OM Group Revenues Increased 49 Percent in Second Quarter
CLEVELAND, Aug. 5 /PRNewswire-FirstCall/ — OM Group, Inc. (NYSE: OMG) today announced financial results for the second quarter ended June 30, 2010.
Net sales were $303.1 million, up 49 percent from the same period last year, due to improved pricing and higher volumes combined with the recent EaglePicher Technologies acquisition. Net income was $12.8 million, or $0.42 per diluted share, compared with a loss of $35.3 million, or $1.17 per diluted share, during the second quarter of 2009. Adjusted for special items, income from continuing operations was $0.67 per diluted share compared with a loss of $0.11 per diluted share last year.
“In the second quarter, we continued to build on the positive momentum created last year through our efforts to optimize our cost structure and improve profitability,” said Joseph M. Scaminace, chairman and chief executive officer. “Organic growth, driven by the improving economy and increased market share, and our acquisition of EaglePicher Technologies contributed to revenue growth, while our lower cost structure helped drive those results to the bottom line. We have continued to strengthen our financial position and flexibility with positive cash flow from operations, an important accomplishment for us as we continue to pursue our growth objectives.”
Gross profit was $68.0 million (22.4 percent of sales), nearly double the second quarter of 2009, when it was $34.4 million (16.9 percent of sales). Selling, general and administrative expenses were $37.6 million (12.4 percent of sales), up 12 percent from the same period in 2009 due primarily to the acquisition of EaglePicher Technologies, but lower as a percent of sales. Operating profit was $30.3 million (10.0 percent of sales), compared with an operating loss of $29.5 million a year ago which included a $35.0 million goodwill impairment charge. Operating profit improvement was driven by a rising cobalt reference price, an increase in demand in most end markets, and continuing benefits from profit enhancement initiatives.
Other expense was $6.0 million compared with $0.4 million last year. The increase was attributable to higher foreign exchange losses primarily related to cash on our balance sheet held at foreign locations in non-functional currency, and higher interest expense as a result of the outstanding balance on our revolver.
Income tax expense for the second quarter of 2010 of $18.3 million included net discrete tax expense items totaling $10.4 million. Of this amount, $11.5 million related to recording an allowance against prepaid tax assets of the smelter joint venture in the Democratic Republic of Congo (DRC).
Cash provided by operating activities was $45.7 million in the second quarter of 2010 compared with $31.0 million in the second quarter of 2009, primarily due to higher net income. The cash balance increased $35.7 million during the second quarter to $401.4 million.
BUSINESS SEGMENT RESULTS (all comparisons with the second quarter of 2009)
Advanced Materials
- Net sales were $150.3 million, up 44 percent
- Excluding metal resale and by-product sales, product volumes were up 9 percent as strong growth in powder metallurgy and ceramics was partially offset by modest decreases in battery materials and chemicals
- Operating profit was $17.3 million (11.5 percent of sales), up 246 percent
- Average quarterly reference price of cobalt was $19.36 per pound, up from $14.44
Specialty Chemicals
- Net sales were $124.4 million, up 24 percent
- Demand was higher in most end markets, especially printed circuit board, memory disk and composites
- Operating profit was $20.2 million (16.2 percent of sales), compared with a loss of $31.8 million (the second quarter of 2009 included goodwill impairment of $35.0 million)
Battery Technologies
- Net sales were $28.4 million
- Operating profit of $0.4 million included $1.6 million of special charges for inventory and deferred revenue fair value adjustments in the acquired balance sheet
- Note: This segment is comprised of EaglePicher Technologies, which was acquired on January 29, 2010. Comparison to previous year not provided.
OUTLOOK
“Our results through the first half of 2010 have benefited from improved economic conditions, favorable cobalt market fundamentals, an optimized cost structure and the EaglePicher Technologies acquisition,” said Scaminace. “In the second half of the year, we will remain diligent to maintain the financial strength and flexibility we have built. Our employees around the world have worked hard to achieve the outstanding results through the first half of 2010, and we will continue to build on the momentum we have established.”
End market demand outlook for the balance of the year remains positive for all three business segments. Volumes in Advanced Materials should improve from 2009 levels, with a seasonal upturn in battery materials from the second quarter, and continued strength in powder metallurgy, chemicals and ceramics. Specialty Chemicals is expected to benefit from continued strength within the electronics industry going into the second half of 2010. Battery Technologies is forecasted to grow sequentially with steady market demand and growth from new applications.
Scaminace noted that the results from the second quarter also serve as a confirmation of OM Group’s transformation strategy. “Specialty Chemicals was the largest contributor to operating profit during the second quarter,” Scaminace stated. “This not only validates the investments we’ve made in the electronic chemicals sector, but also demonstrates our ability to grow areas of the company that are not subject to volatile metal prices. This is another example of how we are transforming the business model according to the long-term strategy we have articulated.”
For purposes of this release, discussions related to income (loss) from continuing operations or net income (loss) pertain to amounts attributable to OM Group, Inc. common shareholders.
Presentation of Non-GAAP Financial Information
“Income (loss) from continuing operations attributable to OM Group, Inc. – as adjusted for special items” is a non-GAAP measure used in this release. It is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. The Company’s management uses this metric in evaluating the performance of the Company’s business. The Company believes that the non-GAAP financial measure facilitates a comparative assessment of the Company’s operating performance by its management. In addition, the Company believes that this non-GAAP financial measure will enhance investors’ understanding of the performance of the Company’s operations and of the comparability to the results of prior periods.
WEBCAST INFORMATION
OM Group has scheduled a conference call and live audio broadcast on the Web for 10 a.m. Eastern time 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 Web site at the time of the call. The company recommends visiting the Web site 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 Web site three hours after the call.
ABOUT OM GROUP, INC.
OM Group, Inc. is a leading global solutions provider of specialty chemicals, advanced materials, electrochemical energy storage and unique technologies crucial to enabling our customers to meet increasingly stringent market and application requirements. The company serves a wide variety of sectors, including rechargeable batteries, electronic devices, cutting tools, petrochemical catalysts, electronics manufacturing, industrial coatings, defense, aerospace, and medical devices. Headquartered in Cleveland, Ohio, OM Group operates manufacturing facilities in the Americas, Europe, Asia and Africa. For more information, visit the company’s Web site at http://www.omgi.com.
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: the potential impact that global economic and financial market crisis may have on our business and operations, including future goodwill impairments; the direction and pace of our strategic transformation, including identification of and the ability to finance potential acquisitions; the operation of our critical business facilities without interruption; the speed and sustainability of price changes in cobalt; the potential for lower of cost or market write-downs of the carrying value of inventory necessitated by decreases in the market price of cobalt or the selling prices of the Company’s finished products; the availability of competitively priced supplies of raw materials, particularly cobalt; the demand for metal-based specialty chemicals and products in the Company’s markets; the impact of environmental regulations on our operating facilities and the impact of new or changes to current environmental, health and safety laws on our products and their use by our customers; the effect of fluctuations in currency exchange rates on the Company’s international operations; the effect of non-currency risks of investing and conducting operations in foreign countries, including political, social, economic and regulatory factors; the effect of changes in domestic or international tax laws; and the general level of global economic activity and demand for the Company’s products.
OM Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
June 30, December 31,
2010 2009
---- ----
(In thousands, except share data)
ASSETS:
Current assets
Cash and cash equivalents $401,436 $355,383
Accounts receivable, less allowances 167,995 123,641
Inventories 266,408 287,096
Refundable and prepaid income taxes 43,547 44,474
Other current assets 49,291 32,394
------ ------
Total current assets 928,677 842,988
Property, plant and equipment, net 258,161 227,115
Goodwill 301,934 234,189
Intangible assets 150,539 79,229
Notes receivable from joint venture
partner, less allowance 13,915 13,915
Other non-current assets 46,801 46,700
------ ------
Total assets $1,700,027 $1,444,136
========== ==========
LIABILITIES:
Current liabilities
Current portion of long-term debt $20,000 $-
Accounts payable 149,402 139,173
Accrued income taxes 10,759 7,522
Accrued employee costs 27,073 18,168
Other current liabilities 46,191 24,099
------ ------
Total current liabilities 253,425 188,962
Long-term debt 120,000 -
Deferred income taxes 29,046 27,453
Uncertain tax positions 14,961 15,733
Pension liability 58,621 15,799
Other non-current liabilities 23,892 20,057
EQUITY:
Total OM Group, Inc. stockholders'
equity 1,161,179 1,131,305
Noncontrolling interest 38,903 44,827
Total equity 1,200,082 1,176,132
--------- ---------
Total liabilities and equity $1,700,027 $1,444,136
========== ==========
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Operations
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In
thousands,
except per
share data) 2010 2009 2010 2009
---- ---- ---- ----
Net sales $303,099 $203,352 $606,296 $395,058
Cost of
products
sold
(excluding
restructuring
charges) 234,816 168,918 465,677 334,009
Restructuring
charges 293 - 807 -
Gross profit 67,990 34,434 139,812 61,049
Selling,
general and
administrative
expenses 37,585 33,581 77,428 68,439
Goodwill
impairment,
net - 35,000 - 37,629
Restructuring
charges 92 - 178 -
Gain on
termination
of retiree
medical
plan - (4,693) - (4,693)
--- ------ --- ------
Operating
profit
(loss) 30,313 (29,454) 62,206 (40,326)
Other income
(expense):
Interest
expense (1,644) (236) (2,313) (532)
Interest
income 219 236 386 533
Foreign
exchange
gain (loss) (4,224) (216) (7,400) 865
Other
expense,
net (384) (160) (393) (210)
---- ---- ---- ----
(6,033) (376) (9,720) 656
------ ---- ------ ---
Income
(loss) from
continuing
operations
before
income tax
expense 24,280 (29,830) 52,486 (39,670)
Income tax
expense (18,283) (3,480) (22,632) (5,729)
Income
(loss) from
continuing
operations,
net of tax 5,997 (33,310) 29,854 (45,399)
Loss from
discontinued
operations,
net of tax (518) (325) (381) (61)
---- ---- ---- ---
Consolidated
net income
(loss) 5,479 (33,635) 29,473 (45,460)
Net (income)
loss
attributable
to the
noncontrolling
interest 7,310 (1,696) 5,916 1,852
Net income
(loss)
attributable
to OM
Group, Inc. $12,789 $(35,331) $35,389 $(43,608)
======= ======== ======= ========
Earnings per
common
share -
basic:
Income
(loss) from
continuing
operations
attributable
to OM
Group, Inc.
common
shareholders $0.44 $(1.16) $1.18 $(1.44)
Loss from
discontinued
operations
attributable
to OM
Group, Inc.
common
shareholders (0.02) (0.01) (0.02) -
Net income
(loss)
attributable
to OM
Group, Inc.
common
shareholders $0.42 $(1.17) $1.16 $(1.44)
===== ====== ===== ======
Earnings per
common
share -
assuming
dilution:
Income
(loss) from
continuing
operations
attributable
to OM
Group, Inc.
common
shareholders $0.43 $(1.16) $1.17 $(1.44)
Loss from
discontinued
operations
attributable
to OM
Group, Inc.
common
shareholders (0.01) (0.01) (0.01) -
Net income
(loss)
attributable
to OM
Group, Inc.
common
shareholders $0.42 $(1.17) $1.16 $(1.44)
===== ====== ===== ======
Weighted
average
shares
outstanding
Basic 30,471 30,256 30,388 30,222
Assuming
dilution 30,591 30,256 30,522 30,222
Amounts
attributable
to OM
Group, Inc.
common
shareholders:
Income
(loss) from
continuing
operations,
net of tax $13,307 $(35,006) $35,770 $(43,547)
Loss from
discontinued
operations,
net of tax (518) (325) (381) (61)
Net income
(loss) $12,789 $(35,331) $35,389 $(43,608)
======= ======== ======= ========
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Cash Flows
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In thousands) 2010 2009 2010 2009
---- ---- ---- ----
Operating
activities
Consolidated
net income
(loss) $5,479 $(33,635) $29,473 $(45,460)
Adjustments to
reconcile
consolidated
net income
(loss) to net
cash provided
by operating
activities:
Income (loss)
from
discontinued
operations 518 325 381 61
Depreciation
and
amortization 13,673 13,465 26,846 26,755
Share-based
compensation
expense 1,105 1,428 2,779 3,128
Tax deficiency
(excess tax
benefit) from
exercise/
vesting of
share awards (1) 2 (93) 422
Foreign
exchange
(gain) loss 4,224 216 7,400 (865)
Goodwill
impairment
charges, net - 35,000 - 37,629
Restructuring
charges 385 - 985 -
Gain on
termination
of retiree
medical plan - (4,693) - (4,693)
Other non-
cash items 2,665 2,225 3,992 6,197
Changes in
operating
assets and
liabilities,
excluding the
effect of
business
acquisitions
Accounts
receivable (5,939) (6,361) (31,744) 18,569
Inventories 12,911 7,354 48,148 37,416
Accounts
payable 2,191 21,522 3,944 (6,417)
Other, net 8,445 (5,820) 3,763 (5,108)
----- ------ ----- ------
Net cash
provided by
operating
activities 45,656 31,028 95,874 67,634
Investing
activities
Expenditures
for property,
plant and
equipment (6,221) (9,773) (10,802) (15,363)
Acquisitions - - (171,979) -
Other, net (246) (1,728) (350) (2,391)
---- ------ ---- ------
Net cash used
for investing
activities (6,467) (11,501) (183,131) (17,754)
Financing
activities
Payments of
long-term
debt and
revolving
line of
credit - (26,121) (105,000) (26,141)
Proceeds from
the revolving
line of
credit - - 245,000 -
Debt issuance
costs (113) - (2,596) -
Tax deficiency
(excess tax
benefit) on
exercise /
vesting of
share awards 1 (2) 93 (422)
Proceeds from
exercise of
stock options 10 - 3,802 -
Payment
related to
surrendered
shares - (152) (1,209) (524)
Net cash
provided by
(used for)
financing
activities (102) (26,275) 140,090 (27,087)
Effect of
exchange rate
changes on
cash (3,388) 2,649 (6,782) 695
------ ----- ------ ---
Cash and cash
equivalents
Increase in
cash and cash
equivalents
from
continuing
operations 35,699 (4,099) 46,051 23,488
Discontinued
operations -
net cash
provided by
operating
activities - - 2 -
Balance at the
beginning of
the period 365,737 272,372 355,383 244,785
------- ------- ------- -------
Balance at the
end of the
period $401,436 $268,273 $401,436 $268,273
======== ======== ======== ========
OM Group, Inc. and Subsidiaries
Unaudited Segment Information
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In thousands) 2010 2009 2010 2009
---- ---- ---- ----
Net Sales
Advanced Materials $150,266 $104,038 $320,230 $212,982
Specialty Chemicals 124,419 100,255 239,449 183,264
Battery Technologies
(a) 28,414 - 47,003 -
Intersegment items - (941) (386) (1,188)
$303,099 $203,352 $606,296 $395,058
======== ======== ======== ========
Operating profit
(loss)
Advanced Materials $17,335 $5,004 $46,593 $11,402
Specialty Chemicals
(b) 20,211 (31,829) 35,552 (39,807)
Battery Technologies
(a) 411 - (1,094) -
Corporate (c) (7,644) (2,629) (18,845) (11,921)
$30,313 $(29,454) $62,206 $(40,326)
======= ======== ======= ========
(a) includes activity since the acquisition of EaglePicher
Technologies on January 29, 2010.
(b) includes a $35.0 million and $37.6 million non-cash goodwill
impairment charge in the three and six months ended June 30, 2009,
respectively.
(c) includes $2.2 million of fees related to the EaglePicher
Technologies acquisition in the six months ended June 30, 2010 and a
$4.7 million gain on the termination of the Company's retiree
medical plan in the three and six months ended June 30, 2009.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(In thousands) 2010 2009 2010 2009
---- ---- ---- ----
Volumes
Advanced Materials
Product sales volume
-metric tons* 6,010 7,000 12,991 13,349
Cobalt refining
volume -metric tons 1,979 2,055 4,273 4,189
*Sales volume includes cobalt metal resale and copper by-
product sales.
Specialty Chemicals
Advanced Organics
sales volume -
metric tons 6,520 5,984 12,130 10,887
Electronic Chemicals
sales volume -
gallons (thousands) 2,912 2,209 5,614 3,887
Ultra Pure Chemicals
sales volume -
gallons (thousands) 1,541 1,184 2,825 2,129
Photomasks -number
of masks 7,596 6,931 14,450 13,431
OM Group, Inc. and Subsidiaries
Non-GAAP Financial Measure
Three months Three months
ended ended
June 30, 2010 June 30, 2009
(in thousands, except per Diluted Diluted
share data) $ EPS $ EPS
--- ------- --- -------
Net income (loss)
attributable to OM
Group, Inc. -as
reported $12,789 $0.42 $(35,331) $(1.17)
Less:
Income (loss) from
discontinued operations,
net of tax (518) (0.01) (325) (0.01)
---- ----- ---- -----
Income (loss) from
continuing operations
attributable to OM
Group, Inc. -as
reported $13,307 $0.43 $(35,006) $(1.16)
Special items --income
(expense):
Discrete tax items -OMG
portion (5,256) (0.17) - -
EaglePicher -inventory
(COGS) and deferred
revenue (sales)
valuation, net of tax (1,599) (0.05) - -
Restructuring charges,
net of tax (459) (0.02) - -
Goodwill impairment
charge - - (35,000) (1.16)
Intangible asset
impairment charge - - (1,229) (0.04)
Gain on termination of
retiree medical plan - - 4,693 0.16
--- --- ----- ----
Income (loss) from
continuing operations
attributable to OM
Group, Inc. -as
adjusted for special
items $20,621 $0.67 $(3,470) $(0.11)
======= ===== ======= ======
Weighted average shares
outstanding -diluted 30,591 30,256
Six months
ended Six months ended
June 30, 2010 June 30, 2009
(in thousands, except per Diluted Diluted
share data) $ EPS $ EPS
--- ------- --- -------
Net income (loss)
attributable to OM
Group, Inc. -as
reported $35,389 $1.16 $(43,608) $(1.44)
Less:
Income (loss) from
discontinued operations,
net of tax (381) (0.01) (61) -
---- ----- --- ---
Income (loss) from
continuing operations
attributable to OM
Group, Inc. -as
reported $35,770 $1.17 $(43,547) $(1.44)
Special items --income
(expense):
Discrete tax items -OMG
portion (2,434) (0.08) (2,031) (0.07)
EaglePicher -inventory
(COGS) and deferred
revenue (sales)
valuation, net of tax (2,610) (0.09) - -
Restructuring charges,
net of tax (887) (0.03) - -
Goodwill impairment
charge - - (37,629) (1.25)
Intangible asset
impairment charge - - (1,229) (0.04)
Gain on termination of
retiree medical plan - - 4,693 0.16
--- --- ----- ----
Income (loss) from
continuing operations
attributable to OM
Group, Inc. -as
adjusted for special
items $41,701 $1.37 $(7,351) $(0.24)
======= ===== ======= ======
Weighted average shares
outstanding -diluted 30,522 30,222
Use of Non-GAAP Financial Information:
"Income (loss) from continuing operations attributable to OM Group,
Inc. - as adjusted for special items" is a non-GAAP financial
measure that the Company's management has used as an important
metric in evaluating the performance of the Company's business for
2010. The above table presents a reconciliation of the Company's
GAAP results, as reported (both net income (loss) attributable to OM
Group, Inc. and income (loss) from continuing operations
attributable to OM Group, Inc.), to its non-GAAP results after
adjusting for the special items shown. The Company believes that
the non-GAAP financial measure presented in the above table
facilitates a comparative assessment of the Company's operating
performance by its management. In addition, the Company believes
that this non-GAAP financial measure will enhance investors'
understanding of the performance of the Company's operations during
2010 and of the comparability of the 2010 results to the results of
prior periods.
SOURCE OM Group, Inc.