Xerium Technologies, Inc. (NYSE:XRM), a leading global
manufacturer of specially engineered textiles and roll covers used
in the production of paper, paperboard, building products,
non-wovens and specific industrial processes, announced today the
results of its operations for the quarter and year ended
December 31, 2012.
Net sales have been stable in 2012, averaging approximately
$134.7 million per quarter, and within a range of +/- 2%. Our
backlog, defined as orders expected to ship within one year,
suggests that this trend will continue and currently stands at
$174.0 million as of December 31, 2012. Compared to the third
quarter of 2012, net sales were essentially the same at a 0.3%
decline, or a 1.4% decline on a constant currency basis. Compared
to the fourth quarter of 2011, net sales decreased 7.9%, or 6.2% on
a constant currency basis, to $133.8 million from $145.2 million.
Year over year, net sales decreased 8.2%, or 4.8% on a constant
currency basis, to $538.7 million from $587.0 million. See "Segment
Information" and "Non-GAAP Financial Measures" below.
Gross profit has been fairly stable in 2012, averaging
approximately $48.4 million per quarter and within a range of +/-
3%. The 4.5% decline from $49.2 million in the third quarter of
2012 to $47.0 million in the fourth quarter of 2012 was primarily
as a result of special charges for asset impairments, lower
constant currency sales volume and reduced production
absorption.
Despite stable sales, Adjusted EBITDA declined 15.6% in the
fourth quarter of 2012 to $20.6 million from $24.4 million in the
third quarter of 2012. This decline was primarily a result of
special charges of $1.5 million for items including payroll tax
exposures, accounts receivables and inventory and the third quarter
reversal of $0.5 million management incentive costs that did not
occur in the fourth quarter of 2012. In addition to these unusual
items, Adjusted EBITDA declined $1.5 million, primarily due to
reduced gross profit on lower constant currency sales and lower
production absorption. See "Non-GAAP Financial Measures" below.
Total debt is trending down as a result of explicit pay down
actions and stands at $445.0 million at December 31, 2012. During
the fourth quarter of 2012, the Company paid down $5.1 million of
debt, including the repurchase of $3.6 million of its Notes in
December of 2012. On a full year basis, debt was paid down $25.7
million. Net debt, as defined as total debt less cash balances, was
$410.2 million at December 31, 2012.
Commenting on the quarter, Harold Bevis, Xerium's President and
Chief Executive Officer stated, "The Company is fully underway with
its multi-year commitment to increasing sales and EBITDA. The
Company is right-sizing its cost structure around its core
business. It is also repositioning its production capacity to be
lower cost and better serve its customers. The Company has taken
specific cost reduction actions to increase 2013 Adjusted EBITDA
including the closure of four manufacturing operations and
reduction of headcount. We have targeted savings net of reinstated
incentive compensation of approximately $12 million in 2013 with a
progressive quarterly build up of cost out actions and a carryover
into 2014. Specifically, the Company took action against
approximately $1.5 million of cost, net of incentive compensation
reinstatement, in the first quarter of 2013, compared to the fourth
quarter of 2012. The Company is funding and gating its cost
reduction activities with internal cash flow. The Company has also
kicked off and/or accelerated several new sales growth and new
product programs in order to re-establish top-line growth
opportunities. These strategic moves will be kept private by
Company management for the time being, but these actions are
expected to open up another ~$200 million aperture into our served
markets."
FOURTH QUARTER FINANCIAL
HIGHLIGHTS
- Net sales in the fourth quarter of 2012
were $133.8 million, essentially the same compared to the third
quarter of 2012 at a 0.3% decline. Excluding favorable currency
effects of $1.4 million, fourth quarter 2012 net sales decreased
1.4%, with a decrease of 1.3% in the clothing segment and a
decrease of 1.5% in the roll covers segment. Net sales decreased
7.9% from net sales in the fourth quarter of 2011 of $145.2
million. Excluding unfavorable currency effects of $2.4 million,
fourth quarter 2012 net sales decreased 6.2% from the fourth
quarter of 2011, with a decrease of 5.4% in the clothing segment
and a decrease of 7.8% in the roll covers segment. See “Segment
Information” and “Non-GAAP Financial Measures” below for further
discussion.
- Gross profit decreased by 4.5% to $47.0
million in the fourth quarter of 2012 from $49.2 million in the
third quarter of 2012. Lower constant currency sales volume,
special charges for asset impairments and lower production
absorption were the primary drivers of this unfavorable result.
Gross profit decreased 6.4% to $47.0 million in the fourth quarter
of 2012 from $50.2 million in the fourth quarter of 2011. This
reduction was primarily due to lower sales volume and specific
write-offs of impaired assets, net of favorable labor and material
costs and favorable currency impacts.
- The Company's operating expenses
(selling, general and administrative and research and development
expenses) of $38.3 million for the fourth quarter of 2012 increased
by $1.1 million, or 3.0%, from operating expenses of $37.2 million
in the fourth quarter of 2011. The net increase is comprised of
various special charges totaling $2.0 million, including a
non-restructuring impairment charge of $1.2 million taken on an
asset held for sale in the fourth quarter of 2012 and various
special charges of $0.8 million related to a payroll tax exposure
and accounts receivables. In addition, an increase of $1.2 million
in management incentive compensation in 2012 resulted from the
reversal of compensation in the fourth quarter of 2011. Favorable
currency effects of $0.9 million, decreased legal fees of $0.7
million and $0.5 million in reduced agency sales commissions due to
actions taken earlier in 2012 partially offset the above
increases.
- Restructuring expenses were $14.8
million in the fourth quarter of 2012. These included charges
relating to the planned closure of a clothing plant in Spain and a
rolls plant in Charlotte, NC, the reduction of base costs via
headcount reductions, primarily in Europe and the closure of a roll
covering facility in France.
- Interest expense remained unchanged at
$9.4 million in the fourth quarter of 2012 compared to the fourth
quarter of 2011, as a decline in debt balances and favorable
currency effects partially offset higher interest rates in the
fourth quarter of 2012, due to the credit facility amendment
executed in June 2012. In addition, cash interest expense, or
interest expense less amortization of deferred financing costs,
were unchanged at $8.7 million for the fourth quarter of 2012 and
2011.
- Income tax benefit (provision) shifted
to a $6.7 million benefit in the fourth quarter of 2012 from a
$(1.0) million provision in the fourth quarter of 2011. This change
was primarily attributable to an approximately $6.0 million
decrease in the reserve for uncertain tax positions, the geographic
mix of earnings and consolidated net losses driven primarily by
increased restructuring expenses. 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 loss for the fourth quarter of 2012
was $(9.1) million or $(0.59) per diluted share, compared to net
income of $2.4 million or $0.16 per diluted share for the fourth
quarter of 2011. Restructuring expenses of $14.8 million ($10.6
million, after tax) or $(0.70) per diluted share, in the fourth
quarter of 2012 accounted for the majority of the increase in the
net loss in the fourth quarter of 2012 as compared to the fourth
quarter of 2011.
- Adjusted EBITDA (as defined by the
Company’s credit facility) of $20.6 million decreased $3.8 million
in the fourth quarter from $24.4 million in the third quarter, and
decreased $2.1 million in from $22.7 million in the fourth quarter
of 2011. See "Non-GAAP Financial Measures" below.
- Cash at December 31, 2012 was
$34.8 million, compared to $43.6 million at December 31, 2011. The
decrease of $8.8 million in the cash balances was primarily due to
$25.7 million in net repayments of debt, capital expenditures of
$21.7 million and the payment of $1.8 million in deferred financing
fees. These decreases were partially offset by cash provided by
operating activities of $39.3 million and proceeds from the
disposition of property of $1.1 million. Cash provided by operating
activities was net of cash expended for restructuring activities of
$8.6 million.
- Trade working capital at
December 31, 2012 was $131.1 million, compared to $145.2
million at December 31, 2011. This favorable decline was the
result of reduced inventories and accounts receivable and increased
trade accounts payables. See “Trade Working Capital Information”
and “Non-GAAP Financial Measures” below for further
discussion.
- Total debt at December 31, 2012
was $445.0 million, compared to $469.1 million at December 31,
2011. The decrease of $24.1 million is primarily due to net debt
payments of $25.7 million in 2012, partially offset by unfavorable
currency effects of $1.6 million.
- Capital expenditures for the year ended
December 31, 2012 were $21.7 million and for the same period
in 2011, we reported $30.2 million of capital spending. We are
currently targeting total capital expenditures for 2013 at
approximately $32.0 million.
SEGMENT INFORMATION
The following table presents net sales for the third and fourth
quarter of 2012 by segment and the effect of currency on fourth
quarter 2012 net sales (dollars in thousands):
Net Sales For The
Three Months Ended
Currency % Change December 31, September
30, Effect of $ Excluding 2012 2012
$Change
Change % Change Currency
Clothing $ 88,501 $ 88,873 $ (372 ) $ 789 (0.4 )% (1.3 )% Roll
Covers 45,266 45,358 (92 ) 576
(0.2 )% (1.5 )% Total $ 133,767 $ 134,231 $
(464 ) $ 1,365 (0.3 )% (1.4 )%
The following table presents net sales for the fourth quarter of
2012 and 2011 by segment and the effect of currency on fourth
quarter 2012 net sales (dollars in thousands):
Net Sales For The
Three Months Ended
Currency % Change December 31,
December 31, Effect of $ Excluding 2012
2011 $Change Change %
Change Currency Clothing $ 88,501 $ 95,348 $
(6,847 ) $ (1,716 ) (7.2 )% (5.4 )% Roll Covers 45,266
49,841 (4,575 ) (669 ) (9.2 )%
(7.8 )% Total $ 133,767 $ 145,189 $ (11,422 )
$ (2,385 ) (7.9 )% (6.2 )%
The following table presents net sales for the year ended
December 31, 2012 and the year ended December 31, 2011 by
segment and the effect of currency for the year ended
December 31, 2012 (dollars in thousands):
Net Sales For The
Years Ended
Currency % Change December 31,
December 31, Effect of $ Excluding 2012
2011 $Change Change %
Change Currency Clothing $ 354,172 $ 386,433 $
(32,261 ) $ (13,200 ) (8.3 )% (4.9 )% Roll Covers
184,568 200,527 (15,959 ) (6,900 ) (8.0
)% (4.5 )% Total $ 538,740 $ 586,960 $
(48,220 ) $ (20,100 ) (8.2 )% (4.8 )%
TRADE WORKING CAPITAL
The following table presents trade working capital for the
fourth quarter of 2012 and 2011 (in thousands):
December 31,
2012
December 31,
2011
$
Fav/(Unfav)
Change
Trade Receivables, Net (1) $ 83,567 $ 90,938 $ 7,371 Inventories,
Net 77,391 83,317 5,926 Trade Accounts Payable (2) (29,908 )
(29,077 ) 831 Total $ 131,050 $ 145,178 $ 14,128
(1) Trade Receivables, Net equals Accounts Receivable less Other
Receivables of $889 and $846 for 2012 and 2011, respectively.
(2) Trade Accounts Payables equals Accounts Payable less
Deposits Received of $3,810 and $5,814 for 2012 and 2011,
respectively and Other Payables of $3,166 and $4,852 for 2012 and
2011, respectively.
CONFERENCE CALL
The Company plans to hold a conference call on the following
afternoon:
Date: Tuesday, March 12,
2013 Start Time: 3:00 p.m. Eastern Time Domestic Dial-In:
+1-866-362-4820 International Dial-In: +1-617-597-5345 Passcode:
21282463 Webcast:
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 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,
currency effects on Net Sales and Trade Working Capital 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 of specially engineered fabrics, belts and roll cover
technology used in the production of paper, paperboard, building
products, non-wovens, and specific industrial processes. 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 30 manufacturing
facilities in 13 countries around the world, Xerium has
approximately 3,275 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 cost reduction efforts, including our restructuring activities,
may not have the positive impacts we anticipate; (3) 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; (4) market
improvement in our industry may occur more slowly than we
anticipate, may stall or may not occur at all; (5) variations in
demand for our products, including our new products, could
negatively affect our revenues and profitability; (6) 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 margin; (7) our plans to develop and market new
products, enhance operational efficiencies, and reduce costs may
not be successful; and (8) the other risks and uncertainties
discussed elsewhere in this press release, our Form 10-K for the
year ended December 31, 2012 filed on March 11, 2013 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. Except as required by law, 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.
Xerium Technologies, Inc.
Consolidated Statements of Operations
and Comprehensive Loss
(dollars in thousands, except per share
data)
Three Months EndedDecember 31,
Year Ended December 31,
2012 2011 2012
2011 Net sales $ 133,767 $ 145,189 $ 538,740 $
586,960 Costs and expenses: Cost of products sold 86,775 94,986
345,171 370,754 Selling 18,979 19,559 76,083 79,407 General and
administrative 16,192 14,452 63,701 62,012 Research and development
3,150 3,177 11,681 12,097 Restructuring 14,765 302
25,708 1,589 139,861 132,476 522,344
525,859 (Loss) income from operations (6,094 ) 12,713
16,396 61,101 Interest expense, net (9,384 ) (9,441 ) (37,878 )
(39,150 ) Gain (loss) on extinguishment of debt 243 — 243 (2,926 )
Foreign exchange (loss) gain (514 ) 128 (358 ) (156 ) (Loss)
income before provision for income taxes (15,749 ) 3,400 (21,597 )
18,869 Benefit (provision) for income taxes 6,667 (967 )
3,562 (10,679 ) Net (loss) income $ (9,082 ) $ 2,433
$ (18,035 ) $ 8,190 Comprehensive loss $ (12,891 ) $ (16,525
) $ (28,382 ) $ (20,979 ) Net (loss) income per share: Basic $
(0.59 ) $ 0.16 $ (1.18 ) $ 0.54 Diluted $ (0.59 ) $
0.16 $ (1.18 ) $ 0.54 Shares used in computing net
(loss) income per share: Basic 15,289,329 15,141,731
15,222,462 15,079,771 Diluted 15,289,329
15,145,795 15,222,462 15,083,835
Consolidated Selected Financial
Data
Cash Flow Data: (in thousands)
Years Ended December 31, 2012
2011 Net cash provided by operating activities
$ 39,322 $ 45,208 Net cash used in investing activities (20,617 )
(8,688 ) Net cash used in financing activities (27,472 ) (31,463 )
Other Financial Data: (in thousands)
Depreciation and amortization 40,752 43,686 Capital expenditures,
gross (21,705 ) (30,154 )
Balance Sheet Data: (in
thousands) December 31, 2012 December 31, 2011
Cash and cash equivalents $ 34,777 $ 43,566 Total assets 618,843
665,721 Total debt 444,992 469,054 Total stockholders’ deficit
(29,061 ) (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 (loss)
income and operating cash flows, which are the most directly
comparable GAAP financial measures, to EBITDA and Adjusted
EBITDA.
Three Months Ended
December 31,
Three Months Ended
September 30,
Three Months Ended
June 30,
Year Ended
December 31,
2012 2011 2012
2012 2012 2011 Net (loss) income
$ (9,082 ) $ 2,433 $ (3,657 ) $ 2,226 $
(18,035 ) $ 8,190 Stock-based compensation 375
(814 ) 820 (218 ) 1,949 1,439 Depreciation 10,020 9,808 9,321 9,429
38,533 41,381 Amortization of intangibles 576 576 576 576 2,305
2,305 Curtailment/settlement loss — — — — — 402 Deferred financing
cost amortization 717 694 971 682 3,424 2,307 Unrealized foreign
exchange loss (gain) on revaluation of debt 415 (931 ) (214 ) 373
582 139 Deferred taxes (7,866 ) (1,912 ) (22 ) (179 ) (8,249 ) 334
Asset Impairment 2,074 — 1,600 — 3,674 — Gain (loss) on disposition
of property and equipment 81 40 (40 ) (170 ) (576 ) (564 ) (Gain)
loss on extinguishment of debt (243 ) — — — (243 ) 2,926 Net change
in operating assets and liabilities 12,050 4,478
7,053 (9,075 ) 15,958
(13,651 ) Net cash provided by operating activities 9,117
14,372 16,408 3,644 39,322 45,208 Interest expense, excluding
amortization 8,667 8,746 8,806 8,438 34,455 36,843 Net change in
operating assets and liabilities (12,050 ) (4,478 ) (7,053 ) 9,075
(15,958 ) 13,653 Current portion of income tax expense 1,199 2,880
116 2,533 4,687 10,343 Stock-based compensation (375 ) 814 (820 )
218 (1,949 ) (1,439 ) Curtailment/settlement loss — — — — — (402 )
Unrealized foreign exchange (loss) gain on revaluation of debt (413
) 931 214 (373 ) (582 ) (139 ) Asset Impairment (2,076 ) — (1,600 )
— (3,674 ) — (Loss) gain on disposition of property and equipment
(81 ) (40 ) 40 170 576 564 Gain (loss) on extinguishment of debt
243 — — —
243 (2,926 ) EBITDA 4,231 23,225 16,111 23,705 57,120
101,705 (Gain) loss on extinguishment of debt (243 ) — — — (243 )
2,926 Stock-based compensation 375 (814 ) 820 (218 ) 1,949 1,439
Operational restructuring expenses 14,765 302 5,840 1,129 25,708
1,589 Legal fees related to term debt amendment — — 30 85 115 —
Non-restructuring impairment (1) 1,195 — — — 1,195 — Non-recurring
CEO retirement expenses 289 — 1,600
695 3,385 —
Adjusted EBITDA $ 20,612 $ 22,713 $
24,401 25,396 89,229 $
107,659
1. Represents impairment charges on our Vietnam facility, an
idle plant held for sale at December 31, 2012.
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