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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 000-23486
 https://cdn.kscope.io/1ae082fab7bd010fd64de841bf1b58ca-nnbr-20220630_g1.jpg
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 classTrading symbolName of each exchange on which registered
Common Stock, par value $0.01NNBRThe 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, 2022, there were 43,884,408 shares of the registrant’s common stock, par value $0.01 per share, outstanding.



Table of Contents    

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

2


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,
(in thousands, except per share data)2022202120222021
Net sales$125,362 $123,157 $253,429 $249,961 
Cost of sales (exclusive of depreciation and amortization shown separately below)103,889 99,797 208,467 199,485 
Selling, general, and administrative expense14,794 13,585 28,248 28,160 
Depreciation and amortization11,340 11,687 22,769 23,255 
Other operating expense (income), net(147)(324)1,879 (329)
Loss from operations(4,514)(1,588)(7,934)(610)
Interest expense3,488 3,573 6,927 5,597 
Loss on extinguishment of debt and write-off of debt issuance costs   2,390 
Derivative payments on interest rate swap   1,717 
Loss on interest rate swap   2,033 
Other expense (income), net(67)1,680 (3,063)1,558 
Loss before benefit (provision) for income taxes and share of net income from joint venture(7,935)(6,841)(11,798)(13,905)
Benefit (provision) for income taxes(1,051)231 (2,582)987 
Share of net income from joint venture419 1,219 2,511 2,614 
Net loss$(8,567)$(5,391)$(11,869)$(10,304)
Other comprehensive income (loss):
Foreign currency translation gain (loss)$(8,490)$4,409 $(5,890)$1,062 
Interest rate swap:
Change in fair value, net of tax373  1,560  
Reclassification adjustment for losses included in net loss, net of tax31  65 2,851 
Other comprehensive income (loss)$(8,086)$4,409 $(4,265)$3,913 
Comprehensive loss$(16,653)$(982)$(16,134)$(6,391)
Basic net loss per common share:
Net loss per common share$(0.25)$(0.17)$(0.38)$(0.62)
Weighted average common shares outstanding44,708 44,440 44,649 43,561 
Diluted net loss per common share:
Net loss per common share$(0.25)$(0.17)$(0.38)$(0.62)
Weighted average common shares outstanding44,708 44,440 44,649 43,561 

See notes to condensed consolidated financial statements (unaudited).
3


Table of Contents    

NN, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 
(in thousands, except per share data)June 30,
2022
December 31, 2021
Assets
Current assets:
Cash and cash equivalents$15,186 $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 
Inventories84,726 75,027 
Income tax receivable10,931 11,808 
Other current assets13,267 9,372 
Total current assets206,731 196,282 
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 
Operating lease right-of-use assets46,042 46,443 
Intangible assets, net81,545 88,718 
Investment in joint venture30,875 34,045 
Deferred tax assets375 314 
Other non-current assets5,350 4,194 
Total assets$573,157 $579,101 
Liabilities, Preferred Stock, and Stockholders’ Equity
Current liabilities:
Accounts payable$47,859 $36,710 
Accrued salaries, wages and benefits15,217 17,739 
Income tax payable687 2,072 
Current maturities of long-term debt3,139 3,074 
Current portion of operating lease liabilities5,103 5,704 
Other current liabilities12,439 8,718 
Total current liabilities84,444 74,017 
Deferred tax liabilities8,141 7,456 
Long-term debt, net of current portion151,317 151,052 
Operating lease liabilities, net of current portion50,899 51,295 
Other non-current liabilities13,031 17,289 
Total liabilities307,832 301,109 
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 
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 
Additional paid-in capital473,019 474,757 
Accumulated deficit(230,969)(219,100)
Accumulated other comprehensive loss(36,167)(31,902)
Total stockholders’ equity206,322 224,185 
Total liabilities, preferred stock, and stockholders’ equity$573,157 $579,101 

See notes to condensed consolidated financial statements (unaudited).
4


Table of Contents    

NN, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended June 30, 2022 and 2021
(Unaudited) 
Common StockAccumulated deficitAccumulated other comprehensive income (loss)
(in thousands)Number
of
shares
Par
value
Additional
paid-in
capital
Total
Balance at March 31, 202243,890 $439 $473,072 $(222,402)$(28,081)$223,028 
Net loss— — — (8,567)— (8,567)
Dividends accrued for preferred stock— — (2,658)— — (2,658)
Share-based compensation expense(5) 2,606 — — 2,606 
Restricted shares forgiven for taxes(1) (1)— — (1)
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 
Foreign currency translation loss— — — — (8,490)(8,490)
Balance at June 30, 202243,884 $439 $473,019 $(230,969)$(36,167)$206,322 


Common StockAccumulated deficitAccumulated other comprehensive income (loss)
(in thousands)Number
of
shares
Par
value
Additional
paid-in
capital
Total
Balance at March 31, 202143,049 $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 exercises6 — 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, 202143,034 $430 $477,923 $(216,179)$(29,819)$232,355 

See notes to condensed consolidated financial statements (unaudited).

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NN, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Six Months Ended June 30, 2022 and 2021
(Unaudited) 
Common StockAccumulated deficitAccumulated other comprehensive income (loss)
(in thousands)Number
of
shares
Par
value
Additional
paid-in
capital
Total
Balance at December 31, 202143,027 $430 $474,757 $(219,100)$(31,902)$224,185 
Net loss— — (11,869)— (11,869)
Dividends accrued for preferred stock— — (5,196)— — (5,196)
Share-based compensation expense888 9 3,546 — — 3,555 
Restricted shares forgiven for taxes(31) (88)— — (88)
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 
Foreign currency translation loss— — — — (5,890)(5,890)
Balance at June 30, 202243,884 $439 $473,019 $(230,969)$(36,167)$206,322 

Common StockAccumulated deficitAccumulated other comprehensive income (loss)
(in thousands)Number
of
shares
Par
value
Additional
paid-in
capital
Total
Balance at December 31, 202042,686 $427 $493,332 $(205,875)$(33,732)$254,152 
Net loss— — — (10,304)— (10,304)
Dividends accrued for preferred stock— — (16,740)— — (16,740)
Shares issued for option exercises6 — 48 — — 48 
Share-based compensation expense394 4 1,982 — — 1,986 
Restricted shares forgiven for taxes(52)(1)(362)— — (363)
Change in estimate of share-based award vesting— — (337)— — (337)
Reclassification of interest rate swap settlement to net loss, net of tax of $861
— — — — 2,851 2,851 
Foreign currency translation gain— — — — 1,062 1,062 
Balance at June 30, 202143,034 $430 $477,923 $(216,179)$(29,819)$232,355 
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,
(in thousands) 20222021
Cash flows from operating activities
Net loss$(11,869)$(10,304)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization22,769 23,255 
Amortization of debt issuance costs and discount662 718 
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 
Share of net income from joint venture, net of cash dividends received1,515 (2,614)
Compensation expense from issuance of share-based awards3,555 1,649 
Deferred income taxes94 (3,050)
Other(2,763)(1,154)
Changes in operating assets and liabilities:
Accounts receivable(13,264)2,685 
Inventories(10,586)(12,052)
Accounts payable11,960 9,441 
Income taxes receivable and payable, net(475)(6,326)
Other(905)(2,713)
Net cash provided by (used in) operating activities(2,544)5,898 
Cash flows from investing activities
Acquisition of property, plant and equipment(9,703)(11,015)
Proceeds from sale of property, plant, and equipment422 74 
Cash paid for post-closing adjustments on sale of business (3,880)
Cash settlements of interest rate swap (15,420)
Net cash used in investing activities(9,281)(30,241)
Cash flows from financing activities
Cash paid for debt issuance costs (6,981)
Dividends paid  
Proceeds from issuance of preferred stock 61,793 
Redemption of preferred stock (122,434)
Proceeds from long-term debt20,000 156,000 
Repayments of long-term debt(19,482)(77,442)
Repayments of short-term debt, net (1,321)
Other(1,528)(2,685)
Net cash provided by (used in) financing activities(1,010)6,930 
Effect of exchange rate changes on cash flows(635)818 
Net change in cash and cash equivalents(13,470)(16,595)
Cash and cash equivalents at beginning of period28,656 48,138 
Cash and cash equivalents at end of period$15,186 $31,543 
See notes to condensed consolidated financial statements (unaudited).
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NN, Inc.
Notes to Condensed Consolidated Financial Statements
June 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 months ended June 30, 2022 and 2021; financial position as of June 30, 2022 and December 31, 2021; and cash flows for the six months ended June 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 months ended June 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 months ended June 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 two 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 two 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
Three Months Ended June 30, 2022
Net sales$73,350 $52,049 $(37)(a)$125,362 
Income (loss) from operations1,729 1,430 (7,673)(4,514)
Interest expense(3,488)
Other67 
Loss from operations before income taxes and share of net income from joint venture$(7,935)
Three Months Ended June 30, 2021
Net sales$73,886 $49,271 $ $123,157 
Income (loss) from operations2,509 2,875 (6,972)(1,588)
Interest expense(3,573)
Other(1,680)
Loss from operations before income taxes and share of net income from joint venture$(6,841)

Mobile
Solutions
Power
Solutions
Corporate
and
Consolidations
Total
Six Months Ended June 30, 2022
Net sales$149,420 $104,060 $(51)(a)$253,429 
Income (loss) from operations3,698 1,794 (13,426)(7,934)
Interest expense(6,927)
Other3,063 
Loss from operations before income taxes and share of net income from joint venture$(11,798)
Six Months Ended June 30, 2021
Net sales$151,662 $98,346 $(47)(a)$249,961 
Income (loss) from operations8,599 5,307 (14,516)(610)
Interest expense(5,597)
Other(7,698)
Loss from operations before income taxes and share of net income from joint venture$(13,905)
_______________________________
(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, 2022December 31, 2021
Raw materials$32,305 $27,221 
Work in process29,653 24,960 
Finished goods22,768 22,846 
Total inventories$84,726 $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
Balance as of December 31, 2021$25,709 $63,009 $88,718 
Amortization(1,677)(5,496)(7,173)
Balance as of June 30, 2022$24,032 $57,513 $81,545 
Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. At June 30, 2022, our market capitalization declined to a level that was less than the net book value of our stockholders’ equity. The decline in market capitalization was a triggering event that caused us to perform an impairment analysis on our long-lived assets as of June 30, 2022. Based on our analysis, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the six months ended June 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 earnings2,511 
Dividends paid by joint venture(4,026)
Foreign currency translation loss(1,655)
Balance as of June 30, 2022$30,875 

Note 6. Income Taxes
Our effective tax rate was (13.2)% and (21.9)% for the three and six months ended June 30, 2022, respectively, and 3.4% and 7.1% for the three and six months ended June 30, 2021, respectively. The effective tax rate for the three and six months ended June 30, 2022 differs from the U.S. federal statutory tax rate of 21% primarily due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized. In addition, the effective tax rate was unfavorably impacted by U.S. tax on the earnings of foreign subsidiaries under the global intangible low-taxed income regime.

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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 30, 2022 and December 31, 2021.
June 30, 2022December 31, 2021
Term Loan Facility$148,125 $148,875 
ABL Facility2,000  
International lines of credit and other loans9,306 10,930 
Total principal159,431 159,805 
Less-current maturities of long-term debt3,139 3,074 
Principal, net of current portion156,292 156,731 
Less-unamortized debt issuance costs and discount (1)4,975 5,679 
Long-term debt, net of current portion$151,317 $151,052 
_______________________________
(1) In addition to this amount, costs of $0.6 million and $0.7 million related to the ABL Facility were recorded in other non-current assets as of June 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 30, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at 8.541%. We have an interest rate swap 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 the quarterly maximum consolidated net leverage ratio. We were in compliance with all requirements under the Term Loan Facility as of June 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 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%. 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 30, 2022, we had $2.0 million of outstanding borrowings under the ABL Facility, $11.1 million of outstanding letters of credit, and $36.9 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 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,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in finance leases$172 $113 
Operating cash flows used in operating leases7,543 7,221 
Financing cash flows used in finance leases1,440 2,370 
Right-of-use assets obtained in exchange for new finance lease liabilities395 636 
Right-of-use assets obtained in exchange for new operating lease liabilities (1)2,178  
_______________________________
(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 30, 2022.
Securities Offering Matter
As previously disclosed, 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 $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 30, 2022, we have previously
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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 $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. On March 22, 2026, the cash dividend rate and in-kind dividend rate increase by 2.5% per year. Cash dividends are required beginning on September 30, 2027.
The Series D Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity, because certain features of the Series D Preferred Stock could require redemption of the Series D Preferred Stock upon a change of control event that is considered not solely within our control. For initial recognition, the Series D Preferred Stock was recognized at a discounted value, net of issuance costs and allocation to warrants and a bifurcated embedded derivative. The aggregate discount is amortized as a deemed dividend through March 22, 2026, which is the date the dividend rate begins to increase by 2.5% per year. Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital).
In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives, certain features of the Series D Preferred Stock were bifurcated and accounted for as derivatives separately. Note 15 discusses the accounting for these features.
As of June 30, 2022, the carrying value of the Series D Preferred Stock shares was $59.0 million, which included $12.3 million of accumulated unpaid and deemed dividends. The following table presents the change in the Series D Preferred Stock carrying value during the six months ended June 30, 2022.
Six Months Ended
June 30, 2022
Beginning balance$53,807 
Accrual of in-kind dividends4,348 
Amortization848 
Ending balance$59,003 

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 months ended June 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
United States and Puerto Rico$35,954 $40,377 $(37)$76,294 
China8,764 1,233 — 9,997 
Brazil11,293 312 — 11,605 
Mexico8,087 4,358 — 12,445 
Germany1,121 73 — 1,194 
Poland1,158 1 — 1,159 
Other6,973 5,695 — 12,668 
Total net sales$73,350 $52,049 $(37)$125,362 

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