Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. NN INC (918541) 10-K published on Mar 16, 2020 at 1:31 pm
Reporting Period: Dec 30, 2019
Our management team has significant experience in precision manufacturing and the diversified industrial sector. Warren Veltman was named President and Chief Executive Officer in September 2019 and previously served as Executive Vice President of Mobile Solutions. Mr. Veltman joined us in 2014 as part of the Autocam acquisition, a business at which he had 30 years of experience in financial and operational leadership roles. Thomas DeByle joined NN and was named Senior Vice President and Chief Financial Officer in August 2019. Mr. DeByle has extensive experience in finance leadership roles at global manufacturers and most recently served as Chief Financial Officer, Vice President and Treasurer of Standex International since 2008. Christopher Qualters was named Executive Vice President of Life Sciences in November 2019, having previously served as Executive Vice President of Power Solutions since 2018. Mr. Qualters joined us in 2014 as part of the Autocam acquisition, a business at which he had 10 years of experience in sales and marketing. John Buchan was named Executive Vice President of Mobile Solutions in September 2019 and Executive Vice President of Mobile Solutions and Power Solutions in November 2019. Mr. Buchan joined us in 2014 as part of the Autocam acquisition, a business at which he had 18 years of experience in operations. We believe that our current management team has the necessary talent and experience to lead our previously announced evaluation of strategic alternatives while profitably operating and growing the business.
In November 2019, we initiated a strategic review to evaluate a broad range of operational, financial and strategic options to reduce leverage and enhance shareholder value, and we retained external advisors to assist in this effort. The strategic options we are evaluating include further cost savings and cash generation initiatives, capital allocation opportunities, and the sale of part or all of NN, among others. There is no finite timetable for completion of the review, and we can provide no assurance that we will pursue or complete any action or transaction in connection with the review. While the review is ongoing, we are exposed to various risks and uncertainties, including, without limitation, the diversion of management’s attention to the review; potential difficulty in retaining and attracting key employees during the review process; foreseen and unforeseen costs and expenses associated with the review and any transaction resulting therefrom; exposure to potential litigation in connection with the review process or any transaction resulting therefrom; speculation regarding any developments related to the review and perceived uncertainties related to our future; and potential negative reactions from the financial markets if we do not complete one or more transactions as a result of the review. Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or the price of our common stock.
On November 1, 2019, Erie County Employees’ Retirement System, on behalf of a purported class of plaintiffs, filed a complaint in the Supreme Court of the State of New York, County of New York, against the Company, certain of the Company’s current and former officers and directors, and each of the underwriters involved in the Company’s public offering and sale of 14.4 million shares of its common stock pursuant to a preliminary prospectus supplement, dated September 10, 2018, a final prospectus supplement, dated September 13, 2018, and a base prospectus, dated April 19, 2017, relating to the Company’s effective shelf registration statement on Form S-3 (File No. 333-216737) (the “Offering”), which complaint was amended on January 24, 2020. The complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 in connection with the Offering. The plaintiffs seek to represent a class of stockholders who purchased shares of the Company’s common stock in the Offering. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations, or cash flows.
In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued. The Company relies on cash flow generated from operations and available borrowings under its Senior Secured Revolver to fund our working capital and other operating and investing needs. Our ability to borrow under our Senior Secured Revolver is based on our continued compliance with our financial leverage ratio covenant, as defined, which becomes more restrictive in the second quarter of 2020 and the first quarter of 2021. If our operational and financial performance does not improve in line with our expectations, and as a result we are unable to comply with our financial ratio covenant, then the revolving credit lenders, the Senior Secured Term Loan lenders, and the Incremental Term Loan lenders could take action to cause amounts due under our credit facilities to become due and payable unless we are able to amend such covenants or otherwise refinance our debt. Our ability to amend our covenants or refinance our debt is dependent upon several factors, and therefore there can be no assurance that we would be successful in these efforts. If we would be unable to access future borrowings or be required to pay amounts due under our credit facilities prior to their normal maturity dates, this would have a material impact to the Company’s financial position. We have developed a plan to mitigate the risk of noncompliance with our financial covenants, if necessary, which would include the implementation of a series of specific and identified cost reductions in both our corporate and business groups, including reducing our direct and indirect labor costs and benefits. In addition, our plans also include, as deemed necessary, repatriating cash from certain overseas businesses, managing our working capital more efficiently through usage of our customers’ available supply chain finance programs and other means, and the sale or sublease of certain underutilized properties.
Given the loss from continuing operations in 2019 and 2018, all options and warrants are considered anti-dilutive and were excluded from the calculation of diluted loss from continuing operations per share and diluted net income (loss) per share. Stock options excluded from the calculations of diluted income (loss) from continuing operations per share had a per share exercise price ranging from $8.54 to $25.16 for the year ended December 31, 2019, and $4.42 to $25.16 for each of the years ended December 31, 2018, and 2017. Warrants excluded from the calculation of diluted income (loss) from continuing operations per share for the year ended December 31, 2019, had a per share exercise price of $12.00. Preferred Stock excluded from the calculation of diluted income (loss) from continuing operations per share for the year ended December 31, 2019, was calculated on an as-converted basis. Holders of Preferred Stock will have the right to convert up to 25% of their Preferred Stock into common shares per quarter after December 31, 2023, at a conversion price that equals a 30-day volume weighted average price per common share. Under certain conditions, holders of Preferred Stock may elect to convert their Preferred Stock into common shares at an earlier date after March 31, 2023, at a conversion price that equals 90% of the volume weighted average market price per common share. The potentially dilutive Preferred Stock in the preceding table presents the more dilutive result of these conversion prices as if the Preferred Stock were converted on December 31, 2019.