PART I
General
We are a leading global manufacturer and supplier of two types of consumable products used primarily in the production of paper—machine clothing and roll covers. We market our products through the following industry-recognized brands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
Product Category
|
|
Geographic Region
|
|
Huyck Wangner
|
|
Machine Clothing
|
|
Worldwide other than North America
|
|
Weavexx
|
|
Machine Clothing
|
|
North America
|
|
Stowe Woodward
|
|
Roll Covers & Spreader Rolls
|
|
Worldwide
|
|
Mount Hope
|
|
Spreader Rolls
|
|
Worldwide
|
|
Robec
|
|
Spreader Rolls
|
|
Europe
|
|
Xibe
|
|
Roll Covers
|
|
China
|
We have an extensive global footprint of 28 manufacturing facilities in 12 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 3,200 employees worldwide. We market our products, primarily using our direct sales force, to the paper industry’s leading producers. In 2013, we generated net sales of
$546.9 million
.
Company Overview
Our machine clothing and roll cover products are primarily installed on pulp and paper-making machines and play key roles in the process by which raw materials are converted into finished paper. A fundamental characteristic of our products is that they are consumed in the paper production process and must be regularly replaced. This positions us to make recurring sales to our customers, and accordingly, the number of paper machines in operation throughout the world and the amount of paper, pulp and board produced globally each year are primary drivers of the demand for our products. In addition, our products are also installed in other industrial applications such as nonwoven and fiber cement machines.
Paper-making machines utilize different processes and have different requirements depending on the design of the machine, the raw materials used, the type of paper being made and the preferences of individual production managers. We employ our broad portfolio of patented and proprietary product and manufacturing technologies, as well as our extensive industry experience, to provide our customers with tailored solutions designed to optimize the performance of their equipment and dramatically reduce the costs of their operations. We systematically track and report the impact of these customized solutions to our customers through our ValueResults program which quantifies the optimization process on their machines.
Our machine clothing products are highly engineered synthetic textile belts that transport and filter paper as it is processed in a paper-making machine. Machine clothing plays a significant role in the forming, pressing and drying stages of paper production. Our machine clothing segment represented 64% of our net sales for the year ended
December 31, 2013
, and 66% for the years ended December 31, 2012 and 2011.
Roll cover products cover the rolls on a paper-making machine, which are the large steel cylinders over which machine clothing is mounted and between which the paper travels as it is processed. Our roll covers provide a surface with the mechanical properties necessary to process the paper in a cost-effective manner that delivers the sheet qualities desired by the paper producer. We currently use several hundred chemical compounds in our roll cover manufacturing process. Our roll cover segment represented 36% of our net sales for the year ended
December 31, 2013
, and 34% for the years ended December 31, 2012 and 2011.
Our products are in constant contact with the paper during the manufacturing process. As a result, our products have a significant effect on paper quality and the ability of a paper producer to differentiate its products, two factors which are increasingly important to paper producers. In addition, while machine clothing and roll covers represent only approximately 3%, on average, of a paper producer’s production costs, they can help a paper producer improve productivity and reduce overall costs. Our machine clothing and roll covers facilitate the paper producers' use of less expensive raw materials (including recycled fiber), their ability to run paper-making machines faster and with fewer interruptions, and their ability to decrease the amount of energy required in the expensive drying portion of the paper-making process. We have found that, in certain cases,
our products and services provide paper producers with cost savings that substantially offset the costs of such products and services.
We estimate that there are approximately 7,000 paper-making machines worldwide, all of which require a regular supply of machine clothing and roll covers. Machine clothing and roll covers must be replaced regularly to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, a service that we provide to our customers. Paper producers typically replace machine clothing several times per year, replace roll covers every two to five years and refurbish roll covers several times between each replacement.
We have a reputation for technological innovation in the paper-making industry. In our machine clothing segment, in recent years we have focused our research and development efforts on higher value-added, technologically advanced products, such as forming fabrics and press felts, which offer paper producers greater potential for differentiating their products through quality improvements and increasing their operating efficiency. We pioneered a number of technologies that have become industry standards, including in our machine clothing business, synthetic forming fabrics (which replaced bronze wire technology), double-layer forming fabrics, laminated press felts and, most recently, triple-layer forming fabrics.
In our roll covers segment, we have introduced a number of innovations to our roll cover and spreader roll products in recent years, including (1) the SmartRoll, the first continuous pressure sensing paper machine roll that enables the papermaker to maximize performance by knowing the pressure of the paper machine while the machine is running; (2) composite calender roll covers that use nanoparticle technology to improve roll cover durability and paper gloss; and (3) covers that use an improved polyurethane to increase abrasion and moisture resistance as well as responsiveness and stability.
Our portfolio of patented and proprietary product and manufacturing technologies differentiates our product offerings from others in the market and allows us to deliver high value products and services to our customers. As of
December 31, 2013
, we had approximately 365 issued patents and over 110 pending patent applications. Our patents and patent applications cover approximately 65 different inventions. We currently license certain of our patents and technologies to some of our competitors, which we believe helps further demonstrate our technological leadership in the industry. We believe that the technological sophistication of our products and the capital-intensive nature of our business present significant challenges to any potential new competitors in our field.
Our business was organized in 1999 in connection with the acquisition of the paper technology group of Invensys plc. We completed our initial public offering on May 19, 2005.
Chapter 11 Filing, Emergence and Plan of Reorganization
On March 30, 2010, we and certain of our subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101-1532, in the United States Bankruptcy Court for the District of Delaware. On May 12, 2010, the Bankruptcy Court entered an order confirming the plan of reorganization (“the Plan”). On May 25, 2010, the Plan became effective and we and our subsidiaries emerged from Chapter 11.
Recent Developments
Global Economic Environment
Our operations are highly dependent upon the pulp and paper production industry and the degree to which the paper industry is affected by global economic conditions and the availability of credit.
Beginning in 2008 and continuing through most of 2009, the global paper industry experienced a sharp reduction in production levels, caused by the general slowdown in economic activity and related paper consumption during the same period and the paper manufacturers’ reduction of excessive inventories. The slowdown of production was across most grades of paper production, but most notably in packaging and newsprint grades. For packaging grades, demand was directly related to broad manufacturing and transportation activity reduction, while newsprint demand has been declining over a number of years due to the greater prevalence of electronic media and was exacerbated during the recession by a reduction in print advertising. One of the results of this recession driven reduction in demand for paper products was that the paper manufacturers dramatically and quickly reduced production through curtailments of machines and complete mill shutdowns. These curtailments, which began in late 2008, served to reduce inventories and match output with demand. By early 2010, most mills and equipment not permanently shuttered had resumed production.
In the first half of 2011, global paper and board production continued the recovery that began in 2010, particularly in developing countries. As international shipments of manufactured goods increased, containerboard production recovered particularly strongly, contributing over 50% of the total global improvement. The paper and board production recovery stalled beginning in the second half of 2011 and remained flat throughout 2012 and 2013, particularly in Europe and South America.
Business Strategy
The primary components of our business strategy are:
|
|
|
|
•
|
Reduce cost structure and improve profitability
- The paper industry has been going through a transition in paper grades, such as printing and writing and newsprint as technology has reduced demand for printed materials, particularly in developed markets. We are committed to continually evaluating shifting market requirements to ensure that our production capacity and cost structure are optimized to reflect changing market dynamics.
|
|
|
|
|
•
|
Continue to expand in Asia
- The growth in developing markets, most notably China, is driving paper production globally. By 2017, it is estimated that paper production in Asia will grow 25%, increasing to 50% of the total worldwide paper production. In order to increase our profitability and reduce lead times in Asia, we are committed to shifting or developing production capabilities to service this expanding market.
|
|
|
|
|
•
|
Accelerate growth activities in non paper markets
- Our machine clothing and roll cover products are used in the production process of other industries and provide us with growth opportunities outside of the paper industry. We are committed to evaluating and addressing these market opportunities. We believe we can grow the non paper portion of our business to improve our overall profitability.
|
|
|
|
|
•
|
Develop a strong management team to drive execution of strategy and improved performance -
We are committed to the retention and development of our management team and the addition of functional leadership where necessary to enable us to develop and execute strategies necessary to improve the performance of the business.
|
Products
We operate through two principal business segments, machine clothing and roll covers. Our machine clothing segment products include various types of industrial textiles used on paper-making machines and other industrial applications. Through our roll covers segment, we manufacture various types of roll covers, refurbish previously installed roll covers, provide mechanical services for the internal mechanisms of rolls used on paper-making machines and manufacture spreader rolls. For additional financial information about our machine clothing and roll covers segments, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 "Business Segment Information" to the accompanying audited consolidated financial statements.
Machine Clothing Products
Our machine clothing segment products are large, highly engineered synthetic textile belts that transport paper as it is processed in a paper-making machine from paper stock into finished paper. Machine clothing products must be tailored to each machine because all paper-making machines have different physical configurations and operating parameters. Machine clothing generally ranges in size from approximately 7 feet to over 30 feet wide and 24 feet to more than 460 feet long and operates on paper-making machines that run at speeds up to 7,500 feet per minute.
We manufacture three general types of machine clothing products used on paper-making machines—forming fabrics, press felts and dryer fabrics—each of which is located in a different section of a paper machine. Forming fabrics and press felts are typically replaced several times a year, but replacement frequency varies significantly by the grade of paper being produced, the manner in which the paper-making machine is operated and the quality of raw materials used in the paper stock. Dryer fabrics are replaced less frequently, with replacement typically taking place approximately once per year.
Forming fabrics
. Forming fabrics are used at the beginning of paper-making machines, where highly diluted paper stock is deposited on the forming fabric while the fabric is traveling at a very high speed. Forming fabrics allow water to drain from the paper stock, creating an initial wet sheet. Forming fabrics must be sufficiently porous to allow water to drain evenly and quickly, yet tight enough to retain and align the fiber and other materials that form the sheet of paper. They must also be strong enough to withstand high mechanical stresses. Forming fabrics are custom-manufactured in single, double, and triple layer designs in a variety of meshes to suit particular machines and paper grades. Customers are increasingly demanding the higher-priced triple layer designs that remove more moisture and produce higher quality paper. In
2013
, forming fabrics accounted for approximately 38% of net sales in our machine clothing segment.
Press felts
. Press felts are used to carry the paper sheet through a series of press rolls that mechanically press water from the sheet under high pressure. Press felts are designed to maximize water removal, which reduces the amount of water that must be removed during the expensive energy-intensive drying section of the production process. Press felts must maximize
water removal while maintaining the orientation of the fibers and the consistency of the thickness of the paper, without removing chemicals or fillers from the paper.
Press felts differ from forming fabrics and dryer fabrics due to the addition of several layers of staple fiber that are needled into the fabric base. The staple fiber provides a smooth surface to meet the wet sheet of paper and creates a wicking effect to remove water from the paper sheet as it is pressed under high pressure between press rolls. Press felts are manufactured in a variety of designs, including lightweight single layer felts, multi-layer laminated endless felts and seamed felts that allow for reduced installation times. In
2013
, press felts accounted for approximately 44% of net sales in our machine clothing segment.
Dryer fabrics
. Dryer fabrics are used to transport the paper sheet through the drying section of paper-making machines, where high temperatures from large, steam-heated dryer cylinders evaporate the remaining moisture from the paper sheet. Dryer fabrics, which are less technically advanced than forming fabrics or press felts, are woven from heat-resistant yarns with a coarser mesh than forming fabrics. In
2013
, dryer fabrics accounted for approximately 5% of net sales in our machine clothing segment.
Industrials and Other
. We manufacture other fabrics used in other industrial applications, such as pulp, non-woven textiles, fiber cement, tannery sludge dewatering and textiles manufacturing. In
2013
, net sales for such industrial applications accounted for 12% of net sales in our machine clothing segment. We also manufacture auto-joining equipment used in machine clothing production. Net sales of auto-joining equipment accounted for less than 1% of net sales in our clothing segment in
2013
.
New Machine Clothing Products.
In recent years, we have focused our research and development efforts on higher value-added, technologically advanced products, such as forming fabrics and press felts, which offer paper producers the greatest potential for differentiating their products through quality improvements and for increasing their operating efficiency. Our research and development efforts have resulted in several innovative new forming fabric and press felt products, including a number of high performance products, such as triple layer forming fabrics, for use on high performance paper-making machines.
Roll Covers and Services
In our roll covers segment, the majority of our sales are generated through the replacement and refurbishment of roll covers and spreader rolls, the manufacturing of new spreader rolls and general mechanical maintenance and repair services for the internal mechanisms of rolls.
Roll covers
. We manufacture, refurbish and replace covers of all types of roll applications used in paper-making machines, such as press section rolls including suction rolls, lump breaker rolls, coater rolls, sizing rolls, calendar rolls and all purpose conveying rolls. There can be up to 200 such rolls in a typical paper-making machine. These metal rolls, which can be up to 39 feet long, 6 feet in diameter and weigh 500 to 140,000 pounds, are covered with an exterior layer of rubber, polyurethane, composite or ceramic, each of which is designed for use in a particular phase of the paper-making process. Roll covers operate in temperatures up to 400 degrees Fahrenheit, under pressures up to 12,000 pounds per square inch and at speeds up to 10,000 feet per minute. Roll covers are typically replaced every two to five years.
Roll cover replacement is performed at the manufacturing facility of the supplier, such as Xerium, which necessitates removing the roll from the paper-making machine, transporting it to the supplier’s site and using a spare roll in the interim. In general, each roll on a paper-making machine is unique due to its dimensions, specific design and cover material, and generally not interchangeable with other rolls. Because of their large size, paper producers generally maintain only one spare roll for each position on a paper-making machine. It is important that the roll cover replacement be completed quickly, because damage or a malfunction of the spare roll could render the paper-making machine inoperable.
Due to the large size and weight of a roll, transportation to and from a supplier’s site can be costly and is occasionally subject to regulations on road use that restrict available routes and times of travel, and that may require safety escorts. Round-trip transcontinental travel can take several weeks and intercontinental travel is rare. We offer an extensive network of manufacturing facilities worldwide, often in close proximity to our customers, which we believe is a significant competitive advantage.
Roll covers accounted for approximately 56% of our total net sales in our rolls segment in
2013
.
Services
. Roll covers are typically refurbished several times over the two to five years they are in service before needing to be replaced. Refurbishment typically includes the regrinding of the roll cover to standard specifications and inspecting the bearings and other mechanical components of the roll. As with roll cover replacement, refurbishment is performed at the
supplier’s manufacturing facility. Similar to the paper producer’s selection of a roll cover supplier, the selection of a refurbishment provider is influenced by the time and expense of transporting a roll cover.
We offer a wide range of mechanical maintenance and repair services for the internal mechanisms of rolls. Paper producers are increasingly finding it economical to have the company that refurbishes or replaces a roll cover also perform work on the internal roll mechanisms at the same time, which avoids having multiple suppliers and incurring additional time and transportation charges. We have begun performing such services to meet the demands of our customers and attempt to gain a competitive advantage. As of
December 31, 2013
, we provide major mechanical services at ten locations around the world. Roll cover refurbishment services and mechanical services accounted for approximately 26% of our total net sales in our roll covers segment in
2013
.
Spreader rolls
. We manufacture and repair spreader rolls, which are small-diameter curved rolls used throughout a paper-making machine to stretch, smooth and remove wrinkles from the paper and machine clothing. There are approximately five to seven spreader rolls in a typical paper-making machine. Spreader rolls and related services accounted for approximately 18% of our total net sales in our roll covers segment in
2013
.
New Roll Products.
We have introduced a number of innovations to our roll cover and spreader roll products in recent years, including composite calendar roll covers that use nanoparticle technology to improve roll cover durability and paper gloss, as well as covers that use an improved polyurethane to increase abrasion and moisture resistance as well as responsiveness and stability. We are evaluating new products, which will use different materials and utilize different sales channels and provide enhancements to our existing product line. In late 2008, we introduced SmartRoll, the first continuous pressure sensing paper machine roll. SmartRoll enables the paper maker to maximize performance by qualitatively measuring the operating pressures of the paper machine while the machine is running. As of
December 31, 2013
, customers have ordered 437 SmartRoll units and a large portion of those are already operational, confirming market acceptance.
In
2013
, paper producers accounted for approximately 81% of net sales in our roll covers segment, and paper-making machine manufacturers accounted for approximately 7% of net sales. Net sales for use in other industrial applications, including steel, plastics, leather and textiles manufacturing, accounted for the remaining 12% of our net sales in our roll covers segment.
Customers
We supply leading paper producers worldwide. Our top ten customers accounted for 25.7% of net sales in
2013
and individually, no customer accounted for more than 5% of
2013
net sales. In
2013
, 39% of our net sales were generated in North America, 32% in Europe, 8% in South America, 19% in Asia-Pacific and 2% in the rest of the world. See Note 12 "Business Segment Information" to the accompanying audited consolidated financial statements for geographic information related to net sales and long-lived assets. Due to competitive market forces, we offer our customers payment terms similar to those offered by our competitors. Also, agreements with certain customers require us to maintain modest amounts of finished machine clothing inventory to assure those customers of supply continuity. We do not maintain finished rolls inventories.
Competition
Our largest competitors are Albany International Corp. (a publicly-owned U.S. company), which supplies machine clothing products, Voith AG (a privately-owned German company) and Metso Corporation (a publicly-owned Finnish company), both of which supply both machine clothing and roll products. Voith and Metso are also the leading manufacturers of paper-making machines. In addition, we also face competition from smaller regional suppliers.
We compete primarily based on the value, price and production lead times of our products. Competition with respect to both machine clothing and roll covers, particularly as it relates to our technologically advanced forming fabrics, press felts and roll covers, is based primarily on the value that the products deliver to the paper producer through the ability of such products to reduce production costs and improve paper quality. Also, because our customers operate continuously, we aim to offer competitive delivery schedules from customer order to placement in their machines.
Competition in the machine clothing and roll covers market is also based on a supplier’s ability to deliver engineering and technical services. Many paper producers have been reducing their in-house engineering and technical staff and increasingly expect their suppliers to provide such services. While smaller suppliers often lack the resources necessary to invest in and provide this level of engineering and technical service, we have made investments in order to provide the following services to the paper producers: specialist advice and resident engineers, installation support, on-call “trouble-shooting” and performance monitoring and analysis of paper-making machines.
In the roll covers market, competition is also based on a supplier’s proximity to the paper producer’s facilities, which affects the transportation time and expense associated with refurbishing or replacing a roll cover, and on the supplier’s ability to provide mechanical services to a roll’s internal mechanisms while the roll cover is being refurbished or replaced. We offer an extensive network of facilities throughout the world and provide mechanical services at the majority of our locations.
Research and Development
Our continuing ability to deliver value depends on developing product innovations. As we create new and improved products, we are often able to obtain patent protection for our innovations, which is indicative of our technical capabilities and creativity. Although we do not consider any single patent to be material to our business, we believe that, in the aggregate, our patents and other intellectual property provide us with a competitive advantage. At
December 31, 2013
, we have approximately 365 domestic and foreign patents outstanding and approximately 110 pending patent applications. Our patents and patent applications cover approximately 65 different inventions. Some of our competitors license our technology from us in exchange for royalty payments, although such licensing does not represent a material amount of our business. Research and development expenses totaled
$10.0 million
, $11.7 million and $12.1 million in 2013, 2012 and 2011, respectively, and were approximately 1.9%, 2.2% and 2.1% of our net sales in 2013, 2012 and 2011, respectively.
Production
Machine Clothing Production Process
The following diagram represents the machine clothing production process.
The machine clothing production process begins with the spinning of synthetic fiber threads to produce yarn, which is then twisted in preparation for the manufacturing of machine clothing. Yarn, which is sometimes purchased as a raw material, is then wound on large spools prior to installation on the loom. The yarn is drawn through needles in preparation for weaving.
With the yarn prepared for weaving, a weave pattern can be installed in the loom controller. The nature of the weave pattern is critical to how the machine clothing performs in the paper-making process. The yarn is then woven to the desired length.
Technological advancements have resulted in weaving becoming an almost entirely automated process. Following weaving of a forming or dryer fabric, the two ends are permanently joined to form a continuous loop of machine clothing. Although significant automation has occurred in the joining process, it remains the most labor intensive of the machine clothing production process.
Press felts are woven in a continuous loop and undergo a process that is not necessary for forming and dryer fabrics. An additional layer of fibers is added to the outside surface with the use of an advanced needling machine, such that a very smooth felt surface is created.
All machine clothing then undergoes heat setting and chemical treating. Heat setting tightens the machine clothing giving it the necessary mechanical properties for the paper-making process. Finally, the machine clothing is meticulously inspected prior to being shipped to the customer.
The machine clothing production process is capital intensive and requires a variety of equipment, including warping equipment, weaving looms, heat set equipment, joining equipment, needle looms and finishing machines.
Roll Cover Production Process
The following diagram represents the roll covering production process.
The covering on the rolls used in the paper-making process wear over time and must be periodically replaced for the roll to function properly. Rolls are removed from the paper-making machine and taken to an offsite facility for re-covering. During this time, a spare roll is placed in the machine to enable continuous operations.
The first step of the roll covering process is the removal of the old cover. A lathe and belt grinder are used to remove the old cover, exposing the roll shell. The shell is cleaned with a pressure washer and blasted with solid particles to increase the shell’s surface area for bonding of the new cover. Following the blasting process, the shell is ready to be re-covered.
The shell is then coated with proprietary bonding agents that affix the new roll cover to the shell. Each type of cover material is applied with a different process. Rubber and composite covers are extruded in a slow spinning lathe. Polyurethane covers are typically cast on the core using a mold, and ceramic covering is expelled onto the shell at high pressure.
Following application of the core material, the cover undergoes a curing process. Rubber covers are cured for 12 to 28 hours in vulcanizers under high temperature and pressure, whereas polyurethane and composite materials are cured in a hot air oven. After curing, the roll cover is ground with belts and grinding stones. A proprietary pattern of holes and grooves is then drilled into the cover to aid in water removal. Finally, the roll is balanced for proper spinning motion and meticulously checked for quality before being returned to the customer.
The roll cover production process is capital intensive and requires a variety of equipment, including lathes, belt grinders, polyurethane casting molds (for polyurethane roll covers), extruders, mix stations, vulcanizers, ovens and balancing equipment.
Raw Materials
Primary raw materials used in our machine clothing production are synthetic yarns and fibers. The primary raw materials used in our roll cover products are natural and synthetic rubber, epoxy resins and polyurethane. A number of suppliers provide the materials used in our product lines, so availability has not posed a significant concern, however, because both the machine clothing and certain roll cover materials are petroleum-based, their prices are subject to changes in the price of petroleum. Natural rubber prices tend to be influenced directly by the health of the automotive industry and have seen substantial increases as the industry recovered in 2011. In 2012 and 2013, raw material prices stabilized and in some cases partially recovered.
Environmental
Our operations and facilities are subject to a number of national, state and local laws and regulations protecting the environment and human health in the United States and foreign countries that govern, among other things, the handling, storage and disposal of hazardous materials, discharges of pollutants into the air and water and workplace safety. Because of our operations, the history of industrial uses at some of our facilities, the operations of predecessor owners or operators of some of the businesses, and the use and release of hazardous substances at these sites, the liability provisions of environmental laws may affect us.
We believe that any liability in excess of amounts provided in Note 9 "Commitments and Contingencies" to the accompanying audited consolidated financial statements which may result from the resolution of such matters will not have a material adverse effect on our financial condition, liquidity or cash flow.
Employees
As of
December 31, 2013
we had approximately 3,200 employees worldwide, of which 77% were manufacturing employees. As of
December 31, 2013
, 2,241 or 70% of our employees are members of labor unions, trade unions, employee associations or workers councils. We believe that we have good relations with our employees and the various groups that represent our employees.
Our Corporate Information
We are subject to the information requirements of the Securities Exchange Act of 1934 (the “Exchange Act”). Therefore, we file periodic reports, proxy statements, and other information with the SEC. Such reports, proxy statements, and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically.
We maintain a website at www.xerium.com to provide information to the general public and our shareholders on our products and services, along with general information on Xerium. We make our periodic and current reports available, free of charge, on our web site as soon as reasonably practicable after these reports are filed with, or furnished to, the SEC. Our corporate code of business conduct and ethics, our corporate governance guidelines, and the charters of each of the Audit, Compensation, and Nominating and Corporate Governance Committees of our board of directors are also made available, free of charge, on our website. Our corporate code of business conduct and ethics, which includes our code of ethics, and related waivers (if any) are posted on our website and we intend to post on our website and (if required) file on Form 8-K all disclosures required by applicable law or the rules of the SEC concerning any amendment to, or waiver from, our code of ethics. Copies of these documents may be obtained, free of charge, by writing Investor Relations, Xerium Technologies, Inc., 14101 Capital Boulevard, Youngsville, NC 27596, or telephoning us at 919-526-1444.
Our business, results of operations and financial condition, and an investment in our securities, are subject to various risks. Investors should carefully consider the risks described below in conjunction with the other information in this Form 10-K, including our consolidated financial statements and related notes. If any of the following risks or other risks which have not been identified or which we may believe are immaterial or unlikely, actually occur, our business, financial condition and results of operations could be harmed. This could cause the value of our securities to decline and holders could lose part or all of their investment. This section does not describe all risks applicable to us, our business or industry, and it is intended only as a summary of certain material factors.
Risks Relating to Our Business and the Industry
We have announced several restructuring actions aimed at realigning our cost structure with market demand in the paper industry and anticipate pursuing further restructuring activities in the future, all of which have and will require significant expenditures and may not be successful.
Beginning in 2012 and continuing through the present, we have announced various operational restructuring measures in response to changed market conditions in the paper industry triggered by the structural realignment between supply of and demand for paper. For example, we announced the termination of sales agency relationships in Europe, the closure of our French rolls plant, the closure of a machine clothing production line in Argentina, workforce reductions in Germany, the closures of our Charlotte spreader roll facility and our machine clothing facility in Spain, and the proposed closure of our rolls facility in Heidenheim, Germany. We anticipate pursuing additional cost reduction programs in the future.
In connection with these cost reduction measures and with any future plant closures or workforce reductions, delays or failures in the transition of production from a closed facility to our other facilities or the rate of absorption of job assignments by the remaining workforce could also adversely affect our financial performance. We may not recoup the costs of programs we have already initiated, or other programs we may in the future decide to engage in, the costs of which may be significant. In addition, our profitability may decline if our restructuring efforts do not sufficiently reduce our future costs while at the same time positioning us to maintain or increase our sales and gross margins.
The construction and potential benefits of our proposed new press felt facility in Bacheng, China is subject to risk and uncertainties that could adversely impact our business, results of operations and financial condition.
In connection with our efforts to realign our manufacturing footprint by closing facilities in high cost regions and transferring production to lower cost regions, we have begun construction on a new press felt facility in Bacheng, China. The completion of the new facility is dependent upon a number of factors, many of which may be beyond our control. For example, we may experience significant delays in construction or be unable to complete construction of the new facility because we are not able to acquire appropriate permits. We may encounter unanticipated complications with the installation and implementation of the complex systems and equipment for the new Bacheng facility that would impair our ability to begin
production within the timeframe estimated for the project. We also may be unable to attract a sufficient number of skilled workers to meet the needs of the new facility.
In addition, the cost to implement this strategic project ultimately may prove to be greater than originally anticipated. We have spent, and intend to continue to spend, significant capital and managerial resources on this new facility. Currently, we anticipate investing approximately $40.0 million over the next two years to complete the construction and startup of the Bacheng facility by the second half of 2015. Our Credit Facility (defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Credit Facility and Notes") restricts our annual capital expenditures to $42 million per year, subject to adjustment. Dedication of our financial resources to this project will reduce our flexibility with respect to the ongoing capital requirements of our business outside of China and will limit our ability to pursue other initiatives to grow our business. Furthermore, our assessment of the projected benefits associated with the construction of the new facility is subject to a number of estimates and assumptions, which in turn are subject to significant economic, competitive and other uncertainties that are beyond our control. If we incur unanticipated costs in connection with this project, are not able to complete the new facility in a timely manner or at all, or otherwise unable to achieve the anticipated benefits from this project, our business, results of operations and financial position could be materially adversely affected.
Unfavorable global or regional economic conditions could reduce our net sales and profitability and as a result, our operating results may be adversely affected.
End-user demand for paper heavily influences the volume of paper produced on a worldwide basis and, ultimately, customer demand for our products. Although demand has improved since the financial crisis and recession that began in 2008, the global macroeconomic environment remains unstable. The slow recovery from the recession and the possible impact of significant government spending cuts or a future failure to raise the “debt ceiling” in the U.S., as well as the impact of the sovereign debt crisis and resulting austerity measures in Europe, has contributed to this instability and may continue to contribute to economic uncertainty for the foreseeable future. This uncertainty could have a negative and adverse impact on the end-users of paper and the companies with which we do business, which in turn could reduce the volume of demand for our products, adversely affecting our business.
For instance, while it appears concerns of imminent solvency events across Europe have abated, much uncertainty remains regarding the ability of the Eurozone to generate sustainable economic growth in the face of the substantial austerity measures imposed by European governments to address structural deficits. The austerity measures and the uncertainty regarding growth continue to have a negative impact on the European economy. A prolonged downturn resulting from these conditions could disrupt the current U.S. recovery and weaken global trade, hamper key emerging markets such as China and India, and result in another global recession with reduced demand and lower prices for paper.
Among the various impacts stemming from these potential economic conditions, the following represent the most material to our operations and industry:
|
|
|
|
•
|
regional economic recession which could spread globally, significantly impacting the demand for paper and, consequently, our products;
|
|
|
|
|
•
|
severe tightening or shut down of credit markets resulting in a deterioration of our customers’ credit quality or access to cash lowering the realization rate on our accounts receivable; and
|
|
|
|
|
•
|
substantial depreciation of the foreign currencies that we use in our business against our reporting currency, the U.S. Dollar, resulting in increased currency translation risk.
|
The economic developments mentioned above could have a significant negative impact on our earnings, cash flows, access to capital, liquidity and financial position.
A continued structural downturn in the paper industry could adversely affect our net sales and profitability.
Because demand for our products has been driven primarily by the volume of paper produced on a worldwide basis, trends that affect the production level of the paper industry, such as declining demand for newsprint and printing and writing paper due to increased adoption of digital media, will impact our business and financial results.
The profitability of paper producers has historically been highly cyclical due to wide swings in the price of paper, driven to a high degree by the oversupply of paper during periods when paper producers have more aggregate capacity than the market requires. In response to significant changes in the sector, particularly in late 2008 and 2009, and other technological shifts affecting paper consumption, paper producers have continually sought to improve the balance between the supply of and demand for paper. As part of these efforts, they have permanently shut down many paper-making machines or entire manufacturing facilities. Should papermakers continue to experience low levels of profitability, we would expect that further consolidation among papermakers, reducing the number of paper producers, and shutdowns of paper-making machines or
facilities could occur, particularly in Europe and North America, until there is a better balance between supply and demand for paper and the profit levels of paper producers improve.
Global paper production growth that does occur could be moderated by the level of industry consolidation and paper-machine shutdown activity that appears to be an underlying global trend, except in Asia. In 2012 and 2013, substantial declines in European paper production outweighed any paper production growth we saw in other regions. We have continued to see the trend that paper producers are focusing on cost reduction strategies and, as a result, are extending the life of roll covers and machine clothing products through additional maintenance cycles before replacing them. A continued structural downturn in the paper industry, either globally or in a particular region, could cause our paper manufacturing customers to reduce production, cease operations or declare bankruptcy, each of which would adversely affect our net sales and profitability.
Price competition in our industry could adversely affect our gross margins and net sales.
Historically, we and our competitors have been able to sell machine clothing and roll cover products and services at favorable prices that reflect the value they deliver to customers. This favorable pricing has been particularly derived from our more technologically advanced products, such as forming fabrics, press felts and advanced roll covers. In the event that competition increases due to global economic conditions or continued over capacity in the paper manufacturing industry, we may be required to price our products, in some cases, at levels insufficient to realize our historical gross margins. Such pricing pressure from our competitors might require price decreases or make us unable to affect planned price increases and, thereby, adversely affect our profitability.
Balancing production levels at our manufacturing facilities could negatively affect our production, customer order time, product quality, labor relations or gross margin.
As part of our efforts to reduce our costs, we have attempted to reduce or eliminate excess manufacturing capacity through closure of certain of our manufacturing plants and consolidation of our production. As a result, however, from time to time our ability to meet customer demand for our products may rely on our ability to operate our remaining manufacturing facilities at or near capacity on an uninterrupted basis. Our manufacturing facilities are dependent on critical equipment, and operating such equipment at or near capacity for extended periods may result in increased equipment failures or other reliability problems, which may result in production shutdowns or periods of reduced production. Such disruptions could have an adverse effect on our operations and financial results. In addition, insufficient manufacturing capacity or other delays may cause our customer order times to increase and our product quality to decrease, which may increase warranty costs and negatively affect customer demand for our products and customer relations generally. Operating our facilities at or near capacity may also negatively affect relations with our employees, which could result in higher employee turnover, labor disputes and disruptions in our operations. On the other hand, if we anticipate or experience a significant decrease in demand for our products, we may choose to temporarily decrease production or idle manufacturing facilities and employees. While decreasing production may mitigate some of the risks of operating at or near capacity discussed above, a significant drop off in production to meet lower demand, including idling facilities or employees, may negatively impact our gross margin.
Fluctuations in currency exchange rates could adversely affect our net sales, profitability and compliance with our debt covenants.
Our foreign operations expose us to fluctuations in currency exchange rates and currency devaluations. We report our financial results in U.S. Dollars, but a substantial portion of our sales and expenses are denominated in Euros and other currencies. As a result, changes in the relative values of U.S. Dollars, Euros and other currencies will affect our levels of net sales and profitability. Currency fluctuations, as they pertain to the Euro, generally have a greater effect on the level of our net sales due to the amount of business we conduct in Euros. An increase in the U.S. Dollar against the Euro generally results in a decrease to net sales and net income. Increases in the U.S. Dollar against other currencies, such as the Brazilian Real, would not impact consolidated net sales as much, as a significant portion of sales in that country is denominated in or indexed to U.S. Dollars, but generally would increase net income as local currency costs would be translated into lower U.S. Dollar expenses for financial reporting purposes. We would expect a similar but opposite effect in a period in which the value of the U.S. Dollar decreases against these currencies. Although in certain circumstances we attempt to hedge our exposure to fluctuations in currency exchange rates, our hedging strategies may not be effective.
Our industry is competitive and our future success will depend on our ability to effectively develop, market and supply competitive products.
The paper-making consumables industry is highly competitive. Some of our competitors are larger than us, have greater financial and other resources and are well-established as suppliers to the markets we serve. For example, while we are targeting expansion of our business in China, we face substantial competition from manufacturers already operating there that are more established and familiar with the Chinese marketplace. In addition, some of our competitors also manufacture paper-making
machines and have the ability to initially package sales of their machine clothing and roll cover products with the sale of their machines and/or to tie the warranties on their machines to the use of their machine clothing and roll cover products. Due to various factors such as price or product innovation by our competitors, our products may not be able to compete successfully with the products of our competitors, which could result in a loss of customers and, as a result, decreased net sales and profitability.
Because we have substantial operations outside the United States, we are subject to the economic and political conditions of foreign nations.
We have manufacturing facilities in 12 foreign countries. In
2013
, we sold products in approximately 60 countries other than the United States, which represented approximately 71% of our net sales. Operating in foreign countries presents challenges unique to each country such as in hiring employees, our relations with various parties, including suppliers and governmental agencies, and in production.
Furthermore, we may decide to do business in countries where we have not previously done business. In such countries we face the additional uncertainty of entering a new market and its social customs, laws and practices. Should these challenges be realized, our operating results could be adversely impacted and our business or production may be delayed.
Our foreign operations are subject to a number of risks and uncertainties, including risks that:
|
|
|
|
•
|
foreign governments may impose limitations on our ability to repatriate funds;
|
|
|
|
|
•
|
foreign governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase;
|
|
|
|
|
•
|
an outbreak or escalation of any insurrection or armed conflict may occur;
|
|
|
|
|
•
|
foreign governments may impose or increase investment barriers or other restrictions affecting our business; or
|
|
|
|
|
•
|
changes in and interpretations of tax policies of foreign governments may adversely affect our foreign subsidiaries.
|
The occurrence of any of these conditions could disrupt our business in particular countries or regions of the world, or prevent us from conducting business in particular countries or regions, which could adversely affect our net sales and profitability. In addition, we rely on dividends and other payments or distributions from our subsidiaries to meet our debt obligations. If foreign governments impose limitations on our ability to repatriate funds or impose or increase taxes on remittances or other payments to us, the amount of dividends and other distributions we receive from our subsidiaries could be reduced, which could reduce the amount of cash available to us to meet our debt obligations.
Energy price increases may negatively impact our results of operations.
Certain of the components that we use in our manufacturing activities are petroleum-based. In addition, we, along with our suppliers and customers, rely on various energy sources (including oil) in our transportation activities. While significant uncertainty currently exists about the future levels of energy prices, a significant further increase is possible. Increased energy prices could cause an increase to our raw material costs and transportation costs. In addition, increased transportation costs of certain of our suppliers could be passed along to us. We may not be able to increase our prices enough to offset these increased costs. In addition, any increase in our prices may reduce our future customer orders and profitability.
We must continue to innovate and improve our products to maintain our competitive advantage.
We compete primarily based on the value our products deliver to our customers. Our value proposition is based on a combination of price and the technology and performance of our products, including the ability of our products to help reduce our customers’ production costs and increase the quality of the paper they produce. Our ability to retain our customers and increase our business depends on our ability to continually develop new, technologically superior products that support our value proposition. We cannot assure that our investments in technological development will be sufficient, that we will be able to create and market new products, that such new products will be accepted by our customers or that we will be successful in competing against new technologies developed by competitors. In addition, either we or our competitors could develop new technologies that increase the useful life of machine clothing or roll covers, which could reduce the frequency with which our customers would need to replace their machine clothing and refurbish or replace their roll covers, and consequently lead to fewer sales.
We believe that market recognition of the extended life of our roll cover products and the trend towards new paper-making machine designs which have fewer rolls will continue to negatively impact the demand for our roll cover products.
We have seen a trend that paper producers are placing an increasingly strong emphasis on maintenance cost reduction and, as a result, are extending the life of roll covers through additional maintenance cycles before replacing them. Market recognition of the extended life of our roll cover products negatively impacts the demand for these products. In addition, we have seen a trend towards new paper-making machine designs which have fewer rolls, also negatively impacting the demand for our roll cover products. If we are not able to offset these negative impacts on the demand for our roll cover products with growth from new roll cover products, the sale of roll cover products in regions which we believe have high growth potential such as China, or from other sources, the volume of our roll cover sales will be adversely affected.
The loss of our major customers or the shut down of a mill or mills by one of our customers could have a material adverse effect on our net sales and profitability.
Our top ten customers generated 25.7% of our net sales during
2013
. The loss of several major customers, financial difficulties faced by our customers or a substantial decrease in such customers’ purchases from us, for instance through the closure of mill(s), could have a material adverse effect on our net sales and profitability. Because we do not generally have binding long-term purchasing agreements with our customers, there can be no assurance that our existing customers will continue to purchase products from us.
We may fail to adequately protect our proprietary technology, which would allow competitors or others to take advantage of our research and development efforts.
We rely upon trade secrets, proprietary know-how, and continuing technological innovation to develop new products and remain competitive. If our competitors learn of our proprietary technology, they may use this information to produce products that are equivalent or superior to our products, which could reduce the net sales of our products. Our employees, consultants, and corporate collaborators may breach their obligations not to reveal our confidential information, and any remedies available to us may be insufficient to compensate our damages. Even in the absence of such breaches, our trade secrets and proprietary know-how may otherwise become known to our competitors, or be independently discovered by our competitors, which could adversely affect our competitive position.
Our success and ability to compete in the future may depend upon obtaining sufficient patent protection for proprietary technology.
Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we seek. Even in the event that these patents are not issued, the applications may become publicly available and proprietary information disclosed in the applications will become available to others. In addition, any issued patents may be challenged, invalidated or declared unenforceable. The term of any issued patent in the United States is 20 years from its filing date, and if our applications are pending for a long time period, we may have a correspondingly shorter term for any patent that may be issued. Our present and future patents may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents. Also, patent protection in certain foreign countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in the United States, making it difficult for us to effectively protect our intellectual property from misuse or infringement by other companies in these countries. Our inability to obtain and enforce our intellectual property rights in some countries may harm our business. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important.
We may be liable for product defects or other claims relating to our products.
Our products could be defective, fail to perform as designed or otherwise cause harm to our customers, their equipment or their products. If any of our products are defective, we may be required to recall the products and/or repair or replace them, which could result in substantial expenses and affect our profitability. Any problems with the performance of our products could harm our reputation, which could result in a loss of sales to customers and/or potential customers. In addition, if our customers believe that they have suffered harm caused by our products, they could bring claims against us that could result in significant liability. A failure of our products could cause substantial damage to a paper-making machine. Any claims brought against us by customers may result in:
|
|
|
|
•
|
diversion of management’s time and attention;
|
|
|
|
|
•
|
expenditure of large amounts of cash on legal fees, expenses, and payment of damages;
|
|
|
|
|
•
|
decreased demand for our products and services; and
|
|
|
|
|
•
|
injury to our reputation.
|
Our insurance may not sufficiently cover a large judgment against us or a large settlement payment, and is subject to customary deductibles, limits and exclusions.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology ("IT") systems to sophisticated and targeted measures known as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results of operations.
We may be adversely affected if we fail to attract and retain key personnel.
Our future success depends on the continued contributions of our key senior management personnel, including members of our senior sales staff and research and development team. The loss of services of any one or more of our key personnel might significantly delay or prevent the achievement of our business objectives and could cause us to incur additional costs to recruit replacements. Each member of our executive management team may terminate his or her employment at any time. We do not maintain “key person” life insurance with respect to any of our executives.
We could incur substantial costs as a result of violations of or liabilities under laws protecting the environment and human health.
Our operations and facilities are subject to a number of national, state and local laws and regulations protecting the environment and human health in the United States and foreign countries that govern, among other things, the handling, storage and disposal of hazardous materials, discharges of pollutants into the air and water and workplace safety. The U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA”) provides for responses to, and, in some instances, joint and several liability for releases of hazardous substances into the environment. Environmental laws also hold current owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances, materials or wastes, pollutants or contaminants, including petroleum and petroleum products. Because of our operations, the history of industrial uses at some of our facilities, the operations of predecessor owners or operators of some of the businesses, and the use and release of hazardous substances at these sites, the liability provisions of environmental laws may affect us. Many of our facilities have experienced some level of regulatory scrutiny in the past and are or may be subject to further regulatory inspections, future requests for investigation or liability for regulated materials management practices.
We cannot assure that we have been or will be at all times in complete compliance with all laws and regulations applicable to us which are designed to protect the environment and human health. We could incur substantial costs, including clean-up costs, fines and sanctions and third party property damage or personal injury claims, as a result of violations of or liabilities under environmental laws, relevant common law or the environmental permits required for our operations or under workplace safety laws. While we believe that the current level of reserves is adequate, the adequacy of these reserves may change in the future due to new developments in particular matters.
Adverse labor relations could harm our operations and reduce our profitability.
As of
December 31, 2013
, we had approximately 3,200 employees worldwide, approximately 15% of whom were subject to protection of various North American collective bargaining agreements and approximately 55% of whom were subject to job protection as members of European or South American trade unions, employee associations or workers’ councils. As of
December 31, 2013
, approximately 4% of the employees subject to North American collective bargaining agreements (or approximately 0.6% of our total employees) were covered by an agreement that is set to expire prior to December 31, 2014. We cannot be certain that we will be able to renew the collective bargaining agreement set to expire this year, or enter into a new collective bargaining agreement that does not adversely affect our operating results, or that we will be without production interruptions, including labor stoppages. In addition, all of our European and South American employees subject to job protection as members of trade unions, employee associations or workers’ councils are subject to arrangements that typically result in higher negotiated or mandated salary increases on either an annual or biannual basis. We cannot be certain that the terms of employment applicable to such employees will not change in the future in a manner which adversely affects our operating results. We cannot be certain that we will not experience disruptions in our operations as a result of labor disputes or experience other labor relations issues. If we are unable to maintain good relations with our employees, our ability to produce
our products and provide services to our customers could be reduced and/or our production costs could increase, either of which could disrupt our business and reduce our net sales and profitability.
We may be subject to assessment of income taxes for which we have not accrued any liability.
We accrue for certain known and reasonably anticipated income tax obligations after assessing the likely outcome. In the event that actual results differ from these accruals or if we become subject to a tax obligation for which we have made no accrual, we may need to make adjustments, which could materially impact our financial condition and results of operations. For example, taxing authorities may disagree with our tax accounting methodologies and may subject us to inquiries regarding such taxes, which potentially could result in additional income tax assessments against us. In accordance with accounting rules, we do not accrue for potential income tax obligations if we deem a particular tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. In making our determination, we assume that the taxing authorities will have access to all relevant facts and information.
In November 2011, Xerium Technologies Brasil Indústria e Comércio S.A., a Brazilian indirect subsidiary, received a notice of proposed income tax assessment from the Federal Revenue Department of the Ministry of Finance of Brazil ("Federal Revenue Department") originally totaling approximately $38.7 million in taxes, penalties and interest (subject to currency exchange rates). Although there can be no assurances, we believe at this time, that it is more likely than not that we will prevail on every tax position under examination and therefore have not accrued any amounts related to this assessment. Because we are at a preliminary stage of the process for resolving this dispute with the Federal Revenue Department, we cannot assure a favorable outcome and cannot currently estimate the timing of the final resolution of this matter. We believe we have meritorious defenses, are vigorously contesting this matter and, if the administrative courts of the Federal Revenue Department do not rule in our favor, intend to appeal our case to the Brazilian judicial courts. However, if management's view of our position and the probable outcome of the assessment changes or the Federal Revenue Department's position is sustained by Brazilian judicial courts, the amount accrued would adversely impact our financial condition and results of operations in the period in which any such determination or decision is made.
Risks Relating to Our Capital Structure
Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to plan for and react to changes in the economy, our industry or our business and prevent us from meeting our debt obligations.
We are significantly leveraged. As of
December 31, 2013
, our total indebtedness was approximately
$443.1 million
. Our substantial degree of leverage could have important consequences to us, including the following:
|
|
|
|
•
|
it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions or general corporate or other purposes;
|
|
|
|
|
•
|
a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, capital expenditures, and other business opportunities;
|
|
|
|
|
•
|
certain of our borrowings, including borrowings under our Credit Facility, are at variable rates of interest, exposing us to the risk of increased interest rates;
|
|
|
|
|
•
|
if we seek to refinance our debt or require additional refinancing in the future, we may be unable to do so on attractive terms or at all;
|
|
|
|
|
•
|
it may limit our flexibility in planning for, or our ability to adjust to, changes in our business or the industry in which we operate, and place us at a competitive disadvantage compared to our competitors that have less debt; and
|
|
|
|
|
•
|
we may be vulnerable to a downturn in general economic conditions or in our business, or we may be unable to carry out capital spending that is important to our growth.
|
Despite current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks described above.
We may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing our 8.875% senior unsecured notes due 2018 (the "Notes") do not fully prohibit us or our subsidiaries from doing so. If we incur any additional indebtedness that ranks
pari passu
with the Notes, the holders of that new debt will be entitled to share ratably with the Note holders in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. This may have the effect of reducing the amount of proceeds paid to our Note holders. Additionally, our Credit Facility includes up to a $[40.0] million committed revolving credit facility, under which we may borrow from time to time. Furthermore, we have an uncommitted incremental credit facility allowing for increases under the revolving credit facility
and term loans, and borrowing of new tranches of term loans, in each case, up to an aggregate principal amount not to exceed the greater of (i) $[75.0] million and (ii) our and our subsidiaries’ Adjusted EBITDA (as defined in the agreement governing our Credit Facility) for the most recent four fiscal quarters. If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Credit Facility and Notes” for a more complete description of the terms and features of the Credit Facility and the Notes.
Our Credit Facility and the indenture governing our Notes include a number of significant restrictions and covenants that limit our flexibility in operating our business.
Our Credit Facility and the indenture governing our Notes include a number of customary and significant restrictions and covenants, subject to certain exceptions, that limit our ability to, among other things:
|
|
|
|
•
|
incur or guarantee additional indebtedness;
|
|
|
|
|
•
|
pay dividends or distributions on capital stock or redeem or repurchase capital stock;
|
|
|
|
|
•
|
prepay, redeem or purchase debt;
|
|
|
|
|
•
|
make loans and investments;
|
|
|
|
|
•
|
make capital expenditures in excess of $42 million per fiscal year, subject to adjustment;
|
|
|
|
|
•
|
create restrictions on the payment of dividends or other amounts to us;
|
|
|
|
|
•
|
sell stock of our subsidiaries;
|
|
|
|
|
•
|
transfer or sell assets;
|
|
|
|
|
•
|
create liens and engage in sale-leaseback transactions;
|
|
|
|
|
•
|
amend or otherwise alter debt and certain other material agreements
|
|
|
|
|
•
|
enter into certain transactions with affiliates; and
|
|
|
|
|
•
|
enter into mergers or consolidations.
|
A breach of any of these covenants could result in a default under our Credit Facility. Upon the occurrence of an event of default under our Credit Facility, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our Credit Facility could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under our Credit Facility. If the lenders under our Credit Facility accelerate the repayment of borrowings, there can be no assurance that we will have sufficient assets to repay our Credit Facility and our other indebtedness, including the Notes, or borrow sufficient funds to refinance such indebtedness. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.
Fluctuations in interest rates could adversely affect our liquidity, interest expense and financial results.
The term loans under our Credit Facility have variable interest rates. To the extent that we do not enter into hedging arrangements that effectively fix the interest rate on a portion of our senior debt, the interest rate on all of the debt covered by our Credit Facility will fluctuate based on LIBOR, Euribor and other variable interest rates. To the extent these interest rates increase, our interest expense may increase, in which event, we may have difficulty making interest payments and funding our other costs and our ability to comply with the financial covenants in our Credit Facility may be adversely affected.
We may not be able to generate sufficient cash to service all of our indebtedness and be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. There can be no assurance that our future operating performance will generate sufficient cash flows to support our cash requirements. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. There can be no assurance that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including the Credit Facility or the indenture that governs our Notes. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our Credit Facility and the indenture that governs the Notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or obtain the proceeds which we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.
If we cannot make scheduled payments on our debt, we will be in default and, as a result our debt holders could declare all outstanding debt to be due and payable; the lenders under our Credit Facility could terminate their commitments to lend us money, declare all outstanding amounts there under due and payable, and foreclose against the assets securing their borrowings; and we could be forced into bankruptcy or liquidation, which could result in our security holders’ loss of their investment.
Risks Relating to Our Notes
Not all of our subsidiaries guarantee our obligations under the Notes, and the Notes are structurally subordinated to all indebtedness of our non-guarantor subsidiaries.
The Notes are guaranteed by each of our existing and subsequently acquired, direct or indirect wholly-owned domestic subsidiaries. Except for such subsidiary guarantors of the Notes, our subsidiaries, including all of our foreign subsidiaries and our subsidiaries that are less than wholly-owned, have no obligation, contingent or otherwise, to pay amounts due under the Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment.
The Notes are structurally subordinated to all indebtedness and other obligations of any non-guarantor subsidiary, even if such obligations do not constitute senior indebtedness, such that, in the event of insolvency, liquidation, reorganization, dissolution or other winding up of any non-guarantor subsidiary, all of such subsidiary’s creditors (including trade creditors and preferred stockholders, if any) would be entitled to payment in full out of such subsidiary’s assets before we would be entitled to any payment. As a result, the Notes are effectively subordinated to all liabilities of our non-guarantor subsidiaries.
Our non-guarantor subsidiaries also may be subject to restrictions on their ability to distribute cash to us as a result of law and, as a result, we may not be able to access their cash flows to service our debt obligations, including the Notes.
Our non-guarantor subsidiaries accounted for approximately
$411.9 million
or 75.3% of our net sales for the twelve month period ended
December 31, 2013
and $470.5 million or 75.4% of our total assets and $275.7 million or 43.4% of our total liabilities as of
December 31, 2013
.
A Note holder’s right to receive payments on the Notes is effectively junior to those lenders who have a security interest in our assets.
Our obligations under the Notes and the guarantors’ obligations under their guarantees of the Notes are unsecured. As a result, the Notes and the related guarantees are effectively subordinated to all of our and the guarantors’ secured indebtedness to the extent of the value of the assets securing such indebtedness. Our obligations under our Credit Facility are secured by a pledge of substantially all of our and our guarantors’ tangible and intangible assets. In the event that we or a guarantor are declared bankrupt, become insolvent or are liquidated or reorganized, our obligations under our Credit Facility and any other secured obligations will be entitled to be paid in full from our assets or the assets of such guarantor, as the case may be, pledged as security for such obligation before any payment may be made with respect to the Notes. Holders of the Notes would participate ratably in our remaining assets or the remaining assets of the guarantor, as the case may be, with all holders of unsecured indebtedness that are deemed to rank equally with the Notes, based upon the respective amount owed to each creditor. In addition, if we default under our Credit Facility, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the Notes, even if an event of default exists under the indenture under which the Notes were issued at such time. Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under the Notes, then that subsidiary guarantor will be released from its guarantee of the Notes automatically and immediately upon such sale. In any such event, because the Notes are not secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which Note holder claims could be satisfied or, if any assets remained, they might be insufficient to satisfy Note holder claims fully.
As of
December 31, 2013
, we and our guarantor subsidiaries had
$198.0 million
of secured indebtedness under our Credit Facility which does not include additional borrowing availability under our revolving credit facility or incremental facility. The indenture governing the Notes permits the incurrence of substantial additional indebtedness by us and our restricted subsidiaries in the future, including secured indebtedness. Any secured indebtedness incurred would rank senior to the Notes to the extent of the value of the assets securing such indebtedness.
Our ability to repay the Notes depends on the performance of our subsidiaries, including our non-guarantor subsidiaries, and their ability to make payments or distributions.
We conduct a significant portion of our operations through our subsidiaries. Accordingly, repayment of our indebtedness, including the Notes, is dependent, to a significant extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of the Notes, our
subsidiaries, including all of our foreign subsidiaries, do not have any obligation to pay amounts due on the Notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the Notes. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indenture governing the Notes limits the ability of certain of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions.
If cash flow from our U.S. operations is insufficient to make payments of principal and interest on our debt, including amounts due under the Notes, we must rely on cash flow from our foreign operations to make these payments.
In addition, our ability to repatriate cash generated by our foreign operations or borrow from our foreign subsidiaries may be limited by tax, foreign exchange or other laws. Foreign earnings may be subject to withholding requirements for foreign taxes. Cash we hold in foreign entities may become subject to exchange controls that prevent their being converted into other currencies, including dollars. Foreign tax laws may affect our ability to repatriate cash from foreign subsidiaries in a tax efficient manner or at all. Legal and contractual dividend restrictions may prevent foreign subsidiaries from paying dividends or other cash distributions to service payments on the Notes, and directors and officers of such foreign subsidiaries may therefore be unable or unwilling to authorize such payments or such loans. If these or other risks limit our ability to transfer cash generated by our foreign operations to us, our ability to make payments on our debt, including amounts due under the Notes, would be harmed.
We may not be able to satisfy our obligations to holders of the Notes upon a change in control.
In the event of a change in control, each Note holder may require us to purchase all or a portion of his or her Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. Our ability to repurchase the Notes upon a change in control is limited by the terms of our Credit Facility and our other debt. Upon a change in control, we may be required immediately to repay the outstanding principal, any accrued interest and any other amounts owed by us under the Credit Facility. There can be no assurance that we would be able to repay amounts outstanding under the Credit Facility or obtain necessary consents under the Credit Facility to repurchase the Notes. Any requirement to offer to purchase any outstanding Notes may result in us having to refinance our other outstanding debt, which we may not be able to do. In addition, even if we were able to refinance this debt, the refinancing may not be on terms favorable to us. Our failure to purchase the Notes would be a default under the indenture governing the Notes.
The change in control provision in the indenture may not protect Note holders in the event we consummate a highly leveraged transaction, reorganization, restructuring, merger or other similar transaction, unless such transaction constitutes a change in control under the indenture. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change of the magnitude required under the definition of change in control triggering event in the indenture to trigger our obligation to repurchase the Notes. Except as described above, the indenture does not contain provisions that permit the holders of the Notes to require us to repurchase or redeem the Notes in an event of a takeover, recapitalization or similar transaction.
Our Notes are not listed on an exchange and the market price for our Notes may be volatile.
Our Notes are not listed on an exchange and we do not know if or when an active trading market for our Notes will develop, if at all. In addition, the market for non-investment-grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to our Notes. The market for our Notes, if any, may be subject to similar disruptions, and any such disruptions may adversely affect their value. Holders may not be able to sell their Notes at a particular time or at a favorable price.
Risks Relating to Our Common Stock
We do not anticipate paying a dividend on our common stock in the foreseeable future, which may adversely affect the market price of our common stock.
Our Credit Facility and the indenture governing our Notes limit or prohibit the payment of dividends on our common stock. Accordingly, we do not anticipate paying dividends on our common stock for the foreseeable future. The lack of dividend payments may adversely affect the market price of our common stock.
The market price of our common stock has been volatile since our initial public offering and may continue to be volatile.
Shares of our common stock may continue to experience substantial price volatility, including significant decreases, in response to a number of events, including:
|
|
|
|
•
|
sales of our common stock by principal stockholders;
|
|
|
|
|
•
|
our quarterly operating results;
|
|
|
|
|
•
|
issuances of our common stock;
|
|
|
|
|
•
|
future announcements concerning our business;
|
|
|
|
|
•
|
the failure of securities analysts to cover our common stock and/or changes in financial estimates and recommendations by securities analysts;
|
|
|
|
|
•
|
actions of competitors;
|
|
|
|
|
•
|
fluctuations in foreign currency exchange rates;
|
|
|
|
|
•
|
changes in U.S. and foreign government regulation;
|
|
|
|
|
•
|
general market, economic and political conditions; and
|
|
|
|
|
•
|
natural disasters, terrorist attacks and acts of war.
|
On
December 31, 2013
, the last trading day in
2013
, the closing price of our common stock was $16.49 as compared with $3.05 as of December 31, 2012. During the twelve months ended
December 31, 2013
, the lowest trading price of our common stock was $3.06 and the highest trading price was
$17.27
.
Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. Such lawsuits, should they be filed against us in the future, could result in substantial costs and a diversion of management’s attention and resources. This could have a material adverse effect on our business, results of operations and financial condition.
Certain shareholders have significant influence over our business and significant transactions.
On the date we emerged from bankruptcy protection, referred to as the Effective Date, by operation of the plan of reorganization, all of our common stock then outstanding, par value $0.01 or old common stock, was canceled and approximately 82.6% of our new common stock, par value $0.001 was issued to our lenders. Holders of our old common stock were issued approximately 17.4% of the new common stock, along with warrants to purchase up to an additional 10% of the new common stock outstanding on the Effective Date on a fully diluted basis. Also pursuant to the plan of reorganization, a majority of the directors serving on our reconstituted Board of Directors were nominated by certain of our then-lenders, including American Securities LLC (together with its affiliates, “American Securities”) and Carl Marks Strategic Investments, L.P. (together with its affiliates, “Carl Marks”). We also entered into director nomination agreements with certain of our then-lenders, including American Securities and Carl Marks, pursuant to which the applicable lender(s) may designate one individual for nomination to our Board of Directors, so long as the lender(s) continues to own at least 50% of the new common stock issued to such lender(s) under the plan of reorganization.
As of February 27, 2014, Carl Marks owned 13.4% of the outstanding shares of our common stock. Mr. Wilson, who is a general partner of Carl Marks Management Company, is also our Chairman of the Board. As a result, Carl Marks has a strong ability to influence our business, policies and affairs, and we cannot be certain that their interests will be consistent with the interests of other holders of our common stock. Additionally, because American Securities, which owns 14.2% of the outstanding shares of our common stock as of February 27, 2014, has the right to appoint a director nominee to the Board pursuant to the Director Nomination Agreement, if American Securities chose to exercise that right, the individual they select would also have a strong ability to influence our business, policies and affairs, and we could not be certain that their interests would be consistent with the interests of other holders of our common stock.
Anti-takeover provisions could make it more difficult for a third-party to acquire us.
Our Board of Directors has the authority to issue up to 1 million shares of preferred stock (of which 20,000 shares have been designated as Series A Junior Participating Preferred Stock) and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying, deterring or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of our common stock. For instance, we previously adopted a shareholder rights plan, which has since lapsed, that if implemented could have substantially diluted the stock ownership of a person or group attempting to take us over without the approval of our Board of Directors. Our Board of Directors could choose to adopt a stockholder rights plan in the future that may have the effect of making it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors regarding that acquisition.
Further, some provisions of our charter documents, including provisions eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of our company, which could have an adverse effect on the market price of our stock. In addition, our charter documents do not permit cumulative voting, which may make it more difficult for a third party to gain control of our Board of Directors. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change in control of our company.
|
|
|
|
|
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
As of
December 31, 2013
, we operate 30 facilities, of which 28 are manufacturing facilities in the following 12 countries: Argentina, Austria, Australia, Brazil, Canada, China, Finland, Germany, Italy, Japan, Mexico and the United States. Of the 28 manufacturing facilities that we operate, 10 are clothing manufacturing facilities, 17 are rolls manufacturing facilities and 1 is both a machine clothing and rolls facility. Almost all of our facilities are owned by us, rather than leased.
The Company is building a new machine clothing plant in Bacheng, China to produce high-end press felts. Construction is underway and production is scheduled to begin in 2015.
|
|
|
|
|
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
We and our subsidiaries are involved in various legal matters, which have arisen in the ordinary course of business as a result of various labor claims, taxing authority reviews and other legal matters. As of December 31, 2013, we accrued an immaterial amount in our financial statements for these matters for which we believed the possibility of loss was either probable or possible, and we were able to estimate the damages or, under applicable income tax accounting guidance, it was more likely than not we would not be able to sustain a particular income tax position. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings.
Governmental Proceedings and Undertakings.
In November of 2011, the Federal Revenue Department of the Ministry of Finance of Brazil (“FRD”) issued a tax assessment against our indirect subsidiary, Xerium Technologies Brasil Indústria e Comércio S.A. (“Xerium Brazil”), challenging the goodwill recorded in the 2005 acquisition of Wangner Itelpa and Huyck Indústria e Comércio S.A. by Robec Brasil Participações Ltda. The original assessment denies the amortization of that goodwill against net income for the years 2006 through 2010 and originally sought p
ayment of approximately $38.7 million (subject to currency exchange rates) of tax, penalties and interest. We believe the transactions in question (i) complied with Brazilian tax an
d accounting rules, (ii) were effected for a legitimate business purpose, to consolidate our operating activities in Brazil into one legal entity, and (iii) were properly documented and declared to Brazilian tax and corporate authorities. Based on the foregoing, Xerium Brazil filed a response with the FRD in December 2011 disputing the tax assessment. In December 2012, an administrative panel at the first administrative appeals level within the FRD rendered a decision upholding the assessment, but reducing the penalties claimed by fifty percent. This decision reduced the total assessment
by approximately $10.4 million to $28.3 million as of December 31, 2013, although the reduced penalty will be appealed by Brazilian federal attorneys. On January 18, 2013, Xerium Brazil appealed the decision of this first administrative panel to the second of three administrative appeals courts potentially avail
able to it within the FRD.
Although there can be no assurances, we believe at the time of this filing, that it is more likely than not that we will prevail on every tax position under examination and therefore we have not accrued any amounts related to this assessment. Because we are still at a preliminary stage of the process for resolving this dispute with the FRD, we cannot assure a favorable
outcome and cannot currently estimate the timing of the final resolution of this matter. We believe we have meritorious defenses, are continuing to vigorously contest this matter and, if the administrative courts of the FRD do not rule in our favor, intend to appeal our case to the Brazilian judicial courts. However, if management's view of our position and the probable outcome of the assessment changes or the FRD's position is sustained by Brazilian judicial courts, the amount accrued would adversely impact our financial condition and results of operations in the period in which any such determination or decision is made.
|
|
|
|
|
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not applicable.
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
1. Company Description
Xerium Technologies, Inc. (the "Company") is a leading global provider of industrial consumables and mechanical services used in the production of paper, paperboard, building products and nonwoven materials. Its operations are strategically located in the major paper-making regions of the world, including North America, Europe, South America and Asia-Pacific.
2. Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements include the accounts of Xerium Technologies, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenue on product sales is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, delivery including transfer of title has occurred, and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains written purchase authorizations from customers for a specific product at a specified price and considers delivery and transfer of title to have occurred primarily at the time of shipment. Revenue is recorded net of applicable allowances, including estimated allowances for returns, rebates, and other discounts. In our machine clothing segment, a small portion of our business has been conducted pursuant to consignment arrangements under which the Company does not recognize a sale of a product to a customer until the customer places the product into use, which typically occurs some period after the product is shipped to the customer or to a warehouse location near the customer’s facility. As part of the consignment agreement the Company delivers the goods to a location designated by the customer. In addition, the customer and the Company agree to a “sunset” date, which represents the date by which the customer must accept all risks and rewards of ownership of the product and payment terms begin. For consignment sales, revenue is recognized on the earlier of the actual product installation date or the “sunset” date.
Classification of Costs and Expenses
Cost of products sold includes raw materials, manufacturing labor, direct and indirect overhead costs, product freight, and depreciation of manufacturing plant and equipment. Warehousing costs incurred as a result of customer-specific delivery terms are also included in cost of products sold.
Selling expenses include direct sales force salaries, commissions, travel and entertainment expenses and other expenses as well as agents’ commissions and fees, other warehousing costs, advertising costs and marketing costs.
General and administrative expenses include costs relating to management and administrative staff such as employee compensation and benefits, travel and entertainment (non-sales), non-manufacturing facility occupancy costs including rent expense and professional fees, as well as depreciation on non-manufacturing equipment and office supplies and expenses.
Research and development expenses are comprised of engineering staff wages and associated fringe benefits, as well as the cost of prototypes, testing materials and non-capitalizable testing equipment.
Advertising Costs
Selling expenses include advertising expenses of
$895
,
$1,215
and
$1,380
in 2013, 2012 and 2011, respectively. The Company expenses all advertising costs as incurred.
Translation of Financial Statements
The reporting currency of the Company is U.S. Dollars. Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the consolidated statements of operations, comprehensive loss and cash flows are translated at the average rates of exchange during the year. Gains and losses resulting from translating non-U.S. Dollar denominated financial statements are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ deficit.
Foreign Exchange
Foreign exchange gains and losses arising out of transactions denominated in currencies other than a subsidiary’s functional currency are recorded in the consolidated statements of operations. Net exchange gains and losses are recorded in “Foreign exchange loss” and amounted to a loss of
$(1,052)
,
$(358)
and
$(156)
for the years ended December 31, 2013, 2012 and 2011, respectively. Certain intercompany loans have been determined to be permanent, and accordingly, foreign exchange gains or losses related to such loans are recorded in accumulated other comprehensive income (loss).
Derivatives and Hedging
As required by ASC Topic 815,
Derivatives and Hedging
(“Topic 815”), the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transaction in a cash flow hedge.
The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under Topic 815. See Note 6 "Derivatives and Hedging" for further discussion on the Company’s derivatives.
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term investments with maturities of three months or less when acquired. Short-term investments consist of time deposits or money market accounts at investment-grade banks. As of December 31, 2013, certain of the Company’s deposits in U.S. bank accounts exceeded the FDIC guarantee of
$250
per depositor.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at cost, and do not bear interest. Bad debt provisions are included in general and administrative expense. The amounts recorded are derived based upon the general aging of receivables, specific customer credit history and payment trends, and any new business conditions.
Inventories
Inventories are generally valued at the lower of cost or market using the first-in, first-out (FIFO) method. Raw materials are valued principally on a weighted average cost basis. The Company’s work in process and finished goods are specifically identified and valued based on actual inputs to production. Provisions are recorded as appropriate to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory often requires management to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be able to be sold in the normal course of business, while considering the general aging of inventory and factoring in any new business conditions.
The components of inventories are as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Raw materials
|
|
$
|
19,921
|
|
|
$
|
16,924
|
|
|
Work in process
|
|
26,425
|
|
|
23,681
|
|
|
Finished goods (includes consigned inventory of $8,697 in 2013 and $8,726 in 2012)
|
|
37,584
|
|
|
36,786
|
|
|
|
|
$
|
83,930
|
|
|
$
|
77,391
|
|
In 2013, in connection with the closure of the Spain machine clothing facility, the Company reserved
$954
of obsolete inventory. This charge is included in cost of products sold expense in the Consolidated Income Statements for the year ended December 31, 2013.
Financial Instruments
The carrying value of cash and cash equivalents, trade receivables, other current assets, accounts payable, notes payable and amounts included in accruals meeting the definition of a financial instrument under U.S. GAAP approximate fair value due to their short-term nature. The carrying value of long-term debt is greater than its fair value (see Note 5 "Long-term Debt"). The Company determines estimated fair values based upon quoted market values where applicable or management estimates.
Long-lived Assets
Property and equipment
Property and equipment are recorded at cost. Property and equipment acquired in connection with acquisitions are recorded at fair value as of the date of the acquisition, and subsequent additions are recorded at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
Years
|
|
Buildings and improvements
|
|
3-50
|
|
Machinery and equipment
|
|
— Heavy
|
|
16-25
|
|
|
|
— General
|
|
13-15
|
|
|
|
— Light
|
|
6-12
|
|
|
|
— Molds, tools, office and computers
|
|
2-5
|
Property and equipment consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Land
|
|
$
|
21,611
|
|
|
$
|
21,905
|
|
|
Building and improvements
|
|
141,074
|
|
|
139,672
|
|
|
Machinery and equipment
|
|
617,271
|
|
|
627,015
|
|
|
Construction in progress
|
|
33,311
|
|
|
10,031
|
|
|
Total
|
|
813,267
|
|
|
798,623
|
|
|
Less accumulated depreciation
|
|
(503,603
|
)
|
|
(489,817
|
)
|
|
|
|
$
|
309,664
|
|
|
$
|
308,806
|
|
The Company recorded
$34.6 million
,
$38.5 million
and
$41.4 million
in depreciation expense in 2013, 2012 and 2011, respectively.
Assets held for sale or sold
At December 31, 2013, two rolls facilities in Charlotte, NC and Meyzieu, France were held for sale. These properties had carrying values of
$0.5 million
and
$1.8 million
, respectively. A vacant facility with a carrying value of
$2.0 million
was sold during the third quarter of 2013.
Impairment
The Company reviews its long-lived assets that have finite lives for impairment in accordance with ASC Topic 360,
Property, Plant, and Equipment
(“Topic 360”). This topic requires that companies evaluate the fair value of long-lived assets based on the anticipated undiscounted future cash flows to be generated by the assets when indicators of impairment exist to determine if there is impairment to the carrying value. Any change in the carrying amount of an asset as a result of the Company’s evaluation has been recorded in restructuring expense in the consolidated statements of operations. Impairment charges associated with restructuring are discussed in Note 11 "Restructuring Expense".
In 2013, the Company determined there was an impairment of
$0.7 million
to the carrying value of a vacant facility held for sale and certain other assets at March 31, 2013. This impairment charge is included in general and administrative expense in the Consolidated Statements of Operations for the year ended December 31, 2013. The facility and related assets were sold during the third quarter of 2013.
Intangible assets
Intangible assets consist of patents, licenses, trademarks and deferred financing costs. Patents, licenses and trademarks are amortized on a straight-line basis over their useful lives, which range from three to fifteen years. Deferred financing costs are amortized using the effective interest method as a component of interest expense over the life of the related debt.
Goodwill
The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350,
Intangibles—Goodwill and Other Intangible Assets
(“Topic 350”). Topic 350 requires that goodwill and intangible assets that have indefinite lives not be amortized but, instead, must be tested at least annually for impairment or whenever events or business conditions warrant. Goodwill impairment testing is a two-step process. Step 1 involves comparing the fair value of the Company’s reporting unit to its carrying amount. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit carrying amount is greater than the fair value then the second step must be completed to measure the amount of impairment, if any. Step 2 calculates the implied fair value of goodwill by deducting the fair value of the net assets of the reporting unit from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference. The Company performs an annual test for goodwill impairment as of December 31 at the reporting unit level. The Company has two reporting units: machine clothing and roll covers. For the purpose of performing the annual impairment test, the Company allocates all shared assets and liabilities to the reporting units based on the percentage of each reporting unit’s revenue to total revenue. Shared operating expenses are allocated to the reporting unit to the extent necessary to allow them to operate as independent businesses. To determine if impairment exists, the fair value of each reporting unit is compared to its carrying value. The fair value of the Company’s reporting unit is determined by using a weighted combination of both a market multiple approach and an income approach. The market multiple approach utilizes the Company’s and its competitors’ proprietary information that is used to value its reporting units. The income approach is a present value technique used to measure the fair value of future cash flows produced by each reporting unit. As a result of the annual tests for goodwill impairment performed as of December 31, 2013 and 2012, the Company determined that no goodwill impairment exists.
Stock-Based Compensation
The Company records stock-based compensation expense in accordance with ASC Topic 718,
Compensation—Stock Compensation
(“Topic 718”) which generally requires that such transactions be recognized in the statement of operations based on their fair values at the date of grant. See Note 10 "Stock-Based Compensation" for further discussion.
Net Income (Loss) Per Common Share
Net income (loss) per common share has been computed and presented pursuant to the provisions of ASC Topic 260,
Earnings per Share
(“Topic 260”). Net income (loss) per share is based on the weighted-average number of shares outstanding during the period.
As of December 31, 2013, 2012 and 2011, the Company had outstanding restricted stock units (“RSUs”) (See Note 10 "Stock-Based Compensation"). Diluted average shares outstanding were computed using (i) the average market price for time-based RSUs and (ii) the actual grant date market price for non-employee director RSUs. The calculation of diluted earnings per share excludes the Company’s performance-based RSUs that are based on Adjusted EBITDA targets whose performance criteria have not been contingently achieved and therefore the RSUs have not been issued or are not contingently issuable. For the year ended December 31, 2012, the dilutive effect of potential future issuances of common stock underlying the Company’s
RSUs was excluded from the calculation of diluted average shares outstanding because their effect would have been anti-dilutive as the Company incurred a net loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Weighted-average common shares outstanding—basic
|
|
15,359,445
|
|
|
15,222,462
|
|
|
15,079,771
|
|
|
Dilutive effect of stock-based compensation awards outstanding
|
|
522,931
|
|
|
—
|
|
|
4,064
|
|
|
Weighted-average common shares outstanding—diluted
|
|
15,882,376
|
|
|
15,222,462
|
|
|
15,083,835
|
|
Dilutive securities aggregating approximately
2.1 million
,
1.8 million
and
1.9 million
outstanding during the years ended December 31, 2013, 2012 and 2011, respectively, were not included in the computation of diluted earnings per share because the impact would be anti-dilutive to the earnings per share calculation
.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740
, Income Taxes
(“Topic 740”), which requires the recognition of deferred tax assets and liabilities for the expected future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, representing future tax benefits, are reduced by a valuation allowance when the determination can be made that it is “more likely than not” that all or a portion of the related tax asset will not be realized. The deferred tax provision or benefit represents the annual change in deferred tax assets and liabilities, excluding any amounts accounted for as components of goodwill or accumulated other comprehensive income (loss), including the effect of foreign currency translation thereon. While the Company believes it has adequately provided for its income tax receivable or liabilities and its deferred tax assets or liabilities in accordance with Topic 740 income tax guidance, adverse determination by taxing authorities or changes in tax laws and regulations could have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Income taxes are further discussed in Note 7.
Warranties
The Company offers warranties on certain rolls products that it sells. The specific terms and conditions of these warranties vary depending on the product sold, the country in which the product is sold and arrangements with the customer. The Company estimates the costs that may be incurred under its warranties and records a liability for such costs. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company periodically assesses the adequacy of its recorded warranty claims and adjusts the amounts as necessary. The table below represents the changes in the Company’s warranty liability included in accrued expenses for 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Year
|
|
Charged to
Cost
of Products Sold
|
|
Effect of Foreign
Currency
Translation
|
|
Deduction
from
Reserves
|
|
Balance at
End of
Year
|
|
For the year-ended December 31, 2013
|
|
$
|
1,324
|
|
|
$
|
1,734
|
|
|
$
|
72
|
|
|
$
|
(1,501
|
)
|
|
$
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year-ended December 31, 2012
|
|
$
|
1,356
|
|
|
$
|
1,512
|
|
|
$
|
8
|
|
|
$
|
(1,552
|
)
|
|
$
|
1,324
|
|
Commitments and Contingencies
The Company provides accruals for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. Costs accrued have been estimated based on consultation with legal counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and outcomes.
New Accounting Standards
In July of 2013, FASB issued ASU 2013-11 Income Taxes,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Taskforce)
("ASU 2013-11"). Beginning January 1, 2014, the effective date of this regulation, the Company will adopt the provisions of ASU 2013-11 related to presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Adoption of ASU 2013-11 is not expected to have a material impact to the consolidated financial statements.
3. Goodwill, Intangible Assets and Deferred Financing Costs
At December 31, 2013 and 2012, the Company had cumulative goodwill impairment of
$265.9
million. The following table provides changes in the carrying amount of goodwill by segment for the years ended December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
Roll
Covers
|
|
Total
|
|
Balance at December 31, 2011
|
|
$
|
39,940
|
|
|
$
|
19,180
|
|
|
$
|
59,120
|
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translations
|
|
1,839
|
|
|
168
|
|
|
2,007
|
|
|
Balance at December 31, 2012
|
|
41,779
|
|
|
19,348
|
|
|
61,127
|
|
|
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translations
|
|
7,665
|
|
|
183
|
|
|
7,848
|
|
|
Balance at December 31, 2013
|
|
$
|
49,444
|
|
|
$
|
19,531
|
|
|
$
|
68,975
|
|
The components of intangible assets and deferred financing costs are summarized as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Patents and licenses
|
|
$
|
31,920
|
|
|
$
|
31,920
|
|
|
Less accumulated amortization
|
|
(29,981
|
)
|
|
(29,559
|
)
|
|
Net patents and licenses
|
|
1,939
|
|
|
2,361
|
|
|
Trademarks
|
|
18,920
|
|
|
18,920
|
|
|
Less accumulated amortization
|
|
(17,765
|
)
|
|
(16,505
|
)
|
|
Net trademarks
|
|
1,155
|
|
|
2,415
|
|
|
Other intangibles
|
|
937
|
|
|
946
|
|
|
Less accumulated amortization
|
|
(639
|
)
|
|
(557
|
)
|
|
Net other intangibles
|
|
298
|
|
|
389
|
|
|
Deferred financing costs
|
|
12,629
|
|
|
18,951
|
|
|
Less accumulated amortization
|
|
(1,551
|
)
|
|
(5,438
|
)
|
|
Net deferred financing costs
|
|
11,078
|
|
|
13,513
|
|
|
Net amortizable intangible assets and deferred financing costs
|
|
$
|
14,470
|
|
|
$
|
18,678
|
|
Amortization expense for patents, licenses, trademarks and other intangibles amounted to
$1,772
for the year ended December 31, 2013 and
$2,305
for each of the years ended December 31, 2012 and 2011.
As of December 31, 2013, the estimated annual amortization expense for patents, licenses, trademarks and other intangibles for each of the succeeding five years total
$2,844
as follows:
|
|
|
|
|
|
|
|
|
|
|
2014
|
$
|
1,514
|
|
|
2015
|
359
|
|
|
2016
|
359
|
|
|
2017
|
337
|
|
|
2018
|
275
|
|
4. Notes Payable
In July of 2012, the Company's Austrian subsidiary entered into a working capital loan with a local banking institution. At December 31, 2013, the balance of this working capital loan is
$8,267
. This loan bears interest at a variable rate, which was
2.0%
at December 31, 2013, and has a due date of June 30, 2014, with a
twelve
month roll-over option.
5. Long-term Debt
At
December 31, 2013
and 2012, long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
New senior secured term loan facility, payable quarterly, U.S. Dollar denominated–LIBOR
(minimum 1.25%) plus 4.50% (5.75%) as of December 31, 2013, net of $1.0 million discount. Matures May of 2018
|
$
|
198,000
|
|
|
$
|
—
|
|
|
Prior first lien debt, payable quarterly, U.S. Dollar denominated–LIBOR
(minimum 1.25%) plus 5.00% (6.25%) as of December 31, 2012
|
—
|
|
|
104,557
|
|
|
Prior first lien debt, payable quarterly, Euro denominated–EURIBOR
(minimum 1.25%) plus 5.00% (6.25%) as of December 31, 2012
|
—
|
|
|
95,979
|
|
|
|
198,000
|
|
|
200,536
|
|
|
Senior Notes (Unsecured), payable semi-annually–U.S. Dollar denominated interest rate fixed at 8.875%, matures June of 2018
|
236,410
|
|
|
236,410
|
|
|
|
|
|
|
|
Various debt at fixed interest rates
|
462
|
|
|
135
|
|
|
|
434,872
|
|
|
437,081
|
|
|
Less current maturities
|
2,166
|
|
|
2,397
|
|
|
Total
|
$
|
432,706
|
|
|
$
|
434,684
|
|
During 2013, 2012 and 2011, the Company recorded
$40.7 million
,
$37.9 million
, and
$39.2 million
in interest expense, respectively.
On May 17, 2013 (the "Closing Date"), the Company entered into a Credit and Guaranty Agreement for a
$200 million
term loan credit facility (the “Term Credit Facility”), net of a discount of
$1.0 million
, among the Company, certain direct and indirect U.S. subsidiaries of the Company as guarantors and certain financial institutions. The Company also entered into a Revolving Credit and Guaranty Agreement originally for a
$40.0 million
asset-based revolving credit facility subject to a borrowing base among the Company, Xerium Canada Inc., as Canadian borrower, certain direct and indirect U.S. subsidiaries of the Company as guarantors and certain financial institutions (the "Domestic Revolver"). On March 3, 2014, the Company entered into an amendment to the Revolving Credit and Guaranty Agreement (as amended, the “ABL Facility,” and collectively with the Term Credit Facility, the “Credit Facility”) to add our German subsidiaries as European Borrowers and to provide for an additional
$15 million
European asset-based revolving credit facility subject to a European borrowing base (the "European Revolver"), increasing the aggregate availability under the ABL Facility to
$55 million
.
The Term Credit Facility provides for:
|
|
|
|
•
|
a six-year
$200 million
senior secured term loan facility, provided the facility would mature in
March 2018
if any of the Company's
8.875%
senior unsecured notes due 2018 in the aggregate principal amount of
$240 million
(the “Notes”) remain outstanding at that time;
|
|
|
|
|
•
|
an uncommitted accordion option (the “Incremental Facility”) allowing for increases for borrowings under the Term Credit Facility with the same terms, and borrowing of new tranches of term loans, up to an aggregate principal amount equal to (i)
$75 million
plus (ii) an additional amount (the “Facility Increase”) provided, if after giving effect to such Facility Increase (as well as any other additional term loans), on a pro forma basis, the Senior Secured Leverage Ratio (as defined in the Term Credit Facility) for the most recent four consecutive fiscal quarters does not exceed
2.25
:1; and
|
|
|
|
|
•
|
in connection with the amendment to the ABL Facility, the Term Credit Facility was amended to permit the ABL Facility to be further increased by an additional
$10 million
, to a total aggregate availability of not more than
$65 million
, provided that if the ABL Facility is increased beyond
$55 million
, certain baskets for additional indebtedness and liens otherwise available to the Company under the Term Loan Facility will be reduced dollar-for-dollar by any additional increase to the ABL Facility.
|
The Domestic Revolver provides for a
$40 million
senior secured revolving credit facility with a
$20 million
sub-limit on letters of credit. The European Revolver provides for a
$15 million
senior secured revolving credit facility with a
$10 million
sub-limit on letters of credit. Availability under both the Domestic Revolver and the European Revolver is subject to a borrowing base that is based on a specified percentage of eligible accounts receivable and inventory. The term of the ABL Facility is five years, provided that if any of the Notes remain outstanding in
March 2018
, the ABL Facility would mature at that time.
The Company used the borrowings under the Term Credit Facility to refinance all of its outstanding indebtedness under its previously existing senior secured term loan and revolving credit facility entered into in 2011 (the "2011 Credit Facility"). The Company intends to draw upon the ABL Facility from time-to-time for working capital and general corporate purposes.
The Term Credit Facility will require the Company to make amortization payments (payable in quarterly installments) equal to
1%
of principal per annum with respect to the Term Credit Facility with the remaining amount due at final maturity. Voluntary prepayments will be permitted, in whole or in part, subject to minimum prepayment requirements; provided that prepayments made prior to the date that is six months after the Closing Date of the Term Credit Facility for the purpose of repricing or effectively repricing the term loan facilities must include a
1.0%
prepayment premium; provided, further, that voluntary prepayments of loans bearing interest at the London Interbank Offered Rate (“LIBOR”) on a date other than the last day of the relevant interest period will be subject to the payment of customary breakage costs.
If the total amount of advances outstanding under the ABL Facility exceed either
$40 million
or the borrowing base, the Company must repay an amount equal to the excess borrowing. If obligations under all outstanding letters of credit exceeds
$20 million
, the Company must cash collateralize its letters of credit in an amount equal to the excess obligations outstanding. Similarly, if the total amount of advances outstanding under the European Revolver exceed either
$15 million
or the European
borrowing base, the Company must repay an amount equal to the excess borrowing. If obligations under all outstanding
European-based letters of credit exceeds
$10 million
, the Company must cash collateralize its letters of credit in an amount
equal to the excess obligations outstanding.
The interest rates under the Term Credit Facility will be calculated, at the Company's option, at either the base rate or LIBOR, plus a margin of
4.00%
and
5.00%
, respectively. Each of the base rate and LIBOR shall be subject to a minimum of
2.25%
and
1.25%
, respectively. If the Company's Senior Secured Leverage Ratio (as defined in the Credit Facility) is less than
2.00
:1 at any quarterly determination date, then the margins over the base rate and LIBOR will be
3.50%
and
4.50%
, respectively.
Depending on whether advances are made in U.S. Dollars or Canadian Dollars, interest rates under the Domestic Revolver will be calculated, at the Company's option, at either a U.S.-based or Canadian-based base rate ("Base Rate Loans") or LIBOR or the Canadian Dealer Offered Rate ("CDOR") (each, "Fixed Rate Loans"), respectively, plus a margin of
0.75%
for Base Rate Loans and a margin of
1.75%
for Fixed Rate Loans. If the Company draws advances on the Domestic Facility that are equal to or greater than
33.3%
but less than
66.7%
of the
$40 million
limit, then the margins on Base Rate Loans and Fixed Rate Loans increase to
1.00%
and
2.00%
, respectively. The margins rise to
0.75%
and
1.75%
, respectively, if advances under the ABL Facility are equal to or greater than
66.7%
of the
$40 million
limit. Interest rates under the European Revolver will be calculated, at either LIBOR or Overnight LIBOR, plus a margin of
1.75%
. If the European Borrowers draw advances on the European Revolver that are equal to or greater than
33.3%
but less than
66.7%
of the
$15 million
limit, then the margin increases to
2.00%
. The margin rises to
2.25%
if advances under the European Revolver are equal to or greater than
66.7%
of the
$15 million
limit. In addition to paying interest on outstanding advances under the ABL Facility, the Company will be required to pay a commitment fee to the lenders in respect of the unutilized commitments at a rate equal to
0.50%
per annum if advances under the ABL Facility are less than or equal to
50%
of the commitments or a rate equal to
0.375%
per annum if advances under the ABL are more than
50%
of the commitments.
The obligations under the Credit Facility are guaranteed by all of the Company's existing and future direct and indirect subsidiaries that are organized in the United States (subject to certain exceptions in the case of immaterial subsidiaries and joint ventures) and, (i) in the case of the Domestic Facility, by Xerium Canada Inc. and any future Canadian subsidiaries, provided that non-U.S. guarantors will only be liable for obligations of Xerium Canada Inc. and any other Canadian borrowers and (ii) in the case of the European Revolver, by each other European Borrower, certain other of the Company’s European subsidiaries and any existing or future direct and indirect subsidiaries that become a party to the ABL Facility. The Term Credit Facility is secured by a first-priority perfected security interest in substantially all of the assets of the Company, Xerium Canada Inc. and such subsidiary guarantors (collectively, the “Loan Parties”), in each case, now owned or later acquired, except with respect to the Loan Parties' accounts receivables and inventory, which are secured by a second-priority interest. The ABL Facility is secured by a first-priority perfected security interest in the Loan Parties' accounts receivables and inventory, and a second-priority interest in substantially all of the Loan Parties' other assets.
The Credit Facility contains certain customary covenants that, subject to exceptions, restrict the Company's ability to, among other things:
•
declare dividends or redeem or repurchase equity interests;
•
prepay, redeem or purchase debt;
•
incur liens and engage in sale-leaseback transactions;
•
make loans and investments;
•
incur additional indebtedness;
•
amend or otherwise alter debt and other material agreements;
•
make capital expenditures in excess of
$42 million
per fiscal year, subject to adjustment;
•
engage in mergers, acquisitions and asset sales;
•
transact with affiliates; and
•
engage in businesses that are not related to the Company's existing business.
The Credit Facility eliminates the interest coverage and leverage coverage ratio maintenance tests that were contained in the Company's 2011 Credit Facility. However, the ABL Facility contains a springing Fixed Charge Coverage Ratio (as defined in the ABL Facility), which must be not less than
1.00
:1 during periods in which our Global Excess Availability (as defined in the ABL Facility) falls below certain minimum thresholds.
The Credit Facility contains certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain triggering events under U.S. and, in the case of the ABL Facility, Canadian employee benefit plans, material judgments, actual or asserted failures of any guarantee or security document supporting the Credit Facility to be in full force and effect and a change of control. If an event of default occurs, the lenders under the Credit Facility would be entitled to take various enforcement actions, including acceleration of amounts due under the Credit Facility and all actions permitted to be taken by a secured creditor.
On May 26, 2011, the Company completed a refinancing transaction, which replaced certain of its then outstanding indebtedness with the Notes. The Notes contain customary covenants that, subject to certain exceptions, restrict its ability to enter into certain transactions and engage in certain activities.
The aggregate scheduled principal payments over the term of the Credit Facility, (excluding the
$1,000
discount), the Notes and other long-term debt are shown below.
|
|
|
|
|
|
|
|
|
Total Scheduled
Principal Payments including
balloon payments
|
|
2014
|
$
|
2,166
|
|
|
2015
|
2,026
|
|
|
2016
|
2,027
|
|
|
2017
|
2,029
|
|
|
2018
|
427,441
|
|
|
2019 and thereafter
|
183
|
|
|
|
|
|
|
$
|
435,872
|
|
|
|
|
Additionally, the following table outlines the estimated future interest payments to be made under the Credit Facility, the Notes and other long-term debt over the term of the obligations:
|
|
|
|
|
|
|
|
|
Total Estimated
Interest Payments
at December 31, 2013
|
|
2014
|
$
|
32,699
|
|
|
2015
|
32,582
|
|
|
2016
|
32,465
|
|
|
2017
|
32,348
|
|
|
2018
|
13,402
|
|
|
2019 and thereafter
|
28
|
|
|
|
|
|
|
$
|
143,524
|
|
|
|
|
As of
December 31, 2013
, an aggregate of
$21.2 million
is available for additional borrowings under the Credit Facility. This availability represents the
$35.0 million
under the revolving facility that is currently collateralized by certain assets of the Company less
$13.8 million
of that facility committed for letters of credit. Additionally, at
December 31, 2013
, the Company had approximately
$5.1 million
available for borrowings under other small lines of credit.
As of
December 31, 2013
and December 31, 2012, the carrying value of the Company’s long-term debt was
$434.9 million
and
$437.1 million
, respectively, and its fair value was approximately
$451.6 million
and
$410.1 million
, respectively.
The Company determined the fair value of its debt utilizing significant other observable inputs, provided by Bloomberg (Level 2 of the fair value hierarchy).
6. Derivatives and Hedging
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. From time to time, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known cash amounts, the value of which are determined by interest rates or foreign exchange rates.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives when using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company may use interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges protect the Company from increases in interest rates above the strike rate of the interest rate cap. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Non-designated Hedges of Foreign Exchange Risk
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign exchange rates, but do not meet the strict hedge accounting requirements of Topic 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly to earnings.
The Company, from time to time, may enter into foreign exchange forward contracts to fix currencies at specified rates based on expected future cash flows to protect against the fluctuations in cash flows resulting from sales denominated in foreign currencies. Additionally, to manage its exposure to fluctuations in foreign currency on intercompany balances and certain purchase commitments, the Company, from time to time, may use foreign exchange forward contracts.
As of December 31, 2013 and 2012, the Company had outstanding derivatives that were not designated as hedges in qualifying hedging relationships. The value of these contracts is recognized at fair value based on market exchange forward rates and is recorded in other assets (liabilities) on the Consolidated Balance Sheet. The fair value of these derivatives at December 31, 2013 and 2012 was
$530
and
$357
, respectively. The change in fair value of these contracts is included in foreign exchange gain (loss) and was
$1,065
,
$647
and
($1,061)
for the years ended December 31, 2013, 2012 and 2011, respectively, and is recorded in the Consolidated Statements of Operations.
The following represents the notional amounts sold and purchased for the year ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Derivative (as of December 31, 2013)
|
|
Notional Sold
|
|
Notional Purchased
|
|
Non-designated hedges of foreign exchange risk
|
|
$
|
31,881
|
|
|
$
|
(16,870
|
)
|
Fair Value of Derivatives Under ASC Topic 820
ASC Topic 820,
Fair Value Measurements and Disclosures
(“Topic 820”), emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs including fair value of investments that do not have the ability to redeem at net asset value as of the measurement date, or
during the first quarter following the measurement date. The derivative assets or liabilities are typically based on an entity’s own assumptions, as there is little, if any, market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the asset or liability.
To comply with Topic 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2013 and December 31, 2012, respectively, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. The Company does not have any derivatives valued using significant unobservable inputs (Level 3) as of December 31, 2013 or 2012. The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 and 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Total
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observables
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivatives
|
|
$
|
530
|
|
|
$
|
—
|
|
|
$
|
530
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
530
|
|
|
$
|
—
|
|
|
$
|
530
|
|
|
$
|
—
|
|
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Total
|
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observables
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivatives
|
|
$
|
357
|
|
|
$
|
—
|
|
|
$
|
357
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
357
|
|
|
$
|
—
|
|
|
$
|
357
|
|
|
$
|
—
|
|
7. Income Taxes
The components of domestic and foreign income (loss) before the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
U.S
|
|
$
|
(14,230
|
)
|
|
$
|
(20,595
|
)
|
|
$
|
(21,683
|
)
|
|
Foreign
|
|
22,746
|
|
|
(1,002
|
)
|
|
40,552
|
|
|
Total
|
|
$
|
8,516
|
|
|
$
|
(21,597
|
)
|
|
$
|
18,869
|
|
The components of the income tax provision (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2013
|
2012
|
2011
|
|
Current:
|
|
|
|
|
U.S.
|
$
|
222
|
|
$
|
749
|
|
$
|
788
|
|
|
Foreign
|
9,827
|
|
3,938
|
|
9,557
|
|
|
Total current
|
10,049
|
|
4,687
|
|
10,345
|
|
|
Deferred:
|
|
|
|
|
U.S
|
113
|
|
(206
|
)
|
(93
|
)
|
|
Foreign
|
(5,799
|
)
|
(8,043
|
)
|
427
|
|
|
Total deferred
|
(5,686
|
)
|
(8,249
|
)
|
334
|
|
|
Total provision (benefit)
|
$
|
4,363
|
|
$
|
(3,562
|
)
|
$
|
10,679
|
|
For the years ended December 31, 2013 and 2012, the (provision) benefit for income taxes was
$(4,363)
and
3,562
respectively. The Company's effective income tax rate for the year ended December 31, 2013 was
51.2%
as compared with our effective rate for the year ended December 31, 2012 of
16.5%
. The Company's effective income tax rate is primarily impacted by income the Company earns in tax paying jurisdictions relative to income it earns in non-tax paying jurisdictions. The majority of income recognized for purposes of computing the Company's effective tax rate is earned in countries where the statutory income tax rates range from
15%
to
39.43%
. The Company generates losses in certain jurisdictions for which it receives no tax benefit as the deferred tax assets in these jurisdictions (including the net operating losses) are fully reserved by a valuation allowance. For this reason, the Company recognizes minimal income tax expense or benefit in these jurisdictions, of which the most material jurisdictions are the United States, the United Kingdom and Australia. Due to these reserves, the geographic mix of its pre-tax earnings has a direct correlation with how high or low its annual effective tax rate is relative to consolidated earnings.
The provision for income taxes differs from the amount computed by applying the U.S. statutory tax rate
(35)%
to income before income taxes, due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2013
|
2012
|
2011
|
|
Book income (loss) at U.S. 35% statutory rate
|
$
|
2,981
|
|
$
|
(7,559
|
)
|
$
|
6,604
|
|
|
State income and other taxes due, net of federal benefit
|
605
|
|
645
|
|
1,070
|
|
|
Foreign tax rate differential
|
590
|
|
672
|
|
(1,794
|
)
|
|
Dividends and other foreign income
|
1,679
|
|
6,904
|
|
3,708
|
|
|
Change in valuation allowance
|
(4,885
|
)
|
4,325
|
|
910
|
|
|
Tax rate changes
|
1,922
|
|
1,798
|
|
2,263
|
|
|
Tax credits and refunds
|
(185
|
)
|
(427
|
)
|
(41
|
)
|
|
Goodwill
|
(2,292
|
)
|
(2,512
|
)
|
(2,933
|
)
|
|
Change in unrecognized tax benefits and tax reserves
|
(89
|
)
|
(6,004
|
)
|
(343
|
)
|
|
Provision to return adjustments
|
(209
|
)
|
(579
|
)
|
(910
|
)
|
|
Non-deductible expenses
|
1,333
|
|
1,983
|
|
1,689
|
|
|
Statute expiration of tax attributes
|
2,764
|
|
—
|
|
—
|
|
|
Other, net
|
149
|
|
(2,808
|
)
|
456
|
|
|
Total
|
$
|
4,363
|
|
$
|
(3,562
|
)
|
$
|
10,679
|
|
The effective tax rate on continuing operations for the year ended December 31, 2013 varied from the statutory rate of
35%
primarily due to the tax effect on dividends and other foreign income, statute expirations of tax attributes, tax rate changes, and changes in valuation allowances. The amount for dividends and other foreign income was
$1,679
, primarily related to residual U.S. taxes provided on foreign earnings no longer considered permanently reinvested including
$327
of foreign withholding taxes, offset by residual U.S. taxes no longer provided on foreign earnings considered permanently reinvested for Argentina for years prior to 2013. The statute expiration of tax attributes relates to net operating loss carry-forwards in China and France and resulted in a corresponding decrease to the valuation allowance. Enacted tax rate changes of
$1,922
primarily relate to the revaluation of U.K. deferred tax assets as a result of an enacted law change, which are fully offset by a corresponding valuation allowance. The change in the valuation allowance of
$(4,885)
relates primarily to a decrease in domestic deferred tax assets of
$(2,590)
, a removal of the Canadian valuation allowance of
$6,194
, and approximately
$(15,871)
of pre-tax losses generated in foreign jurisdictions for which the Company has determined no benefit should be recorded.
The effective tax rate on continuing operations for the year ended December 31, 2012 varied from the statutory rate of
35%
primarily due to the tax effect on dividends and other foreign income, changes in valuation allowances and the change in unrecognized tax benefits and tax reserves. The amount for dividends and other foreign income was
$6,904
. The change in the valuation allowance of
$4,325
relates to a reduction in domestic deferred tax assets of
($268)
, offset by an increase in deferred tax assets for foreign jurisdictions primarily related to current year losses in jurisdictions for which the Company has determined no benefit should be recorded, as well as additional items that are not currently deductible. The change in unrecognized tax benefits and tax reserves were from tax audit settlements which resulted in the reversal of tax expense of approximately
$5,188
, statute of limitations expiring which allowed the Company to reverse reserves of approximately
$1,094
and the recording of net additional reserves of
$(278)
.
For the year ended December 31, 2011, the Company reported the tax effect for the change in valuation allowance and provision to return adjustments in the amounts of
$910
and
$(910)
, respectively. Given that all U.S. deferred tax assets are fully reserved in the valuation allowance, the prior year domestic loss resulted in an increase to the valuation allowance of approximately
$7,589
. This increase was partially offset by domestic permanent income adjustments in 2011 primarily related to foreign income inclusions of
$(2,989)
and state net operating loss of
$(1,648)
.
For the years ended December 31, 2013 and 2012, tax expense included a benefit of approximately
$249
and
$250
for a Chinese tax holiday expired in the year ending December 31, 2013.
The Company utilizes the asset and liability method for accounting for income taxes in accordance with ASC Topic 740
, Income Taxes
(“Topic 740”). Under Topic 740, deferred tax assets and liabilities are determined based on the difference between their financial reporting and tax basis. The assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reduces its deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In making this determination, the Company evaluates all available information including the Company’s financial position and results of operations for the current and preceding years, as well as any available projected information for future years.
The tax effect of temporary differences which give rise to deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
2012
|
|
Deferred tax assets arising from:
|
|
|
|
Loss carryforwards
|
$
|
109,299
|
|
$
|
115,620
|
|
|
Intangible assets, net
|
1,825
|
|
5,237
|
|
|
Pension and other benefit accruals
|
12,457
|
|
18,912
|
|
|
Tax credits
|
1,582
|
|
1,600
|
|
|
Investments
|
2,102
|
|
2,721
|
|
|
Interest and finance fees
|
2,975
|
|
2,245
|
|
|
Other allowances and accruals, net
|
14,855
|
|
13,954
|
|
|
Total
|
145,095
|
|
160,289
|
|
|
Deferred tax liabilities arising from:
|
|
|
|
Property and equipment, net
|
29,174
|
|
31,973
|
|
|
Intangible assets, net
|
2,731
|
|
2,612
|
|
|
Foreign income inclusions
|
16,455
|
|
19,679
|
|
|
Other allowances and accruals, net
|
143
|
|
76
|
|
|
Total
|
48,503
|
|
54,340
|
|
|
Valuation allowance
|
99,860
|
|
112,143
|
|
|
Net deferred tax liability
|
$
|
3,268
|
|
$
|
6,194
|
|
Deferred taxes are recorded as follows in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2013
|
2012
|
|
Current Deferred Tax Asset, Net
|
$
|
8,125
|
|
$
|
6,213
|
|
|
Current Deferred Tax Liability, Net
|
88
|
|
387
|
|
|
Noncurrent Deferred Tax Asset, Net
|
5,045
|
|
4,562
|
|
|
Noncurrent Deferred Tax Liability, Net
|
16,350
|
|
16,582
|
|
|
Net Deferred Tax Liability
|
$
|
3,268
|
|
$
|
6,194
|
|
As of December 31, 2013, the Company has pre-tax net operating loss carry-forwards for U.S. federal income tax purposes of approximately
$178,712
that expire on various dates from 2025 through 2033 and federal tax credits of approximately
$166
that either expire on various dates or can be carried forward indefinitely. As of December 31, 2013, the Company has pre-tax net operating loss carry-forwards for U.S. state income tax purposes of approximately
$195,101
that expire on various dates from 2014 through 2033. As of December 31, 2013, the U.S. federal and U.S. state net operating loss carry-forwards and federal tax credits are fully reserved in our valuation allowance. The Company has foreign federal net operating loss carry-forwards of approximately
$148,719
and capital loss carry forwards of
$8,172
, the majority of which can be carried forward indefinitely, and federal and provincial tax credits of approximately
$1,416
that begin to expire primarily in 2024 or are carried forward indefinitely. As of December 31, 2013,
$106,172
,
$8,165
and
$97
, of foreign federal net operating
loss carry-forwards, capital loss carry-forwards and federal and provincial tax credits, respectively, are reserved in our valuation allowance.
As of December 31, 2013, the Company had a valuation allowance in place for certain of its deferred tax assets due to the Company’s accumulated loss position, and its uncertainty around the future profitability in certain of its tax jurisdictions. The valuation allowance primarily relates to deferred tax assets for available net operating loss carry forwards in the United States, the United Kingdom, Germany, Sweden, France, Australia, China, Vietnam and Spain. While the Company believes it has adequately provided for its income tax assets and liabilities in accordance with Topic 740, it recognizes that adverse determinations by taxing authorities, or changes in tax laws and regulations could have a material adverse effect on its consolidated financial position, results of operations or cash flows.
During the year ended December 31, 2013, the Company reassessed its valuation allowance requirements related to its Canadian operations, evaluating all available evidence in its analysis, both positive and negative, including historical and projected income and losses before the provision for income taxes, as well as reversals of temporary differences. The Company also considered tax planning strategies that are prudent and can be reasonably implemented if needed in order to realize the related tax benefits. During 2013, the Company recorded
$6,194
of tax benefits related to the reversal of its valuation allowance previously established against its Canadian net deferred tax assets. The Company believes that the deferred tax assets are more likely than not to be realized based on estimates of future taxable income generated by reversing taxable temporary differences and future earnings of the Canadian operations. The Canadian deferred tax assets primarily begin to expire in 2026.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately
$109,158
at December 31, 2013. Earnings generated prior to 2013 are considered to be indefinitely reinvested for continued use in foreign operations except for a portion of the earnings generated by Brazil and Mexico. As a result of future cash requirements in Argentina to fund capital expenditures and restructuring, the undistributed earnings of the Company’s Argentine subsidiary are no longer available for future remittance, with the exception of its earnings from 2013 which are not considered to be permanently reinvested. The earnings generated in all foreign subsidiaries for 2013 are not considered to be permanently reinvested, because of our desire to manage global cash and liquidity related to capital expenditures, restructuring payments, and other changes in business conditions going forward. The amount of undistributed earnings not considered to be permanently reinvested for which we have recorded a deferred tax liability is
$52,147
. Federal income taxes and foreign withholding taxes are provided on the portion of the income of foreign subsidiaries that is expected to be remitted to the United States and be taxable. For those countries for which earnings generated prior to 2013 are considered to be indefinitely reinvested, no provision for U.S. income taxes or foreign withholding taxes has been provided. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes and foreign withholding taxes payable to the various jurisdictions. These earnings relate to on-going operations and were approximately
$57,011
as of December 31, 2013.
The Company accrues for certain known and reasonably anticipated income tax obligations after assessing the likely outcome. In the event that actual results differ from these accruals or if the Company becomes subject to a tax obligation for
which the Company has made no accrual, the Company may need to make adjustments, which could materially impact the financial condition and results of operations. For example, taxing authorities may disagree with the Company’s tax accounting methodologies and may subject the Company to inquiries regarding such taxes, which potentially could result in additional income tax assessments. In accordance with ASC 740-10-25-6, the Company does not accrue for potential income tax obligations if management deems a particular tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. In making this determination, the Company assumes that the taxing authorities will have access to all relevant facts and information in accordance with ASC 740-10-25-7.
As of December 31, 2013, the Company had a gross unrecognized tax benefit of
$7,492
, exclusive of interest and penalties. The unrecognized tax benefit increased by approximately
$311
during the year ended December 31, 2013. The unrecognized tax benefit increased as a result of foreign currency effects, the release of a Canadian valuation allowance, and ongoing changes in currently reserved positions. The unrecognized tax benefit decreased as a result of statute expirations, audit settlements, and a decrease in unrecognized tax benefits which would result in a deferred tax asset that, if recognized, would require a full valuation allowance. For all periods presented, the Company has revised its presentation of gross unrecognized tax benefits to consider the effects of unrecognized tax benefits that would result in a deferred tax asset that, if recognized, would require a full valuation allowance. As a result of the revised presentation, the Company’s unrecognized tax benefits are presented as a reduction of a deferred tax asset to the extent the unrecognized tax benefit has created or increased a deferred tax asset, and the reconciliation of the balance of unrecognized tax benefits includes such effects. To the extent the unrecognized tax benefit has not created or increased a deferred tax asset, the Company’s unrecognized benefit is presented as a liability. As presented herein, the gross unrecognized tax benefit as of December 31, 2012, and December 31, 2011, increased by
$3,907
and
$4,624
, respectively, for unrecognized tax benefits that would result in a deferred tax asset that, if recognized, would otherwise require a full valuation allowance. This is presentation only, as the corresponding valuation allowance is recorded as presented, in the deferred tax reconciliation above. These gross unrecognized tax benefits primarily related to the U.S. and have no effect on the provision for income taxes for the periods ending December 31, 2012, and December 31, 2011.
A reconciliation of the balances of the unrecognized tax benefits is as follows, (excludes interest and penalties):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
2012
|
2011
|
|
Balance as of January 1
|
$
|
7,181
|
|
$
|
13,244
|
|
$
|
14,057
|
|
|
Gross (decreases) increases-tax positions in prior period due to settlements
|
(446
|
)
|
(5,117
|
)
|
34
|
|
|
Gross (decreases) increases-tax positions in prior period-other
|
867
|
|
(170
|
)
|
(319
|
)
|
|
Gross decreases-related to lapse in statute of limitations
|
(1,004
|
)
|
(1,154
|
)
|
(628
|
)
|
|
Gross increases-tax positions in current period
|
820
|
|
236
|
|
272
|
|
|
Currency effects
|
74
|
|
142
|
|
(172
|
)
|
|
Balance at December 31
|
$
|
7,492
|
|
$
|
7,181
|
|
$
|
13,244
|
|
The Company’s policy is to recognize interest and penalties related to income tax matters as income tax expense and accordingly, the Company recorded a
$363
benefit, including currency effects, and a
$658
benefit, including currency effects, for interest and penalties during the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the Company had accrued interest and penalties related to uncertain tax positions of approximately
$1,699
and
$2,016
, respectively. The Company's unrecognized tax benefits increased by approximately
$311
and decreased by
$5,346
during the years ended December 31, 2013 and 2012, respectively. If the Company were to prevail on all unrecognized tax benefits recorded, approximately
$5,320
would benefit the effective tax rate. During the next twelve months, management estimates a range between
$0
and
$1,010
of the Company's gross unrecognized tax benefit will reverse due to statute of limitations expiring which relate to various miscellaneous items and will benefit the effective tax rate. The company regularly evaluates, assesses and adjusts the related liabilities in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period.
In November of 2011, the Federal Revenue Department of the Ministry of Finance of Brazil (“FRD”) issued a tax assessment against the Company’s indirect subsidiary, Xerium Technologies Brasil Indústria e Comércio S.A. (“Xerium Brazil”), challenging the goodwill recorded in the 2005 acquisition of Wangner Itelpa and Huyck Indústria e Comércio S.A. by Robec Brasil Participações Ltda. This assessment denies the amortization of that goodwill against net income for the years 2006 through 2010 and seeks payment of approximately
$38,710
, (subject to currency exchange rates) of tax, penalties and interest. The Company believes the transactions in question (i) complied with Brazilian tax and accounting rules, (ii) were effected for a legitimate business purpose, to consolidate the Company’s operating activities in Brazil into one legal entity, and (iii) were properly documented and declared to Brazilian tax and corporate authorities. Based on the foregoing, Xerium Brazil
filed a response disputing the tax assessment at the first administrative level of appeal within the FRD in December 2011. Based on the foregoing, Xerium Brazil filed a response with the FRD in December 2011 disputing the tax assessment. In December 2012, an administrative panel at the first administrative appeals level within the FRD rendered a decision upholding the assessment, but reducing the penalties claimed by fifty percent. This decision reduced the total assessment by approximately
$10,438
to
$28,272
. On January 18, 2013, Xerium Brazil appealed the decision of this first administrative panel to the second of three administrative appeals courts potentially available to it within the FRD.
Although there can be no assurances, at December 31, 2013, the Company believed it was more likely than not that it would prevail on every tax position under examination and therefore it did not accrue any amounts related to this assessment in 2013. Because this dispute is at a preliminary stage for resolution with the FRD, the Company cannot assure a favorable outcome and cannot currently estimate the timing of the final resolution of this matter. The Company believes it has meritorious defenses, is continuing to vigorously contest this matter and, if the administrative courts of the FRD do not rule in the Company's favor, intends to appeal its case to the Brazilian judicial courts. However, if management's view of its position and the probable outcome of assessment changes or the FRD’s position is sustained by Brazilian judicial courts, the amount accrued would adversely impact the Company’s financial condition and results of operations in the period in which any such determination or decision is made.
The tax years 2005 through 2013 remain open to examination in the Company's U.S. federal jurisdiction, and the tax years 2001 through 2013 remain open to examination in the Company's U.S. state jurisdictions. The tax years 2005 through 2013 remain open to examination in the major foreign taxing jurisdictions to which the Company and its subsidiaries are subject. There are currently no U.S. Federal audits or examinations underway. In December 2013, the Company was informed of a U.S. state audit. This audit will commence in early 2014. In the fourth quarter of 2013, the Company was also informed of an audit of its Canadian subsidiary. This audit will commence in early 2014. The Company has ongoing audits and tax litigation in other foreign jurisdictions.
In December 2013, the Company concluded an audit relating to its Austrian subsidiary for tax years 2007 through 2009. A tax benefit of
$1,063
was recorded as a result of the effective settlement of certain unrecognized tax benefits.
The Company believes that it has made adequate provisions for all income tax uncertainties.
8. Pensions, Other Post Retirement and Post Employment Benefits
Pension Plans
The Company accounts for its pensions, other post-retirement and post-employment benefit plans in accordance with ASC Topic 715,
Compensation—Retirement Benefits
(“Topic 715”). The Company has defined benefit pension plans covering substantially all of its U.S. and Canadian employees and employees of certain subsidiaries in other countries. Benefits are generally based on the employee’s years of service and compensation. These plans are funded in conformity with the funding requirements of applicable government regulations.
The Company does not fund certain plans, as funding is not required. Approximately
$50,700
of the total underfunded status of
$67,551
and
$51,500
of the total underfunded status of
$84,524
relate to these unfunded pension plans as of December 31, 2013 and 2012, respectively. The Company plans to continue to fund its U.S. defined benefit plans to comply with the Pension Protection Act of 2006. In addition, the Company also intends to fund its UK and Canadian defined benefit plans in accordance with local regulations. Additional discretionary contributions are made when deemed appropriate to meet the long-term obligations of the plans.
In accordance with the provisions of Topic 715, the measurement date for defined benefit plans outside the U.S. is December 31 for the years ended December 31, 2013, 2012 and 2011.
Postemployment Obligations
The Company has postemployment plans in various countries and accounts for these plans in accordance with Topic 715
.
The Company’s postemployment obligations consist primarily of payments to be made to employees upon termination of employment, as defined, and are accrued according to local statutory laws in the respective countries. The Company’s obligation for postemployment benefits amounted to
$2,458
and
$2,257
as of
December 31, 2013
and
2012
, respectively.
Benefit Obligations and Plan Assets
A summary of the changes in benefit obligations and plan assets as of December 31, 2013 and 2012 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
|
|
2013
|
|
2012
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
168,736
|
|
|
$
|
154,468
|
|
|
|
Service cost
|
|
3,633
|
|
|
3,867
|
|
|
|
Interest cost
|
|
6,221
|
|
|
6,708
|
|
|
|
Plan participants’ contributions
|
|
108
|
|
|
109
|
|
|
|
Actuarial (gain) loss
|
|
(9,534
|
)
|
|
9,584
|
|
|
|
Currency translation impact
|
|
272
|
|
|
2,275
|
|
|
|
Settlement/curtailment
|
|
(716
|
)
|
|
(697
|
)
|
|
|
Administrative expenses paid
|
|
(665
|
)
|
|
(274
|
)
|
|
|
Benefits paid
|
|
(6,954
|
)
|
|
(7,304
|
)
|
|
|
Benefit obligation at end of year
|
|
$
|
161,101
|
|
|
$
|
168,736
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
84,212
|
|
|
$
|
72,477
|
|
|
|
Actual return on plan assets
|
|
10,288
|
|
|
8,208
|
|
|
|
Employer contributions
|
|
8,076
|
|
|
9,567
|
|
|
|
Plan participants’ contributions
|
|
108
|
|
|
109
|
|
|
|
Settlement/curtailment
|
|
(716
|
)
|
|
(82
|
)
|
|
|
Administrative expenses paid
|
|
(665
|
)
|
|
(274
|
)
|
|
|
Currency translation impact
|
|
(799
|
)
|
|
1,511
|
|
|
|
Benefits paid
|
|
(6,954
|
)
|
|
(7,304
|
)
|
|
|
Fair value of plan assets at end of year
|
|
93,550
|
|
|
84,212
|
|
|
|
Funded status (1)
|
|
$
|
(67,551
|
)
|
|
$
|
(84,524
|
)
|
|
|
|
|
|
(1)
|
In accordance with Topic 715,
$3,803
and
$3,749
of this amount is recorded in accrued expenses as of December 31, 2013 and 2012, respectively.
|
All of the Company’s pension plans that comprise the pension obligation amounts above have a projected benefit obligation equal to or in excess of plan assets as of the years ended December 31, 2013 and 2012. The accumulated benefit obligation was
$152,988
and
$158,929
as of the years ended December 31, 2013 and 2012, respectively.
Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Projected benefit obligation
|
|
$
|
135,102
|
|
|
$
|
168,736
|
|
|
Accumulated benefit obligation
|
|
130,110
|
|
|
158,929
|
|
|
Fair value of plan assets
|
|
69,322
|
|
|
84,212
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Service cost
|
|
$
|
3,633
|
|
|
$
|
3,867
|
|
|
$
|
3,409
|
|
|
|
Interest cost
|
|
6,221
|
|
|
6,708
|
|
|
6,945
|
|
|
|
Expected return on plan assets
|
|
(5,555
|
)
|
|
(4,986
|
)
|
|
(5,113
|
)
|
|
|
Amortization of prior service cost
|
|
11
|
|
|
13
|
|
|
14
|
|
|
|
Amortization of net loss
|
|
2,323
|
|
|
2,230
|
|
|
1,378
|
|
|
|
Net periodic benefit cost
|
|
$
|
6,633
|
|
|
$
|
7,832
|
|
|
$
|
6,633
|
|
|
The total unrecognized net loss recorded in Other Comprehensive Income at December 31, 2013 is
$34,948
. For defined benefit plans, the estimated net loss and prior service cost to be amortized from accumulated other comprehensive loss during 2014 is expected to be
$1,170
and
$0
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Information
|
|
Defined Benefit Plans
|
|
|
|
|
2013
|
|
2012
|
|
|
Change in funded status included in accumulated other comprehensive loss, net of tax
|
|
$
|
14,821
|
|
|
$
|
(3,319
|
)
|
|
Assumptions
Weighted-average assumptions used to determine benefit obligations at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
|
|
2013
|
|
2012
|
|
|
Discount rate
|
|
4.25
|
%
|
|
3.85
|
%
|
|
|
Rate of compensation increase
|
|
3.75
|
%
|
|
3.56
|
%
|
|
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
|
|
2013
|
|
2012
|
|
|
Discount rate
|
|
3.85
|
%
|
|
4.49
|
%
|
|
|
Expected long-term return on plan assets
|
|
6.71
|
%
|
|
6.71
|
%
|
|
|
Rate of compensation increase
|
|
3.56
|
%
|
|
3.61
|
%
|
|
The expected long-term return on plan assets is calculated based on a building-block approach, whereby the components are weighted based on the long-term allocation of pension plan assets.
Plan Assets
The percentage of fair value of total plan assets for funded plans are invested as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at December 31,
|
|
Asset Category
|
|
2013
|
|
2012
|
|
Marketable equities
|
|
60
|
%
|
|
62
|
%
|
|
Fixed income securities
|
|
40
|
%
|
|
38
|
%
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
The Company’s plan assets are invested in the U.S., the United Kingdom (“UK”) and Canada. Plan asset investments are accounted for at cost on the trade date and are reported at fair value. Canadian plan assets totaling
$25,699
and UK plan assets totaling
$29,929
are classified as Level 2 within the fair value hierarchy. Certain U.S. plan assets totaling
$3,027
are classified as Level 3 within the fair value hierarchy, since the Company does not have the ability to redeem at net asset value for a period longer than one quarter following the measurement date. All other plan assets totaling
$34,895
are classified as Level 1. Level 2 valuations are based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. The Company measures fair value of its Level 3 investments through the use of a net asset value per share.
In general, plan assets are exposed to various risks, such as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the plan assets. The investment objective of the plans is to maximize the return on plan assets over a long time horizon, while meeting the plan obligations. Investment risk is substantially reduced by diversification of investments within particular asset classes. The expected future rate of return on plan assets is based on historic performance of bonds and equities and the higher returns expected by equity-based capital relative to debt capital. The agreements with the fund managers include a number of restrictions which are designed to ensure that only suitable investments are held. Generally, investment performance is provided to and reviewed by the Company on a quarterly basis. If any changes take place in the legal, regulatory or tax environment which impact the investment of the portfolios or the investment returns, the fund manager is expected to notify the Company immediately and to advise on their anticipated impact.
Details relating to the Company’s plan assets are as follows:
U.S. Plan Assets
: Approximately
81%
of the Company’s U.S. plan assets are invested in the U.S., of which
54%
are invested in marketable equity securities and
46%
are invested in fixed income securities managed by the fund manager. This allocation is in accordance with the strategic allocation adopted by the Company’s pension committee comprising of approximately
60%
equity investment and
40%
bond investment.
U.K. Plan Assets
: Approximately
68%
of the Company’s U.K. plan assets are invested in the U.K., of which
29%
are invested in marketable equity securities and
71%
are invested in fixed income securities managed by the fund manager. The trustees of the U.K. pension plan have adopted a strategic allocation comprising of
50%
equity investment and
50%
bond investment. The allocation of equity investments between U.K. domestic and U.K. foreign equities is
50%
and
50%
, respectively and the fixed income bond investment is allocated equally between government and corporate bonds in the U.K. Investment risk is substantially reduced by diversification of investments and accordingly, assets were invested
50%
in the fund manager’s Global Equity Index Fund,
25%
in the Over 15 Year Gilts Index Fund and
25%
in the AAA-AA-A Bonds Over 15 Year Index Fund. The majority of the plan liabilities are linked to price and salary inflation. The policy is therefore to invest the majority of the assets in investments which are expected to exceed price inflation and general salary growth over long periods.
Canadian Plan Assets
: Approximately
62%
of the Company’s Canadian plan assets are invested in Canada, of which
48%
are invested in marketable equity securities,
48%
are invested in fixed income securities and
4%
are cash managed by the fund manager. The Company’s pension committee has adopted a strategic allocation comprising of approximately
66%
equity investment and
30%
bond investment and
4%
cash. As of December 31, 2013, assets were invested
84%
in the fund manager’s Balanced Pension Trust Series O and
16%
in the U.S. Pooled Pension Fund Series O. Investments are made with due consideration for the overall funds’ risk and expected return.
Contributions
The Company expects to make contributions of approximately
$8,816
under its defined benefit plans in 2014.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
2014
|
|
$
|
7,266
|
|
|
|
2015
|
|
7,079
|
|
|
|
2016
|
|
7,082
|
|
|
|
2017
|
|
7,396
|
|
|
|
2018
|
|
7,459
|
|
|
|
Years 2019 and thereafter
|
|
42,590
|
|
|
The Company sponsors various unfunded defined contribution plans that provide for retirement benefits to employees, some in accordance with local government requirements. The Company also maintains a funded retirement savings plan for U.S. employees which is qualified under Section 401(k) of the U.S. Internal Revenue Code. The plan allows eligible employees to contribute up to
99%
of their compensation (subject to certain Internal Revenue Service limitations), with the Company matching
200%
of the first
1%
of employee compensation and
100%
of the next
4%
of employee compensation. The following represents the approximate matching contribution expense for the years ended
December 31, 2013
, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Matching contribution expense
|
|
$
|
1,604
|
|
|
$
|
1,684
|
|
|
$
|
1,721
|
|
9. Commitments and Contingencies
Leases
The Company leases office buildings, vehicles, and computer equipment for its worldwide operations. Minimum rent is expensed on a straight-line basis over the term of the leases. Operating lease rental expense was
$3,893
,
$5,443
and
$5,622
during the years ended December 31, 2013, 2012 and 2011, respectively. These leases expire at various dates through 2023.
At December 31, 2013, future minimum rental payments due under non-cancelable operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
2014
|
$
|
4,320
|
|
|
2015
|
3,612
|
|
|
2016
|
2,937
|
|
|
2017
|
2,135
|
|
|
2018
|
1,828
|
|
|
Thereafter
|
1,254
|
|
|
|
|
|
Total minimum operating lease payments
|
$
|
16,086
|
|
|
|
|
In addition, the Company entered into a capitalized lease during 2013 for its new corporate headquarter location. The lease commences February 1, 2014 and extends through February 1, 2024. At December 31, 2013, the Company recorded
$0.3 million
in leasehold improvements related to this lease. Future minimum rental payments due under this lease at December 31, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2014
|
$
|
450
|
|
|
2015
|
620
|
|
|
2016
|
632
|
|
|
2017
|
644
|
|
|
2018
|
656
|
|
|
Thereafter
|
3,520
|
|
|
|
|
|
Total minimum capital lease payments
|
$
|
6,522
|
|
|
|
|
Collective Bargaining and Union Agreements
Approximately
70%
of the Company’s employees either are subject to various collective bargaining agreements or are members of trade unions, employee associations or workers councils predominantly outside of the United States. Approximately
4%
of those employees subject to collaborative bargaining agreements, or
0.6%
of the Company’s total employees, are covered by agreements that are set to expire during 2014.
Legal Proceedings
The Company and its subsidiaries are involved in various legal matters, which have arisen in the ordinary course of business as a result of various labor claims, taxing authority reviews and other legal matters. As of December 31, 2013, the Company had accrued an immaterial amount in its financial statements for these matters for which (1) management believed the possibility of loss was either probable or possible, and (2) was able to estimate the damages. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of our strategies related to these proceedings. See Note 7 "Income Taxes" for a discussion of the governmental proceeding of Xerium Brazil.
Environmental Matters
The Company’s operations and facilities are subject to a number of national, state and local laws and regulations protecting the environment and human health in the United States and foreign countries that govern, among other things, the handling, storage and disposal of hazardous materials, discharges of pollutants into the air and water and workplace safety. Because of the Company’s operations, the history of industrial uses at some of these facilities, the operations of predecessor owners or operators of some of the businesses, and the use and release of hazardous substances at these sites, the liability provisions of environmental laws may affect the Company. The Company is not aware of any material unasserted claims.
The Company believes that any additional liability in excess of amounts provided which may result from the resolution of such matters will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company.
10. Stock-Based Compensation and Stockholders’ Deficit
The Company records stock-based compensation expense in accordance with ASC Topic 718,
Accounting for Stock Compensation
("Topic 718") and has used the straight-line attribution method to recognize expense for time-based restricted stock units ("RSU's") and deferred stock units ("DSUs") and recognizes expense for the performance and market-based restricted stock units based on management's estimate of performance against the targets in each plan. The Company recorded stock-based compensation expense during the years ended
December 31, 2013
, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2013
|
2012
|
2011
|
|
RSU and DSU Awards (1)
|
|
|
$
|
1,457
|
|
$
|
1,856
|
|
$
|
1,091
|
|
|
Management Incentive/Performance Award Programs (2)
|
|
|
—
|
|
—
|
|
348
|
|
|
Other Awards (3)
|
|
|
279
|
|
93
|
|
—
|
|
|
Total
|
|
|
$
|
1,736
|
|
$
|
1,949
|
|
$
|
1,439
|
|
|
|
|
|
(1)
|
Related to RSUs and DSUs awarded to certain employees and non-employee directors.
|
|
|
|
|
(2)
|
For 2011, the amount represents the value of stock awards granted under the 2011 Management Incentive Compensation Program, which was approved by the Company’s Board of Directors in March of 2012. No amount was recorded for the 2012 Management Incentive Compensation Program (the “2012 MIC”), as the performance targets were not met at December 31, 2012. In 2013, the Management Incentive Program (the "2013 MIC") was converted to pay out entirely in cash. Therefore, no stock-based compensation was recorded.
|
|
|
|
|
(3)
|
The 2012 amount relates to options awarded on August 15, 2012 to the CEO.
|
The related tax impact on stock-based compensation was a tax benefit of
$7
,
$36
and
$84
for the years ended December 31, 2013, 2012 and 2011, respectively.
2010 Equity Incentive Plan
The Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”) on the Effective Date. The 2010 Plan provides for the grant of awards consisting of any or a combination of stock options, stock appreciation rights, restricted stock, unrestricted stock or stock unit awards.
On June 13, 2013, at the 2013 Annual Meeting of Stockholders of the Company, the stockholders approved an amendment to the Company’s 2010 Equity Incentive Plan, which increased the aggregate number of shares of the Company’s common stock that may be delivered under or in satisfaction of awards under such plan from
913,525
to
1,663,525
, increased the number of shares that may be subject to option and stock appreciation right grants and that may be granted as stock awards to any one participant in a calendar year from
150,000
to
500,000
, and set a maximum cash award that may be granted to any one participant in a calendar year at
$2,000
.
Summary of Activity Under the 2010 Plan:
Long-Term Incentive Program—2013 LTIP
On June 13, 2013, the Board approved the granting of awards under the 2013 Executive Long-Term Incentive Plan (the "2013 Executive LTIP") under the 2010 Plan. Awards under the 2013 Executive LTIP are both time-based and market-based and will be paid in the form of RSUs or shares of common stock of the Company. Time-based awards, or
50%
of the total target award, were granted in the form of
179,571
time-based RSUs under the Company’s 2010 Plan. These time-based awards will cliff vest on March 11, 2016, and will be converted to common stock, net of applicable tax withholdings. Market-based awards, which constitute the remaining
50%
of the total award, will vest depending on the Company’s stock price performance during the three year participant service period from March 11, 2013 through March 10, 2016. If the awards vest, they will convert into shares of the Company’s common stock and be paid after the close of the
three
-year period. At December 31, 2013, the Company's stock price had exceeded all stock price performance targets and is expected to payout at
100%
at the end of the three-year period.
Long-Term Incentive Program—2012 LTIP
On May 8, 2012, the Board approved the 2012 Executive Long-Term Incentive Plan (the “2012 Executive LTIP”) under the 2010 Plan. Awards under the 2012 Executive LTIP are both time-based and performance-based. A specific target share
award is set for each participant in the 2012 Executive LTIP. Awards will be paid in the form of RSUs or shares of common stock of the Company. Time-based awards, or
50%
of the total target award, were granted in the form of
54,750
time-based RSUs under the Company’s 2012 Plan and vest in equal installments on March 31, 2013, March 31, 2014, and March 31, 2015. These will be converted into shares of common stock as they vest. On March 31, 2013,
16,582
time-based awards vested in accordance with the 2012 Executive LTIP, and were converted to common stock, net of applicable tax withholdings. Performance-based awards, which constitute
50%
of the total award, will be determined based on the Company’s performance against a
three
-year cumulative Adjusted EBITDA metric, adjusted for currency fluctuations during the term of the 2012 Executive LTIP. The performance-based awards will convert into shares of the Company’s common stock and be paid after the close of the
three
-year performance period. The amount of the payment will be based on a sliding scale ranging from
50%
if the metric is achieved at
85%
of the target up to
200%
if the metric is achieved at or above
115%
of the target. At December 31, 2013, management determined, based on the metrics above, the performance based awards are estimated to pay out at
78.9%
of total target.
Long-Term Incentive Program—2010 LTIP
On September 22, 2010, the Board approved the Company’s 2010-2012 Long-Term Incentive Plan (the “2010 LTIP”) under the 2010 Plan. Awards under the 2010 LTIP are both time-based and performance-based. Awards are paid in the form of restricted stock units or shares of common stock of the Company, as described below. Time-based awards under the 2010 LTIP were approved in the form of
122,260
time-based restricted stock units granted on October 29, 2010 under the Company’s 2010 Plan. On March 31, 2011, 2012 and 2013,
101,192
time-based restricted stock units vested in accordance with the 2010 LTIP and were converted to common stock. Performance-based awards under the 2010 LTIP vested (a) if the participant remained continuously employed with the Company through December 31, 2012 and (b) on a sliding scale ranging from
0%
to
110%
if the Company’s results fell between
80.1%
and
110%
of the specified three-year cumulative Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar. Vested stock units converted into shares of the Company’s common stock after the close of the
three
-year performance period ended December 31, 2012. At December 31, 2012, management determined, based on the metrics above, the performance based awards would be paid out at
23.8%
of total target. On March 31, 2013,
20,679
shares of common stock were issued as a result of the vesting of these performance-based awards.
2011 MIC
On March 15, 2011, the Board approved the 2011 Management Incentive Plan (“2011 MIC”). Under the 2011 MIC,
eighty percent
of the payouts were determined by the Company’s performance against a specified Adjusted EBITDA metric for the 2011 fiscal year. The Adjusted EBITDA metric was adjusted to reflect currency fluctuations relative to the U.S. Dollar. The remaining
twenty percent
of the payouts are based on specified net sales targets, and are adjusted to reflect currency fluctuations relative to the U. S. Dollar. The 2011 MIC awards were to be paid out based on a sliding scale ranging from
35%
if the metric is achieved at
95%
of target up to
200%
if the metric is achieved at
120%
of target. Fifty percent of any 2011 MIC award earned was paid in cash and fifty percent was paid in the form of common stock based on an average per-share price within a collar. At December 31, 2011, management determined that the performance against the specified Adjusted EBITDA target as adjusted to reflect currency exchange rate fluctuations relative to the U.S. Dollar was partially met, and recorded approximately
$0.7 million
compensation expense, of which
$0.4 million
is included in accrued liabilities and
$0.4 million
is included in additional paid in capital in the Consolidated Balance Sheet at December 31, 2011. In accordance with the 2011 MIC agreement, the Company issued
32,721
shares of common stock, net of withholdings, in the first quarter of 2012.
Other Stock Compensation Plans
On August 15, 2012, in connection with the previously announced anticipated retirement of Stephen R. Light, the Board of Directors of the Company appointed Harold C. Bevis to the position of President and Chief Executive Officer, effective immediately, and Mr. Light notified the Company of his resignation, effective as of that date, as the Company's Chairman, President and Chief Executive Officer. The Company granted Mr. Bevis a sign-on award of
204,208
restricted stock units and options to acquire
781,701
shares of the Company's Common Stock, par value
$0.001
per share. Both the restricted stock units and the options will vest over a
three
year period, beginning on the second anniversary of the August 15, 2012 grant date. The options have a
10
-year term and an exercise price of
$4.00
per share, the August 15, 2012 closing price of the Company's common stock on the New York Stock Exchange. In addition, on August 15, 2012, the Company accelerated the vesting of Mr. Light's remaining
50,000
restricted stock units, issuing
27,900
shares of common stock, upon vesting, net of certain tax withholdings, and issued Mr. Light
40,000
options, with an exercise price of
$16
.
Directors’ Deferred Stock Unit Plan
On March 15, 2011, the Board approved a new compensation plan for non-management directors (the “2011 DSU Plan”). Under this plan, each director is to receive an annual retainer of
$112
, to be paid on a quarterly basis in arrears beginning with
the quarter ended June 30, 2011. Half of the annual retainer is payable in deferred stock units (“DSUs”), with the remaining half payable in cash. The non-management directors were awarded an aggregate
36,032
DSUs under the 2011 DSU Plan for service during the year ended December 31, 2013. In addition, in accordance with the 2011 DSU Plan,
24,023
DSUs were settled in Common Stock during the year ended December 31, 2013.
Warrants
In connection with the Company’s reorganization in 2010, the holders of the Company’s Old Common Stock also received warrants to purchase an aggregate of
1,662,350
shares of New Common Stock (the “Warrants”), representing approximately
0.0324108
Warrants for each share of Old Common Stock. The Warrants are exercisable for a term of
four
years from the issue date at an exercise price of
$19.55
per share of New Common Stock. The exercise price was determined in accordance with a formula based on the final amount of allowed claims of the Lenders.
A summary of RSUs outstanding as of December 31, 2013 and their vesting dates is as follows.
|
|
|
|
|
|
|
|
|
|
Plan Description
|
|
Vesting Dates
|
|
Number of RSUs
|
|
Time-based RSUs granted during 2011
|
|
Annually in equal installments March 31, 2014
|
|
3,262
|
|
|
Executive time-based RSUs granted during 2012
|
|
Annually in equal installments March 31, 2014 and March 31, 2015
|
|
25,834
|
|
|
Executive performance-based RSUs granted during 2012
|
|
December 31, 2014
|
|
35,750
|
|
|
Non-executive time-based RSUs granted during 2012
|
|
Annually in equal installments March 31, 2014 and March 31, 2015
|
|
7,052
|
|
|
Time-based RSUs granted to CEO during 2012
|
|
In thirds on August 15, 2014, August 15, 2015 and August 15, 2016
|
|
204,208
|
|
|
Executive time-based RSUs granted during 2013
|
|
Cliff-vest at March 10, 2016
|
|
174,322
|
|
|
Executive market-based RSUs granted during 2013
|
|
March 10, 2016
|
|
179,574
|
|
|
DSUs
|
|
Vest immediately upon grant
|
|
67,602
|
|
|
|
|
|
|
697,604
|
|
RSU activity during years ended December 31, 2011, 2012 and 2013, are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
|
|
Price Range of Grant-
Date
Fair Value Per RSU
|
|
Weighted
Average Grant-Date Fair
Value Price Per RSU
|
|
Outstanding, December 31, 2010
|
|
425,009
|
|
|
10.40 – 240.20
|
|
$
|
15.74
|
|
|
Granted
|
|
106,570
|
|
|
6.89 – 24.05
|
|
|
12.06
|
|
|
Forfeited
|
|
(139,750
|
)
|
|
12.93
|
|
|
12.93
|
|
|
Issued or withheld for tax withholding purposes
|
|
(99,484
|
)
|
|
6.89 – 108.00
|
|
|
23.16
|
|
|
Outstanding, December 31, 2011
|
|
292,345
|
|
|
7.25 – 21.69
|
|
|
13.04
|
|
|
Granted
|
|
444,974
|
|
|
4.04 – 8.25
|
|
|
4.13
|
|
|
Forfeited
|
|
(96,725
|
)
|
|
4.07 – 12.93
|
|
|
11.87
|
|
|
Issued or withheld for tax withholding purposes
|
|
(179,890
|
)
|
|
3.60 – 21.69
|
|
|
8.30
|
|
|
Outstanding, December 31, 2012
|
|
460,704
|
|
|
4.04 – 21.69
|
|
|
$
|
6.57
|
|
|
Granted
|
|
371,152
|
|
|
9.33 – 9.83
|
|
|
9.81
|
|
|
Forfeited
|
|
(47,602
|
)
|
|
4.07 – 21.69
|
|
|
3.71
|
|
|
Issued or withheld for tax withholding purposes
|
|
(86,650
|
)
|
|
4.07 – 21.69
|
|
|
11.26
|
|
|
Outstanding, December 31, 2013
|
|
697,604
|
|
|
4.04 – 21.69
|
|
|
$
|
6.57
|
|
|
Exercisable, December 31, 2013 (1)
|
|
67,602
|
|
|
2.90 – 24.05
|
|
|
$
|
8.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company had
67,602
non-employee director DSUs that have vested, but have not yet been converted to common stock. These DSUs have a weighted average exercise price of
$8.79
, an intrinsic value of
$206
and a total grant-date fair value of
$594
. As the non-employee director can elect to exercise these DSUs six months following their retirement from the Board of Directors, there is no definite weighted average life of these DSUs.
|
The Company had
67,602
options exercisable at December 31, 2013 with a weighted average exercise price of
$30.77
, weighted average remaining life of 1.6 years and intrinsic value of
$3.2 million
. Of these exercisable options,
134,628
had exercise prices higher than the market price of our Common Stock at December 31, 2013.
Assumptions
In accordance with Topic 718, the Company uses the following assumptions in determining compensation expense:
Grant-Date Fair Value
The Company calculates the grant-date fair value of time-based RSUs, performance-based RSUs and non-employee directors’ DSUs based on the closing price of the Company’s common stock on the date of grant.
For the options granted on August 15, 2012, performance-based RSU's granted on January 1, 2010, which were amended on September 22, 2010, and the time-based RSU’s granted on September 22, 2010, as previously discussed, and warrants granted on the Effective Date as previously discussed, the Company calculated the grant-date fair value by using the Monte Carlo and Black Scholes-Merton pricing models with the following assumptions:
|
|
|
|
|
|
|
|
|
Options
|
RSUs
|
Warrants
|
|
Expected term
|
6.5 years
|
3 years
|
4 years
|
|
Expected volatility
|
55.1%
|
120.0%
|
75.0%
|
|
Expected dividends
|
None
|
None
|
None
|
|
Risk-free interest rate
|
1.16%
|
1.75%
|
1.65%
|
RSU, option and warrant assumption definitions:
|
|
|
|
|
|
|
|
|
Options
|
RSUs
|
Warrants
|
|
Expected term
|
Based on historical option exercises
|
Performance-based RSU's expire 3 years after grant date
|
Expire four years after grant date
|
|
Expected volatility
|
Historical volatility blended with peers
|
Historical volatility blended with peers
|
Historical volatility blended with peers
|
|
Expected dividends
|
Credit Facility prohibits dividends
|
Credit Facility prohibits dividends
|
Credit Facility prohibits dividends
|
|
Risk-free interest rate
|
The yield on a U.S. Treasury Strip for the option term
|
The yield on zero-coupon U.S. Treasury securities for the RSU term
|
The yield on zero-coupon U.S. Treasury securities for the warrant term
|
Forfeitures
As the time-based and performance-based RSUs require continued employment or service up to the time of vesting, the amount of stock-based compensation recognized during a period is required to include an estimate of forfeitures. No estimate of forfeitures has been made for RSUs and DSU’s awarded to non-employee directors because they vest immediately upon grant. Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is related to employee attrition and based on a historical analysis of its employee turnover. This analysis is re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will be only for those shares that meet the requirements of continued employment up to the time of vesting. As of December 31, 2013, the forfeiture rates for the 2012 plan is estimated at
5%
. In accordance with Topic 718, the cumulative effect of applying the change in estimate retrospectively is recognized in the period of change. During 2013, the Company did not change its forfeiture rate estimates, therefore no cumulative adjustment was made.
As of December 31, 2013, there was approximately
$5.1 million
of total unrecognized compensation expense related to unvested share-based awards which is expected to be recognized over a weighted average period of
2.50 years
.
The Company’s Credit Facility generally prohibits the payment of dividends and accordingly, no such payments were made during the years ended December 31, 2013 and 2012.
11. Restructuring Expense
Restructuring expense included in the Company’s statements of operations are the result of its long-term strategy to reduce production costs and improve long-term competitiveness. Restructuring and impairments expense consists principally of severance costs related to reductions in work force and of facility costs and impairments of assets principally related to closing facilities and/or the relocation of production to another facility. Impairment amounts for assets held for sale reflect estimated selling prices less costs to sell and are considered to be a Level 2 within the fair value hierarchy. Facility costs are principally comprised of costs to relocate assets to the Company’s other facilities, operating lease termination costs and other associated costs.
During 2013, the Company recorded restructuring and impairment expenses of approximately
$14.8 million
, of which
$8.2 million
,
$5.6 million
and
$1.0 million
were in the machine clothing, rolls and corporate segments. These included charges relating to the reduction of base costs via previously announced headcount reductions, the closure of two machine clothing facilities in Spain and Argentina and the closure of three rolls facilities in Germany, France and U.S.
$8.8 million
of the 2013 charges relate to plant closures announced in previous years. Of this amount,
$4.6 million
are increases in 2012 severance estimates and
$4.2 million
are 2013 period costs.
$6.0 million
of the 2013 charges relate to the 2013 announced closure of a Rolls facility located in Germany and ongoing headcount reduction initiatives.
During 2012, the Company incurred
$25,708
in restructuring expenses, of which
$21,251
,
$4,295
and
$162
were in the machine clothing, rolls and corporate segments, respectively. This amount includes costs incurred as a result of (1) the reduction of selling costs in Europe via termination of sales agency agreements, resulting in
$3,601
of restructuring costs; (2) the closure
of machine clothing production operation in Argentina, resulting in
$2,176
of restructuring costs; (3) the closure of roll covering plant in France, resulting in
$3,717
restructuring costs; (4) the reduction of base costs via headcount reductions primarily in Europe, resulting in
$7,952
of restructuring costs, and (5) the planned closure of machine clothing plant in Spain, resulting in restructuring costs of
$8,262
. Included in these costs were non-cash impairment charges of
$2,479
recorded in 2012 as a result of closing the Argentina, France and Spain facilities.
During 2011, the Company incurred
$1,589
for restructuring expense, of which
$368
and
$1,221
were in the machine clothing and rolls segments, respectively. This amount includes costs resulting from its long-term strategy to reduce production costs and improve long-term competitiveness as described above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cost Reduction Programs” by closing and/or transferring production from certain of our manufacturing facilities and through headcount reductions.
The Company expects to continue to review its business to determine if additional actions will be taken to further improve its cost structure. Restructuring expenses of approximately
$15.0 million
to
$20.0 million
are estimated during 2014, primarily related to the continuation of streamlining the operating structure and improving long-term competitiveness of the Company. Actual restructuring costs for 2014 may substantially differ from estimates at this time, depending on actual operating results in 2014 and the timing of the restructuring activities.
The table below sets forth the significant components and activity in the restructuring program during the years ended December 31, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
Balance at
December 31,
2012
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
December 31,
2013
|
|
Severance
|
$
|
15,577
|
|
|
$
|
10,574
|
|
|
$
|
57
|
|
|
$
|
(19,742
|
)
|
|
$
|
6,466
|
|
|
Facility costs and other
|
335
|
|
|
3,583
|
|
|
133
|
|
|
(2,583
|
)
|
|
1,468
|
|
|
Total
|
$
|
15,912
|
|
|
$
|
14,157
|
|
|
$
|
190
|
|
|
$
|
(22,325
|
)
|
|
$
|
7,934
|
|
(1) Amount excludes
$687
related to impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
Balance at
December 31,
2011
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
December 31,
2012
|
|
Severance
|
$
|
800
|
|
|
$
|
18,050
|
|
|
$
|
172
|
|
|
$
|
(3,445
|
)
|
|
$
|
15,577
|
|
|
Facility costs and other
|
452
|
|
|
5,179
|
|
|
(110
|
)
|
|
(5,186
|
)
|
|
335
|
|
|
Total
|
$
|
1,252
|
|
|
$
|
23,229
|
|
|
$
|
62
|
|
|
$
|
(8,631
|
)
|
|
$
|
15,912
|
|
(1) Amount excludes
$2,479
related to impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
Balance at
December 31,
2010
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
December 31,
2011
|
|
Severance
|
$
|
2,255
|
|
|
$
|
482
|
|
|
$
|
(74
|
)
|
|
$
|
(1,863
|
)
|
|
$
|
800
|
|
|
Facility costs and other
|
471
|
|
|
705
|
|
|
50
|
|
|
(774
|
)
|
|
452
|
|
|
Total
|
$
|
2,726
|
|
|
$
|
1,187
|
|
|
$
|
(24
|
)
|
|
$
|
(2,637
|
)
|
|
$
|
1,252
|
|
(1) Amount excludes
$402
related to a Canadian pension plan termination charge reclassified out of Accumulated Other Comprehensive Income, rather than recorded in the accrual above.
12. Business Segment Information
The Company is a global manufacturer and supplier of consumable products primarily used in the production of paper, and is organized into
two
reportable segments: machine clothing and roll covers. The machine clothing segment represents the manufacture and sale of synthetic textile belts used to transport paper along the length of papermaking machines. The roll covers segment primarily represents the manufacture and refurbishment of covers used on the steel rolls of a papermaking machine. The Company manages each of these operating segments separately.
Management evaluates segment performance based on earnings before interest, taxes, depreciation and amortization before allocation of corporate charges. Such measure is then adjusted to exclude items that are of an unusual nature and are not used in measuring segment performance or are not segment specific (“Segment Earnings (Loss)”). The accounting policies of these segments are the same as those described in Accounting Policies in Note 2. Inter-segment net sales and inter-segment eliminations are not material for any of the periods presented.
The corporate column consists of the Company’s headquarters, related assets and expenses that are not allocable to reportable segments. Significant corporate assets include cash, investments in subsidiaries and deferred financing costs. Corporate depreciation and amortization consists primarily of deferred financing costs. Corporate segment earnings (loss) consists of general and administrative expenses. The eliminations column represents eliminations of investments in subsidiaries.
Summarized financial information for the Company’s reportable segments is presented in the tables that follow for each of the three years ended December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine clothing
|
|
Roll
Covers
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
352,336
|
|
|
$
|
194,556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
546,892
|
|
|
Depreciation and amortization (1)
|
26,148
|
|
|
10,133
|
|
|
122
|
|
|
—
|
|
|
36,403
|
|
|
Segment Earnings (Loss)
|
75,929
|
|
|
45,179
|
|
|
(13,783
|
)
|
|
—
|
|
|
|
|
Total assets
|
497,109
|
|
|
229,105
|
|
|
712,704
|
|
|
(814,854
|
)
|
|
624,064
|
|
|
Capital expenditures
|
18,799
|
|
|
10,029
|
|
|
15,317
|
|
|
—
|
|
|
44,145
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
354,172
|
|
|
$
|
184,568
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
538,740
|
|
|
Depreciation and amortization (1)
|
29,818
|
|
|
10,852
|
|
|
168
|
|
|
—
|
|
|
40,838
|
|
|
Segment Earnings (Loss)
|
62,884
|
|
|
38,212
|
|
|
(11,868
|
)
|
|
—
|
|
|
|
|
Total assets
|
490,283
|
|
|
224,288
|
|
|
698,944
|
|
|
(794,672
|
)
|
|
618,843
|
|
|
Capital expenditures
|
14,026
|
|
|
7,314
|
|
|
365
|
|
|
—
|
|
|
21,705
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
386,433
|
|
|
$
|
200,527
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
586,960
|
|
|
Depreciation and amortization (1)
|
32,575
|
|
|
10,877
|
|
|
234
|
|
|
—
|
|
|
43,686
|
|
|
Segment Earnings (Loss)
|
79,458
|
|
|
40,327
|
|
|
(12,126
|
)
|
|
—
|
|
|
|
|
Total assets
|
499,338
|
|
|
228,014
|
|
|
730,269
|
|
|
(791,900
|
)
|
|
665,721
|
|
|
Capital expenditures
|
21,530
|
|
|
8,172
|
|
|
452
|
|
|
|
|
|
30,154
|
|
|
|
|
|
(1)
|
Depreciation and amortization excludes amortization of financing costs, included in interest expense of
$2,963
,
$3,424
, and
$2,307
for 2013, 2012 and 2011, respectively.
|
Provided below is a reconciliation of Segment Earnings (Loss) to income before provision for income taxes for each of the three years in the period ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Segment Earnings (Loss):
|
|
|
|
|
|
|
Machine clothing
|
$
|
75,929
|
|
|
$
|
62,884
|
|
|
$
|
79,458
|
|
|
Roll Covers
|
45,179
|
|
|
38,212
|
|
|
40,327
|
|
|
Corporate
|
(13,783
|
)
|
|
(11,868
|
)
|
|
(12,126
|
)
|
|
Stock-based compensation
|
(1,736
|
)
|
|
(1,949
|
)
|
|
(1,439
|
)
|
|
Legal fees related to debt refinancing
|
—
|
|
|
(115
|
)
|
|
—
|
|
|
Inventory write-off related to closed facilities
|
(954
|
)
|
|
|
|
|
|
Idle facility asset impairment
|
(667
|
)
|
|
(1,195
|
)
|
|
—
|
|
|
Non-recurring expenses related to CEO retirement
|
—
|
|
|
(3,385
|
)
|
|
—
|
|
|
Plant startup costs
|
(401
|
)
|
|
|
|
|
|
Interest expense, net
|
(40,681
|
)
|
|
(37,878
|
)
|
|
(39,150
|
)
|
|
Depreciation and amortization (1)
|
(36,403
|
)
|
|
(40,838
|
)
|
|
(43,686
|
)
|
|
Restructuring expenses
|
(14,844
|
)
|
|
(25,708
|
)
|
|
(1,589
|
)
|
|
(Loss) gain on debt extinguishment
|
(3,123
|
)
|
|
243
|
|
|
(2,926
|
)
|
|
Income (loss) before provision for income taxes
|
$
|
8,516
|
|
|
$
|
(21,597
|
)
|
|
$
|
18,869
|
|
(1) Excludes amortization of deferred finance costs that are charged to interest expense.
Information concerning principal geographic areas is set forth below. Net sales amounts are for the years ended December 31, 2013, 2012 and 2011 and property, plant and equipment amounts are as of December 31, 2013, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia Pacific
|
|
Other
|
|
Total
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
208,746
|
|
|
$
|
189,696
|
|
|
$
|
101,516
|
|
|
$
|
46,934
|
|
|
$
|
546,892
|
|
|
Property, plant and equipment
|
103,179
|
|
|
125,857
|
|
|
30,733
|
|
|
49,895
|
|
|
309,664
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
202,554
|
|
|
$
|
183,822
|
|
|
$
|
101,758
|
|
|
$
|
50,606
|
|
|
$
|
538,740
|
|
|
Property, plant and equipment
|
97,270
|
|
|
125,980
|
|
|
29,977
|
|
|
55,579
|
|
|
308,806
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
207,838
|
|
|
$
|
224,747
|
|
|
$
|
98,579
|
|
|
$
|
55,796
|
|
|
$
|
586,960
|
|
|
Property, plant and equipment
|
102,754
|
|
|
136,579
|
|
|
32,827
|
|
|
63,096
|
|
|
335,256
|
|
13. Supplemental Guarantor Financial Information
On May 26, 2011, the Company closed on the sale of its Notes. The Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by all of the domestic wholly owned subsidiaries of the Company (the “Guarantors”). In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, the following consolidating financial statements present the financial position, results of operations and cash flows of Xerium Technologies, Inc. (referred to as “Parent” for the purpose of this note only) on a stand-alone parent-only basis, the Guarantors on a Guarantors-only basis, the combined non-Guarantor subsidiaries and elimination entries necessary to arrive at the information for the Parent, the Guarantors and non-Guarantor subsidiaries on a consolidated basis.
Xerium Technologies, Inc.
Consolidating Balance Sheet
At December 31, 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,120
|
|
|
$
|
(10
|
)
|
|
$
|
21,606
|
|
|
$
|
—
|
|
|
$
|
25,716
|
|
|
Accounts receivable, net
|
—
|
|
|
22,188
|
|
|
65,764
|
|
|
—
|
|
|
87,952
|
|
|
Intercompany (payable) receivable
|
(112,848
|
)
|
|
110,434
|
|
|
2,414
|
|
|
—
|
|
|
—
|
|
|
Inventories
|
—
|
|
|
18,077
|
|
|
66,632
|
|
|
(779
|
)
|
|
83,930
|
|
|
Prepaid expenses
|
398
|
|
|
936
|
|
|
6,845
|
|
|
—
|
|
|
8,179
|
|
|
Other current assets
|
514
|
|
|
3,729
|
|
|
11,452
|
|
|
—
|
|
|
15,695
|
|
|
Total current assets
|
(107,816
|
)
|
|
155,354
|
|
|
174,713
|
|
|
(779
|
)
|
|
221,472
|
|
|
Property and equipment, net
|
15,794
|
|
|
59,250
|
|
|
234,620
|
|
|
—
|
|
|
309,664
|
|
|
Investments
|
700,697
|
|
|
284,444
|
|
|
—
|
|
|
(985,141
|
)
|
|
—
|
|
|
Goodwill
|
—
|
|
|
17,737
|
|
|
51,238
|
|
|
—
|
|
|
68,975
|
|
|
Intangible assets
|
10,964
|
|
|
3,094
|
|
|
412
|
|
|
—
|
|
|
14,470
|
|
|
Other assets
|
4
|
|
|
—
|
|
|
9,479
|
|
|
—
|
|
|
9,483
|
|
|
Total assets
|
$
|
619,643
|
|
|
$
|
519,879
|
|
|
$
|
470,462
|
|
|
$
|
(985,920
|
)
|
|
$
|
624,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,267
|
|
|
$
|
—
|
|
|
$
|
8,267
|
|
|
Accounts payable
|
2,109
|
|
|
10,380
|
|
|
29,731
|
|
|
—
|
|
|
42,220
|
|
|
Accrued expenses
|
9,794
|
|
|
8,172
|
|
|
43,402
|
|
|
—
|
|
|
61,368
|
|
|
Current maturities of long-term debt
|
2,024
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
2,166
|
|
|
Total current liabilities
|
13,927
|
|
|
18,552
|
|
|
81,542
|
|
|
—
|
|
|
114,021
|
|
|
Long-term debt, net of current maturities
|
432,706
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
432,706
|
|
|
Deferred taxes
|
327
|
|
|
3,040
|
|
|
12,983
|
|
|
—
|
|
|
16,350
|
|
|
Pension, other post-retirement and post-employment obligations
|
11,212
|
|
|
1,182
|
|
|
54,472
|
|
|
—
|
|
|
66,866
|
|
|
Other long-term liabilities
|
106
|
|
|
5
|
|
|
5,459
|
|
|
—
|
|
|
5,570
|
|
|
Intercompany loans
|
233,755
|
|
|
(355,003
|
)
|
|
121,248
|
|
|
—
|
|
|
—
|
|
|
Total stockholders’ (deficit) equity
|
(72,390
|
)
|
|
852,103
|
|
|
194,758
|
|
|
(985,920
|
)
|
|
(11,449
|
)
|
|
Total liabilities and stockholders’ (deficit) equity
|
$
|
619,643
|
|
|
$
|
519,879
|
|
|
$
|
470,462
|
|
|
$
|
(985,920
|
)
|
|
$
|
624,064
|
|
Xerium Technologies, Inc.
Consolidating Balance Sheet
At December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,471
|
|
|
$
|
36
|
|
|
$
|
28,270
|
|
|
$
|
—
|
|
|
$
|
34,777
|
|
|
Accounts receivable, net
|
—
|
|
|
20,964
|
|
|
63,492
|
|
|
—
|
|
|
84,456
|
|
|
Intercompany (payable) receivable
|
(102,407
|
)
|
|
107,944
|
|
|
(5,537
|
)
|
|
—
|
|
|
—
|
|
|
Inventories
|
—
|
|
|
15,672
|
|
|
62,569
|
|
|
(850
|
)
|
|
77,391
|
|
|
Prepaid expenses
|
159
|
|
|
1,693
|
|
|
7,534
|
|
|
—
|
|
|
9,386
|
|
|
Other current assets
|
—
|
|
|
2,970
|
|
|
11,869
|
|
|
—
|
|
|
14,839
|
|
|
Total current assets
|
(95,777
|
)
|
|
149,279
|
|
|
168,197
|
|
|
(850
|
)
|
|
220,849
|
|
|
Property and equipment, net
|
734
|
|
|
62,157
|
|
|
245,915
|
|
|
—
|
|
|
308,806
|
|
|
Investments
|
596,891
|
|
|
149,134
|
|
|
—
|
|
|
(746,025
|
)
|
|
—
|
|
|
Goodwill
|
—
|
|
|
17,737
|
|
|
43,390
|
|
|
—
|
|
|
61,127
|
|
|
Intangible assets
|
10,034
|
|
|
4,776
|
|
|
3,868
|
|
|
—
|
|
|
18,678
|
|
|
Other assets
|
44
|
|
|
—
|
|
|
9,339
|
|
|
—
|
|
|
9,383
|
|
|
Total assets
|
$
|
511,926
|
|
|
$
|
383,083
|
|
|
$
|
470,709
|
|
|
$
|
(746,875
|
)
|
|
$
|
618,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,911
|
|
|
$
|
—
|
|
|
$
|
7,911
|
|
|
Accounts payable
|
502
|
|
|
8,629
|
|
|
27,753
|
|
|
—
|
|
|
36,884
|
|
|
Accrued expenses
|
6,005
|
|
|
6,579
|
|
|
47,173
|
|
|
—
|
|
|
59,757
|
|
|
Current maturities of long-term debt
|
1,250
|
|
|
—
|
|
|
1,147
|
|
|
—
|
|
|
2,397
|
|
|
Total current liabilities
|
7,757
|
|
|
15,208
|
|
|
83,984
|
|
|
—
|
|
|
106,949
|
|
|
Long-term debt, net of current maturities
|
339,717
|
|
|
—
|
|
|
94,967
|
|
|
—
|
|
|
434,684
|
|
|
Deferred taxes
|
—
|
|
|
2,335
|
|
|
14,247
|
|
|
—
|
|
|
16,582
|
|
|
Pension, other post-retirement and post-employment obligations
|
21,677
|
|
|
1,000
|
|
|
61,272
|
|
|
—
|
|
|
83,949
|
|
|
Other long-term liabilities
|
31
|
|
|
—
|
|
|
5,709
|
|
|
—
|
|
|
5,740
|
|
|
Intercompany loans
|
229,239
|
|
|
(358,187
|
)
|
|
128,948
|
|
|
—
|
|
|
—
|
|
|
Total stockholders’ (deficit) equity
|
(86,495
|
)
|
|
722,727
|
|
|
81,582
|
|
|
(746,875
|
)
|
|
(29,061
|
)
|
|
Total liabilities and stockholders’ (deficit) equity
|
$
|
511,926
|
|
|
$
|
383,083
|
|
|
$
|
470,709
|
|
|
$
|
(746,875
|
)
|
|
$
|
618,843
|
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income
For the year ended
December 31, 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
Net sales
|
$
|
—
|
|
|
$
|
182,935
|
|
|
$
|
411,931
|
|
|
$
|
(47,974
|
)
|
|
$
|
546,892
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(1,690
|
)
|
|
125,834
|
|
|
261,157
|
|
|
(48,046
|
)
|
|
337,255
|
|
|
Selling
|
—
|
|
|
20,493
|
|
|
50,676
|
|
|
—
|
|
|
71,169
|
|
|
General and administrative
|
8,114
|
|
|
4,958
|
|
|
47,143
|
|
|
—
|
|
|
60,215
|
|
|
Research and development
|
—
|
|
|
7,668
|
|
|
2,369
|
|
|
—
|
|
|
10,037
|
|
|
Restructuring
|
1,016
|
|
|
847
|
|
|
12,981
|
|
|
—
|
|
|
14,844
|
|
|
|
7,440
|
|
|
159,800
|
|
|
374,326
|
|
|
(48,046
|
)
|
|
493,520
|
|
|
(Loss) income from operations
|
(7,440
|
)
|
|
23,135
|
|
|
37,605
|
|
|
72
|
|
|
53,372
|
|
|
Interest (expense) income, net
|
(32,279
|
)
|
|
5,665
|
|
|
(14,067
|
)
|
|
—
|
|
|
(40,681
|
)
|
|
Foreign exchange loss
|
(585
|
)
|
|
(171
|
)
|
|
(295
|
)
|
|
—
|
|
|
(1,051
|
)
|
|
Equity in subsidiaries income
|
47,997
|
|
|
15,562
|
|
|
—
|
|
|
(63,560
|
)
|
|
(1
|
)
|
|
Loss on extinguishment of debt
|
(3,123
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,123
|
)
|
|
Dividend income
|
—
|
|
|
1,555
|
|
|
—
|
|
|
(1,555
|
)
|
|
—
|
|
|
Income (loss) before provision for income taxes
|
4,570
|
|
|
45,746
|
|
|
23,243
|
|
|
(65,043
|
)
|
|
8,516
|
|
|
(Provision) benefit for income taxes
|
(417
|
)
|
|
9
|
|
|
(3,955
|
)
|
|
—
|
|
|
(4,363
|
)
|
|
Net (loss) income
|
$
|
4,153
|
|
|
$
|
45,755
|
|
|
$
|
19,288
|
|
|
$
|
(65,043
|
)
|
|
$
|
4,153
|
|
|
Comprehensive income
|
$
|
12,495
|
|
|
$
|
46,059
|
|
|
$
|
22,483
|
|
|
$
|
(65,043
|
)
|
|
$
|
15,994
|
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income
For the year ended
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
Net sales
|
$
|
—
|
|
|
$
|
178,613
|
|
|
$
|
407,647
|
|
|
$
|
(47,520
|
)
|
|
$
|
538,740
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(1,451
|
)
|
|
129,127
|
|
|
265,513
|
|
|
(48,018
|
)
|
|
345,171
|
|
|
Selling
|
—
|
|
|
22,205
|
|
|
53,878
|
|
|
—
|
|
|
76,083
|
|
|
General and administrative
|
10,241
|
|
|
6,525
|
|
|
46,935
|
|
|
—
|
|
|
63,701
|
|
|
Research and development
|
—
|
|
|
8,485
|
|
|
3,196
|
|
|
—
|
|
|
11,681
|
|
|
Restructuring
|
163
|
|
|
510
|
|
|
25,035
|
|
|
—
|
|
|
25,708
|
|
|
|
8,953
|
|
|
166,852
|
|
|
394,557
|
|
|
(48,018
|
)
|
|
522,344
|
|
|
(Loss) income from operations
|
(8,953
|
)
|
|
11,761
|
|
|
13,090
|
|
|
498
|
|
|
16,396
|
|
|
Interest (expense) income, net
|
(28,115
|
)
|
|
6,503
|
|
|
(16,266
|
)
|
|
—
|
|
|
(37,878
|
)
|
|
Foreign exchange (loss) gain
|
(612
|
)
|
|
(46
|
)
|
|
300
|
|
|
—
|
|
|
(358
|
)
|
|
Equity in subsidiaries income
|
17,875
|
|
|
(20,177
|
)
|
|
—
|
|
|
2,302
|
|
|
—
|
|
|
Gain on extinguishment of debt
|
243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
243
|
|
|
Dividend income
|
1,657
|
|
|
22,928
|
|
|
—
|
|
|
(24,585
|
)
|
|
—
|
|
|
(Loss) income before provision for income taxes
|
(17,905
|
)
|
|
20,969
|
|
|
(2,876
|
)
|
|
(21,785
|
)
|
|
(21,597
|
)
|
|
(Provision) benefit for income taxes
|
(130
|
)
|
|
(131
|
)
|
|
3,823
|
|
|
—
|
|
|
3,562
|
|
|
Net (loss) income
|
$
|
(18,035
|
)
|
|
$
|
20,838
|
|
|
$
|
947
|
|
|
$
|
(21,785
|
)
|
|
$
|
(18,035
|
)
|
|
Comprehensive (loss) income
|
$
|
(18,488
|
)
|
|
$
|
21,644
|
|
|
$
|
(9,753
|
)
|
|
$
|
(21,785
|
)
|
|
$
|
(28,382
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income
For the year ended
December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
Net sales
|
$
|
—
|
|
|
$
|
180,973
|
|
|
$
|
455,339
|
|
|
$
|
(49,352
|
)
|
|
$
|
586,960
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(2,384
|
)
|
|
128,567
|
|
|
293,830
|
|
|
(49,259
|
)
|
|
370,754
|
|
|
Selling
|
53
|
|
|
22,879
|
|
|
56,475
|
|
|
—
|
|
|
79,407
|
|
|
General and administrative
|
7,571
|
|
|
7,573
|
|
|
46,868
|
|
|
—
|
|
|
62,012
|
|
|
Research and development
|
(3
|
)
|
|
8,565
|
|
|
3,535
|
|
|
—
|
|
|
12,097
|
|
|
Restructuring
|
(72
|
)
|
|
907
|
|
|
754
|
|
|
—
|
|
|
1,589
|
|
|
|
5,165
|
|
|
168,491
|
|
|
401,462
|
|
|
(49,259
|
)
|
|
525,859
|
|
|
(Loss) income from operations
|
(5,165
|
)
|
|
12,482
|
|
|
53,877
|
|
|
(93
|
)
|
|
61,101
|
|
|
Interest (expense) income, net
|
(24,594
|
)
|
|
7,618
|
|
|
(22,174
|
)
|
|
—
|
|
|
(39,150
|
)
|
|
Loss on extinguishment of debt
|
(2,903
|
)
|
|
(6
|
)
|
|
(17
|
)
|
|
—
|
|
|
(2,926
|
)
|
|
Foreign exchange gain (loss)
|
582
|
|
|
(956
|
)
|
|
218
|
|
|
—
|
|
|
(156
|
)
|
|
Equity in subsidiaries income
|
39,640
|
|
|
18,851
|
|
|
—
|
|
|
(58,491
|
)
|
|
—
|
|
|
Dividend income
|
1,366
|
|
|
—
|
|
|
—
|
|
|
(1,366
|
)
|
|
—
|
|
|
Income before provision for income taxes
|
8,926
|
|
|
37,989
|
|
|
31,904
|
|
|
(59,950
|
)
|
|
18,869
|
|
|
Provision for income taxes
|
(736
|
)
|
|
(203
|
)
|
|
(9,740
|
)
|
|
—
|
|
|
(10,679
|
)
|
|
Net income (loss)
|
$
|
8,190
|
|
|
$
|
37,786
|
|
|
$
|
22,164
|
|
|
$
|
(59,950
|
)
|
|
$
|
8,190
|
|
|
Comprehensive (loss) income
|
$
|
(10,489
|
)
|
|
$
|
44,797
|
|
|
$
|
4,663
|
|
|
$
|
(59,950
|
)
|
|
$
|
(20,979
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows
For the year ended
December 31, 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
4,153
|
|
|
$
|
45,755
|
|
|
$
|
19,288
|
|
|
$
|
(65,043
|
)
|
|
$
|
4,153
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
1,736
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,736
|
|
|
Depreciation
|
122
|
|
|
7,413
|
|
|
27,096
|
|
|
—
|
|
|
34,631
|
|
|
Amortization of other intangibles
|
—
|
|
|
1,682
|
|
|
90
|
|
|
—
|
|
|
1,772
|
|
|
Deferred financing cost amortization
|
(808
|
)
|
|
—
|
|
|
3,771
|
|
|
—
|
|
|
2,963
|
|
|
Unrealized foreign exchange loss on revaluation of debt
|
(30
|
)
|
|
(45
|
)
|
|
1,781
|
|
|
—
|
|
|
1,706
|
|
|
Deferred taxes
|
327
|
|
|
—
|
|
|
(6,013
|
)
|
|
—
|
|
|
(5,686
|
)
|
|
Asset impairment
|
17
|
|
|
351
|
|
|
986
|
|
|
|
|
1,354
|
|
|
Gain on disposition of property and equipment
|
132
|
|
|
52
|
|
|
18
|
|
|
—
|
|
|
202
|
|
|
Loss on extinguishment of debt
|
3,123
|
|
|
—
|
|
|
—
|
|
|
|
|
3,123
|
|
|
(Credit) provision for doubtful accounts
|
—
|
|
|
(27
|
)
|
|
452
|
|
|
—
|
|
|
425
|
|
|
Undistributed equity in (earnings) loss of subsidiaries
|
(47,998
|
)
|
|
(15,562
|
)
|
|
—
|
|
|
63,560
|
|
|
—
|
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
—
|
|
|
(1,189
|
)
|
|
(5,094
|
)
|
|
—
|
|
|
(6,283
|
)
|
|
Inventories
|
—
|
|
|
(2,405
|
)
|
|
(6,300
|
)
|
|
(72
|
)
|
|
(8,777
|
)
|
|
Prepaid expenses
|
(239
|
)
|
|
757
|
|
|
461
|
|
|
—
|
|
|
979
|
|
|
Other current assets
|
(530
|
)
|
|
426
|
|
|
(1,340
|
)
|
|
—
|
|
|
(1,444
|
)
|
|
Accounts payable and accrued expenses
|
5,278
|
|
|
2,529
|
|
|
(2,563
|
)
|
|
1,555
|
|
|
6,799
|
|
|
Deferred and other long-term liabilities
|
92
|
|
|
182
|
|
|
(1,813
|
)
|
|
—
|
|
|
(1,539
|
)
|
|
Intercompany loans
|
10,442
|
|
|
(2,509
|
)
|
|
(7,933
|
)
|
|
—
|
|
|
—
|
|
|
Net cash (used in) provided by operating activities
|
(24,183
|
)
|
|
37,410
|
|
|
22,887
|
|
|
—
|
|
|
36,114
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(15,317
|
)
|
|
(5,315
|
)
|
|
(23,513
|
)
|
|
—
|
|
|
(44,145
|
)
|
|
Intercompany property and equipment transfers, net
|
3
|
|
|
798
|
|
|
(801
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
5
|
|
|
2,262
|
|
|
—
|
|
|
2,267
|
|
|
Other investing activities
|
(1,000
|
)
|
|
|
|
1,009
|
|
|
|
|
9
|
|
|
Net cash used in investing activities
|
(16,314
|
)
|
|
(4,512
|
)
|
|
(21,043
|
)
|
|
—
|
|
|
(41,869
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
199,321
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199,321
|
|
|
Principal payments on debt
|
(105,558
|
)
|
|
—
|
|
|
(93,791
|
)
|
|
—
|
|
|
(199,349
|
)
|
|
Payment of deferred financing fees
|
(3,246
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,246
|
)
|
|
Dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Intercompany loans
|
(52,371
|
)
|
|
(32,943
|
)
|
|
85,314
|
|
|
—
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
38,146
|
|
|
(32,943
|
)
|
|
(8,477
|
)
|
|
—
|
|
|
(3,274
|
)
|
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
(1
|
)
|
|
(31
|
)
|
|
—
|
|
|
(32
|
)
|
|
Net decrease in cash
|
(2,351
|
)
|
|
(46
|
)
|
|
(6,664
|
)
|
|
—
|
|
|
(9,061
|
)
|
|
Cash and cash equivalents at beginning of period
|
6,471
|
|
|
36
|
|
|
28,270
|
|
|
—
|
|
|
34,777
|
|
|
Cash and cash equivalents at end of period
|
$
|
4,120
|
|
|
$
|
(10
|
)
|
|
$
|
21,606
|
|
|
$
|
—
|
|
|
$
|
25,716
|
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows
For the year ended
December 31, 2012
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(18,035
|
)
|
|
$
|
20,838
|
|
|
$
|
947
|
|
|
$
|
(21,785
|
)
|
|
$
|
(18,035
|
)
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
1,949
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,949
|
|
|
Depreciation
|
168
|
|
|
8,340
|
|
|
30,025
|
|
|
—
|
|
|
38,533
|
|
|
Amortization of other intangibles
|
—
|
|
|
2,212
|
|
|
93
|
|
|
—
|
|
|
2,305
|
|
|
Deferred financing cost amortization
|
2,407
|
|
|
—
|
|
|
1,017
|
|
|
—
|
|
|
3,424
|
|
|
Unrealized foreign exchange loss on revaluation of debt
|
—
|
|
|
—
|
|
|
582
|
|
|
—
|
|
|
582
|
|
|
Deferred taxes
|
—
|
|
|
—
|
|
|
(8,249
|
)
|
|
—
|
|
|
(8,249
|
)
|
|
Asset impairment
|
—
|
|
|
—
|
|
|
3,674
|
|
|
|
|
|
3,674
|
|
|
Loss (gain) on disposition of property and equipment
|
—
|
|
|
128
|
|
|
(704
|
)
|
|
—
|
|
|
(576
|
)
|
|
(Gain) loss on extinguishment of debt
|
(243
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(243
|
)
|
|
Intercompany dividend
|
(1,657
|
)
|
|
(22,928
|
)
|
|
—
|
|
|
24,585
|
|
|
—
|
|
|
Provision (credit) for doubtful accounts
|
—
|
|
|
(109
|
)
|
|
1,063
|
|
|
—
|
|
|
954
|
|
|
Undistributed equity in (earnings) loss of subsidiaries
|
(17,875
|
)
|
|
20,177
|
|
|
—
|
|
|
(2,302
|
)
|
|
—
|
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
8
|
|
|
355
|
|
|
5,232
|
|
|
—
|
|
|
5,595
|
|
|
Inventories
|
—
|
|
|
4,087
|
|
|
1,630
|
|
|
(498
|
)
|
|
5,219
|
|
|
Prepaid expenses
|
112
|
|
|
(147
|
)
|
|
(3,388
|
)
|
|
—
|
|
|
(3,423
|
)
|
|
Other current assets
|
—
|
|
|
1,704
|
|
|
(1,120
|
)
|
|
—
|
|
|
584
|
|
|
Accounts payable and accrued expenses
|
(1,064
|
)
|
|
(769
|
)
|
|
11,169
|
|
|
—
|
|
|
9,336
|
|
|
Deferred and other long-term liabilities
|
54
|
|
|
(819
|
)
|
|
(1,542
|
)
|
|
—
|
|
|
(2,307
|
)
|
|
Intercompany loans
|
6,551
|
|
|
(5,298
|
)
|
|
(1,253
|
)
|
|
—
|
|
|
—
|
|
|
Net cash (used in) provided by operating activities
|
(27,625
|
)
|
|
27,771
|
|
|
39,176
|
|
|
—
|
|
|
39,322
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(365
|
)
|
|
(2,618
|
)
|
|
(18,722
|
)
|
|
—
|
|
|
(21,705
|
)
|
|
Intercompany property and equipment transfers, net
|
344
|
|
|
(287
|
)
|
|
(57
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
19
|
|
|
1,069
|
|
|
—
|
|
|
1,088
|
|
|
Net cash used in investing activities
|
(21
|
)
|
|
(2,886
|
)
|
|
(17,710
|
)
|
|
—
|
|
|
(20,617
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in notes payable
|
—
|
|
|
—
|
|
|
7,365
|
|
|
|
|
7,365
|
|
|
Principal payments on debt
|
(18,066
|
)
|
|
—
|
|
|
(14,989
|
)
|
|
—
|
|
|
(33,055
|
)
|
|
Payment of deferred financing fees
|
(1,047
|
)
|
|
—
|
|
|
(735
|
)
|
|
—
|
|
|
(1,782
|
)
|
|
Dividends paid
|
1,657
|
|
|
4,024
|
|
|
(5,681
|
)
|
|
—
|
|
|
—
|
|
|
Intercompany loans
|
40,025
|
|
|
(29,156
|
)
|
|
(10,869
|
)
|
|
—
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
22,569
|
|
|
(25,132
|
)
|
|
(24,909
|
)
|
|
—
|
|
|
(27,472
|
)
|
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
3
|
|
|
(25
|
)
|
|
—
|
|
|
(22
|
)
|
|
Net decrease in cash
|
(5,077
|
)
|
|
(244
|
)
|
|
(3,468
|
)
|
|
—
|
|
|
(8,789
|
)
|
|
Cash and cash equivalents at beginning of period
|
11,548
|
|
|
280
|
|
|
31,738
|
|
|
—
|
|
|
43,566
|
|
|
Cash and cash equivalents at end of period
|
$
|
6,471
|
|
|
$
|
36
|
|
|
$
|
28,270
|
|
|
$
|
—
|
|
|
$
|
34,777
|
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows
For the year ended
December 31, 2011
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
8,190
|
|
|
$
|
37,786
|
|
|
$
|
22,164
|
|
|
$
|
(59,950
|
)
|
|
$
|
8,190
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
1,439
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,439
|
|
|
Depreciation
|
234
|
|
|
8,040
|
|
|
33,107
|
|
|
—
|
|
|
41,381
|
|
|
Amortization of other intangibles
|
—
|
|
|
2,212
|
|
|
93
|
|
|
—
|
|
|
2,305
|
|
|
Deferred financing cost amortization
|
56
|
|
|
204
|
|
|
2,047
|
|
|
—
|
|
|
2,307
|
|
|
Unrealized foreign exchange loss on revaluation of debt
|
—
|
|
|
—
|
|
|
139
|
|
|
—
|
|
|
139
|
|
|
Deferred taxes
|
—
|
|
|
—
|
|
|
334
|
|
|
—
|
|
|
334
|
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Gain on disposition of property and equipment
|
3
|
|
|
(103
|
)
|
|
(464
|
)
|
|
—
|
|
|
(564
|
)
|
|
Loss on extinguishment of debt
|
2,903
|
|
|
6
|
|
|
17
|
|
|
—
|
|
|
2,926
|
|
|
Curtailment/settlement loss
|
—
|
|
|
—
|
|
|
402
|
|
|
—
|
|
|
402
|
|
|
Intercompany dividend
|
(1,366
|
)
|
|
—
|
|
|
—
|
|
|
1,366
|
|
|
—
|
|
|
Provision (credit) for doubtful accounts
|
—
|
|
|
658
|
|
|
597
|
|
|
—
|
|
|
1,255
|
|
|
Undistributed equity in (earnings) loss of subsidiaries
|
(39,640
|
)
|
|
(18,851
|
)
|
|
—
|
|
|
58,491
|
|
|
—
|
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
—
|
|
|
Accounts receivable
|
(9
|
)
|
|
1,230
|
|
|
(2,091
|
)
|
|
—
|
|
|
(870
|
)
|
|
Inventories
|
—
|
|
|
(1,029
|
)
|
|
(2,477
|
)
|
|
93
|
|
|
(3,413
|
)
|
|
Prepaid expenses
|
88
|
|
|
(155
|
)
|
|
(238
|
)
|
|
—
|
|
|
(305
|
)
|
|
Other current assets
|
645
|
|
|
(1,296
|
)
|
|
(521
|
)
|
|
—
|
|
|
(1,172
|
)
|
|
Accounts payable and accrued expenses
|
2,556
|
|
|
(1,970
|
)
|
|
(4,406
|
)
|
|
—
|
|
|
(3,820
|
)
|
|
Deferred and other long-term liabilities
|
(211
|
)
|
|
(1,053
|
)
|
|
(4,062
|
)
|
|
—
|
|
|
(5,326
|
)
|
|
Intercompany loans
|
6,677
|
|
|
5,108
|
|
|
(11,785
|
)
|
|
—
|
|
|
—
|
|
|
Net cash (used in) provided by operating activities
|
(18,435
|
)
|
|
30,787
|
|
|
32,856
|
|
|
—
|
|
|
45,208
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(452
|
)
|
|
(4,467
|
)
|
|
(25,235
|
)
|
|
—
|
|
|
(30,154
|
)
|
|
Intercompany property and equipment transfers, net
|
97
|
|
|
(14
|
)
|
|
(83
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
146
|
|
|
7,618
|
|
|
—
|
|
|
7,764
|
|
|
Restricted cash
|
13,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,702
|
|
|
Net cash (used in) provided by investing activities
|
13,347
|
|
|
(4,335
|
)
|
|
(17,700
|
)
|
|
—
|
|
|
(8,688
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Net decrease in borrowings
|
—
|
|
|
—
|
|
|
(181
|
)
|
|
|
|
(181
|
)
|
|
Proceeds from borrowings
|
365,000
|
|
|
—
|
|
|
124,810
|
|
|
—
|
|
|
489,810
|
|
|
Principal payments on debt
|
(263,232
|
)
|
|
(51,016
|
)
|
|
(189,542
|
)
|
|
—
|
|
|
(503,790
|
)
|
|
Payment of deferred financing fees
|
(13,101
|
)
|
|
—
|
|
|
(4,201
|
)
|
|
—
|
|
|
(17,302
|
)
|
|
Dividends paid
|
1,366
|
|
|
—
|
|
|
(1,366
|
)
|
|
—
|
|
|
—
|
|
|
Intercompany loans
|
(79,742
|
)
|
|
24,812
|
|
|
54,930
|
|
|
—
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
10,291
|
|
|
(26,204
|
)
|
|
(15,550
|
)
|
|
—
|
|
|
(31,463
|
)
|
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
(1
|
)
|
|
(191
|
)
|
|
—
|
|
|
(192
|
)
|
|
Net (decrease) increase in cash
|
5,203
|
|
|
247
|
|
|
(585
|
)
|
|
—
|
|
|
4,865
|
|
|
Cash and cash equivalents at beginning of period
|
6,345
|
|
|
33
|
|
|
32,323
|
|
|
—
|
|
|
38,701
|
|
|
Cash and cash equivalents at end of period
|
$
|
11,548
|
|
|
$
|
280
|
|
|
$
|
31,738
|
|
|
$
|
—
|
|
|
$
|
43,566
|
|
14. Comprehensive Income (loss) and Accumulated Other Comprehensive Loss
Comprehensive income (loss) for the years ended December 31, 2013 and 2012 is as follows (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2013
|
|
2012
|
|
Net income (loss)
|
$
|
4,153
|
|
|
$
|
(18,035
|
)
|
|
Foreign currency translation adjustments
|
(3,389
|
)
|
|
(6,904
|
)
|
|
Pension liability changes under Topic 715
|
14,821
|
|
|
(3,319
|
)
|
|
Change in value of derivative instruments
|
409
|
|
|
(124
|
)
|
|
Comprehensive income (loss)
|
$
|
15,994
|
|
|
$
|
(28,382
|
)
|
The components of accumulated other comprehensive loss for the year ended December 31, 2013 are as follows (net of
tax benefits of
$5,065
in 2013.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Pension Liability Changes Under Topic 715
|
|
Change in Value of Derivative Instruments
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
Balance at December 31, 2012
|
$
|
3,253
|
|
|
$
|
(44,502
|
)
|
|
$
|
(644
|
)
|
|
$
|
(41,893
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(3,389
|
)
|
|
12,487
|
|
|
14
|
|
|
9,112
|
|
|
Amounts reclassified from other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
—
|
|
|
2,334
|
|
|
—
|
|
|
2,334
|
|
|
Amortization of interest expense
|
—
|
|
|
—
|
|
|
395
|
|
|
395
|
|
|
Net current period other comprehensive (loss) income
|
(3,389
|
)
|
|
14,821
|
|
|
409
|
|
|
11,841
|
|
|
Balance at December 31, 2013
|
$
|
(136
|
)
|
|
$
|
(29,681
|
)
|
|
$
|
(235
|
)
|
|
$
|
(30,052
|
)
|
|
|
|
|
|
|
|
|
|
15. Quarterly Financial Data (Unaudited)
The following table presents our unaudited consolidated statements of operations data for each quarter in the two years ended December 31, 2013. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been made to present fairly the unaudited quarterly results when read in conjunction with our audited consolidated financial statements and the notes thereto appearing elsewhere in this document. These operating results are not necessarily indicative of the results of operations that may be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
Dec. 31,
2013
|
|
Sept. 30,
2013
|
|
June 30,
2013
|
|
Mar. 31,
2013
|
|
Dec. 31,
2012
|
|
Sept. 30,
2012
|
|
June 30,
2012
|
|
Mar. 31,
2012
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
Net sales
|
|
$
|
133,721
|
|
|
$
|
135,042
|
|
|
$
|
138,324
|
|
|
$
|
139,805
|
|
|
$
|
133,767
|
|
|
$
|
134,231
|
|
|
$
|
136,378
|
|
|
$
|
134,364
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
84,629
|
|
|
81,656
|
|
|
85,674
|
|
|
85,298
|
|
|
86,775
|
|
|
85,079
|
|
|
85,396
|
|
|
87,921
|
|
|
Selling
|
|
17,820
|
|
|
17,242
|
|
|
17,585
|
|
|
18,521
|
|
|
18,979
|
|
|
18,546
|
|
|
19,070
|
|
|
19,488
|
|
|
General and administrative
|
|
14,796
|
|
|
15,278
|
|
|
15,506
|
|
|
14,634
|
|
|
16,192
|
|
|
15,650
|
|
|
14,034
|
|
|
17,825
|
|
|
Research and development
|
|
2,402
|
|
|
2,382
|
|
|
2,599
|
|
|
2,654
|
|
|
3,150
|
|
|
2,700
|
|
|
2,869
|
|
|
2,962
|
|
|
Restructuring
|
|
6,390
|
|
|
3,034
|
|
|
4,165
|
|
|
1,255
|
|
|
14,765
|
|
|
5,840
|
|
|
1,129
|
|
|
3,974
|
|
|
Total operating costs and expenses
|
|
126,037
|
|
|
119,592
|
|
|
125,529
|
|
|
122,362
|
|
|
139,861
|
|
|
127,815
|
|
|
122,498
|
|
|
132,170
|
|
|
Income (loss) from operations
|
|
7,684
|
|
|
15,450
|
|
|
12,795
|
|
|
17,443
|
|
|
(6,094
|
)
|
|
6,416
|
|
|
13,880
|
|
|
2,194
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(8,983
|
)
|
|
(9,378
|
)
|
|
(13,112
|
)
|
|
(9,206
|
)
|
|
(9,384
|
)
|
|
(9,777
|
)
|
|
(9,120
|
)
|
|
(9,598
|
)
|
|
(Loss) gain on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
(3,123
|
)
|
|
—
|
|
|
243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign exchange gain (loss)
|
|
50
|
|
|
(905
|
)
|
|
50
|
|
|
(249
|
)
|
|
(514
|
)
|
|
(202
|
)
|
|
(180
|
)
|
|
539
|
|
|
(Loss) income before benefit (provision) for income taxes
|
|
(1,249
|
)
|
|
5,167
|
|
|
(3,390
|
)
|
|
7,988
|
|
|
(15,749
|
)
|
|
(3,563
|
)
|
|
4,580
|
|
|
(6,865
|
)
|
|
Benefit (provision) for income taxes
|
|
4,692
|
|
|
(3,063
|
)
|
|
(3,489
|
)
|
|
(2,503
|
)
|
|
6,667
|
|
|
(94
|
)
|
|
(2,354
|
)
|
|
(657
|
)
|
|
Net income (loss)
|
|
$
|
3,443
|
|
|
$
|
2,104
|
|
|
$
|
(6,879
|
)
|
|
$
|
5,485
|
|
|
$
|
(9,082
|
)
|
|
$
|
(3,657
|
)
|
|
$
|
2,226
|
|
|
$
|
(7,522
|
)
|
|
Comprehensive income (loss)
|
|
$
|
13,330
|
|
|
$
|
9,182
|
|
|
$
|
(9,245
|
)
|
|
$
|
2,727
|
|
|
$
|
(12,891
|
)
|
|
$
|
(1,781
|
)
|
|
$
|
(10,232
|
)
|
|
$
|
(3,478
|
)
|
|
Net income (loss) per common share—basic
|
|
$
|
0.22
|
|
|
$
|
0.14
|
|
|
$
|
(0.45
|
)
|
|
$
|
0.36
|
|
|
$
|
(0.59
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.50
|
)
|
|
Net income (loss) per common share—diluted
|
|
$
|
0.21
|
|
|
$
|
0.13
|
|
|
$
|
(0.45
|
)
|
|
$
|
0.36
|
|
|
$
|
(0.59
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.50
|
)
|