OM Group Announces Second Quarter 2013 Financial Results Cost-reduction initiatives on track; Debt-free balance sheet; $9 million of shares repurchased

CLEVELAND, Aug. 1, 2013 /PRNewswire/ -- OM Group, Inc. (NYSE: OMG) today announced financial results for the second quarter ended June 30, 2013. The Company reported adjusted EBITDA of $29 million, excluding the results of its divested Ultra Pure Chemicals (UPC) business, its Advanced Materials cobalt business and $2 million of charges related to cost-reduction initiatives in its other businesses.  In the second quarter of 2013, the Company reported income from continuing operations of $0.26 per diluted share, or $0.36 per diluted share excluding the special charges and the divested businesses.  During the quarter, the Company completed the sale of UPC for $63 million in cash and used the proceeds along with cash on-hand to repay its remaining debt.  The UPC business has been reclassified to discontinued operations for all periods presented.

"Second quarter results demonstrate continued strategic and operating progress," said Joe Scaminace, Chairman and Chief Executive Officer of OM Group, Inc.  "Profitability was in-line with our expectations and included $3 million of cost reduction benefits.  We simplified our portfolio by divesting UPC and further strengthened our balance sheet by repaying our debt.  And we returned $9 million to shareholders in the form of share repurchases.  We have delivered a very successful first half of the year."

The Company ended the quarter with $81 million of cash and no debt outstanding, and cash flow provided by operating activities in the quarter was $11 million.  The Company's $200 million revolving credit facility remains undrawn but will likely be utilized in the third quarter to make required hold-back payments related to the 2011 VAC acquisition. 

Second quarter 2013 sales were $279 million.  Excluding the Advanced Materials business and the effects of rare-earth pricing in the Magnetic Technologies business, which bolstered net sales in 2012, net sales in the 2013 second quarter were $253 million, down 2% quarter-over-quarter versus the comparable figure in the second quarter of 2012 and down 1% sequentially compared to the first quarter of 2013.  Magnetic Technologies volumes were lower due to weak economic conditions in Europe and some timing of orders and shipments between quarters, while Battery Technologies benefited from higher sales volumes, particularly into defense applications. Specialty Chemicals sales levels were relatively flat compared to a year ago.

Due to the treatment of UPC as a discontinued operation, and because of continued weakness in Europe, the Company expects 2013 adjusted EBITDA levels to trend toward the lower end of its original forecast of $120-140 million. "We remain focused on internal initiatives to bolster profitability," said Mr. Scaminace. "We are continuously developing new products for customers that leverage our technologies and application expertise, and our superior service opens up new customer opportunities every day. We are also reducing our costs throughout the Enterprise."  The Company's forecast excludes Advanced Materials, UPC and charges related to cost-reduction initiatives.  The Company's original guidance had factored in a full year contribution of approximately $10 million of EBITDA from UPC as a continuing operation; with the divestiture, the Company's 2013 EBITDA guidance now excludes UPC retroactive to the beginning of the year.

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, and will better position the Company for expanded profitability as macroeconomic conditions improve. In the first six months of 2013, the Company realized savings of $5 million and incurred charges of $6 million related to these initiatives.

Mr. Scaminace concluded, "We are confident in our ability to execute our growth strategy.  We continue to develop our operating capabilities for organic growth, margin expansion and higher returns, and our strong balance sheet enables synergistic acquisitions to build out our business platforms.  We are well-positioned 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 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 OM Group'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 - Webcasts" 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








June 30, 2013


December 31, 2012

(in thousands)





ASSETS

Current assets





Cash and cash equivalents


$

80,568



$

227,612


Accounts receivable, net


159,888



160,122


Inventories


240,805



452,699


Other current assets


43,730



66,018


Current assets - discontinued operations (excluding cash)




33,126


  Total current assets


524,991



939,577


Property, plant and equipment, net


323,298



474,346


Goodwill


418,661



528,312


Intangible assets, net


399,203



417,110


Other non-current assets


60,674



86,879


Non-current assets - discontinued operations




53,203


Total assets


$

1,726,827



$

2,499,427







LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities





Current portion of long-term debt


$



$

13,309


Accounts payable


81,366



116,991


Purchase price of VAC payable to seller


75,444



75,351


Other current liabilities


93,169



152,867


Current liabilities - discontinued operations




20,726


  Total current liabilities


249,979



379,244


Long-term debt




454,054


Deferred income taxes


107,394



117,739


Pension liabilities


229,653



232,867


Purchase price of VAC payable to seller


11,273



11,259


Other non-current liabilities


52,478



55,383


Non-current liabilities - discontinued operations




4,733


Stockholders' equity:





Total OM Group, Inc. stockholders' equity


1,076,050



1,206,709


Noncontrolling interests




37,439


Total equity


1,076,050



1,244,148


Total liabilities and equity


$

1,726,827



$

2,499,427




























 

OM Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations




















Three Months Ended

June 30,



Six Months Ended

June 30,


(in thousands, except per share amounts)



2013




2012




2013




2012



















Net sales


$

279,388



$

412,063



$

621,125



$

855,818


Cost of goods sold


215,608



372,278



483,117



719,924


Gross profit


63,780



39,785



138,008



135,894


Selling, general and administrative expenses


54,633



62,973



114,726



125,554


Operating profit


9,147



(23,188)



23,282



10,340


Other income (expense):









 Interest expense


(1,818)



(11,177)



(9,463)



(22,733)


 Foreign exchange gain


2,838



6,028



164



898


 Loss on divestiture of Advanced Materials business


(515)





(112,061)




 Other, net


272



81



(386)



144


Income (loss) from continuing operations before income tax expense


9,924



(28,256)



(98,464)



(11,351)


 Income tax (expense) benefit


(1,856)



5,258



(4,455)



320


Income (loss) from continuing operations, net of tax


8,068



(22,998)



(102,919)



(11,031)


Income (loss) from discontinued operations, net of tax


(11,394)



414



(11,870)



295


Consolidated net loss


(3,326)



(22,584)



(114,789)



(10,736)


Net loss attributable to noncontrolling interests




245



1,749



346


Net loss attributable to OM Group, Inc. common

stockholders


$

(3,326)



$

(22,339)



$

(113,040)



$

(10,390)


Earnings per common share — basic:









Income (loss) from continuing operations attributable to

OM Group, Inc. common stockholders


$

0.26



$

(0.71)



$

(3.19)



$

(0.34)


Income (loss) from discontinued operations attributable to

OM Group, Inc. common stockholders


(0.37)



0.01



(0.38)



0.01


Net loss attributable to OM Group, Inc. common

stockholders


$

(0.11)



$

(0.70)



$

(3.57)



$

(0.33)


Earnings per common share — assuming dilution:









Income (loss) from continuing operations attributable to

OM Group, Inc. common stockholders


$

0.26



$

(0.71)



$

(3.19)



$

(0.34)


Income (loss) from discontinued operations attributable to

OM Group, Inc. common stockholders


(0.37)



0.01



(0.38)



0.01


Net loss attributable to OM Group, Inc. common

stockholders


$

(0.11)



$

(0.70)



$

(3.57)



$

(0.33)


Weighted average shares outstanding









   Basic


31,452



31,882



31,673



31,878


   Assuming dilution


31,621



31,882



31,673



31,878


Amounts attributable to OM Group, Inc. common

stockholders:









   Income (loss) from continuing operations, net of tax


$

8,068



$

(22,753)



$

(101,170)



$

(10,685)


   Income (loss) from discontinued operations, net of tax


(11,394)



414



(11,870)



295


   Net loss


$

(3,326)



$

(22,339)



$

(113,040)



$

(10,390)











 

 

OM Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows




Three Months Ended
June 30,


Six Months Ended
June 30,

(in thousands)


2013


2012


2013


2012

Operating activities









Consolidated net loss


$

(3,326)



$

(22,584)



$

(114,789)



$

(10,736)


Adjustments to reconcile consolidated net loss

to net cash used for operating activities:









Loss (gain) from discontinued operations


11,394



(414)



11,870



(295)


Depreciation and amortization


16,681



20,923



38,063



41,842


Amortization of deferred financing fees


950



1,378



2,000



2,748


Share-based compensation expense


1,577



1,414



3,158



3,932


VAC lower of cost or market charges




49,050





53,751


Loss on divestiture of Advanced Materials business


515





112,061




Other non-cash items


(5,713)



(13,728)



5,649



(19,788)


Changes in operating assets and liabilities, excluding

the effect of divestitures:









Accounts receivable


(7,673)



11,915



(34,666)



(14,249)


Inventories (a)


16,268



54,617



16,809



76,125


    Accounts payable


7,629



(23,135)



1,613



(60,705)


Accrued tax


(14,691)



(3,475)



(23,872)



264


    Other, net


(12,451)



(4,206)



(24,691)



(9,776)


Net cash provided by (used for) operating activities


11,160



71,755



(6,795)



63,113


Investing activities









Expenditures for property, plant and equipment


(8,748)



(17,380)



(21,261)



(27,729)


Proceeds from divestiture of Advanced Materials business






302,086




Proceeds from divestiture of UPC


63,300





63,300




Proceeds from sale of property








5,138


Net cash provided by (used for) investing activities


54,552



(17,380)



344,125



(22,591)


Financing activities









Payments of long-term debt


(92,500)



(2,608)



(466,538)



(8,027)


Proceeds from exercise of stock options


1,005





1,005




Payment related to surrendered shares






(554)



(254)


Share repurchases


(9,101)





(14,083)




Net cash used for financing activities


(100,596)



(2,608)



(480,170)



(8,281)


Effect of exchange rate changes on cash


669



(6,498)



(1,503)



(3,808)


Cash and cash equivalents









Increase (decrease) in cash and cash equivalents


(34,215)



45,269



(144,343)



28,433


Discontinued operations - net cash provided for (used

by) operating activities


97



3,313



(282)



(1,620)


Discontinued operations - net cash used for investing

activities


(543)



(929)



(2,419)



(1,398)


Balance at the beginning of the period


115,229



269,908



227,612



292,146


Balance at the end of the period


$

80,568



$

317,561



$

80,568



$

317,561



(a) Includes $4.8 million and $15.9 million related to purchase accounting step-up of inventory in the three and six months ended June 30, 2012, respectively.

 

 


OM Group, Inc. and Subsidiaries

Unaudited Segment Information










Three Months Ended June 30,


Six Months Ended June 30,

(in thousands)

2013


2012


2013


2012

Net Sales








Magnetic Technologies

$

128,864



$

168,024



$

266,014



$

358,515


Battery Technologies

40,205



35,205



81,239



72,237


Specialty Chemicals (a)

83,444



84,810



160,749



168,298


Advanced Materials

26,875



124,261



113,313



257,234


Intersegment items



(237)



(190)



(466)



$

279,388



$

412,063



$

621,125



$

855,818










Operating profit (loss)








Magnetic Technologies (b)(c)

$

1,153



$

(30,146)



$

7,512



$

(16,243)


Battery Technologies (b)

8,155



6,063



16,473



11,718


Specialty Chemicals (a)(b)(d)

8,167



9,670



15,212



22,284


Advanced Materials

(381)



923



1,365



12,034


Corporate

(7,947)



(9,698)



(17,280)



(19,453)



$

9,147



$

(23,188)



$

23,282



$

10,340










(a) All results related to the UPC business are excluded from the Specialty Chemicals segment for all periods presented.

(b) The three and six months ended June 30, 2013 include charges related to cost-reduction initiatives of $0.4 million and $4.2 million in Magnetic Technologies, $0.5 million and $0.7 million in Battery Technologies and $1.1 million and $1.1 million in Specialty Chemicals, respectively.

(c) The three and six months ended June 30, 2012 include inventory step-up and LCM charges of $31.5 million and $47.3 million, respectively resulting from purchase accounting for the VAC acquisition.

(d) The six months ended June 30, 2012 includes 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 June 30, 2013

(in thousands)

Magnetic Technologies


Battery Technologies


Specialty Chemicals


Corporate


Subtotal


Advanced Materials


Consolidated

Operating profit - as

reported

$

1,153



$

8,155



$

8,167



$

(7,947)



$

9,528



$

(381)



$

9,147


Charges related to cost

reduction initiatives

369



518



1,096





1,983





1,983


Adjusted operating profit

1,522



8,673



9,263



(7,947)



11,511



(381)



11,130


Depreciation and

amortization

10,705



2,531



3,647



131



17,014



(333)



16,681


Adjusted EBITDA

12,227



11,204



12,910



(7,816)



28,525



(714)



27,811
















Three Months Ended June 30, 2012

(in thousands)

Magnetic Technologies


Battery Technologies


Specialty Chemicals


Corporate


Subtotal


Advanced Materials


Consolidated

Operating profit - as

reported

$

(30,146)



$

6,063



$

9,670



$

(9,698)



$

(24,111)



$

923



$

(23,188)


Total VAC inventory

purchase accounting step-

up and LCM charges

31,545









31,545





31,545


Adjusted operating profit

1,399



6,063



9,670



(9,698)



7,434



923



8,357


Depreciation and

amortization

10,010



2,509



3,986



147



16,652



4,271



20,923


Adjusted EBITDA

$

11,409



$

8,572



$

13,656



$

(9,551)



$

24,086



$

5,194



$

29,280
















Six Months Ended June 30, 2013

(in thousands)

Magnetic Technologies


Battery Technologies


Specialty Chemicals


Corporate


Subtotal


Advanced Materials


Consolidated

Operating profit - as

reported

$

7,512



$

16,473



$

15,212



$

(17,280)



$

21,917



$

1,365



$

23,282


Charges related to cost

reduction initiatives

4,225



687



1,134





6,046





6,046


Adjusted operating profit

11,737



17,160



16,346



(17,280)



27,963



1,365



29,328


Depreciation and

amortization

21,469



5,033



7,498



192



34,192



3,871



38,063


Adjusted EBITDA

$

33,206



$

22,193



$

23,844



$

(17,088)



$

62,155



$

5,236



$

67,391
















Six Months Ended June 30, 2012

(in thousands)

Magnetic Technologies


Battery Technologies


Specialty Chemicals


Corporate


Subtotal


Advanced Materials


Consolidated

Operating profit - as

reported

$

(16,243)



$

11,718



$

22,284



$

(19,453)



$

(1,694)



$

12,034



$

10,340


Total VAC inventory

purchase accounting step-

up and LCM charges

47,272









47,272





47,272


Gain on sale of property





(2,857)





(2,857)





(2,857)


Adjusted operating profit

31,029



11,718



19,427



(19,453)



42,721



12,034



54,755


Depreciation and

amortization

20,222



5,011



7,852



262



33,347



8,495



41,842


Adjusted EBITDA

$

51,251



$

16,729



$

27,279



$

(19,191)



$

76,068



$

20,529



$

96,597






























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



June 30, 2013



June 30, 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

$

8,068



$

0.26



$

(22,753)



$

(0.71)










Loss on Advanced Materials divestiture

515



0.02














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

market charges





31,545



0.98










Charges related to cost reduction initiatives

1,983



0.06














Acceleration of deferred financing fees

462



0.01














Tax effect of special items

(289)



(0.01)



(6,415)



(0.20)










Adjusted income from continuing operations attributable to OM Group,

Inc. common stockholders

$

10,739



$

0.34



$

2,377



$

0.07










Exclude: Operating results from divested Advanced Materials

business, net of tax

(620)



(0.02)



(247)



(0.01)










Adjusted income from continuing operations attributable to OM Group,

Inc. common stockholders - pro forma excluding Advanced Materials

$

11,359



$

0.36



$

2,624



$

0.08










Weighted average shares outstanding - diluted (a)



31,621





32,002
















Six Months Ended


Six Months Ended



June 30, 2013


June 30, 2012


 

(in thousands, except per share data)


$




Diluted EPS




$




Diluted EPS


Loss from continuing operations attributable to OM Group,

Inc. common stockholders - as reported

$

(101,170)



$

(3.17)



$

(10,685)



$

(0.33)










Loss on Advanced Materials divestiture

112,061



3.52














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

market charges





47,272



1.47










Gain on sale of property





(2,857)



(0.09)










Charges related to cost reduction initiatives

6,046



0.19














Acceleration of deferred financing fees

462



0.01














Tax effect of special items

(935)



(0.03)



(11,270)



(0.35)










Adjusted income from continuing operations attributable to OM Group,

Inc. common stockholders

$

16,464



$

0.52



$

22,460



$

0.70










Exclude: Operating results from divested Advanced Materials business, net of tax

(50)





6,185



0.19










Adjusted income from continuing operations attributable to OM Group,

Inc. common stockholders - pro forma excluding Advanced Materials

$

16,514



$

0.52



$

16,275



$

0.51










Weighted average shares outstanding - diluted (a)



31,843





32,017










(a) For the six months ended June 30, 2013 and the three and six months ended June 30, 2012, because the reported loss from continuing operations is income on an adjusted basis, we used diluted shares to calculate EPS.

 

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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