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NN Inc. reports $9.5 million loss; cost-cutting may be on the way

JEFF KEELING • May 7, 2009 at 12:00 AM

Just six months after it was generating record profits, locally headquartered manufacturer NN Inc. reported a $9.5 million first-quarter loss Wednesday and warned of further cost-cutting as it continued to be hammered by the global recession. In addition to lower demand, NN’s customers continued reducing their own inventories, which sent net sales to $57.9 million — less than half the $121.5 million in the first quarter of 2008, when NN posted a profit of $5.1 million. NN makes high precision metal bearing components, industrial plastic and rubber products and precision metal components on three continents. The company, which operates 12 facilities including plants in Erwin and Mountain City, “will continue to aggressively cut costs and maximize our cash flow to protect our liquidity situation,” CEO Rock Baty said Wednesday. Since the fall, cost-cutting has included a 33 percent reduction in employment locally, from 300 to 200, as well as reduced hours for those local workers who remain. Baty said he hopes the coming months will allow NN to avoid any further local layoffs. “Our local employees are simply the best in terms of attitude and work ethic,” Baty said. “They continue to amaze me in terms of their understanding, sacrifices and willingness to assist in any way they can to ensure we survive this downturn.” The first-quarter loss comes on the heels of a $2.6 million net loss in the fourth quarter of 2008, which came after record revenue and earnings through 2008’s first three quarters. Baty said while customers’ inventory “destocking” should end in the current (April-June) quarter, he doesn’t see a turnaround in overall demand anytime soon. The destocking accounted for 10 to 20 percent of sales declines, with reduced demand making up the other 30 to 40 percent. “We have seen no signs that the current economic conditions will improve in the near term,” Baty said. “We therefore are assuming the worst-case scenario, which is that the levels of demand we experienced in the first quarter will persist for the remainder of 2009.” While NN already has closed plants in Ireland and Ontario since the slowdown began, reduced management salaries, laid off workers and cut spending, the lower demand continued to push up “unit cost” — the cost to the company for every dollar of sales. That figure averaged 80 or 81 cents for most of 2007 and 2008, jumped to 88 cents in the fourth quarter and reached nearly 97 cents in the first quarter of 2009. As to the local situation, Baty said employees in Erwin and Mountain City continue to contribute greatly to the company’s success as they work about 20 percent fewer hours than a full-time schedule to help contain costs. Despite the large drops in sales, NN has been able to keep its cash position relatively strong, at better than $8 million as of March 3

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