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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 September 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/43ad8d4a08fe048ffae86b022b480d45-nnbr-20220930_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 October 26, 2022, there were 43,869,135 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
September 30,
Nine Months Ended
September 30,
(in thousands, except per share data)2022202120222021
Net sales$127,297 $117,244 $380,726 $367,205 
Cost of sales (exclusive of depreciation and amortization shown separately below)108,033 98,642 316,500 298,127 
Selling, general, and administrative expense10,205 12,181 38,453 40,341 
Depreciation and amortization11,193 11,605 33,962 34,860 
Other operating expense (income), net(17)(572)1,862 (901)
Loss from operations(2,117)(4,612)(10,051)(5,222)
Interest expense3,746 3,578 10,673 9,175 
Loss on extinguishment of debt and write-off of debt issuance costs   2,390 
Derivative payments on interest rate swap   1,717 
Loss on interest rate swap   2,033 
Other income, net(1,156)(4,346)(4,219)(2,788)
Loss before benefit (provision) for income taxes and share of net income from joint venture(4,707)(3,844)(16,505)(17,749)
Benefit (provision) for income taxes1,068 (375)(1,514)612 
Share of net income from joint venture1,424 842 3,935 3,456 
Net loss$(2,215)$(3,377)$(14,084)$(13,681)
Other comprehensive income (loss):
Foreign currency translation loss$(7,653)$(2,612)$(13,543)$(1,550)
Interest rate swap:
Change in fair value, net of tax904 (176)2,464 (176)
Reclassification adjustment for losses (gains) included in net loss, net of tax(116)22 (51)2,873 
Other comprehensive income (loss)$(6,865)$(2,766)$(11,130)$1,147 
Comprehensive loss$(9,080)$(6,143)$(25,214)$(12,534)
Basic net loss per common share:
Net loss per common share$(0.11)$(0.13)$(0.49)$(0.75)
Weighted average common shares outstanding44,711 44,455 44,670 43,862 
Diluted net loss per common share:
Net loss per common share$(0.11)$(0.13)$(0.49)$(0.75)
Weighted average common shares outstanding44,711 44,455 44,670 43,862 

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)September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$12,551 $28,656 
Accounts receivable, net of allowances of $1,476 and $1,352 at September 30, 2022 and December 31, 2021, respectively
83,496 71,419 
Inventories84,172 75,027 
Income tax receivable11,104 11,808 
Other current assets12,768 9,372 
Total current assets204,091 196,282 
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 assets46,164 46,443 
Intangible assets, net77,958 88,718 
Investment in joint venture28,193 34,045 
Deferred tax assets375 314 
Other non-current assets5,750 4,194 
Total assets$557,615 $579,101 
Liabilities, Preferred Stock, and Stockholders’ Equity
Current liabilities:
Accounts payable$45,107 $36,710 
Accrued salaries, wages and benefits13,024 17,739 
Income tax payable902 2,072 
Current maturities of long-term debt3,150 3,074 
Current portion of operating lease liabilities5,033 5,704 
Other current liabilities11,351 8,718 
Total current liabilities78,567 74,017 
Deferred tax liabilities6,408 7,456 
Long-term debt, net of current portion154,351 151,052 
Operating lease liabilities, net of current portion51,102 51,295 
Other non-current liabilities10,635 17,289 
Total liabilities301,063 301,109 
Commitments and contingencies (Note 9)
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021, respectively
61,786 53,807 
Stockholders' equity:
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 capital470,543 474,757 
Accumulated deficit(233,184)(219,100)
Accumulated other comprehensive loss(43,032)(31,902)
Total stockholders’ equity194,766 224,185 
Total liabilities, preferred stock, and stockholders’ equity$557,615 $579,101 

See notes to condensed consolidated financial statements (unaudited).
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NN, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended September 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 as of June 30, 202243,884 $439 $473,019 $(230,969)$(36,167)$206,322 
Net loss— — — (2,215)— (2,215)
Dividends accrued for preferred stock— — (2,783)— — (2,783)
Share-based compensation expense(2) 991 — — 991 
Change in estimate of share-based award vesting— — (684)— — (684)
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)
— — — — (116)(116)
Foreign currency translation loss— — — — (7,653)(7,653)
Balance as of September 30, 202243,882 $439 $470,543 $(233,184)$(43,032)$194,766 


Common StockAccumulated deficitAccumulated other comprehensive income (loss)
(in thousands)Number
of
shares
Par
value
Additional
paid-in
capital
Total
Balance as of June 30, 202143,034 $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, 202143,034 $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 Changes in Stockholders’ Equity
Nine Months Ended September 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 as of December 31, 202143,027 $430 $474,757 $(219,100)$(31,902)$224,185 
Net loss— — (14,084)— (14,084)
Dividends accrued for preferred stock— — (7,979)— — (7,979)
Share-based compensation expense886 9 4,537 — — 4,546 
Restricted shares forgiven for taxes(31) (88)— — (88)
Change in estimate of share-based award vesting— — (684)— — (684)
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)
— — — — (51)(51)
Foreign currency translation loss— — — — (13,543)(13,543)
Balance as of September 30, 202243,882 $439 $470,543 $(233,184)$(43,032)$194,766 

Common StockAccumulated deficitAccumulated other comprehensive income (loss)
(in thousands)Number
of
shares
Par
value
Additional
paid-in
capital
Total
Balance as of December 31, 202042,686 $427 $493,332 $(205,875)$(33,732)$254,152 
Net loss— — — (13,681)— (13,681)
Dividends accrued for preferred stock— — (19,054)— — (19,054)
Shares issued for option exercises6 — 48 — — 48 
Share-based compensation expense394 4 2,913 — — 2,917 
Restricted shares forgiven for taxes(52)(1)(362)— — (363)
Change in estimate of share-based award vesting— — (337)— — (337)
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
— — — — 2,873 2,873 
Foreign currency translation loss— — — — (1,550)(1,550)
Balance as of September 30, 202143,034 $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)
Nine Months Ended
September 30,
(in thousands) 20222021
Cash flows from operating activities
Net loss$(14,084)$(13,681)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization33,962 34,860 
Amortization of debt issuance costs and discount1,021 1,049 
Loss on extinguishment of debt and write-off of debt issuance costs 2,390 
Total derivative gain, net of cash settlements(4,858)(856)
Share of net income from joint venture, net of cash dividends received2,310 (3,456)
Compensation expense from issuance of share-based awards3,862 2,580 
Deferred income taxes(1,831)(3,720)
Other(3,096)(1,834)
Changes in operating assets and liabilities:
Accounts receivable(15,667)136 
Inventories(11,314)(13,252)
Accounts payable9,827 7,982 
Income taxes receivable and payable, net(403)(5,171)
Other(2,400)(1,336)
Net cash provided by (used in) operating activities(2,671)5,691 
Cash flows from investing activities
Acquisition of property, plant and equipment(14,011)(14,556)
Proceeds from sale of property, plant, and equipment460 1,177 
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(13,551)(32,679)
Cash flows from financing activities
Cash paid for debt issuance costs(136)(7,360)
Proceeds from issuance of preferred stock 61,793 
Redemption of preferred stock (122,434)
Proceeds from long-term debt32,000 166,000 
Repayments of long-term debt(28,158)(88,058)
Repayments of short-term debt, net (1,563)
Other(2,265)(3,859)
Net cash provided by financing activities1,441 4,519 
Effect of exchange rate changes on cash flows(1,324)(1,058)
Net change in cash and cash equivalents(16,105)(23,527)
Cash and cash equivalents at beginning of period28,656 48,138 
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
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 nine months ended September 30, 2022 and 2021; financial position as of September 30, 2022 and December 31, 2021; and cash flows for the nine months ended 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 nine months ended 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 nine months ended 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 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 September 30, 2022
Net sales$76,122 $51,124 $51 (a)$127,297 
Income (loss) from operations(474)2,582 (4,225)(2,117)
Interest expense(3,746)
Other1,156 
Loss from operations before income taxes and share of net income from joint venture$(4,707)
Three Months Ended September 30, 2021
Net sales$68,586 $48,680 $(22)(a)$117,244 
Income (loss) from operations(257)1,252 (5,607)(4,612)
Interest expense(3,578)
Other4,346 
Loss from operations before income taxes and share of net income from joint venture$(3,844)

Mobile
Solutions
Power
Solutions
Corporate
and
Consolidations
Total
Nine Months Ended September 30, 2022
Net sales$225,542 $155,184 $ $380,726 
Income (loss) from operations3,224 4,376 (17,651)(10,051)
Interest expense(10,673)
Other4,219 
Loss from operations before income taxes and share of net income from joint venture$(16,505)
Nine Months Ended September 30, 2021
Net sales$220,248 $147,026 $(69)(a)$367,205 
Income (loss) from operations8,342 6,559 (20,123)(5,222)
Interest expense(9,175)
Other(3,352)
Loss from operations before income taxes and share of net income from joint venture$(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:
September 30, 2022December 31, 2021
Raw materials$32,821 $27,221 
Work in process29,349 24,960 
Finished goods22,002 22,846 
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
Balance as of December 31, 2021$25,709 $63,009 $88,718 
Amortization(2,515)(8,245)(10,760)
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. As of September 30, 2022, our market capitalization 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 impairment analyses on our long-lived assets. Based on our analyses, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the nine months ended 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 earnings3,935 
Dividends paid by joint venture(6,245)
Foreign currency translation loss(3,542)
Balance as of September 30, 2022$28,193 

Note 6. Income Taxes
Our effective tax rate was 22.7% and (9.2)% for the three and nine months ended September 30, 2022, respectively, and (9.8)% and 3.5% for the three and nine months ended September 30, 2021, respectively. The effective tax rates for the three and nine months ended September 30, 2022 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 favorably impacted by the recording of interest income on the Company’s federal income tax refund requested as a result of the 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 September 30, 2022 and December 31, 2021.
September 30, 2022December 31, 2021
Term Loan Facility$147,750 $148,875 
ABL Facility6,000  
International lines of credit and other loans8,436 10,930 
Total principal162,186 159,805 
Less-current maturities of long-term debt3,150 3,074 
Principal, net of current portion159,036 156,731 
Less-unamortized debt issuance costs and discount (1)4,685 5,679 
Long-term debt, net of current portion$154,351 $151,052 
_______________________________
(1) In addition to this amount, costs of $0.7 million and $0.7 million related to the ABL Facility were recorded in other non-current assets as of 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 September 30, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at 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 increased the quarterly maximum consolidated net leverage ratio. We were in compliance with all requirements under the Term Loan Facility as of 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 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 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 September 30, 2022, we had $6.0 million of outstanding borrowings under the ABL Facility, $11.1 million of outstanding letters of credit, and $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 September 30, 2022.

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Note 8. Leases
The following table contains supplemental cash flow information related to leases.
Nine Months Ended
September 30,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in finance leases$262 $154 
Operating cash flows used in operating leases10,865 10,369 
Financing cash flows used in finance leases2,177 3,545 
Right-of-use assets obtained in exchange for new finance lease liabilities908 1,541 
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 September 30, 2022.
Securities Offering Matter
On November 1, 2019, Erie County Employees’ Retirement System, on behalf of a purported class of plaintiffs, filed a complaint in the Supreme Court of the State of New York, County of New York against 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 September 30, 2022, we have
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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 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. Beginning 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 September 30, 2022, the carrying value of the Series D Preferred Stock shares was $61.8 million, which included $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 nine months ended September 30, 2022.
Balance as of December 31, 2021$53,807 
Accrual of in-kind dividends6,620 
Amortization1,359 
Balance as of September 30, 2022$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 nine months ended 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 September 30, 2022Mobile
Solutions
Power
Solutions
Intersegment
Sales
Eliminations
Total
United States and Puerto Rico$35,419 $39,579 $51 $75,049 
China12,839 1,378 — 14,217 
Brazil14,109 137 — 14,246 
Mexico5,185