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Xerium Technologies Reports First Quarter Results

FIRST QUARTER FINANCIAL HIGHLIGHTS

--   Net sales for the first quarter of 2012 was $134.4 million, a 6.1% decrease from net sales for the first quarter of 2011 of $143.2 million. Excluding currency effects of $2.6 million, first quarter 2012 net sales decreased 4.4% from the first quarter of 2011, with a decrease of 3.9% in the clothing business unit and a decrease of 5.3% in the roll covers business unit. See “Reporting Unit Information” and “Non-GAAP Financial Measures” below for further discussion.
 
-- Gross margins decreased 13.9% to $46.4 million for the first quarter of 2012 from $53.9 million for the first quarter of 2011. In the first quarter of 2012, gross margin as a percentage of sales remained stable at 34.6% of sales from the fourth quarter of 2011, but declined from 37.7% of sales in the first quarter of 2011 largely as a result of (1) unfavorable absorption of production costs in the first quarter of 2012 related to reduced European market demand, and (2) unfavorable margins as a result of disproportionally higher sales of lower margin products in our rolls business. Our North American rolls business experienced higher sales of mechanical services and new roll core sales which include costs related to steel cores that are billed as a pass through item to the customer.
 
-- The Company’s operating expenses (selling, general and administrative, restructuring and research and development expenses) of $44.2 million for the first quarter of 2012 increased by $4.0 million, or 10%, from operating expenses of $40.2 million in the first quarter of 2011. The increase in operating expenses during the first quarter of 2012 is primarily the result of the following:
 
-- As noted earlier in this release, restructuring expenses increased $3.8 million in the first quarter of 2012 as compared to the first quarter of 2011 primarily as a result of the termination of a third party sales agency contract; and
 
-- An increase in general and administrative expenses of $0.8 million in the first quarter of 2012 due to the impending retirement of the CEO and the related accrual of a portion of an incentive bonus and recruiting fees incurred in the first quarter of 2012; and
 
-- An increase in general and administrative expenses of $0.5 million, primarily due to the relocation of an office facility in Japan to an earthquake-proof building.
 
Partially offsetting these items were:
 
-- Favorable currency effects of $0.7 million.
 
-- A decrease of $0.4 million in general and administrative expenses due to the gain recognized in the first quarter of 2012 as a result of the sale of land in Brazil.
 
-- Interest expense improved 2.6% to $9.6 million in the first quarter of 2012 from $9.9 million in the first quarter of 2011. This decline in interest expense reflects lower current interest rates and debt balances, net of higher deferred financing cost amortization in the current year’s first quarter. The decrease in interest rates and the increase in deferred financing cost amortization are a result of the refinancing in May 2011. Cash and accrued interest expense decreased by 11.3% in the first quarter of 2012 to $8.6 million compared to $9.7 million in the first quarter of 2011.
 
-- Income tax expense declined to $0.7 million in the first quarter of 2012 from $3.4 million in the first quarter of 2011. This reduction reflects the reduction in our pretax results from income of $4.1 million in the first quarter of 2011 to a pretax loss of $(6.9) million in the first quarter of 2012. 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 first quarter of 2012 was $(7.5) million or $(0.50) per diluted share, compared to net income of $0.6 million or $0.04 per diluted share for the first quarter of 2011. The decrease is primarily a result of the items noted above.
 
-- Adjusted EBITDA (as defined by the Company’s credit facility) decreased 28.0%, or $7.3 million, to $18.8 million in the current quarter from $26.1 million in the first quarter of 2011. See “Non-GAAP Financial Measures” below for further discussion.
 
--

Cash at March 31, 2012 was $38.3 million, compared to $43.6 million at December 31, 2011. The decrease in the cash balances from December 31, 2011 is primarily due to capital expenditures of $3.3 million and $13.2 million in payments on long-term debt, partially offset by cash provided by operating activities of $10.2 million, proceeds from the disposition of property of $0.7 million and favorable currency effects of $0.4 million.

 
-- Total debt at March 31, 2012 was $458.7 million, compared to $469.1 million at December 31, 2011. The decrease of $10.4 million from December 31, 2011 is primarily due to net debt payments of $13.2 million in 2012 partially offset by unfavorable currency effects of $2.8 million.
 
-- Capital expenditures for the quarter ended March 31, 2012 were $3.3 million, consisting of $1.3 million in growth capex and $2.0 million in maintenance capex. In the same period in 2011, we reported $4.2 million of capital spending, consisting of $2.4 million in growth capex and $1.8 million of maintenance capex. We are currently targeting total capital expenditures for 2012 at approximately $30 million.

REPORTING UNIT INFORMATION

The following table presents net sales for the first quarter of 2012 and 2011 by reporting unit and the effect of currency on first quarter 2012 net sales (dollars in millions):

Net Sales For The Three Months Ended        
March 31,
2012   2011

$ Change

  Currency Effect in $   % Change   % Change Excluding Currency
Clothing $ 88,683 $ 93,939 $ (5,256 ) $ (1,627 ) (5.6 %) (3.9 %)
Roll Covers   45,681   49,227   (3,546 )     (932 )   (7.2 %)   (5.3 %)
Total $ 134,364 $ 143,166 $ (8,802 )   $ (2,559 )   (6.1 %)   (4.4 %)

CONFERENCE CALL

The Company plans to hold a conference call on the following morning:

Date:         Wednesday, May 9, 2012
Start Time: 9:00 a.m. Eastern Time
Domestic Dial-In: +1-866-783-2143
International Dial-In: +1-857-350-1602
Passcode: 25889241
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).

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