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Xerium Technologies Reports Second Quarter Results

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).

Stock quotes in this article: XRM 

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