Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
NN, Inc., a diversified industrial company, combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies for a variety of markets on a global basis. As used in this Quarterly Report on Form 10-Q, the terms NN, the Company, we, our, or us refer to NN, Inc., and its subsidiaries. We have historically reported results of operations in three
reportable segments: the Precision Bearing Components Group (PBC), the Precision Engineered Products Group (PEP), and the Autocam Precision Components Group (APC). On August 17, 2017, we sold our PBC
business. The Results of Operations section below and Note 2 in these Notes to Condensed Consolidated Financial Statements provide further information on the sale of the PBC business. After the sale, we had 33 manufacturing facilities in North
America, Europe, South America and China. We added three more North American manufacturing facilities in October 2017 (see the subsequent event described in the Results of Operations section below for more information about our
acquisition subsequent to September 30, 2017).
This Quarterly Report on Form 10-Q contains forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating
to NN, Inc., based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as anticipate,
believe, could, estimate, expect, forecast, guidance, intend, may, possible, potential, predict, project
or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that are outside of managements control and that may cause actual results to be materially different from such
forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial sector, competitive influences, risks that current customers will commence or increase captive production, risks of
capacity underutilization, quality issues, availability of raw materials, currency and other risks associated with international trade, our dependence on certain major customers, the impact of acquisitions and divestitures, unanticipated
difficulties integrating acquisitions, new laws and governmental regulations, and other risk factors and cautionary statements listed from time-to-time in our periodic
reports filed with the Securities and Exchange Commission. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or therein to reflect
future events or developments.
For additional information concerning such risk factors and cautionary statements, please see the section titled
Item 1A. Risk Factors in our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which we filed with the SEC on March 16, 2017 (the 2016 Annual
Results of Operations
That May Influence Results of Operations
The following paragraphs describe factors that have influenced results of operations for the three-month and
nine-month periods ended September 30, 2017, that management believes are important to provide an understanding of the business and results of operations.
On 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. We expect to finalize purchase price adjustments in accordance with the purchase
agreement. The PBC business included all our facilities that were engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty products used primarily in the bearing industry. The PBC business
represented all of the PBC reportable segment disclosed in our historical financial statements.
The sale of the PBC business furthers managements
long-term strategy to build a diversified industrial business with a comprehensive geographic footprint in attractive high-growth market segments. We intend to deploy the proceeds into higher-growth, higher-margin end markets, while also
accelerating our focus on paying down debt.
We received cash proceeds of $387.6 million and recorded an estimated
after-tax gain on sale of $129.4 million, which is included in the Income from discontinued operations, net of tax line on the Condensed Consolidated Statements of Operations and Comprehensive
Income for the three-month and nine-month periods ended September 30, 2017. The net amount of cash proceeds and gain are subject to change due to the finalization of working capital adjustments.