UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-23486

NN, Inc.

(Exact name of registrant as specified in its charter)



Delaware		62-1096725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6210 Ardrey Kell Road

Charlotte, North Carolina 28277

(Address of principal executive offices, including zip code)

(980) 264-4300

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NNBR	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

		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 ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, ~~2018,~~2019, there were ~~27,729,375~~42,366,961 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

NN, Inc.

INDEX



PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2823

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4033

Item 4.	Controls and Procedures	4133

PART II. OTHER INFORMATION		4335

Item 1.	Legal Proceedings	4335

Item 1A.	Risk Factors	4335
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4335
Item 3.	Defaults upon Senior Securities	4335
Item 4.	Mine Safety Disclosures	4435
Item 5.	Other Information	4435
Item 6.	Exhibits	4536
SIGNATURES		4637

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

NN, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

Amounts in thousands, ~~of dollars,~~ except per share data

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Net sales $ 196,349
$ 157,947
$ 365,497
$ 315,502
Cost of sales (exclusive of depreciation and amortization shown separately below) 148,640
114,514
275,084
228,994
Selling, general and administrative expense 26,641
18,004
48,818
34,645
Acquisition related costs excluded from selling, general and administrative expense 3,437
—
5,213
—
Depreciation and amortization 16,258
13,051
30,539
25,622
Other operating expense (income) 74
(270 ) 96
(270 )
Restructuring and integration expense 1,591
6
2,346
17
Income (loss) from operations (292 ) 12,642
3,401
26,494
Interest expense 15,988
12,338
27,984
27,177
Loss on extinguishment of debt and write-off of debt issuance costs 12,938
39,639
12,938
39,639
Derivative loss on change in interest rate swap fair value —
101
—
13
Other (income) expense, net 1,887
285
1,574
(437 )
Loss from continuing operations before benefit for income taxes and share of net income from joint venture (31,105 ) (39,721 ) (39,095 ) (39,898 )
Benefit for income taxes 5,947
12,103
7,123
12,480
Share of net income from joint venture 647
1,244
1,478
2,937
Loss from continuing operations (24,511 ) (26,374 ) (30,494 ) (24,481 )
Income from discontinued operations, net of tax (Note 2) —
5,236
—
10,754
Net loss $ (24,511 ) $ (21,138 ) $ (30,494 ) $ (13,727 )
Other comprehensive income (loss):

Foreign currency translation gain (loss) $ (15,781 ) $ 9,511
$ (10,316 ) $ 14,616
Other comprehensive income (loss) $ (15,781 ) $ 9,511
$ (10,316 ) $ 14,616
Comprehensive income (loss) $ (40,292 ) $ (11,627 ) $ (40,810 ) $ 889
Basic net loss per share:

Loss from continuing operations per share $ (0.89 ) $ (0.96 ) $ (1.10 ) $ (0.89 )
Income from discontinued operations per share —
0.19
—
0.39
Net loss per share $ (0.89 ) $ (0.77 ) $ (1.10 ) $ (0.50 )
Weighted average shares outstanding 27,696
27,468
27,632
27,358
Diluted net loss per share:

Loss from continuing operations per share $ (0.89 ) $ (0.96 ) $ (1.10 ) $ (0.89 )
Income from discontinued operations per share —
0.19
—
0.39
Net loss per share $ (0.89 ) $ (0.77 ) $ (1.10 ) $ (0.50 )
Weighted average shares outstanding 27,696
27,468
27,632
27,358
Cash dividends per common share $ 0.07
$ 0.07
$ 0.14
$ 0.14



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	221,666		$	196,349		$	434,922		$	365,497
Cost of sales (exclusive of depreciation and amortization shown separately below)	163,513			148,640			324,782			275,084
Selling, general and administrative expense	26,743			26,641			54,868			48,818
Acquisition related costs excluded from selling, general and administrative expense	—			3,437			—			5,213
Depreciation and amortization	22,924			16,258			46,349			30,539
Restructuring and integration expense, net	—			1,591			(12		)	2,346
Other operating (income) expense, net	388			74			236			96
Income (loss) from operations	8,098			(292		)	8,699			3,401
Interest expense	13,958			15,988			27,759			27,984
Loss on extinguishment of debt and write-off of debt issuance costs	—			12,938			2,699			12,938
Other (income) expense, net	57			1,887			786			1,574
Loss before (provision) benefit for income taxes and share of net income from joint venture	(5,917		)	(31,105		)	(22,545		)	(39,095		)
Benefit (provision) for income taxes	(577		)	5,947			(2,818		)	7,123
Share of net income (loss) from joint venture	(203		)	647			66			1,478
Net loss	$	(6,697	)	$	(24,511	)	$	(25,297	)	$	(30,494	)
Other comprehensive loss:
Change in fair value of interest rate swap, net of tax	(6,962		)	—			(10,818		)	—
Foreign currency translation loss	(1,434		)	(15,781		)	(172		)	(10,316		)
Other comprehensive loss	$	(8,396	)	$	(15,781	)	$	(10,990	)	$	(10,316	)
Comprehensive loss	$	(15,093	)	$	(40,292	)	$	(36,287	)	$	(40,810	)
Basic net loss per share
Net loss per share	$	(0.16	)	$	(0.89	)	$	(0.60	)	$	(1.10	)
Weighted average shares outstanding	42,028			27,696			42,000			27,632
Diluted net loss per share
Net loss per share	$	(0.16	)	$	(0.89	)	$	(0.60	)	$	(1.10	)
Weighted average shares outstanding	42,028			27,696			42,000			27,632

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

NN, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

Amounts in thousands ~~of dollars~~

June 30, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 23,207
$ 224,446
Accounts receivable, net 147,449
108,446
Inventories 116,136
82,617
Income tax receivable 51,682
43,253
Other current assets 24,494
18,518
Total current assets 362,968
477,280
Property, plant and equipment, net 334,021
259,280
Goodwill 617,814
454,612
Intangible assets, net 394,664
237,702
Investment in joint venture 40,515
39,822
Other non-current assets 11,102
6,307
Total assets $ 1,761,084
$ 1,475,003
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 55,066
$ 52,990
Accrued salaries, wages and benefits 28,429
21,145
Current maturities of long-term debt 29,809
17,283
Other current liabilities 25,129
17,003
Total current liabilities 138,433
108,421
Deferred tax liabilities 117,781
71,564
Non-current income tax payable 5,327
5,593
Long-term debt, net of current portion 1,040,434
790,805
Other non-current liabilities 15,795
12,516
Total liabilities 1,317,770
988,899
Commitments and contingencies (Note 12)

Total stockholders’ equity 443,314
486,104
Total liabilities and stockholders’ equity $ 1,761,084
$ 1,475,003

~~The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.~~

~~NN, Inc.~~

~~Condensed Consolidated Statement of Changes in Stockholders’ Equity~~

~~(Unaudited)~~

~~Amounts in thousands of dollars and shares~~

Number
of
shares Par
value Additional
paid in
capital Retained
earnings Accumulated other comprehensive loss Total
Balance, December 31, 2017 27,572
$ 275
$ 292,494
$ 211,080
$ (17,745 ) $ 486,104
Net loss —
—
—
(30,494 ) —
(30,494 )
Dividends declared —
—
—
(3,884 ) —
(3,884 )
Share-based compensation expense 165
2
2,332
—
—
2,334
Shares issued for option exercises 27
—
274
—
—
274
Restricted shares and performance shares forgiven for taxes and forfeited (35 ) —
(720 ) —
—
(720 )
Foreign currency translation gain (loss) —
—
—
—
(10,316 ) (10,316 )
Adoption of new accounting standard (Note 1) —
—
—
16
—
16
Balance, June 30, 2018 27,729
$ 277
$ 294,380
$ 176,718
$ (28,061 ) $ 443,314



	June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	22,077		$	17,988
Accounts receivable, net	151,289			133,421
Inventories	128,526			122,615
Income tax receivable	419			946
Other current assets	16,433			21,901
Total current assets	318,744			296,871
Property, plant and equipment, net	368,445			361,028
Operating lease right-of-use assets	65,300			—
Goodwill	439,632			439,452
Intangible assets, net	351,797			376,248
Investment in joint venture	20,406			20,364
Other non-current assets	7,961			7,607
Total assets	$	1,572,285		$	1,501,570
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	63,500		$	65,694
Accrued salaries, wages and benefits	29,980			24,636
Current maturities of long-term debt	25,115			31,280
Current portion of operating lease liabilities	7,272			—
Other current liabilities	23,472			23,420
Total current liabilities	149,339			145,030
Deferred tax liabilities	83,623			93,482
Non-current income tax payable	3,671			3,875
Long-term debt, net of current portion	850,376			811,471
Operating lease liabilities, net of current portion	64,152			—
Other non-current liabilities	43,263			29,417
Total liabilities	1,194,424			1,083,275
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock - $0.01 par value, authorized 90,000 shares, 42,367 and 42,104 shares issued and outstanding at June 30, 2019, and December 31, 2018, respectively	424			421
Additional paid-in capital	513,380			511,545
Retained deficit	(93,328		)	(62,046		)
Accumulated other comprehensive loss	(42,615		)	(31,625		)
Total stockholders’ equity	377,861			418,295
Total liabilities and stockholders’ equity	$	1,572,285		$	1,501,570

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended June 30, 2019 and 2018

(Unaudited)

Amounts in thousands



	Common Stock
	Number of shares	Par value		Additional paid in capital		Retained deficit			Accumulated other comprehensive loss			Total
Balance, March 31, 2019	42,367	$	424	$	512,274	$	(83,639	)	$	(34,219	)	$	394,840
Net loss	—	—		—		(6,697		)	—			(6,697		)
Cash dividends declared	—	—		—		(2,992		)	—			(2,992		)
Share-based compensation expense	—	—		1,106		—			—			1,106
Change in fair value of interest rate swap, net of tax of $1,993	—	—		—		—			(6,962		)	(6,962		)
Foreign currency translation loss	—	—		—		—			(1,434		)	(1,434		)
Adoption of new accounting standard (Note 1)	—	—		—		—			—			—
Balance, June 30, 2019	42,367	$	424	$	513,380	$	(93,328	)	$	(42,615	)	$	377,861



	Common Stock
	Number of shares		Par value		Additional paid in capital			Retained earnings			Accumulated other comprehensive loss			Total
Balance, March 31, 2018	27,666		$	276	$	293,704		$	203,159		$	(12,280	)	$	484,859
Net loss	—		—		—			(24,511		)	—			(24,511		)
Cash dividends declared	—		—		—			(1,930		)	—			(1,930		)
Shares issued for option exercises	4		—		32			—			—			32
Share-based compensation expense	78		1		1,077			—			—			1,078
Restricted shares and performance shares forgiven for taxes and forfeited	(19	)	—		(433		)	—			—			(433		)
Foreign currency translation loss	—		—		—			—			(15,781		)	(15,781		)
Balance, June 30, 2018	27,729		$	277	$	294,380		$	176,718		$	(28,061	)	$	443,314

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2019 and 2018

(Unaudited)

Amounts in thousands



	Common Stock
	Number of shares		Par value		Additional paid in capital			Retained deficit			Accumulated other comprehensive loss			Total
Balance, December 31, 2018	42,104		$	421	$	511,545		$	(62,046	)	$	(31,625	)	$	418,295
Net loss	—		—		—			(25,297		)	—			(25,297		)
Cash dividends declared	—		—		—			(5,934		)	—			(5,934		)
Share-based compensation expense	281		3		1,976			—			—			1,979
Restricted shares forgiven for taxes and forfeited	(18	)	—		(141		)	—			—			(141		)
Change in fair value of interest rate swap, net of tax of $3,097	—		—		—			—			(10,818		)	(10,818		)
Foreign currency translation loss	—		—		—			—			(172		)	(172		)
Adoption of new accounting standard (Note 1)	—		—		—			(51		)	—			(51		)
Balance, June 30, 2019	42,367		$	424	$	513,380		$	(93,328	)	$	(42,615	)	$	377,861



	Common Stock
	Number of shares		Par value		Additional paid in capital			Retained earnings			Accumulated other comprehensive loss			Total
Balance, December 31, 2017	27,572		$	275	$	292,494		$	211,080		$	(17,745	)	$	486,104
Net loss	—		—		—			(30,494		)	—			(30,494		)
Cash dividends declared	—		—		—			(3,884		)	—			(3,884		)
Shares issued for option exercises	27		—		274			—			—			274
Share-based compensation expense	165		2		2,332			—			—			2,334
Restricted shares and performance shares forgiven for taxes and forfeited	(35	)	—		(720		)	—			—			(720		)
Foreign currency translation loss	—		—		—			—			(10,316		)	(10,316		)
Adoption of new accounting standard	—		—		—			16			—			16
Balance, June 30, 2018	27,729		$	277	$	294,380		$	176,718		$	(28,061	)	$	443,314

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

NN, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Amounts in thousands ~~of dollars~~


	Six Months Ended June 30,							Six Months Ended June 30,
	2018			2017				2019			2018
Cash flows from operating activities
Net loss	$	(30,494	)	$	(13,727	)		$	(25,297	)	$	(30,494	)
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
Depreciation and amortization of continuing operations	30,539			25,622
Depreciation and amortization of discontinued operations	—			6,111
Depreciation and amortization								46,349			30,539
Amortization of debt issuance costs	2,313			2,153				2,354			2,313
Loss on extinguishment of debt and write-off of debt issuance costs	12,938			39,639				2,699			12,938
Share of net income from joint venture, net of cash dividends received	(1,478		)	(2,937		)		(66		)	(1,478		)
Compensation expense from issuance of share-based awards	2,334			2,218				1,979			2,334
Deferred income taxes								(6,762		)	(34		)
Other	180			102				540			214
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(17,256		)	(20,062		)		(17,723		)	(17,256		)
Inventories	(10,742		)	(5,945		)		(5,826		)	(10,742		)
Accounts payable	(4,653		)	1,339				(1,405		)	(4,653		)
Income taxes receivable	(8,695		)	(10,612		)
Income taxes receivable and payable, net								315			(8,695		)
Other	5,589			(8,136		)		7,210			5,589
Net cash provided by (used by) operating activities	(19,425		)	15,765				4,367			(19,425		)
Cash flows from investing activities
Acquisition of property, plant and equipment	(28,888		)	(20,658		)		(28,994		)	(28,888		)
Proceeds from liquidation of short-term investment								8,000			—
Cash paid to acquire businesses, net of cash received	(393,481		)	—				—			(393,481		)
Other	625			624				1,223			625
Net cash provided by (used by) investing activities	(421,744		)	(20,034		)
Net cash used by investing activities								(19,771		)	(421,744		)
Cash flows from financing activities
Cash paid for debt issuance or prepayment costs	(16,703		)	(38,130		)		(967		)	(16,703		)
Dividends paid	(3,854		)	(3,838		)		(5,913		)	(3,854		)
Proceeds from long-term debt	270,000			317,000				46,630			270,000
Repayment of long-term debt	(16,000		)	(266,874		)		(12,055		)	(16,000		)
Proceeds from (repayments of) short-term debt, net	9,703			(101		)		(6,218		)	9,703
Other	(2,410		)	120				(1,759		)	(2,410		)
Net cash provided by (used by) financing activities	240,736			8,177
Net cash provided by financing activities								19,718			240,736
Effect of exchange rate changes on cash flows	(806		)	853				(225		)	(806		)
Net change in cash and cash equivalents	(201,239		)	4,761				4,089			(201,239		)
Cash and cash equivalents at beginning of period	224,446			14,405			(1)	17,988			224,446
Cash and cash equivalents at end of period	$	23,207		$	19,166		(2)	$	22,077		$	23,207


~~(1)~~	~~Cash and cash equivalents as of December 31, 2016, includes $8.1 million of cash and cash equivalents that were included in current assets of discontinued operations.~~


~~(2)~~	~~Cash and cash equivalents as of June 30, 2017, includes $12.1 million of cash and cash equivalents that were included in current assets of discontinued operations.~~

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

NN, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, ~~2018~~2019

(Unaudited)

Amounts in thousands, ~~of dollars and shares,~~ except per share data

Note 1. Interim Financial Statements

Nature of Business

NN, Inc., is a global diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies for the medical, aerospace and defense, electrical, automotive, and general industrial markets. As used in this Quarterly Report on Form 10-Q (this “Quarterly Report), the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries. As of June 30, ~~2018,~~2019, we had 51 facilities in North America, Europe, South America, and China.

In January 2018, we implemented a new enterprise and management structure designed to accelerate growth and further balance our portfolio by aligning our strategic assets and businesses. Our businesses were reorganized into the Mobile Solutions, Power Solutions, and Life Sciences groups and are based principally on the end markets they serve. The Autocam Precision Components Group reported in our historical financial statements was renamed as Mobile Solutions. The Mobile Solutions group is focused on growth in the general industrial and automotive end markets. The Precision Engineered Products Group reported in our historical financial statements was bifurcated into two new groups – Power Solutions and Life Sciences. The Power Solutions group is focused on growth in the electrical and aerospace and defense end markets. The Life Sciences group is focused on growth in the medical end market.

Basis of Presentation

The accompanying condensed consolidated financial statements have not been audited, except that the Condensed Consolidated Balance Sheet as of December 31, ~~2017,~~2018, was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~“2017~~“2018 Annual Report”), which we filed with the U.S. Securities and Exchange Commission (the “SEC”), on April 2, 2018. Certain prior period amounts have been reclassified to conform to the current period’s presentation. Historical periods presented reflect reclassifications to reflect discontinued operations (see ~~Note 2). Historical periods also reflect revisions that we disclosed in our 2017 Annual Report (see~~ ~~Note 17~~).March 18, 2019. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to fairly state our results of operations for the three ~~months~~ and six months ended June 30, ~~2018~~2019 and ~~2017;~~2018; financial position as of June 30, ~~2018,~~2019, and December 31, ~~2017;~~2018; and cash flows for the ~~three months and~~ six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, on a basis consistent with our audited consolidated financial statements other than the adoption of new accounting standards, such as ~~revenue recognition.~~the new lease standard (see Note 10). These adjustments are of a normal recurring nature and are, in the opinion of management, necessary to ~~present~~state fairly the Company’s financial position and operating results for the interim periods.

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the United States (“U.S. GAAP”) have been condensed or omitted from the interim financial statements presented in this Quarterly ~~Report on Form 10-Q.~~Report. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the ~~2017~~2018 Annual Report. The results for the three ~~months~~ and six months ended June 30, ~~2018,~~2019, are not necessarily indicative of results for the year ending December 31, ~~2018,~~2019, or any other future periods.

Except for per share data or as otherwise indicated, all U.S. dollar amounts presented in the tables in these Notes to Condensed Consolidated Financial Statements are in thousands.

~~Prior Periods’ Financial Statement Revision~~

As disclosed in our 2017 Annual Report, we identified various misstatements in our previously issued 2016 and 2015 annual financial statements and interim periods in 2016 and 2017. These prior period errors related primarily to (i) accounting for income and franchise taxes, (ii) accounting for the gain on the disposition of a business, (iii) accounting for indemnification assets related to a prior acquisition, (iv) accounting for foreign currency transactions, (v) accounting for the translation of foreign subsidiary assets and joint venture, and (vi) other immaterial errors, including errors that had previously been adjusted for as out of period corrections in the periods identified. We assessed the materiality of the misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, ~~Materiality,~~ ~~codified in Accounting~~

~~Standards Codification (“ASC”) Topic 250,~~ ~~Accounting Changes and Error Corrections,~~ ~~(“ASC 250”) and concluded that the misstatements were not material to any prior annual or interim periods.~~

~~In accordance with ASC 250 (SAB Topic 1.N,~~ ~~Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we revised our previously issued 2016 and 2015 annual financial statements in our 2017 Annual Report. Accordingly, in connection with this Quarterly Report, we are revising our~~ ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~ and our Condensed Consolidated Statement of Cash Flows, the related notes, and other financial information for the three months and six months ended June 30, 2017, to correct for those misstatements that impacted such period. We will revise the remaining 2017 previously issued quarterly financial statements in connection with future 2018 filings on our Form 10-Q. Refer to ~~Note 17~~ ~~for reconciliations between as originally reported and as revised quarterly amounts.~~

Accounting Standards Recently Adopted

~~Revenue Recognition~~Leases. . On January 1, ~~2018,~~2019, we adopted ~~ASC Topic 606,~~Accounting Standards Codification (“ASC”) 842, ~~Revenue from Contracts with Customers~~Leases, (“which superseded ASC ~~606”)~~840, Leases. We adopted ASC ~~606~~842 utilizing the modified retrospective transition ~~method.~~approach; therefore, historical financial information and disclosures do not reflect the new standard and will continue to be presented under the previous lease accounting guidance. Under ~~this~~the modified retrospective transition method, we recognized the cumulative effect of ~~initially applying~~ the ~~new standard as an~~initial adoption adjustment to the opening balance of retained ~~earnings~~deficit as of January 1, ~~2018, and applied the new standard beginning with the most current period presented to contracts that were not completed at the date of initial application.~~2019. The adoption adjustment ~~which~~to retained deficit was ~~less than~~ $0.1 ~~million, represents the net profit on certain contracts that were accounted for on a consignment basis under ASC Topic 605,~~ ~~Revenue Recognition,~~ (“ASC 605”) Under ASC 605, a sale was not recognized under these consignment contracts until the inventory was used by our customers. Under the new standard, revenue is recognized earlier since the transfer of control to our customers occurs upon shipment from our facilities as our customers have obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impactmillion. As part of the adoption of ASC 842, we elected the ~~new standard~~package of practical expedients, the short-term lease exemption, and the practical expedient to ~~be immaterial~~not separate lease and non-lease components. We recorded lease-related assets and liabilities to our ~~results of operations~~balance sheet for leases with terms greater than twelve months that were classified as operating leases and not previously recorded on ~~an ongoing basis.~~our balance sheet. See Note 1310 for the required disclosures related to ~~the impact of adopting~~ ASC ~~606 and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.~~842.

~~Definition of a Business.~~Derivatives and Hedging. In ~~January~~August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, (“ASU ~~2017-01,~~ ~~Business Combinations (Topic 805): Clarifying~~2017-12”). ASU 2017-12 provides new rules that expand the ~~Definition of a Business,~~ ~~which changes the definition of a business.~~hedging strategies that qualify for hedge accounting. The new ~~guidance requires an entity~~rules also allow additional time to ~~first evaluate whether substantially all of~~complete hedge effectiveness testing and allow qualitative assessments subsequent to initial quantitative tests if there is a supportable expectation that the ~~fair value of~~hedge will remain highly effective. We adopted the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of assets and activities is not a business. If the threshold is not met, the entity evaluates whether the set meets the definition of a business. The new definition requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue recognition guidance. The new guidance ~~was effective for us beginning~~ on January 1, ~~2018.~~2019. We have applied the new ~~definition of a business prospectively~~rules to ~~any transactions occurring~~2019 hedging activities as disclosed in ~~2018 or later.~~Note 16 to these condensed consolidated financial statements. The new guidance ~~will have~~has no effect on our historical financial statements.

~~Statement of Cash Flows.~~ ~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)~~. This guidance provides clarification on how certain cash receipts and cash payments are presented and classified on the statement of cash flows, with focus on eight specific areas in which cash flows have, in practice, been presented inconsistently. The guidance was effective for NN beginning January 1, 2018, and is required to be adopted using a retrospective approach if practicable.

The new cash flow guidance requires that cash payments for debt prepayment costs be classified as cash outflows for financing activities. We paid $31.6 million for debt prepayment costs in April 2017. These debt prepayment costs were previously classified as cash used by operating activities in 2017. Under the new guidance, these costs are reclassified to cash used by financing activities when these comparable periods are presented in future filings.

The new guidance also requires entities to make an accounting policy election regarding classification of distributions received from equity method investees. Existing guidance does not currently address how an entity should determine which distributions represent returns on versus returns of investment. The lack of specific guidance has resulted in diversity in practice. The two allowable approaches are the “cumulative earnings” approach and the “nature of the distribution” approach, as defined by ASU 2016-15. Upon adoption of the new guidance on January 1, 2018, we utilized the cumulative earnings approach for classifying distributions received from our joint venture investment (see ~~Note 8). This policy election is consistent with our historical accounting.~~

~~Accounting Standards Not Yet Adopted~~

~~Leases.~~ ~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases. ASU 2016-02 creates Topic 842,~~ ~~Leases,~~ ~~in the ASC and supersedes ASC 840,~~ ~~Leases.~~ Entities that hold numerous equipment and real estate leases, in particular those with numerous operating leases, will be most affected by the new guidance. The lease accounting standard is effective for NN beginning January 1, 2019, with modified retrospective adoption required and early adoption permitted. The amendments in ASU 2016-02 are expected to impact our balance sheet by adding lease-related assets and liabilities. This may affect compliance with contractual agreements and loan covenants, if not addressed within the credit facility. We have performed inquiries within group locations and compiled information on operating and capital leases. We are using the results of these inquiries and compiled information to evaluate the impacts of the lease accounting standard on our financial position, results of operations, and related disclosures. Upon adoption, we expect to recognize a right-of-use asset and a lease liability for nearly all of our leases that are currently classified as operating leases and are therefore not recorded on the balance sheet. We are in the process of gathering information that will enable us to estimate the amounts of those assets and liabilities.

~~Goodwill.~~ ~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,~~ that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1 test). The standard is effective for us beginning with impairment tests performed on or after January 1, 2020, with early adoption permitted. We are currently evaluating the impact this new guidance is expected to have on our financial position or results of operations and related disclosures.

Effects of Tax Reform in Other Comprehensive Income.In February 2018, the FASB issued guidance related to the impacts of the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income (“AOCI”) are adjusted, certain tax effects become stranded in AOCI. The FASB issued ASU ~~2018-02,~~2018-2, Income Statement – Reporting Comprehensive

Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,that permits reclassification of certain income tax effects of the Tax Act from AOCI to retained earnings. The guidance also requires certain disclosures about stranded tax effects. The new guidance was effective for us on January 1, 2019. We adopted the new guidance at the beginning of the period of adoption. The new guidance had no effect on our financial statements.

Accounting Standards Not Yet Adopted

Fair Value Disclosures. In August 2018, the FASB issued ASU ~~2018-02~~2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, that modifies fair value disclosure requirements. The new guidance could impact us by streamlining disclosures of Level 3 fair value measurements. The modified disclosures are effective for us beginning in the first quarter of 2020, with early adoption allowed. ASU 2018-13 changes disclosures only and does not impact our financial condition, results of operations, or cash flows. We are in the process of evaluating the effects of this guidance on our fair value disclosures.

Internal-Use Software. In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), that provides guidance on a customer’s accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. ASU 2018-15 is effective for us on January 1, ~~2019,~~2020, using either a prospective or retrospective approach and with early adoption ~~in any period~~ permitted. Entities may adopt the guidance using either at the beginning of the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. We are in the process of evaluating ~~adoption method and~~ the effects of this ~~new~~guidance on our financial statements.

Financial Instruments - Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses on certain financial instruments and the timing of when such losses are recorded. ASU 2016-13 is effective for us on January 1, 2020, using a modified retrospective approach, with early adoption permitted. We are in the process of evaluating the effects of this guidance on our financial statements.

Note 2. ~~Discontinued Operations~~Acquisitions

Paragon Medical, Inc.

On ~~August 17, 2017,~~May 7, 2018, we completed the sale of our global precision bearing components business (the “PBC Business”). The PBC Business included all our facilities that were engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty products used primarily in the bearing industry. The saleacquired 100% of the ~~PBC Business furthers management’s long-term strategy~~stock of PMG Intermediate Holding Corporation, the parent company of Paragon Medical, Inc. (“Paragon Medical”). For accounting purposes, Paragon Medical meets the definition of a business and has been accounted for as a business combination. Paragon Medical is a medical device manufacturer that focuses on the orthopedic, case and tray, implant, and instrument markets. This acquisition continues our strategic focus to ~~build~~expand our Life Sciences portfolio as well as create a ~~diversified industrial~~balanced business ~~with a comprehensive geographic footprint in attractive high-growth market segments. The PBC Business represented all of~~by diversifying our products and finished device offerings. We have finalized the ~~Precision Bearing Components Group reportable segment~~purchase price allocation and recorded measurement period adjustments to the initial allocation as disclosed in our ~~historical financial statements.~~2018 Annual Report.

~~In accordance with ASC 205-20,~~ ~~Presentation of Financial Statements – Discontinued Operations, the operating~~Beginning May 7, 2018, our consolidated results of operations include the ~~PBC Business~~results of Paragon Medical.

The unaudited pro forma financial results shown in the table below for the three and six months ended June 30, 2018, combine the consolidated results of NN and Paragon Medical giving effect to the Paragon Medical acquisition as if it had been completed on January 1, 2017. The unaudited pro forma financial results do not give effect to any of our other acquisitions that occurred after January 1, 2017, ~~are classified as discontinued operations. The presentation of discontinued operations includes revenues~~ and ~~expenses~~do not include any anticipated synergies or other assumed benefits of the ~~discontinued~~Paragon Medical acquisition. This unaudited pro forma financial information is presented for informational purposes only and is not indicative of future operations ~~net~~or results had the Paragon Medical acquisition been completed as of ~~tax, as one line item on~~January 1, 2017.

The unaudited pro forma financial results include certain adjustments for debt service costs and additional depreciation and amortization expense based upon the ~~Condensed Consolidated Statements~~fair value step-up and estimated useful lives of ~~Operations~~Paragon Medical depreciable fixed assets and ~~Comprehensive Income (Loss). All historical~~ ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~ ~~presented have~~definite-life amortizable assets acquired. The provision for income taxes has also been ~~revised to reflect this presentation. Accordingly, results of the PBC Business have been excluded from continuing operations and group results~~adjusted for all periods, ~~presented in~~based upon the condensed consolidated financial statements and the accompanying notes unless otherwise stated. The Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2017, includes cash flows of the PBC Business in each line item unless otherwise stated.

~~The following table summarizes the major line items included in the results of operations of the discontinued operations.~~foregoing adjustments to historical results.

Three Months Ended June 30, 2017 Six Months Ended
June 30, 2017
Net sales $ 67,928
$ 136,687
Cost of sales (exclusive of depreciation and amortization shown separately below) 51,526
104,485
Selling, general and administrative expense 4,768
9,121
Depreciation and amortization 3,102
6,111
Restructuring and integration expense 300
429

Income from operations 8,232
16,541
Interest expense (income) 71
188
Other expense (income), net 20
18

Income from discontinued operations before provision for income taxes 8,141
16,335
Provision for income taxes 2,905
5,581

Income from discontinued operations, net of tax $ 5,236
$ 10,754



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Pro forma net sales	$	210,902		$	420,731
Pro forma net loss	$	(12,017	)	$	(20,078	)
Basic net loss per share	$	(0.43	)	$	(0.73	)
Diluted net loss per share	$	(0.43	)	$	(0.73	)

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

Six Months Ended
June 30, 2017
Depreciation and amortization $ 6,111
Acquisition of property, plant and equipment $ 5,208

~~Note 3.~~Other Acquisitions

Bridgemedica, ~~LLC~~

LLC. On February 22, 2018, we completed the acquisition of 100% of the assets of Bridgemedica, LLC (“Bridgemedica”). For accounting purposes, Bridgemedica meets the definition of a business and has been accounted for as a business combination. Bridgemedica is a medical device company that provides concept to supply solutions through design, development engineering, and manufacturing. Operating results of Bridgemedica are reported ~~prospectively~~ in our Life Sciences group after the acquisition date. We have finalized ~~certain working capital adjustments and are in~~ the ~~process of completing~~purchase price allocation with no material changes to the ~~integration of the Bridgemedica business into our operations. Amounts recorded for preliminary goodwill and intangible assets are disclosed in~~ ~~Note 6~~ ~~and~~ ~~Note 7, respectively, and are subject to completion of our integration procedures.~~initial allocation.

~~Paragon Medical,~~Southern California Technical Arts, Inc.

On ~~May 7,~~August 9, 2018, we ~~acquired~~completed the acquisition of 100% of the capital stock of ~~PMG Intermediate Holding Corporation, the parent company of Paragon Medical,~~Southern California Technical Arts, Inc. (“~~Paragon Medical”~~Technical Arts”) for a base purchase price of $375.0 million in cash, subject to certain adjustments. After estimated working capital and other closing adjustments, the cash purchase price was approximately $391.0 million which included $13.4 million in cash acquired. We paid cash of $392.2 million and recorded a receivable of approximately $1.3 million in other current assets for the balance.. For accounting purposes, ~~Paragon Medical~~Technical Arts meets the definition of a business and has been accounted for as a business combination. ~~Paragon Medical~~Technical Arts is ~~a medical device manufacturer which focuses on~~an industrial machining company that manufactures tight tolerance metal components and assemblies. The acquisition of Technical Arts expands our presence in the ~~orthopedic, case~~aerospace and tray, implant and instrument markets. This acquisition continues our strategic focus to expand our Life Sciences portfolio as well as create a balanced business by diversifying our products and finished device offerings.defense end market. Operating results of ~~Paragon Medical~~Technical Arts are reported ~~prospectively from the date of acquisition~~ in our ~~Life Sciences group.~~Power Solutions group after the acquisition date. We have ~~performed~~completed a preliminary assessment of the opening balance sheet and purchase price allocation which is subject to completion of working capital adjustments and fair value estimates. Opening balance sheet deferred taxes have been recorded based on estimates made as of the acquisition date as well as information currently available to management. As estimates are refined and additional information is received throughout the measurement period, adjustments to opening deferred taxes will be recorded with an offsetting adjustment to goodwill. We incurred new debt in connection with the Paragon Medical acquisition as described in ~~Note 10~~.

~~The following table summarizes the~~ preliminary purchase price allocation ~~for~~and are in the ~~Paragon Medical acquisition.~~

Fair value of assets acquired and liabilities assumed May 7, 2018
Cash and cash equivalents $ 13,418
Accounts receivable 22,853
Inventories 23,606
Other current assets 937
Property, plant and equipment 69,322
Intangible assets subject to amortization 164,200
Other non-current assets 3,304
Goodwill 157,421
Total assets acquired $ 455,061
Current liabilities $ 16,767
Deferred tax liability 46,713
Other non-current liabilities 620
Total liabilities assumed $ 64,100
Net assets acquired $ 390,961

~~A combination~~process of income, market, and cost approaches were used for the valuation where appropriate, depending on the asset or liability being valued. Valuation inputs in these models and analyses gave consideration to market participant assumptions. Acquired intangible assets are primarily customer relationships. As of June 30, 2018, intangible assets in connection with Paragon Medical were $163.3 million after post-acquisition amortization.

In connection with the Paragon Medical acquisition, we recorded goodwill, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of liabilities assumed. As of June 30, 2018, goodwill in connection with Paragon Medical was approximately $155.6 million after post-acquisition currency impacts. The goodwill is attributed primarily to Paragon Medical as a going concern, the assembled workforce, andfinalizing the fair value of expected cost synergies, and revenue growth from combining the NN and Paragon Medical life sciences businesses. The going concern element represents the ability to earn a higher return on the combined assembled collection of assets ~~and businesses of Paragon Medical than if those assets and businesses were to be~~ acquired and ~~managed separately. Approximately $2.8 million of the goodwill relates to prior asset acquisitions by Paragon Medical and is expected to be deducted for tax purposes.~~

Property, plant and equipment acquired primarily included machinery and equipment for use in manufacturing operations. Additionally, manufacturing sites and related facilities, including leasehold improvements, were acquired. We have performed a preliminary assessment of the fair value of property, plant and equipment using both the cost approach and the market approach. The preliminary assessment was supported where available by observable market data which includes consideration of obsolescence. We have performed a preliminary assessment of the fair value of intangible assets using the income approach, supported by market data, by using the relief from royalty and multi-period excess earnings methods.

We incurred approximately $4.9 million in acquisition related costs with respect to Paragon Medical during the six months ended June 30, 2018. Transaction costs were expensed as incurred and are included in the “Acquisition related costs excluded from selling, general and administrative expense” line item in the liabilities assumed.~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~. We expensed $12.9 million of financing costs related to the Paragon Medical acquisition during the six months ended June 30, 2018, which are included in the "Loss on extinguishment of debt and write-off of debt issuance costs" line item in the ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~. As required by the acquisition method of accounting, acquired inventories were recorded at their estimated fair value. Beginning May 7, 2018, our consolidated results of operations include the results of Paragon Medical. Since the date of the acquisition, net sales of $27.1 million and income from operations of $1.7 million has been included in our condensed consolidated financial statements.

The unaudited pro forma financial results shown in the table below for the three and six months ended June 30, 2018 and 2017, combine the consolidated results of NN and Paragon Medical giving effect to the Paragon Medical acquisition as if it had been completed on January 1, 2017, the beginning of the comparable prior annual reporting period presented. The unaudited pro forma financial results do not give effect to any of our other acquisitions that occurred after January 1, 2017, and do not include any anticipated synergies or other assumed benefits of the Paragon Medical acquisition. This unaudited pro forma financial

~~information is presented for informational purposes only and is not indicative of future operations or results had the Paragon Medical acquisition been completed as of January 1, 2017.~~

The unaudited pro forma financial results include certain adjustments for additional depreciation and amortization expense based upon the fair value step-up and estimated useful lives of Paragon Medical depreciable fixed assets and definite-life amortizable assets acquired. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results. The impact of adopting ASC 606 has been included based on an adoption date of January 1, 2018.

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Pro forma net sales $ 210,902
$ 193,578
$ 420,731
$ 384,846
Pro forma income (loss) from continuing operations $ (12,017 ) $ (29,092 ) $ (20,078 ) $ (44,238 )
Pro forma net income (loss) $ (12,017 ) $ (23,856 ) $ (20,078 ) $ (33,484 )
Basic income (loss) from continuing operations per share $ (0.43 ) $ (1.06 ) $ (0.73 ) $ (1.62 )
Diluted income (loss) from continuing operations per share $ (0.43 ) $ (1.06 ) $ (0.73 ) $ (1.62 )

Unaudited pro forma results for the six months ended June 30, 2017, include $14.8 million of inventory fair value adjustments, financing, integration, and transaction costs, net of tax, directly attributable to the acquisition which will not have an ongoing impact. No such costs are present in the unaudited pro forma results for the three months ended June 30, 2017.

Note 4.3. Segment Information

We determined our reportable segments under the provisions of U.S. GAAP related to disclosures about segments of an enterprise. Management has concluded that Mobile Solutions, which is focused on growth in the general industrial and automotive end markets; Power Solutions, which is focused on growth in the electrical and aerospace and defense end markets; and Life Sciences, which is focused on growth in the medical end market, constitute our operating segments. Mobile Solutions, Power Solutions, and Life Sciences ~~each constitutes an~~are considered operating ~~segment~~segments as each engages in business activities for which it earns revenues and incurs expenses, ~~for which separate~~discrete financial information is available for each, and this is the level at which the Chief Operating Decision Maker (“CODM”) reviews discrete financial information for purposes of allocating resources and assessing performance. ~~In making this determination, management considered the form and content of the financial information that is regularly reviewed by the CODM. As described in~~ ~~Note 1~~, in January 2018, we implemented a new enterprise and management structure and reorganized our businesses into the Mobile Solutions, Power Solutions and Life Sciences groups based principally on the end markets they serve. In the first quarter of 2018, we began reporting our financial results based on these new reportable segments. Prior year amounts have been restated to conform to the current year presentation.

~~Mobile Solutions~~

~~Mobile Solutions is focused on growth in the general industrial and automotive end markets.~~ We have developed an expertise in manufacturing highly complex, system critical components for fuel systems, engines and transmissions, power steering systems and electromechanical motors on a high-volume basis. This expertise has been gained through investment in technical capabilities, processes and systems, and skilled program management and product launch capabilities.

~~Power Solutions~~

Power Solutions is focused on growth in the electrical, and aerospace and defense end markets. Within this group we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies and finished devices used in applications ranging from power control to flight control and for military devices.

We manufacture a variety of products including electrical contacts, connectors, contact assemblies and precision stampings for the electrical end market and high precision products for the aerospace and defense end markets utilizing our extensive process technologies for optical grade plastics, thermally conductive plastics, titanium, Inconel, magnesium and electroplating.

~~Life Sciences~~

Life Sciences is focused on growth in the medical end market. Within this group we combine advanced engineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies and finished devices.

We manufacture a variety of components, assemblies and instruments, such as surgical knives, bioresorbable implants, surgical staples, cases and trays, orthopedic implants and tools, laparoscopic devices, and drug delivery devices for the medical and life sciences end market.

Segment Results

The following table presents results of ~~continuing~~ operations for each reportable segment.


	Mobile Solutions		Power Solutions		Life Sciences		Corporate and Consolidations				Total Continuing Operations			Mobile Solutions		Power Solutions		Life Sciences		Corporate and Consolidations				Total
Three Months Ended June 30, 2019
Net sales														$	79,444	$	51,393	$	91,332	$	(503	)	(a)	$	221,666
Income (loss) from operations														$	4,092	$	5,682	$	9,305	$	(10,981	)		$	8,098
Interest expense																								(13,958		)
Other																								(57		)
Loss before provision for income taxes and share of net income from joint venture																								$	(5,917	)
Three Months Ended June 30, 2018
Net sales	$	88,079	$	49,820	$	59,153	$	(703	)	(a)	$	196,349		$	88,079	$	49,820	$	59,153	$	(703	)	(a)	$	196,349
Income (loss) from operations	$	7,380	$	6,000	$	2,041	$	(15,713	)		$	(292	)	$	7,380	$	6,000	$	2,041	$	(15,713	)		$	(292	)
Interest expense											(15,988		)											(15,988		)
Other											(14,825		)											(14,825		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture											$	(31,105	)
Six Months Ended June 30, 2018
Net sales	$	177,873	$	98,502	$	90,353	$	(1,231	)	(a)	$	365,497
Income (loss) from operations	$	17,165	$	11,233	$	6,245	$	(31,242	)		$	3,401
Interest expense											(27,984		)
Other											(14,512		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture											$	(39,095	)
Three Months Ended June 30, 2017
Net sales	$	86,658	$	48,734	$	23,114	$	(559	)		$	157,947
Income (loss) from operations	$	10,688	$	6,819	$	3,798	$	(8,663	)		$	12,642
Interest expense											(12,338		)
Other											(40,025		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture											$	(39,721	)
Six Months Ended June 30, 2017
Net sales	$	173,104	$	97,158	$	46,243	$	(1,003	)		$	315,502
Income (loss) from operations	$	21,289	$	13,614	$	7,420	$	(15,829	)		$	26,494
Interest expense											(27,177		)
Other											(39,215		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture											$	(39,898	)
Loss before benefit for income taxes and share of net income from joint venture																								$	(31,105	)



	Mobile Solutions		Power Solutions		Life Sciences		Corporate and Consolidations				Total
Six Months Ended June 30, 2019
Net sales	$	157,519	$	101,050	$	177,340	$	(987	)	(a)	$	434,922
Income (loss) from operations	$	8,199	$	9,506	$	13,151	$	(22,157	)		$	8,699
Interest expense											(27,759		)
Other											(3,485		)
Loss before benefit for income taxes and share of net income from joint venture											$	(22,545	)
Six Months Ended June 30, 2018
Net sales	$	177,873	$	98,502	$	90,353	$	(1,231	)	(a)	$	365,497
Income (loss) from operations	$	17,165	$	11,233	$	6,245	$	(31,242	)		$	3,401
Interest expense											(27,984		)
Other											(14,512		)
Loss before benefit for income taxes and share of net income from joint venture											$	(39,095	)


(a)	Includes ~~eliminations~~elimination of intersegment transactions occurring during the ordinary course of business.

Total Assets as of
June 30, 2018 December 31, 2017
Mobile Solutions $ 446,111
$ 428,321
Power Solutions 390,656
383,063
Life Sciences 811,299
355,703
Corporate and Consolidations 113,018
307,916
Total Continuing Operations $ 1,761,084
$ 1,475,003

The Paragon Medical business acquired on May 7, 2018, contributed $27.1 million to net sales and $1.7 million to income from operations in the Life Sciences group after the acquisition date through June 30, 2018. The Bridgemedica business acquired on February 22, 2018, contributed $3.6 million to net sales and less than $0.1 million to income from operations in the Life Sciences group after the acquisition date through June 30, 2018.



	Total Assets as of
	June 30, 2019		December 31, 2018
Mobile Solutions	$	396,398	$	356,387
Power Solutions	309,516		297,947
Life Sciences	815,626		802,770
Corporate and Consolidations	50,745		44,466
Total	$	1,572,285	$	1,501,570

Note 5.4. Inventories

Inventories are comprised of the following amounts:


	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Raw materials	$	48,895	$	37,337	$	53,789	$	52,930
Work in process	42,311		27,669		49,051		42,578
Finished goods	24,930		17,611		25,686		27,107
Inventories	$	116,136	$	82,617
Total inventories					$	128,526	$	122,615

Note 6.5. Goodwill

The following table shows changes in the carrying amount of goodwill.

Mobile
Solutions

Power
Solutions

Life
Sciences
Total
Balance as of December 31, 2017 $ 74,147
$ 201,881
$ 178,584
$ 454,612
Currency impacts (439 ) (384 ) (1,847 ) (2,670 )
Goodwill acquired in acquisitions —
—
165,454
165,454
Adjustments to goodwill —
—
418
418
Balance as of June 30, 2018 $ 73,708
$ 201,497
$ 342,609
$ 617,814



	Mobile Solutions		Power Solutions		Life Sciences			Total
Balance as of December 31, 2018	$	—	$	94,505	$	344,947		$	439,452
Currency impacts/Other	—		196		(16		)	180
Balance as of June 30, 2019	$	—	$	94,701	$	344,931		$	439,632

~~The~~Based on the closing price of a share of our common stock as of June 30, 2019, our market capitalization was in excess of the net book value of our stockholders’ equity. Subsequent to June 30, 2019, our market capitalization declined to a level less than the net book value of our stockholders’ equity. A prolonged or significant decline in market capitalization could be an indicator of additional goodwill ~~acquired~~impairment. We will continue to monitor our market capitalization to determine if an indicator of impairment exists in subsequent periods.

During 2018, ~~is related~~as a result of our annual goodwill impairment analysis performed during the fourth quarter of 2018, we recorded an impairment of $109.1 million in our Power Solutions group. Subsequent to the ~~Paragon Medical and Bridgemedica acquisitions as described in~~ ~~Note 3~~ ~~and is derived from~~impairment, at December 31, 2018, Power Solutions reported a goodwill balance of $94.5 million. Given the carrying value of the ~~businesses acquired. We recorded $157.4 million of goodwill related~~Power Solutions group was equal to the Paragon Medical acquisition and $8.0 million of goodwill related to the Bridgemedica acquisition during the six months ended June 30, 2018. We are in the process of analyzing the opening balance sheets and purchase price allocations for these acquisitions. The preliminaryits fair value of the businesses acquired was based on management business plans and future performance estimates which are subject to a high degree of management judgment and complexity. Actual results may differ from these projections and the differences may be material, leading to measurement period adjustments of this goodwill.

~~In the first quarter of~~at December 31, 2018, as a result of the ~~changes in our organizational~~2018 goodwill impairment, if actual performance of the Power Solutions group falls short of expected results, additional material impairment charges may be required. During the second quarter of 2019, we assessed for triggering events that would signify the need to perform an impairment test and ~~management structure, goodwill was reassigned~~concluded there were no triggering events during the period. We will continue to ~~operating segments using a relative fair value allocation. For further information on the organizational changes, see~~ ~~Note 1~~.monitor and assess Power Solutions during 2019.

Note 7.6. Intangible Assets, Net

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

Mobile
Solutions

Power
Solutions

Life
Sciences
Total
Balance as of December 31, 2017 $ 39,446
$ 105,030
$ 93,226
$ 237,702
Amortization (1,770 ) (5,725 ) (5,490 ) (12,985 )
Currency impacts (18 ) 52
—
34
Intangible assets acquired in acquisitions —
—
169,913
169,913
Balance as of June 30, 2018 $ 37,658
$ 99,357
$ 257,649
$ 394,664

The following table shows the nature and preliminary weighted average estimated useful lives of intangible assets acquired during the six months ended June 30, 2018. Actual results may differ from these projections and the differences may be material, leading to measurement period adjustments of these intangible assets.

Gross Carrying Value as of Acquisition Date Weighted Average Estimated Useful Life in Years
Customer relationships $ 144,900
20
Trademark and trade name 15,400
29
Other 9,613
1
Total intangible assets acquired in current year $ 169,913
19

As of January 1, 2018, as a result of the changes in our organizational and management structure, intangible assets were reassigned to operating segments using a relative fair value allocation. For further information on the organizational changes, see ~~Note 1~~.



	Mobile Solutions			Power Solutions			Life Sciences			Total
Balance as of December 31, 2018	$	35,892		$	95,991		$	244,365		$	376,248
Amortization	(1,770		)	(5,497		)	(17,193		)	(24,460		)
Currency impacts/Other	2			—			7			9
Balance as of June 30, 2019	$	34,124		$	90,494		$	227,179		$	351,797

Note 8.7. Investment in Joint Venture

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

The following table summarizes activity related to our investment in the JV.

Balance as of December 31, 2017 $ 39,822
Share of cumulative earnings 1,718
Accretion of basis difference from purchase accounting (240 )
Foreign currency translation loss (785 )

Balance as of June 30, 2018 $ 40,515



Balance as of December 31, 2018	$	20,364
Share of earnings	66
Foreign currency translation gain	(24		)
Balance as of June 30, 2019	$	20,406

During the fourth quarter of 2018, as a result of changing market conditions, the fair value of the JV was assessed and we recorded an impairment of $16.6 million against our investment in the JV. The fair value assessment was significantly affected by changes in our assessment of future growth rates. It is reasonably possible that material deviation of future performance from the estimates used in the 2018 valuation could result in additional impairment to our investment in the JV in subsequent periods. During the second quarter of 2019, we assessed for triggering events that would signify the need to perform an impairment test and concluded there were no triggering events during the period.

We recognized sales to the JV of ~~$0.2~~less than $0.1 million and ~~approximately~~ $0.1 million during the three and six months ended June 30, 2019, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2018, ~~and 2017,~~ respectively.

~~The following tables show selected financial data of the JV.~~

June 30, 2018 December 31, 2017
Current assets $ 52,856
$ 47,600
Non-current assets 33,985
24,763
Total assets $ 86,841
$ 72,363
Current liabilities $ 38,109
$ 26,165
Total liabilities $ 38,109
$ 26,165

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Net sales $ 18,111
$ 17,473
$ 36,114
$ 36,584
Cost of sales $ 15,537
$ 13,724
$ 30,684
$ 28,160
Income from operations $ 2,157
$ 3,385
$ 4,665
$ 7,796
Net income $ 1,552
$ 2,770
$ 3,504
$ 6,459

Note 9.8. Income Taxes

~~On December 22, 2017, the U. S. government enacted comprehensive tax legislation. The Tax Act reduces the maximum U.S. federal corporate income~~Our effective tax rate ~~from 35% to 21%~~was (9.8)% and creates new taxes on certain foreign sourced earnings. In response to the Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) which allows issuers to recognize provisional estimates of the impact of the Tax Act in their financial statements, or in circumstances where estimates cannot be made, to disclose and recognize at a later date.

~~For the year ended December 31, 2017, we included in our financial statements provisional charges~~(12.5)% for the ~~revaluation of our net domestic deferred tax assets~~three months and ~~a one-time charge for the deemed repatriation of historic unremitted earnings. During the~~ six months ended June 30, ~~2018, there were no additional changes to the provisional amounts recorded as of December 31, 2017. The accounting is expected to be completed~~2019, respectively, and ~~disclosed within the one-year measurement period as allowed by SAB 118.~~

~~Our effective tax rate from continuing operations was~~ 19.1% and 18.2% for the three months and six months ended June 30, 2018, ~~respectively,~~respectively. Our 2019 effective tax rate differs from the U.S. federal statutory tax rate of 21% principally due to a discrete tax charge of $6.0 million related to final tax regulations published by the Department of the Treasury and ~~30.5%~~Internal Revenue Service on February 4, 2019. The 2019 effective tax rate was also impacted by the minimum tax on global intangible low-tax income (“GILTI”) and ~~31.3%~~earnings outside the United States, which are taxed at different rates than the U.S. federal statutory tax rate of 21%. The effective tax rate for the three months ~~and six months~~ ended June 30, ~~2017, respectively.~~ 2019, was primarily impacted by changes in the full year forecast book income (loss) within each jurisdiction in which the Company operates.

Our 2018 effective tax ~~rates differ~~rate differed from the U.S. federal statutory tax rate of 21% due to permanent differences including certain provisions of the Tax Act, specifically the base-broadening provision which imposed a new minimum tax on global intangible low-tax income (“GILTI”). Our 2017 effective tax rates differ from the U.S. federal statutory tax rate of 34% due primarily toGILTI and earnings outside the ~~U.S.~~United States, which were taxed at different rates ~~lower~~ than the U.S. federal statutory ~~rate.~~rate of 21%.

~~During the six months ended June 30, 2018, we finalized~~

Note 9. Debt

Collectively, our ~~accounting policy decision~~credit facility is comprised of a term loan with ~~respect to the new GILTI tax rules and have concluded that GILTI will be treated as~~ a ~~periodic charge in the year in which it arises. Therefore, we will not record deferred taxes for the basis associated with GILTI earnings.~~

~~During the third quarter~~face amount of ~~2017, the Internal Revenue Service commenced an examination of the federal tax return for the pre-acquisition period of January 1, 2015, through~~$545.0 million, maturing on October 19, ~~2015, for Precision Engineered Products Holdings, LLC,~~2022 (the “Senior Secured Term Loan”); a term loan with a face amount of $300.0 million, maturing on April 3, 2021 (the Incremental Term Loan”); and a revolving line of credit with a face amount of $110.0 million, maturing on October 19, 2020 (the “Senior Secured Revolver”). The credit facility is collateralized by all of our ~~wholly-owned subsidiary. The examination is ongoing as of June 30, 2018.~~

~~Note 10. Debt~~assets.

The following table presents debt balances as of June 30, ~~2018,~~2019, and December 31, ~~2017.~~2018.

June 30, 2018 December 31, 2017
$545.0 million Senior Secured Term Loan B (“Senior Secured Term Loan”) bearing interest at the greater of 0.75% or one-month LIBOR (2.09% at June 30, 2018), plus an applicable margin of 3.75% at June 30, 2018, expiring October 19, 2022 $ 534,250
$ 534,250
$300.0 million Incremental Term Loan (“Incremental Term Loan”) bearing interest at one-month LIBOR (2.09% at June 30, 2018), plus an applicable margin of 3.25% at June 30, 2018, expiring April 3, 2021 285,000
291,000
$143.0 million Senior Secured Revolver (“Senior Secured Revolver”) bearing interest at one-month LIBOR (2.09% at June 30, 2018) plus an applicable margin of 3.5% at June 30, 2018, expiring October 19, 2020 67,962
—
$200.0 million Second Lien Facility ("Second Lien") bearing interest at one-month LIBOR (2.09% at June 30, 2018), plus an applicable margin of 8.0% at June 30, 2018, expiring April 19, 2023 200,000
—
International lines of credit and other loans 4,962
3,315
Total 1,092,174
828,565
Less current maturities of long-term debt 29,809
17,283
Principal, net of current portion 1,062,365
811,282
Less unamortized debt issuance costs 21,931
20,477
Long-term debt, net of current portion $ 1,040,434
$ 790,805



	June 30, 2019		December 31, 2018
Senior Secured Term Loan	$	529,188	$	532,063
Incremental Term Loan	273,000		279,000
Senior Secured Revolver	76,382		38,720
International lines of credit and other loans	9,683		9,810
Total principal	888,253		859,593
Less—current maturities of long-term debt	25,115		31,280
Principal, net of current portion	863,138		828,313
Less—unamortized debt issuance costs	12,762		16,842
Long-term debt, net of current portion	$	850,376	$	811,471

We capitalized interest costs amounting to ~~$0.3~~$0.5 million and $0.3 million in the three months ended June 30, 2019 and 2018, respectively, and ~~2017,~~$1.1 million and $0.5 ~~million and $0.6~~ million in the six months ended June 30, 2019 and 2018, ~~and 2017,~~respectively, related to construction in progress.

~~Collectively, our~~Senior Secured Term Loan

Outstanding borrowings under the Senior Secured Term Loan bear interest at the greater of 0.75% or one-month London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 3.75%. At June 30, 2019, the Senior Secured Term Loan bore interest at 6.15%.

Incremental Term Loan

Outstanding borrowings under the Incremental Term Loan ~~and~~bear interest at one-month LIBOR plus an applicable margin of 3.25%. At June 30, 2019, the Incremental Term Loan bore interest of 5.65%.

Senior Secured Revolver

Outstanding borrowings under the Senior Secured Revolver ~~comprise~~bear interest on a variable rate structure with borrowings bearing interest at either one-month LIBOR plus an applicable margin of 3.50% or the prime lending rate plus an applicable margin of 2.50%. At June 30, 2019, the weighted average interest rate on outstanding borrowings under the Senior Secured Revolver was 6.02%. We pay an annual commitment fee of 0.50% for unused capacity under the Senior Secured Revolver on a quarterly basis.

On March 15, 2019, we amended our existing credit facility (the “March 2019 amendment”) to amend the defined terms within the credit facility. We paid $0.8 million of debt issuance costs related to the March 2019 amendment, which was recorded as a direct reduction to the carrying amount of the associated long-term debt. Additionally, $2.7 million of unamortized debt issuance costs related to the modification of the credit facility were written off.

On June 11, 2019, we amended our existing credit facility (the “June 2019 amendment”) to reduce the total available capacity under the Senior Secured Revolver from $125.0 million to $100.0 million, reduce the maximum capacity from $143.0 million to $110.0 million, and modify the consolidated net leverage ratio, as defined in the credit facility agreement, which is utilized for certain financial covenants. We paid $0.2 million of debt issuance costs related to the June 2019 amendment, which was recorded as a direct reduction to the carrying amount of the associated long-term debt.

~~facility agreement.~~ratio. The financial covenants are effective when we have outstanding ~~amounts drawn on~~borrowings under our Senior Secured Revolver on the last day of any fiscal quarter, ~~and~~ become more restrictive over ~~time.~~time, and are dependent upon our operational and financial performance. If our operational or financial performance does not improve in line with our expectations, we may be required to take actions to reduce expenditures and decrease our net indebtedness to maintain compliance in future periods. We ~~had $68.0 million outstanding balance on the Senior Secured Revolver as of June 30, 2018, and~~ were in compliance with all covenants under our credit facility ~~and expect to be in compliance with all covenants through~~at June 30, 2019.

~~Second Lien Credit Agreement~~

Our Senior Secured Revolver matures on October 19, 2020, which will require us to either extend the maturity date of the Senior Secured Revolver, generate sufficient cash flow through improved operational performance or other means to pay off any outstanding balance on the Senior Secured Revolver or seek additional forms of financing prior to the maturity date. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. If we are unable to extend the maturity date or refinance amounts due under our Senior Secured Revolver, or our operational performance fails to generate sufficient cash flows, we may be required to take additional actions to address our liquidity needs.

Derivative Instruments and Hedging Activities

In ~~connection with the Paragon Medical acquisition,~~February 2019, we ~~certain of our subsidiaries named therein, SunTrust Bank, as Administrative Agent, SunTrust Robinson Humphrey, Inc. as Lead Arranger and Bookrunner, and the lenders named therein~~ entered into a ~~Second Lien Credit Agreement (the “Second Lien Credit Agreement”) pursuant~~$700.0 million amortizing notional amount fixed-rate interest rate swap agreement to manage the interest rate risk associated with our long-term variable-rate debt until 2022. The fixed-rate interest rate swap agreement calls for us to receive interest monthly at a variable rate equal to one-month LIBOR and to pay interest monthly at a fixed rate of 2.4575%. Refer to Note 16 for further discussion of the interest rate swap agreement.

Note 10. Leases

We adopted ASC 842 on January 1, 2019, and elected the modified retrospective approach in which ~~SunTrust~~the new standard is applied to all leases existing at the date of adoption through a cumulative-effect adjustment of less than $0.1 million to retained deficit. Consequently, financial information is not updated, and the ~~other lenders extended~~disclosures required under the new standard are not provided for periods prior to usJanuary 1, 2019. As part of the adoption, we elected the package of practical expedients, the short-term lease exemption, and the practical expedient to not separate lease and non-lease components permitted within ASC 842. Accordingly, we accounted for our existing operating leases as operating leases under the new standard, without reassessing (a) whether the contracts contain a ~~$200.0 million secured second lien~~lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement.

We determine whether an arrangement is a lease at inception. Right-of-use (“ROU”) lease assets represent our right to use an underlying asset for the lease term, ~~loan facility (the “Second Lien Facility”). We utilized the net proceeds~~and lease obligations represent our obligation to make lease payments arising from the ~~Second Lien Facility, together~~lease. ROU lease assets and obligations 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 ROU lease assets is recognized in expense on a straight-line basis over the lease term.

Short-term leases are leases having a term of twelve months or less. We recognize short-term leases on a straight-line basis and do not record a related lease asset or liability for such leases. Finance lease ROU assets consist of equipment used in the manufacturing process with ~~cash on hand, to pay~~terms between thirteen months and five years. Operating lease ROU assets consist of the ~~Paragon Medical purchase price~~following:

Equipment used in the manufacturing process as well as office equipment with terms between thirteen months and ~~fees~~five years; and

Manufacturing plants and office facilities with terms between thirteen months and 25 years.

The following table presents components of lease expense for the three and six months ended June 30, 2019:



	Financial Statement Line Item	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Lease cost:
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	361	$	683
Interest expense	Interest expense	56		109
Operating lease cost	Cost of sales and selling, general and administrative expense	3,398		6,833
Short-term lease cost ⁽¹⁾	Cost of sales and selling, general and administrative expense	105		211
Total lease cost		$	3,920	$	7,836

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

The following table presents the ~~acquisition.~~ lease-related assets and liabilities recorded on the balance sheet as of June 30, 2019:



	Financial Statement Line Item	June 30, 2019
Lease assets and liabilities:
Assets
Operating lease assets	Operating lease right-of-use assets	$	65,300
Finance lease assets	Property, plant and equipment, net	13,534
Total lease assets		$	78,834

Liabilities
Current liabilities
Operating lease liabilities	Current portion of operating lease liabilities	$	7,272
Finance lease liabilities	Other current liabilities	2,331
Non-current liabilities
Operating lease liabilities	Operating lease liabilities, net of current portion	64,152
Finance lease liabilities	Other non-current liabilities	6,376
Total lease liabilities		$	80,131

The ~~Second Lien Facility~~following table contains supplemental information related to leases for the six months ended June 30, 2019:



Supplemental Cash Flows Information	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	109
Operating cash flows from operating leases	10,667
Financing cash flows from finance leases	1,618
Right-of-use assets obtained in exchange for new operating lease liabilities	$	2,878

As of June 30, 2019, the weighted average remaining lease term and weighted-average discount rate for finance and operating leases was as follows:



	Weighted-Average Remaining Lease Term (years)	Weighted-Average Discount Rate
Finance leases	3.9	2.4	%
Operating leases	10.1	8.2	%

The maturities of lease liabilities in excess of twelve months as of June 30, 2019, is ~~collateralized by all~~as follows:



	Operating Leases		Finance Leases
2019 ⁽¹⁾	$	6,612	$	1,542
2020	11,885		2,263
2021	11,025		2,249
2022	10,768		2,030
2023	9,233		1,118
Thereafter	57,127		72
Total future minimum lease payments	106,650		9,274
Less: imputed interest	35,226		567
Total lease liabilities	$	71,424	$	8,707


(1)	For the period from July 1, 2019 to December 31, 2019.

As of ~~our assets.~~ June 30, 2019, we have an additional operating lease commitment that has not yet commenced that would require us to pay a total of approximately $21.9 million base rent payments over the lease term of 15 years. This lease is expected to commence during the third quarter of 2020.

The ~~Second Lien Facility matures on April 19, 2023, and bears interest at either (i) a base rate, plus an applicable margin,~~following table summarizes the future minimum lease payments under operating leases with initial or ~~(ii) the greater~~non-cancelable lease terms in excess of the London Interbank Offered Rate (“LIBOR”) or 1.00%, plus an applicable margin. The initial applicable margin for all borrowings under the Second Lien Facility is 7.00% per annum with respect to base rate borrowings and 8.00% per annum with respect to LIBOR borrowings. We may voluntarily prepay outstanding loans under the Second Lien Facility, in whole or in part without premium or penalty at any time on or after May 7, 2020. We are subject to a prepayment penalty of 2% of the amount of such loans that we prepay before May 7, 2019. If we prepay any outstanding loans after May 7, 2019, butone year prior to ~~May 7, 2020, we are subject to a prepayment penalty~~adoption of ~~1% of~~ASC 842 as reported in the ~~amount prepaid. The Second Lien Credit Agreement requires us to prepay outstanding loans, subject to certain exceptions, with: (i) a variable percentage of excess cash flow; (ii) 100% of~~2018 Annual Report.



Year Ending December 31,
2019	$	13,337
2020	11,515
2021	10,557
2022	10,293
2023	8,752
Thereafter	53,945
Total minimum payments	$	108,399

During the ~~net cash proceeds of non-ordinary course asset sales or other dispositions of property,~~three and 100% of the net cash proceeds from certain insurance and condemnation events with respect to our assets, subject to customary thresholds and reinvestment rights; and (iii) 100% of the net cash proceeds from the issuance or incurrence of debt obligations for borrowed money not permitted by the Second Lien Credit Agreement.

~~Amendment to Credit Facility~~

~~On May 7,~~six months ended June 30, 2018, we ~~entered into an amendment to our existing credit facility to permit the Paragon Medical acquisition, to permit the Second Lien Credit Agreement,~~recognized rent expense of $2.4 million and ~~to amend certain covenants. We paid $16.7~~$4.5 million, ~~of debt issuance costs related to the amendment. A total of $12.9 million is included in the "Loss on extinguishment of debt and write-off of debt issuance costs" line on the~~ ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The remaining $3.8 million is capitalized as a reduction of long-term debt.~~respectively.

Note 11. Restructuring and Integration

The following ~~table summarizes~~tables summarize restructuring and integration charges incurred for the three months ended June 30, 2018 and the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. There were no restructuring and integration charges incurred for the three months ended June 30, 2019.


	Three Months Ended June 30, 2018												Three Months Ended June 30, 2018
	Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total			Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total
Severance and other employee costs	$	—		$	—	$	1,596	$	—	$	1,596		$	—		$	—	$	1,596	$	—	$	1,596
Other	(5		)	—		—		—		(5		)
Site closure and other associated costs													(5		)	—		—		—		(5		)
Total	$	(5	)	$	—	$	1,596	$	—	$	1,591		$	(5	)	$	—	$	1,596	$	—	$	1,591

	Six Months Ended June 30, 2018
	Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total
Severance and other employee costs	$	—		$	—	$	1,596	$	728	$	2,324
Other	22			—		—		—		22
Total	$	22		$	—	$	1,596	$	728	$	2,346

	Three Months Ended June 30, 2017
	Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total
Severance and other employee costs	$	6		$	—	$	—	$	—	$	6
Total	$	6		$	—	$	—	$	—	$	6

	Six Months Ended June 30, 2017
	Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total
Severance and other employee costs	$	17		$	—	$	—	$	—	$	17
Total	$	17		$	—	$	—	$	—	$	17



	Six Months Ended June 30, 2019
	Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total
Severance and other employee costs	$	—		$	—	$	—	$	—	$	—
Site closure and other associated costs	(12		)	—		—		—		(12		)
Total	$	(12	)	$	—	$	—	$	—	$	(12	)

	Six Months Ended June 30, 2018
	Mobile Solutions			Power Solutions		Life Sciences		Corporate and Consolidations		Total
Severance and other employee costs	$	—		$	—	$	1,596	$	728	$	2,324
Site closure and other associated costs	22			—		—		—		22
Total	$	22		$	—	$	1,596	$	728	$	2,346

The following table summarizes restructuring and integration reserve activity for the six months ended June 30, ~~2018.~~2019.


	Reserve Balance as of December 31, 2017		Charges		Non-cash Adjustments			Cash Reductions			Reserve Balance as of June 30, 2018		Reserve Balance as of December 31, 2018		Charges			Non-cash Adjustments		Cash Reductions			Reserve Balance as of June 30, 2019
Severance and other employee costs	$	—	$	2,324	$	—		$	(252	)	$	2,072	$	1,122	$	—		$	—	$	(392	)	$	730
Site closure and other associated costs	1,099		22		(61		)	(740		)	320		24		(12		)	—		(12		)	—
Total	$	1,099	$	2,346	$	(61	)	$	(992	)	$	2,392	$	1,146	$	(12	)	$	—	$	(404	)	$	730

~~We recognized severance costs of $0.7 million in the six months ended~~ ~~June 30, 2018, at corporate headquarters related to the restructuring of our former Precision Engineered Products Group to form the Power Solutions and Life Sciences groups effective January 2, 2018.~~

We recognized severance costs of $1.6 million in the six months ended June 30, 2018, in our Life Sciences group related to the integration of Paragon Medical into our existing business after the acquisition.

The amount accrued for restructuring and integration costs represents what we expect to pay over the next ~~2.7~~1.7 years. We expect to pay ~~$1.1~~$0.5 million within the next twelve months.

Note 12. Commitments and Contingencies

Brazil ICMS Tax Matter

Prior to the acquisition of Autocam Corporation in 2014 (“Autocam”), Autocam’s Brazilian subsidiary (“Autocam Brazil”) received notification from the Brazilian tax ~~authorities~~authority regarding ICMS (state value added tax or ~~VAT)~~“VAT”) tax credits claimed on intermediary materials ~~(tooling~~(e.g., tooling and perishable items) used in the manufacturing process. The Brazilian tax authority notification disallowed state ICMS tax credits claimed on intermediary materials based on the argument that these items are not intrinsically related to the manufacturing processes. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualify for an ICMS tax credit, contending that the intermediary materials are directly related to the manufacturing process.

We believe that we have substantial legal and factual defenses, and we plan to defend our interests in this matter vigorously. The matter encompasses several lawsuits filed with the Brazilian courts requesting declaratory actions that no tax is due or seeking a stay of execution on the collection of the tax. In 2018, we obtained a favorable decision in one of the declaratory actions for which the period for appeal has expired. We have filed actions in each court requesting dismissal of the matter based on the earlier court action. Although we anticipate a favorable resolution to all matters, we can provide no assurances that we will be successful in achieving dismissal of all pending cases. While we believe a loss is not probable, we estimate the range of possible losses related to this assessment is from $0 to $6.0 million. No amount was accrued at June 30, ~~2018,~~2019, for this matter. ~~There was no material change in the status of this matter from December 31, 2017, to June 30, 2018.~~

We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement and plan of merger relating to the Autocam acquisition. Management believes the indemnification would include amounts owed for the tax, interest, and penalties related to this matter.

All Other Legal Matters

All other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes.

Note 13. Revenue from Contracts with Customers

We adopted ASC 606 on January 1, 2018, using the modified retrospective transition method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 while the reported results for 2017 were prepared under the guidance of ASC 605. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our goods and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods. To the extent that transaction price includes variable consideration, 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 management’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

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

~~The following tables summarize sales to external customers by major source.~~

Six Months Ended June 30, 2018
Mobile
Solutions Power
Solutions Life
Sciences Intersegment
Sales
Eliminations Total
United States $ 97,797
$ 82,052
$ 78,994
$ (1,231 ) $ 257,612
China 23,162
2,444
1,438
—
27,044
Mexico 14,472
6,545
339
—
21,356
Brazil 19,522
50
29
—
19,601
Poland 3,971
18
1
—
3,990
Czech Republic 3,371
—
—
—
3,371
Italy 3,139
109
137
—
3,385
Germany 3,085
7
3,817
—
6,909
Switzerland 2,700
29
1,720
—
4,449
Netherlands —
1,907
—
—
1,907
Other 6,654
5,341
3,878
—
15,873
Total net sales $ 177,873
$ 98,502
$ 90,353
$ (1,231 ) $ 365,497

Three Months Ended June 30, 2018

Mobile
Solutions

Power
Solutions

Life
Sciences

Intersegment
Sales
Eliminations
Total
United States $ 48,142
$ 41,924
$ 48,441
$ (703 ) $ 137,804
China 11,581
959
1,312
—
13,852
Mexico 7,236
3,348
167
—
10,751
Brazil 9,637
—
29
—
9,666
Poland 1,919
4
1
—
1,924
Czech Republic 1,561
—
—
—
1,561
Italy 1,562
11
137
—
1,710
Germany 1,551
—
3,816
—
5,367
Switzerland 1,294
29
1,720
—
3,043
Netherlands —
933
—
—
933
Other 3,596
2,612
3,530
—
9,738
Total net sales $ 88,079
$ 49,820
$ 59,153
$ (703 ) $ 196,349

~~Product Sales~~

We generally transfer control and recognize a sale 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 goods. 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 less than one year, 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 have utilized certain practical expedients allowed by the new standard. We intend to utilize the portfolio approach practical expedient to evaluate sales-related discounts on a portfolio basis to contracts with similar characteristics. The effect on our

~~financial statements of applying the portfolio approach would not differ materially from applying the new standard to 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.~~

~~Other Sources of Revenue~~

We provide pre-production activities related to engineering efforts to develop molds, dies and machines that are owned by our customers. We may receive advance payments from customers which are deferred until satisfying our performance obligations by compliance with customer-specified milestones, recognizing revenue at a point in time. These contracts generally have an original expected duration of less than one year.

~~The following table provides information about contract liabilities from contracts with customers.~~

Deferred
Revenue
Balance at January 1, 2018 $ 2,124
Balance at June 30, 2018 $ 3,372

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and customer advances and deposits (contract liability) on the Condensed Consolidated Balance Sheet. These contract liabilities are reported on the Condensed Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period as deferred revenue. Deferred revenue relates to payments received in advance of performance under the contract and recognized as revenue as (or when) we perform under the contract. Changes in the contract liability balances during the three months and six months ended June 30, 2018, were not materially impacted by any other factors. Revenue recognized during the three months and six months ended June 30, 2018, from amounts included in deferred revenue at the beginning of the period for performance obligations satisfied or partially satisfied during the three months and six months ended June 30, 2018, was approximately $0.7 million and $1.0 million, respectively.

~~Transaction Price Allocated to Future Performance Obligations~~

ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2018. The guidance provides certain practical expedients that limit this requirement. Our contracts meet the following practical expedient provided by ASC 606:

~~The performance obligation is part of a contract that has an original expected duration of one year or less.~~

~~Costs to Obtain and Fulfill a Contract~~

Prior to the adoption of ASC 606, we expensed commissions paid to internal sales representatives for obtaining contracts. Under ASC 606, we adopted the practical expedient to recognize commissions paid to internal sales personnel that are incremental to obtaining customer contracts as an expense when incurred since the amortization period is less than one year. The judgments made in determining the amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract. Costs to obtain a contract are expensed as selling, general and administrative expense.

Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense.

~~Financial Statement Impact of Adopting ASC 606~~The following tables summarize sales to external customers by major source.



	Three Months Ended June 30, 2019
	Mobile Solutions		Power Solutions		Life Sciences		Intersegment Sales Eliminations			Total
United States	$	44,512	$	40,580	$	74,229	$	(503	)	$	158,818
China	9,318		1,598		1,873		—			12,789
Germany	1,316		21		8,447		—			9,784
Brazil	9,636		80		—		—			9,716
Mexico	5,066		4,235		117		—			9,418
Switzerland	1,153		25		3,509		—			4,687
Other	8,443		4,854		3,157		—			16,454
Total net sales	$	79,444	$	51,393	$	91,332	$	(503	)	$	221,666



	Three Months Ended June 30, 2018
	Mobile Solutions		Power Solutions		Life Sciences		Intersegment Sales Eliminations			Total
United States	$	48,142	$	41,924	$	48,441	$	(703	)	$	137,804
China	11,581		959		1,312		—			13,852
Mexico	7,236		3,348		167		—			10,751
Brazil	9,637		—		29		—			9,666
Germany	1,551		—		3,816		—			5,367
Switzerland	1,294		29		1,720		—			3,043
Other	8,638		3,560		3,668		—			15,866
Total net sales	$	88,079	$	49,820	$	59,153	$	(703	)	$	196,349



	Six Months Ended June 30, 2019
	Mobile Solutions		Power Solutions		Life Sciences		Intersegment Sales Eliminations			Total
United States	$	88,969	$	81,695	$	142,572	$	(987	)	$	312,249
China	18,471		3,436		3,565		—			25,472
Germany	2,722		37		17,332		—			20,091
Brazil	18,018		149		—		—			18,167
Mexico	10,444		6,944		244		—			17,632
Switzerland	2,512		41		6,775		—			9,328
Other	16,383		8,748		6,852		—			31,983
Total net sales	$	157,519	$	101,050	$	177,340	$	(987	)	$	434,922



	Six Months Ended June 30, 2018
	Mobile Solutions		Power Solutions		Life Sciences		Intersegment Sales Eliminations			Total
United States	$	97,797	$	82,052	$	78,994	$	(1,231	)	$	257,612
China	23,162		2,444		1,438		—			27,044
Mexico	14,472		6,545		339		—			21,356
Brazil	19,522		50		29		—			19,601
Germany	3,085		7		3,817		—			6,909
Switzerland	2,700		29		1,720		—			4,449
Poland	3,971		18		1		—			3,990
Other	13,164		7,357		4,015		—			24,536
Total net sales	$	177,873	$	98,502	$	90,353	$	(1,231	)	$	365,497

Deferred Revenue

The following table ~~presents~~provides information about contract liabilities from contracts with customers.



	Deferred Revenue
Balance at January 1, 2019	$	2,974
Balance at June 30, 2019	$	2,953

Revenue recognized during the ~~impact~~three and six months ended June 30, 2019, from amounts included in deferred revenue at the beginning of ~~adoption of ASC 606 on our~~ ~~Condensed Consolidated Statements of Operations~~the period for performance obligations satisfied or partially satisfied during the period, was approximately $0.9 million and ~~Comprehensive Income (Loss)~~ ~~and our~~ ~~Condensed Consolidated Balance Sheet~~. Differences are due to the acceleration in the recognition of revenue to the point of shipment or delivery for contracts where an unconditional obligation to purchase is present for inventory that was considered in consignment under ASC 605.$1.6 million, respectively.

Transaction Price Allocated to Future Performance Obligations

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
As Reported
Balances
Without
Adoption of
ASC 606

Effect of
Change
As Reported Balances
Without
Adoption of
ASC 606 Effect of
Change
Net sales $ 196,349
$ 196,367
$ (18 ) $ 365,497
$ 365,569
$ (72 )
Cost of sales 148,640
148,631
9
275,084
275,120
(36 )
Income (loss) from operations (292 ) (265 ) (27 ) 3,401
3,437
(36 )

As of June 30, 2018
As Reported
Balances
Without
Adoption of
ASC 606

Effect of
Change

Accounts receivable, net $ 147,449
$ 146,913
$ 536

Inventories 116,136
116,470
(334 )
We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2019, unless our contracts meet one of the practical expedients. Our contracts met the practical expedient for a performance obligation that is part of a contract that has an original expected duration of one year or less.

Sales Concentration

During the three months ended June 30, 2019, we recognized sales from a single customer of $23.0 million, or 10.4% of consolidated net sales. During the six months ended June 30, 2019, we recognized sales from a single customer of $45.1 million, or 10.4% of consolidated net sales. Revenues from this customer are in our Life Sciences and Power Solutions groups. No customers represented more than 10% of our net sales during the three and six months ended June 30, 2018.

Note 14. Shared-Based Compensation

The following table lists the components of share-based compensation expense by type of award.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Stock options	$	152	$	194	$	358	$	575	$	169	$	152	$	361	$	358
Restricted stock	397		395		856		855		502		397		961		856
Performance share units	529		477		1,120		788		435		529		657		1,120
Share-based compensation	$	1,078	$	1,066	$	2,334	$	2,218
Share-based compensation expense									$	1,106	$	1,078	$	1,979	$	2,334

Stock Options

During the six months ended June 30, ~~2018,~~2019, we granted options to purchase ~~55,300~~210,400 shares to certain key employees. The weighted average grant date fair value of the options granted during the six months ended June 30, ~~2018,~~2019, was ~~$10.68~~$2.77 per share. The fair value of our options cannot be determined by market value because they are not traded in an open market. Accordingly, we utilized the Black Scholes financial pricing model to estimate the fair value.

The following table shows the weighted average assumptions relevant to determining the fair value of stock options granted in ~~2018.~~2019.



	~~2018~~ ~~Stock Option~~ ~~Awards~~2019
Expected term	6 years
Risk free interest rate	~~2.65~~2.47	%
Dividend yield	~~1.14~~3.53	%
Expected volatility	~~47.78~~49.53	%
Expected forfeiture rate	4.00	%

The expected term is derived from using the simplified method of determining stock option terms as described under the ~~Securities and Exchange Commission’s~~ Staff Accounting Bulletin Topic 14, Share-based payment. The simplified method was used because sufficient historical stock option exercise experience was not ~~available.~~available, primarily due to the transformation of the management structure over the past several years.

The average risk-free interest rate is derived from United States Department of Treasury published interest rates of daily yield curves for the same time period as the expected term.

The expected dividend yield is derived by a mathematical formula which uses the expected annual dividends over the expected term divided by the fair market value of our common stock at the grant date.

The expected volatility rate is derived from our actual common stock historical volatility over the same time period as the expected term. The volatility rate is derived by a mathematical formula utilizing daily closing price data.

The forfeiture rate is determined from examining the historical pre-vesting forfeiture patterns of past option issuances to key employees. While the forfeiture rate is not an input of the Black Scholes model for determining the fair value of the options, it is an important determinant of stock option compensation expense to be recorded.

The following table summarizes stock option activity for the six months ended June 30, ~~2018.~~2019.



	Number of Options (in thousands)		Weighted- Average Exercise Price (per share)		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	771		$	15.17
Granted	210		7.93
Exercised	—					$	—
Forfeited or expired	(5	)	24.41
Outstanding at June 30, 2019	976		$	13.56	6.1	$	—	⁽¹⁾
Exercisable at June 30, 2019	701		$	14.26	4.8	$	—	⁽¹⁾

Options
Shares
(in thousands)

Weighted-
Average
Exercise
Price
(per share)

Weighted-
Average
Remaining
Contractual
Term (years)

Aggregate
Intrinsic
Value

Outstanding at January 1, 2018 746
$ 14.33

Granted 55
24.55

Exercised (27 ) 10.15
$ 274

Outstanding at June 30, 2018 774
$ 15.21
6.1 $ 2,861
(1)
Exercisable at June 30, 2018 625
$ 13.61
5.4 $ 3,304
(1)


(1)	The aggregate intrinsic value is the sum of intrinsic values for each exercisable individual option grant. The intrinsic value is the amount by which the closing market price of our stock at June 30, 2019, was greater than the exercise price of any individual option ~~grant at June 30, 2018.~~grant.

Restricted Stock

During the six months ended June 30, ~~2018,~~2019, we granted ~~86,516~~281,065 restricted stock awards to non-executive directors, officers and certain other key employees. The shares of restricted stock granted during the six months ended June 30, ~~2018,~~2019, vest pro-rata over three years for officers and certain other key employees and over one year for non-executive directors. We determined the fair value of the shares awarded by using the closing price of our common stock as of the date of grant. The weighted average grant date value of restricted stock granted in the six months ended June 30, ~~2018,~~2019, was ~~$24.55~~$7.93 per share. Total grant-date fair value of restricted stock that vested in the six months ended June 30, ~~2018,~~2019, was ~~$1.8~~$1.5 million.

The following table summarizes the status of unvested restricted stock awards as of June 30, ~~2018,~~2019, and changes during the six months then ended.


	Nonvested Restricted Shares (in thousands)		Weighted Average Grant-Date Fair Value (per share)		Nonvested Restricted Shares (in thousands)		Weighted Average Grant-Date Fair Value (per share)
Nonvested at January 1, 2018	152		$	19.21
Nonvested at January 1, 2019					146		$	22.07
Granted	87		$	24.55	281		7.93
Vested	(92	)	$	19.76	(70	)	20.92
Nonvested at June 30, 2018	147		$	22.02
Forfeited					(18	)	18.98
Nonvested at June 30, 2019					339		$	10.74

Performance Share Units

Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. PSU awards granted in ~~2018~~2019 were made pursuant to the NN, Inc. 2016 Omnibus Incentive Plan and a Performance Share Unit ~~Agreement.~~Agreement (the “2016 Omnibus Agreement”). Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”).

The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of the S&P SmallCap 600 Index during specified performance periods as defined in the ~~award agreements.~~2016 Omnibus Agreement. The ROIC Awards vest, if at all, upon our achieving a specified average return on invested capital during the performance periods. Each performance period generally begins on January 1 of the year of grant and ends 36 months later on December 31. ~~The ROIC Awards will vest, if at all, upon our achieving a specified average return on invested capital during the performance periods.~~

We recognize compensation expense over the performance period in which the performance and market conditions are measured. If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically. Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the executive officer’s continued employment. The actual number of shares of common stock ~~will~~to be issued to each award recipient at the end of the performance periods will be interpolated between a threshold and maximum payout amount based on actual performance results. No

dividends will be paid on outstanding PSUs during the performance period; however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the ~~Performance Periods.~~performance periods.

With respect to the TSR Awards, a participant will earn 50% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance. For performance levels falling between the values shown below, the percentages will be determined by interpolation.

The following table presents the goals with respect to TSR Awards and ROIC ~~for each award~~Awards granted in ~~2018.~~2019.

TSR: Threshold Performance
(50% of Shares) Target Performance
(100% of Shares) Maximum Performance
(150% of Shares)
2018 grants 35th Percentile 50th Percentile 75th Percentile

ROIC: Threshold Performance
(35% of Shares) Target Performance
(100% of Shares) Maximum Performance
(150% of Shares)
2018 grants 15.5 % 18 % 19.5 %



TSR Awards:	Threshold Performance (50% of Shares)		Target Performance (100% of Shares)		Maximum Performance (150% of Shares)
2019 grants	35th Percentile		50th Percentile		75th Percentile

ROIC Awards:	Threshold Performance (35% of Shares)		Target Performance (100% of Shares)		Maximum Performance (150% of Shares)
2019 grants ⁽¹⁾	4.7	%	5.8	%	7.0	%


(1)	For the ROIC Awards granted in 2019, the denominator of the calculation is different than in prior years, and therefore the target percentages are not comparable to historical target percentages.

We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metric is considered a market condition under ASC Topic 718, Compensation – stock compensation. The grant date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant.

The following table presents the number of awards granted and the grant date fair value of each award in the ~~periods~~period presented.


	TSR Awards			ROIC Awards			TSR Awards			ROIC Awards
Award Year	Shares (in thousands)	Grant Date Fair Value (per share)		Shares (in thousands)	Grant Date Fair Value (per share)		Shares (in thousands)	Grant Date Fair Value (per share)		Shares (in thousands)	Grant Date Fair Value (per share)
2018	55	$	24.65	55	$	24.55
2019							136	$	9.28	174	$	7.93

We recognize expense for ROIC Awards based on the probable outcome of the associated performance condition. We generally recognize an expense for ROIC Awards based on the Target Performance threshold of 100% because, at the date of grant, the Target Performance is the probable level of performance achievement. ~~All PSUs that vested on December 31, 2017, were settled in shares in May 2018.~~

The following table summarizes the status of unvested ~~PSU awards~~PSUs as of June 30, ~~2018,~~2019, and changes during the six months then ended.


	Nonvested TSR Awards				Nonvested ROIC Awards				Nonvested TSR Awards			Nonvested ROIC Awards
	Shares (in thousands)		Weighted Average Grant-Date Fair Value (per share)		Shares (in thousands)		Weighted Average Grant-Date Fair Value (per share)		Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)		Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)
Nonvested at January 1, 2018	130		$	16.60	136		$	16.27
Nonvested at January 1, 2019									94	$	26.84	100	$	24.39
Granted	55		$	24.65	55		$	24.55	136	9.28		174	7.93
Forfeited	(11	)	$	15.12	(12	)	$	15.49	—	—		—	—
Nonvested at June 30, 2018	174		$	18.90	179		$	18.63
Nonvested at June 30, 2019									230	$	16.47	274	$	13.93

Note 15. Net Income (Loss) Per Share


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Loss from continuing operations	$	(24,511	)	$	(26,374	)	$	(30,494	)	$	(24,481	)
Income from discontinued operations, net of tax (Note 2)	—			5,236			—			10,754
Numerator:
Net loss	$	(24,511	)	$	(21,138	)	$	(30,494	)	$	(13,727	)	$	(6,697	)	$	(24,511	)	$	(25,297	)	$	(30,494	)
Denominator:
Weighted average shares outstanding	27,696			27,468			27,632			27,358			42,028			27,696			42,000			27,632
Effect of dilutive stock options	—			—			—			—			—			—			—			—
Diluted shares outstanding	27,696			27,468			27,632			27,358			42,028			27,696			42,000			27,632
Basic loss from continuing operations per share	$	(0.89	)	$	(0.96	)	$	(1.10	)	$	(0.89	)
Basic income from discontinued operations per share	—			0.19			—			0.39
Per common share net loss:
Basic net loss per share	$	(0.89	)	$	(0.77	)	$	(1.10	)	$	(0.50	)	$	(0.16	)	$	(0.89	)	$	(0.60	)	$	(1.10	)
Diluted loss from continuing operations per share	$	(0.89	)	$	(0.96	)	$	(1.10	)	$	(0.89	)
Diluted income from discontinued operations per share	—			0.19			—			0.39
Diluted net loss per share	$	(0.89	)	$	(0.77	)	$	(1.10	)	$	(0.50	)	$	(0.16	)	$	(0.89	)	$	(0.60	)	$	(1.10	)
Cash dividends declared per share													$	0.07		$	0.07		$	0.14		$	0.14

The ~~calculations~~calculation of diluted net loss ~~from continuing operations~~ per share for the ~~three-month periods~~three and six months ended June 30, ~~2018 and 2017, exclude~~2019, excludes 0.8 million and ~~0.9~~0.8 million, respectively, of potentially dilutive stock options, which had the effect of being anti-dilutive. The ~~calculations~~calculation of diluted net loss ~~from continuing operations~~ per share for the ~~six-month periods~~three and six months ended June 30, 2018, ~~and 2017, excluded~~excludes 0.8 million and ~~0.9~~0.8 million, respectively, of potentially dilutive stock options, which had the effect of being anti-dilutive. Given the net loss ~~from continuing operations~~ for the ~~three-month periods~~three and ~~six-month periods~~six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, all options are considered anti-dilutive and were excluded from the calculation of diluted net loss ~~from continuing operations~~ per share.

Note 16. Fair Value Measurements

Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. We followed consistent methods and assumptions to estimate fair values as more fully described in the ~~2017~~2018 Annual Report.

Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives, and long-term debt. As of June 30, ~~2018,~~2019, the carrying values of these financial instruments approximated fair value. The fair value of floating-rate debt approximates the carrying amount because the interest rates paid are based on short-term maturities. AsThe fair value of our outstanding fixed-rate debt included in the “International lines of credit and other loans” line item within Note 9 to these Notes to Condensed Consolidated Financial Statements was $9.5 million and $10.4 million as of June 30, 2019 and December 31, 2018, ~~we had no~~respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The book value of our outstanding fixed-rate debt ~~outstanding.~~included in the “International lines of credit and other loans” line item within Note 9 to these Notes to Condensed Consolidated Financial Statements was $9.4 million and $9.8 million as of June 30, 2019 and December 31, 2018, respectively.

Recurring 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.

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt. On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575% (the “interest rate swap”). The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022 (the “interest rate swap term”). The interest rate swap effectively mitigates our exposures to the risks and variability of changes in LIBOR.

~~Note 17. Prior Periods’ Financial Statement Revision~~The notional amount of the interest rate swap will decrease over the interest rate swap term as follows:



	Notional Amount
February 12, 2019 - December 30, 2020	$	700,000
December 31, 2020 - December 30, 2021	466,667
December 31, 2021 - October 19, 2022	233,333

The objective of the interest rate swap is to eliminate the variability of cash flows in interest payments on the first $700.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term. If one-month LIBOR is greater than the minimum percentage under the Senior Secured Term Loan, the changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt. The interest rate swap is designated as a cash flow hedge.

As of June 30, 2019, we reported a $10.8 million loss, net of tax, in accumulated other comprehensive income related to the interest rate swap.

The following ~~tables present~~shows the ~~effect~~liabilities measured at fair value on a recurring basis for the interest rate swap as of ~~the correction of misstatements that impacted each of the periods presented below, as further described in~~ ~~Note 1, and the related adjustments to reflect the revision on the~~ ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Also, as further described in~~ ~~Note 2~~, due to the disposition of the PBC Business and the related discontinued operations treatment, the tables below present separately the impact of the correction of the misstatements as well as the effect of recasting the prior periods for discontinued operations.June 30, 2019.

Six Months Ended June 30, 2017
As Originally
Reported Adjustment Discontinued
Operations As Revised
Cost of sales (exclusive of depreciation and amortization shown separately below) $ 332,994
$ 485
$ (104,485 ) $ 228,994
Selling, general and administrative expense 44,530
(764 ) (9,121 ) 34,645
Depreciation and amortization 31,468
265
(6,111 ) 25,622
Other operating income —
(270 ) —
(270 )
Income from operations 42,751
284
(16,541 ) 26,494
Other (income) expense, net (79 ) (340 ) (18 ) (437 )
Loss from continuing operations before benefit for income taxes and share of net income from joint venture (24,187 ) 624
(16,335 ) (39,898 )
Benefit for income taxes 7,128
(229 ) 5,581
12,480
Loss from continuing operations (14,122 ) 395
(10,754 ) (24,481 )
Income from discontinued operations, net of tax (Note 2)

10,754
10,754
Net loss $ (14,122 ) $ 395

$ (13,727 )
Other comprehensive loss:

Foreign currency translation gain 14,244
372

14,616
Other comprehensive income 14,244
372

14,616
Comprehensive income $ 122
$ 767

$ 889
Basic net loss per share $ (0.52 ) $ 0.01

$ (0.50 )
Diluted net loss per share $ (0.52 ) $ 0.01
$ (0.50 )

Three Months Ended June 30, 2017
As Originally
Reported Adjustment Discontinued
Operations As Revised
Selling, general and administrative expense $ 23,036
$ (264 ) $ (4,768 ) $ 18,004
Depreciation and amortization 15,900
253
(3,102 ) 13,051
Other operating income —
(270 ) —
(270 )
Income from operations 20,593
281
(8,232 ) 12,642
Other (income) expense, net 645
(340 ) (20 ) 285
Loss from continuing operations before benefit for income taxes and share of net income from joint venture (32,201 ) 621
(8,141 ) (39,721 )
Benefit for income taxes 9,428
(230 ) 2,905
12,103
Loss from continuing operations (21,529 ) 391
(5,236 ) (26,374 )
Income from discontinued operations, net of tax (Note 2)

5,236
5,236
Net loss $ (21,529 ) $ 391

$ (21,138 )
Other comprehensive loss:

Foreign currency translation gain 9,240
271

9,511
Other comprehensive income 9,240
271

9,511
Comprehensive loss $ (12,289 ) $ 662

$ (11,627 )
Basic net loss per share $ (0.78 ) $ 0.01
$ (0.77 )
Diluted net loss per share $ (0.78 ) $ 0.01
$ (0.77 )



	Fair Value Measurements as of June 30, 2019
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative liability - other current liabilities	$	—	$	4,244	$	—
Derivative liability - other non-current liabilities	—		9,671		—
Total	$	—	$	13,915	$	—

The ~~following table presents the effect~~inputs for determining fair value of the ~~correction~~interest rate swap are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance.

As of December 31, 2018, we had no interest rate swap agreements or other derivative financial instruments outstanding.

Note 17. Subsequent Event

On August 8, 2019, we signed a definitive agreement to sell our former headquarters building in Johnson City, Tennessee, for net proceeds of approximately $4 million. We anticipate the closing of this sale will occur during the third quarter of 2019 and result in no material gain or loss as a result of the ~~misstatements and reclassifications to conform to the current period's presentation on our Condensed Consolidated Statement of Cash Flows.~~disposition.

Six Months Ended June 30, 2017
As
Originally
Reported Adjustment Reclasses (1) As
Revised
Cash flows from operating activities
Net loss $ (14,122 ) $ 395

$ (13,727 )
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:

Depreciation and amortization 31,468
265

31,733
(2)
Gain on disposals or property, plant and equipment (268 )
268
—

Loss on extinguishment of debt and write-off of debt issuance costs 8,054

31,585
39,639

Other 638
(268 ) (268 ) 102

Changes in operating assets and liabilities:

Income taxes receivable (10,841 ) 229

(10,612 )
Other (7,247 ) (889 )
(8,136 )
Net cash provided by (used by) operating activities (15,552 ) (268 ) 31,585
15,765

Cash flows from investing activities

Proceeds from disposals of property, plant and equipment 356
—
(356 ) —

Other —
268
356
624

Net cash provided by (used by) investing activities (20,302 ) 268
—
(20,034 )
Cash flows from financing activities

Cash paid for debt issuance or prepayment costs (6,545 )
(31,585 ) (38,130 )
Proceeds from issuance of stock and exercise of stock options 2,592

(2,592 ) —

Shares withheld to satisfy income tax withholding (413 )

413
—

Principal payments on capital leases (2,059 )
2,059
—

Other —

120
120

Net cash provided by (used by) financing activities 39,762

(31,585 ) 8,177


~~(1)~~	Includes the reclassification of prior period amounts to reflect current period presentation, including the addition of the income taxes payable (receivable) line, the adoption of ASU 2016-15, and condensing immaterial amounts.


~~(2)~~	~~Depreciation and amortization of $6.1 million is included in income from discontinued operations on the~~ ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~ ~~for the six months ended June 30, 2017.~~


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

NN, Inc., is a global diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies for the medical, aerospace and defense, electrical, automotive, and general industrial markets. As used in this Quarterly Report, ~~on Form 10-Q,~~ the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries. As of June 30, ~~2018,~~2019, we had 51 facilities in North America, Europe, South America, and China.

Forward-Looking Statements

This Quarterly Report ~~on Form 10-Q~~ contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to NN, Inc., based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or

expressions. Forward-looking statements involve a number of risks and uncertainties that are outside of management’s control and that may

cause actual results to be materially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial sector, competitive influences, risks that current customers will commence or increase captive production, risks of capacity underutilization, quality issues, availability of raw materials, currency and other risks associated with international trade, our dependence on certain major customers, the impact of acquisitions and divestitures, the level of our indebtedness, the restrictions contained in our debt agreements, our ability to obtain financing at favorable rates, if at all, and to refinance existing debt as it matures, unanticipated difficulties integrating acquisitions, new laws and governmental regulations, and other risk factors and cautionary statements listed from time-to-time in our periodic reports filed with the Securities and Exchange Commission. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or therein to reflect future events or developments.

For additional information concerning such risk factors and cautionary statements, please see the section titled “Item 1A. Risk Factors” in ~~our 2017~~the 2018 Annual ~~Report on Form 10-K for the fiscal year ended December 31, 2017, which we filed with the SEC on April 2, 2018 (the “2017 Annual Report”).~~Report.

Results of Operations

Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the six months ended June 30, ~~2018,~~2019, that management believes are important to provide an understanding of the business and results of ~~operations.~~operations, or that may influence operations in the future.

Management Structure

In ~~January~~ 2018, we implemented a new enterprise and management structure designed to accelerate growth and further balance our portfolio by aligning our strategic assets and businesses. Our businesses were reorganized into the Mobile Solutions, Power Solutions, and Life Sciences groups and are based principally on the end markets they serve. ~~The Autocam Precision Components Group reported in our historical financial statements was renamed as Mobile Solutions.~~ Mobile Solutions is focused on growth in the general industrial and automotive end markets. ~~The Precision Engineered Products Group reported in our historical financial statements was bifurcated into two new groups – Power Solutions and Life Sciences.~~ Power Solutions is focused on growth in the electrical and aerospace and defense end markets. Life Sciences is focused on growth in the medical end market.

Acquisitions

In ~~the first quarter of~~February 2018, we ~~began reporting our financial results based on these new reportable segments. Prior year amounts have been revised to confirm to the current year presentation.~~

~~Prior Periods’ Financial Statement Revision~~

~~Certain prior period amounts have been revised to reflect the impact of corrections of misstatements and to correct the timing of previously recorded out-of-period adjustments. Refer to~~ ~~Note 1~~ ~~and~~ ~~Note 17~~ ~~in the~~ ~~Notes to Condensed Consolidated Financial Statements~~ ~~for more information.~~

~~Life Sciences Acquisitions~~

~~On May 7, 2018, we~~ acquired 100% of the stock of PMG Intermediate Holding Corporation, the parent company of Paragon Medical, Inc. (“Paragon Medical”) for a base purchase price of $375.0 million in cash, subject to certain adjustments. After estimated working capital and other closing adjustments, the cash purchase price was approximately $391.0 million which included $13.4 million in cash acquired. We paid cash of $392.2 million and recorded a receivable of approximately $1.3 million in other current assets for the balance. For accounting purposes, Paragon Medical meets the definition of a business and has been accounted for as a business combination. Paragon Medical is a medical device manufacturer which focuses on the orthopedic, case and tray, implant and instrument markets. This acquisition continues our strategic focus to expand our Life Sciences portfolio as well as create a balanced business by diversifying our products and finished device offerings. Operating results of Paragon Medical are reported prospectively from the date of acquisition in our Life Sciences group. We have performed a preliminary assessment of the opening balance sheet and purchase price allocation which is subject to completion of working capital adjustments and fair value estimates. Opening balance sheet deferred taxes have been recorded based on estimates made as of the acquisition date as well as information currently available to management. As estimates are refined and additional information is received throughout the measurement period, adjustments to opening deferred taxes will be recorded with an offsetting adjustment to goodwill. In connection with the closing of the Paragon Medical acquisition, we entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement”) for a $200.0 million secured second lien term loan facility (the “Second Lien Facility”). We utilized the net proceeds from the Second Lien Facility, together with cash on hand, to pay the Paragon Medical purchase price and fees and expenses related to the acquisition. We also entered into an

~~amendment to our existing credit facility to permit the Paragon Medical acquisition, to permit the Second Lien Credit Agreement, and to amend certain covenants.~~

~~On February 22, 2018, we completed the acquisition of~~ 100% of the assets of Bridgemedica, LLC (“Bridgemedica”). ~~For accounting purposes, Bridgemedica meets the definition of a business and has been accounted for as a business combination.~~ Bridgemedica is a medical device company that provides concept to supply solutions through design, development engineering, and manufacturing. Operating results of Bridgemedica are reported ~~prospectively~~ in our Life Sciences ~~group after~~group.

In May 2018, we acquired 100% of the stock of PMG Intermediate Holding Corporation, the parent company of Paragon Medical, Inc. (“Paragon Medical”). Paragon Medical is a medical device manufacturer that focuses on the orthopedic, case and tray, implant, and instrument markets. Operating results of Paragon Medical are reported in our Life Sciences group.

In August 2018, we acquired 100% of the capital stock of Southern California Technical Arts, Inc. (“Technical Arts”). Technical Arts is an industrial machining company that manufactures tight tolerance metal components and assemblies. The acquisition ~~date. We have finalized certain working capital adjustments and are~~of Technical Arts expands our presence in the ~~process~~aerospace and defense end market. Operating results of ~~completing the integration of the Bridgemedica business into our operations.~~

~~As discussed~~Technical Arts are reported in our 2017 Annual Report, on October 2, 2017, we completed the acquisition of DRT Medical, LLC, which was subsequently named NN Life Sciences – Vandalia, LLC (“Vandalia”), a supplier of precision manufactured medical instruments and orthopedic implants with locations in Ohio and Pennsylvania.

~~Discontinued Operations~~

On August 17, 2017, we completed the sale of our global precision bearing components business (the “PBC Business”). The PBC Business included all our facilities that were engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty products used primarily in the bearing industry. The sale of the PBC Business furthers management’s long-term strategy to build a diversified industrial business with a comprehensive geographic footprint in attractive high-growth market segments. The PBC Business represented all of the Precision Bearing Components Group reportable segment disclosed in our historical financial statements.

~~In accordance with ASC 205-20,~~ ~~Presentation of Financial Statements – Discontinued Operations,~~ the operating results of the PBC Business for the three and six months ended June 30, 2017, are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations, net of tax, as one line item on the ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). All historical~~ ~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~ presented have been revised to reflect this presentation. Accordingly, results of the PBC Business have been excluded from continuing operations and group results for all periods presented in the condensed consolidated financial statements and the accompanying notes unless otherwise stated. Refer to ~~Note 2~~ ~~in the~~ ~~Notes to Condensed Consolidated Financial Statements~~ ~~for more information.~~

~~Tax Reform~~

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings.

At December 31, 2017, we made an estimate of the effects on the one-time transition tax and included this in our provisional amount. The ultimate impact could possibly differ materially from this provisional amount due to, among other things, additional analysis, changes in interpretations and assumptions we have made, and additional interpretive regulatory guidance that may be issued. In accordance with Staff Accounting Bulletin No. 118, we may record additional provisional amounts during a measurement period not to extend beyond one year of the enactment date of the Tax Act. The accounting is expected to be complete when our 2017 U.S. corporate income tax return is filed in 2018, and any measurement period adjustments will be recognized as income tax expense or benefit in 2018. As of June 30, 2018, no changes are expected to be made to this estimate.Power Solutions group.

Three Months Ended June 30, ~~2018, Compared~~2019, compared to the Three Months Ended June 30, ~~2017~~

~~Overall Consolidated Results~~2018


	Three Months Ended June 30,												Three Months Ended June 30,
	2018			2017			$ Change						2019			2018			$ Change
Net sales	$	196,349		$	157,947		$	38,402					$	221,666		$	196,349		$	25,317
Acquisitions										$	37,157											$	19,457
Volume										3,445												7,579
Foreign exchange effects										309												(2,371		)
Price/mix/inflation/other										(2,509		)										652
Cost of sales (exclusive of depreciation and amortization shown separately below)	148,640			114,514			34,126						163,513			148,640			14,873
Acquisitions										$	29,413											$	13,159
Volume										2,528												6,757
Foreign exchange effects										308												(1,882		)
Cost reduction projects										(1,849		)										(5,637		)
Mix/inflation/other										3,726
Inflation																						2,958
Mix/other																						(482		)
Selling, general and administrative expense	26,641			18,004			8,637						26,743			26,641			102
Acquisition related costs excluded from selling, general and administrative expense	3,437			—			3,437						—			3,437			(3,437		)
Depreciation and amortization	16,258			13,051			3,207						22,924			16,258			6,666
Other operating expense (income)	74			(270		)	344
Restructuring and integration expense	1,591			6			1,585
Other operating (income) expense, net													388			74			314
Restructuring and integration expense, net													—			1,591			(1,591		)
Income (loss) from operations	(292		)	12,642			(12,934		)				8,098			(292		)	8,390
Interest expense	15,988			12,338			3,650						13,958			15,988			(2,030		)
Loss on extinguishment of debt and write-off of debt issuance costs	12,938			39,639			(26,701		)				—			12,938			(12,938		)
Derivative loss on change in interest rate swap fair value	—			101			(101		)
Other (income) expense, net	1,887			285			1,602						57			1,887			(1,830		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture	(31,105		)	(39,721		)	8,616
Benefit for income taxes	5,947			12,103			(6,156		)
Share of net income from joint venture	647			1,244			(597		)
Loss from continuing operations	(24,511		)	(26,374		)	1,863
Income from discontinued operations, net of tax	—			5,236			(5,236		)
Loss before (provision) benefit for income taxes and share of net income from joint venture													(5,917		)	(31,105		)	25,188
Benefit (provision) for income taxes													(577		)	5,947			(6,524		)
Share of net income (loss) from joint venture													(203		)	647			(850		)
Net loss	$	(24,511	)	$	(21,138	)	$	(3,373	)				$	(6,697	)	$	(24,511	)	$	17,814

Net Sales. Net sales increased by ~~$38.4~~$25.3 million, or ~~24%~~13%, in the second quarter of 2018 compared to the second quarter of 2017 primarily due to $37.2 million of net sales attributable to the Paragon Medical, Bridgemedica, and Vandalia businesses acquired in our Life Sciences group. Higher volumes contributed another $3.4 million to the increase primarily as a result of demand improvements within the automotive end market. Overall, from the three months ended June 30, ~~2017,~~2019, compared to the three months ended June 30, 2018, primarily due to $19.5 million of net sales attributable to the 2018 business acquisitions as well as an increase in volume of $7.6 million, as a result of an increase in core volume in the medical end market partially offset by lower demand within the automotive end market. The increase in net sales was partially offset by unfavorable foreign exchange effects of $2.4 million, primarily in Brazil and China.

Cost of Sales. Cost of sales increased by ~~$1.4~~$14.9 million, ~~for our Mobile Solutions group, increased by $1.1 million for our Power Solutions group, and increased by $36.0 million for our Life Sciences group, respectfully. In~~or 10%, in the three months ended June 30, 2019, compared to the three months ended June 30, 2018, ~~and 2017, sales of $0.7 million and $0.6 million, respectively, between our Power Solutions and Life Sciences groups were eliminated in consolidation.~~

~~Cost of Sales.~~ ~~The increase in cost of sales was~~ primarily due to ~~$29.4~~$13.2 million in cost of sales attributable to the ~~Paragon Medical, Bridgemedica, and Vandalia acquisitions, including $3.4 million for a one-time~~2018 business acquisitions. The increase in cost of sales ~~for inventory fair value adjustment for Paragon Medical. Higher volumes also contributed $2.5 million to the increase, consistent with the increase in sales demand. Increases were~~was partially offset by ~~$1.8~~favorable foreign exchange effects of $1.9 million and $5.6 million in cost savings from production process improvement projects. Material and labor inflation contributed $3.0 million to the increase in cost of sales.

Selling, General and Administrative Expense. ~~The majority of the increase in selling,~~Selling, general and administrative expense increased by $0.1 million during the three months ended June 30, ~~2018,~~2019, compared to the three months ended June 30, ~~2017, was~~2018, primarily due to ~~infrastructure and~~

~~staffing costs incurred related to our strategic initiatives, including integration of recent~~the 2018 business acquisitions, ~~and a global implementation of an enterprise resource planning (“ERP”) system. The Paragon Medical, Bridgemedica, and Vandalia businesses~~which collectively contributed ~~$1.5~~$2.2 million to selling, general and administrative expense during the three months ended June 30, ~~2018, which was not present during~~2019, as well as severance and employee-related costs associated with the ~~three months ended~~closure of the Johnson City, Tennessee, shared service center in June ~~30, 2017, prior to~~2019 and the chief financial officer transition. These increases were offset by lower costs for professional services as a result of our strategic initiatives, including integration of recent acquisitions.

Acquisition Related Costs Excluded from Selling, General and ~~Administrative.~~Administrative Expense. Acquisition related costs ~~are primarily third party legal, accounting, valuation consulting and investment banking advisory fees incurred in connection with the Life Sciences acquisitions.~~

~~Depreciation and Amortization.~~ ~~The increase in depreciation and amortization~~decreased during the three months ended June 30, ~~2018,~~2019, compared to the three months ended June 30, ~~2017,~~2018, as there was no business acquisition activity during the three months ended June 30, 2019. The three months ended June 30, 2018, included professional service costs incurred in connection with the 2018 business acquisitions.

Depreciation and Amortization. Depreciation and amortization increased during the three months ended June 30, 2019, compared to the three months ended June 30, 2018, consistent with additions to intangible assets and property, plant and equipment, including $2.8 million from the ~~Paragon Medical, Bridgemedica, and Vandalia businesses. This additional~~2018 business acquisitions. The increase in depreciation and amortization includes the effects of related fair value adjustments to certain property, plant and equipment and the addition of intangible assets, principally for customer relationships and trade names.

Restructuring and Integration Expense. ~~The increase in restructuring~~Restructuring and integration expense ~~was~~decreased during the three months ended June 30, 2019, compared to the three months ended June 30, 2018, primarily due to employee severance costs incurred in connection with the Paragon Medical ~~acquisition.~~acquisition in 2018. Note 11 in the Notes to Condensed Consolidated Financial Statements provides more information regarding the effects of restructuring and integration on our operating results.

Interest Expense. Interest expense ~~increased~~decreased by ~~$3.7~~$2.0 million during the three months ended June 30, ~~2018,~~2019, compared to the three months ended June 30, ~~2017,~~2018, primarily due to ~~interest on~~ the $200.0 million secured second lien term loan facility (“Second Lien ~~Facility~~Facility”), which was ~~not~~executed in ~~place during the three months ended June 30, 2017,~~May 2018 and bears interest at a higher rate than our existing credit facility. This increase was partially offset by further interest savings resulting from the refinancing of the Senior Secured Term Loan and the Incremental Term Loan on November 24, 2017.repaid in full in September 2018.


	Three Months Ended June 30,						Three Months Ended June 30,
	2018			2017			2019			2018
Interest on debt	$	14,875		$	11,451		$	13,067		$	14,875
Amortization of debt issuance costs	1,225			914			1,162			1,225
Interest on capital leases and other	141			256
Capitalized interest (1)	(253		)	(283		)
Capitalized interest							(532		)	(253		)
Other							261			141
Total interest expense	$	15,988		$	12,338		$	13,958		$	15,988


~~(1)~~	~~Capitalized interest primarily relates to equipment construction efforts at various plants.~~

Loss on Extinguishment of Debt and Write-off of Unamortized Debt Issuance Costs. ~~The $12.9 million~~Loss on extinguishment of debt and write-off inof unamortized debt issuance costs decreased during the three months ended June 30, 2019, compared to the three months ended June 30, 2018, ~~resulted from~~due to costs ~~related to~~written off associated with the Second Lien ~~facility~~Facility and ~~the~~ amendment to the existing credit ~~facility. The~~ ~~$39.6 million~~ ~~write-off~~facility in ~~2017 resulted from the extinguishment of our Senior Notes and modification of our credit facility on April 3, 2017.~~May 2018.

Other (income) expense, net. Other (income) expense, net decreased during the three months ended June 30, 2019, compared to the three months ended June 30, 2018, primarily due to unfavorable foreign exchange effects associated with intercompany borrowings during the three months ended June 30, 2018.

Provision/Benefit for Income Taxes. Our effective tax rate ~~from continuing operations~~ was (9.8)% for the three months ended June 30, 2019, compared to 19.1% for the three months ended June 30, ~~2018, compared to 30.5% for the three months ended June 30, 2017.~~2018. Note 98 in the Notes to Condensed Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income from Joint Venture. Our share of net income from a Chinese joint venture in our Mobile Solutions group decreased by ~~$0.6 million. The joint venture’s net income decreased~~$0.9 million primarily due to price and volume decreases ~~and increased raw material costs.~~resulting from reduced demand in the Chinese automotive market.

Results by ~~Group~~Segment

MOBILE SOLUTIONS

Mobile Solutions is focused on growth in the general industrial and automotive end markets. We have developed an expertise in manufacturing highly complex, system critical components for fuel systems, engines and transmissions, power steering systems and electromechanical motors on a high-volume basis. This expertise has been gained through investment in technical capabilities, processes and systems, and skilled program management and product launch capabilities.


	Three Months Ended June 30,										Three Months Ended June 30,
	2018		2017		$ Change						2019		2018		$ Change
Net sales	$	88,079	$	86,658	$	1,421					$	79,444	$	88,079	$	(8,635	)
Volume								$	2,363									$	(7,264	)
Foreign exchange effects								263										(1,823		)
Price/mix/inflation/other								(1,205		)								452

Income from operations	$	7,380	$	10,688	$	(3,308	)				$	4,092	$	7,380	$	(3,288	)

Net sales ~~increased~~decreased during the ~~second quarter of~~three months ended June 30, 2019, compared to the three months ended June 30, 2018, ~~from the second quarter of 2017~~primarily due to ~~market~~lower demand ~~improvements for our steering systems application components resulting from an industry shift from hydraulics to electric-assist steering systems technology. We are realizing~~within the ~~indirect benefits~~North American and Chinese automotive markets, unfavorable foreign exchange effects, and the impact of ~~our customers taking an increasing portion of market share. Also, as the Brazilian economy improves,~~reduced demand for ~~automotive products is increasing. These volume increases were partially offset by price reductions granted to our customers.~~components associated with programs nearing the end of life.

Income from operations decreased by $3.3 million compared to prior year due to ~~various factors including higher start-up~~lost variable margin on the above-referenced sales volume decline and costs ~~related to~~associated with the launch of new ~~product launches, lower pricing as noted above, and higher depreciation and lease expenses.~~fuel systems business within our European operations. These ~~factors~~unfavorable impacts were partially offset by ~~implementation of~~fixed cost ~~savings initiatives and~~reduction actions taken in response to the ~~beneficial impact of higher production volumes.~~decline in sales volume.

POWER SOLUTIONS


	Three Months Ended June 30,										Three Months Ended June 30,
	2018		2017		$ Change						2019		2018		$ Change
Net sales	$	49,820	$	48,734	$	1,086					$	51,393	$	49,820	$	1,573
Acquisitions																		$	1,719
Volume								$	1,050									219
Foreign exchange effects								46										(365		)
Price/mix/inflation/other								(10		)

Income from operations	$	6,000	$	6,819	$	(819	)				$	5,682	$	6,000	$	(318	)

Net sales increased during the ~~second quarter of~~three months ended June 30, 2019, compared to the three months ended June 30, 2018, ~~from the second quarter of 2017~~ primarily due to ~~growth~~$1.7 million of net sales attributable to the Technical Arts acquisition. The increase in ~~the electrical products business.~~net sales was partially offset by unfavorable foreign exchange effects.

Income from operations decreased by ~~$0.8~~$0.3 million compared to prior year primarily due to ~~a shift in product mix toward~~ higher ~~cost raw materials, such as precious metals used in power control products,~~selling, general and ~~investments in~~administrative expenses associated with the ~~development of new products that we are preparing to launch in the aerospace end market later in 2018. Higher sales volumes partially offset these increased costs.~~

2018 business group resegmentation.

LIFE SCIENCES


	Three Months Ended June 30,										Three Months Ended June 30,
	2018		2017		$ Change						2019		2018		$ Change
Net sales	$	59,153	$	23,114	$	36,039					$	91,332	$	59,153	$	32,179
Acquisitions								$	37,157								$	17,738
Volume								32									14,624
Foreign exchange effects								—									(183		)
Price/mix/inflation/other								(1,150		)

Income from operations	$	2,041	$	3,798	$	(1,757	)				$	9,305	$	2,041	$	7,264

Net sales increased during the ~~second quarter of~~three months ended June 30, 2019, compared to the three months ended June 30, 2018, ~~from the second quarter of 2017~~ primarily due to ~~$37.2~~$17.7 million of net sales attributable to the Paragon Medical ~~Bridgemedica, and Vandalia acquisitions.~~acquisition as well as a $14.6 million increase in core volume.

Income from operations ~~decreased~~increased by ~~$1.8~~$7.3 million compared to prior year primarily due to ~~$3.4 million~~an increase in ~~cost of~~ sales ~~for inventory fair value adjustment at~~volume as well as the Paragon Medical ~~acquisition related restructuring and integration costs, and other costs of establishing the Life Sciences Group.~~acquisition.

Six Months Ended June 30, ~~2018, Compared~~2019, compared to the Six Months Ended June 30, ~~2017~~2018

~~Overall Consolidated Results~~


	Six Months Ended June 30,												Six Months Ended June 30,
	2018			2017			$ Change						2019			2018			$ Change
Net sales	$	365,497		$	315,502		$	49,995					$	434,922		$	365,497		$	69,425
Acquisitions										$	46,139											$	74,705
Volume										4,710												(1,184		)
Foreign exchange effects										2,522												(5,244		)
Price/mix/inflation/other										(3,376		)										1,148
Cost of sales (exclusive of depreciation and amortization shown separately below)	275,084			228,994			46,090						324,782			275,084			49,698
Acquisitions										$	36,711											$	51,024
Volume										3,675												1,689
Foreign exchange effects										1,946												(4,286		)
Cost reduction projects										(5,404		)										(11,676		)
Mix/inflation/other										9,162
Inflation																						5,154
Mix/other																						7,793
Selling, general and administrative expense	48,818			34,645			14,173						54,868			48,818			6,050
Acquisition related costs excluded from selling, general and administrative expense	5,213			—			5,213						—			5,213			(5,213		)
Depreciation and amortization	30,539			25,622			4,917						46,349			30,539			15,810
Other operating expense (income)	96			(270		)	366
Restructuring and integration expense	2,346			17			2,329
Income from operations	3,401			26,494			(23,093		)
Other operating (income) expense, net													236			96			140
Restructuring and integration expense, net													(12		)	2,346			(2,358		)
Income (loss) from operations													8,699			3,401			5,298
Interest expense	27,984			27,177			807						27,759			27,984			(225		)
Loss on extinguishment of debt and write-off of debt issuance costs	12,938			39,639			(26,701		)				2,699			12,938			(10,239		)
Derivative loss on change in interest rate swap fair value	—			13			(13		)
Other (income) expense, net	1,574			(437		)	2,011						786			1,574			(788		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture	(39,095		)	(39,898		)	803
Benefit for income taxes	7,123			12,480			(5,357		)
Share of net income from joint venture	1,478			2,937			(1,459		)
Loss from continuing operations	(30,494		)	(24,481		)	(6,013		)
Income from discontinued operations, net of tax (Note 2)	—			10,754			(10,754		)
Loss before (provision) benefit for income taxes and share of net income from joint venture													(22,545		)	(39,095		)	16,550
Benefit (provision) for income taxes													(2,818		)	7,123			(9,941		)
Share of net income (loss) from joint venture													66			1,478			(1,412		)
Net loss	$	(30,494	)	$	(13,727	)	$	(16,767	)				$	(25,297	)	$	(30,494	)	$	5,197

Net Sales. Net sales increased by ~~$50.0~~$69.4 million, or ~~16%~~19.0%, in the six months ended June 30, ~~2018,~~2019, compared to the six months ended June 30, ~~2017,~~2018, primarily due to ~~$46.1~~$74.7 million of net sales attributable to the ~~Paragon Medical, Bridgemedica, and Vandalia businesses acquired~~2018 business acquisitions. The increase in ~~our Life Sciences group. Higher volumes contributed another $4.7~~net sales was partially offset by a decrease in volume of $1.2 million, ~~to the increase~~ primarily as a result of lower demand ~~improvements~~ within the automotive end ~~market. Overall, from~~market as well as unfavorable foreign exchange effects of $5.2 million, primarily in Brazil and China.

Cost of Sales. Cost of sales increased by $49.7 million, or 18.1%, in the six months ended June 30, ~~2017,~~2019, compared to the six months ended June 30, 2018, net sales increased by $4.8 million for our Mobile Solutions group, increased by $1.3 million for our Power Solutions group, and increased by $44.1 million for our Life Sciences group, respectfully. In the six months ended June 30, 2018 and 2017, sales of $1.2 million and $1.0 million, respectively, between our Power Solutions and Life Sciences groups were eliminated in consolidation.

~~Cost of Sales.~~ ~~The increase in cost of sales was~~ primarily due to ~~$36.7~~$51.0 million in cost of sales attributable to the ~~Paragon Medical, Bridgemedica, and Vandalia~~2018 business acquisitions ~~including $3.4 million for a one-time~~as well as an increase in volume of $1.7 million. The increase in cost of sales ~~for inventory fair value adjustment for Paragon Medical. Higher volumes also contributed $3.7 million to the increase, consistent with the increase in sales demand. Increases were~~was partially offset by ~~$5.4~~favorable foreign exchange effects of $4.3 million and $11.7 million in cost savings from production process improvement projects. Material and labor inflation as well as mix, primarily in our Mobile Solutions business, contributed $5.2 million and $7.5 million, respectively, to the increase in cost of sales.

Selling, General and Administrative Expense. ~~The majority of the increase in selling,~~Selling, general and administrative expense increased by $6.1 million during the six months ended June 30, ~~2018,~~2019, compared to the six months ended June 30, ~~2017, was~~2018, primarily due to ~~infrastructure and staffing costs incurred related to our strategic initiatives, including integration of recent~~the 2018 business acquisitions ~~and a global implementation of an enterprise resource planning (“ERP”) system. The Paragon Medical, Bridgemedica, and Vandalia businesses~~which collectively contributed ~~$2.0~~$7.3 million to selling, general and administrative expense during the six months ended June 30, ~~2018, which~~2019. The increase was ~~not present during the six months ended June 30, 2017, prior to the~~partially offset by lower costs for professional services as a result of our strategic initiatives, including integration of recent acquisitions.

~~Depreciation and Amortization.~~ ~~The increase in depreciation and amortization~~decreased during the six months ended June 30, ~~2018,~~2019, compared to the six months ended June 30, ~~2017,~~2018, as there was no business acquisition activity during the six months ended June 30, 2019. The six months ended June 30, 2018, included professional service costs incurred in connection with the 2018 business acquisitions.

Depreciation and Amortization. Depreciation and amortization increased during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, consistent with additions to intangible assets and property, plant and equipment, including ~~$3.5~~$11.8 million from the ~~Paragon Medical, Bridgemedica, and Vandalia businesses. This additional~~2018 business acquisitions. The increase in depreciation and amortization includes the effects of related ~~step-ups of~~fair value adjustments to certain property, plant and equipment ~~to fair value~~ and the addition of intangible assets, principally for customer relationships and trade names.

Restructuring and Integration Expense. ~~The increase in restructuring~~Restructuring and integration expense ~~was~~decreased during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, primarily due to employee severance costs incurred in connection with implementing our new enterprise and management ~~structure.~~structure as well as the Paragon Medical acquisition in 2018. Note 11 in the Notes to Condensed Consolidated Financial Statements provides more information regarding the effects of restructuring and integration on our operating results.

Interest Expense. Interest expense ~~increased~~decreased by ~~$0.8~~$0.2 million during the six months ended June 30, ~~2018,~~2019, compared to the six months ended June 30, ~~2017,~~2018, primarily due to ~~interest on~~ the $200.0 million secured second lien term loan facility (“Second Lien ~~Facility~~Facility”), which was ~~not~~executed in ~~place during the six months ended June 30, 2017,~~May 2018 and bears interest at a higher rate than our existing credit facility. This increase was partially offset by the redemption of our Senior Notes on April 3, 2017, with the proceeds of our Incremental Term Loan, which bears an interest rate based on LIBOR which is lower than the 10.25% fixed interest rate on the Senior Notes. Further interest savings resulted from the refinancing of the Senior Secured Term Loan and the Incremental Term Loan on November 24, 2017.repaid in full in September 2018.


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Interest on debt	$	25,839		$	25,098		$	26,185		$	25,839
Amortization of debt issuance costs	2,313			2,153			2,354			2,313
Interest on capital leases and other	290			570
Capitalized interest (1)	(458		)	(644		)
Capitalized interest							(1,084		)	(458		)
Other							304			290
Total interest expense	$	27,984		$	27,177		$	27,759		$	27,984


~~(1)~~	~~Capitalized interest primarily relates to equipment construction efforts at various plants.~~

Loss on Extinguishment of Debt and Write-off of Unamortized Debt Issuance Costs. ~~The $12.9 million~~Loss on extinguishment of debt and write-off inof unamortized debt issuance costs decreased during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, ~~resulted from~~due to costs ~~related to~~written off associated with the Second Lien ~~facility~~Facility and ~~the~~ amendment to the existing credit ~~facility. The $39.6 million write-off~~facility in ~~2017 resulted from~~May 2018 offset by costs written off associated with the ~~extinguishment of our Senior Notes and modification of our~~March 2019 amendment to the credit ~~facility on April 3, 2017.~~facility.

Other (income) expense, net. Other (income) expense, net decreased during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, primarily due to unfavorable foreign exchange effects associated with intercompany borrowings during the six months ended June 30, 2018.

Provision/Benefit for Income Taxes. Our effective tax rate ~~from continuing operations~~ was (12.5)% for the six months ended June 30, 2019, compared to 18.2% for the six months ended June 30, ~~2018, compared to 31.3% for the six months ended June 30, 2017.~~2018. Note 98 in the Notes to Condensed Consolidated Financial Statements describes the components of income taxes for each period presented.

Share of Net Income from Joint Venture. Our share of net income from a Chinese joint venture in our Mobile Solutions group decreased by ~~$1.5 million. The joint venture’s net income decreased~~$1.4 million primarily due to price and volume decreases ~~and increased raw material costs.~~resulting from reduced demand in the Chinese automotive market.

Results by ~~Group~~Segment

MOBILE SOLUTIONS

~~Mobile Solutions is focused~~



	Six Months Ended June 30,
	2019		2018		$ Change
Net sales	$	157,519	$	177,873	$	(20,354	)
Volume								$	(16,561	)
Foreign exchange effects								(4,697		)
Price/mix/inflation/other								904
Income from operations	$	8,199	$	17,165	$	(8,966	)

Net sales decreased during the during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, primarily due to lower demand within the North American and Chinese automotive markets, unfavorable foreign exchange effects, and the impact of reduced demand for components associated with programs nearing the end of life.

Income from operations decreased by $9.0 million compared to prior year due to lost variable margin on ~~growth in~~ the ~~general industrial~~above-referenced sales volume decline and ~~automotive end markets. We have developed an expertise in manufacturing highly complex, system critical components for~~costs associated with the launch of new fuel systems ~~engines and transmissions, power steering systems~~business within our European operations. These unfavorable impacts were partially offset by fixed cost reduction actions taken in response to the decline in sales volume.

and electromechanical motors on a high-volume basis. This expertise has been gained through investment in technical capabilities, processes and systems, and skilled program management and product launch capabilities.

POWER SOLUTIONS


	Six Months Ended June 30,										Six Months Ended June 30,
	2018		2017		$ Change						2019		2018		$ Change
Net sales	$	177,873	$	173,104	$	4,769					$	101,050	$	98,502	$	2,548
Acquisitions																		$	3,331
Volume								$	4,750									(418		)
Foreign exchange effects								2,429										(365		)
Price/mix/inflation/other								(2,410		)

Income from operations	$	17,165	$	21,289	$	(4,124	)				$	9,506	$	11,233	$	(1,727	)

Net sales increased during the during the six months ended June 30, 2019, compared to the six months ended June 30, 2018, primarily due to $3.3 million of net sales attributable to the Technical Arts acquisition. The increase in net sales was partially offset by lower demand in the electrical products end market.

Income from operations decreased by $1.7 million compared to prior year primarily due to higher selling, general and administrative expenses associated with the 2018 business group resegmentation and lower demand in the electrical products end market.

LIFE SCIENCES



	Six Months Ended June 30,
	2019		2018		$ Change
Net sales	$	177,340	$	90,353	$	86,987
Acquisitions							$	71,374
Volume							15,795
Foreign exchange effects							(182		)
Income from operations	$	13,151	$	6,245	$	6,906

Net sales increased during the six months ended June 30, 2018, from the six months ended June 30, 2017, due to market demand improvements for our steering systems application components resulting from an industry shift from hydraulics to electric-assist steering systems technology. We are realizing the indirect benefits of our customers taking an increasing portion of market share. Also, as the Brazilian economy improves, demand for automotive products is increasing. These volume increases were partially offset by price reductions granted to our customers.

~~Income from operations decreased by $4.1 million~~2019, compared to prior year due to higher start-up costs related to new product launches, lower pricing as noted above, and higher depreciation and lease expenses. These factors were partially offset by implementation of cost savings initiatives and the beneficial impact of higher production volumes.

~~POWER SOLUTIONS~~

Six Months Ended June 30,
2018 2017 $ Change
Net sales $ 98,502
$ 97,158
$ 1,344

       Volume $ 1,251
       Foreign exchange effects 93
       Price/mix/inflation/other —

Income from operations $ 11,233
$ 13,614
$ (2,381 )

~~Net sales increased during~~ the six months ended June 30, 2018, ~~from the six months ended June 30, 2017,~~ primarily due to ~~growth in the electrical products business.~~

Income from operations decreased by $2.4 million primarily due to a shift in product mix toward higher cost raw materials, such as precious metals used in power control products, and investments in the development of new products that we are preparing to launch in the aerospace end market later in 2018.

~~LIFE SCIENCES~~

Six Months Ended June 30,
2018 2017 $ Change
Net sales $ 90,353
$ 46,243
$ 44,110

Acquisitions $ 46,139
Volume (1,291 )
Foreign exchange effects —
Price/mix/inflation/other (738 )

Income from operations $ 6,245
$ 7,420
$ (1,175 )

~~Net sales increased during the six months ended June 30, 2018, from the six months ended June 30, 2017, primarily due to $46.1~~$71.4 million of net sales attributable to the Paragon Medical and Bridgemedica ~~and Vandalia~~ acquisitions ~~partially offset by~~as well as a ~~$1.3~~$15.8 million ~~reduction~~increase in core ~~volume which was attributable to a single customer.~~volume.

Income from operations ~~decreased~~increased by ~~$1.2~~$6.9 million compared to prior year primarily due to ~~$3.4 million~~an increase in ~~cost of~~ sales ~~for inventory fair value adjustment at~~volume as well as the Paragon Medical ~~acquisition related restructuring~~ and ~~integration costs, other costs associated with establishing the Life Sciences Group, and lower core volume as noted above.~~Bridgemedica acquisitions.

Changes in Financial Condition from December 31, ~~2017,~~2018, to June 30, ~~2018~~2019

From December 31, ~~2017,~~2018, to June 30, ~~2018,~~2019, total assets increased by ~~$286.1~~$70.7 million primarily due to ~~assets acquired with~~ the ~~Paragon Medical and Bridgemedica businesses which had $466.4 million~~initial recognition of ~~total~~operating lease assets as of ~~June 30, 2018. Paragon Medical and Bridgemedica contributed $165.5 million~~January 1, 2019, pursuant to ~~the increase in goodwill and $169.9 million to intangible assets.~~ASC 842. Overall, accounts receivable increased consistently with sales growth. Inventories increased as our plants ~~satisfy customer demand.~~prepare for third and fourth quarter sales. Days inventory outstanding ~~increased slightly~~decreased by approximately ~~two days~~one day as our businesses met expected customer demand on a timely basis and due to normal seasonal inventory building activity. Partially offsetting these increases was a $201.2 million decrease in cash to fund the Paragon Medical and Bridgemedica acquisitions and capital expenditures as well as working capital needs.managing procurement based on market price projections.

From December 31, ~~2017,~~2018, to June 30, ~~2018,~~2019, total liabilities increased by ~~$328.9~~$111.1 million, primarily ~~related~~due to ~~new debt~~the initial recognition of operating lease liabilities as of January 1, 2019, pursuant to ASC 842, an increased balance in our Senior Secured Revolver used to ~~partially finance~~fund operations, and recognition of the ~~Paragon Medical acquisition. Paragon Medical and Bridgemedica contributed $63.8 million to~~fair value of the ~~increase in total liabilities.~~interest rate swap.

Working capital, which consists principally of cash, accounts receivable, inventories, and other current assets offset by accounts payable, accrued payroll costs, income taxes payable, current maturities of long-term debt, current portion of lease liabilities, and other current liabilities, was ~~$224.5~~$169.4 million as of June 30, ~~2018,~~2019, compared to ~~$368.9~~$151.8 million as of December 31, ~~2017.~~2018. The ~~decrease~~increase in working capital was due primarily to the increase in accounts receivable and inventories consistent with our sales growth and a decrease in ~~cash used to fund acquisitions and capital expenditures.~~accounts payable due a decrease in days payable outstanding offset by the initial recognition of operating lease liabilities.

Cash provided by operations was $4.4 million for the six months ended June 30, 2019, compared with cash used by operations ~~was~~of $19.4 million for the six months ended June 30, ~~2018, compared with cash provided by operations~~2018. The difference was primarily due to higher receipts from operating revenues as a result of ~~$15.8 million for~~the increase in net sales as well as changes in net working capital during the six months ended June 30, ~~2017. The difference was primarily due~~2019 compared to the decrease in income from operations. The components of the decrease in income from operations are discussed in the “Results of Operations” section. Additionally, cash provided by operating activities for discontinued operations was $8.7 million for the six months ended June 30, 2017, and was not present in the six months ended June 30, 2018.

Cash used by investing activities was $19.8 million for the six months ended June 30, 2019, compared with cash used by investing activities of $421.7 million for the six months ended June 30, 2018. The decrease was primarily due to cash paid for

the Paragon Medical and Bridgemedica acquisitions in 2018 ~~compared with~~partially offset by cash ~~used~~received from the liquidation of the short-term investment during 2019.

Cash provided by ~~investing~~financing activities ~~of $20.0~~was $19.7 million for the six months ended June 30, ~~2017. The difference was primarily due to~~2019, compared with cash paid for the Paragon Medical and Bridgemedica acquisitions and capital expenditures. Cash used by investing activities for discontinued operations was $5.2 million for the six months ended June 30, 2017.

~~Cash~~ provided by financing activities ~~was~~of $240.7 million for the six months ended June 30, ~~2018, compared with cash provided by financing activities of $8.2 million for the six months ended June 30, 2017.~~2018. The difference was primarily due to proceeds from the ~~new debt facility~~Second Lien Facility used to partially finance the Paragon Medical ~~acquisition.~~ acquisition in 2018.

During 2018, as a result of our annual goodwill impairment analysis performed during the fourth quarter of 2018, we recorded an impairment of $109.1 million in our Power Solutions group. Subsequent to the impairment, at December 31, 2018, Power Solutions reported a goodwill balance of $94.5 million. Given the carrying value of the Power Solutions group was equal to its fair value at December 31, 2018 as a result of the 2018 goodwill impairment, if actual performance of the Power Solutions group falls short of expected results, additional material impairment charges may be required. During the second quarter of 2019, we assessed for triggering events that would signify the need to perform an impairment test and concluded there were no triggering events during the period. We will continue to monitor and assess Power Solutions during 2019.

Based on the closing price of a share of our common stock as of June 30, 2019, our market capitalization was in excess of the net book value of our stockholders’ equity. Subsequent to June 30, 2019, our market capitalization declined to a level less than the net book value of our stockholders’ equity. A prolonged or significant decline in market capitalization could be an indicator of additional goodwill impairment. We will continue to monitor our market capitalization to determine if an indicator of impairment exists in subsequent periods.

Liquidity and Capital Resources

Aggregate principal amounts outstanding under the Senior Secured Term Loan, the Incremental Term Loan, the Senior Secured Revolver, and the Second Lien Facility as of June 30, 2018, were $1,087.2 million (without regard to debt issuance costs). Overview

As of June 30, ~~2018,~~2019, we ~~could borrow up to $29.6 million under the Senior Secured Revolver, subject to certain limitations. This amount of availability is net of $2.4~~had $22.1 million of ~~outstanding letters~~cash and $11.5 million of ~~credit at June 30, 2018, which are considered as usage of the Senior Secured Revolver.~~

~~Collectively,~~unused borrowing capacity under our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver comprise our credit facility. Our credit facility is subject to certain financial covenants based on a consolidated net leverage ratio, as defined in the credit facility agreement. The financial covenants are effective when we have outstanding amounts drawn on our Senior Secured Revolver on the last day of any fiscal quarter and become more restrictive over time. We had $68.0 million outstanding balance on the Senior Secured Revolver as of June 30, 2018, and were in compliance with all covenants under our credit facility and expect to be in compliance with all covenants through June 30, 2019.

The Senior Secured Term Loan requires quarterly principal payments of $1.4 million through October 19, 2022, with the remaining principal amount due on the maturity date. If one-month LIBOR is less than 0.75%, then we pay 4.50% per annum in interest. If one-month LIBOR exceeds 0.75%, then we pay the variable one-month LIBOR rate plus an applicable margin of 3.75%. Based on the outstanding balance at June 30, 2018, annual interest payments would have been $31.2 million.

The Incremental Term Loan requires quarterly principal payments of $3.0 million through April 3, 2021, with the remaining principal amount due on the maturity date. Based on the outstanding balance at June 30, 2018, annual interest payments would have been $15.2 million.

The Senior Secured Revolver bears interest at a rate of one-month LIBOR plus an applicable margin of 3.50%. Based on the outstanding balance at June 30, 2018, annual interest payments would have been $3.8 million. In connection with the closing of the Paragon Medical acquisition on May 7, 2018, we entered into an amendment to our existing credit facility to permit the Paragon Medical acquisition, to permit the Second Lien Credit Agreement, and to amend certain covenants.

We entered into the $200.0 million Second Lien Facility on May 7, 2018, to partially fund the Paragon Medical acquisition. The Second Lien Facility matures on April 19, 2023. The Second Lien Facility bears interest at a rate of one-month LIBOR plus an applicable margin of 8.00%. Based on the outstanding balance at June 30, 2018, annual interest payments would have been $20.2 million. We may voluntarily prepay outstanding loans under the Second Lien Facility, in whole or in part without premium or penalty at any time on or after May 7, 2020. We are subject to a prepayment penalty of 2% of the amount of such loans that we prepay before May 7, 2019. If we prepay any outstanding loans after May 7, 2019, but prior to May 7, 2020, we are subject to a prepayment penalty of 1% of the amount prepaid. The Second Lien Credit Agreement requires us to prepay outstanding loans, subject to certain exceptions, with: (i) a variable percentage of excess cash flow; (ii) 100% of the net cash proceeds of non-ordinary course asset sales or other dispositions of property, and 100% of the net cash proceeds from certain insurance and condemnation events with respect to our assets, subject to customary thresholds and reinvestment rights; and (iii) 100% of the net cash proceeds from the issuance or incurrence of debt obligations for borrowed money not permitted by the Second Lien Credit Agreement.

Revolver. We believe that these sources of cash and funds generated from our consolidated ~~continuing~~ operations ~~and existing cash~~ will provide sufficient cash flow to service the required debt and interest payments under our existing credit ~~facility. The absence of cash flows from discontinued operations is not expected~~facility and to ~~significantly affect~~fund our ~~ability to service our debt.~~operating activities, capital expenditure requirements, and dividend payments.

Our arrangements with customers typically provide that payments are due within 30 to 60 days following the date of shipment. We invoice and receive payment from many of our customers in euros as well as other currencies. Additionally, we are party to various third party and intercompany loans, payables, and receivables denominated in currencies other than the U.S. dollar. As a result of these sales, loans, payables, and receivables, ~~our~~we are exposed to foreign exchange transaction and translation ~~risk is elevated.~~risk. Various strategies to manage this risk are available to management, including producing and selling in local currencies and hedging programs. As of June 30, ~~2018,~~2019, no currency derivatives were in place. In addition, a strengthening of the U.S. dollar and/or euro against foreign currencies could impair our ability to compete with international competitors for foreign as well as domestic sales.

For the next twelve months, we do not expect the sum of capital expenditures and assets procured under finance leases to ~~remain relatively consistent,~~materially change from 2018 spending levels, the majority of which relate to new or expanded business or continuous improvement programs. We believe that funds generated from continuing operations and borrowings from the ~~credit facility~~Senior Secured Revolver will be sufficient to finance capital expenditures, ~~and~~ working capital, and operational needs through this period.

In June 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the European Union, commonly referred to as “Brexit.” The ~~absence~~uncertainty surrounding the terms of the United Kingdom’s withdrawal and the timing (deadline to leave was extended to October 31, 2019), could adversely impact consumer and investor confidence, and the level of consumer purchases of discretionary items and retail products, including our products. Any of these effects, among others, could materially adversely affect our business, results of operations, and financial condition. We will continue to monitor and evaluate the potential effect Brexit has on our business, results of operations, and financial condition.

On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement (the “interest rate swap”) that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575%. The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022, with a declining notional amount over the term of the interest rate swap. Refer to Note 16 in the Notes to Condensed Consolidated Financial Statements for further discussion about the interest rate swap.

Credit Facility

Aggregate principal amounts outstanding under our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver as of June 30, 2019, were $878.6 million (without regard to unamortized debt issuance costs). As of June 30, 2019, we had unused borrowing capacity of $11.5 million under the Senior Secured Revolver, subject to certain limitations. This amount of borrowing capacity is net of $12.1 million of outstanding letters of credit at June 30, 2019, which are considered as usage of the Senior Secured Revolver.

Collectively, our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver comprise our credit facility. On June 11, 2019, we amended our existing credit facility to reduce the total available capacity under the Senior Secured Revolver from $125.0 million to $100.0 million, reduce the maximum capacity from $143.0 million to $110.0 million, and modify the consolidated net leverage ratio, as defined in the credit facility agreement. Total available capacity under the Senior Secured Revolver was $100.0 million as of June 30, 2019. The Senior Secured Revolver matures on October 19, 2020.

The Senior Secured Term Loan requires quarterly principal payments of $1.4 million through October 19, 2022, with the remaining principal amount due on the maturity date. If one-month LIBOR is less than 0.75%, then we pay 4.50% per annum in interest. If one-month LIBOR exceeds 0.75%, then we pay the variable one-month LIBOR plus an applicable margin of 3.75%. Based on the outstanding balance and interest rate in effect at June 30, 2019, annual interest payments would have been $32.6 million.

The Incremental Term Loan requires quarterly principal payments of $3.0 million through April 3, 2021, with the remaining principal amount due on the maturity date. The Incremental Term Loan bears interest at the variable one-month LIBOR plus an applicable margin of 3.25%. Based on the outstanding balance and interest rate in effect at June 30, 2019, annual interest payments would have been $15.4 million.

The Senior Secured Revolver bears interest on a variable rate structure with borrowings bearing interest at either one-month LIBOR plus an applicable margin of 3.50% or the prime lending rate plus an applicable margin of 2.50%. Based on the outstanding balance and weighted average interest rate at June 30, 2019, annual interest payments would have been $4.6 million. We pay a quarterly commitment fee at an annual rate of 0.50% on the Senior Secured Revolver for unused borrowing capacity.

Covenants

We had $76.4 million outstanding under the Senior Secured Revolver at June 30, 2019. Total capacity under the Senior Secured Revolver was $100.0 million as of June 30, 2019 with $11.5 million available for future borrowings after reductions for outstanding letters of credit and outstanding borrowings as of June 30, 2019. Our credit facility is subject to certain financial covenants based on a consolidated net leverage ratio. The financial covenants are effective when we have outstanding borrowings under our Senior Secured Revolver on the last day of any fiscal quarter, become more restrictive over time, and are dependent upon our operational and financial performance. If our operational or financial performance does not improve in line with our expectations, we may be required to take actions to reduce expenditures and decrease our net indebtedness to maintain compliance in future periods. We were in compliance with all covenants under our credit facility at June 30, 2019.

Our Senior Secured Revolver matures on October 19, 2020, which will require us to either extend the maturity date of the Senior Secured Revolver, generate sufficient cash flow through improved operational performance or other means to pay off any outstanding balance on the Senior Secured Revolver or seek additional forms of financing prior to the maturity date. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. If we are unable to extend the maturity date or refinance amounts due under our Senior Secured Revolver, or our operational performance fails to generate sufficient cash flows, ~~from discontinued operations is not expected~~we may be required to ~~significantly affect~~take additional actions to address our ~~ability to finance~~

~~capital expenditures or working capital~~liquidity needs. ~~We base these assertions on current availability for borrowing of up to $29.6 million and forecasted positive cash flow from continuing operations for the next twelve months.~~

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, medical device sales are often stronger in the fourth calendar quarter, and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not materially impacted by seasonality.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the ~~2017~~2018 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the ~~2017~~2018 Annual Report. There have been no changes to these policies during the six months ended June 30, ~~2018,~~2019, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly ~~Report on Form 10-Q.~~Report.

Recent Accounting Pronouncements

See Note 1 in the Notes to Condensed Consolidated Financial Statements included in this Quarterly ~~Report on Form 10-Q.~~Report.


Item 3.	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

Variable Rate Debt

At June 30, ~~2018,~~2019, we had ~~$534.3~~$529.2 million of principal outstanding under the variable rate Senior Secured Term Loan, without regard to debt issuance costs. At June 30, ~~2018,~~2019, a one-percent increase in the interest rate charged on outstanding variable rate borrowings under the Senior Secured Term Loan would result in interest expense increasing annually by approximately $5.3 million.

At June 30, ~~2018,~~2019, we had ~~$285.0~~$273.0 million of principal outstanding under the Incremental Term Loan, without regard to debt issuance costs. At June 30, ~~2018,~~2019, a one-percent increase in the interest rate charged on outstanding variable rate borrowings under the Incremental Term Loan would result in interest expense increasing annually by approximately ~~$2.9~~$2.7 million.

At June 30, ~~2018,~~2019, we had ~~$68.0~~$76.4 million of principal outstanding under the Senior Secured Revolver, without regard to debt issuance costs. At June 30, ~~2018,~~2019, a one-percent increase in the interest rate charged on outstanding variable rate borrowings under the Senior Secured Revolver would result in interest expense increasing annually by approximately ~~$0.7~~$0.8 million.

At June 30, 2018, we had $200.0 million of principal outstanding under the Second Lien Facility, without regard to debt issuance costs. At June 30, 2018, a one-percent increase in the interest rate charged on outstanding variable rate borrowings under the Second Lien Facility would result in interest expense increasing annually by approximately $2.0 million.Interest Rate Swaps and Hedging Activities

Our policy is to manage interest expense using a mix of fixed and variable rate debt. ~~To manage this mix effectively,~~In February 2019, we ~~may enter~~entered into a $700.0 million fixed-rate interest rate ~~swaps~~swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to ~~exchange~~a fixed rate of 2.4575%. The term of the ~~difference between fixed and variable~~ interest ~~amounts.~~rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022, with a declining notional amount over the term of the interest rate swap. Refer to Note 16 in the Notes to Condensed Consolidated Financial Statements for further discussion about the interest rate swap. The nature and amount of borrowings may vary as a result of future business requirements, market conditions, and other factors. ~~As of June 30, 2018, we had no interest rate swaps.~~

Foreign Currency Risk

Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. We participate in various third party and intercompany loans, payables, and receivables denominated in currencies other than

the U.S. dollar. To help reduce exposure to foreign currency fluctuation, we have incurred debt in euros in the past. From time to time, we may use foreign currency derivatives to hedge currency exposures when these exposures meet certain discretionary levels. We did not hold a position in any foreign currency derivatives as of June 30, ~~2018.~~

2019.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~principal financial officer, we evaluated the effectiveness of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, as a result of the material ~~weaknesses~~weakness in internal control over financial reporting described below, our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded that our disclosure controls and procedures were not effective as of June 30, ~~2018,~~2019, to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our Chief Financial Officer resigned effective July 12, 2019, and as a result, our Chief Executive Officer is currently the acting principal financial officer.

Previously Identified Material ~~Weaknesses~~Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

We ~~previously disclosed in our 2017 Annual Report the following control deficiencies that constitute material weaknesses in our internal control over financial reporting:~~

We did not maintain an effective control environment due to a lack of a sufficient complement of personnel with an appropriate level of knowledge, experience, and training commensurate with our financial reporting requirements.

We did not maintain effective controls over information and communication as it relates to the accounting for income taxes. Specifically, we did not implement and reinforce an adequate process for communication and information sharing necessary to support the functioning of internal control between our tax group and our corporate accounting group.

~~These~~ This material ~~weaknesses contributed to the material weaknesses described below:~~

We did not design and maintain effective internal controls over the accounting for business combinations, which specifically included not designing and maintaining effective controls over the (a) accuracy, valuation and presentation and disclosure for allocating goodwill to our international businesses and (b) completeness, accuracy and valuation of deferred income taxes recorded in connection with business combinations;

We did not design and maintain effective internal controls over the accounting for income taxes, which specifically included not designing and maintaining controls over the completeness, accuracy, valuation and presentation and disclosure of deferred income tax accounts, income tax provision and related disclosures.

~~These material weaknesses~~weakness resulted in immaterial errors to other current assets; property, plant and equipment, net; goodwill; investment in joint venture; other non-current assets; accounts payable; accrued salaries, wages and benefits; other current liabilities; deferred tax liabilities; accumulated other comprehensive income; selling, general and administrative expense; depreciation and amortization; other operating expense/income; write-off of unamortized debt issuance costs; provision/benefit for income taxes; comprehensive income/loss; and cash flows in our consolidated financial statements for the years ended December 31, 2017, 2016, and 2015. These immaterial errors also resulted in a revision to previously issued financial statements ~~as discussed in~~ ~~Note 1~~for the periods December 31, 2017 and ~~Note 17~~ ~~in the~~ ~~Notes to Condensed Consolidated Financial Statements~~ ~~presented in Item 1 of~~December 31, 2016. Additionally, this ~~Quarterly Report. Management has determined that the revision was an additional effect of the~~ material ~~weaknesses described above. Additionally, these control deficiencies~~weakness could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Notwithstanding ~~such~~the material ~~weaknesses,~~weakness, our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer have~~principal financial officer concluded that our condensed consolidated financial statements in this Quarterly Report ~~on Form 10-Q~~ present fairly, and in all material respects,

our financial position, results of operations, and cash flows for the periods presented in conformity with U.S. ~~generally accepted accounting principles.~~

~~Remediation Plan for Material Weaknesses~~

Building on our efforts during 2016 and 2017, with the oversight of the Audit Committee of our Board of Directors, we continue to dedicate significant resources and efforts to improve our control environment and to take steps to remediate the material weaknesses identified above. During the second quarter, we completed our gap analysis of our business combinations and income taxes processes supporting internal control over financial reporting to identify areas where new controls are needed and where existing controls need to be enhanced. Based on that analysis, we developed a comprehensive workplan for remediation of the four material weaknesses. This workplan includes detailed process by process work flows with completion dates and responsible parties. We regularly track our progress on completion of the workplan and provide periodic updates to the Audit Committee on our progress.

~~Ongoing Remediation Efforts~~

To address the material weakness associated with an insufficient complement of personnel with an appropriate level of knowledge, experience, and training commensurate with our financial reporting requirements, during the second quarter, we hired a Chief Accounting Officer based in our corporate headquarters and Finance Directors in our new Life Sciences and Power Solutions groups. Each of these individuals has significant experience in technical accounting matters and internal controls commensurate with our public company reporting requirements.

To address the material weaknesses associated with the accounting for business combinations and income taxes, we completed a gap analysis of our key controls during the second quarter. Through this analysis we identified areas where new controls were needed as well as areas where control enhancements to our existing controls were necessary. We developed and implemented these controls as part of our second quarter close process and will continue to enhance or modify these controls in future periods if needed.

To address the material weakness associated with information and communication as it relates to the accounting for income taxes and the information sharing necessary to support the functioning of internal control between our tax group and corporate accounting group, we have implemented formal, scheduled meetings which enable us to communicate and share information necessary for the appropriate accounting of income taxes and business combinations matters as well as other matters. We have also clarified roles and responsibilities within and between our finance and tax teams and have included members of our tax team in the execution of certain controls that previously did not have functional tax involvement. These newly implemented formalized meetings are held before and after the finalization of our income tax accounts during the close process. We have implemented these processes and will continue to enhance or modify them as necessary to support the sharing of information between our tax group and corporate accounting group.

In addition to the items above we are working to strengthen the internal control environment for financial reporting through the use of lean office and continuous improvement tools to identify areas for improvement and optimization in our various financial workflows. We have also conducted training on policies and procedures, standardizing business practices, effective communication, strategic thinking, leadership, and process improvement within various financial functional areas including a worldwide financial leaders’ summit.GAAP.

Status of Remediation Efforts for the Unremediated Material Weakness

~~We believe the measures described above will facilitate~~To ensure we have a sufficient complement of resources within our finance department, we continue to hire qualified personnel for critical finance roles. After we integrate these professionals into our control environment, we expect that the remediation of ~~the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and~~this material weakness will continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or in appropriate circumstances not complete, certain of the remediation measures described above. These material weaknesses will not be ~~considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.~~completed.

Changes in Internal Control Over Financial Reporting

~~As described above in the “Remediation Plan for Material Weaknesses” section, there~~There were no changes ~~during the fiscal quarter ended June 30, 2018,~~ in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~reporting during the fiscal quarter ended June 30, 2019.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

Brazil ICMS Tax Matter

All Other Legal Matters


Item 1A.	Risk Factors

There have been no material changes to the risk factors disclosed in ~~our 2017~~the 2018 Annual Report ~~on Form 10-K for the fiscal year ended December 31, 2017, which was filed with the SEC on April 2, 2018,~~ under Item 1A. “Risk Factors.”


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Period
Total Number of
Shares Purchased (1)

Average Price Paid
Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)

Maximum Number (or
Approximate Dollar Value)
of Shares That May Yet
Be Purchased Under the
Plan or Programs (1)
April 2018 18,399
$ 20.30
—
—
May 2018 —
—
June 2018 —
$ —
—
—
Total 18,399
$ 20.30
—
—

~~(1)~~

Shares were withheld to pay for tax obligations due upon the vesting of restricted stock held by certain employees granted under the NN, Inc. Amended and Restated 2011 Stock Incentive Plan (the “Plan”). The Plan provides for the withholding of shares to satisfy tax obligations. It does not specify a maximum number of shares that can be withheld for this purpose. These shares may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item.

None.


Item 3.	Defaults upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.


Item 6.	Exhibits



Exhibit No.		Description

~~2.1~~3.1		~~Stock Purchase Agreement, dated as~~Certificate of ~~April 2, 2018, by and among Precision Engineered Products LLC,~~Amendment to Restated Certificate of Incorporation of NN, ~~Inc., PMG Intermediate Holding Corporation and Paragon Equity LLC~~Inc. (Declassification) (incorporated by reference to Exhibit ~~2.1~~3.1 to NN, Inc.’s Current Report on Form 8-K filed on ~~April 3, 2018).~~May 20, 2019)

3.2		Certificate of Amendment to Restated Certificate of Incorporation of NN, Inc.(Share Increase) (incorporated by reference to Exhibit 3.2 to NN, Inc.’s Current Report on Form 8-K filed on May 20, 2019)

3.3		Amendment to Amended and Restated Bylaws of NN, Inc. (incorporated by reference to Exhibit 3.3 to NN, Inc.’s Current Report on Form 8-K filed on May 20, 2019)

10.1		~~Commitment Letter,~~NN, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Appendix C to NN, Inc.’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 8, 2019)

10.2		Amendment No. 7 to Amended and Restated Credit Agreement, dated as of ~~April 2, 2018,~~June 11, 2019, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, SunTrust Bank, as administrative agent, and ~~SunTrust Robinson Humphrey, Inc.~~certain lenders named therein (incorporated by reference to Exhibit 10.1 to NN, Inc.’s Current Report on Form 8-K filed on ~~April 3, 2018).~~June 12, 2019)

~~10.2~~10.3*		~~Amendment No. 4 to Amended~~Separation Agreement and ~~Restated Credit Agreement,~~Release, dated ~~May 7, 2018,~~as of July 12, 2019, by and ~~among~~between NN, Inc.~~, the affiliated Guarantors party thereto, SunTrust Bank, SunTrust Robinson Humphrey, Inc.~~ and ~~the Lenders party thereto.~~Thomas C. Burwell, Jr. (incorporated by reference to Exhibit 10.1 to NN, Inc.’s Current Report on Form 8-K filed on ~~May 7, 2018).~~July 15, 2019)

10.4		Form of Incentive Stock Option Agreement under the 2019 Omnibus Incentive Plan

~~10.3~~10.5		~~Second Lien Credit~~Form of Nonqualified Stock Option Agreement ~~dated May 7, 2018, by and among NN, Inc.,~~under the affiliated Guarantors party thereto, SunTrust Bank, SunTrust Robinson Humphrey, Inc. and the Lenders party thereto (incorporated by reference to Exhibit 10.2 to NN, Inc.’s Current Report on Form 8-K filed on May 7, 2018).2019 Omnibus Incentive Plan

10.6		Form of Restricted Share Award Agreement under the 2019 Omnibus Incentive Plan

10.7		Form of Performance Share Unit Award Agreement under the 2019 Omnibus Incentive Plan

31.1		Certification of Principal Executive Officer ~~Pursuant to Rules 13a-14(a)~~ and ~~15d-14(a) under the Securities Exchange Act of 1934, as amended.~~

~~31.2~~		~~Certification of~~ Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1		Certification of Principal Executive Officer ~~pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~32.2~~		~~Certification of~~and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Service

101.CAL		Taxonomy Calculation Linkbase

101.LAB		XBRL Taxonomy Label Linkbase

101.PRE		XBRL Presentation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

* Management contract or compensatory plan or arrangement

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 thereunto duly authorized.



	NN, Inc.
	(Registrant)

Date: August 9, ~~2018~~2019	/s/ Richard D. Holder
	Richard D. Holder
	President, Chief Executive Officer and Director
	(Principal Executive and Financial Officer)
	(Duly Authorized Officer)

Date: August 9, ~~2018~~2019	/s/ ~~Thomas~~Michael C. ~~Burwell, Jr.~~Felcher
	~~Thomas~~Michael C. ~~Burwell, Jr.~~Felcher
	~~Senior~~ Vice President—Chief ~~Financial~~Accounting Officer
	(Principal ~~Financial and~~ Accounting Officer)
	~~(Duly Authorized Officer)~~

4637



	Three Months Ended June 30, 2017		Six Months Ended June 30, 2017
Net sales	$	67,928	$	136,687
Cost of sales (exclusive of depreciation and amortization shown separately below)	51,526		104,485
Selling, general and administrative expense	4,768		9,121
Depreciation and amortization	3,102		6,111
Restructuring and integration expense	300		429

Income from operations	8,232		16,541
Interest expense (income)	71		188
Other expense (income), net	20		18

Income from discontinued operations before provision for income taxes	8,141		16,335
Provision for income taxes	2,905		5,581

Income from discontinued operations, net of tax	$	5,236	$	10,754



Fair value of assets acquired and liabilities assumed	May 7, 2018
Cash and cash equivalents	$	13,418
Accounts receivable	22,853
Inventories	23,606
Other current assets	937
Property, plant and equipment	69,322
Intangible assets subject to amortization	164,200
Other non-current assets	3,304
Goodwill	157,421
Total assets acquired	$	455,061
Current liabilities	$	16,767
Deferred tax liability	46,713
Other non-current liabilities	620
Total liabilities assumed	$	64,100
Net assets acquired	$	390,961



	Gross Carrying Value as of Acquisition Date		Weighted Average Estimated Useful Life in Years
Customer relationships	$	144,900	20
Trademark and trade name	15,400		29
Other	9,613		1
Total intangible assets acquired in current year	$	169,913	19




Balance as of December 31, 2017	$	39,822
Share of cumulative earnings	1,718
Accretion of basis difference from purchase accounting	(240		)
Foreign currency translation loss	(785		)

Balance as of June 30, 2018	$	40,515



	June 30, 2018		December 31, 2017
Current assets	$	52,856	$	47,600
Non-current assets	33,985		24,763
Total assets	$	86,841	$	72,363
Current liabilities	$	38,109	$	26,165
Total liabilities	$	38,109	$	26,165



	June 30, 2018		December 31, 2017
$545.0 million Senior Secured Term Loan B (“Senior Secured Term Loan”) bearing interest at the greater of 0.75% or one-month LIBOR (2.09% at June 30, 2018), plus an applicable margin of 3.75% at June 30, 2018, expiring October 19, 2022	$	534,250	$	534,250
$300.0 million Incremental Term Loan (“Incremental Term Loan”) bearing interest at one-month LIBOR (2.09% at June 30, 2018), plus an applicable margin of 3.25% at June 30, 2018, expiring April 3, 2021	285,000		291,000
$143.0 million Senior Secured Revolver (“Senior Secured Revolver”) bearing interest at one-month LIBOR (2.09% at June 30, 2018) plus an applicable margin of 3.5% at June 30, 2018, expiring October 19, 2020	67,962		—
$200.0 million Second Lien Facility ("Second Lien") bearing interest at one-month LIBOR (2.09% at June 30, 2018), plus an applicable margin of 8.0% at June 30, 2018, expiring April 19, 2023	200,000		—
International lines of credit and other loans	4,962		3,315
Total	1,092,174		828,565
Less current maturities of long-term debt	29,809		17,283
Principal, net of current portion	1,062,365		811,282
Less unamortized debt issuance costs	21,931		20,477
Long-term debt, net of current portion	$	1,040,434	$	790,805



	Deferred Revenue
Balance at January 1, 2018	$	2,124
Balance at June 30, 2018	$	3,372



	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change			As Reported		Balances Without Adoption of ASC 606		Effect of Change
Net sales	$	196,349		$	196,367		$	(18	)	$	365,497	$	365,569	$	(72	)
Cost of sales	148,640			148,631			9			275,084		275,120		(36		)
Income (loss) from operations	(292		)	(265		)	(27		)	3,401		3,437		(36		)

	As of June 30, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change
Accounts receivable, net	$	147,449		$	146,913		$	536
Inventories	116,136			116,470			(334		)



Options	Shares (in thousands)		Weighted- Average Exercise Price (per share)		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2018	746		$	14.33
Granted	55		24.55
Exercised	(27	)	10.15			$	274
Outstanding at June 30, 2018	774		$	15.21	6.1	$	2,861	(1)
Exercisable at June 30, 2018	625		$	13.61	5.4	$	3,304	(1)



TSR:		Threshold Performance (50% of Shares)		Target Performance (100% of Shares)		Maximum Performance (150% of Shares)
	2018 grants	35th Percentile		50th Percentile		75th Percentile

ROIC:		Threshold Performance (35% of Shares)		Target Performance (100% of Shares)		Maximum Performance (150% of Shares)
	2018 grants	15.5	%	18	%	19.5	%



	Six Months Ended June 30, 2017
	As Originally Reported			Adjustment			Discontinued Operations			As Revised
Cost of sales (exclusive of depreciation and amortization shown separately below)	$	332,994		$	485		$	(104,485	)	$	228,994
Selling, general and administrative expense	44,530			(764		)	(9,121		)	34,645
Depreciation and amortization	31,468			265			(6,111		)	25,622
Other operating income	—			(270		)	—			(270		)
Income from operations	42,751			284			(16,541		)	26,494
Other (income) expense, net	(79		)	(340		)	(18		)	(437		)
Loss from continuing operations before benefit for income taxes and share of net income from joint venture	(24,187		)	624			(16,335		)	(39,898		)
Benefit for income taxes	7,128			(229		)	5,581			12,480
Loss from continuing operations	(14,122		)	395			(10,754		)	(24,481		)
Income from discontinued operations, net of tax (Note 2)							10,754			10,754
Net loss	$	(14,122	)	$	395					$	(13,727	)
Other comprehensive loss:
Foreign currency translation gain	14,244			372						14,616
Other comprehensive income	14,244			372						14,616
Comprehensive income	$	122		$	767					$	889
Basic net loss per share	$	(0.52	)	$	0.01					$	(0.50	)
Diluted net loss per share	$	(0.52	)	$	0.01					$	(0.50	)



	Six Months Ended June 30, 2017
	As Originally Reported			Adjustment			Reclasses (1)		As Revised
Cash flows from operating activities
Net loss	$	(14,122	)	$	395				$	(13,727	)
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
Depreciation and amortization	31,468			265					31,733			(2)
Gain on disposals or property, plant and equipment	(268		)				268		—
Loss on extinguishment of debt and write-off of debt issuance costs	8,054						31,585		39,639
Other	638			(268		)	(268	)	102
Changes in operating assets and liabilities:
Income taxes receivable	(10,841		)	229					(10,612		)
Other	(7,247		)	(889		)			(8,136		)
Net cash provided by (used by) operating activities	(15,552		)	(268		)	31,585		15,765
Cash flows from investing activities
Proceeds from disposals of property, plant and equipment	356			—			(356	)	—
Other	—			268			356		624
Net cash provided by (used by) investing activities	(20,302		)	268			—		(20,034		)
Cash flows from financing activities
Cash paid for debt issuance or prepayment costs	(6,545		)				(31,585	)	(38,130		)
Proceeds from issuance of stock and exercise of stock options	2,592						(2,592	)	—
Shares withheld to satisfy income tax withholding	(413		)				413		—
Principal payments on capital leases	(2,059		)				2,059		—
Other	—						120		120
Net cash provided by (used by) financing activities	39,762						(31,585	)	8,177



Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plan or Programs (1)
April 2018	18,399	$	20.30	—	—
May 2018				—	—
June 2018	—	$	—	—	—
Total	18,399	$	20.30	—	—