November 4, 2008 – NN, Inc. (Nasdaq: NNBR) today reported its financial results for the third quarter and nine months ended September 30, 2008. Net income for the nine months ended September 30, 2008 includes a gain on the sale of surplus land and a one time adjustment to taxes related to a change in Italian tax laws. Results for the third quarter and the nine months ended September 30, 2007 include certain restructuring and other one time charges. Additionally, the financial statements for the third quarter and nine months ended September 30, 2007 reflect the restatement of the Company’s June 30, 2007 and September 30, 2007 financial statements. These statements were restated in February 2008 to correct an error in assumptions used to test the impairment of a customer contract intangible asset under SFAS 144. Refer to the Company’s filed June 30, 2007 and September 30, 2007 10-Q/A’s for further discussion.
Net sales for the third quarter of 2008 were $104.9 million, an increase of $5.9 million or 5.90%, compared to net sales for the third quarter of 2007 of $99.0 million. The increase was primarily due to the positive effect of currency exchange of $5.2 million (+5.3%). Additionally, raw material pass-through and price increases of $3.4 million (+3.4%) were partially offset by net volume decreases of $2.7 million (-2.7%).
Net income for the third quarter of 2008 was $2.9 million, or $0.18 per diluted share compared to net income of $0.4 million, or $0.02 per diluted share for the third quarter of 2007. The 2007 third quarter includes the recording of approximately $1.3 million, or $0.08 per diluted share in after-tax restructuring and impairment costs. Excluding the impact of the restructuring and impairment costs recorded in the quarter, net income for the third quarter of 2007 was $ 1.7 million, or $0.10 per diluted share.
Net sales for the first nine months of 2008 were $348.6 million, an increase of $34.4 million, or 11.0% compared to net sales of $314.3 million for the first nine months of 2007. The increase was primarily due to the positive effect of currency translation of $23.0 million (+7.3%), net volume increases of $7.5 million (+2.4%) and net favorable price/mix of $3.9 million (+1.3%).
Net income for the first nine months of 2008 was $17.2 million, or $1.08 per diluted share compared to a net loss for the first nine months of 2007 of $6.2 million, or $0.37 per diluted share. Net income for the first nine months of 2008 includes approximately $3.0 million, or $0.19 per diluted share in after-tax gains on the sales of surplus land in The Netherlands and a one-time adjustment to taxes of approximately $1.1 million, or $0.07 per diluted share that relates to a change in Italian tax law. Excluding these items, net income was $13.1 million, or $0.82 per diluted share. Additionally, net income for the first nine months of 2007 includes the recording of approximately $14.7 million, or $0.87 per diluted share in after-tax restructuring and impairment costs. Excluding the impact of the restructuring and impairment costs, net income was $8.5 million, or $0.50 per diluted share for the first nine months of 2007.
As a percentage of net sales, cost of products sold for the third quarter of 2008 was 79.9% compared to 81.1% recorded for the prior year period. The cost of products sold for the first nine months of 2008 of 79.6% compared to 80.0% for the same prior year period. For both periods, significant inflationary cost increases in manufacturing costs, energy and labor were more than offset by cost reductions associated with our Level 3 program.
Selling, general and administrative expenses were $9.7 million, or 9.3% of net sales for the third quarter of 2008 compared to $8.4 million or 8.5% of net sales for the third quarter of 2007. For the first nine months of 2008, selling, general and administrative expenses were $30.0 million, or 8.6% of net sales compared to $27.4 million, or 8.7% of net sales for the same period in 2007. Of the $2.6 million increase in selling, general and administrative expenses, currency accounted for 73% of the dollar increase.
Mr. James Dorton, Vice President and Chief Financial Officer commented, “The results from our operations for the first nine months of 2008 represent a record for both revenues and earnings for a nine month period. The reported earnings per share of $1.08 per diluted share include the aforementioned one time positive adjustments related to the gain on sale of surplus land and a one time tax adjustment. After adjusting for these items, the adjusted diluted earnings per share of $0.82 from normalized operations still represent a record in earnings per share for the nine month period and is up 64% from 2007 performance”
Mr. Dorton continued, “During the first nine months of the year, we benefited from strong customer demand in industrial end markets in both North America and Europe. We also continued to benefit from improved performance at Whirlaway, Slovakia and China. Our Level 3 program continued to deliver excellent cost reduction results to the bottom line during the first nine months. These cost reductions offset significant inflation mainly in energy and steel related costs in our global operations. As a result, our core Metal Bearing Components operations in both the U.S. and Europe recorded excellent results which exceeded our beginning of the year forecast for both revenue and earnings. On the down side, our North American Rubber, Plastics and Precision Metal operations continued to be negatively impacted by further reductions in North American automotive demand. Further, in September we experienced a sudden and significant reduction in customer demand in Europe that we believe will continue into the fourth quarter and lead to significantly lower revenues between now and the end of the year.”
Mr. Dorton, concluded, “On September 12, 2008 we announced that our Board of Directors had authorized a new share repurchase program for the purchase of up to $20.0 million of the Company’s stock in the open market. This new program which will be in effect for one year began on September 12, 2008 and takes the place of the program that expired in September of this year. Under the expired program, we purchased 797,209 shares ($7.6 million) of the Company’s stock. Under the new program, we have not purchased any of the Company’s stock through the end of September 30, 2008. Given the current global credit and economic uncertainty, we do not anticipate purchasing shares under this program for the immediate future. Should business conditions improve, we will continue to purchase shares under this program as market conditions and regulations allow.”
Roderick R. Baty, Chairman and Chief Executive Officer, commented, “In our last earnings release in July of this year, we stated that we were encouraged by our strong results for the first six months given the global economic uncertainty. Relative to the remainder of the year, we had anticipated the strong levels of industrial end market demand we were experiencing in North America and Europe would continue into the fourth quarter of 2008. We did anticipate we would experience the negative impact of a significant acceleration of reduced North American automotive demand for the last half of 2008 and we forecasted that European automotive demand would weaken over the last half of 2008. Given these global economic factors, our normal seasonality during the third quarter and our customer forecasts for the remainder of the year, we had anticipated that even though our results for the second half of the year would be lower than the results we experienced in the first half of the year, we would exceed our previously communicated guidance of $0.90 to $0.95 per diluted share for the full year.”
Mr. Baty continued, “However, driven by current customer forecasted reductions of 20% or more in automotive end market demand, we expect to experience in the fourth quarter a significant and sudden volume decline in Europe and a continuing deterioration of volumes in North America well beyond our mid-year forecast and guidance. In the fourth quarter, our current forecast calls for a revenue reduction of more than $20 million, or a 20% decline in comparison to our beginning of the year forecast. We are currently taking significant operational actions to insure that our cost structure is adjusted accordingly to this dramatic volume reduction. Additionally, to optimize our cash flow during this difficult period, we are reviewing and eliminating all discretionary capital spending and aggressively managing working capital to insure cash preservation. Given this outlook and the current uncertainties surrounding the global economies, we now expect earnings for the fourth quarter to be slightly better than break-even and full year earning per diluted share in the range of $0.83 to $0.85. This guidance excludes the positive impact of the recording of $0.19 per diluted share in after-tax gains on the sale of surplus land in The Netherlands and a one-time adjustment to taxes of $0.07 per diluted share that relates to a change in Italian tax law.”
NN, Inc. manufacturers and supplies high precision metal bearing components, industrial plastic and rubber products and precision metal components to a variety of markets on a global basis. Headquartered in Johnson City, Tennessee, NN has 14 manufacturing plants in the United States, Western Europe, Eastern Europe and China. NN, Inc. had sales of US $421 million in 2007.
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