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Acquisitions | 12 Months Ended
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Dec. 31, 2015
PEP [Member] |
Acquisitions |
2) | Acquisitions
PEP On August 17, 2015, we entered into a stock purchase agreement with Precision Engineered Products Holding, Inc. (“PEP”), pursuant to which we agreed to acquire all the outstanding capital stock of PEP for $621.2 million. On October 19, 2015, we completed the acquisition of PEP (the “PEP Acquisition”). As a result of the PEP Acquisition, PEP became our wholly owned subsidiary. Concurrent with the acquisition, we: (i) entered into a new senior secured term loan facility in the amount of up to $525.0 million with a seven year maturity (the “New 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 (together with the New Term Loan Credit Facility, the “New Senior Credit Facilities”); and (iii) issued of $300.0 million of 10.25% senior notes due 2020 (the “Senior Notes”). Proceeds from the New Term Loan Credit Facility and the Senior Notes, together with cash on hand, were used to finance the purchase price of the PEP Acquisition and pay down debt. (See Note 7 of the Notes to Consolidated Financial Statements). With the completion of the PEP Acquisition, we added a global manufacturer of highly engineered precision customized solutions serving the medical, electrical, automotive and aerospace end markets. We are in the process of finalizing fair market valuation relate to customary working capital adjustments and incomes taxes. The following table summarizes the preliminary purchase price allocation for the PEP Acquisition:
Fair value of assets acquired and liabilities assumed |  | October 19, 2015 |
Current assets |  | $ | 69,331 |
Property, plant, and equipment |  |  | 56,163 |
Intangible assets subject to amortization |  |  | 240,490 |
Other non-current assets |  |  | 1,500 |
Goodwill |  |  | 364,450 |
Total assets acquired |  | $ | 731,934 |
Current liabilities |  | $ | 21,131 |
Non-current deferred tax liabilities |  |  | 87,578 |
Other non-current liabilities |  |  | 2,029 |
Total liabilities assumed |  | $ | 110,738 |
Net asset acquired |  | $ | 621,196 |
A combination of income, market, and cost approaches were used for the 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 are primarily customer relationships and trade names. We continue our analysis of the PEP opening balance sheet and the purchase price allocation. In connection with the PEP Acquisition, we recorded goodwill, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of liabilities assumed. The goodwill is attributed primarily to PEP as a going concern and the fair value of expected cost synergies and revenues growth from PEP businesses. The going concern element represents the ability to earn a higher return on the combined assembled collection of assets and businesses of PEP 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 including leasehold improvements were acquired. Property, plant and equipment has been valued using the cost approach supported where available by observable market data which includes consideration of obsolescence. Intangible assets have been 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 PEP Acquisition during 2015 we recognized $8.7 million in transaction costs. During 2015, we expensed $18.7 million of deferred financing costs related to the acquisition. Transaction costs were expensed as incurred and are included in the “Acquisition related costs excluded from selling, general and administrative expenses” line item and deferred financing costs are included in the “Write-off of unamortized debt issuance costs” line items in the Consolidated Statements of Operations and Comprehensive Income (Loss). As required by purchase accounting, the acquired inventories were recorded at their estimated fair value. These inventories were sold in the fourth quarter 2015 resulting in a one-time $4.3 million increase in cost of sales. Beginning October 20, 2015, our consolidated results of operations include the results of the acquired PEP businesses. Since the date of the acquisition, 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, and $5.2 million for the amortization of backlog intangibles) has been included in our financial statements. The unaudited pro forma financial results for the years ended December 31, 2015 and 2014 combine the consolidated results of NN and PEP giving effect to the PEP Acquisition as if it had been completed on January 1, 2014, the beginning of the comparable prior annual reporting period presented. Additionally, the pro forma statement of income for the year ended December 31, 2014 gives effect to the Autocam acquisition, which was completed on August 29, 2014; the results of operations of Autocam have been consolidated in our results from that date. 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, 2014. The unaudited pro forma financial results include certain adjustments for additional depreciation and amortization expense based upon the fair value step-up and estimated useful lives of PEP depreciable fixed assets and definite-life amortizable assets acquired in the transaction. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.
|  | Year ended December 31, |
|  | 2015 |  |  | 2014 |
Pro forma sales |  | $ | 851,583 |  |  | $ | 863,619 |
Pro forma net (loss) income |  | $ | 14,010 |  |  | $ | (7,560 | )
Basic income (loss) per share |  | $ | 0.66 |  |  | $ | (0.41 | )
Diluted income (loss) per share |  | $ | 0.65 |  |  | $ | (0.40 | )
The pro forma net income for the year ended December 31, 2014 includes certain items, such as financing, integration, and transaction costs historically recorded by NN and PEP 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 PEP of $8.7 million and $12.3 million, net of tax, respectively during 2015 and reported in the year ended December 31, 2014 pro forma net income above. Autocam On August 29, 2014, we completed our merger with Autocam Corporation (“Autocam”), for $256.8 million in cash and $31.7 million in shares of our common stock. Additionally, we assumed $29.8 million 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 transaction, we became one of the top global manufacturers in the precision metal components space. The funding of the cash portion of the purchase price and acquisition costs was provided primarily from borrowings, including a $350.0 million term loan entered into concurrent with the acquisition. (See Note 7 of the Notes to Consolidated Financial Statements). During the fourth quarter of 2014, we finalized our valuation related to the assets acquired and liabilities assumed of Autocam. The facts and circumstances existed at the date of acquisition and, if known, would have affected the measurement of the amounts recognized at the date. As a result, we adjusted the preliminary allocation of the purchase price initially recorded at the Autocam acquisition date to reflect these measurement period adjustments. The following table summarizes the purchase price allocation for the Autocam merger:
Fair value of assets acquired and liabilities assumed on August 29, 2014 |  | September 30, 2014 |  |  | 2014 adjustments to fair value |  |  | December 31, 2014 |
Current assets |  | $ | 88,529 |  |  | $ | (1,182 | ) |  | $ | 87,347 |
Property, plant, and equipment |  |  | 146,120 |  |  |  | 7,065 |  |  |  | 153,185 |
Intangible assets subject to amortization |  |  | 51,098 |  |  |  | 562 |  |  |  | 51,660 |
Investment in joint venture |  |  | 35,595 |  |  |  | — |  |  |  | 35,595 |
Other non-current assets |  |  | 2,170 |  |  |  | 3,898 |  |  |  | 6,068 |
Goodwill |  |  | 77,548 |  |  |  | (3,556 | ) |  |  | 73,992 |
Total assets acquired |  | $ | 401,060 |  |  | $ | 6,787 |  |  |  | 407,847 |
Current liabilities |  | $ | 34,320 |  |  | $ | 6,963 |  |  | $ | 41,283 |
Current maturities of long-term debt |  |  | 6,547 |  |  |  | — |  |  |  | 6,547 |
Non-current deferred tax liabilities |  |  | 46,998 |  |  |  | (486 | ) |  |  | 46,512 |
Obligations under capital lease |  |  | 18,350 |  |  |  | — |  |  |  | 18,350 |
Long-term debt, net of current portion |  |  | 4,263 |  |  |  | — |  |  |  | 4,263 |
Other non-current liabilities |  |  | 2,028 |  |  |  | 310 |  |  |  | 2,338 |
Total liabilities assumed |  | $ | 112,506 |  |  | $ | 6,787 |  |  | $ | 119,293 |
Net asset acquired |  | $ | 288,554 |  |  | $ | — |  |  | $ | 288,554 |
A combination of income, market, and cost approaches were used for the 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 are primarily customer relationships and trade names. We have finished our analysis of the Autocam opening balance sheet and consider the purchase price allocation final. In connection with the acquisition of Autocam, we recorded goodwill, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of liabilities assumed. The goodwill is attributed primarily to Autocam as a going concern and the fair value of expected cost synergies and revenues growth from combining our and the 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 including leasehold improvements were acquired. Property, plant and equipment has been valued using the cost approach supported where available by observable market data which includes consideration of obsolescence. Intangible assets have been 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, during 2014 we recognized $6.9 million in transaction costs. During 2014, we expensed $3.0 million of deferred financing costs and make whole interest payments related to the acquisition. Transaction costs were expensed as incurred and are included in the “Acquisition related costs excluded from selling, general and administrative expenses” line item and deferred financing costs are included in the “interest expense” line items in the Consolidated Statements of Operations and Comprehensive Income (Loss). As required by purchase accounting, the acquired inventories were recorded at their estimated fair value. These inventories were sold in the third quarter 2014 resulting in a one-time $1.2 million increase in cost of sales. Beginning September 1, 2014, our consolidated results of operations include the results of the acquired Autocam businesses. Since the date of the 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) have been included in our financial statements. The unaudited pro forma financial results for the years ended December 31, 2014 and 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 fair value step-up and estimated useful lives of Autocam depreciable fixed assets and definite-life amortizable assets acquired in the transaction. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.
|  | Year ended December 31, |
|  | 2014 |  |  | 2013 |
Pro forma sales |  | $ | 659,652 |  |  | $ | 606,690 |
Pro forma net income |  | $ | 19,573 |  |  | $ | 3,307 |
The pro forma net income for the year ended December 31, 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 $9.4 million and $3.8 million, net of tax, respectively during 2014 and reported in the year ended December 31, 2013 pro forma net income above. Other Acquisitions 2015 Caprock On May 29, 2015, we completed the acquisition of Caprock Manufacturing, Inc. and Caprock Enclosures, LLC (collectively referred to as “Caprock”) for approximately $9.1 million in cash. Caprock was a privately held plastic components supplier located in Lubbock, Texas. Caprock serves multiple end markets including aerospace, medical and general industrial. The results of Caprock have been consolidated since the date of acquisition as part of our Precision Engineered Products Group (formerly known as the Plastic and Rubber Components Group). We have finalized the fair value market valuations of all the net assets acquired. The preliminary purchase price allocation includes $1.3 million in net working capital, $3.0 million in property plant and equipment, $2.5 million in intangible assets, and $2.3 million 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. 2014 We made three other acquisitions during 2014 that aggregated to $21.0 million in net assets acquired. Related to the acquisitions, we incurred transactions costs of $1.2 million from third parties during 2014, which were expensed as incurred in acquisition related costs excluded from selling, general and administrative within the Consolidated Statements of Operations and Comprehensive Income (Loss). Chelsea Grinding On July 15, 2014, we purchased Chelsea Grinding Company (“Chelsea”) for $3.1 million in cash. Chelsea is a hydraulic component manufacturer. We acquired Chelsea to achieve access to the adjacent hydraulic component market. Chelsea, which has been completely integrated into our Erwin Plant of the Metal Bearing Components Group, contributed revenues of approximately $1.1 million from the acquisition date to December 31, 2014. RFK Valjcici d. d. Konjic On June 20, 2014, we acquired 79.2% of the outstanding shares of RFK Valjcici d. d. Konjic (“RFK”) for $9.8 million in cash. RFK is a manufacturer of tapered rollers with operations in Konjic, Bosnia & Herzegovina. Its products, while complementary to our existing roller bearing components, will broaden our product offering and allow penetration into adjacent markets. We acquired up to 99.7% of the outstanding shares of RFK during the third quarter of 2014 for an additional $2.5 million in cash. RFK contributed revenues and net income of approximately $5.1 million and $0.2 million, respectively, from the date of acquisition to December 31, 2014. RFK currently exports all of its products, predominately to customers serving the European truck, industrial vehicle and railway markets. We will continue operations at the existing facilities in Bosnia & Herzegovina and rolled up the operations of RFK under our Metal Bearing Components Group. In addition, we have reported non-controlling interest of $32 thousand for RFK representing the fair value of the 0.30% of the shares outstanding we do not own as of December 31, 2014. V-S 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 “V-S”) from the secured creditors of V-S Industries for $5.6 million in cash and assumed certain liabilities totaling $3.0 million. This was accounted for as business combination. V-S contributed revenues and net loss of approximately $14.7 million and $(1.0) million, including integration costs of $0.5 million net of tax, respectively, from the date of acquisition to December 31, 2014. V-S 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 V-S provides a complementary and broader product offering and allows penetration into adjacent markets. V-S has two locations in Wheeling, Illinois and Juarez, Mexico and we rolled up V-S’s operations under our Autocam Precision Components Group (formerly known as the Precision Metal Components Group). The cash paid to acquire all four businesses acquired in 2014 totaled $277.8 million ($256.8 million for Autocam and $21.0 million for the others) less cash acquired of $17.6 million for a net amount of $260.2 million. A portion of this amount ($2.5 million) was reported in cash flows from financing activities as that amount related to acquiring a non-controlling interest in RFK. The following table summarizes the final fair values of assets acquired and liabilities assumed at the date of acquisition with any adjustments to fair value since September 30, 2014.
Assets acquired and liabilities assumed |  | September 30, 2014 |  |  | 2014 adjustments to fair value |  |  | December 31, 2014 |
Current assets |  | $ | 5,688 |  |  | $ | (123 | ) |  | $ | 5,565 |
Property, plant, and equipment |  |  | 15,367 |  |  |  | (31 | ) |  |  | 15,336 |
Intangible assets subject to amortization |  |  | 2,705 |  |  |  | — |  |  |  | 2,705 |
Goodwill |  |  | 2,038 |  |  |  | 456 |  |  |  | 2,494 |
Total assets acquired |  | $ | 25,798 |  |  | $ | 302 |  |  | $ | 26,100 |
Current liabilities |  | $ | 4,803 |  |  | $ | 302 |  |  | $ | 5,105 |
Total liabilities assumed |  | $ | 4,803 |  |  | $ | 302 |  |  | $ | 5,105 |
Net asset acquired |  | $ | 20,995 |  |  | $ | — |  |  | $ | 20,995 |
The intangible assets subject to amortization are for customer contracts and trade names totaling $2.7 million and have weighted average useful lives of approximately 11 years. Goodwill of $2.5 million arising from the acquisitions is attributable primarily to the assembled workforce of RFK and strategic market opportunities that are expected to arise from the acquisition of RFK and Chelsea.

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