(USA) Xerium Technologies, Inc. (NYSE: XRM), a leading global manufacturer of clothing and roll covers used primarily in the paper production process, today reported results for the first quarter ended March 31, 2008. Highlights for the quarter include:
-- Net sales for the first quarter of 2008 were $159.0 million, a 10.4% increase from net sales of $144.0 million for the first quarter of 2007. Excluding currency effects described below, first quarter 2008 net sales increased 2.4% from the first quarter of 2007, with growth of 2.7% and 1.6% in the clothing and roll covers segments, respectively.
-- Income from operations increased by 21.2% to $20.6 million in the first quarter of 2008 from $17.0 million in the first quarter of 2007. Restructuring and impairment expenses in the first quarter of 2008 were $0.5 million, as compared to $4.1 million in the first quarter of 2007.
-- Xerium recorded a net loss of $4.7 million, or $0.10 per diluted share, for the first quarter of 2008. Significant items contributing to the net loss were a $12.2 million pre-tax, non-cash charge to interest expense reflecting the mark-to-market decrease in the fair value of the Company's interest rate swaps in the first quarter of 2008, compared to a $1.6 million charge in the first quarter of 2007 (see below for additional detail) and a provision for income taxes of $3.6 million in the first quarter of 2008, compared to $1.4 million in the first quarter of 2007. Net income for the first quarter 2007 was $3.0 million, or $0.07 per diluted share.
-- Net cash generated by operating activities was $29.8 million for the first quarter of 2008, compared to $15.3 million in the same quarter last year, resulting primarily from improvements in working capital.
-- Adjusted EBITDA (as defined in the Company's credit facility) was $34.8 million for the first quarter of 2008, compared to $32.8 million for the first quarter of 2007. See "EBITDA and Adjusted EBITDA Reconciliation" below.
-- Cash on hand at March 31, 2008 was $31.0 million compared to cash on hand of $17.7 million at March 31, 2007. Cash on hand at December 31, 2007 was $24.2 million. Total debt principal and interest payments amounted to $24.8 million during the first quarter of 2008 as compared with $13.7 million during the first quarter of 2007.
-- As a result of the Company's credit facility issues (see Credit Facility Update below), the Company's balance sheet as of March 31, 2008 includes a reclassification to current debt of $658.8 million, the portion of the long-term debt under the senior credit facility that would have been in default of the credit agreement had the Company not obtained the temporary waiver. Additionally, because this debt is potentially payable prior to the expiration of the underlying interest rate swaps, hedge accounting under SFAS No. 133 was no longer applicable for the Company's interest rate swaps and the mark-to-market decrease in their fair value of $12.2 million was recorded as a non-cash charge to interest expense during the first quarter of 2008.
Credit Facility Update
Xerium's credit facility requires the Company to meet certain operating requirements and financial ratios in order to avoid a default or event of default under the facility. Although the Company expects it would generate cash flow from operations sufficient to service the debt under the credit facility prior to the stated maturity of the debt if there is not otherwise an event of default and acceleration of the maturity of the debt, the Company did not satisfy the leverage ratio covenant for the period ended March 31, 2008. Failure to satisfy the covenant would constitute a default under its credit facility absent a waiver from its lenders. As previously reported, Xerium's independent registered public accounting firm included an explanatory paragraph in its report on the 2007 consolidated financial statements related to the uncertainty in the Company's ability to continue as a going concern. The going concern notation also constitutes a default under the Company's credit facility absent a waiver. On April 8, 2008, the Company obtained a temporary waiver from the lenders for these defaults. The waiver is in effect until May 31, 2008. Because the existing financial ratio covenants become more restrictive over time, the Company does not expect to be in compliance with certain financial ratio covenants for future periods as well. The Company is currently seeking to secure a permanent waiver and to amend the financial covenants and other parameters in its credit facility.
As disclosed on March 18, 2008, the Company determined not to declare a cash dividend on its common stock for the first quarter of 2008. The credit facility waiver described above amends the credit facility to prohibit the payment of dividends on the Company's common stock.
Stephen Light, President and Chief Executive Officer of Xerium Technologies, said, "Our operating results for the first quarter were solid, despite ongoing challenges in portions of the paper industry. Importantly, net cash generated by operating activities improved significantly as our initial efforts to enhance working capital began to take hold."
He added, "We remain in active discussions with our lending group to secure amendments to the Company's credit facility to avoid default and allow Xerium greater financial and operating flexibility going forward. In concert with these discussions, we are finalizing a revised, long-range business plan designed to increase cash generation over the next few years through improved operating efficiencies and working capital reductions, and to apply that cash to the repayment of debt. We believe the achievement of these measures will significantly enhance the Company's operations and results in the future."
ADDITIONAL QUARTERLY FINANCIAL HIGHLIGHTS
-- Capital expenditures for the first quarter of 2008 were $12.1 million, compared to $7.1 million for the first quarter of 2007. Approximately $9.8 million of capital expenditures in this year's quarter were directed toward projects designed to support the Company's growth objectives, with the remaining $2.3 million used to sustain the Company's existing operations and facilities. Less than $1 million of new capital expenditures was committed during the quarter.
-- The Company recorded a foreign exchange gain in the first quarter of 2008 of $3.5 million, compared to a foreign exchange loss of $0.4 million in the first quarter of 2007. Foreign exchange gains and losses are primarily the result of intercompany activity and hedging thereon.
-- The Company recorded a provision for income taxes of $3.6 million in the first quarter of 2008 resulting primarily from tax liability in countries outside of the United States, compared to $1.4 million in the first quarter of 2007.
-- During the first quarter of 2008, Xerium made total debt principal repayments of $12.0 million, compared to $6.0 million in the first quarter 2007.
Clothing Segment Commentary
-- Clothing segment sales during the first quarter of 2008 increased 11.0% to $103.6 million from $93.3 million in the comparable period of 2007, reflecting favorable currency effects and increased sales in Asia-Pacific and Europe, partially offset by reduced sales volumes in North and South America. Excluding the currency effects on translation and pricing described above, clothing segment sales for the first quarter of 2008 would have increased 2.7% as compared with the first quarter of 2007.
-- Overall pricing levels for the clothing segment in the first quarter of 2008 decreased approximately 1.0% compared with first quarter 2007 levels.
-- Clothing segment earnings for the first quarter of 2008 of $23.9 million remained relatively constant compared to the prior year quarter at $23.7 million.
Roll Covers Segment Commentary
-- Roll covers segment sales during the first quarter of 2008 increased 9.3% to $55.4 million, from $50.7 million in the comparable period in 2007, due to favorable currency effects, increased sales in Europe and in Asia-Pacific due to the Company's acquisition of roll covers operations in China in the fourth quarter of 2007, partially offset by reduced sales volumes in North and South America. Excluding the currency effects described above, in the first quarter of 2008, roll covers segment sales increased 1.6% from the first quarter of 2007.
-- Overall pricing levels in the roll covers segment declined by approximately 3% in the first quarter of 2008 compared to the same period in 2007.
-- Roll covers segment earnings for the first quarter of 2008 of $14.0 million increased 15.7% compared to the prior year quarter. Key drivers of this improvement include higher sales volumes and the positive impact of the Company's restructuring and efficiency programs.
CONFERENCE CALL
The Company plans to hold a conference call to discuss these results tomorrow morning, Thursday, May 8, 2008, beginning at 8:00 am ET. The call is accessible via the Company's website (www.xerium.com) following the links to investor relations and webcasts. To access the conference call, please dial 877-391-6733, using passcode 96503289, at least 10 minutes prior to the call's start. Internationally, the call may be accessed by dialing 617-597-9372, using the same passcode. The call will be available as an archived webcast on the Company's website beginning approximately an hour after the call is completed.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA and EBITDA are not measures of performance under generally accepted accounting principles ("GAAP"); they are non-GAAP financial measures. Xerium Technologies uses these measures as supplementary non-GAAP financial measures to assist in evaluating liquidity and financial performance, specifically in evaluating the Company's ability to service indebtedness and to fund ongoing capital expenditures. Xerium Technologies' 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 net cash provided by operating activities (as determined in accordance with GAAP) or income from operations (as determined in accordance with GAAP). For additional information regarding Adjusted EBITDA and EBITDA, 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 35 manufacturing facilities in 15 countries around the world, Xerium has approximately 3,700 employees.
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-- Net sales for the first quarter of 2008 were $159.0 million, a 10.4% increase from net sales of $144.0 million for the first quarter of 2007. Excluding currency effects described below, first quarter 2008 net sales increased 2.4% from the first quarter of 2007, with growth of 2.7% and 1.6% in the clothing and roll covers segments, respectively.
-- Income from operations increased by 21.2% to $20.6 million in the first quarter of 2008 from $17.0 million in the first quarter of 2007. Restructuring and impairment expenses in the first quarter of 2008 were $0.5 million, as compared to $4.1 million in the first quarter of 2007.
-- Xerium recorded a net loss of $4.7 million, or $0.10 per diluted share, for the first quarter of 2008. Significant items contributing to the net loss were a $12.2 million pre-tax, non-cash charge to interest expense reflecting the mark-to-market decrease in the fair value of the Company's interest rate swaps in the first quarter of 2008, compared to a $1.6 million charge in the first quarter of 2007 (see below for additional detail) and a provision for income taxes of $3.6 million in the first quarter of 2008, compared to $1.4 million in the first quarter of 2007. Net income for the first quarter 2007 was $3.0 million, or $0.07 per diluted share.
-- Net cash generated by operating activities was $29.8 million for the first quarter of 2008, compared to $15.3 million in the same quarter last year, resulting primarily from improvements in working capital.
-- Adjusted EBITDA (as defined in the Company's credit facility) was $34.8 million for the first quarter of 2008, compared to $32.8 million for the first quarter of 2007. See "EBITDA and Adjusted EBITDA Reconciliation" below.
-- Cash on hand at March 31, 2008 was $31.0 million compared to cash on hand of $17.7 million at March 31, 2007. Cash on hand at December 31, 2007 was $24.2 million. Total debt principal and interest payments amounted to $24.8 million during the first quarter of 2008 as compared with $13.7 million during the first quarter of 2007.
-- As a result of the Company's credit facility issues (see Credit Facility Update below), the Company's balance sheet as of March 31, 2008 includes a reclassification to current debt of $658.8 million, the portion of the long-term debt under the senior credit facility that would have been in default of the credit agreement had the Company not obtained the temporary waiver. Additionally, because this debt is potentially payable prior to the expiration of the underlying interest rate swaps, hedge accounting under SFAS No. 133 was no longer applicable for the Company's interest rate swaps and the mark-to-market decrease in their fair value of $12.2 million was recorded as a non-cash charge to interest expense during the first quarter of 2008.
Credit Facility Update
Xerium's credit facility requires the Company to meet certain operating requirements and financial ratios in order to avoid a default or event of default under the facility. Although the Company expects it would generate cash flow from operations sufficient to service the debt under the credit facility prior to the stated maturity of the debt if there is not otherwise an event of default and acceleration of the maturity of the debt, the Company did not satisfy the leverage ratio covenant for the period ended March 31, 2008. Failure to satisfy the covenant would constitute a default under its credit facility absent a waiver from its lenders. As previously reported, Xerium's independent registered public accounting firm included an explanatory paragraph in its report on the 2007 consolidated financial statements related to the uncertainty in the Company's ability to continue as a going concern. The going concern notation also constitutes a default under the Company's credit facility absent a waiver. On April 8, 2008, the Company obtained a temporary waiver from the lenders for these defaults. The waiver is in effect until May 31, 2008. Because the existing financial ratio covenants become more restrictive over time, the Company does not expect to be in compliance with certain financial ratio covenants for future periods as well. The Company is currently seeking to secure a permanent waiver and to amend the financial covenants and other parameters in its credit facility.
As disclosed on March 18, 2008, the Company determined not to declare a cash dividend on its common stock for the first quarter of 2008. The credit facility waiver described above amends the credit facility to prohibit the payment of dividends on the Company's common stock.
Stephen Light, President and Chief Executive Officer of Xerium Technologies, said, "Our operating results for the first quarter were solid, despite ongoing challenges in portions of the paper industry. Importantly, net cash generated by operating activities improved significantly as our initial efforts to enhance working capital began to take hold."
He added, "We remain in active discussions with our lending group to secure amendments to the Company's credit facility to avoid default and allow Xerium greater financial and operating flexibility going forward. In concert with these discussions, we are finalizing a revised, long-range business plan designed to increase cash generation over the next few years through improved operating efficiencies and working capital reductions, and to apply that cash to the repayment of debt. We believe the achievement of these measures will significantly enhance the Company's operations and results in the future."
ADDITIONAL QUARTERLY FINANCIAL HIGHLIGHTS
-- Capital expenditures for the first quarter of 2008 were $12.1 million, compared to $7.1 million for the first quarter of 2007. Approximately $9.8 million of capital expenditures in this year's quarter were directed toward projects designed to support the Company's growth objectives, with the remaining $2.3 million used to sustain the Company's existing operations and facilities. Less than $1 million of new capital expenditures was committed during the quarter.
-- The Company recorded a foreign exchange gain in the first quarter of 2008 of $3.5 million, compared to a foreign exchange loss of $0.4 million in the first quarter of 2007. Foreign exchange gains and losses are primarily the result of intercompany activity and hedging thereon.
-- The Company recorded a provision for income taxes of $3.6 million in the first quarter of 2008 resulting primarily from tax liability in countries outside of the United States, compared to $1.4 million in the first quarter of 2007.
-- During the first quarter of 2008, Xerium made total debt principal repayments of $12.0 million, compared to $6.0 million in the first quarter 2007.
Clothing Segment Commentary
-- Clothing segment sales during the first quarter of 2008 increased 11.0% to $103.6 million from $93.3 million in the comparable period of 2007, reflecting favorable currency effects and increased sales in Asia-Pacific and Europe, partially offset by reduced sales volumes in North and South America. Excluding the currency effects on translation and pricing described above, clothing segment sales for the first quarter of 2008 would have increased 2.7% as compared with the first quarter of 2007.
-- Overall pricing levels for the clothing segment in the first quarter of 2008 decreased approximately 1.0% compared with first quarter 2007 levels.
-- Clothing segment earnings for the first quarter of 2008 of $23.9 million remained relatively constant compared to the prior year quarter at $23.7 million.
Roll Covers Segment Commentary
-- Roll covers segment sales during the first quarter of 2008 increased 9.3% to $55.4 million, from $50.7 million in the comparable period in 2007, due to favorable currency effects, increased sales in Europe and in Asia-Pacific due to the Company's acquisition of roll covers operations in China in the fourth quarter of 2007, partially offset by reduced sales volumes in North and South America. Excluding the currency effects described above, in the first quarter of 2008, roll covers segment sales increased 1.6% from the first quarter of 2007.
-- Overall pricing levels in the roll covers segment declined by approximately 3% in the first quarter of 2008 compared to the same period in 2007.
-- Roll covers segment earnings for the first quarter of 2008 of $14.0 million increased 15.7% compared to the prior year quarter. Key drivers of this improvement include higher sales volumes and the positive impact of the Company's restructuring and efficiency programs.
CONFERENCE CALL
The Company plans to hold a conference call to discuss these results tomorrow morning, Thursday, May 8, 2008, beginning at 8:00 am ET. The call is accessible via the Company's website (www.xerium.com) following the links to investor relations and webcasts. To access the conference call, please dial 877-391-6733, using passcode 96503289, at least 10 minutes prior to the call's start. Internationally, the call may be accessed by dialing 617-597-9372, using the same passcode. The call will be available as an archived webcast on the Company's website beginning approximately an hour after the call is completed.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA and EBITDA are not measures of performance under generally accepted accounting principles ("GAAP"); they are non-GAAP financial measures. Xerium Technologies uses these measures as supplementary non-GAAP financial measures to assist in evaluating liquidity and financial performance, specifically in evaluating the Company's ability to service indebtedness and to fund ongoing capital expenditures. Xerium Technologies' 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 net cash provided by operating activities (as determined in accordance with GAAP) or income from operations (as determined in accordance with GAAP). For additional information regarding Adjusted EBITDA and EBITDA, 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 35 manufacturing facilities in 15 countries around the world, Xerium has approximately 3,700 employees.
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