NN, INC. 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 toNN, 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 toNN, Inc. , based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "guidance," "intend," "may," "possible," "potential," "predict," "project" or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that are outside of management's control and that may cause actual results to be materially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial sector; the impacts of the COVID-19 pandemic on the Company's financial condition, business operations and liquidity; competitive influences; risks that current customers will commence or increase captive production; risks of capacity underutilization; quality issues; availability of raw materials; currency and other risks associated with international trade; our dependence on certain major customers, some of whom are not parties to long-term agreements (and/or are terminable on short notice); the impact of acquisitions and divestitures; the level of our indebtedness; the restrictions contained in our debt agreements; our ability to obtain financing at favorable rates, if at all, and to refinance existing debt as it matures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; and other risk factors and cautionary statements listed from time-to-time in our periodic reports filed with theSecurities and Exchange Commission . We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or therein to reflect future events or developments. For additional information concerning such risk factors and cautionary statements, please see the sections titled "Item 1A. Risk Factors" in the 2020 Annual Report and this Quarterly Report. Results of Operations Factors That May Influence Results of Operations The following paragraphs describe factors that have influenced results of operations for the six months endedJune 30, 2021 , that management believes are important to provide an understanding of the business and results of operations or that may influence operations in the future. Global COVID-19 Pandemic The COVID-19 pandemic continues to disruptthe United States and global economy, and we cannot predict when a full economic recovery will occur. Although product volumes are beginning to return to more normalized levels and our operating results in 2021 reflect momentum in the recovery of our business from the effects of the COVID-19 pandemic, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread inthe United States and across the globe. The impact of the Delta variant 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 the Delta variant, 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. The spread of COVID-19 and the responses thereto have created a disruption in the manufacturing, delivery, and overall supply chain of automobile manufacturers and suppliers, as well as disruption within the power industry. Global vehicle production decreased significantly in 2020, but production has since ramped back up. Disruptions of normal supply chains have caused challenges in obtaining raw materials we use in the manufacture of some of our products. We have been increasing our inventories in the current year to mitigate the risk of supply chain disruption for our customers. A worldwide semiconductor chip shortage is beginning to affect automotive original equipment manufacturers, causing unpredictable volumes. The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact COVID-19 will have on our business, financial condition, results of operations, and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 pandemic. While managing decreased demand in many regions across the globe, we are now operating at all of our business locations. We have implemented training and recruiting programs to address labor shortages. We are focused on the safety of our employees, customers, and suppliers. We have developed and implemented processes to ensure a safe environment for our employees and 30 -------------------------------------------------------------------------------- Table of Contents any visitors to our facilities, including providing personal protective equipment and establishing social distancing protocols and temperature checks. We are actively promoting vaccination among our employees. These processes include recommendations based on guidelines from theCenters for Disease Control and Prevention and theWorld Health Organization . The health and safety of our employees remains our top priority. We have undertaken a number of permanent and temporary actions to manage the evolving situation, as described in our 2020 Annual Report. We continue to streamline facilities and implement cost savings initiatives. Capital expenditures and travel costs remain at relatively low levels. We refinanced our credit facility and preferred stock in the first quarter as discussed below. Credit Facilities OnMarch 22, 2021 , we entered into a new$150.0 million term loan facility (the "Term Loan Facility") and a new$50.0 million asset backed credit facility (the "ABL Facility"). The proceeds from the Term Loan Facility were used to prepay the amounts outstanding on our previous term loans. The previous credit facility was terminated and consisted of a Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver. No amounts were outstanding on the Senior Secured Revolver at the time of termination. 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%. AtJune 30, 2021 , the Term Loan Facility bore interest, based on one-month LIBOR, at 7.875%. The Term Loan Facility requires quarterly principal payments of$0.4 million with the remaining unpaid principal amount due on the final maturity date ofSeptember 22, 2026 . The Term Loan Facility is collateralized by all of our assets. The Term Loan Facility has a first lien on all assets other than accounts receivable and inventory and has a second lien on accounts receivable and inventory. We were in compliance with all requirements under the Term Loan Facility as ofJune 30, 2021 . 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 inthe 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. AtJune 30, 2021 , using one-month LIBOR plus a 1.75% spread, the weighted average interest rate on outstanding borrowings under the ABL Facility would have been 2.25% if there had been any balance outstanding. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility and a 0.125% fee on the amount of letters of credit outstanding. The final maturity date of the ABL Facility isMarch 22, 2026 . We had no outstanding borrowings under the ABL Facility atJune 30, 2021 . Total capacity under the ABL Facility was$44.2 million as ofJune 30, 2021 , of which$30.2 million was available for future borrowings after reductions for outstanding letters of credit as ofJune 30, 2021 . The ABL Facility has a first lien on accounts receivable and inventory. We were in compliance with all requirements under the ABL Facility as ofJune 30, 2021 . Preferred Stock OnMarch 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. OnMarch 22, 2026 , the cash dividend rate and in-kind dividend rate increase by 2.5% per year. Cash dividends are required beginning onSeptember 30, 2027 . Net cash proceeds of$61.8 million from the issuance of the Series D Preferred Stock, along with part of the proceeds from the Term Loan Facility, were used to redeem all of the outstanding shares of the Company's Series B Convertible Preferred Stock (the "Series B Preferred Stock"). The total redemption cash payment was$118.4 million . 31 -------------------------------------------------------------------------------- Table of Contents Sales Concentration We recognized sales from a single customer of$13.2 million , or 11% and$26.2 million , or 11%, of consolidated net sales, during the three and six months endedJune 30, 2021 , respectively. We recognized sales from this customer of$9.2 million , or 12% of consolidated net sales, during the three months endedJune 30, 2020 . Revenues from this customer are primarily in our Mobile Solutions segment.
Three Months Ended
Three Months Ended
2021 2020 $ Change
Net sales $ 123,157 $ 78,532 $ 44,625
Organic growth $ 42,123
Foreign exchange effects 2,502
Cost of sales (exclusive of depreciation and
amortization shown separately below) 99,797 65,058 34,739
Selling, general, and administrative expense 13,585 14,273 (688)
Depreciation and amortization 11,687 11,327 360
Other operating income, net (324) (949) 625
Loss from operations (1,588) (11,177) 9,589
Interest expense 3,573 6,356 (2,783)
Other expense (income), net 1,680 (1,215) 2,895
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture
(6,841) (16,318) 9,477
Benefit (provision) for income taxes 231 (2,175) 2,406
Share of net income from joint venture 1,219 927 292
Loss from continuing operations (5,391) (17,566) 12,175
Loss from discontinued operations, net of tax - (4,182) 4,182
Net loss $ (5,391) $ (21,748) $ 16,357
Net Sales . Net sales increased by $44.6 million , or 57%, during the three months
ended June 30, 2021 , compared to the three months ended June 30, 2020 , primarily
due to higher demand within all markets that were negatively impacted by the
COVID-19 pandemic in the prior year and new business in the general industrial
market. In addition, sales were positively impacted by increased selling prices
for precious metals allowed under customer contracts due to the sharp rise in
underlying commodities costs compared with the same period of 2020. These
increases were partially offset by decreased demand for smart meter components
due to inventory adjustments at a key customer. Sales of components to the
medical industry experienced recovery in the current period compared to the same
period of 2020 when many elective surgeries were delayed as a result of the
COVID-19 pandemic. We also realized favorable foreign exchange effects of $2.5
million .
Cost of Sales. Cost of sales increased by $34.7 million , or 53%, during the
three months ended June 30, 2021 , compared to the three months ended June 30,
2020 , primarily due to variable costs associated with the above-noted sales
increase. In addition, cost of sales increased due to the reintroduction of
employee-related costs suspended in the prior year due to the pandemic, such as
benefits and overtime hours. These increases were partially offset by favorable
overhead absorption due to the increase in inventory.
Selling, General, and Administrative Expense. Selling, general, and
administrative expense decreased by $0.7 million during the three months ended
June 30, 2021 , compared to the three months ended June 30, 2020 , primarily due
to cost reduction initiatives that drove decreases in personnel and professional
fees.
Other Operating Income, Net. Other operating income, net, changed unfavorably by
$0.6 million primarily due to a gain on the sale of a building in Fairfield,
Ohio , during the three months ended June 30, 2020 .
Interest Expense. Interest expense decreased by $2.8 million during the three
months ended June 30, 2021 , compared to the three months ended June 30, 2020 ,
primarily due to settlements on the interest rate swap in the prior year that
were recognized in interest expense while the hedge was effective.
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Three Months Ended June 30,
2021 2020
Interest on debt $ 3,110 $ 2,304
Interest rate swap settlements - 3,436
Amortization of debt issuance costs and discount 313 445
Capitalized interest (80) (45)
Other 230 216
Total interest expense $
3,573
Other Expense (Income), Net. Other expense (income), net, changed unfavorably by$2.9 million during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , due to noncash derivative mark-to-market losses, less favorable foreign exchange effects associated with intercompany borrowings, and a litigation settlement reached during the current quarter. Benefit (Provision) For Income Taxes. Our effective tax rate was 3.4% for the three months endedJune 30, 2021 , compared to (13.3)% for the three months endedJune 30, 2020 . The difference in rates is primarily due to the estimated impacts of GILTI and the CARES Act. Note 8 in the Notes to Condensed Consolidated Financial Statements describes the effective income tax rate for each period presented. Share of Net Income from Joint Venture. Our share of net income from the joint venture increased during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to improved profits resulting from higher sales volumes, expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions. Results by Segment MOBILE SOLUTIONS Three Months Ended June 30, 2021 2020 $ Change Net sales$ 73,886 $ 41,037 $ 32,849 Organic growth$ 31,013 Foreign exchange effects 1,836 Income (loss) from operations$ 2,509 $ (4,592) $ 7,101 Net sales increased by$32.8 million during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, new business in the general industrial market, and favorable foreign exchange effects of$1.8 million . Income from operations increased by$7.1 million during the three months endedJune 30, 2021 , compared to the same period in the prior year primarily due to the contribution generated from the above-noted sales increase. Moreover, we built up inventory in the three months endedJune 30, 2021 , which resulted in favorable overhead absorption during the quarter. These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours. POWER SOLUTIONS Three Months Ended June 30, 2021 2020 $ Change Net sales$ 49,271 $ 37,491 $ 11,780 Organic growth$ 11,114 Foreign exchange effects 666 Income from operations$ 2,875 $ 1,454 $ 1,421 Net sales increased by$11.8 million during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 primarily due to higher demand within the end markets which were negatively impacted by the COVID-19 pandemic in the prior year. Sales were also positively impacted by increased selling prices for precious metals allowed under customer contracts due to the sharp rise in underlying commodities costs compared with the same period in 2020. Sales of components to 33 -------------------------------------------------------------------------------- Table of Contents the medical industry experienced recovery in the current period compared to the same period of 2020 when many elective surgeries were delayed as a result of the COVID-19 pandemic. Income from operations increased by$1.4 million compared to the same period in the prior year primarily due to the contribution generated from the above-noted sales increase, partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours. Six Months EndedJune 30, 2021 , compared to the Six Months EndedJune 30, 2020
Six Months Ended
2021 2020 $ Change
Net sales $ 249,961 $ 194,745 $ 55,216
Organic growth $ 53,371
Foreign exchange effects 1,845
Cost of sales (exclusive of depreciation and
amortization shown separately below) 199,485 159,536 39,949
Selling, general, and administrative expense 28,160 30,433 (2,273)
Depreciation and amortization 23,255 22,684 571
Goodwill impairment - 92,942 (92,942)
Other operating expense (income), net (329) 4,177 (4,506)
Loss from operations (610) (115,027) 114,417
Interest expense 5,597 10,163 (4,566)
Loss on extinguishment of debt and write-off of
debt issuance costs 2,390 - 2,390
Derivative payments on interest rate swap 1,717 - 1,717
Loss on interest rate swap 2,033 - 2,033
Other expense, net 1,558 329 1,229
Loss from continuing operations before benefit
(provision) for income taxes and share of net
income from joint venture (13,905) (125,519) 111,614
Benefit (provision) for income taxes 987 (780) 1,767
Share of net income from joint venture 2,614 656 1,958
Loss from continuing operations (10,304) (125,643) 115,339
Loss from discontinued operations, net of tax - (144,296) 144,296
Net loss $ (10,304) $ (269,939) $ 259,635
Net Sales . Net sales increased by $55.2 million , or 28%, during the six months
ended June 30, 2021 , compared to the six months ended June 30, 2020 , primarily
due to higher demand within all markets that were negatively impacted by the
COVID-19 pandemic in the prior year and favorable foreign exchange effects of
$1.8 million . In addition, sales were positively impacted by increased selling
prices for precious metals allowed under customer contracts due to the sharp
rise in underlying commodities costs compared with the same period of 2020.
Cost of Sales. Cost of sales increased by $39.9 million , or 25%, during the six
months ended June 30, 2021 , compared to the six months ended June 30, 2020 ,
primarily due to variable costs associated with the above-noted sales increase.
In addition, cost of sales increased due to the reintroduction of
employee-related costs suspended in the prior year due to the pandemic, such as
travel, benefits and overtime hours, which was partially offset by favorable
overhead absorption due to the increase in inventory.
Selling, General, and Administrative Expense. Selling, general, and
administrative expense decreased by $2.3 million during the six months ended
June 30, 2021 , compared to the six months ended June 30, 2020 , primarily due to
cost reduction initiatives that drove decreases in personnel costs and
professional fees.
Goodwill Impairment. We recognized goodwill impairment of $92.9 million at Power
Solutions in 2020, resulting in no remaining goodwill balance.
Other Operating Expense (Income), Net. Other operating expense (income), net,
changed favorably by $4.5 million primarily due to charges and costs associated
with asset disposals and elimination of a portion of our lease obligation as a
result of our
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decision to vacate a portion of our corporate headquarters building in 2020.
These charges were partially offset by a gain on the sale of a building in
Fairfield, Ohio , in the second quarter of 2020.
Interest Expense. Interest expense decreased by $4.6 million during the six
months ended June 30, 2021 , compared to the six months ended June 30, 2020 ,
primarily due to settlements on the interest rate swap the prior year that were
recognized in interest expense while the hedge was effective.
Six Months Ended June 30,
2021 2020
Interest on debt $ 4,549 $ 4,155
Interest rate swap settlements - 4,806
Amortization of debt issuance costs and discount 718 871 Capitalized interest (111) (134) Other 441 465 Total interest expense$ 5,597 $ 10,163 Loss on Extinguishment of Debt and Write-off of Debt Issuance Costs. We recognized$2.4 million for the write-off of unamortized debt issuance costs that were associated with the credit facility that was terminated inMarch 2021 . Derivative Payments on Interest Rate Swap. Derivative payments on interest rate swap represent cash settlements of the interest rate swap after hedge accounting was discontinued inOctober 2020 . Prior toOctober 2020 , interest rate swap settlements were recognized in interest expense. The interest rate swap was terminated in the first quarter of 2021. Loss on Interest Rate Swap. Loss on interest rate swap represents mark-to-market adjustments on the interest rate swap after hedge accounting was discontinued inOctober 2020 as well as amortization of the residual loss in accumulated other comprehensive income as monthly settlements occur. Prior toOctober 2020 , mark-to-market adjustments on the interest rate swap were recognized in accumulated other comprehensive income. Upon termination of the interest rate swap inMarch 2021 , we recognized in earnings the remaining$3.3 million loss that had been deferred in accumulated other comprehensive income. Other Expense, Net. Other expense, net, changed unfavorably by$1.2 million during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , due to a litigation settlement reached during the current quarter, partially offset by more favorable foreign exchange effects associated with intercompany borrowings. Benefit (Provision) for Income Taxes. Our effective tax rate was 7.1% for the six months endedJune 30, 2021 , compared to (0.6)% for the six months endedJune 30, 2020 . The difference in rates is primarily due to the estimated impacts of GILTI and the CARES Act. Note 8 in the Notes to Condensed Consolidated Financial Statements describes the effective income tax rate for each period presented. Share of Net Income from Joint Venture. Share of net income from the JV increased during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , primarily due to improved profits from expanding variable margins as a result of successful process improvement initiatives and improved product mix, and fixed cost reduction actions. Results by Segment MOBILE SOLUTIONS Six Months Ended June 30, 2021 2020 $ Change Net sales$ 151,662 $ 110,921 $ 40,741 Organic growth$ 39,589 Foreign exchange effects 1,152 Income (loss) from operations$ 8,599 $ (4,328) $ 12,927 Net sales increased by$40.7 million during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , primarily due to higher demand within all markets which were negatively impacted by the COVID-19 pandemic in the prior year, new business in the general industrial market, and favorable foreign exchange effects. Income (loss) from operations increased by$12.9 million compared to the same period in the prior year primarily due to contribution generated from the above-noted sales increase. Moreover, we built up inventory in the six months endedJune 30, 2021 , which resulted in favorable overhead absorption during the period. These positive impacts were partially offset by the reintroduction of employee-related costs suspended in the prior year due to the pandemic, such as travel, benefits and overtime hours. 35
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POWER SOLUTIONS
Six Months Ended June 30,
2021 2020 $ Change
Net sales $ 98,346 $ 83,892 $ 14,454
Organic growth $ 13,761
Foreign exchange effects 693
Goodwill impairment $ - $ (92,942) $ 92,942
Income (loss) from operations $ 5,307 $ (88,880) $ 94,187
Net sales increased by $14.5 million during the six months ended June 30, 2021 ,
compared to the six months ended June 30, 2020 , primarily due to higher demand
within the end markets which were negatively impacted by the COVID-19 pandemic
in the prior year. Sales were also positively impacted by increased selling
prices for precious metals allowed under customer contracts due to the sharp
rise in underlying commodities costs compared to the same period of 2020.
Income (loss) from operations increased by $94.2 million compared to the same
period in the prior year primarily due to a goodwill impairment loss of $92.9
million recognized in the first quarter of 2020. In addition, income from
operations increased due to the contribution generated from the above-noted
sales increase and higher precious metals commodities prices. These favorable
impacts were partially offset by the reintroduction of employee-related costs
suspended in the prior year due to the pandemic, such as travel, benefits and
overtime hours.
Changes in Financial Condition from December 31, 2020 , to June 30, 2021
Overview
From December 31, 2020 , to June 30, 2021 , total assets decreased by $11.4
million primarily due to normal depreciation and amortization of fixed assets,
lease right-of-use assets, and intangible assets. These decreases were partially
offset by capital expenditures and increases in inventories during the six
months ended June 30, 2021 . Inventories increased as a result of a strategic
decision to mitigate potential supply chain issues for our customers.
From December 31, 2020 , to June 30, 2021 , total liabilities increased by $66.4
million , primarily due to the refinancing of our credit facilities and redeeming
the Series B Preferred Stock with debt.
Working capital, which consists of current assets less current liabilities, was
$122.5 million as of June 30, 2021 , compared to $112.0 million as of December
31, 2020 . The increase in working capital was primarily due to the increase in
inventories discussed above.
Cash Flows
Cash provided by operations was $5.9 million for the six months ended June 30,
2021 , compared with cash provided by operations of $15.9 million for the six
months ended June 30, 2020 . The difference was primarily due to $8.0 million in
current year income tax payments and building inventory levels during the
current year to mitigate potential supply chain issues for our customers.
Cash used in investing activities was $30.2 million for the six months ended
June 30, 2021 , compared with cash used in investing activities of $12.5 million
for the six months ended June 30, 2020 . The difference was primarily due to cash
paid to settle the interest rate swap and post-closing adjustment on the sale of
the Life Sciences business, partially offset by lower capital expenditures in
the current year.
Cash provided by financing activities was $6.9 million for the six months ended
June 30, 2021 , compared with cash provided by financing activities of $53.4
million for the six months ended June 30, 2020 . The difference was primarily due
to $11.9 million net inflow from the debt and preferred stock refinancing in the
current year compared to the $62.5 million draw on the Senior Secured Revolver
in the prior year.
Liquidity and Capital Resources
Credit Facilities
The principal amount outstanding under our Term Loan Facility as of June 30,
2021 , was $149.6 million , without regard to unamortized debt issuance costs and
discount. As of June 30, 2021 , we had unused borrowing capacity of $30.2 million
under
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Table of Contents the ABL Facility, subject to certain limitations. This amount of borrowing capacity is net of$14.0 million of outstanding letters of credit atJune 30, 2021 , which are considered as usage of the ABL Facility. This amount includes approximately$0.8 million of duplicate letters of credit that remained outstanding atJune 30 but were terminated during the third quarter after transition to a new guarantor bank was completed. The Term Loan Facility requires quarterly principal payments of$0.4 million with the remaining unpaid principal amount due on the final maturity date ofSeptember 22, 2026 . If one-month LIBOR is less than 1.00%, then we pay 7.875% per annum in interest. If one-month LIBOR exceeds 1.000%, then we pay the variable one-month LIBOR plus an applicable margin of 6.875%. Based on the interest rate in effect atJune 30, 2021 , annual interest payments would be approximately$11.8 million . OnJuly 22, 2021 , we entered into a new interest rate swap as discussed in Note 18 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report. Based on the interest rate in effect atJune 30, 2021 , and the fixed rate on the new interest rate swap, annual interest payments would be approximately$12.0 million . The ABL Facility bears interest on a variable rate structure with borrowings bearing interest at one-month LIBOR plus an applicable margin of 1.75%. The interest rate in effect atJune 30, 2021 , was 2.25%. We pay a commitment fee of 0.375% for unused capacity under the ABL Facility. We were in compliance as ofJune 30, 2021 , with all requirements under our Term Loan Facility and ABL Facility. Both credit facilities allow for optional expansion of available borrowings, subject to certain terms and conditions. Seasonality and Fluctuation in Quarterly Results General economic conditions impact our business and financial results, and certain businesses experience seasonal and other trends related to the industries and end markets that they serve. For example, European sales are often weaker in the summer months as customers slow production and sales to original equipment manufacturers are often stronger immediately preceding and following the launch of new products. However, as a whole, we are not materially impacted by seasonality. Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. Critical Accounting Policies Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the 2020 Annual Report, including those policies as discussed in Note 1 to the Notes to Consolidated Financial Statements included in the 2020 Annual Report. There have been no changes to these policies during the six months endedJune 30, 2021 , except as discussed in Note 1 to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report. Recent Accounting Pronouncements See Note 1 in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.
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