NNBR US Equity☆

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

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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, 2021 compared to the year ended December 31, 2020 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, 2021, filed with the SEC on March 11, 2022.

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;

•optimization of manufacturing footprint;

•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 regional and global inflationary environments, including, but not limited to:

•Raw materials;

•Wages and benefits, including health care costs;

•Regulatory compliance; and

•Energy;

•Global automotive production rates;

•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.

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.

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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.

Income Taxes

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

The calculation of tax assets, liabilities, and expenses under U.S. GAAP is largely dependent on management judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely than not threshold. Specifically, the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon management weighting the current positive and negative evidence for recording tax benefits and expenses. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2022. 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.

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.

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Results of Operations

Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the year ended December 31, 2022, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

Macroeconomic Conditions

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

The COVID-19 pandemic and governmental responses thereto, including COVID-19 lockdowns in China, continue to impact our business operations and our customers' and suppliers' ability to operate at normal levels. Disruptions in normal operating levels continue to create supply chain disruptions and inflationary cost pressures within our end-markets. We anticipate that supply chain constraints and the inflationary environment, as impacted by the COVID-19 pandemic, will continue into 2023.

The Russia-Ukraine conflict also continues to create volatility in global financial and energy markets, creating energy and supply chain shortages, which has added to the inflationary pressures experienced by the global economy. We continue to actively work with our suppliers to minimize impacts of supply shortages on our manufacturing capabilities. Although our business has not been materially impacted by the ongoing Russia-Ukraine conflict we cannot predict the extent to which our operations, or those of our customers or suppliers, will be impacted in the future, or the ways in which the conflict may impact our business, financial condition, results of operations and cash flows.

The U.S. economy is experiencing broad and rapid inflation and rising interest rates, as well as supply issues in materials, services, and labor due to economic policy, the COVID-19 pandemic and, more recently, the Russia-Ukraine conflict. These impacts are likely to persist into 2023 and beyond. We cannot predict the impact on the Company’s end-markets or input costs nor the ability of the Company to recover cost increases through pricing.

Sales Concentration

During the years ended December 31, 2022, 2021 and 2020, no single customer accounted for 10% or more of consolidated net sales.

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 10.0 % 10.8 % 13.6 %

Depreciation and amortization 9.5 % 9.7 % 10.7 %

Goodwill impairment — % — % 21.7 %

Other operating expense (income), net 0.4 % (0.2) % 1.1 %

Loss from operations (4.2) % (1.9) % (27.5) %

Interest expense 3.0 % 2.7 % 4.4 %

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

Loss on interest rate swap — % 0.4 % 2.7 %

Other income, net (1.0) % (1.1) % — %

Benefit (provision) for income taxes (0.3) % 0.4 % 2.1 %

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

Loss from continuing operations (5.2) % (3.0) % (32.6) %

Income from discontinued operations, net of tax — % 0.3 % 9.1 %

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Year Ended December 31, 2022 compared to the Year Ended December 31, 2021

Years Ended December 31,

Derivative payments on interest rate swap — 1,717 (1,717)

Loss on interest rate swap — 2,033 (2,033)

Income from discontinued operations, net of tax — 1,200 (1,200)

Net Sales. Net sales increased by $21.2 million, or 4.4%, during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increased pricing partially offset by lower volume and unfavorable foreign exchange effects of $4.2 million.

Cost of Sales. Cost of sales increased by $31.1 million, or 8.0%, during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to inflationary costs and unfavorable overhead absorption, partially offset by lower sales volume and favorable foreign exchange effects.

Selling, General, and Administrative Expense. Selling, general, and administrative expense decreased by $1.9 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower incentive compensation, severance and retention expense. These decreases were partially offset by higher stock compensation expense, higher professional fees and increased travel costs.

Other Operating Expense (Income), Net. Other operating expense (income), net changed unfavorably by $3.0 million primarily due to a legal settlement reached during the first quarter of 2022 and the gain on the sale of a facility that was recognized in the third quarter of 2021.

Interest Expense. Interest expense increased by $2.4 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher interest rates and a larger average debt balance as a result of the credit facility and preferred stock refinance that occurred during the first quarter of 2021. In addition, borrowings on the ABL Facility during the year ended December 31, 2022 contributed to higher interest expense. These increases were partially offset by a

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higher amount of interest expense that was capitalized in 2022 compared with the prior year and the positive impact of the interest rate swap.

Years Ended December 31,

Interest rate swap settlements (428) 77

Amortization of debt issuance costs and discount 1,361 1,381

Capitalized interest (610) (300)

Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs. We recognized $2.4 million in the first quarter of 2021 for the write-off of unamortized debt issuance costs 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 an interest rate swap which 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. We recognized a $2.0 million loss in the first quarter of 2021 related to the termination of the previous interest rate swap in March 2021.

Other Income, Net. Other income, net changed unfavorably by $0.3 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower derivative mark-to-market gains recognized in 2022, partially offset by the impact of a litigation settlement in 2021 and more favorable foreign exchange effects associated with intercompany borrowings.

Benefit (Provision) for Income Taxes. Our effective tax rate was (5.2)% for the year ended December 31, 2022, compared to 7.8% for the year ended December 31, 2021. Our effective tax rate for the year ended December 31, 2022 was unfavorably impacted by the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized. The effective tax rate for the year ended December 31, 2022 was favorably impacted by the recording of interest income on the Company’s federal income tax refund requested as a result of the Coronavirus Aid, Relief, and Economic Security Act, as well as the recording of a benefit of a pending state refund claim. Our effective tax rate for the year ended December 31, 2021 was favorably impacted by the change in assertion and reduction in the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and unfavorably impacted by the limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized.

Share of Net Income from Joint Venture. Share of net income from the JV increased by $0.3 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher sales partially offset by higher operating costs in the current year. The JV, in which we own a 49% investment, recognized net sales of $101.6 million and $94.8 million for the years ended December 31, 2022 and 2021, respectively.

Income from Discontinued Operations, Net of Tax. We recognized a gain of $1.2 million during the year ended December 31, 2021, due to the favorable resolution of a tax indemnity that resulted from the sale of our Life Sciences business in 2020.

Results by Segment

MOBILE SOLUTIONS

Year Ended December 31,

Net sales increased by $7.7 million, or 2.7%, during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increased pricing, partially offset by lower sales of diesel components due to lower European demand which was impacted by the war in Ukraine, COVID-19 interruptions in China, lost sales associated with certain fuel systems reaching end of production, and unfavorable foreign exchange effects of $4.1 million.

Income (loss) from operations decreased by $11.2 million during the year ended December 31, 2022 compared to the prior year, primarily due to inflationary costs not fully recovered in customer pricing, unfavorable overhead absorption, start-up costs associated with Mexico new business launches, and variable cost inefficiencies associated with supply chain interruptions,

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uneven customer ordering patterns, and labor constraints caused by pandemic interruptions. These decreases were partially offset by lower incentive compensation expense.

POWER SOLUTIONS

Year Ended December 31,

Net sales increased by $13.4 million, or 7.0%, during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher customer pricing.

Income from operations decreased by $3.0 million during the year ended December 31, 2022 compared to the same period in the prior year, primarily due to a $1.8 million litigation settlement to resolve a claim from 2016, an increase in amortization expense, and the absence of a gain on the sale of a facility in the third quarter of 2021. These decreases were partially offset by the impact of higher customer pricing.

Changes in Financial Condition from December 31, 2021 to December 31, 2022

Overview

From December 31, 2021 to December 31, 2022, total assets decreased by $33.0 million primarily due to normal depreciation and amortization of fixed assets and intangible assets. These decreases were partially offset by increases in accounts receivable and inventories during the year ended December 31, 2022. The increase in accounts receivable is due to higher sales during the end of the current year compared with the end of 2021. The value of inventory increased due to higher material and labor costs as well as higher quantities to maintain customer safety stock due to ongoing supply chain interruptions, especially in China.

From December 31, 2021 to December 31, 2022, total liabilities decreased by $5.9 million, primarily due to lower employee incentive compensation accruals and a decrease in the valuation of certain derivatives. These decreases were offset by an increase in accounts payable attributed to higher inventory balances at December 31, 2022.

Working capital, which consists of current assets less current liabilities, was $112.9 million as of December 31, 2022, compared to $122.3 million as of December 31, 2021. The decrease was primarily due to increases in accounts payable and other current liabilities, partially offset by increases in accounts receivable and inventory.

Cash Flows

Cash provided by operations was $7.7 million for the year ended December 31, 2022, compared with cash provided by operations of $15.6 million for the year ended December 31, 2021. The decrease was primarily due to an increase in net loss and increases in accounts receivable and inventory, partially offset by dividends received from our unconsolidated joint venture and lower income tax payments in 2022.

Cash used in investing activities was $17.5 million for the year ended December 31, 2022, compared with cash used in investing activities of $36.1 million for the year ended December 31, 2021. The decrease was primarily due to cash paid to settle the interest rate swap in the first quarter of 2021.

Cash used in financing activities was $5.2 million for the year ended December 31, 2022, compared with cash provided by financing activities of $2.6 million for the year ended December 31, 2021. The difference was primarily due to the debt and preferred stock refinancing in the first quarter of 2021.

Liquidity and Capital Resources

Credit Facility

The principal amount outstanding under our term loan facility (the “Term Loan Facility”) as of December 31, 2022, was $147.4 million, without regard to unamortized debt issuance costs and discount. As of December 31, 2022, we had $35.3 million available for future borrowings under the ABL Facility. This amount of borrowing capacity is net of $1.0 million of outstanding borrowings and $11.0 million of outstanding letters of credit at December 31, 2022, 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. We may be required to make additional principal payments annually that are calculated as a percentage of our excess cash flow, as defined by the lender, based on our net leverage ratio. Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month 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%. Based on the

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interest rate in effect at December 31, 2022, and the fixed rate on the 2021 interest rate swap, annual interest payments would be approximately $14.7 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, 2022, was 6.00%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility.

We were in compliance with all requirements under our Term Loan Facility and ABL Facility as of December 31, 2022. Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions. On March 3, 2023, we amended our Term Loan Facility and ABL Facility to adjust certain covenants under the agreements, as well as to change the applicable base rate on which interest expense is determined. See Note 11 of the Notes to Consolidated Financial Statements.

Accounts Receivable Sales Programs

We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution. In exchange, we receive payment on the receivables, less a discount, sooner than under the customary credit terms we have extended to that customer. These programs allow us to improve working capital and cash flows at the same or lower interest rates as available on our ABL Facility. Our access to these programs is dependent on our customers ongoing agreements with the third-parties. Our participation in these programs is based on our specific cash needs throughout the year, the discount charged to receive payment earlier, the length of the payment terms with our customers, as well being subject to limits in our ABL Facility and Term Loan Facility agreements.

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.

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 swap.

At December 31, 2022, we had $147.4 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 $0.9 million on an annualized basis.

At December 31, 2022, using one-month LIBOR plus a 1.75% spread, the interest rate on the $1.0 million of outstanding borrowings under the ABL Facility was 6.00%.

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Foreign Currency Risk

Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. We invoice and receive payment from many of our customers in various other currencies. Additionally, we are party to 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. Various strategies to manage this risk are available to management, including producing and selling in local currencies and hedging programs. We did not hold a position in any foreign currency derivatives as of December 31, 2022.

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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) 31

Consolidated Statements of Operations and Comprehensive Income (Loss) 33

Consolidated Balance Sheets 34

Consolidated Statements of Changes in Stockholders’ Equity 35

Consolidated Statements of Cash Flows 36

Notes to Consolidated Financial Statements 37

Note 1. Significant Accounting Policies 37

Note 2. Discontinued Operations 40

Note 3. Segment Information 42

Note 4. Accounts Receivable 44

Note 5. Inventories 44

Note 6. Property, Plant and Equipment 44

Note 7. Goodwill 44

Note 8. Intangible Assets 45

Note 9. Investment in Joint Venture 45

Note 10. Income Taxes 46

Note 13. Commitments and Contingencies 53

Note 14. Preferred Stock and Stockholders' Equity 54

Note 15. Revenue from Contracts with Customers 55

Note 16. Share-Based Compensation 57

Note 17. Accumulated Other Comprehensive Income 60

Note 18. Net Income (Loss) Per Common Share 61

Note 19. Fair Value Measurements 61

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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, 2022, 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, 2022, 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, 2022, and our report dated March 10, 2023 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 10, 2023

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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, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 10, 2023 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 matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ GRANT THORNTON LLP

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

Charlotte, North Carolina

March 10, 2023

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NN, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

Years Ended December 31,

Goodwill impairment — — 92,942

Loss on extinguishment of debt and write-off of debt issuance costs — 2,390 144

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

Income from discontinued operations, net of tax (Note 2) — 1,200 38,898

Other comprehensive income (loss):

Foreign currency translation loss $ (8,156) $ (1,135) $ (1,683)

Reclassification adjustment for discontinued operations — — 5,961

Interest rate swap:

Basic net loss per common share:

Loss from continuing operations per common share $ (0.83) $ (0.82) $ (3.60)

Income from discontinued operations per common share — 0.03 0.92

Net loss per common share $ (0.83) $ (0.79) $ (2.68)

Diluted net loss per common share:

Loss from continuing operations per common share $ (0.83) $ (0.82) $ (3.60)

Income from discontinued operations per common share — 0.03 0.92

Net loss per common share $ (0.83) $ (0.79) $ (2.68)

See Notes to Consolidated Financial Statements.

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NN, Inc.

Consolidated Balance Sheets

December 31,

(in thousands, except per share data) 2022 2021

Assets

Current assets:

Liabilities, Preferred Stock, and Stockholders’ Equity

Current liabilities:

Current maturities of long-term debt 3,321 3,074

Current portion of operating lease liabilities 5,294 5,704

Operating lease liabilities, net of current portion 51,411 51,295

Commitments and contingencies (Note 13)

Stockholders’ equity:

Accumulated other comprehensive loss (37,120) (31,902)

Total liabilities, preferred stock, and stockholders’ equity $ 546,127 $ 579,101

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

Shares issued under stock incentive plans, net of forfeitures 417 4 (4) — — — —

Share-based compensation expense — — 4,251 — — — 4,251

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

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

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

Shares issued under stock incentive plans, net of forfeitures 387 4 (4) — — — —

Share-based compensation expense — — 3,221 — — — 3,221

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

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

Other comprehensive income — — — — — 1,830 1,830

Dividends accrued for preferred stock — (10,894) — — — (10,894)

Shares issued under stock incentive plans, net of forfeitures 860 9 (9) — — — —

Share-based compensation expense 4,377 — — — 4,377

Restricted shares forgiven for taxes (31) — (88) — — — (88)

Other comprehensive loss — — — — — (5,218) (5,218)

See Notes to Consolidated Financial Statements.

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NN, Inc.

Consolidated Statements of Cash Flows

Years 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

Amortization of debt issuance costs and discount 1,361 1,381 15,692

Goodwill impairment of continuing operations — — 92,942

Goodwill impairment of discontinued operations — — 146,757

Impairments of property, plant and equipment — — 4,148

Total derivative loss (gain), net of cash settlements (5,265) (3,259) 15,309

Changes in operating assets and liabilities:

Income taxes receivable and payable, net (1,457) (4,516) (633)

Cash flows from investing activities

Proceeds from sale of property, plant, and equipment 460 1,418 3,317

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

Cash flows from financing activities

Cash paid for debt issuance costs (136) (7,360) (661)

Proceeds from issuance of preferred stock — 61,793 —

Redemption of preferred stock — (122,434) —

Repayments of short-term debt, net — (1,563) (924)

Net cash provided by (used in) financing activities (5,186) 2,557 (714,854)

Effect of exchange rate changes on cash flows (887) (1,522) (3,544)

See Notes to Consolidated Financial Statements.

NN, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31,

Supplemental schedule of non-cash investing activities:

Non-cash additions to property, plant and equipment 1,266 4,438 9,644

Supplemental disclosures:

_______________________________

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

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 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. The adoption of ASU 2020-06 effective January 1, 2022 did not 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. Since we do not have any equity-classified written call options that would be subject to this guidance, the adoption of ASU 2021-04 did not have any impact on our consolidated financial statements and related disclosures during the year ended December 31, 2022.

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. We have adopted ASU 2021-10 prospectively for the year ended December 31, 2022.

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 $12.5 million and $17.6 million in cash and cash equivalents as of December 31, 2022 and 2021, respectively, held at foreign financial institutions.

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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.

Leases

We determine whether an arrangement is a lease at inception. Lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the implicit rate is not readily determinable, we use the estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Amortization of lease ROU assets is recognized in expense on a straight-line basis over the lease term.

We recognize short-term leases, which have a term of twelve months or less, on a straight-line basis and do not record a related lease asset or liability for such leases. Finance lease ROU assets consist primarily of equipment used in the manufacturing process with terms of four years to eight years. Operating lease ROU assets consist of the following:

•Equipment used in the manufacturing process as well as office equipment with terms of two years to five years; and

•Manufacturing plants and office facilities with terms of four years to 20 years.

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, or asset groups, 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

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intangible asset, or asset group, 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.

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 generally transfer control and recognize revenue when we ship the product from our manufacturing facility to our customer at a point in time, as this is when our customer obtains the ability to direct use of, and obtain substantially all of the remaining benefits from, the product. In limited circumstances, we recognize revenue over time as services are rendered. We have elected to recognize the cost for freight and shipping when control over products has transferred to the customer as a component of cost of sales.

We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus-margin approach when an observable price is not available. The expected duration of our contracts is one year or less, and we have elected to apply the practical expedient that allows entities to disregard the effects of financing when the contract length is less than one year. The amount of consideration we receive and the revenue we recognize varies with volume rebates and incentives we offer to our customers. We estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

We utilize the portfolio approach practical expedient to evaluate sales-related discounts on a portfolio basis to contracts with similar characteristics. The effect on our consolidated financial statements of applying the portfolio approach would not differ materially from evaluation of individual contracts.

We give our customers the right to return only defective products in exchange for functioning products or rework of the product. These transactions are evaluated and accounted for under ASC Topic 460, Guarantees, and we estimate the impact to the transaction price based on an analysis of historical experience.

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.

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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.

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, 2022, 2021, and 2020. 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, 2022, 2021, and 2020, transaction gains (losses) on intercompany loan transactions were $0.2 million, $(0.5) million, and $(0.8) million, respectively.

Net Income (Loss) Per Common Share

In accordance with ASC 260, Earnings Per Share, we allocate earnings or losses to common stockholders and participating securities using the two-class method to compute earnings per share (“EPS”) unless the treasury stock method results in a lower EPS. 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. We have elected to allocate undistributed income to participating securities based on year-to-date results. Our participating securities, which include preferred stock, 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, and stock options unless inclusion would not be dilutive.

Government Assistance

For the year ended December 31, 2022, we received $1.4 million in grants and other programs from various governments outside of the U.S. These amounts were received as employment programs, rent abatements, and incentives for capital expenditures in specific locations. Amounts received were recognized as reductions to the underlying expense or capital assets.

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 included a potential earnout payment of up to $70.0 million based on the performance of the Life Sciences business during the year ended December 31, 2022. Since the sold Life Sciences business did not meet the minimum threshold as defined by the SPA, no earnout payment will be received.

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 ended December 31, 2020 which was reversed during the year ended December 31, 2021, 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

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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.

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

Years Ended December 31,

Selling, general, and administrative expense — 20,779

Depreciation and amortization — 35,731

Other operating expense, net — 41

Income from operations — (138,517)

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

Other expense, net — (322)

Benefit for income taxes — 12,468

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

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

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

Income (loss) from discontinued operations, net of tax $ 1,200 $ 38,898

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 carrying value of the Life Sciences reporting unit exceeded its estimated fair value as of March 31, 2020. As a result of our analysis, we recorded an impairment loss on goodwill of $146.8 million for Life Sciences during the year ended December 31, 2020. The judgments, assumptions, and estimates involved in the goodwill impairment analysis for the Life Sciences reporting unit are consistent with those discussed in Note 7.

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,

Interest on debt $ — $ 35,147

Amortization of debt issuance costs — 13,990

Capitalized interest and other — (244)

Total interest expense of discontinued operations $ — $ 48,893

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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,

Depreciation and amortization $ — $ 35,731

Amortization of debt issuance costs — 13,990

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

Acquisition of property, plant and equipment — 8,416

Right-of-use assets obtained in exchange for new finance lease liabilities — 695

_______________________________

(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, 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 transportation electrification. 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 table presents our financial performance by reportable segment.

Year Ended December 31,

Net sales:

Corporate and Consolidations (1) (2) (79) (95)

Income (loss) from operations:

Depreciation and amortization:

Expenditures for long-lived assets:

_______________________________

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

The following table summarizes total assets by reportable segment.

As of December 31,

_______________________________

(1) Total assets in Mobile Solutions includes $31.8 million and $34.0 million as of December 31, 2022 and 2021, respectively, related to the investment in our 49% owned joint venture (Note 9).

The following table summarizes long-lived tangible assets by country.

As of December 31,

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Note 4. Accounts Receivable

The following table presents changes in the allowance for credit losses.

Years Ended December 31,

As of December 31, 2022 and 2021, no customer represented greater than 10% of our consolidated accounts receivable balance.

Accounts Receivable Sales Programs

We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution. During the year ended December 31, 2022, we incurred fees of $0.6 million related to the sale of receivables which is recorded in the Other income, net line item on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 5. Inventories

Inventories are comprised of the following amounts:

As of December 31,

Note 6. Property, Plant and Equipment

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

As of December 31,

For the years ended December 31, 2022, 2021, and 2020, we recorded depreciation expense of $31.4 million, $31.8 million, and $31.3 million, respectively.

We monitor property, plant and equipment for any indicators of potential impairment. There were no impairment charges for the years ended December 31, 2022 and 2021. We recognized an impairment charge of $4.1 million for the year ended December 31, 2020, related to the early retirement of identified fixed assets. The impairment charge was recorded to the “Other operating expense (income), net,” line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). The impairment charge was determined by writing the assets down to the estimated salvage value, less disposal costs.

Note 7. Goodwill

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 the COVID-19 pandemic. Significant assumptions and estimates are involved in the application of the discounted cash flow model

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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, 2022 and 2021, there was no remaining goodwill balance.

Note 8. Intangible Assets

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, 2022 and 2021.

At December 31, 2022, the estimated useful life of customer relationships and trademarks and trade names was 5.3 years and 5.7 years, respectively. 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 each of the next five years.

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. As of December 31, 2022, our market capitalization was at a level that was less than the net book value of our stockholders’ equity, which was deemed a triggering event that caused us to perform impairment analyses on our long-lived assets. Based on our analyses, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the year ended December 31, 2022.

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, with the share of net income from the joint venture recorded in the Mobile Solutions segment.

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

Share of earnings 6,592

Dividends paid by joint venture (6,245)

Foreign currency translation loss (2,590)

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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 $0.1 million, $0.4 million, and $0.1 million during the years ended December 31, 2022, 2021, and 2020, respectively. Amounts due to us from the JV as of December 31, 2022 were $0.1 million.

Note 10. Income Taxes

The following table summarizes the income (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, state and foreign valuation allowance 5,376 5,538 2,066

Total income tax expense (benefit) $ 1,621 $ (1,756) $ (8,972)

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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 (17.5) % (20.0) % (1.3) %

State taxes, net of federal taxes, exclusive of tax reform 1.6 % 4.5 % 0.2 %

Non-U.S. earnings taxed at different rates 0.7 % 3.0 % 1.4 %

Goodwill impairment — % — % (12.7) %

Deferred true-up (6.4) % — % — %

Research and development tax credit 1.5 % 2.3 % 0.4 %

Change in uncertain tax positions — % 0.7 % 2.2 %

CARES Act — % — % 2.7 %

Interest on CARES Act refund 1.8 % — % — %

Return to provision 1.3 % 0.8 % (0.5) %

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

Restructuring gain — % — % (2.6) %

Intercompany lending (2.7) % (5.3) % — %

Warrant revaluation 3.6 % 6.5 % — %

Other adjustments, net (2.3) % (1.7) % (0.9) %

Effective tax rate (5.2) % 7.8 % 5.9 %

Our effective tax rate was (5.2)% for 2022 which differed 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 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 the 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 enacted federal rate difference 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.

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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 $ 24,045 $ 25,732

Taxes on unremitted foreign earnings 4,961 5,630

Other deferred tax liabilities 761 1,007

Total deferred income tax liabilities 58,168 63,691

Deferred income tax assets:

Section 174 research and development costs 1,859 —

Pension and personnel accruals 1,717 2,422

Deferred income tax assets before valuation allowance 82,886 82,358

Valuation allowance on deferred tax assets (30,212) (25,809)

Net deferred income tax liabilities $ 5,494 $ 7,142

As of December 31, 2022, we had a $33.4 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 $4.4 million has been established to reduce the attribute balance to the amount expected to be utilized. As of December 31, 2022, we had $239.5 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 $15.8 million (prior to federal benefit) has been established to reduce the state attribute balance to the amount expected to be utilized before expiration. We also have $4.8 million, tax-effected, of foreign NOL carryovers at December 31, 2022. 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 $1.8 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 $2.6 million of U.S. federal tax credits and tax credits in foreign jurisdictions, respectively, as of December 31, 2022. We have recognized a valuation allowance of $1.9 million for the foreign tax credits. In addition, we have $2.1 million (prior to federal benefit) 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 interest expense carryforwards. Management believes it is more likely than not that the benefit for this assets will not be realized. We have established a valuation allowance of $8.0 million to eliminate the carrying value of this asset.

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, 2022. 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, 2022, a valuation allowance of $30.2 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.

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

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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 2022, the valuation allowance increased by $4.4 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, the write-off of deferred tax assets and adjustments to state net operating losses resulting from amended returns for which a full valuation allowance was recorded.

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 the impact that repatriation of foreign earnings would have on withholding and other taxes. As of December 31, 2022, we have recorded a liability of $5.0 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.

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, $0.5 million, and $0.6 million are included in other non-current liabilities as of December 31, 2022, 2021, and 2020, respectively. In 2022, we accrued $0.6 million of interest on IRS refunds relating to the CARES Act. We initially filed refund claims in 2021 and will be accruing interest quarterly until refunds are received.

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

Reductions for tax positions of prior years (7) (122) (2,463)

The reduction to unrecognized tax benefits in 2022 is related to the foreign currency remeasurement of previously unrecognized tax benefits. As of December 31, 2022, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $0.6 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 tax holidays did not impact our 2022 foreign taxes. The impact of these tax holidays decreased foreign taxes by $0.2 million and $0.2 million for 2021 and 2020, respectively.

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Note 11. Debt

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 following table presents the outstanding debt balances.

As of December 31,

Less-current maturities of long-term debt 3,321 3,074

Less-unamortized debt issuance costs and discount (1) 4,394 5,679

_______________________________

(1) In addition to this amount, costs of $0.6 million and $0.7 million related to the ABL Facility were recorded in other non-current assets as of December 31, 2022 and 2021, respectively.

We capitalized interest costs of $0.6 million, $0.3 million, and $0.2 million in the years ended December 31, 2022, 2021, and 2020, respectively, related to construction in progress.

Term Loan Facility

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, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at 11.259%. We have an interest rate swap, which expires in July 2024, that changes the one-month LIBOR to a fixed rate of 1.291% on $60.0 million of the outstanding balance of the Term Loan Facility. Refer to Note 19 for further discussion of the interest rate swap agreement.

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. We may be required to make additional principal payments annually that are calculated as a percentage of our excess cash flow, as defined by the lender, based on our net leverage ratio. 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. On March 3, 2022, we amended our Term Loan Facility, which increased the quarterly maximum consolidated net leverage ratio. We were in compliance with all requirements under the Term Loan Facility as of December 31, 2022.

The Term Loan Facility was issued at a $3.8 million discount and we capitalized an additional $2.8 million in new debt issuance costs. These costs are recorded as a direct reduction to the carrying amount of the associated long-term debt and amortized over the term of the debt.

ABL Facility

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, 2022, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility was 6.00%. 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, 2022, we had $1.0 million of outstanding borrowings under the ABL Facility, $11.0 million of outstanding letters of credit, and $35.3 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, 2022.

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Loan Amendments

On March 3, 2023, we amended our Term Loan Facility (the “Term Loan Amendment”) and ABL Facility (the “ABL Amendment”) to adjust certain covenants under the agreements, as well as to change the applicable base rate on which interest expense is determined.

The Term Loan Amendment increases the quarterly maximum consolidated net leverage ratio covenant beginning in 2023 and waived the required excess cash flow payment that would have been paid in 2023. The Term Loan Amendment provides for increased utilization of customer programs to accelerate payment terms and also introduces a quarterly domestic liquidity covenant. Interest under the Term Loan Amendment is increased on a paid-in-kind basis at a rate dependent on the Company’s leverage ratio and whether the Company completes a qualifying junior equity raise by June 30, 2023. The Company also issued penny warrants in connection with the Term Loan Amendment. In addition, the base rate for interest expense has been changed from LIBOR to the secured overnight financing rate (“SOFR”).

The ABL Amendment provides for increased utilization of customer programs to accelerate payment terms and also introduces a quarterly domestic liquidity covenant. In addition, the base rate for interest expense has been changed from LIBOR to SOFR.

Future Maturities

The following table lists aggregate maturities of long-term debt for the next five years.

Years Ending December 31,

Debt Issuance Costs

We recognized a $2.4 million loss on extinguishment for unamortized debt issuance costs that were written off in the year ended December 31, 2021, in connection with the termination of our previous credit facility.

Note 12. Leases

The following table presents components of lease expense:

Years Ended December 31,

Finance lease cost:

Sublease income (195) — —

_______________________________

(1) Excludes expenses related to leases with a lease term of one month or less.

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The following table presents lease-related assets and liabilities recorded on the balance sheet.

As of December 31,

Assets:

Operating lease assets Operating lease right-of-use assets $ 46,713 $ 46,443

Finance lease assets Property, plant and equipment, net 12,989 13,641

Liabilities:

Current liabilities:

Finance lease liabilities Other current liabilities 2,610 3,111

Non-current liabilities:

Finance lease liabilities Other non-current liabilities 3,828 5,446

The following table contains supplemental cash flow information related to leases.