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 June 30, 2004
-------------
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
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NN, 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)
2000 Waters Edge Drive
Building C, Suite 12
Johnson City, Tennessee 37604
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of August 5, 2004 there were 16,762,092 shares of the registrant's common
stock, par value $0.01 per share, outstanding.
NN, Inc.
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Income and Comprehensive Income
for the three and six months ended June 30, 2004 and 2003
(unaudited).........................................................2
Condensed Consolidated Balance Sheets at June 30, 2004
and December 31, 2003 (unaudited)...................................3
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 2004 and 2003 (unaudited).........4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and 2003 (unaudited)............................5
Notes to Consolidated Financial Statements (unaudited)................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................13
Item 3 Quantitative and Qualitative Disclosures about Market Risk...........24
Item 4 Controls and Procedures..............................................25
Part II. Other Information
Item 1 Legal Proceedings....................................................26
Item 2. Changes in Securities and Use of Proceeds............................26
Item 3. Defaults Upon Senior Securities......................................26
Item 4. Submission of Matters to a Vote of Security Holders..................26
Item 5. Other Information....................................................26
Item 6. Exhibits and Reports on Form 8-K.....................................27
Signatures....................................................................28
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NN, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
Thousands of Dollars, Except Per Share Data 2004 2003 2004 2003
- ------------------------------------------- ---------- ---------- ----------- -----------
Net sales $75,265 $64,194 $ 152,897 $ 121,803
Cost of products sold (exclusive of depreciation
shown separately below) 58,937 49,721 119,326 92,464
Selling, general and administrative 8,041 5,771 15,184 10,403
Depreciation and amortization 3,969 3,452 7,918 6,500
Restructuring and impairment costs -- 2,723 -- 2,723
---------- ---------- ----------- -----------
Income from operations 4,318 2,527 10,469 9,713
Interest expense, net 932 789 1,824 1,403
Other (income) expense, net 25 389 (31) 310
---------- ---------- ----------- -----------
Income before provision for income taxes 3,361 1,349 8,676 8,000
Provision for income taxes 1,375 512 3,472 2,985
Minority interest in consolidated subsidiaries -- 140 -- 675
---------- ---------- ----------- -----------
Net income 1,986 697 5,204 4,340
Other comprehensive income:
Foreign currency translation (524) 2,370 (3,013) 4,169
---------- ---------- ----------- -----------
Comprehensive income $ 1,462 $ 3,067 $ 2,191 $ 8,509
========== ========== =========== ===========
Basic income per common share: $ 0.12 $ 0.04 $ 0.31 $ 0.28
========== ========== =========== ===========
Weighted average shares outstanding 16,721 16,015 16,713 15,561
========== ========== =========== ===========
Diluted income per common share: $ 0.12 $ 0.04 $ 0.30 $ 0.27
========== ========== =========== ===========
Weighted average shares outstanding 17,177 16,465 17,176 15,892
========== ========== =========== ===========
Cash dividends per common share $ 0.08 $ 0.08 $ 0.16 $ 0.16
========== ========== =========== ===========
See accompanying notes.
2
NN, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
Thousands of Dollars 2004 2003
- -------------------- -------- ------------
Assets:
Current assets:
Cash and cash equivalents $ 6,644 $ 4,978
Accounts receivable, net 47,809 40,864
Inventories, net 31,866 36,278
Other current assets 5,916 6,299
-------- ------------
Total current assets 92,235 88,419
Property, plant and equipment, net 124,601 128,996
Assets held for sale -- 1,805
Goodwill, net 42,132 42,893
Other assets 4,892 4,304
-------- ------------
Total assets $263,860 $ 266,417
======== ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 34,906 $ 32,867
Accrued salaries and wages 12,288 12,032
Short-term debt -- 2,000
Current maturities of long-term debt 6,389 12,725
Other current liabilities 3,914 3,070
-------- ------------
Total current liabilities 57,497 62,694
Non-current deferred tax liability 13,193 13,423
Long-term debt 73,971 69,752
Accrued pension and other 13,125 14,080
-------- ------------
Total liabilities 157,786 159,949
Total stockholders' equity 106,074 106,468
-------- ------------
Total liabilities and stockholders' equity $263,860 $ 266,417
======== ============
See accompanying notes.
3
NN, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Common Stock Accumulated
Number Additional Other
Of Par paid in Retained Comprehensive
Thousands of Dollars and Shares Shares value capital Earnings Income(Loss) Total
- ------------------------------ ---------- ------- ---------- ----------- ------------ ----------
Balance, January 1, 2003 15,370 $154 $ 40,457 $ 38,984 $(1,687) $ 77,908
Shares issued 1,280 13 12,093 -- -- 12,106
Net income -- -- -- 4,340 -- 4,340
Dividends declared -- -- -- (2,562) -- (2,562)
Other comprehensive income -- -- -- -- 4,169 4,169
---------- ------- ---------- ----------- ------------ ----------
Balance, June 30, 2003 16,650 $167 $ 52,550 $ 40,762 $ 2,482 $ 95,961
========== ======= ========== =========== ============ ==========
Balance, January 1, 2004 16,712 $168 $ 52,960 $ 43,931 $ 9,409 $106,468
Shares issued 15 -- 89 -- -- 89
Net income -- -- -- 5,204 -- 5,204
Dividends declared -- -- -- (2,674) -- (2,674)
Other comprehensive income (loss) -- -- -- -- (3,013) (3,013)
---------- ------- ---------- ----------- ------------ ----------
Balance, June 30, 2004 16,727 $168 $ 53,049 $ 46,461 $ 6,396 $106,074
========== ======= ========== =========== ============ ==========
See accompanying notes.
4
NN, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
Thousands of Dollars 2004 2003
- -------------------- ---------- ----------
Operating Activities:
Net income $ 5,204 $ 4,340
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 7,918 6,500
Amortization of debt issue costs 106 128
Write-off of unamortized debt issue costs 260 455
Gain on disposal of property, plant and equipment (2) --
Interest income on note receivable 45 40
Minority interest in consolidated subsidiary -- 675
Restructuring costs and impairment costs -- 3,047
Changes in operating assets and liabilities:
Accounts receivable (7,951) (14,043)
Inventories 3,694 (3,717)
Other current assets 41 (1,352)
Other assets (222) (3,078)
Accounts payable 2,959 11,030
Income taxes payable 1,259 1,019
Other liabilities 81 (645)
---------- ----------
Net cash provided by operating activities 13,392 4,399
---------- ----------
Investing Activities:
Acquisition of Veenendaal, The Netherlands -- (17,777)
Purchase of minority interest -- (15,583)
Acquisition of property, plant, and equipment (5,178) (4,273)
Proceeds from disposals of property, plant and
equipment 87 --
---------- ----------
Net cash used by investing activities (5,091) (37,633)
---------- ----------
Financing Activities:
Proceeds from long-term debt 40,000 89,560
Book overdraft -- 363
Debt issue costs paid (703) (761)
Repayment of long-term debt (41,075) (59,408)
Repayment of short-term debt (2,000) --
Proceeds from issuance of stock 90 5,168
Dividends paid (2,674) (2,562)
---------- ----------
Net cash provided (used) by
financing activities (6,362) 32,360
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents (273) 371
Net Change in Cash and Cash Equivalents 1,666 (503)
Cash and Cash Equivalents at Beginning of Period 4,978 5,144
---------- ----------
Cash and Cash Equivalents at End of Period $ 6,644 $ 4,641
========== ==========
See accompanying notes.
5
NN, Inc.
Notes To Consolidated Financial Statements
(unaudited)
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of NN, Inc. (the "Company")
have not been audited by our independent registered public accounting firm,
except that the balance sheet at December 31, 2003 is derived from the Company's
audited financial statements. 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 and six month periods ended June 30, 2004
and 2003, the Company's financial position at June 30, 2004 and December 31,
2003, and the cash flows for the six month periods ended June 30, 2004 and 2003.
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. As used in this Quarterly Report on
Form 10-Q, the terms "NN", "the Company", "we", "our", or "us" mean NN, Inc. and
its subsidiaries.
Certain information and footnote disclosures normally included in the 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. These Condensed, Consolidated, Unaudited
Financial Statements should be read in conjunction with our audited Consolidated
Financial Statements and the Notes thereto included in our most recent annual
report on Form 10-K which we filed with the Securities and Exchange Commission
on March 15, 2004.
The results for the first and second quarter of 2004 are not necessarily
indicative of future results.
Certain 2003 amounts have been reclassified to conform with the 2004
presentation.
Note 2. Derivative Financial Instruments
We have an interest rate swap accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective January 1, 2001. The Company
adopted SFAS No. 133 on January 1, 2001, which establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Standard requires the recognition of all derivative instruments on the balance
sheet at fair value. The Standard allows for hedge accounting if certain
requirements are met including documentation of the hedging relationship at
inception and upon adoption of the Standard.
In connection with a variable Euribor rate debt financing in July 2000, our
subsidiary, NN Europe ApS (formerly known as NN Euroball ApS) entered into an
interest rate swap with a notional amount of 12.5 million Euro for the purpose
of fixing the interest rate on a portion of its debt financing. The interest
rate swap provides for the Company to receive variable Euribor interest payments
and pay 5.51% fixed interest. The interest rate swap agreement expires in July
2006 and the notional amount amortizes in relation to initially established
principal payments on the underlying debt over the life of the swap. This
original debt was repaid in May 2003, however, the swap remains pursuant to its
original terms.
As of June 30, 2004, the fair value of the swap was approximately $304,000,
which is recorded in other non-current liabilities. The change in fair value
during the six month periods ended June 30, 2004 and 2003 was a gain of
approximately $84,000 and a loss of $128,000, respectively, which have been
included as a component of other (income) expense.
6
Note 3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
Inventories are comprised of the following (in thousands):
June 30, December 31,
2004 2003
----------- -----------
Raw materials $ 7,653 $ 8,492
Work in process 5,769 6,808
Finished goods 19,687 22,128
Less inventory reserves (1,243) (1,150)
----------- -----------
$ 31,866 $ 36,278
=========== ===========
Inventories on consignment at customer locations as of June 30, 2004 and
December 31, 2003 were $3,804 and $3,046, respectively.
Note 4. Net Income Per Share
Three months ended Six months ended
June 30, June 30,
Thousands of Dollars, Except Share and Per Share 2004 2003 2004 2003
Data
- --------------------------------------------------- ------------- ------------- ------------- ------------
Net income $ 1,986 $ 697 $ 5,204 $ 4,340
============= ============= ============= ============
Weighted average basic shares 16,720,858 16,015,347 16,712,867 15,560,647
Effect of dilutive stock options 455,695 449,466 462,832 331,737
------------- ------------- ------------- ------------
Weighted average dilutive shares outstanding 17,176,553 16,464,813 17,175,699 15,892,384
============= ============= ============= ============
Basic net income per share $ 0.12 $ 0.04 $ 0.31 $ 0.28
============= ============= ============= ============
Diluted net income per share $ 0.12 $ 0.04 $ 0.30 $ 0.27
============= ============= ============= ============
Excluded from the shares outstanding for each of the periods ended June 30, 2004
and 2003 were 438,000 and 54,000 antidilutive options, respectively, which had
exercise prices of $12.62 as of June 30, 2004 and exercise prices ranging from
$10.26 to $10.67 as of June 30, 2003.
Note 5. Segment Information
During 2004 and 2003, the Company's reportable segments are based on differences
in product lines and geographic locations and are divided among Domestic Ball
and Roller, European operations ("NN Europe") and Plastic and Rubber Components.
The Domestic Ball and Roller Segment is comprised of two manufacturing
facilities in the eastern United States. The NN Europe Segment is comprised of
precision ball manufacturing facilities located in Kilkenny, Ireland, Eltmann,
Germany, Pinerolo, Italy, Kysucke Nove Mesto, Slovakia, which began production
in the second quarter of 2004, and Veenendaal, The Netherlands ("Veenendaal")
which is a tapered roller and metal cage manufacturing operation acquired in May
2003 . See Note 6, "Acquisitions and Joint Ventures". All of the facilities in
the Domestic Ball and Roller Segment are engaged in the production of precision
balls and rollers used primarily in the bearing industry. All of the facilities
in the NN Europe Segment are engaged in the production of precision balls used
primarily in the bearing industry except for Veenendaal which is engaged in the
production of tapered rollers and cages for use primarily in the bearing
industry. The Plastic and Rubber Components Segment is comprised of the
Industrial Molding Corporation ("IMC") business, located in Lubbock, Texas and
The Delta Rubber Company ("Delta") business, located in Danielson, Connecticut.
IMC is engaged in the production of plastic injection molded products for the
bearing, automotive, instrumentation, fiber optic and office automation markets.
Delta is engaged principally in the production of engineered bearing seals used
principally in automotive, industrial, agricultural, mining and aerospace
applications.
7
The accounting policies of each segment are the same as those described in the
summary of significant accounting policies in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2003, including those policies
as discussed in Note 1. We evaluate segment performance based on profit or loss
from operations before income taxes and minority interest. We account for
inter-segment sales and transfers at current market prices; however, we did not
have any material inter-segment transactions during the three or six month
periods ended June 30, 2004 or 2003.
Three Months Ended June 30,
2004 2003
Plastic and Domestic Plastic and
DomesticBall NN Europe Rubber Ball & NN Europe Rubber
Thousands of Dollars & Roller Segment Components Roller Segment Components
- ----------------------------- ------------ --------------- -------------- ------------- --------------- ---------------
Revenues from external $ 14,550 $ 48,387 $ 12,328 $ 13,925 $ 38,210 $ 12,059
customers
Pretax profit (loss) (137) 3,088 410 399 3,245 (2,295)
Assets 50,072 157,027 56,761 51,322 146,322 56,210
Six Months Ended June 30,
2004 2003
Plastic and Domestic Plastic and
DomesticBall NN Europe Rubber Ball & NN Europe Rubber
Thousands of Dollars & Roller Segment Components Roller Segment Components
- ----------------------------- ------------ --------------- --------------- ------------- --------------- ---------------
Revenues from external $ 28,977 $ 98,441 $ 25,479 $ 28,174 $ 67,045 $ 26,584
customers
Pretax profit (loss) 630 6,878 1,168 2,379 6,974 (1,353)
Assets 50,072 157,027 56,761 51,322 146,322 56,210
Note 6. Acquisitions and Joint Ventures
On May 2, 2003 we acquired the 23 percent interest in NN Europe, ApS ("NN
Europe") (formerly known as NN Euroball ApS) held by SKF. On March 12, 2004 we
changed the name of our primary European entity from NN Euroball, ApS to NN
Europe ApS. To avoid confusion between the entity and the segment, we will refer
to the segment as the NN Europe Segment and the entity as NN Europe. We paid
approximately 13.8 million Euros ($15.6 million) for SKF's interest in Euroball.
Upon consummation of this transaction, we became the sole owner of NN Europe.
On May 2, 2003 we acquired 100 percent of the tapered roller and metal cage
manufacturing operations of SKF in Veenendaal, The Netherlands. The results of
Veenendaal's operations have been included in the consolidated financial
statements since that date. We paid consideration of approximately 23.0 million
Euros ($25.7 million) and incurred other costs of approximately $1.0 million,
for the Veenendaal net assets acquired from SKF. The Veenendaal operation
manufactures rollers for tapered roller bearings and metal cages for both
tapered roller and spherical roller bearings allowing us to expand our bearing
component offering. The results of the Veenendaal operation are included in the
NN Europe Segment.
In connection with the acquisition of SKF's Veenendaal, The Netherlands
operations, SKF purchased from us 700,000 shares of our common stock for an
aggregate fair value of approximately $6.9 million which was applied to the
purchase of SKF's Veenendaal, The Netherlands operations. For purposes of
valuing the 700,000 common shares issued in our Consolidated Financial
Statements, the value was determined based on the average market price of NN,
Inc.'s common shares over the two-day period before, the day of, and the two-day
period after the terms of the acquisition were agreed to, April 14, 2003.
The following unaudited pro-forma summary presents the financial information for
the three and six month period ended June 30, 2003 as if our Veenendaal
acquisition had occurred as of the beginning of the period presented. 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 as of
the beginning of each of the periods presented, nor are they indicative of
future results.
8
Three months ended Six months ended
(In thousands, except per share June 30, 2003 June 30, 2003
data) (unaudited) (unaudited)
- ------------------------------- -------------------- ------------------
Net sales $69,408 $ 139,928
Net income 971 4,783
Basic earnings per share 0.06 0.31
Diluted earnings per share 0.06 0.30
Note 7. New Accounting Pronouncements
On May 19, 2004, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position (FSP) No. 106-2, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003",
which supersedes FSP No. 106-1, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,"
(the Act). FSP No. 106-2 permits a sponsor of a postretirement health care plan
that provides a prescription drug benefit to make a one-time election to defer
accounting for the effects of the Act until authoritative guidance on accounting
for subsidies provided by the Act is issued. The Act introduces a prescription
drug benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans. The Company does not anticipate that the Act will
have a material effect on the measurement of the Company's postretirement
obligations. FSP No. 106-2 is effective for the Company's third quarter 2004.
In December 2003, the FASB issued Financial Interpretation No. 46(R),
"Consolidation of Variable Interest Entities," ("FIN 46(R)"). This
interpretation addresses consolidation by business enterprises of variable
interest entities with certain defined characteristics and replaces Financial
Interpretation No. 46. The interpretation was effective January 1, 2004 for
variable interest entities existing prior to February 2003. FIN 46(R) did not
have a significant impact on the Company's consolidated financial statements.
In December 2003 the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132R
revises employers' disclosures about pension plans and other postretirement
benefit plans. It does not change the measurement or recognition of those plans
required by FASB Statements No. 87, "Employers' Accounting for Pensions", No.
88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pensions Plans and for Termination Benefits, and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". SFAS No. 132R requires
additional disclosures to those in the original Statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. With certain
exceptions, principally related to disclosure requirements of foreign plans,
SFAS No. 132R is effective for financial statements with fiscal years ending
after December 15, 2003. As of June 30, 2004, we have complied with the
disclosure requirements of SFAS No. 132R.
We have a defined benefit pension plan covering the employees at our Eltmann,
Germany facility. The benefits are based on the expected years of service
including the rate of compensation increase. The plan is unfunded.
Components of Net Periodic Pension Cost:
Three months ended Six months ended
June 30, June 30,
(in thousands of dollars) 2004 2003 2004 2003
------------------------- ----------------- -------------------
Service cost $26 $29 $ 52 $ 57
Interest cost 58 52 116 104
Amortization of net gain -- 2 -- 5
----- ----- ----- -----
Net periodic pension cost $84 $83 $168 $166
===== ===== ===== =====
9
We expect to contribute approximately $0.3 million to our pension plan in 2004.
As of June 30, 2004, approximately $0.2 million of contributions have been made.
Note 8. Long-Term Debt and Short-Term Debt
On May 1, 2003 in connection with the purchase of SKF's Veenendaal component
manufacturing operations and SKF's 23 percent interest in Euroball, we entered
into a $90 million syndicated credit facility with AmSouth Bank ("AmSouth") as
the administrative agent and Suntrust Bank as the Euro loan agent for the
lenders under which we borrowed $60.4 million and 26.3 million Euros ($29.6
million) (the "$90 million credit facility"). This financing arrangement
replaced our prior credit facility with AmSouth and Hypo Vereinsbank Luxembourg,
S.A. The credit facility as originally entered into consisted of a $30.0 million
revolver ("$30.0 million revolver") expiring on March 15, 2005, subsequently
extended to March 31, 2006 bearing interest at a floating rate equal to LIBOR
(1.61% at June 30, 2004) plus an applicable margin of 1.25 to 2.0, a $30.4
million term loan expiring on May 1, 2008, bearing interest at a floating rate
equal to LIBOR (1.61% at June 30, 2004) plus an applicable margin of 1.25 to 2.0
and a 26.3 million Euro ($29.6 million) term loan ("26.3 million Euro term
loan") expiring on May 1, 2008 which bears interest at a floating rate equal to
Euro LIBOR (2.12% at June 30, 2004) plus an applicable margin of 1.25 to 2.0.
All amounts owed under the $30.4 million term loan were paid during the second
quarter of 2004 with the proceeds from our $40 million notes and we no longer
have borrowing capacity under that portion of the $90 million credit facility.
The terms of the $30.0 million revolver and the 26.3 million Euro term loan
remain unchanged. The loan agreement contains customary financial and
non-financial covenants. Such covenants specify that we must maintain certain
liquidity measures. The loan agreement also contains customary restrictions on,
among other things, additional indebtedness, liens on our assets, sales or
transfers of assets, investments, restricted payments (including payment of
dividends and stock repurchases), issuance of equity securities, and mergers,
acquisitions and other fundamental changes in the Company's business. The credit
agreement is un-collateralized except for the pledge of stock of certain foreign
subsidiaries. We were in compliance with all such covenants as of June 30, 2004.
In connection with the acquisition of KLF's operations in Slovakia, on September
23, 2003 we entered into a $2.0 million short-term unsecured promissory note
(the "$2.0 million note") with AmSouth as the lender. This note bore interest at
the prime rate. All amounts owed under this note were paid during the second
quarter of 2004 with the proceeds from our $40 million notes.
On March 23, 2004 we entered into a $2.7 million short-term promissory note (the
"$2.7 million note") with AmSouth Bank ("AmSouth") as the lender. This note bore
interest at the prime rate. This agreement was entered into to fund short term
operating capital requirements. All amounts owed under this note were paid
during the second quarter of 2004 with the proceeds from our $40 million notes.
On April 26, 2004 we issued $40.0 million aggregate principal amount of senior
notes in a private placement (the "$40 million notes"). These notes bear
interest at a fixed rate of 4.89% and mature on April 26, 2014. Interest is paid
semi-annually. As of June 30, 2004, $40.0 million remained outstanding. Annual
principal payments of approximately $5.7 million begin on April 26, 2008 and
extend through the date of maturity. Proceeds from this credit facility were
used to repay our existing US dollar denominated term loan, $24 million, and
repay a portion, of our borrowings under our US dollar denominated revolving
credit facility, $13 million, which are both components of our $90 million
credit facility, and to repay borrowings remaining under our $2.0 million note
and our $2.7 million note of $2 million and $1 million, respectively. The
agreement contains customary financial and non-financial covenants. Such
covenants specify that we must maintain certain liquidity measures. The
agreement also contains customary restrictions on, among other things,
additional indebtedness, liens on our assets, sales or transfers of assets,
investments, restricted payments (including payment of dividends and stock
repurchases), issuance of equity securities, and mergers, acquisitions and other
fundamental changes in our business. No event of default had occurred as of June
30, 2004. The notes are not collateralized except for the pledge of stock of
certain foreign subsidiaries. We incurred $0.7 million of related costs as a
result of issuing these notes which have been recorded as a component of other
non-current assets and are being amortized over the term of the notes. In
connection with the issuance of the $40 million notes, capitalized costs in the
amount of approximately $0.3 million associated with structuring of the $90
million credit facility were written off during the three months ended June 30,
2004 and are included as a component of other (income) expense.
10
Note 9. Goodwill
The changes in the carrying amount of goodwill for the six month periods ended
June 30, 2003 and 2004 are as follows:
In thousands of dollars Plastic and Rubber
Components Segment NN Europe Segment Total
-------------------- ------------------ ---------------
Balance as of January 1, 2003 $ 26,712 $ 12,662 $ 39,374
Goodwill acquired -- 2,151 2,151
Impairment losses (1,285) -- (1,285)
Currency impacts/reclassification 328 2,325 2,653
-------------------- ------------------ ---------------
Balance as of December 31, 2003 $ 25,755 $ 17,138 $ 42,893
==================== ================== ===============
In thousands of dollars Plastic and Rubber
Components Segment NN Europe Segment Total
-------------------- ------------------ ---------------
Balance as of January 1, 2004 $ 25,755 $ 17,138 $ 42,893
Currency impacts -- (761) (761)
-------------------- ------------------ ---------------
Balance as of June 30, 2004 $ 25,755 $ 16,377 $ 42,132
==================== ================== ===============
Note 10. Stock Compensation
We have adopted the provisions of SFAS 123, which encourages but does not
require a fair value based method of accounting for stock compensation plans. We
have elected to continue accounting for our stock compensation plan using the
intrinsic value based method under Auditing Practices Board ("APB") Opinion No.
25 and, accordingly, have not recorded compensation expense for the three and
six month periods ended June 30, 2004 and June 30, 2003, except as related to
stock options accounted for under the variable method of accounting. Had
compensation cost for our stock compensation plan been determined based on the
fair value at the option grant dates, our net income and earnings per share
would have been changed to the pro-forma amounts indicated below:
Three months ended Six months ended
June 30, June 30,
In Thousands, Except per Share Data 2004 2003 2004 2003
- ------------------------------------------------ ----------- ---------- ----------- ----------
Net income - as reported $1,986 $ 697 $ 5,204 $4,340
Stock based compensation costs (income), net of
income tax, included in net income as
reported 79 205 12 205
Stock based compensation costs, net of income
tax, that would have been included in net
income if the fair value method had been
applied (8) -- (64) (2)
----------- ---------- ----------- ----------
Net income - pro-forma $2,057 $ 902 $5,152 $4,543
=========== ========== =========== ==========
Basic earnings per share - as reported $ 0.12 $0.04 $ 0.31 $ 0.28
Stock based compensation costs (income), net of
income tax, included in net income as
reported -- 0.01 -- 0.01
Stock based compensation costs, net of income
tax, that would have been included in net
income if the fair value method had been
applied -- -- -- --
----------- ---------- ----------- ----------
Basic earnings per share - pro-forma $ 0.12 $ 0.05 $ 0.31 $ 0.29
=========== ========== =========== ==========
11
Earnings per share-assuming dilution - as
reported $ 0.12 $ 0.04 $ 0.30 $ 0.27
Stock based compensation costs (income), net of
income tax, included in net income as
reported -- 0.01 -- 0.01
Stock based compensation costs, net of income
tax, that would have been included in net
income if the fair value method had been
applied -- -- -- --
----------- ---------- ----------- ----------
Earnings per share - assuming dilution-pro-forma $ 0.12 $ 0.05 $ 0.30 $ 0.28
=========== ========== =========== ==========
The fair value of each option grant was estimated based on actual information
available through June 30, 2004 and 2003 using the Black Scholes option-pricing
model with the following assumptions:
Term Vesting period
- ---- --------------
Risk free interest 3.79% and 3.28% at June 30, 2004 and 2003, respectively
rate Dividend yield 2.52% and 2.53% at June 30, 2004 and 2003, respectively
Volatility 48.59% and 50.11% at June 30, 2004 and 2003, respectively
Note 11. Lease Commitment
On June 1, 2004, our wholly owned subsidiary, NN Precision Bearing Products
Company LTD, entered into a twenty year lease agreement with Kunshan Tian Li
Steel Structure Co. LTD for the lease of land and building (approximately
110,000 square feet) in the Kunshan Economic and Technology Development Zone,
Jiangsu, The People's Republic of China. The building will be newly constructed
and we expect to begin usage of the leased property during the first quarter of
2005. The land and building remain under the control of the lessor until such
time as usage of the leased property commences. The agreement satisfies the
requirements of a capital lease at June 1, 2004 and we anticipate recording the
lease as a capital lease in our Consolidated Financial Statements when usage of
the leased property begins. Accordingly, as of June 30, 2004, no amount has been
recorded related to the asset and corresponding obligation associated with the
lease agreement in our Consolidated Financial Statements. We estimate the fair
value of the land and building to be approximately $2.0 million and undiscounted
annual lease payments of approximately $0.2 million (approximately $4.1 million
aggregate non-discounted lease payments over the twenty year term). The lease
terms include fair value buy-out provisions and we maintain the option to extend
the lease term.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations
Overview and Management Focus
Our strategy and management focus is based upon the following long-term
objectives:
o Captive growth, providing a competitive and attractive alternative to the
operations of our global customers
o Expansion of our bearing product offering, and
o Global expansion of our manufacturing base to better address the global
requirements of our customers
Management generally focuses on these trends and relevant market
indicators:
o Global industrial growth and economics
o Global automotive production rates
o Costs subject to the global inflationary environment, including, but not
limited to:
o Raw material
o Wages and benefits, including health care costs
o Energy
o Trends related to manufacturing's geographic migration of competitive
manufacturing
o Regulatory environment for United States public companies
o Currency and exchange rate movements and trends
o Interest rate levels and expectations
Management generally focuses on the following key indicators of operating
performance:
o Sales growth
o Cost of products sold levels
o Selling, general and administrative expense levels
o Net income
o Cash flow from operations and capital spending
Our core business is the manufacture and sale of high quality, precision steel
balls and rollers. In 2003, sales of balls and rollers accounted for
approximately 76% of the Company's total net sales with 63% and 13% of sales
from balls and rollers, respectively. Sales of metal bearing retainers accounted
for 4% and sales of precision molded plastic and rubber parts accounted for the
remaining 20%.
Since our formation in 1980 we have grown primarily through the displacement of
captive ball manufacturing operations of domestic and international bearing
manufacturers resulting in increased sales
13
of high precision balls for quiet bearing applications. Management believes that
our core business sales growth since our formation has been due to our ability
to capitalize on opportunities in global markets and provide precision products
at competitive prices, as well as our emphasis on product quality and customer
service.
Results of Operations
Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30,
2003
Net Sales. Net sales increased by approximately $11.1 million, or 17.3%, from
$64.2 million for the second quarter of 2003 to $75.3 million for the second
quarter of 2004. By segment, sales increased $10.2 million, $0.6 million and
$0.3 million for the NN Europe Segment, Domestic Ball and Roller Segment and the
Plastic and Rubber Components Segment, respectively. Within the NN Europe
Segment, $6.2 million of the increase is related to our May 2, 2003 acquisition
of Veneendaal and a full quarter of its results for the second quarter of 2004,
$2.1 million of the increase is related to the impact of currency exchange rates
and $1.9 million is related to increases in product demand. Within the Domestic
Ball and Roller Segment and the Plastic and Rubber Components Segment, the
increases of $0.6 million and $0.3 million, respectively, are related to
increases in product demand.
Cost of Products Sold. Cost of products sold increased by approximately $9.2
million, or 18.5%, from $49.7 million for the second quarter of 2003 to $58.9
million for the second quarter of 2004. By segment, cost of products sold
increased $9.0 million and $0.2 million for the NN Europe Segment and the
Domestic Ball and Roller Segment, respectively. Within the NN Europe Segment,
$4.9 million of the increase is related to our May 2, 2003 acquisition of
Veneendaal and the inclusion of a full quarter of its results for the second
quarter of 2004, $1.6 million is related to the impact of currency exchange
rates and $2.5 million is related to increases in product demand, increased
material costs and the impact of inventory reductions. Within the Domestic Ball
and Roller Segment, the increase of $0.2 million is principally related to
increases in product demand. As a percentage of net sales, cost of products sold
increased from 77.5% during the second quarter of 2003 to 78.3% during the
second quarter of 2004.
The price of steel has risen over the last twelve to eighteen months with 2004
prices expected to reflect even greater increases. The increase is principally
due to general increases in global demand and, more recently, due to China's
increased consumption of steel. This has had the impact of increasing scrap
surcharges we pay in procuring our steel. Our contracts with key customers allow
us to pass a majority of the steel price increases we incur on to those
customers. However, by contract, material price changes in any given year are
typically passed along with price adjustments in January of the following year.
Until the current increases can be passed through to our customers, income from
operations, net income and cash flow from operations will be adversely affected.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $2.3 million, or 39.3%, from
$5.7 million during the second quarter of 2003 to $8.0 million during the second
quarter of 2004. By segment, selling, general and administrative expenses
increased $1.2 million, $0.9 million and $0.1 million for the NN Europe Segment,
Domestic Ball and Roller Segment and the Plastic and Rubber Components Segment,
respectively. Within the NN Europe Segment, $0.5 million of the increase is
related to our May 2, 2003 acquisition of Veneendaal and a full quarter of its
results for the second quarter of 2004, $0.2 million is related to the impact of
currency exchange rates and $0.5 million is related to employee severance.
Within the Domestic Ball and Roller Segment, $0.7 million is related to
Sarbanes-Oxley compliance efforts in the area of internal controls, and $0.2
million is principally related to costs incurred as a result of the start-up of
our previously announced Level 3 program which integrates the principles of Lean
Enterprise, Six Sigma and Total Productive Maintenance (the "Level 3 Program").
As a percentage of net sales, selling, general and administrative expenses
increased from 9.0% during the second quarter of 2003 to 10.7% during the second
quarter of 2004.
Restructuring and impairment costs. Restructuring and impairment costs decreased
by $2.7 million from $2.7 million for the second quarter of 2003 to $0 for the
second quarter of 2004. The decrease is related to the restructuring and
impairment charges recorded in the second quarter of 2003 as a result of the
closure of our Guadalajara, Mexico injection molding facility. The charges
recorded in the second quarter of 2003 consisted of $2.4 million related to
asset write-downs to their estimated fair market values, including $1.3
14
million related to goodwill, $1.0 million related to property, plant and
equipment, and $0.1 million related to accounts receivable. In addition, a $0.3
million charge related to employee severance costs was recorded. Restructuring
and impairment charges were 4.2% of net sales in the second quarter of 2003 and
0% of net sales for the second quarter of 2004.
Depreciation and Amortization. Depreciation and amortization expenses increased
by approximately $0.5 million, or 15.0%, from $3.5 million for the second
quarter of 2003 to $4.0 million for the second quarter of 2004. Principally all
of the $0.5 million increase is attributable to the NN Europe Segment. Within
the NN Europe Segment, $0.3 million of the increase is related to our May 2,
2003 acquisition of Veenendaal and the inclusion of a full quarter of its
results for the second quarter of 2004 versus two months for the second quarter
of 2003 and $0.1 million of the increase is related to the impact of foreign
currency exchange rates. As a percentage of net sales, depreciation and
amortization expense decreased from 5.4% during the second quarter of 2003 to
5.3% during the second quarter of 2004.
Interest Expense. Interest expense increased by approximately $0.1 million, or
18.1%, from $0.8 million in the second quarter of 2003 to $0.9 million in the
second quarter of 2004. The increase is principally related to increased debt
levels due to the May 2003 acquisition of Veenendaal and the May 2003 purchase
of the 23% interest in NN Europe held by SKF. Effective with the completion of
this transaction, we own 100% of NN Europe.
Minority Interest in Consolidated Subsidiary. Minority interest in consolidated
subsidiary decreased $0.1 million from $0.1 million in the second quarter of
2003 to $0 in the second quarter of 2004. The decrease is due entirely to our
purchase of the remaining 23% minority interest in NN Europe on May 2, 2003.
During the first quarter of 2003, minority interest in consolidated subsidiary
represented 23% of the shares of the joint venture held by SKF.
Net Income. Net income increased by approximately $1.3 million, or 184.9%, from
$0.7 million in the second quarter of 2003 to $2.0 million in the second quarter
of 2004. As a percentage of net sales, net income increased from 1.1% during the
second quarter of 2003 to 2.6% during the second quarter of 2004.
Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003
Net Sales. Net sales increased by approximately $31.1 million, or 25.5%, from
$121.8 million for the first six months of 2003 to $152.9 million for the first
six months of 2004. By segment, sales increased $31.4 million and $0.8 million
for the NN Europe Segment and Domestic Ball and Roller Segment, respectively.
Partially offsetting these increases was a $1.1 million decrease for the Plastic
and Rubber Components Segment. Within the NN Europe Segment, $21.2 million of
the increase is related to our May 2, 2003 acquisition of Veneendaal and a full
six months of its results included in 2004 versus two months included in the
first six months of 2003, $6.9 million of the increase is related to the impact
of currency exchange rates and $3.3 million is related to increases in product
demand. Within the Domestic Ball and Roller Segment, the increase of $0.8
million is principally related to increases in product demand. The decrease of
$1.1 million in the Plastic and Rubber Components Segment is principally related
to the closure of our Guadalajara, Mexico injection molding facility in 2003.
Cost of Products Sold. Cost of products sold increased by approximately $26.9
million, or 29.1%, from $92.5 million for the first six months of 2003 to $119.3
million for the first six months of 2004. By segment, cost of products sold
increased $27.2 million and $0.8 million for the NN Europe Segment and the
Domestic Ball and Roller Segment, respectively. Partially offsetting these
increases was a $1.1 million decrease for the Plastic and Rubber Components
Segment. Within the NN Europe Segment, $17.5 million of the increase is related
to our May 2, 2003 acquisition of Veneendaal and the inclusion of a full six
months of its results included in 2004 versus two months included in the first
six months of 2003, $5.4 million is related to the impact of currency exchange
rates and $4.3 million is related to increases in product demand, increased
material costs and the impact of inventory reductions. Within the Domestic Ball
and Roller Segment, the increase of $0.8 million is principally related to
increases in product demand. The decrease of $1.1 million in the Plastic and
Rubber Components Segment is principally related to the closure of our
Guadalajara, Mexico injection molding facility in 2003. As a percentage of net
sales, cost of products sold increased from 75.9% during first six months of
2003 to 78.0% during the first six months of 2004.
15
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $4.8 million or 46.0% from
$10.4 million during the first six months of 2003 to $15.2 million during the
first six months of 2004. By segment, selling, general and administrative
expenses increased $2.9 million, $1.8 million and $0.1 million for the NN Europe
Segment, Domestic Ball and Roller Segment and the Plastic and Rubber Components
Segment, respectively. Within the NN Europe Segment, $1.6 million of the
increase is related to our May 2, 2003 acquisition of Veneendaal and a full six
months of its results included in 2004 versus two months included in the first
six months of 2003, $0.5 million is related to the impact of currency exchange
rates and $0.8 million is principally related to employee severance costs and
and our Level 3 Program. Within the Domestic Ball and Roller Segment, $0.9
million is related to Sarbanes-Oxley compliance efforts in the area of internal
controls, $0.4 million is principally related to costs incurred as a result of
the start-up of our Level 3 Program and $0.3 million is related to the start-up
of our China operation. As a percentage of net sales, selling, general and
administrative expenses increased from 8.5% during the first six months of 2003
to 9.9% during the first six months of 2004.
Restructuring and impairment costs. Restructuring and impairment costs decreased
by $2.7 million from $2.7 million for the first six months of 2003 to $0 for the
first six months of 2004. The decrease is related to the restructuring and
impairment charges recorded in the first six months of 2003 as a result of the
closure of our Guadalajara, Mexico injection molding facility. The charges
recorded in the first six months of 2003 consisted of $2.4 million related to
asset write-downs to their estimated fair market values, including $1.3 million
related to goodwill, $1.0 million related to property, plant and equipment, and
$0.1 million related to accounts receivable. In addition, a $0.3 million charge
related to employee severance costs was recorded. Restructuring and impairment
charges were 2.2% of net sales in the first six months of 2003 and 0% of net
sales for the first six months of 2004.
Depreciation and Amortization. Depreciation and amortization expenses increased
by approximately $1.4 million or 21.8% from $6.5 million for the first six
months of 2003 to $7.9 million for the first six months of 2004. Principally all
of the $1.4 million increase is attributable to the NN Europe Segment. Within
the NN Europe Segment, $1.0 million of the increase is related to our May 2,
2003 acquisition of Veenendaal and a full six months of its results included in
2004 versus two months included in the first six months of 2003 and $0.4 million
of the increase is related to the impact of foreign currency exchange rates. As
a percentage of net sales, depreciation and amortization expense decreased from
5.3% for the first six months of 2003 to 5.2% for the first six months of 2004.
Interest Expense. Interest expense increased by approximately $0.4 million from
$1.4 million in the first six months of 2003 to $1.8 million in the first six
months of 2004. The increase is principally related to increased debt levels due
to the May 2003 acquisition of Veenendaal and the May 2003 purchase of the 23%
interest in NN Europe held by SKF. Effective with the completion of this
transaction, we own 100% of NN Europe.
Minority Interest in Consolidated Subsidiary. Minority interest in consolidated
subsidiary decreased $0.7 million from $0.7 million in the first six months of
2003 to $0 in the first six months of 2004. The decrease is due entirely to our
purchase of the remaining 23% minority interest in NN Europe on May 2, 2003.
During the first quarter of 2003, minority interest in consolidated subsidiary
represented 23% of the shares of the joint venture held by SKF.
Net Income. Net income increased by approximately $0.9 million, or 19.9%, from
$4.3 million in the first six months of 2003 to $5.2 million in the first six
months of 2004. As a percentage of net sales, net income decreased from 3.6%
during the first six months of 2003 to 3.4% during the first six months of 2004.
Liquidity and Capital Resources
On May 1, 2003 in connection with the purchase of SKF's Veenendaal component
manufacturing operations and SKF's 23 percent interest in NN Europe, we entered
into a $90 million syndicated credit facility with AmSouth as the administrative
agent and Suntrust Bank as the Euro loan agent for the lenders under which we
borrowed $60.4 million and 26.3 million Euros ($29.6 million) (the "$90 million
credit facility") This financing arrangement replaced our prior credit facility
with AmSouth and NN Europe's
16
credit facility with Hypo Vereinsbank Luxembourg, S.A. The credit facility, as
originally entered into, consisted of a $30.0 million revolver expiring on March
15, 2005, subsequently extended to March 31, 2006, bearing interest at a
floating rate equal to LIBOR (1.61% at June 30, 2004) plus an applicable margin
of 1.25 to 2.0, a $30.4 million term loan expiring on May 1, 2008, bearing
interest at a floating rate equal to LIBOR (1.61% at June 30, 2004) plus an
applicable margin of 1.25 to 2.0 and a 26.3 million Euro ($29.6 million) term
loan expiring on May 1, 2008 which bears interest at a floating rate equal to
Euro LIBOR (2.12% at June 30, 2004) plus an applicable margin of 1.25 to 2.0.
All amounts owed under the $30.4 million term loan were paid during the second
quarter of 2004 with the proceeds from our $40 million notes and we no longer
have borrowing capacity under that portion of the $90 million credit facility.
The terms of the $30.0 million revolver and the 26.3 million Euro term loan
remain unchanged. The loan agreement contains customary financial and
non-financial covenants. Such covenants specify that we must maintain certain
liquidity measures. The loan agreement also contains customary restrictions on,
among other things, additional indebtedness, liens on our assets, sales or
transfers of assets, investments, restricted payments (including payment of
dividends and stock repurchases), issuance of equity securities, and mergers,
acquisitions and other fundamental changes in our business. The credit facility
is not collateralized except for the pledge of stock of certain foreign
subsidiaries. No event of default had occurred as of June 30, 2004.
On March 23, 2004 we entered into a $2.7 million short-term promissory note
("the $2.7 million note") with AmSouth Bank as the lender. This note bore
interest at the prime rate This agreement was entered into to fund short term
operating capital requirements. All amounts owed under this note were paid
during the second quarter of 2004 with the proceeds from our $40 million notes.
See Note 8 of the Notes to Consolidated Financial Statements.
In connection with the acquisition of KLF's operations in Slovakia, on September
23, 2003 we entered into a $2.0 million short-term promissory note ("the $2.0
million note") with AmSouth as the lender. This note bore interest at the prime
rate. All amounts owed under this note were paid during the second quarter 2004
with the proceeds from our $40 million notes. See Note 8 of the Notes to
Consolidated Financial Statements.
On April 26, 2004 we issued $40.0 million aggregate principal amount of senior
notes in a private placement (the "$40 million notes"). These notes bear
interest at a fixed rate of 4.89% and mature on April 26, 2014. Interest is paid
semi-annually. As of June 30, 2004, $40.0 million remained outstanding. Annual
principal payments of approximately $5.7 million begin on April 26, 2008 and
extend through the date of maturity. Proceeds from this credit facility were
used to repay our existing US dollar denominated term loan, $24 million, and
repay a portion of our borrowings under our US dollar denominated revolving
credit facility, $13 million, which are both components of our $90 million
credit facility, and to repay borrowings remaining under our $2.0 million note
and our $2.7 million note of $2 million and $1 million, respectively. The
agreement contains customary financial and non-financial covenants. Such
covenants specify that we must maintain certain liquidity measures. The
agreement also contains customary restrictions on, among other things,
additional indebtedness, liens on our assets, sales or transfers of assets,
investments, restricted payments (including payment of dividends and stock
repurchases), issuance of equity securities, and mergers, acquisitions and other
fundamental changes in our business. No event of default had occurred as of June
30, 2004. The notes are not collateralized except for the pledge of stock of
certain foreign subsidiaries. We incurred $0.7 million of related costs as a
result of issuing these notes which have been recorded as a component of other
non-current assets and are being amortized over the term of the notes. In
connection with the issuance of the $40 million notes, capitalized costs in the
amount of approximately $0.3 million associated with structuring of the $90
million credit facility were written off during the three months ended June 30,
2004 and are included as a component of other (income) expense. See Note 8 of
the Notes to Consolidated Financial Statements.
Our arrangements with our domestic customers typically provide that payments are
due within 30 days following the date of shipment of goods by us, while
arrangements with certain export customers (other than export 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. Our net sales have historically been of a seasonal nature due to our
relative percentage of European business coupled with slower European production
during the month of August.
17
We bill and receive payment from some of our customers in Euros as well as other
currencies. To date, we have not been materially adversely affected by currency
fluctuations. Nonetheless, as a result of these sales, our foreign exchange
transaction and translation risk has increased. Various strategies to manage
this risk are available to management including producing and selling in local
currencies and hedging programs. As of June 30, 2004, no currency hedges were in
place. In addition, a strengthening of the U.S. dollar and/or Euro against
foreign currencies could impair our ability to compete with international
competitors for foreign as well as domestic sales.
Working capital, which consists principally of accounts receivable and
inventories, was $34.7 million at June 30, 2004 as compared to $25.7 million at
December 31, 2003. The ratio of current assets to current liabilities increased
from 1.41:1 at December 31, 2003 to 1.60:1 at June 30, 2004. Cash flow from
operations increased to $13.4 million during the first six months of 2004 from
$4.4 million during the first six months of 2003. Contributing to the
improvement in cash flow from operations for the six months ended June 30, 2004
was the reduction in inventory levels of approximately $3.7 million.
During 2004, we plan to spend approximately $9.0 million on capital expenditures
related primarily to equipment and process upgrades and replacements and
approximately $4.0 million principally related to geographic expansion of our
manufacturing base. Of these amounts approximately $5.2 million has been spent
through June 30, 2004. We intend to finance these activities with cash generated
from operations and funds available under the credit facilities described above.
We believe that funds generated from operations and borrowings from the credit
facilities will be sufficient to finance our working capital needs and projected
capital expenditure requirements through June 2005.
New Accounting Pronouncements
On May 19, 2004, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position (FSP) No. 106-2, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003",
which supersedes FSP No. 106-1, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,"
(the Act). FSP No. 106-2 permits a sponsor of a postretirement health care plan
that provides a prescription drug benefit to make a one-time election to defer
accounting for the effects of the Act until authoritative guidance on accounting
for subsidies provided by the Act is issued. The Act introduces a prescription
drug benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans. The Company does not anticipate that the Act will
have a material effect on the measurement of the Company's postretirement
obligations. FSP No. 106-2 is effective for the Company's third quarter 2004.
In December 2003, the FASB issued Financial Interpretation No. 46(R),
"Consolidation of Variable Interest Entities," ("FIN 46(R)"). This
interpretation addresses consolidation by business enterprises of variable
interest entities with certain defined characteristics and replaces Financial
Interpretation No. 46. The interpretation was effective January 1, 2004 for
variable interest entities existing prior to February 2003. FIN 46(R) did not
have a significant impact on the Company's consolidated financial statements.
In December 2003 the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132R
revises employers' disclosures about pension plans and other postretirement
benefit plans. It does not change the measurement or recognition of those plans
required by FASB Statements No. 87, "Employers' Accounting for Pensions", No.
88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pensions Plans and for Termination Benefits, and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". SFAS No. 132R requires
additional disclosures to those in the original Statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. With certain
exceptions, principally related to disclosure requirements of foreign plans,
SFAS No. 132R is effective for financial statements with fiscal years ending
after December 15, 2003. As of June 30, 2004, we have complied with the
disclosure requirements of SFAS No. 132R.
18
The Euro
We currently have operations in Italy, Germany, Ireland, and The Netherlands,
all of which are Euro participating countries, and sell product to customers in
many of the participating countries. The Euro has been adopted as the functional
currency at these locations.
Seasonality and Fluctuation in Quarterly Results
Our net sales historically have been of a seasonal nature due to a significant
portion of our sales to European customers that cease or significantly slow
production during the month of August.
Inflation and Changes in Prices
While the Company's operations have not been materially affected by general
inflation during recent years, prices for 52100 Steel and other steel related
raw materials have increased significantly during the past twelve months. In the
Company's U.S. operations our typical pricing arrangements with steel suppliers
are subject to adjustment once every six months. The Company's NN Europe Segment
has entered into long-term agreements with its primary steel supplier, which
provide for standard terms and conditions, annual unit price adjustments, and
quarterly pricing adjustments in the form of scrap surcharges. In both our U.S.
and European operations, the steel price increases we have experienced are
related to increasing global demand for scrap and other steel related raw
materials, principally from China. While we reserve the right to increase
product prices periodically in the event of increases in its raw material costs,
our current contracts in effect with SKF and INA/FAG call for adjustments in
selling prices for raw material inflation to occur in January of the following
year. As such, the majority of the inflation we are currently experiencing in
raw material pricing will not be passed through until January 2005. For other
customers, we are currently in the process of adjusting pricing levels to
reflect the increases in steel pricing.
Critical Accounting Policies
Our significant accounting policies, including the assumptions and judgments
underlying them, are disclosed in the Company's Annual Report on Form 10-K, for
the fiscal year ended December 31, 2003 including those policies as discussed in
Note 1. These policies, which have not significantly changed since December 31,
2003 have been consistently applied in all material respects and address such
matters as revenue recognition, inventory valuation, asset impairment
recognition, business combination accounting and pension and postretirement
benefits. Due to the estimation processes involved, management considers the
following summarized accounting policies and their application to be critical to
understanding the Company's business operations, financial condition and results
of operations. There can be no assurance that actual results will not
significantly differ from the estimates used in these critical accounting
policies.
Accounts Receivable. Substantially all of the Company's accounts receivable are
due primarily from the served markets: bearing manufacturers, automotive
industry, electronics, industrial, agricultural and aerospace. In establishing
allowances for doubtful accounts, the Company performs credit evaluations of its
customers, considering numerous inputs when available including the customers'
financial position, past payment history, relevant industry trends, cash flows,
management capability, historical loss experience and economic conditions and
prospects. Accounts receivable are written off when considered to be
uncollectible. While management believes that adequate allowances for doubtful
accounts have been provided in the Consolidated Financial Statements, it is
possible that the Company could experience additional unexpected credit losses.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. The Company's inventories are
not generally subject to obsolescence due to spoilage or expiring product life
cycles. The Company operates generally as a make-to-order business; however, the
Company also stocks products for certain customers in order to meet delivery
schedules. While management believes that adequate write-downs for inventory
obsolescence have been made in the Consolidated Financial Statements, the
Company could experience additional inventory write-downs in the future.
19
Acquisitions and Acquired Intangibles. For new acquisitions, the Company uses
estimates, assumptions and appraisals to allocate the purchase price to the
assets acquired and to determine the amount of goodwill. These estimates are
based on market analyses and comparisons to similar assets. Annual tests are
required to be performed to assess whether recorded goodwill is impaired. The
annual tests require management to make estimates and assumptions with regard to
the future operations of its reporting units, the expected cash flows that they
will generate, and their market value. These estimates and assumptions therefore
impact the recorded value of assets acquired in a business combination,
including goodwill, and whether or not there is any subsequent impairment of the
recorded goodwill and the amount of such impairment.
Impairment of Long-Lived Assets. The Company's long-lived assets include
property, plant and equipment. The recoverability of the long-lived assets is
dependent on the performance of the companies which the Company has acquired, as
well as volatility inherent in the external markets for these acquisitions. In
assessing potential impairment for these assets the Company will consider these
factors as well as forecasted financial performance. For assets held for sale as
of December 31, 2003, appraisals are relied upon to assess the fair market value
of those assets. The assets held for sale of $1.8 million as of December 31,
2003 have been reclassified as held for use effective March 31, 2004. The
amounts reclassified are carried at fair value which is lower than the carrying
amount before the assets were classified as held for sale adjusted for
depreciation expense. The reclassification of these assets did not have a
material impact to our income from operations, net income or cash flow from
operations for the three and six months ended June 30, 2004. Future adverse
changes in market conditions or adverse operating results of the underlying
assets could result in the Company having to record additional impairment
charges not previously recognized.
Pension and Post-Retirement Obligations. The Company uses several assumptions in
determining its periodic pension and post-retirement expense and obligations
which are included in the Consolidated Financial Statements. These assumptions
include determining an appropriate discount rate, rate of compensation increase,
as well as the remaining service period of active employees. The Company uses an
independent actuary to calculate the periodic pension and post-retirement
expense and obligations based upon these assumptions and actual employee census
data.
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. Statements regarding capital expenditures,
future borrowings, and financial commitments are forward-looking statements.
Readers can identify forward-looking statements by the use of such verbs as
expects, anticipates, believes or similar verbs or conjugations of such verbs.
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 differences could be caused by a number of
factors or combination of factors including, but not limited to, the risk
factors described below.
You should carefully consider the following risks and uncertainties, and all
other information contained in or incorporated by reference in this quarterly
report on Form 10-Q, before making an investment in our common stock. Any of the
following risks could have a material adverse effect on our business, financial
condition or operating results. In such case, the trading price of our common
stock could decline and you may lose all or part of your investment.
The demand for our products is cyclical, which could adversely impact our
revenues.
The end markets for fully assembled bearings are cyclical and tend to decline in
response to overall declines in industrial production. As a result, the market
for bearing components is also cyclical and impacted by overall levels of
industrial production. Our sales in the past have been negatively affected, and
in the future will be negatively affected, by adverse conditions in the
industrial production sector of the economy or by adverse global or national
economic conditions generally.
20
We depend on a very limited number of foreign sources for our primary raw
material and are subject to risks of shortages and price fluctuation.
The steel that we use to manufacture precision balls and rollers is of an
extremely high quality and is available from a limited number of producers on a
global basis. Due to quality constraints in the U.S. steel industry, we obtain
substantially all of the steel used in our U.S. ball and roller production from
overseas suppliers. In addition, we obtain substantially all of the steel used
in our European ball production from a single European source. If we had to
obtain steel from sources other than our current suppliers, particularly in the
case of our European operations, we could face higher prices and transportation
costs, increased duties or taxes, and shortages of steel. Problems in obtaining
steel, and particularly 52100 chrome steel, in the quantities that we require
and on commercially reasonable terms, could increase our costs, negatively
impact our ability to operate our business efficiently and have a material
adverse effect on the operating and financial results of our Company.
We depend heavily on a relatively limited number of customers, and the loss of
any major customer would have a material adverse effect on our business.
Sales to various U.S. and foreign divisions of SKF, which is one of the largest
bearing manufacturers in the world, accounted for approximately 42% of
consolidated net sales in 2003, and sales to INA/FAG accounted for approximately
16% of consolidated net sales in 2003. During 2003, our ten largest customers
accounted for approximately 77% of our consolidated net sales. None of our other
customers individually accounted for more than 5% of our consolidated net sales
for 2003. The loss of all or a substantial portion of sales to these customers
would cause us to lose a substantial portion of our revenue and would lower our
profit margin and cash flows from operations.
21
We operate in and sell products to customers outside the U.S. and are subject to
several related risks.
Because we obtain a majority of our raw materials from overseas suppliers,
actively participate in overseas manufacturing operations and sell to a large
number of international customers, we face risks associated with the following:
o adverse foreign currency fluctuations;
o changes in trade, monetary and fiscal policies, laws and regulations, and
other activities of governments, agencies and similar organizations;
o the imposition of trade restrictions or prohibitions;
o high tax rates that discourage the repatriation of funds to the U.S.;
o the imposition of import or other duties or taxes; and
o unstable governments or legal systems in countries in which our
suppliers, manufacturing operations, and customers are located.
We do not have a hedging program in place associated with consolidating the
operating results of our foreign businesses into U.S. Dollars. An increase in
the value of the U.S. Dollar and/or the Euro relative to other currencies may
adversely affect our ability to compete with our foreign-based competitors for
international, as well as domestic, sales. Also, a decline in the value of the
Euro relative to the U.S. Dollar could negatively impact our consolidated
financial results, which are denominated in U.S. Dollars.
In addition, due to the typical slower summer manufacturing season in Europe, we
expect that revenues in the third fiscal quarter will reflect lower sales, as
our sales to European customers have increased as a percentage of net sales.
The costs and difficulties of integrating acquired business could impede our
future growth.
We cannot assure you that any future acquisition will enhance our financial
performance. Our ability to effectively integrate any future acquisitions will
depend on, among other things, the adequacy of our implementation plans, the
ability of our management to oversee and operate effectively the combined
operations and our ability to achieve desired operating efficiencies and sales
goals. The integration of any acquired businesses might cause us to incur
unforeseen costs, which would lower our profit margin and future earnings and
would prevent us from realizing the expected benefits of these acquisitions.
We may not be able to continue to make the acquisitions necessary for us to
realize our growth strategy.
Acquiring businesses that complement or expand our operations has been and
continues to be an important element of our business strategy. This strategy
calls for growth through acquisitions constituting approximately two-thirds of
our future growth, with the remainder resulting from internal growth and market
penetration. We bought our plastic bearing component business in 1999, formed NN
Europe with our two largest bearing customers, SKF and INA/FAG, in 2000 and
acquired our bearing seal operations in 2001. During 2002, we purchased
INA/FAG's minority interest in NN Europe and on May 2, 2003 we acquired SKF's
minority interest in NN Europe, to become the sole owner at NN Europe. On May 2,
2003 we acquired SKF's tapered roller and metal cage manufacturing operations in
Veenendaal, The Netherlands. On October 9, 2003 we acquired the precision ball
producing assets of KLF-Gulickaren in Kysucke Nove Mesto, Slovakia. We cannot
assure you that we will be successful in identifying attractive acquisition
candidates or completing acquisitions on favorable terms in the future. In
addition, we may borrow funds to acquire other businesses, increasing our
interest expense and debt levels. Our inability to acquire businesses, or to
operate them profitably once acquired, could have a material adverse effect on
our business, financial position, results of operations and cash flows.
22
Our growth strategy depends on outsourcing, and if the industry trend toward
outsourcing does not continue, our business could be adversely affected.
Our growth strategy depends in significant part on major bearing manufacturers
continuing to outsource components, and expanding the number of components being
outsourced. This requires manufacturers to depart significantly from their
traditional methods of operations. If major bearing manufacturers do not
continue to expand outsourcing efforts or determine to reduce their use of
outsourcing, our ability to grow our business could be materially adversely
affected.
Our market is highly competitive and many of our competitors have significant
advantages that could adversely affect our business.
The global market for bearing components is highly competitive, with a majority
of production represented by the captive production operations of certain large
bearing manufacturers and the balance represented by independent manufacturers.
Captive manufacturers make components for internal use and for sale to third
parties. All of the captive manufacturers, and many independent manufacturers,
are significantly larger and have greater resources than do we. Our competitors
are continuously exploring and implementing improvements in technology and
manufacturing processes in order to improve product quality, and our ability to
remain competitive will depend, among other things, on whether we are able to
keep pace with such quality improvements in a cost effective manner.
The production capacity we have added over the last several years has at times
resulted in our having more capacity than we need, causing our operating costs
to be higher than expected.
We have expanded our ball and roller production facilities and capacity over the
last several years. During 1997, we built an additional manufacturing plant in
Kilkenny, Ireland, and we continued this expansion in 2000 through the formation
of NN Europe with SKF and INA/FAG. Our ball and roller facilities have not
always operated at full capacity and from time to time our results of operations
have been adversely affected by the under-utilization of our production
facilities, and we face risks of further under-utilization or inefficient
utilization of our production facilities in future years.
The price of our common stock may be volatile.
The market price of our common stock could be subject to significant
fluctuations and may decline. Among the factors that could affect our stock
price are:
o our operating and financial performance and prospects;
o quarterly variations in the rate of growth of our financial indicators,
such as earnings per share, net income and revenues;
o changes in revenue or earnings estimates or publication of research
reports by analysts;
o loss of any member of our senior management team;
o speculation in the press or investment community;
o strategic actions by us or our competitors, such as acquisitions or
restructurings;
o sales of our common stock by stockholders;
o general market conditions; and
o domestic and international economic, legal and regulatory factors
unrelated to our performance.
23
The stock markets in general have experienced extreme volatility that has often
been unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common stock.
Provisions in our charter documents and Delaware law may inhibit a takeover,
which could adversely affect the value of our common stock.
Our certificate of incorporation and bylaws, as well as Delaware corporate law,
contain provisions that could delay or prevent a change of control or changes in
our management that a stockholder might consider favorable and may prevent you
from receiving a takeover premium for your shares. These provisions include, for
example, a classified board of directors and the authorization of our board of
directors to issue up to 5,000,000 preferred shares without a stockholder vote.
In addition, our restated certificate of incorporation provides that
stockholders may not call a special meeting.
We are a Delaware corporation subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. Generally, this statute
prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after the
date of the transaction in which such person became an interested stockholder,
unless the business combination is approved in a prescribed manner. A business
combination includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. We anticipate that the provisions of
Section 203 may encourage parties interested in acquiring us to negotiate in
advance with our board of directors, because the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction that results in the
stockholder becoming an interested stockholder.
These provisions apply even if the offer may be considered beneficial by some of
our stockholders. If a change of control or change in management is delayed or
prevented, the market price of our common stock could decline.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in financial market conditions in the normal course of
our business due to our use of certain financial instruments as well as
transacting in various foreign currencies. To mitigate our exposure to these
market risks, we have established policies, procedures and internal processes
governing our management of financial market risks. We are exposed to changes in
interest rates primarily as a result of our borrowing activities. At June 30,
2004, we had $16.4 million outstanding under the domestic credit facilities,
$40.0 million aggregate principal amount of senior notes outstanding and NN
Europe had 19.7 million Euro ($24.0 million) outstanding under the Euro term
loan. See Note 8 of the Notes to Consolidated Financial Statements. At June 30,
2004, a one-percent increase in the interest rate charged on our outstanding
borrowings under our credit facilities, that are subject to variable interest
rates, would result in interest expense increasing annually by approximately
$0.4 million. In connection with a variable EURIBOR rate debt financing in July
2000 our majority owned subsidiary, NN Europe entered into an interest rate swap
with a notional amount of Euro 12.5 million for the purpose of fixing the
interest rate on a portion of their debt financing. The interest rate swap
provides for us to receive variable Euribor interest payments and pay 5.51%
fixed interest. The interest rate swap agreement expires in July 2006 and the
notional amount amortizes in relation to principal payments on the underlying
debt over the life of the swap. This original debt was repaid in May 2003,
however, the swap remains pursuant to its original terms. On May 1, 2003, we
entered into the $90 million credit facility. This new financing arrangement
replaces our prior credit facility with AmSouth and NN Europe's credit facility
with Hypo Vereinsbank Luxembourg, S.A. On April 26, 2004, we issued $40.0
million of aggregate principal amounts of senior notes in a private placement,
replacing a portion of our $90 million credit facility, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources". The nature and amount of our borrowings may
vary as a result of future business requirements, market conditions and other
factors.
24
Translation of our operating cash flows denominated in foreign currencies is
impacted by changes in foreign exchange rates. Our NN Europe Segment, bills and
receives payments from some of its foreign customers in their own currency. To
date, we have not been materially adversely affected by currency fluctuations of
foreign exchange restrictions. However, to help reduce exposure to foreign
currency fluctuation, management has incurred debt in Euros and has periodically
used foreign currency hedges. These currency hedging programs allow management
to hedge currency exposures when these exposures meet certain discretionary
levels. We did not hold a position in any foreign currency hedging instruments
as of June 30, 2004.
Item 4. Controls and Procedures
As of June 30, 2004, we carried out an evaluation, under the supervision and
with the participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Based upon that evaluation, the Company's management, including
the Chief Executive Officer and Chief Financial Officer, concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's Exchange Act filings.
There have been no changes in this fiscal quarter in the Company's internal
control over financial reporting or in other factors that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
25
Part II. Other Information
Item 1. Legal Proceedings
All legal proceedings and actions involving the Company are of an ordinary and
routine nature and are incidental to the operations of the Company. Management
believes that such proceedings should not, individually or in the aggregate,
have a material adverse effect on the Company's business or financial condition
or on the results of operations.
Item 2. Change in Securities and Use of Proceeds
On April 26, 2004 we issued $40.0 million aggregate principal amount of senior
notes in a private placement (the "$40 million notes"). These notes bear
interest at a fixed rate of 4.89% and mature on April 26, 2014. Interest is paid
semi-annually. As of June 30, 2004, $40.0 million remained outstanding. Annual
principal payments of approximately $5.7 million begin on April 26, 2008 and
extend through the date of maturity. Proceeds from this credit facility were
used to repay our existing US dollar denominated term loan, $24 million, and
repay a portion, of our borrowings under our US dollar denominated revolving
credit facility, $13 million, which are both components of our $90 million
credit facility, and to repay borrowings remaining under our $2.0 million note
and our $2.7 million note of $2 million and $1 million, respectively. The
agreement contains customary financial and non-financial covenants. Such
covenants specify that we must maintain certain liquidity measures. The
agreement also contains customary restrictions on, among other things,
additional indebtedness, liens on our assets, sales or transfers of assets,
investments, restricted payments (including payment of dividends and stock
repurchases), issuance of equity securities, and mergers, acquisitions and other
fundamental changes in our business. No event of default had occurred as of June
30, 2004. The notes are not collateralized except for the pledge of stock of
certain foreign subsidiaries. We incurred $0.7 million of related costs as a
result of issuing these notes which have been recorded as a component of other
non-current assets and are being amortized over the term of the notes. In
connection with the issuance of the $40 million notes, capitalized costs in the
amount of approximately $0.3 million associated with structuring of the $90
million credit facility were written off during the three months ended June 30,
2004 and are included as a component of other (income) expense.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 13, 2004. As of
March 29, 2004, the record date for the meeting, there were 16,711,958 shares of
common stock outstanding and entitled to vote at the meeting. There were present
at said meeting, in person or by proxy, stockholders holding 15,924,856 shares
of common stock, constituting approximately 95% of the shares of common stock
outstanding and entitled to vote, which constituted a quorum.
The first matter voted upon at the meeting was the election of Michael E. Werner
as a Class I Director to service for a three-year term. The vote was 15,440,320
For and 484,536 Withheld.
The nominee was elected to serve until the 2007 Annual Meeting of Stockholders
and until his successor is duly elected and qualified. In addition to the
foregoing director, Steven T. Warshaw, James E. Earsley, and G. Ronald Morris
are serving terms that will expire in 2005, and Roderick R. Baty and Robert M.
Aiken, Jr. are serving terms that will expire in 2006.
The second matter voted upon at the meeting was the proposal to ratify and
approve non-employee director stock options. The vote was 15,866,910 For and
48,528 Against, and there were 9,618 Abstentions.
Item 5. Other Information
None
26
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits Required by Item 601 of Regulation S-K
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
Sarbanes-Oxley Act.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act.
Reports on Form 8-K
The Company furnished a Form 8-K, in response to Items 12 and 7, on April
29, 2004 announcing its first quarter 2004 earnings.
The Company furnished a Form 8-K, in response to Item 5, on June 21, 2004
announcing management changes at NN Europe.
27
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, Inc.
--------------------------------------
(Registrant)
Date: August 9, 2004 /s/ Roderick R. Baty
--------------------------------------
Roderick R. Baty,
Chairman, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: August 9, 2004 /s/ David L. Dyckman
--------------------------------------
David L. Dyckman
Vice President-Corporate Development
Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Officer)
Date: August 9, 2004 /s/ William C. Kelly, Jr.
--------------------------------------
William C. Kelly, Jr.,
Treasurer, Secretary and
Chief Administrative Officer
(Duly Authorized Officer)
28