NN 10Q 09-30-06
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 September
30, 2006
OR
oTRANSITION
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
|
|
(423)
743-9151
|
|
| |
(Address
of principal executive offices, including zip code)
|
|
(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
November 6, 2006 there were 17,091,596 shares
of
the registrant’s common stock, par value $0.01 per share,
outstanding.
Index
Page
No.
| Part I. |
Financial
Information |
|
| Item 1. |
Financial
Statements: |
|
| |
Consolidated
Statements of Income and Comprehensive Income for the three and nine
months
ended September 30, 2006 and 2005 (unaudited)
|
2
|
| |
Condensed
Consolidated Balance Sheets at September 30, 2006 and
December 31, 2005 (unaudited) |
3
|
| |
Consolidated
Statements of Changes in Stockholders’ Equity for the nine
months ended September 30, 2006 and 2005 (unaudited) |
4
|
| |
Consolidated
Statements of Cash Flows for the nine months ended September
30, 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 |
17
|
| Item
3. |
Quantitative
and Qualitative Disclosures about Market Risk
|
23
|
| Item 4. |
Controls and Procedures |
23
|
| Part II. |
Other
Information |
|
| Item 1. |
Legal
Proceedings
|
23
|
| Item 1A. |
Risk
Factors |
24
|
| Item 2. |
Unregistered
Sales of Equity Securities and Use of Proceeds
|
24
|
| Item 3. |
Defaults
Upon Senior Securities
|
24
|
| Item 4. |
Submission
of Matters to a Vote of Security Holders
|
24
|
| Item 5. |
Other
Information
|
24
|
| Item 6. |
Exhibits
|
24
|
| Signatures |
|
25
|
| |
|
|
Part
I. Financial Information
Item
1. Financial Statements
NN,
Inc.
Consolidated
Statements of Income and Comprehensive Income
(Unaudited)
| |
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
(Thousands
of Dollars, Except Per Share Data)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
sales
|
|
$
74,870
|
|
$
74,998
|
|
$
244,441
|
|
$
245,500
|
|
Cost
of products sold (exclusive of depreciation
and
amortization shown separately below)
|
|
58,693
|
|
58,177
|
|
189,597
|
|
191,848
|
|
Selling,
general and administrative
|
|
7,178
|
|
7,180
|
|
21,922
|
|
21,961
|
|
Depreciation
and amortization
|
|
4,192
|
|
3,998
|
|
12,779
|
|
12,302
|
|
(Gain)
loss on disposal of assets
|
|
--
|
|
--
|
|
(726)
|
|
6
|
|
Income
from operations
|
|
4,807
|
|
5,643
|
|
20,869
|
|
19,383
|
| |
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
916
|
|
967
|
|
2,923
|
|
2,976
|
|
Other
(income) expense, net
|
|
(550)
|
|
53
|
|
(310)
|
|
(286)
|
|
Income
before provision for income taxes
|
|
4,441
|
|
4,623
|
|
18,256
|
|
16,693
|
|
Provision
for income taxes
|
|
1,808
|
|
2,066
|
|
6,908
|
|
6,801
|
|
Net
income
|
|
2,633
|
|
2,557
|
|
11,348
|
|
9,892
|
| |
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized
holding loss on securities,
net
of tax
|
|
--
|
|
--
|
|
--
|
|
(73)
|
|
Foreign
currency translation gain (loss)
|
|
(867)
|
|
(460)
|
|
6,777
|
|
(10,425)
|
|
Comprehensive
income (loss)
|
|
$1,766
|
|
$
2,097
|
|
$
18,125
|
|
$
(606)
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Basic
income per common share:
|
|
$
0.15
|
|
$
0.15
|
|
$
0.66
|
|
$
0.58
|
| |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
17,105
|
|
17,191
|
|
17,147
|
|
16,963
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Diluted
income per common share:
|
|
$
0.15
|
|
$
0.15
|
|
$
0.65
|
|
$
0.57
|
| |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
17,339
|
|
17,522
|
|
17,389
|
|
17,286
|
| |
|
|
|
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
0.08
|
|
$
0.08
|
|
$
0.24
|
|
$
0.24
|
| |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
NN,
Inc.
Condensed
Consolidated Balance Sheets
(Unaudited)
| |
September
30,
|
|
December
31,
|
|
(Thousands
of Dollars)
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
$
18,502
|
|
$
10,856
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$677
and $1,119, respectively
|
49,811
|
|
47,297
|
|
Inventories,
net
|
37,244
|
|
38,096
|
|
Income
tax receivable
|
--
|
|
1,237
|
|
Other
current assets
|
9,729
|
|
8,464
|
|
Total
current assets
|
115,286
|
|
105,950
|
| |
|
|
|
|
Property,
plant and equipment, net
|
122,853
|
|
118,829
|
|
Goodwill
and intangibles, net
|
45,069
|
|
42,080
|
|
Other
assets
|
2,067
|
|
2,796
|
|
Total
assets
|
$
285,275
|
|
$
269,655
|
| |
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
$
39,424
|
|
$
41,660
|
|
Accrued
salaries and wages
|
12,782
|
|
12,407
|
|
Income
taxes
|
4,162
|
|
2,093
|
|
Current
maturities of long-term debt
|
243
|
|
4,668
|
|
Other
current liabilities
|
5,681
|
|
4,011
|
|
Total
current liabilities
|
62,292
|
|
64,839
|
| |
|
|
|
|
Non-current
deferred tax liability
|
14,677
|
|
15,128
|
|
Long-term
debt
|
62,500
|
|
57,900
|
|
Accrued
pension and other
|
17,234
|
|
15,714
|
|
Total
liabilities
|
156,703
|
|
153,581
|
| |
|
|
|
|
Total
stockholders’ equity
|
128,572
|
|
116,074
|
| |
|
|
|
|
Total
liabilities and stockholders’ equity
|
$
285,275
|
|
$
269,655
|
The
accompanying notes are an integral part of the financial
statements.
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
compensation
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
|
Total
|
|
Balance,
January 1, 2005
|
16,777
|
$
168
|
$
53,423
|
$
--
|
$
45,676
|
$
15,873
|
$
115,140
|
| Shares issued |
429
|
5
|
2,856
|
--
|
--
|
--
|
2,861
|
| Issuance
of restricted stock |
--
|
--
|
673
|
(673)
|
--
|
--
|
--
|
|
Amortization
of restricted stock award
|
--
|
--
|
--
|
103
|
--
|
--
|
103
|
|
Net
income
|
--
|
--
|
--
|
--
|
9,892
|
--
|
9,892
|
|
Dividends
declared
|
--
|
--
|
--
|
--
|
(4,093)
|
--
|
(4,093)
|
| Foreign
exchange translation loss |
--
|
--
|
--
|
--
|
--
|
(10,425)
|
(10,425)
|
| Write-off
of unrealized holding gain on securities |
--
|
--
|
--
|
--
|
--
|
(73)
|
(73)
|
|
Balance,
September 30, 2005
|
17,206
|
$ 173
|
$
56,952
|
$
(570)
|
$51,475
|
$
5,375
|
$113,405
|
| |
|
|
|
|
|
|
|
| Balance,
January 1, 2006 |
17,206
|
$
172
|
$
57,754
|
($467)
|
$
55,218
|
$
3,397
|
$
116,074
|
|
Reclassification
of unearned compensation
|
--
|
--
|
(467)
|
467
|
--
|
--
|
--
|
| Shares
issued |
69
|
1
|
695
|
--
|
--
|
--
|
696
|
| Repurchase
of outstanding shares |
(214)
|
(2)
|
(2,532)
|
--
|
--
|
--
|
(2,534)
|
|
Elimination
of variable stock option liability
|
--
|
--
|
8
|
--
|
--
|
--
|
8
|
| Net
income |
--
|
--
|
--
|
--
|
11,348
|
--
|
11,348
|
| Amortization
of restricted stock reward |
--
|
--
|
252
|
--
|
--
|
--
|
252
|
|
Stock
option expense
|
--
|
--
|
69
|
--
|
--
|
--
|
69
|
| Dividends
declared |
--
|
--
|
--
|
--
|
(4,118)
|
--
|
(4,118)
|
| Foreign
exchange translation gain |
--
|
--
|
--
|
--
|
--
|
6,777
|
6,777
|
|
Balance,
September 30, 2006
|
17,061
|
$
171
|
$
55,779
|
$
--
|
$
62,448
|
$
10,174
|
$128,572
|
The
accompanying notes are an integral part of the financial
statements.
NN,
Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
| |
Nine
Months Ended
|
| |
September
30,
|
|
(Thousands
of Dollars)
|
2006
|
|
2005
|
|
Operating
Activities:
|
|
|
|
|
Net
income
|
$
11,348
|
|
$
9,892
|
|
Adjustments
to reconcile net income to net cash provided by operating
Activities:
|
|
|
|
|
Depreciation
and amortization
|
12,779
|
|
12,302
|
|
Increase
in allowance for doubtful accounts
|
223
|
|
225
|
|
Amortization
of debt issue costs
|
427
|
|
182
|
|
(Gain)
loss on disposal of property, plant and equipment
|
(726)
|
|
6
|
|
Compensation
expense from issuance of restricted stock and incentive stock
options
|
321
|
|
103
|
|
Compensation
benefit from variable stock accounting
|
--
|
|
(169)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(995)
|
|
(5,247)
|
|
Inventories
|
2,201
|
|
(1,750)
|
|
Accounts
payable
|
(4,869)
|
|
(6,976)
|
|
Other
assets and liabilities
|
2,042
|
|
1,691
|
|
Net
cash provided by operating activities
|
22,751
|
|
10,259
|
| |
|
|
|
|
Investing
Activities:
|
|
|
|
|
Acquisition
of property, plant, and equipment
|
(11,766)
|
|
(8,370)
|
|
Proceeds
from disposals of property, plant and equipment
|
3,120
|
|
31
|
|
Acquisition
of intangibles
|
(1,855)
|
|
--
|
|
Net
cash used by investing activities
|
(10,501)
|
|
(8,339)
|
| |
|
|
|
|
Financing
Activities:
|
|
|
|
|
Increase
in cash from book overdraft
|
1,055
|
|
1,870
|
|
Repayment
of long-term debt
|
(4,668)
|
|
(4,704)
|
|
Repayment
of short-term debt
|
(27,280)
|
|
--
|
|
Proceeds
from short-term debt
|
27,523
|
|
--
|
|
Principal
payment on capital lease
|
(24)
|
|
--
|
|
Repurchase
of common stock
|
(2,534)
|
|
--
|
|
Proceeds
from issuance of stock
|
696
|
|
2,861
|
|
Proceeds
from long term debt
|
4,600
|
|
--
|
|
Debt
issuance cost paid
|
(457)
|
|
--
|
|
Dividends
paid
|
(4,118)
|
|
(4,093)
|
|
Net
cash used by financing activities
|
(5,207)
|
|
(4,066)
|
| |
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
603
|
|
(919)
|
| |
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
7,646
|
|
(3,065)
|
|
Cash
and Cash Equivalents at Beginning of Period
|
10,856
|
|
10,772
|
|
Cash
and Cash Equivalents at End of Period
|
$
18,502
|
|
$
7,707
|
The
accompanying notes are an integral part of the financial
statements.
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 fairly state the results of operations for the three and nine
month
periods ended September 30, 2006 and 2005, the Company’s financial position at
September 30, 2006 and December 31, 2005, and the cash flows for the nine month
periods ended September 30, 2006 and 2005. These adjustments are of a normal
recurring nature and are, in the opinion of management, necessary for fair
statement 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 three month and nine month periods ended September 30, 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):
| |
September
30,
|
|
December
31,
|
| |
2006
|
|
2005
|
|
Raw
materials
|
$
8,810
|
|
$
10,153
|
|
Work
in process
|
6,791
|
|
5,845
|
|
Finished
goods
|
21,643
|
|
22,098
|
| |
$
37,244
|
|
$
38,096
|
Inventories
on consignment at customer locations as of September 30, 2006 and December
31,
2005 totaled $4,491 and $4,669, respectively.
Note
3. Net
Income Per Share
| |
|
Three
months ended
September
30,
|
|
Nine
months ended
September
30,
|
|
(Thousands
of Dollars, Except Share and Per Share Data)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
| |
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
2,633
|
|
$
2,557
|
|
$
11,348
|
|
$
9,892
|
| |
|
|
|
|
|
|
|
|
|
Weighted
average basic shares
|
|
17,104,621
|
|
17,191,122
|
|
17,147,359
|
|
16,963,201
|
|
Effect
of dilutive stock options
|
|
234,009
|
|
330,640
|
|
242,108
|
|
322,528
|
|
Weighted
average dilutive shares outstanding
|
|
17,338,630
|
|
17,521,762
|
|
17,389,467
|
|
17,285,729
|
| |
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
0.15
|
|
$
0.15
|
|
$
0.66
|
|
$
0.58
|
|
Diluted
net income per share
|
|
$
0.15
|
|
$
0.15
|
|
$
0.65
|
|
$
0.57
|
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Excluded
from the shares outstanding for the three and nine month periods ended September
30, 2006 were 478,250 anti-dilutive options which had exercise prices of $12.62
and $11.50. Excluded from shares outstanding for the three and nine month
periods of September 30, 2005 were 357,000 anti-dilutive options which had
exercise prices of $12.62.
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 operation in
China
and corporate office costs 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 primarily 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 income 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 and nine month periods
ended September 30, 2005. For the three and nine month periods ended September
30, 2006, we had inter-segment sales of $850 and $1,989, respectively, which
were eliminated in consolidation and from the segment financial results shown
below. For the three and nine month periods ended September 30, 2006, the
inter-segment sales were from Domestic Ball & Roller to NN Europe of $403
and $650, respectively, and from NN Europe to Domestic Ball & Roller of $447
and $1,339, respectively.
|
|
Three
Months Ended September 30,
|
| |
2006
|
2005
|
|
(In
Thousands of Dollars)
|
Domestic
Ball & Roller
|
NN
Europe Segment
|
Plastic
and Rubber Components
|
Domestic
Ball & Roller
|
NN
Europe Segment
|
Plastic
and Rubber Components
|
|
Revenues
from external customers
|
$
15,365
|
$
46,863
|
$
12,642
|
$
16,444
|
$
43,749
|
$
14,805
|
|
Pre-tax
income (loss)
|
(922)
|
4,290
|
1,073
|
(49)
|
3,856
|
816
|
|
Assets
|
60,578
|
171,731
|
52,966
|
53,585
|
159,566
|
57,656
|
| |
Nine
Months Ended September 30,
|
| |
2006
|
2005
|
|
(In
Thousands of Dollars)
|
Domestic
Ball & Roller
|
NN
Europe Segment
|
Plastic
and Rubber Components
|
Domestic
Ball & Roller
|
NN
Europe Segment
|
Plastic
and Rubber Components
|
|
Revenues
from external customers
|
$
52,697
|
$
150,836
|
$
40,908
|
$
48,879
|
$
152,460
|
$
44,161
|
|
Pre-tax
income (loss)
|
(910)
|
15,427
|
3,739
|
1,647
|
13,553
|
1,493
|
|
Assets
|
60,578
|
171,731
|
52,966
|
53,585
|
159,566
|
57,656
|
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Note
5. Recent
Investing Activity
Our
wholly-owned subsidiary in China, NN Precision Bearing Products Company, LTD,
(“NN Asia”) started manufacturing in the first quarter of 2006. The costs
incurred as a result of the start-up for the nine month period ended September
30, 2005 of approximately $0.6 million were classified as selling, general
and
administrative expense.
On
October 7, 2005, we entered into an agreement with SNR Roulements (“SNR”) to
purchase SNR’s entire 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 $1,700 was paid in 2005 and $4,500 is expected
to be paid during 2006 to complete the equipment purchase, including related
legal and transportation cost, in excess of contractual purchase price, of
approximately $200. During the nine months ended September 30, 2006, the Company
acquired $3,648 of SNR equipment and related contract intangibles. As of
September 30, 2006, $3,039 of tangible fixed assets and $2,287 of
intangible assets have been purchased related to this transaction.
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 nine months ended September 30, 2006 or
2005.
Components
of Net Periodic Pension Cost:
| |
Three
months ended
September
30,
|
|
Nine
months ended
September
30,
|
| (In
Thousands of Dollars) |
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Service
cost
|
$
27
|
|
$
24
|
|
$
79
|
|
$
71
|
| Interest
cost |
66
|
|
49
|
|
194
|
|
146
|
| Amortization
of net gain |
13
|
|
2
|
|
37
|
|
7
|
| Net
periodic pension cost |
$
106
|
|
$
75
|
|
$
310
|
|
$
224
|
We
expect
to contribute approximately $350 to the Eltmann, Germany pension plan in 2006.
As of September 30, 2006, approximately $261 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 September
30, 2006 and 2005:
| |
Three
months ended
September
30,
|
|
Nine
months ended
September
30,
|
| (In
Thousands of Dollars) |
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Beginning
balance
|
$
(7,369)
|
|
$
(6,480)
|
|
$
(6,644)
|
|
$
(7,503)
|
|
Amounts
accrued
|
(245)
|
|
(227)
|
|
(770)
|
|
(751)
|
|
Payments
|
(196)
|
|
(49)
|
|
133
|
|
661
|
|
Exchange
and other
|
62
|
|
105
|
|
(467)
|
|
942
|
|
Ending
balance
|
$
(7,748)
|
|
$(6,651)
|
|
$(7,748)
|
|
$
(6,651) )
|
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Note
7. New
Accounting Pronouncements
On
December 16, 2004, the FASB issued SFAS No. 123(R), “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. 123(R) 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 10 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.
In
July
2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes—an Interpretation of SFAS 109 "Accounting for Income
Taxes". FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain
tax positions that a company has taken or expects to take on a tax return.
Under
FIN 48, the financial statements will reflect expected future tax consequences
of such positions presuming the taxing authorities' full knowledge of the
position and all relevant facts, but without considering time values. FIN 48
also revises disclosure requirements and introduces a prescriptive, annual,
tabular roll-forward of the unrecognized tax benefits. FIN 48 is effective
for
fiscal years beginning after December 15, 2006. The Company is in the process
of
evaluating the effects of FIN 48 on our consolidated financial position,
liquidity, and results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements”
(SFAS
157), which provides guidance on how to measure assets and liabilities that
use
fair value. SFAS 157 will apply whenever another US GAAP standard requires
(or
permits) assets or liabilities to be measured at fair value but does not expand
the use of fair value to any new circumstances. This standard also will require
additional disclosures in both annual and quarterly reports. SFAS 157 will
be
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be adopted by us beginning in the first quarter
of
2008. We are currently evaluating the potential impact this standard may have
on
our consolidated financial position and results of operations, but do not
believe the impact of the adoption will be material.
In
September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108,
“Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements”
(“SAB
108”). SAB 108 was issued in order to eliminate the diversity of practice in how
public companies quantify misstatements of financial statements, including
misstatements that were not material to prior years’ financial statements. We
will initially apply the provisions of SAB 108 in connection with the
preparation of our annual financial statements for the year ending December
31,
2006. We have evaluated the potential impact SAB 108 may have on our financial
position and results of operations and do not believe the impact of the
application of this guidance will be material.
In
September 2006, the FASB issued SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS
158). Part of this Statement will be effective as of December 31, 2006, and
requires companies that have defined benefit pension plans and other
postretirement benefit plans to recognize the funded status of those plans
on
the balance sheet on a prospective basis from the effective date. The funded
status of these plans is determined as of the plans’ measurement dates and
represents the differences between the amount of the
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
obligations
owed to participants under each plan (including the effects of future salary
increases for define benefit plans) and the fair value of each plan’s assets
dedicated to paying those obligations. To record the funded status of those
plans, unrecognized prior service costs and net actuarial losses experienced
by
the plans will be recorded in the Other Comprehensive Income (OCI) section
of
shareholders’ equity on the balance sheet. The Company is required to initially
recognize the funded status of our defined benefit plan, covering our Eltmann,
Germany facility, and provide required disclosures for fiscal years ending
after
December 15, 2006. Based on the December 31, 2005, funded status of our defined
benefit plan, we estimate the effect of SFAS 158 at that time would have been
to
increase total liabilities approximately $0.5 million, increase assets by
approximately $0.2 million, and decrease shareholders’ equity by approximately
$0.3 million. The actual effect will depend on the funded status as of December
31, 2006.
Note
8. Long-Term
Debt and Short-Term Debt
Long-term
debt at September 30, 2006 and December 31, 2005 consisted of the
following:
| |
September
30,
2006
|
|
December
31,
2005
|
|
Borrowings
under our $90,000 revolving credit facility bearing interest at a
floating
rate equal to LIBOR (5.32% at September 30, 2006) plus an applicable
margin of 0.60 to 0.925, expiring September 20, 2011
|
$
22,743
|
|
$
--
|
| |
|
|
|
|
Borrowings
under our $30,000 revolving credit facility bearing interest at a
floating
rate equal to LIBOR (5.32% at September 30, 2006) plus an applicable
margin of 1.25 to 2.0 (closed on September 21, 2006)
|
--
|
|
17,900
|
| |
|
|
|
|
Borrowings
under our 26,300 Euro term loan originally expiring on May 1, 2008,
bearing interest at a floating rate equal to Euro LIBOR (3.056% at
June
30, 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.
This part of the facility was paid in full and was closed on September
21,
2006.
|
--
|
|
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
debt
|
62,743
|
|
62,568
|
| |
|
|
|
|
Less
current maturities of long-term debt
|
243
|
|
4,668
|
|
|
|
|
|
|
Long-term
debt, excluding current maturities of long-term debt
|
$
62,500
|
|
$
57,900
|
On
September 21, 2006, the Company entered into a five-year $90.0 million revolving
credit facility maturing in September 2011 with Key Bank as the administrative
agent. This facility can be increased to a maximum of $120.0 million under
certain conditions specified in the agreement. The credit facility provides
the
Company the ability to borrow in US dollars at LIBOR plus an applicable margin
of 0.60 to 0.925 or Euros at EURIBOR plus an applicable margin of 0.60 to
.0925. The facility has a $10.0 million swing line feature to meet short term
cash flow needs. Any borrowings under this swing line are considered short
term.
Costs associated with entering into the revolving credit facility were
capitalized and will be amortized into interest expense over
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
the
life
of the facility. As of September 30, 2006, $457 of capitalized loan origination
cost was on the balance sheet within other assets and was presented in the
Financing Activities section of the Statement of Cash Flows. This new credit
facility replaced our prior $90.0 million credit facility with AmSouth Bank
as
administrative agent. The loan agreement contains customary financial and
non-financial covenants specifying 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 merger, acquisition
and
other fundamental changes in the Company’s business. The credit agreement is
un-collateralized except for the pledge of stock of certain foreign and domestic
subsidiaries and guarantees of certain domestic subsidiaries.
The
$18,917 classified as current portion of long-term debt at June 30, 2006, was
repaid as the revolving credit facility which was to expire on June 30, 2007
was
replaced with the new facility discussed above. In the third quarter of 2006,
$95 of capitalized loan cost related to the repaid revolving facility was
written off to interest expense. 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 and the facility was replaced with the new facility discussed above.
Capitalized loan costs related to this portion of the facility amounting to
$133
were written off as of June 30, 2006. We were in compliance with all covenants
related to the new $90.0 million credit facility and the $40.0 million
senior notes as of September 30, 2006.
The
fair
value of our fixed rate long-term borrowing is estimated using a discounted
cash
flow analysis based on our incremental borrowing rates for similar types of
borrowing arrangements. We estimate the fair value of the $40.0 million notes
to
be $37,982 and $38,739 at September 30, 2006 and December 31, 2005,
respectively.
Note
9. Goodwill
and Intangible Assets, net
Goodwill
and intangibles, net totaled $45,069 and consisted of goodwill of $42,974 and
intangible assets subject to amortization of $2,095 as of September 30,
2006.
The
changes in the carrying amount of goodwill and of the intangible assets subject
to amortization for the nine month period ended September 30, 2006 and the
twelve month period ended December 31, 2005 are as follows:
Goodwill
|
(In
Thousands of Dollars)
|
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 |
--
|
1,326
|
1,326
|
| Balance
as of September 30, 2006 |
$
25,755
|
$
17,219
|
$
42,974
|
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Intangible
assets subject to amortization, net of amortization
|
(In
Thousands of Dollars)
|
NN
Europe
Segment
|
Total
|
|
Balance
as of January 1, 2005
|
$
--
|
$
--
|
|
Acquisition
of intangibles
|
456
|
456
|
|
Amortization
|
--
|
--
|
|
Currency
impacts
|
(24)
|
(24)
|
|
Balance
as of December 31, 2005
|
$
432
|
$
432
|
| Balance
as of January 1, 2006 |
$
432
|
$
432
|
|
Acquisition of intangibles |
1,855
|
1,855
|
|
Amortization |
(243)
|
(243)
|
|
Currency impacts |
51
|
51
|
| Balance
as of September 30, 2006 |
$
2,095
|
$
2,095
|
| |
|
|
The
intangible asset in the table above is a contract intangible related to the
SNR
purchase agreement and related supply agreement (See Note 5.) This intangible
asset is subject to amortization over approximately 5 years and amortization
expense will approximate $500 for each of the five years. For the three and
nine
months ended September 30, 2006, the amortization expense totaled $125 and
$243,
respectively, and accumulated amortization totaled $243 at September 30,
2006.
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 is 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 over the vesting period, less
anticipated forfeitures.
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 reported net earnings for
2005 and pro-forma net earnings for 2005 including the effects of expensing
stock options.
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
| (In
Thousands, Except per Share Data) |
|
Three
months
ended
September
30, 2005
|
|
Nine
months
ended
September
30, 2005
|
|
Net
income - as reported
|
|
$
2,557
|
|
$
9,892
|
|
Stock
based compensation (income)
expense, net of income tax, included in net income as
reported
|
|
(49)
|
|
(108)
|
|
Stock
based compensation costs, net of income tax, that would have been
included
in net income if the fair value method had been applied
|
|
(19)
|
|
(307)
|
|
Net
income - pro-forma for 2005
|
|
$
2,489
|
|
$
9,477
|
| |
|
|
|
|
|
Basic
earnings per share - as reported
|
|
$
0.15
|
|
$
0.58
|
|
Stock
based compensation (income) expense, net of income tax, included
in net
income as reported
|
|
(0.01)
|
|
(0.01)
|
|
Stock
based compensation costs, net of income tax, that would have been
included
in net income if the fair value method had been applied
|
|
--
|
|
(0.02)
|
|
Basic
earnings per share - pro-forma for 2005
|
|
$
0.14
|
|
$
0.55
|
| |
|
|
|
|
|
Earnings
per share-assuming dilution - as reported
|
|
$
0.15
|
|
$
0.57
|
|
Stock
based compensation (income) expense, net of income tax, included
in net
income as reported
|
|
(0.01)
|
|
(0.01)
|
|
Stock
based compensation costs, net of income tax, that would have been
included
in net income if the fair value method had been applied
|
|
--
|
|
(0.02)
|
|
Earnings
per share - assuming dilution-pro-forma for 2005
|
|
$
0.14
|
|
$
0.54
|
In
the
three and nine month periods ended September 30, 2006, approximately $116 and
$321, respectively, of compensation expense was recognized in selling, general
and administrative expense for all share-based awards. The cost recognized
related to the restricted stock awards for the three and nine month periods
was
$47 and $252, respectively. The compensation expense recognized related to
stock
options during the three and nine month periods ended September 30, 2006 was
$69. The impact on net income of all stock compensation expense in the nine
months ended September 30, 2006 was approximately $231, net of tax benefits
of
$90.
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
and non-employee directors 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
for
key employees and one year for non-employee directors. 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.
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
On
August
14, 2006, the Company granted 154 options to certain key employees and
non-employee directors. The assumptions relevant to determining the fair value
at the date of grant are below:
|
Term
|
-
|
6
years
|
|
Risk
free interest rate
|
-
|
4.95%
|
|
Dividend
yield
|
-
|
2.78%
|
|
Volatility
|
-
|
43.68%
|
|
Expected
forfeiture rate
|
-
|
6.20%
|
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.
The
forfeiture rate is determined from examining the historical pre-vesting
forfeiture patterns of past option issuances to key employees and non-employee
directors. While the forfeiture rate is not an input of the Black Scholes model
for determining the fair value of the options, it is an important determinant
of
stock option compensation expense to be recorded. Prior to the quarter ended
September 30, 2006, the Company used a standard forfeiture rate of
5%.
The
term
is derived from using the “Simplified Method” of determining stock option terms
as described under the Securities and Exchange Commissions Staff Accounting
Bulletin 107. Prior to the quarter ended September 30, 2006, the option term
was
equal to the vesting period of 3 years.
The
following table provides a reconciliation of option activity for the nine month
period ended September 30, 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
|
|
|
154
|
|
$
|
11.50
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(69
|
)
|
|
9.14
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2006
|
|
|
1,488
|
|
$
|
9.80
|
|
|
6.31
|
|
$
|
3,025(1
|
)
|
|
Exercisable
at September 30, 2006
|
|
|
1,334
|
|
$
|
9.60
|
|
|
5.80
|
|
$
|
2,974(1
|
)
|
(1)
Intrinsic value is the amount by which the market price of the stock exceeds
the
exercise price of the options at September 30, 2006.
At
December 31, 2005, all outstanding options were fully vested and no compensation
expense was incurred from these options. There were 154 and 267 options granted,
respectively during the nine month periods ended September 30, 2006 and 2005.
The weighted average grant date fair value of the options granted during the
nine months ended September 30, 2006 was $4.30. As of September 30, 2006, there
was approximately $522 of unrecognized compensation cost to be recognized over
approximately three years.
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Cash
proceeds from the exercise of options in the three and nine month periods ended
September 30, 2006 totaled approximately $0 and $696, respectively. In the
three
and nine month periods ended September 30, 2005, the Company received $739
and
$2,861, respectively, in cash proceeds from the exercise of stock options.
For the nine month periods ended September 30, 2006 and 2005, proceeds from
stock options were presented inclusive of tax benefits of $87 and
$626, respectively, in the Financing Activities section of the Consolidated
Statements of Cash Flows. The total intrinsic value of options exercised during
the nine month periods ended September 30, 2006 and 2005 was $290 and $1,846,
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 costs before tax for these restricted stock awards
in
the three and nine month periods ended September 30, 2006 were approximately
$47
and $252, respectively. The recognized compensation expense for restricted
stock
in the three and nine month periods ended September 30, 2005 was $103. The
unrecognized compensation cost before tax for these awards at September 30,
2006
and 2005 total approximately $215 and $570, respectively, to be recognized
over
approximately two years. As of September 30, 2006, the forfeiture rate of the
awards granted was 0%. Below is a summary of the status of the restricted shares
as of September 30, 2006 and changes during the nine month period ended
September 30, 2006:
|
Non-vested
Shares
|
|
Shares
(000)
|
Weighted
Average
Grant-
Date
Fair Value
|
|
Non-vested
at January 1, 2006
|
|
53
|
$
12.70
|
|
Granted
|
|
--
|
-- |
|
Vested
|
|
(18)
|
$
12.70 |
|
Forfeited
|
|
--
|
-- |
|
Non-vested
at September 30, 2006
|
|
35
|
$
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 subsequent 18 months in
the
open market or in private transactions, in accordance with applicable laws
and
regulations. This amount represented approximately 5% of the Company’s
outstanding stock at the date of authorization. During the third quarter of
2006, the Company repurchased 157 shares at an approximate average cost of
$11.82 a share for a total of $1,852. For the nine months ended September 30,
2006, the Company has repurchased 214 shares for a total of $2,534 at an
approximate average cost of $11.87 per share. These shares have been 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 has affected 76 employees and is expected to affect another 8
and
will be completed during 2006.
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 nine months ended September 30, 2006:
NN,
Inc.
Notes
To Consolidated Financial Statements
(In
Thousands, Except Per Share Data)
(unaudited)
Twelve
months ended December 31, 2005
|
(In
Thousands of Dollars)
|
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
|
Nine
months ended September 30, 2006
|
(In
Thousands of Dollars)
|
Reserve
Balance at 01/01/06
|
|
Charges
|
|
Paid
in 2006
|
|
Currency
Impacts
|
|
Reserve
Balance at 09/30/06
|
|
Severance
and other employee costs
|
$
845
|
|
$
--
|
|
$
(531)
|
|
$
45
|
|
$
359
|
| |
$
845
|
|
$
--
|
|
$
(531)
|
|
$
45
|
|
$
359
|
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. There were no additional restructuring charges
during the three and nine month periods ended September 30, 2006 or
2005.
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
$1,065.
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
Three
Months Ended September
30, 2006 Compared to the Three Months Ended September 30, 2005
CONSOLIDATED
| (In
Thousands of Dollars) |
|
Total
|
|
| |
2006
|
2005
|
Change
|
|
Net
sales
|
$
74,870
|
$
74,998
|
$
(128)
|
|
Cost
of products sold (exclusive of depreciation
and
amortization shown separately below)
|
58,693
|
58,177
|
516
|
|
Selling,
general, and administrative
|
7,178
|
7,180
|
(2)
|
|
Depreciation
and amortization
|
4,192
|
3,998
|
194
|
|
Interest
expense, net
|
916
|
967
|
(51)
|
|
Other
(income) expense, net
|
(550)
|
53
|
(603)
|
|
Income
before provision for income taxes
|
4,441
|
4,623
|
(182)
|
|
Provision
for income taxes
|
1,808
|
2,066
|
(258)
|
|
Net
income
|
$
2,633
|
$
2,557
|
$
76
|
Net
Sales.
Overall
revenues decreased as sales in the Plastics and Rubber Components Segment
(“Plastics and Rubber”) ($2.2 million) and Domestic Ball and Roller Segment
(“Domestic Ball and Roller”) ($1.0 million) were lower and the NN Europe Segment
(“NN Europe”) sales were up ($3.1 million). The Plastics and Rubber sales to
certain automotive customers were lower than same quarter last year. The NN
Europe increase was due primarily to the positive impacts from Euro denominated
sales increasing in value relative to the dollar ($2.2 million) and price
increases from contractual raw material pass through ($0.7 million). Domestic
Ball and Roller sales were down due to lower sales to an existing customer
as a
result of a workers’ strike in Korea.
Cost
of Products Sold (exclusive of depreciation and amortization.)
Cost of
products sold decreased in Plastics and Rubber ($2.2 million) and at Domestic
Ball and Roller ($0.3 million). Cost of products sold was up at NN Europe ($3.0
million). The Plastics and Rubber decrease was due to lower sales volume to
certain larger automotive customers and cost management and cost reduction
initiatives. Domestic Ball and Roller was down due to lower sales volume
partially offset by higher inflation net of cost reductions. NN Europe was
up
due to Euro denominated cost increasing in value relative to the U.S. Dollar
($1.8 million), increased sales volumes, and inflation partially offset by
cost
reductions.
Selling,
General and Administrative Expenses.
The
unfavorable impact of Euro denominated costs increasing in value relative to
the
dollar ($0.2 million) was offset by decreases due to overall cost control
initiatives.
Results
by Segment
NN
EUROPE SEGMENT
|
|
|
NN
Europe
|
| (In
Thousands of Dollars) |
|
2006
|
2005
|
Change
|
|
Net
sales
|
|
$
46,863
|
$
43,749
|
$
3,114
|
| |
|
|
|
|
|
Pre-tax
income
|
|
$
4,290
|
$
3,856
|
$
434
|
The
sales
increase at NN Europe was primarily due to the positive impacts from the
increase in value of the Euro relative to the U.S. Dollar ($2.2 million).
Additionally, NN Europe benefited from price increases of passing through raw
material inflation to certain customers with long term sales contracts ($0.7
million). Finally, volume was up slightly, as sales to a new customer offset
unfavorable product mix to an existing customer ($0.2 million).
Foreign
exchange appreciation of the Euro added $0.2 million to pre-tax income. The
increases in sales price from passing through raw material cost increases were
offset by raw material inflation. Inflation in labor and utilities ($1.2
million) was not completely offset by cost reduction initiatives ($1.0 million).
Pre-tax income was negatively affected by higher spending for research and
development in Europe ($0.1 million). Depreciation and amortization costs were
higher due to depreciation and amortization of the machinery and contract
intangibles from the SNR machinery purchase ($0.2 million). Interest costs
were
lower as NN Europe paid off its Euro based loans during the first quarter of
2006 ($0.3 million). An additional positive impact of foreign exchange was
from
the increasing value of the Slovakian Koruna against the Euro at our Slovakian
operation ($0.5 million).
DOMESTIC
BALL AND ROLLER SEGMENT
|
|
|
Domestic
Ball and Roller
|
| (In
Thousands of Dollars) |
|
2006
|
2005
|
Change
|
|
Net
sales
|
|
$
15,365
|
$
16,444
|
$
(1,079)
|
| |
|
|
|
|
|
Pre-tax
loss
|
|
$
(922)
|
$
(49)
|
$
(873)
|
The
revenues at Domestic Ball and Roller were down due to volume decreases to an
existing customer ($1.3 million). The cause for this downturn was the customer’s
business being affected by a workers’ strike at an automotive manufacturer in
Korea, which is now ended. Partially offsetting this volume loss was favorable
sales mix and targeted price increases for certain products ($0.2
million).
The
decrease in pre-tax income is from the sales volume reductions net of lower
manufacturing cost ($0.6 million) and inefficiencies at the China operation
due
to start up of manufacturing operations ($0.3 million). Targeted sales
price increases partially offset these decreases ($0.2 million). In addition,
interest expense increased due to higher debt balances and interest rates on
variable rate debt ($0.2 million).
PLASTICS
AND RUBBER COMPONENTS SEGMENT
|
|
|
Plastics
And Rubber Components
|
| (In
Thousands of Dollars) |
|
2006
|
2005
|
Change
|
|
Net
sales
|
|
$
12,642
|
$
14,805
|
$
(2,163)
|
| |
|
|
|
|
|
Pre-tax
income
|
|
$
1,073
|
$
816
|
$
257
|
Revenues
in Plastics and Rubber were down due to lower sales volume of rubber seals
into
the automotive market ($2.2 million).
Pre-tax
income was negatively affected by the volume decreases in sales net of cost
of
goods sold ($0.9 million), which was more than offset by cost reductions. The
cost reductions were in the areas of material usage, labor, fixed overhead,
and
administrative cost, and are the direct result of the IMC portion of segment
extensively applying the principles of Level 3 ($1.1 million).
Nine
Months Ended September 30, 2006 Compared to the Nine Months Ended September
30,
2005
CONSOLIDATED
|
(In
Thousands of Dollars)
|
Total
|
| |
2006
|
2005
|
Change
|
|
Net
sales
|
$
244,441
|
$
245,500
|
$
(1,059)
|
|
Cost
of products sold (exclusive of depreciation
and
amortization shown separately below)
|
189,597
|
191,848
|
(2,251)
|
|
Selling,
general, and administrative
|
21,922
|
21,961
|
(39)
|
|
Depreciation
and amortization
|
12,779
|
12,302
|
477
|
|
(Gain)
loss on disposal of assets
|
(726)
|
6
|
(732)
|
|
Interest
expense, net
|
2,923
|
2,976
|
(53)
|
|
Other
income, net
|
(310)
|
(286)
|
(24)
|
|
Income
before provision for income taxes
|
18,256
|
16,693
|
1,563
|
|
Provision
for income taxes
|
6,908
|
6,801
|
107
|
|
Net
income
|
$
11,348
|
$
9,892
|
$
1,456
|
Net
Sales.
Overall
sales decreased due to the effects of foreign exchange ($2.7 million) and
lower sales volume ($3.5 million) partially offset by higher selling prices
from
the pass through of raw material price inflation to certain customers ($5.1
million.) The foreign exchange effects were due to Euro denominated sales having
less value relative to the U.S. Dollar in 2006 versus 2005. The lower sales
volume was in NN Europe ($1.7 million) and Plastics and Rubber ($4.0 million)
offset by Domestic Ball and Roller ($2.2 million). The price increases were
in
all three segments.
Cost
of Products Sold (exclusive of depreciation and amortization.)
Cost of
products sold decreased primarily as Euro denominated cost had less value
relative to the U.S. Dollar ($2.2 million), in addition to lower sales
volume ($2.7 million), and impacts of cost reductions ($4.3 million). These
decreases were partially offset by increased cost of products sold due to
inflation in raw material, energy, labor, and other manufacturing costs ($7.0
million).
Selling,
General and Administrative Expenses.
For the
nine month period, these costs were flat; however, the positive
foreign exchange impact of Euro denominated cost losing in value relative to
the
U.S. Dollar ($0.2 million) was offset by higher compensation costs due to stock
option expensing.
(Gain)
Loss of Disposal of Assets. In
2006,
NN Europe had a gain related to the disposal of excess land and building of
$1.8
million which was partially offset by a loss on disposal of excess equipment
of
$1.1 million.
RESULTS
BY SEGMENT
NN
EUROPE SEGMENT
|
|
|
NN
Europe
|
| (In
Thousands of Dollars) |
|
2006
|
2005
|
Change
|
|
Net
sales
|
|
$
150,836
|
$
152,460
|
$
(1,624)
|
| |
|
|
|
|
|
Pre-tax
income
|
|
$
15,427
|
$
13,553
|
$
1,874
|
The
revenue decrease at NN Europe was primarily due to the effect of Euro
denominated sales having less value relative to the U.S. Dollar in 2006 versus
2005 ($2.7 million). In addition, volume was lower ($1.7 million) primarily
due
to the forecasted loss of INA business and lower sales of higher priced small
sized balls to an existing customer. These reductions were partially offset
by
price increases from contractual pass through of raw material cost increases
to
certain customers ($2.8 million).
The
increase in pre-tax income at NN Europe is due to price increases to customers,
lower cost of products sold, gain from sale of land and building and lower
interest costs, partially offset by effects of devaluation of the Euro relative
to the U.S. Dollar, and effects of inflation in material, labor and utilities.
Material, labor, and utility inflation ($4.2 million) was completely offset
by
cost reduction initiatives ($3.0 million), and the sales price increases due
to
contractual pass through of raw material cost increases to customers ($2.8
million). The negative impact on pre-tax income of the devaluation of the Euro
relative to the U.S. Dollar in 2006 vs. 2005 ($0.3 million), and lower sales
volume ($0.4 million) reduced pre-tax income. The gain from the sale of land
at
Pinerolo, net of machinery disposals, added $0.7 million to pre-tax income.
Interest cost was lower ($0.7 million) due to the pay-off in the first quarter
of 2006 of the Euro denominated loan. Depreciation and amortization expense
was
higher due to depreciation and amortization of machinery and contract
intangibles from the SNR machinery purchase ($0.5 million).
DOMESTIC
BALL AND ROLLER SEGMENT
|
|
|
Domestic
Ball and Roller
|
| (In
Thousands of Dollars) |
|
2006
|
2005
|
Change
|
|
Net
sales
|
|
$
52,697
|
$
48,879
|
$
3,818
|
| |
|
|
|
|
|
Pre-tax
income (loss)
|
|
$
(910)
|
$
1,647
|
$
(2,557)
|
The
sales
increases at Domestic Ball and Roller are due primarily to higher sales volume
of $2.2 million and price increases from passing through material inflation
to
customers of $1.6 million. The sales volume increases were within ball products
of the segment due to the effects of share gain within an existing customer.
In
the third quarter, this volume increase was partially offset by a downturn
at an
existing customer due to an automotive strike in Korea.
The
decrease in pre-tax income at Domestic Ball and Roller is due to increases
in
cost of products sold at the U.S. and China operations and higher SG&A,
depreciation, and interest cost. The positive impact of sales volume increases
($0.8 million) and price increases from raw material inflation pass-through
($1.6 million) were offset by higher inflation in material, labor, supplies
($2.8 million), and inefficiencies primarily at our China operations due to
start up of the manufacturing facility and at our U.S. operations to a lesser
extent ($1.4 million). The higher SG&A cost were due to stock compensation
expense and salaries ($0.2 million). The increased depreciation expense was
due
to starting to depreciate fixed assets at the China operation ($0.2 million).
The interest cost increase was due to higher outstanding balances and interest
rates on our variable rate debt ($0.5 million).
PLASTICS
AND RUBBER COMPONENTS SEGMENT
|
|
Plastics
And Rubber Components
|
| (In
Thousands of Dollars) |
|
2006
|
2005
|
Change
|
|
Net
sales
|
|
$
40,908
|
$
44,161
|
$
(3,253)
|
| |
|
|
|
|
|
Pre-tax
income
|
|
$
3,739
|
$
1,493
|
$
2,246
|
Sales
at
Plastics and Rubber were down primarily due to lower volume in the rubber seal
business sold into the automotive market ($4.0 million) partially offset by
targeted price increases, not related to material cost pass through, in the
plastics portion of the segment ($0.7 million).
The
increase in pre-tax income at the Plastics and Rubber Components Segment was
due
to price increases ($0.7 million) and to Level 3 and other cost saving
initiatives in the areas of material usage, labor efficiency, and overhead
cost
($3.4 million). These increases were partially offset by raw material and
utilities inflation ($0.4 million) and the impact, net of cost of goods sold,
of
reductions in sales volume ($1.5 million.)
Liquidity
and Capital Resources
On
September 30, 2006, the Company entered into a new $90.0 million five year
revolving credit facility, with Key Bank as the administrative lead, which
can
be increased up to a maximum of $120.0 million under certain conditions.
Although the maximum amount under the facility is $120.0 million, initially
only
$90.0 million has been approved by the lenders. The additional $30.0 million
is
a pre-approved option to increase the size of the facility should the Company
need to do so in the future and maintain current creditworthiness. The prior
$90.0 million credit facility with AmSouth Bank as administrative lead was
paid
in full and cancelled as of the same date.
Amounts
outstanding under the new $90.0 million credit facility and the $40.0 million
notes as of September 30, 2006 were $22.7 million and $40.0 million,
respectively. See Note 8 of the Notes to Consolidated Financial Statements.
We
were in compliance with all covenants of our new $90.0 million syndicated credit
facility and our $40.0 million senior notes as of September 30,
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 U.S. Dollar has
negatively impacted revenue and income and increased the value of assets and
liabilities, as the average exchange rate is lower from the nine months ended
September 30, 2005 to nine months ended September 30, 2006 and the spot rate
at
September 30, 2006 was higher than the exchange rate at December 31, 2005.
As of
September 30, 2006, no currency hedges were in place. 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 $53.0 million at September 30, 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 1.85:1 at September
30, 2006. The increase in working capital is due primarily to the increase
in
the cash balance in Europe ($6.8 million) and the appreciation in value of
Euro
denominated working capital balances when translated to US Dollars ($1.0
million). In addition, the working capital is higher due to the payoff of the
short term portion of debt ($4.7 million) that was offsetting the December
31,
2005 working capital. Cash flow provided by operations was $22.8 million during
the first nine months of 2006, compared with cash flow provided by operations
of
$10.3 million during the first nine months of 2005. The increase in operating
cash flow is due to higher net income excluding non cash effects of depreciation
and amortization ($2.2 million) and improvements in management of working
capital. Accounts receivable have increased in 2006 at a much lower rate than
2005 due to improved days sales outstanding performance and lower sales volumes
($4.0 million). Inventory levels have been reduced in 2006, versus an increase
in 2005, in line with 2006 targeted inventory reductions goals ($4.0 million).
Finally, the reduction in accounts payable has been less in 2006 than 2005
($2.1
million).
Total
assets and current assets increased approximately $11.3 million and $4.2
million, respectively, from the December 31, 2005 balance due to
appreciation of the Euro relative to the U.S. Dollar. Factoring out the foreign
exchange effects, accounts receivable, net is up due to higher sales volume
than
year end and an increase in days sales outstanding ($0.7 million). Inventories,
net are down due to targeted inventory reduction goals for 2006 ($2.2 million).
Cash and cash equivalents are higher due to the positive cash flow in Europe
($6.8 million). Subsequent to quarter end, this cash was repatriated to pay
down
debt in the U.S. Factoring out foreign exchange effects, property plant and
equipment, net is lower as year to date capital spending has been lower than
depreciation and the NN Europe Segment disposed of certain machines ($1.8
million). In addition, land held for sale at December 31, 2005 was sold ($1.1
million). Finally, goodwill and intangibles, net increased by $1.9 million
due
to the acquisition of the contract intangibles related to the SNR asset
purchase.
Total
liabilities and current liabilities increased approximately $5.0 million and
$3.2 million, respectively from the December 31, 2005 balance due to
appreciation of the Euro relative to the U.S. Dollar. Factoring out the foreign
exchange effects, Accounts payable is lower primarily due to the effect of
seasonality of purchases in Europe caused by the August holidays ($4.3 million).
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 purchase of certain equipment at SNR. In addition, we will pay $2.0
million for contract intangibles related to the SNR equipment purchase. Of
these
amounts approximately $13.5 million has been spent through September 30, 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, projected capital
expenditure requirements, dividends payments, and share repurchase program
through December 2006.
During
the first quarter of 2006, our Board of Directors authorized a stock repurchase
program under which we are authorized to repurchase up to $10 million in
our common stock during the subsequent 18 months in the open market or in
private transactions, in accordance with applicable laws and regulations. This
amount represented approximately 5% of our outstanding stock at the
date of authorization. During the three and nine month periods ended September
30, 2006, we repurchased 0.157 million and 0.214 million shares,
respectively, at an average of approximately $11.82 and $11.87 per share,
respectively, for a total of approximately $1.9 million and $2.5 million,
respectively. These shares were retired and were recorded as on offset to
additional paid in capital.
During
the third quarter of 2006, the dividend declared on August 14, 2006 was paid
totaling $1.4 million. For the nine months ended September 30, 2006, $4.1
million in dividends have been declared and paid at a rate of approximately
$0.24 a share.
Seasonality
and Fluctuation in Quarterly Results
Our
net
sales historically have been of a seasonal nature due to the fact that a
significant portion of our sales are 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 to
the annual report. 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 nine month period ended September
30, 2006 was adoption of SFAS 123(R) related to accounting for stock
compensation (see Note 10 of the financial statements). SFAS 123(R) has had
a
minimal effect on the financial statements for the three and nine month periods
ended September 30, 2006, as 2006 options granted were only outstanding for
two
months of 2006 and as outstanding options were 100% vested at December 31,
2005.
In addition, SFAS 123 (R) has mandated the elimination of variable accounting
under APB 25 and FIN 44 with the adoption of SFAS 123(R).
Sales
Concentration
The
contract covering sales to Schaeffler Group (INA) from our European locations
expired on June 30, 2006. We are in the final stages of developing a supply
agreement to replace the agreement that expired. Even though the contract has
technically expired, we are still actively selling to Schaeffler Group (INA).
We
have reached an agreement in principle for a two year extension and expect
to
have a signed agreement during the fourth quarter of 2006.
In
addition, we are in process of negotiating a new long term agreement with SKF
to
replace the one for precision balls that expired July 31, 2006. SKF has
informally agreed in principle to carry the current agreement through to
December 31, 2006. We have an agreement in principle with SKF for a three year
extension and expect to have a signed agreement during the fourth quarter of
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 September 30, 2006,
we had $22.7 million outstanding under the domestic credit facilities and $40.0
million aggregate principal amount of senior notes outstanding. See Note 8
of
the Notes to Consolidated Financial Statements. At September 30, 2006, a
one-percent increase in the interest rate charged on our outstanding borrowings
under our credit facilities, which 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 September 30, 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
September 30, 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, we, 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 us. 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 we have 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
|
| c) |
Issuer
purchases of equity securities
|
|
Issuer
Purchases of Equity Securities
|
|
Period
|
(a)
Total Number of Shares
(or
Units) Purchased
|
(b)
Average Price Paid
per
Share (or Unit) including commissions
|
(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
|
$12.03
|
20,474
|
$9,753,714
|
|
May
1 - May 31
|
36,347
|
$11.98
|
36,347
|
$9,318,353
|
|
July
1 - July 31
|
3,100
|
$11.99
|
3,100
|
$9,281,185
|
|
August
1 - August 31
|
153,615
|
$11.82
|
153,615
|
$7,466,064
|
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
| 10.1 |
NN,
Inc. Elective Deferred Compensation Plan as of January 1, 2005, as
amended November 2, 2006.
|
| 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. |
|
|
(Registrant)
|
| Date: November
8, 2006 |
By: |
/s/ Roderick
R. Baty |
| |
Roderick
R. Baty |
| |
Title:
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)
|
| |
|
|
| |
|
|
|
|
| Date: November
8, 2006 |
By: |
/s/ James
H. Dorton |
| |
James
H. Dorton |
| |
Title:
Vice President - Corporate Development and
Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Officer)
|
| |
|
|
| |
|
|
|
|
| Date: November
8, 2006 |
By: |
/s/ William
C. Kelly, Jr. |
| |
William
C. Kelly, Jr. |
| |
Title:
Vice
President and
Chief Administrative Officer
(Duly Authorized
Officer)
|