production decreased significantly, and some vehicle manufacturers completely shut down manufacturing operations in some countries and regions, including the United States and Europe. The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on our business, financial condition, results of operations, and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 outbreak.

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

Initiatives announced in 2019:

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

•Eliminated the quarterly dividend;

•Reduced capital expenditures;

•Issued $100 million of Preferred Stock and used net proceeds for debt repayment; and

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

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

•In March 2020, we drew down $60 million in cash under our Senior Secured Revolver to strengthen our near-term cash position. This debt was repaid immediately following the sale of the Life Sciences business in October 2020.

•Beginning in April 2020, executives reduced their base salaries by 20% to 25%, non-executive employee salaries were reduced by 5% to 15%. In October 2020, these salary reductions were repaid, and salaries were reinstated to their original levels.

•The 401(k) employer match was suspended through December 2020.

•Non-employee board members deferred their cash compensation to later in the year.

•Employee merit increases were not made in 2020, bonus payouts were deferred to later in the year, and the gainsharing plan for 2020 was suspended through December 2020.

•Travel was significantly reduced beginning in the first quarter of 2020.

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

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

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

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•As allowed by the CARES Act, we deferred payments of the employer share of U. S. payroll taxes and will begin making payments in 2021 through 2022.

•In July 2020, we amended our credit agreement with Truist Bank; JPMorgan Chase Bank, N.A.; KeyBank National Association; and Hometrust Bank (as amended, the “Credit Agreement”) to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020.

Further actions taken or expected in 2021:

•We expect to restructure our debt by refinancing our term loans and revolver.

•We expect to terminate our existing interest rate swap.

•We are taking advantage of other provisions of the CARES Act that could result in reduced income tax obligation and a positive impact on cash.

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

While managing decreased demand in many regions across the globe, we are now operating at all of our business locations. We are coordinating with our customers and suppliers to make the necessary preparations. We are focused on the safety of our employees, customers and suppliers when re-starting. We have developed and implemented processes to ensure a safe environment for our employees and any visitors to our facilities, including providing personal protective equipment to our employees, establishing social distancing protocols and temperature checks. These processes include recommendations based on guidelines from the Centers for Disease Control and Prevention and the World Health Organization as well as from our experience with ramp-ups at our plants in China, the United States, Mexico, Poland, France, and Brazil. The health and safety of our employees remains our top priority.

Discontinued Operations

In August 2020, we entered into a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for the sale of our Life Sciences business for an aggregate purchase price of up to $825 million, which includes a $755 million cash base purchase price and a potential earnout payment of up to $70 million. The cash base purchase price was subject to certain adjustments and was payable at the closing of the transaction, which occurred on October 6, 2020. The earnout payment is subject to the performance of the Life Sciences business during the year ending December 31, 2022, measured by Adjusted EBITDA targets, as defined by the SPA. The Life Sciences business includes facilities that are engaged in the production of a variety of components, assemblies, and instruments, such as surgical knives, bioresorbable implants, surgical staples, cases and trays, orthopaedic implants and tools, laparoscopic devices, and drug delivery devices for the orthopaedics and medical/surgical end markets. The sale of the Life Sciences business furthers management’s strategy to improve liquidity and creates the financial flexibility to pursue key growth areas in the Mobile Solutions and Power Solutions segments.

After working capital and other closing adjustments, the final cash purchase price was approximately $753.3 million. We received cash proceeds at closing of $757.2 million and recorded a $3.9 million payable at December 31, 2020, for the balance. We prepaid $700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan immediately following the sale. We also paid in full the outstanding balance on the Senior Secured Revolver. We recognized a gain on sale of $214.9 million, net of income taxes. Under the terms of a transition services agreement, we are providing certain support services for up to 180 days from the closing date of the sale.

In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the operating results of the Life Sciences business are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and will also include any gain on the disposition of the business, all net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). The 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 consolidated financial statements and the accompanying notes unless otherwise stated. The Consolidated Statements of Cash Flowsinclude cash flows of the Life Sciences business in each line item unless otherwise stated.

Our credit facility required us to use proceeds from the sale of the Life Sciences business to prepay a portion of our existing debt. We paid $700 million in the aggregate on our term loans as described in Note 12. The prepayment was applied to debt in accordance with the prepayment provisions of the Credit Agreement immediately after the transaction closed on October 6, 2020. Average quarterly interest rates were multiplied by the required prepayment amounts to calculate interest expense to be reclassified to discontinued operations for all periods presented. Write-offs of credit facility debt issuance costs were allocated to discontinued operations by multiplying the ratio of the required prepayment amounts as a percentage of total outstanding principal by the total write-off charges in each period. See Note 2 in the Notes to Consolidated Financial Statements for more information on discontinued operations.

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Goodwill Impairment

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 Consolidated Statements of Operations and Comprehensive Income (Loss). See Note 8 in the Notes to Consolidated Financial Statements for more information on the impairment charge. As of December 31, 2020, there is no remaining goodwill balance.

Financial Data as a Percentage of Net Sales

The following table presents the percentage of our net sales represented by statement of operations line item.

Year Ended December 31,

Selling, general, and administrative expense 13.6 % 14.1 % 13.9 %

Depreciation and amortization 10.7 % 9.2 % 8.2 %

Restructuring and integration expense, net — % — % 0.1 %

Goodwill impairment 21.7 % — % 34.8 %

Other operating expense, net 1.1 % 0.2 % 1.3 %

Loss from operations (27.5) % (3.6) % (37.2) %

Interest expense 4.4 % 2.7 % 2.2 %

Derivative payments on interest rate swap 1.0 % — % — %

Loss on interest rate swap 2.7 % — % — %

Other expense (income), net — % 0.2 % 0.4 %

Benefit (provision) for income taxes 2.1 % (0.1) % 0.3 %

Share of net income (loss) from joint venture 0.8 % 0.3 % (2.7) %

Loss from continuing operations (32.6) % (6.3) % (42.2) %

Income (loss) from discontinued operations, net of tax 9.1 % (3.3) % (8.0) %

Sales Concentration

During 2020, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 45% of our consolidated net sales. The loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our income from operations and operating cash flows or cause us to incur additional restructuring and/or impairment costs. We recognized sales from a single customer of $49.7 million, or 10% of consolidated net sales, during the year ended December 31, 2019, and $65.3 million, or 12% of consolidated net sales, during the year ended December 31, 2018. Revenues from this customer are in our Mobile Solutions segment and were less than 10% of consolidated net sales during the year ended December 31, 2020.

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Year Ended December 31, 2020, compared to the Year Ended December 31, 2019

Year Ended December 31,

Organic decline $ (55,735)

Foreign exchange effects (6,245)

Restructuring and integration expense, net — (12) 12

Derivative payments on interest rate swap 4,133 — 4,133

Income (loss) from discontinued operations, net of tax 38,898 (15,992) 54,890

Net Sales. Net sales decreased by $62.0 million, or 13%, during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to a decrease in organic volume of $55.7 million as a result of decreased demand due to the COVID-19 pandemic. Unfavorable foreign exchange effects of $6.2 million also contributed to the decrease.

Cost of Sales. Cost of sales decreased by $48.9 million, or 12%, during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to variable costs associated with the above-referenced sales volume decline and variable and fixed cost reduction initiatives that were implemented.

Selling, General, and Administrative Expense. Selling, general and administrative expense decreased by $10.8 million during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to cost reduction initiatives that drove decreases in personnel and travel costs.

Depreciation and Amortization. Depreciation and amortization increased by $0.8 million during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, as the full year depreciation impact of prior year capital expenditures exceeded the reduction due to lower capital expenditures in 2020.

Goodwill Impairment. The increase in goodwill impairment during the year ended December 31, 2020, was the result of a $92.9 million goodwill impairment charge at Power Solutions. See Note 8 in the Notes to Consolidated Financial Statements for more information on the impairment charge.

Other Operating Expense, Net. Other operating expense, net, changed unfavorably by $3.9 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to charges and costs associated with asset impairments and disposals and elimination of a portion of our lease obligation as a result of our decision to vacate a portion of our corporate headquarters building. These charges were partially offset by a $0.8 million gain on the sale of a building in Fairfield, Ohio, in the year ended December 31, 2020.

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Interest Expense. Interest expense increased by $5.9 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to an increase in settlements on the interest rate swap and an increase in the interest rate margin over one-month LIBOR on the Senior Secured Term Loan and the Incremental Term Loan as a result of amendments executed in 2019. These increases were partially offset by a reduction in one-month LIBOR. Interest on our Senior Secured Revolver decreased due to a low outstanding principal balance throughout most of the first quarter of 2020 after using proceeds from the Preferred Stock offering to repay the balance in December 2019. We repaid the entire outstanding balance on the Senior Secured Revolver after the sale of the Life Sciences business.

Year Ended December 31,

Interest rate swap settlements 8,906 1,411

Amortization of debt issuance costs 1,702 1,421

Derivative Payments on Interest Rate Swap. Derivative payments on interest rate swap represent cash settlements of the interest rate swap after hedge accounting was discontinued in October 2020. Prior to October 2020, interest rate swap settlements were recognized in interest expense. See Note 21 in the Notes to Consolidated Financial Statements for more discussion about the interest rate swap.

Loss on Interest Rate Swap. Loss on interest rate swap represents mark-to-market adjustments on the interest rate swap after hedge accounting was discontinued in October 2020 as well as amortization of the residual loss in accumulated other comprehensive income as monthly settlements occur. Prior to October 2020, mark-to-market adjustments on the interest rate swap were recognized in accumulated other comprehensive income.

Other Expense (Income), Net. Other expense (income), net, changed favorably by $1.2 million during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019, primarily due to more favorable foreign exchange effects associated with intercompany borrowings compared to the prior year.

Benefit (Provision) for Income Taxes. Our effective tax rate was 5.9% for the year ended December 31, 2020, compared to (1.0)% for the year ended December 31, 2019. The difference in rates is primarily due to the impact of the impairment of nondeductible goodwill in 2020 and the CARES Act in 2020. Note 11 in the Notes to Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income from Joint Venture. Our share of net income from the joint venture increased during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to increased sales and improved profits from expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions. These favorable impacts were partially offset by the shutdown of manufacturing operations in China during the first quarter of 2020 due to the COVID-19 pandemic.

Income (Loss) from Discontinued Operations, Net of Tax. The largest component of income (loss) from discontinued operations, net of tax, in 2020 was the $214.9 million gain on sale of our Life Sciences business. Note 2 in the Notes to Consolidated Financial Statements provides details of the results of discontinued operations.

Results by Segment

MOBILE SOLUTIONS

Year Ended December 31,

Organic decline $ (34,849)

Foreign exchange effects (6,540)

Net sales decreased by $41.4 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower demand within the global automotive markets resulting from the COVID-19 pandemic, contractual price reductions, and unfavorable foreign exchange effects.

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Income from operations decreased by $4.3 million compared to prior year due to lost variable margin on the above-referenced sales volume decline, partially offset by fixed cost reduction actions taken in response to the decline in sales volume. Additionally, the twelve months ended December 31, 2019, were impacted by a $1.4 million one-time favorable litigation settlement.

POWER SOLUTIONS

Year Ended December 31,

Organic decline $ (21,126)

Foreign exchange effects 295

Net sales decreased by $20.8 million during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower demand in the electrical products, automotive, and oil and gas end markets resulting from the COVID-19 pandemic, partially offset by increased pass-through pricing on products utilizing precious metals.

Income (loss) from operations decreased by $99.9 million compared to prior year primarily due to a goodwill impairment loss of $92.9 million recognized in the first quarter of 2020 and lost variable margin on the above-referenced sales volume decline. These unfavorable impacts were partially offset by fixed cost reduction actions taken in response to the decline in sales volume.

Year Ended December 31, 2019, compared to the Year Ended December 31, 2018

Year Ended December 31,

Foreign exchange effects (7,188)

Restructuring and integration expense, net (12) 689 (701)

Loss on extinguishment of debt and write-off of debt issuance costs 540 — 540

Benefit (provision) for income taxes (305) 1,548 (1,853)

Net Sales. Net sales decreased by $34.7 million, or 7%, in 2019 compared to 2018, primarily due to a decrease in demand in the automotive end market and unfavorable foreign exchange effects of $7.2 million.

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Cost of Sales. Cost of sales decreased by $20.9 million, or 5%, in 2019 compared to 2018, primarily due to the relative contribution margin impact of sales in the Mobile Solutions group. The decrease in cost of sales was partially offset by favorable foreign exchange effects of $5.2 million.

Selling, General, and Administrative Expense. Selling, general and administrative expense decreased by $3.9 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to lower costs for professional services as a result of cost savings initiatives.

Depreciation and Amortization. Depreciation and amortization increased by $1.9 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, consistent with capital expenditure activity.

Goodwill Impairment. Goodwill impairment decreased by $182.5 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, as a result of goodwill impairment charges at Mobile Solutions and Power Solutions.

Other Operating Expense, Net. Other operating expense, net, decreased by $6.0 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a reduction in asset impairment charges.

Interest Expense. Interest expense increase by $1.7 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to higher average interest rates, increased borrowings under the Senior Secured Revolver during 2019, and unfavorable interest rate swap settlements.

Year Ended December 31,

Interest rate swap settlements 1,411 —

Amortization of debt issuance costs 1,421 1,274

Other Expense, Net. Other expense, net, decreased during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a decrease in interest income from short-term investments in 2018 and currency effects on intercompany loans.

Benefit (Provision) for Income Taxes. Our effective tax rate from continuing operations was (1.0)% for the year ended December 31, 2019, compared to 0.7% for the year ended December 31, 2018. Note 11 in the Notes to Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income (Loss) from Joint Venture. Our share of net income (loss) from the joint venture increased by $16.1 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a partial impairment of the investment in the joint venture of $16.6 million during the year ended December 31, 2018.

Loss from Discontinued Operations, Net of Tax. Loss from discontinued operations, net of tax, represents the results of operations of our Life Sciences business. Note 2 in the Notes to Consolidated Financial Statements provides details of the results of discontinued operations.

Results by Segment

MOBILE SOLUTIONS

Year Ended December 31,

Foreign exchange effects (6,983)

Net sales decreased by $37.3 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to lower demand within the North American and European automotive markets, unfavorable foreign exchange effects, reduced demand for components associated with programs nearing the end of the product lifecycle, and delays in new product launches, partially offset by higher demand within the South American automotive market.

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Income (loss) from operations increased by $64.6 million compared to prior year primarily due to the $73.4 million goodwill impairment in the prior year. Absent the effect of the goodwill impairment, income (loss) from operations decreased by $8.8 million due to lost variable margin on the above-referenced sales volume decline and costs associated with the launch of new fuel systems business within our European operations. These unfavorable impacts were partially offset by favorable foreign exchange effects and fixed cost reduction initiatives implemented in response to the decline in sales volume.

POWER SOLUTIONS

Year Ended December 31,

Organic growth (1,432)

Foreign exchange effects (205)

Net sales increased by $2.3 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to $4.0 million of net sales attributable to the Technical Arts business that was acquired in the third quarter of 2018. The increase in net sales was partially offset by lower demand in the electrical products end market and unfavorable foreign exchange effects.

Income (loss) from operations increased by $109.0 million compared to prior year primarily due to the $109.1 million goodwill impairment in the prior year.

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

Overview

From December 31, 2019, to December 31, 2020, total assets decreased by $917.0 million primarily due to the sale of the Life Sciences business and use of cash proceeds to pay down debt. The $92.9 million impairment of Power Solutions goodwill in the first quarter of 2020 and normal depreciation and amortization of fixed assets and intangible assets also contributed to the decrease.

From December 31, 2019, to December 31, 2020, total liabilities decreased by $830.0 million primarily due to the prepayment of long-term debt with cash proceeds from the sale of the Life Sciences business.

Working capital of continuing operations, which consists of cash, accounts receivable, inventories, income taxes receivable, and other current assets offset by accounts payable, accrued personnel costs, income taxes payable, current maturities of long-term debt, current portion of lease liabilities, and other current liabilities, was $112.0 million as of December 31, 2020, compared to $88.0 million as of December 31, 2019. The increase in working capital was primarily due to cash proceeds from the sale of the Life Sciences business and a reduction in the current maturities of long-term debt due to the prepayment of the Senior Secured Term Loan and the Incremental Term Loan.

Cash Flows

Cash provided by operations was $15.5 million for the twelve months ended December 31, 2020, compared with cash provided by operations of $49.2 million for the twelve months ended December 31, 2019. The difference was primarily due to a decrease in sales volumes and higher interest expense, partially offset by improvement in working capital.

Cash provided by investing activities was $719.3 million for the twelve months ended December 31, 2020, compared with cash used in investing activities of $39.4 million for the twelve months ended December 31, 2019. The increase was primarily due to cash received from the sale of the Life Sciences business as well as lower capital expenditures in 2020 as part of our cash savings initiatives. Cash received from the liquidation of the short-term investment during 2019 partially offset the decrease in capital expenditures on a year-over-year basis.

Cash used in financing activities was $714.9 million for the twelve months ended December 31, 2020, compared with cash provided by financing activities of $5.3 million for the twelve months ended December 31, 2019. The difference was primarily due to the prepayment of debt with proceeds from the sale of the Life Sciences business.

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Liquidity and Capital Resources

Overview

On October 21, 2019, we announced expense reduction and cash savings initiatives to help pay down our debt and support greater growth by reinvesting in our businesses. The expense reduction and cash saving initiatives include streamlining facilities and reducing overall selling, general and administrative costs; elimination of quarterly dividend payments; and a reduction in capital expenditures from 2019 spending levels as we return to a more normalized level of capital spending after several years of higher investment. As described in the “Results of Operations, Factors That May Influence Results of Operations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, we have taken additional actions in response to the economic effects of the COVID-19 pandemic and in order to enhance our liquidity position during this difficult period.

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 Note 16 in the Notes to Consolidated Financial Statements, 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 were required to maintain minimum liquidity levels, provide certain financial and other information, and take certain other action as specified in the amendment. Failure to maintain the required minimum liquidity levels or satisfy other requirements set forth in the amendment would allow the revolving credit lenders, the Senior Secured Term loan lenders, and the Incremental Term Loan lenders to cause amounts outstanding under our credit facility to become immediately due and payable and would have a material, adverse impact on our financial position.

In August 2020, we entered into an agreement to sell our Life Sciences business. The sale closed on October 6, 2020, at which time we received cash proceeds of $757.2 million. We immediately prepaid $700.0 million in the aggregate on the Senior Secured Term Loan and the Incremental Term Loan. We also paid in full the outstanding balance on the Senior Secured Revolver. Additionally, in August 2020, we amended our Credit Agreement to obtain the lenders’ consent to the sale of the Life Sciences business, subject to certain terms and conditions.

We rely on cash flow generated from operations and available borrowings under our Senior Secured Revolver to fund our working capital and other operating and investing needs. Our ability to borrow under our Senior Secured Revolver is based on our continued compliance with the minimum liquidity requirements and, for periods beginning in the fourth quarter of 2020, the financial leverage ratio covenant, as defined, which became more restrictive upon the occurrence of a qualified sale transaction, which closed on October 6, 2020.

Based on available borrowing capacity of the Senior Secured Revolver, the reduction in debt service costs as a result of the debt prepayment with net proceeds from the sale of the Life Sciences business in October 2020, and cash flows expected to be generated from operations and investing activities, we anticipate that our cash and cash equivalents are sufficient to support our operations and meet our obligations, and that we will be able to maintain compliance with the existing financial leverage ratio covenant for the next twelve months from issuance of these consolidated financial statements. As the term of our Credit Agreement ends in the second half of 2022, we are in the process of evaluating financing alternatives.

Hedging

On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575%. The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022, with a declining notional amount over the term of the interest rate swap. Refer to Note 21 in the Notes to Consolidated Financial Statementsfor further discussion about the interest rate swap.

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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. After the prepayment, a majority of the hedged forecasted transactions (i.e. interest payments) were probable of not occurring, resulting in the recognition in earnings of $14.8 million of the hedging loss in accumulated other comprehensive income in the fourth quarter of 2020. The remaining $2.9 million of the hedging loss in accumulated other comprehensive income will be amortized into earnings as settlements occur. Finally, as the interest rate swap no longer qualifies as an effective hedge subsequent to October 6, 2020, changes in fair value of the interest rate swap are recognized in earnings each period. All amounts recognized in earnings related to the interest rate swap are recorded in the “Loss on interest rate swap” line on the Consolidated Statements of Operations and Comprehensive Income (Loss) except that cash settlements were recognized in “Interest expense” prior to October 6, 2020, and in “Derivative payments on interest rate swap” after October 6, 2020. Cash settlements are presented in operating activities on the Consolidated Statements of Cash Flows prior to October 6, 2020, and in investing activities after October 6, 2020.

Our arrangements with customers typically provide that payments are due within 30 to 60 days following the date of shipment. We invoice and receive payment from many of our customers in various other currencies. Additionally, we are party to various third party and intercompany loans, payables, and receivables denominated in currencies other than the U.S. dollar. As a result of these sales, loans, payables, and receivables, we are exposed to foreign exchange transaction and translation risk. Various strategies to manage this risk are available to management, including producing and selling in local currencies and hedging programs. As of December 31, 2020, no currency derivatives were in place. In addition, a strengthening of the U.S. dollar against foreign currencies could impair our ability to compete with international competitors for foreign as well as domestic sales.

Credit Facility

Aggregate principal amounts outstanding under our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver as of December 31, 2020, were $70.4 million, without regard to unamortized debt issuance costs. As of December 31, 2020, we had unused borrowing capacity of $45.4 million under the Senior Secured Revolver, subject to certain limitations. This amount of borrowing capacity is net of $14.6 million of outstanding letters of credit at December 31, 2020, which are considered as usage of the Senior Secured Revolver.

Collectively, our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver comprise our credit facility. Total capacity under the Senior Secured Revolver was $60.0 million as of December 31, 2020, and will decrease to $50.0 million on June 30, 2021. The Senior Secured Revolver matures on July 20, 2022. The credit agreement 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.

The Senior Secured Term Loan requires quarterly principal payments of $0.1 million through October 19, 2022, with the remaining principal amount due on the maturity date. If one-month LIBOR is less than 0.75%, then we pay 6.50% per annum in interest. If one-month LIBOR exceeds 0.75%, then we pay the variable one-month LIBOR plus an applicable margin of 5.75%. Based on the interest rate in effect at December 31, 2020, annual interest payments would be approximately $3.1 million.

The Incremental Term Loan requires quarterly principal payments of $0.3 million through October 19, 2022, with the remaining principal amount due on the maturity date. The Incremental Term Loan bears interest at the variable one-month LIBOR plus an applicable margin of 5.75%. Based on the interest rate in effect at December 31, 2020, annual interest payments would be approximately $1.3 million.

The Senior Secured Revolver bears interest on a variable rate structure with borrowings bearing interest at either one-month LIBOR plus an applicable margin of 4.00% or the prime lending rate plus an applicable margin of 3.00%. We pay a commitment fee of 0.50% for unused capacity under the Senior Secured Revolver. We had no borrowings outstanding under the Senior Secured Revolver at December 31, 2020. Total capacity under the Senior Secured Revolver was $60.0 million as of December 31, 2020, with $45.4 million available for future borrowings after reductions for outstanding letters of credit.

Covenants

In July 2020, we amended our Credit Agreement to waive compliance with the financial leverage ratio covenant for the second and third quarters of 2020. During this period, we were required to maintain minimum liquidity levels, provide certain financial and other information, and take certain other action as specified in the amendment. Failure to maintain the required minimum liquidity levels or satisfy other requirements set forth in the amendment would allow the revolving credit lenders, the Senior Secured Term loan lenders, and the Incremental Term Loan lenders to cause amounts outstanding under our credit facility to become immediately due and payable and would have a material, adverse impact on our financial position. Our ability to borrow under our Senior Secured Revolver is based on our continued compliance with the minimum liquidity requirements and, for periods beginning in the fourth quarter of 2020, the financial leverage ratio covenant, as defined, which became more restrictive upon the occurrence of a qualified sale transaction, which closed on October 6, 2020.

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We were in compliance as of December 31, 2020, with all requirements under our credit facility.

Contractual Obligations

The following table presents our contractual obligations and commercial commitments as of December 31, 2020:

Payments Due by Period

_______________________________

(1)Expected interest payments on our variable-rate Senior Secured Term Loan and Incremental Term Loan are based on one-month LIBOR as of December 31, 2020.

(2)Expected derivative payments are estimated based on the fair value of the interest rate swap as of December 31, 2020.

We have approximately $0.8 million in unrecognized tax benefits accrued within the liabilities section of our balance sheet. We are unsure when or if at all these amounts might be paid to U.S. and/or foreign taxing authorities. Accordingly, these amounts have been excluded from the table above. (See Note 11 of the Notes to Consolidated Financial Statements).

Functional Currencies

We currently have foreign operations in Brazil, China, France, Mexico, and Poland. The local currency of each foreign facility is also its functional currency.

Seasonality and Fluctuation in Quarterly Results

General economic conditions impact our business and financial results, and certain businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, European sales are often weaker in the summer months as customers slow production and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not materially impacted by seasonality.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in financial market conditions in the normal course of business due to use of certain financial instruments as well as transacting business in various foreign currencies. To mitigate the exposure to these market risks, we have established policies, procedures, and internal processes governing the management of financial market risks. We are exposed to changes in interest rates primarily as a result of borrowing activities.

Interest Rate Risk

Our policy is to manage interest expense using a mixture of fixed and variable rate debt. To manage this mixture of fixed and variable rate debt effectively and mitigate interest rate risk, we may use interest rate swap agreements. The nature and amount of borrowings may vary as a result of future business requirements, market conditions, and other factors.

In February 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575%. The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022, with a declining notional amount over the term of the interest rate swap. Refer to Note 21 in the Notes to Consolidated Financial Statements for further discussion about the interest rate swap.

At December 31, 2020, we had $47.7 million and $22.7 million of principal outstanding under the Senior Secured Term Loan and Incremental Term Loan, respectively, without regard to capitalized debt issuance costs. A one-percent increase in one-month LIBOR would result in a net increase in interest expense of $0.4 million on an annualized basis due to the fact that the

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Senior Secured Term Loan is subject to a LIBOR floor of 0.75% and one-month LIBOR was below the floor as of December 31, 2020.

At December 31, 2020, we had no principal outstanding under the Senior Secured Revolver.

Foreign Currency Risk

Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. We participate in various third party and intercompany loans, payables, and receivables denominated in currencies other than the U.S. dollar. To help reduce exposure to foreign currency fluctuation, we have incurred debt in euros in the past. From time to time, we may use foreign currency derivatives to hedge currency exposures when these exposures meet certain discretionary levels. We did not hold a position in any foreign currency derivatives as of December 31, 2020.

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Item 8.Financial Statements and Supplementary Data

Index to Financial Statements

Page

Reports of Independent Registered Public Accounting Firms 36

Consolidated Statements of Operations and Comprehensive Income (Loss) 40

Consolidated Balance Sheets 41

Consolidated Statements of Changes in Stockholders’ Equity 42

Consolidated Statements of Cash Flows 43

Notes to Consolidated Financial Statements 44

Note 1. Significant Accounting Policies 44

Note 2. Discontinued Operations 49

Note 3. Acquisitions 51

Note 4. Segment Information 51

Note 5. Accounts Receivable 53

Note 6. Inventories 54

Note 7. Property, Plant and Equipment 54

Note 8. Goodwill 54

Note 9. Intangible Assets, Net 55

Note 10. Investment in Joint Venture 56

Note 11. Income Taxes 56

Note 14. Restructuring and Integration 64

Note 15. Commitments and Contingencies 65

Note 16. Preferred Stock and Stockholders' Equity 66

Note 17. Revenue from Contracts with Customers 67

Note 18. Share-Based Compensation 69

Note 19. Accumulated Other Comprehensive Income 73

Note 20. Net Income (Loss) Per Common Share 73

Note 21. Fair Value Measurements 75

Note 22. Quarterly Results of Operations (Unaudited) 78

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Reports of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

NN, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of NN, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated March 15, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Charlotte, North Carolina

March 15, 2021

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Board of Directors and Stockholders

NN, Inc.

Opinion on the consolidated financial statements

We have audited the accompanying consolidated balance sheet of NN Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 15, 2021 expressed an unqualified opinion.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Valuation – Power Solutions

As described in Note 8 to the consolidated financial statements, the Company’s market capitalization declined to a level that was less than the net book value of the stockholders’ equity during the first quarter of 2020. The decline in market capitalization was a triggering event that resulted in the Company performing an interim quantitative goodwill impairment analysis as of March 31, 2020. As a result of the interim goodwill impairment analysis, it was determined that the carrying value of the Power Solutions reporting unit exceeded its estimated fair value resulting in an impairment charge of $92.9 million. We identified goodwill valuation as a critical audit matter because of the significant judgements made by management to estimate the fair value of goodwill.

Estimates of future performance and market conditions used to arrive at the net present value of future cash flows, which is used within the goodwill impairment analysis, are subjective in nature. In particular, the Company’s fair value estimate was sensitive to assumptions including the revenue growth rate and discount rate used by the Company, which are affected by expectations about future market or economic conditions. These assumptions proved more subjective during the March 31, 2020 goodwill impairment analysis as a result of the uncertainty surrounding the immediate and long-term impact of the COVID-19 pandemic.

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

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

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

•We utilized valuation specialists to assess the Company’s methodologies and assess the appropriateness of the discount rate used in the March 31, 2020 goodwill impairment analysis. Our specialists calculated a range of rates using market participant inputs and performed analysis to test sensitivity to changes in the discount rate.

Valuation of Power Solutions Segment for Tax Distribution

As described further in Note 11 to the consolidated financial statements, prior to the sale of the Life Sciences business, the Company completed a tax restructuring in which Precision Engineered Products Holdings, Inc., a wholly owned U.S. domestic subsidiary, distributed to NN, Inc., all of its assets and equity holdings related to the Power Solutions segment. The restructuring process created a deferred gain, required to be realized upon the sale of Life Sciences, equal to the fair market value of the distributed assets over tax basis. We identified the valuation of the Power Solutions segment as a critical audit matter because of the significant judgements made by management to estimate the fair value. The distribution resulted in a step-up in tax basis and a taxable gain, both of which were directly impacted by the valuation.

Estimates of future performance and market conditions used to arrive at the net present value of future cash flows, which is used in the valuation of Power Solutions segment, are subjective in nature. In particular, the Company’s fair value estimate was sensitive to assumptions including the revenue growth rate and discount rate used by the Company, which are affected by expectations about future market or economic conditions.

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

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

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

•We utilized valuation specialists to assess the Company’s methodologies and assess the appropriateness of the discount rate used in the valuation. Our specialists calculated a range of rates using market participant inputs and performed analysis to test sensitivity to changes in the discount rate.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2020.

Charlotte, North Carolina

March 15, 2021

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of NN, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of NN, Inc. and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As disclosed in Note 1 (not presented herein) to the consolidated financial statements appearing under Item 8 of the Company’s 2019 Annual Report on Form 10-K, the Company is required to comply with a financial ratio covenant pursuant to its Credit Agreement which becomes more restrictive over time and will require the Company to improve financial performance or take other measures to maintain compliance with its debt agreements.

/s/ PricewaterhouseCoopers LLP

Atlanta, Georgia

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

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

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NN, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

Years Ended December 31,

Restructuring and integration expense, net — (12) 689

Loss on extinguishment of debt and write-off of debt issuance costs 144 540 —

Derivative payments on interest rate swap 4,133 — —

Loss on interest rate swap 11,669 — —

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

Other comprehensive income (loss):

Reclassification adjustment for discontinued operations $ 5,961 $ — $ —

Interest rate swap:

Change in fair value, net of tax (12,443) (10,479) —

Basic net loss per common share:

Loss from continuing operations per common share $ (3.60) $ (0.75) $ (6.98)

Income (loss) from discontinued operations per common share 0.92 (0.38) (1.32)

Net loss per common share $ (2.68) $ (1.13) $ (8.30)

Diluted net loss per common share:

Loss from continuing operations per common share $ (3.60) $ (0.75) $ (6.98)

Income (loss) from discontinued operations per common share 0.92 (0.38) (1.32)

Net loss per common share $ (2.68) $ (1.13) $ (8.30)

See Notes to Consolidated Financial Statements.

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NN, Inc.

Consolidated Balance Sheets

December 31,

(in thousands, except per share data) 2020 2019

Assets

Current assets:

Current assets of discontinued operations — 117,000

Non-current assets of discontinued operations — 695,054