UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~March 31,~~June 30, 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 ~~Number)~~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 ~~per share~~

NNBR

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April~~July 29, 2022, there were ~~43,890,305~~43,884,408 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of ~~Conte~~Contents ~~nts~~

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)	67
	Notes to Condensed Consolidated Financial Statements (Unaudited)	78
	Note 1. Interim Financial Statements	7
	~~Note~~ 2 ~~. Segment Information~~	8
	Note 3 ~~. Inventories~~	8
	~~Note~~ 4 ~~. Intangible Assets, Net~~2. Segment Information	9
	Note 5 ~~. Investment in Joint Venture~~	9
	~~Note~~ 6 ~~. Income Taxes~~	9
	~~Note~~ 7 ~~. Debt~~	9
	~~Note~~ 8 ~~. Leases~~3. Inventories	10
	Note 4. Intangible Assets, Net	910
	~~. Commitments and Contingencies~~Note 5. Investment in Joint Venture	10
	Note 6. Income Taxes	10
	Note 7. Debt	11
	Note 1 0 ~~. Preferred Stock and Stockholders' Equity~~8. Leases	12
	Note 1 1 ~~. Revenue from Contracts with Customers~~9. Commitments and Contingencies	12
	Note 1 2 ~~. Share-Based Compensation~~10. Preferred Stock and Stockholders' Equity	1413
	Note 111. Revenue from Contracts with Customers	313
	~~. Accumulated Other Comprehensive Income~~Note 12. Share-Based Compensation	16
	Note 113. Accumulated Other Comprehensive Income	418
	.Note 14. Net Income (Loss) Per Common Share	1618
	Note 1 5 .15. Fair Value Measurements	1720

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2023

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2429

Item 4.	Controls and Procedures	2530

PART II. OTHER INFORMATION		2631

Item 1.	Legal Proceedings	2631
Item 1A.	Risk Factors	2631
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2631
Item 3.	Defaults Upon Senior Securities	2632
Item 4.	Mine Safety Disclosures	2732
Item 5.	Other Information	2732
Item 6.	Exhibits	2732
SIGNATURES		2833

Table of ~~Conte~~Contents ~~nts~~

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

NN, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,		Six Months Ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021			(in thousands, except per share data)	2022		2021		2022		2021
Net sales	Net sales	$	128,067	$	126,804		Net sales	$	125,362	$	123,157	$	253,429	$	249,961
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	104,578		99,688			Cost of sales (exclusive of depreciation and amortization shown separately below)	103,889		99,797		208,467		199,485
Selling, general, and administrative expense	Selling, general, and administrative expense	13,454		14,575			Selling, general, and administrative expense	14,794		13,585		28,248		28,160

Depreciation and amortization	Depreciation and amortization	11,429		11,568			Depreciation and amortization	11,340		11,687		22,769		23,255

Other operating expense (income), net	Other operating expense (income), net	2,026		(5)			Other operating expense (income), net	(147)		(324)		1,879		(329)
Income (loss) from operations		(3,420)		978
Loss from operations							Loss from operations	(4,514)		(1,588)		(7,934)		(610)
Interest expense	Interest expense	3,439		2,024			Interest expense	3,488		3,573		6,927		5,597
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 income, net		(2,996)		(122)
Other expense (income), net							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	Loss before benefit (provision) for income taxes and share of net income from joint venture	(3,863)		(7,064)			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	Benefit (provision) for income taxes	(1,531)		756			Benefit (provision) for income taxes	(1,051)		231		(2,582)		987
Share of net income from joint venture	Share of net income from joint venture	2,092		1,395			Share of net income from joint venture	419		1,219		2,511		2,614

Net loss	Net loss	$	(3,302)	$	(4,913)		Net loss	$	(8,567)	$	(5,391)	$	(11,869)	$	(10,304)
Other comprehensive income (loss):	Other comprehensive income (loss):						Other comprehensive income (loss):

Foreign currency translation gain (loss)	Foreign currency translation gain (loss)	$	2,600	$	(3,347)		Foreign currency translation gain (loss)	$	(8,490)	$	4,409	$	(5,890)	$	1,062
Interest rate swap:	Interest rate swap:						Interest rate swap:
Change in fair value, net of tax	Change in fair value, net of tax	1,187		—			Change in fair value, net of tax	373		—		1,560		—
Reclassification adjustment for losses included in net loss, net of tax	Reclassification adjustment for losses included in net loss, net of tax	34		2,851			Reclassification adjustment for losses included in net loss, net of tax	31		—		65		2,851
Other comprehensive income (loss)	Other comprehensive income (loss)	$	3,821	$	(496)		Other comprehensive income (loss)	$	(8,086)	$	4,409	$	(4,265)	$	3,913
Comprehensive income (loss)		$	519	$	(5,409)
Comprehensive loss							Comprehensive loss	$	(16,653)	$	(982)	$	(16,134)	$	(6,391)
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	$	(0.13)	$	(0.46)		Net loss per common share	$	(0.25)	$	(0.17)	$	(0.38)	$	(0.62)
Weighted average common shares outstanding	Weighted average common shares outstanding	44,594		42,672			Weighted average common shares outstanding	44,708		44,440		44,649		43,561
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	$	(0.13)	$	(0.46)		Net loss per common share	$	(0.25)	$	(0.17)	$	(0.38)	$	(0.62)
Weighted average common shares outstanding	Weighted average common shares outstanding	44,594		42,672			Weighted average common shares outstanding	44,708		44,440		44,649		43,561

See notes to condensed consolidated financial statements (unaudited).

Table of ~~Conte~~Contents ~~nts~~

NN, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except per share data)	(in thousands, except per share data)	March 31, 2022		December 31, 2021		(in thousands, except per share data)	June 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	20,627	$	28,656	Cash and cash equivalents	$	15,186	$	28,656
Accounts receivable, net of allowances of $1,684 and $1,352 at March 31, 2022 and December 31, 2021, respectively		89,397		71,419
Accounts receivable, net of allowances of $1,762 and $1,352 at June 30, 2022 and December 31, 2021, respectively						Accounts receivable, net of allowances of $1,762 and $1,352 at June 30, 2022 and December 31, 2021, respectively	82,621		71,419
Inventories	Inventories	81,239		75,027		Inventories	84,726		75,027
Income tax receivable	Income tax receivable	11,055		11,808		Income tax receivable	10,931		11,808

Other current assets	Other current assets	14,989		9,372		Other current assets	13,267		9,372
Total current assets	Total current assets	217,307		196,282		Total current assets	206,731		196,282
Property, plant and equipment, net of accumulated depreciation of $207,636 and $197,936 at March 31, 2022 and December 31, 2021, respectively		208,286		209,105
Property, plant and equipment, net of accumulated depreciation of $210,618 and $197,936 at June 30, 2022 and December 31, 2021, respectively						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 assets	Operating lease right-of-use assets	46,771		46,443		Operating lease right-of-use assets	46,042		46,443

Intangible assets, net	Intangible assets, net	85,131		88,718		Intangible assets, net	81,545		88,718
Investment in joint venture	Investment in joint venture	32,177		34,045		Investment in joint venture	30,875		34,045
Deferred tax assets	Deferred tax assets	313		314		Deferred tax assets	375		314

Other non-current assets	Other non-current assets	5,863		4,194		Other non-current assets	5,350		4,194
Total assets	Total assets	$	595,848	$	579,101	Total assets	$	573,157	$	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	$	48,906	$	36,710	Accounts payable	$	47,859	$	36,710
Accrued salaries, wages and benefits	Accrued salaries, wages and benefits	20,695		17,739		Accrued salaries, wages and benefits	15,217		17,739
Income tax payable	Income tax payable	676		2,072		Income tax payable	687		2,072
Current maturities of long-term debt	Current maturities of long-term debt	3,138		3,074		Current maturities of long-term debt	3,139		3,074
Current portion of operating lease liabilities	Current portion of operating lease liabilities	4,962		5,704		Current portion of operating lease liabilities	5,103		5,704

Other current liabilities	Other current liabilities	13,457		8,718		Other current liabilities	12,439		8,718
Total current liabilities	Total current liabilities	91,834		74,017		Total current liabilities	84,444		74,017
Deferred tax liabilities	Deferred tax liabilities	7,920		7,456		Deferred tax liabilities	8,141		7,456

Long-term debt, net of current portion	Long-term debt, net of current portion	150,400		151,052		Long-term debt, net of current portion	151,317		151,052
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	51,597		51,295		Operating lease liabilities, net of current portion	50,899		51,295

Other non-current liabilities	Other non-current liabilities	14,724		17,289		Other non-current liabilities	13,031		17,289
Total liabilities	Total liabilities	316,475		301,109		Total liabilities	307,832		301,109
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)	0		0		Commitments and contingencies (Note 9)	0		0
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at March 31, 2022 and December 31, 2021, respectively		56,345		53,807

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						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:	Stockholders' equity:					Stockholders' equity:
Common stock - $0.01 par value per share, 90,000 shares authorized, 43,890 and 43,027 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		439		430
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						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 capital	Additional paid-in capital	473,072		474,757		Additional paid-in capital	473,019		474,757
Accumulated deficit	Accumulated deficit	(222,402)		(219,100)		Accumulated deficit	(230,969)		(219,100)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(28,081)		(31,902)		Accumulated other comprehensive loss	(36,167)		(31,902)
Total stockholders’ equity	Total stockholders’ equity	223,028		224,185		Total stockholders’ equity	206,322		224,185
Total liabilities, preferred stock, and stockholders’ equity	Total liabilities, preferred stock, and stockholders’ equity	$	595,848	$	579,101	Total liabilities, preferred stock, and stockholders’ equity	$	573,157	$	579,101

See notes to condensed consolidated financial statements (unaudited).

Table of ~~Conte~~Contents ~~nts~~

NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended ~~March 31,~~June 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 at March 31, 2022																		Balance at March 31, 2022		43,890		$	439		$	473,072			$	(222,402)			$	(28,081)			$	223,028
Net loss	Net loss	—	—		—		(3,302)				—				(3,302)			Net loss		—		—			—		(8,567)				—				(8,567)

Dividends accrued for preferred stock	Dividends accrued for preferred stock	—	—		(2,538)		—				—				(2,538)			Dividends accrued for preferred stock		—		—			(2,658)		—				—				(2,658)

Share-based compensation expense	Share-based compensation expense	893	9		940		—				—				949			Share-based compensation expense		(5)		—			2,606		—				—				2,606
Restricted shares forgiven for taxes	Restricted shares forgiven for taxes	(30)	—		(87)		—				—				(87)			Restricted shares forgiven for taxes		(1)		—			(1)		—				—				(1)

Change in fair value of interest rate swap, net of tax of $316		—	—		—		—				1,187				1,187
Reclassification of interest rate swap settlement to net loss, net of tax of $9		—	—		—		—				34				34
Foreign currency translation gain		—	—		—		—				2,600				2,600
Change in fair value of interest rate swap, net of tax of $98																		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																		Reclassification of interest rate swap settlement to net loss, net of tax of $8		—		—			—		—				31				31
Foreign currency translation loss																		Foreign currency translation loss		—		—			—		—				(8,490)				(8,490)

Balance at March 31, 2022		43,890	$	439	$	473,072	$	(222,402)			$	(28,081)			$	223,028
Balance at June 30, 2022																		Balance at June 30, 2022		43,884		$	439		$	473,019	$	(230,969)			$	(36,167)			$	206,322

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)
(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
Net loss — — — (4,913) — (4,913)
Dividends accrued for preferred stock — — (14,529) — — (14,529)
Share-based compensation expense 413 4 882 — — 886
Restricted shares forgiven for taxes (50) (1) (344) — — (345)
Reclassification of interest rate swap settlement to net loss, net of tax of $861 — — — — 2,851 2,851
Foreign currency translation loss — — — — (3,347) (3,347)
Balance at March 31, 2021 43,049 $ 430 $ 479,341 $ (210,788) $ (34,228) $ 234,755


	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

See notes to condensed consolidated financial statements (unaudited).

Table of ~~Conte~~Contents

NN, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2022 and 2021

(Unaudited)


	Common Stock					Accumulated deficit		Accumulated other comprehensive income (loss)
(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
Net loss	—	—				(11,869)		—		(11,869)

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


Share-based compensation expense	888	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, 2022	43,884	$	439	$	473,019	$	(230,969)	$	(36,167)	$	206,322


	Common Stock					Accumulated deficit		Accumulated other comprehensive income (loss)
(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
Net loss	—	—		—		(10,304)		—		(10,304)

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

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



Reclassification of interest rate swap 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, 2021	43,034	$	430	$	477,923	$	(216,179)	$	(29,819)	$	232,355

See notes to condensed consolidated financial statements (unaudited).

~~nts~~Table of Contents

NN, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 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	$	(3,302)	$	(4,913)	Net loss	$	(11,869)	$	(10,304)
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	11,429		11,568		Depreciation and amortization	22,769		23,255

Amortization of debt issuance costs and discount	Amortization of debt issuance costs and discount	332		405		Amortization of debt issuance costs and discount	662		718

Impairments of property, plant and equipment		233		—

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	Total derivative loss (gain), net of cash settlements	(2,543)		3,301		Total derivative loss (gain), net of cash settlements	(3,237)		3,973
Share of net income from joint venture, net of cash dividends received	Share of net income from joint venture, net of cash dividends received	1,934		(1,395)		Share of net income from joint venture, net of cash dividends received	1,515		(2,614)
Compensation expense from issuance of share-based awards	Compensation expense from issuance of share-based awards	949		886		Compensation expense from issuance of share-based awards	3,555		1,649
Deferred income taxes	Deferred income taxes	(42)		(1,605)		Deferred income taxes	94		(3,050)
Other	Other	(826)		(1,081)		Other	(2,763)		(1,154)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(17,633)		(6,684)		Accounts receivable	(13,264)		2,685
Inventories	Inventories	(5,536)		(5,589)		Inventories	(10,586)		(12,052)
Accounts payable	Accounts payable	11,416		7,094		Accounts payable	11,960		9,441
Income taxes receivable and payable, net	Income taxes receivable and payable, net	(631)		(344)		Income taxes receivable and payable, net	(475)		(6,326)
Other	Other	(1,003)		3,851		Other	(905)		(2,713)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	(5,223)		7,884		Net cash provided by (used in) operating activities	(2,544)		5,898
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	(4,262)		(5,468)		Acquisition of property, plant and equipment	(9,703)		(11,015)
Proceeds from sale of property, plant, and equipment	Proceeds from sale of property, plant, and equipment	36		11		Proceeds from sale of property, plant, and equipment	422		74

Cash paid for post-closing adjustments on sale of business						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	(4,226)		(20,877)		Net cash used in investing activities	(9,281)		(30,241)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Cash paid for debt issuance costs	Cash paid for debt issuance costs	—		(6,856)		Cash paid for debt issuance costs	—		(6,981)

Dividends paid						Dividends paid	—		—
Proceeds from issuance of preferred stock	Proceeds from issuance of preferred stock	—		61,918		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	8,000		150,000		Proceeds from long-term debt	20,000		156,000
Repayments of long-term debt	Repayments of long-term debt	(8,729)		(70,721)		Repayments of long-term debt	(19,482)		(77,442)
Repayments of short-term debt, net	Repayments of short-term debt, net	—		(1,090)		Repayments of short-term debt, net	—		(1,321)
Other	Other	(787)		(1,189)		Other	(1,528)		(2,685)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(1,516)		9,628		Net cash provided by (used in) financing activities	(1,010)		6,930
Effect of exchange rate changes on cash flows	Effect of exchange rate changes on cash flows	2,936		(1,740)		Effect of exchange rate changes on cash flows	(635)		818
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(8,029)		(5,105)		Net change in cash and cash equivalents	(13,470)		(16,595)
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	$	20,627	$	43,033	Cash and cash equivalents at end of period	$	15,186	$	31,543

See notes to condensed consolidated financial statements (unaudited).

Table of ~~Conte~~Contents ~~nts~~

NN, Inc.

Notes to Condensed Consolidated Financial Statements

~~March 31,~~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 ~~March 31,~~June 30, 2022 and 2021; financial position as of ~~March 31,~~June 30, 2022 and December 31, 2021; and cash flows for the ~~three~~six months ended ~~March 31,~~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 ~~March 31,~~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 ~~three~~six months ended ~~March 31,~~June 30, 2022.

~~Table of Contents~~

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

Table of Contents

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 2 reportable segments:

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

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

These divisions are considered our 2 operating segments as each engages in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and assessing performance.

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 March 31, 2022
Three Months Ended June 30, 2022											Three Months Ended June 30, 2022
Net sales	Net sales	$	76,070	$	52,011	$	(14)	(a)	$	128,067	Net sales	$	73,350	$	52,049	$	(37)	(a)	$	125,362

Income (loss) from operations	Income (loss) from operations	1,969		364		(5,753)			(3,420)		Income (loss) from operations	1,729		1,430		(7,673)			(4,514)
Interest expense	Interest expense								(3,439)		Interest expense								(3,488)
Other	Other								2,996		Other								67
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								$	(3,863)	Loss from operations before income taxes and share of net income from joint venture								$	(7,935)

Three Months Ended March 31, 2021
Three Months Ended June 30, 2021											Three Months Ended June 30, 2021
Net sales	Net sales	$	77,776	$	49,075	$	(47)	(a)	$	126,804	Net sales	$	73,886	$	49,271	$	—		$	123,157

Income (loss) from operations	Income (loss) from operations	6,090		2,432		(7,544)			978		Income (loss) from operations	2,509		2,875		(6,972)			(1,588)
Interest expense	Interest expense								(2,024)		Interest expense								(3,573)
Other	Other								(6,018)		Other								(1,680)
Loss from 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								$	(7,064)	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 operations	3,698		1,794		(13,426)			(7,934)
Interest expense								(6,927)
Other								3,063
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 operations	8,599		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.

Table of Contents

Note 3. Inventories

Inventories are comprised of the following amounts:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Raw materials	Raw materials	$	31,108	$	27,221	Raw materials	$	32,305	$	27,221
Work in process	Work in process	28,857		24,960		Work in process	29,653		24,960
Finished goods	Finished goods	21,274		22,846		Finished goods	22,768		22,846
Total inventories	Total inventories	$	81,239	$	75,027	Total inventories	$	84,726	$	75,027

~~Table of Contents~~

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	(838)		(2,749)		(3,587)		Amortization	(1,677)		(5,496)		(7,173)

Balance as of March 31, 2022		$	24,871	$	60,260	$	85,131
Balance as of June 30, 2022								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 ~~March 31,~~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 ~~March 31,~~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 ~~three~~six months ended ~~March 31,~~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 earnings	~~2,092~~2,511
Dividends paid by joint venture	(4,026)
Foreign currency translation ~~gain~~loss	66 (1,655)
Balance as of ~~March 31,~~June 30, 2022	$	~~32,177~~30,875

Note 6. Income Taxes

Our effective tax rate was ~~(39.6)~~(13.2)% and ~~10.7%~~(21.9)% for the three and six months ended ~~March 31,~~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 ~~March 31,~~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.

Table of Contents

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 ~~March 31,~~June 30, 2022 and December 31, 2021.


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Term Loan Facility	Term Loan Facility	$	148,500	$	148,875	Term Loan Facility	$	148,125	$	148,875

ABL Facility						ABL Facility	2,000		—
International lines of credit and other loans	International lines of credit and other loans	10,302		10,930		International lines of credit and other loans	9,306		10,930
Total principal	Total principal	158,802		159,805		Total principal	159,431		159,805
Less-current maturities of long-term debt	Less-current maturities of long-term debt	3,138		3,074		Less-current maturities of long-term debt	3,139		3,074
Principal, net of current portion	Principal, net of current portion	155,664		156,731		Principal, net of current portion	156,292		156,731
Less-unamortized debt issuance costs and discount (1)	Less-unamortized debt issuance costs and discount (1)	5,264		5,679		Less-unamortized debt issuance costs and discount (1)	4,975		5,679
Long-term debt, net of current portion	Long-term debt, net of current portion	$	150,400	$	151,052	Long-term debt, net of current portion	$	151,317	$	151,052

~~Table of Contents~~

(1) In addition to this amount, costs of ~~$0.7~~$0.6 million and $0.7 million related to the ABL Facility were recorded in other non-current assets as of ~~March 31,~~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 ~~March 31,~~June 30, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at ~~7.875%~~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 ~~March 31,~~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 ~~March 31,~~June 30, 2022, using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility ~~would have been 2.25% if there had been any balance outstanding.~~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 ~~March 31,~~June 30, 2022, we had no$2.0 million of outstanding borrowings under the ABL Facility, $11.1 million of outstanding letters of credit, and ~~$37.8~~$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 ~~March 31,~~June 30, 2022.

Table of Contents

Note 8. Leases

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


		Three Months Ended March 31,					Six Months Ended June 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	$	80	$	57	Operating cash flows used in finance leases	$	172	$	113
Operating cash flows used in operating leases	Operating cash flows used in operating leases	4,204		4,103		Operating cash flows used in operating leases	7,543		7,221
Financing cash flows used in finance leases	Financing cash flows used in finance leases	700		846		Financing cash flows used in finance leases	1,440		2,370
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		60		Right-of-use assets obtained in exchange for new finance lease liabilities	395		636
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)	1,305		—		Right-of-use assets obtained in exchange for new operating lease liabilities (1)	2,178		—

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

~~Table of Contents~~

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 ~~March 31,~~June 30, 2022.

Securities Offering Matter

~~On November 1, 2019,~~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”)~~, which complaint was~~. The amended ~~on January 24, 2020. The~~ complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 in connection with the Offering. ~~The plaintiffs seek~~

On July 25, 2022, the parties filed a Stipulation of Settlement, which is subject to ~~represent~~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 ~~class of stockholders who purchased shares of our common stock~~cash payment to the plaintiff in the ~~Offering. The complaint seeks unspecified monetary damages~~amount $9.5 million (the “Settlement Amount”), in exchange for which the Company and the other ~~relief. We believe~~named defendants will be released from all claims related to the ~~complaint~~securities offering action. As of June 30, 2022, we have previously

Table of Contents

paid covered expenses totaling $1.0 million meeting our directors' and ~~allegations to~~officers' retention requirement and therefore the Settlement Amount will be ~~without merit~~covered and ~~intend to vigorously defend ourself against these actions. We are unable at this time to determine whether the outcome of the litigation would have a material impact on~~paid by our ~~financial position, results of operations, or cash flows.~~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. ~~Since the~~The $1.8 million settlement ~~was related to claims made against us prior to March 31, 2022, it was recognized during the three months ended March 31, 2022 and~~ 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.

~~Table of Contents~~

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 ~~March 31,~~June 30, 2022, the carrying value of the Series D Preferred Stock shares was ~~$56.3~~$59.0 million, which included ~~$9.7~~$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 ~~three~~six months ended ~~March 31,~~June 30, 2022.


	~~Three~~Six Months Ended ~~March 31,~~June 30, 2022
Beginning balance	$	53,807



Accrual of in-kind dividends	~~2,142~~4,348
Amortization	~~396~~848

Ending balance	$	~~56,345~~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.

Table of Contents

The following tables summarize revenue by customer geographical region.


		Three Months Ended March 31, 2022									Three Months Ended June 30, 2022
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total			Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
United States and Puerto Rico	United States and Puerto Rico	$	37,810	$	40,486	$	(14)	$	78,282	United States and Puerto Rico	$	35,954	$	40,377	$	(37)	$	76,294
China	China	12,552		1,244		—		13,796		China	8,764		1,233		—		9,997
Brazil	Brazil	10,720		345		—		11,065		Brazil	11,293		312		—		11,605
Mexico	Mexico	5,064		4,741		—		9,805		Mexico	8,087		4,358		—		12,445
Germany	Germany	1,283		62		—		1,345		Germany	1,121		73		—		1,194
Poland	Poland	1,340		4		—		1,344		Poland	1,158		1		—		1,159
Other	Other	7,301		5,129		—		12,430		Other	6,973		5,695		—		12,668
Total net sales	Total net sales	$	76,070	$	52,011	$	(14)	$	128,067	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
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
United States and Puerto Rico	$	73,764	$	80,863	$	(51)	$	154,576
China	21,316		2,477		—		23,793
Brazil	22,013		657		—		22,670
Mexico	13,151		9,099		—		22,250
Germany	2,404		135		—		2,539
Poland	2,498		5		—		2,503
Other	14,274		10,824		—		25,098
Total net sales	$	149,420	$	104,060	$	(51)	$	253,429


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

1214

Table of ~~Conte~~Contents ~~nts~~

Three Months Ended March 31, 2021
Mobile
Solutions Power
Solutions Intersegment
Sales
Eliminations Total
United States and Puerto Rico $ 37,438 $ 39,806 $ (47) $ 77,197
China 14,414 1,506 — 15,920
Brazil 9,668 192 — 9,860
Mexico 5,015 3,397 — 8,412
Germany 1,767 164 — 1,931
Poland 1,180 4 — 1,184
Other 8,294 4,006 — 12,300
Total net sales $ 77,776 $ 49,075 $ (47) $ 126,804

The following tables summarize revenue by customer industry. Our products in the automotive industry include high-precision components and assemblies for 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 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 March 31, 2022									Three Months Ended June 30, 2022
		Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total			Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	Automotive	$	50,596	$	10,078	$	—	$	60,674	Automotive	$	48,850	$	9,728	$	—	$	58,578
General Industrial	General Industrial	21,805		16,335		—		38,140		General Industrial	20,532		16,640		—		37,172
Residential/Commercial Electrical	Residential/Commercial Electrical	—		17,199		—		17,199		Residential/Commercial Electrical	—		18,757		—		18,757
Other	Other	3,669		8,399		(14)		12,054		Other	3,968		6,924		(37)		10,855
Total net sales	Total net sales	$	76,070	$	52,011	$	(14)	$	128,067	Total net sales	$	73,350	$	52,049	$	(37)	$	125,362

Three Months Ended March 31, 2021
Mobile
Solutions Power
Solutions Intersegment
Sales
Eliminations Total
Automotive $ 50,144 $ 10,425 $ — $ 60,569
General Industrial 24,310 15,374 — 39,684
Residential/Commercial Electrical — 15,354 — 15,354
Other 3,322 7,922 (47) 11,197
Total net sales $ 77,776 $ 49,075 $ (47) $ 126,804


	Three Months Ended June 30, 2021
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	$	46,247	$	9,657	$	—	$	55,904
General Industrial	24,449		15,057		—		39,506
Residential/Commercial Electrical	—		16,219		—		16,219
Other	3,190		8,338		—		11,528
Total net sales	$	73,886	$	49,271	$	—	$	123,157


	Six Months Ended June 30, 2022
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	$	99,446	$	19,806	$	—	$	119,252
General Industrial	42,337		32,975		—		75,312
Residential/Commercial Electrical	—		35,956		—		35,956
Other	7,637		15,323		(51)		22,909
Total net sales	$	149,420	$	104,060	$	(51)	$	253,429


	Six Months Ended June 30, 2021
	Mobile Solutions		Power Solutions		Intersegment Sales Eliminations		Total
Automotive	$	96,391	$	20,082	$	—	$	116,473
General Industrial	48,759		30,431		—		79,190
Residential/Commercial Electrical	—		31,573		—		31,573
Other	6,512		16,260		(47)		22,725
Total net sales	$	151,662	$	98,346	$	(47)	$	249,961

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 ~~$0.4~~$0.6 million and $0.5 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Revenue recognized for performance obligations satisfied or partially satisfied during the ~~three~~six months ended ~~March 31,~~June 30, 2022 included ~~$0.3~~$0.5 million that was included in deferred revenue as of December 31, 2021.

Table of Contents

Transaction Price Allocated to Future Performance Obligations

We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of ~~March 31,~~June 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.

~~Table of Contents~~

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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Stock options	Stock options	$	56	$	89		Stock options	$	31	$	59	$	87	$	148
Restricted stock	Restricted stock	604		548			Restricted stock	2,158		591		2,762		1,139
Performance share units	Performance share units	289		249			Performance share units	417		450		706		699

Change in estimate of share-based award vesting (1)							Change in estimate of share-based award vesting (1)	—		(337)		—		(337)
Share-based compensation expense	Share-based compensation expense	$	949	$	886		Share-based compensation expense	$	2,606	$	763	$	3,555	$	1,649

_______________________________

(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 ~~three~~six months ended ~~March 31,~~June 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	(71)	9.83						Expired	(79)	9.71
Outstanding at March 31, 2022		550	$	12.55	4.0 years	$	—	(1)
Exercisable at March 31, 2022		523	$	12.71	3.8 years	$	—	(1)
Outstanding at June 30, 2022									Outstanding at June 30, 2022	542	$	12.61	4.1 years	$	—	(1)
Exercisable at June 30, 2022									Exercisable at June 30, 2022	515	$	12.77	3.9 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 ~~March 31,~~June 30, 2022, was greater than the exercise price of any individual option grant.

Restricted Stock

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, we granted 897,000 shares of restricted stock to non-executive directors, officers and certain other key ~~employees.~~employees under the NN, Inc. 2019 Omnibus Incentive Plan (“2019 Omnibus Plan”). The shares of restricted stock granted during the ~~three~~six months ended ~~March 31,~~June 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 ~~three~~six months ended ~~March 31,~~June 30, 2022, was $3.31 per share. Total grant date fair value of restricted stock that vested in the ~~three~~six months ended ~~March 31,~~June 30, 2022, was ~~$1.8~~$2.1 million.

Table of Contents

The following table presents the status of unvested restricted stock awards as of ~~March 31,~~June 30, 2022 and changes during the ~~three~~six months then ended.


		Nonvested Restricted Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)			Nonvested Restricted Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)
Unvested at January 1, 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	(261)	7.01		Vested	(291)	7.05
Forfeited	Forfeited	(4)	7.49		Forfeited	(9)	4.73
Unvested at March 31, 2022		1,101	$	4.11
Unvested at June 30, 2022					Unvested at June 30, 2022	1,066	$	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

~~Table of Contents~~

return on invested capital (“ROIC Awards”). TSR Awards granted in 2022 were made pursuant to the ~~NN, Inc.~~ 2019 Omnibus ~~Incentive~~ Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”). No ROIC Awards granted in 2022 were ~~granted during~~made pursuant to the ~~three months ended March 31, 2022.~~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 ~~TSR Awards~~PSUs granted in 2022.

~~TSR Awards:~~

Threshold
Performance
(25% of Shares)

Target Performance
(100% of Shares)

Maximum Performance
(150% of Shares)

~~2022 grants~~

~~25th Percentile~~

~~55th Percentile~~

~~75th Percentile~~

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.

Table of Contents

The following table presents the status of unvested PSUs as of ~~March 31,~~June 30, 2022 and changes during the ~~three~~six months then ended.


		Nonvested TSR Awards			Nonvested ROIC Awards				Nonvested TSR Awards			Nonvested ROIC Awards
		Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)		Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)			Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)		Shares (in thousands)	Weighted Average Grant-Date Fair Value (per share)
Nonvested at January 1, 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		—	—		Granted	382	2.53		408	2.62

Nonvested at March 31, 2022		576	$	4.90	228	$	8.14
Nonvested at June 30, 2022								Nonvested at June 30, 2022	576	$	4.90	636	$	4.60

~~Table of Contents~~

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 December 31, 2021		$	(32,016)	$	151	$	(37)	$	(31,902)
Balance at March 31, 2022										Balance at March 31, 2022	$	(29,416)	$	1,698	$	(363)	$	(28,081)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	2,600		1,503		(316)		3,787		Other comprehensive income (loss) before reclassifications	(8,490)		471		(98)		(8,117)
Amounts reclassified from AOCI to interest expense (2)	Amounts reclassified from AOCI to interest expense (2)	—		44		(10)		34		Amounts reclassified from AOCI to interest expense (2)	—		38		(7)		31

Net other comprehensive income (loss)	Net other comprehensive income (loss)	2,600		1,547		(326)		3,821		Net other comprehensive income (loss)	(8,490)		509		(105)		(8,086)
Balance at March 31, 2022		$	(29,416)	$	1,698	$	(363)	$	(28,081)
Balance at June 30, 2022										Balance at June 30, 2022	$	(37,906)	$	2,207	$	(468)	$	(36,167)

Balance at December 31, 2020		$	(30,881)	$	(3,712)	$	861	$	(33,732)
Other comprehensive income (loss) before reclassifications		(3,347)		—		—		(3,347)
Balance at March 31, 2021										Balance at March 31, 2021	$	(34,228)	$	—	$	—	$	(34,228)

Amounts reclassified from AOCI to loss on interest rate swap		—		3,712		(861)		2,851

Net other comprehensive income (loss)	Net other comprehensive income (loss)	(3,347)		3,712		(861)		(496)		Net other comprehensive income (loss)	4,409		—		—		4,409
Balance at March 31, 2021		$	(34,228)	$	—	$	—	$	(34,228)
Balance at June 30, 2021										Balance at June 30, 2021	$	(29,819)	$	—	$	—	$	(29,819)


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

Net other comprehensive income (loss)	(5,890)		2,056		(431)		(4,265)
Balance at June 30, 2022	$	(37,906)	$	2,207	$	(468)	$	(36,167)

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

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

______________________

(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

Table of Contents

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 ~~income (loss)~~loss per common share.


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Numerator:	Numerator:						Numerator:
Net loss	Net loss	$	(3,302)	$	(4,913)		Net loss	$	(8,567)	$	(5,391)	$	(11,869)	$	(10,304)
Less: Preferred stock cumulative dividends and deemed dividends	Less: Preferred stock cumulative dividends and deemed dividends	(2,538)		(14,529)			Less: Preferred stock cumulative dividends and deemed dividends	(2,658)		(2,211)		(5,196)		(16,740)

Numerator for basic and diluted undistributed net loss per common share (1)	Numerator for basic and diluted undistributed net loss per common share (1)	$	(5,840)	$	(19,442)		Numerator for basic and diluted undistributed net loss per common share (1)	$	(11,225)	$	(7,602)	$	(17,065)	$	(27,044)

Denominator:	Denominator:						Denominator:
Weighted average common shares outstanding	Weighted average common shares outstanding	43,308		42,836			Weighted average common shares outstanding	43,885		43,067		43,599		42,952
Adjustment for unvested restricted common stock	Adjustment for unvested restricted common stock	(608)		(375)			Adjustment for unvested restricted common stock	(1,070)		(524)		(844)		(450)
Adjustment for 2021 Warrants outstanding (2)	Adjustment for 2021 Warrants outstanding (2)	1,894		211			Adjustment for 2021 Warrants outstanding (2)	1,893		1,897		1,894		1,059
Shares used to calculate loss per share, basic and diluted		44,594		42,672
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

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

Basic and diluted loss per common share		$	(0.13)	$	(0.46)
Basic and diluted net loss per common share							Basic and diluted net loss per common share	$	(0.25)	$	(0.17)	$	(0.38)	$	(0.62)
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.

~~Table of Contents~~

(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 March 31,		Three Months Ended June 30,			Six Months Ended June 30,
		2022	2021			2022	2021	2022	2021
Options	Options	600	847		Options	546	825	573	843
2019 Warrants	2019 Warrants	1,500	1,500		2019 Warrants	1,500	1,500	1,500	1,500

		2,100	2,347			2,046	2,325	2,073	2,343

We have elected to allocate undistributed income to participating securities based on year-to-date results. As there was no undistributed income for the ~~three~~six months ended ~~March 31,~~June 30, 2022, no such allocation was necessary. In addition, given the undistributed loss in the three and six months ended ~~March 31,~~June 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 ~~March 31,~~June 30, 2022, and $7.93 to $25.16 for three months ended ~~March 31,~~June 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 months ended June 30, 2022, and $7.93 to $25.16 for six months ended June 30, 2021. The 2019 Warrants excluded from the calculation of diluted net loss per share for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, had a per share exercise price of $11.49.

Table of Contents

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 ~~March 31,~~June 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.

~~Table of Contents~~

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

Fair Value Measurements as of March 31, 2022

Fair Value Measurements as of June 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

5,453

—

228

Derivative liability - other non-current liabilities

4,788

—

199

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

Table of Contents

The following table presents the change in the Preferred Stock derivatives during the ~~three~~six months ended ~~March 31,~~June 30, 2022.


			~~Three~~Six Months Ended ~~March 31,~~June 30, 2022
Beginning balance			$	8,224

Change in fair value (1)		~~(2,543)~~(3,237)

Ending balance	$	~~5,681~~4,987

(1) Changes in the fair value are recognized in the “Other ~~income,~~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 ~~March 31,~~June 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 ~~3.1~~2.9 years as of ~~March 31,~~June 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

~~Table of Contents~~

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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Interest expense (1)	Interest expense (1)	$	44	$	—		Interest expense (1)	$	38	$	—	$	82	$	—
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.

Table of Contents

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

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

Fair Value Measurements as of ~~March 31,~~June 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

—

~~364~~1,078

—

Derivative asset - other non-current assets

—

~~1,337~~1,133

—

Total

—

~~1,701~~2,211

—


	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��~~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 ~~March 31,~~June 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 ~~$10.3~~$9.3 million and $10.9 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

1922

Table of ~~Conte~~Contents ~~nts~~

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

Overview

NN, Inc. is a global diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies primarily for the electrical, automotive, general industrial, aerospace, 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 ~~three~~six months ended ~~March 31,~~June 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 COVID-19 Pandemic

~~Although the United States~~The COVID-19 pandemic continues to impact our business operations and ~~global economy~~our customers' and suppliers' ability to operate at normal levels. Disruptions in normal operating levels continue to ~~recover from the COVID-19 pandemic, we cannot predict when a full economic recovery will occur. The impact of new~~create supply chain disruptions and more easily transmitted variants of COVID-19, such as the Delta and Omicron variants, cannot be predicted at this time and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against any new variants,inflationary cost pressures within our end-markets. We anticipate supply chain constraints and the response by governmental bodies and regulators. Further surges in COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations.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. ~~Global vehicle~~During the first half of 2022, production ~~decreased significantly in 2020, but production ramped back up in 2021. However, production continues~~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 ~~cost,~~costs, particularly labor and materials, in 2022 and is expected to continue into future periods. ~~A worldwide semiconductor chip shortage~~

2023

Table of ~~Conte~~Contents ~~nts~~

continues to affect automotive original equipment manufacturers, causing unpredictable volumes. The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on our business, financial condition, results of operations, and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 pandemic.

~~While managing decreased demand in many regions across the globe, we are now operating at all of our business locations.~~ We have ~~implemented training~~undertaken a number of permanent and ~~recruiting programs~~temporary actions to ~~address labor shortages.~~ manage the evolving situation. We continue to streamline facilities and implement cost savings initiatives. Capital expenditures and travel costs remain at relatively low levels.

We are focused on the health and safety of our employees, customers, and ~~suppliers. We~~suppliers and have ~~developed and~~ 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 the Centers for Disease Control and Prevention and 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 may affect workforce availability ranging from absences for vaccinations, booster shots, and recovery from side-effects. ~~Significant~~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.

~~We have undertaken a number~~COVID-19 and its impacts are unprecedented and continuously evolving, and the long-term impacts to our business, financial condition, results of ~~permanent~~operations and ~~temporary actions to manage the evolving situation. We continue to streamline facilities and implement cost savings initiatives. Capital expenditures and travel costs remain at relatively low levels.~~cash flows are still uncertain.

Three Months Ended ~~March 31,~~June 30, 2022 compared to the Three Months Ended ~~March 31,~~June 30, 2021

Consolidated Results


		Three Months Ended March 31,								Three Months Ended June 30,
		2022		2021		$ Change				2022				2021			$ Change
Net sales	Net sales	$	128,067	$	126,804	$	1,263				Net sales	$	125,362		$	123,157		$	2,205

Organic growth	Organic growth							$	1,104		Organic growth									$	2,700
Foreign exchange effects	Foreign exchange effects							159			Foreign exchange effects									$	(495)
Cost of sales (exclusive of depreciation and amortization shown separately below)	Cost of sales (exclusive of depreciation and amortization shown separately below)	104,578		99,688		$	4,890				Cost of sales (exclusive of depreciation and amortization shown separately below)	103,889			99,797			$	4,092
Selling, general, and administrative expense	Selling, general, and administrative expense	13,454		14,575		(1,121)					Selling, general, and administrative expense	14,794			13,585			1,209

Depreciation and amortization	Depreciation and amortization	11,429		11,568		(139)					Depreciation and amortization	11,340			11,687			(347)

Other operating expense (income), net		2,026		(5)		2,031
Income (loss) from operations		(3,420)		978		(4,398)
Other operating income, net											Other operating income, net	(147)			(324)			177
Loss from operations											Loss from operations	(4,514)			(1,588)			(2,926)
Interest expense	Interest expense	3,439		2,024		1,415					Interest expense	3,488			3,573			(85)
Loss on extinguishment of debt and write-off of debt issuance costs		—		2,390		(2,390)
Derivative payments on interest rate swap		—		1,717		(1,717)
Loss on interest rate swap		—		2,033		(2,033)
Other income, net		(2,996)		(122)		(2,874)

Other expense (income), net											Other expense (income), net	(67)			1,680			(1,747)
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	(3,863)		(7,064)		3,201					Loss before benefit (provision) for income taxes and share of net income from joint venture	(7,935)			(6,841)			(1,094)
Benefit (provision) for income taxes	Benefit (provision) for income taxes	(1,531)		756		(2,287)					Benefit (provision) for income taxes	(1,051)			231			(1,282)
Share of net income from joint venture	Share of net income from joint venture	2,092		1,395		697					Share of net income from joint venture	419			1,219			(800)

Net loss	Net loss	$	(3,302)	$	(4,913)	$	1,611				Net loss	$	(8,567)		$	(5,391)		$	(3,176)

Net Sales. Net sales increased by ~~$1.3~~$2.2 million, or 1%1.8%, during the three months ended ~~March 31,~~June 30, 2022, compared to the three months ended ~~March 31,~~June 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 ~~decreased~~lower demand ~~from automotive customers due largely to~~in Mobile Solutions which was impacted by the ~~ongoing global semi-conductor shortage.~~war in Ukraine, COVID disruptions in China, continued supply chain disruptions and unfavorable foreign exchange effects of $0.5 million.

Cost of Sales. Cost of sales increased by ~~$4.9~~$4.1 million, or 5%4.1%, during the three months ended ~~March 31,~~June 30, 2022, compared to the three months ended ~~March 31,~~June 30, 2021, primarily due to ~~increased material costs. In addition, the prior year cost of~~inflationary costs, partially offset by lower sales ~~benefited from favorable overhead absorption.~~volume.

~~Table of Contents~~

Selling, General, and Administrative Expense. Selling, general, and administrative expense ~~decreased~~increased by ~~$1.1~~$1.2 million during the three months ended ~~March 31,~~June 30, 2022, compared to the three months ended ~~March 31,~~June 30, 2021, primarily due to legal fees related to litigation, higher stock compensation expense and higher professional fees. These increases were partially offset by the reduction in severance and retention costs incurred in the prior year.

Table of Contents

Interest Expense. Interest expense decreased by $0.1 million during the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to a higher amount of interest expense that was capitalized in the current quarter compared with the second quarter of 2021.


	Three Months Ended June 30,
	2022		2021
Interest on debt	$	3,109	$	3,110
Interest rate swap settlements	38		—
Amortization of debt issuance costs and discount	330		313
Capitalized interest	(175)		(80)
Other	186		230
Total interest expense	$	3,488	$	3,573

Other Expense, Net. Other expense (income), net changed favorably by $1.7 million during the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due to noncash derivative mark-to-market gains during 2022 and the impact of a litigation settlement reached during the second 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)% for the three months ended June 30, 2022, compared to 3.4% for the three months ended June 30, 2021. The rate for the three months ended June 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.

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

Results by Segment

MOBILE SOLUTIONS


	Three Months Ended June 30,
	2022		2021		$ Change
Net sales	$	73,350	$	73,886	$	(536)
Organic decline							$	(75)
Foreign exchange effects							(461)
Income from operations	$	1,729	$	2,509	$	(780)

Net sales decreased by $0.5 million, or (0.7)%, during the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to lower ~~personnel costs.~~sales of diesel components due to lower European demand which is impacted by the war in Ukraine, pandemic interruptions in China, lost sales associated with certain fuel systems reaching end of production, and unfavorable foreign exchange effects of $0.5 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 from operations decreased by $0.8 million during the three months ended June 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, and labor constraints caused by pandemic interruptions.

Table of Contents

POWER SOLUTIONS


	Three Months Ended June 30,
	2022		2021		$ Change
Net sales	$	52,049	$	49,271	$	2,778
Organic growth							$	2,812
Foreign exchange effects							(34)
Income from operations	$	1,430	$	2,875	$	(1,445)

Net sales increased by $2.8 million, or 5.6%, during the three months ended June 30, 2022 compared to the three months ended June 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, offset by lower sales to automotive and aerospace and defense customers.

Income from operations decreased by $1.4 million during the three months ended June 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 and uneven customer ordering patterns.

Six Months Ended June 30, 2022, compared to the Six Months Ended June 30, 2021

Consolidated Results


	Six Months Ended June 30,
	2022		2021		$ Change
Net sales	$	253,429	$	249,961	$	3,468
Organic growth							$	3,804
Foreign exchange effects							$	(336)
Cost of sales (exclusive of depreciation and amortization shown separately below)	208,467		199,485		$	8,982
Selling, general, and administrative expense	28,248		28,160		88

Depreciation and amortization	22,769		23,255		(486)


Other operating expense (income), net	1,879		(329)		2,208
Loss from operations	(7,934)		(610)		(7,324)
Interest expense	6,927		5,597		1,330
Loss on extinguishment of debt and write-off of debt issuance costs	—		2,390		(2,390)
Derivative payments on interest rate swap	—		1,717		(1,717)
Loss on interest rate swap	—		2,033		(2,033)
Other expense (income), net	(3,063)		1,558		(4,621)
Loss before benefit (provision) for income taxes and share of net income from joint venture	(11,798)		(13,905)		2,107
Benefit (provision) for income taxes	(2,582)		987		(3,569)
Share of net income from joint venture	2,511		2,614		(103)


Net loss	$	(11,869)	$	(10,304)	$	(1,565)

Net Sales. Net sales increased by $3.5 million, or 1.4%, during the six months ended June 30, 2022, compared to the six months ended June 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 and unfavorable foreign exchange effects $0.3 million.

Cost of Sales. Cost of sales increased by $9.0 million, or 4.5%, during the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due to inflationary costs, partially offset by lower sales volume.

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

Table of Contents

Other Operating Expense (Income), Net. Other operating expense (income), net changed unfavorably by ~~$2.0~~$2.2 million primarily due to a legal settlement reached during the ~~three months ended March 31,~~first quarter of 2022.

Interest Expense. Interest expense increased by ~~$1.4~~$1.3 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 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.


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Interest on debt	Interest on debt	$	3,071	$	1,439	Interest on debt	$	6,180	$	4,549
Interest rate swap settlements	Interest rate swap settlements	44		—		Interest rate swap settlements	82		—
Amortization of debt issuance costs and discount	Amortization of debt issuance costs and discount	332		405		Amortization of debt issuance costs and discount	662		718
Capitalized interest	Capitalized interest	(125)		(31)		Capitalized interest	(300)		(111)
Other	Other	117		211		Other	303		441
Total interest expense	Total interest expense	$	3,439	$	2,024	Total interest expense	$	6,927	$	5,597

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 ~~Income,~~Expense (Income), Net. Other ~~income,~~expense (income), net changed favorably by ~~$2.9~~$4.6 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, due to noncash derivative mark-to-market gains during 2022 and ~~favorable foreign exchange effects associated with intercompany borrowings.~~the impact of a litigation settlement reached during the second quarter of 2021.

Benefit (Provision) ~~For~~for Income ~~Taxes~~Taxes. . Our effective tax rate was ~~(39.6)~~(21.9)% for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~10.7%~~7.1% for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The rate for the ~~three~~six months ended ~~March 31,~~June 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 rate for the six months ended June 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 ~~increased~~decreased during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, primarily due to decreased profits resulting from inflationary costs partially offset by higher sales volume. The JV, in which we own a 49% investment, recognized net sales of ~~$26.5~~$49.4 million and ~~$23.4~~$45.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively.

Results by Segment

MOBILE SOLUTIONS


		Three Months Ended March 31,									Six Months Ended June 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	76,070	$	77,776	$	(1,706)			Net sales	$	149,420	$	151,662	$	(2,242)

Organic decline	Organic decline							$	(1,865)	Organic decline							$	(1,940)
Foreign exchange effects	Foreign exchange effects							159		Foreign exchange effects							(302)
Income from operations	Income from operations	$	1,969	$	6,090	$	(4,121)			Income from operations	$	3,698	$	8,599	$	(4,901)

Net sales decreased by ~~$1.7~~$2.2 million, or (1.5)%, during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, primarily due to lower sales ~~volume,~~of diesel components due to lower European demand which was impacted by the war in Ukraine, pandemic interruptions in China, lost sales associated with certain fuel systems reaching end of production, and unfavorable foreign exchange effects of $0.3 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 and favorable foreign exchange effects of $0.2 million.~~demand.

Income from operations decreased by ~~$4.1~~$4.9 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the same period in the prior year, primarily due to ~~lower sales volume~~inflationary costs not fully recovered in customer pricing and variable cost inefficiencies

Table of Contents

associated with supply chain interruptions,

~~Table of Contents~~

uneven customer ordering patterns, and labor constraints caused by pandemic interruptions. ~~In addition, prior year income from operations benefited by favorable overhead absorption as the result of a build up of inventory during the three months ended March 31, 2021.~~

POWER SOLUTIONS


		Three Months Ended March 31,									Six Months Ended June 30,
		2022		2021		$ Change					2022		2021		$ Change
Net sales	Net sales	$	52,011	$	49,075	$	2,936			Net sales	$	104,060	$	98,346	$	5,714

Organic growth	Organic growth							$	2,936	Organic growth							$	5,748

Foreign exchange effects										Foreign exchange effects							(34)
Income from operations	Income from operations	$	364	$	2,432	$	(2,068)			Income from operations	$	1,794	$	5,307	$	(3,513)

Net sales increased by ~~$2.9~~$5.7 million, or 5.8%, during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2021, primarily due ~~increased~~to higher customer pricing to recover ~~certain~~ inflationary costs.

Income from operations decreased by ~~$2.1~~$3.5 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the same period in the prior year, primarily due to ~~higher selling, general~~a $1.8 million litigation settlement to settle claims from 2016, inflationary costs which were not fully recovered from pricing, variable cost inefficiencies associated with supply chain interruptions, uneven customer ordering patterns, and ~~administrative costs and a legal settlement reached during the three months ended March 31, 2022. The increase in these expenses was partially offset~~labor constraints caused by ~~an increase in favorable overhead absorption during the first quarter of 2022.~~pandemic interruptions.

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

Overview

From December 31, 2021 to ~~March 31,~~June 30, 2022, total assets ~~increased~~decreased by ~~$16.7~~$5.9 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 ~~three~~six months ended ~~March 31,~~June 30, 2022. The increase in accounts receivable is due to higher sales during the ~~current quarter compared with the fourth quarter~~end of ~~2021. Inventories increased due to higher sales in~~ the current quarter compared with the end of the fourth quarter of ~~2021 and~~2021. The value of inventory increased due to higher material ~~costs.~~costs as well as higher quantities to maintain customer safety stock due to ongoing supply chain interruptions, especially in China.

From December 31, 2021 to ~~March 31,~~June 30, 2022, total liabilities increased by ~~$15.4~~$6.7 million, primarily due to increases in accounts payable ~~accrued salaries and benefits and the accrual for a legal settlement reached during the first quarter of 2022. The increase in accounts payable is~~ attributed to higher inventory balances at ~~March 31,~~June 30, 2022.

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

Cash Flows

Cash used in operations was ~~$5.2~~$2.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared with cash provided by operations of ~~$7.9~~$5.9 million for the ~~three~~six months ended ~~March 31,~~June 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 ~~$4.2~~$9.3 million for the ~~three~~six months ended ~~December 31, 2021,~~June 30, 2022, compared with cash used in investing activities of ~~$20.9~~$30.2 million for the ~~three~~six months ended ~~March 31,~~June 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 financing activities was ~~$1.5~~$1.0 million for the ~~three~~six months ended ~~December 31, 2021,~~June 30, 2022, compared with cash provided by financing activities of ~~$9.6~~$6.9 million for the ~~three~~six months ended ~~March 31,~~June 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 ~~March 31,~~June 30, 2022, was ~~$148.5~~$148.1 million, without regard to unamortized debt issuance costs and discount. As of ~~March 31,~~June 30, 2022, we had ~~$37.8~~$36.9 million available for future borrowings under the ABL Facility. This amount of borrowing capacity is net of $2.0 million of outstanding borrowings and $11.1 million of outstanding letters of credit at ~~March 31,~~June 30, 2022, which are considered as usage of the ABL 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. IfOutstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR ~~is less than 1.00%, then we pay 7.875% per annum in interest. If one-month LIBOR exceeds 1.00%, then we pay the variable one-month LIBOR~~(subject to a 1.000% floor) plus an applicable margin of 6.875% or 2) the greater of various benchmark

2328

Table of ~~Conte~~Contents ~~nts~~

~~6.875%~~rates plus an applicable margin of 5.875%. Based on the interest rate in effect at ~~March 31,~~June 30, 2022, and the fixed rate on the 2021 interest rate swap, annual interest payments would be approximately ~~$11.9~~$12.4 million.

The ABL Facility bears interest on a variable rate structure with borrowings bearing interest at one-month LIBOR plus an applicable margin of 1.75%. The interest rate in effect at ~~March 31,~~June 30, 2022, was ~~2.25%~~3.00%. 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 ~~March 31,~~June 30, 2022. Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions.

Seasonality and Fluctuation in Quarterly Results

General economic conditions impact our business and financial results, and certain businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, European sales are often weaker in the summer months as customers slow production and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not materially impacted by seasonality.

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 ~~three~~six months ended ~~March 31,~~June 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 ~~March 31,~~June 30, 2022, we had ~~$148.5~~$148.1 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 ~~$0.5~~$0.9 million on an annualized basis due to the fact that the Term Loan Facility is subject to a LIBOR floor of 1.00% and one-month LIBOR was below the floor as of ~~March 31,~~June 30, 2022.

~~We had no~~At June 30, 2022, using one-month LIBOR plus a 1.75% spread, the interest rate on the $2.0 million of outstanding borrowings under the ABL Facility ~~at March 31, 2022.~~

was 3.00%.

Foreign Currency Risk

Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. We participate in various third party and intercompany loans, payables, and receivables denominated in currencies other than the U.S. dollar. To help reduce exposure to foreign currency fluctuation, we have incurred debt in euros in the past. From time to time, we may use foreign currency derivatives to hedge currency exposures when these exposures meet certain discretionary levels. We did not hold a position in any foreign currency derivatives as of ~~March 31,~~June 30, 2022.

2429

Table of ~~Conte~~Contents ~~nts~~

Item 4.Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2530

Table of ~~Conte~~Contents ~~nts~~

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, ~~and~~ 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 ~~prices~~and other commodities have increased significantly, and, in response to the sanctions imposed on Russia ~~recently announced its decision to cease~~by Western countries, Russia has reduced the ~~sale~~volume of natural gas it sends to ~~Poland and Bulgaria for those countries’ refusal to pay in rubles.~~European countries. As a result of ~~this~~of increased oil prices and Russia’s decision ~~by Russia and rising oil prices,~~to reduce the volume of natural gas sold to European countries, utility costs in Europe have increased dramatically. Our facilities in Poland and France ~~will be~~have been negatively impacted by rising energy costs, ~~and such impacts~~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 ~~March 31,~~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)
January 2022 — $ — — —
February 2022 9,785 2.98 — —
March 2022 19,803 2.90 — —
Total 29,588 $ 2.93 — —


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 ~~NN, Inc.~~ 2019 Omnibus ~~Incentive Plan (the “Plan”).~~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.

Table of Contents

Item 3.Defaults Upon Senior Securities

None.

~~Table of Contents~~

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

Item 6.Exhibits


Exhibit Number						Description of Exhibit

10.1						~~Amendment No. 1~~2022 Omnibus Incentive Plan (incorporated by reference to ~~Term Loan Credit Agreement, dated as of March 3, 2022, by~~Appendix A to NN, Inc.’s Definitive Proxy Statement on Schedule 14A filed with the Securities and ~~among NN, Inc., certain subsidiaries of NN, Inc., the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent (Filed as Exhibit 10.1 to the Registrant’s Current Report~~Exchange Commission on ~~Form 8-K filed on March 3, 2022 and incorporated herein by reference~~).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).

2732

Table of Contents

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.~~


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			NN, Inc.
			(Registrant)

Date: ~~May 6,~~August 5, 2022			/s/ Warren A. Veltman
			Warren A. Veltman
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
			(Duly Authorized Officer)

Date: ~~May 6,~~August 5, 2022			/s/ Michael C. Felcher
			Michael C. Felcher
			Senior Vice President - Chief Financial Officer
			(Principal Financial and Accounting Officer)
			(Duly Authorized Officer)