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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
https://cdn.kscope.io/a77462b5d8747a0a82292f4fb32b291d-psix-20210630_g1.jpg
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021    
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 001-35944
POWER SOLUTIONS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware33-0963637
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
201 Mittel Drive, Wood Dale, IL
60191
(Address of Principal Executive Offices)(Zip Code)
(630) 350-9400
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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 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 the 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 August 2, 2021, there were 22,923,486 outstanding shares of the Common Stock of the registrant.
1


TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Forward-Looking Statements
Item 1.Financial Statements
Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020
Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (Unaudited)
Consolidated Statements of Stockholders’ (Deficit) Equity for the three and six months ended June 30, 2021 and 2020 (Unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
Signatures




FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2021 (the “Quarterly Report”) that are not historical facts are intended to constitute “forward-looking statements” entitled to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may involve risks and uncertainties. These statements often include words such as “anticipate,” “believe,” “budgeted,” “contemplate,” “estimate,” “expect,” “forecast,” “guidance,” “may,” “outlook,” “plan,” “projection,” “should,” “target,” “will,” “would” or similar expressions, but these words are not the exclusive means for identifying such statements. These forward-looking statements include statements regarding Power Solutions International, Inc.’s, a Delaware corporation (“Power Solutions,” “PSI” or the “Company”), projected sales, potential profitability and liquidity, strategic initiatives, future business strategies, warranty mitigation efforts and market opportunities, improvements in its business, remediation of internal controls, improvement of product margins, and product market conditions and trends. These statements are not guarantees of performance or results, and they involve risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect the Company’s results of operations and liquidity and could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the Company’s forward-looking statements.
The Company cautions that the risks, uncertainties and other factors that could cause its actual results to differ materially from those expressed in, or implied by, the forward-looking statements include, without limitation, the factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and from time to time in the Company’s subsequent filings with the United States Securities and Exchange Commission (the “SEC”); the impact of the ongoing COVID-19 pandemic could have on the Company’s business and financial results; the Company’s ability to continue as a going concern; the Company’s ability to raise additional capital when needed and its liquidity; uncertainties around the Company’s ability to meet funding conditions under its financing arrangements and access to capital thereunder; the potential acceleration of the maturity at any time of the loans under the Company’s uncommitted senior secured revolving credit facility through the exercise by Standard Chartered Bank of its demand right; the timing of completion of steps to address, and the inability to address and remedy, material weaknesses; the identification of additional material weaknesses or significant deficiencies; risks related to complying with the terms and conditions of the settlements with the SEC and the United States Attorney's Office for the Northern District of Illinois (the “USAO”); variances in non-recurring expenses; risks relating to the substantial costs and diversion of personnel’s attention and resources deployed to address the internal control matters; the Company’s obligations to indemnify past and present directors and officers and certain current and former employees with respect to the investigations conducted by the SEC and the criminal division of the USAO, which will be funded by the Company with its existing cash resources due to the exhaustion of its historical primary directors’ and officers’ insurance coverage; the ability of the Company to accurately forecast sales, and the extent to which sales result in recorded revenues; changes in customer demand for the Company’s products; volatility in oil and gas prices; the impact of U.S. tariffs on imports from China on the Company’s supply chain; the potential for increased warranty costs and the Company’s ability to mitigate such costs; any delays and challenges in recruiting and retaining key employees consistent with the Company’s plans; any negative impacts from delisting of the Company’s common stock par value $0.001 (the “Common Stock”) from the NASDAQ Stock Market (“NASDAQ”) and any delays and challenges in obtaining a re-listing on a stock exchange.
The Company’s forward-looking statements are presented as of the date hereof. Except as required by law, the Company expressly disclaims any intention or obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
AVAILABLE INFORMATION
The Company is subject to the reporting and information requirements of the Exchange Act, and as a result, it is obligated to file annual, quarterly and current reports, proxy statements and other information with the SEC. The Company makes these filings available free of charge on its website (http://www.psiengines.com) as soon as reasonably practicable after it electronically files them with, or furnishes them to, the SEC. Information on the Company’s website does not constitute part of this Quarterly Report on Form 10-Q. In addition, the SEC maintains a website (http://www.sec.gov) that contains the annual, quarterly and current reports, proxy and information statements, and other information the Company electronically files with, or furnishes to, the SEC.

3


PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements.
POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par values)As of June 30, 2021As of December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$5,503 $20,968 
Restricted cash2,949 3,299 
Accounts receivable, net of allowances of $3,896 and $3,701 as of June 30, 2021 and December 31, 2020, respectively
59,578 60,148 
Income tax receivable4,273 3,708 
Inventories, net129,262 108,213 
Prepaid expenses and other current assets7,926 6,351 
Total current assets209,491 202,687 
Property, plant and equipment, net19,162 20,181 
Intangible assets, net9,052 10,319 
Goodwill29,835 29,835 
Other noncurrent assets16,888 20,955 
TOTAL ASSETS$284,428 $283,977 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable$79,786 $31,547 
Current maturities of long-term debt304 310 
Revolving line of credit130,000 130,000 
Other accrued liabilities67,476 77,619 
Total current liabilities277,566 239,476 
Deferred income taxes1,258 886 
Long-term debt, net of current maturities743 781 
Noncurrent contract liabilities2,640 3,181 
Other noncurrent liabilities29,617 33,556 
TOTAL LIABILITIES$311,824 $277,880 
STOCKHOLDERS’ (DEFICIT) EQUITY
Preferred stock – $0.001 par value. Shares authorized: 5,000. No shares issued and outstanding at all dates.
$ $ 
Common stock – $0.001 par value; 50,000 shares authorized; 23,117 shares issued; 22,894 and 22,892 shares outstanding June 30, 2021 and December 31, 2020, respectively
23 23 
Additional paid-in capital157,394 157,262 
Accumulated deficit(183,615)(149,894)
Treasury stock, at cost, 223 and 225 shares at June 30, 2021 and December 31, 2020, respectively
(1,198)(1,294)
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY(27,396)6,097 
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY$284,428 $283,977 
See Notes to Consolidated Financial Statements
4


POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Net sales$111,478 $93,056 $211,649 $198,153 
Cost of sales98,284 89,279 191,385 176,662 
Gross profit13,194 3,777 20,264 21,491 
Operating expenses:
Research, development and engineering expenses6,111 5,814 12,335 12,566 
Selling, general and administrative expenses21,089 12,580 36,900 26,470 
Amortization of intangible assets633 764 1,267 1,527 
Total operating expenses27,833 19,158 50,502 40,563 
Operating loss(14,639)(15,381)(30,238)(19,072)
Other expense, net:
Interest expense1,469 1,427 3,630 2,701 
Loss on debt extinguishment and modifications 497  497 
Other expense (income), net1 (44)1 (255)
Total other expense, net1,470 1,880 3,631 2,943 
Loss before income taxes(16,109)(17,261)(33,869)(22,015)
Income tax (benefit) expense(538)481 (148)(3,561)
Net loss$(15,571)$(17,742)$(33,721)$(18,454)
Weighted-average common shares outstanding:
Basic22,893 22,858 22,893 22,858 
Diluted22,893 22,858 22,893 22,858 
Loss per common share:
Basic$(0.68)$(0.78)$(1.47)$(0.81)
Diluted$(0.68)$(0.78)$(1.47)$(0.81)
See Notes to Consolidated Financial Statements
5


POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
(in thousands)For the Three Months Ended
Common StockAdditional Paid-in CapitalAccumulated DeficitTreasury StockTotal Stockholders’ (Deficit) Equity
Balance at March 31, 2021$23 $157,371 $(168,044)$(1,295)$(11,945)
Net loss— — (15,571)— (15,571)
Stock-based compensation expense— 23 — 100 123 
Common stock issued for stock-based awards, net— — — (3)(3)
Balance at June 30, 2021$23 $157,394 $(183,615)$(1,198)$(27,396)
Balance at March 31, 2020$23 $156,891 $(127,624)$(1,349)$27,941 
Net loss— — (17,742)— (17,742)
Stock-based compensation expense— 160 — — 160 
Common stock issued for stock-based awards, net— 1 — (5)(4)
Balance at June 30, 2020$23 $157,052 $(145,366)$(1,354)$10,355 

(in thousands)For the Six Months Ended
Common StockAdditional Paid-in CapitalAccumulated DeficitTreasury StockTotal Stockholders’ (Deficit) Equity
Balance at December 31, 2020$23 $157,262 $(149,894)$(1,294)$6,097 
Net loss— — (33,721)— (33,721)
Stock-based compensation expense— 132 — 100 232 
Common stock issued for stock-based awards, net— — — (4)(4)
Balance at June 30, 2021$23 $157,394 $(183,615)$(1,198)$(27,396)
Balance at December 31, 2019$23 $156,727 $(126,912)$(1,341)$28,497 
Net loss— — (18,454)— (18,454)
Stock-based compensation expense— 317 — — 317 
Common stock issued for stock-based awards, net— 8 — (13)(5)
Balance at June 30, 2020$23 $157,052 $(145,366)$(1,354)$10,355 
See Notes to Consolidated Financial Statements
6



POWER SOLUTIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)For the Six Months Ended June 30,
20212020
Cash (used in) provided by operating activities
Net loss$(33,721)$(18,454)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of intangible assets1,267 1,527 
Depreciation2,445 2,608 
Stock-based compensation expense232 317 
Amortization of financing fees1,627 609 
Deferred income taxes371 (323)
Loss on extinguishment of debt 497 
Other adjustments, net503 253 
Changes in operating assets and liabilities:
Accounts receivable, net577 42,492 
Inventory, net(21,417)(31,980)
Prepaid expenses and other assets11 22 
Accounts payable48,475 (8,634)
Accrued expenses(10,122)24,692 
Other noncurrent liabilities(4,487)(9,616)
Net cash (used in) provided by operating activities(14,239)4,010 
Cash provided by (used in) investing activities
Capital expenditures(1,185)(1,416)
Return of investment in joint venture2,181  
Other investing activities, net36 7 
Net cash provided by (used in) investing activities1,032 (1,409)
Cash (used in) provided by financing activities
Repayments of long-term debt and lease liabilities(193)(55,200)
Proceeds from revolving line of credit 180,298 
Repayments of revolving line of credit (89,826)
Payments of deferred financing costs(2,549)(1,970)
Other financing activities, net134 76 
Net cash (used in) provided by financing activities(2,608)33,378 
Net (decrease) increase in cash, cash equivalents, and restricted cash(15,815)35,979 
Cash, cash equivalents, and restricted cash at beginning of the period24,267 3 
Cash, cash equivalents, and restricted cash at end of the period$8,452 $35,982 
(in thousands)As of June 30,
20212020
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheets
Cash and cash equivalents$5,503 $32,533 
Restricted cash2,949 3,449 
Total cash, cash equivalents, and restricted cash$8,452 $35,982 
See Notes to Consolidated Financial Statements
7


POWER SOLUTIONS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.    Summary of Significant Accounting Policies and Other Information
Nature of Business Operations
Power Solutions International, Inc. (“Power Solutions,” “PSI” or the “Company”), a Delaware corporation, is a global producer and distributor of a broad range of high-performance, certified, low-emission power systems, including alternative-fueled power systems for original equipment manufacturers (“OEMs”) of off-highway industrial equipment and certain on-road vehicles and large custom-engineered integrated electrical power generation systems.
The Company’s customers include large, industry-leading and multinational organizations. The Company’s products and services are sold predominantly to customers throughout North America as well as to customers located throughout the Pacific Rim and Europe. The Company’s power systems are highly engineered, comprehensive systems which, through the Company’s technologically sophisticated development and manufacturing processes, including its in-house design, prototyping, testing and engineering capabilities and its analysis and determination of the specific components to be integrated into a given power system (driven in large part by emission standards and cost considerations), allow the Company to provide its customers with power systems customized to meet specific OEM application requirements, other technical customers’ specifications and requirements imposed by environmental regulatory bodies.
The Company’s power system configurations range from a basic engine integrated with appropriate fuel system components to completely packaged power systems that include any combination of cooling systems, electronic systems, air intake systems, fuel systems, housings, power takeoff systems, exhaust systems, hydraulic systems, enclosures, brackets, hoses, tubes and other assembled componentry. The Company also designs and manufactures large, custom-engineered integrated electrical power generation systems for both standby and prime power applications. The Company purchases engines from third-party suppliers and produces internally designed engines, all of which are then integrated into its power systems.
Of the other components that the Company integrates into its power systems, a substantial portion consist of internally designed components and components for which it coordinates significant design efforts with third-party suppliers, with the remainder consisting largely of parts that are sourced off-the-shelf from third-party suppliers. Some of the key components (including purchased engines) embody proprietary intellectual property of the Company’s suppliers. As a result of its design and manufacturing capabilities, the Company is able to provide its customers with a power system that can be incorporated into a customer’s specified application. In addition to the certified products described above, the Company sells diesel, gasoline and non-certified power systems and aftermarket components.
Stock Ownership and Control
In March 2017, the Company executed a share purchase agreement (the “SPA”) with Weichai America Corp., a wholly-owned subsidiary of Weichai Power Co., Ltd. (HK2338, SZ000338) (herein collectively referred to as “Weichai”). Under the terms of the SPA, Weichai invested $60.0 million in the Company purchasing a combination of newly issued Common and Preferred Stock as well as a stock purchase warrant (the “Weichai Warrant”).
With the exercise of the Weichai Warrant in April 2019, Weichai owns a majority of the outstanding shares of the Company’s common stock par value $0.001 (“Common Stock”). As a result, Weichai is able to exercise control over matters requiring stockholders’ approval, including the election of the directors, amendment of the Company’s Certificate of Incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of the Company or changes in management and will make the approval of certain transactions impractical without the support of Weichai.
Weichai also entered into an Investor Rights Agreement (the “Rights Agreement”) with the Company upon execution of the SPA. The Rights Agreement provides Weichai with representation on the Company’s Board of Directors (the “Board”) and management representation rights. Weichai currently has four representatives on the Board, which constitutes the majority of the directors serving on the Board. According to the Rights Agreement, during any period when the Company is a “controlled company” within the meaning of the NASDAQ Stock Market (“NASDAQ”) Listing Rules, it will take such measures as to avail itself of the “controlled company” exemptions available under Rule 5615 of the NASDAQ Listing Rules of Rules 5605(b), (d) and (e).
Going Concern Considerations
In March 2021, the Company entered into an amended and restated uncommitted revolving credit agreement between the Company and Standard Chartered Bank (“Standard Chartered”), as administrative agent (the “Amended and Restated Uncommitted Revolving Credit Agreement”). The Amended and Restated Uncommitted Revolving Credit Agreement continues to allow the Company to borrow up to $130.0 million and matures on March 25, 2022. Under the Amended and
8


Restated Uncommitted Revolving Credit Agreement, Standard Chartered has the right to demand payment of any and all outstanding borrowings and other amounts outstanding under the Amended and Restated Uncommitted Revolving Credit Agreement at any point in time at its discretion. In connection with the execution of the Amended and Restated Uncommitted Revolving Credit Agreement, the Company entered into an amendment and restatement of the shareholder’s loan agreement originally executed with Weichai in December 2020 (the “First Amended and Restated Shareholder’s Loan Agreement”). The First Amended and Restated Shareholder’s Loan Agreement provides the Company with access to $130.0 million of credit solely for purposes of repaying outstanding borrowings under the Amended and Restated Uncommitted Revolving Credit Agreement. The First Amended and Restated Shareholder’s Loan Agreement expires on April 25, 2022. The Amended and Restated Uncommitted Revolving Credit Agreement provides Standard Chartered with a power of attorney (“POA”) to submit a borrowing request to Weichai under the First Amended and Restated Shareholder’s Loan Agreement if the Company fails to submit a borrowing request within five business days of receiving a request from Standard Chartered. As of June 30, 2021, the Company had $130.0 million outstanding under the Amended and Restated Uncommitted Revolving Credit Agreement.
On July 14, 2021, the Company entered into an additional Shareholder’s Loan Agreement (the “Second Shareholder’s Loan Agreement”) with Weichai. The Second Shareholder’s Loan Agreement provides the Company with a $25 million uncommitted facility that is subordinated to the Amended and Restated Uncommitted Revolving Credit Agreement and any borrowing requests made under the Second Shareholder’s Loan Agreement are subject to Weichai’s discretionary approval. Borrowings under the Second Shareholder’s Loan Agreement bear interest at LIBOR plus 4.50% and can be used for general corporate purposes, except for certain legal expenditures which require additional approval from Weichai. The Second Shareholder’s Loan Agreement expires on May 20, 2022 with any outstanding principal and accrued interest due upon maturity. As of August 11, 2021, the Company had $15.0 million outstanding under the Second Shareholder’s Loan Agreement.
See Note 6. Debt for further information regarding the terms and conditions of the Company’s debt agreements.
The Amended and Restated Uncommitted Revolving Credit Agreement includes financial covenants which were effective for the Company beginning with the three months ended June 30, 2021. The financial covenants include an interest coverage ratio and a minimum threshold for earnings before interest, taxes, depreciation and amortization (“EBITDA”) as further defined in the Amended and Restated Uncommitted Revolving Credit Agreement. For the three months ended June 30, 2021, the Company did not meet the defined minimum interest coverage ratio nor the minimum EBITDA threshold. A breach of the financial covenants under the Amended and Restated Uncommitted Revolving Credit Agreement constitutes an event of default and, if not cured or waived, could result in the obligations under the Amended and Restated Uncommitted Revolving Credit Agreement being accelerated. The Company is currently in discussion with Standard Chartered in connection with the financial covenant breaches.
Significant uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness, maintain sufficient liquidity to fund its business activities, obtain a cure or waiver in connection with the financial covenant breaches (as discussed above), and maintain compliance with the covenants and other requirements under the Amended and Restated Uncommitted Revolving Credit Agreement in the future. Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay amounts owing under its existing debt arrangements as they become due. In order to provide the Company with a more permanent source of liquidity, management plans to seek an extension and amendment and/or replacement of its existing debt agreements or seek additional liquidity from its current or other lenders before the maturity dates in 2022 as discussed above. There can be no assurance that the Company’s management will be able to successfully complete an extension and amendment of its existing debt agreements or obtain new financing on acceptable terms, when required or if at all. These consolidated financial statements do not include any adjustments that might result from the outcome of the Company’s efforts to address these issues.
Furthermore, if the Company cannot raise capital on acceptable terms, it may not, among other things, be able to do the following:
continue to expand the Company’s research and product investments and sales and marketing organization;
continue to fund and expand operations both organically and through acquisitions; and
respond to competitive pressures or unanticipated working capital requirements.
Additionally, as discussed further below, the global economy continues to be impacted by the outbreak of the coronavirus (“COVID-19”) that was first declared a global pandemic (the “COVID-19 pandemic”) in March 2020. The potential for continued disruptions, economic uncertainty, and unfavorable oil and gas market dynamics may continue to have a material adverse impact on the results of operations, financial position and liquidity of the Company.
The Company’s management has concluded that, due to uncertainties surrounding the Company’s future ability to refinance, extend and amend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, obtain a cure or waiver of its financial covenant breaches, and maintain compliance with the covenants and other requirements under the Amended and Restated Uncommitted Revolving Credit Agreement in the future,
9


substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued. The Company’s plans to alleviate the substantial doubt about its ability to continue as a going concern may not be successful, and it may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition.
The consolidated financial statements included herein have been prepared assuming that the Company will continue as a going concern and contemplating the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is dependent on generating profitable operating results, having sufficient liquidity, maintaining compliance with the covenants and other requirements under the Amended and Restated Uncommitted Revolving Credit Agreement in the future, and extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements.

COVID-19 Pandemic and Other Recent Business Impacts
During 2020, as a result of the COVID-19 pandemic, the global economy experienced substantial turmoil, which led to challenging market conditions across certain areas of the Company’s business. In addition, due to unprecedented decreases in demand, an oil price war, and economic uncertainty resulting from the COVID-19 pandemic, average crude oil prices were considerably lower in 2020 as compared to prices at the end of 2019. Since May 2020, crude oil prices increased considerably from their lows reached in April 2020. However, U.S. rig counts have been slower to return as levels at the end of June 2021 remain below the average for the first half of 2020 and significantly below the full year average during 2019. These factors have contributed to a challenging environment for the sale of the Company’s oil and gas related products through the first half of 2021. A significant portion of the Company’s sales and profitability is derived from the sale of products that are used within the oil and gas industry. In addition, the Company experienced delays in its supply chain during the first half of 2021 due to temporary shortages of raw materials and container delays of overseas materials as bottlenecks occurred at ports in Asia and North America. This, in turn, caused delivery delays to some of the Company’s customers. The Company also experienced inflationary cost pressures for certain materials and has also experienced higher tariff costs as a result of the non-renewal of certain tariff exclusions. The Company is working to mitigate the impact of these matters through price increases and other measures, such as obtaining certain tariff exclusions, where possible. The potential for continued disruptions, economic uncertainty, and unfavorable oil and gas market dynamics may have a material adverse impact on the timing of delivery of customer orders and the levels of future customer orders.
Additionally, during the first half of 2021, the Company incurred significantly higher legal costs due to its obligation to indemnify certain former officers and employees as a result of exhaustion of its directors and officers insurance during the early part of 2020. In particular, spending activity was elevated in the first half of 2021 as a result of the United States Attorney’s Office for the Northern District of Illinois (the “USAO”) trial involving former officers and employees of the Company. At this time, the Company is not able to estimate the potential future amount of its indemnity obligations related to this matter nor the pending U.S. Securities and Exchange Commission (“SEC”) matter involving these prior officers and employees. See Note 9. Commitments and Contingencies for further discussion of the Company’s indemnification obligations. Accordingly, the above challenges may continue to have a material adverse impact on the Company’s future results of operations, financial position, and liquidity.
Basis of Presentation and Consolidation
The Company is filing this Form 10-Q for the three and six months ended June 30, 2021, which contains unaudited consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020.
The consolidated financial statements include the accounts of Power Solutions International, Inc. and its wholly-owned subsidiaries and majority-owned subsidiaries in which the Company exercises control. The foregoing financial information was prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and rules and regulations of the SEC for interim financial reporting. All intercompany balances and transactions have been eliminated in consolidation.
Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying consolidated financial statements should be read in conjunction with, and have been prepared in accordance with accounting policies reflected in, the consolidated financial statements and related notes, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“the 2020 Annual Report”). The Company’s significant accounting policies are described in the aforementioned 2020 Annual Report. Included below are certain updates to those policies. The accompanying interim financial information is unaudited; however, the Company believes the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP. Operating results for interim periods are not necessarily indicative of annual operating results.
10


The Company operates as one business and geographic operating segment. Operating segments are defined as components of a business that can earn revenue and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker (“CODM”). The Company’s CODM is its principal executive officer, who decides how to allocate resources and assess performance. A single management team reports to the CODM, who manages the entire business. The Company’s CODM reviews consolidated statements of operations to make decisions, allocate resources and assess performance, and the CODM does not evaluate the profit or loss from any separate geography or product line.
Concentrations
The following table presents customers individually accounting for more than 10% of the Company’s net sales:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Customer A17 %15 %16 %15 %
Customer B11 %10 %**10 %
Customer C21 %**21 %**
The following table presents customers individually accounting for more than 10% of the Company’s accounts receivable:
As of June 30, 2021As of December 31, 2020
Customer A27 %16 %
Customer B16 %**
Customer D**22 %
The following table presents suppliers individually accounting for more than 10% of the Company’s purchases:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Supplier A15 %**14 %**
Supplier B12 %30 %**20 %
**Less than 10% of the total
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions include the valuation of allowances for uncollectible receivables, inventory reserves, warranty reserves, evaluation of goodwill, other intangibles, property, plant and equipment for impairment, and determination of useful lives of long-lived assets. Actual results could materially differ from those estimates.
Research and Development
R&D expenses are expensed when incurred. R&D expenses consist primarily of wages, materials, testing and consulting related to the development of new engines, parts and applications. These costs were $5.8 million and $5.6 million for the three months ended June 30, 2021 and 2020, respectively. These costs were $11.8 million and $12.0 million for the six months ended June 30, 2021 and 2020, respectively.
Restricted Cash
The Company is required to maintain minimum levels of cash collateral to support the letters of credit. The cash collateral is held in a separate bank account which the Company is restricted from accessing. As discussed in Note 9. Commitments and Contingencies, the Company had outstanding letters of credit of $2.3 million at both June 30, 2021 and December 31, 2020 and restricted cash of $2.9 million and $3.3 million at June 30, 2021 and December 31, 2020, respectively.
Inventories
The Company’s inventories consist primarily of engines and parts. Engines are valued at the lower of cost plus estimated freight-in or net realizable value. Parts are valued at the lower of cost or net realizable value. Net realizable value approximates replacement cost. Cost is principally determined using the first-in, first-out method and includes material, labor and manufacturing overhead. It is the Company’s policy to review inventories on a continuing basis for obsolete, excess and slow-moving items and to record valuation adjustments for such items in order to eliminate non-recoverable costs from inventory.
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Valuation adjustments are recorded in an inventory reserve account and reduce the cost basis of the inventory in the period in which the reduced valuation is determined. Inventory reserves are established based on quantities on hand, usage and sales history, customer orders, projected demand and utilization within a current or future power system. Specific analysis of individual items or groups of items is performed based on these same criteria, as well as on changes in market conditions or any other identified conditions.
Inventories consisted of the following:
(in thousands)

Inventories
As of June 30, 2021As of December 31, 2020
Raw materials *
$103,979 $89,684 
Work in process7,464 2,482 
Finished goods21,406 19,375 
Total inventories132,849 111,541 
Inventory allowance(3,587)(3,328)
Inventories, net$129,262 $108,213 
*As of June 30, 2021 and December 31, 2020, raw materials included $23.6 million and $36.6 million, respectively, of 6.0L engines that were purchased for a customer under a long-term supply agreement. See Note 2. Revenue for additional information related to contract liabilities and remaining performance obligations related to these engines.
Activity in the Company’s inventory allowance was as follows:
(in thousands)For the Six Months Ended June 30,
Inventory Allowance20212020
Balance at beginning of period$3,328 $2,964 
Charged to expense459 897 
Write-offs(200)(819)
Balance at end of period$3,587 $3,042 
Other Accrued Liabilities
Other accrued liabilities consisted of the following:
(in thousands)

Other Accrued Liabilities
As of June 30, 2021As of December 31, 2020
Accrued product warranty$14,782 $14,928 
Litigation reserves *
4,288 3,128 
Contract liabilities34,751 47,960 
Accrued compensation and benefits3,247 3,124 
Operating lease liabilities3,826 3,793 
Accrued interest expense72 895 
Other6,510 3,791 
Total$67,476 $77,619 
*As of June 30, 2021 and December 31, 2020 litigation reserves related to various ongoing legal matters including associated legal fees as well as accrued indemnification costs related to former officers and employees of the Company. See Note 9. Commitments and Contingencies for additional information.
Warranty Costs
The Company offers a standard limited warranty on the workmanship of its products that in most cases covers defects for a defined period. Warranties for certified emission products are mandated by the U.S. Environmental Protection Agency (the “EPA”) and/or the California Air Resources Board (the “CARB”) and are longer than the Company’s standard warranty on certain emission related products. The Company’s products also carry limited warranties from suppliers. The Company’s warranties generally apply to engines fully manufactured by the Company and to the modifications the Company makes to supplier base products. Costs related to supplier warranty claims are generally borne by the supplier and passed through to the end customer.
Warranty estimates are based on historical experience and represent the projected cost associated with the product. A liability and related expense are recognized at the time products are sold. The Company adjusts estimates when it is determined that
12


actual costs may differ from initial or previous estimates. The Company’s warranty liability is generally affected by failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change the estimates and require adjustments to the warranty liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.
Accrued product warranty activities are presented below:
(in thousands)For the Six Months Ended June 30,
Accrued Product Warranty20212020
Balance at beginning of period$31,542 $25,501 
Current year provision *
8,770 7,418 
Changes in estimates for preexisting warranties **
780 9,925 
Payments made during the period(11,767)(10,373)
Balance at end of period29,325 32,471 
Less: current portion14,782 16,660 
Noncurrent accrued product warranty$14,543 $15,811 
*Warranty costs, net of supplier recoveries, were $7.5 million and $15.5 million for the six months ended June 30, 2021 and 2020, respectively. Supplier recoveries were $2.5 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.
**Change in estimates for preexisting warranties reflect changes in the Company’s estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historical and expected trends. The Company recorded charges for changes in estimates of preexisting warranties of $0.8 million, or $0.03 per diluted share, for the six months ended June 30, 2021, and charges of $9.9 million, or $0.43 per diluted share, for the six months ended June 30, 2020, respectively.
Recently Issued Accounting Pronouncements Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which provided optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendment allows entities to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance was effective upon issuance and expires after December 31, 2022. There was no impact on the Company’s Consolidated Balance Sheets, Statements of Operations, Statements of Cash Flows or Statement of Stockholders’ Equity as a result of this guidance. The Company continues to monitor contracts potentially impacted by reference rate reform, including the Company’s debt agreements, and will continue to assess the potential impacts of this guidance as reference rates are updated.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which applies primarily to the Company’s accounts receivable impairment loss allowances. The guidance provides a revised model whereby the current expected credit losses are used to compute impairment of financial instruments. The new model requires evaluation of historical experience and various current and expected factors, which may affect the estimated amount of losses and requires determination of whether the affected financial instruments should be grouped in units of account. The guidance, as originally issued, was effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for certain entities. Based on the guidance, the effective date of ASU 2016-13 is deferred for the Company until fiscal year 2023. The Company currently plans to adopt the guidance on January 1, 2023 when it becomes effective. The Company is continuing to assess the impact of the standard on its consolidated financial statements.





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Note 2.    Revenue
Disaggregation of Revenue
The following table summarizes net sales by end market:
(in thousands)For the Three Months Ended June 30,For the Six Months Ended June 30,
End Market2021202020212020
Energy$24,651 $29,649 $49,810 $79,733 
Industrial36,900 30,463 71,220 67,594 
Transportation49,927 32,944 90,619 50,826 
Total$111,478 $93,056 $211,649 $198,153 
The following table summarizes net sales by geographic area:
(in thousands)For the Three Months Ended June 30,For the Six Months Ended June 30,
Geographic Area2021202020212020
North America$101,869 $81,979 $193,784 $176,499 
Pacific Rim5,420 6,295 10,948 12,749 
Europe1,958 2,578 3,568 5,235 
Other2,231 2,204 3,349 3,670 
Total$111,478 $93,056 $211,649 $198,153 
Contract Balances
Most of the Company’s contracts are for a period of less than one year; however, certain long-term manufacturing and extended warranty contracts extend beyond one year. The timing of revenue recognition may differ from the time of invoicing to customers and these timing differences result in contract assets, or contract liabilities, on the Company’s Consolidated Balance Sheet. Contract assets include amounts related to the contractual right to consideration for completed performance when the right to consideration is conditional. The Company records contract liabilities when cash payments are received or due in advance of performance. Contract assets and contract liabilities are recognized at the contract level.
(in thousands)As of June 30, 2021As of December 31, 2020
Short-term contract assets (included in Prepaid expenses and other current assets)
$2,884 $547 
Short-term contract liabilities (included in Other accrued liabilities)
(34,751)(47,960)
Long-term contract liabilities (included in Noncurrent contract liabilities)
(2,640)(3,181)
Net contract liabilities$(34,507)$(50,594)
During the six months ended June 30, 2021 and 2020, the Company recognized $20.4 million and $4.8 million, respectively, of revenue upon satisfaction of performance obligations related to amounts that were included in the net contract liabilities balance as of December 31, 2020 and 2019, respectively. The increase in the contract asset during the six months ended June 30, 2021 is related to the Company’s right to consideration being conditional at the end of the period. The decrease in the contract liabilities during the six months ended June 30, 2021 was primarily related to revenue recognized upon satisfaction of performance obligations related to 6.0L engines that were previously prepaid by a customer under a long-term supply agreement.
Remaining Performance Obligations
For performance obligations that extend beyond one year, the Company had $33.5 million of remaining performance obligations as of June 30, 2021 primarily related to a long-term manufacturing contract with a customer and extended warranties. The Company expects to recognize revenue related to these remaining performance obligations of approximately $30.5 million in the remainder of 2021, $0.8 million in 2022, $0.9 million in 2023, $0.9 million in 2024, $0.4 million in 2025 and less than $0.1 million in 2026 and beyond.


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Note 3.    Weichai Transactions
Weichai Shareholder’s Loan Agreements
In December 2020, the Company entered into the Shareholder’s Loan Agreement with Weichai. The Shareholder’s Loan Agreement was amended and restated in March 2021. On July 14, 2021, the Company entered into the Second Shareholder’s Loan Agreement with Weichai. See additional discussion of these debt agreements in Note 6. Debt.
Weichai Collaboration Arrangement and Related Party Transactions
The Company and Weichai executed a strategic collaboration agreement (the “Collaboration Agreement”) in March 2017, in order to achieve their respective strategic objectives and enhance the strategic cooperation alliance to share experiences, expertise and resources. Among other things, the Collaboration Agreement established a joint steering committee, permitted Weichai to second a limited number of certain technical, marketing, sales, procurement and finance personnel to work at the Company and established several collaborations related to stationary natural-gas applications and Weichai diesel engines. The Collaboration Agreement provided for the steering committee to create various sub-committees with operating roles and otherwise governs the treatment of intellectual property of parties prior to the collaboration and the intellectual property developed during the collaboration. The Collaboration Agreement is set to expire in March 2023.
The Company evaluates whether an arrangement is a collaborative arrangement at its inception based on the facts and circumstances specific to the arrangement. The Company also reevaluates whether an arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in either the roles of the participants or the participants’ exposure to significant risks and rewards dependent on the ultimate commercial success of the endeavor. For those collaborative arrangements where it is determined that the Company is the principal participant, costs incurred, and revenue generated from third parties are recorded on a gross basis in the financial statements. For the three and six months ended June 30, 2021 and 2020, the Company’s sales to Weichai were immaterial in all periods. Purchases of inventory from Weichai were $3.7 million and $6.7 million for the three and six months ended June 30, 2021, respectively. Purchases of inventory from Weichai were $7.1 million and $12.2 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021 and December 31, 2020, the Company had immaterial receivables from Weichai and outstanding payables to Weichai of $7.2 million and $4.0 million, respectively.
Note 4.    Property, Plant and Equipment
Property, plant and equipment by type were as follows:
(in thousands)As of June 30, 2021As of December 31, 2020
Property, Plant and Equipment
Leasehold improvements$6,669 $6,725 
Machinery and equipment43,619 43,030 
Construction in progress1,852 1,670 
Total property, plant and equipment, at cost52,140 51,425 
Accumulated depreciation(32,978)(31,244)
Property, plant and equipment, net$19,162 $20,181 
Note 5.    Goodwill and Other Intangibles
Goodwill
The carrying amount of goodwill at both June 30, 2021 and December 31, 2020 was $29.8 million. Accumulated impairment losses at both June 30, 2021 and December 31, 2020 were $11.6 million.
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Other Intangible Assets
Components of intangible assets are as follows:
(in thousands)As of June 30, 2021
Gross Carrying ValueAccumulated AmortizationNet Book Value
Customer relationships$34,940 $(26,316)$8,624 
Developed technology700 (664)36 
Trade names and trademarks1,700 (1,308)392 
Total$37,340 $(28,288)$9,052 
(in thousands)As of December 31, 2020
Gross Carrying ValueAccumulated AmortizationNet Book Value
Customer relationships$34,940 $(25,117)$9,823 
Developed technology700 (650)50 
Trade names and trademarks1,700 (1,254)446 
Total$37,340 $(27,021)$10,319 
Note 6.    Debt
The Company’s outstanding debt consisted of the following:
(in thousands)As of June 30, 2021As of December 31, 2020
Short-term financing:
Revolving credit facility *$130,000 $130,000 
Long-term debt:
Finance leases and other debt1,047 1,091 
Total long-term debt and finance leases1,047 1,091 
Less: Current maturities of long-term debt and finance leases304 310 
Long-term debt$743 $781 
*Unamortized financing costs and deferred fees on the revolving credit facility are not presented in the above table as they are classified in Prepaid expenses and other current assets on the Consolidated Balance Sheet. Unamortized debt issuance costs, were $1.4 million and $1.1 million as of June 30, 2021 and December 31, 2020, respectively.
Credit Agreement and Shareholders’ Loan Agreement
On March 26, 2021, the Company entered into the Amended and Restated Uncommitted Revolving Credit Agreement with Standard Chartered. The Amended and Restated Uncommitted Revolving Credit Agreement allows the Company to borrow up to $130.0 million (all of which has been fully borrowed as of June 30, 2021), is uncommitted, and matures on March 25, 2022. Borrowings under the Amended and Restated Uncommitted Revolving Credit Agreement shall bear interest at either the alternate base rate or LIBOR plus 2.70%. In addition, the Company paid fees of $1.9 million related to the Amended and Restated Uncommitted Revolving Credit Agreement, which were deferred and are being amortized over the term of the Amended and Restated Uncommitted Revolving Credit Agreement. The Amended and Restated Uncommitted Revolving Credit Agreement is secured by substantially all of the Company’s assets and includes financial covenants related to the Company’s financial performance for the second, third, and fourth quarters of 2021. There were no financial covenants applicable to the first quarter of 2021. The Amended and Restated Uncommitted Revolving Credit Agreement gives Standard Chartered the right to demand payment of any and all of the outstanding borrowings and other amounts owed under the Amended and Restated Uncommitted Revolving Credit Agreement at any point in time prior to the maturity date at Standard Chartered’s discretion. Furthermore, the Amended and Restated Uncommitted Revolving Credit Agreement grants Standard Chartered a power of attorney (POA) to submit a borrowing request to Weichai under the amended Shareholder’s Loan Agreement (see discussion below) if the Company does not submit a borrowing request to Weichai within five business days of receiving a request from Standard Chartered to submit said borrowing request.
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In connection with the Amended and Restated Uncommitted Revolving Credit Agreement, the Company entered into the First Amended and Restated Shareholder’s Loan Agreement with Weichai. The First Amended and Restated Shareholder’s Loan Agreement provides the Company with a $130.0 million secured subordinated loan facility that expires on April 25, 2022. Under the First Amended and Restated Shareholder’s Loan Agreement, Weichai is obligated to advance funds solely for purposes of repaying outstanding borrowings under the Amended and Restated Uncommitted Revolving Credit Agreement if the Company is unable to repay such borrowings. Any potential borrowings under the First Amended and Restated Shareholder’s Loan Agreement would bear interest at LIBOR plus 4.50% per annum.
As discussed above, the Amended and Restated Uncommitted Revolving Credit Agreement includes financial covenants which were effective for the Company beginning with the three months ended June 30, 2021 and each of the third and fourth quarters of 2021. The financial covenants include an interest coverage ratio and a minimum EBITDA threshold as further defined in the Amended and Restated Credit Agreement. For the three months ended June 30, 2021, the Company did not meet the defined minimum interest coverage nor EBITDA requirements. A breach of the financial covenants under the Amended and Restated Uncommitted Revolving Credit Agreement constitutes an event of default which, if not cured or waived, could result in the obligations under the Amended and Restated Uncommitted Revolving Credit Agreement being accelerated. The Company is currently in discussion with Standard Chartered in connection with the financial covenant breaches.
On July 14, 2021, the Company entered into an additional Shareholder’s Loan Agreement (the “Second Shareholder’s Loan Agreement”) with Weichai. The Second Shareholder’s Loan Agreement provides the Company with a $25 million uncommitted facility that is subordinated to the Amended and Restated Uncommitted Revolving Credit Agreement and any borrowing requests made under the Second Shareholder’s Loan Agreement are subject to Weichai’s discretionary approval. Borrowings under the Second Shareholder’s Loan Agreement bear interest at LIBOR plus 4.50% and can be used for general corporate purposes, except for certain legal expenditures which require additional approval from Weichai. The Second Shareholder’s Loan Agreement expires on May 20, 2022 with any outstanding principal and accrued interest due upon maturity. As of August 11, 2021, the Company had $15.0 million outstanding under the Second Shareholder’s Loan Agreement.
See Note 1. Summary of Significant Accounting Policies and Other Information for further discussion of the Company’s going concern considerations.
Note 7.    Leases
Leases
The Company has obligations under lease arrangements primarily for facilities, equipment and vehicles. These leases have original lease periods expiring between August 2021 and August 2034. For the three and six months ended June 30, 2021, the Company recorded lease expense of $1.4 million and $3.0 million within Cost of sales, $0.1 million and $0.2 million within Research, development, and engineering expenses, less than $0.1 million within Selling, general and administrative expenses and less than $0.1 million within Interest expense in the Consolidated Statements of Operations, respectively. For the three and six months ended June 30, 2020, the Company recorded lease expense of $1.6 million and $3.4 million within Cost of sales, $0.1 million and $0.2 million within Research, development and engineering expenses, $0.1 million and $0.2 million within Selling, general and administrative expenses and less than $0.1 million within Interest expense in the Consolidated Statements of Operations, respectively.
The following table summarizes the components of lease expense:
(in thousands)Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Operating lease cost
$1,225 $1,368 $2,467 $2,747 
Finance lease cost
Amortization of right-of-use (“ROU”) asset52 52 104 104 
Interest expense9 12 19 25 
Short-term lease cost
130 108 232 217 
Variable lease cost
176 374 514 797 
Total lease cost$1,592 $1,914 $3,336 $3,890 




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The following table presents supplemental cash flow information related to leases:
(in thousands)For the Six Months Ended June 30,
20212020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows paid for operating leases$2,498 $2,734 
Operating cash flows paid for interest portion of finance leases19 25 
Financing cash flows paid for principal portion of finance leases104 96 
Right-of-use assets obtained in exchange for lease obligations
Operating leases
9 299 
Finance leases  
As of June 30, 2021 and December 31, 2020, the weighted-average remaining lease term was 6.0 years and 6.2 years for operating leases and 3.5 years and 3.8 years for finance leases, respectively. The weighted-average discount rate was 7.1% for operating leases as of both June 30, 2021 and December 31, 2020 and 6.7% for finance leases as of both June 30, 2021 and December 31, 2020.
The following table presents supplemental balance sheet information related to leases:
(in thousands)June 30, 2021December 31, 2020
Operating lease ROU assets, net 1
$15,259 $17,104
Operating lease liabilities, current 2
3,826 3,793 
Operating lease liabilities, non-current 3
12,245 14,156 
Total operating lease liabilities
$16,071 $17,949 
Finance lease ROU assets, net 1
$460$568
Finance lease liabilities, current 2
192 200 
Finance lease liabilities, non-current 3
314 413 
Total finance lease liabilities
$506 $613 
1.Included in Other noncurrent assets for operating leases and Property, plant and equipment, net for finance leases on the Consolidated Balance Sheets.
2.Included in Other accrued liabilities for operating leases and Current maturities of long-term debt for finance leases on the Consolidated Balance Sheets.
3.Included in Other noncurrent liabilities for operating leases and Long-term debt, net of current maturities for finance leases on the Consolidated Balance Sheets.
The following table presents maturity analysis of lease liabilities as of June 30, 2021:
(in thousands)Operating LeasesFinance Leases
Six months ending December 31, 2021$2,450 $123 
Year ending December 31, 20224,788 177 
Year ending December 31, 20233,283 103 
Year ending December 31, 20241,813 84 
Year ending December 31, 20251,851 72 
Thereafter5,554 9 
Total undiscounted lease payments
19,739 568 
Less: imputed interest
3,668 62 
Total lease liabilities
$16,071 $506 
Note 8.    Fair Value of Financial Instruments
For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market
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data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair-value measurement as follows:
Level 1 – based on quoted prices in active markets for identical assets or liabilities;
Level 2 – based on other significant observable inputs for the assets or liabilities through corroborations with market data at the measurement date; and
Level 3 – based on significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
Financial Instruments Measured at Carrying Value
Current Assets
Cash and cash equivalents are measured at carrying value, which approximates fair value because of the short-term maturities of these instruments.
Debt
The Company measured its revolving credit facility at original carrying value. Unamortized financing costs and deferred fees on the revolving credit facility are classified in Prepaid expenses and other current assets on the Consolidated Balance Sheet. The fair value of the revolving credit facility approximated carrying value, as it consisted of short-term variable rate loans.
(in thousands)As of June 30, 2021
Carrying ValueFair Value
Level 1Level 2Level 3
Revolving credit facility$130,000 $ $130,000 $