Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(In thousands, except per share data)
1)
|
Summary of Significant Accounting Policies and Practices
|
|
a)
|
Description of Business
|
NN, Inc. is a diversified industrial company and a leading
global manufacturer of high precision bearing components, industrial plastic products and precision metal components to a variety of markets on a global basis. We have 40 manufacturing plants in North America, Western Europe, Eastern Europe, South
America and Asia. As used in this Annual Report on Form 10-K, the terms NN, the Company, we, our, or us mean NN, Inc. and its subsidiaries.
Included in the Selling, general and administrative expense line item in the Consolidated Statement of Operations during the years ended
December 31, 2015 and 2014 are out of period adjustments in the amounts of approximately $0.2 million, respectively, to correct compensation expense recorded with respect to share based awards previously granted to executives who, either at the
time of such grant or during the applicable vesting period, were eligible to retire from the Company, upon which the vesting of all or a portion of these awards would be accelerated.
All dollar amounts presented in tables that follow are in thousands (except for share data) unless otherwise indicated.
We consider all highly liquid investments with an original maturity of three
months or less as cash equivalents.
Inventories are stated at the lower of cost or net realizable
value. Cost is determined using the average cost method which approximates the first in first out method. Our policy is to expense abnormal amounts of idle facility expense, freight, handling cost, and waste included in cost of products
sold. In addition, we allocate fixed production overheads based on the normal production capacity of our facilities. Inventory valuations were developed using normalized production capacities for each of our manufacturing locations and the
costs from excess capacity or under-utilization of fixed production overheads were expensed in the period incurred and are not included as a component of inventory valuation.
Inventories also include tools, molds and dies in progress that we are producing and will ultimately sell to our customers. This activity
is principally related to our Autocam Precision Components and Precision Engineered Products Groups. These inventories are carried at the lower of cost or net realizable value.
|
d)
|
Property, Plant and Equipment
|
Property, plant and equipment are stated at cost less
accumulated depreciation. Assets to be disposed of are stated at lower of depreciated cost or fair market value less estimated selling costs. Expenditures for maintenance and repairs are charged to expense as incurred. Major renewals and betterments
are capitalized. When a property item is retired, its cost and related accumulated depreciation are removed from the property accounts and any gain or loss is recorded in the consolidated Statements of Operations and comprehensive income. We
review 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. Property, plant and equipment includes tools, molds and dies principally
used in our Autocam Precision Components and Precision Engineered Products Groups that are our property.
Depreciation is provided on the
straight-line method over the estimated useful lives of the depreciable assets for financial reporting purposes. For leasehold improvements and buildings under capital lease, we depreciate these over the shorter of useful lives or the lease
term. In the event we abandon and cease to use certain property, plant, and equipment, depreciation estimates are revised and, in most cases, depreciation expense will be accelerated to reflect the shortened useful life of the asset.
We recognize revenues based on the stated shipping terms with
customers when these terms are satisfied and the risks of ownership are transferred to the customers. We have an inventory management program for certain Precision Bearing Components Group customers whereby revenue is recognized when products are
used by customers from consigned stock, rather than at the time of shipment. Under both circumstances, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sellers price is fixed and determinable
and collectability is reasonably assured.
42
Accounts receivable are recorded upon recognition of a sale of
goods and ownership and risk of loss is assumed by the customer. Substantially all of our accounts receivable are due primarily from the core served markets. In establishing allowances for doubtful accounts, we perform credit evaluations
of our customers, considering numerous inputs when available including the customers financial position, past payment history, relevant industry trends, cash flows, management capability, historical loss experience and economic conditions and
prospects. Accounts receivable are written off or allowances established when considered to be uncollectible or at risk of being uncollectible, respectively.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not
be realized. Provision has not been made for income taxes on unremitted earnings of foreign subsidiaries as these earnings are deemed to be permanently reinvested. We recognize income tax positions that meet the more likely than not threshold
and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision (benefit) for income taxes.
|
h)
|
Net Income Per Common Share
|
Basic income per share reflects reported earnings divided
by the weighted average number of common shares outstanding. Diluted income per share include the effect of dilutive stock options and the respective tax benefits, unless inclusion would not be dilutive.
|
i)
|
Share Based Compensation
|
The cost of stock options, stock awards and performance based
stock units are expensed as compensation expense over the vesting periods based on the fair value at the grant date. (See Note 9 of the Notes to the Consolidated Financial Statements) We use the Black Scholes financial pricing model for
our stock options, and a Monte Carlo simulation for the performance based stock units to determine the fair value as these awards as they are not traded in open markets.
We account for stock awards by recognizing compensation expense ratably over the vesting period as specified in the award. Compensation
expense to be recognized is based on the stock price at date of grant.
|
j)
|
Principles of Consolidation
|
Our consolidated financial statements include the accounts
of NN, Inc. and its subsidiaries. All of our subsidiaries are 100% owned (except for RFK which we own 99.7% and our Chinese joint venture noted below) and all are included in the consolidated financial statements for the years ended
December 31, 2016, 2015 and 2014. All significant intercompany profits, transactions, and balances have been eliminated in consolidation. With the acquisition of Autocam Corporation (Autocam) during 2014, we acquired a 49%
interest in a Chinese joint venture. This joint venture is not consolidated within the financial statements of NN, Inc. and is accounted for under the equity method (see Note 16 of the Notes to the Consolidated Financial Statements).
|
k)
|
Foreign Currency Translation
|
Assets and liabilities of our foreign subsidiaries are
translated at current exchange rates, while revenue, costs and expenses are translated at average rates prevailing during each reporting period. Translation adjustments arising from the translation of foreign subsidiary financial statements are
reported as a component of other comprehensive income and accumulated other comprehensive income within stockholders equity. In addition, transactions denominated in foreign currencies, including intercompany transactions, are initially
recorded at the current exchange rate at the date of the transaction. The balances are adjusted to the current exchange rate as of each balance sheet date and as of the date when the transaction is consummated. Transaction gains or losses, excluding
intercompany loan transactions, are expensed in either cost of products sold or selling, general and administrative lines in the Consolidated Statements of Operations and Comprehensive Income (Loss) as incurred and were immaterial to the years ended
December 31, 2016, 2015 and 2014. Transaction gains or losses on intercompany loan transactions are recognized in the other income, net line in the Consolidated Statements of Operations and Comprehensive Income (Loss) as incurred.
43
|
l)
|
Goodwill and Other Indefinite Lived Intangible Assets
|
We recognize the excess of the
purchase price of an acquired entity over the fair value of the net identifiable assets as goodwill. Goodwill is tested for impairment on an annual basis as of October 1 and between annual tests if a triggering event occurs. The impairment
procedures are performed at the reporting unit level for the reporting units that have goodwill. In September 2011, the FASB issued a revised accounting standard, intended to reduce the cost and complexity of the annual goodwill impairment test
by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is
necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment
test is required. Otherwise, no further testing is required. For the years ended, December 31, 2016 and 2015, we determined it was more appropriate to perform a full step 1 goodwill test. The decision to perform a qualitative assessment or a
complete step 1 analysis is an annual decision made by management. Based on the results of the step 1 analysis fair value of the reporting units exceeded the carrying value of the reporting units at December 31, 2016 and 2015.
If the qualitative assessment indicates it is more likely than not that the fair value is less than the carrying value, GAAP prescribes a
two-step process for testing for goodwill impairments. The first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit. We consider three main approaches to
value (cost, market and income) the fair value of the reporting unit and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies. We believe this methodology of valuation is
consistent with how market participants would value reporting units. The discount rate and market based multiples used are specifically developed for the unit tested regarding the level of risk and end markets served. Even though we do use
other observable inputs (Level 2 inputs) the calculation of fair value for goodwill would be most consistent with Level 3 inputs.
If the
carrying value of the reporting unit including goodwill is less than fair value of the reporting unit, the goodwill is not considered impaired. If the carrying value is greater than fair value then the potential for impairment of goodwill
exists. The potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business
combination. The fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value.
We base our fair value estimates, in large part, on management business plans and projected financial information which are subject to a high
degree of management judgment and complexity. Actual results may differ from projections and the differences may be material.
|
m)
|
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
|
Long-lived
tangible and intangible assets subject to amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets may not be recoverable. A test for recoverability is also performed when management has
committed to a plan to dispose of a reporting unit or asset group. Assets to be held and used are tested for recoverability when indications of impairment are evident. Recoverability of a long-lived tangible and intangible asset is evaluated by
comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group. If the asset is not recoverable the asset is considered impaired and adjusted to fair value which is then
depreciated/amortized over its remaining useful life. Assets to be disposed of are carried at the lesser of carrying value or fair value less costs of disposal.
|
n)
|
Use of Estimates in the Preparation of Financial Statements
|
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States 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.
|
o)
|
Fair Value Measurements
|
Fair value principles prioritize valuation inputs across three
broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the
asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities
at fair value. An asset or liabilitys classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.
44
|
p)
|
Recently Issued Accounting Standards
|
In 2014, the Financial Accounting Standards Board
(FASB) and International Accounting Standards Board (IASB) issued the joint revenue recognition standard. Since its release, there have been multiple proposed and finalized amendments made to the revenue recognition standard. The revenue recognition
standard is effective for public companies beginning January 1, 2018 with full retrospective or modified retrospective adoption permitted. This standard will change current revenue practices, processes, systems, controls, and disclosures and
take time and resources to adopt. Factors that will affect pre and post-implementation include, but are not limited to, identifying all the contracts that exist and whether incidental obligations or marketing incentives included in those contracts
are performance obligations. The revenue recognition standard may impact the timing of when revenue received under these performance obligations is recognized. We are in the scoping, performing contract analysis and the development phase of
understanding the likely impacts of the standard change that can affect key processes, systems and controls.
On February 25, 2016,
the FASB issued ASU 2016-02, Leases (ASU 2016-02). ASU 2016-02 creates Topic 842, Leases, in the FASB Accounting Standards Codification (FASB ASC) and supersedes FASB ASC 840, Leases. Entities that hold numerous equipment and
real estate leases, in particular those with numerous operating leases, will be most affected by the new guidance. The leasing accounting standard is effective for public companies beginning January 1, 2019 with modified retrospective adoption
required and early adoption permitted. The amendments in ASU 2016-02 are expected to impact balance sheets at many companies by adding lease-related assets and liabilities. This may affect compliance with contractual agreements and loan covenants.
As noted in Item 2. Properties, we list various leased locations. We have also carried out inquiries within segment locations compiling information on operating and capital leases. We are currently evaluating the impacts of the lease accounting
standards regarding these and other leases identified on our financial position or results of operations and related disclosures.
On
August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern, (ASU 2014-15) which provides guidance on determining when and how to disclose going-concern uncertainties in the financial
statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain
disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and
interim periods thereafter, with early adoption permitted. We adopted ASU 2014-15 beginning December 31, 2016, which involved adding policies and procedures around our assessments to continue as a going concern. Per our quantitative and
qualitative analysis, currently there is no substantial doubt as to our ability to continue as a going concern within the next twelve months.
During March 2016, ASU 2016-09
Improvements to Employee Share-Based Payment Accounting was issued regarding he guidance of how
companies will account for certain aspects of share-based payments to employees. Entities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled (i.e., additional paid-in capital or
APIC pools will be eliminated). The guidance on employers accounting for an employees use of shares to satisfy the employers statutory income tax withholding obligation and for forfeitures is changing. The guidance is effective for
public business entities for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after 15 December 2017, and interim periods
within fiscal years beginning after 15 December 2018. Early adoption is permitted in any annual or interim period for which financial statements havent been issued or made available for issuance, but all of the guidance must be adopted in
the same period. If an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period.
The FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU
2016-15). This ASU provides clarification on how certain cash receipts and cash payments are presented and classified on the statement of cash flows. This ASU is effective for annual and interim periods beginning in 2018 and is required to be
adopted using a retrospective approach if practicable, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Statement of Cash Flows. We are currently evaluating the impact
this new guidance is expected to have on our financial position or results of operations and related disclosures.
During January 2017, the
FASB issued ASU 2017-04 Simplifying the Test for Goodwill Impairment that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of todays goodwill impairment test) to measure a goodwill impairment
charge. Instead, entities will record an impairment charge based on the excess of a reporting units carrying amount over its fair value (i.e., measure the charge based on todays Step 1). The standard has tiered effective dates, starting
in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for interim and annual goodwill impairment testing dates after 1 January 2017. We are currently evaluating the impact this
new guidance is expected to have on our financial position or results of operations and related disclosures.
We adopted ASU No. 2015-11,
Inventory (Topic 330)-Simplifying the Measurement of Inventory (ASU 2015-11), which simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test.
The subsequent measurement of inventory test, historically three measurements under lower of cost or market, is replaced by lower of cost and net realizable value test. Thus, we will compare the cost of inventory to only one measure, its net
realizable value. When evidence exists that the net realizable value of inventory is less than its cost (due to damage, physical deterioration, obsolescence, changes in price levels or other causes), we will recognize the difference as a loss in
earnings in the period in which it occurs. In accordance with ASU 2015-11, we are applying the new guidance on a prospective basis.
We
adopted ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes (ASU 2015-17). We will classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred
taxes into current and noncurrent amounts. In addition, we will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. We have elected to apply ASU
2015-17 on a prospective basis. Therefore, the prior periods were not retroactively adjusted.
45
We allocate the total purchase price of the acquired tangible and
intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill. The purchase price allocation process required us to use significant
estimates and assumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and
information obtained from management of the acquired company, in part based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations are performed by management or
third party valuation specialists under managements supervision. In determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods:
the income approach (including discounted cash flows from relief from royalty and excess earnings model), the market approach and/or the replacement cost approach.
Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:
|
|
|
sales volume, pricing and future cash flows of the business overall;
|
|
|
|
future expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels, rates of increase in revenue and appropriate attrition rate;
|
|
|
|
the acquired companys brand and competitive position, royalty rate quantum, as well as assumptions about the period of time the acquired brand will continue to benefit to the combined companys product
portfolio; and
|
|
|
|
cost of capital, risk-adjusted discount rates and income tax rates.
|
However, different
assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of assets and liabilities, mainly between property plant and equipment, intangibles assets, goodwill and
deferred income tax liabilities and subsequent assessment could result in future impairment charges. The purchase price allocation process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new
information obtained surrounding facts and circumstances existing at acquisition date.
2) Acquisitions
As reported in our 2015 Annual Report, we completed the acquisition (the PEP Acquisition) of Precision Engineered Products Holdings, Inc.
(PEP) on October 19, 2015. During the nine months ended September 30, 2016, we finalized all issues related to customary working capital adjustments, fixed assets and income taxes. The changes primarily arose from differences
noted during acquisition integration and finalizing return to provision adjustments. As a result, we adjusted the preliminary allocation of the purchase price initially recorded at the PEP Acquisition date to reflect these measurement period
adjustments.
The following table summarizes the final purchase price allocation for the PEP Acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
Subsequent
|
|
|
Final
|
|
|
|
on
|
|
|
Adjustments
|
|
|
as of
|
|
|
|
December 31,
|
|
|
to fair
|
|
|
September 30,
|
|
|
|
2015
|
|
|
value
|
|
|
2016
|
|
Consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
621,196
|
|
|
$
|
|
|
|
$
|
621,196
|
|
Cash adjustment
|
|
|
|
|
|
|
(1,635
|
)
|
|
|
(1,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
$
|
621,196
|
|
|
$
|
(1,635
|
)
|
|
$
|
619,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired and liabilities assumed on
October 19, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
69,331
|
|
|
$
|
452
|
|
|
$
|
69,783
|
|
Property, plant and equipment
|
|
|
56,163
|
|
|
|
(962
|
)
|
|
|
55,201
|
|
Intangible assets subject to amortization
|
|
|
240,490
|
|
|
|
|
|
|
|
240,490
|
|
Other non-current assets
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
Goodwill
|
|
|
364,450
|
|
|
|
(1,805
|
)
|
|
|
362,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
731,934
|
|
|
|
(2,315
|
)
|
|
|
729,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
21,131
|
|
|
|
|
|
|
|
21,131
|
|
Non-current deferred tax liabilities
|
|
|
87,578
|
|
|
|
(680
|
)
|
|
|
86,898
|
|
Other non-current liabilities
|
|
|
2,029
|
|
|
|
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
110,738
|
|
|
|
(680
|
)
|
|
|
110,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
621,196
|
|
|
$
|
(1,635
|
)
|
|
$
|
619,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with generally accepted accounting principles, we have recognized measurement-period adjustments during the
period in which we determine the amount of the adjustment, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date.
46
3) Restructuring, Impairment and Integration Charges, excluding Goodwill Impairments, and Divestitures
Restructuring and integration costs totaling $10.0 million and $7.3 million were recognized in the years ended December 31, 2016 and 2015,
comprised of initiatives impacting each of our segments.
Within the Precision Bearing Components Group, restructuring initiatives to optimize operations
in the U.S., Italy, the Netherlands, Mexico and at segment headquarters resulted in a charge of $4.4 and $2.0 million for the years ended December 31, 2016 and 2015, respectively. These charges consisted primarily of severance and other
employee costs relating to personnel reductions.
Within the Autocam Precision Components Group, certain restructuring programs, including the closure of
one facility, the Wheeling Plant, resulted in a charge of $4.3 and $2.6 million for the years ended December 31, 2016 and 2015, respectively. These charges consisted of severance costs of $0.8 million, fixed asset impairment of $0.3 million and
site closure costs of $3.2 million for 2016.
Within the Precision Engineered Products (PEP) Group, initiatives resulted in integration, site
closure and employee costs of $1.3 and $0.9 million for the years ended December 31, 2016 and 2015, respectively.
Within the Corporate and
Consolidated Segment, a charge of $1.8 million was incurred for an accounting and reporting system that was ultimately never deployed and abandoned for the year ended December 31, 2015.
The following table summarizes restructuring and integration activity related to actions incurred for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Severance and other employee costs
|
|
$
|
5,776
|
|
|
$
|
2,019
|
|
Site closure and other associated costs
|
|
|
3,970
|
|
|
|
4,399
|
|
Integration and other associated costs
|
|
|
278
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,024
|
|
|
$
|
7,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
|
|
|
|
|
|
|
|
|
Reserve
|
|
|
|
Balance at
|
|
|
|
|
|
Paid in
|
|
|
Balance at
|
|
|
|
December 31, 2015
|
|
|
Charges
|
|
|
2016
|
|
|
December 31, 2016
|
|
Severance and other employee costs
|
|
$
|
2,517
|
|
|
$
|
5,776
|
|
|
$
|
(5,274
|
)
|
|
$
|
3,019
|
|
Site closure and other associated costs
|
|
|
1,845
|
|
|
|
3,970
|
|
|
|
(4,189
|
)
|
|
|
1,626
|
|
Integration and other associated costs
|
|
|
|
|
|
|
278
|
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,362
|
|
|
$
|
10,024
|
|
|
$
|
(9,741
|
)
|
|
$
|
4,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
|
|
|
|
|
|
Paid in
|
|
|
Reserve
|
|
|
|
Balance at
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31, 2014
|
|
|
Charges
|
|
|
2015
|
|
|
December 31, 2015
|
|
Severance and other employee costs
|
|
$
|
|
|
|
$
|
2,691
|
|
|
$
|
(174
|
)
|
|
$
|
2,517
|
|
Site closure and other associated costs
|
|
|
|
|
|
|
1,925
|
|
|
$
|
(80
|
)
|
|
|
1,845
|
|
Impairment and write-off charges
|
|
|
|
|
|
|
2,652
|
|
|
$
|
|
|
|
|
|
|
Integration and other associated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
7,268
|
|
|
$
|
(254
|
)
|
|
$
|
4,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total restructuring and impairment costs are still being identified at the various segments; therefore, we are not able to
estimate the ultimate costs at this time. We will include in future filings updates to these activities along with a reconciliation of beginning and ending liabilities recorded. The amounts recorded for the year ended December 31, 2016 for
restructuring charges that have been incurred are primarily expected to be paid out during 2017. Some amounts related to foreign locations extend through 2021.
47
4) Accounts Receivable and Sales Concentrations
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Trade
|
|
$
|
140,754
|
|
|
$
|
124,226
|
|
|
|
|
Lessallowance for doubtful accounts
|
|
|
1,207
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
139,547
|
|
|
$
|
123,005
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
Write-
|
|
|
Currency
|
|
|
Balance at
|
|
Description
|
|
of Year
|
|
|
Additions
|
|
|
offs
|
|
|
Impacts
|
|
|
End of Year
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,221
|
|
|
$
|
142
|
|
|
$
|
(75
|
)
|
|
$
|
(81
|
)
|
|
$
|
1,207
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
520
|
|
|
$
|
745
|
|
|
$
|
(8
|
)
|
|
$
|
(36
|
)
|
|
$
|
1,221
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
445
|
|
|
$
|
208
|
|
|
$
|
(123
|
)
|
|
$
|
(10
|
)
|
|
$
|
520
|
|
For the years ended December 31, 2016, 2015 and 2014, sales to AB SKF (SKF) amounted to $104.2 million,
$105.7 million, and $128.0 million, respectively, or 13%, 16%, and 26% of consolidated revenues, respectively. None of our other customers accounted for more than 10% of our net sales in 2016, 2015 or 2014. SKF was the only customer with accounts
receivable concentration in excess of 10% in 2016 and 2015. The outstanding balance as of December 31, 2016 and 2015 for SKF was $20.5 million and $16.2 million, respectively. All revenues and receivables related to SKF are in the Precision
Bearing Components Group and Precision Engineered Products Group.
5) Inventories
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
49,205
|
|
|
$
|
50,204
|
|
Work in process
|
|
|
31,348
|
|
|
|
30,604
|
|
Finished goods
|
|
|
34,298
|
|
|
|
39,028
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
114,851
|
|
|
$
|
119,836
|
|
|
|
|
|
|
|
|
|
|
Finished goods inventory on consignment at customers sites at December 31, 2016 and 2015 was approximately $5.0
million and $5.1 million, respectively.
The inventory valuations above were developed using normalized production capacities for each of our
manufacturing locations. Any costs from abnormal excess capacity or under-utilization of fixed production overheads are expensed in the period incurred and are not included as a component of inventory valuation.
6) Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2016
|
|
|
2015
|
|
Land and buildings
|
|
|
15-40 years
|
|
|
|
96,173
|
|
|
|
97,322
|
|
Machinery and equipment
|
|
|
3-12 years
|
|
|
|
464,291
|
|
|
|
432,841
|
|
Construction in process
|
|
|
|
|
|
|
21,045
|
|
|
|
16,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
581,509
|
|
|
|
546,212
|
|
Lessaccumulated depreciation
|
|
|
|
|
|
|
258,556
|
|
|
|
227,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
$
|
322,953
|
|
|
$
|
318,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
During the year ended December 31, 2015, we acquired $59.1 million in property, plant and equipment with the
two acquisitions completed during 2015.
For the years ended December 31, 2016, 2015, and 2014, depreciation expense was $36.0 million, $
31.5 million and $20.8 million, respectively.
7) Debt
Long-term debt and short-term debt at December 31, 2016 and December 31, 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Borrowings under our $545.0 million Senior Secured Term Loan B bearing interest at the greater of
0.75% or 1 month LIBOR (0.77% at December 31, 2016) plus an applicable margin of 4.25% at September 30, 2016, expiring October 19, 2022, net of debt issuance costs of $19.0 million at December 31, 2016 and $20.6 million at
December 31, 2015.
|
|
$
|
524,539
|
|
|
$
|
552,957
|
|
Borrowings under our $143.0 million Senior Secured Revolver bearing interest at LIBOR (0.77% at
December 31, 2016) plus an applicable margin of 3.50% at September 30, 2016, expiring October 19, 2020, net of debt issuance costs of $2.7 million at December 31, 2016 and $2.9 million at December 31, 2015.
|
|
|
25,298
|
|
|
|
3,547
|
|
Borrowings under our $250.0 million Senior Notes bearing interest at 10.25%, maturing on
November 1, 2020, net of debt issuance costs of $4.9 million at December 31, 2016 and $5.9 million at December 31, 2015.
|
|
|
245,077
|
|
|
|
244,088
|
|
French Safeguard Obligations (Autocam)
|
|
|
358
|
|
|
|
2,000
|
|
Brazilian lines of credit and equipment notes (Autocam)
|
|
|
573
|
|
|
|
826
|
|
Chinese line of credit (Autocam)
|
|
|
2,619
|
|
|
|
3,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
798,464
|
|
|
|
807,114
|
|
|
|
|
Less current maturities of long-term debt
|
|
|
12,751
|
|
|
|
11,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current maturities of long-term debt
|
|
$
|
785,713
|
|
|
$
|
795,400
|
|
|
|
|
|
|
|
|
|
|
On October 19, 2015, we: (i) entered into a new senior secured term loan credit facility in the amount of up to
$525.0 million (with a $100.0 million accordion feature) and a seven year maturity (as amended, supplemented and/or restated from time to time, the Term Loan Credit Facility); (ii) entered into a new senior secured revolving credit
facility in the amount of up to $100.0 million with a five year maturity (as amended, supplement and/or restated from time to time, the Senior Secured Revolving Credit Facility, and together with the Term Loan Credit Facility, the
Senior Credit Facilities); and (iii) issued $300.0 million of 10.25% senior notes due 2020 (the Senior Notes). On September 30, 2016, we amended and restated the Senior Credit Facilities, which lowered the interest
rate and rate floor on the Companys Senior Secured Term Loan B (the Term Loan B). The new applicable rate for the Term Loan B is London Inter Bank Offering Rate (LIBOR), subject to a 0.75% rate floor, plus 4.25%, which
in combination is 75 basis points lower (or 0.75%) than the previous rate. There were no changes to the maturities or covenants under the Term Loan B. Concurrent with the amended and restated Term Loan B, the Senior Secured Revolving Credit Facility
was upsized from $100 million to $133 million. Proceeds were drawn under the Senior Secured Revolving Credit Facility to pay down debt under the Term Loan B, reducing the debt under the Term Loan B to $545 million. During October 2016, an
incremental amendment was executed increasing the $133 million Senior Secured Revolving Credit Facility to $143 million. There were no changes to the Senior Secured Revolving Credit Facility maturities, and the covenant threshold was increased from
$30 million to $42.9 million (30% drawn threshold). The outcome of the refinancing and debt transactions was lower principal amounts outstanding on the Term Loan B, increased borrowings under the Senior Secured Revolving Credit Facility, resulting
in a lower effective interest rate for the overall debt holdings.
In conjunction with the amended and restated Senior Credit Facilities, we incurred $4.0
million in debt issuance costs. We wrote off a total of $2.6 million in debt issuance costs related to the modification and extinguishment of debt.
49
As part of the merger with Autocam in 2014, we assumed certain foreign credit facilities. These facilities relate
to local borrowings in France, Brazil and China. These facilities are with financial institutions in the countries in which foreign plants operate and are used to fund working capital and equipment purchases in those countries. The following
paragraphs describe these foreign credit facilities.
Our French operation (acquired with Autocam) has liabilities with certain creditors subject to
Safeguard protection. The liabilities are being paid annually over a 10-year period until 2019 and carry a zero percent interest rate. Amounts due as of December 31, 2016 to those creditors opting to be paid over a 10-year period totaled $0.4
million, of which $0.1 million is included in current maturities of long-term debt and $0.3 million is included in long-term debt, net of current portion, on the Condensed Consolidated Balance Sheet.
The Brazilian equipment notes represent borrowings from certain Brazilian banks to fund equipment purchases for Autocams Brazilian plants. These credit
facilities have annual interest rates ranging from 2.5% to 9.1%.
The Chinese line of credit is a working capital line of credit with a Chinese bank
bearing an annual interest rate ranging from 1.4% to 4.6%.
In accordance with generally accepted accounting principles, we have adopted ASU 2015-03,
which provides guidance on simplifying the presentation of debt issuance costs on the balance sheet. To simplify presentation of debt issuance costs, the amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The following table displays the debt amounts reported as of December 31, 2015, restated for the
adoption of ASU 2015-03. The debt issuance costs were reclassified from other non-current assets and directly applied to the associated liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
December 31,
2015
|
|
|
ASU 2015-13
Reclass
|
|
|
Amended
December 31,
2015
|
|
Borrowings under our $575.0* million Senior Secured Term
Loan B
|
|
$
|
562,580
|
|
|
$
|
(9,623
|
)
|
|
$
|
552,957
|
|
Borrowings under our $100.0** million Senior Secured Revolver
|
|
|
6,462
|
|
|
|
(2,915
|
)
|
|
|
3,547
|
|
Borrowings under our $250.0 million Senior Notes
|
|
|
244,509
|
|
|
|
(421
|
)
|
|
|
244,088
|
|
French Safeguard Obligations (Autocam)
|
|
|
2,000
|
|
|
|
|
|
|
|
2,000
|
|
Brazilian lines of credit and equipment notes (Autocam)
|
|
|
826
|
|
|
|
|
|
|
|
826
|
|
Chinese line of credit (Autocam)
|
|
|
3,696
|
|
|
|
|
|
|
|
3,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
820,073
|
|
|
|
|
|
|
|
807,114
|
|
Less current maturities of long-term debt
|
|
|
11,714
|
|
|
|
|
|
|
|
11,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current maturities of long-term debt
|
|
$
|
808,359
|
|
|
|
|
|
|
$
|
795,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Amended from $575 million down to $545 million on September 30, 2016.
|
**
|
Amended from $100 million up to $133 million on September 30, 2016; incremental amendment from $133 million up to $143 million in October 2016.
|
The aggregate maturities of long-term debt including current portion for each of the five years subsequent to December 31, 2016 are as follows:
|
|
|
|
|
Year ending December 31,
|
|
2017
|
|
$
|
12,751
|
|
2018
|
|
|
5,968
|
|
2019
|
|
|
5,968
|
|
2020
|
|
|
279,841
|
|
2021
|
|
|
5,750
|
|
Thereafter
|
|
|
514,812
|
|
|
|
|
|
|
Total debt
|
|
$
|
825,090
|
|
Less debt issuance costs
|
|
|
(26,626
|
)
|
|
|
|
|
|
Total debt, net of debt issuance cost
|
|
$
|
798,464
|
|
|
|
|
|
|
On June 1, 2004, our wholly owned subsidiary, NN Asia, entered into a twenty-year lease agreement with Kunshan Tian Li
Steel Structure Co. LTD for the lease of land and building (approximately 110,000 square feet) in the Kunshan Economic and Technology Development Zone, Jiangsu, The Peoples Republic of China. The fair value of the land and building was
estimated to be approximately $0.5 million and $1.9 million (at current exchange rates), respectively and undiscounted annual lease payments are approximately $0.3 million (approximately $5.6 million aggregate non-discounted lease payments over the
twenty year term). The lease is cancelable after the fifth, ninth, and fourteenth years without payment or penalty by us. In addition, after the end of year five and each succeeding year we can buy the land for a preset price per square meter value
and the building for actual cost less depreciation.
50
On October 1, 2011, our wholly owned subsidiary, NN Asia, entered into a twenty year lease agreement with
Kunshan Tian Li Steel Structure Co. LTD for the lease of land and building adjacent to the current leased facility (approximately 75,000 square feet) in the Kunshan Economic and Technology Development Zone, Jiangsu, The Peoples Republic of
China. This lease was entered into to expand the production capacity of our current leased facility. The fair value of the land and building was estimated to be approximately $0.8 million and $1.1 million (at current exchange rates), respectively
and undiscounted annual lease payments are approximately $0.2 million (approximately $3.6 million aggregate non-discounted lease payments over the twenty year term). The lease is cancelable after the fifth, ninth, and fourteenth years without
payment or penalty by us. In addition, after the end of year five and each succeeding year we can buy the land for a preset price per square meter value and the building for actual cost less depreciation.
Below are the aggregate minimum future lease payments under both capital leases together with the present value of the net minimum lease payments as of
December 31, 2016:
|
|
|
|
|
Year ending December 31,
|
|
2017
|
|
$
|
434
|
|
2018
|
|
|
434
|
|
2019
|
|
|
434
|
|
2020
|
|
|
434
|
|
2021
|
|
|
434
|
|
Thereafter
|
|
|
2,601
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
4,771
|
|
Less interest included in payments above
|
|
|
(1,462
|
)
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
3,309
|
|
|
|
|
|
|
With the Autocam acquisition, we assumed capital leases on certain buildings and equipment. The cost of the assets
subject to capital lease obligations as reflected in Property, Plant and Equipment, net in our Consolidated Balance Sheet was $25.0 million as of December 31, 2014. The accumulated depreciation of such assets as reflected in Property,
Plant and Equipment, net in our Consolidated Balance Sheet was $3.6 million and $2.6 million as of December 31, 2016 and 2015, respectively.
Below
are the minimum future lease payments under the assumed capital leases together with the present value of the net minimum lease payments as of December 31, 2016:
|
|
|
|
|
Year ending December 31,
|
|
2017
|
|
$
|
3,521
|
|
2018
|
|
|
2,530
|
|
2019
|
|
|
803
|
|
2020
|
|
|
0
|
|
2021
|
|
|
0
|
|
Thereafter
|
|
|
0
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
6,854
|
|
Less interest included in payments above
|
|
|
(282
|
)
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
6,572
|
|
|
|
|
|
|
8)
|
Employee Benefit Plans
|
We have defined contribution 401(k) profit sharing plans covering substantially
all U.S. employees. All eligible employees may enroll in the plans on the first day of the month following their employment date. A participant may elect to contribute between 1% and 60% of their compensation to the plans, subject to Internal
Revenue Service (IRS) dollar limitations. Participants age 50 and older may defer an additional amount up to the applicable IRS Catch Up Provision Limit. We provide a matching contribution, which is determined on an individual,
participating company basis. All participant contributions are immediately vested at 100%. Contributions for all U.S. employees were $2.3 million, $0.2 million and $0.8 million in 2016, 2015, and 2014, respectively.
Post-Employment Benefit Liabilities
We provide certain
post-employment benefits to employees at our Pinerolo and Veenendaal plants that are either required by law or are local labor practice. There is a plan at each of our Pinerolo and Veenendaal plants, which are described below.
51
In accordance with Italian law, we have an unfunded severance plan under which all Italian employees are entitled
to receive severance indemnities (Trattamento di Fine Rapporto or TFR) upon termination of their employment.
Effective January 1, 2007,
the amount payable, based on salary paid, is remitted to a pension fund managed by a third party. The severance indemnities paid to the pension fund accrue approximately at the rate of 1/13.5 of the gross salaries paid during the year. The
amounts accrued become payable upon termination of the individual employee, for any reason, e.g., retirement, dismissal or reduction in work force. Employees are fully vested in TFR benefits after their first year of service.
We have a plan that covers our Veenendaal plant employees that provides an award for employees who achieve 25 or 40 years of service and an award for
employees upon retirement. The plan is unfunded and the benefits are based on years of service and rate of compensation at the time the award is paid.
The amounts shown in the table below represent the actual liabilities at December 31, 2016 and 2015 reported under accrued post-employment benefits in
the Consolidated Balance Sheets for both plans combined.
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
5,189
|
|
|
$
|
6,024
|
|
Amounts accrued
|
|
|
135
|
|
|
|
53
|
|
Payments to employees/government managed plan
|
|
|
(452
|
)
|
|
|
(266
|
)
|
Foreign currency impacts
|
|
|
(165
|
)
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,707
|
|
|
$
|
5,189
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan
Effective with the Autocam acquisition on August 29, 2014, we sponsor a defined benefit pension plan (the Pension Plan) for substantially all
employees of the Bouverat, France plant. These benefits are calculated based on each employees years of credited service and most recent monthly compensation and service category. Employees become vested in accordance with governmental
regulations in place at the time of retirement.
For the purpose of calculating the 2016 actuarial present value of the benefit obligation under the
Pension Plan, the discount rates assumed were 1.6%. The compensation growth rate was assumed was 3.0% for 2016. The measurement date was December 31, 2016.
For the purpose of calculating the 2015 actuarial present value of the benefit obligation under the Pension Plan, the discount rates assumed were
2.2%. The compensation growth rate was assumed was 3.0% for 2015. The measurement date was December 31, 2016.
Set forth below is projected
benefit obligation information for the Pension Plan and the plan activity for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Accumulated benefit obligation at measurement date
|
|
$
|
949
|
|
|
$
|
950
|
|
Effect of salary increases
|
|
|
533
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at measurement date
|
|
$
|
1,482
|
|
|
$
|
1,444
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at date of acquisition
|
|
$
|
1,444
|
|
|
$
|
1,537
|
|
Service and interest costs
|
|
|
113
|
|
|
|
103
|
|
Actuarial gains (losses)
|
|
|
118
|
|
|
|
(15
|
)
|
Benefits paid
|
|
|
(141
|
)
|
|
|
(22
|
)
|
Effect of foreign currency translation gains and other
|
|
|
(50
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at measurement date
|
|
$
|
1,484
|
|
|
$
|
1,444
|
|
|
|
|
|
|
|
|
|
|
Set forth below is net periodic benefit cost information for the Pension Plan for the years ended December 31, 2016 and
2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Service and interest costs
|
|
$
|
113
|
|
|
$
|
103
|
|
Expected return on plan assets
|
|
|
(10
|
)
|
|
|
(11
|
)
|
Amortization of prior service costs
|
|
|
27
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
130
|
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
52
We expect benefit payments under the Pension Plan to be:
|
|
|
|
|
Year ending December 31,
|
|
2017
|
|
$
|
14
|
|
2018
|
|
|
7
|
|
2019
|
|
|
|
|
2020
|
|
|
25
|
|
2021
|
|
|
9
|
|
2022-2026
|
|
|
213
|
|
|
|
|
|
|
Total benefit payments
|
|
|
268
|
|
|
|
|
|
|
Set forth below is plan asset information for the Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Plan assets at fair value at measurement date
|
|
$
|
426
|
|
|
$
|
515
|
|
Projected benefit obligations at measurement date
|
|
|
(1,482
|
)
|
|
|
(1,444
|
)
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(1,056
|
)
|
|
$
|
(929
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value at date of acquisition
|
|
$
|
515
|
|
|
$
|
589
|
|
Actual return on plan assets
|
|
|
64
|
|
|
|
9
|
|
Benefits paid
|
|
|
(141
|
)
|
|
|
(22
|
)
|
Effect of foreign currency translation gains
|
|
|
(13
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value at measurement date
|
|
$
|
425
|
|
|
$
|
515
|
|
|
|
|
|
|
|
|
|
|
The assumed rate of return on assets of the Pension Plan was 2.0% for all periods presented. We have a targeted goal of
allocating plan assets one-third to equity and two-thirds to fixed income securities. Actual allocations of Pension Plan assets between equity and fixed income securities were 35% and 65%, respectively, as of December 31, 2016. Our
expected funding obligations under the Pension Plan in 2017 is approximately $0.1 million.
Even though we do use other observable inputs (Level 2 inputs
under the GAAP hierarchy), the calculation of fair value for pension plan assets and liabilities would be most consistent with Level 3 under the GAAP hierarchy.
9)
|
Stock Based Compensation
|
We recognize compensation expense of all employee and non-employee director
share-based compensation awards in the financial statements based upon the fair value of the awards over the requisite service or vesting period, less anticipated forfeitures. We account for stock awards by recognizing the fair value of the
awarded stock at the grant date as compensation expense over the vesting period, less anticipated forfeitures.
In the years ended December 31, 2016,
2015, and 2014, approximately $4.3 million, $3.7 million, and $2.6 million, respectively of compensation expense was recognized in selling, general and administrative expense for all share-based awards. The compensation expense recognized in
the years ended December 31, 2016, 2015 and 2014 related to stock options was $0.8 million, $0.9 million and $1.3 million, respectively. The compensation expense related to stock awards in the years ended December 31, 2016, 2015 and
2014 was $2.3 million, $2.4 million and $1.3 million, respectively. The compensation expense related to performance based awards in the year ended December 31, 2016 and 2015, was $1.2 and $0.4 million, respectively.
As of December 31, 2016, we have approximately 2,300 maximum shares that can be issued as options, stock appreciation rights, and/or other stock based
awards.
53
Stock Option Awards
Option awards are typically granted to non-executive directors and key employees on an annual basis. A single option grant is typically awarded to
eligible employees and non-executive directors each year if and when granted by the Compensation Committee of the Board of Directors and occasionally individual grants are awarded to eligible employees. All employee and non-executive directors
are awarded options at an exercise price equal to the closing price of our stock on the date of grant. The term life of options is ten years with vesting periods of generally three years for key employees and one year for non-executive
directors. The fair value of our options cannot be determined by market value as they are not traded in an open market. Accordingly, the Black Scholes financial pricing model is utilized to determine fair value based on certain assumptions
discussed below.
During 2016, 2015 and 2014, we granted options to purchase 167,000, 54,600, and 108,620 shares, respectively, to certain key employees
and non-employee directors. The weighted average grant date fair value of the options granted during the years ended December 31, 2016, 2015 and 2014 was $5.02, $12.61 and $9.48, respectively. Upon exercise of stock options, new shares of
our stock are issued. The weighted average assumptions relevant to determining the fair value at the dates of grant are below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Term
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Risk free interest rate
|
|
|
1.43
|
%
|
|
|
1.43
|
%
|
|
|
1.75
|
%
|
Dividend yield
|
|
|
2.48
|
%
|
|
|
1.11
|
%
|
|
|
1.43
|
%
|
Expected volatility
|
|
|
59.23
|
%
|
|
|
59.22
|
%
|
|
|
56.75
|
%
|
Expected forfeiture rate
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
The expected volatility rate is derived from our actual common stock historical volatility over the same time period as the
expected term. The volatility rate is derived by mathematical formula utilizing daily closing price data.
The expected dividend yield is derived by a
mathematical formula which uses the expected annual dividends over the expected term divided by the fair market value of our common stock at the grant date.
The average risk-free interest rate is derived from United States Department of Treasury published interest rates of daily yield curves for the same time
period as the expected term.
The forfeiture rate is determined from examining the historical pre-vesting forfeiture patterns of past option issuances to
key employees. While the forfeiture rate is not an input of the Black Scholes model for determining the fair value of the options, it is an important determinant of stock option compensation expense to be recorded.
The term is derived from using the Simplified Method of determining stock option terms as described under the Securities and Exchange
Commissions Staff Accounting Bulletin 107.
The following table provides a reconciliation of option activity for the year ended December 31,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Shares (000)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at January 1, 2016
|
|
|
1,034
|
|
|
$
|
12.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
167
|
|
|
$
|
11.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(270
|
)
|
|
$
|
10.49
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(34
|
)
|
|
$
|
17.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
897
|
|
|
$
|
12.22
|
|
|
|
5.9
|
|
|
|
6,479
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
686
|
|
|
$
|
11.59
|
|
|
|
4.9
|
|
|
|
5,267
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The intrinsic value is the amount by which the market price of our stock was greater than the exercise price of any individual option grant at December 31, 2016.
|
As of December 31, 2016, there was approximately $0.6 million, $1.0 million and $2.0 million of unrecognized compensation costs for stock options,
restricted stock and performance based awards, respectively, to be recognized over approximately two years.
Cash proceeds from the exercise of options in
the years ended December 31, 2016, 2015, and 2014 totaled approximately $2.6 million, $2.0 million, and $1.7 million, respectively. For the years ended December 31, 2016, 2015 and 2014, proceeds from stock options were presented
exclusive of tax benefits in the Financing Activities section of the Consolidated Statements of Cash Flows. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $2.9 million, $2.6
million and $2.0 million, respectively.
54
Stock Awards
During the year ended December 31, 2016, 2015 and 2014, we issued 152,510, 114,475 and 114,300 shares, respectively, of our common stock as awards to key
employees and non-executive directors. The fair value of the 2016 shares issued was determined by using the grant date price of our common stock with a weighted average grant date value of $11.39. The recognized compensation expense for stock
awards in the years ended December 31, 2016, 2015, and 2014 was approximately $2.3 million, $2.4 million, and $1.3 million, respectively. The shares issued in 2016, 2015 and 2014 vest over three years.
Performance Based Awards
On March 16, 2016 and
April 30, 2015, we awarded performance share units (the PSUs) to our executive officers. The PSUs are a form of long-term incentive compensation designed to directly align the interests of employees to the interests of our
stockholders, and to create long-term stockholder value. The awards were made pursuant to the NN, Inc. 2011 Stock Incentive Plan and a Performance Share Unit Agreement.
There were two tranches of PSUs awarded, PSUs based on total shareholder return (TSR Awards) and PSUs based on return on invested capital
(ROIC Awards). The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of the S&P SmallCap 600 Index during the period beginning on
March 16, 2016 and ending December 31, 2018 for the 2016 awards and the period beginning February 1, 2015 and ending December 31, 2017 for the 2015 awards (the Performance Periods). The ROIC Awards will vest, if at
all, upon our achieving a specified average return on invested capital during the Performance Periods. If the PSUs do not vest at the end of the Performance Periods, the PSUs will expire automatically. Upon vesting, the PSUs will be settled by the
issuance of shares of our common stock, subject to the executive officers continued employment. The actual number of shares of common stock will be issued to each award recipient at the end of the Performance Periods will be interpolated
between a threshold and maximum payout amount based on actual performance results. No dividends will be paid on outstanding PSUs during the Performance Period; however, dividend equivalents will be paid based on the number of shares of common stock
that are ultimately earned at the end of the Performance Periods.
With respect to the TSR Awards, a participant will earn 50% of the target number of
PSUs for Threshold Performance, 100% of the target number of PSUs for Target Performance, and 150% of the target number of PSUs for Maximum Performance. With respect to the ROIC Awards, a participant will earn 35%
of the target number of PSUs for Threshold Performance, 100% of the target number of PSUs for Target Performance, and 150% of the target number of PSUs for Maximum Performance. For performance levels falling between the
values shown below, the percentages will be determined by interpolation. The following table establish the goals with respect to TSR and ROIC:
TSR:
|
|
|
|
|
|
|
|
|
Threshold Performance
(50% of Shares)
|
|
Target Performance
(100% of Shares)
|
|
|
Maximum Performance
(150% of Shares)
|
|
35th Percentile
|
|
|
50th Percentile
|
|
|
|
75th Percentile
|
|
ROIC:
|
|
|
|
|
|
|
|
|
|
|
Threshold Performance
(35% of Shares)
|
|
|
Target Performance
(100% of Shares)
|
|
|
Maximum Performance
(150% of Shares)
|
|
|
11%
|
|
|
|
12.5
|
%
|
|
|
14
|
%
|
During 2016 and 2015, we awarded 101,165 and 35,775 TSR Awards and 101,165 and 35,775 ROIC Awards with a grant date fair value
of $9.38 and $28.61 for TSR Awards and $11.31 and $25.16 per unit for ROIC Awards, respectively. We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metric is considered a
market condition under ASC 718. The grant date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant.
The recognized compensation expense for the year ended December 31, 2016 and 2015 was $1.2 million and $0.4 million, respectively, for all
PSUs. Unrecognized compensation expense at December 31, 2016 was $2.0 million to be recognized over approximately two years.
During the three
months ended June 30, 2016, we recorded an out of period adjustment to correct compensation expense recoded with respect to share-based awards previously granted to executives who, either at the time of such grant or during the applicable
vesting period, were eligible to retire from the Company, upon which the vesting of all or a portion of these awards would be accelerated. If the out of period amounts would have been recorded in the appropriate periods, then the Selling, general
and administrative expense line item in the Consolidated State of Operations for the years ended December 31, 2015 and 2014 would have been effected by $0.1 million and $32 thousand pre-tax amounts, respectively, increasing expense.
55
We completed our annual goodwill impairment review during the fourth quarters of 2016 and
2015. For the years ended December 31, 2016, 2015 and 2014, we concluded that there were no indicators of impairment at the reporting units with goodwill.
The changes in the carrying amount of goodwill for the years ended December 31, 2016, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precision
Bearing
Components
Group
|
|
|
Autocam
Precision
Components
Group
|
|
|
Precision
Engineered
Products
Group
|
|
|
Total
|
|
Balance as of December 31, 2014
|
|
$
|
9,949
|
|
|
$
|
73,992
|
|
|
$
|
|
|
|
$
|
83,941
|
|
Currency impacts
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
(838
|
)
|
Goodwill acquired in acquisition
|
|
|
|
|
|
|
|
|
|
|
366,795
|
|
|
|
366,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
9,111
|
|
|
$
|
73,992
|
|
|
$
|
366,795
|
|
|
$
|
449,898
|
|
Currency impacts
|
|
|
(202
|
)
|
|
|
(601
|
)
|
|
|
(2,051
|
)
|
|
|
(2,854
|
)
|
Adjustments to goodwill
|
|
|
|
|
|
|
|
|
|
|
(1,805
|
)
|
|
|
(1,805
|
)
|
Other adjustments (a)
|
|
|
|
|
|
|
(2,674
|
)
|
|
|
7,746
|
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
8,909
|
|
|
$
|
70,717
|
|
|
$
|
370,685
|
|
|
$
|
450,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During the year ended December 31, 2016, the Company identified certain prior period errors primarily relating to the initial recognition of goodwill and deferred taxes in purchase accounting (see Note 13) and the
subsequent foreign currency translation of goodwill. The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors in 2016 as reflected above.
|
The accumulated impairment charges included in the reported goodwill balances at December 31, 2016, 2015 and 2014 were $40.0 million
all of which were recorded during the years ended December 31, 2008 and 2007.
The goodwill acquired in the 2015 acquisitions within the Precision
Engineered Products Group was primarily related to the PEP Acquisition. (See Note 2 of the Notes to Consolidated Financial Statements). The goodwill balance related to the PEP Acquisition is derived from the value of the Precision Engineered
Products Group. This fair value was based in large part on management business plans and projected financial information which are subject to a high degree of management judgment and complexity. Actual results may differ from these projections, and
the differences may be material leading to a potential impairment of this goodwill if this reporting units future results are not as forecasted.
11)
|
Intangible Assets, Net
|
The change in the carrying amount of intangible assets, net, for the years ended
December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precision
Bearing
Components
Group
|
|
|
Autocam
Precision
Components
Group
|
|
|
Precision
Engineered
Products
Group
|
|
|
Total
|
|
Balance as of December 31, 2014
|
|
$
|
2,328
|
|
|
$
|
50,499
|
|
|
$
|
|
|
|
$
|
52,827
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
242,980
|
|
|
|
242,980
|
|
Amortization
|
|
|
(238
|
)
|
|
|
(3,625
|
)
|
|
|
(9,180
|
)
|
|
|
(13,043
|
)
|
Currency impacts
|
|
|
(138
|
)
|
|
|
(457
|
)
|
|
|
|
|
|
|
(595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
1,952
|
|
|
$
|
46,417
|
|
|
$
|
233,800
|
|
|
$
|
282,169
|
|
Amortization
|
|
|
(207
|
)
|
|
|
(3,533
|
)
|
|
|
(22,465
|
)
|
|
|
(26,205
|
)
|
Currency impacts
|
|
|
(27
|
)
|
|
|
44
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
1,718
|
|
|
$
|
42,928
|
|
|
$
|
211,335
|
|
|
$
|
255,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With the PEP Acquisition, the Precision Engineered Products Group acquired a customer relationship intangible asset of $226.5
million, a trade name intangible asset of $6.3 million, a backlog and unfavorable leasehold intangible of $7.7 million. The intangible assets have estimated useful lives of 12 years for customer relationships and 8 years for trade name, and the
backlog and unfavorable leases will be amortized over the fourth quarter of 2015 and first quarter of 2016. After the estimated useful lives of the backlog and inventory, the estimated amortization of intangibles will be approximately $19.7
million a year.
With the Caprock acquisition, the Precision Engineered Products Group acquired $2.5 million of intangibles, approximately $0.1 in trade
names and $2.4 million in customer relationships. The intangibles have estimated useful lives of one year for trade names and 12 years for customer relationships. The estimated amortization of the intangibles will be approximately $0.2
million per year.
56
The Autocam Precision Components Group has an intangible asset not subject to amortization of $0.9 million
related to the value of the trade names of Whirlaway. This indefinite lived intangible asset was impaired during the year ended December 31, 2014 as management is in the process of phasing out the use of the trade name as a result of the
Autocam acquisition. As such, an impairment charge of $0.9 million was included in the restructuring and impairment charges line of the Consolidated Statements of Operations and Comprehensive Income (Loss).
With the Autocam acquisition, the Autocam Precision Components Group acquired a customer contract intangible asset of $46.2 million, a trade name intangible
asset of $4.1 million, a developed technology intangible asset of $0.9 million, and net favorable leasehold intangible of $0.4 million. The trade names and customer relationship intangible assets have estimated useful lives of 15 years, and the
remaining intangibles have a five year useful life. The estimated amortization for the first five year will be approximately $3.5 million per year.
The Precision Bearing Components Group acquired two customer contract intangible assets related to the acquisition of RKF and Chelsea and a trade name
intangible asset related to the acquisition of RFK with an aggregate estimated fair value of $2.7 million. These intangible assets have weighted average useful lives of 10 years and are subject to amortization of approximately $0.3 million per year.
We determined our reportable segments under the provisions of GAAP related to
disclosures about segments of an enterprise. Our three reportable segments are based on differences in product lines.
All of the facilities in the
Precision Bearing Components Group are engaged in the production of precision steel balls, steel rollers, and metal retainers and automotive specialty products used primarily in the bearing industry. The Precision Engineered Products Group includes
the Plastic and Rubber Components Group as presented in previous filings. The name of this segment was changed during 2015 after the PEP Acquisition and disposal of Delta Rubber. With the completion of the PEP Acquisition, we added a
global manufacturer of highly engineered precision customized solutions serving the medical, electrical, automotive, aerospace and defense end markets. The Autocam Precision Components Group is engaged in the design and manufacture of
close-tolerance, precision-machined metal components. Currently, we manufacture components for use in fuel delivery, electromechanical motor, steering and braking systems for the automotive industry and highly engineered shafts, mechanical
components, complex precision assembled and tested parts and fluid system components for the HVAC and fluid power industries. This segment was renamed with the acquisition of Autocam.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precision
Bearing
Components
Group
|
|
|
Precision
Engineered
Products
Group
|
|
|
Autocam
Precision
Components
Group
|
|
|
Corporate
and
Consolidations
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
248,534
|
|
|
$
|
258,816
|
|
|
$
|
326,138
|
|
|
$
|
|
|
|
$
|
833,488
|
|
Depreciation and amortization
|
|
|
11,676
|
|
|
|
28,020
|
|
|
|
22,189
|
|
|
|
603
|
|
|
|
62,488
|
|
Income from operations
|
|
|
22,985
|
|
|
|
34,744
|
|
|
|
29,516
|
|
|
|
(27,845
|
)
|
|
|
59,400
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,154
|
|
|
|
63,154
|
|
Income tax (benefit) expense
|
|
|
|
|
|
|
|
(9,313
|
)
|
|
|
(9,313
|
)
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,942
|
|
|
|
7,942
|
|
Assets
|
|
$
|
220,152
|
|
|
$
|
715,575
|
|
|
$
|
416,490
|
|
|
$
|
8,169
|
|
|
$
|
1,360,386
|
|
Expenditures for long-lived assets
|
|
$
|
11,926
|
|
|
$
|
5,352
|
|
|
$
|
23,077
|
|
|
$
|
3,465
|
|
|
$
|
43,820
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
261,837
|
|
|
$
|
77,183
|
|
|
$
|
328,260
|
|
|
$
|
|
|
|
$
|
667,280
|
|
Depreciation and amortization
|
|
|
11,496
|
|
|
|
11,295
|
|
|
|
21,472
|
|
|
|
219
|
|
|
|
44,482
|
|
Income from operations
|
|
|
26,310
|
|
|
|
(3,718
|
)
|
|
|
31,700
|
|
|
|
(27,495
|
)
|
|
|
26,797
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,899
|
|
|
|
29,899
|
|
Income tax (benefit) expense
|
|
|
|
|
|
|
|
(10,518
|
)
|
|
|
(10,518
|
)
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,431
|
)
|
|
|
(7,431
|
)
|
Assets
|
|
$
|
215,163
|
|
|
$
|
743,191
|
|
|
$
|
417,853
|
|
|
$
|
17,319
|
|
|
$
|
1,393,526
|
|
Expenditures for long-lived assets
|
|
$
|
15,111
|
|
|
$
|
728
|
|
|
$
|
21,341
|
|
|
$
|
1,373
|
|
|
$
|
38,553
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
278,026
|
|
|
$
|
33,351
|
|
|
$
|
177,224
|
|
|
$
|
|
|
|
$
|
488,601
|
|
Depreciation and amortization
|
|
|
12,000
|
|
|
|
1,160
|
|
|
|
9,070
|
|
|
|
(84
|
)
|
|
|
22,146
|
|
Income from operations
|
|
|
31,872
|
|
|
|
1,231
|
|
|
|
15,732
|
|
|
|
(21,148
|
)
|
|
|
27,687
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,895
|
|
|
|
10,895
|
|
Income tax (benefit) expense
|
|
|
|
|
|
|
|
5,786
|
|
|
|
5,786
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,217
|
|
|
|
8,217
|
|
Assets
|
|
$
|
214,291
|
|
|
$
|
17,196
|
|
|
$
|
444,548
|
|
|
$
|
36,678
|
|
|
$
|
712,713
|
|
Expenditures for long- lived assets
|
|
$
|
10,941
|
|
|
$
|
673
|
|
|
$
|
10,947
|
|
|
$
|
5,041
|
|
|
$
|
27,602
|
|
The vast majority of the acquisition related costs for the PEP Acquisition and Caprock acquisition in 2015, and the Autocam
acquisition and the other three acquisitions in 2014 are reported under Corporate and Consolidations. These costs impacted income from operations at Corporate by $10.9 million and $9.8 million for the years ended December 31, 2015 and
2014, respectively. Beginning October 20, 2015 and September 1, 2014, the Precision Engineered Products Group and Autocam Precision Components Group, respectively, include the results of the acquired PEP and Autocam
businesses. Since the date of the PEP Acquisition, 2015 sales revenue of $40.7 million and net loss of $(2.6) million (including the $4.3 million for the one-time increase in cost of goods sold for inventory step-up, and $5.2 for the
amortization of backlog intangible) has been included in this segment. During 2014 and since the date of the Autocam acquisition, sales revenue of $80.8 million and net income of $3.7 million (including the $1.2 million for the one-time
increase in cost of goods sold for inventory step-up) has been included in this segment.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
Net Sales
|
|
|
Property,
Plant and
Equipment,
Net
|
|
|
Net Sales
|
|
|
Property,
Plant and
Equipment,
Net
|
|
|
Net Sales
|
|
|
Property,
Plant and
Equipment,
Net
|
|
United States
|
|
$
|
456,102
|
|
|
$
|
176,632
|
|
|
$
|
326,747
|
|
|
$
|
183,226
|
|
|
$
|
204,360
|
|
|
$
|
129,232
|
|
Europe
|
|
|
172,895
|
|
|
|
78,664
|
|
|
|
170,921
|
|
|
|
77,147
|
|
|
|
167,665
|
|
|
|
82,783
|
|
Asia
|
|
|
102,853
|
|
|
|
33,867
|
|
|
|
86,564
|
|
|
|
35,345
|
|
|
|
58,470
|
|
|
|
32,848
|
|
Canada
|
|
|
10,980
|
|
|
|
|
|
|
|
9,759
|
|
|
|
|
|
|
|
8,657
|
|
|
|
|
|
Mexico
|
|
|
54,390
|
|
|
|
6,308
|
|
|
|
39,118
|
|
|
|
2,971
|
|
|
|
25,900
|
|
|
|
2,637
|
|
S. America
|
|
|
36,268
|
|
|
|
27,482
|
|
|
|
34,171
|
|
|
|
20,279
|
|
|
|
23,549
|
|
|
|
30,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All foreign countries
|
|
|
377,386
|
|
|
|
146,321
|
|
|
|
340,533
|
|
|
|
135,742
|
|
|
|
284,241
|
|
|
|
149,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
833,488
|
|
|
$
|
322,953
|
|
|
$
|
667,280
|
|
|
$
|
318,968
|
|
|
$
|
488,601
|
|
|
$
|
278,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the large number of countries in which we sell our products, sales to external customers and long-lived assets utilized
by us are reported in the above geographical regions.
Income (loss) before provision (benefit) for income taxes for the years ended
December 31, 2016, 2015 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income (loss) before provision (benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(32,498
|
)
|
|
$
|
(42,450
|
)
|
|
$
|
(9,341
|
)
|
Foreign
|
|
|
25,189
|
|
|
|
19,500
|
|
|
|
22,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(7,309
|
)
|
|
$
|
(22,950
|
)
|
|
$
|
13,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss of $32.5 million from domestic operations during 2016, was primarily driven from an increase in interest expense due
to higher debt levels associated with the 2015 PEP acquisition.
The loss of $42.5 million from domestic operations during 2015, was primarily driven from
acquisition related charges (included in selling, general and administrative of $11.7 million, cost of products sold $7.5 million and write-off of debt issuance costs of $18.7 million) of which approximately $3.8 million was non-deductible as these
costs were directly facilitative to the acquisitions.
The loss of $9.3 million from domestic operations during 2014, was primarily driven from
acquisition related charges of $14.8 million (included in selling, general and administrative, cost of products sold, and interest expense) of which approximately $6.0 million were non-deductible as these costs were directly facilitative to the
acquisitions.
59
Total income tax expense (benefit) for the years ended December 31, 2016, 2015, and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
1,017
|
|
|
|
420
|
|
|
|
37
|
|
Foreign
|
|
|
6,968
|
|
|
|
5,940
|
|
|
|
7,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense
|
|
$
|
7,985
|
|
|
$
|
6,360
|
|
|
$
|
7,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(11,033
|
)
|
|
$
|
(13,391
|
)
|
|
$
|
1,625
|
|
State
|
|
|
(6,440
|
)
|
|
|
(1,869
|
)
|
|
|
(382
|
)
|
U.S. deferred tax valuation allowance
|
|
|
1,882
|
|
|
|
|
|
|
|
(1,434
|
)
|
Foreign
|
|
|
(1,707
|
)
|
|
|
(1,618
|
)
|
|
|
(1,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred expense (benefit)
|
|
|
(17,298
|
)
|
|
|
(16,878
|
)
|
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense (benefit) (a)
|
|
$
|
(9,313
|
)
|
|
$
|
(10,518
|
)
|
|
$
|
5,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During the year ended December 31, 2016, the Company identified certain prior period tax expense (benefit) errors. The Company has determined that such errors were not material to the previously issued financial
statements and therefore has corrected for such errors as out of period adjustments in 2016, resulting in $998 of tax benefit being recognized in 2016 that should have been recognized in 2015.
|
A reconciliation of income taxes based on the U.S. federal statutory rate of 34% for each of the years ended December 31, 2016, 2015 and 2014 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income taxes at the federal statutory rate
|
|
$
|
(2,490
|
)
|
|
$
|
(7,803
|
)
|
|
$
|
4,478
|
|
Decrease in U.S. valuation allowance
|
|
|
1,882
|
|
|
|
|
|
|
|
(1,434
|
)
|
Foreign tax credit (additions) expiration
|
|
|
(2,545
|
)
|
|
|
(1,343
|
)
|
|
|
2,736
|
|
State taxes, net of federal taxes
|
|
|
(1,558
|
)
|
|
|
(1,592
|
)
|
|
|
(362
|
)
|
Non-U.S. earnings taxed at different rates
|
|
|
(2,938
|
)
|
|
|
(2,308
|
)
|
|
|
(1,714
|
)
|
Non-deductible mergers and acquisition costs
|
|
|
|
|
|
|
1,299
|
|
|
|
1,971
|
|
R&D Tax credit
|
|
|
(282
|
)
|
|
|
(623
|
)
|
|
|
(529
|
)
|
Change in uncertain tax positions
|
|
|
(994
|
)
|
|
|
|
|
|
|
|
|
Other permanent differences, net
|
|
|
(388
|
)
|
|
|
1,852
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,313
|
)
|
|
$
|
(10,518
|
)
|
|
$
|
5,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2016 effective tax rate of 127% reflects the impact of foreign earnings taxed at lower rates. The higher 2016 effective
tax rate was driven by a unique mix of lower U.S. losses with higher earnings attributed to foreign subsidiaries. Excluding the effect of foreign earnings, the 2016 effective tax rate would have been 45%.
The 2015 effective tax rate of 46% primarily reflects the impact of foreign earnings being taxed at lower rates.
The 2014 effective tax rate of 44% reflects the impact of two items related to the merger and acquisition activity in 2014, including: (1) $2.0 million
for non-deductible third party merger and acquisition costs, as these costs were directly facilitative to the acquisitions; and (2) $1.3 million for the expiration of foreign tax credits that could not be utilized during 2014 because of the
merger related acquisition costs as discussed below. In addition, the rate reflects an offset to the items above for the impact of foreign earnings taxed at lower rates of $1.7 million.
60
The tax effects of the temporary differences as of December 31, 2016, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax in excess of book depreciation
|
|
$
|
43,336
|
|
|
$
|
42,345
|
|
|
$
|
35,411
|
|
Goodwill
|
|
|
1,580
|
|
|
|
1,554
|
|
|
|
1,949
|
|
Intangible assets
|
|
|
86,492
|
|
|
|
91,947
|
|
|
|
15,944
|
|
Other deferred tax liabilities
|
|
|
1,771
|
|
|
|
897
|
|
|
|
1,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax liabilities
|
|
|
133,179
|
|
|
|
136,743
|
|
|
|
55,228
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,165
|
|
|
|
1,666
|
|
|
|
2,411
|
|
Inventories
|
|
|
960
|
|
|
|
4,490
|
|
|
|
2,035
|
|
Pension/Personnel accruals
|
|
|
1,602
|
|
|
|
2,778
|
|
|
|
3,029
|
|
Net operating loss carry forwards
|
|
|
10,296
|
|
|
|
8,313
|
|
|
|
1,196
|
|
Foreign tax credits
|
|
|
5,759
|
|
|
|
3,242
|
|
|
|
290
|
|
Guarantee claim deduction
|
|
|
414
|
|
|
|
1,141
|
|
|
|
1,141
|
|
Credit carry forwards
|
|
|
4,581
|
|
|
|
4,958
|
|
|
|
1,853
|
|
Accruals and reserves
|
|
|
1,741
|
|
|
|
|
|
|
|
|
|
Other deferred tax assets
|
|
|
11,160
|
|
|
|
2,510
|
|
|
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
37,678
|
|
|
|
29,098
|
|
|
|
13,881
|
|
Valuation allowance on deferred tax assets
|
|
|
(4,090
|
)
|
|
|
(2,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
33,588
|
|
|
|
26,722
|
|
|
|
13,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets (liabilities) (b)
|
|
$
|
(99,591
|
)
|
|
$
|
(110,021
|
)
|
|
$
|
(41,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
During the year ended December 31, 2016, the Company identified certain prior period errors related to the initial recognition of goodwill and deferred taxes in purchase accounting (see Note 10) as well as prior period
errors in the 2015 tax provision as further described above. The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors in 2016. The impact of these
purchase accounting and tax provision errors resulted in an understatement (overstatement) of net deferred income tax liabilities of $4,469 and $(1,444) as of December 31, 2015 and 2014.
|
With the PEP Acquisition during 2015, we assumed $87.6 million in net deferred tax liabilities primarily related to book and tax basis difference in fixed
assets and intangibles (excluding goodwill).
With the Autocam acquisition during 2014, we assumed $43.8 million in net deferred tax liabilities primarily
related to book and tax basis differences in fixed assets and intangibles (excluding goodwill).
As realization of certain deferred tax assets is not
assured, management believes it is more likely than not that those net deferred tax assets will be realized. However, the amount of the deferred tax assets considered realizable could be reduced based on changing conditions. Below is a summary
of the activity in the total valuation allowances during the years ended December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Year
|
|
|
Additions
|
|
|
Recoveries
|
|
|
Balance at
End of
Year
|
|
2016
|
|
$
|
2,376
|
|
|
$
|
1,882
|
|
|
$
|
(168
|
)
|
|
$
|
4,090
|
|
2015
|
|
$
|
|
|
|
$
|
2,376
|
|
|
$
|
|
|
|
$
|
2,376
|
|
2014
|
|
$
|
1,434
|
|
|
$
|
|
|
|
$
|
(1,434
|
)
|
|
$
|
|
|
During 2016, the valuation allowance increased by approximately $1.7 million, consisting of a $1.9 million increase
due to the uncertainty of realizing certain state net operating loss carryforwards and a decrease of $0.2 million. The decrease reflects the Companys expectation that it is more likely than not that it will generate future taxable income
to utilize this amount of net deferred tax assets.
During 2015, the valuation allowance increased by approximately $2.4 million, consisting solely
of an increase due to the uncertainty of realizing certain local tax credits of a foreign subsidiary.
During 2014, the valuation allowance of $1.4
million on our previously recognized foreign tax credits was reduced by the full $1.4 million for credits which expired as of December 31, 2014. In addition to the foreign tax credits with the full valuation allowance, $1.3 million in foreign
tax credits expired unused as of December 31, 2014. These foreign tax credits were not utilized during 2014, as management expected, due to the large amount of non-deductible mergers and acquisition costs incurred related to the four
acquisitions completed in 2014. The remaining foreign tax credits, net operating loss and credit carry forwards are expected to be utilized before expiration. We record a valuation allowance when it is more likely than not that some
portion or all of the deferred income tax assets will not be realized. In reaching this determination, we consider the future reversals of taxable temporary differences, future taxable income, exclusive of taxable temporary differences and carry
forwards, taxable income in prior carryback years and tax planning strategies.
61
Unremitted earnings of subsidiaries outside the U.S. are considered to be reinvested indefinitely at
December 31, 2016. It is not practicable to determine the deferred tax liability for temporary differences related to those unremitted earnings. There has been no change in our long term international expansion plans as of December 31,
2016, and our intent and ability is to indefinitely reinvest our foreign earnings. We base this assertion on two factors. The first factor is our intention to invest in foreign countries that are strategically important to our Precision Bearing
Components, Precision Engineered Products and Autocam Precision Components Groups. With the acquisitions completed in 2015 and 2014, we have significantly expanded our international base of operations adding subsidiaries in Mexico, Bosnia and
Herzegovina, Brazil, Poland, France and China which will require more foreign investment. Second, we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our U.S. credit facilities to fund
currently anticipated domestic operational and investment needs.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits,
excluding interest and penalties for the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
$
|
5,724
|
|
|
$
|
3,834
|
|
|
$
|
873
|
|
Additions for tax positions of prior years
|
|
|
179
|
|
|
|
2,516
|
|
|
|
3,589
|
|
Reductions for tax positions of prior years
|
|
|
(1,162
|
)
|
|
|
(626
|
)
|
|
|
(628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,741
|
|
|
$
|
5,724
|
|
|
$
|
3,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the $4.7 million of unrecognized tax benefits would, if recognized, impact our effective tax
rate. The addition for tax positions of prior years was added as part of the purchase price allocation of PEP in 2015 of $2.2 million and Autocam in 2014 of $2.8 million and was included in the fair value of assets acquired and liabilities
assumed. (See Note 2 of Notes to Consolidated Financial Statements.)
Interest and penalties related to federal, state, and foreign income tax
matters are recorded as a component of the provision for income taxes in our Statements of Operations. During 2016, we released $65 thousand of previously accrued foreign interest and accrued $0.2 million in U.S. interest. During 2015, we accrued
$30 thousand in foreign interest and $0.3 million in U.S. interest. During 2014, we accrued $31 thousand in foreign interest and $17 thousand in U.S. interest. As of December 31, 2016, the total amount accrued for interest and
penalties was $ 1.1 million.
We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign
jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years before 2013. We are no longer subject to non-U.S. income tax examinations within various European
Union countries for years before 2011. We do not foresee any significant changes to our unrecognized tax benefits within the next twelve months.
In
November 2015, the FASB issued ASU 2015-17, intended to improve how deferred taxes are classified on organizations balance sheets. The guidance eliminates the requirement for organizations to present deferred tax liabilities and assets as
current and noncurrent in a classified balance sheet. Instead, organizations are required to classify all deferred tax assets and liabilities as noncurrent. The new standard is effective for the Company in the first quarter of 2017, and may be
applied retrospectively or prospectively. The Company has elected to adopt the standard early, beginning in the first quarter of 2016, and applies prospectively. The adoption of the new accounting rules does not have a material effect on the
Companys financial condition, results of operations or cash flows.
14)
|
Reconciliation of Net Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income (loss)
|
|
$
|
7,942
|
|
|
$
|
(7,431
|
)
|
|
$
|
8,217
|
|
Weighted average shares outstanding
|
|
|
27,016
|
|
|
|
21,181
|
|
|
|
17,887
|
|
Effect of dilutive stock options
|
|
|
138
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
27,154
|
|
|
|
21,181
|
|
|
|
18,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.29
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.29
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Excluded from the dilutive shares outstanding for the year ended December 31, 2016 were 163,200 of
anti-dilutive options, which had per share exercise prices ranging from of $19.63 to $25.16. Given the net loss for the year ended December 31, 2015, all options are considered anti-dilutive. Excluded from the dilutive shares outstanding
for the year ended December 31, 2014 were 98,000 of anti-dilutive options, which had per share exercise prices ranging from of $19.63 to $22.49.
15)
|
Commitments and Contingencies
|
We have operating lease commitments for machinery, office equipment,
vehicles, manufacturing and office space which expire on varying dates. Rent expense for 2016, 2015 and 2014 was $8.6 million, $5.8 million, and $4.5 million, respectively. The following is a schedule by year of future minimum lease payments as of
December 31, 2016 under operating leases that have initial or remaining non-cancelable lease terms in excess of one year.
|
|
|
|
|
Year ending December 31,
|
|
|
|
2017
|
|
$
|
7,824
|
|
2018
|
|
|
6,830
|
|
2019
|
|
|
5,785
|
|
2020
|
|
|
4,882
|
|
2021
|
|
|
2,802
|
|
Thereafter
|
|
|
3,149
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
31,272
|
|
|
|
|
|
|
Brazil ICMS Tax Matter
Prior to our acquisition of Autocam, Autocams Brazilian subsidiary received notification from the Brazilian tax authorities regarding ICMS (state value
added tax or VAT) tax credits claimed on intermediary materials (tooling and perishable items) used in the manufacturing process. The Brazilian tax authority notification disallowed state ICMS credits claimed on intermediary materials based on the
argument that these items are not intrinsically related to the manufacturing process. Autocam Brazil filed an administrative defense with the Brazilian tax authority arguing, among other matters, that it should qualify for an ICMS tax credit,
contending that the intermediary materials are directly related to the manufacturing process.
We believe that we have substantial legal and factual
defenses and plan to defend our interests vigorously. While we believe a loss is not probable we estimate the range of possible loss related to this assessment is from $0 to $6.0 million. No amount has been accrued at December 31, 2016 for this
matter.
We are entitled to indemnification from the former shareholders of Autocam, subject to the limitations and procedures set forth in the agreement
and plan of merger. Management believes the indemnification would include amounts owed for the tax, interest and penalties related to the Brazil ICMS matter.
All other legal matters
All other legal proceedings are
of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of
operations, or cash flows. In making that determination, we analyze the facts and circumstances of each case at least quarterly in consultation with our attorneys and determine a range of reasonably possible outcomes. The procedures
performed include reviewing attorney and plaintiff correspondence, reviewing any filings made and discussing the facts of the case with local management and legal counsel. We have not recognized any loss contingencies as December 31, 2016
and 2015.
16)
|
Investment in Non-Consolidated Joint Venture
|
As part of the Autocam acquisition, we acquired a 49%
investment in a joint venture with an unrelated entity called Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the JV), a Chinese company located in the city of Wuxi, China. The JV is jointly controlled and managed and is being
accounted for under the equity method.
63
Below are the components of our JV investment balance and activity for the years ended December 31, 2016,
2015 and 2014:
|
|
|
|
|
Balance as of August 29, 2014
|
|
$
|
35,595
|
|
Dividends received
|
|
|
(2,538
|
)
|
Our share of cumulative earnings
|
|
|
1,646
|
|
Accretion of basis difference from purchase accounting
|
|
|
(372
|
)
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
34,331
|
|
Capital contributions
|
|
|
1,999
|
|
Dividends received
|
|
|
(2,868
|
)
|
Our share of cumulative earnings
|
|
|
5,440
|
|
Accretion of basis difference from purchase accounting
|
|
|
(440
|
)
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
38,462
|
|
Our share of cumulative earnings
|
|
|
6,427
|
|
Dividends declared and paid by joint venture
|
|
|
(3,706
|
)
|
Accretion of basis difference from purchase accounting
|
|
|
(489
|
)
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
40,694
|
|
|
|
|
|
|
Set forth below is summarized balance sheet information for the JV:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current assets
|
|
$
|
31,295
|
|
|
$
|
24,663
|
|
Non-current assets
|
|
|
22,522
|
|
|
|
22,847
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
53,817
|
|
|
$
|
47,510
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
13,549
|
|
|
$
|
11,171
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
13,549
|
|
|
$
|
11,171
|
|
|
|
|
|
|
|
|
|
|
Dividends of $3.7 million were declared for year ended December 31, 2015 and paid by the JV during the year ended
December 31, 2016. We had sales to the JV of $0.1 million for the year ended December 31, 2016. Amounts due to us from the JV were $0.1 million as of December 31, 2016. The JV had net sales in 2016 of $65.7 million and
net income of $13.1 million.
Dividends of $2.8 million were declared for year ended December 31, 2014 and paid by the JV during the year ended
December 31, 2015. Our 49% ownership interest in this amount is net of a 10% withholding tax levied by the Chinese government. We had sales to the JV of $0.1 million for the year ended December 31, 2015. Amounts due to us
from the JV were $0.2 million of December 31, 2015. The JV had net sales in 2015 of $55.4 million and net income of $11.1 million.
No dividends
were declared by the JV for the four months ended December 31, 2014. We had sales to the JV of $36 thousand during the four months ended December 31, 2014. Amounts due to us from JV were $0.2 million as of December 31,
2014. The JV had net sales in 2014 of $50.5 million and net income of $9.0 million.
64
17)
|
Quarterly Results of Operations (Unaudited)
|
The following summarizes the unaudited quarterly results of
operations for the years ended December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
Net sales
|
|
$
|
212,226
|
|
|
$
|
214,272
|
|
|
$
|
204,961
|
|
|
$
|
202,029
|
|
Income from operations
|
|
$
|
11,874
|
|
|
$
|
16,703
|
|
|
$
|
18,727
|
|
|
$
|
12,096
|
|
Net income (a)
|
|
$
|
(1,299
|
)
|
|
$
|
2,031
|
|
|
$
|
4,147
|
|
|
$
|
3,063
|
|
Comprehensive income (loss)(a)
|
|
$
|
4,418
|
|
|
$
|
(973
|
)
|
|
$
|
8,740
|
|
|
$
|
(10,212
|
)
|
Basic net income per share
|
|
$
|
(0.05
|
)
|
|
$
|
0.08
|
|
|
$
|
0.15
|
|
|
$
|
0.11
|
|
Diluted net income per share
|
|
$
|
(0.05
|
)
|
|
$
|
0.07
|
|
|
$
|
0.15
|
|
|
$
|
0.11
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of shares
|
|
|
26,869
|
|
|
|
27,024
|
|
|
|
27,159
|
|
|
|
27,241
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
163
|
|
|
|
163
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted number of shares
|
|
|
26,869
|
|
|
|
27,187
|
|
|
|
27,322
|
|
|
|
27,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2015
|
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
Net sales
|
|
$
|
163,746
|
|
|
$
|
164,856
|
|
|
$
|
154,824
|
|
|
$
|
183,854
|
|
Income from operations
|
|
$
|
13,934
|
|
|
$
|
13,589
|
|
|
$
|
10,122
|
|
|
$
|
(10,848
|
)
|
Net income (a)
|
|
$
|
6,001
|
|
|
$
|
6,953
|
|
|
$
|
4,630
|
|
|
$
|
(25,015
|
)
|
Comprehensive income (loss)(a)
|
|
$
|
(11,856
|
)
|
|
$
|
10,955
|
|
|
$
|
(2,121
|
)
|
|
$
|
(28,929
|
)
|
Basic net income per share
|
|
$
|
0.32
|
|
|
$
|
0.36
|
|
|
$
|
0.17
|
|
|
$
|
(0.93
|
)
|
Diluted net income per share
|
|
$
|
0.31
|
|
|
$
|
0.36
|
|
|
$
|
0.17
|
|
|
$
|
(0.93
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of shares
|
|
|
18,996
|
|
|
|
19,215
|
|
|
|
26,839
|
|
|
|
26,840
|
|
Effect of dilutive stock options
|
|
|
384
|
|
|
|
367
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted number of shares
|
|
|
19,380
|
|
|
|
19,582
|
|
|
|
27,167
|
|
|
|
26,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During the fourth quarter ended December 31, 2016, the Company identified certain prior period tax errors. The Company has determined that such errors were not material to the previously issued financial statements
and therefore has corrected for such errors as out of period adjustments in 2016, resulting in $998 of tax benefit being recognized in the fourth quarter of 2016 that should have been recognized in the fourth quarter of 2015. During 2016 the Company
identified certain prior period comprehensive income errors which primarily related to the accounting for deferred taxes related to unrealized gains (losses) of the fair value of derivatives and the accounting for the foreign currency translation of
goodwill (see Note 10). The Company has determined that such errors were not material to the previously issued financial statements and therefore has corrected for such errors as out of period adjustments. The impact of these errors on other
comprehensive income resulted in an increase (decrease) to comprehensive income of $582, $(517), $(2,542), $3,104, $91, $166, $345, $(955) for the quarters ended March 31, 2016, June 30, 2016, September 31, 2016, December 31, 2016, March 31, 2015,
June 30, 2015, September 30, 2015 and December 31, 2015.
|
The year ended December 31, 2016 fully reflects the acquisition activity from
2015 and 2014. Line items such as Selling, general and administrative costs, Depreciation and amortization, Restructuring and impairment charges, excluding goodwill impairment, and Interest expense, all increased as a result of increased bases in
assets and higher debt and employee levels. There were no acquisitions made during 2016.
The fourth quarter of 2015 was impacted by merger and
acquisition related costs of $18.7 million pre-tax, and $11.6 million after-tax primarily related to the PEP Acquisition. Additionally, the fourth quarter was negatively impacted by $18.7 million in pre-tax costs and $12.0 million in
after-tax costs incurred related to writing-off debt issuance costs to our former lenders related to the new debt entered into for the PEP Acquisition.
18)
|
Accumulated Other Comprehensive Income
|
The majority of our Accumulated other comprehensive income
balance relates to foreign currency translation of our foreign subsidiary balances. During the year ended December 31, 2016, we had other comprehensive loss of $9.0 million due to foreign currency translations and $3.0 million loss due to
change in fair value of the interest rate swap. The interest rate swap amounts were reclassified out of accumulated other comprehensive income during the three months ended September 30, 2016. Amounts were reclassified due to the forecasted
transactions no longer being probable. During the year ended December 31, 2015, we had other comprehensive loss of $21.9 million due to foreign currency translations and a $2.6 million loss due to change in fair value of interest rate
hedge. During the year ended December 31, 2014, we had other comprehensive loss of $17.7 million due to foreign currency translations and a $0.4 million loss due to change in fair value of interest rate hedge.
19)
|
Fair Value Measurements
|
We present fair value measurements and disclosures applicable to both our
financial and nonfinancial assets and liabilities that are measured and reported on a fair value basis. Fair value is an exit price representing the expected amount we would receive to sell an asset or pay to transfer a liability in an orderly
transaction with market participants at the measurement date. We have followed consistent methods and assumptions to estimate the fair values as more fully described in Note 1 of the Notes to Consolidated Financial Statements.
65
Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents,
accounts receivable, accounts payable, derivatives and long-term debt. At September 30, 2016, the carrying values of all of these financial instruments, except the long-term debt with fixed interest rates, approximated fair value. The fair
value of floating-rate debt approximates the carrying amount because the interest rates paid are based on short-term maturities. The fair value of our fixed-rate long-term debt is estimated based on the Bloomberg algorithm, which takes into account
similar sized and industry debt (a Level 2 category fair value measurement). As of December 31, 2016, the fair value of our fixed-rate debt was $265.3 million, and $260.4 net of debt issuance costs.
Recurring Fair Value Measurements
The following
table summarizes the assets and liabilities measured at fair value on a recurring basis for our interest rate swap derivative financial instrument:
Our
policy is to manage interest expense using a mix of fixed and variable rate debt. To manage this mix effectively, we may enter into an interest rate swap in which we agree to exchange the difference between fixed and variable interest amounts
calculated by reference to an agreed upon notional principal amount.
Effective December 16, 2014, we entered into a $150 million swap that went into
effect on December 29, 2015 (one year delayed start), at which time our rate was locked at 6.966% until December 31, 2018. As of December 31, 2016 and as a result of post-effective amendments to the derivative, our interest rate is
now fixed at 6.466% through December 31, 2018. Prior to December 16, 2014, we did not have any existing interest rate hedges. The hedge instrument will be 100% effective and as such the mark to market gains or losses on this
hedge will be included in accumulated other comprehensive income (loss), to the extent effective, and reclassified into interest expense over the term of the related debt instruments.
The tables below summarizing the fair value measurement of this swap valued on a recurring basis on a gross basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
Description
|
|
December 31,
2016
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Derivative assetcurrent
|
|
$
|
69
|
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
|
|
Derivative assetnoncurrent
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Derivative liabilitycurrent
|
|
|
(1,903
|
)
|
|
|
|
|
|
|
(1,903
|
)
|
|
|
|
|
Derivative liabilitynoncurrent
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,856
|
)
|
|
$
|
|
|
|
$
|
(2,856
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015
|
|
Description
|
|
December 31,
2015
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Derivative assetcurrent
|
|
$
|
388
|
|
|
$
|
|
|
|
$
|
388
|
|
|
$
|
|
|
Derivative assetnoncurrent
|
|
|
368
|
|
|
|
|
|
|
|
368
|
|
|
|
|
|
Derivative liabilitycurrent
|
|
|
(2,098
|
)
|
|
|
|
|
|
|
(2,098
|
)
|
|
|
|
|
Derivative liabilitynoncurrent
|
|
|
(1,673
|
)
|
|
|
|
|
|
|
(1,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,015
|
)
|
|
$
|
|
|
|
$
|
(3,015
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our policy is to manage interest expense using a mix of fixed and variable rate debt. To manage this mix effectively, we
may enter into interest rate swaps in which we agree to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.
Our $150 million interest rate swap went into effect on December 29, 2015, at which time our interest rate was effectively 6.966%. The objective of the
hedge was to eliminate the variability of cash flows in interest payments on the first $150 million of variable interest rate debt (the Term Loan B). The variable rate benchmark was the three month LIBOR rate for both the Term Loan B and the
interest rate swap. The changes in cash flows of the interest rate swap were expected to exactly offset the changes in cash flows of the Term Loan B. The hedged risk was the interest rate risk exposure to changes in the interest payments,
attributable to changes in the benchmark three month LIBOR interest rates (subject to a 1.0% LIBOR index floor) from December 29, 2015 through December 31, 2018. As disclosed in Note 7 of the Notes to Consolidated Financial Statements,
Long-Term Debt, the LIBOR floor index was lowered
66
to 0.75% on September 30, 2016, and our intent regarding future interest rate resets changed. Three-month LIBOR was above the floor, and it was more economical to use one month LIBOR.
Therefore, our intensions called into question the probability of the amounts deferred in accumulated other comprehensive income (AOCI) as the forested transactions would not be probable. As a result, we chose to discontinue hedge
accounting, reclassified all amounts in AOCI to earnings, and began to account for the interest rate swap on a mark-to-market basis. The change in reporting will have no impact on our reported cash flows, although future results of operations on a
generally accepted accounting principles basis will be affected by the potential volatility of mark-to-market gains and losses which fluctuate with changes in interest rates.
The inputs for determining fair value of the interest rate swap are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard
pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparties to
these derivative contracts are highly rated financial institutions which we believe carry only a minimal risk of nonperformance.
We have elected to
present the derivative contracts on a gross basis in the Consolidated Balance Sheet included within other current assets and other non-current assets and other current liabilities and other non-current liabilities. To the extent we presented the
derivative contract on a net basis, we would have a derivative in a net liability position of $2.9 million as of December 31, 2016. We do not have any cash collateral due under such agreements.
As of December 31, 2016, we reported no gains or losses in AOCI related to the interest rate swaps. In connection with lowering the LIBOR index floor
from 1.0% to 0.75% within the $150 million interest rate swap, we received a $0.3 million payment that reduced the net liability position on the $150 million interest rate swap. The payment was reported as Derivative payments (receipts) on interest
rate swap on the Condensed Consolidated Balance Sheet. Additionally, during 2016 when the interest rate swap was accounted for in accordance with hedge accounting, the periodic settlements and related reclassification of other comprehensive income
was $1.4 million of net hedging losses on the interest rate swap in the interest expense line on the Consolidated Statements of Operations. We recognized $0.6 million of interest rate swap settlements for the third quarter of 2016 in Derivative
payments (receipts) on interest rate swap line on the Consolidated Statement of Operations. If there are no changes in the interest rates for the next twelve months, we expect $1.8 million in cash payments related to the interest rates swap. See the
following Derivatives Hedging Relationships section of this Note for more information regarding the impact of the interest rate swaps on our Condensed Consolidated Financial Statements.
Derivatives Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
recognized in Other
Comprehensive Income
(effective portion)
|
|
|
Location of gain/(loss)
reclassified from
AOCI into
Net Income (effective
portion)
|
|
|
Pre-tax amount of gain/(loss)
reclassified from
AOCI in Net Income
(effective portion)
|
|
Derivatives Cash Flow Hedging Relationships
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Forward starting interest rate swap contract
|
|
$
|
|
|
|
$
|
(3,015
|
)
|
|
|
Interest Expense
|
|
|
$
|
(1,393
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(3,015
|
)
|
|
|
|
|
|
$
|
(1,393
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, we did not own derivative instruments that were classified as fair value hedges or trading
securities. In addition, as of December 31, 2016, we did not own derivative instruments containing credit risk contingencies.
On July 1, 2015, we closed an underwritten registered public offering of common
stock offered pursuant to a shelf registration statement on Form S-3 that was previously filed with, and declared effective by, the Securities Exchange Commission. The total number of shares of common stock sold was 7,590,000 at a public offering
price of $24.00 per share. All of the shares in the offering were sold by us. Our net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses, were approximately $173.1 million. Of these proceeds,
$148.7 million was used for repayment of principal and interest on our existing debt.