NN
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission file number 000-23486 NN, Inc.(Exact name of registrant as specified in its charter) Delaware 62-1096725(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)207 Mockingbird LaneJohnson City, Tennessee 37604(Address of principal executive offices) (Zip Code)(423) 434-8300(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $0.01 The Nasdaq Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:None(Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot 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 orany amendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $473 million as ofJune 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, computed using the closing price of the registrant’scommon stock as quoted on the Nasdaq Stock Market LLC on that date of $27.45. Solely for purposes of making this calculation, shares of the registrant’scommon stock held by named executive officers, directors and 5% or greater stockholders of the registrant as of such date have been excluded because suchpersons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purposes.As of March 27, 2018, there were 27,579,873 shares of the registrant’s common stock, par value $0.01 per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement with respect to the 2018 Annual Meeting of Stockholders are incorporated by reference in Part III, Items 10 to 14 of thisAnnual Report on Form 10-K as indicated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of theregistrant’s fiscal year ended December 31, 2017. Table of ContentsNN, Inc.INDEX PART I 3 Item 1.   Business 3 Item 1A.   Risk Factors 9 Item 1B.   Unresolved Staff Comments 18 Item 2.   Properties 18 Item 3.   Legal Proceedings 19 Item 4.   Mine Safety Disclosures 20 Part II 21 Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6.   Selected Financial Data 23 Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A.   Quantitative and Qualitative Disclosures About Market Risk 40 Item 8.   Financial Statements and Supplementary Data 41 Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 81 Item 9A.   Controls and Procedures 81 Item 9B.   Other Information 83 Part III 84 Item 10.  Directors, Executive Officers and Corporate Governance 84 Item 11.  Executive Compensation 84 Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 84 Item 13.  Certain Relationships and Related Transactions, and Director Independence 84 Item 14.  Principal Accountant Fees and Services 84 Part IV 85 Item 15.  Exhibits, Financial Statement Schedules 85 Item 16.  Form 10-K Summary 85 INDEX TO EXHIBITS 86 SIGNATURES 90 2Table of ContentsPART IForward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations orfinancial condition, or state other information relating to NN, Inc., based on current beliefs of management as well as assumptions made by, and informationcurrently 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 management’s control and that may cause actual results to bematerially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in theindustrial 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, our dependence on certain major customers, theimpact of acquisitions and divestitures, unanticipated difficulties integrating acquisitions and realizing anticipated cost savings and operating efficiencies,risks associated with joint ventures, new laws and governmental regulations, and other risk factors and cautionary statements listed from time to time in ourperiodic reports filed with the Securities and Exchange Commission. We disclaim any obligation to update any such factors or to publicly announce theresult of any revisions to any of the forward-looking statements included herein or therein to reflect future events or developments.Except for per share data or as otherwise noted, all dollar amounts presented in tables that follow are in thousands of U.S. dollars. Item 1.BusinessIntroductionWe are a global diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertise todesign and manufacture high-precision solutions, components and assemblies for the medical, aerospace and defense, electrical, automotive and generalindustrial markets. We have 44 facilities in North America, Europe, South America and China.On August 17, 2017, we completed the sale of our global precision bearing components business (the “PBC Business”) to TSUBAKI NAKASHIMA Co., Ltd.for approximately $388.5 million. We intend to reinvest the after-tax proceeds of the sale of the PBC Business with acquisitions and strategic investments inour highest-growth and highest-margin end market, medical, and to a lesser extent our aerospace and defense, electrical, automotive, and general industrialend markets.In January 2018, we implemented a new enterprise and management structure designed to accelerate growth and further balance our portfolio by aligning ourstrategic assets and businesses. Our businesses were reorganized into the Mobile Solutions, Power Solutions and Life Sciences divisions and are basedprincipally on the end markets they serve. The Life Sciences division is focused on growth in the medical end market. The Power Solutions division isfocused on growth in the electrical and aerospace and defense end markets. The Mobile Solutions division is focused on growth in the industrial andautomotive end markets. Beginning in the first quarter of 2018, we will report our financial results based on these new segments. However, for purposes ofthis annual report we have presented our business as it was conducted during the year ended December 31, 2017.Our business as conducted in 2017, products and recent acquisition activity are described further below.Acquisition ActivityOn October 2, 2017, we completed the acquisition of DRT Medical, LLC, which was subsequently named NN Life Sciences – Vandalia, LLC (“Vandalia”), asupplier of precision manufactured medical instruments and orthopedic implants, from DRT Holdings, Inc. (“DRT Holdings”). Vandalia is a supplier ofprecision manufactured medical instruments and orthopedic implants with locations in Ohio and Pennsylvania.On October 19, 2015, we completed the acquisition (the “PEP Acquisition”) of Precision Engineered Products Holdings, Inc. (“PEP”). As a result of the PEPAcquisition, PEP became a wholly owned subsidiary of NN. PEP is a global manufacturer of highly engineered precision customized solutions serving themedical, electrical, automotive, general industrial and aerospace and defense end markets. PEP combines materials science expertise with advancedengineering and production capabilities to design and manufacture a broad range of high-precision metal and plastic components, assemblies and finisheddevices. Following the PEP Acquisition, we combined the operations of PEP with our Plastics and Rubber Components Group and renamed the group as thePrecision Engineered Products Group. 3Table of ContentsOn May 29, 2015, we completed the acquisition of Caprock Manufacturing, Inc. and Caprock Enclosures, LLC (collectively referred to as “Caprock”).Caprock was a privately held plastic components supplier located in Lubbock, Texas. Caprock serves multiple end markets; including aerospace and defense,medical and life sciences and general industrial. The acquisition provided further balancing of our end markets and represented the first step in our strategicplan related to transforming our plastics business. The results of Caprock have been consolidated with NN since the date of acquisition as part of thePrecision Engineered Products Group.Business Segments and ProductsAutocam Precision Components GroupWithin our Autocam Precision Components Group, we manufacture highly engineered, difficult-to-manufacture precision metal components andsubassemblies for the automotive and general industrial end markets. Our entry into the precision metal components market began in 2006 with theacquisition of Whirlaway Corporation. We dramatically expanded the segment in 2014 with the acquisitions of Autocam and V-S Industries. Theseacquisitions furthered our strategy to diversify our end markets and build upon our core manufacturing competency of high-precision metal machining.We sell a wide range of highly engineered, extremely close tolerance, precision-machined metal components and subassemblies primarily to the automotiveand general industrial end markets. We have developed an expertise in manufacturing highly complex, system critical components for fuel systems, enginesand transmissions, power steering systems and electromechanical motors on a high-volume basis. This expertise has been gained through investment intechnical capabilities, processes and systems, and skilled program management and product launch capabilities.Precision Engineered Products GroupWithin our Precision Engineered Products Group, we combine materials science expertise with advanced engineering and production capabilities to designand manufacture a broad range of high-precision metal and plastic components, assemblies and finished devices for the medical and life sciences, electrical,automotive, general industrial and aerospace and defense end markets.We manufacture a variety of components, assemblies and instruments, such as surgical knives, bio-resorbable implants, surgical staples, orthopedic systemtools, laparoscopic devices, drug delivery devices and catheter components for the medical and life sciences end market; electrical contacts, connectors,contact assemblies and precision stampings for the electrical end market; precision components, assemblies and electrical contacts and precision plasticcomponents for the automotive and general industrial end markets; and a variety of engineered materials for the aerospace and defense end markets,including optical grade plastics, thermally conductive plastics, and titanium, Inconel, magnesium and gold electroplating.Competitive StrengthsHigh-precision manufacturing capabilitiesWe believe our ability to produce high-precision parts at high production volumes is among the best in the market. Our technology platform consists of highprecision machining, progressive stamping, injection molding, laser welding, material science, assembly and design optimization. Unique specialty machinebuilding capabilities, in-house tool design and process know-how create trade secrets that enable consistent production tolerances of less than one micronwhile producing millions of parts per day. Parts are manufactured to application-specific, customer design and co-design standards that are developed for aspecific use. The high-precision capabilities are part of our zero-defect design process, which seeks to eliminate variability and manufacturing defectsthroughout the entire product lifecycle. We believe our production capabilities provide a competitive advantage as few other manufacturers are capable ofmeeting tolerance demands at any level requested by our customers. As the need for tight-tolerance precision parts, subassemblies, and devices continue toincrease, we believe that our production capabilities will place us at the forefront of the industry. We have differentiated ourselves among our competitors byproviding customers engineered solutions and a broad reach and breadth of manufacturing capabilities. We believe it is for these reasons, and because of ourproven ability to produce high-quality, precision parts and components on a cost-effective basis, that customers choose us to meet their manufacturing needs.Differentiated, system-critical productsThe tight-tolerance and high-quality nature of our precision products are specifically suited for use in the most demanding applications that require superiorreliability. Our products are critical components to the operation and reliability of larger mechanical systems. Precision parts are difficult to manufacture andachieve premium pricing in the marketplace as the high cost of failure motivates our customers to focus on quality. Our products are developed for specificuses within critical systems and are typically designed in conjunction with the system designer. Our parts are often qualified for, or specified in, customerdesigns, reducing the ability for customers to change suppliers. 4Table of ContentsOur ability to make products with tight-tolerance and extreme precision requirements enables our customers to satisfy the critical functionality andperformance requirements of their products. We are included in customer designs and deployed in critical systems that involve high cost of failureapplications and significant regulatory certification processes, including those for the Food and Drug Administration (“FDA”), UL and the NationalAerospace and Defense Contractors Accreditation Program (“NADCAP”).Complete product lifecycle focusOur engineering expertise and deep knowledge of precision manufacturing processes adds proprietary value throughout the complete lifecycle of ourproducts. Our in-house engineering team works closely with our customers to provide parts that meet specific design specifications for a given application.The relationship with the customer begins early in the conceptual design process when we provide feedback on potential cost, manufacturability andestimated reliability of metal parts. Part designs are then prototyped, tested and qualified in coordination with the customer design process before going tofull-scale production. The close working relationship with our customers early in the product lifecycle helps to secure business, increase industry knowledgeand develop significant trade secrets. Performance verification, product troubleshooting and post-production engineering services further deepenrelationships with our customers as well as provide additional industry knowledge that is applicable to future design programs and provide continuousmanufacturing process improvement.Prototype products are developed for testing and process validation procedures are instituted. In many instances, we will file for regulatory productionapproval and include the customer’s proprietary processes, further discouraging supplier changes. We will assist the customer with continuous supply chainmanagement, comprehensive customer support for the lifetime of the product and continuously seek to identify new operational efficiencies to reduce theproduct’s cost and improve its quality. Once our solution is designed into a platform, it is often embedded through the multi-year manufacturing lifecycleand has a competitive advantage in supporting subsequent platforms. As an added benefit, customers generally fund development, prototypes andmanufacturing tooling expenses. This discourages supplier changes and drives recurring revenue for the company.Long-term blue-chip customer baseWe maintain relationships with hundreds of customers around the world. Our customers are typically sophisticated, engineering-driven, mechanical systemsmanufacturers with long histories of product development and reputations for quality. We have no significant retail exposure, which limits volatility andprovides enhanced sales visibility. Relationships with our top ten customers, in terms of revenue, average more than ten years. We have significant exposureto emerging markets in Asia, South America and Eastern Europe through these global customers as well as key local manufacturers. The diverse nature, sizeand reach of our customer base provides resistance to localized market and geographic fluctuations and help stabilizes overall product demand.Strategic global footprintOur 44 facilities, on four continents, are strategically located to serve our customer base and provide local service and expertise. Our global footprintprovides flexibility to locally supply identical products for global customers, reducing shipping time and expense, allowing us to match costs to revenue andto capitalize on industry localization trends. In total, we operate more than 2.4 million square feet of manufacturing space in six countries. North Americaconstitutes the largest portion of our manufacturing operations with facilities in the U.S. and Mexico. The North American facilities are strategically locatedto serve major customers in the United States and Mexico. Our foreign facilities are located in regional manufacturing hubs in France, Poland, China andBrazil, and primarily serve global customers in those local markets. The Asian and South American facilities, we believe, have significant growth potential aslocal customer bases expand and the markets for high-precision products grow in those regions.Proven and experienced management teamWe believe that we are led by one of the strongest management teams in our industry, with significant proven experience in precision manufacturing and thediversified industrial sector. Rich Holder was named Chief Executive Officer and director in 2013. Mr. Holder joined us from Eaton Corporation, where heserved as President of Eaton Electrical Components Group, and brings to us a proven record of leadership, successful team building and relevant experiencein both organic and acquisition growth. He has since assembled a strong management team through retention of key talent, recent acquisitions and new hires.Thomas C. Burwell, Jr., our Chief Financial Officer, has been with us since 2005, has over 25 years of service in various finance and strategic developmentroles. Our management team has successfully executed and integrated into our business eight acquisitions over the last four years, increasing revenue bymore than 150% since 2013. We believe that our current management team has the necessary talent and experience to lead our efforts with respect to ourorganic and acquisition growth goals. 5Table of ContentsResearch and Development and Product EngineeringOur research and development and product engineering efforts focus on enhancing our existing products and developing patented products, particularly inthe medical industry, that can be presented to and sold by our customers. Our Precision Engineered Products Group has developed a portfolio of patented andbranded medical products that we manufacture for customers and that are sold through their channel. Our Autocam Precision Products Group engineeringteam focuses on working closely with our customers to develop engineered solutions to improve our customers’ products.CustomersOur products are supplied primarily to manufacturers for use in a broad range of industrial applications, including automotive; electrical; agricultural;construction; residential devices and equipment; medical; aerospace and defense; heating, ventilation, and air conditioning; fluid power and diesel engines.Sales to each of our top ten customers are made to multiple customer locations and divisions throughout the world. In 2017, our top ten customers accountedfor approximately 46% of our net sales. In 2017, 78% of our products were sold to customers in North America, 6% to customers in Europe, 10% to customersin Asia and the remaining 6% to customers in South America. Excluding the PBC Business, we did not have any customer that accounted for 10% or more oftotal net sales.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 costfluctuations when incurred to our customers in the form of changes in selling prices. We ordinarily ship our products directly to customers within 60 days,and in many cases, during the same calendar month of the date on which a sales order is placed. Accordingly, we generally have an insignificant amount ofopen (backlog) orders from customers at month end.Sales and MarketingA primary emphasis of our marketing strategy is to expand key customer relationships by offering high quality, high-precision, application-specific customersolutions 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 customerorders and other general sales support activities. Our marketing strategy is to offer custom manufactured, high quality, precision products to markets withhigh value-added characteristics at competitive price levels. This strategy focuses on relationships with key customers that require the production oftechnically 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.EmployeesAs of December 31, 2017, we employed a total of 3,884 full-time employees and 523 full time equivalent temporary workers. Of our total employment, 16%are management/staff/government/statutory employees and 84% are production employees. The employees of the France, Brazil, and Brainin de Mexicoplants are unionized. A small group of employees at our Bridgeport, Connecticut plant are also unionized. We believe we have a good working relationshipwith our employees and the unions that represent them.CompetitionAutocam Precision Components GroupIn the market in which our Autocam Precision Components Group operates, internal production of components by our customers can impact our business asthe customers weigh the risk of outsourcing strategically critical components or producing in-house. Our primary outside competitors are Anton Häring KG,A. Berger Holding Gmbh & Co. KG, C&A Tool Engineering, Inc., American Turned Products, Inc., Camcraft, Inc., IMS Gear, and Brovedani. We generallywin new business on the basis of technical competence and our proven track record of successful product development.Precision Engineered Products GroupOur Precision Engineered Products Group operates in intensely competitive but very fragmented supply chains. We must compete with numerous companiesin each industry market segment.Our primary competitors in the medical device market are Tecomet, Inc., Lake Region Medical, Inc. and Vention Medical, Inc. Our primary competitors in theelectrical market are Deringer-Ney, Inc., Doduco GmbH and Metalor Technologies International. Our primary competitors in the automotive and aerospaceand defense market are Interplex Industries, Inc. and Accu-Mold, LLC. 6Table of ContentsWe believe that competition within the medical device, electrical, automotive and aerospace and defense end markets is based principally on quality, price,design capabilities and speed of responsiveness and delivery. We believe that our competitive strengths are product development, tool design, fabrication,tight tolerance processes, and customer solutions. With these strengths, we have built our reputation in the marketplace as a quality producer of technicallydifficult products.Raw MaterialsAutocam Precision Components GroupThe Autocam Precision Components Group produces products from a wide variety of metals in various forms from various sources located in the NorthAmerica, Europe, South America and Asia. Basic types include hot rolled steel, cold rolled steel (both carbon and alloy), stainless, extruded aluminum, diecast aluminum, gray and ductile iron castings, hot and cold forgings and mechanical tubing. Some material is purchased directly under contracts, some isconsigned by the customer, and some is purchased directly from the steel mills.Precision Engineered Products GroupThe Precision Engineered Products Group uses a wide variety of metals in various forms, including precious metals like gold, silver, palladium and platinum,as well as plastics. Through our diverse network of suppliers, we minimize supplier concentration risk and provide a stable supply of raw materials atcompetitive pricing. This group also procures resins and metal stampings from several domestic and foreign suppliers.For the Precision Engineered Products Group, we base purchase decisions on quality, service and price. Generally, we do not enter into written supplycontracts with our suppliers or commit to maintain minimum monthly purchases of materials. However, we carefully manage raw material price volatility,particularly with respect to precious metals, through the use of consignment agreements. In effect, we contract the precious metals for our own stock and buythe raw materials on the same day customer shipments are priced, thereby eliminating speculation.In each of our segments, we have historically been affected by upward price pressure on steel principally due to general increases in global demand. Ingeneral, we pass through material cost fluctuations to our customers in the form of changes in selling price.Patents, Trademarks and LicensesWe have several U.S. patents, patent applications and trademarks for various trade names. Furthermore, we intend to develop patented products that can bepresented to and sold by our customers. However, we cannot be certain that we would be able to protect and enforce our intellectual property rights againstthird parties, and if we cannot do so, we may face increased competition and diminished net sales.Furthermore, third parties may assert infringement claims against us based on their patents or other intellectual property, and we may have to pay substantialdamages and/or redesign our products if we are ultimately found to infringe. Even if such intellectual property claims against us are without merit,investigating and defending these types of lawsuits takes significant time, may be expensive and may divert management attention from other businessconcerns.Additionally, we rely on certain data and processes, including trade secrets and know-how, and the success of our business depends, to some extent, on suchinformation remaining confidential. Each officer is subject to a non-competition and confidentiality agreement that seeks to protect thisinformation. Additionally, all employees are subject to company code of ethics policies that prohibit the disclosure of information critical to the operationsof our business.Seasonal Nature of BusinessGeneral economic conditions impact our business and financial results, and certain of our businesses experience seasonal and other trends related to theindustries and end markets that they serve. For example, European sales are often weaker in the summer months, medical device sales are often stronger in thethird and fourth calendar quarter and sales to original equipment manufacturers (“OEMs”) are often stronger immediately preceding and following the launchof new products. However, as a whole, we are not materially impacted by seasonality. 7Table of ContentsEnvironmental ComplianceOur operations and products are subject to extensive federal, state and local regulatory requirements both domestically and abroad relating to pollutioncontrol and protection of the environment. These laws and regulations govern, among other things, discharges to air or water, the generation, storage,handling, and use of automotive hazardous materials and the handling and disposal of hazardous waste generated at our facilities. Under such laws andregulations, we are required to obtain permits from governmental authorities for some of our operations. If we violate or fail to comply with these laws,regulations or permits, we could be fined or otherwise sanctioned by regulators. Under some environmental laws and regulations, we could also be heldresponsible for all the costs relating to any contamination at our past or present facilities and at third-party waste disposal sites. We maintain a complianceprogram to assist in preventing and, if necessary, correcting environmental problems.Based on information compiled to date, management believes that our current operations are in substantial compliance with applicable environmental lawsand regulations, the violation of which could have a material adverse effect on our business and financial condition. We have assessed conditional assetretirement obligations and have found them to be immaterial to our consolidated financial statements. We cannot assure that currently unknown matters, newlaws and regulations, or stricter interpretations of existing laws and regulations will not materially affect our business or operations in the future. Morespecifically, although we believe that we dispose of waste in material compliance with applicable environmental laws and regulations, we cannot be certainthat we will not incur significant liabilities in the future in connection with the clean-up of waste disposal sites.FDA ComplianceAs a manufacturer of medical devices, certain of our subsidiaries, including PEP, are required to register as such with FDA. Each of our facilities thatmanufacture finished medical devices is registered with the FDA. To maintain our registration, we deploy a robust quality management system across all ofour manufacturing facilities.With respect to medical and life sciences products that we are specifically developing to sell to our customers, before these devices can be marketed, we willseek to obtain a marketing clearance from the FDA under Section 510(k) of the United States Federal Food, Drug, and Cosmetic Act. The FDA typicallygrants a 510(k) clearance if the applicant can establish that the device is substantially equivalent to a predicate device. Clearance under Section 510(k)typically takes about four months from the date of submission.Executive Officers of the RegistrantOur executive officers are: Name Age PositionRichard D. Holder 55 President and Chief Executive OfficerThomas C. Burwell, Jr. 49 Senior Vice President – Chief Financial OfficerMatthew S. Heiter 57 Senior Vice President and General CounselD. Gail Nixon 47 Senior Vice President and Chief Human Resources OfficerWarren A. Veltman 56 Executive Vice President – Mobile SolutionsJ. Robert Atkinson 37 Executive Vice President – Life SciencesChristopher J. Qualters 50 Executive Vice President – Power SolutionsRichard D. Holder joined us as President and Chief Executive Officer in June 2013. Prior to joining us, Mr. Holder served as President of Eaton ElectricalComponents Group of Eaton Corporation’s Electrical Sector from 2010 to 2013, Executive Vice President of the 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 OperationalExcellence from 2001 to 2004. Prior to joining Eaton, Mr. Holder served as Director of Aircraft & Technical Purchasing for US Airways from 1999 to 2001.Prior to this position, Mr. Holder held a variety of leadership positions at Allied Signal Corporation, an aerospace, automotive and engineering company, andParker Hannifin Corporation, a global motion and control technology manufacturer. Mr. Holder serves on the board of directors of Actuant Corporation, apublicly held diversified industrial company.Thomas C. Burwell, Jr. joined us as Corporate Controller in September 2005. He was promoted to Vice President Chief Accounting Officer and CorporateController in 2011, and to Senior Vice President and Chief Financial Officer in November 2016. Prior to joining us, Mr. Burwell held various positions atCoats, PLC from 1997 to 2005 ultimately becoming the Vice President of Finance for the U.S. Industrial Division. From 1992 to 1997, Mr. Burwell heldvarious positions at the international accounting firm BDO Seidman, LLP. Mr. Burwell is a Certified Public Accountant.Matthew S. Heiter joined us as Senior Vice President and General Counsel in July 2015. Prior to joining us, Mr. Heiter was a shareholder in the law firm ofBaker, Donelson, Bearman, Caldwell and Berkowitz, PC from May 1996 to December 1999 and from July 2002 to July 2015, where he served as chairman ofthe firm’s Securities and Corporate Governance Practice Group. From January 2000 to July 2002, Mr. Heiter served as the Executive Vice President, GeneralCounsel and Secretary of Internet Pictures Corporation, a publicly traded internet technology company. 8Table of ContentsD. Gail Nixon joined us in 2007 and was appointed Senior Vice President and Chief Human Resources Officer in January 2018. She previously served as ourVice President of Human Resources as well as Corporate Human Resources Manager. Ms. Nixon is a member of the Society for Human Resource Managementand World at Work and has earned her Senior Professional in Human Resources designation. From 2000-2007, she held various accounting and humanresources positions with a multi-state healthcare organization, ultimately serving as its corporate human resources director.Warren A. Veltman joined us as Senior Vice President and General Manager of our Autocam Precision Components Group in September 2014. Mr. Veltmanserved as Chief Financial Officer of Autocam Corporation from 1990 and Secretary and Treasurer since 1991. In January 2018, Mr. Veltman was appointedExecutive Vice President of our Mobile Solutions business. Prior to Mr. Veltman’s service at Autocam, Mr. Veltman was an Audit Manager with Deloitte &Touche LLP.J. Robert Atkinson was appointed Executive Vice President of our Life Sciences division in January 2018. Mr. Atkinson joined us as Vice President,Corporate Treasurer and Manager of Investor Relations in April 2014 and served as our Vice President, Strategy & Investor Relations from April 2017 toDecember 2017. Prior to joining us, Mr. Atkinson was with Regions Bank where he served as vice president and commercial relationship manager in RegionsCorporate Bank Group, where he was responsible for marquee corporate relationships, developing treasury management solutions and negotiating terms andconditions for new and renewal credit facilities. Prior to that position, he served as Vice President of business services. Mr. Atkinson also served as a projectcoordinator for the Electrical Group of Eaton Corporation. Mr. Atkinson is a member of the Association of Financial Professions and earned his certifiedtreasury professional designation.Christopher J. Qualters was appointed Executive Vice President of the Power Solutions division in January 2018, and previously served as our Vice Presidentand Chief Commercial Officer. Mr. Qualters joined us as part of the Autocam acquisition in 2014, where he served as Vice President of sales and marketing.Prior to joining Autocam in 2008, he held several leadership positions in sales, marketing and product management at Robert Bosch. From 1990 to 2000,Mr. Qualters held the position of sales engineer at The Torrington Company, where he was responsible for anti-friction bearing solutions for the generalindustrial and automotive industries. Item 1A.Risk FactorsThe following are risk factors that affect our business, prospects, financial condition, results of operations, and cash flows, some of which are beyond ourcontrol. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form10-K. If any of the events described below were to actually occur, our business, prospects, financial condition, results of operations, or cash flows could beadversely affected, and results could differ materially from expected and historical results.Risks Related to Our OperationsWe 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.During 2017, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 46% of our consolidated net sales. The lossof 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 profitmargin and cash flows from operations.Work stoppages or similar difficulties could significantly disrupt our operations, reduce our revenues and materially affect our earnings.A work stoppage at one or more of our facilities could have a material adverse effect on our business, prospects, financial condition, results of operations, orcash flows. Also, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products,which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.We operate in and sell products to customers outside the U.S. and are subject to several risks related to doing business internationally.We obtain a majority of our raw materials from overseas suppliers, actively participate in overseas manufacturing operations and sell to a large number ofinternational customers. During the year ended December 31, 2017, sales to customers located outside of the U.S. accounted for approximately 30% of ourconsolidated net sales. As a result of doing business internationally, we face risks associated with the following: • changes in tariff regulations, which may make our products more costly to export or import; 9Table of Contents • changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations; • recessions or marked declines specific to a particular country or region; • the potential imposition of trade restrictions or prohibitions; • the potential imposition of import tariffs or other duties or taxes; • difficulties establishing and maintaining relationships with local original equipment manufacturers, distributors and dealers; • difficulty in staffing and managing geographically diverse operations; and • unstable governments or legal systems in countries in which our suppliers, manufacturing operations, and customers are located.These and other risks may also increase the relative price of our products compared to those manufactured in other countries, thereby reducing the demand forour products in the markets in which we operate, which could have a material adverse effect on our business, prospects, financial condition, results ofoperations, or cash flows.In addition, we could be adversely affected by violations of the Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws, as wellas export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and theirintermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance withthese laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strictcompliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures will alwaysprotect us from the improper acts committed by our employees or agents. If we are found to be liable for FCPA, export control or sanction violations, wecould suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of ourinternational business, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.In addition, in June 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the European Union, commonly referred to as“Brexit.” This referendum has created political and economic uncertainty, particularly in the United Kingdom and the European Union, and this uncertaintymay persist for years. The withdrawal could significantly disrupt the free movement of goods, services, and people between the United Kingdom and theEuropean Union, and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe. The UnitedKingdom’s vote to exit the European Union could also result in similar referendums or votes in other European countries in which we do business. Theuncertainty surrounding the terms of the United Kingdom’s withdrawal and its consequences could adversely impact consumer and investor confidence, andthe level of consumer purchases of discretionary items and retail products, including our products. Any of these effects, among others, could materiallyadversely affect our business, results of operations, and financial condition.In addition, the prices we pay for raw materials used in our products may be impacted by tariffs. On March 8, 2018, the Trump Administration signed an orderthat will impose an import tariff of 25% on steel. As a result of this tariff, if we are unable to obtain raw materials, including steel, at historical prices, it couldhave a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.Failure of our products could result in a product recall.The majority of our products are components of our customers’ products that are used in critical industrial applications. A failure of our components couldlead 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 additionto 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 customer’s business and damage ourreputation. A successful product recall claim requiring that we bear a substantial part of the cost of correction or the loss of a key customer could have amaterial adverse effect on our business, prospects, financial condition, results of operations, or cash flows. 10Table of ContentsOur markets are highly competitive, and many of our competitors have significant advantages that could adversely affect our business.We face substantial competition in the sale of system assemblies and finished devices in the vertical end markets into which we sell our products. Ourcompetitors 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. Due to this competitiveness, we may not be able to increase prices for our products to cover cost increases. In many cases we face pressurefrom our customers to reduce prices, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows. In addition,our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affectour business, prospects, financial condition, results of operations, or cash flows.Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.We are dependent on the continued services of key executives and personnel. The departure of our key personnel without adequate replacement couldseverely disrupt our business operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industryexperience to operate our businesses successfully. From time to time, there may be shortages of skilled labor, which may make it more difficult and expensivefor us to attract and retain qualified employees. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, ouroperations would be materially adversely affected.Damage to our reputation could harm our businesses, including our competitive position and business prospects.Our ability to attract and retain customers, supplier, investors and employees is impacted by our reputation. Harm to our reputation can arise from varioussources, including employee misconduct, security breaches, unethical behavior, litigation or regulatory outcomes, the suitability or harm, which could,among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penaltiesand cause us to incur related costs and expenses.Risks Related to Legal and Regulatory ComplianceEnvironmental, health and safety laws and regulations impose substantial costs and limitations on our operations, environmental compliance may bemore costly than we expect, and any adverse regulatory action may materially adversely affect our business.We are subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations concerning matters such as air emissions,wastewater discharges, solid and hazardous waste handling and disposal and the investigation and remediation of contamination. The risks of substantialcosts, liabilities and limitations on our operations related to compliance with these laws and regulations are an inherent part of our business, and futureconditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs.Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate. Todate, we have committed significant expenditures in our efforts to achieve and maintain compliance with these requirements at our facilities, and we expectthat we will continue to make significant expenditures related to such compliance in the future. From time to time, we may be subject to legal proceedingsbrought by private parties or governmental authorities with respect to environmental matters, including matters involving alleged noncompliance with orliability under environmental, health and safety laws, property damage or personal injury. New laws and regulations, including those which may relate toemissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the impositionof new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect onour business, prospects, financial condition, results of operations, or cash flows.Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable agencies outside the U.S. To varyingdegrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing anddistribution of our medical devices. We cannot guarantee that we will be able to obtain marketing clearance for our new products or enhancements ormodifications to existing products. If such approval is obtained, it may: • take a significant amount of time; 11Table of Contents • require the expenditure of substantial resources; • involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance; • involve modifications, repairs or replacements of our products; and • result in limitations on the proposed uses of our products.Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. We are also subject to periodicinspections by the FDA to determine compliance with the FDA’s requirements, including primarily the quality system regulations and medical devicereporting regulations. The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms ofenforcement. Since 2009, the FDA has significantly increased its oversight of companies subject to its regulations, including medical device companies, byhiring new investigators and stepping up inspections of manufacturing facilities. The FDA has also significantly increased the number of warning lettersissued to companies. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices areineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order arecall, repair, replacement or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of foreign governmentsfor exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. TheFDA may also impose operating restrictions on a company-wide basis, enjoin and/or restrain certain conduct resulting in violations of applicable lawpertaining to medical devices, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to theDepartment of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products.Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to more rigorous regulation by foreigngovernmental authorities in the future. Penalties for a company’s non-compliance with foreign governmental regulation could be severe, includingrevocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental law or regulation imposed in thefuture may have a material adverse effect on us.Changes in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations and financial conditions.On December 22, 2017, the U.S. government enacted comprehensive Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the“U.S. Tax Cuts and Jobs Act of 2017”). The U.S. Tax Cuts and Jobs Act of 2017 introduces significant changes to U.S. income tax law that will have ameaningful impact on our provision for income taxes. Accounting for the income tax effects of the U.S. Tax Cuts and Jobs Act of 2017 requires significantjudgments and estimates in the interpretation and calculations of the provisions of the U.S. Tax Cuts and Jobs Act of 2017.Due to the timing of the enactment and the complexity involved in applying the provisions of the U.S. Tax Cuts and Jobs Act of 2017, we made reasonableestimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. The U.S. Treasury Department,the Internal Revenue Service (“IRS”), and other standard-setting bodies may issue guidance on how the provisions of the U.S. Tax Cuts and Jobs Act of 2017will be applied or otherwise administered that is different from our interpretation. As we collect and prepare necessary data and interpret the U.S. Tax Cutsand Jobs Act of 2017 and any additional guidance issued by the IRS or other standard-setting bodies, we may make adjustments to the provisional amountsthat could materially affect our financial position and results of operations as well as our effective tax rate in the period in which the adjustments are made.We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements inour financial statements.Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under theExchange Act. As disclosed in Item 9A, management identified certain material weaknesses in our internal control over financial reporting during 2016 thatremained unremediated as of December 31, 2016. Although we undertook efforts to remediate these material weaknesses throughout 2017, we wereunsuccessful in fully remediating them. These material weaknesses in internal control resulted in errors to our previously reported financial statements whichwere corrected through the revision of our annual and interim financial statements in 2016 and 2017 as described in Item 9A. Because of these materialweaknesses and the additional material weakness identified in 2017, our management concluded that we did not maintain effective internal control overfinancial reporting as of December 31, 2017. With the oversight of senior management and the audit committee, we have begun taking steps to remediate theunderlying cause of these material weaknesses and improve the design of controls. Until remediated, these material weaknesses could result in future errors toour financial statements. 12Table of ContentsWhile we expect to take the measures necessary to address the underlying causes of these material weaknesses, we cannot at this time estimate how long itwill take and our efforts may not prove to be successful in remediating these material weaknesses. While we have not incurred and do not expect to incurmaterial expenses specifically related to the remediation of these material weaknesses, actual expenses may exceed our current estimates and overall costs ofcompiling the system and processing documentation necessary to assess the effectiveness of our internal control over financial reporting may be material.If we are unable to successfully remediate these material weaknesses in our internal control over financial reporting, or if we identify any additional materialweaknesses that may exist, the accuracy and timing of our financial reporting may be adversely affected. On August 10, 2017, we filed with the SEC anotification of late filing informing the SEC that due to the identification of a required revision in previously issued financial statements, we could nottimely file our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. On March 19, 2018, we filed with the SEC a notification of late filinginforming the SEC that we could not timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, because the Companyrequired additional time to complete its review procedures, primarily with respect to its accounting for income taxes and financial reporting. Our failure tofile periodic and certain current reports with the SEC in a timely manner, among other things, could in the future preclude or delay us from being eligible touse a short form registration statement on Form S-3 to register certain sales of our common stock by us or our stockholders and could even result in thesuspension of trading of our common stock on the Nasdaq Stock Market LLC (“Nasdaq”) and/or the revocation of our registration by the SEC. Any of theseconsequences may have a material adverse effect on our business and results of operations.Risks Related to Our CapitalizationOur indebtedness could adversely affect our business, prospects, financial condition, results of operations, or cash flows.As of December 31, 2017, we had approximately $828.6 million of indebtedness outstanding and an additional $97.6 million available for borrowing underour debt agreements. Our high degree of leverage could have important consequences, including: • increasing our vulnerability to adverse economic, industry, or competitive developments; • requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness,therefore reducing our ability to use our cash flows to fund operations, capital expenditures, and future business opportunities; • exposing us to the risk of increased interest rates, which could cause our debt service obligations to increase significantly; • making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of anyof our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under our debt agreements; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product and service development, debt servicerequirements, acquisitions, and general corporate or other purposes; and • limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantagecompared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leveragemay prevent us from exploiting.If any one of these events were to occur, our business, prospects, financial condition, results of operations, or cash flows could be materially and adverselyaffected. For more information regarding our indebtedness, please see “Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources.”Despite our high indebtedness level, we will still be able to incur substantial additional amounts of debt, which could further exacerbate the risksassociated with our substantial indebtedness.We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although our debt agreements contain restrictions on theincurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances,the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’debt levels, the related risks that we now face could increase. 13Table of ContentsOur debt agreements contain restrictions that will limit our flexibility in operating our business.Our debt agreements contain various incurrence covenants that limit our ability to engage in specified types of transactions. These incurrence covenants willlimit our ability to, among other things: • incur additional indebtedness or issue certain preferred equity; • pay dividends on, repurchase, or make distributions in respect of our capital stock, prepay, redeem, or repurchase certain debt or make otherrestricted payments; • make certain investments and acquisitions; • create certain liens; • enter into agreements restricting our subsidiaries’ ability to pay dividends to us; • consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; • alter our existing businesses; and • enter into certain transactions with our affiliates.In addition, the incurrence covenants in our debt agreements require us to meet specified financial ratios and satisfy other financial condition tests. Ourability to meet those financial ratios and tests will depend on our ongoing financial and operating performance, which, in turn, will be subject to economicconditions and to financial, market, and competitive factors, many of which are beyond our control. A breach of any of these covenants could result in adefault under one or more of our debt agreements and permit our lenders to cease making loans to us under our credit facility (as defined below). Furthermore,if we were unable to repay the amounts due and payable under our secured debt agreements, our secured lenders could proceed against the collateral grantedto them to secure our borrowings. Such actions by the lenders could also cause cross defaults under our other debt agreements.We may not be able to generate sufficient cash to service all of our indebtedness, and we may not be able to refinance our debt obligations as they mature.Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which issubject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able tomaintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.We regularly review our capital structure, various financing alternatives and conditions in the debt and equity markets in order to opportunistically enhanceour capital structure. In connection therewith, we may seek to refinance or retire existing indebtedness, incur new or additional indebtedness or issue equityor equity-linked securities, in each case, depending on market and other conditions. As our debt obligations mature or if our cash flows and capital resourcesare insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seekadditional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capitalmarkets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with moreonerous covenants, which could further restrict our business operations. The terms of our existing or future debt instruments may restrict us from adoptingsome of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likelyresult in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful andmay not permit us to meet our scheduled debt service obligations.We have international operations that are subject to foreign economic uncertainties and foreign currency fluctuation.Approximately 29% of our revenues are denominated in foreign currencies, which may result in additional risk of fluctuating currency values and exchangerates and controls on currency exchange. Changes in the value of foreign currencies could increase our U.S. dollar costs for, or reduce our U.S. dollar revenuesfrom, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could affect our profits. In 2017, the U.S.dollar weakened compared to the euro, which favorably affected our revenue by $2.0 million. In contrast, a strengthening of the U.S. dollar may adverselyaffect our business, prospects, financial condition, results of operations, or cash flows. 14Table of ContentsThe 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: • macro or micro-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 restructuring; • 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. Thesebroad market fluctuations may adversely affect the trading price of our common stock. In addition, due to the market capitalization of our stock, our stocktends to be more volatile than large capitalization stocks that comprise the Dow Jones Industrial Average or Standard and Poor’s 500 Index.Provisions in our charter documents and Delaware law may inhibit a takeover, which could adversely affect the value of our common stock.Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changesin our management that a stockholder might consider favorable and may prevent shareholders from receiving a takeover premium for their shares. Theseprovisions include, for example, a classified board of directors and the authorization of our board of directors to issue up to five million preferred shareswithout 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 statuteprohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after thedate of the transaction in which such person became an interested stockholder, unless the business combination is approved in a prescribed manner. Abusiness combination includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. We anticipate that the provisions ofSection 203 may encourage parties interested in acquiring us to negotiate in advance with our board of directors, because the stockholder approvalrequirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction that results in thestockholder 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 isdelayed or prevented, the market price of our common stock could decline. 15Table of ContentsRisks Related to Acquisitions and DivestituresAcquisitions may constitute an important part of our future growth strategy.Acquiring businesses that complement or expand our operations has been and may continue to be a key element of our business strategy. We regularlyevaluate acquisition transactions, sign non-disclosure agreements, and participate in processes with respect to acquisitions, some of which may be material tous. We cannot assure you that we will be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms in thefuture. In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels or diluting our existingstockholders’ ownership interest in us. Our inability to acquire businesses, or to operate them profitably once acquired, could have a material adverse effecton our business, financial position, results of operations and cash flows. Our borrowing agreements limit our ability to complete acquisitions without priorapproval of our lenders. Although our previous acquisitions have been successful from a business perspective, we have had difficulty with purchaseaccounting and other aspects related to the accounting for our acquisitions. Future acquisitions are likely to exacerbate these issues and make remediation ofour material weaknesses more challenging. See also the Risk Factor “We have identified material weaknesses in our internal control over financial reportingwhich could, if not remediated, result in material misstatements in our financial statements.”We may not realize all of the anticipated benefits from completed acquisitions or any future strategic portfolio acquisition, or those benefits may takelonger to realize than expected.We either may not realize all of the anticipated benefits from completed acquisitions or any future strategic portfolio acquisition, or it may take longer torealize such benefits. Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, includingintegrating the acquired businesses into our existing businesses. The integration process may disrupt the businesses and, if implemented ineffectively, wouldpreclude the realization of the full anticipated benefits. The difficulties of combining the operations of acquired companies include, among others: • the diversion of management’s attention to integration matters; • difficulties in the integration of operations and systems, including, without limitation, the complexities associated with managing the expandedoperations of a significantly larger and more complex company, addressing possible differences in corporate cultures and managementphilosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the acquired companies; • difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining the acquiredbusinesses with our own; • the inability to implement effective internal controls, procedures and policies for acquired businesses as required by the Sarbanes-Oxley Act of2002 within the time periods prescribed thereby; • the exposure to potential unknown liabilities and unforeseen increased expenses or delays associated with acquired businesses; • challenges in keeping existing customers and obtaining new customers; • challenges in attracting and retaining key personnel; and • the disruption of, or the loss of momentum in, ongoing operations or inconsistencies in standards, controls, procedures and policies.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 anddiversion of management’s time and energy, which could materially impact our business, prospects, financial condition, results of operations, or cash flows.Additionally, we incurred a significant amount of debt in connection with our acquisitions in the past few years. Finally, in relation to such acquisitions, wehave significantly higher amounts of intangible assets, including goodwill. These intangible assets will be subject to impairment testing, and we could incura significant impact to our financial statements in the form of an impairment if assumptions and expectations related to our acquisitions are not realized.We have and will continue to incur expenses related to our acquisitions and the integration of our acquired companies.We have and will continue to incur expenses related to our acquisitions and the integration of our acquired companies. While we have assumed that a certainlevel of expenses will be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses.Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These integration expenses may result in us takingcharges against earnings, and the amount of any future charges are uncertain at present. 16Table of ContentsWe may be unable to realize the anticipated cost or capital expenditure savings or may incur additional and/or unexpected costs in order to realize them.There can be no assurance that we will be able to realize the anticipated cost or capital expenditure savings from our acquisitions in the anticipated amountsor within the anticipated timeframes or at all. With respect to each acquisition, we anticipate implementing a series of cost savings initiatives that we expectto result in recurring, annual run-rate cost savings. These or any other cost or capital expenditure savings that we realize may differ materially from ourestimates. We cannot provide assurances that these anticipated savings will be achieved or that our programs and improvements will be completed asanticipated or at all. In addition, any cost savings that we realize may be offset, in whole or in part, by reductions in revenues or through increases in otherexpenses.Our projections and assumptions related to cost savings are based on our current estimates, but they involve risks, uncertainties, projections and other factorsthat may cause actual results, performance or achievements to be materially different from any future results, performance or achievements, express orimplied. Neither our independent registered public accounting firm nor any other independent auditors, have examined, compiled or performed anyprocedures with respect to these projections, nor have they expressed any opinion, or any other form of assurance on such information or their achievability.Assumptions relating to our projections involve subjective decisions and judgments with respect to, among other things, the estimated impact of certainoperational adjustments, including Six Sigma/OpEx optimization programs, product grouping and rationalization, facility rationalization and shared servicescost savings and other cost and savings adjustments, as well as future economic, competitive, industry and market conditions and future business decisions,all of which are inherently uncertain and may be beyond the control of our management.Failure to realize the expected costs savings and operating synergies related to our acquisitions could result in increased costs and have an adverse effect onour business, prospects, financial condition, results of operations, or cash flows.Our future results could suffer if we cannot effectively manage our expanded operations, which are significantly larger and more complex following ouracquisitions.As a result of our acquisitions over the past few years, the size and scope of our operations were significantly increased. Our future success depends, in part,upon our ability to manage the expanded operations, which will pose challenges for management, including challenges related to the management andmonitoring of new operations and associated increased costs and complexity. We may not have the expertise, experience and resources to pursue orsuccessfully operate all of our businesses at once. The administration of our businesses requires implementation and oversight of appropriate operations,management, compliance and financial reporting systems and controls. We may experience difficulties in effectively implementing and overseeing these andother systems. Such implementation and initial oversight will require the focused attention of our management team, including a significant commitment ofits time and resources. The need for management to focus on these matters could have a material and adverse impact on our revenues and operating results.There can be no assurance that we will be successful or that we will realize any operating efficiencies, cost savings, revenue enhancements or other benefitscurrently anticipated from our acquisitions.The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and may result in unexpectedliabilities.Certain of the acquisition agreements from past acquisitions require the former owners to indemnify us against certain liabilities related to the operation ofeach of their companies before we acquired it. In most of these agreements, however, the liability of the former owners is limited in amount and duration andcertain former owners may not be able to meet their indemnification responsibilities. These indemnification provisions may not fully protect us, and as aresult we may face unexpected liabilities that adversely affect our profitability and financial position.Our participation in joint ventures could expose us to additional risks from time to time.We currently have a 49% investment in a Chinese joint venture and may participate in additional joint ventures from time to time. Our participationin joint ventures is subject to risks that may not be present with other methods of ownership, including: • our joint venture partners could have investment and financing goals that are not consistent with our objectives, including the timing, terms andstrategies for any investments, and what levels of debt to incur or carry; 17Table of Contents • we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expendadditional resources on resolving such impasses or potential disputes, including litigation or arbitration; • our ability to transfer our interest in a joint venture to a third party may be restricted and the market for our interest may be limited; • our joint venture partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their obligations asa joint venture partner, which may require us to infuse our own capital into the venture on behalf of the partner despite other competing uses forsuch capital; and • our joint venture partners may have competing interests in our markets that could create conflict of interest issues.Any divestitures and discontinued operations could negatively impact our business, and retained liabilities from businesses that we may sell couldadversely affect our financial results.As part of our portfolio management process, we review our operations for businesses which may no longer be aligned with our strategic initiatives and long-term objectives. Divestitures pose risks and challenges that could negatively impact our business, including required separation or carve-out activities andcosts, disputes with buyers or potential impairment charges. We may also dispose of a business at a price or on terms that are less than we had previouslyanticipated. After reaching an agreement with a buyer for the disposition of a business, we are also subject to satisfaction of pre-closing conditions, as well asnecessary regulatory and governmental approvals on acceptable terms, which may prevent us from completing a transaction. Dispositions may also involvecontinued financial involvement, as we may be required to retain responsibility for, or agree to indemnify buyers against contingent liabilities related tobusinesses sold, such as lawsuits, tax liabilities, lease payments, product liability claims or environmental matters. Under these types of arrangements,performance by the divested businesses or other conditions outside of our control could affect future financial results. Item 1B.Unresolved Staff CommentsNone. Item 2.PropertiesAs of March 1, 2018, we owned or leased 44 facilities in a total of six countries, which includes a 49% equity interest in a manufacturing joint venture inChina. Utilization of these sites may vary with product mix and economic, seasonal, and other business conditions. Our plants generally have sufficientcapacity for existing needs and expected near-term growth. These plants are generally well maintained, in good operating condition, and suitable andadequate for their use. The following table lists the locations of our facilities by segment.Autocam Precision Components Group Location General Character Country Owned or LeasedDowagiac, Michigan Plant U.S.A. OwnedKentwood, Michigan Plant 1 U.S.A. LeasedKentwood, Michigan Plant 2 U.S.A. LeasedKentwood, Michigan Plant 3, Warehouse U.S.A. LeasedKentwood, Michigan Office U.S.A. OwnedMarshall, Michigan Plant 1 U.S.A. LeasedMarshall, Michigan Plant 2 U.S.A. LeasedWellington, Ohio Plant 1 U.S.A. LeasedWellington, Ohio Plant 2 U.S.A. LeasedKamienna Gora Plant Poland OwnedMarnaz Plant France OwnedWuxi Plant China LeasedJuarez Plant Mexico LeasedBoituva Plant Brazil LeasedCampinas Office Brazil LeasedSao Joao da Boa Vista Plant 1 Brazil LeasedSao Joao da Boa Vista Plant 2 Brazil Leased 18Table of ContentsPrecision Engineered Products Group Location General Character Country Owned or LeasedAlgonquin, Illinois Plant U.S.A. OwnedAttleboro, Massachusetts Plant 1 U.S.A. OwnedAttleboro, Massachusetts Plant 2 U.S.A. LeasedAttleboro, Massachusetts Plant 3 U.S.A. OwnedAttleboro, Massachusetts Office U.S.A. LeasedAurora, Illinois Plant U.S.A. LeasedBridgeport, Connecticut Plant 1 U.S.A. OwnedBridgeport, Connecticut Plant 2 U.S.A. OwnedEast Providence, Rhode Island Plant U.S.A. LeasedFairfield, Ohio Plant U.S.A. OwnedFranklin, Massachusetts Plant U.S.A. LeasedHatfield, Pennsylvania Plant U.S.A. LeasedHingham, Massachusetts Plant U.S.A. LeasedIrvine, California Plant U.S.A. LeasedLubbock, Texas Plant U.S.A. OwnedMansfield, Massachusetts Plant U.S.A. LeasedMansfield, Massachusetts Warehouse U.S.A. LeasedNorth Attleboro, Massachusetts Plant U.S.A. OwnedPalmer, Massachusetts Plant U.S.A. LeasedWallingford, Connecticut Plant U.S.A. LeasedWarsaw, Indiana Plant U.S.A. LeasedVandalia, Ohio Plant U.S.A. LeasedFoshan City Plant China LeasedMexico City Plant Mexico OwnedJoint Venture Location General Character Country Owned or Leasedby Joint VentureWuxi Plant China LeasedIn addition to these manufacturing plants, we lease an office building in Johnson City, Tennessee, which currently serves as our corporate office. We are inthe process of moving our global headquarters to a leased office building in Charlotte, North Carolina. We expect to complete this move to Charlotte in thefirst half of 2018. Item 3.Legal ProceedingsPrior to the Autocam acquisition, Autocam’s Brazilian subsidiary received notification from the Brazilian tax authorities regarding ICMS (State Value AddedTax or VAT) tax credits claimed on intermediary materials (tooling and perishable items) used in the manufacturing process. The Brazilian tax authoritynotification disallowed state ICMS credits claimed on intermediary materials based on the argument that these items are not intrinsically related to themanufacturing processes. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualifyfor ICMS tax credit, contending that the intermediary materials are directly related to the manufacturing process.We believe that we have substantial legal and factual defenses, and we plan to defend our interests in this matter vigorously. While we believe a loss is notprobable, we estimate the range of possible losses related to this assessment is from $0 to $6.0 million. No amount was accrued at December 31, 2017, for thismatter. There was no material change in the status of this matter during 2017.We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement and plan ofmerger relating to the Autocam acquisition. Management believes the indemnification would include amounts owed for the tax, interest and penalties relatedto this matter. 19Table of ContentsAll other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings shouldnot, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows. In making thatdetermination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonablypossible outcomes. The procedures performed include reviewing attorney and plaintiff correspondence, reviewing any filings made and discussing the factsof the case with local management and legal counsel. We have not recognized any material loss contingencies at December 31, 2017, or at December 31,2016. Item 4.Mine Safety DisclosuresNot applicable. 20Table of ContentsPart II Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded on Nasdaq under the trading symbol “NNBR.” As of March 19, 2018, there were approximately 5,557 beneficial owners of recordof our common stock, and the closing per share stock price as reported by Nasdaq was $24.80.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 2017 First Quarter $25.20 $17.60 Second Quarter 30.80 24.95 Third Quarter 30.30 24.80 Fourth Quarter 32.40 25.75 2016 First Quarter $14.90 $10.58 Second Quarter 19.16 12.77 Third Quarter 18.81 13.48 Fourth Quarter 20.21 13.65 The following graph and table compare the cumulative total shareholder return on our common stock with the cumulative total shareholder return of: (i) theS&P SmallCap 600 Index and (ii) a customized peer group, for the period from December 31, 2012, to December 31, 2017. The customized peer groupconsists of the following companies, which we believe are in similar lines of business: Actuant Corporation, Altra Industrial Motion Corp., Ametek Inc.,CIRCOR International, Inc., Colfax Corporation, Crane, Kaman Corporation, Park-Ohio Holdings Corp. and Worthington Industries, Inc. (collectively, the“Peer Group”). The following graph and table assume that a $100 investment was made at the close of trading on December 31, 2012, in our common stockand in the S&P SmallCap Index and the Peer Group. We cannot assure you that the performance of our common stock will continue in the future with thesame or similar trend depicted on the graph. 21Table of ContentsComparison of Five-Year Cumulative Total ReturnNN Inc., Peer Group, and S&P SmallCap 600 Index(Performance results through 12/31/17) 2012 2013 2014 2015 2016 2017 NN, Inc. $100.00 $222.20 $229.08 $179.77 $218.72 $320.44 Peer Group $100.00 $147.91 $132.54 $112.60 $132.08 $166.77 S&P SmallCap 600 $100.00 $141.31 $149.45 $146.51 $185.42 $209.95 Source: Value Line Publishing LLCThe 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 thedividends per share paid during the last two fiscal years. 2017 Dividend First Quarter $0.07 Second Quarter $0.07 Third Quarter $0.07 Fourth Quarter $0.07 2016 Dividend First Quarter $0.07 Second Quarter $0.07 Third Quarter $0.07 Fourth Quarter $0.07 22Table of ContentsSee Part III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form10-K for information required by Item 201 (d) of Regulation S-K. Item 6.Selected Financial DataThe 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” in Item 7 and the audited Consolidated Financial Statements,including the Notes thereto, in Item 8. Year Ended December 31, 2017 2016 (1) 2015 (1) 2014 (2) 2013 (2) Statement of Operations Data: Net sales $619,793 $584,954 $405,443 $210,575 $113,747 Cost of sales (exclusive of depreciation and amortization) 459,080 428,843 320,632 169,263 90,566 Income (loss) from operations 33,114 34,779 58 (3,776) 965 Income (loss) from continuing operations 25,369 (9,490) (24,375) (12,788) (408) Income from discontinued operations, net of tax 137,688 16,153 17,889 21,005 17,586 Income (loss) from continuing operations per share, basic $0.92 $(0.35) $(1.15) $(0.71) $(0.02) Income (loss) from continuing operations per share, diluted $0.91 $(0.35) $(1.15) $(0.71) $(0.02) Dividends declared per common share $0.28 $0.28 $0.28 $0.28 $0.18 As of December 31, 2017 2016 (1) 2015 (1) 2014 (2) 2013 (2) Balance Sheet Data: Current assets $477,280 $282,328 $283,910 $245,131 $125,674 Current liabilities 108,421 140,241 132,491 138,485 69,384 Total assets 1,475,003 1,358,274 1,388,337 702,892 260,752 Long-term obligations 792,499 788,953 802,011 327,759 24,350 Stockholders’ equity 486,104 309,391 312,431 172,989 152,760 (1)Includes the reclassification of discontinued operations and the effects of prior periods’ revisions as disclosed in Note 2 and Note 21, respectively, ofthe Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.(2)Includes the reclassification of discontinued operations as disclosed in Note 2 of the Notes to Consolidated Financial Statements included in Item 8 ofthis Annual Report. Net sales of discontinued operations were $278.0 million and $259.5 million in 2014 and 2013, respectively. Cost of sales ofdiscontinued operations was $215.6 million and $204.6 million in 2014 and 2013, respectively. Income from operations attributable to discontinuedoperations was $31.5 million and $26.9 million in 2014 and 2013, respectively. Current assets of discontinued operations were $106.3 million and$92.6 million as of December 31, 2014 and 2013, respectively. Current liabilities of discontinued operations were $54.9 million and $48.4 million asof December 31, 2014 and 2013, respectively. Total assets of discontinued operations were $214.3 million and $198.0 million as of December 31,2014 and 2013, respectively.On August 17, 2017, we completed the sale of our PBC Business to Tsubaki for a base purchase price of $375.0 million in cash, subject to certainadjustments. After working capital and other closing adjustments, the final cash purchase price was approximately $388.5 million. We recorded an after-taxgain on sale of $127.7 million, which is included in the “Income from discontinued operations, net of tax” line in the table above. The PBC Businessincluded all our facilities that were engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty productsused primarily in the bearing industry. The sale of the PBC Business furthers management’s long-term strategy to build a diversified industrial business witha comprehensive geographic footprint in attractive high-growth market segments. The PBC Business represented all of the PBC reportable segment disclosedin our historical financial statements. The operating results of PBC are classified as discontinued operations. The presentation of discontinued operationsincludes revenues and expenses of the discontinued operations and gain on the disposition of the business, net of tax, as one line item. Note 2 of the Notes toConsolidated Financial Statements included in Item 8 provides a summary of the components of income from discontinued operations for the years endedDecember 31, 2017, 2016, and 2015. 23Table of ContentsOn October 2, 2017, we acquired 100% of the membership interests of Vandalia for approximately $38.7 million in cash, subject to certain post-closingadjustments. Vandalia is a supplier of precision manufactured medical instruments and orthopedic implants with locations in Ohio and Pennsylvania.Operating results of Vandalia after the acquisition date are reported in the Precision Engineered Products Group and represented a $0.5 million loss fromoperations in 2017. Vandalia contributed $6.7 million to net sales of our Precision Engineered Products Group in 2017.The year ended December 31, 2015 was significantly impacted by the PEP Acquisition and to a lesser extent the Caprock acquisition completed in 2015, aswell as the issuance of shares of our common stock. With these acquisitions, we acquired current assets and total assets of $71.7 million and $747.5 million,respectively, and assumed current liabilities and total liabilities of $22.0 million and $118.9 million, respectively. Beginning October 20, 2015, ourPrecision Engineered Products Group includes the results of the PEP Acquisition. Since the date of the PEP Acquisition, 2015 sales revenue of $40.7 millionand net loss from operations of $5.1 million has been included in our Precision Engineered Products Group. The PEP Acquisition on October 19, 2015, wasfunded with new debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 of the Notes toConsolidated Financial Statements for more information about our debt instruments.On July 1, 2015 we closed a registered follow-on offering of public common stock. We sold approximately 7.6 million shares of common stock at a publicoffering price of $24.00 per share. The net proceeds received from the offering, after deducting underwriter discounts, commissions and offering expenses,were approximately $173.1 million. Of these proceeds, $148.7 million was used for repayment of principal and interest on existing debt.The year ended December 31, 2014 was significantly impacted by the Autocam acquisition. In addition, we discontinued use of certain Autocam trade namesand incurred a $0.9 million impairment charge. The balance sheet as of December 31, 2014, includes the assets acquired and liabilities assumed during 2014.With the Autocam acquisition, we acquired current assets and total assets of $87.3 million and $407.8 million, respectively, and assumed current liabilitiesand total liabilities of $41.3 million and $119.3 million, respectively. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the Notes theretoand Selected Financial Data included elsewhere in this Annual Report on Form 10-K. Historical operating results and percentage relationships among anyamounts included in the Consolidated Financial Statements are not necessarily indicative of trends in operating results for any future period. Unlessotherwise noted herein, all amounts are in thousands, except per share numbers.Overview and Management FocusOur strategy and management focus is based upon the following long-term objectives • Organic and acquisitive growth within all our segments; • Sales growth in adjacent markets; • Sales growth through acquisitions; and • Global expansion of our manufacturing base to better address the global requirements of our customers.Management generally focuses on these trends and relevant market indicators • Global industrial growth and economics; • Residential and non-residential construction rates; • Global automotive production rates; • Surgery rates and U.S. healthcare spending; • Costs subject to the global inflationary environment, including, but not limited to: • Raw materials; • Wages and benefits, including health care costs; • Regulatory compliance; and • Energy; 24Table of Contents • Trends related to the geographic migration of competitive manufacturing; • Regulatory environment for United States public companies and manufacturing companies; • Currency and exchange rate movements and trends; • Interest rate levels and expectations. • Changes in tariff regulations, including, but not limited to, the Trump Administration’s March 8, 2018, order that will impose an import tariff of25% on steel.Management generally focuses on the following key indicators of operating performance • Sales growth; • Cost of sales; • Selling, general and administrative expense; • Earnings before interest, taxes, depreciation and amortization; • Income from operations and adjusted income from operations; • Net income and adjusted net income; • Cash flow from operations and capital spending; • Customer service reliability; • External and internal quality indicators; and • Employee development.Critical Accounting PoliciesOur significant accounting policies, including the assumptions and judgment underlying them, are disclosed in Note 1 of the Notes to ConsolidatedFinancial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition, inventoryvaluation and asset impairment recognition. Due to the estimation processes involved, management considers the following summarized accounting policiesand their application to be critical to understanding our business operations, financial condition and results of operations. We cannot assure you that actualresults will not significantly differ from the estimates used in these critical accounting policies.Business CombinationsWe allocate the total purchase price of tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the businesscombination date, with the excess purchase price recorded as goodwill. The purchase price allocation process required us to use significant estimates andassumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and estimates we have made arereasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company. Ourassumptions and estimates are also partially based on valuation models that incorporate projections of expected future cash flows and operating plans and areinherently uncertain. Valuations are performed by management or third-party valuation specialists under management’s supervision. In determining the fairvalue of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: theincome approach (including discounted cash flows from relief from royalty and excess earnings model), the market approach and/or the replacement costapproach.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 inrevenue and appropriate attrition rate; 25Table of Contents • the acquired company’s brand and competitive position, royalty rate quantum, as well as assumptions about the period of time the acquiredbrand will continue to benefit to the combined company’s product portfolio; and • cost of capital, risk-adjusted discount rates and income tax rates.Different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each typeof asset and liability. The valuations of property plant and equipment, intangibles assets, goodwill and deferred income tax liabilities depend heavily onassumptions. Subsequent assessment could result in future impairment charges. We refine these estimates over a measurement period not to exceed one yearto reflect new information obtained surrounding facts and circumstances existing at acquisition date.Goodwill and Other Indefinite Lived Intangible AssetsGoodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurs. The impairment analysis isperformed at the reporting unit level. We have the option to make a qualitative assessment of whether it is more-likely-than-not that the fair value of areporting unit is less than its carrying amount before applying the two-step goodwill impairment test. If we conclude that it is more likely than not that thefair value of a reporting unit exceeds its carrying amount, then we do not need to perform the two-step impairment test. For the years ended, December 31,2017 and 2016, we chose not to perform the qualitative assessment but rather performed only the first step in the annual impairment test. The decision toperform a qualitative assessment or proceed to the two-step impairment test is an annual decision made by management. Based on the results of performingthe first step of the impairment test, the fair value of the reporting units exceeded the carrying value of the reporting units at December 31, 2017 and 2016.If the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying value, Generally Accepted Accounting Principles(“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 withgoodwill is less than the related fair value of the reporting unit. We consider three main approaches to value (cost, market and income) the fair value of thereporting unit and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies. We believe thismethodology of valuation is consistent with how market participants would value reporting units. The discount rate and market based multiples used arespecifically 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 thecarrying value is greater than fair value then the potential for impairment of goodwill exists. The potential impairment is determined by allocating the fairvalue of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in abusiness combination. The fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognizedif 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 ofmanagement judgment and complexity. Actual results may differ from projections, and the differences may be material.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose 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 inincome 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 atax benefit will not be realized. Provision has not been made for income taxes on unremitted earnings of foreign subsidiaries as these earnings are deemed tobe permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties relatedto unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes.The calculation of tax assets, liabilities, and expenses under GAAP is largely dependent on management judgment of the current and future deductibility andutilization of taxable expenses and benefits using a more likely than not threshold. Specifically, the realization of deferred tax assets and the certainty of taxpositions 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 26Table of Contentstaxable income and deductibility of tax positions. Particularly, our assertion of permanent reinvestment of foreign undistributed earnings is largely based onmanagement’s future estimates of domestic and foreign cash flows and current strategic foreign investment plans. In the event that the actual outcome fromfuture tax consequences differs from management estimates and assumptions or management plans and positions are amended, the resulting change to theprovision for income taxes could have a material impact on the consolidated results of operations and financial position. (See Notes 1 and 11 of the Notes toConsolidated Financial Statements).We did not record a U.S. deferred tax liability for the excess of the book basis over the tax basis of our investments in foreign subsidiaries to the extent theforeign earnings meet the indefinite reversal criteria. As of the year ended December 31, 2017, we consider the unremitted foreign earnings of our foreignsubsidiaries to be reinvested indefinitely. We base this assertion on two factors. First, our intention to invest in foreign countries that are strategicallyimportant to our Autocam Precision Components Group and our customers. With the acquisitions completed in 2015 and 2014, we have expanded ourdomestic and international base of operations adding subsidiaries in Mexico and China, which will require more foreign investment. Second, we havesufficient access to funds in the U.S. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domesticoperational and investment needs.Impairment of Long-Lived AssetsLong-lived tangible and intangible assets subject to amortization are tested for recoverability when changes in circumstances indicate the carrying value ofthese 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 orasset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible orintangible asset is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or assetgroup. If the asset is not recoverable, the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaininguseful life. Assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal. In assessing potential impairment for long-lived assets, we consider forecasted financial performance based, in large part, on management business plans and projected financial information which aresubject to a high degree of management judgment and complexity. Future adverse changes in market conditions or adverse operating results of theunderlying assets could result in having to record additional impairment charges not previously recognized.Critical Accounting Standards Not Yet AdoptedRevenue Recognition. In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new standard that provides a single, comprehensiverevenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. Under the new guidance,revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects toreceive in exchange for those goods or services. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flowsarising from contracts with customers. Factors affecting implementation include, but are not limited to, identifying all the contracts that exist and whetherincidental obligations or marketing incentives included in some of those contracts are performance obligations. Additionally, we evaluated the transfer ofcontrol of certain consignment and tooling contracts which may impact the timing of revenue recognition under the new standard.The standard is effective for us beginning January 1, 2018, with full retrospective or modified retrospective adoption permitted. We will adopt the standardutilizing the modified retrospective transition method. Under this transition method, we will recognize the cumulative effect of initially applying the newstandard as an adjustment to the opening balance of retained earnings as of January 1, 2018, and will apply the new standard beginning with the most currentperiod presented to contracts that are not completed at the date of initial application. We expect the adoption adjustment to be less than $0.1 million, whichrepresents the net profit on certain contracts that were accounted for on a consignment basis prior to the new guidance but do not meet the consignmentcriteria under the new standard.We expect to utilize certain practical expedients allowed by the new standard. We intend to utilize the portfolio approach practical expedient to evaluatesales-related discounts on a portfolio basis to contracts with similar characteristics. We expect that the effect on our financial statements of applying theportfolio approach would not differ materially from applying the new standard to individual contracts.While our ability to adopt the standard using the modified retrospective method depends on system readiness and completing our analysis of informationnecessary to present required footnote disclosures in the consolidated financial statements, the implementation project remains on schedule. We havecompleted a diagnostic accounting assessment, including an analysis of a representative sample of contracts, to identify areas that will be most significantlyimpacted by implementation of the new standard. We have also completed training to educate contract managers of the technical aspects of the new standard.We have documented our assessments related to the standard as well as system and procedural changes. Based on our analysis, we do not expect the newstandard to have a significant impact on our financial condition, results of operations or cash flows. 27Table of ContentsLeases. In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 creates Topic 842, Leases, in the ASC and supersedes ASC 840, Leases.Entities that hold numerous equipment and real estate leases, in particular those with numerous operating leases, will be most affected by the new guidance.The lease accounting standard is effective for NN beginning January 1, 2019, with modified retrospective adoption required and early adoption permitted.The amendments in ASU 2016-02 are expected to impact balance sheets at many companies by adding lease-related assets and liabilities. This may affectcompliance with contractual agreements and loan covenants. We have performed inquiries within segment locations and compiled information on operatingand capital leases. We are currently evaluating the impacts of the lease accounting standard on our financial position, results of operations, and relateddisclosures. Upon adoption, we expect to recognize a right-of-use asset and a lease liability for nearly all of our leases that are currently classified asoperating leases and are therefore not recorded on the balance sheet. Note 14 in the Notes to Consolidated Financial Statements presents future minimumlease payments under leases that are currently accounted for as off-balance sheet operating leases. We are in the process of gathering information that willenable us to estimate the amounts of those assets and liabilities.Results of OperationsFactors That May Influence Results of OperationsThe following paragraphs describe factors that have influenced results of operations for 2017 that management believes are important to provide anunderstanding of the business and results of operations.Discontinued OperationsOn August 17, 2017, we completed the sale of our PBC Business to Tsubaki for a base purchase price of $375.0 million in cash, subject to certainadjustments. After working capital and other closing adjustments, the final cash purchase price was approximately $388.5 million. The PBC Businessincluded all our facilities that were engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty productsused primarily in the bearing industry. The PBC Business represented all of the PBC reportable segment disclosed in our historical financial statements. Thesale of the PBC Business furthers management’s long-term strategy to build a diversified industrial business with a comprehensive geographic footprint inattractive high-growth market segments.We recorded an after-tax gain on sale of $127.7 million, which is included in the “Income from discontinued operations, net of tax” line on the ConsolidatedStatements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2017.In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the operating results of PBC are classified as discontinuedoperations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the disposition of thebusiness, net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income. All Consolidated Statements of Operationsand Comprehensive Income presented have been revised to reflect this presentation. Accordingly, results of the PBC Business have been excluded fromcontinuing operations and segment results for all periods presented in the consolidated financial statements and the accompanying notes unless otherwisestated. Refer to Note 2 in the Notes to Consolidated Financial Statements for more information.Debt RefinancingOn April 3, 2017, we redeemed our 10.25% senior notes due 2020 (the “Senior Notes”) for $281.6 million resulting in a loss on debt extinguishment of$36.3 million, including $31.6 million cash paid for the call premium and a $4.7 million non-cash write-off of unamortized debt issuance costs. The SeniorNotes were redeemed and the call premium was paid with the proceeds of a new $300.0 million Incremental Term Loan that was added by amendment to ourexisting credit facility. The Incremental Term Loan matures on April 3, 2021, with payments of $3.0 million due quarterly. The amendment also reduced ourSenior Secured Revolver from $143.0 million to $100.0 million until such time as a leverage ratio covenant threshold has been met for four consecutivefiscal quarters. Upon satisfaction of the ratio threshold, our Senior Secured Revolver may be restored to $143.0 million. In connection with the amendment,we paid $6.5 million in debt issuance costs of which we recorded $4.0 million as a direct reduction to the carrying amount of the associated debt and$2.5 million as a loss on modification of the Senior Secured Term Loan. Debt issuance costs related to the amendment were paid with proceeds from theIncremental Term Loan. Also in connection with the amendment, we wrote off $0.8 million of unamortized debt issuance costs related to the modification ofthe Senior Secured Revolver. 28Table of ContentsOn November 24, 2017, we further amended our existing credit facility to reduce the interest rate by 50 basis points on the Senior Secured Term Loan and theIncremental Term Loan. The interest rate on the Senior Secured Term Loan decreased from the London Inter Bank Offering Rate (“LIBOR”) plus 4.25% toLIBOR plus 3.75%. The interest rate on the Incremental Term loan decreased from LIBOR plus 3.75% to LIBOR plus 3.25%. In connection with theamendment, we paid $2.1 million in debt issuance costs, which we recorded as a loss on modification of debt. Debt issuance costs related to the amendmentwere paid with cash on hand. Also in connection with the amendment, we wrote off $0.3 million of unamortized debt issuance costs related to themodification.Prior Periods’ Financial Statement RevisionFinancial statements for the years ended December 31, 2016 and 2015, as well as financial statements for the interim periods in 2017 and 2016, have beenrevised to correct for prior period errors primarily related to the (i) accounting for income and franchise taxes, (ii) accounting for the gain on the disposition ofthe PBC Business; (iii) accounting for indemnification assets related to a prior acquisition, (iv) accounting for foreign currency transactions, (v) accountingfor the translation of foreign subsidiary assets and joint ventures, and (vi) other immaterial errors, including errors that had previously been adjusted for as outof period corrections in the period identified. The impact of these error corrections and the resulting revision is reflected throughout this Annual Report on10-K.AcquisitionsOn October 2, 2017, we acquired 100% of the membership interests of Vandalia for approximately $38.7 million in cash, subject to certain post-closingadjustments. Vandalia is a supplier of precision manufactured medical instruments and orthopedic implants with locations in Ohio and Pennsylvania.Operating results of Vandalia after the acquisition date are reported in our Precision Engineered Products Group. We incurred approximately $0.3 million inacquisition related costs with respect to Vandalia during 2017.On October 19, 2015, we completed the PEP Acquisition for $619.6 million in cash. We financed the PEP Acquisition with new debt. On May 29, 2015, wecompleted the acquisition of Caprock for approximately $9.1 million in cash. Operating results of PEP and Caprock after their respective acquisition datesare reported in our Precision Engineered Products Group. We incurred, in the aggregate, approximately $11.7 million in acquisition related costs in 2015.Tax ReformOn December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Actreduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreignsubsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. As a result of the U.S. Tax Cuts and Jobs Act of2017, we recognized a $51.8 million net tax benefit in 2017.At December 31, 2017, we have made a reasonable estimate of the effects on the one-time transition tax and included this in our provisional amount. Theultimate impact could possibly differ materially from this provisional amount due to, among other things, additional analysis, changes in interpretations andassumptions we have made, and additional interpretive regulatory guidance that may be issued. In accordance with Staff Accounting Bulletin No. 118, wemay record additional provisional amounts during a measurement period not to extend beyond one year of the enactment date of the Act. The accounting isexpected to be complete when our 2017 U.S. corporate income tax return is filed in 2018, and any measurement period adjustments will be recognized asincome tax expense or benefit in 2018. 29Table of ContentsFinancial Data as a Percentage of Net SalesThe following table sets forth for the periods indicated selected financial data and the percentage of our net sales represented by each income statement lineitem presented. Year Ended December 31, 2017 2016 (1) 2015 (1) Net sales 100.0% 100.0% 100.0% Cost of sales (exclusive of depreciation and amortization) 74.1% 73.3% 79.1% Selling, general and administrative expense 12.0% 11.0% 8.6% Acquisition related costs excluded from selling, general andadministrative expense 0.1% 0.0% 2.9% Depreciation and amortization 8.5% 8.7% 8.1% Other operating expense (income) 0.1% 0.1% 0.0% Restructuring and integration expense 0.1% 1.0% 1.3% Income (loss) from operations 5.3% 5.9% 0.0% Interest expense 8.4% 10.7% 7.3% Loss on extinguishment of debt and write-off of unamortizeddebt issuance costs 6.8% 0.4% 4.7% Derivative payments on interest rate swap 0.0% 0.1% 0.0% Derivative loss (gain) on change in interest rate swap fair value 0.0% 0.4% 0.0% Other (income) expense, net -0.3% -0.5% 0.1% Loss from continuing operations before benefit for income taxes and share of net income from joint venture -9.5% -5.3% -12.1% Benefit for income taxes 12.8% 2.6% 4.9% Share of net income from joint venture 0.8% 1.0% 1.2% Income (loss) from continuing operations 4.1% -1.6% -6.0% Income from discontinued operations, net of tax 22.2% 2.8% 4.4% Net income (loss) 26.3% 1.1% -1.6% (1)Includes the reclassification of discontinued operations and the effects of prior periods’ revisions as disclosed in Note 2 and Note 21, respectively, ofthe Notes to Consolidated Financial Statements included in Item 8 of this Annual ReportSales ConcentrationDuring 2017, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 46% of our consolidated net sales.However, no customers individually accounted for more than 10% of our consolidated net sales for 2017. The loss of all or a substantial portion of sales tothese customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our income from operations due tothe operational leverage these customers provide. This could lead to sales volumes not being high enough to cover our current cost structure or to provideadequate operating cash flows or cause us to incur additional restructuring and/or impairment costs. 30Table of ContentsYear Ended December 31, 2017, Compared to the Year Ended December 31, 2016The year ended December 31, 2017, was significantly impacted by certain costs related to current and past acquisitions as well as refinancing our debtportfolio as well as the impact of the U.S. Tax Cuts and Jobs Act of 2017. The following table summarizes these costs. Loss on extinguishment of debt and write-off of unamortized debt issuance costs $42,087 Intangible asset amortization cost related to acquisition activities 23,460 Acquisition related costs 344 Restructuring and integration expense 386 Foreign exchange loss on inter-company charges 258 Estimated tax effect of identified items at an assumed rate of 37% (24,618) Impact of Tax Act (51,822) Total impact on income from continuing operations $(9,905) Overall Consolidated Results Year Ended December 31, 2017 2016 (1) $ Change Net sales $619,793 $584,954 $34,839 Acquisitions $6,682 Volume 25,944 Foreign exchange effects 1,956 Price/mix/inflation/other 257 Cost of sales (exclusive of depreciation and amortizationshown separately below) 459,080 428,843 30,237 Acquisitions $6,204 Volume 17,704 Foreign exchange effects 1,796 Cost reduction projects (3,150) Mix/inflation/other 7,683 Selling, general and administrative expense 74,112 64,144 9,968 Acquisition related costs excluded from selling, general andadministrative expense 344 — 344 Depreciation and amortization 52,406 50,721 1,685 Loss (gain) on disposal of assets 351 809 (458) Restructuring and integration expense 386 5,658 (5,272) Income from operations 33,114 34,779 (1,665) Interest expense 52,085 62,870 (10,785) Loss on extinguishment of debt and write-off of unamortizeddebt issuance costs 42,087 2,589 39,498 Derivative payments on interest rate swap — 609 (609) Derivative loss (gain) on change in interest rate swap fair value (101) 2,448 (2,549) Other (income) expense, net (2,084) (2,871) 787 Loss from continuing operations before benefit for incometaxes and share of net income from joint venture (58,873) (30,866) (28,007) Benefit for income taxes 79,026 15,438 63,588 Share of net income from joint venture 5,211 5,938 (727) Income (loss) from continuing operations 25,364 (9,490) 34,854 Income from discontinued operations, net of tax 137,688 16,153 121,535 Net income $163,052 $6,663 $156,389 (1)Includes the effects of discontinued operations and prior periods’ revisions as disclosed in Note 2 and Note 21, respectively, of the Notes toConsolidated Financial Statements included in Item 8 of this Annual Report 31Table of ContentsNet Sales. Net sales increased by $34.8 million, or 6.0%, in 2017 compared to 2016 primarily due to increased volumes. The higher volumes were primarilydue to demand improvements within the life sciences end market, the automotive end market, and the general industrial end market. Additionally, sales fromthe Vandalia business that we acquired on October 2, 2017, contributed $6.7 million to 2017 sales. The appreciation of the Chinese renminbi and the euro inrelation to the U.S. dollar in 2017 also increased net sales year over year. Overall, net sales increased from 2016 to 2017 by $24.1 million for the PrecisionEngineered Products Group and $10.7 million for the Autocam Precision Components Group.Cost of Sales. The increase in cost of sales was primarily due to the increase in demand and production volumes as well as changes in product mix andstart-up costs for certain new products. Cost of sales for Vandalia contributed $6.2 million to the 2017 increase, which includes a one-time $0.9 millioncharge for stating inventories at fair value in connection with purchase accounting. Increases were partially offset by cost savings from production processimprovement projects.Selling, General and Administrative Expense. The majority of the increase in selling, general and administrative expense during 2017 compared to 2016 wasdue to infrastructure and staffing costs incurred related to our strategic initiatives, including a global implementation of an enterprise resource planning(“ERP”) system.Acquisition Related Costs Excluded from Selling, General and Administrative. Acquisition related costs are primarily third party legal, accounting, valuationconsulting and investment banking advisory fees incurred directly related to the Vandalia acquisition in 2017.Depreciation and Amortization. The slight increase in depreciation and amortization in 2017 was consistent with additions to property, plant and equipment.The expected increase was partially offset by a decrease of $2.5 million related to amortization in 2016 of backlog and unfavorable leasehold intangiblesacquired with the PEP Acquisition. These intangibles became fully amortized in the first quarter of 2016. The Vandalia business contributed $0.6 million ofdepreciation and amortization expense to 2017. This additional depreciation and amortization includes the related step-ups of certain property, plant andequipment to fair value and the addition of intangible assets principally for customer relationships and trade names.Restructuring and Integration Expense. The decrease in restructuring and integration expense was primarily due to limited spending on site closure costs in2017 compared to $4.3 million of cost incurred in 2016 to close a plant in Wheeling, Illinois, in our Autocam Precision Components Group.Interest Expense. Interest expense decreased by $10.8 million in 2017 due to the redemption of the Senior Notes on April 3, 2017, with the proceeds of theIncremental Term Loan, which bears a lower interest rate based on LIBOR. Further interest savings resulted from the refinancing of the Senior Secured TermLoan and Senior Secured Revolver in the third quarter of 2016 and further refinancing of the Senior Secured Term Loan and the Incremental Term Loan onNovember 24, 2017. Year Ended December 31, 2017 2016 Interest on debt $48,870 $58,898 Interest rate swaps settlements — 1,393 Amortization of debt issuance costs 4,296 4,168 Capitalized interest (1) (1,081) (1,589) Total interest expense $52,085 $62,870 (1)Capitalized interest primarily relates to equipment construction efforts at various plants.Loss on Extinguishment of Debt and Write-off of Unamortized Debt Issuance Costs. We wrote off $39.6 million as a result of the extinguishment of the SeniorNotes and modification of our credit facility in April 2017. We wrote off an additional $2.4 million as a result of refinancing our credit facility to achieve alower interest rate in November 2017.Derivative Loss (Gain) on Change in Interest Rate Swap Fair Value. During the third quarter of 2016, we chose to discontinue hedge accounting. As a result,all amounts of accumulated other comprehensive income were reclassified to earnings.Benefit for Income Taxes. Our effective tax rate from continuing operations was 134.2% in 2017 compared to 50.0% for 2016. Note 11 in the Notes toConsolidated Financial Statements describes the components of income taxes for each period presented.Income from Continuing Operations. Benefit for income taxes increased by $63.6 million primarily as a result of the U.S. Tax Cuts and Jobs Act of 2017.Income from operations of $33.1 million for 2017 was more than offset by the loss on extinguishment of debt and write-off of unamortized debt issuance costand interest expense. Also, acquisition related costs accounted for a $0.3 million reduction in income from operations as compared to 2016. The$10.8 million reduction in interest expense also contributed to income from continuing operations. Significant components of the changes in income fromoperations and interest expense were presented in the preceding paragraphs. 32Table of ContentsIncome from Discontinued Operations, Net of Tax. The largest component of income from discontinued operations in 2017 was the $127.7 million gain onsale of our PBC Business, net of tax. Note 2 in the Notes to Consolidated Financial Statements provides details of the results of discontinued operations.Results by SegmentAUTOCAM PRECISION COMPONENTS GROUP Year Ended December 31, 2017 2016 $ Change Net sales $336,852 $326,138 $10,714 Volume $9,963 Foreign exchange effects 2,213 Price/mix/inflation/other (1,462) Income from operations $34,405 $29,490(1) $4,915 (1)Includes the effects of prior periods’ revisions as disclosed in Note 21 of the Notes to the Consolidated Financial Statements included in Item 8 of thisAnnual Report.Net sales increased in 2017 from 2016 due to industrial market demand improvements in the US and China and new automotive program launches in the US,China and Brazil. We are realizing the indirect benefits of our customers taking an increasing portion of market share. Also, as the Brazilian economyrebounds, demand for automotive products is increasing.The increase in net sales contributed to the increase in income from operations. Cost reduction projects resulted in savings in cost of sales of approximately$1.6 million in 2017 compared to 2016. Restructuring costs decreased by $4.0 million, primarily related to the closure of a plant in Wheeling, Illinois. Thesefactors that increased income from operations were slightly offset by start-up costs for new products and a $2.3 million increase in depreciation andamortization consistent with recent capital expenditure activity.PRECISION ENGINEERED PRODUCTS GROUP Year Ended December 31, 2017 2016 $ Change Net sales $282,941 $258,816 $24,125 Acquisitions $6,682 Volume 15,981 Foreign exchange effects (257) Price/mix/inflation/other 1,719 Income from operations $36,711 $33,900(1) $2,811 (1)Includes the effects of prior periods’ revisions as disclosed in Note 21 of the Notes to the Consolidated Financial Statements included in Item 8 of thisAnnual Report.Net sales increased in 2017 from 2016 primarily due to the overall improvement in demand across the life sciences end market and sales to new customerswithin the aerospace and defense market. In addition to overall life sciences market improvement, we have achieved increases in market share for certainmedical devices. We have also benefited from the introduction of new products for the aerospace and defense end market. Sales from the Vandalia businessacquired on October 2, 2017, contributed $6.7 million to 2017 sales. 33Table of ContentsThe increase in net sales contributed to the increase in income from operations. Cost of sales increased at a rate consistent with net sales. The increase fromadditional sales volumes was offset by a shift in product mix toward higher cost raw materials and new program setup costs for certain products sold into theaerospace and defense end market. Additionally, during the first quarter of 2016, we recognized $2.5 million of amortization expense related to backlog andunfavorable leasehold intangibles which was fully amortized in 2016 and therefore did not impact 2017. Likewise, $1.3 million of restructuring cost wasincurred in 2016 related to restructuring after the PEP Acquisition.Year Ended December 31, 2016, Compared to the Year Ended December 31, 2015The year ended December 31, 2016, was significantly impacted by certain costs related to past acquisitions and higher debt levels. The following tablesummarizes these costs. Intangible asset amortization cost related to acquisition activities $25,998 Restructuring and integration expense 5,658 Write-off of interest rate swap 3,785 Loss on extinguishment of debt and write-off of unamortized debt issuance costs 2,589 Foreign exchange loss on inter-company charges (1,310) Estimated tax effect of identified items at an assumed rate of 37% (13,586) Total impact on loss from continuing operations $23,134 34Table of ContentsOverall Consolidated Results Year Ended December, 31 2016(1) 2015(1) $ Change Net sales $584,954 $405,443 $179,511 Acquisitions $192,182 Sale of a plant (8,173) Volume 6,995 Foreign exchange effects (3,090) Price/mix/inflation/other (8,403) Cost of sales (exclusive of depreciation and amortizationshown separately below) 428,843 320,632 108,211 Acquisitions $119,157 Sale of a plant (6,375) Volume 2,109 Foreign exchange effects (2,427) Cost reduction projects (17,840) Mix/inflation/other 13,587 Selling, general and administrative expense 64,144 34,873 29,271 Acquisitions 15,154 Foreign exchange effects (291) Strategic initiatives and other 14,408 Acquisition related costs excluded from selling, general andadministrative expense — 11,682 (11,682) Depreciation and amortization 50,721 32,973 17,748 Loss (gain) on disposal of assets 809 (24) 833 Restructuring and integration expense 5,658 5,249 409 Income from operations 34,779 58 34,721 Interest expense 62,870 29,582 33,288 Loss on extinguishment of debt and write-off of unamortizeddebt issuance costs 2,589 19,173 (16,584) Derivative payments on interest rate swap 609 — 609 Derivative loss on change in interest rate swap fair value 2,448 — 2,448 Other (income) expense, net (2,871) 521 (3,392) Loss from continuing operations before benefit for incometaxes and share of net income from joint venture (30,866) (49,218) 18,352 Benefit for income taxes 15,438 19,842 (4,404) Share of net income from joint venture 5,938 5,001 937 Loss from continuing operations (9,490) (24,375) 14,885 Income from discontinued operations, net of tax 16,153 17,889 (1,736) Net income (loss) $6,663 $(6,486) $13,149 (1)Includes the reclassification of discontinued operations and the effects of prior periods’ revisions as disclosed in Note 2 and Note 21, respectively, ofthe Notes to Consolidated Financial Statements included in Item 8 of this Annual ReportNet Sales. Net sales increased during 2016 compared to 2015 primarily due to sales in our PEP business that was acquired in the fourth quarter of 2015.Partially offsetting these increases were both the sale of the Delta Rubber plant in November 2015 and the impact of devaluation of the euro and othercurrency denominated sales. Additionally, we had lower sales prices and changes in product mix, offset by increased volumes. The reduction in value relatesto global industrial weakness partially offset by growth in the markets we serve. 35Table of ContentsCost of Sales. The increase in cost of sales was primarily due to the addition of production costs from the acquired PEP business. Partially offsetting theseincreases was the impact of the devaluation of the euro and other currency denominated costs. Additionally, we experienced savings from cost reductionprojects that were partially offset by changes in product mix and volume increases.Selling, General and Administrative Expense. Approximately $15.0 million of the increase during 2016 was due to selling, general and administrative costsfrom the acquired PEP business. Additionally, administrative costs were incurred for infrastructure and staffing costs related to our strategic initiatives.Acquisition Related Costs Excluded from Selling, General and Administrative Expense. Acquisition related costs are third party legal, accounting, valuationconsulting and investment banking advisory fees incurred directly related to the PEP Acquisition and the Caprock acquisition in 2015.Depreciation and Amortization. The increase in 2016 was primarily due to $17.0 million of depreciation and amortization from the acquired PEP andCaprock businesses. This additional depreciation and amortization includes the related step-ups of certain property, plant and equipment to fair value and theaddition of intangible assets principally for customer relationships and trade names related to the purchase price allocation of the new acquisitions.Restructuring and Integration Expense. Restructuring and integration activity in 2016 primarily consisted of the closure of a plant in Wheeling, Illinois, inour Autocam Precision Components Group and integration of the PEP business that was acquired in the fourth quarter of 2015. Restructuring and integrationactivity in 2015 consisted of site closure and PEP integration as well as $1.8 million for an abandoned accounting and reporting system implementation.Interest Expense. Interest expense increased in 2016 due to new debt to finance the PEP Acquisition and the Caprock acquisition. Year Ended December 31, 2016 2015 Interest on debt $58,898 $29,203 Interest rate swaps settlements 1,393 — Amortization of debt issuance costs 4,168 1,754 Capitalized interest (1) (1,589) (1,375) Total interest expense $62,870 $29,582 (1)Capitalized interest primarily relates to equipment construction efforts at various plants.Loss on Extinguishment of Debt and Write-off of Unamortized Debt Issuance Costs. We wrote off debt issuance costs in 2016 and 2015 due to the debtrestructurings that occurred in each year.Derivative Loss on Change in Interest Rate Swap Fair Value. During the third quarter of 2016, we chose to discontinue hedge accounting. As a result, allamounts of accumulated other comprehensive income were reclassified to earnings.Benefit for Income Taxes. Our effective tax rate from continuing operations was 50.0% in 2016 compared to 40.3% for 2015. The effective tax rate in 2016was higher due to the proportionate share of income from foreign entities and the utilization of net operating losses in the U.S.Loss from Continuing Operations. The PEP and Caprock businesses acquired in 2015 contributed $35.4 million to income from operations in 2016 and had aloss from operations in 2015 of $4.5 million after the acquisition date of each business. This increase was offset by increased interest expense related to thedebt restructuring in 2016. Significant components of the changes in income from operations and interest expense were presented in the precedingparagraphs. 36Table of ContentsResults by SegmentAUTOCAM PRECISION COMPONENTS GROUP Year Ended December, 31 2016 2015 $ Change Net sales $326,138 $328,260 $(2,122) Volume $6,995 Foreign exchange effects (3,090) Price/mix/inflation/other (6,027) Income from operations (1) $29,490 $30,810 $(1,320) (1)Includes the effects of prior periods’ revisions as disclosed in Note 21 of the Notes to the Consolidated Financial Statements included in Item 8 of thisAnnual Report.The decrease in net sales in 2016 was due to the devaluation of the Brazilian real and changes to the product mix, partially offset by the increase in volume.The growth in volume was a result of increased demand for automotive products related to Corporate Average Fuel Economy (“CAFE”) efforts.The decrease in income from operations was due to restructuring charges in 2016 related to our Wheeling, Illinois, plant closure of $4.3 million. The decreasewas partially offset by increased income from higher sales volumes and continuous improvement initiatives.PRECISION ENGINEERED PRODUCTS GROUP Year Ended December, 31 2016 2015 $ Change Net sales $258,816 $77,183 $181,633 Acquisitions $192,182 Sale of a plant (8,173) Price/mix/inflation/other (2,376) Income from operations(1) $33,900 $(3,806) $37,706 (1)Includes the effects of prior periods’ revisions as disclosed in Note 21 of the Notes to the Consolidated Financial Statements included in Item 8 of thisAnnual Report.The increase in net sales and income from operations was due primarily to the acquisition of PEP and was partially offset by the sale of Delta Rubber in thefourth quarter of 2015.Changes in Financial Condition from December 31, 2016, to December 31, 2017From December 31, 2016, to December 31, 2017, total assets increased by $116.7 million. Cash proceeds of $387.6 million from the sale of the PBC Businesswas the primary contributor to the increase in assets. Income tax receivable increased by $41.5 million due to excess estimated tax payments primarily relatedto the sale of the PBC Business. The Vandalia acquisition contributed $40.5 million in assets in 2017. We also experienced increases in accounts receivableat the Autocam Precision Components Group and the Precision Engineered Products Group as sales grew. Days inventory outstanding increased slightly byapproximately four days due to normal inventory building activity as we prepare to fulfill customer orders. The increases in cash, income tax receivable,accounts receivable, and inventory were partially offset by the carrying value of current and noncurrent assets of discontinued operations as of December 31,2016, which were sold in the sale of the PBC Business and are therefore no longer a component of total assets as of December 31, 2017. Accordingly, currentassets decreased by $106.7 million and noncurrent assets decreased by $103.9 million 37Table of Contentscompared to December 31, 2016, due to the sale of the PBC Business. Also offsetting the increase in cash was a $16.6 million decrease in intangible assetsdue to normal amortization. Foreign exchange translation impacted total assets in comparing changes in account balances from December 31, 2016, toDecember 31, 2017, by increasing total assets by $8.6 million, of which $3.4 million related to current assets.From December 31, 2016 to December 31, 2017, total liabilities decreased by $60.0 million. Total liabilities decreased by the carrying value of current andnoncurrent liabilities of discontinued operations as of December 31, 2016, which were assumed by the acquirer in the sale of the PBC Business and aretherefore no longer a component of total liabilities as of December 31, 2017. Accordingly, current liabilities decreased by $45.2 million and noncurrentliabilities decreased by $12.6 million compared to December 31, 2016, due to the sale of the PBC Business. The decrease related to discontinued operationswas partially offset by increases in debt and accounts payable. Total debt increased by $9.6 million as a result of the redemption of our Senior Notes with theproceeds of a new $300.0 million Incremental Term Loan in April 2017, net of the effect of paying down the Senior Secured Revolver using cash generatedfrom operations and a portion of the cash proceeds from the sale of the PBC Business. We also experienced increases in accounts payable at the AutocamPrecision Components Group and the Precision Engineered Products Group as sales grow. Foreign exchange translation impacted total liabilities incomparing changes in account balances from December 31, 2016, to December 31, 2017, by increasing total liabilities by $2.4 million, of which $1.7 millionrelated to current liabilities.Working capital, which consists principally of cash, accounts receivable, inventories and other current assets offset by accounts payable, accrued payrollcosts, current maturities of long-term debt and other current liabilities, was $368.9 million as of December 31, 2017, compared to $142.1 million as ofDecember 31, 2016. The increase in working capital was due primarily to $387.6 million of cash proceeds from the sale of the PBC Business and increases inaccounts receivable and inventories, as discussed above, slightly offset by an increase in accounts payable, also discussed above. The repayment ofapproximately $33.2 million of principal outstanding on our Senior Secured Revolver in August 2017 resulted in a reduction of working capital. Theelimination of current assets of discontinued operations of $106.7 as of December 31, 2016, has the effect of decreasing working capital at December 31,2017, compared to December 31, 2016, because they were sold in the sale of the PBC Business and are no longer a component of our current assets. Theelimination of current liabilities of discontinued operations of $45.2 as of December 31, 2016, has the effect of increasing working capital at December 31,2017, compared to December 31, 2016, because they were assumed by the acquirer in the sale of the PBC Business and are no longer a component of ourcurrent liabilities.Cash used by operating activities was $59.8 million in 2017 compared with cash provided by operating activities of $69.4 million in 2016. The differencewas primarily due to the increase in income tax receivable as a result of excess estimated tax payments primarily related to the sale of the PBC Business and$31.6 million paid for the call premium on the redemption of the Senior Notes in April 2017. Cash provided by operating activities of $69.4 million in 2016increased from cash provided by operating activities of $33.3 million in 2015. The increase was primarily due to a full year of results of operations from late2015 acquisitions, offset by higher interest costs incurred on debt used to finance the acquisitions. Cash provided by operating activities for discontinuedoperations was $14.4 million, $17.3 million, and $9.7 million in 2017, 2016, and 2015, respectively.Cash provided by investing activities was $282.5 million in 2017 compared with cash used by investing activities of $41.2 million in 2016. The differencewas primarily due to proceeds from the sale of the PBC Business in August 2017. Cash used by investing activities of $41.2 million in 2016 decreased fromcash used by investing activities of $665.8 million in 2015. The decrease was due to no acquisitions made in 2016 while capital expenditures remainedwithin planned amounts. Cash used by investing activities for discontinued operations was $7.1 million, $11.8 million, and $15.0 million in 2017, 2016, and2015, respectively.Cash used by financing activities was $14.3 million in 2017 compared with cash used by financing activities of $24.5 million in 2016. The difference wasprimarily due to net proceeds of debt to fund the Senior Notes call premium in 2017. Cash used by financing activities of $24.5 million in 2016 decreasedfrom cash provided by financing activities of $611.6 million in 2015. The decrease was primarily related to obtaining financing for 2015 acquisitionscompared to a year of debt repayments in 2016.Liquidity and Capital ResourcesAggregate principal amounts outstanding under the Senior Secured Term Loan and Incremental Term Loan as of December 31, 2017, were $825.3 million(without regard to debt issuance costs). We had no amounts outstanding on the Senior Secured Revolver at that time. As of December 31, 2017, we couldborrow up to $97.6 million under the Senior Secured Revolver, subject to certain limitations. This amount of availability is net of $2.4 million of outstandingletters of credit at December 31, 2017, which are considered as usage of the Senior Secured Revolver.Collectively, our Senior Secured Term Loan, Incremental Term Loan, and Senior Secured Revolver is our credit facility. Our credit facility is subject tocertain financial covenants based on a consolidated net leverage ratio, as defined in the credit facility agreement. The financial covenants are effective whenwe have outstanding amounts drawn on our Senior Secured Revolver on the last day of any fiscal quarter. We had no outstanding balance on the SeniorSecured Revolver as of December 31, 2017, and were in compliance with all covenants under our credit facility. 38Table of ContentsThe Senior Secured Term Loan requires quarterly principal payments of $1.4 million through October 19, 2022, with the remaining principal amount due onthe maturity date. If one-month LIBOR is less than 0.75%, then we pay 4.50% per annum in interest. If one-month LIBOR exceeds 0.75%, then we pay thevariable one-month LIBOR rate plus an applicable margin of 3.75%. Based on the outstanding balance at December 31, 2017, annual interest paymentswould have been $28.4 million.The Incremental Term Loan requires quarterly principal payments of $3.0 million through April 3, 2021, with the remaining principal amount due on thematurity date. The Incremental Term Loan bears interest at the variable one-month LIBOR rate plus an applicable margin of 3.25%. Based on the outstandingbalance at December 31, 2017, annual interest payments would have been $14 million.The Senior Secured Revolver bears interest at a rate of one-month LIBOR plus an applicable margin of 3.50%. We had no outstanding balance atDecember 31, 2017. We pay a quarterly commitment fee at an annual rate of 0.5% on the Senior Secured Revolver for unused capacity.The Senior Notes were paid in full on April 3, 2017, with proceeds from the Incremental Term Loan. The Senior Notes bore interest at 10.25% payable semi-annually in arrears on May 1 and November 1 of each year. Upon redemption of the Senior Notes, we paid interest of $10.8 million for the periodNovember 1, 2016 through April 3, 2017.We believe that funds generated from our consolidated continuing operations and existing cash will provide sufficient cash flow to service the required debtand interest payments under our existing credit facility. The absence of cash flows from discontinued operations is not expected to significantly affect ourability to service our debt.Our arrangements with customers typically provide that payments are due within 30 to 60 days following the date of shipment. We invoice and receivepayment from many of our customers in euros as well as other currencies. Additionally, we are party to various third party and intercompany loans, payablesand receivables denominated in currencies other than the U.S. dollar. As a result of these sales, loans, payables and receivables, our foreign exchangetransaction and translation risk has increased. Various strategies to manage this risk are available to management, including producing and selling in localcurrencies and hedging programs. As of December 31, 2017, no currency hedges were in place. In addition, a strengthening of the U.S. dollar and/or euroagainst foreign currencies could impair our ability to compete with international competitors for foreign as well as domestic sales.For the next twelve months, we expect capital expenditures to remain relatively consistent, the majority of which relate to new or expanded business orcontinuous improvement programs. We believe that funds generated from continuing operations and borrowings from the credit facility will be sufficient tofinance capital expenditures and working capital needs through this period. The absence of cash flows from discontinued operations is not expected tosignificantly affect our ability to finance capital expenditures or working capital needs. We base these assertions on current availability for borrowing of upto $97.6 million, existing cash of $224.4 million and forecasted positive cash flow from continuing operations for the next twelve months. The table belowsets forth our contractual obligations and commercial commitments as of December 31, 2017: Payments Due by Period Certain Contractual Obligations Total Less than 1 year 1-3 years 3-5 years After 5 years Long-term debt including current portion $828,565 $17,283 $35,720 $775,562 $— Expected interest payments (1) 170,964 42,092 81,582 47,290 — Operating leases 77,129 8,616 18,246 14,192 36,075 Transition tax on deferred foreign income 6,776 1,183 1,598 3,995 — Capital leases 4,559 2,790 1,337 432 — Total contractual cash obligations $1,087,993 $71,964 $138,483 $841,471 $36,075 (1)Substantially all of our debt is based on one-month LIBOR which is a variable rate. Amounts in this table are based on the rate in effect as ofDecember 31, 2017.We have approximately $5.7 million in unrecognized tax benefits and related penalties and interest accrued within the liabilities section of our balancesheet. 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 excludedfrom the table above. (See Note 11 of the Notes to Consolidated Financial Statements). 39Table of ContentsFunctional CurrenciesWe currently have operations in Brazil, China, France, Mexico, and Poland. The following table presents the functional currency of each of our foreignfacilities. Location Functional CurrencyBrazil RealChina RenminbiFrance EuroMexico PesoPoland ZlotySeasonality and Fluctuation in Quarterly ResultsGeneral economic conditions impact our business and financial results, and certain of our businesses experience seasonal and other trends related to theindustries and end markets that they serve. For example, European sales are often weaker in the summer months as customers slow production, medical devicesales are often stronger in the fourth calendar quarter, and sales to original equipment manufacturers are often stronger immediately preceding and followingthe launch of new products. However, as a whole, we are not materially impacted by seasonality.Off-Balance Sheet ArrangementsWe 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 financialcondition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 7A.Quantitative and Qualitative Disclosures About Market RiskWe are exposed to changes in financial market conditions in the normal course of business due to use of certain financial instruments as well as transactingbusiness in various foreign currencies. To mitigate the exposure to these market risks, we have established policies, procedures and internal processesgoverning the management of financial market risks. We are exposed to changes in interest rates primarily as a result of borrowing activities.At December 31, 2017, we had $534.3 million of principal outstanding under the variable rate Senior Secured Term Loan, without regard to debt issuancecosts. At December 31, 2017, a one-percent increase in the interest rate charged on outstanding variable rate borrowings under the Senior Secured Term Loanwould result in interest expense increasing annually by approximately $5.3 million.At December 31, 2017, we had $291.0 million of principal outstanding under the Incremental Term Loan, without regard to debt issuance costs. AtDecember 31, 2017, a one-percent increase in the interest rate charged on outstanding variable rate borrowings under the Incremental Term Loan would resultin interest expense increasing annually by approximately $2.9 million.At December 31, 2017, we did not have any debt outstanding under the Senior Secured Revolver.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 toexchange the difference between fixed and variable interest amounts. The nature and amount of borrowings may vary as a result of future businessrequirements, market conditions and other factors.Translation of our operating cash flows denominated in foreign currencies is impacted by changes in foreign exchange rates. We participate in various thirdparty and intercompany loans, payables and receivables denominated in currencies other than the U.S. dollar. To help reduce exposure to foreign currencyfluctuation, we have incurred debt in euros in the past. From time to time, we may use foreign currency hedges to hedge currency exposures when theseexposures meet certain discretionary levels. We did not hold a position in any foreign currency hedging instruments as of December 31, 2017. 40Table of ContentsItem 8.Financial Statements and Supplementary DataIndex to Financial Statements Page Report of Independent Registered Public Accounting Firm 42 Consolidated Statements of Operations and Comprehensive Income (Loss) 44 Consolidated Balance Sheets 45 Consolidated Statements of Changes in Stockholders’ Equity 46 Consolidated Statements of Cash Flows 47 Notes to Consolidated Financial Statements 48 41Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of NN, Inc.Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of NN, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the relatedconsolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in theperiod ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited theCompany’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, based on our audits and the report of other auditors with respect to the consolidated financial statements as of and for the year endedDecember 31, 2016, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all materialrespects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework(2013) issued by the COSO because the following material weaknesses in internal control over financial reporting existed as of that date. The Company (i)did not maintain an effective control environment due to a lack of a sufficient complement of personnel with an appropriate level of knowledge, experienceand training commensurate with the Company’s financial reporting requirements and (ii) did not maintain effective controls over information andcommunication as it relates to the accounting for income taxes as management did not implement and reinforce an adequate process for communication andinformation sharing necessary to support the functioning of internal control between the tax group and the corporate accounting group. These materialweaknesses contributed to the following additional material weaknesses, as the Company did not design and maintain effective internal control over (iii) theaccounting for business combinations, including (a) allocating goodwill to its international businesses and (b) deferred income taxes recorded in connectionwith business combinations, and (iv) the accounting for income taxes.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referredto above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. We considered these materialweaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2017 consolidated financial statements andour opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidatedfinancial statements.We did not audit the financial statements of Wuxi Weifu Autocam Precision Machinery Co., Ltd., a 49% equity investment of the Company, as of and for theyear ended December 31, 2016, which is reflected in the consolidated financial statements of the Company as an investment in joint venture of $36,008,000as of December 31, 2016, and share of net income from joint venture of $6,427,000 for the year ended December 31, 2016. Those statements were audited byother auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Wuxi WeifuAutocam Precision Machinery Co., Ltd.as of and for the year ended December 31, 2016, is based solely on the report of the other auditors.Basis for OpinionsThe Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting andfor its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is toexpress opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits.We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB. 42Table of ContentsWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects.Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basisfor our opinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPAtlanta, GeorgiaApril 2, 2018We have served as the Company’s auditor since 2003. 43Table of ContentsNN, Inc.Consolidated Statements of Operations and Comprehensive Income (Loss)Years Ended December 31, 2017, 2016 and 2015Amounts in thousands of dollars, except per share data 2017 2016 2015 Net sales $619,793 $584,954 $405,443 Cost of sales (exclusive of depreciation and amortization shown separately below) 459,080 428,843 320,632 Selling, general and administrative expense 74,112 64,144 34,873 Acquisition related costs excluded from selling, general and administrative expense 344 — 11,682 Depreciation and amortization 52,406 50,721 32,973 Other operating expense (income) 351 809 (24) Restructuring and integration expense 386 5,658 5,249 Income from operations 33,114 34,779 58 Interest expense 52,085 62,870 29,582 Loss on extinguishment of debt and write-off of unamortized debt issuance costs 42,087 2,589 19,173 Derivative payments on interest rate swap — 609 — Derivative loss (gain) on change in interest rate swap fair value (101) 2,448 — Other (income) expense, net (2,084) (2,871) 521 Loss from continuing operations before benefit for income taxes and share of net income from joint venture (58,873) (30,866) (49,218) Benefit for income taxes 79,026 15,438 19,842 Share of net income from joint venture 5,211 5,938 5,001 Income (loss) from continuing operations 25,364 (9,490) (24,375) Income from discontinued operations, net of tax (Note 2) 137,688 16,153 17,889 Net income (loss) $163,052 $6,663 $(6,486) Other comprehensive income (loss): Change in fair value of interest rate swap $— $1,910 $(1,637) Reclassification adjustment for discontinued operations (9,243) — — Foreign currency translation gain (loss) 22,094 (10,623) (24,903) Other comprehensive income (loss): $12,851 $(8,713) $(26,540) Comprehensive income (loss) $175,903 $(2,050) $(33,026) Basic net income (loss) per share: Income (loss) from continuing operations per share $0.92 $(0.35) $(1.15) Income from discontinued operations per share 5.02 0.60 0.84 Net income (loss) per share $5.94 $0.25 $(0.31) Weighted average shares outstanding 27,433 27,016 21,181 Diluted net income (loss) per share: Income (loss) from continuing operations per share $0.91 $(0.35) $(1.15) Income from discontinued operations per share 4.96 0.60 0.84 Net income (loss) per share $5.87 $0.25 $(0.31) Weighted average shares outstanding 27,755 27,016 21,181 Cash dividends per common share $0.28 $0.28 $0.28 See accompanying Notes to Consolidated Financial Statements. 44Table of ContentsNN, Inc.Consolidated Balance SheetsDecember 31, 2017 and 2016Amounts in thousands of dollars, except share data December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $224,446 $6,271 Accounts receivable, net 108,446 93,433 Inventories 82,617 67,137 Income tax receivable 43,253 1,741 Current assets of discontinued operations — 106,717 Other current assets 18,518 7,029 Total current assets 477,280 282,328 Property, plant and equipment, net 259,280 230,093 Goodwill 454,612 443,529 Intangible assets, net 237,702 254,263 Investment in joint venture 39,822 36,008 Non-current assets of discontinued operations — 103,940 Other non-current assets 6,307 8,113 Total assets $1,475,003 $1,358,274 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $52,990 $44,690 Accrued salaries, wages and benefits 21,145 17,226 Current maturities of long-term debt 17,283 12,751 Current liabilities of discontinued operations — 45,249 Other current liabilities 17,003 20,325 Total current liabilities 108,421 140,241 Deferred tax liabilities 71,564 96,018 Non-current income tax payable 5,593 — Long-term debt, net of current portion 790,805 785,713 Non-current liabilities of discontinued operations — 12,611 Other non-current liabilities 12,516 14,300 Total liabilities 988,899 1,048,883 Commitments and contingencies (Note 14) Stockholders’ equity: Common stock - $0.01 par value, authorized 45,000 shares, issued and outstanding 27,572 in 2017 and 27,249 in 2016 275 272 Additional paid-in capital 292,494 284,508 Retained earnings 211,080 55,175 Accumulated other comprehensive income (loss) (17,745) (30,596) Non-controlling interest — 32 Total stockholders’ equity 486,104 309,391 Total liabilities and stockholders’ equity $1,475,003 $1,358,274 See accompanying Notes to Consolidated Financial Statements. 45Table of ContentsNN, Inc.Consolidated Statements of Changes in Stockholders’ EquityYears Ended December 31, 2017, 2016 and 2015Amounts in thousands of dollars and shares Common Stock Accumulated Number Additional other Non- of Par paid in Retained comprehensive controlling shares value capital earnings income (loss) interest Total Balance, December 31, 2014 18,983 $190 $99,095 $69,015 $4,657 $32 $172,989 Net loss — — — (6,486) — — (6,486) Dividends declared — — — (6,433) — — (6,433) Share-based compensation expense 115 1 4,038 — — — 4,039 Shares issued for option exercises 179 2 2,039 — — — 2,041 Shares issued in public offering 7,590 76 172,976 — — — 173,052 Restricted shares forgiven for taxes (18) — (231) — — — (231) Foreign currency translation loss — — — — (24,903) — (24,903) Change in fair value of interest rate swap — — — — (1,637) — (1,637) Balance, December 31, 2015 26,849 $269 $277,917 $56,096 $(21,883) $32 $312,431 Net income — — — 6,663 — — 6,663 Dividends declared — — — (7,584) — — (7,584) Share-based compensation expense 142 — 3,935 — — — 3,935 Shares issued for option exercises 270 3 2,829 — — — 2,832 Restricted shares forgiven for taxes and forfeited (12) — (173) — — — (173) Foreign currency translation loss — — — — (10,623) — (10,623) Change in fair value of interest rate swap — — — — 1,910 — 1,910 Balance, December 31, 2016 27,249 $272 $284,508 $55,175 $(30,596) $32 $309,391 Net income — — — 163,052 — — 163,052 Dividends declared — — — (7,887) — — (7,887) Share-based compensation expense 85 1 5,495 — — — 5,496 Shares issued for option exercises 263 2 3,108 — — — 3,110 Sale of PBC Business (Note 2) — — — — (9,243) (32) (9,275) Restricted shares forgiven for taxes and forfeited (25) — (617) — — — (617) Foreign currency translation gain (loss) — — — — 22,094 — 22,094 Adoption of new accounting standard (Note 1) — — — 740 — — 740 Balance, December 31, 2017 27,572 $275 $292,494 $211,080 $(17,745) $— $486,104 See accompanying Notes to Consolidated Financial Statements. 46Table of ContentsNN, Inc.Consolidated Statements of Cash FlowsYears Ended December 31, 2017, 2016 and 2015Amounts in thousands of dollars 2017 2016 2015 Cash flows from operating activities: Net income (loss) $163,052 $6,663 $(6,486) Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation and amortization of continuing operations 52,406 50,721 32,973 Depreciation and amortization of discontinued operations 7,722 11,852 11,496 Amortization of debt issuance costs 4,296 4,168 1,754 Write-off of debt issuance costs 10,502 2,589 19,173 Total derivative mark-to-market loss (gain), net of cash settlements (1,483) 2,563 — Allowance for doubtful accounts 699 142 745 Share of net income from joint venture, net of cash dividends received (1,284) (2,232) (3,672) Loss (gain) on disposals of property, plant and equipment (54) 288 (687) Gain on disposal of discontinued operations, net of tax and cost to sell (133,665) — — Compensation expense from issuance of share-based awards 4,730 3,935 4,039 Deferred income taxes (23,195) (15,526) (19,143) Other (545) (122) — Changes in operating assets and liabilities: Accounts receivable (11,374) (18,505) (2,492) Inventories (10,278) 4,377 (1,843) Other current assets (1,389) (522) (79) Other non-current assets (3) 2,381 (559) Accounts payable 4,118 7,633 (7,963) Income taxes payable (receivable) (124,389) (217) 2,631 Other liabilities 316 9,164 3,441 Net cash provided by (used by) operating activities (59,818) 69,352 33,328 Cash flows from investing activities: Acquisition of property, plant and equipment (43,722) (43,820) (38,553) Proceeds from measurement period adjustments to previous acquisition — 1,635 — Proceeds from disposals of property, plant and equipment 646 839 2,995 Short term investment (8,000) — — Proceeds from sale of business, net of cash sold 371,436 — — Cash paid to acquire businesses, net of cash received (38,434) — (628,281) Capital contributions to joint venture — — (1,999) Proceeds from insurance claim 545 122 — Net cash provided by (used by) investing activities 282,471 (41,224) (665,838) Cash flows from financing activities: Debt issue costs paid (8,650) (3,952) (35,189) Dividends paid (7,695) (7,584) (6,433) Proceeds from long-term debt 322,000 44,000 885,000 Repayment of long-term debt (314,313) (55,000) (401,438) Proceeds from (repayments of) short-term debt, net (4,211) (456) (84) Proceeds from shares issued — — 173,052 Proceeds from exercise of stock options 3,110 2,832 2,041 Shares withheld to satisfy income tax witholding (617) (173) (231) Principal payments on capital leases (3,875) (4,148) (5,098) Net cash provided by (used by) financing activities (14,251) (24,481) 611,620 Effect of exchange rate changes on cash flows 1,639 (4,329) (1,340) Net change in cash and cash equivalents 210,041 (682) (22,230) Cash and cash equivalents at beginning of period (1) 14,405 15,087 37,317 Cash and cash equivalents at end of period (1) $224,446 $14,405 $15,087 Supplemental schedule of non-cash operating, investing and financing activities: Dividends accrued for performance share units $192 $— $— Property, plant and equipment acquired with capital leases $1,436 $— $— Restructuring charges in other current and non-current liabilities $222 $3,238 $2,959 Supplemental disclosures: Cash paid for interest $52,083 $59,158 $20,146 Cash paid for income taxes $72,294 $889 $6,377 (1)Cash and cash equivalents includes $8.1 million, $3.7 million, and $9.1 million of cash and cash equivalents that was included in current assets ofdiscontinued operations as of December 31, 2016, 2015, and 2014, respectively.See accompanying Notes to Consolidated Financial Statements. 47Table of ContentsNN, Inc.Notes to Consolidated Financial StatementsDecember 31, 2017, 2016 and 2015Amounts in thousands of dollars and shares, except per share dataNote 1. Significant Accounting PoliciesNature of BusinessNN, Inc. is a global diversified industrial company that combines advanced engineering and production capabilities with in-depth materials science expertiseto design and manufacture high-precision components and assemblies for the medical, aerospace and defense, electrical, automotive and general industrialmarkets. As used in this Annual Report on Form 10-K, the terms “NN,” the “Company,” “we,” “our,” or “us” refer to NN, Inc., and its subsidiaries. We havehistorically reported results of operations in three reportable segments: the Precision Bearing Components Group (“PBC”), the Precision Engineered ProductsGroup (“PEP”), and the Autocam Precision Components Group (“APC”). On August 17, 2017, we completed the sale of our global precision bearingcomponents business (the “PBC Business”). Note 2 in these Notes to Consolidated Financial Statements provides further information on the sale of the PBCBusiness. We have 44 facilities in North America, Europe, South America and China. On January 2, 2018, we announced plans to implement a new enterpriseand management structure designed to accelerate growth and align businesses. See Note 22 for discussion of the announcement.Basis of PresentationThe accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“U.S.GAAP”). Certain prior period amounts have been reclassified to conform to the current year’s presentation. Historical periods presented reflect discontinuedoperations (see Note 2). Historical periods also reflect revisions related to prior period misstatements (see Prior Periods’ Financial Statement Revision)identified in the current year (see Note 21). In management’s opinion, the accompanying consolidated financial statements reflect all adjustments necessaryto fairly present our results of operations, financial position, and cash flows for the periods presented. Except for per share data or as otherwise indicated, alldollar amounts presented in the tables in these Notes to Consolidated Financial Statements are in thousands of U.S. dollars.Principles of ConsolidationOur consolidated financial statements include the accounts of NN, Inc. and its wholly owned subsidiaries. We own a 49% interest in a joint venture which weaccount for using the equity method (see Note 10). All intercompany transactions and balances have been eliminated in consolidation.Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reportedamounts of certain assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual resultscould differ from those estimates.Prior Periods’ Financial Statement RevisionIn connection with the preparation of our consolidated financial statements for the year ended December 31, 2017, and the preparation of our interimfinancial statements, we identified various misstatements in our previously issued 2016 and 2015 annual financial statements and interim periods in 2016and 2017. These prior period errors relate primarily to the (i) accounting for income and franchise taxes, (ii) accounting for the gain on the disposition of PBCBusiness, (iii) accounting for indemnification assets related to a prior acquisition, (iv) accounting for foreign currency transactions, (v) accounting for thetranslation of foreign subsidiary assets and joint venture, and (vi) other immaterial errors, including errors that had previously been adjusted for as out ofperiod corrections in the period identified. 48Table of ContentsWe have assessed the materiality of the misstatements on the 2016 and 2015 financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”)Topic 1.M, Materiality, codified in ASC Topic 250, Accounting Changes and Error Corrections, (“ASC 250”) and concluded that the misstatements werenot material to any prior annual or interim periods. In accordance with ASC 250 (SAB Topic 1.N, Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements), we have corrected for these misstatements, including the previously recorded out ofperiod adjustments, for all periods presented by revising the accompanying consolidated financial statements.The accompanying notes to the consolidated financial statements reflect the impact of this revision. We have also reflected the impact of the revision in theapplicable unaudited quarterly financial results. Refer to Note 20 and 21 for reconciliations between as originally reported and as revised annual andquarterly amounts, respectively.Accounting Standards Recently AdoptedStock Compensation. In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard changes how companiesaccount for certain aspects of share-based payments to employees. Entities must recognize the income tax effects of awards in the statement of operationswhen the awards vest or are settled (i.e., additional paid-in capital pools were eliminated). The guidance changed regarding employers’ accounting for anemployee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures. The guidance was effective for publicbusiness entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. As of January 1, 2017, we adopted ASU2016-09. Upon adoption, we reclassified $0.7 million in historical tax benefits from deferred taxes to retained earnings. We recognize excess tax benefits inincome tax expense prospectively beginning in 2017. Excess tax benefits are presented in cash flows from operating activities in the statement of cash flowsprospectively beginning in 2017. Tax payments in respect of shares withheld for taxes are classified in cash flows from financing activities in the statement ofcash flows retrospectively for all periods presented. Beginning in 2017, the calculation of diluted net income (loss) per share now excludes tax benefits thatwould have generated more dilutive shares. The effects of the adoption were not material to the financial statements.Inventory. In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, that simplifies the subsequentmeasurement of inventory by using only the lower of cost or net realizable value. We adopted ASU 2015-11 on January 1, 2017. The adoption of ASU2015-11 did not have a material impact on our consolidated financial statements.Tax Reform Estimates. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to addressthe application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail tocomplete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (“U.S. Tax Cuts and Jobs Act of 2017”). In accordance with SAB 118, wehave recorded $6.8 million of income tax expense in connection with the one-time transition tax related to the inclusion of deferred foreign earnings in U.S.taxable income. We have made a reasonable estimate of the effects of this foreign inclusion in our U.S. taxable income for the year ended December 31, 2017,and remeasurement of our deferred tax balances as of December 31, 2017, based on our interpretation of the computations and intent of Congress as definedin the U.S. Tax Cuts and Jobs Act of 2017. We do not expect any additional material adjustments; however, since the U.S. Tax Cuts and Jobs Act of 2017 waspassed late in the fourth quarter of fiscal 2017 and ongoing guidance and accounting interpretation is expected over the next several months, it is reasonablypossible that additional adjustments will be required during the one-year measurement period.Accounting Standards Not Yet AdoptedRevenue Recognition. In May 2014, the FASB issued a new standard that provides a single, comprehensive revenue recognition model for all contracts withcustomers and supersedes most of the existing revenue recognition requirements. Under the new guidance, revenue is recognized when a customer obtainscontrol of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Thestandard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Factorsaffecting implementation include, but are not limited to, identifying all the contracts that exist and whether incidental obligations or marketing incentivesincluded in some of those contracts are performance obligations. Additionally, we evaluated the transfer of control of certain consignment and toolingcontracts which may impact the timing of revenue recognition under the new standard.The standard is effective for us beginning January 1, 2018, with full retrospective or modified retrospective adoption permitted. We will adopt the standardutilizing the modified retrospective transition method. Under this transition method, we will recognize the cumulative effect of initially applying the newstandard as an adjustment to the opening balance of retained earnings as of January 1, 2018, and will apply the new standard beginning with the most currentperiod presented to contracts that are not completed at the date of initial application. We expect the adoption adjustment to be less than $0.1 million, whichrepresents the net profit on certain contracts that were accounted for on a consignment basis prior to the new guidance but do not meet the consignmentcriteria under the new standard. 49Table of ContentsWe expect to utilize certain practical expedients allowed by the new standard. We intend to utilize the portfolio approach practical expedient to evaluatesales-related discounts on a portfolio basis to contracts with similar characteristics. We expect that the effect on our financial statements of applying theportfolio approach would not differ materially from applying the new standard to individual contracts.Leases. In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 creates Topic 842, Leases, in the ASC and supersedes ASC 840, Leases.Entities that hold numerous equipment and real estate leases, in particular those with numerous operating leases, will be most affected by the new guidance.The lease accounting standard is effective for NN beginning January 1, 2019, with modified retrospective adoption required and early adoption permitted.The amendments in ASU 2016-02 are expected to impact balance sheets at many companies by adding lease-related assets and liabilities. This may affectcompliance with contractual agreements and loan covenants. We have performed inquiries within segment locations and compiled information on operatingand capital leases. We are currently evaluating the impacts of the lease accounting standard on our financial position, results of operations, and relateddisclosures. Upon adoption, we expect to recognize a right-of-use asset and a lease liability for nearly all of our leases that are currently classified asoperating leases and are therefore not recorded on the balance sheet. We are in the process of gathering information that will enable us to estimate theamounts of those assets and liabilities. Note 14 presents future minimum lease payments under leases that are currently accounted for as off-balance sheetoperating leases.Statement of Cash Flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receiptsand Cash Payments (a consensus of the Emerging Issues Task Force). This guidance provides clarification on how certain cash receipts and cash paymentsare presented and classified on the statement of cash flows, with focus on eight specific areas in which cash flows have, in practice, been presentedinconsistently. The guidance is effective for NN beginning January 1, 2018, and is required to be adopted using a retrospective approach if practicable, withearly adoption permitted.The new cash flow guidance states that cash payments for debt prepayment costs should be classified as cash outflows for financing activities. We paid$31.6 million for debt prepayment costs in 2017 as discussed in Note 12. These debt prepayment costs are classified as cash outflows from operatingactivities in 2017. Under the new guidance, these costs will be reclassified to cash outflows from financing activities.The new guidance also requires entities to make an accounting policy election regarding classification of distributions received from equity methodinvestees. Existing guidance does not currently address how an entity should determine which distributions represent returns on versus returns of investment.The lack of specific guidance has resulted in diversity in practice. The two allowable approaches are the “cumulative earnings” approach and the “nature ofthe distribution” approach, as defined by ASU 2016-15. Upon adoption of the new guidance on January 1, 2018, we will utilize the cumulative earningsapproach for classifying distributions received from our joint venture investment (see Note 10). This policy election will have an immaterial impact to ourconsolidated statements of cash flows.Goodwill. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwillimpairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e.,measure the charge based on the current Step 1 test). The standard is effective for us beginning with impairment tests performed on or after January 1, 2020,with early adoption permitted. We are currently evaluating the impact this new guidance is expected to have on our financial position or results of operationsand related disclosures.Effects of Tax Reform in Other Comprehensive Income. In February 2018, the FASB issued guidance related to the impacts of the U.S. Tax Cuts and Jobs Actof 2017. Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expensein the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income(“AOCI”) are adjusted, certain tax effects become stranded in AOCI. The FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, that permits reclassification of certain income taxeffects of the Act from AOCI to retained earnings. The guidance also requires certain disclosures about stranded tax effects. ASU 2018-02 is effective for us onJanuary 1, 2019, with early adoption in any period permitted. Entities may adopt the guidance using either at the beginning of the period of adoption orretrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act of 2017 isrecognized. We are in the process of evaluating adoption method and the effects of this new guidance on our financial statements. 50Table of ContentsDefinition of a Business. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, whichchanges the definition of a business. The new guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assetsacquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of assets and activities is not abusiness. If the threshold is not met, the entity evaluates whether the set meets the definition of a business. The new definition requires a business to includeat least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenuerecognition guidance. The new guidance is effective for us beginning on January 1, 2018. We will apply the new definition of a business prospectively toany transactions occurring in 2018 or later. The new guidance will have no effect on our historical financial statements.Cash and Cash EquivalentsCash and cash equivalents include cash and highly liquid investments with original maturities of three months or less.Fair Value MeasurementsFair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assetsor 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, eitherdirectly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs basedon the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based onthe lowest level input that is significant to the fair value measurement.Accounts Receivable and Allowance for Doubtful AccountsTrade accounts receivable are recorded at the invoiced amount upon recognition of a sale of goods when ownership and risk of loss is assumed by thecustomer. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Theallowances are based on the number of days an individual receivable is past the invoice due date and on regular credit evaluations of our customers. Inevaluating the credit worthiness of our customers, we consider numerous inputs including but not limited to the customers’ financial position, past paymenthistory, relevant industry trends, cash flows, management capability, historical loss experience and economic conditions and prospects. Allowances areestablished when customer accounts are at risk of being uncollectible. Accounts receivable are written off at the time a customer receivable is deemeduncollectible.InventoriesInventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs, which approximates the average cost method. Ourpolicy is to expense abnormal amounts of idle facility expense, freight, handling cost, and waste included in cost of products sold. In addition, we allocatefixed production overheads based on the normal production capacity of our facilities. Inventory valuations were developed using normalized productioncapacities for each of our manufacturing locations. The costs from excess capacity or under-utilization of fixed production overheads were expensed in theperiod incurred and are not included as a component of inventory.Inventories also include tools, molds and dies in progress that we are producing and will ultimately sell to our customers. These inventories are also carried atthe lower of cost or net realizable value.Property, Plant and EquipmentProperty, plant and equipment are stated at cost less accumulated depreciation. Assets to be disposed of are stated at the lower of depreciated cost or fairmarket value less estimated selling costs. Expenditures for maintenance and repairs are charged to expense as incurred. Major renewals and betterments arecapitalized. When a property item is retired, its cost and related accumulated depreciation are removed from the property accounts and any gain or loss isrecorded in the consolidated Statements of Operations and Comprehensive Income (Loss). We review the carrying values of long-lived assets for impairmentwhenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Property, plant and equipment also includestools, molds and dies used in manufacturing.Depreciation is calculated based on historical cost using the straight-line method over the estimated useful lives of the depreciable assets. Estimated usefullives for buildings generally range from 15 to 40 years. Estimated useful lives for machinery and equipment generally range from 3 to 12 years. We depreciateleasehold improvements and buildings under capital lease over the shorter of the leased asset’s useful life or the lease term. 51Table of ContentsGoodwill and Other Indefinite Lived Intangible AssetsGoodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests if a triggering event occurs. The impairment analysis isperformed at the reporting unit level. We have the option to make a qualitative assessment of whether it is more-likely-than-not that the fair value of areporting unit is less than its carrying amount before applying the two-step goodwill impairment test. If we conclude that it is more likely than not that thefair value of a reporting unit exceeds its carrying amount, then we do not need to perform the two-step impairment test. For the years ended, December 31,2017 and 2016, we chose not to perform the qualitative assessment but performed only the first step in the annual impairment test. The decision to perform aqualitative assessment or proceed to the two-step impairment test is an annual decision made by management. Based on the results of performing the first stepof the impairment test, the fair value of the reporting units exceeded the carrying value of the reporting units at December 31, 2017 and 2016.If the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying value, GAAP prescribes a two-step process fortesting 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 thereporting unit. We consider three main approaches to value (cost, market and income) the fair value of the reporting unit and market based multiples ofearning and sales methods obtained from a grouping of comparable publicly trading companies. We believe this methodology of valuation is consistent withhow market participants would value reporting units. The discount rate and market based multiples used are specifically developed for the unit testedregarding 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 goodwillwould 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 thecarrying value is greater than fair value then the potential for impairment of goodwill exists. The potential impairment is determined by allocating the fairvalue of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in abusiness combination. The fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognizedif 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 ofmanagement judgment and complexity. Actual results may differ from projections, and the differences may be material.Impairment of Long-Lived AssetsLong-lived tangible and intangible assets subject to amortization are tested for recoverability when changes in circumstances indicate the carrying value ofthese 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 orasset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible orintangible asset is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or assetgroup. If the asset is not recoverable the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaininguseful life. Assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose 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 inincome 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 atax benefit will not be realized. Provision has not been made for income taxes on unremitted earnings of foreign subsidiaries as these earnings are deemed tobe permanently reinvested. We recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties relatedto unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes.Revenue RecognitionWe recognize revenues based on the stated shipping terms with customers when these terms are satisfied and the risks of ownership are transferred to thecustomers. We have an inventory management program for certain customers whereby revenue is recognized when products are used by customers fromconsigned 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. 52Table of ContentsShare Based CompensationThe cost of stock options, restricted stock and performance share units are recognized as compensation expense over the vesting periods based on the grantdate fair value, net of expected forfeitures. We determine grant date fair value using the Black Scholes financial pricing model for our stock options and aMonte Carlo simulation for the performance share units because these awards are not traded in open markets. We account for restricted stock by recognizingcompensation expense ratably over the vesting period as specified in the award agreement. Compensation expense to be recognized is based on the closingstock price on the date of grant. Upon the adoption of ASU 2016-09 as of January 1, 2017, we recognize excess tax benefits in income tax expenseprospectively beginning in 2017. Excess tax benefits are presented in cash flows from operating activities in the statement of cash flows prospectivelybeginning in 2017. Tax payments in respect of shares withheld for taxes are classified in cash flows from financing activities in the statement of cash flowsretrospectively for all periods presented.Foreign Currency TranslationAssets and liabilities of our foreign subsidiaries are translated at current exchange rates. Revenue, costs and expenses are translated at average rates prevailingduring each reporting period. Translation adjustments arising from the translation of foreign subsidiary financial statements are reported as a component ofother comprehensive income and accumulated other comprehensive income (“AOCI”) within stockholders’ equity. Transactions denominated in foreigncurrencies, including intercompany transactions, are initially recorded at the current exchange rate at the date of the transaction. The balances are adjusted tothe current exchange rate as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or losses, excludingintercompany loan transactions, are expensed as incurred in either cost of products sold or selling, general and administrative expense in the ConsolidatedStatements of Operations and Comprehensive Income (Loss) and were immaterial to the years ended December 31, 2017, 2016 and 2015. Transaction gains orlosses on intercompany loan transactions are recognized as incurred in the “Other (income) expense, net” line in the Consolidated Statements of Operationsand Comprehensive Income (Loss).Net Income Per Common ShareBasic income per share reflects reported earnings divided by the weighted average number of common shares outstanding. Diluted income per share includesthe effect of dilutive stock options and the respective tax benefits, unless inclusion would not be dilutive.Business CombinationsWe allocate the total purchase price of tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the businesscombination date, with the excess purchase price recorded as goodwill. The purchase price allocation process requires us to use significant estimates andassumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and estimates we have made arereasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company. Ourassumptions and estimates are also partially based on valuation models that incorporate projections of expected future cash flows and operating plans and areinherently uncertain. Valuations are performed by management or third-party valuation specialists under management’s supervision. In determining the fairvalue of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: theincome approach (including discounted cash flows from relief from royalty and excess earnings model), the market approach, or the replacement costapproach.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 inrevenue 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 acquiredbrand will continue to benefit to the combined company’s product portfolio; and • cost of capital, risk-adjusted discount rates and income tax rates.Different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each typeof asset and liability. The valuations of property, plant and equipment, intangible assets, goodwill and deferred income tax liabilities depend heavily onassumptions. Subsequent assessment could result in future impairment charges. We refine these estimates over a measurement period not to exceed one yearto reflect new information obtained surrounding facts and circumstances existing at the acquisition date. 53Table of ContentsNote 2. Discontinued OperationsOn August 17, 2017, we completed the sale of our PBC Business to TSUBAKI NAKASHIMA, Co., Ltd. for a base purchase price of $375.0 million in cash,subject to certain adjustments. After working capital and other closing adjustments, the final cash purchase price was approximately $388.5 million. Wereceived cash proceeds at closing of $387.6 million and recorded a $0.8 million receivable at December 31, 2017, for the balance. The PBC Businessincluded all our facilities that were engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty productsused primarily in the bearing industry. The sale of the PBC Business furthers management’s long-term strategy to build a diversified industrial business witha comprehensive geographic footprint in attractive high-growth market segments. The PBC Business represented all of the PBC reportable segment disclosedin our historical financial statements. Under the terms of a transition services agreement, we are providing certain support services for twelve months from theclosing date of the sale.We recorded an after-tax gain on sale of $127.7 million, which is included in the “Income from discontinued operations, net of tax” line on the ConsolidatedStatements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2017. The gain includes the effects of reclassifying $9.3 millionin cumulative foreign currency translation gain from accumulated comprehensive income and eliminating the non-controlling interest attributable to thePBC Business as of August 17, 2017.In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the operating results of PBC are classified as discontinuedoperations. The presentation of discontinued operations includes revenues and expenses of the discontinued operations and gain on the disposition of thebusiness, net of tax, as one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss). The Consolidated Statements ofOperations and Comprehensive Income (Loss) for all periods presented have been revised to reflect this presentation. Accordingly, results of the PBCBusiness have been excluded from continuing operations and segment results for all periods presented in the consolidated financial statements and theaccompanying notes unless otherwise stated. The Consolidated Statement of Cash Flows include cash flows of the PBC Business in each line item unlessotherwise stated.The following table summarizes the major line items included in the results of operations of the discontinued operations. Year Ended December 31, 2017(1) 2016 2015 Net sales $168,287 $248,534 $261,837 Cost of products sold (exclusive of depreciation andamortization shown separately below) 130,555 192,994 205,361 Selling, general and administrative expense 11,818 16,992 17,468 Depreciation and amortization 7,722 11,852 11,496 (Gain) loss on disposal of assets — 27 — Restructuring and integration expense 429 4,366 2,019 Income from operations 17,763 22,303 25,493 Interest income (expense) (181) (284) (317) Interest and other income (expense) (84) 503 (654) Income from discontinued operations before gain on disposaland provision for income taxes 17,498 22,522 24,522 Provision for income taxes on discontinued operations (7,461) (6,369) (6,633) Income from discontinued operations before gain on disposal 10,037 16,153 17,889 Gain on disposal of discontinued operations 213,503 — — Provision for income taxes on gain on disposal (85,852) — — Income from discontinued operations, net of tax $137,688 $16,153 $17,889 (1)Includes the results of operations of the PBC Business from January 1 to August 17, 2017. 54Table of ContentsThe following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented. As of December 31, 2017 2016 Cash $— $8,134 Accounts receivable, net — 46,114 Inventories — 47,714 Other current assets — 4,755 Total current assets of discontinued operations — 106,717 Property, plant and equipment, net — 92,373 Goodwill — 8,909 Intangible assets, net — 1,718 Other non-current assets — 940 Total non-current assets of discontinued operations — 103,940 Total assets of discontinued operations $— $210,657 Accounts payable $— $31,014 Accrued salaries, wages and benefits — 9,234 Income taxes payable — 2,825 Other current liabilities — 2,176 Total current liabilities of discontinued operations — 45,249 Deferred tax liabilities — 4,173 Accrued post-employment benefits — 4,707 Other non-current liabilities — 3,731 Total non-current liabilities of discontinued operations — 12,611 Total liabilities of discontinued operations $— $57,860 The following table presents the significant noncash items and cash paid for capital expenditures of discontinued operations for each period presented. Year Ended December 31, 2017 2016 2015 Depreciation and amortization $7,722 $11,852 $11,496 Acquisition of property, plant and equipment $7,316 $11,926 $15,111 Note 3. AcquisitionsNN Life Sciences – Vandalia LLC, Formerly Known as DRT Medical, LLCOn October 2, 2017, we acquired 100% of the membership interests of DRT Medical, LLC, which we subsequently renamed NN Life Sciences – Vandalia,LLC (“Vandalia”) for approximately $38.7 million in cash, after preliminary working capital post-closing adjustments of $0.3 million. Vandalia is a supplierof precision manufactured medical instruments and orthopedic implants with locations in Ohio and Pennsylvania. Operating results of Vandalia after theacquisition date are included in our PEP segment. We accounted for the Vandalia acquisition using the acquisition method of accounting. The preliminaryallocation of the purchase price was determined by management with the assistance of third-party valuation specialists and was based on estimates of the fairvalue of assets acquired and liabilities assumed as of October 2, 2017. The purchase price allocation for the acquisition is preliminary and subject tocompletion of working capital adjustments. The following table summarizes the components of the preliminary purchase price allocation for the VandaliaAcquisition. 55Table of ContentsFair value of assets acquired and liabilities assumed As ofOctober 2,2017 Current assets $10,166 Property, plant and equipment 13,981 Intangible assets subject to amortization 6,900 Other non-current assets 29 Goodwill 9,452 Total assets acquired 40,528 Current liabilities 1,794 Total liabilities assumed 1,794 Net assets acquired $38,734 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 customerrelationships, and trade names. As of December 31, 2017, intangible assets in connection with Vandalia were $6.9 million.In connection with the Vandalia acquisition, we recorded goodwill, which represents the excess of the purchase price over the estimated fair value of tangibleand intangible assets acquired, net of liabilities assumed. As of December 31, 2017, goodwill in connection with Vandalia was approximately $9.5 million.The goodwill is attributed primarily to the assembled workforce. All 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, manufacturing sitesand related facilities including leasehold improvements were acquired. Property, plant and equipment has been valued using both the cost approach and themarket approach supported where available by observable market data which includes consideration of obsolescence. Intangible assets have been valuedusing the relief from royalty and multi-period excess earnings methods, both forms of the income approach supported by market data.We incurred approximately $0.3 million in acquisition related costs with respect to Vandalia during the year ended December 31, 2017. Transaction costswere expensed as incurred and are included in the “Acquisition related costs excluded from selling, general and administrative expense” line item in theConsolidated Statements of Operations and Comprehensive Income (Loss). As required by the acquisition method of accounting, acquired inventories wererecorded at their estimated fair value. Beginning October 2, 2017, our consolidated results of operations include the results of Vandalia. Since the date of theacquisition, sales revenue of $6.7 million and loss from continuing operations of $0.5 million has been included in our consolidated financial statements.Precision Engineered Products Holdings, Inc.We completed the acquisition (the “PEP Acquisition”) of Precision Engineered Products Holdings, Inc. (“PEP”) on October 19, 2015. During 2016, wefinalized all issues related to customary working capital adjustments, fixed assets and income taxes. The changes primarily arose from differences notedduring acquisition integration and finalizing return to provision adjustments. As a result, we adjusted the preliminary allocation of the purchase priceinitially recorded at the PEP Acquisition date to reflect these measurement period adjustments. 56Table of ContentsThe following table summarizes the final purchase price allocation for the PEP Acquisition. As ofDecember 31,2015 SubsequentAdjustmentsto fair value Final as ofSeptember 30,2016 Consideration: Cash paid $621,196 $— $621,196 Cash adjustment — (1,635) (1,635) Total consideration $621,196 $(1,635) $619,561 Fair value of assets acquired and liabilities assumedon October 19, 2015: Current assets $69,331 $452 $69,783 Property, plant and equipment 56,163 (962) 55,201 Intangible assets subject to amortization 240,490 — 240,490 Other non-current assets 1,500 — 1,500 Goodwill (1) 372,709 (1,805) 370,904 Total assets acquired 740,193 (2,315) 737,878 Current liabilities (2) 21,354 — 21,354 Non-current deferred tax liabilities (3) 95,435 (680) 94,755 Other non-current liabilities (4) 2,208 — 2,208 Total liabilities assumed 118,997 (680) 118,317 Net assets acquired $621,196 $(1,635) $619,561 (1)Goodwill includes $8.3 million of prior period revisions (Note 1 and Note 21).(2)Current liabilities include $0.2 million of prior period revisions (Note 1 and Note 21).(3)Non-current deferred tax liabilities include $7.9 million of prior period revisions (Note 1 and Note 21).(4)Other non-current liabilities include $0.2 million of prior period revisions (Note 1 and Note 21).Note 4. Segment InformationWe determined our reportable segments under the provisions of U.S. GAAP related to disclosures about segments of an enterprise. Our reportable segments arebased on differences in product lines.Our business has historically been aggregated into three reportable segments: PBC, APC, and PEP. See Note 2 for information regarding the sale of the PBCBusiness on August 17, 2017. The results of the PBC Business are classified as discontinued operations for all periods in the consolidated financialstatements and accompanying notes unless otherwise stated. Accordingly, results of the PBC Business are not included in the tabular presentation below.Within our APC segment, we manufacture highly engineered, difficult-to-manufacture precision metal components and subassemblies for the automotive andgeneral industrial end markets. Currently, we manufacture components for use in fuel delivery, electromechanical motor, steering and braking systems for theautomotive industry and highly engineered shafts, mechanical components, complex precision assembled and tested parts and fluid system components forthe heating, ventilation, and air conditioning and fluid power industries.Within our PEP segment, we combine materials science expertise with advanced engineering and production capabilities to design and manufacture a broadrange of high-precision metal and plastic components, assemblies, and finished devices for the medical and life sciences, electrical, automotive, generalindustrial and aerospace and defense end markets.Note 22 includes discussion of our announcement subsequent to December 31, 2017, to implement a new enterprise and management structure by organizingour business into three segments beginning in 2018. 57Table of ContentsThe following table presents results of continuing operations for each reportable segment. There were no significant inter-segment transactions during theperiods presented. AutocamPrecisionComponentsGroup PrecisionEngineeredProductsGroup CorporateandConsolidations Total Year Ended December 31, 2017 Net sales $336,852 $282,941 $— $619,793 Depreciation and amortization $24,491 $26,745 $1,170 $52,406 Income from operations $34,405 $36,711 $(38,002) $33,114 Interest expense (52,085) Other (39,902) Loss from continuing operations before benefit for income taxes and share of net income fromjoint venture $(58,873) Share of net income from joint venture $5,211 $5,211 Expenditures for long-lived assets $24,056 $5,443 $6,907 $36,406 Year Ended December 31, 2016 Net sales $326,138 $258,816 $— $584,954 Depreciation and amortization $22,189 $28,105 $427 $50,721 Income from operations $29,490 $33,900 $(28,611) $34,779 Interest expense (62,870) Other (2,775) Loss from continuing operations before benefit for income taxes and share of net income fromjoint venture $(30,866) Share of net income from joint venture $5,938 $5,938 Expenditures for long-lived assets $23,077 $5,352 $3,465 $31,894 Year Ended December 31, 2015 Net sales $328,260 $77,183 $— $405,443 Depreciation and amortization $21,472 $11,282 $219 $32,973 Income from operations $30,810 $(3,806) $(26,946) $58 Interest expense (29,582) Other (19,694) Loss from continuing operations before benefit for income taxes and share of net income fromjoint venture $(49,218) Share of net income from joint venture $5,001 $5,001 Expenditures for long-lived assets $21,341 $728 $1,373 $23,442 Total Assets as of December 31, 2017 2016 2015 Autocam Precision Components Group (1) $428,321 $412,692 $416,504 Precision Engineered Products Group 738,766 720,362 747,804 Corporate and Consolidations 307,916 225,220 224,029 Total $1,475,003 $1,358,274 $1,388,337 (1)Total assets of our APC segment include $39.8 million, $36.0 million, and $36.3 million as of December 31, 2017, 2016, and 2015, respectively,related to the investment in our 49% owned joint venture (Note 10).Acquisition related costs for the Vandalia acquisition in 2017 and the PEP and Caprock acquisitions in 2015 are reported under Corporate andConsolidations. These costs impacted income from operations at Corporate by $0.3 million and $10.9 million for the years ended December 31, 2017 and2015, respectively. We incurred no acquisition related costs in 2016. Beginning October 2, 2017, our PEP segment includes the results of the Vandaliaacquisition. During 2017 since the date of the Vandalia acquisition, net sales revenue of $6.7 million and loss from operations of $0.5 million (including$0.9 million for a one-time increase in cost of goods sold for inventory step-up) has been included in our PEP segment. Beginning October 20, 2015, our PEPsegment includes the results of the PEP Acquisition. Since the date of the PEP Acquisition, 2015 sales revenue of $40.7 million and net loss from operationsof $5.1 million (including the $4.3 million for the one-time increase in cost of goods sold for inventory step-up, and $5.2 million for the amortization ofbacklog intangible) has been included in our PEP segment. 58Table of ContentsThe following table summarizes sales to external customers and long-lived tangible assets by geographical region. Net Sales YearEnded December 31, Property, Plant, and Equipment, NetAs of December 31, 2017 2016 2015 2017 2016 United States $437,838 $407,917 $275,152 $173,269 $155,784 Europe $40,334 $36,481 $32,736 $25,288 $21,069 Asia 62,657 64,177 46,092 26,078 19,936 Canada 2,176 1,921 861 — — Mexico 40,937 45,863 27,023 7,544 5,821 S. America 35,845 28,595 23,558 27,101 27,483 Other 6 — 21 — — All foreign countries $181,955 $177,037 $130,291 $86,011 $74,309 Total $619,793 $584,954 $405,443 $259,280 $230,093 Note 5. Accounts Receivable and Sales ConcentrationsAccounts receivable, net, are comprised of the following amounts: As of December 31, 2017 2016 Trade $110,165 $94,502 Less - allowance for doubtful accounts 1,719 1,069 Accounts receivable, net $108,446 $93,433 The following table presents activity in the allowance for doubtful accounts. Balance atBeginningof Year Additions Write-offs CurrencyImpacts Balance atEnd of Year Year Ended December 31, 2017 $1,069 $648 $(101) $103 $1,719 Year Ended December 31, 2016 $1,055 $153 $(59) $(80) $1,069 Year Ended December 31, 2015 $362 $729 $(8) $(28) $1,055 No customers accounted for more than 10% of our net sales in 2017. For the years ended December 31, 2016 and 2015, sales to Robert Bosch AutomotiveSystems (“Bosch”) amounted to $59.2 million, and $73.0 million, respectively, or 10%, and 18% of consolidated net sales, respectively. All revenues relatedto Bosch are in the APC segment. No customers represented more than 10% of accounts receivable as of December 31, 2017 or 2016. 59Table of ContentsNote 6. InventoriesInventories are comprised of the following amounts: As of December 31, 2017 2016 Raw materials $37,337 $36,080 Work in process 27,669 22,645 Finished goods 17,611 8,412 Inventories $82,617 $67,137 Note 7. Property, Plant and EquipmentProperty, plant and equipment are comprised of the following amounts: As of December 31, 2017 2016 Land and buildings $54,833 $51,992 Machinery and equipment 302,470 251,295 Construction in progress 14,346 10,786 371,649 314,073 Less—accumulated depreciation 112,369 83,980 Property, plant and equipment, net $259,280 $230,093 During the year ended December 31, 2017, we acquired $14.0 million in property, plant and equipment with the Vandalia acquisition. During the year endedDecember 31, 2015, we acquired $58.1 million in property, plant and equipment with the two acquisitions completed during 2015.For the years ended December 31, 2017, 2016, and 2015, depreciation expense was $28.9 million, $24.7 million, and $20.1 million, respectively.Note 8. GoodwillWe completed our annual goodwill impairment review during the fourth quarters of 2017, 2016 and 2015. For the years ended December 31, 2017, 2016 and2015, we concluded that there were no indicators of impairment at the reporting units with goodwill.The following table shows changes in the carrying amount of goodwill, for the years ended December 31, 2017, 2016 and 2015. AutocamPrecisionComponentsGroup PrecisionEngineeredProductsGroup Total Balance as of December 31, 2015 $73,864 $374,535 $448,399 Currency impacts (601) (2,464) (3,065) Adjustments to goodwill — (1,805) (1,805) Balance as of December 31, 2016 $73,263 $370,266 $443,529 Currency impacts 884 747 1,631 Goodwill acquired in acquisition — 9,452 9,452 Balance as of December 31, 2017 $74,147 $380,465 $454,612 As of December 31, 2017, 2016 and 2015, the balance of goodwill reported in the table above included accumulated impairment charges of $4.3 million and$11.7 million in our APC and PEP segments, respectively, all of which were recorded during the year ended December 31, 2008.The goodwill acquired in 2017 is related to the Vandalia acquisition as described in Note 3 and is derived from the value of the businesses acquired. This fairvalue was based on management business plans and future performance estimates which are subject to a high degree of management judgment andcomplexity. Actual results may differ from these projections and the differences may be material, leading to a potential impairment of this goodwill if thisreporting unit’s future results are not as forecasted. 60Table of ContentsNote 9. Intangible Assets, NetIntangible assets are tested for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable. As ofDecember 31, 2017 and 2016, there were no indications of impairment.As disclosed in Note 3, we added $6.9 million of intangible assets in 2017 related to customer relationships acquired in the Vandalia acquisition with anestimated useful life of 15 years. The following table presents the carrying amount of intangible assets by segment and by major asset class. AutocamPrecisionComponentsGroup PrecisionEngineeredProductsGroup Total Balance as of December 31, 2015 $46,417 $233,800 $280,217 Amortization (3,533) (22,465) (25,998) Currency impacts 44 — 44 Balance as of December 31, 2016 $42,928 $211,335 $254,263 Additions — 6,900 6,900 Amortization (3,481) (19,979) (23,460) Currency impacts (1) — (1) Balance as of December 31, 2017 $39,446 $198,256 $237,702 December 31, 2017 December 31, 2016 Estimated UsefulLife in Years GrossCarryingValue AccumulatedAmortization NetCarryingValue GrossCarryingValue AccumulatedAmortization NetCarryingValue Customer relationships 12 - 15 $282,030 $(52,408) $229,622 $275,130 $(30,137) $244,993 Other 1 - 15 19,200 (11,120) 8,080 19,217 (9,947) 9,270 Total identified intangible assets $301,230 $(63,528) $237,702 $294,347 $(40,084) $254,263 The following table summarizes estimated amortization expense for the next five years: Year Ending December 31, 2018 $23,878 2019 23,810 2020 23,670 2021 23,678 2022 23,678 Note 10. Investment in Joint VentureWe own a 49% investment in a joint venture located in Wuxi, China, called Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the “JV”). The JV isjointly controlled and managed, and we account for it under the equity method.The following table summarizes activity related to our investment in the JV. Balance as of December 31, 2016 $36,008 Our share of cumulative earnings 5,582 Dividends declared and paid by joint venture (4,156) Accretion of basis difference from purchase accounting (371) Foreign currency translation gain 2,759 Balance as of December 31, 2017 $39,822 61Table of ContentsThe following tables present summarized financial information of the unconsolidated JV. As of December 31, 2017 2016 Current assets $47,600 $31,295 Non-current assets 24,763 22,522 Total assets $72,363 $53,817 Current liabilities $26,165 $13,549 Total liabilities $26,165 $13,549 Year Ended December 31, 2017 2016 2015 Net sales $74,805 $65,756 $55,962 Cost of sales $57,514 $44,530 $37,283 Income from operations $13,659 $16,268 $13,972 Net income $11,442 $13,702 $11,525 We had sales to the JV of $0.2 million, $0.1 million, and $0.2 million in each of the years ended December 31, 2017, 2016, and 2015. Amounts due to usfrom the JV were $0.1 million, $0.1 million, and $0.2 million as of December 31, 2017, 2016, and 2015, respectively.Note 11. Income TaxesOn December 22, 2017, the U. S. government enacted comprehensive tax legislation. The U.S. Tax Cuts and Jobs Act of 2017 reduces the U.S. federalcorporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that werepreviously tax deferred, and creates new taxes on certain foreign sourced earnings. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we recognized a$51.8 million net tax benefit in 2017.At December 31, 2017, we have made a reasonable estimate of the effects of the one-time transition tax and included this in our provisional amount. Theultimate impact could differ materially from this provisional amount due to, among other things, additional analysis, changes in interpretations andassumptions we have made, and additional interpretive regulatory guidance which may be issued. In accordance with SAB 118, we may record additionalprovisional amounts during a measurement period not to extend beyond one year of the enactment date of the U.S. Tax Cuts and Jobs Act of 2017. Theaccounting is expected to be complete when our 2017 U.S. corporate income tax return is filed in 2018, and any measurement period adjustments will berecognized as income tax expense or benefit in 2018.Loss from continuing operations before benefit for income taxes was as follows: Year ended December 31, 2017 2016 2015 Income / (Loss) from continuing operations before expense / (benefit) for income taxes andshare of net income from joint venture United States (71,603) (39,160) (50,831) Foreign 12,730 8,294 1,613 Total (58,873) (30,866) (49,218) 62Table of ContentsTotal income tax benefit was as follows: Year ended December 31, 2017 2016 2015 Tax Expense: Current: U.S. Federal (47,916) (2,595) (2,228) State (12,226) 679 189 Foreign 4,310 2,004 1,340 Total current expense (55,832) 88 (699) Deferred: U.S. Federal (25,017) (9,679) (16,007) State 3,009 (6,406) (1,913) Deferred tax valuation allowance 710 1,882 — Foreign (1,896) (1,323) (1,223) Total deferred expense (benefit) (23,194) (15,526) (19,143) Total expense (benefit) (79,026) (15,438) (19,842) A reconciliation of income taxes based on the U.S. federal statutory rate is summarized as follows: Year ended December 31, 2017 2016 2015 Rate Rec: Percentages Income taxes at the federal statutory rate 35.0% 34.0% 34.0% Change in valuation allowance -1.2% -6.1% 0.0% Foreign tax credits, exclusive of tax reform -13.8% 8.2% 2.7% State taxes, net of federal taxes, exclusive of tax reform 9.1% 5.7% 3.6% Non-U.S. earnings taxed at different rates 1.7% 4.8% 3.2% Non-deductible mergers and acquisitions costs 0.0% 0.0% -2.6% R&D Tax credit 0.3% 0.9% 1.3% Change in uncertain tax positions -0.4% 3.2% 0.0% Impact of Tax Reform Toll Charge, net of foreign tax credit -11.5% 0.0% 0.0% Remeasurement of deferred taxes pursuant to tax reform 65.6% 0.0% 0.0% Tax Reform impact on divestiture of business segment 33.9% 0.0% 0.0% Section 199/Domestic Production Deduction 0.8% 0.0% 0.0% Divestiture of Business Segment, exclusive of tax reform 13.6% 0.0% 0.0% Prior period revisions 0.5% 4.2% 1.8% Foreign JV Net Income 0.0% -4.1% -2.3% Other adjustments, net 0.7% -0.8% -1.3% 134.2% 50.0% 40.3% The 2017 effective tax rate of 134.2% was heavily influenced by the remeasurement of our ending domestic deferred balances, an estimate of the one-timetransition tax (net of foreign tax credits) on earnings of our foreign subsidiaries in accordance with the U.S. Tax Cuts and Jobs Act of 2017, and the impact ofthe U.S. Tax Cuts and Jobs Act of 2017 on the divestiture of the PBC Business. 63Table of ContentsThe principal components of the deferred tax assets and liabilities are as follows: Summary of Deferred’s Deferred income tax liabilities: Tax in excess of book depreciation 34,143 40,389 39,447 Goodwill 58 23 — Intangible assets 50,688 86,492 91,947 Other deferred tax liabilities 389 720 (0) Total deferred income tax liabilities 85,278 127,624 131,394 Deferred income tax assets: Goodwill 2,067 1,165 1,697 Inventories 2,248 740 4,370 Pension/Personnel accruals 1,596 1,395 2,669 Net operating loss carry forwards 6,950 10,297 6,289 Foreign tax credits — 5,759 3,242 Guarantee claim deduction — 414 1,141 Credit carry forwards 3,427 4,581 4,958 Accruals and reserves 2,015 1,151 0 Other deferred tax assets 3,019 10,193 2,084 Deferred income tax assets before Valuation Allowance 21,322 35,695 26,451 Valuation allowance on deferred tax assets (7,608) (4,090) (2,376) Total deferred income tax assets 13,714 31,605 24,075 Net deferred income tax liabilities (1) 71,564 96,019 107,319 (1)In accordance with the U.S. Tax Cuts and Jobs Act of 2017, our ending domestic deferred balances have been remeasured to 21% for the year endedDecember 31, 2017.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.The following table summarizes our total valuation allowances: Balance atBeginning of Year Additions Recoveries Reprice Balance atEnd of Year Year ended December 31, 2017 $4,090 $3,518 $— $— $7,608 Year ended December 31, 2016 $2,376 $1,882 $(168) $— $4,090 Year ended December 31, 2015 $— $2,376 $— $— $2,376 During 2017, the valuation allowance increased by approximately $3.5 million. This consisted of a $2.3 million increase due to the uncertainty of realizingcertain state net operating loss (NOL) carryforwards, and a $1.2 million increase for foreign NOL’s.During 2016, the valuation allowance increased by approximately $1.7 million, consisting of a $1.9 million increase due to the uncertainty of realizingcertain state NOL carryforwards and a decrease of $0.2 million. The decrease reflects the Company’s expectation that it is more likely than not that it willgenerate future taxable income to utilize this amount of net deferred tax assets.During 2015, the valuation allowance increased by approximately $2.4 million, consisting solely of an increase due to the uncertainty of realizing certainlocal tax credits of a foreign subsidiary.There has been no change in our long term international expansion plans as of December 31, 2017, and our intent and ability is to indefinitely reinvest ourforeign earnings. We base this assertion on two factors. The first factor is our intention to invest in foreign countries that are strategically important to ourPEP and APC businesses. Due to the acquisitions completed in 2015 and 2014, we have operations in Mexico, Brazil, Poland, France and China which willrequire more foreign investment. Second, we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our U.S.credit facilities to fund currently anticipated domestic operational and investment needs. 64Table of ContentsWith respect to accumulated earnings of foreign subsidiaries, no additional US federal income taxes have been provided as all accumulated earnings offoreign subsidiaries are deemed to have been remitted as part of the one-time transition tax. The Company continues to evaluate its indefinite reinvestmentassertion in light of the U.S. Tax Cuts and Jobs Act of 2017, as the Company could still be subject to foreign withholding taxes, US state taxes, and foreigncurrency adjustments if this assertion is not maintained. The accounting is expected to be completed within the one-year measurement period as allowed bySAB 118.A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows: Year Ended December 31, 2017 2016 2015 Beginning balance $4,741 $5,724 $3,834 Additions for tax positions of prior years 1,404 179 2,516 Reductions for tax positions of prior years (490) (1,162) (626) Ending balance $5,655 $4,741 $5,724 As of December 31, 2017, the $5.7 million of unrecognized tax benefits would, if recognized, impact our effective tax rate by $5.2 million. The 2017addition is related to a foreign NOL.Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in ourConsolidated Statements of Operations. During 2017, we released $0.2 million of previously accrued U.S. interest. During 2016, we released less than $0.1million of previously accrued foreign interest and accrued $0.2 million in U.S. interest. During 2015, we accrued less than $0.1 million in foreign interest and$0.3 million in U.S. interest.Management believes that it is reasonably possible that the amount of unrecognized income benefits and interest may decrease during the next 12 months byapproximately $1.0 million, related to the expiration of the statutes of limitations.As of December 31, 2017, the Company has $81.4 million of state NOL carryovers. The state NOL’s begin to expire in 2030. We also have $26.6 million offoreign NOL carryovers at December 31, 2017. The foreign NOL’s have an indefinite life. The Company has $18.0 million of tax credits in foreignjurisdictions at December 31, 2017. The tax credits in foreign jurisdictions begin to expire in 2026. The state NOL’s and foreign credits have a full valuationallowance. These amounts are included in the valuation allowance table on the previous page.We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. During the third quarter of 2017,the Internal Revenue Service commenced an examination of the federal tax return for the pre-acquisition period of January 1, 2015, through October 19,2015, for Precision Engineered Products.The Company is no longer subject to federal examinations by tax authorities for years before 2010. The Company is also subject to examination by variousstate and international tax authorities. The tax years subject to examination vary by jurisdiction. The Company regularly assesses the outcomes of bothongoing and future examinations for the current or prior years to ensure the Company’s provision for income taxes is sufficient. The Company recognizesliabilities based on estimates of whether additional taxes will be due and believes its reserves are adequate in relation to any potential assessments. Theoutcome of any one examination, some of which may conclude during the next 12 months, is not expected to have a material impact on the Company’sfinancial position or results of operations.We operate under tax holidays in other countries, which are effective through December 31, 2026, and may be extended if certain additional requirements aresatisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreasedforeign taxes by $0.8 million, $0.7 million, and $0.2 million for 2017, 2016, and 2015, respectively. The benefit of the tax holidays on net income per share(diluted) was $0.03, $0.03, and $0.01 for 2017, 2016, and 2015, respectively. 65Table of ContentsNote 12. DebtThe following table presents debt balances as of December 31, 2017 and 2016. As of December 31, 2017 2016 $545.0 million Senior Secured Term Loan B (“Senior Secured Term Loan”) bearinginterest at the greater of 0.75% or one-month LIBOR (1.56% at December 31, 2017),plus an applicable margin of 3.75% at December 31, 2017, expiring October 19, 2022 $534,250 $543,563 $300.0 million Incremental Term Loan (“Incremental Term Loan”) bearing interest atone-month LIBOR (1.56% at December 31, 2017), plus an applicable margin of 3.25%at December 31, 2017, expiring April 3, 2021 291,000 — $143.0 million Senior Secured Revolver (“Senior Secured Revolver”) bearing interest atone-month LIBOR (1.56% at December 31, 2017) plus an applicable margin of 3.5% atDecember 31, 2017, expiring October 19, 2020 — 27,977 $250.0 million Senior Notes (“Senior Notes”) bearing interest at 10.25% — 250,000 French Safeguard Obligations 290 358 Brazilian lines of credit and equipment notes 257 573 Chinese line of credit 2,768 2,619 Total 828,565 825,090 Less current maturities of long-term debt 17,283 12,751 Principal, net of current portion 811,282 812,339 Less unamortized debt issuance costs 20,477 26,626 Long-term debt, net of current portion $790,805 $785,713 We capitalized interest costs amounting to $1.1 million, $1.6 million, and $1.4 million in the years ended December 31, 2017, 2016, and 2015, related toconstruction in progress.On April 3, 2017, we redeemed the Senior Notes for $281.6 million resulting in a loss on debt extinguishment of $36.3 million, including $31.6 million cashpaid for the call premium and a $4.7 million non-cash write-off of unamortized debt issuance costs. The Senior Notes were redeemed and the call premiumwas paid with the proceeds of a new $300.0 million Incremental Term Loan that was added by amendment to the existing credit facility. The IncrementalTerm Loan matures on April 3, 2021, with payments of $3.0 million due quarterly. The amendment also reduced the principal available under the SeniorSecured Revolver from $143.0 million to $100.0 million until such time as a leverage ratio covenant threshold has been met for four consecutive fiscalquarters. Upon satisfaction of the ratio threshold, the Senior Secured Revolver may be restored to $143.0 million. In connection with the amendment, we paid$6.5 million in debt issuance costs of which we recorded $4.0 million as a direct reduction to the carrying amount of the associated debt and $2.5 million as aloss on modification of the Senior Secured Term Loan. Debt issuance costs related to the amendment were paid with proceeds from the Incremental TermLoan. Also in connection with the amendment, we wrote off $0.8 million of unamortized debt issuance costs related to the modification of the Senior SecuredRevolver.On November 24, 2017, we further amended our existing credit facility to reduce the interest rate by 50 basis points on the Senior Secured Term Loan and theIncremental Term Loan. The interest rate on the Senior Secured Term Loan decreased from LIBOR plus 4.25% to LIBOR plus 3.75%. The interest rate on theIncremental Term loan decreased from LIBOR plus 3.75% to LIBOR plus 3.25%. In connection with the amendment, we paid $2.1 million in debt issuancecosts which we recorded as a loss on modification of debt. Debt issuance costs related to the amendment were paid with cash on hand. Also in connectionwith the amendment, we wrote off $0.3 million of unamortized debt issuance costs related to the modification.We used cash generated from operations and a portion of the cash proceeds from the sale of the PBC Business to pay down the Senior Secured Revolver onAugust 17, 2017, which had a balance of $33.2 million outstanding at that time. We continue to utilize the Senior Secured Revolver for daily working capitalneeds.Our credit facility established the Senior Secured Term Loan, the Incremental Term Loan, and the Senior Secured Revolver. All other debt is subordinated infavor of obligations outstanding under the credit facility. The credit facility is collateralized by all of our assets. We pay a quarterly commitment fee at anannual rate of 0.5% on the Senior Secured Revolver for unused capacity. As of December 31, 2017, we were in compliance with all covenants under our creditfacility. 66Table of ContentsWe have foreign credit facilities with financial institutions in France, Brazil, and China. These facilities are used to fund working capital and equipmentpurchases for our manufacturing plants in those countries. Our French operation has liabilities with certain creditors subject to Safeguard protection. Theliabilities are being paid annually over a 10-year period until 2019 and carry a zero percent interest rate. Amounts due as of December 31, 2017, to thosecreditors opting to be paid over a 10-year period totaled $0.3 million, of which $0.1 million is classified as current maturities of long-term debt and$0.2 million is included in the “Long-term debt, net of current portion” line on the Consolidated Balance Sheet. The Brazilian equipment notes representborrowings from certain Brazilian banks to fund equipment purchases for our Brazilian plants. These credit facilities have annual interest rates ranging from2.5% to 6.0%. The Chinese line of credit is a working capital line of credit with a Chinese bank bearing an annual interest rate of 4.6%.The following table lists aggregate maturities of long-term debt for the next five years and thereafter. Year Ending December 31, AggregateMaturitiesPrincipalAmounts 2018 $17,283 2019 17,968 2020 17,752 2021 260,750 2022 514,812 Thereafter — Total outstanding principal $828,565 Note 13. Restructuring and IntegrationThe following tables summarize restructuring and integration charges for the years ended December 31, 2017, 2016, and 2015. Year Ended December 31, 2017 APC PEP CorporateandConsolidations Total Severance and other costs $17 $— $— $17 Site closure and other associated costs 369 — — 369 Total $386 $— $— $386 Year Ended December 31, 2016 APC PEP CorporateandConsolidations Total Severance and other costs $851 $836 $— $1,687 Site closure and other associated costs 3,488 483 — 3,971 Total $4,339 $1,319 $— $5,658 Year Ended December 31, 2015 APC PEP CorporateandConsolidations Total Severance and other costs $672 $850 $— $1,522 Site closure and other associated costs 1,962 — 1,765 3,727 Total $2,634 $850 $1,765 $5,249 67Table of ContentsThe following tables summarize restructuring and integration reserve activity for the years ended December 31, 2017, 2016, and 2015. ReserveBalance as ofDecember 31, 2016 Charges Non-cashAdjustments CashReductions ReserveBalance as ofDecember 31, 2017 Severance and other costs $1,000 $17 $(164) $(853) $— Site closure and other associated costs 1,625 369 — (895) 1,099 Total $2,625 $386 $(164) $(1,748) $1,099 ReserveBalance as ofDecember 31, 2015 Charges Non-cashAdjustments CashReductions ReserveBalance as ofDecember 31, 2016 Severance and other costs $887 $1,687 $(278) $(1,296) $1,000 Site closure and other associated costs 1,845 3,971 (2,142) (2,049) 1,625 Total $2,732 $5,658 $(2,420) $(3,345) $2,625 ReserveBalance as ofDecember 31, 2014 Charges Non-cashAdjustments CashReductions ReserveBalance as ofDecember 31, 2015 Severance and other costs $— $1,522 $(408) $(227) $887 Site closure and other associated costs — 3,727 (1,882) — 1,845 Total $— $5,249 $(2,290) $(227) $2,732 In 2017, we recognized restructuring and integration expense of $0.4 million in our APC segment related primarily to the closure of a plant in Wheeling,Illinois, which was a part of our integration plan after the acquisition of Autocam Corporation in 2014.In 2016, we recognized restructuring and integration expense of $4.3 million in our APC segment primarily related to the closure of the Wheeling plant.These charges consisted of $0.8 million of severance costs, fixed asset impairment of $0.3 million, and site closure costs of $3.2 million. We also recognized$1.3 million related to initiatives within our PEP segment related to integration costs, rebranding, site moving costs for two plants, and associated employeecosts.In 2015, we recognized $2.6 million of restructuring and integration expense in our APC segment related to the closure of the Wheeling plant. This chargeconsisted of severance costs of $0.7 million, one-time inventory reduction of $1.0 million, and a fixed asset impairment charge of $0.9 million relating to theclosure of the facility. Within our PEP segment, restructuring initiatives to adjust inventory resulted in a charge of $0.9 million, which consisted of adjustinginventory for obsolescence. An additional $1.8 million was incurred at corporate for an accounting and reporting system that was ultimately never deployedand abandoned during 2015.We are continually identifying restructuring and impairment costs at our segments. Future filings will include updates to these activities along with areconciliation of beginning and ending liabilities. As of December 31, 2017, the entire reserve balance relates to the Wheeling plant closure. Within the nexttwelve months we expect to pay $1.0 million of the reserve balance, with the remaining reserve of $0.1 million expected to be paid in January 2019. We donot expect to incur any additional costs related to the closure of the Wheeling plant. 68Table of ContentsNote 14. Commitments and ContingenciesRental PaymentsWe have operating lease commitments for machinery, office equipment, vehicles, manufacturing and office space which expire on varying dates. Rentexpense for 2017, 2016 and 2015 was $7.6 million, $7.2 million, and $4.7 million, respectively. The following table summarizes future minimum leasepayments as of December 31, 2017, under operating leases that have initial or remaining non-cancelable lease terms in excess of one year. Year Ending December 31, MinimumRentalCommitments 2018 $8,616 2019 9,576 2020 8,670 2021 7,255 2022 6,937 Thereafter 36,075 Total minimum payments $77,129 Brazil ICMS Tax MatterPrior to the Autocam acquisition, Autocam’s Brazilian subsidiary received notification from the Brazilian tax authorities regarding ICMS (state value addedtax or VAT) tax credits claimed on intermediary materials (tooling and perishable items) used in the manufacturing process. The Brazilian tax authoritynotification disallowed state ICMS credits claimed on intermediary materials based on the argument that these items are not intrinsically related to themanufacturing processes. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualifyfor an ICMS tax credit, contending that the intermediary materials are directly related to the manufacturing process.We believe that we have substantial legal and factual defenses, and we plan to defend our interests in this matter vigorously. While we believe a loss is notprobable, we estimate the range of possible losses related to this assessment is from $0 to $6.0 million. No amount was accrued at December 31, 2017 or 2016,for this matter.We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement and plan ofmerger relating to the Autocam acquisition. Management believes the indemnification would include amounts owed for the tax, interest and penalties relatedto this matter.All Other Legal MattersAll other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings shouldnot, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash flows. In making thatdetermination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonablypossible outcomes.Note 15. Equity OfferingOn July 1, 2015, we closed an underwritten registered public offering of common stock offered pursuant to a shelf registration statement on Form S-3 that waspreviously filed with, and declared effective by, the Securities Exchange Commission. The total number of shares of common stock sold was 7,590,000 at apublic offering price of $24.00 per share. All of the shares in the offering were sold by us. Our net proceeds from the offering, after deducting underwritingdiscounts and commissions and offering expenses, were approximately $173.1 million. Of these proceeds, $148.7 million was used for repayment of principaland interest on our existing debt.Note 16. Share-Based CompensationWe recognize compensation expense of all employee and non-employee director share-based compensation awards in the financial statements based uponthe grant date fair value of the awards over the requisite service or vesting period, less any expense incurred for estimated forfeitures. As of December 31,2017, we have approximately 1.9 million maximum shares that can be issued as options, stock appreciation rights, and other share-based awards. Commonshares delivered upon exercise or vesting may consist of newly issued common shares or shares acquired in the open market. 69Table of ContentsShare-based compensation cost is recognized in the “Selling, general and administrative expense” line in the Consolidated Statements of Operations andComprehensive Income (Loss) except for $1.0 million, $0.5 million, and $0.7 million attributable to discontinued operations for the years endedDecember 31, 2017, 2016 and 2015, respectively. The following table lists the components of share-based compensation cost by type of award. Year Ended December 31, 2017 2016 2015 Stock options $1,078 $687 $984 Restricted stock 1,968 2,061 2,623 Performance share units 2,450 1,187 432 Share-based compensation $5,496 $3,935 $4,039 The total tax benefit for share-based compensation cost was $1.6 million, $0.6 million, and $0.6 million for the years ended December 31, 2017, 2016, and2015, respectively. Unrecognized compensation cost related to unvested awards was $4.6 million as of December 31, 2017. We expect that cost to berecognized over a weighted-average period of 2.0 years.Stock OptionsOption awards are typically granted to key employees on an annual basis. A single option grant is typically awarded to eligible employees each year by theCompensation Committee of the Board of Directors. The Compensation Committee occasionally awards additional individual grants to eligibleemployees. All employees 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 tenyears with a vesting period of generally three years.During 2017, 2016 and 2015, we granted options to purchase 125,700, 167,000, and 54,100 shares, respectively, to certain key employees. The weightedaverage grant date fair value of the options granted during 2017, 2016 and 2015 was $11.84, $5.02, and $12.61 per share, respectively. The fair value of ouroptions cannot be determined by market value because they are not traded in an open market. Accordingly, we utilized the Black Scholes financial pricingmodel to estimate the fair value. The following table shows the weighted average assumptions relevant to determining the fair value of stock options grantedin each year. 2017 2016 2015 Expected term 6 years 6 years 6 years Risk free interest rate 2.03% 1.43% 1.43% Dividend yield 1.16% 2.48% 1.11% Expected volatility 56.56% 59.23% 59.22% Expected forfeiture rate 3.00% 3.00% 3.00% The expected term is derived from using the simplified method of determining stock option terms as described under the Securities and ExchangeCommission’s Staff Accounting Bulletin Topic 14, Share-based payment. The simplified method was used because sufficient historical stock option exerciseexperience was not available.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 periodas the expected term.The expected dividend yield is derived by a mathematical formula which uses the expected annual dividends over the expected term divided by the fairmarket value of our common stock at the grant date.The expected volatility rate is derived from our actual common stock historical volatility over the same time period as the expected term. The volatility rateis derived by mathematical formula utilizing daily closing price data.The forfeiture rate is determined from examining the historical pre-vesting forfeiture patterns of past option issuances to key employees. While the forfeiturerate 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 compensationexpense to be recorded. 70Table of ContentsThe following table summarizes option activity for the year ended December 31, 2017. Options Shares(in thousands) Weighted-AverageExercisePrice(per share) Weighted-AverageRemainingContractualTerm (years) AggregateIntrinsicValue Outstanding at January 1, 2017 897 $12.22 Granted 126 24.20 Exercised (263) 11.84 $3,784 Forfeited or expired (14) 14.34 Outstanding at December 31, 2017 746 $14.33 6.2 $9,900(1) Exercisable at December 31, 2017 573 $12.75 5.5 $8,506(1) (1)The intrinsic value is the amount by which the closing market price of our stock as of December 31, 2017, was greater than the exercise price of anyindividual option grant.Cash proceeds from the exercise of options in the years ended December 31, 2017, 2016, and 2015 totaled approximately $3.1 million, $2.6 million, and$2.0 million, respectively. The tax benefit recognized from stock option exercises was $0.2 million, less than $0.1 million, and $0.1 million in the yearsended December 31, 2017, 2016, and 2015, respectively. For the years ended December 31, 2017, 2016 and 2015, proceeds from stock options are presentedexclusive of tax benefits in cash flows from financing activities in the Consolidated Statements of Cash Flows. The total intrinsic value of options exercisedduring the years ended December 31, 2017, 2016 and 2015 was $3.8 million, $2.9 million, and $2.6 million, respectively.Restricted StockDuring 2017, 2016, and 2015 we granted 85,393, 152,510, and 114,475 restricted stock awards to non-executive directors, officers and certain other keyemployees. Restricted stock awards generally vest pro-rata over three years for officers and certain other key employees and over one year for non-executivedirectors. We determined the fair value of the shares awarded by using the closing price of our common stock as of the date of grant. The weighted averagegrant date value of restricted stock granted in 2017 was $24.29 per share. The following table summarizes the status of unvested restricted stock awards as ofDecember 31, 2017, and changes during the year then ended. NonvestedRestrictedShares(in thousands) WeightedAverage Grant-Date FairValue Nonvested at January 1, 2017 202 $15.01 Granted 85 $24.29 Vested (135) $15.63 Forfeited — $— Nonvested at December 31, 2017 152 $19.21 Total grant-date fair value of restricted stock that vested in the years ended December 31, 2017, 2016, and 2015, was $2.1 million, $2.6 million, and $1.2 million, respectively.Performance Share UnitsPerformance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed todirectly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. PSU awards granted in 2017 weremade pursuant to the NN, Inc. 2016 Omnibus Incentive Plan and a Performance Share Unit Agreement. PSU awards granted in 2015 and 2016 were madepursuant to the NN, Inc. 2011 Stock Incentive Plan and a Performance Share Unit Agreement. Some PSUs are based on total shareholder return (“TSRAwards”), and other PSUs are based on return on invested capital (“ROIC Awards”).The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return ofthe S&P SmallCap 600 Index during specified performance periods as defined in the award agreements. Each performance period generally begins onJanuary 1 of the year of grant and ends 36 months later on December 31. The ROIC Awards will vest, if at all, upon our achieving a specified average returnon invested capital during the performance periods. We recognize compensation expense over the performance period in which the performance and marketconditions are measured. If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically. Upon vesting, the PSUs willbe settled by the issuance of shares of our common stock, subject to the executive officer’s continued employment. The actual number of shares of commonstock will be issued to each award recipient at the 71Table of Contentsend of the performance periods will be interpolated between a threshold and maximum payout amount based on actual performance results. No dividends willbe paid on outstanding PSUs during the performance period; however, dividend equivalents will be paid based on the number of shares of common stock thatare ultimately earned at the end of the Performance Periods.With respect to the TSR Awards, a participant will earn 50% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUsfor “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35%of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number ofPSUs for “Maximum Performance. For performance levels falling between the values shown below, the percentages will be determined by interpolation. Thefollowing table presents the goals with respect to TSR and ROIC for each award.TSR: Threshold Performance(50% of Shares) Target Performance(100% of Shares) Maximum Performance(150% of Shares) 2017 grants 35th Percentile 50th Percentile 75th Percentile 2016 grants 35th Percentile 50th Percentile 75th Percentile 2015 grants 35th Percentile 50th Percentile 75th Percentile ROIC: Threshold Performance(35% of Shares) Target Performance(100% of Shares) Maximum Performance(150% of Shares) 2017 grants 15% 17.5% 20% 2016 grants 15.5% 18% 20.5% 2015 grants 11% 12.5% 14% We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metric is considered a marketcondition under ASC Topic 718, Compensation – stock compensation. The grant date fair value of ROIC Awards is based on the closing price of a share ofour common stock on the date of grant. The following table presents the number of awards granted and the grant date fair value of each award in the periodspresented. TSR Awards ROIC Awards Award Year Shares(in thousands) Grant DateFair Value Shares (inthousands) Grant DateFair Value 2017 46 $29.84 53 $24.20 2016 101 $9.38 101 $11.31 2015 36 $28.61 36 $25.16 We generally recognize expense for ROIC Awards based on the Target Performance threshold of 100% because, at the date of grant, the Target Performance isthe probable level of performance achievement. In 2017, we determined that it was probable that the ROIC Awards granted in 2015 would vest at theMaximum Performance level of 150% rather than 100%. Accordingly, we recorded a cumulative catch-up adjustment of $0.4 million to selling, general, andadministrative expense and additional paid-in capital in the fourth quarter of 2017 to retroactively apply the new estimate. All PSUs that vested onDecember 31, 2017, will be settled in shares on April 30, 2018. The total grant-date fair value of TSR Awards that vested in 2017 was $0.9 million. The totalgrant-date fair value of ROIC awards that vested in 2017 was $1.2 million. 72Table of ContentsThe following table summarizes the status of unvested PSU awards as of December 31, 2017, and changes during the year then ended. Nonvested TSR Awards Nonvested ROIC Awards Shares(in thousands) WeightedAverageGrant-DateFair Value Shares(in thousands) WeightedAverageGrant-DateFair Value Nonvested at January 1, 2017 124 $14.33 124 $14.87 Change in Vesting Estimate (1) — $— 16 $25.16 Granted 46 $29.84 53 $24.20 Vested (32) $28.61 (48) $25.16 Forfeited (8) $19.19 (9) $18.03 Nonvested at December 31, 2017 130 $16.60 136 $16.27 (1)Represents additional shares expected to be issued in settlement of ROIC Awards that were granted in 2015.Acceleration of VestingPrior to the sale of the PBC Business, our board of directors approved the acceleration of vesting of share-based awards to 19 members of PBC management inrecognition of their service to the Company. The vesting date was accelerated to August 17, 2017, and the term was changed to two years for 58,094 optionawards. The vesting date for 25,564 restricted stock awards was accelerated to August 17, 2017. We accounted for the acceleration of vesting as amodification of share-based awards. Accordingly, we recognized in discontinued operations approximately $0.8 million of incremental share-basedcompensation expense.Note 17. Accumulated Other Comprehensive IncomeThe majority of our AOCI relates to foreign currency translation of our foreign subsidiary balances. During the year ended December 31, 2017, we had othercomprehensive income of $22.1 million due to foreign currency translations. In connection with the sale of the PBC Business, we reclassified $9.2 millionout of AOCI to discontinued operations on the Consolidated Statement of Operations in 2017. During the year ended December 31, 2016, we had othercomprehensive loss of $10.6 million due to foreign currency translations and a net $1.9 million gain due to change in fair value of the interest rate swap anddiscontinuation of hedge accounting. Amounts related to the interest rate swap were reclassified out of AOCI during 2016 upon discontinuation of hedgeaccounting. During the year ended December 31, 2015, we had other comprehensive loss of $24.9 million due to foreign currency translations and a$1.6 million other comprehensive loss due to change in fair value of the interest rate swap.Note 18. Net Income (Loss) Per ShareThe following summarizes the computation of basic and diluted net income (loss) per share. Year Ended December 31, 2017 2016 2015 Income (loss) from continuing operations $25,364 $(9,490) $(24,375) Income from discontinued operations, net of tax 137,688 16,153 17,889 Net income (loss) $163,052 $6,663 $(6,486) Weighted average shares outstanding 27,433 27,016 21,181 Effect of dilutive stock options 322 — — Diluted shares outstanding 27,755 27,016 21,181 Basic income (loss) from continuing operations per share $0.92 $(0.35) $(1.15) Basic income from discontinued operations per share 5.02 0.60 0.84 Basic net income (loss) per share $5.94 $0.25 $(0.31) Diluted income (loss) from continuing operations per share $0.91 $(0.35) $(1.15) Diluted income from discontinued operations per share 4.96 0.60 0.84 Diluted net income (loss) per share $5.87 $0.25 $(0.31) 73Table of ContentsThe calculations of diluted income (loss) from continuing operations per share for the years ended December 31, 2017, 2016, and 2015, exclude 0.4 million,0.8 million, and 1.0 million stock options which had the effect of being anti-dilutive. Given the net loss from continuing operations in 2016 and 2015, alloptions are considered anti-dilutive in those years. Stock options excluded from the calculations of diluted income (loss) from continuing operations pershare for the years ended December 31, 2017, 2016, and 2015, had a per share exercise price ranging from $4.42 to $25.16 in each respective year.Note 19. Fair Value MeasurementsFair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transactionwith market participants at the measurement date. We followed consistent methods and assumptions to estimate fair values as more fully described in Note 1.Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives,short-term investments and long-term debt. As of December 31, 2017, the carrying values of these financial instruments approximated fair value. The fairvalue of floating-rate debt approximates the carrying amount because the interest rates paid are based on short-term maturities. As of December 31, 2017, wehad no fixed-rate debt outstanding.Nonrecurring Fair Value MeasurementsWe completed the Vandalia acquisition on October 2, 2017. In connection with our accounting for this acquisition, it was necessary for us to estimate thevalues of the assets acquired and liabilities assumed, which involved the use of various assumptions discussed in Note 3. The following table summarizes thefair value estimates for financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis by category as of the acquisition date: Fair Value Measurements During 2017, Using Description Fair ValueMeasurementsat AcquisitionDate Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs (Level 3) Vandalia current assets $10,166 $— $— $10,166 Vandalia property, plant and equipment 13,981 — — 13,981 Vandalia intangible assets subject toamortization 6,900 — — 6,900 Vandalia other non-current assets 29 — — 29 Vandalia goodwill 9,452 — — 9,452 Vandalia non-current liabilities (1,794) — — (1,794) $38,734 $— $— $38,734 Recurring Fair Value MeasurementsFair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assetsor 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, eitherdirectly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs basedon the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based onthe lowest level input that is significant to the fair value measurement.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 inwhich we agree to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.At December 31, 2016, we had a $150 million interest rate swap that fixed the interest rate on a portion of our variable rate debt at 6.466%. The objective ofthe interest rate swap was to eliminate the variability of cash flows in interest payments on the first $150 million of variable interest debt. At the inception ofthe interest rate swap, the variable rate benchmark was three-month LIBOR for both the variable rate debt and the interest rate swap. The changes in cashflows of the interest rate swap were expected to exactly offset the changes in cash flows of the variable rate debt. The hedged risk was the interest rate riskexposure to changes in the interest payments, attributable to changes in the benchmark three-month LIBOR interest rates (subject to a 1.0% LIBOR indexfloor) through December 31, 2018. During 2016, the LIBOR floor index on our Senior Secured Term Loan was lowered to 0.75%, and our intent regardingfuture interest rate resets changed. Three-month LIBOR was above the floor, and it was more economical to use one-month LIBOR. Therefore, our intensionscalled into question the probability of the amounts deferred in AOCI as the forested transactions would not be probable. As a result, we chose to discontinuehedge accounting in 2016, reclassified all amounts in AOCI to earnings, and began to account for the interest rate swap on a mark-to-market basis. Thechange in reporting had no impact on our reported cash flows. In October 2017, we terminated the interest rate swap with a cash payment of $1.3 million. Asof December 31, 2017, we had no interest rate swaps outstanding. 74Table of ContentsThe following table summarizes assets and liabilities measured at fair value on a recurring basis for the interest rate swap derivative financial instrument as ofDecember 31, 2016. Fair Value Measurements as of December 31, 2016 Description December 31,2016 Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs (Level 3) Derivative asset—current $69 $— $69 $— Derivative asset—noncurrent 6 — 6 — Derivative liability—current (1,903) — (1,903) — Derivative liability—noncurrent (1,028) — (1,028) — $(2,856) $— $(2,856) $— The inputs for determining fair value of the interest rate swap are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricingmodels. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, indexforward curves, discount curves, and volatility surfaces. Counterparties to these derivative contracts are highly rated financial institutions which managementbelieves carry only a minimal risk of nonperformance.We have elected to present the derivative contracts on a gross basis in the Consolidated Balance Sheets included within other current assets, othernon-current assets, other current liabilities and other non-current liabilities.As of December 31, 2017, we had no gains or losses in AOCI related to the interest rate swap. In connection with lowering the LIBOR index floor from 1.0%to 0.75% within the $150 million interest rate swap, we received a $0.3 million payment in 2016 that reduced the net liability position on the $150 millioninterest rate swap. The payment was reported in the “Derivative payments on interest rate swap” line in the Consolidated Statement of Operations andComprehensive Income (Loss) for the year ended December 31, 2016. Additionally, during the portion of 2016 when the interest rate swap was accounted forin accordance with hedge accounting, the periodic settlements and related reclassification of other comprehensive income were recognized as $1.4 million ofnet hedging losses on the interest rate swap in the “Interest expense” line on the Consolidated Statements of Operations and Comprehensive Income (Loss).The “Derivative loss (gain) on change in interest rate swap fair value” line on the Consolidated Statements of Operations and Comprehensive Income (Loss)includes interest rate swap settlements of $1.4 million in both 2017 and 2016.Derivatives’ Hedging RelationshipsAs of December 31, 2017 and 2016, we did not own derivative instruments that were classified as fair value hedges or trading securities. In addition, as ofDecember 31, 2017 and 2016, we did not own derivative instruments containing credit risk contingencies. 75Table of ContentsNote 20. Quarterly Results of Operations (Unaudited)The effect of the revision discussed within Note 1 to the 2017 and 2016 previously issued unaudited quarterly financial results is as follows (in thousands,except per share data). The 2017 quarterly revisions will be affected in connection with the future 2018 unaudited interim condensed consolidated financialstatement filings on Form 10-Q. The effect of recasting the prior periods for the PBC discontinued operations as described in Note 2 is also reflected below.The following summarizes the unaudited quarterly results of operations for the fourth quarter ended December 31, 2017. Fourth Quarter 2017 Net sales $156,135 Cost of sales (exclusive of depreciation and amortization) 118,814 Income (loss) from continuing operations 53,325 Income from discontinued operations, net of tax (2,507) Net income (loss) 50,818 Comprehensive income (loss) 51,885 Basic income (loss) from continuing operations per share $1.93 Basic net income (loss) per share $1.84 Diluted income (loss) from continuing operations per share $1.91 Diluted net income (loss) per share $1.82 The effect of recasting the prior periods for the PBC discontinued operations as described in Note 2 is also reflected below. AsOriginallyReported Adjustment DiscontinuedOperations As Revised Third Quarter 2017 Net sales $148,156 $— $148,156 Cost of sales (exclusive of depreciation and amortization) 110,836 436 111,272 Income (loss) from continuing operations (2,930) (550) (3,480) Income from discontinued operations, net of tax 135,825 (6,384) 129,441 Net income (loss) 132,895 (6,934) 125,961 Comprehensive income (loss) 129,735 (6,606) 123,129 Basic income (loss) from continuing operations per share $(0.11) $(0.02) $(0.13) Basic net income (loss) per share $4.82 $(0.25) $4.57 Diluted income (loss) from continuing operations per share $(0.11) $(0.02) $(0.13) Diluted net income (loss) per share $4.82 $(0.25) $4.57 Second Quarter 2017 Net sales $225,875 $— $(67,928) $157,947 Cost of sales (exclusive of depreciation and amortization) 166,040 — (51,526) 114,514 Income (loss) from continuing operations (21,529) 391 (5,236) (26,374) Income from discontinued operations, net of tax — — 5,236 5,236 Net income (loss) (21,529) 391 (21,138) Comprehensive income (loss) (12,289) 662 (11,627) Basic income (loss) from continuing operations per share $(0.78) $0.01 $(0.19) $(0.96) Basic net income (loss) per share $(0.78) $0.01 $(0.77) Diluted income (loss) from continuing operations per share $(0.78) $0.01 $(0.19) $(0.96) Diluted net income (loss) per share $(0.78) $0.01 $(0.77) First Quarter 2017 Net sales $226,314 $— $(68,759) $157,555 Cost of sales (exclusive of depreciation and amortization) 166,954 485 (52,959) 114,480 Income (loss) from continuing operations 7,407 4 (5,518) 1,893 Income from discontinued operations, net of tax — — 5,518 5,518 Net income (loss) 7,407 4 7,411 Comprehensive income (loss) 12,113 403 12,516 Basic income (loss) from continuing operations per share $0.27 $0.00 $(0.20) $0.07 Basic net income (loss) per share $0.27 $0.00 $0.27 Diluted income (loss) from continuing operations per share $0.27 $0.00 $(0.20) $0.07 Diluted net income (loss) per share $0.27 $0.00 $0.27 76Table of Contents AsOriginallyReported Adjustment DiscontinuedOperations As Revised Fourth Quarter 2016 Net sales $202,029 $— $(60,385) $141,644 Cost of sales (exclusive of depreciation and amortization) 151,936 466 (47,597) 104,805 Income (loss) from continuing operations 3,063 (1,512) (3,737) (2,186) Income from discontinued operations, net of tax — — 3,737 3,737 Net income (loss) 3,063 (1,512) 1,551 Comprehensive income (loss) (10,212) (90) (10,302) Basic income (loss) from continuing operations per share $0.11 $(0.06) $(0.14) $(0.08) Basic net income (loss) per share $0.11 $(0.06) $0.06 Diluted income (loss) from continuing operations per share $0.11 $(0.06) $(0.14) $(0.08) Diluted net income (loss) per share $0.11 $(0.06) $0.06 Third Quarter 2016 Net sales $204,961 $— $(58,247) $146,714 Cost of sales (exclusive of depreciation and amortization) 152,538 91 (45,353) 107,276 Income (loss) from continuing operations 4,147 419 (3,622) 944 Income from discontinued operations, net of tax — — 3,622 3,622 Net income (loss) 4,147 419 4,566 Comprehensive income (loss) 8,740 (2,938) 5,802 Basic income (loss) from continuing operations per share $0.15 $0.02 $(0.13) $0.03 Basic net income (loss) per share $0.15 $0.02 $0.17 Diluted income (loss) from continuing operations per share $0.15 $0.02 $(0.13) $0.03 Diluted net income (loss) per share $0.15 $0.02 $0.17 Second Quarter 2016 Net sales $214,272 $— $(65,157) $149,115 Cost of sales (exclusive of depreciation and amortization) 156,794 114 (49,580) 107,328 Income (loss) from continuing operations 2,031 (172) (4,326) (2,467) Income from discontinued operations, net of tax — — 4,326 4,326 Net income (loss) 2,031 (172) 1,859 Comprehensive income (loss) (973) (1,879) (2,852) Basic income (loss) from continuing operations per share $0.08 $(0.01) $(0.16) $(0.09) Basic net income (loss) per share $0.08 $(0.01) $0.07 Diluted income (loss) from continuing operations per share $0.07 $(0.01) $(0.16) $(0.09) Diluted net income (loss) per share $0.07 $(0.01) $0.07 First Quarter 2016 Net sales $212,226 $— $(64,745) $147,481 Cost of sales (exclusive of depreciation and amortization) 159,754 144 (50,464) 109,434 Income (loss) from continuing operations (1,299) (14) (4,468) (5,781) Income from discontinued operations, net of tax — — 4,468 4,468 Net income (loss) (1,299) (14) (1,313) Comprehensive income (loss) 4,418 884 5,302 Basic income (loss) from continuing operations per share $(0.05) $(0.00) $(0.17) $(0.22) Basic net income (loss) per share $(0.05) $(0.00) $(0.05) Diluted income (loss) from continuing operations per share $(0.05) $(0.00) $(0.17) $(0.22) Diluted net income (loss) per share $(0.05) $(0.00) $(0.05) The fourth quarter of 2017 was impacted by acquisition related costs of $0.2 million pre-tax, and $0.1 million after-tax related to the Vandalia acquisition.The fourth quarter of 2017 includes $0.5 million of net loss attributable to the operations of the Vandalia business after the acquisition date of October 2,2017. We recognized an estimated after-tax gain on sale of the PBC Business of $129.4 million in the third quarter of 2017. Working capital adjustments andrevisions of $1.5 million after taxes reduced the gain and were recorded in discontinued operations in the fourth quarter of 2017, resulting in a final gain of$127.7 million. 77Table of ContentsThe second quarter of 2017 includes $39.6 million loss on extinguishment of debt and write-offs of unamortized debt issuance costs incurred in connectionwith the April 3, 2017, redemption of Senior Notes and amendment of our credit facility as disclosed in Note 12. The fourth quarter of 2017 includes anadditional $2.4 million of loss on extinguishment of debt and write-offs of unamortized debt issuance costs incurred in connection with the November 24,2017, amendment of the credit facility to reduce interest rates as disclosed in Note 12.Note 21. Prior Periods’ Financial Statement RevisionThe following tables present the effect of the correction of the misstatements and the revision on the Consolidated Statements of Operations andComprehensive Income (Loss), as further described in Note 1. Also, as further described in Note 2, due to the disposition of PBC and the related discontinuedoperations treatment, the tables below present separately the impact of the correction of the misstatements as well as the effect of recasting the prior periodsfor the PBC discontinued operations. Year Ended December 31, 2016 As OriginallyReported Adjustment DiscontinuedOperations As Revised Cost of sales (exclusive of depreciation and amortization) $621,022 $815 $(192,994) $428,843 Selling, general and administrative expense 80,266 870 (16,992) 64,144 Depreciation and amortization 62,488 85 (11,852) 50,721 Other operating expense (income) 288 548 (27) 809 Income from operations 59,400 (2,318) (22,303) 34,779 Loss on extinguishment of debt and write-off of unamortized debt issuance costs 3,089 (500) — 2,589 Other (income) expense, net (2,591) (783) 503 (2,871) Income (loss) from continuing operations beforeprovision (benefit) for income taxes and shareof net income from joint venture (7,309) (1,035) (22,522) (30,866) Provision (benefit) for income taxes (9,313) 244 (6,369) (15,438) Income (loss) from continuing operations 7,942 (1,279) (16,153) (9,490) Net income (loss) $7,942 $(1,279) $6,663 Other comprehensive income (loss): Change in fair value of interest rate swap 3,015 (1,105) 1,910 Foreign currency translation loss (8,984) (1,639) (10,623) Other comprehensive loss (5,969) (2,744) (8,713) Comprehensive income (loss) $1,973 $(4,023) $(2,050) Basic net income (loss) per share $0.29 $(0.05) $0.25 Diluted net income (loss) per share $0.29 $(0.05) $0.25 78Table of Contents Year Ended December 31, 2015 As OriginallyReported Adjustment DiscontinuedOperations As Revised Selling, general and administrative expense $51,745 $596 $(17,468) $34,873 Depreciation and amortization 44,482 (13) (11,496) 32,973 Other operating expense (income) (687) 663 — (24) Income (loss) from operations 26,797 (1,246) (25,493) 58 Loss on extinguishment of debt and write-off of unamortized debt issuance costs 18,673 500 — 19,173 Income (loss) from continuing operations beforeprovision (benefit) for income taxes and shareof net income from joint venture (22,950) (1,746) (24,522) (49,218) Provision (benefit) for income taxes (10,518) (2,691) (6,633) (19,842) Income (loss) from continuing operations (7,431) 945 (17,889) (24,375) Net income (loss) $(7,431) $945 $(6,486) Other comprehensive income (loss): Change in fair value of interest rate swap (2,584) 947 (1,637) Foreign currency translation loss (21,936) (2,967) (24,903) Other comprehensive loss (24,520) (2,020) (26,540) Comprehensive income (loss) $(31,951) $(1,075) $(33,026) Basic net income (loss) per share $(0.35) $0.04 $(0.31) Diluted net income (loss) per share $(0.35) $0.04 $(0.31) The following table presents the effect of the correction of the misstatements on the Consolidated Balance Sheet as well as the effect of recasting the priorperiods for the PBC discontinued operations. As of December 31, 2016 As OriginallyReported Adjustment DiscontinuedOperations As Revised Income tax receivable $— $1,041 $700 $1,741 Other current assets 11,752 32 (4,755) 7,029 Total current assets 280,555 1,073 700 282,328 Property, plant and equipment, net 322,953 (487) (92,373) 230,093 Goodwill 450,311 2,127 (8,909) 443,529 Investment in joint venture 40,694 (4,686) — 36,008 Other non-current assets 9,892 (839) (940) 8,113 Total assets 1,360,386 (2,812) 700 1,358,274 Accounts payable 75,719 (15) (31,014) 44,690 Accrued salaries, wages and benefits 24,996 1,464 (9,234) 17,226 Income tax payable 2,125 — (2,125) — Other current liabilities 23,025 (524) (2,176) 20,325 Total current liabilities 138,616 925 700 140,241 Deferred tax liabilities 99,591 600 (4,173) 96,018 Other non-current liabilities 21,267 1,471 (8,438) 14,300 Total liabilities 1,045,187 2,996 700 1,048,883 Retained earnings 55,509 (334) 55,175 Accumulated other comprehensive loss (25,122) (5,474) (30,596) Total stockholders’ equity 315,199 (5,808) 309,391 Total liabilities and stockholders’ equity 1,360,386 (2,812) 700 1,358,274 79Table of ContentsThe following tables present the effect of the correction of the misstatements on our Consolidated Statements of Changes in Stockholders’ Equity. As of and for the Year Ended December 31, 2016 As PreviouslyReported Adjustment As Revised Net income (loss) $7,942 $(1,279) $6,663 Retained earnings 55,509 (334) 55,175 Change in fair value of interest rate swap 3,015 (1,105) 1,910 Share-based compensation expense 4,270 (335) 3,935 Foreign currency translation loss (8,984) (1,639) (10,623) Accumulated other comprehensive loss (25,122) (5,474) (30,596) Total stockholders’ equity 315,199 (5,808) 309,391 As of and for the Year Ended December 31, 2015 As PreviouslyReported Adjustment As Revised Net income (loss) $(7,431) $945 $(6,486) Retained earnings 55,151 945 56,096 Change in fair value of interest rate swap (2,584) 947 (1,637) Share-based compensation expense 3,704 335 4,039 Foreign currency translation loss (21,936) (2,967) (24,903) Accumulated other comprehensive loss (19,153) (2,730) (21,883) Additional paid-in capital 277,582 335 277,917 Total stockholders’ equity 313,881 (1,450) 312,431 The following tables present the effect of the correction of the misstatements on our Consolidated Statements of Cash Flows. Year Ended December 31, 2016 AsOriginallyReported Adjustment Reclasses (1) AsRevised Net income (loss) $7,942 $(1,279) $6,663 Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation and amortization 62,488 85 62,573 Write-off of debt issuance costs 3,089 (500) 2,589 Compensation expense from issuance of share-based awards 4,270 (335) 3,935 Deferred income taxes (10,430) (5,096) (15,526) Other — (122) (122) Changes in operating assets and liabilities: Other current assets (269) (253) (522) Other non-current assets 1,833 548 2,381 Income taxes payable (receivable) — (501) 284 (217) Other liabilities 1,946 6,828 390 9,164 Net cash provided by (used by) operating activities 69,303 (625) 674 69,352 Cash flows from investing activities Proceeds from insurance claim — 122 122 Net cash provided by (used by) investing activities (41,346) 122 — (41,224) Cash flows from financing activities Proceeds from long-term debt (2) — 44,000 44,000 Repayment of long-term debt (2) (30,000) (25,000) (55,000) Proceeds from (repayment of) short-term debt, net 18,544 (19,000) (456) Proceeds from shares issued 2,832 (2,832) — Proceeds from issuance of stock and exercise of stock options — 2,832 2,832 Shares withheld to satisfy income tax withholding — (173) (173) Net cash provided by (used by) financing activities (24,308) — (173) (24,481) Effect of exchange rate changes on cash flows (4,331) — 2 (4,329) Net change in cash and cash equivalents (682) (503) 503 (682) Cash and cash equivalents at beginning of period 15,087 15,087 Cash and cash equivalents at end of period 14,405 (503) 503 14,405 Year Ended December 31, 2015 AsOriginallyReported Adjustment Reclasses (1) As Revised Net income (loss) $(7,431) $945 $(6,486) Adjustments to reconcile net income to net cash provided by (used by) operating activities: Depreciation and amortization 44,482 (13) 44,469 Write-off of debt issuance costs 18,673 500 19,173 Compensation expense from issuance of share-based awards 3,704 335 4,039 Deferred income taxes (16,878) (2,265) (19,143) Changes in operating assets and liabilities: Accounts receivable (1,343) (1,149) (2,492) Other current assets (944) 865 (79) Other non-current assets (1,501) 942 (559) Income taxes payable (receivable) — (540) 3,171 2,631 Other liabilities 4,999 (307) (1,251) 3,441 Accounts payable (6,748) (1,215) (7,963) Net cash provided by (used by) operating activities 33,310 (753) 771 33,328 Net cash provided by (used by) investing activities (665,838) — — (665,838) Cash flows from financing activities Shares withheld to satisfy income tax withholding — (231) (231) Net cash provided by (used by) financing activities 611,851 — (231) 611,620 Effect of exchange rate changes on cash flows (1,553) 215 (2) (1,340) Net change in cash and cash equivalents (22,230) (538) 538 (22,230) Cash and cash equivalents at beginning of period 37,317 37,317 Cash and cash equivalents at end of period 15,087 (538) 538 15,087 (1)Includes the reclassification of prior period amounts to reflect current period presentation for the adoption of ASU 2016-09 (see Note 1), as well as forthe addition of the income taxes payable (receivable) line item.(2)The 2016 presentation of proceeds from and repayments of long-term debt were shown net. The adjustments made are to present these amounts grossfor each activity (proceeds from and repayments of) during 2016.Note 22. Subsequent EventsNew Business StructureOn January 2, 2018, we announced plans to implement a new enterprise and management structure designed to accelerate growth and further balance ourportfolio by aligning our strategic assets and businesses. Under the new structure, our businesses will be organized into three segments based principally onthe end markets they serve. Our segments will be known as Mobile Solutions, Power Solutions, and Life Sciences. Mobile Solutions will be focused ongrowth in the industrial and automotive end markets. Power Solutions will be focused on growth in the electrical and aerospace and defense end markets. LifeSciences will be focused on growth in the medical end market. As a result of the changes in our organizational structure, we expect to reallocate goodwill inrelation to our operating segments. We are in the process of determining the impact of the new structure on our financial statements. Beginning in the firstquarter of 2018, our segment disclosures will reflect our new organizational structure.Bridgemedica AcquisitionOn February 22, 2018, we completed the acquisition of 100% of the assets of Bridgemedica, LLC (“Bridgemedica”) for $15.0 million cash. Bridgemedica is amedical device company that provides concept to supply solutions through design, development engineering and manufacturing. Operating results ofBridgemedica will be reported prospectively in our Life Sciences segment. The effects of this acquisition are not reflected in the consolidated financialstatements presented in this Annual Report because the acquisition occurred subsequent to December 31, 2017. We are in the process of analyzing theopening balance sheet and purchase price allocation. 80Table of ContentsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A.Controls and ProceduresDisclosure Controls and ProceduresUnder the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we evaluated theeffectiveness of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”)). Based upon that evaluation, as a result of the material weaknesses in internal control over financial reporting described below, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017, to ensurethat information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.Management’s Report on Internal Control Over Financial ReportingThe management of NN, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rule 13a-15(f). 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.Management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31, 2017, based on the criteria described in Internal Control – IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.Management has identified the following control deficiencies that constitute material weaknesses in our internal control over financial reporting as ofDecember 31, 2017: • We did not maintain an effective control environment due to a lack of a sufficient complement of personnel with an appropriate level ofknowledge, experience and training commensurate with our financial reporting requirements. • We did not maintain effective controls over information and communication as it relates to the accounting for income taxes. Specifically, we didnot implement and reinforce an adequate process for communication and information sharing necessary to support the functioning of internalcontrol between our tax group and our corporate accounting group.These material weaknesses contributed to the material weaknesses described below: • We did not design and maintain effective internal controls over the accounting for business combinations, which specifically included notdesigning and maintaining effective controls over the (a) accuracy, valuation and presentation and disclosure for allocating goodwill to ourinternational businesses and (b) completeness, accuracy and valuation of deferred income taxes recorded in connection with businesscombinations; • We did not design and maintain effective internal controls over the accounting for income taxes, which specifically included not designing andmaintaining controls over the completeness, accuracy, valuation and presentation and disclosure of deferred income tax accounts, income taxprovision and related disclosures.These material weaknesses resulted in immaterial errors to other current assets; property, plant and equipment, net; goodwill; investment in joint venture;other non-current assets; accounts payable; accrued salaries, wages and benefits; other current liabilities; deferred tax liabilities; accumulated othercomprehensive income; selling, general and administrative expense; depreciation and amortization; other operating expense/income; write-off ofunamortized debt issuance costs; provision/benefit for income taxes; comprehensive income/loss; and cash flows in our consolidated financial statements forthe years ended December 31, 2017, 2016 and 2015. These immaterial errors resulted in a revision to previously issued financial statements as discussed in 81Table of ContentsNote 1, Note 20 and Note 21 in the Notes to Consolidated Financial Statements presented in Item 8 of this Annual Report. Management has determined thatthe revision was an additional effect of the material weaknesses described above. Additionally, these control deficiencies could result in a misstatement ofsubstantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements thatwould not be prevented or detected.Based on its evaluation, and as a result of the material weaknesses discussed above, management concluded we did not maintain effective internal controlover financial reporting as of December 31, 2017.The effectiveness of our internal control over financial reporting as of December 31, 2017, has been audited by PricewaterhouseCoopers LLP, an independentregistered public accounting firm, as stated in their report which appears under Item 8.Remediation Plan for Material WeaknessesBuilding on our efforts during 2016, with the oversight of the Audit Committee of our board of directors, we continued throughout 2017 to dedicateresources and efforts to improve our control environment and to take steps to remediate the material weaknesses identified above. While certain remediationplans have been implemented, we continue to actively plan for and implement additional remediation plans.Remediation Action Taken During the Quarter Ended December 31, 2017The following remediation efforts were completed in the current quarter.We designed and implemented new income tax controls as well as enhanced the design of the existing income tax controls related to the preparation andreview of the income tax provision, deferred income taxes and the related disclosures.Remediation Actions Taken During Previous QuartersThe following remediation efforts were completed in previous quarters. • Enhanced our tax department by hiring two additional tax personnel and implementing automated tax software. • Conducted a gap analysis to identify where new tax controls were needed and to enhance existing tax controls to specifically addresscompleteness, accuracy, valuation and presentation and disclosure of deferred income tax accounts, income tax provision and relateddisclosures. • Beginning in the third quarter of 2017, utilized automated tax software to perform tax calculations. • Instituted additional training programs for our finance and accounting personnel. • Augmented the personnel within our finance and accounting organization by adding two experienced personnel to address SEC technicalaccounting and reporting. • Strengthened our business combination and income tax control process with improved accounting policies, documentation standards, technicaloversight and training, as well as the recent hires noted above. • Designed and implemented new business combination controls and enhanced the design of existing business combination controls tospecifically address 1) accuracy, valuation and presentation and disclosure for allocating goodwill to newly acquired international businessesand 2) completeness, accuracy and valuation of deferred income taxes recorded in connection with business combinations.Ongoing Remediation EffortsWe are continuing to enhance our overall financial control environment through the following: • Performing a gap analysis, not just for income taxes and business combinations, but for all business processes supporting internal control overfinancial reporting to identify areas where new controls are needed and where existing controls need to be enhanced. This analysis will include,but not be limited to, the evaluation of policies and procedures as well as information technology applications used in connection with theexecution of internal control over financial reporting. 82Table of Contents • Evaluating the existing finance team to ensure the size and skill set of the team is adequate given the strategic changes that occurred in 2017 andthe strategic objectives we have established for 2018 and beyond. • Designing and implementing controls and processes to improve the communication and information sharing between our tax group and ourcorporate accounting group.Status of Remediation EffortsWe believe the measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financialreporting. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financialreporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additionalmeasures to address control deficiencies, or we may modify, or in appropriate circumstances not complete, certain of the remediation measures describedabove. These material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time andmanagement has concluded, through testing, that these controls are operating effectively.Changes in Internal Control Over Financial ReportingAs described above in the “Remediation Plan for Material Weaknesses” section, there were changes during the fiscal quarter ended December 31, 2017, in ourinternal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting. Item 9B.Other InformationNone. 83Table of ContentsPart III Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by this Item 10 of Form 10-K concerning our directors is contained in the sections entitled “Information about the Directors” and“Beneficial Ownership of Common Stock” of our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days afterDecember 31, 2017, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference.Our Code of Conduct/Ethics Statement, as amended (the “Code”), was most recently approved by our Board on August 11, 2016. The Code is applicable toall officers, directors and employees. The Code is posted on our website at www.nninc.com. Information contained on our website is not part of this AnnualReport on Form 10-K. We will satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, any provision ofthe Code with respect to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions bydisclosing the nature of such amendment or waiver on our website or in a Current Report on Form 8-K. Item 11.Executive CompensationThe 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 our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein byreference. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by Item 12 of Form 10-K is contained in the section entitled “Beneficial Ownership of Common Stock” of our definitive proxystatement 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 our 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 beissued upon exercise ofoutstanding options,warrants and rights(a) Weighted-averageexercise price ofoutstanding options,warrants and rights(b) Number of securities remainingavailable for future issuance underequity compensation plans(excluding securities reflected incolumn (a))(c) Equity compensation plans approved bysecurity holders 746 $14.33 1,937 Equity compensation plans not approved bysecurity holders — — — Total 746 $14.33 1,937 Item 13.Certain Relationships and Related Transactions, and Director IndependenceInformation regarding review, approval or ratification of transactions with related persons is contained in a section entitled “Certain Relationships andRelated Transactions” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporated herein byreference.Information regarding director independence is contained in a section entitled “Information about the Directors” of our definitive proxy statement and, inaccordance with General Instruction G to Form 10-K, is hereby incorporated herein by reference. Item 14.Principal Accountant Fees and ServicesInformation required by this item of Form 10-K concerning our accounting fees and services is contained in the section entitled “Fees Paid to IndependentRegistered Public Accounting Firm” of our definitive proxy statement and, in accordance with General Instruction G to Form 10-K, is hereby incorporatedherein by reference. 84Table of ContentsPart IV Item 15.Exhibits, Financial Statement Schedules(a) Documents Filed as Part of this Report1. Financial StatementsThe financial statements of NN, Inc. 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 42 Consolidated Statements of Operations and Comprehensive Income (Loss) 44 Consolidated Balance Sheets 45 Consolidated Statements of Changes in Stockholders’ Equity 46 Consolidated Statements of Cash Flows 47 Notes to Consolidated Financial Statements 48 2. Financial Statement SchedulesThe 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).NN, Inc. 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 Item 16.Form 10-K SummaryNone. 85Table of ContentsINDEX TO EXHIBITS Incorporation by ReferenceExhibitNumber Exhibit Description Form SEC File No. Exhibit Filing Date 2.1 Agreement and Plan of Merger, dated as of July 18, 2014, by and among NN,Inc., PMC Global Acquisition Corporation, Autocam Corporation, NewportGlobal Advisors, L.P., and John C. Kennedy 8-K 000-23486 2.1 July 22, 2014 2.2 Stock Purchase Agreement, dated as of August 17, 2015, by and among NN,Inc., Precision Engineered Products Holdings, Inc. and PEP Industries, LLC 8-K 000-23486 2.1 August 18, 2015 2.3 Purchase Agreement, dated as of July 10, 2017, by and between NN, Inc. andTSUBAKI NAKASHIMA Co., Ltd. 8-K 000-23486 2.1 July 10, 2017 3.1 Restated Certificate of Incorporation of NN, Inc. S-3 333-89950 3.1 June 6, 2002 3.2 Certificate of Designation of Series A Junior Participating Preferred Stock ofNN, Inc., as filed with the Secretary of the State of Delaware 8-K 000-23486 3.1 December 18, 2008 3.3 Amended and Restated By-Laws of NN, Inc. 8-K 000-23486 3.1 November 20, 2015 4.1 The specimen stock certificate representing NN, Inc.’s Common Stock, parvalue $0.01 per share S-3 333-89950 4.1 June 6, 2002 4.2 Stockholders’ Agreement, effective as of August 29, 2014, by and betweenNN, Inc. and John C. Kennedy 8-K 000-23486 4.1 September 2, 2014 4.3 Indenture, dated as of October 19, 2015, by and among NN, Inc., thesubsidiary guarantors party thereto, and U.S. Bank National Association, astrustee 8-K 000-23486 4.1 October 20, 2015 4.4 Form of the NN, Inc. 10.25% Senior Notes due 2020 8-K 000-23486 4.2 October 20, 2015 4.5 Supplemental Indenture, dated as of October 19, 2015, by and among NN,Inc., certain direct and indirect subsidiaries of NN, Inc., as additionalsubsidiary guarantors, and U.S. Bank National Association, as trustee 8-K 000-23486 4.3 October 20, 2015 10.1* NN, Inc. 2005 Stock Incentive Plan S-8 333-130395 4.3 December 16, 2005 10.2* NN, Inc. 2011 Amended and Restated Stock Incentive Plan DEF14A 000-23486 Appendix A April 1, 2016 10.3* Form of Indemnification Agreement S-3/A 333-89950 10.6 July 15, 2002 10.4* Elective Deferred Compensation Plan, dated February 26, 1999 10-K 000-23486 10.16 March 31, 1999 10.5* Amended and Restated Executive Employment Agreement, datedSeptember 13, 2012, by and between NN, Inc. and James H. Dorton 8-K 000-23486 10.2 September 18, 2012 86Table of Contents 10.6* Amended and Restated Executive Employment Agreement, dated September 13,2012, by and between NN, Inc. and Thomas C. Burwell 8-K 000-23486 10.3 September 18, 2012 10.7* Amended and Restated Executive Employment Agreement, dated September 13,2012, by and between the Whirlaway and James R. Widders 8-K 000-23486 10.6 September 18, 2012 10.8* Executive Employment Agreement, dated May 8, 2013, between NN, Inc. andRichard D. Holder 8-K 000-23486 10.1 May 10, 2013 10.9 Escrow Agreement, effective as of August 29, 2014, by and among NN, Inc.,Newport Global Advisors, L.P., John C. Kennedy and Computershare TrustCompany, N.A. 8-K 000-23486 10.3 September 2, 2014 10.10 Indemnity Agreement, effective as of August 29, 2014, by and among NN, Inc. andeach of the shareholders of Autocam Corporation identified therein 8-K 000-23486 10.4 September 2, 2014 10.11* Executive Employment Agreement, dated September 9, 2014, between NN, Inc.and Warren A. Veltman 10-K 000-23486 10.27 March 16, 2015 10.12* Executive Employment Agreement, dated October 6, 2014, between NN, Inc. andL. Jeffrey Manzagol 10-K 000-23486 10.28 March 16, 2015 10.13* Separation Agreement and Release, dated as of April 4, 2016, by and betweenJames H. Dorton and NN, Inc. 8-K 000-23486 10.1 April 4, 2016 10.14 Amended and Restated Registration Rights Agreement, dated as of June 10, 2016,by and among NN, Inc., the guarantors party thereto, SunTrust RobinsonHumphrey, Inc., on behalf of itself and as representative of the initial purchasers,Spring Capital II Subsidiary, L.P., Summit Partners Credit Fund II, L.P, SummitPartners Credit Fund B-2, L.P., Summit Partners Credit Fund A-2, L.P., SummitInvestors Credit II, LLC, Summit Investors Credit II (UK), L.P. and Summit PartnersCredit Offshore Intermediate Fund II, L.P. 8-K 000-23486 10.1 June 10, 2016 10.15 Amendment and Restatement Agreement, dated as of September 30, 2016, by andamong NN, Inc., certain NN, Inc. subsidiaries named therein, SunTrust Bank,KeyBank National Association and Regions Bank 8-K 000-23486 10.1 October 3, 2016 10.16 Incremental Amendment to Amended and Restated Credit Agreement, dated as ofOctober 31, 2016, among NN, Inc., the Guarantors, HomeTrust Bank, as 2016Revolving Credit Increase Lender, KeyBank National Association, as an L/CIssuer, Regions Bank, as Swing Line Lender and an L/C Issuer, and SunTrust Bank,as Administrative Agent and an L/C Issuer 8-K 000-23486 10.1 November 4, 2016 10.17 NN, Inc. 2016 Omnibus Incentive Plan DEF14A 000-23486 Appendix A November 10, 2016 10.18 Form of Incentive Stock Option Agreement under the 2016 Omnibus IncentivePlan 10-K 000-23486 10.18 March 16, 2017 10.19 Form of Nonqualified Stock Option Agreement under the 2016 Omnibus IncentivePlan 10-K 000-23486 10.19 March 16, 2017 10.20 Form of Restricted Share Award Agreement under the 2016 Omnibus IncentivePlan 10-K 000-23486 10.20 March 16, 2017 87Table of Contents 10.21 Form of Performance Share Unit Award Agreement under the 2016 Omnibus Incentive Plan 10-K 000-23486 10.21 March 16, 2017 10.22* Executive Employment Agreement, dated as of October 19, 2015, by and between NN, Inc.and John A. Manzi. 10-Q 000-23486 10.1 May 4, 2017 10.23* Separation Agreement, dated as of April 1, 2017, by and between NN, Inc. and Matthew S.Heiter. 10-Q 000-23486 10.2 May 4, 2017 10.24 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of April 3, 2017, byand among NN, Inc., certain NN, Inc. subsidiaries named therein, SunTrust Bank, JPMorganChase Bank, N.A., KeyBank National Association and Regions Bank 8-K 000-23486 10.1 April 4, 2017 10.25 Amendment No. 2 to Amended and Restated Credit Agreement, dated as of August 15, 2017,by and among NN, Inc., certain NN, Inc. subsidiaries named therein, and SunTrust Bank,Regions Bank, JPMorgan Chase Bank, N.A., HomeTrust Bank and Key Bank NationalAssociation, collectively, the Revolving Credit Lenders, and SunTrust Bank, as theAdministrative Agent. 8-K 000-23486 10.1 August 18, 2017 10.26 Amendment No. 3 to Amended and Restated Credit Agreement, dated as of November 24,2017, by and among NN, Inc., certain NN, Inc. subsidiaries named therein, SunTrust Bank, asadministrative agent, and certain lenders named therein. 8-K 000-23486 10.1 November 24, 2017 10.27* Separation Agreement and Release, dated as of January 2, 2018, by and between John A.Manzi and NN, Inc. 8-K 000-23486 10.1 January 5, 2018 10.28 Satisfaction and Discharge of Indenture, dated April 3, 2017, between NN, Inc. and U.S. BankNational Association, as trustee 8-K 000-23486 10.2 April 4, 2017 12.1# Calculation of Ratios of Earnings to Fixed Charges 21.1# List of Subsidiaries of NN, Inc. 23.1# Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm 23.2# Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, IndependentRegistered Public Accounting Firm 31.1# Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act 31.2# Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act 32.1## Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act 32.2## Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act 99.1# Financial Statements of Wuxi Weifu Autocam Precision Machinery Co., Ltd. 88Table of Contents101.INS# XBRL Instance Document 101.SCH# XBRL Taxonomy Extension Service 101.CAL# Taxonomy Calculation Linkbase 101LAB# 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 89Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. NN, Inc.By: /s/ RICHARD D. HOLDER Richard D. Holder Chief Executive Officer, President and Director Dated: April 2, 2018Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantand in the capacities and on the date indicated. Name and Signature Title Date/s/ RICHARD D. HOLDERRichard D. Holder Chief Executive Officer, President and Director April 2, 2018/s/ THOMAS C. BURWELL, JR.Thomas C. Burwell, Jr. Senior Vice President- Chief Financial Officer April 2, 2018/s/ ROBERT E. BRUNNERRobert E. Brunner Non-Executive Chairman, Director April 2, 2018/s/ WILLIAM DRIESWilliam Dries Director April 2, 2018/s/ DAVID K. FLOYDDavid K. Floyd Director April 2, 2018/s/ DAVID L. PUGHDavid L. Pugh Director April 2, 2018/s/ CAREY A. SMITHCarey A. Smith Director April 2, 2018/s/ STEVEN T. WARSHAWSteven T. Warshaw Director April 2, 2018 90Exhibit 12.1NN, Inc.Computation of Ratio of Earnings to Fixed ChargesFor Fiscal Years Ended December 31, 2013 through 2017(in thousands except ratio amounts) For Fiscal Years Ended December 31, 2017 2016(1) 2015(1) 2014 2013 Earnings: Loss from continuing operations before provision for income taxes and minority interest (58,873) (30,866) (49,218) (17,397) (1,009) Fixed charges 55,843 67,602 33,205 13,325 3,148 Amortization of capitalized interest 260 239 — — — Distributed income of equity investees 4,156 3,706 2,868 2,538 — Pre-tax losses (gains) of equity investees 5,582 6,427 5,440 1,646 — Less: Interest capitalized (1,081) (1,589) (1,375) (946) — Total Adjusted Earnings 5,887 45,519 (9,080) (834) 2,139 Fixed Charges: Interest expense 47,970 58,986 28,145 10,051 1,827 Capitalized interest 1,081 1,589 1,375 946 — Amortization of debt issuance costs 4,296 4,168 1,754 844 547 Interest estimate within rental expense 2,496 2,859 1,931 1,484 774 Total Fixed Charges 55,843 67,602 33,205 13,325 3,148 Ratio of Earnings to Fixed Charges 0.1x 0.7x -0.3x -0.1x 0.7x (1)Includes the effects of prior periods’ revisions as disclosed in Note 21 of the Notes to Consolidated Financial Statements included in Item 8 of thisAnnual Report.Exhibit 21.1Subsidiaries of Registrant Subsidiaries of NN, Inc. Jurisdiction of Incorporation or OrganizationAdvanced Precision Products, Inc. DelawareAutocam (China) Automotive Components Co., Ltd. ChinaAutocam Corporation MichiganAutocam do Brasil Usinagem, Ltda. BrazilAutocam Equipment Holdings, LLC DelawareAutocam Equipment, LLC DelawareAutocam Europe, B.V. NetherlandsAutocam France, SARL FranceAutocam International, Ltd MichiganAutocam Poland Sp. z o.o. PolandAutocam South Carolina, Inc. MichiganAutocam-Pax, Inc. MichiganBoston Endo-Surgical Technologies LLC DelawareBouverat Industries, S.A.S. FranceBrainin (Foshan) Precision Engineered Products Co. Ltd. ChinaBrainin de Mexico, S.A. de C.V. MexicoBrainin-Advance Industries LLC DelawareCaprock Enclosures, LLC TexasCaprock Manufacturing, Inc. TexasConnecticut Plastics LLC DelawareGeneral Metal Finishing LLC DelawareHolmed, LLC DelawareHowesTemco, LLC DelawareIndustrial Molding Corporation TennesseeLacey Manufacturing Company, LLC DelawareMatrix I LLC DelawareNN Life Sciences Design & Development, LLC DelwawareNN Life Sciences – Vandalia, LLC OhioNN Precisions Plastics, Inc. DelawarePMC Acquisition Company, Inc. DelawarePMC USA Acquisition Company, Inc. DelawarePNC Acquisition Company Inc. DelawarePolymetallurgical LLC DelawarePrecision Engineered Products Holdings, Inc. DelawarePrecision Engineered Products LLC DelawarePrecision Metal Components Mexico SRL MexicoPremco, Inc. MassachusettsProfiles Incorporated MassachusettsTrigon International LLC DelawareTriumph LLC ArizonaWauconda Tool & Engineering LLC DelawareWhirlaway Corporation OhioExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-174519, 333-130395, 333-69588, 333-50934, and333-216739) and in the Registration Statement on Form S-3 (No. 333-216737) of NN, Inc. of our report dated April 2, 2018 relating to the financialstatements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPAtlanta, GAApril 2, 2018Exhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-174519, No. 333-130395, No. 333-69588,No. 333-50934 and No. 333-216739) and in the Registration Statement on Form S-3 (No. 333-216737) of our report dated March 16, 2017, relating to thefinancial statements of Wuxi Weifu Autocam Precision Machinery Company, Ltd. as of and for the year ended December 31, 2016, appearing in the AnnualReport on Form 10-K of NN, Inc. for the year ended December 31, 2017. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, People’s Republic of ChinaApril 2, 2018Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULES 13a-14(a) AND 15d-14(a)UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, 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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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 inExchange 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely tomaterially 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 theregistrant’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 reasonablylikely 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 controlover financial reporting. Date: April 2, 2018 /s/ RICHARD D. HOLDER Richard D. Holder President, Chief Executive Officer and Director (Principal Executive Officer)Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULES 13a-14(a) AND 15d-14(a)UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Thomas C. Burwell, Jr., 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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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 inExchange 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely tomaterially 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 theregistrant’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 reasonablylikely 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 controlover financial reporting. Date: April 2, 2018 /s/ THOMAS C. BURWELL, JR. Thomas C. Burwell, Jr. Senior Vice President – Chief Financial Officer (Principal Financial Officer)Exhibit 32.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANTTO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of NN, Inc. (the “Company”) on Form 10-K for the annual period ended December 31, 2017, as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and date indicated below, hereby certifies pursuant to 18U.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 ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company as of the dates and for the periods indicated. Date: April 2, 2018 /s/ RICHARD D. HOLDER Richard D. Holder President, Chief Executive Officer and Director(Principal Executive Officer)Exhibit 32.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANTTO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of NN, Inc. (the “Company”) on Form 10-K for the annual period ended December 31, 2017, as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and date indicated below, hereby certifies pursuant to 18U.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 ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company as of the dates and for the periods indicated. Date: April 2, 2018 /s/ THOMAS C. BURWELL, JR. Thomas C. Burwell, Jr. Senior Vice President – Chief Financial Officer(Principal Financial Officer)Exhibit 99.1WUXI WEIFU AUTOCAMPRECISION MACHINERY CO., LTD.Financial Statements as of December 31, 2017 (unaudited) and 2016 andfor the years ended December 31, 2017 (unaudited), 2016 and 2015 (unaudited)DTT(A)(17)U00010REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors ofWuxi Weifu Autocam Precision Machinery Co., Ltd.We have audited the accompanying balance sheet of Wuxi Weifu Autocam Precision Machinery Co., Ltd. (the “Company”) as of December 31, 2016, and therelated statements of operations, comprehensive income, changes in equity, and cash flows for the year ended December 31, 2016. These financial statementsare the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. According, we express no such opinion. Anaudit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditprovide a reasonable basis for our opinion.In our opinion, such financial statements present fairly, in all material respects, the financial position of Wuxi Weifu Autocam Precision Machinery Co., Ltd.as of December 31, 2016 and the results of its operations and its cash flows for the year ended December 31, 2016, in conformity with accounting principlesgenerally accepted in the United States of America.The accompanying balance sheet of the Company as of December 31, 2015, and the related statements of income, comprehensive income, stockholders’equity, and cash flows for the year ended December 31, 2015 and for the four-month period ended December 31, 2014 were not audited, reviewed orcompiled by us in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, we do not express anopinion on them./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, People’s Republic of ChinaMarch 15, 2017WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.STATEMENTS OF COMPREHENSIVE INCOME(All amounts in RMB unless otherwise stated) For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Revenues Sales to third parties 8,018,531.26 8,712,281.91 4,630,219.43 Sales to related parties (Notes 10) 497,078,185.84 427,627,264.21 346,669,708.76 Total revenues 505,096,717.10 436,339,546.12 351,299,928.19 Costs and expenses Cost of sales (388,344,903.96) (295,485,723.58) (234,042,339.14) Selling, general and administrative expenses (8,583,261.37) (7,324,044.28) (7,501,687.80) Research and development costs (Notes 2) (15,937,928.51) (25,578,659.82) (22,049,817.67) Total costs and expenses (412,866,093.84) (328,388,427.68) (263,593,844.61) Operating income 92,230,623.26 107,951,118.44 87,706,083.58 Interest expense (2,192,401.05) (512,829.58) (299,380.79) Other income and expense, net 250,630.81 (421,921.08) (1,881,497.41) Income before income taxes 90,288,853.02 107,016,367.78 85,525,205.38 Income tax expense (Note 8) (13,032,901.58) (16,090,812.87) (13,176,045.95) Net income 77,255,951.44 90,925,554.91 72,349,159.43 Other comprehensive income — — — Comprehensive income 77,255,951.44 90,925,554.91 72,349,159.43 The accompanying notes are part of the financial statements. - 3 -WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.BALANCE SHEETS(All amounts in RMB unless otherwise stated) December 31, 2017 December 31, 2016 (Unaudited) ASSETS Cash and cash equivalents 38,868,952.66 28,352,964.04 Trade receivables, net of allowance for doubtful accounts of nil as of December 31, 2017 and 2016 4,615,411.23 314,141.44 Amounts due from related parties (Note 10) 122,395,160.34 115,219,953.56 Inventories (Note 3) 76,012,965.65 62,304,790.61 Other current assets (Note 4) 67,600,985.92 11,132,866.29 Total current assets 309,493,475.80 217,324,715.94 Property, plant, and equipment, net (Note 5) 160,951,584.61 156,198,077.50 Intangible assets, net (Note 6) 56,105.94 202,950.31 Total non-current assets 161,007,690.55 156,401,027.81 Total assets 470,501,166.35 373,725,743.75 LIABILITIES Short-term borrowings (Note 7) 90,000,000.00 20,000,000.00 Trade payables 48,370,198.04 43,504,873.01 Amounts due to related parties (Note 10) 4,885,213.83 4,575,558.94 Payroll payable 17,171,693.24 16,301,156.43 Income taxes payable 1,656,731.22 3,874,194.35 Other current liabilities 8,037,045.34 5,832,627.78 Total current liabilities 170,120,881.67 94,088,410.51 Total liabilities 170,120,881.67 94,088,410.51 EQUITY Statutory capital (Note 2) 107,278,476.97 107,278,476.97 Retained earnings 193,101,807.71 172,358,856.27 Total equity 300,380,284.68 279,637,333.24 Total liabilities and equity 470,501,166.35 373,725,743.75 The accompanying notes are part of the financial statements. - 4 -WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.STATEMENTS OF CASH FLOWS(All amounts in RMB unless otherwise stated) For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Cash flows from operating activities Net cash provided by operating activities (Note 9) 77,327,849.49 92,703,479.13 79,523,302.92 Cash flows from investing activities Purchase of property, plant and equipment (92,711,731.80) (25,352,788.80) (48,502,288.67) Purchase of intangible assets — (293,688.74) — Proceeds from sale of property, plant and equipment 12,444,075.93 54,400.00 — Net cash used in investing activities (80,267,655.87) (25,592,077.54) (48,502,288.67) Cash flows from financing activities Capital contribution from investors — — 25,348,054.82 Proceeds from short-term bank borrowings 90,000,000.00 24,091,357.10 20,000,000.00 Dividends paid (56,513,000.00) (50,620,000.00) (41,479,000.00) Repayment of short-term bank borrowings (20,000,000.00) (24,091,357.10) (33,000,000.00) Net cash from financing activities 13,487,000.00 (50,620,000.00) (29,130,945.18) Effect of exchange rate changes on cash and cash equivalents (31,205.00) 27,680.31 — Net increase in cash and cash equivalents 10,515,988.62 16,519,081.90 1,890,069.07 Cash and cash equivalents, beginning of year 28,352,964.04 11,833,882.14 9,943,813.07 Cash and cash equivalents, end of year 38,868,952.66 28,352,964.04 11,833,882.14 The accompanying notes are part of the financial statements. - 5 -WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.STATEMENTS OF EQUITY(All amounts in RMB unless otherwise stated) Statutory capital Retained earnings Total equity Balance at December 31, 2014 (Unaudited) 81,930,422.15 101,183,141.93 183,113,564.08 Net income (Unaudited) — 72,349,159.43 72,349,159.43 Capital contribution (Unaudited) 25,348,054.82 — 25,348,054.82 Dividends paid to shareholders (Unaudited) — (41,479,000.00) (41,479,000.00) Balance at December 31, 2015 (Unaudited) 107,278,476.97 132,053,301.36 239,331,778.33 Balance at December 31, 2015 (Unaudited) 107,278,476.97 132,053,301.36 239,331,778.33 Net income — 90,925,554.91 90,925,554.91 Dividends paid to shareholders — (50,620,000.00) (50,620,000.00) Balance at December 31, 2016 107,278,476.97 172,358,856.27 279,637,333.24 Balance at December 31, 2016 107,278,476.97 172,358,856.27 279,637,333.24 Net income (Unaudited) — 77,255,951.44 77,255,951.44 Dividends paid to shareholders (Unaudited) — (56,513,000.00) (56,513,000.00) Balance at December 31, 2017 (Unaudited) 107,278,476.97 193,101,807.71 300,380,284.68 The accompanying notes are part of the financial statements. - 6 -WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.NOTES TO THE FINANCIAL STATEMENTSTable of Contents Footnote PageNote 1 ORGANIZATION AND PRINCIPAL ACTIVITIES 8Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES 8-13Note 3 INVENTORIES 14Note 4 OTHER CURRENT ASSETS 14Note 5 PROPERTY, PLANT AND EQUIPMENT, NET 14Note 6 INTANGIBLE ASSETS, NET 15Note 7 SHORT-TERM BORROWINGS 15Note 8 INCOME TAX 16Note 9 NOTES TO CASH FLOWS 17Note 10 RELATED PARTY TRANSACTIONS AND BALANCES 18-21Note 11 COMMITMENTS AND CONTINGENCIES 22Note 12 SUBSEQUENT EVENTS 22 - 7 -WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 1.ORGANIZATION AND PRINCIPAL ACTIVITIESWuxi Weifu Autocam Precision Machinery Co., Ltd. (the “Company”) was established in Wuxi, Jiangsu Province, the People’s Republic ofChina (the “PRC”) by Wuxi Weifu Hi-Technology Co., Ltd. and Autocam Corporation as a joint venture on August 23, 2005 with an operatingperiod of 20 years. The Company principally engages in researching, developing and producing precision automotive parts and components andengine control system; selling self-manufactured products and providing after-sales services.Pursuant to Rule 3-09, only the financial statements as of and for the year ended December 31, 2016 have been audited by Deloitte ToucheTohmatsu Certified Public Accountants LLP and the financial statements as of December 31, 2017 and 2015, and for the years endedDecember 31, 2017 and 2015 are unaudited. In the opinion of management, these unaudited financial statements include all adjustments,consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations, and changes incash flows and equity for those periods.These financial statements are presented in Chinese Renminbi (“RMB”), unless otherwise stated. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a)Basis of presentationThe financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“USGAAP”). (b)Use of estimatesThe financial statements are prepared in conformity with US GAAP, which require the use of estimates, judgments, and assumptions that affectthe reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in theperiods presented. Management has made significant estimates in a variety of areas, including but not limited to allowance for doubtfulaccounts, inventories valuation, useful lives and residual values of long-lived assets and impairment for long-lived assets. The Companybelieves that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherentuncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in futureperiods. (c)Foreign currency translationThe Company’s functional and reporting currency is the Renminbi (“RMB”). An entity’s functional currency is the currency of the primaryeconomic environment in which it operates, normally that is the currency of the environment in which it primarily generates and expends cash.Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price andmarket, expenses, financing and intercompany transactions and arrangements.Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of Chinaprevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the Statements ofOperations and Comprehensive Loss. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using theapplicable exchange rates quoted by the People’s Bank of China at the balance sheet date. Nonmonetary assets and liabilities are remeasuredinto the applicable functional currencies at historical exchange rates. All such exchange gains and losses are included in the Statements ofComprehensive Income. (d)Cash and cash equivalentsCash and cash equivalents consist of cash on hand and in banks. 8WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES - continued (e)Allowance of accounts receivableThe Company regularly review the creditworthiness of our customers, and generally does not require collateral or other security from thecustomers.The carrying value of accounts receivable is reduced by an allowance that reflects our best estimate of the amounts that will not be collected. Wemake estimations of the collectability of accounts receivable. Many factors are considered in estimating the allowance, including but not limitedto reviewing delinquent accounts receivable, performing aging analyses and customer credit analyses, and analyzing historical bad debt recordsand current economic trends. Additional allowance for specific doubtful accounts might be made if our customers are unable to make paymentsdue to their deteriorating financial conditions. The Company has no significant credit risk associated with accounts receivable. (f)InventoriesInventories are stated at lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course ofbusiness, less reasonably predictable costs of completion, disposal, and transportation. Raw materials and work-in-process are reviewed todetermine if inventory quantities are in excess of forecasted usage, or if they have become obsolete. Write-downs are recorded in cost of revenuesin the Statements of Comprehensive Income. No inventory write-down was made in the years ended December 31, 2017, 2016 and 2015. (g)Fair value measurementsA three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflectmarket data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available.These three types of inputs create the following fair value hierarchy: • Level 1 - Quoted prices for identical instruments in active markets; • Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are notactive; and model-derived valuations whose significant inputs are observable; and • Level 3 - Instruments whose significant inputs are unobservable.Financial instruments are transferred in and/or out of Level 1, 2 or 3 at the beginning of the accounting period in which there is a change in thevaluation inputs.The Company’s fair value of its financial instruments, principally cash and cash equivalents, accounts receivable, amount due from/to relatedparties, other current assets, short-term borrowings, accounts and notes payable, payroll payable and other current liabilities, approximate theirrecorded values due to the short-term nature of the instruments or interest rates, which are comparable with current rates. 9WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES - continued (h)Property, plant and equipment, netProperty, plant and equipment are recorded at cost less accumulated depreciation. Major improvements that extend the useful life of property arecapitalized. Expenditures for repairs and maintenance are charged to expense as incurred.The Company’s depreciation method is summarized in the following table: Category Depreciation method Salvage value rate Estimated useful lives Machinery and equipment Straight-line 10% 10 years Motor vehicles Straight-line 10% 10 years Office equipment Straight-line 10% 5 years Leasehold improvements Straight-line 10% 5 years The Company reassesses the reasonableness of the estimates of useful lives and residual values of long-lived assets when events or changes incircumstances indicate that the useful lives and residual values of a major asset or a major category of assets may not be reasonable. Factors thatthe Company considers in deciding when to perform an analysis of useful lives and residual values of long-lived assets include, but are notlimited to, significant variance of a business or product line in relation to expectations, significant deviation from industry or economic trends,and significant changes or planned changes in the use of the assets. The analysis will be performed at the asset or asset category with thereference to the assets’ conditions, current technologies, market, and future plan of usage and the useful lives of major competitors. (i)Intangible assetsIntangible assets include computer software and are amortized on a straight-line basis over the expected beneficial periods, ranging from two tofive years. The estimated lives of intangible assets are reassessed if circumstances occur that indicate the lives have changed. (j)Impairment of long-lived assetsLong-lived assets and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. When events and circumstances warrant, the Company evaluates thecarrying value of long-lived assets to be held and used in the business. If the carrying value of a long-lived asset group is considered impaired, aloss is recognized based on the amount by which the carrying value exceeds the fair value for assets to be held and used. Fair value is determinedprimarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Long-lived assets to be disposed of otherthan by sale are considered held for use until disposition. No impairment charges recognized for the years ended December 31, 2017, 2016 and2015 respectively. (k)Revenue recognitionThe Company recognizes revenues when the following four revenue recognition criteria are met, which is when goods are delivered to andaccepted by customers: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the sellingprice is fixed or determinable, and (iv) collectability is reasonably assured.Sales consist primarily of revenue generated from the sale of precision automotive parts and components and engine control system. Sales arerecorded when title and risks and rewards of ownership have passed to our customers. (l)Cost of revenuesCost of products consists of the purchase price of raw materials, electricity and other utilities, consumables, direct labor, overhead costs,depreciation of property, plant and equipment and inbound shipping charges, as well as inventory write-downs. 10WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES - continued (m)Research and development costsResearch and development costs are expensed when incurred. Expenditures for research activities relating to product development andimprovement are charged to expense as incurred. Such expenditures amounted to RMB15,937,928.51, RMB25,578,659.82 andRMB22,049,817.67 for the years ended December 31, 2017, 2016 and 2015 respectively. (n)Income taxesThe Company uses the asset and liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporarydifferences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using the statutory tax rates ineffect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in the results of operations in the period that includes the enactment date under the law. A valuation allowance is recorded to reducethe carrying amounts of deferred tax assets unless it is more likely than not that such asset will be realized.The Company recognizes a tax benefit associated with an uncertain tax position when, in management’s judgment, it is more likely than not thatthe position will be sustained upon examination by a taxing authority. The Company has elected to classify interest and penalties related to anuncertain tax position, if any and when required, as general and administrative expenses. During 2017, 2016 and 2015, the Company did notrecord any interest and penalties associated with uncertain tax positions as there were no uncertain tax positions. (o)Restricted reservesPursuant to laws applicable to entities incorporated in the PRC, the Company must make appropriations from after-tax profit to a surplus reservefund, enterprise expansion fund and staff welfare fund. The amount allocated to each of these funds is at the discretion of the Company’s boardof directors, who has determined that an annual appropriation of 10% of after-tax profit, after offsetting accumulated losses from prior years, is tobe made to surplus reserve fund and 5% to enterprise expansion fund and staff welfare fund, respectively . Moreover, the Company’s board ofdirectors also has determined that the Company can cease appropriation when the surplus reserve fund and enterprise expansion fund togetheraccumulated reach 50% of the statutory capital.The reserve fund can only be used for specific purpose of offsetting future losses, enterprise expansion and not distributable as cash dividends.Since the accumulated amount of surplus reserve fund and enterprise expansion fund reaches 50% of the statutory capital, there is no furtherappropriation made for surplus reserve fund and enterprise expansion fund and the total amount was RMB60,920,156.93 as of December 31,2017, same as that of 2016. In addition, due to the restrictions on the distribution of statutory capital from the Company, statutory capital ofRMB107,278,476.97 as of December 31, 2017 is considered restricted. As a result of these PRC laws and regulations, as of December 31, 2017,statutory capital, reserve fund and enterprise expansion fund, with total amount of RMB168,198,633.90, are not available for distribution in theform of dividends, loans or advances. 11WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES - continued (p)Concentration of credit riskFinancial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents andaccounts receivable.The Company places cash and cash equivalents with financial institutions with high credit ratings and quality.The Company conducts credit evaluations of customers and generally does not require collateral or other security from the customers. (q)Recent accounting pronouncementIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09. This update isintended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach.The core principle of the standard is that revenue should be recognized when the transfer of promised goods or services is made in an amountthat the entity expects to be entitled to in exchange for the transfer of goods and services. The update also requires disclosures enabling users offinancial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.The FASB has recently issued several amendments to the standard, including clarification on principal versus agent considerations, accountingfor licenses of intellectual property and identifying performance obligations. The amendments in this ASU are effective for annual reportingperiods beginning after December 15, 2018 (early adoption permitted after December 15, 2018) for non-public companies. The Company is inthe process of evaluating the impact of adoption of this guidance on its financial statements.In November 2015, FASB issued Accounting Standards Update 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of DeferredTaxes. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement offinancial position. The amendments in this Update apply to all entities that present a classified statement of financial position. For non-publicbusiness entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15,2017 (early adoption permitted). The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets orretrospectively to all periods presented. Management is in the process of evaluating the impact, if any, of the standard on its financial statements.In January 2016, the FASB issued a new pronouncement ASU 2016-01 which is intended to improve the recognition and measurement offinancial instruments. Under this updated standard, entities must measure equity investments at fair value and recognize changes in fair value innet income. For equity investments without readily determinable fair values, entities have the option to either measure these investments at fairvalue or at cost adjust for changes in observable prices less impairment. The updated guidance does not apply to equity method investments orinvestments in consolidated subsidiaries. The new guidance is effective for non-public companies for fiscal years beginning after December 15,2018 (early adoption permitted). The Company does not expect the adoption of this guidance will have a material effect on the Company’sfinancial statements. 12WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES - continued (q)Recent accounting pronouncement - continued In January 2016, the FASB issued a new pronouncement ASU 2016-13 which is intended to improve the accounting for credit losses on financialassets within its scope. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAPand, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation accountthat is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for saledebt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses bepresented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that arenot accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, offbalance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractualright to receive cash. The new guidance is effective for non-public companies for fiscal years beginning after December 15, 2018(early adoptionpermitted). The Company does not expect the adoption of this guidance will have a material effect on the Company’s financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance supersedes existing guidance on accounting for leaseswith the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and leaseliabilities, initially measured at the present value of the lease payments. For operating leases with a term of 12 months or less, a lessee ispermitted to make an accounting policy election not to recognize lease assets and liabilities. For non-public business entities, the guidance iseffective for fiscal years beginning after December 15, 2019 (early adoption permitted). In transition, entities are required to recognize andmeasure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is in the process ofevaluating the impact that this pronouncements on its financial statements.In August, 2016, the FASB issued a new pronouncement ASU 2016-15, which makes eight targeted changes to how cash receipts and cashpayments are presented and classified in the statement of cash flows. For non-public companies, the guidance in the ASU is effective for fiscalyears beginning after December 15, 2018 (early adoption permitted). Entities must apply the guidance retrospectively to all periods presentedbut may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. The Company is in theprocess of evaluating the impact of adoption of this pronouncements on its financial statements.In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statementof Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which enhances and clarifies the guidance on the classification and presentationof restricted cash in the statement of cash flows. The new guidance is effective for non-public companies for fiscal years beginning afterDecember 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption. Management is in the processof evaluating the impact of the standard on its financial statements. 13WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 3.INVENTORIESThe following table summarizes the components of inventories. December 31, 2017 December 31, 2016 (Unaudited) Raw materials 49,721,651.13 39,993,854.09 Work in progress 12,273,357.09 8,850,215.67 Finished goods 14,017,957.43 13,460,720.85 Total inventories 76,012,965.65 62,304,790.61 4.OTHER CURRENT ASSETSThe following table summarizes the components of other current assets. December 31, 2017 December 31, 2016 (Unaudited) Advances to suppliers 67,157,510.90 11,078,991.08 Other receivables 15,379.77 53,875.21 Deferred tax assets 428,095.25 — Total other current assets 67,600,985.92 11,132,866.29 5.PROPERTY, PLANT AND EQUIPMENT, NETThe following table summarizes the components of property, plant and equipment. December 31, 2017 December 31, 2016 (Unaudited) Machinery and equipment 224,692,012.98 235,271,249.14 Motor Vehicles 1,480,616.61 1,419,975.58 Office equipment 19,955,969.99 16,144,100.57 Leasehold improvements 5,715,229.71 4,701,243.15 Total 251,843,829.29 257,536,568.44 Accumulated depreciation (123,597,494.21) (107,752,818.42) Subtotal 128,246,335.08 149,783,750.02 Construction in progress 32,705,249.53 6,414,327.48 Total property, plant and equipment, net 160,951,584.61 156,198,077.50 For the years ended December 31, 2017, 2016 and 2015, depreciation expense was RMB22,846,049.79, RMB20,764,534.52 andRMB17,399,805.23 of which about 99.65%, 99.64% and 99.51% were charged to cost of sales and 0.35%, 0.36% and 0.49% to selling, generaland administrative expenses for the years ended December 31, 2017, 2016, and 2015, respectively. No impairments on property, plant andequipment, net were recorded in the fiscal years ended December 31, 2017, 2016 and 2015. 14WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 6.INTANGIBLE ASSETS, NETIntangible assets include computer software, summarized as follows. December 31, 2017 December 31, 2016 (Unaudited) Computer software 766,949.99 766,949.99 Accumulated amortization (710,844.05) (563,999.68) Computer software, net 56,105.94 202,950.31 For the years ended December 31, 2017, 2016 and 2015, amortization expense was RMB146,844.37, RMB109,549.00 and RMB55,067.59which was charged to general and administrative expenses for the years ended December 31, 2017 and 2016, and 2015, respectively.Estimated amortization expense for each of next five years is as follows: 2018 2019 2020 2021 2022 Estimated amortization expense 56,105.943 — — — — No impairment needs to be provided for intangible assets at the year end. 7.SHORT-TERM BORROWINGS December 31, 2017 December 31, 2016 (Unaudited) Unsecured 90,000,000.00 20,000,000.00 The credit loan was borrowed from Jiang Su Bank Wuxi Branch and there is no guarantee on the loan balance.The weighted average interest rates on the short-term bank borrowings were 4.26% and 4.35% for the years ended December 31, 2017 and 2016,respectively. 15WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 8.INCOME TAXThe income tax rate is 15% since the entity was regarded as high-tech company.Income tax expense is summarized as follows: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Current income tax expense 13,460,996.83 16,090,812.87 13,176,045.95 Deferred income tax expense (428,095.25) — — Total income tax expense 13,032,901.58 16,090,812.87 13,176,045.95 A reconciliation of the provisions for income taxes with amounts determined by applying the statutory income tax rate to income before incometax is as follows. For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Statutory income tax rate 15% 15% 15% Computed tax at the statutory tax rate 13,543,327.95 16,052,455.17 12,828,780.81 Effect of expenses that are not deductible in determining taxableprofit 398,862.30 109,444.18 14,360.39 Additional deduction of research and development expenses (383,809.80) — — Effect of expenses adjusted for prior year (525,478.87) (71,086.48) 332,904.75 Income tax expense 13,032,901.58 16,090,812.87 13,176,045.95 Effective income tax rate 14% 15% 15% 16WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 9.NOTES TO CASH FLOWSThe reconciliation of net income to net cash provided by operating activities for the years ended December 31 was as follows (in RMBthousands): For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Net income 77,255,951.44 90,925,554.91 72,349,159.43 Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation 22,846,049.79 20,764,534.52 17,399,805.23 Disposal of property, plant and equipment 22,166.06 34,368.23 — Amortization of intangible assets 146,844.37 109,549.00 55,067.59 Finance expense 31,205.00 — — Changes in operating assets and liabilities: Increase in amounts due from related parties (7,175,206.78) (32,269,803.81) (11,658,129.57) (Increase) decrease in other current assets (796,554.13) 567,686.30 12,310,284.10 Increase in accounts receivable (4,301,269.79) (184,374.62) (106,439.24) (Increase) decrease in inventories (13,708,175.04) (8,767,790.75) 364,833.25 Increase (decrease) in amounts due to related parties 309,654.89 4,430,903.48 (8,318,418.93) Increase (decrease) in accounts payables 4,865,325.03 14,366,956.50 (7,165,358.08) Increase (decrease) in income taxes payable (2,217,463.13) 1,052,257.51 1,561,416.14 Increase (decrease) in other current liability (821,215.03) 2,113,512.82 2,175,314.08 Increase (decrease) in payroll payable 870,536.81 (439,874.96) 555,768.92 Net cash provided by operating activities 77,327,849.49 92,703,479.13 79,523,302.92 Supplemental disclosure of cash flow information: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Income taxes paid 15,386,015.29 15,038,555.36 11,293,380.70 Interest paid 2,368,294.74 1,052,093.82 1,141,230.01 Supplemental schedule of non-cash investing activities: For the years ended December 31, 2017 2016 2015 (i) (Unaudited) (Unaudited) Payable for purchase of property, plant and equipment 3,025,632.59 — 1,678,052.31 (i)The amount included the effects of prior periods’ revision of RMB 118,776,560.00. 17WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 10.RELATED PARTY TRANSACTIONS AND BALANCES (1)The relationship between the Company and related party are as follows: Company Relationship with the CompanyWuxi Weifu Hi-Technology Co., Ltd. InvestorAutocam Corporation InvestorWeifu Mashan Pump Glib Co., Ltd. Subsidiary of Wuxi Weifu Hi-Technology Co., Ltd.United Automotive Electronic Systems Co., Ltd. Subsidiary of the investor of Wuxi Weifu Hi-TechnologyCo., Ltd.Wuxi Weifu International Trade Co., Ltd. Subsidiary of Wuxi Weifu Hi-Technology Co., Ltd.Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. Subsidiary of Wuxi Weifu Hi-Technology Co., Ltd.Autocam (China) Automotive Components Co., Ltd. Subsidiary of Autocam CorporationWuxi Weifu Automotive Diesel Systems Co., Ltd. Subsidiary of Wuxi Weifu Hi-Technology Co., Ltd.Weifu Environmental Protection Cayalyst Co., Ltd. Subsidiary of Wuxi Weifu Hi-Technology Co., Ltd. (2)Significant transactions between the Company and related parties in the year: (a)Sales and purchasesSales and purchases between the Company and its related parties were as follows: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Sales: United Automotive Electronic Systems Co., Ltd. 421,862,669.90 372,986,849.62 309,728,240.95 Wuxi Weifu Hi-Technology Co., Ltd. 28,129,302.07 15,716,216.48 8,991,736.79 Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. 19,068,699.27 6,067,625.35 831,430.44 Wuxi Weifu International Trade Co., Ltd. 16,071,603.32 21,620,109.27 21,330,008.20 Wuxi Weifu Automotive Diesel Systems Co., Ltd 11,614,510.90 11,230,758.00 5,666,492.88 Weifu Mashan Pump Glib Co., Ltd. 331,400.38 5,705.49 121,799.50 Total 497,078,185.84 427,627,264.21 346,669,708.76 For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Purchase: Wuxi Weifu International Trade Co., Ltd. 39,868,723.30 41,288,742.59 37,121,469.96 Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. 4,073,483.83 1,885,394.40 1,603,886.13 Autocam Corporation 1,787,550.11 964,532.27 1,097,700.46 Wuxi Weifu Hi-Technology Co., Ltd. — 4,782,300.69 2,880,077.16 Total 45,729,757.24 48,920,969.95 42,703,133.71 18WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 10.RELATED PARTY TRANSACTIONS AND BALANCES – continued (2)Significant transactions between the Company and related parties in the year-continued: (b)OthersDetails of sale of machinery to the related party were as follows: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Wuxi Weifu Hi-Technology Co., Ltd. 12,483,952.29 — — Details of purchase of machinery and software from the related party were as follows: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Autocam Corporation 39,066.48 183,360.37 31,551.97 Details of general expenses paid on behalf of related parties were as follows: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Autocam (China) Automotive Components Co., Ltd. 4,629,705.78 8,490,391.51 5,267,356.39 Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. 2,998,263.07 2,564,239.25 1,732,007.45 United Automotive Electronic Systems Co., Ltd. — 606,256.00 278,880.00 Weifu Environmental Protection Cayalyst Co., Ltd. — — 38,000.00 Total 7,627,968.85 11,660,886.76 7,316,243.84 Details of general expenses charged by related parties were as follows: For the years ended December 31, 2017 2016 2015 (Unaudited) (Unaudited) Wuxi Weifu Hi-Technology Co., Ltd. 6,357,752.52 2,140,034.40 2,027,337.08 Autocam Corporation 1,212,408.00 900,325.37 1,831,956.69 Autocam (China) Automotive Components Co., Ltd. — 97,747.99 135,104.00 Total 7,570,160.52 3,138,107.76 3,994,397.77 19WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 10.RELATED PARTY TRANSACTIONS AND BALANCES - continued (2)Significant transactions between the Company and related parties in the year-continued: (c)Balances due from/to related parties Accounts Name of the related parties December 31, 2017 December 31, 2016 (Unaudited) Amount due from related parties -Accounts receivables United Automotive Electronic Systems Co., Ltd. 50,458,811.71 54,259,344.08 Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. 21,250,032.21 8,253,924.12 Wuxi Weifu Hi-Technology Co., Ltd. 3,601,362.29 2,537,687.15 Wuxi Weifu International Trade Co., Ltd. 2,875,539.92 3,572,227.14 Autocam (China) Automotive Components Co., Ltd. — 14,362.92 Wuxi Weifu Automotive Diesel Systems Co., Ltd. — 3,086,444.08 Total 78,185,746.13 71,723,989.49 -Other receivables Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. 2,998,263.07 2,486,196.48 Autocam (China) Automotive Components Co., Ltd 298,443.30 220,627.51 Wuxi Weifu Hi-Technology Co., Ltd. — 35,061.40 Total 3,296,706.37 2,741,885.39 -Note receivables United Automotive Electronic Systems Co., Ltd. 37,037,457.36 40,733,401.63 Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. 3,875,250.48 — Total 40,912,707.84 40,733,401.63 -Advances to suppliers Autocam Corporation — 20,677.05 Total 122,395,160.34 115,219,953.56 20WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 10.RELATED PARTY TRANSACTIONS AND BALANCES - continued (2)Significant transactions between the Company and related parties in the year - continued: (c)Balances due from/to related parties – continued Accounts Name of the related parties December 31, 2017 December 31, 2016 (Unaudited) Amount due to related parties -Accounts payable Wuxi Weifu International Trade Co., Ltd 1,675,370.87 2,093,481.59 Autocam Corporation 142,370.42 3,793.72 Wuxi Weifu Hi-Technology Co., Ltd. 28,700.00 — Wuxi Weifu Schmidt Power System Spare Parts Co., Ltd. — 2,130,795.19 Autocam (China) Automotive Components Co., Ltd. — 7,870.17 Total 1,846,441.29 4,235,940.67 -Other payables Wuxi Weifu Hi-Technology Co., Ltd. 2,853,968.47 — Autocam Corporation — 7,064.39 Total 2,853,968.47 7,064.39 -Payroll payable (i) Autocam Corporation 184,804.07 332,553.88 Total 4,885,213.83 4,575,558.94 (i)Salaries of general manager were paid by Autocam Corporation in advance, which would be paid back to Autocam Corporation by the Company. 21WUXI WEIFU AUTOCAM PRECISION MACHINERY CO., LTD.December 31, 2017 (unaudited), 2016 and 2015 (unaudited)Notes to The Financial Statements 11.COMMITMENTS AND CONTINGENCIES a)Operating lease commitmentsThe company has entered into leasing arrangements relating to office premises that are classified as operating leases. Future minimum leasepayments for non-cancellable operating leases as of December 31, 2017 are as follows: Year ending December 31, 2017 2018 4,142,479.50 2019 — And after years — Total minimum lease payments 4,142,479.50 Rental expense amounted to RMB6,932,030.29, RMB3,590,854.51 and RMB 2,795,898.28 for the years ended December 31, 2017, 2016 and2015. Rental expense is charged to the Statement of Comprehensive Income when incurred. b)Capital commitmentsThe capital commitment for 2017 was RMB 41,845.991.86 (2016: nil). As of December 31, 2016, the Company has entered into purchasecommitments for the acquisition of long-lived assets, which have not been recognized in the financial statements. However, the Company wasstill negotiating with the supplier on the final acquisition scale which would be concluded in 2017. c)ContingenciesThe Company is not currently a party to any pending material litigation or other legal proceeding or claims. 12.SUBSEQUENT EVENTSIn connection with the presentation of these financial statements, an evaluation of subsequent events was performed through April 2, 2018.* * * * * 22

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