Edgar Filing: NN INC

Consolidated Statements of Changes in Stockholders’ Equity

Years ended December 31, 2010, 2009 and 2008

(In thousands)

nn10k123110.htm

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, 2010

¨ 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	37604
Johnson City, Tennessee	(Zip Code)
(Address of principal executive offices)

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

____________________

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

Title of	Name of each exchange
each class	on which registered

Common 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨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 x Non-accelerated filer ¨ 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, 2010, based on the closing price on the NASDAQ Stock Market LLC on that date was approximately $81,171,060.

The number of shares of the registrant's common stock outstanding on March 11, 2011 was 16,637,874.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement with respect to the 2011 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 2010, Metal Bearing Components accounted for 74% of total NN, Inc. sales. Sales of balls and rollers accounted for approximately 69% of our total net sales with 51% of sales from balls and 18% 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. Finally, we also manufacture rubber seals for use in various automotive, industrial and mining applications. In 2010, plastic products accounted for 7% of net sales and rubber seals accounted for 4% of net sales.

Our Precision Metal Components Segment is comprised of the Whirlaway Corporation (“Whirlaway”). Whirlaway is a manufacturer of highly engineered, difficult to manufacture precision metal components and subassemblies for the automotive, HVAC, fluid power and diesel engine markets. Our entry into the precision metal components market since 2006 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 15% of net sales in 2010.

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 Eltmann Plant filed for bankruptcy on January 20, 2011 and is now under the effective control of the German bankruptcy court. See Notes 15 and 21 of the Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources" for further details.

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”)

Financial information about the segments is set forth in Note 12 of the Notes to Consolidated Financial Statements.

Recent Developments

Due to the impacts of the global economic recession and the resulting reduction in revenue and operating losses, our wholly owned German subsidiary Kugelfertigung Eltmann GbmH (“Eltmann” or “Eltmann Plant”) sustained a significant weakening of its financial condition during the years ended December 31, 2009 and 2010 with net losses incurred of $2.8 million and $0.5 million, respectively, during those years. As a result, Eltmann became technically insolvent at which point it was required to file for bankruptcy under German bankruptcy law. The filing was made in the bankruptcy court in Germany on January 20, 2011. Since this date, NN has lost the ability to control or manage Eltmann as a result of the bankruptcy court trustee taking over effective control and day to day management of this subsidiary. After a period of evaluation, the trustee will hold a preliminary hearing to determine whether Eltmann should be liquidated. The ultimate impact on NN of Eltmann filing for bankruptcy will depend on the findings of the bankruptcy court. However, under advice of legal counsel, we believe NN will relinquish all assets and liabilities of Eltmann which have a carrying value of approximately $8.5 million and $8.5 million, respectively, at January 20, 2011. However, until such court proceedings are finalized, we will not be able to determine what liabilities and contingent obligations, if any, might remain as the responsibility of NN. As of December 31, 2010, all Eltmann Plant assets and liabilities remain on the consolidated financial statements of the Company. We do not anticipate any significant disruption of normal product flow to our customers being served by Eltmann prior to the bankruptcy filing and have the installed capacity within our remaining plants to meet this 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 5/8 inches (66.675 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 69%, 73%, and 68% of net Metal Bearing Component Segment sales in 2010, 2009, and 2008, respectively.

Steel Rollers. We manufacture tapered rollers at our Veenendaal Plant and the Erwin 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 are used in a variety of industrial applications. Tapered rollers accounted for approximately 14%, 10% and 14% of consolidated net sales in 2010, 2009 and 2008, respectively. Cylindrical rollers accounted for approximately 4% of consolidated net sales in each of 2010, 2009, and 2008.

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 highly engineered precision metal components and subassemblies. Beginning September 1, 2010, these components are manufactured at the two Wellington, Ohio plants. (NN ceased operations at the Tempe Plant on August 31, 2010.) The precision metal components offered include highly engineered shafts, fluid power assemblies and complex precision assembled and tested parts. The components are used in the following end markets: automotive, HVAC, fluid power and diesel engine.

Research and Development

The amounts spent on research and development activities by us during each of the last three fiscal years are not material and are expensed 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 ten customers account for approximately 75% of our revenue. Sales to each of these top ten customers are made to multiple customer locations and divisions throughout the world. Only one of these customers, AB SKF (“SKF”), had sales levels that were over 10% of total net sales. Sales to various U.S. and foreign divisions of SKF accounted for approximately 38% of net sales in 2010. In 2010, 39% of our products were sold to customers in North America, 45% to customers in Europe, 11% to customers in Asia and the remaining 5% to customers in South America.

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 when incurred to our customers in the form of changes in selling prices. 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 certain 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.

During 2010, the Metal Bearing Components Segment sold products to approximately 300 customers located in 30 different countries. Approximately 87% of the net sales in 2010 were to customers outside the United States. Approximately 60% of net sales in 2010 were to customers within Europe. Sales to our top ten customers accounted for approximately 88% of the net sales in 2010. Sales to SKF accounted for approximately 51% of net sales of the segment in 2010.

During 2010, the Plastic and Rubber Components Segment sold its products to over 80 customers located principally in North America. Approximately 11% of the Plastic and Rubber Components Segment’s net sales were to customers outside the United States, with the vast majority of those sales to customers in Mexico and Canada. Sales to the segment’s top ten customers accounted for approximately 70% of the segment’s net sales in 2010.

During 2010, the Precision Metal Components Segment sold its products to 23 customers located in five countries. Approximately 93% of all sales were to customers located within the United States. Sales to the segment’s top ten customers accounted for approximately 88% of the segment’s net sales in 2010.

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 12 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 2010, 2009 and 2008:

(In Thousands)	2010			2009			2008

Metal Bearing Components Segment	$	271,339		$	183,605		$	321,660
Percentage of Total Sales		74.3	%		70.7	%		75.7	%

Precision Metal Components Segment		54,913			45,003			64,235
Percentage of Total Sales		15.0	%		17.4	%		15.1	%

Plastic and Rubber Components Segment		39,117			30,775			38,942
Percentage of Total Sales		10.7	%		11.9	%		9.2	%

Total	$	365,369		$	259,383		$	424,837

Percentage of Total Sales		100	%		100	%		100	%

The change in value of Euro denominated sales resulted in net sales decreasing $10.7 million in 2010, decreasing $8.3 million in 2009 and increasing $17.6 million in 2008 compared to the prior years 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 and the Plastics and Rubber 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 (in house) 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 products to 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 machining processes.

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 cost competitively, 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 competencies and experience with a broad range of engineered resins and custom polymers. 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 highly engineered difficult to manufacture critical components, product development and component subassemblies.

Employees

As of December 31, 2010, we employed a total of 1,829 full-time employees and 236 full-time equivalent temporary workers. The following numbers are for full-time employees only. Our Metal Bearing Components Segment employed 261 in the U.S., 854 in Europe and 114 in China; our Plastic and Rubber Components Segment employed 260, all in the U.S.; and our Precision Metal Components Segment employed 334, all in the U.S. In addition, there were six employees at our corporate headquarters. Of our total employment, 16% are management/staff employees and 84% 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 excellent employee relations throughout the Company, and we have never experienced any significant involuntary work stoppages.

During 2010, NN ceased operations at the Tempe Plant on August 31, 2010, reducing our full-time employees by approximately 130. As of January 20, 2011 the Eltmann Plant and its 113 employees are under the effective control and management of the German bankruptcy court.

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., Tsubaki Nakashima Co., LTD 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, our global manufacturing footprint 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 C&J Industries are among the main competitors in the precision plastic components markets.

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 competitors in the U.S. bearing seal market are Freudenburg-NOK, Paulstra, 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 outside 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. Our other steel requirements include metal strip, stainless steel, and type S2 rock bit steel.

The Metal Bearing Components Segment businesses purchase substantially all of their 52100 Steel requirements from suppliers in Europe and Japan and all of their metal strip requirements from European suppliers and traders. The principal suppliers of 52100 Steel for our U.S. businesses are Daido Steel (Japan), Kobe Steel (Japan), Lucchini (affiliate of Ascometal France) and Ohio Star Forge Co. The principal suppliers of 52100 Steel for our European businesses are Ascometal (France), Ovako, Kobe Steel (Japan) and Daido Steel (Japan) 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 can not 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 composition, quality, availability and price. For precision steel balls, 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. In general, we do not enter into written supply agreements with suppliers or commit to maintain minimum monthly purchases of steel except for the year to year supply arrangement between Ascometal and the European operations of our Metal Bearing Components Segment.

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 2010, steel prices were up slightly with a net year over year impact of approximately 2%. 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 quality, service and price. Generally, we do not enter into written supply contracts with our suppliers or commit to maintain minimum monthly purchases of resins, rubber compounds or metal stampings.

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.

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, Pinerolo Plant and Kunshan Plant are ISO 14000 or 14001 certified and all received the EPD (Environmental Product Declaration), except for the Veenendaal Plant’s stamped 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 could 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 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 be certain 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 (two of which have ceased operations). 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 15 of the Notes to Consolidated Financial Statements.

Executive Officers of the Registrant

Our executive officers are:

Name	Age	Position
Roderick R. Baty	57	Chairman of the Board, Chief Executive Officer and President
Frank T. Gentry, III	55	Senior Vice President – Managing Director, Metal Bearing Components
James H. Dorton	54	Senior Vice President – Corporate Development and Chief Financial Officer
Robert R. Sams	53	Vice President – Sales
William C. Kelly, Jr.	52	Vice President – Chief Administrative Officer, Secretary, and Treasurer
Thomas G. Zupan	55	Vice President – Business Development Precision Metal Components Division
Jeffrey H. Hodge	49	Vice President – General Manager, U.S. Ball and Roller Division
James R. Widders	54	Vice President – General Manager, Precision Metal Components 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.

Frank T. Gentry, III, was appointed Vice President – Managing Director Metal Bearing Components Division in April 2009 and promoted to Senior Vice President in May 2010. 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.

James H. Dorton joined NN as Vice President of Corporate Development and Chief Financial Officer in June 2005. In May 2010, he was promoted to Senior Vice President. 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.

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.

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.

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. On December 15, 2010, Mr. Zupan was appointed Vice President Business Development Precision Metal Components Division.

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 U.S. military from 1985 – 1989.

James R. Widders was named Vice President and General Manager of the Precision Metal Components Division on December 15, 2010. Mr. Widders had 13 years of service at Whirlaway prior to its acquisition by NN. Prior to joining NN, he served as Vice President and General Manager at Technifab, Inc. a manufacturer of molded foam components for the Aerospace industry and in various management positions with GE Superabrasives, a division of General Electric.

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.

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.

A large portion of our capital structure is in the form of debt. As such, we continue to heavily rely on our current lenders as a major source of long term capital.

We are dependent on the continued provision of financing from our revolving credit lenders and our senior notes lenders for a major portion of our capital structure. As such we must continually meet our existing financial and non-financial covenants or risk potentially default. In the event of default, the degree to which our current lenders and/or potential future lenders will continue to lend to us will depend in large part on our results from operations and near term business prospects at the time of the default.

A recession impacting both U.S. and Europe on automotive and industrial markets once again 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. If we are impacted by a global recession in the future this 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. However, we would be in a much better position to weather any recession or economic downturn given the actions taken to permanently reduce our cost base including closing or ceasing operations at four former manufacturing locations.

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. Additionally, inflation in oil and the resulting higher gasoline prices could have a negative impact on demand for our products as a result of consumer and corporate spending reductions.

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 of our Metal Bearing Components Segment 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.

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 customers’ 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 38% of consolidated net sales in 2010. No other customers accounted for more than 10% of sales. During 2010, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 75% 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;

·	a U.S. Federal Tax code that discourages 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 the 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.

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 portion of our future growth objectives, with the remainder resulting from organic 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 borrowing agreements limit our ability to complete acquisitions without prior approval of our lenders.

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 precision bearing components, precision metal components and plastic and rubber components 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.

Our production capacity has been expanded geographically in recent years to operate in the same markets as our customers.

We have expanded our metal bearing components production facilities and capacity over the last several years. Historically, metal bearing component production facilities have not always operated at full capacity. We have recently undertaken steps to address a portion of the capacity risk including closing or ceasing operations at certain plants and downsizing employment levels at others. As such, the risk affecting us is that our customers may exit the geographic markets in which our production capacity is located and/or develop vendors in lower cost countries in which we do not have production capacity.

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;

·	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

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 offices.

Metal Bearing Components Segment

Manufacturing Operation	Country	Sq. Feet	Owned or Leased
Erwin Plant	U.S.A.	125,000	Owned
Mountain City Plant	U.S.A.	86,000	Owned
Kilkenny Plant (non-operating)	Ireland	125,000	Owned
Eltmann Plant (see comment below)	Germany	175,000	Leased
Pinerolo Plant	Italy	330,000	Owned
Kysucke Plant	Slovakia	135,000	Owned
Veenendaal Plant	The Netherlands	159,000	Owned
Kunshan Plant	China	110,000	Leased

On January 20, 2011, the Eltmann Plant filed for bankruptcy and is now under the effective control of the German bankruptcy court. The Eltmann Plant was 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 from the date of this report. As such, the property is still considered to be held and used for which the carrying value at December 31, 2010 approximates its fair value.

Plastic and Rubber Components Segment

Manufacturing Operation	Country	Sq. Feet	Owned or Leased
Danielson Plant	U.S.A.	50,000	Owned
Lubbock Plant	U.S.A.	228,000	Owned

Precision Metal Components Segment

Manufacturing Operation	Country	Sq. Feet	Owned or Leased
Wellington Plant 1	U.S.A.	86,000	Leased
Wellington Plant 2	U.S.A.	132,000	Leased

The Wellington Plants are leased from a company controlled by the former owner of Whirlaway Corporation, who is currently an officer of NN (see Note 20 of the Notes to Consolidated Financial Statements). As of August 31, 2010, we ceased operations at the Tempe Plant with certain production being 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. 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 tentatively approved by EPA. The costs associated with the chosen remediation are estimated to be approximately $10 million of which our allocated share is approximately $0.1 million which has been fully accrued for as of December 31, 2010. While there can be no assurances, we believe that the $0.1 million is the maximum amount for which we will be liable under the tentatively accepted remediation plan.

On January 20, 2011, the legal entity representing the Eltmann Plant, Kugelfertigung Etmann GmbH, filed for bankruptcy under German law. The operation is under the temporary supervision of a court-appointed trustee. After a period of evaluation, the trustee will hold a preliminary hearing to determine whether Eltmann should be liquidated. Under advice of legal counsel, we believe that NN will relinquish all assets and liabilities of the company. However, until such court proceedings are finalized, we will not be able to determine what liabilities and contingent obligations, if any, might remain as the responsibility of NN. As of December 31, 2010, all Eltmann Plant assets and liabilities remain on the consolidated financial statements of the company. (See Notes 15 and 21 of the Notes to Consolidated Financial Statements).

All of our other legal proceedings are of an ordinary and routine nature and are incidental to our operations. Management believes that such proceedings should not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Part II

Item 5.

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 11, 2011, there were approximately 2,000 holders of the Common Stock and the closing per share stock price as reported by NASDAQ was $14.38.

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 2010 and 2009.

	Close Price
	High		Low		Dividend
2010
First Quarter	$	5.50	$	3.25	$	0.00
Second Quarter		7.32		5.00		0.00
Third Quarter		8.88		4.46		0.00
Fourth Quarter		12.52		8.03		0.00

2009
First Quarter	$	3.10	$	0.83	$	0.00
Second Quarter		1.82		1.17		0.00
Third Quarter		4.82		1.30		0.00
Fourth Quarter		5.25		3.82		0.00

The following graph compares the cumulative total shareholder return on our common stock (consisting of stock price performance and reinvested dividends) from December 31, 2005 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, 2005 through December 31, 2010. 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, 2005. 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 12/31/10)

*Cumulative total return assumes reinvestment of dividends.

	Cumulative Return
	12/31/2006	12/31/2007	12/31/2008	12/31/2009	12/31/2010
NN, Inc.	120.40	93.99	23.28	40.27	125.68
Standard & Poors 500	113.62	117.63	72.36	89.33	100.75
Machinery	126.23	179.88	104.35	164.12	272.94

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 historic quarterly dividend in order to enhance our liquidity due to the global recession. As of the date of this report, no dividend has been reinstated by the Board of Directors of the Company.

See Part III, Item 12 – “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this 2010 Annual Report on Form 10-K for information required by Item 201 (d) of regulation S-K.

Item 6. 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,

	2010			2009			2008			2007			2006
Statement of Income Data:
Net sales	$	365,369		$	259,383		$	424,837		$	421,294		$	330,325
Cost of products sold (exclusive of depreciation shown separately below)		296,422			235,466			344,685			337,024			257,703
Selling, general and administrative expenses		30,407			27,273			36,068			36,473			30,008
Depreciation and amortization		19,195			22,186			27,981			22,996			17,492
(Gain) loss on disposal of assets		808			493			(4,138	)		(71	)		(705	)
Impairment of goodwill		--			--			30,029			10,016			--
Restructuring and impairment charges (income), excluding goodwill impairment		2,289			4,977			12,036			3,620			(65	)
Income (loss) from operations		16,248			(31,012	)		(21,824	)		11,236			25,892
Interest expense		6,815			6,359			5,203			6,373			3,983
Write-off of unamortized debt issuance cost		130			604			--			--			--
Other income, net		(1,682	)		(351	)		(850	)		(386	)		(1,048	)
Income (loss) before provision (benefit) for income taxes		10,985			(37,624	)		(26,177	)		5,249			22,957
Provision (benefit) for income taxes		4,569			(2,290	)		(8,535	)		6,422			8,522
Net income (loss)	$	6,416		$	(35,334	)	$	(17,642	)	$	(1,173	)	$	14,435

Basic income (loss) per share:
Net income (loss)	$	0.39		$	(2.17	)	$	(1.11	)	$	(0.07	)	$	0.84

Diluted income (loss) per share:
Net income (loss)	$	0.39		$	(2.17	)	$	(1.11	)	$	(0.07	)	$	0.83

Dividends declared	$	0.00		$	0.00		$	0.24		$	0.32		$	0.32
Weighted average number of shares outstanding - Basic		16,455			16,268			15,895			16,749			17,125
Weighted average number of shares outstanding – Diluted		16,570			16,268			15,895			16,749			17,351

As of December 31,

(In Thousands)	2010	2009	2008	2007	2006
Balance Sheet Data:
Current assets	$ 115,670	$ 98,283	$ 124,621	$ 138,024	$ 125,864
Current liabilities	83,587	68,489	63,355	84,256	74,869
Total assets	248,555	242,652	284,040	350,078	342,701
Long-term debt	67,643	77,558	90,172	100,193	80,711
Stockholders' equity	78,107	76,803	109,759	130,043	133,169

During the year ended December 31, 2010, the results were impacted by certain items including $4.5 million from NN ceasing operations at the Tempe plant, $3.0 million in start up costs from two new multi year sales programs (both in our Precision Metals Components Segment) and $1.1 million in costs related to the elimination of certain senior management positions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.

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 current assets of $19,276, total 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 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the 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:

·	Growth by taking over the in-house (captive) 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

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.

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. 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, however, 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 assess 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 could 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.

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, 2010, 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 $42.7 million, which exceeded the carrying value of the reporting unit by approximately $13.8 million.

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 years ended December 31, 2010 and 2009, reflect full valuation allowances against the deferred tax assets at most of the jurisdictions in which we operate. During 2010 and 2009, we recognized tax costs and benefits at only two jurisdictions, the Pinerolo Plant and the Veenendaal Plant. (See Note 13 of the Notes to Consolidated Financial Statements).

Impairment of Long-Lived Assets. Our long-lived assets include property, plant and equipment and an intangible asset not 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 6 and 11 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 8 of the Notes to Consolidated Financial Statements).

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,

	2010			2009			2008
Net sales		100.0	%		100.0	%		100.0	%
Cost of product sold (exclusive of depreciation shown separately below)		81.1			90.8			81.1
Selling, general and administrative expenses		8.3			10.5			8.5
Depreciation and amortization		5.3			8.6			6.6
(Gain) loss on disposal of assets		0.2			0.2			(1.0	)
Impairment of goodwill		--			--			7.1
Restructuring and impairment charges, excluding goodwill impairments		0.6			1.9			2.8
Income (loss) from operations		4.5			(12.0	)		(5.1	)
Interest expense		1.9			2.4			1.2
Other (income) expense		(0.5	)		0.1			(0.2	)
Income (loss) before provision (benefit) for income taxes		3.1			(14.5	)		(6.1	)
Provision (benefit) for income taxes		1.3			(0.9	)		(2.0	)
Net income (loss)		1.8	%		(13.6	%)		(4.1	%)

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 38% of consolidated net sales in 2010. During 2010, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 75% of our consolidated net sales. None of our other customers individually accounted for more than 10% of our consolidated net sales for 2010. 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.

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009.

Economic Impacts on the Twelve Month Period ended December 31, 2010

During the year ended December 31, 2010, sales showed significant improvement from the dramatic reductions witnessed during the year ended December 31, 2009 due to the worldwide recession. Sales increased 45% during the year ended December 31, 2010 from year ended December 31, 2009, excluding the effects of foreign currency exchange rates.

We believe the increase in sales that occurred during 2010 was due both to customers adopting more normalized ordering patterns and increased demand in the end markets we serve. We believe that during 2009 demand for our products had decreased more than actual demand in the end markets we serve. We referred to this as the “de-stocking effect” and believed it was due to reduction in overall inventory levels throughout the supply chains we serve. We are uncertain to what extent the change of overall stock levels within the supply chains had on 2010 sales demand from our customers.

The 45% increase in sales volume was the main driver of the improvement in net income during the year ended December 31, 2010. Despite the increase in sales volume during 2010, we continued to aggressively manage employment levels, production levels, and discretionary spending in order to maximize the return on each dollar of sales added. In addition, we have reduced fixed cost through announced plant closures and targeted reductions in permanent positions in order to facilitate a leaner organization and to insure as global revenues improve we will be able to leverage that improvement into increased earnings.

Unusual or Non-Recurring Costs Impacting the Twelve Month Period ended December 31, 2010

Ceasing Operations and Severance Costs

In relation to addressing our global cost structure, we have incurred various charges during 2010 from NN ceasing operations at our Tempe Plant and the elimination of various senior level positions. The impact of NN ceasing operations of the Tempe Plant totaled $4.5 million in costs and charges during 2010. This was composed of $2.0 million in cash restructuring costs and $2.5 million in charges related to reducing the book values of certain equipment and inventory that was abandoned as part of ceasing operations and from the loss on sale of other assets. In addition to the Tempe Plant, we incurred $1.1 million in charges related to eliminating certain senior level positions within our Company to streamline the organization. Finally, we incurred $0.3 million in impairment charges on certain production machinery at our Eltmann Plant which filed for bankruptcy on January 20, 2011. The total impact on the 2010 net income of all of the above was $6.0 million pre-tax and $5.8 million after-tax.

New Program Start-up Costs

Within our Precision Metal Components Segment, we are starting-up two major multi-year sales programs concurrently. We have encountered significant ramp-up costs in making the new parts to the customer’s specification and demand level. In particular there has been a sigificant manufacturability issue with a single part that represents a large portion of the new business of these two programs. This manufacturability issue has caused us to incur significant costs beyond normal start-up costs during the last six months of 2010. In 2010, we incurred $3.0 million in operational inefficiencies and additional costs related to ramping up production for these sales programs.

OVERALL RESULTS

	Consolidated NN, Inc.
(In Thousands of Dollars)	2010			2009			Change
Net sales	$	365,369		$	259,383		$	105,986
Foreign exchange effects										(10,718	)
Volume										115,975
Price										550
Mix										(927	)
Material inflation pass-through										1,106

Cost of products sold (exclusive of depreciation shown separately below)		296,422			235,466			60,956
Foreign exchange effects										(8,125	)
Volume										73,390
Cost reduction										(9,209	)
Mix										(774	)
Inflation										1,991
New sales program start-up costs and plant closure related costs										3,683

Selling, general and administrative		30,407			27,273			3,134
Foreign exchange effects										(724	)
Severance costs										1,247
Share based compensation expense										1,101
Increase in spending										1,510

Depreciation and amortization		19,195			22,186			(2,991	)
Foreign exchange effects										(490	)
Accelerated depreciation due to plant closure										1,000
Elimination of depreciation expense on fully depreciated assets										(3,501	)

Restructuring and impairment charges		2,289			4,977			(2,688	)
Interest expense		6,815			6,359			456
Loss on disposal of assets		808			493			315
Write-off of unamortized debt issue cost		130			604			(474	)
Other income, net		(1,682	)		(351	)		(1,331	)
Income (loss) before provision (benefit) for income taxes		10,985			(37,624	)		48,609
Provision (benefit) for income taxes		4,569			(2,290	)		6,859
Net income (loss)	$	6,416		$	(35,334	)	$	41,750

Net Sales. Net sales increased during 2010 from 2009 primarily due to higher customer demand for our products. As discussed previously, we believe the higher sales volume in 2010 was due to both sales growth in the customer end markets we serve and due to a shift in focus of supply chain participants from reducing inventory levels to adopting ordering patterns based on true market demand. The negative mix effect was related mainly to timing of the recovery as lower price automotive components rebounded more quickly during 2010 than higher priced industrial components. The increase in sales price was due to targeted price increases to certain customers and the increase in sales from material pass-through was to adjust selling prices for the increase in raw material costs experienced during 2010.

Cost of Products Sold (exclusive of depreciation and amortization). The majority of the increase was due to the same sales volume increases discussed above. Excluding volume effects, cost of products sold decreased due mainly to the reduction in the value of Euro denominated costs relative to the U.S. Dollar and to planned cost saving projects partially offset by increased inflation. Additionally, cost of products sold increased $3.0 million due to production inefficiencies and additional incurred costs from starting up production on new major multi-year sales programs at our Wellington Plants and from $0.6 million in one-time costs related to the Tempe Plant closure for the revalue of inventory that ceased to be used and the transfer of certain production to our Wellington Plants.

We continue to aggressively manage our production costs. We were able to effectively leverage fixed manufacturing costs, particularly fixed labor cost in Europe, during 2010 with the 45% increase in sales from 2009 (excluding foreign currency effects).

During 2010, our cost of products sold as a percentage of sales was approximately 81%, which is slightly higher than our historical range. This lower profitability was due to operational inefficiencies related to the new sales program start-ups mentioned above. In general, as sales increase, we are better able to leverage our existing fixed cost base, thereby reducing cost of products sold as a percentage of sales.

Selling, General and Administrative Expenses. A large portion of the increase in selling, general and administrative expenses was from share-based compensation expense recognized during the first quarter of 2010 due to the immediate vesting of shares granted to certain key employees and non-executive directors. Additionally, the increase in selling, general and administrative expenses during 2010 was from increased salaries and wages expense particularly due to eliminating the 10% to 20% reduction in salaries put in place in 2009 and reinstating the incentive compensation plans for 2010. Finally, during 2010, we incurred $1.2 million in severance cost related to permanent administrative cost savings.

Depreciation and Amortization. Depreciation and amortization expense decreased as certain assets depreciated for a full year during 2009 became fully depreciated during the second quarter of 2010. Additionally, depreciation expense was lower in 2010 due to the reduction in value of Euro denominated depreciation expense. These reductions were partially offset by accelerated depreciation of $1.0 million on certain fixed assets at our Tempe Plant due to ceasing operations at that facility. (See Notes 2 and 6 of the Notes to Consolidated Financial Statements).

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 amending our credit facilities on March 13, 2009 and on March 5, 2010. In addition, we amortized $0.3 million more of capitalized loan costs into interest expense due to the amendment of the loan facilities.

Restructuring and impairment charges. During the year ended December 31, 2010, we incurred $2.0 million in restructuring charges related to ceasing operations at our Tempe Plant and $0.3 million in impairment charges related to the production equipment at our Eltmann Plant. 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 Note 2 of the Notes to Consolidated Financial Statements).

Other income, net. The majority of the other income, net recognized during the year ended December 31, 2010, related to foreign exchange gains at our foreign subsidiaries from U.S. Dollar denominated inter-company loans that were put in place with the amended credit facilities in 2009. During 2010, the Dollar appreciated approximately 7% against the Euro which lead to the generation of these gains.

Provision for income taxes. For the full year 2010 and 2009, the difference between the effective tax rates of 41.6% and 6%, respectively, was mainly due to valuation allowances placed on U.S. deferred tax benefits during the second quarter of 2009 that are still being applied to U.S. taxable losses and expense during 2010. In 2010, the main driver is not recognizing tax benefits on the losses in the Precision Metal Components Segment stemming from ceasing operations at the Tempe Plant and the new sales program startups. (See Note 13 of the Notes to Consolidated Financial Statements).

RESULTS BY SEGMENT

METAL BEARING COMPONENTS SEGMENT

(In Thousands of Dollars)	Year ended December 31,
	2010		2009			Change

Net sales	$	271,339	$	183,605		$	87,734
Foreign exchange effects								(10,718	)
Volume								97,465
Price								500
Mix								(927	)
Material inflation pass-through								1,414

Segment net income (loss)	$	24,910	$	(16,108	)	$	41,018

All three geographic regions of this segment experienced robust sales growth from 2009 levels. As discussed previously, these volume increases were related to both increased end market demand and our customers adopting more normalized ordering patterns. The unfavorable mix resulted as automotive end markets with generally lower sales prices rebounded more quickly than the industrial end markets with generally higher sales prices.

The segment net income was impacted primarily by the large increase in sales volume and the related production efficiencies and leveraging of fixed production costs. The impact of fixed costs and related leveraging of production capacity was significant in this segment as a large portion of our installed capacity is in Western Europe, where labor cost is not easily reduced when production volumes decrease. Additionally, the segment results were favorably impacted by reductions in production costs from planned cost reduction projects. Finally, 2010 depreciation costs were much lower than 2009 depreciation costs within the segment as certain assets depreciated for a full year during 2009 became fully depreciated during the second quarter of 2010.

The positive variance in segment net income for 2010 compared to 2009 was favorably impacted by certain items totaling $4.9 million. The 2010 segment net income was favorably impacted by $1.2 million, after tax, in foreign exchange gains on certain inter-company U.S. Dollar denominated transactions (as discussed above). In addition, the segment net loss for 2009 was increased by $0.8 million due to restructuring charges related to the closure of the Kilkenny Plant taken in 2009 and by $2.9 million of after tax restructuring charges related to the reduction in force at our Veenendaal Plant incurred in 2009.

PRECISION METAL COMPONENTS SEGMENT

(In Thousands of Dollars)	Year ended December 31,
	2010			2009			Change

Net sales	$	54,913		$	45,003		$	9,910
Volume										$	9,910

Segment net loss	$	(8,922	)	$	(4,391	)	$	(4,531	)

The majority of the increase in sales at this segment was due to higher U.S. automotive and industrial demand in 2010 versus 2009. Additionally, 2010 sales increased from the startup of a new multi-year sales program.

Despite a 22% increase in sales from 2009, the 2010 segment net loss increased by $4.5 million from 2009. The favorable impact to 2010 segment net loss from the increased sales volume was approximately $4.0 million. However, the 2010 segment net loss was affected by $4.5 million in charges related to ceasing operations at the Tempe Plant. This includes $2.0 million of severance and other associated closure costs, $1.6 million in charges related to reducing the book values of certain equipment and inventory that ceased to be used, $0.2 million in cost due to the start-up of production of former Tempe Plant products at the Wellington Plant, and $0.7 million from the loss on sale of certain assets that ceased to be used. Additionally, the segment incurred approximately $3.0 million in operational inefficiencies and additional costs related to ramping up production for the new multi-year sales programs discussed above.

PLASTIC AND RUBBER COMPONENTS SEGMENT

(In Thousands of Dollars)	Year ended December 31,
	2010		2009			Change

Net sales	$	39,117	$	30,775		$	8,342
Volume								8,600
Price/Mix								(258	)

Segment net income (loss)	$	2,504	$	(2,091	)	$	4,595

The volume increase for this segment was related to increased U.S. automotive end market demand.

The increase in segment net income for 2010 resulted from the 27% increase in sales and the related operational efficiencies from higher levels of production. Due to effectively managing production costs and resources at the segment, 54% of each dollar of additional sales favorably impacted the segment net income. The volume benefits were partially offset by $0.3 million in severance costs related to permanent administrative salary costs reduction.

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

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 sales 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 decreased more than actual demand in the end markets we serve. We referred to this as the “de-stocking effect” and believed it was due to reduction in the overall inventory levels throughout the supply chain. In most cases, we are several tiers down the supply chain from the ultimate consumer. Thus, we were affected by our customers’ and their customers’ order patterns. We believe during 2009 that those companies higher in the supply chain reduced production and order levels to control their inventory balances.

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 loss for 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 assets and related current 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 the global recession to reduce fixed costs.

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.

OVERALL RESULTS

	Consolidated NN, Inc.
(In Thousands of Dollars)	2009			2008			Change
Net sales	$	259,383		$	424,837		$	(165,454	)
Foreign exchange effects										(8,297	)
Volume										(155,759	)
Price										112
Mix										(179	)
Material inflation pass-through										(1,331	)

Cost of products sold (exclusive of depreciation shown separately below)		235,466			344,685			(109,219	)
Foreign exchange effects										(7,037	)
Volume										(96,608	)
Cost reduction										(9,224	)
Mix										470
Inflation										3,180

Selling, 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		6,359			5,203			1,156
(Gain) loss on disposal of assets		493			(4,138	)		4,631
Write-off of unamortized debt issue cost		604			--			604
Other income, net		(351	)		(850	)		499
Loss before benefit for income taxes		(37,624	)		(26,177	)		(11,447	)
Benefit for income taxes		(2,290	)		(8,535	)		6,245
Net 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 approximately 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.

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 Note 13 of the Notes to Consolidated Financial Statements).

RESULTS BY SEGMENT

METAL BEARING COMPONENTS SEGMENT

(In Thousands of Dollars)	Year ended December 31,
	2009			2008		Change

Net 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.

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			Change

Net 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.

PLASTIC AND RUBBER COMPONENTS SEGMENT

(In Thousands of Dollars)	Year ended December 31,
	2009			2008			Change

Net sales	$	30,775		$	38,942		$	(8,167	)
Volume										(8,429	)
Price/Mix										262

Segment 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.

Changes in Financial Condition from December 31, 2009 to December 31, 2010

From December 31, 2009 to December 31, 2010, our total assets increased $5.9 million and our current assets increased $17.4 million. The depreciation in the value of Euro denominated account balances relative to the U.S. Dollar caused total assets and current assets to decrease approximately $9.3 million and $3.1 million, respectively, from December 31, 2009.

Excluding the foreign exchange effects, accounts receivable was higher by $15.4 million due to the 30% increase in sales volume in December and November of 2010 from sales levels in December and November of 2009. Additionally, the days sales outstanding increased 1 day as of December 31, 2010 from 60.4 days to 61.5 days due to timing of certain customer receipts. Net overdue receivables remained unchanged at approximately 12% of total accounts receivable at December 31, 2009 and at December 31, 2010.

Excluding the foreign exchange effects, inventories increased by $9.5 million from December 31, 2009, primarily from increased raw material inventory, increased work in process inventory and increased finished goods inventory due to higher production volumes in 2010. Inventory levels increased 30% from December 31, 2009 while sales demand was up 45% from 2009. Factoring out foreign exchange effects, property, plant and equipment decreased $5.7 million as year to date capital spending was lower than depreciation and machinery with a net book value of $2.2 million was sold as part of ceasing operations at the Tempe Plant.

From December 31, 2009 to December 31, 2010, our total liabilities increased $4.6 million. The depreciation in the value of Euro denominated account balances relative to the U.S. Dollar caused total liabilities to decrease approximately $3.9 million from December 31, 2009. Excluding the foreign exchange effects, accounts payable increased $19.2 million due to higher production and purchasing levels in response to increased demand in 2010 and due to timing of payments to certain vendors at year end. Additionally, taxes payable increased $2.3 million due to generating taxable income during 2010 at the two European units for which we are recognizing tax benefits and expenses. Partially offsetting both of these increases was the $13.6 million reduction in long and short term debt.

Working capital, which consists principally of accounts receivable and inventories offset by accounts payable and current maturities of long-term debt, was $32.1 million at December 31, 2010 as compared to $29.8 million at December 31, 2009. The ratio of current assets to current liabilities decreased from 1.44:1 at December 31, 2009 to 1.38:1 at December 31, 2010. The decrease in working capital was due primarily to movements in accounts receivable, inventory, and accounts payable discussed above.

Cash flow provided by operations was $27.9 million for 2010 compared with cash flow provided by operations of $14.8 million for the same period in 2009. The favorable variance in cash flow provided by operations was principally due to the favorable improvement in net income in 2010. Partially offsetting this impact was the unfavorable effect from increasing net working capital in 2010 versus decreasing net working capital in 2009. The working capital increases, as discussed above, were due to increased sales and production volumes experienced during 2010.

Liquidity and Capital Resources

On December 21, 2010, we entered into an amended and restated revolving credit facility expiring December 21, 2014 with Key Bank as administrative agent with an initial size of $75 million. The amended agreement was entered into to adjust our financial and non-financial covenants to more normalized measures and to provide greater ability to fund our capital investment plans. The interest rate was amended to LIBOR plus a margin of 1.5 to 3.5% (depending on the level of the ratio of debt to EBITDA) from LIBOR plus a margin of 4.75%. The facility may be expanded upon our request with approval of the lenders by up to $60 million, under the same terms and conditions. On March 9, 2011, we exercised an option to increase the size of the facility from $75 million to $100 million to allow additional flexibility and to fund potential growth projects. The loan agreement 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 were capitalized and will be amortized into interest expense over the life of the facility. As of December 31, 2010 and 2009, $2.0 million and $2.1 million, respectively, of net capitalized loan origination costs were on the balance sheet within other non-current assets.

On December 21, 2010, our senior note agreement with Prudential Capital was also amended. The amended agreement was entered into to adjust our financial and non-financial covenants to more normalized measures. There were no changes to the terms or availability of credit and the interest rate was reduced from 8.50% to 6.70%. The agreement 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, 2010, $22.9 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, 2010 and 2009 was $0.4 million and $0.4 million, respectively

Amounts outstanding under our $75.0 million credit facility and our $40.0 million senior notes as of December 31, 2010 were $50.5 million, with nothing outstanding under our swing line of credit, and $22.9 million, respectively. As of December 31, 2010, we could borrow up to an additional $23.8 million under the $75.0 million credit facility, including $10.0 million under our swing line of credit, subject to limitations based on existing financial covenants. However, based on current forecasts we do not expect any limitations of the access to this available credit. The $23.8 million is net of $0.7 million of outstanding letters of credit at December 31, 2010 which are considered as usage of the facility. See Note 7 of the Notes to Consolidated Financial Statements. We were in compliance with all covenants related to the amended and restated $75.0 million credit facility and the amended and restated $40.0 million senior notes as of December 31, 2010. The specific covenants to which we are subject and our actual results compared to those covenants are disclosed in Note 7 of the Notes to Consolidated Financial Statements.

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, 2010 and 2009, see Note 16 of the Notes to Consolidated Financial Statements.

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 2010, the fluctuation of the Euro against the U.S. Dollar negatively impacted sales and net income. 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, 2010, 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 38% of consolidated net sales in 2010. During 2010, sales to various U.S. and foreign divisions of our ten largest customers accounted for approximately 75% of our consolidated net sales. None of our other customers individually accounted for more than 10% of our consolidated net sales for 2010. 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 2010, we spent approximately $15.2 million on capital expenditures. During 2011, we plan to spend approximately $23.0 million on capital expenditures, the majority of which is related to new or expanded business. While there can be no assurances due to the liquidity issues discussed above, we believe that funds generated from operations and borrowings from the credit facilities will be sufficient to finance our capital expenditures and working capital needs through December 2011. We base this assertion on our current availability for borrowing under our $100 million credit facility and our forecasted positive cash flow from operations for 2011.

Due to the impacts of the global economic recession and the resulting reduction in revenue and operating losses, our wholly owned German subsidiary Kugelfertigung Eltmann GbmH (“Eltmann” or “Eltmann Plant”) sustained a significant weakening of its financial condition during the years ended December 31, 2009 and 2010 with net losses incurred of $2.8 million and $0.5 million, respectively, during those years. As a result, Eltmann became technically insolvent at which point Eltmann was required to file for bankruptcy under German bankruptcy law. The filing was made in the bankruptcy court in Germany on January 20, 2011. Since this date, NN has lost the ability to control or manage Eltmann as a result of the bankruptcy court trustee taking over effective control and day to day management of this subsidiary. After a period of evaluation, the trustee will hold a preliminary hearing to determine whether Eltmann should be liquidated. The ultimate impact on NN of Eltmann filing for bankruptcy will depend on the findings of the bankruptcy court. However, under advice of legal counsel, we believe NN will relinquish all assets and liabilities of Eltmann which have a carrying value of approximately $8.5 million and $8.5 million, respectively, at January 20, 2011. However, until such court proceedings are finalized, we will not be able to determine what liabilities and contingent obligations, if any, might remain as the responsibility of NN. As of December 31, 2010, all Eltmann Plant assets and liabilities remain on the consolidated financial statements of the Company. We do not anticipate any significant disruption of normal product flow to our customers being served by Eltmann prior to the bankruptcy filing and have the installed capacity within our remaining plants to meet this demand. As a result of loss of control of this subsidiary, concurrent with the bankruptcy filing during the first quarter of 2011, NN will deconsolidate the assets and liabilities of Eltmann from our Consolidated Financial Statements effective January 20, 2011.

The table below sets forth our contractual obligations and commercial commitments as of December 31, 2010 (in thousands):

	Payments Due by Period
Certain Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Long-term debt including current portion	$	73,357	$	5,714	$	11,428	$	56,215	$	--
Expected interest payments		11,785		3,071		4,993		3,721		--
Operating leases		16,306		2,848		4,170		3,613		5,675
Capital leases		4,057		275		550		550		2,682
Total contractual cash obligations	$	105,505	$	11,908	$	21,141	$	64,099	$	8,357

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 13 of 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, 2010 and 2009, see Note 16 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 three to six months in the U.S. and annually in Europe for base prices but quarterly for surcharge adjustments. In the past, we have been able to minimize the impact on our operations resulting from the steel price fluctuations by adjusting selling prices to our customers periodically in the event of changes in our raw material costs.

Recently Issued Accounting Standards

As of December 31, 2010, there are no new accounting pronouncements that are expected to significantly affect the Company.

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, 2010 under operating leases that have initial or remaining non-cancelable lease terms in excess of one year (in thousands).

Year ending December 31,

2011	$	2,848
2012		2,127
2013		2,043
2014		1,821
2015		1,793
Thereafter		5,674

Total minimum lease payments	$	16,306

Item 7A. 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, 2010, we had $22.9 million of fixed rate senior notes outstanding and $50.5 million outstanding under the variable rate revolving credit facilities. At December 31, 2010, a one-percent increase in the interest rate charged on our outstanding variable rate borrowings would result in interest expense increasing annually by approximately $0.5 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 2010, 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 2010, nor did we hold a position in any foreign currency hedging instruments as of December 31, 2010.

Item 8.

Financial Statements and Supplementary Data

Index to Financial Statements

Financial Statements Page

Report of Independent Registered Public Accounting Firm ................................................................................................................................................ 36

Consolidated Balance Sheets at December 31, 2010 and 2009 ................................................................................................................................................ 37

Consolidated Statements of Operations and Comprehensive Loss

for the years ended December 31, 2010, 2009 and 2008 ................................................................................................................................................. 38

Consolidated Statements of Changes in Stockholders’ Equity for the

years ended December 31, 2010, 2009 and 2008 ............................................................................................................................................... 39

Consolidated Statements of Cash Flows for the years ended

December 31, 2010, 2009 and 2008 ............................................................................................................................................... 40

Notes to Consolidated Financial Statements .............................................................................................................................................. 41

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 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, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 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, 2010, 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 15, 2011

NN, Inc.

Consolidated Balance Sheets

December 31, 2010 and 2009

(In thousands, except per share data)

Assets	2010		2009
Current assets:
Cash and cash equivalents	$	5,556	$	8,744
Accounts receivable, net		63,331		49,412
Inventories, net		41,882		33,275
Income tax receivable		530		3,196
Other current assets		4,371		3,656
Total current assets		115,670		98,283

Property, plant and equipment, net		118,488		129,715
Goodwill		8,396		9,278
Intangible assets, net		900		1,506
Non-current deferred tax assets		238		260
Other non-current assets		4,863		3,610
Total assets	$	248,555	$	242,652

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	55,549	$	38,048
Accrued salaries, wages and benefits		13,548		14,469
Income taxes payable		2,560		--
Current maturities of long-term debt		5,714		9,405
Current portion of obligation under capital lease		275		266
Other liabilities		5,941		6,301
Total current liabilities		83,587		68,489

Non-current deferred tax liability		3,954		3,558
Long-term debt, net of current portion		67,643		77,558
Accrued pension		13,438		14,308
Obligation under capital lease, net of current portion		1,826		1,820
Other non-current liabilities		--		116
Total liabilities		170,448		165,849

Commitments and Contingencies (Note 15)

Stockholders’ equity:
Common stock - $0.01 par value, authorized 45,000 shares, issued and outstanding 16,620 in 2010 and 16,268 in 2009.		167		163
Additional paid-in capital		51,863		49,861
Retained earnings		6,675		259
Accumulated other comprehensive income		19,402		26,520
Total stockholders’ equity		78,107		76,803
Total liabilities and stockholders’ equity	$	248,555	$	242,652

See accompanying notes to consolidated financial statements

NN, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Years ended December 31, 2010, 2009 and 2008

(In thousands, except per share data)

	2010			2009			2008

Net sales	$	365,369		$	259,383		$	424,837
Cost of products sold (exclusive of depreciation shown separately below)		296,422			235,466			344,685
Selling, general and administrative		30,407			27,273			36,068
Depreciation and amortization		19,195			22,186			27,981
(Gain) loss on disposal of assets		808			493			(4,138	)
Impairment of goodwill		--			--			30,029
Restructuring and impairment charges, excluding goodwill impairment		2,289			4,977			12,036
Income (loss) from operations		16,248			(31,012	)		(21,824	)

Interest expense		6,815			6,359			5,203
Write-off of unamortized debt issuance cost		130			604			--
Other income, net		(1,682	)		(351	)		(850	)
Income (loss) before provision (benefit) for income taxes		10,985			(37,624	)		(26,177	)
Provision (benefit) for income taxes		4,569			(2,290	)		(8,535	)
Net income (loss)	$	6,416		$	(35,334	)	$	(17,642	)

Other comprehensive loss:
Actuarial loss recognized in change of projected benefit obligation (net of tax of $0, $0 and $0, respectively)		(392	)		(315	)		(58	)
Foreign currency translation gain (loss)		(6,726	)		2,356			(3,232	)
Comprehensive loss	$	(702	)	$	(33,293	)	$	(20,932	)

Basic income (loss) per share:
Net income (loss)	$	0.39		$	(2.17	)	$	(1.11	)
Weighted average shares outstanding		16,455			16,268			15,895

Diluted income (loss) per share:
Net income (loss)	$	0.39		$	(2.17	)	$	(1.11	)
Weighted average shares outstanding		16,570			16,268			15,895
Cash dividends per common share	$	0.00		$	0.00		$	0.24

See accompanying notes to consolidated financial statements

	Common Stock
	Number of Shares		Par Value		Additional paid in capital			Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance, December 31, 2007		15,855	$	159	$	45,032		$	57,083		$	27,769		$	130,043
Shares issued		498		5		3,857			--			--			3,862
Tax benefits on option exercised		--		--		1,197			--			--			1,197
Net loss		--		--		--			(17,642	)		--			(17,642	)
Restricted stock awards expense		--		--		(196	)		--			--			(196	)
Stock option expense		--		--		647			--			--			647
Dividends declared		--		--		--			(3,848	)		--			(3,848	)
Foreign currency translation loss		--		--		--			--			(3,232	)		(3,232	)
Actuarial loss recognized in change of projected benefit obligation (net of tax $0)