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Rockwood Press Release
Rockwood Reports Second Quarter Results:
- Net sales of $730.4 million.
- Adjusted EBITDA of $125.3 million.
- As reported EPS from continuing operations of $0.01 vs. $0.98.
- As adjusted EPS from continuing operations of $0.13 vs. $0.65.
- Free cash flow of $66.4 million.
Princeton, NJ USA (July 28, 2009) – Rockwood Holdings, Inc. (NYSE: ROC), a global producer of specialty chemicals and advanced materials, today announced results for the second quarter of 2009, as compared to the same period last year.
Commenting on the second quarter results, Seifi Ghasemi, Chairman and Chief Executive Officer, said, “During the second quarter of 2009, we were successful in achieving several key objectives. First, our intense focus on controlling and cutting our costs which was started a year and a half ago enabled us to achieve an Adjusted EBITDA margin of 17.2 percent, despite a 20.9 percent drop in net sales versus the second quarter of 2008. It is particularly noteworthy that the Adjusted EBITDA margin in Advanced Ceramics was restored to 26.9 percent and Specialty Chemicals maintained its Adjusted EBITDA margin of 24.3 percent despite a significant drop in net sales. Protecting our margins has always been a key priority for Rockwood, and it is encouraging to see that our organization and people have the strength, commitment and flexibility to deliver this level of profitability during the current global downturn.
“Second, one of the key strengths of Rockwood’s portfolio is its ability to deliver significant free cash flow from operations. During the second quarter, we generated $66.4 million of free cash.
“Finally, we recently completed several financing actions in support of our long-term strategy. This included the repurchase at a discount of approximately $138 million in aggregate principal amount of Euro-denominated bonds and the completion of a major amendment to our senior secured credit facility which redefined the leverage ratio for covenant calculations. We also extended the maturity of $1.2 billion of our senior secured debt from 2012 to 2014 and $130 million of availability under our revolving credit facility from 2010 to 2012, and expect to extend an additional $50 million of availability under our revolving credit facility.
“With the above accomplishments in place, we have a solid foundation to move forward and implement our long-term strategy.”
The highlights for the second quarter are as follows:
- Net sales were $730.4 million for the second quarter of 2009, down 20.9% compared to $923.2 million for the same period in the prior year. Net sales were $1,390.4 million for the six months ended June 30, 2009, down 21.3% compared to $1,767.0 million for the same period in the prior year.
- Adjusted EBITDA from continuing operations was $125.3 million for the second quarter of 2009, down 28.4% compared to $175.1 million for the same period in the prior year. Adjusted EBITDA from continuing operations was $234.5 million for the six months ended June 30, 2009, down 31.9% compared to $344.3 million for the same period in the prior year.
- On a constant-currency basis, net sales and Adjusted EBITDA from continuing operations were down 13.1% and 21.9%, respectively, for the second quarter of 2009, and were down 13.2% and 25.4%, respectively, for the six months ended June 30, 2009.
- Net income from continuing operations attributable to Rockwood Holdings, Inc. for the second quarter of 2009 was $0.6 million, including after-tax net non-recurring and other special charges of $8.8 million. Net income from continuing operations attributable to Rockwood Holdings, Inc. for the second quarter of 2008 was $75.6 million, including income of $25.7 million related to after-tax net non-recurring and other special items primarily related to mark-to-market valuation gains on interest rate hedging instruments.
Net loss from continuing operations attributable to Rockwood Holdings, Inc. for the six months ended June 30, 2009 was $3.2 million, including after-tax net non-recurring and other special charges of $10.8 million. Net income from continuing operations attributable to Rockwood Holdings, Inc. for the six months ended June 30, 2008 was $104.3 million, including income of $9.0 million related to after-tax net non-recurring and other special items.
- Diluted earnings per share from continuing operations for the second quarter of 2009 were $0.01, including after-tax net non-recurring and other special charges of $0.12. Excluding net non-recurring and other special charges, diluted earnings per share were $0.13 in the second quarter of 2009. Diluted earnings per share from continuing operations for the second quarter of 2008 were $0.98, including income of $0.33 related to after-tax net non-recurring and other special items. Excluding net non-recurring and other special items, diluted earnings per share from continuing operations were $0.65 in the second quarter of 2008.
Diluted loss per share from continuing operations for the six months ended June 30, 2009 was $0.04, including after-tax net non-recurring and other special charges of $0.14. Excluding net non-recurring and other special charges, diluted earnings per share from continuing operations were $0.10 for the six months ended June 30, 2009. Diluted earnings per share from continuing operations for the six months ended June 30, 2008 were $1.36, including income of $0.12 related to after-tax net non-recurring and other special items. Excluding net non-recurring and other special items, diluted earnings per share from continuing operations were $1.24 in the six months ended June 30, 2008.
Commenting on the outlook, Mr. Ghasemi said “Although it is very difficult to predict the course of the global economy, we believe, based on what we have seen recently, that demand for our products has stabilized at current levels. We do not, however, see any clear signs of significant improvement. Therefore, as we move forward, we will continue to focus on items we can control, such as reducing costs at all levels, improving productivity and conserving cash by controlling working capital and capital expenditures. We should continue to benefit from these actions in the months ahead.”
Second quarter results, as compared with the same period a year ago, are summarized below:
Specialty Chemicals
Net sales and Adjusted EBITDA decreased 29.6% and 30.0%, respectively.
- In our Fine Chemicals business, lower volumes were partially offset by higher selling prices.
- In our Surface Treatment business, lower volumes, particularly in general industrial and automotive applications, were partially offset by higher selling prices, cost control measures and the impact of a bolt-on acquisition.
Performance Additives
Net sales and Adjusted EBITDA decreased 25.7% and 40.1%, respectively.
- Results were negatively impacted primarily by lower volumes of construction-related products in our Color Pigments and Services and Timber Treatment Chemicals businesses and lower volumes in our Clay-based Additives business.
- Higher selling prices, cost control measures and the impact of a bolt-on acquisition had a favorable impact on results.
Titanium Dioxide Pigments
Net sales and Adjusted EBITDA increased 32.2% and 38.3%, respectively. However, net sales and Adjusted EBITDA declined significantly excluding the impact of the venture that was completed in September 2008.
- Lower volumes for titanium dioxide and functional additives had a negative effect on results.
- Adjusted EBITDA was positively impacted by cost control measures, as well as lower raw material and energy costs.
Advanced Ceramics
Net sales and Adjusted EBITDA decreased 33.2% and 41.9%, respectively.
- Lower volumes in all applications, except medical, were partially offset by the impact of a bolt-on acquisition and cost control measures.
Specialty Compounds
Net sales and Adjusted EBITDA decreased 29.5% and 11.9%, respectively.
- Results were down primarily from lower volumes in most applications, particularly in wire and cable.
- Lower raw material costs had a favorable impact on Adjusted EBITDA.
Corporate and Other
Corporate costs were down due to lower compensation-related costs and lower professional fees, as well as other cost control measures. Also, corporate costs were favorably impacted by the reversal of certain long-term incentive compensation accruals related to performance targets that are no longer expected to be achieved.
Other Items
Restructuring and other severance costs of $4.0 million were recorded in the second quarter of 2009 primarily related to headcount reductions throughout the Company.
Interest expense increased $19.2 million in the second quarter of 2009 compared to the same period in the prior year. The second quarter of 2009 and 2008 included non-cash gains of $12.2 million and $34.0 million, respectively, representing the movement in the mark-to-market valuation of our interest rate hedges. Excluding the impact of these gains, interest expense decreased $2.6 million primarily due to lower interest rates and debt repayments, partially offset by debt incurred during 2008 related to the Titanium Dioxide Pigments venture with Kemira.
Loss on early extinguishment of debt, net. In the second quarter of 2009, we recorded a loss on early extinguishment of debt, net of $27.9 million related to the following:
- As previously discussed, we amended our senior secured credit facility on June 15, 2009. As a result, we wrote off $17.7 million of deferred financing costs and expensed $11.1 million of lender fees incurred in connection with this amendment.
- We repurchased $137.7 million in principal of our Euro-denominated senior subordinated notes due in 2014, for which we recorded a net gain of $0.9 million.
Foreign exchange gain of $16.5 million for the second quarter of 2009 was primarily due to the impact of the stronger pound sterling as of June 30, 2009 versus March 31, 2009, in connection with non-operating Euro-denominated transactions.
Income taxes. The effective tax rate for the second quarter of 2009 was negatively impacted by domestic tax losses that were not tax benefitted and by $6.6 million in domestic tax charges allocated from other comprehensive income.
Free cash flow was an inflow of $66.4 million for the second quarter of 2009. This amount consisted of net cash provided by operating activities of $86.1 million plus non-recurring items and other, net of $16.5 million, less capital expenditures, net of $36.2 million. Free cash flow was an inflow of $85.3 million for the six months ended June 30, 2009.
Net debt, which is total debt less cash and cash equivalents, was $2,306.7 million as of June 30, 2009 compared to $2,342.5 million as of December 31, 2008. The decrease in net debt was primarily due to the cash flow generated from our operations in the first half of 2009.
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, 2009, on Wednesday, July 29, 2009 at 11:00 am Eastern Daylight Time. The dial-in number to access the conference call in the U.S. is (888) 428-4472 and the international dial-in number is (612) 288-0337. No access code is needed for either call. A replay of the conference call will be available through August 12, 2009 at (800) 475-6701 in the U.S., access code: 105662, and internationally at (320) 365-3844, access code: 105662.
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 the 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 (loss)/diluted earnings (loss) 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 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 vest (as both such bonuses and options 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 the 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 from continuing operations, plus non-recurring items and other, net less capital expenditures, net (includes proceeds on the sale of property, plant and equipment and excludes sales of property, plant and equipment related to sales of businesses). Management believes that free cash flow is meaningful to investors because it provides an additional measure of liquidity. Neither net income (loss) from continuing operations attributable to Rockwood Holdings, Inc. excluding certain items nor diluted earnings (loss) per share from continuing operations attributable to Rockwood Holdings, Inc. excluding certain items is intended to be an alternative for net income (loss) or diluted earnings (loss) per share. Management believes that net income (loss) and diluted earnings (loss) 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 $3.0 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.
The information set forth in this press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the business, operations and financial condition of Rockwood Holdings, Inc. and its subsidiaries and affiliates ("Rockwood"). Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "predicts" and variations of such words or expressions are intended to identify forward-looking statements. Although Rockwood believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, there can be no assurance that its expectations will be realized. "Forward-looking statements" consist of all non-historical information, including any statements referring to the prospects and future performance of Rockwood. Actual results could differ materially from those projected in Rockwood's forward-looking statements due to numerous known and unknown risks and uncertainties, including, among other things, the "Risk Factors" described in Rockwood's 2008 Form 10-K on file with the Securities and Exchange Commission. Rockwood does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.
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