UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT FOR ISSUERS SUBJECT TO THE
1934 REPORTING REQUIREMENTS
Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 1, 2000
NN, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-23485 62-1096725
- ------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
2000 Waters Edge Drive, Johnson City, Tennessee 37604
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (423) 743-9151
None
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
INFORMATION TO BE INCLUDED IN REPORT
Page
No.
Item 7. Financial Statements
(a) Historical Financial Statements of Pinerolo Ball Division of SKF Industrie S.p.A.
Independent Auditors' Report...................................................................1
Historical Financial Statements for the Year Ended December 31, 1999...........................2
Historical Financial Statements of product unit "balls" of FAG Komponenten Aktiengesellschaft
Report on the Audited Financial Statements.....................................................9
Independent Auditors' Report .................................................................28
Historical Financial Statements for the Year Ended December 31, 1999..........................29
(b) Unaudited Pro Forma Consolidated Financial Information
Unaudited Pro Forma Consolidated Financial Statements:.................................................31
NN, Inc. Unaudited Pro Forma Consolidated Balance
Sheet as of June 30, 2000...................................................................32
Notes to Unaudited Pro Forma Consolidated Balance Sheet.......................................33
NN, Inc. Pro Forma Consolidated Statement of Operations
for the Twelve Months Ended December 31, 1999...............................................34
Notes to Unaudited Pro Forma Consolidated Statement of Operations.............................35
NN, Inc. Pro Forma Consolidated Statement of Operations
for the Six Months Ended June 30, 2000......................................................36
Notes to Unaudited Pro Forma Consolidated Statement of Operations.............................37
Signatures....................................................................................38
Statement of Net Assets of Pinerolo Ball Division of SKF Industrie S.p.A. as of
December 31, 1999 and the Related Statement of Net Revenues and Certain Expenses
for the Year Ended December 31, 1999 and Report of Independent Public
Accountants
Report of Independent Public Accountants
To: Euroball S.p.A.
We have audited the accompanying statements of net assets of Pinerolo Ball
Division of SKF Industrie S.p.A. as of December 31, 1999, and the related
statement of net revenues and certain expenses (see Notes 1 and 2) for the year
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
These financial statements have been prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission for
inclusion in filings pursuant to the Securities Act of 1933 and the Securities
and Exchange Act of 1934 of NN Ball & Roller Inc., as described in Note 1, and
are not intended to be a complete presentation of the Pinerolo Ball Division of
SKF Industrie S.p.A. assets and liabilities and revenues and expenses. The
Pinerolo Ball Division operated as part of SKF Industrie S.p.A. (Italy). SKF
Industrie S.p.A. did not prepare financial statements intended to report a
complete presentation of financial position, results of operations or cash flows
of the Pinerolo Ball Division in accordance with generally accepted accounting
principles. Accordingly, the accompanying statements present the net assets and
net revenues and certain expenses of the Pinerolo Ball Division of SKF Industrie
S.p.A. as discussed in Notes 1 and 2.
In our opinion, the financial statements referred to above present fairly for
the purpose stated above, in all material respects, the net assets of the
Pinerolo Ball Division of SKF Industrie S.p.A., as of December 31, 1999, and the
net revenues and certain expenses for the year ended December 31, 1999 in
conformity with generally accepted accounting principles in the United States.
Turin, Italy
September 22, 2000
/s/ Arthur Andersen
1
Pinerolo Ball Division of SKF Industrie S.p.A.
Statement of Net Revenues and Certain Expenses (Notes 1 and 2)
For the Year Ended December 31, 1999
(Millions of Italian lire):
Net Sales 94,094
Cost of products sold 71,964
-------
Gross profit 22,130
Selling, general and administrative 9,401
Depreciation and amortization 6,860
-------
16,261
-------
Income from operations 5,869
=======
The accompanying notes are an integral part of this statement
2
Pinerolo Ball Division of SKF Industrie S.p.A.
Statement of Net Assets (Notes 1 and 2) As of December 31,
1999 (Millions of Italian lire):
Assets
Current assets:
Cash -
Accounts receivable, net 10,489
Inventories, net 10,021
Other current assets 40
--------
Total current assets 20,550
Property, plant and equipment, net 50,551
Other non-current assets 1,484
--------
Total assets 72,585
========
Liabilities and parent company investment and advances
Current liabilities:
Accounts payable - trade 14,606
Accrued vacation expense 679
Deferred income 1,222
Other liabilities 2,777
--------
Total current liabilities 19,284
Provisions for severance indemnities 8,986
Provisions or risks and charges 123
--------
Total liabilities 28,393
Parent company investment and advances 44,192
--------
Total liabilities and parent company
investment and advances 72,585
========
The accompanying notes are an integral part of this statement
3
PINEROLO BALL DIVISION OF SKF INDUSTRIE S.p.A.
Notes to Financial Statement
(1) Basis of Presentation
Pinerolo Ball Division of SKF Industrie S.p.A. (Pinerolo Ball) is engaged in the
production of metal balls used primarily in the assembly of ball bearings.
Prior to June 1, 2000, the operations were conducted by the Pinerolo Ball
Division of SKF Industrie S.p.A., an Italian corporation and a indirectly
wholly-owned subsidiary of SKF AB, a Swedish Corporation. During 2000, SKF AB
entered into an agreement to sell the operations of Pinerolo Ball to NN Ball &
Roller Inc. In order to facilitate the sale, on May 31, 2000, the operations
were transferred to Euroball S.p.A. , a new Italian Corporation. The sale was
finalized on July 31, 2000.
Prior to June 1, 2000, Pinerolo Ball was one of six manufacturing plants of SKF
Industrie S.p.A. and did not operate on a stand-alone basis. SKF Industrie
S.p.A. did not keep accounting records to enable it to prepare financial
statements intended to report a complete presentation of financial position,
results of operations and cash flows of Pinerolo Ball as of or for periods prior
to June 1, 2000. Accordingly, for such periods, statements of net assets and of
net revenues and certain expenses have been prepared. Such statements do not
purport to present the financial position or results of operations of Pinerolo
Ball as if it had operated as an independent company.
The accompanying financial statements have been prepared solely for inclusion in
filings by NN Ball & Roller Inc. pursuant to the Securities Act of 1933 and the
Securities and Exchange Act of 1934.
All amounts in the accompanying financial statements and related notes are
expressed in millions of Italian Lire.
4
(2) Significant Accounting Policies
Revenue Recognition
Revenues are recorded at the time of shipment of products. Approximately 90% of
revenues are within the SKF Group.
Cost of products sold
The breakdown of cost of products sold is detailed in the following table:
1999
------------
Direct material costs 24,845
Wages and salaries 23,256
Other variable costs 14,859
Utilities 8,117
Other operating expenses 887
------------
71,964
------------
Direct material costs include mainly 3,490 million of Italian lire related to
purchases from SKF steel division and 21,265 million of Italian lire of
purchases from non-SKF companies.
Selling, general and administrative
Such expenses, including but not limited to information service, finance,
insurance, human resources and research and development which are centrally
charged to the plants represent an allocation of corporate expenses and in the
opinion of management, are a reasonable estimate of the costs that the plant
would have incurred on a stand-alone basis. However, there is no assurance that
other expenses would not have been incurred had the division operated on a
stand-alone basis.
Interest expense
Pinerolo Ball did not have any direct indebtedness and it is the policy of SKF
Industrie S.p.A. not to allocate interest expense incurred at the corporate
level to its divisions.
Taxes on income
Pinerolo Ball did not have any tax charge and it is the policy of SKF Industrie
S.p.A. not to allocate tax expense incurred at the corporate level to its
divisions.
5
Accounts Receivable, net
Accounts receivable, net include amounts due from customers and are summarized
as follows:
1999
------------
Accounts receivable - SKF companies 8,391
Accounts receivable - third parties 2,098
------------
10,489
Accounts receivable related to deliveries within the same legal entity (SKF
Industrie S.p.A.) and deliveries to other companies belonging to the Group are
estimated using the average term of payments within the SKF Group.
No allowance for doubtful accounts has been provided because these receivables
are considered fully collectable.
Inventories, net
Inventories are stated at the lower of cost or market, determined on a first-in
first out (FIFO) basis and are summarized below.
1999
-------------
Raw materials 1,263
Work in process 1,152
Finished goods 8,260
Less - Reserve for excess and obsolete inventory (654)
-------------
10,021
-------------
Other current assets
Other current assets are mainly related to advances on social charges.
6
Property, Plant and Equipment, net
Property, Plant and equipment are carried at the historical cost. Depreciation
is calculated on a straight line basis, over the estimated useful lives (ranging
from 4-33 years) of the various classes of assets. The breakdown of property,
plant and equipment is detailed in the following table:
Estimated 1999
useful life
---------
Buildings and improvements 20-33 years 5,860
Machinery and equipments 4-15 years 90,345
Construction in progress - 1,994
Less - Accumulated depreciation (47,648)
---------
50,551
---------
Accounts Payable
Accounts payable include amounts due to suppliers and are summarized as follows:
1999
---------
Accounts payable to SKF companies 905
Accounts payable to third parties 13,701
---------
14,606
---------
Accounts payable related to purchases within the same legal entity and from
other companies belonging to the SKF Group are estimated using the average term
of payments within the SKF Group.
Deferred Income
Deferred income includes Government grants received from investments in
machinery and equipment and credited to income on a straight line basis over the
estimated useful life of the related assets.
7
Other Liabilities
The breakdown of other current liabilities is detailed in the following table:
1999
--------
Productivity bonus 321
December wages to be paid 180
Social security charges 1,278
Severance indemnities to be paid in 2000 355
Other 643
--------
2,777
--------
Provision for severance indemnities
The provision for severance indemnities represents the actual liability toward
employees accrued as of the end of the fiscal year and it is adjusted each year
in accordance with current Italian law.
Use of estimates
The preparation of the financial statements and related disclosures have been
prepared in conformity with generally accepted accounting principles in the U.S.
and, accordingly, include amounts based on estimates and judgements of
management with consideration given to materiality. Actual results could differ
from those estimates.
Cash flow information
As Pinerolo Ball as of December 31, 1999 was integrated into the overall
operations of SKF Industrie S.p.A., preparation of a separate and complete
statement of cash flows for the year ended December 31, 1999 is not practicable.
8
Report
on the Audit of the Statement of Assets and Liabilities as of December
31, 1999 and the Statement of Revenues and Expenses for the period 1999
of the product unit "balls" of
FAG Komponenten Aktiengesellschaft
Schweinfurt
9
Contents
Page
1. Audit Assignment and Audit Scope 1
2. Principles of Preparation
I. Statement of Assets and Liabilities as of December 31, 1999 1
II. Statement of Revenues and Expenses of the period 1999 3
3. Comments on the items of the Statement of Assets and Liabilities and the
Statement of Revenues and Expenses
I. Statement of Assets and Liabilities 4
II. Statement of Revenues and Expenses 14
4. Certification 18
Appendices
Statement of Assets and Liabilities of the product unit "balls"
of the FAG Komponenten AG, Schweinfurt, as of December 31, 1999 1
Statement of Revenues and Expenses of the product unit "balls"
of the FAG Komponenten AG, Schweinfurt, of the period 1999 2
General Conditions of Assignment
10
1. Audit Assignment and Audit Scope
Based on the audit assignment of July 6, 2000 and further verbal agreements of
July 11, 2000 of
FAG Kugelfischer Georg Schafer Aktiengesellschaft, Schweinfurt,
- --hereinafter referred to as "FAG"--
we were appointed auditors of the statement of assets and liabilities as at
December 31, 1999 and the statement of revenues and expenses for the period 1999
for the product unit "balls" of the FAG Komponenten AG plant in Eltmann.
The engagement is subject to the General Conditions of Assignment for
Auditors and Audit Companies dated January 1, 1999 (see Appendix 3). The
extent of our liability is determined by no. 9 of the "General Conditions of
Assignment". Our liability to third parties is defined in no. 1 para. 2 and
no. 9 of the "General Conditions of Assignment".
We carried out our audit in July 2000 until July 31, 2000. All requested
information and documents were made available to us. FAG confirmed to us in
writing the completeness of the accounting, the statement of assets and
liabilities as at December 31, 1999 and the statement of revenues and expenses
for the period 1999 of the product unit "balls" of the FAG Komponenten AG plant
in Eltmann.
2. Principles of Preparation
I. Statement of Assets and Liabilities as of December 31, 1999
FAG Komponenten AG, Schweinfurt is a subsidiary of FAG Kugelfischer Georg
Schafer AG, Schweinfurt. Due to the fact that the product unit "balls" of the
FAG Komponenten AG will be brought into the Euroball joint venture, FAG has
prepared a statement of assets and liabilities of the product unit "balls". The
statement of assets and liabilities is based on the financial statement of the
FAG Komponenten AG, Schweinfurt as of December 31, 1999, which has been audited
by Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungsgesellschaft, Frankfurt am Main with the result of an
unqualified audit opinion.
11
The assets and liabilities of the product unit "balls" have been taken from the
financial statements of the FAG Komponenten AG on a cost centre basis, inventory
lists or on a lump sum basis in relation to adequate figures of the financial
statements FAG Komponenten AG.
The allocation of fixed assets, other assets, other liabilities and accruals for
pension and similar obligations has been made by cost centers.
Inventories of the statement of assets and liabilities have been taken into
account on the basis of actually existing different storage locations of the
product unit "balls".
Trade receivables and receivables from affiliated companies concerning the
product unit "balls" have been taken from the balance sheet of the FAG
Komponenten AG based on customer relationships of the product unit.
Accruals for flexitime and for vacation bonus have been set up based on cost
centers. Other accruals have been calculated at a flat rate, based on the
figures of FAG Komponenten AG.
There is no organizational separation of accounts payable in the accountancy of
FAG between the different product units. Both, the product unit "balls" and the
product unit "rolls" use the same kind of raw materials purchased from the same
creditors. Trade payables have been estimated on the basis of the raw materials
used in the product unit "balls" in December 1999.
12
II. Statement of Revenues and Expenses of the period 1999
The preparation of the statement of revenues and expenses has been derived
mainly from the profit and loss account of the cost accounting of the
profit-center "balls". The cost accounting and the financial accounting differ
only in interest and transfer to general bad debt provision.
For the purpose of this statement the difference in interest between cost
account and financial account has been eliminated. The interest shown in the
statement of revenues and expenses has been calculated on a fictitious and lump
sum basis in accordance with the equity-ratio of the FAG Komponenten AG.
Furthermore, the transfer to the general bad debt provision has also been
derived of the financial statements of the FAG Komponenten AG, on a lump sum
basis. The transfer to general bad debt provision has been set up on lump sum
basis on the assumption that the proportion of general bad debt provision of the
product unit "balls" to general bad debt provision of the FAG Komponenten AG is
also applicable to the transfer to general bad debt provision.
The intra-group cost allocation has not been adjusted on a stand-alone basis
because in that case the product unit "balls" would also have been credited for
services received from the parent company.
13
3. Comments on the items of the Statement of Assets and Liabilities and the
Statement of Revenues and Expenses
I. Statement of Assets and Liabilities
Assets
Fixed assets
A physical inventory count of fixed assets of the product unit "balls" was
performed on June 29 and June 30, 2000, which was observed by KPMG. The
inventory count was carried out properly and showed no material differences in
comparison to the fixed asset account. It can be assumed that the fixed asset
accounts also showed a proper book value as at December 31, 1999.
Intangible assets 31.12.1999
----------
EURO
Software 84.660,73
=========
The intangible assets include only purchased software, which is stated at the
net book value. Software is amortised on a straight-line basis over a useful
life of 4 years.
14
Tangible assets
31.12.1999 31.12.1999
---------- ----------
EURO EURO
Machines 5.457.384,85
Tooling 1.047.898,33
Furniture, other equipment 128.149,17
Measuring equipment 69.666,59
Assets under construction 81.575,56
Other fixed assets
Cranes and forklift trucks 54.126,89
Conveyor equipment 45.464,07
Other vehicles and transport equipment 37.495,08
Other office machines 35.577,73
Suction equipment 34.903,34
Equipment for office communication 30.571,16
Cooling equipment 30.011,81
Fire fighting equipment 24.580,36
Wagons 15.647,58
Environmental protection equipment 13.451,58
Electrical switch equipment 10.303,04
EDP equipment 3.705,84
Miscellaneous 11.844,60 347.683,08
--------- ----------
7.132.357,58
============
Tangible assets are stated at net book value as at December 31, 1999.
The assets are depreciated on a straight-line basis over their useful lives.
Useful lives of some significant assets of the product unit "balls" are
summarised below:
Assets Useful lives
Cooling equipment 14
Environmental protection equipment 14
Packaging 14
Machines 12
Electrical switch equipment 12
Conveyor equipment 12
Suction equipment 12
Furniture 10
Measurement equipment 7
Tooling 7
Vehicles, fork lift trucks 5
15
Current assets
Inventories
31.12.1999
----------
EURO
Raw materials and supplies
Gross value of raw materials and supplies 164.074,38
Write-down due to excessive storage periods -86.045,03
Write-down due to lower market prices -11,85
----------
Book value of raw materials and supplies 78.017,50
----------
Work in process
Gross value of work in process 2.071.657,55
Write-down due to excessive storage periods -10.222,78
Adjustment of standard costs
to production costs 159.173,62
----------
Book value of work in process 2.220.608,39
------------
Finished Goods
Gross value of finished goods 3.247.862,23
Write-down due to excessive storage periods -250.243,42
Write-down due to lower of cost or market -36.739,70
Adjustment of standard costs
to production costs 273.396,50
----------
Book value of finished goods 3.234.275,61
------------
Merchandise
Gross value of merchandise 152.534,88
Write-down due to excessive storage periods -39.683,33
Write-down due to lower market prices -28,84
Book value of merchandise 112.822,71
----------
5.645.724,21
------------
Inventory count
According to the year-end financial statements a physical inventory of raw
materials and supplies was performed on December 29, 1999. The other inventories
are recorded by continuous inventory during the year. With regard to the date of
the assignment in 2000, we did not participate in the inventory counts.
16
Valuation
Raw materials and supplies are valued at acquisition cost, i.e. moving average
purchase prices, respectively at the lower market price charged at the year end.
The purchase price includes also the additional costs for transport, insurance,
packaging costs, agency fees and other costs chargeable to the purchase of the
raw materials and supplies.
Work in process and finished goods are stated at production cost. The production
cost of the product unit "balls" is calculated according to German commercial
law (German GAAP) in compliance with tax requirements. The calculation of
production cost is based on the costs of direct materials and labor, material
overhead, factory overhead and chargeable administration costs. During the
business year work in process and finished goods are reported, for cost
accounting purposes, at standard costs which were adjusted at the year end for
financial accounting purposes.
Merchandise is valued at moving average purchase prices respectively at the
lower market price charged at the year end. The purchase price also includes the
additional costs for transport, insurance, packaging costs, agency fees and
other costs chargeable to the purchase of goods.
There are write-downs on work in process and finished goods due to lower of cost
or market, if at the year end the possible selling price (without considering
the selling expenses) is lower than the production cost. The considerable
selling price for this write-down is determined, depending on the relation
between a product and an order. If products are related to an order, the selling
price (excluding selling costs) is considered for the write-down. If there is no
relation to an order, last year's average selling price is considered to
calculate possible write-downs.
17
Write-downs due to excessive storage periods are made on inventories in
accordance with the FAG accounting principles. They are based on the inventories
of raw materials, supplies, work in process, finished goods and merchandise at
the year end and the average quantity used per month. If the year end inventory
divided by the average quantity used per month exceeds 25 months, a write-down
must be considered. The percentage of write-downs increases every month after
the storage period exceeds 25 months.
To give a brief overview over the percentages of write-downs, an extract is
shown below:
Year end inventory Percentage of
exceeds the quantity used write-downs
for more than
25 month 1,7
26 month 3,3
30 month 10,0
35 month 18,3
40 month 26,7
45 month 35,0
50 month 48,8
55 month 58,1
60 month 67,5
65 month 76,9
70 month 86,3
72 month 90,0
18
Trade receivables
31.12.1999
----------
EURO
GKN Lobro GmbH, Offenbach 218.376,33
GKN Glenkwellenwerk Mosel GmbH, Mosel 46.533,68
Rexroth Star GmbH, Schweinfurt 27.719,53
GKN Walterscheid GmbH, Lohmar 27.353,13
KGM Kugelfabrik Gebauer GmbH, Fulda 17.789,21
Mannesmann Sachs AG, Schweinfurt 13.091,19
SKF Linearsysteme GmbH, Schweinfurt 12.343,57
Others (single receivables
less than EURO0.000,00) 15.344,48
---------
Trade receivables from
domestic customers 378.551,12
General bad debt provision -9.714,54
--------
368.836,58
----------
GKN INDUGASSA, Vigo/Spain 269.617,43
GKN Ayra Durex, Zumaia/Spain 219.260,57
GKN Birfeld S.P.A., Bruneck/Italy 108.496,28
Umdra Cuscinetti S.P.A., Foligno/Italy 71.955,47
GKN Componenti Firenze SpA,
Campi Bisenzio/Italy 67.090,51
GKN Francaise SA, Carriers-sous-Poissy/France 52.638,17
GKN Hardy Spicer Ltd., Orb Birmingham/UK 32.507,91
SKF France Unite Roulements, St. Cyrs/France 16.702,37
S.C. Rulmenti S.A., Barlad/Romania 14.000,40
GKN Atras D.O.O., Zvece/Slowenia 13.068,13
Others (single receivables
less than EURO0.000,00) 14.733,99
---------
Trade receivables from
customers in foreign countries 880.071,23
Lump sum valuation allowance -43.971,10
---------
836.100,13
----------
1.204.936,71
============
Trade receivables are stated at their book values. In accordance with the FAG
accounting guidelines, a 3% general bad debt provision has been set up for
domestic trade receivables and a 5% general bad debt provision has been set up
for trade receivables from customers in foreign countries. Revaluation, due to
foreign currency transactions, has not been made, as all foreign currency
transactions are hedged by the FAG Kugelfischer Georg Schafer
Aktiengesellschaft, Schweinfurt.
19
Receivables from affiliated companies
31.12.1999
----------
EURO
FAG Automotive Bearings Co. Ltd.,
Shanghai/China 379.193,24
ROL Rolamentos Portugueses SARL,
Caldas Da Rainha/Portugal 302.613,99
FAG Japan Co. Ltd., Tokyo/Japan 85.091,79
Rolamentos FAG Ltda., Sao Paulo/Brazil 20.737,39
FAG Italia S.P.A., Somma Vesuviana/Italy 17.176,34
FAG Bearings Corp., Joplin/USA 3.563,10
--------
808.375,85
==========
The receivables from affiliated companies are stated at their book values.
Because of the domestic intra-group financing in the FAG-group, the receivables
from affiliated companies are only trade receivables from affiliated companies
in foreign countries. These receivables, like all receivables denominated in
foreign currencies, are also hedged by the FAG. There is no general bad debt
provision set up for receivables from affiliated companies in accordance with
the FAG accounting guidelines.
Other assets
31.12.1999
----------
EURO
R&D subsidy 255.645,94
Flexitime salary earners 23.116,20
Flexitime wage earners 1.671,27
--------
280.433,41
==========
The R&D subsidy is granted by the "Bayerische Forschungsstiftung", Munich to FAG
Komponenten AG and three other partners for a R&D-project. The subsidy is
transferred by FAG to the product unit "balls". FAG Komponenten AG is the
applicant for subsidy and has to transfer the amount of EURO 230.081,35 to the
other partners ( see other liabilities).
The other assets show the work still to be done by employees because of deficit
flexitime accounts. At the year-end, the flexitime account had a deficit
equivalent to 924,36 hours for the salary earners, which was valued with an
average hourly payment of EURO 21,19 (DM 41,45) and additional social security
contributions, and a deficit equivalent to 101,79 hours for wage earners, which
was valued with an average hourly payment of EURO 13,77 (DM 26,94) and
additional social security contributions.
20
Liabilities and accruals
Accruals for pensions and similar obligations
31.12.1999
----------
EURO
Accruals for pensions
and similar obligations 1.229.656,97
============
The accruals for pensions and similar obligations are based on actuarial reports
by actuary Prof. Dr. Klaus Heubeck. The accruals have been calculated under a
special method (Teilwertverfahren) as stated in Section 6a Income Tax Act based
on an interest rate of 6% p.a. Prof. Dr. Klaus Heubeck's reference tables of
1998 have been applied. The increase of the accruals relating to the change of
Prof. Dr. K. Heubeck's reference tables ( longer life expectancy) will be
allocated over a period of 4 years according to German GAAP.
Other accruals
31.12.1999
----------
EURO
Sales-related accruals
Outstanding invoices at
year-end 116.574,54
Accruals for warranties 62.377,61
---------
178.952,15
----------
Personnel-related accruals
Flexitime 172.816,66
Workmen's compensation insurance 83.851,87
Anniversary benefits 44.993,68
Benefits related to section 12 of
the collective-bargaining-agreement 32.722,68
Holiday wages and salaries 26.075,89
Bonus 21.474,26
---------
381.935,04
----------
Accruals for expenses relating to
company law and statutes
External costs for preparing the
year-end financial statement 5.112,92
--------
566.000,11
==========
21
Sales-related accruals
The accrual for outstanding invoices at the year end takes account of the
purchased goods and services which are not paid at the year end because of
missing invoices.
The accrual for warranties has been set up on lump sum basis for the sales in
1999 with possible warranty claims. The accrual for warranties has been
calculated at 0,2% for third parties sales and internal sales excluding the
sales from merchandise.
Total sales of product unit "balls" in 1999 DM 62.618.783,72
Sales of merchandise in 1999 DM -1.414.729,70
------------
Sales with possible warranty claims DM 61.204.054,02
0,2% for sales with possible warranty claims DM 122.408,11
Rounded off DM 122.000,00
In EURO EURO 62.377,61
Personnel-related accruals
The accrual for flexitime relates to a surplus on flexitime accounts of salaried
and wage earners. The flexitime hours of salary earners has been valued with an
average hourly payment of EURO 21,19 (DM 41,45) plus social security
contributions and the flexitime hours of wage earners has been valued with an
average hourly payment of EURO 13,77 (DM 26,94) plus social security
contributions.
The accrual for Workmen's compensation insurance takes account of the
outstanding contribution for 1999 which will be calculated in 2000. The amount
of the accrual is based on the estimated accrual for the whole FAG Komponenten
AG and determined in proportion of personnel expenses of the product unit "ball"
to personnel expenses of the whole FAG Komponenten AG.
The accrual for anniversary benefits has been calculated under a special method
(Pauschalverfahren/lump sum method) according to German tax law.
22
The accrual for benefits related to section 12 of the
collective-bargaining-agreement takes account of obligations as set out in
section 12 of the Bavarian metal industry collective-bargaining-agreement. This
section requires that an amount of up to 3 wages or salaries be paid to the
heirs in case an employee dies.
EURO 22.659,95 of the accruals for wages and salaries paid during the holidays
relates to holiday not yet taken by wage earners until the balance sheet date
and EURO 3.415,94 of the provision relates to holiday not yet taken by salary
earners until the balance sheet date. The accrual covers the entitlement to
holiday, holiday pay and the related social security contributions.
Accruals for expenses relating to company law and statutes
The accrual for the external costs of the year-end financial statement relates
to the preparation and the audit of the 1999 year-end financial statement. The
accrual has been determined in proportion of the sum of assets of the product
unit "balls" to the sum of assets of FAG Komponenten Aktiengesellschaft.
Trade payables
31.12.1999
----------
EURO
Trade payables 563.951,88
==========
The trade payables are stated at their book values at the year-end. They have
been estimated on the basis of the raw materials used in the product unit
"balls" in December 1999.
Other liabilities
31.12.1999
----------
EURO
R&D subsidy to be transferred 250.533,02
Tax liabilities
Wage and church tax 184.576,38
Liabilities relating to social security
social security insurance 349.723,65
Liabilities resulting from wages payable 357.393,02
----------
1.142.226,07
============
23
EURO 230.081,35 of the R&D subsidy will have to be transferred to three other
partners of the research project (see other assets) while EURO 20.451,67 is
deferred income connected with an obligation of a possible repayment during the
period which the project is realized. There has to be an repayment if the
project will not be realized.
At the year-end the other liabilities contained wage and church tax and social
security contributions related to salary and wage-payments in December 1999 due
on January 10, 2000. Other liabilities also include wage payments of December
1999 which were made in the beginning of January 2000.
II. Statement of Revenues and Expenses
Sales
1999
--------------------------
EURO EURO
External sales
Third party sales
Production 9.661.389,41
Trade 2.240,15
------------
9.663.629,56
Internal sales
Own group of companies
Production 21.631.746,51
Trade 721.099,66
Other sales 43.635,20
-------------
22.396.481,37
-------------
32.060.110,93
=============
Decrease in finished goods and work in process
1999
------------
EURO
Work in process -19.009,60
Finished goods -895.162,96
----------
-914.172,56
==========
24
Other own work capitalized
1999
-----------
EURO
Other own work capitalized 36,33
===========
Other operating income
1999
----------
EURO
Cost allocations for men power
between different product units 61.221,58
Subsidy from the engagement agency 60.135,46
Schweinfurt
Earnings from consignment stocks 8.180,68
Gains from the disposal of fixed assets 6.710,96
R&D-subsidy 5.112,92
Compensation payments 3.365,94
Miscellaneous 13.484,60
---------
158.212,14
==========
The subsidy from the employment agency Schweinfurt (EURO 60.135,46) was received
for the employment of several long term unemployed workers.
Cost of raw materials
1999
----------
EURO
Cost of raw materials, consumables and
supplies
Cost of materials 8.666.338,15
Fuels and energy 999.758,77
Materials and supplies 2.672.128,02
Other operating expenses 625.183,98
----------
12.963.408,92
-------------
Cost of purchased services
Outside maintenance 156.639,99
Outside service for production 1.415.288,04
Freight and other transport costs 71.780,51
---------
1.643.708,54
------------
14.607.117,46
=============
25
Personnel expenses
1999
----------
EURO
Wages and salaries
Wage earners 4.843.162,36
Salary earners 1.205.058,82
------------
6.048.221,18
============
Social security contributions and other charges 4.227.002,33
------------
10.275.223,51
=============
Amortization and depreciation of fixed intangible and tangible assets
1999
----------
EURO
Amortization and deprecation of
fixed intangible and tangible assets 1.371.707,60
============
Other operating expenses
1999
----------
EURO
Cost allocations from FAG-companies
Management service 2.310.346,17
Leases and rents 1.886.861,32
Services from the department of human resources 696.527,27
EDP services 509.383,72
Quality control 74.244,06
Telephone charges 9.611,80
Adjustments between management and
financial accounting -736.697,49
----------
4.750.276,85
============
Sales-related payments to third parties
Administrative and selling expenses
Outside services 315.553,08
Freight and other transport costs 212.893,87
Selling expenses 88.436,31
Apportionment of administrative costs 58.698,93
Leases and rents 46.741,72
Travel expenses 27.297,79
Company insurance and other contributions 618,15
----------
750.239,85
==========
Losses from the disposal of fixed assets 195.582,95
Transfer to lump sum valuation allowance 9.556,04
Micellaneous 1.110,82
--------
206.249,81
----------
5.706.766,51
============
26
Interest and similar expenses
1999
----------
EURO
Interest and similar expenses
payable to consolidated, affiliated companies 342.054,27
==========
The interest expense relates to borrowings of nearly EURO 9.246.500,00 from FAG
Kugelfischer Georg Schafer AG at an interest rate of 3,7%. The amount of EURO
9.246.468,71 is part of the value of the net assets of the product unit "balls"
and classified as borrowings from FAG Kugelfischer Georg Schafer AG. The value
of the net assets of EURO 11.649.540,55 is divided into two parts. A part of
EURO 9.246.468,71 is yielding interest and the part of EURO 2.403.071,84 is not
yielding interest. The amount which is not yielding interest has been the
proportion of the gross value of the assets of product unit "balls" which equals
the proportion of the equity from the FAG Komponeten AG to the gross value of
the assets from FAG Komponenten AG.
1999
----------
EURO
Net operating loss/
Net loss for the year 998.682,51
==========
27
4. Certification
We have audited the statement of assets and liabilities as at December 31, 1999
and the statement of revenues and expenses of the period 1999 of the product
unit "balls" of the FAG Komponenten AG on the basis of a stand-alone assumption
of the product unit.
In our opinion, assets and liabilities as well as revenues and expenses are
adequately allocated to the product unit "balls" in accordance with the
principles of preparation and they are disclosed and valued in compliance with
the accounting principles of FAG Kugelfischer Georg Schafer AG and German GAAP.
Dusseldorf, July 31, 2000
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Pietsch /s/ Mertens
Wirtschaftsprufer Wirtschaftsprufer
Pietsch Mertens
Wirtschaftsprufer Wirtschaftsprufer
28
Appendix 1
Statement of Assets and Liabilities of the
product unit "balls"
of the FAG Komponenten AG, Schweinfurt, as at December 31, 1999
EURO EURO
Assets
Fixed assets
Intangible fixed assets 84,660.73
Tangible assets 7,132,357.58
------------------
7,217,018.31
Current assets
Inventories 5,645,724.21
Trade receivables 1,204,936.71
Receivables from affiliated companies 808,375.85
Other assets 280,433.41
------------------
7,939,470.18
------------------
15,156,488.49
------------------
Liabilities
Accruals
Accruals for pension and similar obligations 1,229,656.97
Other accruals 566,000.11
------------------
1,795,657.08
Liabilities
Trade payables 563,951.88
Other Liabilities 1,142,226.07
------------------
1,706,177.95
------------------
3,501,835.03
------------------
Net assets / Payables to FAG 11,654,653.46
==================
29
Appendix 2
Statement of Revenues and Expenses of the
product unit "balls"
of the FAG Komponenten AG, Schweinfurt, for the period of 1999
EURO
Sales 32,060,110.93
Decrease in finished goods and work in process -914,172.56
Other own work capitalized 36.33
Other operating income 158,212.14
Cost of raw materials -14,607,117.46
Personnel expenses -10,275,223.51
Amortization and deprecation of fixed intangible
and tangible assets -1,371,707.60
Other operating expenses -5,706,766.51
Interest and similar expenses -340,520.39
------------------
Net operating loss / net loss for the year -997,148.63
==================
30
NN, Inc.
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated financial information of NN, Inc.
(the "Company") is based on the historical financial statements for the Company,
adjusted to give pro forma effect to the consolidation of the entities
comprising NN Euroball APS ("Euroball") in which the Company has a 54%
ownership. Euroball was formed on July 31, 2000 and consists of the steel ball
manufacturing operations of NN Ball & Roller, Limited ("Limited"), of Pinerolo
Ball Division of SKF Industrie S.p.A. ("Pinerolo") and the unit "balls" of FAG
Komponenten Akiengesellschaft ("Eltmann"). Limited was previously owned by the
Company and its financial results are accordingly included in that of the
Company.
The unaudited pro forma consolidated balance sheet as of June 30, 2000 gives
effect to Euroball as if it was formed June 30, 2000. The unaudited pro forma
consolidated statements of income and comprehensive income for the year ended
December 31, 1999 and the six months ended June 30, 2000 give effect to Euroball
as if it had occurred on January 1, 1999 and January 1, 2000, respectively. The
unaudited pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma consolidated financial statements do not purport to
represent what the Company's results of operations or financial condition would
actually have been had the acquisitions in fact occurred on such dates, nor do
they purport to project the Company's results of operations or financial
condition for any future period or date. The information set forth below should
be read in conjunction with the historical financial statements of Pinerolo and
Eltmann for the year ended December 31, 1999 (contained herein), the Company's
unaudited consolidated financial statements and notes thereto as of and for the
six months ended June 30, 2000 (which are contained in the Company's Form 10-Q
for the six months ended June 30, 2000), and the audited consolidated financial
statements and notes thereto as of December 31, 1999 and for the three years
then ended (which are contained in the Company's Annual Report on Form 10-K).
The acquisitions of Pinerolo and Eltmann by Euroball have been accounted for as
purchases. Under purchase accounting, the total purchase price and fair value of
liabilities assumed are allocated to the tangible assets of the Company based
upon their respective fair values as of the purchase date in accordance with
Accounting Principles Board Opinion No. 16. A preliminary allocation of the
purchase price of the Pinerolo and Eltmann acquisitions has been made in the
accompanying unaudited pro forma consolidated financial statements based upon
Company estimates. The actual allocation of the purchase cost and the resulting
effect on income from operations may differ from the pro forma amounts included
therein; however, the Company does not expect the final allocation to differ
materially from the preliminary allocation.
31
NN, Inc.
Unaudited Consolidated Balance Sheet
For The Six Months Ended June 30, 2000
(In Thousands Except Per Share Data)
Actual Eltmann (a) Pinerolo (a) Adjustments Pro Forma
---------- -------------- -------------- --------------- -----------
Assets
Current assets:
Cash $ 2,432 $ - $ 4 $ - (b),(d) $ 2,436
Accounts receivable, net 20,680 1,182 5,535 27,397
Inventories, net 12,012 4,115 3,401 19,528
Other current assets 4,651 4 8,179 12,834
---------- -------------- -------------- -----------
Total current assets 39,775 5,301 17,119 62,195
Property, plant and equipment, net 41,925 4,176 24,556 70,657
Goodwill 12,400 - - 9,166 (b) 21,566
Receivable from unconsolidated affiliate 3,165 - - 3,165
Equity in unconsolidated affiliate 166 - - 166
Other 379 - 555 934
---------- -------------- -------------- -----------
Total assets $ 97,810 $ 9,477 $ 42,230 $ 158,683
========== ============== ============== ===========
Liabilities and stockholders' equity Current liabilities:
Accounts payable - trade $ 8,952 $ - $ 2,049 7,890 (d) $ 18,891
Accrued expenses 3,910 2,837 463 7,210
Deferred income 777 - 562 1,339
Due to Banks 9,086 (8,819) (c) 267
Other current liabilities - - 2,411 2,411
Income taxes payable 901 - - 901
---------- -------------- -------------- -----------
Total current liabilities 14,540 2,837 14,571 31,019
Deferred income taxes 2,611 - - 2,611
Long-term debt 19,040 - - 30,196 (b) 49,236
Minority interest - 9,510 (b) 9,510
Other - - 4,688 4,688
---------- -------------- -------------- -----------
Total liabilities 36,191 2,837 19,259 97,064
Stockholders' equity:
Common stock 153 - - 153
Additional paid-in capital 30,398 - - 30,398
Retained earnings 32,290 - - 32,290
Accumulated other comprehensive income (1,222) - - (1,222)
---------- -------------- -------------- -----------
Total stockholders' equity 61,619 - - 61,619
---------- -------------- -------------- -----------
Total liabilities and stockholders' equity $ 97,810 $ 2,837 $ 19,259 $ 158,683
========== ============== ============== ===========
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
32
NN, Inc.
Notes to Unaudited Pro Forma
Consolidated Balance Sheet
(a) Reflects the Eltmann and Pinerolo assets purchased and the liabilities
assumed, recorded at historical cost by the Company from the acquisitions
as if they occurred on June 30, 2000.
(b) Reflects the Company's payment for the net assets acquired from AB SKF and
FAG Kugelfischer Georg Schafer AG. The total consideration for the
acquisition was approximately $39 million. NN, Inc. will own 54 percent of
the shares in Euroball and SKF and FAG will each own 23 percent. Financing
for the transaction was provided by HypoVereinsbank Luxembourg S.A. as
agent for Bayerische Hypo-und Vereinsbank AG of Munich, Germany.
(c) Reflects the payment of bank debt assumed in the AB SKF acquisition.
(d) Reflects the reclassification of negative cash balances.
33
NN, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Twelve Months Ended December 31, 1999
(In Thousands Except Per Share Data)
Actual Eltmann (a) Pinerolo (a) Adjustments Pro Forma
------------ ------------- -------------- -------------- -----------
Net sales $85,294 $34,208 $51,846 $ 171,348
Cost of products sold 59,967 27,356 39,652 126,975
------------ ------------- -------------- -----------
Gross profit 25,327 6,852 12,194 44,373
Selling, general and administrative expenses 6,854 6,089 5,180 18,123
Depreciation and amortization 6,131 1,464 3,780 $ 561 (b) 11,936
------------ ------------- -------------- -----------
Income from operations 12,342 (701) 3,234 14,514
Interest expense 523 363 - 1,754 (c) 2,640
------------ ------------- -------------- -----------
Income before provision for minority interest
and pure income taxes 11,819 (1,064) 3,234 11,674
Provision for minority interest 354 (d) 354
Provision for income taxes 4,060 - - (171) (e) 3,889
------------ ------------- -------------- -----------
Net income $7,759 $ (1,064) $3,234 $7,431
------------ ------------- -------------- -----------
Other comprehensive income:
Foreign currency translation (1,563) - - (1,563)
------------ ------------- -------------- -----------
Other comprehensive income (1,563) - - (1,563)
------------ ------------- -------------- -----------
Comprehensive income $6,196 $(1,064) $3,234 $5,868
============ ============= ============== ===========
Basic income per share $ 0.52 $ - $ - $ 0.49
============ ============= ============== ===========
Weighted average shares outstanding 15,021 - - 15,021
============ ============= ============== ===========
Diluted income per share $0.52 $ - $ - $ 0.49
============ ============= ============== ===========
Weighted average shares outstanding 15,038 - - 15,038
============ ============= ============== ===========
See Notes to Unaudited Pro Forma Statements of Income and Comprehensive Income
34
NN, Inc.
Notes to Unaudited Pro Forma
Statements of Income and Comprehensive Income
(a) Represents the historical results for Eltmann and Pinerolo for the twelve
months ended December 31, 1999.
(b) Represents the amortization of goodwill arising from the acquisitions over
a period of 20 years.
(c) Represents interest expense incurred in connection with additional
borrowings outstanding which were used to finance the acquisitions. These
additional borrowings were made under a facility agreement with Bayerische
Hypo- und Verinsbank AG.
(d) Represents the minority interest liability owed to SKF and FAG associated
with the 1999 earnings of Euroball.
(e) Represents the adjustment to the Company's 1999 provision for income taxes
to reflect the additional income from Euroball and the incorporation of pro
forma adjustments.
35
NN, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Six Months Ended June 30, 2000
(In Thousands Except Per Share Data)
Actual Eltmann (a) Pinerolo (a) Adjustments Pro Forma
---------- -------------- ------------- --------------- -------------
Net sales $25,643 $16,833 $27,606 $70,082
Cost of products sold 17,965 14,740 20,135 52,840
---------- -------------- ------------- -------------
Gross profit 7,678 2,093 7,471 17,242
Selling, general and administrative expenses 2,463 1,143 1,523 5,129
Depreciation and amortization 1,723 755 1,606 $ 240 (b) 4,324
Loss on involuntary conversion 4,505 - - 4,505
Gain on involuntary conversion (4,505) - - (4,505)
Equity in earnings of unconsolidated affiliate (53) - - (53)
---------- -------------- ------------- -------------
Income from operations 3,545 195 4,342 7,842
Interest expense 268 113 32 952 (c) 1,365
---------- -------------- ------------- -------------
Income before provision for minority interest
and income taxes 3,277 82 4,310 6,477
Provision for minority interest - - - 2,374 (d) 2,374
Provision for income taxes 1,035 - - 261 (e) 1,296
---------- -------------- ------------- -------------
Net income $2,242 $ 82 $4,310 $2,807
---------- -------------- ------------- -------------
Other comprehensive income:
Foreign currency translation (27) - - (27)
---------- -------------- ------------- -------------
Other comprehensive income (27) - - (27)
---------- -------------- ------------- -------------
Comprehensive income $2,215 $ 82 $4,310 $2,780
========== ============== ============= =============
Basic income per share $ 0.15 $ - $ - $ 0.18
========== ============== ============= =============
Weighted average shares outstanding 15,244 - - 15,244
========== ============== ============= =============
Diluted income per share $ 0.15 $ - $ - $ 0.18
========== ============== ============= =============
Weighted average shares outstanding 15,436 - - 15,436
========== ============== ============= =============
See Notes to Unaudited Pro Forma Statements of Income and Comprehensive Income
36
NN, Inc.
Notes to Unaudited Pro Forma
Statements of Income and Comprehensive Income
(a) Represents the historical results for Eltmann and Pinerolo for the six
months ended June 30, 2000.
(b) Represents the amortization of goodwill arising from the acquisitions over
a period of 20 years.
(c) Represents interest expense incurred in connection with additional
borrowings outstanding which were used to finance the acquisitions. These
additional borrowings were made under a facility agreement with Bayerische
Hypo- und Verinsbank AG.
(d) Represents the minority interest liability owed to SKF and FAG associated
with the 1999 earnings of Euroball.
(e) Represents the adjustment to the Company's 1999 provision for income taxes
to reflect the additional income from Euroball and the incorporation of pro
forma adjustments.
37
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 hereunto duly authorized.
NN, Inc.
(Registrant)
Date: 10/16/2000 /s/ William C. Kelly, Jr.
William C. Kelly, Jr.
Chief Accounting Officer