NN Inc. (USA; NASDAQ: NNBR) announced financial results for third quarter 2008, ended September 31, 2008.

NN is the world's largest dedicated manufacturer of bearing components -- antifriction bearing balls, rolls, seals and retainers -- for a wide variety of bearing manufacturers worldwide. The company also produces highly engineered plastic components to customer specification.

Due to its position, NN is considered both a long-lead indicator and bellwether for the international bearing industry as a whole. It operates 14 manufacturing facilities, spread worldwide. In the past, the company's geographic and customer diversity has helped it avoid any widespread business downturn; however, NN is now dealing for the first time with slowdowns in all of its major markets simultaneously.

Sales in the quarter totaled $105 million, up from $99 million in third quarter 2007. However, the impact of foreign exchange and currency effects undid all operating efforts.

Net income would have been $2.9 million in the third quarter, from $398,000 in third quarter 2007. But foreign currency translation losses in the recent quarter were $13.7 million, taking the company to a comprehensive net loss of $10.7 million for the quarter. By comparison, 2007's third quarter net income of $398,000 was aided by $5.3 million in currency translation gains, for comprehensive net income of $5.7 million.

In the earnings call, CFO James Dorton explained NN, "is impacted in multiple ways by the dollar-euro exchange rate, In general, we benefit from a strong euro. During the quarter, the euro weakened against the dollar from its all time high of around $1.60 to $1.41 at September 30. This tended to reduce potential earnings from Europe, and it also brought down asset and liability levels in the balance sheet."

Excluding currency effects, Mr. Dorton said NN had been on track for an outstanding quarter, with July and August above plan. U.S. operations which are heavily dependent on the automotive sector were off sharply, but Industrial demand had remained fairly strong worldwide. And troubled operations were dramatically improved at Whirlaway, and plants in China and Slovakia -- factories which were a drag on earnings in 2007.

For financing backstop to get through the current difficult economic climate, Mr. Dorton said NN had been fortunate to set up a credit agreement of $135 million some time ago, against which the company has drawn $73 million at LIBOR plus 93 basis points; other funding with Prudential has kept the cost of funds below 5%.

Despite existing funds availability, Mr. Dorton said the current economic climate dictates NN cut back on nonessential capital expenditures on order to help avoid the potential for future liquidity issues.

Rock Baty, President and CEO, said looking forward that the company's outlook has changed dramatically. In addition to the predicted and expected slump in North American automotive, there has been a significant and sudden drop in European automotive demand, coupled with softening in some industrial end markets.

Mr. Baty said NN will pursue several courses of action in the near future: taking variable costs out of the company's 14 plants worldwide; freezing all capital except capital spending on new business programs and growth; eliminating all noncritical discretionary expenses; focusing more carefully on cash generation and conservation; and an ongoing review of global manufacturing capacity -- with an eye toward resizing capacity to match the new global market realities.

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