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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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
NN, 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)
2000 Waters Edge Drive
Building C, Suite 12
Johnson City, Tennessee 37604
(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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
As of May 12, 2003 there were 16,081,441 shares of the registrant's common
stock, par value $0.01 per share, outstanding.
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NN, Inc.
INDEX
Page No.
Explanatory Statement 2
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Income and Comprehensive Income
for the three months ended March 31, 2003 and 2002
(unaudited) (restated) 3
Condensed Consolidated Balance Sheets at March 31, 2003 and
December 31, 2002 (unaudited) (restated) 4
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 2003 and 2002 (restated) 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2003 and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
Item 4. Controls and Procedures 26
Part II. Other Information
Item 1. Legal Proceedings 27
Item 2. Exhibits and Reports on Form 8-K 27
Signatures 28
1
Explanatory Statement
This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2003 and 2002, and is being filed
solely to amend the financial reporting of certain transactions related to the
formation of NN Euroball, ApS ("Euroball") on July 31, 2000, and the subsequent
purchase on December 20, 2002 of the 23% interest in Euroball held by FAG
Kugelfischer George Schaefer AG, which was subsequently acquired by INA -
Schaeffler KG (collectively, "INA/FAG"). These restatements had no material
effect on the Company's reported net sales, gross profit, income from
operations, net income, earnings per share or cash flows for the three month
periods ended March 31, 2003 and 2002.
We have revised the valuation of the original purchase price associated with the
formation of Euroball in July 2000. This revision resulted in a reduction of
goodwill of approximately 4.1 million Euro ($3.8 million). Further, we have
increased stockholders' equity by approximately 10.0 million Euro ($9.3 million)
to reflect the amount by which the Company's proportionate interest in Euroball
exceeded the book value of the net assets exchanged by the Company. As a result
of these two adjustments, minority interest in consolidated subsidiaries has
been reduced by approximately $8.0 million and $7.4 million at March 31, 2003
and December 31, 2002, respectively, goodwill has been reduced $4.5 million and
$4.3 million at March 31, 2003 and December 31, 2002, respectively, and
paid-in-capital increased $9.3 million at March 31, 2003 and December 31, 2002,
respectively, from amounts previously reported. Comprehensive income has also
been restated for the foreign currency translation effects of these adjustments.
In the previously issued December 31, 2002 Consolidated Financial Statements,
when the Company acquired the 23% interest in Euroball held by INA/FAG in
December 2002, the excess of minority interest in consolidated subsidiaries over
the December 2002 purchase price was recorded as a non-taxable gain in the
amount of approximately $5.9 million in the fourth quarter of 2002. As restated
in the accompanying Consolidated Financial Statements, the non-taxable gain has
been excluded and the excess of the purchase price over the fair value of
INA/FAG's 23% interest in the net assets of Euroball was allocated to goodwill.
The resulting impact to the Consolidated Financial Statements is an increase to
goodwill of approximately $1.5 million and a decrease in retained earnings of
approximately $5.9 million at December 31, 2002 and March 31, 2003.
Additionally, the Company has reclassified minority interest in consolidated
subsidiaries from a component of total liabilities to a separate line item in
the Condensed Consolidated Balance Sheets at March 31, 2003 and December 31,
2002.
Items amended include Item 1 and Item 2. In addition, in connection with the
filing of this Amendment and pursuant to the rules of the Securities and
Exchange Commission, the Registrant is including with this Amendment certain
currently dated certifications. Other than those described in Note 1 to the
Consolidated Financial Statements, no other material changes have been made to
this Quarterly Report on Form 10-Q/A. This Form 10-Q/A does not modify or update
the disclosure contained in the Quarterly Report in any way other than as
required to reflect the amendments discussed above.
2
PART I. FINANCIAL INFORMATION
NN, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
Restated Restated
Thousands of Dollars, Except Per Share Data 2003 2002
- --------------------------------------------------------------------------------
Net sales $57,609 $47,200
Cost of goods sold 42,743 35,532
------------- -------------
Gross profit 14,866 11,668
Selling, general and administrative 4,632 4,459
Depreciation and amortization 3,079 2,796
Restructuring costs -- 78
------------- -------------
Income from operations 7,155 4,335
Interest expense, net 513 669
Other income (7) (355)
------------- -------------
Income before provision for income taxes 6,649 4,021
Provision for income taxes 2,472 1,505
Minority interest of consolidated subsidiaries 534 668
------------- -------------
Net income 3,643 1,848
Other comprehensive income (loss):
Foreign currency translation 1,798 (194)
------------- -------------
Comprehensive income $ 5,441 $ 1,654
============= =============
Basic income per common share: $ 0.24 $ 0.12
============= =============
Weighted average shares outstanding 15,378 15,341
============= =============
Diluted income per common share: $ 0.23 $ 0.12
============= =============
Weighted average shares outstanding 15,574 15,735
============= =============
See accompanying notes.
3
NN, Inc.
Condensed Consolidated Balance Sheets
Restated Restated
March 31, December 31,
2003 2002
Thousands of Dollars (Unaudited)
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 3,228 $ 5,144
Accounts receivable, net 39,091 28,965
Inventories, net 25,594 23,402
Other current assets 5,375 3,901
-------------- --------------
Total current assets 73,288 61,412
Property, plant and equipment, net 89,537 88,199
Assets held for sale 1,939 2,214
Goodwill, net 39,715 39,374
Other assets 4,657 4,016
-------------- --------------
Total assets $ 209,136 $ 195,215
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 24,565 $ 22,983
Bank overdraft 2,812 37
Accrued salaries & wages 6,579 6,354
Income taxes payable 3,014 620
Payable to affiliates 259 566
Current maturities of long-term debt 7,000 7,000
Other current liabilities 4,166 2,674
-------------- --------------
Total current liabilities 48,395 40,234
Non-current deferred tax liability 9,479 9,334
Long-term debt 46,236 46,135
Accrued pension and other 9,840 9,319
-------------- --------------
Total liabilities 113,950 105,022
Minority interest in consolidated subsidiaries 12,988 12,285
-------------- --------------
Total stockholders' equity 82,198 77,908
-------------- --------------
Total liabilities and stockholders' equity $209,136 $195,215
============== ==============
See accompanying notes.
4
NN, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited) (Restated)
Common Stock Accumulated
Additional Other
Number Par paid in Retained Comprehensive
Thousands of Dollars of Shares value capital Earnings Income (Loss) Total
- ----------------------------------------------------------------------------------------------------------
Balance, January 1, 2002, Restated 15,317 $154 $ 40,111 $ 36,139 $ (5,422) $70,982
Shares issued 24 -- 148 -- -- 148
Net income -- -- -- 1,848 -- 1,848
Dividends declared -- -- -- (1,227) -- (1,227)
Other comprehensive loss -- -- -- -- (194) (194)
--------- ------- ----------- ----------- ------------ ----------
Balance, March 31, 2002, Restated 15,341 $154 $ 40,259 $ 36,760 $ (5,616) $71,557
========= ======= =========== =========== ============ ==========
Balance, January 1, 2003, Restated 15,370 $154 $ 40,457 $ 38,984 $ (1,687) $77,908
Shares issued 11 1 78 -- -- 79
Net income -- -- -- 3,643 -- 3,643
Dividends declared -- -- -- (1,230) -- (1,230)
Other comprehensive income -- -- -- -- 1,798 1,798
--------- ------- ---------- ----------- ------------ ----------
Balance, March 31, 2003, Restated 15,381 $155 $ 40,535 $ 41,397 $ 111 $ 82,198
========= ======= ========== =========== ============ ==========
See accompanying notes.
5
NN, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
Thousands of Dollars 2003 2002
- --------------------------------------------------------------------------------
Operating Activities:
Net income $ 3,643 $ 1,848
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 3,079 2,796
Minority interest in consolidated subsidiary 534 668
Restructuring costs -- 78
Changes in operating assets and liabilities:
Accounts receivable (9,416) (5,996)
Inventories (1,833) 1,578
Other current assets (398) (558)
Other assets (1,477) 2
Accounts payable 403 (1,371)
Income taxes payable 3,014 1,421
Other liabilities (361) 600
----------- ----------
Net cash provided (used) by operating activities (2,812) 1,066
----------- ----------
Investing Activities:
Acquisition of property, plant, and equipment (2,071) (849)
----------- ----------
Net cash used by investing activities (2,071) (849)
----------- ----------
Financing Activities:
Proceeds from long-term debt -- 1,710
Bank overdraft 2,775 495
Repayment of long-term debt (83) (2,132)
Proceeds from issuance of stock 79 148
Dividends paid -- (1,227)
----------- ----------
Net cash provided (used) by financing activities 2,771 (1,006)
----------- ----------
Effect of exchange rate changes 196 (31)
Net Change in Cash and Cash Equivalents (1,916) (820)
Cash and Cash Equivalents at Beginning of Period 5,144 3,024
----------- ----------
Cash and Cash Equivalents at End of Period $ 3,228 $ 2,204
=========== ==========
See accompanying notes.
6
NN, Inc.
Notes To Consolidated Financial Statements
Note 1. Restatement
The Company has restated its Consolidated Financial Statements for the fiscal
quarter ended March 31, 2003 and 2002, solely to amend the financial reporting
of certain transactions related to the formation of NN Euroball, ApS
("Euroball") on July 31, 2000, and the subsequent purchase on December 20, 2002
of the 23% interest in Euroball held by FAG Kugelfischer George Schaefer AG,
which was subsequently acquired by INA - Schaeffler KG (collectively,
"INA/FAG"). These restatements had no material effect on the Company's reported
net sales, gross profit, income from operations, net income, earnings per share
or cash flows for the three month periods ended March 31, 2003 and 2002.
We have revised the valuation of the original purchase price associated with the
formation of Euroball in July 2000. This revision resulted in a reduction of
goodwill of approximately $4,108 Euro ($3,792). Further, we have increased
stockholders' equity by approximately 10,044 Euro ($9,270) to reflect the amount
by which the Company's proportionate interest in Euroball exceeded the book
value of the net assets exchanged by the Company. As a result of these two
adjustments, minority interest in consolidated subsidiaries has been reduced by
approximately $7,999 and $7,421 at March 31, 2003 and December 31, 2002,
respectively, goodwill has been reduced $4,476 and $4,308 at March 31, 2003 and
December 31, 2002, respectively, and paid-in-capital increased $9,270 at March
31, 2003 and December 31, 2002, respectively, from amounts previously reported.
Comprehensive income has also been restated for the foreign currency translation
effects of these adjustments.
In the previously issued December 31, 2002 Consolidated Financial Statements,
when the Company acquired the 23% interest in Euroball held by INA/FAG in
December 2002, the excess of minority interest in consolidated subsidiaries over
the December 2002 purchase price was recorded as a non-taxable gain in the
amount of approximately $5,904 in the fourth quarter of 2002. As restated in the
accompanying Consolidated Financial Statements, the non-taxable gain has been
excluded and the excess of the purchase price over the fair value of INA/FAG's
23% interest in the net assets of Euroball was allocated to goodwill. The
resulting impact to the Consolidated Financial Statements is an increase to
goodwill of approximately $1,517 and a decrease in retained earnings of
approximately $5,904 at December 31, 2002 and March 31, 2003, and reversal of
the previously recorded $5,904 gain in the Consolidated Statement of Income and
Comprehensive Income for the year ended December 31, 2002.
Additionally, the Company has reclassified minority interest in consolidated
subsidiaries from a component of total liabilities to a separate line item in
the Condensed Consolidated Balance Sheets at March 31, 2003 and December 31,
2002.
Items amended include Item 1 and Item 2. In addition, in connection with the
filing of this Amendment and pursuant to the rules of the Securities and
Exchange Commission, the Registrant is including with this Amendment certain
currently dated certifications. Other than those described in Note 1 to the
Consolidated Financial Statements, no other material changes have been made to
this Quarterly Report on Form 10-Q. This Form 10-Q/A does not modify or update
the disclosure contained in the Quarterly Report in any way other than as
required to reflect the amendments discussed above.
7
Effect on selected Consolidated Financial Statement data at December 31, 2002,
and at March 31, 2003, March 31, 2002 and for the three month periods then
ended.
Selected Consolidated Balance Sheet Data
March 31, 2003
(In thousands)
As Previously
Reported As Restated
--------------- --------------
Goodwill $ 42,675 $ 39,715
Total assets 212,096 209,136
Total liabilities 134,937 113,950
Minority interest in consolidated subsidiaries 20,987 12,988
Additional paid-in capital 31,265 40,535
Retained earnings 47,301 41,397
Accumulated other comprehensive (loss) income (1,562) 111
Total stockholders' equity 77,159 82,198
Total liabilities and stockholders' equity 212,096 209,136
Selected Consolidated Balance Sheet Data
December 31, 2002
(In thousands)
As Previously
Reported As Restated
--------------- --------------
Goodwill $ 42,166 $ 39,374
Total assets 198,007 195,215
Total liabilities 124,728 105,022
Minority interest in consolidated subsidiaries 19,706 12,285
Additional paid-in capital 31,187 40,457
Retained earnings 44,888 38,984
Accumulated other comprehensive loss (2,950) (1,687)
Total stockholders' equity 73,279 77,908
Total liabilities and stockholders' equity 198,007 195,215
Selected Consolidated Statement of Income and Comprehensive Income Data
Three months ended March 31, 2003
(In thousands)
As Previously
Reported As Restated
--------------- --------------
Foreign currency translation $ 1,388 $ 1,798
Comprehensive income 5,031 5,441
Selected Consolidated Statement of Income and Comprehensive Income Data
Three months ended March 31, 2002
(In thousands)
As Previously
Reported As Restated
--------------- --------------
Foreign currency translation $ (80) $ (194)
Comprehensive income 1,768 1,654
8
Note 2. Interim Financial Statements
The accompanying consolidated financial statements of NN, Inc. (the "Company")
have not been audited by independent accountants, except that the balance sheet
at December 31, 2002 is derived from the Company's audited financial statements.
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
month periods ended March 31, 2003 and 2002, the Company's financial position at
March 31, 2003 and December 31, 2002, and the cash flows for the three month
periods ended March 31, 2003 and 2002. These adjustments are of a normal
recurring nature 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 the 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/A. These Condensed, Consolidated,
Unaudited Financial Statements should be read in conjunction with our audited
Consolidated Financial Statements and the Notes thereto included in our most
recent report on Form 10-K/A, as amended, which we filed with the Commission on
January 30, 2004.
The results for the first quarter of 2003 are not necessarily indicative of
future results.
Certain 2002 amounts have been reclassified to conform with the 2003
presentation.
Note 3. Derivative Financial Instruments
The Company has an interest rate swap accounted for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective January 1, 2001. The Company
adopted SFAS No. 133 on January 1, 2001, which establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Standard requires the recognition of all derivative instruments on the balance
sheet at fair value. The Standard allows for hedge accounting if certain
requirements are met including documentation of the hedging relationship at
inception and upon adoption of the Standard.
In connection with a variable Euribor rate debt financing in July 2000, the
Company's subsidiary, NN Euroball ApS entered into an interest rate swap with a
notional amount of Euro 12.5 million for the purpose of fixing the interest rate
on a portion of its debt financing. The interest rate swap provides for the
Company to receive variable Euribor interest payments and pay 5.51% fixed
interest. The interest rate swap agreement expires in July 2006 and the notional
amount amortizes in relation to initially established principal payments on the
underlying debt over the life of the swap.
As of March 31, 2003, the fair value of the swap was a loss of approximately
$539,000, which is recorded in other non-current liabilities. The change in fair
value during the three month period ended March 31, 2003 and 2002 was a loss of
approximately $104,000 and a gain of approximately $56,000, respectively, which
have been included as a component of other income.
Note 4. Inventories
Inventories are stated at the lower of cost or market. Cost is being determined
using the first-in, first-out method.
Inventories are comprised of the following (in thousands):
March 31, Dec. 31,
2003 2002
(Unaudited)
----------- ----------
Raw materials $ 5,864 $ 5,400
Work in process 5,522 5,139
Finished goods 14,468 13,065
Less inventory reserves (260) (202)
---------- ----------
$25,594 $23,402
========== ==========
Inventories on consignment at customer locations as of March 31, 2003 and
December 31, 2002 were $2,458 and $3,093, respectively.
9
Note 5. Net Income Per Share
Three Months Ended
March 31,
Thousands of Dollars, Except Share and Per Share Data 2003 2002
---------- ----------
Net income $ 3,643 $ 1,848
Adjustments to net income -- --
---------- ----------
Net income $ 3,643 $ 1,848
========== ==========
Weighted average basic shares 15,378,313 15,340,806
Effect of dilutive stock options 195,881 393,904
---------- ----------
Weighted average dilutive shares 15,574,194 15,734,710
========== ==========
Basic net income per share $ 0.24 $ 0.12
========== ==========
Diluted net income per share $ 0.23 $ 0.12
========== ==========
Excluded from the shares outstanding for each of the three month periods ended
March 31, 2003 and 2002 were 39,800 and 0 antidilutive options, respectively,
which had exercise prices ranging from $9.75 to $10.26 as of March 31, 2003.
Note 6. Segment Information (Restated)
During 2003 and 2002, the Company's reportable segments are based on differences
in product lines and geographic locations and are divided among Domestic Ball
and Roller, European operations ("Euroball") and Plastic and Rubber Components.
The Domestic Ball and Roller Segment is comprised of two manufacturing
facilities in the eastern United States. The Euroball Segment was acquired in
July 2000 and is comprised of manufacturing facilities located in Kilkenny,
Ireland, Eltmann, Germany and Pinerolo, Italy. All of the facilities in the
Domestic Ball and Roller and Euroball Segment are engaged in the production of
precision balls and rollers used primarily in the bearing industry. The Plastic
and Rubber Components Segment is comprised of the Industrial Molding Corporation
("IMC") business, located in Lubbock, Texas, which was acquired in July 1999, NN
Arte ("Arte") formed in August of 2000, located in Guadalajara, Mexico and The
Delta Rubber Company ("Delta") business, located in Danielson, Connecticut,
which was acquired in February 2001. IMC and Arte are engaged in the production
of plastic injection molded products for the bearing, automotive,
instrumentation, fiber optic and consumer hardware markets. Delta is engaged
principally in the production of engineered bearing seals used principally in
automotive, industrial, agricultural, mining and aerospace applications. The
Plastic and Rubber Components Segment's name has been changed from the Plastics
Segment effective with this quarterly report on Form 10-Q/A. The businesses and
methods of calculation comprising this segment have not changed.
The accounting policies of each segment are the same as those described in the
summary of significant accounting policies in the December 31, 2002 Form 10-K/A
including those policies as discussed in Note 2. The Company evaluates segment
performance based on profit or loss from operations before income taxes and
minority interest not including nonrecurring gains and losses. The Company
accounts for inter-segment sales and transfers at current market prices;
however, the Company did not have any material inter-segment transactions during
the three month periods ended March 31, 2003 and 2002.
10
Three Months Ended March 31,
2003 | 2002
Domestic Plastic and | Domestic Plastic and
Ball & Restated Rubber | Ball & Restated Rubber
Thousands of Dollars Roller Euroball Components | Roller Euroball Components
- -----------------------------------------------------------|----------------------------------
Revenues from external |
customers $ 14,249 $ 28,835 $ 14,525 | $ 13,203 $ 21,725 $ 12,272
Segment pretax profit 1,980 3,729 940 | 998 2,351 672
Segment assets 61,435 87,721 59,980 | 65,982 62,800 57,026
Note 7. Acquisitions and Joint Ventures
On December 20, 2002, we acquired the 23 percent interest in NN Euroball, ApS
("Euroball") held by INA/FAG. Euroball was formed in 2000 by the Company, FAG
Kugelfischer George Schaefer AG, which was subsequently acquired by INA -
Schaeffler KG (collectively, "INA/FAG"), and AB SKF ("SKF"). INA/FAG is a global
bearing manufacturer and one of our largest customers. We paid approximately
13.4 million Euros ($13.8 million) for INA/FAG's interest in Euroball. Following
the closing of the transaction, we own 77 percent of the outstanding shares of
Euroball and SKF owns the remaining 23 percent. SKF consented to our purchase of
INA/FAG's interest pursuant to the terms of the Euroball Shareholder Agreement.
SKF has the right, beginning January 1, 2003 to require us to purchase its
interest in Euroball, based on a formula price detailed in the Euroball
Shareholder Agreement. On May 2, 2003, we acquired the 23 percent interest in
Euroball held by SKF, see Note 11.
On April 1, 2003, we exercised our call right and purchased the remaining 49
percent interest in NN Mexico, LLC. Based on the purchase price formula
contained in the principal agreement between the parties, the purchase price for
such interest was zero.
Note 8. Restructuring Charges
In September of 2001, the Company announced that it would close its Walterboro,
South Carolina ball manufacturing facility as part of its ongoing strategy to
locate manufacturing capacity in closer proximity to customers. The closure was
substantially completed by December 31, 2001. Current plans are to sell the land
and building. The plant closing resulted in the termination of approximately 80
full time hourly and salaried employees in 2001.
Prior to December 31, 2001, production capacity and certain machinery and
equipment were transferred from the Walterboro facility to the Company's two
domestic ball facilities in Erwin, Tennessee and Mountain City, Tennessee. The
Company recorded restructuring costs of $62,000 for additional severance
payments during the quarter ended March 31, 2002. There were no restructuring
costs recorded for the quarter ended March 31, 2003.
The Company's Euroball subsidiary incurred restructuring charges of $16,000 for
the quarter ended March 31, 2002 for additional severance payments as a result
of the termination of 15 hourly employees and 3 salaried employees at its Italy
production facility. Approximately $69,000 of the severance payments recorded
during 2001 and 2002 were paid during the quarter ended March 31, 2002 and there
are no remaining accrued restructuring costs included in other current
liabilities as of March 31, 2002 and March 31, 2003 related to Euroball.
Note 9. New Accounting Pronouncements
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (Statement No. 141), and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (Statement
No. 142). Statement No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Statement No.
141 also specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. Statement No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but rather, periodically tested
for impairment.
11
The effective date of Statement No. 142 is January 1, 2002. As of the date of
adoption, the Company had unamortized goodwill of approximately $36.6 million,
which is subject to the provisions of Statement No. 142.
As a result of adopting these new standards, the Company's accounting policies
for goodwill and other intangibles changed on January 1, 2002, as described
below:
Goodwill: The Company recognized the excess of the purchase price of an acquired
entity over the fair value of the net identifiable assets as goodwill. Goodwill
is tested for impairment on an annual basis and between annual tests in certain
circumstances. Impairment losses are recognized whenever the implied fair value
of goodwill is less than its carrying value. Prior to January 1, 2002, goodwill
was amortized over a twenty-year period using the straight-line method.
Beginning January 1, 2002, goodwill is no longer amortized.
Other Acquired Intangibles: The Company recognizes an acquired intangible asset
apart from goodwill whenever the asset arises from contractual or other legal
rights, or whenever it is capable of being divided or separated from the
acquired entity or sold, transferred, licensed, rented, or exchanged, whether
individually or in combination with a related contract, asset or liability. An
intangible asset other than goodwill is amortized over its estimated useful life
unless that life is determined to be indefinite. The Company will review the
lives of intangible assets each reporting period and, if necessary, recognize
impairment losses if the carrying amount of an intangible asset subject to
amortization is not recoverable from expected future cash flows and its carrying
amount exceeds its fair value.
The Company completed the transitional goodwill impairment reviews required by
the new standards during the first six months of 2002 and the annually required
goodwill impairment review during the fourth quarter of 2002. In performing the
impairment reviews, the Company estimated the fair values of the reporting units
using a method that incorporates valuations derived from EBITDA multiples based
upon market multiples and recent capital market transactions and also
incorporates valuations determined by each segment's discounted future cash
flows. As of January 1, 2002, the transition date and as of October 1, 2002, the
most recent annual review date, there was no impairment to goodwill as the fair
values exceeded the carrying values of the reporting units. As of March 31,
2003, the carrying amounts of goodwill by reporting units are as follows: $26.1
million for the Plastics and Rubber Components Segment and $13.6 million for the
Euroball Segment. Since December 31, 2002, the increase in goodwill of $0.3
million is principally due to foreign currency translation adjustments at the
Euroball Segment.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting For Asset Retirement Obligations." This Statement requires
capitalizing any retirement costs as part of the total cost of the related
long-lived asset and subsequently allocating the total expense to future periods
using a systematic and rational method. Adoption of the Statement is required
for fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143
on January 1, 2003 and this adoption did not have a material impact on the
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS No. 4 had required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. SFAS No. 145 rescinds SFAS No. 4 and the related required
classifications gains and losses form extinguishment of debt as extraordinary
items. Additionally, the SFAS No. 145 amends SFAS No. 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
SFAS No. 145 is applicable for the Company at the beginning of fiscal year 2003,
with the provisions related to SFAS No. 13 for transactions occurring after May
15, 2002. The Company adopted SFAS No. 145 effective January 1, 2003 and this
adoption did not have a material impact on the financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires costs associated with
exit or disposal activities to be recognized when they are incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
12
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123". SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148, which was effective for the year ending
December 31, 2002, amends the disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company has adopted
the provisions of SFAS 123, which encourages but does not require a fair value
based method of accounting for stock compensation plans. The Company has elected
to continue accounting for its stock compensation plan using the intrinsic value
based method under APB Opinion No. 25 and, accordingly, has not recorded
compensation expense for each of the three months ended March 31, 2003 and March
31, 2002, except as discussed above. Had compensation cost for the Company's
stock compensation plan been determined based on the fair value at the option
grant dates, the Company's net income and earnings per share would have been
reduced to the proforma amounts indicated below:
Three months ended
March 31,
2003 2002
-------- --------
Net income - as reported $3,643 $1,848
Stock based compensation costs, net of income
tax, included in net income as reported -- --
Stock based compensation costs, net of income
tax, that would have been included in net
income if the fair value method had been
applied 10 14
-------- --------
Net income - proforma $3,633 $1,834
======== ========
Earnings per share - as reported $ 0.24 $ 0.12
Stock based compensation costs, net of income
tax, included in net income as reported -- --
Stock based compensation costs, net of income
tax, that would have been included in net
income if the fair value method had been applied -- --
-------- --------
Earnings per share - proforma $ 0.24 $ 0.12
======== ========
Earnings per share-assuming dilution - as reported $ 0.23 $ 0.12
Stock based compensation costs, net of income tax,
included in net income as reported -- --
Stock based compensation costs, net of income tax,
that would have been included in net income if
the fair value method had been applied -- --
-------- --------
Earnings per share - assuming dilution-proforma $ 0.23 $ 0.12
======== ========
The fair value of each option grant was estimated based on actual
information available through March 31, 2003 and 2002 using the
Black Scholes option-pricing model with the following assumptions:
Term Vesting period
Risk free interest rate 3.28% and 3.28% at March 31, 2003 and 2002, respectively
Dividend yield 3.66% and 2.91% at March 31, 2003 and 2002, respectively
Volatility 50.11% and 40.2% at March 31, 2003 and 2002, respectively
13
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. This
interpretation elaborates the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002 and
are not expected to have a material effect on the Company's consolidated results
of operations, financial position or cash flows.
Note 10. Long-Term Debt
On July 20, 2001, the Company entered into a syndicated loan agreement with
AmSouth Bank ("AmSouth") as the administrative agent for the lenders, for a
senior non-secured revolving credit facility of up to $25 million, expiring on
July 25, 2003 and a senior non-secured term loan for $35 million expiring on
July 1, 2006. On July 12, 2002, the Company amended this credit facility to
convert the term loan portion into a reducing revolving credit line providing
initial availability equivalent to the balance of the term loan prior to the
amendment. Additionally, on July 31, 2002, the Company amended the credit
facility again to extend the $25 million senior non-secured revolving credit
facility to July 25, 2004. Amounts outstanding under the revolving facility and
term loan facility bore interest at a floating rate equal to LIBOR (1.23% at
March 31, 2003) plus an applicable margin of 0.75% to 2.00% based upon
calculated financial ratios. The loan agreement contains customary financial and
non-financial covenants. Such covenants specify that the Company must maintain
certain liquidity measures and limits the amount of capital expenditures we may
make in any fiscal year. The Company's ownership in NN Euroball ApS has been
pledged as collateral. The Company was in compliance with all loan covenants as
of March 31, 2003. In connection with the new $90 million syndicated credit
facility entered into on May 1, 2003 this credit facility was repaid, see Note
11.
In connection with the Euroball transaction the Company and NN Euroball ApS,
entered into a Facility Agreement with a bank to provide up to Euro 36 million
in Term Loans and Euro 5 million in revolving credit loans. The Company borrowed
Euro 30.5 million ($28.8 million) under the term loan facility and Euro 1.0
million ($0.9 million) under the revolving credit facility. Amounts outstanding
under the Facility Agreement were secured by inventory and accounts receivable
and bear interest at EURIBOR (2.52% at March 31, 2003) plus an applicable margin
between 0.8% and 2.25% based upon financial ratios. The shareholders of NN
Euroball ApS have provided guarantees for the Facility Agreement. Euroball was
in compliance with all loan covenants at March 31, 2003. Amounts outstanding
under the Facility Agreement are secured by the stock of certain subsidiaries,
inventory and accounts receivable of NN Euroball ApS. In connection with the new
$90 million syndicated credit facility entered into on May 1, 2003 this credit
facility was repaid, see Note 11.
Note 11. Subsequent Events
On May 2, 2003 we acquired the 23 percent interest in NN Euroball, ApS
("Euroball") held by SKF. We paid approximately 13.8 million Euros ($15.5
million). Euroball was formed in 2000 by the Company, FAG Kugelfischer George
Shaefer AG, which was subsequently acquired by INA - Schaeffler KG
(collectively, "INA/FAG"), and AB SKF ("SKF"). Upon consummation of this
transaction, we became the sole owner of Euroball.
On May 2, 2003 we acquired the tapered roller and metal cage manufacturing
operations of SKF in Veenendaal, The Netherlands. We paid consideration of
approximately 22.2 million Euros ($25.0 million), for the assets acquired from
SKF. The Veenendaal operation manufactures rollers for tapered roller bearings
and metal cages for both tapered roller and spherical roller bearings.
In connection with the acquisition of SKF's operations in Veenendaal, The
Netherlands, SKF purchased 700,000 shares of our common stock from us for an
aggregate purchase price of approximately $6.2 million which was applied to the
purchase of SKF's Veenendaal, The Netherlands operations.
14
On May 1, 2003 in connection with the purchase of SKF's Veenendaal component
manufacturing operations and SKF's 23 percent interest in Euroball, we entered
into a new $90 million syndicated credit facility with AmSouth Bank ("AmSouth")
as the administrative agent and Suntrust Bank as the euro loan agent for the
lenders under which we borrowed $60.4 million and 26.3 million Euros ($29.6
million). This new financing arrangement replaces our prior credit facility with
AmSouth and Euroball's credit facility with Hypo Vereinsbank Luxembourg, S.A.
The credit facility consists of a $30.0 million revolver expiring on March 1,
2005, bearing interest at a floating rate equal to LIBOR (1.31% at April 30,
2003) plus an applicable margin of 1.25 to 2.0, a $30.4 million term loan
expiring on May 1, 2008, bearing interest at a floating rate equal to LIBOR
(1.31% at April 30, 2003) plus an applicable margin of 1.25 to 2.0 and a 26.3
million ($29.6 million) Euros term loan expiring on May 1, 2008 which bears
interest at a floating rate equal to Euro LIBOR (2.57% at April 30, 2003) plus
an applicable margin of 1.25 to 2.0. The loan agreement contains customary
financial and non-financial covenants. Such covenants specify that we must
maintain certain liquidity measures. The loan agreement also contains customary
restrictions on, among other things, additional indebtedness, liens on our
assets, sales or transfers of assets, investments, restricted payments
(including payment of dividends and stock repurchases), issuance of equity
securities, and mergers, acquisitions and other fundamental changes in the
Company's business. The agreement is un-collateralized except for the pledge of
stock of certain foreign subsidiaries.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restatement
The Company has restated its Consolidated Financial Statements for the fiscal
quarter ended March 31, 2003 and 2002, solely to amend the financial reporting
of certain transactions related to the formation of NN Euroball, ApS
("Euroball") on July 31, 2000, and the subsequent purchase on December 20, 2002
of the 23% interest in Euroball held by FAG Kugelfischer George Schaefer AG,
which was subsequently acquired by INA - Schaeffler KG (collectively,
"INA/FAG"). These restatements had no material effect on the Company's reported
net sales, gross profit, income from operations, net income, earnings per share
or cash flows for the three month periods ended March 31, 2003 and 2002.
We have revised the valuation of the original purchase price associated with
the formation of Euroball in July 2000. This revision resulted in a reduction of
goodwill of approximately 4.1 million Euro ($3.8 million). Further, we have
increased stockholders' equity by approximately 10.0 million Euro ($9.3 million)
to reflect the amount by which the Company's proportionate interest in Euroball
exceeded the book value of the net assets exchanged by the Company. As a result
of these two adjustments, minority interest in consolidated subsidiaries has
been reduced by approximately $8.0 million and $7.4 million at March 31, 2003
and December 31, 2002, respectively, goodwill has been reduced $4.5 million and
$4.3 million at March 31, 2003 and December 31, 2002, respectively, and
paid-in-capital increased $9.3 million at March 31, 2003 and December 31, 2002,
respectively, from amounts previously reported. Comprehensive income has also
been restated for the foreign currency translation effects of these adjustments.
In the previously issued December 31, 2002 Consolidated Financial Statements,
when the Company acquired the 23% interest in Euroball held by INA/FAG in
December 2002, the excess of minority interest in consolidated subsidiaries over
the December 2002 purchase price was recorded as a non-taxable gain in the
amount of approximately $5.9 million in the fourth quarter of 2002. As restated
in the accompanying Consolidated Financial Statements, the non-taxable gain has
been excluded and the excess of the purchase price over the fair value of
INA/FAG's 23% interest in the net assets of Euroball was allocated to goodwill.
The resulting impact to the Consolidated Financial Statements is an increase to
goodwill of approximately $1.5 million and a decrease in retained earnings of
approximately $5.9 million at December 31, 2002 and March 31, 2003.
Additionally, the Company has reclassified minority interest in consolidated
subsidiaries from a component of total liabilities to a separate line item in
the Condensed Consolidated Balance Sheets at March 31, 2003 and December 31,
2002.
Results of Operations
Three Months Ended March 31, 2003 Compared to the Three Months Ended March 31, 2002
Net Sales. Net sales increased by approximately $10.4 million or 22.1% from
$47.2 million for the first quarter of 2002 to $57.6 million for the first
quarter of 2003. By segment, sales increased $1.0 million, $2.3 million and $7.1
million for the Domestic Ball and Roller Segment, the Plastic and Rubber
Components Segment and the Euroball Segment, respectively. Within the Domestic
Ball and Roller Segment and the Plastic and Rubber Components Segment the sales
increases were principally related to increased demand. Within the Euroball
Segment, $5.5 million of the increase is related to currency impacts
16
while the remaining $1.6 million increase is due to increased product demand.
Gross Profit. Gross profit increased by $3.2 million or 27.4% from $11.7 million
for the first quarter of 2002 to $14.9 million for the first quarter of 2003. By
segment, gross profit increased $0.9 million, $0.2 million and $2.1 million for
the Domestic Ball and Roller Segment, the Plastic and Rubber Components Segment
and the Euroball Segment, respectively. Capitalized costs related to finished
goods inventory increases and sales increases contributed $0.9 million of the
increase in the Domestic Ball and Roller Segment. Increased product demand, new
sales programs offset by impacts of inventory decreases and insurance expenses
in the Plastic and Rubber Components Segment contributed $0.2 million of the
increase. Additionally, volume increases and currency impacts contributed $0.7
million and $1.4 million, respectively, in the Euroball Segment. As a percentage
of net sales, gross profit increased from 24.7% for the first quarter of 2002 to
25.8% for the first quarter of 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative costs increased by $0.2 million, or 3.9%, from $4.5 million in
the first quarter of 2002 to $4.6 million in first quarter of 2003. Currency
impacts in the Euroball segment resulted in a $0.4 million increase. Offsetting
this increase was decreased spending of $0.2 million related to advisory service
expenses incurred by the Company associated with the previously announced desire
of certain original founders of the Company to diversify and liquidate their
holdings in the Company' stock in the first quarter of 2002. As a percentage of
net sales, selling, general and administrative expenses decreased from 9.5% in
the first quarter of 2002 to 8.0% in the first quarter of 2003.
Depreciation and Amortizaton. Depreciation and amortization expenses increased
by $0.3 million, or 10.1%, from $2.8 million in the first quarter of 2002 to
$3.1 million in the first quarter of 2003. Currency impacts in the Euroball
Segment resulted in a $0.3 million increase. As a percentage of sales,
depreciation and amortization decreased from 5.9% in the first quarter of 2002
to 5.3% in first quarter of 2003.
Restructuring and Impairment Costs. Restructuring and impairment costs decreased
by $0.1 million from $0.1 million for the first quarter of 2002 to $0.0 million
in the first quarter of 2003. A charge of $0.1 million was recorded in the first
quarter of 2002 principally associated with employee severance costs related to
the closing of the Walterboro, South Carolina facility. Restructuring and
impairment charges were 0.2% of sales in the first quarter of 2002 and 0.0% of
sales in the first quarter of 2003.
Interest Expense. Interest expense decreased by $0.2 million from $0.7 million
in the first quarter of 2002 to $0.5 million in the first quarter of 2003. A
decrease of $0.3 million is principally attributed to decreased interest rates
and decreased average debt levels. Offsetting this decrease was interest expense
of $0.1 million related to debt incurred as a result of the previously announced
purchase by the Company of the 23% interest in Euroball held by INA/FAG on
December 20, 2002. As a percentage of net sales, interest expense decreased from
1.4% in the first quarter of 2002 to 0.9% in first quarter of 2003. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
Minority Interest in Consolidated Subsidiary. Minority interest of consolidated
subsidiary decreased $0.1 million from $0.6 million in the first quarter of 2002
to $0.5 million in the first quarter of 2003. This decrease is due entirely to
the Euroball joint venture, which the Company has been required to consolidate
since its formation, August 1, 2000. During the first quarter of 2002, minority
interest in consolidated subsidiary represented the 46% of the shares of the
joint venture held by the minority partners. During the first quarter of 2003,
minority interest in consolidated subsidiary represents the 23% of the shares of
the joint venture held by the remaining minority partner as a result of the
December 20, 2002 purchase by the Company of the 23% interest in Euroball held
by INA/FAG. At March 31, 2003, the Company owned 77% of the shares of the joint
venture with the remaining minority partner owning 23%. On May 2, 2003, we
purchased the remaining 23 percent interest in Euroball, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Developments", herein. Minority interest in consolidated subsidiary
represents the combined interest in Euroball's earnings of the minority partner
and the 49% interest in NN Arte's earnings of the minority partner (the 49%
interest in NN Arte's earnings is zero in the first quarter of 2002 and the
first quarter of 2003).
Net Income. Net income increased $1.8 million, or 97.1%, from $1.8 in the first
quarter of 2002 to $3.6
17
million in the first quarter of 2003. As a percentage of net sales, net income
increased from 3.9% in the first quarter of 2002 to 6.3% during the first
quarter of 2003.
Recent Developments
On May 2, 2003 we acquired the 23 percent interest in NN Euroball, ApS
("Euroball") held by SKF. We paid approximately 13.8 million Euros ($15.5
million). Euroball was formed in 2000 by the Company, FAG Kugelfischer George
Shaefer AG, which was subsequently acquired by INA - Schaeffler KG
(collectively, "INA/FAG"), and AB SKF ("SKF"). Upon consummation of this
transaction, we became the sole owner of Euroball.
On May 2, 2003 we acquired the tapered roller and metal cage manufacturing
operations of SKF in Veenendaal, The Netherlands. We paid consideration of
approximately 22.2 million Euros ($25.0 million), for the assets acquired from
SKF. The Veenendaal operation manufactures rollers for tapered roller bearings
and metal cages for both tapered roller and spherical roller bearings.
In connection with the acquisition of SKF's operations in Veenendaal, The
Netherlands, SKF purchased 700,000 shares of our common stock from us for an
aggregate purchase price of approximately $6.2 million which was applied to the
purchase of SKF's Veenendaal, The Netherlands operations.
On May 1, 2003 in connection with the purchase of SKF's Veenendaal component
manufacturing operations and SKF's 23 percent interest in Euroball, we entered
into a new $90 million syndicated credit facility with AmSouth Bank ("AmSouth")
as the administrative agent and Suntrust Bank as the euro loan agent for the
lenders under which we borrowed $60.4 million and 26.3 million Euros ($29.6
million). This new financing arrangement replaces our prior credit facility with
AmSouth and Euroball's credit facility with Hypo Vereinsbank Luxembourg, S.A.
The credit facility consists of a $30.0 million revolver expiring on March 1,
2005, bearing interest at a floating rate equal to LIBOR (1.31% at April 30,
2003) plus an applicable margin of 1.25 to 2.0, a $30.4 million term loan
expiring on May 1, 2008, bearing interest at a floating rate equal to LIBOR
(1.31% at April 30, 2003) plus an applicable margin of 1.25 to 2.0 and a 26.3
million ($29.6 million) Euros term loan expiring on May 1, 2008 which bears
interest at a floating rate equal to Euro LIBOR (2.57% at April 30, 2003) plus
an applicable margin of 1.25 to 2.0. The loan agreement contains customary
financial and non-financial covenants. Such covenants specify that we must
maintain certain liquidity measures. The loan agreement also contains customary
restrictions on, among other things, additional indebtedness, liens on our
assets, sales or transfers of assets, investments, restricted payments
(including payment of dividends and stock repurchases), issuance of equity
securities, and mergers, acquisitions and other fundamental changes in our
business. The agreement is un-collateralized except for the pledge of stock of
certain foreign subsidiaries.
Liquidity and Capital Resources
On May 1, 2003 in connection with the purchase of SKF's Veenendaal component
manufacturing operations and SKF's 23 percent interest in Euroball, we entered
into a new $90 million syndicated credit facility with AmSouth Bank ("AmSouth")
as the administrative agent and Suntrust Bank as the euro loan agent for the
lenders under which we borrowed $60.4 million and 26.3 million Euros ($29.6
million). This new financing arrangement replaces our prior credit facility with
AmSouth and Euroball's credit facility with Hypo Vereinsbank Luxembourg, S.A.
The credit facility consists of a $30.0 million revolver expiring on March 1,
2005, bearing interest at a floating rate equal to LIBOR (1.31% at April 30,
2003) plus an applicable margin of 1.25 to 2.0, a $30.4 million term loan
expiring on May 1, 2008, bearing interest at a floating rate equal to LIBOR
(1.31% at April 30, 2003) plus an applicable margin of 1.25 to 2.0 and a 26.3
million ($29.6 million) Euros term loan expiring on May 1, 2008 which bears
interest at a floating rate equal to Euro LIBOR (2.57% at April 30, 2003) plus
an applicable margin of 1.25 to 2.0. The loan agreement contains customary
financial and non-financial covenants. Such covenants specify that we must
maintain certain liquidity measures. The loan agreement also contains customary
restrictions on, among other things, additional indebtedness, liens on our
assets, sales or transfers of assets, investments, restricted payments
(including payment of dividends and stock repurchases), issuance of equity
securities, and mergers, acquisitions and other fundamental changes in our
business. The agreement is un-collateralized except for the pledge of stock of
certain foreign subsidiaries.
18
Since July 20, 2001, we had a syndicated loan agreement with AmSouth as the
administrative agent for the lenders, for a senior non-secured revolving credit
facility of up to $25.0 million, expiring on July 25, 2003 and a senior
non-secured term loan for $35.0 million expiring on July 1, 2006. On July 12,
2002, we amended this credit facility to convert the term loan portion into a
reducing revolving credit line providing initial availability equivalent to the
balance of the term loan prior to the amendment. Amounts available for borrowing
under this facility were to be reduced by $ 7.0 million per annum and the
facility was to expire on July 1, 2006. Additionally, on July 31, 2002, we
amended the credit facility again to extend the $25 million senior non-secured
revolving credit facility to July 25, 2004. Amounts outstanding under the
revolving facility and term loan facility bore interest at a floating rate equal
to LIBOR (1.23% at March 31, 2003) plus an applicable margin of 0.75% to 2.00%
based upon calculated financial ratios. The loan agreement contained customary
financial and non-financial covenants. Such covenants specifed that we had to
maintain certain liquidity measures and limits the amount of capital
expenditures we may make in any fiscal year. The loan agreement also contains
customary restrictions on, among other things, additional indebtedness, liens on
our assets, sales or transfers of assets, investments, restricted payments
(including payment of dividends and stock repurchases), issuance of equity
securities, and mergers, acquisitions and other fundamental changes in our
business. Additionally, the terms of our loan agreement restricted the
declaration and payment of dividends in excess of $5.5 million in any fiscal
year. Our ownership in NN Euroball ApS had been pledged as collateral. We were
in compliance with all such covenants as of March 31, 2003.
In connection with the Euroball transaction we and NN Euroball ApS, entered into
a Facility Agreement with a bank to provide up to Euro 36.0 million in Term
Loans and Euro 5.0 million in revolving credit loans. We borrowed Euro 30.5
million ($28.8 million) under the term loan facility and Euro 1,000 ($943) under
the revolving credit facility. Amounts outstanding under the Facility Agreement
were secured by inventory and accounts receivable and bore interest at EURIBOR
(2.52% at March 31, 2003) plus an applicable margin between 0.8% and 2.25% based
upon financial ratios. The shareholders of NN Euroball ApS provided guarantees
for the Facility Agreement. The Facility Agreement contained restrictive
covenants, which specified, among other things, restrictions on the incurrence
of indebtedness and the maintenance of certain financial ratios. Euroball was in
compliance with all such covenants at March 31, 2003. Amounts outstanding under
the Facility Agreement were secured by the stock in certain subsidiaries,
inventory and accounts receivable of NN Euroball ApS.
Our arrangements with our domestic customers typically provide that payments are
due within 30 days following the date of shipment of goods by us, 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. Our net sales have historically been of a seasonal nature due to our
relative percentage of European business coupled with many foreign customers
ceasing production during the month of August.
We bill and receive payment from some of our foreign customers in Euro as well
as other currencies. To date, we have not been materially adversely affected by
currency fluctuations or foreign exchange restrictions. Nonetheless, as a result
of these sales, our foreign exchange transaction and translation risk has
increased. Various strategies to manage this risk are available to management
including producing and selling in local currencies and hedging programs. As of
March 31, 2003, no currency hedges were in place. In addition, a strengthening
of the U.S. dollar and/or Euro against foreign currencies could impair our
ability to compete with international competitors for foreign as well as
domestic sales.
Working capital, which consists principally of accounts receivable and
inventories, was $24.9 million at March 31, 2003 as compared to $21.2 million at
December 31, 2002. The ratio of current assets to current liabilities increased
from 1.53:1 at December 31, 2002 to 1.51:1 at March 31, 2003. Cash flow from
operations decreased to ($2.8) million during the first quarter of 2003 from
$1.1 million during the first quarter of 2002.
During 2003, we plan to spend approximately $9.4 million on capital expenditures
(of which approximately $2.1 million has been spent through March 31, 2003)
including the purchase of additional machinery and equipment for all of our
domestic facilities as well as four European facilities. We intend to finance
these activities with cash generated from operations and funds available under
the credit facilities described
19
above. We believe that funds generated from operations and borrowings from the
credit facilities will be sufficient to finance our working capital needs and
projected capital expenditure requirements through December 2003.
20
The Euro
The Company currently has operations in Italy, Germany and Ireland, all of which
are Euro participating countries, and sells product to customers in many of the
participating countries. The Euro has been adopted as the functional currency at
these locations.
Seasonality and Fluctuation in Quarterly Results
The Company's net sales historically have been of a seasonal nature due to a
significant portion of the Company's sales being to European customers that
cease or significantly slow production during the month of August.
Inflation and Changes in Prices
While the Company's operations have not been materially affected by inflation
during recent years, prices for 52100 Steel, engineered resins and other raw
materials purchased by the Company are subject to material change. For example,
during 1995, 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 and
some difficulty in obtaining an adequate supply of 52100 Steel from its existing
suppliers. In the Company's U.S. operations our typical pricing arrangements
with steel suppliers are subject to adjustment once every six months. The
Company's Euroball Segment has entered into long term agreements with its
primary steel supplier, which provide for standard terms and conditions and
annual pricing adjustments to offset material price fluctuations in steel. The
Company typically reserves the right to increase product prices periodically in
the event of increases in its raw material costs. In the past, the Company has
been able to minimize the impact on its operations resulting from the 52100
Steel price fluctuations by taking such measures. Certain sales agreements are
in effect with SKF and INA/FAG, which provide for minimum purchase quantities
and specified, annual sales price adjustments that may be modified up or down
for changes in material costs. These agreements expire during 2006.
Critical Accounting Policies
Our significant accounting policies, including the assumptions and judgment
underlying them, are disclosed in the December 31, 2002 Form 10-K, as amended,
including those policies as discussed in Note 2. These policies have been
consistently applied in all material respects and address such matters as
revenue recognition, inventory valuation, asset impairment recognition, business
combination accounting and pension and postretirement benefits. Due to the
estimation processes involved, management considers the following summarized
accounting policies and their application to be critical to understanding the
Company's business operations, financial condition and results of operations.
There can be no assurance that actual results will not significantly differ from
the estimates used in these critical accounting policies.
Accounts Receivable. Substantially all of the Company's accounts receivable are
due primarily from the served markets: bearing manufacturers, automotive
industry, electronics, industrial, agricultural and aerospace. In establishing
allowances for doubtful accounts, the Company continuously performs credit
evaluations of its customers, considering numerous inputs when available
including the customers' financial position, past payment history, relevant
industry trends, cash flows, management capability, historical loss experience
and economic conditions and prospects. While management believes that adequate
allowances for doubtful accounts have been provided in the Consolidated
Financial Statements, it is possible that the Company could experience
additional unexpected credit losses.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. The Company's inventories are
not generally subject to obsolescence due to spoilage or expiring product life
cycles. The Company operates generally as a make-to-order business; however, the
Company also stocks products for certain customers in order to meet delivery
schedules. While management believes that adequate write-downs for inventory
obsolescence have been made in the Consolidated Financial Statements, the
Company could experience additional inventory write-downs in the future.
21
Acquisitions and Acquired Intangibles. For new acquisitions, the Company uses
estimates, assumptions and appraisals to allocate the purchase price to the
assets acquired and to determine the amount of goodwill. These estimates are
based on market analyses and comparisons to similar assets. Annual tests are
required to be performed to assess whether recorded goodwill is impaired. The
annual tests require management to make estimates and assumptions with regard to
the future operations of its reporting units, the expected cash flows that they
will generate, and their market value. These estimates and assumptions therefore
impact the recorded value of assets acquired in a business combination,
including goodwill, and whether or not there is any subsequent impairment of the
recorded goodwill and the amount of such impairment.
Impairment of Long-Lived Assets. The Company's long-lived assets include
property, plant and equipment. The recoverability of the long-term assets is
dependent on the performance of the companies which the Company has acquired, as
well as volatility inherent in the external markets for these acquisitions. In
assessing potential impairment for these assets the Company will consider these
factors as well as forecasted financial performance. For assets held for sale,
appraisals are relied upon to assess the fair market value of those assets.
Future adverse changes in market conditions or adverse operating results of the
underlying assets could result in the Company having to record additional
impairment charges not previously recognized.
Pension and Post-Retirement Obligations. The Company uses several assumptions in
determining its periodic pension and post-retirement expense and obligations
which are included in the Consolidated Financial Statements. These assumptions
include determining an appropriate discount rate, rate of compensation increase
as well as the remaining service period of active employees. The Company uses an
independent actuary to calculate the periodic pension and post-retirement
expense and obligations based upon these assumptions and actual employee census
data.
22
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Company wishes to caution readers that this report contains, and future
filings by the Company, press releases and oral statements made by the Company's
authorized representatives may contain, forward-looking statements that involve
certain risks and uncertainties. Statements regarding capital expenditures,
future borrowings, and financial commitments are forward-looking statements.
Readers can identify forward-looking statements by the use of such verbs as
expects, anticipates, believes or similar verbs or conjugations of such verbs.
The Company's actual results could differ materially from those expressed in
such forward-looking statements due to important factors bearing on the
Company's business, many of which already have been discussed in this filing and
in the Company's prior filings. The differences could be caused by a number of
factors or combination of factors including, but not limited to, the risk
factors described below.
You should carefully consider the following risks and uncertainties, and all
other information contained in or incorporated by reference in this quarterly
report on Form 10-Q/A, as amended, before making an investment in our common
stock. Any of the following risks could have a material adverse effect on our
business, financial condition or operating results. In such case, the trading
price of our common stock could decline and you may lose all or part of your
investment.
The demand for our products is cyclical, which could adversely impact our
revenues.
The end markets for fully assembled bearings are cyclical and tend to decline in
response to overall declines in industrial production. As a result, the market
for bearing components is also cyclical and impacted by overall levels of
industrial production. Our sales in the past have been negatively affected, and
in the future will be negatively affected, by adverse conditions in the
industrial production sector of the economy or by adverse global or national
economic conditions generally.
We depend on a very limited number of foreign sources for our primary raw
material and are subject to risks of shortages and price fluctuation.
The steel that we use to manufacture precision balls and rollers is of an
extremely high quality and is available from a limited number of producers on a
global basis. Due to quality constraints in the U.S. steel industry, we obtain
substantially all of the steel used in our U.S. ball and roller production from
overseas suppliers. In addition, we obtain substantially all of the steel used
in our European ball production from a single European source. If we had to
obtain steel from sources other than our current suppliers, particularly in the
case of our European operations, we could face higher prices and transportation
costs, increased duties or taxes, and shortages of steel. Problems in obtaining
steel, and particularly 52100 chrome steel, in the quantities that we require
and on commercially reasonable terms, could increase our costs, negatively
impact our ability to operate our business efficiently and have a material
adverse effect on the operating and financial results of our Company.
We operate in and sell products to customers outside the U.S. and are subject to
several related risks.
Because we obtain a majority of our raw materials from overseas suppliers,
actively participate in overseas manufacturing operations and sell to a large
number of international customers, we face risks associated with the following:
23
o adverse foreign currency fluctuations;
o changes in trade, monetary and fiscal policies, laws and
regulations, and other activities of governments, agencies and
similar organizations;
o the imposition of trade restrictions or prohibitions;
o high tax rates that discourage the repatriation of funds to the
U.S.;
o the imposition of import or other duties or taxes; and
o unstable governments or legal systems in countries in which our
suppliers, manufacturing operations, and customers are located.
We do not have a hedging program in place associated with consolidating the
operating results of our foreign businesses into U.S. dollars. An increase in
the value of the U.S. dollar and/or the Euro relative to other currencies may
adversely affect our ability to compete with our foreign-based competitors for
international, as well as domestic, sales. In the first quarter of 2003,
approximately 50% at the $10.4 million increase in revenues was attributable to
favorable currency fluctuations. Also, a decline in the value of the Euro
relative to the U.S. dollar will negatively impact our consolidated financial
results, which are denominated in U.S. dollars.
In addition, due to the typical slower summer manufacturing season in Europe, we
expect that revenues in the third fiscal quarter will reflect lower sales, as
our sales to European customers have increased as a percentage of net sales.
We depend heavily on a relatively limited number of customers, and the loss of
any major customer would have a material adverse effect on our business.
Sales to various U.S. and foreign divisions of SKF, which is one of the largest
bearing manufacturers in the world, accounted for approximately 33% of
consolidated net sales in 2002, and sales to INA/FAG accounted for approximately
19% of consolidated net sales in 2002. Our recent acquisition at SKF's tapered
roller and metal cage production facility, along with the related long-term
supply agreement with SKF, will increase our dependence on SKF in the future.
During 2002, our ten largest customers accounted for approximately 73% of our
consolidated net sales. None of our other customers individually accounted for
more than 5% of our consolidated net sales for 2002. Recent consolidation of
certain of our bearing customers, including the acquisition at the Torrington
Company by Timken, will increase our dependence on a smaller number of
customers. The loss of all or a substantial portion of sales to these customers
would cause us to lose a substantial portion of our revenue and would lower our
profit margin and cash flows from operations.
The costs and difficulties of integrating acquired business could impede our
future growth.
We cannot assure you that any future acquisition will enhance our financial
performance. Our ability to effectively integrate any future acquisitions will
depend on, among other things, the adequacy of our implementation plans, the
ability of our management to oversee and operate effectively the combined
operations and our ability to achieve desired operating efficiencies and sales
goals. The integration of any acquired businesses might cause us to incur
unforeseen costs, which would lower our profit margin and future earnings and
would prevent us from realizing the expected benefits of these acquisitions.
We may not be able to continue to make the acquisitions necessary for us to
realize our growth strategy.
Acquiring businesses that complement or expand our operations has been and
continues to be an important element of our business strategy. This strategy
calls for growth through acquisitions constituting approximately two-thirds of
our future growth, with the remainder resulting from internal growth and market
penetration. We bought our plastic bearing component business in 1999, formed
Euroball with our two largest bearing customers, SKF and INA/FAG, in 2000 and
acquired our bearing seal operations in
24
2001. During 2002, we purchased INA/FAG's minority interest in Euroball and on
May 2, 2003, we acquired SKF's minority interest in Euroball, to become the sole
owner at Euroball. On May 2, 2003 we acquired SKF's tapered roller and metal
cage manufacturing operations in Veenendaal, The Netherlands. We cannot assure
you that we will be successful in identifying attractive acquisition candidates
or completing acquisitions on favorable terms in the future. In addition, we may
borrow funds to acquire other businesses, increasing our interest expense and
debt levels. Our inability to acquire businesses, or to operate them profitably
once acquired, could have a material adverse effect on our business, financial
position, results of operations and cash flows.
Our growth strategy depends on outsourcing, and if the industry trend toward
outsourcing does not continue, our business could be adversely affected.
Our growth strategy depends in significant part on major bearing manufacturers
continuing to outsource components, and expanding the number of components being
outsourced. This requires manufacturers to depart significantly from their
traditional methods of operations. If major bearing manufacturers do not
continue to expand outsourcing efforts or determine to reduce their use of
outsourcing, our ability to grow our business could be materially adversely
affected.
Our market is highly competitive and many of our competitors have significant
advantages that could adversely affect our business.
The global market for bearing components is highly competitive, with a majority
of production represented by the captive production operations of certain large
bearing manufacturers and the balance represented by independent manufacturers.
Captive manufacturers make components for internal use and for sale to third
parties. All of the captive manufacturers, and many independent manufacturers,
are significantly larger and have greater resources than do we. Our competitors
are continuously exploring and implementing improvements in technology and
manufacturing processes in order to improve product quality, and our ability to
remain competitive will depend, among other things, on whether we are able to
keep pace with such quality improvements in a cost effective manner.
The production capacity we have added over the last several years has at times
resulted in our having more capacity than we need, causing our operating costs
to be higher than expected.
We have expanded our ball and roller production facilities and capacity over the
last several years. During 1997, we built an additional manufacturing plant in
Kilkenny, Ireland, and we continued this expansion in 2000 through the formation
of Euroball with SKF and INA/FAG. Our ball and roller facilities have not always
operated at full capacity and from time to time our results of operations have
been adversely affected by the under-utilization of our production facilities,
and we face risks of further under-utilization or inefficient utilization of our
production facilities in future years.
The price of our common stock may be volatile.
The market price of our common stock could be subject to significant
fluctuations and may decline. Among the factors that could affect our stock
price are:
o our operating and financial performance and prospects;
o quarterly variations in the rate of growth of our financial
indicators, such as earnings per share, net income and revenues;
o changes in revenue or earnings estimates or publication of
research reports by analysts;
o loss of any member of our senior management team;
o speculation in the press or investment community;
o strategic actions by us or our competitors, such as acquisitions
or restructurings;
25
o sales of our common stock by stockholders;
o general market conditions; and
o domestic and international economic, legal and regulatory factors
unrelated to our performance.
The stock markets in general have experienced extreme volatility that has often
been unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common stock.
Provisions in our charter documents and Delaware law may inhibit a takeover,
which could adversely affect the value of our common stock.
Our certificate of incorporation and bylaws, as well as Delaware corporate law,
contain provisions that could delay or prevent a change of control or changes in
our management that a stockholder might consider favorable and may prevent you
from receiving a takeover premium for your shares. These provisions include, for
example, a classified board of directors and the authorization of our board of
directors to issue up to 5,000,000 preferred shares without a stockholder vote.
In addition, our restated certificate of incorporation provides that
stockholders may not call a special meeting.
We are a Delaware corporation subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. Generally, this statute
prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after the
date of the transaction in which such person became an interested stockholder,
unless the business combination is approved in a prescribed manner. A business
combination includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. We anticipate that the provisions of
Section 203 may encourage parties interested in acquiring us to negotiate in
advance with our board of directors, because the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction that results in the
stockholder becoming an interested stockholder.
These provisions apply even if the offer may be considered beneficial by some of
our stockholders. If a change of control or change in management is delayed or
prevented, the market price of our common stock could decline.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in financial market conditions in the normal course of
our business due to our use of certain financial instruments as well as
transacting in various foreign currencies. To mitigate our exposure to these
market risks, we have established policies, procedures and internal processes
governing our management of financial market risks. We are exposed to changes in
interest rates primarily as a result of our borrowing activities. Domestically,
at March 31, 2003, these borrowings included a $25 million senior, non-secured
floating rate revolving credit facility which was used to maintain liquidity and
fund our business operations. In Europe, at March 31, 2003, Euroball had a 5.0
million Euro floating rate credit facility, and a 6.0 million Euro floating rate
secured term loan. At March 31, 2003, we had $48.9 million outstanding under the
domestic revolving credit facility and Euroball had 4.0 million Euro ($4.3
million) outstanding under the Euroball credit facility. At March 31, 2003 a
one-percent increase in the interest rate charged on our outstanding borrowings
under both credit facilities would result in interest expense increasing
annually by approximately $0.5 million. In connection with a variable EURIBOR
rate debt financing in July 2000 our majority owned subsidiary, NN Euroball ApS
entered into an interest rate swap with a notional amount of Euro 12.5 million
for the purpose of fixing the interest rate on a portion of their debt
financing. The interest rate swap provides for us to receive variable Euribor
interest payments and pay 5.51% fixed interest. The interest rate swap agreement
expires in July 2006 and the notional amount amortizes in relation to principal
payments on the underlying debt over the life of the swap. On May 1, 2003 we
entered into a new $90 million syndicated credit facility. This new financing
arrangement replaces our prior credit facility with AmSouth and Euroball's
credit facility with Hypo Vereinsbank
26
Luxembourg, S.A., see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Developments", herein. A
one-percent increase in the interest rate charged on our new credit facility
would result in interest expense increasing annually by approximately $0.9
million. The nature and amount of our borrowings may vary as a result of future
business requirements, market conditions and other factors.
Translation of our operating cash flows denominated in foreign currencies is
impacted by changes in foreign exchange rates. We, primarily in our Euroball
Segment, bill and receive payment from some of its foreign customers in their
own currency. To date, we have not been materially adversely affected by
currency fluctuations of foreign exchange restrictions. However, to help reduce
exposure to foreign currency fluctuation, management has incurred debt in Euros
and periodically used foreign currency hedges. These currency hedging programs
allow management to hedge currency exposures when these exposures meet certain
discretionary levels. We did not hold a position in any foreign currency hedging
instruments as of March 31, 2003.
Item 4. Controls and Procedures
a) As of March 31, 2003, we carried out an evaluation, under the
supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-14
and 15d-14 of the Securities Exchange Act of 1934 (the "Exchange
Act"). Based upon that evaluation, the Company's management, including
the Chief Executive Officer and Chief Financial Officer, concluded
that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in
the Company's Exchange Act filings.
b) There have been no changes in the Company's internal control over
financial reporting or in other factors that have materially affected,
or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
27
Part II. Other Information
Item 1. Legal Proceedings
All legal proceedings and actions involving the Company are of an ordinary and
routine nature and are incidental to the operations of the Company. Management
believes that such proceedings should not, individually or in the aggregate,
have a material adverse effect on the Company's business or financial condition
or on the results of operations.
Item 2. Exhibits and Reports on Form 8-K.
(a) Exhibits Required by Item 601 of Regulation S-K
31.1 Certification of Chief Executive Officer pursuant to Section 302
of Sarbanes-Oxley Act.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of Sarbanes-Oxley Act.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act.
(b) Reports on Form 8-K
The Company filed a Form 8-K on February 25, 2003 announcing its
fourth quarter and fiscal year ended December 31, 2002 financial
results.
The Company filed a Form 8-K on March 11, 2003 announcing payment of a
regular quarterly cash dividend.
28
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, Inc.
---------------------------------------
(Registrant)
Date: January 30, 2004 /s/ Roderick R. Baty
------------------------ ---------------------------------------
Roderick R. Baty,
Chairman, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: January 30, 2004 /s/ David L. Dyckman
------------------------ ---------------------------------------
David L. Dyckman
Vice President - Corporate Development
Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Officer)
Date: January 30, 2004 /s/ William C. Kelly, Jr.
------------------------ ---------------------------------------
William C. Kelly, Jr.,
Treasurer, Secretary and
Chief Administrative Officer
(Duly Authorized Officer)
29
Exhibit 31.2
Exhibit 31.1
CERTIFICATIONS
I, Roderick R. Baty, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of NN, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designated under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; and
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: January 30, 2004
/s/ Roderick R. Baty
------------------------------------------------
Roderick R. Baty
Chairman, President and Chief Executive Officer
30
Exhibit 31.2
I, David L. Dyckman, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of NN, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designated under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared; and
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: January 30, 2004
/s/ David L. Dyckman
---------------------------------------
David L. Dyckman
Chief Financial Officer
31
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NN, Inc. (the "Company") on Form
10-Q/A for the interim period ended March 31, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned, in
the capacity and date indicated below, hereby certifies pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that,
to my knowledge: (1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: January 30, 2004 /s/ Roderick R. Baty
---------------- --------------------
Roderick R. Baty
Chairman, President and Chief
Executive Officer
[A signed original of this written statement required by Section 906 has been
provided to NN, Inc. and will be retained by NN, Inc. and furnished to the
Securities and Exchange Commission or it's staff upon request.]
32
Exhibit 32.2
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NN, Inc. (the "Company") on Form
10-Q/A for the interim period ended March 31, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned, in
the capacity and date indicated below, hereby certifies pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that,
to my knowledge: (1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: January 30, 2004 /s/ David L. Dyckman
---------------- --------------------
David L. Dyckman
Chief Financial Officer
[A signed original of this written statement required by Section 906 has been
provided to NN, Inc. and will be retained by NN, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.]
33