OM Group Announces First Quarter 2013 Financial Results Cobalt business divestiture completed; Debt substantially repaid; Share repurchase program underway; Progress on cost-reduction initiatives

CLEVELAND, May 2, 2013 /PRNewswire/ -- OM Group, Inc. (NYSE: OMG) today announced financial results for the first quarter ended March 31, 2013. The Company reported adjusted EBITDA of $35 million, excluding the results of its Advanced Materials cobalt business and charges related to cost-reduction initiatives.  As announced on March 29, 2013, the Company completed the sale of its cobalt business, and it subsequently used the proceeds along with cash on-hand to repay $374 million of its debt.  The Company recognized a non-cash loss on the sale of $112 million, or $3.49 per diluted share.  Excluding the loss on sale, first quarter results of Advanced Materials and charges of $4 million related to cost-reduction initiatives in its other businesses, the Company reported adjusted diluted earnings per share from continuing operations of $0.15.  On a GAAP basis, the Company reported a loss from continuing operations of $3.43 per diluted share. 

"We made great progress in the first quarter on both our strategic and business objectives," said Joe Scaminace, Chairman and Chief Executive Officer of OM Group, Inc.  "The sale of the cobalt business and debt pay-down strengthens our balance sheet, providing us with the capacity and flexibility to execute our growth strategy.  We returned capital to shareholders in the form of share repurchases, and we recently welcomed David Knowles to our management team as President and Chief Operating Officer.

"During the quarter we also made progress on our cost-reduction initiatives, which contributed to our strong EBITDA performance.  Overall, we are pleased with our start to the year, and our EBITDA expectation for the full year 2013 remains at $120-$140 million, despite the recent announcement to divest our ultra pure chemicals subsidiaries by June of this year." The Company's forecast excludes Advanced Materials and charges related to cost reduction initiatives.

The Company ended the quarter with $115 million of cash and $93 million of debt.  Cash flow used in operating activities in the quarter was $18 million, including an outflow related to the operations of the cobalt business of $8 million.  In the second quarter of 2013, the Company expects to receive an additional $27 million related to the divestiture of Advanced Materials to settle working capital, and $60 million for the sale of the ultra pure chemicals business.  In January, the Company announced that the Board of Directors authorized a share repurchase program of up to $50 million of common shares.  During the quarter, the Company returned $5 million to shareholders in the form of share repurchases.

First quarter 2013 sales of $364 million were 22 percent lower than in the prior year comparable quarter, primarily due to lower cobalt prices in the Advanced Materials business and lower rare-earth pricing effects in the Magnetic Technologies business. Excluding the Advanced Materials business and the effects of rare-earth pricing, net sales in the 2013 first quarter were $278 million, 3% lower than the first quarter of 2012 but 8% higher sequentially than the fourth quarter of 2012.  Magnetic Technologies volumes improved from last quarter, and Battery Technologies achieved record sales. Specialty Chemicals sales levels were down slightly on lower demand caused by weak macroeconomic conditions in certain key end markets.

The Company previously announced a broad range of cost reduction initiatives to improve financial performance and optimize its cost structure.  These initiatives are expected to contribute $10-20 million of savings in 2013 at a cost of $15-$20 million, and will better position the Company for expanded profitability as macroeconomic conditions improve. During the first quarter of 2013, the Company realized benefits of $2 million from these initiatives.

Mr. Scaminace concluded, "This is an exciting time at OM Group. We are confident in our ability to grow our three value-added platforms, which all have attractive organic and strategic growth paths.  And we have the financial capacity and discipline to continue to invest in our future while at the same time returning capital to shareholders.  We are well-positioned to execute our strategy and create long-term shareholder value."

Webcast Information

OM Group has scheduled a conference call and live audio broadcast on the Web for 10 AM EDT 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

OM Group is a technology-based industrial growth company serving attractive global markets, including automotive systems, electronic devices, aerospace, industrial and renewable energy. Its business platforms use innovative technologies and expertise to address customers' complex applications and demanding requirements. For more information, visit the Company's website at 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:; uncertainty in worldwide economic conditions; extended business interruption at our facilities; fluctuations in the price and uncertainties in the supply of rare earth materials and other raw materials; our ability to identify, complete and integrate acquisitions aligned with our strategy; 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; the timing and amount of common share repurchases, if any; 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; successful execution of the GTL supply agreement signed in connection with the Advanced Materials sale; 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, 2012.


OM Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets








March 31, 2013


December 31, 2012

(In thousands)





ASSETS

Current assets





Cash and cash equivalents


$              115,229


$               227,612

Accounts receivable, net


165,250


174,613

Inventories


263,371


463,093

Other current assets


53,355


74,258

Total current assets


597,205


939,576

Property, plant and equipment, net


342,385


496,755

Goodwill


429,440


543,269

Intangible assets, net


411,838


429,672

Other non-current assets


60,702


90,155

Total assets


$            1,841,570


$            2,499,427






LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities





Current portion of long-term debt


$                  8,750


$                 13,309

Accounts payable


82,058


128,381

Purchase price of VAC payable to seller


75,397


75,351

Other current liabilities


126,732


162,204

Total current liabilities


292,937


379,245

Long-term debt


83,750


454,054

Deferred income taxes


108,725


121,451

Pension liabilities


226,738


233,823

Purchase price of VAC payable to seller


11,266


11,259

Other non-current liabilities


50,354


55,446

Stockholders' equity:





Total OM Group, Inc. stockholders' equity


1,067,800


1,206,710

Noncontrolling interests


-


37,439

Total equity


1,067,800


1,244,149

Total liabilities and equity


$            1,841,570


$            2,499,427






 


OM Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations








Three Months Ended March 31,



2013


2012

(In thousands, except per share data)





Net sales


$                   364,254


$                   466,179

Cost of goods sold


287,561


366,869

Gross profit


76,693


99,310

Selling, general and administrative expenses


62,653


64,874

Operating profit


14,040


34,436

Other income (expense):





Interest expense


(8,269)


(12,212)

Interest income


67


152

Foreign exchange gain (loss)


(2,344)


(5,021)

Loss on divestiture of Advanced Materials business


(111,546)


-

Other, net


(756)


(291)

Income (loss) from continuing operations before income tax expense


(108,808)


17,064

Income tax expense


(2,581)


(5,080)

Income (loss) from continuing operations, net of tax


(111,389)


11,984

Income (loss) from discontinued operations, net of tax


(73)


(136)

Consolidated net income (loss)


(111,462)


11,848

Net (income) loss attributable to noncontrolling interests


1,749


101

Net income (loss) attributable to OM Group, Inc. common stockholders


$                  (109,713)


$                     11,949

Earnings per common share — basic:





Income (loss) from continuing operations attributable to OM Group, Inc.





common stockholders


$                       (3.43)


$                        0.38

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


$                       (3.44)


$                        0.37

Earnings per common share — assuming dilution:





Income (loss) from continuing operations attributable to OM Group, Inc.





common stockholders


$                       (3.43)


$                        0.38

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


$                       (3.44)


$                        0.37

Weighted average shares outstanding





Basic


31,928


31,874

Assuming dilution


31,928


32,032

Amounts attributable to OM Group, Inc. common stockholders:





Income (loss) from continuing operations, net of tax


$                  (109,640)


$                     12,085

Income (loss) from discontinued operations, net of tax


(73)


(136)

Net income (loss)


$                  (109,713)


$                     11,949






 


OM Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows








Three Months Ended March 31, 



2013


2012

(In thousands)





Operating activities





Consolidated net income (loss)


$                     (111,462)


$                        11,848

Adjustments to reconcile consolidated net income (loss) to net

cash used for operating activities:





(Income) loss from discontinued operations


73


136

Depreciation and amortization


22,705


22,149

Amortization of deferred financing fees


1,050


1,370

Share-based compensation expense


1,582


2,407

Loss on divestiture of Advanced Materials business


111,546


-

Foreign exchange (gain) loss


2,344


5,021

Other non-cash items


8,607


4,907

Changes in operating assets and liabilities, excluding the effect of

divestitures





Accounts receivable


(19,055)


(27,481)

Inventories 


(2,200)


9,672

Accounts payable


(13,589)


(38,936)

Other, net


(19,935)


(4,668)

Net cash used for operating activities


(18,334)


(13,575)

Investing activities





Expenditures for property, plant and equipment


(14,389)


(10,818)

Proceeds from divestiture of Advanced Materials business


302,086


-

Proceeds from sale of property


-


5,138

Net cash provided by (used for) investing activities


287,697


(5,680)

Financing activities





Payments of long-term debt


(374,038)


(5,419)

Payment related to surrendered shares


(554)


(254)

Share repurchases


(4,982)


-

Net cash used for financing activities


(379,574)


(5,673)

Effect of exchange rate changes on cash


(2,172)


2,690

Cash and cash equivalents





Increase (decrease) in cash and cash equivalents


(112,383)


(22,238)

Balance at the beginning of the period


227,612


292,146

Balance at the end of the period


$                      115,229


$                      269,908






 


OM Group, Inc. and Subsidiaries

Unaudited Segment Information






Three Months Ended March 31,

(In thousands)

2013


2012

Net Sales




Magnetic Technologies 

$                    137,149


$                    190,491

Battery Technologies

41,034


37,032

Specialty Chemicals

99,822


105,913

Advanced Materials

86,438


132,973

Intersegment items

(189)


(230)


$                    364,254


$                    466,179





Operating profit (loss)




Magnetic Technologies (a)(b)

$                        6,359


$                      13,903

Battery Technologies (a)

8,319


5,655

Specialty Chemicals (c)

6,949


13,521

Advanced Materials

1,746


11,111

Corporate

(9,333)


(9,754)


$                      14,040


$                      34,436





(a) The three months ended March 31, 2013 include charges related to cost-reduction initiatives of $3.9 million and $0.2 million in Magnetic Technologies and Battery Technologies, respectively.

(b) The three months ended March 31, 2012 include inventory step-up charges of $15.7 million resulting from purchase accounting for the VAC acquisition.

(c) The three months ended March 31, 2012 include a $2.9 million property sale gain.





 


OM Group, Inc. and Subsidiaries

Unaudited Non-U.S. GAAP Financial Measures, Adjusted Operating Profit and Adjusted EBITDA















Three Months Ended March 31, 2013

(in thousands)

Magnetic

Technologies


Battery

Technologies


Specialty

Chemicals


Corporate


Subtotal


Advanced

Materials


Consolidated








Operating profit - as reported

$             6,359


$          8,319


$          6,949


$         (9,333)


$         12,294


$               1,746


$             14,040

Charges related to cost reduction initiatives

3,856


168


38


-


4,062


-


4,062

Adjusted operating profit

10,215


8,487


6,987


(9,333)


16,356


1,746


18,102

Depreciation and amortization

10,765


2,503


5,173


61


18,502


4,203


22,705

Adjusted EBITDA

$            20,980


$        10,990


$        12,160


$         (9,272)


$         34,858


$               5,949


$             40,807















Three Months Ended March 31, 2012

(in thousands)

Magnetic

Technologies


Battery

Technologies


Specialty

Chemicals


Corporate


Subtotal


Advanced 

Materials


Consolidated








Operating profit - as reported

$            13,903


$          5,655


$        13,521


$         (9,754)


$         23,325


$             11,111


$             34,436

VAC inventory purchase accounting step-up charges

15,728


-


-


-


15,728


-


15,728

Gain on sale of property

-


-


(2,857)


-


(2,857)


-


(2,857)

Adjusted operating profit

29,631


5,655


10,664


(9,754)


36,196


11,111


47,307

Depreciation and amortization

10,212


2,502


5,096


115


17,925


4,224


22,149

Adjusted EBITDA

$            39,843


$          8,157


$        15,760


$         (9,639)


$         54,121


$             15,335


$             69,456












































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


March 31, 2013


March 31, 2012

(in thousands, except per share data)

$


Diluted EPS


$


Diluted EPS









Income (loss) from continuing operations attributable to OM Group,

Inc. common stockholders - as reported

$              (109,640)


$                    (3.43)


$                12,085


$                     0.38









VAC inventory purchase accounting step-up and lower of cost or

market charges

-


-


15,728


0.49









Gain on sale of property

-


-


(2,857)


(0.09)









Loss on Advanced Materials divestiture

111,546


3.49


-


-









Charges related to cost reduction initiatives

4,062


0.13


-


-









Tax effect of special items

(576)


(0.02)


(4,856)


(0.15)









Adjusted income from continuing operations attributable to OM

Group, Inc. common stockholders

$                   5,392


$                     0.17


$                 20,100


$                     0.63









Exclude: Operating results from divested Advanced Materials

business, net of tax

570


0.02


6,432


0.20









Adjusted income from continuing operations attributable to OM

Group, Inc. common stockholders - pro forma excluding Advanced

Materials

$                   4,822


$                     0.15


$                 13,668


$                     0.43









Weighted average shares outstanding - diluted - as reported (a)



31,928




32,032

























(a) - On a Non-GAAP basis for 2013, because the adjusted results are net income vs. net loss on a GAAP basis, weighted average shares outstanding are 32,089.

In this case, there is no change to the $0.15 Diluted EPS, adjusted pro forma.

















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. We are also providing the

amounts as pro forma adjusted to exclude the results of the divested Advanced Materials business.  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, adjusted for both special items as

identified in the table and to exclude the results of the divested Advanced Materials business. 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.



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