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.
|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|
(2) Trade Accounts Payables equals Accounts Payable less Deposits Received of $3,810 and $5,814 for 2012 and 2011, respectively and Other Payables of $3,166 and $4,852 for 2012 and 2011, respectively.CONFERENCE CALL The Company plans to hold a conference call on the following afternoon:
|Date:||Tuesday, March 12, 2013|
|Start Time:||3:00 p.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 of specially engineered fabrics, belts and roll cover technology used in the production of paper, paperboard, building products, non-wovens, and specific industrial processes. 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 30 manufacturing facilities in 13 countries around the world, Xerium has approximately 3,275 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, including our restructuring activities, 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; (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 margin; (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, 2012 filed on March 11, 2013 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. Except as required by law, 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.
|Xerium Technologies, Inc.|
|Consolidated Statements of Operations and Comprehensive Loss|
|(dollars in thousands, except per share data)|
|Three Months Ended December 31,||Year Ended December 31,|
|Costs and expenses:|
|Cost of products sold||86,775||94,986||345,171||370,754|
|General and administrative||16,192||14,452||63,701||62,012|
|Research and development||3,150||3,177||11,681||12,097|
|(Loss) income from operations||(6,094||)||12,713||16,396||61,101|
|Interest expense, net||(9,384||)||(9,441||)||(37,878||)||(39,150||)|
|Gain (loss) on extinguishment of debt||243||—||243||(2,926||)|
|Foreign exchange (loss) gain||(514||)||128||(358||)||(156||)|
|(Loss) income before provision for income taxes||(15,749||)||3,400||(21,597||)||18,869|
|Benefit (provision) for income taxes||6,667||(967||)||3,562||(10,679||)|
|Net (loss) income||$||(9,082||)||$||2,433||$||(18,035||)||$||8,190|
|Net (loss) income per share:|
|Shares used in computing net (loss) income per share:|
|Consolidated Selected Financial Data|
|Cash Flow Data: (in thousands)||Years Ended December 31,|
|Net cash provided by operating activities||$||39,322||$||45,208|
|Net cash used in investing activities||(20,617||)||(8,688||)|
|Net cash used in financing activities||(27,472||)||(31,463||)|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||40,752||43,686|
|Capital expenditures, gross||(21,705||)||(30,154||)|
|Balance Sheet Data: (in thousands)||December 31, 2012||December 31, 2011|
|Cash and cash equivalents||$||34,777||$||43,566|
|Total stockholders’ deficit||(29,061||)||(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 December 31,||Three Months Ended September 30,||Three Months Ended June 30,||Year Ended December 31,|
|Net (loss) income||$||(9,082||)||$||2,433||$||(3,657||)||$||2,226||$||(18,035||)||$||8,190|
|Amortization of intangibles||576||576||576||576||2,305||2,305|
|Deferred financing cost amortization||717||694||971||682||3,424||2,307|
|Unrealized foreign exchange loss (gain) on revaluation of debt||415||(931||)||(214||)||373||582||139|
|Gain (loss) on disposition of property and equipment||81||40||(40||)||(170||)||(576||)||(564||)|
|(Gain) loss on extinguishment of debt||(243||)||—||—||—||(243||)||2,926|
|Net change in operating assets and liabilities||12,050||4,478||7,053||(9,075||)||15,958||(13,651||)|
|Net cash provided by operating activities||9,117||14,372||16,408||3,644||39,322||45,208|
|Interest expense, excluding amortization||8,667||8,746||8,806||8,438||34,455||36,843|
|Net change in operating assets and liabilities||(12,050||)||(4,478||)||(7,053||)||9,075||(15,958||)||13,653|
|Current portion of income tax expense||1,199||2,880||116||2,533||4,687||10,343|
|Unrealized foreign exchange (loss) gain on revaluation of debt||(413||)||931||214||(373||)||(582||)||(139||)|
|(Loss) gain on disposition of property and equipment||(81||)||(40||)||40||170||576||564|
|Gain (loss) on extinguishment of debt||243||—||—||—||243||(2,926||)|
|(Gain) loss on extinguishment of debt||(243||)||—||—||—||(243||)||2,926|
|Operational restructuring expenses||14,765||302||5,840||1,129||25,708||1,589|
|Legal fees related to term debt amendment||—||—||30||85||115||—|
|Non-restructuring impairment (1)||1,195||—||—||—||1,195||—|
|Non-recurring CEO retirement expenses||289||—||1,600||695||3,385||—|