2014

OM Group Reports Increase in Net Sales During Second Quarter of 2011 - Growth driven by product demand across various end markets -

- Cash flow from operations remains strong -

- Outlook “even brighter” given recent acquisition of Vacuumschmelze -

CLEVELAND, Aug. 4, 2011 /PRNewswire/ -- OM Group, Inc. (NYSE: OMG) today announced financial results for the second quarter ended June 30, 2011.

Net sales in the second quarter were $329.5 million, a 9 percent increase compared with the second quarter of 2010. Volume growth in all three operating segments more than offset the negative impact of unfavorable price and mix. Net income was $24.6 million in the second quarter of 2011, or $0.80 per diluted share, compared with $12.8 million, or $0.42 per diluted share, during the year-ago period.

“We continued to enjoy strong demand in the second quarter across various end markets, particularly within Advanced Materials and Battery Technologies,” said Joseph Scaminace, chairman and chief executive officer. “Furthermore, we continued to generate significant cash flow from operations during the quarter despite lower operating profit due to costs related to our acquisition of Vacuumschmelze and unfavorable pricing and mix.”

Gross profit in the second quarter of 2011 improved 8 percent, but was essentially flat as a percent of sales because the benefit from higher volumes was offset by unfavorable pricing and mix. SG&A for the second quarter of 2011 increased $7.8 million, to 13.8 percent of sales, due to an increase in sales activity, higher employee compensation and benefit costs, and acquisition-related fees. Operating profit declined to $28.0 million (8.5 percent of sales) in the second quarter of 2011 from $30.3 million (10.0 percent of sales) last year.

Income tax expense in the second quarter of 2011 was $0.3 million and includes a discrete tax benefit of $2.0 million. Excluding discrete items, the effective income tax rates would have been 9.0 percent and 32.5 percent in the second quarters of 2011 and 2010, respectively. The effective tax rate in 2011 is lower than 2010, excluding discrete items, due primarily to the impact of foreign currency exchange rate movements and the benefits of tax efficient financing. The second quarter of 2010 income tax includes discrete tax expense items totaling $10.4 million (company portion excluding noncontrolling interest is $5.3 million).

Net cash provided by operating activities was $51.0 million, contributing to a cash balance of $451.7 million. Subsequent to the end of the second quarter, the company's cash balance decreased by $137 million to partially fund  the previously announced acquisition of Vacuumschmelze GmbH & Co. KG (VAC), which closed on August 2, 2011. Additionally, as a result of the acquisition, outstanding debt increased from $120 million reported at the end of the second quarter to $700 million as of August 2, 2011.

BUSINESS SEGMENT RESULTS (all comparisons with the second quarter of 2010)

Advanced Materials

  • Net sales were $165.2 million, up 10 percent
  • Product sales volumes rose 20 percent, with strong, double-digit growth in all end markets; other volume increased 34 percent due to higher copper contained in the mix of raw material feed
  • Operating profit was $16.9 million (10.2 percent of sales), down slightly as higher volumes and increased contribution from by-product sales were offset by a rise in operating expenses and unfavorable foreign exchange impact

Specialty Chemicals

  • Net sales were $128.7 million, up 3 percent
  • Demand was mixed in electronic technologies as semiconductor volumes improved but printed circuit board and memory disk softened primarily due to Japan supply effects; Advanced Organics volumes fell due to the closure of the Manchester, England facility
  • Operating profit was $17.9 million (13.9 percent of sales), down $2.3 million due primarily to unfavorable pricing and mix

Battery Technologies

  • Net sales were $35.8 million, up 26 percent
  • Revenue improved in all end markets on increases in demand and customer deliveries
  • Operating profit was $6.7 million (18.7 percent of sales), significantly higher than last year’s $0.4 million, due to volume growth, purchase accounting adjustments in 2010 that did not recur in 2011, and contribution from recycled material sales

OUTLOOK

“With the completion of our annual maintenance shutdown in Kokkola, Finland, and the resolution of supply challenges from the devastating events in Japan earlier this year, we expect demand to grow sequentially from second-quarter levels for the balance of the year,” said Scaminace. “The secular macro trends of investment in clean, affordable energy, proliferation of portable power, evolution of electronic devices, and need for sustainable products and processes, will continue to drive growth for our portfolio of businesses.”

Scaminace stated that in addition to the many organic growth opportunities, the company will benefit from the VAC acquisition in the second half of 2011. VAC is expected to add $250 million to $300 million in revenue during 2011, with earnings before interest, income taxes, depreciation and amortization (EBITDA) margins in the range of 17 percent to 20 percent, excluding one-time items. “With the addition of VAC, our outlook is even brighter as we have delivered on several key strategic objectives such as diversifying into adjacent, high-growth markets and reducing the effect volatile metal prices have on our bottom line,” he said. “I am confident that we have properly positioned OMG to create long-term shareholder value.”

For purposes of this release, discussions related to income from continuing operations or net income pertain to amounts attributable to OM Group, Inc. common stockholders.

PRESENTATION OF NON-GAAP FINANCIAL INFORMATION

The Company is including certain non-GAAP financial measures, including Income from continuing operations attributable to OM Group, Inc. and Earnings per common share – assuming dilution, both as adjusted for special items. “Income 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 U.S. GAAP measure in a schedule attached to this release. The Company believes that the non-GAAP financial measure facilitates a comparative assessment of the Company's operating performance and will enhance investors' understanding of the performance of the Company's operations during 2011 and of the comparability of the 2011 results to the results of the relevant prior period. Such non-GAAP financial measures are unique to the Company and may not be employed by other companies. The non-GAAP financial information should not be construed as an alternative to reported results determined in accordance with U.S. GAAP.

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 website at the time of 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, INC.

OM Group, Inc. is a leading global solutions provider of specialty chemicals, advanced materials, electrochemical energy storage, magnetic materials 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, medical devices, alternative energy, automotive, electrical installation, and energy conversion and distribution. Headquartered in Cleveland, Ohio, OM Group operates manufacturing facilities in the Americas, Europe, Asia and Africa. 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: the ability to successfully integrate the acquisition of Vacuumschmelze GmbH & Co. KG; the recent natural disasters in Japan and disruptions to the business environment in that country; the operation of our critical business facilities without interruption; the effect of non-currency risks of investing and conducting operations in foreign countries, including political, social, economic and regulatory factors; the availability of competitively priced supplies of raw materials, particularly cobalt; 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 direction and pace of our strategic transformation, including identification of and the ability to finance potential acquisitions; the potential impact that a deterioration in global economic and financial market conditions may have on our business and operations, including future goodwill impairments; the impact on pension accounting if actual results differ from actuarial assumptions; the effect of changes in domestic or international tax laws; the effect of fluctuations in currency exchange rates on the company's international operations; 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; 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,

(In thousands)

2011


2010

ASSETS




Current assets





Cash and cash equivalents

$    451,712


$    400,597


Restricted cash on deposit

81,105


68,096


Accounts receivable, less allowance of $4,089 in 2011 and $5,187 in 2010

180,624


155,465


Inventories

296,510


293,625


Refundable and prepaid income taxes

40,547


40,740


Other current assets

40,199


44,602


   Total current assets

1,090,697


1,003,125






Property, plant and equipment, net

251,904


256,098

Goodwill

309,069


306,888

Intangible assets, net

148,957


153,390

Notes receivable from joint venture partner, less allowance of $5,200 in 2011 and 2010

13,915


13,915

Other non-current assets

41,729


39,292


   Total assets

$ 1,856,271


$ 1,772,708






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities





Current portion of long-term debt

$              -


$      30,000


Accounts payable

119,752


105,900


Liability related to joint venture partner injunction

81,105


68,096


Accrued income taxes

4,815


8,321


Accrued employee costs

28,850


37,932


Deferred revenue

7,731


9,417


Other current liabilities

29,421


24,658


   Total current liabilities

271,674


284,324






Long-term debt

120,000


90,000

Deferred income taxes

23,632


23,499

Uncertain tax positions

12,898


14,796

Pension liabilities

52,292


58,107

Other non-current liabilities

27,294


25,364






Stockholders' equity:





Total OM Group, Inc. stockholders' equity

1,307,161


1,236,784


Noncontrolling interests

41,320


39,834

Total equity

1,348,481


1,276,618

Total liabilities and equity

$ 1,856,271


$ 1,772,708



OM Group, Inc. and Subsidiaries

Unaudited Condensed Statements of Consolidated Income










Three Months Ended
June 30,


Six Months Ended
June 30,

(In thousands, except per share data)


2011


2010


2011


2010

Net sales


$ 329,522


$ 303,099


$ 660,867


$ 606,296

Cost of products sold


256,016


235,109


505,323


466,484

Gross profit


73,506


67,990


155,544


139,812

Selling, general and administrative expenses


45,489


37,677


89,767


77,606

Operating profit


28,017


30,313


65,777


62,206

Other income (expense):









  Interest expense


(1,393)


(1,644)


(2,815)


(2,313)

  Interest income


467


219


687


386

  Foreign exchange loss


(636)


(4,224)


(161)


(7,400)

  Other, net


(324)


(384)


(329)


(393)




(1,886)


(6,033)


(2,618)


(9,720)











Income from continuing operations before income tax expense


26,131


24,280


63,159


52,486

Income tax expense


(330)


(18,283)


(6,076)


(22,632)

Income from continuing operations, net of tax


25,801


5,997


57,083


29,854

Loss from discontinued operations, net of tax


(89)


(518)


(329)


(381)

Consolidated net income


25,712


5,479


56,754


29,473

Net (income) loss attributable to the noncontrolling interest


(1,092)


7,310


(1,482)


5,916

Net income attributable to OM Group, Inc.


$   24,620


$   12,789


$   55,272


$   35,389











Earnings per common share - basic:










Income from continuing operations attributable to OM Group, Inc. common shareholders


$       0.81


$       0.44


$       1.82


$       1.18


Loss from discontinued operations attributable to OM Group, Inc. common shareholders


-


(0.02)


(0.01)


(0.02)


Net income attributable to OM Group, Inc. common shareholders


$       0.81


$       0.42


$       1.81


$       1.16

Earnings per common share - assuming dilution:










Income from continuing operations attributable to OM Group, Inc. common shareholders


$       0.80


$       0.43


$       1.81


$       1.17


Loss from discontinued operations attributable to OM Group, Inc. common shareholders


-


(0.01)


(0.01)


(0.01)


Net income attributable to OM Group, Inc. common shareholders


$       0.80


$       0.42


$       1.80


$       1.16











Weighted average shares outstanding










Basic


30,535


30,471


30,531


30,388


Assuming dilution


30,721


30,591


30,708


30,522











Amounts attributable to OM Group, Inc. common shareholders:










Income from continuing operations, net of tax


$   24,709


$   13,307


$   55,601


$   35,770


Loss from discontinued operations, net of tax


(89)


(518)


(329)


(381)


Net income


$   24,620


$   12,789


$   55,272


$   35,389



OM Group, Inc. and Subsidiaries

Unaudited Condensed Statements of Consolidated Cash Flows












Three Months Ended June 30,


Six Months Ended June 30,

(In thousands)

2011


2010


2011


2010

Operating activities








Consolidated net income

$   25,712


$     5,479


$   56,754


$   29,473

Adjustments to reconcile consolidated net income to net cash provided by








operating activities:









Loss from discontinued operations

89


518


329


381


Depreciation and amortization

13,592


13,673


26,901


26,846


Share-based compensation expense

1,443


1,105


3,523


2,779


Foreign exchange loss

636


4,224


161


7,400


Restructuring charges

166


385


533


985


Other non-cash items

(1,627)


2,664


(2,071)


3,899

Changes in operating assets and liabilities, excluding the effect of business acquisitions









Accounts receivable

(2,656)


(5,939)


(24,124)


(31,744)


Inventories

3,193


12,911


(2,198)


48,148


Accounts payable

6,471


2,191


13,747


3,944


Other, net

3,954


8,445


(8,933)


3,763

Net cash provided by operating activities

50,973


45,656


64,622


95,874










Investing activities








Expenditures for property, plant and equipment

(9,117)


(6,221)


(12,445)


(10,802)

Acquisitions

-


-


(4,107)


(171,979)

Other, net

-


(246)


-


(350)

Net cash used for investing activities

(9,117)


(6,467)


(16,552)


(183,131)










Financing activities








Payments of revolving line of credit

-


-


-


(105,000)

Proceeds from the revolving line of credit

-


-


-


245,000

Debt issuance costs

-


(113)


-


(2,596)

Proceeds from exercise of stock options

141


10


157


3,802

Payment related to surrendered shares

-


-


(193)


(1,209)

Other, net

-


1


-


93

Net cash provided by (used for) financing activities

141


(102)


(36)


140,090










Effect of exchange rate changes on cash

480


(3,388)


3,081


(6,782)










Cash and cash equivalents








Increase in cash and cash equivalents from continuing operations

42,477


35,699


51,115


46,051

Discontinued operations - net cash provided by operating activities

-


-


-


2

Balance at the beginning of the period

409,235


365,737


400,597


355,383

Balance at the end of the period

$ 451,712


$ 401,436


$ 451,712


$ 401,436



OM Group, Inc. and Subsidiaries

Unaudited Segment Information














Three Months Ended June 30,


Six Months Ended June 30,

(In thousands)

2011


2010


2011


2010









Net Sales









Advanced Materials

$               165,206


$               150,266


$               345,286


$               320,230


Specialty Chemicals

128,749


124,419


249,332


239,449


Battery Technologies (a)

35,843


28,414


66,819


47,003


Intersegment items

(276)


-


(570)


(386)




$               329,522


$               303,099


$               660,867


$               606,296









Operating profit









Advanced Materials

$                 16,864


$                 17,335


$                 48,981


$                 46,593


Specialty Chemicals

17,858


20,211


31,592


35,552


Battery Technologies (a)

6,703


411


8,825


(1,094)


Corporate

(13,408)


(7,644)


(23,621)


(18,845)




$                 28,017


$                 30,313


$                 65,777


$                 62,206





















(a)  Includes activity since the acquisition of EaglePicher Technologies on January 29, 2010.
























Three Months Ended June 30,


Six Months Ended June 30,




2011


2010


2011


2010

Volumes









Advanced Materials









Product sales volume - metric tons*

3,887


3,252


7,819


7,106


Other sales volume (cobalt metal resale and by-product sales) - metric tons

3,693


2,758


7,677


5,885


Cobalt refining volume - metric tons

2,229


1,979


4,938


4,273


*Excludes cobalt metal resale and by-product sales.













Specialty Chemicals









Advanced Organics sales volume - metric tons

5,970


6,520


11,297


12,130


Electronic Chemicals sales volume - gallons (thousands)

2,778


2,912


5,619


5,614


Ultra Pure Chemicals sales volume - gallons (thousands)

1,727


1,541


3,342


2,825


Photomasks - number of masks

9,889


7,596


17,749


14,450



OM Group, Inc. and Subsidiaries

Non-GAAP Financial Measure














Three months ended


Three months ended


June 30, 2011


June 30, 2010

(in thousands, except per share data)

$

Diluted EPS


$

Diluted EPS







Net income attributable to OM Group, Inc. - as reported

$           24,620

$                      0.80


$           12,789

$                      0.42







Less:






  Loss from discontinued operations, net of tax

(89)

-


(518)

(0.01)







Income from continuing operations attributable






  to OM Group, Inc. - as reported

$           24,709

$                      0.80


$           13,307

$                      0.43







Special items -- income (expense):






  Restructuring charges, net of tax

(166)

(0.01)


(459)

(0.02)

  Discrete tax items - OMG portion

2,019

0.07


(5,256)

(0.17)

  EaglePicher  - inventory (COGS) and deferred revenue (sales) valuation, net of tax

-

-


(1,599)

(0.05)







Income from continuing operations attributable to OM Group, Inc. - as adjusted for special items

$           22,856

$                      0.74


$           20,621

$                      0.67







Weighted average shares outstanding - diluted


30,721



30,591


























Six months ended


Six months ended


June 30, 2011


June 30, 2010

(in thousands, except per share data)

$

Diluted EPS


$

Diluted EPS







Net income attributable to OM Group, Inc. - as reported

$           55,272

$                      1.80


$           35,389

$                      1.16







Less:






  Loss from discontinued operations, net of tax

(329)

(0.01)


(381)

(0.01)







Income from continuing operations attributable






  to OM Group, Inc. - as reported

$           55,601

$                      1.81


$           35,770

$                      1.17







Special items -- income (expense):






  Restructuring charges, net of tax

(533)

(0.02)


(887)

(0.03)

  Discrete tax items - OMG portion

2,019

0.07


(2,434)

(0.08)

  EaglePicher  - inventory (COGS) and deferred revenue (sales) valuation, net of tax

-

-


(2,610)

(0.09)







Income from continuing operations attributable to OM Group, Inc. - as adjusted for special items

$           54,115

$                      1.76


$           41,701

$                      1.37







Weighted average shares outstanding - diluted


30,708



30,522



















Non-GAAP Financial Measures:
The Company is including certain non-GAAP financial measures, including Income from continuing operations attributable to OM Group, Inc. and Earnings per common share - assuming dilution, both as adjusted for special items. "Income from continuing operations attributable to OM Group, Inc. - as adjusted for special items" is a non-GAAP financial measure that the Company's management uses as an important metric in evaluating the performance of the Company's business.  The table above presents a reconciliation of the Company's GAAP results, as reported (both net income attributable to OM Group, Inc. and income 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 table above facilitates a comparative assessment of the Company's operating performance and will enhance investors' understanding of the performance of the Company's operations during 2011 and of the comparability of the 2011 results to the results of the relevant prior period. Such non-GAAP financial measures are unique to the Company and may not be employed by other companies. The non-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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