Xerium Technologies Reports Steady Sales and Orders and Implementation of Cost Reduction and Sales G
Xerium Technologies Reports Steady Sales and Orders and Implementation of
Cost Reduction and Sales Growth Actions
RALEIGH, N.C.--(BUSINESS WIRE)-- Xerium Technologies, Inc. (NYS: XRM) , a leading global manufacturer of specially engineered textiles and roll covers used in the production of paper, paperboard, building products, non-wovens and specific industrial processes, announced today the results of its operations for the quarter and year ended December 31, 2012.
Net sales have been stable in 2012, averaging approximately $134.7 million per quarter, and within a range of +/- 2%. Our backlog, defined as orders expected to ship within one year, suggests that this trend will continue and currently stands at $174.0 million as of December 31, 2012. Compared to the third quarter of 2012, net sales were essentially the same at a 0.3% decline, or a 1.4% decline on a constant currency basis. Compared to the fourth quarter of 2011, net sales decreased 7.9%, or 6.2% on a constant currency basis, to $133.8 million from $145.2 million. Year over year, net sales decreased 8.2%, or 4.8% on a constant currency basis, to $538.7 million from $587.0 million. See "Segment Information" and "Non-GAAP Financial Measures" below.
Gross profit has been fairly stable in 2012, averaging approximately $48.4 million per quarter and within a range of +/- 3%. The 4.5% decline from $49.2 million in the third quarter of 2012 to $47.0 million in the fourth quarter of 2012 was primarily as a result of special charges for asset impairments, lower constant currency sales volume and reduced production absorption.
Despite stable sales, Adjusted EBITDA declined 15.6% in the fourth quarter of 2012 to $20.6 million from $24.4 million in the third quarter of 2012. This decline was primarily a result of special charges of $1.5 million for items including payroll tax exposures, accounts receivables and inventory and the third quarter reversal of $0.5 million management incentive costs that did not occur in the fourth quarter of 2012. In addition to these unusual items, Adjusted EBITDA declined $1.5 million, primarily due to reduced gross profit on lower constant currency sales and lower production absorption. See "Non-GAAP Financial Measures" below.
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.
The 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|
The following table presents net sales for the fourth quarter of 2012 and 2011 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,||December 31,||Effect of $||Excluding|
The following table presents net sales for the year ended December 31, 2012 and the year ended December 31, 2011 by segment and the effect of currency for the year ended December 31, 2012 (dollars in thousands):
Net Sales For The
|December 31,||December 31,||Effect of $||Excluding|
TRADE WORKING CAPITAL
The following table presents trade working capital for the fourth quarter of 2012 and 2011 (in thousands):
|Trade Receivables, Net (1)||$||83,567||$||90,938||$||7,371|
|Trade Accounts Payable (2)||(29,908||)||(29,077||)||831|
(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $889 and $846 for 2012 and 2011, respectively.
(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.
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|
To participate on the call, please dial in at least 10 minutes prior to the scheduled start. A live audio webcast and replay of the call may be found in the investor relations section of the Company's website at www.xerium.com.
NON-GAAP FINANCIAL MEASURES
This press release includes measures of performance that differ from the Company's financial results as reported under generally accepted accounting principles ("GAAP"). The Company uses supplementary non-GAAP measures, including EBITDA, Adjusted EBITDA, currency effects on Net Sales and Trade Working Capital to assist in evaluating its liquidity and financial performance. EBITDA and Adjusted EBITDA are specifically used in evaluating the ability to service indebtedness and to fund ongoing capital expenditures. The Company's credit facility includes covenants based upon Adjusted EBITDA. If Adjusted EBITDA declines below certain levels, the Company could go into default under its credit facility or be required to prepay the credit facility. Neither Adjusted EBITDA nor EBITDA should be considered in isolation or as a substitute for income (loss) or cash flows from operations (as determined in accordance with GAAP).
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. (NYS: 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.
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|
|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||)|