<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23486
----------------------
NN 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 No.)
800 TENNESSEE ROAD
ERWIN, TENNESSEE 37650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 743-9151
----------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF NAME OF EACH EXCHANGE
EACH CLASS ON WHICH REGISTERED
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
(Title of class)
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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of the registrant's common stock outstanding on March
19, 1999 was 14,804,271.
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 19, 1999, based on the closing price on the NASDAQ
National Market System on that date was approximately $57,636,759.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1 BUSINESS
OVERVIEW
NN Ball & Roller, Inc. (the "Company") is an independent manufacturer and
supplier of high quality, precision steel balls and rollers to both domestic and
international anti-friction bearing manufacturers. The Company supplies high
quality, precision steel balls and rollers, both directly and indirectly through
its sales to bearing manufacturers, to automotive original equipment
manufacturers ("OEMs") and the automotive aftermarket, to the gas and mining
industries, and to producers of water, gas and oil well drilling bits and
stainless steel valves and pumps. Precision steel balls and rollers are critical
moving parts of anti-friction bearings which, in turn, are integral components
of machines with moving parts.
The Company was organized in October 1980 by a group of senior managers of
the ball and roller division of Hoover Precision Products, Inc. (formerly Hoover
Universal, Inc.), led by Richard Ennen, the Company's Chairman. The Company was
founded in order to meet the bearings industry's need for a dependable source of
high quality, precision balls and rollers. During 1998, the Company sold its
products to over 500 customers located in 26 different countries, and its
primary customers included FAG Bearings Corporation ("FAG"), SKF Bearing
Industries ("SKF"), SNR Roulements, and the Torrington Company.
PRODUCTS
At its facilities in Erwin, Tennessee, Walterboro, South Carolina, Mountain
City, Tennessee, and Kilkenny, Ireland, the Company produces high quality,
precision steel balls in sizes ranging in diameter from 3/16 of an inch to 2 1/2
inches and rollers in a limited variety of sizes. The Company produces balls in
a variety of grades ranging from grade 5 to grade 1000 and rollers in a variety
of grades ranging from grade 50 to grade 1000. The grade number for a ball or a
roller indicates the degree of spherical or cylindrical precision of the ball or
roller; for example, grade 5 balls are manufactured to within five millionths of
an inch of roundness and grade 50 rollers are manufactured to within fifty
millionths of an inch of roundness. Sales of steel balls accounted for
approximately 93%, 92% and 92% of the Company's net sales in 1996, 1997 and
1998, respectively. Sales of rollers accounted for the balance of the Company's
net sales in such years.
In recent years, bearing manufacturers and automotive OEMs, responding to
customer demand for higher quality, have begun to focus on the production of
high precision, "quiet" bearings which allow equipment to run more smoothly and
quietly and require high precision components, including grade 5 and grade 10
balls. From 1994 to 1998, the percentage of high precision balls produced by the
Company for use in quiet bearing applications has increased from approximately
69% to approximately 81% of total net ball sales.
PRECISION STEEL BALLS. The Company manufactures high quality, precision
balls in four different types of steel: 52100 steel, 440C stainless steel, S2
rock bit steel and 302 stainless steel. Each of the different types of steel has
unique characteristics that make it suitable for particular applications.
During 1998, approximately 98% of the balls produced by the Company were
made from 52100 steel ("52100 Steel"). See also "Business--Raw Materials." The
52100 Steel balls have a high degree of hardness and provide excellent
resistance to wear and deformation. The 52100 Steel balls are used primarily by
manufacturers of anti-friction ball bearings where precise spherical and
tolerance accuracy are required. The Company produces 52100 Steel balls in ten
grades ranging from grade 1000 to grade 5 (highest precision), and in sizes
ranging in diameter from 3/16 of an inch to 2 1/2 inches. The primary grades of
the 52100 Steel balls are grade 16, grade 10 and grade 5.
<PAGE>
Balls produced from 440C stainless steel offer substantial
corrosion-resistant properties and are used primarily in pumps and valves
because they are especially resistant to such corrosives as fresh water, crude
oil, gasoline, alcohol and food products. Balls produced from S2 rock bit steel
have a ground and polished finish as well as the toughness and strength
necessary for severe shock loads. Balls produced from S2 rock bit steel are most
frequently used in mining and oil field equipment and offshore drilling
operations. Balls produced from 302 stainless steel are long lasting and
corrosion resistant special material balls. Typical applications for balls
produced from 302 stainless steel include beer tap valves, mechanical pump
spraying, medical equipment, dairy machines and food processing equipment.
PRECISION STEEL ROLLERS. The Company manufactures rollers in three types of
steel: 52100 Steel, 440C stainless steel and S2 rock bit steel. Rollers are the
primary components of anti-friction bearings which are subjected to heavy load
conditions. The Company's roller products are used primarily for applications
similar to those of its ball product lines, with the addition of hydraulic pumps
and motors.
SALES AND MARKETING
The Company markets its products in the United States and abroad primarily
through three salaried sales employees. Four additional internal sales employees
handle customer orders and provide sales support.
The following table presents a breakdown of the Company's net sales for
fiscal years 1994 through 1998:
<TABLE>
<CAPTION>
NET SALES
----------- ------------- ---------------- --------------------- ------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Domestic:
Bearing Manufacturers $27,779 $30,160 $28,894 $26,764 $24,195
38% 40% 34% 34% 40%
Other 11,553 10,158 13,549 12,533 13,912
16% 13% 16% 16% 23%
Foreign:
Bearing Manufacturers 31,484 32,820 38,264 35,279 20,566
43% 44% 45% 46% 34%
Other 2,190 2,114 3,832 3,210 1,814
3% 3% 5% 4% 3%
-------- -------- -------- -------- -------
Total $ 73,006 $ 75,252 $ 84,539 $ 77,786 $60,487
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
100% 100% 100% 100% 100%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</TABLE>
The Company's marketing strategy is to increase its share of the
domestic and international market for bearing components by offering a wide
variety of high quality, precision balls and rollers to existing and prospective
customers on a timely basis and in a cost-effective manner. In marketing its
products, the Company has focused its efforts on bearing manufacturers with
their own ball or roller manufacturing divisions. The Company's sales staff
emphasizes the potential quality advantages and cost savings associated with the
outsourcing of such bearing manufacturers' needs by purchasing precision
components from the Company instead of manufacturing such components internally.
For a breakdown of the Company's foreign sales in 1996, 1997 and 1998 by
geographic region, see Note 8 of the Notes to Financial Statements.
<PAGE>
The Company emphasizes sales to bearing manufacturers because sales in this
market historically have been less cyclical than sales to the automotive OEM
market. The Company's direct net sales to bearing manufacturers has increased
from approximately 74% of net sales in 1994 to approximately 81% in 1998.
Although the Company's direct sales to automotive OEMs have significantly
decreased in recent years, management believes that a significant but
undeterminable percentage of the balls and rollers sold by the Company to
bearing manufacturers are incorporated into products supplied to the automotive
OEM market.
The Company's arrangements with its domestic customers typically provide
that payments are due within 30 days following the date of shipment of goods.
With respect to foreign customers (other than foreign customers that participate
in the Company's inventory management program), payments generally are due
within either 90 to 120 days following the date of shipment in order to allow
for additional freight time and customs clearance. For customers that
participate in the Company's inventory management program, sales are recorded
when the product is used by the customer, and payments typically are due 30 days
thereafter. See "Business -- Customers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CUSTOMERS
During 1998, the Company sold its products to more than 500 customers
located in 26 different countries. Approximately 46% of the Company's net sales
in 1998 were to customers outside the United States. See Note 8 of the Notes to
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations." In both the
foreign and domestic markets, the Company principally sells its products
directly to manufacturers and not to distributors.
During 1998, the Company's ten largest customers accounted for
approximately 76% of its net sales. Sales to various U.S. and foreign divisions
of SKF, which is one of the largest bearing manufacturers in the world,
accounted for approximately 37% of net sales in 1998 and sales to FAG accounted
for approximately 11% of net sales in 1998. None of the Company's other
customers accounted for more than 10% of its net sales in 1998; however, sales
to the Torrington Company, and SNR Roulements each represented more than 5% of
the Company's net sales during the period.
The Company ordinarily ships its products directly to customers within 60
days, but in some cases, in the same calendar month, of the date on which a
sales order is placed. Accordingly, the Company generally has an insignificant
amount of open (backlog) orders from customers at month end. Certain of the
Company's customers have entered into contracts with the Company pursuant to
which they have agreed to purchase all of their requirements of specified balls
and rollers from the Company, but under which they are not obligated to purchase
any specific amounts. While firm orders generally are received only monthly, the
Company normally is aware of reasonably anticipated future orders well in
advance of the placement of a firm order. The Company has installed a
computerized, bar coded inventory management system with most of its major
customers pursuant to which the Company, through a direct computer link,
automatically monitors the customer's ball and roller inventories. This system
permits the Company to determine on a day-to-day basis the amount of balls
and/or rollers remaining in a customer's inventory. When such inventories fall
below certain levels, the Company automatically ships additional goods. The
Company follows industry practice in handling its inventory, which is a first
in, first out policy.
EMPLOYEES
As of December 31, 1998, the Company had 403 full-time employees of whom
358 were engaged in production/maintenance. No employee of the Company is
represented by a union. The Company believes that relations with its employees
are good.
<PAGE>
COMPETITION
The precision ball and roller industry is intensely competitive, and many
of the Company's competitors have substantially greater financial resources than
the Company. The Company's primary domestic competitor is Hoover Precision
Products, Inc., a division of Tsubakimoto Precision Products Co. Ltd. The
Company's primary foreign competitors are Amatsuji Steel Ball Manufacturing
Company, Ltd. and Tsubakimoto Precision Products Co. Ltd. The Company's ability
to compete with foreign-based competitors could be adversely affected by an
increase in the value of the United States dollar relative to foreign
currencies.
The Company believes that competition within the precision ball and roller
market is based principally on quality, price and the ability to consistently
meet customer delivery requirements. Management believes that the Company's
competitive strengths are its precision manufacturing capabilities, its
reputation for consistent quality and reliability, and the productivity of its
workforce. In recent years, certain bearing manufacturers with captive ball and
roller manufacturing divisions, including American NTN Bearing Manufacturing
Corporation and divisions of SKF based in Sweden, Brazil and Mexico, have turned
to the Company as a source of supply.
RAW MATERIALS
The primary raw material used by the Company is 52100 Steel. During 1998,
approximately 98% of the steel used by the Company was 52100 Steel. The
Company's other steel requirements include type 440C stainless steel, type S2
rock bit steel and type 302 stainless steel. The Company purchases substantially
all of its 52100 Steel requirements from foreign mills because of the lack of
domestic producers of such steel at the quality level the Company requires. The
other steel requirements of the Company also are purchased principally from
foreign steel manufacturers.
The Company allocates its steel purchases among suppliers on the basis of
price and quality. Generally, the Company does not enter into written supply
agreements with its suppliers or commit itself to maintain minimum monthly
purchases of steel. The Company's pricing arrangements with its suppliers
typically are subject to adjustment once every six months.
Because 52100 Steel principally is produced by foreign manufacturers, the
Company's operating results would be negatively affected in the event that the
U.S. government imposes any significant quotas, tariffs or other duties or
restrictions on the import of such steel or if the United States dollar
decreases in value relative to foreign currencies.
PATENTS, TRADEMARKS AND LICENSES
The Company does not own any U.S. or foreign patents, trademarks or
licenses that are material to its business. The Company does rely on certain
data and processes, including trade secrets and know-how, and the success of its
business depends, to some extent, on such information remaining confidential.
Each executive officer of the Company is subject to a non-competition and
confidentiality agreement that seeks to protect this information.
SEASONAL NATURE OF BUSINESS
The Company's business historically has not been of a seasonal nature.
However, as foreign sales have become a significant percentage of total sales,
seasonality has become a factor for the Company in that some foreign customers
typically cease their production activities during the month of August.
<PAGE>
ENVIRONMENTAL COMPLIANCE
The Company's operations and products are subject to extensive federal,
state and local regulatory requirements relating to pollution control and
protection of the environment. The Company maintains a compliance program to
assist in preventing and, if necessary, correcting environmental problems. Based
on information compiled to date, management believes that the Company's current
operations are in substantial compliance with applicable environmental laws and
regulations, the violation of which would have a material adverse effect on the
Company. There can be no assurance, however, that currently unknown matters, new
laws and regulations, or stricter interpretations of existing laws and
regulations will not materially affect the Company's business or operations in
the future. More specifically, although management believes that the Company
disposes of its wastes in material compliance with applicable environmental laws
and regulations, there can be no assurance that the Company will not incur
significant liabilities in the future in connection with the clean-up of waste
disposal sites.
The Company has incurred certain expenses in complying with applicable
environmental laws associated with the removal of four underground storage tanks
containing kerosene and waste oil, the remediation of soil and groundwater
contamination resulting from a leak in one of the tanks, and the closing of a
sludge disposal area. The remediation project is now complete, but the Company
has certain ongoing monitoring responsibilities. The amounts expended by the
Company in connection with this remediation project have not been material, and
based upon information currently available to the Company, management does not
believe that the future costs associated with the project will have a material
adverse effect on the Company's results of operations or financial condition.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company consist of the following persons:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard D. Ennen 71 Chairman of the Board and Director
Roderick R. Baty 45 President, Chief Executive Officer and Director
Frank I Gentry, III 43 Vice President-Manufacturing
Charles L. Edmisten 52 Vice President
David L. Dyckman 34 Vice President - Business Development and Chief Financial
Officer
William C. Kelly, Jr. 40 Treasurer, Secretary and Chief Accounting Officer
</TABLE>
BIOGRAPHICAL INFORMATION. Set forth below is certain additional information
with respect to each executive officer of the Company.
Richard D. Ennen is the principal founder of the Company and has been the
Chairman of the Board and a director of the Company since its formation in 1980.
He served as Chief Executive Officer of the Company from its inception until
1997 and as President of the Company from its inception until 1990. In recent
years, Mr. Ennen has focused on the development and implementation of the
Company's business strategy, rather than the day-to-day operations of the
Company. Prior to forming the Company, Mr. Ennen held various management and
executive positions with Hoover Precision Products, Inc. (formerly Hoover
Universal, Inc.), a division of Tsubakimoto Precision Products Co. Ltd,
including Corporate Vice President and General Manager of the ball and roller
division. Mr. Ennen has over 40 years of experience in the anti-friction bearing
industry.
<PAGE>
Roderick R. Baty became President and Chief Executive Officer in July 1997.
He joined the Company in July 1995 as Vice President and Chief Financial Officer
and was elected to the Board of Directors in 1995. Prior to joining the Company,
Mr. Baty served as President and Chief Operating Officer of Hoover Precision
Products from 1990 until January 1995, and as Vice President and General Manager
of Hoover Precision Products from 1985 to 1990.
Frank T Gentry, III, was originally appointed Vice President -
Manufacturing in August 1995. Mr. Gentry's responsibilities include purchasing,
inventory control and transportation. Mr. Gentry joined the Company in 1981 and
held various production control positions within the Company from 1981 to August
1995.
Charles L. Edmisten has served as a Vice President of the Company since
1980. Mr. Edmisten's responsibilities include engineering and process
development. Prior to joining the Company, Mr. Edmisten served in various
positions with Hoover Precision Products, Inc., including Chief Engineer.
David L. Dyckman was appointed Vice President of Business Development and
Chief Financial Officer in April 1998. Prior to joining the Company, Mr. Dyckman
served from January 1997 until April 1998 as Vice President--Marketing and
International Sales for the Veeder-Root Division of the Danaher Corporation.
From 1987 until 1997, Mr. Dyckman held various positions with Emerson Electric
Company including General Manager and Vice President of the Gearing Division of
Emerson's Power Transmission subsidiary.
William C. Kelly, Jr. joined the Company in 1993 as Assistant Treasurer and
Manager of Investor Relations. In July 1994, Mr. Kelly was elected to serve as
the Company's Chief Accounting Officer, and in February 1995, was elected
Treasurer and Assistant Secretary. In March 1999 he was elected Secretary of the
Company. Prior to joining the Company, Mr. Kelly served from 1988 to 1993 as a
Staff Accountant and as a Senior Auditor with the accounting firm of Price
Waterhouse LLP.
Executive officers are elected annually at the time of the Annual Meeting
and serve one-year terms or until their successors are elected and qualified.
ITEM 2 PROPERTIES
The Company has four manufacturing facilities located, respectively, in
Erwin, Tennessee, Walterboro, South Carolina, Mountain City, Tennessee and
Kilkenny, Ireland. Production began in early 1996 at the Mountain City facility.
The Company established the Kilkenny, Ireland facility in August 1997 to better
meet the needs of its customers in Europe. Production began in the fourth
quarter of 1997.
The Erwin, Walterboro, Mountain City and Kilkenny plants currently have
approximately 125,000, 100,000, 48,000 and 66,000 square feet of manufacturing
space, respectively. The Walterboro plant is located on a 10 acre tract of land
owned by the Company, the Erwin plant is located on a 12 acre tract of land
owned by the Company, the Mountain City plant is located and on an 8 acre tract
of land owned by the Company and the Kilkenny facility is located on a 2 acre
tract of land owned by the Company. During 1998, the Company added new machinery
and equipment at all of its facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company believes that the Erwin, Walterboro, Mountain City and Kilkenny
plants are adequately suited for the Company's current production and business
needs.
ITEM 3 LEGAL PROCEEDINGS
All legal proceedings and actions involving the Company are of an ordinary
and routine nature and are incidental to the operations of the Company.
Management believes that such proceedings should not,
<PAGE>
individually or in the aggregate, have a material adverse effect on the
Company's business or financial condition or on the results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of stockholders during the fourth
quarter of 1998.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since the Company's initial public offering in 1994, the Common Stock has
been traded on the Nasdaq National Market under the trading symbol "NNBR." Prior
to such time there was no established market for the Common Stock. As of March
19, 1999, there were 211 holders of record of the Common Stock.
The following table sets forth the high and low sale prices of the Common
Stock, as reported by Nasdaq, and the dividends paid per share on the Common
Stock during each calendar quarter of 1997 and 1998:
<TABLE>
<CAPTION>
PRICE
-----------------------
HIGH LOW DIVIDEND
1997
<S> <C> <C> <C>
First Quarter 15 3/8 10 3/8 0.08
Second Quarter 12 3/4 9 7/8 0.08
Third Quarter 13 1/4 9 1/2 0.08
Fourth Quarter 11 1/2 8 0.08
1998
First Quarter 11 8 5/8 0.08
Second Quarter 12 5/8 9 5/16 0.08
Third Quarter 11 3/4 6 7/8 0.08
Fourth Quarter 8 5 7/8 0.08
</TABLE>
The declaration and payment of dividends are subject to the discretion of
the Board of Directors of the Company and depend upon the Company's
profitability, financial condition, capital needs, future prospects and other
factors deemed relevant by the Board of Directors. The terms of the Company's
revolving credit facility restrict the payment of dividends by prohibiting the
Company from declaring or paying any dividend if an event of default exists at
the time of, or would occur as a result of, such declaration or payment. For
further description of the Company's revolving credit facility, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with the Financial Statements and
the Notes thereto included as Item 8. The data set forth below as of December
31, 1998 and for each of the three years in the period ended December 31, 1998,
have been derived from the Financial Statements of the Company which have been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
thereon is included as part of Item 8. The financial data as of December 31,
1995 and 1994, also were derived from financial statements of the Company which
have been audited by Price Waterhouse LLP (except for the pro forma statement of
income data). These historical results are not necessarily indicative of the
results to be expected in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales $73,006 $75,252 $84,539 $77,786 $60,487
Cost of products sold 50,353 51,707 56,695 53,912 40,110
------- ------- ------- ------- -------
Gross profit 22,653 23,545 27,844 23,874 20,377
Selling, general and administrative expenses 5,896 5,518 4,890 4,249 3,439
Depreciation 4,557 4,106 3,358 2,364 1,996
------- ------- ------- ------- -------
Income from operations 12,200 13,921 19,596 17,261 14,942
Interest expense 64 29 296 42 354
------- ------- ------- ------- -------
Income before provision for income taxes and
extraordinary item 12,136 13,892 19,300 17,219 14,588
Provision for income taxes (1) 4,480 5,382 6,835 5,708 5,704
------- ------- ------- ------- -------
Income before extraordinary item 7,656 8,510 12,465 11,511 8,884
Extraordinary loss from early extinguishment of
debt (net of income tax benefit of $710) (2) --- --- --- --- (1,160)
------- ------- ------- ------- -------
Net Income $7,656 $8,510 $12,465 $11,511 $7,724
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income per share: $ 0.52 $ 0.57 $ 0.83 $ 0.79 $ 0.65
Income before extraordinary item
Extraordinary item, net (2) --- --- --- --- (.09)
------- ------- ------- ------- -------
Net income per share (assuming dilution) (3) $ 0.52 $ 0.57 $ 0.83 $ 0.79 $ 0.56
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Dividends declared $ 0.32 $ 0.32 $ 0.32 $ 0.20 $ 0.07
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Number of shares outstanding (3) 14,804 14,804 15,042 14,583 13,716
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA
(4):
Income before provision for income
taxes and extraordinary item $14,588
Provision for income taxes 5,543
Income before extraordinary item 9,045
Extraordinary item, net (2) (1,160)
Net income $ 7,885
-------
-------
Net income per share:
Income before extraordinary item $ 0.66
Extraordinary item, net (2) (.09)
--------
Net income per share $ 0.57
-------
-------
Weighted average number of shares
outstanding (3) 13,716
BALANCE SHEET:
Current assets $28,571 $26,185 $26,727 $26,728 $21,591
Current liabilities 7,638 7,471 8,374 13,303 4,845
Total assets 66,860 63,273 59,292 54,241 36,936
Stockholders' equity 56,242 52,971 48,710 39,218 30,537
</TABLE>
(1) During the period from the inception of the Company through the
consummation of its initial public offering in March 1994, the Company was
treated for income tax purposes as an S corporation under Subchapter S of
the Internal Revenue Code of 1986, as amended, and under comparable tax
laws of certain states. As a result, earnings of the Company during that
period were taxed for federal and certain state income tax purposes
directly to the Company's stockholders, rather than to the Company. Upon
the termination of the Company's S corporation status, in addition to
becoming subject to corporate tax at the federal level and in a number of
states, the Company was required to
<PAGE>
provide for deferred federal and state income taxes, calculated in
accordance with the Financial Accounting Standards Board Statement 109,
"Accounting for Income Taxes" ("FAS 109"), for the cumulative temporary
differences between the financial reporting and income tax basis of the
Company's assets and liabilities, resulting in a charge to the provision
for income taxes in the amount of $1,213,000 in 1994.
(2) The Company used a portion of its net proceeds from the initial public
offering to prepay the $12,000,000 in principal of the Company's 10.88%
Senior Secured Notes and related accrued interest of $653,000. This
prepayment resulted in an extraordinary after tax loss of $1,160,000, net
of related income tax benefit of $710,000. The gross extraordinary loss
included a prepayment penalty of $1,728,000 and the write-off of
unamortized deferred loan costs of $142,000.
(3) The actual and pro forma net income per share data is based on the
historical weighted average number of shares outstanding, as adjusted to
reflect (i) a Common Stock split of 508-for-one in connection with a
reincorporation merger transaction completed in January 1994, (ii) the
3-for-2 split of the Common Stock effected on March 5, 1995, and (iii) the
3-for-2 split of the Common Stock effected on December 5, 1995.
(4) The pro forma statement of income data for 1994 is based on historical net
income, as adjusted to reflect a provision for income taxes (at an assumed
effective rate of 38%), as if the Company had been a C corporation since
its inception. The pro forma statement of income data was calculated using
the criteria established under FAS 109, which requires the use of an asset
and liability approach to financial reporting and accounting for income
taxes. The 1994 pro forma provision for income taxes does not include the
$1,213,000 charge related to the Company's termination of its S corporation
status as discussed in note (1) above.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto and
Selected Financial Data included elsewhere in this Form 10-K. Historical
operating results and percentage relationships among any amounts included in the
Financial Statements are not necessarily indicative of trends in operating
results for any future period.
OVERVIEW
The Company's core business is the manufacture and sale of high quality,
precision steel balls and rollers. In 1998, balls accounted for approximately
92% of the Company's net sales, while rollers accounted for the remaining 8%.
Although all of the Company's net sales from 1980 through 1986 were exclusively
to domestic customers, the Company's international sales have increased
significantly since then and represented approximately 46% of net sales in 1998.
See Note 8 of the Notes to Financial Statements. In 1998, both domestic and
international sales declined due to reduced demand in the United States and
abroad.
Significant factors in the Company's growth since its founding include its
displacement of captive ball manufacturing divisions of domestic and
international bearing manufacturers as a source of precision balls and increased
sales of high precision balls for quiet bearing applications. From 1994 through
1998, the percentage of high precision balls produced by the Company for use in
quiet bearing applications has increased from approximately 69% to approximately
81% of total net ball sales. Management believes that the Company's sales growth
since 1994 is due to its ability to capitalize on opportunities in overseas
markets and provide precision balls at competitive prices, as well as its
emphasis on product quality and customer service. The sales decline in 1998 was
due in large part to economic conditions in Asia and South America and a decline
in outsourcing by certain captive producers. The Company's sales in Asia
declined by approximately $3.5 million dollars in 1998. Further, the Company was
adversely affected by increased competition from Asian-based competitors who
sought to reduce overcapacity.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected financial
data and the percentage of the Company's net sales represented by each income
statement line item presented.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
YEAR ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of product sold 69.0 68.7 67.1
----- ----- -----
Gross profit 31.0 31.3 32.9
Selling, general and administrative expenses 8.1 7.3 5.8
Depreciation 6.2 5.5 4.0
----- ----- -----
Income from operations 16.7 18.5 23.1
Interest expense 0.1 0.0 0.3
----- ----- -----
Income before provision for income taxes and
extraordinary item 16.6 18.5 22.8
Provision for income taxes 6.1 7.2 8.1
----- ----- -----
Net income 10.5% 11.3% 14.7%
----- ----- -----
----- ----- -----
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET SALES. The Company's net sales decreased $2.2 million, or 3.0%, from
$75.2 million in 1997 to $73.0 million in 1998. Foreign net sales decreased $1.2
million, or 3.4%, from $34.9 million in 1997 to $33.7 million in 1998. The
decrease in foreign net sales was due primarily to decreased sales volumes to
existing customers, largely due to general economic conditions in Asia and South
America. Domestic net sales decreased $1.0 million, or 2.5%, from $40.3 million
in 1997 to $39.3 million in 1998. This decrease was due primarily to decreased
sales volumes to domestically-based Asian companies.
GROSS PROFIT. Gross profit decreased by $892,000, or 3.8% from $23.5
million in 1997 to $22.7 million in 1998. As a percentage of net sales, gross
profit decreased slightly from 31.3% in 1997 to 31.0% in 1998. The decrease in
gross profit is largely due to decreased levels of volume during 1998 as
compared to 1997 and related capacity under-utilization issues at the Company's
manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $378,000, or 6.8% in 1998 to $5.9 million
from $5.5 million in 1997. 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 increases in 1998 to implement the Company's strategic plan. As
a percentage of net sales, selling, general and administrative expenses
increased to 8.1% in 1998 from 7.3% in 1997.
DEPRECIATION EXPENSE. Depreciation expense increased $451,000, or 11.0%, to
$4.6 million in 1998 from $4.1 million in 1997. This increase was due primarily
to purchases of capital equipment related to the new Ireland facility which
began production in the fourth quarter of 1997. As a percentage of sales,
depreciation expense increased to 6.2% in 1998 from 5.5% in 1997.
<PAGE>
NET INCOME. Net income decreased $854,000, or 10% from $8.5 million in 1997
to $7.7 million in 1998. As a percentage of net sales, net income decreased from
11.3% in 1997 to 10.5% in 1998. The decrease in net income as a percentage of
net sales was due primarily to excess capacity at the Company's manufacturing
facilities, increased selling, general and administrative expenses and the
increase in depreciation expense discussed above. Slightly offsetting these
factors was a lower federal tax rate due to the shifting of sales to the Irish
facility which benefits from a 10% corporate tax rate. The lower federal tax
rate was in turn offset slightly by a decrease in the level of tax benefit from
the Company's participation in a shared foreign sales corporation.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
NET SALES. The Company's net sales decreased $9.3 million, or 11.0%, from
$84.5 million in 1996 to $75.3 million in 1997. Foreign net sales decreased $7.2
million, or 17.1%, from $42.1 million in 1996 to $34.9 million in 1997. The
decrease in foreign net sales was due primarily to decreased sales volumes with
existing customers, largely because of a decline in outsourcing of captive
production by certain of the Company's customers (including, one of the
Company's major customers bringing in house a portion of its business that was
previously outsourced to the Company) and general economic conditions in Europe
and Asia. Domestic net sales decreased $2.1 million, or 5.0%, from $42.4 million
in 1996 to $40.3 million in 1997. This decrease was primarily due to decreased
sales to existing customers.
GROSS PROFIT. Gross profit decreased by $4.3 million, or 15.4% from $27.8
million in 1996 to $23.5 million in 1997. As a percentage of net sales, gross
profit decreased from 32.9% in 1996 to 31.3% in 1997. The decrease in gross
profit is due largely to costs related to the new facility start-up in Ireland
and costs associated with excess capacity resulting from decreased sales to some
existing customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $628,000, or 12.8% to $5.5 million from
$4.9 million in 1996. This increase was due primarily to increased legal,
accounting and employee relocation expenses related to the Ireland facility
start-up, as well as increased consulting expenses related to the Company's
strategic development process. As a percentage of net sales, selling, general
and administrative expenses increased to 7.3% in 1997 from 5.8% in 1996.
DEPRECIATION EXPENSE. Depreciation expense increased $748,000, or 22.3%, to
$4.1 million in 1997 from $3.4 million in 1996. This increase was due primarily
to capital expenditures associated with expansion of the Company's existing
facilities and the start-up of the Ireland facility. Also, new assets added in
1996 related to the Mountain City facility were depreciated utilizing the
half-year convention in the prior year versus a full year of depreciation taken
in 1997. As a percentage of net sales, depreciation increased to 5.5% in 1997
from 4.0% in 1996.
INTEREST EXPENSE. Interest expense decreased $267,000, or 90.2%, from
$296,000 in 1996 to $29,000 in 1997. The decrease was due to decreased levels
outstanding under the Company's line of credit in 1997 as compared to 1996. See
"Management's Discussion and Analysis of Financial Condition --Liquidity and
Capital Resources."
NET INCOME. Net income decreased $4.0 million, or 31.7% from $12.5 million
in 1996 to $8.5 million in 1997. As a percentage of net sales, net income
decreased to 11.3% in 1997 from 14.7% in 1996. The decrease in net income as a
percentage of net sales was due primarily to costs associated with the new
Ireland facility start-up, excess capacity at the Company's plants, increased
selling, general and administrative expenses and the increased depreciation
expense discussed above. In addition, the Company increased the provision for
income taxes due to the decrease in foreign sales as a percentage of total sales
and the anticipated decrease in the level of tax benefit from the Company's
participation in a shared foreign sales corporation.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company entered into a loan agreement with First American
National Bank ("First American") that provides for a revolving credit facility
of up to $25 million, which will expire 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 a declaration. The loan agreement also prohibits sales of property outside
of the ordinary course of business. The loan agreement contains 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, as of March 19,
1999, was 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. The Company has developed a presence in foreign markets, and to
the extent foreign sales increase, 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 the 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 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. The Company has considered and continues
to consider implementing a hedging program, but has not done so. In addition, a
strengthening of the US dollar against foreign currencies could impair the
ability of the Company to compete with internationally based 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 December 31, 1998, as
compared to $18.7 million at December 31, 1997. The ratio of current assets to
current liabilities increased slightly to 3.7:1 at December 31, 1998 from 3.5:1
at December 31, 1997. Cash flow from operations decreased to $12.7 during 1998
from $14.1 million during 1997.
During 1999, the Company plans to spend approximately $2.9 million on
capital expenditures, primarily on maintenance of its machinery and equipment at
all four of the Company's facilities. The Company does not intend to increase
capacity in 1999. 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 capital expenditure requirements in 1999.
<PAGE>
On August 4, 1998 the Board of Directors authorized the repurchase of up to
740,213 shares of the Company's Common Stock, equaling 5% of the Company's
issued and outstanding shares as of August 4, 1998. The Company did not purchase
any shares under this program during 1998.
SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS
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. For information concerning the
Company's quarterly results of operations for the years ended December 31, 1998
and 1997, see Note 12 of the Notes to Financial Statements.
INFLATION AND CHANGES IN PRICES
While the Company's operations have not been affected by inflation during
recent years, prices for 52100 Steel and other raw materials purchased by the
Company are subject to change. For example, during 1995, due to an increase in
worldwide demand for 52100 Steel and the decrease in the value of the United
States dollar relative to foreign currencies, the Company experienced an
increase in the price of 52100 Steel and some difficulty in obtaining an
adequate supply of 52100 Steel from its existing suppliers. Typically, the
Company's pricing arrangements with its steel suppliers are subject to
adjustment once every six months. In an effort to limit its exposure to
fluctuations in steel prices, the Company has generally avoided the use of
long-term, fixed price contracts with its customers. Instead, the Company
typically reserves the right to increase product prices periodically in the
event of increases in its raw material costs. The Company was able to minimize
the impact on its operations resulting from the 52100 Steel price increases by
taking such measures.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Company wishes to caution that this report and the 1998 Annual Report
to Stockholders contain, 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 are discussed elsewhere in this filing and in the
Company's prior filings with the Securities and Exchange Commission. The
following paragraphs discuss the risk factors that the Company regards as the
most significant, although the Company wishes to caution that other factors that
currently are 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 update publicly 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 could 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 pace 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
<PAGE>
Company also faces a risk that its customers will decide to produce balls and
rollers internally rather than outsourcing their needs to the Company.
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 in the United
States, the Company obtains the vast 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) the imposition of trade restrictions
or prohibitions, (iv) the imposition of import or other charges or taxes, and
(v) unstable governments or legal systems in countries in which the Company's
suppliers and customers are located. In the fourth quarter of 1997, the Company
began accepting payment in foreign currency from foreign customers. In addition,
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 to the
extent payments are made in United States dollars.
DEPENDENCE ON MAJOR CUSTOMERS. During 1998, the Company's ten largest
customers accounted for approximately 76% of its net sales. Sales to various
U.S. and foreign divisions of SKF, which is one of the largest bearing
manufacturers in the world, accounted for approximately 37% of net sales in
1998, and sales to FAG accounted for approximately 11% of net sales in 1998.
There can be no assurance, however, that SKF will not centralize purchasing
decisions in the future. None of the Company's other customers accounted for
more than 10% of its net sales in 1998, but sales to two of its customers each
represented more than 5% of the Company's 1998 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.
YEAR 2000
The Year 2000 issue is the result of computer programs written using two
digits rather than four digits to identify a particular year. Without corrective
action, programs with time-sensitive software could potentially act as if a date
ending in "00" is the year 1900 rather than the year 2000. This could cause
computer applications to create erroneous results or cause a system failure.
The Company has conducted a comprehensive evaluation of both its
information technology systems and non-information technology systems to
determine if there would be a Year 2000 problem with these systems. Prior to
that evaluation, however, the Company had decided to upgrade its information
technology systems. The systems the Company intends to install have been
certified by the vendor to be Year 2000 compliant. The Company also evaluated
its non-information technology systems and has received certification by the
manufacturers of that equipment that they are Year 2000 compliant.
The Company expects that it will have implemented these system upgrades by
mid-1999. The Company has also developed contingency plans that it believes
would permit it to continue operating without causing any material harm to the
results of operations.
The Company expects to spend approximately $800,000 to replace its
information technology systems and train personnel. As of December 31, 1998, the
Company had spent approximately $600,000 on this project. The Company has not
made any significant additional expenditures in 1999 through March 20, 1999 on
Year 2000 matters, and overall its expenditures on this issue have not been
material. The Company has assigned one employee to coordinate its Year 2000
efforts, and has relied on existing personnel to evaluate its Year 2000
readiness.
<PAGE>
The Company relies on third party suppliers for raw materials and a variety
of goods and services. Among its most important suppliers are those that provide
the steel necessary to make quality balls and rollers. The Company has obtained
written representation from approximately 99 percent of its suppliers that their
systems are Year 2000 compliant. The Company believes that these representations
and its own review of its systems will ensure that it will not be materially
affected by the Year 2000 issue. So far, no supplier or vendor has indicated
that the Year 2000 issue will affect its ability to provide goods and services
to the Company. Despite these assurances, if the Company's suppliers are unable
to meet its needs, there could be a material adverse effect on the results of
operations, liquidity and financial condition of the Company.
The Company believes it is taking the necessary steps to resolve the Year
2000 issue in a comprehensive and timely manner. Nonetheless, should any
unforeseen circumstance arise that would delay the replacement of its system,
the Company's ability to manufacture and ship its products, take orders, invoice
customers, and collect payment could be adversely affected. This could have a
material adverse effect on the Company's results of operations, liquidity and
financial condition to a degree the Company has not determined.
THE EURO
The Treaty on European Union provided that an economic and monetary union
be established in Europe whereby a single European currency, the euro, was
introduced to replace the currencies of participating member states. The euro
was introduced on January 1, 1999, at which time the value of participating
member state currencies were irrevocably fixed against the euro and the European
Currency Unit. For the three year transitional period ending December 31, 2001,
the national currencies of member states will continue to circulate but be
subunits of the euro. At the end of the transitional period, euro banknotes and
coins will be issued, and the national currencies of the member states will
cease to be legal tender no later than June 30, 2002.
The Company currently has operations in Ireland, which is one of the euro
participating countries, and sells product to customers in many of the
participating countries. The functional currency of the Company's Ireland
operations will remain unchanged until December 31, 2001, when it will switch to
the euro. The Company is in the process of reviewing and making changes required
for euro readiness and does not anticipate the costs associated with the
implementation of the euro to be significant.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 did not 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.
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.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued by the American
Institute of Certified Public Accountants in March 1998 and requires
capitalization of certain internal-use computer software costs. The Company will
comply with the requirements of this SOP Effective for its 1999 financial
reporting. The standard is not expected to have a material effect on the
Company's results of operations.
<PAGE>
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in financial market conditions in the
normal course of its business due to its use of certain financial instruments as
well as transacting in various foreign currencies. To mitigate its exposure to
these market risks, the Company has established policies, procedures and
internal processes governing its management of financial market risks.
The Company is exposed to changes in interest rates primarily as a result
of its borrowing activities, which include a $25 million floating rate revolving
credit facility which is used to maintain liquidity and fund its business
operations. At December 31, 1998, the Company did not have any borrowings
outstanding under the revolving credit facility. The nature and amount of the
Company's borrowings may vary as a result of future business requirements,
market conditions and other factors.
The Company's operating cash flows denominated in foreign currencies are
exposed to changes in foreign exchange rates. Beginning in the 1997 fourth
quarter, upon the 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 date, the Company has not been materially adversely
affected by currency fluctuations of foreign exchange restrictions. However, as
foreign sales approximate 46% of total revenues, management is currently
evaluating various strategies to manage this financial market risk, including
the implementation of a foreign currency hedging program. The Company did not
hold a position in any foreign currency instruments of December 31, 1998.
<PAGE>
-18-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements
Financial Statements PAGE
<S> <C>
Report of Independent Accountants............................................................19
Balance Sheets at December 31, 1998 and 1997.................................................20
Statements of Income and Comprehensive Income for the three years ended
December 31, 1998............................................................................21
Statements of Changes in Stockholders' Equity for the three years
ended December 31, 1998......................................................................22
Statements of Cash Flows for the three years ended December 31, 1998.........................23
Notes to Financial Statements................................................................24
Financial Statement Schedules:
For the three years ended December 31, 1998
II - Valuation and Qualifying Accounts and Reserves.......................................36
</TABLE>
<PAGE>
- 19 -
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of NN Ball & Roller, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of NN Ball &
Roller, Inc. and its subsidiary at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
January 22, 1999
<PAGE>
- 20 -
NN BALL & ROLLER, INC.
BALANCE SHEET (in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash 1,430 $ 366
Accounts receivable, net 11,643 12,449
Inventories, net 14,425 11,865
Other current assets 1,073 1,505
----------- -----------
Total current assets 28,571 26,185
Property, plant and equipment, net 38,289 37,088
----------- -----------
Total assets $ 66,860 $ 63,273
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Revolving credit facility $ - $ 1,480
Accounts payable - trade 4,451 3,662
Accrued vacation expense 431 519
Deferred income 828 458
Income taxes payable 786 -
Accrued sales rebate 156 176
Other liabilities 986 1,176
----------- -----------
Total current liabilities 7,638 7,471
Deferred income taxes 2,980 2,831
----------- -----------
Total liabilities 10,618 10,302
----------- -----------
Stockholders' equity:
Common stock - $0.01 par value, authorized - 45,000 (1998) and
45,000 (1997) shares, issued and outstanding - 14,804 (1998) and
14,804 (1997) shares 149 149
Additional paid-in capital 27,902 27,902
Retained earnings 28,306 25,387
Other comprehensive income (115) (467)
----------- -----------
Total stockholders' equity 56,242 52,971
----------- -----------
Total liabilities and stockholders' equity $ 66,860 $ 63,273
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- 21 -
NN BALL & ROLLER, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 73,006 $ 75,252 $ 84,539
Cost of products sold 50,353 51,707 56,695
------------- ------------- -------------
Gross profit 22,653 23,545 27,844
Selling, general and administrative expenses 5,896 5,518 4,890
Depreciation 4,557 4,106 3,358
------------- ------------- -------------
Income from operations 12,200 13,921 19,596
Interest expense 64 29 296
------------- ------------- -------------
Income before provision for income taxes 12,136 13,892 19,300
Provision for income taxes 4,480 5,382 6,835
------------- ------------- -------------
------------- ------------- -------------
Net income 7,656 8,510 12,465
------------- ------------- -------------
Other comprehensive income:
Foreign currency translation 352 (467) -
------------- ------------- -------------
Other comprehensive income 352 (467) -
------------- ------------- -------------
Comprehensive income $ 8,008 $ 8,043 $ 12,465
------------- ------------- -------------
------------- ------------- -------------
Net income per share $ .52 $ .57 $ .85
------------- ------------- -------------
------------- ------------- -------------
Shares outstanding 14,804 14,804 14,629
------------- ------------- -------------
------------- ------------- -------------
Net income per share - assuming dilution $ .52 $ .57 $ .83
------------- ------------- -------------
------------- ------------- -------------
Shares outstanding 14,804 14,809 15,042
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- 22 -
NN BALL & ROLLER, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL OTHER
NUMBER PAR PAID-IN RETAINED COMPREHENSIVE
OF SHARES VALUE CAPITAL EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 14,473 $ 144 $ 25,289 $ 13,785 $ - $ 39,218
Net income - - - 12,465 - 12,465
Dividends paid - - - (4,669) - (4,669)
Stock options exercised 156 2 1,694 - - 1,696
----------- ------ ------------ ----------- ------------- ----------
Balance, December 31, 1996 14,629 146 26,983 21,581 - 48,710
Net income - - - 8,510 - 8,510
Dividends paid - - - (4,704) - (4,704)
Stock options exercised 361 4 3,042 - - 3,046
Stock repurchased (186) (1) (2,123) - - (2,124)
Cumulative translation - - - - (467) (467)
----------- ------ ------------ ----------- ------------- ----------
Balance, December 31, 1997 14,804 149 27,902 25,387 (467) 52,971
Net income - - - 7,656 - 7,656
Dividends paid - - - (4,737) - (4,737)
Stock options exercised - - - - - -
Stock repurchased - - - - - -
Cumulative translation - - - - 352 352
----------- ------ ------------ ----------- ------------- ----------
Balance, December 31, 1998 14,804 $ 149 $ 27,902 $ 28,306 $ (115) $ 56,242
----------- ------ ------------ ----------- ------------- ----------
----------- ------ ------------ ----------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- 23 -
NN BALL & ROLLER, INC.
STATEMENTS OF CASH FLOWS (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,656 $ 8,510 $ 12,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,557 4,106 3,358
Deferred income taxes 149 623 488
Changes in operating assets and liabilities:
Accounts receivable 806 3,305 1,161
Inventories (2,560) (1,457) (595)
Other current assets 432 (940) (565)
Accounts payable - trade 789 (392) (4,147)
Accrued vacation expense (88) 149 -
Deferred income 370 458 -
Income taxes payable 786 (96) (112)
Accrued sales rebate (20) (579) 512
Other liabilities (190) 385 100
------------- ------------- -------------
Net cash provided by operations 12,687 14,072 12,665
------------- ------------- -------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (5,758) (8,775) (8,410)
Other assets - 146 -
------------- ------------- -------------
Net cash used for investing activities (5,758) (8,629) (8,410)
------------- ------------- -------------
Cash flows from financing activities:
Payments under revolving line of credit (1,480) (828) (1,282)
Cash dividends (4,737) (4,704) (4,669)
Stock options exercised - 3,046 1,696
Stock repurchased - (2,124) -
Cumulative translation adjustment 352 (467) -
------------- ------------- -------------
Net cash used for financing activities (5,865) (5,077) (4,255)
------------- ------------- -------------
Net increase in cash and cash equivalents 1,064 366 -
Cash and cash equivalents at beginning of period 366 - -
------------- ------------- -------------
Cash and cash equivalents at end of period $ 1,430 $ 366 $ -
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- 24 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
NN Ball & Roller, Inc. (the "Company") is a manufacturer of balls and rollers
used primarily in the bearing industry. The Company has manufacturing facilities
in Tennessee and South Carolina. During 1997, the Company opened NN Ball &
Roller, Ltd., an operating facility in Kilkenny, Ireland. The Company sells to
both foreign and domestic customers (See Note 8).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Major renewals and betterments are capitalized. When a major property item is
retired, its cost and related accumulated depreciation or amortization are
removed from the property accounts and any gain or loss is recorded in income or
expense. The Company reviews the carrying values of long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. In management's opinion, no material
impairment exists at December 31, 1998 or 1997.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the depreciable assets for financial reporting
purposes. Accelerated depreciation methods are used for income tax purposes.
REVENUE RECOGNITION
The Company generally recognizes a sale when goods are shipped and ownership is
assumed by the customer. The Company has an inventory management program for
certain major customers whereby sales are recognized when products are used by
the customer from consigned stock, rather than at the time of shipment.
Inventory on consignment at December 31, 1998 and 1997 was approximately
$3,635,000 and $2,431,000, respectively.
INCOME TAXES
Income taxes are provided based upon income reported for financial statement
purposes. Deferred income taxes reflect the tax effect of temporary differences
between the financial reporting and income tax bases of the Company's assets and
liabilities (See Note 9).
NET INCOME PER COMMON SHARE
Basic earnings per share reflect reported earnings divided by the weighted
average number of common shares outstanding. Diluted earnings per share include
the effect of dilutive stock options outstanding during the year.
<PAGE>
- 25 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
STOCK INCENTIVE PLAN
The Company uses the intrinsic value method to account for employee stock
options. Accordingly, under this method, the Company has not recorded
compensation expense related to the options (Note 7). The exercise price of each
option equals the market price of the Company's stock on the date of grant.
PRINCIPLES OF CONSOLIDATION
The Company's financial statements include the accounts of NN Ball & Roller,
Inc. and its subsidiary NN Ball & Roller, Ltd. All intercompany accounts and
investments in subsidiaries are eliminated upon consolidation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiary are translated at
current exchange rates, while revenue and expenses are translated at average
rates prevailing during the year. Cumulative translation adjustments are
reported as a component of other comprehensive income.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 did not 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.
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.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued by the American
Institute of Certified Public Accountants in March 1998 and requires
capitalization of certain internal-use computer software costs. The Company will
comply with the requirements of this SOP effective for its 1999 financial
reporting. The standard is not expected to have a material effect on the
Company's results of operations.
<PAGE>
- 26 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
NOTE 2 - ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(in thousands)
<S> <C> <C>
Trade $ 11,910 $ 12,524
Employees 97 11
Other 222 229
------------- -------------
12,229 12,764
Less - Allowance for doubtful accounts 586 315
------------- -------------
$ 11,643 $ 12,449
------------- -------------
------------- -------------
</TABLE>
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(in thousands)
<S> <C> <C>
Raw materials $ 3,611 $ 2,911
Work in process 2,850 2,793
Finished goods 8,024 6,221
------------- -------------
14,485 11,925
Less - Reserve for excess and obsolete inventory 60 60
------------- -------------
$ 14,425 $ 11,865
------------- -------------
------------- -------------
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE 1998 1997
(in thousands)
<S> <C> <C> <C>
Land $ 323 $ 323
Buildings and improvements 10-25 years 10,333 9,718
Machinery and equipment 3-10 years 49,674 46,346
Construction in progress 3,400 3,286
------------- -------------
63,730 59,673
Less - Accumulated depreciation 25,441 22,585
------------- -------------
$ 38,289 $ 37,088
------------- -------------
------------- -------------
</TABLE>
<PAGE>
- 27 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
NOTE 5 - SHORT-TERM CREDIT FACILITIES
Effective July 1997, the Company terminated a revolving line of credit with
NationsBank of Tennessee, N.A., which consisted of a $10,000,000 line of credit
of which $2,308,000 was outstanding at December 31, 1996, at an interest rate of
7.25%, and entered a similar agreement with First American National Bank. Under
the new agreement, the Company may borrow up to $25,000,000 through June 30,
2000. Amounts outstanding under the agreement are unsecured and are subject to
interest charges at the LIBOR rate plus 0.65% or the Federal Funds effective
rate plus 1.5%, according to the Company's option. There was $0 and $1,480,000
outstanding at December 31, 1998 and 1997, respectively, with interest of 6.615%
at December 31, 1997. The agreement contains restrictive covenants which
specify, among other things, restrictions on the incurrence of indebtedness and
the maintenance of certain working capital requirements. The Company was in
compliance with such covenants at December 31, 1998 and 1997.
Interest paid during 1998, 1997 and 1996 was $64,000, $28,000 and $321,000,
respectively.
NOTE 6 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) profit sharing plan (the "Plan")
covering substantially all employees who have one year of service, have attained
age twenty-one and have elected to participate in the Plan. A participant may
elect to contribute from 1% to 20% of his or her compensation to the Plan,
subject to a maximum deferral set forth in the Internal Revenue Code. The
Company provides a dollar for dollar matching contribution up to $500 per
participant. The employer matching contribution is fully vested at all times.
The contributions by the Company were $141,000, $154,000 and $140,000 in 1998,
1997 and 1996, respectively.
NOTE 7 - STOCK INCENTIVE PLAN
Effective March 2, 1994, the Company adopted the NN Ball & Roller, Inc. Stock
Incentive Plan under which 1,125,000 shares of the Common Stock were reserved
for issuance to officers and key employees of the Company. Awards or grants
under the plan may be made in the form of incentive and nonqualified stock
options, stock appreciation rights and restricted stock. The stock options and
stock appreciation rights must be issued with an exercise price not less than
the fair market value of the Common Stock on the date of grant. The awards or
grants under the plan may have various vesting and expiration periods as
determined at the discretion of the Committee administering the plan.
<PAGE>
- 28 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
A summary of the status of the Company's stock option plan as described above as
of December 31, 1998, 1997, and 1996, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 461,375 $ 11.86 853,629 $ 9.44 1,026,885 $ 8.81
Granted 97,250 9.83 42,750 12.02 39,000 15.50
Exercised - - (361,002) 6.25 (156,611) 6.35
Forfeited (10,000) 10.44 (74,002) 11.40 (55,645) 10.76
------- ------- -------
Outstanding at end of year 548,625 11.53 461,375 11.86 853,629 9.44
------- ------- -------
------- ------- -------
Options exercisable at year-end 246,735 81,750 348,852
</TABLE>
At December 31, 1998, the weighted-average remaining contractual life of all
options outstanding was 7.72 years and the weighted-average exercise price of
options available for exercise was $11.75.
On December 7, 1998 the Company granted a total of 20,000 options to the members
of its Board of Directors. These options carry an exercise price equal to the
market price on the date of issuance and vest equally over a period of three
years, beginning one year from date of grant. The maximum term of these options
is 10 years.
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 any or all of the full amount authorized. The Company had not
repurchased any shares under this program through December 31, 1998.
On May 6, 1996 and July 31, 1997, one of the Company's officers exercised
approximately 150,000 and 358,000 stock options, respectively. The exercise
price and the market price of the options at the date of exercise were $6.22 and
$25.50 for 1996 and $6.22 and $12.50 for 1997, respectively. Certain of these
options were considered non qualified options and, accordingly, the Company
recorded compensation expense, for income tax purposes only, of approximately
$1,967,000 in 1996 and $2,150,000 in 1997. The reduction in taxes payable of
approximately $686,000 in 1996 and $789,000 in 1997 was recorded as additional
paid-in capital in the accompanying financial statements.
All options granted in the period January 1, 1995 through December 31, 1998,
except those granted to the Company's Board of Directors as described above,
vest 20% annually beginning one year from date of grant. The exercise price of
each option equals the market price of the Company's stock on the date of grant,
and an option's maximum term is 10 years. During 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123).
<PAGE>
- 29 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
SFAS 123 encourages but does not require a fair value based method of
accounting for stock compensation plans. The Company has elected to continue
accounting for its stock compensation plan using the intrinsic value based
method and, accordingly, has not recorded compensation expense for each of the
three years ended December 31, 1998. Had compensation cost for the Company's
stock compensation plan been determined based on the fair value at the option
grant dates, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998 1997
<S> <C> <C> <C>
Net income As reported (000's) $ 7,656 $ 8,510
Pro forma (000's) 7,360 8,254
Earnings per share As reported $ .52 $ .57
Pro forma .50 .56
Earnings per share-assuming dilution As reported $ .52 $ .57
Pro forma .50 .56
</TABLE>
The fair value of each option grant was estimated on actual information
available through December 31, 1998 and 1997 using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Term One year after each 20% vesting date
Risk free interest rate 4.7% and 5.8% for 1998 and 1997,
respectively
Dividend yield 5.4% and 3.6% annually for 1998 and 1997,
respectively
Volatility 32% and 30% for 1998 and 1997, respectively
Expected forfeitures 0 - 35%
</TABLE>
NOTE 8 - SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 133, "Disclosures about
Segments of an Enterprise and Related Information," effective for its December
31, 1998 reporting. The Company's reportable segments represent geographic
business units that offer similar products. They are managed separately due to
logistics and differences in business cultures. The Company's United States
operations are distributed among two manufacturing facilities in Tennessee and
one manufacturing facility in South Carolina. All of these facilities are
engaged in the production of precision balls and rollers used primarily in the
bearing industry. The Company's European operations are centralized in one
manufacturing facility located in Kilkenny, Ireland. This facility is also
engaged in the production of precision balls and rollers used primarily in the
bearing industry.
<PAGE>
- 30 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates segment
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses and foreign exchange gains and losses.
The Company accounts for intersegment sales and transfers at current market
prices; however, the Company did not have any material intersegment transactions
during 1998 or 1997.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
U.S. EUROPE U.S. EUROPE U.S. EUROPE
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $ 66,457 $ 6,549 $ 75,103 $ 149 $ 84,539 $ -
Interest expense 64 - 29 - 296 -
Depreciation and
amortization 3,913 644 3,857 249 3,358 -
Segment profit/(loss) 12,263 (127) 15,169 (1,277) 19,300 -
Segment assets 53,506 13,354 56,306 6,967 63,273 -
Expenditures for
long-lived assets 3,033 2,725 3,569 5,206 8,410 -
</TABLE>
Sales to external customers and long-lived assets utilized by the Company were
concentrated in the following geographical regions (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
LONG-LIVED LONG-LIVED LONG-LIVED
SALES ASSETS SALES ASSETS SALES ASSETS
<S> <C> <C> <C> <C> <C> <C>
United States $ 39,331 $ 30,723 $ 39,884 $ 31,588 $ 42,270 $ 32,419
Europe 23,843 7,566 18,060 5,500 22,826 -
Canada 4,163 - 3,763 - 4,227 -
Latin America 2,762 - 5,268 - 5,072 -
Other export 2,907 - 8,277 - 10,144 -
---------- ----------- --------- ----------- ---------- ---------
Total foreign $ 73,006 $ 38,289 $ 75,252 $ 37,088 $ 84,539 $ 32,419
---------- ----------- --------- ----------- ---------- ---------
---------- ----------- --------- ----------- ---------- ---------
</TABLE>
Two customers accounted for 48% of consolidated sales in 1998. The only
customers accounting for 10% or more of net sales in any prior year were SKF
Bearings Industries, which represented 37% for years 1997 and 1996, and FAG
Bearings Corporation, which represented 10% in 1997 and 1996.
<PAGE>
- 31 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
The Company uses the asset and liability method to account for deferred income
taxes. Under the asset and liability method, deferred income taxes are provided
for the temporary differences between the financial reporting and income tax
bases of the Company's assets and liabilities using enacted income tax rates
expected to be in effect when the temporary differences reverse.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Current
Federal $ 3,899 $ 4,338 $ 5,696
State 432 421 651
------------ ------------ -----------
4,331 4,759 6,347
------------ ------------ -----------
Deferred
Federal 115 554 436
State 34 69 52
------------ ------------ -----------
149 623 488
------------ ------------ -----------
$ 4,480 $ 5,382 $ 6,835
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
A reconciliation of taxes based on the federal statutory rate of 35% for the
years ended December 31, 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Income taxes at the federal statutory rate $ 4,247 $ 4,862 $ 6,755
State income taxes, net of federal benefit 309 318 457
Foreign sales corporation benefit (312) (249) (458)
Impact of foreign taxes 44 283 -
Other, net 192 168 81
------------ ------------ -----------
Provision for income taxes $ 4,480 $ 5,382 $ 6,835
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
<PAGE>
- 32 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
The tax effects of the temporary differences are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(in thousands)
<S> <C> <C>
Deferred income tax liability
Tax in excess of book depreciation $ 3,647 $ 3,553
Duty drawback receivable 110 55
--------- ---------
Gross deferred income tax liability 3,757 3,608
--------- ---------
Deferred income tax assets
Inventories 282 281
Vacation reserve 141 191
Health insurance reserve 114 131
Other working capital accruals 232 174
--------- ---------
Gross deferred income tax assets 769 777
--------- ---------
Net deferred income tax liability $ 2,988 $ 2,831
--------- ---------
--------- ---------
</TABLE>
Income tax payments were approximately $3,052,000, $4,826,000 and $5,767,000 in
1998, 1997 and 1996, respectively.
NOTE 10 - RECONCILIATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Net income $ 7,656 $ 8,510 $12,465
Adjustments to net income - - -
----------- ----------- -----------
Net income $ 7,656 $ 8,510 $12,465
----------- ----------- -----------
----------- ----------- -----------
Basic shares outstanding 14,804 14,804 14,629
Effect of dilutive stock options - 5 413
----------- ----------- -----------
Dilutive shares outstanding 14,804 14,809 15,042
----------- ----------- -----------
----------- ----------- -----------
Basic net income per share $ .52 $ .57 $ .85
----------- ----------- -----------
----------- ----------- -----------
Diluted net income per share $ .52 $ .57 $ .83
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
- 33 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
Excluded from the shares outstanding for the years ended December 31, 1998 and
1997 were 466,500 and 416,500 antidilutive options, respectively, which had
exercise prices ranging from $10.44 to $15.50 and $11.50 to $15.50,
respectively. No antidilutive options were outstanding at December 31, 1996.
NOTE 11 - COMMITMENTS
The Company has operating lease commitments for machinery and office equipment
which expire on varying dates. Rent expense for 1998, 1997, and 1996 was
$370,000, $352,000 and $378,000, respectively. The following is a schedule by
year of future minimum lease payments as of December 31, 1998 under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
<S> <C>
1999 $ 51
2000 30
2001 -
2002 -
2003 -
---------
Total minimum lease payments $ 81
---------
---------
</TABLE>
<PAGE>
- 34 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes the unaudited quarterly results of operations for the
years ended December 31, 1998 and 1997 (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
Net sales $ 20,886 $ 19,674 $ 16,789 $ 15,657
Gross profit 6,709 6,111 4,627 5,206
Net income 2,667 2,324 1,125 1,540
Basic net income per share .18 .16 .08 .10
Dilutive net income per share .18 .16 .08 .10
Shares outstanding:
Basic number of shares 14,804 14,804 14,804 14,804
Effect of dilutive stock options - 24 -
------------- ------------- ------------- -------------
Diluted number of shares 14,804 14,828 14,804 14,804
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
Net sales $ 20,319 $ 20,964 $ 17,231 $ 16,689
Gross profit 6,481 6,657 4,845 6,639
Net income 2,639 2,732 1,299 1,814
Basic net income per share .18 .19 .09 .12
Dilutive net income per share .18 .19 .09 .12
Shares outstanding:
Basic number of shares 14,543 14,543 14,804 14,804
Effect of dilutive stock options 170 170 4 -
------------- ------------- ------------- -------------
Diluted number of shares 14,713 14,713 14,808 14,804
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<PAGE>
- 35 -
NN BALL & ROLLER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial position of the Company at December 31, 1998 includes certain
financial instruments. Management believes the fair value of the these
instruments approximates their carrying value. The carrying amounts and
estimated fair value of the Company's financial instruments at December 31, 1998
and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 1,430 $ 1,430 $ 366 $ 366
Trade accounts receivable 11,910 11,910 12,524 12,524
Less: allowance for doubtful
accounts (586) - (315) -
Liabilities:
Revolving credit facility - - 1,480 1,480
</TABLE>
<PAGE>
- 36 -
NN BALL & ROLLER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SCHEDULE II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS(1) OF YEAR
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts $ 75 $ 40 $ - $ 115
Reserve for excess and obsolete inventory $ 60 $ - $ - $ 60
Year ended December 31, 1996
Allowance for doubtful accounts $ 115 $ 125 $ - $ 240
Reserve for excess and obsolete inventory $ 60 $ - $ - $ 60
Year ended December 31, 1997
Allowance for doubtful accounts $ 240 $ 75 $ - $ 315
Reserve for excess and obsolete inventory $ 60 $ - $ - $ 60
Year end December 31, 1998
Allowance for doubtful accounts $ 315 $ 271 $ - $ 586
Reserve for excess and obsolete inventory $ 60 $ - $ - $ 60
</TABLE>
- -----------------------------------------------------
(1) Deductions represent amounts written off.
<PAGE>
- 37 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. The information required by Item 401 of Regulation S-K
concerning the Company's directors is contained in the section entitled
"Election of Directors -- Information about the Directors" of the Company's
definitive Proxy Statement (to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1998) and, in accordance with
General Instruction G to Form 10-K, is hereby incorporated herein by reference.
EXECUTIVE OFFICERS. Information required by Item 401 of Regulation S-K
concerning the Company's executive officers is set forth in Item 1 hereof under
the caption "Executive Officers of the Registrant."
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT. The
information required by Item 405 of Regulation S-K concerning compliance with
Section 16(a) of the Securities Exchange Act by the Company's directors and
executive officers and any 10% beneficial owners is contained in the section
entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive Proxy Statement and, in accordance with General Instruction
G to Form 10-K, is hereby incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is contained in the
sections entitled "Election of Directors -- Compensation of Directors" and
"Executive Compensation" of the Company's definitive Proxy Statement and, in
accordance with General Instruction G to Form 10-K, is hereby incorporated
herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is contained in the
section entitled "Beneficial Ownership of Common Stock" of the Company's
definitive Proxy Statement and, in accordance with General Instruction G to Form
10-K, is hereby incorporated herein by reference.
<PAGE>
-38-
PART IV
ITEM 14 EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The financial statements of the Company filed as part of this Annual Report
on Form 10-K begin on the following pages hereof:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants 19
Balance Sheets at December 31, 1998 and 1997 20
Statements of Income and Comprehensive Income for the Three Years 21
ended December 31, 1998.
Statements of Changes in Stockholders' Equity for the Three Years Ended
December 31, 1998 22
Statements of Cash Flows for the Three Years Ended December 31, 1998 23
Notes to Financial Statements 24
(a)2. Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves 36
(a)3. Exhibits Required by Item 601 of Regulation S-K
</TABLE>
3.1 Certificate of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-1--File No. 33-74694).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's registration Statement on Form S-1 -
File No. 33-74694).
4.1 Form of Common Stock certificate (incorporated by reference to
Exhibit 4 to the Company's Registration Statement on Form S-1 - File
No. 33-74694).
10.1* NN Ball & Roller, Inc. Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 - File No. 33-74694).
10.3* $1.2 million Life Insurance Policy purchased by Mr. Ennen, the
premiums of which are paid for by the Company (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1-File No. 33-74694).
10.5 Form of Confidentiality and Non-Compete Agreements for Executive
Officers of the Company (incorporated by reference to Exhibit 10.17
to the Company's Registration Statement on Form S-1 - File No.
33-74694).
<PAGE>
-39-
10.6 Stockholder Agreement, dated February 22, 1994, among certain
stockholders of the Company (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1 - File No.
33-74694).
10.7 Form of Indemnification Agreement for officers and directors of the
Company (incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 - File No. 33-74694).
10.8 Lease, dated as of September 5, 1995, between the Company and the
State of Tennessee Department of Economic and Community Development
and the County of Johnson County, Tennessee (incorporated by
reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.9 Lease, dated as of March 22, 1996, between the Company and the State
of Tennessee Department of Economic and Community Development and the
County of Johnson County, Tennessee (incorporated by reference to
Exhibit 10.10 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.10* Stock Option Agreement, dated as of July 3, 1995, between the Company
and Roderick R. Baty (incorporated by reference to Exhibit 10.11 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.11 Quitclaim Deed, dated January 20, 1997, executed by Johnson County,
Tennessee in favor of the Company (incorporated by reference to
Exhibit 10.12 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.12 Loan Agreement, dated as of July 25, 1997, between the Company and
First American National Bank (incorporated by reference to Exhibit
10.13 of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.13* Employment Agreement, dated August 1, 1997, between the Company and
Roderick R. Baty (incorporated by reference to Exhibit 10.14 of the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997).
10.14* Employment Agreement, dated May 7, 1998, between the Company and
Frank T. Gentry (filed herewith).
10.15* Form of Stock Option Agreement, dated December 7, 1998, between the
Company and the non-employee directors of the Company (filed
herewith).
10.16* Elective Deferred Compensation Plan, dated February 26, 1999 (filed
herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
- --------------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of 1998.
(c) Exhibits
See Index to Exhibits (attached hereto).
<PAGE>
-40-
The Company will provide without charge to any person, upon the written
request of such person, a copy of any of the Exhibits to this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /S/ RICHARD D. ENNEN
----------------------------
Richard D. Ennen
CHAIRMAN AND DIRECTOR
Dated: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
<S> <C> <C>
/S/ RICHARD D. ENNEN Chairman and Director March 29, 1999
- ------------------------
Richard D. Ennen
/S/ RODERICK R. BATY President, Chief Executive Officer March 29, 1999
- ------------------------ and Director (Principal Executive
Roderick R. Baty Officer)
/S/ WILLIAM C. KELLY, JR. Treasurer, Secretary and Chief March 29, 1999
- ------------------------ Accounting Officer (Principal
William C. Kelly, Jr. Financial and Accounting Officer)
/S/ DAVID L. DYCKMAN Vice President - Business Development March 29, 1999
- ------------------------ and Chief Financial Officer
David L. Dyckman
/S/ MICHAEL D. HUFF Director March 29, 1999
- ------------------------
Michael D. Huff
/S/ G. RONALD MORRIS Director March 29, 1999
- ------------------------
G. Ronald Morris
/S/ MICHAEL E. WERNER Director March 29, 1999
- ------------------------
Michael E. Werner
/S/ STEVEN T. WARSHAW Director March 29, 1999
- ------------------------
Steven T. Warshaw
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
This AGREEMENT is made as of May 7, 1998, by and between NN Ball & Roller,
Inc., a Delaware corporation, having its principal place of business located at
800 Tennessee Road, Erwin, Tennessee 37650 (the "Company") and Frank T.Gentry
III (the "Executive").
WITNESSETH:
WHEREAS, the Company's Board of Directors (the "Board") has determined that
it is in the best interest of the Company and its shareholders to employ the
Executive as Vice President - Manufacturing of the Company and the Executive
desires to serve in that capacity;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto,
intending to be legally bound, agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the Executive
hereby agrees to be employed for the period of time set forth in Paragraph 2,
subject to the terms and conditions set forth herein.
2. TERM. Subject to the terms hereof, Company agrees to employ the
Executive for a period of two years commencing upon May 7, 1998 and expiring on
March 31, 2000 (the "Employment Term") (unless sooner terminated as provided
herein). The Employment Term shall be extended automatically from time to time,
on a rolling basis, for additional one year periods, unless either party gives
written notice of termination to the other at least six (6) months prior to the
date that the Employment Term is scheduled to expire.
3. POSITION AND RESPONSIBILITIES. The Executive shall serve as the Vice
President Manufacturing of the Company, reporting only to the Company's
President and Chief Executive Officer, and shall supervise the Company's
domestic and international manufacturing operations. The Executive shall also
have such other powers and duties as may from time to time be prescribed by the
Company's President and Chief Executive Officer.
4. DILIGENCE. Executive agrees to serve in the position referred to in
Paragraph 3 and to perform diligently the duties and services appertaining to
such office, as well as such additional duties and services appropriate to such
office which the parties mutually may agree upon from time to time.
<PAGE>
-2-
5. TIME. . Executive agrees to devote his entire working time and efforts
to the business and affairs of the Company and its affiliates and not to engage,
directly or indirectly, in any other business or businesses, whether or not
similar to that of the Company, except with the consent of the Board. The
foregoing notwithstanding, the parties recognize and agree that Executive (i)
may engage in personal investments, subject to any restrictions set forth in the
Non-Competition and Confidentiality Agreement referenced in Paragraph 8 and (ii)
subject to the prior consent of the Board, may serve on the board of directors
of other companies, provided such service does not conflict with the business
and affairs of the Company or interfere with Executive's performance of his
duties hereunder
7. COMPENSATION.
(a) SALARY. During the Employment Term, the Executive shall receive an
annual salary of $120,000.00 per year, which annual salary shall be subject to
such increases as the Board in its sole discretion may from time to time
determine (the "Annual Salary"). The Annual Salary shall be payable by the
Company in accordance with its regular compensation policies and practices for
paying executives.
(b) EXPENSES. During the term of his employment hereunder, the Executive
shall be entitled to be reimbursed for all reasonable business expenses incurred
by him in connection with his services hereunder, including but not limited to
expenses for entertainment and travel, in accordance with the policies and
procedures from time to time in effect for the Company's senior executive
officers. The Company retains the right to establish limits on the types or
amounts of business expenses that the Executive may incur.
(c) EMPLOYEE BENEFIT PROGRAMS. The Executive shall be entitled to
participate in all of the Company's employee benefit plans and programs
(including life, disability, and health insurance plans and programs and savings
plans and programs) to the extent his position, tenure, salary, age, health and
other qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto. The Company retains the right to abolish or
alter the terms of any employee benefit programs, plans or policies that it may
establish, provided such abolition or amendment shall be applicable to the
senior officers of the Company generally.
(d) VACATION AND OTHER ABSENCES. The Executive shall be entitled to the
number of paid vacation days in each calendar year determined by the Company
from time to time for its senior executive officers generally. The Executive
shall also be entitled to all paid absences for holidays or illnesses in
accordance with the Company's plans, policies or provisions applicable to senior
executive employees.
8. CONFIDENTIALITY AND NON-COMPETITION. As a material inducement to the
Company entering into this Agreement, Executive hereby reconfirms and agrees to
<PAGE>
-3-
continue to be bound in all respects by the terms of that certain
Non-Competition and Confidentiality Agreement, dated ___________, between
Executive and the Company, a copy of which is attached hereto as Exhibit A.
9. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term. The Company
shall be entitled to terminate the Executive's employment because of the
Executive's disability during the Employment Term if, as a result of the
Executive's incapacity due to physical or mental illness (hereinafter
"Disability"), the Executive shall have been absent from his duties hereunder
for one hundred and twenty (120) days during any three hundred and sixty (360)
day period.
(b) TERMINATION BY COMPANY FOR CAUSE. (i) The Company may terminate the
Executive's employment during the Employment Term for Cause. "Cause" means:
A. the failure of the Executive to perform the Executive's duties
under this Agreement (other than as a result of physical or mental illness
or injury), which failure, if correctable, and provided it does not
constitute willful misconduct or gross negligence described in Subsection B
below, remains uncorrected for 10 days following written notice to
Executive by the Board of such breach;
B. willful misconduct or gross negligence by the Executive, in either
case that results in material damage to the business or reputation of the
Company;
C. a material breach by Executive of either this Agreement or that
certain Non-Competition and Confidentiality Agreement referenced in
Paragraph 8 which, if correctable, remains uncorrected for 10 days
following written notice to Executive by the Board of such breach; or
D. the Executive is convicted of a felony or any other crime involving
moral turpitude (whether or not in connection with the performance by
Executive of his duties under this Agreement).
(c) TERMINATION BY COMPANY WITHOUT CAUSE. The Company may terminate the
employment of Executive under this Agreement for any reason at any time.
(d) TERMINATION BY EXECUTIVE FOR GOOD REASON. (i) The Executive may
terminate employment for Good Reason. "Good Reason" means:
<PAGE>
-4-
A. assignment to the Executive of any duties inconsistent with
Executive's position, duties, responsibilities, title or office, or any
other action by the Company that results in a material diminution in the
Executive's position, authority, duties or responsibilities, excluding in
each case any assignment or action that is remedied by the Company within
10 days after receipt of notice thereof from the Executive; or
B. any material failure by the Company to comply with this Agreement,
other than a failure that is remedied by the Company within 10 days after
receipt of notice thereof from the Executive.
(e) VOLUNTARY TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Executive may
at any time terminate his employment under this Agreement without Good Reason.
(f) NOTICE OF TERMINATION. If Company or Executive desires to terminate
Executive's employment hereunder at any time, it or he shall do so by giving
written notice to the other party (following the expiration of any applicable
cure periods) that it or he has elected to terminate Executive's employment
hereunder and stating the effective date and reason for such termination. Any
termination by Executive of his employment without Good Reason shall be made on
not less than 14 days' notice.
10. EFFECT OF TERMINATION.
(a) VOLUNTARY TERMINATION BY EXECUTIVE; TERMINATION FOR CAUSE; DEATH OR
DISABILITY. In the event that Executive's employment is terminated pursuant to
Paragraphs 9(a), 9(b) or 9(e), on the date of termination, the Company shall be
liable to Executive as follows:
(i) Executive shall be entitled to receive the Annual Salary due to
him through the date of termination of his employment.
(ii) Any vested rights of Executive shall be paid to Executive in
accordance with the Company's plans, programs or policies. Without limiting the
foregoing, in the event of the termination of Executive's employment due to
death or disability (Paragraph 9(a)), the rights and benefits of Executive (or
his designated beneficiary or representatives, as applicable) under any Company
life, health and long-term disability plans and policies shall be determined in
accordance with the terms and provisions of such plans and policies.
(iii) The Company shall promptly reimburse Executive for any and all
reimbursable business expenses (to the extent not already reimbursed) upon
Executive's properly accounting for the same.
<PAGE>
-5-
(b) TERMINATION WITHOUT CAUSE, TERMINATION BY EXECUTIVE FOR GOOD REASON. In
the event that the Company terminates Executive's employment without Cause
pursuant to Paragraph 9(c) or Executive terminates his employment with the
Company pursuant to Paragraph 9(d), the Company shall be liable as follows:
(i) Executive shall be entitled to receive the Annual Salary due to
him through the date of termination of his Employment. In addition, Executive
shall be entitled to receive continued monthly payments of his Annual Salary,
based on the Annual Salary in effect, on the date of termination, until the
first anniversary of the date of termination.
(ii) Any vested rights of Executive shall be paid to Executive in
accordance with the Company's plans, programs or policies.
(iii) The Company shall promptly reimburse Executive for any and all
reimbursable business expenses (to the extent not already reimbursed) upon
Executive's properly accounting for the same.
(iv) Executive and/or the Executive's family shall be entitled to
receive health benefits (as contemplated by Paragraph 7(c) hereof) until the
first anniversary of the date of termination at least equal to those which would
have been provided to them in accordance with this Agreement if Executive's
employment had not been terminated PROVIDED that the Company's obligation to
provide such benefits shall be reduced by any comparable benefits (or amounts
received by Executive in respect thereof) received by Executive under the terms
of new employment undertaken by Executive after termination and prior to the
first anniversary of the date of termination; and provided further, that the
terms of the Company's health insurance plans shall be subject to amendment
during such period, to the extent that such amendments are applicable to the
executive officers of the Company generally.
(c) LIMIT ON COMPANY LIABILITY. Except as expressly set forth in this
Paragraph 10, the Company shall have no obligation to Executive under this
Agreement following a termination of Executive's employment with the Company.
Without limiting the generality of the provision of the foregoing sentence, the
Company shall not, following a termination of Executive's employment with the
Company, have any obligation to provide any further benefit to Executive or make
any further contribution for Executive's benefit except as provided in this
Paragraph 10.
11. COMPANY PROPRIETARY RIGHTS.
(a) COMPANY TO RETAIN RIGHTS. Executive agrees that all right, title and
interest of every kind and nature whatsoever in and to copyrights, patents,
ideas, business or strategic plans and concepts, studies, presentations,
creations, inventions, writings, properties, discoveries and all other
intellectual property conceived by Executive during
<PAGE>
-6-
the Employment Term and pertaining to or useful in or to (directly or
indirectly) the activities of the Company (collectively, "Company Intellectual
Property") shall become and remain the exclusive property of the Company, and
Executive shall have no interest therein.
(b) FURTHER ASSURANCES. At the request of the Company, Executive shall, at
the Company's expense but without additional consideration, execute such
documents and perform such other acts as the Company may deem necessary or
appropriate to vest in the Company or its designee such title as Executive may
have to all Company Intellectual Property in which Executive may be able to
claim any rights by virtue of his employment under this Agreement.
(c) RETURN OF MATERIAL. Upon the termination of the Employment Term,
including any termination of employment described in Paragraph 9, the Executive
will promptly return to the Company all copies of information protected by
Paragraph 11(a) hereof or by Paragraph 3(a) of the Non-Competition and
Confidentiality Agreement referenced in Paragraph 8, which are in his
possession, custody or control, whether prepared by him or others, and the
Executive agrees that he shall not retain any of same.
12. REPRESENTATION AND WARRANTY OF EXECUTIVE. Executive represents and
warrants to the Company that he is not now under any obligation, of a
contractual nature or otherwise, to any person, partnership, company or
corporation that is inconsistent or in conflict with this Agreement or which
would prevent, limit or impair in any way the performance by him of his
obligations hereunder.
13. ASSIGNMENT. This Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party; provided,
however, that Company may assign this Agreement in connection with a merger or
consolidation involving Company or a sale of substantially all its assets to the
surviving corporation or purchaser, as the case may be, so long as such assignee
assumes Company's obligations hereunder.
14. WITHHOLDING. Payment of Executive's Annual Salary and payment or
provision of other compensation to Executive pursuant hereto shall be subject to
such reporting and withholding for applicable taxes as is required by law.
15. CERTAIN EXPENSES. Company, on or before the date hereof, shall pay
directly or reimburse Executive (at Executive's discretion) for the actual legal
fees and other costs and expenses, if any, incurred by Executive in connection
with the preparation, finalizing and execution of this Agreement.
<PAGE>
-7-
16. SEVERABILITY. In the event that any provision or portion of this
Agreement is determined to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
17. NOTICES. For all purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given, in the case of a notice to the Company, when delivered to
the Company at the following address, and in the case of a notice to Executive,
when received by Executive, and in both cases addressed as follows:
If to Company, to: NN Ball & Roller
800 Tennessee Road
Erwin, Tennessee 37650
Attention: Chairman of the Board
If to Executive, to: Frank Gentry
430 Ohio Ave
Erwin, TN 37650
18. MODIFICATIONS AND WAIVERS. No provision of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board and is agreed to in writing, signed by the Executive and by an officer
of the Company duly authorized by the Board. No waiver by either party hereto of
any breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
19. ENTIRE AGREEMENT. This Agreement and the Non-Competition and
Confidentially Agreement constitute the entire understanding of the parties
hereto with respect to their subject matter. This Agreement and the
Non-Competition and Confidentiality Agreement supersede all prior agreements
between the parties hereto with respect to their subject matter.
20. GOVERNING LAW. This Agreement will be governed by the laws of the State
of Tennessee without regard for its conflict of laws rules.
21. COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
<PAGE>
-8-
22. HEADINGS, ETC. The section headings contained in this Agreement are for
convenience of reference only and will not be deemed to control or affect the
meaning or construction of any provision of this Agreement. Reference to
Paragraphs are to Paragraphs in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written
NN BALL & ROLLER, INC.
By: /s/ Roderick R. Baty
------------------------------------
Title: President/CEO
Frank T. Gentry III
By: /s/ Frank Gentry
------------------------------------
<PAGE>
Exhibit 10.15
NN BALL & ROLLER, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of December 7, 1998, is entered into by and
between NN Ball & Roller, Inc., a Delaware corporation (the "Company") and
[Director's Name] of [address] (the "Grantee").
WITNESSETH THAT:
SECTION 1: STOCK OPTION
1.1 Pursuant to this Stock Option Agreement (the "Agreement"), the Company
has granted to the Grantee, effective as of the date of this Agreement, an
option to purchase from the Company (the "Option") an aggregate of 5,000 shares
of common stock of the Company (the "Option Shares") at an option price of
$6.375 per share, which is the closing price of the Company's common stock on
the Date of the Grant (as defined below) as reported by the Nasdaq National
Market (the "Option Price"). Upon exercise of the Option, in whole or in part,
the Option Price shall be payable to the Company in accordance with Section 2.1
hereof.
1.2 The date of grant of the Option is December 7, 1999 (the "Date of
Grant").
1.3 Subject to the provisions of Sections 1.4 and 3 hereof; the Option
shall become exercisable for 33 and 1/3% of the Option Shares on the first
anniversary of the Date of Grant, and shall become exercisable for an additional
33 and 1/3% of the Option Shares on each succeeding anniversary of the Date of
Grant until fully exercisable.
1.4 Notwithstanding any limitation on the exercise of the Option, the
Option shall be exercisable in full immediately following the date on which a
Change in Control (as
<PAGE>
2
defined in the Company's Stock Incentive Plan) has occurred if the Grantee's
service as director of the Company has not ended prior to the date on which the
Change in Control occurred; provided, however, that nothing in this Section 1.4
shall extend the term of the Option or have any effect other than to accelerate
the date on which the Option becomes exercisable in full.
1.5 The term of the Option shall continue until the tenth anniversary of
the Date of Grant. The Option shall terminate (if not sooner terminated in
accordance with the other provisions hereof) and shall no longer be exercisable
after such tenth anniversary.
SECTION 2: EXERCISE
2.1 The Grantee may exercise the Option to the extent that it is then
exercisable (and before a date or event of termination or cancellation) in whole
at any time, or in part from time to time. The Grantee shall give the Company
written notice to exercise the Option in whole or in part. Such notice shall
specify the number of shares to be purchased and shall be accompanied by full
payment for the shares then being purchased, which payment may be made in any of
the following ways: (a) in cash; (b) if the Company shall consent in its sole
discretion, delivering shares to the Company which have been held by the Grantee
for a minimum of six (6) months; (c) subject to such limitations as may be
imposed by the Company, a cash payment by the Grantee's broker pursuant to the
Grantee's instruction; or (d) a combination thereof. The notice also shall be
accompanied by such agreement, statement, or other evidence as the Company may
require in order to satisfy itself that the issuance of the shares being
purchased pursuant to such exercise and any subsequent resale thereof will be in
compliance with applicable laws and regulations relating to the issuance and
sale of securities, including the provisions of the Securities Act of 1933 and
regulations promulgated thereunder. Any shares surrendered as payment in
exercise of the Option shall be valued at their fair market
<PAGE>
3
value (which shall be the closing price of the Company's common stock as
reported by the Nasdaq National Market) on the date of exercise. The exercise
shall be deemed to occur on the date that the notice of exercise and, if
applicable, the cash and/or shares are received at the office of the Chief
Financial Officer of the Company, or at such other location as may be
established in accordance with Section 5.5 hereof.
2.2 As soon as practicable after each exercise of the Option and compliance
by the Grantee with all applicable conditions, the Company shall mail or deliver
or cause to be mailed or delivered to the Grantee a stock certificate or
certificates registered in the name of the Grantee for the number of shares that
the Grantee shall be entitled to receive upon such exercise under the provisions
of this Agreement.
SECTION 3: TERMINATION OF SERVICE
3.1 If the Grantee's service with the Company terminates for any reason
other than Retirement (as defined in Section 3.2), Disability (as defined in the
Company's Stock Incentive Plan) or death, the Option shall continue to be
exercisable at any time within the three-month period following such termination
of service, but not after such period, but shall not become exercisable with
respect to any shares for which it was not exercisable on the date of such
termination of service.
3.2 If the Grantee's service with the Company terminates because of
Retirement, the Option shall (a) become immediately exercisable in full as of
the date of such Retirement, and (b) be exercisable at any time within the
12-month period following such Retirement, but not after such period (unless
otherwise provided in Section 3.4 below). "Retirement" means termination of
service after the Grantee has completed three years of service as a Director of
the Company.
<PAGE>
4
3.3 If the Grantee's service with the Company terminates because of the
Grantee's Disability, the Option shall (a) become immediately exercisable in
full as of the date of such termination, and (b) be exercisable at any time
within the 12-month period following such termination of service, but not after
such period (unless otherwise provided in Section 3.4 below).
3.4 If Grantee's service with the Company terminates because of the
Grantee's death, the Option shall become immediately exercisable in full as of
the date of termination of service. If the Grantee's service with the Company
terminates because of the Grantee's death, or if the Grantee dies within 12
months after termination of service while the Option is exercisable pursuant to
Sections 3.1 or 3.2 above, the Option shall be exercisable at any time within
the 24-month period following the Grantee's death, but not after such period.
3.5 After the Grantee's death, the Option may be exercised only by the
Grantee's Beneficiary (as defined in the Company's Stock Incentive Plan);
provided, however, that if the Grantee's Beneficiary dies within 24 months after
the Grantee's death, the executor or administrator of the Beneficiary's estate
may exercise the Option within such 24-month period. If the Grantee and
Grantee's Beneficiary die in circumstances in which there is not sufficient
evidence that the two have died otherwise than simultaneously, the Beneficiary
shall be deemed to have predeceased the Grantee.
3.6 Any exercise by a Beneficiary of the Option shall be subject to all of
the terms and conditions contained in this Agreement.
3.7 Notwithstanding any other provision of this Section 3, in no event
shall the Option be exercisable after the expiration date specified in Section
1.5 of this Agreement.
<PAGE>
5
SECTION 4: TAX OBLIGATIONS
4.1 In each case where the Grantee shall exercise the Option, in whole or
in part, the Company shall notify the Grantee of the amount of income tax, if
any, that must be withheld under federal and, where applicable, state and local
law by reason of such exercise. It shall be a condition to any delivery of
shares hereunder that provision satisfactory to the Company shall have been made
for payment of any taxes required to be paid or withheld pursuant to any
applicable law or regulations. The Grantee may irrevocably elect to have any
withholding tax obligation satisfied (a) by a cash payment to the Company; (b)
by having the Company withhold shares otherwise deliverable to the Grantee with
respect to the exercise of the Option; (c) by delivering shares to the Company;
(d) by a cash payment by the Grantee's broker pursuant to the Grantee's
instruction; or (e) by a combination thereof; provided, however, that the
Company may disapprove, or impose conditions upon, any such election.
SECTION 5: MISCELLANEOUS
5.1 The Option granted hereunder shall not be transferable (other than to a
Beneficiary upon the death of the Grantee) and is exercisable during the
Grantee's lifetime only by the Grantee.
5.2 The Option does not confer upon the Grantee any rights of stock
ownership.
5.3 In the event of a stock dividend, stock split, combination of shares,
recapitalization or other similar capital change, the number and kind of shares
subject to the Option, the Option Price and other provisions of this Agreement
shall be appropriately adjusted as provided in Section 22 of the Company's Stock
Incentive Plan.
<PAGE>
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5.4 Nothing contained in this Agreement shall be deemed by implication or
otherwise to impose any limitation on any right of the Company or its
stockholders to remove any director.
5.5 Any notice to be given hereunder by the Grantee shall be either
hand-delivered to the office of the Chief Financial Officer of the Company or
sent by mail addressed to the Company to the attention of the Chief Financial
Officer, 800 Tennessee Road, Erwin, Tennessee 37650. Any notice by the Company
to the Grantee shall be either sent by mail addressed to the Grantee at the
address shown on page 1 hereof or hand-delivered personally to the Grantee.
Either party may, by written notice given to the other in accordance with the
provisions of this Section, change the address to which subsequent notices shall
be sent.
5.6 The Option shall not be exercisable in whole or in part and no
certificates representing shares of common stock subject to the Option shall be
delivered if, at any time, the Company determines, in its discretion, that it is
necessary as a condition of, or in connection with, such exercise (or the
delivery of shares thereunder):
(a) to satisfy withholding tax or other liabilities;
(b) to effect the listing, registration or qualification on any securities
exchange, or any quotation system, or under any federal, state or
local law, of any shares otherwise deliverable in connection with such
exercise; or
(c) to obtain the consent or approval of any regulatory body; unless such
withholding, listing, registration, qualification, compliance,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Company in its reasonable and good
faith judgment.
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The Company shall act with all reasonable diligence to obtain any such
approval or consent and to effect compliance with any such applicable law,
regulation, order, withholding, or listing, registration or qualification
requirement, and the Grantee or other person entitled to exercise the Option
shall take any action reasonably requested by the Company in such connection.
5.7 This Agreement shall be governed by, and its provisions construed in
accordance with, the laws of Delaware (irrespective of the conflict of laws
provisions thereof), except to the extent that such laws may be superseded by
any federal law.
5.8 Any amendment of this Agreement must be in writing and duly signed by
the Company and the Grantee. This Agreement may not be modified orally.
IN WITNESS WHEREOF, NN Ball & Roller, Inc. has caused this Agreement to be
executed in its corporate name, and the Grantee has executed the same in
evidence of the Grantee's acceptance hereof, under the terms and conditions
herein set forth, as of the day and year first above written.
NN BALL & ROLLER, INC.
By
---------------------------------
Title
GRANTEE
-----------------------------------
[Director's name]
<PAGE>
Exhibit 10.16
NN BALL & ROLLER, INC.
ELECTIVE DEFERRED COMPENSATION PLAN
This unfunded Elective Deferred Compensation Plan (hereafter "Plan"),
effective as of February 26, 1999, is hereby adopted and established by NN Ball
& Roller, Inc. (hereafter "Company") and will be maintained by the Company for
the purpose of providing benefits for certain individuals as provided herein.
ARTICLE I
ELIGIBILITY AND PARTICIPATION
SECTION 1.1 All outside members of the Board of Directors of the Company
are eligible to become and remain participants in the Plan.
SECTION 1.2 The individuals described in Section 1.1 shall be eligible to
participate in the Plan and may do so by filing a written election with the
Company in the form attached or other form approved by the Company. In the first
year in which a participant becomes eligible to participate in the Plan, the
newly eligible participant may make an election to defer directors fees for
services to be performed subsequent to the election within 30 days after the
date the person becomes eligible. Except as otherwise provided herein, elections
to defer payment of directors fees must be made before the beginning of the
calendar quarter for which the directors fees are payable.
SECTION 1.3 For each individual electing to participate in the Plan, the
Company shall establish and maintain a deferred compensation account. The amount
of each participant's deferred compensation shall be credited to this account as
of the date such directors fees otherwise would be payable. No amount shall
actually be set aside for payment under the Plan. Any participant to whom an
amount is credited under the Plan shall deemed a general, unsecured creditor of
the Company.
SECTION 1.4 Any participant may defer all or any portion of his or her
directors fees otherwise payable to him or her by the Company for the calendar
quarter beginning after the date of said election as he or she may specify in
said written election to the Company, and the amounts so deferred shall be paid
only as provided in this Plan. Any participant may change the amount or suspend,
future deferrals with respect to directors fees otherwise payable to him or her
for quarters beginning after date of change or suspension as he or she may
specify by written notice to the Company. If a participant elects to suspend
deferrals, the participant may make a new election to again
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become a participant in the Plan. Any new election to defer payment of directors
fees must be made before the beginning of the period of service for which the
directors fees are payable, which period is the calendar quarter. The election
to defer shall be irrevocable as to the deferred compensation for the period for
which the election is made.
ARTICLE II
DEFERRED COMPENSATION
All amounts credited under the terms of the Plan to a deferred compensation
account maintained in the name of a participant by the Company shall be invested
in the same investment options provided under the Company's 401(k) Plan. Such
investment election shall be made on a form approved by the Company.
ARTICLE III
DISTRIBUTION
SECTION 3.1 On the first day of the month next following the date on which
a participant ceases to be a member of the Company's Board of Directors for any
reason including death, distribution of the amount credited to the participant's
account in accordance with this Plan shall commence to or with respect to the
participant in a lump sum.
SECTION 3.2 If a participant should die before distribution has been made
to the participant, the account shall be distributed to the participant's
beneficiary designated by the participant in writing and delivered to the
Company at the time the participant first elected to become a participant in the
Plan. If a participant has not designated a beneficiary, or if no designated
beneficiary is living on the date of distribution, then, notwithstanding any
provision herein to the contrary, such amounts shall be distributed to such
participant's estate in a lump sum distribution as soon as administratively
feasible following such participant's death.
Section 3.3 In the event a participant incurs an unforeseeable emergency,
the participant may make a written request to the Company for a hardship
withdrawal from his or her account established under the Plan. An unforeseeable
emergency is a severe financial hardship to the participant resulting from a
sudden and unexpected illness or accident of the participant or of a dependent
(as defined in Section 152(a) of the Internal Revenue Code of 1986, as amended)
of the participant, loss of participant's property due to casualty, or other
similar
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extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the participant. Withdrawals of amounts because of an
unforeseeable emergency are only permitted to the extent reasonably needed to
satisfy the emergency need. This section shall be interpreted in a manner
consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury
Regulations.
SECTION 3.4 Anything herein to the contrary notwithstanding, if, at any
time, a court or the Internal Revenue Service determines that an amount in a
participant's account is includable in the gross income of the participant and
subject to tax, the Board of Directors of the Company may, in its sole
discretion, permit a lump sum distribution of an amount equal to the amount
determined to be includable in the participant's gross income.
ARTICLE IV
AMENDMENT AND TERMINATION OF PLAN
The Company reserves the right to amend or terminate the Plan at any time.
Any such termination shall be effective as of the end of the calendar year
during which notification is given to each participant. Notification will be by
first class mail, addressed to each participant at the participant's last known
address, or by other notice acknowledged in writing by the participant. Any
amounts credited to an account of any participant shall remain subject to the
provisions of the Plan and distribution will not be accelerated because of the
termination of the Plan. No amendment or termination shall directly or
indirectly reduce the balance of any account described in this Plan as of the
effective date of such amendment or termination. No additional credits or
contributions will be made to the accounts of the participants under the Plan
after termination of the Plan, but interest may continue to be credited to the
accounts of the participants under the Plan until all benefits are distributed
to the participants or to their beneficiaries. Upon termination of the Plan,
distribution of amounts credited to the accounts of the participants shall be
made to the participants or their beneficiaries in accordance with Article III
of this Plan.
ARTICLE V
CLAIMS PROCEDURE
Section 5.1 For purposes of handling claims with respect to this Plan, the
"Claims Reviewer" shall be the Company, unless another person or organizational
unit is designated by the
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Company as Claims Reviewer.
SECTION 5.2 An initial claim for benefits under the Plan must be made by
the participant or his or her beneficiary in accordance with the terms of the
Plan through which the benefits are provided. Not later than 90 days after
receipt of such a claim, the Claims Reviewer will render a written decision on
the claim to the claimant, unless special circumstances require the extension of
such 90-day period. If such extension is necessary, the Claims Reviewer shall
provide the participant or the participant's beneficiary with written
notification of such extension before the expiration of the initial 90-day
period. Such notice shall specify the reason or reasons for such extension and
the date by which a final decision can be expected. In no event shall such
extension exceed a period of 90 days from the end of the initial 90-day period.
In the event the Claims Reviewer denies the claim of a participant or the
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, (a) the
reason for the denial; (b) a reference to the Plan or other document or form
that is the basis for the denial; (c) a description of any additional material
or information necessary for the claimant to perfect the claim; (d) an
explanation as to why such information or material is necessary; and (e) an
explanation of the applicable claims procedure. Should the claim be denied in
whole or in part and should the claimant be dissatisfied with the Claims
Reviewer's disposition of the claimant's claim, the claimant may have a full and
fair review of the claim by the Company upon written request therefor submitted
by the claimant or the claimant's duly authorized representative and received by
the Company within 60 days after the claimant receives written notification that
the claimant's claim has been denied. In connection with such review, the
claimant or the claimant's duly authorized representative shall be entitled to
review pertinent documents and submit the claimant's views as to the issues, in
writing. The Company shall act to deny or accept the claim within 60 days after
receipt of the claimant's written request for review unless special
circumstances require the extension of such 60-day period. If such extension is
necessary, the Company shall provide the claimant with written notification of
such extension before the expiration of such initial 60-day period. In all
events, the Company shall act to deny or accept the claim within 120 days of the
receipt of the claimant's written request for review. The action of the Company
shall be in the form of a written notice to the claimant and its contents shall
include all of the requirements for action on the original claim. In no event
may a claimant commence legal action for benefits the claimant believes are due
the claimant until the claimant has exhausted all of the remedies and procedures
afforded the claimant by this Article V.
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ARTICLE VI
ADMINISTRATION
Section 6.1 The right of a participant or the participant's beneficiary to
receive a distribution hereunder shall be an unsecured claim against the general
assets of the Company, and neither a participant nor his or her designated
beneficiary shall have any rights in or against any amount credited to any
accounts under this Plan or any other assets of the Company. The Plan at all
times shall be considered entirely unfunded both for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended. Any funds invested hereunder shall continue for all purposes to be part
of the general assets of the Company and available to its general creditors in
the event of bankruptcy or insolvency. Accounts under this Plan and any benefits
which may be payable pursuant to this Plan are not subject in any manner to
anticipation, sale, alienation, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors of a participant or a participant's
beneficiary. The Plan constitutes a mere promise by the Company to make benefit
payments in the future. No interest or right to receive a benefit may be taken,
either voluntarily or involuntarily, for the satisfaction of the debts of, or
other obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 6.2 The Plan shall be administered by the Board of Directors of the
Company, which shall have the authority, duty and power to interpret and
construe the provisions of the Plan as the Board deems appropriate including the
authority to determine eligibility for benefits under the Plan. The Board shall
have the duty and responsibility of maintaining records, making the requisite
calculations and disbursing the payments hereunder. The interpretations,
determinations, regulations and calculations of the Board shall be final and
binding on all persons and parties concerned.
Section 6.3 Expenses of administration shall be paid by the Company. The
Board of Directors of the Company shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any actuary,
accountant, controller, counsel or other person employed or retained by the
Company with respect to the Plan.
Section 6.4 The Company shall furnish individual annual statements of
accrued benefits to each participant, or current beneficiary, in such form as
determined by the Company or as required by law.
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SECTION 6.5 The sole rights of a participant or beneficiary under this Plan
shall be to have this Plan administered according to its provisions, to receive
whatever benefits he or she may be entitled to hereunder, and nothing in the
Plan shall be interpreted as a guaranty that any funds in any trust which may be
established in connection with the Plan or assets of the Company will be
sufficient to pay any benefit hereunder. Further, the adoption and maintenance
of this Plan shall not be construed as creating any contract of employment
between the Company and any participant.
SECTION 6.6 The Company may from time to time establish rules and
procedures which it determines to be necessary for the proper administration of
the Plan and the benefits payable to an individual in the event that individual
is declared incompetent and a conservator or other person legally charged with
that individual's care is appointed. Except as otherwise provided herein, when
the Company determines that such individual is unable to manage his or her
financial affairs, the Company may pay such individual's benefits to such
conservator, person legally charged with such individual's care, or institution
then contributing toward or providing for the care and maintenance of such
individual. Any such payment shall constitute a complete discharge of any
liability of the Company and the Plan for such individual.
SECTION 6.7 The Plan may be continued after a sale of assets of the
Company, or a merger or consolidation of the Company into or with another
corporation or entity only if and to the extent that the transferee, purchaser
or successor entity agrees to continue the Plan. In the event that the Plan is
not continued by the transferee, purchaser or successor entity, then the Plan
shall be terminated subject to the provisions of Article IV.
Section 6.8 Each participant shall keep the Company informed of his or her
current address and the current address off his or her designated beneficiary.
The Company shall not be obligated to search for any person. If such person is
not located within three years after the date on which payment of the
participant's benefits payable under this Plan may first be made, payment may be
made as though the participant or his or her beneficiary had died at the end of
such three-year period.
Section 6.9 Notwithstanding any provision herein to the contrary, neither
the Company nor any individual acting as an employee or agent of the Company
shall be liable to any participant, former participant, designated beneficiary,
or any other person for any claim, loss, liability or expense incurred in
connection with the Plan, unless attributable to fraud or willful misconduct on
the part of the Company or any such
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employee or agent of the Company.
SECTION 6.10 All questions pertaining to the construction, validity and
effect of the Plan shall be determined in accordance with the laws of the United
States and to the extent not preempted by such laws, by the laws of the State of
Tennessee.
IN WITNESS WHEREOF, NN BALL & ROLLER, INC., by its duly authorized officer,
has executed this Plan on this 26th day of February 1999.
NN BALL & ROLLER, INC.
By: /s/ William C. Kelly, Jr.
-------------------------
Its: Secretary/Treasurer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference to the Registration
Statement on Form S-8 (no. 33-74694) of NN Ball & Roller, Inc. of our report
dated January 22, 1999 appearing on page 19 in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
March 29, 1999
