Note 2. Acquisitions

2015 Acquisition

On May 29, 2015, NN completed the acquisition of Caprock Manufacturing, Inc. and Caprock Enclosures, LLC (collectively referred to as “Caprock”) for approximately $9,000 in cash. Caprock was a privately held plastic components supplier located in Lubbock, TX. Caprock serves multiple end markets including aerospace, medical and general industrial. The acquisition provides further balancing of our end markets and represents the first step in our focused plan toward transforming our plastics business. The results of Caprock have been consolidated with NN since the date of acquisition as part of the Plastic and Rubber Components Segment. We are in the process of finalizing fair market valuations of all the net assets acquired. The preliminary purchase price allocation includes $1,452 in net working capital, $2,960 in property plant and equipment, $2,490 in intangible assets, and $2,099 in goodwill, which we expect to be fully deductible for tax purposes. The goodwill is attributable to expected cost synergies and revenue growth plus the assembled work force.

For information regarding NN’s acquisition of Precision Engineered Products Holdings, Inc. (“PEP”), which was completed on October 19, 2015, please see Note 15 of the Notes to Consolidated Financial Statements.

2014 Acquisitions

Autocam

On August 29, 2014, we completed our merger with Autocam Corporation (“Autocam”), for $256,837 in cash and $31,717 in NN stock. Additionally, we assumed $29,160 in Autocam debt and capital lease obligations. Autocam is a global leader in the engineering, manufacture and assembly of highly complex, system critical components for fuel systems, engines and transmission, power steering and electric motors. With the completion of the Autocam merger, NN became one of the top global manufacturers in the precision metal components space. Additionally, this acquisition leverages NN’s and Autocam’s complementary core strengths and values and positions our Precision Metal Components business segment to outgrow its end markets by taking advantage of global market trends in fuel efficient technologies such as gasoline direct injection systems, high-pressure diesel injection systems and variable valve timing. The funding of the cash portion of the purchase price and acquisition costs was provided primarily from borrowings, including a $350,000 term loan entered into concurrent with the acquisition of Autocam.

The following table summarizes the preliminary purchase price allocation for the Autocam merger at September 30, 2014, which was subsequently adjusted on our Annual Report on Form 10-K filed March 16, 2015:


Preliminary fair value of assets acquired and liabilities assumed on August 29, 2014
Current assets	$	88,529
Property, plant, and equipment		146,120
Intangible assets subject to amortization		51,098
Investment in joint venture		35,595
Other non-current assets		2,170
Goodwill		77,548

Total assets acquired	$	401,060

Current liabilities		34,320
Current maturities of long-term debt		6,547
Non-current deferred tax liabilities		46,998
Obligations under capital lease		18,350
Long-term debt, net of current portion		4,263
Other non-current liabilities		2,028

Total liabilities assumed	$	112,506

Net asset acquired	$	288,554

The combination of income, market, and cost approaches were used for the preliminary valuation where appropriate, depending on the asset or liability being valued. Valuation inputs in these models and analyses gave consideration to market participant assumptions. Acquired intangible assets were primarily customer relationships and trade names. The final purchase price allocation was completed during our year end closing process and updated on our 2014 Annual Report on Form 10-K filed on March 16, 2015.

In connection with the acquisition of Autocam, we recorded goodwill, which represented the excess of the purchase price over the estimated preliminary fair value of tangible and intangible assets acquired, net of liabilities assumed. The goodwill was attributed primarily to Autocam as a going concern and the fair value of expected cost synergies and revenues growth from combining the NN and Autocam businesses. The going concern element represents the ability to earn a higher return on the combined assembled collection of assets and businesses of Autocam than if those assets and businesses were to be acquired and managed separately. Other relevant elements of goodwill are the benefits of access to certain markets and the assembled work force. None of the goodwill is expected to be deducted for tax purposes.

Property, plant and equipment acquired primarily included machinery and equipment for use in manufacturing operations. Additionally, a number of manufacturing sites and related facilities, land and leased manufacturing sites that include leasehold improvements were acquired. Property, plant and equipment has been preliminarily valued using the cost approach supported where available by observable market data which includes consideration of obsolescence. Intangible assets have been preliminarily valued using the relief from royalty and multi-period excess earnings methods, both forms of the income approach supported by observable market data.

Related to the acquisition of Autocam, in the third quarter and first nine months of 2014, we recognized $5,316 and $5,857, respectively, in transaction costs. During the third quarter and the first nine months of 2014, we expensed $2,974 of deferred financing costs and make whole interest payments related to the acquisition. Transaction costs were expensed as incurred and were included in the “Acquisition related costs excluded from selling, general and administrative expenses” line item and deferred financing costs were included in the interest expense line items in the Unaudited Condensed Consolidated Statements of Income (Loss) and Comprehensive Loss. As required by purchase accounting, the acquired inventories were recorded at their preliminary estimated fair value. These inventories were sold in the third quarter 2014 resulting in a one-time $1,992 increase in cost of sales. Beginning September 1, 2014, the consolidated results of operations of NN include the results of the acquired Autocam businesses.

The unaudited pro forma financial results for three months ended September 30, 2014 and September 30, 2013 and nine months ended September 30, 2014 and September 30, 2013 combine the consolidated results of NN and Autocam giving effect to the acquisition of Autocam as if it had been completed on January 1, 2013, the beginning of the comparable prior annual reporting period presented. The unaudited pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisition. This unaudited pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the acquisition been completed as of January 1, 2013.

The unaudited pro forma financial results include certain adjustments for additional depreciation and amortization expense based upon the preliminary fair value step-up and estimated useful lives of Autocam depreciable fixed assets and definite-life amortizable assets acquired in the transaction. The unaudited pro forma results also include adjustments to net interest expense and early debt extinguishment costs related to the transaction. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.


	Three Months ended September 30,				Nine Months ended September 30,
	2014		2013		2014		2013
Pro forma sales	$	166,979	$	152,708	$	505,891	$	457,466
Pro forma net income	$	4,867	$	5,436	$	19,815	$	(224	)

The pro forma net income for the nine months ended September 30, 2013 includes certain items, such as financing, integration, and transaction costs historically recorded by NN and Autocam directly attributable to the acquisition, which will not have an ongoing impact. These items include transaction, integration, and financing related costs incurred by NN and Autocam of $8,509 and $8,933, net of tax, and $3,010 and $3,125, net of tax, respectively during third quarter and first nine months of 2014, respectively, and reported in the nine months ended September 30, 2013 pro forma net income above.

Other Acquisitions

On July 15, 2014, we acquired substantially all of the assets of Chelsea Grinding Company (“Chelsea”), a manufacturer of cylindrical rollers used primarily in the hydraulic pump industry and relocated the operations to our Erwin, Tennessee plant and integrated into our Metal Bearing Component Segment.

On June 20, 2014, we acquired 79.2% of the outstanding shares of RFK Valjcici d. d. Konjic (“RFK”) for $9,756 in cash. RFK is a manufacturer of tapered rollers with operations in Konjic, Bosnia & Herzegovina. NN acquired up to 99.7% of the shares of RFK during the third quarter of 2014 for an additional $2,528 in cash and reclassified this amount from non-controlling interest. RFK’s products, while complementary to NN’s existing roller bearing components, broadened our product offering and allowed penetration into adjacent markets. The results of the operations of RFK have been consolidated with NN since the date of acquisition as a part of the Metal Bearing Components Segment.

On January 30, 2014, we purchased the majority of the operating assets of V-S Industries, V-S Precision, LLC and V-S Precision SA de DV (collectively referred to as “VS”) from the secured creditors of V-S Industries for $5,580 in cash and assumed certain liabilities totaling $2,968. This was accounted for as a business combination. VS is a precision metal components manufacturer that supplies customers in a variety of industries including electric motors, HVAC, power tools, automotive and medical. The acquisition of VS provided us with a complementary, broader product offering and allowed penetration into adjacent markets. VS has two locations in Wheeling, Illinois and Juarez, Mexico and is included in Autocam Precision Components Segment. The results of VS have been consolidated with NN since the date of acquisition.