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8-K
NN INC filed this Form 8-K on 08/23/2017
Entire Document
 
EX-99.1

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On August 17, 2017, NN, Inc. (the “Company”) completed the sale of its global precision bearing components business (the “PBC Business”) to TSUBAKI NAKASHIMA Co., Ltd. for total cash consideration of approximately $387.6 million.

The unaudited pro forma condensed consolidated balance sheet and the unaudited pro forma condensed consolidated statements of operations are derived from, and should be read in conjunction with, the historical financial statements and notes thereto of the Company, as presented in its Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2017, and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed with the SEC on August 14, 2017.

In connection with the preparation of Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2017, the Company identified misstatements in its previously issued financial statements related to the foreign currency translation of its investment in a China joint venture. In addition, the Company previously corrected as out of period adjustments certain immaterial misstatements and reflected them in the prior period financial statements, where applicable. The Company assessed the materiality of the misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Materiality, codified in ASC Topic 250, Presentation of Financial Statements, (“ASC 250”) and concluded that the misstatements were not material to any prior annual or interim periods. In accordance with ASC 250 (SAB Topic 1.N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the Company has corrected these misstatements by revising the consolidated historical columns in the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, included herein. See Note 14 as presented in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed with the SEC on August 14, 2017 for additional information.

The unaudited pro forma condensed consolidated financial statements have been prepared giving effect to the sale of the Company’s PBC Business (the “Transaction”) as if the Transaction had occurred on June 30, 2017 for the unaudited pro forma condensed consolidated balance sheet and on January 1, 2014 for the unaudited pro forma condensed consolidated statements of operations. The unaudited pro forma condensed consolidated financial statements have been prepared giving effect to the pro forma assumption that the Company would have repaid a portion of its credit facilities with proceeds from the Transaction as if the repayment of credit facilities had occurred on June 30, 2017 for the unaudited pro forma condensed consolidated balance sheet and on January 1, 2016 for the unaudited pro forma condensed consolidated statements of operations.

 

The unaudited pro forma condensed consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this Current Report on Form 8-K.

The unaudited pro forma condensed consolidated financial statements do not purport to represent, and are not necessarily indicative of, what the Company’s actual financial position and results of operations would have been had the transaction occurred on the dates indicated. In addition, these unaudited pro forma condensed consolidated financial statements should not be considered to be indicative of the Company’s future financial performance.

The unaudited pro forma condensed consolidated financial information includes information, statements, and assumptions that are or may be considered “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by the use of words such as “may,” “should,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan” or similar expressions. Statements that describe objectives, plans, or goals also are forward-looking statements. These forward-looking statements involve risks and uncertainties, and actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. For any forward-looking statements contained herein, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and the Company undertakes no obligation to update publicly or revise any forward-looking statements in light of new information or future events, except as required by law.


Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of June 30, 2017

 

(in thousands)

   Consolidated
Historical
NN, Inc.
     PBC
Business
    Pro Forma
Adjustments
    Notes      Pro Forma  

Assets

            

Current assets:

            

Cash

   $ 19,166      $ (12,091        $ 7,075  

Accounts receivable, net

     162,363        (53,369          108,994  

Inventories

     123,702        (51,559          72,143  

Income tax receivable

     8,631        —              8,631  

Other current assets

     13,766        (4,293          9,473  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total current assets

     327,628        (121,312     —            206,316  

Property, plant and equipment, net

     333,160        (94,636          238,524  

Goodwill, net

     452,282        (9,082          443,200  

Intangible assets, net

     244,264        (1,683          242,581  

Investment in joint venture

     39,853        —              39,853  

Other non-current assets

     8,629        (145          8,484  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total assets

   $ 1,405,816      $ (226,858   $ —          $ 1,178,958  
  

 

 

    

 

 

   

 

 

      

 

 

 

Liabilities and Stockholders’ Equity

            

Current liabilities:

            

Accounts payable

   $ 78,308      $ (32,802        $ 45,506  

Accrued salaries, wages and benefits

     23,941        (9,129          14,812  

Income taxes payable

     —          —         70,755       (b)        70,755  

Current maturities of long-term debt

     24,748        —              24,748  

Current portion of obligation under capital lease

     3,523        (440          3,083  

Other current liabilities

     16,543        (1,905          14,638  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total current liabilities

     147,063        (44,276     70,755          173,542  

Deferred tax liabilities

     99,333        —         (5,490     (i)        93,843  

Long-term debt, net of current portion

     827,390        —         (367,676     (a)        459,714  

Accrued post-employment benefits

     5,879        (4,667          1,212  

Obligation under capital lease, net of current portion

     4,691        (2,588          2,103  

Other non-current liabilities

     9,647        (1,181          8,466  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total liabilities

     1,094,003        (52,712     (302,411        738,880  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     311,813        (174,146     302,411       (d)        440,078  
  

 

 

    

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 1,405,816      $ (226,858   $ —          $ 1,178,958  
  

 

 

    

 

 

   

 

 

      

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.


Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Six Months Ended June 30, 2017

 

(in thousands, except per share data)

   Consolidated
Historical
NN, Inc.
    PBC
Business
    Pro Forma
Adjustments
    Notes    Pro Forma  

Net sales

   $ 452,189     $ (136,687        $ 315,502  

Cost of products sold (exclusive of depreciation and amortization shown separately below)

     332,994       (104,484          228,510  

Selling, general and administrative expense

     44,530       (8,910     (293   (c)      35,327  

Acquisition related costs excluded from selling, general and administrative

     —         —              —    

Depreciation and amortization

     31,468       (6,112          25,356  

(Gain) loss on disposal of assets

     —         —              —    

Restructuring and integration expense

     446       (429          17  
  

 

 

   

 

 

   

 

 

      

 

 

 

Income from operations

     42,751       (16,752     293          26,292  

Interest expense

     27,365       (188     (12,880   (e)      14,297  

Loss on extinguishment of debt and write-off of unamortized debt issuance costs

     39,639       —         (39,639   (g)      —    

Derivative payments on interest rate swap

     —         —              —    

Derivative loss on change in interest rate swap fair value

     13       —              13  

Other (income) expense, net

     (79     (18          (97
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before provision (benefit) for income taxes and share of net income from joint venture

     (24,187     (16,546     52,812          12,079  

Provision (benefit) for income taxes

     (7,128     (5,626     17,956     (f)      5,202  

Share of net income from joint venture

     2,937       —              2,937  
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

   $ (14,122   $ (10,920   $ 34,856        $ 9,814  
  

 

 

   

 

 

   

 

 

      

 

 

 

Basic net income (loss) per share:

           

Net income (loss) per share

   $ (0.52          $ 0.36  
  

 

 

          

 

 

 

Weighted average shares outstanding

     27,358              27,358  
  

 

 

          

 

 

 

Diluted net income (loss) per share:

           

Net income (loss) per share

   $ (0.52          $ 0.35  
  

 

 

          

 

 

 

Weighted average shares outstanding

     27,358         334     (h)      27,692  
  

 

 

          

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.


Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2016

 

(in thousands, except per share data)

   Consolidated
Historical
NN, Inc.

As Revised
    PBC
Business
    Pro Forma
Adjustments
    Notes     Pro Forma  

Net sales

   $ 833,488     $ (248,534       $ 584,954  

Cost of products sold (exclusive of depreciation and amortization shown separately below)

     621,022       (193,022         428,000  

Selling, general and administrative expense

     80,231       (16,485         63,746  

Acquisition related costs excluded from selling, general and administrative

     —         —             —    

Depreciation and amortization

     62,488       (11,676         50,812  

(Gain) loss on disposal of assets

     288       —             288  

Restructuring and integration expense

     10,024       (4,366         5,658  
  

 

 

   

 

 

   

 

 

     

 

 

 

Income from operations

     59,435       (22,985     —           36,450  

Interest expense

     63,154       (284     (30,999     (e)       31,871  

Loss on extinguishment of debt and write-off of unamortized debt issuance costs

     2,589       —         62,498       (g)       65,087  

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

     (2,591     476           (2,115
  

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before provision (benefit) for income taxes and share of net income from joint venture

     (6,774     (23,177     (31,499       (61,450

Provision (benefit) for income taxes

     (8,133     (7,880     (10,709     (f)       (26,722

Share of net income from joint venture

     5,938       —             5,938  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

   $ 7,297     $ (15,297   $ (20,790     $ (28,790
  

 

 

   

 

 

   

 

 

     

 

 

 

Basic net income (loss) per share:

          

Net income (loss) per share

   $ 0.27           $ (1.07
  

 

 

         

 

 

 

Weighted average shares outstanding

     27,016             27,016  
  

 

 

         

 

 

 

Diluted net income (loss) per share:

          

Net income (loss) per share

   $ 0.27           $ (1.07
  

 

 

         

 

 

 

Weighted average shares outstanding

     27,154         (138     (h)       27,016  
  

 

 

         

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.


Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2015

 

(in thousands, except per share data)

   Consolidated
Historical
NN, Inc.

As Revised
    PBC
Business
    Pro Forma
Adjustments
     Notes      Pro Forma  

Net sales

   $ 667,280     $ (261,837   $ —           $ 405,443  

Cost of products sold (exclusive of depreciation and amortization shown separately below)

     525,993       (205,362           320,631  

Selling, general and administrative expense

     51,780       (16,807           34,973  

Acquisition related costs excluded from selling, general and administrative

     11,682       —               11,682  

Depreciation and amortization

     44,482       (11,496           32,986  

(Gain) loss on disposal of assets

     (687     —               (687

Restructuring and integration expense

     7,268       (1,862           5,406  
  

 

 

   

 

 

   

 

 

       

 

 

 

Income from operations

     26,762       (26,310     —             452  

Interest expense

     29,899       (317           29,582  

Loss on extinguishment of debt and write-off of unamortized debt issuance costs

     19,173       —               19,173  

Derivative payments on interest rate swap

     —         —               —    

Derivative loss on change in interest rate swap fair value

     —         —               —    

Other (income) expense, net

     1,175       (654           521  
  

 

 

   

 

 

   

 

 

       

 

 

 

Income (loss) before provision (benefit) for income taxes and share of net income from joint venture

     (23,485     (25,339     —             (48,824

Provision (benefit) for income taxes

     (11,698     (8,615           (20,313

Share of net income from joint venture

     5,001       —               5,001  
  

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss)

   $ (6,786   $ (16,724   $ —           $ (23,510
  

 

 

   

 

 

   

 

 

       

 

 

 

Basic net income (loss) per share:

            

Net income (loss) per share

   $ (0.32           $ (1.11
  

 

 

           

 

 

 

Weighted average shares outstanding

     21,181               21,181  
  

 

 

           

 

 

 

Diluted net income (loss) per share:

            

Net income (loss) per share

   $ (0.32           $ (1.11
  

 

 

           

 

 

 

Weighted average shares outstanding

     21,181               21,181  
  

 

 

           

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.


Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2014

 

(in thousands, except per share data)

   Consolidated
Historical
NN, Inc.
     PBC
Business
    Pro Forma
Adjustments
    Notes      Pro Forma  

Net sales

   $ 488,601      $ (278,026   $ —          $ 210,575  

Cost of products sold (exclusive of depreciation and amortization shown separately below)

     384,889        (215,875          169,014  

Selling, general and administrative expense

     43,756        (18,005          25,751  

Acquisition related costs excluded from selling, general and administrative

     9,248        —              9,248  

Depreciation and amortization

     22,146        (12,000          10,146  

(Gain) loss on disposal of assets

     —          —              —    

Restructuring and integration expense

     875        (274          601  
  

 

 

    

 

 

   

 

 

      

 

 

 

Income from operations

     27,687        (31,872     —            (4,185

Interest expense

     10,895        (334          10,561  

Loss on extinguishment of debt and write-off of unamortized debt issuance costs

     1,398        —              1,398  

Derivative payments on interest rate swap

     —          —              —    

Derivative loss on change in interest rate swap fair value

     —          —              —    

Other (income) expense, net

     2,222        (560          1,662  
  

 

 

    

 

 

   

 

 

      

 

 

 

Income (loss) before provision (benefit) for income taxes and share of net income from joint venture

     13,172        (30,978     —            (17,806

Provision (benefit) for income taxes

     5,786        (10,533          (4,747

Share of net income from joint venture

     831        —              831  
  

 

 

    

 

 

   

 

 

      

 

 

 

Net income (loss)

   $ 8,217      $ (20,445   $ —          $ (12,228
  

 

 

    

 

 

   

 

 

      

 

 

 

Basic net income (loss) per share:

            

Net income (loss) per share

   $ 0.46             $ (0.68
  

 

 

           

 

 

 

Weighted average shares outstanding

     17,887               17,887  
  

 

 

           

 

 

 

Diluted net income (loss) per share:

            

Net income (loss) per share

   $ 0.45             $ (0.68
  

 

 

           

 

 

 

Weighted average shares outstanding

     18,253          (366     (h)        17,887  
  

 

 

           

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.


NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(In thousands, except per share information)

Note 1 – Basis of Presentation

The historical consolidated financial statements have been adjusted in the pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the Transaction, (2) factually supportable and (3) with respect to the pro forma condensed consolidated statements of operations, expected to have a continuing impact on the Company.

The pro forma condensed consolidated financial statements do not necessarily reflect what the consolidated Company’s financial condition or results of operations would have been had the Transaction occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The condensed consolidated pro forma financial information does not reflect the realization of any expected cost savings from the sale of the PBC Business.

As disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (the “10-Q”), the Company corrected misstatements for prior periods by revising the condensed consolidated financial statements and other financial information included in the 10-Q. The accompanying pro forma condensed consolidated financial statements reflect the effect of the revision.

Note 2 – Disposition of Precision Bearing Components Business

The estimated net proceeds and gain on the sale of the PBC Business, based on the historical book balances of the PBC Business as of June 30, 2017, are as follows:

 

Proceeds from sale

   $ 387,630  

Net assets sold

     (174,146

Transaction costs (1)

     (5,675
  

 

 

 

Pre-tax estimated gain on sale

     207,809  

Provision for income taxes (2)

     71,469  
  

 

 

 

Estimated gain on sale

   $ 136,340  
  

 

 

 

 

  (1) Transaction costs include accounting, tax, valuation, consulting, legal and investment banking fees related to the sale of the PBC Business, including approximately $0.3 million of Transaction costs expensed prior to June 30, 2017.
  (2) Provision for income taxes was estimated using facts and circumstances available as of the date of this Current Report on Form 8-K.


Note 3 – Pro Forma Adjustments

The following are descriptions of the pro forma adjustments related to the Transaction:

 

  (a) Reflects the allocation of net proceeds from the Transaction to pay down the Company’s credit facilities. The pro forma adjustment to debt includes the following amounts:

 

     As of June 30, 2017  

Proceeds from sale

   $ (387,630

Transaction costs incurred after June 30, 2017

     5,382  
  

 

 

 

Proceeds used to pay down credit facilities

     (382,248

Write-off of unamortized debt issuance costs

     14,572  
  

 

 

 

Pro forma adjustment to debt

   $ (367,676
  

 

 

 

 

  (b) Represents the estimated accrued income taxes payable, using a federal statutory rate of 34%, related to the estimated gain on sale of the PBC Business, net of the $0.1 million tax effect of $0.3 million of Transaction costs expensed prior to June 30, 2017.

 

  (c) Reflects the removal of transaction costs that were incurred prior to June 30, 2017 because they will not have a continuing impact on the Company.

 

  (d) The unaudited pro forma condensed consolidated statements of operations exclude the estimated gain resulting from the sale of the PBC Business. This estimated gain will not have a continuing impact on the Company and is therefore reflected as a pro forma adjustment to stockholders’ equity in the unaudited pro forma condensed consolidated balance sheet. The pro forma adjustment to stockholders’ equity includes the following amounts:

 

     As of June 30, 2017  

Proceeds from sale

   $ 387,630  

Transaction costs incurred after June 30, 2017

     (5,382

Provision for income taxes (1)

     (70,755

Deferred income taxes

     5,490  

Write-off of unamortized debt issuance costs

     (14,572
  

 

 

 

Pro forma adjustment to stockholders’ equity

   $ 302,411  
  

 

 

 

 

  (1) Provision for income taxes was estimated using the Company’s federal statutory rate of 34%.

 

  (e) Reflects a reduction of estimated interest expense and amortization of debt issuance costs incurred from the Company’s senior notes and credit facilities as a result of the pro forma assumptions that the Company 1) would have used proceeds from the Transaction to redeem its senior notes for approximately $304.8 million and to pay down approximately $77.4 million on its credit facilities and 2) would not have established a new incremental term loan in the credit facility amendment on April 3, 2017. The pro forma adjustment to interest expense gives effect to these assumptions as if the Transaction and repayment of debt had occurred on January 1, 2016. The pro forma adjustment to interest expense includes the following amounts:

 

     Six Months Ended
June 30, 2017
     Year Ended
December 31, 2016
 

Interest expense:

     

Senior Notes

   $ (6,529    $ (25,625

Credit Facility

     (5,721      (4,171

Amortization of debt issuance costs:

     

Senior Notes

     (263      (989

Credit Facility

     (367      (214
  

 

 

    

 

 

 

Pro forma adjustment to interest expense

   $ (12,880    $ (30,999
  

 

 

    

 

 

 

 

  (f) Represents the estimated income tax effect, using a federal statutory rate of 34%, related to the sale of the PBC Business, losses on the extinguishment of debt and write-off of unamortized debt issuance costs, and a reduction in interest expense. The effective tax rate of the Company after the Transaction may differ from what is presented in the unaudited pro forma condensed consolidated financial statements as a result of different tax jurisdictions.


  (g) Represents the loss on extinguishment of debt and write-off of unamortized debt issuance costs as if the proceeds of the Transaction had been used to pay down the Company’s senior notes and credit facilities as of January 1, 2016. The senior notes were redeemed on April 3, 2017 for $281.6 million, resulting in a loss on debt extinguishment that included a $31.6 million call premium and a $4.7 million write-off of unamortized debt issuance costs. The pro forma adjustments reflect the effect as if the redemption of the senior notes using proceeds from the Transaction had occurred on January 1, 2106 rather than April 3, 2017, consistent with the Company’s prioritization to pay down debt bearing the highest interest rate first. In connection with the senior notes redemption on April 3, 2017, the credit facility was amended, resulting in an additional loss on extinguishment of approximately $3.4 million. The pro forma adjustments consist of the following amounts:

 

     Six Months Ended
June 30, 2017
     Year Ended
December 31, 2016
 

Senior Notes:

     

Call premium

   $ (31,585    $ 54,792  

Unamortized debt issuance costs

     (4,660      4,923  

Credit Facility:

     

Unamortized debt issuance costs

     (3,394      2,783  
  

 

 

    

 

 

 

Pro forma adjustment to loss on extinguishment of debt and write-off of unamortized debt issuance costs

   $ (39,639    $ 62,498  
  

 

 

    

 

 

 

 

  (h) Represents the impact on diluted shares outstanding after giving effect to the operating results of the PBC Business and other pro forma adjustments. The following table presents a reconciliation of pro forma net income (loss) per share.

 

     Six Months Ended
June 30, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
     Year Ended
December 31, 2014
 

Pro forma net income (loss)

   $ 9,814      $ (28,790    $ (23,510    $ (12,228

Pro forma basic weighted average shares outstanding

     27,358        27,016        21,181        17,887  

Pro forma effect of dilutive stock options

     334        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma diluted shares outstanding

     27,692        27,016        21,181        17,887  
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma basic net income (loss) per share

   $ 0.36      $ (1.07    $ (1.11    $ (0.68

Pro forma diluted net income (loss) per share

   $ 0.35      $ (1.07    $ (1.11    $ (0.68

For the six months ended June 30, 2017, approximately 0.4 million potentially dilutive stock options had the effect of being anti-dilutive and were excluded from the calculation of pro forma net income per share. Given the pro forma net losses for the years ended December 31, 2016, 2015 and 2014, all options are considered anti-dilutive and were excluded from the calculation of pro forma diluted net loss per share.

 

  (i) Represents the net deferred income tax liability related to the PBC Business.