NN, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request references 2021 Q4, this filing is an annual report; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow summary.
Business context
NN, Inc. designs and manufactures precision metal and plastic components through Mobile Solutions, serving automotive and industrial markets, and Power Solutions, serving electrical, industrial, automotive, aerospace and defense, and medical markets. The company operated 31 facilities across six countries. Its 2020 sale of Life Sciences substantially changed the continuing business and prior-year comparisons.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $477.6 million | $427.5 million |
| Operating loss | $9.0 million | $117.5 million |
| Continuing-operations loss | $14.4 million | $139.5 million |
| Net loss | $13.2 million | $100.6 million |
| Net loss per common share | $0.79 | $2.68 |
| Cash from operations | $15.6 million | $15.5 million |
| Capital expenditures | $18.2 million | $23.8 million |
| Cash and cash equivalents at year-end | $28.7 million | $48.1 million |
| Total debt principal at year-end | $159.8 million | $84.9 million |
- Sales grew 12% year over year: $47.9 million organic growth plus $2.2 million favorable foreign-exchange effects. Both segments grew. Mobile Solutions sales were $285.9 million and operating income was $9.0 million; Power Solutions sales were $191.8 million and operating income was $6.5 million.
- Cost of sales, excluding separately reported depreciation and amortization, rose to 81.7% of sales from 80.4%, indicating pressure on that cost measure. Management cited inflation, supply-chain inefficiencies, uneven customer orders, and restored employee-related expenses. SG&A declined by $6.6 million to $51.5 million.
- Operating loss was 1.9% of sales, compared with 27.5% in 2020. The prior-year result included a $92.9 million Power Solutions goodwill impairment. No goodwill remained at year-end 2021.
- Operating cash flow was nearly unchanged despite higher sales; inventory increased $12.5 million to $75.0 million as the company built supply-chain protection. Investing activities used $36.1 million, including $15.4 million to settle the terminated interest-rate swap.
- Year-end current assets were $196.3 million and current liabilities $74.0 million. The company had $36.0 million available under its ABL facility, no ABL borrowings, and $11.2 million of letters of credit outstanding.
Material changes and financing
- In March 2021, NN refinanced with a $150 million term loan and a $50 million asset-backed revolver, and issued $65 million of Series D perpetual preferred stock. The proceeds, together with term-loan proceeds, funded redemption of all Series B preferred stock; the reported redemption cash payment was $118.4 million.
- The new term loan carried a 7.875% rate at year-end and matures in September 2026. A $60 million interest-rate swap fixes the LIBOR component at 1.291% through July 2024. Management estimated annual interest payments of approximately $11.9 million based on year-end rates and the swap.
- Series D preferred stock has a 10% annual cash dividend that accrues whether or not declared; if cash dividends are not paid, the liquidation preference increases at 12% annually. Cash dividends are required beginning September 2027, and the rates increase by 2.5 percentage points in March 2026. The company reported $21.5 million of preferred dividends accrued in 2021.
- In 2020, the company sold Life Sciences for $753.3 million cash, subject to adjustments, and reported a $214.9 million gain on sale. A potential earnout of up to $70 million depends on the business’s 2022 Adjusted EBITDA.
Outlook, risks, and unusual items
The filing gives no specific revenue, earnings, or cash-flow guidance. Management expects COVID-related and supply-chain disruptions and inflationary pressure to continue into 2022. It cited automotive semiconductor shortages, raw-material and labor costs, customer-order volatility, and Chinese power outages as operational challenges. Cost reduction, facility streamlining, organic growth, margin improvement, and debt reduction remain stated priorities.
- Key risks include customer concentration (the ten largest customers accounted for about 43% of 2021 sales), automotive production exposure, international operations and currency movements, raw-material availability and pricing, and the company’s substantial debt and restrictive covenants.
- On March 3, 2022, the company amended its term-loan covenants, increasing maximum leverage ratios for 2022 and 2023. It reported covenant compliance at December 31, 2021.
- The company disclosed a securities-offering class action seeking unspecified damages and said it could not determine whether the outcome would materially affect it. A Brazilian tax matter has potential exposure below $5 million for remaining open cases; management cited indemnification and recorded no accrual for those cases. The Corre Partners complaint was settled in May 2021.
- Auditors issued unqualified opinions on the 2021 financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective at year-end. The 2020 results included a major goodwill impairment and discontinued-operation sale gain, so headline year-over-year loss comparisons are not fully like-for-like.
Important facts for investors to verify
- Review the full debt agreements, covenant headroom after the March 2022 amendment, and the company’s capacity to service or refinance debt as it matures.
- Assess whether price increases and cost actions can offset persistent material, labor, and supply-chain cost pressure without impairing demand or margins.
- Monitor inventory levels, operating cash conversion, capital spending, and accessible liquidity, including borrowing-base limits under the ABL facility.
- Confirm the economic and dilution implications of Series D preferred dividends and the warrants to purchase up to 1.9 million common shares at $0.01 per share.
- Track the securities litigation, Brazilian tax proceedings and indemnification, and the possible Life Sciences earnout.