Ormet reports first quarter 2012 earnings

Results of Operations for the three months ended March 31, 2012

Net Sales from Continuing Operations- Net sales from continuing operations for the three months ended March 31, 2012 were $138.5 million compared to $124.2 million for the same period in 2011. Revenue for 2012 included $12.9 million from unwinding certain pre priced metal sales agreements during the 2012 period. Shipments in the first quarter of 2012 increased to 67,981 metric tons (“tons”) from 58,079 tons for the same period in 2011 due to the ramping up of production from the two restarted pot lines in 2011. Toll volume (included above) for the first quarter was 46,418 tons and 32,787 tons in 2012 and 2011, respectively. Selling prices associated for non toll shipments decreased by $230 per ton for the first quarter 2012 vs. the first quarter 2011. Toll selling prices also declined by $176 per ton for the first quarter 2012 from the same period in 2011. The monthly average cash settlement price on the LME was $2,177/ton and $2,500/ton during the first quarters of 2012 and 2011, respectively. The Midwest premium averaged $117.86/ton and $140.44/ton for the first three months of 2012 and 2011, respectively.

Gross Profit- The gross profit for the three months ended March 31, 2012 was $8.0 million compared to a gross profit of $13.8 million for the same period in 2011. The sales increase of $14.3 million from 2011 was offset in 2012 by increased cost of sales associated with the higher production volumes and increased unit costs for electric power, alumina and anodes. Electric power costs increased to $39.69/MWh for the first three months of 2012 compared to $32.80/MWh in the same period 2011 amounting to $7.1 million. Primarily due to Burnside alumina refinery ramp up costs during the first quarter of 2012, alumina costs increased to $450/ton the first quarter of 2012 versus $372/ton for the same period in 2011 for a total of $3.2 million. Consumed anode costs increased to $766/ton the first quarter of 2012 from $723/ton in the same period of 2011 for an associated increase of $1.7 million. Cost of sales for the three month period ended March 31, 2012 was $130.5 million compared to $110.3 million in 2011.

Operating Expenses- Operating expenses for the three months ended March 31, 2012 totaled $4.8 million, an increase of $1.1 million from the $3.7 million for the same period in 2011 primarily driven by higher legal fees and administrative employee compensation costs.

Operating Profit- For the three months ended March 31, 2012, the Company reported a $3.2 million operating profit compared to an operating profit of $10.1 million in the same period of 2011.

Non Operating Expense- Non operating expense totaled $5.0 million versus non operating expenses of $4.4 million for the three months ended March 31, 2012 and 2011, respectively, primarily due to higher interest expense in 2012 associated with the additional borrowings to fund the restart of the alumina refinery.

Income Tax Provision-The Company recorded an income tax benefit of $0.6 million for the three months ended March 31, 2012. Due to the amount of its net operating loss carry forward recorded as of March 31, 2011, the Company did not record any income tax expense or benefit in the three months ended March 31, 2011.

Discontinued Operations- Due to the sale of the Burnside marine terminal in June, 2011, the Company no longer has any discontinued operations and as such, had no expense or benefit from discontinued operations for the three months ended March 31, 2012. The cost of $0.2 million for the three months ended March 31, 2011 principally reflects long term employee benefit expenses.

Net Income Per Share- The average number of shares of common stock issued and outstanding during the three months ended March 31, 2012 and 2011 was 18,662,272 and 18,509,934, respectively. The resulting loss from continuing operations and net loss for the three month period ended March 31, 2012 was $0.06 per share compared to an income from continuing operations and net income for the three month period ended March 31, 2011 of $0.31 per share and $0.30 per share, respectively.

EBITDA and Adjusted EBITDA- EBITDA for the three months ended March 31, 2012 and 2011 was $12.3 million and $16.9 million, respectively. Adjusted EBITDA was $12.5 million and $17.2 million for the three months ended March 31, 2012 and 2011, respectively. Below is the reconciliation of EBITDA and Adjusted EBITDA to net income for the three months ended March 31, 2012 and 2011:

Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(000’s omitted)
					Three months ended March 31,
					2012				2011
Consolidated net income (loss)					$	(1,127	)		$	5,535
Depreciation						5,259				4,778
Amortization of financing fees						269				213
Amortization of pension actuarial loss						3,203				1,764
Interest expense						5,362				4,604
Taxes						(618	)			–
EBITDA						12,348				16,894
Deferred compensation/ stock option expense						37				234
Additional accretion & imputed interest expense						116				104
Adjusted EBITDA					$	12,501			$	17,232

The Company’s definition of EBITDA (Earnings before interest, taxes, depreciation, and amortization) is consolidated net income plus an add-back for depreciation, interest expense, taxes and amortization of financing fees and pension plan actuarial loss. The Company’s definition of Adjusted EBITDA is EBITDA minus the effect of any gains and losses on asset sales, adding back stock compensation expense, and imputed interest expense. EBITDA and Adjusted EBITDA are non-GAAP financial measures. Management believes that these measures are meaningful to investors because EBITDA and Adjusted EBITDA provide additional information with respect to the Company’s operating performance and the Company’s ability to meet its financial obligations. The EBITDA and Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.

Capital Expenditures- The Company spent $3.5 million on capital expenditures during the three months ended March 31, 2012 including $1.9 million for relining 22 pots at Hannibal during the period. Capital expenditures at the Burnside alumina refinery amounted to an additional $1.2 million for the three month period. Covenants in the Term Loan and Security Agreement (“Term Loan”) and the Amended and Restated Loan and Security Agreement (“ABL Facility”) limit the Company’s ability to make capital expenditures at its facilities. The limit for the year 2012 is $45.0 million (which includes a carryover of $10.0 million from 2011).

Liquidity and Capital Resources

Sources and Uses of Cash- The net cash provided by operating activities was $4.4 million for the three months ended March 31, 2012. The generation of cash was principally caused by net income adjusted for non-cash expenses amounting to $14.9 million reduced by working capital increases and pension funding totaling $10.5 million.

Net cash used in investing activities was $3.5 million and was comprised of spending at the aluminum smelter and alumina refinery capital spending of $2.3 million and $1.2 million, respectively.

Net cash used by financing activities was $0.1 million, which were the payment of financing fees related to the Company incurring a $1.5 million loan from the State of Louisiana Economic Development Loan program. The proceeds from the loan were received on April 12, 2012.

The Company’s cash balance at March 31, 2012 was $3.3 million, an increase of $0.8 million from the $2.5 million balance at December 31, 2011.

Liquidity- The ongoing sources of liquidity for the Company are existing cash balances, cash flows from continuing operations and available borrowings under the ABL Facility. As of March 31, 2012, there were no outstanding borrowings under the ABL Facility; outstanding letters of credit were $6.1 million with remaining availability at $48.3 million and an unrestricted cash balance of $3.3 million. As of April 30, 2012, there was a cash balance of $2.6 million, a loan balance on the ABL Facility of $8.8 million, outstanding letters of credit were $6.1 million, and remaining borrowing availability was $39.5 million.

Primary uses of cash are for funding the alumina and aluminum smelter operations, which include raw material purchases, electricity and natural gas costs, increases in working capital, capital expenditures, labor costs, funding of the Ormet pension plan and contractual payments to the VEBA Benefit Trusts.

Total inventory at March 31, 2012 of $136.0 million was $12.0 million higher than the $124.0 million at December 31, 2011. This is principally due to increased alumina inventory in the first three months of 2012 as the Burnside alumina refinery ramped up production. The inventory at March 31, 2012 is principally composed of anodes totaling $46.1 million, alumina of $34.1 million, bauxite of $16.0 million and operating materials and supplies (bath, molten pad, pot lining material, copper bars, stores and other operating supplies) totaling $39.8 million.

On March 28, 2012, the Company entered into Amendment No. 4 and Amendment No. 2 of its ABL Facility and Term Loan, respectively. The amendments provide for revising the terms and conditions for the Company related to the $1.5 million State of Louisiana Economic Development Loan.

The ABL Facility and Term Loan agreement documents, including amendments to each, are posted in the Investor’s section on the Company’s website, www.ormet.com.

Mike Tanchuk, Ormet’s President and CEO commented, “Our Burnside, Louisiana alumina refinery operation continues to increase production and is nearing capacity. I want to recognize and thank our employees at the refinery for their hard work and dedication in making the start-up a reality. I also want to thank the Governor of Louisiana, Bobby Jindal, for making available state sponsored programs that provided training, funding and tax relief to our Company that has contributed to the successful restart.”

The complete Rule 15c2-11 Information and Disclosure Statement for the three months ended March 31, 2012 is available on the Company’s website. Please visit the Investor section of the website at www.ormet.com.

Cautionary Statement

This Statement contains forward-looking statements that can be identified by use of words such as “anticipates,” “believes,” “estimates,” “expects,” “hopes,” “targets,” “should,” “forecast,” “outlook,” “projects” or other words of similar meaning. All statements that address the Company’s expectations or projections about the future, including statements about the Company’s strategy for growth, cost reduction goals, expenditures, financial results, liquidity and capital needs, are forward-looking statements. Forward-looking statements are based on the Company’s estimates, assumptions and expectations of future events and are subject to a number of risks and uncertainties and may or may not be realized. The Company cannot guarantee its future performance or results of operations. All forward-looking statements in this press release are based on information available to the Company on the date hereof. The Company disclaims any intention or obligation to update or revise any forward-looking statements, except as may be required by law. The Company’s business is subject to a number of significant risks and uncertainties. Reference is made to the risk factors and other disclosures contained in the Company’s Information and Disclosure Statements for year ended December 31, 2011, which is available on the Company’s website at www.ormet.com. Given the significant uncertainties and risks to which the Company is subject (a) the reader should not place undue reliance on forward-looking statements contained in this press release and (b) the Company’s future results could differ materially from the Company’s current results and from those anticipated in the Company’s forward-looking statements.

Headquartered in Hannibal, Ohio, Ormet Corporation is a major U.S. producer of aluminum. Ormet employs approximately 1,250 people. For more information, visit the Company’s website at www.ormet.com.

Ormet Corporation Financial Statements
Consolidated Balance Sheet
(000’s omitted)
					(Unaudited)
					3/31/2012					12/31/2011
ASSETS
Cash					$	3,251				$	2,468
Accounts receivable:
Trade accounts receivable						13,375					20,619
Receivable from sales contract cancellation						–					23,000
Inventory						135,999					124,013
Prepaid expense and other current assets						12,620					12,411
Total current assets						165,245					182,511
Property and equipment						64,006					65,543
Goodwill						42,284					42,284
Deferred tax asset, net						143,607					143,724
Other assets						1,677					1,864
TOTAL ASSETS					$	416,819				$	435,926
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable						35,649					51,906
Deferred energy discount						7,109					–
Accrued wages and employee benefits						16,411					18,670
Accrued interest						4,470					4,527
Postretirement obligations						9,118					9,858
Other accrued liabilities						7,948					5,773
Total current liabilities						80,705					90,734
Long term debt						125,010					124,378
Other liabilities:
Pension obligations						142,508					149,627
Postretirement obligations						36,594					37,615
Other liabilities						6,409					7,446
STOCKHOLDERS’ EQUITY
Common stock 50,000 shares authorized at $0.001 per share, 18,662 issued as of 3/31/12 and 12/31/11						19					19
Additional paid in capital						187,150					187,113
Accumulated deficit						(16,917	)				(15,790	)
Accumulated other comprehensive loss						(144,659	)				(145,216	)
Total stockholders equity						25,593					26,126
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY					$	416,819				$	435,926

CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(000’s omitted)
					Three Months Ended
					3/31/2012					3/31/2011
Net sales from continuing operations					$	138,520				$	124,181
Cost of sales						130,520					110,332
Gross profit						8,000					13,849
Operating expenses
General and administrative expenses						4,778					3,745
Operating income						3,222					10,104
Non-operating (expenses) income
Other income, net						395					253
Interest expense						(5,362	)				(4,604	)
Total non-operating expenses						(4,967	)				(4,351	)
Income (loss) before income tax						(1,745	)				5,753
Income tax benefit						(618	)				–
Income (loss) from continuing operations						(1,127	)				5,753
Loss from discontinued operations						–					(218	)
Net income (loss)					$	(1,127	)			$	5,535
Shares outstanding:
Average during period						18,662					18,510
As of March 31						18,662					18,510
Net income (loss) per share from continuing operations					$	(0.06	)			$	0.31
Net income (loss) per share					$	(0.06	)			$	0.30

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(000’s omitted)
					Three months ended
					3/31/2012					3/31/2011
Net income (loss)					$	(1,127	)			$	5,535
Other comprehensive income, net of tax:
Unrealized loss on derivatives net of income tax benefit of $828						(1,511	)				–
Defined benefit pension plan:
Adjusted prior service cost net of income tax expense of $8 and $0, respectively						12					20
Change in unrecognized net actuarial loss, net of income tax expense of $1,127 and $0, respectively						2,056					1,744
Other comprehensive income						557					1,764
Comprehensive income (loss)					$	(570	)			$	7,299

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(000’s omitted)
					Three Months Ended March 31,
Cash flows from operating activities					2012				2011
Net income (loss)					$	(1,127	)		$	5,535
Adjustments to reconcile net income (loss) to net cash from:
Depreciation and amortization						5,259				4,778
Deferred energy discount						7,109				8,735
Receivable from sales contract cancellation						23,000				–
Amortization of pension plan loss						3,203				1,764
Deferred interest						826				743
Compensation expense related to options						37				234
Deferred income tax benefit						(618	)			–
Amortization of deferred financing costs						269				213
Net change in:
Trade accounts receivable						7,244				(15,758	)
Inventory						(11,986	)			10,838
Prepaid expenses & other assets						227				(2,672	)
Accounts payable						(16,257	)			(8,617	)
Accrued liabilities						(3,886	)			362
Pension and postretirement						(8,880	)			(6,844	)
Net cash provided (used) in operating activities						4,420				(689	)
Cash flows from investing activities
Capital spending						(3,542	)			(6,185	)
Net cash used in investing activities						(3,542	)			(6,185	)
Cash flows from financing activities
Net payments on bank line of credit						–				4,842
Debt issuance costs						(95	)			–
Net cash (used) provided by financing activities						(95	)			4,842
Net (decrease) increase in cash						783				(2,032	)
Cash – beginning of period						2,468				3,085
Cash – end of period					$	3,251			$	1,053

See the Company’s complete consolidated financial statements for the three months ended March 31, 2012 in the Investor’s section at www.ormet.com.