UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549





FORM
10-K




x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2009




OR




 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For
the transition period from to




Commission
file number 0-23486




NN,
INC.


(Exact
name of registrant as specified in its charter)






Delaware
            
            62-1096725(State or
      other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)2000
      Waters Edge Drive
              Johnson
      City, Tennessee
            
            37604(Address of
      principal executive offices)
            
            (Zip
      Code)




Registrant's
telephone number, including area code: (423) 743-9151




Securities
registered pursuant to Section 12(b) of the Act:






Title
      of
              each class
            
            Name
      of each exchange
              on which
      registeredCommon Stock,
      par value $.01
            
            The NASDAQ
      Stock Market LLC




Securities
registered pursuant to Section 12(g) of the Act:


None


(Title of
class)





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.


Yes  ̈                      No
x





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.


Yes  ̈                      No
x





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities and Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.


Yes x                      No
 ̈








Yes  o                     No
 ̈
 
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company.  See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):





Large
accelerated filer  ̈                                                      Accelerated
filer  o                                              
    Non-accelerated filer x              
                 Smaller
reporting company  ̈


(Do not
check if a smaller reporting company)





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ̈No x





The aggregate market value of the
voting stock held by non-affiliates of the registrant at June 30, 2009, based on
the closing price on the NASDAQ Stock Market LLC on that date was approximately
$27,138,908.





The number of shares of the
registrant's common stock outstanding on March 26, 2010 was 16,516,924.




DOCUMENTS INCORPORATED BY
REFERENCE


Portions
of the Proxy Statement with respect to the 2010 Annual Meeting of Stockholders
are incorporated by reference in Part III, Items 10 to 14 of this Annual Report
on Form 10-K as indicated herein.





PART
I




Item
1.  Business Overview




NN, Inc.
has three operating segments, the Metal Bearing Components Segment, the Plastic
and Rubber Components Segment, and the Precision Metal Components
Segment.   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.




Within
the Metal Bearing Components Segment, we manufacture and supply high precision
bearing components, consisting of balls, cylindrical rollers, tapered rollers,
and metal retainers, for leading bearing manufacturers on a global
basis.  We are a leading independent manufacturer of precision steel
bearing balls and rollers for the North American, European and Asian
markets.  In 2009, Metal Bearing Components accounted for 71% of total
NN, Inc. sales.  Sales of balls and rollers accounted for
approximately 66% of our total net sales with 52% of sales from balls and 14% of
sales from rollers.  Sales of metal bearing retainers accounted for 5%
of net sales.  Through a series of acquisitions and plant expansions,
we have built upon our strong core ball business and expanded our bearing
component product offering.  Today, we offer among the industry’s most
complete line of commercially available bearing components.  We
emphasize engineered products that take advantage of our competencies in product
design and tight tolerance manufacturing processes.  Our bearing
customers use our components in fully assembled ball and roller bearings, which
serve a wide variety of industrial applications in the transportation,
electrical, agricultural, construction, machinery, mining and aerospace
markets.




Within
the Plastic and Rubber Components Segment, we manufacture high precision rubber
seals and plastic retainers for leading bearing manufacturers on a global
basis.  In addition, we manufacture specialized plastic products
including automotive components, electronic instrument cases and other molded
components used in a variety of applications.  We also manufacture
rubber seals for use in various automotive and industrial
applications.  In 2009, plastic products accounted for 7% of net sales
and rubber seals accounted for 5% of net sales.




In 2006, we began to execute on a new
five year strategic business plan to leverage our competencies in precision
metal products by creating an adjacent platform to the Metal Bearing Components
Segment which would broaden our reach into attractive end markets.  As
part of this new strategy, on November 30, 2006, we added a Precision Metal
Components Segment through the acquisition of Whirlaway Corporation
(“Whirlaway”).  Whirlaway is a high precision metal components and
assemblies manufacturer that supplies customers serving the HVAC, appliance and
automotive industries.  Our entry into the precision metal components
market is part of our strategy to serve markets and customers we view as
adjacent to bearing components that utilize our core manufacturing
competencies.  These products accounted for 17% of net sales in
2009.





The three
business segments are composed of the following manufacturing
operations:





Metal Bearing Components
Segment


·
            Erwin,
      Tennessee Ball and Roller Plant (“Erwin
Plant”)


·
            Mountain
      City, Tennessee Ball Plant (“Mountain City
  Plant”)


·
            Eltmann,
      Germany Ball Plant (“Eltmann
Plant”)


·
            Pinerolo,
      Italy Ball Plant (“Pinerolo Plant”)


·
            Veenendaal,
      The Netherlands Roller and Stamped Metal Parts Plant (“Veenendaal
      Plant”)


·
            Kysucke
      Nove Mesto, Slovakia Ball Plant (“Kysucke
  Plant”)


·
            Kunshan,
      China Ball Plant (“Kunshan Plant”)


Note:
The Kilkenny Plant ceased operations in Q1 2009 and was in the process of being
closed during 2009.





Plastic and Rubber
Components Segment


·
            Delta
      Rubber Company, Danielson, Connecticut Rubber Seal Plant (“Danielson
      Plant”)


·
            Industrial
      Molding Corporation, Inc. Lubbock, Texas Plastic Injection Molding Plant
      (“Lubbock Plant”)





Precision Metal Components
Segment


·
            Whirlaway
      Corporation, Wellington, Ohio Metal Components Plant 1 (“Wellington Plant
      1”)


·
            Whirlaway
      Corporation, Wellington, Ohio Metal Components Plant 2 (“Wellington Plant
      2”)


·
            Whirlaway
      Corporation, Tempe, Arizona Metal Components Plant, formerly known as
      Triumph LLC (“Tempe Plant”)





Note:
The closure of the Tempe Plant was announced during Q1 of 2010.  This
closure is expected to be completed during 2010.  The Hamilton Plant
was closed during the first quarter of 2009.







2


Financial
information about the segments is set forth in Note 11 of the Notes to
Consolidated Financial Statements.





Recent
Developments




During
the first quarter of 2010, we amended both our previously amended and restated
$90 million revolving credit facility with Key Bank as administrative agent and
our previously amended and restated $40 million senior notes with Prudential
Capital.  The primary purpose of these amendments was to re-establish
covenant levels for both agreements through the expiration of the revolving
credit facility in September, 2011 to reflect our current business
outlook.  The primary financial covenants are the same for both credit
agreements through September 2011.  As a result of the amendments, the
$90 million revolving credit facility was reduced to $85 million as of the
amendment date, and it will reduce further by $1.0 million at the end of each of
the three fiscal quarters beginning with the December 31, 2010 quarter end and
ending with the June 30, 2011 quarter end, after which the total commitment will
be $82 million.  Neither the commitment amount nor the payment terms
of the senior notes were changed.  The amendments provided a
restriction on restructuring of foreign subsidiaries and removed certain
subsidiaries from participation in the credit agreement.  Also as a
result of the amendments, the interest rate was amended to LIBOR plus an
applicable margin of 4.75% from an applicable margin of 4.00%.  The
interest rate on the senior notes was not changed and remains at
8.5%.





During
the first quarter of 2010,we announced the closure of the Tempe Plant.  The Tempe Plant
was acquired in the 2006 acquisition of Whirlaway and had sales of approximately
$12.0 million for calendar year 2009. The closing will impact approximately 130
employees.  Current economic conditions coupled with the long-term
manufacturing strategy for our Whirlaway business necessitated a consolidation
of our manufacturing resources in Ohio. We expect to incur cash charges of
approximately $2.5 million in severance, equipment relocation and other closing
costs during 2010 related to this closure.  In addition, we expect to
incur up to $3.0 million in accelerated depreciation during 2010 related to
machinery that will be abandoned as part of the closure.





During
the third quarter of 2009, we informed our employees of the Veenendaal Plant of
our intention to begin a reorganization of the plant’s labor force due to the
economic downturn.  During the year ended December 31, 2009, we
incurred severance charges of $3.8 million ($2.9 million after tax) which covers
the elimination of 53 permanent positions or 17% of the
workforce.   The majority of the severance costs were or will be
paid out during the fourth quarter of 2009 and first quarter of
2010.  During the first quarter of 2010, a number of these employees
were rehired under temporary contracts to meet a surge in customer
demand.





Corporate
Information




NN,
originally organized in October 1980, is incorporated in
Delaware.  Our principal executive offices are located at 2000 Waters
Edge Drive, Johnson City, Tennessee, and our telephone number is (423)
743-9151.  Our web site address is
www.nnbr.com.  Information contained on our web site is not part of
this Annual Report.  Our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and related amendments are available
via a link to “SEC.gov” on our web site under “Investor Relations.”




Products




Metal Bearing Components
Segment




Precision Steel
Balls.  At our Metal Bearing Components Segment facilities, we
manufacture and sell high quality, precision steel balls in sizes ranging in
diameter from 5/32 of an inch (3.969 mm)  to 2 1⁄2 inches (63.5 mm). We
produce and sell balls in grades ranging from grade 3 to grade 1000, according
to international standards endorsed by the American Bearing Manufacturers
Association.  The grade number for a ball, in addition to defining
allowable dimensional variation within production batches, indicates the degree
of spherical precision of the ball; for example, grade 3 balls are manufactured
to within three-millionths of an inch of roundness.  Our steel balls
are used primarily by manufacturers of anti-friction bearings where precise
spherical, tolerance and surface finish accuracies are
required.  Sales of precision steel balls accounted for approximately
73%, 68%, and 67% of net Metal Bearing Component Segment sales in 2009, 2008,
and 2007, respectively.




3


Steel Rollers.  We
manufacture tapered rollers at our Veenendaal Plant and cylindrical rollers at
our Erwin Plant.  Rollers are an alternative rolling element used
instead of balls in anti-friction bearings that typically have heavier loading
or different speed requirements.  Our roller products are used
primarily for applications similar to those of our precision steel ball product
line, plus certain non-bearing applications such as hydraulic pumps and
motors.  Tapered rollers are a component in tapered roller bearings
that are used in a variety of applications including automotive gearbox
applications, automotive wheel bearings and a wide variety of industrial
applications.  Most cylindrical rollers are made to specific customer
requirements for diameter and length and our used in a variety of industrial
applications.   Tapered rollers accounted for approximately 10%,
14% and 14% of consolidated net sales in 2009, 2008 and 2007,
respectively.  Cylindrical rollers accounted for approximately 4% of
consolidated net sales in each year of 2009, 2008, and 2007,
respectively.




Metal
Retainers.We manufacture and sell precision metal retainers
for roller bearings used in a wide variety of industrial
applications.  Retainers are used to separate and space the rolling
elements (rollers) within a fully assembled bearing.  We manufacture
metal retainers at our Veenendaal Plant.




Plastic and Rubber
Components Segment




Bearing Seals.  At
our Danielson Plant, we manufacture and sell a wide range of precision bearing
seals produced through a variety of compression and injection molding processes
and adhesion technologies to create rubber-to-metal bonded bearing
seals.  The seals are used in applications for automotive, industrial,
agricultural and mining markets.




Plastic
Retainers.At our Lubbock Plant, we manufacture and sell
precision plastic retainers for ball and roller bearings used in a wide variety
of industrial applications.  Retainers are used to separate and space
the rolling elements (balls or rollers) within a fully assembled
bearing.




Precision Plastic
Components.At our Lubbock Plant, we also manufacture and sell
a wide range of specialized plastic products including automotive under-the-hood
components, electronic instrument cases and precision electronic connectors and
lenses, as well as a variety of other specialized parts.




Precision Metal Components
Segment




Precision Metal
Components.  We sell a wide range of precision metal
components.  These components are manufactured at the two Wellington,
Ohio plants and the Tempe Plant (closure of the Tempe Plant was announced in the
first quarter of 2010).  The precision metal components offered
include mechanical components and assemblies, fluid control components, fluid
control assemblies, shafts, and other precision metal parts.  The
components are used in the following end markets:  automotive
brake/chassis, thermal air conditioning systems, automotive engine, other
automotive, and other industrial applications.




Research
and Development




The
amounts spent on research and development activities by us during each of the
last three fiscal years are not material.  We expensed amounts as
incurred.




Customers




Our
products are supplied primarily to bearing manufacturers and automotive and
industrial parts manufacturers for use in a broad range of industrial
applications, including transportation, electrical, agricultural, construction,
machinery, mining and aerospace.  Additionally, we supply precision
metal, rubber, and plastic components to automotive and industrial companies
that are not used in bearing assemblies.  We supply approximately 400
customers; however, our top 10 customers account for approximately 76% of our
revenue.  Only one of these customers, AB SKF (“SKF”), had sales
levels that were 10% or greater of total net sales. In 2009, 39% of our products
were sold to customers in North America, 46% to customers in Europe, 11% to
customers in Asia and the remaining 4% to customers in South America. Sales to
various U.S. and foreign divisions of SKF accounted for approximately 36% of net
sales in 2009.




We sell
our products to most of our largest customers under either sales contracts or
agreed upon commercial terms.  In general, we pass through material
cost fluctuations to our customers in the form of changes in selling
price.  We ordinarily ship our products directly to customers within 60
days, and in some cases, during the same calendar month, of the date on which a
sales order is placed.  Accordingly, we generally have an
insignificant amount of open (backlog) orders from customers at month
end.  At the U.S. operations of our Metal Bearings Component Segment,
we maintain a computerized, bar coded inventory management system with many of
our major customers that enables us to determine on a day-to-day basis the
amount of these components remaining in a customer’s inventory.  When
such inventories fall below certain levels, additional product is automatically
shipped.




Certain
long-term supply agreements with Schaeffler Group (INA), with SKF to supply
precision balls in Europe, and with SKF providing for the purchase of steel
rollers and metal retainers manufactured at our Veenendaal Plant have all
expired at December 31, 2009.  We are currently supplying product at
agreed upon commercial terms, similar to the expired contracts, and anticipate
continuing to do so for the foreseeable future.




4


During
2009, the Metal Bearing Components Segment sold products to approximately 300
customers located in 30 different countries.  Approximately 87% of the
net sales in 2009 were to customers outside the United
States.  Approximately 64% of net sales in 2009 were to customers
within Europe.   Sales to our top ten customers accounted for
approximately 81% of the net sales in 2009.  Sales to SKF accounted
for approximately 50% of net sales of the segment in 2009.




During
2009, the Plastic and Rubber Components Segment sold its products to over 80
customers located principally in North America.  Approximately 14% of
the Plastic and Rubber Components Segment’s net sales were to customers outside
the United States, with the vast majority to customers in Mexico and
Canada.  Sales to the segment’s top ten customers accounted for
approximately 80% of the segment’s net sales in 2009.




During
2009, the Precision Metal Components Segment sold its products to 24 customers
located in five countries.  Approximately 91% of all sales were to
customers located within the United States.  Sales to the segment’s
top ten customers accounted for approximately 98% of the segment’s net sales in
2009.




In both
the foreign and domestic markets, we principally sell our products directly to
manufacturers and do not sell significant amounts through distributors or
dealers.




See Note
11 of the Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations" for additional Segment financial
information.




The
following table presents a breakdown of our net sales for fiscal years 2009,
2008 and 2007:




(In
      Thousands)
            
            2009
            
            
            2008
            
            
            2007Metal
      Bearing Components Segment
            
            $
            183,605
            
            
            $
            321,660
            
            
            $
            303,059Percentage of Total
      Sales
            
            
            70.7
            %
            
            
            75.7
            %
            
            
            72.0
            %Precision
      Metal Components Segment
            
            
            45,003
            
            
            
            64,235
            
            
            
            67,384Percentage of Total
      Sales
            
            
            17.4
            %
            
            
            15.1
            %
            
            
            16.0
            %Plastic
      and Rubber Components Segment
            
            
            30,775
            
            
            
            38,942
            
            
            
            50,851Percentage of Total
      Sales
            
            
            11.9
            %
            
            
            9.2
            %
            
            
            12.0
            %Total
            
            $
            259,383
            
            
            $
            424,837
            
            
            $
            421,294Percentage of Total
      Sales
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %





The
change in value of Euro denominated sales resulted in net sales decreasing $8.3
million in 2009, increasing $17.6 million in 2008 and increasing $19.6 million
in 2007 when converted to U.S. Dollars.





Sales
and Marketing




A primary
emphasis of our marketing strategy is to expand key customer relationships by
offering high quality, high precision products with the value of a single supply
chain partner for a wide variety of components.   Due to the
technical nature of many of our products, our engineers and manufacturing
management personnel also provide technical sales support functions, while
internal sales employees handle customer orders and other general sales support
activities.   For the Precision Metal Components Segment, the
current sales structure consists of utilizing manufacturers’ representatives at
key accounts supported by senior segment management and engineering
involvement.




Our Metal
Bearing Components Segment marketing strategy focuses on increasing our
outsourcing relationships with global bearing manufacturers that maintain
captive bearing component manufacturing operations.  Our marketing
strategy for the Plastic and Rubber Components Segment and the Precision Metal
Components Segment is to offer custom manufactured, high quality, precision
parts to niche markets with high value-added characteristics at competitive
price levels.  This strategy focuses on relationships with key
customers that require the production of technically difficult parts and
assemblies, enabling us to take advantage of our strengths in custom product
development, tool design, component assembly, and precision molding and
machining processes.




5


Our
arrangements with both our U.S. and European customers typically provide that
payments are due within 30 to 60 days following the date of shipment of
goods.  With respect to export customers of both our U.S. and European
businesses, payments generally are due within 60 to 120 days following the date
of shipment in order to allow for additional freight time and customs
clearance.  For some customers that participate in our inventory
management program, sales are recorded when the customer uses the
product.  See "Business -- Customers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."




Manufacturing
Process




We have
become a leading independent bearing component manufacturer through exceptional
service and high quality manufacturing processes.  Because our ball
and roller manufacturing processes incorporate the use of standardized tooling,
load sizes, and process technology, we are able to produce large volumes of
products while maintaining high quality standards.




The key
to our high quality production of seals and retainers is the incorporation of
customized engineering into our manufacturing processes, metal to rubber bonding
competency and experience with a broad range of engineered
resins.  This design process includes the testing and quality
assessment of each product.




Within
the precision metal components industry we are well positioned in the market
place by virtue of our focus on critical components and assemblies for highly
engineered mechanical systems used in various durable goods.




Employees




Due to
the global recession that impacted us starting in the fourth quarter of 2008
through the year ended December 31, 2009, our average employment level for 2009
decreased by 462 employees, or 21%, from the 2008 average employment level. As
of December 31, 2009, we employed a total of 1,776 full-time
employees.  Our Metal Bearing Components Segment employed 217 in the
U.S., 803 in Europe, and 108 in China; our Plastic and Rubber Components Segment
employed 260, all in the U.S.; and our Precision Metal Components Segment
employed 382, all in the U.S.  In addition, there were six employees
at our corporate headquarters.  Of our total employment, 19% are
management/staff employees and 81% are production employees.  We
believe we are able to attract and retain high quality employees because of our
quality reputation, technical expertise, history of financial and operating
stability, attractive employee benefit programs, and our progressive,
employee-friendly working environment.  The employees in the Eltmann
Plant, Pinerolo Plant and Veenendaal Plant are unionized.  We have
good labor relations, and we have never experienced any significant involuntary
work stoppages.




During
February 2009, production ceased at the Kilkenny Plant. The entire work force of
the manufacturing location, 68 employees, was permanently laid-off due to the
closure of this plant.  During the first quarter of 2009, the Hamilton
Plant ceased production and was closed, which resulted in the permanent lay-off
of 11 employees.  During the third quarter of 2009, a reduction in
force occurred at our Veenendaal Plant which resulted in the elimination of 53
full-time employees.   During the first quarter of 2010, the
closure of the Tempe Plant was announced.  Production is scheduled to
cease at this location during 2010, reducing our full-time employees by
approximately 130.




Competition




The Metal
Bearing Components Segment of our business is intensely
competitive.  Our primary domestic competitor is Hoover Precision
Products, Inc., a wholly owned U.S. subsidiary of Tsubakimoto Precision Products
Co. Ltd. Our primary foreign competitors are Amatsuji Steel Ball Manufacturing
Company, Ltd. (Japan), a wholly owed division of NSK LTD., Tsubakimoto Precision
Products Co. Ltd (Japan) and Jingsu General Ball and Roller
(China).




We
believe that competition within the Metal Bearing Components Segment is based
principally on quality, price and the ability to consistently meet customer
delivery requirements.  Management believes that our competitive
strengths are our precision manufacturing capabilities, our wide product
assortment, our reputation for consistent quality and reliability, and the
productivity of our workforce.




The
markets for the Plastic and Rubber Components Segment’s products are also
intensely competitive.  Since the plastic injection molding industry
is currently very fragmented, we must compete with numerous companies in each
industry market segment.  Many of these companies have substantially
greater financial resources than we do and many currently offer competing
products nationally and internationally. Our primary competitor in the plastic
bearing retainer market is Nakanishi Manufacturing
Corporation.  Domestically, Nypro, Inc. and UFE are among the main
competitors in the automotive market.




6


We
believe that competition within the plastic injection molding industry is based
principally on quality, price, design capabilities and speed of responsiveness
and delivery.  Management believes that our competitive strengths are
product development, tool design, fabrication, and tight tolerance molding
processes.  With these strengths, we have built our reputation in the
marketplace as a quality producer of technically difficult
products.




While
intensely competitive, the markets for our rubber seal products are less
fragmented than our plastic injection molding products.  The bearing
seal market is comprised of approximately six major competitors that range from
small privately held companies to large global enterprises.  Bearing
seal manufacturers compete on design, service, quality and price.  Our
primary outside competitors in the U.S. bearing seal market are Freudenburg-NOK,
Chicago Rawhide Industries (an SKF subsidiary), Trostel, and
Uchiyama.




In the
Precision Metal Components Segment market, internal production of components by
our customers can impact our business as the customers weigh the risk of
outsourcing strategically critical components or producing in-house. Our primary
competitors are Linamar, Stanadyne, A. Berger, C&A Tool, American Turned
Products and Autocam.  We generally win new business on the basis of
technical competence and our proven track record of successful product
development.





Raw
Materials




The
primary raw material used in our core ball and roller business of the Metal
Bearing Components Segment is 52100 Steel, which is high quality chromium
steel.  During 2009, approximately 90% of the steel used by the
segment was 52100 Steel in rod and wire form.  Our other steel
requirements include metal strip, chrome rod and wire, and type S2 rock bit
steel.




The Metal
Bearing Components Segment businesses purchase substantially all of their 52100
Steel requirements from mills in Europe and Japan and all of their metal strip
requirements from European mills and traders.  The principal suppliers
of 52100 Steel in the U.S. are Daido Steel Inc., Kobe Steel, Lucchini (affiliate
of Ascometal France) and Ohio Star Forge Co.  The principal supplier
of 52100 Steel in Europe is Ascometal France (See Note 14 of the Notes to
Consolidated Financial Statements), while the principal suppliers of metal strip
are Thyssen and Theis.  If any of our current suppliers were unable to
supply 52100 Steel to us, we are unable to provide assurances that we would not
face higher costs or production interruptions as a result of obtaining 52100
Steel from alternate sources.




We
purchase steel on the basis of price and, more significantly, composition and
quality.  The pricing arrangements with our suppliers are typically
subject to adjustment every three to six months in the U.S. and contractually
adjusted on an annual basis within the European locations for the base steel
price and quarterly for surcharge adjustments for precision steel
balls.  In general, we do not enter into written supply agreements
with suppliers or commit to maintain minimum monthly purchases of steel except
for the supply arrangements between Ascometal and the European operations of our
Metal Bearing Components Segment (see Note 14 of the Notes to Consolidated
Financial Statements).




Because
52100 Steel is principally produced by non-U.S. manufacturers, our operating
results would be negatively affected in the event that the U.S. or European
governments impose any significant quotas, tariffs or other duties or
restrictions on the import of such steel, if the U.S. Dollar decreases in value
relative to foreign currencies or if supplies available to us would
significantly decrease.  The value of the U.S. Dollar factors into the
steel price as the suppliers' base currencies are the Euro and Japanese
Yen.




The Metal
Bearing Components Segment has historically been affected by upward price
pressure on steel principally due to general increases in global demand and due
to global increased consumption of steel.  During 2009, steel price
increases abated on the basis of reduced scrap prices and overall reduction in
global demand for steel products.    In general, we pass
through material cost fluctuations to our customers in the form of changes in
selling price.




For the
Plastic and Rubber Components Segment, we base purchase decisions on price,
quality and service.  Generally, we do not enter into written supply
contracts with our suppliers or commit to maintain minimum monthly purchases of
resins or rubber compounds.




The
primary raw materials used by the Plastic and Rubber Components Segment are
engineered resins, injection grade nylon and proprietary rubber
compounds.  We purchase substantially all of our resin requirements
from domestic manufacturers and suppliers.  The majority of these
suppliers are international companies with resin manufacturing facilities
located throughout the world.  We use certified vendors to provide a
custom mix of proprietary rubber compounds.  This segment also
procures metal stampings from several domestic suppliers.




7


The
Precision Metal Components Segment produces products from a wide variety of
metals in various forms from various sources.  Basic types include hot
rolled steel, cold rolled steel (both carbon and alloy), stainless, extruded
aluminum, die cast aluminum, gray and ductile iron castings, and mechanical
tubing. Some material is purchased directly under contracts, some is consigned
by the customer, and some is purchased directly from the steel
mills.





Patents,
Trademarks and Licenses




We do not
own any U.S. or foreign patents, trademarks or licenses that are material to our
business.  We do rely on certain data and processes, including trade
secrets and know-how, and the success of our business depends, to some extent,
on such information remaining confidential.  Each executive officer is
subject to a non-competition and confidentiality agreement that seeks to protect
this information.  Additionally, all employees are subject to company
ethics policies that prohibit the disclosure of information critical to the
operations of our business.




Seasonal
Nature of Business




Historically,
due to a substantial portion of sales to European customers, seasonality has
been a factor for our business in that some European customers typically reduce
their production activities during the month of August.




Environmental
Compliance




Our
operations and products are subject to extensive federal, state and local
regulatory requirements both domestically and abroad relating to pollution
control and protection of the environment.  We maintain a compliance
program to assist in preventing and, if necessary, correcting environmental
problems. In the Metal Bearing Components Segment, the Eltmann Plant, the
Kysucke Plant, the Veenendaal Plant, and Pinerolo Plant are ISO 14000 certified
and all received the EPD (Environmental Product Declaration), except for the
Veenendaal Plant’s stamp metal parts business.  Based on information
compiled to date, management believes that our current operations are in
substantial compliance with applicable environmental laws and regulations, the
violation of which would have a material adverse effect on our business and
financial condition.  We have assessed conditional asset retirement
obligations and have found them to be immaterial to the consolidated financial
statements. We cannot assure you, however, that currently unknown matters, new
laws and regulations, or stricter interpretations of existing laws and
regulations will not materially affect our business or operations in the
future.  More specifically, although we believe that we dispose of
waste in material compliance with applicable environmental laws and regulations,
we cannot assure you that we will not incur significant liabilities in the
future in connection with the clean-up of waste disposal sites.  We
maintain long-term environmental insurance covering the four manufacturing
locations purchased with the Whirlaway acquisition.  We are currently
a potentially responsible party of a remedial action at a former waste recycling
facility used by us.  See Item 3 and Note 14 of the Notes to
Consolidated Financial Statements.




Executive
Officers of the Registrant




Our
executive officers are:




Name
            Age
            PositionRoderick
      R. Baty
            56
            Chairman
      of the Board, Chief Executive Officer and PresidentFrank
      T. Gentry, III
            54
            Vice
      President – Managing Director, Metal Bearing ComponentsRobert
      R. Sams
            52
            Vice
      President – SalesJames
      H. Dorton
            53
            Vice
      President – Corporate Development and Chief Financial
    OfficerWilliam
      C. Kelly, Jr.
            51
            Vice
      President – Chief Administrative Officer, Secretary, and
      TreasurerNicola
      Trombetti
            49
            Vice
      President – General Manager of NN EuropeThomas
      G. Zupan
            54
            Vice
      President – Precision Metal Components DivisionJames
      O. Anderson
            45
            Vice
      President – Plastic and Rubber Components DivisionJeffrey
      H. Hodge
            48
            Vice
      President – General Manager, U.S. Ball and Roller
  Division





Set forth
below is certain additional information with respect to each of our executive
officers.




Roderick R.
Baty was elected Chairman of the Board in September 2001 and continues to serve
as Chief Executive Officer and President.  He has served as President
and Chief Executive Officer since July 1997.  He joined NN in July
1995 as Vice President and Chief Financial Officer and was elected to the Board
of Directors in 1995.  Prior to joining NN, Mr. Baty served as
President and Chief Operating Officer of Hoover Precision Products from 1990
until January 1995, and as Vice President and General Manager of Hoover Group
from 1985 to 1990.




8


Frank T.
Gentry, III, was appointed Vice President – Managing Director Metal Bearing
Components Division in April 2009.  Prior to that, Mr. Gentry was Vice
President – General Manager U.S. Ball and Roller Division from August
1995.  Mr. Gentry joined NN in 1981 and held various manufacturing
management positions within NN from 1981 to August 1995.




Robert R.
Sams joined NN in 1996 as Plant Manager of the Mountain City, Tennessee
facility.  In 1997, Mr. Sams served as Managing Director of the
Kilkenny facility and in 1999 was elected to the position of Vice President –
Sales.  Prior to joining NN, Mr. Sams held various positions with
Hoover Precision Products from 1980 to 1994 and as Vice President of Production
for Blum, Inc. from 1994 to 1996.




James H.
Dorton joined NN as Vice President of Corporate Development and Chief Financial
Officer in June 2005.  Prior to joining NN, Mr. Dorton served as
Executive Vice President and Chief Financial Officer of Specialty Foods Group,
Inc. from 2003 to 2004, Vice President Corporate Development and Strategy and
Vice President – Treasurer of Bowater Incorporated from 1996 to 2002 and as
Treasurer of Intergraph Corporation from 1989 to 1996.  Mr. Dorton is
a Certified Public Accountant.




William
C. Kelly, Jr. was named Vice President and Chief Administrative Officer in June
2005.  In March, 2003, Mr. Kelly was elected to serve as Chief
Administrative Officer.  In March 1999, he was elected Secretary of NN
and still serves in that capacity as well as that of Treasurer.  In
February 1995, Mr. Kelly was elected Treasurer and Assistant
Secretary.  He joined NN in 1993 as Assistant Treasurer and Manager of
Investor Relations.  In July 1994, Mr. Kelly was elected to serve as
NN’s Chief Accounting Officer, and served in that capacity through March
2003.  Prior to joining NN, Mr. Kelly served from 1988 to 1993 as a
Staff Accountant and as a Senior Auditor with the accounting firm of Price
Waterhouse, LLP.




Nicola
Trombetti was elected NN Europe General Manager in June 2004 and was elected a
Corporate Vice President in June 2005. Prior to being named NN Europe General
Manager he was Vice President and Director of Operations, NN Europe. He joined
NN in September 2000 as Pinerolo Italy Plant Manager. Prior to joining NN
Europe, Mr. Trombetti was Plant Director for Tekfor - Neumaier GmbH Group, a
European-based steel component manufacturer for the auto industry. From 1996 to
1999 he was Manufacturing Manager and Plant Manager for SKF Group. He also spent
seven years as a manufacturing manager for Pininfarina, an Italian-based car
design, engineering, development and manufacturing company.




Thomas G.
Zupan co-founded Whirlaway in 1973 with his father and began his career as a
toolmaker.  He gained further experience in every line business
function including Engineering, Production Operations, Quality Assurance, H/R,
Sales, Material Control, IS, and Finance as the company grew from owner operator
to professionally managed.  In 1991, Mr. Zupan became CEO and sole
shareholder of Whirlaway.  Upon the sale of Whirlaway to NN on
November 30, 2006, Mr. Zupan was appointed Vice President – Precision Metal
Components Division.




James O.
Anderson was appointed Vice President-Plastics and Rubber Division in October
2006.  Mr. Anderson joined NN in January 2005 and served as the
General Manager of Industrial Molding in Lubbock, Texas.  Prior to
joining NN, Mr. Anderson served for six years in the U.S. Army as an artillery
officer and worked in various manufacturing roles with Dana Corporation and
Accuma Corporation from 1996 to 2005.




Jeffrey
H. Hodge joined NN in 1989 and has served various roles including Operations
Manager, Plant Manager and Corporate Manager of Level 3 (Lean Enterprise, Six
Sigma, TPM) from 2003 – 2009 before accepting his current role in 2009 as
Vice-President and General Manager of U. S. Ball & Roller and NN Asia
Divisions. Prior to joining NN Inc., Mr. Hodge was a member of the US military
from 1985 – 1989.




Item
1A.                      Risk
Factors




Cautionary
Statements for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995




We wish
to caution readers that this report contains, and our future filings, press
releases and oral statements made by our authorized representatives may contain,
forward-looking statements that involve certain risks and
uncertainties.  Readers can identify these forward-looking statements
by the use of such verbs as expects, anticipates, believes or similar verbs or
conjugations of such verbs. Our actual results could differ materially from
those expressed in such forward-looking statements due to important factors
bearing on our business, many of which already have been discussed in this
filing and in our prior filings. The differences could be caused by a number of
factors or combination of factors including, but not limited to, the risk
factors described below.




9


You
should carefully consider the following risks and uncertainties, and all other
information contained in or incorporated by reference in this annual report on
Form 10-K, before making an investment in our common stock.  Any of
the following risks could have a material adverse effect on our business,
financial condition or operating results.  In such case, the trading
price of our common stock could decline and you may lose all or part of your
investment.




If
we cannot meet revised covenant levels under our current credit agreements, we
could potentially be in default under our long-term debt; and,
accordingly, risk insolvency.





The
Company has experienced a significant loss of revenue and has sustained
significant losses of income during the global economic recession that began to
impact the Company in the fourth quarter of 2008 and is continuing as of the
date of this report.   As a result, the Company has sustained a
significant weakening of its financial condition.  Additionally, the
Company is dependent on the continued provision of financing from its revolving
credit lenders and its senior notes lender in order to remain
solvent.  The lenders have set revised covenant levels that provide
little flexibility in the case that the Company’s projections are not
met.  We believe that it is unlikely that new lenders could be found
to replace the existing lenders in case of an uncured default.  In
such situation, the Company would be technically insolvent and would need to
seek a recapitalization of the Company.  If such transaction could not
be successfully completed, the Company would most likely have to file for
protection under bankruptcy laws in the U.S. and other
jurisdictions.  Although management believes that fundamental business
prospects for the Company are positive, there can be no assurance that the
current financial projections can be met or that recapitalization could be
achieved.





The
recession impacting both U.S. and Europe automotive and industrial markets could
have a material adverse effect on our ability to finance our operations and
implement our growth strategy.





During
the three month period ended December 31, 2008 and the year ended December 31,
2009, we experienced a sudden and significant reduction in customer orders
driven by reductions in automotive and industrial end market demand across all
our businesses.  Prior to this time, our company had never been
affected by a recession that had impacted both of our key geographic markets of
the U.S. and Europe simultaneously.  It now appears we have weathered
the worst of the global recession of 2008 and 2009.  However, if the
recession were to continue or demand for our products remain weak, this could
materially reduce our operating results due to the profits lost on reduced sales
levels plus the inability in the short term to reduce our variable and fixed
cost of operations.  A continued recession could have a material
adverse effect on our financial condition, results of operations and cash flows
from operations and could lead to additional restructuring and/or impairment
charges being incurred.





World
wide availability of credit continues to be limited.





The
availability of credit from financial institutions to businesses has diminished
during the course of 2008 and 2009.  The reduction in available credit
is due to many factors including the global economic recession and financial
institutions being impacted by subprime mortgage defaults and various other
types of credit defaults.  In addition to the limits on availability,
the interest rates charged by financial institutions have increased to reflect
the greater level of inherent risk in the debt markets.  If the
limitation on the availability of credit continues or worsens, our ability and
the ability of our customers and vendors to obtain credit in the future may be
adversely impacted resulting in a potential adverse impact on our business and
that of our customers and vendors.





The
demand for our products is cyclical, which could adversely impact our
revenues.




The end
markets for fully assembled bearings and other industrial and automotive
components are cyclical and tend to decline in response to overall declines in
industrial and automotive production.  As a result, the market for
bearing components and precision metal, plastic, and rubber products is also
cyclical and impacted by overall levels of industrial and automotive
production.  Our sales in the past have been negatively affected, and
in the future will be negatively affected, by adverse conditions in the
industrial and/or automotive production sectors of the economy or by adverse
global or national economic conditions generally.




We
depend on a very limited number of foreign sources for our primary raw material
and are subject to risks of shortages and price fluctuation.




The steel
that we use to manufacture our metal bearing components is of an extremely high
quality and is available from a limited number of producers on a global
basis.  Due to quality constraints in the U.S. steel industry, we
obtain substantially all of the steel used in our U.S. operations
from non-U.S. suppliers.  In addition, we obtain most of the
steel used in our European operations from a single European
source.  If we had to obtain steel from sources other than our current
suppliers we could face higher prices and transportation costs, increased duties
or taxes, and shortages of steel.  Problems in obtaining
steel, particularly 52100 chrome steel, in the quantities that we require
and on commercially reasonable terms, could increase our costs, adversely
impacting our ability to operate our business efficiently and have a material
adverse effect on our revenues and operating and financial results.




10


Increases
in the market demand for steel can have the impact of increasing scrap
surcharges we pay in procuring our steel in the form of higher unit prices and
could adversely impact the availability of steel.  Our commercial
terms with key customers allow us to pass along steel
price fluctuations through changing the customer's selling
prices.




We
depend heavily on a relatively limited number of customers, and the loss of any
major customer would have a material adverse effect on our
business.




Sales to
various U.S. and foreign divisions of SKF, which is one of the largest bearing
manufacturers in the world, accounted for approximately 36% of consolidated net
sales in 2009.  No other customers accounted for more than 10% of
sales.  During 2009, our ten largest customers accounted for
approximately 76% of our consolidated net sales.  The loss of all or a
substantial portion of sales to these customers would cause us to lose a
substantial portion of our revenue and would lower our operating profit margin
and cash flows from operations.




We
operate in and sell products to customers outside the U.S. and are subject to
several related risks.




Because
we obtain a majority of our raw materials from overseas suppliers, actively
participate in overseas manufacturing operations and sell to a large number of
international customers, we face risks associated with the
following:




·
            adverse
      foreign currency fluctuations;




·
            changes
      in trade, monetary and fiscal policies, laws and regulations, and other
      activities of governments, agencies and similar
    organizations;




·
            the
      imposition of trade restrictions or
  prohibitions;




·
            high
      tax rates that discourage the repatriation of funds to the
      U.S.;




·
            the
      imposition of import or other duties or taxes;
  and




·
            unstable
      governments or legal systems in countries in which our suppliers,
      manufacturing operations, and customers are
  located.




We do not
have a hedging program in place associated with consolidating the operating
results of our foreign businesses into U.S. Dollars.  An increase in
the value of the U.S. Dollar and/or the Euro relative to other currencies may
adversely affect our ability to compete with our foreign-based competitors for
international, as well as domestic, sales.  Also, a change in the
value of the Euro relative to the U.S. Dollar can negatively impact our
consolidated financial results, which are denominated in U.S.
Dollars.




In
addition, due to the typical slower summer manufacturing season in Europe, we
expect that revenues in the third fiscal quarter of each year will reflect lower
sales than in the other quarters of the year.




Failure
of our product could result in a product recall.




The
majority of our products go into bearings used in the automotive industry and
other critical industrial manufacturing applications.  A failure of
our components could lead to a product recall.  If a recall were to
happen as a result of our components failing, we could bear a substantial part
of the cost of correction.  In addition to the cost of fixing the
parts affected by the component, a recall could result in the loss of a portion
of or all of customers’ business.  To partially mitigate these risks,
we carry limited product recall insurance and have invested heavily in the
TS16949 quality program.




The
costs and difficulties of integrating acquired business could impede our future
growth.




We cannot
assure you that any future acquisition will enhance our financial
performance.  Acquiring companies involves inherent risk in the areas
of environmental and legal issues, information technology, cultural and
regulatory matters, product/supplier issues, and financial risk.  Our
ability to effectively integrate any future acquisitions will depend on, among
other things, the adequacy of our implementation plans, the ability of our
management to oversee and operate effectively the combined operations and our
ability to achieve desired operating efficiencies and sales
goals.  The integration of any acquired businesses might cause us to
incur unforeseen costs, which would lower our profit margin and future earnings
and would prevent us from realizing the expected benefits of these
acquisitions.




11


We
may not be able to continue to make the acquisitions necessary for us to realize
our future growth strategy.




Acquiring
businesses that complement or expand our operations has been and continues to be
an important element of our business strategy.  This strategy calls
for growth through acquisitions constituting a significant portion of our future
growth objectives, with the remainder resulting from internal growth and
increased market penetration.  We cannot assure you that we will be
successful in identifying attractive acquisition candidates or completing
acquisitions on favorable terms in the future.  In addition, we may
borrow funds to acquire other businesses, increasing our interest expense and
debt levels.  Our inability to acquire businesses, or to operate them
profitably once acquired, could have a material adverse effect on our business,
financial position, results of operations and cash flows.Our amended and restated
credit facility entered into on March 13, 2009, and subsequently amended on
March 5, 2010, prohibits acquisitions without  prior approval of the
participants of the credit facility and our senior notes lender and until such
time as we meet certain earnings and financial covenant levels.





Our
growth strategy depends in part on outsourcing, and if the industry trend toward
outsourcing does not continue, our business could be adversely
affected.




Our
growth strategy depends in part on major customers continuing to outsource
components and expanding the number of components being
outsourced.  This requires manufacturers to depart significantly from
their traditional methods of operations.  If major customers do not
continue to expand outsourcing efforts or determine to reduce their use of
outsourcing, our ability to grow our business could be materially adversely
affected.




Our
market is highly competitive and many of our competitors have significant
advantages that could adversely affect our business.




The
global markets for bearing components, precision metal and precision plastic
parts are highly competitive, with a majority of production represented by the
captive production operations of large manufacturers and the balance
represented by independent manufacturers.  Captive manufacturers make
components for internal use and for sale to third parties.  All of the
captive manufacturers, and many independent manufacturers, are significantly
larger and have greater resources than do we. Our competitors are continuously
exploring and implementing improvements in technology and manufacturing
processes in order to improve product quality, and our ability to remain
competitive will depend, among other things, on whether we are able to keep pace
with such quality improvements in a cost effective manner.




The
production capacity we have added over the last several years has at times
resulted in our having more capacity than we need, causing our operating costs
to be higher than expected.




We have
expanded our metal bearing components production facilities and capacity over
the last several years.  Our metal bearing component production
facilities have not always operated at full capacity, and from time to time our
results of operations have been adversely affected by the under-utilization of
our production facilities.  Under-utilization or inefficient
utilization of our production facilities could be a risk in the
future.  We have recently undertaken steps to address a portion of the
capacity risk including closing of plants and downsizing employment levels
at others.  See Note 2 of the Notes to the Consolidated Financial
Statements.




The
price of our common stock may be volatile.




The
market price of our common stock could be subject to significant fluctuations
and may decline.  Among the factors that could affect our stock price
are:




·
            economic
      recession or other macro economic
factors;




·
            our
      operating and financial performance and
  prospects;




·
            quarterly
      variations in the rate of growth of our financial indicators, such as
      earnings (loss) per share, net income (loss) and
  revenues;






12




·
            changes
      in revenue or earnings estimates or publication of research reports by
      analysts;




·
            loss
      of any member of our senior management
team;




·
            speculation
      in the press or investment
community;




·
            strategic
      actions by us or our competitors, such as acquisitions or
      restructurings;




·
            sales
      of our common stock by
stockholders;




·
            general
      market conditions;




·
            domestic
      and international economic, legal and regulatory factors unrelated to our
      performance;




·
            loss
      of a major customer; and




·
            ability
      to declare and pay a dividend.






The stock
markets in general have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.  These
broad market fluctuations may adversely affect the trading price of our common
stock.  In addition, due to the market capitalization of our stock,
our stock tends to be more volatile than large capitalization stocks that
comprise the Dow Jones Industrial Average or Standard and Poor’s 500
Index.




Provisions
in our charter documents and Delaware law may inhibit a takeover, which could
adversely affect the value of our common stock.




Our
certificate of incorporation and bylaws, as well as Delaware corporate law,
contain provisions that could delay or prevent a change of control or changes in
our management that a stockholder might consider favorable and may prevent you
from receiving a takeover premium for your shares.  These provisions
include, for example, a classified board of directors and the authorization of
our board of directors to issue up to 5.0 million preferred shares without a
stockholder vote.  In addition, our restated certificate of
incorporation provides that stockholders may not call a special
meeting.




We are a
Delaware corporation subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law.  Generally, this
statute prohibits a publicly-held Delaware corporation from engaging in a
business combination with an interested stockholder for a period of three years
after the date of the transaction in which such person became an interested
stockholder, unless the business combination is approved in a prescribed
manner.  A business combination includes a merger, asset sale or other
transaction resulting in a financial benefit to the stockholder.  We
anticipate that the provisions of Section 203 may encourage parties interested
in acquiring us to negotiate in advance with our board of directors, because the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction that
results in the stockholder becoming an interested stockholder.




These
provisions apply even if the offer may be considered beneficial by some of our
stockholders.  If a change of control or change in management is
delayed or prevented, the market price of our common stock could
decline.




In
addition, during 2008 we adopted a shareholder’s rights plan intended to deter
coercive or unfair takeover tactics and prevent an acquirer from gaining control
of the company at less than fair value.  The plan gives existing
shareholders the right to purchase Junior Participating Preferred Stock of the
company once and only if the acquirer obtains 15% of our common
stock.




Item
1B.                      Unresolved
Staff Comments




None







13




Item
      2.
            Properties




The
manufacturing plants for each of the company's segments are listed
below.  In addition, the company leases a portion of a small office
building in Johnson City, Tennessee which serves as our corporate
headquarters.





Metal Bearing Components
      SegmentManufacturing
      Operation
            Country
            Sq.
      Feet
            Owned
      or LeasedErwin
      Plant
            U.S.A.
            125,000
            OwnedMountain
      City Plant
            U.S.A.
            86,400
            OwnedKilkenny
      Plant (non-operating)
            Ireland
            125,000
            OwnedEltmann
      Plant
            Germany
            175,000
            LeasedPinerolo
      Plant
            Italy
            330,000
            OwnedKysucke
      Plant
            Slovakia
            135,000
            OwnedVeenendaal
      Plant
            The
      Netherlands
            159,000
            OwnedKunshan
      Plant
            China
            110,000
            Leased





The
Eltmann Plant is leased from the Schaeffler Group, which is also a
customer.  The Kunshan Plant lease is accounted for as a capital lease
and we have an option to purchase the facility at various points in the
future.  Production at the Kilkenny Plant ceased on February 6, 2009
and was moved to other European Metal Bearing Components
operations.  The Kilkenny property is being made ready for sale with
any expected sale to occur later than a year.   As such, the
property is still considered to be held and used.





Plastic and Rubber Components
      SegmentManufacturing
      Operation
            Country
            Sq.
      Feet
            Owned
      or LeasedDanielson
      Plant
            U.S.A.
            50,000
            OwnedLubbock
      Plant
            U.S.A.
            228,000
            Owned





Precision Metal Components
      SegmentManufacturing
      Operation
            Country
            Sq.
      Feet
            Owned
      or LeasedWellington
      Plant 1
            U.S.A.
            86,000
            LeasedWellington
      Plant 2
            U.S.A.
            132,000
            LeasedTempe
      Plant
            U.S.A.
            140,000
            Leased





The
Wellington Plants are leased from a company controlled by the former owner of
Whirlaway Corporation, who is currently an officer of NN, Inc. (see Note 19 of
the Notes to Consolidated Financial Statements).  During the first
quarter of 2010, we announced the closure of the Tempe Plant to be accomplished
during 2010.  Production will be moved to the Wellington
plants.





For more
information, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources."




Item 3. Legal Proceedings




During
2006, we  received correspondence from the Environmental Protection
Agency (“EPA”) requesting information regarding a former waste recycling vendor
("AER") used by our former Walterboro, South Carolina facility.  AER,
located in Augusta, Georgia, ceased operations in 2000 and EPA began
investigating its facility.  As a result of AER’s operations, soil and
groundwater became contaminated.  Besides us, EPA initially contacted
fifty-four other companies (“Potentially Responsible Parties” or PRPs”) who also
sent waste to AER.  Most of these PRPs, including us, have entered into a
consent order with EPA to investigate and remediate the site proactively. 
To date, the PRP Group has submitted a Remedial Investigation, which has been
accepted by EPA.  In addition, a Feasibility Study has been substantially
approved by EPA.  Once approved, costs associated with the chosen
remediation can be assessed and the PRPs can discuss allocation of the overall
cost.  As of the date hereof, we do not know the amount of our allocated
share.





14








Part
II




Item
      4.
            Market
      for the Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities




Since our
initial public offering in 1994, the common stock has been traded on The NASDAQ
Stock Market LLC (“NASDAQ”) under the trading symbol “NNBR.”  Prior to
such time there was no established market for the common stock.  As of
March 26, 2010, there were approximately 2,000 holders of the Common Stock and
the closing per share stock price as reported by NASDAQ was $4.78.





The
following table sets forth the high and low closing sales prices of the common
stock, as reported by NASDAQ, and the dividends paid per share on the common
stock during each calendar quarter of 2009 and 2008.




Close PriceHigh
            
            
            Low
            
            
            Dividend2009First
      Quarter
            
            $
            3.10
            
            
            $
            0.83
            
            
            $
            0.00Second
      Quarter
            
            
            1.82
            
            
            
            1.17
            
            
            
            0.00Third
      Quarter
            
            
            4.82
            
            
            
            1.30
            
            
            
            0.00Fourth
      Quarter
            
            
            5.25
            
            
            
            3.82
            
            
            
            0.002008First
      Quarter
            
            $
            10.28
            
            
            $
            7.65
            
            
            $
            0.08Second
      Quarter
            
            
            13.94
            
            
            
            9.60
            
            
            
            0.08Third
      Quarter
            
            
            16.98
            
            
            
            12.57
            
            
            
            0.08Fourth
      Quarter
            
            
            13.11
            
            
            
            0.97
            
            
            
            0.00














15







The
following graph compares the cumulative total shareholder return on our common
stock (consisting of stock price performance and reinvested dividends) from
December 31, 2004 with the cumulative total return (assuming reinvestment of all
dividends) of (i) the Value Line Machinery Index (“Machinery”) and (ii) the
Standard & Poor’s 500 Stock Index, for the period December 31, 2004 through
December 31, 2009.  The Machinery index is an industry index comprised
of 49 companies engaged in manufacturing of machinery and machine parts, a list
of which is available from the Company.  The comparison assumes $100
was invested in our common stock and in each of the foregoing indices on
December 31, 2004.  We cannot assure you that the performance of the
common stock will continue in the future with the same or similar trend depicted
on the graph.





Comparison
of Five-Year Cumulative Total Return*


NN,
Inc., Standard & Poors 500 and Value Line Machinery Index


(Performance
Results Through 12/31/09)









Assumes
$100 invested at the close of trading on December 31, 2004 in NN, Inc. common
stock, Standard & Poors 500 and Value Line Machinery Index.





*Cumulative
total return assumes reinvestment of dividends.





Cumulative
      Return12/31/2005
            12/31/2006
            12/31/2007
            12/31/2008
            12/31/2009NN,
      Inc.
            82.47
            99.30
            77.52
            19.20
            33.21Standard
      & Poors 500
            103.00
            117.03
            121.16
            74.53
            92.01Machinery
            108.54
            137.00
            195.24
            113.26
            178.13





16


The
declaration and payment of dividends are subject to the sole discretion of our
Board of Directors and depend upon our profitability, financial condition,
capital needs, credit agreement restrictions, future prospects and other factors
deemed relevant by the Board of Directors.  During the three month
period ended December 31, 2008 and the year ended December 31, 2009, we
suspended our regular quarterly dividend in order to enhance our liquidity due
to the global recession.




The terms
of our revolving credit facility and senior notes amended and restated on March
13, 2009, and subsequently amended on March 5, 2010, prohibit the payment of
dividends.  For further description of our revolving credit facility,
see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources”.




See Part
III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters” of this 2009 Annual Report on Form 10-K for
information required by Item 201 (d) of regulation S-K.




Item
5. Selected Financial Data




The
following selected financial data has been derived from the audited financial
statements of the Company. The selected financial data should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the audited consolidated financial statements,
including notes thereto.







(In
      Thousands, Except Per Share Data)
            Year ended December
  31,





2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Statement
      of Income Data:Net
      sales
            
            $
            259,383
            
            
            $
            424,837
            
            
            $
            421,294
            
            
            $
            330,325
            
            
            $
            321,387Cost
      of products sold (exclusive of depreciation shown separately
      below)
            
            
            235,466
            
            
            
            344,685
            
            
            
            337,024
            
            
            
            257,703
            
            
            
            248,828Selling,
      general and administrative expenses
            
            
            27,273
            
            
            
            36,068
            
            
            
            36,473
            
            
            
            30,008
            
            
            
            29,073Depreciation
      and amortization
            
            
            22,186
            
            
            
            27,981
            
            
            
            22,996
            
            
            
            17,492
            
            
            
            16,331(Gain)
      loss on disposal of assets
            
            
            493
            
            
            
            (4,138
            )
            
            
            (71
            )
            
            
            (705
            )
            
            
            (391
            )Impairment
      of goodwill
            
            
            --
            
            
            
            30,029
            
            
            
            10,016
            
            
            
            --
            
            
            
            --Restructuring
      and impairment charges (income), excluding  goodwill
      impairments
            
            
            4,977
            
            
            
            12,036
            
            
            
            3,620
            
            
            
            (65
            )
            
            
            (342
            )Income
      (loss) from operations
            
            
            (31,012
            )
            
            
            (21,824
            )
            
            
            11,236
            
            
            
            25,892
            
            
            
            27,888Interest
      expense
            
            
            6,359
            
            
            
            5,203
            
            
            
            6,373
            
            
            
            3,983
            
            
            
            3,777Other
      (income) expense
            
            
            253
            
            
            
            (850
            )
            
            
            (386
            )
            
            
            (1,048
            )
            
            
            (653
            )Income
      (loss) before provision (benefit) for income taxes
            
            
            (37,624
            )
            
            
            (26,177
            )
            
            
            5,249
            
            
            
            22,957
            
            
            
            24,764Provision
      (benefit) for income taxes
            
            
            (2,290
            )
            
            
            (8,535
            )
            
            
            6,422
            
            
            
            8,522
            
            
            
            9,752Net
      income (loss)
            
            $
            (35,334
            )
            
            $
            (17,642
            )
            
            $
            (1,173
            )
            
            $
            14,435
            
            
            $
            15,012Basic
      income (loss) per share:Net
      income (loss)
            
            $
            (2.17
            )
            
            $
            (1.11
            )
            
            $
            (0.07
            )
            
            $
            0.84
            
            
            $
            0.88Diluted
      income (loss) per share:Net
      income (loss)
            
            $
            (2.17
            )
            
            $
            (1.11
            )
            
            $
            (0.07
            )
            
            $
            0.83
            
            
            $
            0.87Dividends
      declared
            
            $
            0.00
            
            
            $
            0.24
            
            
            $
            0.32
            
            
            $
            0.32
            
            
            $
            0.32Weighted
      average number of shares
              outstanding
      - Basic
            
            
            16,268
            
            
            
            15,895
            
            
            
            16,749
            
            
            
            17,125
            
            
            
            17,004Weighted
      average number of shares
              outstanding
      – Diluted
            
            
            16,268
            
            
            
            15,895
            
            
            
            16,749
            
            
            
            17,351
            
            
            
            17,193


17





As of December
  31,





(In
      Thousands)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Balance
      Sheet Data:Current
      assets
            
            $
            98,283
            
            
            $
            124,621
            
            
            $
            138,024
            
            
            $
            125,864
            
            
            $
            105,950Current
      liabilities
            
            
            68,489
            
            
            
            63,355
            
            
            
            84,256
            
            
            
            74,869
            
            
            
            64,839Total
      assets
            
            
            242,652
            
            
            
            284,040
            
            
            
            350,078
            
            
            
            342,701
            
            
            
            269,655Long-term
      debt
            
            
            77,558
            
            
            
            90,172
            
            
            
            100,193
            
            
            
            80,711
            
            
            
            57,900Stockholders'
      equity
            
            
            76,803
            
            
            
            109,759
            
            
            
            130,043
            
            
            
            133,169
            
            
            
            116,074





For the
year ended December 31, 2009, the operating results were significantly impacted
by the effects of the global recession and related destocking by our customers
as our sales decreased 37%, excluding foreign exchange effects, from the year
ended December 31, 2008.  Additionally, we incurred $5.0 million in
restructuring and impairment charges related to two plant closures and a
reduction in force at another manufacturing location.  See
“Management's Discussion and Analysis of Financial Condition and Results of
Operations” for more information.





For the
year ended December 31, 2008, goodwill, certain intangible assets, and certain
tangible assets were subject to impairment charges of $38,371 ($24,402 after
tax).  In addition, restructuring charges of $2,247 ($2,247 after tax)
and impairment charges of $1,447 ($1,447 after tax) on long lived assets were
recorded related to the closure of the Kilkenny Plant.  Finally, 2008
benefited from the sale of excess land resulting in a gain of $4,018 ($2,995
after tax).





For the
year ended December 31, 2007, Whirlaway added $62,662 in sales; $53,515 in cost
of products sold (exclusive of depreciation and amortization); $4,106 in
selling, general and administrative expenses; $3,991 in depreciation and
amortization; $2,406 in interest expense and $852 in net loss.





For the
year ended December 31, 2006, Whirlaway added $4,722 in sales; $4,706 in cost of
products sold (exclusive of depreciation and amortization); $363 in selling,
general and administrative expenses; $345 in depreciation and amortization; $240
in interest expense and $598 in net loss.





On
November 30, 2006, we purchased 100% of the stock of Whirlaway and incorporated
its assets and liabilities into our consolidated financial
statements.  Included in the December 31, 2006 balance sheet data are
acquired total current assets of $19,276, assets of $55,673 and current
liabilities of $7,475.  In addition, we incurred third party debt of
$24,700 related to the acquisition.




Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations




The
following discussion should be read in conjunction with, and is qualified in its
entirety by, the Consolidated Financial Statements and the Notes thereto and
Selected Financial Data included elsewhere in this Form
10-K.  Historical operating results and percentage relationships among
any amounts included in the Consolidated Financial Statements are not
necessarily indicative of trends in operating results for any future
period.




Risk Factors




See Item
1A. “Risk Factors” for a discussion of risk factors that could materially impact
our actual results.





Overview
and Management Focus




Our
strategy and management focus is based upon the following long-term
objectives:





·
            Recovery
      from the global recession of 2008-2009 and rationalization of our
      manufacturing capacity





18


·
            Growth
      by taking over the in-house production of components from our global
      customers, providing a competitive and attractive outsourcing
      alternative





·
            Organic
      and acquisitive growth of our precision metal components
      platform





·
            Global
      expansion of our manufacturing base to better address the global
      requirements of our customers





Management
generally focuses on these trends and relevant market indicators:





·
            Global
      industrial growth and economics





·
            Global
      automotive production rates





·
            Costs
      subject to the global inflationary environment, including, but not limited
      to:





o
            Raw
      material





o
            Wages
      and benefits, including health care
costs





o
            Regulatory
      compliance





o
            Energy





·
            Raw
      material availability





·
            Trends
      related to the geographic migration of competitive
      manufacturing





·
            Regulatory
      environment for United States public
companies





·
            Currency
      and exchange rate movements and
trends





·
            Interest
      rate levels and expectations





Management
generally focuses on the following key indicators of operating
performance:




·
            Sales
      growth





·
            Cost
      of products sold levels





·
            Selling,
      general and administrative expense
levels





·
            Net
      income (loss)





·
            Cash
      flow from operations and capital
spending





·
            Customer
      service reliability





·
            External
      and internal quality indicators





·
            Employee
      development





Critical Accounting
Policies




Our
significant accounting policies, including the assumptions and judgment
underlying them, are disclosed in Note 1 of the Notes to Consolidated Financial
Statements.  These policies have been consistently applied in all
material respects and address such matters as revenue recognition, inventory
valuation, asset impairment recognition, business combination accounting and
pension and post-retirement benefits.  Due to the estimation processes
involved, management considers the following summarized accounting policies and
their application to be critical to understanding our business operations,
financial condition and results of operations.  We cannot assure you
that actual results will not significantly differ from the estimates used in
these critical accounting policies.




19


Revenue
Recognition.  We recognize revenues based on the stated
shipping terms with the customer when these terms are satisfied and the risks of
ownership are transferred to the customer. We have an inventory management
program for certain major Metal Bearing Components Segment customers whereby
revenue is recognized when products are used by the customer 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 determinable and collectability is
reasonably assured.




Accounts
Receivable.  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 receivables are due
primarily from the core served markets: bearing manufacturers, automotive
industry, electronics, industrial, and aerospace.  We recorded
$(0.1) million, $0.2 million and $0.5 million of bad debt expense (income)
during 2009, 2008 and 2007, respectively.  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 reserves
established when considered to be uncollectible or at risk of being
uncollectible.  We believe that adequate allowances for doubtful
accounts have been provided in the Consolidated Financial Statements, it is
possible that we could experience additional unexpected credit
losses.




Inventories.Inventories
are stated at the lower of cost or market.  Cost is determined using
the first-in, first-out method.  Inventory valuations are developed
using normalized production capacities for each of our manufacturing
locations.  Abnormal variances from excess capacity or under
utilization of fixed production overheads are expensed in the period
incurred.  Our inventories are not generally subject to obsolescence
due to spoilage or expiring product life cycles.  We assesses
inventory obsolescence routinely and record a reserve when inventory items are
deemed non recoverable in future periods.  We operate generally as a
make-to-order business; however, the Company also stocks products for certain
customers in order to meet delivery schedules.  While management
believes that adequate write-downs for inventory obsolescence have been made in
the Consolidated Financial Statements, we could experience additional inventory
write-downs in the future.




Goodwill and Acquired
Intangibles.  For new acquisitions, we use estimates,
assumptions and appraisals to allocate the purchase price to the assets acquired
and to determine the amount of goodwill.  These estimates are based on
market analyses and comparisons to similar assets.  Annual tests are
required to be performed to assess whether recorded goodwill is
impaired.  The annual tests require management to make estimates and
assumptions with regard to the future operations of its reporting units, and the
expected cash flows that they will generate.  These estimates and
assumptions therefore impact the recorded value of assets acquired in a business
combination, including goodwill, and whether or not there is any subsequent
impairment of the recorded goodwill and the amount of such
impairment.




Goodwill
is tested for impairment on an annual basis as of October 1 and between annual
tests if a triggering event occurs .  The impairment test is
performed at the reporting unit level for the one unit that still has
goodwill.  U.S. Generally Accepted Accounting Principles (“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.  The fair value of the reporting unit is determined
through use of discounted cash flow methods 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 units tested regarding the level of risk and end
markets served.  Even though we do use other observable inputs (Level
2 inputs under the US GAAP hierarchy) the calculation of fair value for goodwill
would be most consistent with Level 3 under the US GAAP hierarchy.




If the
carrying value of the reporting unit 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.




20


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 these
projections and the differences may be material. As of December 31,
2009, the only location where we have a recorded balance of goodwill
is at the Pinerolo Plant of the Metal Bearing Components
Segment.  There was no impairment to the goodwill balance as the fair
value of this reporting unit was estimated as $47,000 which exceeded the
carrying value of the reporting unit of $35,900 by $11,100.




Income taxes.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.  Financial
statements for the year ended December 31, 2009, reflect full valuation
allowances against the deferred tax assets of most of the jurisdictions in which
we operate.  During 2009, we recognized tax benefits at only two
jurisdictions, the Pinerolo Plant and the Veenendaal Plant.  (See Note
12 of the Notes to Consolidated Financial Statements.)




Impairment of Long-Lived
Assets.  Our long-lived assets include property, plant and
equipment and certain intangible assets subject to amortization.  The
recoverability of the long-term assets is dependent on the performance of the
companies which we have acquired or built, as well as the performance of the
markets in which these companies operate.  In assessing potential
impairment for these assets, we will consider these factors as well as
forecasted financial performance based, in large part, on management business
plans and projected financial information which are subject to a high degree of
management judgment and complexity.    Future adverse
changes in market conditions or adverse operating results of the underlying
assets could result in having to record additional impairment charges not
previously recognized.  (See Notes 5 and 10 of the Notes to
Consolidated Financial Statements.)




Pension
Obligations.  We use several assumptions in
determining our periodic pension and post-retirement expense and
obligations which are included in the Consolidated Financial
Statements.  These assumptions include determining an appropriate
discount rate, rate of benefit increase as well as the remaining service period
of active employees.  (See Note 7 of the Notes to Consolidated
Financial Statements.)






















































21












Results of Operations




The
following table sets forth for the periods indicated selected financial data and
the percentage of our net sales represented by each income statement line item
presented.






As
      a Percentage of Net Sales
              Year
      ended December 31,2009
            
            
            2008
            
            
            2007Net
      sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of product sold (exclusive of depreciation shown separately
      below)
            
            
            90.8
            
            
            
            81.1
            
            
            
            80.0Selling,
      general and administrative expenses
            
            
            10.5
            
            
            
            8.5
            
            
            
            8.7Depreciation
      and amortization
            
            
            8.6
            
            
            
            6.6
            
            
            
            5.4(Gain)
      loss on disposal of assets
            
            
            0.2
            
            
            
            (1.0)
            
            
            
            0.0Impairment
      of goodwill
            
            
            --
            
            
            
            7.1
            
            
            
            2.4Restructuring
      and impairment charges, excluding goodwill impairments
            
            
            1.9
            
            
            
            2.8
            
            
            
            0.8Income
      (loss) from operations
            
            
            (12.0)
            
            
            
            (5.1)
            
            
            
            2.7Interest
      expense
            
            
            2.4
            
            
            
            1.2
            
            
            
            1.5Other
      (income) expense
            
            
            0.1
            
            
            
            (0.2)
            
            
            
            (0.0)Income
      (loss) before provision (benefit) for income taxes
            
            
            (14.5)
            
            
            
            (6.1)
            
            
            
            1.2Provision
      (benefit) for income taxes
            
            
            (0.9)
            
            
            
            (2.0)
            
            
            
            1.5Net
      loss
            
            
            (13.6)
            %
            
            
            (4.1)
            %
            
            
            (0.3)
            %







Off
Balance Sheet Arrangements




We have
operating lease commitments for machinery, office equipment, vehicles,
manufacturing and office space which expire on varying dates.  The
following is a schedule by year of future minimum lease payments as of December
31, 2009 under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year (in thousands).




Year
      ending December 31,2010
            
            $
            4,3902011
            
            
            3,0332012
            
            
            1,5942013
            
            
            1,2782014
            
            
            1,180Thereafter
            
            
            6,245Total
      minimum lease payments
            
            $
            17,720





Sales
Concentration





Sales to
various U.S. and foreign divisions of SKF, which is one of the largest bearing
manufacturers in the world, accounted for approximately 36% of consolidated net
sales in 2009.  During 2009, our ten largest customers accounted for
approximately 76% of our consolidated net sales.  None of our other
customers individually accounted for more than 10% of our consolidated net sales
for 2009.  The loss of all or a substantial portion of sales to these
customers would cause us to lose a substantial portion of our revenue and have a
corresponding negative impact on our operating profit margin due to operation
leverage these customers provide.  This could lead to sales volumes
not being high enough to cover our current cost structure or to provide adequate
operating cash flows or cause us to incur additional restructuring and/or
impairment costs.  Due to a limit on the amount of excess bearing
component production capacity in the markets we serve, we believe it would be
difficult for any of our top ten customers to change suppliers in the short
term.




22


Certain
long-term supply agreements with Schaeffler Group (INA), with SKF to supply
precision balls in Europe, and with SKF providing for the purchase of steel
rollers and metal retainers manufactured at our Veenendaal Plant have all
expired at December 31, 2009.  We are currently supplying product at
agreed upon commercial terms, similar to the expired contracts, and anticipate
continuing to do so for the foreseeable future.




Economic
Impacts on the three and twelve month periods ended December 31,
2009





For the
year ended December 31, 2009, our sales decreased approximately 37% due to the
effects of the 2008/2009 global recession and related reductions in inventory
balances throughout the automotive and industrial supply chains we
serve.  During the second half of 2009, we experienced somewhat of a
rebound with an approximately 21% increase in sales from the first half of 2009
due primarily to increased order levels by our customers.  In
particular, the fourth quarter of 2009 sales levels were 31% higher, excluding
foreign exchange effects, than the second quarter of 2009 sales levels, which
were the low point of 2009.  During the first half of 2009, sales were
down approximately 50% from the corresponding prior year period.





We
believe the increase in sales that occurred during the second half of 2009,
compared to the level during the first half of 2009 discussed above, was due
both to customers adopting more normalized ordering patterns and increased
demand in the end markets we serve.  It is unclear what portion of the
increase was due to ordering patterns versus demand.  We believe that
during 2009, demand for our products has decreased more than actual demand in
the end markets we serve.  We refer to this as the “de-stocking
effect”and believe
it is due to reduction in overall inventory levels throughout the supply
chain.  In most cases, we are several tiers down the supply chain from
the ultimate consumer.  Thus, we are affected by our customers’ and
their customers’ order patterns.  We believe during 2009
that those companies that were higher in the supply chain reduced
production and order levels to control their inventory balances.  We
are not certain how long this current de-stocking process within the supply
chain will last or even if, during the second half of 2009, it has begun to be
replaced by more normalized ordering patterns.





The
reduction in sales volume was the main cause of the net loss of $35.3 million
for the year ended December 31, 2009.  In response to the sales
decrease, we focused aggressively on reducing costs and
expenses.  However, a significant portion of our cost structure cannot
be reduced in the short term.  In particular, at our manufacturing
locations in Western Europe, it is very difficult to reduce employment levels in
line with reductions in sales and production volumes.  In these
locations, we limited production costs by scheduling the production facilities
on rolling shutdowns and by temporarily allowing workers to not report to work
under existing government programs.   In addition to the
reduction in sales volume, the net income of the year ended December 31, 2009
was further impacted by a $7.1 million valuation allowance placed on, and
effectively eliminating, all U.S. based deferred tax assetsand relatedcurrent year tax
benefits from incurred losses.  Finally, the year ended December 31,
2009 was negatively impacted by the restructuring charges totaling $5.0 million
($4.0 million after tax) related to two plant closures and reduction in labor
force at another manufacturing location, as part of our response to reduce fixed
cost due to the global recession.





During
the year ended December 31, 2009, cost of products sold was 91% of
sales.  This is a much higher percentage of sales than in prior years
due to the volume losses discussed above.  Returning to a historically
normal profitability range wherein cost of products sold is approximately 78% to
80% of sales will depend mostly upon sales volumes returning to normalized
levels.  As sales increase, we will be better able to leverage our
existing fixed cost base, as discussed above, thus reducing cost of products
sold as a percentage of sales.





Additionally,
pricing pressures from our customers and competitors and non-material inflation
will have, and has had, a negative impact on the relationship of sales to cost
of products sold with either selling prices decreasing and/or product cost
increasing.  Over the last few years we have combated these negative
effects with price increases to selected customers and/or in selected markets
and through our formal cost reduction and productivity enhancement program which
has more than offset non-material inflation since adoption in 2004.








23








Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008.





OVERALL
RESULTS


Consolidated 
      NN, Inc.(In
      Thousands of Dollars)
            
            2009
            
            
            2008
            
            
            ChangeNet
      sales
            
            $
            259,383
            
            
            $
            424,837
            
            
            $
            (165,454
            )Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,297
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (155,759
            )Price
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            112Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (179
            )Material
      inflation pass-through
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,331
            )Cost of products sold(exclusive of depreciation
              and
      amortization shown separately below)
            
            
            235,466
            
            
            
            344,685
            
            
            
            (109,219
            )Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,037
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (96,608
            )Cost
      reduction
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,224
            )Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            470Inflation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,180Selling,
      general, and administrative
            
            
            27,273
            
            
            
            36,068
            
            
            
            (8,795
            )Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (835
            )Reductions
      in spending
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,960
            )Depreciation
      and amortization
            
            
            22,186
            
            
            
            27,981
            
            
            
            (5,795
            )Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (423
            )Reduction
      in expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,372
            )Restructuring
      and impairment charges
            
            
            4,977
            
            
            
            42,065
            
            
            
            (37,088
            )Interest
      expense, net
            
            
            6,359
            
            
            
            5,203
            
            
            
            1,156(Gain)
      loss on disposal of assets
            
            
            493
            
            
            
            (4,138
            )
            
            
            4,631Reduction
      of unamortized debt issue cost
            
            
            604
            
            
            
            --
            
            
            
            604Other
      income, net
            
            
            (351
            )
            
            
            (850
            )
            
            
            499Loss
      before benefit forincome
      taxes
            
            
            (37,624
            )
            
            
            (26,177
            )
            
            
            (11,447
            )Benefit
      for income taxes
            
            
            (2,290
            )
            
            
            (8,535
            )
            
            
            6,245Net
      loss
            
            $
            (35,334
            )
            
            $
            (17,642
            )
            
            $
            (17,692
            )





Net Sales.  The
volume losses were due to reductions in end market demand in the markets we
serve and due to a reduction in overall inventory within the supply chain as
discussed above.  In addition, sales were lower as the value of the
Euro relative to the U.S. Dollar has decreased 6% from
2008.  Changes related to price/mix were all normal in nature although
such changes had less of an impact given the depressed sales
levels.  The impact on sales from material pass through was negative
as material prices have decreased since 2008 and these reductions are being
passed to our customers.





Cost of Products Sold (exclusive of
depreciation and amortization).  The majority of the decreases
were due to the same sales volume reductions mentioned above.  In
addition, the aforementioned reduction in value of the Euro reduced Euro based
production costs relative to the U.S. Dollar.





While
many of our production costs adjust with reductions in sales and production, a
portion of our production costs are fixed in nature or cannot be reduced without
incurring additional significant restructuring costs.  Additionally,
current production levels are much lower than our capacity.  Any
abnormal costs from under-utilization of capacity and fixed production costs are
expensed in the period incurred.  The main driver of the fixed
component of costs was labor cost at our Western European manufacturing
locations.  We actively reduced labor costs where possible considering
local and national labor rules and regulations of the countries in which we
operate.  Production costs were further reduced by the effects of
planned cost reduction projects.  Despite the lower sales and
production levels, we continue to achieve results from planned cost reduction
projects at levels consistent with management expectations.





Selling, General and Administrative
Expenses.  The majority of the reduction was from wage cost
reductions.  The wage cost reductions were achieved through a
combination of salary cuts ranging from 10% to 20% for a portion of 2009,
elimination of all bonus opportunities for 2009 and headcount
reductions.  In addition, discretionary expenses were reduced company
wide.





24


Depreciation and
Amortization. Depreciation and amortization in 2009 was lower
than 2008 as 2008 included accelerated depreciation on certain abandoned assets
totaling $3.5 million that was a one-time effect to
2008.  Additionally, 2009 depreciation expense was lower from the
carry-over effects of the year end 2008 impairments and accelerated depreciation
of fixed assets mentioned above.  Finally, 2009 depreciation expense
was lower due to reduced levels of spending on capital expenditures in
2009.





Interest
expense.Interest expense was higher due to increases in the
interest rate spread charged on our LIBOR credit facility and our senior
notes.  The interest rate was increased upon amendment to our credit
facilities on March 13, 2009.  In addition, we amortized $0.9 million
of additional capitalized loan costs, due to the amended credit facilities, into
interest expense during 2009.





Restructuring and impairment
charges.During the year ended December 31, 2009, we incurred
$1.1 of restructuring and impairment costs related to the closures of the
Kilkenny Plant and the Hamilton Plant and $3.8 million in restructuring charges
related to the reduction in labor force at our Veenendaal Plant.  (See
Footnote 2 of the Notes to Consolidated Financial
Statements).   During the year ended December 31, 2008, goodwill,
certain intangible assets, and certain long lived tangible assets were subject
to impairment charges of $38.4 million.  In addition, restructuring
charges of $2.2 million and impairment charges of $1.4 million on long lived
assets were recorded related to the closure of the Kilkenny plant.





Gain on disposal of
assets:  During 2008, the Veenendaal Plant (part of the Metal
Bearing Components Segment) sold excess land with a book value of $1.6 million
for proceeds of $5.6 million and a resulting gain of $4.0 million.





Provision for income taxes.For the year ended December 31, 2009, the difference between the 2008
effective tax rate of 33% and our 2009 effective tax rate of 6% was mainly due
to not recognizing the tax benefits incurred during 2009 at our U.S. locations
and three of our foreign locations.  We have placed valuation
allowances on these deferred tax benefits as the recoverability of these tax
benefits in the near future is not certain.  (See Footnote 12 of the
Notes to Consolidated Financial Statements).





RESULTS
BY SEGMENT





METAL BEARING COMPONENTS
SEGMENT





(In
      Thousands of Dollars)
            
            Year ended
              December
      31,2009
            
            
            2008
            
            
            ChangeNet
      sales
            
            $
            183,605
            
            
            $
            321,660
            
            
            $
            (138,055
            )Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,297
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (128,097
            )Price
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (150
            )Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (490
            )Material
      inflation pass-through
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,021
            )Segment
      net income (loss)
            
            $
            (16,108
            )
            
            $
            14,647
            
            
            $
            (30,755
            )





The
largest sales decrease during 2009 was in our European operations of the segment
with a 44% decrease in sales compared to 2008.  The U.S. operations
experienced sales reductions averaging 40% compared to 2008 and at our Asia
operation sales increased 30% as compared to 2008.  Sales were down in
part due to reduced demand in the end markets served by the segment from the
global recession.  Additionally, the segment’s sales were reduced due
to de-stocking within the supply chain.  The reduction in value of the
Euro relative to the U.S. Dollar of 6% further negatively impacted sales by
reducing the value of Euro denominated sales at our European
operations.  The reduction in sales related to the decrease in cost of
material had little impact on segment net loss as these savings were passed on
in the form of price decreases to our customers under existing
agreements.





25


The 2008
segment net income includes restructuring and impairment charges, net of tax, of
$3.7 million.  Additionally, 2008 segment net income was impacted by a
favorable net gain of $1.6 million in non-operating items,  including
a $3.0 million after tax gain on sale of excess land and a $1.1 million tax
benefit related to reducing certain deferred tax liabilities at our Italian
operation under a new Italian tax law.  Partially offsetting these
favorable impacts was the accelerated depreciation of certain long-lived
tangible assets that were abandoned in the fourth quarter of 2008 totaling $2.5
million after tax.  The 2009 segment net loss was increased by after
tax restructuring charges of $4.0 million related to the Kilkenny Plant closure
and the reduction in force at our Veenendaal Plant.  Eliminating these
restructuring charges and non-operating items, the 2009 segment net loss was
$28.9 million unfavorable to the 2008 net income.





The
unfavorable impact on segment net income in 2009 was primarily caused by the 40%
reduction in sales volume experienced in 2009 and the related production
inefficiencies and under-utilization of fixed production
costs.  During the second half of 2009, these impacts were not as
pronounced given increased sales and production volumes experienced during the
second half and due to higher levels of savings from planned cost reduction
projects.  The negative effects from the lost sales income and
production inefficiencies were partially offset by reductions in salaries,
elimination of 2009 bonus opportunities, and reductions in travel and other
discretionary costs.





PRECISION METAL COMPONENTS
SEGMENT





(In
      Thousands of Dollars)
            
            Year ended
              December
      31,2009
            
            
            2008
            
            
            ChangeNet
      sales
            
            $
            45,003
            
            
            $
            64,235
            
            
            $
            (19,232
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (19,232
            )Segment
      net loss
            
            $
            (4,391
            )
            
            $
            (7,353
            )
            
            $
            2,962





The
majority of the decrease in sales was due to much lower U.S. automotive and
industrial market demand experienced during 2009.  In addition, sales
were negatively impacted by de-stocking within the supply chain.





The 2008
segment net loss included $7.8 million of impairment charges, net of
tax.  Factoring out the impairment charges, the segment had a net
income of $0.4 million.  The reduced sales volume and related
production inefficiencies and under-utilization of fixed production costs were
the main causes of the segment loss in 2009.  Planned cost reduction
projects, net of inflation, and reductions in selling and administration cost
partially offset the volume impacts.   Additionally, the segment
net loss was increased by $1.5 million as tax benefits from losses incurred in
2009 were not recognized due to valuation allowances being placed on the related
deferred tax assets.





26


PLASTIC AND RUBBER
COMPONENTS SEGMENT





(In
      Thousands of Dollars)
            
            Year ended
              December
      31,2009
            
            
            2008
            
            
            ChangeNet
      sales
            
            $
            30,775
            
            
            $
            38,942
            
            
            $
            (8,167
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,429
            )Price/Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            262Segment
      net loss
            
            $
            (2,091
            )
            
            $
            (17,223
            )
            
            $
            15,132





The
volume reduction for this segment was also related to lower U.S. automotive and
industrial end market demand and lower customer orders from supply chain
de-stocking.





The 2008
segment net loss included $16.6 million of impairment charges, net of
tax.  Factoring out the impairment charges, the segment incurred a
loss of $0.6 million in 2008. Segment net loss in 2009 was negatively affected
by the volume decreases and related costs from under-utilization of fixed
production cost and manufacturing inefficiencies.  Additionally, the
segment net loss was increased by $0.7 million as tax benefits from losses
incurred in 2009 were not recognized due to valuation allowances being placed on
the related deferred tax assets.







Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007.




Overview
of the Three and Twelve Month Periods Ended December 31, 2008




The three
month period ended December 31, 2008 was affected by the sudden and significant
reduction in demand for our products in all geographic markets
served.  During the fourth quarter of 2008, overall demand was down
approximately 30% from 2007 sales levels in the two main geographic markets
served, the U.S. and Europe.  Demand was down in both automotive and
industrial end markets served by us due to the global economic
downturn.  As a result, our total sales were down 29% compared to the
same three month period of 2007.




In order
to minimize the impact of this unprecedented sales volume reduction, we took
actions to reduce costs and conserve cash.  The actions included the
reduction of capital expenditures, elimination of discretionary spending,
suspension of our regular quarterly dividend, closure of two production
facilities, wage and salary reductions and employee layoffs.




For the
three month period ended December 31, 2008, sales decreased $30.8 million from
the equivalent period of 2007.  Of this reduction, $30.1 million was
directly related to lower sales volume from the depressed automotive and
industrial end market demand experienced in the period.




For the
three month period ended December 31, 2008, we had a loss from operations,
excluding non-operating charges and benefits, of $2.6 million versus net income
of $4.0 for the three month period ended December 31, 2007.  The
majority of the variance between the years was directly related to lower sales
volume from the economic downturn.




Prior to
the three month period ended December 31, 2008, we had reported record revenues
and earnings for the nine month period ended September 30,
2008.  Thus, the results of the year ended December 31, 2008 were
significantly impacted by the aforementioned 30% reductions in sales volume
directly related to the economic downturn and depressed demand for automotive
and industrial products experienced during the three month period ended December
31, 2008.




27


OVERALL
RESULTS





(In
      Thousands of Dollars)
            
            Consolidated
      NN, Inc.2008
            
            
            2007
            
            
            ChangeNet
      sales
            
            $
            424,837
            
            
            $
            421,294
            
            
            $
            3,543Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,575Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (22,536
            )Price
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,518Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            539Material
      inflation pass-through
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,447Cost
      of products sold (exclusive of depreciation
              and
      amortization shown separately below)
            
            
            344,685
            
            
            
            337,024
            
            
            
            7,661Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14,440Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,205
            )Cost
      reduction
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (12,994
            )Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            687Inflation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,733Selling,
      general, and administrative
            
            
            36,068
            
            
            
            36,473
            
            
            
            (405
            )Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,012Reductions
      in wage related cost and
              discretionary
      spending
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,417
            )Depreciation
      and amortization
            
            
            27,981
            
            
            
            22,996
            
            
            
            4,985Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,148Additional
      depreciation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,837Restructuring
      and impairment charges
            
            
            42,065
            
            
            
            13,636
            
            
            
            28,429Interest
      expense, net
            
            
            5,203
            
            
            
            6,373
            
            
            
            (1,170
            )Gain
      on disposal of assets
            
            
            (4,138
            )
            
            
            (71
            )
            
            
            (4,067
            )Other
      income, net
            
            
            (850
            )
            
            
            (386
            )
            
            
            (464
            )Income
      (loss) before provision (benefit) for income taxes
            
            
            (26,177
            )
            
            
            5,249
            
            
            
            (31,426
            )Provision
      (benefit)for income taxes
            
            
            (8,535
            )
            
            
            6,422
            
            
            
            (14,957
            )Net
      loss
            
            $
            (17,642
            )
            
            $
            (1,173
            )
            
            $
            (16,469
            )





Net Sales.  As
discussed above, the significant sales volume decrease experienced in the three
month period ended December 31, 2008 had a major impact on the full year 2008
sales levels.  There was $30.1 million in volume lost in the fourth
quarter of 2008 due to the economic downturn and related reduction in demand for
automotive and industrial end market products.  Prior to the fourth
quarter, sales volume had increased by $7.5 million year to date primarily in
our Metal Bearings Components Segment from market share gains and strong levels
of industrial end market demand in North America and in Europe to a lesser
extent.





Partially
offsetting the negative volume was the positive effect due to the appreciation
in value of Euro denominated sales relative to the U.S.
Dollar.  Finally, sales were positively affected by price increases
from passing through raw material inflation to customers, price increases given
to certain non-contractual customers and favorable product mix to existing
customers.





Cost of Products Sold (exclusive of
depreciation and amortization).  As discussed above, the
significant sales volume reduction experienced in the three month period ended
December 31, 2008 had a major impact on cost of products sold.  The
magnitude of the reductions and short period in which the reductions occurred
limited our ability to reduce fixed production costs.  We took
aggressive actions to reduce costs including drastically reducing plant
operating days.  The reduction in cost of products sold directly
related to the economic downturn was $14.6 million.  Prior to the
fourth quarter, cost of product sold had increased by $7.3 million due to higher
sales volume mentioned above.





Apart
from the volume impacts, cost of products sold increased due to the increase in
value of Euro denominated costs relative to the U.S. Dollar.  In
addition, raw material, labor and utility inflation experienced during 2008
increased cost of products sold.  Offsetting these increases were
favorable impacts from our Level 3 cost reduction program and other planned
projects focused on reducing manufacturing costs at all locations and from
operating improvements at our three newest operations: Whirlaway, China, and
Slovakia.





28


Selling, General and Administrative
Expenses.  Spending on wage related costs was substantially
reduced in the three month period ended December 31, 2008.  Costs for
management bonuses and stock based compensation were reduced due to the fourth
quarter 2008 operating performance.  In addition, during the fourth
quarter of 2008, most discretionary spending was eliminated.  The
increase in the value of Euro denominated costs relative to the U.S. Dollar
partially offset the reductions.





Depreciation and
Amortization.  We accelerated depreciation during the three
month period ended December 31, 2008, on certain assets to adjust to their new
estimated useful lives.  The accelerated depreciation totaled $3.5
million and was related to assets that were abandoned and ceased to be used on
or before December 31, 2008.  Additionally, depreciation expense was
higher due to the increase in the value of the Euro based depreciation and
amortization relative to the U.S. Dollar.  Finally, depreciation
expense increased for assets placed in service at our new plants in China and
Slovakia.





Restructuring and impairment
charges.  During 2008, goodwill, certain intangible assets, and
certain long lived tangible assets were subject to impairment charges of $38.4
million.  In addition, restructuring charges of $2.2 million and
impairment charges of $1.4 million on long lived assets were recorded related to
the closure of the Kilkenny plant.   During 2007, we impaired
certain goodwill and fixed asset balances related to the Metal Bearing
Components Segment totaling $13.4 million.





Interest expense.
Interest expense was lower in 2008 versus 2007 primarily due to decreases in the
base LIBOR interest rate which reduced the cost of borrowing under our variable
rate credit agreement and due to debt repayments made in 2008.





Gain on disposal of
assets.During 2008, the Veenendaal Plant (part of the Metal
Bearing Components Segment) sold excess land with a book value of $1.6 million
for proceeds of $5.6 million and a resulting gain of $4.0 million.





Provision for income
taxes.  The year ended December 31, 2008 effective rate of 33%
was lower than the year ended December 31, 2007 effective rate of
122%.  The majority of the difference between the 2008 and 2007 rates
was with the 2008 impairment losses.  We did not apply valuation
reserves to the deferred tax benefits as management believed, at that time,
those benefits would be recognized either through realized deferred tax
liabilities or from expected future tax deductions.  The 2007
impairment charges had minimal tax benefits due to valuation reserves placed on
the deferred tax benefits related to the impairment and severance charges and
other related tax benefits as the locations incurring these benefits were not
expected to generate significant future taxable income.





RESULTS
BY SEGMENT





METAL BEARING COMPONENTS
SEGMENT





(In
      Thousands of Dollars)
            
            Year
      ended December 31,2008
            
            
            2007
            
            
            ChangeNet
      sales
            
            $
            321,660
            
            
            $
            303,059
            
            
            $
            18,601Foreign
      exchange effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,575Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,677
            )Price
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            672Mix
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            539Material
      inflation pass-
              through
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,492Segment
      net income
            
            $
            14,647
            
            
            $
            4,958
            
            
            $
            9,689





The
fourth quarter economic downturn led to a reduction in sales volume of $21.5
million.  Prior to the fourth quarter, sales volume had increased in
the Metal Bearing Components Segment $13.8 million due to higher demand in North
America, Europe and Asia from new programs, market share gains, and strong
European and North American industrial end market demand compared to
2007.  Sales were positively affected by the favorable impacts from
the rise in value of Euro based sales relative to the U.S. dollar, primarily in
the first nine months of the year.  Finally, sales increased due to
price increases related to passing through raw material inflation to customers,
from price increases given to certain non-contractual customers and favorable
product and customer mix.





29


The 2008
and 2007 segment net incomes include restructuring and impairment charges, net
of tax, of $3.7 million and $13.5 million,
respectively.  Additionally, 2008 segment net income was impacted by a
favorable net $1.6 million in non-operating items.  The first was a
$3.0 million after tax gain on sale of excess land.  The second was a
$1.1 million tax benefit related to reducing certain deferred tax liabilities at
our Italian operation under a new Italian tax law.  Partially
offsetting these favorable impacts was the accelerated depreciation of certain
long-lived tangible  assets that were abandoned in the fourth quarter
of 2008 totaling $2.5 million after tax.





Factoring
out the non-operating benefits and restructuring charges above, 2008 segment net
income was $1.7 million lower than the prior year.  The 2008 results
were negatively impacted by the fourth quarter economic downturn.  As
much of the segment's manufacturing cost base is in Western Europe, we have less
ability to proactively reduce labor and labor related costs there than in other
geographic areas in which we operate due to country and plant specific labor
rules. Partially offsetting the fourth quarter decline were planned cost
reduction initiatives at all locations, in particular at our Asia and Slovakia
operations, which had a positive impact, net of inflation, to segment
income.





The
2008restructuring
and impairment charges for the segment, net of tax are $2.2 million of severance
and other employment related cost and non-cash impairment charges of $1.4
million on long lived assets both related to the closure of the segment’s
Kilkenny Plant.  The 2007restructuring and
impairment charges, net of tax included $13.5 million in non-cash charges
related to impairment of goodwill and fixed assets to levels supported by
projected cash flows after restructuring activity within the
segment.





PRECISION METAL COMPONENTS
SEGMENT





(In
      Thousands of Dollars)
            
            Year
      ended December 31,2008
            
            
            2007
            
            
            ChangeNet
      sales
            
            $
            64,235
            
            
            $
            67,384
            
            
            $
            (3,149
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,149
            )Segment
      net loss
            
            $
            (7,353
            )
            
            $
            (1,450
            )
            
            $
            (5,903
            )





The
reduction in sales volume to customers that serve the U.S. automotive market,
particularly light trucks, began for this segment during the second and third
quarters of 2008.  The sales reduction intensified in the fourth
quarter with the more than 30% reduction in automotive build rates in the
U.S.  As a result, sales volume was $3.9 million less in the fourth
quarter of 2008 compared to the fourth quarter of 2007 primarily due to the
economic downturn.





The 2008
segment net loss included $7.8 million of impairment charges, net of
tax.  Factoring out the impairment charges, segment net income was
favorable to the prior year by $1.9 million.  Despite lower sales
volumes, the segment’s net loss decreased primarily due to production
efficiencies in labor and manufacturing supplies experienced in 2008 through the
application of our Level 3 and other cost improvement programs.  In
addition, interest cost was lower for the segment due to positive cash flow and
lower base interest rates.





The 2008
impairment charges, net of tax are from the impairment of all of the segment’s
goodwill, the full impairment of the customer relationship intangible asset, and
the impairment of certain long lived tangible assets.


30


PLASTIC AND RUBBER
COMPONENTS SEGMENT





(In
      Thousands of Dollars)
            
            Year
      ended December 31,2008
            
            
            2007
            
            
            ChangeNet
      sales
            
            $
            38,942
            
            
            $
            50,851
            
            
            $
            (11,909
            )Volume
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11,710
            )Price
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (199
            )Segment
      net income (loss)
            
            $
            (17,223
            )
            
            $
            2,242
            
            
            $
            (19,465
            )





Revenues
in the Plastic and Rubber Components Segment were down due to lower sales volume
to customers that sell products to U.S. automotive manufacturers.  The
lower sales were due to a general downturn in that market and due to the effects
of a strike at a major U.S. automotive supplier that occurred earlier in the
year, which affected several of our customers’ sales volumes.  While
the lower sales volumes were occurring during most of 2008 for the segment, the
reduction intensified in the fourth quarter of 2008 due to impact from the
global recession.  During the fourth quarter, we experienced sales
volumes $4.7 million less than the fourth quarter of 2007.





The 2008
segment net loss included $16.6 million of impairment charges, net of
tax.  Factoring out the impairment charges, the segment incurred a
loss of $0.6 million in 2008.  The segment net loss was negatively
affected by the volume decreases in sales.   Planned cost
reduction projects, net of inflation, partially offset the volume
impacts.  The 2008 impairment charges, net of tax are from the
impairment of all of the segment’s goodwill.







Changes
in Financial Condition from December 31, 2008 to December 31, 2009




From
December 31, 2008 to December 31, 2009, our total assets and current assets
decreased $41.4 million and $26.3 million, respectively.  The
appreciation in the value of Euro denominated account balances relative to the
U.S. Dollar caused total assets and current assets to increase approximately
$4.0 million and $1.3 million, respectively, from December 31,
2008.  Excluding the foreign exchange effects, accounts receivable was
lower by $1.8 million due to a five day decrease in days sales outstanding at
December 31, 2009 from timing of customers collections and reduction in overdue
receivables.  Even though sales for 2009 were 37% lower than 2008,
fourth quarter 2009 sales levels were slightly higher than fourth quarter 2008
sales levels.  Thus, the large reduction sales volume experienced for
the full year of 2009 had little overall effect on the 2009 receivable
balance.  The net overdue receivables have fallen from approximately
12% of total accounts receivable at December 31, 2008 to approximately 10% of
total accounts receivable at December 31, 2009 due to focused collection
activity during 2009 to maximize cash flow and liquidity.  Inventories
were lower by $20.3 million from planned reductions in inventory levels in
response to the reductions in sales and production volumes and to maximize cash
flow and liquidity.  Factoring out foreign exchange effects, property,
plant and equipment decreased $18.2 million as year to date capital spending was
lower than depreciation and a building and certain machinery with net book
values of $1.0 million were disposed of during 2009.





From
December 31, 2008 to December 31, 2009, our total liabilities decreased $8.4
million.  The appreciation in the value of Euro denominated account
balances relative to the U.S. Dollar caused total liabilities to increase
approximately $2.4 million from December 31, 2008.  The main driver of
the decrease in liabilities was the $10.1 million decrease in total debt from
December 31, 2008.  This reduction in debt was achieved by focusing on
reductions in working capital, especially inventory, reductions in capital
spending, and temporarily eliminating our dividend among other activities to
insure liquidity during the global recession.   Excluding the
foreign exchange effects, accounts payable was down $2.1 due to timing of
payments to certain vendors.  The reductions in total debt and
accounts payable were partially offset by the addition of the accrual for
restructuring charges at our Veneendaal plant totaling $2.5
million.





Working
capital, which consists principally of accounts receivable and inventories
offset by accounts payable and current maturities of long-term debt, was $29.8
million at December 31, 2009 as compared to a $61.3 million at December 31,
2008.  The ratio of current assets to current liabilities deceased
from 1.97:1 at December 31, 2008 to 1.44:1 at December 31,
2009.  Excluding the current maturities of long-term debt and cash and
cash equivalents, working capital decreased by $26.6 million due primarily to
the $1.8 million decrease in accounts receivable balances and the $20.3 million
decrease in inventory levels offset by the $2.1 million decrease in accounts
payable (all discussed above).





31





Cash flow
provided by operations was $14.8 million for 2009 compared with cash flow
provided by operations of $27.5 million for 2008.  The unfavorable
variance in cash flow provided by operations was due to the large loss incurred
in 2009 from the approximately 37% reduction in sales
volume.  Partially offsetting this impact were the favorable effects
from reducing net working capital in 2009 versus increasing net working capital
in 2008.  The working capital reductions, as discussed above, were in
response to the approximately 37% reduction in sales volume and for the purpose
of maintaining liquidity during the global recession.





During
the fourth quarter of 2008, we recorded approximately $39.8 million ($25.8
million after tax) of non-cash impairment costs.  These charges
included the full impairment of goodwill at our Precision Metal Components
Segment and at our Plastic and Rubber Components Segment, full impairment of the
customer relationship intangible in our Precision Metal Components Segment, and
the impairment of certain long lived tangible assets at our Precision Metal
Components Segment and our Kilkenny Plant.





Liquidity and Capital
Resources




During
the year ended December 31, 2009, in consideration of the weak overall economic
environment, particularly in the automotive and industrial end markets in which
we operate, and the resulting significant decline in sales in all operating
segments and reduced projected results for future periods, we implemented
certain actions to manage our liquidity position.  These actions
included:  obtaining amendments to our existing credit agreements to align
covenant levels with the expected weaker operating performance in 2009 and 2010,
suspending our quarterly dividend to shareholders, reducing capital spending,
establishing programs to reduce working capital needs, reducing or eliminating
discretionary spending where possible, reducing permanent employment levels,
reducing working hours for many facilities, downsizing plant operations and
accelerating plant closures.  In addition, we temporarily reduced, for a
portion of 2009, the compensation of the Board of Directors and the Chief
Executive Officer by 20% and compensation of other managers and employees where
legally and contractually possible by 10% to 15%.  We also eliminated
any bonus opportunities for 2009.





Amounts
outstanding under our $90.0 million credit facility and our $40.0 million senior
notes as of December 31, 2009 were $58.4 million and $28.6 million,
respectively.  See Note 6 of the Notes to Consolidated Financial
Statements.  We were in compliance with all covenants related to the
amended and restated $90 million credit facility and the amended and restated
$40 million senior notes as of December 31, 2009.





The table
below summarizes the financial covenants of the two amended and restated credit
agreements applicable to the Company as of December 31, 2009:





Financial Covenants
            Required Covenant Level
            Actual
              Covenant LevelFunded
      indebtedness tocapitalization
      ratio
            Not
      to exceed 0.60 to 1.00
            0.54
      to 1.00Minimum
      EBITDA
            EBITDA
      shall not be less than ($7,842) for the most recently completed four
      fiscal quarters
            (3,993)Capital
      expenditures
            Not
      to exceed $3,500 (excluding $935 of capital projects funded by customer
      advances)
            3,320








During
the first quarter of 2009, we entered into an amended and restated $90 million
revolving credit facility expiring September 2011 with Key Bank as
administrative agent.  In addition, we entered into a June 30, 2009
amendment to exclude $0.9 million of capital projects funded by customer
advances and to waive a technicality related to a weekly reporting
requirement.  The amended agreement was entered into to conform the
covenants to our then current outlook for the twelve months from March 31, 2009
through March 31, 2010 in a difficult economic cycle.  In addition to
the reduction in availability from $135 million to $90 million, the interest
rate was amended to LIBOR plus an applicable margin of 4.0%.  The
financial and nonfinancial covenants were also amended to relax certain
financial covenants and to secure the facility with assets of the Company in
addition to pledges of stock of certain foreign and domestic subsidiaries and
guarantees of certain domestic subsidiaries.  Finally, the new
agreement placed greater restrictions on our usage of cash flows including
prohibiting share repurchases, dividends and investments and/or acquisitions
without the approval of credit facility participants and until such time as we
meet certain earnings and financial covenant levels.  In addition to
these amendments, the loan agreement also contains customary restrictions on,
among other things, additional indebtedness, liens on our assets, sales or
transfers of assets, investments, restricted payments (including payment of
dividends and stock repurchases), issuance of equity securities, and merger,
acquisition and other fundamental changes in our business including a
“material adverse change” clause, which if triggered would accelerate the
maturity of the debt.  The facility has a $10 million swing line
feature to meet short term cash flow needs.  Any borrowings under this
swing line are considered short term.   Costs associated with
entering into the revolving credit facility are capitalized and amortized into
interest expense over the life of the facility.  As of December 31,
2009 and 2008, $2.1 million and $0.5 million respectively, of net capitalized
loan origination costs were on the balance sheet within other non-current
assets.  In addition, $0.1 million in unamortized debt issuance cost
from the original facility was eliminated during the first quarter of
2009.





32


During
the first quarter of 2009, the senior note agreement was also
amended.  The amended agreement was entered into to conform the
covenants to our then current outlook for the twelve months from March 31, 2009
through March 31, 2010 in a difficult economic cycle.  The term,
principal balance, and principal payment schedule all remain the same as the
original agreement.  The interest rate was increased from 4.89% to
8.50%.  In addition, the financial and non-financial covenants were
amended and additional collateralization and restrictions on usage of cash flows
were added to the agreement in line with the amended $90 million revolving
credit facility.  In addition to the amendments, the agreement also
contains customary restrictions on, among other things, additional indebtedness,
liens on our assets, sales or transfers of assets, investments, restricted
payments (including payment of dividends and stock repurchases), issuance of
equity securities, and mergers, acquisitions and other fundamental changes in
our business including a “material adverse change” clause, which if triggered
would accelerate the maturity of the debt.  Interest is paid
semi-annually and the note matures on April 26, 2014.  As of December
31, 2009, $28.6 million remained outstanding.  Annual principal
payments of approximately $5.7 million began on April 26, 2008 and extend
through the date of maturity.  We incurred costs as a result of
issuing these notes which have been recorded as a component of other non-current
assets and are being amortized over the term of the notes.  The
unamortized balance at December 31, 2009 and 2008 was $0.4 million and $0.5
million respectively.  Additionally, $0.5 million in unamortized debt
issuance cost from the original issuance was written off in 2009.





During
the first quarter of 2010, we amended both the $90 million revolving credit
facility and the $40 million senior notes.  The primary purpose of
these amendments was to re-establish covenant levels through the expiration of
the revolving credit facility in September 2011 to reflect our current business
outlook.  The primary financial covenants are the same for both credit
agreements through September 2011, the expiration of the revolving credit
facility.  After September 2011, the covenants for the senior note
agreement revert back the covenants in the original agreement.  It is
likely the covenant levels of the senior note agreement for 2012 through 2014
may no longer be appropriate for our business at that time and these covenant
levels may need to be renegotiated in the future.





As a
result of the amendments, the $90 million revolving credit facility was reduced
to $85 million as of the amendment date, and it will reduce further by $1
million at the end of each of the three fiscal quarters beginning with the
December 31, 2010 quarter end and ending with the June 30, 2011 quarter end,
after which the total commitment will be $82 million.  Neither the
commitment amount nor the payment terms of the senior notes were
changed.  The amendments provided a restriction on restructuring of
foreign subsidiaries and removed certain subsidiaries from participation in the
credit agreement.  Also as a result of the amendments, the interest
rate was amended to LIBOR plus an applicable margin of 4.75%.  The
interest rate on the senior notes was not changed and remains at
8.5%.





The
amended financial covenants for both credit facilities for the periods ending
March 31, 2010 through September 20, 2011, computed on a “trailing twelve month”
basis where applicable, are as follows:





Financial Covenants
              Required Covenant LevelInterest
      coverage ratio
              0.42
      to 1.00 for the period ending March 31, 2010; 0.95 to 1.00 for the period
      ending June 30, 2010; 1.57 to 1.00 for the period ending September 30,
      2010; 1.71 to 1.00 for the period ending December 31, 2010; 2.23 to 1.00
      for the period ending March 31, 2011 and 2.76 for each period ending June
      30, 2011 and thereafter.Funded
      indebtedness tocapitalization
      ratio
              0.60
      to 1.00 through June 29, 2010; 0.61 to 1.00 on June 30, 2010 through
      September 29, 2010; 0.62 to 1.00 on September 30, 2010 through March 30,
      2011; 0.61 to 1.00 on March 31, 2011 through June 29, 2011 and 0.60 to
      1.00 on June 30, 2011 and thereafter.Leverage
      ratio
              6.50
      to 1.00 for the period ending September 30, 2010; 5.57 to 1.00 for the
      period ending December 31, 2010; 3.94 to 1.00 for the period ending March
      31, 2011; and 2.77 to 1.00 for the period ending June 30,
      2011.Minimum
      EBITDA
              $603
      for the most recently completed four fiscal quarters ending March 31,
      2010; $7,245 for the most recently completed four fiscal quarters ending
      June 30, 2010; $15,106 for the most recently completed four fiscal
      quarters ending September 30, 2010;  $17,623 for the most
      recently completed four fiscal quarters ending December 31, 2010; $24,904
      for the most recently completed four fiscal quarters ending March 31,
      2011; and $32,077 for the most recently completed four fiscal
      quarters ending June 30, 2011 and
thereafter.
    33
   Capital
      expenditures
            $5,015
      for the fiscal quarter ending March 31, 2010; $8,178 on a cumulative basis
      for the two fiscal quarter period ending June 30, 2010; $12,867 on a
      cumulative basis for the three fiscal quarter period ending September 30,
      2010; $16,705 on a cumulative basis for the four fiscal quarter period
      ending December 31, 2010; $2,637 for the fiscal quarter ending March 31,
      2011 and $5,274 on a cumulative basis for the two fiscal quarter period
      ending June 30, 2011.Minimum
      asset coverage ratio
            The
      company shall not suffer or permit as of the last day of any fiscal
      quarter the minimum asset coverage ratio to be less than 1.05 to
      1.00





*These
covenant levels are not applicable at December 31, 2009, but are presented here
for informational purposes.





In
relation to entering into the amended and restated credit agreements mentioned
above, we forecasted improved levels of revenue and cash flow from 2009 based on
our recent sales levels, current economic conditions, published economic
forecasts and input from our major customers.  However, the forecasted
sales levels are below sales levels achieved during 2008.  These
forecasts were used to set new financial and operating covenants in our amended
credit facilities through the end of the credit agreement in September
2011.  However, further deterioration of market conditions and sales levels
beyond those reflected on our forecasts for revenue and cash flow could result
in us failing to meet these covenants, which could cause a material adverse
impact on our liquidity and financial position.  We can provide no
assurances we will be in compliance with the covenants, as amended March 5,
2010, during future periods.





Even
though we have sufficient availability to borrow under our existing credit
agreements at this time, we have experienced a significant loss of revenue and
have sustained significant losses of income during the global economic recession
that began to impact us in the fourth quarter of 2008 and is continuing as of
the date of this report.   As a result, we have sustained a
significant weakening of our financial condition.  Additionally, we
are dependent on the continued provision of financing from our revolving credit
lenders and our fixed rate lender in order to remain solvent.  The
lenders have set revised covenant levels, through September 2011, that provide
little flexibility in the case we do not meet our projections (although at the
date of this report we are in compliance with all such
covenants).  Failure to achieve results in line with our projections
could limit the amount we can borrow under the agreements even if we are not in
default.  There is a substantial risk that if projections are not
achieved, the lenders may not amend the credit agreements, which would
accelerate the due date of the loans, putting us in default.  We
believe that it is unlikely that new lenders could be found to replace the
existing lenders in case of an uncured default.  In such situation, we
would be technically insolvent and would need to seek a recapitalization of the
Company.  If such transaction could not be successfully completed, we
would most likely have to file for protection under bankruptcy laws in the U.S.
and other jurisdictions.  Although we believe that fundamental
business prospects for the Company are positive, there can be no assurance that
the current financial projections can be met or that recapitalization could be
achieved.





Prior to
the first quarter 2009 credit agreement amendments , cash generated by foreign
subsidiaries had been used primarily for general purposes including investments
in property, plant and equipment and prepayment of the former Euro term
loan.  With the 2009 credit amendments, discussed above, the majority
of the foreign subsidiaries are now direct borrowers under the credit
facilities.  As such, it is anticipated that a portion of future
foreign earnings will be used to repay the existing loans.  The
remaining undistributed foreign earnings are deemed to be permanently
reinvested.




Our
arrangements with our domestic customers typically provide that payments are due
within 30 to 60 days following the date of our shipment of goods, while
arrangements with foreign customers of our domestic business (other than foreign
customers that have entered into an inventory management program with us)
generally provide that payments are due within 60 to 120 days following the date
of shipment.  Under the Metal Bearing Components Segment’s inventory
management program with certain European customers, payments typically are due
within 30 days after the customer uses the product.   Our
arrangements with European customers regarding due dates vary from 30 to 90 days
following date of sale with an average of approximately 55 days
outstanding.  Our sales and receivables can be influenced by
seasonality due to our relative percentage of European business coupled with
many foreign customers slowing production during the month of
August.  For information concerning our quarterly results of
operations for the years ended December 31, 2009 and 2008, see Note 15 of
the Notes to Consolidated Financial Statements.




34





We
invoice and receive payment from many of our customers in Euro as well as other
currencies.  Additionally, we are party to various third party and
intercompany loans, payables and receivables denominated in currencies other
than the U.S. Dollar.  In 2009, the fluctuation of the Euro against
the U.S. Dollar negatively impacted sales and net loss.  As a result
of these sales, loans, payables and receivables, our foreign exchange
transaction and translation risk has increased.  Various strategies to
manage this risk are available to management including producing and selling in
local currencies and hedging programs.  As of December 31, 2009, no
currency hedges were in place.  In addition, a strengthening of the
U.S. Dollar and/or Euro against foreign currencies could impair our ability to
compete with international competitors for foreign as well as domestic
sales.




Sales to
various U.S. and foreign divisions of SKF, which is one of the largest bearing
manufacturers in the world, accounted for approximately 36% of consolidated net
sales in 2009.  During 2009, our ten largest customers accounted for
approximately 76% of our consolidated net sales.  None of our other
customers individually accounted for more than 10% of our consolidated net sales
for 2009.  The loss of all or a substantial portion of sales to these
customers would cause us to lose a substantial portion of our revenue and have a
corresponding negative impact on our operating profit margin due to operation
leverage these customers provide.  This could lead to sales volumes
not being high enough to cover our current cost structure or provide adequate
operating cash flows or cause us to incur additional restructuring and
impairment cost.  Due to a limit on the amount of excess bearing
component capacity, in the markets we serve, we believe it would be difficult
for any of our top ten customers to change suppliers in the short
term.




During
2009, we spent approximately $4.3 million on capital
expenditures.    During 2010, we plan to spend approximately
$16.7 million on capital expenditures, the majority of which is related to new
or expanded business.  We believe that funds generated from operations
and borrowings will be sufficient to finance our working capital needs and
projected capital expenditure requirements through the next twelve
months.




Due to
the impacts of the global economic recession and the resulting reduction in
revenue and operating losses, our Eltmann Plant could reach a point of technical
insolvency or illiquidity within the next 12 to 24 months.  If this
occurs, local laws could require the subsidiary to file for bankruptcy unless
the Company provides additional support in the form of financial guarantees or
additional funding of operations.  During the first quarter of 2010, the
company took certain actions in this regard including subordination of certain
intercompany obligations and committing to additional equity contributions under
certain circumstances.  If in the future the Eltmann Plant should be
required to file for bankruptcy, the Company could potentially lose the value of
the net assets of Eltmann of approximately $0.1 million at December 31,
2009.  The Company believes that in the event of bankruptcy, there could be
a temporary disruption of normal product flow to customers, but that it is
unlikely that such an event would have a long-term significant impact given the
current level of excess capacity within the Company’s European
plants.





During
the first quarter of 2010,we announced the closure of the Tempe Plant.  The Tempe
Plant was acquired in the 2006 acquisition of Whirlaway and had sales of
approximately $12.0 million for calendar year 2009. The closing will impact
approximately 130 employees.  Current economic conditions coupled with
the long-term manufacturing strategy for our Whirlaway business necessitated a
consolidation of our manufacturing resources in Ohio. We expect to incur cash
charges of approximately $2.5 million in severance, equipment relocation and
other closing costs during 2010 related to this closure.  In addition,
we expect to incur up to $3.0 million in accelerated depreciation during 2010
related to machinery that will be abandoned as part of the
closure.  As of December 31, 2009, the total net assets of this
location were $7.9 million.  We do not anticipate any other potential
impairment of the remaining fixed assets which will be relocated to our
other plants.









35


The table
below sets forth our contractual obligations and commercial commitments as of
December 31, 2009 (in thousands):






Payments
      Due by PeriodCertain
              Contractual
      Obligations
            
            Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            After
      5 yearsLong-term
      debt including current portion
            
            $
            86,963
            
            
            $
            9,405
            
            
            $
            66,128
            
            
            $
            11,430
            
            
            $
            --Expected
      interest payments
            
            
            10,350
            
            
            
            4,834
            
            
            
            4,717
            
            
            
            799
            
            
            
            --Operating
      leases
            
            
            17,720
            
            
            
            4,390
            
            
            
            4,627
            
            
            
            2,458
            
            
            
            6,245Capital
      leases
            
            
            4,181
            
            
            
            266
            
            
            
            531
            
            
            
            531
            
            
            
            2,853Expected
      pension contributions and benefit payments
            
            
            2,831
            
            
            
            198
            
            
            
            460
            
            
            
            534
            
            
            
            1,639Other
      long-term obligations (1)
            
            
            38,000
            
            
            
            38,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Total
      contractual cash obligations
            
            $
            160,045
            
            
            $
            57,093
            
            
            $
            76,463
            
            
            $
            15,752
            
            
            $
            10,737


(1)  
Other Long-Term Obligations consists of steel purchase commitments at our
European operations (See Note 14 of the Notes to Consolidated Financial
Statements.)





We have
approximately $1.7 million in unrecognized tax benefits and related penalties
and interest accrued within the liabilities section of our balance
sheet.  We are unsure when or if at all these amounts might be paid to
U.S. and/or foreign taxing authorities.  Accordingly, these amounts
have been excluded from the table above.  See Note 12 in the Notes to
Consolidated Financial Statements for additional details.





Functional Currencies




We
currently have operations in Slovakia, Germany, Italy and The Netherlands, all
of which are Euro participating countries. Each of our European facilities sell
product to customers in many of the Euro participating countries.  The
Euro has been adopted as the functional currency at all locations in
Europe.  The functional currency of NN Asia is the Chinese
Yuan.




Seasonality and Fluctuation in Quarterly
Results




Our net
sales historically have been seasonal in nature, due to a significant portion of
our sales being to European customers that significantly slow production
during the month of August.  For information concerning our quarterly
results of operations for the years ended December 31, 2009 and 2008, see Note
15 of the Notes to Consolidated Financial Statements.




Inflation and Changes in
Prices




The cost
base of our operations has been materially affected by steel inflation during
recent years, but due to the ability to pass on this steel inflation to our
customers the overall financial impact has been minimized.  The prices
for steel, engineered resins and other raw materials which we purchase are
subject to material change.  Our typical pricing arrangements with
steel suppliers are subject to adjustment every six months.  We
typically reserve the right to adjust product prices periodically in the event
of changes in our raw material costs.  In the past, we have been able
to minimize the impact on our operations resulting from the steel price
fluctuations by taking such measures.




Recently Issued Accounting
Standards




The FASB
issued guidance on business combinations, effective January 1, 2009, which
retains the fundamental requirements that the acquisition method of
accounting be used for all business combinations.  However, the new
guidance provides for the following:  an acquirer will record 100% of
assets and liabilities of an acquired business, including goodwill, at fair
value, regardless of the level of interest acquired; certain contingent assets
and liabilities will be recognized at fair value at the acquisition date;
contingent consideration will be recognized at fair value on the acquisition
date with changes in fair value to be recognized in earnings upon settlement;
acquisition-related transaction and restructuring costs will be expensed as
incurred; reversals of valuation allowances related to acquired deferred tax
assets and changes to acquired income tax uncertainties will be recognized in
earnings; and when making adjustments to finalize preliminary accounting,
acquirers will revise any previously issued post-acquisition financial
information in future financial statements to reflect any adjustments as if they
occurred on the acquisition date.  This new guidance applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009.


36


Item
6A.                      Quantitative
and Qualitative Disclosures About Market Risk




We are
exposed to changes in financial market conditions in the normal course of our
business due to our outstanding debt balances as well as transacting in various
foreign currencies.  To mitigate our exposure to these market risks,
we have established policies, procedures and internal processes governing our
management of financial market risks.  We are exposed to changes in
interest rates primarily as a result of our borrowing activities.  At
December 31, 2009, we had $28.6 million of fixed rate senior notes outstanding
and $58.4 million outstanding under the variable rate revolving credit
facilities.  At December 31, 2009, a one-percent increase in the
interest rate charged on our outstanding variable rate borrowings would result
in interest expense increasing annually by approximately $0.6
million.  The nature and amount of our borrowings may vary as a result
of future business requirements, market conditions and other
factors.




Translation
of our operating cash flows denominated in foreign currencies is impacted by
changes in foreign exchange rates.  Our Metal Bearing Component
Segment invoices and receives payment in currencies other than the U.S. Dollar
including the Euro.  Additionally, we participate in various third
party and intercompany loans, payables and receivables denominated in currencies
other than the U.S. Dollar.  In 2009, the fluctuation of the Euro
against the U.S. Dollar negatively impacted revenue and net loss but positively
impacted assets and liabilities.  To help reduce exposure to foreign
currency fluctuation, we have incurred debt in Euros in the past and have, from
time to time, used foreign currency hedges to hedge currency exposures when
these exposures meet certain discretionary levels.  We did not use
any currency hedges in 2009, nor did we hold a position in any foreign
currency hedging instruments as of December 31, 2009.




Item
7.                                Financial
Statements and Supplementary Data




Index to
Financial Statements




Financial
Statements  Page





Report of
Independent Registered Public Accounting
Firm................................................................................................................................................... 38





Consolidated
Balance Sheets at December 31, 2009 and 2008 
...............................................................................................................................................
39





Consolidated
Statements of Operations and Comprehensive Income (Loss)


for the
years ended December 31, 2009, 2008 and
2007            
................................................................................................................................................ 40





Consolidated
Statements of Changes in Stockholders’ Equity for the


years
ended December 31, 2009, 2008 and
2007         
............................................................................................................................................................... 
41





Consolidated
Statements of Cash Flows for the years ended December
31, 2009, 2008 and
2007................................................................................... 
 42





Notes to
Consolidated Financial Statements  
..........................................................................................................................................................................  
43


37





Report
of Independent Registered Public Accounting Firm







To the
Board of Directors and Stockholders of NN, Inc.





In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income (loss), of
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of NN, Inc. and its subsidiaries at
December 31, 2009 and December 31, 2008, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2009 in conformity with accounting principles generally accepted in the United
States of America.  Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company's management is responsible
for these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Management's Report on Internal
Control over Financial Reporting appearing under Item 9A.  Our
responsibility is to express opinions on these financial statements and on the
Company's internal control over financial reporting based on our integrated
audits.  We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).  Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects.  Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk.  Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





/s/
PricewaterhouseCoopers LLP


Raleigh,
North Carolina


March 31,
2010





38





NN,
      Inc.Consolidated Balance
      SheetsDecember
      31, 2009 and 2008(In
      thousands)





Assets
            
            2009
            
            
            2008Current
      assets:Cash and cash
      equivalents
            
            $
            8,744
            
            
            $
            11,052Accounts receivable,
      net
            
            
            49,412
            
            
            
            50,484Inventories,
      net
            
            
            33,275
            
            
            
            53,173Income tax
      receivable
            
            
            3,196
            
            
            
            2,565Other current
      assets
            
            
            3,656
            
            
            
            5,858Current deferred tax
      asset
            
            
            --
            
            
            
            1,489Total current
    assets
            
            
            98,283
            
            
            
            124,621Property,
      plant and equipment, net
            
            
            129,715
            
            
            
            145,690Goodwill,
      net
            
            
            9,278
            
            
            
            8,908Intangible
      assets, net
            
            
            1,506
            
            
            
            2,098Non
      current deferred tax assets
            
            
            260
            
            
            
            993Other
      non-current assets
            
            
            3,610
            
            
            
            1,730Total
      assets
            
            $
            242,652
            
            
            $
            284,040Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
            
            $
            38,048
            
            
            $
            39,415Accrued salaries, wages and
      benefits
            
            
            14,469
            
            
            
            12,745Current maturities of
      long-term debt
            
            
            9,405
            
            
            
            6,916Current portion of
      obligation under capital lease
            
            
            266
            
            
            
            266Other
      liabilities
            
            
            6,301
            
            
            
            4,013Total current
      liabilities
            
            
            68,489
            
            
            
            63,355Non-current
      deferred tax liability
            
            
            3,558
            
            
            
            4,939Long-term
      debt, net of current portion
            
            
            77,558
            
            
            
            90,172Accrued
      pension
            
            
            14,308
            
            
            
            13,826Obligation
      under capital lease, net of current portion
            
            
            1,820
            
            
            
            1,872Other
      non-current liabilities
            
            
            116
            
            
            
            117Total
      liabilities
            
            
            165,849
            
            
            
            174,281Commitments
      and Contingencies (Note 14)Stockholders’
      equity:Common stock - $0.01 par value,
      authorized 45,000 shares,
              issued and outstanding 16,268 in
      2009 and 2008.
            
            
            163
            
            
            
            163Additional paid-in
      capital
            
            
            49,861
            
            
            
            49,524Retained earnings
            
            
            259
            
            
            
            35,593Accumulated other comprehensive
      income
            
            
            26,520
            
            
            
            24,479Total stockholders’
      equity
            
            
            76,803
            
            
            
            109,759Total
      liabilities and stockholders’ equity
            
            $
            242,652
            
            
            $
            284,040








See
accompanying notes to consolidated financial statements


39





NN,
      Inc.Consolidated Statements of
      Operations and Comprehensive Income (Loss)Years
      ended December 31, 2009, 2008 and 2007(In
      thousands, except per share data)





2009
            
            
            2008
            
            
            2007Net
      sales
            
            $
            259,383
            
            
            $
            424,837
            
            
            $
            421,294Cost
      of products sold (exclusive of depreciation shown separately
      below)
            
            
            235,466
            
            
            
            344,685
            
            
            
            337,024Selling,
      general and administrative
            
            
            27,273
            
            
            
            36,068
            
            
            
            36,473Depreciation
      and amortization
            
            
            22,186
            
            
            
            27,981
            
            
            
            22,996(Gain)
      loss on disposal of assets
            
            
            493
            
            
            
            (4,138
            )
            
            
            (71
            )Impairment
      of goodwill
            
            
            --
            
            
            
            30,029
            
            
            
            10,016Restructuring
      and impairment charges, excluding goodwill impairments
            
            
            4,977
            
            
            
            12,036
            
            
            
            3,620Income
      (loss) from operations
            
            
            (31,012
            )
            
            
            (21,824
            )
            
            
            11,236Interest
      expense
            
            
            6,359
            
            
            
            5,203
            
            
            
            6,373Reduction
      of unamortized debt issue cost
            
            
            604
            
            
            
            --
            
            
            
            --Other
      income
            
            
            (351
            )
            
            
            (850
            )
            
            
            (386
            )Income
      (loss) before provision (benefit) for income taxes
            
            
            (37,624
            )
            
            
            (26,177
            )
            
            
            5,249Provision
      (benefit) for income taxes
            
            
            (2,290
            )
            
            
            (8,535
            )
            
            
            6,422Net
      loss
            
            $
            (35,334
            )
            
            $
            (17,642
            )
            
            $
            (1,173
            )Other
      comprehensive income (loss):Actuarial gain (loss) recognized
      in change of projected benefit
              obligation (net of tax of $0, $0
      and 248, respectively)
            
            
            (315
            )
            
            
            (58
            )
            
            
            656Foreign currency translation gain
      (loss)
            
            
            2,356
            
            
            
            (3,232
            )
            
            
            11,764Comprehensive income
      (loss)
            
            $
            (33,293
            )
            
            $
            (20,932
            )
            
            $
            11,247Basic
      loss per share:Net loss
            
            $
            (2.17
            )
            
            $
            (1.11
            )
            
            $
            (0.07
            )Weighted average shares
      outstanding
            
            
            16,268
            
            
            
            15,895
            
            
            
            16,749Diluted
      loss per share:Net loss
            
            $
            (2.17
            )
            
            $
            (1.11
            )
            
            $
            (0.07
            )Weighted average shares
      outstanding
            
            
            16,268
            
            
            
            15,895
            
            
            
            16,749Cash
      dividends per common share
            
            $
            0.00
            
            
            $
            0.24
            
            
            $
            0.32





























See
accompanying notes to consolidated financial statements





40





NN,
      Inc.Consolidated
      Statements of Changes in Stockholders’ EquityYears
      ended December 31, 2009, 2008 and 2007(In
      thousands)







Common Stock
            
            
            
            
            
            AccumulatedNumber
            
            
            
            Additional
            
            
            
            Otherof
            
            Par
            
            paid
      in
            
            Retained
            
            ComprehensiveShares
            
            Value
            
            capital
            
            Earnings
            
            Income
            
            TotalBalance,
      December 31, 2006
            
            
            16,842
            
            
            $
            169
            
            
            $
            53,473
            
            
            $
            64,178
            
            
            $
            15,349
            
            
            $
            133,169Shares
      issued
            
            
            24
            
            
            
            --
            
            
            
            292
            
            
            
            --
            
            
            
            --
            
            
            
            292Net
      loss
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (1,173
            )
            
            
            --
            
            
            
            (1,173
            )Amortization
      of restricted stock awards
            
            
            --
            
            
            
            --
            
            
            
            309
            
            
            
            --
            
            
            
            --
            
            
            
            309Forfeiture
      of restricted stock
            
            
            (3
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Repurchase
      of outstanding shares
            
            
            (1,008
            )
            
            
            (10
            )
            
            
            (9,712
            )
            
            
            --
            
            
            
            --
            
            
            
            (9,722
            )Stock
      option expense
            
            
            --
            
            
            
            --
            
            
            
            670
            
            
            
            --
            
            
            
            --
            
            
            
            670Dividends
      declared
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (5,322
            )
            
            
            --
            
            
            
            (5,322
            )Effect
      of adoption of FIN 48
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (600
            )
            
            
            --
            
            
            
            (600
            )Actuarial
      gain recognized in change of
              projected
      benefit obligation (net of tax $248)
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            656
            
            
            
            656Financial
      statement translation gain
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            11,764
            
            
            
            11,764Balance,
      December 31, 2007
            
            
            15,855
            
            
            $
            159
            
            
            $
            45,032
            
            
            $
            57,083
            
            
            $
            27,769
            
            
            $
            130,043Shares
      issued
            
            
            498
            
            
            
            5
            
            
            
            3,857
            
            
            
            --
            
            
            
            --
            
            
            
            3,862Tax
      benefit on options exercised
            
            
            --
            
            
            
            --
            
            
            
            1,197
            
            
            
            --
            
            
            
            --
            
            
            
            1,197Net
      loss
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (17,642
            )
            
            
            --
            
            
            
            (17,642
            )Restricted
      stock awards expense
            
            
            --
            
            
            
            --
            
            
            
            (196
            )
            
            
            --
            
            
            
            --
            
            
            
            (196
            )Stock
      option expense
            
            
            --
            
            
            
            --
            
            
            
            647
            
            
            
            --
            
            
            
            --
            
            
            
            647Dividends
      declared
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (3,848
            )
            
            
            --
            
            
            
            (3,848
            )Financial
      statement translation loss
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (3,232
            )
            
            
            (3,232
            )Actuarial
      loss recognized in change of
              projected
      benefit obligation (net of tax $0)
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (58
            )
            
            
            (58
            )Repurchase
      of shares
            
            
            (85
            )
            
            
            (1
            )
            
            
            (1,013
            )
            
            
            --
            
            
            
            --
            
            
            
            (1,014
            )Balance,
      December 31, 2008
            
            
            16,268
            
            
            $
            163
            
            
            $
            49,524
            
            
            $
            35,593
            
            
            $
            24,479
            
            
            $
            109,759Net
      loss
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (35,334
            )
            
            
            --
            
            
            
            (35,334
            )Stock
      option expense
            
            
            --
            
            
            
            --
            
            
            
            337
            
            
            
            --
            
            
            
            --
            
            
            
            337Actuarial
      loss recognized in change of
              projected
      benefit obligation (net of tax $0)
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (315
            )
            
            
            (315
            )Financial
      statement translation gain
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            2,356
            
            
            
            2,356Balance,
      December 31, 2009
            
            
            16,268
            
            
            $
            163
            
            
            $
            49,861
            
            
            $
            259
            
            
            $
            26,520
            
            
            $
            76,803


See
accompanying notes to consolidated financial statements


41





NN,
      Inc.Consolidated Statements of
      Cash FlowsYears
      Ended December 31, 2009, 2008 and 2007(In
      thousands)2009
            
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      loss
            
            $
            (35,334
            )
            
            $
            (17,642
            )
            
            $
            (1,173
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            22,186
            
            
            
            27,981
            
            
            
            22,996Amortization
      of debt issue costs
            
            
            1,147
            
            
            
            244
            
            
            
            219(Gain)
      loss on disposals of property, plant and equipment
            
            
            493
            
            
            
            (4,138
            )
            
            
            (71
            )Allowance
      for doubtful accounts
            
            
            (119
            )
            
            
            239
            
            
            
            496Compensation
      expense from issuance of restricted stock and incentive stock
      options
            
            
            337
            
            
            
            451
            
            
            
            979Deferred
      income tax expense (benefit)
            
            
            841
            
            
            
            (14,558
            )
            
            
            (1,183
            )Capitalized
      interest and non cash interest and other expenses
            
            
            157
            
            
            
            176
            
            
            
            66Non-cash
      restructuring and impairment charges
            
            
            2,853
            
            
            
            41,784
            
            
            
            13,426Write-off
      of unamortized debt issue costs
            
            
            604
            
            
            
            --
            
            
            
            --Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            1,481
            
            
            
            12,521
            
            
            
            (837
            )Inventories
            
            
            20,318
            
            
            
            (2,095
            )
            
            
            (5,974
            )Income
      tax receivable
            
            
            (631
            )
            
            
            (2,565
            )
            
            
            --Other
      current assets
            
            
            1,821
            
            
            
            578
            
            
            
            260Other
      assets
            
            
            (355
            )
            
            
            (123
            )
            
            
            801Accounts
      payable
            
            
            (2,128
            )
            
            
            (10,875
            )
            
            
            (5,533
            )Other
      liabilities
            
            
            1,118
            
            
            
            (4,467
            )
            
            
            (2,878
            )Net
      cash provided by operating activities
            
            
            14,789
            
            
            
            27,511
            
            
            
            21,594Cash
      flows from investing activities:Cash
      paid to acquire business, net of cash received
            
            
            --
            
            
            
            --
            
            
            
            (94
            )Acquisition
      of property, plant and equipment
            
            
            (4,255
            )
            
            
            (18,498
            )
            
            
            (18,856
            )Proceeds
      from disposals of property, plant and equipment
            
            
            521
            
            
            
            5,778
            
            
            
            74Acquisition
      of intangible asset
            
            
            --
            
            
            
            --
            
            
            
            (173
            )Net
      cash used by investing activities
            
            
            (3,734
            )
            
            
            (12,720
            )
            
            
            (19,049
            )Cash
      flows from financing activities:Proceeds
      from long-term debt
            
            
            --
            
            
            
            --
            
            
            
            26,400Debt
      issue costs paid
            
            
            (3,293
            )
            
            
            (35
            )
            
            
            (251
            )Proceeds
      from bank overdrafts
            
            
            --
            
            
            
            --
            
            
            
            612Repayment
      of long-term debt
            
            
            (12,614
            )
            
            
            (9,714
            )
            
            
            --Proceeds
      (repayment) of short-term debt, net
            
            
            2,850
            
            
            
            (4,034
            )
            
            
            4,610Proceeds
      from issuance of stock and exercise of stock options
            
            
            --
            
            
            
            3,862
            
            
            
            292Cash
      dividends paid
            
            
            --
            
            
            
            (3,848
            )
            
            
            (5,322
            )Other
      financing activity
            
            
            (51
            )
            
            
            (46
            )
            
            
            (38
            )Payment
      of related party debt
            
            
            --
            
            
            
            --
            
            
            
            (18,638
            )Repurchase
      of common stock
            
            
            --
            
            
            
            (1,014
            )
            
            
            (9,722
            )Net
      cash used by financing activities
            
            
            (13,108
            )
            
            
            (14,829
            )
            
            
            (2,057
            )Effect
      of exchange rate changes on cash flows
            
            
            (255
            )
            
            
            (1,939
            )
            
            
            860Net
      change in cash and cash equivalents
            
            
            (2,308
            )
            
            
            (1,977
            )
            
            
            1,348Cash
      and cash equivalents at beginning of period
            
            
            11,052
            
            
            
            13,029
            
            
            
            11,681Cash
      and cash equivalents at end of period
            
            $
            8,744
            
            
            $
            11,052
            
            
            $
            13,029Supplemental
      schedule of non-cash investing and financing activities:Restricted
      stock expense (income) ($0 in 2009, $(196) in 2008, and $309 in 2007) and
      stock option expense ($337 in 2009, $647 in 2008, and $670 in 2007)
      included in stockholders’ equity
            
            $
            337
            
            
            $
            451
            
            
            $
            979Windfall
      tax benefits on incentive stock options
            
            $
            --
            
            
            $
            1,216
            
            
            $
            8Reduced
      note payable to customer with offsetting reduction to accounts receivable
      ($411 in 2009, $1,384 in 2008 and $1,390 in 2007) and an increase to
      interest expense ($50 in 2009, $176 in 2008 and $186 in
    2007)
            
            $
            361
            
            
            $
            1,208
            
            
            $
            1,204Adjusted
      the goodwill balance related to Whirlaway acquisition for final fair value
      of assets and liabilitiesacquired.
            
            
            --
            
            
            
            --
            
            
            $
            1,828Increase
      in unrecognized tax benefits upon the adoption of FIN 48 charged to
      beginning retained earnings
            
            
            --
            
            
            
            --
            
            
            $
            600Cash
      paid for interest and income taxes was as follows:Interest
            
            $
            4,678
            
            
            $
            4,937
            
            
            $
            6,174Income
      taxes
            
            $
            353
            
            
            $
            8,024
            
            
            $
            8,404Income
      tax refunds received from taxing authorities
            
            $
            2,653
            
            
            $
            --
            
            
            $
            --


See
accompanying notes to consolidated financial statements









42




1)    Summary of Significant Accounting Policies and
Practices




(a)
            Description
      of Business




NN, Inc.
(the “Company”) is a manufacturer of precision balls, cylindrical and tapered
rollers, bearing retainers, plastic injection molded products, precision bearing
seals and precision metal components. The Company’s balls, rollers, retainers,
and bearing seals are used primarily in the domestic and international
anti-friction bearing industry. The Company’s plastic injection molded products
are used in the bearing components, automotive components, electronic instrument
cases and other molded components used in a variety of applications. The
precision metal components products are used in the HVAC, automotive, and
appliance industries.




Beginning
in the fourth quarter of 2008 and continuing during the year ended December 31,
2009, in consideration of the weak overall economic environment (particularly in
the automotive and industrial end markets in which the Company operates) and the
resulting significant decline in sales in all operating segments and reduced
projected results for future periods, we implemented certain actions to manage
our liquidity position.  These actions included:  obtaining amendments
to our existing credit agreements to align covenant levels with the expected
weaker operating performance over 2009 and 2010, suspending our quarterly
dividend to shareholders, reducing capital spending, establishing programs to
reduce working capital needs, reducing or eliminating discretionary spending
where possible, reducing permanent employment levels, reducing working hours for
many facilities, downsizing plant operations and accelerating plant
closures.  In addition, for a portion of 2009, we reduced the compensation
of the Board of Directors and the Chief Executive Officer by 20% and the
compensation of other managers and employees where legally and contractually
possible by 10% to 15%.  We also eliminated any bonus opportunities
for 2009.





We have
experienced a significant loss of revenue and have sustained significant losses
of income during the global economic recession that began to impact the Company
in the fourth quarter of 2008 and is continuing as of the date of this
report.   As a result, we have sustained a significant weakening
of our financial condition.  Additionally, we are dependent on the
continued provision of financing from our revolving credit lenders and our fixed
rate lender in order to remain solvent.  The lenders have set revised
covenant levels, through September 2011, that provide little flexibility in the
case that our projections are not met (although at the date of this report we
are in compliance with all such covenants).  There is a substantial
risk that if projections are not achieved, the lenders may not amend the credit
agreements, which would accelerate the due date of the loans, putting the
Company in default.  We believe that it is unlikely that new lenders
could be found to replace the existing lenders in case of an uncured
default.  In such situation, the Company would be technically
insolvent and would need to seek a recapitalization of the
Company.  If such transaction could not be successfully completed, the
Company would most likely have to file for protection under bankruptcy laws in
the U.S. and other jurisdictions.  Although management believes that
fundamental business prospects for the Company are positive, there can be no
assurance that the current financial projections can be met or that
recapitalization could be achieved.





(b)
            Cash
      and Cash Equivalents




The
Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.




(c)
            Inventories




Inventories
are stated at the lower of cost or market.  Cost is determined using
the first-in, first-out method.  Our policy is to expense abnormal
amounts of idle facility expense, freight, handling cost, and
waste.  In addition, we allocate fixed production overheads based on
the normal capacity of our facilities.  During 2009, the 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 Plastic and Rubber Components and Precision Metal Components
Segments.  These inventories are carried at the lower of cost or
market.





43






(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
statement of operations.  The Company reviews the carrying values of
long-lived assets for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be
recoverable.  During the years ended December 31, 2009, 2008 and 2007,
the Company recorded impairment charges of $235, $4,197, and $3,410,
respectively (See Notes 2 and 5 for further details).  Property, plant
and equipment includes tools, molds and dies principally used in our Plastic and
Rubber Components and Precision Metal Components Segments that are the property
of the Company.





Depreciation
is provided on the straight-line method over the estimated useful lives of the
depreciable assets for financial reporting purposes. Accelerated depreciation
methods are used for income tax purposes.  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 shorten useful live of the asset.  During the year ended December
31, 2008, we recognized $3,509 in accelerated depreciation for property, plant
and equipment that was abandoned and ceased to be used. (See Note
5).




(e)
            Revenue
      Recognition




The
Company recognizes revenues based on the stated shipping terms with the customer
when these terms are satisfied and the risks of ownership are transferred to the
customer. The Company has an inventory management program for certain Metal
Bearing Components Segment customers whereby revenue is recognized when products
are used by the customer 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 determinable and collectability is reasonably
assured.






(f)        Accounts
Receivable




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 the
Company’s accounts receivable are due primarily from the core served markets:
bearing manufacturers, automotive industry, electronics, industrial,
agricultural and aerospace.  We experienced $(0.1) million, $0.2
million, and $0.5 million of bad debt expense (income) during 2009, 2008 and
2007, respectively.  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 reserves established when considered to be uncollectible or
at risk of being uncollectible.




(g)
            Income
      Taxes




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.  The year ended December 31, 2009 financial statements reflect
full valuation allowances against the net deferred tax assets of all our U.S.
operations, and our German, Slovakian, and Chinese operations.  Based
on recent negative financial performance at these locations, we determined that
there is a likelihood these locations. We would be unable to generate sufficient
profits in the near future to allow realization of existing deferred tax
assets.








44





(h)         Net Income (Loss)
Per Common Share




Basic
earnings per share reflect reported earnings divided by the weighted average
number of common shares outstanding. Diluted earnings per share include the
effect of dilutive stock options, unvested restricted stock, and the respective
tax benefits, unless inclusion would not be dilutive.




(i) 
Stock Incentive Plan




The cost
of the options and restricted stock awards are expensed as compensation expense
over the vesting periods based on the fair value at the grant
date.  (See Note 8)  We use a financial pricing model, the
Black Sholes model, to determine the fair value of our stock options as our
options are not traded in open markets.





The
Company accounts for restricted 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




The
Company’s consolidated financial statements include the accounts of NN, Inc. and
its subsidiaries.  All of the Company’s subsidiaries are 100% owned
and all are included in the consolidated financial statements for the years end
December 31, 2009, 2008, and 2007.  All significant inter-company
profits, transactions, and balances have been eliminated in
consolidation.




(k)      Foreign Currency Translation




Assets
and liabilities of the Company’s 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
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.  Any transaction gains or losses are expensed in either
cost of products sold or selling, general and administrative lines in the
Consolidated Statement of Operations and Comprehensive Income (Loss) as
incurred.




(l)
            Goodwill
      and Other Indefinite Lived Intangible
Assets




The
Company recognizes 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 test is performed
at the reporting unit level for the one unit that still has
goodwill.  U.S. 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.  The fair value of the reporting unit is
determined through use of discounted cash flow methods 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 units tested regarding the level of risk and end
markets served.  Even though we do use other observable inputs (Level
2 inputs under the US GAAP hierarchy) the calculation of fair value for goodwill
would be most consistent with Level 3 under the US GAAP hierarchy.




If the
carrying value of the reporting unit 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.




45


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 these
projections and the differences may be material.




Our
indefinite lived intangible asset is accounted for similarly to
goodwill.  This asset is tested for impairment at least annually by
comparing the fair value to the carrying value, using the relief from royalty
rate method, and if the fair value is less than the carrying value, an
impairment charge is recognized for the difference.




(m)
            Definite
      Lived Intangible Assets




The
Company recognizes an acquired intangible asset apart from goodwill whenever the
asset arises from contractual or other legal rights, or whenever it is capable
of being divided or separated from the acquired entity or sold, transferred,
licensed, rented, or exchanged, whether individually or in combination with a
related contract, asset or liability.  An intangible asset other than
goodwill is amortized over its estimated useful life unless that life is
determined to be indefinite.  The Company reviews the lives of
intangible assets each reporting period and, if necessary, recognizes impairment
losses if the carrying amount of an intangible asset is not recoverable from
expected future cash flows and its carrying amount exceeds its fair value. (See
Notes 2 and 10).




(n)
            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 live. Assets to be disposed of are carried at the lesser of
carrying value or fair value less costs of disposal. (See Notes 2, 5 and
10).




(o)
            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.




(p)
            Fair
      Value Measurements




On
January 1, 2008, we adopted the provision of U.S. GAAP that pertains to
recording financial liabilities subject to recurring fair value measurement at
the price that would be paid to transfer a liability in an orderly transaction
between market participants.  However, at that time we elected not to
adopt the fair value method of accounting for our existing financial
liabilities.On
January 1, 2009, we began recording all non-financial assets and liabilities
(principally goodwill and long lived tangible and intangible assets) subject to
fair value measurement under the same principles.  These fair value
principles prioritize valuation inputs across three broad
levels.  Level 1inputs 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
Company's assumptions used to measure assets and liabilities at fair
value.  An asset or liability's classification within the various
levels is determined based on the lowest level input that is significant to the
fair value measurement.




(q)
            Recently
      Issued Accounting Standards




The FASB
issued guidance on business combinations, effective January 1, 2009, which
retains the fundamental requirements that the acquisition method of
accounting be used for all business combinations.  However, the new
guidance provides for the following:  an acquirer will record 100% of
assets and liabilities of acquired business, including goodwill, at fair value,
regardless of the level of interest acquired; certain contingent assets and
liabilities will be recognized at fair value at the acquisition date; contingent
consideration will be recognized at fair value on the acquisition date with
changes in fair value to be recognized in earnings upon settlement;
acquisition-related transaction and restructuring costs will be expensed as
incurred; reversals of valuation allowances related to acquired deferred tax
assets and changes to acquired income tax uncertainties will be recognized in
earnings; and when making adjustments to finalize preliminary accounting,
acquirers will revise any previously issued post-acquisition financial
information in future financial statements to reflect any adjustments as if they
occurred on the acquisition date.  This new guidance applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009.





46






2)
            Impairment of Goodwill and Restructuring and
      Impairment Charges, excluding Goodwill
  Impairments







Below is
a summary of all the impairment and restructuring charges reported in the
Consolidated Statement of Operations and Comprehensive Income (Loss) during the
years ended December 31, 2009, 2008, and 2007:





(In
      Thousands of Dollars)
            
            2009
            
            
            2008
            
            
            2007Impairment
      of goodwill
            
            $
            --
            
            
            $
            30,029
            
            
            $
            10,016Impairment
      of intangible assets
            
            $
            --
            
            
            $
            5,592
            
            
            $
            --Impairment
      of tangible assets
            
            
            235
            
            
            
            4,197
            
            
            
            3,410Restructuring
      charges
            
            
            4,742
            
            
            
            2,247
            
            
            
            210Restructuring
      and impairment charges, excluding goodwill impairment
            
            $
            4,977
            
            
            $
            12,036
            
            
            $
            3,620





The above
charges are discussed in detail below.





Restructuring
Activity





On
November 26, 2008, we announced the closure of our Kilkenny
Plant.  The closure was part of our long term strategy to rationalize
our European operations.  We view the rationalization of manufacturing
operations in Europe as a necessary action to adjust our global manufacturing
capacity to current and long term market requirements.  The closure
affected 68 employees and was completed during 2009.  We recorded
restructuring charges during the fourth quarter of 2008 of $2,247 related to
severance and other employment cost for the 68
employees.   Additionally, we incurred $763 in restructuring cost
during the year ended December 31, 2009 principally for site closure and other
associated cost.





During
the first quarter of 2009, we closed our Hamilton Plant.  This closure
affected 11 employees and $130 in severance and other associated closure costs
were incurred during the first quarter of 2009.  Of this amount, $108
was for employee severance cost which was paid in the second quarter of
2009.





During
the third quarter of 2009, we informed our employees of the Veenendaal Plant of
our intention to begin a reorganization of the plant’s labor force due to the
economic downturn.  During the year ended December 31, 2009, we
incurred severance charges of $3,849 which covers the elimination of 53
permanent positions or 17% of the workforce.   The majority of
the severance cost was or will be paid out during the fourth quarter of 2009 and
first quarter of 2010.








47


The
following table summarizes the 2009 and 2008 activity related to the three
restructuring programs discussed above:





(In
      Thousands of
      Dollars)
            
            Reserve
      Balance at 1/01/09
            
            
            Charges
            
            
            Paid
      in 2009
            
            
            Currency
              Impacts
            
            
            Reserve
      Balance at 12/31/2009Severance
      and otheremployee
      costs
            
            $
            2,058
            
            
            $
            4,008
            
            
            $
            (3,448
            )
            
            $
            (236
            )
            
            $
            2,382Site
      closure and otherassociated
      cost
            
            
            --
            
            
            
            734
            
            
            
            (734
            )
            
            
            --
            
            
            
            --Total
            
            $
            2,058
            
            
            $
            4,742
            
            
            $
            (4,182
            )
            
            $
            (236
            )
            
            $
            2,382








Reserve
      Balance at 1/01/08
            
            
            Charges
            
            
            Paid
      in 2008
            
            
            Currency
              Impacts
            
            
            Reserve
      Balance at 12/31/08Severance
      and other employee costs
            
            $
            --
            
            
            $
            2,247
            
            
            $
            (281
            )
            
            $
            92
            
            
            $
            2,058Total
            
            $
            --
            
            
            $
            2,247
            
            
            $
            (281
            )
            
            $
            92
            
            
            $
            2,058





These
severance cost were recorded in the Restructuring and Impairment Charges,
Excluding Goodwill Impairments line as a component of loss from
operations.  The reserve balance for severance and other employee cost
are reported within the Accrued salaries, wages and benefits line of the
Consolidated Balance Sheets.





As a
result of the decision to close the Kilkenny facility, we performed a test of
recoverability, during the year ended December 31, 2008, of the long-lived
assets associated with that facility.  This test was pursuant to the
provisions of U.S. GAAP which require that interim tests of asset recoverability
be performed under certain circumstances.  As a result of the test, we
concluded that $1,447 of production equipment was impaired and we adjusted these
assets to the estimated fair market value.  Additionally, during the
year ended December 31, 2009, we further adjusted the fair value of the building
and land to its current estimated fair value resulting in a $235
charge.  These impairment charges were reported in the Restructuring
and Impairment Charges, Excluding Goodwill Impairments line as a component
of loss from operations in both 2009 and 2008.





Impairments of
Goodwill and Other Long-Lived Tangible and Intangible Assets





During
the fourth quarter of 2008, we recorded $30,029 of non-cash impairment charges
related to the impairment of goodwill.  Goodwill was impaired at our
Precision Metal Components reporting unit and at both reporting units of our
Plastic and Rubber Components Segment (see Note 9).  In addition, we
recorded approximately $5,592 of non-cash impairment charges related to the full
impairment of the customer relationship intangible at our Precision Metal
Components reporting unit (see Note 10).   Finally, we recorded
$2,750 of non-cash impairment charges related to the impairment of property,
plant and equipment at our Precision Metal Components reporting unit (see Note
5).





These
impairments were triggered by the significant financial impact the global
economic recession had on these segments during the three month period ended
December 31, 2008 and expected impact in future periods.





During
the second quarter of 2007, we knew the excess capacity at four of our six ball
precision steel ball plants would lead to a reduction in cash flow in certain
plants.  As such, we performed tests of the recoverability of the
goodwill and long-lived assets associated with the affected
facilities.  As a result, we recorded approximately $13,336 of
non-cash impairment costs.  These charges include the write-down to
estimated fair market value of certain excess production equipment of $3,320 and
the full impairment of goodwill at one European reporting unit of $10,016 to
levels supported by projected cash flows after the realignment of
production.  These impairments were calculated using present value of
expected future cash flows methods pursuant to U.S. GAAP for the goodwill and
estimates of fair value pursuant to U.S. GAAP for the fixed assets.







48


During
the third quarter of 2007, we recorded approximately $210 of cash restructuring
charges and approximately $90 of non-cash impairment charges related to the
write-down to estimated fair value of certain excess production equipment as
part of the Metal Bearings Components Segment restructuring.




3)     Accounts Receivable and Sales Concentrations




December 31,2009
            
            
            2008Trade
            
            $
            49,885
            
            
            $
            51,119Less
      - allowance for doubtful accounts
            
            
            473
            
            
            
            635Accounts
      receivable, net
            
            $
            49,412
            
            
            $
            50,484




Activity
in the allowance for doubtful accounts is as follows:











Description
            
            Balance
      at beginning of year
            
            
            Additions
      (reductions)
            
            
            Write-offs
            
            
            Currency
              Impacts
            
            
            Balance
      at
              end of
      yearDecember 31,
      2009Allowance
      for doubtful accounts
            
            $
            635
            
            
            $
            (119
            )
            
            $
            (48
            )
            
            $
            5
            
            
            $
            473December 31,
      2008Allowance
      for doubtful accounts
            
            $
            1,412
            
            
            $
            239
            
            
            $
            (1,004
            )
            
            $
            (12
            )
            
            $
            635December 31,
      2007Allowance
      for doubtful accounts
            
            $
            1,001
            
            
            $
            496
            
            
            $
            (102
            )
            
            $
            17
            
            
            $
            1,412




For the
years ended December 31, 2009, 2008 and 2007, sales to SKF amounted to $93,385,
$172,958, and $169,765, respectively, or 36.0%, 40.7%, and 40.3% of consolidated
revenues, respectively.  None of the Company’s other customers
accounted for more than 10% of our net sales in 2009, 2008 or
2007.  SKF and SNR Roulements (“SNR”) were the only customers with an
Accounts Receivable concentration in excess of 10%.  The outstanding
balance as of December 31, 2009, 2008 and 2007 for SKF was $16,154, $15,588 and
$23,535, respectively.  The outstanding balance as of December 31,
2009 for SNR was $6,719.  All revenues and receivables related to SKF
are in the Metal Bearing Components and Plastics and Rubber Components
Segments.  All revenues and receivables related to SNR are in the
Metal Bearing Components Segment.  The write-off of $1,004 during 2008
was mostly for receivable balances that were fully reserved at December 31,
2007.









49












4)
            Inventories




December 31,2009
            
            
            2008Raw
      materials
            
            $
            9,742
            
            
            $
            15,599Work
      in process
            
            
            7,234
            
            
            
            10,186Finished
      goods
            
            
            17,963
            
            
            
            29,729Less-inventory
      reserve
            
            
            (1,664
            )
            
            
            (2,341
            )Inventories,
      net
            
            $
            33,275
            
            
            $
            53,173





Inventory
on consignment at customers’ sites at December 31, 2009 and 2008 was
approximately $3,018 and $5,878, respectively.




5)
            Property,
      Plant and Equipment








December 31,Estimated
      Useful Life
            
            2009
            
            
            2008Land
      owned
            
            
            $
            6,336
            
            
            $
            6,314Land
      under capital lease
            
            
            
            484
            
            
            
            484Buildings
      and improvements owned
            15-40
      years
            
            
            44,079
            
            
            
            44,035Building
      under capital lease
            20
      years
            
            
            1,789
            
            
            
            1,789Machinery
      and equipment
            3-12
      years
            
            
            244,516
            
            
            
            245,578Construction
      in process
            
            
            
            7,112
            
            
            
            9,759304,316
            
            
            
            307,959Less
      - accumulated depreciation
            
            
            
            174,601
            
            
            
            162,269Property,
      plant and equipment, net
            
            
            $
            129,715
            
            
            $
            145,690





As of
December 31, 2009, the asset groups of all of our reporting units were tested
for impairment pursuant to impairment testing relative to long-lived assets due
to the losses incurred by the reporting units during 2009.  The
results of our analysis indicated impairment was not warranted except for the
Kilkenny Plant building and land which was further reduced by $235 to its
current estimated fair value.





During
the first quarter of 2009, the land and building of the former Hamilton, Ohio
Plant of the Precision Metal Components Segment was sold for proceeds of $508,
which resulted in no gain or loss from sale.  Additionally, certain
machines with a cumulative net book value of $484 were disposed of during
2009.




During
the fourth quarter of 2008, the asset groups of our reporting units were tested
for impairment pursuant to impairment testing relative to long-lived assets due
to the losses incurred by the reporting units during the fourth quarter of 2008
and expected losses in 2009.  The asset groups in which there was an
impairment are discussed below.





During
the fourth quarter of 2008, fixed assets at the Kilkenny Plant of the Metal
Bearing Components Segment were impaired, as a result of the closure of this
facility (see Note 2).  The total reduction in fixed assets from the
impairment charge was $1,447 and was reported in the Restructuring and
Impairment Charges, Excluding Goodwill Impairments in the Consolidated
Statements of Operations and Comprehensive Income (Loss).











50







During
the fourth quarter of 2008, fixed assets at the Precision Metal Components
Segment were impaired.  The impairment was determined pursuant to
impairment testing relative to long-lived assets.  The key component
of the impairment was the impact the global economic downturn had
and was expected to have on the segment.  The total reduction in
fixed assets from the impairment charge was $2,750 and was reported in the
Restructuring and Impairment Charges, Excluding Goodwill Impairments on the
Consolidated Statements of Operations and Comprehensive Income
(Loss).


During
the fourth quarter of 2008, as a result of the closure of the
Kilkenny Plant and the fourth quarter global economic downturn, we
abandoned and ceased to use certain excess production equipment at two of our
European Metal Bearing Components Segment production
facilities.  Depreciation was accelerated on these assets as the
useful lives of these assets were now diminished.  The additional
depreciation equaled $1,768 during 2008.




In
addition, during the fourth quarter of 2008, we decided to abandon the system
integration cost of an enterprise resource software system used in a portion of
the U.S. facilities that cannot be configured properly to support our
business.  Depreciation was accelerated as the useful live of the
majority of the cost expended to implement the software was now
diminished.  The additional depreciation equaled $1,741.





During
the three month period ended June 30, 2008, the Veenendaal Plant disposed
of excess land with a book value of $1,610 for proceeds of $5,628 and a
resulting gain of $4,018.




6)
            Debt






Long-term
debt at December 31, 2009 and 2008 consisted of the following:




2009
            
            
            2008Borrowings
      under our $90,000 revolving credit facility bearing interest at a floating
      rate equal to LIBOR (0.25% at December 31, 2009) plus an applicable margin
      of 4.0, expiring September 20, 2011
            
            $
            58,392
            
            
            $
            62,441Borrowings
      under our $40,000 aggregate principal amount of senior notes bearing
      interest at a fixed rate of 8.50% maturing on April 26,
      2014.  Annual principal payments of $5,714 began on April 26,
      2008 and extend through the date of maturity.
            
            
            28,571
            
            
            
            34,286Long-term
      note payable with customer.
            
            
            --
            
            
            
            361Total
      long-term debt
            
            
            86,963
            
            
            
            97,088Less
      current maturities of long-term debt
            
            
            9,405
            
            
            
            6,916Long-term
      debt, excluding current maturities
            
            $
            77,558
            
            
            $
            90,172





During
the first quarter of 2009, we entered into an amended and restated $90,000
revolving credit facility expiring September 2011 with Key Bank as
administrative agent.  In addition, we entered into a June 30, 2009
amendment to exclude $935 of capital projects funded by customer advances and to
waive a technicality related to a weekly reporting requirement.  The
amended agreement was entered into to conform the covenants to our then current
outlook for the twelve months from March 31, 2009 through March 31, 2010 in a
difficult economic cycle.  In addition to the reduction in
availability from 135,000 to 90,000, the interest rate was amended to LIBOR plus
an applicable margin of 4.0%.  The financial and nonfinancial
covenants were also amended to relax certain financial covenants and to secure
the facility with assets of the Company in addition to pledges of stock of
certain foreign and domestic subsidiaries and guarantees of certain domestic
subsidiaries.  Finally, the new agreement placed greater restrictions
on our usage of cash flows including prohibiting share repurchases, dividends
and investments and/or acquisitions without the approval of credit facility
participants and until such time as we meet certain earnings and financial
covenant levels.  In addition to these amendments, the loan agreement
also contains customary restrictions on, among other things, additional
indebtedness, liens on our assets, sales or transfers of assets, investments,
restricted payments (including payment of dividends and stock repurchases),
issuance of equity securities, and merger, acquisition and other fundamental
changes in the Company’s business including a “material adverse change” clause,
which if triggered would accelerate the maturity of the debt.  The
facility has a $10,000 swing line feature to meet short term cash flow
needs.  Any borrowings under this swing line are considered short
term.   Costs associated with entering into the revolving credit
facility are capitalized and amortized into interest expense over the life of
the facility.  As of December 31, 2009 and 2008, $2,151 and $470
respectively, of net capitalized loan origination cost was on the balance sheet
within other non-current assets.  In addition, $143 in unamortized
debt issuance cost from the original facility was eliminated during the first
quarter of 2009.





51


During
the first quarter of 2009, the senior note agreement was also
amended.  The amended agreement was entered into to conform the
covenants to our then current outlook for the twelve months from March 31, 2009
through March 31, 2010 in a difficult economic cycle.  The term,
principal balance, and principal payment schedule all remain the same as the
original agreement.  The interest rate was increased from 4.89% to
8.50%.  In addition, the financial and non-financial covenants were
amended and additional collateralization and restrictions on usage of cash flows
were added to the agreement in line with the amended $90,000 revolving credit
facility.  In addition to the amendments, the agreement also contains
customary restrictions on, among other things, additional indebtedness, liens on
our assets, sales or transfers of assets, investments, restricted payments
(including payment of dividends and stock repurchases), issuance of equity
securities, and mergers, acquisitions and other fundamental changes in our
business including a “material adverse change” clause, which if triggered would
accelerate the maturity of the debt.  Interest is paid semi-annually
and the note matures on April 26, 2014.  As of December 31, 2009,
$28,571 remained outstanding.  Annual principal payments of
approximately $5,714 began on April 26, 2008 and extend through the date of
maturity.  We incurred costs as a result of issuing these notes which
have been recorded as a component of other non-current assets and are being
amortized over the term of the notes.  The unamortized balance at
December 31, 2009 and 2008 was $404 and $483
respectively.  Additionally, $461 in unamortized debt issuance cost
from the original issuance was written off in 2009.





The table
below summarizes the financial covenants of the two amended and restated credit
agreements applicable to the Company as of December 31, 2009:





Financial Covenants
            Required Covenant Level
            Actual
              Covenant LevelFunded
      indebtedness tocapitalization
      ratio
            Not
      to exceed 0.60 to 1.00
            0.54
      to 1.00Minimum
      EBITDA
            EBITDA
      shall not be less than ($7,842) for the most recently completed four
      fiscal quarters
            (3,993)Capital
      expenditures
            Not
      to exceed $3,500 (excluding $935 of capital projects funded by customer
      advances)
            3,320





During
the first quarter of 2010, we amended both the $90,000 revolving credit facility
and the $40,000 senior notes.  The primary purpose of these amendments
was to re-establish covenant levels through the expiration of the revolving
credit facility in September, 2011 to reflect our current business
outlook.  The primary financial covenants are the same for both credit
agreements through September 2011, the expiration of the revolving credit
facility.  After September 2011, the covenants for the senior note
agreement revert back the covenants in the original agreement.  It is
likely the covenant levels of the senior note agreement in 2012 through 2014 may
no longer be appropriate for our business at that time and these covenant levels
may need to be renegotiated in the future.





As a
result of the amendments, the $90,000 revolving credit facility was reduced to
$85,000 as of the amendment date, and it will reduce further by $1,000 at the
end of each of the three fiscal quarters beginning with the December 31, 2010
quarter end and ending with the June 30, 2011 quarter end, after which the total
commitment will be $82,000.  Neither the commitment amount nor the
payment terms of the senior notes were changed.  The amendments
provided a restriction on restructuring of foreign subsidiaries and removed
certain subsidiaries from participation in the credit agreement.  Also
as a result of the amendments, the interest rate was amended to LIBOR plus an
applicable margin of 4.75%.  The interest rate on the senior notes was
not changed and remains at 8.5%.







52




The
aggregate maturities of long-term debt including current portion for each of the
five years subsequent to December 31, 2009 are as follows:  Year ending December 312010
                
                $
                9,4052011
                
                
                60,4142012
                
                
                5,7142013
                
                
                5,7152014
                
                
                5,715Total
                
                $
                86,963







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 People’s Republic of
China.  The fair value of the land and building are estimated to be
approximately $484 and $1,789, respectively and undiscounted annual lease
payments are approximately $265 (approximately $5,300 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 the Company.  In addition, after the end of year five we
can buy the land for its ascribed fair value and the building for actual cost
less depreciation.





Below are
the minimum future lease payments under the capital lease together with the
present value of the net minimum lease payments as of December 31,
2009:





Year
      ending December 312010
            
            $
            2662011
            
            
            2652012
            
            
            2662013
            
            
            2662014
            
            
            265Thereafter
            
            
            2,853Total
      minimum lease payments
            
            
            4,181Less
      interest included in payments above
            
            
            (2,095
            )Present
      value of minimum lease payments
            
            $
            2,086




7)
            Employee
      Benefit Plans




We have
two defined contribution 401(k) profit sharing plans covering substantially all
U.S. employees.  All employees are eligible for 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.  The Company
provides a matching contribution which is determined on an individual,
participating company basis.  Currently, the matching contribution for
U.S. employees of the Metal Bearing Components Segment is the greater of five
hundred dollars or 50% of the first 4% of compensation
contributed.  The matching contribution for IMC employees is 25% of
the first 6% of compensation contributed and the matching contribution for Delta
employees is 50% of the first 6% of compensation contributed.  The
matching contribution for Precision Metal Components Segment employees is 25% of
the first 5% of compensation contributed.  All participant
contributions are immediately vested at 100%.  Contributions by the
Company for the Metal Bearing Components Segment were $112, $175, and $171 in
2009, 2008, and 2007, respectively.  Contributions by the Company for
the Plastic and Rubber Components Segment were $78, $108, and $123 in 2009, 2008
and 2007, respectively.  Contributions by the Company for the
Precision Metal Components Segment employees were $12, $127 and $121 in 2009,
2008 and 2007, respectively.





We have a
defined benefit pension plan covering our Eltmann Plant. The benefits are based
on the expected years of service. The plan is unfunded.







53


Following
is a summary of the funded status and changes in the projected benefit
obligation for the defined benefit pension plan during 2009 and
2008:











2009
            
            
            2008Reconciliation
      of Funded Status:Benefit
      obligation
            
            $
            (5,488
            )
            
            $
            (4,901
            )Fair
      value of plan assets
            
            
            --
            
            
            
            --Funded
      status
            
            $
            (5,488
            )
            
            $
            (4,901
            )Net
      amount recognized under accrued pension
            
            $
            (5,488
            )
            
            $
            (4,901
            )Items
      not yet recognized as a component of net periodic pension
      cost:Unrecognized net actuarial
      (gain) loss
            
            $
            163
            
            
            $
            (157
            )








2009
            
            
            2008Change
      in projected benefit obligation:Benefit
      obligation at beginning of year
            
            $
            4,901
            
            
            $
            4,947Interest
      cost
            
            
            276
            
            
            
            281Benefits
      paid
            
            
            (172
            )
            
            
            (161
            )Effect
      of currency translation
            
            
            168
            
            
            
            (224
            )Actuarial
      loss
            
            
            315
            
            
            
            58Benefit
      obligation at December 31
            
            $
            5,488
            
            
            $
            4,901





2009
            2008Weighted-average
      assumptions as of December 31:Discount
      rate
            5.28%
            5.75%Rate
      of compensation increase
            0%
      - 1.5%
            0%
      - 1.5%Measurement
      date
            12/31/09
            12/31/08





In
determining the pension discount rate to be used for our German defined benefit
plan, we utilize the German Federal Reserve Bank yield curve for high quality
corporate bonds with maturities that are consistent with the projected future
benefit obligations of the plan.




During
the year ended December 31, 2006, the plan benefits were curtailed by not
allowing new employees to join the plan and by eliminating any effects of future
wage increases.  The rate of compensation increase of 1.5% only
applies to current retirees during the years ended December 31, 2009, 2008 and
2007.




The
expected pension benefit payments for the next ten fiscal years are as
follows:








Pension Benefits2010
            
            1982011
            
            2212012
            
            2392013
            
            2572014
            
            2772015-2019
            
            1,639








54








2009
            
            
            2008
            
            
            2007Components
      of net periodic benefit cost:Interest
      cost on projected benefit obligation
            
            $
            276
            
            
            $
            281
            
            
            $
            239Amortization
      of net loss
            
            
            --
            
            
            
            --
            
            
            
            6Net
      periodic pension benefit cost
            
            $
            276
            
            
            $
            281
            
            
            $
            245








2009
            
            
            2008
            
            
            2007Amounts
      Recognized in Accumulated Other Comprehensive Income:Period
      actuarial (gain) loss
            
            $
            315
            
            
            $
            58
            
            
            $
            (904
            )Net
      periodic pension (benefit) cost
            
            $
            315
            
            
            $
            58
            
            
            $
            (904
            )





The
amount of actuarial gain expected to be a component of net pension cost in 2010
is $0.





We do not
expect to make any contributions to the plan in 2010 or thereafter in excess of
the pension benefit payments listed above.





Severance
Indemnity





In
accordance with Italian law, the Company has an unfunded severance plan under
which all 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.  The amounts shown in
the table below represent the actual liability at December 31, 2009 and 2008
reported under accrued pension.





The
following table details the changes in Italian severance indemnity for the years
ended December 31, 2009 and 2008:





2009
            
            
            2008Beginning
      balance
            
            $
            (8,073
            )
            
            $
            (8,551
            )Amounts
      accrued
            
            
            (1,129
            )
            
            
            (1,061
            )Payments
      to employees
            
            
            454
            
            
            
            458Payments
      to government managed plan
            
            
            974
            
            
            
            718Foreign
      currency impacts
            
            
            (241
            )
            
            
            363Ending
      balance
            
            $
            (8,015
            )
            
            $
            (8,073
            )





Service
and Early Retirement Provisions





We have
two plans that cover our Veenendaal Plant employees.  One provides an
award for employees who achieve 25 or 40 years of service and the other is an
award for employees upon retirement.  These plans are both unfunded
and the benefits are based on years of service and rate of compensation at the
time the award is paid.  The table below summarizes the changes in the
two plans combined for the years ended December 31, 2009 and 2008:










2009
            
            
            2008Beginning
      balance
            
            $
            (852
            )
            $
            (897
            )Service
      cost
            
            
            (71
            )
            
            (50
            )Interest
      cost
            
            
            13
            
            
            (81
            )Benefits
      paid
            
            
            129
            
            
            137Foreign
      currency impacts
            
            
            (24
            )
            
            39Ending
      balance
            
            $
            (805
            )
            $
            (852
            )







55




8)
            Stock
      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 restricted share 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, 2009, 2008, and 2007 approximately $337, $451, and
$979, respectively of compensation expense was recognized in selling, general
and administrative expense for all share-based awards.  The cost
recognized in the years ended December 31, 2009, 2008 and 2007 related to stock
options was $337, $647, and $670, respectively.  The cost related to
restricted stock awards was $0, $30, and $83.  The cost related to our
long-term incentive plan was $0, ($226), and $226, respectively.




Stock
Option Awards




Option
awards are typically granted to non-employee directors and key employees on an
annual basis.  A single option grant is typically awarded to eligible
employees and non-employee 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-employee 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-employee directors.  The fair value of our options cannot
be determined by market value as they are not traded in an open market.
Accordingly, a financial pricing model is utilized to determine fair value. The
Company utilizes the Black Scholes model which relies on certain assumptions to
estimate an option's fair value.




During
2009, 2008 and 2007, the Company granted 232, 160, and 192 options,
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, 2009, 2008 and 2007 was
$0.77, $2.73, and $4.32, respectively.  The total fair value of shares
vested during the years ended December 31, 2009, 2008, and 2007 was $616, $560,
and $336, respectively.   The number of options available for
future issuance under the current plan is 24.  Upon exercise of stock
options, new shares of the Company’s stock are issued.   The
weighted average assumptions relevant to determining the fair value at the dates
of grant are below:




2009
            2008
            2007Term
            6
      years
            6
      years
            6
      yearsRisk
      free interest rate
            1.84%
            2.50%
            4.75%Dividend
      yield
            0.00%
            3.42%
            2.66%Expected
      volatility
            63.9%
            40.75%
            41.23%Expected
      forfeiture rate
            0.00%
            6.20%
            6.20%







The
expected volatility rate is derived from actual Company 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 mathematical formula which uses the
expected Company annual dividends over the expected term divided by the fair
market value of the Company's common stock at the grant date.




56


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.  The
forfeiture rate is estimated to be 0% for non-employee
directors.  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, 2009:




Options
            
            Shares
      (000’s)
            
            
            Weighted-Average
      Exercise Price
            
            
            Weighted-Average
      Remaining Contractual Term
            
            
            Aggregate
      Intrinsic Value ($000)Outstanding
      at January 1, 2009
            
            
            1,184
            
            
            $
            10.76Granted
            
            
            232
            
            
            $
            1.30Exercised
            
            
            --
            
            
            $
            --Forfeited
      or expired
            
            
            (25
            )
            
            $
            7.76Outstanding
      at December 31, 2009
            
            
            1,391
            
            
            $
            9.23
            
            
            
            5.9
            
            
            $
            (7,329
            )
            
            
            (1
            )Exercisable
      at December 31, 2009
            
            
            1,034
            
            
            $
            10.88
            
            
            
            4.9
            
            
            $
            (7,148
            )
            
            
            (1
            )





(1)
Intrinsic value is the amount by which the December 31, 2009 market price of the
stock, $3.96, is less than the exercise price of the options outstanding at
December 31, 2009.




As of
December 31, 2009, there was approximately $149 of unrecognized compensation
cost to be recognized over approximately two years.




Cash
proceeds from the exercise of options in the year ended December 31, 2009, 2008,
and 2007 totaled approximately $0, $3,862, and $292,
respectively.  For the years ended December 31, 2009, 2008 and 2007,
proceeds from stock options were presented inclusive of tax benefits of $0,
$1,216, and $8, respectively, 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, 2009, 2008 and 2007 was
$0, $3,576, and $23, respectively.




Restricted
Stock Awards




The
recognized compensation costs before tax for restricted stock awards in the
years ended December 31, 2009, 2008, and 2007 were approximately $0, $30, and
$83, respectively.  The number of restricted stock, restricted stock
units, performance shares or stock awards available for future issue is
255.




Long-Term
Incentive Plan





On June
29, 2007, the Company granted certain directors and other key employees an award
of 151,500 performance units pursuant to the NN, Inc. 2005 Incentive
Plan.  Based on the economic downturn experienced during the fourth
quarter of 2008 and the impact it was expected to have on 2009 results, the
performance targets were deemed unachievable and the plan was terminated by the
board of directors.  As such, the $226 in compensation expense
recognized in 2007 was eliminated in 2008 and there was no unrecognized
compensation cost, before tax, to be recognized at December 31,
2008.  Additionally, there were no grants under the Long-Term
Incentive Plan during 2009.






57




9)
            Goodwill,
      Net




We
completed our annual goodwill impairment review during the fourth quarters of
2009, 2008, and 2007.  For the year ended December 31, 2009, we found
Step One testing did not indicate impairment at the one reporting unit that
still has goodwill.




As of
December 31, 2009, we only have recorded goodwill at the Pinerolo Plant of the
Metal Bearing Components Segment.  There was no impairment to the
goodwill balance as the fair value of this reporting unit was estimated as
$47,000 which exceeded the carrying value of the reporting unit of $35,900 by
$11,100.




We were
in the process of finalizing our October 1, 2008 goodwill impairment testing
during the fourth quarter when our business was adversely affected by the global
economic downturn.  Our sales for the fourth quarter of 2008 were down
29% from the prior year period.  In addition, during this time frame
the price of our common stock decreased approximately 80% and our market
capitalization became lower than our net carrying value of stockholders’
equity.  Given the dramatic impact the global economic downturn had on
our 2008 financial results and expected impact in future periods, we determined
a triggering event had occurred in the fourth quarter of 2008 and as such
finalized our impairment testing for the year ended December 31, 2008 as of that
date.




Based on
the results of the fourth quarter impairment tests, we determined the carrying
amount of the goodwill reported in the Plastic and Rubber Components and
Precision Metal Components reporting units was impaired.  As such,
during the fourth quarter of 2008, we recorded $30,029 for the full impairment
of goodwill in our Precision Metal Components Segment and at both reporting
units of our Plastic and Rubber Components Segment.  These impairments
were calculated using an equal weighting of a present value of expected future
cash flows method and a market based multiples of sales and earnings
method.  The main cause of the impairments was the significant
reductions in future expected cash flows at each of the reporting units for the
periods examined due to the current and expected sales declines in the
automotive and industrial end markets and from general market weakness caused by
the global economic downturn.





The
changes in the carrying amount of goodwill for the years ended December 31, 2009
and 2008 are as follows:








(In
      thousands)
            
            Plastic
      and Rubber Components Segment
            
            
            Metal
      Bearing Components Segment
            
            
            Precision
      Metal Components Segment
            
            
            TotalBalance
      as of January 1, 2007
            
            $
            25,755
            
            
            $
            18,040
            
            
            $
            2,352
            
            
            $
            46,147Adjustments
      to purchase priceallocation
            
            
            --
            
            
            
            --
            
            
            
            1,922
            
            
            
            1,922Impairment
      of goodwill
            
            
            --
            
            
            
            (10,016
            )
            
            
            --
            
            
            
            (10,016
            )Currency
      impacts
            
            
            --
            
            
            
            1,418
            
            
            
            --
            
            
            
            1,418Balance
      as of December 31, 2007
            
            $
            25,755
            
            
            $
            9,442
            
            
            $
            4,274
            
            
            $
            39,471Impairment
      of goodwill
            
            
            (25,755
            )
            
            
            --
            
            
            
            (4,274
            )
            
            
            (30,029
            )Currency
      impacts
            
            
            --
            
            
            
            (534
            )
            
            
            --
            
            
            
            (534
            )Balance
      as of December 31, 2008
            
            $
            --
            
            
            $
            8,908
            
            
            $
            --
            
            
            $
            8,908Currency
      impacts
            
            
            --
            
            
            
            370
            
            
            
            --
            
            
            
            370Balance
      as of December 31, 2009
            
            $
            --
            
            
            $
            9,278
            
            
            $
            --
            
            
            $
            9,278





The
cumulative accumulated impairment charges included in the reported goodwill
balances at December 31, 2009 and 2008 are $40,045.








58




10)
            Intangible
      Assets, Net




The
changes in the carrying amount of intangible assets subject to amortization, net
of amortization, for the years ended December 31, 2009 and 2008 are as
follows:





Intangible assets subject to
amortization, net of amortization





(In
      Thousands)
            
            Precision
      Metal Components Segment
            
            
            Metal
      Bearing Components Segment
            
            
            TotalBalance
      as of January 1, 2008
            
            $
            6,484
            
            
            $
            1,895
            
            
            $
            8,379Impairment
      of intangibles
            
            
            (5,592
            )
            
            
            --
            
            
            
            (5,592
            )Amortization
            
            
            (869
            )
            
            
            (626
            )
            
            
            (1,495
            )Currency
      impacts
            
            
            --
            
            
            
            (94
            )
            
            
            (94
            )Balance
      as of December 31, 2008
            
            $
            23
            
            
            $
            1,175
            
            
            $
            1,198Amortization
            
            
            (23
            )
            
            
            (586
            )
            
            
            (609
            )Currency
      impacts
            
            
            --
            
            
            
            17
            
            
            
            17Balance
      as of December 31, 2009
            
            $
            --
            
            
            $
            606
            
            
            $
            606





The
intangible asset within the Metal Bearing Components Segment is a contract
intangible related to the SNR purchase agreement and related supply
agreement.  This intangible asset is subject to amortization over
approximately 5 years, from 2006 to 2010, and amortization expense will
approximate $550 for each of the five years, depending on Euro to US Dollar
exchange rates.  For the year ended December 31, 2009, the
amortization expense totaled $586 and accumulated amortization totaled
$2,171.





The
intangible assets within the Precision Metal Components segment were acquired on
November 30, 2006 with the purchase of Whirlaway.  The majority of the
acquired value was a customer relationship intangible with an acquisition date
fair value of $6,900.  During the fourth quarter of 2008, based on the
impairment testing in the Precision Metal Components Segment, there were
indications that the intangible assets of the segment were
impaired.  The intangible assets were tested using expected future
cash flows from the asset group tested to determine if impairment was
indicated.  The result was that the customer relationship intangible
asset was fully impaired and an impairment charge was recorded with in the
Restructuring and Impairment Charges, Excluding Goodwill Impairments line on the
Consolidated Statement of Operations and Comprehensive Income
(Loss).  The impairment was due to the reduction in segment sales
during the fourth quarter of 2008, lower expected sales levels in future periods
and the significant reductions in future expected cash flows for the periods
examined due to the current and expected declines in the automotive and
industrial end markets and from general market weakness caused by the global
economic downturn.  The accumulated amortization related to all of the
intangible assets of the Precision Metal Components Segment at December 31, 2009
is $1,588.  In addition, as part of the Whirlaway acquisition we
acquired an intangible asset not subject to amortization of $900 related to the
value of the trade names of Whirlaway.  This intangible asset has an
indefinite life and as such is not amortized but is subject to an annual
impairment test.  As of December 31, 2009, based on testing pursuant
to U.S. GAAP, the fair value of this intangible asset exceeded its book
value.




11)
            Segment
  Information




The
Company determined its reportable segments under the provisions of U.S. GAAP
related to disclosures about segments of an enterprise.  The Company’s
three reportable segments are based on differences in product lines and are as
follows:










59


Metal Bearing Components
Segment


·  Erwin
Plant


·  Mountain
City Plant


·  Eltmann
Plant


·  Pinerolo
Plant


·  Veenendaal
Plant


·  Kysucke
Plant


·  Kunshan
Plant





Note:
The Kilkenny Plant ceased operations in Q1 2009 and was in the process of being
closed during 2009.





Plastic and Rubber
Components Segment


·  Danielson
Plant


·  Lubbock
Plant





Precision Metal Components
Segment


·  Wellington
Plant 1


·  Wellington
Plant 2


·  Tempe
Plant





Note:
The closure of the Tempe plant was announced during the first quarter of 2010
and is expected to be completed during 2010.  The Hamilton Plant was
closed during the first quarter of 2009.







All of
the facilities in the Metal Bearing Components Segment are engaged in the
production of precision balls, rollers, and metal retainers and automotive
specialty products used primarily in the bearing industry. The Plastic and
Rubber Components Segment facilities are engaged in the production of plastic
injection molded products for the bearing components, automotive components,
electronic instrument cases and other molded components used in a variety of
applications and precision rubber bearing seals for the bearing, automotive,
industrial, agricultural, and aerospace markets.  The Precision Metal
Components Segment is engaged in the production of highly engineered fluid
control components and assemblies, shafts, and prismatic machined parts for the
HVAC, appliance, and automotive industries.




The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies.  The Company evaluates
segment performance based on segment net income (loss) after income tax expense
(benefit).  The Company accounts for inter-segment sales and transfers
at current market prices.  The Company did not have any individually
material inter-segment transactions during 2009, 2008, or 2007


















60














Metal
      Bearing Components Segment
            
            
            Precision
      Metal Components Segment
            
            
            Plastic
      and Rubber Components Segment
            
            
            Corporate
      and Consolidations
            
            
            TotalDecember
      31, 2009Net
      sales
            
            $
            183,605
            
            
            $
            45,003
            
            
            $
            30,775
            
            
            $
            --
            
            
            $
            259,383Interest
      expense
            
            
            959
            
            
            
            1,359
            
            
            
            960
            
            
            
            3,081
            
            
            
            6,359Depreciation
      and amortization
            
            
            17,002
            
            
            
            3,573
            
            
            
            1,607
            
            
            
            4
            
            
            
            22,186Income
      tax expense (benefit)
            
            
            (4,621
            )
            
            
            --
            
            
            
            --
            
            
            
            2,331
            
            
            
            (2,290
            )Segment
      net loss
            
            
            (16,108
            )
            
            
            (4,391
            )
            
            
            (2,091
            )
            
            
            (12,744
            )
            
            
            (35,334
            )Segment
      assets
            
            
            190,482
            
            
            
            29,208
            
            
            
            18,435
            
            
            
            4,527
            
            
            
            242,652Expenditures
      for long- lived assets
            
            
            3,187
            
            
            
            993
            
            
            
            75
            
            
            
            --
            
            
            
            4,255December31, 2008Net
      sales
            
            $
            321,660
            
            
            $
            64,235
            
            
            $
            38,942
            
            
            $
            --
            
            
            $
            424,837Interest
      expense
            
            
            215
            
            
            
            1,678
            
            
            
            955
            
            
            
            2,355
            
            
            
            5,203Depreciation
      and amortization
            
            
            21,005
            
            
            
            4,685
            
            
            
            2,287
            
            
            
            4
            
            
            
            27,981Income
      tax expense (benefit)
            
            
            6,896
            
            
            
            (4,547
            )
            
            
            (9,495
            )
            
            
            (1,389
            )
            
            
            (8,535
            )Segment
      net income (loss)
            
            
            14,647
            
            
            
            (7,353
            )
            
            
            (17,223
            )
            
            
            (7,713
            )
            
            
            (17,642
            )Segment
      assets
            
            
            218,551
            
            
            
            36,806
            
            
            
            21,153
            
            
            
            7,530
            
            
            
            284,040Expenditures
      for long- lived assets
            
            
            15,677
            
            
            
            1,737
            
            
            
            1,084
            
            
            
            --
            
            
            
            18,498December
      31, 2007Net
      sales
            
            $
            303,059
            
            
            $
            67,384
            
            
            $
            50,851
            
            
            $
            --
            
            
            $
            421,294Interest
      expense
            
            
            67
            
            
            
            2,646
            
            
            
            960
            
            
            
            2,700
            
            
            
            6,373Depreciation
      and amortization
            
            
            16,393
            
            
            
            4,337
            
            
            
            2,262
            
            
            
            4
            
            
            
            22,996Income
      tax expense (benefit)
            
            
            9,452
            
            
            
            (820
            )
            
            
            1,255
            
            
            
            (3,465
            )
            
            
            6,422Segment
      net income (loss)
            
            
            4,958
            
            
            
            (1,450
            )
            
            
            2,242
            
            
            
            (6,923
            )
            
            
            (1,173
            )Segment
      assets
            
            
            238,276
            
            
            
            53,422
            
            
            
            51,997
            
            
            
            6,383
            
            
            
            350,078Expenditures
      for long- lived assets
            
            
            15,634
            
            
            
            1,541
            
            
            
            1,681
            
            
            
            --
            
            
            
            18,856





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 following
geographical regions:





December 31,
      2009
            
            
            December 31,
      2008
            
            
            December 31,
      2007Net
      Sales
            
            
            Property,
      Plant and Equipment, Net
            
            
            Net
      Sales
            
            
            Property,
      Plant and Equipment, Net
            
            
            Net
      Sales
            Property,
              Plant
      and
              Equipment,
              NetUnited
      States
            
            $
            91,688
            
            
            $
            40,188
            
            
            $
            131,877
            
            
            $
            44,441
            
            
            $
            137,140
            
            
            $
            51,363Europe
            
            
            118,556
            
            
            
            74,331
            
            
            
            219,391
            
            
            
            84,520
            
            
            
            215,209
            
            
            
            97,238Asia
            
            
            27,463
            
            
            
            15,196
            
            
            
            36,648
            
            
            
            16,729
            
            
            
            31,879
            
            
            
            12,407Canada
            
            
            1,771
            
            
            
            --
            
            
            
            5,041
            
            
            
            --
            
            
            
            5,089
            
            
            
            --Mexico
            
            
            8,127
            
            
            
            --
            
            
            
            14,444
            
            
            
            --
            
            
            
            15,065
            
            
            
            --S.
      America
            
            
            11,778
            
            
            
            --
            
            
            
            17,436
            
            
            
            --
            
            
            
            16,912
            
            
            
            --All
      foreign countries
            
            
            167,695
            
            
            
            89,527
            
            
            
            292,960
            
            
            
            101,249
            
            
            
            284,154
            
            
            
            109,645Total
            
            $
            259,383
            
            
            $
            129,715
            
            
            $
            424,837
            
            
            $
            145,690
            
            
            $
            421,294
            
            
            $
            161,008











61




12)
            Income
      Taxes




During
the second quarter of 2009, based on the recent negative financial performance
of our U.S. operations during the global economic recession, we determined that
it was more likely than not the U.S. locations would be unable to generate
sufficient profits in the near future to allow realization of existing deferred
tax assets.  Consequently, during the second quarter, a valuation
reserve was placed on the deferred tax assets related to the U.S. operations in
the amount of $5,478 that increased to $7,136 as of December 31,
2009.  The
determination to place a valuation allowance on the tax benefits incurred by our
U.S. based operationswasmade based upon the fact
that second quarter and cumulative 2009 results of these entities were much more
unfavorable than originally forecasted.  Given the magnitude of the
incurred and expected losses from these entities for the remainder of 2009, we
determined that it was prudent not to recognize any deferred tax benefits and
fully reserve the existing deferred tax assets at June 30, 2009.  If
U.S. operations return to a level of profitability sufficient to utilize these
deferred tax assets, they will be used to offset future U.S. based taxable
income.  If we determine that this is more likely than not, a deferred
tax benefit will be recognized.







Income
(loss) before provision (benefit) for income taxes for the years ended December
31, 2009, 2008 and 2007 was as follows:





Year
      ended December 31,2009
            
            
            2008
            
            
            2007Income
      (loss) before provision (benefit) for income taxes:United
      States
            
            $
            (14,671
            )
            
            $
            (38,649
            )
            
            $
            630Foreign
            
            
            (22,953
            )
            
            
            12,472
            
            
            
            4,619Total
            
            $
            (37,624
            )
            
            $
            (26,177
            )
            
            $
            5,249





Total
income tax expense (benefit) for the years ended December 31, 2009, 2008, and
2007 were as follows:





Year
      ended December 31,2009
            
            
            2008
            
            
            2007Current:U.S.
      Federal
            
            $
            (8
            )
            
            $
            305
            
            
            $
            --State
            
            
            55
            
            
            
            218
            
            
            
            (18
            )Non-U.S.
            
            
            (3,178
            )
            
            
            5,500
            
            
            
            7,623Total
      current expense (benefit)
            
            $
            (3,131
            )
            
            $
            6,023
            
            
            $
            7,605





Deferred:U.S.
      Federal
            
            $
            (4,726
            )
            
            $
            (13,094
            )
            
            $
            176State
            
            
            (126
            )
            
            
            (1,260
            )
            
            
            271U.S.
      deferred tax valuation allowance
            
            
            7,136
            
            
            
            (593
            )
            
            
            5,082Non-U.S.
            
            
            (1,443
            )
            
            
            389
            
            
            
            (6,712
            )Total
      deferred expense (benefit)
            
            
            841
            
            
            
            (14,558
            )
            
            
            (1,183
            )Total
      expense (benefits)
            
            $
            (2,290
            )
            
            $
            (8,535
            )
            
            $
            6,422





A
reconciliation of taxes based on the U.S. federal statutory rate of 34% for each
of the years ended December 31, 2009, 2008, and 2007 is summarized as
follows:

















62











Year
      ended December 31,2009
            
            
            2008
            
            
            2007Income
      taxes (benefit) at the federal statutory rate
            
            $
            (12,792
            )
            
            $
            (8,900
            )
            
            $
            1,785Impact
      of incentive stock options
            
            
            114
            
            
            
            220
            
            
            
            228Increase
      in U.S. valuation allowance
            
            
            7,136
            
            
            
            1,663
            
            
            
            --Increase
      (decrease) in foreign valuation allowance
            
            
            1,443
            
            
            
            (2,256
            )
            
            
            5,082Reduction
      in net deferred tax liabilities in Italy due to changes in tax
      laws
            
            
            --
            
            
            
            (1,142
            )
            
            
            (1,050
            )State
      income taxes, net of federal taxes
            
            
            (86
            )
            
            
            (1,115
            )
            
            
            (12
            )Non-U.S.
      earnings taxed at different rates
            
            
            1,735
            
            
            
            2,786
            
            
            
            390Other
      permanent differences, net
            
            
            160
            
            
            
            209
            
            
            
            (1
            )$
            (2,290
            )
            
            $
            (8,535
            )
            
            $
            6,422




The tax
effects of the temporary differences are as follows:




Year ended December 31,





2009
            
            
            2008Deferred
      income tax liabilityTax
      in excess of book depreciation
            
            $
            7,401
            
            
            $
            9,508Goodwill
            
            
            1,742
            
            
            
            1,549Allowance
      for bad debts
            
            
            46
            
            
            
            9Other
      deferred tax liabilities
            
            
            155
            
            
            
            545Gross
      deferred income tax liability
            
            
            9,344
            
            
            
            11,611Deferred
      income tax assetsGoodwill
            
            
            6,686
            
            
            
            7,947Inventories
            
            
            184
            
            
            
            492Pension/Personnel
      accruals
            
            
            1,041
            
            
            
            1,067Net
      operating loss carry forwards
            
            
            9,181
            
            
            
            2,240Foreign
      tax credits
            
            
            3,326
            
            
            
            3,326Other
      deferred tax assets
            
            
            277
            
            
            
            152Gross
      deferred income tax assets
            
            
            20,695
            
            
            
            15,224Valuation
      allowance on deferred tax assets
            
            
            (14,649
            )
            
            
            (6,070
            )Net
      deferred income tax assets
            
            
            6,046
            
            
            
            9,154Net
      deferred income tax liability
            
            $
            3,298
            
            
            $
            2,457




As
realization of deferred tax assets is not assured, management has placed
valuation allowances against deferred tax assets it believes are not
recoverable.  For the remainder, 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 as of the years ended December 31, 2009, 2008, and
2007:







63







Total
      Valuation Allowance ActivityBalance
      at Beginning of Year
            
            
            Additions
            
            
            Recoveries
            
            
            Balance
      at End of Year2009
            
            $
            6,070
            
            
            $
            8,579
            
            
            $
            --
            
            
            $
            14,6492008
            
            $
            6,663
            
            
            $
            1,663
            
            
            $
            (2,256
            )
            
            $
            6,0702007
            
            $
            1,581
            
            
            $
            5,082
            
            
            $
            --
            
            
            $
            6,663








The net
operating loss carry forwards are composed of net operating losses during 2009
at our U.S. operations and Italian operation and at our German, Slovakian, and
Chinese operations for multiple years.  During the year ended December
31, 2009, we only recognized tax benefits totaling $720 from net operating
losses at our Italian operation.  Full valuation allowances have been
recorded against the remaining net operating loss carry forwards for the year
ended December 31, 2009, as we believe the resulting tax benefits from these
loss carry forwards are not currently realizable.  The losses of the
U.S. based entities can be carried forward 20 years.  According to
German law, there are not any time limitations on carrying forward of the $9,369
in net operating losses of our German subsidiary.  Slovakian net
operating losses of $322 expire by 2012.  The China net operating
losses of  $113, $2,584, and $2,366 expire in 2010, 2011, and
2012, respectively.




The
foreign tax credits relate to profits of certain foreign subsidiaries that were
taxed as deemed dividends.  These credits represent the foreign taxes
paid by these subsidiaries at higher effective rates that will be used to offset
future foreign source income.  A full valuation allowance was placed
against these credits, as of December 31, 2008, based on estimates of future
levels of U.S. income tax and foreign source income to be generated that these
credits can be used to offset.   The valuation allowance will be
periodically reviewed as our estimates of future foreign source income are
revised based on actual foreign source income recognized in our tax returns and
future changes in foreign source income.  As of December 31, 2009,
management believes it is still more unlikely than likely we would utilize these
credits in the near future.




As of December 31, 2006, all of the
Company's foreign earnings have been previously taxed in the U.S. due to the
application of IRC Sec. 956.  Accordingly, no deferred taxes have been
provided for undistributed earnings up to that time. For the remainder of the
foreign earnings, we expect to reinvest future earnings indefinitely in
operations and expansions outside the U.S. and do not expect such earnings to
become subject to U.S. taxation in the foreseeable future.  If such
earnings were distributed beyond the amount for which taxes have been provided,
foreign tax credits would substantially offset any incremental U.S. tax
liability.  A deferred tax liability will be recognized when we expect
we will recover these undistributed earnings in a taxable manner, such as
through the receipt of dividends or sale of the investments.   As
we plan to permanently reinvest foreign undistributed earnings, we have not
provided for U.S. income tax liability that would be payable if such earnings
were not reinvested indefinitely.







The
Company adopted the provisions of FIN 48 on January 1, 2007.  As a
result of the implementation of FIN 48, the Company recognized a $600 increase
in our income tax liabilities and a corresponding reduction in beginning
retained earnings.





As of the
date of adoption, the total unrecognized benefits were approximately $879, all
of which, if recognized, would affect the effective tax rate.   A
reconciliation of the beginning and ending amounts of unrecognized tax benefits,
excluding interest and penalties for the years ended December 31, 2009, 2008 and
2007 is as follows:





2009
            
            
            2008
            
            
            2007Beginning
      Balance
            
            $
            988
            
            
            $
            1,045
            
            
            $
            879Additions
      for tax positions of prior years
            
            
            --
            
            
            
            --
            
            
            
            386Reductions
      for tax positions of prior years
            
            
            --
            
            
            
            (57
            )
            
            
            (220
            )Ending
      Balance
            
            $
            988
            
            
            $
            988
            
            
            $
            1,045





As of
December 31, 2009, the $988 of unrecognized tax benefits would, if recognized,
impact the Company’s effective tax rate.









64


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.  As of January 1, 2007, we had accrued $609 in both U.S.
and foreign interest and penalties.  During 2007, we accrued an
additional $48 in foreign interest and penalties resulting in an accrued balance
of $657 of interest and penalties as of December 31, 2007.  During
2008, we accrued an additional $43 in foreign interest and penalties resulting
in an accrued balance of $700 of interest and penalties as of December 31,
2008.   During 2009, we accrued an additional $40 in foreign
interest and penalties resulting in an accrued balance of $740 of interest and
penalties as of December 31, 2009.





The
Company or its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and in various states and foreign jurisdictions.  With
few exceptions, the Company is no longer subject to federal, state and local
income tax examinations by tax authorities for years before 2005.  The
Company is no longer subject to non-U.S. income tax examinations within various
European Union countries for years before 2005.  We do not foresee any
significant changes to our unrecognized tax benefits within the next twelve
months.




13)
            Reconciliation of Net Loss
      Per Share




Year
      ended December 31,2009
            
            
            2008
            
            
            2007Net
      loss
            
            $
            (35,334
            )
            
            $
            (17,642
            )
            
            $
            (1,173
            )Weighted
      average shares outstanding
            
            
            16,268
            
            
            
            15,895
            
            
            
            16,749Effective
      of dilutive stock options
            
            
            --
            
            
            
            --
            
            
            
            --Dilutive
      shares outstanding
            
            
            16,268
            
            
            
            15,895
            
            
            
            16,749Basic
      net loss per share
            
            $
            (2.17
            )
            
            $
            (1.11
            )
            
            $
            (0.07
            )Diluted
      net loss per share
            
            $
            (2.17
            )
            
            $
            (1.11
            )
            
            $
            (0.07
            )




Excluded
from the shares outstanding for the years ended December 31, 2009, 2008,
and 2007 were 1,391, 1,184, and 821 anti-dilutive options, respectively, which
had exercise prices ranging from of $1.30 to $12.62 for the year ended December
31, 2009, $5.94 to $12.62 for the year ended December 31, 2008, and $11.19 and
$12.62 for the year ended December 31, 2007.




14)
            Commitments and
      Contingencies




The
Company has operating lease commitments for machinery, office equipment,
vehicles, manufacturing and office space which expire on varying dates. Rent
expense for 2009, 2008, and 2007 was $4,803, $4,844, and $4,908, respectively.
The following is a schedule by year of future minimum lease payments as of
December 31, 2009 under operating leases that have initial or remaining non
cancelable lease terms in excess of one year.











65



















Year
      ending December 31,2010
            
            $
            4,3902011
            
            
            3,0332012
            
            
            1,5942013
            
            
            1,2782014
            
            
            1,180Thereafter
            
            
            6,245Total
      minimum lease payments
            
            $
            17,720







The Metal
Bearing Components Segment had a supply contract with Ascometal France
(“Ascometal”) for the purchase of steel in Europe that covered the years 2007
through 2009.  The contract is in the process of being renewed for
2010 under essentially the same terms and conditions.  The percentage
of steel purchased for European operations granted to Ascometal under the
contract is approximately 70% or $38,000 based on the average of 2009 and 2008
purchase levels.  The contract, among other things, stipulates that
Ascometal achieve certain performance targets related to quality, reliability
and service and the percentage granted can be reduced if those targets are not
met by the vendor.  The contract provisions include annual price
adjustments based upon published steel scrap indexes.





During
2006, we  received correspondence from the Environmental Protection
Agency (“EPA”) requesting information regarding a former waste recycling vendor
("AER") used by our former Walterboro, South Carolina facility.  AER,
located in Augusta, Georgia, ceased operations in 2000 and EPA began
investigating its facility.  As a result of AER’s operations, soil and
groundwater became contaminated.  Besides us, EPA initially contacted
fifty-four other companies (“Potentially Responsible Parties” or PRPs”) who also
sent waste to AER.  Most of these PRPs, including us, have entered into a
consent order with EPA to investigate and remediate the site proactively. 
To date, the PRP Group has submitted a Remedial Investigation, which has been
accepted by EPA.  In addition, a Feasibility Study has been substantially
approved by EPA.  Once approved, costs associated with the chosen
remediation can be assessed and the PRPs can discuss allocation of the overall
cost.  As of the date hereof, we do not know the amount of our allocated
share.





Due to
the impacts of the global economic recession and the resulting reduction in
revenue and operating losses, our Eltmann, Germany Plant could reach a point of
technical insolvency or illiquidity within the next 12 to 24
months.  If this occurs, local laws could require the subsidiary to
file for bankruptcy unless we provide additional support in the form of
financial guarantees or additional funding of operations.  During the first
quarter of 2010, we took certain actions in this regard including
subordination of certain intercompany obligations and committing to additional
equity contributions under certain circumstances.  If in the future
the Eltmann Plant should be required to file for bankruptcy, we could
potentially lose the value of the net assets of Eltmann of approximately
$50 at December 31, 2009.  We believe that in the event of
bankruptcy, there could be a temporary disruption of normal product flow to
customers, but that it is unlikely that such an event would have a long-term
significant impact given the current level of excess capacity within our
European plants.




















66










15)
            Quarterly Results of Operations
      (Unaudited)




The
following summarizes the unaudited quarterly results of operations for the years
ended December 31, 2009 and 2008.




Year
      ended December 31, 2009March 31
            
            
            June 30
            
            
            Sept. 30
            
            
            Dec. 31Net
      sales
            
            $
            57,921
            
            
            $
            57,088
            
            
            $
            66,110
            
            
            $
            78,264Loss
      from operations
            
            
            (10,953
            )
            
            
            (8,717
            )
            
            
            (8,648
            )
            
            
            (2,694
            )Net
      loss
            
            
            (9,525
            )
            
            
            (13,466
            )
            
            
            (8,983
            )
            
            
            (3,360
            )Basic
      net loss per share
            
            
            (0.59
            )
            
            
            (0.83
            )
            
            
            (0.55
            )
            
            
            (0.21
            )Dilutive
      net loss per share
            
            
            (0.59
            )
            
            
            (0.83
            )
            
            
            (0.55
            )
            
            
            (0.21
            )Weighted
      average shares outstanding:Basic
      number of shares
            
            
            16,268
            
            
            
            16,268
            
            
            
            16,268
            
            
            
            16,268Effect
      of dilutive stock options
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Diluted
      number of shares
            
            
            16,268
            
            
            
            16,268
            
            
            
            16,268
            
            
            
            16,268





Year
      ended December 31, 2008March 31
            
            
            June 30
            
            
            Sept. 30
            
            
            Dec. 31Net
      sales
            
            $
            121,542
            
            
            $
            122,240
            
            
            $
            104,866
            
            
            $
            76,189Income
      (loss) from operations
            
            
            8,717
            
            
            
            12,612
            
            
            
            5,110
            
            
            
            (48,263
            )Net
      income (loss)
            
            
            5,102
            
            
            
            9,173
            
            
            
            2,947
            
            
            
            (34,864
            )Basic
      net income (loss) per share
            
            
            0.32
            
            
            
            0.58
            
            
            
            0.18
            
            
            
            (2.14
            )Dilutive
      net income (loss) per share
            
            
            0.32
            
            
            
            0.57
            
            
            
            0.18
            
            
            
            (2.14
            )Weighted
      average shares
              outstanding:Basic
      number of shares
            
            
            15,855
            
            
            
            15,899
            
            
            
            16,222
            
            
            
            16,268Effect
      of dilutive stock options
            
            
            107
            
            
            
            155
            
            
            
            169
            
            
            
            --Diluted
      number of shares
            
            
            15,962
            
            
            
            16,054
            
            
            
            16,391
            
            
            
            16,268





The first
quarter of 2009 was impacted by $604 ($386 after tax) of write off of
unamortized debt issuance cost related to the amended credit
agreements.  (See Note 6).





The
second quarter of 2009 was impacted by the valuation allowance placed on the
deferred tax assets of all U.S. entities totaling $5,478 after-tax. (See Note
12).





The third
quarter of 2009 was impacted by the $3,849 ($2,868 after tax) in restructuring
expense related to the reduction in force at our Veenendaal
Plant.  (See Note 2).





The
fourth quarter of 2008 was impacted by impairments of goodwill, fixed assets and
other intangible assets totaling $38,371 ($24,402 after tax).  In
addition, we recorded restructuring charges of $2,247 ($2,247 after tax) and
related fixed asset impairments of $1,447 ($1,447 after tax) from the Kilkenny
Plant closure. (See Notes 2, 5, 9 and 10).




In the
second quarter of 2008, we benefited from a sale of excess land in our Metal
Bearing Components Segment that resulted in a gain of $4,018 ($2,995 after
tax).  In addition, the second quarter was impacted by a $1,142
deferred tax benefit at the Italian operations of our Metal Bearing Components
Segment related to a change in Italian tax law.






67




16)
            Fair Value of Financial
      Instruments




Management
believes the fair value of financial instruments with maturities of less than a
year approximate their carrying value due to the short maturity of these
instruments or in the case of our variable rate debt, due to the variable
interest rates.  We elected not to measure any of our financial
instruments at fair value and as such will continue to show the fair value of
our financial instruments for disclosure purposes only.  The fair
value of our fixed rate long-term borrowings is calculated using significant
other observable inputs (Level 2 inputs under the U.S. GAAP fair value
hierarchy).  The fair value is calculated using a discounted cash flow
analysis factoring in current market borrowing rates for similar types of
borrowing arrangements under our credit profile.  The carrying amounts
and fair values of our long-term debt are in the table below (for
disclosure purposes only):





December
      31, 2009
            
            
            December
      31, 2008Carrying
      Amount
            
            
            Fair
              Value
            
            
            Carrying
      Amount
            
            
            Fair
              ValueVariable
      rate long-term debt
            
            $
            58,392
            
            
            $
            58,392
            
            
            $
            62,441
            
            
            $
            62,441Fixed
      rate long-term debt
            
            $
            28,571
            
            
            $
            27,787
            
            
            $
            34,647
            
            
            $
            30,188




17)
            Accumulated Other
      Comprehensive Income




The
majority of our Accumulated Other Comprehensive Income balance relates to
foreign currency translation of our foreign subsidiary balances.  At
December 31, 2009, we have added to accumulated other comprehensive income
$2,356 due to foreign currency translation.  At December 31, 2008, we
have deducted from accumulated other comprehensive income $3,232 due to foreign
currency translation.  At December 31, 2007, we have added to
accumulated other comprehensive income $11,764 due to foreign currency
translation.  Income taxes on the foreign currency translation
adjustment in other comprehensive income were not recognized because the
earnings are intended to be indefinitely reinvested in those
operations.




Also
added to accumulated other comprehensive income as of December 31, 2009, 2008
and 2007 were actuarial losses of $315, net of tax and $58, net of tax, and an
actuarial gain of $656, net of tax, respectively, from our pension
liability.




18)
            Common
      Stock Repurchase





During
the year ended December 31, 2009, we did not repurchase any of our shares under
our share repurchase programs or any other program.  Our amended and
restated credit facility entered into on March 16, 2009, and subsequently
amended on March 5, 2010, prohibits the repurchase of our shares until such time
as we meet certain earnings and financial covenant levels.





On
September 12, 2008, our Board of Directors authorized a new share repurchase
program in effect for a period of one year beginning September 15, 2008 with a
maximum approved amount of $20 million worth of shares to be repurchased on the
open market from time to time in accordance with market
regulations.  The new plan replaced an existing $25 million share
repurchase program initiated on September 13, 2007 that expired on September 13,
2008.  During the year ended December 31, 2008, we repurchased 85,171
shares at approximately $11.91 per share for a total value of approximately $1.0
million under this new plan.  During 2008, we did not purchase shares
under any other program.





During
the year ended December 31, 2007, the Company repurchased, under a 2006 approved
repurchase program, approximately 211 shares at an approximate average cost of
$10.26 a share for a total of $2,166.  This program expired September
13, 2007 with a total of approximately 674 shares being purchased totaling
$7,441.




68


A new
share repurchase program was established for a period of one year beginning on
September 13, 2007, and the amount approved for purchase, from this date until
the expiration of the program, was $25 million worth of shares to be purchased
in the open market from time to time in accordance with applicable laws and
market regulations.  During the year ended December 31, 2007, the
Company repurchased approximately 797 shares under this program at an average
cost of $9.53 per share for a total of $7,556.  The total of all share
repurchases during the year ended December 31, 2007 was approximately 1,008
shares for $9,722.




19)
            Related
      Party Transactions




During
the year ended December 31, 2007, we remitted $18,638 to the former sole
shareholder of Whirlaway to repay the related party note payable from the
November 2006 acquisition.  With the acquisition of Whirlaway, we
entered into operating leases covering two of the Whirlaway manufacturing
facilities with a company owned by the former shareholder of Whirlaway who is
now an officer of the Company. The rent payments in 2009, 2008 and 2007 to this
related party were $644 each year.  The total future rent payments
will be $1,288 over 2 years or $644 per year.




20)
            Subsequent
      Events




During
the first quarter of 2010,we announced the closure of the Tempe Plant.  The Tempe
Plant was acquired in the 2006 acquisition of Whirlaway and had sales of
approximately $12.0 million for calendar year 2009. The closing will impact
approximately 130 employees.  Current economic conditions coupled with
the long-term manufacturing strategy for our Whirlaway business necessitated a
consolidation of our manufacturing resources in Ohio. We expect to incur cash
charges of approximately $2,500 in severance, equipment relocation and other
closing costs during 2010 related to this closure.  In addition, we
expect to incur up to $3,000 in accelerated depreciation during 2010 related to
machinery that will be abandoned as part of the closure.  As of
December 31, 2009, the total net assets of this location were
$7,862.  We do not anticipate any other potential impairment of assets
including the remaining fixed assets which will be relocated to other Whirlaway
plants.
























69


Item
      8.
            Changes in and Disagreements
      with Accountants on Accounting and Financial
  Disclosure




None.




Item
8A.                      Controls
and Procedures




The
Company's management, under the supervision and with the participation of the
Chief Executive Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures as defined under Rule l3a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act").  Based on this evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2009, the end of the period covered
by this annual report on Form 10-K.





Management's
Report on Internal Control Over Financial Reporting





The
management of NN, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f).  Management, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the Company's internal control
over financial reporting based on the Internal Control- Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO").  Based on its evaluation, management
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2009.





The
effectiveness of our internal control over financial reporting as of December
31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears under
item 8 of this filing.




Changes
in Internal Control over Financial Reporting





There
were no changes in the Company's internal control over financial reporting
during the quarter ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.





Item
8B.                      Other
Information





None


Part
III




Item
      9.
            Directors, Executive Officers and
      Corporate Governance




The
information required by this item of Form 10-K concerning the Company's
directors is contained in the sections entitled "Information about the
Directors" and "Beneficial Ownership of Common Stock" of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2009, in accordance with
General Instruction G to Form 10-K, is hereby incorporated herein by
reference.




Code of
Ethics.   Our Code of Ethics (the “Code”) was approved by
our Board on November 6, 2003.  The Code is applicable to all
officers, directors and employees.  The Code is posted on our website
at http://www.nnbr.com.  We will satisfy any disclosure requirements
under Item 10 of Form 8-K regarding an amendment to, or waiver from, any
provision of the Code with respect to our principal executive officer, principal
financial officer, principal accounting officer and persons performing similar
functions by disclosing the nature of such amendment or waiver on our website or
in a report on Form 8-K.





Item
      10.
            Executive
  Compensation




The
information required by Item 402 of Regulation S-K is contained in the sections
entitled "Information about the  Directors -- Compensation of
Directors" and "Executive Compensation" of the Company's definitive Proxy
Statement and, in accordance with General Instruction G to Form 10-K, is hereby
incorporated herein by reference.




70






Item
      11.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters




The
information required by Items 201(d) and 403 of Regulation S-K is contained in
the section entitled "Beneficial Ownership of Common Stock" of the Company's
definitive Proxy Statement and, in accordance with General Instruction G to Form
10-K, is hereby incorporated herein by reference.




Information
required by Item 201 (d) of Regulations S-K concerning the Company’s equity
compensation plans is set forth in the table below:




Table
of Equity Compensation Plan Information




(in
thousands)


Plan
      Category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              
              (a)
            
            Weighted
      –average exercise price of outstanding options, warrants and
      rights
              
              (b)
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected
              in
      column (a))
              
              (c)Equity
      compensation plans approved by security holders
            
            
            1,391
            
            $
            9.23
            
            
            279Equity
      compensation plans not approved by security holders
            
            
            --
            
            
            --
            
            
            --Total
            
            
            1,391
            
            $
            9.23
            
            
            279







Item
      12.
            Certain Relationships and Related
      Transactions, and Director
Independence




During
2007, we paid $18.6 million to the former shareholder of Whirlaway, Thomas
Zupan, who is now Vice President – Precision Metal Components
Division.  Additionally, on November 30, 2006, the company entered
into operating leases covering two of the Whirlaway manufacturing facilities
with a company owed by Mr. Zupan.  The rent payments in 2009, 2008 and
2007 to this related party were $ 0.6 million each year.  The total
future rent payments as of December 31, 2008 will be $1.2 million over 2 years
or approximately $0.6 million per year.





Information
regarding review, approval or ratification of transactions with related persons
is contained in a section entitled “Certain Relationships and Related
Transactions” of the Company’s definitive Proxy Statement and, in accordance
with General Instruction G to Form 10-K, is hereby incorporated herein by
reference.





Information
regarding director independence is contained in a section entitled “Information
about the Directors” of the Company’s definitive Proxy Statement and, in
accordance with General Instruction G to Form 10-K, is hereby incorporated
herein by reference.





Item
      13.
            Principal Accountant Fees
      and Services




Information
required by this item of Form 10-K concerning the Company’s accounting fees and
services is contained in the section entitled “Fees Paid to Independent
Registered Public Accounting Firm” of the Company’s definitive Proxy Statement
and, in accordance with General Instruction G to Form 10-K, is hereby
incorporated herein by reference.







71
 Part IV
  Item
      14.
                Exhibits and Financial
      Statement Schedules
  (a)  
List of Documents Filed as Part of this Report


1.    Financial
Statements





The
financial statements of the Company filed as part of this Annual Report on Form
10-K begins on the following pages hereof:




Page




Report of
Independent Registered Public Accounting
Firm......................................................................................... 38





Consolidated
Balance Sheets at December 31, 2009 and
2008 ......................................................................................39





Consolidated
Statements of Operations and Comprehensive Income (Loss) for the


years
ended December 31, 2009, 2008, and
2007 ..............................................................................................................40





Consolidated
Statements of Changes in Stockholders’ Equity for the


years
ended December 31, 2009, 2008, and
2007 ..............................................................................................................41





Consolidated
Statements of Cash Flows for the years ended


December
31, 2009, 2008, and
2007 .....................................................................................................................................42





Notes to
Consolidated Financial
Statements  ...................................................................................................................43




2.     Financial Statement Schedules




The required information is reflected in the Notes to Consolidated
Financial Statements within Item 7.




3.     See Index to Exhibits (attached
hereto)




(b)           
Exhibits:  See Index to Exhibits (attached hereto).





The Company will provide without charge to any person, upon the written
request of such person, a copy of any of the Exhibits to this Form
10-K.




(c)           
Not Applicable




72


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.









By:           /s/
Roderick R.
Baty


Roderick R. Baty


Chairman of the Board,


Chief Executive Officer and President





Dated:  March 31,
2010





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.




Name and Signature
            Title
            Date/S/RODERICK R.
      BATY
            Chairman
      of the Board, Chief Executive
              Officer
      and President
            March
      31, 2010Roderick
      R. Baty/S/JAMES H.
      DORTON
            Vice
      President-Corporate Development
              and
      Chief Financial Officer
            March
      31, 2010James
      H. Dorton/S/WILLIAM C.
      KELLY, JR.
            Vice
      President-Chief Administrative
              Officer,
      Secretary and Treasurer
            March
      31, 2010William
      C. Kelly, Jr./S/THOMAS C.
      BURWELL, JR.
            Corporate
      Controller
            March
      31, 2010Thomas
      C. Burwell, Jr./S/G. RONALD
      MORRIS
            Director
            March
      31, 2010G.
      Ronald Morris/S/MICHAEL E.
      WERNER
            Director
            March
      31, 2010Michael
      E. Werner/S/STEVEN T.
      WARSHAW
            Director
            March
      31, 2010Steven
      T. Warshaw/S/RICHARD G.
      FANELLI
            Director
            March
      31, 2010Richard
      G. Fanelli/S/ROBERT M.
      AIKEN, JR.
            Director
            March
      31, 2010Robert
      M. Aiken, Jr.


73


Index to Exhibits





2.1
            Asset
      Purchase Agreement dated April 14, 2003 among SKF Holding Maatschappij
      Holland B.V., SKF B.V., NN, Inc. and NN Netherlands B.V. (incorporated by
      reference to Exhibit 2.1 of Form 8-K filed on May 16,
  2003)





3.1
            Restated
      Certificate of Incorporation of the Company (incorporated by reference to
      Exhibit 3.1 of the Company’s Registration Statement No. 333-89950 on Form
      S-3 filed June 6, 2002)





3.2
            Restated
      By-Laws of the Company (incorporated by reference to Exhibit 3.2 of the
      Company’s Registration Statement No. 333-89950 on Form S-3 filed June 6,
      2002)





3.3
            Form
      of Certificate of Designation of Series A Junior Participating Preferred
      Stock on NN, Inc., as filed with the Secretary of the State of Delaware on
      December 15, 2008 (incorporated by reference to the Company’s Form 8-K
      filed December 18, 2008)





3.4
            Amendments
      to the Restated By-Laws of NN, Inc. (incorporated by reference to the
      Company’s Form 8-K filed December 18,
2008)





4.1
            The
      specimen stock certificate representing the Company’s Common Stock, par
      value $0.01 per share (incorporated by reference to Exhibit 4.1 of the
      Company’s Registration Statement No. 333-89950 on Form S-3 filed June 6,
      2002)





4.2
            Article
      IV, Article V (Sections 3 through 6), Article VI (Section 2) and Article
      VII (Sections 1 and 3) of the Restated Certificate of Incorporation of the
      Company (included in Exhibit 3.1)





4.3
            Article
      II (Sections 7 and 12), Article III (Sections 2 and 15) and Article VI of
      the Restated By-Laws of  the Company (included in Exhibit
      3.2)







4.4
            Rights
      Agreement, dated as of December 16, 2008, by and between NN, Inc. and
      Computershare Trust


Company,
      N.A. including the form of Certificate of Designation, the Form of Rights
      Certificate and the


Summary
      of Rights to Purchase attached thereto as Exhibits A, B, and C
      respectively (incorporated by


reference
      to the Company’s Form 8-K filed December 18,
  2008)





10.1
            NN,
      Inc. Stock Incentive Plan and Form of Incentive Stock Option Agreement
      pursuant to the Plan (incorporated by reference to Exhibit 10.1 of the
      Company’s Registration Statement No. 333-89950 on Form S-3/A filed July
      15, 2002)*





10.2
            Amendment
      No. 1 to the NN, Inc. Stock Incentive Plan (incorporated by reference to
      Exhibit 4.6 of the Company’s Registration Statement No. 333-50934 on Form
      S-8 filed on November 30, 2000)*





10.3
            Amendment
      No. 2 to the NN, Inc. Stock Incentive Plan (incorporated by reference to
      Exhibit 4.7 of the Company’s Registration Statement No. 333-69588 on Form
      S-8 filed on September 18, 2001)*





10.4
            Amendment
      No. 3 to NN, Inc. Stock Incentive Plan as ratified by the shareholders on
      May 15, 2003 amending the Plan to permit the issuance of awards under the
      Plan to directors of the Company (incorporated by reference to Exhibit
      10-1 of the Company's Quarterly Report on Form 10-Q filed August 14,
      2003)*





10.5
            Form
      of Indemnification Agreement (incorporated by reference to Exhibit 10.6 of
      the Company’s Registration Statement No. 333-89950 on Form S-3/A filed
      July 15, 2002)





10.6
            Form
      of Stock Option Agreement, dated December 7, 1998, between the Company and
      the non-employee directors of the Company (incorporated by reference to
      Exhibit 10.15 of the Company’s Annual Report on Form 10-K filed March 31,
      1999)*





10.7
            Elective
      Deferred Compensation Plan, dated February 26, 1999 (incorporated by
      reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K
      filed March 31, 1999)*




74







10.8
            NN,
      Inc. 2005 Stock Incentive Plan (incorporated by reference to the Company's
      Form S-8 filed December 16, 2005)*





10.9
            Executive
      Employment Agreement, dated August 21, 2006, between the Company and
      Roderick R. Baty (incorporated by reference to the Company's Forms 8-K
      filed August 24, 2006 and March 18,
2010)*





10.10
            Executive
      Employment Agreement, dated August 21, 2006, between the Company and James
      H. Dorton (incorporated by reference to the Company's Forms 8-K filed
      August 24, 2006 and March 18,
2010)*




10.11
            Executive
      Employment Agreement, dated August 21, 2006, between the Company and James
      Anderson (incorporated by reference to the Company's Forms 8-K filed
      August 24, 2006 and March 18,
2010)*




10.12
            Executive
      Employment Agreement, dated August 21, 2006, between the Company and
      Thomas G. Zupan (incorporated by reference to the Company's Forms 8-K
      filed December 6, 2006 and March 18,
2010)*





10.13
            Executive
      Employment Agreement, dated August 21, 2006, between the Company and Frank
      T. Gentry (incorporated by reference to Company's Current Report on Forms
      8-K filed August 24, 2006 and March 18,
2010)*





10.14
            Executive
      Employment Agreement, dated August 21, 2006, between the Company and
      Robert R. Sams (incorporated by reference to the Company's Current Report
      on Forms 8-K filed August 21, 2006 and March 18,
  2010)*





10.15
            Executive
      Employment Agreement dated August 21, 2006, between the Company and
      William C. Kelly, Jr. (incorporated by reference to the Company's Current
      Report on Forms 8-K filed August 24, 2006 and March 18,
    2010)*




10.16
            Executive
      Employment Agreement dated August 21, 2006, between the Company
      and Jeffrey H. Hodge*




10.17
            NN
      Euroball, ApS Shareholder Agreement dated April 6, 2000 among NN, Inc., AB
      SKF and FAG Kugelfischer Georg ShaferAG (incorporated by reference to
      Exhibit 10.26 of the Company's Annual Report on Form 10-K filed March 29,
      2002)





10.18
            Frame
      Supply Agreement between Euroball S.p.A., Kugelfertigung Eltmann GmbH, NN
      Euroball Ireland Ltd. and Ascometal effective January 1, 2002 (We have
      omitted certain information from the Agreement and filed it separately
      with the Securities and Exchange Commission pursuant to our request for
      confidential treatment under Rule 24b-2. We have identified the omitted
      confidential information by the following statement, "Confidential
      portions of material have been omitted and filed separately with the
      Securities and Exchange Commission," as indicated throughout the document
      with an asterisk in brackets ([*])) (incorporated by reference to Exhibit
      10.26 of the Company's Annual Report on Form 10-K filed March 31,
      2003)





10.19
            Supply
      Agreement between NN Euroball ApS and AB SKF dated April 6, 2000. (We have
      omitted certain information from the Agreement and filed it separately
      with the Securities and Exchange Commission pursuant to our request for
      confidential treatment under Rule 24b-2. We have identified the omitted
      confidential information by the following statement, "Confidential
      portions of material have been omitted and filed separately with the
      Securities and Exchange Commission, " as indicated throughout the document
      with a n asterisk in brackets([*]) (incorporated by reference to Exhibit
      10.3 of the Company's Quarterly Report on Form 10-Q filed August 14,
      2003)





10.20
            Global
      Supply Agreement among NN, Inc., NN Netherlands B.V. and SKF Holding
      Maatschappij Holland B.V. dated April 14, 2003. (We have omitted certain
      information from the Agreement and filed it separately with the Securities
      and Exchange Commission pursuant to our request for confidential treatment
      under Rule 24b-2. We have identified the omitted confidential information
      by the following statement, "Confidential portions of material have been
      omitted and filed separately with the Securities and Exchange Commission,
      " as indicated throughout the document with a n asterisk in
      brackets([*])(incorporated by reference to Exhibit 10.4 of the Company's
      Quarterly Report on Form 10-Q filed August 14,
  2003)







75


10.21
            Note
      Purchase Agreement dated April 22, 2004 among NN, Inc. as the Borrower and
      its Subsidiary Guarantors and the Prudential Insurance Company of America
      as Agent for the Purchase. (incorporated by reference to Exhibit 10.28 of
      the Company's Annual Report on Form 10-K filed March 16,
    2005)





10.22
            First
      Amendment to Note Purchase Agreement dated as of September 1, 2006, among
      NN, Inc. and The Prudential Insurance and Annuity Company, American
      Bankers Life Assurance Company of Florida, Inc., Farmers New World Life
      Insurance Company and Times Insurance Company as amended March 5,
      2010(incorporated by reference to the Company's Forms 8-K filed September
      27, 2006 and March 10, 2010)*





10.23
            Credit
      Agreement dated as of September 1, 2006 among NN, Inc., and the Lenders as
      named therein, KeyBank National Association as Lead Arranger, Book Runner
      and Administrative Agent, and AmSouth Bank, as Swing Line Lender as
      amended on March 5, 2010 (incorporated by reference to the Company's
      Current Report on Forms 8-K filed September 27, 2006 and March 10,
      2010)




21.1           List
of Subsidiaries of the Company.





23.1           Consent
of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
Firm





31.1           Certification
of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley
Act





31.2           Certification
of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley
Act





32.1           Certification
of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley
Act





32.2           Certification
of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley
Act





______________


*           Management
contract or compensatory plan or arrangement.





76