Rockwood : Reports Second Quarter 2014 Results

Rockwood Holdings, Inc. (NYSE:ROC) today posted as reported net income from continuing operations of $34.1 million, or $0.47 per share for the second quarter of 2014, which included other net charges of $11.4 million, as compared to $25.7 million, or $0.33 per share for the same period in the prior year, which included other net charges of $5.3 million.

Excluding these other net charges, adjusted net income from continuing operations was $45.5 million, or $0.62 per share, in the second quarter of 2014 compared to $31.0 million, or $0.39 per share, for the same period in the prior year. Quarter on quarter results benefited from strong performance in Surface Treatment and battery applications in Lithium, as well as lower interest expense, which more than offset lower organometallics and potash volumes in Lithium. Additionally, earnings per share benefited from fewer common shares outstanding due to share repurchases.

For the six months ended June 30, 2014, as reported net income from continuing operations was $55.8 million, or $0.75 per share, which included other net charges of $21.9 million, as compared to $32.2 million, or $0.41 per share for the same period in the prior year, which included other net charges of $21.9 million.

Excluding these other net charges, adjusted net income from continuing operations was $77.7 million, or $1.05 per share, in the six months ended June 30, 2014 as compared to $54.1 million, or $0.68 per share, for the same period in the prior year. Year on year results also benefited from strong performance in Surface Treatment and battery applications in Lithium, as well as lower interest expense, which more than offset lower organometallics volumes and a decrease in potash sales of 48%. Additionally, earnings per share benefited from fewer common shares outstanding due to share repurchases.

* 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 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.

(a) Includes the Company’s equity in Adjusted EBITDA of unconsolidated affiliates, including the acquisition of a 49% interest in the joint venture related to Talison for Lithium and other joint ventures for Surface Treatment.

As previously announced, on July 15, 2014, Rockwood entered into a merger agreement with Albemarle Corporation (NYSE:ALB) pursuant to which Albemarle will acquire all outstanding shares of Rockwood in a cash and stock transaction valued at approximately $6.2 billion. The transaction is subject to shareholder and regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2015.

Robert J. Zatta, Chief Executive Officer and Chief Financial Officer, commented, “Our core businesses (Surface Treatment and Lithium battery applications) delivered solid performance in the quarter and in line with our expectations. Surface Treatment continued to post strong top line demand and Adjusted EBITDA results with a 23% margin. In our Lithium segment, battery grade lithium carbonate and hydroxide delivered significant double-digit sales growth, partially mitigating weaker potash and organometallic products sales, posting Adjusted EBITDA margins of 38%.

“Looking ahead to the second half of this year, the Surface Treatment business remains on track for solid organic growth in sales and Adjusted EBITDA, with Adjusted EBITDA margins in the 22% to 23% range. The Lithium segment, excluding the Talison joint venture, is expected to deliver an increase in sales and Adjusted EBITDA compared to the second half of 2013, with Adjusted EBITDA margins in the range of 36% to 38%.”

Business Segment Review

Continuing operations for the second quarter and year-to-date net sales and Adjusted EBITDA, as compared with the same periods a year ago, are summarized below:

(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 six months ended June 30, 2014 and 2013, the average rate of exchange of the Euro to the U.S. dollar is $1.37 and $1.31, respectively, and $1.37 and $1.31, respectively. For further details, see Appendix Table A-9.

(b) Includes the Company’s equity in Adjusted EBITDA of unconsolidated affiliates, including the acquisition of a 49% interest in the joint venture related to Talison for Lithium and other joint ventures for Surface Treatment.

(c) Other includes the results of the wafer reclaim business, as well as costs of operating the Company’s corporate offices. In the second quarter of 2014, the Company reorganized its Metal Sulfides business and began reporting it within the Surface Treatment segment. The financial statements have been reclassified for all periods presented.

Second Quarter Segment Drivers

Lithium: Net sales and Adjusted EBITDA decreased 7.2% and 8.6%, respectively.

• Net sales decreased primarily from lower volumes from organometallic products, driven mostly by butyllithium, and a 26% reduction in potash sales, mainly volumes. This was largely offset by significantly higher volumes for battery applications.
• Adjusted EBITDA decreased primarily from lower net sales, partially offset by the results of a 49% ownership interest in the joint venture related to Talison Lithium in May 2014.

Surface Treatment: Net sales and Adjusted EBITDA increased 10.8% and 16.1%, respectively.

• Net sales increased primarily due to increased volumes in most markets, particularly driven by higher automotive OEM and automotive components, coil and cold forming, general industry and aerospace applications; the impact of the acquisition of the remaining 50% interest in a previously unconsolidated joint venture in India in 2013; and higher selling prices.
• Adjusted EBITDA increased primarily from higher net sales, partially offset by higher selling, general and administrative costs.

Outlook

Commenting on the outlook, Mr. Zatta said, “In January 2013, we committed to streamlining our portfolio and a disciplined capital allocation strategy and over the last 18 months, we delivered by selling seven non-core businesses and by acquiring an interest in a strategic lithium resource. On July 15, we announced our proposed merger with Albemarle in a transaction that represents the culmination of Rockwood’s strategic realignment and transformation to drive significant shareholder value. By merging with Albemarle, we are receiving an attractive price for our shareholders with an immediate cash payment, while participating in the creation of a premier specialty chemicals company with global leading market positions with growth prospects and meaningful synergies.

“Further, with the platform of these complementary global leading businesses, we expect the portfolio combination will deliver outstanding benefits and growth potential for employees, customers and shareholders for many years to come,” added Mr. Zatta.

Conference Call and Webcast

On Wednesday, August 6, 2014 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) 230-1059, and the international dial-in number is (612) 234-9960. 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 of the call. For persons unable to listen to the live conference call or webcast, a webcast replay of the call will be available on Rockwood’s website.

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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 more than $5 billion. It is a leading integrated and low cost global producer of lithium and lithium compounds used in lithium-ion batteries for electronic devices, alternative transportation vehicles and future energy storage technologies, meeting the significant growth in global demand for these products. The company is also the second largest global producer of products and services for metal processing, servicing the aerospace, general and European luxury automotive industries.

For more information on Rockwood, please visit www.rocksp.com.

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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 former senior secured credit agreement and indenture governing the 4.625% Senior Notes due 2020 as a basis and reflects management’s interpretations thereof. Adjusted EBITDA, which is referred to as “Consolidated EBITDA,” is defined in the former senior secured credit agreement as consolidated earnings which, as defined in the former 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 former 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. 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 (including continuing and discontinued operations) 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 former 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 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 operations excluding certain items are 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.

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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, growth prospects, our future Adjusted EBITDA and free cash flows, our share repurchase plans, our use of cash 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 are not guarantees of future performance. These risks, uncertainties and other factors include, without limitation, Rockwood’s business strategy; our ability to complete our previously announced divestiture; our uses of the cash and cash equivalents from the completed or expected to be completed divestitures; the prospects of and our outlook for our businesses; changes in general economic conditions in Europe and North America 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 negotiating, consummating and integrating acquisitions; 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 security 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 periodic reports filed with or furnished to the Securities and Exchange Commission.

This press release also contains certain forward-looking statements with respect to the financial condition, results of operations and business of Albemarle, Rockwood and the combined businesses of Albemarle and Rockwood and with respect to the transaction and the anticipated consequences and benefits of the transaction, the targeted close date for the transaction, product development, changes in productivity, market trends, price, expected growth and earnings, cash flow generation, costs and cost synergies, portfolio diversification, economic trends and outlook. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Albemarle or Rockwood to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, without limitation: the receipt and timing of necessary regulatory approvals; the ability to finance the transaction; the ability to successfully operate and integrate Rockwood’s operations and realize estimated synergies; changes in economic and business conditions; changes in financial and operating performance of major customers and industries and markets served by Albemarle or Rockwood; the timing of orders received from customers; the gain or loss of significant customers; competition from other manufacturers; changes in the demand for products; limitations or prohibitions on the manufacture and sale of products; availability of raw materials; changes in the cost of raw materials and energy; changes in markets in general; changes in laws and government regulation impacting operations or products; the occurrence of claims or litigation; the occurrence of natural disasters; political unrest affecting the global economy; political instability affecting manufacturing operations or joint ventures; changes in accounting standards; changes in the jurisdictional mix of the earnings of Albemarle or Rockwood and changes in tax laws and rates; volatility and substantial uncertainties in the debt and equity markets; technology or intellectual property infringement; and decisions that Albemarle or Rockwood may make in the future. In addition, certain factors that could cause actual results to differ materially from these forward-looking statements are listed from time to time in Albemarle’s SEC reports, including, but not limited to, in the section entitled “Item 1A. Risk Factors” in the Annual Report on Form10-K filed by Albemarle with the SEC on February 25, 2014.

These forward-looking statements speak only as of the date of this press release. Rockwood expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Important Information for Stockholders and Investors

Nothing in this press release shall constitute a solicitation to buy or subscribe for or an offer to sell any securities of Albemarle Corporation (“Albemarle”) or Rockwood or a solicitation of any vote or approval. In connection with the proposed transaction, Albemarle and Rockwood will file a joint proxy statement/prospectus and other relevant documents concerning the proposed transaction with the Securities and Exchange Commission (“SEC”), and Albemarle will file a Registration Statement on Form S-4 with the SEC. STOCKHOLDERS OF EACH COMPANY AND OTHER INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) REGARDING THE PROPOSED TRANSACTION WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Stockholders and investors will be able to obtain a free copy of the registration statement and joint proxy statement/prospectus, as well as other filings containing information about Albemarle and Rockwood, without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of the registration statement and joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference therein can also be obtained, without charge, by directing a request to Albemarle Corporation, 451 Florida Street, Baton Rouge, Louisiana 70801, USA, Attention: Investor Relations, Telephone: +1 225-388-7322, or to Rockwood Holdings, Inc., 100 Overlook Center, Princeton, New Jersey 08540, USA, Attn: Investor Relations, Telephone +1 609-524-1109.

Participants in Solicitation

Albemarle, Rockwood, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Albemarle’s directors and executive officers is available in its proxy statement filed with the SEC by Albemarle on March 28, 2014, and information regarding Rockwood’s directors and executive officers is available in its proxy statement filed with the SEC by Rockwood on March 28, 2014. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. These documents can be obtained free of charge from the sources indicated above.

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