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Xerium Technologies, Inc. (NYSE: XRM), a leading global manufacturer of industrial textiles and rolls used primarily in the paper production process, today commented on a recent media report suggesting that the Company has finalized plans regarding possible restructuring opportunities and further that the Company will fund any such projects through an amendment to its credit facility. The Company wishes to clarify, however, that as of today and consistent with remarks made on its conference call on May 9, 2012, regarding its financial results for the first quarter, the Company has not finalized or committed to any such restructuring plans.
During the call held on May 9, 2012, the Company made reference to possible restructuring opportunities currently under review that are aimed at reducing the Company’s fixed costs, restoring historical gross margins and simplifying its business processes. The specific projects under consideration include, among other things, asset rationalizations, redeployment of assets across the Company’s platform and reductions in selling, general and administrative expenses.
The Company has preliminarily identified projects that, if implemented, would be expected to result in approximately $50 million of restructuring expenses over their period of implementation, of which net cash costs would be anticipated to be approximately $35 million. In addition, the Company would expect capital expenditures related to these initiatives of approximately $10 million, which would be incurred within its regular capital expenditure budget. The Company generally anticipates that it would fund the cash requirements of these restructurings from the free cash flow of its business as incurred, with specific funding arrangements to be determined as plans are finalized. Internal planning estimates suggest these initiatives, if fully implemented, could improve gross margins by approximately 200 to 300 basis points and operating income by up to $20 million annually.
The Company continues to explore fixed cost reduction opportunities, but the nature, magnitude and timing of any final plans may vary and will be subject to various factors including, but not limited to, global and regional market conditions in the paper industry, the projected costs and relative payback periods at the time of implementation, the potential impact on the Company’s highly trained workforce, compliance with all employee and governmental notice regulations and periods, and continued compliance with the Company’s credit facility. Should the Company decide to implement any such plans, management’s desire would be to conduct the projects in the most expeditious and orderly manner possible so as to deliver the bottom line improvements most rapidly while minimizing any potential disruptions to our global customers. In furtherance of this goal, the Company may consider, among other things, whether any amendment to its credit facility may facilitate the implementation of any proposed restructurings. Should the Company pursue any such amendment, the terms, timing and structure of any amendment will naturally depend on market conditions, and the amounts involved may or may not be material. Further, there can be no assurance that any restructuring will ultimately be pursued, that any amendment will be sought or obtained on terms acceptable to the Company, or that any restructuring, if pursued, will be successful.