http://www.businesswire.com/news/home/20091105006601/en
RALEIGH, N.C.--(Business Wire)--
Xerium Technologies, Inc. (NYSE:XRM), a leading global manufacturer of
industrial textiles and rolls used primarily in the paper production process,
today reported results for its third quarter ended September 30, 2009.
"While the global economy remains unstable, we are encouraged by some early
signs of recovery in three of our four geographic operating regions, led by
further reductions in customer inventory and improving prices for paper and
pulp," said Stephen R. Light, President, Chief Executive Officer and Chairman.
"Our sales increased by approximately eight percent in the third quarter of 2009
as compared to the second quarter of 2009 while our gross margin as a percentage
of sales remained essentially constant indicating pricing stability. While our
near-term sales may not respond in the same manner as our booked future orders,
an increase in such orders and discussions with many of our major customers
indicate that they are feeling more positive about the future."
"Our operational initiatives continue on plan with our new product and yield
improvement programs gaining early traction, enabling us to shorten delivery
lead times to our customers which we believe provides us a competitive advantage
in our cash-challenged market. Having already significantly reduced our
operating cost structure to better align with market realities, we remain
focused on releasing additional `trapped cash` from our balance sheet, shedding
excess inventory and collecting aged receivables to generate cash."
"We also continue to be fully engaged with our lenders working to resolve our
debt issues."
THIRD QUARTER FINANCIAL HIGHLIGHTS
* Net sales for the 2009 third quarter were $130.3 million, an 18.2% decrease
from net sales for the 2008 third quarter of $159.3 million. Excluding currency
effects shown in the table below, third quarter 2009 net sales decreased 15.6%
from the third quarter of 2008, with declines of 14.9% and 16.8% in the clothing
and roll covers segments, respectively. See "Segment Information" below.
* Gross margins improved to 37.4% in the third quarter of 2009 from 33.1% in the
third quarter of 2008. The improvement is primarily due to the absence in 2009
of the increased provision for slow-moving and obsolete inventory of $8 million
that was recorded in the third quarter of 2008, primarily in the clothing
segment.
* Operating expenses for the 2009 third quarter increased by $22.0 million to
$36.9 million, a 59.6% increase from operating expenses for the 2008 third
quarter of $14.9 million. The increase was principally due to the $40.0 million
of curtailment/settlement gains recognized during the third quarter of 2008 (as
a result of freezing certain pension benefits in the U.S. and no longer
sponsoring our U.S. retiree health insurance program) that was absent in the
third quarter of 2009. The increase was partially offset by decreases in the
other operating costs, specifically decreases of $12.8 million in general and
administrative expenses, $3.1 million in selling expenses and $1.8 million in
restructuring and impairments during the third quarter of 2009, as compared with
the third quarter of 2008.
* General and administrative expenses decreased by $12.8 million in the 2009
third quarter as compared with the 2008 third quarter due to the following: (i)
environmental accruals of $4.1 million recorded in the third quarter of 2008
that were absent in the third quarter of 2009, (ii) decreased provisions for bad
debts of approximately $9.8 million, principally due to an $8.1 million increase
in 2008 that was absent in the third quarter of 2009 and (iii) decreased
salaries, travel and other costs as a result of cost reduction efforts during
the three months ended September 30, 2009 as compared with the three months
ended September 30, 2008. These decreases were partially offset by (i) increased
bank and related fees of $2.2 million related to initiatives undertaken to
resolve our credit issues and (ii) gains on the sale of property and equipment
of $2.4 million recorded in the third quarter of 2008 that were absent in the
third quarter of 2009.
* Selling expenses decreased by $3.1 million in the 2009 third quarter as
compared with the 2008 third quarter due to the following: (i) a reduction in
salaried sales positions, commissions and travel expenses and (ii) favorable
currency translation effects of $0.8 million.
* Net loss for the third quarter of 2009 was $7.4 million or $0.15 per diluted
share, compared to a net income of $21.5 million or $0.46 per diluted share for
the third quarter of 2008.
* Adjusted EBITDA (as defined by the Company`s amended credit facility) was
$25.1 million for the third quarter of 2009, compared to $54.2 million for the
third quarter of 2008. See "Non-GAAP Liquidity Measures" below.
* Cash on hand at September 30, 2009 was $21.8 million, compared to $20.4
million at June 30, 2009, $34.7 million at December 31, 2008 and $18.4 million
at September 30, 2008.
* Total bank debt at September 30, 2009 increased to $628.6 million from $618.7
million at June 30, 2009 primarily due to unfavorable currency effects,
partially offset by long-term debt principal payments of approximately $5.5
million.
OTHER DEVELOPMENTS
* On September 29, 2009, the Company entered into Waiver and Amendment No. 1
(the "Waiver Agreement") to the senior credit facility. As anticipated, as of
September 30, 2009, the Company was not in compliance with certain financial
covenants of the senior credit facility. Pursuant to the Waiver Agreement, the
lenders agreed to waive any violation of the interest coverage, leverage and
fixed charge covenants under the senior credit facility until the earliest of
(i) the occurrence of any other default under the senior credit facility, (ii)
the Company`s failure to comply with any term of the Waiver Agreement or (iii)
December 15, 2009 (the "Waiver Period"). The Company has formed a steering
committee of its Board of Directors to explore initiatives to address long-term
solutions to its credit issues. The Company is in discussions with its current
lenders regarding restructuring or replacing some or all of its debt, which
would be likely to include the issuance of equity to such lenders and the
payment of additional fees, as well as exploring with third parties various
strategic alternatives affecting the Company`s debt and equity ownership. Even
with the additional time provided by the Waiver Agreement, there can be no
assurance that the Company will be able to complete any initiatives to resolve
its credit issues on satisfactory terms, or at all. Any such initiatives the
Company pursues are likely to severely dilute its existing stockholders and may
result in its existing common stock having little or no value. If the Company is
unable to execute on its initiatives prior to the expiration of the Waiver
Period, its failure to comply with the financial covenants of the senior credit
facility as of September 30, 2009 would be a default under the facility, absent
a further waiver of those terms, which may not be available at that time. The
Company is seeking an additional wavier to extend the Waiver Period and provide
additional Credit Agreement relief from the payment of principal and interest
due. The Company anticipates that it may have insufficient cash at year end to
both make its required payments under the Credit Agreement and operate its
business. Accordingly, absent a waiver of some or all of the scheduled quarterly
payments required under the Credit Agreement, which would require unanimous
approval of the lenders of the debt outstanding under the Credit Agreement, the
Company may default on its payment obligations under the Credit Agreement or
seek relief through the bankruptcy courts. There can be no assurance that the
Company will be able to obtain a waiver of all or any portion of the scheduled
quarterly payments under the Credit Agreement from its lenders. The occurrence
of an event of default under the Company`s credit facility potentially could
lead to acceleration of the Company`s loan obligations by its lenders,
termination of its interest rate swap agreements by the counterparties,
reorganization under Chapter 11 of the U.S. Bankruptcy Code and the initiation
of insolvency proceedings against us in some non-U.S. jurisdictions.
* As the Company is uncertain that it will be able to complete any alternative,
long-term solutions to its credit issues or to obtain a further waiver prior to
expiration of the Waiver Agreement, the Company is no longer able to support
that the variable-rate interest payments (hedged transactions) under its senior
credit facility are probable of occurring and therefore, effective September 1,
2009, the Company was required to discontinue cash flow hedge accounting
prospectively for its interest rate swaps so that the mark to market changes in
their fair value are charged or credited to interest expense.
SEGMENT INFORMATION
The following table presents net sales for the third quarter of 2009 and 2008 by
segment and the effect of currency on pricing and translation on third quarter
2009 net sales:
(dollars in millions):
Net Sales Decrease Decrease in Percent decrease in net
Three Months Ended in net Q3 2009 net sales from Q3 2008 to
September 30, sales from sales due to Q3 2009
Q3 2008 to currency
Q3 2009 translation*
and the
effect of
currency on
pricing**
2009 2008 Total Excluding
currency
translation*
effect and
the effect of
currency
on pricing**
Clothing $ 86.0 $ 104.4 $ (18.4 ) $ (2.8 ) (17.6 )% (14.9 )%
Roll Covers 44.3 54.9 (10.6 ) (1.4 ) (19.3 )% (16.8 )%
Total $ 130.3 $ 159.3 $ (29.0 ) $ (4.2 ) (18.2 )% (15.6 )%
* Decrease in third quarter 2009 net sales due to currency translation is calculated by subtracting (i) an amount equal to net sales for the third quarter of 2008 from (ii) net sales for the third quarter of 2009 at the applicable average foreign currency exchange rate for the third quarter of 2009.
** Change in the third quarter 2009 net sales due to currency effect on pricing relates to sales prices indexed in U.S. Dollars by certain non-U.S. operations and is calculated based on the difference in the exchange rate from the time of pricing commitment to the customer and the point at which the sale transaction is recorded.
CONFERENCE CALL
The Company plans to hold a conference call to discuss these results tomorrow
morning:
Date: Friday, November 6, 2009
Start Time: 8:00 a.m. Eastern Time
Domestic Dial-In: +1-888-396-2369
International Dial-In: +1-617-847-8710
Passcode: 55836412
Webcast & Slide Presentation: www.xerium.com/investorrelations
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, in addition to a
slide presentation, 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 and Adjusted EBITDA, to assist in evaluating financial performance,
specifically 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 the 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) 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 below. The information in this press release should be read in
conjunction with the 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 32 manufacturing facilities in 13 countries around the
world, Xerium has approximately 3,300 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) we are subject to significant risks as a result of the
current global economic crisis and the associated unpredictable market
conditions; (2) market improvement in our industry may occur more slowly than we
anticipate or not at all; (3) our plans to reduce trapped cash, develop new
products, and reduce costs may not be successful; (4) we may be unable to
successfully resolve our credit issues, which would result in the acceleration
of our debt and we anticipate we may not have sufficient cash available to pay
our debt and continue operations; and (5) the other risks and uncertainties
discussed elsewhere in this press release, our Form 10-K for the year ended
December 31, 2008, and our subsequent 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 the current economic downturn and
our credit issues, 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.
Selected Financial Data - (Unaudited)
(dollars in thousands, except per share data)
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net sales $ 130,308 $ 159,307 $ 367,654 $ 488,687
Costs and expenses:
Cost of products sold 81,520 106,513 228,956 303,763
Selling 16,991 20,125 49,574 62,437
General and administrative 15,428 28,265 35,100 70,322
Restructuring and impairments 1,754 3,612 2,894 6,862
Research and development 2,708 2,910 8,168 9,109
Curtailment/settlement gains - (39,968 ) - (39,968 )
118,401 121,457 324,692 412,525
Income from operations 11,907 37,850 42,962 76,162
Interest expense (16,651 ) (16,963 ) (48,899 ) (43,513 )
Interest income 226 733 947 1,296
Foreign exchange gain (loss) 561 710 (225 ) 3,344
Income (loss) before provision for income taxes (3,957 ) 22,330 (5,215 ) 37,289
Provision for income taxes 3,424 794 10,013 6,344
Net income (loss) $ (7,381 ) $ 21,536 $ (15,228 ) $ 30,945
Net income (loss) per share:
Basic $ (0.15 ) $ 0.47 $ (0.31 ) $ 0.67
Diluted $ (0.15 ) $ 0.46 $ (0.31 ) $ 0.67
Shares used in computing net income (loss) per share:
Basic 48,882,979 46,163,605 48,898,255 46,111,390
Diluted 48,882,979 46,327,233 48,898,255 46,208,018
Condensed Consolidated Selected Financial Data
Nine Months Ended
September 30,
2009 2008
Balance sheet data (at end of period):
Cash and cash equivalents $ 21,816 $ 18,449
Total assets 784,456 832,188
Senior debt 591,471 620,232
Total debt 628,554 629,637
Total stockholders` equity (deficit) (23,456 ) 10,699
Cash flow data:
Net cash provided by operating activities $ 3,789 $ 52,834
Net cash used in investing activities (8,659 ) (27,135 )
Net cash used in financing activities (9,314 ) (30,386 )
Other financial data:
Depreciation and amortization $ 30,769 $ 35,697
Capital expenditures 13,970 29,145
NON-GAAP LIQUIDITY MEASURES
The Company uses EBITDA and Adjusted EBITDA as supplementary non-GAAP liquidity
measures to assist in evaluating its liquidity and financial performance,
specifically its ability to service indebtedness and to fund ongoing capital
expenditures. The Company`s credit facility includes covenants based on Adjusted
EBITDA. If the Company`s Adjusted EBITDA declines below certain levels, the
Company will violate the covenants resulting in a default condition under the
credit facility or be required to prepay the credit facility. Neither EBITDA nor
Adjusted EBITDA should be considered in isolation or as a substitute for income
(loss) from operations (as determined in accordance with GAAP).
The following table provides a reconciliation from net income (loss), which is
the most directly comparable GAAP financial measure, to EBITDA and Adjusted
EBITDA.
Three Months Ended
September 30,
(in thousands) 2009 2008
Net income (loss) $ (7,381 ) $ 21,536
Income tax provision 3,424 794
Interest expense, net 16,425 16,230
Depreciation and amortization 10,851 11,739
EBITDA 23,319 50,299
Amendment/termination costs - 483
Change in fair value of interest rate swaps (859 ) 450
Restructuring expenses 87 1,817
Inventory write-offs under restructuring programs 104 199
Non-cash compensation and related expenses 778 500
Non-cash impairment charges 1,667 405
Adjusted EBITDA $ 25,096 $ 54,153
Nine Months Ended
September 30,
(in thousands) 2009 2008
Net income (loss) $ (15,228 ) $ 30,945
Income tax provision 10,013 6,344
Interest expense, net 47,952 42,217
Depreciation and amortization 30,769 35,697
EBITDA 73,506 115,203
Unrealized foreign exchange gain on indebtedness, net - (1,985 )
Amendment/termination costs - 6,480
Change in fair value of interest rate swaps (1,654 ) 14,154
Change in fair value of other derivatives - (2,126 )
Restructuring expenses 1,227 5,000
Inventory write-offs under restructuring programs 349 199
Growth program costs - 1,764
Non-cash compensation and related expenses 1,824 774
Non-cash impairment charges 1,667 472
Adjusted EBITDA $ 76,919 $ 139,935
SBG Investor Relations
Geoffrey Buscher, 508-532-1790
IR@xerium.com
Copyright Business Wire 2009
