8-K
Nn Inc (NNBR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENTREPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 13, 2020 (March 12, 2020)
NN, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 000-23486 | 62-1096725 |
|---|---|---|
| (State or Other Jurisdiction<br><br><br>of Incorporation) | (Commission<br><br><br>File Number) | (I.R.S. Employer<br><br><br>Identification No.) |
| 6210 Ardrey Kell Road<br><br><br>Charlotte, North Carolina | 28277 | |
| (Address of principal executive offices) | (Zip Code) |
(980) 264-4300
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17<br>CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br><br>symbol | Name of each exchange<br><br><br>on which registered |
|---|---|---|
| Common Stock, par value $0.01 | NNBR | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company. ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| ITEM 2.02. | RESULTS OF OPERATIONS AND FINANCIAL CONDITION. |
|---|
On March 12, 2020, NN, Inc. (the “Company”) issued a press release announcing the Company’s financial results for the quarter and year ended December 31, 2019. The full text of the press release is furnished as Exhibit 99.1 and is incorporated herein by reference.
Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), the information furnished pursuant to Item 2.02 of this Current Report on Form 8-K (including Exhibit 99.1) is deemed to have been furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
| ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS. |
|---|---|
| (d) | Exhibits. |
| --- | --- |
| Exhibit No. | Description |
| --- | --- |
| 99.1 | Press Release issued by NN, Inc., dated March 12, 2020 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 13, 2020
| NN, INC. | |
|---|---|
| By: | /s/ Matthew S. Heiter |
| Name: | Matthew S. Heiter |
| Title: | Senior Vice President, General Counsel |
EX-99.1
Exhibit 99.1
| RE: NN, Inc.<br> <br>6210 Ardrey Kell Road<br><br><br>Charlotte, NC 28277 |
|---|
FOR FURTHER INFORMATION:
AT ABERNATHY MACGREGOR
Claire Walsh
(General info)
(212) 371-5999
FOR IMMEDIATE RELEASE
March 12, 2020
NN, INC. REPORTS FOURTHQUARTER AND FULL YEAR 2019 RESULTS
Full Year Net Sales Increase 10% to $847.5M Driven by Sales from Acquired Businesses and OrganicGrowth in Life
Sciences
Charlotte, N.C., March 12, 2020 – NN, Inc., (NASDAQ: NNBR), a diversified industrial company, today reported its financial results for the fourth quarter and the year ended December 31, 2019.
GAAP Results
Fourth Quarter 2019
GAAP net sales were $198.6 million, compared to $199.5 million for the fourth quarter of 2018. Life Sciences net sales increased by $8.9 million during the quarter due to increased core volumes, which were offset by lower demand in the automotive and general industrial end markets.
Fourth quarter 2019 GAAP loss from operations was $4.7 million, compared to a GAAP loss of $188.4 million for the same period in 2018. The loss from operations in the fourth quarter 2018 was largely driven by a goodwill impairment charge of $182.5 million and a fixed asset impairment charge of $5.2 million. Gross profit increased in the fourth quarter of 2019 by $1.8 million, offset by higher depreciation and amortization expenses and SG&A expenses.
Fourth quarter 2019 GAAP net loss was $14.1 million, compared to a GAAP net loss of $217.4 million in the fourth quarter of 2018. The higher GAAP net loss in 2018 was primarily due to the goodwill impairment charges and fixed asset impairment charges taken in 2018 and an impairment charge of $16.6 million taken against the investment in NN’s China joint venture.
Full Year 2019
Net sales in 2019 increased $76.8 million to $847.5 million, or 10%, compared to $770.7 million in 2018, attributable to $75.3 million in sales from businesses acquired in 2018, as well as organic growth of $9.8 million, driven by higher core volume in the Life Sciences group. This was partially offset by lower demand within the automotive end market in NN’s Mobile Solutions group as well as unfavorable foreign exchange effects of $8.4 million in Europe, South America and Asia.
1
GAAP income from operations was $9.9 million, compared to a $179.9 million GAAP loss for the same period in 2018. The 2018 loss was driven by certain one-time charges including a goodwill impairment of $182.5 million, fixed asset impairment of $5.2 million and acquisition expenses of $5.9 million. Gross profit grew by $24.3 million in 2019 from increased sales, offset by higher SG&A costs of $9.6 million, including $7.4 million related to 2018 acquisition costs, and a depreciation and amortization increase of $20.7 million.
GAAP net loss in 2019 was $46.7 million, compared to GAAP net loss of $263.0 million in 2018. GAAP net loss in 2018 was primarily driven by the aforementioned impairment charges.
Adjusted Results – Fourth Quarter 2019
Fourth quarter 2019 adjusted EBITDA was $33.2 million, or 16.7% of sales, versus $34.4 million, or 17.3% of sales, in the same prior year period. Adjusted income from operations for the fourth quarter of 2019 was $19.8 million, compared to $23.6 million for the same period in 2018. Fourth quarter 2019 adjusted net income was $5.7 million, or $0.14 per diluted share, compared to $12.3 million, or $0.29 per diluted share, for the same period in 2018. Free cash flow for the fourth quarter 2019 was $2.3 million.
Warren Veltman, President and Chief Executive Officer, stated, “In the fourth quarter, we enhanced our financial flexibility by issuing preferred stock, paying off our revolver, and extending our revolver and term B loans. In addition to these actions, we continue to find new ways to reduce corporate overhead and streamline costs, such as consolidating NN’s senior management leadership of the Mobile Solutions and Power Solutions business groups under the leadership of John Buchan and naming Chris Qualters as Executive Vice President of our Life Sciences segment. These combined initiatives have helped us make real progress in reducing the overall leverage of the company as we look to continue improving our capital structure and determine the best way to generate value for our shareholders.”
Life Sciences
Net sales for the fourth quarter of 2019 were $88.4 million, compared to $79.5 million in the fourth quarter of 2018, an increase of 11.2% or $8.9 million. Adjusted income from operations for the fourth quarter of 2019 was $17.9 million, compared to $15.7 million in the fourth quarter of 2018. Performance was driven primarily by increased core volumes in the orthopedic and medical/surgical end markets along with realization of synergy capture initiatives.
Mobile Solutions
Net sales for the fourth quarter of 2019 were $67.2 million, compared to $75.4 million in the fourth quarter of 2018, a decrease of $8.2 million or 10.9%. Adjusted income from operations for the fourth quarter of 2019 was $1.5 million, compared to $4.5 million in the fourth quarter of 2018. Lower demand within the automotive market, impact of the United Auto Workers strike against General Motors and an unfavorable tariff environment drove the decline.
Power Solutions
Net sales for the fourth quarter of 2019 were $43.6 million, compared to $45.2 million in the fourth quarter of 2018, a decrease of $1.6 million or 3.5%, driven by lower demand in the electrical products end market in China, primarily as a result of increased tariffs. Adjusted income from operations for the quarter was $5.8 million, consistent with the fourth quarter of 2018.
2
Adjusted Results – Full Year 2019
Adjusted EBITDA was $146.6 million or 17.3% of sales versus 2018 adjusted EBITDA of $136.0 million, or 17.6% of sales. Adjusted income from operations for 2019 was $97.0 million, compared to $91.9 million in 2018. Adjusted net income was $35.0 million in 2019, or $0.83 per diluted share, compared to $39.0 million, or $1.23 per diluted share, for the same period in 2018. Free cash flow for 2019 was negative $4.8 million. Net debt decreased by $75.7 million in 2019 to $757.6 million from $833.4 million in the same period a year ago.
Mr. Veltman continued, “NN has fundamentally solid businesses, strong relationships with our customers and suppliers as well as a passionate global workforce. I am proud to lead this company and as our financial position continues to gradually improve, I believe we are better-positioned to continue advancing a number of our strategic initiatives in 2020.
“While I am disappointed in our overall free cash flow generation for the year, it was in part impacted by our strategic decision to continue to pay our accounts payable on time in order to maintain good relationships with our suppliers. By reducing our 2019 year-end accounts payable balance, we expect to see a free cash flow benefit in the first quarter compared to last year.
“Looking ahead, we expect the global automotive slowdown and uncertainty caused by the coronavirus to adversely impact our results. To offset these factors, we will continue to pull levers that are in our control, including looking for more ways to enhance our commercial performance, improve our cost structure, reduce our inventory levels and accelerate accounts receivable collections.”
Life Sciences
Net sales were $359.7 million in 2019, compared to $248.2 million in 2018, an increase of $111.6 million or 45.0%. Adjusted income from operations in 2019 was $76.0 million, compared to $51.6 million in 2018. Sales growth in 2019 was driven by $71.4 million of net sales attributable to the Paragon Medical and Bridgemedica acquisitions as well as a $41.4 million increase in organic growth as a result of an increase in core volume primarily within the orthopedic and medical/surgical end markets.
Mobile Solutions
Net sales for 2019 were $297.7 million, compared to $335.0 million in 2018, a decrease of $37.3 million or 11.1%. Adjusted income from operations in 2019 was $17.9 million, compared to $30.5 million in 2018. Lower demand within the automotive markets and delays in new product launches drove the decline in both net sales and adjusted income from operations.
Power Solutions
Net sales for 2019 were $192.1 million, compared to $189.8 million in 2018, an increase of $2.3 million or 1.2%. Adjusted income from operations in 2019 was $32.8 million, compared to $33.6 million in 2018. Lower demand in the electrical products end market due to an unfavorable tariff environment drove the margin decline.
3
NN will discuss its results during its quarterly investor conference call on March 13, 2020 at 9:00 a.m. ET. The call and supplemental presentation may be accessed via NN’s website, www.nninc.com. The conference call can also be accessed by dialing 1-800-353-6461 or 1-334-323-0501 Conference ID: 3273655. For those who are unavailable to listen to the live broadcast, a replay will be available shortly after the call for 30 days.
NN discloses in this press release the non-GAAP financial measures of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share, free cash flow and net debt. Each of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share and free cash flow provides supplementary information about the impacts of restructuring and integration expense, acquisition and transition expenses, foreign exchange impacts on inter-company loans, amortization of intangibles and deferred financing costs, and other non-operating impacts on our business. Net debt is defined as debt and finance leases less cash.
The financial tables found later in this press release include a reconciliation of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow to the U.S. GAAP financial measures of income from operations, net income (loss), net income (loss) per diluted share and net cash provided by (used in) operating activities.
NN, Inc., a diversified industrial company combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies for a variety of markets on a global basis. Headquartered in Charlotte, North Carolina, NN has 50 facilities in North America, Europe, South America and China.
Except for specific historical information, many of the matters discussed in this pressrelease may express or imply projections of revenues or expenditures, statements of plans and objectives or future operations or statements of future economic performance. These, and similar statements, are forward-looking statements concerningmatters that involve risks, uncertainties and other factors which may cause the actual performance of NN, Inc. and its subsidiaries to differ materially from those expressed or implied by this discussion. All forward-looking information is providedby the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. Forward-looking statements generally can be identified by the use offorward-looking terminology such as “assumptions”, “target”, “guidance”, “outlook”, “plans”, “projection”, “may”, “will”, “would”, “expect”,“intend”, “estimate”, “anticipate”, “believe”, “potential” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. Factors which could materiallyaffect actual results include, but are not limited to: general economic conditions and economic conditions in the industrial sector, disruptions in the Company’s businesses and global economies and other impacts from further spread of thecoronavirus outbreak, inventory levels, regulatory compliance costs and the Company’s ability to manage these costs, start-up costs for new operations, debt reduction, competitive influences, risks thatcurrent customers will commence or increase captive production, risks of capacity underutilization, quality issues, availability and price of raw materials, currency and other risks associated with international trade, the Company’s dependenceon certain major customers, and the successful implementation of the global growth plan including development of new products. Similarly, statements made herein and elsewhere regarding pending and completed transactions are also forward-lookingstatements, including statements relating to the future performance and prospects of an acquired business, the expected benefits of an acquisition on the Company’s future business and operations and the ability of the Company to successfullyintegrate recently acquired businesses.
For additional information concerning such risk factors and cautionary statements, please see the sectiontitled “Risk Factors” in the Company’s periodic reports filed with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2019. Except as required by law, we undertake no obligation to update or revise any forward-looking statements we make in our press releases, whether as a result of new information, future events or otherwise.
Financial Tables Follow
4
NN, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
| Three Months EndedDecember 31, | Twelve Months EndedDecember 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Net sales | $ | 198,632 | $ | 199,477 | $ | 847,451 | $ | 770,657 | ||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 154,279 | 156,923 | 641,639 | 589,181 | ||||||||
| Gross profit (loss) | 44,353 | 42,554 | 205,812 | 181,476 | ||||||||
| Selling, general and administrative expense | 24,312 | 22,285 | 103,223 | 93,583 | ||||||||
| Acquisition related costs excluded from selling, general and administrative expense | — | 61 | — | 5,871 | ||||||||
| Depreciation and amortization | 22,876 | 19,330 | 91,846 | 71,128 | ||||||||
| Restructuring and integration expense, net | — | (10 | ) | (12 | ) | 2,127 | ||||||
| Goodwill impairment | — | 182,542 | — | 182,542 | ||||||||
| Other operating (income) expense, net | 1,885 | 6,726 | 866 | 6,089 | ||||||||
| Income (loss) from operations | (4,720 | ) | (188,380 | ) | 9,889 | (179,864 | ) | |||||
| Interest expense | 14,663 | 14,651 | 57,155 | 61,243 | ||||||||
| Loss on extinguishment of debt and write-off of debt<br>issuance costs | 594 | — | 3,293 | 19,562 | ||||||||
| Derivative (gain) loss on change in interest rate swap fair value | — | — | — | — | ||||||||
| Other (income) expense, net | 256 | (541 | ) | 1,140 | 1,341 | |||||||
| Loss before benefit for income taxes and share of net income from joint venture | (20,233 | ) | (202,490 | ) | (51,699 | ) | (262,010 | ) | ||||
| Benefit for income taxes | 4,812 | 1,200 | 3,277 | 13,413 | ||||||||
| Share of net income from joint venture | 1,336 | (16,134 | ) | 1,681 | (14,390 | ) | ||||||
| Income (loss) from continuing operations | $ | (14,085 | ) | $ | (217,424 | ) | $ | (46,741 | ) | $ | (262,987 | ) |
| Income from discontinued operations, net of tax (Note 2) | — | — | — | — | ||||||||
| Net income (loss) | $ | (14,085 | ) | $ | (217,424 | ) | $ | (46,741 | ) | $ | (262,987 | ) |
| Other comprehensive loss: | ||||||||||||
| Reclassification adjustment for discontinued operations | — | — | — | — | ||||||||
| Foreign currency translation gain (loss) | 7,509 | (4,248 | ) | (3,845 | ) | (13,609 | ) | |||||
| Interest rate swap: | ||||||||||||
| Change in fair value of interest rate swap, net of tax | 1,520 | — | (10,479 | ) | — | |||||||
| Less: reclassification adjustment for (gains) losses included in net income, net of tax | 846 | — | 1,084 | — | ||||||||
| Other comprehensive income (loss) | $ | 9,875 | $ | (4,248 | ) | $ | (13,240 | ) | $ | (13,609 | ) | |
| Comprehensive income (loss) | $ | (4,210 | ) | $ | (221,672 | ) | $ | (59,981 | ) | $ | (276,596 | ) |
| Basic net income (loss) per common share: | ||||||||||||
| Income (loss) from continuing operations per common share | $ | (0.35 | ) | $ | (5.18 | ) | $ | (1.13 | ) | $ | (8.30 | ) |
| Income from discontinued operations per common share | $ | — | $ | — | $ | — | $ | — | ||||
| Net income (loss) per common share | $ | (0.35 | ) | $ | (5.18 | ) | $ | (1.13 | ) | $ | (8.30 | ) |
| Weighted average common shares outstanding | 42,078 | 28,688 | 42,030 | 31,678 | ||||||||
| Diluted net income (loss) per common share: | ||||||||||||
| Income (loss) from continuing operations per common share | $ | (0.35 | ) | $ | (5.18 | ) | $ | (1.13 | ) | $ | (8.30 | ) |
| Income from discontinued operations per common share | $ | — | $ | — | $ | — | $ | — | ||||
| Net income (loss) per common share | $ | (0.35 | ) | $ | (5.18 | ) | $ | (1.13 | ) | $ | (8.30 | ) |
| Weighted average common shares outstanding | 42,078 | 41,959 | 42,030 | 31,678 | ||||||||
| Cash dividends declared per common share | $ | — | $ | 0.07 | $ | 0.21 | $ | 0.28 |
5
NN, Inc.
Consolidated Balance Sheets
(Unaudited)
| December 31,2019 | December 31,2018 | |||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 31,703 | $ | 17,988 | ||
| Accounts receivable, net | 131,558 | 133,421 | ||||
| Inventories | 118,722 | 120,925 | ||||
| Income tax receivable | 5,973 | 2,277 | ||||
| Other current assets | 15,024 | 21,592 | ||||
| Total current assets | 302,980 | 296,203 | ||||
| Property, plant and equipment, net | 374,513 | 361,028 | ||||
| Operating lease<br>right-of-use assets | 65,496 | — | ||||
| Goodwill | 439,095 | 439,452 | ||||
| Intangible assets, net | 329,260 | 376,248 | ||||
| Investment in joint venture | 21,755 | 20,364 | ||||
| Other non-current assets | 8,885 | 7,607 | ||||
| Total assets | $ | 1,541,984 | **** | $ | 1,500,902 | **** |
| Liabilities and Stockholders’ Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 57,340 | $ | 65,694 | ||
| Accrued salaries, wages and benefits | 30,428 | 24,636 | ||||
| Income tax payable | 1,028 | — | ||||
| Current maturities of long-term debt | 19,160 | 31,280 | ||||
| Current portion of operating lease liabilities | 6,652 | — | ||||
| Other current liabilities | 24,873 | 23,420 | ||||
| Total current liabilities | 139,481 | 145,030 | ||||
| Deferred tax liabilities | 85,799 | 91,838 | ||||
| Non-current income tax payable | 1,272 | 3,875 | ||||
| Long-term debt, net of current portion | 757,440 | 811,471 | ||||
| Operating lease liabilities, net of current portion | 66,980 | — | ||||
| Other non-current liabilities | 44,723 | 29,417 | ||||
| Total liabilities | 1,095,695 | 1,081,631 | ||||
| Commitments and contingencies | ||||||
| Redeemable, convertible preferred stock | 93,012 | — | ||||
| Common stock | 423 | 421 | ||||
| Additional paid-in capital | 501,615 | 508,655 | ||||
| Warrants | 1,076 | — | ||||
| Accumulated deficit | (105,283 | ) | (58,491 | ) | ||
| Accumulated other comprehensive loss | (44,554 | ) | (31,314 | ) | ||
| Total stockholders’ equity | 353,277 | 419,271 | ||||
| Total liabilities, preferred stock, and stockholders’ equity | $ | 1,541,984 | **** | $ | 1,500,902 | **** |
6
NN, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Twelve Months EndedDecember 31, | ||||||
|---|---|---|---|---|---|---|
| 2019 | 2018 | |||||
| Cash flows from operating activities | ||||||
| Net income (loss) | $ | (46,741 | ) | $ | (262,987 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating<br>activities: | ||||||
| Depreciation and amortization of continuing operations | 91,846 | 71,128 | ||||
| Depreciation and amortization of discontinued operations | — | — | ||||
| Amortization of debt issuance costs | 4,789 | 4,845 | ||||
| Goodwill impairment | — | 182,542 | ||||
| Other impairments | 643 | 21,825 | ||||
| Loss on extinguishment of debt and write-off of debt<br>issuance costs | 3,293 | 19,562 | ||||
| Total derivative<br>mark-to-market loss (gain), net of cash settlements | — | — | ||||
| Share of net income from joint venture, net of cash dividends received | (1,681 | ) | 642 | |||
| Gain on disposal of discontinued operations, net of tax and cost to sell | — | — | ||||
| Compensation expense from issuance of share-based awards | 2,822 | 2,416 | ||||
| Deferred income taxes | (3,142 | ) | (22,402 | ) | ||
| Other | 3,169 | 1,290 | ||||
| Changes in operating assets and liabilities, excluding acquisitions: | ||||||
| Accounts receivable | 1,265 | (3,543 | ) | |||
| Inventories | 1,426 | (16,208 | ) | |||
| Accounts payable | (7,900 | ) | 2,693 | |||
| Income taxes receivable and payable, net | (5,292 | ) | 39,615 | |||
| Other | 4,029 | (479 | ) | |||
| Net cash provided by (used in) operating activities | 48,526 | 40,939 | ||||
| Cash flows from investing activities | ||||||
| Acquisition of property, plant and equipment, net of acquisitions | (53,321 | ) | (64,036 | ) | ||
| Short-term investment | 8,000 | — | ||||
| Cash paid to acquire businesses, net of cash received | — | (399,009 | ) | |||
| Proceeds from sale of property, plant, and equipment | 7,287 | 1,434 | ||||
| Proceeds from sale of business, net of cash sold | — | 838 | ||||
| Other | (711 | ) | (517 | ) | ||
| Net cash provided by (used in) investing activities | (38,745 | ) | (461,290 | ) | ||
| Cash flows from financing activities | ||||||
| Cash paid for debt issuance or prepayment costs | (11,336 | ) | (20,726 | ) | ||
| Dividends paid | (8,879 | ) | (8,826 | ) | ||
| Proceeds from issuance of common stock | — | 217,312 | ||||
| Proceeds from issuance of preferred stock | 95,741 | — | ||||
| Proceeds from long-term debt | 54,209 | 311,841 | ||||
| Repayment of long-term debt | (108,157 | ) | (290,687 | ) | ||
| Proceeds from (repayments of) short-term debt, net | (12,564 | ) | 10,305 | |||
| Other | (3,715 | ) | (4,126 | ) | ||
| Net cash provided by (used in) financing activities | 5,299 | 215,093 | ||||
| Effect of exchange rate changes on cash flows | (1,365 | ) | (1,200 | ) | ||
| Net change in cash and cash equivalents | 13,715 | (206,458 | ) | |||
| Cash and cash equivalents at beginning of period (1) | 17,988 | 224,446 | ||||
| Cash and cash equivalents at end of period | $ | 31,703 | $ | 17,988 |
7
Reconciliation of GAAP Income from Operations toNon-GAAP Adjusted Income from Operations
| $000s | Three Months EndedDecember 31, | |||||
|---|---|---|---|---|---|---|
| NN, Inc. Consolidated | 2019 | 2018 | ||||
| GAAP income from operations | $ | (4,720 | ) | $ | (188,380 | ) |
| Restructuring and integration expense | — | (10 | ) | |||
| Acquisition and transition expense* | 13,012 | 15,822 | ||||
| Amortization of intangibles | 11,253 | 8,439 | ||||
| Impairments (Goodwill and fixed assets) | 244 | 187,778 | ||||
| Non-GAAP adjusted income from operations (a) | $ | 19,790 | $ | 23,649 | ||
| Non-GAAP adjusted operating margin (1) | 10.0 | % | 11.9 | % | ||
| GAAP net sales | $ | 198,632 | $ | 199,477 | ||
| $000s | Three Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Mobile Solutions | 2019 | 2018 | ||||
| GAAP income from operations | $ | (564 | ) | $ | (76,134 | ) |
| Restructuring and integration expense | — | (10 | ) | |||
| Acquisition and transition expense | 1,177 | 1,747 | ||||
| Amortization of intangibles | 838 | 885 | ||||
| Impairments (Goodwill and fixed assets) | — | 78,054 | ||||
| Non-GAAP adjusted income from operations (a) | $ | 1,451 | $ | 4,542 | ||
| Share of net income from joint venture | 1,336 | (16,134 | ) | |||
| Impairment of joint venture | — | 16,589 | ||||
| Non-GAAP adjusted income from operations with JV | $ | 2,788 | $ | 4,997 | ||
| Non-GAAP adjusted operating margin (1) | 4.2 | % | 6.6 | % | ||
| GAAP net sales | $ | 67,159 | $ | 75,359 | ||
| $000s | Three Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Elimination | 2019 | 2018 | ||||
| GAAP net sales | $ | (528 | ) | $ | (533 | ) |
| $000s | Three Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Power Solutions | 2019 | 2018 | ||||
| GAAP income from operations | $ | 1,024 | $ | (109,054 | ) | |
| Restructuring and integration expense | — | — | ||||
| Acquisition and transition expense | 1,823 | 3,524 | ||||
| Amortization of intangibles | 2,748 | 2,193 | ||||
| Impairments (Goodwill and fixed assets) | 244 | 109,100 | ||||
| Non-GAAP adjusted income from operations (a) | $ | 5,839 | $ | 5,763 | ||
| Non-GAAP adjusted operating margin (1) | 13.4 | % | 12.8 | % | ||
| GAAP net sales | $ | 43,621 | $ | 45,194 | ||
| $000s | Three Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Life Sciences | 2019 | 2018 | ||||
| GAAP income from operations | $ | 5,605 | $ | 6,174 | ||
| Restructuring and integration expense | — | — | ||||
| Acquisition and transition expense | 4,667 | 4,122 | ||||
| Amortization of intangibles | 7,666 | 5,361 | ||||
| Impairments (Goodwill and fixed assets) | — | — | ||||
| Non-GAAP adjusted income from operations (a) | $ | 17,938 | $ | 15,657 | ||
| Non-GAAP adjusted operating margin (1) | 20.3 | % | 19.7 | % | ||
| GAAP net sales | $ | 88,381 | $ | 79,457 | ||
| (1) | Non-GAAP adjusted operating margin =<br>Non-GAAP adjusted income from operations/ GAAP net sales | |||||
| --- | --- | |||||
| * | 2019 Includes Capacity & Capabilities Dev - $2.0 / Prof Fees - $2.7 / Integration &<br>Transformation - $8.4 / Acq Transaction Costs - $0.0 / Asset Write-Downs/Inventory Step-Up - $0.0 | |||||
| --- | --- |
2018 Includes Capacity & Capabilities Dev - $3.1 / Prof Fees - $3.2 / Integration & Transformation - $8.7 / AcqTransaction Costs - $0.1 / Asset Write-Downs/Inventory Step-Up - $0.8
8
Reconciliation of GAAP Income from Operations toNon-GAAP Adjusted Income from Operations
| $000s | Twelve Months EndedDecember 31, | |||||
|---|---|---|---|---|---|---|
| NN, Inc. Consolidated | 2019 | 2018 | ||||
| GAAP income from operations | $ | 9,889 | $ | (179,864 | ) | |
| Restructuring and integration expense | (12 | ) | 2,127 | |||
| Acquisition and transition expense* | 39,463 | 49,262 | ||||
| Amortization of intangibles | 46,998 | 32,553 | ||||
| Impairments (Goodwill and fixed assets) | 644 | 187,778 | ||||
| Non-GAAP adjusted income from operations (a) | $ | 96,982 | $ | 91,856 | ||
| Non-GAAP adjusted operating margin (1) | 11.4 | % | 11.9 | % | ||
| GAAP net sales | $ | 847,451 | $ | 770,657 | ||
| $000s | Twelve Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Mobile Solutions | 2019 | 2018 | ||||
| GAAP income from operations | $ | 9,553 | $ | (55,079 | ) | |
| Restructuring and integration expense | (12 | ) | 63 | |||
| Acquisition and transition expense | 4,884 | 3,877 | ||||
| Amortization of intangibles | 3,479 | 3,540 | ||||
| Impairments (Goodwill and fixed assets) | — | 78,054 | ||||
| Non-GAAP adjusted income from operations (a) | $ | 17,904 | $ | 30,456 | ||
| Share of net income from joint venture | 1,681 | (14,390 | ) | |||
| Impairment of joint venture | — | 16,589 | ||||
| Non-GAAP adjusted income from operations with JV | $ | 19,585 | $ | 32,655 | ||
| Non-GAAP adjusted operating margin (1) | 6.6 | % | 9.7 | % | ||
| GAAP net sales | $ | 297,749 | $ | 335,037 | ||
| $000s | Twelve MonthsEnded December 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Elimination | 2019 | 2018 | ||||
| GAAP net sales | $ | (2,130 | ) | $ | (2,331 | ) |
| $000s | Twelve Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Power Solutions | 2019 | 2018 | ||||
| GAAP income from operations | $ | 13,881 | $ | (95,115 | ) | |
| Restructuring and integration expense | — | — | ||||
| Acquisition and transition expense | 7,725 | 8,698 | ||||
| Amortization of intangibles | 10,994 | 10,939 | ||||
| Impairments (Goodwill and fixed assets) | 244 | 109,100 | ||||
| Non-GAAP adjusted income from operations (a) | $ | 32,843 | $ | 33,622 | ||
| Non-GAAP adjusted operating margin (1) | 17.1 | % | 17.7 | % | ||
| GAAP net sales | $ | 192,100 | $ | 189,778 | ||
| $000s | Twelve Months EndedDecember 31, | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Life Sciences | 2019 | 2018 | ||||
| GAAP income from operations | $ | 28,157 | $ | 19,136 | ||
| Restructuring and integration expense | — | 1,336 | ||||
| Acquisition and transition expense | 15,353 | 13,064 | ||||
| Amortization of intangibles | 32,526 | 18,074 | ||||
| Impairments (Goodwill and fixed assets) | — | — | ||||
| Non-GAAP adjusted income from operations (a) | $ | 76,036 | $ | 51,610 | ||
| Non-GAAP adjusted operating margin (1) | 21.1 | % | 20.8 | % | ||
| GAAP net sales | $ | 359,732 | $ | 248,173 | ||
| (1) | Non-GAAP adjusted operating margin =<br>Non-GAAP adjusted income from operations/ GAAP net sales | |||||
| --- | --- | |||||
| * | 2019 Includes Capacity & Capabilities Dev - $9.1 / Prof Fees - $4.5 / Integration &<br>Transformation - $25.5 / Acq Transaction Costs - $0.0 / Asset Write-Downs/Inventory Step-Up - $0.4 | |||||
| --- | --- |
2018 Includes Capacity & Capabilities Dev - $8.2 / Prof Fees - $10.7 / Integration & Transformation - $19.8 / AcqTransaction Costs - $5.9 / Asset Write-Downs/Inventory Step-Up - $4.7
9
Reconciliation of Net Income (Loss) to Non-GAAPAdjusted EBITDA
| Three Months EndedDecember 31, | ||||||
|---|---|---|---|---|---|---|
| $000s | 2019 | 2018 | ||||
| GAAP net income (loss) | $ | (14,085 | ) | $ | (217,424 | ) |
| Provision (benefit) for income taxes | (4,811 | ) | (1,200 | ) | ||
| Interest expense | 14,663 | 14,651 | ||||
| Write-off of unamortized debt issuance cost | 594 | — | ||||
| Depreciation and amortization | 22,876 | 19,330 | ||||
| Acquisition and transition expense | 12,656 | 15,482 | ||||
| Non-cash stock compensation | 962 | (210 | ) | |||
| Non-cash foreign exchange (gain) loss on inter-company<br>loans | (157 | ) | (547 | ) | ||
| Restructuring and integration expense | — | (10 | ) | |||
| Costs related to divested businesses | 260 | — | ||||
| Impairments (Goodwill, JV and fixed assets) | 244 | 204,367 | ||||
| Non-GAAP adjusted EBITDA (b) | $ | 33,202 | $ | 34,439 | ||
| Non-GAAP adjusted EBITDA margin (2) | 16.7 | % | 17.3 | % | ||
| GAAP net sales | $ | 198,632 | $ | 199,477 | ||
| (2) | Non-GAAP adjusted EBITDA margin =<br>Non-GAAP adjusted EBITDA / GAAP net sales | |||||
| --- | --- |
Reconciliation of Net Income (Loss)to Non-GAAP Adjusted EBITDA
| Twelve Months EndedDecember 31, | ||||||
|---|---|---|---|---|---|---|
| $000s | 2019 | 2018 | ||||
| GAAP net income (loss) | $ | (46,741 | ) | $ | (262,987 | ) |
| Provision (benefit) for income taxes | (3,277 | ) | (13,413 | ) | ||
| Interest expense | 57,155 | 61,243 | ||||
| Write-off of unamortized debt issuance cost | 3,293 | 19,562 | ||||
| Depreciation and amortization | 91,846 | 71,128 | ||||
| Acquisition and transition expense | 38,504 | 48,922 | ||||
| Non-cash stock compensation | 3,885 | 2,413 | ||||
| Non-cash foreign exchange (gain) loss on inter-company<br>loans | 307 | 2,620 | ||||
| Restructuring and integration expense | (12 | ) | 2,127 | |||
| Costs related to divested businesses | 960 | — | ||||
| Impairments (Goodwill, JV and fixed assets) | 644 | 204,367 | ||||
| Non-GAAP adjusted EBITDA (b) | $ | 146,564 | $ | 135,983 | ||
| Non-GAAP adjusted EBITDA margin (2) | 17.3 | % | 17.6 | % | ||
| GAAP net sales | $ | 847,451 | $ | 770,657 | ||
| (2) | Non-GAAP adjusted EBITDA margin =<br>Non-GAAP adjusted EBITDA / GAAP net sales | |||||
| --- | --- |
10
Reconciliation of Net Income (Loss) to Non-GAAPAdjusted Net Income (Loss) and Net
Income (Loss) per Diluted Share to Non-GAAP Adjusted NetIncome (Loss) per Diluted Share
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| $000s | 2019 | 2018 | ||||
| GAAP net income (loss) | $ | (14,085 | ) | $ | (217,424 | ) |
| Pre-tax acquisition and transition expense | 13,012 | 15,822 | ||||
| Pre-tax foreign exchange (gain) loss on inter-company<br>loans | (157 | ) | (547 | ) | ||
| Pre-tax restructuring and integration expense | — | (10 | ) | |||
| Pre-tax write-off<br>of unamortized debt issuance costs | 594 | — | ||||
| Pre-tax amortization of intangibles and deferred financing<br>costs | 12,506 | 9,653 | ||||
| Pre-tax interest expense on cash held from<br>divestiture | — | — | ||||
| Pre-tax impairments of fixed asset costs | 244 | 5,236 | ||||
| Pre-tax costs related to divested businesses | 260 | — | ||||
| Tax effect of adjustments reflected above (c) | (5,444 | ) | (6,368 | ) | ||
| Non-GAAP discrete tax adjustments | (1,221 | ) | (403 | ) | ||
| Impairments (Goodwill and JV) | — | 199,131 | ||||
| Divestiture of Business Segment, exclusive of tax reform | — | 7,198 | ||||
| Non-GAAP adjusted net income (loss) (d) | $ | 5,710 | $ | 12,287 | ||
| Three Months Ended | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| December 31, | ||||||
| Amounts per share, diluted | 2019 | 2018 | ||||
| GAAP net income (loss) per diluted share | $ | (0.35 | ) | $ | (5.18 | ) |
| Pre-tax acquisition and transition expense | 0.31 | 0.38 | ||||
| Pre-tax foreign exchange (gain) loss on inter-company<br>loans | (0.00 | ) | (0.01 | ) | ||
| Pre-tax restructuring and integration expense | — | (0.00 | ) | |||
| Pre-tax write-off<br>of unamortized debt issuance costs | 0.01 | — | ||||
| Pre-tax amortization of intangibles and deferred financing<br>costs | 0.30 | 0.23 | ||||
| Pre-tax interest expense on cash held from<br>divestiture | — | — | ||||
| Pre-tax impairments of fixed asset costs | 0.01 | 0.12 | ||||
| Pre-tax costs related to divested businesses | 0.01 | — | ||||
| Tax effect of adjustments reflected above (c) | (0.13 | ) | (0.15 | ) | ||
| Non-GAAP discrete tax adjustments | (0.03 | ) | (0.01 | ) | ||
| Impairments (Goodwill and JV) | — | 4.75 | ||||
| Divestiture of Business Segment, exclusive of tax reform | — | 0.17 | ||||
| Preferred stock cumulative dividends and deemed dividends | 0.02 | — | ||||
| Non-GAAP adjusted net income (loss) per diluted share<br>(d) | $ | 0.14 | $ | 0.29 | ||
| Weighted average shares outstanding, diluted | 42,078 | 41,959 |
11
Reconciliation of Net Income (Loss) to Non-GAAPAdjusted Net Income (Loss) and Net
Income (Loss) per Diluted Share to Non-GAAP Adjusted NetIncome (Loss) per Diluted Share
| Twelve Months Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| $000s | 2019 | 2018 | ||||
| GAAP net income (loss) | $ | (46,741 | ) | $ | (262,987 | ) |
| Pre-tax acquisition and transition expense | 39,463 | 49,262 | ||||
| Pre-tax foreign exchange (gain) loss on inter-company<br>loans | 307 | 2,620 | ||||
| Pre-tax restructuring and integration expense | (12 | ) | 2,127 | |||
| Pre-tax write-off<br>of unamortized debt issuance costs | 3,293 | 19,562 | ||||
| Pre-tax amortization of intangibles and deferred financing<br>costs | 51,788 | 37,741 | ||||
| Pre-tax interest expense on cash held from<br>divestiture | — | 3,607 | ||||
| Pre-tax impairments of fixed asset costs | 644 | 5,236 | ||||
| Pre-tax costs related to divested businesses | 960 | — | ||||
| Tax effect of adjustments reflected above (c) | (19,433 | ) | (25,094 | ) | ||
| Non-GAAP discrete tax adjustments | 4,779 | 570 | ||||
| Impairments (Goodwill and JV) | — | 199,131 | ||||
| Divestiture of Business Segment, exclusive of tax reform | — | 7,198 | ||||
| Non-GAAP adjusted net income (loss) (d) | $ | 35,049 | $ | 38,974 | ||
| Twelve Months Ended | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| December 31, | ||||||
| Amounts per share, diluted | 2019 | 2018 | ||||
| GAAP net income (loss) per diluted share | $ | (1.13 | ) | $ | (8.30 | ) |
| Pre-tax acquisition and transition expense | 0.94 | 1.56 | ||||
| Pre-tax foreign exchange (gain) loss on inter-company<br>loans | 0.01 | 0.08 | ||||
| Pre-tax restructuring and integration expense | (0.00 | ) | 0.07 | |||
| Pre-tax write-off<br>of unamortized debt issuance costs | 0.08 | 0.62 | ||||
| Pre-tax amortization of intangibles and deferred financing<br>costs | 1.23 | 1.19 | ||||
| Pre-tax interest expense on cash held from<br>divestiture | — | 0.11 | ||||
| Pre-tax impairments of fixed asset costs | 0.02 | 0.17 | ||||
| Pre-tax costs related to divested businesses | 0.02 | — | ||||
| Tax effect of adjustments reflected above (c) | (0.46 | ) | (0.79 | ) | ||
| Non-GAAP discrete tax adjustments | 0.11 | 0.02 | ||||
| Impairments (Goodwill and JV) | — | 6.29 | ||||
| Divestiture of Business Segment, exclusive of tax reform | — | 0.23 | ||||
| Preferred stock cumulative dividends and deemed dividends | 0.02 | — | ||||
| Non-GAAP adjusted net income (loss) per diluted share<br>(d) | $ | 0.83 | $ | 1.23 | ||
| Weighted average shares outstanding, diluted | 42,030 | 31,678 |
12
Reconciliation of Operating Cash Flow to Free Cash Flow
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| $000s | 2019 | 2018 | ||||
| Net cash provided (used) by operating activities | $ | 14,920 | $ | 54,154 | ||
| Acquisition of property, plant and equipment | (12,601 | ) | (17,038 | ) | ||
| Free Cash Flow | $ | 2,319 | $ | 37,116 | ||
| Twelve Months Ended | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| December 31, | ||||||
| $000s | 2019 | 2018 | ||||
| Net cash provided (used) by operating activities | $ | 48,526 | $ | 40,939 | ||
| Acquisition of property, plant and equipment | (53,321 | ) | (64,036 | ) | ||
| Free Cash Flow | $ | (4,795 | ) | $ | (23,097 | ) |
Reconciliation of Net Debt
| December 31, | December 31, | |||
|---|---|---|---|---|
| $000s | 2019 | 2018 | ||
| Short term debt & finance lease liability | $ | 22,830 | $ | 33,828 |
| Long term debt and finance lease liability (ex- issuance<br>costs) | 766,521 | 817,549 | ||
| Funded debt | 789,351 | 851,377 | ||
| Cash and cash equivalents | 31,703 | 17,988 | ||
| Net debt | $ | 757,648 | $ | 833,389 |
13
The Company discloses in this presentation the non-GAAP financialmeasures of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share, free cash flow and net debt. Each of these non-GAAP financial measuresprovides supplementary information about the impacts of acquisition, divestiture and integration related expenses, foreign-exchange impacts on inter-company loans, reorganizational and impairment charges. Over the past five years, we havecompleted seven acquisitions, two of which were transformative for the Company, and sold two of our businesses. The costs we incurred in completing such acquisitions, including the amortization of intangibles and deferred financing costs, andthese divestitures have been excluded from these measures because their size and inconsistent frequency are unrelated to our commercial performance during the period, and which we believe are not indicative of our ongoing operating costs. We excludethe impact of currency translation from these measures because foreign exchange rates are not under management’s control and are subject to volatility. Other non-operating charges are excluded as thecharges are not indicative of our ongoing operating cost. We believe the presentation of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share, free cash flow and net debt provides usefulinformation in assessing our underlying business trends and facilitates comparison of our long-term performance over given periods.
The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies may calculate such financialresults differently. The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to actual income growth derived fromincome amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results.
(a) Non-GAAP adjusted income from operations represents GAAP income from operations, adjusted to excludethe effects of restructuring and integration expense; non-operational charges related to acquisition and transition expense, intangible amortization costs for fair valuestep-up in values related to acquisitions, non-cash impairment charges, and when applicable, our share of income from joint venture operations. We believe thispresentation is commonly used by investors and professional research analysts in the valuation, comparison, rating and investment recommendations of companies in the industrial industry. We use this information for comparative purposes within theindustry. Non-GAAP adjusted income from operations is not a measure of financial performance under GAAP and should not be considered as a measure of liquidity or as an alternative to GAAP income fromoperations.
(b) Non-GAAP adjusted EBITDA represents GAAP net income (loss), adjusted to include incometaxes, interest expense, Interest rate swaps and write-offs, depreciation and amortization, charges related to acquisition and transition costs, non-cash stock compensation expense, foreign exchange gain(loss) on inter-company loans, restructuring and integration expense, income from discontinued operations, and non-cash impairment charges, to the extent applicable. We believe this presentation is commonlyused by investors and professional research analysts in the valuation, comparison, rating and investment recommendations of companies in the industrial industry. We use this information for comparative purposes within the industry. Non-GAAP adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered as a measure of liquidity or as an alternative to GAAP income (loss) from continuing operations.
(c) This line item reflects the aggregate tax effect of all nontax adjustments reflected in the respective table. NN, Inc. estimates the tax effect of theadjustment items identified in the reconciliation schedule above by applying the applicable statutory rates by tax jurisdiction unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of aspecific tax rate or tax treatment.
(d) Non-GAAP adjusted net income (loss) represents GAAP net income(loss) adjusted to exclude the tax-affected effects of restructuring and integration charges (related to plant closures and other charges incurred to implement our strategic goals that do not necessarilyrepresent a major strategic shift in operations), charges related to acquisition and transition costs, amortization of intangibles costs for fair value step-up in values related to acquisitions andamortization of deferred financing costs, foreign exchange gain (loss) on inter-company loans, estimated interest expense on cash held from divestiture, non-cash impairment charges, the impact of enactment ofthe Tax Cut and Jobs Act and income from discontinued operations. We believe this presentation is commonly used by investors and professional research analysts in the valuation, comparison, rating and investment recommendations of companies in theindustrial industry. We use this information for comparative purposes within the industry. Non-GAAP adjusted income (loss) from segment operations is not a measure of financial performance under GAAP andshould not be considered as a measure of liquidity or as an alternative to GAAP income (loss) from continuing operations.
14