Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Description of Business and Significant Accounting Policies
Description of Business
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, Latin America and Asia-Pacific.
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements at
September 30, 2016
and for the three and
nine
months ended
September 30, 2016
and 2015 include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, such financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. The interim results presented herein are not necessarily indicative of the results to be expected for the entire year. In management’s opinion, these unaudited condensed consolidated interim financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation of the financial statements for the interim periods presented. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended
December 31, 2015
as reported on the Company's Annual Report on Form 10-K filed on March 14, 2016.
Accounting Policies
Inventories, net
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:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Raw materials
|
$
|
15,065
|
|
|
$
|
12,389
|
|
Work in process
|
26,465
|
|
|
25,203
|
|
Finished goods (includes consigned inventory of $6,565 at September 30, 2016 and $6,513 at December 31, 2015)
|
37,828
|
|
|
40,058
|
|
Inventory allowances
|
(6,892
|
)
|
|
(5,952
|
)
|
|
$
|
72,466
|
|
|
$
|
71,698
|
|
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 for impairment at least annually or whenever events or business conditions warrant. During the three and
nine
months ended
September 30, 2016
, the Company evaluated events and business conditions to determine if a test for an impairment of goodwill was warranted. No such events or business conditions took place during this period, therefore no test was determined to be warranted at
September 30, 2016
.
Warranties
The Company offers warranties on certain roll 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 in Accrued Expenses on its Consolidated Balance Sheet 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 for the
nine
months ended
September 30, 2016
and
2015
:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
Charged to
Cost
of Sales
|
|
Effect of Foreign
Currency
Translation
|
|
Deduction
from
Reserves
|
|
Ending Balance
|
Nine Months Ended September 30, 2016:
|
$
|
2,175
|
|
|
$
|
1,207
|
|
|
$
|
70
|
|
|
$
|
(1,228
|
)
|
|
$
|
2,224
|
|
Nine Months Ended September 30, 2015:
|
$
|
2,685
|
|
|
$
|
1,184
|
|
|
$
|
(144
|
)
|
|
$
|
(1,580
|
)
|
|
$
|
2,145
|
|
Net (Loss) Income Per Common Share
Net (loss) income per common share has been computed and presented pursuant to the provisions of ASC Topic 260,
Earnings per Share
(“Topic 260”). Net (loss) income per share is based on the weighted-average number of shares outstanding during the period. As of
September 30, 2016
and 2015, the Company had outstanding restricted stock units (“RSUs”), deferred stock units (“DSUs”) and options.
The following table sets forth the computation of basic and diluted weighted-average shares:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Weighted-average common shares outstanding–basic
|
16,063,140
|
|
|
15,667,103
|
|
|
15,949,816
|
|
|
15,595,793
|
|
Dilutive effect of stock-based compensation awards outstanding
|
—
|
|
|
899,967
|
|
|
—
|
|
|
844,732
|
|
Weighted-average common shares outstanding–diluted
|
16,063,140
|
|
|
16,567,070
|
|
|
15,949,816
|
|
|
16,440,525
|
|
The following table sets forth the aggregate of the potentially dilutive securities that were outstanding in the three and
nine
months ended
September 30, 2016
and
2015
, but were not included in the computation of diluted earnings per share because the impact would have been anti-dilutive:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Anti-dilutive securities
|
919,231
|
|
|
24,002
|
|
|
919,231
|
|
|
20,237
|
|
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 either restructuring expense, if it was a result of the Company's restructuring activities, or general and administrative expense for all other impairments in the consolidated statements of operations. For the three and
nine
months ended
September 30, 2016
and
2015
, the Company had no impairment charges included in restructuring expense.
New Accounting Pronouncements
In March of 2016,
t
he FASB issued Accounting Standards Update No 2016-09
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). ASU 2016-09 will change certain aspects of accounting for share-based payments to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 is required to be adopted in January of 2017. The Company early adopted this standard at June 30, 2016. As of
September 30, 2016
, the adoption of the standard has resulting in the classification of
$1.8 million
and
$2.2 million
of employee taxes paid on equity awards as a financing activity in the statement of cash flows, for the
nine
months ended
September 30, 2016
and
September 30, 2015
respectively. The remaining provisions of ASU 2016-09 did not have a material impact on the accompanying condensed consolidated financial statements.
In February of 2016, the FASB issued Accounting Standards Update No 2016-02
Leases
("ASU 2016-02"). ASU 2016-02 includes final guidance that requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates today’s real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. Classification will continue to affect amounts that lessors record on the balance sheet. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief. Full retrospective application is prohibited. ASU 2016-02 is effective for public companies with annual periods beginning after 15 December 2018, and interim periods within those years. For all other entities, it is effective for annual periods beginning after 15 December 2019, and interim periods the following year. Early adoption is permitted for all entities. The Company is in the process of evaluating this accounting standard update.
In November of 2015, the FASB issued ASU 2015-17 Income Taxes (Topic 740),
Balance Sheet Classification of Deferred Taxes
("ASU 2015-17"). This guidance requires companies to classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. For public companies, the guidance is effective for financial statements issued for annual periods beginning after 15 December 2016 (i.e., 2017 for a calendar-year company) and interim periods within those annual periods. For all other entities, the guidance is effective for financial statements issued for annual periods beginning after 15 December 2017 (i.e., 2018 for a calendar-year company), and interim periods within annual periods beginning a year later. Early adoption of the guidance is permitted. Companies can adopt the guidance either prospectively or retrospectively. The Company is in the process of evaluating this accounting standard update and does not expect that adopting ASU 2015-17 will have a material impact on its consolidated financial statements.
In July of 2015, the FASB issued Accounting Standards Update
Inventory
("ASU 2015-11").
ASU 2015-11 applies only to first-in, first-out (FIFO) and average cost inventory costing methods and will reduce costs and increase comparability for these methods. There will be no change for last-in, first-out, (LIFO) or retail inventory methods as the costs of transitioning to a new method would outweigh the benefits due to the complexity of these methods. Under this ASU, inventory should be measured at the lower of cost and net realizable value (selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation). When the net realizable value of inventory is less than its cost, the difference will be recognized as a loss in earnings in the period in which it occurs. This ASU more closely aligns the measurement of inventory under GAAP with International Financial Reporting Standards guidance. The amendments are effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and for other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively, and early application is permitted as of the beginning of an interim or annual reporting period. The Company is in the process of evaluating this accounting standard update.
In May of 2014, the FASB issued Accounting Standard Update No. 2014-09
Revenue from Contracts with Customers
("ASU 2014-09"). ASU 2014-09 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when it satisfies the performance obligations. The Company will also be required to disclose information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is required to be adopted in January of 2018. Retrospective application is required either to all periods presented or with the cumulative effect of initial adoption recognized in the period of adoption. In addition, in March of 2016, the FASB issued Accounting Standard Update No. 2016-08 P
rincipal versus Agent Considerations (Reporting Revenue Gross vs. Net)
("ASU 2016-08"). ASU 2016-08 amends the principal versus agent guidance in ASU 2014-09, and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transfered to the customer. ASU 2014-09 is required to be adopted in January of 2018. The Company is in the process of evaluating this accounting standard update.
2. Business Acquisitions
On May 4, 2016, the Company acquired JJ Plank Corporation/Spencer Johnston (“Spencer Johnston”), a spreader roll company headquartered in Neenah, Wisconsin for a total purchase price of
$18.0 million
. This acquisition adds diversity to Xerium’s growing rolls business in North America and will expand its current product offerings, service capabilities and its
markets served, strengthen its financial profile and grow its customer base. The Company acquired all of the assets and assumed certain liabilities of Spencer Johnston and obtained one hundred percent of the voting equity interest.
Because the transaction was completed on May 4, 2016, the final purchase price allocation is preliminary and subject to change based on additional reviews performed, such as asset verification. Specific accounts subject to ongoing purchase accounting adjustments include but are not limited to working capital and goodwill. Therefore, the measurement period remains open as of September 30, 2016. The Company anticipates completing these purchase price accounting adjustments during the fourth quarter of 2016.
The purchase price of
$18.0 million
resulted in net assets acquired other than goodwill of
$15.3 million
and goodwill of
$2.7 million
. All of the goodwill is allocated to the Rolls business segment. The Company made
$0.9 million
in goodwill reductions during the quarter ending September 30, 2016, a
$0.4 million
purchase price adjustment (working capital true-up) and a
$0.5 million
inventory valuation adjustment.
Goodwill represents the excess purchase price over the fair values of assets acquired and liabilities assumed. The goodwill was generated by the synergies the transaction provides.
The Company incurred roughly
$0.7 million
of transaction related expenses during the
nine
months ended
September 30, 2016
. These expenses were charged to SG&A expense in the period incurred.
3. 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
From time to time, the Company uses interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. However, at
September 30, 2016
, the Company had
no
interest rate swaps.
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 ASC Topic 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in 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
September 30, 2016
and
December 31, 2015
, 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 or other liabilities on the Consolidated Balance Sheets. The following represents the fair value of these derivatives at
September 30, 2016
and
December 31, 2015
and the change in fair value included in foreign exchange gain (loss) in the three and
nine
months ended
September 30, 2016
and
2015
:
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|
|
|
|
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|
|
September 30, 2016
|
|
December 31, 2015
|
Fair value of derivative (liability)
|
$
|
(739
|
)
|
|
$
|
(1,188
|
)
|
|
Three Months Ended September 30, 2016
|
|
Three Months Ended September 30, 2015
|
Change in fair value of derivative included in foreign exchange (loss) gain
|
$
|
24
|
|
|
$
|
(743
|
)
|
|
Nine Months Ended September 30, 2016
|
|
Nine Months Ended September 30, 2015
|
Change in fair value of derivative included in foreign exchange (loss) gain
|
$
|
93
|
|
|
$
|
(2,197
|
)
|
The following represents the notional amounts of foreign exchange forward contracts at
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
Notional Sold
|
|
Notional Purchased
|
|
Non-designated hedges of foreign exchange risk
|
$
|
4,116
|
|
|
$
|
(60,334
|
)
|
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. The Company determined that its derivative valuations, which are based on market exchange forward rates, fall within Level 2 of the fair value hierarchy.
4. Long term Debt
At
September 30, 2016
and
December 31, 2015
, long term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Notes (Secured), payable semi-annually–U.S. Dollar denominated interest rate fixed at 9.50%. Sold at a price equal to 98.54% of their face value. Matures August of 2021.
|
$
|
480,000
|
|
|
$
|
—
|
|
Senior secured term loan facility, payable quarterly, U.S. Dollar denominated–LIBOR
(minimum 1.25%) plus 5.0% (6.25%) net of $0.6 million discount. Matures May of 2019.
|
$
|
—
|
|
|
$
|
223,937
|
|
Senior Notes (Unsecured), payable semi-annually–U.S. Dollar denominated interest rate fixed at 8.875%. Matures June of 2018.
|
—
|
|
|
236,410
|
|
Notes payable, working capital loan, variable interest rate at 2.05%. Matures June 30, 2017, with one-year rollover option.
|
7,840
|
|
|
6,556
|
|
Fixed asset loan contract, variable interest rate of 5.78%. Matures June of 2020.
|
8,044
|
|
|
8,548
|
|
Other debt
|
15,077
|
|
|
6,278
|
|
Total debt
|
510,961
|
|
|
481,729
|
|
Less deferred financing costs and debt discount
|
(16,771
|
)
|
|
(7,293
|
)
|
Less current maturities of long term debt and notes payable
|
(14,611
|
)
|
|
(11,966
|
)
|
Total long term debt
|
$
|
479,579
|
|
|
$
|
462,470
|
|
On August 9, 2016, the Company closed on
$480 million
aggregate principal amount of
9.5%
Senior Secured Notes due August 2021 (the "Notes"), which were sold at a price equal to
98.54%
of their face value. The Notes will pay interest semi-annually in arrears on February 15 and August 15 of each year beginning on February 15, 2017 and will mature on August 15, 2021, unless earlier redeemed or repurchased.
The Indenture to the Notes and the ABL Facility contain certain customary covenants that, subject to exceptions, restrict our 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;
•
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 Company used the net proceeds from the offering to repay all amounts outstanding under its existing term loan credit facility, to redeem all of its
8.875%
Senior Notes due 2018 at a redemption price equal to
102.219%
of the principal amount thereof, together with accrued and unpaid interest, to the date of redemption, to pay fees and expenses relating to these transactions, and for working capital and other general corporate purposes.
On May 17, 2013, 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 Xerium Technologies, Inc., as a US borrower, 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”), increasing the aggregate availability under the ABL Facility to
$55 million
. On November 3, 2015, the Company refinanced its then existing ABL Facility and entered into a new Revolving Credit and Guaranty Agreement (as amended, the "ABL Facility") with one of its existing ABL lenders. The amount of the ABL Facility continues to provide aggregate availability of
$55 million
and the collateral pledged thereunder has remained the same. The ABL Facility matures in November of 2020 and accrues interest at either an Alternative Base rate (Prime plus 75 bps) or Fixed LIBOR (LIBOR +175 bps). As of
September 30, 2016
these rates were
4.25%
and
2.40%
, respectively.
On July 17, 2015 (the "Closing Date"), Xerium China, Co., Ltd. ("Xerium China"), a wholly-owned subsidiary of the Company entered into and closed a Fixed Assets Loan Contract (the "Loan Agreement") with the Industrial and Commercial Bank of China Limited, Shanghai-Jingan Branch (the “Bank”) with respect to a RMB
58.5 million
loan, which was approximately
$9.4 million
USD on July 17, 2015. The loan is secured by pledged machinery and equipment of Xerium China
and guaranteed by Xerium Asia Pacific (Shanghai) Limited and Stowe Woodward (Changzhou) Roll Technologies Co. Ltd., which are wholly-owned subsidiaries of the Company, pursuant to guarantee agreements (the "Guarantee Agreements"). Interest on the outstanding principal balance of the loan accrues at a benchmark rate plus a margin. The current interest rate at
September 30, 2016
is approximately
5.8%
. The interest rate will be adjusted every
12
months during the term of the loan, based on the benchmark interest rate adjustment. Interest under the loan is payable quarterly in arrears. Principal on the loan is to be repaid in part every
six
months following the Closing Date, in accordance with a predetermined schedule set forth in the Loan Agreement. Proceeds of the Loan will be used by Xerium China to purchase production equipment. The Loan Agreement contains certain customary representations and warranties and provisions relating to events of default.
On May 26, 2011, the Company completed a refinancing transaction, which replaced certain of its then outstanding indebtedness with
$240 million
aggregate principal amount of
8.875%
senior unsecured notes. The notes were repaid with proceeds from the
9.5%
senior secured notes.
On May 17, 2013, the Company entered into a Credit and Guaranty Agreement for a
$200.0 million
(increased to
$230 million
on August 18, 2016) 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. This facility was repaid with proceeds from the
9.5%
senior secured notes.
As of
September 30, 2016
, the outstanding balance of the Company's term debt under its ABL Facility and Notes was
$480.0 million
. In addition, as of
September 30, 2016
, an aggregate of
$22.1 million
is available for additional borrowings. This availability represents a borrowing base of
$34.2 million
less
$12.1 million
of that facility committed for letters of credit or additional borrowings.
As of
September 30, 2016
, the carrying value of the Company’s long term debt was
$496.4 million
and its fair value was approximately
$503.6 million
. The Company determined the fair value of its debt utilizing significant other observable inputs (Level 2 of the fair value hierarchy).
Capitalized Lease Liabilities
As of
September 30, 2016
, the Company had capitalized lease liabilities totaling
$20.4 million
. These amounts represent the lease on the corporate headquarters and the Kunshan, China facility, as well as other leases for software, vehicles and machinery and equipment. In addition, in April of 2016, the Company entered into sales - lease back arrangements totaling
$6.0
million for various machinery and equipment in North America. The proceeds were used to partially fund the Spencer Johnston acquisition, which closed in May of 2016.
5. Income Taxes
The Company utilizes the 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.
For the three and
nine
months ended
September 30, 2016
, the provision for income taxes was
$0.0 million
and
$4.6 million
as compared to
$0.8 million
and
$9.2 million
for the three and
nine
months ended
September 30, 2015
. The decrease in tax expense in the three and
nine
months ended
September 30, 2016
was primarily attributable to the geographic mix of earnings, as well as tax benefits from interest deductions in Brazil and the impact of the intra-period allocation as a result of the loss from continuing operations and income from other comprehensive income. Generally, the provision for income taxes is primarily impacted by income earned in tax paying jurisdictions relative to income earned in non-tax paying jurisdictions. The majority of income recognized for purposes of computing the effective tax rate is earned in countries where the statutory income tax rates range from
15.0%
to
35.4%
; however, permanent income adjustments recorded against pre-tax earnings may result in an effective tax rate that is higher or lower than the statutory tax rate in these jurisdictions. The Company generates losses in certain jurisdictions for which
no
tax benefit is realized, as the deferred tax assets in these jurisdictions (including the net operating losses) are fully reserved in the 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 and Australia. Due to these reserves, the geographic mix of the Company’s pre-tax earnings has a direct correlation with how high or low its annual effective tax rate is relative to consolidated earnings.
As the Company continues to reorganize and restructure its operations, it is possible that deferred tax assets, for which
no
income tax benefit has previously been provided, may more likely than not become realized. The Company continues to evaluate future operations and will record an income tax benefit in the period where it believes it is more likely than not that the deferred tax asset will be able to be realized. The most material unrecognized deferred tax asset relates to the U.S. By 2029, future U.S. earnings ranging between
$40 million
and
$120 million
, generated by U.S. earnings from continuing operations or qualified tax planning strategies, would be required in order to fully recognize the U.S. deferred tax asset. Historic and future ownership changes could potentially reduce the amount of net operating loss carry-forwards available for use.
As of
September 30, 2016
, the Company had a gross amount of unrecognized tax benefit of
$7.9 million
, exclusive of interest and penalties. The unrecognized tax benefit increased by approximately
$0.4 million
during the
nine
months ended
September 30, 2016
, as a result of new positions related to the current year and foreign currency effects.
The Company’s policy is to recognize interest and penalties related to income tax matters as income tax expense, which were
$0.1 million
and
$0.1 million
related to the unrecognized tax benefits for the
three
and
nine
months ended
September 30, 2016
. The tax years 2002 through 2015 remain open to examination in a number of the major tax jurisdictions to which the Company and its subsidiaries are subject. The Company believes that it has made adequate provisions for all income tax uncertainties.
6. Pensions, Other Post-retirement and Post-employment Benefits
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. 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 U.K. and Canadian defined benefit plans in accordance with local regulations.
Curtailment accounting was triggered with the June 30, 2016 freeze of a North America rolls plant’s pension plan. As a result, a curtailment gain was recorded in the second quarter of 2016 in the amount of
$2.7 million
, as a reduction to pension liability, and a decrease to other comprehensive loss.
As required by Topic 715, the following tables summarize the components of net periodic benefit cost:
Defined Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
308
|
|
|
$
|
765
|
|
|
$
|
1,131
|
|
|
$
|
2,155
|
|
Interest cost
|
1,133
|
|
|
1,506
|
|
|
4,149
|
|
|
4,273
|
|
Expected return on plan assets
|
(1,182
|
)
|
|
(1,638
|
)
|
|
(4,326
|
)
|
|
(4,645
|
)
|
Amortization of net loss
|
428
|
|
|
676
|
|
|
1,561
|
|
|
1,932
|
|
Net periodic benefit cost
|
$
|
687
|
|
|
$
|
1,309
|
|
|
$
|
2,515
|
|
|
$
|
3,715
|
|
7. Comprehensive (Loss) Income and Accumulated Other Comprehensive Loss
Comprehensive (loss) income for the
three
and
nine
months ended
September 30, 2016
(net of tax expense of
$803 thousand
and
$1,541 thousand
) and 2015 (net of a tax benefit of
$97 thousand
and net of tax expense of
$183
thousand) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net (loss) income
|
$
|
(13,339
|
)
|
|
$
|
915
|
|
|
$
|
(12,673
|
)
|
|
$
|
1,945
|
|
Foreign currency translation adjustments
|
1,625
|
|
|
(14,333
|
)
|
|
11,353
|
|
|
(40,701
|
)
|
Pension liability changes under Topic 715
|
726
|
|
|
2,320
|
|
|
4,214
|
|
|
4,797
|
|
Change in value of derivative instruments
|
—
|
|
|
86
|
|
|
—
|
|
|
253
|
|
Comprehensive (loss) income
|
$
|
(10,988
|
)
|
|
$
|
(11,012
|
)
|
|
$
|
2,894
|
|
|
$
|
(33,706
|
)
|
The components of accumulated other comprehensive loss for the three months ended
September 30, 2016
are as follows (net of tax benefits of
$5.5 million
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
Pension
Liability
Changes Under
Topic 715
|
|
Change in
Value of
Derivative
Instruments
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Balance at June 30, 2016
|
$
|
(76,254
|
)
|
|
$
|
(32,271
|
)
|
|
$
|
49
|
|
|
$
|
(108,476
|
)
|
Other comprehensive income before reclassifications
|
1,625
|
|
|
298
|
|
|
—
|
|
|
1,923
|
|
Pension curtailment
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Amounts reclassified from other comprehensive loss:
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
—
|
|
|
428
|
|
|
—
|
|
|
428
|
|
Net current period other comprehensive income
|
1,625
|
|
|
726
|
|
|
—
|
|
|
2,351
|
|
Balance at September 30, 2016
|
$
|
(74,629
|
)
|
|
$
|
(31,545
|
)
|
|
$
|
49
|
|
|
$
|
(106,125
|
)
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss for the
nine
months ended
September 30, 2016
are as follows (net of tax benefits of
$5.5 million
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2015
|
$
|
(85,982
|
)
|
|
$
|
(35,759
|
)
|
|
$
|
49
|
|
|
$
|
(121,692
|
)
|
Other comprehensive income before reclassifications
|
11,353
|
|
|
(48
|
)
|
|
—
|
|
|
11,305
|
|
Pension curtailment
|
—
|
|
|
2,701
|
|
|
—
|
|
|
2,701
|
|
Amounts reclassified from other comprehensive loss:
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
—
|
|
|
1,561
|
|
|
—
|
|
|
1,561
|
|
Net current period other comprehensive income
|
11,353
|
|
|
4,214
|
|
|
—
|
|
|
15,567
|
|
Balance at September 30, 2016
|
$
|
(74,629
|
)
|
|
$
|
(31,545
|
)
|
|
$
|
49
|
|
|
$
|
(106,125
|
)
|
|
|
|
|
|
|
|
|
For the
three
and
nine
months ended
September 30, 2016
, the amortization of actuarial losses is included in cost of products sold and general and administrative expenses in the Consolidated Statements of Operations.
8. Restructuring Expense
For the
nine
months ended
September 30, 2016
, the Company incurred restructuring expenses of
$8.1 million
. These included
$1.4 million
of charges related to the closure of the Middletown, Va. facility and
$6.7 million
of charges relating to headcount reductions and other costs related to previous plant closures. For the
nine
months ended
September 30, 2015
, the Company incurred restructuring expenses of
$12.7 million
. These included charges of
$4.1 million
relating to the closure of the Joao Pessoa, Brazil plant
$4.5 million
charges related to the closure of Warwick, Canada machine clothing facility, and
$4.1 million
of charges relating to headcount reductions and other costs related to previous plant closures.
The following table sets forth the significant components of the restructuring accrual (included in Accrued Expenses on our Consolidated Balance Sheet), including activity under restructuring programs for the
nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
Charges
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
September 30, 2016
|
Severance and other benefits
|
$
|
5,308
|
|
|
$
|
4,328
|
|
|
$
|
73
|
|
|
$
|
(5,010
|
)
|
|
$
|
4,699
|
|
Facility costs and other
|
903
|
|
|
3,775
|
|
|
12
|
|
|
(4,267
|
)
|
|
423
|
|
Total
|
$
|
6,211
|
|
|
$
|
8,103
|
|
|
$
|
85
|
|
|
$
|
(9,277
|
)
|
|
$
|
5,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
Charges (1)
|
|
Currency
Effects
|
|
Cash
Payments
|
|
Balance at
September 30, 2015
|
Severance and other benefits
|
$
|
4,880
|
|
|
$
|
6,007
|
|
|
$
|
(469
|
)
|
|
$
|
(4,744
|
)
|
|
$
|
5,674
|
|
Facility costs and other
|
818
|
|
|
5,741
|
|
|
(76
|
)
|
|
(5,588
|
)
|
|
895
|
|
Total
|
$
|
5,698
|
|
|
$
|
11,748
|
|
|
$
|
(545
|
)
|
|
$
|
(10,332
|
)
|
|
$
|
6,569
|
|
(1) Excludes
$1.0 million
of impairment expense.
Restructuring and impairment expense by segment, which is not included in Segment Earnings in Note 9, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Clothing
|
$
|
1,803
|
|
|
$
|
4,414
|
|
|
$
|
4,930
|
|
|
$
|
11,516
|
|
Roll Covers
|
637
|
|
|
540
|
|
|
2,478
|
|
|
827
|
|
Corporate
|
53
|
|
|
47
|
|
|
695
|
|
|
391
|
|
Total
|
$
|
2,493
|
|
|
$
|
5,001
|
|
|
$
|
8,103
|
|
|
$
|
12,734
|
|
9. Business Segment Information
The Company is a global manufacturer and supplier of consumable products used primarily in the production of paper and is organized into
two
reportable segments: clothing and roll covers. The 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 papermaking machines and the servicing of those rolls. The Company manages each of these operating segments separately.
Management evaluates segment performance based on adjusted earnings before interest, taxes, depreciation and amortization, yet after 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 for the Company as a whole. Inter-segment net sales and inter-segment eliminations are not material for any of the periods presented.
Summarized financial information for the Company’s reportable segments is presented in the tables that follow for the three and
nine
months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clothing
|
|
Roll
Covers
|
|
Corporate
|
|
Total
|
Three months ended September 30, 2016
|
|
|
|
|
|
|
|
Net Sales
|
$
|
71,033
|
|
|
$
|
48,158
|
|
|
$
|
—
|
|
|
$
|
119,191
|
|
Segment Earnings (Loss)
|
$
|
17,287
|
|
|
$
|
8,613
|
|
|
$
|
(3,020
|
)
|
|
$
|
22,880
|
|
Three months ended September 30, 2015
|
|
|
|
|
|
|
|
Net Sales
|
$
|
72,536
|
|
|
$
|
45,203
|
|
|
$
|
—
|
|
|
$
|
117,739
|
|
Segment Earnings (Loss)
|
$
|
22,230
|
|
|
$
|
9,685
|
|
|
$
|
(3,654
|
)
|
|
$
|
28,261
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
|
|
|
|
|
|
Net Sales
|
$
|
217,189
|
|
|
$
|
140,940
|
|
|
$
|
—
|
|
|
$
|
358,129
|
|
Segment Earnings (Loss)
|
$
|
57,222
|
|
|
$
|
28,514
|
|
|
$
|
(11,286
|
)
|
|
$
|
74,451
|
|
Nine months ended September 30, 2015
|
|
|
|
|
|
|
|
Net Sales
|
$
|
228,971
|
|
|
$
|
132,925
|
|
|
$
|
—
|
|
|
$
|
361,896
|
|
Segment Earnings (Loss)
|
$
|
66,076
|
|
|
$
|
26,864
|
|
|
$
|
(10,467
|
)
|
|
$
|
82,473
|
|
Provided below is a reconciliation of Segment Earnings (Loss) to (Loss) Income before provision for income taxes for the three and
nine
months ended
September 30, 2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment Earnings (Loss):
|
|
|
|
|
|
|
|
Clothing
|
$
|
17,287
|
|
|
$
|
22,230
|
|
|
$
|
57,222
|
|
|
$
|
66,076
|
|
Roll Covers
|
8,613
|
|
|
9,685
|
|
|
28,514
|
|
|
26,864
|
|
Corporate
|
(3,020
|
)
|
|
(3,654
|
)
|
|
(11,286
|
)
|
|
(10,467
|
)
|
Stock-based compensation
|
(697
|
)
|
|
(1,064
|
)
|
|
(2,123
|
)
|
|
(2,690
|
)
|
Inventory write-off related to closed facilities
|
—
|
|
|
(465
|
)
|
|
—
|
|
|
(465
|
)
|
Idle equipment asset impairment
|
—
|
|
|
(149
|
)
|
|
—
|
|
|
(149
|
)
|
Interest expense, net
|
(12,216
|
)
|
|
(9,775
|
)
|
|
(33,215
|
)
|
|
(28,144
|
)
|
Depreciation and amortization
|
(8,394
|
)
|
|
(7,207
|
)
|
|
(24,779
|
)
|
|
(21,625
|
)
|
Loss on extinguishment of debt
|
(11,736
|
)
|
|
—
|
|
|
(11,736
|
)
|
|
—
|
|
Restructuring expense
|
(2,493
|
)
|
|
(5,001
|
)
|
|
(8,103
|
)
|
|
(12,734
|
)
|
Other non-recurring expense
|
(85
|
)
|
|
(1,552
|
)
|
|
(752
|
)
|
|
(2,402
|
)
|
Plant startup costs
|
(573
|
)
|
|
(1,378
|
)
|
|
(1,858
|
)
|
|
(3,110
|
)
|
(Loss) Income before provision for income taxes
|
$
|
(13,314
|
)
|
|
$
|
1,670
|
|
|
$
|
(8,116
|
)
|
|
$
|
11,154
|
|
10. Commitments and Contingencies
The Company is involved in various legal matters which have arisen in the ordinary course of business as a result of various immaterial labor claims, taxing authority reviews and other routine legal matters. As of
September 30, 2016
, the Company accrued an immaterial amount in its financial statements for these matters for which the Company believed the possibility of loss was probable and was able to estimate the damages. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its financial position, results of operations or cash flow. The Company believes that any additional liability in excess of amounts provided which may result from the resolution of legal matters will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company.
11. Stock-Based Compensation and Stockholders’ Deficit
The Company records stock-based compensation expense in accordance with ASC Topic 718,
Accounting for Stock Compensation
and has used the straight-line attribution method to recognize expense for RSUs, options and DSUs. The Company recorded stock-based compensation expense during the three months ended
September 30, 2016
and
September 30, 2015
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
RSU, Options and DSU Awards (1)
|
|
$
|
697
|
|
|
$
|
1,064
|
|
|
$
|
2,123
|
|
|
$
|
2,690
|
|
|
|
(1)
|
Related to RSUs, Options and DSUs awarded to certain employees and non-employee directors.
|
Long-Term Incentive Program—2016 LTIP
On May 4, 2016, the Board of Directors approved the 2016 - 2018 Long-Term Incentive Plan (the “2016 - 2018 LTIP”) under the 2010 Equity Incentive Plan (the “2010 Plan”). Awards under the 2016 - 2018 LTIP are time-based, performance-based and market-based. A specific target share award has been set for each participant in the 2016 - 2018 LTIP. Awards will be paid in the form of shares of common stock of the Company, as described below:
|
|
•
|
182,190
Time-based awards, or
35%
of the total target award for each participant, have been granted in the form of time-based restricted stock units under the Company’s 2010 Plan. The time-based restricted stock units vest on the third anniversary of the date of grant.
|
|
|
•
|
338,354
Performance-based and Market-based awards,
65%
of the total target award for each participant, have been granted in the form of performance-based stock units under the 2010 Plan. Of these units, one third will vest based on the financial performance of the Company as measured by Adjusted EBITDA, one third will vest based on the free cash flow of the Company and the other one third will vest based on the stock price performance of the Company.
|
Half of the performance-based stock units whose vesting is subject to the financial performance of the Company (the “financial stock units”) will vest based on the degree to which the Company achieves a targeted three-year cumulative Adjusted EBITDA metric, adjusted for currency fluctuations, over the performance period of January 1, 2016 through December 31, 2018. Financial stock units that vest will convert into shares of the Company’s common stock and be paid after the close of a three-year performance period. The amount of units that vest will range from
50%
to
200%
of the employee's total financial stock units. Upon attainment of cumulative Adjusted EBITDA equal to
90%
or less of the targeted Adjusted EBITDA,
none
of the financial stock units will vest. Upon attainment of more than
90%
of the targeted Adjusted EBITDA, the financial stock units will begin vesting on a straight-line basis from
50%
of the financial stock units at
90%
of the targeted Adjusted EBITDA to
100%
of the financial stock units at
100%
of the targeted Adjusted EBITDA, up to a maximum payout of
200%
of the financial stock units at
110%
of the targeted Adjusted EBITDA.
Half of the performance-based stock units whose vesting is subject to the financial performance of the Company (the “financial stock units”) will vest based on the degree to which the Company achieves a targeted
three
-year cumulative Free Cash Flow metric, adjusted for currency fluctuations, over the performance period of January 1, 2016 through December 31, 2018. Financial stock units that vest will convert into shares of the Company’s common stock and be paid after the close of a three-year performance period. The amount of units that vest will range from
50%
to
200%
of the employee's total financial stock units. Upon attainment of cumulative Free Cash Flow equal to
88%
or less of the targeted Free Cash Flow,
none
of the financial stock units will vest. Upon attainment of more than
88%
of the targeted Free Cash Flow, the financial stock units will begin vesting on a straight-line basis from
50%
of the financial stock units at
88%
of the targeted Free Cash Flow to
100%
of the financial stock units at
100%
of the targeted Free Cash Flow, up to a maximum payout of
200%
of the financial stock units at
113%
of the targeted Free Cash Flow.
The market-based stock units whose vesting is subject to stock price performance of the Company (the “market-based stock units”) will vest based on the Company's total stock price change (plus dividends) over the
three
-year performance period of May 4, 2016 through May 4, 2019 (“TSR”) relative to the TSR over the same performance period of companies listed on the S&P Global Small Cap Index on the third anniversary of the grant date, or May 4, 2019. Market-based stock units that vest will convert into shares of the Company’s common stock and will be paid after the third anniversary of the grant date, or May 4, 2019. The amount of units that vest will range from
50%
to
200%
of the employee's total market-based stock units. If the Company’s TSR over the performance period is less than the 35th percentile TSR of companies in the S&P Global Small Cap Index, then
no
market-based units will vest. If the Company’s TSR over the performance period is equal to the 35th percentile TSR of the companies in the S&P Global Small Cap Index, then
50%
of the market-based stock units will vest. Full payout at
100%
of the market-based stock units will be made if the Company’s TSR over the performance period is equal to the 55th percentile TSR of companies in the S&P Global Small Cap Index and payout of
200%
of the market-based stock units made if the Company's TSR over the performance period is equal to the 75th percentile TSR of companies in the S&P Global Small
Cap Index. TSR performance between the 35th and 75th percentile TSR of companies in the S&P Global Small Cap Index will result in an interpolated payout percentage of the market-based stock units between
50%
and
200%
.
Subject to early acceleration and payment under certain circumstances consistent with the terms of the Company’s 2016 - 2018 LTIP and LTIP Share Agreement thereunder, delivery of shares of common stock underlying the time-based and performance-based and market-based awards that become vested are subject to the participant’s continued service to the Company through May 4, 2019.
Long-Term Incentive Program—2015 LTIP and 2014 LTIP
During the
nine
months ended
September 30, 2016
, based on the current stock price of the Company, management performed a valuation on the market-based stock units, and determined the estimated payout to be at
0%
under both the 2015 and 2014 LTIP plans, and reduced stock compensation by
$0.2 million
in accordance with ASC Topic 718,
Compensation—Stock Compensation.
Long-Term Incentive Program—2013 LTIP
Awards under the 2013 LTIP vested on March 15, 2016, and were converted to
207,385
shares of common stock, net of withholdings.
Directors’ Deferred Stock Unit Plan
Under the 2011 non-management directors stock plan ("2011 DSU Plan”), as amended in January of 2015, each director receives an annual retainer of
$132 thousand
, to be paid on a quarterly basis in arrears. Approximately
54%
of the annual retainer is payable in DSUs, with the remaining
46%
payable in cash or a mix of both cash and DSUs at the election of each director. The non-management directors were awarded an aggregate of
54,294
DSUs under the 2011 DSU Plan for service during the
nine
months ended
September 30, 2016
. In addition, in accordance with the 2011 DSU Plan, as amended in January of 2015,
45,843
DSUs were settled in common stock during the
nine
months ended
September 30, 2016
. In addition, in March of 2016,
22,234
DSU's were settled in common stock in connection with the retirement of a director in September of 2015.
Other Stock Compensation Plans
On August 15, 2012, the Company granted Harold Bevis, the Company's CEO, an 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 vest over a
three
year period, with the first, second, and third tranches having vested on August 15, 2014, 2015, and 2016, respectively. The options have a
10
-year term and 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. On August 15, 2016, one third of Mr. Bevis's restricted stock units and options vested. Mr. Bevis received
35,539
shares of common stock, net of withholdings as a result of the restricted stock unit vesting. In addition, Mr. Bevis exercised his vested options, and received
68,106
shares of common stock, in a cashless exercise, net of withholdings.
12. Supplemental Guarantor Financial Information
On August 9, 2016, the Company closed on the sale of its Notes. The Notes are secured obligations of the Company and are fully and unconditionally guaranteed on a senior secured 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, as amended, the following condensed 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—(Unaudited)
At
September 30, 2016
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,235
|
|
|
$
|
35
|
|
|
$
|
7,110
|
|
|
$
|
—
|
|
|
$
|
8,380
|
|
Accounts receivable, net
|
59
|
|
|
19,459
|
|
|
52,967
|
|
|
—
|
|
|
72,485
|
|
Intercompany receivables
|
(400,258
|
)
|
|
407,759
|
|
|
(7,501
|
)
|
|
—
|
|
|
—
|
|
Inventories, net
|
—
|
|
|
15,241
|
|
|
58,290
|
|
|
(1,065
|
)
|
|
72,466
|
|
Prepaid expenses
|
586
|
|
|
1,407
|
|
|
5,527
|
|
|
—
|
|
|
7,520
|
|
Other current assets
|
—
|
|
|
2,373
|
|
|
16,142
|
|
|
—
|
|
|
18,515
|
|
Total current assets
|
(398,378
|
)
|
|
446,274
|
|
|
132,535
|
|
|
(1,065
|
)
|
|
179,366
|
|
Property and equipment, net
|
8,648
|
|
|
72,117
|
|
|
220,956
|
|
|
—
|
|
|
301,721
|
|
Investments
|
868,721
|
|
|
243,196
|
|
|
—
|
|
|
(1,111,917
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
19,237
|
|
|
40,754
|
|
|
—
|
|
|
59,991
|
|
Intangible assets
|
—
|
|
|
7,806
|
|
|
88
|
|
|
—
|
|
|
7,894
|
|
Non-current deferred tax asset
|
—
|
|
|
—
|
|
|
12,224
|
|
|
—
|
|
|
12,224
|
|
Other assets
|
—
|
|
|
772
|
|
|
10,594
|
|
|
—
|
|
|
11,366
|
|
Total assets
|
$
|
478,991
|
|
|
$
|
789,402
|
|
|
$
|
417,151
|
|
|
$
|
(1,112,982
|
)
|
|
$
|
572,562
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,840
|
|
|
$
|
—
|
|
|
$
|
7,840
|
|
Accounts payable
|
2,343
|
|
|
10,098
|
|
|
23,393
|
|
|
—
|
|
|
35,834
|
|
Accrued expenses
|
14,851
|
|
|
7,843
|
|
|
32,947
|
|
|
—
|
|
|
55,641
|
|
Current maturities of long-term debt
|
2,287
|
|
|
2,359
|
|
|
2,125
|
|
|
—
|
|
|
6,771
|
|
Total current liabilities
|
19,481
|
|
|
20,300
|
|
|
66,305
|
|
|
—
|
|
|
106,086
|
|
Long-term debt, net of current maturities
|
471,118
|
|
|
—
|
|
|
8,461
|
|
|
—
|
|
|
479,579
|
|
Liabilities under capital leases
|
6,337
|
|
|
4,929
|
|
|
9,100
|
|
|
—
|
|
|
20,366
|
|
Non-current deferred tax liability
|
(1,373
|
)
|
|
1,243
|
|
|
10,531
|
|
|
—
|
|
|
10,401
|
|
Pension, other post-retirement and post-employment obligations
|
18,438
|
|
|
1,600
|
|
|
39,980
|
|
|
—
|
|
|
60,018
|
|
Other long-term liabilities
|
—
|
|
|
1,336
|
|
|
4,620
|
|
|
—
|
|
|
5,956
|
|
Intercompany loans
|
68,167
|
|
|
(106,822
|
)
|
|
38,655
|
|
|
—
|
|
|
—
|
|
Total stockholders’ (deficit) equity
|
(103,177
|
)
|
|
866,816
|
|
|
239,499
|
|
|
(1,112,982
|
)
|
|
(109,844
|
)
|
Total liabilities and stockholders’ equity
|
$
|
478,991
|
|
|
$
|
789,402
|
|
|
$
|
417,151
|
|
|
$
|
(1,112,982
|
)
|
|
$
|
572,562
|
|
Xerium Technologies, Inc.
Consolidating Balance Sheet
At
December 31, 2015
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,105
|
|
|
$
|
(2
|
)
|
|
$
|
6,736
|
|
|
$
|
—
|
|
|
$
|
9,839
|
|
Accounts receivable, net
|
20
|
|
|
18,585
|
|
|
49,957
|
|
|
—
|
|
|
68,562
|
|
Intercompany receivables
|
(110,541
|
)
|
|
113,736
|
|
|
(3,195
|
)
|
|
—
|
|
|
—
|
|
Inventories, net
|
—
|
|
|
14,694
|
|
|
57,929
|
|
|
(925
|
)
|
|
71,698
|
|
Prepaid expenses
|
510
|
|
|
1,330
|
|
|
4,809
|
|
|
—
|
|
|
6,649
|
|
Other current assets
|
—
|
|
|
2,849
|
|
|
14,020
|
|
|
—
|
|
|
16,869
|
|
Total current assets
|
(106,906
|
)
|
|
151,192
|
|
|
130,256
|
|
|
(925
|
)
|
|
173,617
|
|
Property and equipment, net
|
9,518
|
|
|
68,075
|
|
|
219,490
|
|
|
—
|
|
|
297,083
|
|
Investments
|
837,064
|
|
|
207,443
|
|
|
—
|
|
|
(1,044,507
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
17,737
|
|
|
40,862
|
|
|
—
|
|
|
58,599
|
|
Intangible assets
|
—
|
|
|
1,389
|
|
|
158
|
|
|
—
|
|
|
1,547
|
|
Non-current deferred tax asset
|
—
|
|
|
—
|
|
|
9,325
|
|
|
—
|
|
|
9,325
|
|
Other assets
|
—
|
|
|
—
|
|
|
10,203
|
|
|
—
|
|
|
10,203
|
|
Total assets
|
$
|
739,676
|
|
|
$
|
445,836
|
|
|
$
|
410,294
|
|
|
$
|
(1,045,432
|
)
|
|
$
|
550,374
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,556
|
|
|
$
|
—
|
|
|
$
|
6,556
|
|
Accounts payable
|
2,642
|
|
|
11,100
|
|
|
26,954
|
|
|
—
|
|
|
40,696
|
|
Accrued expenses
|
12,661
|
|
|
9,668
|
|
|
33,747
|
|
|
—
|
|
|
56,076
|
|
Current maturities of long-term debt
|
2,663
|
|
|
1,937
|
|
|
810
|
|
|
—
|
|
|
5,410
|
|
Total current liabilities
|
17,966
|
|
|
22,705
|
|
|
68,067
|
|
|
—
|
|
|
108,738
|
|
Long-term debt, net of current maturities
|
451,923
|
|
|
—
|
|
|
10,547
|
|
|
—
|
|
|
462,470
|
|
Liabilities under capital leases
|
3,276
|
|
|
4,425
|
|
|
1,036
|
|
|
—
|
|
|
8,737
|
|
Non-current deferred tax liability
|
(1,515
|
)
|
|
1,243
|
|
|
9,042
|
|
|
—
|
|
|
8,770
|
|
Pension, other post-retirement and post-employment obligations
|
19,950
|
|
|
2,619
|
|
|
41,037
|
|
|
—
|
|
|
63,606
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
11,123
|
|
|
—
|
|
|
11,123
|
|
Intercompany loans
|
341,412
|
|
|
(403,154
|
)
|
|
61,742
|
|
|
—
|
|
|
—
|
|
Total stockholders’ (deficit) equity
|
(93,336
|
)
|
|
817,998
|
|
|
207,700
|
|
|
(1,045,432
|
)
|
|
(113,070
|
)
|
Total liabilities and stockholders’ equity
|
$
|
739,676
|
|
|
$
|
445,836
|
|
|
$
|
410,294
|
|
|
$
|
(1,045,432
|
)
|
|
$
|
550,374
|
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income (Unaudited)
For the three months ended
September 30, 2016
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
43,711
|
|
|
$
|
82,151
|
|
|
$
|
(6,671
|
)
|
|
$
|
119,191
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
29,367
|
|
|
52,520
|
|
|
(6,502
|
)
|
|
75,385
|
|
Selling
|
175
|
|
|
4,925
|
|
|
10,716
|
|
|
—
|
|
|
15,816
|
|
General and administrative
|
2,009
|
|
|
2,167
|
|
|
8,468
|
|
|
—
|
|
|
12,644
|
|
Research and development
|
273
|
|
|
1,043
|
|
|
470
|
|
|
—
|
|
|
1,786
|
|
Restructuring
|
53
|
|
|
430
|
|
|
2,010
|
|
|
—
|
|
|
2,493
|
|
|
2,510
|
|
|
37,932
|
|
|
74,184
|
|
|
(6,502
|
)
|
|
108,124
|
|
(Loss) income from operations
|
(2,510
|
)
|
|
5,779
|
|
|
7,967
|
|
|
(169
|
)
|
|
11,067
|
|
Interest (expense) income, net
|
(11,439
|
)
|
|
(47
|
)
|
|
(730
|
)
|
|
—
|
|
|
(12,216
|
)
|
Foreign exchange gain (loss)
|
63
|
|
|
(110
|
)
|
|
(382
|
)
|
|
—
|
|
|
(429
|
)
|
Equity in subsidiaries income
|
8,634
|
|
|
8,415
|
|
|
—
|
|
|
(17,049
|
)
|
|
—
|
|
Loss on Extinguishment of Debt
|
(11,736
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,736
|
)
|
Dividend income
|
3,700
|
|
|
—
|
|
|
—
|
|
|
(3,700
|
)
|
|
—
|
|
(Loss) income before provision for income taxes
|
(13,288
|
)
|
|
14,037
|
|
|
6,855
|
|
|
(20,918
|
)
|
|
(13,314
|
)
|
Provision for income taxes
|
(51
|
)
|
|
(288
|
)
|
|
314
|
|
|
—
|
|
|
(25
|
)
|
Net (loss) income
|
$
|
(13,339
|
)
|
|
$
|
13,749
|
|
|
$
|
7,169
|
|
|
$
|
(20,918
|
)
|
|
$
|
(13,339
|
)
|
Comprehensive (loss) income
|
$
|
(12,773
|
)
|
|
$
|
13,736
|
|
|
$
|
8,967
|
|
|
$
|
(20,918
|
)
|
|
$
|
(10,988
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive Income (Loss)-(Unaudited)
For the three months ended
September 30, 2015
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
41,978
|
|
|
$
|
80,090
|
|
|
$
|
(4,329
|
)
|
|
$
|
117,739
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
38
|
|
|
28,157
|
|
|
47,439
|
|
|
(4,382
|
)
|
|
71,252
|
|
Selling
|
248
|
|
|
4,940
|
|
|
10,701
|
|
|
—
|
|
|
15,889
|
|
General and administrative
|
4,403
|
|
|
1,658
|
|
|
8,309
|
|
|
—
|
|
|
14,370
|
|
Research and development
|
259
|
|
|
1,118
|
|
|
464
|
|
|
—
|
|
|
1,841
|
|
Restructuring
|
47
|
|
|
307
|
|
|
4,647
|
|
|
—
|
|
|
5,001
|
|
|
4,995
|
|
|
36,180
|
|
|
71,560
|
|
|
(4,382
|
)
|
|
108,353
|
|
(Loss) income from operations
|
(4,995
|
)
|
|
5,798
|
|
|
8,530
|
|
|
53
|
|
|
9,386
|
|
Interest (expense) income, net
|
(9,613
|
)
|
|
877
|
|
|
(1,039
|
)
|
|
—
|
|
|
(9,775
|
)
|
Foreign exchange gain (loss)
|
404
|
|
|
(26
|
)
|
|
1,681
|
|
|
—
|
|
|
2,059
|
|
Equity in subsidiaries income
|
10,415
|
|
|
9,460
|
|
|
—
|
|
|
(19,875
|
)
|
|
—
|
|
Dividend income
|
4,769
|
|
|
—
|
|
|
—
|
|
|
(4,769
|
)
|
|
—
|
|
Income (loss) before provision for income taxes
|
980
|
|
|
16,109
|
|
|
9,172
|
|
|
(24,591
|
)
|
|
1,670
|
|
Provision for income taxes
|
(65
|
)
|
|
(19
|
)
|
|
(671
|
)
|
|
—
|
|
|
(755
|
)
|
Net income (loss)
|
$
|
915
|
|
|
$
|
16,090
|
|
|
$
|
8,501
|
|
|
$
|
(24,591
|
)
|
|
$
|
915
|
|
Comprehensive income (loss)
|
$
|
1,084
|
|
|
$
|
16,391
|
|
|
$
|
(3,896
|
)
|
|
$
|
(24,591
|
)
|
|
$
|
(11,012
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive (Loss) Income (Unaudited)
For the
nine
months ended
September 30, 2016
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
130,379
|
|
|
$
|
249,137
|
|
|
$
|
(21,387
|
)
|
|
$
|
358,129
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
—
|
|
|
88,401
|
|
|
155,441
|
|
|
(21,247
|
)
|
|
222,595
|
|
Selling
|
677
|
|
|
15,067
|
|
|
31,528
|
|
|
—
|
|
|
47,272
|
|
General and administrative
|
8,178
|
|
|
4,137
|
|
|
25,262
|
|
|
—
|
|
|
37,577
|
|
Research and development
|
835
|
|
|
3,062
|
|
|
1,374
|
|
|
—
|
|
|
5,271
|
|
Restructuring
|
695
|
|
|
2,098
|
|
|
5,310
|
|
|
—
|
|
|
8,103
|
|
|
10,385
|
|
|
112,765
|
|
|
218,915
|
|
|
(21,247
|
)
|
|
320,818
|
|
(Loss) income from operations
|
(10,385
|
)
|
|
17,614
|
|
|
30,222
|
|
|
(140
|
)
|
|
37,311
|
|
Interest (expense) income, net
|
(31,164
|
)
|
|
790
|
|
|
(2,841
|
)
|
|
—
|
|
|
(33,215
|
)
|
Foreign exchange (loss) gain
|
(53
|
)
|
|
(145
|
)
|
|
(278
|
)
|
|
—
|
|
|
(476
|
)
|
Equity in subsidiaries income
|
31,657
|
|
|
24,973
|
|
|
—
|
|
|
(56,630
|
)
|
|
—
|
|
Loss on Extinguishment of Debt
|
(11,736
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,736
|
)
|
Dividend income
|
9,245
|
|
|
—
|
|
|
—
|
|
|
(9,245
|
)
|
|
—
|
|
(Loss) income before provision for income taxes
|
(12,436
|
)
|
|
43,232
|
|
|
27,103
|
|
|
(66,015
|
)
|
|
(8,116
|
)
|
Provision for income taxes
|
(237
|
)
|
|
(550
|
)
|
|
(3,770
|
)
|
|
—
|
|
|
(4,557
|
)
|
Net (loss) income
|
$
|
(12,673
|
)
|
|
$
|
42,682
|
|
|
$
|
23,333
|
|
|
$
|
(66,015
|
)
|
|
$
|
(12,673
|
)
|
Comprehensive (loss) income
|
$
|
(10,174
|
)
|
|
$
|
45,230
|
|
|
$
|
33,853
|
|
|
$
|
(66,015
|
)
|
|
$
|
2,894
|
|
Xerium Technologies, Inc.
Consolidating Statement of Operations and Comprehensive Income (Loss)-(Unaudited)
For the
nine
months ended
September 30, 2015
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Net sales
|
$
|
—
|
|
|
$
|
126,416
|
|
|
$
|
251,958
|
|
|
$
|
(16,478
|
)
|
|
$
|
361,896
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
(291
|
)
|
|
85,079
|
|
|
148,954
|
|
|
(16,329
|
)
|
|
217,413
|
|
Selling
|
787
|
|
|
14,790
|
|
|
33,068
|
|
|
—
|
|
|
48,645
|
|
General and administrative
|
9,285
|
|
|
4,539
|
|
|
26,437
|
|
|
—
|
|
|
40,261
|
|
Research and development
|
732
|
|
|
3,508
|
|
|
1,455
|
|
|
—
|
|
|
5,695
|
|
Restructuring
|
8,313
|
|
|
622
|
|
|
3,799
|
|
|
—
|
|
|
12,734
|
|
|
18,826
|
|
|
108,538
|
|
|
213,713
|
|
|
(16,329
|
)
|
|
324,748
|
|
(Loss) income from operations
|
(18,826
|
)
|
|
17,878
|
|
|
38,245
|
|
|
(149
|
)
|
|
37,148
|
|
Interest (expense) income, net
|
(28,303
|
)
|
|
3,009
|
|
|
(2,850
|
)
|
|
—
|
|
|
(28,144
|
)
|
Foreign exchange gain (loss)
|
246
|
|
|
(261
|
)
|
|
2,165
|
|
|
—
|
|
|
2,150
|
|
Equity in subsidiaries income
|
38,843
|
|
|
21,009
|
|
|
—
|
|
|
(59,852
|
)
|
|
—
|
|
Dividend income
|
10,856
|
|
|
—
|
|
|
—
|
|
|
(10,856
|
)
|
|
—
|
|
Income (loss) before provision for income taxes
|
2,816
|
|
|
41,635
|
|
|
37,560
|
|
|
(70,857
|
)
|
|
11,154
|
|
Provision for income taxes
|
(871
|
)
|
|
(89
|
)
|
|
(8,249
|
)
|
|
—
|
|
|
(9,209
|
)
|
Net income (loss)
|
$
|
1,945
|
|
|
$
|
41,546
|
|
|
$
|
29,311
|
|
|
$
|
(70,857
|
)
|
|
$
|
1,945
|
|
Comprehensive income (loss)
|
$
|
3,439
|
|
|
$
|
42,462
|
|
|
$
|
(8,750
|
)
|
|
$
|
(70,857
|
)
|
|
$
|
(33,706
|
)
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows-(Unaudited)
For the
nine
months ended
September 30, 2016
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(12,673
|
)
|
|
$
|
42,682
|
|
|
$
|
23,333
|
|
|
$
|
(66,015
|
)
|
|
$
|
(12,673
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
2,123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,123
|
|
Depreciation
|
1,683
|
|
|
6,189
|
|
|
16,334
|
|
|
—
|
|
|
24,206
|
|
Amortization of intangible assets
|
—
|
|
|
501
|
|
|
72
|
|
|
—
|
|
|
573
|
|
Deferred financing cost amortization
|
2,162
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
2,234
|
|
Foreign exchange gain on revaluation of debt
|
43
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43
|
|
Deferred taxes
|
142
|
|
|
—
|
|
|
(3,208
|
)
|
|
—
|
|
|
(3,066
|
)
|
Loss on disposition of property and equipment
|
—
|
|
|
30
|
|
|
20
|
|
|
—
|
|
|
50
|
|
Loss on extinquishment of debt
|
11,736
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,736
|
|
Provision for doubtful accounts
|
—
|
|
|
(70
|
)
|
|
(4
|
)
|
|
—
|
|
|
(74
|
)
|
Undistributed equity in earnings of subsidiaries
|
(31,657
|
)
|
|
(24,973
|
)
|
|
—
|
|
|
56,630
|
|
|
—
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
(39
|
)
|
|
1,856
|
|
|
(514
|
)
|
|
—
|
|
|
1,303
|
|
Inventories
|
—
|
|
|
2,372
|
|
|
2,888
|
|
|
140
|
|
|
5,400
|
|
Prepaid expenses
|
(76
|
)
|
|
(77
|
)
|
|
(460
|
)
|
|
—
|
|
|
(613
|
)
|
Other current assets
|
—
|
|
|
475
|
|
|
(2,048
|
)
|
|
—
|
|
|
(1,573
|
)
|
Accounts payable and accrued expenses
|
1,933
|
|
|
(4,537
|
)
|
|
(6,593
|
)
|
|
—
|
|
|
(9,197
|
)
|
Deferred and other long-term liabilities
|
(34
|
)
|
|
908
|
|
|
621
|
|
|
—
|
|
|
1,495
|
|
Intercompany loans
|
289,717
|
|
|
(294,054
|
)
|
|
4,337
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) operating activities
|
265,060
|
|
|
(268,698
|
)
|
|
34,850
|
|
|
(9,245
|
)
|
|
21,967
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(664
|
)
|
|
(2,332
|
)
|
|
(6,618
|
)
|
|
—
|
|
|
(9,614
|
)
|
Intercompany property and equipment transfers, net
|
(2
|
)
|
|
40
|
|
|
(38
|
)
|
|
—
|
|
|
—
|
|
Proceeds from disposals of property and equipment
|
—
|
|
|
5
|
|
|
89
|
|
|
—
|
|
|
94
|
|
Acquisition costs
|
|
|
(16,225
|
)
|
|
|
|
—
|
|
|
(16,225
|
)
|
Net cash used in investing activities
|
(666
|
)
|
|
(18,512
|
)
|
|
(6,567
|
)
|
|
—
|
|
|
(25,745
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Net increase in notes payable
|
—
|
|
|
—
|
|
|
1,121
|
|
|
—
|
|
|
1,121
|
|
Proceeds from borrowings
|
535,407
|
|
|
—
|
|
|
6,093
|
|
|
—
|
|
|
541,500
|
|
Principal payments on debt
|
(503,806
|
)
|
|
—
|
|
|
(7,030
|
)
|
|
—
|
|
|
(510,836
|
)
|
Dividends paid
|
—
|
|
|
(9,245
|
)
|
|
—
|
|
|
9,245
|
|
|
—
|
|
Payment of obligations under capital leases
|
(946
|
)
|
|
(1,743
|
)
|
|
(305
|
)
|
|
—
|
|
|
(2,994
|
)
|
Payment of financing fees
|
(22,861
|
)
|
|
—
|
|
|
54
|
|
|
—
|
|
|
(22,807
|
)
|
Intercompany loans
|
(272,267
|
)
|
|
298,235
|
|
|
(25,968
|
)
|
|
—
|
|
|
—
|
|
Employee taxes paid on equity awards
|
(1,791
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,791
|
)
|
Net cash (used in) provided by financing activities
|
(266,264
|
)
|
|
287,247
|
|
|
(26,035
|
)
|
|
9,245
|
|
|
4,193
|
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
—
|
|
|
(1,874
|
)
|
|
—
|
|
|
(1,874
|
)
|
Net (decrease) increase in cash
|
(1,870
|
)
|
|
37
|
|
|
374
|
|
|
—
|
|
|
(1,459
|
)
|
Cash and cash equivalents at beginning of period
|
$
|
3,105
|
|
|
$
|
(2
|
)
|
|
$
|
6,736
|
|
|
$
|
—
|
|
|
$
|
9,839
|
|
Cash and cash equivalents at end of period
|
$
|
1,235
|
|
|
$
|
35
|
|
|
$
|
7,110
|
|
|
$
|
—
|
|
|
$
|
8,380
|
|
Xerium Technologies, Inc.
Consolidating Statement of Cash Flows (Unaudited)
For the
nine
months ended
September 30, 2015
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Total
Guarantors
|
|
Total Non
Guarantors
|
|
Other
Eliminations
|
|
The
Company
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
1,945
|
|
|
$
|
41,546
|
|
|
$
|
29,311
|
|
|
$
|
(70,857
|
)
|
|
$
|
1,945
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
2,506
|
|
|
—
|
|
|
184
|
|
|
—
|
|
|
2,690
|
|
Depreciation
|
1,110
|
|
|
5,292
|
|
|
14,995
|
|
|
—
|
|
|
21,397
|
|
Amortization of intangible assets
|
—
|
|
|
206
|
|
|
22
|
|
|
—
|
|
|
228
|
|
Deferred financing cost amortization
|
2,570
|
|
|
—
|
|
|
71
|
|
|
—
|
|
|
2,641
|
|
Foreign exchange gain on revaluation of debt
|
(2,115
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,115
|
)
|
Deferred taxes
|
661
|
|
|
—
|
|
|
(2,232
|
)
|
|
—
|
|
|
(1,571
|
)
|
Asset impairment
|
—
|
|
|
149
|
|
|
1,029
|
|
|
—
|
|
|
1,178
|
|
Loss on disposition of property and equipment
|
4
|
|
|
27
|
|
|
(116
|
)
|
|
—
|
|
|
(85
|
)
|
Provision for doubtful accounts
|
—
|
|
|
276
|
|
|
581
|
|
|
—
|
|
|
857
|
|
Undistributed equity in earnings of subsidiaries
|
(38,843
|
)
|
|
(21,009
|
)
|
|
—
|
|
|
59,852
|
|
|
—
|
|
Change in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
(70
|
)
|
|
(409
|
)
|
|
(2,310
|
)
|
|
—
|
|
|
(2,789
|
)
|
Inventories
|
—
|
|
|
1,074
|
|
|
2,417
|
|
|
149
|
|
|
3,640
|
|
Prepaid expenses
|
(700
|
)
|
|
(94
|
)
|
|
77
|
|
|
—
|
|
|
(717
|
)
|
Other current assets
|
—
|
|
|
(252
|
)
|
|
(1,773
|
)
|
|
—
|
|
|
(2,025
|
)
|
Accounts payable and accrued expenses
|
4,422
|
|
|
1,774
|
|
|
1,061
|
|
|
—
|
|
|
7,257
|
|
Deferred and other long-term liabilities
|
(238
|
)
|
|
1,023
|
|
|
(6,336
|
)
|
|
—
|
|
|
(5,551
|
)
|
Intercompany loans
|
(12,996
|
)
|
|
(7,108
|
)
|
|
20,104
|
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by operating activities
|
(41,744
|
)
|
|
22,495
|
|
|
57,085
|
|
|
(10,856
|
)
|
|
26,980
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(6,276
|
)
|
|
(7,862
|
)
|
|
(26,238
|
)
|
|
—
|
|
|
(40,376
|
)
|
Intercompany property and equipment transfers, net
|
8,612
|
|
|
(220
|
)
|
|
(8,392
|
)
|
|
—
|
|
|
—
|
|
Proceeds from disposals of property and equipment
|
3
|
|
|
26
|
|
|
75
|
|
|
—
|
|
|
104
|
|
Net cash provided by (used in) investing activities
|
2,339
|
|
|
(8,056
|
)
|
|
(34,555
|
)
|
|
—
|
|
|
(40,272
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Net increase in notes payable
|
—
|
|
|
—
|
|
|
6,759
|
|
|
—
|
|
|
6,759
|
|
Proceeds from borrowings
|
37,408
|
|
|
—
|
|
|
20,020
|
|
|
—
|
|
|
57,428
|
|
Principal payments on debt
|
(34,371
|
)
|
|
—
|
|
|
(11,202
|
)
|
|
—
|
|
|
(45,573
|
)
|
Dividends paid
|
—
|
|
|
(9,950
|
)
|
|
(906
|
)
|
|
10,856
|
|
|
—
|
|
Payments of obligations under capitalized leases
|
(486
|
)
|
|
(401
|
)
|
|
—
|
|
|
—
|
|
|
(887
|
)
|
Payment of deferred financing fees
|
(63
|
)
|
|
—
|
|
|
45
|
|
|
—
|
|
|
(18
|
)
|
Intercompany loans
|
36,646
|
|
|
(4,078
|
)
|
|
(32,568
|
)
|
|
—
|
|
|
—
|
|
Other financing activities
|
5,500
|
|
|
—
|
|
|
(5,500
|
)
|
|
|
|
|
—
|
|
Employee taxes paid on equity awards
|
(2,124
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,124
|
)
|
Net cash provided by (used in) financing activities
|
42,510
|
|
|
(14,429
|
)
|
|
(23,352
|
)
|
|
10,856
|
|
|
15,585
|
|
Effect of exchange rate changes on cash flows
|
—
|
|
|
—
|
|
|
(1,106
|
)
|
|
—
|
|
|
(1,106
|
)
|
Net increase (decrease) in cash
|
3,105
|
|
|
10
|
|
|
(1,928
|
)
|
|
—
|
|
|
1,187
|
|
Cash and cash equivalents at beginning of period
|
605
|
|
|
(14
|
)
|
|
8,926
|
|
|
—
|
|
|
9,517
|
|
Cash and cash equivalents at end of period
|
$
|
3,710
|
|
|
$
|
(4
|
)
|
|
$
|
6,998
|
|
|
$
|
—
|
|
|
$
|
10,704
|
|