Xerium Technologies, Inc. (NYSE: XRM), a leading global
manufacturer of industrial textiles and roll covers used primarily
in the paper production process, announced today the results of its
operations for the quarter ended June 30, 2012. Net sales increased
1.5% from the quarter ended March 31, 2012, yet decreased 9.3% from
the quarter ended June 30, 2011. On a year to date basis, net sales
decreased 7.8% from the six months ended June 30, 2011. Net income
per diluted share improved to $0.15 for the quarter ended June 30,
2012 from ($0.50) for the quarter ended March 31, 2012 and $0.11
for the quarter ended June 30, 2011. On a year to date basis, net
income per diluted share decreased to a loss of ($0.35) for the six
months ended June 30, 2012 from income of $0.15 for the six months
ended June 30, 2011.
“Xerium’s second quarter 2012 over first quarter 2012
performance improvement is the result of our continuous focus on
operational improvements, our customers’ accelerating adoption of
our better performing and higher margin new products, and reduced
trade working capital in every region,” said Stephen R. Light,
Chief Executive Officer and Chairman. “ While our European business
remains soft as the paper industry there is impacted by the
region’s ongoing economic crisis, we enjoyed good growth in North
America and Asia. 'Vision 2015,' Xerium’s three year strategic
realignment of our manufacturing footprint, announced on July 2,
2012, is off to a good start. We expect 'Vision 2015' will restore
our historical margins by reducing unnecessary fixed costs and
aligning our global capacity with customer demand.”
RESTRUCTURING
As previously reported, on July 2, 2012, we announced a
voluntary redundancy program at our press felt facility in Buenos
Aires, Argentina in connection with the relocation of our Huyck
Wangner press felt capacity and initiated consultation proceedings
with our works' council at our rolls cover facility in Meyzieu,
France regarding a proposal to cease operations there. In
Argentina, the production of press felts and fiber cement felts
will be transferred to our facilities in Brazil and the roll cover
production of our facility in France will be assumed by our rolls
facilities in Germany and Italy. The actions are expected to
commence in the third quarter of 2012 and be completed over the
next several months. As the redundancy program has just been
initiated, the proceedings with the works’ council have just begun
and there has been no formal evaluation of the affected assets, at
this time, we are in the process of analyzing our estimate of the
restructuring charges and asset impairments, if any, related to
these redundancy programs.
CREDIT FACILITY
AMENDMENT
To facilitate the above restructuring activities, on June 28,
2012, we entered into an amendment to our senior secured credit
facility. Among other revisions to the credit facility, the
amendment allows for additional add backs to Adjusted EBITDA
annually through 2015 up to the lesser of $15.0 million or the
unused portion of our allowed annual capital expenditure limit;
increases the maximum leverage ratios between September of 2012 and
December of 2013; amends the definition of the leverage ratio to
reduce debt by unrestricted surplus cash held by the Company and
increases the interest rate on the term loans by 0.75% annually for
eighteen months.
SECOND QUARTER FINANCIAL
HIGHLIGHTS
- Net sales for the second quarter of
2012 were $136.4 million, a 1.5% increase compared to the first
quarter of 2012. Excluding unfavorable currency effects of $2.8
million, second quarter 2012 net sales increased 3.6% from the
first quarter of 2012, with an increase of 1.9% in the clothing
segment and an increase of 6.8% in the roll covers segment. Net
sales decreased 9.3% from net sales for the second quarter of 2011
of $150.4 million. Excluding unfavorable currency effects of 5.1%,
second quarter 2012 net sales decreased 4.2% from the second
quarter of 2011, with a decrease of 6.5% in the clothing segment,
primarily as a result of the reduced European market demand, and an
increase of 0.2% in the roll covers segment. See “Segment
Information” and “Non-GAAP Financial Measures” below for further
discussion.
- Gross profit increased by 9.8% to $51.0
million for the second quarter of 2012 from $46.4 million for the
first quarter of 2012, yet decreased 11.9% from $57.9 million for
the second quarter of 2011. In the second quarter of 2012, gross
margins increased to 37.4% from 34.6% in the first quarter of 2012.
The increase was due to improved product mix, partially as a result
of an unusually high level of low margin steel core sales in the
first quarter of 2012 and improved labor efficiencies. These
increases were offset by currency exchange rate differences and
unfavorable factory absorption driven by continued progress in
reducing inventory levels. Gross margins declined from 38.5% in the
second quarter of 2011 largely as a result of the reduction of
inventory reserves in the prior year. Excluding this non-recurring
item, gross margins were relatively flat compared to the second
quarter of 2011, as unfavorable absorption of production costs and
unfavorable regional mix related to the reduced European market
demand were partially offset by favorable currency effects and
improved material and labor cost efficiencies.
- The Company’s operating expenses
(selling, general and administrative, restructuring and research
and development expenses) of $37.1 million for the second quarter
of 2012 decreased by $3.1 million, or 7.7%, from operating expenses
of $40.2 million in the second quarter of 2011. The decrease in
operating expenses during the second quarter of 2012 is primarily
the result of favorable currency effects of $2.5 million, a
decrease of $1.6 million in management incentive compensation and
the reversal of a $1.0 million contingent liability that was
favorably resolved. Partially offsetting these items was an
increase in general and administrative expenses due to the reversal
in 2011 of $1.1 million in value added tax in Brazil and $0.6
million related to incremental CEO transition costs in 2012.
- Interest expense improved 9.0% to $9.1
million in the second quarter of 2012 from $10.0 million in the
second quarter of 2011. This decline in interest expense reflects
lower current interest rates and debt balances and favorable
currency effects, net of higher deferred financing cost
amortization in the second quarter of 2012. The decrease in
interest rates and the increase in deferred financing cost
amortization are a result of the refinancing in May 2011. Cash
interest expense, or interest expense less amortization of deferred
financing costs, decreased by 12.5% in the second quarter of 2012
to $8.4 million compared to $9.6 million in the second quarter of
2011.
- Income tax expense declined to $2.4
million in the second quarter of 2012 from $3.0 million in the
second quarter of 2011. This reduction was primarily attributable
to the geographic mix of earnings in the second quarter of 2012 as
compared to the second quarter of 2011. Our overall effective tax
rate for the periods presented reflects the fact that we have
losses in certain jurisdictions where we receive no tax
benefit.
- Net income for the second quarter of
2012 improved to $2.2 million or $0.15 per diluted share, compared
to net loss of ($7.5) million or ($0.50) per diluted share for the
first quarter of 2012 and net income of $1.6 million or $0.11 per
diluted share for the second quarter of 2011.
- Adjusted EBITDA (as defined by the
Company’s credit facility) of $25.4 million increased $6.6 million
in the current quarter from $18.8 million in the first quarter of
2012, yet decreased $4.8 million from $30.2 million in the second
quarter of 2011. See “Non-GAAP Financial Measures” below for
further discussion.
- Cash at June 30, 2012 was $33.6
million, compared to $43.6 million at December 31, 2011. The
decrease in the cash balances from December 31, 2011 is primarily
due to $14.9 million in payments on long-term debt, capital
expenditures of $7.3 million, $1.8 million in payments relating to
the credit facility amendment and unfavorable currency effects of
$0.8 million. These decreases were partially offset by cash
provided by operating activities of $13.8 million and proceeds from
the disposition of property of $1.0 million.
- Total debt at June 30, 2012 was $451.8
million, compared to $469.1 million at December 31, 2011. The
decrease of $17.3 million from December 31. 2011 is primarily due
to net debt payments of $14.9 million in 2012 and favorable
currency effects of $2.4 million.
- Capital expenditures for the six months
ended June 30, 2012 were $7.3 million, consisting of $2.1 million
in growth capex and $5.2 million in maintenance capex. In the same
period in 2011, we reported $12.0 million of capital spending,
consisting of $4.6 million in growth capex and $7.4 million of
maintenance capex. We are currently targeting total capital
expenditure commitments for 2012 at approximately $30 million,
while actual cash spent on capital expenditures may be somewhat
less due to the timing of the equipment installations.
SEGMENT INFORMATION
The following table presents net sales for the first and second
quarter of 2012 by segment and the effect of currency on second
quarter 2012 net sales (dollars in thousands):
Net Sales For The
Three Months Ended June 30, 2012 March 31,
2012 $ Change
Currency Effect
of $ Change
% Change
% Change
Excluding Currency
Clothing $ 88,115 $ 88,683 $ (568 ) $ (2,264 ) (0.6 %) 1.9 % Roll
Covers 48,263 45,681 2,582
(539 ) 5.7 % 6.8 % Total $ 136,378 $ 134,364 $
2,014 $ (2,803 ) 1.5 % 3.6 %
The following table presents net sales for the second quarter of
2012 and 2011 by segment and the effect of currency on second
quarter 2012 net sales (dollars in thousands):
Net Sales For The
Three Months Ended
June 30, 2012
June 30, 2011 $ Change
Currency Effect
of $ Change
% Change
% Change
Excluding Currency
Clothing $ 88,115 $ 99,632 $ (11,517 ) $ (5,021 ) (11.6 %) (6.5 %)
Roll Covers 48,263 50,746 (2,483 )
(2,601 ) (4.9 %) 0.2 % Total $ 136,378 $
150,378 $ (14,000 ) $ (7,622 ) (9.3 %) (4.2 %)
CONFERENCE CALL
The Company plans to hold a conference call on the following
morning:
Date: Tuesday, August 7, 2012 Start
Time: 9:00 a.m. Eastern Time Domestic Dial-In: +1-866-831-6247
International Dial-In: +1-617-213-8856 Passcode: 73944707 Webcast
& Slide Presentation:
www.xerium.com/investorrelations
To participate on the call, please dial in at least 10 minutes
prior to the scheduled start. A live audio webcast and replay of
the call, in addition to a slide presentation, may be found in the
investor relations section of the company’s website at
www.xerium.com.
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, Adjusted EBITDA
and currency effects on Net Sales to assist in evaluating its
liquidity and financial performance. EBITDA and Adjusted EBITDA are
specifically used in evaluating the 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 its 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 income (loss) or
cash flows from operations (as determined in accordance with
GAAP).
For additional information regarding non-GAAP financial measures
and a reconciliation of such measures to the most comparable
financial measures under GAAP, please see “Segment Information”
above and our Selected Financial Data below. In addition, the
information in this press release should be read in conjunction
with the corresponding exhibits, 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 31 manufacturing
facilities in 14 countries around the world, Xerium has
approximately 3,400 employees.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements involving
risks and uncertainties, both known and unknown, that may cause
actual results to differ materially from those indicated. These
risks and uncertainties include the following items: (1) a
sustained downturn in the paper industry, compounded by uncertainty
in global economic conditions, particularly those stemming from
Europe, could adversely affect our revenues and profitability; (2)
our financial results could be adversely affected by fluctuations
in interest rates and currency exchange rates, for instance a
marked decline in the value of the Euro relative to the U.S. Dollar
stemming from the European sovereign debt crisis; (3) market
improvement in our industry may occur more slowly than we
anticipate, may stall or may not occur at all; (4) variations in
demand for our products, including our new products, could
negatively affect our revenues and profitability; (5) our
manufacturing facilities may be required to quickly increase or
decrease production, which could negatively affect our production
facilities, customer order lead time, product quality, labor
relations or gross profits; (6) our plans to develop and market new
products, enhance operational efficiencies, and reduce costs may
not be successful; and (7) the other risks and uncertainties
discussed elsewhere in this press release, our Form 10-K for the
year ended December 31, 2011 filed on March 14, 2012 and our other
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. As discussed above, we are subject to substantial risks
and uncertainties related to current economic conditions, and we
encourage investors to refer to our SEC filings for additional
information. Copies of these filings are available from the SEC and
in the investor relations section of our website at
www.xerium.com.
Selected Financial Data Follows
Xerium Technologies, Inc.
Condensed Consolidated Statements of
Operations and Comprehensive (Loss) Income
(dollars in thousands, except per share
data)
Three Months Ended Six Months Ended
June 30, June 30, 2012
2011 2012
2011 Net sales $ 136,378 $ 150,378 $ 270,742 $
293,544 Costs and expenses: Cost of products sold 85,396 92,507
173,317 181,758 Selling 19,070 20,507 38,558 40,031 General and
administrative 14,034 16,178 31,860 33,558 Restructuring 1,129 542
5,103 710 Research and development 2,869 2,925
5,831 6,013 122,498
132,659 254,669 262,070
Income from operations 13,880 17,719 16,073 31,474 Interest
expense, net (9,120 ) (9,982 ) (18,718 ) (19,836 ) Loss on
extinguishment of debt - (2,926 ) - (2,926 ) Foreign exchange
(loss) gain (180 ) (159 ) 360 5
Income (loss) before provision for income taxes 4,580
4,652 (2,285 ) 8,717 Provision for income taxes (2,354 )
(3,030 ) (3,011 ) (6,447 ) Net income (loss) $
2,226 $ 1,622 $ (5,296 ) $ 2,270
Comprehensive (loss) income $ (10,232 ) $ 7,529 $ (13,710 )
$ 13,922 Net income (loss) per share: Basic $ 0.15
$ 0.11 $ (0.35 ) $ 0.15 Diluted $ 0.15
$ 0.11 $ (0.35 ) $ 0.15 Shares used in computing net
income (loss) per share: Basic 15,226,995
15,051,860 15,194,432 15,020,696
Diluted 15,236,651 15,289,407
15,194,432 15,258,243
Condensed
Consolidated Selected Financial Data (in thousands)
Cash Flow data: Six Months Ended June 30,
2012 2011
Net cash provided by operating activities $ 13,796 $ 6,761 Net cash
(used in) provided by investing activities (6,349 ) 3,602 Net cash
used in financing activities (16,637 ) (16,881 )
Other
financial data: Depreciation and amortization $ 20,346 $ 22,070
Capital expenditures (7,330 ) (12,015 )
Balance sheet
data: June 30, December 31, 2012
2011 Cash and cash equivalents $
33,596 $ 43,566 Total assets 628,643 665,721 Senior debt 451,713
467,137 Total debt 451,844 469,054 Total stockholders' deficit
(15,493 ) (2,305 )
EBITDA and Adjusted EBITDA Non-GAAP
Measures
Non-GAAP Financial Measures
We use EBITDA and Adjusted EBITDA (as defined in our credit
facility) as supplementary non-GAAP liquidity measures to assist us
in evaluating our liquidity and financial performance, specifically
our ability to service indebtedness and to fund ongoing capital
expenditures. The credit facility includes covenants based on
Adjusted EBITDA. If our Adjusted EBITDA declines below certain
levels, we may violate the covenants resulting in a default
condition under the credit facility or be required to prepay the
credit facility. Neither EBITDA nor Adjusted EBITDA should be
considered in isolation or as a substitute for income (loss) or
cash flows from operations (as determined in accordance with
GAAP).
EBITDA is defined as net income (loss) before interest expense,
income tax provision (benefit) and depreciation (including non-cash
impairment charges) and amortization.
“Adjusted EBITDA”, under our credit facility means, with respect
to any period, the total of (A) the consolidated net income
for such period, plus (B) without duplication, to the extent
that any of the following were deducted in computing such
consolidated net income for such period: (i) provision for
taxes based on income or profits, including, without limitation,
federal, state, provincial, franchise and similar taxes, including
any penalties and interest relating to any tax examinations,
(ii) consolidated interest expense, (iii) consolidated
depreciation and amortization expense, (iv) reserves for
inventory in connection with plant closures, (v) consolidated
operational restructuring costs, (vi) noncash charges or gains
resulting from the application of purchase accounting, including
push-down accounting, (vii) non-cash expenses resulting from
the granting of common stock, stock options, restricted stock or
restricted stock unit awards under equity compensation programs
solely with respect to common stock, and cash expenses for
compensation mandatorily applied to purchase common stock,
(viii) non-cash items relating to a change in or adoption of
accounting policies, (ix) non-cash expenses relating to
pension or benefit arrangements, (x) expenses incurred as a
result of the repurchase, redemption or retention of common stock
earned under equity compensation programs solely in order to make
withholding tax payments, (xi) amortization or write-offs of
deferred financing costs, (xii) any non-cash losses resulting
from mark to market hedging obligations (to the extent the cash
impact resulting from such loss has not been realized in such
period) and (xiii) other non-cash losses or charges
(excluding, however, any non-cash loss or charge which represents
an accrual of, or a reserve for, a cash disbursement in a future
period), minus (C) without duplication, to the extent any of
the following were included in computing consolidated net income
for such period, (i) non-cash gains with respect to the items
described in clauses (vi), (vii), (ix), (xi), (xii) and
(xiii) (other than, in the case of clause (xiii), any such
gain to the extent that it represents a reversal of an accrual of,
or reserve for, a cash disbursement in a future period) of clause
(B) above and (ii) provisions for tax benefits based on
income or profits. Notwithstanding the foregoing, Adjusted EBITDA,
as defined in the credit facility and calculated below, may not be
comparable to similarly titled measurements used by other
companies.
Consolidated net income is defined as net income
(loss) determined on a consolidated basis in accordance with
GAAP; provided, however, that the following, without duplication,
shall be excluded in determining consolidated net income:
(i) any net after-tax extraordinary or non-recurring gains,
losses or expenses (less all fees and expenses relating thereto),
(ii) the cumulative effect of changes in accounting
principles, (iii) any fees and expenses incurred during such
period in connection with the issuance or repayment of
indebtedness, any refinancing transaction or amendment or
modification of any debt instrument, in each case, as permitted
under the credit facility and (iv) any gains resulting from
the returned surplus assets of any pension plan.
The following table provides reconciliation from net income
(loss) and operating cash flows, which are the most directly
comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
Please also see our exhibits to be filed with our current report on
Form 8K, which should be read in conjunction with this release.
Three Months Ended Six Months Ended June
30, June 30, 2012
2011 2012
2011 Net income (loss) $ 2,226 $ 1,622 $
(5,296 ) $ 2,270 Stock-based compensation (218 ) 831 754 2,081
Depreciation 9,429 10,686 19,193 20,918 Amortization of intangibles
576 576 1,153 1,152 Deferred financing cost amortization 682 366
1,736 602
Unrealized foreign exchange loss (gain) on
revaluation of debt
373 (804 ) 381 (1,414 ) Deferred taxes (179 ) 472 (360 ) 1,209 Gain
on disposition of property and equipment (170 ) (25 ) (617 ) (564 )
Loss on extinguishment of debt - 2,926 - 2,926 Net change in
operating assets and liabilities (9,075 ) (9,694 )
(3,148 ) (22,419 )
Net cash provided by operating
activities 3,644 6,956 13,796 6,761
Interest expense, excluding amortization 8,438 9,616 16,981 19,234
Net change in operating assets and liabilities 9,075 9,694 3,148
22,419 Current portion of income tax expense 2,533 2,558 3,371
5,238 Stock-based compensation 218 (831 ) (754 ) (2,081 )
Unrealized foreign exchange (loss) gain on revaluation of debt (373
) 804 (381 ) 1,414 Gain on disposition of property and equipment
170 25 617 564 Loss on extinguishment of debt -
(2,926 ) - (2,926 )
EBITDA
23,705 25,896 36,778 50,623 Write-off
of deferred financing costs - 2,926 - 2,926 Stock-based
compensation (218 ) 831 754 2,081 Operational restructuring
expenses 1,129 542 5,103 710 Legal fees related to term debt
amendment 85 - 85 - Non-recurring CEO retirement expenses
695 - 1,496 -
Adjusted EBITDA $ 25,396 $
30,195 $ 44,216 $
56,340
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