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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.

A detailed discussion of our results of operations and liquidity and capital resources for the year ended December 31, 2020 compared to the year ended December 31, 2019 are not included herein and can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 15, 2021.

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;

•Debt leverage ratio improvement;

•Capital management initiatives; and

•Employee health, safety, and satisfaction;

Management generally focuses on these trends and relevant market indicators

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

•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;

•Global automotive production rates;

•Defense spending;

•Global industrial growth and economics;

•Residential and non-residential construction rates;

•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.

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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;

•Net income;

•Leverage ratio

•Cash flow from operations and capital spending;

•Certain non-GAAP measures as defined in our quarterly earnings releases and investor presentations;

•Customer service reliability;

•External and internal quality indicators; and

•Employee development.

Critical Accounting Estimates

Our significant accounting policies, including the assumptions and judgment underlying them, are disclosed in Note 1 of the Notes to Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.

Goodwill

Goodwill was tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurred. The impairment analysis was performed at the reporting unit level. As of December 31, 2021 and 2020, there was no remaining goodwill balance due to impairments recognized during the year ended December 31, 2020. An impairment charge was 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 was less than the fair value of the reporting unit, the goodwill was not considered impaired. Reporting units for the purpose of goodwill impairment testing were the same as our operating segments (Mobile Solutions and Power Solutions).

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

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management weighting the current positive and negative evidence for recording tax benefits and expenses. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future earnings growth. 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 10 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 deemed not recoverable, then the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaining useful life. Assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal. 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.

Fair Value Measurements

Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. Fair value principles prioritize valuation inputs across three broad levels. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.

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, 2021, 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. New and more easily transmitted variants of COVID-19, such as the Delta and Omicron variants, have emerged and spread in the United States and across the globe. The impact of these variants cannot be predicted at this time and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the new variants, and the response by governmental bodies and regulators. Further surges in COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations.

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 in 2020, but production ramped back up in 2021. However, production continues to be impacted by disruptions of global supply chains, which have caused challenges in obtaining raw materials we use in the manufacture of some of our products. We increased our inventories in the current year to mitigate the risk of supply chain disruption for our customers. In addition, power shortages in China have resulted in widespread blackouts, often without any or little notice. These blackouts caused us and other manufacturers in the region to shut down production until power was restored. Supply chain and COVID-19 related disruptions are expected to continue into 2022.

Inflation triggered by the unprecedented economic impact of the COVID-19 pandemic has increased our manufacturing cost, particularly labor and materials, and is expected to continue into future periods. A worldwide semiconductor chip shortage is affecting automotive original equipment manufacturers, causing unpredictable volumes. The rapid development and fluidity of

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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 pandemic.

While managing decreased demand in many regions across the globe, we are now operating at all of our business locations. We have implemented training and recruiting programs to address labor shortages. We are focused on the health and safety of our employees, customers, and suppliers. 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 and establishing social distancing protocols.

These processes include recommendations based on guidelines from the Centers for Disease Control and Prevention and the World Health Organization. The health and safety of our employees remains our top priority. While we are actively promoting vaccination among our employees, vaccination status may affect workforce availability ranging from absences for vaccinations, booster shots, and recovery from side-effects. Significant workforce availability challenges could have a material effect on our business operations, financial results, liquidity, and financial position.

We have undertaken a number of permanent and temporary actions to manage the evolving situation. We continue to streamline facilities and implement cost savings initiatives. Capital expenditures and travel costs remain at relatively low levels. We refinanced our credit facility and preferred stock in the first quarter of 2021 as discussed below.

Credit Facilities

On March 22, 2021, we entered into a new $150.0 million term loan facility (the “Term Loan Facility”) and a new $50.0 million asset backed credit facility (the “ABL Facility”). The proceeds from the Term Loan Facility were used to prepay the amounts outstanding on our previous term loans. The previous credit facility was terminated and consisted of a Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver. No amounts were outstanding on the Senior Secured Revolver at the time of termination.

Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR (subject to a 1.000% floor) plus an applicable margin of 6.875% or 2) the greater of various benchmark rates plus an applicable margin of 5.875%. At December 31, 2021, the Term Loan Facility bore interest, based on one-month LIBOR, at 7.875%. The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026. The Term Loan Facility is collateralized by all of our assets. The Term Loan Facility has a first lien on all assets other than accounts receivable and inventory and has a second lien on accounts receivable and inventory. We were in compliance with all requirements under the Term Loan Facility as of December 31, 2021.

On July 22, 2021, we entered into a new fixed-rate interest rate swap agreement to change the LIBOR-based component of the interest rate on $60.0 million of our variable rate debt to a fixed rate of 1.291%. The interest rate swap, which has been designated as a cash flow hedge, has a notional amount of $60.0 million and a maturity date of July 31, 2024.

The ABL Facility provides for a senior secured revolving credit facility in the amount of $50.0 million, of which $30.0 million is available in the form of letters of credit and $5.0 million is available for the issuance of short-term swingline loans. The availability of credit under the ABL Facility is limited by a borrowing base calculation derived from accounts receivable and inventory held in the United States. Outstanding borrowings under the ABL Facility bear interest on a variable rate structure plus an interest rate spread that is based on the average amount of aggregate revolving commitment available. The variable borrowing rate is either 1) LIBOR plus an applicable margin of 1.75% or 2.00%, depending on availability, or 2) the greater of the federal funds rate or prime, plus an applicable margin of 0.75% or 1.00%, depending on availability. We may elect whether to use one-month, three-month, or six-month LIBOR, subject to a 0.50% floor. Interest payments are due monthly on borrowings that utilize one-month LIBOR and quarterly on borrowings that utilize three-month or six-month LIBOR. At December 31, 2021, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility would have been 2.25% if there had been any balance outstanding. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility and a 1.875% fee on the amount of letters of credit outstanding. The final maturity date of the ABL Facility is March 22, 2026.

As of December 31, 2021, we had no outstanding borrowings under the ABL Facility, $11.2 million of outstanding letters of credit, and $36.0 million available for future borrowings under the ABL Facility. The ABL Facility has a first lien on accounts receivable and inventory. We were in compliance with all requirements under the ABL Facility as of December 31, 2021.

Preferred Stock

On March 22, 2021, we completed a private placement of 65 thousand shares of newly designated Series D Perpetual Preferred Stock, with a par value of $0.01 per share (the “Series D Preferred Stock”), at a price of $1,000 per share, together with detachable warrants (the “2021 Warrants”) to purchase up to 1.9 million shares of our common stock at an exercise price of $0.01 per share. The Series D Preferred Stock has an initial liquidation preference of $1,000 per share and is redeemable at our

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option in cash at a redemption price equal to the liquidation preference then in effect. Series D Preferred Stock shares earn cash dividends at a rate of 10.0% per year, payable quarterly in arrears, accruing whether or not earned or declared. If no cash dividend is paid, then the liquidation preference per share effective on the dividend date increases by 12.0% per year. On March 22, 2026, the cash dividend rate and in-kind dividend rate increase by 2.5% per year. Cash dividends are required beginning on September 30, 2027.

Net cash proceeds of $61.8 million from the issuance of the Series D Preferred Stock, along with part of the proceeds from the Term Loan Facility, were used to redeem all of the outstanding shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”). The total redemption cash payment was $118.4 million.

Sales Concentration

We recognized sales from a single customer of $49.7 million, or 10% of consolidated net sales, during the year ended December 31, 2019. Revenues from this customer are in our Mobile Solutions segment and were less than 10% of consolidated net sales during the years ended December 31, 2021 and 2020.

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.

Years Ended December 31,

Selling, general, and administrative expense 10.8 % 13.6 % 14.1 %

Depreciation and amortization 9.7 % 10.7 % 9.2 %

Goodwill impairment — % 21.7 % — %

Other operating expense (income), net (0.2) % 1.1 % 0.2 %

Loss from operations (1.9) % (27.5) % (3.6) %

Interest expense 2.7 % 4.4 % 2.7 %

Derivative payments on interest rate swap 0.4 % 1.0 % — %

Loss on interest rate swap 0.4 % 2.7 % — %

Other expense (income), net (1.1) % — % 0.2 %

Benefit (provision) for income taxes 0.4 % 2.1 % (0.1) %

Share of net income from joint venture 1.3 % 0.8 % 0.3 %

Loss from continuing operations (3.0) % (32.6) % (6.3) %

Income (loss) from discontinued operations, net of tax 0.3 % 9.1 % (3.3) %

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Year Ended December 31, 2021, compared to the Year Ended December 31, 2020

Years Ended December 31,

Foreign exchange effects 2,188

Derivative payments on interest rate swap 1,717 4,133 (2,416)

Net Sales. Net sales increased by $50.1 million, or 12%, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher demand within all markets that were negatively impacted by the COVID-19 pandemic in the prior year and favorable foreign exchange effects of $2.2 million. In addition, sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared with the year ended December 31, 2020.

Cost of Sales. Cost of sales increased by $46.4 million, or 14%, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to variable costs associated with the above-noted sales increase. In addition, cost of sales increased due to the reintroduction of employee-related costs suspended in the prior year due to the COVID-19 pandemic, such as travel, benefits and overtime hours. Finally, cost of sales increased due to variable cost inefficiencies associated with global supply chain interruptions, uneven customer ordering patterns (particularly in the automotive market), and inflation. These increases were partially offset by more favorable overhead absorption compared to prior year due to the increase in inventory.

Selling, General, and Administrative Expense. Selling, general, and administrative expense decreased by $6.6 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to cost reduction initiatives that drove decreases in personnel costs, professional fees, and office occupancy costs.

Goodwill Impairment. We recognized goodwill impairment of $92.9 million at Power Solutions in 2020, resulting in no remaining goodwill balance.

Other Operating Expense (Income), Net. Other operating expense (income), net, changed favorably by $5.8 million primarily due to charges and costs associated with asset disposals and elimination of a portion of our lease obligation as a result of our decision to vacate a portion of our corporate headquarters building in 2020. These charges were partially offset by a gain on the sale of a building in Fairfield, Ohio, in the second quarter of 2020.

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Interest Expense. Interest expense decreased by $6.2 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to settlements on the interest rate swap that was terminated in connection with our debt refinancing in 2021. This decrease was partially offset by higher interest rates on debt in the current year.

Years Ended December 31,

Interest rate swap settlements 77 8,906

Amortization of debt issuance costs and discount 1,381 1,702

Capitalized interest (300) (204)

Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs. We recognized $2.4 million for the write-off of unamortized debt issuance costs that were associated with the credit facility that was terminated in March 2021.

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. The previous interest rate swap was terminated in the first quarter of 2021. We entered into a new interest rate swap in the third quarter of 2021, which is designated as a cash flow hedge with the impact of settlements recognized in interest expense.

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. Upon termination of the previous interest rate swap in March 2021, we recognized in earnings the remaining $3.3 million loss that had been deferred in accumulated other comprehensive income.

Other Income, Net. Other income, net, changed favorably by $5.2 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, due to noncash derivative mark-to-market gains and more favorable foreign exchange effects associated with intercompany borrowings, partially offset by a litigation settlement reached during the second quarter of 2021.

Benefit for Income Taxes. Our effective tax rate was 7.8% for the year ended December 31, 2021, compared to 5.9% for the year ended December 31, 2020. The difference in rates is primarily due to the limitation on the amount of tax benefit recorded for loss carryforwards in 2021 and the impact of the impairment of nondeductible goodwill in 2020. Note 10 in the Notes to Consolidated Financial Statements describes the effective income tax rate for each period presented.

Share of Net Income from Joint Venture. Share of net income from the JV increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to recovery from the effects of the COVID-19 pandemic on prior year sales. The JV, in which we own a 49% investment, recognized net sales of $94.8 million and $68.2 million for the years ended December 31, 2021 and 2020, respectively. Additionally, profits improved from expanding variable margins as a result of successful process improvement initiatives, improved product mix, and fixed cost reduction actions.

Income from Discontinued Operations, Net of Tax. The largest component of income from discontinued operations, net of tax, during the year ended December 31, 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. We recognized a gain of $1.2 million during the year ended December 31, 2021, due to the favorable resolution of a tax indemnity.

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Results by Segment

MOBILE SOLUTIONS

Years Ended December 31,

Foreign exchange effects 1,854

Net sales increased by $29.5 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, new business in the general industrial market, and favorable foreign exchange effects. In the fourth quarter of 2021, we recognized a customer pricing settlement.

Income from operations increased by $3.8 million compared to the same period in the prior year primarily due to contribution generated from the above-noted sales increase and customer pricing settlement. Moreover, we built up inventory in the year ended December 31, 2021, which resulted in favorable overhead absorption during the current year compared to the prior year. These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the COVID-19 pandemic (such as travel, benefits, and overtime hours), material and labor inflation, and variable cost inefficiencies associated with global supply chain interruptions and uneven customer ordering patterns, particularly in the automotive market.

POWER SOLUTIONS

Years Ended December 31,

Foreign exchange effects 334

Net sales increased by $20.5 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher demand within our end markets, all of which were negatively impacted by the COVID-19 pandemic in the prior year. Sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared to the year ended December 31, 2020. In addition, revenue increased during the fourth quarter of 2021 due to prices increases with certain customers.

Income (loss) from operations increased by $92.5 million compared to the same period in the prior year primarily due to a goodwill impairment loss of $92.9 million recognized in the first quarter of 2020. In addition, income from operations increased due to the above-noted higher sales volume. These favorable impacts were partially offset by an adverse shift in sales mix; higher material costs as a result of inflation; operating inefficiencies in our aerospace, defense, and medical business; and the reintroduction of employee-related costs suspended in the prior year due to the COVID-19 pandemic, such as travel, benefits and overtime hours.

Changes in Financial Condition from December 31, 2020, to December 31, 2021

Overview

From December 31, 2020, to December 31, 2021, total assets decreased by $45.9 million primarily due to normal depreciation and amortization of fixed assets, lease right-of-use assets, and intangible assets. We used $15.4 million of cash to settle the ineffective interest rate swap as part of our refinancing during the first quarter of 2021. Accounts receivable decreased as a result of successful collection efforts, accelerated payment terms, and lower sales in the fourth quarter of 2021 compared with the fourth quarter of 2020. These decreases were partially offset by capital expenditures and increases in inventories during the year ended December 31, 2021. Inventories increased as a result of a strategic decision to mitigate potential supply chain issues for our customers. The investment in the Chinese joint venture also increased as a result of undistributed earnings of the joint venture.

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From December 31, 2020, to December 31, 2021, total liabilities increased by $35.4 million, primarily due to the refinancing of our credit facilities, partially offset by the termination of the ineffective interest rate swap.

Cash Flows

Cash provided by operations was $15.6 million for the year ended December 31, 2021, compared with cash provided by operations of $15.5 million for the year ended December 31, 2020. Operating activities during 2021 included building inventory levels as a result of a strategic decision to mitigate potential supply chain issues for our customers. Net payments for income taxes were $5.4 million higher in the year ended December 31, 2021 when compared to 2020. The increased bonus payout to our employees during 2021 also impacted operating activities. Operating activities were positively impacted by the timing of disbursements on accounts payable compared to 2020, as well as increased income generated from operations during the year ended December 31, 2021.

Cash used in investing activities was $36.1 million for the year ended December 31, 2021, compared with cash provided by investing activities of $719.3 million for the year ended December 31, 2020. The difference was primarily due to cash received from the sale of the Life Sciences business in 2020.

Cash provided by financing activities was $2.6 million for the year ended December 31, 2021, compared with cash used by financing activities of $714.9 million for the year ended December 31, 2020. The difference was primarily due to $11.6 million net inflow from the debt and preferred stock refinancing in the current year compared to the prepayment of debt in 2020 with proceeds from the sale of the Life Sciences business.

Liquidity and Capital Resources

Credit Facility

The principal amount outstanding under our Term Loan Facility as of December 31, 2021, was $148.9 million, without regard to unamortized debt issuance costs and discount. As of December 31, 2021, we had $36.0 million available for future borrowings under the ABL Facility. This amount of borrowing capacity is net of $11.2 million of outstanding letters of credit at December 31, 2021, which are considered as usage of the ABL Facility.

The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026. If one-month LIBOR is less than 1.000%, then we pay 7.875% per annum in interest. If one-month LIBOR exceeds 1.000%, then we pay the variable one-month LIBOR plus an applicable margin of 6.875%. Based on the interest rate in effect at December 31, 2021, and the fixed rate on the 2021 interest rate swap, annual interest payments would be approximately $11.9 million.

The ABL Facility bears interest on a variable rate structure with borrowings bearing interest at one-month LIBOR plus an applicable margin of 1.75%. The interest rate in effect at December 31, 2021, was 2.25%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility.

We were in compliance as of December 31, 2021, with all requirements under our Term Loan Facility and ABL Facility. Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions. On March 3, 2022, we amended our Term Loan Facility, which increases the quarterly maximum consolidated net leverage ratio beginning with the first quarter of 2022.

Hedging

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, 2021, 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.

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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.

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 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%. On March 22, 2021, we terminated the interest rate swap agreement in connection with the prepayment of our previously outstanding long-term variable-rate debt.

On July 22, 2021, we entered into a fixed-rate interest rate swap agreement to change the LIBOR-based component of the interest rate on a portion of our variable rate debt to a fixed rate of 1.291% (the “2021 Swap”). The 2021 Swap has a notional amount of $60.0 million and a maturity date of July 31, 2024. The objective of the 2021 Swap is to eliminate the variability of cash flows in interest payments on the first $60.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt. We designated the 2021 Swap as a cash flow hedge at inception. Cash settlements of the 2021 Swap are recognized in interest expense.

Refer to Note 19 in the Notes to Consolidated Financial Statements included in this Annual Report for further discussion about the interest rate swaps.

At December 31, 2021, we had $148.9 million of principal outstanding under the Term Loan Facility without regard to capitalized debt issuance costs. A one-percent increase in one-month LIBOR would have resulted in a net increase in interest expense of $0.1 million on an annualized basis due to the fact that the Term Loan Facility is subject to a LIBOR floor of 1.000% and one-month LIBOR was below the floor as of December 31, 2021.

We had no outstanding borrowings under the ABL Facility at December 31, 2021.

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, 2021.

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Item 8.Financial Statements and Supplementary Data

Index to Financial Statements

Page

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 248) 34

Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) 37

Consolidated Statements of Operations and Comprehensive Income (Loss) 38

Consolidated Balance Sheets 39

Consolidated Statements of Changes in Stockholders’ Equity 40

Consolidated Statements of Cash Flows 41

Notes to Consolidated Financial Statements 42

Note 1. Significant Accounting Policies 42

Note 2. Discontinued Operations 45

Note 3. Segment Information 47

Note 4. Accounts Receivable 49

Note 5. Inventories 49

Note 6. Property, Plant and Equipment 50

Note 7. Goodwill 50

Note 8. Intangible Assets, Net 51

Note 9. Investment in Joint Venture 51

Note 10. Income Taxes 52

Note 13. Commitments and Contingencies 60

Note 14. Preferred Stock and Stockholders' Equity 61

Note 15. Revenue from Contracts with Customers 62

Note 16. Share-Based Compensation 64

Note 17. Accumulated Other Comprehensive Income 69

Note 18. Net Income (Loss) Per Common Share 69

Note 19. Fair Value Measurements 71

Note 20. Subsequent Event 74

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

NN, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of NN, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, 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, 2021, 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, 2021, and our report dated March 11, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for opinion

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

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

Definition and limitations of internal control over financial reporting

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

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

/s/ GRANT THORNTON LLP

Charlotte, North Carolina

March 11, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

NN, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of NN, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, 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, 2021, 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 11, 2022 expressed an unqualified opinion.

Basis for opinion

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

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

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Classification of Series D Perpetual Preferred Stock and the bifurcated detachable warrants

As described further in Note 14 to the financial statements, the Company completed a private placement of 65 thousand shares of newly designated Series D Perpetual Preferred Stock at a price of $1,000 per share, together with detachable warrants to purchase up to 1.9 million shares of common stock at an exercise price of $0.01 per share on March 22, 2021. The Series D Perpetual Preferred Stock had an initial liquidation preference of $1,000 per share and is redeemable at the Company’s option in cash at a redemption price equal to the liquidation preference then in effect. Certain features were bifurcated and accounted for separately from the Series D Perpetual Preferred Stock and were recorded as derivatives. We identified the classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants as a critical audit matter.

The determination of the classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants involves an evaluation of the relevant terms and provisions within the Securities Purchase Agreement and Common Stock Warrant Agreement. The relevant accounting literature is complex; therefore, the interpretation and application of the accounting literature is subjective and requires specialized skills and knowledge. Auditing

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management’s conclusions related to the classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants involved especially challenging auditor judgment to determine the proper classification.

Our audit procedures related to the classification issuance of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants 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 issuance of the Series D Perpetual Preferred Stock, which included classification of the Series D Perpetual Preferred Stock and the bifurcated detachable warrants.

•We utilized personnel with specialized skill and knowledge to assist in evaluating the appropriateness of management’s conclusions by (1) inspecting and assessing the relevant terms and provisions of the Securities Purchase Agreement and Common Stock Warrant Agreement; (2) comparing the relevant terms and provisions to management’s analysis; and (3) assessing the appropriateness of management’s application of the relevant accounting literature.

/s/ GRANT THORNTON LLP

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

Charlotte, North Carolina

March 11, 2022

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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 consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows of NN, Inc. and its subsidiaries (the “Company”) for the year 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 results of operations and cash flows of the Company for the year 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 12, 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 audit. 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 audit 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 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 consolidatedfinancial 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 consolidatedfinancial statements. We believe that our audit provides 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, and except for the 2019 summarized financial information of the unconsolidated joint venture in Note 9 to the consolidated financial statements, as to which the date is March 11, 2022.

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)

Goodwill impairment — 92,942 —

Derivative payments on interest rate swap 1,717 4,133 —

Other comprehensive income (loss):

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

Interest rate swap:

Basic net loss per common share:

Loss from continuing operations per common share $ (0.82) $ (3.60) $ (0.75)

Income (loss) from discontinued operations per common share 0.03 0.92 (0.38)

Net loss per common share $ (0.79) $ (2.68) $ (1.13)

Diluted net loss per common share:

Loss from continuing operations per common share $ (0.82) $ (3.60) $ (0.75)

Income (loss) from discontinued operations per common share 0.03 0.92 (0.38)

Net loss per common share $ (0.79) $ (2.68) $ (1.13)

See Notes to Consolidated Financial Statements.

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NN, Inc.

Consolidated Balance Sheets

December 31,

(in thousands, except per share data) 2021 2020

Assets

Current assets:

Deferred tax assets 314 —

Liabilities, Preferred Stock, and Stockholders’ Equity

Current liabilities:

Current maturities of long-term debt 3,074 4,885

Current portion of operating lease liabilities 5,704 4,797

Operating lease liabilities, net of current portion 51,295 55,053

Commitments and contingencies (Note 13)

Stockholders’ equity:

Accumulated other comprehensive loss (31,902) (33,732)

Total liabilities, preferred stock, and stockholders’ equity $ 579,101 $ 624,962

See Notes to Consolidated Financial Statements.

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NN, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)

(in thousands) Numberofshares Parvalue Additionalpaid-incapital Warrants Total

Dividends declared or accrued for common stock — — (8,933) — — — (8,933)

Dividends accrued for preferred stock — — (642) — — — (642)

Shares issued for option exercises 5 — 21 — — — 21

Restricted shares forgiven for taxes (44) — (365) — — — (365)

Change in estimate of share-based award vesting — — (1,052) — — — (1,052)

Proceeds from issuance of warrants — — — 1,076 — — 1,076

Foreign currency translation loss — — — — — (3,845) (3,845)

Adoption of new accounting standard — — — — (51) — (51)

Dividends accrued for preferred stock — — (12,373) — — — (12,373)

Restricted shares forgiven for taxes (44) — (157) — — — (157)

Change in estimate of share-based award vesting — — (718) — — — (718)

Reclassification of warrants to liabilities (Note 19) — — — (1,076) — — (1,076)

Foreign currency translation loss — — — — — (1,683) (1,683)

Sale of discontinued operations — — — — — 5,961 5,961

Dividends accrued for preferred stock — — (21,478) — — — (21,478)

Shares issued for option exercises 6 — 48 — — — 48

Restricted shares forgiven for taxes (52) (1) (362) — — — (363)

Change in estimate of share-based award vesting — — (618) — — — (618)

Change in fair value of interest rate swap, net of tax of $19 — — — — — 59 59

Foreign currency translation loss — — — — — (1,135) (1,135)

See Notes to Consolidated Financial Statements.

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NN, Inc.

Consolidated Statements of Cash Flows

Year Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization of discontinued operations — 35,731 46,950

Amortization of debt issuance costs and discount 1,381 15,692 4,789

Goodwill impairment of continuing operations — 92,942 —

Goodwill impairment of discontinued operations — 146,757 —

Total derivative loss (gain), net of cash settlements (3,259) 15,309 —

Share of net income from joint venture (6,261) (3,626) (1,681)

Compensation expense from issuance of share-based awards 3,216 4,226 2,822

Changes in operating assets and liabilities:

Income taxes receivable and payable, net (4,516) (633) (5,292)

Cash flows from investing activities

Proceeds from liquidation of short-term investment — — 8,000

Proceeds from sale of property, plant, and equipment 1,418 3,317 7,287

Cash settlements of interest rate swap (15,420) (4,133) —

Cash flows from financing activities

Dividends paid — — (8,879)

Proceeds from issuance of preferred stock 61,793 — 95,741

Redemption of preferred stock (122,434) — —

Net cash provided by (used in) financing activities 2,557 (714,854) 5,299

Effect of exchange rate changes on cash flows (1,522) (3,544) (1,365)

Supplemental schedule of non-cash operating, investing and financing activities:

Non-cash additions to property, plant and equipment 4,438 9,644 23,281

Supplemental disclosures:

_______________________________

(1) Cash and cash equivalents include $13.8 million and $10.2 million of cash and cash equivalents that were included in current assets of discontinued operations as of December 31, 2019 and December 31, 2018, respectively.

See Notes to Consolidated Financial Statements.

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NN, Inc.

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies

Nature of Business

NN, Inc. is a diversified industrial company that combines in-depth materials science expertise with advanced engineering and production capabilities to design and manufacture high-precision metal and plastic components and assemblies for a variety of end markets on a global basis. As used in this Annual Report on Form 10-K (this “Annual Report”), the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries. We have 31 facilities in North America, Europe, South America, and Asia.

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current year’s presentation. Except for per share data or as otherwise indicated, all U.S. dollar amounts presented in the tables in these Notes to Consolidated Financial Statements are in thousands.

Principles of Consolidation

Our consolidated financial statements include the accounts of NN, Inc., and its wholly owned subsidiaries. We own a 49% interest in a joint venture which we account for using the equity method (see Note 9). All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to use estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates.

Accounting Standards Recently Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, (“ASU 2019-12”) as part of its initiative to reduce complexity in accounting standards. ASU 2019-12 removes certain exceptions and provides simplification to specific tax items to improve consistent application. This standard was effective for us beginning January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, (“ASU 2020-06”) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. In addition, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. Further, for the diluted earnings-per-share calculation, the new guidance requires entities to use the if-converted method for all convertible instruments and generally requires entities to include the effect of share settlement for instruments that may be settled in cash or shares, among other things. We plan to adopt ASU 2020-06 effective January 1, 2022 using the modified retrospective adoption method. We do not anticipate that the adoption will have a material impact on our consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, (“ASU 2021-04”) which clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, ASU 2021-04 requires the issuer to treat a modification of an equity-classified warrant as an exchange of the original warrant. The difference between the fair value of the modified warrant and the fair value of the warrant immediately before modification is then recognized as an issuance cost or discount of the related transaction. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. ASU 2021-04 should be applied prospectively to modifications or exchanges occurring after the effective date. Either the full or modified retrospective adoption method is allowed. We do not have any equity-classified written call options that would be subject to this guidance. Therefore, we do not expect any impact on our consolidated financial statements and related disclosures.

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In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, (“ASU 2021-10”) which requires business entities to provide certain annual disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance. Such disclosures include the nature of the transactions, significant terms and conditions, accounting policies, and affected financial statement line items. ASU 2021-10 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. ASU 2021-10 may be applied either prospectively or retrospectively. We are in the process of assessing the impact ASU 2021-10 may have on our annual disclosures.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less. We maintain cash balances in transaction accounts with various financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). Although we maintain balances that exceed the federally insured limit, we have not experienced any losses related to these balances, and we believe credit risk to be minimal. We had approximately $17.6 million and $17.0 million in cash and cash equivalents as of December 31, 2021 and 2020, respectively, held at foreign financial institutions.

Fair Value Measurements

Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at their net realizable value. We maintain allowances for estimated losses resulting from the inability of our customers to make required payments. The allowances are based on the amount that we ultimately expect to collect from our customers. We evaluate the collectability of accounts receivable based on a combination of factors including number of days receivables are past due, historical collection experience, current market conditions, and forecasted direction of economic and business environment. Accounts receivable are written off at the time a customer receivable is deemed uncollectible.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs, which approximates the average cost method. Our policy is to expense abnormal amounts of idle facility expense, freight, handling cost, and waste included in cost of products sold. In addition, we allocate fixed production overheads based on the normal production capacity of our facilities. Inventory valuations were developed using normalized production capacities for each of our manufacturing locations. The costs from excess capacity or under-utilization of fixed production overheads were expensed in the period incurred and are not included as a component of inventory.

Inventories also include tools, molds, and dies in progress that we are producing and will ultimately sell to our customers. These inventories are also carried at the lower of cost or net realizable value.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Assets to be disposed of are stated at the lower of depreciated cost or fair market value less estimated selling costs. Expenditures for maintenance and repairs are charged to expense as incurred. Major renewals and improvements are capitalized. When a property item is retired, its cost and related accumulated depreciation are removed from the property accounts and any gain or loss is recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss). We review the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Property, plant and equipment also includes tools, molds, and dies used in manufacturing.

Depreciation is calculated based on historical cost using the straight-line method over the estimated useful lives of the depreciable assets. Estimated useful lives for buildings and land improvements generally range from 10 to 40 years. Estimated useful lives for machinery and equipment generally range from 3 to 12 years. Estimated useful lives for leasehold improvements are based on the life of the lease.

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Goodwill

Impairment of Long-Lived Assets

Equity Method Investments

Our equity method investment is subject to a review for impairment if, and when, circumstances indicate that a decline in value below its carrying amount may have occurred. Examples of such circumstances include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee; a significant adverse change in the regulatory, economic or technological environment of the investee; a significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates; and recurring negative cash flows from operations. If management considers the decline to be other than temporary, we would write down the investment to its estimated fair market value.

Income Taxes

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

Revenue Recognition

We recognize revenues when control of the good or service is transferred to the customer either at a point in time or, in limited circumstances, as our services are rendered over time. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or services.

Share Based Compensation

The cost of stock options, restricted stock, and performance share units is recognized as compensation expense over the vesting periods based on the grant date fair value, net of expected forfeitures. We determine grant date fair value using the Black Scholes financial pricing model for stock options and a Monte Carlo simulation for performance share units that include a market condition for vesting because these awards are not traded in open markets. We determine grant date fair value using the closing price of our common stock on the date of grant for restricted stock and performance share units that include performance conditions for vesting.

Common Stock and Preferred Stock Dividends

Dividends are recorded as a reduction to retained earnings. When we have an accumulated deficit, dividends are recorded as a reduction of additional paid-in capital.

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Foreign Currency Translation

Assets and liabilities of our foreign subsidiaries are translated at current exchange rates. Revenue, costs, and expenses are translated at average rates prevailing during each reporting period. Translation adjustments arising from the translation of foreign subsidiary financial statements are reported as a component of other comprehensive income (loss) and accumulated other comprehensive income (loss) within stockholders’ equity. Transactions denominated in foreign currencies, including intercompany transactions, are initially recorded at the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or losses, excluding intercompany loan transactions, are expensed as incurred in either cost of sales or selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) and were immaterial to the years ended December 31, 2021, 2020, and 2019. Transaction gains or losses on intercompany loan transactions are recognized as incurred in the “Other expense (income), net” line in the Consolidated Statements of Operations and Comprehensive Income (Loss). For the years ended December 31, 2021, 2020, and 2019, transaction gains or losses on intercompany loan transactions were $0.5 million, $0.8 million, and $0.4 million, respectively.

Net Income (Loss) Per Common Share

We are required to allocate earnings or losses for a reporting period to common stockholders and participating securities using the two-class method to compute earnings per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available to common stockholders. Participating securities may participate in undistributed earnings with common stock whether or not that participation is conditioned upon the occurrence of a specified event. Under the two-class method, our net income (loss) is reduced (or increased) by the amount that has been or will be distributed to our participating security holders. Preferred shares are participating securities that participate in earnings but do not participate in losses.

Basic net income (loss) per common share is computed by dividing net income (loss) allocable to common shares by the weighted average number of common shares outstanding. Diluted net income (loss) per common share includes the effect of warrants, convertible preferred stock, stock options and the respective tax benefits unless inclusion would not be dilutive.

Note 2. Discontinued Operations

In October 2020, we sold our Life Sciences business under the terms of a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for $753.3 million cash. The Life Sciences business included facilities that were 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 furthered management’s strategy to improve liquidity and create the financial flexibility to pursue key growth areas in the Mobile Solutions and Power Solutions segments. The SPA includes a potential earnout payment of up to $70.0 million based on the performance of the Life Sciences business during the year ending December 31, 2022, measured by Adjusted EBITDA targets, as defined by the SPA.

After working capital and other closing adjustments, we received cash proceeds at closing of $757.2 million in 2020 and paid $3.9 million to the buyer during the year ended December 31, 2021, for post-closing adjustments. Under the terms of a transition services agreement, we provided certain support services after the sale. In accordance with the terms of the SPA, we agreed to indemnify the buyer for certain tax liabilities on its consolidated federal income tax return related to the Life Sciences business during the portion of the year ended December 31, 2020, prior to the change in ownership on October 6, 2020. We recognized a tax indemnification of $1.2 million during the year ending December 31, 2020. During the year ended December 31, 2021, we recognized a gain on disposal of discontinued operations of $1.2 million related to the tax indemnification as the actual tax liability was determined to be $0.

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 the 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 Flows include cash flows of the Life Sciences business in each line item unless otherwise stated.

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The following table presents the results of operations of the discontinued operations.

Years Ended December 31,

Selling, general, and administrative expense — 20,779 34,328

Goodwill impairment — 146,757 —

Other operating expense, net — 41 20

Other expense (income), net — (322) 178

Loss from discontinued operations before costs of disposal — (176,008) (15,992)

Gain on disposal of discontinued operations 1,200 212,319 —

Benefit for income taxes on costs of disposal — 2,587 —

Our previous credit facility, which was in place at the time, required us to use proceeds from the sale of the Life Sciences business to prepay a portion of our previous debt. We paid $700.0 million in the aggregate on our term loans during the fourth quarter of 2020. The prepayment was applied to debt in accordance with the prepayment provisions of the previous credit agreement, which was in place at the time.Average quarterly interest rates were multiplied by the required prepayment amounts to calculate interest expense to be reclassified to discontinued operations for historical periods presented. The following table summarizes the amount of interest expense related to the previous credit facility that was reclassified to discontinued operations.

Years Ended December 31,

Amortization of debt issuance costs 13,990 3,368

Capitalized interest and other (244) (239)

Total interest expense of discontinued operations $ 48,893 $ 44,125

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The following table presents the significant noncash items and cash paid for capital expenditures of discontinued operations for each period presented.

Years Ended December 31,

Amortization of debt issuance costs 13,990 3,368

Loss on extinguishment of debt and write-off of debt issuance costs 1,388 2,753

Acquisition of property, plant and equipment 8,416 21,834

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(1) Includes new leases, renewals, and modifications.

Note 3. Segment Information

Our business is aggregated into the following two reportable segments.

•Mobile Solutions. Mobile Solutions is focused on growth in the automotive and general industrial end markets. We have developed an expertise in manufacturing highly complex, tight tolerance, system critical components. Our technical capabilities can be utilized in numerous applications including for use in battery electric, hybrid electric, and internal combustion engine vehicles. The group currently manufactures components on a high-volume basis for use in power steering, braking, transmissions, and gasoline fuel system applications, along with components utilized in heating, ventilation and air conditioning and diesel injection and diesel emissions treatment applications. This expertise has been gained through investment in technical capabilities, processes and systems, and allows us to provide skilled program management and product launch capabilities.

•Power Solutions. Power Solutions is focused on growth in the electrical, general industrial, automotive, aerospace, defense, and medical end markets. Within this group we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies, and finished devices used in applications ranging from power control to flight control and for military devices. We manufacture a variety of products including electrical contacts, connectors, contact assemblies, and precision stampings for the electrical end market and high precision products for the aerospace and defense end market utilizing our extensive process technologies for optical grade plastics, thermally conductive plastics, titanium, Inconel, magnesium, and electroplating. Our medical business includes the production of a variety of tools and instruments for the orthopaedics and medical/surgical end markets.

These divisions are considered our two operating segments as each has engaged in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and assessing performance.

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The following tables present results of continuing operations by reportable segment.

MobileSolutions PowerSolutions CorporateandConsolidations Total

Share of net income from joint venture $ 6,261 $ — $ — $ 6,261

MobileSolutions PowerSolutions CorporateandConsolidations Total

Share of net income from joint venture $ 3,626 $ — $ — $ 3,626

MobileSolutions PowerSolutions CorporateandConsolidations Total

Share of net income from joint venture $ 1,681 $ — $ — $ 1,681

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(a) Includes eliminations of intersegment transactions which occur during the ordinary course of business.

(b) Total assets in Mobile Solutions includes $34.0 million and $27.0 million as of December 31, 2021 and 2020, respectively, related to the investment in our 49% owned joint venture (Note 9).

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The following table summarizes long-lived tangible assets by geographical region.

Property, Plant, and Equipment, NetAs of December 31,

Note 4. Accounts Receivable

Accounts receivable, net, are comprised of the following amounts:

As of December 31,

Less—allowance for credit losses 1,352 2,044

The following table presents changes in allowance for credit losses.

Years Ended December 31,

As of December 31, 2021, no customer represented greater than 10% of consolidated accounts receivable. As of December 31, 2020, one customer represented 11% of consolidated accounts receivable, which is primarily related to Mobile Solutions.

Note 5. Inventories

Inventories are comprised of the following amounts:

As of December 31,

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Note 6. Property, Plant and Equipment

Property, plant and equipment are comprised of the following amounts:

As of December 31,

We monitor property, plant and equipment for any indicators of potential impairment. We recognized impairment charges of $4.1 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively, related to the early retirement of identified fixed assets. There were no impairment charges for the year ended December 31, 2021. The impairment charges were recorded to the “Other operating expense (income), net,” line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). The impairment charges were determined by writing the assets down to the estimated salvage value, less disposal costs.

For the years ended December 31, 2021, 2020, and 2019, we recorded depreciation expense of $31.8 million, $31.3 million, and $30.4 million, respectively.

Note 7. Goodwill

All of our net goodwill was recorded in the Power Solutions reportable segment. The following table shows changes in the carrying amount of Power Solutions goodwill.

Currency impact and other (1,837)

Balance as of December 31, 2020 $ —

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) for the year ended December 31, 2020. As of December 31, 2021 and 2020, there was no remaining goodwill balance.

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Note 8. Intangible Assets, Net

The following table shows changes in the carrying amount of intangible assets, net, by reportable segment.

Mobile Solutions Power Solutions Total

The following table shows the cost and accumulated amortization of our intangible assets as of December 31, 2021 and 2020.

Intangible assets that are fully amortized are removed and no longer represented in the gross carrying value or accumulated amortization.

The following table shows estimated future amortization expense for the next five years and thereafter.

Year Ending December 31,

Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. At December 31, 2021, 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 an impairment analysis on our long-lived assets as of December 31, 2021. Based on our analysis, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the year ended December 31, 2021.

Note 9. Investment in Joint Venture

We own a 49% investment in Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the “JV”), a joint venture located in Wuxi, China. The JV is jointly controlled and managed, and we account for it under the equity method.

The following table shows changes in our investment in the JV.

Share of earnings 6,261

Foreign currency translation gain 801

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The following tables show summarized financial information of the unconsolidated JV.

Year Ended December 31,

December 31,

We recognized sales to the JV of $0.4 million, $0.1 million, and $0.2 million during the years ended December 31, 2021, 2020, and 2019, respectively. Amounts due to us from the JV as of December 31, 2021 were $4.4 million, which includes a $4.0 million dividend declared by the JV in 2021 and paid to us in January 2022.

Note 10. Income Taxes

The following table summarizes the loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture.

Years Ended December 31,

The following table summarizes total income tax expense (benefit) recognized in each year.

Years Ended December 31,

Current taxes:

Deferred taxes:

U.S. federal and foreign valuation allowance 5,538 2,066 (592)

Total income tax expense (benefit) $ (1,756) $ (8,972) $ 305

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The following table presents a reconciliation of income taxes based on the U.S. federal statutory income tax rate.

Years Ended December 31,

U.S federal statutory income tax rate 21.0 % 21.0 % 21.0 %

Change in valuation allowance, exclusive of state (20.0) % (1.3) % 1.8 %

State taxes, net of federal taxes, exclusive of tax reform 4.5 % 0.2 % (13.6) %

Non-U.S. earnings taxed at different rates 3.0 % 1.4 % 3.0 %

GILTI (6.0) % (0.1) % — %

Goodwill impairment — % (12.7) % — %

Nondeductible asset loss — % — % (2.2) %

Research and development tax credit 2.3 % 0.4 % 2.2 %

Change in uncertain tax positions 0.7 % 2.2 % 4.3 %

Impact of 2019 Treasury regulations — % — % (18.4) %

CARES Act — % 2.7 % — %

Return to provision 0.8 % (0.5) % (0.2) %

Taxes on unremitted foreign earnings 2.0 % (3.9) % (2.2) %

Restructuring gain — % (2.6) % — %

Intercompany lending (5.3) % — % — %

Warrant revaluation 6.5 % — % — %

Other adjustments, net (1.7) % (0.9) % 3.3 %

Effective tax rate 7.8 % 5.9 % (1.0) %

Our effective tax rate for continuing operations was 7.8% for 2021. The 2021 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% primarily due to the impact of our valuation allowance change during the year.

Our effective tax rate for continuing operations was 5.9% for 2020. The 2020 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% primarily due to (1) the impact of the impairment of nondeductible goodwill which is treated as a permanent difference and (2) the accrual of taxes on unremitted earnings of foreign subsidiaries which may be repatriated.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. Among other provisions, the CARES Act allows for the carryback of certain tax losses and favorably impacts the deductibility of interest expense and depreciation. The CARES Act had a material impact on our consolidated financial statements, primarily due to a higher enacted federal rate in the carryback periods, and has been accounted for in the benefit for income taxes for the year ended December 31, 2020.

On October 6, 2020, we sold our Life Sciences business via a sale of our equity interest in Precision Engineered Products Holdings, Inc., a wholly owned U.S. domestic subsidiary. Prior to the sale, we completed tax restructuring in which Precision Engineered Products Holdings, Inc., distributed to NN, Inc., all of its asset and equity holdings related to the Power Solutions segment. The restructuring process created a deferred gain, required to be realized upon the third party equity sale, equal to the fair market value of the distributed assets over tax basis. The associated U.S. federal, state, and foreign tax impacts are reflected in the tables within this footnote.

Our effective tax rate for continuing operations was (1.0)% for 2019. The 2019 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% principally due to a discrete tax charge of $6.0 million related to final tax regulations published by the Department of the Treasury and Internal Revenue Service on February 4, 2019. The tax rate was also impacted by valuation of its state tax attributes.

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The following table summarizes the principal components of the deferred tax assets and liabilities.

As of December 31,

Deferred income tax liabilities:

Tax in excess of book depreciation $ 25,732 $ 27,459

Interest rate swap 37 —

Taxes on unremitted foreign earnings 5,630 6,601

Other deferred tax liabilities 1,007 533

Total deferred income tax liabilities 63,691 69,437

Deferred income tax assets:

Interest rate swap — 3,611

Pension and personnel accruals 2,422 2,909

Deferred income tax assets before valuation allowance 82,358 79,940

Valuation allowance on deferred tax assets (25,809) (21,681)

Net deferred income tax liabilities $ 7,142 $ 11,178

As of December 31, 2021, we had a $26.4 million U.S. federal net operating loss (“NOL”) carryover. The federal NOL has an indefinite life, but utilization within any tax year is limited to 80% of taxable income. Therefore, a valuation allowance of $1.3 million has been established to reduce the attribute balance to the amount expected to be utilized. As of December 31, 2021, we had $251.5 million of state NOL carryovers, which begin to expire in 2030. Management believes that certain of the state NOL carryovers will more likely than not expire prior to utilization. As such, a valuation allowance of $13.1 million (net of federal benefit) has been established to reduce the state attribute balance to the amount expected to be utilized before expiration. We also have $5.0 million, tax-effected, of foreign NOL carryovers at December 31, 2021. The foreign NOLs have an indefinite life; however, management believes that benefit for certain of the foreign NOLs may not be realized. Therefore, we have established a valuation allowance of $2.3 million to reduce the carrying value of the asset related to foreign NOLs to the amount that has been determined to be more likely than not realized.

We have $0.2 million and $2.8 million of U.S. federal tax credits and tax credits in foreign jurisdictions, respectively, as of December 31, 2021. We have recognized a valuation allowance of $2.1 million for the foreign tax credits. In addition, we have $1.0 million of state deferred tax assets for which we believe recognition is not appropriate.

We have a U.S. federal and state deferred tax asset related to currency losses on intercompany loans and interest expense carryforwards. Management believes it is more likely than not that the benefit for these assets will not be realized based on timing of expected repayment of the intercompany loans. We have established a valuation allowance of $2.1 million and $4.0 million, respectively, to eliminate the carrying value of these assets.

Management assesses available positive and negative evidence to estimate whether it is more likely than not sufficient future taxable income will be generated to provide use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future earnings growth. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $25.8 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized without consideration of future earnings growth.

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Management believes all remaining tax assets will more likely than not be realized. However, the amount of the deferred tax asset realized will change based on future conditions, and the amount considered realizable will be adjusted if objective negative evidence in the form of cumulative losses is no longer present allowing additional weight to be given to subjective evidence such as our projections for growth.

During 2021, the valuation allowance increased by $4.1 million, primarily due to allowances recorded against U.S. federal net operating loss carryforwards and carryforwards of disallowed interest expense which are subject to certain annual deduction limitations. The increase was partially offset by utilization of previously reserved net operating loss carryforwards in certain foreign jurisdictions.

As a result of the deemed mandatory repatriation provisions in the U.S. Tax Cuts and Jobs Act of 2017 and subsequent recognition in income of GILTI, we do not have material basis differences related to cumulative unremitted earnings for U.S. income tax purposes. However, we continue to evaluate quarterly the impact that repatriation of foreign earnings would have on withholding and other taxes. As of December 31, 2021, we have recorded a liability of $5.6 million for the anticipated withholding taxes that would be due upon repatriation of the unremitted earnings of those subsidiaries for which management does not intend to permanently reinvest all earnings.

In 2021, the Company asserted that it was permanently reinvested in certain jurisdictions for which it previously was unable to assert permanent reinvestment. Prior to the Company’s debt refinancing in 2021, the Company had recorded a liability on all unremitted earnings. However, upon completion of the debt refinancing, the Company reevaluated repatriation plans, changed its assertion for certain jurisdictions and recorded the resulting tax benefit of $2.4 million.

We are subject to U.S. federal income tax as well as tax in several foreign jurisdictions. We are also subject to tax by various state authorities. The tax years subject to examination vary by jurisdiction. We are no longer subject to U.S. federal examination for periods before 2017. We regularly assess the outcomes of both ongoing and future examinations for the current or prior years to ensure our provision for income taxes is sufficient. We recognize liabilities based on estimates of whether additional taxes will be due, and we believe our reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next twelve months, is not expected to have a material impact on our financial position or results of operations.

Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties of $0.5 million, $0.6 million, and $1.5 million are included in other non-current liabilities as of December 31, 2021, 2020, and 2019, respectively.

The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties.

Years Ended December 31,

Additions for tax positions of prior years — 121 —

Settlements for tax positions of prior years — — (275)

Reductions for tax positions of prior years (122) (2,463) (1,745)

The reduction to unrecognized tax benefits in 2021 is related to the remeasurement of previously unrecognized tax benefits. As of December 31, 2021, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $0.7 million, inclusive of the impact of interest and penalties. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits, including interest and penalties, may not decrease during the next twelve months as no statutes are expected to lapse within the period.

We operate under tax holidays in other countries, which are effective through December 31, 2026, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $0.2 million and $0.2 million for 2021 and 2020, respectively. The tax holidays had no impact on our 2019 foreign taxes.

Note 11. Debt

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amounts outstanding on our previous term loans. The previous credit facility was terminated and consisted of a Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver. No amounts were outstanding on the Senior Secured Revolver at the time of termination.

The following table presents outstanding debt balances as of December 31, 2021 and 2020.

As of December 31,

Term Loan Facility $ 148,875 $ —

Senior Secured Term Loan — 47,728

Incremental Term Loan — 22,716

International lines of credit and other loans 10,930 14,418

Less-current maturities of long-term debt 3,074 4,885

Less-unamortized debt issuance costs and discount (1) 5,679 952

Long-term debt, net of current portion $ 151,052 $ 79,025

NNBR US Equity

NNBR · 10-K · period ended 2021-12-31

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

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 8.Financial Statements and Supplementary Data

NNBR US Equity☆

NNBR · 10-K · period ended 2021-12-31

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

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 8.Financial Statements and Supplementary Data

NNBR US Equity