KMG Chemicals 8-K KMG Chemicals Reports Third Quarter 2012 Results

Exhibit 99.1

KMG Chemicals Reports Third Quarter 2012 Results

Consolidation and integration efforts drive 48% year/year diluted EPS increase to $0.34

HOUSTON, TX, June 8, 2012 (BUSINESS WIRE) – KMG Chemicals, Inc. (NASDAQ GS: KMGB), a global provider of specialty chemicals in select markets, today announced financial results for the third fiscal quarter ended April 30, 2012.

2012 Fiscal Third Quarter Highlights

• Net sales were $66.6 million, up 7.6% versus $61.9 million in the third quarter of fiscal 2011, primarily reflecting the impact of recently implemented pricing actions in both the Electronic Chemicals and Wood Treating chemicals businesses.

• Operating income increased 65.9% to $6.9 million from $4.1 million in the third fiscal quarter of 2011. Operating margins were 10.3% in the third quarter of 2012, up from 6.7% in the prior year period.

• Diluted earnings per share were $0.34 per share versus $0.23 per share reported in last year’s third fiscal quarter.

• Net cash provided by operating activities was $8.5 million, compared to net cash used of $459,000 in the same period a year ago.

• Total long-term debt was $28 million, down from $41 million at the end of the preceding quarter and $49.3 million at the end of fiscal 2011. The Company used the proceeds received on the sale of its Animal Health business to repay $10.0 million of the balance during the third quarter of fiscal year 2012.

Neal Butler, President and CEO of KMG, commented, “Our third quarter earnings were up substantially from the preceding quarter and from the prior-year period, reflecting the benefits of our Electronic Chemicals plant consolidation and integration efforts. Targeted pricing actions in our Electronic Chemicals and Wood Treating business segments also benefited results, and enabled us to recoup higher raw materials costs. We ended the quarter in a strong financial position with $5.2 million in cash and a balance sheet with substantial borrowing capacity to fund further growth.”

Business Unit Overviews and Trends

KMG previously had four reportable segments: Electronic Chemicals, Penta, Creosote, and Animal Health. During the first fiscal quarter of 2011, the Company re-evaluated the criteria used to determine operating segments, and concluded that its two Wood Treating product segments met the criteria of a single operating segment. Then on March 1, 2012, the Company sold its Animal Health business. KMG’s reportable segments have been revised to reflect a change from four to two reportable segments: Electronic Chemicals and Wood Treating Chemicals. Prior period information has been reclassified to conform to the current period presentation.

Electronic Chemicals

Net sales in the Electronic Chemicals segment increased 2.4% to $39.4 million in the fiscal third quarter of 2012, as compared to $38.5 million in the third fiscal quarter of 2011. The year-over-year sales increase primarily reflected the positive impact of price increases instituted over the past twelve months. Despite some softening in the European semiconductor market due to economic weakness, our overall sales volumes have remained relatively firm. We expect demand for our electronic chemicals products to improve in calendar 2012, and we will have additional business from a new North American semiconductor fabrication facility that has come on stream.

Segment operating profits improved 146% to $3.9 million, from $1.6 million in the same period a year ago, benefiting from higher product pricing completed over the last twelve months as well as efficiency improvements in our supply chain and the completion of our integration of the General Chemical acquired assets in fiscal 2011.

Wood Treating Chemicals

Net sales in the Wood Treating Chemicals segment increased 16.1% to $27.2 million in the fiscal third quarter of 2012, up from $23.4 million in the third fiscal quarter of 2011. The year-over-year sales increase primarily reflected higher realized pricing for creosote and pentachlorophenol products, although both products also benefited from increased sales volumes. We foresee relatively flat demand in our Wood Treating segment for the remainder of fiscal 2012.

Wood Treating operating income expanded 24.0% in the fiscal third quarter of 2012 to $3.9 million, from $3.2 million in the prior-year period. The increase in operating profits reflected the positive impact of pricing actions implemented to recover previously incurred raw material cost increases, and to a lesser extent, higher sales volumes.

Animal Health Business Sold

On March 1, 2012, KMG completed the sale of the Animal Health business assets to Bayer Healthcare, LLP. In the transaction, KMG sold manufacturing equipment, inventory and product registrations, and retained the real estate at the Elwood, Kansas location. The purchase price was approximately $10.2 million, following the post-closing adjustment for product sold from inventory prior to closing. We are providing manufacturing services to the purchaser under a one year transition services agreement that is renewable for two six-month periods.

Balance Sheet and Cash Flow Overview

John V. Sobchak, CFO of KMG, commented, “At April 30, 2012, total long-term debt declined to $28 million from $41 million at January 31, 2012 and $49.3 million at fiscal 2011 year-end. As of April 30, 2012, our long-term debt consisted of $20 million of fixed-rate notes maturing in December 2014, and $8 million drawn on our $60 million revolving line of credit. Net cash provided by operating activities was $8.5 million in the third fiscal quarter of 2012 and $22.9 million for the nine months of the current fiscal year. Shareholders’ equity was $104.6 million as of April 30, 2012.”

Outlook

Mr. Butler commented, “This quarter’s strong financial performance reflects the progress we have made in integrating acquired electronic chemicals assets, and remains consistent with our prior guidance that results in the second half of fiscal 2012 will show substantial improvement as compared to fiscal 2011. While economic weakness in Europe may temper near-term results in that region, we expect the overall Electronic Chemicals business to be stable in the fiscal fourth quarter. In addition, we do not expect customer demand in our Wood Treating business to show much change from fiscal third quarter levels for the remainder of this fiscal year. As always, we remain active in our search for additional consolidation opportunities in both Electronic Chemicals and Wood Treating Chemicals. We also remain committed to acquiring a new growth platform by fiscal 2014.”

Conference Call

Date: Friday, June 8, 2012

Time: 10:00 am ET

Dial-in: 888-330-6585 (Domestic), 631-813-4882 (International)

Conference ID: 85549353

About KMG

KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals to carefully focused markets. The Company grows by acquiring and optimizing stable chemical product lines and businesses with established production processes. Its current operations are focused on the electronic and industrial wood treatment chemical markets. For more information, visit the Company’s web site atwww.kmgchemicals.com.

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of the company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development acceptance, the impact of competitive services and pricing and general economic risks and uncertainties.

Contact

Eric Glover

Manager of Investor Relations

KMG Chemicals, Inc.

713-600-3865

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except for per share amounts)

	Three Months Ended						Nine Months Ended
	April 30,						April 30,
	2012			2011			2012			2011
Net sales	$	66,579		$	61,899		$	205,093		$	184,660
Cost of sales		45,973			45,134			148,671			133,545
Gross profit		20,606			16,765			56,422			51,115
Distribution expenses		7,418			7,413			19,290			20,743
Selling, general and administrative expenses		6,320			5,211			18,390			15,861
Operating income		6,868			4,141			18,742			14,511
Other income (expense)
Interest income		—			—			1			1
Interest expense		(504	)		(571	)		(1,610	)		(1,765	)
Other, net		(48	)		50			(195	)		(140	)
Total other expense, net		(552	)		(521	)		(1,804	)		(1,904	)
Income from continuing operations before income taxes		6,316			3,620			16,938			12,607
Provision for income taxes		(2,417	)		(1,245	)		(6,643	)		(4,255	)
Income from continuing operations		3,899			2,375			10,295			8,352
Discontinued operations:
Gain/(loss) from discontinued operations, before income tax		182			385			(434	)		334
Income tax benefit/(expense)		(116	)		(153	)		101			(139	)
Gain/(loss) from discontinued operations		66			232			(333	)		195
Net income	$	3,965		$	2,607		$	9,962		$	8,547
Earnings per share:
Basic
Income from continuing operations	$	0.34		$	0.21		$	0.91		$	0.74
Gain/(loss) from discontinued operations		0.01			0.02			(0.03	)		0.01
Net income	$	0.35		$	0.23		$	0.88		$	0.75
Diluted
Income from continuing operations	$	0.33		$	0.21		$	0.89		$	0.73
Gain/(loss) from discontinued operations		0.01			0.02			(0.03	)		0.01
Net income	$	0.34		$	0.23		$	0.86		$	0.74
Weighted average shares outstanding:
Basic		11,363			11,313			11,355			11,306
Diluted		11,539			11,499			11,523			11,484

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except for share and per share amounts)

	April 30,			July 31,
	2012			2011
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	5,194		$	1,826
Accounts receivable
Trade, net of allowance of $16 at April 30, 2012 and $414 at July 31, 2011		28,840			36,410
Other		3,015			3,148
Inventories, net		39,995			41,770
Current deferred tax assets		721			726
Prepaid expenses and other		2,841			2,126
Total current assets		80,606			86,006
Property, plant and equipment, net		69,526			71,826
Restricted cash		1,000			—
Deferred tax assets		1,167			1,176
Goodwill		3,778			3,778
Intangible assets, net		15,057			19,493
Other assets, net		3,167			3,099
Total assets	$	174,301		$	185,378
Liabilities & stockholders’ equity
Current liabilities
Accounts payable	$	26,371		$	24,899
Accrued liabilities		5,763			4,980
Book overdraft		—			2,852
Income taxes payable		2,160			44
Current deferred tax liabilities		7			7
Current maturities of long-term debt		—			8,000
Total current liabilities		34,301			40,782
Long-term debt, net of current maturities		28,000			41,279
Deferred tax liabilities		6,036			5,381
Other long-term liabilities		1,359			1,406
Total liabilities		69,696			88,848
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 40,000,000 shares authorized, 11,371,769 shares issued and outstanding at April 30, 2012 and 11,318,941 shares issued and outstanding at July 31, 2011		114			113
Additional paid-in capital		25,997			25,256
Accumulated other comprehensive loss		(2,954	)		(1,233	)
Retained earnings		81,448			72,394
Total stockholders’ equity		104,605			96,530
Total liabilities and stockholders’ equity	$	174,301		$	185,378

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Nine Months Ended April 30,
	2012			2011
Cash flows from operating activities
Net income	$	9,962		$	8,547
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		5,285			5,688
Amortization of loan costs included in interest expense		107			82
Stock-based compensation expense		572			441
Bad debt recovery		—			(18	)
Inventory valuation adjustment		370			(138	)
(Gain)/ loss on disposal of property		(40	)		131
Gain on sale of animal health business		(90	)		—
Deferred income tax expense		654			546
Tax benefit from stock-based awards		(179	)		(196	)
Changes in operating assets and liabilities
Accounts receivable — trade		7,159			(1,128	)
Accounts receivable — other		138			(676	)
Inventories		(4,582	)		(1,598	)
Other current and noncurrent assets		(1,045	)		(1,127	)
Accounts payable		1,503			452
Accrued liabilities and other		849			(673	)
Income taxes payable		2,268			(361	)
Net cash provided by operating activities		22,931			9,972
Cash flows from investing activities
Additions to property, plant and equipment		(3,887	)		(5,809	)
Proceeds from sale of property		33			59
Proceeds from sale of animal health business		10,203			—
Change in restricted cash		(1,000	)		189
Net cash provided by/ (used in) investing activities		5,349			(5,561	)
Cash flows from financing activities
Net payments under revolver credit agreement		(9,946	)		(2,093	)
Principal payments on borrowings on term loan		(11,333	)		(6,000	)
Proceeds from exercise of stock options		32			200
Tax benefit from stock-based awards		179			196
Book overdraft		(2,852	)		—
Payment of dividends		(908	)		(735	)
Net cash used in financing activities		(24,828	)		(8,432	)
Effect of exchange rate changes of cash		(84	)		220
Net increase/ (decrease) in cash and cash equivalents		3,368			(3,801	)
Cash and cash equivalents at beginning of period		1,826			4,728
Cash and cash equivalents at end of period	$	5,194		$	927
Supplemental disclosures of cash flow information
Cash paid for interest	$	1,485		$	1,746
Cash paid for income taxes	$	3,625		$	3,748

Net Sales and Operating Income (Loss) by Segment

($ in thousands; includes effects of rounding)

Segment Net Sales

	Three Months Ended April 30,										Nine Months Ended April 30,
	2012					2011					2012					2011
Segment	Net Sales		% of Total Net Sales			Net Sales		% of Total Net Sales			Net Sales		% of Total Net Sales			Net Sales		% of Total Net Sales
Electronic Chemicals	$	39,422		59	%	$	38,509		62	%	$	116,396		57	%	$	111,303		60	%
Wood Treating Chemicals		27,157		41	%		23,390		38	%		88,697		43	%		73,357		40	%
Total	$	66,579		100	%	$	61,899		100	%	$	205,093		100	%	$	184,660		100	%

Segment Operating Income (Loss)⁽¹⁾

	Three Months Ended April 30,										Nine Months Ended April 30,
	2012					2011					2012					2011
Segment	Operating Income		% of Segment Net Sales			Operating Income		% of Segment Net Sales			Operating Income		% of Segment Net Sales			Operating Income		% of Segment Net Sales
Electronic Chemicals	$	3,904		9.9	%	$	1,587		4.1	%	$	9,088		7.8	%	$	5,943		5.3	%
Wood Treating Chemicals		3,932		14.5	%		3,171		13.6	%		12,403		14.0	%		11,372		15.5	%
Total	$	7,836				$	4,758				$	21,491				$	17,315

(1) Segment income from operations includes allocated corporate overhead expenses.