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Executives

Kevin McDougall - Executive Vice President and General Counsel

Harold Bevis - Chief Executive Officer, President and Director

Clifford E. Pietrafitta - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

David Pretty - President of Xerium North America and President of Xerium Europe Pmc

Thomas C. Johnson - President of Xerium Asia

Analysts

Richard Kus - Jefferies & Company, Inc., Research Division

Joseph Bess - Roth Capital Partners, LLC, Research Division

Kevin J. Cohen - Imperial Capital, LLC, Research Division

Ryan J. Levenson - Privet Fund Management LLC

Adam Ritzer

Bishop Jordan

John Koerber

Phillip Pennell

Sean Sauler

John Pace

Xerium Technologies (XRM) Q3 2012 Earnings Call November 6, 2012 9:00 AM ET

Operator

Ladies and gentlemen, welcome to the Xerium Technologies Third Quarter 2012 Financial Results Conference Call on November 6, 2012. My name is Clinton and I'll be your operator for today. [Operator Instructions] I would now like to hand the conference over to Kevin McDougall, Executive Vice President and General Counsel. Please go ahead, sir.

Kevin McDougall

Thank you, and welcome to Xerium Technologies' third quarter 2012 financial results conference call. Joining me this morning are Harold Bevis, the CEO and President of Xerium Technologies; and Cliff Pietrafitta, Executive Vice President and Chief Financial Officer. Harold will start the discussion this morning and then we will provide further financial details with respect to the quarter. Subsequently, we will open the line for questions.

Xerium Technologies' financial results for the quarter were made available with the filing of our 10-Q after market close on Monday, November 5, 2012, and were also announced in a press release issued after the filing of the 10-Q. Notification of this call was broadly disclosed and this conference call is being webcast using the link on the Investor Relations page of our website at www.xerium.com.

I'd also note that we'll make comments today about future expectations, plans and prospects for the company, such as our general expectations for the remainder of 2012. These statements constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those described in Monday's press release and in our SEC filings. The forward-looking statements represent our view as of today, November 6, 2012, and we specifically disclaim any obligation to update these forward-looking statements.

Lastly on this call, we plan to discuss supplementary non-GAAP financial measures such as adjusted EBITDA that are key metrics for our credit facility covenants and that we use internally to assess liquidity and financial performance and therefore believe will assist you in better understanding our company.

Reconciliation of these measures to the comparable GAAP numbers are available in our press release, which is posted in the Investor Relations section of our website at www.xerium.com. With that, I'd like to turn the call over to Harold.

Harold Bevis

Thank you, Kevin, and good morning, ladies and gentlemen. Thank you for joining us this morning to review Xerium's third quarter performance. Compared to the second quarter of 2012, our net sales decreased 1.6%, or 1% 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 in that segment. On a 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 of this year. It declined to $24.4 million in the third quarter of 2012 from $25.4 million in the second quarter of 2012.

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 of sales 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 million in the third quarter of 2011. Year-to-date, net sales have decreased 8.3% or 4.3% on a constant currency basis, to $405 million from a $441.8 million, contributing to a decrease in adjusted EBITDA of 19.2% to $68.6 million in 2012 versus $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.

Demand in the global markets we serve is reactive to base economic health. We are committed to leading in the markets that we serve. However, year-over-year sales in our traditional markets are down sharply and we must rightsize 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 2015 restructuring plan, which is -- excuse me Vision 2015 restructuring plan, which is expected to save $20 million upon completion, and we are adding significant new cost savings 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: One, paper market leadership; two, cost reduction; three, revenue diversification; and four, 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 of those assets to China and other countries; establish a global procurement program to both lower our costs and advance our product portfolio; rightsize our hourly workforces to be in line with sales rates; and expand our rolls production capacity in growth markets.

For the longer-term, we have begun to evaluate opportunities to increase our production in low-cost countries. Our company is committed -- completely committed to financial success and customer value, and we are proud to serve our customers and help them achieve their productivity results. Now, I'll turn the call over to Cliff for his insights into our financial performance.

Clifford E. Pietrafitta

Thank you, Harold. Sales for the third quarter of 2012 decreased 1.6% compared to the second quarter of 2012. On a constant currency basis, sales decreased by 1%, with Clothing segment sales increasing by 1.4% and Roll segment sales declining 5.3%. Compared to the third quarter of 2011, sales for the third quarter of 2012 declined 9.4% to $134.2 million from $148.2 million. Currency exchange rate differences accounted for 5 percentage points of the decline, while sales volume decreases accounted for the remaining 4.4 percentage points of the decline. The decrease was comprised of a 3.9% decline in our clothing business and a 5.2% decline in our roll cover business.

From a regional perspective, continued weakness in Europe accounted for the majority of the decline, with volume decreases in South and North America also contributing to the unfavorable sales result. On a year-to-date basis, sales decreased 8.3%, compared to the first 9 months of 2011, with 4 percentage points of the decline attributable to currency exchange rate differences and 4.3 percentage points of the decline driven by operations. On this same constant currency basis, clothing sales declined 4.8%, while roll sales declined 3.4% for the year-to-date period. A regional look at the sales results indicates that weakness in Europe accounted for more than the entire reduction in sales for the 9 months ended September 30, 2012. Sales volume in the rest of the world was up 0.5% during the first 9 months as strong Asian sales more than offset declines in the Americas.

Gross margins decreased to 36.6% of sales from 37.4% of sales in the second quarter of 2012. The decrease of 0.8 percentage points was primarily due to unfavorable currency exchange rate differences and unfavorable production absorption. Compared to the third quarter of 2011, gross margins of 36.6% were flat to 2011 gross margin as foreign currency benefits were offset by unfavorable production absorption as a result of lower production running through our plants compared to the same quarter last year. On a year-to-date basis, gross margins decreased to 36.2% from 37.6% of sales compared to the first 9 months of 2011. The reduction in gross margin for the year-to-date period was largely due to unfavorable factory absorption due to weak market demand, particularly in Europe, unfavorable regional sales mix and higher material costs. These unfavorable items were partially offset by favorable currency exchange rate differences.

Selling, general and administrative expenses and research and development cost increased 0.5% to $36.9 million from $36.7 million for the quarter ended September 30, 2012, compared to the quarter ended September 30, 2011. The slight increase in SG&A expenses was primarily due to the net impact of CEO transition cost in the third quarter of 2012 and the reversal of incentive compensation in the prior year's third quarter, largely offset by favorable currency exchange rate differences.

Selling, general and administrative expenses and research and development expenses for the year-to-date period ended September 30, 2012, decreased by 2.8% to $113.1 million from $116.3 million, compared to the year-to-date period ended September 30, 2011. The reduction was primarily due to favorable currency exchange rate differences, the favorable resolution of a contingent liability and gains on miscellaneous land sales, partially offset by CEO transition costs and the prior-year reversal of an accrual for VAT taxes in Brazil.

During the third quarter of 2012, restructuring expenses increased to $5.8 million from $0.6 million in the third quarter of 2011, significant costs in the quarter related to the restructuring projects in Argentina and France announced on July 2, 2012. These projects are expected to begin contributing savings in the fourth quarter of 2012. Interest expense declined 1% to $9.8 million in the third quarter of 2012 from $9.9 million in the third quarter of 2011. This decline reflects lower average debt balances and higher interest rates compared to the third quarter of 2011. The increase in interest rates reflects the addition of 75 basis points for the next 6 quarters to our bank term loan interest rates spread as agreed to in connection with the bank amendment finalized in June of this year.

Income tax expense was $94,000 in the third quarter of 2012 and $3.3 million in the third quarter of 2011. The improvement in the income tax expense was primarily attributable to the consolidated loss driven by the lower sales volume particularly in Europe, the level of restructuring expenses in the quarter and the geographic mix of earnings in the third quarter of 2012 compared to the third quarter of 2011.

Third quarter net income and diluted earnings per share declined to a net loss of $3.7 million, or $0.24 per share in the third quarter of 2012 from net income of $2.2 million, or $0.15 per share in the second quarter of 2012 and from income of $3.5 million, or $0.23 per share in the third quarter of 2011. On a year-to-date basis, net income declined to a loss of $9 million, or $0.59 per share from income of $5.8 million, or $0.38 per share for the comparable 9-month period ended September 30, 2012, and 2011.

Adjusted EBITDA is a non-GAAP measure by which we manage compliance with our existing financing agreements and provides a measure of the operating performance of the business. Adjusted EBITDA in the third quarter of 2012 decreased by 3.9% to $24.4 million from $25.4 million in the second quarter of 2012. Compared to the prior year, adjusted EBITDA decreased by 14.7% and 19.2% for the quarter and 9-month ended September 30, 2012, respectively.

Trade working capital increased from the second quarter of 2012 by 1.2% from $136.8 million to $138.5 million. Compared to the same quarter in 2011, trade working capital improved 12.4% from $158.1 million. This favorable result is due to continued progress in reducing inventories and accounts receivable as well as the favorable impact of a stronger U.S. dollar. Capital expenditures for the year-to-date period ended September 30, 2012, totaled $13.2 million compared to $18.9 million for the same period in 2011. We expect full-year capital expenditures to be approximately $25 million in 2012.

Net cash from operating activities for the 9 months ended September 30, 2012 totaled $30.2 million, compared to $30.8 million generated for the 9 months ended September 30, 2011. At September 30, 2012, we had -- we held $39.6 million of cash on our balance sheet. And as of October 23, 2012, maintained $24.1 million of borrowing availability under our revolving credit and other facilities. Total debt at September 30, 2012, declined $21.3 million to $447.8 million from $469.1 million at December 31, 2011, as a result of $20.6 million of net debt repayments and currency exchange rate differences.

Harold Bevis

Thank you, Cliff. Clinton, are you there? [indiscernible] We are ready for our questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Richard Kus of Jefferies.

Richard Kus - Jefferies & Company, Inc., Research Division

First off, Harold, can you give us a little bit of an indication of maybe the magnitude of the additional cost savings you think you can get beyond the $20 million from Vision 2015? And also, I take it you expect these programs to be implemented over the course of 2013?

Harold Bevis

Our -- additional cost savings questions, we're not going to give complete guidance, Richard, but I will answer them as best as I can. The additional actions that we're kicking off are multi-year also. And as I mentioned in the commentary, we are evaluating production low-cost countries. We're evaluating how to shuffle our production to the lowest cost plants. So a lot of these have multiple moves connected to them and will take a few years to play out. The magnitude of it is similar to the magnitude of the project that's already been announced. And so it's very significant. We want to offset our inflation area items and advance the ball. So it's going to be another series of multi-year actions that are the same kind of order of magnitude as the previously announced Vision 2015 program.

Richard Kus - Jefferies & Company, Inc., Research Division

Okay, and then would you say that there's a good portion of that that's really weighted towards SG&A savings?

Harold Bevis

I haven't done a split that way, but certainly that's one of the targets we're after. But I will say that we have equal opportunities to lower our cost of production as well. I'm not dodging the question. We haven't done a split in that manner.

Richard Kus - Jefferies & Company, Inc., Research Division

And then you had talked a little bit about redeploying equipment over into higher-growth regions, specifically China it sounds like. How much incremental CapEx do you think you need to spend to be able to do that, and what type of initiatives are you talking about there? Is this more clothing-related, roll cover-related?

Harold Bevis

We are looking at both of our businesses in Asia. The first moves that we're making are with equipment we already own. So as we look at the plants that we are closing down and correcting our capacity situations in certain markets, including Europe and South America, some of the assets are still good and productive. And we are relocating them to areas where we need that additional capacity, specifically Asia.

Richard Kus - Jefferies & Company, Inc., Research Division

Okay, and then lastly. Maybe Cliff, one for you. How do you feel about where you guys are in working capital currently, and do you expect more improvement there?

Clifford E. Pietrafitta

Working capital is a big focus for us. We've made some progress since the end of last year and continue to press that initiative. We do have some plans to improve our working capital position as we go into next year.

Operator

The next question comes from the line of Joe Bess of Roth Capital Partners.

Joseph Bess - Roth Capital Partners, LLC, Research Division

Cliff, I just had a first question on -- could you give us the orders for the quarter by segment?

Clifford E. Pietrafitta

We're not disclosing the order information. I could -- I can tell you, though that the order information that we've got is fairly consistent with what we've been seeing in the past couple of quarters. So we're seeing really sluggish type of growth. Nothing really meaningful in either direction. It's a steady state.

Joseph Bess - Roth Capital Partners, LLC, Research Division

Okay, but it has grown slightly, would you say?

Clifford E. Pietrafitta

I would just say it's kind of bouncing around.

Joseph Bess - Roth Capital Partners, LLC, Research Division

Okay, it's in a range, kind of where it's been. And then given the current environment, could you talk a little bit about the pricing that you're seeing out there? Are competitors taking any sort of aggressive cuts to prices at this point?

Harold Bevis

We don't -- in any market with contracting in certain regions and growing in others, you have the industry trying to contract its capacity and get in line with demand outlook. We certainly have that. In this quarter that just ended, we continue to see softness in Europe versus the Americas. And certainly the price pressure is more in Europe than it is in other regions. In the quarter just ended we saw nothing dissimilar to the trend lines that we've had. It's been consistent. It's not overly severe at this moment in time. It's been a consistent softness in Europe. We still see it. It's not worsening. It's not getting better. And us and our competitors have continued to adjust our manned capacity accordingly, to be in line with the demand outlooks.

Joseph Bess - Roth Capital Partners, LLC, Research Division

Okay, and then I might have missed it, but in -- you're expecting about $12 million in CapEx in Q4. What is that going towards again?

Clifford E. Pietrafitta

We really haven't described what that's going for. There are some initiatives. We've been delaying some of our spending as we got through the year. We need to spend a little bit of money on some specific projects that we've scheduled earlier in the year, but the spending is in line with our plans. If anything, we've actually deferred a little into '13.

Harold Bevis

It's primarily spending connected with Vision 2015 program and restructuring our cost structure. The specific items, some of them have lead times and they're down payments on long lead time equipment. Some of them have to do with the people costs associated with downsizing the human resources that are manning our capacity. And it's been an ongoing deal. We've had the same level of type of maintenance spending. We're definitely increasing our spending around quality systems in our plants. Quality is definitely very important to our customers, and we've seen opportunities to improve that and become more automated and sophisticated. So product quality and then, the -- we have some very important product development projects that are underway that we're investing in and then the cost restructuring spending surrounding Vision 2015.

Joseph Bess - Roth Capital Partners, LLC, Research Division

Okay. And then with regards to the $20 million in savings that you guys can -- you guys are kind of expecting through the plan. Are you able to break it down at all by SG&A cuts versus the move of production or anything like that? Can we just get a little bit more clarity?

Harold Bevis

That's similar to what Richard was asking from Jefferies on the break between SG&A and other buckets. And I'm not trying to dodge the question. We didn't look at it in that manner, but you can definitely look at our SG&A structure and it suggests that it can be rightsized, and we are. I can just say that we are being even-handed with the look of the P&L, and when you're going through a sales decline, you're overmanned in the plants and you're overmanned at the -- in the back office. So we're rightsizing down the P&L, not really tolling out one specific area we're staring at. We're literally trying to hold rate and get back to where we were on a rate basis, an EBITDA rate basis, in a disciplined manner. And we want to create and enhance market discipline in all the regions we participate in, as our competitors have done as well. And it's not consistent in each region. So the regions are performing quite differently. And so our actions in each region are different. SG&A -- so I would say the SG&A break versus plant break, it would be a logical assumption to just look at our P&L because we are just trying to rightsize the whole P&L. That's our goal.

Joseph Bess - Roth Capital Partners, LLC, Research Division

Great. And then, I guess, just last question for you, Harold. Since you've been on board, can you talk a little bit about what you've seen in the Company, what you like about the Company and what kind of makes you feel a little more positive about the outlook?

Harold Bevis

Thank you for asking that question. Number one, we have a really solid team here at Xerium. And we have industry veterans, I'm very thankful for that. We have strong regional customer relationships that we're proud of. We have a lot of our businesses under contract and repeat business. If you compare our Top 20 customers to the world's Top 20 potential customers, we align up quite nicely. We're -- I'm very happy to see that. We have strong cash flow. We're in a good position. Our products lead, SMART roll, resolve. We have an excellent product portfolio. We are very committed to the paper industry. Our 2 businesses are very paper-related, rolls and clothing. And so versus some of our other competitors, we love paper and we're committed to paper. Our market diversification activities are really based around an alternate use of those same assets into other markets versus spending time going after a different market. So they're consistent with that. And I'm very happy with the diversification activities that my predecessor, Stephen, had kicked off. And a lot of them had great traction. So I'm very happy with our commercial situation. We're doing well in our markets. I'm thankful for that. There's a lot of good data on market size, market share and we're holding our own. On the opportunity size -- side, I'm taking the advantage to really formalize some of the operational excellence programs that were just forming here at the company. And again, Stephen had started many of those himself. And I've gotten behind them with the Presidents and the functional leaders. And we're becoming more deterministic about our outcomes that we seek. And when I alluded to additional cost-saving actions that we are implementing, we are formalizing and becoming deterministic with outcomes -- cost-reduction outcomes on a lot of run the business topics. And we have the data we need. We have the information we need. And we're targeting outcomes with specific actions. So I'm also happy with the opportunities to enhance EBITDA that I see, and we have a lot. We've traditionally tracked, for instance, yield in our plants, and the reverse of that is waste. And so I've got more of a concerted effort on elimination of waste and re-use of our waste. And so we've kicked off a lot of projects internally. We kicked off over 100 projects across the board in operations, and they're being led by the Presidents. I'm not building a corporate infrastructure. I'm leveraging the people we have and we're overlaying a structured fabric to achieve collective outcomes. And I'm very happy to see that combination of events. And it's been embraced by the team. And it will lead us to be a better company, for sure.

Operator

The next question comes from the line of Kevin Cohen of Imperial Capital.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

I guess, Harold, if you could give a little bit more color in terms of Europe and the price pressure you're seeing there, is it more a function of people that are cutting price to gain market share? Or is it the case that people are migrating into the higher margin products, and so some of those areas are becoming a little bit more crowded or just any color you can provide on that topic?

Harold Bevis

That would require me to be more of an industry expect than I am. I do have joining me -- in the room with me, Dave Pretty. And Dave is the President of that business. So Dave, that's kind of a hard question, but would you take a shot at answering it?

David Pretty

Thank you, Harold. I think typically, what we're seeing right now is just -- it's a question of overcapacity in the European theater of operation. And there's encroachment definitely, in the high-end segment of our product lines, as well as the low-end segment of our product lines. But we are taking a disciplined approach, we continue to sell on value and we're holding our position in the European theater. As far as corporate accounts, as far as product -- new product introductions, we are definitely holding our position.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

And I guess in terms of the market dynamics out there, do you think the price pressure in Europe perhaps will usher in some consolidation? Or what do you see in terms of the industry landscape as that evolves over the next 12 to 18 months, if anything?

Harold Bevis

Well certainly we see that and of course we intend to be a part of that outcome. And a couple of our competitors preceded us with more aggressive actions in Europe. We intend to correct our situation in Europe. And I think that the industry is pretty organized, pretty disciplined. It's one of my takeaways so far. And we intend to do our part to balance the manned capacity in Europe to the actual -- our manned capacity to the demand that we see. We do think that Europe's going to continue to slide a little bit. That's our outlook. We do believe there will be some price deterioration in Europe. That's our outlook. That's consistent, at least, with one of our competitors who has announced their results as well. We don't see anything dramatic. We don't see a big, huge deterioration. We just see a consistent deterioration going on there. In other reasons -- in other regions, that's not the case. But certainly our strong product portfolio, our customer positions, our contractual positions and our legacy positions doesn't cause us, if you will, to go out in the spot market with open capacity and try to do short-term things. Our goal is really to hold our positions with our product portfolio, try to get repeat business off of the machines that we have, rolls and clothing and sub total value. Our value results selling program that we have is a total cost selling process, total cost of ownership and basically, it's pretty formal. And that's the way that we sell. And some people buy on total value, some people don't. I would guess the people that but on total value are more attracted to us, but that's what our focus is. We have a strong focus on the paper industry and Europe, and that's the way we sell to them. And we've been holding our share, not gaining, not deteriorating, but holding. And manning our capacity properly. And as you could tell, we are closing a plant in Europe now and we're looking at other actions to balance our capacity in Europe at this time.

Kevin J. Cohen - Imperial Capital, LLC, Research Division

And then one last question, I guess for Cliff. In terms of the timing of the $20 million of cost savings, is there a way to perhaps kind of sketch that out a little bit for us? You said a little bit would start in the fourth quarter. I guess on a run-rate basis, when will the full $20 million be in the numbers, or is it really is a 2015 type of event?

Clifford E. Pietrafitta

Well what I would say is this: In 2012 we announced 3 projects and the total savings on those for 2012, which we've talked about, is going to be about $3.5 million. We expect to get full-year run rates out of those projects. And so for 2013, we're expecting to see incremental, obviously, improvement over that. We have not disclosed the additional projects in our pipeline, so I really can't go further than that at this point in time because we haven't disclosed that information. But we are looking for -- we are looking for in 2013 to see significant contribution from the overall Vision 2015 plan.

Harold Bevis

Kevin, I'll just put a dot on that as well. It's a steady program. We're not adding talent to implement projects. We have a set amount of projects we can take on as a group. We have to balance that workload, and that we are -- we have a balanced look at this. It's a 3-year program. And you should assume a balanced improvement program coming from us, and that's basically what we're saying. We got started, and we have a measured approach to this so that we do it in a high-quality way and ensure the quality to the customers on the other side of it.

Operator

The next question comes from the line of Ryan Levenson of Privet Fund.

Ryan J. Levenson - Privet Fund Management LLC

I just need a little bit of clarification on the cost-cutting plans. Is it the -- is it, the 2013 things that you're working on, is that an incremental $20 million on top of the $20 million from Vision 2015?

Harold Bevis

That's what we're trying to do but it's not 2013. We have a multi-year plan. If you look at the actions we're talking about of closing plants and reallocating productions, these are multi-year projects. So it's not a 2013 feel. We'll be doing a lot of work in 2013 that will primarily benefit future periods. And any long -- any of the lead times on equipment in this industry are around a year, so ordering equipment is definitely improving a forthcoming period. So the 2015 project and the additional cost-savings projects are both spread over a 3-year period.

Ryan J. Levenson - Privet Fund Management LLC

Okay. And then I missed just what the last caller asked, which was -- there was some, I think, it was a $3.5 million contribution. What time frame was that?

Clifford E. Pietrafitta

Well what I was talking about was the impact of the 3 projects that we had previously announced and the impact of that on 2012. So those are the savings that we've been able to get this year, okay? So the -- then there's the incremental full-year run rate on those projects plus additional actions that will be taken going forward.

Ryan J. Levenson - Privet Fund Management LLC

Okay, and then I just wanted to break down working capital a little bit. Some of the -- your inventory did, on an absolute basis or relative to the size of business, it did improve. But the AR really, I think, can just be accounted for as due to the sales drop. And I'm just wondering, would you be able to hold your AR down at this level should sales rebound? Or are we looking at maybe about 40% -- or excuse me, about 1/3 of that $19.5 million is really a temporary kind of working capital position improvement?

Clifford E. Pietrafitta

I think that we -- if sales go up, obviously we're going to have some working capital investment necessary for those sales. We do have actions underway, and that we continue to work on to improve trade working capital. So we expect to get -- I wouldn't say it's a linear calculation here, we expect to have some benefits that we'll be introducing to offset any increase in sales and the effect it would have on receivables.

Ryan J. Levenson - Privet Fund Management LLC

Okay, and then from the inventory standpoint, I mean, is this the lowest that it can go or can you get turns to improve a little bit more from here?

Clifford E. Pietrafitta

I think similar to the accounts receivable comment I just made, I think we continue to look at ways to reduce our inventory. We've done a number of things over the last year, and we continue to have -- to work terms and conditions with our customers and to reduce lead times to have a positive effect on inventory. So those are the things that are continuing actions, and I think, we expect that we will continue to drive those numbers lower and in a more favorable position going forward.

Harold Bevis

We have multi-year plans to drive our working capital percentage down as a percentage of sales.

Ryan J. Levenson - Privet Fund Management LLC

And what's the ideal percentage?

Harold Bevis

We haven't really arrived at an ideal, but you can see that our EBITDA rates, if you do the math, are going to be going up over time. And certainly, a good company would like to be -- EBITDA and working capital to be similar. But we really haven't done a new 5-year plan. Me, personally, I've been here 12 weeks. And so I have been trying to get a hold of current events. But we will be doing a new outlook on that. We haven't really established ideal standards, but we're delineating a 2013 plan that has improvement in it over 2012 and prior-year habits. That are sustainable.

Operator

The next question comes from the line of Adam Ritzer of Pressprich.

Adam Ritzer

You guys, are you no longer doing the presentations as you've done for the last year plus?

Harold Bevis

Correct. We're discontinuing that presentation habit.

Adam Ritzer

Why is that? Those were quite helpful.

Harold Bevis

Which one did you like?

Adam Ritzer

I liked them all. Every -- you gave a lot of good information, bookings, percentage from Asia. You talked about new product percentages. And I just thought it was very helpful. And if -- you guys should continue that.

Harold Bevis

We'll take it under consideration, Adam.

Adam Ritzer

You -- in bookings in a prior question came about bookings. You said they were bouncing around. In the last 4 quarters, they ran $127 million to $134 million. Are you willing to say they're in that same range, is that bouncing around?

Clifford E. Pietrafitta

I'm really, well we haven't really disclosed those numbers. But what I'm saying, is that we're not seeing significant improvement. It varies by region. Some regions are up, some regions are down. We're not seeing a trend in either direction at this point time.

Harold Bevis

Yes, I think that we're seeing very consistent corporate bookings activity, and it's unfortunately been consistently declining a little. Cliff's comments about bouncing around, really he means it varies by region. We've had a strong region, Asia. We've had a couple of regions holding their own, North and South America, and we've had a region not doing so great, Europe. So we definitely have -- we have 4 stories but overall, our corporate number is very similar, and you can see that our sales numbers have been very similar, too. And there's nothing happening to our trend line that's overly negative or overly positive. Our stuff had long lead times. Roll reorder, it's going to be a few years to reorder a roll. Our machine clothing does have a smaller life cycle, and we can see where we have positions at our customers, so there is some visibility there. People are alive and well and making paper. And we have contracts with them to be a supplier to them for their consumable needs. So our visibility is the same, and we don't see any unusual activity right now, plus or minus. It's just been a slight deterioration. As you can tell, year-to-date, a little over 4%, and that's still kind of happening to us.

Adam Ritzer

What do you think the inventory situation is now at your customer base?

Harold Bevis

That one is -- I'm not from the industry, and I know that we've previously given guidance on inventory. And so we were trying to prepare for that a little bit. We do know that in Europe inventory positions are down and it's stable in Asia. And in North America, they're holding similar to what they have been.

Adam Ritzer

Okay. And what is your overall percentage of revenue currently from Europe?

Harold Bevis

Well we list that in our foreign exchange -- in our filing. If you look at our Currency section, we list our sales by region. It was 30 -- 31%.

Adam Ritzer

From Europe, okay. And is Asia still trending up over -- is it over 20% now?

Harold Bevis

No, it's at 19% but it is trending up, yes. And it's trending up absolutely, and then it's trending up as a percent of the company.

Adam Ritzer

Got it. And you also mentioned beyond your cost savings program, you mentioned something called revenue diversification?

Harold Bevis

Right.

Adam Ritzer

Can you give a little more color on what revenue diversification is and how you plan to implement that?

Harold Bevis

Absolutely. Our revenue diversification is slightly dissimilar from our competition. Our goal internally, really, is to look for alternate use of our assets, and we are looking at selling synthetic textiles into other industries outside of paper. We are looking at taking our covered rolls into 2 other industries right now. We have current sales in those industries. We're not reporting it as a segment. We haven't been releasing that kind of information. We're keeping it private. We have a couple of areas that we are pursuing in the synthetic textile business that most of our competitors are, but we have a couple of areas that are private. But we are trying to diversify our revenue outside of paper, and we've had a lot of success in the regional precedence or have responsibilities in those regards, and we're achieving our objectives.

Adam Ritzer

Okay, that sounds good. And I guess getting back to cost savings. The program you announced prior, you talked about $20 million in cost savings. Now you're talking about a similar amount, so we're talking about $40 million in all. Is that something you expect to achieve totally in 2015?

Harold Bevis

I think it'll lag outside of it, especially the additional that we're laying on are new. And definitely, we have a set amount of people to do projects and we don't want to get overloaded and we don't want to do a less than 100% quality job. So the phasing activities are going to go outside of 2015. You really shouldn't double stack the numbers in a 3-year period. That's not what we're doing internally. And we are -- we don't have a new 5-year plan yet. We're in the process of generating it, but we definitely -- the management team has a strong desire to build on our core business, strengthen it, long-term leadership, and several of these actions are multiyear that are outside of 2015, that's when they're going to be the primary impact of them.

Adam Ritzer

Okay. So would you say it's fair to say the $20 million you hopefully achieve in 2015 and then the additional $20 million beyond that? Or is it $20 million plus in 2015? I'm just trying to get a little...

Harold Bevis

They're going to overlay. And I'm not dodging the question. Just have 2 things: Number one, we don't want to give firm guidance; and number two, we haven't finished our homework yet on the multiyear actions to fix our situation on high-cost versus low-cost country production and to balance our capacity by region. We haven't finished that work, and we certainly don't have board approval on a lot of the big actions. And we're knocking them down one at a time. Some of the basics are underway right now, but it's a big deal for us. It kind of sets our footprint and it sets the way that we'll be spending our money in CapEx. And as I mentioned, I've just been here 12 weeks. It's my 12th week, so I'm trying to get caught up a little bit with the team, but our executive team is 100% committed to closing the gap that we have on a cost basis and passing in certain areas. It's going to take a several-year time period to do it. So they'll be overlaid. Some of the things we're doing, we've already started them. The ones that require CapEx and bricks and mortar are going to take longer and go outside the time period if they become board approved and part of our 5-year plan, which has yet to happen.

Adam Ritzer

Okay. I'm sorry, I asked so many questions, but so the last question I had is in terms of capacity reduction. I know your competitor talked about this on this call the other day, that Europe still needs more capacity reduction. You guys have closed 1 plant so far in Europe. Have they talked about or have you heard any industry talk about them closing more plants in Europe? Do you guys see a need to close more plants in Europe? It seems like an industry situation you could both address.

Harold Bevis

Correct. We've read of nothing that was released recently for I think I know the competitor you're talking about. But several other companies have announced big, massive situations. Voith, Metso and Albany have all announced restructurings, including us, so I'd say the big top competitors in the market have all announced actions to align their capacity to market demand. I don't precisely know the actions that are private to them, but we've only read the same releases probably that you have. Do we have additional plans to rightsize? Yes, we do. I've been talking a lot about that. You can rightsize though by unmanning the capacity and idling it, and you can rightsize capacity by shutting facilities and moving them. So there's a lot of ways to rightsize your manned output rates. We're doing both. I would assume our competitors are too, but I don't have insight into that. A lot of that's private.

Operator

The next question comes from the line of Bishop Jordan of Concerto.

Bishop Jordan

Just a few quick questions. What's the minimum level of liquidity you all think you need to run at?

Harold Bevis

Minimum level of liquidity?

Clifford E. Pietrafitta

We don't really have a target. Right now, our liquidity is, I think, $24 million is what we just said. That's a comfortable level for us, so we're okay with that.

Harold Bevis

And I'll also say that our cash needs, our liquidity needs very -- they're in a tight band. They don't -- we're not volatile in terms of our cash needs. We order our materials on a long lead time. We have lead times on our committed order to deliveries. We can see the flow in the business pretty well, and we don't do abrupt changes to our working capital balances. They're pretty stable. With regards to overall liquidity, we certainly are committed to debt reduction and deleveraging. Our company had delevered this year, year-to-date. We delevered in this quarter, and we intend to keep doing that through next year. So we're firmly committed to deleveraging to the point where liquidity really is a non-topic. It's not really a big topic for us now. We're fully in compliance with all of our agreements, if you will, and we have plans to improve that.

Bishop Jordan

Right. Would you all -- I mean assuming you generate free cash flow this year given EBITDA and CapEx, would you all consider maybe going out, if the bank lenders give you support, to maybe buying some of your bonds in the open market because they're trading $0.85 to $1?

Harold Bevis

Right. We have some capacity to do that. We have no plans to do that at this time. But for us, we are going -- we are trying to generate cash. We are attempting to pay down our debt. Certainly we can use our cash, Cliff, like that, just as we did in this quarter.

Clifford E. Pietrafitta

Yes. We're limited somewhat by the bank agreement but there is ability to do that, and that's something that we do discuss and talk about, how to utilize our free cash flow and how to pay down the debt. So these are conversations that we continue to have.

Operator

The next question comes from the line of John Koerber of Bennett.

John Koerber

I would second the person's recommendation that the slide presentations were very useful. They contained a lot of information that helped me understand the company, and I would -- obviously, some of it, at this point, may not fit what you want to highlight, but -- as you move forward, but I do think it's useful to the investment community that you have a slide presentation and so I want to make that recommendation that you, at the -- on your next call, that you contain something that gives your vision of the company whether it's new product introduction or whatnot. The comment I -- the question I truly have is, is I wanted to touch base, as the previous caller did also, on revenue diversification. When you talked about that you want to use alternative use of your machines, does this imply a couple of things: one, that there's no additional CapEx in the revenue diversification? Two, is there any additional need to increase SG&A or whatnot? What -- is there additional cost as you try to diversify revenue?

Harold Bevis

The -- thank you. You asked a few questions there, and I noted your slide presentation comment just as Adam mentioned it, so I'll definitely take that under advisement. With regards to the alternate use of our assets, just talk about rolls for a minute. Rubber-covered rolls convey material through large machinery. There is large machinery in other industries other than paper, and there are rubber-covered rolls. They are polyurethane-covered rolls. They are composite rolls. They are the full roll portfolio that we are good at and a global leader at. Heretofore, we haven't had a concentrated effort to penetrate other markets. We know of our -- some of our roll competitors are in other markets. It hasn't been a concerted effort by us. We do have some positions, and now we are making concerted efforts into those commercially. The diameters of the rolls are somewhat smaller than in the paper industry. The paper industry's tend to be the biggest rolls you can come across, but the width of the rolls is similar. And so the diameter -- our machinery, our lathes, our grinders, our casters can accommodate the smaller diameter rolls, no problem. And if you've been in a rolls plant, you know that you can also adjust this equipment due to width of the rolls. So our machinery setup is quite good. With regards to SG&A, we do have team members dedicated to these markets now, and we are not going to be net adding headcount. We do have -- we are going to rightsize our SG&A team as I mentioned. And as markets decline, we will rightsize our commercial teams as well and redeploy those into these alternate markets that are doing quite fine and have their own different dynamics. And we do have specific markets that we're targeting, and we do have a couple of industry experts, but I really don't want to make known what our goals are.

John Koerber

Okay. Can you -- I think there was always a slide that implied that your market opportunity in -- was $3 billion, and you'd get some share of that. When you talk about alternative markets, do you have a market size that you would care to -- without identifying the industries that you would -- in its broadest context, I think your -- or is available to you?

Harold Bevis

I don't -- man, that is a great question. Thank you, John. You gave me a homework. You gave me some homework to do here. But I can tell you that the markets are similar sized. Our entry into those markets is a crawl, walk, run kind of program, so it's a multiyear build. And so in terms of the -- I can respond to that. I wasn't prepared for it though, John. They're large markets, but we are going to initiate an explicit strategy that leverages our core technology, value selling. And we're underway with it and already have sales. So I can -- I'll respond next time on that. I'm not ducking it. I just wasn't ready.

John Koerber

Okay. The final question would be then as I -- it's a great revenue opportunity, but back to the CapEx. What I'm actually hearing a little bit is, because you didn't touch on that, you believe what you're going to be doing is increasing utilization of your current plants through this revenue diversification strategy?

Harold Bevis

That is correct. That is -- that's the primary driver for it. And as I mentioned, several of these actions were started by Stephen in advance of me and I'm riding those, and we started a couple of more that I was familiar with coming in the door and that we had propositions on internally. So we started several more on top of it, and it's primarily to run volume across assets we already have.

John Koerber

Final question is, is the previous emphasis on new product, does that still continue?

Harold Bevis

We've continued it. We had 59% of our sales from new products in this quarter, and we've got a goal of 60% for quite some time. It's not a headliner for us. We are continuing to lead and drive that project. And we have an explicit leadership program underway for 2013, and we have a trial underway with one of our key products, SMART roll, an advancement of it. It's quite unique. It's an industry game changer kind of a product. We're not ready to announce it. Our Chief Technology Officer, John Badrinas, is extremely excited about it. And we have a machine information system that rivals some of our competitors on feedback from the roll to the machine itself to further optimize productivity on the paper machine. So we're advancing our automation and intelligent nip management across the width and length of the nip. We have a balanced focus though. It's on total costs and value to our customers. So our game plan there is -- I'm fully behind it. I'm not reporting it, per se, as much as it had been reported, but it's still alive and well and underway. We have more of a focus of adding to that in parallel with cost reduction and rightsizing our operations. So it's not a trade-off. It's really an additional objective that we're taking on.

Operator

The next question comes from the line Phillip Pennell of Mariner Investment.

Phillip Pennell

I had just a couple of housekeeping questions. From the 10-Q, is there any additional color that you can offer us in terms of this Brazilian tax issue? Where does it exactly stem from? What is the likelihood in terms of your estimation of wrapping it up in the reasonably near future?

Harold Bevis

It's a multiyear -- it's going to be a multiyear deal, and for a lot of reasons we don't want to discuss it in a public format. It's a private matter. It's a lot of confidentiality involved. But I can tell you the time frame is very, very long. Multi-years from now would be probably the outcome of it. And we're not alone. The Brazilian tax authorities have taken similar positions with other companies a lot bigger than us and some smaller than us. So it's more of a -- it's a government-to-industry situation that's going to play out over a multiyear period. And our specific matter is quite confidential, and we don't want to discuss that in a public format.

Phillip Pennell

Right. I understand that. It's more -- is there any existing precedent with regard to these cases?

Harold Bevis

There are.

Clifford E. Pietrafitta

We monitor that, Phillip, and we're at the very early stages. And there's about 200 cases from what I understanding, and they're at various stages but fairly early on, even on the ones that are most advanced.

Phillip Pennell

Okay, that's fair. And I guess I maybe was trying to read too much into the fact that you're re-lowing that Argentine machinery into Brazil, so it doesn't seem to be impacting the go-forward operations in the area.

Harold Bevis

That's right. That's correct.

Phillip Pennell

Okay. All right. Then, another question out of the queue. You mentioned in there with regard to new -- I couldn't tell whether it was necessarily now -- paper, clothing machinery that was going to fewer rolls or if perhaps it's some allusion or alluding to alternative revenue diversification machinery that might have fewer rolls. But you indicated that there were possibly fewer rolled machines going forward that can negatively impact revenues. I mean, at what point do you make that trade-off if you're...

Clifford E. Pietrafitta

Well, let me -- I think what you might be referring to is that newer paper machines have fewer rolls in them. And then we talk about that in the business, in the business section and what we're -- there's about 7,000 paper machines out in the world. 6,000 are the ones that we sell into. New machines coming online, generally, are maybe 10 to 20 machines a year, so even though the newer machines have fewer rolls, which would impact our ability to cover rolls, we're talking about a very small migration per year and really not seeing that as a major threat at this point in time.

Phillip Pennell

Okay. So it's more of a threat [indiscernible] than anything else?

Harold Bevis

Yes, and the -- there's actually a positive mix to it. The new machines are much more advanced technically. And they want to see our SMART roll versus other products, and we've done quite well on OEM installations on new machines that are happening in the world. If you look at the puts and takes on old paper machines being retired and new ones being built as the GDP moves around, the new machines -- this benefits us. This isn't a threat to us. This plays into our product portfolio and our advanced product features.

Phillip Pennell

Okay. So better for SMART roll, for example?

Harold Bevis

Better for SMART roll and our high-end fabrics. Our machine clothing's up 2 quarters in row here. So if you look at the repositioning that's happening globally, we don't consider it a threat.

Phillip Pennell

Okay. Because it would seem to me that with fewer rolls, they're probably running faster, consequently using resources faster as well?

Harold Bevis

Yes.

Phillip Pennell

Okay. All right. Then I guess that's a segue to my final question which is, in terms of looking at what's going on in Europe and the OECD countries, I guess, too in general, do you view these changes as being cyclical, per se? Or the secular moves that are driving paper demand in the OECD may have negative effects on kind of the developing world as well on a go-forward basis?

Harold Bevis

Well, there's 2 things here: I'm not an industry prognosticator. I'm new to the industry. I have some industry gurus around the table with me. But if you look at the import-export data on European production, a lot of paper has been exported into growing regions over time until those regions of the world had become -- have created indigenous supply. And we and the industry have followed that, and some of these machines are new, state-of-the-art technical machines, which plays into our product portfolio strengths. The graphical grades of paper though, in the developed markets, certainly are declining, and that's just tied into electronic commerce and the whole deal. But if you look at the emerging countries of Asia and South America, the graphed grades are still doing okay. There's more and more people reading. They've cut -- even cut paper, copy paper's increasing in South America for instance. Tissue is up. And if you look at -- you really kind of have to look at the paper grade in the packaging industry, in general or the GDP industry, and is up in multiple regions. What's really suffering in Europe, by my take on it at this point, is the graphical grades and it's structural. So you got some structural things in the developed markets, and then you also have some positive structural things in emerging markets. They're buying the spectrum. And so they need the full product portfolio, but it's primarily new assets that want -- that need technical products on them. And with our combination selling that we do of rolls and PMC, we turn out to be a valued partner in there. We have a strong packaging portfolio. We have a strong tissue portfolio. We have a packaged sell of rolls and clothing. So that's good for us. Newsprint, globally, though will remain under pressure over time as electronic commerce. We're not fooling ourselves. But the first advantage, the first move that you see on graphical grades in some of these emerging markets are benefiting us, and we see new machines appearing as a positive thing for us.

Phillip Pennell

Okay. All right. I lied, I have one final question, which is it wasn't clear from what I read about the existing facilities, but in terms of the benefit that you gained from kind of pushing off CapEx and being able to use the excess CapEx against your leverage covenant, I mean, is that cumulative over time through the end of 2013? Or is it a kind of a use it or lose it as you go year-by-year?

Harold Bevis

There's 2 things: One is a technical question regarding our covenants, how everything works. The other is a comment on how we manage CapEx. We're not really trying to push or pull it. We're investing CapEx on a need basis. We did -- we have run a little light this year. Part of it is due to the restructuring project that was announced. Part of it is due to CEO transition. Stephen going out, me coming in, and me having to come up to speed. And I really wanted to really understand the projects prior to blessing them. And I have a fiduciary responsibility there and a lot this stuff's new to me. And so I'm not trying to be -- I'm not trying to push or pull it. I'm really trying to get caught up. So I would think that you should expect from us a consistent spend, and we stated it in our numbers, that we're trying to spend around $25 million. We may or may not. We're not trying to push or pull that number, but I have a spending request in front of me from each region. And then I intend to make some to the Board of Directors as well, that are above my approval level. So we're just running the business normally. We're not really trying to push or pull as a general run the business the statement. With regarding, Cliff, to the specific comment.

Clifford E. Pietrafitta

Yes. On the technical side, I think you're referring to in the recent bank amendment, we received as part of that an ability to increase our restructuring spending which was tied into our CapEx limits. So when we manage the CapEx spending and the restructuring spending, we're looking at a combined limit there out through the end of 2015 to answer your questions.

Phillip Pennell

Okay. So it is cumulative effectively?

Harold Bevis

It is and as a focus, I can tell you that we are trying to be more strategic with our CapEx. We are absolutely trying to rightsize our operations in the regions, and we're absolutely trying to advance our quality and product portfolio, and each of the -- and each region has its own game plan on what's happening. So we're being strategic with it, and internally, we believe we're making the right moves to optimize our commercial outcomes and our cost reduction outcomes.

Operator

Your next question comes from line of Sean Sauler at Redwood Capital.

Sean Sauler

I was curious about the new product initiatives that you're working on. What are they, first off? And secondly, what sort of CapEx spend would accompany this?

Harold Bevis

We don't have a lot of CapEx tied to new product development per se, but as we field some of the new products, we certainly need machine capability advancement that we don't have. We do have specific product development initiatives in each -- in both the PMC business and in the rolls business. We've talked a lot about the rolls technology, with SMART roll and then the machine integration features of it. Specifically, in terms of applications, tissue requires explicit integrated designs between the roll and the clothing. We have been advancing that, and so we have -- we do have next-generation products that are in trial that we intend to introduce but we're not ready to make public. And so for competitive reasons, we intend to launch them and try to get bang for the buck by introducing them in a strategic manner. So nothing is ready to be announced right now, but we're pretty excited about our advancements that we're making in SMART roll, and we're excited about advancements we're making in machine clothing both for competitive day in and day out products in the machine clothing business and for the high end.

Sean Sauler

Okay, great. And then the growth that you guys talked about, is that driven by these new product initiatives? Or is that driven from market share gains? Or is that driven from a turnaround in Europe?

Harold Bevis

Well, Europe has been in decline for us and probably most of the industry. But for us, we've had success with each one of the tick points that you mentioned. I really couldn't pinpoint one. I don't have the vantage point either, of having studied that one went over time. I'll -- I have a couple of my Presidents here with me, Dave Pretty, who's the President of North America and Europe; and I have Tom Johnson, who's the President of Asia. Guys, would you help me out on that one? Dave?

David Pretty

Sure, Harold. In terms of our direction, we continue to be very strong in managing our corporate account initiatives, leveraging the value sell platform using new technologies that we developed. Harold's spoken at length about our product portfolio and how we've deployed that. So really it is a continued focus on corporate accounts, the introduction of new technologies that's creating value for our customer base, which is allowing us to grow in all of the geographical segments.

Thomas C. Johnson

And Dave said it well.

Harold Bevis

Tom Johnson, President of Asia is also here. Tom?

Thomas C. Johnson

Dave said it well. I think it's bringing together all those capabilities. We have a very successful approach, not only in North America but also in Asia on our value platform. And it really does bring together not only the technologies in PMC and rolls, but it also brings together our capability and our workforce across the globe. We have figured out that value for the customer is not just built on the sale of a product. It's built on creating that value for the customer so he makes money. We've been very successful in that.

Harold Bevis

Dave, any industry -- any final comments there?

David Pretty

Well I think in terms of also leveraging our industry experts around the world in terms of generating and driving that value in each of the market segments, so it's one thing to develop new products, but it's also another thing to apply those products in a customer setting that actually deliver value. So it's a combination of all those things.

Harold Bevis

Okay?

Sean Sauler

Okay. Great. And then I guess my last question is kind of a clarification question. What is the size of the ability for you guys to buy back bonds? I believe it's $10 million to $15 million. Because obviously, economically, you are paying down debt. The bonds are at much higher rates, so this definitely does seem like an accretive thing to do both for EPS and both for your cash flow. So do you know that number off the top of your head, guys?

Harold Bevis

Is that a public number?

Clifford E. Pietrafitta

It's in the bank agreement, so yes. It's about $10 million. I believe it's $10 million. I can double check that and get back to you. But I don't want to give you the wrong answer, but I believe it's $10 million.

Sean Sauler

Okay. And like you said, you guys are looking into this, just as an option, right?

Clifford E. Pietrafitta

We continue to -- we evaluate that from time to time, and we're really looking very hard at our cash position and our debt position and how we're going to manage that going forward and maximize the balance sheet.

Harold Bevis

I'd just say -- I'll even say it differently, we have no explicit plans at this time. And if we did, we wouldn't make them known.

Sean Sauler

Actually, sorry, while I have you, is there any plans -- I know a lot of investors wanted to talk you, Harold. Any plans for you guys to come out to a conference anytime soon or anyway that people can get on your schedule?

Harold Bevis

Yes, we intend to hit some conferences. So I had set kind of a goal for myself to -- for the first few months, to get out and about and visit the operations. I've toured most of the operations in North and South America. I'm headed to Asia with Tom and headed to Europe with Dave. And so until I've met about -- I've been to about 16 or 17 of our 34 plants. So I'm still coming up the learning curve to meet the team that's making it happen for us. So I have that as a goal. But I do have as a goal to get out and properly interface with investors, so if there are certain events that you'd like us to attend, please send the invite in to Cliff.

Operator

And your final question comes from the line of John Pace of Stone Harbor Investment.

John Pace

Not a lot of bonds up here yielding 12.5% with 4.5x leverage and free cash flow, I guess. But a couple of quick questions for you here. Let's see, the new restructuring program you're taking with kind of ballpark $20 million savings over the next sort of 4 or 5 years or so, whatever. The cash cost to achieve that, would you say that's kind of similar to the $45 million for the existing vision 2015? Or would you say it might be smaller or sort of a relative ROI, I guess?

Harold Bevis

Well, we have -- we intend to stay within the limits that you've come to know Xerium to organize around, which is the capital spending that we have and paying down a little bit of debt. And we're not -- we're going to stay within those confines, number one. Number two, we don't have a 5-year plan yet, as I mentioned a couple times. We're going to develop one, going to do it together with the board. We'll hash it out together. The management team has some very specific ideas that are big and bold. They all require board approval and buy-in and proper phasing. At this point in time the 2015 project is our focus. It's quite significant. It requires a use of a lot of our available man hours to do it, and additional actions have to be talked about in that context, about being orderly and doing things in a quality manner. So the continuum of activities, I'm not ready to go live with an announcement or create a model for it. I'm not trying to be coy or dodge. We don't have that plan. We are going to develop that plan. We'll help you with understanding the multiyear impact of that plan. We just don't have it right yet. As I mentioned, I've only been to about half of the locations at this point and I do want to involve all of the operations into them.

John Pace

Okay. All right. And I guess looking forward then, as we look at fourth quarter, just to get an idea at least where we're trending quarter-to-date, you said things are kind of just bumping along the bottom. Obviously seasonally, fourth quarter is probably a little weaker than the others. Would you say we're kind of where we were last year, at least volume and price-wise versus fourth quarter, assuming we're kind of moving in a range?

Harold Bevis

We don't see anything negative or positive around our trend line right now. It's very consistent. We've been doing pretty -- we've been growing a few percent in Asia, been holding our ground in others, and Europe's been declining a little bit. Cliff's been pretty straightforward with that, and you can see that we report our sales, our percentages and you can kind of do the math on what the reported sales are and see what numbers are doing and that they are what they are and we see nothing discontinuous happening right now.

John Pace

Okay. Yes, I mean because it looks like raw materials seem like they'd probably be flat. Volumes seemed a little down on one side, kind of up a little on the other. Pricing is sort of flattish. So I mean, I kind of have you all flat year-over-year in the fourth quarter, maybe up or down a little bit but...

Clifford E. Pietrafitta

We don't give guidance but I think what we're just saying is that we're seeing kind of a steady state in our business right now.

Harold Bevis

Thank you, very much. I think that was the last question according to Clinton. I want to thank everyone for calling in this morning and asking questions. We'll continue to have our executives on the call so that you can prepare for next time, if you have any questions for them. And we look forward to meeting you when we have the opportunity. Thank you for supporting Xerium. And with that, I will conclude the call for today, Clinton.

Operator

Thank you. Thank you for joining us in today's conference. This concludes the presentation. You may now disconnect, and good day.

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