Xerium Technologies Reports Third Quarter Results
Xerium Technologies Reports Third Quarter Results
Company Focusing On Rightsizing
RALEIGH, N.C.--(BUSINESS WIRE)-- Xerium Technologies, Inc. (NYS: XRM) , a leading global manufacturer of industrial textiles and roll covers used primarily in the paper production process, announced today the results of its operations for the quarter ended September 30, 2012.
Compared to the second quarter of 2012, net sales decreased 1.6%, or 1.0% on a constant currency basis to $134.2 million in the third quarter of 2012. On a constant currency basis, net sales of machine clothing increased 1.4%, representing the second straight quarter of volume growth. On the same constant currency basis, net sales of roll covers decreased 5.3%. The flow through effect of the sales decline was the primary reason for a 3.9% decrease in Adjusted EBITDA from Q2 to Q3. It declined to $24.4 million in the third quarter of 2012 from $25.4 million in the second quarter of 2012. See "Segment Information" and "Non-GAAP Financial Measures" below for further discussion.
Compared to the third quarter of 2011, net sales decreased 9.4%, or 4.4% on a constant currency basis to $134.2 million, primarily as a result of the decline in Europe. Again, the flow-through effect of this sales decline is the primary driver of a 14.7% decrease in Adjusted EBITDA to $24.4 million in the third quarter of 2012 from $28.6 in the third quarter of 2011. Year to date, net sales decreased 8.3% or 4.3% on a constant currency basis, to $405.0 million from $441.8 million, contributing to a decrease in Adjusted EBITDA of 19.2% to $68.6 million in 2012 from $84.9 million in 2011.
The Company continued its debt reduction program during the quarter with additional net debt retirement of $5.7 million. On a year to date basis, net debt has been paid down $20.6 million and stands at $447.8 million as of September 30, 2012.
Commenting on the quarter, Harold Bevis, Xerium's President and Chief Executive Officer stated "Demand in the global markets we serve is reactive to base economic health. We are committed to leading in the markets we serve. However, year-over-year sales in our traditional markets are down sharply and we must right size our cost structure around that reality. We are in the process of reducing our cost structure and advancing our capabilities technically in all regions. To that end, we are both continuing the implementation of the "Vision 2015" restructuring plan, which is expected to save $20.0 million upon completion, and we are adding significant new cost saving and revenue diversification actions."
"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;
For the longer term, we have begun to evaluate opportunities to increase production in low-cost countries. Our Company is completely committed to financial success and customer value and we are proud to serve our customers and help them achieve their productivity results."
THIRD QUARTER FINANCIAL HIGHLIGHTS
- 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.
The following table presents net sales for the second and third quarter of 2012 by segment and the effect of currency on third quarter 2012 net sales (dollars in thousands):
|Net Sales For The|
|Three Months Ended|
The following table presents net sales for the third quarter of 2012 and 2011 by segment and the effect of currency on third quarter 2012 net sales (dollars in thousands):
|Net Sales For The|
|Three Months Ended|
The following table presents net sales for the nine months ended September 30, 2012 and 2011 by segment and the effect of currency on the nine months ended September 30, 2012 (dollars in thousands):
|Net Sales For The|
|Nine Months Ended|
Effect of $
TRADE WORKING CAPITAL
The following table presents trade working capital for the third quarter of 2012 and 2011 (in thousands):
|Trade Receivables, Net (1)||$||85,958||$||92,714||$||(6,756||)|
|Trade Accounts Payable (2)||(27,469||)||(25,955||)||(1,514||)|
(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $1,436 and $718 for 2012 and 2011, respectively.
(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.
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|
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 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.
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
Nine Months Ended
|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:|
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