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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2000
---------------
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 0-23486
NN BALL & ROLLER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1096725
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 TENNESSEE ROAD
ERWIN, TENNESSEE 37650
(Address of principal executive offices, including zip code)
(423) 743-9151
(Registrant's telephone number, including area code)
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 X No
------ -----
As of May 10, 2000 there were15,244,308 shares of the registrant's common stock,
par value $0.01 per share, outstanding.
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Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income and Comprehensive Income for the three
months ended March 31, 2000 and 1999 2
Consolidated Balance Sheet at March 31, 2000 and December 31, 1999 3
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
PART I. FINANCIAL INFORMATION
NN BALL & ROLLER, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA 2000 1999
- ----------------------------------------------------------------------------- -------------- --------------
Net sales $ 28,002 $ 17,912
Cost of goods sold 20,346 12,523
-------------- --------------
Gross profit 7,656 5,389
Selling, general and administrative 2,318 1,218
Depreciation and amortization 1,845 1,244
Loss on involuntary conversion 3,978 --
Gain on involuntary conversion (3,953) --
Equity in earnings of unconsolidated affiliate (13) --
-------------- --------------
Income from operations 3,481 2,927
Interest expense 291 1
-------------- --------------
Income before provision for income taxes 3,190 2,926
Provision for income taxes 1,080 964
-------------- --------------
Net income $ 2,110 $ 1,962
Other comprehensive income:
Foreign currency translation adjustments (395) (861)
-------------- --------------
Comprehensive income $ 1,715 $ 1,101
============== ==============
Basic income per share $ 0.14 $ 0.13
============== ==============
Weighted average shares outstanding 15,244,271 14,804,244
============== ==============
Diluted income per share $ 0.14 $ 0.13
============== ==============
Weighted average shares outstanding 15,457,658 14,804,244
[FN]
SEE ACCOMPANYING NOTES.
</FN>
2
NN BALL & ROLLER, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2000 1999
THOUSANDS OF DOLLARS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 1,516 $ 1,409
Accounts receivable, net 21,315 18,183
Inventories, net 12,219 13,122
Other current assets 2,052 688
----------- -----------
Total current assets 37,102 33,402
Property, plant and equipment, net 39,961 43,452
Goodwill, net 12,618 12,779
Other non-current assets 3,681 735
----------- -----------
Total assets $93,362 $90,368
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,878 $ 5,343
Accrued vacation payable 760 676
Accrued bonuses payable 437 --
Deferred income 766 875
Income taxes payable 1,954 1,283
Other current liabilities 1,789 2,301
----------- -----------
Total current liabilities 13,584 10,478
Deferred income taxes 2,611 2,611
Long-term debt 16,544 17,151
----------- -----------
Total liabilities 32,739 30,240
Total stockholders' equity 60,623 60,128
----------- -----------
Total liabilities and stockholders' equity $93,362 $90,368
=========== ===========
[FN]
SEE ACCOMPANYING NOTES.
</FN>
3
NN BALL & ROLLER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
NUMBER PAR PAID IN EARNINGS COMPREHENSIVE
THOUSANDS OF DOLLARS OF SHARES VALUE CAPITAL (DEFICIT) INCOME TOTAL
- ---------------------------------------- --------- --------- ---------- ---------- ----------- ----------
Balance, January 1, 1999 14,804 $ 149 $27,902 $28,306 $(115) $56,242
Net income 1,962 1,962
Dividends (1,184) (1,184)
Other comprehensive income (861) (861)
--------- --------- ---------- ---------- ----------- ----------
Balance, March 31, 1999 14,804 $149 $27,902 $29,084 $(976) $56,159
========= ========= ========== ========== =========== ==========
Balance, January 1, 2000 15,244 $ 153 $30,398 $31,255 $(1,678) $60,128
Net income 2,110 2,110
Dividends (1,220) (1,220)
Other comprehensive income (395) (395)
--------- --------- ---------- ---------- ----------- ----------
Balance, March 31, 2000 15,244 $ 153 $30,398 $32,145 $(2,073) $60,623
========= ========= ========== ========== =========== ==========
[FN]
SEE ACCOMPANYING NOTES.
</FN>
4
NN BALL & ROLLER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
THOUSANDS OF DOLLARS 2000 1999
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 2,110 $ 1,962
Adjustments to reconcile net income:
Depreciation and amortization 1,845 1,244
Changes in operating assets and liabilities:
Accounts receivable (3,132) (1,662)
Inventories 903 1,410
Other current assets (1,364) (255)
Other assets (446) --
Accounts payable 2,535 (135)
Income taxes payable 877
671
Other liabilities (100) 664
------------- ------------
Net cash provided by operations 3,022 4,105
------------- ------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (194) (40)
Proceeds from disposals of property, plant and equipment -- 65
Involuntary conversion of property, plant and equipment 2,001 --
Investment in joint venture (2,500) --
Other assets (446) --
------------- ------------
Net cash provided (used) by investing activities (693) 25
------------- ------------
FINANCING ACTIVITIES:
Net payments under revolving line of credit (607) --
Dividends (1,220) (1,184)
------------- ------------
Net cash used by financing activities (1,827) (1,184)
------------- ------------
Effect of exchange rate changes (395) (861)
Net Change in Cash and Cash Equivalents 502 2,946
Cash and Cash Equivalents at Beginning of Period 1,409 1,430
------------- ------------
Cash and Cash Equivalents at Period-End $ 1,516 $ 3,515
============= ============
[FN]
SEE ACCOMPANYING NOTES.
</FN>
5
NN BALL & ROLLER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of NN Ball & Roller, Inc.
have not been audited by independent accountants, except for the balance sheet
at December 31, 1999. In the opinion of the Company's management, the financial
statements reflect all adjustments necessary to present fairly the results of
operations for the three-month periods ended March 31, 2000 and 1999, the
Company's financial position at March 31, 2000 and December 31, 1999, and the
cash flows for the three-month periods ended March 31, 2000 and 1999. These
adjustments are of a normal recurring nature and are, in the opinion of
management, necessary for fair presentation of the financial position and
operating results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements presented
in this Quarterly Report on Form 10-Q.
The results for the first quarter of 2000 are not necessarily indicative of
future results.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined by the first-in, first-out method.
Inventories are comprised of the following (in thousands):
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
------------ ------------
Raw Materials $ 2,852 $ 3,131
Work in process 2,206 2,585
Finished goods 7,221 7,466
------------ ------------
12,279 13,182
Less - Reserve for excess and obsolete inventory 60 60
------------ ------------
$12,219 $ 13,122
============ ============
6
NOTE 3. NET INCOME PER SHARE
THREE MONTHS ENDED
MARCH 31,
THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA 2000 1999
- ----------------------------------------------------------------------------- -------------- --------------
Net income $ 2,110 $ 1,962
Adjustments to net income -- --
-------------- --------------
Net income $ 2,110 $ 1,962
============== ==============
Weighted average shares outstanding 15,244,271 14,804,244
Effect of dilutive stock options 213,387 --
-------------- --------------
Dilutive shares outstanding 15,457,658 14,804,244
============== ==============
Basic net income per share $ 0.14 $ 0.13
============== ==============
Diluted net income per share $ 0.14 $ 0.13
============== ==============
Excluded from the shares outstanding at March 31, 2000 were 12,750 antidilutive
options to purchase common shares at an exercise price of $9.75 to $12.50.
Excluded from shares outstanding at March 31, 1999 were 501,625 antidilutive
options to purchase common shares at an exercise price of $6.38 to $15.50.
NOTE 4. SEGMENT INFORMATION
In connection with the Company's acquisition of certain assets and liabilities
of Earsley Capital Corporation in July 1999, the Company has chosen to realign
its reportable segments on the basis of manufactured products. As a result of
this realignment, the Company now has two reportable segments, which include
balls & rollers and plastics. The Company's ball & roller operations are
distributed among two manufacturing facilities in Tennessee, one manufacturing
facility in South Carolina and one manufacturing facility in Kilkenny, Ireland.
All of these facilities are engaged in the production of precision balls and
rollers used primarily in the bearing industry. The Company's plastic operations
are located in two manufacturing facilities located in Lubbock, Texas. The
facility is engaged in the production of precision plastic injection molded
components.
The accounting policies of the segments do not differ from those of the
consolidated entity. The Company evaluates segment performance based on profit
or loss from operations before income taxes not including non-recurring gains or
losses. The Company accounts for intersegment sales and transfers at current
market prices; however, the Company did not have any material intersegment
transactions during the three-month period ended March 31, 2000. Restatement of
prior period segment information has not been provided because the ball & roller
segment represents the consolidation of the two previously reported geographic
segments.
THREE MONTHS ENDED
MARCH 31,
2000 1999
THOUSANDS OF DOLLARS BALL & ROLLER PLASTICS BALL & ROLLER PLASTICS
- ---------------------------------------------- ----------------- ----------------- ------------------- ---------------
Revenues from external customers $ 19,125 $ 8,877 $ 17,912 $ --
Segment profit 2,840 375 2,926 --
Segment assets 61,673 31,689 68,183 --
7
NOTE 5. ACQUISITION
Effective July 4, 1999 the Company acquired substantially all of the assets and
assumed certain liabilities of Earsley Capital Corporation, a Nevada corporation
and successor to and formerly known as Industrial Molding Corporation ("IMC").
IMC, located in Lubbock, Texas, operates as a premier full-service designer and
manufacturer of precision plastic injection molded components. The Company plans
to continue the operation of the IMC business as a subsidiary entity. The
Company paid consideration of approximately $30 million, consisting of cash in
the amount of $27.5 million and 440,038 shares of its common stock, for the net
assets acquired from IMC. Cash used in the acquisition was obtained from the
Company's existing line of credit with First American Bank.
IMC reported earnings of $1.9 million and $1.2 million on net sales of $28.1
million and $13.7 million for the year ended January 2, 1998 and the six-month
period ended July 4, 1999, respectively. Net assets of IMC which were acquired
by the Company approximated $13.7 million and $16 million at January 2, 1999 and
July 4, 1999, respectively.
The following unaudited pro forma summary presents the financial information as
if the Company's acquisition had occurred on January 1, 1999. These pro forma
results have been prepared for comparative purposes and do not purport to be
indicative of what would have occurred had the acquisition been made on January
1, 1999, nor is it indicative of future results.
THREE MONTHS
ENDED MARCH 31,
THOUSANDS OF DOLLARS 1999
- --------------------------------------------- ------------------
Revenues from external customers $ 7,591
Net profit 2,156
EPS $ 0.15
NOTE 6. JOINT VENTURE
On March 16, 2000, the Company entered into a joint venture with General Bearing
Corporation. The new venture, NN General, LLC, owns a majority position in
Jiangsu General Ball & Roller Company, Ltd., a Chinese precision ball and roller
manufacturer located in Rugao City, Jiangsu Providence China. Through NN
General, LLC, the Company equally shares a 60% interest with General Bearing
Company in the Chinese company. The Company's investment includes a cash
contribution of $2.5 million and a loan commitment for an additional $1 million.
The remaining 40% of the Chinese company is owned by Jiangsu Steel Ball Factory.
The Company accounts for this investment under the equity method and recorded
income of approximately $13,000 during the 2000 first quarter.
NOTE 7. FIRE
On March 12, 2000, the Company experienced a fire at its Erwin, Tennessee
facility. The fire was contained to approximately 30% of the production area and
did not result in serious injury to any employee. Affected production is being
shifted to the Company's other facilities as possible as well as the use of
other suppliers to protect product supply to customers. Insurance coverage is
available for the loss. On March 31, 2000, the Company recorded a loss of
approximately $4.0 million representing the net book value of assets destroyed
in the fire and other related expenses. The Company also recorded a gain of
approximately $4.0 million at March 31, 2000 representing the amount it believes
the Company will recover from insurance proceeds for losses already recognized.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. Net sales increased by approximately $10.1 million, or 56.3%, from
$17.9 million for the first quarter of 1999 to $28.0 million for the first
quarter of 2000. The acquisition of IMC accounted for $8.9 million of additional
sales for the first quarter of 2000. For the Ball & Roller division, foreign
sales increased $2.1 million, or 27.3%, from $7.7 million in the first quarter
of 1999 to $9.8 million during the first quarter of 2000. The increase in
foreign net sales was due primarily to sales to a new Asian customer and
increased sales to existing European and Asian customers. Domestic sales
decreased $0.9 million, or 8.8%, from $10.2 million in the first quarter of 1999
to $9.3 million in the first quarter of 2000. This decrease was due primarily to
decreased volumes to existing customers.
GROSS PROFIT. Gross profit increased $2.3 million, or 42.6%, from $5.4 million
for the first quarter of 1999 to $7.7 million for the first quarter of 2000. The
IMC acquisition accounted for $2.2 million of the increase. As a percentage of
net sales, gross profit decreased from 30.1% in the first quarter of 1999 to
27.3 % for the same period in 2000. The decrease in gross profit as a percentage
of sales was due to reduced inventory levels as well as inefficiencies
associated with the March fire at the Company's Erwin, Tennessee facility.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $1.1 million from $1.2 million for the first quarter of 1999
to $2.3 million in 2000. The acquisition of IMC accounted for $920,000 of the
increase. The remainder was due to primarily to increased expenses due to the
Company's joint venture activity. As a percentage of net sales, selling, general
and administrative expenses increased from 6.8% for the first quarter of 1999 to
8.3% for the same period in 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
from $1.2 million or 48.3% for the first quarter of 1999 to $1.8 million for the
same period in 2000. The acquisition of IMC accounted for $574,000 of the
increase. The remainder of the increase was due primarily to purchases of
capital equipment at the Company's ball and roller facilities. As a percentage
of net sales, depreciation and amortization expense decreased from 6.9% for the
first quarter of 1999 to 6.6% for the same period in 2000.
INTEREST EXPENSE. Interest expense increased from $1,000 in the first quarter of
1999 to $291,000 during the same period in 2000. The increase was due to
increased levels outstanding under the Company's line of credit in the first
quarter of 2000. In July of 1999, the Company borrowed $18.5 million under the
line of credit for the purchase of certain assets of the Earsley Capital
Corporation.
NET INCOME. Net income increased from $2.0 million for the first quarter of 1999
to $2.1 million for the same period in 2000. As a percentage of net sales, net
income decreased from 11.0% in the first quarter of 1999 to 7.5% for the first
quarter of 2000. This decrease in net income as a percentage of net sales was
due primarily to decreased gross profits as a percentage of sales as well as
increased administrative expenses, depreciation and amortization expense and
interest expense associated with the IMC acquisition.
9
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company entered into a loan agreement with First American
National Bank ("First American") which provides for a revolving credit facility
of up to $25 million, expiring on June 30, 2000. In December 1999, the Company
extended the terms of the loan agreement with First American to expire on July
25, 2001. Amounts outstanding under the revolving facility are unsecured and
bear interest at a floating rate equal to, at the Company's option, either LIBOR
plus 0.65% or the Fed Funds effective rate plus 1.5%. The loan agreement
contains customary financial and operating restrictions on the Company,
including covenants, restricting the Company, without First American's consent,
from incurring additional indebtedness from, or pledging any of its assets to,
other lenders and from disposing of a substantial portion of its assets. In
addition, the Company is prohibited from declaring any dividend if a default
exists under the revolving credit facility at the time of, or would occur as a
result of, such declaration. The loan agreement also prohibits sales of property
outside of the ordinary course of business. The loan agreement also contains
customary financial covenants with respect to the Company, including a covenant
that the Company's earnings will not decrease in any year by more than fifty
percent of earnings in the Company's immediately preceding fiscal year. The
Company, as of May 10, 2000 was in compliance with all such covenants.
The Company's arrangements with its domestic customers typically provide that
payments are due within 30 days following the date of the Company's shipment of
goods, while arrangements with foreign customers (other than foreign customers
that have entered into an inventory management program with the Company)
generally provide that payments are due within either 90 or 120 days following
the date of shipment. Under the Company's inventory management program, payments
typically are due within 30 days after the product is used by the customer. The
Company's net sales historically have not been of a seasonal nature. However,
seasonality has become a factor for the foreign ball and roller sales in that
many foreign customers cease production during the month of August. The Company
also experiences seasonal fluctuation through its IMC Plastics division which
provides several lines of seasonal hardware.
The Company bills and receives payments from some of its foreign customers in
their local currency. To date, the Company has not been materially adversely
affected by currency fluctuations or foreign exchange restrictions. Nonetheless,
as a result of these sales, the Company's foreign exchange risk has increased.
Various strategies to manage this risk are under development and implementation,
including a hedging program. In addition, a strengthening of the U.S. dollar
against foreign currencies could impair the ability of the Company to compete
with international competitors for foreign as well as domestic sales.
Working capital, which consists principally of accounts receivable and
inventories, was $23.5 million at March 31, 2000 as compared to $22.9 million at
December 31, 1999. The ratio of current assets to current liabilities decreased
from 3.2:1 at December 31, 1999 to 2.7:1at March 31, 2000. Cash flow from
operations decreased from $4.1 million during the first quarter of 1999 to $3.0
million during the same period in 2000. This decrease was primarily attributed
to an increase of $3.1million in accounts receivable and $1.4 million in other
current assets during the first quarter of 2000 as compared to the same period
in 1999.
During 2000, the Company plans to spend approximately $5.3 million on capital
expenditures of which approximately $654,000 has been spent through March 31,
2000. The Company intends to finance these activities with cash generated from
operations and funds available under the credit facility described above. The
Company believes that funds generated from operations and borrowings from the
credit facility will be sufficient to finance the Company's working capital
needs and projected capital expenditure requirements through December 2000.
SUBSEQUENT EVENT
On April 10, 2000, the Company announced that it will start a jointly owned
stand-alone company in Europe, NN Euroball ApS, for the manufacture and sale of
chrome steel balls used for the ball bearings
10
and other products. The Company will have 54% of the shares of the new company,
SKF and FAG Kugelfischer Georg Schager AG will have 23% each. The new company
plans to start operating during the summer of 2000. Euroball ApS will acquire
the ball factories located in Pinerolo, Italy (SKF), Eltmann, Germany (FAG) and
Kilkenny, Ireland (NN Ball & Roller Inc.). Employment will be approximately 700
and yearly sales are planned to be approximately 100 million euro.
THE EURO
The Treaty on European Union provided that an economic and monetary union be
established in Europe whereby a single European currency, the Euro, was
introduced to replace the currencies of participating member states. The Euro
was introduced on January 1, 1999, at which time the value of participating
member state currencies were irrevocably fixed against the Euro and the European
Currency Unit. For the three year transitional period ending December 31, 2001,
the national currencies of member states will continue to circulate but be in
sub-units of the Euro. At the end of the transitional period, Euro bank notes
and coins will be issued, and the national currencies of the member states will
be legal tender no later than June 30, 2002.
The Company currently has operations in Ireland, which is one of the Euro
participating countries, and sells product to customers in many of the
participating countries. The functional currency of the Company's Ireland
operations was changed effective September 1999.
SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS
The Company's net sales historically have not been of a seasonal nature.
However, as foreign sales have increased as a percentage of total sales,
seasonality has become a factor for the Company in that many foreign customers
cease production during the month of August.
INFLATION AND CHANGES IN PRICES
While the Company's operations have not been affected by inflation during recent
years, prices for 52100 Steel and other raw materials purchased by the Company
are subject to change. For example, during 1995, due to an increase in worldwide
demand for 52100 Steel and the decrease in the value of the United States dollar
relative to foreign currencies, the Company experienced an increase in the price
of 52100 Steel and some difficulty in obtaining an adequate supply of 52100
Steel from its existing suppliers. Typically, the Company's pricing arrangements
with its steel suppliers are subject to adjustment once every six months. In an
effort to limit its exposure to fluctuations in steel prices, the Company has
generally avoided the use of long-term, fixed price contracts with its
customers. Instead, the Company typically reserves the right to increase product
prices periodically in the event of increases in its raw material costs. The
Company was able to minimize the impact on its operations resulting from the
52100 Steel price increases by taking such measures.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company wishes to caution readers that this report contains, and future
filings by the Company, press releases and oral statements made by the Company's
authorized representatives may contain, forward looking statements that involve
certain risks and uncertainties. The Company's actual results could differ
materially from those expressed in such forward looking statements due to
important factors bearing on the Company's business, many of which already have
been discussed in this filing and in the Company's prior filings.
The following paragraphs discuss the risk factors the Company regards as the
most significant, although the Company wishes to caution that other factors that
are currently not considered as significant or that currently cannot be foreseen
may in the future prove to be important in affecting the Company's results of
11
operations. The Company undertakes no obligation to publicly update or revise
any forward looking statements, whether as a result of new information, future
events or otherwise.
INDUSTRY RISKS. Both the precision ball & roller and precision plastics
industries are cyclical and tend to decline in response to overall declines in
industrial production. The Company's sales in the past have been negatively
affected, and in the future very likely would be negatively affected, by adverse
conditions in the industrial production sector of the economy or by adverse
global or national economic conditions generally.
COMPETITION. The precision ball & roller market and the precision plastics
markets are highly competitive, and many of manufacturers in each of the markets
are larger and have substantially greater resources than the Company. The
Company's competitors are continuously exploring and implementing improvements
in technology and manufacturing processes in order to improve product quality,
and the Company's ability to remain competitive will depend, among other things,
on whether it is able, in a cost effective manner, to keep pace with such
quality improvements. In addition, the Company competes with many of its ball
and roller customers that, in addition to producing bearings, also internally
produce balls and rollers for sale to third parties. The Company faces a risk
that its customers will decide to produce balls and rollers internally rather
than outsourcing their needs to the Company.
RAPID GROWTH. The Company has significantly expanded its ball and roller
production facilities and capacity over the last several years, and during the
third quarter of 1997 purchased an additional manufacturing plant in Kilkenny,
Ireland. The Company's Ball & Roller division currently is not operating at full
capacity and faces risks of further under-utilization or inefficient utilization
of its production facilities in future years. The Company also faces risks
associated with start-up expenses, inefficiencies, delays and increased
depreciation costs associated with its plant expansions.
RAW MATERIAL SHORTAGES. Because the balls and rollers manufactured by the
Company have highly-specialized applications, their production requires the use
of very particular types of steel. Due to quality constraints, the Company
obtains the majority of its steel from overseas suppliers. Steel shortages or
transportation problems, particularly with respect to 52100 Steel, could have a
detrimental effect on the Company's business.
RISKS ASSOCIATED WITH INTERNATIONAL TRADE. Because the Company obtains a
majority of its raw materials for the manufacture of balls and rollers from
overseas suppliers and sells to a large number of international customers, the
Company faces risks associated with (i) adverse foreign currency fluctuations,
(ii) changes in trade, monetary and fiscal policies, laws and regulations, and
other activities of governments, agencies and similar organizations, (iii) the
imposition of trade restrictions or prohibitions, (iv) the imposition of import
or other duties or taxes, and (v) unstable governments or legal systems in
countries in which the Company's suppliers and customers are located. An
increase in the value of the United States dollar relative to foreign currencies
adversely affects the ability of the Company to compete with its foreign-based
competitors for international as well as domestic sales.
DEPENDENCE ON MAJOR CUSTOMERS. During 1999, the Company's ten largest customers
accounted for approximately 69% of its net sales. Sales to various US and
foreign divisions of SKF, which is one of the largest bearing manufacturers in
the world, accounted for approximately 27% of net sales in 1999, and sales to
FAG accounted for approximately 11% of net sales. None of the Company's other
customers accounted for more than 10% of its net sales in 1999, but sales to
three of its customers each represented more than 5% of the Company's 1999 net
sales. The loss of all or a substantial portion of sales to these customers
would have a material adverse effect on the Company's business.
ACQUISITIONS. The Company's growth strategy includes growth through
acquisitions. In July 1999, the Company acquired IMC as part of that strategy.
Although the Company believes that it will be able to integrate the operations
of IMC and other companies acquired in the future into its operations without
substantial cost, delays or other problems, its ability to do so will depend on,
among other things, the
12
adequacy of its implementation plans, the ability of its management to
effectively oversee and operate the combined operations of the Company and the
acquired businesses and its ability to achieve desired operating efficiencies
and sales goals. If the Company is not able to successfully integrate the
operations of acquired companies into its business, its future earnings and
profitability could be materially and adversely affected.
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedules (For Information of SEC Only)
99.1 Operating Agreement of NN General, LLC (with Assignment Agreement
between General Bearing Corporation and NN General, LLC)
99.2 Operating Agreement of NNA, LLC
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2000
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NN Ball & Roller, Inc.
---------------------------------
(Registrant)
/s/ Roderick R. Baty
Date: May 10, 2000 ---------------------------------
Roderick R. Baty, President and
Chief Executive Officer
(Duly Authorized Officer)
/s/ David L. Dyckman
Date: May 10, 2000 ---------------------------------
David L. Dyckman
Chief Financial Officer and
Vice President
(Principal Financial Officer)
(Duly Authorized Officer)
Date: May 10, 2000 /s/ William C. Kelly, Jr.
---------------------------------
William C. Kelly, Jr.,
Treasurer, Assistant Secretary and
Chief Accounting Officer
(Principal Accounting Officer)
(Duly Authorized Officer)
15