OM Group Announces Third Quarter 2012 Financial Results
CLEVELAND, Nov. 9, 2012 /PRNewswire/ — OM Group, Inc. (NYSE: OMG) today announced financial results for the third quarter ended September 30, 2012. Diluted earnings per share from continuing operations were $0.18, or $0.25 as adjusted for special items. Prior year third quarter diluted earnings per share from continuing operations were $(2.18), or $1.27 as adjusted for special items. The Company generated $96 million of cash flow from operations in the third quarter of 2012 versus $22 million in the comparable prior year quarter. As of September 30, 2012, OM Group had $325 million of cash and $594 million of debt.
“Our working capital performance and operating and financial discipline enabled us to achieve the highest quarterly cash flow from operations in nearly four years and the second-highest in the past decade,” said Joe Scaminace, Chairman and Chief Executive Officer of OM Group, Inc. “We took advantage of our strong liquidity position by electing to make accelerated debt repayments of $72 million in the third quarter and another $100 million in October, effectively deploying our cash to reduce future interest costs.”
Third quarter consolidated net sales of $395 million decreased five percent compared with last year’s comparable quarter, due principally to current conditions in many of our markets. Lower cobalt prices in Advanced Materials and lower sales volumes in Specialty Chemicals were the main drivers of the decline in sales, partially offset by a full quarter of results from Magnetic Technologies and higher Battery Technologies volumes. Lower sales levels led to lower adjusted EBITDA of $46 million in the 2012 period compared to $70 million in the 2011 period. Third quarter 2011 results included only two months of VAC results, as the acquisition closed on August 2, 2011.
“Our newer business platforms posted another quarter of impressive results, demonstrating again the value of our growth strategy and reduced reliance on our commodity cobalt business,” said Mr. Scaminace. “But we also recognize the economic environment is becoming more challenging. We are responding to changing business conditions by reducing discretionary spending, rationalizing capital expenditures and developing plans to further adjust our cost structure. At the same time, we continue to pursue our organic and strategic growth objectives while reinforcing our focus on working capital efficiency improvements.”
The Company commented that current quarter adjusted results included a foreign exchange loss of $2.7 million and dividend income of $1.8 million from a Magnetic Technologies joint venture. Adjusted results exclude $2.5 million of pension settlement expenses and $1.2 million of accelerated amortization of deferred financing costs in connection with the third quarter debt repayment. Adjusted results in the prior year quarter exclude special items related to the VAC acquisition, a gain on sale of property and certain special tax items.
Looking ahead to the fourth quarter of 2012, the Company expects positive operating cash flow as net working capital levels continue to be optimized. The Company also expects lower adjusted EBITDA due principally to European and certain end market weakness resulting in lower demand across several of its businesses, minimal if any rare-earth pricing benefits and seasonally lower sales in its Battery Technologies business.
Mr. Scaminace concluded, “We are committed to our long-term strategy and are well-positioned to navigate the challenging macroeconomic conditions that exist today. Our strong balance sheet and significant positive cash flow, including receipt of a $37.5 million tax refund in October, provide us with the resources to execute our operating and strategic plans. And we are taking action with respect to current market conditions to further position us to create long-term shareholder value.”
WEBCAST INFORMATION
OM Group has scheduled a conference call and live audio broadcast on the Web for 10 AM EST today. Investors may access the live audio broadcast by logging on to http://investor.omgi.com. A copy of management’s presentation materials will be available on OMG’s website before the call. The company recommends visiting the website at least 15 minutes prior to the webcast to download and install any necessary software. A webcast audio replay will be available on the “Investor Relations – Presentations” page of the company’s website three hours after the call.
ABOUT OM GROUP, INC.
OM Group, Inc. is a diversified specialty chemicals and engineered materials company serving attractive global markets. The Company develops, produces and distributes innovative, high-quality chemicals, materials, products and technologies that contribute to customer success by addressing complex applications and demanding requirements. For more information, visit the company’s website at www.omgi.com.
Presentation of Non-GAAP Financial Information
The Company is including certain non-GAAP financial measures, including adjusted operating profit, adjusted earnings per diluted share and adjusted EBITDA, in this press release and the corresponding presentation materials. The Company’s management believes that these non-GAAP financial measures are important metrics in evaluating the performance of the Company’s business, providing a baseline for evaluating and comparing our operating results and isolating the impact of certain items on our results. The non-GAAP financial measures are defined and reconciled to applicable U.S. GAAP measures in this release. The non-GAAP financial information should not be construed as an alternative to reported results determined in accordance with U.S. GAAP.
FORWARD-LOOKING STATEMENTS
The foregoing discussion may include forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions and are subject to uncertainties and factors relating to the company’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company. These uncertainties and factors could cause actual results of the company to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. Such uncertainties and factors include: risks arising from uncertainty in worldwide economic conditions; extended business interruption at our facilities; fluctuations in the price and uncertainties in the supply of cobalt, rare earth materials and other raw materials; our ability to identify, complete and integrate acquisitions aligned with our strategy; current circumstances and developments regarding the Democratic Republic of Congo; restrictive covenants in our Senior Secured Credit Facility which may affect our ability to operate our business successfully; indebtedness may impair our ability to operate our business successfully; changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns; the majority of our operations are outside the United States, which subjects us to risks that may adversely affect our operating results; level of returns on pension plan assets and changes in the actuarial assumptions; the majority of our cash is generated and held outside the United States; fluctuations in foreign exchange rates; unanticipated costs or liabilities for compliance with environmental regulation; changes in environmental, health and safety regulatory requirements; technological changes in our industry or in our customers’ products; our ability to adequately protect or enforce our intellectual property rights; disruption of our relationship with key customers or any material adverse change in their businesses; and the risk factors set forth in Part 1, Item 1a of our Annual Report on Form 10-K for the year ended December 31, 2011.
OM Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
September 30, 2012 December 31, 2011
------------------ -----------------
(In thousands)
ASSETS
Current assets
Cash and cash equivalents $325,353 $292,146
Restricted cash on deposit 22,791 92,813
Accounts receivable, net 204,253 212,152
Inventories 471,096 615,018
Refundable and prepaid income
taxes 39,672 42,480
Other current assets 42,007 54,833
------ ------
Total current assets 1,105,172 1,309,442
Property, plant and
equipment, net 483,277 482,313
Goodwill 538,922 544,471
Intangible assets, net 430,122 433,275
Notes receivable from joint
venture partner 16,015 16,015
Other non-current assets 88,635 84,207
------ ------
Total assets $2,662,143 $2,869,723
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term
debt $10,763 $13,265
Accounts payable 120,736 170,466
Liability related to joint
venture partner injunction 22,791 92,813
Accrued income taxes 22,311 19,806
Accrued employee costs 40,593 49,699
Deferred income taxes 8,122 23,449
Purchase price of VAC payable
to seller 75,307 -
Other current liabilities 84,439 79,026
------ ------
Total current liabilities 385,062 448,524
Long-term debt 582,859 663,167
Deferred income taxes 140,193 129,945
Pension liabilities 198,493 204,248
Purchase price of VAC payable
to seller 11,252 86,513
Other non-current liabilities 55,742 62,032
Stockholders' equity:
Total OM Group, Inc.
stockholders' equity 1,244,802 1,230,793
Noncontrolling interests 43,740 44,501
------ ------
Total equity 1,288,542 1,275,294
--------- ---------
Total liabilities and equity $2,662,143 $2,869,723
========== ==========
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Operations
Three Months Ended September
30, Nine Months Ended
September 30,
-------------
2012 2011 2012 2011
---- ---- ---- ----
(In thousands, except per share data)
Net sales $394,732 $415,057 $1,297,378 $1,075,924
Cost of goods sold 297,353 398,315 1,031,008 903,638
------- ------- --------- -------
Gross profit 97,379 16,742 266,370 172,286
Selling, general and administrative expenses 75,901 71,828 235,476 161,595
Gain on sale of property - (9,693) (2,857) (9,693)
Operating profit (loss) 21,478 (45,393) 33,751 20,384
Other income (expense):
Interest expense (11,977) (8,512) (36,017) (11,327)
Accelerated amortization of deferred financing fees (1,249) - (1,249) -
Interest income 192 294 530 981
Foreign exchange gain (loss) (2,724) 7,425 (1,884) 7,264
Other, net 1,277 (547) 629 (876)
----- ---- --- ----
(14,481) (1,340) (37,991) (3,958)
------- ------ ------- ------
Income (loss) from continuing operations before income tax expense 6,997 (46,733) (4,240) 16,426
Income tax expense (1,756) (18,421) (1,292) (24,497)
------ ------- ------ -------
Income (loss) from continuing operations, net of tax 5,241 (65,154) (5,532) (8,071)
Income (loss) from discontinued operations, net of tax (148) 234 (110) (95)
---- --- ---- ---
Consolidated net income (loss) 5,093 (64,920) (5,642) (8,166)
Net (income) loss attributable to noncontrolling interests 415 (3,334) 760 (4,816)
--- ------ --- ------
Net income (loss) attributable to OM Group, Inc. common stockholders $5,508 $(68,254) $(4,882) $(12,982)
====== ======== ======= ========
Earnings per common share - basic:
Income (loss) from continuing operations attributable to OM Group, Inc. common stockholders
$0.18 $(2.18) $(0.15) $(0.42)
Income (loss) from discontinued operations attributable to OM Group, Inc. common stockholders
(0.01) 0.01 - -
----- ---- --- ---
Net income (loss) attributable to OM Group, Inc. common stockholders
$0.17 $(2.17) $(0.15) $(0.42)
===== ====== ====== ======
Earnings per common share - assuming dilution:
Income (loss) from continuing operations attributable to OM Group, Inc. common stockholders
$0.18 $(2.18) $(0.15) $(0.42)
Income (loss) from discontinued operations attributable to OM Group, Inc. common stockholders
(0.01) 0.01 - -
----- ---- --- ---
Net income (loss) attributable to OM Group, Inc. common stockholders
$0.17 $(2.17) $(0.15) $(0.42)
===== ====== ====== ======
Weighted average shares outstanding
Basic 31,889 31,382 31,882 30,817
Assuming dilution 32,004 31,382 31,882 30,817
Amounts attributable to OM Group, Inc. common stockholders:
Income (loss) from continuing operations, net of tax $5,656 $(68,488) $(4,772) $(12,887)
Income (loss) from discontinued operations, net of tax (148) 234 (110) (95)
---- --- ---- ---
Net income (loss) $5,508 $(68,254) $(4,882) $(12,982)
====== ======== ======= ========
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Cash Flows
Three Months Ended September
30, Nine Months Ended
September 30,
-------------
2012 2011 2012 2011
---- ---- ---- ----
(In thousands)
Operating activities
Consolidated net income (loss) $5,093 $(64,920) $(5,642) $(8,166)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating
activities:
(Income) loss from discontinued operations 148 (234) 110 95
Depreciation and amortization 22,110 20,363 66,362 47,264
Amortization of deferred financing fees 1,390 1,098 4,138 1,531
Accelerated amortization of deferred financing fees 1,249 - 1,249 -
Share-based compensation expense 1,329 1,595 5,150 5,118
Foreign exchange (gain) loss 2,724 (7,425) 1,884 (7,264)
VAC lower of cost or market ("LCM") charges (a) - 62,444 53,751 62,444
Allowance on GTL prepaid tax asset - (6,225) - (6,225)
Gain on sale of property - (9,693) (2,857) (9,693)
Other non-cash items (primarily deferred income taxes) (7,174) (28,511) (23,092) (29,194)
Changes in operating assets and liabilities, excluding the effect of business acquisitions
Accounts receivable 23,169 11,946 6,864 (12,178)
Inventories (b) 12,468 625 88,502 (1,573)
Accounts payable 12,335 (27,232) (49,475) (13,485)
Refundable, prepaid and accrued income taxes 5,090 48,008 5,693 44,569
Other, net 16,132 20,042 4,918 13,260
------ ------ ----- ------
Net cash provided by operating activities 96,063 21,881 157,555 86,503
Investing activities
Expenditures for property, plant and equipment (17,890) (13,960) (47,017) (26,405)
Proceeds from sale of property - 9,693 5,138 9,693
Cash paid for acquisitions - (669,818) - (669,818)
Other, net - 17 - (4,090)
--- --- --- ------
Net cash used for investing activities (17,890) (674,068) (41,879) (690,620)
Financing activities
Payments on revolving line of credit - (120,000) - (120,000)
Payments of long-term debt (74,627) - (82,654) -
Proceeds from long-term debt - 697,975 - 697,975
Debt issuance costs - (29,283) - (29,283)
Payment related to surrendered shares - - (254) (193)
Proceeds from exercise of stock options - 204 - 361
--- --- --- ---
Net cash provided by (used for) financing activities (74,627) 548,896 (82,908) 548,860
Effect of exchange rate changes on cash 4,247 (2,052) 439 1,029
----- ------ --- -----
Cash and cash equivalents
Increase (decrease) in cash and cash equivalents 7,793 (105,343) 33,207 (54,228)
Balance at the beginning of the period 317,560 451,712 292,146 400,597
------- ------- ------- -------
Balance at the end of the period $325,353 $346,369 $325,353 $346,369
======== ======== ======== ========
(a) VAC lower of cost or market ("LCM") charges include $31.4 Million and $62.4 million related to the step-up of inventory recorded as of the acquisition date in 2012 and 2011, respectively, and an additional LCM charge
of $22.3 million in the nine months ended September 30, 2012.
(b) Includes step-up amortization of $0.2 million and $31.1 million in the three months ending September 30, 2012 and 2011, respectively, and $16.1 million and $31.1 million in the nine months ended September 30, 2012 and
2011, respectively.
OM Group, Inc. and Subsidiaries
Unaudited Segment Information
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
(In thousands) 2012 2011 2012 2011
---- ---- ---- ----
Net Sales
Magnetic Technologies(a) $144,410 $106,572 $502,925 $106,572
Advanced Materials 107,657 153,592 364,891 498,878
Specialty Chemicals 103,636 120,622 318,763 369,954
Battery Technologies 39,157 34,678 111,394 101,497
Intersegment items (128) (407) (595) (977)
---- ---- ---- ----
$394,732 $415,057 $1,297,378 $1,075,924
======== ======== ========== ==========
Operating profit (loss)
Magnetic Technologies(a)(b) $15,969 $(77,901) $(274) $(77,901)
Advanced Materials 3,659 20,767 15,693 69,748
Specialty Chemicals(c)(d) 9,077 24,719 33,294 56,311
Battery Technologies 5,926 3,742 17,644 12,567
Corp orate(e) (13,153) (16,720) (32,606) (40,341)
------- -------
$21,478 $(45,393) $33,751 $20,384
======= ======== ======= =======
(a) Includes the activity of VAC since the acquisition on August 2, 2011.
(b) Includes $0.2 million and $69.8 million in the three and nine months ended September 30, 2012, respectively, and $93.5 million in the three and nine months ended September 30, 2011 of charges related to
the VAC inventory purchase accounting step-up and LCM charges.
(c) The nine months ended September 30, 2012 includes a $2.9 million property sale gain.
(d) The three and nine months ended September 30, 2011 includes a $9.7 million property sale gain.
(e) Includes a $2.5 million settlement charge associated with the lump-sum cash settlement to certain participants in one of our U.S. defined benefit pension plans in the three and nine months ended September
30, 2012 and $8.8 and $12.8 million of acquisition-related fees related to VAC in the three and nine months ended September 30, 2011, respectively.
OM Group, Inc. and Subsidiaries
Unaudited Non-U.S. GAAP Financial Measures, Adjusted Operating Profit and Adjusted EBITDA
Three Months Ended September 30, 2012
-------------------------------------
(in thousands) Magnetic Technologies Advanced Materials Specialty Chemicals Battery Technologies Corporate Consolidated
--------------------- ------------------ ------------------- -------------------- --------- ------------
Operating profit (loss) - as reported $15,969 $3,659 $9,077 $5,926 $(13,153) $21,478
VAC inventory purchase accounting step-up and
LCM charges 224 - - - - 224
Pension settlement expense - - - - 2,469 2,469
Gain on sale of property - - - - - -
Adjusted operating profit 16,193 3,659 9,077 5,926 (10,684) 24,171
Depreciation and amortization 9,833 4,228 5,296 2,526 227 22,110
Adjusted EBITDA $26,026 $7,887 $14,373 $8,452 $(10,457) $46,281
======= ====== ======= ====== ======== =======
Three Months Ended September 30, 2011
-------------------------------------
(in thousands) Magnetic Advanced Materials Specialty Chemicals Battery Technologies Corporate Consolidated
Technologies(a)
--------------
Operating profit (loss) - as reported $(77,901) $20,767 $24,719 $3,742 $(16,720) $(45,393)
VAC inventory purchase accounting step-up and
LCM charges 93,517 - - - - 93,517
Acquisition-related fees 2,355 - - - 8,800 11,155
Gain on sale of property - - (9,693) - - (9,693)
Adjusted operating profit 17,971 20,767 15,026 3,742 (7,920) 49,586
Depreciation and amortization 7,338 5,225 5,624 2,071 105 20,363
Adjusted EBITDA $25,309 $25,992 $20,650 $5,813 $(7,815) $69,949
======= ======= ======= ====== ======= =======
Nine Months Ended September 30, 2012
------------------------------------
(in thousands) Magnetic Technologies Advanced Materials Specialty Chemicals Battery Technologies Corporate Consolidated
--------------------- ------------------ ------------------- -------------------- --------- ------------
Operating profit (loss) - as reported $(274) $15,693 $33,294 $17,644 $(32,606) $33,751
VAC inventory purchase accounting step-up and
LCM charges 69,844 - - - - 69,844
Pension settlement expense - - - - 2,469 2,469
Gain on sale of property - - (2,857) - (2,857)
Adjusted operating profit 69,570 15,693 30,437 17,644 (30,137) 103,207
Depreciation and amortization 30,055 12,723 15,558 7,537 489 66,362
Adjusted EBITDA $99,625 $28,416 $45,995 $25,181 $(29,648) $169,569
======= ======= ======= ======= ======== ========
Nine Months Ended September 30, 2011
------------------------------------
(in thousands) Magnetic Technologies(a) Advanced Materials Specialty Chemicals Battery Technologies Corporate Consolidated
----------------------- ------------------ ------------------- -------------------- --------- ------------
Operating profit (loss) - as reported $(77,901) $69,748 $56,311 $12,567 $(40,341) $20,384
VAC inventory purchase accounting step-up and
LCM charges 93,517 93,517
Acquisition-related fees 2,355 - - - 12,800 15,155
Gain on sale of property - - (9,693) - - (9,693)
Adjusted operating profit 17,971 69,748 46,618 12,567 (27,541) 119,363
Depreciation and amortization 7,338 15,448 17,044 7,059 375 47,264
Adjusted EBITDA $25,309 $85,196 $63,662 $19,626 $(27,166) $166,627
======= ======= ======= ======= ======== ========
(a) Includes activity of VAC since the acquisition on August 2, 2011.
In order to assist readers of our financial statements in understanding the operating results that the Company's management uses to evaluate the business, we are providing adjusted operating profit and adjusted EBITDA, both of which are non-U.S. GAAP financial measures. The Company's
management believes that these are important metrics in evaluating the performance of the Company's business, providing a baseline for evaluating and comparing our operating results and isolating the impact of certain items on our results. The table above presents a reconciliation of the
Company's U.S. GAAP operating profit - as reported to adjusted operating profit and adjusted EBITDA. The non-U.S. GAAP financial information set forth in the table above should not be construed as an alternative to reported results determined in accordance with U.S. GAAP.
OM Group, Inc. and Subsidiaries
Unaudited Non-U.S. GAAP Financial Measures
Three Months Ended Three Months Ended
September 30, 2012 September 30, 2011
------------------ ------------------
(in thousands, except per share data) $ Diluted EPS $ Diluted EPS
--- ----------- --- -----------
Income (loss) from continuing operations attributable to OM Group,
Inc. common stockholders -as reported $5,656 $0.18 $(68,488) $(2.18)
VAC inventory purchase accounting step-up and lower of cost or
market charges, net of tax 155 - 66,181 2.10
Acquisition-related fees, net of tax - - 10,045 0.32
Pension settlement expense, net of tax 2,469 0.08 - -
Gain on sale of property, net of tax - - (8,568) (0.27)
Accelerated amortization of deferred financing fees, net of tax 1,249 0.04 - -
Effect of applying annual effective income tax rate to actual year-
to-date pre-tax income (1,637) (0.05) 45,304 1.44
Other discrete tax items, net - - (4,455) (0.14)
Adjusted income from continuing operations attributable to OM Group,
Inc. common stockholders $7,892 $0.25 $40,019 $1.27
====== ===== ======= =====
Weighted average shares outstanding - diluted 32,004 31,552
Nine Months Ended Nine Months Ended
September 30, 2012 September 30, 2011
------------------ ------------------
(in thousands, except per share data) $ Diluted EPS $ Diluted EPS
--- ----------- --- -----------
Income (loss) from continuing operations attributable to OM Group,
Inc. common stockholders -as reported $(4,772) $(0.15) $(12,887) $(0.42)
VAC inventory purchase accounting step-up and lower of cost or
market charges, net of tax 48,280 1.51 66,181 2.14
Acquisition-related fees, net of tax - - 14,045 0.45
Pension settlement expense, net of tax 2,469 0.08 - -
Gain on sale of property, net of tax (2,857) (0.09) (8,568) (0.27)
Acceleration of deferred financing fees, net of tax 1,249 0.04 - -
Effect of applying annual effective income tax rate to actual year-
to-date pre-tax income 3,035 0.09 45,304 1.46
Other discrete tax items, net - - (6,474) (0.21)
Adjusted income from continuing operations attributable to OM Group,
Inc. common stockholders $47,404 $1.48 $97,601 $3.15
======= ===== ======= =====
Weighted average shares outstanding - diluted 32,012 30,993
In order to assist readers of our financial statements in understanding the operating results that the Company's management uses to evaluate the business, we are providing adjusted income from continuing operations
attributable to OM Group, Inc. common stockholders and adjusted earnings per common share attributable to OM Group, Inc. common stockholders - assuming dilution, both of which are non-U.S. GAAP financial measures. The
Company's management believes that these are important metrics in evaluating the performance of the Company's business, providing a baseline for evaluating and comparing our operating results and isolating the impact of
certain items on our results. The table above presents a reconciliation of the Company's U.S. GAAP income from continuing operations attributable to OM Group, Inc. common stockholders - as reported to adjusted income from
continuing operations attributable to OM Group, Inc. common stockholders and earnings per common share attributable to OM Group, Inc. common stockholders - assuming dilution - as reported to adjusted earnings per common
share attributable to OM Group, Inc. common stockholders - assuming dilution. The non-U.S. GAAP financial information set forth in the table above should not be construed as an alternative to reported results determined in
accordance with U.S. GAAP.
SOURCE OM Group, Inc.
