<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 0-23486
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NN Ball & Roller, Inc.
(Exact name of registrant as specified in its charter)
Delaware 62-1096725
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 Tennessee Road
Erwin, Tennessee 37650
(Address of principal executive offices, including zip code)
(423) 743-9151
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ -----
As of August 13, 1998 there were 14,804,244 shares of the registrant's
common stock, par value $0.01 per share, outstanding.
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<PAGE>
NN Ball & Roller, Inc.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements:
Condensed Statements of Income for the three and six
months ended June 30, 1998 and 1997 2
Condensed Balance Sheets at June 30, 1998 and
December 31, 1997 3
Condensed Statements of Changes in Stockholders'
Equity for the six months ended June 30, 1998
and 1997 4
Condensed Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index To Exhibits 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
NN Ball & Roller, Inc.
Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Thousands of Dollars, Except Per Share Data 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 19,674 $ 20,964 $ 40,560 $ 41,283
Cost of goods sold 13,563 14,307 27,740 28,145
---------- ---------- ---------- ----------
Gross profit 6,111 6,657 12,820 13,138
Selling, general and administrative 1,530 1,227 2,834 2,532
Depreciation 1,179 1,052 2,338 2,104
---------- ---------- ---------- ----------
Income from operations 3,402 4,378 7,648 8,502
Interest expense 18 -- 33 19
---------- ---------- ---------- ----------
Income before provision for income taxes 3,384 4,378 7,615 8,483
Provision for income taxes 1,060 1,646 2,624 3,112
---------- ---------- ---------- ----------
Net income $ 2,324 $ 2,732 $ 4,991 $ 5,371
Other comprehensive income:
Foreign currency translation 72 -- (189) --
---------- ---------- ---------- ----------
Other comprehensive income 72 -- (189) --
---------- ---------- ---------- ----------
Comprehensive income $ 2,396 $ 2,732 $ 4,802 $ 5,371
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share (Note 3): $ 0.16 $ 0.19 $ 0.34 $ 0.37
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding (Note 3) 14,827,626 14,712,626 14,810,770 14,713,463
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
2
<PAGE>
NN Ball & Roller, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
Thousands of Dollars (Unaudited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,216 $ 366
Accounts receivable, net 16,822 12,449
Inventories, net (Note 2) 12,245 11,865
Other current assets 1,332 1,505
--------- ---------
Total current assets 31,615 26,185
Property, plant and equipment, net 37,376 37,088
--------- ---------
Total assets $ 68,991 $ 63,273
--------- ---------
--------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,213 $ 3,662
Revolving credit facility 2,650 1,480
Accrued vacation expense 643 519
Deferred Income 818 458
Other current liabilities 1,432 1,352
--------- ---------
Total current liabilities 10,756 7,471
Deferred income taxes 2,831 2,831
--------- ---------
Total liabilities 13,587 10,302
Total stockholders' equity 55,404 52,971
--------- ---------
Total liabilities and stockholders' equity $ 68,991 $ 63,273
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
3
<PAGE>
NN Ball & Roller, Inc.
Condensed Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional Retained other
Number Par paid in earnings comprehensive
Thousands of Dollars of shares Value capital (deficit) income Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 14,629 $ 146 $26,983 $21,581 $ -- $48,710
Net income 5,371 5,371
Dividends (2,329) (2,329)
Stock repurchased (86) -- (999) -- (999)
------ ------- ------- ------- -------- --------
Balance, June 30, 1997 14,543 $ 146 $25,984 $24,623 $ -- $50,753
------ ------- ------- ------- -------- --------
------ ------- ------- ------- -------- --------
Balance, January 1, 1998 14,804 $ 149 $27,902 $25,387 $ (467) $52,971
Net income 4,991 4,991
Dividends (2,369) (2,369)
Other comprehensive income (189) (189)
------ ------- ------- ------- -------- --------
Balance, June 30, 1998 14,804 $ 149 $27,902 $28,009 $ (656) $55,404
------ ------- ------- ------- -------- --------
------ ------- ------- ------- -------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
NN Ball & Roller, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Thousands of Dollars 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 4,991 $ 5,371
Adjustments to reconcile net income:
Depreciation 2,338 2,104
Changes in operating assets and liabilities:
Accounts receivable (4,373) 1,750
Inventories (380) (145)
Taxes Refundable/Payable (221) 620
Other current assets 394 (189)
Accounts payable 1,551 1,094
Other liabilities 564 156
--------- ---------
Net cash provided by operating activities 4,864 10,761
--------- ---------
Investing Activities:
Acquisition of plant, property, and equipment (2,626) (2,407)
Other assets -- 44
--------- ---------
Net cash used by investing activities (2,626) (2,363)
--------- ---------
Financing Activities:
Proceeds (Payments) under revolving credit facility 1,170 (2,308)
Dividends (2,369) (2,329)
Stock options exercised -- --
Stock repurchased -- (999)
Cumulative effect of currency translation (189) --
--------- ---------
Net cash (used) by financing activities (1,388) (5,636)
--------- ---------
Net Change in Cash and Cash Equivalents 850 2,762
Cash and Cash Equivalents at Beginning of Period 366 --
--------- ---------
Cash and Cash Equivalents at End of Period $ 1,216 $ 2,762
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
NN Ball & Roller, Inc.
Notes To Condensed Financial Statements
Note 1. Interim Financial Statements
The accompanying condensed financial statements of NN Ball & Roller, Inc. have
not been audited by independent accountants, except for the balance sheet at
December 31, 1997. In the opinion of the Company's management, the financial
statements reflect all adjustments necessary to present fairly the results of
operations for the three and six month periods ended June 30, 1998 and 1997, the
Company's financial position at June 30, 1998 and December 31, 1997, and the
cash flows for the six month periods ended June 30, 1998 and 1997. 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.
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income" (FAS 130), which established standards for reporting and displaying
comprehensive income and its components within an entity's financial
statements. FAS 130, which is effective for the Company's 1998 first quarter
financial reporting, defines the components of other comprehensive income to
include foreign currency translation adjustments, unrealized gains and losses
on marketable securities and minimum pension adjustments. Currently the
Company's only component of comprehensive income is foreign currency
translation which is presented before tax due to the Company's intention to
indefinitely reinvest earnings of its subsidiary outside the United States.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the interim financial
statements presented in this Quarterly Report on Form 10-Q.
The results for the first and second quarters of 1998 are not necessarily
indicative of future results.
Note 2. Inventories
Inventories are stated at the lower of cost or market, with cost being
determined by the first-in, first-out method.
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)
---------- ------------
<S> <C> <C>
Raw materials $ 2,401 $ 2,911
Work in process 3,058 2,793
Finished goods 6,846 6,221
-------- --------
12,305 11,925
Less - Reserve for excess and obsolete inventory 60 60
-------- --------
$ 12,245 $11,865
-------- --------
-------- --------
</TABLE>
6
<PAGE>
Note 3. Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Thousands of Dollars, Except Share and Per Share Data
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 2,324 $ 2,732 $ 4,991 $ 5,371
Adjustments to net income -- -- -- --
------------ ------------- ------------ ------------
Net income $ 2,324 $ 2,732 $ 4,991 $ 5,371
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Basic shares outstanding 14,804,244 14,543,242 14,804,244 14,543,242
Effect of dilutive stock options 23,382 169,384 6,526 170,221
------------ ------------- ------------ ------------
Dilutive shares outstanding 14,827,626 14,712,626 14,810,770 14,712,638
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Basic net income per share $ 0.16 $ 0.19 $ 0.34 $ 0.37
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Diluted net income per share $ 0.16 $ 0.19 $ 0.34 $ 0.37
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
Excluded from the shares outstanding for the second quarter ended June 30,
1998 and 1997 were 70,750 and 452,250 antidilutive options, respectively,
which had exercise prices ranging from $11.50 to $15.50. Excluded from the
shares outstanding for the six months ended June 30, 1998 and 1997 were
426,500 and 452,250 antidilutive options, respectively, which had exercise
prices ranging from $11.13 to $15.50.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997
Net Sales. Net sales decreased by approximately $1.3 million, or 6.2%, from
$21.0 million for the second quarter of 1997 to $19.7 million for the second
quarter of 1998. Foreign sales decreased $600,000, or 6.1%, from $9.8
million in the second quarter of 1997 to $9.3 million during the second
quarter of 1998. The decrease in foreign sales was due primarily to the
financial crisis in Asia and the impact of the continued strengthening of the
U.S. dollar against world currencies. Partially offsetting this effect was
the strengthening of European economies and resulting increased sales into
this region. Domestic sales decreased $700,000, or 6.3%, from $11.1 million
in the second quarter of 1997 to $10.4 million in the second quarter of 1998.
This decrease was due primarily to decreased sales to an existing customer.
Gross Profit. Gross profit decreased $546,000, or 8.2%, from $6.6 million
for the second quarter of 1997 to $6.1 million for the second quarter of
1998. As a percentage of net sales, gross profit decreased from 31.8% in
the second quarter of 1997 to 31.1% for the same period in 1998. This
decrease in gross profit as a percentage of net sales was due primarily to
decreased levels of volume during the second quarter of 1998 as compared to
the second quarter of 1997 and related capacity under-utilization.
Selling, General and Administrative. Selling, general and administrative
expenses increased by $303,000 or 24.7%, from $1.2 million in the second
quarter of 1997 to $1.5 million in the second quarter of 1998. This increase
was due primarily to increased expenses related to the Ireland facility,
which began production in the fourth quarter of 1997, as well as planned
increases to implement the Company's strategic plan. As a percentage of net
sales, selling, general and administrative expenses increased from 5.8% for
the second quarter of 1997 to 7.8% for the same period in 1998.
Depreciation. Depreciation expense increased from $1.1 million for the
second quarter of 1997 to $1.2 million for the same period in 1998. This
increase was due primarily to purchases of capital equipment related to the
new Ireland facility start-up in the fourth quarter of 1997. As a percentage
of net sales, depreciation expense increased from 5.0% in the second quarter
of 1997 to 6.0% in the second quarter of 1998.
Net Income. Net income decreased by $408,000 or 14.9%, from $2.7 million for
the second quarter of 1997 to $2.3 million for the same period in 1998. As a
percentage of net sales, net income decreased from 13.0% in the second
quarter of 1997 to 11.8% for the second quarter of 1998.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
Net Sales. Net sales decreased by approximately $723,000, or 1.8%, from
$41.3 million for the first six months of 1997 to $40.6 million for the same
period in 1998. Foreign sales decreased $200,000, or 1.0%, from $19.6
million in the first six months of 1997 to $19.4 million during the same
period of 1998. The decrease in foreign sales was due primarily to the
financial crisis in Asia and the impact of the continued strengthening of the
U.S. dollar against world currencies. Partially offsetting this effect was
the strengthening of European economies and resulting increased sales into
this region. Domestic sales decreased $500,000, or 2.3%, from $21.7 million
in the first six months of 1997 to $21.2 million in the same period of 1998.
This decrease was due primarily to decreased sales to an existing customer.
8
<PAGE>
Gross Profit. Gross profit decreased $318,000, or 2.4%, from $13.1 million
for the first six months of 1997 to $12.8 million for the same period of
1998. As a percentage of net sales, gross profit decreased slightly from
31.8% in the first six months of 1997 to 31.7% in the same period of 1998.
This decrease in gross profit as a percentage of net sales was due primarily
to decreased levels of volume during the first half of 1998 as compared to
the first half of 1997 and related capacity under-utilization.
Selling, General and Administrative. Selling, general and administrative
expenses increased by $302,000, or 11.9%, from $2.5 million in the first six
months of 1997 to $2.8 million in the same period of 1998. This increase was
due primarily to increased expenses related to the Ireland facility, which
began production in the fourth quarter of 1997, as well as planned increases
to implement the Company's strategic plan. As a percentage of net sales,
selling, general and administrative expenses increased from 6.1% in the first
six months of 1997 to 7.1% for the same period in 1998.
Depreciation. Depreciation expense increased from $2.1 million for the first
six months of 1997 to $2.3 million for the same period in 1998. This increase
was due primarily to purchases of capital equipment related to the new
Ireland facility start-up in the fourth quarter of 1997. As a percentage of
net sales, depreciation expense increased from 5.1% for the first six months
of 1997 to 5.8% for the same period in 1998.
Net Income. Net income decreased by $380,000, or 7.1%, from $5.4 million for
the first six months of 1997 to $5.0 million for the same period for 1998.
As a percentage of net sales, net income decreased from 13.0% for the first
six months of 1997 to 12.3% for the same period for 1998.
Liquidity and Capital Resources
In July 1997, the Company terminated its $10.0 million revolving credit
facility and entered into a loan agreement with First American National Bank
("First American"). This loan agreement provides for a revolving credit
facility of up to $25 million, which will expire on June 30, 2000.
Amounts outstanding under the revolving facility are unsecured and bear
interest at a floating rate equal to, at the Company's option, either LIBOR
plus 0.65% or the Fed Funds effective rate plus 1.5%. The loan agreement
contains customary financial and operating restrictions on the Company,
including covenants restricting the Company, without First American's
consent, from incurring additional indebtedness from, or pledging any of its
assets to, other lenders and from disposing of a substantial portion of its
assets. In addition, the Company is prohibited from declaring any dividend
if a default exists under the revolving credit facility at the time of, or
would occur as a result of, such declaration. The loan agreement also
contains customary financial covenants with respect to the Company, including
a covenant that the Company's earnings will not decrease in any year by more
than fifty percent of earnings in the Company's immediately preceding fiscal
year. The Company is in compliance with all such covenants.
The Company's arrangements with its domestic customers typically provide that
payments are due within 30 days following the date of the Company's shipment
of goods, while arrangements with foreign customers (other than foreign
customers that have entered into an inventory management program with the
Company) generally provide that payments are due within either 90 or 120 days
following the date of shipment. Under the Company's inventory management
program, payments typically are due within 30 days after the product is used
by the customer. Due to the continuing expansion of the Company's foreign
sales, management believes that the Company's working capital requirements
will increase as a result of longer payment terms provided to foreign
customers. The Company's net sales historically have not been of a seasonal
nature. However, as foreign sales have increased as a percentage of total
sales, seasonality has become a factor for the Company in that many foreign
customers cease production during the month of August.
In the fourth quarter of 1997, upon commencement of production in its
Kilkenny, Ireland facility, the Company began to bill and receive payment
from some of its foreign customers in their own currency. To
9
<PAGE>
date, the Company has not been materially adversely affected by currency
fluctuations or foreign exchange restrictions. Nonetheless, as a result of
these sales, the Company's foreign exchange risk has increased. Various
strategies to manage this risk are under development and implementation,
including a hedging program. In addition, a strengthening of the U.S. dollar
against foreign currencies could impair the ability of the Company to compete
with international competitors for foreign as well as domestic sales.
Working capital, which consists principally of cash and cash equivalents,
accounts receivable and inventories was $20.9 million at June 30, 1998 as
compared to $18.7 million at December 31, 1997. The ratio of current assets
to current liabilities decreased from 3.5:1 at December 31, 1997 to 2.9:1 at
June 30, 1998. Cash flow from operations decreased from $10.8 million during
the first half 1997 to $4.9 million during the first half of 1998. This
decrease was primarily attributed to the increase in accounts receivable of
$4.4 million, the decrease in net income of $380,000, the increase in
inventories of $380,000 and the increase in taxes refundable of $221,000.
During 1998, the Company plans to spend approximately $6.0 million on capital
expenditures (of which $2.6 million has been spent through June 30, 1998)
including the purchase of machinery and equipment for all four of the
Company's facilities. The Company intends to finance these activities with
cash generated from operations and funds available under the credit facility
described above. The Company believes that funds generated from operations
and borrowings from the credit facility will be sufficient to finance the
Company's working capital needs and projected capital expenditure
requirements through December 1998.
On August 4, 1998 the Company's Board of Directors authorized the repurchase
of up to 740,213 shares of its Common Stock, equaling 5% of the Company's
issued and outstanding shares as of August 4, 1998. The program may be
extended or discontinued at any time, and there is no assurance that the
Company will purchase the full amount authorized.
Year 2000
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Without corrective
action, programs with time-sensitive software could potentially recognize a
date ending in "00" as the year 1900 rather than the year 2000, causing many
computer applications to fail or create erroneous results. The Company has
evaluated its current computer systems in light of the Year 2000 issue and
has chosen to implement a new company-wide system rather than modify and
upgrade existing systems. This implementation process, which is expected to
cause the Company to incur costs of approximately $1 million, is expected to
be completed by mid- 1999. The Company has also identified and is in the
process of contacting key customers and suppliers to determine if these
entities have an effective plan in place to address the Year 2000 issue.
Recently issued accounting standards
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which requires companies to report
selected information about operating segments and related disclosures about
products and services, geographic areas and major customers. The Company will
provide disclosures in accordance with this statement effective with its
December 31, 1998 financial reporting.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" which revises the disclosure
requirements for pensions and other Postretirement benefits and is effective
for the Company's December 31, 1998 financial reporting. The adoption of
this standard by the Company is not expected to result in significant
adjustments to existing financial reporting practices as the Company does not
currently provide pension or postretirement benefits which are subject to the
disclosure provisions of FAS 132.
10
<PAGE>
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for the Company's 2000 reporting cycle. The adoption of this
standard by the Company is not expected to result in significant adjustments
to existing accounting practices as the Company does not currently hold any
derivative financial instruments or participate in hedging activities.
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Company wishes to caution readers that this report contains, and future
filings by the Company, press releases and oral statements made by the
Company's authorized representatives may contain, forward looking statements
that involve certain risks and uncertainties. The Company's actual results
could differ materially from those expressed in such forward looking
statements due to important factors bearing on the Company's business, many
of which already have been discussed in this filling and in the Company's
prior filings.
The following paragraphs discuss the risk factors the Company regards as the
most significant, although the Company wishes to caution that other factors
that are currently not considered significant or that currently cannot be
foreseen may in the future prove to be important in affecting the Company's
results of operations. The Company undertakes no obligation to publicly
update or revise any forward looking statements, whether as a result of new
information, future events or otherwise.
Industry Risks. The precision ball and roller industry is cyclical and tends
to decline in response to overall declines in industrial production. The
Company's sales in the past have been negatively affected, and in the future
very likely would be negatively affected, by adverse conditions in the
industrial production sector of the economy or by adverse global or national
economic conditions generally.
Competition. The precision ball and roller market is highly competitive, and
many of the ball and roller manufacturers in the market are larger and have
substantially greater resources than the Company. The Company's competitors
are continuously exploring and implementing improvements in technology and
manufacturing processes in order to improve product quality, and the
Company's ability to remain competitive will depend, among other things, on
whether it is able, in a cost effective manner, to keep apace with such
quality improvements. In addition, the Company competes with many of its
customers that, in addition to producing bearings, also internally produce
balls and rollers for sale to third parties. The Company also faces a risk
that its customers will decide to produce balls and rollers internally rather
than outsourcing their needs to the Company.
Rapid Growth. The Company has significantly expanded its production
facilities and capacity over the last several years, and is currently in the
process of purchasing and renovating an additional manufacturing plant in
Kilkenny, Ireland. The Company currently is not operating at full capacity
and faces risks of further under-utilization or inefficient utilization of
its production facilities in future years. The Company also faces risks
associated with inefficiencies, delays and increased depreciation costs
associated with its plant expansions.
Raw Material Shortages. Because the balls and rollers manufactured by the
Company have highly-specialized applications, their production requires the
use of very particular types of steel. Due to quality constraints, the
Company obtains the majority of its steel from overseas suppliers. Steel
shortages or transportation problems, particularly with respect to 52100
Steel, could have a detrimental effect on the Company's business.
Risks Associated with International Trade. Because the Company obtains a
majority of its raw materials from overseas suppliers and sells to a large
number of international customers, the Company faces risks associated with
(i) adverse foreign currency fluctuations, (ii) changes in trade, monetary
and fiscal policies, laws and regulations, and other activities of
governments, agencies and similar organizations, (iii)
11
<PAGE>
the imposition of trade restrictions or prohibitions, (iv) the imposition of
import or other changes or taxes, and (v) unstable governments or legal
systems in countries in which the Company's suppliers and customers are
located. An increase in the value of the United States dollar relative to
foreign currencies may adversely affect the ability of the Company to compete
with its foreign-based competitors for international as well as domestic
sales.
Dependence on Major Customers. During 1997, the Company's ten largest
customers accounted for approximately 77% of its net sales. Sales to various
US and foreign divisions of SKF, which is one of the largest bearing
manufacturers in the world, accounted for approximately 37% of net sales in
1997, and sales to FAG accounted for approximately 10% of net sales. None of
the Company's other customers accounted for more than 10% of its net sales in
1997, but sales to three of its customers each represented more than 5% of
the Company's 1997 net sales. The loss of all or a substantial portion of
sales to these customers would have a material adverse effect on the
Company's business.
12
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on May 7, 1998. As of
March 25, 1998, the record date for the meeting, there were 14,804,271 shares
of common stock outstanding and entitled to vote at the meeting. There were
present at said meeting, in person or by proxy, stockholders holding
9,930,845 shares of common stock, constituting approximately 67% of the
shares of common stock outstanding and entitled to vote, which constituted a
quorum.
The first matter voted upon at the meeting was the election of Michael D.
Huff and Michael E. Werner as Class I Directors to serve for three-year
terms. The results of the voting in connection with such elections were as
follows:
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Michael D. Huff 9,655,126 275,719
Michael E. Werner 9,465,635 465,210
</TABLE>
Accordingly, all nominees were elected to serve until the 2001 Annual Meeting
of Stockholders and until their successors are duly elected and qualified.
In addition to the foregoing directors, G. Ronald Morris and Steven T.
Warshaw aew serving terms to expire at the 1999 Annual Meeting of
Stockholders, and Richard D. Ennen and Roderick R. Baty are serving terms
which are to expire at the 2000 Annual Meeting of Stockholders. Deborah
Ennen Bagierek resigned from her position as a director of the Company
effective May 7, 1998. Mr. Ennen, the Company's founder, continues in his
position as Chairman of the Company's Board of Directors.
The second matter voted upon at the 1998 Annual Meeting of Stockholders was
the ratification of Price Waterhouse, LLP as independent public accountants
to audit the Company's accounts for the fiscal year ending December 31, 1998.
The vote was 9,921,343 For and 4,052 Against, and there were 5,450
Abstentions.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Required by Item 601 of Regulation S-K
27 Financial Data Schedules (for information of SEC only)
(b) No reports on Form 8-K were filed during the quarter ending June 30,
1997.
13
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
---------- ---------------
<S> <C>
10.13 Loan Agreement, dated as of July 25, 1997, between the Company and
First American National Bank (filed herewith)
27 Financial Data Schedules (for information of SEC only)
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NN Ball & Roller, Inc.
-----------------------------
(Registrant)
Date: August 13, 1998 /s/ Roderick R. Baty
----------------- ------------------------------
Roderick R. Baty,
President and Chief Executive
Officer
(Duly Authorized Officer)
Date: August 13, 1998 /s/ David Dyckman
----------------- ------------------------------
David Dyckman
Chief Financial Officer
(Principal Financial Officer)
(Duly Authorized Officer)
Date: August 13, 1998 /s/ William C. Kelly, Jr.
----------------- ---------------------------------
William C. Kelly, Jr.,
Treasurer, Assistant Secretary and
Chief Accounting Officer
(Principal Accounting Officer)
(Duly Authorized Officer)
14
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