Johnson City, Tenn, August 6, 2013 – NN, Inc. (NASDAQ: NNBR) today reported its financial results for the period ended June 30, 2013. Net sales for the second quarter of 2013 decreased $2.5 million, or 2.5% to $96.3 million, compared to net sales of $98.8 million for the second quarter of 2012. The Company made the strategic decision to discontinue the production and sale of certain non-strategic, low profit products in the Precision Metal and Plastic and Rubber Segments. This decision accounted for the majority if the $2.5 million in sales reduction.
Net income for the second quarter of 2013 was $4.8 million, or $0.28 per diluted share, compared to $7.0 million, or $0.41 per diluted share for the same period last year. The reduction of $2.2 million was mainly due to the recording of approximately $1.0 million more of non-operating foreign exchange gains in the second quarter of 2012 compared to the second quarter of 2013 and the recording of approximately $1.3 million in higher taxes in the second quarter of 2013 compared to the second quarter of 2012. The higher taxes are the result of the use of an effective tax rate of 36% for the second quarter of 2013 compared to an effective rate of 16% for the second quarter of 2012. This difference is due to the utilization of net operating loss valuation allowances in 2012 that completely offset U.S. based taxable income for the quarter. These allowances were reversed as of December 31, 2012.
Net sales for the first six months of 2013 decreased $13.2 million, or 6.5% to $190.1 million, compared to net sales of $203.3 million for the first six months of 2012. A decrease of $13.3 million was attributable to lower demand for the Company’s products, mainly due to European automotive end markets and slowing Asian economic growth. The negative impact of price and mix of approximately $1.1 million was offset by the favorable effects of foreign exchange of approximately $1.2 million.
Net income for the first six months of 2013 was $7.6 million, or $0.45 per diluted share, compared to net income of $12.9 million, or $0.76 per diluted share, for the comparable period last year. The reduction of $5.3 million was mainly due to the effect of lower sales which accounted for approximately $3.1 million of the reduction, the recording of approximately $1.0 million more in non-operating losses in the first six months of 2013 compared to the first six months of 2012, and the recording of approximately $1.2 million in higher taxes in the first six months of 2013 compared to the first six months of 2012. The higher taxes are the result of the use of an effective tax rate of 35% for the first six months of 2013 compared to an effective rate of 18% for the first six months of 2012. This rate difference is due to the utilization of net operating loss valuation allowances in 2012 that completely offset U.S. based taxable income for the quarter. These allowances were reversed as of December 31, 2012.
As a percentage of net sales, cost of goods sold in the second quarter of 2013 of 78.7% decreased slightly as compared to 78.8% for last year’s second quarter. Cost of products sold for the first six months of 2013 of 79.0% decreased slightly as compared to 79.1% for the same period last year. These decreases reflect ongoing cost reduction programs and operational initiatives.
Debt, net of cash, was $46.5 million at June 30, 2013, a decrease of $4.0 million compared to $50.5 million at December 31, 2012. As of June 30, 2013, approximately $4.9 million, or 29% of the planned capital budget of $17.0 million for the year had been utilized. Typically, capital expenditures are more weighted to the second half of the year.
Richard D. Holder, President and Chief Executive Officer commented, “We began to experience positive revenue momentum during the second quarter of this year due to a slight demand increase in the European heavy truck market and our ability to better penetrate the markets of existing customers in Europe. Our second quarter sales increased $2.5 million over sales for the first quarter of this year. Although we are encouraged by this development, the protracted general global economic uncertainty causes us to remain cautious regarding the second half of the year. Therefore, we are holding our estimates for the second half and full year at this time.
“Compared to the same period last year, weak economic conditions in Europe and Asia continued to negatively impact demand in the second quarter. Additionally, we made the strategic decision to shed non-core, non-strategic low profit products and customer platforms. This action, while having a short-term negative impact on sales, will position us for growth and allow us to be a more profitable organization going forward.”
Mr. Holder concluded, “During the first half of the year, we continued to pursue the initiatives we began three years ago of improved operating performance, cost structure enhancements and the strengthening of our balance sheet. When the European automotive market returns we will be better positioned to deliver added profit to the bottom line. During the second quarter, we began the process of revising and enhancing our current business strategy. This strategy will include, among other initiatives, plans to more aggressively pursue acquisitive and organic growth opportunities in our core and adjacent markets. We look forward to sharing details of this strategy in the fourth quarter of this year.”
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 10 manufacturing plants in the United States, Western Europe, Eastern Europe and China. NN, Inc. had sales of US $370 million in 2012.
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