| Acquisitions | Note 2. Acquisitions
2015 Acquisition
On May 29, 2015, NN completed the acquisition of Caprock
Manufacturing, Inc. and Caprock Enclosures, LLC (collectively
referred to as “Caprock”) for approximately $9,000 in
cash. Caprock was a privately held plastic components supplier
located in Lubbock, TX. Caprock serves multiple end markets
including aerospace, medical and general industrial. The
acquisition provides further balancing of our end markets and
represents the first step in our focused plan toward transforming
our plastics business. The results of Caprock have been
consolidated with NN since the date of acquisition as part of the
Plastic and Rubber Components Segment. We are in the process of
finalizing fair market valuations of all the net assets acquired.
The preliminary purchase price allocation includes $1,452 in net
working capital, $2,960 in property plant and equipment, $2,490 in
intangible assets, and $2,099 in goodwill, which we expect to be
fully deductible for tax purposes. The goodwill is attributable to
expected cost synergies and revenue growth plus the assembled work
force.
For information regarding NN’s acquisition of Precision
Engineered Products Holdings, Inc. (“PEP”), which was
completed on October 19, 2015, please see Note 15 of the Notes
to Consolidated Financial Statements.
2014 Acquisitions
Autocam
On August 29, 2014, we completed our merger with Autocam
Corporation (“Autocam”), for $256,837 in cash and
$31,717 in NN stock. Additionally, we assumed $29,160 in Autocam
debt and capital lease obligations. Autocam is a global leader in
the engineering, manufacture and assembly of highly complex, system
critical components for fuel systems, engines and transmission,
power steering and electric motors. With the completion of the
Autocam merger, NN became one of the top global manufacturers in
the precision metal components space. Additionally, this
acquisition leverages NN’s and Autocam’s complementary
core strengths and values and positions our Precision Metal
Components business segment to outgrow its end markets by taking
advantage of global market trends in fuel efficient technologies
such as gasoline direct injection systems, high-pressure diesel
injection systems and variable valve timing. The funding of the
cash portion of the purchase price and acquisition costs was
provided primarily from borrowings, including a $350,000 term loan
entered into concurrent with the acquisition of Autocam.
The following table summarizes the preliminary purchase price
allocation for the Autocam merger at September 30, 2014, which
was subsequently adjusted on our Annual Report on Form 10-K filed
March 16, 2015:
Preliminary fair value of assets acquired
and liabilities assumed on August 29, 2014
Current assets $ 88,529
Property, plant, and equipment 146,120
Intangible assets subject to amortization 51,098
Investment in joint venture 35,595
Other non-current assets 2,170
Goodwill 77,548
Total assets acquired $ 401,060
Current liabilities 34,320
Current maturities of long-term debt 6,547
Non-current deferred tax liabilities 46,998
Obligations under capital lease 18,350
Long-term debt, net of current portion 4,263
Other non-current liabilities 2,028
Total liabilities assumed $ 112,506
Net asset acquired $ 288,554
The combination of income, market, and cost approaches were used
for the preliminary valuation where appropriate, depending on the
asset or liability being valued. Valuation inputs in these models
and analyses gave consideration to market participant
assumptions. Acquired intangible assets were primarily
customer relationships and trade names. The final purchase price
allocation was completed during our year end closing process and
updated on our 2014 Annual Report on Form 10-K filed on
March 16, 2015.
In connection with the acquisition of Autocam, we recorded
goodwill, which represented the excess of the purchase price over
the estimated preliminary fair value of tangible and intangible
assets acquired, net of liabilities assumed. The goodwill was
attributed primarily to Autocam as a going concern and the fair
value of expected cost synergies and revenues growth from combining
the NN and Autocam businesses. The going concern element
represents the ability to earn a higher return on the combined
assembled collection of assets and businesses of Autocam than if
those assets and businesses were to be acquired and managed
separately. Other relevant elements of goodwill are the
benefits of access to certain markets and the assembled work force.
None of the goodwill is expected to be deducted for tax
purposes.
Property, plant and equipment acquired primarily included machinery
and equipment for use in manufacturing operations. Additionally, a
number of manufacturing sites and related facilities, land and
leased manufacturing sites that include leasehold improvements were
acquired. Property, plant and equipment has been preliminarily
valued using the cost approach supported where available by
observable market data which includes consideration of
obsolescence. Intangible assets have been preliminarily valued
using the relief from royalty and multi-period excess earnings
methods, both forms of the income approach supported by observable
market data.
Related to the acquisition of Autocam, in the third quarter and
first nine months of 2014, we recognized $5,316 and $5,857,
respectively, in transaction costs. During the third quarter and
the first nine months of 2014, we expensed $2,974 of deferred
financing costs and make whole interest payments related to the
acquisition. Transaction costs were expensed as incurred and were
included in the “Acquisition related costs excluded from
selling, general and administrative expenses” line item and
deferred financing costs were included in the interest expense line
items in the Unaudited Condensed Consolidated Statements of Income
(Loss) and Comprehensive Loss. As required by purchase
accounting, the acquired inventories were recorded at their
preliminary estimated fair value. These inventories were sold in
the third quarter 2014 resulting in a one-time $1,992 increase in
cost of sales. Beginning September 1, 2014, the consolidated
results of operations of NN include the results of the acquired
Autocam businesses.
The unaudited pro forma financial results for three months ended
September 30, 2014 and September 30, 2013 and nine months
ended September 30, 2014 and September 30, 2013 combine
the consolidated results of NN and Autocam giving effect to the
acquisition of Autocam as if it had been completed on
January 1, 2013, the beginning of the comparable prior annual
reporting period presented. The unaudited pro forma financial
results presented below do not include any anticipated synergies or
other expected benefits of the acquisition. This unaudited pro
forma financial information is presented for informational purposes
only and is not indicative of future operations or results had the
acquisition been completed as of January 1, 2013.
The unaudited pro forma financial results include certain
adjustments for additional depreciation and amortization expense
based upon the preliminary fair value step-up and estimated useful
lives of Autocam depreciable fixed assets and definite-life
amortizable assets acquired in the transaction. The unaudited
pro forma results also include adjustments to net interest expense
and early debt extinguishment costs related to the
transaction. The provision for income taxes has also been
adjusted for all periods, based upon the foregoing adjustments to
historical results.
Three Months ended Nine Months ended
2014 2013 2014 2013
Pro forma sales $ 166,979 $ 152,708 $ 505,891 $ 457,466
Pro forma net income $ 4,867 $ 5,436 $ 19,815 $ (224 )
The pro forma net income for the nine months ended
September 30, 2013 includes certain items, such as financing,
integration, and transaction costs historically recorded by NN and
Autocam directly attributable to the acquisition, which will not
have an ongoing impact. These items include transaction,
integration, and financing related costs incurred by NN and Autocam
of $8,509 and $8,933, net of tax, and $3,010 and $3,125, net of
tax, respectively during third quarter and first nine months of
2014, respectively, and reported in the nine months ended
September 30, 2013 pro forma net income above.
Other Acquisitions
On July 15, 2014, we acquired substantially all of the assets
of Chelsea Grinding Company (“Chelsea”), a manufacturer
of cylindrical rollers used primarily in the hydraulic pump
industry and relocated the operations to our Erwin, Tennessee plant
and integrated into our Metal Bearing Component Segment.
On June 20, 2014, we acquired 79.2% of the outstanding shares
of RFK Valjcici d. d. Konjic (“RFK”) for $9,756 in
cash. RFK is a manufacturer of tapered rollers with operations in
Konjic, Bosnia & Herzegovina. NN acquired up to 99.7% of
the shares of RFK during the third quarter of 2014 for an
additional $2,528 in cash and reclassified this amount from
non-controlling interest. RFK’s products, while complementary
to NN’s existing roller bearing components, broadened our
product offering and allowed penetration into adjacent markets. The
results of the operations of RFK have been consolidated with NN
since the date of acquisition as a part of the Metal Bearing
Components Segment.
On January 30, 2014, we purchased the majority of the
operating assets of V-S Industries, V-S Precision, LLC and V-S
Precision SA de DV (collectively referred to as “VS”)
from the secured creditors of V-S Industries for $5,580 in cash and
assumed certain liabilities totaling $2,968. This was accounted for
as a business combination. VS is a precision metal components
manufacturer that supplies customers in a variety of industries
including electric motors, HVAC, power tools, automotive and
medical. The acquisition of VS provided us with a complementary,
broader product offering and allowed penetration into adjacent
markets. VS has two locations in Wheeling, Illinois and Juarez,
Mexico and is included in Autocam Precision Components Segment. The
results of VS have been consolidated with NN since the date of
acquisition. |
