UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June~~September 30, 2022


☐			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 No.)

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

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 ~~July 29,~~October 26, 2022, there were ~~43,884,408~~43,869,135 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 Statements of Changes in Stockholders’ Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Note 1. Interim Financial Statements	8
	Note 2. Segment Information	9
	Note 3. Inventories	10
	Note 4. Intangible Assets, Net	10
	Note 5. Investment in Joint Venture	10
	Note 6. Income Taxes	10
	Note 7. Debt	11
	Note 8. Leases	12
	Note 9. Commitments and Contingencies	12
	Note 10. Preferred Stock and Stockholders' Equity	13
	Note 11. Revenue from Contracts with Customers	13
	Note 12. Share-Based Compensation	16
	Note 13. Accumulated Other Comprehensive Income	18
	Note 14. Net Income (Loss) Per Common Share	1819
	Note 15. Fair Value Measurements	20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION		31

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	3231
Item 4.	Mine Safety Disclosures	3231
Item 5.	Other Information	3231
Item 6.	Exhibits	32
SIGNATURES		33

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021		2022		2021		(in thousands, except per share data)	2022		2021		2022		2021
Net sales	Net sales	$	125,362	$	123,157	$	253,429	$	249,961	Net sales	$	127,297	$	117,244	$	380,726	$	367,205
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	103,889		99,797		208,467		199,485		Cost of sales (exclusive of depreciation and amortization shown separately below)	108,033		98,642		316,500		298,127
Selling, general, and administrative expense	Selling, general, and administrative expense	14,794		13,585		28,248		28,160		Selling, general, and administrative expense	10,205		12,181		38,453		40,341

Depreciation and amortization	Depreciation and amortization	11,340		11,687		22,769		23,255		Depreciation and amortization	11,193		11,605		33,962		34,860

Other operating expense (income), net	Other operating expense (income), net	(147)		(324)		1,879		(329)		Other operating expense (income), net	(17)		(572)		1,862		(901)
Loss from operations	Loss from operations	(4,514)		(1,588)		(7,934)		(610)		Loss from operations	(2,117)		(4,612)		(10,051)		(5,222)
Interest expense	Interest expense	3,488		3,573		6,927		5,597		Interest expense	3,746		3,578		10,673		9,175
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		Loss on extinguishment of debt and write-off of debt issuance costs	—		—		—		2,390
Derivative payments on interest rate swap	Derivative payments on interest rate swap	—		—		—		1,717		Derivative payments on interest rate swap	—		—		—		1,717
Loss on interest rate swap	Loss on interest rate swap	—		—		—		2,033		Loss on interest rate swap	—		—		—		2,033
Other expense (income), net		(67)		1,680		(3,063)		1,558
Other income, net										Other income, net	(1,156)		(4,346)		(4,219)		(2,788)
Loss before benefit (provision) for income taxes and share of net income from joint venture	Loss before benefit (provision) for income taxes and share of net income from joint venture	(7,935)		(6,841)		(11,798)		(13,905)		Loss before benefit (provision) for income taxes and share of net income from joint venture	(4,707)		(3,844)		(16,505)		(17,749)
Benefit (provision) for income taxes	Benefit (provision) for income taxes	(1,051)		231		(2,582)		987		Benefit (provision) for income taxes	1,068		(375)		(1,514)		612
Share of net income from joint venture	Share of net income from joint venture	419		1,219		2,511		2,614		Share of net income from joint venture	1,424		842		3,935		3,456

Net loss	Net loss	$	(8,567)	$	(5,391)	$	(11,869)	$	(10,304)	Net loss	$	(2,215)	$	(3,377)	$	(14,084)	$	(13,681)
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):

Foreign currency translation gain (loss)		$	(8,490)	$	4,409	$	(5,890)	$	1,062
Foreign currency translation loss										Foreign currency translation loss	$	(7,653)	$	(2,612)	$	(13,543)	$	(1,550)
Interest rate swap:	Interest rate swap:									Interest rate swap:
Change in fair value, net of tax	Change in fair value, net of tax	373		—		1,560		—		Change in fair value, net of tax	904		(176)		2,464		(176)
Reclassification adjustment for losses included in net loss, net of tax		31		—		65		2,851
Reclassification adjustment for losses (gains) included in net loss, net of tax										Reclassification adjustment for losses (gains) included in net loss, net of tax	(116)		22		(51)		2,873
Other comprehensive income (loss)	Other comprehensive income (loss)	$	(8,086)	$	4,409	$	(4,265)	$	3,913	Other comprehensive income (loss)	$	(6,865)	$	(2,766)	$	(11,130)	$	1,147
Comprehensive loss	Comprehensive loss	$	(16,653)	$	(982)	$	(16,134)	$	(6,391)	Comprehensive loss	$	(9,080)	$	(6,143)	$	(25,214)	$	(12,534)
Basic net loss per common share:	Basic net loss per common share:									Basic net loss per common share:

Net loss per common share	Net loss per common share	$	(0.25)	$	(0.17)	$	(0.38)	$	(0.62)	Net loss per common share	$	(0.11)	$	(0.13)	$	(0.49)	$	(0.75)
Weighted average common shares outstanding	Weighted average common shares outstanding	44,708		44,440		44,649		43,561		Weighted average common shares outstanding	44,711		44,455		44,670		43,862
Diluted net loss per common share:	Diluted net loss per common share:									Diluted net loss per common share:

Net loss per common share	Net loss per common share	$	(0.25)	$	(0.17)	$	(0.38)	$	(0.62)	Net loss per common share	$	(0.11)	$	(0.13)	$	(0.49)	$	(0.75)
Weighted average common shares outstanding	Weighted average common shares outstanding	44,708		44,440		44,649		43,561		Weighted average common shares outstanding	44,711		44,455		44,670		43,862

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)	June 30, 2022		December 31, 2021		(in thousands, except per share data)	September 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	15,186	$	28,656	Cash and cash equivalents	$	12,551	$	28,656
Accounts receivable, net of allowances of $1,762 and $1,352 at June 30, 2022 and December 31, 2021, respectively		82,621		71,419
Accounts receivable, net of allowances of $1,476 and $1,352 at September 30, 2022 and December 31, 2021, respectively						Accounts receivable, net of allowances of $1,476 and $1,352 at September 30, 2022 and December 31, 2021, respectively	83,496		71,419
Inventories	Inventories	84,726		75,027		Inventories	84,172		75,027
Income tax receivable	Income tax receivable	10,931		11,808		Income tax receivable	11,104		11,808

Other current assets	Other current assets	13,267		9,372		Other current assets	12,768		9,372
Total current assets	Total current assets	206,731		196,282		Total current assets	204,091		196,282
Property, plant and equipment, net of accumulated depreciation of $210,618 and $197,936 at June 30, 2022 and December 31, 2021, respectively		202,239		209,105
Property, plant and equipment, net of accumulated depreciation of $214,254 and $197,936 at September 30, 2022 and December 31, 2021, respectively						Property, plant and equipment, net of accumulated depreciation of $214,254 and $197,936 at September 30, 2022 and December 31, 2021, respectively	195,084		209,105
Operating lease right-of-use assets	Operating lease right-of-use assets	46,042		46,443		Operating lease right-of-use assets	46,164		46,443

Intangible assets, net	Intangible assets, net	81,545		88,718		Intangible assets, net	77,958		88,718
Investment in joint venture	Investment in joint venture	30,875		34,045		Investment in joint venture	28,193		34,045
Deferred tax assets	Deferred tax assets	375		314		Deferred tax assets	375		314

Other non-current assets	Other non-current assets	5,350		4,194		Other non-current assets	5,750		4,194
Total assets	Total assets	$	573,157	$	579,101	Total assets	$	557,615	$	579,101
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	$	47,859	$	36,710	Accounts payable	$	45,107	$	36,710
Accrued salaries, wages and benefits	Accrued salaries, wages and benefits	15,217		17,739		Accrued salaries, wages and benefits	13,024		17,739
Income tax payable	Income tax payable	687		2,072		Income tax payable	902		2,072
Current maturities of long-term debt	Current maturities of long-term debt	3,139		3,074		Current maturities of long-term debt	3,150		3,074
Current portion of operating lease liabilities	Current portion of operating lease liabilities	5,103		5,704		Current portion of operating lease liabilities	5,033		5,704

Other current liabilities	Other current liabilities	12,439		8,718		Other current liabilities	11,351		8,718
Total current liabilities	Total current liabilities	84,444		74,017		Total current liabilities	78,567		74,017
Deferred tax liabilities	Deferred tax liabilities	8,141		7,456		Deferred tax liabilities	6,408		7,456

Long-term debt, net of current portion	Long-term debt, net of current portion	151,317		151,052		Long-term debt, net of current portion	154,351		151,052
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	50,899		51,295		Operating lease liabilities, net of current portion	51,102		51,295

Other non-current liabilities	Other non-current liabilities	13,031		17,289		Other non-current liabilities	10,635		17,289
Total liabilities	Total liabilities	307,832		301,109		Total liabilities	301,063		301,109
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)	0		0		Commitments and contingencies (Note 9)
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at June 30, 2022 and December 31, 2021, respectively		59,003		53,807
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021, respectively	61,786		53,807
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Common stock - $0.01 par value per share, 90,000 shares authorized, 43,884 and 43,027 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		439		430
Common stock - $0.01 par value per share, 90,000 shares authorized, 43,882 and 43,027 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock - $0.01 par value per share, 90,000 shares authorized, 43,882 and 43,027 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	439		430
Additional paid-in capital	Additional paid-in capital	473,019		474,757		Additional paid-in capital	470,543		474,757
Accumulated deficit	Accumulated deficit	(230,969)		(219,100)		Accumulated deficit	(233,184)		(219,100)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(36,167)		(31,902)		Accumulated other comprehensive loss	(43,032)		(31,902)
Total stockholders’ equity	Total stockholders’ equity	206,322		224,185		Total stockholders’ equity	194,766		224,185
Total liabilities, preferred stock, and stockholders’ equity	Total liabilities, preferred stock, and stockholders’ equity	$	573,157	$	579,101	Total liabilities, preferred stock, and stockholders’ equity	$	557,615	$	579,101

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended ~~June~~September 30, 2022 and 2021

(Unaudited)


		Common Stock					Accumulated deficit				Accumulated other comprehensive income (loss)									Common Stock							Accumulated deficit				Accumulated other comprehensive income (loss)
(in thousands)	(in thousands)	Number of shares	Par value		Additional paid-in capital								Total		(in thousands)		Number of shares				Par value			Additional paid-in capital					Total
Balance at March 31, 2022		43,890	$	439	$	473,072			$	(222,402)			$	(28,081)				$	223,028
Balance as of June 30, 2022																		Balance as of June 30, 2022		43,884		$	439		$	473,019			$	(230,969)			$	(36,167)			$	206,322
Net loss	Net loss	—	—		—		(8,567)				—				(8,567)			Net loss		—		—			—		(2,215)				—				(2,215)

Dividends accrued for preferred stock	Dividends accrued for preferred stock	—	—		(2,658)		—				—				(2,658)			Dividends accrued for preferred stock		—		—			(2,783)		—				—				(2,783)

Share-based compensation expense	Share-based compensation expense	(5)	—		2,606		—				—				2,606			Share-based compensation expense		(2)		—			991		—				—				991
Restricted shares forgiven for taxes		(1)	—		(1)		—				—				(1)

Change in estimate of share-based award vesting																		Change in estimate of share-based award vesting		—		—			(684)		—				—				(684)

Change in fair value of interest rate swap, net of tax of $98		—	—		—		—				373				373
Reclassification of interest rate swap settlement to net loss, net of tax of $8		—	—		—		—				31				31
Change in fair value of interest rate swap, net of tax of $241																		Change in fair value of interest rate swap, net of tax of $241		—		—			—		—				904				904
Reclassification of interest rate swap settlement to net loss, net of tax of $(30)																		Reclassification of interest rate swap settlement to net loss, net of tax of $(30)		—		—			—		—				(116)				(116)
Foreign currency translation loss	Foreign currency translation loss	—	—		—		—				(8,490)				(8,490)			Foreign currency translation loss		—		—			—		—				(7,653)				(7,653)

Balance at June 30, 2022		43,884	$	439	$	473,019	$	(230,969)			$	(36,167)			$	206,322
Balance as of September 30, 2022																		Balance as of September 30, 2022		43,882		$	439		$	470,543	$	(233,184)			$	(43,032)			$	194,766

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)
(in thousands) Number
of
shares Par
value Additional
paid-in
capital Total
Balance at March 31, 2021 43,049 $ 430 $ 479,341 $ (210,788) $ (34,228) $ 234,755
Net loss — — — (5,391) — (5,391)
Dividends accrued for preferred stock — — (2,211) — — (2,211)
Shares issued for option exercises 6 — 48 — — 48
Share-based compensation expense (19) — 1,100 — — 1,100
Restricted shares forgiven for taxes (2) — (18) — — (18)
Change in estimate of share-based award vesting — — (337) — — (337)
Foreign currency translation gain — — — — 4,409 4,409
Balance at 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						Total
Balance as of June 30, 2021	43,034	$	430	$	477,923	$	(216,179)	$	(29,819)	$	232,355
Net loss	—	—		—		(3,377)		—		(3,377)

Dividends accrued for preferred stock	—	—		(2,314)		—		—		(2,314)


Share-based compensation expense	—	—		931		—		—		931




Change in fair value of interest rate swap, net of tax of $53	—	—		—		—		(176)		(176)
Reclassification of interest rate swap settlement to net loss, net of tax of $7	—	—		—		—		22		22
Foreign currency translation loss	—	—		—		—		(2,612)		(2,612)


Balance as of September 30, 2021	43,034	$	430	$	476,540	$	(219,556)	$	(32,585)	$	224,829

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Unaudited)


		Common Stock					Accumulated deficit				Accumulated other comprehensive income (loss)									Common Stock							Accumulated deficit				Accumulated other comprehensive income (loss)
(in thousands)	(in thousands)	Number of shares	Par value		Additional paid-in capital								Total		(in thousands)		Number of shares				Par value			Additional paid-in capital					Total
Balance at December 31, 2021		43,027	$	430	$	474,757			$	(219,100)			$	(31,902)				$	224,185
Balance as of December 31, 2021																		Balance as of December 31, 2021		43,027		$	430		$	474,757			$	(219,100)			$	(31,902)			$	224,185
Net loss	Net loss	—	—				(11,869)				—				(11,869)			Net loss		—		—					(14,084)				—				(14,084)

Dividends accrued for preferred stock	Dividends accrued for preferred stock	—	—		(5,196)		—				—				(5,196)			Dividends accrued for preferred stock		—		—			(7,979)		—				—				(7,979)

Share-based compensation expense	Share-based compensation expense	888	9		3,546		—				—				3,555			Share-based compensation expense		886		9			4,537		—				—				4,546
Restricted shares forgiven for taxes	Restricted shares forgiven for taxes	(31)	—		(88)		—				—				(88)			Restricted shares forgiven for taxes		(31)		—			(88)		—				—				(88)
Change in estimate of share-based award vesting																		Change in estimate of share-based award vesting		—		—			(684)		—				—				(684)

Change in fair value of interest rate swap, net of tax of $414		—	—		—		—				1,560				1,560
Reclassification of interest rate swap settlement to net loss, net of tax of $17		—	—		—		—				65				65
Change in fair value of interest rate swap, net of tax of $655																		Change in fair value of interest rate swap, net of tax of $655		—		—			—		—				2,464				2,464
Reclassification of interest rate swap settlement to net loss, net of tax of $(13)																		Reclassification of interest rate swap settlement to net loss, net of tax of $(13)		—		—			—		—				(51)				(51)
Foreign currency translation loss	Foreign currency translation loss	—	—		—		—				(5,890)				(5,890)			Foreign currency translation loss		—		—			—		—				(13,543)				(13,543)

Balance at June 30, 2022		43,884	$	439	$	473,019	$	(230,969)			$	(36,167)			$	206,322
Balance as of September 30, 2022																		Balance as of September 30, 2022		43,882		$	439		$	470,543	$	(233,184)			$	(43,032)			$	194,766


		Common Stock					Accumulated deficit				Accumulated other comprehensive income (loss)									Common Stock							Accumulated deficit				Accumulated other comprehensive income (loss)
(in thousands)	(in thousands)	Number of shares	Par value		Additional paid-in capital								Total		(in thousands)		Number of shares				Par value			Additional paid-in capital					Total
Balance at December 31, 2020		42,686	$	427	$	493,332			$	(205,875)			$	(33,732)				$	254,152
Balance as of December 31, 2020																		Balance as of December 31, 2020		42,686		$	427		$	493,332			$	(205,875)			$	(33,732)			$	254,152
Net loss	Net loss	—	—		—		(10,304)				—				(10,304)			Net loss		—		—			—		(13,681)				—				(13,681)

Dividends accrued for preferred stock	Dividends accrued for preferred stock	—	—		(16,740)		—				—				(16,740)			Dividends accrued for preferred stock		—		—			(19,054)		—				—				(19,054)

Shares issued for option exercises	Shares issued for option exercises	6	—		48		—				—				48			Shares issued for option exercises		6		—			48		—				—				48
Share-based compensation expense	Share-based compensation expense	394	4		1,982		—				—				1,986			Share-based compensation expense		394		4			2,913		—				—				2,917
Restricted shares forgiven for taxes	Restricted shares forgiven for taxes	(52)	(1)		(362)		—				—				(363)			Restricted shares forgiven for taxes		(52)		(1)			(362)		—				—				(363)
Change in estimate of share-based award vesting	Change in estimate of share-based award vesting	—	—		(337)		—				—				(337)			Change in estimate of share-based award vesting		—		—			(337)		—				—				(337)

Reclassification of interest rate swap settlement to net loss, net of tax of $861		—	—		—		—				2,851				2,851
Foreign currency translation gain		—	—		—		—				1,062				1,062
Change in fair value of interest rate swap, net of tax of $53																		Change in fair value of interest rate swap, net of tax of $53		—		—			—		—				(176)				(176)
Reclassification of interest rate swap settlement to net loss, net of tax of $868																		Reclassification of interest rate swap settlement to net loss, net of tax of $868		—		—			—		—				2,873				2,873
Foreign currency translation loss																		Foreign currency translation loss		—		—			—		—				(1,550)				(1,550)

Balance at June 30, 2021		43,034	$	430	$	477,923	$	(216,179)			$	(29,819)			$	232,355
Balance as of September 30, 2021																		Balance as of September 30, 2021		43,034		$	430		$	476,540	$	(219,556)			$	(32,585)			$	224,829

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss	Net loss	$	(11,869)	$	(10,304)	Net loss	$	(14,084)	$	(13,681)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:					Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	22,769		23,255		Depreciation and amortization	33,962		34,860

Amortization of debt issuance costs and discount	Amortization of debt issuance costs and discount	662		718		Amortization of debt issuance costs and discount	1,021		1,049

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		Loss on extinguishment of debt and write-off of debt issuance costs	—		2,390
Total derivative loss (gain), net of cash settlements		(3,237)		3,973
Total derivative gain, net of cash settlements						Total derivative gain, net of cash settlements	(4,858)		(856)
Share of net income from joint venture, net of cash dividends received	Share of net income from joint venture, net of cash dividends received	1,515		(2,614)		Share of net income from joint venture, net of cash dividends received	2,310		(3,456)
Compensation expense from issuance of share-based awards	Compensation expense from issuance of share-based awards	3,555		1,649		Compensation expense from issuance of share-based awards	3,862		2,580
Deferred income taxes	Deferred income taxes	94		(3,050)		Deferred income taxes	(1,831)		(3,720)
Other	Other	(2,763)		(1,154)		Other	(3,096)		(1,834)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(13,264)		2,685		Accounts receivable	(15,667)		136
Inventories	Inventories	(10,586)		(12,052)		Inventories	(11,314)		(13,252)
Accounts payable	Accounts payable	11,960		9,441		Accounts payable	9,827		7,982
Income taxes receivable and payable, net	Income taxes receivable and payable, net	(475)		(6,326)		Income taxes receivable and payable, net	(403)		(5,171)
Other	Other	(905)		(2,713)		Other	(2,400)		(1,336)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	(2,544)		5,898		Net cash provided by (used in) operating activities	(2,671)		5,691
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	(9,703)		(11,015)		Acquisition of property, plant and equipment	(14,011)		(14,556)
Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	422		74		Proceeds from sale of property, plant, and equipment	460		1,177
Cash paid for post-closing adjustments on sale of business	Cash paid for post-closing adjustments on sale of business	—		(3,880)		Cash paid for post-closing adjustments on sale of business	—		(3,880)
Cash settlements of interest rate swap	Cash settlements of interest rate swap	—		(15,420)		Cash settlements of interest rate swap	—		(15,420)

Net cash used in investing activities	Net cash used in investing activities	(9,281)		(30,241)		Net cash used in investing activities	(13,551)		(32,679)
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	—		(6,981)		Cash paid for debt issuance costs	(136)		(7,360)
Dividends paid		—		—

Proceeds from issuance of preferred stock	Proceeds from issuance of preferred stock	—		61,793		Proceeds from issuance of preferred stock	—		61,793
Redemption of preferred stock	Redemption of preferred stock	—		(122,434)		Redemption of preferred stock	—		(122,434)
Proceeds from long-term debt	Proceeds from long-term debt	20,000		156,000		Proceeds from long-term debt	32,000		166,000
Repayments of long-term debt	Repayments of long-term debt	(19,482)		(77,442)		Repayments of long-term debt	(28,158)		(88,058)
Repayments of short-term debt, net	Repayments of short-term debt, net	—		(1,321)		Repayments of short-term debt, net	—		(1,563)
Other	Other	(1,528)		(2,685)		Other	(2,265)		(3,859)
Net cash provided by (used in) financing activities		(1,010)		6,930
Net cash provided by financing activities						Net cash provided by financing activities	1,441		4,519
Effect of exchange rate changes on cash flows	Effect of exchange rate changes on cash flows	(635)		818		Effect of exchange rate changes on cash flows	(1,324)		(1,058)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(13,470)		(16,595)		Net change in cash and cash equivalents	(16,105)		(23,527)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	28,656		48,138		Cash and cash equivalents at beginning of period	28,656		48,138
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	15,186	$	31,543	Cash and cash equivalents at end of period	$	12,551	$	24,611

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.

Notes to Condensed Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

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, 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, 2021, was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”), which we filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 11, 2022. 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~~nine months ended ~~June~~September 30, 2022 and 2021; financial position as of ~~June~~September 30, 2022 and December 31, 2021; and cash flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, on a basis consistent with our audited consolidated financial statements. 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 prior period amounts have been reclassified to conform to the current year’s presentation.

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 unaudited condensed consolidated 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 2021 Annual Report. The results for the three and ~~six~~nine months ended ~~June~~September 30, 2022, are not necessarily indicative of results for the year ending December 31, 2022, 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 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. The adoption of ASU 2020-06 effective January 1, 2022 did not have a material 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 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. Since we do not have any equity-classified written call options that would be subject to this guidance, the adoption of ASU 2021-04 did not have any impact on our consolidated financial statements and related disclosures during the ~~six~~nine months ended ~~June~~September 30, 2022.

Accounting Standards Not Yet Adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which requires business entities to provide certain annual disclosures when

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they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance. Such disclosures include the nature of the transactions, significant terms and conditions, accounting policies, and affected financial statement line items. ASU 2021-10 may be applied either prospectively or retrospectively. We are in the process of assessing the impact ASU 2021-10 may have on our annual disclosures for the year ending December 31, 2022.

Note 2. Segment Information

Our business is aggregated into the following 2two 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, aerospace, defense, and medical end markets.

These divisions are considered our 2two 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.

The following tables present results of operations by reportable segment.


		Mobile Solutions		Power Solutions		Corporate and Consolidations			Total			Mobile Solutions		Power Solutions		Corporate and Consolidations			Total
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022											Three Months Ended September 30, 2022
Net sales	Net sales	$	73,350	$	52,049	$	(37)	(a)	$	125,362	Net sales	$	76,122	$	51,124	$	51	(a)	$	127,297
Income (loss) from operations	Income (loss) from operations	1,729		1,430		(7,673)			(4,514)		Income (loss) from operations	(474)		2,582		(4,225)			(2,117)
Interest expense	Interest expense								(3,488)		Interest expense								(3,746)
Other	Other								67		Other								1,156
Loss from operations before income taxes and share of net income from joint venture	Loss from operations before income taxes and share of net income from joint venture								$	(7,935)	Loss from operations before income taxes and share of net income from joint venture								$	(4,707)
Three Months Ended June 30, 2021
Three Months Ended September 30, 2021											Three Months Ended September 30, 2021
Net sales	Net sales	$	73,886	$	49,271	$	—		$	123,157	Net sales	$	68,586	$	48,680	$	(22)	(a)	$	117,244
Income (loss) from operations	Income (loss) from operations	2,509		2,875		(6,972)			(1,588)		Income (loss) from operations	(257)		1,252		(5,607)			(4,612)
Interest expense	Interest expense								(3,573)		Interest expense								(3,578)
Other	Other								(1,680)		Other								4,346
Loss from operations before income taxes and share of net income from joint venture	Loss from operations before income taxes and share of net income from joint venture								$	(6,841)	Loss from operations before income taxes and share of net income from joint venture								$	(3,844)


		Mobile Solutions		Power Solutions		Corporate and Consolidations			Total			Mobile Solutions		Power Solutions		Corporate and Consolidations			Total
Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022											Nine Months Ended September 30, 2022
Net sales	Net sales	$	149,420	$	104,060	$	(51)	(a)	$	253,429	Net sales	$	225,542	$	155,184	$	—		$	380,726
Income (loss) from operations	Income (loss) from operations	3,698		1,794		(13,426)			(7,934)		Income (loss) from operations	3,224		4,376		(17,651)			(10,051)
Interest expense	Interest expense								(6,927)		Interest expense								(10,673)
Other	Other								3,063		Other								4,219
Loss from operations before income taxes and share of net income from joint venture	Loss from operations before income taxes and share of net income from joint venture								$	(11,798)	Loss from operations before income taxes and share of net income from joint venture								$	(16,505)
Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021											Nine Months Ended September 30, 2021
Net sales	Net sales	$	151,662	$	98,346	$	(47)	(a)	$	249,961	Net sales	$	220,248	$	147,026	$	(69)	(a)	$	367,205
Income (loss) from operations	Income (loss) from operations	8,599		5,307		(14,516)			(610)		Income (loss) from operations	8,342		6,559		(20,123)			(5,222)
Interest expense	Interest expense								(5,597)		Interest expense								(9,175)
Other	Other								(7,698)		Other								(3,352)
Loss from operations before income taxes and share of net income from joint venture	Loss from operations before income taxes and share of net income from joint venture								$	(13,905)	Loss from operations before income taxes and share of net income from joint venture								$	(17,749)

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

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Note 3. Inventories

Inventories are comprised of the following amounts:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Raw materials	Raw materials	$	32,305	$	27,221	Raw materials	$	32,821	$	27,221
Work in process	Work in process	29,653		24,960		Work in process	29,349		24,960
Finished goods	Finished goods	22,768		22,846		Finished goods	22,002		22,846
Total inventories	Total inventories	$	84,726	$	75,027	Total inventories	$	84,172	$	75,027

Note 4. 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, 2021	Balance as of December 31, 2021	$	25,709	$	63,009	$	88,718	Balance as of December 31, 2021	$	25,709	$	63,009	$	88,718
Amortization	Amortization	(1,677)		(5,496)		(7,173)		Amortization	(2,515)		(8,245)		(10,760)

Balance as of June 30, 2022		$	24,032	$	57,513	$	81,545
Balance as of September 30, 2022								Balance as of September 30, 2022	$	23,194	$	54,764	$	77,958

Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. ~~At June~~As of September 30, 2022, our market capitalization ~~declined to~~remained at a level that was less than the net book value of our stockholders’ equity. The decline in our market capitalization during the nine months ended September 30, 2022 was a triggering event that caused us to perform an impairment ~~analysis~~analyses on our long-lived ~~assets as of June 30, 2022.~~assets. Based on our ~~analysis,~~analyses, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the ~~six~~nine months ended ~~June~~September 30, 2022.

Note 5. 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, 2021	$	34,045
Share of earnings	~~2,511~~3,935
Dividends paid by joint venture	~~(4,026)~~(6,245)
Foreign currency translation loss	~~(1,655)~~(3,542)
Balance as of ~~June~~September 30, 2022	$	~~30,875~~28,193

Note 6. Income Taxes

Our effective tax rate was ~~(13.2)%~~22.7% and ~~(21.9)~~(9.2)% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~3.4%~~(9.8)% and ~~7.1%~~3.5% for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. The effective tax ~~rate~~rates for the three and ~~six~~nine months ended ~~June~~September 30, 2022 ~~differs~~differ 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~~favorably impacted by ~~U.S. tax~~the recording of interest income on the ~~earnings~~Company’s federal income tax refund requested as a result of ~~foreign subsidiaries under~~ the ~~global intangible low-taxed income regime.~~CARES act.

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Note 7. 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 following table presents debt balances as of ~~June~~September 30, 2022 and December 31, 2021.


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Term Loan Facility	Term Loan Facility	$	148,125	$	148,875	Term Loan Facility	$	147,750	$	148,875
ABL Facility	ABL Facility	2,000		—		ABL Facility	6,000		—
International lines of credit and other loans	International lines of credit and other loans	9,306		10,930		International lines of credit and other loans	8,436		10,930
Total principal	Total principal	159,431		159,805		Total principal	162,186		159,805
Less-current maturities of long-term debt	Less-current maturities of long-term debt	3,139		3,074		Less-current maturities of long-term debt	3,150		3,074
Principal, net of current portion	Principal, net of current portion	156,292		156,731		Principal, net of current portion	159,036		156,731
Less-unamortized debt issuance costs and discount (1)	Less-unamortized debt issuance costs and discount (1)	4,975		5,679		Less-unamortized debt issuance costs and discount (1)	4,685		5,679
Long-term debt, net of current portion	Long-term debt, net of current portion	$	151,317	$	151,052	Long-term debt, net of current portion	$	154,351	$	151,052

(1) In addition to this amount, costs of ~~$0.6~~$0.7 million and $0.7 million related to the ABL Facility were recorded in other non-current assets as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

Term Loan Facility

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 ~~June~~September 30, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at ~~8.541%~~9.990%. We have an interest rate swap, which expires in July 2024, that changes the one-month LIBOR to a fixed rate of 1.291% on $60.0 million of the outstanding balance of the 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. On March 3, 2022, we amended our Term Loan Facility, which ~~increases~~increased the quarterly maximum consolidated net leverage ratio. We were in compliance with all requirements under the Term Loan Facility as of ~~June~~September 30, 2022.

The Term Loan Facility was issued at a $3.8 million discount and we capitalized an additional $2.8 million in new debt issuance costs. These costs 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 ~~June~~September 30, 2022, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility was ~~3.00%~~4.56%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility and a 1.875% fee on the amount of letters of credit outstanding. The final maturity date of the ABL Facility is March 22, 2026.

As of ~~June~~September 30, 2022, we had ~~$2.0~~$6.0 million of outstanding borrowings under the ABL Facility, $11.1 million of outstanding letters of credit, and ~~$36.9~~$32.1 million available for future borrowings under the ABL Facility. 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 ~~June~~September 30, 2022.

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Note 8. Leases

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


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
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	$	172	$	113	Operating cash flows used in finance leases	$	262	$	154
Operating cash flows used in operating leases	Operating cash flows used in operating leases	7,543		7,221		Operating cash flows used in operating leases	10,865		10,369
Financing cash flows used in finance leases	Financing cash flows used in finance leases	1,440		2,370		Financing cash flows used in finance leases	2,177		3,545
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities	395		636		Right-of-use assets obtained in exchange for new finance lease liabilities	908		1,541
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)	2,178		—		Right-of-use assets obtained in exchange for new operating lease liabilities (1)	3,835		—

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

Note 9. Commitments and Contingencies

Brazil ICMS Tax Matter

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

We believe that we have substantial legal and factual defenses, and we plan to defend our interests in this matter vigorously. The matter encompasses several lawsuits filed with the Brazilian courts requesting declaratory actions that no tax is due or seeking a stay of execution on the collection of the tax. In 2018, we obtained a favorable decision in one of the declaratory actions for which the period for appeal has expired. We have filed actions in each court requesting dismissal of the matter based on the earlier court action. 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 do not 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 ~~June~~September 30, 2022.

Securities Offering Matter

~~As previously disclosed,~~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 us, certain of our current and former officers and directors, and each of the underwriters involved in our public offering and sale of 14.4 million shares of our 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 our effective shelf registration statement on Form S-3 (File No. 333-216737) (the “Offering”). The amended complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 in connection with the Offering.

On July 25, 2022, the parties filed a Stipulation of Settlement, which is subject to court approval, to settle the securities offering action. Under the terms of the Stipulation of Settlement, the Company and/or its insurance carrier will make a cash payment to the plaintiff in the amount of $9.5 million (the “Settlement Amount”), in exchange for which the Company and the other named defendants will be released from all claims related to the securities offering action. As of ~~June~~September 30, 2022, we have ~~previously~~

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previously paid covered expenses totaling $1.0 million meeting our directors' and officers' retention requirement and therefore the Settlement Amount will be covered and paid by our directors' and officers' insurance carrier.

Other Legal Matters

On April 25, 2022, we reached an agreement to settle breach of contract claims brought by a former customer regarding the sale of products by us in 2016. Under the agreement, we ~~will pay~~are paying $1.8 million to the customer in specified installments through July 2023. The $1.8 million settlement is included in the Other operating expense (income), net line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

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

Note 10. 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 an initial liquidation preference of $1,000 per share and is redeemable at our option in cash at a redemption price equal to the 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 liquidation preference per share effective on the dividend date increases by 12.0% per year. OnBeginning 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 15 discusses the accounting for these features.

As of ~~June~~September 30, 2022, the carrying value of the Series D Preferred Stock shares was ~~$59.0~~$61.8 million, which included ~~$12.3~~$15.1 million of accumulated unpaid and deemed dividends. The following table presents the change in the Series D Preferred Stock carrying value during the ~~six~~nine months ended ~~June~~September 30, 2022.


	Six Months Ended June 30, 2022
~~Beginning balance~~Balance as of December 31, 2021	$	53,807



Accrual of in-kind dividends	~~4,348~~6,620
Amortization	~~848~~1,359

~~Ending balance~~Balance as of September 30, 2022	$	~~59,003~~61,786

Note 11. 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. During the ~~six~~nine months ended ~~June~~September 30, 2022, we received equipment from a customer as part of the selling price of goods transferred. This noncash consideration was recognized as revenue equal to the fair value of the equipment received.

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The following tables summarize revenue by customer geographical region.


		Three Months Ended June 30, 2022
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	United States and Puerto Rico	$	35,954	$	40,377	$	(37)	$	76,294	United States and Puerto Rico	$	35,419	$	39,579	$	51	$	75,049
China	China	8,764		1,233		—		9,997		China	12,839		1,378		—		14,217
Brazil	Brazil	11,293		312		—		11,605		Brazil	14,109		137		—		14,246
Mexico	Mexico	8,087		4,358		—		12,445		Mexico	5,185		4,769		—		9,954
Germany	Germany	1,121		73		—		1,194		Germany	1,432		84		—		1,516
Poland	Poland	1,158		1		—		1,159		Poland	1,100		2		—		1,102
Other	Other	6,973		5,695		—		12,668		Other	6,038		5,175		—		11,213
Total net sales	Total net sales	$	73,350	$	52,049	$	(37)	$	125,362	Total net sales	$	76,122	$	51,124	$	51	$	127,297

Three Months Ended June 30, 2021
Mobile
Solutions Power
Solutions Intersegment
Sales
Eliminations Total
United States and Puerto Rico $ 35,284 $ 39,424 $ — $ 74,708
China 13,219 1,282 — 14,501
Brazil 9,985 343 — 10,328
Mexico 4,829 4,349 — 9,178
Germany 1,369 96 — 1,465
Poland 904 3 — 907
Other 8,296 3,774 — 12,070
Total net sales $ 73,886 $ 49,271 $ — $ 123,157


		Six Months Ended June 30, 2022
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Three Months Ended September 30, 2021										Three Months Ended September 30, 2021	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	United States and Puerto Rico	$	73,764	$	80,863	$	(51)	$	154,576	United States and Puerto Rico	$	35,812	$	38,313	$	(22)	$	74,103
China	China	21,316		2,477		—		23,793		China	10,849		749		—		11,598
Brazil	Brazil	22,013		657		—		22,670		Brazil	8,951		192		—		9,143
Mexico	Mexico	13,151		9,099		—		22,250		Mexico	4,981		4,627		—		9,608
Germany	Germany	2,404		135		—		2,539		Germany	1,080		159		—		1,239
Poland	Poland	2,498		5		—		2,503		Poland	698		3		—		701
Other	Other	14,274		10,824		—		25,098		Other	6,215		4,637		—		10,852
Total net sales	Total net sales	$	149,420	$	104,060	$	(51)	$	253,429	Total net sales	$	68,586	$	48,680	$	(22)	$	117,244


		Six Months Ended June 30, 2021
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2022	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	United States and Puerto Rico	$	72,722	$	79,230	$	(47)	$	151,905	United States and Puerto Rico	$	109,183	$	120,442	$	—	$	229,625
China	China	27,633		2,788		—		30,421		China	34,155		3,855		—		38,010
Brazil	Brazil	19,653		535		—		20,188		Brazil	36,122		794		—		36,916
Mexico	Mexico	9,844		7,746		—		17,590		Mexico	18,336		13,868		—		32,204
Germany	Germany	3,136		260		—		3,396		Germany	3,836		219		—		4,055
Poland	Poland	2,084		7		—		2,091		Poland	3,598		7		—		3,605
Other	Other	16,590		7,780		—		24,370		Other	20,312		15,999		—		36,311
Total net sales	Total net sales	$	151,662	$	98,346	$	(47)	$	249,961	Total net sales	$	225,542	$	155,184	$	—	$	380,726

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Nine Months Ended September 30, 2021	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	$	108,534	$	117,543	$	(69)	$	226,008
China	38,482		3,537		—		42,019
Brazil	28,604		727		—		29,331
Mexico	14,825		12,373		—		27,198
Germany	4,216		419		—		4,635
Poland	2,782		10		—		2,792
Other	22,805		12,417		—		35,222
Total net sales	$	220,248	$	147,026	$	(69)	$	367,205

The following tables summarize revenue by customer industry. Our products in the automotive industry include high-precision components and assemblies for electric power steering systems, electric braking, electric motors, fuel systems, emissions control, transmissions, moldings, stampings, sensors, and electrical contacts. Our products in the general industrial industry

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include high-precision metal and plastic components for a variety of industrial applications including diesel industrial motors, 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 components used in smart meters, charging stations, circuit breakers, transformers, electrical contact assemblies, precision stampings, welded contact assemblies, and specification plating and surface finishing.


		Three Months Ended June 30, 2022
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	Automotive	$	48,850	$	9,728	$	—	$	58,578	Automotive	$	51,388	$	10,822	$	—	$	62,210
General Industrial	General Industrial	20,532		16,640		—		37,172		General Industrial	19,546		14,751		—		34,297
Residential/Commercial Electrical	Residential/Commercial Electrical	—		18,757		—		18,757		Residential/Commercial Electrical	—		17,025		—		17,025
Other	Other	3,968		6,924		(37)		10,855		Other	5,188		8,526		51		13,765
Total net sales	Total net sales	$	73,350	$	52,049	$	(37)	$	125,362	Total net sales	$	76,122	$	51,124	$	51	$	127,297


		Three Months Ended June 30, 2021
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Three Months Ended September 30, 2021										Three Months Ended September 30, 2021	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	Automotive	$	46,247	$	9,657	$	—	$	55,904	Automotive	$	43,486	$	9,892	$	—	$	53,378
General Industrial	General Industrial	24,449		15,057		—		39,506		General Industrial	21,396		15,186		—		36,582
Residential/Commercial Electrical	Residential/Commercial Electrical	—		16,219		—		16,219		Residential/Commercial Electrical	—		16,078		—		16,078
Other	Other	3,190		8,338		—		11,528		Other	3,704		7,524		(22)		11,206
Total net sales	Total net sales	$	73,886	$	49,271	$	—	$	123,157	Total net sales	$	68,586	$	48,680	$	(22)	$	117,244


		Six Months Ended June 30, 2022
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Nine Months Ended September 30, 2022										Nine Months Ended September 30, 2022	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	Automotive	$	99,446	$	19,806	$	—	$	119,252	Automotive	$	150,834	$	30,628	$	—	$	181,462
General Industrial	General Industrial	42,337		32,975		—		75,312		General Industrial	61,883		47,726		—		109,609
Residential/Commercial Electrical	Residential/Commercial Electrical	—		35,956		—		35,956		Residential/Commercial Electrical	—		52,981		—		52,981
Other	Other	7,637		15,323		(51)		22,909		Other	12,825		23,849		—		36,674
Total net sales	Total net sales	$	149,420	$	104,060	$	(51)	$	253,429	Total net sales	$	225,542	$	155,184	$	—	$	380,726


		Six Months Ended June 30, 2021
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Nine Months Ended September 30, 2021										Nine Months Ended September 30, 2021	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	Automotive	$	96,391	$	20,082	$	—	$	116,473	Automotive	$	139,877	$	29,974	$	—	$	169,851
General Industrial	General Industrial	48,759		30,431		—		79,190		General Industrial	70,155		45,617		—		115,772
Residential/Commercial Electrical	Residential/Commercial Electrical	—		31,573		—		31,573		Residential/Commercial Electrical	—		47,651		—		47,651
Other	Other	6,512		16,260		(47)		22,725		Other	10,216		23,784		(69)		33,931
Total net sales	Total net sales	$	151,662	$	98,346	$	(47)	$	249,961	Total net sales	$	220,248	$	147,026	$	(69)	$	367,205

Deferred Revenue

Deferred revenue relates to payments received in advance of performance under the contract and recognized as revenue as (or when) we perform under the contract. The balance of deferred revenue was $0.6 million and $0.5 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Revenue recognized for performance obligations satisfied or partially satisfied during the ~~six~~nine months ended ~~June~~September 30, 2022 included $0.5 million that was included in deferred revenue as of December 31, 2021.

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Transaction Price Allocated to Future Performance Obligations

We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of ~~June~~September 30, 2022, 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.

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Note 12. Share-Based Compensation

The following table lists the components of share-based compensation expense by type of award, which is recognized in the “Selling, general, and administrative expense” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Stock options	Stock options	$	31	$	59	$	87	$	148	Stock options	$	37	$	59	$	124	$	207
Restricted stock	Restricted stock	2,158		591		2,762		1,139		Restricted stock	471		521		3,233		1,660
Performance share units	Performance share units	417		450		706		699		Performance share units	483		351		1,189		1,050
Change in estimate of share-based award vesting (1)	Change in estimate of share-based award vesting (1)	—		(337)		—		(337)		Change in estimate of share-based award vesting (1)	(684)		—		(684)		(337)
Share-based compensation expense	Share-based compensation expense	$	2,606	$	763	$	3,555	$	1,649	Share-based compensation expense	$	307	$	931	$	3,862	$	2,580

_______________________________

(1)Amounts reflect the decrease in share-based compensation expense based on the change in estimate of the probability of vesting of share-based awards.

Stock Options

The following table presents stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2022.


		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, 2022	Outstanding at January 1, 2022	621	$	12.24					Outstanding at January 1, 2022	621	$	12.24

Expired	Expired	(79)	9.71						Expired	(79)	9.71
Outstanding at June 30, 2022		542	$	12.61	4.1 years	$	—	(1)
Exercisable at June 30, 2022		515	$	12.77	3.9 years	$	—	(1)
Outstanding at September 30, 2022									Outstanding at September 30, 2022	542	$	12.61	3.6 years	$	—	(1)
Exercisable at September 30, 2022									Exercisable at September 30, 2022	515	$	12.77	3.4 years	$	—	(1)

_______________________________

(1)The aggregate intrinsic value is the sum of intrinsic values for each exercisable individual option grant. The intrinsic value is the amount by which the closing market price of our stock at ~~June~~September 30, 2022 was greater than the exercise price of any individual option grant.

Restricted Stock

During the ~~six~~nine months ended ~~June~~September 30, 2022, we granted ~~897,000~~897 thousand shares of restricted stock to non-executive directors, officers and certain other key employees under the NN, Inc. 2019 Omnibus Incentive Plan (“2019 Omnibus Plan”). The shares of restricted stock granted during the ~~six~~nine months ended ~~June~~September 30, 2022, 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 ~~six~~nine months ended ~~June~~September 30, 2022, was $3.31 per share. Total grant date fair value of restricted stock that vested in the ~~six~~nine months ended ~~June~~September 30, 2022, was $2.1 million.

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The following table presents the status of unvested restricted stock awards as of ~~June~~September 30, 2022 and changes during the ~~six~~nine 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, 2022	Unvested at January 1, 2022	469	$	7.28	Unvested at January 1, 2022	469	$	7.28
Granted	Granted	897	3.31		Granted	897	3.31
Vested	Vested	(291)	7.05		Vested	(291)	7.05
Forfeited	Forfeited	(9)	4.73		Forfeited	(11)	4.37
Unvested at June 30, 2022		1,066	$	4.02
Unvested at September 30, 2022					Unvested at September 30, 2022	1,064	$	4.02

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. Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”). TSR Awards granted in 2022 were made pursuant to the 2019 Omnibus Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”). ROIC Awards granted in 2022 were made pursuant to the NN, Inc. 2022 Omnibus Incentive Plan and a Performance Share Unit Agreement.

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 a specified 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 3 years 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 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.

The following table presents the goals with respect to PSUs granted in 2022.

Threshold
Performance
(25% of Shares)

Target Performance
(100% of Shares)

Maximum Performance
(150% of Shares)

TSR Awards

25th Percentile

55th Percentile

75th Percentile

Threshold
Performance
(50% of Shares)

Target Performance
(100% of Shares)

Maximum Performance
(150% of Shares)

ROIC Awards

6.4%

8.6%

10.0%

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 status of unvested PSUs as of ~~June~~September 30, 2022 and changes during the ~~six~~nine 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, 2022	Nonvested at January 1, 2022	194	$	9.59	228	$	8.14	Nonvested at January 1, 2022	194	$	9.59	228	$	8.14
Granted	Granted	382	2.53		408	2.62		Granted	382	2.53		408	2.62

Nonvested at June 30, 2022		576	$	4.90	636	$	4.60
Nonvested at September 30, 2022								Nonvested at September 30, 2022	576	$	4.90	636	$	4.60

Note 13. Accumulated Other Comprehensive Income

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


		Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total			Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total
Balance at March 31, 2022		$	(29,416)	$	1,698	$	(363)	$	(28,081)
Balance as of June 30, 2022										Balance as of June 30, 2022	$	(37,906)	$	2,207	$	(468)	$	(36,167)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(8,490)		471		(98)		(8,117)		Other comprehensive income (loss) before reclassifications	(7,653)		1,145		(241)		(6,749)
Amounts reclassified from AOCI to interest expense (2)	Amounts reclassified from AOCI to interest expense (2)	—		38		(7)		31		Amounts reclassified from AOCI to interest expense (2)	—		(146)		30		(116)

Net other comprehensive income (loss)	Net other comprehensive income (loss)	(8,490)		509		(105)		(8,086)		Net other comprehensive income (loss)	(7,653)		999		(211)		(6,865)
Balance at June 30, 2022		$	(37,906)	$	2,207	$	(468)	$	(36,167)
Balance as of September 30, 2022										Balance as of September 30, 2022	$	(45,559)	$	3,206	$	(679)	$	(43,032)

Balance at March 31, 2021		$	(34,228)	$	—	$	—	$	(34,228)

Balance as of June 30, 2021										Balance as of June 30, 2021	$	(29,819)	$	—	$	—	$	(29,819)
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications	(2,612)		(229)		53		(2,788)
Amounts reclassified from AOCI to interest expense (2)										Amounts reclassified from AOCI to interest expense (2)	—		29		(7)		22

Net other comprehensive income (loss)	Net other comprehensive income (loss)	4,409		—		—		4,409		Net other comprehensive income (loss)	(2,612)		(200)		46		(2,766)
Balance at June 30, 2021		$	(29,819)	$	—	$	—	$	(29,819)
Balance as of September 30, 2021										Balance as of September 30, 2021	$	(32,431)	$	(200)	$	46	$	(32,585)


		Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total			Foreign Currency Translation		Interest rate swap		Income taxes (1)		Total
Balance at December 31, 2021		$	(32,016)	$	151	$	(37)	$	(31,902)
Balance as of December 31, 2021										Balance as of December 31, 2021	$	(32,016)	$	151	$	(37)	$	(31,902)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(5,890)		1,974		(414)		(4,330)		Other comprehensive income (loss) before reclassifications	(13,543)		3,119		(655)		(11,079)
Amounts reclassified from AOCI to interest expense (2)	Amounts reclassified from AOCI to interest expense (2)	—		82		(17)		65		Amounts reclassified from AOCI to interest expense (2)	—		(64)		13		(51)

Net other comprehensive income (loss)	Net other comprehensive income (loss)	(5,890)		2,056		(431)		(4,265)		Net other comprehensive income (loss)	(13,543)		3,055		(642)		(11,130)
Balance at June 30, 2022		$	(37,906)	$	2,207	$	(468)	$	(36,167)
Balance as of September 30, 2022										Balance as of September 30, 2022	$	(45,559)	$	3,206	$	(679)	$	(43,032)

Balance at December 31, 2020		$	(30,881)	$	(3,712)	$	861	$	(33,732)
Balance as of December 31, 2020										Balance as of December 31, 2020	$	(30,881)	$	(3,712)	$	861	$	(33,732)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	1,062		—		—		1,062		Other comprehensive income (loss) before reclassifications	(1,550)		(229)		53		(1,726)

Amounts reclassified from AOCI to interest expense (2)										Amounts reclassified from AOCI to interest expense (2)	—		29		(7)		22
Amounts reclassified from AOCI to loss on interest rate swap (3)	Amounts reclassified from AOCI to loss on interest rate swap (3)	—		3,712		(861)		2,851		Amounts reclassified from AOCI to loss on interest rate swap (3)	—		3,712		(861)		2,851
Net other comprehensive income (loss)	Net other comprehensive income (loss)	1,062		3,712		(861)		3,913		Net other comprehensive income (loss)	(1,550)		3,512		(815)		1,147
Balance at June 30, 2021		$	(29,819)	$	—	$	—	$	(29,819)
Balance as of September 30, 2021										Balance as of September 30, 2021	$	(32,431)	$	(200)	$	46	$	(32,585)

______________________

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

(2) Represents interest rate swap settlements of effective hedge.

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

Note 14. 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

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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.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net loss	Net loss	$	(8,567)	$	(5,391)	$	(11,869)	$	(10,304)	Net loss	$	(2,215)	$	(3,377)	$	(14,084)	$	(13,681)
Less: Preferred stock cumulative dividends and deemed dividends	Less: Preferred stock cumulative dividends and deemed dividends	(2,658)		(2,211)		(5,196)		(16,740)		Less: Preferred stock cumulative dividends and deemed dividends	(2,783)		(2,314)		(7,979)		(19,054)

Numerator for basic and diluted undistributed net loss per common share (1)	Numerator for basic and diluted undistributed net loss per common share (1)	$	(11,225)	$	(7,602)	$	(17,065)	$	(27,044)	Numerator for basic and diluted undistributed net loss per common share (1)	$	(4,998)	$	(5,691)	$	(22,063)	$	(32,735)

Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	43,885		43,067		43,599		42,952		Weighted average common shares outstanding	43,884		43,034		43,695		42,980
Adjustment for unvested restricted common stock	Adjustment for unvested restricted common stock	(1,070)		(524)		(844)		(450)		Adjustment for unvested restricted common stock	(1,065)		(476)		(918)		(459)
Adjustment for 2021 Warrants outstanding (2)	Adjustment for 2021 Warrants outstanding (2)	1,893		1,897		1,894		1,059		Adjustment for 2021 Warrants outstanding (2)	1,892		1,897		1,893		1,341
Shares used to calculate net loss per share, basic and diluted	Shares used to calculate net loss per share, basic and diluted	44,708		44,440		44,649		43,561		Shares used to calculate net loss per share, basic and diluted	44,711		44,455		44,670		43,862

Per common share net loss:	Per common share net loss:									Per common share net loss:

Basic and diluted net loss per common share	Basic and diluted net loss per common share	$	(0.25)	$	(0.17)	$	(0.38)	$	(0.62)	Basic and diluted net loss per common share	$	(0.11)	$	(0.13)	$	(0.49)	$	(0.75)
Cash dividends declared per common share	Cash dividends declared per common share	$	—	$	—	$	—	$	—	Cash dividends declared per common share	$	—	$	—	$	—	$	—

(1) Preferred Stock does not participate in losses.

(2) Weighted average 2021 Warrants outstanding are included in shares outstanding for calculation of basic earnings per share because they are exercisable at an exercise price of $0.01 per share, subject to certain adjustments (see Note 15).

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 June 30,		Six Months Ended June 30,			Three Months Ended September 30,		Nine Months Ended September 30,
		2022	2021	2022	2021		2022	2021	2022	2021
Options	Options	546	825	573	843	Options	542	752	563	812
2019 Warrants	2019 Warrants	1,500	1,500	1,500	1,500	2019 Warrants	1,500	1,500	1,500	1,500

		2,046	2,325	2,073	2,343		2,042	2,252	2,063	2,312

We have elected to allocate undistributed income to participating securities based on year-to-date results. As there was no undistributed income for the ~~six~~nine months ended ~~June~~September 30, 2022, no such allocation was necessary. In addition, given the undistributed loss in the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, options and the 2019 Warrants are considered anti-dilutive and were excluded from the calculation of diluted net 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 ~~June~~

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September 30, 2022, and $7.93 to $25.16 for the three months ended ~~June~~September 30, 2021. 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 ~~six~~nine months ended ~~June~~September 30, 2022, and $7.93 to $25.16 for ~~six~~nine months ended ~~June~~September 30, 2021. The 2019 Warrants excluded from the calculation of diluted net loss per share for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, had a per share exercise price of $11.49.

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Note 15. 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 2021 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 ~~June~~September 30, 2022, 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, which was redeemed in March 2021. The following feature was recorded as a derivative.

•Warrants. In conjunction with our placement of the Series B Preferred Stock in December 2019, we issued detachable warrants to purchase up to 1.5 million shares of our common stock (the “2019 Warrants”), which are exercisable, in full or in part, at any time prior to December 11, 2026, at an exercise price of $11.49 per share.

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. In conjunction with our placement of the Series D Preferred Stock, we issued detachable warrants to purchase up to 1.9 million shares of our common stock. The 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.

The following tables show the liabilities measured at fair value for the Preferred Stock derivatives as of ~~June~~September 30, 2022 and December 31, 2021.

Fair Value Measurements as of June 30, 2022

Fair Value Measurements as of September 30, 2022

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 non-current liabilities

4,788

—

199

Derivative liability - other non-current liabilities

3,230

—

136

Fair Value Measurements as of December 31, 2021

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 non-current liabilities

7,771

—

453

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The following table presents the change in the Preferred Stock derivatives during the ~~six~~nine months ended ~~June~~September 30, 2022.


	~~Six Months Ended June 30, 2022~~
~~Beginning balance~~Balance as of December 31, 2021	$	8,224

Change in fair value (1)	~~(3,237)~~(4,858)

~~Ending balance~~Balance as of September 30, 2022	$	~~4,987~~3,366

(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 3% to 10% as of ~~June~~September 30, 2022.

The fair value of the 2019 Warrants is determined using a valuation model 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 2.9 years as of ~~June~~September 30, 2022, and 3.6 years as of December 31, 2021.

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.

Interest Rate Swaps

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt. We utilize fixed-rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable rate debt.

On July 22, 2021, we entered into a 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 “2021 Swap”). The 2021 Swap has a notional amount of $60.0 million and a maturity date of July 31, 2024. The objective of the 2021 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 2021 Swap as a cash flow hedge at inception. Cash settlements of the 2021 Swap are recognized in interest expense.

On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575% (the “2019 Swap”). On March 22, 2021, we terminated the 2019 Swap with a $13.7 million cash payment in connection with the extinguishment of our previously outstanding long-term variable-rate debt. The 2019 Swap was designated as a cash flow hedge at inception. However, in the fourth quarter of 2020, the 2019 Swap no longer qualified as an effective hedge, and subsequent changes in fair value of the 2019 Swap were recognized in earnings. Amounts recognized in earnings related to the 2019 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 the effect of the interest rate swaps on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Interest expense (1)	Interest expense (1)	$	38	$	—	$	82	$	—	Interest expense (1)	$	(146)	$	29	$	(64)	$	29
Derivative payments on interest rate swap (2)	Derivative payments on interest rate swap (2)	—		—		—		1,717		Derivative payments on interest rate swap (2)	—		—		—		1,717
Loss on interest rate swap (2)	Loss on interest rate swap (2)	—		—		—		2,033		Loss on interest rate swap (2)	—		—		—		2,033

(1) Represents settlements on the interest rate swaps while the hedges are effective.

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(2) Represents settlements and changes in fair value on the 2019 Swap.

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The following tables present the assets and liabilities measured at fair value on a recurring basis for the interest rate swaps as of ~~June~~September 30, 2022 and December 31, 2021.

Fair Value Measurements as of ~~June~~September 30, 2022

Description

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs
(Level 3)

Derivative asset - other current assets

—

~~1,078~~1,783

—

Derivative asset - other non-current assets

—

~~1,133~~1,427

—

Total

—

~~2,211~~3,210

—


	Fair Value Measurements as of December 31, 2021
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Derivative asset - other non-current assets	$	—	$	284	$	—
Derivative liability - other current liabilities	—		(129)		—

Total	$	—	$	155	$	—

The inputs for determining fair value of the interest rate swaps 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.

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 7 to these Notes to Condensed Consolidated Financial Statements approximated carrying value as of ~~June~~September 30, 2022 and December 31, 2021, respectively. These fair values represent Level 2 under the three-tier hierarchy described above. The carrying value of this fixed-rate debt was ~~$9.3~~$8.4 million and $10.9 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of NN, Inc. and its consolidated subsidiaries for the three and nine months ended September 30, 2022. The financial information as of September 30, 2022, should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021, contained in our Annual Report on Form 10-K for the year ended December 31, 2021, and the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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, 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 our financial condition, business operations and liquidity; competitive influences; risks that current customers will commence or increase captive production; risks of capacity underutilization; quality issues; material changes in the costs and availability of raw materials; economic, social, political and geopolitical instability, currency fluctuation, and other risks of doing business outside of the United States; inflationary pressures and changes in the cost or availability of materials, supply chain shortages and disruptions, and the availability of labor; our dependence on certain major 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; the impact of climate change on our operations; cyber liability or potential liability for breaches of our or our service providers’ information technology systems or business operations disruptions; 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 2021 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 ~~six~~nine months ended ~~June~~September 30, 2022, 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~~Macroeconomic Conditions

We continue to monitor the ongoing impacts of current macroeconomic and geopolitical events, including changing conditions from the COVID-19 ~~Pandemic~~pandemic, the on-going Russia-Ukraine conflict, inflationary cost pressures, rising interest rates, supply chain disruptions, and labor shortages.

The COVID-19 pandemic ~~continues~~and governmental responses thereto, including current COVID-19 lockdowns in China, continue to impact our business operations and our customers' and suppliers' ability to operate at normal levels. Disruptions in normal operating levels continue to create supply chain disruptions and inflationary cost pressures within our end-markets. We ~~anticipate supply chain constraints and the inflationary environment will continue during 2022.~~

The spread of COVID-19 and the responses thereto have created, and could continue to create, a disruption in the manufacturing, delivery, and overall supply chain of automobile manufacturers and suppliers, as well as disruption within the power industry. During the first half of 2022, production continued to be impacted by disruptions of global supply chains, which have caused challenges in obtaining raw materials we use in the manufacture of some of our products. In addition, power shortages in China have resulted in widespread blackouts, often without any or little notice. These blackouts caused us and other manufacturers in the region to shut down production until power was restored. Supply chain and COVID-19 related disruptions are expected to continue during 2022.

Inflation triggered by the unprecedented economic impact of the COVID-19 pandemic and current geopolitical instability has increased our manufacturing costs, particularly labor and materials, in 2022 and is expected to continue into future periods.

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~~We have undertaken a number of permanent~~anticipate that supply chain constraints and ~~temporary actions~~the inflationary environment, as impacted by the COVID-19 pandemic, will continue through 2022 and beyond.

The Russia-Ukraine conflict also continues to ~~manage~~create volatility in global financial and energy markets, creating energy and supply chain shortages, adding to the ~~evolving situation.~~inflationary pressures in the global economy. We continue to ~~streamline facilities and implement cost savings initiatives. Capital expenditures and travel costs remain at relatively low levels.~~

~~We are focused~~actively work with our suppliers to minimize impacts of supply shortages on our manufacturing capabilities. Although our business has not been materially impacted by the ~~health and safety~~ongoing Russia-Ukraine conflict as of the date of this filing, it is impossible to predict the extent to which our operations, or those of our ~~employees,~~ customers ~~and~~or suppliers, and have implemented processes to ensure a safe environment for our employees and any visitors to our facilities, including providing personal protective equipment and establishing social distancing protocols.

~~These processes include recommendations based on guidelines from~~will be impacted, or the ~~Centers for Disease Control and Prevention and~~ways in which the ~~World Health Organization. The health and safety of our employees remains our top priority. While we are actively promoting vaccination among our employees, vaccination status~~conflict may affect workforce availability ranging from absences for vaccinations, booster shots, and recovery from side-effects. We have implemented training and recruiting programs to address labor shortages, but, significant workforce availability challenges could have a material effect on our business operations, financial results, liquidity, and financial position.

~~COVID-19 and its impacts are unprecedented and continuously evolving, and the long-term impacts to~~impact our business, financial condition, results of operations and cash ~~flows~~flows.

The U.S. economy is experiencing broad and rapid inflation and rising interest rates, as well as supply issues in material, services and labor due to economic policy, the COVID-19 pandemic and, more recently, the Russia-Ukraine conflict. These impacts are ~~still uncertain.~~likely to persist through 2022 and beyond. We cannot predict the impact on the Company’s end-markets or input costs nor the ability of the Company to recover cost increases through pricing.

Three Months Ended ~~June~~September 30, 2022 compared to the Three Months Ended ~~June~~September 30, 2021

Consolidated Results


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	125,362	$	123,157	$	2,205			Net sales	$	127,297	$	117,244	$	10,053
Organic growth	Organic growth							$	2,700	Organic growth							$	12,226
Foreign exchange effects	Foreign exchange effects							$	(495)	Foreign exchange effects							$	(2,173)
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	103,889		99,797		$	4,092			Cost of sales (exclusive of depreciation and amortization shown separately below)	108,033		98,642		$	9,391
Selling, general, and administrative expense	Selling, general, and administrative expense	14,794		13,585		1,209				Selling, general, and administrative expense	10,205		12,181		(1,976)

Depreciation and amortization	Depreciation and amortization	11,340		11,687		(347)				Depreciation and amortization	11,193		11,605		(412)

Other operating income, net	Other operating income, net	(147)		(324)		177				Other operating income, net	(17)		(572)		555
Loss from operations	Loss from operations	(4,514)		(1,588)		(2,926)				Loss from operations	(2,117)		(4,612)		2,495
Interest expense	Interest expense	3,488		3,573		(85)				Interest expense	3,746		3,578		168

Other expense (income), net		(67)		1,680		(1,747)
Other income, net										Other income, net	(1,156)		(4,346)		3,190
Loss before benefit (provision) for income taxes and share of net income from joint venture	Loss before benefit (provision) for income taxes and share of net income from joint venture	(7,935)		(6,841)		(1,094)				Loss before benefit (provision) for income taxes and share of net income from joint venture	(4,707)		(3,844)		(863)
Benefit (provision) for income taxes	Benefit (provision) for income taxes	(1,051)		231		(1,282)				Benefit (provision) for income taxes	1,068		(375)		1,443
Share of net income from joint venture	Share of net income from joint venture	419		1,219		(800)				Share of net income from joint venture	1,424		842		582

Net loss	Net loss	$	(8,567)	$	(5,391)	$	(3,176)			Net loss	$	(2,215)	$	(3,377)	$	1,162

Net Sales. Net sales increased by ~~$2.2~~$10.1 million, or ~~1.8%~~8.6%, during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to increased pricing ~~to recover certain inflationary costs~~ and ~~underutilized fixed costs caused by lower-than-expected customer demand. These increases were partially offset by lower~~higher demand in Mobile Solutions, ~~which was impacted~~partially offset by ~~the war in Ukraine, COVID disruptions in China, continued supply chain disruptions and~~ unfavorable foreign exchange effects of ~~$0.5~~$2.2 million.

Cost of Sales. Cost of sales increased by ~~$4.1~~$9.4 million, or ~~4.1%~~9.5%, during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to inflationary costs and unfavorable overhead absorption during the quarter, partially offset by ~~lower sales volume.~~favorable foreign exchange effects.

Selling, General, and Administrative Expense. Selling, general, and administrative expense ~~increased~~decreased by ~~$1.2~~$2.0 million during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to ~~legal fees related to litigation, higher~~lower incentive and stock compensation ~~expense and higher professional fees. These increases were partially offset~~expense.

Other Operating Income, Net. Other operating income, net changed unfavorably by $0.6 million during the ~~reduction in severance and retention costs incurred~~three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to a gain on the sale of a facility in the ~~prior year.~~third quarter of 2021.

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Interest Expense. Interest expense ~~decreased~~increased by ~~$0.1~~$0.2 million during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to higher interest rates, partially offset by favorable interest rate swap settlements and a higher amount of interest expense that was capitalized in the current quarter compared with the ~~second~~third quarter of 2021.


		Three Months Ended June 30,					Three Months Ended September 30,
		2022		2021			2022		2021
Interest on debt	Interest on debt	$	3,109	$	3,110	Interest on debt	$	3,639	$	3,146
Interest rate swap settlements	Interest rate swap settlements	38		—		Interest rate swap settlements	(146)		32
Amortization of debt issuance costs and discount	Amortization of debt issuance costs and discount	330		313		Amortization of debt issuance costs and discount	359		331
Capitalized interest	Capitalized interest	(175)		(80)		Capitalized interest	(272)		(89)
Other	Other	186		230		Other	166		158
Total interest expense	Total interest expense	$	3,488	$	3,573	Total interest expense	$	3,746	$	3,578

Other ~~Expense,~~Income, Net. Other ~~expense (income),~~income, net changed ~~favorably~~unfavorably by ~~$1.7~~$3.2 million during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, due to lower noncash derivative mark-to-market gains ~~during 2022 and the impact of a litigation settlement reached~~recognized during the ~~second~~current quarter compared with the third quarter of 2021. ~~These impacts were partially offset by unfavorable foreign exchange effects associated with intercompany borrowings.~~

Benefit (Provision) For Income Taxes. Our effective tax rate was ~~(13.2)~~22.7% for the three months ended September 30, 2022, compared to (9.8)% for the three months ended ~~June 30, 2022, compared to 3.4% for the three months ended June~~September 30, 2021. The rate for the three months ended ~~June~~September 30, 2022 was unfavorably impacted due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the 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. The effective tax rate was favorably impacted by the recording of interest income on the Company’s federal income tax refund requested as a result of the CARES act.

Share of Net Income from Joint Venture. Share of net income from the JV ~~decreased~~increased during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to ~~decreased profits resulting from lower~~higher sales ~~and inflationary~~partially offset by higher operating costs in the current quarter. The JV, in which we own a 49% investment, recognized net sales of ~~$22.9~~$27.0 million and ~~$22.3~~$22.8 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively.

Results by Segment

MOBILE SOLUTIONS


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	73,350	$	73,886	$	(536)			Net sales	$	76,122	$	68,586	$	7,536
Organic decline								$	(75)
Organic growth										Organic growth							$	9,573
Foreign exchange effects	Foreign exchange effects							(461)		Foreign exchange effects							(2,037)
Income from operations		$	1,729	$	2,509	$	(780)
Loss from operations										Loss from operations	$	(474)	$	(257)	$	(217)

Net sales ~~decreased~~increased by ~~$0.5~~$7.5 million, or ~~(0.7)%~~11.0%, during the three months ended ~~June~~September 30, 2022, compared to the three months ended ~~June~~September 30, 2021, primarily due to ~~lower~~increased pricing and a recovery of sales ~~of diesel components due to lower European demand which is~~that were negatively impacted by the ~~war~~global semi-conductor shortage in ~~Ukraine, pandemic interruptions in China, lost sales associated with certain fuel systems reaching end of production, and~~2021. These increases were partially offset by unfavorable foreign exchange effects of ~~$0.5~~$2.0 million. ~~These unfavorable impacts were partially offset by increased pricing to recover certain inflationary costs and underutilized fixed costs caused by lower-than-expected customer demand.~~

~~Income~~Loss from operations ~~decreased~~increased by ~~$0.8~~$0.2 million during the three months ended ~~June~~September 30, 2022, compared to the same period in the prior year, primarily due to inflationary costs not fully recovered in customer pricing and ~~variable cost inefficiencies associated with supply chain interruptions, uneven customer ordering patterns,~~unfavorable overhead absorption. These decreases were partially offset by higher sales volume and ~~labor constraints caused by pandemic interruptions.~~lower incentive compensation expense.

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POWER SOLUTIONS


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	52,049	$	49,271	$	2,778			Net sales	$	51,124	$	48,680	$	2,444
Organic growth	Organic growth							$	2,812	Organic growth							$	2,580
Foreign exchange effects	Foreign exchange effects							(34)		Foreign exchange effects							(136)
Income from operations	Income from operations	$	1,430	$	2,875	$	(1,445)			Income from operations	$	2,582	$	1,252	$	1,330

Net sales increased by ~~$2.8~~$2.4 million, or ~~5.6%~~5.0%, during the three months ended ~~June~~September 30, 2022 compared to the three months ended ~~June~~September 30, 2021. The increase in sales was ~~the result of increased electric component sales, which were up 15.6% compared with the second quarter of 2021,~~ primarily due to higher customer pricing ~~to recover inflationary costs~~ and ~~improved~~ volume, partially offset by lower ~~sales to automotive~~precious metals pass-through pricing and ~~aerospace and defense customers.~~unfavorable foreign exchange effects.

Income from operations ~~decreased~~increased by ~~$1.4~~$1.3 million during the three months ended ~~June~~September 30, 2022 compared to the same period in the prior year, primarily due to ~~inflationary costs which were not fully recovered from pricing, variable cost inefficiencies associated with supply chain interruptions~~the increase in sales and ~~uneven customer ordering patterns.~~lower incentive compensation expense and favorable mix, partially offset by a gain on the sale of a facility in the third quarter of 2021.

~~Six~~Nine Months Ended ~~June~~September 30, 2022, compared to the ~~Six~~Nine Months Ended ~~June~~September 30, 2021

Consolidated Results


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	253,429	$	249,961	$	3,468			Net sales	$	380,726	$	367,205	$	13,521
Organic growth	Organic growth							$	3,804	Organic growth							$	16,030
Foreign exchange effects	Foreign exchange effects							$	(336)	Foreign exchange effects							$	(2,509)
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	208,467		199,485		$	8,982			Cost of sales (exclusive of depreciation and amortization shown separately below)	316,500		298,127		$	18,373
Selling, general, and administrative expense	Selling, general, and administrative expense	28,248		28,160		88				Selling, general, and administrative expense	38,453		40,341		(1,888)

Depreciation and amortization	Depreciation and amortization	22,769		23,255		(486)				Depreciation and amortization	33,962		34,860		(898)

Other operating expense (income), net	Other operating expense (income), net	1,879		(329)		2,208				Other operating expense (income), net	1,862		(901)		2,763
Loss from operations	Loss from operations	(7,934)		(610)		(7,324)				Loss from operations	(10,051)		(5,222)		(4,829)
Interest expense	Interest expense	6,927		5,597		1,330				Interest expense	10,673		9,175		1,498
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		(2,390)				Loss on extinguishment of debt and write-off of debt issuance costs	—		2,390		(2,390)
Derivative payments on interest rate swap	Derivative payments on interest rate swap	—		1,717		(1,717)				Derivative payments on interest rate swap	—		1,717		(1,717)
Loss on interest rate swap	Loss on interest rate swap	—		2,033		(2,033)				Loss on interest rate swap	—		2,033		(2,033)
Other expense (income), net		(3,063)		1,558		(4,621)
Other income, net										Other income, net	(4,219)		(2,788)		(1,431)
Loss before benefit (provision) for income taxes and share of net income from joint venture	Loss before benefit (provision) for income taxes and share of net income from joint venture	(11,798)		(13,905)		2,107				Loss before benefit (provision) for income taxes and share of net income from joint venture	(16,505)		(17,749)		1,244
Benefit (provision) for income taxes	Benefit (provision) for income taxes	(2,582)		987		(3,569)				Benefit (provision) for income taxes	(1,514)		612		(2,126)
Share of net income from joint venture	Share of net income from joint venture	2,511		2,614		(103)				Share of net income from joint venture	3,935		3,456		479

Net loss	Net loss	$	(11,869)	$	(10,304)	$	(1,565)			Net loss	$	(14,084)	$	(13,681)	$	(403)

Net Sales. Net sales increased by ~~$3.5~~$13.5 million, or ~~1.4%~~3.7%, during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to increased pricing ~~to recover certain inflationary costs and underutilized fixed costs caused by lower-than-expected customer demand. These increases were~~ partially offset by lower ~~demand in Mobile Solutions which was impacted by the war in Ukraine, COVID disruptions in China, continued supply chain disruptions~~volume and unfavorable foreign exchange effects ~~$0.3~~$2.5 million.

Cost of Sales. Cost of sales increased by ~~$9.0~~$18.4 million, or ~~4.5%~~6.2%, during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to inflationary costs and unfavorable overhead absorption, partially offset by lower sales ~~volume.~~volume and favorable foreign exchange effects.

Selling, General, and Administrative Expense. Selling, general, and administrative expense ~~increased~~decreased by ~~$0.1~~$1.9 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to ~~legal fees related to litigation,~~lower incentive compensation, severance and retention expense. These decreases were partially offset by higher stock compensation expense, ~~and~~ higher professional ~~fees. These increases were partially offset by the reduction in severance~~fees and ~~retention costs incurred in the prior year.~~increased travel costs.

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Other Operating Expense (Income), Net. Other operating expense (income), net changed unfavorably by ~~$2.2~~$2.8 million primarily due to a legal settlement reached during the first quarter of ~~2022.~~2022 and the gain on the sale of a facility in the third quarter of 2021.

Interest Expense. Interest expense increased by ~~$1.3~~$1.5 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to higher interest rates and a larger average debt balance as a result of the credit facility and preferred stock refinance during the first quarter of 2021. These increases were partially offset by a higher amount of interest expense that was capitalized in 2022 compared with the prior year.


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Interest on debt	Interest on debt	$	6,180	$	4,549	Interest on debt	$	9,819	$	7,695
Interest rate swap settlements	Interest rate swap settlements	82		—		Interest rate swap settlements	(64)		32
Amortization of debt issuance costs and discount	Amortization of debt issuance costs and discount	662		718		Amortization of debt issuance costs and discount	1,021		1,049
Capitalized interest	Capitalized interest	(300)		(111)		Capitalized interest	(572)		(200)
Other	Other	303		441		Other	469		599
Total interest expense	Total interest expense	$	6,927	$	5,597	Total interest expense	$	10,673	$	9,175

Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs. We recognized $2.4 million in the first quarter of 2021 for the write-off of unamortized debt issuance costs 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 an interest rate swap which was terminated in the first quarter of 2021. We entered into a new interest rate swap in the third quarter of 2021, which is designated as a cash flow hedge with the impact of settlements recognized in interest expense.

Loss on Interest Rate Swap. We recognized a $2.0 million loss in the first quarter of 2021 related to the termination of the previous interest rate swap in March 2021.

Other ~~Expense (Income),~~Income, Net. Other ~~expense (income),~~income, net changed favorably by ~~$4.6~~$1.4 million during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to ~~noncash derivative mark-to-market gains during 2022 and~~ the impact of a litigation settlement reached during the second quarter of 2021.

Benefit (Provision) for Income Taxes. Our effective tax rate was ~~(21.9)~~(9.2)% for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~7.1%~~3.5% for the ~~six~~nine months ended ~~June~~September 30, 2021. The rate for the ~~six~~nine months ended ~~June~~September 30, 2022 was unfavorably impacted by the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by the 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. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2022 was favorably impacted by the recording of interest income on the Company’s federal income tax refund requested as a result of the CARES act. The rate for the nine months ended September 30, 2021 was favorably impacted by the change in assertion and reduction in the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries.

Share of Net Income from Joint Venture. Share of net income from the JV ~~decreased~~increased during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to ~~decreased profits resulting from inflationary costs~~higher sales partially offset by higher ~~sales volume.~~operating costs in the current quarter. The JV, in which we own a 49% investment, recognized net sales of ~~$49.4~~$76.4 million and ~~$45.7~~$68.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Results by Segment

MOBILE SOLUTIONS


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	149,420	$	151,662	$	(2,242)			Net sales	$	225,542	$	220,248	$	5,294
Organic decline								$	(1,940)
Organic growth										Organic growth							$	7,633
Foreign exchange effects	Foreign exchange effects							(302)		Foreign exchange effects							(2,339)
Income from operations	Income from operations	$	3,698	$	8,599	$	(4,901)			Income from operations	$	3,224	$	8,342	$	(5,118)

Net sales ~~decreased~~increased by ~~$2.2~~$5.3 million, or ~~(1.5)%~~2.4%, during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to increased pricing, partially offset by lower sales of diesel components due to lower European demand which was impacted by the war in Ukraine, ~~pandemic~~COVID-19 interruptions in China, lost sales associated with certain fuel systems reaching end of production, and unfavorable foreign exchange effects of ~~$0.3~~$2.3 million. ~~These unfavorable impacts were partially offset by increased pricing to recover certain inflationary costs and underutilized fixed costs caused by lower-than-expected customer demand.~~

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Income from operations decreased by ~~$4.9~~$5.1 million during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in the prior year, primarily due to inflationary costs not fully recovered in customer pricing, unfavorable overhead absorption, and variable cost inefficiencies

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associated with supply chain interruptions, uneven customer ordering patterns, and labor constraints caused by pandemic interruptions. These decreases were partially offset by lower incentive compensation expense.

POWER SOLUTIONS


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	104,060	$	98,346	$	5,714			Net sales	$	155,184	$	147,026	$	8,158
Organic growth	Organic growth							$	5,748	Organic growth							$	8,328
Foreign exchange effects	Foreign exchange effects							(34)		Foreign exchange effects							(170)
Income from operations	Income from operations	$	1,794	$	5,307	$	(3,513)			Income from operations	$	4,376	$	6,559	$	(2,183)

Net sales increased by ~~$5.7~~$8.2 million, or ~~5.8%~~5.5%, during the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to higher customer pricing ~~to recover inflationary costs.~~partially offset by lower volume and unfavorable foreign exchange effects.

Income from operations decreased by ~~$3.5~~$2.2 million during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in the prior year, primarily due to a $1.8 million litigation settlement to settle claims from 2016 ~~inflationary costs which~~and the absence of a gain on the sale of a facility in the third quarter of 2021. These decreases were ~~not fully recovered from pricing, variable cost inefficiencies associated with supply chain interruptions, uneven customer ordering patterns,~~partially offset by the impact of higher sales and ~~labor constraints caused by pandemic interruptions.~~lower incentive compensation expense.

Changes in Financial Condition from December 31, 2021 to ~~June~~September 30, 2022

Overview

From December 31, 2021 to ~~June~~September 30, 2022, total assets decreased by ~~$5.9~~$21.5 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 increases in accounts receivable and inventories during the ~~six~~nine months ended ~~June~~September 30, 2022. The increase in accounts receivable is due to higher sales during the end of the current quarter compared with the end of the fourth quarter of 2021. The value of inventory increased due to higher material costs as well as higher quantities to maintain customer safety stock due to ongoing supply chain interruptions, especially in China.

~~From~~There was no change in total liabilities from December 31, 2021 to ~~June~~September 30, 2022, ~~total liabilities increased~~as lower employee incentive compensation accruals and a decrease in the unrealized losses of certain derivatives were offset by ~~$6.7 million, primarily due to increases~~an increase in accounts payable attributed to higher inventory balances at ~~June~~September 30, ~~2022.~~2022 and higher borrowings on the ABL Facility.

Working capital, which consists of current assets less current liabilities, was $125.5 million as of September 30, 2022, compared to $122.3 million as of ~~June 30, 2022 and~~ December 31, 2021. The ~~balance of~~increase in working capital ~~remained constant as an increase~~was primarily due to increases in accounts receivable and inventory, ~~was~~partially offset by an increase in accounts ~~payable and other current liabilities.~~payable.

Cash Flows

Cash used in operations was ~~$2.5~~$2.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared with cash provided by operations of ~~$5.9~~$5.7 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The difference was primarily due to an increase in accounts receivable related to higher sales during the current quarter compared with the fourth quarter of 2021.

Cash used in investing activities was ~~$9.3~~$13.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared with cash used in investing activities of ~~$30.2~~$32.7 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The difference was primarily due to cash paid to settle the interest rate swap in the first quarter of 2021.

Cash ~~used in~~provided by financing activities was ~~$1.0~~$1.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared with cash provided by financing activities of ~~$6.9~~$4.5 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The difference was primarily due to the debt and preferred stock refinancing in the first quarter of 2021.

Liquidity and Capital Resources

Credit Facilities

The principal amount outstanding under our Term Loan Facility as of ~~June~~September 30, 2022, was ~~$148.1~~$147.8 million, without regard to unamortized debt issuance costs and discount. As of ~~June~~September 30, 2022, we had ~~$36.9~~$32.1 million available for future borrowings under the ABL Facility. This amount of borrowing capacity is net of ~~$2.0~~$6.0 million of outstanding borrowings and $11.1 million of outstanding letters of credit at ~~June~~September 30, 2022, which are considered as usage of the ABL Facility.

Table of Contents

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. 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

~~Table of Contents~~

rates plus an applicable margin of 5.875%. Based on the interest rate in effect at ~~June~~September 30, 2022, and the fixed rate on the 2021 interest rate swap, annual interest payments would be approximately ~~$12.4~~$13.7 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 ~~June~~September 30, 2022, was ~~3.00%~~4.56%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility.

We were in compliance with all requirements under our Term Loan Facility and ABL Facility as of ~~June~~September 30, 2022. Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions.

Accounts Receivable Sales Programs

We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution. In exchange, we receive payment on the receivables, less a discount, sooner than under the customary credit terms we have extended to that customer. These programs allow us to improve working capital and cash flows. Our access to these programs is dependent on our customers ongoing agreements with the third-parties. Our participation in these programs is based on our specific cash needs throughout the year, the discount charged to receive payment earlier, the length of the payment terms with our customers, as well being subject to limits in our ABL Facility and Term Loan Facility agreements.

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.

Critical Accounting Estimates

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the 2021 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2021 Annual Report. There have been no material changes to these policies during the ~~six~~nine months ended ~~June~~September 30, 2022.

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.

Refer to Note 15 in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for further discussion about the interest rate swap.

At ~~June~~September 30, 2022, we had ~~$148.1~~$147.8 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 have resulted in a net increase in interest expense of $0.9 million on an annualized ~~basis due to the fact that the Term Loan Facility is subject to a LIBOR floor~~basis.

Table of ~~1.00% and one-month LIBOR was below the floor as of June 30, 2022.~~Contents

At ~~June~~September 30, 2022, using one-month LIBOR plus a 1.75% spread, the interest rate on the ~~$2.0~~$6.0 million of outstanding borrowings under the ABL Facility was ~~3.00%~~4.56%.

Foreign Currency Risk

Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. We participate in various third party and intercompany loans, payables, and receivables denominated in currencies other than the U.S. dollar. To help reduce exposure to foreign currency fluctuation, we have incurred debt in euros in the past. From time to time, we may use foreign currency derivatives to hedge currency exposures when these exposures meet certain discretionary levels. We did not hold a position in any foreign currency derivatives as of ~~June~~September 30, 2022.

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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 ~~June~~September 30, 2022, 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 ~~June~~September 30, 2022, 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 9 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 9 relating to legal proceedings is incorporated herein by reference.

Item 1A. Risk Factors

Except as noted below, there have been no material changes to the risk factors disclosed in the 2021 Annual Report under Item 1A, “Risk Factors.”

Our international operations and business, financial condition, and prospects may be adversely affected by the current military conflict between Russia and Ukraine, other future social and geopolitical instability and resulting domestic and foreign economic instability.

We are exposed to the risk of changes in social, geopolitical, legal, and economic conditions. The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine. As a result of Russia’s invasion of Ukraine, the United States, the European Union, the United Kingdom, and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia. Broad restrictions on exports to Russia have also been imposed. These measures include: (i) comprehensive financial sanctions against major Russian banks; (ii) additional designations of Russian individuals with significant business interests and government connections; (iii) designations of individuals and entities involved in Russian military activities; and (iv) enhanced export controls and trade sanctions limiting Russia’s ability to import various goods. The negative impacts arising from the conflict and these sanctions and export restrictions, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials. Although none of our operations are physically located in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition, results of operations and prospects. For example, the prices of oil and other commodities have increased significantly, and, in response to the sanctions imposed on Russia by Western countries, Russia has reduced the volume of natural gas it sends to European countries. As a result of of increased oil prices and Russia’s decision to reduce the volume of natural gas sold to European countries, utility costs in Europe have increased dramatically. Our facilities in Poland and France have been negatively impacted by rising energy costs, which could have a material, adverse effect on our European operations and our business as a whole.

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

~~The following table provides information about purchases we made during the quarter ended June 30, 2022.~~

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 2022 — $ — — —
May 2022 — — — —
June 2022 671 2.85 — —
Total 671 $ 2.85 — —

~~(1)~~Shares were withheld to pay for tax obligations due upon the vesting of restricted stock held by certain employees granted under the 2019 Omnibus Plan. The Plan provides for the withholding of shares to satisfy tax obligations. It does not specify a maximum number of shares that can be withheld for this purpose. These shares may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item.None.

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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 of Exhibit

~~10.1~~						~~2022 Omnibus Incentive Plan (incorporated by reference to~~ ~~Appendix~~ ~~A to NN, Inc.’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 15, 2022)~~

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).

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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: ~~August 5,~~November 2, 2022			/s/ Warren A. Veltman
			Warren A. Veltman
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
			(Duly Authorized Officer)

Date: ~~August 5,~~November 2, 2022			/s/ Michael C. Felcher
			Michael C. Felcher
			Senior Vice President - Chief Financial Officer
			(Principal Financial and Accounting Officer)
			(Duly Authorized Officer)


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 2022	—	$	—	—	—
May 2022	—	—		—	—
June 2022	671	2.85		—	—
Total	671	$	2.85	—	—