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 INFORMATIONThe 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|
|December 31,||September 30,||Effect of $||Excluding|
|Net Sales For The Three Months Ended|
|December 31,||December 31,||Effect of $||Excluding|
|Net Sales For The Years Ended|
|December 31,||December 31,||Effect of $||Excluding|
|December 31, 2012||December 31, 2011||$ Fav/(Unfav) Change|
|Trade Receivables, Net (1)||$||83,567||$||90,938||$||7,371|
|Trade Accounts Payable (2)||(29,908||)||(29,077||)||831|
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