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NN,(cid:3)Inc.(cid:3)
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Annual(cid:3)Report(cid:3)(cid:3)
2014(cid:3)
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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, 2014.
This document includes certain non-GAAP financial measures as defined by SEC rules. A reconciliation of those
measures to the most directly comparable GAAP equivalent is included in the Company’s Annual Report on 10-K
for the fiscal year ended December 31, 2014 included herewith.
Disclaimer: NN disclaims any obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements included herein or therein to reflect future events or
developments.
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To(cid:3)our(cid:3)Shareholders:(cid:3)
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2014(cid:3)was(cid:3)a(cid:3)transformative(cid:3)year(cid:3)for(cid:3)NN.(cid:3)We(cid:3)emerged(cid:3)a(cid:3)new(cid:3)and(cid:3)revitalized(cid:3)company(cid:3)with(cid:3)a(cid:3)larger,(cid:3)more(cid:3)diversified(cid:3)
portfolio(cid:3)which(cid:3)opens(cid:3)up(cid:3)new(cid:3)end(cid:3)markets(cid:3)and(cid:3)opportunities(cid:3)for(cid:3)growth(cid:3)into(cid:3)the(cid:3)future.(cid:3)(cid:3)In(cid:3)the(cid:3)past(cid:3)15(cid:3)months,(cid:3)
we(cid:3)have(cid:3)closed(cid:3)four(cid:3)acquisitions(cid:3)and(cid:3)added(cid:3)a(cid:3)second(cid:3)industry(cid:3)leading(cid:3)business(cid:3)to(cid:3)our(cid:3)portfolio.(cid:3)These(cid:3)acquisitions(cid:3)
create(cid:3)better(cid:3)and(cid:3)broader(cid:3)solutions(cid:3)for(cid:3)our(cid:3)customers,(cid:3)create(cid:3)career(cid:3)opportunities(cid:3)for(cid:3)our(cid:3)associates,(cid:3)and(cid:3)are(cid:3)
expected(cid:3)to(cid:3)add(cid:3)significant(cid:3)value(cid:3)for(cid:3)our(cid:3)shareholders.(cid:3)(cid:3)
During(cid:3)the(cid:3)year,(cid:3)our(cid:3)legacy(cid:3)businesses(cid:3)built(cid:3)upon(cid:3)their(cid:3)historic(cid:3)strengths(cid:3)as(cid:3)we(cid:3)continued(cid:3)to(cid:3)experience(cid:3)growth(cid:3)in(cid:3)
our(cid:3)organic(cid:3)and(cid:3)adjacent(cid:3)markets(cid:3)outlined(cid:3)in(cid:3)our(cid:3)2014(cid:3)strategic(cid:3)plan.(cid:3)(cid:3)Our(cid:3)integration(cid:3)efforts(cid:3)at(cid:3)our(cid:3)four(cid:3)
acquisitions(cid:3)are(cid:3)ahead(cid:3)of(cid:3)schedule.(cid:3)(cid:3)The(cid:3)integration(cid:3)of(cid:3)Autocam(cid:3)Corporation(cid:3)–(cid:3)by(cid:3)far(cid:3)the(cid:3)largest(cid:3)acquisition(cid:3)in(cid:3)our(cid:3)
history,(cid:3)is(cid:3)ahead(cid:3)of(cid:3)nearly(cid:3)all(cid:3)of(cid:3)our(cid:3)key(cid:3)performance(cid:3)metrics(cid:3)we(cid:3)set(cid:3)prior(cid:3)to(cid:3)the(cid:3)acquisition.(cid:3)(cid:3)
In(cid:3)last(cid:3)year’s(cid:3)letter(cid:3)to(cid:3)shareholders,(cid:3)I(cid:3)shared(cid:3)my(cid:3)enthusiasm(cid:3)regarding(cid:3)what(cid:3)2014(cid:3)would(cid:3)hold(cid:3)for(cid:3)NN(cid:3)despite(cid:3)some(cid:3)
of(cid:3)the(cid:3)headwinds(cid:3)in(cid:3)the(cid:3)global(cid:3)economy.(cid:3)(cid:3)NN’s(cid:3)results(cid:3)in(cid:3)2014(cid:3)were(cid:3)a(cid:3)direct(cid:3)reflection(cid:3)of(cid:3)the(cid:3)extraordinary(cid:3)
contributions(cid:3)made(cid:3)by(cid:3)our(cid:3)4,200(cid:3)associates.(cid:3)We(cid:3)will(cid:3)continue(cid:3)to(cid:3)execute(cid:3)our(cid:3)strategic(cid:3)plan(cid:3)to(cid:3)build(cid:3)a(cid:3)world(cid:3)class(cid:3)
diversified(cid:3)industrial(cid:3)company.(cid:3)
2014(cid:3)Overview(cid:3)
We(cid:3)entered(cid:3)2014(cid:3)expecting(cid:3)the(cid:3)global(cid:3)economy(cid:3)to(cid:3)be(cid:3)sluggish(cid:3)in(cid:3)certain(cid:3)areas,(cid:3)while(cid:3)improving(cid:3)in(cid:3)others.(cid:3)Despite(cid:3)
some(cid:3)of(cid:3)the(cid:3)unforeseen(cid:3)challenges,(cid:3)specifically(cid:3)around(cid:3)falling(cid:3)currency,(cid:3)we(cid:3)posted(cid:3)solid(cid:3)earnings(cid:3)growth.(cid:3)Bolstered(cid:3)
by(cid:3)our(cid:3)focus(cid:3)on(cid:3)flex(cid:3)productivity,(cid:3)as(cid:3)well(cid:3)as(cid:3)our(cid:3)ability(cid:3)to(cid:3)exceed(cid:3)our(cid:3)targets(cid:3)on(cid:3)cost(cid:3)reduction(cid:3)and(cid:3)acquisition(cid:3)
synergies,(cid:3)our(cid:3)organic(cid:3)and(cid:3)adjacent(cid:3)market(cid:3)revenue(cid:3)continued(cid:3)to(cid:3)expand,(cid:3)setting(cid:3)the(cid:3)foundation(cid:3)for(cid:3)anticipated(cid:3)
stronger(cid:3)growth(cid:3)in(cid:3)2015.(cid:3)(cid:3)(cid:3)
2014(cid:3)Financial(cid:3)and(cid:3)Operating(cid:3)Highlights:(cid:3)
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Record(cid:3)net(cid:3)sales(cid:3)of(cid:3)$488.6(cid:3)million,(cid:3)an(cid:3)increase(cid:3)of(cid:3)$115.4(cid:3)million,(cid:3)or(cid:3)31(cid:3)percent(cid:3)compared(cid:3)to(cid:3)2013(cid:3)
Record(cid:3)adjusted(cid:3)income(cid:3)from(cid:3)operations,(cid:3)before(cid:3)acquisition(cid:3)and(cid:3)integration(cid:3)charges(cid:3)of(cid:3)$39.9(cid:3)million,(cid:3)an(cid:3)
increase(cid:3)of(cid:3)40(cid:3)percent(cid:3)compared(cid:3)to(cid:3)the(cid:3)prior(cid:3)year(cid:3)
Record(cid:3)adjusted(cid:3)net(cid:3)income(cid:3)of(cid:3)$23.5(cid:3)million(cid:3)or(cid:3)$1.29(cid:3)per(cid:3)diluted(cid:3)share,(cid:3)an(cid:3)increase(cid:3)of(cid:3)$0.26(cid:3)or(cid:3)25(cid:3)percent(cid:3)
compared(cid:3)to(cid:3)2013(cid:3)
Acquired(cid:3)four(cid:3)businesses(cid:3)with(cid:3)pro(cid:3)forma(cid:3)annual(cid:3)revenue(cid:3)of(cid:3)$280(cid:3)million(cid:3)
Structured(cid:3)our(cid:3)debt(cid:3)with(cid:3)a(cid:3)“covenant(cid:3)lite”(cid:3)senior(cid:3)credit(cid:3)facility,(cid:3)giving(cid:3)us(cid:3)flexibility(cid:3)through(cid:3)the(cid:3)cycle(cid:3)as(cid:3)we(cid:3)
continue(cid:3)to(cid:3)balance(cid:3)our(cid:3)business.(cid:3)
Our(cid:3)stock(cid:3)attained(cid:3)record(cid:3)highs(cid:3)during(cid:3)2014.(cid:3)(cid:3)From(cid:3)June(cid:3)2013(cid:3)through(cid:3)December(cid:3)2014(cid:3)the(cid:3)total(cid:3)return(cid:3)(including(cid:3)
quarterly(cid:3)dividends)(cid:3)of(cid:3)NN(cid:3)shares(cid:3)was(cid:3)124(cid:3)percent(cid:3)(cid:882)(cid:3)compared(cid:3)to(cid:3)returns(cid:3)of(cid:3)12(cid:3)percent(cid:3)for(cid:3)the(cid:3)Dow(cid:3)Jones(cid:3)
industrial(cid:3)average,(cid:3)13(cid:3)percent(cid:3)for(cid:3)the(cid:3)S&P(cid:3)500(cid:3)and(cid:3)11(cid:3)percent(cid:3)for(cid:3)the(cid:3)Nasdaq(cid:3)composite(cid:3)index.(cid:3)
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During(cid:3)2014,(cid:3)our(cid:3)associates(cid:3)remained(cid:3)focused(cid:3)on(cid:3)expanding(cid:3)the(cid:3)end(cid:3)markets(cid:3)we(cid:3)serve.(cid:3)(cid:3)Everyone(cid:3)circled(cid:3)around(cid:3)
the(cid:3)idea(cid:3)that(cid:3)the(cid:3)sum(cid:3)should(cid:3)be(cid:3)greater(cid:3)than(cid:3)the(cid:3)parts,(cid:3)and(cid:3)ultimately(cid:3)we(cid:3)would(cid:3)transform(cid:3)our(cid:3)company(cid:3)and(cid:3)drive(cid:3)
growth(cid:3)to(cid:3)the(cid:3)benefit(cid:3)of(cid:3)our(cid:3)shareholders.(cid:3)(cid:3)Three(cid:3)key(cid:3)points(cid:3)bring(cid:3)this(cid:3)into(cid:3)focus:(cid:3)
(cid:120) We(cid:3)are(cid:3)now(cid:3)ONE(cid:3)company(cid:3)–(cid:3)One(cid:3)of(cid:3)the(cid:3)key(cid:3)tenants(cid:3)of(cid:3)our(cid:3)strategic(cid:3)plan(cid:3)is(cid:3)to(cid:3)be(cid:3)a(cid:3)center(cid:3)led(cid:3)
organization.(cid:3)(cid:3)All(cid:3)of(cid:3)our(cid:3)associates,(cid:3)and(cid:3)specifically(cid:3)our(cid:3)newly(cid:3)formed(cid:3)corporate(cid:3)integration(cid:3)and(cid:3)
transformation(cid:3)team(cid:3)have(cid:3)been(cid:3)working(cid:3)to(cid:3)successfully(cid:3)integrate(cid:3)the(cid:3)four(cid:3)acquisitions(cid:3)we(cid:3)made.(cid:3)(cid:3)Our(cid:3)
teams(cid:3)have(cid:3)managed(cid:3)through(cid:3)a(cid:3)myriad(cid:3)of(cid:3)decisions,(cid:3)projects(cid:3)and(cid:3)deadlines(cid:3)successfully(cid:3)and(cid:3)exceeded(cid:3)our(cid:3)
performance(cid:3)expectations.(cid:3)We(cid:3)have(cid:3)welcomed(cid:3)more(cid:3)than(cid:3)2,000(cid:3)new(cid:3)associates(cid:3)to(cid:3)the(cid:3)NN(cid:3)team(cid:3)across(cid:3)
four(cid:3)continents,(cid:3)all(cid:3)while(cid:3)making(cid:3)great(cid:3)progress(cid:3)on(cid:3)implementing(cid:3)the(cid:3)NN(cid:3)Operating(cid:3)System(cid:3)in(cid:3)all(cid:3)of(cid:3)our(cid:3)25(cid:3)
facilities.(cid:3)This(cid:3)key(cid:3)initiative(cid:3)prescribes(cid:3)one(cid:3)way(cid:3)that(cid:3)we(cid:3)do(cid:3)business(cid:3)across(cid:3)all(cid:3)our(cid:3)businesses(cid:3)and(cid:3)drives(cid:3)
efficiencies(cid:3)throughout(cid:3)the(cid:3)organization.(cid:3)
In(cid:3)our(cid:3)Metal(cid:3)Bearing(cid:3)Components(cid:3)(MBC)(cid:3)Group,(cid:3)including(cid:3)our(cid:3)acquisitions(cid:3)we(cid:3)were(cid:3)able(cid:3)to(cid:3)grow(cid:3)our(cid:3)
business(cid:3)7(cid:3)percent(cid:3)and(cid:3)improve(cid:3)adjusted(cid:3)operating(cid:3)margins(cid:3)by(cid:3)80(cid:3)basis(cid:3)points.(cid:3)(cid:3)The(cid:3)team’s(cid:3)effort(cid:3)
significantly(cid:3)offset(cid:3)the(cid:3)impact(cid:3)of(cid:3)some(cid:3)of(cid:3)the(cid:3)foreign(cid:3)exchange(cid:3)and(cid:3)global(cid:3)economic(cid:3)challenges(cid:3)that(cid:3)arose(cid:3)
during(cid:3)the(cid:3)year.(cid:3)
The(cid:3)formation(cid:3)of(cid:3)the(cid:3)Autocam(cid:3)Precision(cid:3)Components(cid:3)(APC)(cid:3)Group(cid:3)is(cid:3)more(cid:3)than(cid:3)just(cid:3)an(cid:3)acquisition.(cid:3)(cid:3)Our(cid:3)
integration(cid:3)of(cid:3)Autocam(cid:3)also(cid:3)involves(cid:3)the(cid:3)simultaneous(cid:3)transformation(cid:3)of(cid:3)our(cid:3)legacy(cid:3)Whirlaway(cid:3)business(cid:3)
and(cid:3)V(cid:882)S(cid:3)acquisition(cid:3)under(cid:3)this(cid:3)newly(cid:3)formed(cid:3)group.(cid:3)(cid:3)Our(cid:3)associates’(cid:3)agility,(cid:3)and(cid:3)commitment(cid:3)to(cid:3)
continuously(cid:3)improve(cid:3)have(cid:3)made(cid:3)this(cid:3)transformation(cid:3)virtually(cid:3)seamless,(cid:3)and(cid:3)added(cid:3)significant(cid:3)
shareholder(cid:3)value.(cid:3)
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2014(cid:3)Group(cid:3)Highlights:(cid:3)
Metal(cid:3)Bearing(cid:3)Components(cid:3)–(cid:3)It(cid:3)was(cid:3)another(cid:3)outstanding(cid:3)year(cid:3)for(cid:3)our(cid:3)MBC(cid:3)Group.(cid:3)Revenues(cid:3)grew(cid:3)7(cid:3)percent(cid:3)and(cid:3)
we(cid:3)expanded(cid:3)our(cid:3)product(cid:3)offering(cid:3)with(cid:3)our(cid:3)acquisitions(cid:3)of(cid:3)Chelsea(cid:3)Grinding(cid:3)Company(cid:3)and(cid:3)RFK(cid:3)Valjcici(cid:3)Konjic.(cid:3)(cid:3)
These(cid:3)two(cid:3)acquisitions(cid:3)solidify(cid:3)our(cid:3)position(cid:3)in(cid:3)tapered(cid:3)roller(cid:3)manufacturing(cid:3)and(cid:3)give(cid:3)us(cid:3)a(cid:3)strategic(cid:3)foothold(cid:3)in(cid:3)fluid(cid:3)
power(cid:3)as(cid:3)a(cid:3)platform(cid:3)for(cid:3)growth(cid:3)in(cid:3)2015(cid:3)and(cid:3)beyond.(cid:3)(cid:3)Equally(cid:3)important(cid:3)is(cid:3)the(cid:3)new(cid:3)leadership(cid:3)and(cid:3)realignment(cid:3)of(cid:3)
the(cid:3)MBC(cid:3)Group.(cid:3)Jeff(cid:3)Manzagol(cid:3)joined(cid:3)the(cid:3)team(cid:3)in(cid:3)October(cid:3)of(cid:3)2014.(cid:3)(cid:3)His(cid:3)broad(cid:3)experience(cid:3)in(cid:3)the(cid:3)bearing(cid:3)industry(cid:3)
makes(cid:3)him(cid:3)uniquely(cid:3)qualified(cid:3)to(cid:3)lead(cid:3)this(cid:3)group(cid:3)during(cid:3)this(cid:3)period(cid:3)of(cid:3)growth.(cid:3)(cid:3)As(cid:3)part(cid:3)of(cid:3)this(cid:3)realignment(cid:3)we(cid:3)
separated(cid:3)the(cid:3)group(cid:3)into(cid:3)two(cid:3)operating(cid:3)units(cid:3)(cid:882)(cid:3)global(cid:3)balls(cid:3)and(cid:3)global(cid:3)rollers.(cid:3)(cid:3)This(cid:3)key(cid:3)initiative(cid:3)will(cid:3)help(cid:3)us(cid:3)meet(cid:3)
the(cid:3)expanding(cid:3)demands(cid:3)of(cid:3)our(cid:3)end(cid:3)markets,(cid:3)while(cid:3)maximizing(cid:3)shareholder(cid:3)return.(cid:3)
Autocam(cid:3)Precision(cid:3)Components(cid:3)(Formerly(cid:3)Precision(cid:3)Metal(cid:3)Components)(cid:3)–(cid:3)This(cid:3)was(cid:3)a(cid:3)transformational(cid:3)year(cid:3)for(cid:3)
the(cid:3)APC(cid:3)Group.(cid:3)Revenues(cid:3)grew(cid:3)125(cid:3)percent,(cid:3)with(cid:3)our(cid:3)acquisitions(cid:3)being(cid:3)the(cid:3)key(cid:3)driver.(cid:3)(cid:3)Made(cid:3)up(cid:3)of(cid:3)our(cid:3)legacy(cid:3)
Whirlaway(cid:3)business(cid:3)as(cid:3)well(cid:3)as(cid:3)our(cid:3)acquired(cid:3)businesses(cid:3)V(cid:882)S(cid:3)Industries,(cid:3)and(cid:3)Autocam(cid:3)Corporation,(cid:3)the(cid:3)APC(cid:3)Group(cid:3)is(cid:3)
now(cid:3)a(cid:3)leader(cid:3)in(cid:3)high(cid:3)precision(cid:3)manufacturing(cid:3)with(cid:3)a(cid:3)focus(cid:3)on(cid:3)fuel(cid:3)efficient(cid:3)technologies(cid:3)that(cid:3)are(cid:3)growing(cid:3)faster(cid:3)
than(cid:3)the(cid:3)normal(cid:3)automotive(cid:3)end(cid:3)market.(cid:3)(cid:3)Warren(cid:3)Veltman,(cid:3)formerly(cid:3)the(cid:3)CFO(cid:3)at(cid:3)Autocam,(cid:3)joined(cid:3)the(cid:3)NN(cid:3)team(cid:3)as(cid:3)
part(cid:3)of(cid:3)the(cid:3)acquisition,(cid:3)and(cid:3)leads(cid:3)the(cid:3)newly(cid:3)formed(cid:3)group.(cid:3)(cid:3)His(cid:3)experience(cid:3)with(cid:3)Autocam(cid:3)and(cid:3)almost(cid:3)30(cid:3)years(cid:3)in(cid:3)
the(cid:3)industry(cid:3)gives(cid:3)us(cid:3)solid(cid:3)leadership(cid:3)into(cid:3)the(cid:3)future.(cid:3)
Plastic(cid:3)&(cid:3)Rubber(cid:3)Components(cid:3)–(cid:3)Our(cid:3)plastics(cid:3)business(cid:3)began(cid:3)to(cid:3)truly(cid:3)turn(cid:3)the(cid:3)corner(cid:3)in(cid:3)2014(cid:3)under(cid:3)the(cid:3)new(cid:3)
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[This page intentionally left blank]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
(cid:133) 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)
207 Mockingbird Lane
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) 434-8300
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 (cid:133) No (cid:95)
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 (cid:133) No (cid:95)
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 (cid:95) No (cid:133)
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 (cid:95) No (cid:133)
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. (cid:137)
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 (cid:133)
Accelerated filer (cid:95) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
(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 (cid:133) No (cid:95)
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2014, based on the closing price on the
NASDAQ Stock Market LLC on that date was approximately $433,000,000
The number of shares of the registrant's common stock outstanding on March 10, 2015 was 18,983,549
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the 2015 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
This Annual Report on Form 10-K contains forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may discuss goals,
intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other
information relating to NN, based on current beliefs of management as well as assumptions made by, and information
currently available to, management. Forward-looking statements generally will be accompanied by words such as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,”
“potential,” “predict,” “project” or other similar words, phrases or expressions. Forward-looking statements involve a
number of risks and uncertainties that are outside of our control and 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 of raw materials,
currency and other risks associated with international trade, the Company's dependence on certain major customers,
the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions, new laws and
governmental regulations 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. NN disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or
therein to reflect future events or developments.
Item 1.
Business Overview
Introduction
NN, Inc. is a diversified industrial company and a leading global manufacturer of metal bearing, plastic, rubber and
precision metal components. We were founded in 1980 and are headquartered in Johnson City, Tennessee. NN has
25 manufacturing plants in the United States, Western Europe, Eastern Europe, South America and China. 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.
Our business is aggregated into three reportable segments, the Metal Bearing Components Segment, the Plastic and
Rubber Components Segment and the Autocam Precision Components Segment. In 2014, we continued to execute
on our strategic plan to double our revenue and triple our earnings per share by 2018. We made four acquisitions of
businesses in 2014 to further our growth and implement our strategic plan. The businesses we acquired and our
business segments are described further below.
Acquisitions
In 2014, we made four acquisitions, one of which, the acquisition of Autocam Corporation, was transformative.
In February 2014, we acquired V-S Industries, a manufacturer of precision metal components with locations in
Wheeling, Illinois and Juarez, Mexico. The acquisition of V-S Industries provided NN with a broader product
offering and allowed for penetration into adjacent markets. V-S Industries’ products serve a variety of industries
including electric motors, HVAC, power tools, automotive and medical. V-S Industries’ operations were integrated
with the Autocam Precision Components Segment.
In June 2014, we acquired RFK Industries (“RFK or Konjic Plant”), a manufacturer of taper rollers located in Konjic,
Bosnia and Herzegovina. RFK’s products are complimentary to NN’s existing roller bearing products and will
broaden the Company’s product offering and allow penetration into adjacent markets. RFK currently exports all of
its products to customers serving the European truck, industrial vehicle and railway markets. RFK operations were
integrated with our European Metal Bearing Components operations.
In July 2014, we acquired Chelsea Grinding Company, a manufacturer of cylindrical rollers used primarily in the
hydraulic pump industry and relocated the operations to our Erwin, Tennessee plant and integrated into our Metal
Bearing Component Segment.
2
In August 2014, we acquired Autocam Corporation, a manufacturer of high precision metal components serving
primarily the automotive and commercial vehicle HVAC and fluid power industries. We acquired Autocam for
$256.8 million in cash, assumed debt of $29.8 million and NN share consideration valued at $31.7 million.
Headquartered in Kentwood, Michigan, Autocam manufactures and assembles highly complex, system critical
components for fuel systems, engines, transmission, power steering and electric motors. Autocam employed over
2,100 employees with 15 manufacturing facilities in the U.S., Europe, South America and Asia. With the acquisition
of Autocam, NN combined its Whirlaway and VS businesses under the renamed Autocam Precision Components
Group.
Corporate Information
We were founded in October 1980, and are incorporated in Delaware. Our principal executive offices are located at
207 Mockingbird Lane, Johnson City, Tennessee, and our telephone number is (423) 434-8300. 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.
Business Segments
For each of our business segments, net sales, income from operations and assets is presented in Management’s
Discussion and Analysis of Financial Condition Results of Operations and Note 2 and Note 12 of the Notes to the
Consolidated Financial Statements. Additional information regarding our business segments is presented below.
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 2014, Metal Bearing Components accounted for
57% of our sales. Sales of balls accounted for 38% of our sales and rollers accounted for approximately 16% of our
sales. Sales of metal bearing retainers accounted for 3% of our sales. 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 2014, plastic products accounted for 5% of our sales and rubber
seals accounted for 2% of our sales.
Our Autocam Precision Components Segment manufactures highly engineered, difficult to manufacture precision
metal components and subassemblies for the transportation, HVAC and fluid power markets. Our entry into the
precision metal components market began in 2006 with the acquisition of Whirlaway Corporation. We dramatically
expanded the segment in 2014 with the acquisition of Autocam Corporation (“Autocam”). With the acquisition of
Autocam we are now one of the premier global brands in the high quality, ultra precision end of the precision
components market with a global presence in the business. These products accounted for 36% of our sales in 2014.
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. 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.
3
Steel Rollers. We manufacture tapered rollers at our Veenendaal, Erwin, and Konjic 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.
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.
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.
Autocam Precision Components Segment
Autocam Precision Components. We sell a wide range of highly engineered, extremely close tolerance, precision-
machined metal components and subassemblies primarily to the automotive and commercial vehicle, HVAC and
fluid power markets. We have developed an expertise in manufacturing highly complex, system critical components
for fuel systems, engines and transmissions, power steering systems and electromechanical motors. This expertise
has been gained through investment in technical capabilities, processes and systems, and skilled program
management and product launch capabilities.
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 transportation, electrical, agricultural, construction,
alternative energy, machinery and mining. We supply approximately 500 customers; however, our top ten customers
account for approximately 66% 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 26% of net sales in 2014. In 2014, 49% of our products were sold to customers in North America,
34% to customers in Europe, 12% to customers in Asia and the remaining 5% 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
4
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.
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 2014, 2013 and 2012:
(In Thousands)
2014
2013
2012
Metal Bearing Components Segment
Percentage of Total Sales
Autocam Precision Components Segment
Percentage of Total Sales
Plastic and Rubber Components Segment
Percentage of Total Sales
$278,026 $ 259,459 $ 252,241
68%
70%
57%
177,224
36%
33,351
7%
78,756
21%
34,991
9%
76,746
21%
41,097
11%
Total
$ 488,601 $ 373,206 $ 370,084
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 $0.1
million in 2014 compared to 2013 and increasing $5.6 million in 2013 compared to 2012.
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. The Metal Bearing Components Segment, Autocam
Precision Components Segment, and the Plastics and Rubber Components Segment, each use a distinct direct sales
force supported by senior segment management and engineering involvement. 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 Autocam Precision 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.
5
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.
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, 2014, we employed a total of 3,775 full-time employees and 445 full time equivalent temporary
workers. Of our total employment, 14% are management/staff employees and 86% are production employees. The
employees at the Pinerolo, Veenendaal and Autocam France Plants are unionized. We believe we have a good
working relationship with our employees.
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 competitors in the plastic
bearing retainer market are Nakanishi Manufacturing Corporation, Pressey and Lacey. Domestically, National, Nypro
Inc., Thermotech, GW Plastics, C&J Industries and Nyloncraft are amongst the largest players 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, product
performance, service, quality and price. Our primary competitors in the U.S. bearing seal market are Freudenberg-
NOK, Trelleborg, Trostel, Uchiyama and Paulstra/Hutchinson. Some bearing manufacturers are vertically integrated
and mold their own seals.
In the Autocam Precision 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, Haring, A. Berger, C&A Tool, American Turned Products, Camcraft and
AB Heller. 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 Group is 52100
Steel, which is high quality chromium steel. Our other steel requirements include metal strip, stainless steel, and type
S2 rock bit steel.
6
The Metal Bearing Components Group 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. 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.
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.
For the Plastic and Rubber Components Group, 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 Group 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 Autocam Precision Metal Components Group produces products from a wide variety of metals in various forms
from various sources located in the U.S, Europe and Japan. 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.
In our three segments, we have 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.
Patents, Trademarks and Licenses
We do not own any U.S. or foreign patents, trademarks or licenses that are material to our business. We do rely on
certain data and processes, including trade secrets and know-how, and the success of our business depends, to some
extent, on such information remaining confidential. Each executive officer is subject to a non-competition and
confidentiality agreement that seeks to protect this information. 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
7
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.
Executive Officers of the Registrant
Our executive officers are:
Name
Richard D. Holder
James H. Dorton
L. Jeff Manzagol
Warren Veltman
53
James R. Widders
Thomas C. Burwell, Jr.
William C. Kelly, Jr.
Age Position
52
58
59
Chief Executive Officer and President
Senior Vice President –Chief Financial Officer
Senior Vice President- General Manager of the Metal Bearing Components
Group
Senior Vice President -General Manager Autocam Precision Components
Group
Senior Vice President – Integration and Corporate Transformation
58
46 Vice President – Chief Accounting Officer and Corporate Controller
56 Vice President – Chief Administrative Officer and Secretary
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.
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.
Jeff Manzagol joined NN as Senior Vice President and General Manager of the Metal Bearing Components Group on
October 6, 2014. Manzagol steps into his role with more than 36 years of metal bearings and high precision
manufacturing experience. He most recently served as President of the Bearings Division at Kaydon Corporation.
Previously, Manzagol held various leadership positions at SKF Group, including President and General Manager at
the Armada, Michigan facility.
Warren Veltman was appointed Senior Vice President and General Manager of NN’s Autocam Precision
Components Group in September 2014. Veltman served as Chief Financial Officer of Autocam Corporation from
1990 and Secretary and Treasurer since 1991. Prior to Autocam, he was an Audit Manager with Deloitte & Touche.
James R. Widders was named Senior Vice President of Integration and Corporate Transformation in September 2014.
Prior to that appointment Mr. Widders was 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.
8
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.
Recent Developments
On September 18, 2014, the Company announced that Frank T. Gentry, III will be retiring as the Company’s Senior
Vice President -- Managing Director Metal Bearing Components Division. Mr. Gentry’s retirement was effective on
January 4, 2015. Mr. Gentry served as Senior Vice President -- Managing Director Metal Bearing Components
Division from May 2010 until his retirement. He served as Vice President from April 2009 to May 2010. Prior to
that, Mr. Gentry served as Vice President -- General Manager U.S. Ball and Roller Division from August 1995 until
April 2009. Mr. Gentry joined NN in 1981 and held various manufacturing management positions from 1981 to
August 1995.
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.
We may not realize all of the anticipated benefits from the four acquisitions closed in 2014 or those benefits may
take longer to realize than expected.
Our ability to realize the anticipated benefits of the four acquisitions closed in 2014 will depend, to a large extent, on
our ability to integrate these businesses. The integration process may disrupt the businesses and, if implemented
ineffectively, would preclude realization of the full benefits expected. The difficulties of combining the operations of
the companies include, among others:
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the diversion of management's attention to integration matters;
difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from
combining the acquired businesses with our own;
difficulties in the integration of operations and systems;
difficulties in managing the expanded operations of a significantly larger and more complex company;
challenges in keeping existing customers and obtaining new customers; and
challenges in attracting and retaining key personnel.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in
the amount of expected revenues and diversion of management's time and energy, which could materially impact the
business, financial condition, or results of operations.
Additionally, we have incurred a higher degree of financial leverage related to these four acquisitions and undertaken
new credit facilities to finance the acquisitions. Finally, in relation to these acquisitions we have significantly higher
amounts of intangible assets, including goodwill. These intangible assets will be subject to impairment testing and
we could incur a significant impact to our financial statements in the form of an impairment if assumptions and
expectations related to these four acquisitions are not realized.
9
Acquisitions constitute an important part 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. 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.
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.
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, any inflation in oil and any resulting increase in 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.
10
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 26% of consolidated net sales in 2014. No other customers accounted for more than 10% of sales.
During 2014, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately
66% 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:
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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 products 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.
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
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.
11
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:
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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
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.
12
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 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 own an office building in
Johnson City, Tennessee which serves as our corporate offices.
Metal Bearing Components Segment
Manufacturing Operation
Erwin Plant
Mountain City Plant
Pinerolo Plant
Kysucke Plant
Veenendaal Plant
Kunshan Plant
RFK Valjcici d. d. Konjic
Approximate
Country
U.S.A.
U.S.A.
Italy
Slovakia
The Netherlands
China
Bosnia
Sq. Feet
155,000
86,000
330,000
135,000
159,000
185,000
54,500
Owned or Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Plastic and Rubber Components Segment
Manufacturing Operation
Danielson Plant
Lubbock Plant
Country
U.S.A.
U.S.A.
Approximate
Sq. Feet
50,000
228,000
Owned or Leased
Owned
Owned
13
Precision Metal Components Segment
Manufacturing Operation
Country
Sq. Feet
Approximate
Wellington Plant 1
Wellington Plant 2
VS Products Wheeling Plant
VS Products Juarez Plant
Autocam Kentwood Plant 1
Autocam Kentwood Plant 2
Autocam Dowagiac Plant
Autocam Marshall Plant 1
Autocam Marshall Plant 2
Autocam Boutuva Plant
U.S.A.
U.S.A.
U.S.A.
MEXICO
U.S.A.
U.S.A.
U.S.A.
U.S.A.
U.S.A.
BRAZIL
86,000
132,000
76,000
135,000
188,000
38,500
67,000
56,000
58,700
42,000
Owned or
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Autocam Sao Joao da Boa Plant 1
BRAZIL
76,500
Leased
Autocam Sao Joao da Boa Plant 2
BRAZIL
73,200
Leased
Bouverat Industries Plant
Autocam Poland Plant
Autocam China Plant
FRANCE
POLAND
CHINA
75,300
71,000
68,900
Owned
Owned
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 $ 0 and $200,000 at December 31, 2014 and December 31, 2013,
respectively, which we believe are adequate to cover all probable liabilities to be incurred by all of the cases in the
aggregate.
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, 2015, there were approximately 3,500 holders of record of our common stock and the closing per
share stock price as reported by NASDAQ was $19.73.
The following table sets forth the high and low closing sales prices of the common stock, as reported by NASDAQ
for our two most recent fiscal years.
Close Price
High
Low
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 20.98
26.17
29.91
26.63
$ 10.03
11.41
15.65
20.95
$ 17.16
19.21
23.71
17.75
$ 8.66
8.46
11.38
15.33
The following graph compares the cumulative total shareholder return on our common stock (consisting of stock
price performance and reinvested dividends) from December 31, 2009 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, 2009 through December 31, 2014. 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, 2009. 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 & Poor’s 500 and Value Line Machinery Index
(Performance Results Through 12/31/14)
*Cumulative total return assumes reinvestment of dividends.
NN, Inc.
Standard & Poor’s 500
Machinery
12/31/2010
312.12
115.06
166.30
12/31/2011
151.52
117.49
189.29
12/31/2012
231.31
136.29
247.93
12/31/2013
513.97
180.43
357.87
12/31/2014
529.89
205.13
389.91
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
the last two fiscal years.
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividend
d
$0.00
$0.00
$0.12
$0.06
16
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividend
$0.07
$0.07
$0.07
$0.07
See Part III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” of this 2014 Annual Report on Form 10-K for information required by Item 201 (d) of Regulation S-K.
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
Acquisition related costs excluded from
selling, general and administrative
Depreciation and amortization
(Gain) loss on disposal of assets
Restructuring and impairment charges,
excluding goodwill impairment
Income from operations
Interest expense
Write-off of unamortized debt issuance cost
Other expense (income), net
Income before provision (benefit) for
income taxes
Provision (benefit) for income taxes
Share of net income (loss) from joint venture
Net income
2014
2013
2012
2011
2010
$ 488,601 $ 373,206
$ 370,084
$ 424,691
$ 365,369
384,889
43,756
295,136
33,281
294,859
31,561
347,622
30,657
296,422
30,407
9,248
22,146
--
875
27,687
12,293
--
2,222
--
16,957
5
--
27,827
2,374
--
275
--
17,643
(17)
967
25,071
3,878
--
852
--
17,016
(36)
--
29,432
4,715
--
(1,388)
--
19,195
808
2,289
16,248
6,815
130
(1,682)
13,172
5,786
831
$ 8,217
25,178
8,000
--
$ 17,178
20,341
(3,927)
--
$ 24,268
26,105
5,168
--
$ 20,937
10,985
4,569
--
$ 6,416
Basic income per share:
Net income
Diluted income per share:
Net income
$ 0.46
$ 1.00
$ 1.43
$ 1.24
$ 0.39
$ 0.45
$ 1.00
$ 1.42
$ 1.24
$ 0.39
Dividends declared
Weighted average number of shares
outstanding - Basic
Weighted average number of shares
outstanding – Diluted
$ 0.28
$ 0.18
$ 0.00
$ 0.00
$ 0.00
17,887
17,176
17,009
16,817
16,455
18,253
17,260
17,114
16,953
16,570
17
(In Thousands)
Balance Sheet Data:
Current assets
Current liabilities
Total assets
Long-term debt
As of December 31,
2014
2013
2012
2011
2010
$ 242,799
$ 125,674
$ 127,296
$ 124,025
$ 115,670
137,598
69,384
58,758
73,041
83,587
712,713
262,402
265,343
259,461
248,555
328,026
26,000
63,715
71,629
99,676
67,643
78,107
Stockholders' equity
173,699
152,760
128,560
The year ended December 31, 2014, was significantly impacted by certain costs related to the Autocam acquisition
and to a lesser extent the three other acquisitions completed in 2014. The total impact of these costs was $14,831
(before tax) and $13,553 (after tax). In addition, related to the Autocam acquisition, we made the decision to
discontinue use of certain trade names and incurred an $875 impairment charge. The balance sheet for the year
ended December 31, 2014 includes the impact of four acquisitions closed during 2014. With these acquisitions, we
acquired current assets and total assets of $92,910 and $433,947, respectively, and assumed current liabilities and
total liabilities of $52,935 and $124,398, respectively. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for more information.
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.
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. Unless otherwise noted
herein, all amounts are in thousands, except per share numbers.
Overview and Management Focus
Our strategy and management focus is based upon the following long-term objectives:
(cid:120) Sales growth through acquisitions
(cid:120) Sales growth in adjacent markets
(cid:120) Organic and acquisitive growth within all our segments
(cid:120) 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:
(cid:120) Global industrial growth and economics
(cid:120) Global automotive production rates
(cid:120) 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
(cid:120) Raw material availability
(cid:120) Trends related to the geographic migration of competitive manufacturing
(cid:120) Regulatory environment for United States public companies
(cid:120) Currency and exchange rate movements and trends
(cid:120) Interest rate levels and expectations
Management generally focuses on the following key indicators of operating performance:
(cid:120) Sales growth
(cid:120) Cost of products sold
(cid:120) Selling, general and administrative expense
(cid:120) Income from operations and adjusted income from operations
19
(cid:120) Net income and adjusted net income
(cid:120) Cash flow from operations and capital spending
(cid:120) Customer service reliability
(cid:120) External and internal quality indicators
(cid:120) 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.
Business Combinations. We allocate the total purchase price of the acquired tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values as of the business combination date, with the excess
purchase price recorded as goodwill. The purchase price allocation process required us to use significant estimates
and assumptions, including fair value estimates, as of the business combination date. Although we believe the
assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical
experience and information obtained from management of the acquired company, in part based on valuation models
that incorporate projections of expected future cash flows and operating plans and are inherently uncertain.
Valuations are performed by management or third party valuation specialists under
management’s supervision. In determining the fair value of assets acquired and liabilities assumed in business
combinations, as appropriate, we may use one of the following recognized valuation methods: the income approach
(including discounted cash flows from relief from royalty and excess earnings model),
the market approach and/or the replacement cost approach.
Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:
(cid:120) sales volume, pricing and future cash flows of the business overall
(cid:120) future expected cash flows from customer relationships, and other identifiable intangible assets, including
future price levels, rates of increase in revenue and appropriate attrition rate
(cid:120) the acquired company’s brand and competitive position, royalty rate quantum, as well as assumptions about
the period of time the acquired brand will continue to benefit to the combined company’s product portfolio
(cid:120) cost of capital, risk-adjusted discount rates and income tax rates
However, different assumptions regarding projected performance and other factors associated with the acquired
assets may affect the amount recorded under each type of assets and liabilities, mainly between property plant and
equipment, intangibles assets, goodwill and deferred income tax liabilities and
subsequent assessment could result in future impairment charges. The purchase price allocation process also entails
us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained
surrounding facts and circumstances existing at acquisition date.
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
20
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. 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 quantitative two-step process of 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 U.S. GAAP
hierarchy) the calculation of fair value for goodwill would be most consistent with Level 3 under the U.S. 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. The indefinite lived
intangible asset was impaired during the year ended December 31, 2014, as management is in the process of phasing
out the use of the trade name as a result of the Autocam acquisition.
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.
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 13 of the Notes to Consolidated Financial Statements).
The Company does not record a U.S. deferred tax liability for the excess of the book basis over the tax basis of its
investments in foreign subsidiaries to the extent the foreign earnings meet the indefinite reversal criteria. As of the
year ended December 31, 2014, we consider the unremitted foreign earnings of our foreign subsidiaries to be
reinvested indefinitely. 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 and our Autocam Precision Components
21
Segment and our customers. With the acquisitions completed in 2014, we have significantly expanded our
international base of operations adding subsidiaries in Mexico, Bosnia and Herzegovina, Brazil, Poland, France and
China which will require more foreign investment. 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.
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
Acquisition related costs excluded from selling, general
and administrative
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
Share of net income (loss) from joint venture
As a Percentage of Net Sales
Year ended December 31, 2014
2014
2013
2012
100.0%
100.0%
100.0%
78.8
9.0
79.1
8.9
79.7
8.5
1.9
4.5
0.0
0.1
5.7
2.5
0.5
2.7
1.2
0.2
--
4.5
0.0
0.0
7.5
0.6
0.1
6.7
2.1
--
--
4.8
0.0
0.3
6.7
1.0
0.2
5.5
(1.1)
--
6.6%
Net income
1.7%
4.6%
22
Sales Concentration
Sales to various U.S. and foreign divisions of SKF, one of the largest bearing manufacturers in the world, accounted
for approximately 26% of consolidated net sales in 2014. During 2014, sales to various U.S. and foreign divisions of
our ten largest customers accounted for approximately 66% of our consolidated net sales. None of our other
customers individually accounted for more than 10% of our consolidated net sales for 2014. 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, 2014 Compared to the Year Ended December 31, 2013.
The year ended December 31, 2014, was significantly impacted by certain costs related to the Autocam acquisition
and to a lesser extent the three other acquisitions completed in 2014. The net after tax impact of these costs was
$13,553. The following is a summary of these costs:
8,534
1,384
1,398
1,576
1,939
Reported in acquisition related costs excluded from selling, general and administrative are third party
legal, accounting, valuation consulting and investment banking advisory fees.
Reported in cost of products sold, the fair value step-up in Autocam inventory sold in September.
Reported in interest expense, writing off debt issuance costs from our former credit facilities
refinanced as part of the Autocam acquisition
Reported in interest expense, make whole interest costs for our former credit facilities refinanced as
part of the Autocam acquisition
Integration costs related to the four acquisitions reported in cost of products sold, selling, general and
administrative and other expense (income), net.
(2,580)
Tax benefits of above expenses that are tax deductible
1,302
13,553
Foreign tax credits expired unutilized due to mergers and acquisition costs noted above
Total
We have provided a reconciliation of net income to adjusted net income (a non-GAAP measure used by
management) and income from operations to adjusted income from operations (a non-GAAP measure used by
management) to provide supplementary information about the impacts of acquisition related expenses. We believe
that the presentation of adjusted income from operations and adjusted net income provides useful information to
investors in assessing our results of operations and potential future results in light of the high level of acquisition
expenses incurred during the period. These measures should not be considered as an alternative to GAAP income
from operations or net income. You should not consider adjusted income from operations or adjusted net income in
isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because adjusted income
from operations and adjusted net income may be defined differently by other companies in our industry, our
definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
23
OVERALL RESULTS
(In Thousands of Dollars)
Net sales
Acquisitions
Foreign exchange effects
Volume
Price
Mix
Material inflation pass-through
Cost of products sold (exclusive of depreciation and
amortization shown separately below)
Acquisitions
Foreign exchange effects
Volume
Cost reduction projects and other cost changes
Acquisition integration costs and inventory step-up
Inflation
Selling, general and administrative
Foreign exchange effects
Acquisitions
Increase in spending
Acquisition related costs excluded from selling,
general and administrative
Depreciation and amortization
Foreign exchange effects
Acquisitions
Net decrease in depreciation expense
Restructuring and impairment charges
(Gain)/Loss on disposal of assets
Income from operations
Interest expense
Other expense, net
Income before provision (benefit) for income
taxes and share of net income from joint venture
Provision (benefit) for income taxes
Share of net income (loss) from joint venture
Net income
Reconciliation of Net income to adjusted net
income:
Net Income
Acquisition and integration costs in Cost of
products sold
Acquisition related costs excluded from selling,
general and administrative
Acquisition and integration costs in interest
expense
Integration costs included in Other expense, net
Taxes benefits from acquisition related costs
Acquisition related costs in share of net income
(loss) from joint venture
After-tax foreign exchange gain on inter-
company loans
After tax restructuring and impairment charges
Adjusted Net Income
Consolidated NN, Inc.
2014
$ 488,601
2013
$ 373,206
Change
$ 115,395
100,655
106
23,455
(1,282)
(3,846)
(3,693)
81,890
85
16,315
(8,901)
2,063
(1,699)
72
6,036
4,367
50
6,963
(1,824)
384,889
295,136
89,753
43,756
33,281
10,475
9,248
--
22,146
16,957
875
--
27,687
12,293
2,222
--
5
27,827
2,374
275
9,248
5,189
875
(5)
(140)
9,919
1,947
13,172
5,786
831
$ 8,217
25,178
8,000
--
$ 17,178
(12,006)
(2,214)
831
$ (8,961)
$ 8,217
$ 17,178
$ (8,961)
2,063
9,248
2,974
319
(1,277)
226
--
--
--
--
--
--
2,063
9,248
2,974
319
(1,277)
226
1,197
577
$ 23,544
84
482
$ 17,744
1,113
95
$ 5,800
24
Reconciliation of income from operations to
adjusted income from operations:
2014
2013
Change
Income from operations
Acquisition and integration costs included in cost
of products sold
Acquisition related costs excluded from selling,
general and administrative
Restructuring and impairment charges
Adjusted Income from operations
$ 27,687
$ 27,827
$ (140)
2,063
--
2,063
9,248
875
$ 39,873
--
568
$ 28,395
9,248
307
$ 11,478
Net Sales. Net sales increased during 2014 compared to 2013 principally due to sales from the four companies
acquired in 2014. Net sales reported for 2014 includes four month of Autocam, six months of RFK, five months of
Chelsea, and 11 months of VS. Additionally, net sales increased due to greater demand for our products in the
European, North American and Asian automotive markets. The growth with our customers over the prior year was
generally consistent with the overall growth in automotive production in those geographic regions. Additionally, we
have continued to benefit from improved market share with certain customers and adjacent market expansion.
The reduction in price and raw material pass-through (in 2014 compared to 2013) was driven mainly by lower levels
of material inflation in our businesses which led to lower pass-through to our customers and due to contractual price
decreases for certain long-term sales programs. The unfavorable sales impact related to mix was due to experiencing
higher volumes of certain products that have lower prices than our average product assortment sold during the
comparable period. The majority of the unfavorable mix occurred in the first six months of 2014.
Cost of Products Sold (exclusive of depreciation and amortization shown separately below). Cost of products sold
was primarily impacted by the addition of production costs added with the four companies acquired in 2014 as
discussed above. Additionally, we experienced increased production costs at those units with higher sales volumes,
as discussed above. Partially offsetting the increase in cost of products sold were benefits from specific continuous
improvement projects undertaken subsequent to 2013.
Selling, General and Administrative. The majority of the increase was due to the selling, general and administrative
costs brought over from the four companies acquired in 2014. Additionally, spending has increased as we have
invested in certain key functional positions and research and development costs related to the execution of our
strategic plans for growth.
Acquisition related costs excluded from selling, general and administrative. Acquisition related costs are third party
legal, accounting, valuation consulting and investment banking advisory fees incurred directly related to the Autocam
acquisition and the three other acquisitions in 2014 to a lesser extent.
Depreciation and Amortization. The increase in depreciation and amortization was due to adding depreciation and
amortization from the four acquisitions closed during 2014 including the related step-ups of certain property, plant
and equipment to fair value and the addition of intangible assets related to the purchase price allocation.
Interest expense. Interest expense increased $3.0 million in 2014 compared to 2013 due to the acquisition related
expenses from writing off debt issuance costs and make whole interest payments related to our former credit facilities
as part of the Autocam acquisition. Additionally, interest on the $350 million in debt NN entered into to complete the
Autocam acquisition amounted to an additional $6.7 million in interest including the amortization of debt issuance
costs.
Provision for Income Taxes. The 2014 effective tax rate of 44% reflects the impact of two items related to the merger
and acquisition activity in 2014 including (1) $1,971 for non-deductible third party merger and acquisition as these
cost were directly facilitative to the acquisitions; and (2) $1,302 for the expiration of foreign tax credits that could not
be utilized during 2014 because of the merger related acquisition costs. In addition, the rate reflects an offset to the
items above for the impact of foreign earnings taxed at lower rates of $1,714.
25
RESULTS BY SEGMENT
METAL BEARING COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Foreign exchange effects
Acquisitions
Volume
Price
Mix
Material inflation pass-through
Year ended
December 31,
2013
Change
2014
$ 278,026
$ 259,459
$ 18,567
106
5,092
18,459
(1,559)
(2,238)
(1,293)
Income from operations
$ 31,872
$ 27,380
$ 4,492
Net sales increased during 2014 compared to 2013 principally due to increased sales volumes resulting from greater
demand for our products in the European, North American and Asian automotive markets and from better overall
market penetration with our customers. The reduction in price and raw material pass-through was driven mainly by
lower levels of material inflation in our businesses which led to lower pass-through to our customers. The
unfavorable sales impact related to mix was due to certain products sold during 2014 being lower priced than our
average product assortment sold during 2013. Finally, the segment benefited from the additional sales RFK (for six
months) and Chelsea (for five months), each of which was acquired in 2014.
Increased sales volumes in 2014 compared to 2013 added $5.3 million in incremental income from operations and the
acquisition of RFK and Chelsea added $0.2 million in income from operations. Additionally, continuous
improvement projects added $4.3 million to income from operations. Partially offsetting these increases were the
unfavorable impacts of price/mix of $3.9 million and inflation of $1.5 million.
AUTOCAM PRECISION COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Volume
Acquisitions
Price/Mix/Inflation
Year ended
December 31,
2014
2013
Change
$ 177,224
$ 78,756
$ 98,468
6,697
95,562
(3,791)
Income from operations
$ 15,732
$ 9,112
$ 6,620
The increased sales during 2014 compared to 2013 were due to sales added with the acquisitions of Autocam (four
months of sales) and VS (eleven months of sales). Additionally, sales increased due to greater demand with certain
customers in the North American automotive market generally in line with the overall growth in automotive
production and greater demand with our HVAC customer.
The main driver of the increased segment income from operations was income from operations of the two acquired
companies which added $3.6 million. The segment income from operations was further impacted by $2.5 million in
incremental income from increased sales volumes and $2.3 million in income from continuous improvement projects
and operational improvement. Partially offsetting these increases were the unfavorable impacts of price/mix of $1.6
million.
26
PLASTIC AND RUBBER COMPONENTS SEGMENT
(In Thousands of Dollars)
Net sales
Volume
Price/Mix/Inflation
Year ended
December 31,
2014
2013
Change
$ 33,351
$ 34,991
$ (1,640)
(1,698)
58
Income from operations
$ 1,231
$ 592
$ 639
Sales decreased due to lower volume from certain sales programs ending. Segment income from operations was
down $0.7 million due to the negative effects of lower sales volumes. Benefits from continuous improvement
projects had a favorable $1.3 million impact on income from operations more than offsetting the unfavorable volume
effects.
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
$ 17,178
20,341
(3,927)
$ 24,268
4,837
11,927
$ (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 million 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
27
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, in 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.
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 (19%) for 2012
was primarily due to the reversal of valuation allowances on U.S. deferred tax assets of $12.7 million in 2012, offset
by the gain we recorded on a return of basis from our foreign subsidiaries of $3,079.
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
28
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
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.
29
Changes in Financial Condition from December 31, 2013 to December 31, 2014.
From December 31, 2013 to December 31, 2014, our total assets increased $450.3 million and our current assets
increased $117.1 million. The vast majority of these increases were due to total assets and current assets acquired of
$433.9 million and $92.9 million, respectively, and the related preliminary fair value step-ups for the four
acquisitions completed in 2014. Foreign exchange translation impacted the balance sheet in comparing changes in
account balances from December 31, 2013 to December 31, 2014 by decreasing total assets $19.4 million and current
assets $8 million.
Beyond acquisition and foreign exchange effects, the accounts receivable balance at December 31, 2014, was higher
due to increased sales volume experienced in 2014 compared with sales levels in 2013. The day’s sales outstanding
at December 31, 2014 were up slightly from the day’s sales outstanding at December 31, 2013 due to higher sales
volumes with certain customers that have extended credit terms. Our inventory balance increased $9.8 million due
primarily for building inventory ahead of expected customer demand increases in the first quarter of 2015.
Additionally, other non-current assets increased by $8.6 million due to debt issuance cost incurred related to our new
credit facilities entered into concurrent with the Autocam acquisition, net of amortization.
From December 31, 2013 to December 31, 2014, our total liabilities increased $429.3 million. The majority of the
increase was from the $313.7 million increase in long-term debt and current maturities of long-term debt primarily
due to the four acquisitions in 2014 and $124.4 million of liabilities assume related to the four acquisitions completed
in 2014.
Working capital, which consists principally of accounts receivable and inventories offset by accounts payable and
current maturities of long-term debt, was $105.2 million at December 31, 2014 as compared to $56.3 million at
December 31, 2013. The increase in working capital was due primarily to acquiring $40.0 in net working capital in
the four acquisitions completed in 2014. The remainder of the increase was due primarily to the increase in accounts
receivable and inventory discussed above.
Cash provided by operations was $30.7 million in 2014 compared with cash provided by operations of $31.7 million
in 2013. The difference was better working capital management in 2014. Cash flow provided by operations was
$31.7 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.
Cash used by investing activities was $281.6 million in 2014 compared with cash used by investing activities of
$15.2 million in 2013. The difference was primarily due to the $257.7 million in cash paid to acquire Autocam, VS,
Chelsea and RFK, net of cash received. Cash used by investing activities was $15.2 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 provided by financing activities was $287 million in 2014, compared with cash used by financing activities of
$32.3 million in 2013. The difference was primarily related to using debt to fund the acquisitions of Autocam, VS,
Chelsea and RFK. 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 $350.0 million term loan facility and our $100.0 million asset backed revolver as of
December 31, 2014 were $340.0 million, net of discount, and $0.0 million respectively. As of December 31, 2014,
we can borrow up to $61 million under our asset backed revolver subject to limitations based on our U.S. borrowing
base calculation which is calculated based on our accounts receivable and inventory. The $61 million of availability
is net of $2.1 million of outstanding letters of credit at December 31, 2014, which are considered as usage of the
facility. We are investigating means to increase our borrowing base such as utilizing credit insurance on our foreign
receivables. The only financial covenant on our new debt agreement is a springing fixed charge coverage covenant if
30
our availability under the asset backed revolver is less than $8.0 million. During the year ended December 31, 2014,
we were not subject to this covenant.
Our new $350.0 million term loan facility requires us to pay 5% per annum or $17,500 for the next seven years
against the principal of the note. Additionally, using the December 31, 2014 balance, the annual interest payments on
the $345.0 million term loan would be $20.7 million. We believe that funds generated from operations of the
combined NN and Autocam will provide sufficient cash flow to service these required debt payments.
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, 2014 and 2013, 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. 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, 2014, 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.
During 2015, we expect to spend approximately $45 to $55 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 2015.
We base this assertion on our current availability for borrowing of up to $60 million and our forecasted positive cash
flow from operations for the year ending December 31, 2015.
The table below sets forth our contractual obligations and commercial commitments as of December 31, 2014 (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
After 5
years
$ 350,186 $ 22,160
20,646
5,434
6,236
$ 54,476
115,533
23,475
24,279
$ 513,473
$ 35,170 $ 30,897
33,844
4,045
4,374
$ 73,160
37,818
8,542
9,166
$ 90,696
$ 261,959
23,225
5,454
4,503
$ 295,141
There are $7.0 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 $4.8 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 13 of the
Notes to Consolidated Financial Statements).
31
Functional Currencies
We currently have operations in Slovakia, Italy, The Netherlands and France, 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 both NN
Asia and Autocam Asia are the Chinese Yuan and Autocam, Poland is the Zloty.
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, 2014 and 2013. (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 risks. We are exposed to changes in interest rates primarily as a result of our borrowing activities. At
December 31, 2014, we had $340 million outstanding under the variable rate credit facilities. At December 31, 2014,
a one-percent increase in the interest rate charged on our outstanding variable rate borrowings would result in interest
expense increasing annually by approximately $3.4 million. Our policy is to manage interest expense using a mix of
fixed and variable rate debt. As such, we entered into a $150 million interest rate swap effective December 16, 2014
that goes into effect on December 29, 2015 and will fix our interest rate at 7.216%. 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. 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 2014, nor did we hold a position in any foreign currency hedging instruments as of December 31, 2014.
32
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, 2014 and 2013
Consolidated Statements of Income and Comprehensive Income (Loss)
for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Stockholders’ Equity for the
years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Page
34
35
36
37
38
39
33
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 (loss), 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, 2014 and December 31, 2013, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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,
2014, based on criteria established in Internal Control - Integrated Framework (2013) 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.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded
Autocam Corporation (“Autocam”), RFK Valjcici d. d. Konjic (“RFK”), and V-S Industries, V-S Precision, LLC and
V-S Precision SA de DV (collectively referred to as “VS”) from its assessment of internal control over financial
reporting as of December 31, 2014 as they were acquired by the Company in purchase business combinations during
2014. We have also excluded Autocam, RFK, and VS from our audit of internal control over financial reporting. The
acquisitions are wholly-owned subsidiaries (except RFK which is 99.7% owned) whose total assets and total
revenues represent 35% and 21%, respectively, of the related consolidated financial statement amounts as of and
for the year ended December 31, 2014. Autocam Corporation was the most significant of the acquisitions,
representing 31% and 17%of consolidated total assets and total revenues, respectively.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 16, 2015
34
NN, Inc.
Consolidated Balance Sheets
December 31, 2014 and 2013
(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
Investment in joint venture
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
Other
Total liabilities
Commitments and Contingencies (Note 15)
Stockholders’ equity:
Common stock - $0.01 par value, authorized 45,000 shares,
issued and outstanding 18,983 in 2014 and 17,630 in 2013.
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
2014
2013
$ 37,317
97,510
91,469
1,149
5,849
9,505
242,799
278,442
83,941
52,827
2,265
34,703
17,736
$ 712,713
$ 71,094
21,148
3,274
22,160
5,418
14,504
137,598
49,461
328,026
6,972
14,539
2,418
539,014
$ 3,039
58,929
54,530
816
2,119
6,241
125,674
121,089
8,624
900
2,713
--
3,402
$ 262,402
$ 40,687
11,761
1,340
10,477
493
4,626
69,384
3,844
26,000
6,920
3,494
--
109,642
190
99,095
69,015
5,367
32
173,699
$ 712,713
176
63,126
65,929
23,529
--
152,760
$ 262,402
See accompanying notes to consolidated financial statements
35
NN, Inc.
Consolidated Statements of Income and Comprehensive Income (Loss)
Years ended December 31, 2014, 2013 and 2012
(In thousands, except per share data)
Net sales
Cost of products sold (exclusive of depreciation and amortization shown
separately below)
Selling, general and administrative
Acquisition related costs excluded from selling,
general and administrative
Depreciation and amortization
(Gain) loss on disposal of assets
Restructuring and impairment charges
Income from operations
Interest expense
Other expense, net
Income before provision (benefit) for income taxes and share of net
income from joint venture
Provision (benefit) for income taxes
Share of net income (loss) from joint venture, net of tax
Net income
Other comprehensive income (loss):
Change in fair value of interest rate hedge
Foreign currency translation gain (loss)
Comprehensive income (loss)
Basic income per share:
Net income
Weighted average shares outstanding
Diluted income per share:
Net income
Weighted average shares outstanding
2014
2013
2012
$ 488,601
$ 373,206
$ 370,084
384,889
43,756
295,136
33,281
294,859
31,561
9,248
22,146
--
875
27,687
12,293
2,222
--
16,957
5
--
27,827
2,374
275
--
17,643
(17)
967
25,071
3,878
852
13,172
5,786
831
$ 8,217
25,178
8,000
--
$ 17,178
20,341
(3,927)
--
$ 24,268
(431)
(17,731)
$ (9,945)
--
3,899
$ 21,077
--
2,806
$ 27,074
$ 0.46
17,887
$ 1.00
17,176
$ 1.43
17,009
$ 0.45
18,253
$ 1.00
17,260
$ 1.42
17,114
Cash dividends per common share
$ 0.28
$ 0.18
$ 0.00
See accompanying notes to consolidated financial statements
36
NN, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2014, 2013 and 2012
(In thousands)
Balance, December 31, 2011
Net income
Stock option expense
Shares issued for option exercises
Restricted stock compensation expense
Foreign currency translation loss
Balance, December 31, 2012
Net income
Dividends declared
Stock option expense
Shares issued for option exercises
Restricted stock compensation expense
Foreign currency translation gain
Balance, December 31, 2013
Net income
Dividends declared
Stock option expense
Shares issued for option exercises
Shares issued for acquisition
Restricted stock compensation expense
Non-controlling interest
Foreign currency translation loss
Change in fair value of interest rate hedge
Balance, December 31, 2014
Common Stock
Number
of
Shares
Par
Value
Additional
paid in
capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Non-
controlling
Interest
16,949
--
--
17
78
--
17,044
--
--
--
496
90
--
17,630
--
--
--
152
1,087
114
--
--
--
18,983
$ 169
--
--
--
1
--
$ 170
--
--
--
4
2
--
$ 176
--
--
--
2
11
1
--
--
--
$ 190
$ 55,071
--
1,093
22
694
--
$ 56,880
--
--
1,437
4,009
800
--
$ 63,126
--
--
1,274
1,669
31,706
1,320
--
--
--
$ 99,095
$ 27,612
24,268
--
--
--
--
$ 51,880
17,178
(3,129)
--
--
--
--
$ 65,929
8,217
(5,131)
--
--
--
--
--
--
--
$ 69,015
$ 16,824
--
--
--
--
2,806
$ 19,630
--
--
--
--
--
3,899
$ 23,529
--
--
--
--
--
--
--
(17,731)
(431)
$ 5,367
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
32
--
--
$ 32
Total
$ 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
8,217
(5,131)
1,274
1,671
31,717
1,321
32
(17,731)
(431)
$ 173,699
See accompanying notes to consolidated financial statements
37
NN, Inc.
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013 and 2012
(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 issuance costs
Debt Issuance costs write-off
Joint venture net income in excess of cash received
(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 paid to acquire businesses, net of cash received
Dividend received from joint venture
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
Payment for acquisition of non-controlling interest
Principal payments on capital lease
Net cash provided by (used by) financing activities
2014
2013
2012
$ 8,217
$ 17,178
$ 24,268
22,146
844
1,398
(831)
--
208
2,595
(1,333)
--
875
(3,283)
(9,836)
(1,624)
(4,828)
9,497
6,663
30,708
(27,602)
1,374
(257,664)
2,284
--
(281,608)
(9,380)
(5,131)
344,750
(40,880)
359
1,671
(2,528)
(1,888)
286,973
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)
Effect of exchange rate changes on cash flows
(1,795)
(161)
1,448
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental schedule of non-cash investing and financing activities:
Compensation expense for stock awards, ($1,321 in 2014 $802 in 2013 and $695 in 2012) and stock
option expense ($1,274 in 2014, $1,437 in 2013 and $1,093 in 2012) included in stockholders’ equity
Shares issued in acquisition of Autocam
Cash paid for interest and income taxes:
Interest
Income taxes
34,278
3,039
$ 37,317
(15,951)
18,990
$ 3,039
14,454
4,536
$ 18,990
$ 2,595
$ 2,239
$ 1,788
$ 31,717
--
--
$ 8,307
$ 5,747
$ 1,777
$ 3,986
$ 3,130
$ 5,882
See accompanying notes to consolidated financial statements
38
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(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 close-tolerance, specialty metal alloy components
for mechanical and electromechanical systems using turning, grinding and milling processes. We
manufacture components for use on fuel delivery, electromechanical motor, steering and braking systems for
the transportation industry, the HVAC industry, 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.
39
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(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 (except for RFK which we own 99.7%) and all are included in the consolidated
financial statements for the years end December 31, 2014, 2013, and 2012. All significant inter-company
profits, transactions, and balances have been eliminated in consolidation. With the acquisition of Autocam
Corporation (see Note 2) we acquired a 49% interest in a Chinese joint venture. This joint venture is not
consolidated within the financial statements of NN, Inc. and is accounted for under the equity method (see
Note 16).
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
40
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate
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 Income and Comprehensive Income (Loss)
as incurred and were immaterial to the years ended December 31, 2014, 2013 and 2012. Transaction gains or
losses on intercompany loan transactions are recognized in the other income, net line in the Consolidated
Statements of Income and Comprehensive Income (Loss) 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
reporting units that have 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, 2014
and 2013, 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 results of the step 1 analysis fair value of the reporting units exceeded the carrying value of the
reporting units at December 31, 2014 and 2013.
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 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.
41
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
Assets to be held and used are tested for recoverability when indications of impairment are evident.
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.
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) Recently Issued Accounting Standards
In May 2014, the FASB and International Accounting Standards Board jointly issued new principles-based
accounting guidance for revenue recognition that will supersede virtually all existing revenue guidance. The
core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods and services. To achieve the core principle, the guidance establishes the
following five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligation in the
contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in
the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance
also details the accounting treatment for costs to obtain or fulfill a contract. Lastly, disclosure requirements have
been enhanced to provide sufficient information to enable users of financial statements to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance
is effective for annual reporting periods beginning after December 15, 2016, including interim periods within
that reporting period. Early application is not permitted. We are currently evaluating the impact this new
guidance is expected to have on our financial position or results of operations and related disclosures.
q) Business Combinations
We allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the business combination date, with the excess purchase price recorded
as goodwill. The purchase price allocation process required us to use significant estimates and assumptions,
including fair value estimates, as of the business combination date. Although we believe the assumptions and
estimates we have made are reasonable and appropriate, they are based in part on historical experience and
information obtained from management of the acquired company, in part based on valuation models that
incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations
are performed by management or third party valuation specialists under management’s supervision. In
determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we
may use one of the following recognized valuation methods: the income approach (including discounted cash
flows from relief from royalty and excess earnings model), the market approach and/or the replacement cost
approach.
42
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:
• sales volume, pricing and future cash flows of the business overall
• future expected cash flows from customer relationships, and other identifiable intangible assets, including
future price levels, rates of increase in revenue and appropriate attrition rate
• the acquired company’s brand and competitive position, royalty rate quantum, as well as assumptions about the
period of time the acquired brand will continue to benefit to the combined company’s product portfolio
• cost of capital, risk-adjusted discount rates and income tax rates
However, different assumptions regarding projected performance and other factors associated with the acquired
assets may affect the amount recorded under each type of assets and liabilities, mainly between property plant
and equipment, intangibles assets, goodwill and deferred income tax liabilities and subsequent assessment could
result in future impairment charges. The purchase price allocation process also entails us to refine these estimates
over a measurement period not to exceed one year to reflect new information obtained surrounding facts and
circumstances existing at acquisition date.
2) Acquisitions
Autocam
On August 29, 2014, we completed our merger with Autocam Corporation (“Autocam”), for $256,837 in cash and
$31,717 in NN stock. Additionally, we assumed $29,848 in Autocam debt and capital lease obligations. Autocam is a
global leader in the engineering, manufacture and assembly of highly complex, system critical components for fuel
systems, engines and transmission, power steering and electric motors. With the completion of the transaction, NN
becomes one of the top global manufacturers in the precision metal components space. Additionally, this acquisition
will leverage NN’s and Autocam’s complementary core strengths and values and will position our Precision Metal
Components business segment to outgrow its end markets by taking advantage of global market trends in fuel efficient
technologies such as gasoline direct injection systems, high-pressure diesel injection systems and variable valve timing.
The funding of the cash portion of the purchase price and acquisition costs was provided primarily from borrowings,
including a $350,000 term loan entered into concurrent with the acquisition. (See Note 7 of the Notes to Consolidated
Financial Statements).
During the fourth quarter of 2014, we finalized our valuation related to the assets acquired and liabilities assumed of
Autocam. The facts and circumstances existed at the date of acquisition (August 29, 2014) and, if known, would have
affected the measurement of the amounts recognized at the date. As a result, we adjusted the preliminary allocation of
the purchase price initially recorded at the Autocam acquisition date to reflect these measurement period adjustments.
43
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
The following table summarizes the purchase price allocation for the Autocam merger:
Fair value of assets acquired and
liabilities assumed on August 29, 2014
Current assets
Property, plant, and equipment
Intangible assets subject to amortization
Investment in joint venture
Other non-current assets
Goodwill
Total assets acquired
Current liabilities
Current maturities of long-term debt
Non-current deferred tax liabilities
Obligations under capital lease
Long-term debt, net of current portion
Other non-current liabilities
Total liabilities assumed
September
30, 2014
$ 88,529
146,120
51,098
35,595
2,170
77,548
$ 401,060
$ 34,320
6,547
46,998
18,350
4,263
2,028
$ 112,506
2014
adjustments
to fair value
$ (1,182)
7,065
562
--
3,898
(3,556)
$ 6,787
December 31,
2014
$ 87,347
153,185
51,660
35,595
6,068
73,992
407,847
$ 6,963
--
(486)
--
--
310
$ 6,787
$ 41,283
6,547
46,512
18,350
4,263
2,338
$ 119,293
Net asset acquired
$ 288,554
$ --
$ 288,554
A combination of income, market, and cost approaches were used for the valuation where appropriate, depending on the
asset or liability being valued. Valuation inputs in these models and analyses gave consideration to market participant
assumptions. Acquired intangible assets are primarily customer relationships and trade names. We have finished our
analysis of the Autocam opening balance sheet and consider the purchase price allocation final.
In connection with the acquisition of Autocam, we recorded goodwill, which represents the excess of the purchase price
over the estimated fair value of tangible and intangible assets acquired, net of liabilities assumed. The goodwill is
attributed primarily to Autocam as a going concern and the fair value of expected cost synergies and revenues growth
from combining the NN and Autocam businesses. The going concern element represents the ability to earn a higher
return on the combined assembled collection of assets and businesses of Autocam than if those assets and businesses
were to be acquired and managed separately. Other relevant elements of goodwill are the benefits of access to certain
markets and the assembled work force. None of the goodwill is expected to be deducted for tax purposes.
Property, plant and equipment acquired primarily included machinery and equipment for use in manufacturing
operations. Additionally, a number of manufacturing sites and related facilities including leasehold improvements were
acquired. Property, plant and equipment has been valued using the cost approach supported where available by
observable market data which includes consideration of obsolescence. Intangible assets have been valued using the
relief from royalty and multi-period excess earnings methods, both forms of the income approach supported by
observable market data.
Related to the acquisition of Autocam, during 2014 we recognized $6,912 in transaction costs. During 2014, we
expensed $2,974 of deferred financing costs and make whole interest payments related to the acquisition. Transaction
costs were expensed as incurred and are included in the "Acquisition related costs excluded from selling, general and
administrative expenses" line item and deferred financing costs are included in the interest expense line items in the
Consolidated Statements of Income and Comprehensive Income (Loss). As required by purchase accounting, the
acquired inventories were recorded at their estimated fair value. These inventories were sold in the third quarter 2014
resulting in a one-time $1,158 increase in cost of sales. Beginning September 1, 2014, the consolidated results of
operations of NN include the results of the acquired Autocam businesses. Since the date of the acquisition, sales revenue
of $80,821 and net income of $3,686 (including the $1,158 for the one-time increase in cost of goods sold) has been
included in NN’s financial statements.
44
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
The unaudited pro forma financial results for the years ended December 31, 2014 and 2013 combine the consolidated
results of NN and Autocam giving effect to the acquisition of Autocam as if it had been completed on January 1, 2013,
the beginning of the comparable prior annual reporting period presented. The unaudited pro forma financial results
presented below do not include any anticipated synergies or other expected benefits of the acquisition. This unaudited
pro forma financial information is presented for informational purposes only and is not indicative of future operations or
results had the acquisition been completed as of January 1, 2013.
The unaudited pro forma financial results include certain adjustments for additional depreciation and amortization
expense based upon the fair value step-up and estimated useful lives of Autocam depreciable fixed assets and definite-
life amortizable assets acquired in the transaction. The provision for income taxes has also been adjusted for all periods,
based upon the foregoing adjustments to historical results.
Pro forma sales
Pro forma net income
Year ended December 31,
2014
2013
$
$
659,652 $
19,573 $
606,690
3,307
The pro forma net income for the year ended December 31, 2013 includes certain items, such as financing, integration,
and transaction costs historically recorded by NN and Autocam directly attributable to the acquisition, which will not
have an ongoing impact. These items include transaction, integration, and financing related costs incurred by NN and
Autocam of $9,433 and $3,846, net of tax, respectively during 2014 and reported in the year ended December 31, 2013
pro forma net income above.
Other Acquisitions
We made three other acquisitions during 2014 that aggregated to $20,995 in net assets acquired. Related to the
acquisitions, we incurred transactions costs of $1,242 from third parties during 2014, which were expensed as incurred in
acquisition related costs excluded from selling, general and administrative within the Consolidated Statements of Income
and Comprehensive Income (Loss).
We have finalized the purchase price allocation for these three acquisitions during our year end closing process.
The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition with
any adjustments to fair value since September 30, 2014.
Assets acquired and liabilities
assumed
Current assets
Property, plant, and equipment
Intangible assets subject to amortization
Goodwill
Total assets acquired
September
30, 2014
$ 5,688
15,367
2,705
2,038
$ 25,798
2014
adjustments
to fair value
$ (123)
(31)
--
456
$ 302
December
31, 2014
$ 5,565
15,336
2,705
2,494
$ 6,100
Current liabilities
Total liabilities assumed
$ 4,803
$ 4,803
$ 302
$ 302
$ 5,105
$ 5,105
Net asset acquired
$ 20,995
$ --
$ 20,995
The intangible assets subject to amortization are for customer contracts and trade names totaling $2,705 and have
weighted average useful lives of approximately 11 years. Goodwill of $2,494 arising from the acquisitions is attributable
primarily to the assembled workforce of RFK and strategic market opportunities that are expected to arise from the
acquisition of RFK and Chelsea.
45
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
In the following paragraphs we provide a brief description of the businesses acquired, reasons for the acquisition and
relevant financial information about each business.
Chelsea Grinding (Chelsea)
On July 15, 2014, we purchased Chelsea Grinding for $3,100 in cash. Chelsea is a hydraulic component manufacturer.
We acquired Chelsea to achieve access to the adjacent hydraulic component market. Chelsea, which has been
completely integrated into our Erwin Plant of the Metal Bearing Components Segment, has contributed revenues of
approximately $1,100 from the date of acquisition to December 31, 2014.
RFK Valjcici d. d. Konjic (“RFK”)
On June 20, 2014, we acquired 79.2% of the outstanding shares of RFK Valjcici d. d. Konjic (“RFK”) for $9,756 in
cash. RFK is a manufacturer of tapered rollers with operations in Konjic, Bosnia & Herzegovina. Its products, while
complementary to NN’s existing roller bearing components, will broaden our product offering and allow penetration into
adjacent markets. NN acquired up to 99.7% of the outstanding shares of RFK during the third quarter of 2014 for an
additional $2,527 in cash. RFK has contributed revenues and net income of approximately $5,100 and $165,
respectively, from the date of acquisition to December 31, 2014. RFK currently exports all of its products,
predominately to customers serving the European truck, industrial vehicle and railway markets. NN will continue
operations at the existing facilities in Bosnia & Herzegovina and will roll up the operations under our Metal Bearing
Components Segment. In addition, we have reported non-controlling interest of $32 for RFK representing the fair value
of the 0.30% of the shares outstanding we do not own as of December 31, 2014.
VS Asset Purchase
On January 30, 2014, we purchased the majority of the operating assets of V-S Industries, V-S Precision, LLC and V-S
Precision SA de DV (collectively referred to as “VS”) from the secured creditors of V-S Industries for $5,580 in cash
and assumed certain liabilities totaling $2,968. This was accounted for as business combination. VS has contributed
revenues and net loss of approximately $14,742 and $(1,011), including integration costs of $503 net of tax, respectively,
from the date of acquisition to December 31, 2014.
VS is a precision metal components manufacturer that supplies customers in a variety of industries including electric
motors, HVAC, power tools, automotive and medical. The acquisition of VS will provide us with a complementary, and
broader product offering and will allow penetration into adjacent markets. VS has two locations in Wheeling, Illinois
and Juarez, Mexico and will roll up under the Precision Metal Components Segment.
The cash paid to acquire all four businesses totaled $277,832 ($256,837 for Autocam and $20,995 for the others) less
cash acquired of $17,640 for a net amount of $260,192. A portion of this amount ($2,528) was reported in cash flows
from financing activities as that amount related to acquiring a non-controlling interest in RFK.
3)
Impairment Charges
Impairments of Goodwill and Other Long-Lived Tangible and Intangible Assets
For the year ended December 31, 2014, an indefinite lived intangible asset within the Autocam Precision Components
Segment was impaired as management is in the process of phasing out the use of the trade name as a result of the
Autocam acquisition. As such, an impairment charge of $875 was included in the restructuring and impairment charges
line of the Consolidated Statements of Income and Comprehensive Income (Loss).
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 in the Consolidated Statements of Income and Comprehensive Income (Loss).
46
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
4) Accounts Receivable and Sales Concentrations
Trade
Less - allowance for doubtful accounts
Accounts receivable, net
Activity in the allowance for doubtful accounts is as follows:
December 31,
2014
$ 98,030
520
$ 97,510
2013
$ 59,374
445
$ 58,929
Description
December 31, 2014
Allowance for doubtful
accounts
December 31, 2013
Allowance for doubtful
accounts
December 31, 2012
Allowance for doubtful
accounts
Balance at
Beginning
of Year
Additions
Write-
offs
Currency
Impacts
Balance at
End of Year
$ 445
$ 208
$ (123)
$ (10)
$ 520
$ 311
$ 177
$ (47)
$ 4
$ 445
$ 438
$ 98
$ (224)
$ (1)
$ 311
For the years ended December 31, 2014, 2013 and 2012, sales to SKF amounted to $127,946, $132,654, and $124,349
respectively, or 26%, 36%, and 34% of consolidated revenues, respectively. None of our other customers accounted for
more than 10% of our net sales in 2014, 2013 or 2012. SKF and NTN/SNR were the only customers with accounts
receivable concentration in excess of 10% in 2014 and 2013. The outstanding balance as of December 31, 2014 and
2013 for SKF was $17,510 and $17,005, 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.
5)
Inventories
Raw materials
Work in process
Finished goods
Inventories
December 31,
2014
$ 35,191
21,883
34,395
$ 91,469
2013
$ 15,448
9,672
29,410
$ 54,530
Inventory on consignment at customers’ sites at December 31, 2014 and 2013 was approximately $5,857 and $4,735,
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.
47
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
6) 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,
2014
$ 7,548
2,097
52,641
6,225
408,299
21,027
497,837
219,395
2013
$ 6,139
1,437
45,964
3,172
261,842
20,745
339,299
218,210
Property, plant and equipment, net
$ 278,442
$ 121,089
During the year ended December 31, 2014 we acquired $168,521 in property, plant and equipment with the four
acquisitions completed during 2014. (See Note 2 of the Notes to Consolidated Financial Statements).
For the years ended December 31, 2014, 2013, and 2012, depreciation expense was $ 20,817, $16,957 and $17, 643,
respectively.
48
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
7) Debt
Long-term debt and short-term debt at December 31, 2014 and December 31, 2013 consisted of the following:
Borrowings under our $350,000 Term Loan B bearing interest the
greater of 1% or 3 month LIBOR (0.2318% at September 30, 2014)
plus an applicable margin of 5.00% at September 30, 2014, expiring
August 29, 2021, net of discount of $4,995.
Borrowings under our $100,000 ABL Revolver bearing interest at a
floating rate equal to LIBOR (0.1565% at September 30, 2014) plus
an applicable margin of 1.75% at September 30, 2014, expiring
August 29, 2019.
Borrowings under our $100,000 revolving credit facility bearing
interest at a floating rate equal to LIBOR (0.1565% at September 30,
2014) plus an applicable margin of 1.25% at September 30, 2014,
expiring October 26, 2017.
Borrowings under our $40,000 aggregate principal amount of fixed
rate notes bore interest at a fixed rate of 4.89% and matured 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 of fixed
rate 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.
French Safeguard Obligations (Autocam)
Brazilian lines of credit and equipment notes (Autocam)
Chinese line of credit (Autocam)
Total debt
Less current maturities of long-term debt
December 31,
2014
December 31,
2013
$ 340,005
$ --
--
--
--
10,763
--
5,714
--
20,000
2,560
5,304
2,317
--
--
--
350,186
36,477
22,160
10,477
Long-term debt, excluding current maturities of long-term debt
$ 328,026
$ 26,000
On August 29, 2014, concurrent with the Autocam acquisition, we entered into two new credit facilities consisting of a
$350 million term loan facility and a $100 million asset backed revolver (“ABL”). Under the term loan, we received
funds of $344,750, net of a discount of $5,250, which is being amortized into interest expense over the life of the term
loan. These new facilities were utilized to fund the Autocam acquisition and to provide for short-term cash flow needs.
Additionally, these new facilities replaced the $100 million revolving credit facility and the $20 million fixed rate
agreement both of which were paid off with proceeds from the term loan. $1,368 in net capitalized loan origination costs
related to the $100 million facility was written off as of August 29, 2014. $30 in net capitalized loan origination costs
related to the $20 million fixed rate agreements was also written off as of August 29, 2014.
The $350,000 term loan revolving credit facility may be expanded upon our request with approval of the lenders by up to
$50,000 under the same terms and conditions. The term loan has a seven year maturity with a 5% per annum repayment.
The term loan agreement is a covenant lite agreement with no financial covenants. The loan agreement does contain
customary restrictions on, among other things, additional indebtedness, liens on our assets, sales or transfers of assets,
49
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
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 give the lenders the right to accelerate the
maturity of the debt. Costs associated with entering into the revolving credit facility were capitalized and will be
amortized into interest expense over the life of the facility. As of December 31, 2014, $7,945 of net capitalized loan
origination costs related to the term loan credit facility were recorded on the consolidated balance sheet within other non-
current assets.
The $100,000 ABL may be expanded upon our request with approval of the lenders by up to $50,000 under the same
terms and conditions. The ABL has a five year maturity and has one springing financial covenant in the event our
availability on the ABL is less than $8,000. The ABL contains 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 give the lenders the right to accelerate the maturity of the debt. The facility has a swing line feature to
meet short term cash flow needs. Any borrowings under this swing line are considered short term. We incurred costs as
a result of issuing the ABL which have been recorded on the consolidated balance sheet within other non-current assets
and are being amortized over the term of the notes. The unamortized balance at December 31, 2014 was $968.
We believe the book values of the above credit facilities approximate their fair values given the interest rates are variable
and we entered into these facilities very close to the year ended December 31 2014, at the then market rates for a
company with our credit profile.
As part of the merger with Autocam, NN assumed certain foreign credit facilities. These facilities relate to local
borrowings in France, Brazil and China. These facilities are with financial institutions in the countries in which foreign
plants operate and are meant to fund working capital and equipment purchases in those countries. Below is a description
of the credit facilities.
In 2008, Autocam filed “Procedure de Sauvegarde” (“Safeguard”) on behalf of each of their French subsidiaries,
Autocam France, SARL and Bouverat Industries, SAS (“Bouverat”). They reached agreement with their creditors with
claims subject to Safeguard protection in 2009. Provisions of the agreements allowed, at each creditor’s option, for the
payment of a portion of the obligation in January 2010, or the entire obligation over a ten-year period. The liabilities
carry a zero percent interest rate and are being paid annually until 2019. Amounts due as of December 31, 2014, to
those creditors opting to be paid over a ten-year period totaled $2,560 and are included in Current Maturities of Long-
Term debt ($330) and long-term debt excluding current maturities of long-term debt ($2,230).
The Brazilian lines of credit include facilities with certain Brazilian banks used to fund working capital needs, while the
equipment notes represent borrowings from certain Brazilian banks to fund equipment purchases for Autocam’s
Brazilian plants. The lines of credit have interest rates of 10.5% to 21.8%.
The Chinese line of credit is a working capital line of credit with a Chinese bank bearing an interest rate of 4.95%.
The aggregate maturities of long-term debt including current portion for each of the five years subsequent to
December 31, 2014 are as follows:
Year ending December 31,
2015
2016
2017
2018
2019
Thereafter
Total
$ 22,160
18,150
17,020
16,186
14,711
261,959
$ 350,186
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
50
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
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, 2014:
Year ending December 31,
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
Less interest included in payments above
Present value of minimum lease payments
$ 481
481
481
481
481
3,913
6,318
(2,575)
$ 3,743
With the Autocam acquisition, we assumed capital leases on certain buildings and equipment. The cost of the assets
subject to capital lease obligations as reflected in Property, Plant and Equipment, net in our Consolidated Balance Sheet
was $24,997 as of December 31, 2014. The accumulated depreciation of such assets as reflected in Property, Plant and
Equipment, net in our Consolidated Balance Sheet was $618 as of December 31, 2014.
Below are the minimum future lease payments under the assumed capital leases together with the present value of the net
minimum lease payments as of December 31, 2014:
Year ending December 31,
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
Less interest included in payments above
Present value of minimum lease payments
$ 5,743
4,593
3,587
2,572
816
--
17,311
(1,097)
$ 16,214
51
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
8) 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 $764, $349 and
$335 in 2014, 2013, and 2012, respectively.
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, 2014 and 2013 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
Defined Benefit Plan
2014
$ 6,920
1,111
(1,186)
(821)
$ 6,024
2013
$ 6,930
1,019
(1,331)
302
$ 6,920
Effective with the Autocam acquisition on August 29, 2014, we sponsor a defined benefit pension plan for substantially
all employees of the Bouverat, France Plant (the “Pension Plan”). These benefits are calculated based on each
employee’s years of credited service and most recent monthly compensation and service category. Employees become
vested in accordance with governmental regulations in place at the time of retirement.
For the purpose of calculating the actuarial present value of the benefit obligation under the Pension Plan, the discount
rates assumed were 1.9% for 2014. The compensation growth rate was assumed was 2.9% for 2014. The measurement
date was December 31 of 2014.
52
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
Set forth below is projected benefit obligation information for the Pension Plan and the plan activity since we acquired
Autocam on August 29, 2014:
Accumulated benefit obligation at measurement date
Effect of salary increases
Projected benefit obligation at measurement date
Projected benefit obligation at date of acquisition
Service and interest costs
Actuarial gains (losses)
Benefits paid
Effect of foreign currency translation gains and other
Projected benefit obligation at measurement date
2014
$1,011
526
$1,537
$1,549
35
94
(141)
$1,537
Set forth below is net periodic benefit cost information for the Pension Plan for the four month period since the
acquisition of Autocam:
Service and interest costs
Expected return on plan assets
Amortization of prior service costs
Net periodic benefit cost
2014
$35
(4)
6
$37
We expect benefit payments under the Pension Plan to be $0 for 2015 and 2016, $16 for 2017, $8 in 2018 and $379 from
2020-2024.
Set forth below is plan asset information for the Pension Plan:
Plan assets at fair value at measurement date
Projected benefit obligations at measurement date
Funded status
Plan assets at fair value at date of acquisition
Actual return on plan assets
Benefits paid
Effect of foreign currency translation gains
Plan assets at fair value at measurement date
2014
$589
(1,537)
($948)
$655
3
(12)
(57)
$589
The assumed rate of return on assets of the Pension Plan was 2.0% for all periods presented. We have a targeted goal of
allocating plan assets one-third to equity and two-thirds to fixed income securities. Actual allocations of Pension Plan
assets between equity and fixed income securities were 19% and 81%, respectively, as of December 31, 2014. Our
expected funding obligations under the Pension Plan in 2015 is $132.
53
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
9) 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, 2014, 2013, and 2012, approximately $2,595, $2,239, and $1,788, 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, 2014, 2013 and 2012 related to stock options was
$1,274, $1,437, and $1,093, respectively. The compensation expense related to stock awards in the years ended
December 31, 2014, 2013 and 2012 was $ 1,321, $802, and $695, respectively.
As of December 31, 2014, we have approximately 1,131 maximum shares that can be issued as options, stock
appreciation rights, and/or other stock based awards.
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
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 2014, 2013 and 2012, we granted 109, 354, and 285 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, 2014, 2013 and 2012 was $9.48, $5.17, and $4.27, 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
2014
6 years
1.75%
1.43%
56.75%
3.00%
2013
6 years
0.87%
0.00%
57.00%
3.00%
2012
6 years
1.16%
0.00%
50.51%
3.00%
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. 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.
54
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
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, 2014:
Options
Outstanding at January 1, 2014
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2014
Exercisable at December 31, 2014
Weighted-
Average
Exercise
Price
$ 10.65
$ 19.93
$ 10.90
$ 12.62
$ 11.40
$ 11.00
Shares
(000’s)
1,233
108
(158)
(8)
1,175
815
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000)
6.1
5.2
$ 10,752
$ 7,786
(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, 2014.
As of December 31, 2014, there was approximately $778 and $1,511 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, 2014, 2013, and 2012 totaled approximately
$1,671, $4,013, and $22, respectively. For the years ended December 31, 2014, 2013 and 2012, 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, 2014, 2013 and 2012
was $1,956, $1,416, and $107, respectively.
Stock Awards
During the year ended December 31, 2014, 2013 and 2012, we issued 114, 90 and 78 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 $20.15. The
recognized compensation expense for stock awards in the years ended December 31, 2014, 2013, and 2012 was
approximately $1,321, $802, and $695, respectively. The shares issued in 2014, 2014 and 2012 vest over three years.
10) Goodwill, Net
We completed our annual goodwill impairment review during the fourth quarters of 2014 and 2013. For the years ended
December 31, 2014, 2013 and 2012, we concluded that there were no indicators of impairment at the reporting units with
goodwill.
The changes in the carrying amount of goodwill for the years ended December 31, 2014, 2013 and 2012 are as follows:
(In thousands)
Balance as of January 1, 2013
Currency impacts
Balance as of December 31, 2013
Currency impacts
Goodwill acquired in acquisition
Balance as of December 31, 2014
Metal Bearing
Components Segment
Autocam Precision
Components
Segment
$ 8,254
370
$ 8,624
(1,169)
2,494
$ 9,949
55
$ --
--
$ --
--
73,992
$ 73,992
Total
$ 8,254
$370
$ 8,624
(1,169)
76,486
$ 83,941
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
The cumulative accumulated impairment charges included in the reported goodwill balances at December 31, 2014, 2013
and 2012 were $40,045 all of which were recorded during the years ended December 31, 2008 and 2007.
The goodwill acquired in acquisition during 2014 within the Metal Bearing Components segment was acquired with the
acquisitions of RFK and Chelsea (see Note 2 of the Notes to Consolidated Financial Statements).
The goodwill acquired in acquisition during 2014 within the Autocam Precision Components segment was acquired
during 2014 with the acquisition of Autocam (see Note 2 of the Notes to Consolidated Financial Statements). The
goodwill balance related to the Autocam acquisition is derived from the value of the Autocam reporting unit. This fair
value was based 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 leading to a potential impairment of this goodwill if this reporting units future results are not
as forecasted.
11) Intangible Assets, Net
The Autocam Precision 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 impaired during the year ended
December 31, 2014 as management is in the process of phasing out the use of the trade name as a result of the Autocam
acquisition. As such, an impairment charge of $875 was included in the restructuring and impairment charges line of the
Consolidated Statements of Income and Comprehensive Income (Loss).
With the Autocam acquisition the Autocam Precision Components Segment acquired a customer contract intangible
asset of $46,200, a trade name intangible asset of $4,100, a developed technology intangible asset of $940, and net
favorable leasehold intangible of $420. The intangible assets have preliminary estimated useful lives of 15 years, 15
years and five years, respectively and are subject to amortization of approximately $3,617 a year. (See Note 2 of the
Notes to Consolidated Financial Statements).
The Metal Bearing Components Segment acquired two customer contract intangible assets related to the acquisition of
RKF and Chelsea and a trade name intangible asset related to the acquisition of RFK with an aggregate estimated fair
value of $2,705. These intangible assets have weighted average useful lives of 10 years and are subject to amortization of
$270 per year. (See Note 2 of the Notes to Consolidated Financial Statements).
12) 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.
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 Autocam Precision Components Segment is engaged in the design and manufacture of close-
tolerance, specialty metal alloy components for mechanical and electromechanical systems using turning, grinding and
milling processes. Currently, we manufacture components for use on fuel delivery, electromechanical motor, steering
and braking systems for the transportation industry and highly engineered shafts, mechanical components, complex
precision assembled and tested parts and fluid system components for the HVAC and fluid power industries. This
segment was renamed with the acquisition of Autocam.
56
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
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, during the third quarter of 2014, we
amended the metric we use to evaluate segment performance from net income (loss) to income from operations.
Additionally, Autocam was added to the Precision Metal Components segment during the third quarter of 2014. The
2014, 2013 and 2012 segment information below has been amended for this change in segment reporting. We account
for inter-segment sales and transfers at current market prices. We did not have any individually material inter-segment
transactions during 2014, 2013, or 2012.
Metal Bearing
Components
Segment
Autocam
Precision
Components
Segment
Plastic and
Rubber
Components
Segment
Corporate and
Consolidations
Total
December 31, 2014
Net sales
Depreciation and amortization
Income from operations
Interest expense
Income tax (benefit) expense
Net income (loss)
Assets
Expenditures for long-lived assets
December 31, 2013
Net sales
Depreciation and amortization
Income from operations
Interest Expense
Income tax (benefit) expense
Net income (loss)
Assets
Expenditures for long- lived assets
December 31, 2012
Net sales
Depreciation and amortization
Income from operations
Interest Expense
Income tax (benefit) expense
Net income (loss)
Assets
Expenditures for long- lived assets
$ 278,026
12,000
31,872
$
177,224
9,070
15,732
$
33,351
1,160
1,231
214,291
10,941
444,548
10,947
17,196
673
$ 259,459
11,334
27,380
$
78,756
4,313
9,112
$
34,991
1,347
592
197,980
9,250
39,432
4,640
16,638
1,015
$ 252,241
12,060
24,900
$
$
76,746
4,243
6,955
41,097
1,366
1,807
198,770
14,875
40,727
1,511
19,232
703
$
$
$
--
(84)
(21,148)
12,293
5,786
8,217
36,678
5,041
--
(37)
(9,257)
2,374
8,000
17,178
8,352
345
--
(26)
(8,591)
3,878
(3,927)
24,268
6,614
--
$
$
$
488,601
22,146
27,687
12,293
5,786
8,217
712,713
27,602
373,206
16,957
27,827
2,374
8,000
17,178
262,402
15,250
370,084
17,643
25,071
3,878
(3,927)
24,268
265,343
17,089
57
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
The vast majority of the costs related to the merger with Autocam and the other three acquisitions discussed under Note
2 are reported under Corporate and Consolidations. These costs impacted income from operations at Corporate by
$9,837. Beginning September 1, 2014, the Autocam Precision Components Segment include the results of the acquired
Autocam businesses. Since the date of the acquisition, sales revenue of $80,821 and net income of $3,686 (including the
$1,158 for the one-time increase in cost of goods sold) has been included in this segment.
December 31, 2014
December 31, 2013
December 31, 2012
Property,
Plant and
Equipment,
Net
Net Sales
Property,
Plant and
Equipment,
Net
Property,
Plant and
Equipment,
Net
Net Sales
Net Sales
United States
$ 204,360
$ 129,232
$ 140,875
$ 42,573
$ 144,375
$ 42,884
Europe
Asia
Canada
Mexico
S. America
All foreign
countries
Total
167,665
58,470
8,657
25,900
23,549
82,783
32,848
--
2,637
30,942
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
--
--
--
284,241
$ 488,601
149,210
$ 278,442
232,331
$ 373,206
78,516
$ 121,089
225,709
$ 370,084
76,803
$ 119,687
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 above geographical regions.
13) Income Taxes
Income (loss) before provision (benefit) for income taxes for the years ended December 31, 2014, 2013 and 2012 was as
follows:
Year ended December 31,
2013
2012
2014
Income (loss) before provision (benefit) for
income taxes:
United States
Foreign
Total
$ (9,341)
22,513
$ 13,172
$ 8,259
16,919
$ 25,178
$ 7,385
12,956
$ 20,341
The loss of $9,341 from operations in the United States during 2014, was primarily driven from acquisition related
charges of $14,831 (included in selling, general and administrative, cost of products sold, and interest expense) of which
approximately $6,000 were non-deductible as these cost were directly facilitative to the acquisitions.
58
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
Total income tax expense (benefit) for the years ended December 31, 2014, 2013, and 2012 was as follows:
Current:
U.S. Federal
State
Foreign
Total current expense
Deferred:
U.S. Federal
State
U.S. deferred tax valuation allowance
Foreign
Total deferred expense (benefit)
Year ended December 31,
2014
2013
2012
$ --
37
7,082
$ 7,119
$ 1,625
(382)
(1,434)
(1,142)
(1,333)
$ --
179
4,490
4,669
$ 3,594
145
(818)
410
3,331
$ (115)
345
2,910
3,140
$ 2,789
12
(9,814)
(54)
(7,067)
Total expense (benefit)
$ 5,786
$ 8,000
$ (3,927)
A reconciliation of income taxes based on the U.S. federal statutory rate of 34% for each of the years ended
December 31, 2014, 2013 and 2012 is summarized as follows:
Year ended December 31,
2013
2014
2012
Income taxes at the federal statutory rate
Impact of incentive stock options
Decrease in U.S. valuation allowance
Foreign tax credit expiration
Capital gain on return of basis
State taxes, net of federal taxes
Non-U.S. earnings taxed at different rates
Non-deductible mergers and acquisition costs
R&D Tax credit
Joint Venture dividend
Change in uncertain tax positions
Other permanent differences, net
$ 4,478
(145)
(1,434)
2,736
--
(362)
(1,714)
1,971
(529)
737
--
48
$ 5,786
$ 8,561
261
(818)
818
--
198
(834)
--
--
--
32
(218)
$ 8,000
$ 6,916
371
(12,740)
--
3,079
334
(1,606)
--
--
--
(115)
(166)
$ (3,927)
The 2014 effective tax rate of 44% reflects the impact of two items related to the merger and acquisition activity in 2014
including (1) $1,971 for non-deductible third party merger and acquisition as these cost were directly facilitative to the
acquisitions; and (2) $1,302 for the expiration of foreign tax credits that could not be utilized during 2014 because of the
merger related acquisition costs as discussed below. In addition, the rate reflects an offset to the items above for the
impact of foreign earnings taxed at lower rates of $1,714.
The 2013 effective tax rate of 32% reflects the impact of foreign earnings being taxed at lower rates of $834.
The 2012 effective tax rate of (19)% reflects the reversal of the valuation reserve on U.S. deferred tax assets of $12,740
and the impact of foreign earnings taxed at lower rates of $1,606.
59
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
The tax effects of the temporary differences as of December 31, 2014, 2013 and 2012 are as follows:
Deferred income tax liabilities:
Tax in excess of book depreciation
Goodwill
Intangible assets
Other deferred tax liabilities
Gross deferred income tax liabilities
Deferred income tax assets:
Goodwill
Inventories
Pension/Personnel accruals
Net operating loss carry forwards
Foreign tax credits
Guarantee claim deduction
Credit carry forwards
Accruals and reserves
Other deferred tax assets
Gross deferred income tax assets
Valuation allowance on deferred tax
assets
Net deferred income tax assets
2014
December 31,
2013
2012
$ 35,411
1,949
15,944
1,924
55,228
$ 6,673
2,213
--
63
8,949
$ 6,670
1,987
--
112
8,769
2,411
2,035
3,029
3,215
836
856
1,196 1,351
3,026
1,141
--
114
832
11,371
290
1,141
1,853
--
1,926
13,881
4,141
768
921
3,682
3,844
1,141
--
293
550
15,340
--
13,881
(1,434)
9,937
(2,252)
13,088
Net deferred income tax assets (liabilities)
$(41,347)
$ 988
$ 4,319
With the Autocam acquisition we assumed $43,803 in net deferred tax liabilities primarily related to book and tax basis
differences in fixed assets and intangibles (excluding goodwill).
As realization of certain deferred tax assets is not assured, 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, 2014, 2013 and 2012:
Balance at
Beginning of
Year
Additions
Recoveries
Balance at End
of Year
2014
2013
2012
$ 1,434
$ 2,252
$ 12,066
$ --
$ --
$ --
$ (1,434)
$ (818)
$ (9,814)
$ --
$ 1,434
$ 2,252
During 2014, the valuation allowance of $1,434 on our previously recognized foreign tax credits was reduced by the full
$1,434 for credits which expired as of December 31, 2014. In addition to the foreign tax credits with the full valuation
allowance, $1,302 in foreign tax credits expired unused as of December 31, 2014. These foreign tax credits were not
utilized during 2014, as management expected, due to the large amount of non-deductible mergers and acquisition costs
incurred related to the four acquisitions completed in 2014. The remaining foreign tax credits, net operating loss and
credit carry forwards are expected to be utilized before expiration. We record a valuation allowance when it is “more
likely than not” that some portion or all of the deferred income tax assets will not be realized. In reaching this
60
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
determination, we consider the future reversals of taxable temporary differences, future taxable income, exclusive of
taxable temporary differences and carry forwards, taxable income in prior carryback years and tax planning strategies.
During fiscal year 2012 the Company after considering all relevant factors and objectively verifiable evidence concluded
that it is more likely than not that the majority of our deferred tax assets will be realized in future years and reversed
$8,512 of the valuation allowance. This was primarily based on the pretax profit of our U.S. based companies
increasing to approximately $7,400 as a result of 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 in 2013 and 2014 provided enough
positive evidence, in the opinion of management, to overcome the negative evidence of the cumulative pre-tax losses in
2009 and 2010.
Unremitted earnings of subsidiaries outside the United States are considered to be reinvested indefinitely at December
31, 2014. It is not practicable to determine the deferred tax liability for temporary differences related to those unremitted
earnings. There has been no change in our long term international expansion plans as of December 31, 2014 our intent
and ability is to indefinitely reinvest our foreign earnings. We base this assertion on two factors; (1) our intention to
invest in foreign countries that are strategically important to our Metal Bearing Components Segment business and our
Autocam Precision Components business. With the acquisitions completed in 2014, we have significantly expanded our
international base of operations adding subsidiaries in Mexico, Bosnia and Herzegovina, Brazil, Poland, France and
China which will require more foreign investment; (2) we have sufficient access to funds in the U.S. through projected
free cash flows and the availability of our US credit facilities to fund currently anticipated domestic operational and
investment needs.
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.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties for
the years ended December 31, 2014, 2013 and 2012 is as follows:
2014
2013
2012
Beginning balance
Additions for tax positions of prior years
Reductions for tax positions of prior years
Ending balance
$ 873 $ 873 $ 988
428
(543)
$ 3,834 $ 873 $ 873
3,589
(628)
--
--
As of December 31, 2014, the $3,834 of unrecognized tax benefits would, if recognized, impact our effective tax rate.
The addition for tax positions of prior years was added as part of the purchase price allocation of Autocam and was
included in the fair value of assets acquired and liabilities assumed. (See Note 2 of Notes to Consolidated Financial
Statements.)
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 2014, we accrued $31 in foreign interest and $17 in US
interest. 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
61
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
were eliminated due to the tax years being closed or risk being mitigated. As of December 31, 2014, the total amount
accrued for interest and penalties was $1,003.
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 2011. We are no longer subject to non-U.S. income tax examinations within various
European Union countries for years before 2009. We do not foresee any significant changes to our unrecognized tax
benefits within the next twelve months.
14) Reconciliation of Net Income Per Share
Year ended December 31,
2013
2012
2014
Net income
$ 8,217
$ 17,178
$ 24,268
Weighted average shares outstanding
Effective of dilutive stock options
17,887
366
17,176
84
17,009
105
Diluted shares outstanding
18,253
17,260
17,114
Basic net income per share
$0.46
$ 1.00
$ 1.43
Diluted net income per share
$ 0.45
$ 1.00
$ 1.42
Excluded from the dilutive shares outstanding for the years ended December 31, 2014, 2013, and 2012 were 98, 1,148,
and 1,187 of anti-dilutive options, respectively, which had per share exercise prices ranging from of $19.63 to $22.69 for
the year ended December 31, 2014, $8.54 to $14.13 for the year ended December 31, 2013 and $8.54 to $14.13 for the
year ended December 31, 2012.
15) 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 2014, 2013 and 2012 was $4,455, $2,325, and $2,375, respectively. The
following is a schedule by year of future minimum lease payments as of December 31, 2014 under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year.
Year ending December 31,
2015
2016
2017
2018
2019
Thereafter
$ 5,434
5,112
3,430
2,214
1,831
5,454
Total minimum lease payments
$ 23,475
Brazil ICMS Tax Matter
Prior to our acquisition of Autocam on August 29, 2014, Autocam’s Brazilian subsidiary received notification from the
tax authorities regarding ICMS (State Value Added Tax or VAT) tax credits claimed on intermediary materials (tooling
and perishable items) used in the manufacturing process. The state tax authority notification disallowed state ICMS
62
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
credits claimed on intermediary materials based on the argument that these items are not intrinsically related to the
manufacturing processes. Autocam Brazil filed an administrative defense with the São Paulo state tax authority arguing,
among other matters, that it should qualify for ICMS tax credit, contending that the intermediary materials are directly
related to the manufacturing process.
The Company believes it has substantial legal and factual defenses and plans to defend its interests vigorously. While we
believe a loss is not probable we estimate the range of possible loss related to this assessment is from $0 to $6,000. No
amount has been accrued at December 31, 2014 for this matter.
NN, Inc. is entitled to indemnification from the former shareholders of Autocam, subject to the limitations and
procedures set forth in the agreement and plan of merger. Management believes the indemnification would include
amounts owed for the tax, interest and penalties related to the Brazil ICMS matter.
All other legal matters
All other 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 $0 and $200 at December 31, 2014 and December 31, 2013, 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.
63
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
16) Investment in Non-Consolidated Joint Venture
As part of the Autocam acquisition, we acquired a 49% investment in a joint venture with an unrelated entity called
Wuxi Weifu Autocam Precision Machinery Company, Ltd. ("JV"), a Chinese company located in the city of Wuxi,
China. As part of the purchase price allocation, the joint venture investment has been stated at a fair value of $35,595
determined by a market based multiple of earnings before interest, taxes, depreciation and amortization and a discounted
cash flows analysis. The JV is jointly controlled and managed and is being accounted for under the equity method.
Below are the components of our JV investment balance at December 31, 2014 since the date of acquisition August 29,
2014:
Beginning Balance
Dividends received
Our share of cumulative earnings
Ending Balance
$ 35,595
(2,538)
1,646
$ 34,703
Set forth below is summarized balance sheet information for the JV:
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
December
31, 2014
$ 24,140
21,519
$ 45,659
$ 14,162
$ 14,162
No dividends were declared by JV during the four months ended December 31, 2014. Our 49% ownership interest in
this amount will be received by us in 2015, net of a 10% withholding tax levied by the Chinese government. We had
sales to JV of $36 during the four months ended December 31, 2014. Amounts due to us from JV were $154 as of
December 31, 2014. The JV had net sales in 2014 of $50,466 and net income of $9,004.
17) Quarterly Results of Operations (Unaudited)
The following summarizes the unaudited quarterly results of operations for the years ended December 31, 2014 and
2013.
Net sales
Income from operations
Net income
Basic net income per share
Diluted net income per share
Year ended December 31, 2014
March 31
$ 102,528
8,338
5,238
0.30
0.29
June 30
$ 106,680
8,237
5,200
0.29
0.29
Sept. 30
$ 125,632
2,552
(3,840)
(0.21)
(0.21)
Dec. 31
$ 153,761
8,560
1,619
0.09
0.08
Weighted average shares outstanding:
Basic number of shares
Effect of dilutive stock options
17,656
306
17,779
393
17,979
--
18,970
347
Diluted number of shares
17,962
18,172
17,979
19,317
64
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
Year ended December 31, 2013
June 30
Sept. 30
Dec. 31
Net sales
Income from operations
Net income
Basic net income per share
Diluted net income per share
March 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
Weighted average shares outstanding:
Basic number of shares
Effect of dilutive stock options
17,055
107
17,136
36
17,302
148
Diluted number of shares
17,162
17,172
17,450
$ 90,081
6,474
4,485
0.25
0.25
17,527
290
17,817
The third and fourth quarters of 2014 were impacted by merger and acquisition related costs of $8,407 and $1,473,
respectively, pre-tax and $7,319 and $3,199, respectively, after-tax related to the four acquisitions closed during 2014.
Additionally, the third quarter was negatively impacted by $2,974 in pre-tax costs and $1,903 in after-tax costs incurred
related to writing-off debt issuance costs and make whole interest payments to our former lenders related to the new debt
entered into for the Autocam acquisition.
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.
18) 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, 2014, we had other comprehensive loss of $17,731
due to foreign currency translations and a $431 loss due to change in fair value of interest rate hedge. 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 $2,806 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.
19) Interest Rate Hedging
Our policy is to manage interest expense using a mix of fixed and variable rate debt. To manage this mix effectively, we
may enter into interest rate swaps in which the we agree to exchange the difference between fixed and variable interest
amounts calculated by reference to an agreed upon notional principal amount.
Effective December 16, 2014, we entered into a $150,000 swap that will go into effect on December 29, 2015 (one year
delayed start), at which time our rate will be locked at 7.216% until December 31, 2018. Prior to December 16, 2014,
we did not have any existing interest rate hedges. The hedge instrument will be 100% effective and as such the mark to
market gains or losses on this hedges will be included in accumulated other comprehensive income (loss) to the extent
effective, and reclassified into interest expense over the term of the related debt instruments.
65
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
(In thousands, except per share data)
The table below summarizing the fair value measurement of this swap as of December 31, 2014 valued on a recurring
basis on a gross basis:
(Dollars in thousands)
Fair Value Measurements at December 31, 2014
Description
Derivative Assets
Derivative Liabilities
December 31,
2014
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
867 $
$
(1 ,298)
$
(431) $
— $
—
— $
Significant
Unobservable
Inputs (Level 3)
—
(—)
—
867 $
(1,298)
(431) $
The interest rate swap derivatives are classified as Level 2. Level 2 fair value is based on estimates using standard
pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market
data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparties to
these derivative contracts are highly rated financial institutions which we believe carry only a minimal risk of
nonperformance.
We have elected to present the derivative contracts on a gross basis in the Consolidated Statements of Financial Position.
Had we chosen to present the derivatives contracts on a net basis, we would have a derivative in a net liability position of
$431 as of December 31, 2014. The Company does not have any cash collateral due under such agreements.
Derivatives' Hedging Relationships
(Dollars in millions)
Derivatives' Cash Flow
Hedging Relationships
Forward starting interest
rate swap contracts
Amount of after tax of gain/
(loss) recognized in Other
Comprehensive Income on
Derivatives (effective portion)
December 31,
December 31,
2013
2014
Location of gain/(loss)
reclassified from
Accumulated Other
Comprehensive
Income into Income
(effective portion)
Pre-tax amount of gain/(loss)
reclassified from Accumulated
Other Comprehensive Income
into Income (effective portion)
December 31,
December 31,
2013
2014
$ (431)
$
(431) $
$ --
--
Interest Expense
$ --
--
$
$ --
--
$
66
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, 2014, 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 (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Management has excluded from its assessment of internal control over financial reporting at December 31, 2014, Autocam
Corporation (“Autocam”), RFK Valjcici d. d. Konjic (“RFK”), and V-S Industries, V-S Precision, LLC and V-S Precision
SA de DV(collectively referred to as “VS”) from its assessment of internal control over financial reporting as of December
31, 2014 as they were acquired by the Company in purchase business combinations during 2014. The acquisitions are
wholly-owned subsidiaries (except RFK which is 99.7% owned) whose total assets and total revenues represent 35% and
21%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014.
Autocam Corporation was the most significant of the acquisitions, representing 31% and 17% of consolidated total assets
and total revenues, respectively.
Based on its evaluation, management concluded that the Company's internal control over financial reporting was effective as
of December 31, 2014.
The effectiveness of our internal control over financial reporting as of December 31, 2014 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,
2014 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
Item 9B. Other Information
None
67
Item 10.
Directors, Executive Officers and Corporate Governance
Part III
The information required by this Item 10 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, 2014, in
accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.
Code of Ethics. Our Code of Ethics (the “Code”) was approved by our Board on November 6, 2003. The Code is
applicable to all officers, directors and employees. The Code is posted on our website at http://www.nnbr.com. We will
satisfy any disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or waiver from, any provision of
the Code with respect to our principal executive officer, principal financial officer, principal accounting officer and persons
performing similar functions by disclosing the nature of such amendment or waiver on our website or in a report on
Form 8-K.
Item 11.
Executive Compensation
The information required by Item 11 of Form 10-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 Item 12 of Form 10-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)
1,175
--
1,175
(b)
$11.40
--
$11.40
(c)
1,131
--
1,131
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.
68
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.
69
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 ...................................................................................... 34
Consolidated Balance Sheets at December 31, 2014 and 2013 .................................................................................. 35
Consolidated Statements of Income and Comprehensive Income (Loss) for the
years ended December 31, 2014, 2013, and 2012 ...................................................................................................... 36
Consolidated Statements of Changes in Stockholders’ Equity for the
years ended December 31, 2014, 2013, and 2012 ...................................................................................................... 37
Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013, and 2012 .......................................................................................................................... 38
Notes to Consolidated Financial Statements . ............................................................................................................ 39
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
70
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 16, 2015
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 16, 2015
Director
Senior Vice President- Chief Financial
March 16, 2015
Officer
/S/ WILLIAM C. KELLY, JR.
William C. Kelly, Jr.
Vice President-Chief Administrative
Officer and Secretary
March 16, 2015
/S/ THOMAS C. BURWELL, JR.
Thomas C. Burwell, Jr.
Vice President-Chief Accounting Officer
and Corporate Controller
March 16, 2015
/S/ G. RONALD MORRIS
G. Ronald Morris
/S/ MICHAEL E. WERNER
Michael E. Werner
/S/ STEVEN T. WARSHAW
Steven T. Warshaw
/S/ JOHN C. KENNEDY
John C. Kennedy
S/ ROBERT E. BRUNNER
Robert E. Brunner
/S/ DAVID L. PUGH
David L. Pugh
/S/ WILLIAM DRIES
William Dries
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
Non-Executive Chairman, Director
Director
Director
Director
Director
Director
Director
71
Index to Exhibits
2.1
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.08
10.09
10.10
Agreement and Plan of Merger, dated as of July 18, 2014, by and among NN, Inc., PMC Global
Acquisition Corporation, Autocam Corporation, Newport Global Advisors, L.P., and John C.
Kennedy (incorporated by reference to Exhibit 2.1 to NN, Inc.’s Current Report on Form 8-K
filed on July 22, 2014).
Restated Certificate of Incorporation of NN, Inc. (incorporated by reference to Exhibit 3.1 of NN,
Inc.’s Registration Statement No. 333-89950 on Form S-3 filed June 6, 2002).
Restated By-Laws of NN, Inc. #
The specimen stock certificate representing NN, Inc.’s Common Stock, par value $0.01 per share
(incorporated by reference to Exhibit 4.1 of NN, Inc.’s Registration Statement No. 333-89950 on
Form S-3 filed on June 6, 2002).
Stockholders’ Agreement, effective as of August 29, 2014, by and between NN, Inc. and John C.
Kennedy (incorporated by reference to Exhibit 3.1 to NN, Inc.’s Current Report on Form 8-K
filed on September 2, 2014).
NN, Inc. 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to NN, Inc.’s
Registration Statement No. 333-89950 on Form S-3/A filed on July 15, 2002). *
Amendment No. 1 to the NN, Inc. 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 4.6 of NN, Inc.’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 NN, Inc.’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 NN, Inc.’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 NN, Inc.’s
Registration Statement No. 333-130395 on Form S-8 filed December 16, 2005). *
NN, Inc. 2011 Stock Incentive Plan (incorporated by reference to NN, Inc.’s Proxy Statement on
Schedule 14A filed April 6, 2011).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 of NN, Inc.’s
Registration Statement No. 333-89950 on Form S-3/A filed July 15, 2002).
Elective Deferred Compensation Plan, dated February 26, 1999 (incorporated by reference to
Exhibit 10.16 of NN, Inc.’s Annual Report on Form 10-K filed March 31, 1999). *
Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and
between NN, Inc. and Frank T. Gentry, III (incorporated by reference to Exhibit 10.1 to NN,
Inc.’s Current Report on Form 8-K filed September 18, 2012). *
Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and
between NN, Inc. and James H. Dorton (incorporated by reference to Exhibit 10.2 to NN, Inc.’s
Current Report on Form 8-K filed September 18, 2012). *
72
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and
between NN, Inc. and Thomas C. Burwell (incorporated by reference to Exhibit 10.3 to NN,
Inc.’s Current Report on Form 8-K filed September 18, 2012). *
Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and
between NN, Inc. and William C. Kelly, Jr., (incorporated by reference to Exhibit 10.4 to NN,
Inc.’s Current Report on Form 8-K filed September 18, 2012). *
Amended and Restated Executive Employment Agreement, dated September 13, 2012, by and
between NN, Inc. and Jeffery H. Hodge (incorporated by reference to Exhibit 10.5 to NN, Inc.’s
Current Report on Form 8-K filed September 18, 2012). *
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 NN,
Inc.’s Current Report on Form 8-K filed September 18, 2012). *
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 NN, Inc.’s Current Report on Form 8-K filed December 27, 2010).
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 NN, Inc.’s Current Report on
Form 8-K filed December 22, 2011).
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 NN, Inc.’s Current Report on
Form 8-K filed December 22, 2011).
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 NN, Inc.’s Current Report on
Form 8-K filed November 1, 2012).
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 NN,
Inc.’s Current Report on Form 8-K filed November 1, 2012).
Executive Employment Agreement, dated May 8, 2013, between NN, Inc. and Richard D. Holder
(incorporated by reference to Exhibit 10.1 of NN, Inc.’s Form 8-K filed May 10, 2013). *
Term Loan Credit Agreement, dated as of August 29, 2014, by and among NN, Inc., Bank of
America, N.A., the several lenders from time to time a party thereto, KeyBank National
Association, as syndication agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and
KeyBank National Association as joint lead arrangers and joint book runners (incorporated by
reference to Exhibit 10.1 to NN, Inc.’s Current Report on Form 8-K filed on September 2, 2014).
Credit Agreement, dated as of August 29, 2014, by and among NN, Inc., NN Netherlands B.V.,
the several lenders from time to time a party thereto, KeyBank National Association, and Bank of
America, N.A. (incorporated by reference to Exhibit 10.2 to NN, Inc.’s Current Report on Form
8-K filed on September 2, 2014).
Escrow Agreement, effective as of August 29, 2014, by and among NN, Inc., Newport Global
Advisors, L.P., John C. Kennedy and Computershare Trust Company, N.A. (incorporated by
reference to Exhibit 10.3 to NN, Inc.’s Current Report on Form 8-K filed on September 2, 2014).
73
10.24
10.25
10.26
10.27
10.28
10.29
10.30
21.1
23.1
31.1
31.2
32.1
32.2
99.1
Indemnity Agreement, effective as of August 29, 2014, by and among NN, Inc. and each of the
shareholders of Autocam Corporation identified therein (incorporated by reference to Exhibit
10.4 to NN, Inc.’s Current Report on Form 8-K filed on September 2, 2014).
Noncompetition and Nondisclosure Agreement, effective as of August 29, 2014, by and between
NN, Inc. and John C. Kennedy (incorporated by reference to Exhibit 10.5 to NN, Inc.’s Current
Report on Form 8-K filed on September 2, 2014).
Transition Services Agreement, effective as of August 29, 2014, by and among Autocam
Corporation and Autocam Medical Devices, LLC (incorporated by reference to Exhibit 10.6 to
NN, Inc.’s Current Report on Form 8-K filed on September 2, 2014).
Executive Employment Agreement, dated September 9, 2014, between NN, Inc. and Warren A.
Veltman. # *
Executive Employment Agreement, dated October 6, 2014, between NN, Inc. and L. Jeffrey
Manzagol. # *
Form of Incentive Stock Option Agreement # *
Form of Restricted Stock Grant Agreement # *
List of Subsidiaries of NN, Inc. #
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. #
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act. #
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act. #
Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act. ##
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act. ##
Commitment Letter, dated as of July 18, 2014, by and among NN, Inc., Bank of America, N.A.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and KeyBank National Association
(incorporated by reference to Exhibit 99.1 to NN, Inc.’s Current Report on Form 8-K filed on
July 22, 2014).
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
74
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED
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 16, 2015
Signature:
/S/ RICHARD D. HOLDER
Richard D. Holder
Chief Executive Officer, President and Director
75
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 16, 2015
Signature:
/S/ JAMES H. DORTON
James H. Dorton
Senior Vice President –Chief Financial Officer
76
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, 2014, 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 16, 2015
/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.]
77
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, 2014, 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 16, 2015
/s/ JAMES H. DORTON
James H. Dorton
Senior Vice President –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.]
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Directors
RICHARD DARIO HOLDER
President and Chief Executive Officer
WILLIAM DRIES
ROBERT E. BRUNNER
G. RONALD MORRIS
DAVID L. PUGH
STEVEN T. WARSHAW
MICHAEL E. WERNER
JOHN C. KENNEDY
Officers
RICHARD DARIO HOLDER
President and Chief Executive Officer
JAMES H. DORTON
Sr. Vice President Corporate Development and Chief Financial Officer
WILLIAM C. KELLY, JR.
Vice President, Secretary, and Chief Administrative Officer
L. JEFF MANZAGOL
Sr. Vice President and Managing Director – Metal Bearing Components
WARREN VELTMAN
Sr. Vice President and Managing Direct – Autocam Precision Components
THOMAS C. BURWELL
Vice President, Chief Accounting Officer and Corporate Controller
J. ROBBIE ATKINSON
Corporate Treasurer and Investor Relations Manager
JAMES R. WIDDERS
Sr. Vice President – Corporate Integration and Transformation
EVELISE FARO
Vice President and General Manager – Plastic and Rubber Components
D. GAIL NIXON
Vice President, Human Resources
SCOTT M. WEINSTEIN
Chief Information Officer
Independent
Accountants
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
Legal Counsel
BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, PC
Memphis, Tennessee
Corporate Offices
207 Mockingbird Lane
Johnson City, Tennessee 37604
Phone (423) 434-8300
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:
J. ROBBIE ATKINSON
NN, Inc.
207 Mockingbird Lane
Johnson City, Tennessee, 37604
Phone (423) 434-8398
NN, Inc.
207 Mockingbird Lane
Johnson City, TN 37604
Phone: 423-434-8300
www.nnbr.com