Second quarter results, as compared with the same period a year ago, are summarized below:
- Lithium: Net sales and Adjusted EBITDA increased 0.2% and 4.3%, respectively.
- Net sales increased from higher selling prices and higher volumes of lithium battery products, but were negatively impacted by currency changes and lower volumes of butyllithium in Asia.
- Adjusted EBITDA increased from higher net sales, partially offset by higher selling, general and administrative expenses and raw material costs.
- Surface Treatment: Net sales and Adjusted EBITDA decreased 5.4% and 2.3%, respectively.
- Net sales decreased from the negative impact of currency changes and lower volumes in Europe, partially offset by increased selling prices in certain markets and higher volumes in the U.S. and Asia.
- Adjusted EBITDA decreased from the negative impact of currency changes, lower volumes, along with higher selling, general and administrative and raw material costs. This was partially offset by increased selling prices.
- Performance Additives: Net sales and Adjusted EBITDA decreased 7.1% and 16.7%, respectively.
- Net sales decreased from lower volumes primarily in Color Pigments and Services and the negative impact of currency changes. This was partially offset by increased selling prices and a favorable product mix.
- Adjusted EBITDA decreased from lower net sales and higher raw material costs.
- Titanium Dioxide Pigments: Net sales and Adjusted EBITDA decreased 17.4% and 13.7%, respectively.
- Net sales decreased as lower volumes and the negative impact of currency changes were partially offset by higher selling prices.
- Adjusted EBITDA decreased from lower volumes and higher raw material costs, primarily slag and ilmenite, and the negative impact of currency changes. This was partially offset by increased selling prices.
- Advanced Ceramics: Net sales and Adjusted EBITDA decreased 7.9% and 5.7%, respectively.
- Net sales and Adjusted EBITDA decreased primarily from the negative impact of currency changes, partially offset by higher volumes, particularly medical applications.
- Corporate and other: Net sales decreased 24.1% and Adjusted loss before interest, taxes, depreciation and amortization decreased 45.6%.
- Net sales decreased primarily from lower volumes and selling prices in our metal sulfides business and the negative impact of currency changes.
- Adjusted loss before interest, taxes, depreciation and amortization decreased primarily from lower variable compensation costs.
Other Financial Items:
- Interest expense, net decreased $9.8 million in the second quarter of 2012 compared to the same period in the prior year, primarily due to debt repayments.
- Loss on early extinguishment/modification of debt. In connection with the refinancing of the titanium dioxide facility agreement and the repayment of the outstanding titanium dioxide term loans, we recorded a charge of $2.7 million in the second quarter of 2012 comprised of fees of $2.4 million and the write-off of deferred financing costs of $0.3 million.
- Foreign exchange. The foreign exchange loss of $6.7 million recorded in the second quarter of 2012 was primarily due to the impact of the weaker euro as of June 30, 2012 versus March 31, 2012 in connection with non-operating euro-denominated transactions.
- Income taxes. We recorded an income tax benefit of $108.8 million on income from continuing operations before taxes of $124.9 million in the second quarter of 2012, including the reversal of $139.0 million of our federal valuation allowance on net federal deferred tax assets, as it was determined that it is more likely than not that we will be able to utilize federal deferred tax assets in future years. Our normalized effective tax rate was approximately 23.2% for the second quarter of 2012.
- Free cash flow was an inflow of $39.0 million for the second quarter of 2012, and primarily consisted of net cash provided by operating activities of continuing operations, partially offset by capital expenditures.
- Net debt, which is total debt less cash and cash equivalents, was $1,423.4 million as of June 30, 2012 compared to $1,366.2 million as of December 31, 2011. The increase in net debt was primarily due to cash outflows for working capital, capital expenditures and a dividend payment to the noncontrolling partner in our titanium dioxide pigments venture.
Conference Call and Webcast
We will host a conference call and webcast to discuss the results of operations for the second quarter ended June 30, 2012 on Wednesday, August 1 st, 2012 at 11:00 am Eastern Time. The dial-in number to access the conference call in the U.S. is (800) 288-8975 and the international dial-in number is (612) 332-0342. No access code is needed for either call. A replay of the conference call will be available through August 15 th, 2012 at (800) 475-6701 in the U.S., access code: 251143, and internationally at (320) 365-3844, access code: 251143.A listen only, live webcast of the conference call will be available at www.rocksp.com. Materials for the call, including a PowerPoint file detailing the results, will be available for download on this site on the morning of the call. The webcast and PowerPoint file will be archived on Rockwood’s website. Non-GAAP Financial Measures This press release includes “non-GAAP financial measures,” such as, a discussion of Adjusted EBITDA, free cash flow and net income/diluted earnings per share from continuing operations attributable to Rockwood Holdings, Inc. excluding certain items. Adjusted EBITDA is not intended to be an alternative to net income attributable to Rockwood Holdings, Inc. as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. All presentations of consolidated Adjusted EBITDA are calculated using the definition set forth in the Company’s senior secured credit agreement as a basis and reflects management’s interpretations thereof. Adjusted EBITDA, which is referred to under the senior secured credit agreement as “Consolidated EBITDA,” is defined in the senior secured credit agreement as consolidated earnings (which, as defined in the senior secured credit agreement, equals income (loss) before the deduction of income taxes of Rockwood Specialties Group, Inc. and the Restricted Subsidiaries (as such term is defined in the senior secured credit agreement), excluding extraordinary items) plus certain items including interest expense, depreciation expense, amortization expense, extraordinary losses and non-recurring charges, losses on asset sales, less certain items including extraordinary gains and non-recurring gains, non-cash gains and gains on asset sales. We use Adjusted EBITDA on a consolidated basis to assess our operating performance, to calculate performance-based cash bonuses and determine whether certain performance-based options and restricted stock units vest (as such bonuses, options and restricted stock units are tied to Adjusted EBITDA), and as a liquidity measure. In addition, we use Adjusted EBITDA to determine compliance with our debt covenants. We also use Adjusted EBITDA on a segment basis as the primary measure used by our chief operating decision maker to evaluate the ongoing performance of our business segments and reporting units. A reconciliation of net income attributable to Rockwood Holdings, Inc. to Adjusted EBITDA is contained in this press release. We strongly urge you to review the reconciliation. In addition, we discuss sales growth in terms of nominal (actual) and net change (nominal less constant currency impacts). Free cash flow is not intended to be an alternative to cash flows from operating activities as a measure of liquidity. Our presentation of free cash flow is defined as net cash from operating activities of continuing operations, less capital expenditures, plus proceeds from government grants received and other items (including, among others, the cash impact of adjustments made to Adjusted EBITDA under our senior secured credit agreement). Management believes that free cash flow is meaningful to investors because it provides an additional measure of liquidity. However, a limitation of free cash flow is that it does not represent the total increase or decrease in cash during the period. An additional limitation associated with the use of this measure is that the term “free cash flow” does not have a standardized meaning. Therefore, other companies may use the same or a similarly named measure but exclude different items or use different computations, which may provide investors a comparable view of our performance in relation to other companies. Management compensates for this limitation by presenting the most comparable GAAP measure, net cash provided by operating activities of continuing operations, with free cash flow within its earnings release and by providing a reconciliation that shows and describes the adjustments made. A reconciliation of net cash provided by operating activities of continuing operations to free cash flow is provided in the accompanying tables. Neither net income from continuing operations attributable to Rockwood Holdings, Inc. excluding certain items nor diluted earnings per share from continuing operations attributable to Rockwood Holdings, Inc. excluding certain items is intended to be an alternative for net income or diluted earnings per share. Management believes that net income and diluted earnings per share from continuing operations attributable to Rockwood Holdings, Inc. excluding certain items is meaningful to investors because it provides a view of the Company with respect to ongoing operating results. Reconciliations of these non-GAAP financial measures are included herein. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Furthermore, these measures may not be consistent with similar measures provided by other companies. Rockwood Holdings, Inc. is a leading global specialty chemicals and advanced materials company. Rockwood has a worldwide employee base of approximately 10,000 people and annual net sales of approximately $3.7 billion. Rockwood focuses on global niche segments of the specialty chemicals, pigments and additives and advanced materials markets. For more information on Rockwood, please visit www.rocksp.com . * * *
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