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Xerium Technologies Inc. Message Board

  • a_different_woman a_different_woman Mar 26, 2010 11:27 AM Flag

    10-K is out

    http://phoenix.corporate-ir.net/phoenix.zhtml?c=179598&p=IROL-sec

    Lots to read. FYI: reverse split planned is 20:1.

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    • The discussion on this tiny little company is so far above the crap posted on other boards that it should embarrass the others. Thanks.

      Why the downward move this week? I would have thought the only people still holding XRM would be more patient.

      • 1 Reply to chb2c
      • I followed the volume and the size of the trades. From that I can tell you that the only ones trading this stock right now is small retail investors. Unfortunately, less then 5 percent of those investors read the yahoo message board or have any extensive knowledge of what a pre-packaged BK is. Some got in the last few weeks in the hope that the company will recieve 100% participation from the debt holders and expected this stock to jump on the news. Unfortunately, there is a small delay, which might need to go through court through a BK process. Just the word Banktrupcy scares the crap out of many small investors and they run for the doors, taking a small loss. Can't blame them for being overly cautious with their money. Just reading the 10-k forward looking statement can make you think that the sky is falling and that they are going to shut their doors tomorrow. In reality, they have to state every possible outcome, even if very small posibility, to cover their butts from possible lawsuits. Even MSFT has a looking forward statement stating that the sky might fall tomorrow on top of their heads and the company can cease to exist as a going concern.

        Example from MSFT 10-k

        "Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock."

        This is followed by 8 pages of possible risks including this one (My favorite):

        Catastrophic events or geo-political conditions may disrupt our business. A disruption or failure of our systems or operations in the event of a major earthquake, weather event, cyber-attack, terrorist attack, or other catastrophic event could cause delays in completing sales, providing services, or performing other mission-critical functions. Our corporate headquarters, a significant portion of our research and development activities, and certain other critical business operations are located in the Seattle, Washington area, and we have other business operations in the Silicon Valley area of California, both of which are near major earthquake faults. A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations and our operating results. Abrupt political change, terrorist activity, and armed conflict pose a risk of general economic disruption in affected countries, which may increase our operating costs. These conditions also may add uncertainty to the timing and budget for technology investment decisions by our customers.

        So if your read their forward looking statement, you would think that this is the end of the world.
        I would suggest not to make to much of a big deal of the daily stock action, especially on low volume and wait for the reorganization to be completed.

    • Wow, lots of info in that 10-k. Espesially looking forward statement and possible risks. It's kind of strange that they will issue only 20 mil shares. It will take all the volatility out of the trading on one hand, but will limit liquidity on the other. So we are getting 3.13 million shares and we will have warrants to buy an additional 2 million shares. I was hoping they would Issue 50 mil shares but I guess they want the volatility out of their share price.
      The lenders are also getting 5 seats on the board of directors, out of 7. This is telling me that they will want to rehab the company for a little bit then sell it. There are many other restrictions on the company which tells me that the lenders are not planning to hold the company stock for long and want a quick exit strategy. Any access cash over 50% (not sure what that means) has to be used to buy back shares and retire them or pay back the loans. There is also a limit on the leverage they can maintain. If their leverage (debt to equity) gets a little too high, thier interest rate on their debt moves higher. There are other restrictions that limits the managements movements.
      Also of note, since the debt holders are getting 5 board members, they are considered insiders and have restrictions on selling their shares. So 82.6 will be held by insiders and only 3 million shares will be floating on the open market. Average daily volume will be very low.
      In conclusion, the current share price is still below the conversion price for the debt holders and once the conversion goes through, we will be in great shape. Only now we are stuck in purgatory because of some crappy little bank that won't get on board. Oh well, I have time. Waited this long, another month or so won't hurt.

      • 2 Replies to frtgrdn21
      • frtgrdn21: I want to start out by thanking you for all the insight you have brought to the situation. When you started posting, I scanned your posts on other MBs. You seem to specialize in distressed company investing. Just wanted you to know your posts are appreciated, at least by me.

        As I said, my brain is tired. I know what I'm doing for the short term - sitting tight. The 1000 shares I added at 0.65 on Friday was the end of my buying. (I couldn't resist.) I've been in this stock since late 2006 and a few older shares have kept my average cost per share just over $1. At this point, I'm fairly confident I'll be even or better sometime over the next year or so. Sooner I expect, but I can be patient a bit longer.

        As I said, sitting tight. I'll take some short term pain if necessary and then make some decisions once I know final terms including the strike price on the warrants.

        So, I want to comment on a few things. I'll do a post for each of yours.

        Regarding BOD composition, there is some history there. Apax, currently owning 51% of existing stock, holds the majority of board seats today. This was a relatively recent development - Apax took a more activist approach not long before Stephen Light was recruited. Apparently their ownership level exempted them from requirements for independent board members. (This is from memory.)

        Apax, a private equity firm, had problems mounting the IPO in 2005 and looking back, I think they made some key bad decisions that put Xerium at risk right out of the box. The biggest of these were the heavy debt load and high dividend (0.225/qtr right out of the box).

        So the change to the BOD just seems a logical progression from one majority owner to another. I suspect Apax might be more anxious to sell out than the lenders.

      • I based my assumption that we are getting around 3.13 million shares on the following. Company will authorize 20 million new common stock. They will issue only 18 million to us and the debt holders and the rest will be held and issued only when the warrants are exercised.

        "The existing holders of our Existing Common Stock will be receive (a) approximately 17.4% of the shares of New Common Stock to be issued on the Effective Date, and (b) warrants to purchase up to 10% of the number of issued and outstanding shares of New Common Stock as of the Effective Date. The warrants will be exercisable for a term of four years from the issue date, and the exercise price per share of common stock would be determined in accordance with a formula based on the final amount of allowed claims of the Lenders under the Credit Facility and the swap termination counterparties in the chapter 11 proceeding."

        So 18 million will be split among us and debt holders. So I multiplied 18 mil shares by 17.4% and got 3.132 mil shares for us. Currently there are 50.1 mil shares outstanding. So in effect it's a 16-1 reverse split. Current market cap is around $35 million and they are reducing debt by a little over $200 million, so it is reasonable to predict that the market cap will open up at $250 million range. With 18 million shares outstanding, share price should open up at around $14 as a minimum. Probably will be a lot higher, but I'll go very conservative. With a 16 to 1 reverse split, current fair value is .875 and that is the bare minimum. If anyone wants to add any input or finds a mistake. please let me know.

        Other factors include them getting a new loan for $60 Mil that will add $60 mil in cash to their books and the warrants which will bring another $30 mil to the company if exercised, but I took these factors out of my equation and kept it simple and clean.

 
XRM
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