significantly. Also, increases or decreases in sales and
profitability affect certain costs such as incentive
and commissions, which are highly 13
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variable in nature. The Company's sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing pressures and foreign currency fluctuation. • Variable margin on sales The Company's variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials. This is also affected by a number of factors, which include the Company's sales mix, purchase prices of raw material (especially polymers, stainless steel and purchased
competition, both domestic and international, direct labor costs, and the efficiency of the Company's production operations, among others. • Fixed cost structure The Company's operations include a number of large fixed or semi-fixed cost components, which include salaries, indirect labor and benefits, facility costs, lease expense, and depreciation and amortization. It is not possible to vary these costs easily in the short-term as volumes fluctuate.
increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components, resulting in a large impact on the Company's profitability. Overall Summary of Financial Results for the Three Months and Six Months Ended
June 29, 2013For the three months ended June 29, 2013, net sales decreased by $10.7 million, or 6%, to $177.5 millioncompared to $188.2 millionfor the three months ended June 30, 2012. Net sales for the first six months of 2013 were $342.6 million, down 6% from $363.6 millionin the comparable year-ago period. The year-over-year decline in net sales primarily reflected continued softness in semiconductor industry spending compared to the first half of 2012. The trends in the semiconductor industry remained mixed. Sequentially, overall demand in the semiconductor industry improved, but the level and extent of the strength was not uniform. There was strong demand from leading edge fabs, although in aggregate utilization rates remained well below peak levels for the industry. The sales decrease for the three-month and six-month periods ended June 29, 2013included unfavorable foreign currency translation effects of $4.8 millionand $7.9 million, respectively, primarily related to the weakening of the Japanese yen versus the U.S. dollar. Excluding this factor, net sales decreased 3% and 4% for the three-month and six-month periods in 2013 when compared to the year-ago periods. Primarily reflecting the year-over-year sales decrease, the Company reported a lower gross profit in the second quarter and first half of 2013 when compared to the comparable year-ago periods. The decrease in sales was the primary factor underlying the decline in gross profit. The Company's gross margin rate for the second quarter was 43.7% compared to 44.0% in the year-ago period, while gross margin for the first six months of 2013 was 42.2% compared to 43.7% in the comparable period a year ago. Operating costs, consisting of selling, general and administrative (SG&A) and engineering, research and development (ER&D) costs were flat for the second quarter of 2013 when compared to the year-ago quarter. Operating costs for the first half of 2013 fell 2% compared to the first half of 2012, slightly offsetting the decrease in gross profit. The Company's effective tax rate decreased to 26.0% in 2013, compared to 33.2% in 2012. The effective tax rate in 2013 included a $1.3 millionbenefit associated with the reinstatement of the U.S. federal credit for increasing research expenditures, as retroactively signed into law and recorded by the Company in the first quarter of 2013. The Company's operating segments experienced varied net sales results for the three-month and six-month periods as described in greater detail below.