<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, 1999
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
20, 2000 was 15,244,308.
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 20, 2000, based on the closing price on the NASDAQ
National Market System on that date was approximately $132,442,548.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the 2000 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 1999, the Company sold its
products to over 500 customers located in 26 different countries, and its
primary customers included SKF Bearing Industries ("SKF"), FAG Bearings
Corporation ("FAG"), SNR Roulements, and the Torrington Company.
On July 4, 1999, the Company acquired substantially all of the assets of
Earsley Capital Corporation, a successor to and formerly known as Industrial
Molding Corporation ("IMC"). Formed in 1947, IMC provides full-service design
and manufacture of plastic injection molded components to the bearing,
automotive, electronic, leisure and consumer markets with an emphasis on
value-added products that take advantage of its capabilities in product
development, tool design and tight tolerance molding processes. IMC, which
operates two manufacturing facilities in Lubbock, Texas, will continue
operations as a subsidiary entity. The Company paid approximately $27.5 million
in cash and $2.5 million of its common stock for the net assets acquired from
IMC. During 1999, IMC sold its products to approximately 65 customers in 10
different countries.
Products
At its ball and roller 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 92%, 92% and 91% of the Company's ball and
roller net sales in 1997, 1998 and 1999, respectively. Sales of rollers
accounted for the balance of the Company's net ball and roller sales in such
years.
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 1999, approximately 96% 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.
<PAGE>
-2-
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.
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.
Through its newly acquired subsidiary, Industrial Molding Corporation, the
Company manufactures a wide range of plastic molded products through its two
facilities in Lubbock, Texas. IMC's products can be classified into three
primary market segments - bearing retainers, automotive under the hood
components and seasonal hardware products. IMC also produces other automotive
components, electronic instrument cases and precision electronic connectors and
lenses as well as a variety of other specialized parts.
Bearing Retainers. IMC manufactures high precision plastic retainers for
ball bearings used in automotive products. Since the July 1999 acquisition,
sales of bearing retainers accounted for approximately 36% of the Plastics
Division sales.
Automotive Components. IMC manufacturers high precision plastic automotive
under the hood parts. These parts utilize high performance engineered polymers
that draw upon IMC's ability to mold highly technical cylindrical dimension
parts. Other molded automotive components include hydraulic cylinders, clutch
systems, seat belts, gears and transmission components. Since the July 1999
acquisition, sales of automotive parts accounted for approximately 22% of
IMC's sales.
Seasonal Hardware Products. At its Cedar facility, IMC manufactures molded
polypropelene parts for the seasonal consumer market. These include light
hanging hardware and Christmas tree stands. Sales of seasonal consumer products
accounted for approximately 35% of IMC's sales since the acquisition in July
1999.
Other. IMC also manufactures a variety of high precision molded parts
including plastic instrument cases, precision end connectors and lenses for
fiber optics as well as other specialized parts.
Sales and Marketing
The Company markets balls and rollers in the United States and abroad
primarily through three salaried sales employees. Four additional internal sales
employees handle customer orders and provide sales support.
IMC markets its products through commissioned sales representatives or
directly through two salaried marketing and sales employees. Three additional
internal customer service employees handle customer orders and provide sales
support. Additionally, certain engineers and manufacturing employees provide
sales support due to the technical nature of the products.
<PAGE>
-3-
The following table presents a breakdown of the Company's net sales for
fiscal years 1997 through 1999:
1999 1998 1997
(In Thousands)
Domestic:
Ball & Roller Division $ 36,229 $ 39,331 $ 39,884
42.5% 53.9% 53.0%
Plastics Division 16,678 -- --
19.6% -- --
Total Domestic Sales 52,907 39,331 39,884
62.1% 53.9% 53.6%
Foreign:
Ball & Roller Division $ 31,507 $ 33,675 $ 35,368
36.9% 46.1% 47.0%
Plastics Division 880 -- --
1.0% -- --
Total Foreign Sales 32,387 33,675 345,368
37.9% 46.1% 47.0%
Total $ 85,294 $ 73,006 $ 75,252
=======================================
100% 100% 100%
=======================================
The Company's marketing strategy relative to the Ball & Roller Division 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.
IMC's marketing strategy is to increase its share of the market by
offering custom manufactured, high quality, precision parts in a cost-effective
manner. This strategy focuses on relationships with key customers that require
technically difficult enable IMC to take advantage of its strengths in product
development, tool design and tight tolerance molding processes. IMC has
historically focused on the North American market. However, management believes
certain synergies exist between NN Ball & Roller and IMC that will allow IMC to
further penetrate the North American market as well as broaden the European and
Asian presence by leveraging NN Ball & Roller's global relationships.
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
<PAGE>
-4-
program, sales are recorded when the customer uses the product, 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." See Note 9 of the Notes to
Consolidated Financial Statements for additional financial information.
Customers
During 1999, the Company's ten largest customers accounted for
approximately 69% of its consolidated 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 27% of net sales in 1999 and sales to FAG
accounted for approximately 11% of net sales in 1999. None of the Company's
other customers accounted for more than 10% of its net sales in 1999; however,
sales to Gary Products Group, The Torrington Company, and SNR Roulements each
represented more than 5% of the Company's net sales during the period.
During 1999, the Ball and Roller Division sold its products to more than
500 customers located in 26 different countries. Approximately 47% of ball and
roller net sales in 1999 were to customers outside the United States. Sales to
the Ball & Roller Division's top ten customers accounted for approximately 76%
of the divisions' net sales in 1999. Sales to SKF and FAG accounted for
approximately 33% and 13% of the division's net sales in 1999 respectively.
From the time of acquisition on July 4, 1999, IMC sold its products to 65
customers located in 10 different countries. Approximately 5% of IMC's net sales
were to customers outside the United States. Sales to IMC's top ten customers
accounted for approximately 80% of the divisions' net sales in 1999. Sales to
Gary Products Group accounted for approximately 35% of the division's net sales
in 1999.
See Note 9 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.
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 and plastic molded products 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, 1999, the Company had 791 full-time employees of whom
721 were engaged in production/maintenance. Of these 791 employees, 360 were
employed at the Ball & Roller division, 401 at the Plastics Division and 30 at
Corporate Division. No employee of the Company is represented by a union. The
Company believes that relations with its employees are good.
<PAGE>
-5-
Competition
The precision ball and roller industry is intensely competitive, and many
of the Company's competitors have 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.
The markets for IMC's products are also intensely competitive. Since the
Industry is currently very fragmented, IMC must compete with numerous companies
in each of their marketing segments. Many of these companies have substantially
greater financial resources than IMC and many currently offer competing products
nationally and internationally. IMC's primary competitor in the bearing retainer
segment is Nakanishi Manufacturing Corporation. Nypro, Inc. and Key Plastics
are the main domestic competitors in the automotive segment.
The Company believes that competition within the plastic injection molding
industry is based principally on quality, price, design capabilities and speed
of responsiveness and delivery. Management believes that IMC's competitive
strengths are product development, tool design and fabrication and tight
tolerance molding processes as well as its reputation in the marketplace as a
quality producer of technically difficult products.
Raw Materials
The primary raw material used by the Company in its Ball & Roller Division
is 52100 Steel. During 1999, approximately 95% 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 is principally 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.
The primary raw materials used by IMC are engineered resins and
polypropylene resins. Injection grade nylon is utilized in bearing retainers,
automotive and other industrial products and polypropylene is utilized for
seasonal hardware products. The Company purchases substantially all of its resin
requirements
<PAGE>
-6-
from domestic manufacturers and suppliers. The majority of these suppliers are
international companies with resin manufacturing facilities located throughout
the world.
The Company bases purchase decisions on price, quality and service.
Generally, the Company does not enter into written supply contracts with its
suppliers or commit itself to maintain minimum monthly purchases of resins. The
pricing arrangements with its suppliers typically can be adjusted at anytime.
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
Historically, due to increased foreign sales, seasonality has become a
factor for the Company in that some foreign customers typically cease their
production activities during the month of August. With the acquisition of IMC,
this effect will be somewhat offset due to the production and sale of seasonal
hardware products. Although production and sales of these products occur
throughout the year, sales tend to be more highly concentrated during the fall
months.
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 at one of its ball and roller facilities. 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.
<PAGE>
-7-
Executive Officers of the Registrant
The executive officers of the Company consist of the following persons:
Name Age Position
---- --- --------
Richard D. Ennen 72 Chairman of the Board and Director
Roderick R. Baty 46 President, Chief Executive Officer and
Director
Frank T. Gentry, III 44 Vice President - Manufacturing
Robert R. Sams 42 Vice President - Market Services
David L. Dyckman 35 Vice President - Business Development
and Chief Financial Officer
William C. Kelly, Jr. 41 Treasurer, Secretary and Chief
Accounting Officer
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.
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.
Robert R. Sams joined the Company in 1996 as Plant Manager of the Mountain
City, Tennessee facility. In 1997, Mr. Sams served as Managing Director of the
Kilkenny facility and in 1999 was elected to the position of Vice President -
Market Services. Prior to joining the Company, Mr. Sams held various positions
with Hoover Precision Products from 1980 to 1994 and most recently as Vice
President of Production for Blum, Inc. from 1994 to 1996.
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
<PAGE>
-8-
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
PricewaterhouseCoopers 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 ball manufacturing facilities located in Erwin,
Tennessee, Walterboro, South Carolina, Mountain City, Tennessee and Kilkenny,
Ireland. Rollers are only produced at the Erwin, Tennessee facility. 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 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.
Through its newly acquired plastics subsidiary, Industrial Molding
Corporation, the Company manufacturers a wide range of plastic molded products
through two facilities located in Lubbock, Texas. The Slaton facility, located
on a 6.5 acre tract of land owned by the Company, contains approximately 193,000
square feet of manufacturing, warehouse and office space. The Cedar facility is
situated on a 2.5 acre tract of land which is also owned by the Company and
contains approximately 35,000 square feet of manufacturing and warehouse space.
During 1999, 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."
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, 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 1999.
<PAGE>
-9-
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
20, 2000, there were 200 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 1998 and 1999:
Price
-----
High Low Dividend
---- --- --------
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
1999
First Quarter 6 3/4 4 3/4 0.08
Second Quarter 6 3/4 5 3/8 0.08
Third Quarter 7 5/8 5 7/8 0.08
Fourth Quarter 7 7/16 6 1/4 0.08
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>
-10-
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, 1999 and for each of the three years in the period ended December 31, 1999,
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. 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,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales $85,294 $73,006 $75,252 $84,539 $77,786
Cost of products sold 59,967 50,353 51,707 56,695 53,912
------- ------- ------- ------- -------
Gross profit 25,327 22,653 23,545 27,844 23,874
Selling, general and administrative expenses 6,854 5,896 5,518 4,890 4,249
Depreciation and amortization 6,131 4,557 4,106 3,358 2,364
------- ------- ------- ------- -------
Income from operations 12,342 12,200 13,921 19,596 17,261
Interest expense 523 64 29 296 42
------- ------- ------- ------- -------
Income before provision for income taxes 11,819 12,136 13,892 19,300 17,219
Provision for income taxes 4,060 4,480 5,382 6,835 5,708
------- ------- ------- ------- -------
Net Income $ 7,759 $ 7,656 $ 8,510 $12,465 $11,511
======= ======= ======= ======= =======
Basic income per share: $ 0.52 $ 0.52 $ 0.57 $ 0.83 $ 0.79
======= ======= ======= ======= =======
Diluted income per share (1) $ 0.52 $ 0.52 $ 0.57 $ 0.83 $ 0.79
======= ======= ======= ======= =======
Operating income per share $ 0.81 $ 0.82 $ 0.94 $ 1.30 $ 1.18
======= ======= ======= ======= =======
Dividends declared $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.20
======= ======= ======= ======= =======
Weighted average number of shares outstanding (1) 15,244 14,804 14,804 15,042 14,583
======= ======= ======= ======= =======
</TABLE>
<PAGE>
-11-
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets $33,402 $28,571 $26,185 $26,727 $26,728
Current liabilities 10,478 7,638 7,471 8,374 13,303
Total assets 90,368 66,860 63,273 59,292 54,241
Long-term debt 17,151 0 0 0 0
Stockholders' equity 60,128 56,242 52,971 48,710 39,218
</TABLE>
(1) The actual net income per share data is based on the historical weighted
average number of shares outstanding, as adjusted to reflect (i) the
3-for-2 split of the Common Stock effected on March 5, 1995, and (ii) the
3-for-2 split of the Common Stock effected on December 5, 1995.
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 1999, balls accounted for approximately
91% of the Company's ball and roller net sales, while rollers accounted for the
remaining 9%. 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 47% of net ball
and roller sales in 1999. See Note 9 of the Notes to Financial Statements.
Since the Company was formed, growth factors 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. Sales of high precision balls
produced by the Company for use in quiet bearing applications has grown to
approximately 85% of total net ball sales. Management believes that the
Company's sales growth since its formation has been 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 the last couple of years has been due in large
part to economic conditions in Asia and South America and a decline in
outsourcing by certain captive producers. Further, the Company was adversely
affected by increased competition from Asian-based competitors who sought to
reduce over capacity.
As a result of changing dynamics in the marketplace, the Company has
developed an extensive new long-term growth strategy. The development of this
strategy entailed the review of the Company's core business and strategies for
growth as well as an extensive identification of additional growth opportunities
beyond the core markets that were consistent with the Company's strengths and
culture. One industry that was identified through this process was the plastic
injection molding industry.
<PAGE>
-12-
On July 4, 1999, the Company acquired substantially all of the assets of
Earsley Capital Corporation, a successor to and formerly known as Industrial
Molding Corporation, a Texas corporation. IMC provides premier full-service
design and manufacture of plastic injection molded components to the bearing,
automotive, electronic, leisure and consumer markets with an emphasis on
value-added products that take advantage of its unique capabilities in product
development, tool design and tight tolerance molding processes.
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,
-----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of product sold 70.3 69.0 68.7
----- ----- -----
Gross profit 29.7 31.0 31.3
Selling, general and administrative expenses 8.0 8.1 7.3
Depreciation and amortization 7.2 6.2 5.5
----- ----- -----
Income from operations 14.5 16.7 18.5
Interest expense 0.6 0.1 0.0
----- ----- -----
Income before provision for income taxes 13.9 16.6 18.5
Provision for income taxes 4.8 6.1 7.2
----- ----- -----
Net income 9.1% 10.5% 11.3%
===== ===== =====
</TABLE>
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Net Sales. The Company's net sales increased $12.3 million, or 16.8%, from
$73.0 million in 1998 to $85.3 million in 1999. The IMC acquisition accounted
for $17.6 million in additional sales for the twelve-month period in 1999.
Foreign net sales decreased $1.3 million or 3.9%, from $33.7 million in 1998 to
$32.4 million in 1999. The decrease in foreign net sales was due primarily to
decreased sales volumes with existing customers, largely due to general economic
conditions in Asia and the impact of the relative strength of the U.S. dollar
against world currencies in the first two quarters of the year. This was
partially offset by the addition of $880,000 in foreign sales contributed by the
IMC acquisition. Domestic net sales increased $13.6 million, or 34.6%, from
$39.3 million in 1998 to $52.9 million in 1999. This increase was primarily due
to the IMC acquisition which contributed $16.7 million in domestic sales for
1999. This was partially offset by decreased domestic sales primarily to one
customer.
Gross Profit. Gross profit increased by $2.6 million, or 11.5% from $22.7
million in 1998 to $25.3 million in 1999. The IMC acquisition accounted for $4.3
million in increased gross profit but was mostly offset by increased costs
associated with capacity under-utilization in the Ball & Roller division due
<PAGE>
-13-
to decreased levels of volume during 1999 as well as the short-term impact of
the inventory reduction efforts. As a percentage of net sales, gross profit
decreased from 31.0% in 1998 to 29.7% in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $958,000, or 16.2% in 1999 to $6.9 million
from $5.9 million in 1998. The acquisition of IMC accounted for $1.8 million of
the increase offset by decreased spending in the Ball & Roller division. As a
percentage of net sales, selling, general and administrative expenses decreased
slightly to 8.0% in 1999 from 8.1% in 1998.
Depreciation and Amortization Expense. Depreciation expense increased $1.5
million, or 34.5%, to $6.1 million in 1999 from $4.6 million in 1998. The
acquisition of IMC accounted for $1.2 million of increased depreciation and
amortization expense. The remainder of the increase was due to purchases of
capital equipment at the Company's ball and roller facilities. As a percentage
of net sales, depreciation increased to 7.2% in 1999 from 6.2% in 1998.
Interest Expense. Interest expense increased $459,000 from $64,000 in 1998
to $523,000 in 1999. The increase was due to increased levels outstanding under
the Company's line of credit in 1999. In July of 1999, the Company borrowed
$18.5 million under the line of credit for the purchase of selected assets of
the Earsley Capital Corporation. See "Management's Discussion and Analysis of
Financial Condition --Liquidity and Capital Resources."
Net Income. Net income increased $103,000, or 1.3% from $7.7 million in
1998 to $7.8 million in 1999. As a percentage of net sales, net income decreased
to 9.1% in 1999 from 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 Ball & Roller
division and a related gross profit margin decrease, increased depreciation
expense and interest expense related to the IMC acquisition. Offsetting these
factors was a slightly lower federal tax rate.
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 $1.7
million, or 4.8%, from $35.4 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 $600,000, or 1.5%, from $39.9 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>
-14-
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.
Liquidity and Capital Resources
In July 1997, the Company entered into a loan agreement with First
American National Bank ("First American") which provides for a revolving credit
facility of up to $25 million, expiring on June 30, 2000. In December 1999, the
Company extended the terms of the loan agreement with First American to expire
on July 25, 2001. Amounts outstanding under the revolving facility are unsecured
and bear interest at a floating rate equal to, at the Company's option, either
LIBOR plus 0.65% or the Fed Funds effective rate plus 1.5%. The loan agreement
contains customary financial and operating restrictions on the Company,
including covenants, restricting the Company, without First American's consent,
from incurring additional indebtedness from, or pledging any of its assets to,
other lenders and from disposing of a substantial portion of its assets. In
addition, the Company is prohibited from declaring any dividend if a default
exists under the revolving credit facility at the time of, or would occur as a
result of, such declaration. The loan agreement also prohibits sales of property
outside of the ordinary course of business. The loan agreement also contains
customary financial covenants with respect to the Company, including a covenant
that the Company's earnings will not decrease in any year by more than fifty
percent of earnings in the Company's immediately preceding fiscal year. The
Company, as of March 20, 2000 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's net sales historically have not been of a seasonal
nature. However, seasonality has become a factor for the foreign ball and roller
sales in that many foreign customers cease production during the month of
August. The Company also experiences seasonal fluctuation through its IMC
Plastics division which provides several lines of seasonal hardware.
The Company bills and receives payment from some of its foreign customers
in their local 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,
including a hedging program. In addition, a strengthening of the U.S. dollar
against foreign currencies could impair the ability of the Company to compete
with international competitors for foreign as well as domestic sales.
Working capital, which consists principally of accounts receivable and
inventories, was $22.9 million at December 31, 1999 as compared to $20.9 million
at December 31, 1998. The ratio of current assets to current liabilities
decreased from 3.7:1 at December 31, 1998 to 3.2:1 at December 31, 1999. Cash
flow from operations increased to $17.8 million during 1999 from $12.7 million
during 1998. This increase was primarily attributed to a decrease of $5.1
million of inventories during 1999 as compared to an increase of $2.6 million
during 1998.
During 2000, the Company plans to spend approximately $5.3 million on
capital expenditures. The Company intends to finance these activities with cash
generated from operations and funds available under the credit facility
described above. The Company believes that funds generated from operations and
borrowings from the credit facility will be sufficient to finance the Company's
working capital needs and projected capital expenditure requirements through
December 2000.
<PAGE>
-15-
Subsequent Events
On January 14, 2000, the Company entered into a principle agreement to
establish a joint venture with General Bearing Corporation. This venture
subsequently closed on March 16, 2000. The new venture, NN General, LLC, will
own a majority position in Jiangsu General Ball & Roller Company, Ltd., a
Chinese precision ball and roller manufacturer located in Rugao City, Jiangsu
Providence China. Through NN General, LLC, the Company will equally share a 60%
interest with General Bearing Company in the Chinese company. The Company's
investment includes a cash contribution of $2.5 million and a loan commitment
for an additional $1 million. The remaining 40% of the Chinese company is owned
by Jiangsu Steel Ball Factory.
On March 12, 2000, the Company experienced a fire at its Erwin, Tennessee
facility. The fire, which was contained to approximately 30% of the production
area, occurred in the early morning hours when only three employees were in the
facility. These employees were immediately evacuated and no one was injured.
Effected production is being shifted to the Company's other facilities as
possible as well as the use of other suppliers to protect product supply to
customers. The cause of the fire remains under investigation and management is
continuing to assess damage to the facility. Insurance coverage is available for
the loss.
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 in
sub-units of the Euro. At the end of the transitional period, Euro bank notes
and coins will be issued, and the national currencies of the member states will
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 was changed effective September, 1999.
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, 1999
and 1998, see Note 13 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.
<PAGE>
-16-
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Company wishes to caution readers that this report contains, and future
filings by the Company, press releases and oral statements made by the Company's
authorized representatives may contain, forward looking statements that involve
certain risks and uncertainties. The Company's actual results could differ
materially from those expressed in such forward looking statements due to
important factors bearing on the Company's business, many of which already have
been discussed in this filing and in the Company's prior filings.
The following paragraphs discuss the risk factors the Company regards as the
most significant, although the Company wishes to caution that other factors that
are currently not considered as significant or that currently cannot be foreseen
may in the future prove to be important in affecting the Company's results of
operations. The Company undertakes no obligation to publicly update or revise
any forward looking statements, whether as a result of new information, future
events or otherwise.
Industry Risks. Both the precision ball & roller and precision plastics
industries are cyclical and tend to decline in response to overall declines in
industrial production. The Company's sales in the past have been negatively
affected, and in the future very likely would be negatively affected, by adverse
conditions in the industrial production sector of the economy or by adverse
global or national economic conditions generally.
Competition. The precision ball & roller market and the precision plastics
markets are highly competitive, and many of manufacturers in each of the markets
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 ball
and roller customers that, in addition to producing bearings, also internally
produce balls and rollers for sale to third parties. The Company faces a risk
that its customers will decide to produce balls and rollers internally rather
than outsourcing their needs to the Company.
Rapid Growth. The Company has significantly expanded its ball and roller
production facilities and capacity over the last several years, and during the
third quarter of 1997 purchased an additional manufacturing plant in Kilkenny,
Ireland. The Company's Ball & Roller division currently is not operating at full
capacity and faces risks of further under-utilization or inefficient utilization
of its production facilities in future years. The Company also faces risks
associated with start-up expenses, inefficiencies, delays and increased
depreciation costs associated with its plant expansions.
Raw Material Shortages. Because the balls and rollers manufactured by the
Company have highly-specialized applications, their production requires the use
of very particular types of steel. Due to quality constraints, the Company
obtains the majority of its steel from overseas suppliers. Steel shortages or
transportation problems, particularly with respect to 52100 Steel, could have a
detrimental effect on the Company's business.
Risks Associated with International Trade. Because the Company obtains a
majority of its raw materials for the manufacture of balls and rollers 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 duties or taxes, and (v) unstable governments or legal systems in
countries in which the Company's suppliers and customers are located. An
increase in the value of the United States dollar relative to foreign currencies
adversely affects the ability of the Company to compete with its foreign-based
competitors for international as well as domestic sales.
Dependence on Major Customers. During 1999, the Company's ten largest customers
accounted for approximately 69% of its net sales. Sales to various US and
foreign divisions of SKF, which is one of the largest bearing manufacturers in
the world, accounted for approximately 27% of net sales in 1999, and sales to
FAG accounted for approximately 11% of net sales. None of the Company's other
customers accounted for
<PAGE>
-17-
more than 10% of its net sales in 1999, but sales to three of its customers each
represented more than 5% of the Company's 1999 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.
Acquisitions. The Company's growth strategy includes growth through
acquisitions. In July 1999, the Company acquired IMC as part of that strategy.
Although the Company believes that it will be able to integrate the operations
of IMC and other companies acquired in the future into its operations without
substantial cost, delays or other problems, its ability to do so will depend on,
among other things, the adequacy of its implementation plans, the ability of its
management to effectively oversee and operate the combined operations of the
Company and the acquired businesses and its ability to achieve desired operating
efficiencies and sales goals. If the Company is not able to successfully
integrate the operations of acquired companies into its business, its future
earnings and profitability could be materially and adversely affected.
Recently Issued Accounting Standards
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.
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, 1999, the Company had $17.2 million outstanding
under the revolving credit facility. A one-percent increase in the interest rate
charged on the Company's outstanding borrowings under the revolving credit
facility would result in interest expense increasing by approximately $172,000.
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 38% 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, 1999.
<PAGE>
-18-
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
<TABLE>
<CAPTION>
Financial Statements Page
----
<S> <C>
Report of Independent Accountants...............................................................19
Consolidated Balance Sheets at December 31, 1999 and 1998.......................................20
Consolidated Statements of Income and Comprehensive Income for the three years ended
December 31, 1999...............................................................................21
Consolidated Statements of Changes in Stockholders' Equity for the three years
ended December 31, 1999.........................................................................22
Consolidated Statements of Cash Flows for the three years ended December 31, 1999...............23
Notes to Consolidated Financial Statements......................................................24
Financial Statement Schedules:
For the three years ended December 31, 1999
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 consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of NN
Ball & Roller, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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.
Greensboro, North Carolina
February 4, 2000
<PAGE>
20
NN Ball & Roller, Inc.
Consolidated Balance Sheets (in thousands, except per share data)
- --------------------------------------------------------------------------------
December 31,
1999 1998
Assets
Current assets:
Cash $ 1,409 $ 1,430
Accounts receivable, net 18,183 11,643
Inventories, net 13,122 14,425
Other current assets 688 1,073
-------- --------
Total current assets 33,402 28,571
Property, plant and equipment, net 43,452 38,289
Goodwill, net 12,779 --
Other non-current assets 735 --
-------- --------
Total assets $ 90,368 $ 66,860
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable - trade $ 4,104 $ 4,451
Book overdraft 1,239 --
Accrued vacation expense 676 431
Deferred income 875 828
Income taxes payable 1,283 786
Accrued sales rebate 139 156
Other liabilities 2,162 986
-------- --------
10,478 7,638
Deferred income taxes 2,611 2,980
Long-term debt 17,151 --
-------- --------
Total liabilities 30,240 10,618
-------- --------
Stockholders' equity:
Common stock - $0.01 par value, authorized - 45,000
(1999) and 45,000 (1998) shares, issued and
outstanding - 15,244 (1999) and 14,804 (1998) shares 153 149
Additional paid-in capital 30,398 27,902
Retained earnings 31,255 28,306
Accumulated other comprehensive income (1,678) (115)
-------- --------
Total stockholders' equity 60,128 56,242
-------- --------
Total liabilities and stockholders' equity $ 90,368 $ 66,860
-------- --------
The accompanying notes are an integral part of these financial statements.
<PAGE>
21
NN Ball & Roller, Inc.
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
- --------------------------------------------------------------------------------
Year ended December 31,
1999 1998 1997
Net sales $ 85,294 $ 73,006 $ 75,252
Cost of products sold 59,967 50,353 51,707
-------- -------- --------
Gross profit 25,327 22,653 23,545
Selling, general and administrative expenses 6,854 5,896 5,518
Depreciation and amortization 6,131 4,557 4,106
-------- -------- --------
Income from operations 12,342 12,200 13,921
Interest expense 523 64 29
-------- -------- --------
Income before provision for income taxes 11,819 12,136 13,892
Provision for income taxes 4,060 4,480 5,382
-------- -------- --------
Net income 7,759 7,656 8,510
-------- -------- --------
Other comprehensive income:
Foreign currency translation (1,563) 352 (467)
-------- -------- --------
Other comprehensive income (1,563) 352 (467)
-------- -------- --------
Comprehensive income $ 6,196 $ 8,008 $ 8,043
======== ======== ========
Basic net income per share $ .52 $ .52 $ .57
======== ======== ========
Shares outstanding 15,021 14,804 14,804
======== ======== ========
Diluted net income per share $ .52 $ .52 $ .57
======== ======== ========
Weighted average shares outstanding 15,038 14,804 14,809
======== ======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
22
NN Ball & Roller, Inc.
Consolidated 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, 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)
Cumulative translation -- -- -- -- 352 352
-------- -------- -------- -------- -------- --------
Balance, December 31, 1998 14,804 149 27,902 28,306 (115) 56,242
Shares issued 440 4 2,496 -- -- 2,500
Net income -- -- -- 7,759 -- 7,759
Dividends paid -- -- -- (4,810) -- (4,810)
Cumulative translation -- -- -- (1,563) (1,563)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1999 14,244 $ 153 $ 30,398 $ 31,255 $ (1,678) $ 60,128
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
23
NN Ball & Roller, Inc.
Consolidated Statements of Cash Flows (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,759 $ 7,656 $ 8,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,131 4,557 4,106
Loss on property disposals 43 -- --
Deferred income taxes (369) 149 623
Changes in operating assets and liabilities:
Accounts receivable (641) 806 3,305
Inventories 5,121 (2,560) (1,457)
Other current assets 471 432 (940)
Other assets 19 -- 146
Accounts payable - trade (1,439) 789 (392)
Accrued vacation expense 61 (88) 149
Accrued salaries and wages (95) 120 72
Accrued bonuses (189) -- --
Deferred income (115) 370 458
Income taxes payable 497 786 (96)
Accrued sales rebate (17) (20) (579)
Other liabilities 608 (310) 313
-------- -------- --------
Net cash provided by operations 17,845 12,687 14,218
-------- -------- --------
Cash flows from investing activities:
Acquisition of Industrial Molding Corporation (27,535) -- --
Acquisition of property, plant and equipment (2,394) (5,758) (8,775)
Proceeds from property disposals 46 -- --
-------- -------- --------
Net cash used for investing activities (29,883) (5,758) (8,775)
-------- -------- --------
Cash flows from financing activities:
Payments under revolving line of credit 17,151 (1,480) (828)
Book overdraft 1,239 -- --
Cash dividends (4,810) (4,737) (4,704)
Stock options exercised -- -- 3,046
Stock repurchased -- -- (2,124)
-------- -------- --------
Net cash provided by (used for) financing activities 13,580 (6,217) (4,610)
-------- -------- --------
Effect of exchange rate changes (1,563) 352 (467)
Net increase (decrease) in cash and cash equivalents 1,542 712 833
Cash and cash equivalents at beginning of period 1,430 366 --
-------- -------- --------
Cash and cash equivalents at end of period $ 1,409 $ 1,430 $ 366
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
24
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND IT'S SIGNIFICANT ACCOUNTING POLICIES
NN Ball & Roller, Inc. (the "Company") is a manufacturer of balls, rollers, and
precision injected molded products. The Company's balls and rollers are used
primarily in the domestic and international anti-friction bearing industry. The
ball and roller segment has manufacturing facilities in the United States and
Ireland. The Company's precision injection molding segment, which was acquired
during 1999 (see Note 2), manufactures components used in the bearing,
automotive, instrumentation, fiber optic, and consumer hardware industries. The
precision injection molding segments manufacturing facility is located in
Texas. Both of the Company's segments sell to foreign and domestic customers.
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, respectively. 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, 1999 or 1998.
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 ball and roller 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, 1999 and 1998 was
approximately $2,766,000 and $3,635,000, 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 10).
<PAGE>
25
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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.
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. 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 subsidiaries Industrial Molding Corporation and 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. Translation adjustments are reported as a
component of other comprehensive income.
Goodwill
Goodwill, which represents the excess of acquisition costs over the net assets
acquired in a business combination, is amortized on a straight-line method over
a period of 20 years. Periodically, the Company reviews the recoverability of
goodwill and other intangibles. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from expected
future operating cash flows on an undiscounted basis. In management's opinion,
no material impairment exists at December 31, 1999.
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 June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which established 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.
<PAGE>
26
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 2 - ACQUISITION
Effective July 4, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of Earsley Capital Corporation, a Nevada corporation
and successor to and formerly known as Industrial Molding Corporation ("IMC").
IMC, located in Lubbock, Texas, operates as a premier full-service designer and
manufacturer of precision plastic injection molded components. The Company plans
to continue the operation of the IMC business as a subsidiary entity. The
Company paid consideration of approximately $30 million, consisting of $27.5
million in cash and 440,038 shares of its common stock, for the net assets
acquired from IMC. Cash used in the acquisition was obtained from the Company's
line of credit with First American National Bank. The amount of goodwill
recorded in the transaction was approximately $13.2 million, which is being
amortized, on a straight-line basis over twenty years.
All IMC profit and loss activity and balance sheet accounts beginning with July
4, 1999 have been included in the Company's December 31, 1999 consolidated
financial statements.
The following unaudited pro forma summary presents the financial information as
if the Company's acquisition had occurred on January 1, 1999 and 1998. These pro
forma results have been prepared for comparative purposes and do not purport to
be indicative of what would have occurred had the acquisition been made on
January 1, 1999 and 1998, nor is it indicative of future results.
(Unaudited)
Year ended December 31,
1999 1998
(in thousands)
Revenues from external customer $ 101,562 $ 101,135
Net profit 7,558 6,637
Basic earnings per share 0.50 0.44
Dilutive earnings per share 0.50 0.44
<PAGE>
27
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 3 - ACCOUNTS RECEIVABLE
December 31,
1999 1998
(in thousands)
Trade $18,918 $11,910
Employees 55 97
Other 116 222
------- -------
19,089 12,229
Less - Allowance for doubtful accounts 906 586
------- -------
$18,183 $11,643
======= =======
NOTE 4 - INVENTORIES
December 31,
1999 1998
(in thousands)
Raw materials $ 3,131 $ 3,611
Work in process 2,585 2,850
Finished goods 7,466 8,024
------- -------
13,182 14,485
Less - Reserve for excess and obsolete inventory 60 60
------- -------
$13,122 $14,425
======= =======
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Estimated December 31,
useful life 1999 1998
(in thousands)
Land $ 841 $ 323
Buildings and improvements 10-25 years 13,436 10,333
Machinery and equipment 3-10 years 58,208 49,674
Construction in progress 1,813 3,400
------- -------
74,298 63,730
Less - Accumulated depreciation 30,846 25,441
------- -------
$43,452 $38,289
======= =======
<PAGE>
28
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 6 - CREDIT FACILITY
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, at an interest rate of 7.25%, and entered a similar agreement with
First American National Bank. Under the agreement, the Company could borrow
up to $25,000,000 through June 30, 2000 at the rate of LIBOR plus 0.65% or
the Federal Funds effective rate plus 1.5%, according to the Company's
option. During 1999, the Company revised and extended the terms of its
$25,000,000 line of credit with First American National Bank. Under the
revised agreement, outstanding borrowings accrue interest at the rate of
LIBOR plus 0.65% or the Federal Funds effective rate plus 1.5%, at the
Company's option, and all outstanding principal amounts are due July 25,
2001. Amounts outstanding under the line of credit at December 31, 1999 and
1998 were $17,151,000 and $0, respectively, at an interest rate of 5.49% at
December 31, 1999. 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, 1999 and 1998.
Interest paid during 1999, 1998 and 1997 was $519,000, $64,000 and $28,000,
respectively.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has two defined contribution 401(k) profit sharing plans covering
substantially all employees of the ball and roller and plastics segments. The
plan in place for the ball and roller segment covers 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 for the ball and
roller division plan were $120,000, $141,000 and $154,000 in 1999, 1998 and
1997.
The plan in place for the plastics segment covers all employees who have
completed six months of service and have elected to participate in the plan. A
participant may elect to contribute from 1% to 15% of his or her compensation to
the plan, subject to a maximum deferral set forth in the Internal Revenue Code.
The Company matches twenty-five percent of the first six percent of each
employee's contribution to the plan and provides for a discretionary
contribution at the end of each plan year. The contributions by the Company for
the plastics segment plan were $196,000 in 1999.
NOTE 8 - 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. During 1999 the plan
was amended to increase the number of shares available for issuance pursuant to
awards made under the plan from 1,125,000 to 1,625,000. 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>
29
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
A summary of the status of the Company's stock option plan as described above as
of December 31, 1999, 1998, and 1997, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
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 548,625 $ 11.53 [ILLEGIBLE] $ 11.86 853,629 $ 9.44
Granted 539,175 5.93 [ILLEGIBLE] 9.83 42,750 12.02
Exercised -- -- -- -- (361,002) 6.25
Forfeited (38,500) 12.28 (10,000) 10.44 (74,002) 11.40
--------- ------- -------
Outstanding at end of year 1,049,300 8.53 548,625 11.53 461,375 11.86
========= ======= =======
Options exercisable at year-end 345,322 11.53 246,735 11.75 154,664 11.75
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
<S> <C> <C> <C> <C> <C>
$5.94 - $9.75 631,300 9.2 years 6.25 $ 40,222 8.62
$10.44 - $15.50 418,000 6.0 years 11.97 305,100 11.91
--------- ----- ------- -----
$5.94 - $15.50 1,049,300 7.9 years 8.53 345,322 11.53
</TABLE>
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 five
years, beginning one year from date of grant. The maximum term of these options
is 10 years. On July 4, 1999 the Company granted an additional 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 six months from the
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 has not
repurchased any shares under this program through December 31, 1999.
<PAGE>
30
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On July 31, 1997, one of the Company's officers exercised approximately 358,000
stock options at the exercise price of $6.22 and the market price of $12.50 on
the date of exercise. Certain of these options were considered non-qualified
options and, accordingly, the Company recorded compensation expense, for income
tax purposes only, of approximately $2,150,000 in 1997. The reduction in taxes
payable of approximately $789,000 in 1997 was recorded as additional paid-in
capital in the accompanying financial statements.
All options granted in the period January 1, 1999 through December 31, 1999,
except those granted to the Company's Board of Directors as described above,
vest ratably over periods ranging from six months to five years, 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. 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). 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, 1999. 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,
1999 1998 1997
<S> <C> <C> <C> <C>
Net income As reported (000's) $ 7,759 $ 7,656 $ 8,150
Pro forma (000's) 7,462 7,360 8,254
Earnings per share As reported $ .52 $ .52 $ .57
Pro forma .50 .50 .56
Earnings per share-assuming As reported $ .52 $ .52 $ .57
dilution Pro forma .50 .50 .56
</TABLE>
The fair value of each option grant was estimated on actual information
available through December 31, 1999 and 1998 using the Black-Scholes
option-pricing model with the following assumptions:
Term One year after each 20% vesting date
Risk free interest rate 6.5% and 4.7% for 1999 and 1998,
respectively
4.4% and 5.4% annually for 1999 and 1998,
Dividend yield respectively
Volatility 39% and 32% for 1999 and 1998,
respectively
<PAGE>
31
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 9 - SEGMENT INFORMATION
The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," effective with its December 31, 1998
reporting and identified its reportable segments based upon the geographic
location of its business units. During 1999, the Company changed the way it
evaluates its business units. Effective in 1999, the Company's reportable
segments are based on differences in product lines and are divided between balls
and rollers and plastics. The ball and roller segment comprises three
manufacturing facilities in the eastern United States and one facility located
in Kilkenny, Ireland. All of these facilities are engaged in the production of
precision balls and rollers used primarily in the bearing industry. The plastics
segment is concentrated in one facility located in Lubbock, Texas which
represents the IMC business acquired in July 1999. This facility is engaged in
the production of plastic injection molded products for the bearing, automotive,
instrumentation, fiber optic and consumer hardware markets.
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. The Company accounts for intersegment
sales and transfers at current market prices; however, the Company did not have
any material intersegment transactions during 1999, 1998 or 1997.
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
Balls and Balls and Balls and
Rollers Plastic Rollers Plastic Rollers Plastics
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $ 67,736 $ 17,558 $ 73,006 $ -- $ 75,252 $ --
Interest expense -- 523 64 -- 29 --
Depreciation and
amortization 4,932 1,199 4,557 -- 4,106 --
Segment profit/(loss) 11,109 710 12,136 -- 13,892 --
Segment assets 58,557 31,811 66,860 -- 63,273 --
Expenditures for
long-lived assets 1,723 [ILLEGIBLE] 5,758 -- 8,775 --
</TABLE>
<PAGE>
32
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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,
1999 1998 1997
Long-lived Long-lived Long-lived
Sales assets Sales assets Sales assets
<S> <C> <C> <C> <C> <C> <C>
United States $ 52,907 $ 36,842 $ 39,331 $ 30,723 $ 39,884 $ 31,588
Europe 21,064 6,610 23,843 7,566 18,060 5,500
Canada 5,918 4,163 -- 3,763 --
Latin America 2,903 2,762 -- 5,268 --
Other export 2,502 2,907 -- 8,277 --
-------- --------- -------- -------- -------- --------
Total foreign $ 85,294 $ 43,452 $ 73,006 $ 38,289 $ 75,252 $ 37,088
======== ========= ======== ======== ========= ========
</TABLE>
Two customers comprised 46%, 48% and 47% of ball and roller sales during the
years ended December 31, 1999, 1998, and 1997, respectively. One customer
comprised 35% of plastics sales for the year ended December 31, 1999. The
Company has a supply agreement with the major plastics customer to be the
exclusive supplier of all manufactured product sold by the customer. This supply
agreement is effective through October 31, 2004.
NOTE 10 - 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.
<PAGE>
33
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
Year ended December 31,
1999 1998 1997
(in thousands)
Current
Federal $ 3,960 $ 3,899 $ 4,338
State 469 432 421
------- ------- -------
4,429 4,331 4,759
------- ------- -------
Deferred
Federal (335) 115 554
State (34) 34 69
------- ------- -------
(369) 149 623
------- ------- -------
$ 4,060 $ 4,480 $ 5,382
======= ======= =======
A reconciliation of taxes based on the federal statutory rate of 34%, 35% and
35% for the years ended December 31, 1999, 1998 and 1997, respectively, is
summarized as follows:
Year ended December 31,
1999 1998 1997
(in thousands)
Income taxes at the federal statutory rate $ 4,006 $ 4,247 $ 4,862
State income taxes, net of federal benefit 289 309 318
Foreign sales corporation benefit (256) (312) (249)
Impact of foreign taxes (182) 44 283
Other, net 203 192 168
------- ------- -------
Provision for income taxes $ 4,060 $ 4,480 $ 5,382
======= ======= =======
<PAGE>
34
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The tax effects of the temporary differences are as follows:
December 31,
1999 1998
(in thousands)
Deferred income tax liability
Tax in excess of book depreciation $ 3,565 $ 3,647
Duty drawback receivable 161 110
Goodwill 41 --
------- -------
Gross deferred income tax liability 3,767 3,757
Deferred income tax assets
Inventories 406 282
Allowance for bad debts 332 180
Vacation reserve 216 141
Health insurance reserve 122 114
Other working capital accruals 80 60
------- -------
Gross deferred income tax assets 1,156 777
------- -------
Net deferred income tax liability $2,611 $2,980
------- -------
Income tax payments were approximately $3,123,000, $3,052,000 and $4,826,000 in
1999, 1998 and 1997, respectively.
NOTE 11 - RECONCILIATION OF NET INCOME PER SHARE
Year ended December 31,
1999 1998 1997
(in thousands)
Net income $ 7,759 $ 7,656 $ 8,510
Adjustments to net income -- -- --
------- ------- -------
Net income $ 7,759 $ 7,656 $ 8,150
Weighted average shares outstanding 15,021 14,804 14,804
Effective of dilutive stock options 17 -- 5
------- ------- -------
Dilutive shares outstanding 15,038 14,804 14,809
------- ------- -------
Basic net income per share $ .52 $ .52 $ .57
------- ------- -------
Diluted net income per share $ .52 $ .52 $ .57
------- ------- -------
Excluded from the shares outstanding for the years ended December 31, 1999 and
1998 were 525,125 and 466,500 antidilutive options, respectively, which had
exercise prices ranging from $6.38 to $15.50 and $10.44 to $15.50, respectively.
The Company has declared a dividend of $0.32 per share in each of the years
ending December 31, 1999, 1998 and 1997.
<PAGE>
35
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS
The Company has operating lease commitments for machinery and office equipment,
which expire on varying dates. Rent expense for 1999, 1998, and 1997 was
$376,000, $370,000 and $352,000, respectively. The following is a schedule by
year of future minimum lease payments as of December 31, 1999 under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year (in thousands).
Year ended
December 31,
2000 $ 82
2001 76
2002 55
2003 17
2004 8
Thereafter --
-----
Total minimum lease payments $ 238
-----
<PAGE>
36
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 13 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes the unaudited quarterly results of operations for the
years ended December 31, 1999 and 1998 (in thousands, except per share data).
Year ended December 31, 1999
March 31 June 30 Sept. 30 Dec. 31
Net sales $17,912 $17,475 $25,601 $24,306
Gross profit 5,389 4,884 7,312 7,742
Net income 1,962 1,715 1,944 2,138
Basic net income per share .13 .12 .13 .14
Dilutive net income per share .13 .12 .13 .14
Weighted average shares outstanding:
Basic number of shares 14,804 14,804 15,244 15,244
Effect of dilutive stock options -- 4 73 66
------- ------- ------- -------
Diluted number of shares 14,804 14,808 15,317 15,310
======= ======= ======= =======
Year ended December 31, 1998
March 31 June 30 Sept. 30 Dec. 31
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
Weighted average 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
======= ======= ======= =======
<PAGE>
37
NN Ball & Roller, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial position of the Company at December 31, 1999 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, 1999
and 1998 are as follows (in thousands):
December 31,
1999 1998
Carrying Fair Carrying Fair
amount value amount value
Assets:
Cash and cash equivalents $ 1,409 $ 1,409 $ 1,430 $ 1,430
Trade accounts receivable 19,089 19,089 11,910 11,910
Less: allowance for doubtful
accounts (906) -- (586) --
Liabilities:
Revolving credit facility 17,151 17,151 -- --
NOTE 15 - SUBSEQUENT EVENTS
Effective March 16, 2000, the Company entered into a principal agreement to
establish a joint venture with General Bearing Corporation. The new venture,
NN General, LLC, will own a majority position in Jiangsu General Ball &
Roller Company, Ltd., a Chinese precision ball and roller manufacturer
located in Rugao City, Jiangsu Province, China. Through NN General, LLC, the
Company will equally share a 60% interest with General Bearing Corporation in
the Chinese company. The Company's investment includes a cash contribution of
$2.5 million and a loan commitment for an additional $1 million. The
remaining 40% of the Chinese company is owned by Jiangsu Steel Ball Factory.
On March 12, 2000, the Company experienced a fire at its Erwin, Tennessee
facility. The fire, was contained to approximately 30% of the production
area. No one was injured in the fire. Effected production is being shifted to
the Company's other facilities as possible and to other suppliers in order to
protect product supply to customers. The cause of the fire remains under
investigation and management is continuing to assess damage to the facility.
Management expects its insurance coverage to adequately cover the losses in
the fire.
<PAGE>
38
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, 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
Year end December 31, 1999
Allowance for doubtful accounts $586 $320 $ -- $906
Reserve for excess and obsolete inventory $ 60 $ -- $ -- $ 60
</TABLE>
======================
(1) Deductions represent amounts written off.
<PAGE>
-40-
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, 1999) 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>
-41-
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:
Page
----
Report of Independent Accountants 19
Balance Sheets at December 31, 1999 and 1998 20
Statements of Income and Comprehensive Income for the 21
Three Years ended December 31, 1999.
Statements of Changes in Stockholders' Equity for the Three Years
Ended December 31, 1999 22
Statements of Cash Flows for the Three Years Ended December 31, 1999 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
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>
-42-
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.
10.15* Form of Stock Option Agreement, dated December 7, 1998 between
the Company and the non-employee directors of the Company.
10.16* Elective Deferred Compensation Plan, dated February 26, 1999.
10.17 Operating Agreement, dated March 16, 2000 among NN Ball &
Roller, Inc. and General Bearing Corporation (filed herewith).
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
27.0 Financial Data Schedule (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 1999.
(c) Exhibits See Index to Exhibits (attached hereto).
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.
<PAGE>
-43-
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 28, 2000
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.
Name and Signature Title Date
------------------ ----- ----
/s/ RICHARD D. ENNEN Chairman and Director March 28, 2000
- --------------------------
Richard D. Ennen
/s/ RODERICK R. BATY President, Chief Executive March 28, 2000
- -------------------------- Officer and Director (Principal
Roderick R. Baty Executive Officer)
/s/ WILLIAM C. KELLY, JR. Treasurer, Secretary and Chief March 28, 2000
- -------------------------- Accounting Officer (Principle
William C. Kelly, Jr. Accounting Officer)
/s/ DAVID L. DYCKMAN Vice President - Business March 28, 2000
- -------------------------- Development and Chief Financial
David L. Dyckman Officer (Principal Financial
Officer)
/s/ MICHAEL D. HUFF Director March 28, 2000
- --------------------------
Michael D. Huff
/s/ G. RONALD MORRIS Director March 28, 2000
- --------------------------
G. Ronald Morris
/s/ MICHAEL E. WERNER Director March 28, 2000
- --------------------------
Michael E. Werner
/s/ STEVEN T. WARSHAW Director March 28, 2000
- --------------------------
Steven T. Warshaw
/s/ JAMES L. EARSLEY Director March 28, 2000
- --------------------------
James L. Earsley
<PAGE>
-44-
(This page has been left blank intentionally.)
<PAGE>
-45-
Index to Exhibits
10.17 Operating Agreement, dated March 16, 2000, among NN Ball & Roller, Inc.
and General Bearing Corporation.
23.1 Consent of PricewaterhouseCoopers LLP
27.0 Financial Data Schedule
<PAGE>
EXHIBIT 10.17
OPERATING AGREEMENT
OF
NN GENERAL, LLC
THIS OPERATING AGREEMENT (this "Agreement") is made and entered into as of
March 16, 2000, by and among NN Ball & Roller, Inc., a Delaware corporation
("NN") and General Bearing Corporation, a Delaware corporation ("GBC")
(hereinafter sometimes referred to individually as a "Member" or collectively as
the "Members.")
RECITALS
WHEREAS, the Members desire to form a limited liability company called NN
General, LLC (the "Company") pursuant to the provision of the Delaware Limited
Liability Company Act (the "Act"); and
WHEREAS, the Members, being all of the members of the Company, desire and
agree to enter into this Operating Agreement in accordance with the Act;
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
GENERAL PROVISIONS
Section 1.1. Formation of the Company. The Members hereby agree to form
the Company in accordance with the Act and associate themselves as Members in
the Company as formed under and pursuant to the provisions of the Act for the
purposes set forth in this Operating Agreement. The Members agree that the
rights, obligations, and interests of the Members in the Company shall be
governed by the terms of this Operating Agreement. The Board of Managers (as
defined in Section 2.1 hereof) shall take such actions as may be required to
effect such formation including registration of the Company as a foreign limited
liability company in any other jurisdiction in which such registration is
necessary or appropriate. The costs and expenses associated with such formation
shall be borne by the Company and the Company shall reimburse each Member for
any and all out-of-pocket costs incurred by the Member directly related to the
formation of the Company. The term of the Company shall be as set forth in the
Articles of Organization of the Company and shall continue until dissolution and
termination of the Company in accordance with the provisions thereof and hereof.
Section 1.2. Name. The business and affairs of the Company shall be
conducted solely under the name of "NN General, LLC" and such name shall be used
at all times in connection with the business and affairs of the Company.
<PAGE>
Section 1.3. Purpose. The Company is organized for a profit and the nature
of its business and purposes to be conducted or promoted are to engage in any
lawful act or activities for which limited liability companies may be organized
under the Act.
Section 1.4. Place of Business. The Company shall maintain a place of
business at such place or places as the Board of Managers may from time to time
designate.
Section 1.5. Names and Addresses of the Members and the Appointment of the
Initial Board of Managers. The names and mailing addresses of the Members and
the initial Managers of the Company are as follows:
Name of Member Address of Member
-------------- -----------------
NN Ball & Roller, Inc. 800 Tennessee Road
Erwin, Tennessee 37650
USA
General Bearing Corporation 44 High Street
West Nyack, New York 10994
USA
Name of Initial Managers Address of Initial Managers
------------------------ ---------------------------
David L. Dyckman 800 Tennessee Road
Erwin, Tennessee 37650
USA
David L. Gussack 44 High Street
West Nyack, New York 10994
USA
ARTICLE II
DEFINITIONS
Section 2.1. Definitions. Capitalized terms used in this Agreement shall
have the meanings set forth below or as otherwise specified herein:
"Affiliate" means (1) any executive officer or director of a Member or
Manager, (2) any person that controls, is controlled by or is under common
control with such Member or Manager, and (3) any executive officer or director
of any entity described in (2) above.
"Agreement" means this Operating Agreement, as the same may be further
amended and/or restated from time to time.
"Board" means the Board of Managers.
2
<PAGE>
"Board of Managers" means the individuals elected by the Members pursuant
to Section 7.1 hereof (and their respective successors).
"Company" means NN General, LLC.
"Dissolution Proceeds" is defined in Section 10.2.
"Distribution Percentage" shall be, for each Member, the total number of
Membership Units held by the Member divided by the total number of Membership
Units issued by the Company and shall initially be as set forth opposite such
Member's name, as follows:
Member Distribution Percentage
------ -----------------------
NN 50%
GBC 50%
100%
----
A Member's "Interest" in the Company means the right of such Member to any
and all distributions to which such Member may be entitled as provided in this
Agreement, together with the duties and obligations of such Member to comply
with all of the terms and provisions of this Agreement.
"Member" has the meaning set forth in the introductory paragraph.
"Member Loans" is defined in Section 3.3.
"Membership Units" shall mean all of the units issued by the Company to
represent a Member's Interest including both Class A Membership Units and Class
B Membership Units.
"Members Owning a Voting Majority" shall mean Members who, in the
aggregate, hold not less than 60% of the Distribution Percentages of the Company
owned by all of the Members entitled to vote on the decision being taken.
"Net Book Value" means the Company's total assets less its total
liabilities as shown on its last regularly prepared balance sheet.
"Net Cash Receipts" for the applicable period means the gross receipts of
the Company during such period, plus any reductions in funded reserves arising
out of the reversal of such reserves, less the following: (1) operating expenses
paid during such period; (2) interest and principal paid during such period on
indebtedness of the Company other than interest and principal paid on Member
Loans; (3) expenditures for capital improvements and other capital items paid
during such period; and (4) additions to reserves made during such period. For
purposes of the foregoing, (a) gross receipts of the Company shall not include
Dissolution Proceeds, or any amount entering into the calculation thereof, and
shall not include capital contributions or Member Loans; (b) reserves for
anticipated or contingent liabilities and working capital shall be established
for the Company in such amounts as are reasonably determined by
3
<PAGE>
the Board; and (c) no deductions from gross receipts of the Company shall be
made for amounts paid out of funded reserves.
"Officer" shall mean the individuals designated or elected as President,
Vice President, Secretary, or Treasurer as provided in this Agreement.
Section 2.2. Additional Definitions. The definitions in Section 2.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun used herein shall include the
corresponding masculine, feminine and neuter forms. The term "person" includes
individuals, partnerships, corporations, limited liability companies, trusts,
and other associations. The words "include," "includes," and "including" shall
be deemed to be followed by the phrase "without limitation." The words "herein,"
"hereof," "hereunder," and similar terms shall refer to this Agreement, unless
the context otherwise requires.
ARTICLE III
CAPITAL CONTRIBUTIONS
Section 3.1. Initial Capital Contributions.
(a) GBC shall make the capital contribution to the Company as reflected on
Schedule 1, attached hereto and incorporated herein by reference, in exchange
for a fifty percent (50%) Interest in the Company, represented by fifty (50)
Class A Membership Units in the Company.
(b) NN shall make the capital contribution to the Company as reflected on
Schedule 1, attached hereto and incorporated herein by reference, in exchange
for a fifty percent (50%) Interest in the Company, represented by fifty (50)
Class B Membership Units in the Company.
(c) The Class A Membership Units and Class B Membership Units shall have
identical rights on all matters except the Class A Membership Units shall be
allowed to receive distributions disproportional to the Class B Membership Units
as provided in Section 4.1 below.
Section 3.2. GBC Assignment. GBC shall assign to the Company all of its
rights, title and interest (the "GBC Assignment") in and to Jiangsu General Ball
& Roller Co., Ltd. (the "JV"). The Company shall reimburse GBC for all
out-of-pocket costs incurred by GBC directly related to the formation of the JV,
including due diligence expenses, legal expenses, and any capital contributions
made to the JV by GBC before the assignment by GBC to the Company all as
completely set forth on Schedule 2 attached hereto and incorporated herein by
reference. GBC shall use its best efforts to obtain, if required, the approval
of the Approval Committee, as defined below, of the assignment by GBC of its
interest in the JV. GBC, to the best of its knowledge, represents and warrants
to the Company with respect to the GBC Assignment that:
(a) GBC and Jiangsu Lixing Steel Ball Factory ("JSBF") have formed
the JV under the laws of the People's Republic of China (the "PRC") to own
and operate the business of manufacturing and marketing high quality
rolling elements for bearings and other related products in the
manufacturing facility located in Rugao City, Jiangsu Province, People's
Republic of China ("JSBF Business") and own a 60% and 40%
4
<PAGE>
interest therein, respectively. No other person or entity owns or has the
right, now or at any time in the future, to acquire any interest in the
JV. GBC has previously delivered to NN a true, correct and complete copy
of the Joint Venture Contract and the Articles of Association of the JV,
as amended, and such documents (a) reflect the entire agreement between
GBC and JSBF related to the ownership and operation of the JSBF Business
and (b) remain in effect and have not been further amended or modified.
(b) GBC has full power and authority to enter into this Agreement
and to undertake and complete the transactions contemplated hereby. No
consent or approval by any person or entity is required in order for GBC
to enter into or complete the transactions contemplated by this Agreement,
other than the approval from the Rugao International Economic Committee,
Jiangsu Province, China (the "Approval Committee") required for the
assignment of GBC's Assignment in the JV as contemplated hereby.
(c) GBC has fully and accurately disclosed to NN all material
information related to the JV, JSBF and the JSBF Business. To GBC's best
knowledge,
(1) JSBF has operated and since its formation the JV has
operated, and continues to operate in accordance with all applicable
law and all contracts, agreements, and orders binding on them;
(2) JSBF had full power and authority to transfer its assets
and liabilities to the JV, subject only to governmental approvals
all of which have been obtained;
(3) the JV was formed and currently exists in accordance with
all applicable law;
(4) the JV owns or controls under leases all assets, tangible
and intangible, necessary to carry on the JSBF Business as conducted
prior to the formation of the JV; and
(5) The financial information of JSBF, the due diligence
report by KPMG, and all other documents provided to NN are as
provided to GBC.
Section 3.3. Member Loans. Immediately after the execution of this
Agreement, the Members shall loan the Company the amounts reflected in Schedule
3, attached hereto and incorporated herein by reference, and NN agrees to loan
the Company up to an additional US$1,000,000 (together with the amount for NN
reflected in Schedule 3 the "NN Member Loan") and GBC agrees to loan the Company
up to an additional US$1,500,000 (together with the amount for GBC reflected in
Schedule 3 the "GBC Member Loan"). All Member Loans shall be in the form of the
promissory notes (the "Notes") in Schedule 4, attached hereto and incorporated
herein by reference. Notwithstanding anything to the contrary herein, the member
of the Board of Managers appointed by NN shall have authority to execute the
Notes evidencing the Member Loans described in this Section.
5
<PAGE>
Section 3.4. Additional Capital Contributions. No Member shall be required
to make any capital contributions to the Company beyond the capital
contributions made pursuant to Section 3.1. In the event the Company needs
additional funding, as determined by the Board of Managers, any Member shall
have the right, but not the obligation, to contribute additional capital to the
Company.
Section 3.5. No Interest on Capital. Except as expressly provided in
Article IV and/or Article X hereof, no Member shall be paid interest on any
capital contribution.
ARTICLE IV
DISTRIBUTIONS
Section 4.1. Distributions of Net Cash Receipts. Subject to the provisions
of Section 10.2 hereof (governing the application of Dissolution Proceeds), the
Company's Net Cash Receipts shall be distributed to the Members in proportion to
their respective Distribution Percentages at such times as the Board shall
determine in its sole and absolute discretion on the following basis:
(a) first, used to repay the principal and interest on the Member
Loans on a dollar for dollar basis until the GBC Member Loan is repaid in
full;
(b) then, to the Member holding Class A Membership Units and to
repay the principal and interest on the NN Member Loan on a dollar for
dollar basis; and
(c) when both of the Member Loans have been repaid in full, Net Cash
Receipts shall be distributed to the holders of the Class A Membership
Units and Class B Membership Units according to their respective
Distribution Percentages.
Section 4.2. Distributions to Be Made In Cash. Unless otherwise determined
by the Board, all distributions shall be made in cash and no Member shall have
the right to receive distributions of property other than cash either during the
term of the Company or upon its dissolution. No Member may be compelled to
accept a distribution of any property other than cash from the Company unless
all Members receive undivided ownership interests therein that are in proportion
to their respective Distribution Percentages.
ARTICLE V
ALLOCATION OF PROFITS AND LOSSES
Section 5.1. Profits and Losses. The Company's income, gains, losses,
deductions and credits (and items thereof), for each fiscal year of the Company,
shall be allocated among the Members (for both book and tax purposes) in
proportion to their respective Distribution Percentages.
ARTICLE VI
ACCOUNTING
Section 6.1. Accounting Methods. The Company books and records shall be
prepared in accordance with United States generally accepted accounting
principles, consistently applied.
6
<PAGE>
A copy of the Company books and records shall be distributed to the parties
within forty-five (45) days after the end of each financial quarter and ninety
(90) days after the end of each fiscal year of the Company. The Company shall be
on an accrual basis for both tax and accounting purposes. All tax returns of the
Company shall be prepared by the Company's certified public accountants, under
the direction of the Members.
Section 6.2. Fiscal Year. The fiscal year of the Company shall be the
calendar year, except that the first fiscal year shall be the period beginning
on the date of formation of the Company and ending on December 31, 2000.
ARTICLE VII
MANAGEMENT AND CONTROL
Section 7.1 Appointment of Board of Managers. The Company shall initially
have a Board of Managers consisting of two (2) members, one each appointed by NN
and GBC. If at any time any Member's Distribution Percentage is equal to or
greater than 66.67% (a "Controlling Member"), such Controlling Member shall have
the right to increase the size of the Board of Managers to three (3) and to
appoint an additional Member to the Board. Each member of the Board so chosen
shall hold office until a successor shall be duly appointed.
Section 7.2 Authority of Board of Managers.
(a) The management of the Company shall be vested exclusively in the
Board of Managers, and subject to the rights expressly granted to the
Members under other provisions of this Agreement, the Board of Managers
shall have the exclusive right, authority, and responsibility to manage
and control the business, affairs and the day-to-day operations of the
Company, and to make all decisions with respect thereto. Pursuant to this
Article VII and subject to the other provisions of this Agreement, the
Board of Managers shall have all of the rights and powers of a "manager"
as provided in the Act and as otherwise provided by law.
(b) Without in any way limiting the general powers and authority of
the Board of Managers, the Board shall have the exclusive right, power and
authority, on behalf of the Company and in its name, to:
(1) Acquire, purchase, hold, exercise, operate, lease and
manage the business property of the Company and to contract for and
enter into agreements with others with respect to the acquisition,
purchase, holding, exercise, operation, leasing and management of
such business property;
(2) To execute and deliver, in furtherance of any or all of
the purposes of the Company, and deed, lease, mortgage, security
agreement, note, bill of sale, contract or other instrument
purporting to convey, exchange, sell or encumber all or any part of
the business property or any Interest therein of the Company;
(3) To execute and deliver any and all agreements, contracts,
documents, certifications, and instruments necessary or convenient
in connection with the ordinary conduct of the business and affairs
of the Company and to give such
7
<PAGE>
receipts, releases and discharges with respect to all of the
foregoing and all matters incident thereto;
(4) To borrow money and issue evidences of indebtedness and
assume existing indebtedness necessary, convenient or incidental to
the accomplishment of the purposes of the Company;
(5) To deposit or invest Company funds in such
interest-bearing or non-interest bearing investments or accounts at
a federally insured bank as the Board deems advisable to the extent
such funds are not then required for Company operations and are not
required to be distributed pursuant to this Agreement;
(6) To extent that that the funds of the Company are available
therefor, to pay (or prepay) all debts and other obligations of the
Company; and
(7) To supervise the operation, maintenance, manufacture,
management and repair of the business property, including hiring,
coordinating the services of, supervising the performance of, and
terminating employees, independent contractors and other persons
necessary or appropriate to carry out the business and purposes of
the Company.
(c) Any person dealing with the Company may rely upon a certificate
signed by the Board of Managers, or any person thereunto duly authorized
by the Board of Managers, as to:
(1) The identity of any officer or any Member;
(2) The existence or non-existence of any fact which may
constitute a condition precedent to acts by the Company or any
Member or in any other matter germane to the affairs of the Company;
(3) The persons who are authorized to execute and deliver any
instrument or document of the Company; or
(4) Any act or failure to act by the Company.
Section 7.3 Meetings; Voting Requirements. The Board of Managers shall
meet at least once every six (6) months. At the option of the Board of Managers,
meetings of the Board of Managers may be conducted by telephone. The affirmative
vote of sixty percent (60%) of the members of the Board shall be the act of the
Board of Managers. The Board may take action upon the unanimous written consent
of sixty percent (60%) of the members of the Board.
Section 7.4 Outside Activities. A member of the Board of Managers shall
not be required to manage the Company as its sole and exclusive function, but
shall devote whatever time, effort and skill as may be reasonably necessary to
the conduct of the Company's business.
Section 7.5 Limitations on Board of Managers. The Board of Managers shall
not, without the prior written consent of all Members:
8
<PAGE>
(a) Issue any ownership Interest in the Company to any party other
than NN or GBC or their 100% owned affiliates.
(b) Sell all or substantially all of the assets of the Company.
(c) Dissolve or liquidate the Company.
(d) Incur any indebtedness of the Company.
(e) Do any act in contravention of this Agreement;
(f) Do any act which would make it impossible to carry on in the
ordinary course of the business of the Company; or
(g) Change or reorganize the Company into any other legal form.
Section 7.6 Indemnification.
(a) The Company shall indemnify any member of the Board of Managers
and its agents and affiliates (and their respective partners, directors,
officers, employees, agents, members, shareholders and affiliates) and
officers or employees of the Company against any and all losses,
liabilities, damages or expenses (including, without limitation,
reasonable attorneys' fees and expenses in connection therewith in amounts
paid in settlement thereof) to which any of such persons may directly or
indirectly become subject, but only to the extent that such person (i)
acted in good faith and (ii) acted in a manner such person reasonably
believed to be in or not opposed to the best interests of the Company.
(b) Expenses (including attorneys' fees) incurred by any person in
defending any proceeding may be paid by the Company in advance of such
proceeding's final disposition upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the
Company. Such expenses may be similarly paid upon such terms and
conditions, if any, as the Board of Managers deems appropriate.
Section 7.7 Compensation.
Except with respect to out-of-pocket costs as provided in Section
12.2 or as may be determined by the Board of Managers, no Member shall be
entitled to compensation for its services to the Company.
ARTICLE VIII
MEETINGS AND VOTING
Section 8.1. Meetings of Members. Meetings of Members may be held for any
purpose or purposes, unless otherwise prohibited by law and may be called by the
Member(s) holding not less than twenty percent (20%) of the Distribution
Percentages of the Company.
9
<PAGE>
Such written request shall state the purpose or purposes of the proposed
meeting. Business transacted at any meeting of Members shall be limited to the
purposes stated in the notice.
Section 8.2. Location of Meetings. All meetings of the Members shall be
held at such place as shall be designated from time to time by the Members as
stated in the notice of the meeting or in a waiver of notice thereof. In the
event that the Members shall fail to fix the place for a meeting of Members,
such meeting shall be held at the Company's principal office. At the option of
the Members, meetings of the Members may be conducted by telephone.
Section 8.3. Notice of Meetings. Notice of each meeting of Members stating
the place, date and hour of the meeting and, the purpose or purposes for which
the meeting is called, shall be given to each Member entitled to vote at such
meeting not less than ten (10) and no more than sixty (60) days before the date
of the meeting.
Section 8.4. Waiver of Notice. Whenever any notice is required to be given
to any Member under the provisions of this Agreement or of any law, a waiver
thereof in writing signed by such Member, whether before or after the time
stated therein, shall be deemed the equivalent to the giving of such notice.
Attendance of a Member at a meeting shall constitute a waiver of notice of such
meeting, except when the Member attends a meeting for the express and exclusive
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 8.5. Actions and Voting by Members. Except as otherwise
specifically provided under the Act or this Agreement, all decisions reserved to
the Members by this Agreement shall be made by Members Owning a Voting Majority
in Interest. Similarly, at any meeting, Members Owning a Voting Majority shall
decide any question brought before such meeting, unless the question is one upon
which, by express provision of the Act or this Agreement, a different vote is
required.
Section 8.6. Proxies. At all meetings of the Members, every Member having
the right to vote thereat shall be entitled to vote in person or by proxy
appointed by an instrument in writing subscribed by such Member and bearing a
date not more than three (3) years prior to such meeting.
ARTICLE IX
TRANSFER OF MEMBERS' INTERESTS
Section 9.1. Restrictions. Without the unanimous written consent of all
the Members, no Member may sell, assign, transfer, pledge, mortgage, or
otherwise dispose of all or any part of his or her Interest in the Company. As a
condition to any transfer or assignment of a Member's Interest, the transferor
and the transferee shall provide such legal opinions and documentation as the
non-transferring Members shall reasonably request.
Section 9.2. Additional Members. The Company may admit additional Members
only with the unanimous written consent of all of the Members.
Section 9.3. Member Buyout. If a Member shall desire to dispose of its
Interest in the Company, such Member shall have the right to transfer such
Interest to the remaining Members
10
<PAGE>
in exchange for the amount of consideration agreed to by the Members at the time
of such disposal, and if no agreement as to consideration is reached then the
disposal of such Interest shall be for no consideration.
ARTICLE X
DISSOLUTION OF THE COMPANY
Section 10.1. Dissolution Acts.
(a) No act, thing, occurrence, event or circumstance shall cause or
result in the dissolution of the Company except that the happening of any
one of the following events shall work as an immediate dissolution and
termination of the Company:
(1) A determination by all of the Members to dissolve and
terminate the Company; or
(2) Any event causing the last remaining Member to cease to be
a member of the Company under the terms of the Act.
(b) The Company is hereby granted a right to continue and, absent
the unanimous consent of the remaining Members to the contrary, shall
continue, upon an Event of Withdrawal of a Member (other than the last
remaining Member), or upon the occurrence of any other event which
terminates the continued membership of a Member in the Company.
(c) Without limiting the other provisions hereof, neither the
assignment of all or any part of a Member's Interest hereunder, nor the
admission of a new Member shall cause the dissolution and termination of
the Company.
Section 10.2. Distribution of Proceeds on Dissolution. Upon the
dissolution and termination of the Company, the Board of Managers of the Company
shall proceed with the liquidation and termination of the Company as promptly as
possible, but in an orderly and businesslike manner so as not to involve undue
sacrifice. The proceeds therefrom and any other funds and assets of the Company
(the "Dissolution Proceeds"), shall be applied and distributed as follows and in
the following order of priority:
(a) First, to the payment of debts and liabilities of the Company
(excluding any liabilities on Member Loans described in Section 3.3) and
the expenses of liquidation;
(b) Second, if a dissolution and distribution of proceeds occurs
within one (1) year from the effective date of this Agreement then, to the
extent available, the Member Loans shall first be repaid in full, without
interest, followed by the return of the initial capital contributions of
each Member and then any remaining cash shall be paid to the Members in
accordance with their Distribution Percentages; and
(c) Third, if a dissolution and distribution of proceeds occurs
after one (1) year from the effective date of this Agreement, then, to the
extent available, all remaining cash shall be paid to the Members in
accordance with their Distribution Percentages.
11
<PAGE>
ARTICLE XI
MANAGEMENT OF THE JV
Section 11.1. JV Board Representation. The Company will have the right to
appoint three members of the board of the JV. NN and GBC agree that so long as
they have equal representation on the Board of the Company that the three JV
board representatives will consist of one person nominated by GBC, one person
nominated by NN and one person mutually agreed by GBC and NN. In the event any
Member becomes a Controlling Member, the three representatives on the JV board
will consist of two persons nominated by the Controlling Member and one person
nominated by the other Member. The initial NN representative on the JV board
shall be Frank Gentry, the initial GBC representative on the JV board shall be
David Gussack who shall also be elected as Chairman of the JV board, and the
initial mutually agreed representative on the JV board shall be Joseph Hoo.
Section 11.2. JV Board Meetings. The three JV board representatives
appointed by the Company shall cause the JV board to meet at least semi-annually
and shall cause the chairman of the JV board to establish a schedule for such
meetings at the beginning of each year and allow the meetings to be held by
telephone.
Section 11.3. Related Party Transactions. The terms and conditions of any
equipment lease or loan to the JV by any party related to the JV made prior to
the appointment to the JV board of a person nominated by NN shall be provided in
writing to NN for its review and comment.
Section 11.4. Formation of Danish Holding Company. The Company shall form
or purchase a holding company organized under the laws of Denmark for the
purpose of holding the interest in the JV.
ARTICLE XII
GENERAL
Section 12.1. Notices. Any notice, request, approval, consent, demand or
other communication required or permitted hereunder shall be given in writing by
(a) personal delivery, (b) expedited delivery service with proof of delivery,
(c) United States Mail, postage prepaid, registered or certified mail, return
receipt requested, or (d) prepaid telegram, facsimile or telex, confirmed
receipt required (provided that such telegram, facsimile or telex is confirmed
by delivery service or by mail in the manner previously described), and shall be
sent to each party at his respective address set in Section 1.5 hereof (or, in
the case of the Company, the principal office address established pursuant to
Section 1.6 hereof), or to such different address as such addressee shall have
designated by written notice sent in accordance herewith, and shall be deemed to
have been given and received either at the time of personal delivery or, in the
case of delivery service or mail, as of the date of first attempted delivery at
the address and in the manner provided herein, or in the case of telegram,
facsimile or telex, upon receipt. Either Member may change the address and/or
addresses to whom notice may be given by giving notice pursuant to this Section
at least seven (7) days prior to the date the changes become effective.
12
<PAGE>
Section 12.2. Public Disclosures. No Member, except as required by law,
shall disclose any financial or operating information about the Company,
including the economic impact of the Member's Interest in the Company, without
the express written approval of the other Members.
Section 12.3. Amendments. This Agreement may be amended by a written
agreement of amendment executed by all the Members, but not otherwise. No
variations, modifications, amendments, or changes herein or hereof shall be
binding upon any party hereto, unless set forth in a document duly executed by
or on behalf of such party.
Section 12.4. Miscellaneous. This Agreement supersedes any prior agreement
or understandings between the parties with respect to the Company. This
Agreement and the rights of the parties hereunder shall be governed by and
interpreted in accordance with the Act, without regard to conflict of laws
principles. Except as herein otherwise specifically provided, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legal representatives, successors and assigns. Captions
contained in this Agreement in no way define, limit, or extend the scope or
intent of this Agreement. If any provision of this Agreement or the application
of such provision to any person or circumstance shall be held invalid, the
remainder of this Agreement, or the application of such provision to any other
persons or circumstances, shall not be affected thereby. This Agreement may be
executed in several counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same document.
Section 12.5. Remedies. If the Company or any party to this Agreement,
obtains a judgment against any other party by reason of breach of this Agreement
or failure to comply with the provisions hereof, reasonable attorneys' fees as
fixed by the court shall be included in such judgment. Any Member shall be
entitled to maintain, on his own behalf or on behalf of the Company, any action
or proceeding against any other Member or the Company (including any action for
damages, specific performance or declaratory relief) for or by reason of breach
by such party of this Agreement, or any other agreement entered into in
connection with the same, notwithstanding the fact that any or all of the
parties to such proceeding may then be Members, and without dissolving the
Company as a limited liability company. No remedy conferred upon the Company or
any Member in this Agreement is intended to be exclusive of any other remedy
herein or by law provided or permitted, but each shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. No waiver by a Member or the Company
of any breach of this Agreement shall be deemed to be a waiver of any other
breach of any kind or nature and no acceptance of payment or performance by a
Member or the Company after any such breach shall be deemed to be a waiver of
any breach of this Agreement, whether or not such Member or the Company knows of
such breach at the time it accepts such payment or performance. If a Member has
the right herein to approve or consent to any matter or transaction, such
approval or consent may be withheld in the sole discretion of such Member for
any reason or no reason. No failure or delay on the part of a Member or the
Company to exercise any right it may have shall prevent the exercise thereof by
such Member or the Company at any time such other may continue to be so in
default, and no such failure or delay shall operate as a waiver of any default.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Operating
Agreement as of the date first above-written.
MEMBERS:
NN BALL & ROLLER, INC.
By: /s/ Roderick R. Baty
Name: Roderick R. Baty
Title: President & Chief Executive Officer
GENERAL BEARING CORPORATION
By: /s/ Barry A. Morris
Name: Barry A. Morris
Title: Chief Financial Officer
14
<PAGE>
SCHEDULE 1
INITIAL CAPITAL CONTRIBUTIONS
Member Initial Capital Contribution
- ------ ----------------------------
NN US$100,000
GBC US$100,000
<PAGE>
SCHEDULE 2
INVESTMENT CAPITAL & EXPENSES RELATED TO FORMATION OF JOINT
VENTURE
Date Description Amount
1. Capital
01/00 Keybank wire-Investment on JGBR $2,000,000.00
-------------
2. Expenses
12/99 Coudert Brothers - legal service $ 7,886.37
Lingyan Li - trip to China to clear open issues 5,541.18
02/00 KPMG Peat Marwick due diligence 46,250.00
-------------
Total Expenses $ 59,677.55
=============
16
<PAGE>
SCHEDULE 3
INITIAL LOANS TO COMPANY
Member Initial Loans
------ -------------
NN US$2,400,000
GBC US$900,000
17
<PAGE>
SCHEDULE 4
FORM OF PROMISSORY NOTES
<PAGE>
PROMISSORY NOTE
$ 2,400,000.00 March 16, 2000
FOR VALUE RECEIVED, the undersigned, NN General, LLC, a Delaware limited
liability company (the "Maker"), hereby promises to pay to the order of NN Ball
& Roller, Inc., a Delaware corporation (the "Holder"), the principal sum of
Two Million and Four Hundred Thousand Dollars ($2,400,000.00), together with
interest at the applicable federal rate as then published by the U.S. Treasury
Department, compounded annually and computed on the basis of a 365 day year, on
December 31, 2020. The Maker reserves the right to prepay all or any portion of
this Promissory Note at any time and from time to time without premium or
penalty of any kind.
Any payment made hereunder shall be made in lawful currency of the United
States of America in immediately available funds, at 800 Tennessee Road, Erwin,
Tennessee 37650, USA, or at such other place as the Holder may designate in
writing.
The Promissory Note may not be assigned, including by operation or law,
without the consent of the Maker.
This Promissory Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned had duly caused this Promissory Note
to be executed and delivered at the place specified above and as of the date
first written above.
NN General, LLC
By: /s/ David L. Dyckman
--------------------------------
Name: David L. Dyckman
----------------------------
Title: Manager
----------------------------
<PAGE>
PROMISSORY NOTE
$ 900,000.00 March 16, 2000
FOR VALUE RECEIVED, the undersigned, NN General, LLC, a Delaware limited
liability company (the "Maker"), hereby promises to pay General Bearing
Corporation, a Delaware corporation (the "Holder"), the principal sum of Nine
Hundred Thousand Dollars ($900,000.00), together with interest at the
applicable federal rate as then published by the U.S. Treasury Department,
compounded annually and computed on the basis of a 365 day year, on December 31,
2020. The Maker reserves the right to prepay all or any portion of this
Promissory Note at any time and from time to time without premium or penalty of
any kind.
Any payment made hereunder shall be made in lawful currency of the United
States of America in immediately available funds, at 44 High Street, West Nyack,
New York, New York 10994, USA, or at such other place as the Holder may
designate in writing.
This Promissory Note may not be assigned, including by operation or law,
without the consent of the Maker.
This Promissory Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned had duly caused this Promissory Note
to be executed and delivered at the place specified above and as of the date
first written above.
NN General, LLC
By: /s/ David L. Dyckman
Name: David L. Dyckman
Title: Manager
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-74694) of NN Ball & Roller, Inc. of our report
dated February 4, 2000 relating to the financial statements and financial
statement schedule, which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Greensboro, North Carolina
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000918541
<NAME> NN Ball & Roller, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,409
<SECURITIES> 0
<RECEIVABLES> 19,089
<ALLOWANCES> 906
<INVENTORY> 13,122
<CURRENT-ASSETS> 33,402
<PP&E> 74,298
<DEPRECIATION> 30,846
<TOTAL-ASSETS> 90,368
<CURRENT-LIABILITIES> 10,478
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 59,975
<TOTAL-LIABILITY-AND-EQUITY> 90,368
<SALES> 85,294
<TOTAL-REVENUES> 85,294
<CGS> 59,967
<TOTAL-COSTS> 59,967
<OTHER-EXPENSES> 12,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 523
<INCOME-PRETAX> 11,819
<INCOME-TAX> 4,060
<INCOME-CONTINUING> 7,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,759
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.52
</TABLE>
