"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;
- 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 $25.0 million.
|Net Sales For The|
|Three Months Ended|
|September 30, 2012||June 30, 2012||$ Change||Currency Effect of Change||% Change||% Change Excluding Currency|
|Net Sales For The|
|Three Months Ended|
|September 30, 2012||September 30, 2011||$ Change||Currency Effect of Change||% Change||% Change Excluding Currency|
|Net Sales For The|
|Nine Months Ended|
|September 30, 2012||September 30, 2011||$ Change||Currency Effect of $ Change||% Change||% Change Excluding Currency|
|September 30, 2012||September 30, 2011||$ Change|
|Trade Receivables, Net (1)||$||85,958||$||92,714||$||(6,756||)|
|Trade Accounts Payable (2)||(27,469||)||(25,955||)||(1,514||)|
(2) Trade Accounts Payables equals Accounts Payable less Deposits Received of $3,348 and $5,881 for 2012 and 2011, respectively and Other Payables of $2,239 and $1,638 for 2012 and 2011, respectively.CONFERENCE CALL The Company plans to hold a conference call on the following morning:
|Date:||Tuesday, November 6, 2012|
|Start Time:||9:00 a.m. Eastern Time|
For additional information regarding non-GAAP financial measures and a reconciliation of such measures to the most comparable financial measures under GAAP, please see “Segment Information” above and our Selected Financial Data below. In addition, the information in this press release should be read in conjunction with the corresponding exhibits, financial statements and footnotes contained in our documents to be filed with the Securities and Exchange Commission.About Xerium Technologies Xerium Technologies, Inc. (NYSE: XRM) is a leading global manufacturer and supplier of two types of consumable products used primarily in the production of paper-clothing and roll covers. The Company, which operates around the world under a variety of brand names, utilizes a broad portfolio of patented and proprietary technologies to provide customers with tailored solutions and products integral to production, all designed to optimize performance and reduce operational costs. With 31 manufacturing facilities in 14 countries around the world, Xerium has approximately 3,400 employees. FORWARD-LOOKING STATEMENTS This press release contains forward-looking statements involving risks and uncertainties, both known and unknown, that may cause actual results to differ materially from those indicated. These risks and uncertainties include the following items: (1) a sustained downturn in the paper industry, compounded by uncertainty in global economic conditions, particularly those stemming from Europe, could adversely affect our revenues and profitability; (2) our cost reduction efforts may not have the positive impacts we anticipate; (3) our financial results could be adversely affected by fluctuations in interest rates and currency exchange rates, for instance a marked decline in the value of the Euro relative to the U.S. Dollar stemming from the European sovereign debt crisis; (4) market improvement in our industry may occur more slowly than we anticipate, may stall or may not occur at all; (5) variations in demand for our products, including our new products, could negatively affect our revenues and profitability; (6) our manufacturing facilities may be required to quickly increase or decrease production, which could negatively affect our production facilities, customer order lead time, product quality, labor relations or gross profits; (7) our plans to develop and market new products, enhance operational efficiencies, and reduce costs may not be successful; and (8) the other risks and uncertainties discussed elsewhere in this press release, our Form 10-K for the year ended December 31, 2011 filed on March 14, 2012 and our other SEC filings. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this press release reflects our current views with respect to future events. We assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise. As discussed above, we are subject to substantial risks and uncertainties related to current economic conditions, and we encourage investors to refer to our SEC filings for additional information. Copies of these filings are available from the SEC and in the investor relations section of our website at www.xerium.com. Selected Financial Data Follows
|Xerium Technologies, Inc.|
|Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income|
|(dollars in thousands, except per share data)|
|Three Months Ended September 30,||Nine Months Ended September 30,|
|Costs and expenses:|
|Cost of products sold||85,079||94,010||258,396||275,768|
|General and administrative||15,650||14,002||47,509||47,560|
|Research and development||2,700||2,907||8,531||8,920|
|Income from operations||6,416||16,914||22,490||48,388|
|Interest expense, net||(9,777||)||(9,873||)||(28,494||)||(29,709||)|
|Loss on extinguishment of debt||—||—||—||(2,926||)|
|Foreign exchange (loss) gain||(202||)||(289||)||157||(284||)|
|(Loss) income before provision for income taxes||(3,563||)||6,752||(5,847||)||15,469|
|Provision for income taxes||(94||)||(3,264||)||(3,105||)||(9,711||)|
|Net (loss) income||$||(3,657||)||$||3,488||$||(8,952||)||$||5,758|
|Net (loss) income per share:|
|Shares used in computing net (loss) income per share:|
|Condensed Consolidated Selected Financial Data|
|Cash Flow Data: (in thousands)||Nine Months Ended September 30,|
|Net cash provided by operating activities||$||30,205||$||30,836|
|Net cash (used in) provided by investing activities||(11,844||)||2,494|
|Net cash used in financing activities||(22,382||)||(28,905||)|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||30,242||33,302|
|Capital expenditures, gross||(13,222||)||(18,930||)|
|Balance Sheet Data: (in thousands)||September 30, 2012 (Unaudited)||December 31, 2011|
|Cash and cash equivalents||$||39,577||$||43,566|
|Total stockholders’ deficit||(16,544||)||(2,305||)|
EBITDA is defined as net income (loss) before interest expense, income tax provision (benefit) and depreciation (including non-cash impairment charges) and amortization.“Adjusted EBITDA”, under our credit facility means, with respect to any period, the total of (A) the consolidated net income for such period, plus (B) without duplication, to the extent that any of the following were deducted in computing such consolidated net income for such period: (i) provision for taxes based on income or profits, including, without limitation, federal, state, provincial, franchise and similar taxes, including any penalties and interest relating to any tax examinations, (ii) consolidated interest expense, (iii) consolidated depreciation and amortization expense, (iv) reserves for inventory in connection with plant closures, (v) consolidated operational restructuring costs, (vi) noncash charges or gains resulting from the application of purchase accounting, including push-down accounting, (vii) non-cash expenses resulting from the granting of common stock, stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to common stock, and cash expenses for compensation mandatorily applied to purchase common stock, (viii) non-cash items relating to a change in or adoption of accounting policies, (ix) non-cash expenses relating to pension or benefit arrangements, (x) expenses incurred as a result of the repurchase, redemption or retention of common stock earned under equity compensation programs solely in order to make withholding tax payments, (xi) amortization or write-offs of deferred financing costs, (xii) any non-cash losses resulting from mark to market hedging obligations (to the extent the cash impact resulting from such loss has not been realized in such period) and (xiii) other non-cash losses or charges (excluding, however, any non-cash loss or charge which represents an accrual of, or a reserve for, a cash disbursement in a future period), minus (C) without duplication, to the extent any of the following were included in computing consolidated net income for such period, (i) non-cash gains with respect to the items described in clauses (vi), (vii), (ix), (xi), (xii) and (xiii) (other than, in the case of clause (xiii), any such gain to the extent that it represents a reversal of an accrual of, or reserve for, a cash disbursement in a future period) of clause (B) above and (ii) provisions for tax benefits based on income or profits. Notwithstanding the foregoing, Adjusted EBITDA, as defined in the credit facility and calculated below, may not be comparable to similarly titled measurements used by other companies.
Consolidated net income is defined as net income (loss) determined on a consolidated basis in accordance with GAAP; provided, however, that the following, without duplication, shall be excluded in determining consolidated net income: (i) any net after-tax extraordinary or non-recurring gains, losses or expenses (less all fees and expenses relating thereto), (ii) the cumulative effect of changes in accounting principles, (iii) any fees and expenses incurred during such period in connection with the issuance or repayment of indebtedness, any refinancing transaction or amendment or modification of any debt instrument, in each case, as permitted under the credit facility and (iv) any gains resulting from the returned surplus assets of any pension plan.The following table provides reconciliation from net (loss) income and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
|Three Months Ended September 30,||Three Months Ended June 30,||Nine Months Ended September 30,|
|Net (loss) income||$||(3,657||)||$||3,488||$||2,226||$||(8,952||)||$||5,758|
|Amortization of intangibles||576||577||576||1,729||1,729|
|Deferred financing cost amortization||971||1,011||682||2,707||1,613|
|Unrealized foreign exchange (gain) loss on revaluation of debt||(214||)||2,484||373||167||1,070|
|Gain on disposition of property and equipment||(40||)||(40||)||(170||)||(656||)||(604||)|
|Loss on extinguishment of debt||—||—||—||—||2,926|
|Net change in operating assets and liabilities||7,053||4,289||(9,075||)||3,906||(18,130||)|
|Net cash provided by operating activities||16,408||24,075||3,644||30,205||30,836|
|Interest expense, excluding amortization||8,806||8,862||8,438||25,787||28,096|
|Net change in operating assets and liabilities||(7,053||)||(4,289||)||9,075||(3,906||)||18,130|
|Current portion of income tax expense||116||2,227||2,533||3,488||7,465|
|Unrealized foreign exchange gain (loss) on revaluation of debt||214||(2,484||)||(373||)||(167||)||(1,070||)|
|Gain on disposition of property and equipment||40||40||170||656||604|
|Loss on extinguishment of debt||—||—||—||—||(2,926||)|
|Loss on extinguishment of debt||—||—||—||—||2,926|
|Operational restructuring expenses||5,840||577||1,129||10,943||1,287|
|Legal fees related to term debt amendment||30||—||85||115||—|
|Non-recurring CEO retirement expenses||1,600||—||695||3,096||—|