OM Group Announces Second Quarter 2013 Financial Results

Cost-reduction initiatives on track; Debt-free balance sheet; $9 million of shares repurchased

Aug 01, 2013, 07:00 ET from OM Group, Inc.

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.



RELATED LINKS

http://www.omgi.com