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 ~~March 31,~~June 30, 2021


☐			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, Suite 600

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 ~~May 3,~~August 2, 2021, there were ~~43,064,365~~43,033,548 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

NN, Inc.

INDEX


		Page
PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)	3
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statement s of Changes in Stockholders’ Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	67
	Notes to Condensed Consolidated Financial Statements (Unaudited)	78
	Note 1. Interim Financial Statements	7
	~~Note 2. Discontinued Operations~~	8
	Note ~~3. Segment Information~~2. Discontinued Operations	9
	~~Note 4. Inventories~~	10Note 3. Segment Information
	~~Note 5. Goodwill~~	10
	~~Note 6. Intangible Assets, Net~~	11
	Note ~~7. Investment in Joint Venture~~4. Inventories	1112
	Note ~~8. Income Taxes~~5. Goodwill	1112
	~~Note 9. Debt~~	11Note 6. Intangible Assets, Net
	~~Note 10. Leases~~	13
	Note ~~11. Commitments and Contingencies~~7. Investment in Joint Venture	13
	Note ~~12. Preferred Stock and Stockholders' Equity~~8. Income Taxes	1413
	Note ~~13. Revenue from Contracts with Customers~~9. Debt	13
	Note 10. Leases	15
	Note 11. Commitments and Contingencies	16
	Note ~~14. Share-Based Compensation~~12. Preferred Stock and Stockholders' Equity	17
	Note 13. Revenue from Contracts with Customers	18
	Note 14. Share-Based Compensation	21
	Note 15. Accumulated Other Comprehensive Income	2023
	Note 16. Net Income (Loss) Per Common Share	2024
	Note 17. Fair Value Measurements	2226
	Note 18. Subsequent Event	28

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2530

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3037

Item 4.	Controls and Procedures	3138

PART II. OTHER INFORMATION		3239

Item 1.	Legal Proceedings	3239

Item 1A.	Risk Factors	3239
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3239
Item 3.	Defaults U ~~pon~~Upon Senior Securities	3239
Item 4.	Mine Safety Disclosures	3239
Item 5.	Other Information	3239
Item 6.	Exhibits	3340
SIGNATURES		3441

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

NN, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,		Six Months Ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020			(in thousands, except per share data)	2021		2020		2021		2020
Net sales	Net sales	$	126,804	$	116,213		Net sales	$	123,157	$	78,532	$	249,961	$	194,745
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	99,688		94,478			Cost of sales (exclusive of depreciation and amortization shown separately below)	99,797		65,058		199,485		159,536
Selling, general, and administrative expense	Selling, general, and administrative expense	14,575		16,160			Selling, general, and administrative expense	13,585		14,273		28,160		30,433

Depreciation and amortization	Depreciation and amortization	11,568		11,357			Depreciation and amortization	11,687		11,327		23,255		22,684

Goodwill impairment	Goodwill impairment	0		92,942			Goodwill impairment	0		0		0		92,942
Other operating expense (income), net	Other operating expense (income), net	(5)		5,126			Other operating expense (income), net	(324)		(949)		(329)		4,177
Income (loss) from operations		978		(103,850)
Loss from operations							Loss from operations	(1,588)		(11,177)		(610)		(115,027)
Interest expense	Interest expense	2,024		3,807			Interest expense	3,573		6,356		5,597		10,163
Loss on extinguishment of debt and write-off of debt issuance costs	Loss on extinguishment of debt and write-off of debt issuance costs	2,390		0			Loss on extinguishment of debt and write-off of debt issuance costs	0		0		2,390		0
Derivative payments on interest rate swap	Derivative payments on interest rate swap	1,717		0			Derivative payments on interest rate swap	0		0		1,717		0
Loss on interest rate swap	Loss on interest rate swap	2,033		0			Loss on interest rate swap	0		0		2,033		0
Other expense (income), net	Other expense (income), net	(122)		1,544			Other expense (income), net	1,680		(1,215)		1,558		329
Loss from continuing operations before benefit for income taxes and share of net income (loss) from joint venture		(7,064)		(109,201)
Benefit for income taxes		756		1,395
Share of net income (loss) from joint venture		1,395		(271)
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture							Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture	(6,841)		(16,318)		(13,905)		(125,519)
Benefit (provision) for income taxes							Benefit (provision) for income taxes	231		(2,175)		987		(780)
Share of net income from joint venture							Share of net income from joint venture	1,219		927		2,614		656
Loss from continuing operations	Loss from continuing operations	(4,913)		(108,077)			Loss from continuing operations	(5,391)		(17,566)		(10,304)		(125,643)
Loss from discontinued operations, net of tax (Note 2)	Loss from discontinued operations, net of tax (Note 2)	0		(140,114)			Loss from discontinued operations, net of tax (Note 2)	0		(4,182)		0		(144,296)
Net loss	Net loss	$	(4,913)	$	(248,191)		Net loss	$	(5,391)	$	(21,748)	$	(10,304)	$	(269,939)
Other comprehensive loss:
Other comprehensive income (loss):							Other comprehensive income (loss):

Foreign currency translation loss		(3,347)		(14,342)
Foreign currency translation gain (loss)							Foreign currency translation gain (loss)	$	4,409	$	994	$	1,062	$	(13,348)
Interest rate swap:	Interest rate swap:						Interest rate swap:
Change in fair value, net of tax	Change in fair value, net of tax	0		(11,209)			Change in fair value, net of tax	0		(1,255)		0		(12,464)
Reclassification adjustment for losses included in net loss, net of tax	Reclassification adjustment for losses included in net loss, net of tax	2,851		1,052			Reclassification adjustment for losses included in net loss, net of tax	0		2,638		2,851		3,690
Other comprehensive loss		$	(496)	$	(24,499)
Other comprehensive income (loss)							Other comprehensive income (loss)	$	4,409	$	2,377	$	3,913	$	(22,122)
Comprehensive loss	Comprehensive loss	$	(5,409)	$	(272,690)		Comprehensive loss	$	(982)	$	(19,371)	$	(6,391)	$	(292,061)
Basic net loss per common share:	Basic net loss per common share:						Basic net loss per common share:
Loss from continuing operations per common share	Loss from continuing operations per common share	$	(0.46)	$	(2.64)		Loss from continuing operations per common share	$	(0.17)	$	(0.49)	$	(0.62)	$	(3.12)
Loss from discontinued operations per common share	Loss from discontinued operations per common share	0		(3.32)			Loss from discontinued operations per common share	0		(0.10)		0		(3.43)
Net loss per common share	Net loss per common share	$	(0.46)	$	(5.96)		Net loss per common share	$	(0.17)	$	(0.59)	$	(0.62)	$	(6.55)
Weighted average common shares outstanding	Weighted average common shares outstanding	42,672		42,111			Weighted average common shares outstanding	44,440		42,197		43,561		42,154
Diluted net loss per common share:	Diluted net loss per common share:						Diluted net loss per common share:
Loss from continuing operations per common share	Loss from continuing operations per common share	$	(0.46)	$	(2.64)		Loss from continuing operations per common share	$	(0.17)	$	(0.49)	$	(0.62)	$	(3.12)
Loss from discontinued operations per common share	Loss from discontinued operations per common share	0		(3.32)			Loss from discontinued operations per common share	0		(0.10)		0		(3.43)
Net loss per common share	Net loss per common share	$	(0.46)	$	(5.96)		Net loss per common share	$	(0.17)	$	(0.59)	$	(0.62)	$	(6.55)
Weighted average common shares outstanding	Weighted average common shares outstanding	42,672		42,111			Weighted average common shares outstanding	44,440		42,197		43,561		42,154

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

NN, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except per share data)	(in thousands, except per share data)	March 31, 2021		December 31, 2020		(in thousands, except per share data)	June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	43,033	$	48,138	Cash and cash equivalents	$	31,543	$	48,138
Accounts receivable, net	Accounts receivable, net	90,545		84,615		Accounts receivable, net	82,177		84,615
Inventories	Inventories	67,531		62,517		Inventories	74,770		62,517
Income tax receivable	Income tax receivable	8,956		8,800		Income tax receivable	13,071		8,800

Other current assets	Other current assets	12,431		11,148		Other current assets	13,125		11,148
Total current assets	Total current assets	222,496		215,218		Total current assets	214,686		215,218
Property, plant and equipment, net	Property, plant and equipment, net	218,057		223,690		Property, plant and equipment, net	219,808		223,690

Operating lease right-of-use assets	Operating lease right-of-use assets	49,545		50,264		Operating lease right-of-use assets	48,407		50,264

Intangible assets, net	Intangible assets, net	99,479		103,065		Intangible assets, net	95,891		103,065
Investment in joint venture	Investment in joint venture	28,207		26,983		Investment in joint venture	29,897		26,983

Deferred tax assets						Deferred tax assets	131		0

Other non-current assets	Other non-current assets	4,532		5,742		Other non-current assets	4,763		5,742
Total assets	Total assets	$	622,316	$	624,962	Total assets	$	613,583	$	624,962
Liabilities, Preferred Stock, and Stockholders’ Equity	Liabilities, Preferred Stock, and Stockholders’ Equity					Liabilities, Preferred Stock, and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	43,232	$	37,435	Accounts payable	$	46,834	$	37,435
Accrued salaries, wages and benefits	Accrued salaries, wages and benefits	24,613		21,296		Accrued salaries, wages and benefits	21,279		21,296
Income tax payable	Income tax payable	3,376		3,557		Income tax payable	1,494		3,557
Current maturities of long-term debt	Current maturities of long-term debt	4,844		4,885		Current maturities of long-term debt	4,808		4,885
Current portion of operating lease liabilities	Current portion of operating lease liabilities	4,963		4,797		Current portion of operating lease liabilities	5,130		4,797

Other current liabilities	Other current liabilities	17,042		31,261		Other current liabilities	12,651		31,261
Total current liabilities	Total current liabilities	98,070		103,231		Total current liabilities	92,196		103,231
Deferred tax liabilities	Deferred tax liabilities	10,326		11,178		Deferred tax liabilities	9,196		11,178

Long-term debt, net of current portion	Long-term debt, net of current portion	151,551		79,025		Long-term debt, net of current portion	150,728		79,025
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	54,780		55,053		Operating lease liabilities, net of current portion	53,601		55,053

Other non-current liabilities	Other non-current liabilities	25,976		17,237		Other non-current liabilities	26,438		17,237
Total liabilities	Total liabilities	340,703		265,724		Total liabilities	332,159		265,724
Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)	0		0		Commitments and contingencies (Note 11)	0		0
Series D perpetual preferred stock - $0.01 par value per share, 5,000 shares authorized, 65 shares issued and outstanding at March 31, 2021		46,858		0
Series B convertible preferred stock - $0.01 par value per share, 100 shares authorized, 100 shares issued and outstanding at December 31, 2020		0		105,086
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at June 30, 2021						Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at June 30, 2021	49,069		0
Series B convertible preferred stock - $0.01 par value per share, 100 shares authorized, issued and outstanding at December 31, 2020						Series B convertible preferred stock - $0.01 par value per share, 100 shares authorized, issued and outstanding at December 31, 2020	0		105,086
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Common stock - $0.01 par value per share, 90,000 shares authorized, 42,686 and 43,049 shares issued and outstanding at December 31, 2020 and March 31, 2021, respectively		430		427
Common stock - $0.01 par value per share, 90,000 shares authorized, 42,686 and 43,034 shares issued and outstanding at December 31, 2020 and June 30, 2021, respectively						Common stock - $0.01 par value per share, 90,000 shares authorized, 42,686 and 43,034 shares issued and outstanding at December 31, 2020 and June 30, 2021, respectively	430		427
Additional paid-in capital	Additional paid-in capital	479,341		493,332		Additional paid-in capital	477,923		493,332

Accumulated deficit	Accumulated deficit	(210,788)		(205,875)		Accumulated deficit	(216,179)		(205,875)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(34,228)		(33,732)		Accumulated other comprehensive loss	(29,819)		(33,732)
Total stockholders’ equity	Total stockholders’ equity	234,755		254,152		Total stockholders’ equity	232,355		254,152
Total liabilities, preferred stock, and stockholders’ equity	Total liabilities, preferred stock, and stockholders’ equity	$	622,316	$	624,962	Total liabilities, preferred stock, and stockholders’ equity	$	613,583	$	624,962

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended ~~March 31,~~June 30, 2021 and 2020

(Unaudited)


		Common Stock												Common Stock					Accumulated deficit		Accumulated other comprehensive income (loss)
(in thousands)	(in thousands)	Number of shares	Par value		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income (loss)		Total		(in thousands)	Number of shares	Par value		Additional paid-in capital						Total
Balance, December 31, 2020		42,686	$	427	$	493,332	$	(205,875)	$	(33,732)	$	254,152
Balance, March 31, 2021													Balance, March 31, 2021	43,049	$	430	$	479,341	$	(210,788)			$	(34,228)			$	234,755
Net loss	Net loss	—	—		—		(4,913)		—		(4,913)		Net loss	—	—		—		(5,391)		—				(5,391)

Dividends accrued for preferred stock	Dividends accrued for preferred stock	—	—		(14,529)		—		—		(14,529)		Dividends accrued for preferred stock	—	—		(2,211)		—		—				(2,211)

Shares issued for option exercises													Shares issued for option exercises	6	0		48		—		—				48
Share-based compensation expense	Share-based compensation expense	413	4		882		—		—		886		Share-based compensation expense	(19)	0		1,100		—		—				1,100
Restricted shares forgiven for taxes	Restricted shares forgiven for taxes	(50)	(1)		(344)		—		—		(345)		Restricted shares forgiven for taxes	(2)	0		(18)		—		—				(18)
Change in estimate of share-based award vesting													Change in estimate of share-based award vesting	—	—		(337)		—		—				(337)

Reclassification of interest rate swap to net loss, net of tax of $861		—	—		—		—		2,851		2,851
Foreign currency translation loss		—	—		—		—		(3,347)		(3,347)
Foreign currency translation gain													Foreign currency translation gain	—	—		—		—		4,409				4,409

Balance, March 31, 2021		43,049	$	430	$	479,341	$	(210,788)	$	(34,228)	$	234,755
Balance, June 30, 2021													Balance, June 30, 2021	43,034	$	430	$	477,923	$	(216,179)	$	(29,819)			$	232,355


		Common Stock														Common Stock							Accumulated deficit				Accumulated other comprehensive income (loss)
(in thousands)	(in thousands)	Number of shares	Par value		Additional paid-in capital		Warrants		Accumulated deficit		Accumulated other comprehensive income (loss)		Total		(in thousands)	Number of shares	Par value		Additional paid-in capital		Warrants								Total
Balance, December 31, 2019		42,313	$	423	$	501,615	$	1,076	$	(105,283)	$	(44,554)	$	353,277
Balance, March 31, 2020															Balance, March 31, 2020	42,757	$	428	$	499,925	$	1,076			$	(353,474)			$	(69,053)			$	78,902
Net loss	Net loss	—	—		—		—		(248,191)		—		(248,191)		Net loss	—	—		—		—		(21,748)				—				(21,748)

Dividends accrued for preferred stock	Dividends accrued for preferred stock	—	—		(2,951)		—		—		—		(2,951)		Dividends accrued for preferred stock	—	—		(3,043)		—		—				—				(3,043)

Share-based compensation expense	Share-based compensation expense	452	5		1,291		—		—		—		1,296		Share-based compensation expense	(10)	(1)		1,412		—		—				—				1,411
Restricted shares forgiven for taxes		(8)	—		(30)		—		—		—		(30)

Change in fair value of interest rate swap, net of tax of $3,390		—	—		—		—		—		(11,209)		(11,209)
Reclassification of interest rate swap settlement to net loss, net of tax of $318		—	—		—		—		—		1,052		1,052
Foreign currency translation loss		—	—		—		—		—		(14,342)		(14,342)

Change in fair value of interest rate swap, net of tax of $380															Change in fair value of interest rate swap, net of tax of $380	—	—		—		—		—				(1,255)				(1,255)
Reclassification of interest rate swap settlement to net loss, net of tax of $798															Reclassification of interest rate swap settlement to net loss, net of tax of $798	—	—		—		—		—				2,638				2,638
Foreign currency translation gain															Foreign currency translation gain	—	—		—		—		—				994				994

Balance, March 31, 2020		42,757	$	428	$	499,925	$	1,076	$	(353,474)	$	(69,053)	$	78,902
Balance, June 30, 2020															Balance, June 30, 2020	42,747	$	427	$	498,294	$	1,076	$	(375,222)			$	(66,676)			$	57,899

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2021 and 2020

(Unaudited)


	Common Stock					Accumulated deficit		Accumulated other comprehensive income (loss)
(in thousands)	Number of shares	Par value		Additional paid-in capital						Total
Balance, December 31, 2020	42,686	$	427	$	493,332	$	(205,875)	$	(33,732)	$	254,152
Net loss	—	—		—		(10,304)		—		(10,304)

Dividends accrued for preferred stock	—	—		(16,740)		—		—		(16,740)

Shares issued for option exercises	6	0		48		—		—		48
Share-based compensation expense	394	4		1,982		—		—		1,986
Restricted shares forgiven for taxes	(52)	(1)		(362)		—		—		(363)
Change in estimate of share-based award vesting	—	—		(337)		—		—		(337)



Reclassification of interest rate swap to net loss, net of tax of $861	—	—		—		—		2,851		2,851
Foreign currency translation gain	—	—		—		—		1,062		1,062


Balance, June 30, 2021	43,034	$	430	$	477,923	$	(216,179)	$	(29,819)	$	232,355


	Common Stock							Accumulated deficit		Accumulated other comprehensive income (loss)
(in thousands)	Number of shares	Par value		Additional paid-in capital		Warrants						Total
Balance, December 31, 2019	42,313	$	423	$	501,615	$	1,076	$	(105,283)	$	(44,554)	$	353,277
Net loss	—	—		—		—		(269,939)		—		(269,939)

Dividends accrued for preferred stock	—	—		(5,994)		—		—		—		(5,994)


Share-based compensation expense	442	4		2,703		—		—		—		2,707
Restricted shares forgiven for taxes	(8)	0		(30)		—		—		—		(30)



Change in fair value of interest rate swap, net of tax of $3,770	—	—		—		—		—		(12,464)		(12,464)
Reclassification of interest rate swap settlement to net loss, net of tax of $1,116	—	—		—		—		—		3,690		3,690
Foreign currency translation loss	—	—		—		—		—		(13,348)		(13,348)


Balance, June 30, 2020	42,747	$	427	$	498,294	$	1,076	$	(375,222)	$	(66,676)	$	57,899

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss	Net loss	$	(4,913)	$	(248,191)	Net loss	$	(10,304)	$	(269,939)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of continuing operations	Depreciation and amortization of continuing operations	11,568		11,357		Depreciation and amortization of continuing operations	23,255		22,684
Depreciation and amortization of discontinued operations	Depreciation and amortization of discontinued operations	0		11,827		Depreciation and amortization of discontinued operations	0		23,701
Amortization of debt issuance costs		405		1,652
Amortization of debt issuance costs and discount						Amortization of debt issuance costs and discount	718		3,348
Goodwill impairment of continuing operations	Goodwill impairment of continuing operations	0		92,942		Goodwill impairment of continuing operations	0		92,942
Goodwill impairment of discontinued operations	Goodwill impairment of discontinued operations	0		146,757		Goodwill impairment of discontinued operations	0		146,757

Loss on extinguishment of debt and write-off of debt issuance costs	Loss on extinguishment of debt and write-off of debt issuance costs	2,390		0		Loss on extinguishment of debt and write-off of debt issuance costs	2,390		0
Total derivative loss, net of cash settlements	Total derivative loss, net of cash settlements	3,750		0		Total derivative loss, net of cash settlements	3,750		0
Share of net income (loss) from joint venture, net of cash dividends received		(1,395)		271
Share of net income from joint venture						Share of net income from joint venture	(2,614)		(656)

Compensation expense from issuance of share-based awards	Compensation expense from issuance of share-based awards	886		1,296		Compensation expense from issuance of share-based awards	1,649		2,707
Deferred income taxes	Deferred income taxes	(1,605)		(3,923)		Deferred income taxes	(3,050)		(8,889)
Other	Other	(1,081)		614		Other	(1,154)		(2,207)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(6,684)		1,760		Accounts receivable	2,685		23,485
Inventories	Inventories	(5,589)		(2,507)		Inventories	(12,052)		(4,327)
Accounts payable	Accounts payable	7,094		3,584		Accounts payable	9,441		(12,391)
Income taxes receivable and payable, net	Income taxes receivable and payable, net	(344)		(12,676)		Income taxes receivable and payable, net	(6,326)		(12,897)
Other	Other	3,402		5,461		Other	(2,490)		11,544
Net cash provided by operating activities	Net cash provided by operating activities	7,884		10,224		Net cash provided by operating activities	5,898		15,862
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Acquisition of property, plant and equipment	Acquisition of property, plant and equipment	(5,468)		(11,260)		Acquisition of property, plant and equipment	(11,015)		(15,624)

Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	11		82		Proceeds from sale of property, plant, and equipment	74		3,112

Cash paid for post-closing adjustments on sale of business						Cash paid for post-closing adjustments on sale of business	(3,880)		0
Cash settlements of interest rate swap	Cash settlements of interest rate swap	(15,420)		0		Cash settlements of interest rate swap	(15,420)		0

Net cash used in investing activities	Net cash used in investing activities	(20,877)		(11,178)		Net cash used in investing activities	(30,241)		(12,512)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Cash paid for debt issuance costs	Cash paid for debt issuance costs	(6,856)		(286)		Cash paid for debt issuance costs	(6,981)		(286)

Proceeds from issuance of preferred stock	Proceeds from issuance of preferred stock	61,918		0		Proceeds from issuance of preferred stock	61,793		0
Redemption of preferred stock	Redemption of preferred stock	(122,434)		0		Redemption of preferred stock	(122,434)		0
Proceeds from long-term debt	Proceeds from long-term debt	150,000		60,012		Proceeds from long-term debt	156,000		64,716
Repayments of long-term debt	Repayments of long-term debt	(70,721)		(4,527)		Repayments of long-term debt	(77,442)		(9,078)
Repayments of short-term debt, net	Repayments of short-term debt, net	(1,090)		(411)		Repayments of short-term debt, net	(1,321)		(411)
Other	Other	(1,189)		(888)		Other	(2,685)		(1,523)
Net cash provided by financing activities	Net cash provided by financing activities	9,628		53,900		Net cash provided by financing activities	6,930		53,418
Effect of exchange rate changes on cash flows	Effect of exchange rate changes on cash flows	(1,740)		(5,435)		Effect of exchange rate changes on cash flows	818		(5,776)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(5,105)		47,511		Net change in cash and cash equivalents	(16,595)		50,992
Cash and cash equivalents at beginning of period (1)	Cash and cash equivalents at beginning of period (1)	48,138		31,703		Cash and cash equivalents at beginning of period (1)	48,138		31,703
Cash and cash equivalents at end of period (1)	Cash and cash equivalents at end of period (1)	$	43,033	$	79,214	Cash and cash equivalents at end of period (1)	$	31,543	$	82,695

(1) Cash and cash equivalents include ~~$11.7~~$12.2 million and $13.8 million of cash and cash equivalents that were included in current assets of discontinued operations as of ~~March 31,~~June 30, 2020, and December 31, 2019, respectively.

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.

Notes to Condensed Consolidated Financial Statements

~~March 31,~~June 30, 2021

(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 primarily for the automotive, general industrial, electrical, aerospace, ~~and~~ defense, and medical 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.

Basis of Presentation

The accompanying condensed consolidated financial statements have not been audited. The Condensed Consolidated Balance Sheet as of December 31, 2020, was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”), which we filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 15, 2021. Historical periods presented reflect reclassifications for discontinued operations (see Note 2). 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 ~~March 31,~~June 30, 2021 and 2020; financial position as of ~~March 31,~~June 30, 2021, and December 31, 2020; and cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, on a basis consistent with our audited consolidated financial statements other than the adoption of new accounting standards (see Accounting Standards Recently Adopted section below). 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 2020 Annual Report. The results for the three and six months ended ~~March 31,~~June 30, 2021, are not necessarily indicative of results for the year ending December 31, 2021, or any other future periods.

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

Accounting Standards Recently Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, (“ASU 2019-12”) as part of its initiative to reduce complexity in accounting standards. ASU 2019-12 removes certain exceptions and provides simplification to specific tax items to improve consistent application. This standard was effective for us beginning January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, (“ASU 2020-06”) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. In addition, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. Further, for the diluted earnings-per-share calculation, the new guidance requires entities to use the if-converted method for all convertible instruments and generally requires entities to include the effect of share settlement for instruments that may be settled in cash or shares, among other things. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. Either the full or modified retrospective adoption method is allowed. We are currently evaluating the impact on our consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, (“ASU 2021-04”) which clarifies the accounting for modifications or exchanges of

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freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, ASU 2021-04 requires the issuer to treat a modification of an equity-classified warrant as an exchange of the original warrant. The difference between the fair value of the modified warrant and the fair value of the warrant immediately before modification is then recognized as an issuance cost or discount of the related transaction. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. ASU 2021-04 should be applied prospectively to modifications or exchanges occurring after the effective date. Either the full or modified retrospective adoption method is allowed. We do not have any equity-classified written call options that would be subject to this guidance. Therefore, we do not expect any impact on our consolidated financial statements and related disclosures.

Note 2. Discontinued Operations

In October 2020, we closed on the sale of our Life Sciences business under the terms of a Stock Purchase Agreement (the “SPA”) with affiliates of American Securities LLC for $753.3 million cash. The SPA includes a potential earnout payment of up to $70 million based on the performance of the Life Sciences business during the year ending December 31, 2022, measured by Adjusted EBITDA targets, as defined by the SPA. After working capital and other closing adjustments, we received cash proceeds at closing of $757.2 million and ~~have recorded a~~paid $3.9 million ~~payable as of March 31,~~to the buyer during the six months ended June 30, 2021, ~~and December 31, 2020,~~ for ~~the balance.~~post-closing adjustments.

Under the terms of a transition services agreement, we provided certain support services after the sale. In accordance with the terms of the SPA, we agreed to indemnify the buyer for certain tax liabilities on its consolidated federal income tax return related to the Life Sciences business during the portion of the year ended December 31, 2020, prior to the change in ownership on October 6, 2020. We estimate that the tax indemnification will result in a payment of approximately $1.2 million to the buyer during the year ending December 31, 2021, and we have recorded this estimated obligation in the “Other current liabilities” line item on the Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2021, and December 31, 2020.

In accordance with ASC 205-20, Presentation of Financial Statements - Discontinued Operations, the operating results of the Life Sciences business are classified as discontinued operations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations as well as any gain on the disposition of the business, all net of tax, as one line item on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for all historical periods presented have been revised to reflect this presentation. Accordingly, the results of the Life Sciences business have been excluded from continuing operations and segment results for all historical periods presented in the condensed consolidated financial statements and the accompanying notes unless otherwise stated. The Condensed Consolidated Statements of Cash Flows for historical periods include cash flows of the Life Sciences business in each line item unless otherwise stated.

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The following table presents the operating results of the discontinued operations.

Three Months Ended
March 31, 2020

~~Net sales~~

~~83,532~~

~~Cost of sales (exclusive of depreciation and amortization shown separately below)~~

~~57,763~~

~~Selling, general, and administrative expense~~

~~8,405~~

~~Depreciation and amortization~~

~~11,827~~

~~Goodwill impairment~~

~~146,757~~

~~Other operating expense, net~~

~~Loss from operations~~

~~(141,223)~~

~~Interest expense~~

~~13,270~~

~~Other income, net~~

~~(424)~~

~~Loss from discontinued operations before costs of disposal and benefit for income taxes~~

~~(154,069)~~

~~Benefit for income taxes~~

~~14,187~~

~~Loss from discontinued operations before costs of disposal~~

~~(139,882)~~

~~Costs of disposal of discontinued operations (1)~~

~~(259)~~

~~Benefit for income taxes on costs of disposal~~

~~Loss from discontinued operations, net of tax~~

~~(140,114)~~


	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020


Net sales	$	71,888	$	155,420
Cost of sales (exclusive of depreciation and amortization shown separately below)	50,331		108,094
Selling, general, and administrative expense	5,619		14,024

Depreciation and amortization	11,874		23,701

Goodwill impairment	0		146,757
Other operating income, net	(6)		(3)
Income (loss) from operations	4,070		(137,153)
Interest expense	12,340		25,610


Other expense (income), net	334		(90)
Loss from discontinued operations before costs of disposal and benefit for income taxes	(8,604)		(162,673)
Benefit for income taxes	5,457		19,644
Loss from discontinued operations before costs of disposal	(3,147)		(143,029)
Costs of disposal of discontinued operations (1)	(1,099)		(1,358)
Benefit for income taxes on costs of disposal	64		91
Loss from discontinued operations, net of tax	$	(4,182)	$	(144,296)

(1)Represents incremental direct costs related to the sale of the Life Sciences business that were incurred prior to the closing of the sale.

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Sciences. The judgments, assumptions, and estimates involved in the goodwill impairment analysis for the Life Sciences reporting unit are consistent with those discussed in Note 5.

Our previous credit facility, which was in place at the time, required us to use proceeds from the sale of the Life Sciences business to prepay a portion of our previous debt. We paid $700 million in the aggregate on our term loans immediately after the transaction closed on October 6, 2020. The prepayment was applied to debt in accordance with the prepayment provisions of the previous credit agreement which was in place at the time. Average quarterly interest rates were multiplied by the required prepayment amounts to calculate interest expense to be reclassified to discontinued operations for historical periods presented. The following table summarizes the amount of interest expense related to the previous credit facility that has been reclassified to discontinued operations.

Three Months Ended
March 31, 2020

~~Interest on debt~~

~~12,136~~

~~Amortization of debt issuance costs~~

~~1,226~~

~~Capitalized interest and other~~

~~(223)~~

~~Other~~

~~131~~

~~Total interest expense of discontinued operations~~

~~13,270~~


	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020


Interest on debt	$	11,214	$	23,350
Amortization of debt issuance costs	1,251		2,477
Capitalized interest	(182)		(405)
Other	57		188
Total interest expense of discontinued operations	$	12,340	$	25,610

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

~~Three~~Six Months Ended
~~March 31,~~June 30, 2020

Depreciation and amortization

~~11,827~~23,701

Goodwill impairment

146,757

Amortization of debt issuance costs

~~1,226~~2,477

Acquisition of property, plant and equipment

~~4,084~~6,036

Right-of-use assets obtained in exchange for new finance lease liabilities

~~694~~696

Right-of-use assets obtained in exchange for new operating lease liabilities (1)

6,064

(1) Includes new leases, renewals, and modifications.

Note 3. Segment Information

Our business is aggregated into the following 2 reportable segments:

•Mobile Solutions, which is focused on growth in the automotive and general industrial end markets; and

•Power Solutions, which is focused on growth in the electrical, general industrial, automotive, ~~and~~ aerospace, ~~and~~ defense, and medical end markets.

These divisions are considered our 2 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 reviews discrete financial information for purposes of allocating resources and assessing performance. Historically, we had a third operating segment, Life Sciences, that was focused on growth in the medical end market. See Note 2 for information regarding the sale of the Life Sciences business on October 6, 2020. The results of the Life Sciences business are classified as discontinued operations for the three and six months ended ~~March 31,~~June 30, 2020, and therefore are not included in the tabular presentation below.

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The following tables present results of continuing operations by reportable segment.


		Mobile Solutions		Power Solutions		Corporate and Consolidations					Total			Mobile Solutions		Power Solutions		Corporate and Consolidations				Total
Three Months Ended March 31, 2021
Three Months Ended June 30, 2021													Three Months Ended June 30, 2021
Net sales	Net sales	$	77,776	$	49,075	$	(47)	(a)			$	126,804	Net sales	$	73,886	$	49,271	$	0	(a)		$	123,157

Income (loss) from operations	Income (loss) from operations	6,090		2,432		(7,544)					$	978	Income (loss) from operations	2,509		2,875		(6,972)				$	(1,588)
Interest expense	Interest expense										(2,024)		Interest expense									(3,573)
Other	Other										(6,018)		Other									(1,680)
Loss from continuing operations before income taxes and share of net income from joint venture	Loss from continuing operations before income taxes and share of net income from joint venture							$	(7,064)	Loss from continuing operations before income taxes and share of net income from joint venture								$	(6,841)
Three Months Ended March 31, 2020
Three Months Ended June 30, 2020													Three Months Ended June 30, 2020
Net sales	Net sales	$	69,884	$	46,401	$	(72)	(a)			$	116,213	Net sales	$	41,037	$	37,491	$	4	(a)		$	78,532
Goodwill impairment		0		92,942		0					$	92,942

Income (loss) from operations	Income (loss) from operations	264		(90,334)		(13,780)					$	(103,850)	Income (loss) from operations	(4,592)		1,454		(8,039)				$	(11,177)
Interest expense	Interest expense										(3,807)		Interest expense									(6,356)
Other	Other										(1,544)		Other									1,215
Loss from continuing operations before income taxes and share of net loss from joint venture								$	(109,201)
Loss from continuing operations before income taxes and share of net income from joint venture													Loss from continuing operations before income taxes and share of net income from joint venture							$	(16,318)

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	Mobile Solutions		Power Solutions		Corporate and Consolidations				Total
Six Months Ended June 30, 2021
Net sales	$	151,662	$	98,346	$	(47)	(a)		$	249,961

Income (loss) from operations	8,599		5,307		(14,516)				$	(610)
Interest expense									(5,597)
Other									(7,698)
Loss from continuing operations before income taxes and share of net income from joint venture							$	(13,905)

Six Months Ended June 30, 2020
Net sales	$	110,921	$	83,892	$	(68)	(a)		$	194,745
Goodwill impairment	0		92,942		0				92,942
Loss from operations	(4,328)		(88,880)		(21,819)				$	(115,027)
Interest expense									(10,163)
Other									(329)
Loss from continuing operations before income taxes and share of net income from joint venture							$	(125,519)

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

As of ~~March 31,~~June 30, 2021, and December 31, 2020, one customer represented ~~10%~~11% and 11%, respectively, of consolidated accounts receivable. Amounts due from this customer are primarily related to Mobile Solutions.

Note 4. Inventories

Inventories are comprised of the following amounts:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Raw materials	Raw materials	$	23,605	$	22,589	Raw materials	$	27,456	$	22,589
Work in process	Work in process	22,626		20,758		Work in process	25,764		20,758
Finished goods	Finished goods	21,300		19,170		Finished goods	21,550		19,170
Total inventories	Total inventories	$	67,531	$	62,517	Total inventories	$	74,770	$	62,517

Note 5. Goodwill

During the first quarter of 2020, our market capitalization declined to a level that was less than the net book value of our stockholders’ equity. The decline in market capitalization was a triggering event that caused us to perform a goodwill impairment analysis as of March 31, 2020. The goodwill impairment analysis required significant judgments to calculate the fair value for the Power Solutions reporting unit, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for the operating segment, and determination of weighted average cost of capital. Our forecasts used in the goodwill impairment analysis reflected our expectations of declines in sales resulting from COVID-19. Significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, costs to produce, discount rate, and estimated capital needs. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. The carrying value of the Power Solutions reporting unit exceeded the estimated fair value as of the March 31, 2020, analysis. As a result of our analysis, we recorded an impairment loss on goodwill of $92.9 million to the “Goodwill impairment” line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). As of ~~March 31,~~June 30, 2021, and December 31, 2020, there was 0 remaining goodwill balance.

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Note 6. Intangible Assets, Net

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


		Mobile Solutions		Power Solutions		Total			Mobile Solutions		Power Solutions		Total

Balance as of December 31, 2020	Balance as of December 31, 2020	$	29,062	$	74,003	$	103,065	Balance as of December 31, 2020	$	29,062	$	74,003	$	103,065
Amortization	Amortization	(838)		(2,748)		(3,586)		Amortization	(1,677)		(5,497)		(7,174)

Balance as of March 31, 2021		$	28,224	$	71,255	$	99,479
Balance as of June 30, 2021								Balance as of June 30, 2021	$	27,385	$	68,506	$	95,891

Intangible assets are tested for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. As of ~~March 31,~~June 30, 2021, and December 31, 2020, there were no indicators of impairment.

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 shows changes in our investment in the JV.


Balance as of December 31, 2020	$	26,983
Share of earnings	~~1,395~~2,614

Foreign currency translation ~~loss~~gain	~~(171)~~300
Balance as of ~~March 31,~~June 30, 2021	$	~~28,207~~29,897

Note 8. Income Taxes

Our effective tax rate for continuing operations was ~~10.7%~~3.4% and ~~1.3%~~7.1% for the three and six months ended ~~March 31,~~June 30, 2021, respectively, and (13.3)% and (0.6)% for the three and six months ended June 30, 2020, respectively. The effective tax rate for the three and six months ended ~~March 31,~~June 30, 2021, differs from the U.S. federal statutory tax rate of 21% primarily due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized. In addition, the effective tax rate was unfavorably impacted by U.S. tax on the earnings of foreign subsidiaries under the global intangible low-taxed income (“GILTI”) regime.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The provisions of the legislation had a significant impact on ~~the~~our effective tax rate and income tax receivable as of ~~the Company~~and for the ~~three~~six months ended ~~March 31,~~June 30, 2020. Under the CARES Act, NOLs arising in tax years beginning after December 31, 2017, were carried back to preceding tax years when the federal tax rate was 35% rather than the currently enacted 21%. The effective tax rate for the three and six months ended ~~March 31,~~June 30, 2020, was also adversely impacted by the effect of the non-deductible goodwill impairment ~~recorded in that period,~~on the estimated annual effective tax rate and the impact of the minimum GILTI tax, partially offset by impacts from the CARES Act.

Note 9. Debt

On March 22, 2021, we entered into a new $150.0 million term loan facility (the “Term Loan Facility”) and a new $50.0 million asset backed credit facility (the “ABL Facility”). The proceeds from the Term Loan Facility were used to prepay the amounts outstanding on our previous term loans. The previous credit facility was terminated and consisted of a Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver. No amounts were outstanding on the Senior Secured Revolver at the time of termination.

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The following table presents debt balances as of ~~March 31,~~June 30, 2021, and December 31, 2020.


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Term Loan Facility	Term Loan Facility	$	150,000	$	0	Term Loan Facility	$	149,625	$	0
Senior Secured Term Loan	Senior Secured Term Loan	0		47,728		Senior Secured Term Loan	0		47,728
Incremental Term Loan	Incremental Term Loan	0		22,716		Incremental Term Loan	0		22,716

International lines of credit and other loans	International lines of credit and other loans	12,547		14,418		International lines of credit and other loans	12,171		14,418
Total principal	Total principal	162,547		84,862		Total principal	161,796		84,862
Less-current maturities of long-term debt	Less-current maturities of long-term debt	4,844		4,885		Less-current maturities of long-term debt	4,808		4,885
Principal, net of current portion	Principal, net of current portion	157,703		79,977		Principal, net of current portion	156,988		79,977
Less-unamortized debt issuance costs (1)		6,152		952
Less-unamortized debt issuance costs and discount (1)						Less-unamortized debt issuance costs and discount (1)	6,260		952
Long-term debt, net of current portion	Long-term debt, net of current portion	$	151,551	$	79,025	Long-term debt, net of current portion	$	150,728	$	79,025

(1) In addition to this amount, costs of $0.8 million related to the ABL Facility ~~are~~were recorded in other non-current assets as of ~~March 31,~~June 30, 2021, and $1.8 million related to the Senior Secured Revolver ~~are~~were recorded in other non-current assets as of December 31, 2020.

We capitalized interest costs of $0.1 million and less than $0.1 million in the three months ended June 30, 2021 and 2020, respectively, and $0.1 million and $0.1 million in the six months ended June 30, 2021 and 2020, respectively, related to construction in progress.

Term Loan Facility

The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026. The Term Loan Facility is collateralized by all of our assets. The Term Loan Facility has a first lien on all assets other than accounts receivable and inventory and has a second lien on accounts receivable and inventory. We were in compliance with all requirements under the Term Loan Facility as of ~~March 31,~~June 30, 2021.

The Term Loan Facility was issued at a $3.8 million discount. We capitalized ~~a total of $2.4~~an additional $2.8 million in new debt issuance costs related to the Term Loan Facility. Debt issuance costs and original issue discount related to the Term Loan Facility are recorded as a direct reduction to the carrying amount of the associated long-term debt and amortized over the term of the debt.

ABL Facility

The ABL Facility provides for a senior secured revolving credit facility in the amount of $50.0 million, of which $30.0 million is available in the form of letters of credit and $5.0 million is available for the issuance of short-term swingline loans. The availability of credit under the ABL Facility is limited by a borrowing base calculation derived from accounts receivable and inventory held in the United States. Outstanding borrowings under the ABL Facility bear interest on a variable rate structure plus an interest rate spread that is based on the average amount of aggregate revolving commitment available. The variable borrowing rate is either 1) LIBOR plus an applicable margin of 1.75% or 2.00%, depending on availability, or 2) the greater of the federal funds rate or prime, plus an applicable margin of 0.75% or 1.00%, depending on availability. We may elect whether to use one-month, three-month, or six-month LIBOR, subject to a 0.50% floor. Interest payments are due monthly on borrowings that utilize one-month LIBOR and quarterly on borrowings that utilize three-month or six-month LIBOR. At ~~March 31,~~June 30, 2021, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility would have been 2.25% if there had been any balance outstanding. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility and a 0.125% fee on the amount of letters of credit outstanding. The final maturity date of the ABL Facility is March 22, 2026.

We had 0 outstanding borrowings under the ABL Facility at ~~March 31,~~June 30, 2021. Total capacity under the ABL Facility was ~~$47.3~~$44.2 million as of ~~March 31,~~June 30, 2021, ~~with $32.9~~of which $30.2 million was available for future borrowings after reductions for outstanding letters of credit as of ~~March 31,~~June 30, 2021. The ABL Facility has a first lien on accounts receivable and inventory. We were in compliance with all requirements under the ABL Facility as of ~~March 31,~~June 30, 2021.

We capitalized a total of $0.8 million in new debt issuance costs related to the ABL Facility. Costs related to the ABL Facility are recorded in other non-current assets and amortized over the term of the agreement.

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Senior Secured Term Loan

Outstanding borrowings under the Senior Secured Term Loan bore interest at one-month LIBOR (subject to a 0.75% floor) plus an applicable margin of 5.75%. During 2021 until termination, the Senior Secured Term Loan bore interest at 6.50%.

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Incremental Term Loan

Outstanding borrowings under the Incremental Term Loan bore interest at one-month LIBOR plus an applicable margin of 5.75%. During 2021 until termination, the Incremental Term Loan bore interest at 5.90%.

Senior Secured Revolver

Outstanding borrowings under the Senior Secured Revolver bore interest on a variable rate structure at either 1) one-month LIBOR plus an applicable margin of 4.00% or 2) the prime lending rate plus an applicable margin of 3.00%. We had 0no outstanding borrowings under the Senior Secured Revolver during 2021. We incurred a commitment fee of 0.50% for unused capacity under the Senior Secured Revolver until it was terminated.

Debt Issuance Costs

We recognized a $2.4 million loss on extinguishment for unamortized debt issuance costs that were written off in the ~~three~~six months ended ~~March 31,~~June 30, 2021, in connection with the termination of our previous credit facility.

Interest Rate Swap

A portion of the proceeds from the Term Loan Facility was used to settle and terminate our fixed-rate interest rate swap agreement with a cash payment of $13.7 ~~million.~~million during the first quarter of 2021. Refer to Note 17 for further discussion of the interest rate swap agreement. On July 22, 2021, we entered into a new interest rate swap as discussed in Note 18.

Note 10. Leases

The following table contains supplemental cash flow information related to leases of continuing operations.


		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2020			2021		2020
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in finance leases	Operating cash flows used in finance leases	$	57	$	61	Operating cash flows used in finance leases	$	113	$	94
Operating cash flows used in operating leases	Operating cash flows used in operating leases	4,103		3,348		Operating cash flows used in operating leases	7,221		7,312
Financing cash flows used in finance leases	Financing cash flows used in finance leases	846		580		Financing cash flows used in finance leases	2,370		936
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities	60		710		Right-of-use assets obtained in exchange for new finance lease liabilities	636		710
Right-of-use assets obtained in exchange for new operating lease liabilities (1)	Right-of-use assets obtained in exchange for new operating lease liabilities (1)	0		13,241		Right-of-use assets obtained in exchange for new operating lease liabilities (1)	0		9,334

(1) Includes new leases, renewals, and modifications.

As disclosed in our 2020 Annual Report, we amended the lease of our corporate headquarters building in March 2020 to exit over half of the previously leased space and reduce annual base rent payments. The amendment was accounted for as a lease modification, and the remeasurement of the lease resulted in an $8.1 million decrease in the operating lease right-of-use (“ROU”) asset, a $10.5 million decrease in the noncurrent portion of the operating lease liability, and a $0.6 million decrease in the current portion of the operating lease liability. The $3.0 million difference between the change in the operating lease ROU asset and the operating lease liabilities was recognized in “Other operating expense (income), net,” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). In connection with the discontinued use of the previously leased space, we also recognized a $4.4 million termination charge and a $2.9 million impairment charge on the associated leasehold improvements, all of which were also recognized in “Other operating expense (income), net.”

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Note 11. Commitments and Contingencies

Brazil ICMS Tax Matter

Prior to the acquisition of Autocam Corporation (“Autocam”) 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

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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. In May 2020, we received an unfavorable decision in one of the lawsuits, and as a result have recorded a liability to the Brazilian tax authorities and a receivable from the former shareholders of Autocam for the same amount. Although we anticipate a favorable resolution to the remaining matters, we can provide no assurances that we will be successful in achieving dismissal of all pending cases. The U.S. dollar amount that would be owed in the event of an unfavorable decision is subject to interest, penalties, and currency impacts and therefore is dependent on the timing of the decision. For the remaining open lawsuits, we currently believe the cumulative potential liability in the event of unfavorable decisions on all matters will be less than $5.0 million, inclusive of interest and penalties.

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. Accordingly, we don’t expect to incur a loss related to this matter even in the event of an unfavorable decision and, therefore, have not accrued an amount for the remaining matters as of ~~March 31,~~June 30, 2021.

Securities Offering Matter

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.

Other Legal Matters

On October 26, 2020, Corre Opportunities Qualified Master Fund, LP, and Corre Horizon Fund, LP, (collectively, “Corre Partners”) filed a complaint in the Chancery Court of the State of Delaware against the Company. The complaint ~~alleges~~alleged that the Company’s sale of its Life Sciences business without obtaining the prior consent of the plaintiffs was a breach of the terms of the Series B Preferred Stock. ~~The complaint seeks unspecified monetary damages and other relief. The~~On May 13, 2021, Company ~~believes~~entered into a cooperation agreement with Corre Partners. In connection with the ~~complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The~~cooperation agreement, on May 13, 2021, the Company ~~is unable at this time to determine whether~~also entered into a settlement agreement with Corre Partners, which resolved the ~~outcome of the litigation would have a material impact on the Company’s financial position, results of operations, or cash flows.~~complaint.

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.

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Note 12. Preferred Stock and Stockholders' Equity

Series D Perpetual Preferred Stock

On March 22, 2021, we completed a private placement of 65 thousand shares of newly designated Series D Perpetual Preferred Stock, with a par value of $0.01 per share (the “Series D Preferred Stock”), at a price of $1,000 per share, together with detachable warrants (the “2021 Warrants”) to purchase up to 1.9 million shares of our common stock at an exercise price of $0.01 per share. The Series D Preferred Stock has aan initial liquidation preference of $1,000 per share and is redeemable at our option in cash ~~subject~~at a redemption price equal to the ~~applicable redemption premium.~~liquidation preference then in effect. Series D Preferred Stock shares earn cash dividends at a rate of 10.0% per year, payable quarterly in arrears, accruing whether or not earned or declared. If no cash dividend is paid, then the

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liquidation preference per share effective on the dividend date increases by 12.0% per year. On March 22, 2026, the cash dividend rate and in-kind dividend rate increase by 2.5% per year. Cash dividends are required beginning on September 30, 2027.

The Series D Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity, because certain features of the Series D Preferred Stock could require redemption of the Series D Preferred Stock upon a change of control event that is considered not solely within our control. For initial recognition, the Series D Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and a bifurcated embedded derivative. The aggregate discount is amortized as a deemed dividend through March 22, 2026, which is the date the dividend rate begins to increase by 2.5% per year. Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital).

In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives, certain features of the Series D Preferred Stock were bifurcated and accounted for as derivatives separately. Note 17 discusses the accounting for these features.

As of ~~March 31,~~June 30, 2021, the carrying value of the Series D Preferred Stock shares was ~~$46.9~~$49.1 million which included ~~$0.2~~$2.4 million of accumulated unpaid and deemed dividends. The following table presents the change in the Series D Preferred Stock carrying value during the ~~three~~six months ended ~~March 31,~~June 30, 2021.


	~~Three~~Six Months Ended ~~March 31,~~ June 30, 2021

Beginning balance	$	0
Proceeds from issuance of shares, net of issuance costs	61,793
Fair value of 2021 Warrants issued	(14,839)
Recognition of bifurcated embedded derivative	(282)
Accrual of in-kind dividends	~~168~~2,123
Amortization	18274

Ending balance	$	~~46,858~~49,069

Net cash proceeds of $61.8 million from the issuance of the Series D Preferred Stock, along with part of the proceeds from the Term Loan ~~Credit~~ Facility, were used to redeem all of the outstanding shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”).

Series B Convertible Preferred Stock

The Series B Preferred Stock had a liquidation preference of $1,000 per share and was redeemable in cash at our option, subject to the applicable redemption premium. Series B Preferred Stock shares earned cumulative dividends at a rate of 10.625% per year, and accrued whether or not earned or declared. The Series B Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and bifurcated embedded derivatives. The aggregate discount was amortized as a deemed dividend through December 31, 2023, which is the date the holders had a non-contingent conversion option into a variable number of common shares equal to the liquidation preference plus accrued and unpaid dividends. Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital).

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At redemption on March 22, 2021, the carrying value of the Series B Preferred Stock shares included $14.3 million of accumulated unpaid and deemed dividends. The following table presents the change in the Series B Preferred Stock carrying value during the ~~three~~six months ended ~~March 31,~~June 30, 2021.


	~~Three~~Six Months Ended ~~March 31,~~June 30, 2021

Beginning balance	$	105,086






Accrual of in-kind dividends	14,008
Amortization	335
Redemption	(119,429)
Ending balance	$	0

Preferred Share Purchase Rights

On April 15, 2020, our Board of Directors authorized and declared a dividend of 1 preferred share purchase right for each outstanding share of common stock to shareholders of record on April 27, 2020. The rights expired on March 31, 2021.

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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. The ~~company provides disaggregated~~following tables summarize revenue by customer geographical ~~region and customer industry.~~region.


		Three Months Ended March 31, 2021									Three Months Ended June 30, 2021
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total			Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	United States and Puerto Rico	$	37,438	$	39,806	$	(47)	$	77,197	United States and Puerto Rico	$	35,284	$	39,424	$	0	$	74,708
China	China	14,414		1,506		0		15,920		China	13,219		1,282		0		14,501
Brazil	Brazil	9,668		192		0		9,860		Brazil	9,985		343		0		10,328
Mexico	Mexico	5,015		3,397		0		8,412		Mexico	4,829		4,349		0		9,178
Germany	Germany	1,767		164		0		1,931		Germany	1,369		96		0		1,465
Poland	Poland	1,180		4		0		1,184		Poland	904		3		0		907
Other	Other	8,294		4,006		0		12,300		Other	8,296		3,774		0		12,070
Total net sales	Total net sales	$	77,776	$	49,075	$	(47)	$	126,804	Total net sales	$	73,886	$	49,271	$	0	$	123,157


		Three Months Ended March 31, 2020									Three Months Ended June 30, 2020
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total			Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	United States and Puerto Rico	$	37,129	$	38,297	$	(72)	$	75,354	United States and Puerto Rico	$	20,237	$	30,859	$	4	$	51,100
China	China	7,692		1,157		0		8,849		China	10,726		1,252		0		11,978
Brazil	Brazil	8,583		130		0		8,713		Brazil	2,132		63		0		2,195
Mexico	Mexico	4,836		2,143		0		6,979		Mexico	2,456		4,119		0		6,575
Germany	Germany	2,150		39		0		2,189		Germany	851		90		0		941
Poland	Poland	1,758		5		0		1,763		Poland	341		3		0		344
Other	Other	7,736		4,630		0		12,366		Other	4,294		1,105		0		5,399
Total net sales	Total net sales	$	69,884	$	46,401	$	(72)	$	116,213	Total net sales	$	41,037	$	37,491	$	4	$	78,532

1618

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	Six Months Ended June 30, 2021
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	$	72,722	$	79,230	$	(47)	$	151,905
China	27,633		2,788		0		30,421
Brazil	19,653		535		0		20,188
Mexico	9,844		7,746		0		17,590
Germany	3,136		260		0		3,396
Poland	2,084		7		0		2,091
Other	16,590		7,780		0		24,370
Total net sales	$	151,662	$	98,346	$	(47)	$	249,961


	Six Months Ended June 30, 2020
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	$	57,366	$	69,156	$	(68)	$	126,454
China	18,418		2,409		0		20,827
Brazil	10,715		193		0		10,908
Mexico	7,292		6,262		0		13,554
Germany	3,001		129		0		3,130
Poland	2,099		8		0		2,107
Other	12,030		5,735		0		17,765
Total net sales	$	110,921	$	83,892	$	(68)	$	194,745

Three Months Ended March 31, 2021
Mobile
Solutions Power
Solutions Intersegment
Sales
Eliminations Total
Automotive $ 50,144 $ 13,460 0 $ 63,604
General Industrial 24,310 13,710 0 38,020
Electrical 0 15,182 0 15,182
Other 3,322 6,723 (47) 9,998
Total net sales $ 77,776 $ 49,075 $ (47) $ 126,804
The following tables summarize revenue by customer industry. Our products in the automotive industry include high-precision components and assemblies for fuel systems, steering systems, electric motors, transmissions, moldings, stampings, sensors, and electrical contacts. Our products in the general industrial industry include high-precision metal and plastic components for a variety of industrial applications including heating and cooling systems, fluid power systems, power tools, and more. While many of the industries we serve include electrical components, our products in the residential/commercial electrical industry category in the following tables include electrical contact assemblies, precision stampings, welded contact assemblies, and specification plating and surface finishing.


		Three Months Ended March 31, 2020									Three Months Ended June 30, 2021
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total			Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	Automotive	$	49,074	$	12,364	0		$	61,438	Automotive	$	46,247	$	12,121	$	0	$	58,368
General Industrial	General Industrial	17,979		12,543		0		30,522		General Industrial	24,449		13,625		0		38,074
Electrical		0		13,861		0		13,861
Residential/Commercial Electrical										Residential/Commercial Electrical	0		16,798		0		16,798
Other	Other	2,831		7,633		(72)		10,392		Other	3,190		6,727		0		9,917
Total net sales	Total net sales	$	69,884	$	46,401	$	(72)	$	116,213	Total net sales	$	73,886	$	49,271	$	0	$	123,157

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	Three Months Ended June 30, 2020
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	$	22,511	$	6,817	$	0	$	29,328
General Industrial	17,178		11,345		0		28,523
Residential/Commercial Electrical	0		12,838		0		12,838
Other	1,348		6,491		4		7,843
Total net sales	$	41,037	$	37,491	$	4	$	78,532


	Six Months Ended June 30, 2021
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	$	96,391	$	25,581	$	0	$	121,972
General Industrial	48,759		27,335		0		76,094
Residential/Commercial Electrical	0		31,980		0		31,980
Other	6,512		13,450		(47)		19,915
Total net sales	$	151,662	$	98,346	$	(47)	$	249,961


	Six Months Ended June 30, 2020
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	$	71,585	$	19,181	$	0	$	90,766
General Industrial	35,157		23,888		0		59,045
Residential/Commercial Electrical	0		26,699		0		26,699
Other	4,179		14,124		(68)		18,235
Total net sales	$	110,921	$	83,892	$	(68)	$	194,745

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 ~~March 31,~~June 30, 2021, 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

We recognized sales from a single customer of ~~$13.1~~$13.2 million, or ~~10%~~11% and $26.2 million, or 11%, of consolidated net sales, during the three and six months ended June 30, 2021, respectively. We recognized sales from this customer of $9.2 million, or 12% of consolidated net sales, during the three months ended ~~March 31, 2021. We recognized sales from another customer of $11.1 million, or 10% of consolidated net sales, during the three months ended March 31,~~June 30, 2020. Revenues from ~~these customers~~this customer are primarily in our Mobile Solutions segment.

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Note 14. Share-Based Compensation

Share-based compensation cost is recognized in the “Selling, general, and administrative expense” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) except for $0.2 million and $0.4 million, attributable to discontinued operations for the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. The following table lists the components of share-based compensation expense by type of award.


		Three Months Ended March 31,				Three Months Ended June 30,		Six Months Ended June 30,
		2021		2020				2021		2020		2021		2020
Stock options	Stock options	$	89	$	181		Stock options	$	59	$	140	$	148	$	321
Restricted stock	Restricted stock	548		892			Restricted stock	591		936		1,139		1,828
Performance share units	Performance share units	249		223			Performance share units	450		335		699		558

Change in estimate of share-based award vesting (1)							Change in estimate of share-based award vesting (1)	(337)		0		(337)		0
Share-based compensation expense	Share-based compensation expense	$	886	$	1,296		Share-based compensation expense	$	763	$	1,411	$	1,649	$	2,707

_______________________________

~~Table~~(1) Amounts reflect the decrease in share-based compensation expense based on the change in estimate of ~~Contents~~

the probability of vesting of share-based awards.

Stock Options

The following table presents stock option activity for the ~~three~~six months ended ~~March 31,~~June 30, 2021.


		Number of Options (in thousands)	Weighted- Average Exercise Price (per share)		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value				Number of Options (in thousands)	Weighted- Average Exercise Price (per share)		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2021	Outstanding at January 1, 2021	871	$	12.41					Outstanding at January 1, 2021	871	$	12.41

Exercised									Exercised	(6)	7.93
Forfeited or expired	Forfeited or expired	(24)	13.41						Forfeited or expired	(71)	13.81
Outstanding at March 31, 2021		847	$	12.38	3.7 years	$	0	(1)
Exercisable at March 31, 2021		751	$	12.83	3.0 years	$	0	(1)
Outstanding at June 30, 2021									Outstanding at June 30, 2021	794	$	12.32	3.6 years	$	0	(1)
Exercisable at June 30, 2021									Exercisable at June 30, 2021	698	$	12.79	3.0 years	$	0	(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 ~~March 31,~~June 30, 2021, was greater than the exercise price of any individual option grant.

Restricted Stock

During the ~~three~~six months ended ~~March 31,~~June 30, 2021, we granted ~~425~~459 thousand shares of restricted stock to non-executive directors, officers and certain other key employees. The shares of restricted stock granted during the ~~three~~six months ended ~~March 31,~~June 30, 2021, vest pro-rata generally over three years for 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 fair value of restricted stock granted in the ~~three~~six months ended ~~March 31,~~June 30, 2021, was ~~$6.79~~$6.84 per share. Total grant date fair value of restricted stock that vested in the ~~three~~six months ended ~~March 31,~~June 30, 2021, was ~~$2.7~~$2.8 million.

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The following table presents the status of unvested restricted stock awards as of ~~March 31,~~June 30, 2021, and changes during the ~~three~~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)
Unvested at January 1, 2021	Unvested at January 1, 2021	385	$	9.42	Unvested at January 1, 2021	385	$	9.42
Granted	Granted	425	6.79		Granted	459	6.84
Vested	Vested	(284)	9.50		Vested	(303)	9.34
Forfeited	Forfeited	(12)	7.76		Forfeited	(65)	7.20
Unvested at March 31, 2021		514	$	7.24
Unvested at June 30, 2021					Unvested at June 30, 2021	476	$	7.28

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. PSUs granted in 2021 were made pursuant to the NN, Inc. 2019 Omnibus Incentive Plan and a Performance Share Unit Agreement (the “2019 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 2019 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.

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 award recipient’s continued employment. The actual number of shares of common stock to be issued to each award recipient at the end of the performance

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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 dividends declared and the number of shares of common stock that are ultimately earned at the end of the performance periods.

With respect to the TSR and ROIC 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.” 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 Awards granted or modified in 2021.

TSR Awards:

Threshold Performance
(50% of Shares)

Target Performance
(100% of Shares)

Maximum Performance
(150% of Shares)

2021 grants

35th Percentile

50th Percentile

75th Percentile

ROIC Awards:

Threshold Performance
(50% of Shares)

Target Performance
(100% of Shares)

Maximum Performance
(150% of Shares)

2021 grants

6.3%

7.0%

8.6%

2020 grants (1)

6.7%

7.9%

8.7%

(1)The performance levels for 2020 grants were modified by the compensation committee of the board of directors in the first quarter of 2021 to adjust for the sale of the Life Sciences business and the ongoing effects of the COVID-19 pandemic.

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.

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The following table presents the number of PSUs granted and the grant date fair value in the period presented.


		TSR Awards		ROIC Awards			TSR Awards		ROIC Awards
Award Year	Award Year	Shares (in thousands)	Grant Date Fair Value (per share)	Shares (in thousands)	Grant Date Fair Value (per share)	Award Year	Shares (in thousands)	Grant Date Fair Value (per share)	Shares (in thousands)	Grant Date Fair Value (per share)
2021	2021	142	$8.58	172	$7.20	2021	142	$8.58	172	$7.20

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.

The following table presents the status of unvested PSUs as of ~~March 31,~~June 30, 2021, and changes during the ~~three~~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, 2021	Nonvested at January 1, 2021	138	$	10.58	160	$	9.13	Nonvested at January 1, 2021	138	$	10.58	160	$	9.13
Granted	Granted	142	8.58		172	7.20		Granted	142	8.58		172	7.20
Forfeited								Forfeited	(61)	9.61		(71)	8.17

Nonvested at March 31, 2021		280	$	9.56	332	$	8.13
Nonvested at June 30, 2021								Nonvested at June 30, 2021	219	$	9.55	261	$	8.12

Change in Vesting Estimates

During the six months ended June 30, 2021, we recognized a decrease in share-based compensation expense in continuing operations of $0.3 million in the “Selling, general, and administrative expense” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) to reverse cumulative expense for restricted stock and PSU awards that were forfeited upon termination of employment and were in excess of our estimated forfeiture rate.

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Note 15. Accumulated Other Comprehensive Income

The following tables present the components of accumulated other comprehensive income (“AOCI”).


		Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total			Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total
Balance at December 31, 2020		$	(30,881)	$	(3,712)	$	861	$	(33,732)
Other comprehensive income (loss) before reclassifications		(3,347)		0		0		(3,347)

Amounts reclassified from AOCI to loss on interest rate swap (3)		0		3,712		(861)		2,851
Net other comprehensive income (loss)		(3,347)		3,712		(861)		(496)
Balance at March 31, 2021	Balance at March 31, 2021	$	(34,228)	$	0	$	0	$	(34,228)	Balance at March 31, 2021	$	(34,228)	$	0	$	0	$	(34,228)

Balance at December 31, 2019		$	(35,159)	$	(12,234)	$	2,839	$	(44,554)

Net other comprehensive income (loss)										Net other comprehensive income (loss)	4,409		0		0		4,409
Balance at June 30, 2021										Balance at June 30, 2021	$	(29,819)	$	0	$	0	$	(29,819)

Balance at March 31, 2020										Balance at March 31, 2020	$	(49,501)	$	(25,463)	$	5,911	$	(69,053)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(14,342)		(14,599)		3,390		(25,551)		Other comprehensive income (loss) before reclassifications	994		(1,635)		380		(261)
Amounts reclassified from AOCI to interest expense (2)	Amounts reclassified from AOCI to interest expense (2)	0		1,370		(318)		1,052		Amounts reclassified from AOCI to interest expense (2)	0		3,436		(798)		2,638

Net other comprehensive income (loss)	Net other comprehensive income (loss)	(14,342)		(13,229)		3,072		(24,499)		Net other comprehensive income (loss)	994		1,801		(418)		2,377
Balance at March 31, 2020		$	(49,501)	$	(25,463)	$	5,911	$	(69,053)
Balance at June 30, 2020										Balance at June 30, 2020	$	(48,507)	$	(23,662)	$	5,493	$	(66,676)

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	Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total
Balance at December 31, 2020	$	(30,881)	$	(3,712)	$	861	$	(33,732)
Other comprehensive income (loss) before reclassifications	1,062		0		0		1,062

Amounts reclassified from AOCI to loss on interest rate swap (3)	0		3,712		(861)		2,851
Net current-period other comprehensive income (loss)	1,062		3,712		(861)		3,913
Balance at June 30, 2021	$	(29,819)	$	0	$	0	$	(29,819)

Balance at December 31, 2019	$	(35,159)	$	(12,234)	$	2,839	$	(44,554)
Other comprehensive income (loss) before reclassifications	(13,348)		(16,234)		3,770		(25,812)
Amounts reclassified from AOCI to interest expense (2)	0		4,806		(1,116)		3,690

Net current-period other comprehensive income (loss)	(13,348)		(11,428)		2,654		(22,122)
Balance at June 30, 2020	$	(48,507)	$	(23,662)	$	5,493	$	(66,676)

_______________________

(1) Income tax effect of changes in interest rate swap.

(2) Represents settlements on the interest rate swap while the hedge was effective.

(3) Represents reclassification of derivative loss and settlements after discontinuation of hedge accounting.

Note 16. Net Income (Loss) Per Common Share

In accordance with ASC 260, Earnings Per Share, a company that has participating securities is required to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings between the holders of common stock and a company’s participating securities. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options, warrants, and convertible preferred stock.

2024

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The following table summarizes the computation of basic and diluted net loss per common share.


		Three Months Ended March 31,				Three Months Ended June 30,		Six Months Ended June 30,
		2021		2020				2021		2020		2021		2020
Numerator:	Numerator:						Numerator:
Loss from continuing operations	Loss from continuing operations	$	(4,913)	$	(108,077)		Loss from continuing operations	$	(5,391)	$	(17,566)	$	(10,304)	$	(125,643)
Less: Preferred stock cumulative dividends and deemed dividends	Less: Preferred stock cumulative dividends and deemed dividends	(14,529)		(2,951)			Less: Preferred stock cumulative dividends and deemed dividends	(2,211)		(3,043)		(16,740)		(5,994)

Numerator for basic and diluted loss from continuing operations per common share (1)	Numerator for basic and diluted loss from continuing operations per common share (1)	(19,442)		(111,028)			Numerator for basic and diluted loss from continuing operations per common share (1)	(7,602)		(20,609)		(27,044)		(131,637)
Loss from discontinued operations, net of tax (Note 2)	Loss from discontinued operations, net of tax (Note 2)	0		(140,114)			Loss from discontinued operations, net of tax (Note 2)	0		(4,182)		0		(144,296)

Numerator for basic and diluted undistributed net loss per common share (1)	Numerator for basic and diluted undistributed net loss per common share (1)	$	(19,442)	$	(251,142)		Numerator for basic and diluted undistributed net loss per common share (1)	$	(7,602)	$	(24,791)	$	(27,044)	$	(275,933)

Denominator:	Denominator:						Denominator:
Weighted average common shares outstanding, basic and diluted		42,461		42,111
Weighted average warrants outstanding, basic and diluted (2)		211		0
Weighted average common shares outstanding							Weighted average common shares outstanding	43,067		42,753		42,952		42,671
Adjustment for unvested restricted common stock							Adjustment for unvested restricted common stock	(524)		(556)		(450)		(517)
Adjustment for 2021 Warrants outstanding (2)							Adjustment for 2021 Warrants outstanding (2)	1,897		0		1,059		0
Shares used to calculate income (loss) per share, basic and diluted	Shares used to calculate income (loss) per share, basic and diluted	42,672		42,111			Shares used to calculate income (loss) per share, basic and diluted	44,440		42,197		43,561		42,154

Per common share net loss:	Per common share net loss:						Per common share net loss:
Basic loss from continuing operations per common share	Basic loss from continuing operations per common share	$	(0.46)	$	(2.64)		Basic loss from continuing operations per common share	$	(0.17)	$	(0.49)	$	(0.62)	$	(3.12)
Basic loss from discontinued operations per common share	Basic loss from discontinued operations per common share	0		(3.32)			Basic loss from discontinued operations per common share	0		(0.10)		0		(3.43)
Basic net loss per common share	Basic net loss per common share	$	(0.46)	$	(5.96)		Basic net loss per common share	$	(0.17)	$	(0.59)	$	(0.62)	$	(6.55)
Diluted loss from continuing operations per common share	Diluted loss from continuing operations per common share	$	(0.46)	$	(2.64)		Diluted loss from continuing operations per common share	$	(0.17)	$	(0.49)	$	(0.62)	$	(3.12)
Diluted loss from discontinued operations per common share	Diluted loss from discontinued operations per common share	0		(3.32)			Diluted loss from discontinued operations per common share	0		(0.10)		0		(3.43)
Diluted net loss per common share	Diluted net loss per common share	$	(0.46)	$	(5.96)		Diluted net loss per common share	$	(0.17)	$	(0.59)	$	(0.62)	$	(6.55)
Cash dividends declared per common share	Cash dividends declared per common share	$	0	$	0		Cash dividends declared per common share	$	0	$	0	$	0	$	0

(1) Preferred Stock does not participate in losses.

(2) ~~The~~Weighted average 2021 Warrants outstanding are included in shares outstanding for calculation of basic earnings per share because they are exercisable ~~with little~~at an exercise price of $0.01 per share, subject to ~~no consideration~~certain adjustments (see Note 17).

The following table presents securities that could be potentially dilutive in the future that were excluded from the calculation of diluted net loss per common share because they had an anti-dilutive effect.


		Three Months Ended March 31,
		2021	2020		Three Months Ended June 30,		Six Months Ended June 30,
					2021	2020	2021	2020
Options	Options	847	897	Options	825	890	843	890
2019 Warrants	2019 Warrants	1,500	1,500	2019 Warrants	1,500	1,500	1,500	1,500
Preferred Stock, as-converted		0	26,275
Series B Preferred Stock, as-converted				Series B Preferred Stock, as-converted	0	25,278	0	25,278
		2,347	28,672		2,325	27,668	2,343	27,668

We have elected to allocate undistributed income to participating securities based on year-to-date results. As there was no undistributed income for the three and six months ended ~~March 31,~~June 30, 2021, no such allocation was necessary. In addition, given the undistributed loss from continuing operations in the three and six months ended ~~March 31,~~June 30, 2021 and 2020, options and the 2019 Warrants are considered anti-dilutive and were excluded from the calculation of diluted net ~~income (loss)~~loss per share. Stock options excluded from the calculations of diluted net loss per share had a per share exercise price ranging from $7.93 to $25.16 for the three months ended ~~March 31,~~June 30, 2021, and $7.93 to $25.16 for three months ended ~~March 31,~~June 30, 2020. Stock options excluded from the

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calculations of diluted net income (loss) per share had a per share exercise price ranging from $7.93 to $25.16 for the six months ended June 30, 2021, and $7.93 to $25.16 for six months ended June 30, 2020. The 2019 Warrants excluded from the calculation of diluted net loss per share for the three and six months ended ~~March 31,~~June 30, 2021, had a per share exercise price of $11.49. Series B Preferred Stock excluded from the calculation of diluted net loss per share for the three and six months ended ~~March 31,~~June 30, 2020, was calculated on an as-converted basis.

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Note 17. 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 2020 Annual Report.

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.

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 ~~March 31,~~June 30, 2021, the carrying values of these financial instruments approximated fair value.

Derivative Financial Instruments

Certain features were bifurcated and accounted for separately from the Series B Preferred Stock. The following features were recorded as derivatives.

•Leverage ratio put feature. The Series B Preferred Stock included a redemption option based on a leverage ratio threshold that provided the preferred holder the option to convert the Series B Preferred Stock to a variable number of shares of common stock at a discount to the then fair value of our common stock. The conversion feature was considered a redemption right at a premium which was not clearly and closely related to the debt host. The conversion feature was terminated upon redemption of the Series B Preferred Stock in March 2021.

•Dividends withholding. The Series B Preferred Stock bore a feature that could require us to make an effective distribution to purchasers which is indexed to the tax rate of the purchasers. This distribution would be partially offset by an adjustment to the redemption price and/or conversion rate. The dividends withholding feature was not clearly and closely related to the debt host. Upon redemption of the Series B Preferred Stock in March 2021, we made a net cash distribution of $3.0 million to settle this withholding feature after effectively receiving a $1.0 million offset from the purchasers upon redemption of the Series B Preferred Stock.

•Warrants. The warrants issued with the Series B Preferred Stock (the “2019 Warrants”) are exercisable, in full or in part, at any time prior to December 11, 2026. The original exercise price was $12.00 per share, subject to anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events. The issuance of ~~additional warrants with~~ the ~~Series D Preferred Stock in March~~ 2021 Warrants resulted in an adjusted exercise price of $11.49 per share for the 2019 Warrants because the new warrants have an exercise price below market value.

Certain features were bifurcated and accounted for separately from the Series D Preferred Stock that was issued on March 22, 2021. The following features were recorded as derivatives.

•Change-in-control put feature. The Series D Preferred Stock includes a put feature that allows the holder to redeem the Series D Preferred Stock upon a change in control at the greater of 1) the liquidation preference plus accrued dividends or 2) 140% of the liquidation preference. The put feature is considered a redemption right at a premium and is not clearly and closely related to the debt host.

•Warrants. The ~~warrants issued with the Series D Preferred Stock (the “2021 Warrants”)~~2021 Warrants are exercisable, in full or in part, at any time prior to March 22, 2027, at an exercise price of $0.01 per share, subject to anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events.

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The following tables show the liabilities measured at fair value for the above derivatives as of ~~March 31,~~June 30, 2021, and December 31, 2020.


		Fair Value Measurements as of March 31, 2021							Fair Value Measurements as of June 30, 2021
Description	Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	Derivative liability - other current liabilities	$	0	$	0	$	0	Derivative liability - other current liabilities	$	0	$	0	$	0
Derivative liability - other non-current liabilities	Derivative liability - other non-current liabilities	13,414		0		1,370		Derivative liability - other non-current liabilities	13,946		0		1,510
Total	Total	$	13,414	$	0	$	1,370	Total	$	13,946	$	0	$	1,510

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	Fair Value Measurements as of December 31, 2020
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	$	0	$	0	$	2,453
Derivative liability - other non-current liabilities	0		0		664
Total	$	0	$	0	$	3,117

The following table presents the change in the above derivatives during the ~~three~~six months ended ~~March 31,~~June 30, 2021.


	~~Three~~Six Months Ended ~~March 31,~~June 30, 2021
Beginning balance	$	3,117
Issuances	15,121
Change in fair value (1)	~~(449)~~223
Settlements	(3,005)
Ending balance	$	~~14,784~~15,456

(1) Changes in the fair value are recognized in the “Other expense (income), net” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The fair value of the change-in-control put feature utilizes unobservable inputs based on the Company’s assessment of the probability of a change-in-control event occurring in a future period. The probability of a change-in-control event ranged from 1% to 10% as of ~~March 31,~~June 30, 2021.

The leverage ratio put feature, the dividends withholding feature, and the contingent dividends feature utilized unobservable inputs based on the best information available to determine the probability of the Series B Preferred Stock remaining outstanding for future periods. These inputs included probability assessments of how long the ~~preferred stock~~Series B Preferred Stock would remain outstanding and whether the leverage ratio threshold would be exceeded. Inputs also included the percentage of Series B Preferred Stock held by non-U.S. resident holders and the applicable tax withholding rates for those holders. The probability of the Series B Preferred Stock remaining in future periods ranged from 3% to 2% as of December 31, 2020. The leverage ratio put feature also utilized unobservable inputs to determine the probability of the leverage ratio put being exercisable as of March 31, 2023, which ranged from 10% to 1% as of December 31, 2020. These probabilities were determined based on management’s assessment of facts and circumstances at each reporting date. An increase in these probabilities would ~~result~~have resulted in an increase in the derivative liability fair value. Given the Series B Preferred Stock value ~~changes~~changed by period as a result of dividends and redemption premiums, weighted average values for these assumptions are not meaningful.

The fair value of the 2019 Warrants is determined using a valuation model ~~which~~that utilizes unobservable inputs to determine the probability that the 2019 Warrants will remain outstanding for future periods. The probabilities resulted in a weighted average term of ~~4.3~~4.2 years as of ~~March 31,~~June 30, 2021, and 2.4 years as of December 31, 2020.

The fair value of the 2021 Warrants is determined using the observable market price of a share of our common stock, less the $0.01 per share exercise price.

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Interest Rate Swap

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt. We had a 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”). On March 22, 2021, we terminated the interest rate swap agreement with a $13.7 million cash payment in connection with the extinguishment of our previously outstanding long-term variable-rate debt.

The interest rate swap was designated as a cash flow hedge at inception. However, in the fourth quarter of 2020, the interest rate swap no longer qualified as an effective hedge, and subsequent changes in fair value of the interest rate swap were recognized in earnings. Amounts recognized in earnings related to the interest rate swap are recorded in the “Loss on interest rate swap” line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) except that cash settlements prior to termination are recognized in “Derivative payments on interest rate swap.” Cash settlements during 2021 are presented in investing activities on the Condensed Consolidated Statements of Cash Flows. The following table presents

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the effect of the interest rate swap on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020			2021		2020		2021		2020
Interest expense	Interest expense	$	0	$	1,370	Interest expense	$	0	$	3,436	$	0	$	4,806
Derivative payments on interest rate swap	Derivative payments on interest rate swap	1,717		0		Derivative payments on interest rate swap	0		0		1,717		0
Loss on interest rate swap	Loss on interest rate swap	2,033		0		Loss on interest rate swap	0		0		2,033		0

The following table presents the liabilities measured at fair value on a recurring basis for the interest rate swap as of December 31, 2020.


	Fair Value Measurements as of December 31, 2020
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	$	0	$	11,022	$	0
Derivative liability - other non-current liabilities	0		4,357		0
Total	$	0	$	15,379	$	0

The inputs for determining fair value of the 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.

On July 22, 2021, we entered into a new interest rate swap as discussed in Note 18.

Fixed Rate Debt

The 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 approximated carrying value as of ~~March 31,~~June 30, 2021, and December 31, 2020, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The carrying value of this fixed-rate debt was ~~$12.5~~$12.2 million and $14.4 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Note 18. Subsequent Event

Interest Rate Swap Agreement

On July 22, 2021, we entered into a new fixed-rate interest rate swap agreement to change the LIBOR-based component of the interest rate on a portion of our variable rate debt to a fixed rate of 1.291%. The interest rate swap has a notional amount of $60.0 million and a maturity date of July 31, 2024.

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The objective of the interest rate swap is to eliminate the variability of cash flows in interest payments on the first $60.0 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. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt. We designated the interest rate swap as a cash flow hedge at inception.

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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 primarily for the electrical, automotive, general industrial, aerospace, ~~and~~ defense, and medical markets. As used in this Quarterly Report, the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc. and its subsidiaries.

Forward-Looking Statements

This Quarterly Report 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; the impacts of the COVID-19 pandemic on the Company’s financial condition, business operations and liquidity; 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;~~customers, some of whom are not parties to long-term agreements (and/or are terminable on short notice); 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 sections titled “Item 1A. Risk Factors” in the 2020 Annual Report and this Quarterly Report.

Results of Operations

Factors That May Influence Results of Operations

The following paragraphs describe factors that have influenced results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2021, that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future.

Global COVID-19 Pandemic

The COVID-19 pandemic continues to disrupt the United States and global economy, and we cannot predict when a full economic recovery will ~~occur, but~~occur. Although product volumes are beginning to return to more normalized ~~levels. Our~~levels and our operating results in ~~the first quarter~~2021 reflect momentum in the recovery of our business from the effects of ~~COVID-19. Although vaccinations are~~the COVID-19 pandemic, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread in ~~process~~the United States and ~~economies~~ across the ~~globe have reopened, many public health experts warn there may~~globe. The impact of the Delta variant cannot be ~~additional~~predicted at this time and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 ~~surges in 2021.~~vaccines against the Delta variant, and the response by governmental bodies and regulators. Further surges in ~~the~~ COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations. ~~Thus, the~~The spread of COVID-19 and the responses thereto have created a disruption in the manufacturing, delivery, and overall supply chain of automobile manufacturers and suppliers, as well as disruption within the power industry. Global vehicle production decreased significantly in 2020, but production has since ~~been ramping~~ramped back up. Disruptions of normal supply chains have caused challenges in obtaining raw materials we use in the manufacture of some of our products. We have been increasing our inventories in the ~~first quarter~~current year to mitigate the risk of supply chain disruption for our customers. A worldwide semiconductor chip shortage is beginning to affect automotive original equipment manufacturers, causing unpredictable volumes. The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on our business, financial condition, results of operations, and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 pandemic.

While managing decreased demand in many regions across the globe, we are now operating at all of our business locations. We have implemented training and recruiting programs to address labor shortages. We are focused on the safety of our employees, customers, and suppliers. We have developed and implemented processes to ensure a safe environment for our employees and

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any visitors to our facilities, including providing personal protective equipment ~~to our employees~~ and establishing social distancing protocols and temperature checks. We are actively promoting vaccination among our employees. These processes include recommendations based on guidelines from the Centers for Disease Control and Prevention and the World Health Organization. The health and safety of our employees remains our top priority.

We have undertaken a number of permanent and temporary actions to manage the evolving situation, as described in our 2020 Annual ~~Report..~~Report. We continue to streamline facilities and implement cost savings initiatives. Capital expenditures and travel costs remain at relatively low levels. We refinanced our credit facility and preferred stock in the first quarter as discussed ~~above.~~below.

Credit Facilities

Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR (subject to a 1.000% floor) plus an applicable margin of 6.875% or 2) the greater of various benchmark rates plus an applicable margin of 5.875%. At ~~March 31,~~June 30, 2021, the Term Loan Facility bore interest, based on one-month LIBOR, at 7.875%. The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026. The Term Loan Facility is collateralized by all of our assets. The Term Loan Facility has a first lien on all assets other than accounts receivable and inventory and has a second lien on accounts receivable and inventory. We were in compliance with all requirements under the Term Loan Facility as of ~~March 31,~~June 30, 2021.

We had no outstanding borrowings under the ABL Facility at ~~March 31,~~June 30, 2021. Total capacity under the ABL Facility was ~~$47.3~~$44.2 million as of ~~March 31,~~June 30, 2021, ~~with $32.9~~of which $30.2 million was available for future borrowings after reductions for outstanding letters of credit as of ~~March 31,~~June 30, 2021. The ABL Facility has a first lien on accounts receivable and inventory. We were in compliance with all requirements under the ABL Facility as of ~~March 31,~~June 30, 2021.

Preferred Stock

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Sales Concentration

Three Months Ended ~~March 31,~~June 30, 2021, compared to the Three Months Ended ~~March 31,~~June 30, 2020


		Three Months Ended March 31,									Three Months Ended June 30,
		2021		2020		$ Change					2021		2020		$ Change
Net sales	Net sales	$	126,804	$	116,213	$	10,591			Net sales	$	123,157	$	78,532	$	44,625

Organic growth	Organic growth							$	11,248	Organic growth							$	42,123
Foreign exchange effects	Foreign exchange effects							(657)		Foreign exchange effects							2,502
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	99,688		94,478		5,210				Cost of sales (exclusive of depreciation and amortization shown separately below)	99,797		65,058		34,739

Selling, general, and administrative expense	Selling, general, and administrative expense	14,575		16,160		(1,585)				Selling, general, and administrative expense	13,585		14,273		(688)

Depreciation and amortization	Depreciation and amortization	11,568		11,357		211				Depreciation and amortization	11,687		11,327		360

Goodwill impairment		—		92,942		(92,942)
Other operating expense (income), net		(5)		5,126		(5,131)
Income (loss) from operations		978		(103,850)		104,828

Other operating income, net										Other operating income, net	(324)		(949)		625
Loss from operations										Loss from operations	(1,588)		(11,177)		9,589
Interest expense	Interest expense	2,024		3,807		(1,783)				Interest expense	3,573		6,356		(2,783)
Loss on extinguishment of debt and write-off of debt issuance costs		2,390		—		2,390
Derivative payments on interest rate swap		1,717		—		1,717
Loss on interest rate swap		2,033		—		2,033

Other expense (income), net	Other expense (income), net	(122)		1,544		(1,666)				Other expense (income), net	1,680		(1,215)		2,895
Loss from continuing operations before benefit for income taxes and share of net income (loss) from joint venture		(7,064)		(109,201)		102,137
Benefit for income taxes		756		1,395		(639)
Share of net income (loss) from joint venture		1,395		(271)		1,666
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture										Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture	(6,841)		(16,318)		9,477
Benefit (provision) for income taxes										Benefit (provision) for income taxes	231		(2,175)		2,406
Share of net income from joint venture										Share of net income from joint venture	1,219		927		292
Loss from continuing operations	Loss from continuing operations	(4,913)		(108,077)		103,164				Loss from continuing operations	(5,391)		(17,566)		12,175
Income (loss) from discontinued operations, net of tax		—		(140,114)		140,114
Loss from discontinued operations, net of tax										Loss from discontinued operations, net of tax	—		(4,182)		4,182
Net loss	Net loss	$	(4,913)	$	(248,191)	$	243,278			Net loss	$	(5,391)	$	(21,748)	$	16,357

Net Sales. Net sales increased by ~~$10.6~~$44.6 million, or 9%57%, during the three months ended ~~March 31,~~June 30, 2021, compared to the three months ended ~~March 31,~~June 30, 2020, primarily due to ~~an increase in organic volume of $11.2 million, as a result of increased~~higher demand within all markets that were negatively impacted by the COVID-19 pandemic in the ~~automotive industry as~~prior year and new business in the ~~economy begins to recover from the impact of the COVID-19 pandemic. Sales~~general industrial market. In addition, sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs ~~since~~compared with the ~~second half~~same period of 2020. These increases were partially offset by decreased demand for smart meter components due to inventory adjustments at a key customer. Sales of components to the medical industry ~~were also negatively impacted by delays~~experienced recovery in the current period compared to the same period of 2020 when many elective surgeries ~~caused by~~were delayed as a result of the COVID-19 pandemic. We also realized ~~unfavorable~~favorable foreign exchange effects of ~~$0.7~~$2.5 million.

Cost of Sales. Cost of sales increased by ~~$5.2~~$34.7 million, or 6%53%, during the three months ended ~~March 31,~~June 30, 2021, compared to the three months ended ~~March 31,~~June 30, 2020, primarily due to variable costs associated with the ~~above-referenced~~above-noted sales ~~volume increase,~~increase. In addition, cost of sales increased due to the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as benefits and overtime hours. These increases were partially offset by ~~variable and fixed cost reduction initiatives.~~favorable overhead absorption due to the increase in inventory.

Selling, General, and Administrative Expense. Selling, general, and administrative expense decreased by ~~$1.6~~$0.7 million during the three months ended ~~March 31,~~June 30, 2021, compared to the three months ended ~~March 31,~~June 30, 2020, primarily due to cost reduction initiatives that drove decreases in personnel and ~~travel costs.~~professional fees.

~~Goodwill Impairment.~~ Other Operating Income, Net.~~We recognized goodwill impairment~~ Other operating income, net, changed unfavorably by $0.6 million primarily due to a gain on the sale of ~~$92.9 million at Power Solutions~~a building in Fairfield, Ohio, during the three months ended ~~March 31, 2020, which resulted in no remaining goodwill balance.~~

~~Other Operating Expense (Income), Net.~~ Other operating expense (income), net, changed favorably by $5.1 million primarily due to charges and costs associated with asset disposals and elimination of a portion of lease obligations as a result of vacating a portion of our corporate headquarters building during the three months ended March 31,June 30, 2020.

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Interest Expense. Interest expense decreased by ~~$1.8~~$2.8 million during the three months ended ~~March 31,~~June 30, 2021, compared to the three months ended ~~March 31,~~June 30, 2020, primarily due to settlements on the interest rate swap in the prior year that were recognized in interest expense while the hedge was effective. ~~Commitment fees on our Senior Secured Revolver decreased~~

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	Three Months Ended June 30,
	2021		2020
Interest on debt	$	3,110	$	2,304
Interest rate swap settlements	—		3,436
Amortization of debt issuance costs and discount	313		445
Capitalized interest	(80)		(45)
Other	230		216
Total interest expense	$	3,573	$	6,356

Other Expense (Income), Net. Other expense (income), net, changed unfavorably by $2.9 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, due to noncash derivative mark-to-market losses, less favorable foreign exchange effects associated with intercompany borrowings, and a ~~lower available capacity after~~litigation settlement reached during the current quarter.

Benefit (Provision) For Income Taxes. Our effective tax rate was 3.4% for the three months ended June 30, 2021, compared to (13.3)% for the three months ended June 30, 2020. The difference in rates is primarily due to the estimated impacts of GILTI and the CARES Act. Note 8 in the Notes to Condensed Consolidated Financial Statements describes the effective income tax rate for each period presented.

Share of Net Income from Joint Venture. Our share of net income from the joint venture increased during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to improved profits resulting from higher sales volumes, expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Results by Segment

MOBILE SOLUTIONS


	Three Months Ended June 30,
	2021		2020		$ Change
Net sales	$	73,886	$	41,037	$	32,849

Organic growth							$	31,013
Foreign exchange effects							1,836
Income (loss) from operations	$	2,509	$	(4,592)	$	7,101

Net sales increased by $32.8 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, new business in the general industrial market, and favorable foreign exchange effects of $1.8 million.

Income from operations increased by $7.1 million during the three months ended June 30, 2021, compared to the same period in the prior year primarily due to the contribution generated from the above-noted sales increase. Moreover, we built up inventory in the three months ended June 30, 2021, which resulted in favorable overhead absorption during the quarter. These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

POWER SOLUTIONS


	Three Months Ended June 30,
	2021		2020		$ Change
Net sales	$	49,271	$	37,491	$	11,780

Organic growth							$	11,114
Foreign exchange effects							666

Income from operations	$	2,875	$	1,454	$	1,421

Net sales increased by $11.8 million during the three months ended June 30, 2021, compared to the three months ended June 30, 2020 primarily due to higher demand within the end markets which were negatively impacted by the COVID-19 pandemic in the prior year. Sales were also positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared with the same period in 2020. Sales of components to

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the medical industry experienced recovery in the current period compared to the same period of 2020 when many elective surgeries were delayed as a result of the COVID-19 pandemic.

Income from operations increased by $1.4 million compared to the same period in the prior year primarily due to the contribution generated from the above-noted sales increase, partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

Six Months Ended June 30, 2021, compared to the Six Months Ended June 30, 2020


	Six Months Ended June 30,
	2021		2020		$ Change
Net sales	$	249,961	$	194,745	$	55,216

Organic growth							$	53,371
Foreign exchange effects							1,845
Cost of sales (exclusive of depreciation and amortization shown separately below)	199,485		159,536		39,949



Selling, general, and administrative expense	28,160		30,433		(2,273)

Depreciation and amortization	23,255		22,684		571

Goodwill impairment	—		92,942		(92,942)
Other operating expense (income), net	(329)		4,177		(4,506)
Loss from operations	(610)		(115,027)		114,417
Interest expense	5,597		10,163		(4,566)
Loss on extinguishment of debt and write-off of debt issuance costs	2,390		—		2,390
Derivative payments on interest rate swap	1,717		—		1,717
Loss on interest rate swap	2,033		—		2,033
Other expense, net	1,558		329		1,229
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture	(13,905)		(125,519)		111,614
Benefit (provision) for income taxes	987		(780)		1,767
Share of net income from joint venture	2,614		656		1,958
Loss from continuing operations	(10,304)		(125,643)		115,339
Loss from discontinued operations, net of tax	—		(144,296)		144,296
Net loss	$	(10,304)	$	(269,939)	$	259,635

Net Sales. Net sales increased by $55.2 million, or 28%, during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to higher demand within all markets that were negatively impacted by the COVID-19 pandemic in the prior year and favorable foreign exchange effects of $1.8 million. In addition, sales were positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared with the same period of 2020.

Cost of Sales. Cost of sales increased by $39.9 million, or 25%, during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to variable costs associated with the above-noted sales increase. In addition, cost of sales increased due to the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours, which was partially offset by favorable overhead absorption due to the increase in inventory.

Selling, General, and Administrative Expense. Selling, general, and administrative expense decreased by $2.3 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to cost reduction initiatives that drove decreases in personnel costs and professional fees.

Goodwill Impairment. We recognized goodwill impairment of $92.9 million at Power Solutions in 2020, resulting in no remaining goodwill balance.

Other Operating Expense (Income), Net. Other operating expense (income), net, changed favorably by $4.5 million primarily due to charges and costs associated with asset disposals and elimination of a portion of our lease obligation as a result of our

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decision to vacate a portion of our corporate headquarters building in 2020. These charges were partially offset by a gain on the sale of ~~our Life Sciences business~~a building in ~~October~~Fairfield, Ohio, in the second quarter of 2020.

Three Months Ended March 31,
2021 2020
Interest on debt $ 1,439 $ 1,851
Interest rate swap settlements — 1,370
Amortization of debt issuance costs 405 426
Capitalized interest (31) (89)
Other 211 249
Total interest expense $ 2,024 $ 3,807
Interest Expense. Interest expense decreased by $4.6 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to settlements on the interest rate swap the prior year that were recognized in interest expense while the hedge was effective.


	Six Months Ended June 30,
	2021		2020
Interest on debt	$	4,549	$	4,155
Interest rate swap settlements	—		4,806
Amortization of debt issuance costs and discount	718		871
Capitalized interest	(111)		(134)
Other	441		465
Total interest expense	$	5,597	$	10,163

Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs. ~~Loss on extinguishment of debt and~~We recognized $2.4 million for the write-off of ~~debt issuance costs represents~~ unamortized debt issuance costs that were associated with the credit facility that was terminated in March 2021.

Derivative Payments on Interest Rate Swap. Derivative payments on interest rate swap represent cash settlements of the interest rate swap after hedge accounting was discontinued in October 2020. Prior to October 2020, interest rate swap settlements were recognized in interest expense. The interest rate swap was terminated in the first quarter of 2021.

Loss on Interest Rate Swap. Loss on interest rate swap represents mark-to-market adjustments on the interest rate swap after hedge accounting was discontinued in October 2020 as well as amortization of the residual loss in accumulated other comprehensive income as monthly settlements occur. Prior to October 2020, mark-to-market adjustments on the interest rate swap were recognized in accumulated other comprehensive income. Upon termination of the interest rate swap in March 2021, we recognized in earnings the remaining $3.3 million loss that had been deferred in accumulated other comprehensive income.

Other Expense, Net. Other expense, net, changed unfavorably by $1.2 million during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, due to a litigation settlement reached during the current quarter, partially offset by more favorable foreign exchange effects associated with intercompany borrowings.

Benefit ~~For~~(Provision) for Income Taxes.Our effective tax rate was ~~10.7%~~7.1% for the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to ~~1.3%~~(0.6)% for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The difference in rates is primarily due to ~~the impact of the impairment of nondeductible goodwill in 2020, and~~ the estimated impacts of GILTI and the CARES Act. Note 8 in the Notes to Condensed Consolidated Financial Statements describes the effective income tax rate for each period presented.

Share of Net Income from Joint Venture. ~~Our share~~Share of net income from the ~~joint venture~~JV increased during the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2020, primarily due to improved profits ~~resulting~~ from ~~higher sales volumes,~~ expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions.

Results by Segment

MOBILE SOLUTIONS


		Three Months Ended March 31,									Six Months Ended June 30,
		2021		2020		$ Change					2021		2020		$ Change
Net sales	Net sales	$	77,776	$	69,884	$	7,892			Net sales	$	151,662	$	110,921	$	40,741

Organic growth	Organic growth							$	8,576	Organic growth							$	39,589
Foreign exchange effects	Foreign exchange effects							(684)		Foreign exchange effects							1,152
Income from operations		$	6,090	$	264	$	5,826

Income (loss) from operations										Income (loss) from operations	$	8,599	$	(4,328)	$	12,927

Net sales increased by ~~$7.9~~$40.7 million during the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2020, primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, ~~and~~ new business in the general industrial ~~market. The increase in volume was partially offset by unfavorable~~market, and favorable foreign exchange ~~effects of $0.7 million.~~effects.

Income (loss) from operations increased by ~~$5.8~~$12.9 million ~~during the three months ended March 31, 2021,~~ compared to the same period in the prior year primarily due to contribution generated from the above-noted ~~increase in revenue and variable and fixed cost reduction initiatives.~~sales increase. Moreover, we built up inventory in the ~~three~~six months ended ~~March 31,~~June 30, 2021, which resulted in favorable overhead absorption during the ~~quarter.~~period. These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours.

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POWER SOLUTIONS


		Three Months Ended March 31,									Six Months Ended June 30,
		2021		2020		$ Change					2021		2020		$ Change
Net sales	Net sales	$	49,075	$	46,401	$	2,674			Net sales	$	98,346	$	83,892	$	14,454

Organic growth	Organic growth							$	2,647	Organic growth							$	13,761
Foreign exchange effects	Foreign exchange effects							27		Foreign exchange effects							693
Goodwill impairment	Goodwill impairment	$	—	$	(92,942)	$	92,942			Goodwill impairment	$	—	$	(92,942)	$	92,942
Income (loss) from operations	Income (loss) from operations	$	2,432	$	(90,334)	$	92,766			Income (loss) from operations	$	5,307	$	(88,880)	$	94,187

Net sales increased by ~~$2.7~~$14.5 million during the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared to the ~~three~~six months ended ~~March 31, 2020.~~June 30, 2020, primarily due to higher demand within the end markets which were negatively impacted by the COVID-19 pandemic in the prior year. Sales were also positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs since the second half of 2020. Furthermore, demand in the automotive market rebounded to more normalized levels after COVID-19. These increases were partially offset by decreased demand for smart meter components due to inventory adjustments at a key customer. Sales of componentscompared to the medical industry were also negatively impacted by delays in elective surgeries caused by the COVID-19 pandemic. The Power Solutions group generally began experiencing the impact of the COVID-19 pandemic on its operating results during the second quartersame period of 2020.

Income (loss) from operations increased by ~~$92.8~~$94.2 million compared to the same period in the prior year primarily due to ~~the~~a goodwill impairment loss of $92.9 million ~~goodwill impairment lost~~ recognized in the first quarter of 2020. ~~Because~~In addition, income from operations increased ~~pricing for~~due to the contribution generated from the above-noted sales increase and higher precious metals ~~was~~commodities prices. These favorable impacts were partially offset by ~~equivalent increased raw materials cost based on commodity pricing,~~ the ~~increase~~reintroduction of employee-related costs suspended in ~~sales did not have a proportionate effect on income from operations.~~

the prior year due to the pandemic, such as travel, benefits and overtime hours.

Changes in Financial Condition from December 31, 2020, to ~~March 31,~~June 30, 2021

Overview

From December 31, 2020, to ~~March 31,~~June 30, 2021, total assets decreased by ~~$2.6~~$11.4 million primarily due to normal depreciation and amortization of fixed assets, lease right-of-use assets, and intangible assets. These decreases were partially offset by capital expenditures and increases in ~~accounts receivable and~~ inventories during the ~~three~~six months ended ~~March 31,~~June 30, 2021. ~~Accounts receivable increased as a result of increasing sales, and inventories~~Inventories increased as a result of a strategic decision to mitigate potential supply chain issues for our customers.

From December 31, 2020, to ~~March 31,~~June 30, 2021, total liabilities increased by ~~$75.0~~$66.4 million, primarily due to the refinancing of our credit facilities and redeeming the Series B Preferred ~~Stock.~~Stock with debt.

Working capital, which consists of current assets less current liabilities, was ~~$124.4~~$122.5 million as of ~~March 31,~~June 30, 2021, compared to $112.0 million as of December 31, 2020. The increase in working capital was primarily due to the ~~increases~~increase in ~~accounts receivable and~~ inventories discussed above.

Cash Flows

Cash provided by operations was ~~$7.9~~$5.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared with cash provided by operations of ~~$10.2~~$15.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The difference was primarily due to $8.0 million in current year income tax payments and building inventory levels during the ~~three months ended March 31, 2021,~~current year to mitigate potential supply chain issues for our customers.

Cash used in investing activities was ~~$20.9~~$30.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared with cash used in investing activities of ~~$11.2~~$12.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The ~~decrease~~difference was primarily due to cash ~~settlement of~~paid to settle the interest rate swap and post-closing adjustment on the sale of the Life Sciences business, partially offset by lower capital expenditures in the current year.

Cash provided by financing activities was ~~$9.6~~$6.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021, compared with cash provided by financing activities of ~~$53.9~~$53.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020. The difference was primarily due to $11.9 million net inflow from the debt and preferred stock refinancing in the current year compared to the ~~$60.0~~$62.5 million draw on the Senior Secured Revolver in the prior year.

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Liquidity and Capital Resources

Credit Facilities

The principal amount outstanding under our Term Loan Facility as of ~~March 31,~~June 30, 2021, was ~~$150.0~~$149.6 million, without regard to unamortized debt issuance ~~costs.~~costs and discount. As of ~~March 31,~~June 30, 2021, we had unused borrowing capacity of ~~$32.9~~$30.2 million under

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the ABL Facility, subject to certain limitations. This amount of borrowing capacity is net of ~~$14.5~~$14.0 million of outstanding letters of credit at ~~March 31,~~June 30, 2021, which are considered as usage of the ABL Facility. This amount includes approximately $0.8 million of duplicate letters of credit that remained outstanding at June 30 but were terminated during the third quarter after transition to a new guarantor bank was completed.

The Term Loan Facility requires quarterly principal payments of $0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026. If one-month LIBOR is less than 1.00%, then we pay 7.875% per annum in interest. If one-month LIBOR exceeds 1.000%, then we pay the variable one-month LIBOR plus an applicable margin of 6.875%. Based on the interest rate in effect at ~~March 31,~~June 30, 2021, annual interest payments would be approximately $11.8 million. On July 22, 2021, we entered into a new interest rate swap as discussed in Note 18 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report. Based on the interest rate in effect at June 30, 2021, and the fixed rate on the new interest rate swap, annual interest payments would be approximately $12.0 million.

The ABL Facility bears interest on a variable rate structure with borrowings bearing interest at one-month LIBOR plus an applicable margin of 1.75%. The interest rate in effect at ~~March 31,~~June 30, 2021, was 2.25%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility.

We were in compliance as of ~~March 31,~~June 30, 2021, with all requirements under our Term Loan Facility and ABL Facility. Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions.

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 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 2020 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2020 Annual Report. There have been no changes to these policies during the ~~three~~six months ended ~~March 31,~~June 30, 2021, except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

Recent Accounting Pronouncements

See Note 1 in the Notes to Condensed Consolidated Financial Statements included in this Quarterly 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

Our policy is to manage interest expense using a mixture of fixed and variable rate debt. To manage this mixture of fixed and variable rate debt effectively and mitigate interest rate risk, we may use interest rate swap agreements. The nature and amount of borrowings may vary as a result of future business requirements, market conditions, and other factors.

In February 2019, we entered into a 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%. On March 22, 2021, we terminated the interest rate swap agreement in connection with the prepayment of our previously outstanding long-term variable-rate debt. Refer to

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Note 17 in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for further discussion about the interest rate swap.

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At ~~March 31,~~June 30, 2021, we had ~~$150.0~~$149.6 million of principal outstanding under the Term Loan Facility without regard to capitalized debt issuance costs. A one-percent increase in one-month LIBOR would ~~result~~have resulted in a net increase in interest expense of $0.2 million on an annualized basis due to the fact that the Term Loan Facility is subject to a LIBOR floor of 1.00% and one-month LIBOR was below the floor as of ~~March 31,~~June 30, 2021. The new interest rate swap discussed above would have reduced the impact by approximately $0.1 million if it had been in place on June 30, 2021.

We had no outstanding borrowings under the ABL Facility at ~~March 31,~~June 30, 2021.

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 ~~March 31,~~June 30, 2021.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief 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, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2021, 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 and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended ~~March 31,~~June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

As disclosed in Note 11 in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report, we are engaged in certain legal proceedings, and the disclosure set forth in Note 11 relating to legal proceedings is incorporated herein by reference.

Item 1A.Risk Factors

There have been no material changes to the risk factors disclosed in the 2020 Annual Report under Item ~~1A.~~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)
January 2021 — $ — — —
February 2021 43,473 6.81 — —
March 2021 6,188 7.82 — —
Total 49,661 $ 6.94 — —


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 2021	—	$	—	—	—
May 2021	—	—		—	—
June 2021	2,489	7.35		—	—
Total	2,489	$	7.35	—	—

(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. 2019 Omnibus 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.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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Item 6.Exhibits


Exhibit Number						Description

~~3.1~~10.1						~~Certificate~~Cooperation Agreement, dated May 13, 2021, among NN, Inc., Corre Partners Management, LLC, and each of ~~Designation of Series D Preferred Stock~~the persons listed on the signature page thereto (incorporated by reference to Exhibit 3 .110.1 to NN, Inc.’s Current Report on Form 8-K filed on ~~March 22,~~May 14, 2021)

~~4.1~~10.2*						~~Common Stock~~ ~~Warrant~~Separation Agreement and General Release, dated as of June 14, 2021, by and between NN, Inc. and Thomas D. DeByle (incorporated by reference to Exhibit 4 .110.1 to NN, Inc.’s Current Report on Form 8-K filed on ~~March 22,~~June 15, 2021)

~~10.1~~10.3*						~~Securities Purchase~~Form of Separation Agreement ~~dated March 22, 2021,~~ by and between ~~the Company~~NN, Inc. and ~~the Purchaser~~Michael C. Felcher (incorporated by reference to Exhibit 10 .110.2 to NN, Inc.’s Current Report on Form 8-K filed on ~~March 22, 2021)~~

~~10.2~~						~~Board Observer Agreement, dated March 22, 2021, by and between the Company and the Purchaser (incorporated by reference to Exhibit~~ 10 .2 ~~to NN, Inc.’s Current Report on Form 8-K filed on March 22, 2021)~~

~~10.3~~						~~Term Loan Credit Agreement, dated March 22, 2021, by and among the Company, as borrower, and Oaktree Fund Administration, LLC, as administrative agent (incorporated by reference to Exhibit~~ ~~10.3~~ ~~to NN, Inc.’s Current Report on Form 8-K filed on March 22, 2021)~~

~~10.4~~						~~Credit Agreement, dated March 22, 2021, by and among the Company, as borrower, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit~~ ~~10.4~~ ~~to NN, Inc.’s Current Report on Form 8-K filed on March 22,~~June 15, 2021)

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 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

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

_______________________________


* Management contract or compensatory plan or arrangement

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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: ~~May 7,~~August 6, 2021			/s/ Warren A. Veltman
			Warren A. Veltman
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
			(Duly Authorized Officer)

Date: ~~May 7, 2021~~			~~/s/ Thomas D. DeByle~~
			~~Thomas D. DeByle~~
			~~Senior Vice President—Chief Financial Officer~~
			~~(Principal Financial Officer)~~
			~~(Duly Authorized Officer)~~

~~Date: May 7,~~August 6, 2021			/s/ Michael C. Felcher
			Michael C. Felcher
			Senior Vice ~~President—~~President - Chief ~~Accounting~~Financial Officer
			(Principal Financial and Accounting Officer)
			(Duly Authorized Officer)

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