- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 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


                                    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 No.)

                     2000 Waters Edge Drive
                    Johnson City, Tennessee                           37604
          (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (423) 743-9151


          Securities registered pursuant to Section 12(b) of the Act:

          Title of                         Name of each exchange
         each class                         on which registered
      ----------------                   -------------------------
            None                                   None

          Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, par value $.01
                                (Title of class)

     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  and 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 if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes    [X]       No    [_]

     The number of shares of the registrant's  common stock outstanding on March
9, 2005 was 16,885,913.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant  at March 9,  2005,  based on the  closing  price on the  NASDAQ
National Market System on that date was approximately $123,917,374.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement with respect to the 2005 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K.



                                     PART I

Item 1.  Business Overview

NN, Inc. manufactures and supplies high precision bearing components, consisting
of balls,  cylindrical  rollers,  tapered rollers,  seals, and plastic and metal
retainers, for leading bearing manufacturers on a global basis. We are a leading
independent manufacturer of precision steel bearing balls for the North American
and European markets.  In 1998, we began  implementing a strategic plan designed
to position us as a worldwide supplier of a broad line of bearing components and
other precision plastic components. Through a series of acquisitions executed as
part of that plan,  we have built on our strong core ball  business and expanded
our bearing  component  product  offering.  Today, we offer among the industry's
most complete line of commercially  available bearing  components.  We emphasize
engineered  products that take advantage of our  competencies  in product design
and tight  tolerance  manufacturing  processes.  Our bearing  customers  use our
components  in fully  assembled  ball and roller  bearings,  which  serve a wide
variety  of  industrial   applications   in  the   transportation,   electrical,
agricultural,  construction, machinery, mining and aerospace markets. As used in
this Annual Report on Form 10-K, the terms "NN", "the Company",  "we", "our", or
"us" mean NN, Inc. and its subsidiaries.

For managerial and financial analysis  purposes,  management views the Company's
operation in three segments:  the domestic ball and roller  operations of Erwin,
Tennessee  and Mountain  City,  Tennessee,  also  includes  costs related to our
start-up  operation in China and  corporate  office costs,  ("Domestic  Ball and
Roller  Segment"),  the  European  facilities  of  Kilkenny,  Ireland,  Eltmann,
Germany,  Pinerolo,  Italy, Veenendaal,  The Netherlands and Kysucke Nove Mesto,
Slovakia ("NN Europe  Segment" or "NN Europe") and the  operations of Industrial
Molding Corporation ("IMC") and The Delta Rubber Company ("Delta") (collectively
"Plastic and Rubber Components Segment").  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.  Financial  information about
the Domestic Ball and Roller Segment,  the NN Europe Segment and the Plastic and
Rubber  Components  Segment is set forth in Note 11 of the Notes to Consolidated
Financial Statements.

Recent Developments

On May 2, 2003,  we  acquired  the 23 percent  interest  in NN Europe,  ApS ("NN
Europe")  held by AB SKF  ("SKF").  NN Europe was formed in 2000 by the Company,
FAG Kugelfischer  George Schaefer AG, which was  subsequently  acquired by INA -
Schaeffler KG (collectively, "INA"), and AB SKF ("SKF"). SKF is a global bearing
manufacturer  and  one of our  largest  customers.  We paid  approximately  13.8
million  Euros ($15.6  million) for SKF's  interest in NN Europe.  Following the
closing of the transaction,  we own 100 percent of the outstanding  shares of NN
Europe.

On May 2, 2003 we  acquired  100  percent of the  tapered  roller and metal cage
manufacturing  operation 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  financial  results of the  Veenendaal  operation  are
included in the NN Europe Segment.

On October 9, 2003, we acquired certain assets  comprised of land,  building and
machinery  and equipment of the  precision  ball  operations of KLF - Gulickaren
("KLF"),  based in  Kysucke  Nove  Mesto,  Slovakia.  We paid  consideration  of
approximately 1.7 million Euros ($2.0 million). The assets are being utilized by
our  wholly-owned  subsidiary AKMCH ("NN Slovakia") based in Kysucke Nove Mesto,
Slovakia,  which began  production in June 2004.  The  financial  results of the
operations are included in our NN Europe Segment.

During 2004 we formed a wholly owned  subsidiary,  NN Precision Bearing Products
Company,  LTD,  ("NN  Asia)".  This  subsidiary,  which  is  expected  to  begin
production of precision balls during the second half of 2005, will be located in
the Kunshan  Economic and Technology  Development  Zone,  Jiangsu,  The People's
Republic of China and is a  component  of our  strategy  to globally  expand our
manufacturing base. The costs incurred as a result of this start-up are included
in our Domestic Ball and Roller Segment.

                                       2



Corporate Information

NN, originally organized in October 1980, is incorporated in Delaware,  with our
principal  executive  offices located at 2000 Water's Edge Drive,  Johnson City,
Tennessee 37604 and our telephone number is (423) 743-9151. Our web site address
is  www.nnbr.com.  Information  contained  on our web  site is not  part of this
Annual Report.  Our annual report on Form 10-K,  quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments thereto are available on our web site
under "Investor Relations."

Products

Precision  Steel Balls.  At our Domestic Ball and Roller Segment  facilities and
our NN  Europe  Segment  facilities,  we  manufacture  and  sell  high  quality,
precision steel balls in sizes ranging in diameter from 1/8 of an inch to 12 1/2
inches.  We produce and sell balls in grades ranging from grade 3 to grade 1000,
as  established by the American  Bearing  Manufacturers  Association.  The grade
number for a ball or a roller  indicates the degree of spherical or  cylindrical
precision of the ball or roller; for example,  grade 3 balls are manufactured to
within  three-millionths  of an inch of  roundness  and  grade  50  rollers  are
manufactured to within fifty-millionths of an inch of roundness. Our steel balls
are used  primarily by  manufacturers  of  anti-friction  bearings where precise
spherical, tolerance and surface finish accuracies are required. At our Domestic
Ball and Roller Segment,  sales of steel balls accounted for approximately  86%,
86% and 88% of the segment's net sales in 2004, 2003 and 2002  respectively.  At
our NN Europe  Segment,  sales of steel balls accounted for  approximately  68%,
76%, and 100% of the segment's net sales in 2004, 2003 and 2002, respectively.

Steel  Rollers.  We  manufacture  cylindrical  rollers at our  Erwin,  Tennessee
facility.  These  cylindrical  rollers are  produced in a wide variety of sizes,
ranging  from  grade 50 to  grade  1000.  Rollers  are used in place of balls in
anti-friction  bearings that are subjected to heavy load conditions.  Our roller
products  are  used  primarily  for  applications  similar  to those of our ball
product lines, plus certain non-bearing applications such as hydraulic pumps and
motors.  We  manufacture  tapered  rollers at our  Veenendaal,  The  Netherlands
facility.  These tapered  rollers are used in tapered  roller  bearings that are
used in a variety of applications  including  automotive  gearbox  applications,
automotive wheel bearings and a wide variety of industrial applications.

Bearing  Seals.  At our Plastic and Rubber  Components  Segments  Danielson,  CT
facility,  we  manufacture  and sell a wide  range of  precision  bearing  seals
produced  through a variety of compression and injection  molding  processes and
adhesion technologies to create  rubber-to-metal bonded bearing seals. The seals
are used in applications for automotive,  industrial,  agricultural,  mining and
aerospace markets.

Retainers:  We manufacture  and sell precision  metal and plastic  retainers for
ball and roller  bearings  used in a wide  variety of  industrial  applications.
Retainers  are  used to  separate  and  space  balls or  rollers  within a fully
assembled  bearing.  We  manufacture  plastic  retainers at our  Lubbock,  Texas
facility and metal retainers at our Veenendaal, The Netherlands facility.

Precision  Plastic  Components.  At our Plastic and Rubber  Components  Segments
Lubbock,  TX facility,  we also manufacture and sell a wide range of specialized
plastic products  including  automotive  under-the-hood  components,  electronic
instrument cases and precision  electronic  connectors and lenses,  as well as a
variety of other specialized parts.

Research  and  Development.  The  amounts  spent  on  research  and  development
activities  by us during each of the last three fiscal  years are not  material.
Amounts spent are expensed as incurred.

Customers

Our bearing component products are supplied  primarily to bearing  manufacturers
for use in a broad range of industrial applications,  including  transportation,
electrical,  agricultural,  construction,  machinery,  mining and aerospace.  We
supply  over  500  customers;   however,   our  top  10  customers  account  for
approximately  81% of our  revenue.  These top 10 customers  include  SKF,  INA,
Timken, GKN, SNR, Iljin, Delphi, Koyo, NTN and FTE. In 2004, 29% of our products
were sold to customers  in North  America,  60% to customers in Europe,  and the
remaining 11% to customers located  throughout the rest of the world,  primarily
Asia.  Sales  to  various  U.S.  and  foreign  divisions  of SKF  accounted  for
approximately  48%  of net  sales  in  2004  and  sales  to  INA  accounted  for
approximately 14% of net sales in 2004,  demonstrating our long-term,  strategic
relationships with these key customers.  These gains are directly  attributed to
the  success  of NN  Europe,  Veenendaal  and our  efforts  to  develop a closer
partnering  relationship  with our global  bearing  customers.  Sales to various
divisions of the Timken Co. accounted for approximately 6% of net sales in 2004.
None of our other customers accounted for more than 5% of our net sales in 2004.

                                       3



Certain customers have contracted to purchase all or a majority of their bearing
component requirements from us, although only a few are contractually  obligated
to purchase any specific amounts.  While firm orders are generally received on a
monthly  basis,  we are normally aware of future order levels well in advance of
the  placement of a firm order.  For our Domestic  Ball and Roller  Segment,  we
maintain a computerized,  bar coded inventory management system with most of our
major customers that enables us to determine on a day-to-day basis the amount of
these components remaining in a customer's inventory. When such inventories fall
below certain levels, we automatically ship additional product.

NN Europe has entered into six-year supply agreements with SKF and INA providing
for the purchase of NN Europe products in amounts and at prices that are subject
to adjustment on an annual basis. The agreements contain  provisions  obligating
NN Europe to  maintain  specified  quality  standards  and comply  with  various
ordering and delivery procedures, as well as other customary provisions. SKF may
terminate its agreement  if, among other things,  NN Europe  acquires or becomes
acquired by a competitor of SKF. INA may terminate its agreement if, among other
things, NN Europe assigns its rights under the agreement, whether voluntarily or
by operation of law. These agreements expire May 31, 2006.

Veenendaal has entered into a five-year  supply agreement with SKF providing for
the purchase of Veenendaal products in amounts and at prices that are subject to
adjustment on an annual  basis.  The agreement  contains  provisions  obligating
Veenendaal  to maintain  specified  quality  standards  and comply with  various
ordering and delivery procedures,  as well as other customary  provisions.  This
agreement expires during 2008.

We ordinarily  ship our products  directly to customers  within 60 days,  and in
some cases,  during the same calendar  month, of the date on which a sales order
is  placed.  Accordingly,  we  generally  have an  insignificant  amount of open
(backlog)  orders from  customers at month end.  Certain of our  customers  have
entered  into  contracts  with us pursuant to which they have agreed to purchase
all of their  requirements  of  specified  balls and rollers and plastic  molded
products from us,  although only a few are  contractually  obligated to purchase
any specific amounts.  Certain agreements are in effect with some of our largest
customers,  which provide for  targeted,  annual price  adjustments  that may be
offset by material cost fluctuations.

During 2004, the Domestic Ball and Roller Segment sold its products to more than
250 customers located in more than 25 different countries.  Approximately 55% of
the Domestic Ball and Roller Segment net sales in 2004 were to customers outside
the  United  States.  Sales  to the  Domestic  Ball & Roller  Segment's  top ten
customers  accounted for  approximately  74% of the segment's net sales in 2004.
Sales to SKF and INA accounted for approximately 25% and 18%,  respectively,  of
the segment's net sales in 2004.

During 2004,  the NN Europe  Segment sold its products to more than 70 customers
located in more than 30 different countries.  Approximately 89% of its net sales
in 2004  were  to  customers  within  Europe.  Sales  to the  segment's  top ten
customers  accounted for  approximately  95% of the segment's net sales in 2004.
Sales to SKF and INA  accounted for  approximately  66% and 16% of the segment's
net sales in 2004,  respectively.  Sales to SKF and INA are made pursuant to the
terms of supply agreements which expire in 2006 and 2008.

During 2004, the Plastic and Rubber Components Segment sold its products to more
than 100 customers  located in more than 10 different  countries.  Approximately
11% of the Plastic  and Rubber  Components  Segment net sales were to  customers
outside the United  States.  Sales to the segment's top ten customers  accounted
for approximately 68% of the Plastics Segment's net sales in 2004.

See Note 11 of the Notes to Consolidated  Financial Statements and "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Results of Operations" for additional segment financial information. In both the
foreign  and  domestic  markets,  the  Company  principally  sells its  products
directly to manufacturers and not to distributors.

                                       4


The following table presents a breakdown of our net sales for fiscal years 2002
through 2004:


      (In Thousands)


                                                        2004            2003             2002
                                                    ------------    ------------    -------------
                                                                               

      Domestic Ball and Roller Segment                 $ 58,435        $ 55,437         $ 52,634
                                                          19.2%           21.9%             27.3%
      NN Europe Segment                                 193,930         147,127           90,653
                                                          63.8%           58.0%             47.0%
      Plastic and Rubber Components Segment              51,724          50,898           49,569
                                                          17.0%           20.1%             25.7%
                                                    ------------    ------------    -------------
      Total                                            $304,089        $253,462         $192,856
                                                    ============    ============    =============
                                                           100%            100%             100%
                                                    ============    ============    =============


Sales and Marketing

A  primary  emphasis  of  our  marketing  strategy  is to  expand  key  customer
relationships  by offering them the value of a single supply chain partner for a
wide variety of components.  As a result, we have progressed toward  integrating
our sales  organization  on a global basis across all of our product lines.  Our
sales  organization  includes  nine  direct  sales and twelve  customer  service
representatives.  Due to the  technical  nature  of  many of our  products,  our
engineers and  manufacturing  management  personnel also provide technical sales
support  functions,  while internal sales  employees  handle customer orders and
other general sales support activities.

Our bearing component  marketing  strategy focuses on increasing our outsourcing
relationships  with global bearing  manufacturers  that maintain captive bearing
component  manufacturing  operations.  Our  marketing  strategy  for  our  other
precision  plastic  products  is to offer  custom  manufactured,  high  quality,
precision  parts to niche  markets  with  high  value-added  characteristics  at
competitive  price  levels.  This  strategy  focuses on  relationships  with key
customers that require the production of technically  difficult parts,  enabling
us to take  advantage  of our  strengths  in custom  product  development,  tool
design, and precision molding processes.

As shown in the chart  below,  the  addition of the plastic and metal  retainer,
tapered  roller and seal  product  lines have further  enhanced  many of our key
customer  relationships,  making us a more complete and  integrated  supplier of
bearing component parts.



                                                                                             Products
                                                                                           -------------
Name              Country        Description                                Balls & Rollers     Seals     Retainers
- ----              -------        -----------                                ---------------     -----     ---------
                                                                                               
SKF               Sweden         Global bearing manufacturer                       X              X           X
INA               Germany        Global bearing manufacturer                       X              X           X
NTN               Japan          Global bearing manufacturer                       X              X           X
SNR               France         Global bearing manufacturer                       X
Timken            USA            Global bearing manufacturer                       X              X           X
Delphi            USA            Automotive component supplier                     X              X           X
Iljin             Korea          Global bearing manufacturer                       X
NSK               Japan          Global bearing manufacturer                       X                          X
Koyo              Japan          Global bearing manufacturer                       X              X           X
GKN               Germany        Global bearing manufacturer                       X


Our arrangements with our domestic customers typically provide that payments are
due within 30 days  following  the date of  shipment of goods.  With  respect to
foreign  customers,  payments  generally are due within 90 to 120 days following
the date of shipment in order to allow for  additional  freight time and customs
clearance.  For  customers  that  participate  in our  Domestic  Ball and Roller
Segment's  inventory  management  program,  sales are recorded when the customer
uses the product.  See "Business -- Customers" and "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations  --  Liquidity  and
Capital Resources."

                                       5



Manufacturing Process

We have become a leading  independent  bearing  component  manufacturer  through
exceptional service and high quality manufacturing  processes and are recognized
throughout  the  industry  as a low-cost  producer.  Because our ball and roller
manufacturing processes incorporate the use of standardized tooling, load sizes,
and process  technology,  we are able to produce large volumes of products while
maintaining high quality standards.

The key to our low-cost,  high quality  production of seals and retainers is the
incorporation of customized engineering into our manufacturing processes,  metal
to rubber bonding  competency  and  experience  with a broad range of engineered
resins.  This design process includes the testing and quality assessment of each
product.

Employees

As of December 31, 2004, we employed a total of 1,747 full-time  employees.  Our
Domestic Ball and Roller  Segment  employed 288 workers,  the NN Europe  Segment
employed 1,025 workers,  our Plastic and Rubber Components  Segment employed 426
workers, and there were 8 employees at the Company's corporate headquarters.  Of
our total employment,  17% are management/staff employees and 83% are production
employees.  We believe we are able to attract and retain high quality  employees
because of our quality reputation, technical expertise, history of financial and
operating stability,  attractive employee benefit programs, and our progressive,
employee-friendly  working  environment.  Only  the  employees  in the  Eltmann,
Germany,  Pinerolo, Italy, and Veenendaal,  The Netherlands plants are unionized
and we have never  experienced any involuntary  work stoppages.  We consider our
relations with our employees to be excellent.

Competition

The  precision  ball  and  roller  and  metal  retainer  industry  is  intensely
competitive,  and many of our competitors have greater financial  resources than
we do. Our primary  domestic  competitor is Hoover Precision  Products,  Inc., a
division  of  Tsubakimoto  Precision  Products  Co.  Ltd.  Our  primary  foreign
competitors are Amatsuji Steel Ball Manufacturing  Company, Ltd. and Tsubakimoto
Precision Products Co. Ltd.

We believe that competition within the precision ball, roller and metal retainer
market is based  principally on quality,  price and the ability to  consistently
meet customer delivery  requirements.  Management  believes that our competitive
strengths are our  precision  manufacturing  capabilities,  our  reputation  for
consistent quality and reliability, and the productivity of our workforce.

The markets for the Plastic and Rubber  Components  Segment's  products are also
intensely competitive. Since the plastic injection molding industry is currently
very  fragmented,  IMC  must  compete  with  numerous  companies  in each of its
marketing segments. Many of these companies have substantially greater financial
resources than we do and many currently offer competing products  nationally and
internationally.  IMC's primary  competitor in the bearing  retainer  segment is
Nakanishi Manufacturing Corporation.  Domestically, Nypro, Inc. and Key Plastics
are the main competitors in the automotive segment.

We believe that  competition  within the plastic  injection  molding industry is
based  principally  on  quality,   price,   design  capabilities  and  speed  of
responsiveness  and  delivery.   Management   believes  that  IMC's  competitive
strengths are product development, tool design, fabrication, and tight tolerance
molding  processes.  With these  strengths,  IMC has built its reputation in the
marketplace as a quality producer of technically difficult products.

While  intensely  competitive,   the  markets  for  Delta's  products  are  less
fragmented than IMC. The bearing seal market is comprised of  approximately  six
major  competitors that range from small privately held companies to Fortune 500
global  enterprises.  Bearing  seal  manufacturers  compete on design,  service,
quality and price. Delta's primary competitors in the United States bearing seal
market are  Freudenburg-NOK,  Chicago  Rawhide  Industries (an SKF  subsidiary),
Trostel, and Uchiyama.

Raw Materials

The primary raw  material  used in our Domestic  Ball and Roller  Segment and NN
Europe  Segment is 52100 Steel.  During 2004,  approximately  98% and 99% of the
steel used by these two segments,  respectively, was 52100 Steel in rod and wire
form. Our other steel requirements include type 440C stainless steel and type S2
rock bit steel.

                                       6



The Domestic Ball and Roller Segment  purchases  substantially  all of its 52100
Steel requirements from foreign mills in Europe and Japan because of the lack of
domestic producers of such steel in the form we require. The principal suppliers
of 52100  Steel to the  Domestic  Ball and Roller  Segment  are Daido Steel Inc.
(America),  Shinsho  Steel  America,  Lucchini USA Inc.  (affiliate of Ascometal
France) and Ohio Star Forge Co. The NN Europe Segment purchases all of its 52100
Steel requirements from European mills. The principal supplier of 52100 Steel to
the NN  Europe  Segment  is  Ascometal  France  (See  Note  14 of the  Notes  to
Consolidated Financial  Statements).  Our other steel requirements are purchased
principally  from foreign  steel  manufacturers.  There are a limited  number of
suppliers of the 52100 Steel that we use in our Domestic  Ball and Roller and NN
Europe Segments.  We believe that if any of our current suppliers were unable to
supply  52100  Steel  to us,  we  would  be  able  to  obtain  our  52100  Steel
requirements from alternate sources.  We cannot provide assurances that we would
not face higher costs or production interruptions as a result of obtaining 52100
Steel from alternate sources.

We purchase steel on the basis of price and, more significantly, composition and
quality.  The pricing  arrangements  with our suppliers are typically subject to
adjustment  once  every  three to six months  for the  Domestic  Ball and Roller
Segment.  Steel pricing is contractually  adjusted on an annual basis within the
NN Europe  Segment.  For the NN Europe  Segment  scrap  surcharges  are adjusted
quarterly based upon market activity in the preceding quarter. In general, we do
not enter into written  supply  agreements  with suppliers or commit to maintain
minimum monthly  purchases of steel except for the supply  arrangements  between
Ascometal  and NN Europe  (see Note 14 of the  Notes to  Consolidated  Financial
Statements).  For the  Domestic  Ball and  Roller  and NN Europe  Segments,  the
average price of 52100 Steel  increased  approximately  9.8% in 2004,  increased
approximately 3.5% in 2003, and increased approximately 2.5% in 2002.

Because  52100  Steel is  principally  produced  by foreign  manufacturers,  the
Company's  operating results would be negatively  affected in the event that the
U.S. or European  governments  impose any significant  quotas,  tariffs or other
duties or restrictions on the import of such steel, if the U.S. dollar decreases
in value  relative to foreign  currencies  or if supplies  available to us would
significantly   decrease.   On  March  6,  2002,  the  U.S.  government  adopted
legislation  that  imposed  certain  tariffs on the  import of  certain  foreign
produced  steel into the United  States.  Because the vast majority of the 52100
Steel we use was exempted from these recent U.S.  tariffs on imported  steel, we
were not materially affected by related import regulations.

The price of steel has risen over the last  twelve to  eighteen  months with the
potential  for 2005 prices 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
steel prices we pay in procuring our steel in the form of higher unit prices and
scrap  surcharges and could  adversely  impact the  availability  of steel.  Our
contracts  with key  customers  allow us to pass a majority  of the steel  price
increases on to those customers.  However,  for our NN Europe Segment,  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.

The primary raw materials used by IMC are  engineered  resins.  Injection  grade
nylon is utilized in bearing retainers,  gears,  automotive and other industrial
products. We purchase  substantially all of our resin requirements from domestic
manufacturers  and suppliers.  The majority of these suppliers are international
companies with resin  manufacturing  facilities located throughout the world. We
experienced price increases for engineered resins of approximately 5.3% in 2004,
price  decreases  of  approximately   1.0%  in  2003,  and  price  decreases  of
approximately 1.0% in 2002.

Delta uses  certified  vendors to  provide a custom  mix of  proprietary  rubber
compounds.  Delta also procures metal stampings from several domestic suppliers.
We experienced price increases for Delta's raw materials of approximately  10.2%
in 2004, and price decreases of 2.5% in 2003 and 0% in 2002, respectively.

For the Plastic and Rubber  Components  Segment,  we base purchase  decisions on
price,  quality and  service.  Generally,  we do not enter into  written  supply
contracts with our suppliers or commit to maintain minimum monthly  purchases of
resins. The pricing arrangements with our suppliers typically can be adjusted at
anytime.

Patents, Trademarks and Licenses

We do not own any U.S.  or foreign  patents,  trademarks  or  licenses  that are
material to our business.  We do rely on certain data and  processes,  including
trade secrets and  know-how,  and the success of our business  depends,  to some
extent, on such information  remaining  confidential.  Each executive officer is
subject to a non-competition and confidentiality agreement that seeks to protect
this information.

                                       7



Seasonal Nature of Business

Historically,  due to a  substantial  portion  of sales to  European  customers,
seasonality  has been a factor for our business in that some European  customers
typically  significantly reduce their production  activities during the month of
August.

Environmental Compliance

Our  operations and products are subject to extensive  federal,  state and local
regulatory  requirements  both  domestically  and abroad  relating to  pollution
control and protection of the environment.  We maintain a compliance  program to
assist in preventing and, if necessary, correcting environmental problems. Based
on information compiled to date, management believes that our current operations
are  in  substantial   compliance   with  applicable   environmental   laws  and
regulations,  the violation of which would have a material adverse effect on our
business and  financial  condition.  There can be no  assurance,  however,  that
currently unknown matters, new laws and regulations, or stricter interpretations
of existing  laws and  regulations  will not  materially  affect our business or
operations in the future. More specifically, although we believe that we dispose
of  wastes  in  material  compliance  with  applicable  environmental  laws  and
regulations,  there  can be no  assurance  that we will  not  incur  significant
liabilities  in the future in  connection  with the  clean-up of waste  disposal
sites.

Executive Officers of the Registrant

Our executive officers are:



   Name                       Age     Position
 --------                     ---     --------
                               
Roderick R. Baty              51     Chairman of the Board, Chief Executive Officer, President and Director
Frank T. Gentry, III          49     Vice President - Manufacturing
Robert R. Sams                47     Vice President - Market Services
David L. Dyckman              40     Vice President - Corporate Development and Chief Financial Officer
William C. Kelly, Jr.         46     Treasurer, Secretary and Chief Administrative and Compliance Officer


Set forth below is certain  additional  information  with respect to each of our
executive officers.

Roderick  R.  Baty was  elected  Chairman  of the  Board in  September  2001 and
continues to serve as Chief  Executive  Officer and President.  He has served as
President and Chief Executive Officer since July 1997. He joined NN in July 1995
as Vice  President and Chief  Financial  Officer and was elected to the Board of
Directors in 1995.  Prior to joining NN, Mr. Baty served as President  and Chief
Operating Officer of Hoover Precision Products from 1990 until January 1995, and
as Vice President and General Manager of Hoover Group from 1985 to 1990.

Frank T. Gentry, III, was originally appointed Vice President - Manufacturing in
August 1995. Mr. Gentry is responsible for the Domestic Ball and Roller Segment.
Mr. Gentry joined NN in 1981 and held various manufacturing management positions
within NN from 1981 to August 1995.

Robert  R.  Sams  joined  NN in 1996 as  Plant  Manager  of the  Mountain  City,
Tennessee  facility.  In 1997,  Mr.  Sams  served as  Managing  Director  of the
Kilkenny  facility and in 1999 was elected to the  position of Vice  President -
Market  Services.  Prior to joining NN, Mr.  Sams held  various  positions  with
Hoover Precision  Products from 1980 to 1994 and as Vice President of Production
for Blum, Inc. from 1994 to 1996.

David L. Dyckman was appointed Vice President of Corporate Development and Chief
Financial  Officer in April 1998.  Prior to joining NN, Mr.  Dyckman served from
January  1997 until April 1998 as Vice  President--Marketing  and  International
Sales for the Veeder-Root Division of the Danaher  Corporation.  From 1987 until
1997, Mr. Dyckman held various positions with Emerson Electric Company including
General  Manager and Vice President of the Gearing  Division of Emerson's  Power
Transmission subsidiary. Mr. Dyckman resigned his position effective January 14,
2005.

William C. Kelly,  Jr.  joined NN in 1993 as Assistant  Treasurer and Manager of
Investor  Relations.  In July 1994, Mr. Kelly was elected to serve as NN's Chief
Accounting  Officer,  and served in that capacity  through March 2003. In March,
2003, Mr. Kelly was elected to serve as NN's Chief Administrative and Compliance
Officer.  In February  1995,  Mr.  Kelly was  elected  Treasurer  and  Assistant
Secretary. In March 1999 he was elected Secretary of NN and still serves in that
capacity as well as that of  Treasurer.  Prior to joining NN, Mr.  Kelly  served
from  1988 to 1993  as a Staff  Accountant  and as a  Senior  Auditor  with  the
accounting firm of PricewaterhouseCoopers LLP.

                                       8



Item 2.  Properties

The Company has two operating domestic ball manufacturing  facilities located in
Erwin, Tennessee and Mountain City, Tennessee. Of these two facilities,  rollers
are produced only at the Erwin,  Tennessee  facility.  Production began in early
1996 at the Mountain City facility.  During December 2001, we ceased  production
and closed our  facility in  Walterboro,  South  Carolina  and sold the land and
building assets during 2004.

The Erwin and Mountain  City plants  currently  have  approximately  125,000 and
86,400  square feet of  manufacturing  space,  respectively.  The Erwin plant is
located on a 12 acre tract of land owned by the  Company and the  Mountain  City
plant is located on an eight acre tract of land owned by the Company.

Through NN Europe we  manufacture  precision  steel balls in four  manufacturing
facilities located in Kilkenny,  Ireland, Eltmann, Germany,  Pinerolo, Italy and
Kysucke  Nove Mesto,  Slovakia.  The  facilities  currently  have  approximately
125,000,  175,000,  330,000 and  135,000  square  feet of  manufacturing  space,
respectively.  The Kilkenny  facility is located on a two acre tract owned by NN
Europe,  the Eltmann  facility is leased from FAG and the  Pinerolo  facility is
located on a nine acre tract owned by NN Europe.  The  Kysucke  facility is also
owned by NN Europe.

Our  Veenendaal,  The  Netherlands  operation  manufactures  rollers for tapered
roller bearings and metal retainers in two facilities. The facilities,  owned by
the Company,  have approximately 107,000 and 52,000 square feet of manufacturing
space, respectively.

IMC  manufactures a wide range of plastic molded products through two facilities
located in Lubbock,  Texas. The Slaton  facility,  located on a six and one half
acre tract of land owned by the Company,  contains  approximately 193,000 square
feet of  manufacturing,  warehouse  and  office  space.  The Cedar  facility  is
situated  on a two and one half acre  tract of land  which is also  owned by the
Company and  contains  approximately  35,000  square feet of  manufacturing  and
warehouse space.

Delta's operations are located in two facilities on a 12-acre site in Danielson,
Connecticut,  owned by the Company.  The two  facilities  encompass  over 50,000
square feet of rubber seal manufacturing and administrative functions.

The  property  related to our NN Asia ball  production  facility in the People's
Republic of China is leased.

See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Item 3.  Legal Proceedings

From  time to time the  Company  is  subject  to legal  actions  related  to its
operations,  most  of  which  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 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted for a vote of  stockholders  during the fourth quarter
of 2004.


                                       9

                                     Part II

Item 5. Market for the Registrant's  Common Equity,  Related Stockholder Matters
        and Issuer Purchases of Equity Securities

Since the Company's  initial public  offering in 1994, the Common Stock has been
traded on the Nasdaq  National  Market under the trading symbol "NNBR." Prior to
such time there was no established  market for the Common Stock. As of March 11,
2005, there were approximately 4,500 holders of the Common Stock.

The  following  table sets forth the high and low  closing  sales  prices of the
Common Stock,  as reported by Nasdaq,  and the  dividends  paid per share on the
Common Stock during each calendar quarter of 2004 and 2003.

                                   Close Price
                                   -----------
                           High          Low          Dividend
                           ----         -----         --------
2004
First Quarter            $13.13        $11.08           $0.08
Second Quarter            12.94         11.03            0.08
Third Quarter             12.00          9.40            0.08
Fourth Quarter            13.21         11.06            0.08

2003
First Quarter            $10.00         $8.01           $0.08
Second Quarter            12.66          9.35            0.08
Third Quarter             13.75         11.12            0.08
Fourth Quarter            12.90         10.70            0.08


The  declaration  and payment of dividends are subject to the sole discretion of
the  Board  of  Directors   of  the  Company  and  depend  upon  the   Company's
profitability,  financial  condition,  capital needs, future prospects and other
factors  deemed  relevant by the Board of Directors.  The terms of the Company's
revolving  credit facility  restrict the payment of dividends by prohibiting the
Company from  declaring or paying any dividend if an event of default  exists at
the time of, or would occur as a result of, such declaration or payment.

Additionally,  the terms of the Company's revolving credit facility restrict the
declaration and payment of dividends in excess of certain  amounts  specified in
the credit  agreement in any fiscal year.  The amount of  consolidated  retained
earnings  which  represents  undistributed  earnings of 50 percent or less owned
persons  accounted  for by the equity  method is zero at  December  31, 2004 and
2003. For further  description of the Company's  revolving credit facility,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources" herein.

Item 6.  Selected Financial Data

The following  selected financial data of the Company are qualified by reference
to and should be read in conjunction with the consolidated  financial statements
and the  Notes  thereto  included  as Item 8.  The data  set  forth  below as of
December  31, 2004 and 2003 and for the periods then ended has been derived from
the consolidated  financial statements of the Company which have been audited by
PricewaterhouseCoopers  LLP, an independent  registered  public accounting firm,
whose  report  thereon  is  included  as part of Item 8.  The  data  below as of
December 31, 2002, 2001 and 2000 and for the periods then ended has been derived
from the  consolidated  financial  statements  of the  Company,  which have been
audited by KPMG LLP, an independent  registered  public  accounting  firm. These
historical results are not necessarily  indicative of the results to be expected
in the future. See "Management's  Discussion and Analysis of Financial Condition
and Results of Operations."

                                       10





(In Thousands, Except Per Share Data)                                                   Year Ended December 31,
                                                                                        -----------------------


                                                        2004              2003             2002             2001             2000
                                                        ----              ----             ----             ----             ----
                                                                                                            
Statement of Income Data:

Net sales                                              $304,089          $253,462         $192,856          $180,151       $132,129
Cost of products sold (exclusive of
   depreciation shown separately below)                 240,580           195,658          144,274           137,221         93,926
Selling, general and administrative expenses             29,755            21,700           17,134            16,752         11,571
Depreciation and amortization                            16,133            13,691           11,212            13,150          9,165
(Gain) loss on disposal of assets                           856              (147)             (25)               --          1,194
Restructuring and impairment costs                        2,398             2,490            1,277             2,312             --
                                                     -----------     -------------    -------------    -------------    -----------
Income from operations                                   14,367            20,070           18,984            10,716         16,273
Interest expense                                          4,029             3,392            2,451             4,196          1,773
Equity in earnings of unconsolidated affiliate               --                --               --                --            (48)
Net gain on involuntary conversion                           --                --               --            (3,901)          (728)
Other income                                               (853)               99             (462)             (186)        (1,330)
                                                     ----------     -------------    -------------     -------------   ------------
Income before provision for income taxes                 11,191            16,579           16,995            10,607         16,606
Provision for income taxes                                4,089             5,726            6,457             4,094          5,959
Minority interest in income of consolidated
   subsidiary                                                --               675            2,778             1,753            660
                                                     ----------     -------------    -------------    --------------    ------------
Income before cumulative effect of change in              7,102            10,178            7,760             4,760          9,987
   accounting principle

Cumulative effect of change in accounting
   principle, net of income tax benefit of $112
   and related minority interest impact of $84               --                --               --                98             --
                                                     ----------     -------------    -------------    --------------   ------------
Net income                                             $  7,102          $ 10,178          $ 7,760           $ 4,662        $ 9,987
                                                     ==========     =============    =============    ==============   ============
Basic income per share:
Income before cumulative effect of change in
   accounting principle                                  $ 0.42            $ 0.64          $ 0. 51            $ 0.31         $ 0.66
Cumulative effect of change in accounting
    principle                                                                  --               --             (0.01)            --
                                                     ----------     -------------    -------------    --------------   ------------
   Net income                                            $ 0.42            $ 0.64          $ 0. 51            $ 0.31         $ 0.66
                                                     ==========     =============    =============    ==============   ============
Diluted income per share:
Income before cumulative effect of change in
   accounting principle                                  $ 0.41            $ 0.62           $ 0.49            $ 0.31         $ 0.64
Cumulative effect of change in accounting
    principle                                                --                --               --             (0.01)            --
                                                     ----------     -------------    -------------    --------------    -----------
   Net income                                            $ 0.41            $ 0.62           $ 0.49           $  0.30         $ 0.64
                                                     ==========     =============    =============    ==============    ===========

Dividends declared                                       $ 0.32            $ 0.32           $ 0.32           $  0.32         $ 0.32
                                                     ==========     =============    =============    ==============    ===========
Weighted average number of shares                        16,728            15,973           15,343            15,259         15,247
   outstanding - Basic                               ==========     =============    =============    ==============    ===========
Weighted average number of shares                        17,151            16,379           15,714            15,540         15,531
   outstanding - Diluted                            ===========     =============    =============    ==============    ===========


                                       11



(In Thousands, Except Per Share Data)



                                                                    Year Ended December 31,
                                                                    -----------------------

                                              2004            2003             2002             2001             2000
                                              ----            ----             ----             ----             ----
                                                                                                
Balance Sheet Data:
Current assets                             $ 108,338        $ 89,901         $ 61,412         $ 55,617         $ 63,866
Current liabilities                           74,431          64,176           40,234           32,534           33,840
Total assets                                 289,869         267,899          195,215          184,477          183,951
Long-term debt                                67,510          69,752           46,135           47,661           50,515
Stockholders' equity                         115,140         106,468           77,908           70,982           74,675


During 2004 we formed a wholly owned  subsidiary,  NN Precision Bearing Products
Company,  LTD.  This  subsidiary,  which  is  expected  to begin  production  of
precision  balls during the second half of 2005,  will be located in the Kunshan
Economic and Technology  Development  Zone,  Jiangsu,  The People's  Republic of
China.

On October 9, 2003, we acquired certain assets  comprised of land,  building and
machinery  and equipment of the  precision  ball  operations of KLF - Gulickaren
("KLF"), based in Kysucke Nove Mesto, Slovakia.

On May  2,  2003  we  acquired  100%  of  the  tapered  roller  and  metal  cage
manufacturing operations of SKF in Veenendaal, The Netherlands.

On May 2, 2003 we  acquired  the 23%  interest in NN Europe,  held by SKF.  Upon
consummation of this transaction, we became the sole owner of NN Europe.

On December 20, 2002 we completed  the purchase of the 23% interest in NN Europe
held by INA.  As a result of this  transaction,  we own 77% of the  shares of NN
Europe.

Effective  January 1, 2002 we adopted the  provision  of  Statement of Financial
Accounting  Standards  (SFAS) No. 142.  SFAS No. 142 requires  that goodwill and
intangible assets with indefinite useful lives no longer be amortized.  See Note
1 of the Notes to Consolidated Financial Statements.

On February  16, 2001 we completed  the  acquisition  of all of the  outstanding
stock of The Delta Rubber Company.

On July 31, 2000 we completed  the  formation of NN Europe.  As a result of this
transaction, we owned 54% of the shares of NN Europe ApS.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Consolidated Financial Statements and the Notes thereto and
Selected  Financial  Data  included  elsewhere  in this  Form  10-K.  Historical
operating results and percentage relationships among any amounts included in the
Consolidated  Financial  Statements are not necessarily  indicative of trends in
operating results for any future period.

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.  Readers can identify  these  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

                                       12



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 annual
report on Form 10-K, 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  and  automotive  production.  As a
result,  the market for bearing  components  is also  cyclical  and  impacted by
overall levels of industrial and  automotive  production.  Our sales in the past
have been negatively affected, and in the future will be negatively affected, by
adverse conditions in the industrial and/or automotive production sectors of the
economy or by adverse global or national economic conditions generally.

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 we could face higher
prices and  transportation  costs,  increased  duties or taxes, and shortages of
steel.  Due to  China's  increasing  consumption  of  steel,  we  have  received
indications  from our suppliers  that steel  availability  in the quantities and
types we require may be  volatile in 2005.  Problems  in  obtaining  steel,  and
particularly  52100  chrome  steel,  in the  quantities  that we require  and on
commercially reasonable terms, could increase our costs, adversely impacting our
ability to operate our business  efficiently and have a material  adverse effect
on the revenues and operating and financial results of our Company.

The price of steel has risen over the last  twelve to  eighteen  months with the
potential  for 2005 prices 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 in the form of higher unit prices
and scrap  surcharges and could adversely  impact the availability of steel. Our
contracts  with key  customers  allow us to pass a majority  of the steel  price
increases 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.

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  48%  of
consolidated net sales in 2004, and sales to INA accounted for approximately 14%
of  consolidated  net sales in 2004.  Sales to various  divisions  of the Timken
Company  accounted for  approximately 6% of our net sales in 2004.  During 2004,
our ten largest  customers  accounted for  approximately 79% of our consolidated
net sales. None of our other customers  individually  accounted for more than 5%
of our consolidated net sales for 2004. 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  operating  profit  margin  and cash  flows  from
operations.

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:

                                       13




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  will  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  three-fourths
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, in 2000
and acquired  our bearing seal  operations  in 2001.  During 2002,  we purchased
INA's minority interest in NN Europe and during 2003 we purchased SKF's minority
interest  in NN Europe and SKF's  tapered  roller  and metal cage  manufacturing
operations  in  Veenendaal,  The  Netherlands.  See  Note  2  of  the  Notes  to
Consolidated  Financial  Statements.  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.

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.

                                       14



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. Our ball and roller  production  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;

o    domestic and international economic, legal and regulatory factors unrelated
     to our performance; and

o    loss of a major customer.

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.

                                       15



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.

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    Regulatory compliance

          o    Energy

o    Raw material availability

o    Trends related to the 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

                                       16


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  2004,  sales  of  balls  and  rollers  accounted  for
approximately  77% of the  Company's  total net sales  with 60% and 17% of sales
from balls and rollers, respectively. Sales of metal bearing retainers accounted
for 6% and sales of precision  molded plastic and rubber parts accounted for the
remaining 17%. See Note 11 of the Notes to Consolidated Financial Statements.

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 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.

In 1997, we recognized  changing  dynamics in the marketplace,  and as a result,
developed and began implementing an extensive long-term growth strategy building
upon our core business and leveraging our inherent strengths to better serve our
global  customer  base.  As part of this  strategy,  we  sought to  augment  our
intrinsic growth with complementary acquisitions that fit specific criteria.

On July 4, 1999, we acquired  substantially all of the assets of Earsley Capital
Corporation,  formerly  known as  Industrial  Molding  Corporation  ("IMC")  for
consideration  of  approximately  $30.0  million.  Formed in 1947,  IMC provides
full-service  design and manufacture of plastic  injection molded  components to
the  bearing,  automotive,  electronic,  leisure and  consumer  markets  with an
emphasis on  value-added  products that take  advantage of its  capabilities  in
product  development,  tool design and tight tolerance  molding  processes.  IMC
operates two manufacturing facilities in Lubbock, Texas.

On July 31, 2000, we formed a majority owned  stand-alone  company in Europe, NN
Europe ApS ("NN  Europe"),  for the  manufacture  and sale of chrome steel balls
used for ball bearings and other products.  As a result of this transaction,  we
owned 54% of NN Europe. SKF and INA respectively each owned 23% of NN Europe. As
part of the  transaction,  NN Europe  acquired  the ball  factories  located  in
Pinerolo, Italy (previously owned by SKF), Eltmann, Germany (previously owned by
INA),  and Kilkenny,  Ireland  (previously  owned by the  Company).  Acquisition
financing of approximately 31.5 million Euro  (approximately  $29.7 million) was
drawn at  closing,  and the credit  facility  provided  for  additional  working
capital  expenditure  financing.  In  connection  with this  transaction,  total
equity, specifically additional paid in capital, increased by 10.0 million Euros
($9.3  million) to reflect  the  increase  in our  proportionate  interest in NN
Europe as related to our 54%  ownership as more fully  detailed in Note 2 to the
Consolidated Financial Statements.  We have always consolidated NN Europe due to
our majority  ownership and have accounted for the acquisitions of the Pinerolo,
Italy and Eltmann,  Germany ball  factories in a manner  similar to the purchase
method of accounting.  On December 20, 2002 we completed the purchase of the 23%
interest held by INA. We paid  approximately  13.4 million Euros ($13.8 million)
for INA/FAG's  interest in NN Europe.  The excess of the purchase  price paid to
INA for its 23% interest over fair value of INA's 23% interest in the net assets
of NN Europe of  approximately  $1.5 million has been allocated to goodwill (see
Note 2 of the Notes to  Consolidated  Financial  Statements).  On May 2, 2003 we
acquired the 23% interest in NN Europe held by SKF. We paid  approximately  13.8
million Euros ($15.6 million) for SKF's interest in NN Europe. The excess of the
purchase price paid to SKF for its 23% interest over the fair value of SKF's 23%
interest  in the net  assets of NN  Europe of  approximately  $2.1  million  was
allocated to goodwill.

On February 16, 2001, we completed  the  acquisition  of all of the  outstanding
stock of The Delta Rubber  Company,  a Connecticut  corporation  ("Delta"),  for
$22.5 million in cash. Delta provides high quality  engineered bearing seals and
other  precision-molded  rubber  products to original  equipment  manufacturers.
Delta operates two manufacturing facilities in Danielson,  Connecticut.  We have
accounted for this acquisition using the purchase method of accounting.

On  September  11,  2001,  we  announced  the closing of our  Walterboro,  South
Carolina ball  manufacturing  facility  effective December 2001. The closing was
made as part of our strategy to redistribute  our global  production in order to
better  utilize  capacity and serve the needs of our  worldwide  customers.  The
precision ball production of the Walterboro  facility has been fully absorbed by
our remaining U.S. ball & roller  manufacturing  facilities located in Erwin and
Mountain  City,  Tennessee.  In 2002 and 2001 we  recorded  before  tax  charges
associated with the closing of $1.3 million and $1.9 million,  respectively.  In
2001, this amount includes a $1.1 million before-tax charge for the recording of
impairment on our manufacturing  facility located in Walterboro,  South Carolina
and $0.8  million  related to employee  severance  costs.  In 2002,  this amount
includes a $0.6 million  before-tax  charge for the  recording of an  additional
impairment on the facility,  a $0.6 million  before-tax charge for the recording
of impairment on the machinery and equipment and a $0.1 million  charge  related
to employee  severance

                                       17


costs.  There were no  impairment  charges  related to these assets  recorded in
2003. These amounts are reflected as  restructuring  and impairment costs in the
accompanying  Consolidated  Statements of Income.  The land and building  assets
were sold during the fourth quarter of 2004. As a result,  we recorded a loss on
disposal of assets of  approximately  $0.8 million  which has been recorded as a
loss on disposal of assets, a component of income from operations. Additionally,
during  the  fourth  quarter  of 2004,  we  recorded  an  impairment  charge  of
approximately $0.1 million related to certain remaining  machinery and equipment
assets  of  this   facility.   This  amount  was  recorded  as  a  component  of
restructuring and impairment costs. The financial results of this operation have
been reflected in the Domestic Ball and Roller Segment. See Note 11 of the Notes
to Consolidated Financial Statements.

Effective  December 21, 2001, we sold our minority  interest in Jiangsu  General
Ball & Roller Company,  LTD, a Chinese ball and roller  manufacturer  located in
Rugao City, Jiangsu Province, China. To effect the transaction,  we sold our 50%
ownership in NN General,  LLC,  which owns a 60%  interest in the Jiangsu  joint
venture to our partner, General Bearing Corporation for cash of $0.6 million and
notes of $3.3 million.

On May  2,  2003  we  acquired  100%  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  financial  results of the  Veenendaal  operation  are
included in the NN Europe Segment.

On October 9, 2003, we acquired certain assets  comprised of land,  building and
machinery  and equipment of the  precision  ball  operations of KLF - Gulickaren
("KLF"),  based in  Kysucke  Nove  Mesto,  Slovakia.  We paid  consideration  of
approximately 1.7 million Euros ($2.0 million). The assets are being utilized by
our wholly-owned  subsidiary NN Slovakia based in Kysucke Nove Mesto,  Slovakia,
which began  production in 2004.  The financial  results of the  operations  are
included in our NN Europe Segment.

During 2004 we formed a wholly-owned  subsidiary,  NN Precision Bearing Products
Company,  LTD.  This  subsidiary,  which  is  expected  to begin  production  of
precision  balls during the second half of 2005,  will be located in the Kunshan
Economic and Technology  Development  Zone,  Jiangsu,  The People's  Republic of
China and is a component  of our strategy to globally  expand our  manufacturing
base.

The implementation and successful execution of this acquisition strategy to date
has allowed the Company to expand its global  presence and positions the Company
for continued global growth and expansion into core served markets.

Critical Accounting Policies

Our  significant  accounting  policies,  including the  assumptions and judgment
underlying them, are disclosed in Note 1 of the Notes to Consolidated  Financial
Statements.  These  policies  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
post-retirement  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. Accounts receivable are recorded upon recognition of a sale
of  goods  and   ownership  and  risk  of  loss  is  assumed  by  the  customer.
Substantially  all of the Company's  accounts  receivable are due primarily from
the  core  served   markets:   bearing   manufacturers,   automotive   industry,
electronics,  industrial,  agricultural and aerospace.  The Company  experienced
$0.1 million of bad debt expense  during 2002,  $0.1 million  during 2003 and $0
million  during 2004. 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 or reserves  established  when considered to be  uncollectible or at
risk of being 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

                                       18


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.

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-term 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,
appraisals  are relied  upon to assess the fair  market  value of those  assets.
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.

Results of Operations

The following table sets forth for the periods indicated selected financial data
and the  percentage  of the  Company's  net  sales  represented  by each  income
statement line item presented.



                                                                    As a percentage of Net Sales
                                                                       Year Ended December 31,

                                                                2004            2003          2002
                                                            -----------     ----------     ---------
                                                                                     
Net sales                                                        100.0%         100.0%        100.0%
Cost of product sold (exclusive of depreciation shown
   separately below)                                               79.0           77.2          74.8
Selling, general and administrative expenses                        9.8            8.6           8.9
Depreciation and amortization                                       5.3            5.4           5.8
(Gain) loss on disposal of assets                                   0.3          (0.1)            --
Restructuring and impairment costs                                  0.8            1.0           0.7
                                                            -----------     ----------     ---------
Income from operations                                              4.8            7.9           9.8
Interest expense                                                    1.3            1.3           1.3
Other income                                                       (0.2)           0.1          (0.3)
                                                            -----------     ----------     ---------
Income before provision for income taxes                            3.7            6.5           8.8
Provision for income taxes                                          1.4            2.2           3.4
Minority interest in income of consolidated subsidiary               --            0.3           1.4
                                                            -----------     ----------     ---------
Net income                                                         2.3%           4.0%          4.0%
                                                            ===========     ==========     =========


                                       19



Off Balance Sheet Arrangements

We have operating lease commitments for machinery,  office equipment,  vehicles,
manufacturing and office space which expire on varying dates. The following is a
schedule by year of future  minimum lease payments as of December 31, 2004 under
operating  leases that have initial or remaining  non-cancelable  lease terms in
excess of one year.

                    Year ended December 31,
              ------------------------------------
        2005                                          $  2,306
        2006                                             2,122
        2007                                             1,879
        2008                                             1,854
        2009                                             1,789
        Thereafter                                      15,315
                                                   -----------
              Total minimum lease payments            $ 25,265
                                                   ===========

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 second quarter or
third  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 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 December 31, 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.








                                       20

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Net Sales. Our net sales increased by $50.6 million or 20.0% from $253.5 million
in 2003 to $304.1 million in 2004. Net sales of our NN Europe Segment  increased
$46.8  million or 31.8% from $147.1  million in 2003 to $193.9  million in 2004.
The  impact  of a  full  year's  activity  in  2004  from  our  Veenendaal,  The
Netherlands  tapered roller and metal retainer operation acquired on May 2, 2004
accounted  for $17.2  million  of the  increase.  Impacts  of  foreign  currency
translation  within  the NN Europe  Segment  contributed  $15.9  million  of the
increase.  The remaining  increase of $13.7 million within the NN Europe Segment
is a result of increased  product  demand.  Net sales of our  Domestic  Ball and
Roller  Segment  increased  $3.0  million or 5.4% from $55.4  million in 2003 to
$58.4 million in 2004 principally due to increases in product demand.  Net sales
of our Plastic and Rubber Components Segment increased $0.8 million or 1.6% from
$50.9 million in 2003 to $51.7 million in 2003  principally  due to increases in
product demand.

Cost of Products  Sold.  Our cost of products sold increased by $44.9 million or
23.0% from $195.7  million in 2003 to $240.6  million in 2004.  Cost of products
sold of our NN Europe  Segment  increased  $39.9  million or 34.9%  from  $114.3
million in 2003 to $154.2 million in 2004. The impact of a full year's  activity
in 2004 from our Veenendaal,  The Netherlands  tapered roller and metal retainer
operation  acquired on May 2, 2004  accounted for $14.4 million of the increase.
Impacts of foreign currency translation within the NN Europe Segment contributed
$15.3 million of the increase.  The remaining  increase of $10.2 million  within
the NN Europe  Segment is a result of  increased  product  demand,  increases in
material cost and the impact of inventory  reductions.  Cost of products sold of
our Domestic Ball and Roller  Segment  increased $3.1 million or 7.9% from $39.2
million in 2003 to $42.3 million in 2004 with the total increase principally due
to increases in product demand and increases in raw material steel cost. Cost of
products  sold of our  Plastic  and Rubber  Components  Segment  increased  $1.9
million or 4.6% from $42.2 million in 2003 to $44.1 million in 2004  principally
due to increases in product demand and the impact of inventory reductions.  As a
percentage of net sales,  cost of products sold  increased from 77.2% in 2003 to
79.0% in 2004.

The price of steel has risen over the last  twelve to  eighteen  months with the
potential  for 2005 prices 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 in the form of higher unit prices
and scrap  surcharges and could adversely  impact the availability of steel. Our
contracts  with key  customers  allow us to pass a majority  of the steel  price
increases 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 $8.1 million or 37.1% from $21.7 million in
2003 to $29.8 million in 2004. Selling,  general and administrative  expenses of
our NN Europe Segment increased $4.3 million or 39.4% from $10.9 million in 2003
to $15.2 million in 2004. The impact of a full year's  activity in 2004 from our
Veenendaal, The Netherlands tapered roller and metal retainer operation acquired
on May 2, 2004  accounted for $1.5 million of the  increase.  Impacts of foreign
currency  translation  within the NN Europe Segment  contributed $1.4 million of
the  increase.  The  remaining  increase  of $1.4  million  within the NN Europe
Segment is related to 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"),  expenses  associated with our
Slovakia ball  production  facility and severance  costs.  Selling,  general and
administrative  expenses of our Domestic Ball and Roller Segment  increased $2.8
million  in 2004 over 2003  levels.  The  increase  is  principally  related  to
Sarbanes-Oxley  compliance efforts in the area of internal controls, the Level 3
program and costs associated with the start-up of NN Asia. Selling,  general and
administrative  expenses of our Plastic and Rubber Components  Segment increased
$0.5 million in 2004 over 2003 levels.  The increase is  principally  related to
the  Level  3  program  and  costs  associated  with  employee  severance.  As a
percentage of net sales, selling,  general and administrative expenses increased
from 8.6% in 2003 to 9.8% in 2004.

Depreciation and amortization.  Depreciation and amortization  expense increased
$2.3  million  or 17.8% from  $13.7  million  in 2003 to $16.1  million in 2004.
Depreciation and amortization expense of our NN Europe Segment increased $2.3 or
30.3% from $7.6  million in 2003 to $9.9 million in 2004.  Of this  amount,  the
impact of a full year's  activity in 2004 from our  Veenendaal,  The Netherlands
tapered  roller and metal retainer  operation  acquired on May 2, 2004 accounted
for $1.0 million of the increase. Impacts of foreign currency translation within
the NN Europe Segment  contributed  $0.9 million of the increase.  The remaining
increase of $0.4 million within the NN Europe Segment is related to our Slovakia
ball production facility and capital spending increases.  There was no change to
depreciation  and  amortization  expense  within  the  Domestic  Ball and Roller
Segment and the Plastic and Rubber  Components  Segment.  As a percentage of net
sales,  depreciation  and amortization  expenses  decreased from 5.4% in 2003 to
5.3% in 2004.

                                       21

(Gain)  loss on disposal  of assets.  (Gain) loss on disposal of assets  changed
$1.0  million  from a gain of $0.1  million in 2003 to a loss of $0.9 million in
2004. Within the Domestic Ball and Roller Segment,  the loss recorded in 2004 is
principally associated with the December 2004 sale of our idle Walterboro, South
Carolina land and building assets.  This ball production  facility was closed in
2001 as a part of our  ongoing  strategy  to locate  manufacturing  capacity  in
closer  proximity to our  customers.  The loss on disposal of assets was 0.3% of
net sales in 2004.

Restructuring and impairment costs. Restructuring and impairment costs decreased
by $0.1 million from $2.5 million in 2003 to $2.4 million in 2004. In 2004,  the
$2.4 million of restructuring and impairment costs is related to severance costs
and related charges for approximately 86 employees at our Eltmann,  Germany ball
production  facility,  a component of the NN Europe  Segment.  In 2003, the $2.5
million of restructuring and impairment costs are related to asset  impairments,
severance  and lease exit costs due to the  closing of our  Guadalajara,  Mexico
plastic injection molding facility. As a percentage of net sales,  restructuring
and impairment costs decreased from 1.0% in 2003 to 0.8% in 2004.

Interest expense.  Interest expense increased $0.6 million,  or 18.8%, from $3.4
million in 2003 to $4.0  million in 2004.  Of this  amount,  approximately  $0.4
million is related to the April 26, 2004 issuance of our $40.0 million aggregate
principal  amount  of senior  notes in a private  placement.  These  notes  bear
interest at a fixed rate of 4.89%. See "Liquidity and Capital Resources." Within
our NN Europe Segment,  $0.1 million is related the impacts of foreign  currency
translation.  As a percentage  of net sales,  interest  expense was unchanged at
1.3% in 2003 and 2004.

Net income.  Net income  decreased  $3.1 million or 30.2% from $10.2  million in
2003 to $7.1 million in 2004. As a percentage of net sales, net income decreased
from 4.0% in 2003 to 2.3% in 2004.

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Net Sales. Our net sales increased by $60.6 million or 31.4% from $192.9 million
in 2002 to $253.5 million in 2003. Net sales of the NN Europe Segment  increased
$56.5  million or 62.3% from  $90.7  million in 2002 to $147.2  million in 2003.
Sales from our  Veenendaal,  The  Netherlands  tapered roller and metal retainer
operation  acquired on May 2, 2003  accounted for $35.1 million of the increase.
Impacts of foreign currency translation within the NN Europe segment contributed
$18.7  million of the  increase.  The  remaining  increase of $2.7  million is a
result of increased  product  demand.  Net sales of the Domestic Ball and Roller
Segment  increased  $2.8  million  or 5.3% from  $52.6  million in 2002 to $55.4
million  in 2003.  Net  sales of the  Plastics  and  Rubber  Components  Segment
increased  $1.3 million or 2.6% from $49.6  million in 2002 to $50.9  million in
2003.  Sales  increases in these two segments are a result of increased  product
demand.

Cost of Products  Sold.  Our cost of products sold increased by $51.4 million or
35.6% from $144.3  million in 2002 to $195.7  million in 2003.  Cost of products
sold of the NN Europe  Segment  increased  $46.4  million  or 68.4%  from  $67.9
million  in 2002 to  $114.3  million  in 2003.  Cost of  products  sold from our
Veenendaal,  The  Netherlands  operation  accounted  for  $29.2  million  of the
increase and impacts of foreign currency translation accounted for $14.7 million
of the  increase.  The remaining  increase of $2.5 million  within the NN Europe
segment is principally attributed to increased product demands and material cost
increases.  Cost of  products  sold of the  Domestic  Ball  and  Roller  Segment
increased by $2.6 million due to  production  costs  associated  with  increased
product demand of approximately $1.9 million and increases in material costs and
export  costs  of  approximately  $0.7  million.  Cost of  products  sold of the
Plastics and Rubber Components  Segment increased $2.3 million due to production
costs associated with increased  product demand of  approximately  $1.0 million,
$0.1 million related to inventory  impairment  charges due to the closing of our
NN Arte business in Guadalajara, Mexico, and $1.2 million due to product mix and
insurance  expense  increases.  As a percentage of sales,  cost of products sold
increased from 74.8% in 2002 to 77.2% in 2003.

The price of steel has risen over the last  twelve to  eighteen  months with the
potential for 2005 prices to reflect even greater increases. Prior to that time,
steel prices had gradually  declined since  approximately  1997. 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
steel prices we pay in procuring our steel in the form of higher unit prices and
scrap  surcharges and could  adversely  impact the  availability  of 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 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 $4.6 million or 26.6% from $17.1  million
during 2002 to $21.7 million during 2003.  Selling,  general and  administrative
expenses of the NN Europe Segment increased $3.8 million  principally due to the
acquisition  of  Veenendaal  on May 2, 2003  contributing  $2.6  million  of the
increase and impacts of foreign currency translation accounting for $1.5 million
of the increase, offset by

                                       22


decreased spending of $0.3 million. Selling, general and administrative expenses
of the  Domestic  Ball and Roller  Segment  increased  by $0.9 million over 2002
spending  levels.  The increase is attributed to non-cash  compensation  charges
associated  with a portion of employee  stock  options  accounted  for under the
variable  accounting method of $0.4 million,  certain audit and legal charges of
$0.3 million and corporate  development  initiatives  of $0.2 million.  Selling,
general and administrative expenses decreased by $0.1 million within the Plastic
and Rubber Components  Segment. As a percentage of net sales,  selling,  general
and administrative costs decreased from 8.9% in 2002 to 8.6% in 2003.

Depreciation and Amortization.  Depreciation and amortization  expense increased
$2.5  million  or 22.1% from  $11.2  million  in 2002 to $13.7  million in 2003.
Depreciation  and amortization  expense of the NN Europe Segment  increased $2.8
million.  Of  this  amount,  $1.5  million  is  related  to the  acquisition  of
Veenendaal on May 2, 2003 and impacts of foreign currency translation  accounted
for $1.0 million of the  increase.  The other $0.3 million is related to capital
spending  increases.  Offsetting this amount was a decrease in depreciation  and
amortization  expense  in the  Plastic  and  Rubber  Components  Segment of $0.3
million related to decreased capital spending within this segment.  There was no
change to  depreciation  and  amortization  expense within the Domestic Ball and
Roller Segment.

Interest  Expense.  Interest  expense  increased $0.9 million or 38.4% from $2.5
million in 2002 to $3.4 million in 2003. Interest expense increased $0.9 million
related to additional  borrowings  necessary to fund the May 2, 2003 acquisition
of Veenendaal and $0.8 million related to the purchase of the minority interests
in NN Europe  held by  INA/FAG  and SKF on  December  20,  2002 and May 2, 2003,
respectively. Offsetting these increases was a decrease interest expense of $0.8
million due to debt principal payments and decreased interest rates.

Minority Interest in Consolidated Subsidiary.  Minority interest in consolidated
subsidiary  decreased  $2.1  million or 75.7% from $2.8  million in 2002 to $0.7
million in 2003.  The  decrease is  attributed  to the  purchase of the minority
interests  in NN Europe held by INA/FAG and SKF on December  20, 2002 and May 2,
2003, respectively. As of May 2, 2003 we became the sole owner of NN Europe.

Net Income. Net income increased $2.4 million or 31.2% from $7.8 million in 2002
to $10.2 million in 2003.  As a percentage of net sales,  net income was 4.0% in
both 2002 and 2003.

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 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")  originally  expiring on March 15, 2005, and
subsequently  extended to March 31,  2006  bearing  interest at a floating  rate
equal to LIBOR (2.56% at December 31, 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 (2.56% at December 31, 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  (2.15%  at  December  31,  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
issuance of $40 million aggregate  principal amount of senior notes in a private
placement 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  except for the  maturity  date of the
$30.0 million  revolver has been extended to March 31, 2006.  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 December 31, 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

                                       23


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 December 31, 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
December 31,  2004.  The notes are not  collateralized  except for the pledge of
stock of certain foreign subsidiaries. We incurred $0.8 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 twelve months ended December
31, 2004 and are included as a component of other (income) expense.

During May 2003,  we  completed a public  offering of 3.6 million  shares of our
stock by a group of selling  shareholders.  We did not receive any proceeds from
the sale of the shares  previously  held by the group of  selling  shareholders,
however,  the underwriters did exercise their  over-allotment  option of 533,600
shares, which were offered by us. Net proceeds received by us in connection with
the exercise of the over-allotment  option were approximately $5.1 million,  net
of issue costs. Per the terms of our credit facility, we repaid a portion of our
credit facility with these proceeds.

On October 27, 2004 we  completed  the sale of our idle  warehouse  in Kilkenny,
Ireland for approximately 1.6 million euro ($2.0 million),  net of selling costs
incurred.  As a result of this  transaction,  we  recorded a loss on disposal of
assets of  approximately  0.1  million  euro  ($0.1  million)  during the fourth
quarter  which was recorded as a component of loss on disposal of assets.  Prior
to the sale this asset was  classified  as a component  of  Property,  plant and
equipment, net. Proceeds received from the sale of this asset were used to repay
a portion of our $90 million credit facility.

To date,  cash  generated  by NN  Europe  and its  subsidiaries  has  been  used
exclusively for general,  NN Europe-specific  purposes including  investments in
property,  plant and  equipment and  prepayment of the Euro term loan,  which is
secured by NN Europe and its subsidiaries.  Accordingly,  no dividends have been
declared or paid by NN Europe that may have been used by the Company to pay down
our domestic credit facilities.

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 90 or 120 days following the date
of shipment.  Under the Domestic Ball and Roller Segments  inventory  management
program with certain European  customers,  payments  typically are due within 30
days after the customer uses the product.  The Company's  sales and  receivables
can be influenced by  seasonality  due to the Company's  relative  percentage of
European business coupled with many foreign customers ceasing  production during
the month of August. For information  concerning the Company's quarterly results
of operations for the years ended December 31, 2004 and 2003, see Note 15 of the
Notes to Consolidated Financial Statements.

The Company  bills and receives  payment  from some of its foreign  customers in
Euro as well as other  currencies.  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
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 December 31, 2004, no currency  hedges
were in place.  In addition,  a  strengthening  of the U.S.  dollar  and/or Euro
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 $33.9 million at December 31, 2004 as compared to $25.7 million
at  December  31,  2003.  The ratio of  current  assets to  current  liabilities
increased  from to 1.40:1 at December  31, 2003 and 1.46:1 at December 31, 2004.
Cash flow from operations increased to $31.6 million during 2004

                                       24


from $19.5 million  during 2003 and $31.1 million during 2002.  Contributing  to
this change were principally improvements in the changes in operating assets and
liabilities  for the twelve months ended 2004 in comparison to the twelve months
ended 2003 as follows:  inventory $5.8 million, accounts receivable $1.1 million
and accounts payable $4.7 million.

During 2005, we plan to spend approximately $9.1 million on capital expenditures
related  primarily  to  equipment  and process  upgrades  and  replacements  and
approximately $7.9 million  principally  related to geographic  expansion of our
manufacturing  base. We intend to finance these  activities  with cash generated
from  operations and funds available  under our credit  facilities.  The Company
believes that funds  generated from operations and borrowings will be sufficient
to finance the Company's working capital needs,  projected  capital  expenditure
requirements and dividend payments through December 2005.

The table below sets forth certain of the Company's contractual  obligations and
commercial commitments as of December 31, 2004:


=========================== ===============================================================================
         Certain                                        Payments Due by Period
 Contractual Obligations
=========================== ===============================================================================
                                 Total        Less than 1      1-3 years       3-5 years     After 5 years
                                                 year
                                                                                     

Long-Term Debt                     $ 74,670        $ 7,160          $25,720         $13,219         $28,571
=========================== ================ ============== ================ =============== ==============
Expected interest payments           15,091          3,293            4,915           3,390           3,493
=========================== ================ ============== ================ =============== ==============
Operating Leases                     25,265          2,306            4,001           3,643          15,315
=========================== ================ ============== ================ =============== ==============
Capital Leases (1)                    4,150            104              416             416           3,214
=========================== ================ ============== ================ =============== ==============
Expected pension
contributions and benefit
payments                              5,978            468            1,056           1,134           3,320
=========================== ================ ============== ================ =============== ==============
Other Long-Term
Obligations (2)                      44,710         44,710               --              --              --
=========================== ================ ============== ================ =============== ==============
Total Contractual Cash
Obligations                        $169,864        $58,041          $36,108         $21,802         $53,913
=========================== ================ ============== ================ =============== ==============


(1) 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 second 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 December 31, 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
of extend the lease term. Although no amounts have been recorded related to this
lease  agreement in our  consolidated  financial  statements  as of December 31,
2004,  the Capital  Leases line in the table above reflects the obligation as if
the lease was recorded as of June 1, 2005, the date we estimate the Company will
begin to use the  property.  No other  amounts are  included  in Capital  Leases
above.

(2) Other Long-Term  Obligations consist of steel purchase commitments at the NN
Europe Segment (See Note 14 of the Notes to Consolidated Financial Statements.)

The Euro

The  Company  currently  has  operations  in  Ireland,  Germany,  Italy  and The
Netherlands,  all of which are Euro participating countries,  and, each facility
sells product to customers in many of the participating  countries. The Euro has
been  adopted  as the  functional  currency  at all  locations  in the NN Europe
Segment,  except  Slovakia  whose  functional  currency  is the  Slovak  Korona.
Slovakia  joined  the  European  Union in May 2004 and  current  plans  call for
Slovakia to adopt the Euro as its functional currency at a later date.

                                       25



Seasonality and Fluctuation in Quarterly Results

The Company's  net sales  historically  have been  seasonal in nature,  due to a
significant  portion of the  Company's  sales being to European  customers  that
cease  or  significantly  slow  production  during  the  month  of  August.  For
information  concerning  the Company's  quarterly  results of operations for the
years ended December 31, 2004 and 2003, see Note 15 of the Notes to Consolidated
Financial Statements.

Inflation and Changes in Prices

While the Company's  operations have not been  materially  affected by inflation
during recent  years,  prices for 52100 Steel,  engineered  resins and other raw
materials  purchased  by  the  Company  are  subject  to  material  change,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Overview and Management Focus". 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.  In our 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 and annual pricing  adjustments to offset material
price  fluctuations  in steel and quarterly  scrap  surcharge  adjustments.  The
Company typically reserves the right to increase product prices  periodically in
the event of increases in its raw material  costs.  In the past, the Company has
been able to  minimize  the impact on its  operations  resulting  from the 52100
Steel price fluctuations by taking such measures. However, by contract, material
price  changes  in any given year are passed  along  with price  adjustments  in
January of the following year.  Certain sales  agreements are in effect with SKF
and INA, which provide for minimum  purchase  quantities  and specified,  annual
sales price  adjustments that may be modified up or down for changes in material
costs. These agreements expire during 2006 and 2008.

Recently Issued Accounting Standards

On December 16,  2004,  the FASB issued SFAS No.  123R,  "Share-Based  Payment,"
which  requires  companies  to expense the value of employee  stock  options and
similar awards and establishes  standards for the accounting for transactions in
which an entity  exchanges its equity  instruments  for goods.  SFAS No. 123R is
effective  for  interim  and annual  periods  beginning  after June 15, 2005 and
applies  to all  outstanding  and  unvested  share-based  payment  awards.  This
Statement  requires a public  entity to measure  the cost of  employee  services
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award (with limited exceptions).  That cost will be recognized
over the period  during  which an employee  is  required  to provide  service in
exchange for the award (usually the vesting period). We are currently evaluating
the impacts of SFAS No. 123R on the Company's consolidated financial statements.

In  December  2003 the FASB issued SFAS No.  132R  (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 132R 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 and
expected benefit payments,  SFAS No. 132R was effective for financial statements
with fiscal  years  ending after  December  15,  2003.  Disclosure  requirements
related to foreign plans and expected  benefit payments are effective for fiscal
years ending after  December 15, 2004. As of December 31, 2004, we have complied
with the requirement of SFAS No. 132R.

On May  19,  2004,  the  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 Act did not have a material effect on the Company's Financial
Statements.

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs". SFAS No. 151
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). SFAS No. 151 requires

                                       26



these items be recognized as current-period  charges. In addition,  SFAS No. 151
requires the allocation of fixed production overheads to the costs of conversion
be based on the normal capacity of the production facilities.  This statement is
effective  for fiscal  years  beginning  after June 15, 2005.  We are  currently
evaluating the impact of SFAS No. 151 on the Company's Financial Statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
an amendment of APB Opinion No. 29". SFAS No. 153  eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary  Transactions,
and  replaces it with an exception  for  exchanges  that do not have  commercial
substance.  This Statement specifies that a nonmonetary  exchange has commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change
significantly as a result of the exchange.  The provisions of this Statement are
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15, 2005. We are currently  evaluating  the impact of SFAS 153 on the
Company's Financial Statements.

Deduction for Qualified Domestic Production Activities

On October 22, 2004, the President signed the American Jobs Creation Act of 2004
(the "Act").  The Act provides a deduction  for income from  qualified  domestic
production  activities,  which  will be  phased in from 2005  through  2010.  In
return,  the  Act  also  provides  for a  two-year  phase  out of  the  existing
extra-territorial income exclusion (ETI) for foreign sales that was viewed to be
inconsistent  with  international  trade protocols by the European Union. We are
not yet in a position  to  determine  the net effect of the phase out of the ETI
and the  phase in of this new  deduction  on the  effective  tax rate in  future
years.  We expect to be in a position to finalize our assessment by December 31,
2005.

Under the  guidance in FASB Staff  Position No. FAS 109-1,  Application  of FASB
Statement  No.  109,  "Accounting  for Income  Taxes," to the Tax  Deduction  on
Qualified  Production  Activities  Provided by the American Jobs Creation Act of
2004,  issued and effective on December 21, 2004,  the deduction will be treated
as a "special  deduction" as described in FASB  Statement No. 109. As such,  the
special deduction has no effect on deferred tax assets and liabilities  existing
at the enactment date.  Rather, the impact of this deduction will be reported in
the period in which qualifying activities occur.

Repatriation of Foreign Earnings

On October 22, 2004, the President signed the American Jobs Creation Act of 2004
(the "Act").  The Act creates a temporary  incentive  for U.S.  corporations  to
repatriate accumulated income earned abroad by providing an 85 percent dividends
received deduction for certain dividends from controlled  foreign  corporations.
The deduction is subject to a number of limitations and  uncertainty  remains as
to how to interpret numerous provisions in the Act. As such, we are not yet in a
position to decide on whether,  and to what extent, we might repatriate  foreign
earnings  that  have not yet been  remitted  to the U.S.  We  expect  to be in a
position to finalize our  assessment  by December 31, 2005. On December 21, 2004
the FASB issued FSP No.  109-2,  "Accounting  and  Disclosure  Guidance  for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004",  effective on the date of  issuance,  and sets forth  certain  disclosure
requirements  for an enterprise that has not yet completed its evaluation of the
repatriation provision.  The disclosure requirements are discussed in Note 12 of
the Notes to Consolidated Financial Statements.


                                       27


Item 7A. 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 December
31, 2004, these borrowings  included $40.0 million aggregate principal amount of
senior notes, a $30 million  revolving credit facility,  and a 26.3 million Euro
($29.6  million)  term loan which was used to  maintain  liquidity  and fund our
business  operations.  At December 31, 2004, we had $40.0 million outstanding of
senior notes, $11.4 million outstanding under the domestic credit facilities and
NN Europe had 17.1 million Euro ($23.3 million)  outstanding under the Euro term
loan. At December 31, 2004, a one-percent  increase in the interest rate charged
on our  outstanding  borrowings  under both credit  facilities  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 a new
$90 million syndicated 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.,  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.

Translation  of the  Company's  operating  cash  flows  denominated  in  foreign
currencies  is  impacted  by changes in foreign  exchange  rates.  Our NN Europe
Segment bills and receives  payment from some of its foreign  customers in their
own currency. To date, the Company has 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 periodically  used foreign currency hedges.  These currency hedging programs
allow  management to hedge currency  exposures when these exposures meet certain
discretionary  levels.  The  Company  did not  hold a  position  in any  foreign
currency hedging instruments as of December 31, 2004.


                                       28



Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

Financial Statements                                                   Page

         Report of Independent Registered Public Accounting Firm
         for the years ended December 31, 2004 and 2003.................30

         Report of Independent Registered Public Accounting Firm
         for the year ended December 31, 2002...........................32

         Consolidated Balance Sheets at December 31, 2004 and 2003......33

         Consolidated Statements of Income and Comprehensive Income
         for the years ended December 31, 2004, 2003 and 2002...........34

         Consolidated Statements of Changes in Stockholders' Equity
         for the years ended December 31, 2004, 2003 and 2002...........35

         Consolidated Statements of Cash Flows for the years
         ended December 31, 2004, 2003 and 2002.........................36

         Notes to Consolidated Financial Statements.....................37














                                       29


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

To the Board of Directors and Shareholders' of NN, Inc.:

We have completed an integrated audit of NN, Inc.'s 2004 consolidated  financial
statements and of its internal  control over financial  reporting as of December
31,  2004  and an  audit  of  its  2003  consolidated  financial  statements  in
accordance with the standards of the Public Company  Accounting  Oversight Board
(United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements
- ---------------------------------

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial  position of NN,
Inc.  and its  subsidiaries  at December  31, 2004 and 2003,  and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with accounting  principles  generally accepted in the United States of America.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
the standards of the Public Company Accounting  Oversight Board (United States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit of financial  statements includes  examining,  on a test
basis,  evidence  supporting  the  amounts  and  disclosures  in  the  financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting
- -----------------------------------------

Also, in our opinion,  management's assessment,  included in Management's Report
on Internal Control Over Financial  Reporting  appearing under Item 9A, that the
Company  maintained  effective  internal control over financial  reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  (COSO), is fairly stated, in all material  respects,  based on those
criteria.  Furthermore,  in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004, based on criteria  established in Internal Control - Integrated  Framework
issued by the COSO.  The Company's  management is  responsible  for  maintaining
effective  internal  control over financial  reporting and for its assessment of
the   effectiveness   of  internal   control  over  financial   reporting.   Our
responsibility  is to express  opinions on  management's  assessment  and on the
effectiveness of the Company's  internal control over financial  reporting based
on our  audit.  We  conducted  our  audit of  internal  control  over  financial
reporting in  accordance  with the  standards of the Public  Company  Accounting
Oversight  Board  (United  States).  Those  standards  require  that we plan and
perform  the  audit to  obtain  reasonable  assurance  about  whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects.  An  audit of  internal  control  over  financial  reporting  includes
obtaining  an  understanding  of  internal  control  over  financial  reporting,
evaluating  management's  assessment,  testing  and  evaluating  the  design and
operating   effectiveness  of  internal  control,   and  performing  such  other
procedures as we consider  necessary in the  circumstances.  We believe that our
audit provides a reasonable basis for our opinions.


                                       30


A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (i) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions of the assets of the company;  (ii)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company;  and (iii) provide  reasonable  assurance  regarding  prevention or
timely  detection  of  unauthorized  acquisition,  use,  or  disposition  of the
company's assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

/s/PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 15, 2005























                                       31



             Report of Independent Registered Public Accounting Firm
             --------------------------------------------------------

The Board of Directors
NN, Inc.:

We  have  audited  the  accompanying   consolidated  statements  of  income  and
comprehensive  income,  consolidated  statements  of  changes  in  stockholders'
equity, and consolidated statements of cash flows of NN, Inc. for the year ended
December  31,   2002.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the results of operations and the cash flows
of NN,  Inc.  for the year  ended  December  31,  2002 in  conformity  with U.S.
generally accepted accounting principles.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
changed its method of  accounting  for goodwill and other  intangible  assets in
2002.



/s/ KPMG LLP

Charlotte, North Carolina
February 24, 2003







                                       32


                                    NN, Inc.
                           Consolidated Balance Sheets
                           December 31, 2004 and 2003
                      (In thousands, except per share data)



Assets                                                                            2004             2003
                                                                            ------------     -------------
                                                                                           
Current assets:
         Cash and cash equivalents                                             $  10,772         $   4,978
         Accounts receivable, net                                                 51,597            40,864
         Inventories, net                                                         35,629            36,278
         Income tax receivable                                                     4,401             1,482
         Other current assets                                                      4,787             4,698
         Current deferred tax asset                                                1,152             1,601
                                                                            ------------     -------------
                  Total current assets                                           108,338            89,901

Property, plant and equipment, net                                               131,169           128,996
Assets held for sale                                                                  --             1,805
Goodwill                                                                          44,457            42,893
Non-current deferred tax asset                                                     1,629                --
Other non-current assets                                                           4,276             4,304
                                                                            ------------     -------------
Total assets                                                                   $ 289,869         $ 267,899
                                                                            ============     =============
Liabilities and Stockholders' Equity
Current liabilities:
         Accounts payable                                                      $  45,217         $  32,867
         Accrued salaries, wages and benefits                                     16,332            12,032
         Income taxes                                                              1,599             1,332
         Short term loans                                                             --             2,000
         Current maturities of long-term debt                                      7,160            12,725
         Other liabilities                                                         4,123             3,220
                                                                            ------------     -------------
                  Total current liabilities                                       74,431            64,176

Non-current deferred tax liability                                                17,857            13,423
Long-term debt                                                                    67,510            69,752
Accrued pension and other                                                         14,931            14,080
                                                                            ------------     -------------
Total liabilities                                                                174,729           161,431
                                                                            ------------     -------------

Commitments and Contingencies (Note 14)

Stockholders' equity:
         Common stock - $0.01 par value, authorized 45,000 shares, issued and
           outstanding 16,777 shares in 2004 and,

           16,712 shares in 2003                                                     168               168
         Additional paid-in capital                                               53,423            52,960
         Retained earnings                                                        45,676            43,931
         Accumulated other comprehensive income                                   15,873             9,409
                                                                            ------------     -------------
                  Total stockholders' equity                                     115,140           106,468
                                                                            ------------     -------------
                  Total liabilities and stockholders' equity                   $ 289,869         $ 267,899
                                                                            ============     =============


          See accompanying notes to consolidated financial statements


                                       33



                                    NN, Inc.
           Consolidated Statements of Income and Comprehensive Income
                  Years ended December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)


                                                                                     2004            2003             2002
                                                                                ------------     -----------      -----------
                                                                                                            
Net sales                                                                           $304,089        $253,462         $192,856
Cost of products sold (exclusive of depreciation shown separately below)             240,580         195,658          144,274
Selling, general and administrative                                                   29,755          21,700           17,134
Depreciation and amortization                                                         16,133          13,691           11,212
(Gain) loss on disposal of assets                                                        856            (147)             (25)
Restructuring and impairment costs                                                     2,398           2,490            1,277
                                                                                ------------     -----------     ------------
Income from operations                                                                14,367          20,070           18,984

Interest expense                                                                       4,029           3,392            2,451
Other (income) expense                                                                  (853)             99             (462)
                                                                                ------------     -----------     ------------
Income before provision for income taxes                                              11,191          16,579           16,995
Provision for income taxes                                                             4,089           5,726            6,457
Minority interest in consolidated subsidiaries                                            --             675            2,778
                                                                                ------------     -----------     ------------
Net income                                                                           $ 7,102        $ 10,178         $  7,760
                                                                                ------------     -----------     ------------

Other comprehensive income (loss):
         Additional minimum pension liability, net of tax                               (200)           (177)             (28)
         Unrealized holding gain on securities                                            73              --               --
         Foreign currency translation                                                  6,591          11,273            3,763
                                                                                ------------     -----------     ------------
                  Comprehensive income                                              $ 13,566        $ 21,274         $ 11,495
                                                                                ============     ===========     ============
Basic income per share:
         Net income                                                                  $  0.42         $  0.64          $  0.51
                                                                                ============     ===========     ============
         Weighted average shares outstanding                                          16,728          15,973           15,343
                                                                                ============     ===========     ============
Diluted income per share:
         Net income                                                                  $  0.41         $  0.62          $  0.49
                                                                                ============     ===========     ============
         Weighted average shares outstanding                                          17,151          16,379           15,714
                                                                                ============     ===========     ============
Cash dividends per common share                                                      $  0.32         $  0.32          $  0.32
                                                                                ============     ===========     ============



















           See accompanying notes to consolidated financial statements


                                       34


                                    NN, Inc.
           Consolidated Statements of Changes in Stockholders' Equity
                  Years ended December 31, 2004, 2003 and 2002
                                 (In thousands)




                                            Common Stock                                         Accumulated
                                       ------------------------        Additional                   Other
                                          Number         Par         Paid-In       Retained     Comprehensive
                                       of shares        Value         Capital      Earnings      (Loss) Gain           Total
                                       ------------  ----------    ------------  -----------   ---------------    -----------
                                                                                                   

Balance, December 31, 2001                 15,317       $154         $40,111       $36,139        $ (5,422)          $ 70,982
    Shares issued                              53         --             346            --              --                346
      Net income                               --         --              --         7,760              --              7,760
      Dividends declared                       --         --              --        (4,915)             --             (4,915)
      Additional minimum pension liability     --         --              --            --             (28)               (28)
      Cumulative translation gain              --         --              --            --           3,763              3,763
                                       ----------    -------       ---------     ---------     -----------        -----------

Balance, December 31, 2002                 15,370       $154         $40,457       $38,984        $ (1,687)          $ 77,908
      Shares issued                         1,342         14          12,503            --              --             12,517
      Net income                               --         --              --        10,178              --             10,178
      Dividends declared                       --         --              --        (5,231)             --             (5,231)
      Additional minimum pension liability     --         --              --            --            (177)              (177)
      Cumulative translation gain              --         --              --            --          11,273             11,273
                                       ----------    -------       ---------     ---------     ------------       -----------

Balance, December 31, 2003                 16,712      $ 168         $52,960       $43,931        $  9,409           $106,468
      Shares issued                            65         --             463            --              --                463
      Net income                               --         --              --         7,102              --              7,102
      Dividends declared                       --         --              --        (5,357)             --             (5,357)
      Additional minimum pension liability     --         --              --            --            (200)              (200)
      Unrealized holding gain                  --         --              --            --              73                 73
      Cumulative translation gain              --         --              --            --           6,591              6,591
                                       ----------    -------        --------     ---------     -----------        -----------

Balance, December 31, 2004                 16,777      $ 168         $53,423       $45,676        $ 15,873           $115,140
                                       ==========    =======        ========     =========     ===========        ===========




















           See accompanying notes to consolidated financial statements



                                       35



                                    NN, Inc.
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2004, 2003 and 2002
                                 (In Thousands)



                                                                                          2004             2003             2002
                                                                                     ------------    -------------     ------------
                                                                                                                  

 Cash flows from operating activities:
      Net Income                                                                         $ 7,102         $ 10,178          $ 7,760
      Adjustments to reconcile net income to net cash provided by operating
      activities:
      Depreciation and amortization                                                       16,133           13,691           11,212
      Amortization of debt issue costs                                                       220              212              260
      (Gain) loss on disposals of property, plant and equipment                              856            (147)              (25)
      Allowance for doubtful accounts                                                         22              158              138
      Write-off of unamortized debt issue costs                                              260              455               --
      Deferred income taxes                                                                3,254            3,888            2,564

      Minority interest in consolidated subsidiary                                            --              675            2,778
      Restructuring costs and impairment costs                                             2,398            2,328            1,199
      Changes in operating assets and liabilities:
               Accounts receivable                                                        (8,123)          (9,242)          (3,728)
               Inventories                                                                 2,059          (3,711)            1,479
               Income tax receivable                                                      (2,878)            (458)              --
               Other current assets                                                          111          (1,047)            4,795
               Other assets                                                                 (799)          (1,578)              35
               Accounts payable                                                            9,782            5,118            5,535
               Other liabilities                                                           1,175           (1,059)          (2,915)
                                                                                      ------------    -------------     ------------
                    Net cash provided by operating activities                             31,572           19,461           31,087
                                                                                      ------------    -------------     ------------
Cash flows from investing activities:
      Acquisition of businesses, net of cash acquired                                         --          (21,435)              --
      Purchase of minority interest                                                           --          (15,586)         (13,802)
      Acquisition of property, plant and equipment                                       (12,162)         (11,429)          (7,591)
      Long-term note receivable                                                              200              200              200
      Proceeds from disposals of property, plant and equipment                             2,342              212               65
                                                                                      ------------    -------------     ------------
               Net cash used by investing activities                                      (9,620)         (48,038)         (21,128)
                                                                                      ------------    -------------     ------------
Cash flows from financing activities:
      Proceeds from long-term debt                                                        40,000           90,332           13,802
      Debt issue costs paid                                                                 (839)            (939)              --
      Bank overdrafts                                                                         --               37           (1,103)
      Repayment of long-term debt                                                        (49,408)         (64,196)         (16,708)
      Proceeds (repayment) of short-term debt                                             (2,000)           2,000               --
      Proceeds from issuance of stock and exercise of stock options                          463            5,579              346
      Cash dividends                                                                      (5,357)          (5,231)          (4,915)
                                                                                      ------------    ------------      ------------
               Net cash provided (used) by financing activities                          (17,141)          27,582           (8,578)
                                                                                      ------------    ------------      ------------

   Effect of exchange rate changes                                                           983              829              739

      Net change in cash and cash equivalents                                              5,794             (166)           2,120
      Cash and cash equivalents at beginning of period                                     4,978            5,144            3,024
                                                                                      ------------    ------------      ------------
      Cash and cash equivalents at end of period                                        $ 10,772          $ 4,978          $ 5,144
                                                                                        ============    =============   ============
Supplemental schedule of non-cash investing and financing activities:
      Stock issued related to acquisition of Veenendaal                                 $     --          $ 6,938           $   --
Cash paid for interest and income taxes was as follows:
      Interest                                                                          $  3,318          $ 2,496          $ 1,965
      Income taxes                                                                         4,887            4,371            4,774


           See accompanying notes to consolidated financial statements


                                       36


                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

1)   Summary of Significant Accounting Policies and Practices

     (a)  Description of Business

     NN, Inc. (the "Company") is a manufacturer of precision balls,  cylindrical
     and tapered rollers, bearing retainers,  plastic injection molded products,
     and precision bearing seals. The Company's balls, rollers,  retainers,  and
     bearing  seals  are  used  primarily  in  the  domestic  and  international
     anti-friction  bearing  industry.  The Company's  plastic  injection molded
     products are used in the  bearing,  automotive,  instrumentation  and fiber
     optic industries.  The Domestic Ball and Roller Segment is comprised of two
     manufacturing facilities located in the eastern United States, our start-up
     operations in The People's  Republic of China and  corporate  office costs.
     The Company's NN Europe  Segment is comprised of  manufacturing  facilities
     located  in  Kilkenny,   Ireland,   Eltmann,   Germany,   Pinerolo,  Italy,
     Veenendaal,  The Netherlands and Kysucke Nove Mesto, Slovakia. 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. The facilities in the NN Europe Segment are engaged in
     the production of precision balls, tapered rollers and metal retainers. The
     Plastic  and Rubber  Components  Segment  consists  of  Industrial  Molding
     Corporation  ("IMC"),  acquired in July 1999 and Delta Rubber,  acquired in
     February 2001. IMC has two production  facilities in Texas and Delta Rubber
     has two  production  facilities  in  Connecticut  (see Note 2).  All of the
     Company's segments sell to foreign and domestic customers.

     (b)  Cash and Cash Equivalents

     The  Company  considers  all highly  liquid  investments  with an  original
     maturity of three months or less as cash equivalents.

     (c)  Inventories

     Inventories  are  stated at the lower of cost or market.  Actual  costs are
     evaluated and do not exceed the lower of cost or market. Cost is determined
     using the first-in,  first-out  method.  The Company accounts for inventory
     under a full absorption  method,  and accordingly,  our inventory  carrying
     value includes cost elements of material, labor and overhead.

     Inventories  include tools,  molds and dies in progress that the Company is
     producing  and will  ultimately  sell to its  customers.  This  activity is
     principally related to our Plastic and Rubber Components Segment.  They are
     carried at the lower of cost or market.

     (d)  Property, Plant and Equipment

     Property,   plant  and  equipment  are  stated  at  cost  less  accumulated
     depreciation.  Assets  held for sale  are  stated  at lower of cost or fair
     market value less estimated selling costs. Expenditures for maintenance and
     repairs are charged to expense as incurred.  Major renewals and betterments
     are  capitalized.  When a major  property  item is  retired,  its  cost and
     related accumulated depreciation are removed from the property accounts and
     any gain or loss is  recorded  in the  statement  of  income.  The  Company
     reviews the carrying  values of long-lived  assets for impairment  whenever
     events or changes in circumstances indicate the carrying amount of an asset
     may not be recoverable.  During the years ended December 31, 2004, 2003 and
     2002,  the Company  recorded an  impairment  charge of $108,  $0 and $1,199
     respectively,  to  write-down  the  land,  building  and  equipment  at the
     Walterboro,  SC production  facility to its net realizable value, which was
     principally  based upon fair market value  appraisals and  valuations.  The
     land and building  assets were sold at a loss during the fourth  quarter of
     2004. As a result, we recorded a loss of approximately  $750 which has been
     recorded  as a loss on  disposal  of assets,  a  component  of income  from
     operations. Additionally, during the fourth quarter of 2004, we recorded an
     impairment  charge of  approximately  $108  related  to  certain  remaining
     machinery and equipment  assets of this facility.  This amount was recorded
     as a component restructuring and impairment costs. As of December 31, 2003,
     the carrying value of this land, building and equipment was classified as a
     component of assets held for sale in the accompanying  financial statements
     at $1,805.

                                       37


                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     Property,  plant and equipment  includes tools,  molds and dies principally
     used in our Plastic and Rubber Components  Segment that are the property of
     the Company. These assets are stated at cost less accumulated depreciation.

     Depreciation is provided  principally on the straight-line  method over the
     estimated  useful lives of the depreciable  assets for financial  reporting
     purposes.   Accelerated  depreciation  methods  are  used  for  income  tax
     purposes.

     (e)  Revenue Recognition

     The  Company  generally  recognizes  a sale when goods are  shipped and the
     risks of ownership  are  transferred  to the  customer.  The Company has an
     inventory  management  program for certain major ball and roller  customers
     whereby  sales are  recognized  when products are used by the customer from
     consigned  stock,  rather  than  at  the  time  of  shipment.   Under  both
     circumstances,  revenue  is  recognized  when  persuasive  evidence  of  an
     arrangement   exists,   delivery  has  occurred,   the  sellers'  price  is
     determinable and collectibility is reasonably assured.

     (f)  Income Taxes

     Income  taxes are  accounted  for under  the  asset and  liability  method.
     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases and  operating  loss and tax credit  carryforwards.  Deferred tax
     assets and  liabilities  are measured  using enacted tax rates  expected to
     apply to taxable income in the years in which those  temporary  differences
     are expected to be recovered or settled.  The effect on deferred tax assets
     and  liabilities  of a change in tax rates is  recognized  in income in the
     period that includes the enactment date.

     (g)  Net Income Per Common Share

     Basic earnings per share reflect reported  earnings divided by the weighted
     average  number of common shares  outstanding.  Diluted  earnings per share
     include the effect of dilutive stock options outstanding during the year.

     (h)  Stock Incentive Plan

     The  Company  applies  the  intrinsic   value-based  method  of  accounting
     prescribed  by  Accounting   Principles   Board  ("APB")  Opinion  No.  25,
     "Accounting  for Stock Issued to  Employees,"  and related  interpretations
     including Financial  Accounting  Standards Board (FASB)  Interpretation No.
     44, "Accounting for Certain  Transactions  Involving Stock Compensation (an
     interpretation of APB Opinion No. 25)" issued in March 2000, to account for
     its fixed plan stock options.  Under this method,  compensation  expense is
     recorded  on the  date of grant  only if the  current  market  price of the
     underlying  stock exceeds the exercise price.  The Company also applies the
     provision of APB Opinion No. 25 to its variable stock options. Statement of
     Financial  Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
     Compensation,"  established accounting and disclosure  requirements using a
     fair value-based method of accounting for stock-based employee compensation
     plans.

     We have  elected to continue  accounting  for our stock  compensation  plan
     using the  intrinsic  value  based  method  under APB  Opinion  No. 25 and,
     accordingly,  have not recorded  compensation expense for each of the three
     years ended December 31, 2004, except as related to stock options accounted
     for under the variable method of accounting.  Had compensation cost for the
     Company's stock  compensation  plan been determined based on the fair value
     at the option  grant dates  consistent  with the method of SFAS No. 123 and
     SFAS No. 148,  the  Company's  net income and earnings per share would have
     been as follows:

                                       38





                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)


                                                                                Year ended December 31,
                                                                          2004          2003          2002
                                                                      ------------  -----------   ------------
                                                                                            
              Net income - as reported                                     $7,102     $ 10,178       $  7,760
                 Stock based compensation costs, net of income
                  tax, included in net income as reported                      27          160            (69)
                 Stock based compensation costs, net of income
                  tax, that would have been included in net
                  income if the fair value method had been
                  applied                                                    (494)      (1,001)          (488)
                                                                     ------------  -----------   ------------
              Net income - proforma                                        $6,635     $  9,337       $  7,203
                                                                     ============  ===========   ============

              Earnings per share - as reported                             $ 0.42     $   0.64       $   0.51
                 Stock based compensation costs, 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                                                  $(0.02)       (0.06)        (0.03)
                                                                      -----------  -----------   -----------
              Earnings per share - proforma                                $ 0.40     $   0.59       $  0.47
                                                                     ============  ===========   ============

              Earnings per share-assuming dilution - as reported           $ 0.41     $   0.62       $  0. 49
              Stock based compensation costs, net of income tax,
                  included in net income as reported                           --         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                    (0.02)       (0.06)         (0.03)
                                                                     ------------  -----------   ------------
              Earnings per share - assuming dilution-proforma              $ 0.39     $   0.57       $   0.46
                                                                     ============  ===========   ============


     The  fair  value  of each  option  grant  was  estimated  based  on  actual
     information  available  through  December 31, 2004, 2003 and 2002 using the
     Black Scholes option-pricing model with the following assumptions:

     Term                        Vesting period
     Risk free interest rate     3.25%, 3.38% and 3.28% for 2004, 2003 and
                                   2002, respectively
     Dividend yield              2.42%, 3.7%, and 3.2% annually for 2004, 2003
                                   and 2002, respectively
     Volatility                  48.4%, 49.8% and 50.1% for 2004, 2003 and 2002,
                                   respectively

                                       39



                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     (i)  Principles of Consolidation

          The Company's  consolidated  financial statements include the accounts
          of NN, Inc. and  subsidiaries  in which the Company owns more than 50%
          voting interest.  Unconsolidated  subsidiaries  and investments  where
          ownership  is between 20% and 50% are  accounted  for under the equity
          method.  All  significant  intercompany  profits,   transactions,  and
          balances  have  been  eliminated  in   consolidation.   The  ownership
          interests of other  shareholders  in companies  that are more than 50%
          owned,  but less than 100%  owned by the  Company,  are  reflected  as
          minority  interests.  Minority  interest in consolidated  subsidiaries
          represents  the  minority  shareholders  interest  of NN Europe ApS at
          December 31, 2002.  There were no minority  interests in  consolidated
          subsidiaries  at December 31, 2004 or December 31, 2003 as a result of
          the Company acquiring the remaining  additional interests in NN Europe
          on May 2, 2003.

     (j)  Foreign Currency Translation

          Assets and  liabilities  of the  Company's  foreign  subsidiaries  are
          translated  at  current  exchange  rates,  while  revenue,  costs  and
          expenses  are  translated  at average  rates  prevailing  during  each
          reporting period.  Translation adjustments are reported as a component
          of other comprehensive  income. Net exchange gains or losses resulting
          from the translation of foreign  financial  statements are accumulated
          with  other   comprehensive   earnings  as  a  separate  component  of
          shareholders equity.

     (k)  Goodwill and Other Intangible Assets

          Goodwill:  The Company  recognized the excess of the purchase price of
          an acquired entity over the fair value of the net identifiable  assets
          as goodwill.  Goodwill is tested for  impairment on an annual basis as
          of  October  1 and  between  annual  tests in  certain  circumstances.
          Impairment  losses are  recognized  whenever the implied fair value of
          goodwill is less than its carrying value. Goodwill is not amortized.

          Other  Acquired  Intangibles:   The  Company  recognizes  an  acquired
          intangible  asset apart from  goodwill  whenever the asset arises from
          contractual or other legal rights,  or whenever it is capable of being
          divided or separated  from the acquired  entity or sold,  transferred,
          licensed, rented, or exchanged, whether individually or in combination
          with a related contract, asset or liability. An intangible asset other
          than goodwill is amortized over its estimated  useful life unless that
          life is determined to be indefinite.  The Company reviews the lives of
          intangible assets each reporting period and, if necessary,  recognizes
          impairment  losses  if the  carrying  amount  of an  intangible  asset
          subject to amortization  is not recoverable  from expected future cash
          flows and its carrying amount exceeds its fair value.

          We completed our annual required goodwill impairment review during the
          fourth  quarter of 2002,  2003 and 2004. In performing  the impairment
          reviews,  the Company estimated the fair values of the reporting units
          using a  method  that  incorporates  valuations  derived  from  EBITDA
          multiples  based  upon  market  multiples  and recent  capital  market
          transactions  and  also  incorporates  valuations  determined  by each
          segment's  discounted  future cash flows.  As of January 1, 2002,  the
          transition  date and as of October 1, 2003 and 2004, the annual review
          dates,  there was no  impairment to goodwill as the fair values of the
          reporting units exceeded their carrying values of the reporting units.
          As a result of closing our NN Arte facility in Guadalajara, Mexico, we
          performed  a  test  of  the   recoverability  of  the  goodwill  asset
          associated  with  this  operation.  This  test  was  pursuant  to  the
          provisions  of  Statement of Financial  Accounting  Standards  No. 142
          "Goodwill  and Other  Intangible  Assets"  which  require that interim
          tests of the  recoverability  of goodwill be performed  under  certain
          circumstances.  As a  result,  we  recorded  an  impairment  charge of
          approximately  $1.3  million to fully  write-off  the  goodwill  asset
          during the twelve month period ended December 31, 2003.  There were no
          impairment  charges  recorded  as a  result  of  the  annual  goodwill
          impairment  review  during the twelve month period ended  December 31,
          2004. See Note 3.

                                       40


                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

The changes in the carrying amount of goodwill for the years ended December 31,
2003 and 2004 are as follows:


                                                        Plastic and
                                                     Rubber Components     NN Europe
            In thousands                                  Segment           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 January 1, 2004                      $ 25,755        $ 17,138          $ 42,893
            Goodwill acquired                                        --              --                --
            Impairment losses                                        --              --                --
            Currency impacts                                         --           1,564             1,564
                                                     ------------------- --------------- -----------------
            Balance as of December 31, 2004                    $ 25,755        $ 18,702          $ 44,457
                                                     =================== =============== =================

     (l)  Impairment of Long-Lived  Assets and Long-Lived  Assets to Be Disposed
          Of

          The Company  accounts for  long-lived  assets in  accordance  with the
          provisions  of SFAS No.  144,  "Accounting  for the  Impairment  of or
          Disposal of Long-Lived  Assets." Assets to be held and used are tested
          for recoverability  when indications of impairment are evident. If the
          reviewed  carrying  value  of the  asset is not  recoverable  based on
          underlying   cash  flows  related  to  specific   groups  of  acquired
          long-lived  assets,  the  asset  is  written  down  to the  lesser  of
          recoverable value or carrying value.  Assets held for sale are carried
          at the lesser of carrying  value or fair value less costs of disposal.
          The fair value of impaired  assets is  generally  determined  with the
          assistance of independent appraisals and valuations, when available.

     (m)  Use of Estimates in the Preparation of Financial Statements

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.

     (n)  Reclassifications

          Certain 2003 and 2002 amounts have been  reclassified  to conform with
          the 2004 presentation.

     (o)  Derivative Financial Instruments

          In June 1998, the Financial  Accounting  Standards Board (FASB) issued
          Statement  of   Financial   Accounting   Standards   (SFAS)  No.  133,
          "Accounting   for   Derivative   Instruments   and   Certain   Hedging
          Activities."  In June 2000, the FASB issued SFAS No. 138,  "Accounting
          for Certain  Derivative  Instruments and Certain Hedging Activity,  an
          Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all
          derivative  instruments  be  recorded  on the  balance  sheet at their
          respective  fair values.  SFAS No. 133 and SFAS No. 138 are  effective
          for all fiscal  quarters of all fiscal years  beginning after June 30,
          2000, which for the Company was effective January 1, 2001.

          In connection with a variable EURIBOR rate debt financing in July 2000
          the Company's majority owned subsidiary, NN Europe 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 their  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 the life of the swap.

                                                                   Continued
                                       41

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

          The interest rate swap does not qualify for hedge accounting under the
          provisions of SFAS No. 133; therefore,  the transition  adjustment for
          adoption of SFAS No. 133 and any subsequent  periodic  changes in fair
          value  of the  interest  rate  swap  are  recorded  in  earnings  as a
          component of other income.

          As of  December  31,  2004 and 2003,  the fair  value of the swap is a
          liability  of  approximately,  $167 and $360,  respectively,  which is
          recorded in other  non-current  liabilities.  The change in fair value
          during  the  years  ended  December  31,  2004  and 2003 was a gain of
          approximately  $193 and  $125,  respectively,  and for the year  ended
          December 31, 2002 the change in fair value was a loss of approximately
          $51 which has been included as a component of other income.

     (p)  Recently Issued Accounting Standards

          On December  16,  2004,  the FASB issued SFAS No.  123R,  "Share-Based
          Payment,"  which  requires  companies to expense the value of employee
          stock  options and similar  awards and  establishes  standards for the
          accounting for  transactions  in which an entity  exchanges its equity
          instruments  for goods.  SFAS No.  123R is  effective  for interim and
          annual  periods  beginning  after  June 15,  2005 and  applies  to all
          outstanding and unvested  share-based  payment awards.  This Statement
          requires a public  entity to  measure  the cost of  employee  services
          received in exchange for an award of equity  instruments  based on the
          grant-date fair value of the award (with limited exception). That cost
          will be  recognized  over  the  period  during  which an  employee  is
          required to provide  service in exchange for the  award-the  requisite
          service  period  (usually  the  vesting  period).   We  are  currently
          evaluating the impacts of SFAS No. 123R on the Company's  consolidated
          financial statements.

          In  December  2003  the FASB  issued  SFAS No.  132R  (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  132R 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 and
          expected  benefit  payments,  SFAS No. 132R is effective for financial
          statements   with  fiscal  years  ending  after   December  15,  2003.
          Disclosure  requirements related to foreign plans and expected benefit
          payments are  effective  for fiscal  years  ending after  December 15,
          2004. As of December 31, 2004, we have complied with the  requirements
          of SFAS No. 132R.

          On May 19, 2004,  the 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 Act did not have
          a material effect on the company's financial statements.

          In November  2004,  the FASB issued SFAS No. 151,  "Inventory  Costs".
          SFAS No. 151 clarifies  the  accounting  for abnormal  amounts of idle
          facility  expense,   freight,   handling  costs  and  wasted  material
          (spoilage).  SFAS  No.  151  requires  these  items be  recognized  as
          current-period  charges.  In  addition,  SFAS  No.  151  requires  the
          allocation of fixed production overheads to the costs of conversion be
          based  on the  normal  capacity  of the  production  facilities.  This
          statement is effective for fiscal years beginning after June 15, 2005.
          We  are  currently  evaluating  the  impact  of  SFAS  No.  151 on the
          company's financial statements.

                                       42
                                                                  Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

          In  December  2004,  the FASB  issued  SFAS  No.  153,  "Exchanges  of
          Nonmonetary  Assets an amendment of APB Opinion No. 29".  SFAS No. 153
          eliminates the exception from fair value  measurement  for nonmonetary
          exchanges  of  similar  productive  assets in  paragraph  21(b) of APB
          Opinion No. 29, Accounting for Nonmonetary Transactions,  and replaces
          it  with an  exception  for  exchanges  that  do not  have  commercial
          substance.  This Statement  specifies that a nonmonetary  exchange has
          commercial  substance  if the  future  cash  flows of the  entity  are
          expected  to change  significantly  as a result of the  exchange.  The
          provisions  of this  Statement are  effective  for  nonmonetary  asset
          exchanges  occurring in fiscal periods  beginning after June 15, 2005.
          We are  currently  evaluating  the impact of SFAS 153 on the Company's
          Financial Statements.

          Deduction for Qualified Domestic Production Activities

          On October 22, 2004,  the President  signed the American Jobs Creation
          Act of 2004 (the "Act").  The Act provides a deduction for income from
          qualified domestic production activities, which will be phased in from
          2005 through  2010.  In return,  the Act also  provides for a two-year
          phase out of the existing extra-territorial income exclusion (ETI) for
          foreign sales that was viewed to be  inconsistent  with  international
          trade protocols by the European Union. We are not yet in a position to
          determine  the net effect of the phase out of the ETI and the phase in
          of this new deduction on the  effective  tax rate in future years.  We
          expect to be in a position to finalize our  assessment by December 31,
          2005.

          Under the guidance in FASB Staff  Position No. FAS 109-1,  Application
          of FASB Statement No. 109,  "Accounting  for Income Taxes," to the Tax
          Deduction on Qualified Production  Activities Provided by the American
          Jobs Creation Act of 2004,  issued and effective on December 21, 2004,
          the deduction will be treated as a "special deduction" as described in
          FASB Statement No. 109. As such,  the special  deduction has no effect
          on deferred tax assets and liabilities existing at the enactment date.
          Rather, the impact of this deduction will be reported in the period in
          which qualifying activities occur.

          Repatriation of Foreign Earnings

          On October 22, 2004,  the President  signed the American Jobs Creation
          Act of 2004 (the  "Act").  The Act creates a temporary  incentive  for
          U.S.  corporations to repatriate  accumulated  income earned abroad by
          providing  an 85 percent  dividends  received  deduction  for  certain
          dividends  from  controlled  foreign  corporations.  The  deduction is
          subject to a number of limitations and  uncertainty  remains as to how
          to interpret  numerous  provisions in the Act. As such, we are not yet
          in a  position  to decide on  whether,  and to what  extent,  we might
          repatriate  foreign  earnings  that have not yet been  remitted to the
          U.S.  We expect to be in a position  to  finalize  our  assessment  by
          December 31, 2005. On December 21, 2004 the FASB issued FSP No. 109-2,
          "Accounting   and  Disclosure   Guidance  for  the  Foreign   Earnings
          Repatriation Provision within the American Jobs Creation Act of 2004",
          effective on the date of issuance,  and sets forth certain  disclosure
          requirements  for  an  enterprise  that  has  not  yet  completed  its
          evaluation of the repatriation provision.  The disclosure requirements
          are discussed in Note 12.

2)   Acquisitions, Purchase of Minority Interest and New Businesses

     During  2004 we formed a  wholly-owned  subsidiary,  NN  Precision  Bearing
     Products Company,  LTD, ("NN Asia)". This subsidiary,  which is expected to
     begin  precision ball  production  during the second half of 2005,  will be
     located in the Kunshan Economic and Technology  Development Zone,  Jiangsu,
     The  People's  Republic  of China and is a  component  of our  strategy  to
     globally expand our  manufacturing  base. The costs incurred as a result of
     this start-up of  approximately  $481 were expensed and are included in the
     Domestic Ball and Roller Segment.

     On October 9, 2003, we acquired certain assets comprised of land,  building
     and  machinery  and  equipment of the  precision  ball  operations of KLF -
     Gulickaren  ("KLF"),  based  in  Kysucke  Nove  Mesto,  Slovakia.  We  paid
     consideration of approximately  1,664 Euros ($1,967).  The assets are being
     utilized by our wholly owned  subsidiary AKMCH based in Kysucke Nove Mesto,
     Slovakia,  which began  production in 2004.  The  financial  results of the
     operations are included in our NN Europe Segment.

                                       43
                                                                 Continued


                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     On May 2, 2003 we acquired the 23 percent  interest in NN Europe,  ApS ("NN
     Europe")  held by SKF. We paid  approximately  13,842 Euros  ($15,586)  for
     SKF's  interest in NN Europe.  The excess of the purchase price paid to SKF
     for its 23%  interest  over the fair value of SKF's 23% interest in the net
     assets of NN Europe of approximately $2,151 was allocated to goodwill. 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  22,952
     Euros ($25,671) and incurred other costs of approximately  $1,022,  for the
     Veenendaal  net assets  acquired  from SKF. The excess of the fair value of
     the net  assets  acquired  over the  purchase  price  paid of  4,195  Euros
     ($4,692) has been allocated as a proportionate  reduction of certain assets
     acquired.  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
     financial 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  $6,937 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 table summarizes the allocation of the purchase price related
     to the assets acquired and liabilities  assumed at the date of acquisition.

                                                      At May 2, 2003
                                                      ---------------
        Current assets                                    $6,611
        Property, plant and equipment                     27,690
                                                      -------------
          Total assets acquired                           34,301
        Total liabilities                                  7,608
                                                      -------------
             Total purchase price                       $ 26,693
                                                      =============





                                       44

                                                                 Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     The following unaudited proforma summary presents the financial information
     for the twelve month periods ended  December 31, 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 the  period  presented,  nor  are  they
     indicative of future results.


                                                      Twelve months ended
                                                       December 31, 2003
                                                          (unaudited)
                                                     --------------------
                 Net sales                                     $ 270,989
                 Net income                                       10,478
                 Basic earnings per share                           0.66
                 Diluted earnings per share                         0.64

                                                      Twelve months ended
                                                        December 31, 2002
                                                              (unaudited)
                                                      -------------------
                 Net sales                                    $ 245,437
                 Net income                                       8,658
                 Basic earnings per share                          0.56
                 Diluted earnings per share                        0.55

On December 20, 2002 the Company  completed  the purchase of the 23% interest in
NN Europe,  ApS ("NN  Europe")  held by INA. NN Europe was formed in 2000 by the
Company, FAG Kugelfischer George Schaefer AG, which was subsequently acquired by
INA - Schaeffler KG (collectively,  "INA"), and AB SKF ("SKF").  INA is a global
bearing  manufacturer  and  one of  our  largest  customers.  The  Company  paid
approximately 13,400 Euro ($13,802) for INA interest in NN Europe. The excess of
the purchase  price paid to INA/FAG for its 23% interest  over the fair value of
INA's 23%  interest in the net assets of NN Europe of  approximately  $1,517 was
recorded as goodwill.

Effective  July 31,  2000,  the  Company  completed  its NN Europe  transaction.
Completion  of the  transaction  required the Company to start a majority  owned
stand-alone  company in Europe,  NN Europe ApS, for the  manufacture and sale of
precision steel balls used for ball bearings and other products.  As a result of
this  transaction the Company owned 54% of the shares of NN Europe,  ApS, AB SKF
(SKF), a Swedish Company,  and FAG, a German Company,  owned 23% each. NN Europe
ApS subsequently  acquired the steel ball  manufacturing  facilities  located in
Pinerolo, Italy (previously owned by SKF), Eltmann, Germany (previously owned by
INA) and Kilkenny, Ireland (previously owned by the Company). NN Europe ApS paid
approximately  $47,433 for the net assets originally  acquired from SKF and FAG.
The acquisitions of the Pinerolo,  Italy and Eltmann, Germany ball manufacturing
facilities  have been accounted for by the purchase  method of  accounting.  The
excess of the purchase price over the fair value of the net identifiable  assets
acquired of $8,761 was recorded as goodwill.

                                       45
                                                                 Continued



                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

Restructuring and Impairment Charges

     Eltmann, Germany Restructuring
     ------------------------------
     During the fourth  quarter of 2004, the Company's NN Europe  subsidiary,  a
     component  of the  Company's  NN Europe  Segment,  announced a reduction in
     staffing  at  its  Eltmann,   Germany  ball   production   facility.   This
     restructuring  will affect  approximately  86 employees  and is expected be
     completed during 2005. As a result, the Company has recorded  restructuring
     charges of approximately  1,700 Euro ($2,290) related to severance costs of
     approximately  $2,115 and other related charges of approximately  $175. The
     workforce  reduction is a result of the  Company's  continuing  strategy of
     rationalizing its global manufacturing  capacity and transfer of production
     principally  to its facility in Kysucke Nove Mesto,  Slovakia.  The charges
     have been recorded in  restructuring  and impairment  costs, a component of
     income from operations.

     The following  summarizes  the 2004  restructuring  charges  related to the
     restructuring at the Company's Eltmann, Germany facility:



                                                                                   Reserve Balance at
                                                 Charges       Paid in 2004           12/31/04
                                              --------------- --------------- -------------------------
                                                                            
      Severance and other employee costs           $2,290            --              $2,290
                                              --------------- --------------- -------------------------
      Total                                        $2,290            --              $2,290
                                              =============== =============== =========================

     We expect to pay all  amounts  during  2005 and no  additional  charges are
     expected  to be  incurred.  As a  result  of the  workforce  reduction  and
     rationalization of global  manufacturing  capacity,  we performed a test of
     the  recoverability  of the goodwill and long-lived  assets associated with
     the Eltmann,  Germany facility. This test was pursuant to the provisions of
     Statement of Financial  Accounting  Standards  No. 142  "Goodwill and Other
     Intangible Assets" and Statement of Financial  Accounting Standards No. 144
     "Accounting  for the  Impairment  on Disposal of  Long-Lived  Assets" which
     require  that interim  tests of asset  recoverability  be  performed  under
     certain  circumstances.  As a result  of the  test,  we  concluded  that no
     indication of impairment exists at December 31, 2004.

     NN Arte Plant Closing in Guadalajara, Mexico
     --------------------------------------------
     In May 2003, we decided to close our Guadalajara,  Mexico plastic injection
     molding facility. This operation was started in September of 2000 to supply
     certain  Mexican  operations  of  multi-national  manufacturers  of  office
     automation  equipment.  The closure was substantially  completed during the
     third quarter of 2003.  The financial  results of this  operation have been
     included in the Plastic and Rubber Components Segment.

     The plant closing resulted in the termination of approximately 42 full time
     hourly and salary employees  located at the Guadalajara  facility.  For the
     twelve  months ended  December 31, 2003 total  restructuring  costs of $230
     were recorded related to the severance payments for the affected employees.

     As a result of the closing,  we performed a test of the  recoverability  of
     the goodwill asset associated with the Guadalajara,  Mexico operation. This
     test was pursuant to the  provisions  of Statement of Financial  Accounting
     Standards No. 142 "Goodwill and Other Intangible Assets" which require that
     interim tests of the  recoverability of goodwill be performed under certain
     circumstances.   As  a  result,   we  recorded  an  impairment   charge  of
     approximately  $1,285 to fully  write-off  the  goodwill  asset  during the
     twelve month period ended December 31, 2003.

     We sold  much  of the  machinery  and  equipment  with  certain  pieces  of
     machinery and equipment to be  transferred  and utilized by our  Industrial
     Molding facility in Lubbock, Texas. Pursuant to the provisions of Statement
     of Accounting  Standards No. 144 "Accounting for the Impairment or Disposal
     of  Long-lived  Assets" we recorded an impairment  charge of  approximately
     $1,049  during  2003 to  write-down  the  machinery  and  equipment  to its
     estimated  fair market value.  During the three months ended  September 30,
     2003 we  recorded  a gain of $145  related  to the  disposition  of certain
     pieces of the machinery and equipment assets that

                                       46
                                                               Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     were  previously  assessed  as  impaired.  During the twelve  months  ended
     December 31, 2003,  we recorded a total  impairment  charge  related to the
     machinery and equipment of approximately $904.

     During 2003, we also recorded an accounts  receivable  write-down of $31 to
     reduce   accounts   receivable   to  its   estimated   fair  market  value.
     Additionally,  we recorded an inventory  write-down  of $108 during 2003 to
     reduce the carrying  value of inventory to its estimated fair market value.
     These  amounts  related  to the  inventory  asset have been  recorded  as a
     component of cost of products sold.

     The following  summarizes  the 2004 and 2003  restructuring  and impairment
     charges related to the closure of NN Arte:



                                                                                                             Reserve
                                                                         Non-Cash            Paid in        Balance At
                                                          Charges      Write-downs           2004           12/31/04
                                                       ------------ ------------------- ----------------- -------------
                                                                                                      
             Asset impairments                               $  --               $  --             $  --          $  --
             Lease exit costs                                   --                  --                --             --
             Severance and other employee costs                 --                  --                45             --
                                                       ------------ ------------------- ----------------- -------------
             Total                                           $  --               $  --              $ 45          $  --
                                                       ============ =================== ================= =============
                                                                                                             Reserve
                                                                         Non-Cash            Paid in        Balance At
                                                           Charges      Write-downs           2003           12/31/03
                                                       ------------ ------------------- ----------------- -------------
             Asset impairments                              $2,328              $2,328             $  --          $  --
             Lease exit costs                                   40                  --                40             --
             Severance and other employee costs                230                  --               185             45
                                                       ------------ ------------------- ----------------- -------------
             Total                                          $2,598              $2,328             $ 225           $ 45
                                                       ============ =================== ================= =============


     Walterboro, South Carolina Plant Closing

     In  September  2001,  we  announced  the closure of our  Walterboro,  South
     Carolina ball  manufacturing  facility as a part of our ongoing strategy to
     locate  manufacturing  capacity in closer proximity to our customers.  This
     facility is included in our Domestic Ball and Roller Segment (see Note 11).
     The closure was substantially completed by December 31, 2001.

     Prior to December 31, 2001,  production  capacity and certain machinery and
     equipment was transferred from the Walterboro facility to the Company's two
     domestic ball facilities in Erwin,  Tennessee and Mountain City, Tennessee.
     The plant closing resulted in the termination of approximately 80 full time
     hourly and  salaried  employees  located at the  Walterboro  facility.  The
     Company recorded restructuring costs of $62 during the years ended December
     31, 2002 for the related severance payments.  All of the severance payments
     were paid by December 31, 2002.  Additionally,  prior to December 31, 2001,
     the  Company  decided to sell the  Walterboro  land,  building  and certain
     machinery. The Company incurred an impairment charge of $564 during 2002 to
     write-down  the land and  building  at the  Walterboro  facility to its net
     realizable  value of $1,128 at December  31, 2002 which was based upon fair
     market value appraisals.  Additionally,  the Company incurred an impairment
     charge  of  $635  during  2002  to  write  down  the  equipment  to its net
     realizable value of $1,086. The land, building, and equipment assets with a
     recorded  book value of $1,805 were held for sale at December 31, 2003.  In
     arriving at the  carrying  value of the assets  held for sale,  we utilized
     independent, third party fair value appraisals and valuations. The land and
     building assets were sold at a loss during the fourth quarter of 2004. As a
     result, we recorded a loss of approximately $750 which has been recorded as
     a loss on  disposal  of assets,  a  component  of income  from  operations.
     Additionally,  during the fourth quarter of 2004, we recorded an impairment
     charge of  approximately  $108 related to certain  remaining  machinery and
     equipment assets of this facility.  This amount was recorded as a component
     of restructuring and impairment costs.

                                       47
                                                                 Continued

                                     NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     The  Company  has  charged  expenses  to cost of  products  sold for moving
     machinery, equipment and inventory to other production facilities and other
     costs to close the facility,  which will benefit future operations,  in the
     period they are incurred.

4)   Investments in Affiliated Companies and Notes Receivable

     Effective  December  21,  2001,  the Company  sold its 50%  ownership in NN
     General,  LLC to its partner,  General Bearing Corporation for cash of $622
     and notes of $3,305. The notes are due in annual  installments of $200 with
     the balance of $2,505 due on December 21, 2006.  The notes bear interest at
     an average LIBOR (2.56% at December 31, 2004) plus 1.5%. Interest income on
     this note of $86 and $85 was recorded  during 2004 and 2003,  respectively,
     and has been  included as a component of other  income in the  accompanying
     consolidated  statement  of income.  Payments  totaling  $286 and $285 were
     received during 2004 and 2003, respectively which include $200 of principal
     and $86 and $85 of interest payments,  respectively.  At December 31, 2004,
     the note  receivable  balance is $2,705 and is included  as a component  of
     other non-current assets.

5)   Accounts Receivable
                                                        December 31,
                                                   2004               2003
                                              ----------------  ----------------
     Trade                                       $ 53,331           $ 42,619
     Less - Allowance for doubtful accounts         1,734              1,755
                                              ----------------  ----------------
     Accounts receivable, net                    $ 51,597           $ 40,864
                                              ================  ================

     Activity in the allowance for doubtful accounts is as follows:



                                         Balance at
             Description                beginning of                                         Balance at
                                           year             Additions        Write-offs      end of year
                                   ------------------  -----------------  ---------------  ----------------
                                                                                      
      December 31, 2002
      Allowance for doubtful
          accounts                        $   1,791             $   138            $   263        $   1,666
                                   ==================  =================  ===============  ================
           December 31, 2003
      Allowance for doubtful
          accounts                        $   1,666             $   158            $    69        $   1,755
                                   ==================  =================  ===============  ================
      December 31, 2004
      Allowance for doubtful
          accounts                        $   1,755             $    22             $   43        $   1,734
                                   ==================  =================  ===============  ================


                                       48
                                                                 Continued


                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

Inventories
                                                         December 31,
                                                   2004                2003
                                            ------------------   ---------------
      Raw materials                          $    8,584            $   8,492
      Work in process                             6,356                6,808
      Finished goods                             22,334               22,128
      Less-inventory reserve                     (1,645)              (1,150)
                                            ------------------   ---------------
      Inventories, net                       $   35,629            $  36,278
                                            ==================   ===============

     Inventory on  consignment  at December 31, 2004 and 2003 was  approximately
     $3,755 and $3,046, respectively.

7)   Property, Plant and Equipment
                                                            December 31,
                                      Estimated
                                     Useful Life       2004             2003
                                  --------------   ---------    ------------
 Land                                                 $8,454          $7,940
 Buildings and improvements           15-40 years     30,833          31,415
 Machinery and equipment               3-12 years    168,561         156,263
 Construction in process                              11,249           4,681
                                                   ---------    ------------
                                                     219,097         200,299
 Less - accumulated depreciation                      87,928          71,303
                                                   ---------    ------------
 Property, plant and equipment, net                 $131,169        $128,996
                                                   =========    ============

On September  11, 2001,  the Company  announced  the closing of its  Walterboro,
South Carolina ball manufacturing  facility effective December 2001. As a result
of that closing,  land and building was classified as a component of assets held
for sale in the accompanying  consolidated  financial statements with a carrying
value of $1,128 as of December 31, 2003.  Certain machinery and equipment assets
are also held for sale with a carrying  value of $677 as of December  31,  2003.
The land and building  assets were sold during the fourth  quarter of 2004. As a
result, we recorded a loss on disposal of assets of approximately $750 which has
been  recorded  as a loss on  disposal  of assets,  a  component  of income from
operations.  Additionally,  during the fourth  quarter of 2004,  we  recorded an
impairment charge of approximately  $108 related to certain remaining  machinery
and  equipment  assets  of  this  facility.   This  amount  was  recorded  as  a
restructuring and impairment cost.

On October 27, 2004 we  completed  the sale of our idle  warehouse  in Kilkenny,
Ireland for approximately 1,580 euro ($1,959), net of selling costs incurred. As
a result  of this  transaction,  we  recorded  a loss on  disposal  of assets of
approximately  37 euro ($46) during the fourth  quarter  which was recorded as a
component  of loss on  disposal  of  assets.  Prior to the sale  this  asset was
classified  as a component  of  property,  plant and  equipment,  net.  Proceeds
received  from the sale of this  asset  were used to repay a portion  of our $90
million credit facility.

                                       49
                                                                 Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

8)   Debt

     a)   Short-term

     There were no short term loans outstanding at December 31, 2004.

     At December 31, 2003, we had outstanding a $2,000 unsecured note payable to
     AmSouth Bank  ("AmSouth")  bearing interest at prime rate (4.0% at December
     31,  2003).  The maturity  date of this note was May 12, 2004.  All amounts
     outstanding under this note were paid in 2004.

     b)   Long-term  debt  at  December  31,  2004  and  2003  consists  of  the
          following:


                                                                                     2004           2003
                                                                                 -------------   ------------
                                                                                              
       Borrowings under our $30,000 revolving credit facility bearing interest
           at a floating rate equal to LIBOR (2.56% at December 31, 2004) plus
           an applicable margin of 1.25 to 2.0, expiring on March
           1, 2006                                                                   $ 11,400       $ 27,104

       Borrowings under our $30,400 term loan expiring on May 1, 2008, bearing
           interest at a floating rate equal to LIBOR (1.15% at December 31,
           2003) plus an applicable margin of 1.25 to 2.0 payable in quarterly
           installments of $1,790 beginning July 1,
           2003 through April 1, 2008                                                      --         27,152

       Borrowings under our 26,300 Euro term loan expiring on May 1, 2008,
           bearing interest at a floating rate equal to Euro LIBOR (2.15% at
           December 31, 2004) plus an applicable margin of 1.25 to 2.0 payable
           in quarterly installments of Euro 1,314 beginning July 1,
           2003 through April 1, 2008                                                  23,270         28,221

       Borrowings under our $40,000 aggregate principal amount of senior notes
           bearing interest at a fixed rate of 4.89% maturing on April 26, 2014.
           Annual principal payments of $5,714 begin on April 26,
           2008 and extend through the date of maturity.                               40,000             --
                                                                                 -------------   ------------
           Total long-term debt                                                        74,670         82,477

           Less current maturities of long-term debt                                    7,160         12,725
                                                                                 -------------   ------------
           Long-term debt, excluding current maturities of long-term debt            $ 67,510       $ 69,752
                                                                                 =============   ============

     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 $90,000  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 $60,400 and 26,300 Euros
     ($29,600) (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 $30,000 revolver  ("$30.0 million  revolver")  originally  expiring on
     March 15, 2005 and subsequently extended to March 31, 2006 bearing interest
     at a floating  rate equal to LIBOR  (2.56% at  December  31,  2004) plus an
     applicable  margin of 1.25% to 2.0%, a $30,400 term loan expiring on May 1,
     2008, bearing interest at a floating rate equal to LIBOR (2.56% at December
     31,  2004)  plus an  applicable  margin of 1.25% to 2.0% and a 26,300  Euro
     ($29,600) term loan ("26.3 million Euro term loan") expiring on May 1, 2008
     which  bears  interest  at a floating  rate  equal to Euro LIBOR  (2.15% at
     December 31, 2004) plus an applicable margin of 1.25% to 2.0%. All

                                       50
                                                                       Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     amounts  owed  under the  $30,400  term loan were paid  during  the  second
     quarter of 2004 with the proceeds  from our $40,000  notes and we no longer
     have borrowing  capacity under that portion of the $90,000 credit facility.
     The terms of the  $30,000  revolver  and the 26,300  Euro term loan  remain
     unchanged  except for the  maturity  date of the $30,000  revolver has been
     extended to March 31, 2006. 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.  In connection  with
     this  refinancing,  capitalized costs in the amount of $455 associated with
     the  paid-off  credit  facilities  were  written-off  during  2003  and are
     included as a component of other (income) expense. We incurred $939 of debt
     issue costs as a result of entering  into this  credit  facility  which are
     being amortized over the life of the credit facility. We were in compliance
     with all such covenants as of December 31, 2004.

     In connection  with the  acquisition  of KLF's  operations in Slovakia,  on
     September 23, 2003 we entered into a $2,000 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 $2,700 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 $40,000  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  December  31,  2004,  $40.0  million  remained
     outstanding.  Annual principal  payments of  approximately  $5,714 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,  $24,000,  and repay a portion, of our borrowings under our US dollar
     denominated revolving credit facility,  $13,000,  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 $2,000  and  $1,000,
     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 December  31,  2004.  The notes are not
     collateralized   except  for  the  pledge  of  stock  of  certain   foreign
     subsidiaries.  We  incurred  $839 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 $260 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.

     The  aggregate  maturities  of  long-term  debt for each of the five  years
     subsequent to December 31, 2004 are as follows:

                      2005                           $ 7,160
                      2006                            18,560
                      2007                             7,160
                      2008                             7,504
                      2009                             5,715
                      Thereafter                      28,571
                                                    --------
                      Total                         $ 74,670
                                                    ========


                                       51
                                                                      Continued


                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

9)   Employee Benefit Plans

     We have one  defined  contribution  401(k)  profit  sharing  plan  covering
     substantially all employees of the Domestic Ball and Roller and Plastic and
     Rubber Components Segments.  All employees are eligible for the plan on the
     first day of the month  following  their hire date. A participant may elect
     to contribute  between 1% and 60% of compensation  to the plan,  subject to
     Internal  Revenue Service ("IRS") dollar  limitations.  Participants age 50
     and older may defer an additional  amount up to the applicable IRS Catch Up
     Provision  Limit.  The Company  provides a matching  contribution  which is
     determined on an individual,  participating company basis.  Currently,  the
     matching contribution for employees of the Domestic Ball and Roller Segment
     is  the  higher  of  five  hundred  dollars  or  50%  of  the  first  4% of
     compensation.  The matching  contribution  for IMC  employees is 25% of the
     first 6% of compensation and the matching  contribution for Delta employees
     is 50% of the first 6% of  compensation.  All  participants are immediately
     vested at 100%.  Contributions  by the  Company for the  Domestic  Ball and
     Roller  Segment  were  $134,  $126,  and  $126  in  2004,  2003  and  2002,
     respectively.  Contributions  by the  Company  for the  Plastic  and Rubber
     Components  Segment  were  $133,  $126  and $100 in  2004,  2003 and  2002,
     respectively.

     The  Company has a defined  benefit  pension  plan  covering  its  Eltmann,
     Germany facility  employees (a NN Europe division).  The benefits are based
     on the  expected  years  of  service  including  the  rate of  compensation
     increase. The plan is unfunded.

     Following is a summary of the changes in the projected  benefit  obligation
     for the defined benefit pension plan during 2004 and 2003:


                                                                                 2004              2003
                                                                                              
                                                                           --------------      ------------
      Reconciliation of Funded Status:
          Accumulated benefit obligations                                          $4,293           $3,651
          Additional benefit obligation for future salary increases                   423              336
                                                                           --------------      ------------
          Projected benefit obligation                                              4,716            3,987
          Fair value of plan assets                                                    --               --
                                                                           --------------      ------------
          Funded status                                                            $4,716           $3,987
                                                                           ==============      ============

                                                                                  2004              2003
                                                                           --------------      ------------
       Change in projected benefit obligation:
          Benefit obligation at beginning of year                                  $3,987           $3,059
          Service cost                                                                119              114
          Interest cost                                                               230              208
          Benefits paid                                                              (65)             (45)
          Effect of currency translation                                              312              625
          Actuarial loss                                                              133               26
                                                                           --------------      ------------

          Benefit obligation at December 31                                        $4,716           $3,987
                                                                           ==============     ============




                                                                                 2004              2003             2002
                                                                           --------------     ------------    -------------
                                                                                                       
      Weighted-average assumptions as of December 31:
          Discount rate                                                             5.25%             5.5%             5.5%
          Rate of compensation increase                                         1.3%-2.5%        1.3%-2.5%      1.5% - 2.1%
          Measurement date                                                       10/31/04         10/31/03         10/31/02


                                       52
                                                                      Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

The  expected  pension  benefit  payments  for the next ten fiscal  years are as
follows:

                                                  Pension Benefits
                                                 -----------------
                             2005                    $   68
                             2006                       117
                             2007                       140
                             2008                       154
                             2009                       179
                        2010-2014                     1,319



                                                                                 2004              2003             2002
                                                                          ----------------   --------------  ---------------
                                                                                                              
       Components of net periodic benefit cost:
          Service cost                                                               $119             $114             $ 95
          Interest cost on projected benefit obligation                               230              208              161
          Amortization of net gain                                                      9                9                9
                                                                          ----------------   --------------  ---------------
          Net periodic pension benefit cost                                          $358             $331             $265
                                                                          ================   ==============  ===============

     We expect to contribute approximately $400 to our pension plan in 2005.

     Amounts recognized in the Consolidated Balance Sheets consist of:


                                                                                 2004               2003
                                                                           --------------     --------------
                                                                                           
   Accrued benefit liability                                                  $4,716             $3,987
   Accumulated other comprehensive loss, net of tax                             (458)              (258)
                                                                           --------------     --------------
   Net amount recognized in other non-current liabilities                     $4,258             $3,729
                                                                           ==============     ==============


Accumulated  other  comprehensive  loss is shown net of tax of $253, and $135 at
December 31, 2004, and 2003 respectively.


















                                       53
                                                               Continued

                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

10)  Stock Incentive Plan

     The Company  has a Stock  Incentive  Plan under  which 2,450  shares of the
     Company's  common  stock are  reserved  for  issuance to  officers  and key
     employees  of the  Company.  Awards or grants under the plan may be made in
     the form of incentive and nonqualified  stock options,  stock  appreciation
     rights and  restricted  stock.  The stock  options  and stock  appreciation
     rights must be issued with an exercise  price not less than the fair market
     value of the Common Stock on the date of grant.  The awards or grants under
     the plan may have various  vesting and expiration  periods as determined at
     the discretion of the committee administering the plan.

     A summary of the status of the  Company's  stock  option plan as  described
     above as of December 31, 2004,  2003 and 2002, and changes during the years
     ending on those dates is presented below:


                                           2004                          2003                            2002
                                ----------------------------  ----------------------------   ---------------------------
                                                Weighted-                       Weighted-                       Weighted-
                                                 average                         average                        average
                                                exercise                        exercise                        exercise
                                                 price                            price                          price
                                    Shares      per share        Shares         per share        Shares        per share
                                 -----------  ---------------  -----------  ---------------  ------------   --------------
                                                                                               

      Outstanding at beginning
          of year                    1,251           $ 7.53        1,318           $ 7.33          1,373         $ 7.25


      Granted                          438            12.62           52            10.67             37           9.39

      Exercised                        (65)            7.12         (108)            6.74            (53)          6.61

      Forfeited                        (65)           11.48          (11)            7.63            (39)          7.65
                                -----------  ---------------  -----------                    ------------
      Outstanding at end of
          year                       1,559           $ 8.82        1,251          $  7.53          1,318         $ 7.33
                                ===========                   ===========                    ============
      Options exercisable at
         year-end                    1,086           $ 7.84        1,058           $ 7.27            887         $ 7.01
                                ===========                   ===========                    ============












                                       54

                                                                      Continued



                                    NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

The following table summarizes  information  about stock options  outstanding at
December 31, 2004:


                                                Options outstanding                            Options exercisable
                               ------------------------------------------------------   -----------------------------------
                                                     Weighted-
                                                      average           Weighted-           Number            Weighted-
                                  Number             remaining          average           exercisable          average
    Range of exercise          outstanding at      contractual      exercise price            at            exercise price
    prices per share              12/31/2004           life            per share          12/31/2004          per share
                                -----------------  ----------------  -----------------   ---------------  -----------------
                                                                                                  

      $5.63 - $6.50                      283          4.9 years            $6.06               283               $6.06

      $7.63 - $12.62                   1,276          7.3 years            $9.44               803               $8.47


     All options granted in the period January 1, 1999 through December 31, 2004
     vest ratably over three years,  beginning one year from date of grant.  The
     exercise  price of each  option  equals the market  price of the  Company's
     stock on the date of grant,  and an option's  maximum term is 10 years. All
     options  granted in the period  January 1, 1995 through  December 31, 1998,
     vest 20% - 33% annually beginning one year from date of grant. The exercise
     price of each option equals the market price of the Company's  stock on the
     date of grant,  and an option's  maximum term is 10 years.  Certain options
     granted  in  July  1999  were  deemed  to be  repriced  options  under  the
     applicable accounting requirements.  These options, which were fully vested
     as of the effective date of FASB  Interpretation  No. 44, are treated under
     variable accounting.  Accordingly,  compensation expense is recognized,  to
     the extent the market price of the Company's  stock  exceeds  $10.50 at the
     end of each year.  The  Company  recognized  an  increase  to  compensation
     expense  of $42 during  2004,  of $250  during  2003 and,  a  reduction  of
     compensation expense of $108 during 2002.

     On  August  4,  1998  the  Company's  Board  of  Directors  authorized  the
     repurchase  of up to 740 shares of its  Common  Stock,  equaling  5% of the
     company's  issued and outstanding  shares as of August 4, 1998. The program
     may be extended or discontinued at any time, and there is no assurance that
     the Company  will  purchase any or all of the full amount  authorized.  The
     Company has not repurchased any shares under this program through  December
     31, 2004.

11)  Segment Information

     The Company determined its reportable segments under the provisions of SFAS
     No.  131,   "Disclosures  about  Segments  of  an  Enterprise  and  Related
     Information". The Company's reportable segments are based on differences in
     product lines and geographic  locations and are divided among Domestic Ball
     and Roller, NN Europe and Plastic and Rubber Components.  The Domestic Ball
     and Roller  Segment is comprised  of two  manufacturing  facilities  in the
     eastern  United  States.  Additionally,   costs  related  to  our  start-up
     operation in China and corporate  office costs are included in the Domestic
     Ball & Roller Segment.  The NN Europe Segment is comprised of manufacturing
     facilities located in Kilkenny, Ireland, Eltmann, Germany, Pinerolo, Italy,
     Veenendaal,  The Netherlands,  and Kysucke Nove Mesto, Slovakia. All of the
     facilities  in the  Domestic  Ball and  Roller and NN Europe  Segments  are
     engaged in the production of precision  balls and rollers used primarily in
     the  bearing  industry.  The  Plastic  and  Rubber  Components  Segment  is
     comprised  of  four  facilities:  two  located  in  Lubbock,  Texas,  which
     represents  the IMC  business  acquired  in July  1999  and two  facilities
     located in Danielson,  Connecticut,  which  represents  the Delta  business
     acquired in February 2001.  These  facilities are engaged in the production
     of  plastic   injection  molded  products  for  the  bearing,   automotive,
     instrumentation  and fiber optic markets and precision rubber bearing seals
     for  the  bearing,  automotive,  industrial,   agricultural  and  aerospace
     markets.

     The accounting  policies of the segments are the same as those described in
     the summary of  significant  accounting  policies.  The  Company  evaluates
     segment  performance  based on profit or loss from operations  after income
     taxes. The Company accounts for intersegment sales and transfers at current
     market prices;  however, the Company did not have any material intersegment
     transactions during 2004, 2003 or 2002.

                                       55
                                                                      Continued


                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)



                           December 31, 2004                  December 31, 2003                 December 31, 2002
                 --------------------------------------------------------------------------------------------------------
                  Domestic             Plastic and  Domestic             Plastic and   Domestic              Plastic and
                  Ball and      NN        Rubber    Ball and      NN        Rubber     Ball and       NN        Rubber
                   Roller     Europe    Components   Roller     Europe    Components    Roller      Europe    Components
                 ---------------------------------------------------------------------------------------------------------
                                                                                     
Net sales           $58,435  $ 193,930    $51,724     $55,437  $ 147,127    $50,898    $ 52,634    $ 90,653     $49,569
Interest expense      1,639      1,423        967         908      1,401      1,083         109         923       1,419
Depreciation &
    amortization      3,662      9,893      2,578       3,610      7,546      2,535       3,732       4,780       2,700
Income tax
    expense
    (benefit)         1,143      4,546    (1,600)       2,117      4,858    (1,249)       2,595       3,855           7
Segment profit
    (loss)          (1,930)      7,308      1,724       2,003      7,492        683       2,272       3,313       2,175
Segment assets       50,142    179,478     60,249      55,420    154,889     57,590      58,825      78,846      57,544
Expenditures for
    long- lived
    assets            3,238      8,021        903       2,948      5,609      2,872       1,778       3,452       2,361


Sales to external  customers and long-lived  assets utilized by the Company were
concentrated in the following geographical regions:




                                    December 31, 2004                December 31, 2003              December 31, 2002
                           -------------------------------   -----------------------------  ----------------------------
                                  Sales          Long-lived        Sales        Long-lived        Sales       Long-lived
                                                   assets                         assets                        assets
                           ---------------   -------------   -------------  --------------  ------------  --------------
                                                                                              

United States                    $ 74,228        $ 34,945        $ 67,756        $ 36,523      $ 68,485         $35,582

Europe                            181,224          96,224         134,914          92,473        89,750          51,674

Canada                              9,040              --          10,727              --        10,598              --

Latin/S.America                     8,052              --          13,435              --         8,450             943

Other export                       31,545              --          26,630              --        15,573              --
                           ---------------   -------------   -------------  --------------  ------------  --------------
All foreign countries             229,861          96,224         185,706          92,473       124,371          52,617
                           ---------------   -------------   -------------  --------------  ------------  --------------

Total                            $304,089        $131,169        $253,462        $128,996      $192,856         $88,199
                           ===============   =============   =============  ==============  ============  ==============


     For the years ended December 31, 2004, 2003 and 2002, sales to SKF amounted
     to $145,534,  $107,484,  and $64,235,  respectively,  or 47.9%,  42.4%, and
     33.3% of consolidated revenues,  respectively. For the years ended December
     31,  2004,  2003 and 2002,  sales to INA  amounted to $41,693,  $40,110 and
     $36,502  respectively or 13.7%,  15.8% and 18.9% of consolidated  revenues,
     respectively.  For the year  ended  December  31,  2004,  sales to  various
     divisions  of The Timken Co.  amounted  to $17,148 or 5.6% of  consolidated
     revenues.  None of the Company's other customers accounted for more than 5%
     of its net sales in 2004, 2003 or 2002. Accounts receivable  concentrations
     as of December 31, 2004,  2003 and 2002 are  generally  reflective of sales
     concentrations during the years then ended.

                                       56
                                                                       Continued


                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

12)  Income Taxes

     Income before  provision for income taxes for the years ended  December 31,
     2004, 2003 and 2002 are as follows:



                                                                                  Year ended December 31,
                                                                   2004                   2003                   2002
                                                             -------------------    -------------------    -------------------
                                                                                                        
      Income before provision for income taxes:
      United States                                               $     (182)             $   3,711              $   7,491
      Foreign                                                         11,373                 12,868                  9,504
                                                            -------------------    -------------------    -------------------
      Total                                                       $   11,191              $  16,579              $  16,995
                                                            ===================    ===================    ===================


     Total income tax expense  (benefit) for the years ended  December 31, 2004,
2003, and 2002 are allocated as follows:




                                                                 Year ended December 31,
                                                           2004          2003           2002
                                                        ------------  -----------    -----------
                                                                                
     Current:
          U.S. Federal                                     $(2,785)      $ (388)         $1,753
          State                                                  88          (3)            249
          Non-U.S.                                            3,532        2,229          1,891
                                                       ------------  -----------    -----------
               Total current expense                         $  835       $1,838         $3,893
                                                       ------------  -----------    -----------
      Deferred:
          U.S. Federal                                      $2,285        $1,272          $ 533
          State                                               (46)          (13)             66
          Non-U.S.                                           1,015         2,629          1,965
                                                        -----------   -----------    -----------
               Total deferred expense                        3,254         3,888          2,564
                                                        -----------   -----------    -----------
                    Total expense                           $4,089        $5,726         $6,457
                                                        ===========   ===========    ===========




                                       57
                                                                       Continued


                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)


     A reconciliation  of taxes based on the U.S. federal  statutory rate of 34%
     for the years ended  December 31, 2004,  2003,  and 2002 is  summarized  as
     follows:


                                                                       Year ended December 31,
                                                                2004          2003           2002
                                                            -----------   -----------    -----------
                                                                                    
      Income taxes at the federal statutory rate                $3,805        $5,637         $5,778
      State income taxes, net of federal benefit                    42          (15)            208
      Non-US earnings taxed at different rates                     562           483            624
      Other, net                                                  (320)         (379)          (153)
                                                            -----------   -----------    -----------
                                                                $4,089        $5,726         $6,457
                                                            ===========   ===========    ===========

      The tax effects of the temporary differences are as follows:


                                                                       Year ended December 31,
                                                                     2004                   2003
                                                              -------------------    -------------------
                                                                                      
      Deferred income tax liability
           Tax in excess of book depreciation                        $  12,793              $   9,355
           Duty drawback receivable                                         69                     68
           Goodwill                                                      3,372                  3,053
           Flow through loss from pass through entity                      719                    736
           Other deferred tax liabilities                                  904                    211
                                                              -------------------    -------------------
             Gross deferred income tax liability                        17,857                 13,423
                                                              -------------------    -------------------
       Deferred income tax assets
           Inventories                                                     646                    564
           Allowance for bad debts                                         130                    167
           Personnel accruals                                              643                    131
           Other working capital accruals                                   30                    355
           NN Europe net operating loss carryforward                     1,104                    212
           Other deferred tax assets                                       228                    172
                                                              -------------------    -------------------
             Gross deferred income tax assets                            2,781                  1,601
                                                              -------------------    -------------------
           Net deferred income tax liability                         $  15,076              $  11,822
                                                              ===================    ===================



                                       58
                                                                       Continued


                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     Although  realization  of deferred  tax assets is not  assured,  management
     believes  that it is more  likely  than not that  all of the  deferred  tax
     assets will be  realized.  However,  the amount of the  deferred tax assets
     considered realizable could be reduced based on changing conditions.

     The  Company  has  not   recognized  a  deferred  tax   liability  for  the
     undistributed earnings of its non-U.S. subsidiaries. The Company expects to
     reinvest these undistributed earnings indefinitely and does not expect such
     earnings to become subject to U.S.  taxation in the foreseeable  future.  A
     deferred tax liability will be recognized  when the Company expects that it
     will recover  these  undistributed  earnings in a taxable  manner,  such as
     through  the receipt of  dividends  or sale of the  investments.  It is not
     practicable to determine the U.S. income tax liability,  if any, that would
     be payable if such earnings were not reinvested indefinitely.

     As of December 31, 2004,  the Company has not provided  taxes on unremitted
     foreign  earnings from certain  foreign  affiliates that are intended to be
     indefinitely  reinvested in finance  operations  and expansion  outside the
     United  States.  If such  earnings were  distributed  beyond the amount for
     which taxes have been  provided,  foreign tax credits  would  substantially
     offset any  incremental  U.S.  tax  liability.  The Company is  exploring a
     one-time  repatriation  of earnings  from certain  foreign  affiliates as a
     result  of the  American  Jobs  Creation  Act of  2004,  but has not made a
     decision regarding such repatriation.  The deduction is subject to a number
     of  limitations  and  uncertainty  remains as to how to interpret  numerous
     provisions in the American Jobs Creation Act of 2004. As such,  the Company
     is not yet in a position to decide on whether, and to what extent, it might
     repatriate foreign earnings. 13) Reconciliation of Net Income Per Share



                                                                        Year ended December 31,
                                                              2004                2003                2002
                                                        ------------------  ------------------  ----------------
                                                                                              
       Net income                                             $    7,102           $  10,178           $   7,760
       Weighted average shares outstanding                        16,728              15,973              15,343
       Effective of dilutive stock options                           423                 406                 371
                                                        ------------------  ------------------  ----------------
       Dilutive shares outstanding                                17,151              16,379              15,714
       Basic net income per share                             $     0.42           $    0.64           $    0.51
                                                        ==================  ==================  ================
       Diluted net income per share                           $     0.41           $    0.62           $    0.49
                                                        ==================  ==================  ================


     Excluded from the shares outstanding for the years ended December 31, 2004,
     and 2002 were 394 and 7 antidilutive  options,  respectively,  which had an
     exercise price of $12.62 per share during 2004, and $10.26 per share during
     2002. No shares were excluded  from shares  outstanding  for the year ended
     December 31, 2003.

                                       59
                                                                       Continued


                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

Commitments and Contingencies

     The  Company  has  operating  lease   commitments  for  machinery,   office
     equipment, vehicles, manufacturing and office space which expire on varying
     dates. Rent expense for 2004, 2003 and 2002 was $3,203,  $2,359 and $1,855,
     respectively.  The following is a schedule by year of future  minimum lease
     payments as of December 31, 2004 under  operating  leases that have initial
     or remaining noncancelable lease terms in excess of one year.

                    Year ended December 31,
            -------------------------------------------------
            2005                                   $ 2,306
            2006                                     2,122
            2007                                     1,879
            2008                                     1,854
            2009                                     1,789
            Thereafter                              15,315
                                                -------------
           Total minimum lease payments           $ 25,265
                                                =============

     The Kilkenny operation of the NN Europe Segment has received certain grants
     from the  Ireland  government.  These  grants are based upon the  Kilkenny,
     Ireland facility hiring and retention of certain  employment  levels by the
     measurement  date. At December 31, 2004,  actual employment levels are less
     than those  required by certain  grant  covenants.  During 2003,  the grant
     agreement  measurement date was amended to extend the measurement date. The
     Company  anticipates  that, if necessary,  the grant agreement  measurement
     date and /or employment level  thresholds would again be adjusted.  Effects
     of this not occurring are estimated not to be material to the  consolidated
     financial statements. As of December 31, 2004 and 2003 the grant obligation
     is recorded as a component of other  non-current  liabilities in the amount
     of $559 and $617, respectively.

     The NN Europe  Segment has entered into a supply  contract  with  Ascometal
     France  ("Ascometal")  for the purchase of steel for ball  production.  The
     contract terms specify that  Ascometal  provide NN Europe 90%, 90%, 85% and
     85% of its steel requirements for the years ending December 31, 2002, 2003,
     2004 and 2005, respectively.  The contract, among other things,  stipulates
     that Ascometal  achieve  certain  performance  targets  related to quality,
     reliability  and service.  The  contract  provisions  include  annual price
     adjustments based upon published indexes in addition to annual productivity
     improvement  factor multiples.  In 2004, NN Europe purchased  approximately
     $37,716 under the terms of this contract. The estimated commitment for 2005
     is  $44,710.  The  contract  expires  December  31,  2005,  however,  it is
     automatically  renewed for one year  periods  thereafter  unless  notice is
     provided by either NN Europe or Ascometal.

     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 second  quarter or third 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 December 31, 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 $2,000
     and undiscounted annual lease payments of approximately $208 (approximately
     $4,150 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.

                                       60
                                                                       Continued

                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

15)  Quarterly Results of Operations (Unaudited)

     The following  summarizes the unaudited quarterly results of operations for
     the years ended December 31, 2004 and 2003.



                                                                   Year ended December 31, 2004

                                                 March 31           June 30            Sept. 30           Dec. 31
                                             -----------------  -----------------  -----------------  -----------------
                                                                                              
    Net sales                                    $  77,632          $  75,265          $  72,917          $  78,275
    Income from operations                           6,108              4,304              4,510               (555)
    Net income                                       3,218              1,986              2,152               (254)
    Basic net income per share                        0.19               0.12               0.13              (0.02)
    Dilutive net income per share                     0.19               0.12               0.13              (0.01)
    Weighted average shares
      outstanding:
      Basic number of shares                        16,712             16,721             16,767             16,773
      Effect of dilutive stock options                 477                456                368                453
                                             -----------------  -----------------  -----------------  -----------------
    Diluted number of shares                        17,189             17,177             17,135             17,226
                                             =================  =================  =================  =================


     Fourth  quarter  results in 2004 include a pre-tax charge of $2,290 ($1,420
     after-tax)  related to severance costs and other related charges  resulting
     from a  reduction  in  staffing  at the  Company's  Eltmann,  Germany  ball
     production facility. Additionally, fourth quarter results include a loss on
     disposal  of assets of $856  ($548  after-tax)  related  to the sale of the
     Company's  Walterboro,  South  Carolina  land and  building  assets.  These
     charges have been recorded as components of income from operations.


                                                                          Year ended December 31, 2003
                                                         March 31            June 30           Sept. 30           Dec. 31
                                                    ----------------   ----------------- ------------------ ----------------
                                                                                                         
              Net sales                                     $57,609             $64,194            $64,612           $67,047
              Income from operations                          7,185               2,527              5,693             4,665
              Net income                                      3,643                 697              3,164             2,674
              Basic net income per share                       0.24                0.04               0.19              0.16
              Dilutive net income per share                    0.23                0.04               0.18              0.16
              Weighted average shares outstanding:
              Basic number of shares                         15,378              16,015             16,660            16,711
              Effect of dilutive stock options                  196                 450                507               470
                                                    ----------------   ----------------- ------------------ ----------------
               Diluted number of shares                      15,574              16,465             17,167            17,181
                                                    ================   ================= ================== ================

     Second  quarter and third quarter  results in 2003 include a pre-tax charge
     of $3,047 ($1,950 after-tax) and $(449) (($267)  after-tax),  respectively,
     related to asset write downs due to the closure of our NN Arte operation in
     Guadalajara,  Mexico.  These  charges have been  recorded as a component of
     income from operations.

16)  Fair Value of Financial Instruments

     Management  believes  the fair value of financial  instruments  approximate
     their carrying  value due to the short maturity of these  instruments or in
     the case of the Company's  notes  receivable  and debt, due to the variable
     interest  rates.  The fair  value of  the  Company's  fixed rate  long-term
     borrowings are estimated  using  discounted cash flow analysis based on the
     Company's  current  incremental   borrowing  rates  for  similar  types  of
     borrowing arrangements.

                                       61
                                                                       Continued

                                   NN, Inc.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
                      (In thousands, except per share data)

     The carrying  amounts and fair values of the Company's  long-term  debt and
     derivative financial instrument are as follows:



                                                        December 31, 2004                    December 31, 2003
                                                  Carrying                Fair           Carrying               Fair
                                                  Amount                  Value           Amount                Value
                                               ----------------   ----------------- ------------------   -----------------
                                                                                               
              Variable rate long-term debt         $ 34,670           $ 34,670          $ 82,477           $ 82,477
              Fixed rate long-term debt              40,000             40,421                --                 --
              Interest rate swap agreement              167                167               360                360


17)  Accumulated Other Comprehensive Income

     At  December  31,  2004 the  Company  has  included  in  accumulated  other
     comprehensive  income  (loss)  unrealized  income due to  foreign  currency
     translation  of $16,258,  and at December 31, 2003 the Company has included
     in accumulated other  comprehensive  income (loss) unrealized income due to
     foreign  currency  translation  of  $9,667.  Income  taxes  on the  foreign
     currency  translation  adjustment  in other  comprehensive  income were not
     recognized because the earnings are intended to be indefinitely  reinvested
     in those operations.  Also included in accumulated other comprehensive loss
     as  of  December  31,  2004,  and  2003  were  additional  minimum  pension
     liability,  net of tax of ($458) and ($258),  respectively,  and unrealized
     holding gain on securities net of tax of $73 and $0, respectively.

18)  Sale of Common Stock

     During May 2003,  we completed a public  offering of 3.6 million  shares of
     our  stock by a group  of  selling  shareholders.  We did not  receive  any
     proceeds  from  the  sale of the  shares  previously  held by the  group of
     selling   shareholders,   however,  the  underwriters  did  exercise  their
     over-allotment  option of 533,600  shares,  which  were  offered by us. Net
     proceeds   received  by  us  in   connection   with  the  exercise  of  the
     over-allotment  option were  approximately  $5,100, net of issue costs. Per
     the  terms of our  credit  facility,  we  repaid a  portion  of our  credit
     facility with these proceeds.

                                       62


Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

The information  required by this Item was previously reported by the Company in
Current  Reports on Form 8-K and  8-K/A,  dated  August 25,  2003 and August 26,
2003.

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the  participation  of the Company's  management,
including  its Chief  Executive  Officer and Corporate  Controller,  the Company
conducted an evaluation of its disclosure controls and procedures,  as such term
is defined under Rule l3a-15(e) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Based on this evaluation, Chief Executive
Officer and the Corporate  Controller  concluded  that the Company's  disclosure
controls and  procedures  were effective as of December 31, 2004, the end of the
period covered by this annual report.

Management's Report on Internal Control Over Financial Reporting

The  management of NN, Inc. is  responsible  for  establishing  and  maintaining
adequate internal control over financial  reporting,  as such term is defined in
Exchange Act Rule 13a-15(f). Under the supervision and with the participation of
management,  including  the  Company's  Chief  Executive  Officer and  Corporate
Controller, an evaluation of the effectiveness of the Company's internal control
over  financial  reporting  was  conducted  based on the  framework  in Internal
Control-   Integrated   Framework   issued  by  the   Committee  of   Sponsoring
Organizations  of the Treadway  Commission  ("COSO").  Based on that  evaluation
under the  framework in Internal  Control-  Integrated  Framework  issued by the
COSO, the Company's  management  concluded that the Company's  internal  control
over financial reporting was effective as of December 31, 2004.

Management's  assessment of the effectiveness of the Company's  internal control
over  financial   reporting  as  of  December  31,  2004  has  been  audited  by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included herein.

Item 9B. Other Information

None






                                       63

                                    Part III

Item 10. Directors and Executive Officers of the Registrant

The  information  required by this item of Form 10-K  concerning  the  Company's
directors  is  contained  in the  sections  entitled  "Election  of Directors --
Information  about  the  Directors"  and  "Section  16(a)  Beneficial  Ownership
Reporting  Compliance"of  the Company's  definitive  Proxy Statement to be filed
with the Securities and Exchange  Commission  within 120 days after December 31,
2004,  in  accordance  with  General  Instruction  G to  Form  10-K,  is  hereby
incorporated herein by reference.

Code of Ethics.  Our Code of Ethics (the  "Code")  was  approved by our Board on
November  6,  2003.  The  Code is  applicable  to all  officers,  directors  and
employees.  The Code is posted on our  website at  http://www.nnbr.com.  We will
satisfy  any  disclosure  requirements  under Item 10 of Form 8-K  regarding  an
amendment  to, or waiver  from,  any  provision  of the Code with respect to our
principal executive officer,  principal financial officer,  principal accounting
officer and persons  performing  similar  functions by disclosing  the nature of
such amendment or waiver on our website or in a report on Form 8-K.

Item 11. Executive Compensation

The  information  required by Item 402 of  Regulation  S-K is  contained  in the
sections entitled  "Information  about the Election of Directors -- Compensation
of Directors" and "Executive  Compensation"  of the Company's  definitive  Proxy
Statement and, in accordance with General  Instruction G to Form 10-K, is hereby
incorporated herein by reference.





















                                       64



Security Ownership of Certain Beneficial Owners and Management

The information  required by Items 201(d) and 403 of Regulation S-K is contained
in the section entitled "Beneficial  Ownership of Common Stock" of the Company's
definitive Proxy Statement and, in accordance with General Instruction G to Form
10-K, is hereby incorporated herein by reference.

Information required by Item 201 (d) of Regulations S-K concerning the Company's
equity compensation plans is set forth in the table below:

                  Table of Equity Compensation Plan Information



In thousands
- ----------------------- -------------------------- -------------------------------- ------------------------------------
    Plan Category       Number of securities to      Weighted -average exercise      Number of securities remaining
                        be issued upon exercise      price of outstanding options,   available for future issuance under
                        of outstanding options,      warrants and rights             equity compensation plans
                        warrants and rights                                          (excluding securities reflected in
                                                                                      column (a))
                                                                                            
                                 (a)                            (b)                                  (c)
- ----------------------- -------------------------- -------------------------------- ------------------------------------
Equity compensation
plans approved by
security holders                 1,559                          $8.82                                --
- ----------------------- -------------------------- -------------------------------- ------------------------------------
Equity compensation
plans not approved by
security holders                   --                            --                                  --
- ---------------------- -------------------------- -------------------------------- -------------------------------------
        Total                    1,559                          $8.82                                --
- ----------------------- -------------------------- -------------------------------- ------------------------------------


Item 13. Related Party Relationships

None.

Item 14. Principal Accountant Fees and Services


Information  required  by this  item  of  Form  10-K  concerning  the  Company's
Accountants'  Fees and Services is contained in the section  entitled "Fees Paid
to Independent  Registered Public  Accounting Firm" of the Company's  definitive
Proxy Statement and, in accordance  with General  Instruction G to Form 10-K, is
hereby incorporated herein by reference.



                                       65



                                     Part IV

Item 15. Exhibits and Financial Statement Schedules

(a)  List of Documents Filed as Part of this Report

     1.   Financial Statements
          The  financial  statements of the Company filed as part of this Annual
          Report on Form 10-K begin on the following pages hereof:
                                                                            Page

Report of Independent Registered Public Accounting Firm for the
  years ended December 31, 2004 and 2003......................................30

Report of Independent Registered Public Accounting Firm for the
  year ended December 31, 2002................................................32

Consolidated Balance Sheets at December 31, 2004 and 2003.....................33

Consolidated Statements of Income and Comprehensive Income for the
  years ended December 31, 2004, 2003 and 2002........ .......................34


Consolidated Statements of Changes in Stockholders' Equity for the
  years ended December 31, 2004, 2003 and 2002................................35

Consolidated Statements of Cash Flows for the years ended
  December 31, 2004, 2003 and 2002............................................36

Notes to Consolidated Financial Statements....................................37

     2.   Financial Statement Schedules

          Not applicable.

     3.   See Index to Exhibits (attached hereto)

(b)  Reports on Form 8-K

     The  Company  furnished  a Form  8-K,  in  response  to  items 12 and 7, on
     November 5, 2004 announcing its third quarter earnings.

     The Company filed a Form 8-K, in response to items 5 and 7, on December 21,
     2004  announcing  the  resignation  of its Chief  Financial  Officer,  Dave
     Dyckman.

(c)  Exhibits: See Index to Exhibits (attached hereto).

     The Company will  provide  without  charge to any person,  upon the written
     request of such person, a copy of any of the Exhibits to this Form 10-K.


                                       66


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.


                                        By:  /S/ RODERICK R. BATY
                                            -----------------------------------
                                                 Roderick R. Baty
                                                 Chairman and Director

                                                 Dated: March 16, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated.



     Name and Signature                 Title                                   Date
- ---------------------------       -----------------                        ----------------
                                                                     

/S/ RODERICK R. BATY             Chairman, Chief Executive Officer,        March 16, 2005
- ---------------------------      President and Director (Principal
    Roderick R. Baty             Executive Officer)

/S/ STEVEN W. FRAY               Corporate Controller (Principal           March 16, 2005
- ---------------------------      Accounting Officer
    Steven W. Fray

/S/ G. RONALD MORRIS             Director                                  March 16, 2005
- ---------------------------
    G. Ronald Morris

/S/ MICHAEL E. WERNER            Director                                  March 16, 2005
- ---------------------------
    Michael E. Werner

/S/ STEVEN T. WARSHAW            Director                                  March 16, 2005
- ---------------------------
    Steven T. Warshaw

/S/ JAMES L. EARSLEY             Director                                  March 16, 2005
- ---------------------------
    James L. Earsley

/S/ ROBERT M. AIKEN, JR..       Director                                   March 16, 2005
- ----------------------------
    Robert M. Aiken, Jr.






                                       67


Index to Exhibits

2.1       Asset   Purchase   Agreement   dated   April   14,  2003   among   SKF
          Holding  Maatschappij  Holland   B.V.,  SKF  B.V.,  NN, Inc.  and   NN
          Netherlands  B.V.  (incorporated   by   reference  to  Exhibit  2.1 of
          Form 8-K filed on May 16, 2003).

3.1       Restated    Certificate    of    Incorporation   of     the    Company
          (incorporated  by   reference   to   Exhibit  3.1 of   the   Company's
          Registration  Statement  No. 333-89950 on Form S-3 filed June 6, 2002)

3.2       Restated  By-Laws of the Company (incorporated by reference to Exhibit
          3.2 of  the Company's  Registration  Statement  No.  333-89950 on Form
          S-3 filed June 6, 2002)

4.1       The  specimen  stock  certificate  representing  the  Company's Common
          Stock, par value  $0.01 per  share  (incorporated   by   reference  to
          Exhibit  4.1  of  the Company's  Registration  Statement No. 333-89950
          on Form S-3 filed June 6, 2002)

4.2       Article IV, Article V  (Sections 3 through 6),  Article VI (Section 2)
          and  Article  VII  (Sections  1  and 3) of the Restated Certificate of
          Incorporation of the Company (included in Exhibit 3.1)

4.3       Article  II  (Sections  7 and 12), Article III (Sections 2 and 15) and
          Article VI of the Restated By-Laws of the Company (included in Exhibit
          3.2)

10.1      NN,  Inc. Stock  Incentive  Plan  and  Form  of Incentive Stock Option
          Agreement pursuant to the Plan (incorporated by  reference  to Exhibit
          10.1  of  the  Company's  Registration Statement No. 333-89950 on Form
          S-3/A filed July 15, 2002)*

10.2      Amendment  No. 1 to the NN, Inc.  Stock  Incentive  Plan (incorporated
          by reference to Exhibit 4.6 of the  Company's  Registration  Statement
          No. 333-50934 on Form S-8 filed on November 30, 2000)*

10.3      Amendment  No. 2 to the NN, Inc.  Stock  Incentive  Plan (incorporated
          by reference to Exhibit 4.7 of the  Company's  Registration  Statement
          No. 333-69588 on Form S-8 filed on September 18, 2001)*

10.4      Form of Non-Competition and Confidentiality  Agreement  for  Executive
          Officers  of  the Company  (incorporated  by reference to Exhibit 10.4
          of  the  Company's  Registration Statement No. 333-89950 on Form S-3/A
          filed July 15, 2002)*

10.5      Form  of  Indemnification   Agreement  (incorporated   by reference to
          Exhibit 10.6  of the Company's  Registration  Statement No.  333-89950
          on Form S-3/A filed July 15, 2002)

10.6      Form  of  Stock  Option Agreement, dated December 7, 1998, between the
          Company and the non-employee directors of the Company (incorporated by
          reference  to  Exhibit 10.15  of the  Company's  Annual Report on Form
          10-K filed March 31, 1999)*

10.7      Elective   Deferred   Compensation  Plan,  dated   February  26,  1999
          (incorporated by  reference to Exhibit 10.16 of the  Company's  Annual
          Report on Form 10-K filed March 31, 1999)*

10.8      Employment  Agreement,  dated  August 1,  1997,  between  the  Company
          and  Roderick  R.  Baty  (incorporated   by   reference   to   Exhibit
          10.14 of the Company's Form 10-Q filed November 14, 1997)*

10.9      Amendment  No.  1  to  Employment  Agreement  between  the Company and
          Roderick R. Baty, dated January 21, 2002 (incorporated by reference to
          Exhibit 10.18 of  the  Company's  Annual  Report  on  Form  10-K filed
          March 29, 2002)*

10.10     Change of Control  and  Noncompetition  Agreement  dated  January  21,
          2002  between  the  Company  and   Roderick R. Baty  (incorporated  by
          reference  to  Exhibit  10.19 of the  Company's  Annual Report on Form
          10-K filed March 29, 2002)*

10.11     Employment  Agreement,  dated  May  7, 1998, between  the  Company and
          Frank  T. Gentry  (incorporated  by  reference to Exhibit 10.14 of the
          Company's Annual Report on Form 10-K filed March 31, 1999)*

                                       68




10.12     Amendment No. 1 to Employment  Agreement between the Company and Frank
          T.  Gentry,  dated  January 21, 2002  (incorporated  by  reference  to
          Exhibit 10.16 of the Company's  Annual Report on Form 10-K filed March
          29, 2002)*

10.13     Change of Control and Noncompetition  Agreement dated January 21, 2002
          between the Company and Frank T. Gentry  (incorporated by reference to
          Exhibit 10.17 to the Company's  Annual Report on Form 10-K filed March
          29, 2002)*

10.14     Employment Agreement,  dated January 21, 2002, between the Company and
          Robert R. Sams  (incorporated  by  reference  to Exhibit  10.20 of the
          Company's Annual Report on Form 10-K filed March 29, 2002)*

10.15     Change of Control and Noncompetition  Agreement dated January 21, 2002
          between the Company and Robert R. Sams  (incorporated  by reference to
          Exhibit 10.21 of the Company's  Annual Report on Form 10-K filed March
          29, 2002)*

10.16     Employment  Agreement dated January 21, 2002,  between the Company and
          William C. Kelly,  Jr.  (incorporated by reference to Exhibit 10.22 of
          the Company's Annual Report on Form 10-K filed March 29, 2002)*

10.17     Change of Control  and  Noncompetition  Agreement,  dated  January 21,
          2002,  between the Company and William C. Kelly, Jr.  (incorporated by
          reference to Exhibit 10.23 of the Company's Annual Report on Form 10-K
          filed March 29, 2002)*

10.18     NN Euroball,  ApS Shareholder  Agreement dated April 6, 2000 among NN,
          Inc., AB SKF and FAG  Kugelfischer  Georg Shafer AG  (incorporated  by
          reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K
          filed March 29, 2002)

10.19     Frame Supply Agreement between Euroball S.p.A., Kugelfertigung Eltmann
          GmbH, NN Euroball Ireland Ltd. and Ascometal effective January 1, 2002
          (We have omitted certain  information  from the Agreement and filed it
          separately with the Securities and Exchange Commission pursuant to our
          request  for   confidential   treatment  under  Rule  24b-2.  We  have
          identified  the  omitted  confidential  information  by the  following
          statement,  "Confidential  portions of material  have been omitted and
          filed  separately  with the  Securities and Exchange  Commission,"  as
          indicated  throughout the document with an asterisk in brackets ([*]))
          (incorporated  by reference to Exhibit 10.26 of the  Company's  Annual
          Report on Form 10-K filed March 31, 2003)

10.23     Amendment No. 3 to NN, Inc.  Stock  Incentive  Plan as ratified by the
          shareholders  on May 15, 2003 amending the Plan to permit the issuance
          of awards under the Plan to directors of the Company  (incorporated by
          reference to Exhibit 10-1 of the  Company's  Quarterly  Report on Form
          10-Q filed August 14, 2003)*

10.24     Credit  Agreement  dated as of May 1,  2003  among  NN,  Inc.,  and NN
          Euroball as the Borrowers, the Subsidiaries as Guarantors, the Lenders
          as  identifies  therein,  AmSouth Bank as  Administrative  Agent,  and
          SunTrust Bank as Documentation Agent and Euro Loan Agent (incorporated
          by reference to Exhibit 10.2 of the Company's Quarterly Report on Form
          10-Q filed August 14, 2003)

10.25     Supply  Agreement  between NN  Euroball  ApS and AB SKF dated April 6,
          2000.  (We have omitted  certain  information  from the  Agreement and
          filed  it  separately  with the  Securities  and  Exchange  Commission
          pursuant to our request for  confidential  treatment under Rule 24b-2.
          We  have  identified  the  omitted  confidential  information  by  the
          following  statement,  "Confidential  portions of  material  have been
          omitted  and  filed   separately  with  the  Securities  and  Exchange
          Commission,  " as indicated  throughout the document with a n asterisk
          in  brackets([*])  (incorporated  by  reference to Exhibit 10.3 of the
          Company's Quarterly Report on Form 10-Q filed August 14, 2003)

10.26     Global Supply  Agreement  among NN, Inc., NN Netherlands  B.V. and SKF
          Holding  Maatschappij  Holland  B.V.  dated April 14,  2003.  (We have
          omitted certain information from the Agreement and filed it separately
          with the  Securities and Exchange  Commission  pursuant to our request
          for confidential

                                       69



          treatment   under  Rule  24b-2.   We  have   identified   the  omitted
          confidential  information  by the following  statement,  "Confidential
          portions of material have been omitted and filed  separately  with the
          Securities  and Exchange  Commission,  " as indicated  throughout  the
          document with a n asterisk in  brackets([*])(incorporated by reference
          to Exhibit 10.4 of the Company's  Quarterly  Report on Form 10-Q filed
          August 14, 2003)

10.27     Amendment No. 4 dated November 12, 2004, to the Credit Agreement dated
          May 1, 2003,  among NN, Inc. and NN Europe ApS as the  Borrowers,  the
          subsidiaries  as  Guarantors,  the Lenders as identified  therein,  Am
          South Bank as Administrative  Agent and SunTrust Bank as Documentation
          Agent and Euro Loan Agent.

10.28     Note  Purchase  Agreement  dated  April 22, 2004 among NN, Inc. as the
          Borrower and its Subsidiary  Guarantors  and the Prudential  Insurance
          Company of America as Agent for the Purchase.

21.1      List of Subsidiaries of the Company.

23.1      Consent of  PricewaterhouseCoopers  LLP, Independent Registered Public
          Accounting Firm

23.2      Consent of KPMG, LLP, Independent Registered Public Accounting Firm

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

- --------------
*    Management contract or compensatory plan or arrangement.




                                       70