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OM Group Reports Third-Quarter Results for 2009
PR Newswire
Nov 05, 2009
CLEVELAND, Nov. 5 /PRNewswire-FirstCall/ --
-- Net sales down 48 percent year-over-year; up 16 percent sequentially
-- Income from continuing operations attributable to OM Group, Inc. was
$0.32 per diluted share; $0.58 per diluted share after adjustments for
special items
-- Net cash provided by operating activities was $36.9 million; cash
balance climbs to $300.5 million at the end of the quarter
-- Company incurs charge of $11.9 million to restructure Advanced Organics
business
OM Group, Inc. (NYSE: OMG), a diversified global developer, producer and marketer of value-added specialty chemicals and advanced materials, today announced financial results for the third quarter ended September 30, 2009.
Net sales for the third quarter of 2009 were $235.2 million, down 48 percent from the third quarter of 2008, due to lower selling prices for cobalt-containing products and decreased sales volumes due to the global economic slowdown. Net income attributable to OM Group, Inc. in the third quarter of 2009 was $11.4 million, or $0.38 per diluted share, down 80 percent from the third quarter of 2008. Included in these results were restructuring charges of $11.9 million, or $0.33 per diluted share, in Advanced Organics (see "Restructuring" discussion below).
Sequentially, net sales grew 16 percent and results of continuing operations adjusted for special items improved from a loss of $3.5 million to income of $17.8 million. The significant improvement was achieved as sales volumes improved on increased demand, pricing improved due to a higher cobalt reference price, and benefits were realized from profit enhancement initiatives throughout the organization.
Gross profit fell to $42.7 million (18.1 percent of sales), down 51 percent from the third quarter of 2008. Selling, general and administrative (SG&A) expenses were $32.1 million (13.6 percent of sales), down 22 percent from the same period in 2008. Operating profit was $10.2 million (4.3 percent of sales), down 78 percent from the third quarter of 2008 as benefits from profit enhancement initiatives were offset by lower prices, decreased volume and restructuring expense.
Tax expense for the third quarter was $0.9 million, including a net discrete benefit of $1.2 million. The third-quarter 2008 tax benefit of $14.5 million included a discrete benefit of $25.1 million. The discrete benefits in both the 2009 and 2008 periods were primarily related to an election to take foreign tax credits on prior-year U.S. tax returns.
BUSINESS SEGMENT RESULTS (all comparisons to the third quarter of 2008)
Advanced Materials
-- Net sales were $126.7 million, down 59 percent
-- Excluding metal resale and copper by-product sales, sales volumes fell
23 percent due primarily to weakness in battery and powder metallurgy
end markets
-- Operating profit was $16.0 million (12.6 percent of sales), down 64
percent
-- Cobalt prices averaged $17.30 per pound, down 47 percent
Specialty Chemicals
-- Net sales were $109.4 million, down 23 percent
-- Demand lower for all end markets, especially coating, chemical, printed
circuit board and memory disk
-- Operating income was $1.7 million (1.6 percent of sales), down 82
percent
-- Results included restructuring expense of $11.9 million
-- Excluding restructuring, operating profit grew compared with last year
as profit enhancement initiatives and foreign currency benefit offset
impacts from lower volume and price
"Like so many companies, our performance in the third quarter continues to show the negative impact of the lingering global economic malaise," said Joseph M. Scaminace, chairman and chief executive officer. "That said, we are beginning to see some encouraging demand trends in a few of our key markets, including the battery market and within our electronic technologies businesses, which resulted in a sequential improvement in our quarterly results.
"While we are encouraged by these positive trends, we continually look for opportunities to lower our cost structure and optimize our operations. Therefore, we have decided to further enhance our business by restructuring our Advanced Organics business."
RESTRUCTURING
OM Group announced several actions to reduce capacity by restructuring the Advanced Organics business:
-- Terminate all production at Clayton, Manchester facility in the United
Kingdom
-- Eliminate all Advanced Organics production in Kokkola, Finland
-- Reduce production at Belleville, Ontario facility
Total restructuring costs are expected to be $17.2 million, $11.9 million of which was recognized in the third quarter of 2009. All significant actions are expected to be complete by June 30, 2010. The actions will result in the elimination of 94 positions worldwide. Net assets employed will be reduced by $15.7 million through a combination of fixed asset and net working capital reductions.
"These actions are necessary to ensure our business remains appropriately aligned with our end markets," said Scaminace. He noted in particular the automotive downturn as well as the geographic shift in demand for certain carboxylate products.
OUTLOOK
"We continue to see mixed data points when looking ahead over the next several quarters," said Scaminace. "On the one hand, we are starting to see some improving demand levels in such end markets as battery, semiconductor, printed circuit board and memory disk. At the same time, we are still confronted with challenging conditions in other sectors linked to automotive, construction and industrial production. Until we see more stability and consistency in demand and pricing trends, our optimism in the near term remains tempered."
Scaminace added that the company will remain vigilant in maintaining its enviable financial position in the near term to ensure the financial flexibility needed to fully leverage long-term growth opportunities during what appears to be the early stages of an economic recovery.
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 diversified global developer, producer and marketer of value-added specialty chemicals and advanced materials that are essential to complex chemical and industrial processes. Key technology-based end-use applications include affordable energy, portable power, clean air, clean water, and proprietary products and services for the microelectronics industry. 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 the current 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
September 30, December 31,
2009 2008
---- ----
(In thousands)
ASSETS:
Current assets
Cash and cash equivalents $300,474 $244,785
Accounts receivable, less allowances 125,941 130,217
Inventories 263,483 306,128
Refundable and prepaid income taxes 56,584 55,059
Other current assets 40,532 59,227
------ ------
Total current assets 787,014 795,416
Property, plant and equipment, net 232,642 245,202
Goodwill 234,205 268,677
Intangible assets, net 79,461 84,824
Notes receivable from joint venture
partner, less allowance 13,915 13,915
Other non-current assets 30,348 26,393
------ ------
Total assets $1,377,585 $1,434,427
========== ==========
LIABILITIES:
Current liabilities
Current portion of long-term debt $- $80
Accounts payable 100,581 89,470
Accrued income taxes 1,902 17,677
Accrued employee costs 18,297 31,168
Other current liabilities 27,713 21,074
------ ------
Total current liabilities 148,493 159,469
Long-term debt - 26,064
Deferred income taxes 27,864 26,764
Other non-current liabilities 42,190 44,052
------ ------
Total liabilities 218,547 256,349
EQUITY:
Total OM Group, Inc. stockholders' equity 1,113,932 1,130,649
Noncontrolling interest 45,106 47,429
------ ------
Total equity 1,159,038 1,178,078
--------- ---------
Total liabilities and equity $1,377,585 $1,434,427
========== ==========
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Operations
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- -----------------
(In thousands, except per
share data) 2009 2008 2009 2008
---- ---- ---- ----
Net sales $235,239 $448,630 $630,297 $1,440,250
Cost of products sold
(excluding restructuring
charge) 181,183 362,369 515,192 1,091,300
Restructuring charge 11,377 - 11,377 -
------ -- ------ --
Gross profit 42,679 86,261 103,728 348,950
Selling, general and
administrative expenses 32,103 40,902 100,542 125,378
Goodwill impairment, net (125) - 37,504 -
Restructuring charge 551 - 551 -
Gain on termination of
retiree medical plan - - (4,693) -
-- -- ------ --
Operating profit (loss) 10,150 45,359 (30,176) 223,572
Other income (expense):
Interest expense (76) (385) (608) (1,292)
Interest income 193 535 726 1,409
Foreign exchange gain (loss) (215) 121 650 869
Other expense, net (25) (371) (235) (565)
--- ---- ---- ----
(123) (100) 533 421
---- ---- --- ---
Income (loss) from continuing
operations before income tax
(expense) benefit 10,027 45,259 (29,643) 223,993
Income tax (expense) benefit (921) 14,533 (6,650) (34,918)
---- ------ ------ -------
Income (loss) from
continuing operations, net
of tax 9,106 59,792 (36,293) 189,075
Income (loss) from
discontinued operations,
net of tax 1,846 520 1,785 (211)
----- --- ----- ----
Consolidated net income
(loss) 10,952 60,312 (34,508) 188,864
Net (income) loss
attributable to the
noncontrolling interest 473 (4,046) 2,325 (21,146)
--- ------ ----- -------
Net income (loss)
attributable to OM Group,
Inc. $11,425 $56,266 $(32,183) $167,718
======= ======= ======== ========
Earnings per common share - basic:
Income (loss) from
continuing operations
attributable to OM Group,
Inc. common shareholders $0.32 $1.85 $(1.12) $5.58
Income (loss) from
discontinued operations
attributable to OM Group,
Inc. common shareholders 0.06 0.01 0.06 (0.01)
---- ---- ---- -----
Net income (loss)
attributable to OM Group,
Inc. common shareholders $0.38 $1.86 $(1.06) $5.57
===== ===== ====== =====
Earnings per common share -
assuming dilution:
Income (loss) from
continuing operations
attributable to OM Group,
Inc. common shareholders $0.32 $1.84 $(1.12) $5.53
Income (loss) from
discontinued operations
attributable to OM Group,
Inc. common shareholders 0.06 0.01 0.06 -
---- ---- ---- --
Net income (loss)
attributable to OM Group,
Inc. common shareholders $0.38 $1.85 $(1.06) $5.53
===== ===== ====== =====
Weighted average shares
outstanding
Basic 30,265 30,183 30,236 30,087
Assuming dilution 30,436 30,350 30,236 30,352
Amounts attributable to
OM Group, Inc. common
shareholders:
Income (loss) from
continuing operations,
net of tax $9,579 $55,746 $(33,968) $167,929
Income (loss) from
discontinued operations,
net of tax 1,846 520 1,785 (211)
----- --- ----- ----
Net income (loss) $11,425 $56,266 $(32,183) $167,718
======= ======= ======== ========
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Cash Flows
Nine Months Ended
September 30,
-----------------
(In thousands) 2009 2008
---- ----
Operating activities
Consolidated net income (loss) $(34,508) $188,864
Adjustments to reconcile consolidated
net income (loss) to net cash provided
by operating activities:
(Income) loss from discontinued
operations (1,785) 211
Depreciation and amortization 41,110 41,636
Share-based compensation expense 4,586 6,645
Tax deficiency (excess tax benefit)
from exercise/vesting of share awards 424 (1,111)
Foreign exchange gain (650) (869)
Goodwill impairment charges, net 37,504 -
Restructuring charge 11,928 -
Gain on termination of retiree medical
plan (4,693) -
Gain on cobalt forward purchase
contracts - (4,002)
Interest income received from
consolidated joint venture partner - 3,776
Other non-cash items 5,051 (6,473)
Changes in operating assets and liabilities
Accounts receivable 4,183 (22,322)
Inventories 40,804 (42,631)
Accounts payable 11,111 (64,887)
Accrued income taxes (15,652) (28,829)
Other, net 5,143 (17,547)
----- -------
Net cash provided by operating activities 104,556 52,461
Investing activities
Expenditures for property, plant and
equipment (22,128) (23,282)
Proceeds from loans to consolidated
joint venture partner - 4,514
Professional fees related to acquisitions - (5,288)
Proceeds from settlement of cobalt forward
purchase contracts - 10,736
License agreement (1,500) -
Expenditures for software (951) (1,286)
Other, net - (790)
-- ----
Net cash used for investing activities (24,579) (15,396)
Financing activities
Payments of revolving line of credit and
long-term debt (26,141) (45,485)
Borrowings from revolving line of credit - 70,000
Distributions to joint venture partners - (14,934)
Payment related to surrendered shares (535) (3,251)
Proceeds from exercise of stock options 11 872
(Tax deficiency) excess tax benefit from
exercise/vesting of share awards (424) 1,111
---- -----
Net cash provided by (used for)
financing activities (27,089) 8,313
Effect of exchange rate changes on cash 2,801 (999)
----- ----
Cash and cash equivalents
Increase in cash and cash equivalents 55,689 44,379
Balance at the beginning of the period 244,785 100,187
------- -------
Balance at the end of the period $300,474 $144,566
======== ========
OM Group, Inc. and Subsidiaries
Unaudited Segment Information
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ------------------
(In thousands) 2009 2008 2009 2008
---- ---- ---- ----
Net Sales
Advanced Materials $126,668 $306,789 $339,650 $998,301
Specialty Chemicals 109,400 142,337 292,664 443,936
Intersegment items (829) (496) (2,017) (1,987)
---- ---- ------ ------
$235,239 $448,630 $630,297 $1,440,250
======== ======== ======== ==========
Operating profit (loss)
Advanced Materials $15,984 $44,771 $27,386 $219,570
Specialty Chemicals (a) 1,710 9,455 (38,097) 30,293
Corporate (b) (7,544) (9,857) (19,465) (28,917)
Intersegment items - 990 - 2,626
-- --- -- -----
$10,150 $45,359 $(30,176) $223,572
======= ======= ======== ========
(a) Specialty Chemicals includes a $37.5 million non-cash goodwill
impairment charge in the nine months ended September 30, 2009, and an
$11.9 million restructuring charge in the three and nine months ended
September 30, 2009.
(b) Corporate includes a $4.7 million gain on the termination of the
Company's retiree medical plan in the nine months ended September 30,
2009.
OM Group, Inc. and Subsidiaries
Non-GAAP Financial Measure
Three months ended Three months ended
September 30, 2009 September 30, 2008
(in thousands, except ------------------ ------------------
per share data) $ Diluted EPS $ Diluted EPS
------------------ ------------------
Net income attributable to
OM Group, Inc. - as reported $11,425 $0.38 $56,266 $1.85
Less:
Income from discontinued
operations, net of tax 1,846 0.06 520 0.01
------------------ ------------------
Income from continuing
operations attributable
to OM Group, Inc. - as reported $9,579 $0.32 $55,746 $1.84
Special items --
income (expense):
Goodwill impairment charge 125 - - -
Restructuring
charge, net of tax (10,028) (0.33) - -
Discrete tax items
attributable to OM Group 1,680 0.06 - -
Election to take
Foreign Tax Credits
on Prior Year Returns - - 25,100 0.83
------------------ ------------------
Income from continuing
operations attributable
to OM Group, Inc. - as
adjusted for special items $17,802 $0.58 $30,646 $1.01
================== ==================
Weighted average
shares outstanding -
diluted 30,436 30,350
-----------------------------------------------------------------------
Nine months ended Nine months ended
September 30, 2009 September 30, 2008
(in thousands, except ------------------ ------------------
per share data) $ Diluted EPS $ Diluted EPS
------------------ ------------------
Net income (loss) attributable
to OM Group, Inc. -
as reported $(32,183) $(1.06) $167,718 $5.53
Less:
Income (loss) from
discontinued operations,
net of tax 1,785 0.06 (211) -
------------------ -----------------
Income (loss) from continuing
operations attributable
to OM Group, Inc. -
as reported $(33,968) $(1.12) $167,929 $5.53
Special items --
income (expense):
Goodwill impairment charge (37,504) (1.24) - -
Restructuring
charge, net of tax (10,028) (0.33) - -
Q2 2009 Intangible asset
impairment charge (1,229) (0.04) - -
Q2 2009 Gain on termination
of retiree medical plan 4,693 0.16 - -
Discrete tax items
attributable to OM Group (1,679) (0.06) - -
REM - inventory
step-up (COGS), net of tax - - (1,222) (0.04)
Tax assessment in Canada - - (763) (0.03)
Election to take Foreign Tax
Credits on Prior Year Returns - - 25,100 0.83
------------------ -----------------
Income from continuing
operations attributable
to OM Group, Inc. -
as adjusted for
special items $11,779 $0.39 $144,814 $4.77
================== =================
Weighted average shares
outstanding - diluted 30,236 30,352
-----------------------------------------------------------------------
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 2009. 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 2009 and of the
comparability of the 2009 results to the results of prior periods.
SOURCE OM Group, Inc.
Copyright (2009) PR Newswire. All Rights Reserved.
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