Rockwood Press Release
Rockwood Reports Third Quarter 2013 Results
Princeton, NJ USA (November 12, 2013) – Rockwood Holdings, Inc. (NYSE: ROC) today reported net income of $1,111.9 million, or $14.65 per share for the third quarter of 2013, which included other net benefits of $1,063.7 million, primarily related to the gain on sale of the Advanced Ceramics business, as compared to $59.6 million, or $0.75 per share for the same period in the prior year, which included other net charges of $13.7 million.
Excluding these other net benefits and charges, adjusted net income was $48.2 million, or $0.63 per share, in the third quarter of 2013 compared to $73.3 million, or $0.92 per share, for the same period in the prior year. Quarter on quarter performance was down from lower selling prices in the Titanium Dioxide Pigments business coupled with the inclusion of only two months of the Advanced Ceramics business versus three months in the prior year quarter. This was partially offset by improved results in Surface Treatment.
For the nine months ended September 30, 2013, net income was $1,161.5 million, or $14.84 per share, which included other net benefits of $1,002.9 million, primarily related to the gain on sale of the Advanced Ceramics business, as compared to $358.5 million, or $4.49 per share for the prior year, which included other net benefits of $89.3 million, primarily related to the reversal of $139.0 million of a valuation allowance on net deferred tax assets.
Excluding these other net benefits, adjusted net income was $158.6 million, or $2.03 per share, in the nine months ended September 30, 2013, versus $269.2 million, or $3.37 per share, for the same period in the prior year. Year on Year performance was down from lower selling prices and lower fixed cost absorption related to lower production levels in the Titanium Dioxide Pigments business coupled with one less month of operations from the Advanced Ceramics business. This was partially offset by improved results of Surface Treatment, and, to a lesser extent, Lithium.
For the three and nine months ended September 30, 2013, adjusted net income and EPS were negatively impacted by higher interest expense due to the issuance of the $1.25 billion notes due in 2020 in September 2012 and higher SG&A costs, primarily for increased variable compensation costs.
Free cash flow for the third quarter of 2013 was $68.6 million compared to $81.2 million in same period in the prior year. The third quarter benefited from a significant inflow of working capital and lower cash interest. This more than offset lower cash contribution from Advanced Ceramics due to the inclusion of only two months of operations and higher growth capital expenditures related to the expansion of our high-quality battery grade lithium facility in Chile.
Table 1: Third Quarter and YTD Financial Highlights
Note: The Advanced Ceramics business, Clay-based Additives business, and the Titanium Dioxide Pigments, Color Pigments and Services, Timber Treatment Chemicals, Rubber/Thermoplastics Compounding and Water Chemistry businesses (“TiO2 Pigments and Other”) all met the criteria for being reported as discontinued operations. The results of these businesses have been accounted for as discontinued operations in the condensed consolidated financial statements for all periods presented.
Seifi Ghasemi, Chairman and Chief Executive Officer, commented, “Our core businesses, Lithium (Lithium applications, which excludes potash), and Surface Treatment, delivered outstanding performance in the third quarter. Sales in Lithium applications increased 16%, posting an Adjusted EBITDA margin of nearly 36%, a 350 basis point improvement versus the third quarter last year. Surface Treatment sales rose over 10% compared to the third quarter last year and achieved another consecutive record Adjusted EBITDA margin of 23%.”
Mr. Ghasemi continued, “In addition, we continue to execute successfully on our strategic plan presented to our investors in January 2013. Over the course of the last ten months, we have delivered on all of our action items. We sold seven non-strategic businesses for an approximate enterprise value of $3.9 billion, returned nearly $500 million of capital to our shareholders by completing our $400 million share repurchase program and increasing dividends, and have repaid $1.43 billion of term debt.”
Business Segment Review
Third quarter and year-to-date net sales and Adjusted EBITDA results, as compared with the same period a year ago, are summarized below:
Table 2: Net Sales
Table 3: Adjusted EBITDA
(a) The constant currency effect is the translation impact of the change in the average rate of exchange of another currency to the U.S. dollar for the applicable period as compared to the preceding period. The impact primarily relates to the conversion of the Euro to the U.S. dollar. For the three and nine months ended September 30, 2013 and 2012, the average rate of exchange of the Euro to the U.S. dollar is $1.33 and $1.25, respectively, and $1.32 and $1.28, respectively. For further details, see Appendix Table A-11.
Third Quarter Segment Drivers
Lithium: Including potash, net sales increased 3.7%, while Adjusted EBITDA decreased 5.1%. Excluding potash, net sales and Adjusted EBITDA increased 16.1% and 29.1%, respectively.
Surface Treatment: Net sales and Adjusted EBITDA increased 10.4% and 18.7%, respectively.
Commenting on the outlook, Mr. Ghasemi said, “We expect our two core businesses, Lithium applications and Surface Treatment, to continue their strong growth in the fourth quarter of 2013, in line with their performance year to date. In 2014, we expect our lithium carbonate and lithium hydroxide (the upstream lithium business) sales to continue their double digit growth. We are on schedule to complete the construction and qualification of our new state-of-the-art lithium carbonate facility in Chile by the end of 2014, nearly doubling our total capacity to meet the fast-growing demand needs of our customers. In Surface Treatment, we expect high single-digit top line growth and continued strong margins of 22% - 23%.”
Mr. Ghasemi added, “As a result of the successful execution of our strategy, Rockwood now has a very solid balance sheet with expected cash on hand of approximately $2.5 billion. We are committed to deploy our cash to expand and strengthen our core businesses, maintain our dividend and buy back shares as and when appropriate.”
Conference Call and Webcast
On Tuesday, November 12, 2013 at 11:00 am Eastern Time, Rockwood Holdings plans to host its conference call and webcast to discuss these results. To access this conference call, the dial-in number in the U.S. is (800) 230-1096, and the international dial-in number is (612) 332-0345. No access code is needed for either call. A listen-only, live webcast of the conference call will also be available at www.rocksp.com. Materials for the call, including the earnings release and presentation, will be available for download on the company’s website on the morning 5 of the call. For persons unable to listen to the live conference call or webcast,
Non-GAAP Financial Measures
This press release includes “non-GAAP financial measures,” such as, a discussion of Adjusted EBITDA, net sales including sales from discontinued operations, free cash flow, net income/diluted earnings per share excluding certain items and net income/diluted earnings per share from continuing operations excluding certain items. Adjusted EBITDA is not intended to be an alternative to net income 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 and indenture governing the Senior Notes due in 2020 (“2020 Notes”) 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 6 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. The calculation of Adjusted EBITDA according to the indenture underlying the 2020 Notes is generally consistent with the definition in our senior secured credit agreement. 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. shareholders 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).
Net sales including sales from discontinued operations is not intended to be an alternative for net sales. Management believes that net sales including sales from discontinued operations is meaningful to investors because it provides a view of the Company with respect to its operating results.
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, less capital expenditures, net of 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 and the indenture underlying the 2020 Notes). 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 to free cash flow is provided in the accompanying tables.
Neither net income and diluted earnings per share excluding certain items nor net income and diluted earnings per share from continuing operations 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 excluding certain items and net income and diluted earnings per share from continuing 7 operations 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. based in Princeton, N.J., is a leading global developer, manufacturer and marketer of technologically advanced and high value-added specialty chemicals, with a market capitalization of nearly $5 billion. It is the leading integrated and lowest cost global producer of lithium and lithium compounds that has been an enabler of the significant global growth of mobile devices by providing adequate lithium supply used in lithium-ion batteries for electronics and alternative transportation. The company is also the second largest global producer of products and services for metal processing, servicing the luxury European automotive and aerospace industry.
With approximately 3,500 employees in 17 countries and over 50,000 customers, Rockwood’s materials result in end-use products for nearly every industry and generate annual net sales of approximately $1.3 billion in 2012 (after adjustment for discontinued operations). For more information on Rockwood, please visit www.rocksp.com.
This press release contains, and management may make, certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. Words such as "may,” “will,” “should,” “could,” “likely,” “anticipates," “intends,” "believes," "estimates," "expects," "forecasts," “plans,” “projects,” "predicts" and “outlook” and similar words and expressions are intended to identify forward-looking statements. Examples of our forward-looking statements include, among others, statements relating to our outlook, our future operating results on a segment basis, our future Adjusted EBITDA and free cash flows, our share repurchase plans and our strategic initiatives. Although they reflect Rockwood’s current expectations, they involve a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied, and not guarantees of future performance. These risks, uncertainties and other factors include, without limitation, Rockwood’s business strategy; our ability to complete previous announced divestitures; our uses of the cash and cash equivalents from the completed or expected to be completed divestitures; the prospects for and our outlook for our business; changes in general economic conditions in North America and Europe and in other locations in which Rockwood currently does business; competitive pricing or product development activities affecting demand for Rockwood’s products; technological changes affecting production of Rockwood’s materials; fluctuations in interest rates, exchange rates and currency values; availability and pricing of raw materials; governmental and environmental regulations and changes in those regulations; fluctuations in energy prices; changes in the end-use markets in which Rockwood’s products are sold; hazards associated with chemicals manufacturing; Rockwood’s ability to access capital markets; Rockwood’s high level of indebtedness; risks associated with competition and the introduction of new competing products, especially from the Asia-Pacific region; risks associated with international sales and operations; risks associated with information securities and the risks, uncertainties and other factors discussed under "Risk Factors" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Rockwood's Form 10-K for the year ended December 31, 2012 and other periodic reports filed with or furnished to the Securities and Exchange Commission. Rockwood does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.