1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23486
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NN BALL & ROLLER, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1096725
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 Tennessee Road
Erwin, Tennessee 37650
(Address of principal executive offices, including zip code)
(423) 743-9151
(Registrant's telephone number, including area code)
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
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of August 8, 1996 there were 14,629,242 shares of the registrant's
common stock, par value $0.01 per share, outstanding.
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NN BALL & ROLLER, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Statements of Income for the three and six months
ended June 30, 1996 and 1995 2
Condensed Balance Sheets at June 30, 1996 and December 31, 1995 3
Condensed Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I. FINANCIAL INFORMATION
NN BALL & ROLLER, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 22,834 $ 18,986 $ 48,919 $ 37,242
Cost of goods sold 15,363 13,287 32,931 25,670
---------- ---------- ---------- ----------
Gross profit 7,471 5,699 15,988 11,572
Selling, general and administrative 1,155 1,030 2,265 2,001
Depreciation 852 606 1,704 1,212
---------- ---------- ---------- ----------
Income from operations 5,464 4,063 12,019 8,359
Interest expense 107 -- 187 3
---------- ---------- ---------- ----------
Income before provision for income taxes 5,357 4,063 11,832 8,356
Provision for income taxes 1,877 1,247 4,080 2,708
---------- ---------- ---------- ----------
Net income $ 3,480 $ 2,816 $ 7,752 $ 5,648
========== ========== ========== ==========
Net income per common share (Note 2): $ 0.23 $ 0.19 $ 0.51 $ 0.39
========== ========== ========== ==========
Weighted average number of
shares outstanding (Note 2) 15,130,771 14,472,656 15,116,540 14,472,656
========== ========== ========== ==========
See accompanying notes.
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NN BALL & ROLLER, INC.
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
THOUSANDS OF DOLLARS (UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable, net $19,537 $16,915
Inventories, net (Note 3) 10,604 9,813
Income taxes refundable 984 --
Other current assets 143 --
------- -------
Total current assets 31,268 26,728
Property, plant and equipment, net 32,237 27,367
Other 137 146
------- -------
Total assets $63,642 $54,241
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,689 $ 8,201
Revolving credit facility 7,613 3,590
Accrued vacation expense 413 369
Accrued interest expense 33 27
Income taxes payable -- 208
Other current liabilities 1,835 908
------- -------
Total current liabilities 15,583 13,303
Deferred income taxes 1,720 1,720
------- -------
Total liabilities 17,303 15,023
Total stockholders' equity 46,339 39,218
------- -------
Total liabilities and stockholders' equity $63,642 $54,241
======= =======
SEE ACCOMPANYING NOTES.
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NN BALL & ROLLER, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
COMMON STOCK ADDITIONAL RETAINED
NUMBER PAR PAID-IN EARNINGS
THOUSANDS OF DOLLARS, EXCEPT SHARE DATA OF SHARES VALUE CAPITAL (DEFICIT) TOTAL
- ----------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 6,432 $ 64 $ 25,289 $ 5,184 $30,537
Net income 5,648 5,648
Dividends (1,286) (1,286)
Three-for-two stock split (Note 2) 3,216 32 -- (32) --
------ ----- -------- -------- -------
Balance, June 30, 1995 9,648 $ 96 $ 25,289 $ 9,514 $34,899
====== ===== ======== ======== =======
Balance, January 1, 1996 14,473 $ 144 $ 25,289 $ 13,785 $39,218
Net income 7,752 7,752
Dividends (2,327) (2,327)
Stock options exercised (Note 4) 156 2 1,694 -- 1,696
------ ----- -------- -------- -------
Balance, June 30, 1996 14,629 $ 146 $ 26,983 $ 19,210 $46,339
====== ===== ======== ======== =======
SEE ACCOMPANYING NOTES.
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NN BALL & ROLLER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
THOUSANDS OF DOLLARS 1996 1995
- ----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 7,752 $ 5,648
Adjustments to reconcile net income:
Depreciation 1,704 1,212
Changes in operating assets and liabilities:
Accounts receivable (2,622) (2,552)
Inventories (791) (143)
Taxes refundable (984) --
Other current assets (143) (63)
Accounts payable (2,512) 622
Other liabilities 769 (329)
-------- -------
Net cash provided by operating activities 3,173 4,395
-------- -------
INVESTING ACTIVITIES:
Acquisition of plant, property, and equipment (6,574) (6,007)
Other assets 9 (1)
-------- -------
Net cash used by investing activities (6,565) (6,008)
-------- -------
FINANCING ACTIVITIES:
Proceeds under revolving credit facility 4,023 --
Dividends (2,327) (1,286)
Stock options exercised (Note 4) 1,696 --
-------- -------
Net cash (used) provided by financing activities 3,392 (1,286)
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- (2,899)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- 4,294
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 1,395
======== =======
SEE ACCOMPANYING NOTES.
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NN BALL & ROLLER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed financial statements of NN Ball & Roller, Inc. have
not been audited by independent accountants, except for the balance sheet at
December 31, 1995. In the opinion of the Company's management, the financial
statements reflect all adjustments necessary to present fairly the results of
operations for the three and six month periods ended June 30, 1996 and 1995,
the Company's financial position at June 30, 1996 and December 31, 1995, and
the cash flows for the six month periods ended June 30, 1996 and 1995. These
adjustments are of a normal recurring nature, except for the adjustments
described below in Note 2, and are, in the opinion of management, necessary for
fair presentation of the financial position and operating results for the
interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements presented
in this Quarterly Report on Form 10-Q.
The results for the first and second quarters of 1996 are not necessarily
indicative of future results.
NOTE 2. THREE-FOR-TWO STOCK SPLITS
On February 9, 1995, the Company's Board of Directors authorized a
three-for-two stock split effected in the form of a 50% stock dividend payable
on March 5, 1995 to stockholders of record on February 27, 1995. This resulted
in the issuance of approximately 3,216,000 additional shares of Common Stock.
On November 13, 1995, the Company's Board of Directors authorized a
three-for-two stock split effected in the form of a 50% stock dividend payable
on December 5, 1995 to stockholders of record on November 27, 1995. This
resulted in the issuance of approximately 4,825,000 additional shares of common
stock.
Unless otherwise stated, all references in the financial statements to stock
option data, per share and weighted average share amounts have been restated to
reflect these stock splits.
NOTE 3. INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined by the first-in, first-out method.
Inventories are comprised of the following (in thousands):
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
----------- ------------
Raw materials $ 1,762 $2,707
Work in process 2,892 3,172
Finished goods 6,010 3,994
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10,664 9,873
Less - Reserve for excess and obsolete inventory 60 60
------- ------
$10,604 $9,813
======= ======
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NOTE 4. STOCK OPTIONS EXERCISED
During the first half of 1996, certain employees exercised options to purchase
the Company's common stock under the Company's Stock Incentive Plan. Options
to purchase 150,231 shares were exercised at $6.22 per share and options to
purchase 5,875 shares were exercised at $9.39 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Net Sales. Net sales increased by approximately $3.8 million, or 20.3%, from
$18.9 million for the second quarter of 1995 to $22.8 million for the second
quarter of 1996. Foreign sales increased $2.1 million, or 24.6%, from $8.9
million in the second quarter of 1995 to $11.0 million during the second
quarter of 1996. The increase in foreign sales was due primarily to increased
sales to existing customers and, to a lesser extent, sales to several new
customers. Domestic sales increased $1.7 million, or 16.5%, from $10.1 million
in the second quarter of 1995 to $11.8 million in the second quarter of 1996.
This increase was due primarily to increased sales to existing customers under
improved general domestic economic conditions.
Gross Profit. Gross profit increased $1.8 million, or 31.1%, from $5.7
million for the second quarter of 1995 to $7.5 million for the second quarter
of 1996. As a percentage of net sales, gross profit increased from 30.0% in
the second quarter of 1995 to 32.7% for the same period in 1996. During the
second quarter of 1995, gross profit was adversely affected as a result of
increased raw material costs resulting from a steel shortage and inefficiencies
associated with the steel shortage and capacity constraints, including
increased labor and transportation costs. During the first quarter of 1996,
the Company brought additional capacity on-line with the addition of the
Mountain City, Tennessee facility which allowed for more efficient operations.
In addition, the Company was able to pass along increased steel costs to
customers in the latter part of 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 12.1%, from $1.0 million in the second quarter of 1995 to
$1.1 million in the second quarter of 1996. This increase was due primarily to
expenses associated with increased sales volumes and increased investor
relations efforts. As a percentage of net sales, selling, general and
administrative expenses decreased from 5.4% for the second quarter of 1995 to
5.1% for the same period in 1996.
Depreciation. Depreciation expense increased from $606,000 for the second
quarter of 1995 to $852,000 for the same period in 1996. This increase was due
primarily to purchases of capital equipment. As a percentage of net sales,
depreciation expense increased from 3.2% for in the second quarter of 1995 to
3.7% in the second quarter of 1996.
Net Income. Net income increased by $664,000, or 23.6%, from $2.8 million for
the second quarter of 1995 to $3.5 million for the same period in 1996. As a
percentage of net sales, net income increased from 14.8% in the second quarter
of 1995 to 15.2% for the second quarter of 1996. This increase in net income
as a percentage of net sales was due primarily to the higher margins discussed
above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales increased by approximately $11.7 million, or 31.4%, from
$37.2 million for the first six months of 1995 to $48.9 million for the same
period in 1996. Foreign sales increased $9.0 million, or 52.1%, from $17.1
million in the first six months of 1995 to $26.1 million during the same period
of 1996. This increase was due primarily to increased sales volumes with
existing customers, and to a lesser extent, sales to several new customers.
Domestic sales increased $2.7 million, or 13.7%, from $20.1 million in the
first six months of 1995 to $22.9 million in the same period of 1996. This
increase was due primarily to increased sales volumes with existing customers.
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10
Gross Profit. Gross profit increased $4.4 million, or 38.1%, from $11.6
million for the first six months of 1995 to $16.0 million for the same period
of 1996. As a percentage of net sales, gross profit increased from 31.1% in
the first six months of 1995 to 32.7% in the same period of 1996. During the
first six months of 1995, gross profit was adversely affected as a result of
increased raw material costs resulting from a steel shortage and inefficiencies
associated with the steel shortage and capacity constraints, including
increased labor and transportation costs. During the first quarter of 1996,
the Company brought additional capacity on-line with the addition of the
Mountain City, Tennessee Facility which allowed for more efficient operations.
In addition, the Company was able to pass along increased steel costs to
customers in the latter part of 1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased by $264,000, or 13.2%, from $2.0 million in the first six
months of 1995 to $2.3 million in the same period of 1996. This increase was
due primarily to expenses associated with increased sales volumes and increased
investor relations efforts. As a percentage of net sales, selling, general and
administrative expenses decreased from 5.4% in the first six months of 1995 to
4.6% for the same period in 1996.
Depreciation. Depreciation expense increased from $1.2 million for the first
six months of 1995 to $1.7 million for the same period in 1996. This increase
was due primarily to purchases of capital equipment. As a percentage of net
sales, depreciation expense increased from 3.2% for the first six months of
1995 to 3.5% for the same period in 1996.
Net Income. Net income increased by $2.1 million, or 37.2%, from $5.6 million
for the first six months of 1995 to $7.7 million for the same period for 1996.
As a percentage of net sales, net income increased from 15.2% for the first six
months of 1995 to 15.8% for the same period for 1996.
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company entered into a modified loan agreement with
NationsBank of Tennessee N.A. ("NationsBank") which replaced a loan agreement
entered into with NationsBank in the first quarter of 1994. The loan
agreement, as modified, provides for a revolving credit facility of up to $10.0
million, which will expire on May 31, 1998. A $7.0 million non-revolving term
loan facility provided for under the modified loan agreement expired on
December 31, 1995. The Company did not utilize the latter term loan facility.
Amounts outstanding under the revolving facility are unsecured and bear
interest at a floating rate equal to, at the Company's option, either the
NationsBank prime commercial rate minus 1.0% or LIBOR plus 1.15% (or LIBOR plus
1.0% if the minimum advance is at least $1.0 million). The loan agreement
contains customary financial and operating restrictions on the Company,
including covenants restricting the Company, without NationsBank's consent,
from pledging its inventory, accounts receivable or other assets to other
lenders or from acquiring any other businesses if the aggregate expenditures by
the Company in connection with such acquisitions would exceed a certain
threshold in any fiscal year. In addition, the Company is prohibited from
declaring or paying any dividend if an event of default exists under the
revolving credit facility at the time of, or would occur as a result of, such
declaration or payment. The loan agreement also contains customary covenants
requiring the satisfaction of certain financial tests and the maintenance of
certain financial ratios, including covenants requiring the Company to maintain
a tangible net worth of not less than $17.5 million, working capital of not
less than the greater of $5.0 million or 15% of revenues, as computed on a
rolling 12 month basis, a ratio of total debt to net worth of not more than 1
to 1, and a ratio of current assets to current liabilities of not less than 1.5
to 1. The Company is in compliance with all such covenants. The outstanding
principal balance of the Company's borrowings under the revolving facility as
of June 30, 1996 was $7.6 million of which $3.0 million was accruing interest
at LIBOR plus 1%. The remaining $4.6 million was accruing interest at the
NationsBank prime commercial rate minus 1%.
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The Company's arrangements with its domestic customers typically provide that
payments are due within 30 days following the date of the Company's shipment of
goods, while arrangements with foreign customers (other than foreign customers
that have entered into an inventory management program with the Company)
generally provide that payments are due within either 90 or 120 days following
the date of shipment. Under the Company's inventory management program,
payments typically are due within 30 days after the product is used by the
customer. Due to the continuing expansion of the Company's foreign sales,
management believes that the Company's working capital requirements will
increase as a result of longer payment terms provided to foreign customers.
Currently, all foreign sales are billed and paid for in United States dollars.
The Company's net sales historically have not been of a seasonal nature.
However, as foreign sales have increased as a percentage of total sales,
seasonality has become a factor for the Company in that many foreign customers
cease production during the month of August.
To date, the Company has not been materially adversely affected by currency
fluctuations or foreign exchange restrictions. Approximately 90% of the steel
used by the Company is 52100 chrome alloy steel ("52100 Steel"). The Company
currently purchases a significant amount of its 52100 Steel requirements from
foreign mills. During 1995 and the first half of 1996, due to an increase in
worldwide demand for 52100 Steel and the decrease in the value of the United
States dollar relative to foreign currencies, the Company experienced an
increase in the price of 52100 Steel. The Company typically reserves the right
to increase periodically product prices in the event of increases in its raw
material costs. During 1995 and the first half of 1996, the Company was able
to minimize the impact on its operations resulting from the 52100 Steel price
increases by taking such measures. As the Company's international operations
continue to grow, foreign exchange risk may increase, and the Company may be
required to develop and implement additional strategies to manage this risk.
In addition to increased prices, the Company experienced some difficulty in
obtaining an adequate supply of 52100 Steel during 1995. In response to the
shortage experienced during 1995, the Company developed a domestic source for
52100 Steel during the latter portion of 1995. Through this source and
existing sources, the Company has obtained informal commitments for 52100 Steel
that exceed its projected 1996 usage. Through such commitments, the Company
was able to obtain adequate supplies of 52100 Steel during the first half of
1996.
Working capital, which consists principally of accounts receivable and
inventories was $15.7 million at June 30, 1996 as compared to $13.4 million at
December 31, 1995. The ratio of current assets to current liabilities remained
constant at 2.0:1 at June 30, 1996 and at December 31, 1995. Cash flow from
operations decreased from $4.4 million during the first half 1995 to $3.9
million during the first half of 1996. This decrease was primarily attributed
to the decrease in accounts payable $2.5 million and increases in accounts
receivable of $2.6 million and increase in inventories of $791,000. This
decrease was partially offset by an increase in net income of $2.1 million and
an increase in other liabilities of $769,000.
During 1996, the Company plans to spend $12.0 million on capital expenditures
(of which $6.6 million has been spent through June 30, 1996) including the
purchase and further renovation of the Mountain City facility, as well as the
purchase of additional machinery and equipment for all three of the Company's
facilities. The Company intends to finance these activities with cash
generated from operations and funds available under the credit facility
described above. The Company believes that funds generated from operations and
borrowings from the credit facility will be sufficient to finance the Company's
working capital needs and projected capital expenditure requirements through
December 1996.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on May 2, 1996. As of
March 18, 1996, the record date for the meeting, there were 14,474,511 shares
of common stock outstanding and entitled to vote at the meeting. There were
present at said meeting, in person or by proxy, stockholders holding 11,830,946
shares of common stock, constituting approximately 82% of the shares of common
stock outstanding and entitled to vote, which constituted a quorum.
The first matter voted upon at the meeting was the election of James J.
Mitchell and G. Ronald Morris as Class II Directors to serve for three year
terms. The results of the voting in connection with such elections were as
follows:
FOR WITHHELD
James J. Mitchell 11,745,584 85,362
G. Ronald Morris 11,745,584 85,362
Accordingly, all nominees were elected to serve until the 1999 Annual Meeting
of Stockholders and until their successors are duly elected and qualified. In
addition to the foregoing directors, Richard D. Ennen and Roderick R. Baty are
currently serving terms of office as directors which are to expire at the 1997
Annual Meeting of Stockholders, and Deborah Ennen Bagierek, Michael D. Huff and
Michael E. Werner are serving terms which are to expire at the 1998 Annual
Meeting of Stockholders. On August 2, 1995, Thomas E. Bennett resigned from
the Company's Board of Directors. Roderick R. Baty was elected on August 7,
1995, to fill the seat vacated by Mr. Bennett.
The second matter voted upon at the 1996 Annual Meeting of Stockholders was to
amend the Certificate of Incorporation of the Company to increase the number of
shares of common stock, par value $0.01 per share that the Company is
authorized to issue from 20,000,000 to 45,000,000. The vote was 11,497,578 For
and 321,449 Against, and there were 11,915 Abstentions.
The third matter voted upon at the 1996 Annual Meeting of Stockholders was the
ratification of Price Waterhouse LLP as independent public accountants to audit
the Company's accounts for the fiscal year ending December 31, 1996. The vote
was 11,823,735 For and 4,857 Against, and there were 2,354 Abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27 - Financial Data Schedules (For Information of SEC Only)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NN Ball & Roller, Inc.
------------------------------------------------
(Registrant)
Date: August 8, 1996 /s/ James J. Mitchell
------------------------------------------------
James J. Mitchell, President and Chief Operating
Officer
(Duly Authorized Officer)
Date: August 8, 1996 /s/ Roderick R. Baty
------------------------------------------------
Roderick R. Baty
Chief Financial Officer and
Vice President
(Principal Financial Officer)
(Duly Authorized Officer)
Date: August 8, 1996 /s/ William C. Kelly, Jr.
------------------------------------------------
William C. Kelly, Jr.,
Treasurer, Assistant Secretary and
Chief Accounting Officer
(Principal Accounting Officer)
(Duly Authorized Officer)
12
5
1,000
U.S. DOLLARS
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
1
0
0
19,652
115
10,604
31,268
50,960
18,723
63,642
15,583
0
0
0
146
46,193
63,642
48,919
48,919
32,931
36,900
0
0
187
11,832
4,080
7,752
0
0
0
7,752
0.51
0.51
