MINNEAPOLIS — Northern Technologies International Corporation (Nasdaq:NTIC) announced Monday that, effective as of Dec. 31, 2014, its ZERUST(R) products and services will be sold in China through a newly formed wholly-owned subsidiary, NTIC (Shanghai) Co., Ltd. (NTIC China), and has terminated its previous joint venture relationship in China with Tianjin-Zerust Anticorrosion Co., Ltd.
"NTIC now has an opportunity to grow more aggressively in this very important international market. Our new subsidiary is focusing first on transitioning customers of NTIC's former Chinese joint venture to the new entity and then will dedicate its efforts towards aggressively expanding our market presence," said G. Patrick Lynch, President and Chief Executive Officer of NTIC.
NTIC indirectly had a 30 percent ownership interest in its former Chinese joint venture through its 60 percent owned holding company subsidiary, NTI Asean LLC. Commencing during the second quarter of fiscal 2015, NTIC's consolidated financial statements will include the financial results of NTIC China.
"Our previous Chinese joint venture had net sales of almost $16 million and operating income before paying royalties to shareholders of more than $5.5 million during fiscal 2014. NTIC's 30 percent portion of the Chinese joint venture's operating income was over $1.6 million this past fiscal year, which means that assuming we are successful in transitioning the sales of our former Chinese joint venture to NTIC China, our earnings should significantly increase since NTIC will fully consolidate 100 percent of the net sales and operating income earned from NTIC China," said G. Patrick Lynch, President and Chief Executive Officer of NTIC.
Additionally, NTIC anticipates that due to the consolidation of NTIC China, NTIC's net sales, costs of goods sold and operating expenses will increase and its equity in income from joint ventures and fee income for services provided to its joint ventures will decrease in future periods compared to the prior fiscal year periods, since NTIC accounted for its investment in the former Chinese joint venture in its financial statements utilizing the equity method of accounting.
NTIC anticipates that it may take some time to transition the previous customers of NTIC's former Chinese joint venture to NTIC China and no assurance can be provided that NTIC China will be able to achieve the net sales and income levels previously achieved by NTIC's former Chinese joint venture. In the meantime, NTIC has incurred start-up expenses, beginning with its first quarter of fiscal 2015, and expects to incur losses at NTIC China as it initiates operations prior to recognizing any revenue. As a result, NTIC expects that its operating results may be volatile over the next few quarters, including in particular its second quarter of fiscal 2015. NTIC does not anticipate at this time that it will have any loss on the liquidation of its ownership interest in its former joint venture in China.
NTIC plans to report its financial results for first quarter of fiscal 2015 and update its fiscal 2015 guidance before the market opens on Wednesday, Jan. 7, to be followed by its quarterly conference call at 8:00 a.m. Central Time that day.
Northern Technologies International Corporation develops and markets proprietary environmentally beneficial products and services in over 60 countries either directly or via a network of majority-owned subsidiaries, joint ventures, independent distributors, and agents.
NTIC's primary business is corrosion prevention marketed primarily under the ZERUST(R) brand. NTIC has been selling its proprietary ZERUST(R) rust and corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets, for more than 40 years, and in recent years has targeted and expanded into the oil and gas industry. NTIC offers worldwide on-site technical consulting for rust and corrosion prevention issues.
