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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, 2019
OR
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
 
 
 
 http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13053485&doc=14
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 every Interactive Data File required to be submitted 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 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.
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
☐ 
  
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, 2019, there were 42,366,961 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
 


Table of Contents

NN, Inc.
INDEX
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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PART I. FINANCIAL INFORMATION 
Item 1.
Financial Statements
NN, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
Amounts in thousands, except per share data
 
 
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.

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NN, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
Amounts in thousands
 
 
 
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.

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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.






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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.


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NN, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Amounts in thousands
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
Net loss
 
$
(25,297
)
 
$
(30,494
)
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
 
 
 
 
Depreciation and amortization
 
46,349

 
30,539

Amortization of debt issuance costs
 
2,354

 
2,313

Loss on extinguishment of debt and write-off of debt issuance costs
 
2,699

 
12,938

Share of net income from joint venture, net of cash dividends received
 
(66
)
 
(1,478
)
Compensation expense from issuance of share-based awards
 
1,979

 
2,334

Deferred income taxes
 
(6,762
)
 
(34
)
Other
 
540

 
214

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable
 
(17,723
)
 
(17,256
)
Inventories
 
(5,826
)
 
(10,742
)
Accounts payable
 
(1,405
)
 
(4,653
)
Income taxes receivable and payable, net
 
315

 
(8,695
)
Other
 
7,210

 
5,589

Net cash provided by (used by) operating activities
 
4,367

 
(19,425
)
Cash flows from investing activities
 
 
 
 
Acquisition of property, plant and equipment
 
(28,994
)
 
(28,888
)
Proceeds from liquidation of short-term investment
 
8,000

 

Cash paid to acquire businesses, net of cash received
 

 
(393,481
)
Other
 
1,223

 
625

Net cash used by investing activities
 
(19,771
)
 
(421,744
)
Cash flows from financing activities
 
 
 
 
Cash paid for debt issuance or prepayment costs
 
(967
)
 
(16,703
)
Dividends paid
 
(5,913
)
 
(3,854
)
Proceeds from long-term debt
 
46,630

 
270,000

Repayment of long-term debt
 
(12,055
)
 
(16,000
)
Proceeds from (repayments of) short-term debt, net
 
(6,218
)
 
9,703

Other
 
(1,759
)
 
(2,410
)
Net cash provided by financing activities
 
19,718

 
240,736

Effect of exchange rate changes on cash flows
 
(225
)
 
(806
)
Net change in cash and cash equivalents
 
4,089

 
(201,239
)
Cash and cash equivalents at beginning of period
 
17,988

 
224,446

Cash and cash equivalents at end of period
 
$
22,077

 
$
23,207

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

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NN, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(Unaudited)
Amounts in thousands, 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, 2019, we had 51 facilities in North America, Europe, South America, and China.
Basis of Presentation
The accompanying condensed consolidated financial statements have not been audited, except that the Condensed Consolidated Balance Sheet as of December 31, 2018, was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”), which we filed with the U.S. Securities and Exchange Commission (the “SEC”) on 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 and six months ended June 30, 2019 and 2018; financial position as of June 30, 2019, and December 31, 2018; and cash flows for the six months ended June 30, 2019 and 2018, on a basis consistent with our audited consolidated financial statements other than the adoption of new accounting standards, such as the new lease standard (see Note 10). These adjustments are of a normal recurring nature and are, in the opinion of management, necessary to 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 accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted from the interim financial statements presented in this Quarterly Report. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the 2018 Annual Report. The results for the three and six months ended June 30, 2019, are not necessarily indicative of results for the year ending December 31, 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.
Accounting Standards Recently Adopted
Leases. On January 1, 2019, we adopted Accounting Standards Codification (“ASC”) 842, Leases, which superseded ASC 840, Leases. We adopted ASC 842 utilizing the modified retrospective transition 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 the modified retrospective transition method, we recognized the cumulative effect of the initial adoption adjustment to the opening balance of retained deficit as of January 1, 2019. The adoption adjustment to retained deficit was $0.1 million. As part of the adoption of ASC 842, we elected the package of practical expedients, the short-term lease exemption, and the practical expedient to not separate lease and non-lease components. We recorded lease-related assets and liabilities to our balance sheet for leases with terms greater than twelve months that were classified as operating leases and not previously recorded on our balance sheet. See Note 10 for the required disclosures related to ASC 842.
Derivatives and Hedging. In 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 2017-12”). ASU 2017-12 provides new rules that expand the hedging strategies that qualify for hedge accounting. The new rules also allow additional time to complete hedge effectiveness testing and allow qualitative assessments subsequent to initial quantitative tests if there is a supportable expectation that the hedge will remain highly effective. We adopted the guidance on January 1, 2019. We have applied the new rules to 2019 hedging activities as disclosed in Note 16 to these condensed consolidated financial statements. The new guidance has no effect on our historical financial statements.
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 2018-2, Income Statement – Reporting Comprehensive

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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 2018-13, 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, 2020, using either a prospective or retrospective approach and with early adoption permitted. We are in the process of evaluating the effects of this 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. Acquisitions
Paragon Medical, Inc.
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 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 expand our Life Sciences portfolio as well as create a balanced business by diversifying our products and finished device offerings. We have finalized the purchase price allocation and recorded measurement period adjustments to the initial allocation as disclosed in our 2018 Annual Report.
Beginning May 7, 2018, our consolidated results of operations include the 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, 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 debt service costs and 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.
 
 
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
)

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Other Acquisitions
Bridgemedica, 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 in our Life Sciences group after the acquisition date. We have finalized the purchase price allocation with no material changes to the initial allocation.
Southern California Technical Arts, Inc. On August 9, 2018, we completed the acquisition of 100% of the capital stock of Southern California Technical Arts, Inc. (“Technical Arts”). For accounting purposes, Technical Arts meets the definition of a business and has been accounted for as a business combination. Technical Arts is an industrial machining company that manufactures tight tolerance metal components and assemblies. The acquisition of Technical Arts expands our presence in the aerospace and defense end market. Operating results of Technical Arts are reported in our Power Solutions group after the acquisition date. We have completed a preliminary purchase price allocation and are in the process of finalizing the fair value of assets acquired and liabilities assumed.
Note 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 are considered operating segments as each engages in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the Chief Operating Decision Maker (“CODM”) reviews discrete financial information for purposes of allocating resources and assessing performance.
Segment Results
The following table presents results of operations for each reportable segment.
 
 
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

Income (loss) from operations
 
$
7,380

 
$
6,000

 
$
2,041

 
$
(15,713
)
 
 
 
$
(292
)
Interest expense
 
 
 
 
 
 
 
 
 
 
 
(15,988
)
Other
 
 
 
 
 
 
 
 
 
 
 
(14,825
)
Loss before benefit for income taxes and share of net income from joint venture
 
 
 
 
 
 
 
 
 
 
 
$
(31,105
)

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Table of Contents

 
 
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 elimination of intersegment transactions occurring during the ordinary course of business.
 
 
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 4. Inventories
Inventories are comprised of the following amounts:
 
 
June 30, 2019
 
December 31, 2018
Raw materials
 
$
53,789

 
$
52,930

Work in process
 
49,051

 
42,578

Finished goods
 
25,686

 
27,107

Total inventories
 
$
128,526

 
$
122,615

Note 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, 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

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.

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Table of Contents

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.
Note 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, 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 7. Investment in Joint Venture
We own a 49% investment in Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the “JV”), a joint venture located in Wuxi, China. The JV is jointly controlled and managed, and we account for it under the equity method.
The following table summarizes activity related to our investment in the JV.
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 less than $0.1 million and $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, respectively.
Note 8. Income Taxes
Our effective tax rate was (9.8)% and (12.5)% for the three months and six months ended June 30, 2019, respectively, and 19.1% and 18.2% for the three months and six months ended June 30, 2018, 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 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 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 ended June 30, 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 rate differed from the U.S. federal statutory tax rate of 21% due to permanent differences including GILTI and earnings outside the United States, which were taxed at different rates than the U.S. federal statutory rate of 21%.

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Table of Contents

Note 9. Debt
Collectively, our credit facility is comprised of a term loan with a face amount of $545.0 million, maturing on October 19, 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 assets.
The following table presents debt balances as of June 30, 2019, and December 31, 2018.
 
 
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

Lesscurrent maturities of long-term debt
 
25,115

 
31,280

Principal, net of current portion
 
863,138

 
828,313

Lessunamortized debt issuance costs
 
12,762

 
16,842

Long-term debt, net of current portion
 
$
850,376

 
$
811,471

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

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Table of Contents

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 February 2019, we entered into a $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 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 disclosures required under the new standard are not provided for periods prior to January 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 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, and lease obligations represent our obligation to make lease payments arising from the 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 terms between thirteen months and five years. Operating lease ROU assets consist of the following:
Equipment used in the manufacturing process as well as office equipment with terms between thirteen months and 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.

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Table of Contents

The following table presents the 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 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 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.

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Table of Contents

As of 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 following table summarizes the future minimum lease payments under operating leases with initial or non-cancelable lease terms in excess of one year prior to adoption of ASC 842 as reported in the 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 three and six months ended June 30, 2018, we recognized rent expense of $2.4 million and $4.5 million, respectively.
Note 11. Restructuring and Integration
The following tables summarize restructuring and integration charges incurred for the three months ended June 30, 2018 and the six months ended June 30, 2019 and 2018. There were no restructuring and integration charges incurred for the three months ended June 30, 2019.
 
 
Three Months Ended June 30, 2018
 
 
Mobile
Solutions
 
Power
Solutions
 
Life
Sciences
 
Corporate and
Consolidations
 
Total
Severance and other employee costs
 
$

 
$

 
$
1,596

 
$

 
$
1,596

Site closure and other associated costs
 
(5
)
 

 

 

 
(5
)
Total
 
$
(5
)
 
$

 
$
1,596

 
$

 
$
1,591

 
 
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, 2019.
 
 
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
 
$
1,122

 
$

 
$

 
$
(392
)
 
$
730

Site closure and other associated costs
 
24

 
(12
)
 

 
(12
)
 

Total
 
$
1,146

 
$
(12
)
 
$

 
$
(404
)
 
$
730


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Table of Contents

The amount accrued for restructuring and integration costs represents what we expect to pay over the next 1.7 years. We expect to pay $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 authority regarding ICMS (state value added tax or “VAT”) tax credits claimed on intermediary materials (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, 2019, for this matter.
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
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. 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.
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


17

Table of Contents

 
 
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 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 three and six months ended June 30, 2019, from amounts included in deferred revenue at the beginning of the period for performance obligations satisfied or partially satisfied during the period, was approximately $0.9 million and $1.6 million, respectively.

18

Table of Contents

Transaction Price Allocated to Future Performance Obligations
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,
 
 
2019
 
2018
 
2019
 
2018
Stock options
 
$
169

 
$
152

 
$
361

 
$
358

Restricted stock
 
502

 
397

 
961

 
856

Performance share units
 
435

 
529

 
657

 
1,120

Share-based compensation expense
 
$
1,106

 
$
1,078

 
$
1,979

 
$
2,334

Stock Options
During the six months ended June 30, 2019, we granted options to purchase 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, 2019, was $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 2019.
 
2019
Expected term
6 years

Risk free interest rate
2.47
%
Dividend yield
3.53
%
Expected volatility
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 Staff Accounting Bulletin Topic 14, Share-based payment. The simplified method was used because sufficient historical stock option exercise experience was not 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 formul