Xerium Technologies, Inc. (NYSE:XRM), a leading global
manufacturer of industrial textiles and rolls used primarily in the
paper production process, today reported results for its fourth
quarter ended December 31, 2008.
�I am pleased with our very meaningful progress during 2008 on
our continuing journey to reduce our financial leverage, generate
cash and pay down debt,� said Stephen Light, President, Chief
Executive Officer and Chairman. �Never has our strategy been more
appropriate to ensuring the financial health of our organization,
as we, along with our industry, face unprecedented challenges. I
believe our successes to date will continue to build momentum even
as we are likely to endure additional stress during 2009, as
reduced demand and excess paper inventories dampen sales throughout
the industry.
�We are in compliance with all of our loan restrictions and
covenants as of December 31, 2008 and expect to remain so
throughout 2009. Late in 2008 we accelerated the pace of our
operational efficiency programs, which already increased sales per
employee by more than 5.5% during 2008, as we shed non-revenue
generating costs. During 2009, we will further enhance operational
efficiencies to generate cash and retire additional debt. We also
plan to bring to market some of the most technologically advanced
products that have been in our development process. These new
products are designed to produce meaningful cost benefits and other
value for our customers, as well as to generate more sustainable
pricing for Xerium.
�We are realistic about the challenges we will be facing during
2009. We will work diligently to keep our strategy for debt
reduction on track, with the achievable goal of exiting 2009 even
stronger than we entered it.�
FOURTH QUARTER FINANCIAL
HIGHLIGHTS
- Consistent with its debt
reduction strategy, during the fourth quarter of 2008 the Company
made total debt payments of approximately $2 million, which, along
with currency effects, reduced total debt by approximately $13
million to $617 million at December 31, 2008 from $630 million at
September 30, 2008.
- Excluding currency effects shown
in the table below, fourth quarter 2008 net sales decreased 1.8%
from the fourth quarter of 2007, with a decline of 3.4% in the
clothing segment and an increase of 1.3% in the roll covers
segment. See "Clothing Segment Highlights" and "Roll Covers Segment
Highlights" for further discussion. Net sales for the 2008 fourth
quarter were $149.4 million, a 9.1% decrease from net sales for the
2007 fourth quarter of $164.2 million.
- Gross margins remained
relatively constant at 39.3% of net sales for the 2008 fourth
quarter, compared to 39.7% for the 2007 fourth quarter, even though
the Company offered price incentives to sell consigned inventories
and convert customers to �make and ship� for the purposes of
reducing working capital.
- The Company recorded
restructuring and impairment expenses of $10.1 million during the
fourth quarter of 2008, including (i) a $7.1 million charge related
to the previously announced plan to cease production at its Huyck
Wangner clothing facility in Geelong, Australia by the end of the
first quarter 2009 and to discontinue construction of its Vietnam
clothing facility, (ii) asset impairment charges in the U.S. of
approximately $1.0 million based upon the Company�s evaluation
under SFAS No.�144, and (iii) an approximately $2.0 million charge
related to the Company�s streamlining its operating structure and
to improve its long-term competitiveness by closing and/or
transferring production from certain of its manufacturing
facilities and through headcount reductions.
- Income from operations was $6.5
million in the fourth quarter of 2008 as compared with a loss from
operations of $164.1 million in the fourth quarter of 2007, when
the Company recorded a non-cash charge for goodwill impairment of
$185.3 million related to its roll covers segment. Excluding the
non-cash charge for goodwill impairment in the 2007 quarter, the
decrease in income from operations in the fourth quarter of 2008 as
compared with the fourth quarter or 2007 is also due to increased
specific bad debt reserves of $4.5 million in 2008. See Non-GAAP
Financial Measures �Impact of Significant 2008 and 2007 Events�
below. Income from operations also decreased due to increased
restructuring and impairments expenses of $8.5 million and a
decrease in gross margins of $6.5 million.
- Net loss for the fourth quarter
of 2008 was $4.3 million, or a loss of $0.09 per diluted share,
compared to a net loss for the fourth quarter of 2007 of $168.0
million, or a loss of $3.69 per diluted share. Included in the
fourth quarter of 2007 is a non-cash charge for goodwill impairment
of $185.3 million (less $18.3 million tax effect thereon). The
fourth quarter of 2008 includes an increase in expense for specific
bad debts of $4.5 million (less $0.5 million tax effect thereon).
See Non-GAAP Financial Measures �Impact of Significant 2008 and
2007 Events� below. Also contributing to the net loss for the
fourth quarter of 2008 as compared to the fourth quarter of 2007
were increased restructuring and impairments expenses of $8.5
million and a decrease in gross margins of $6.5 million.
- Net cash generated by operating
activities was $24.2 million for the 2008 fourth quarter, compared
to $40.5 million for the fourth quarter of 2007. The decrease is
principally attributable to lower net income, after adjusting for
non-working capital changes, partially offset by the favorable
working capital changes as a result of ongoing efforts to target a
reduction in days sales outstanding and increases in inventory
turns and days payables outstanding.
- Adjusted EBITDA (as defined by
the Company�s amended credit facility) was $24.6 million for the
2008 fourth quarter, compared to $36.5 million for the 2007 fourth
quarter. See �EBITDA and Adjusted EBITDA Reconciliation�
below.
- In order to improve performance,
the Company continues to target a reduction in days of receivables
and increases in inventory turns and days of payables outstanding.
During the 2008 fourth quarter, as compared with the 2007 fourth
quarter, the Company reported that accounts receivables, as
measured as a ratio of days of receivables, improved from 67 days
to 54 days; inventory turns improved to 4.6 versus 3.2; and days of
payables improved to 49 days compared to 45 days.
- Cash on hand at December 31,
2008 was $34.7 million, compared to cash on hand at September 30,
2008 of $18.4 million, and $24.2 million at December 31, 2007.
- During the year ended December
31, 2008, the Company made senior debt repayments of $24.4 million,
compared to $10.9 million during the year ended December 31, 2007.
At December 31, 2008, the Company had no borrowings outstanding
under its revolving lines of credit, including the revolving credit
facility under its senior credit facility and lines of credit in
various foreign countries that are used to facilitate local
short-term operating needs. The Company had an aggregate of $45.9
million available for additional borrowings under these revolving
lines of credit at December 31, 2008.
- Capital expenditures in the 2008
fourth quarter were $9.9 million, compared to $24.5 million in the
2007 fourth quarter. For the fiscal year ended December 31, 2008,
capital expenditures were $39.0 million, which is lower than its
target range of $44 to $47 million and as compared to $47.9 million
for the fiscal year ended December 31, 2007. The Company targets
2009 capital expenditures to be approximately $42 million, as it
completes obligations undertaken as part of its Vietnam initiative,
and that capital expenditures in 2010 will be lower than those for
2009.
OTHER
HIGHLIGHTS
- As previously announced, on
December 29, 2008, the Company received notification from the New
York Stock Exchange (NYSE) that it was not in compliance with two
NYSE standards for continued listing of the Company's common stock
on the exchange because the average closing price of the Company's
common stock was less than $1.00 per share over a consecutive 30
trading day period, and the Company's average total market
capitalization has been less than $75 million over the same period
and its most recently reported stockholders' equity was less than
$75 million. The Company has six months from the date of receipt of
the notification from the NYSE to bring its share price and average
share price over $1.00. In addition, on February 12, 2009, the
Company submitted a plan advising the NYSE of definitive actions
the Company has taken, or plans to take, that would bring it into
compliance with the market capitalization listing standards within
18 months of receipt of the notice, and the Company is awaiting the
NYSE�s decision with respect to the plan. On February 26, 2009, the
NYSE submitted to the Securities & Exchange Commission an
immediately effective rule filing which suspends the NYSE�s $1.00
minimum price requirement on a temporary basis, initially through
June 30, 2009. This will have the effect of extending the Company�s
period for regaining compliance with the $1.00 listing
standard.
- Due to the global economic
crisis and the lack of credit availability that may affect customer
demand for products and their ability to pay their debts, the
Company assessed the impact of this crisis on its customers and its
industry, and changed its estimates of net realizable value of
receivables and inventories during the third and fourth quarters of
2008. For example, two of the Company�s major customers, who
collectively represent approximately 5% of 2008 revenues, have
experienced recent financial difficulties. One of them filed for
bankruptcy protection in January 2009 and we believe the other may
be facing liquidity issues and potential credit refinancing during
2009. The Company has fully reserved for amounts due from these
customers as of December 31, 2008; however, decreases in orders
from these customers or future payment problems from these or other
customers could have a material adverse effect on the Company�s
sales and profitability.
- The Company targets additional
restructuring expenses of approximately $5 million to $6 million
during 2009 primarily related to headcount reductions resulting
from the integration of the regional management structure in North
America and similar actions in Europe.
- As a result of the Company�s
previously announced decision to freeze benefit pension accruals
under its Pension Plan for U.S. Salaried and Non-Union Hourly
Employees and to no longer sponsor or fund its U.S. retiree health
insurance program to certain retired U.S. employees, covered
dependents, and beneficiaries, the Company targets a decrease in
its pre-tax pension and post-retirement expense of approximately
$2.8 million annually beginning in 2009, as compared with that of
2008, based on current estimates and assumptions. Actual results
may differ materially from those indicated due to a number of
factors, including changes in actuarial assumptions used and actual
return on retirement plan assets.
- The Company reduced its
workforce by nearly 100 full-time employees in the 2008 fiscal year
and anticipates that approximately 200 additional reductions will
be implemented in the first quarter of 2009.
- As of December 31, 2008, the
Company was in compliance with all financial covenants, including
covenants requiring compliance with minimum interest coverage,
fixed charge coverage ratios and maximum leverage ratios and plans
to be in compliance of such covenants through 2009.
- The Company released an
additional $25.2 million in �trapped cash� during the fourth
quarter, having freed $29.6 million in the third quarter of 2008
and $1.9 million in trapped cash in the second quarter. The Company
defines �trapped cash� as the amount of working capital on its
balance sheet that is in excess of 50 days of outstanding accounts
receivable, 6 inventory turns and 48 days of accounts payable
outstanding.
- As previously noted, the Company
has prepared a reconciliation of Non-GAAP Financial Measures
�Impact of Significant 2008 and 2007 Events� below to illustrate
how management views the underlying operating results for the
period. In summary, what is described in this reconciliation is the
financial performance net of the effect of the substantial gains
due to changes to certain of its U.S. pension plans and
postretirement benefit plans and the impact of certain provisions
for environmental matters and increased provisions for bad debts
and slow-moving and obsolete inventory. The latter two items
reflect the risk associated with the Company�s assessment of the
global credit crisis and the potential impact on our
customers.
SEGMENT
INFORMATION
The following table presents net sales for the fourth quarter of
2008 and 2007 by segment and the effect of currency on pricing and
translation on fourth quarter 2008 net sales:
(in millions):
�
Net Sales
Three Months Ended Dec.
31,
�
�
�
Decrease in net sales from Q4
2007 to Q4 2008
�
�
�
�
Decrease in Q4 2008 net sales
due to currency translation*
Percent increase (decrease) in
net sales from Q4 2007 to
Q4 2008
�
�
�
�
2008
2007
�
�
Total
Excluding currency translation effect **Change in
Q4 2008 net sales due to
currency
effects on pricing
Percent increase (decrease) in net sales from Q4 2007 to Q4 2008
excluding effect of currency on pricing and translation
Clothing $ 95.9 $ 108.0 $ (12.1 ) $ (10.8 ) (11.2 )% (1.2 )% $ 2.3
(3.4 )% Roll Covers 53.5 56.2 (2.7 ) (3.4 ) (4.8 )% 1.3 % - 1.3 %
Total $ 149.4 $ 164.2 $ (14.8 ) $ (14.2 ) (9.1 )% (0.4 )% $ 2.3
(1.8 )%
* Decrease in fourth quarter 2008 net sales due to currency
translation is calculated by subtracting (i) an amount equal to net
sales for the fourth quarter of 2007 from (ii) net sales for the
fourth quarter of 2007 at the applicable average foreign currency
exchange rate for the fourth quarter of 2008.
** Change in the fourth quarter 2008 net sales due to currency
effect on pricing relates to sales prices indexed in U.S. Dollars
by certain non-U.S. operations and is calculated based on the
difference in the exchange rate from the time of pricing commitment
to the customer and the point at which the sale transaction is
recorded.
CLOTHING SEGMENT
HIGHLIGHTS
- Clothing segment sales declined
11.2% in the fourth quarter of 2008 to $95.9 million from $108.0
million in the fourth quarter of 2007 primarily due to unfavorable
currency effects of $8.5 million and decreased sales in North
America and Europe of approximately $4.0 million, partially offset
by increased sales volume in Asia-Pacific.
- Overall pricing levels in the
clothing segment remained essentially unchanged during the fourth
quarter of 2008, compared to the fourth quarter of 2007.
- Clothing segment earnings
declined 12.1% in the fourth quarter of 2008 to $22.7 million from
$25.8 million in the fourth quarter of 2007, resulting primarily
from increases in provisions for reserves of approximately $3
million against certain bad debts and non trade receivables
stemming from the Company�s assessed impact of the global economic
crisis on its customers and industry.
ROLL COVERS SEGMENT
HIGHLIGHTS
- Roll covers segment sales
declined 4.8% to $53.5 million in the 2008 fourth quarter from
$56.2 million in the 2007 fourth quarter. The decrease is primarily
the result of unfavorable currency effects of $3.4 million,
partially offset by increased sales in Asia-Pacific.
- Overall pricing levels in the
roll covers segment decreased by approximately 1.0% in the fourth
quarter, compared to the prior year period.
- Roll covers segment earnings for
the quarter declined 34.1% to $9.5 million from $14.4 million in
the 2007 quarter, primarily as a result of decreased gross margins
due primarily to decreased pricing levels and increased inventory
reserves stemming from the Company�s assessed impact of the global
economic crisis on its customers and industry.
2008 FYE
RESULTS
- Consistent with its debt
reduction strategy, during the year ended December 31, 2008, the
Company made total debt payments of approximately $26 million,
which, along with currency effects, reduced total debt by
approximately $50 million to $617 million at December 31, 2008 from
$667 million at December 31, 2007.
- Net sales for 2008 increased
3.7% to $638.1 million. Excluding currency effects, 2008 net sales
declined by 0.9%.
- Net income for 2008 was $26.6
million or $0.58 per diluted share, compared to a net loss of
$150.2 million, or a loss of $3.36 per diluted share in 2007. See
Non-GAAP Financial Measures �Impact of Significant 2008 and 2007
Events� below.
- Net cash generated by operating
activities was $77.1 million in 2008, compared to $89.0 million in
2007.
- Adjusted EBITDA (as defined by
the Company�s amended credit facility), was $164.5 million,
compared to $146.0 million in 2007. See �EBITDA and Adjusted EBITDA
Reconciliation� below.
CONFERENCE CALL
The Company plans to hold a conference call to discuss these
results tomorrow morning:
Date: � Thursday, March 12, 2009 Start Time: 8:00 a.m. Eastern Time
Domestic Dial-In: +1-800-257-1836 International Dial-In:
+1-303-262-2130
To participate on the call, please dial in at least 10 minutes
prior to the scheduled start.
NON-GAAP FINANCIAL
MEASURES
This press release includes measures of performance that differ
from the Company�s financial results as reported under generally
accepted accounting principles (�GAAP�). The Company uses
supplementary non-GAAP measures, including EBITDA and Adjusted
EBITDA, to assist in evaluating liquidity and financial
performance, specifically in evaluating the Company's ability to
service indebtedness and to fund ongoing capital expenditures. The
Company�s credit facility includes covenants based upon Adjusted
EBITDA. If Adjusted EBITDA declines below certain levels, the
Company could go into default under the credit facility or be
required to prepay the credit facility. Neither Adjusted EBITDA nor
EBITDA should be considered in isolation or as a substitute for net
cash provided by operating activities (as determined in accordance
with GAAP) or income from operations (as determined in accordance
with GAAP).
Additionally, the Company is presenting below "Impact of
Significant 2008 and 2007 Events" to exclude significant items that
management expects to be nonrecurring. Management believes that the
presentation of this schedule helps to clarify the performance of
its ongoing operations.
For additional information regarding non-GAAP financial measures
and a reconciliation of such measures to the most comparable
financial measures under GAAP, please see below. The information in
this press release should be read in conjunction with the financial
statements and footnotes contained in our documents to be filed
with the Securities and Exchange Commission.
About Xerium Technologies
Xerium Technologies, Inc. (NYSE:XRM) is a leading global
manufacturer and supplier of two types of consumable products used
primarily in the production of paper: clothing and roll covers. The
Company, which operates around the world under a variety of brand
names, utilizes a broad portfolio of patented and proprietary
technologies to provide customers with tailored solutions and
products integral to production, all designed to optimize
performance and reduce operational costs. With 33 manufacturing
facilities in 14 countries around the world, Xerium has
approximately 3,500 employees.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements. These
statements relate to future events or to our future financial
performance and involve known and unknown risks, uncertainties, and
other factors that may cause actual results, levels of activity,
performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements
expressed or implied by these forward-looking statements. In some
cases, forward-looking statements can be identified by the use of
words such as �may,� �could,� �expect,� �intend,� �plan,� �seek,�
�anticipate,� �believe,� �estimate,� �predict,� �potential,� or
�continue� or the negative of these terms or other comparable
terminology. Undue reliance should not be placed on forward-looking
statements because they involve known and unknown risks,
uncertainties, and other factors that are, in some cases, beyond
our control and that could materially affect actual results, levels
of activity, performance, or achievements. Factors that could
materially affect our actual results, levels of activity,
performance or achievements include the following items: (i) our
strategies and plans, including, but not limited to, those relating
to the decrease in our financial leverage, developing new products
and enhancing our operational efficiencies, may be revised or may
not be implemented as planned and, even if implemented, may not
result in the anticipated benefits; (ii) our plan to achieve
compliance with the NYSE continued listing standards may not be
accepted by the NYSE, we may not achieve the goals we set in our
plan and, even if we do, we may not be able to achieve compliance
with the NYSE continued listing standards; (iii) our revenues and
profitability could be adversely affected by fluctuations in
currency exchange rates; (iv) our profitability would be reduced by
a decline in the prices of our products; (v) our profitability
could be adversely affected by fluctuations in interest rates; (vi)
we may not be able to develop and market new products successfully
or we may not be successful in competing against new technologies
developed by competitors; (vii) changes in demand for our products
could negatively impact our profitability; (viii) our credit
facility contains restrictive covenants, including covenants
requiring compliance with minimum interest coverage and fixed
charge coverage ratios and maximum leverage ratios, that will
require us to improve our performance over time in order to comply
therewith; (ix) we may have insufficient cash to fund growth and
unexpected cash needs after satisfying our debt service obligations
due to our high degree of leverage and significant debt service
obligations; (x) we are subject to the risk of weaker economic
conditions in the locations around the world where we conduct
business, including without limitation the current turmoil in the
credit markets and the impact of the current global economic crisis
on the paper industry and our customers; (xi) we may be required to
incur significant costs to reorganize our operations in response to
market changes in the paper industry; (xii) we are subject to the
risk of terrorist attacks or an outbreak or escalation of any
insurrection or armed conflict involving the United States or any
other country in which we conduct business, or any other national
or international calamity; (xiii) we are subject to any future
changes in government regulation; (xiv) we are subject to any
changes in U.S. or foreign government policies, laws and practices
regarding the repatriation of funds or taxes and (xv) those other
risks described under the heading "Risk Factors" in the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
2008 filed with the Securities and Exchange Commission and
subsequent SEC filings. If any of these risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, actual results may vary significantly from what we
projected. Any forward-looking statement in this press release
reflects our current views with respect to future events. We assume
no obligation to publicly update or revise these forward-looking
statements for any reason, whether as a result of new information,
future events, or otherwise.
XERIUM TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
December 31 2008 �
2007 (dollars in
thousands) ASSETS Current assets: Cash and cash
equivalents $ 34,733 $ 24,218 Accounts receivable (net of allowance
for doubtful accounts of $14,937 in 2008 and $5,367 in 2007) 94,049
113,256 Inventories 85,543 113,136 Prepaid expenses 4,844 6,287
Other current assets � 14,938 � � 29,441 � � Total current assets
234,107 286,338 Property and equipment, net 384,590 421,470
Goodwill 155,205 159,892 Intangible assets 32,129 17,381 Other
assets � 5,541 � � 6,360 � � Total assets $ 811,572 � $ 891,441 � �
LIABILITIES AND STOCKHOLDERS� DEFICIT Current liabilities:
Notes payable $ � $ 1,676 Accounts payable 53,076 44,842 Accrued
expenses 83,139 61,070 Current maturities of long-term debt 39,687
19,253 Long-term debt classified as current � � � � 641,179 � �
Total current liabilities 175,902 768,020 Long-term debt, net of
current maturities and long-term debt classified as current 577,270
4,693 Deferred and long-term taxes 13,358 23,114 Pension, other
postretirement and postemployment obligations 67,029 90,749 Other
long-term liabilities 5,594 5,917 Commitments and contingencies
Stockholders� equity (deficit) Preferred stock, $0.01 par value,
1,000,000 shares authorized; no shares outstanding as of December
31, 2008 and 2007 � � Common stock, $0.01 par value, 150,000,000
shares authorized; 46,257,772 and 46,028,003 shares outstanding as
of December 31, 2008 and 2007, respectively 463 460 Paid-in capital
220,370 216,360 Accumulated deficit (218,915 ) (245,511 )
Accumulated other comprehensive income (loss) � (29,499 ) � 27,639
� � Total stockholders� deficit � (27,581 ) � (1,052 ) � Total
liabilities and stockholders� deficit $ 811,572 � $ 891,441 �
See accompanying notes.
XERIUM TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS � �
For the Three Months Ended
December 31,
For the Year Ended
December 31,
2008
�
2007
2008
2007
(dollars in thousands, except per share data) � Net sales $
149,452
$
164,216
$ 638,139 $ 615,426 � Costs and expenses: Cost of products sold
90,704 98,979 394,467 361,913 Selling 17,738 20,019 80,175 79,157
General and administrative 21,790 19,881 92,112 70,218
Restructuring and impairments 10,106 1,575 16,968 7,733 Research
and development 2,631 2,572 11,740 10,189 Curtailment/settlement
gains 0 0 (39,968 ) - Goodwill impairment � 0 � 185,300 � � - � �
185,300 � � 142,969 � 328,326 � � 555,494 � � 714,510 � Income
(loss) from operations 6,483 (164,110 ) 82,645 (99,084 ) � Interest
expense (16,815 ) (16,386 ) (60,328 ) (54,609 ) Interest income 528
597 1,824 1,483 Foreign exchange gain (loss) 3,012 334 6,356 (347 )
� � � � � Income (loss) before provision (benefit) for income taxes
(6,792 ) (179,565 ) 30,497 (152,557 ) Provision (benefit) for
income taxes (2,443 ) (11,558 ) 3,901 (2,345 ) � � � � Net income
(loss) $ (4,349 )
$
(168,007
) $ 26,596 � $ (150,212 ) � Net income (loss) per share: Basic $
(0.09 )
$
(3.69
) $ 0.58 � $ (3.36 ) Diluted $ (0.09 )
$
(3.69
) $ 0.58 � $ (3.36 ) � Cash dividends per common share $ - �
$
0.1125
� $ - � $ 0.5625 �
XERIUM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
�
Year ended December 31, 2008 �
2007 �
Operating activities Net income (loss) $ 26,596 $ (150,212 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Goodwill impairment � 185,300 Stock-based
compensation 4,275 1,749 Depreciation 42,963 41,108 Amortization of
other intangibles 2,965 4,432 Deferred financing cost amortization
4,670 3,676 Unrealized foreign exchange (gain) loss on revaluation
of debt (10,272 ) 4,198 Deferred taxes (12,948 ) (16,984 ) Asset
impairment 3,989 389 Gain on disposition of property and equipment
(3,080 ) (1,367 ) Change in the fair value of interest rate swaps
(1,668 ) 6,146 Curtailment/settlement gain (39,968 ) � Provision
for bad debt expense 11,397 1,740 Change in assets and liabilities
which provided (used) cash: Accounts receivable 431 4,096
Inventories 20,664 2,243 Prepaid expenses 1,190 (1,403 ) Other
current assets 1,389 983 Accounts payable and accrued expenses
24,230 7,246 Deferred and other long term liabilities � 245 � �
(4,320 ) � Net cash provided by operating activities � 77,068 � �
89,020 � �
Investing activities Capital expenditures, gross
(39,028 ) (47,859 ) Proceeds from disposals of property and
equipment 4,528 2,961 Proceeds from dispositions of businesses � �
Payment for acquisitions, net of cash acquired 144 (12,298 ) Other
� (877 ) � (4 ) � Net cash used in investing activities � (35,233 )
� (57,200 ) �
Financing activities Net increase (decrease)
in borrowings (maturities of 90 days or less) (1,776 ) (8,207 )
Proceeds from borrowings (maturities longer than 90 days) 2,687
5,435 Principal payments on debt (24,429 ) (10,890 ) Cash dividends
on common stock � (11,782 ) Other � (8,794 ) � (1,793 ) � Net cash
used in financing activities � (32,312 ) � (27,237 ) � Effect of
exchange rate changes on cash flows � 992 � � 2,819 � � Net
increase in cash 10,515 7,402 Cash and cash equivalents at
beginning of year � 24,218 � � 16,816 � � Cash and cash equivalents
at end of year $ 34,733 � $ 24,218 � � Interest payments $ 64,059 �
$ 39,780 � � Income tax payments $ 12,530 � $ 10,981 �
Xerium Technologies, Inc.
EBITDA and Adjusted EBITDA
Reconciliation
EBITDA is defined as net income (loss) before interest expense,
income tax provision (benefit) and depreciation and amortization.
Adjusted EBITDA is defined in our credit facility and is EBITDA
plus (i) restructuring or related impairment costs (not to exceed
$12.0 million in the aggregate for 2007 and $5.0 million in the
aggregate in each year thereafter), (ii) reserves for inventory in
connection with plant closings, (iii) stock-based and other
non-cash compensation charges, charges from forgiveness of loans
made to employees in connection with the purchase of equity and any
tax gross-up payments made in respect of such loan forgiveness in
connection with or prior to the completion of our initial public
offering, (iv) certain transaction costs, including costs incurred
in connection with our initial public offering and the related debt
financing, the legal reorganization of Brazilian subsidiaries and
the preparation and closing of the existing credit agreement, (v)
consolidated amendment/termination costs, which consist of costs
incurred in connection with the consummation of the fourth and
fifth amendments to the senior credit facility and the termination
of the employment contract of the former Chief Executive Officer
and transition to the new Chief Executive Officer, not to exceed
$8.0 million in the aggregate, (vi) non-cash charges resulting from
the application of purchase accounting, (vii) non-cash expenses
resulting from the granting of stock options, restricted stock or
restricted stock unit awards under equity compensation programs
solely with respect to our common stock and (viii) expenses
incurred not exceeding $7 million per year as a result of the
repurchase, redemption or retention of our own common stock earned
under equity compensation programs solely in order to make
withholding tax payments. The amended credit agreement specified
Adjusted EBITDA is $35,610,000 for the quarter ended March 31,
2008, which amount reflects an increase of $800,000 over the
originally disclosed amount in the first quarter of 2008, related
to the transition to the new Chief Executive Officer. Adjusted
EBITDA, as defined in the credit facility and calculated below, may
not be comparable to similarly titled measurements used by other
companies.
The following table provides reconciliation from net cash
provided by operating activities, which is the most directly
comparable GAAP financial measure, to EBITDA and Adjusted
EBITDA.
� � � �
Three Months Ended December 31, (in
thousands)
2008
�
2007
Net cash provided by operating activities $ 24,235 $ 40,517
Interest expense, net 16,287 15,789 Net change in operating assets
and liabilities (10,211) (25,515 ) Income tax benefit (2,443)
(11,558 ) Stock-based compensation (3,501) 24 Deferred financing
cost amortization (1,131) (944 ) Deferred taxes 3,529 20,534 Asset
impairment (3,517) � Gain on disposition of property and equipment
443 144 Unrealized foreign exchange gain (loss) on indebtedness,
net 7,762 (3,680 ) Change in fair value of interest rate swaps
(330) (1,941 ) Goodwill impairment � (185,300 ) Provision for bad
debt expense � (11,397) � � � �
�
EBITDA 19,726 (151,930 )
Amendment/termination costs 285 � Unrealized foreign exchange
(gain) loss on indebtedness, net (E) � 3,680 Change in fair value
of interest rate swaps (F) (468) (3,503 ) Restructuring expenses
(A) � 1,575 Non-cash compensation and related expenses 1,235 (24 )
Non-cash impairment charges (B) 3,517 185,300 Growth program costs
(C) � 1,197 Inventory write offs under restructuring programs 256
75 Non-recurring expenses related to cost reduction programs (D) �
�
�
�
� 150 � �
Adjusted EBITDA
$ 24,551 �
$ 36,520 �
(in thousands)
�
Year Ended December 31,
2008
2007
� Net cash provided by operating activities $ 77,068 $ 89,020
Interest expense, net 58,504 53,126 Net change in operating assets
and liabilities (48,149 ) (8,845 ) Income tax provision (benefit)
3,901 (2,345 ) Stock-based compensation (4,275 ) (1,749 ) Deferred
financing cost amortization (4,670 ) (3,676 ) Deferred taxes 12,948
16,984 Asset impairment (3,989 ) (389 ) Unrealized foreign exchange
gain (loss) on indebtedness, net 10,272 (4,198 ) Gain on
disposition of property and equipment 3,080 1,367 Change in fair
value of interest rate swaps 1,668 (6,146 ) Goodwill impairment �
(185,300 ) Curtailment/settlement gains 39,968 � Provision for bad
debt expense � (11,397 ) � (1,740 ) �
EBITDA 134,929
(53,891 ) Expenses related to debt or equity
financing � � Amendment/termination costs (G) 6,766 � Unrealized
foreign exchange (gain) loss on indebtedness, net (E) (1,985 )
4,198 Change in fair value of interest rate swaps (F) 13,686 (3,954
) Change in fair value of other derivatives (2,126 ) �
Restructuring expenses (A) 5,000 7,344 Non-cash compensation and
related expenses 2,009 1,749 Non-cash impairment charges (B) 3,989
185,689 Growth program costs (C) 1,764 4,656 Inventory write-offs
under restructuring programs 455 148 Non-recurring expenses
resulting from cost reduction programs (D) � � � � 82 � �
Adjusted EBITDA $ 164,487 �
$
146,021 �
(A) Restructuring and related impairment costs, including growth
program costs (in 2007) that can be added back to determine
Adjusted EBITDA were capped at $5,000 for 2008 and $12,000 for
2007.
(B) In accordance with the definition of Adjusted EBITDA in our
credit facility, non-cash impairment charges resulting from
application of Statement of Financial Accounting Standards
Nos.�141, 142 and 144 have been added back to Adjusted EBITDA.
(C) In accordance with the definition of Adjusted EBITDA in our
credit facility, as amended on May�30, 2008, growth program costs
are not added back to Adjusted EBITDA for periods beginning after
the quarter ended March 31, 2008. During 2007 and through the first
quarter of 2008, growth programs were added back to Adjusted EBITDA
based upon the credit facility agreement as in effect at that time.
Growth programs were those intended to increase productivity and
economic efficiency or our market share capacity, reduce cost
structure, improve equipment utilization or provide additional
regional capacity to better serve growth markets. Our growth
program costs included expenses incurred for our lean manufacturing
initiatives, expansion into Vietnam and other growth programs. The
amount of growth programs was $5,321 in 2007, which was reduced
above due to the cap as noted in (A).
(D) In accordance with the definition of Adjusted EBITDA in our
credit facility, as amended on May 30, 2008, non-recurring expenses
resulting from cost reduction programs are not added back to
Adjusted EBITDA for periods beginning after the quarter ended March
31, 2008. Prior to that period, cost reduction programs were added
back to Adjusted EBITDA based upon the credit facility agreement as
in effect at that time and were comprised of the following:
(in thousands)
�
Year EndedDecember 31, 2008 Year
EndedDecember 31, 2007 � Environmental charges in
connection with facilities closures pursuant to cost reduction
programs (1) $ � $ (50 ) Certain operating costs incurred in
connection with the transition of production operations from closed
facilities to other facilities (2) � � � 132 � � Total $ � $ 82 �
(1) The 2007 amount reflects the reversal of amounts accrued in
prior periods.
(2) For 2007, the amount includes added operating costs related
to restructuring programs in Italy.
(E) In accordance with the definition of Adjusted EBITDA in our
credit facility, as amended on May 30, 2008, unrealized foreign
exchange gains and losses on indebtedness are not added back to
Adjusted EBITDA for periods beginning after the quarter ended March
31, 2008. Prior to that period, such gains and losses were added
back to Adjusted EBITDA based upon the credit facility agreement as
in effect at that time.
(F) In accordance with the definition of Adjusted EBITDA in our
credit facility, as amended on May 30, 2008, interest expense added
back to calculate Adjusted EBITDA excludes, for periods beginning
after the quarter ended March 31, 2008, the effect of any non-cash
gains and losses resulting from the marking to market of hedging
obligations that has been charged to interest expense. Had this
amended definition been in place for all periods presented,
Adjusted EBITDA would have been $12,156 lower for 2008 and $6,146
lower for 2007.
(G) For 2008, amendment/termination costs include $5,966 of
costs incurred in connection with the consummation of the fourth
and fifth amendments to the credit facility and an $800 increase to
Adjusted EBITDA for the first quarter of 2008, in accordance with
the agreement with our lenders.
Impact of Significant 2008 and 2007
Events
Due to the significant impact each of the items detailed below
had on the Company's results for 2008 and 2007, management believes
the following Non-GAAP financial schedule provides useful
information to investors regarding the Company's results of
operations and Adjusted EBITDA. Because the items excluded are not
expected to be recurring, management believes that presenting the
results without the effect of those items helps the assessment of
the Company's performance of its ongoing operations.
� � � � � (in thousands)
Three Months Ended December 31,
2008 Year Ended December 31, 2008
As Reported
Adjustments
Adjusted
As Reported
Adjustments
Adjusted
� Net sales 149,452 0 149,452 638,139 638,139 � Costs and expenses:
Cost of products sold (1) 90,704 0 90,704 394,467 (8,000 ) 386,467
Selling 17,738 0 17,738 80,175 80,175 General and administrative
(2) 21,790 (4,500 ) 17,290 92,112 (16,700 ) 75,412 Restructuring
and impairments 10,106 0 10,106 16,968 16,968 Research and
development 2,631 0 2,631 11,740 11,740 Curtailment/settlement (3)
0 0 0 (39,968 ) 39,968 0 � � � � � � � � � � - � � � � � � � � � �
142,969 � � (4,500 ) � � 138,469 � � 555,494 � � � 15,268 � � �
570,762 � Income (loss) from operations 6,483 4,500 10,983 82,645
(15,268 ) 67,377 � Interest expense (16,815 ) 0 (16,815 ) (60,328 )
(60,328 ) Interest income 528 0 528 1,824 1,824 Foreign exchange
gain 3,012 0 3,012 6,356 6,356 � 0 � � 0 � � � 0 � � 0 � � � � � �
� 0 � � Income (loss) before provision for income taxes (6,792 )
4,500 (2,292 ) 30,497 (15,268 ) 15,229 Provision (benefit) for
income taxes (4) (2,443 ) 500 (1,943 ) 3,901 3,700 7,601 � � � � �
� � � � � � � � � � � � � � � Net income (loss) $ (4,349 ) � $
4,000 � � $ (349 ) $ 26,596 � � $ (18,968 ) � $ 7,628 � �
�
Three Months Ended December 31,
2008
Year Ended December 31,
2008
As Reported
Adjustments
Adjusted
As Reported
Adjustments
Adjusted
Adjusted EBITDA (5)
$
22,151
� � $ 4,500 � � $ 26,651 � $ 164,487 � � $ (15,268 ) � $ 149,219 �
� � � � (in thousands)
Three Months Ended December 31, 2007
Year Ended December 31, 2007
As Reported
Adjustments
Adjusted
As Reported
Adjustments
�
Adjusted
� Net sales $ 164,216 $ 164,216 $ 615,426 $ 615,426 � Costs and
expenses: Cost of products sold 98,979 98,979 361,913 361,913
Selling 20,019 20,019 79,157 79,157 General and administrative
19,881 19,881 70,218 70,218 Restructuring and impairments 1,575
1,575 7,733 7,733 Research and development 2,572 2,572 10,189
10,189 Goodwill impairment 185,300 (185,300 ) 0 185,300 (185,300 )
0 � � � � � � � � � � � 328,326 � � � (185,300 ) � � 143,026 � �
714,510 � � � (185,300 ) � � 529,210 � Income (loss) from
operations (164,110 ) 185,300 21,190 (99,084 ) 185,300 86,216 �
Interest expense (16,386 ) (16,386 ) (54,609 ) (54,609 ) Interest
income 597 597 1,483 1,483 Foreign exchange gain (loss) 334 334
(347 ) (347 ) � 0 � � � � � 0 � � 0 � � � � � 0 � � Income (loss)
before provision for income taxes (179,565 ) 185,300 5,735 (152,557
) 185,300 32,743 Provision (benefit) for income taxes (11,558 )
18,285 6,727 (2,345 ) 18,285 15,940 � � � � � � � � � � Net income
(loss) $ (168,007 ) � $ 167,015 � � $ (992 ) $ (150,212 ) � $
167,015 � � $ 16,803 � �
�
Three Months Ended December 31,
2007
Year Ended December 31,
2007
As Reported
Adjustments
Adjusted
As Reported
Adjustments
Adjusted
Adjusted EBITDA (5)
$ 36,520 � � $ -- � � $ 36,520 � $ 146,021 � � $ -- � � $ 146,021 �
(1) The Company's operations are highly dependent upon the paper
production industry and the degree to which the paper industry is
affected by global economic conditions and the availability of
credit. The global economic crisis and the lack of credit
availability may affect our customers� demand for products and
their ability to pay their debts; consequently, during the third
quarter of 2008, the Company increased the reserve for slow moving
and obsolete inventory by $8,000.
(2) As a result of the global economic crisis described above,
the Company also increased its provision for bad debts by $8,100
and $4,500 during the third and fourth quarter of 2008,
respectively. Additionally, the Company, while evaluating its
facility in Australia, discovered the possibility of contamination
at the facility. Subsequently the Company had a preliminary
evaluation performed, which confirmed the existence of
contamination and estimated preliminary costs to clean up the
facility. Based upon this evaluation, the Company accrued in the
third quarter of 2008 $4,100 as its best estimate of the
remediation costs it expects to incur.
(3) During the third quarter of 2008, the Company made and
communicated the following decisions related to certain of its U.S.
pension plans, postretirement benefit plans and 401(k) plans:
a) Freezing benefit pension accruals under its Pension Plan for
U.S. Salaried and Non-Union Hourly Employees (the �Pension Plan�)
effective December 31, 2008 so that future service beyond December
31, 2008 will no longer be credited under the Pension Plan.
Employees who are vested as of December 31, 2008 will be entitled
to their benefit earned as of December 31, 2008. Current employees
who are not vested as of December 31, 2008 will be entitled to
their benefit earned as of December 31, 2008 upon five years of
continuous employment from date of hire.
b) No longer sponsoring or funding, as of December 31, 2008, its
U.S. retiree health insurance program under which the Company
offered health care benefits to a certain group of retired U.S.
employees and their covered dependents and beneficiaries.
c) Increasing its 401(k) plan match in the United States from 4%
of eligible compensation to 6% as of January 1, 2009. Subsequently,
after January 1, 2009 the Company announced that it will not
implement this increase and instead will eliminate the employer
match until further notice.
These decisions resulted in curtailment/settlement gains of
approximately $40 million, which was recorded in the third quarter
of 2008.
(4) The income tax impact of these adjustments was significantly
less than the statutory rates because the majority of the
curtailments/settlement gains were in the United States and the
environmental matter was in Australia; jurisdictions for which we
have net operating loss carryforwards and have established
valuation allowances against deferred tax assets.
(5) The Company uses supplementary non-GAAP measures, including
EBITDA and Adjusted EBITDA, to assist in evaluating liquidity and
financial performance, specifically in evaluating the Company�s
ability to service indebtedness, to fund ongoing capital
expenditures and to evaluate compliance with its bank covenants. As
such, the Company believes that showing the impact of significant
events on Adjusted EBITDA provides useful information to investors
because it illustrates how the Company would have performed for
purposes of its covenant compliance absent these unusual events.
The �Significant 2008 and 2007 Events� impacted the �Net change in
operating assets and liabilities�, �Income tax provision�,
�Deferred taxes�, and �Curtailment/settlement gains� line items
within the �EBITDA and Adjusted EBITDA Reconciliation.�
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