- Net sales for the 2011 fourth quarter were $145.2 million, a 0.4% increase from net sales for the 2010 fourth quarter of $144.6 million. Excluding currency effects of $(0.5) million, fourth quarter 2011 net sales increased 0.8% from the fourth quarter of 2010, with an increase of 4.2% in the clothing business unit and a decrease of (5.1)% 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 $50.2 million for the fourth quarter of 2011 from $58.3 million for the fourth quarter of 2010. As a percentage of net sales, gross margins declined to 34.6% of net sales for the fourth quarter of 2011 as compared to 40.3% of net sales for the fourth quarter of 2010. These decreases were primarily the result of (1) the unfavorable absorption of production costs in the fourth quarter of 2011 due to our concerted effort to decrease production and reduce inventories, necessitated by a slowdown in customer demand, most dramatically in paper production, where demand in the last eight months of 2011 was lower than 2010; (2) a favorable recovery of inventory reserves in the fourth quarter of 2010 that did not occur in 2011; (3) our inability to offset increased raw material costs, particularly in our roll covers business with productivity or price increases; and (4) strong sales growth in regions and products with lower gross margins.
- The Company’s operating expenses (selling, general and administrative, restructuring and impairments and research and development expenses) of $37.5 million for the fourth quarter of 2011 declined by $1.4 million, or 3.6%, from operating expenses of $38.9 million in the fourth quarter of 2010. The decrease in operating expenses during the fourth quarter of 2011 is primarily the net result of the following:
- A decrease of $3.5 million in general and administrative expense due to a decrease in management incentive compensation and stock compensation from 2010 to 2011; and
- A decrease in restructuring and impairment expenses of $2.3 million in the fourth quarter of 2011 as compared to the fourth quarter of 2010 as a result of reduced restructuring activity.
- An increase of $2.5 million in general and administrative expenses, due to higher bank and legal fees, higher bad debt reserves and an unfavorable property tax assessment in Germany;
- An increase of $1.3 million in general and administrative expenses due to the absence of a non-recurring gain recognized in 2010 as a result of the sale of land in Brazil; and
- An increase of $0.6 million in selling expenses, primarily as a result of inflation and additional headcount.
- Interest expense decreased $2.8 million from the fourth quarter of 2010 to the current quarter due to $2.2 million of interest rate swaps amortized in the prior year and $1.2 million lower net interest expense as a result of lower debt balances and interest rates from 2010 to 2011. These decreases were partially offset by $0.5 million higher amortization of deferred financing costs in 2011. The decrease in interest expense and the increase in deferred financing costs were primarily a result of the refinancing in May of 2011.
- The decrease in income tax expense in the fourth quarter of 2011 as compared with the fourth quarter of 2010 was principally due to the impairment of the German deferred tax asset recorded in the fourth quarter of 2010 combined with other changes in tax reserves.
- Net income for the fourth quarter of 2011 was $2.4 million or $0.16 per diluted share, compared to net income of $0.7 million or $0.05 per diluted share for the fourth quarter of 2010. The increase is primarily a result of the items noted above.
- Adjusted EBITDA (as defined by the Company’s credit facility) decreased 35.7%, or $12.6 million, to $22.7 million in the current quarter from $35.3 million in the fourth quarter of 2010. See “Non-GAAP Financial Measures” below for further discussion.
- Unrestricted and restricted cash at December 31, 2011 was $43.6 million, compared to $43.0 million at September 30, 2011 and $52.4 million at December 31, 2010. The increase in the cash balances from September 30, 2011 is primarily due to cash provided by operating activities of $14.4 million, offset by an increase of $11.2 million in capital expenditures related to our additional press felt capacity and an increase of $2.4 million in payments on long-term debt. The decrease in the cash balances from December 31, 2010 is primarily due to capital expenditures of $30.2 million, the payment of $17.3 million in debt financing fees in connection with the debt refinancing in May of 2011 and net debt payments of $14.0 million. These decreases were partially offset by cash flow from operations of $45.2 million and proceeds from the disposal of property and equipment of $7.8 million.
- Total debt at December 31, 2011 was $469.1 million, compared to $475.4 million at September 30, 2011 and $481.4 million at December 31, 2010. The decrease of $12.3 million from December 31, 2010 is primarily due to net debt payments of $14.0 million in 2011, partially offset by unfavorable currency effects of $1.7 million. The decrease of $6.3 million from September 30, 2011 is primarily due to favorable currency effects of $3.9 million and debt payments of $2.4 million in the fourth quarter of 2011.
- Capital expenditures for the year ended December 31, 2011 were $30.2 million, consisting of $12.2 million in growth capex and $18.0 million in maintenance capex. That compares to the same period in 2010 when we reported $27.9 million of capital spending, consisting of $15.3 million in growth capex and $12.6 million of maintenance capex. We are currently targeting total capital expenditures for 2012 at approximately $30 million.
|Net Sales For The Three Months Ended|
|2011||2010||$Change||Currency Effect Of $ Change||% Change||% Change Excluding Currency|
|Date:||Wednesday, March 14, 2012|
|Start Time:||9:00 a.m. Eastern Time|
|Webcast & Slide Presentation:||www.xerium.com/investorrelations|