NN 10Q 3-31-06
UNITED
STATES SECURITIES AND
EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended March
31, 2006
OR
o
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 Incorporation
or organization)
|
(I.R.S. Employer 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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer x
Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As
of May
8, 2006 there were 17,235,947 shares
of
the registrant’s common stock, par value $0.01 per share,
outstanding.
NN,
Inc.
INDEX
| |
|
Page No. |
| Part I. |
Financial
Information |
|
| Item 1. |
Financial Statements: |
|
| |
Consolidated
Statements of Income and Comprehensive Income for the three months
ended March 31, 2006 and 2005 (unaudited) |
2
|
| |
Condensed
Consolidated Balance Sheets at March 31, 2006 and
December 31, 2005 (unaudited) |
3
|
| |
Consolidated
Statements of Changes in Stockholders’ Equity for the three
months ended March 31, 2006 and 2005 (unaudited) |
4
|
| |
Consolidated
Statements of Cash Flows for the three months ended March
31, 2006 and 2005 (unaudited) |
5
|
| |
Notes to Consolidated Financial Statements
(unaudited) |
6
|
| Item 2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
15
|
| Item 3. |
Quantitative and Qualitative Disclosures
about Market Risk |
18
|
| Item 4. |
Controls
and Procedures |
18
|
| Part II. |
Other Information |
|
| Item 1. |
Legal Proceedings |
19
|
| Item 1A. |
Risk
Factors |
19
|
| Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
19
|
| Item
3. |
Defaults
Upon Senior Securities |
19
|
| Item
4. |
Submission
of Matters to a Vote of Security Holders |
19
|
| Item
5. |
Other
Information |
19
|
| Item
6. |
Exhibits |
19
|
| Signatures |
|
20
|
PART
I. FINANCIAL INFORMATION
| Item
1. |
Financial
Statements
|
NN,
Inc.
Consolidated
Statements of Income and Comprehensive Income
(Unaudited)
| |
|
Three
Months Ended
March
31,
|
|
|
(Thousands
of Dollars, Except Per Share Data)
|
|
2006
(Unaudited)
|
|
2005
|
|
|
Net
sales
|
|
$
86,017
|
|
$
86,715
|
|
|
Cost
of products sold (exclusive of depreciation
shown
separately below)
|
|
65,999
|
|
67,666
|
|
|
Selling,
general and administrative
|
|
7,681
|
|
7,484
|
|
|
Depreciation
and amortization
|
|
4,162
|
|
4,174
|
|
|
(Gain)
Loss on disposal of assets
|
|
(730)
|
|
4
|
|
|
Income
from operations
|
|
8,905
|
|
7,387
|
|
| |
|
|
|
|
|
|
Interest
expense, net
|
|
986
|
|
984
|
|
|
Other
income, net
|
|
(209)
|
|
(171)
|
|
|
Income
before provision for income taxes
|
|
8,128
|
|
6,574
|
|
|
Provision
for income taxes
|
|
2,866
|
|
2,551
|
|
|
Net
income
|
|
5,262
|
|
4,023
|
|
| |
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
Unrealized
holding loss on securities,
net
of tax
|
|
--
|
|
(73)
|
|
|
Foreign
currency translation gain (loss)
|
|
2,230
|
|
(4,070)
|
|
|
Comprehensive
income (loss)
|
|
$7,492
|
|
$
(120)
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Basic
income per common share:
|
|
$
0.31
|
|
$
0.24
|
|
| |
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
17,152
|
|
16,889
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Diluted
income per common share:
|
|
$
0.30
|
|
$
0.23
|
|
| |
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
17,376
|
|
17,261
|
|
| |
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
0.08
|
|
$
0.08
|
|
| |
|
|
|
|
|
See
accompanying notes.
NN,
Inc.
Condensed
Consolidated Balance Sheets
(Unaudited)
| |
March
31,
|
|
December
31,
|
|
(Thousands
of Dollars)
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
$
7,537
|
|
$
10,856
|
|
Accounts
receivable, net
|
59,881
|
|
47,297
|
|
Inventories,
net
|
36,770
|
|
38,096
|
|
Income
tax receivable
|
537
|
|
1,237
|
|
Other
current assets
|
10,596
|
|
8,464
|
|
Total
current assets
|
115,321
|
|
105,950
|
| |
|
|
|
|
Property,
plant and equipment, net
|
117,605
|
|
118,829
|
|
Goodwill,
net
|
42,090
|
|
41,648
|
|
Other
assets
|
2,084
|
|
3,228
|
|
Total
assets
|
$
277,100
|
|
$
269,655
|
| |
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
$
40,884
|
|
$
41,660
|
|
Accrued
salaries and wages
|
12,062
|
|
12,407
|
|
Income
taxes
|
4,480
|
|
2,093
|
|
Current
maturities of long-term debt
|
1,509
|
|
4,668
|
|
Other
current liabilities
|
6,596
|
|
4,011
|
|
Total
current liabilities
|
65,531
|
|
64,839
|
| |
|
|
|
|
Non-current
deferred tax liability
|
15,337
|
|
15,128
|
|
Long-term
debt
|
57,900
|
|
57,900
|
|
Accrued
pension and other
|
16,175
|
|
15,714
|
|
Total
liabilities
|
154,943
|
|
153,581
|
| |
|
|
|
|
Total
stockholders’ equity
|
122,157
|
|
116,074
|
| |
|
|
|
|
Total
liabilities and stockholders’ equity
|
$
277,100
|
|
$
269,655
|
See
accompanying notes.
NN,
Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
(Unaudited)
| |
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands
of Dollars and Shares)
|
Number
Of Shares
|
|
Par
value
|
|
Additional
paid in capital
|
|
Additional
paid in capital unearned compen-sation
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
Total
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005
|
16,777
|
|
$
168
|
|
$
53,423
|
|
$
--
|
|
$
45,676
|
|
$
15,873
|
|
$
115,140
|
|
Shares
issued
|
134
|
|
2
|
|
988
|
|
--
|
|
--
|
|
--
|
|
990
|
|
Net
income
|
--
|
|
--
|
|
--
|
|
--
|
|
4,023
|
|
--
|
|
4,023
|
|
Dividends
declared
|
--
|
|
--
|
|
--
|
|
--
|
|
(1,351)
|
|
--
|
|
(1,351)
|
|
Foreign exchange translation loss
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
(4,070)
|
|
(4,070)
|
|
Write-off
of
unrealized holding gain
on
securities
|
-- |
|
-- |
|
-- |
|
-- |
|
-- |
|
(73)
|
|
(73)
|
|
Balance,
March 31, 2005
|
16,911
|
|
$
170
|
|
$
54,411
|
|
$
--
|
|
$
48,348
|
|
$
11,730
|
|
$
114,659
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
17,206
|
|
$
172
|
|
$
57,754
|
|
($467)
|
|
$
55,218
|
|
$
3,397
|
|
$
116,074
|
| Reclassification
of unearned compensation |
-- |
|
-- |
|
(467) |
|
467 |
|
-- |
|
-- |
|
-- |
|
Shares
issued
|
12
|
|
|
|
103
|
|
--
|
|
--
|
|
--
|
|
103
|
|
Repurchase
of
outstanding shares
|
(20)
|
|
--
|
|
(246)
|
|
--
|
|
--
|
|
-- |
|
(246)
|
|
Elimination
of
variable stock option liability
|
-- |
|
-- |
|
8
|
|
-- |
|
-- |
|
-- |
|
8
|
|
Net
income
|
--
|
|
--
|
|
--
|
|
--
|
|
5,262
|
|
--
|
|
5,262
|
|
Amortization
of
restricted stock award
|
-- |
|
-- |
|
103 |
|
--
|
|
-- |
|
-- |
|
103
|
|
Dividends
declared
|
--
|
|
--
|
|
--
|
|
--
|
|
(1,377)
|
|
--
|
|
(1,377)
|
|
Foreign exchange translation gain
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
2,230
|
|
2,230
|
|
Balance,
March 31, 2006
|
17,198
|
|
$
172
|
|
$
57,255
|
|
$
--
|
|
$
59,103
|
|
$
5,627
|
|
$
122,157
|
See
accompanying notes.
NN,
Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
| |
Three
Months Ended
|
|
(Thousands
of Dollars)
|
March
31,
|
|
Operating
Activities:
|
2006
|
|
2005
|
|
Net
income
|
$
5,262
|
|
$
4,023
|
|
Adjustments
to reconcile net income to net cash used by operating
activities:
|
|
|
|
|
Depreciation
and amortization
|
4,162
|
|
4,174
|
|
Amortization
of debt issue costs
|
64
|
|
59
|
|
(Gain)
Loss on disposal of property, plant and equipment
|
(730)
|
|
4
|
|
Compensation
expense from issuance of restricted stock
|
103
|
|
--
|
| Compensation
benefit from variable stock accounting |
-- |
|
(95) |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(11,938)
|
|
(9,990)
|
|
Inventories
|
1,769
|
|
417
|
|
Other
assets
|
(1,318)
|
|
(2,684)
|
|
Accounts
payable
|
(3,640)
|
|
(1,600)
|
|
Other
liabilities
|
3,094
|
|
1,181
|
|
Net
cash by
used by operating activities
|
(3,172)
|
|
(4,511)
|
| |
|
|
|
|
Investing
Activities:
|
|
|
|
|
Acquisition
of property, plant, and equipment
|
(1,869)
|
|
(832)
|
|
Proceeds
from disposals of property, plant and equipment
|
2,830
|
|
--
|
|
Net
cash
provided by (used by) investing activities
|
961
|
|
(832)
|
| |
|
|
|
|
Financing
Activities:
|
|
|
|
|
Increase
in cash from book overdraft
|
2,157
|
|
--
|
|
Repayment
of long-term debt
|
(4,738)
|
|
(1,289)
|
|
Repayment
of short-term debt
|
(8,398)
|
|
--
|
|
Proceeds
from short-term debt
|
9,907
|
|
-- |
|
Principal
payment on capital lease
|
(8)
|
|
-- |
|
Repurchase
of common stock
|
(246)
|
|
-- |
|
Proceeds
from issuance of stock, excluding tax benefit
|
87
|
|
990
|
|
Net cash used by financing activities
|
(1,239)
|
|
(299)
|
| |
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
131
|
|
(685)
|
| |
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
(3,319)
|
|
(6,327)
|
|
Cash
and Cash Equivalents at Beginning of Period
|
10,856
|
|
10,772
|
|
Cash
and Cash Equivalents at End of Period
|
$
7,537
|
|
$
4,445
|
See
accompanying notes.
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Note
1. Interim
Financial Statements
The
accompanying consolidated financial statements of NN, Inc. (the “Company”) have
not been audited, except that the balance sheet at December 31, 2005 is derived
from the Company’s consolidated 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, 2006 and 2005, the Company’s financial position at March
31, 2006 and December 31, 2005, and the cash flows for the three month periods
ended March 31, 2006 and 2005. 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. As used
in
this Quarterly Report on Form 10-Q, the terms “NN”, “the Company”, “we”, “our”,
or “us” mean NN, Inc. and its subsidiaries.
Certain
information and footnote disclosures normally included in the consolidated
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. These unaudited, condensed,
consolidated and unaudited, consolidated financial statements should be read
in
conjunction with our audited consolidated financial statements and the notes
thereto included in our most recent annual report on Form 10-K for the year
ended December 31, 2005 which we filed with the Securities and Exchange
Commission on March 16, 2006.
The
results for the first quarter of 2006 are not necessarily indicative of results
for the year ending December 31, 2006 or any other future results.
Note
2. Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
Inventories
are comprised of the following (in thousands):
| |
March
31,
|
|
December
31,
|
| |
2006
|
|
2005
|
|
Raw
materials
|
$
9,332
|
|
$
10,153
|
|
Work
in process
|
6,197
|
|
5,845
|
|
Finished
goods
|
22,568
|
|
23,587
|
|
Less
inventory reserves
|
(1,327)
|
|
(1,489)
|
| |
$
36,770
|
|
$
38,096
|
Inventories
on consignment at customer locations as of March 31, 2006 and December 31,
2005
totaled $5,068 and $4,669, respectively.
Note
3. Net
Income Per Share
| |
Three
months ended
March
31,
|
|
|
(Thousands
of Dollars, Except Share and Per Share Data)
|
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Net
income
|
|
$
5,262
|
|
$
4,023
|
|
| |
|
|
|
|
|
|
Weighted
average basic shares
|
|
17,151,957
|
|
16,888,524
|
|
|
Effect
of dilutive stock options
|
|
223,634
|
|
372,260
|
|
|
Weighted
average dilutive shares outstanding
|
|
17,375,591
|
|
17,260,784
|
|
| |
|
|
|
|
|
|
Basic
net income per share
|
|
$
0.31
|
|
$
0.24
|
|
|
Diluted
net income per share
|
|
$
0.30
|
|
$
0.23
|
|
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Excluded
from the shares outstanding for the period ended March 31, 2005 were 357,000
anti-dilutive options which had exercise prices of $12.62. There were no
anti-dilutive options in the three month period ended March 31,
2006.
Note
4. Segment
Information
During
2006 and 2005, our reportable segments are based on differences in product
lines
and geographic locations and are divided among Domestic Ball and Roller,
European operations (“NN Europe”) and Plastic and Rubber Components. The
Domestic Ball and Roller Segment is comprised of two manufacturing facilities
in
the eastern United States. Additionally, costs related to our start-up operation
in China and corporate office cost are included in the Domestic Ball and Roller
Segment. The NN Europe Segment is comprised of precision ball, roller and metal
cage manufacturing facilities located in Kilkenny, Ireland; Eltmann, Germany;
Pinerolo, Italy; Kysucke Nove Mesto, Slovakia; and Veenendaal, The Netherlands
(“Veenendaal”). All of the facilities in the Domestic Ball and Roller Segment
are engaged in the production of precision balls and rollers used primarily
in
the bearing industry. All of the facilities in the NN Europe Segment are engaged
in the production of precision balls used primarily in the bearing industry,
except for Veenendaal which is engaged in the production of tapered rollers
and
cages for use primarily in the bearing industry. The Plastic and Rubber
Components Segment is comprised of the Industrial Molding Corporation (“IMC”)
business, located in Lubbock, Texas and The Delta Rubber Company (“Delta”)
business, located in Danielson, Connecticut. IMC is engaged in the production
of
plastic injection molded products for the bearing, automotive, instrumentation,
and fiber optic markets. Delta is engaged principally in the production of
engineered bearing seals used principally in automotive, industrial,
agricultural, mining and aerospace applications.
The
accounting policies of each segment are the same as those described in the
summary of significant accounting policies in our Annual Report on Form 10-K
for
the fiscal year ended December 31, 2005. We evaluate segment performance
based
on profit or loss from operations before income taxes. We account for
inter-segment sales and transfers at current market prices. We did not have
any
material inter-segment transactions during the three month period ended March
31, 2005. For the period ended March 31, 2006, we had inter-segment sales
of
$312 which were eliminated in consolidation and from the segment financials
shown below.
| |
Three
Months Ended March 31,
|
| |
2006
|
2005
|
|
|
Domestic
Ball & Roller
|
NN
Europe Segment
|
Plastic
and Rubber Components
|
Domestic
Ball & Roller
|
NN
Europe Segment
|
Plastic
and Rubber Components
|
|
Revenues
from external customers
|
$
19,764
|
$
51,576
|
$
14,677
|
$
15,927
|
$
55,937
|
$
14,851
|
|
Pretax
profit
|
688
|
5,991
|
1,449
|
1,322
|
4,550
|
702
|
|
Assets
|
61,648
|
159,829
|
55,623
|
52,250
|
171,380
|
60,954
|
Note
5. Recent Investing Activity
Our
wholly-owned subsidiary in China, NN Precision Bearing Products Company,
LTD,
(“NN Asia”) started full operations in the first quarter of 2006. The costs
incurred as a result of the start-up for the three month period ended March
31,
2005 of approximately $0.2 million were classified as selling, general and
administrative expense.
On
October 7, 2005, we entered into an agreement with SNR Roulements (“SNR”) to
purchase all of SNR’s internal precision ball producing equipment for
approximately 5,000 Euros ($6,000). As part of the agreement, we entered
into a
five year supply agreement to provide SNR with an additional $9,000 of annual
ball requirements. Approximately $2,100 was paid in 2005 and $3,900 is expected
to be paid during 2006 to complete the equipment purchase. During the first
quarter of 2006, the Company did not acquire any SNR equipment. As of March
31,
2006, $1,636 is recorded in tangible fixed assets and $484 in intangible
assets
relating to this transaction.
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Note
6. Pensions
We
have a
defined benefit pension plan covering the employees at our Eltmann, Germany
facility. The benefits are based on the expected years of service including
the
rate of compensation increase. The plan is unfunded. There were no prior
service
costs recognized in the three-months ended March 31, 2006 and 2005.
Components
of Net Periodic Pension Cost:
|
|
Three
months ended
March
31,
|
| |
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
--
|
Net
periodic pension cost
|
$
99
|
|
$
87
|
We
expect
to contribute approximately $336 to the Eltmann, Germany pension plan in
2006.
As of March 31, 2006, approximately $84 of contributions had been
made.
Severance
Indemnity
In
accordance with Italian law, the Company has an unfunded severance plan covering
our Pinerolo, Italy employees under which all employees at that location
are
entitled to receive severance indemnities upon termination of their employment.
The table below summarizes the changes to the severance indemnity at March
31,
2006 and 2005:
| |
Three
months ended
March
31,
|
| |
2006
|
|
2005
|
|
January
1
|
$
(6,644)
|
|
$(7,503)
|
|
Amounts
accrued
|
(256)
|
|
(263)
|
|
Payments
|
119
|
|
177
|
|
Exchange
and other
|
(169)
|
|
328
|
|
March
31
|
$
(6,950)
|
|
$
(7,261)
|
Note
7. New
Accounting Pronouncements
On
December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which
requires companies to expense the value of employee stock options and similar
awards and establishes standards for the accounting for transactions in which
an
entity exchanges its equity instruments for goods. SFAS No. 123R is effective
for annual periods beginning after June 15, 2005 and applies to all outstanding
and unvested share-based payment awards. This Statement requires a public entity
to measure the cost of employee services received in exchange for an award
of
equity instruments based on the grant-date fair value of the award (with limited
exception). That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award - the
requisite service period (usually the vesting period). We adopted SFAS 123(R)
effective January 1, 2006. See Note 11 Stock Compensation.
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs”. SFAS No. 151
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). SFAS No. 151 requires that these
items be recognized as current-period charges. In addition, SFAS No. 151
requires that the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
statement is effective for fiscal years beginning after June 15, 2005. We
adopted SFAS No. 151 effective January 1, 2006. SFAS No. 151 has not had a
material impact on our financial statements.
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Note
8. Long-Term
Debt and Short-Term Debt
Long-term
debt at March 31, 2006 and December 31, 2005 consisted of the
following:
| |
March
31,
2006
|
|
December
31,
2005
|
|
Borrowings
under our $30,000 revolving credit facility bearing interest at
a floating
rate equal to LIBOR (5.00% at March 31, 2006) plus an applicable
margin of
1.25 to 2.0, expiring on June 30, 2007
|
$
19,409
|
|
$
17,900
|
| |
|
|
|
|
Borrowings
under our 26,300 Euro term loan expiring on May 1, 2008, bearing
interest
at a floating rate equal to Euro LIBOR (2.817% at March 31, 2006)
plus an
applicable margin of 1.25 to 2.0 payable in quarterly installments
of Euro
1,314 beginning July 1, 2003 through April 1, 2008
|
--
|
|
4,668
|
| |
|
|
|
|
Borrowings
under our $40,000 aggregate principal amount of senior notes bearing
interest at a fixed rate of 4.89% maturing on April 26, 2014. Annual
principal payments of $5,714 begin on April 26, 2008 and extend
through
the date of maturity.
|
40,000
|
|
40,000
|
| |
|
|
|
|
Total
long-term debt
|
59,409
|
|
62,568
|
| |
|
|
|
|
Less
current maturities of long-term debt
|
1,509
|
|
4,668
|
| |
|
|
|
|
Long-term
debt, excluding current maturities of long-term debt
|
$
57,900
|
|
$
57,900
|
The
$1,509 classified as current portion of long-term debt at March 31, 2006
are
short-term borrowings under the revolving credit facility that
are associated with a lockbox arrangement, resulting in this portion being
classified as current. There were no amounts outstanding under this
portion of the revolving credit facility at December 31, 2005. The $4,668
under
the Euro term loan classified as current portion of long-term debt at December
31, 2005 was repaid in the first quarter of 2006.
The
borrowings under the 26,300 Euro term loan have all been repaid as
of March 31, 2006. We were in compliance with all covenants related to the
$90 million credit facility and the $40 million senior notes as of March
31,
2006.
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
The
fair
value of our fixed rate long-term borrowing is estimated using discounted
cash
flow analysis based on our incremental borrowing rates for similar types
of
borrowing arrangements. We estimate the fair value of the $40 million notes
to
be $38,014 and $38,739 at March 31, 2006 and December 31, 2005,
respectively.
Note 9. Goodwill
The
changes in the carrying amount of goodwill for the three month period ended
March 31, 2006 and the twelve month period ended December 31, 2005 are as
follows:
|
|
Plastic
and Rubber Components Segment
|
NN
Europe Segment
|
Total
|
|
Balance
as of January 1, 2005
|
$
25,755
|
$
18,702
|
$
44,457
|
|
Currency
impacts
|
--
|
(2,809)
|
(2,809)
|
|
Balance
as of December 31, 2005
|
$
25,755
|
$
15,893
|
$
41,648
|
|
Balance
as of January 1, 2006
|
$
25,755
|
$
15,893
|
$
41,648
|
|
Currency
impacts
|
--
|
442
|
442
|
|
Balance
as of March 31, 2006
|
$
25,755
|
$
16,335
|
$
42,090
|
Note
10.
Stock Compensation
On
January 1, 2006, the Company adopted SFAS No. 123(R) “Share-Based Payment.”
SFAS No. 123(R) replaces SFAS No. 123 “Accounting for Stock-Based Compensation”
and supersedes Accounting Principles Board Opinion ("APB") No. 25 “Accounting
for Stock Issued to Employees” and amends SFAS No. 95 “Statement of Cash Flows.”
Prior to adoption of SFAS No. 123(R), the Company followed the
disclosure-only requirements of SFAS No. 123 and continued to account for stock
compensation under the requirements of APB No. 25.
The
Company adopted SFAS No. 123(R) using the modified prospective method that
requires compensation expense of all employee and non-employee director
share-based compensation awards be recognized in the financial statements based
upon their fair value over the requisite service or vesting period for all
new
awards granted after the effective date and for all awards granted prior to
the
effective date of SFAS No. 123(R) that remain unvested on the effective date.
Under the requirements of APB No. 25, the Company was required to recognize
compensation cost only for stock option awards granted at a price lower than
the
market stock price at the date of grant. Effective with adoption of SFAS No.
123(R), compensation expense related to stock option awards are recognized
in
the financial statements at the fair value of the award. The Company accounts
for restricted share awards by recognizing the fair value of the awarded stock
at the grant date as compensation expense ratably over the vesting period,
less
anticipated forfeitures.
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
In
accordance with implementation requirements of SFAS No. 123(R) under the
modified prospective method, the Company did not restate prior fiscal periods
and is required to continue the same disclosure only requirements of SFAS
No. 123 for comparative purposes until all periods reported are comparable
on
the same basis. The following table illustrates the effect on net earnings
and
earnings per share as formerly provided under SFAS No. 123:
|
|
Three
months ended
March
31, 2005
|
|
Net
income - as reported
|
|
$
4,023
|
|
Stock
based compensation income,
net of income tax, included in net income as reported
|
|
(61)
|
|
Stock
based compensation costs, net of income tax, that would have been
included
in net income if the fair value method had been applied
|
|
(251)
|
|
Net
income - pro-forma
|
|
$
3,711
|
| |
|
|
|
Basic
earnings per share - as reported
|
|
$
0.24
|
|
Stock
based compensation income, 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
|
|
(0.01)
|
|
Basic
earnings per share - pro-forma
|
|
$
0.23
|
| |
|
|
|
Earnings
per share-assuming dilution - as reported
|
|
$
0.23
|
|
Stock
based compensation income, 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
|
|
(0.01)
|
|
Earnings
per share - assuming dilution-pro-forma
|
|
$
0.22
|
In
the
first quarter 2006, approximately $103 of compensation expense was recognized
in
selling, general and administrative expense for all share-based awards. The
cost
recognized was related to the restricted stock awards. No compensation expense
was recognized related to stock options in the first quarter of 2006, as there
were not any new stock option awards and all existing stock options were fully
vested as of December 31, 2005. The impact on net income of all stock
compensation expense in the first quarter of 2006 was approximately $66, net
of
tax benefits of $37.
Stock
Option Awards
Option
awards are typically granted to non-employee directors and key employees on
an
annual basis. A single option grant is typically awarded to eligible
employees in the third quarter of each year if and when granted by the
Compensation Committee of the Board of Directors and occasional individual
grants are awarded to eligible employees throughout the year. All employee
and non-employee directors are awarded options at an exercise price equal to
the
closing price of the Company's stock on the date of grant. The term life of
options is ten years with vesting periods of generally three years. Actual
vesting usually occurs ratably or at the end of the vesting period. The fair
value of options cannot be determined by market value as our
options are not traded in an open market. Accordingly, a financial pricing
model is utilized to determine fair value. The Company utilizes the Black
Scholes model which relies on certain assumptions to estimate an option's fair
value. As the
Company did not grant any options in the first quarter of 2006, the assumptions
relevant to options granted in the first quarter 2005 are identified in the
table below:
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
|
Term
|
-
|
Vesting
period
|
|
Risk
free interest rate
|
-
|
4.00%
|
|
Dividend
yield
|
-
|
2.60%
|
|
Volatility
|
-
|
48.38%
|
|
Expected
forfeitures rate
|
-
|
5%
|
The
volatility rate is derived from actual Company common stock volatility over
the
same time period as the expected term. The volatility rate is derived by
mathematical formula utilizing daily closing price data.
The
expected dividend yield is derived by mathematical formula which uses the
expected Company annual dividends over the expected term divided by the fair
market value of the Company's common stock at the grant date.
The
average risk-free interest rate is derived from United States Department
of
Treasury published interest rates of daily yield curves for the same time
period
as the expected term.
Prior
to
adoption of SFAS No. 123(R), the Company estimated forfeitures at a standard
5%
and recognized them as they occurred for pro forma disclosure of share-based
compensation expense. With adoption of SFAS No. 123(R), the company will
estimate the forfeiture rate based on detailed statistical analysis of prior
forfeitures.
The
following table provides a reconciliation of option activity through the
end of
the first quarter 2006:
|
Options
|
|
Shares
(000)
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining Contractual Term
|
|
Aggregate
Intrinsic Value ($000)
|
|
Outstanding
at January 1, 2006
|
|
1,403
|
|
$
9.56
|
|
|
|
|
|
Granted
|
|
--
|
|
--
|
|
|
|
|
|
Exercised
|
|
(12)
|
|
7.24
|
|
|
|
|
|
Forfeited
or expired
|
|
--
|
|
--
|
|
|
|
|
|
Outstanding
at March 31, 2006
|
|
1,391
|
|
$
9.58
|
|
6.4
|
|
$
4,632 (1)
|
|
Exercisable
at March 31, 2006
|
|
1,391
|
|
$
9.58
|
|
6.4
|
|
$
4,632 (1)
|
(1)
Intrinsic value is the amount by which the market price of the stock or the
market price at the exercise date underlying the option exceeds the exercise
price of the option.
At
December 31, 2005, all options were fully vested and there was no compensation
cost incurred from existing options. Cash proceeds from the exercise of options
in first quarter 2006 totaled approximately $87 with a related tax benefit
of
approximately $16. In the first quarter of 2005, the Company received $990
in
cash proceeds from the issuance of stock options. For both quarters ended
March 31, 2006 and 2005, proceeds from stock options were presented net of
tax
benefits in the Consolidated Statement of Cash Flows.
No
stock
options were granted during the first quarter of 2006 and 2005. The total
intrinsic value of the options exercised during the first quarters of 2006
and
2005 were $68 and $730, respectively.
Restricted
Stock Awards
In
addition to stock option awards, the Company has restricted stock awards, the
first grant of which was in July 2005. The Company’s policy for issuing
restricted shares is similar to that described under “Stock Option Awards”. The
recognized compensation cost before tax for these restricted stock awards in
the
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
first
quarter 2006 and first quarter 2005 was approximately $103 and $0, respectively.
The unrecognized compensation cost before tax for these awards in the first
quarter 2006 and first quarter 2005 total approximately $364 and $0,
respectively, to be recognized over approximately two years. The
forfeiture rate of the awards granted is currently estimated at 0%. Below
is a summary of the status of the restricted shares as of March 31, 2006 and
changes during the quarter:
|
Non-vested
Shares
|
|
Shares
(000)
|
|
Weighted-
Average
Grant-
Date
Fair Value
|
|
Non-vested
at January 1, 2006
|
|
53
|
|
$
12.70
|
|
Granted
|
|
--
|
|
--
|
|
Vested
|
|
--
|
|
--
|
|
Forfeited
|
|
--
|
|
--
|
|
Non-vested
at March 31, 2006
|
|
53
|
|
$
12.70
|
Note
11. Common Stock Repurchase
During
the first quarter of 2006, the Company’s Board of Directors authorized a stock
repurchase program under which the Company is authorized to repurchase up to
$10
million in common stock of the Company, during the next 18 months in the open
market or in private transactions, in accordance with applicable laws and
regulations. This amount represents approximately 5% of the Company’s
outstanding stock. During March 2006, the Company repurchased 20,474 shares
at
approximately $12.00 a share for a total of $246. These shares will be retired
and were recorded as an offset to additional paid in capital.
Note
12. Restructuring Charges
Eltmann,
Germany Restructuring
During
the fourth quarter of 2004, we announced a reduction in staffing at our Eltmann,
Germany ball production facility, a component of our NN Europe Segment. This
restructuring affected approximately 83 employees and is expected be completed
during 2006. As a result, we recorded restructuring charges of approximately
1.7
million Euros ($2.3 million) related to severance costs of approximately
$2.1
million and other related charges of approximately $0.2 million at December
31,
2004. The workforce reduction is a result of our continuing strategy of
rationalizing our global manufacturing capacity and the transfer of production
principally to our facility in Kysucke Nove Mesto, Slovakia. The charges
were
recorded in restructuring and impairment costs, a component of income from
operations in the fourth quarter of 2004.
The
following summarizes the restructuring charges related to the restructuring
at
the Company’s Eltmann, Germany facility for the twelve months ended December 31,
2005 and the three months ended March 31, 2006:
Twelve
months ended December 31, 2005
|
|
Reserve
Balance at 01/01/05
|
|
Adjustment
to Reserve
|
|
Paid
in 2005
|
|
Currency
Impacts
|
|
Reserve
Balance at 12/31/05
|
|
Severance
and other employee costs
|
$
2,290
|
|
$
(342)
|
|
$
(884)
|
|
$
(219)
|
|
$
845
|
| |
$
2,290
|
|
$
(342)
|
|
$
(884)
|
|
$
(219)
|
|
$
845
|
Three
months ended March 31, 2006
|
|
Reserve
Balance at 01/01/06
|
|
Charges
|
|
Paid
in 2006
|
|
Currency
Impacts
|
|
Reserve
Balance at 03/31/06
|
| Severance
and other employee costs |
$845
|
|
$
--
|
|
$(510)
|
|
$
16
|
|
$
351
|
| |
$
845
|
|
$
--
|
|
$
(510)
|
|
$
16
|
|
$
351
|
No
additional charges are expected to be incurred related to the 2004 restructuring
program. We expect to pay
all
amounts by 2007, as some employees have elected to defer their severance
payments.
NN,
Inc.
Notes
to Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Note
13.
Property, Plant and Equipment
During
the first quarter of 2006, we completed a sale of excess land and two buildings
at NN Europe’s Pinerolo, Italy plant. The net book value of this land and
buildings was $1,013 and was classified as held for sale at December 31,
2005.
The proceeds from the sale were $2,804 resulting in a pre-tax gain of $1,791.
In
addition, the Pinerolo plant disposed of excess machinery in the first quarter
of 2006 with a net book value of $1,087 resulting in a pre-tax loss of
$1,062.
.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Risk
Factors
Our
risk
factors are disclosed in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 under Item 1.A. “Risk Factors”. There have been no
material changes to these risk factors since December 31, 2005.
Results
of Operations
Quarter
in Review
Net
sales
for the first quarter of 2006 were $86.0 million, a decrease of 1.0% from
$86.7
million for the same period of 2005. Net income for the first quarter of
2006
totaled $5.3 million or $0.30 per diluted share and includes an after-tax
gain
from the sale of excess land of $1.5 million or $0.08 per diluted share and
an
after-tax write-off of certain unused equipment of $0.7 million or $0.04
per
diluted share. This compares to net income of $4.0 million, or $0.23 per
diluted
share for the first quarter of 2005.
Revenues
in the first quarter of 2006 were down $0.7 million from the first quarter
of
2005. Increases in volume and mix of approximately $1.6 million as well as
selling price increases related to material cost pass through of approximately
$2.8 million were offset by the negative result of currency exchange of $5.1
million.
As
a
percentage of net sales, 2006 first quarter cost of products sold (exclusive
of
depreciation) was 76.7% of net sales as compared to the 2005 first quarter
cost
of products sold (exclusive of depreciation) of 78.0%. Our Level 3
initiatives made a major contribution to this improvement. In addition, price
increases from raw material inflation passed through to customers and the
positive impacts of increased sales volume reduced our percentage of cost
of
products sold (exclusive of depreciation). As a percentage of net sales,
selling, general and administrative expenses for the first quarter of 2006
was
8.9% as compared to 8.6% for the same period in 2005. This increase was mainly
due to stock compensation related expenses.
Our
reported net income of $5.3 million or $0.30 per diluted share includes a
net
gain of approximately $0.8 million or $0.04 per diluted share comprised of
an
after-tax gain from the sale of excess land located at our Pinerolo, Italy
facility of $1.5 million or $0.08 per diluted share and offsetting this gain,
the write-off of certain equipment of $0.7 million or $0.04 per diluted
share, after-tax.
Three
Months Ended March 31, 2006 Compared to the Three Months Ended March 31,
2005 by
Business Segment
|
(In
Thousands of
Dollars)
|
Domestic
Ball & Roller
|
NN
Europe
|
Plastics
and Rubber Components
|
Total
|
|
|
2006
|
2005
|
Change
|
2006
|
2005
|
Change
|
2006
|
2005
|
Change
|
2006
|
2005
|
Change
|
|
Net
Sales
|
19,764
|
15,927
|
3,836
|
51,576
|
55,937
|
(4,361)
|
14,677
|
14,851
|
(174)
|
86,017
|
86,715
|
(698)
|
|
Cost
of products sold (exclusive of depreciation)
|
14,432
|
10,731
|
3,701
|
40,107
|
44,458
|
(4,351)
|
11,460
|
12,477
|
(1,017)
|
65,999
|
67,666
|
(1,667)
|
|
Selling,
General, and Administrative
|
2,981
|
2,463
|
518
|
3,761
|
4,140
|
(379)
|
939
|
881
|
58
|
7,681
|
7,484
|
197
|
|
Depreciation
and amortization
|
1,010
|
890
|
120
|
2,556
|
2,660
|
(104)
|
596
|
624
|
(28)
|
4,162
|
4,174
|
(12)
|
|
(Gain)
loss of Fixed Assets
|
-
|
-
|
-
|
(730)
|
4
|
(733)
|
-
|
-
|
-
|
(730)
|
4
|
(733)
|
|
Interest
Expense
|
678
|
502
|
176
|
68
|
242
|
(174)
|
240
|
240
|
-
|
986
|
984
|
2
|
|
Other
income
|
(25)
|
19
|
(44)
|
(177)
|
(116)
|
(61)
|
(7)
|
(74)
|
67
|
(209)
|
(171)
|
(38)
|
|
Pre-tax
Income
|
688
|
1,322
|
(634)
|
5,991
|
4,550
|
1,441
|
1,449
|
702
|
747
|
8,128
|
6,574
|
1,554
|
|
Taxes
|
451
|
507
|
(56)
|
1,894
|
1,785
|
109
|
521
|
259
|
262
|
2,866
|
2,551
|
315
|
|
Net
Income
|
237
|
815
|
(578)
|
4,097
|
2,765
|
1,332
|
928
|
443
|
485
|
5,262
|
4,023
|
1,239
|
Net
Sales.
Overall
sales decreased due to the effects of foreign exchange of $5.1 million partially
offset by higher selling prices from the pass through of raw material price
increases of $2.8 million and higher sales volume/mix of $1.6 million.
The
sales
decrease at the NN Europe Segment was primarily due to the effect of foreign
exchange from a stronger U.S. dollar of $5.1 million and lower volume of
$0.6 million. These reductions were partially offset by price increases from
passing through raw material inflation to customers of $1.4 million.
The
sales
increases at the Domestic Ball and Roller Segment are due primarily to higher
sales volume of $2.9 million and price increases from passing through material
inflation to customers of $0.9 million. The Domestic Ball and Roller volume
is
primarily due to additional sales to existing customers and from Schaeffler
Group (INA) ceasing their consignment inventory program ($0.7 million).
Sales
in
the Plastics and Rubber Components Segment were down primarily due to lower
volume in the rubber seal business sold into the automotive market.
Cost
of Products Sold (exclusive of depreciation.)
Cost of
products sold decreased primarily due to foreign exchange effects from a
stronger U.S. dollar of $4.0 million and impacts of our level 3 program of
$1.2
million. These decreases were partially offset by increased cost of products
sold due to higher sales volume of $0.9 million and the effects of inflation
of
$2.6 million within raw material, energy, and other manufacturing costs.
The
increase in cost of products sold in the Domestic Ball and Roller Segment
was
due to the effects of increased cost of products sold due to higher sales
volume
of $2.0 million and the impact of inflation on raw materials, energy, and
supplies of $1.7 million.
The
decrease in cost of products sold at the NN Europe Segment was due to foreign
exchange effects of $4.0 million, impacts of Level 3 of $0.9 million, and
lower
cost of products sold due to lower sales volume of $0.4 million. These decreases
were offset partially by inflation of $0.9 million within raw materials and
utilities.
The
decrease in the Plastics and Rubber Components Segment is due primarily to
Level 3 and other cost saving initiatives of $1.0 million and lower sales
volume
of $0.4 million. These decreases were partially offset by raw material and
utilities inflation of $0.4 million.
Selling,
General and Administrative Expenses.
The
increase in selling, general and administrative cost is due primarily to
stock
compensation expense. During the first quarter of 2006, we recognized $0.1
million in expense related to restricted stock compensation. In addition,
in the
first quarter of 2005, we recognized $0.1 million in income related to
accounting for stock options under the variable method of accounting that
did
not occur in 2006 due to adoption of SFAS 123(R).
(Gain)
Loss of Disposal of Assets. In
2006,
NN Europe had a gain for sales of excess land of $1.8 million which was
partially offset by a loss on disposal of excess equipment of $1.1
million.
Liquidity
and Capital Resources
Amounts
outstanding under the $90.0 million credit facility and the $40.0 million
notes
as of March 31, 2006 were $19.4 million and $40.0 million, respectively.
See
Note 9 of the Notes to Consolidated Financial Statements. We were in compliance
with all covenants of our $90 million syndicated credit facility with AmSouth
Bank and our $40.0 million senior notes as of March 31, 2006.
We
bill
and receive payment from some of our customers in Euros as well as other
currencies. In 2006, the fluctuation of the Euro against the dollar has
negatively impacted revenue and income and increased the value of assets
and
liabilities as the average exchange rate is lower from the first quarter
of 2005
to the first quarter of 2006 and the spot rate at March 31, 2006 was higher
than
the exchange rate at December 31, 2005. As of March 31, 2006, 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
offset by accounts payable, was $49.8 million at March 31, 2006 as compared
to
$41.1 million at December 31, 2005. The ratio of current assets to current
liabilities increased from 1.63:1 at December 31, 2005 to 1.76:1 at March
31,
2006. Cash flow used by operations was $3.2 million during the first three
months of 2006, compared with cash flow used by operations of $4.5 million
during the first three months of 2005. The primary reason for the improvement
in
operating cash flow from the first quarter of 2005 was the increase in net
income.
During
2006, we plan to spend approximately $18.8 million on capital expenditures
of
which $7.6 million is related primarily to equipment, process upgrades, and
replacements, approximately $8.9 million principally related to geographic
expansion of our manufacturing base, and $2.3 million related to the completion
of the SNR equipment purchase. In addition, we will pay $1.6 million for
contract intangibles related to the SNR equipment purchase. Of these
amounts approximately $1.9 million has been spent through March 31, 2006.
We
intend to finance these activities with cash generated from operations and
funds
available under the credit facilities described 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 2006.
During
the first quarter of 2006, the Company’s Board of Directors authorized a stock
repurchase program under which the Company is authorized to repurchase up
to $10
million in common stock of the Company, during the next 18 months in the
open
market or in private transactions, in accordance with applicable laws and
regulations. This amount represents approximately 5% of the Company’s
outstanding stock. During March 2006, the Company repurchased 20,474 shares
at
approximately $12.00 a share for a total of approximately $0.2 million. These
shares will be retired and were recorded as on offset to Additional Paid
in
Capital.
On
March
10, 2006, the Company declared a quarterly cash dividend of $0.08 a share.
The
dividend was paid on April 21, 2006, totaling $1.4 million.
Seasonality
and Fluctuation in Quarterly Results
Our
net
sales historically have been of a seasonal nature due to a significant portion
of our sales to European customers that cease or significantly slow production
during the month of August.
Critical
Accounting Policies
Our
significant accounting policies, including the assumptions and judgments
underlying them, are disclosed in our Annual Report on Form 10-K, for the
fiscal
year ended December 31, 2005 including those policies as discussed in Note
1.
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. There can be no assurance that actual results will
not
significantly differ from the estimates used in these critical accounting
policies. The one material change during the quarter was adoption of SFAS
123(R)
related to accounting for stock compensation (see Note 11 of the financial
statements). SFAS 123(R) has had a minimal effect on the financial statements
for the quarter ended March 31, 2006 as there were no new options issued
or
amended and as outstanding options were 100% vested at December 31, 2005.
The
only impact has been the elimination of variable accounting under APB 25
and FIN
44 with the adoption of SFAS 123(R).
Sales
Concentration
Schaeffler
Group (INA) has decided to in-source approximately $12 million of annual
business to their internal ball manufacturing facility in Germany. This
represents approximately 30% of the existing Schaeffler Group (INA) business.
Sales to Schaeffler Group (INA) did not decline in the first quarter of 2006.
We
are in
the process of negotiating a long term supply agreement, to replace the
agreement that expires June 30, 2006, with Schaeffler Group (INA) for remaining
business. In addition, we are in process of negotiating a new long term
agreement with SKF to replace the one for precision balls that expires July
31,
2006. SKF has informally agreed in principle to carry the current agreement
through to December 31, 2006.
| 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 use of certain financial instruments as well as transacting
in
various foreign currencies. To mitigate the 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. At March 31, 2006,
we
had $19.4 million outstanding under the domestic credit facilities and $40.0
million aggregate principal amount of senior notes outstanding. See Note 9
of
the Notes to Consolidated Financial Statements. At March 31, 2006, a one-percent
increase in the interest rate charged on our outstanding borrowings under our
credit facilities, that are subject to variable interest rates, would result
in
interest expense increasing annually by approximately $0.2 million.
Translation
of our operating cash flows denominated in foreign currencies is impacted by
changes in foreign exchange rates. We did not hold a position in any foreign
currency hedging instruments as of March 31, 2006.
| Item
4. |
Controls
and Procedures
|
Under
the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, the Company conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities
Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures are effective as of March
31, 2006, the end of the period covered by this quarterly report.
There
have been no changes in this fiscal quarter in our internal control over
financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Part
II. Other Information
Item
1. Legal Proceedings
On
March
20, 2006, the Company, as well as numerous other parties, received
correspondence from the Environmental Protection Agency (“EPA”) requesting
information regarding a former waste recycling vendor previously used by
the
Company. The vendor has since ceased operations and the EPA is investigating
the
clean up of the site or sites used by the vendor. As of the date of this
report,
we do not know whether the Company has any liability related to this vendor’s
actions or estimatable range for any potential liability.
All
of
our other legal proceedings are of an ordinary and routine nature and are
incidental to our operations. Management believes that such proceedings should
not, individually or in the aggregate, have a material adverse effect on
our
business or financial condition or on the results of operations.
Item
1.A. Risk
Factors
There
has
not been any material changes in risk factors from those disclosed our Annual
Report on Form 10-K for the year ended December 31, 2005 filed on March 16,
2006.
| Item
2. |
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
|
Issuer
Purchases of Equity Securities
|
|
Period
|
(a)
Total Number of Shares (or Units) Purchased
|
(b)
Average Price Paid per Share (or Unit)
|
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly
Announced
Plans or Programs
|
(d)
Maximum Number (or Approximate Dollar Value) of Shares that May
Yet Be
Purchased Under the Plans or Programs
|
|
March
1-March 31
|
20,474
|
$12.00
|
20,474
|
$9,753,714
|
All
purchases were made under the publicly announced $10 million repurchase plan
authorized by the Board of Directors.
| Item
3. |
Defaults
upon Senior Securities
|
None
Item
4. Submission
of Matters to a Vote of Security Holders
None
Item
5. Other
Information
None
Item
6. Exhibits.
| 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.
|
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. |
|
|
|
| Date: May
9, 2006 |
By: |
/s/ Roderick
R. Baty |
| |
Roderick
R. Baty |
| |
Title: Chairman,
President and Chief Executive Officer
|
| |
|
|
| |
|
|
|
|
| Date: May
9, 2006 |
By: |
/s/ James
H. Dorton |
| |
James
H. Dorton |
| |
Title:
Vice President - Corporate Development and
Chief Financial
Officer
|
| |
|
|
| |
|
|
|
|
| Date: May
9, 2006 |
By: |
/s/ William
C. Kelly, Jr. |
| |
William
C. Kelly, Jr. |
| |
Title:
Vice President and Chief Administrative
Officer |