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Xerium Technologies Reports Third Quarter Results

"We are in the process of finalizing our new 2013 plan at this time and the objectives of this plan are paper market leadership, cost reduction, revenue diversification and debt pay-down. Key actions to achieve these objectives are:

  • Eliminate a significant amount of SG&A costs from the Company's cost structure;
  • Implement a lean manufacturing waste reduction program to lower our production costs;
  • Complete the closing of 2 plants and redeploy certain assets to China and other countries;
  • Establish a global procurement program to both lower costs and advance our product portfolio;
  • Right size the hourly workforces to be in line with sales rates; and
  • Expand rolls production capacity in growth markets;

For the longer term, we have begun to evaluate opportunities to increase production in low-cost countries. Our Company is completely committed to financial success and customer value and we are proud to serve our customers and help them achieve their productivity results."

THIRD QUARTER FINANCIAL HIGHLIGHTS

  • Net sales in the third quarter of 2012 were $134.2 million, a 1.6% decrease compared to the second quarter of 2012 of $136.4 million. Excluding unfavorable currency effects of $0.8 million, third quarter 2012 net sales decreased 1.0%, with an increase of 1.4% in the clothing segment and a decrease of 5.3% in the roll covers segment. Net sales decreased 9.4% from net sales in the third quarter of 2011 of $148.2 million. Excluding unfavorable currency effects of 5.0%, third quarter 2012 net sales decreased 4.4% from the third quarter of 2011, with a decrease of 3.9% in the clothing segment and a decrease of 5.2% in the roll covers segment, primarily as a result of the reduced European market demand. See “Segment Information” and “Non-GAAP Financial Measures” below for further discussion.
  • Gross profit decreased by 3.5% to $49.2 million in the third quarter of 2012 from $51.0 million in the second quarter of 2012, and decreased 9.2% from $54.2 million in the third quarter of 2011. While lower sales volume contributed to the majority of these decreases, higher material costs and unfavorable production absorption contributed to the decreases as well.
  • Gross margins decreased to 36.6% in the third quarter of 2012 from 37.4% in the second quarter of 2012, primarily as a result of unfavorable currency effects and unfavorable production absorption. Gross margins remained flat at 36.6% in the third quarter of 2011 and 2012, largely as a result of favorable currency effects offset by unfavorable production absorption as a result of lower production levels at our plants compared to the same quarter in 2011.
  • The Company’s operating expenses (selling, general and administrative, restructuring and research and development expenses) of $42.7 million for the third quarter of 2012 increased by $5.4 million, or 14.5%, from operating expenses of $37.3 million in the third quarter of 2011. The increase in operating expenses during the third quarter of 2012 is primarily the result of an increase in restructuring expenses of $5.3 million, an increase of $1.6 million related to CEO transition costs in 2012, an increase in general and administrative expenses due to the reversal in 2011 of $0.6 million in environmental costs and the reversal in 2011 of $0.6 million in management incentive costs. Partially offsetting these items was favorable currency effects of $2.4 million.
  • Interest expense declined 1.0% to $9.8 million in the third quarter of 2012 from $9.9 million in the third quarter of 2011. This decline in interest expense reflects lower debt balances and favorable currency effects, net of higher interest rates in the third quarter of 2012, due to the Credit Facility amendment. Cash interest expense, or interest expense less amortization of deferred financing costs, remained relatively flat at $8.8 million in the third quarter of 2012 and $8.9 million in the third quarter of 2011.
  • Income tax expense declined to $0.1 million in the third quarter of 2012 from $3.3 million in the third quarter of 2011. This reduction was primarily attributable to consolidated net losses driven primarily by reduced sales volume and increased restructuring expenses and the geographic mix of earnings in the third quarter of 2012 as compared to the third 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 third quarter of 2012 decreased to a loss of $(3.7) million or $(0.24) per diluted share, compared to net income of $2.2 million or $0.15 per diluted share for the second quarter of 2012 and net income of $3.5 million or $0.23 per diluted share for the third quarter of 2011.
  • Adjusted EBITDA (as defined by the Company’s credit facility) of $24.4 million decreased $1.0 million in the current quarter from $25.4 million in the second quarter of 2012, and decreased $4.2 million from $28.6 million in the third quarter of 2011. See “Non-GAAP Financial Measures” below for further discussion.
  • Cash at September 30, 2012 was $39.6 million, compared to $43.6 million at December 31, 2011. The decrease in the cash balances from December 31, 2011 is primarily due to $28.0 million in payments on long-term debt, capital expenditures of $13.2 million and $1.8 million in deferred financing payments relating to the credit facility. These decreases were partially offset by cash provided by operating activities of $30.2 million, proceeds from notes payable of $7.4 million and proceeds from the disposition of property of $1.4 million.
  • Trade working capital at September 30, 2012 was $138.5 million, compared to $158.1 million at September 30, 2011. This favorable decline was the result of reduced inventories and accounts receivable and a stronger US Dollar. See “Trade Working Capital Information” and “Non-GAAP Financial Measures” below for further discussion.
  • Total debt at September 30, 2012 was $447.8 million, compared to $469.1 million at December 31, 2011. The decrease of $21.3 million is primarily due to net debt payments of $20.6 million in 2012 and favorable currency effects of $0.7 million.
  • Capital expenditures for the nine months ended September 30, 2012 were $13.2 million, consisting of $4.1 million in growth capex and $9.1 million in maintenance capex. For the same period in 2011, we reported $18.9 million of capital spending, consisting of $7.8 million in growth capex and $11.1 million of maintenance capex. We are currently targeting total capital expenditures for 2012 at approximately $25.0 million.

SEGMENT INFORMATION

The following table presents net sales for the second and third quarter of 2012 by segment and the effect of currency on third quarter 2012 net sales (dollars in thousands):

  Net Sales For The        
Three Months Ended

September 30,

2012

 

June 30,

2012

$ Change  

Currency

Effect of

Change

  % Change  

% Change

Excluding

Currency

Clothing $ 88,873 $ 88,115 $ 758 $ (481 ) 0.9 % 1.4 %
Roll Covers 45,358   48,263   (2,905 )   (368 )   (6.0 )%   (5.3 )%
Total $ 134,231   $ 136,378   $ (2,147 ) $ (849 ) (1.6 )% (1.0 )%

The following table presents net sales for the third quarter of 2012 and 2011 by segment and the effect of currency on third quarter 2012 net sales (dollars in thousands):

  Net Sales For The        
Three Months Ended

September 30,

2012

 

September 30,

2011

$ Change  

Currency

Effect of

Change

  % Change  

% Change

Excluding

Currency

Clothing $ 88,873 $ 97,515 $ (8,642 ) $ (4,836 ) (8.9 )% (3.9 )%
Roll Covers 45,358   50,712   (5,354 )   (2,698 )   (10.6 )%   (5.2 )%
Total $ 134,231   $ 148,227   $ (13,996 )   $ (7,534 )   (9.4 )%   (4.4 )%

The following table presents net sales for the nine months ended September 30, 2012 and 2011 by segment and the effect of currency on the nine months ended September 30, 2012 (dollars in thousands):

  Net Sales For The        
Nine Months Ended

September 30,

2012

 

September 30,

2011

$ Change  

Currency

Effect of $

Change

  % Change  

% Change

Excluding

Currency

Clothing $ 265,671 $ 291,085 $ (25,414 ) $ (11,484 ) (8.7 )% (4.8 )%
Roll Covers 139,302   150,686   (11,384 )   (6,231 )   (7.6 )%   (3.4 )%
Total $ 404,973   $ 441,771   $ (36,798 )   $ (17,715 )   (8.3 )%   (4.3 )%

TRADE WORKING CAPITAL

The following table presents trade working capital for the third quarter of 2012 and 2011 (in thousands):

 

September 30,

2012

 

September 30,

2011

  $ Change
Trade Receivables, Net (1) $ 85,958 $ 92,714 $ (6,756 )
Inventories, Net 80,036 91,364 (11,328 )
Trade Accounts Payable (2) (27,469 ) (25,955 ) (1,514 )
Total $ 138,525   $ 158,123   $ (19,598 )

(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $1,436 and $718 for 2012 and 2011, respectively.

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