NN, Inc.
Annual Report
2013
The statements included in this document may be forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of
risks and uncertainties that may cause actual results to be materially different from such forward-looking statements.
Such factors include, among others, general economic conditions and economic conditions in the industrial sector,
competitive influences, risks that current customers will commence or increase captive production, risks of capacity,
underutilization, quality issues, availability and price of raw materials, currency and other risks associated with
international trade, the Company’s dependence on certain major customers, and other risk factors and cautionary
statements listed from time to time in the Company’s periodic reports filed with the Securities and Exchange
Commission, including, but not limited to, the Company’s Annual Report on 10-K for the fiscal year ended December
31, 2013.
Letter to Shareholders
To our Shareholders,
Since joining the Company as President and Chief Executive Officer in June of last year, I’ve had the
opportunity to meet with many of our 2,000 employees around the globe as well as numerous
customers. I’ve also had the privilege of meeting with a number of our shareholders both one-on-one
and at our first Analyst Day in January of 2014. These meetings have provided me and our management
team with your perspective and we have gained valuable insight concerning our plans to grow NN going
forward.
Regarding 2013, we finished the year strong despite sales being negatively impacted by continued weak
economic conditions in Europe and our deliberate decision to shed certain non-core, non-strategic
products and customer platforms. As a result of the divestitures we made, NN is now well positioned
for future growth at higher levels of profitability. We are encouraged by the sales momentum we
experienced in Europe in the last three quarters of 2013. Our fourth quarter revenues were up 10.0% in
currency adjusted numbers compared to the fourth quarter of 2012. Along with the positive revenue
trend, we have been able to leverage strong incremental profits for each additional dollar of revenue
generated.
During 2013, we continued to strengthen our balance sheet having reduced net debt by $17.1 million.
We accomplished this while at the same time reinstating our quarterly dividend in June of last year. The
increase in our stock price and the reinstatement of the dividend produced a total shareholder return of
121% in 2013, versus 31% for the S&P 500. In February of this year, the Board of Directors increased the
dividend 16.6% to $0.07 per share reflecting our commitment to providing increased value to
shareholders.
2013 Overview
Net sales for full year 2013 were $373.2 million, an increase of $3.1 million, or 1.0% compared to net
sales of $370.1 million for full year 2012. Lower demand due mainly to weak European automotive end
markets and slowing Asian economic growth in the first half of the year gave way to improved economic
conditions and greater demand in European, North American and Asian automotive markets in the
second half of the year.
Pre-tax income for the full year of 2013 was $25.2 million, compared to $20.3 million for full year of
2012. This increase was due to improved operating performance at our divisions. Reported net income
for the full year of 2013 was $17.2 million, or $1.00 per diluted share compared to $24.3 million or $1.42
per diluted share for the comparable period last year. Full year 2012 taxes included a onetime $7.3
million benefit related to deferred tax accounting.
Executing our Strategic Plan
It’s both exciting and a privilege to be at the helm of such an outstanding company as NN, Inc. Its rich
history, culture and financial strength provide a solid foundation to further build upon. During the past
year, the Board and management team worked hard to develop a five-year strategic growth plan to
propel our vision of being the leading manufacturer of high-performance precision components.
Everyone at NN is fully on board and dedicated to further enhancing NN’s global position in its current
core businesses as well as growing the company through the identification and development of new
strategic growth opportunities.
We formally introduced our revised and enhanced business strategy on January 30, 2014 during our
investor day meeting in New York City. A key component of the plan is our commitment to
aggressively pursue acquisitive and organic growth opportunities in our core and adjacent markets in
order to grow NN’s annual sales of $373 million in 2013 to $800 million in 2018. We currently expect
approximately 60% of this growth will come from acquisitions, approximately 20% from growth in
adjacent markets and approximately 14% from organic growth, leaving approximately 6% from
European economic recovery.
On February 4, 2014 we announced the acquisition of the assets of V-S Industries, a manufacturer of
precision metal components. The portfolio of V-S products is complementary to the Whirlaway
Products and we will roll up the operations under the NN Precision Metals Components Group. V-S will
provide us with a broader product offering and will allow penetration into adjacent markets. We are
actively involved in other discussions and would expect to make additional acquisitions during the year.
Our strategic plan also calls for specific growth targets, including compound annual growth rates of:
earnings per share of 31%, sales of 21% and EBIT of 31%. Specific return targets of 13% return on
invested capital and 5% free cash to sales. These are bold, aggressive goals, but ones that our Board of
Directors and management team strongly believe are obtainable and are strongly committed to
achieving.
2014 Outlook
We entered 2014 with great enthusiasm and expect the positive revenue momentum that we
experienced over the last three quarters to carry into the year. While we are optimistic about this
positive trend and the opportunities in 2014, we are sensitive to the prolonged general economic
uncertainty hanging over the markets as well as the weakness in European automotive markets and in
particular European industrial markets. Putting all of this together along with the positive effects of the
strategic initiatives that we have begun executing, we are forecasting 2014 sales to be in the range of
$400 million to $415 million. This guidance does not include any additional potential acquisitions we
may close in 2014, but does include approximately $15 million of incremental revenues from the assets
of V-S Industries. We are well positioned to fund our organic and acquisitive growth plans as well as
shareholder value initiatives, all of which are key components of our strategic plan.
On behalf of the Board of Directors, we thank our customers, shareholders, employees and all
stakeholders for their continued support and their contributions during 2013 and are looking forward to
further progress and success in 2014.
Richard D. Holder
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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
(State or other jurisdiction of
incorporation or organization)
2000 Waters Edge Drive
Johnson City, Tennessee
(Address of principal executive offices)
62-1096725
(I.R.S. Employer
Identification No.)
37604
(Zip Code)
Registrant's telephone number, including area code: (423) 743-9151
Securities registered pursuant to Section 12(b) of the Act:
Title of
each class
Name of each exchange
on which registered
Common Stock, par value $.01
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Accelerated filer Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2013, based on the closing price on the
NASDAQ Stock Market LLC on that date was approximately $197,000,000.
The number of shares of the registrant's common stock outstanding on March 11, 2014 was 17,649,567
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the 2013 Annual Meeting of Stockholders are incorporated by reference in Part III,
Items 10 to 14 of this Annual Report on Form 10-K as indicated herein.
Forward-Looking Statements
PART I
We wish to caution readers that this report contains, and our future filings, press releases and oral statements made by
our 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. Our actual results could differ materially from those
expressed in such forward-looking statements due to important factors bearing on our business, many of which
already have been discussed in this filing and in our prior filings. The differences could be caused by a number of
factors or combination of factors including the risk factors discussed in “Item 1A Risk Factors” of this Annual Report
on Form 10-K.
Item 1.
Business Overview
NN, Inc. has three operating segments, the Metal Bearing Components Segment, the Plastic and Rubber Components
Segment, and the Precision Metal Components Segment. 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.
Within the Metal Bearing Components Segment, we manufacture and supply high precision bearing components,
consisting of balls, cylindrical rollers, tapered rollers, and metal retainers, for leading bearing and CV-joint
manufacturers on a global basis. We are a leading independent manufacturer of precision steel bearing balls and
rollers for the North American, European and Asian markets. In 2013, Metal Bearing Components accounted for
70% of total NN, Inc. sales. Sales of balls and rollers accounted for approximately 65% of our total net sales with
45% of sales from balls and 20% of sales from rollers. Sales of metal bearing retainers accounted for 5% of net sales.
Through a series of acquisitions and plant expansions, we have built upon our strong core ball business and expanded
our bearing component product offering. Today, we offer one of the industry’s most complete lines of commercially
available bearing components. We emphasize engineered products that take advantage of our competencies in
product design and tight tolerance manufacturing processes. Our customers use our components in fully assembled
ball and roller bearings and CV-joints, which serve a wide variety of industrial applications in the automotive,
electrical, agricultural, construction, machinery, heavy truck, rail, and mining markets.
Within the Plastic and Rubber Components Segment, we manufacture high precision rubber seals and plastic
retainers for leading bearing manufacturers on a global basis. In addition, we manufacture specialized plastic
products including automotive components, electronic instrument cases and other molded components used in a
variety of industrial and consumer applications. Finally, we also manufacture rubber seals for use in various
automotive, industrial and mining applications. In 2013, plastic products accounted for 6% of net sales and rubber
seals accounted for 3% of net sales.
Our Precision Metal Components Segment is comprised of the Whirlaway Corporation (“Whirlaway”). Whirlaway is
a manufacturer of highly engineered, difficult to manufacture precision metal components and subassemblies for the
automotive, HVAC, fluid power and diesel engine markets. Our entry into the precision metal components market in
2006 is part of our strategy to serve markets and customers we view as adjacent to bearing components that utilize
our core manufacturing competencies. These products accounted for 21% of net sales in 2013.
The three business segments are composed of the following manufacturing operations:
Metal Bearing Components Segment
Erwin, Tennessee Ball and Roller Plant (“Erwin Plant”)
Mountain City, Tennessee Ball Plant (“Mountain City Plant”)
Pinerolo, Italy Ball Plant (“Pinerolo Plant”)
Veenendaal, The Netherlands Roller and Stamped Metal Parts Plant (“Veenendaal Plant”)
Kysucke Nove Mesto, Slovakia Ball Plant (“Kysucke Plant”)
Kunshan, China Ball Plant (“Kunshan Plant”)
Plastic and Rubber Components Segment
Delta Rubber Company, Danielson, Connecticut Rubber Seal Plant (“Danielson Plant”)
Industrial Molding Corporation, Inc. Lubbock, Texas Plastic Injection Molding Plant (“Lubbock Plant”)
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Precision Metal Components Segment
Whirlaway Corporation, Wellington, Ohio Metal Components Plant 1 (“Wellington Plant 1”)
Whirlaway Corporation, Wellington, Ohio Metal Components Plant 2 (“Wellington Plant 2”)
Financial information about the segments is set forth in Note 11 of the Notes to Consolidated Financial Statements.
Corporate Information
NN, originally organized in October 1980, is incorporated in Delaware. Our principal executive offices are located at
2000 Waters Edge Drive, Johnson City, Tennessee, and our telephone number is (423) 743-9151. Our website
address is www.nninc.com. Information contained on our website 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 related amendments are
available via a link to “SEC.gov” on our website under “Investor Relations.” Additionally, all required interactive
data pursuant to Item 405 of Regulation S-T is posted on our website.
Products
Metal Bearing Components Segment
Precision Steel Balls. At our Metal Bearing Components Segment facilities (with the exception of our Veenendaal
Plant), we manufacture and sell high quality, precision steel balls in sizes ranging in diameter from 5/32 of an inch
(3.969 mm) to 3.5 inches (88.9 mm). We produce and sell balls in grades ranging from grade 3 to grade 1000,
according to international standards endorsed by the American Bearing Manufacturers Association. The grade
number for a ball, in addition to defining allowable dimensional variation within production batches, indicates the
degree of spherical precision of the ball; for example, grade 3 balls are manufactured to within three-millionths of an
inch of roundness. Our steel balls are used primarily by manufacturers of anti-friction bearings and constant velocity
joints where precise spherical, tolerance and surface finish accuracies are required. Sales of precision steel balls
accounted for approximately 65%, 67%, and 67% of the Metal Bearing Components Segment net sales in 2013,
2012, and 2011, respectively.
Steel Rollers. We manufacture tapered rollers at our Veenendaal and Erwin Plants and cylindrical rollers at our
Erwin Plant. Rollers are an alternative rolling element used instead of balls in anti-friction bearings that typically
have heavier loading or different speed requirements. Our roller products are used primarily for applications similar
to those of our precision steel ball product line, plus certain non-bearing applications such as hydraulic pumps and
motors. Tapered rollers are a component 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. Most
cylindrical rollers are made to specific customer requirements for diameter and length and are used in a variety of
industrial applications. Tapered rollers accounted for approximately 24%, 21%, and 21% of the Metal Bearing
Components Segment net sales in 2013, 2012 and 2011, respectively. Cylindrical rollers accounted for
approximately 5% of the Metal Bearing Components Segment net sales in each of 2013, 2012, and 2011.
Metal Retainers. We manufacture and sell precision metal retainers for roller bearings used in a wide variety of
industrial applications. Retainers are used to separate and space the rolling elements (rollers) within a fully
assembled bearing. We manufacture metal retainers at our Veenendaal Plant.
Plastic and Rubber Components Segment
Bearing Seals. At our Danielson Plant, 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 and mining
markets.
Plastic Retainers. At our Lubbock Plant, we manufacture and sell precision plastic retainers for ball and roller
bearings used in a wide variety of industrial applications. Retainers are used to separate and space the rolling
elements (balls or rollers) within a fully assembled bearing.
3
Precision Plastic Components. At our Lubbock Plant, 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 industrial and consumer parts.
Precision Metal Components Segment
Precision Metal Components. We sell a wide range of highly engineered precision metal components and
subassemblies. The precision metal components offered include highly engineered shafts, mechanical components,
fluid system components and complex precision assembled and tested parts. The products are used in the following
end markets: automotive, HVAC, fluid power and diesel engine.
Research and Development
With our new corporate strategy, we are in the process of enhancing our research and development efforts. We will
initially focus on adjacent markets, manufacturing process enhancements and continuing to improve our product
quality. In general, these research and development efforts will entail using dedicated internal experts and resources.
The amounts spent on research and development activities by us during each of the last three fiscal years are not
material and are expensed as incurred.
Customers
Our products are supplied primarily to bearing manufacturers and automotive and industrial parts manufacturers for
use in a broad range of industrial applications, including automotive, electrical, agricultural, construction, machinery
and mining. Additionally, we supply precision metal, rubber, and plastic components to automotive and industrial
companies that are not used in bearing assemblies. We supply approximately 400 customers; however, our top ten
customers account for approximately 78% of our revenue. Sales to each of these top ten customers are made to
multiple customer locations and divisions throughout the world. Only one of these customers, AB SKF (“SKF”), had
sales levels that were over 10% of total net sales. Sales to various U.S. and foreign divisions of SKF accounted for
approximately 36% of net sales in 2013. In 2013, 46% of our products were sold to customers in North America,
40% to customers in Europe, 10% to customers in Asia and the remaining 4% to customers in South America.
We sell our products to most of our largest customers under either sales contracts or agreed upon commercial terms.
In general, we pass through material cost fluctuations when incurred to our customers in the form of changes in
selling prices. We ordinarily ship our products directly to customers within 60 days, and in many 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. At the U.S. operations of our Metal Bearing
Components Segment, we maintain a computerized, bar coded inventory management system with certain 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, additional product is automatically shipped.
Additionally, we have consignment inventory arrangements with customers within our European and Asian
operations of the Metal Bearing Components Segment.
During 2013, the Metal Bearing Components Segment sold products to approximately 300 customers located in 30
different countries. Approximately 84% of the net sales in 2013 were to customers outside the United States.
Approximately 57% of net sales in 2013 were to customers within Europe. Sales to the segment’s top ten customers
accounted for approximately 88% of the net segment sales in 2013.
During 2013, the Plastic and Rubber Components Segment sold its products to over 100 customers located
principally in North America. Approximately 25% of the Plastic and Rubber Components Segment’s net sales were
to customers outside the United States, with the majority of those sales to customers in Mexico, Canada & Asia.
Sales to the segment’s top ten customers accounted for approximately 55% of the segment’s net sales in 2013.
During 2013, the Precision Metal Components Segment sold its products to 21 customers located in four countries.
Approximately 93% of all sales were to customers located within the United States. Sales to the segment’s top ten
customers accounted for approximately 99% of the segment’s net sales in 2013.
In both the foreign and domestic markets, we principally sell our products directly to manufacturers and do not sell
significant amounts through distributors or dealers.
4
See Note 12 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.
The following table presents a breakdown of our net sales for fiscal years 2013, 2012 and 2011:
(In Thousands)
2013
2012
2011
Metal Bearing Components Segment
Percentage of Total Sales
Precision Metal Components Segment
Percentage of Total Sales
Plastic and Rubber Components Segment
Percentage of Total Sales
$ 259,459 $ 252,241 $ 308,883
72.7%
69.5%
68.2%
78,756
21.1%
34,991
9.4%
76,746
20.7%
41,097
11.1%
72,272
17.0%
43,536
10.3%
Total
$ 373,206 $ 370,084 $ 424,691
Percentage of Total Sales
100%
100%
100%
The change in value of Euro denominated sales when converted to U.S. Dollars resulted in net sales increasing $5.6
million in 2013 compared to 2012 and decreasing $11.7 million in 2012 compared to 2011.
Sales and Marketing
A primary emphasis of our marketing strategy is to expand key customer relationships by offering high quality, high
precision application specific customer solutions with the value of a single supply chain partner for a wide variety of
products and components. 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. For the Precision Metal Components Segment and the
Plastics and Rubber Components Segment, the current sales structure consists of using a direct sales force supported
by senior segment management and engineering involvement with manufacturers’ representatives utilized to
supplement our direct sales force.
Our Metal Bearing Components Segment marketing strategy focuses on our ability to provide consistent, high quality
products that meet the most precise specifications of leading global brands. Our marketing strategy for the Plastic
and Rubber Components Segment and the Precision Metal Components Segment is to offer custom manufactured,
high quality, precision products to 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 and
assemblies, enabling us to take advantage of our strengths in custom product development, equipment and tool
design, component assembly and machining processes.
Our arrangements with both our U.S. and European customers typically provide that payments are due within 30 to
60 days following the date of shipment of goods. With respect to export customers of both our U.S. and European
businesses, payments generally are due within 60 to 120 days following the date of shipment in order to allow for
additional freight time and customs clearance. For some customers that participate in our 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."
Manufacturing Process
We have become a leading independent bearing component manufacturer through exceptional service and high
quality manufacturing processes. Because our ball and roller manufacturing processes incorporate the use of
standardized tooling, sizes, and process technology, we are able to produce large volumes of products cost
competitively, while maintaining high quality standards.
The key to our high quality production of seals and retainers is the incorporation of customized engineering into our
manufacturing processes, metal to rubber bonding competencies and experience with a broad range of engineered
resins and custom polymers. This design process includes the testing and quality assessment of each product.
5
Within the precision metal components industry, we are well positioned in the market by virtue of our focus on
highly engineered, difficult to manufacture critical components, product development and component subassemblies.
Employees
As of December 31, 2013, we employed a total of 1,721 full-time employees and 140 full time equivalent temporary
workers. The following numbers are for full time employees only. Our Metal Bearing Components Segment
employed 265 in the U.S., 680 in Europe and 143 in China; our Plastic and Rubber Components Segment employed
215, all in the U.S.; and our Precision Metal Components Segment employed 409, all in the U.S. In addition, there
were nine employees at our corporate headquarters. Of our total employment, 19% are management/staff employees
and 81% are production employees. The employees at the Pinerolo and Veenendaal Plants are unionized. We have
excellent employee relations throughout NN and we have never experienced any significant involuntary work
stoppages.
Competition
The Metal Bearing Components Segment of our business is intensely competitive. Our primary domestic competitor
is Hoover Precision Products, Inc., a wholly owned U.S. subsidiary of Tsubaki Nakashima Co., LTD. Our primary
foreign competitors are Amatsuji Steel Ball Manufacturing Company, Ltd. (Japan), a wholly owned division of NSK
LTD., Tsubaki Nakashima Co., LTD (Japan) and Jiangsu General Ball and Roller Co., LTD (China). Additionally,
we compete with bearing manufacturers’ in house (captive) production.
We believe that competition within the Metal Bearing Components Segment 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 wide product assortment, our reputation for consistent quality and
reliability, our global manufacturing footprint 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, we must compete with numerous companies in each
industry market segment. Many of these companies have substantially greater financial resources than we do and
many currently offer competing products nationally and internationally. Our primary competitor in the plastic bearing
retainer market is Nakanishi Manufacturing Corporation. Domestically, Nypro, Inc. and C&J Industries are among
the main competitors in the precision plastic components markets.
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 our competitive strengths are
product development, tool design, fabrication, and tight tolerance molding processes. With these strengths, we have
built our reputation in the marketplace as a quality producer of technically difficult products.
While intensely competitive, the markets for our rubber seal products are less fragmented than our plastic injection
molding products. The bearing seal market is comprised of approximately six major competitors that range from
small privately held companies to large global enterprises. Bearing seal manufacturers compete on design, service,
quality and price. Our primary competitors in the U.S. bearing seal market are Freudenberg-NOK, Trelleborg,
Trostel, Uchiyama and Paulstra/Hutchinson.
In the Precision Metal Components Segment market, internal production of components by our customers can impact
our business as the customers weigh the risk of outsourcing strategically critical components or producing in-house.
Our primary outside competitors are Linamar, Stanadyne, A. Berger, C&A Tool, American Turned Products,
Camcraft and Autocam. We generally win new business on the basis of technical competence and our proven track
record of successful product development.
Raw Materials
The primary raw material used in our core ball and roller business of the Metal Bearing Components Segment is
52100 Steel, which is high quality chromium steel. Our other steel requirements include metal strip, stainless steel,
and type S2 rock bit steel.
The Metal Bearing Components Segment businesses purchase substantially all of their 52100 Steel requirements
from suppliers in Europe and Japan and all of their metal strip requirements from European suppliers and traders.
6
The principal suppliers of 52100 Steel for our U.S. businesses are Daido Steel, Kobe Steel, Ascometal and Ovako.
The principal suppliers of 52100 Steel for our European businesses are Ascometal, Ovako, Kobe Steel and Daido
Steel while the principal suppliers of metal strip are Thyssen and Theis. If any of our current suppliers were unable
to supply 52100 Steel to us, 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 composition, quality, availability and price. For precision steel balls, the pricing
arrangements with our suppliers are typically subject to adjustment every three to six months in the U.S. and
contractually adjusted on an annual basis within the European locations for the base steel price and quarterly for
surcharge adjustments. In general, we do not enter into written supply agreements with suppliers or commit to
maintain minimum monthly purchases of steel except for the year to year supply arrangement between Ascometal
and the European operations of our Metal Bearing Components Segment.
Because 52100 Steel is principally produced by non-U.S. manufacturers, our 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. The value of the U.S. Dollar factors into the steel price as the
suppliers' base currencies are the Euro and Japanese Yen.
The Metal Bearing Components Segment has historically been affected by upward price pressure on steel principally
due to general increases in global demand and global increased consumption of steel. In general, we pass through
material cost fluctuations to our customers in the form of changes in selling price.
For the Plastic and Rubber Components Segment, we base purchase decisions on quality, service and price.
Generally, we do not enter into written supply contracts with our suppliers or commit to maintain minimum monthly
purchases of resins, rubber compounds or metal stampings.
The primary raw materials used by the Plastic and Rubber Components Segment are engineered resins, injection
grade nylon and proprietary rubber compounds. 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 use certified vendors to provide a custom mix of
proprietary rubber compounds. This segment also procures metal stampings from several domestic and foreign
suppliers.
The Precision Metal Components Segment produces products from a wide variety of metals in various forms from
various sources primarily located in the U.S. Basic types include hot rolled steel, cold rolled steel (both carbon and
alloy), stainless, extruded aluminum, die cast aluminum, gray and ductile iron castings, hot and cold forgings and
mechanical tubing. Some material is purchased directly under contracts, some is consigned by the customer, and
some is purchased directly from the steel mills.
On August 22, 2012, the U.S. Securities and Exchange Commission (“SEC”) issued a rule under Section 1502 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act requiring companies to publicly disclose their use of
conflict minerals that originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country. Under
the rule, issuers are required to conduct a reasonable due diligence process to ascertain the source of conflict
minerals, defined as tantalum, tin, gold or tungsten, that are necessary to the functionality or production of their
manufactured or contracted to be manufactured products. Companies are required to provide this disclosure on a new
form to be filed with the SEC called Form SD. Companies are required to file Form SD by May 31, 2014 for the
2013 calendar period and annually by May 31 every year thereafter.
Based on diligence conducted within our supply chain, we have determined that conflict minerals are not necessary to
the functionality or production of the products manufactured by us, and further based on a reasonable country of
origin inquiry, we have determined that any conflict minerals that might be contained in such products did not
originate in the DRC or an adjoining country, or such conflict minerals originated from recycled or scrap materials.
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
7
confidentiality agreement that seeks to protect this information. Additionally, all employees are subject to company
ethics policies that prohibit the disclosure of information critical to the operations of our business.
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 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. In the Metal Bearing
Components Segment, the Kysucke Plant, the Veenendaal Plant, the Pinerolo Plant and Kunshan Plant are ISO 14000
or 14001 certified and all received the EPD (Environmental Product Declaration), except for the Veenendaal Plant’s
stamped metal parts business. 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
could have a material adverse effect on our business and financial condition. We have assessed conditional asset
retirement obligations and have found them to be immaterial to the consolidated financial statements. We cannot
assure 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 waste in material compliance with applicable environmental laws and regulations, we cannot be
certain that we will not incur significant liabilities in the future in connection with the clean-up of waste disposal
sites. We maintain long-term environmental insurance covering the four manufacturing locations purchased with the
Whirlaway acquisition (two of which have ceased operations). We are currently a potentially responsible party of a
remedial action at a former waste recycling facility used by us. See Item 3 and Note 15 of the Notes to Consolidated
Financial Statements.
Executive Officers of the Registrant
Our executive officers are:
Name
Richard D. Holder
Frank T. Gentry, III
James H. Dorton
Age Position
51
58
57
Chief Executive Officer and President
Senior Vice President – Managing Director, Metal Bearing Components
Senior Vice President – Corporate Development and Chief Financial Officer,
General Manager Plastic and Rubber Components
Thomas C. Burwell, Jr.
William C. Kelly, Jr.
Jeffrey H. Hodge
James R. Widders
45 Vice President – Chief Accounting Officer and Corporate Controller
55 Vice President – Chief Administrative Officer, Secretary, and Treasurer
52 Vice President – General Manager, U.S. Ball and Roller and NN Asia Divisions
57 Vice President – General Manager, Precision Metal Components Division
Set forth below is certain additional information with respect to each of our executive officers.
Richard D. Holder was named President and Chief Executive Officer effective June 3, 2013. Prior to joining NN, he
held a variety of leadership positions at Eaton Corp., a diversified global leader in power management and electrical
systems. Most recently, he served as the President of Eaton Electrical Components, a division of Eaton's Electrical
Sector from 2010 to 2013. Other leadership positions at Eaton include Executive Vice President of Eaton Business
Systems from 2007 to 2010, Vice President and General Manager of the Power Distribution and Assemblies Division
from 2004 to 2006, and Vice President Supply Chain and Operational Excellence from 2001 to 2004. Prior to joining
Eaton, Holder served as Director of Aircraft and Technical Purchasing for US Airways and also held a variety of
leadership positions at AlliedSignal Corp. and Parker Hannifin Corp.
Frank T. Gentry, III, was appointed Vice President – Managing Director Metal Bearing Components Division in
April 2009 and promoted to Senior Vice President in May 2010. Prior to that, Mr. Gentry was Vice President –
General Manager U.S. Ball and Roller Division from August 1995. Mr. Gentry joined NN in 1981 and held various
manufacturing management positions within NN from 1981 to August 1995.
8
James H. Dorton joined NN as Vice President of Corporate Development and Chief Financial Officer in June 2005.
In May 2010, he was promoted to Senior Vice President. In January 2012, Mr. Dorton assumed the additional
responsibility of General Manager of the Plastic and Rubber Components Segment of NN. Prior to joining NN, Mr.
Dorton served as Executive Vice President and Chief Financial Officer of Specialty Foods Group, Inc. from 2003 to
2004, Vice President Corporate Development and Strategy and Vice President – Treasurer of Bowater Incorporated
from 1996 to 2002 and as Treasurer of Intergraph Corporation from 1989 to 1996. Mr. Dorton is a Certified Public
Accountant.
Thomas C. Burwell, Jr. joined NN as Corporate Controller in September 2005. He was promoted to Vice President
Chief Accounting Officer and Corporate Controller in 2011. Prior to joining NN, Mr. Burwell held various positions
at Coats, PLC from 1997 to 2005 ultimately becoming the Vice President of Finance for the U.S. Industrial Division.
From 1992 to 1997, Mr. Burwell held various positions at the international accounting firm BDO Seidman, LLP. Mr.
Burwell is a Certified Public Accountant.
William C. Kelly, Jr. was named Vice President and Chief Administrative Officer in June 2005. In March, 2003, Mr.
Kelly was elected to serve as Chief Administrative Officer. In March 1999, he was elected Secretary of NN and still
serves in that capacity as well as that of Treasurer. In February 1995, Mr. Kelly was elected Treasurer and Assistant
Secretary. He 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. 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.
Jeffrey H. Hodge joined NN in 1989 and has served various roles including Operations Manager, Plant Manager and
Corporate Manager of Level 3 (Lean Enterprise, Six Sigma, TPM) from 2003 to 2009 before accepting his current
role in 2009 as Vice President and General Manager of U.S. Ball & Roller and NN Asia Divisions. Prior to joining
NN, Mr. Hodge was a member of the U.S. military from 1985 to 1989.
James R. Widders was named Vice President and General Manager of the Precision Metal Components Division on
December 15, 2010. Mr. Widders had 13 years of service at Whirlaway prior to its acquisition by NN. Prior to
joining NN, he served as Vice President and General Manager at Technifab, Inc. a manufacturer of molded foam
components for the Aerospace industry and in various management positions with GE Superabrasives, a division of
General Electric.
Corporate Developments
On September 4, 2012, the Board of Directors announced that Chairman and Chief Executive Officer, Roderick R.
Baty informed the Board that he will retire from his positions of Chairman, Chief Executive Officer and President.
Mr. Baty’s retirement was effective June 3, 2013.
Item 1A. Risk Factors
The following are risk factors that affect our business, financial condition, results of operations, and cash flows,
some of which are beyond our control. These risk factors should be considered in connection with evaluating the
forward-looking statements contained in this Annual Report on Form 10-K. If any of the events described below
were to actually occur, our business, financial condition, results of operations or cash flows could be adversely
affected and results could differ materially from expected and historical results.
From time to time a large portion of our capital structure may be in the form of debt. As such, we continue to
heavily rely on our current lenders as a major source of long term capital.
We are dependent on the continued provision of financing from our revolving credit lenders and our fixed rate notes
lenders for a major portion of our capital structure. As such we must continually meet our existing financial and non-
financial covenants or risk potential default. In the event of default, the degree to which our current lenders and/or
potential future lenders will continue to lend to us will depend in large part on our results from operations and near
term business prospects at the time of the default.
A recession impacting both U.S. and European automotive and industrial markets once again could have a
material adverse effect on our ability to finance our operations and implement our growth strategy.
9
During the three month period ended December 31, 2008 and the year ended December 31, 2009, we experienced a
sudden and significant reduction in customer orders driven by reductions in automotive and industrial end market
demand across all our businesses. Additionally, during the latter part of 2011 and all of 2012, we experienced the
impacts of a European recession in our European businesses. Prior to this time, our company had never been affected
by a recession that had impacted both of our key geographic markets of the U.S. and Europe simultaneously. If we
are impacted by a global recession in the future, this could have a material adverse effect on our financial condition,
results of operations and cash flows from operations and could lead to additional restructuring and/or impairment
charges being incurred. However, we believe we would be in a much better position to weather any recession or
economic downturn given the actions taken to permanently reduce our cost base including closing or ceasing
operations at four former manufacturing locations.
The demand for our products is cyclical, which could adversely impact our revenues.
The end markets for fully assembled bearings and industrial and automotive components are cyclical and tend to
decline in response to overall declines in industrial and automotive production. As a result, the market for the
bearing components and precision metal, plastic, and rubber products we sell is also cyclical and impacted by overall
levels of industrial and automotive production. Our sales have been, and can be in the future, 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. Additionally, inflation in oil and the resulting higher gasoline prices could
have a negative impact on demand for our products as a result of consumer and corporate spending reductions.
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 our metal bearing components 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. operations of our Metal Bearing Components Segment from non-U.S.
suppliers. In addition, we obtain most of the steel used in our European operations 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. Problems in obtaining steel, particularly 52100 chrome steel
in the quantities that we require on commercially reasonable terms could increase our costs, adversely impacting our
ability to operate our business efficiently and have a material adverse effect on our revenues and operating and
financial results.
Increases in the market demand for steel can have the impact of increasing scrap surcharges we pay in procuring our
steel in the form of higher unit prices and could adversely impact the availability of steel. Our commercial terms
with key customers allow us to pass along steel price fluctuations through changing the customers’ selling prices.
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, one of the largest bearing manufacturers in the world, accounted
for approximately 36% of consolidated net sales in 2013. No other customers accounted for more than 10% of sales.
During 2013, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately
78% of our consolidated net sales. 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 risks related to doing
business internationally.
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:
10
adverse foreign currency fluctuations;
changes in trade, monetary and fiscal policies, laws and regulations, and other activities of
governments, agencies and similar organizations;
the potential imposition of trade restrictions or prohibitions;
a U.S. Federal Tax code that discourages the repatriation of funds to the U.S.;
the potential imposition of import or other duties or taxes; and
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 change in the value of the Euro relative to the U.S. Dollar can 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 of each year will be lower than in the other quarters of the year.
Failure of our product could result in a product recall.
The majority of our products go into bearings used in the automotive industry and other critical industrial
manufacturing applications. A failure of our components could lead to a product recall. If a recall were to happen as
a result of our components failing, we could bear a substantial part of the cost of correction. In addition to the cost of
fixing the parts affected by the component, a recall could result in the loss of a portion of or all of the customers’
business. To partially mitigate these risks, we carry limited product recall insurance and have invested heavily in the
TS16949 quality program.
The costs and difficulties of integrating acquired businesses could impede our future growth.
We cannot assure you that any future acquisition will enhance our financial performance. Acquiring companies
involves inherent risk in the areas of environmental and legal issues, information technology, cultural and regulatory
matters, product/supplier issues, and financial risk. 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.
Acquisitions constitute a majority of our future growth strategy.
Acquiring businesses that complement or expand our operations has been and continues to be a key element of our
business strategy. This strategy calls for growth through acquisitions constituting a majority of our future growth
objectives, with the remainder resulting from organic growth and increased market penetration. 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 borrowing
agreements limit our ability to complete acquisitions without prior approval of our lenders.
Our growth strategy depends in part on companies outsourcing critical components, and if outsourcing does not
continue, our business could be adversely affected.
Our growth strategy depends in part on major customers continuing to outsource components and expanding the
number of components being outsourced. This requires manufacturers to depart significantly from their traditional
11
methods of operations. If major customers do not continue to expand outsourcing efforts or determine to reduce their
use of outsourcing, our ability to grow our business could be materially adversely affected.
Our market is highly competitive and many of our competitors have significant advantages that could adversely
affect our business.
The global markets for precision bearing components, precision metal components and plastic and rubber
components are highly competitive, with a majority of production represented by the captive production operations of
large 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 we do. 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.
Our production capacity has been expanded geographically in recent years to operate in the same markets as our
customers.
We have expanded our metal bearing components production facilities and capacity over the last several years.
Historically, metal bearing component production facilities have not always operated at full capacity. Over the past
several years, we have undertaken steps to address a portion of the capacity risk including closing or ceasing
operations at certain plants and downsizing employment levels at others. As such, the risk exists that our customers
may exit the geographic markets in which our production capacity is located and/or develop vendors in lower cost
countries in which we do not have production capacity.
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:
economic recession or other macro-economic factors;
our operating and financial performance and prospects;
quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net
income and revenues;
changes in revenue or earnings estimates or publication of research reports by analysts;
loss of any member of our senior management team;
speculation in the press or investment community;
strategic actions by us or our competitors, such as acquisitions or restructurings;
sales of our common stock by stockholders;
general market conditions;
domestic and international economic, legal and regulatory factors unrelated to our performance;
loss of a major customer; and
the declaration and payment of a dividend.
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
12
common stock. In addition, due to the market capitalization of our stock, our stock tends to be more volatile than
large capitalization stocks that comprise the Dow Jones Industrial Average or Standard and Poor’s 500 Index.
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 shareholders from receiving a takeover premium for their shares. These provisions include, for example, a
classified board of directors and the authorization of our board of directors to issue up to 5.0 million preferred shares
without a stockholder vote. In addition, our restated certificate of incorporation provides that stockholders may not
call a special meeting.
We are a Delaware corporation subject to the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Generally, this statute prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after the date of the transaction in which such
person became an interested stockholder, unless the business combination is approved in a prescribed manner. A
business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the
stockholder. We anticipate that the provisions of Section 203 may encourage parties interested in acquiring us to
negotiate in advance with our board of directors, because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination or the transaction that results in the
stockholder becoming an interested stockholder.
These provisions apply even if the offer may be considered beneficial by some of our stockholders. If a change of
control or change in management is delayed or prevented, the market price of our common stock could decline.
Item 1B. Unresolved Staff Comments
None
Item 2.
Properties
The manufacturing plants for each of our segments are listed below. In addition, we lease a portion of a small office
building in Johnson City, Tennessee which serves as our corporate offices.
Metal Bearing Components Segment
Approximate
Manufacturing Operation
Erwin Plant
Mountain City Plant
Kilkenny Plant (non-operating)
Pinerolo Plant
Kysucke Plant
Veenendaal Plant
Kunshan Plant Phase I
Kunshan Plant Phase II
Country
U.S.A.
U.S.A.
Ireland
Italy
Slovakia
The Netherlands
China
China
Sq. Feet
155,000
86,000
125,000
330,000
135,000
159,000
110,000
75,000
Owned or Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
The Kunshan Plant leases are accounted for as a capital lease and we have an option to purchase the facilities at
various points in the future. Production at the Kilkenny Plant ceased on February 6, 2009 and was moved to other
European Metal Bearing Components operations. The Kilkenny property is being made ready for sale with any
expected sale to occur later than a year from the date of this report. As such, the property is still considered to be
held and used for which the carrying value of approximately $800,000 at December 31, 2013 approximates its fair
value. We do not expect to close any facilities or incur any losses from the sale of our real property within the next
twelve months from the date of this report.
13
Plastic and Rubber Components Segment
Manufacturing Operation
Danielson Plant
Lubbock Plant
Precision Metal Components Segment
Manufacturing Operation
Wellington Plant 1
Wellington Plant 2
Country
U.S.A.
U.S.A.
Country
U.S.A.
U.S.A.
Approximate
Sq. Feet
50,000
228,000
Owned or Leased
Owned
Owned
Approximate
Sq. Feet
86,000
132,000
Owned or Leased
Leased
Leased
For more information, please see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Item 3.
Legal Proceedings
All legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management
believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our
business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts
and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of
reasonably possible outcomes. The procedures performed include reviewing attorney and plaintiff correspondence,
reviewing any filings made and discussing the facts of the case with local management and legal counsel. We have
recognized loss contingencies of approximately $200,000 and $500,000 at December 31, 2013 and December 31,
2012, respectively, which we believe are adequate to cover all probable liabilities to be incurred by all of the cases in
the aggregate.
Due to the impacts of the global economic recession and the resulting reduction in revenue and operating losses, our
wholly owned German subsidiary Kugelfertigung Eltmann GbmH (“Eltmann” or “Eltmann Plant”) sustained a
significant weakening of its financial condition and as a result, became technically insolvent at which point it was
required to file for bankruptcy under German bankruptcy law. The filing was made in the bankruptcy court in
Germany on January 20, 2011. As of this date, NN lost the ability to control or manage Eltmann as a result of the
bankruptcy court trustee taking over effective control and day to day management of this subsidiary. As a result of
loss of control of this subsidiary, NN deconsolidated the assets and liabilities of Eltmann from our Consolidated
Financial Statements effective January 20, 2011. Although the bankruptcy trustee released us from all claims related
to the Eltmann bankruptcy, effective October 15, 2013, until such court proceedings are finalized, we will not be able
to determine definitively if any related liabilities and contingent obligations will remain our responsibility. The
ultimate impact on NN of Eltmann filing for bankruptcy will depend on the findings of the bankruptcy court.
However, until such court proceedings are finalized, we will not be able to determine what liabilities and contingent
obligations, if any, might remain as the responsibility of NN. Under advice from legal counsel, NN does not expect
any further significant impacts on our consolidated financial statements as a result of the liquidation of this
subsidiary.
Item 4. Mine Safety Disclosures
Not applicable
14
Part II
Item 5.
Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our common stock is traded on The NASDAQ Stock Market LLC (“NASDAQ”) under the trading symbol “NNBR.”
As of March 10, 2014, there were approximately 3,500 holders of record of our common stock and the closing per
share stock price as reported by NASDAQ was $19.29.
The following table sets forth the high and low closing sales prices of the common stock, as reported by NASDAQ.
Close Price
High
Low
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 9.88
11.11
15.28
20.77
$ 10.16
10.21
10.80
9.28
$ 8.38
8.32
11.27
15.13
$ 5.68
7.39
8.11
7.26
The following graph compares the cumulative total shareholder return on our common stock (consisting of stock
price performance and reinvested dividends) from December 31, 2008 with the cumulative total return (assuming
reinvestment of all dividends) of (i) the Value Line Machinery Index (“Machinery”) and (ii) the Standard & Poor’s
500 Stock Index, for the period December 31, 2008 through December 31, 2013. The Machinery index is an industry
index comprised of 49 companies engaged in manufacturing of machinery and machine parts, a list of which is
available from the Company. The comparison assumes $100 was invested in our common stock and in each of the
foregoing indices on December 31, 2008. We cannot assure you that the performance of the common stock will
continue in the future with the same or similar trend depicted on the graph.
15
Comparison of Five-Year Cumulative Total Return*
NN, Inc., Standard & Poors 500 and Value Line Machinery Index
(Performance Results Through 12/31/13)
*Cumulative total return assumes reinvestment of dividends.
NN, Inc.
Standard & Poors 500
Machinery
12/31/2009
172.93
126.46
157.28
12/31/2010
539.74
145.51
261.56
12/31/2011
262.01
148.58
297.73
12/31/2012
400.00
172.35
389.95
12/31/2013
888.79
228.18
562.87
Cumulative Return
The declaration and payment of dividends are subject to the sole discretion of our Board of Directors and depend
upon our profitability, financial condition, capital needs, credit agreement restrictions, future prospects and other
factors deemed relevant by the Board of Directors. The following table sets forth the dividends per share paid during
2013. We did not pay any dividends on common stock during 2012.
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividend
$0.00
$0.00
$0.12
$0.06
See Part III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” of this 2013 Annual Report on Form 10-K for information required by Item 201 (d) of Regulation S-K.
16
Item 6.
Selected Financial Data
The following selected financial data has been derived from our audited financial statements. The selected financial
data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and the audited consolidated financial statements, including notes thereto.
(In Thousands, Except Per Share Data)
Year ended December 31,
Statement of Income Data:
Net sales
Cost of products sold (exclusive of
depreciation shown separately below)
Selling, general and administrative
Depreciation and amortization
(Gain) loss on disposal of assets
Restructuring and impairment charges,
excluding goodwill impairment
Income (loss) from operations
Interest expense
Write-off of unamortized debt issuance cost
Other expense (income), net
Income (loss) before provision (benefit) for
income taxes
Provision (benefit) for income taxes
Net income (loss)
2013
2012
2011
2010
2009
$ 373,206 $ 370,084
$ 424,691
$ 365,369
$ 259,383
295,136
33,281
16,957
5
--
27,827
2,374
--
275
294,859
31,561
17,643
(17)
967
25,071
3,878
--
852
347,622
30,657
17,016
(36)
--
29,432
4,715
--
(1,388)
296,422
30,407
19,195
808
2,289
16,248
6,815
130
(1,682)
235,466
27,273
22,186
493
4,977
(31,012)
6,359
604
(351)
25,178
8,000
20,341
(3,927)
$ 17,178 $ 24,268
26,105
5,168
$ 20,937
10,985
4,569
$ 6,416
(37,624)
(2,290)
$ (35,334)
Basic income (loss) per share:
Net income (loss)
Diluted income (loss) per share:
Net income (loss)
Dividends declared
Weighted average number of shares
outstanding - Basic
Weighted average number of shares
outstanding – Diluted
$ 1.00
$ 1.43
$ 1.24
$ 0.39
$ (2.17)
$ 1.00
$ 1.42
$ 1.24
$ 0.39
$ (2.17)
$ 0.18
$ 0.00
$ 0.00
$ 0.00
$ 0.00
17,176
17,009
16,817
16,455
16,268
17,260
17,114
16,953
16,570
16,268
17
(In Thousands)
Balance Sheet Data:
Current assets
Current liabilities
Total assets
Long-term debt
Stockholders' equity
As of December 31,
2013
2012
2011
2010
2009
$ 125,674
$ 127,296
$ 124,025
$ 115,670
$ 98,283
69,384
58,758
73,041
83,587
68,489
262,402
265,343
259,461
248,555
242,652
26,000
63,715
152,760
128,560
71,629
99,676
67,643
78,107
77,558
76,803
During the year ended December 31, 2012, the results were impacted by a favorable tax benefit of a net $7.3 million
from removing valuation allowances on deferred tax assets in the U.S. Additionally, year ended December 31, 2012,
results were negatively impacted by impairments of $1.0 million and after tax foreign exchange losses of $1.1 million
related to intercompany notes. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for more information.
During the year ended December 31, 2011, the results were impacted by certain items including $5.0 million in
additional start-up costs from new multi-year sales programs (all in our Precision Metals Components Segment) and
$0.8 million in a one-time tax benefit from removing valuation allowances on certain deferred tax assets in Europe.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more
information.
During the year ended December 31, 2010, the results were impacted by certain items including $4.5 million from
NN ceasing operations at the Tempe plant, $3.0 million in start-up costs from new multi-year sales programs (both in
our Precision Metals Components Segment) and $1.1 million in costs related to the elimination of certain senior
management positions. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for more information.
For the year ended December 31, 2009, the operating results were significantly impacted by the effects of the global
recession and related destocking by our customers as our sales decreased 37%, excluding foreign exchange effects,
from the year ended December 31, 2008. Additionally, we incurred $5.0 million in restructuring and impairment
charges related to two plant closures and a reduction in force at another manufacturing location.
18
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.
Overview and Management Focus
Our strategy and management focus is based upon the following long-term objectives:
Majority of our sales growth by 2018 in our current strategy coming from acquisitions
Sales growth in adjacent markets
Organic and acquisitive growth within all our segments
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:
Global industrial growth and economics
Global automotive production rates
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
Raw material availability
Trends related to the geographic migration of competitive manufacturing
Regulatory environment for United States public companies
Currency and exchange rate movements and trends
Interest rate levels and expectations
Management generally focuses on the following key indicators of operating performance:
Sales growth
Cost of products sold
Selling, general and administrative expense
Net income
Cash flow from operations and capital spending
19
Customer service reliability
External and internal quality indicators
Employee development
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 and asset impairment recognition. Due
to the estimation processes involved, management considers the following summarized accounting policies and their
application to be critical to understanding our business operations, financial condition and results of operations. We
cannot assure you that actual results will not significantly differ from the estimates used in these critical accounting
policies.
Goodwill and Acquired Intangibles. For new acquisitions, we use 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 procedures 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, and the expected cash flows that they will generate. These
estimates and assumptions could 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.
Goodwill is tested for impairment on an annual basis as of October 1 and between annual tests if a triggering event
occurs. The impairment procedures are performed at the reporting unit level for the one reporting unit that still has
goodwill. In testing goodwill, we have the option to first assess qualitative factors to determine whether it is
necessary to perform a two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-
likely-than-not that the fair value of a reporting unit is less than its carrying amount including goodwill, the
quantitative impairment test is required. Otherwise, no further testing is required. The decision to perform a
qualitative assessment or perform a complete step 1 analysis is an annual decision made by management based on
several factors including budget to actual performance, economic, market and industry considerations such as
automotive production rates in the geographic markets we serve and cash flow from operations.
U.S. GAAP prescribes a two-step process for testing for goodwill impairments. The first step is to determine if the
carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit. We
determine the fair value of the reporting unit through use of discounted cash flow methods and market based
multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies. We
believe this methodology of valuation is consistent with how market participants would value reporting units. The
discount rate and market based multiples used are specifically developed for the units tested regarding the level of
risk and end markets served. Even though we do use other observable inputs (Level 2 inputs under the US GAAP
hierarchy) the calculation of fair value for goodwill would be most consistent with Level 3 under the US GAAP
hierarchy.
If the carrying value of the reporting unit, including goodwill, is less than fair value of the reporting unit, the
goodwill is not considered impaired. If the carrying value is greater than fair value then the potential for impairment
of goodwill exists. The potential impairment is determined by allocating the fair value of the reporting unit among
the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a
business combination. The fair value of the goodwill is implied from this allocation and compared to the carrying
value with an impairment loss recognized if the carrying value is greater than the implied fair value.
Our indefinite lived intangible asset is accounted for similarly to goodwill. This asset is tested for impairment at least
annually by comparing the fair value to the carrying value, using the relief from royalty rate method, and if the fair
value is less than the carrying value, an impairment charge is recognized for the difference. We elected to use Step 1
testing even though a qualitative approach was available to us.
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
20
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. 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.
The calculation of tax assets, liabilities, and expenses under U.S. GAAP is largely dependent on management
judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely
than not threshold. Specifically, the realization of deferred tax assets and the certainty of tax positions taken are
largely dependent upon management weighting the current positive and negative evidence for recording tax benefits
and expenses. Additionally, many of our positions are based on future estimates of taxable income and deductibility
of tax positions. Particularly, our assertion of permanent reinvestment of foreign undistributed earnings is largely
based on management’s future estimates of domestic and foreign cash flows and current strategic foreign investment
plans. In the event that the actual outcome from future tax consequences differs from management estimates and
assumptions or management plans and positions are amended, the resulting change to the provision for income taxes
could have a material impact on the consolidated results of operations and statement of financial position. (See Notes
1 and 12 of the Notes to Consolidated Financial Statements).
Impairment of Long-Lived Assets. Our long-lived assets include property, plant and equipment. The
recoverability of the long-term assets is dependent on the performance of the companies which we have acquired or
built, as well as the performance of the markets in which these companies operate. In assessing potential impairment
for these assets, we will consider these factors as well as forecasted financial performance based, in large part, on
management business plans and projected financial information which are subject to a high degree of management
judgment and complexity. Future adverse changes in market conditions or adverse operating results of the
underlying assets could result in having to record additional impairment charges not previously recognized.
Results of Operations
The following table sets forth for the periods indicated selected financial data and the percentage of our net sales
represented by each income statement line item presented.
Net sales
Cost of product sold (exclusive of depreciation and
amortization shown separately below)
Selling, general and administrative expenses
Depreciation and amortization
(Gain) loss on disposal of assets
Restructuring and impairment charges
Income from operations
Interest expense
Other (income) expense, net
Income before provision for income taxes
Provision for income taxes
Net income
As a Percentage of Net Sales
Year ended December 31,
2013
2012
2011
100.0%
100.0%
100.0%
79.1
79.7
81.9
8.9
4.5
0.0
0.0
7.5
0.6
0.1
6.7
2.1
4.6%
8.5
4.8
0.0
0.3
6.7
1.0
0.2
5.5
(1.1)
6.6%
7.2
4.0
0.0
0.0
6.9
1.1
(0.3)
6.1
1.2
4.9%
21
Sales Concentration
Sales to various U.S. and foreign divisions of SKF, one of the largest bearing manufacturers in the world, accounted
for approximately 36% of consolidated net sales in 2013. During 2013, sales to various U.S. and foreign divisions of
our ten largest customers accounted for approximately 78% of our consolidated net sales. None of our other
customers individually accounted for more than 10% of our consolidated net sales for 2013. 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 have a
corresponding negative impact on our operating profit margin due to the operational leverage these customers
provide. This could lead to sales volumes not being high enough to cover our current cost structure or to provide
adequate operating cash flows or cause us to incur additional restructuring and/or impairment costs. Due to a limit on
the amount of excess bearing component production capacity in the markets we serve, we believe it would be
difficult for any of our top ten customers to take a significant portion of our business away in the short term.
Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012.
OVERALL RESULTS
(In Thousands of Dollars)
Net sales
Foreign exchange effects
Volume
Price
Mix
Material inflation pass-through
Cost of products sold (exclusive of depreciation and
amortization shown separately below)
Foreign exchange effects
Volume
Cost reduction projects and other cost changes
Inflation
Selling, general and administrative
Foreign exchange effects
Severance costs not related to an exit activity
Increase in spending
Depreciation and amortization
Foreign exchange effects
Net decrease in depreciation expense
Restructuring and impairment charges
Interest expense
(Gain)/Loss on disposal of assets
Other expense (income), net
Income before provision (benefit) for income
taxes
Provision (benefit) for income taxes
Net income
Consolidated NN, Inc.
2013
$ 373,206
2012
$ 370,084
Change
$ 3,122
5,602
2,632
(1,023)
(445)
(3,644)
4,559
1,663
(3,911)
(2,034)
320
1,014
386
269
(955)
295,136
294,859
277
33,281
31,561
1,720
16,957
17,643
(686)
--
2,374
5
275
967
3,878
(17)
852
(967)
(1,504)
22
(577)
25,178
8,000
4,837
20,341
11,927
(3,927)
$ 17,178 $ 24,268 $ (7,090 )
Non-recurring benefits/expense. Included in net income for the year ended December 31, 2012, were two items that
we do not expect to recur and as such impact the overall analysis of the 2012 income statement in comparison to
2013 and future periods. First, the 2012 full year net income of $24.3 was materially impacted by $7.3 million in
favorable net tax benefits that are not expected to recur. The net tax benefits were a combination of a $9.8 million
reversal of valuation allowances on the majority of U.S. deferred tax assets and other miscellaneous favorable tax
adjustments of $0.5 million, partially offset by $3.1 million in taxes on a return of basis transaction (See Note 12 of
the Notes to Consolidated Financial Statements). Additionally, the year ended December 31, 2012, net income was
negatively impacted by the $1.0 million impairment charge, net of tax, related to our former manufacturing facility in
Kilkenny, Ireland. Excluding these two impacts, net income for 2012 would have been $17,968.
22
Net Sales. Net sales increased during 2013 over 2012 principally due to increased sales volumes at units selling into
the European, North American, and Asian automotive and heavy truck markets. These gains were partially offset by
lower sales volumes related to customer and platform specific issues, customers reducing their inventory levels, and
due to certain segments deemphasizing lower margin, non-strategic programs. During the first half of 2013, our sales
were negatively impacted by European auto market weakness. During the third and fourth quarters, we began to
experience positive sales momentum in Europe due to better overall market penetration with our customers and from
increased demand in the European automotive and heavy truck markets. Additionally, we have experienced increased
sales demand for our products in the North American and Asian automotive markets during the last three quarters of
2013. Despite the positive sales momentum, our businesses continue to be effected by the historically low European
automotive and industrial markets and slowing overall economic growth in Asia. Beyond the sales volume changes,
Euro denominated sales increased due to appreciation in the Euro compared to the U.S. Dollar. Mostly offsetting the
increase due to foreign exchange were reductions in price and raw material pass-through driven by lower levels of
material inflation incurred in 2013, when compared with 2012, which led to lower pass-through to our customers and
due to contractual price decreases for certain long-term sales programs.
Cost of Products Sold (exclusive of depreciation and amortization shown separately below). The costs of products
sold increased primarily in 2013 due to Euro costs appreciating relative to the U.S. Dollar and from production costs
incurred to support the higher overall sales volumes discussed above. These increases were partially offset by
benefits from specific continuous improvement projects undertaken during 2013 and from lower overall raw material
inflation experienced during 2013.
Selling, General and Administrative. The increase in spending in selling, general and administrative expenses in
2013 was primarily due to severance costs not related to an exit activity, relocation costs for new management
members, higher professional fees for consulting and recruitment and higher foreign exchange expenses.
Interest Expense. The reduction in interest expense was due to the reduction in the interest rate charged on our
variable rate loans effective with the October 2012 amendment and from lower overall debt levels in 2013 compared
to 2012.
Provision for Income Taxes. The difference between the effective tax rate of 32% for 2013 versus the effective rate
of negative 19% for 2012 was primarily due to the net $7.3 million tax benefit posted in 2012. This tax benefit
related to the removal of valuation allowances on the deferred tax assets of our U.S. units at December 31, 2012
partially offset by taxes related to a return of basis transaction. Additionally, prior to the reversal of the valuation
allowance on December 31, 2012, we did not recognize tax expense at our U.S. operations which provided a tax
benefit of $2.5 million.
RESULTS BY SEGMENT
METAL BEARING COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Foreign exchange effects
Volume
Price
Mix
Material inflation pass-through
Year ended
December 31,
2012
Change
2013
$ 259,459
$ 252,241
$ 7,218
5,602
6,872
(1,130)
(1,337)
(2,789)
Segment net income
$ 18,519
$ 20,980
$ (2,461)
The majority of the increase in net sales was due to higher sales volumes experienced at units selling into the
European, North American and Asian automotive markets and the European heavy truck market. Partially offsetting
the volume increases were lower levels of price increases and material inflation incurred by our businesses and
passed on to our customers in 2013 versus 2012. We experienced positive sales momentum in Europe during the
23
second half of 2013, due to better overall market penetration with our customers and from increased demand in the
European automotive and heavy truck markets. Additionally, we experienced increased demand in the North
American and Asian automotive markets subsequent to the first quarter of 2013.
The segment net income in 2013 was negatively impacted by the U.S. unit of the segment recognizing tax expense of
$4.0 million in 2013 versus not recognizing tax expense in 2012 as all the deferred tax assets of our U.S. units were
offset by full valuation allowances. Beyond the tax effects the results of the segment in 2013 were actually favorable
as compared to 2012 as segment pre-tax income was $2.1 million higher in 2013. The 2013 segment net income was
favorably impacted by $1.8 million after-tax from profits related to higher sales and by $1.6 million after-tax from
continuous improvement projects undertaken in 2013. Partially offsetting the favorable impacts, segment net income
was reduced by $1.4 million after-tax from reductions related to prices, material pass throughs and mix.
PRECISION METAL COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Volume
Price/Mix/Inflation
Year ended
December 31,
2013
2012
Change
$ 78,756
$ 76,746
$ 2,010
2,099
(89)
Segment net income
$ 5,799
$ 9,110
$ (3,311)
The increased sales volumes were due to higher demand with certain customers in the North American automotive
market during 2013 net of the segment deemphasizing certain non-strategic platforms in an effort to improve
operating performance and margins.
The reduction in segment net income was primarily due to recording $3.0 million in U.S. tax expense during 2013
versus not recognizing tax expense for the segment during 2012 as all the deferred tax assets of our U.S. units were
offset by full valuation allowances. Additionally, in 2012 the segment net income included $1.8 million of net tax
benefits related to the reversal of valuation allowances on segment deferred tax assets at December 31, 2012.
Beyond the tax effects, segment pre-tax income was $2.2 million higher in 2013 compared to 2012. The segment net
income benefitted from profits of $0.6 million after-tax from the higher sales volumes and through cost reduction
projects and operational improvements of $0.9 million after-tax.
PLASTIC AND RUBBER COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Volume
Price/Mix/Inflation
Year ended
December 31,
2013
2012
Change
$ 34,991
$ 41,097
$ (6,106)
(6,340)
234
Segment net income
$ 383
$ 3,921
$ (3,538)
Sales were down due to lower volume from certain sales programs ending, deemphasizing certain low margin
platforms and the timing of demand at certain industrial product customers. Segment net income decreased $1.7
million after-tax due to the negative effects of lower sales volumes and not being able to fully offset fixed production
costs as sales declined. Additionally, 2012 segment net income was favorably impacted by $2.2 million of net tax
benefits related to the reversal of valuation allowances on segment deferred tax assets at December 31, 2012.
24
Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011.
OVERALL RESULTS
(In Thousands of Dollars)
Net sales
Foreign exchange effects
Volume
Price
Mix
Material inflation pass-through
Cost of products sold (exclusive of depreciation and
amortization shown separately below)
Foreign exchange effects
Volume
Cost reduction projects and other cost changes
Mix
Inflation
Selling, general and administrative
Foreign exchange effects
Increase in spending
Depreciation and amortization
Foreign exchange effects
Net Increase in depreciation expense
Consolidated NN, Inc.
2012
$ 370,084
2011
$ 424,691
Change
$ (54,607)
294,859
347,622
(52,763)
31,561
30,657
904
17,643
17,016
627
(11,726)
(46,022)
715
1,345
1,081
(9,357)
(31,130)
(14,985)
59
2,650
(639)
1,543
(531)
1,158
Restructuring and impairment charges
Interest expense
(Gain)/Loss on disposal of assets
Other expense (income), net
Income before provision (benefit) for income
taxes
Provision (benefit) for income taxes
Net income
967
3,878
(17)
852
20,341
(3,927)
--
4,715
(36)
(1,388)
26,105
5,168
$ 24,268 $ 20,937
967
(837)
19
2,240
(5,764)
(9,095)
$ 3,331
Non-recurring benefits/expense. Included in net income for the year ended December 31, 2012, were two items that
we do not expect to recur and as such impact the overall analysis of the 2012 income statement in comparison to
2011 and future periods. First, the 2012 full year net income of $24.3 was materially impacted by $7.3 million in
favorable net tax benefits that are not expected to recur. The net tax benefits were a combination of a $9.8 million
reversal of valuation allowances on the majority of U.S. deferred tax assets and other miscellaneous favorable tax
adjustments of $0.5 million, partially offset by $3.1 million in taxes on a return of basis transaction (See Note 12 of
the Notes to Consolidated Financial Statements). Additionally, the year ended December 31, 2012, net income was
negatively impacted by the $1.0 million impairment charge, net of tax, related to our former manufacturing facility in
Kilkenny, Ireland.
Net Sales. Net sales decreased in 2012 from 2011 primarily due to volume reductions experienced at the European
operating units of our Metal Bearing Components Segment and to a lesser extent at our U.S. unit of the segment,
which exports into Europe, and at our Asian unit of the segment. These effects were partially offset by increased
sales volume at our Precision Metal Components Segment. The reduction of sales volumes in our Metal Bearings
Components Segment was due in part to macro-economic issues within the European Union, slowing Asian macro-
economic growth and overall lower automotive demand in Europe. Additionally, we believe demand for our
products was affected by our customers and their customers adjusting inventory levels during 2012, as our sales
volume reductions were greater than the reductions in actual end market demand within the markets we serve.
Finally, sales were reduced as the strengthening of the US Dollar in 2012 versus 2011 caused a lower translated value
of Euro denominated sales.
Cost of Products Sold (exclusive of depreciation and amortization). The majority of the decrease was from the lower
25
sales volumes discussed above and the related reductions in production costs at the units of the Metal Bearing
Components Segment. Additionally, 2012 cost of products sold was lower in comparison to 2011, as the $6 million
in start-up costs incurred during 2011 for new multi-year sales programs at our Precision Metal Components Segment
did not repeat during 2012. The 2012 cost of products sold was further reduced by benefits from specific continuous
improvement projects undertaken through our “Level 3” program during 2012. The “Level 3” continuous
improvement activities were at historically high levels during 2012. Finally, cost of products sold was reduced as
the strengthening of the US Dollar in 2012 versus 2011 caused a lower translated value of Euro denominated costs.
Selling, General and Administrative. The increase in spending in selling, general and administrative expenses was
primarily due to higher incentive based compensation costs and from the addition of certain key positions at our
Precision Metal Components Segment to support growth in this business.
Depreciation and Amortization. The increase was due to the carryover effects of depreciation expense generated by
2011 capital expenditures placed in service throughout 2011 and by 2012 capital expenditures placed in service
during 2012.
Restructuring and impairment charges. The year ended December 31, 2012, included $1.0 of non-cash impairment
charges related to the impairment of our former production facility in Kilkenny, Ireland.
Other expense (income), net. Included in other expense (income), net, during 2012, was $1.2 million related to
foreign exchange losses on inter-company loans. During 2011, inter-company loans generated foreign exchange
gains of $0.9 million. The gains and losses are a function of the appreciation or depreciation of the Euro versus the
U.S. Dollar. Additionally, 2012 included $0.2 million in gains realized with receipt of the final payment of a note
receivable.
Provision for income taxes. The main cause of the year ended December 31, 2012 tax benefit was the net $7.3
million tax benefit posted in the fourth quarter of 2012 related to the removal of valuation allowances on the deferred
tax assets of our U.S. units at December 31, 2012 partially offset by taxes related to an international distribution.
This net benefit plus lower pre-tax income during 2012, related to lower sales volumes discussed above, account for
the variance in tax expense from 2011 to 2012. (See Note 13 of the Notes to Consolidated Financial Statements).
RESULTS BY SEGMENT
METAL BEARING COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Foreign exchange effects
Volume
Price
Mix
Material inflation pass-through
Year ended
December 31,
2011
Change
2012
$ 252,241
$ 308,883
$ (56,642)
(11,726)
(47,107)
175
1,006
1,010
Segment net income
$ 20,980
$ 30,360
$ (9,380)
The decrease in sales during 2012 was driven mainly by volume reductions at our European units of this segment and
to a lesser extent at the U.S. unit due to lower exports into Europe and at our Asian unit. The reductions were due to
European macro-economic issues, slowing Asian macro-economic growth, much lower automotive demand in
Europe and, we believe, overall reductions of inventory levels in the supply chains we serve. Additionally, sales were
reduced as the strengthening of the US Dollar caused a lower translated value of Euro denominated sales. Partially
offsetting the reductions were increased sales from targeted price increases, favorable product mix and material
inflation pass-through. The favorable mix occurred as a portion of the reduction in sales volumes experienced were
in lower priced products.
26
The segment net income in 2012 was negatively impacted by lost profits from lower sales volumes and related
production inefficiencies from lower production levels. These reductions were driven by much lower demand for our
products at our European operating units of this segment, at the U.S. unit that exports into Europe and at our Asian
unit, as discussed above. Partially offsetting the volume effects were benefits from specific continuous improvement
projects undertaken through our “Level 3” program in 2012 and from good overall cost control at our European units
during this very difficult operating environment. Additionally, targeted price increases and favorable sales mix
helped offset some of negative sales volume effects.
PRECISION METAL COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Volume
Price/Mix
Year ended
December 31,
2012
2011
Change
$ 76,746
$ 72,272
$ 4,474
4,078
396
Segment net income (loss)
$ 9,110
$ (1,864)
$ 10,974
The majority of the increase in sales at this segment was due to fulfilling sales orders, at the full year run rate, for a
new sales program to a new customer started in 2011. This new sales program had not reached the full year run rate
during 2011.
The segment improved from a net loss to a net income due to profits from increased sales volumes and from the
elimination of start-up costs on the new multi-year sales programs incurred during 2011. During 2011, this segment
incurred $6 million of operational inefficiencies and additional costs related to ramping up production for new large
multi-year sales programs which did not repeat during 2012. Beyond eliminating the start-up costs, this segment has
improved operationally by reducing scrap, labor, and expediting costs. Finally, 2012 net income included $1.8
million of net tax benefits related to the reversal of valuation allowances on segment deferred tax assets.
PLASTIC AND RUBBER COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Volume
Price/Mix
Year ended
December 31,
2012
2011
Change
$ 41,097
$ 43,536
$ (2,439)
(2,993)
554
Segment net income
$ 3,921
$ 2,879
$ 1,042
Lower sales volumes were due to expirations of sales programs with certain customers. 2012 segment net income
was impacted by $2.2 million of net tax benefits related to the reversal of valuation allowances on segment deferred
tax assets. Excluding the tax benefit, net income was actually down $1.2 million due to the lower sales volumes
partially offset by price increases and favorable sales mix.
Changes in Financial Condition from December 31, 2012 to December 31, 2013.
From December 31, 2012 to December 31, 2013, our total assets decreased $2.9 million and our current assets
decreased $1.6 million. The appreciation in the value of Euro denominated account balances and Chinese Yuan
denominated account balances, relative to the U.S. Dollar, caused total assets and current assets to increase
approximately $6.3 million and $2.8 million, respectively, from December 31, 2012.
The decrease in total assets was due to a $16.0 million decrease in cash used to pay down our outstanding debt
27
balance. This reduction was partially offset by a $6.3 million increase in accounts receivable and $7.2 million
increase in inventory.
Excluding the foreign exchange effects, accounts receivable increased by $6.3 million due primarily to the 12%
increase in sales volume in December and November of 2013 from sales levels in December and November of 2012.
The days sales outstanding as of December 31, 2013 was consistent with the days sales outstanding as of December
31, 2012.
Excluding the foreign exchange effects, inventories increased by $7.2 million from December 31, 2012, primarily
due to increasing consigned finished goods with our largest customer and due to increasing inventory levels to fulfill
seasonal demand in the first and second quarter of 2014.
From December 31, 2012 to December 31, 2013, our total liabilities decreased $27.1 million. The appreciation in the
value of Euro and Chinese Yuan denominated account balances, relative to the U.S. Dollar, caused total liabilities to
increase approximately $2.1 million from December 31, 2012. The majority of the reduction was from a $33 million
decrease in long-term and short-term debt achieved by reducing our cash balance $16.0 million and from using free
cash flows of $17.1 generated during 2013. The debt reduction was partially offset by increases in accounts payable
of $2.6 million due the higher levels of sales and production experienced during the fourth quarter of 2013 versus the
fourth quarter of 2012.
Working capital, which consists principally of cash, accounts receivable and inventories offset by accounts payable
and current maturities of long-term debt, was $56.3 million at December 31, 2013 as compared to $68.5 million at
December 31, 2012. The ratio of current assets to current liabilities decreased from 2.17:1 at December 31, 2012 to
1.81:1 at December 31, 2013. The decrease in working capital was due primarily to the decreased cash balance and
increased accounts payable balance as discussed above.
Cash flow provided by operations was $31.8 million for 2013 compared with $37.4 million for 2012. The
unfavorable variance in cash flow provided by operations was principally due to increasing net working capital
during 2013 to meet the increased sales and production volume levels. In 2012, the working capital decreased to the
reduction in sales levels from 2011 to 2012.
Cash used by investing activities was $15.3 million in 2013 compared with cash used by investing activities of $14.8
million in 2012. The decrease was primarily due to $1.8 million in lower spending on acquisitions of property plant
and equipment in 2013 as planned mostly offset by receipt of $1.9 million for the pay-off of a note receivable in
2012.
Cash used by financing activities was $32.3 million for 2013 compared with cash used by financing activities of $9.6
million in 2012. The decrease was primarily due to the net repayment of short-term and long-term debt of $33 million
in 2013 driven by reducing the cash balances by $16.0 million and from the $17.1 million in free cash flow as
discussed above.
Liquidity and Capital Resources
Amounts outstanding under our $100 million credit facility and our fixed rate notes as of December 31, 2013, were
$10.8 million (including $0.8 million under our swing line of credit) and $25.7 million, respectively. As of
December 31, 2013, we can borrow up to an additional $88.5 million under the $100 million credit facility, including
$9.2 million under our swing line of credit, subject to limitations based on existing financial covenants. The $88.5
million of availability is net of $0.7 million of outstanding letters of credit at December 31, 2013, which are
considered as usage of the facility.
We were in compliance with all covenants related to the $100 million credit facility and the fixed rate notes
agreements as of December 31, 2013.
28
The table below summarizes the financial covenants of the two credit agreements as of December 31, 2013:
Financial Covenants
Required Covenant Level
Interest coverage ratio Not to be less than 3.00 to 1.00 as of the last day of any fiscal
quarter
Fixed charge coverage Not to be less than 1.00 to 1.00 as of the last day of any fiscal
Leverage ratio
Capital expenditures
quarter
Not to exceed 2.75 to 1.00 for the most recently completed four
fiscal quarters
Not to invest more than $26.4 million during the fiscal year 2013
Actual Level
Achieved
11.42 to 1.00
1.29 to 1.00
0.91 to 1.00
$15.3 million
On October 26, 2012, we amended our $100 million revolving credit facility agented by KeyBank and our fixed rate
notes with Prudential Capital in order to take advantage of lower interest rates, to extend the maturity of the revolving
credit facility to October 26, 2017, and to remove certain restrictions on acquisitions, payments of dividends and
stock repurchases. The amended interest rates on our revolving credit facility are LIBOR plus an applicable margin
of 1.25% to 2.25% (depending on the level of debt to earnings before taxes, interest and depreciation (“EBITDA”)).
Prior to the October 26, 2012 amendment, the $100 million revolving credit facility interest rates were LIBOR plus a
margin of 2.50% to 3.50% (depending on the level of debt to EBITDA). The interest rate on our $40 million
aggregate fixed rate notes, of which $5,714 was outstanding as of December 31, 2013, was reduced from 5.39% to
4.89%. The amended agreements allow us to undertake acquisitions, pay dividends, and repurchase stock provided
we are in compliance with specified covenants. Additionally, the minimum fixed charge coverage ratio will remain
at “not to be less than 1.00 to 1.00 as of the last day of any fiscal quarter” for the full terms of the amended
agreements.
Our arrangements with our domestic customers typically provide that payments are due within 30 to 60 days
following the date of our shipment of goods, while arrangements with foreign customers of our domestic business
(other than foreign customers that have entered into an inventory management program with us) generally provide
that payments are due within 60 to 120 days following the date of shipment to allow for additional transit time and
customs clearance. Under the Metal Bearing Components Segment’s inventory management program with certain
customers, payments typically are due within 30 days after the customer uses the product. Our arrangements with
European customers regarding due dates vary from 30 to 90 days following date of sale for European based
customers and 60 to 120 days from customers outside of Europe to allow for additional transit time and customs
clearance. Our sales and receivables can be influenced by seasonality due to our relative percentage of European
business coupled with many foreign customers slowing production during the month of August. For information
concerning our quarterly results of operations for the years ended December 31, 2013 and 2012, see Note 15 of the
Notes to Consolidated Financial Statements.
We invoice and receive payment from many of our customers in Euros as well as other currencies. Additionally, we
are party to various third party and intercompany loans, payables and receivables denominated in currencies other
than the U.S. Dollar. In 2013, the fluctuation of the Euro against the U.S. Dollar positively impacted sales and net
income. As a result of these sales, loans, payables and receivables, our foreign exchange transaction and translation
risk has increased. Various strategies to manage this risk are available to management including producing and
selling in local currencies and hedging programs. As of December 31, 2013, no currency hedges were in place. In
addition, a strengthening of the U.S. Dollar and/or Euro against foreign currencies could impair our ability to
compete with international competitors for foreign as well as domestic sales.
We have made planned capital expenditures totaling $15.3 million during the year ended December 31, 2013. During
2014, we expect to spend approximately $20 million on capital expenditures, the majority of which relate to new or
expanded business. We believe that funds generated from operations and borrowings from the credit facilities will be
sufficient to finance our capital expenditures and working capital needs through December 2014. We base this
assertion on our current availability for borrowing of up to $88.5 million and our forecasted positive cash flow from
operations for the year ending December 31, 2014.
29
The table below sets forth our contractual obligations and commercial commitments as of December 31, 2013 (in
thousands):
Certain
Contractual Obligations
Long-term debt including current portion
Expected interest payments
Operating leases
Capital leases
Total contractual cash obligations
Total
Payments Due by Period
1-3 years
3-5 years
Less than 1
year
$ 36,477 $ 10,477
1,196
2,802
493
$ 14,968
3,580
9,787
6,968
$ 56,812
$ 8,000
1,656
4,758
986
$ 15,400
$ 18,000
728
2,209
986
$ 21,923
After 5
years
$ --
--
18
4,503
$ 4,521
There are $6.9 million of long-term post-employment benefits, the payment of which depends on various factors
including at which point employees leave the Company. Based on the best available information, we believe the vast
majority of these payments will be made after 5 years.
We have approximately $1.9 million in unrecognized tax benefits and related penalties and interest accrued within
the liabilities section of our balance sheet. We are unsure when or if at all these amounts might be paid to U.S. and/or
foreign taxing authorities. Accordingly, these amounts have been excluded from the table above. (See Note 12 of the
Notes to Consolidated Financial Statements).
Functional Currencies
We currently have operations in Slovakia, Italy and The Netherlands, all of which are Euro participating countries.
Each of our European facilities sell product to customers in many of the Euro participating countries. The Euro has
been adopted as the functional currency at all NN locations in Europe. The functional currency of NN Asia is the
Chinese Yuan.
Seasonality and Fluctuation in Quarterly Results
Our net sales historically have been seasonal in nature, due to a significant portion of our sales being to European
customers that significantly slow production during the month of August. For information concerning our quarterly
results of operations for the years ended December 31, 2013 and 2012. (See Note 15 of the Notes to Consolidated
Financial Statements).
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material
current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Inflation and Changes in Prices
The cost base of our operations has been materially affected by steel inflation during recent years. Due to the ability
to pass on this steel inflation to our customers the overall financial impact has been minimized. The prices for steel,
engineered resins and other raw materials which we purchase are subject to material change. Our typical pricing
arrangements with steel suppliers are subject to adjustment every three to six months in the U.S. and annually in
Europe for base prices but quarterly for scrap surcharge adjustments. In the past, we have been able to minimize the
impact on our operations resulting from the steel price fluctuations by adjusting selling prices to our customers
periodically in the event of changes in our raw material costs.
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 outstanding
debt balances as well as from 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
30
risks. We are exposed to changes in interest rates primarily as a result of our borrowing activities. At December 31,
2013, we had $25.7 million of fixed rate notes outstanding and $10.8 million outstanding under the variable rate
revolving credit facilities. At December 31, 2013, a one-percent increase in the interest rate charged on our
outstanding variable rate borrowings would result in interest expense increasing annually by approximately $0.1
million. The nature and amount of our borrowings may vary as a result of future business requirements, market
conditions and other factors.
Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign
exchange rates. Our Metal Bearing Component Segment invoices and receives payment in currencies other than the
U.S. Dollar including the Euro. Additionally, we participate in various third party and intercompany loans, payables
and receivables denominated in currencies other than the U.S. Dollar. In 2013, the fluctuation of the Euro against the
U.S. Dollar positively impacted revenue and net income and increased assets and liabilities. To help reduce exposure
to foreign currency fluctuation, we have incurred debt in Euros in the past and have, from time to time, used foreign
currency hedges to hedge currency exposures when these exposures meet certain discretionary levels. We did not use
any currency hedges in 2013, nor did we hold a position in any foreign currency hedging instruments as of December
31, 2013.
Item 8.
Financial Statements and Supplementary Data
Index to Financial Statements
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2013 and 2012
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Changes in Stockholders’ Equity for the
years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended
December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Page
32
33
34
35
36
37
31
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of NN, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
income and comprehensive income, of changes in stockholder’s equity and of cash flows present fairly, in
all material respects, the financial position of NN, Inc. and its subsidiaries at December 31, 2013 and
December 31, 2012, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2013 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2013, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these financial statements,
for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on
these financial statements and on the Company's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included 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. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
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 14, 2014
32
NN, Inc.
Consolidated Balance Sheets
December 31, 2013 and 2012
(In thousands, except per share data)
Assets
Current assets:
Cash
Accounts receivable, net
Inventories
Income tax receivable
Current deferred tax assets
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill, net
Intangible assets, net
Non-current deferred tax assets
Other non-current assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued salaries, wages and benefits
Income taxes payable
Current maturities of long-term debt
Current portion of obligation under capital lease
Other current liabilities
Total current liabilities
Non-current deferred tax liabilities
Long-term debt, net of current portion
Accrued post-employment benefits
Obligation under capital lease, net of current portion
Total liabilities
Commitments and Contingencies (Note 14)
Stockholders’ equity:
Common stock - $0.01 par value, authorized 45,000 shares,
issued and outstanding 17,630 in 2013 and 17,044 in 2012.
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
2013
2012
$ 3,039 $ 18,990
51,628
46,150
2,112
2,104
6,312
127,296
58,929
54,530
816
2,119
6,241
125,674
121,089
8,624
900
2,713
3,402
$ 262,402
119,687
8,254
900
6,065
3,141
$ 265,343
$ 40,687 $ 37,000
10,174
543
5,801
479
4,761
58,758
11,761
1,340
10,477
493
4,626
69,384
3,844
26,000
6,920
3,494
3,850
63,715
6,930
3,530
109,642
136,783
176
63,126
65,929
23,529
152,760
170
56,880
51,880
19,630
128,560
$ 262,402 $ 265,343
See accompanying notes to consolidated financial statements
33
NN, Inc.
Consolidated Statements of Income and Comprehensive Income
Years ended December 31, 2013, 2012 and 2011
(In thousands, except per share data)
Net sales
Cost of products sold (exclusive of depreciation and amortization shown
separately below)
Selling, general and administrative
Depreciation and amortization
(Gain) loss on disposal of assets
Restructuring and impairment charges
Income from operations
Interest expense
Other expense (income), net
Income before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income
Other comprehensive income:
Foreign currency translation gain (loss)
Comprehensive income
Basic income per share:
Net income
Weighted average shares outstanding
Diluted income per share:
Net income
Weighted average shares outstanding
2013
2012
2011
$ 373,206
$ 370,084
$ 424,691
295,136
33,281
16,957
5
--
27,827
294,859
31,561
17,643
(17)
967
25,071
347,622
30,657
17,016
(36)
--
29,432
2,374
275
25,178
8,000
$ 17,178
3,878
852
20,341
(3,927)
$ 24,268
4,715
(1,388)
26,105
5,168
$ 20,937
3,899
$ 21,077
2,806
$ 27,074
(2,578)
$ 18,359
$ 1.00
17,176
$ 1.43
17,009
$ 1.24
16,817
$ 1.00
17,260
$ 1.42
17,114
$ 1.24
16,953
Cash dividends per common share
$ 0.18
$ 0.00
$ 0.00
See accompanying notes to consolidated financial statements
34
NN, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2013, 2012 and 2011
(In thousands)
Balance, December 31, 2010
Net income
Stock option expense
Shares issued for options
Restricted stock compensation expense
Foreign currency translation loss
Balance, December 31, 2011
Net income
Stock option expense
Shares issued for options
Restricted stock compensation expense
Foreign currency translation gain
Balance, December 31, 2012
Net income
Dividends Declared
Stock option expense
Shares issued for options
Restricted stock compensation expense
Foreign currency translation gain
Balance, December 31, 2013
Common Stock
Number
of
Shares
Par
Value
Additional
paid in
capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
16,620
--
--
254
75
--
16,949
--
--
17
78
--
17,044
--
--
--
496
90
--
17,630
$ 167
--
--
2
--
--
$ 169
--
--
--
1
--
$ 170
--
--
--
4
2
--
$ 176
$ 51,863
--
480
2,380
348
--
$ 55,071
--
1,093
22
694
--
$ 56,880
--
--
1,437
4,009
800
--
$ 63,126
$ 6,675
20,937
--
--
--
--
$ 27,612
24,268
--
--
--
--
$ 51,880
17,178
(3,129)
--
--
--
--
$ 65,929
$ 19,402
--
--
--
--
(2,578)
$ 16,824
--
--
--
--
2,806
$ 19,630
--
--
--
--
--
3,899
$ 23,529
Total
$ 78,107
20,937
480
2,382
348
(2,578)
$ 99,676
24,268
1,093
22
695
2,806
$ 128,560
17,178
(3,129)
1,437
4,013
802
3,899
$ 152,760
See accompanying notes to consolidated financial statements
35
NN, Inc.
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2012 and 2011
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issue costs
(Gain) loss on disposals of property, plant and equipment
Allowance for doubtful accounts
Compensation expense from issuance of restricted stock and incentive stock options
Deferred income tax expense (benefit)
Capitalized interest and non-cash interest
Non-cash restructuring and impairment charges
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Other non-current assets
Accounts payable
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of property, plant and equipment
Proceeds from disposals of property, plant and equipment
Cash lost in deconsolidation of Eltmann
Proceeds received from long-term note receivable
Net cash used by investing activities
Cash flows from financing activities:
Debt issue costs paid
Dividends Paid
Proceeds from long-term debt, net
Repayment of long-term debt, net
Proceeds (repayment) of short-term debt, net
Proceeds from issuance of stock and exercise of stock options
Principal payments on capital lease
Net cash provided by (used by) financing activities
2013
2012
2011
$ 17,178
$ 24,268
$ 20,937
16,957
547
5
177
2,239
3,331
--
--
(6,284)
(7,232)
1,577
(802)
2,577
1,481
31,751
(15,250)
--
--
--
(15,250)
--
(3,129)
--
(33,715)
676
4,013
(136)
(32,291)
17,643
824
(17)
98
1,788
(7,067)
(173)
967
15,330
238
(1,568)
(21)
(11,630)
(3,322)
37,358
(17,089)
366
--
1,945
(14,778)
(862)
--
--
(7,914)
(701)
22
(119)
(9,574)
17,016
809
(36)
140
828
(968)
(210)
--
(7,539)
(7,079)
(2,077)
7
(4,790)
(2,083)
14,955
(20,329)
255
(979)
--
(21,053)
(453)
--
20,000
(16,014)
789
2,382
(66)
6,638
Effect of exchange rate changes on cash flows
(161)
1,448
(1,560)
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(15,951)
18,990
$ 3,039
14,454
4,536
$ 18,990
(1,020)
5,556
$ 4,536
Supplemental schedule of non-cash investing and financing activities:
Compensation expense for stock awards, ($802 in 2013, $695 in 2012, and $348 in 2011) and stock
option expense ($1,437 in 2013, $1,093 in 2012, and $480 in 2011) included in stockholders’ equity
$ 2,239
$ 1,788
$ 828
Acquired land and building through a 20 year capital lease not included in investing activities above
$ --
$ --
$ 1,948
Interest
Income taxes
$ 1,777
$ 3,986
$ 3,130
$ 5,882
$ 3,869
$ 6,516
See accompanying notes to consolidated financial statements
36
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
1) Summary of Significant Accounting Policies and Practices
a) Description of Business
NN, Inc. (“NN”, “the Company”, “we”, “our” or “us”) is a manufacturer of precision balls, cylindrical and
tapered rollers, bearing retainers, plastic injection molded products, precision bearing seals and precision metal
components. Our balls, rollers, retainers, and bearing seals are used primarily in the domestic and international
anti-friction bearing industry. Our plastic injection molded products are used in the bearing components,
automotive components, electronic instrument cases and other molded components used in a variety of
applications. The precision metal components products are used in the HVAC, automotive, fluid power and
diesel engine industries.
b) Cash
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. Cost is determined using the average cost method. Our
policy is to expense abnormal amounts of idle facility expense, freight, handling cost, and waste. In addition,
we allocate fixed production overheads based on the normal production capacity of our facilities. Inventory
valuations were developed using normalized production capacities for each of our manufacturing locations and
the costs from excess capacity or under-utilization of fixed production overheads were expensed in the period
incurred and are not included as a component of inventory valuation.
Inventories also include tools, molds and dies in progress that we are producing and will ultimately sell to our
customers. This activity is principally related to our Plastic and Rubber Components and Precision Metal
Components Segments. These inventories 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 to be disposed of are
stated at lower of depreciated 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 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 consolidated statements of income and comprehensive income.
We review 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. Property, plant and equipment
includes tools, molds and dies principally used in our Plastic and Rubber Components and Precision Metal
Components Segments that are our property.
Depreciation is provided on the straight-line method over the estimated useful lives of the depreciable assets
for financial reporting purposes. For leasehold improvements and buildings under capital lease, we depreciate
these over the shorter of useful lives or the lease term. In the event we abandon and cease to use certain
property, plant, and equipment, depreciation estimates are revised and, in most cases, depreciation expense will
be accelerated to reflect the shortened useful life of the asset.
e) Revenue Recognition
We recognize revenues based on the stated shipping terms with customers when these terms are satisfied and
the risks of ownership are transferred to the customers. We have an inventory management program for certain
Metal Bearing Components Segment customers whereby revenue is recognized when products are used by
customers 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 fixed
and determinable and collectability is reasonably assured.
37
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
f) 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 our accounts receivable are due primarily from the core served
markets. In establishing allowances for doubtful accounts, we perform credit evaluations of our 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 allowances established when considered to be
uncollectible or at risk of being uncollectible, respectively.
g) 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 carry
forwards. 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. Valuation allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized. Provision has not been made for income taxes on unremitted
earnings of foreign subsidiaries as these earnings are deemed to be permanently reinvested. We recognize
income tax positions that meet the more likely than not threshold and accrue interest and potential penalties
related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for
income taxes.
h) Net Income Per Common Share
Basic income per share reflects reported earnings divided by the weighted average number of common shares
outstanding. Diluted income per share include the effect of dilutive stock options, unvested restricted stock (if
any) and the respective tax benefits, unless inclusion would not be dilutive.
i) Share Based Compensation
The cost of stock options and stock awards are expensed as compensation expense over the vesting periods
based on the fair value at the grant date. (See Note 8 of the Notes to the Consolidated Financial Statements)
We use the Black Scholes financial pricing model to determine the fair value of our stock options as our
options are not traded in open markets.
We account for stock awards by recognizing compensation expense ratably over the vesting period as specified
in the award. Compensation expense to be recognized is based on the stock price at date of grant.
j) Principles of Consolidation
Our consolidated financial statements include the accounts of NN, Inc. and its subsidiaries. All of our
subsidiaries are 100% owned and all are included in the consolidated financial statements for the years end
December 31, 2013, 2012, and 2011. All significant inter-company profits, transactions, and balances have
been eliminated in consolidation.
k) Foreign Currency Translation
Assets and liabilities of our 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
arising from the translation of foreign subsidiary financial statements are reported as a component of other
comprehensive income and accumulated other comprehensive income within stockholders’ equity. In addition,
transactions denominated in foreign currencies, including intercompany transactions, are initially recorded at
the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate
38
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or
losses, excluding intercompany loan transactions, are expensed in either cost of products sold or selling,
general and administrative lines in the Consolidated Statements of Comprehensive Income as incurred and
were immaterial to the years ended December 31, 2013, 2012 and 2011. Transaction gains or losses on
intercompany loan transactions are recognized in the other income, net line in the Consolidated Statements of
Comprehensive Income as incurred.
l) Goodwill and Other Indefinite Lived Intangible Assets
We recognize 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 if a triggering event occurs. The impairment procedures are performed at the reporting unit level for the
one reporting unit that still has goodwill. In September 2011, the FASB issued a revised accounting standard,
intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an
option to perform a “qualitative” assessment to determine whether further impairment testing is necessary.
Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to
perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-
likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative
impairment test is required. Otherwise, no further testing is required. For the years ended, December 31, 2013
and 2012, we determined it was more appropriate to perform a full step 1 goodwill test. The decision to
perform a qualitative assessment or a complete step 1 analysis is an annual decision made by management.
Based on the result of the step 1 analysis fair value of the reporting unit exceeded the carrying value of the
reporting unit at December 31, 2013 and 2012.
If the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying
value, U.S. GAAP prescribes a two-step process for testing for goodwill impairments. The first step is to
determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the
reporting unit. The fair value of the reporting unit is determined through use of discounted cash flow methods
and market based multiples of earning and sales methods obtained from a grouping of comparable publicly
trading companies. We believe this methodology of valuation is consistent with how market participants
would value reporting units. The discount rate and market based multiples used are specifically developed for
the unit tested regarding the level of risk and end markets served. Even though we do use other observable
inputs (Level 2 inputs) the calculation of fair value for goodwill would be most consistent with Level 3 inputs.
If the carrying value of the reporting unit including goodwill is less than fair value of the reporting unit, the
goodwill is not considered impaired. If the carrying value is greater than fair value then the potential for
impairment of goodwill exists. The potential impairment is determined by allocating the fair value of the
reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the
reporting unit was acquired in a business combination. The fair value of the goodwill is implied from this
allocation and compared to the carrying value with an impairment loss recognized if the carrying value is
greater than the implied fair value.
We base our fair value estimates, in large part, on management business plans and projected financial
information which are subject to a high degree of management judgment and complexity. Actual results may
differ from these projections and the differences may be material.
Our indefinite lived intangible asset is accounted for similarly to goodwill. This asset is tested for impairment
at least annually by comparing the fair value to the carrying value, using the relief from royalty rate method,
and if the fair value is less than the carrying value, an impairment charge is recognized for the difference. We
elected to use Step 1 testing even though a qualitative approach was available to us.
m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived tangible and intangible assets subject to amortization are tested for recoverability when changes in
circumstances indicate the carrying value of these assets may not be recoverable. A test for recoverability is
also performed when management has committed to a plan to dispose of a reporting unit or asset group.
Assets to be held and used are tested for recoverability when indications of impairment are evident.
39
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
Recoverability of a long-lived tangible and intangible asset is evaluated by comparing its carrying value to the
future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is
not recoverable the asset is considered impaired and adjusted to fair value which is then depreciated/amortized
over its remaining useful life. Assets to be disposed of are carried at the lesser of carrying value or fair value
less costs of disposal. (See Note 2 of the Notes to Consolidated Financial Statements).
n) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States 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.
o) Fair Value Measurements
Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3
inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An
asset or liability's classification within the various levels is determined based on the lowest level input that is
significant to the fair value measurement.
p) Reclassifications
Certain 2012 and 2011 amounts have been reclassified to conform with 2013 presentation.
q) Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board issued accounting guidance to enhance the
disclosure of amounts reclassified out of accumulated other comprehensive income. The new disclosure
guidelines require
the presentation of significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income in the event the amount reclassified is
required to be reclassified in its entirety in the same reporting period. The presentation can be on the face of
the statement where net income is presented or in the notes and reported by component. For amounts not
required to be reclassified in its entirety in the same reporting period to net income, an entity is required to
cross-reference other required disclosures. This guidance is effective for reporting periods beginning after
December 15, 2012. We have concluded that the new guidance did not have an impact on our financial
position or results of operations.
In March 2013, the Financial Accounting Standards Board issued amended accounting guidance that
addresses the release of cumulative translation adjustments into net income when a reporting entity (parent)
ceases to have a controlling financial interest in a subsidiary or group of assets that is a business (other than an
in-substance real estate sale or oil/gas mineral rights) within a foreign entity. The cumulative translation
adjustments should be released into net income only if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.
Additionally, in the event of a step acquisition when the acquirer obtains control of an acquiree in which it
held an equity interest immediately prior to the acquisition, the cumulative translation adjustments would be
released into net income. This guidance is effective prospectively for reporting periods beginning after
December 15, 2013. We have concluded that the new guidance will not have an impact on our financial
position or results of operations.
40
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
2) Impairment Charges
Impairments of Goodwill and Other Long-Lived Tangible and Intangible Assets
For the year ended December 31, 2012, we recorded $967 of non-cash charges related to the further impairment of
our former production facility in Kilkenny, Ireland. Based on updated market based information related to
commercial property valuation in Ireland, management determined the market value of the building was less than
book value and the book value was adjusted accordingly. This impairment charge was reported in the Restructuring
and Impairment Charges line as a component of income from operations in 2012.
3) Accounts Receivable and Sales Concentrations
December 31,
2013
2012
Trade
Less - allowance for doubtful accounts
$ 59,374
445
$ 51,939
311
Accounts receivable, net
$ 58,929
$ 51,628
Activity in the allowance for doubtful accounts is as follows:
Description
December 31, 2013
Allowance for doubtful
accounts
December 31, 2012
Allowance for doubtful
accounts
December 31, 2011
Allowance for doubtful
accounts
Balance at
Beginning
of Year
Additions
Write-
offs
Currency
Impacts
Balance at
End of Year
$ 311
$ 177
$ (47)
$ 4
$ 445
$ 438
$ 98 $ (224)
$ (1)
$ 311
$ 478
$ 140 $ (178)
$ (2)
$ 438
For the years ended December 31, 2013, 2012 and 2011, sales to SKF amounted to $132,654, $124,349 and
$159,668, respectively, or 36%, 34%, and 38% of consolidated revenues, respectively. None of our other customers
accounted for more than 10% of our net sales in 2013, 2012 or 2011. SKF and NTN/SNR were the only customers
with accounts receivable concentration in excess of 10% in 2013 and 2012. The outstanding balance as of December
31, 2013 and 2012 for SKF was $17,005 and $15,433, respectively. The outstanding balance as of December 31,
2013 for NTN/SNR was $6,893. All revenues and receivables related to SKF are in the Metal Bearing Components
and Plastic and Rubber Components Segments. All revenues and receivables related to SNR are in the Metal Bearing
Components Segment.
41
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
December 31,
2013
$ 15,448
9,672
29,410
$ 54,530
2012
$ 13,013
8,561
24,576
$ 46,150
4) Inventories
Raw materials
Work in process
Finished goods
Inventories
Inventory on consignment at customers’ sites at December 31, 2013 and 2012 was approximately $4,735 and $2,644,
respectively.
The inventory valuations above were developed using normalized production capacities for each of our
manufacturing locations. Any costs from abnormal excess capacity or under-utilization of fixed production
overheads are expensed in the period incurred and are not included as a component of inventory valuation.
5) Property, Plant and Equipment
Land owned
Land under capital lease
Buildings and improvements owned
Buildings under capital lease
Machinery and equipment
Construction in process
Less - accumulated depreciation
Estimated
Useful Life
15-40 years
20 years
3-12 years
December 31,
2013
$ 6,139
1,437
45,964
3,172
261,842
20,745
339,299
218,210
2012
$ 5,937
1,396
43,751
3,082
244,138
20,283
318,587
198,900
Property, plant and equipment, net
$ 121,089
$ 119,687
For the years ended December 31, 2013, 2012, and 2011, depreciation expense was $16,957, $17, 643 and $17,016,
respectively.
42
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
6) Debt
Long-term debt at December 31, 2013 and 2012 consisted of the following:
Borrowings under our $100,000 revolving credit facility bearing
interest at a floating rate equal to LIBOR (0.1875% at December
31, 2013) plus an applicable margin of 1.25%, expiring October
26, 2017.
Borrowings under our $40,000 aggregate principal amount notes
bearing interest at a fixed rate of 4.89% maturing on April 26,
2014. Annual principal payments of $5,714 began on April 26,
2008 and extend through the date of maturity.
Borrowings under our $20,000 aggregate principal amount notes
bearing interest at a fixed rate of 4.64% maturing on December
20, 2018. Annual principal payments of $4,000 will begin on
December 22, 2014 and extend through the date of maturity.
Total long-term debt
Less current maturities of long-term debt
2013
2012
$ 10,763
$ 38,087
5,714
11,429
20,000
36,477
20,000
69,516
10,477
5,801
Long-term debt, excluding current maturities
$ 26,000
$ 63,715
On October 26, 2012, we amended our $100,000 revolving credit facility agented by KeyBank and our fixed rate notes
with Prudential Capital in order to take advantage of lower interest rates, to extend the maturity of the revolving credit
facility to October 26, 2017, and to remove certain restrictions on acquisitions, payments of dividends and stock
repurchases. The amended interest rates on our revolving credit facility are LIBOR plus an applicable margin ranging
from 1.25% to 2.25% (depending on the level of debt to earnings before taxes, interest and depreciation (“EBITDA”)).
Prior to the October 26, 2012 amendment, the $100 million revolving credit facility interest rates were LIBOR plus a
margin ranging from 2.50% to 3.50% (depending on the level of debt to EBITDA). The interest rate on our $40,000
aggregate fixed rate notes, of which $5,714 was outstanding as of December 31, 2013, was reduced from 5.39% to
4.89%. The amended agreements allow us to undertake acquisitions, pay dividends, and repurchase stock provided we
are in compliance with specified covenants. Additionally, the minimum fixed charge coverage ratio will remain at “not
to be less than 1.00 to 1.00 as of the last day of any fiscal quarter” for the full terms of the amended agreements.
The $100,000 revolving credit facility may be expanded upon our request with approval of the lenders by up to $35,000
under the same terms and conditions. The loan agreement contains customary restrictions on, among other things,
additional indebtedness, liens on our assets, sales or transfers of assets, investments, issuance of equity securities, and
merger, acquisition and other fundamental changes in our business including a “material adverse change” clause, which
if triggered would accelerate the maturity of the debt. The facility has a $10,000 swing line feature to meet short term
cash flow needs. Any borrowings under this swing line are considered short term. Costs associated with entering into
the revolving credit facility and the subsequent amendments were capitalized and will be amortized into interest expense
over the life of the facility. As of December 31, 2013 and 2012, $1,617 and $2,012, respectively, of net capitalized loan
origination costs related to the revolving credit facility were recorded on the consolidated balance sheet within other non-
current assets.
The $40,000 and $20,000 fixed rate agreements contain customary restrictions on, among other things, additional
indebtedness, liens on our assets, sales or transfers of assets, investments, issuance of equity securities, and mergers,
acquisitions and other fundamental changes in our business including a “material adverse change” clause, which if
triggered would accelerate the maturity of the debt. We incurred costs as a result of issuing these notes and the
subsequent amendments which have been recorded as a component of other non-current assets and are being amortized
over the term of the notes. The unamortized balance at December 31, 2013 and 2012 was $34 and $157, respectively.
43
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
The aggregate maturities of long-term debt including current portion for each of the five years subsequent to
December 31, 2013 are as follows:
Year ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total
$ 10,477
4,000
4,000
14,000
4,000
--
$ 36,477
On June 1, 2004, our wholly owned subsidiary, NN Asia, 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 fair value of the land and
building were estimated to be approximately $545 and $2,016 (at current exchange rates), respectively and undiscounted
annual lease payments are approximately $299 (approximately $5,988 aggregate non-discounted lease payments over the
twenty year term). The lease is cancelable after the fifth, ninth, and fourteenth years without payment or penalty by us.
In addition, after the end of year five and each succeeding year we can buy the land for a preset price per square meter
value and the building for actual cost less depreciation.
On October 1, 2011, our wholly owned subsidiary, NN Asia, entered into a twenty year lease agreement with Kunshan
Tian Li Steel Structure Co. LTD for the lease of land and building adjacent to the current leased facility (approximately
75,000 square feet) in the Kunshan Economic and Technology Development Zone, Jiangsu, The People’s Republic of
China. This lease was entered into to expand the production capacity of our current leased facility. The fair value of the
land and building were estimated to be approximately $892 and $1,156 (at current exchange rates), respectively and
undiscounted annual lease payments are approximately $193 (approximately $3,850 aggregate non-discounted lease
payments over the twenty year term). The lease is cancelable after the fifth, ninth, and fourteenth years without payment
or penalty by us. In addition, after the end of year five and each succeeding year we can buy the land for a preset price
per square meter value and the building for actual cost less depreciation.
Below are the minimum future lease payments under both capital leases together with the present value of the net
minimum lease payments as of December 31, 2013:
Year ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total minimum lease payments
Less interest included in payments above
Present value of minimum lease payments
$ 493
493
493
493
493
4,503
6,968
(2,981)
$ 3,987
7) Employee Benefit Plans
We have defined contribution 401(k) profit sharing plans covering substantially all U.S. employees. All employees
are eligible for the plans on the first day of the month following their employment date. A participant may elect to
contribute between 1% and 60% of their compensation to the plans, 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. We provide a matching contribution which is determined on an individual, participating company
basis. All participant contributions are immediately vested at 100%. Contributions for all U.S. employees were $349,
$335 and $334 in 2013, 2012, and 2011, respectively.
44
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
Post-Employment Benefit Liabilities
We provide certain post-employment benefits to employees at our Pinerolo and Veenendaal plants that are either
required by law or are local labor practice. There is a plan at our Pinerolo Plant and at our Veenendaal Plant which
are described below.
In accordance with Italian law, the Company has an unfunded severance plan under which all Italian employees are
entitled to receive severance indemnities (Trattamento di Fine Rapporto or “TFR”) upon termination of their
employment.
Effective January 1, 2007, the amount payable based on salary paid is remitted to a pension fund managed by a third
party. The severance indemnities paid to the pension fund accrue approximately at the rate of 1/13.5 of the gross
salaries paid during the year. The amounts accrued become payable upon termination of the individual employee, for
any reason, e.g., retirement, dismissal or reduction in work force. Employees are fully vested in TFR benefits after
their first year of service.
We have a plan that covers our Veenendaal Plant employees that provides an award for employees who achieve 25 or
40 years of service and an award for employees upon retirement. The plan is unfunded and the benefits are based on
years of service and rate of compensation at the time the award is paid.
The amounts shown in the table below represent the actual liabilities at December 31, 2013 and 2012 reported under
accrued post-employment benefits in the Consolidated Balance Sheets for both plans combined.
Beginning balance
Amounts accrued
Payments to employees/government managed plan
Foreign currency impacts
Ending balance
2013
$ 6,930
1,019
(1,331)
302
$ 6,920
2012
$ 7,705
574
(1,477)
128
$ 6,930
8) Stock Based Compensation
We recognize compensation expense of all employee and non-employee director share-based compensation awards in
the financial statements based upon the fair value of the awards over the requisite service or vesting period, less
anticipated forfeitures. We account for stock awards by recognizing the fair value of the awarded stock at the grant
date as compensation expense over the vesting period, less anticipated forfeitures.
In the years ended December 31, 2013, 2012, and 2011, approximately $2,239, $1,788, and $828, respectively of
compensation expense was recognized in selling, general and administrative expense for all share-based awards. The
compensation expense recognized in the years ended December 31, 2013, 2012 and 2011 related to stock options was
$1,437, $1,093, and $480, respectively. The compensation expense related to stock awards in the years ended
December 31, 2013, 2012 and 2011 was $802, $695, and $348, respectively.
During the year ended December 31, 2011, our shareholders approved a new stock based compensation plan totaling
2,500 shares that can be issued in the form of stock options, stock appreciation rights and/or other stock based awards.
Any options issued count as the equivalent of one share under the plan. Any stock appreciation rights and/or other
stock based awards count as the equivalent one and a half shares under the new plan. As of December 31, 2013, we
have approximately 1,361 maximum shares that can be issued as options, stock appreciation rights, and/or other stock
based awards. Under our previously approved plan, we still have 52 options available for issuance.
Stock Option Awards
Option awards are typically granted to non-employee directors and key employees on an annual basis. A single
option grant is typically awarded to eligible employees and non-employee directors each year if and when granted by
the Compensation Committee of the Board of Directors and occasionally individual grants are awarded to eligible
45
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
employees. All employee and non-employee directors are awarded options at an exercise price equal to the closing
price of our stock on the date of grant. The term life of options is ten years with vesting periods of generally three
years for key employees and one year for non-employee directors. The fair value of our options cannot be determined
by market value as they are not traded in an open market. Accordingly, the Black Scholes financial pricing model is
utilized to determine fair value based on certain assumptions discussed below.
During 2013, 2012 and 2011, we granted 354, 285, and 216 options, respectively, to certain key employees and non-
employee directors. The weighted average grant date fair value of the options granted during the years ended
December 31, 2013, 2012 and 2011 was $5.17, $4.27, and $5.98, respectively. Upon exercise of stock options, new
shares of our stock are issued. The weighted average assumptions relevant to determining the fair value at the dates
of grant are below:
Term
Risk free interest rate
Dividend yield
Expected volatility
Expected forfeiture rate
2013
6 years
0.87%
0.00%
57.00%
3.00%
2012
6 years
1.16%
0.00%
50.51%
3.00%
2011
6 years
1.72%
0.00%
42.10%
5.00%
The expected volatility rate is derived from our actual common stock historical volatility over the same time period as
the expected term. The volatility rate is derived by mathematical formula utilizing daily closing price data.
The expected dividend yield is derived by a mathematical formula which uses the expected annual dividends over the
expected term divided by the fair market value of our common stock at the grant date.
The average risk-free interest rate is derived from United States Department of Treasury published interest rates of
daily yield curves for the same time period as the expected term.
The forfeiture rate is determined from examining the historical pre-vesting forfeiture patterns of past option issuances
to key employees. The forfeiture rate is estimated to be 0% for non-employee directors. While the forfeiture rate is
not an input of the Black Scholes model for determining the fair value of the options, it is an important determinant of
stock option compensation expense to be recorded.
The term is derived from using the “Simplified Method” of determining stock option terms as described under the
Securities and Exchange Commission’s Staff Accounting Bulletin 107.
The following table provides a reconciliation of option activity for the year ended December 31, 2013:
Options
Outstanding at January 1, 2013
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2013
Exercisable at December 31, 2013
Weighted-
Average
Exercise
Price
$ 9.94
$ 9.81
$ 8.10
$ 9.36
$ 10.65
$ 11.22
Shares
(000’s)
1,384
354
(496)
(9)
1,233
687
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000)
6.5
4.6
$ 11,762
$ 6,168
(1)
(1)
(1) The intrinsic value is the amount by which the market price of our stock was greater than the exercise price of any individual option grant at
December 31, 2013.
46
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
As of December 31, 2013, there was approximately $1,151 and $633 of unrecognized compensation costs for stock
options and restricted stock, respectively, to be recognized over approximately two years.
Cash proceeds from the exercise of options in the years ended December 31, 2013, 2012, and 2011 totaled
approximately $4,013, $22, and $2,382, respectively. For the years ended December 31, 2013, 2012 and 2011,
proceeds from stock options were presented exclusive of tax benefits in the Financing Activities section of the
Consolidated Statements of Cash Flows. The total intrinsic value of options exercised during the years ended
December 31, 2013, 2012 and 2011 was $1,416, $107, and $1,283, respectively.
Stock Awards
During the year ended December 31, 2013, 2012 and 2011, we issued 90, 78 and 75 shares, respectively, of our
common stock as awards to key employees and non-executive directors. The fair value of the shares issued was
determined by using the grant date price of our common stock with a weighted average grant date value of $9.82.
The recognized compensation expense for stock awards in the years ended December 31, 2013, 2012, and 2011 was
approximately $802, $695, and $348, respectively. The shares issued in 2013, 2012 and 2011 vest over three years.
9) Goodwill, Net
As of December 31, 2013, we have recorded goodwill at only one site, the Pinerolo Plant reporting unit of the Metal
Bearing Components Segment. We completed our annual goodwill impairment review during the fourth quarters of
2013, 2012, and 2011. For the years ended December 31, 2013, 2012 and 2011, we concluded that there were no
indicators of impairment at the Pinerolo Plant reporting unit.
The changes in the carrying amount of goodwill for the years ended December 31, 2013, 2012 and 2011 are as
follows:
(In thousands)
Balance as of January 1, 2011
Currency impacts
Balance as of December 31, 2011
Currency impacts
Balance as of December 31, 2012
Currency impacts
Balance as of December 31, 2013
Metal Bearing
Components
Segment
$ 8,396
(357)
$ 8,039
215
$ 8,254
370
$ 8,624
The cumulative accumulated impairment charges included in the reported goodwill balances at December 31, 2013,
2012 and 2011 were $40,045 all of which were recorded during the years ended December 31, 2008 and 2007.
10) Intangible Assets, Net
The Precision Metal Components Segment has an intangible asset not subject to amortization of $900 related to the
value of the trade names of Whirlaway. This indefinite lived intangible asset was tested for impairment as of
December 31, 2013 and the fair value of this intangible asset exceeded its book value. We elected to use Step 1
testing even though a qualitative approach was available to us.
47
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
11) Segment Information
We determined our reportable segments under the provisions of U.S. GAAP related to disclosures about segments of
an enterprise. Our three reportable segments are based on differences in product lines and are as follows:
Metal Bearing Components Segment
Erwin Plant
Mountain City Plant
Pinerolo Plant
Veenendaal Plant
Kysucke Plant
Kunshan Plant
Plastic and Rubber Components Segment
Danielson Plant
Lubbock Plant
Precision Metal Components Segment
Wellington Plant 1
Wellington Plant 2
All of the facilities in the Metal Bearing Components Segment are engaged in the production of precision steel balls,
steel rollers, and metal retainers and automotive specialty products used primarily in the bearing industry. The Plastic
and Rubber Components Segment facilities are engaged in the production of plastic retainers for bearing components,
automotive components, electronic instrument cases and other molded components used in a variety of industrial and
consumer applications and precision rubber bearing seals for the bearing, automotive, industrial, agricultural, and
aerospace markets. The Precision Metal Components Segment is engaged in the production of highly engineered
precision metal components and subassemblies including, highly engineered shafts, mechanical components,
complex precision assembled and tested parts and fluid system components for the automotive, HVAC, fluid power,
and diesel engine industries.
The accounting policies of the segments are the same as those described in the summary of significant accounting
policies. In order to enhance the analysis of segment operating performance, from the third quarter of 2013 interest
costs that were previously allocated to certain segments will be reported under Corporate and Consolidations. The
2013, 2012 and 2011 segment information below has been amended for this change in segment reporting. We
evaluate segment performance based on segment net income (loss). We account for inter-segment sales and transfers
at current market prices. We did not have any individually material inter-segment transactions during 2013, 2012, or
2011.
48
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
Metal Bearing
Components
Segment
Precision
Metal
Components
Segment
Plastic and
Rubber
Components
Segment
Corporate and
Consolidations
Total
December 31, 2013
Net sales
Interest expense
Depreciation and amortization
Income tax (benefit) expense
Net income (loss)
Assets
Expenditures for long- lived assets
December 31, 2012
Net sales
Interest expense
Depreciation and amortization
Income tax (benefit) expense
Net income (loss)
Assets
Expenditures for long- lived assets
December 31, 2011
Net sales
Interest expense
Depreciation and amortization
Income tax (benefit) expense
Net income (loss)
Assets
Expenditures for long- lived assets
$ 259,459
349
11,334
8,345
18,519
197,980
9,250
$ 252,241
387
12,060
2,819
20,980
198,770
14,875
$ 308,883
214
12,295
4,785
30,360
188,872
11,791
$ 78,756
--
4,313
3,261
5,799
39,432
4,640
$ 76,746
--
4,243
(1,811)
9,110
40,727
1,511
$ 72,272
--
3,346
--
(1,864)
47,027
7,194
$ 34,991
--
1,347
216
383
16,638
1,015
$ 41,097
--
1,366
(2,244)
3,921
19,232
703
$ 43,536
--
1,371
--
2,879
19,740
1,344
$ --
2,025
(37)
(3,822)
(7,523)
8,352
345
$ --
3,491
(26)
(2,691)
(9,743)
6,614
--
$ --
4,501
4
383
(10,438)
3,822
--
$ 373,206
2,374
16,957
8,000
17,178
262,402
15,250
$ 370,084
3,878
17,643
(3,927)
24,268
265,343
17,089
$ 424,691
4,715
17,016
5,168
20,937
259,461
20,329
Due to the large number of countries in which we sell our products, sales to external customers and long-lived assets
utilized by us are reported in the following geographical regions:
December 31, 2013
December 31, 2012
December 31, 2011
Property,
Plant and
Equipment,
Net
Net Sales
Property,
Plant and
Equipment,
Net
Net Sales
Property,
Plant and
Equipment,
Net
Net Sales
United States
$ 140,875
$ 42,573
$ 144,375
$ 42,884
$ 140,492
$ 46,959
Europe
Asia
Canada
Mexico
S. America
All foreign
countries
Total
149,649
38,233
9,415
21,963
13,071
57,505
21,011
--
--
--
140,208
39,576
7,464
24,030
14,431
54,768
22,035
--
--
--
193,948
42,591
6,172
23,024
18,464
56,442
17,127
--
--
--
232,331
78,516
$ 373,206 $ 121,089
225,709
76,803
$ 370,084 $ 119,687
284,199
73,569
$ 424,691 $ 120,528
49
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
12) Income Taxes
Prior to December 31, 2012, we had full valuation allowances against all the deferred tax assets of our U.S. units as
we had determined that it was more likely than not the U.S. locations would be unable to generate sufficient profits to
allow realization of existing deferred tax assets at those period ends. The determination to place a valuation
allowance on the tax benefits incurred by our U.S. based operations was made during 2009 due to the 2009 results of
these entities being much more unfavorable than originally forecasted during the global economic recession of 2009.
While our U.S. entities generated pre-tax income of $1,633 during the year ended December 31, 2011, the substantial
cumulative losses in 2009 and 2010 outweighed the positive evidence of the 2011 taxable income.
For the year ended 2012, the pretax profit of our U.S. based companies increased to approximately $7,400 due in
large part to the operational improvements in our Precision Metal Components Segment. This brought the combined
2012 and 2011 pre-tax incomes to approximately $9,000. Additionally, during the fourth quarter of 2012, we utilized
approximately $9,000 of net operating losses to offset tax expense related to certain previously earned income of our
foreign holding company, as discussed below. This positive evidence coupled with estimates within our U.S. based
businesses of fully utilizing our net operating losses within the next two years provided enough positive evidence, in
the opinion of management, to overcome the negative evidence of the cumulative pre-tax losses in 2009 and 2010.
Accordingly in 2012, after considering all relevant factors and objectively verifiable evidence having an impact on
the likelihood of future realization of our U.S. companies’ deferred tax assets, as of December 31, 2012, management
concluded that it is more likely than not that the majority of our deferred tax assets will be realized in future years.
Accordingly, we reversed $8,512 of the amount of the valuation allowance on our tax effected deferred tax assets,
with a credit to the provision for income taxes of $8,512 in our Consolidated Statements of Income and
Comprehensive Income.
A valuation allowance of $1,434 will remain offsetting certain deferred tax assets as of December 31, 2013. These
assets represent the portion of our previously recognized foreign tax credits which management estimates will not be
realized in the future due to their relatively short remaining carry-forward periods. During the year ended December
31, 2013, we reduced the valuation allowance against these credits by $818 related to credits which expired as of
December 31, 2013.
The following tables reflect the effects of full valuation allowances on the net deferred tax assets of all U.S. based
entities for the year ended December 31, 2011, the removal of $9,814 of these valuation allowances for the year
ended December 31, 2012, and recognizing full tax expenses at all jurisdictions for the year ended December 31,
2013.
Income before provision (benefit) for income taxes for the years ended December 31, 2013, 2012 and 2011 was as
follows:
Year ended December 31,
2012
2011
2013
Income before provision (benefit) for income
taxes:
United States
Foreign
Total
$ 8,259
16,919
$ 25,178
$ 7,385
12,956
$ 20,341
$ 1,633
24,472
$ 26,105
50
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
Total income tax expense (benefit) for the years ended December 31, 2013, 2012, and 2011 was as follows:
Current:
U.S. Federal
State
Non-U.S.
Total current expense
Deferred:
U.S. Federal
State
U.S. deferred tax valuation allowance
Non-U.S.
Total deferred expense (benefit)
Year ended December 31,
2013
2012
2011
$ --
179
4,490
4,669
$ (115)
345
2,910
3,140
3,594
145
(818)
410
3,331
2,789
12
(9,814)
(54)
(7,067)
$ --
113
6,023
6,136
534
170
(704)
(968)
(968)
Total expense (benefit)
$ 8,000
$ (3,927)
$ 5,168
A reconciliation of income taxes based on the U.S. federal statutory rate of 34% for each of the years ended
December 31, 2013, 2012 and 2011 is summarized as follows:
Year ended December 31,
2012
2013
2011
Income taxes at the federal statutory rate
Impact of incentive stock options
Decrease in U.S. valuation allowance
Foreign tax credit expiration
Decrease in foreign valuation allowance
Capital gain on return of basis
State income taxes, net of federal taxes
Non-U.S. earnings taxed at different rates
Change in uncertain tax positions
Other permanent differences, net
$ 8,561
261
(818)
818
--
--
198
(834)
32
(218)
$ 8,000
During the year ended December 31, 2011, the decrease in the foreign valuation allowance was due to utilizing the
net operating losses at certain foreign jurisdictions and to eliminating the valuation allowance on deferred tax assets at
our Kysucke (Slovakia) Plant.
$ 6,916
371
(12,740)
--
--
3,079
334
(1,606)
(115)
(166)
$ (3,927)
$ 8,876
163
(704)
--
(1,219)
--
75
(2,116)
--
93
$ 5,168
51
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
The tax effects of the temporary differences as of December 31, 2013, 2012 and 2011 are as follows:
Deferred income tax liabilities:
Tax in excess of book depreciation
Goodwill
Allowance for bad debts
Other deferred tax liabilities
Gross deferred income tax liabilities
Deferred income tax assets:
Goodwill
Inventories
Pension/Personnel accruals
Deductions for uncollectible Eltmann
receivables
Net operating loss carry forwards
Foreign tax credits
Guarantee claim deduction
Accruals and reserves
Other deferred tax assets
Gross deferred income tax assets
Valuation allowance on deferred tax
assets
Net deferred income tax assets
2013
December 31,
2012
2011
$ 6,673
2,213
--
63
8,949
3,215
836
856
$ 6,670
1,987
--
112
8,769
4,141
768
921
$ 5,099
1,821
18
843
7,781
4,846
167
503
--
1,351
3,026
1,141
114
832
11,371
--
3,682
3,844
1,141
293
550
15,340
310
7,526
3,326
--
--
421
17,099
(1,434)
9,937
(2,252)
13,088
(12,066)
5,033
Net deferred income tax assets (liabilities)
$ 988
$ 4,319
$ (2,748)
As realization of certain deferred tax assets is not assured, management has placed valuation allowances against
deferred tax assets it believes are not recoverable, as discussed above. For the remainder, management believes it is
more likely than not that those net deferred tax assets will be realized. However, the amount of the deferred tax assets
considered realizable could be reduced based on changing conditions. Below is a summary of the activity in the total
valuation allowances during the years ended December 31, 2013, 2012 and 2011:
Total Valuation Allowance Activity
Balance at
Beginning of
Year
Additions
Recoveries
Deconsolidation
of Eltmann
subsidiary
Balance at End
of Year
2013
2012
2011
$ 2,252
$ 12,066
$ 16,604
$ --
$ --
$ --
$ (818)
$ (9,814)
$ (2,425)
$ --
$ --
$ (2,113)
$ 1,434
$ 2,252
$ 12,066
The net operating loss carry forwards as of December 31, 2013, are composed of net operating losses at our U.S.
operations during 2010, 2009 and 2008. The losses of the U.S. based entities can be carried forward 20 years.
The foreign tax credits relate to profits of certain foreign subsidiaries that were taxed as deemed dividends. These
credits represent the foreign taxes paid by these subsidiaries at higher effective rates that will be used to offset future
foreign source income. A full valuation allowance was placed against these credits as of December 31, 2008, based
on estimates, at that time, of future levels of U.S. income tax and foreign source income to be generated that these
credits could be used to offset. The valuation allowance will be periodically reviewed as our estimates of future
foreign source income are revised based on actual foreign source income recognized in our tax returns and future
52
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
changes in foreign source income. As of December 31, 2013 and 2012, management believed it was more likely than
not we would only utilize $1,592 and $1,592, respectively, of these credits in the near future and placed a valuation
allowance on the remaining $1,434 and $2,252, respectively.
As of December 31, 2006, all of the Company's foreign earnings had been previously taxed in the U.S. due to the
application of IRC Sec. 956. Accordingly, no deferred taxes have been provided for undistributed earnings up to that
time.
On December 27, 2012, our foreign holding company declared a distribution of approximately $48,000 to its U.S.
parent company NN, Inc. The vast majority of this distribution was a proportional return of investment basis in our
Western European subsidiaries. Approximately $9,000 of the distribution pertained to earnings and profits earned by
this holding company in previous years. The approximately $9,000 of earning and profits was included in our
computation of year ended 2012 taxes and the tax rate resulting in an impact of $3,079. There were two main factors
influencing our decision to consider this return of basis. First, there was a desire to reduce the amount of basis in our
European subsidiaries recorded on the U.S. parent company’s financial statements considering the downsizing of our
European production capacity over the last few years. The second factor was proposed federal tax legislation which,
if enacted, could significantly increase the tax cost of returning this basis after 2012. Because there had been no
change in our long term international expansion plans as of December 31, 2013, our intent to indefinitely reinvest
foreign earnings accumulated through the year ended December 31, 2013 was not changed by these factors. As of the
year ended December 31, 2013, we intend to keep indefinitely reinvesting our foreign earnings. We base this
assertion on two factors. First, our intention to invest in foreign countries that are strategically important to our Metal
Bearing Components Segment business and its customers. Second, we have sufficient access to funds in the U.S.
through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic
operational and investment needs.
As such, we do not expect unrepatriated foreign earnings to become subject to U.S. taxation in the foreseeable future.
If such earnings were distributed beyond the amount for which taxes have been provided, foreign tax credits would
substantially offset the incremental U.S. tax liability. A deferred tax liability will be recognized should we expect we
will recover these undistributed earnings in a taxable manner, such as through the receipt of dividends or sale of the
investments. As we presently plan to permanently reinvest foreign undistributed earnings, we have not provided for
U.S. income tax liabilities that would be payable if such earnings were not reinvested indefinitely. It is not
practicable to determine the amount of unrecognized deferred tax liability related to the unremitted earnings.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties
for the years ended December 31, 2013, 2012 and 2011 is as follows:
Beginning balance
Additions for tax positions of prior years
Reductions for tax positions of prior years
Ending balance
2013
2012
2011
$ 873 $ 988 $ 953
35
428
--
(543)
$ 873 $ 873 $ 988
--
--
As of December 31, 2013, the $873 of unrecognized tax benefits would, if recognized, impact our effective tax rate.
Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the
provision for income taxes in our statements of income. During 2013, we accrued $32 in foreign interest and
penalties. During 2012, we had an increase in foreign interest and penalties of $443 and a decrease in federal and
state interest and penalties of $245 as older uncertain items were eliminated due to the tax years being closed or risk
being mitigated. During 2011, we had a net reduction in foreign interest and penalties of $43 as older uncertain
items were eliminated and newer uncertain items added. As of December 31, 2013, the total amount accrued for
interest and penalties was $1,020.
53
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign
jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by
tax authorities for years before 2010. We are no longer subject to non-U.S. income tax examinations within various
European Union countries for years before 2008. We do not foresee any significant changes to our unrecognized tax
benefits within the next twelve months.
13) Reconciliation of Net Income Per Share
Year ended December 31,
2012
2011
2013
Net income
$ 17,178
$ 24,268
$ 20,937
Weighted average shares outstanding
Effective of dilutive stock options
17,176
84
17,009
105
16,817
136
Diluted shares outstanding
17,260
17,114
16,953
Basic net income per share
$ 1.00
$ 1.43
$ 1.24
Diluted net income per share
$ 1.00
$ 1.42
$ 1.24
Excluded from the dilutive shares outstanding for the years ended December 31, 2013, 2012, and 2011 were 1,148,
1,187, and 792 of anti-dilutive options, respectively, which had per share exercise prices ranging from of $8.54 to
$14.13 for the year ended December 31, 2013, $8.54 to $14.13 for the year ended December 31, 2012 and $11.50 to
$14.13 for the year ended December 31, 2011.
14) Commitments and Contingencies
We have operating lease commitments for machinery, office equipment, vehicles, manufacturing and office space
which expire on varying dates. Rent expense for 2013, 2012 and 2011 was $2,325, $2,375, and $3,181, respectively.
The following is a schedule by year of future minimum lease payments as of December 31, 2013 under operating
leases that have initial or remaining non-cancelable lease terms in excess of one year.
Year ending December 31,
2014
2015
2016
2017
2018
Thereafter
$ 2,802
2,519
2,239
1,304
905
18
Total minimum lease payments
$ 9,787
All legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management
believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our
business, financial condition, results of operations, or cash flows. In making that determination, we analyze the facts
and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of
reasonably possible outcomes. The procedures performed include reviewing attorney and plaintiff correspondence,
reviewing any filings made and discussing the facts of the case with local management and legal counsel We have
recognized loss contingencies of approximately $200 and $500 at December 31, 2013 and December 31, 2012,
respectively, which we believe are adequate to cover all probable liabilities to be incurred by all of the cases in the
aggregate.
54
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
Due to the impacts of the global economic recession and the resulting reduction in revenue and operating losses, our
wholly owned German subsidiary Kugelfertigung Eltmann GbmH (“Eltmann” or “Eltmann Plant”) sustained a
significant weakening of its financial condition and as a result, became technically insolvent at which point it was
required to file for bankruptcy under German bankruptcy law. The filing was made in the bankruptcy court in
Germany on January 20, 2011. As of this date, NN lost the ability to control or manage Eltmann as a result of the
bankruptcy court trustee taking over effective control and day to day management of this subsidiary. As a result of
loss of control of this subsidiary, NN deconsolidated the assets and liabilities of Eltmann from our Consolidated
Financial Statements effective January 20, 2011. Although the bankruptcy trustee released us from all claims related
to the Eltmann bankruptcy, effective October 15, 2013, until such court proceedings are finalized, we will not be able
to determine definitively if any related liabilities and contingent obligations will remain our responsibility. The
ultimate impact on NN of Eltmann filing for bankruptcy will depend on the findings of the bankruptcy court.
However, until such court proceedings are finalized, we will not be able to determine what liabilities and contingent
obligations, if any, might remain as the responsibility of NN. Under advice from legal counsel, NN does not expect
any further significant impacts on our consolidated financial statements as a result of the liquidation of this
subsidiary.
15) Quarterly Results of Operations (Unaudited)
The following summarizes the unaudited quarterly results of operations for the years ended December 31, 2013 and
2012.
Net sales
Income from operations
Net income
Basic net income per share
Diluted net income per share
Weighted average shares
outstanding:
Basic number of shares
Effect of dilutive stock options
Year ended December 31, 2013
March 31
June 30
Sept. 30
Dec. 31
$ 93,797
5,639
2,871
0.17
0.17
$ 96,305
7,920
4,770
0.28
0.28
$ 93,023
7,794
5,052
0.29
0.29
$ 90,081
6,474
4,485
0.25
0.25
17,055
107
17,136
36
17,302
148
17,527
290
Diluted number of shares
17,162
17,172
17,450
17,817
March 31
Year ended December 31, 2012
June 30
Sept. 30
Dec. 31
Net sales
Income from operations
Net income
Basic net income per share
Diluted net income per share
$104,519
9,033
5,909
0.35
0.35
$ 98,824
8,275
7,038
0.41
0.41
$ 86,586
5,917
3,115
0.18
0.18
Weighted average shares outstanding:
Basic number of shares
Effect of dilutive stock options
16,961
114
17,026
113
17,044
106
Diluted number of shares
17,075
17,139
17,150
$ 80,155
1,846
8,206
0.48
0.48
17,044
106
17,150
55
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2013, 2012 and 2011
(In thousands, except per share data)
The first quarter of 2013 was unfavorably impacted by $350 of after tax foreign exchange losses on intercompany
loans and by $399 in after tax restructuring and non-operating items.
The first quarter of 2012 was unfavorably impacted by $734 of after tax foreign exchange losses on intercompany
loans. The second quarter of 2012 was favorably impacted by $1,109 of after tax foreign exchange gains on
intercompany loans. The third quarter of 2012 was unfavorably impacted by $659 of after tax foreign exchange
gains on intercompany loans.
The fourth quarter of 2012 was impacted by favorable tax expense adjustments netting to $7,257 related to removing
U.S. deferred tax valuation allowances applied to all U.S. deferred tax assets, partially offset by taxes related to an
international distribution and increases in our uncertain tax positions. Additionally, the fourth quarter was
unfavorably impacted by $967 in impairment charges related to our former Kilkenny Plant and $826 of after tax
foreign exchange losses on intercompany loans.
16) Fair Value of Financial Instruments
We believe the fair value of financial instruments with maturities of less than a year approximate their carrying value
due to the short maturity of these instruments or in the case of our variable rate debt, due to the variable interest rates.
We elected not to measure any of our financial instruments at fair value and as such will continue to show the fair
value of our financial instruments for disclosure purposes only. The fair value of our fixed rate long-term borrowings
is calculated using significant other observable inputs (Level 2 inputs). The fair value is calculated using a
discounted cash flow analysis factoring in current market borrowing rates for similar types of borrowing
arrangements under our credit profile. The carrying amounts and fair values of our long-term debt are in the table
below (for disclosure purposes only):
December 31, 2013
Fair
Value
Carrying
Amount
December 31, 2012
Fair
Value
Carrying
Amount
Variable rate long-term debt
Fixed rate long-term debt
$ 10,763
$ 25,714
$ 10,763
$ 26,507
$ 38,087
$ 31,429
$ 38,087
$ 32,818
17) Accumulated Other Comprehensive Income
The majority of our Accumulated Other Comprehensive Income balance relates to foreign currency translation of our
foreign subsidiary balances. During the year ended December 31, 2013, we had other comprehensive income $3,899
due to foreign currency translations. During the year ended December 31, 2012, we had other comprehensive income
$2,923 due to foreign currency translations. During the year ended December 31, 2011, we had other
comprehensive loss of ($2,578) due to foreign currency translations. Income taxes on the foreign currency
translation adjustments in other comprehensive income were not recognized because the earnings are intended to be
indefinitely reinvested in those operations.
56
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
The Company's management, under the supervision and with the participation of the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure
controls and procedures as defined under Rule l3a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective as of December 31, 2013, the end of the
period covered by this Annual Report on Form 10-K.
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). The Company's internal control over financial reporting
is 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 control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives
will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls
is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Management, under the supervision and with
the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of
the Company's internal control over financial reporting based on the Internal Control- Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its evaluation,
management concluded that the Company's internal control over financial reporting was effective as of December 31, 2013.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears
under Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the quarter ended December 31,
2013 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
Item 9B. Other Information
None
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item of Form 10-K concerning the Company's directors is contained in the sections entitled
"Information about the Directors" and "Beneficial Ownership of Common Stock" of the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2013, 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
57
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
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.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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 Regulation S-K concerning the Company’s equity compensation plans is set forth in
the table below:
Table of Equity Compensation Plan Information
(in thousands, except per share data)
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted –average exercise
price of outstanding options,
warrants and rights
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
Equity
compensation
plans approved by
security holders
Equity
compensation
plans not approved
by security holders
Total
(a)
1,233
--
1,233
(b)
$10.65
--
$10.65
(c)
1,413
--
1,413
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Information regarding review, approval or ratification of transactions with related persons is contained in a section entitled
“Certain Relationships and Related Transactions” 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 regarding director independence is contained in a section entitled “Information about the Directors” of the
Company’s definitive Proxy Statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated
herein by reference.
Item 14.
Principal Accountant Fees and Services
Information required by this item of Form 10-K concerning the Company’s accounting 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.
58
Item 15.
Exhibits and Financial Statement Schedules
Part IV
(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 ...................................................................................... 32
Consolidated Balance Sheets at December 31, 2013 and 2012 .................................................................................. 33
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2013, 2012, and 2011 ...................................................................................................... 34
Consolidated Statements of Changes in Stockholders’ Equity for the
years ended December 31, 2013, 2012, and 2011 ...................................................................................................... 35
Consolidated Statements of Cash Flows for the years ended
December 31, 2013, 2012, and 2011 .......................................................................................................................... 36
Notes to Consolidated Financial Statements . ............................................................................................................ 37
2. Financial Statement Schedules
The required information is reflected in the Notes to Consolidated Financial Statements within Item 8.
3. See Index to Exhibits (attached hereto)
(b) 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.
(c) Not Applicable
59
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/ RICHARD D. HOLDER
Richard D. Holder
Chief Executive Officer, President and Director
Dated: March 14, 2014
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/ RICHARD D. HOLDER
Richard D. Holder
/S/ JAMES H. DORTON
James H. Dorton
Chief Executive Officer, President and
March 14, 2014
Director
Senior Vice President-Corporate
March 14, 2014
Development and Chief Financial
Officer
/S/ WILLIAM C. KELLY, JR.
William C. Kelly, Jr.
Vice President-Chief Administrative
Officer, Secretary and Treasurer
March 14, 2014
/S/ THOMAS C. BURWELL, JR.
Thomas C. Burwell, Jr.
/S/ G. RONALD MORRIS
G. Ronald Morris
/S/ MICHAEL E. WERNER
Michael E. Werner
/S/ STEVEN T. WARSHAW
Steven T. Warshaw
/S/ RICHARD G. FANELLI
Richard G. Fanelli
S/ ROBERT E. BRUNNER
Robert E. Brunner
/S/ DAVID L. PUGH
David L. Pugh
Vice President-Chief Accounting Officer
and Corporate Controller
March 14, 2014
Non-Executive Chairman, Director
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
March 14, 2014
Director
Director
Director
Director
Director
60
Index to Exhibits
3.1
3.2
3.4
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
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)
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)
Amendments to the Restated By-Laws of NN, Inc. (incorporated by reference to Exhibit 3.2 of the
Company’s Form 8-K filed December 18, 2008)
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)
NN, Inc. 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Registration Statement No. 333-89950 on Form S-3/A filed July 15, 2002)*
Amendment No. 1 to the NN, Inc. 1994 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)*
Amendment No. 2 to the NN, Inc. 1994 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)*
Amendment No. 3 to NN, Inc. 1994 Stock Incentive Plan as ratified by the shareholders on May 15, 2003
(incorporated by reference to Exhibit 10-1 of the Company’s Quarterly Report on Form 10-Q filed August
14, 2003)*
NN, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 4.3 of the Company’s
Registration Statement No. 333-130395 on Form S-8 filed December 16, 2005) *
NN, Inc. 2011 Stock Incentive Plan (incorporated by reference to the Company’s Proxy Statement on
Schedule 14A filed April 6, 2011)
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)
Form of Incentive Stock Option Agreement used in connection with the 1994 Stock Incentive Plan, 2005
Stock Incentive Plan, and 2011 Stock Incentive 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)*
Form of Stock Option Agreement, dated December 7, 1998, between the Company and the non-employee
directors of the Company, used in connection with the 1994 Stock Incentive Plan, 2005 Stock Incentive
Plan, and 2011 Stock Incentive Plan (incorporated by reference to Exhibit 10.15 of the Company’s Annual
Report on Form 10-K filed March 31, 1999) *
10.10 Form of Restricted Stock Grant Agreement used in connection with the 1994 Stock Incentive Plan, 2005
Stock Incentive Plan, and 2011 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 of the
Company’s Annual Report on Form 10-K filed March 15, 2012)*
10.11 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)*
10.12 Executive Employment Agreement, dated August 21, 2006, between the Company and Roderick R. Baty
(incorporated by reference to the Company’s Forms 8-K filed August 24, 2006 and March 18, 2010)*
61
10.13 Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the
Company and Frank T. Gentry, III (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed September 18, 2012)*
10.14 Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the
Company and James H. Dorton (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed September 18, 2012)*
10.15 Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the
Company and Thomas C. Burwell (incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K filed September 18, 2012)*
10.16 Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the
Company and William C. Kelly, Jr., (incorporated by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K filed September 18, 2012)*
10.17 Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the
Company and Jeffery H. Hodge (incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K filed September 18, 2012)*
10.18 Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and between the
Whirlaway and James R. Widders (incorporated by reference to Exhibit 10.6 to the Company’s Current
Report on Form 8-K filed September 18, 2012)*
10.19 Third Amended and Restated Note Purchase and Shelf Agreement dated December 21, 2010 among NN,
Inc. and certain Series A Note Purchasers as defined therein (incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K filed December 27, 2010)
10.20 Amendment No.1 to Third Amended and Restated Note Purchase and Shelf Agreement, dated September
30, 2011 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed
December 22, 2011)
10.21 Amendment No. 2 to Third Amended and Restated Note Purchase and Shelf Agreement, dated December
20, 2011 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed
December 22, 2011)
10.22 Amendment No. 3 to Third Amended and Restated Note Purchase and Shelf Agreement, dated October
26, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
November 1, 2012)
10.23 Third Amended and Restated Credit Agreement among NN, Inc. as U.S. Borrower and its subsidiaries and
the Lenders named therein Key Bank National Association as lead arranger, book runner and
administrative agent, and Branch Bank and Trust Company as documentation agent and Wells Fargo
Bank, N.A. as Foreign Swing line Lender and Regions Bank as Domestic Swing line Lender dated as of
October 26, 2012 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-
K filed November 1, 2012)
10.24 Executive Employment Agreement, dated May 8, 2013, between the Company and Richard D. Holder
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 10, 2013) *
21.1
List of Subsidiaries of the Company#
23.1
Consent of PricewaterhouseCoopers 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##
62
32.2
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act##
101.INS XBRL Instance Document#
101.SCH XBRL Taxonomy Extension Service#
101.CAL Taxonomy Calculation Linkbase#
101.LAB XBRL Taxonomy Label Linkbase#
101.PRE XBRL Presentation Linkbase Document#
101.DEF XBRL Definition Linkbase Document#
*
#
##
Management contract or compensatory plan or arrangement.
Filed herewith
Furnished herewith
63
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
Exhibit 31.1
I, Richard D. Holder, certify that:
1)
I have reviewed this annual report on Form 10-K of NN, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 14, 2014
Signature:
/S/ RICHARD D. HOLDER
Richard D. Holder
Chief Executive Officer, President and Director
64
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
Exhibit 31.2
I, James H. Dorton, certify that:
1)
I have reviewed this annual report on Form 10-K of NN, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report.;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared.
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 14, 2014
Signature:
/S/ JAMES H. DORTON
James H. Dorton
Senior Vice President – Corporate Development and Chief Financial Officer
65
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of NN, Inc. (the “Company”) on Form 10-K for the annual period ended
December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, in the capacity and date indicated below, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and (2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 14, 2014
/s/ RICHARD D. HOLDER
Richard D. Holder
President, Chief Executive Officer and Director
[A signed original of this written statement required by Section 906 has been provided to NN, Inc. and will be retained by
NN, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]
66
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of NN, Inc. (the “Company”) on Form 10-K for the annual period ended
December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, in the capacity and date indicated below, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and (2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 14, 2014
/s/ JAMES H. DORTON
James H. Dorton
Senior Vice President – Corporate Development and Chief Financial Officer
[A signed original of this written statement required by Section 906 has been provided to NN, Inc. and will be retained by
NN, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]
67
Directors
G. RONALD MORRIS
Chairman of the Board
ROBERT E. BRUNNER
RICHARD G. FANELLI
RICHARD D. HOLDER
DAVID L. PUGH
STEVEN T. WARSHAW
MICHAEL E. WERNER
Officers
RICHARD D. HOLDER
President and Chief Executive Officer
JAMES H. DORTON
Sr. Vice President Corporate Development and Chief Financial Officer
FRANK T. GENTRY III
Sr. Vice President and Managing Director – Metal Bearing Components
WILLIAM C. KELLY, JR.
Vice President, Secretary, and Chief Administrative Officer
THOMAS C. BURWELL
Vice President, Chief Accounting Officer and Corporate Controller
JAMES R. WIDDERS
Vice President and General Manager – Precision Metal Components
Independent
Accountants
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
Legal Counsel
BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC
Memphis, Tennessee
Corporate Offices
2000 Waters Edge Drive, Building C, Suite 12
Johnson City, Tennessee 37604
Phone (423) 743-9151 FAX (423) 743-2670
Registrar and
Transfer Agent
COMPUTERSHARE
Canton, Massachusetts
Exchange
NASDAQ National Market
Trading Symbol: NNBR
Additional
Information
If you would like additional information regarding the Company, a copy of its Form 10-K filed
with the Securities and Exchange Commission, or wish to be added to its mailing list, contact:
WILLIAM C. KELLY, JR.
NN, Inc.
2000 Waters Edge Drive, Building C, Suite 12
Johnson City, Tennessee, 37604
Phone (423) 743-9151
NN, Inc.
2000 Waters Edge Drive
Suite 12
Johnson City, TN 37604
Phone: 423-743-9151
Fax: 423-743-2670
www.nnbr.com