OM Group Reports Results for Third Quarter of 2011

- Growth driven by acquisitions and product demand across various end markets -

- Loss from continuing operations was $2.18 per diluted share -

- Income from continuing operations adjusted for special items was $1.27 per diluted share -

- Cash flow from operations bolsters balance sheet strength and financial flexibility -

09 Nov, 2011, 07:30 ET from OM Group, Inc.

CLEVELAND, Nov. 9, 2011 /PRNewswire/ -- OM Group, Inc. (NYSE: OMG) today announced financial results for the third quarter ended September 30, 2011.

Net sales in the third quarter were $415.1 million, an increase of 40 percent compared with the third quarter of 2010. The most significant driver of the increase was the acquisition of VAC Holding on August 2, 2011. Excluding this acquisition, net sales grew 4 percent as higher volumes in battery materials, semiconductors, ceramics, chemical and defense offset lower price in Advanced Materials. Third quarter net loss of $68.3 million, or $2.17 per diluted share, includes special items totaling $108.5 million, primarily related to the acquisition of VAC Holding and a gain on the sale of land. Excluding special items, income from continuing operations was $40.0 million ($1.27 per diluted share), compared with $24.1 million ($0.79 per diluted share) during the 2010 period.

"Strong organic volume growth in Engineered Materials, favorable pricing in Specialty Chemicals, plus the significant sales contribution from our Magnetic Technologies acquisition all contributed to the strong top-line growth we achieved during the most recent quarter," said Joseph Scaminace, chairman and chief executive officer. "Adjusted for special items, income from continuing operations surged 66 percent compared with last year, even as we faced increasing challenges from cobalt supply chain fundamentals, further testimony to the efficacy of our diversification efforts."

In the third quarter of 2011, there were three special items which had significant impact on the reported financial results:

  • $93.5 million of charges in cost of goods sold as a result of the step-up of acquired inventory to fair value, including a $62.4 million lower of cost or market charge and a $31.1 million charge as inventory on-hand as of the acquisition date was sold in the ordinary course of business;
  • $11.2 million of fees related to the acquisition, of which $8.8 million was recorded in corporate expenses and the remainder in Engineering Materials; and
  • $9.7 million gain on the sale of land at the Manchester, England manufacturing facility which was closed last year as part of the Advanced Organics restructuring.

Excluding special items, gross profit in the third quarter of 2011 was 26.6 percent of sales, compared with 25.4 percent in the 2010 period, and SG&A increased to 14.6 percent of sales, compared with 13.3 percent in the prior-year period, primarily due to the acquisition. Operating profit adjusted for special items improved 38 percent to $49.6 million from $36.1 million last year.

Income tax expense in the third quarter was $18.4 million, including discrete tax benefits of $7.3 million as well as the impact of the VAC acquisition. Excluding these, the effective income tax rate would have been 12.6 percent.

Net cash provided by operating activities during the third quarter of 2011 was $21.9 million. The cash balance at the end of the period was $346.4 million and total debt was $686.4 million.

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

Engineered Materials

  • As a result of the acquisition of VAC Holding on August 2, 2011, the Company's segment formerly known as Advanced Materials was re-named Engineered Materials.  The Engineered Materials segment  includes the company's existing Advanced Materials business and Magnetic Technologies, which consists of VAC Holding.
  • Net sales were $260.2 million, up 75 percent, due primarily to $106.6 million from Magnetic Technologies for two months since the acquisition
  • Advanced Materials product sales volumes rose 7 percent, primarily due to growth in battery materials and ceramics; other volume increased 35 percent due to higher copper contained in the mix of raw material feed
  • Excluding the special items, operating profit was $38.8 million (14.9 percent of sales), due to $18 million from the acquisition and higher volumes in Advanced Materials, both partially offset by falling cobalt prices and an increase in operating expenses

Specialty Chemicals

  • Net sales were $120.6 million, up 6 percent
  • Demand was mixed in electronic technologies as semiconductor volumes improved but printed circuit board and memory disk were lower; Advanced Organics volumes grew 3 percent on higher chemical sales
  • Operating profit was $24.7 million (20.5 percent of sales), including a $9.7 million gain on sale of land; excluding the gain, operating profit improved on higher volumes

Battery Technologies

  • Net sales were $34.7 million, down 3 percent
  • Improved volumes in defense were offset by lower aerospace volumes
  • Operating profit was $3.7 million (10.7 percent of sales), an improvement compared with last year despite the lower revenue as defense achieved favorable pricing and mix

OUTLOOK

"As we near the end of 2011 and begin to establish plans for 2012, we remain optimistic regarding the long-term growth prospects of the markets we serve, while mindful of the near-term macroeconomic challenges we face," said Scaminace. "We will continue to aggressively invest in organic growth opportunities as well as strategic and tactical acquisition opportunities, particularly in sectors aligned with growth trends such as clean, affordable energy, proliferation of portable power, evolution of electronic devices, and need for sustainable products and processes. We are committed to creating shareholder value by utilizing our strong, flexible balance sheet to both expand our position within existing markets as well as enter strategic adjacent markets."

For purposes of this release, discussions related to income (loss) from continuing operations or net income (loss) 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, and operating profit, each as adjusted for special items. The non-GAAP financial measures are defined and reconciled to what management believes to be the most comparable U.S. GAAP measures in a schedule attached to this release. The Company believes that the non-GAAP financial measures facilitate 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 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 and certain rare earth materials; 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 raw materials 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

September 30,

December 31,

(In thousands)

2011

2010

ASSETS

Current assets

Cash and cash equivalents

$          346,369

$      400,597

Restricted cash on deposit

88,885

68,096

Accounts receivable, less allowance of $3,842 in 2011 and $5,187 in 2010

251,225

155,465

Inventories

578,741

293,625

Refundable and prepaid income taxes

45,449

40,740

Other current assets

53,946

44,602

   Total current assets

1,364,615

1,003,125

Property, plant and equipment, net

478,852

256,098

Goodwill

524,582

306,888

Intangible assets, net

426,938

153,390

Notes receivable from joint venture partner, less allowance of $3,100 in 2011 and $5,200 in 2010

16,015

13,915

Other non-current assets

81,807

39,292

   Total assets

$       2,892,809

$   1,772,708

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of long-term debt

$            10,314

$        30,000

Accounts payable

138,311

105,900

Liability related to joint venture partner injunction

88,885

68,096

Accrued employee costs

48,480

37,932

Other current liabilities

184,122

42,396

   Total current liabilities

470,112

284,324

Long-term debt

676,117

90,000

Deferred income taxes

137,346

23,499

Uncertain tax positions

19,604

14,796

Pension liabilities

196,643

58,107

Purchase price of VAC Holding payable to seller

86,304

-

Other non-current liabilities

28,626

25,364

Stockholders' equity:

Total OM Group, Inc. stockholders' equity

1,233,407

1,236,784

Noncontrolling interests

44,650

39,834

Total equity

1,278,057

1,276,618

Total liabilities and equity

$       2,892,809

$   1,772,708

OM Group, Inc. and Subsidiaries

Unaudited Condensed Statements of Consolidated Income

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands, except per share data)

2011

2010

2011

2010

Net sales

$ 415,057

$ 297,222

$ 1,075,924

$ 903,518

Cost of products sold (excluding lower of cost or market)

335,871

222,941

841,194

689,425

Lower of cost or market charge

62,444

-

62,444

-

Gross profit

16,742

74,281

172,286

214,093

Selling, general and administrative expenses

71,828

39,436

161,595

117,042

Gain on sale of land

(9,693)

-

(9,693)

-

Operating profit (loss)

(45,393)

34,845

20,384

97,051

Other income (expense):

  Interest expense

(8,512)

(1,481)

(11,327)

(3,794)

  Interest income

294

255

981

641

  Foreign exchange gain (loss)

7,425

(688)

7,264

(8,088)

  Other, net

(547)

183

(876)

(210)

(1,340)

(1,731)

(3,958)

(11,451)

Income (loss) from continuing operations before income tax expense

(46,733)

33,114

16,426

85,600

Income tax expense

(18,421)

(9,159)

(24,497)

(31,791)

Income from continuing operations, net of tax

(65,154)

23,955

(8,071)

53,809

Income (loss) from discontinued operations, net of tax

234

1,003

(95)

622

Consolidated net income (loss)

(64,920)

24,958

(8,166)

54,431

Net (income) loss attributable to the noncontrolling interest

(3,334)

(757)

(4,816)

5,159

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

$ (68,254)

$   24,201

$    (12,982)

$   59,590

Earnings per common share - basic:

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

$     (2.18)

$       0.76

$        (0.42)

$       1.94

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

0.01

0.03

-

0.02

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

$     (2.17)

$       0.79

$        (0.42)

$       1.96

Earnings per common share - assuming dilution:

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

$     (2.18)

$       0.76

$        (0.42)

$       1.93

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

0.01

0.03

-

0.02

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

$     (2.17)

$       0.79

$        (0.42)

$       1.95

Weighted average shares outstanding

Basic

31,382

30,474

30,817

30,417

Assuming dilution

31,382

30,560

30,817

30,535

Amounts attributable to OM Group, Inc. common shareholders:

Income (loss) from continuing operations, net of tax

$ (68,488)

$   23,198

$    (12,887)

$   58,968

Income (loss) from discontinued operations, net of tax

234

1,003

(95)

622

Net income (loss)

$ (68,254)

$   24,201

$    (12,982)

$   59,590

OM Group, Inc. and Subsidiaries

Unaudited Condensed Statements of Consolidated Cash Flows

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

2011

2010

2011

2010

Operating activities

Consolidated net income  (loss)

$ (64,920)

$   24,958

$   (8,166)

$   54,431

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

(Income) loss from discontinued operations

(234)

(1,003)

95

(622)

Depreciation and amortization

20,363

13,340

47,264

40,186

Share-based compensation expense

1,595

1,372

5,118

4,151

Foreign exchange (gain) loss

(7,425)

688

(7,264)

8,088

Lower of cost or market charge

62,444

-

62,444

-

Gain on sale of land

(9,693)

-

(9,693)

-

Restructuring charges

(26)

1,069

507

2,054

Deferred income tax provision (benefit)

(28,177)

151

(27,322)

(46)

Allowance on GTL prepaid tax asset

(6,225)

-

(6,225)

11,465

Other non-cash items

(308)

(3,370)

(2,379)

529

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

Accounts receivable

11,946

9,090

(12,178)

(22,654)

Inventories

625

(17,755)

(1,573)

30,393

Accounts payable

(27,232)

26,183

(13,485)

30,127

Accrued income taxes

48,008

10,048

44,569

13,818

Other, net

21,140

1,029

14,791

(10,246)

Net cash provided by operating activities

21,881

65,800

86,503

161,674

Investing activities

Expenditures for property, plant and equipment

(13,960)

(5,201)

(26,405)

(16,003)

Proceeds from sale of land

9,693

-

9,693

-

Cash paid for acquisitions

(669,818)

-

(669,818)

(171,979)

Other, net

17

(427)

(4,090)

(777)

Net cash used for investing activities

(674,068)

(5,628)

(690,620)

(188,759)

Financing activities

Payments of revolving line of credit

(120,000)

(20,000)

(120,000)

(125,000)

Proceeds from the revolving line of credit

-

-

-

245,000

Proceeds from long-term debt

697,975

-

697,975

-

Debt issuance costs

(29,283)

-

(29,283)

(2,596)

Other, net

204

-

168

2,686

Net cash provided by (used for) financing activities

548,896

(20,000)

548,860

120,090

Effect of exchange rate changes on cash

(2,052)

5,183

1,029

(1,599)

Cash and cash equivalents

Increase (decrease) in cash and cash equivalents from continuing operations

(105,343)

45,355

(54,228)

91,406

Discontinued operations - net cash used for operating activities

-

(35)

-

(33)

Balance at the beginning of the period

451,712

401,436

400,597

355,383

Balance at the end of the period

$ 346,369

$ 446,756

$ 346,369

$ 446,756

OM Group, Inc. and Subsidiaries

Unaudited Segment Information

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

2011

2010

2011

2010

Net Sales

Engineered Materials (b)

$260,164

$148,455

$   605,450

$468,685

Specialty Chemicals

120,622

113,337

369,954

352,786

Battery Technologies (a)

34,678

35,720

101,497

82,723

Intersegment items

(407)

(290)

(977)

(676)

$415,057

$297,222

$1,075,924

$903,518

Operating profit (loss)

Engineered Materials (b)(c)

$ (57,134)

$  28,332

$      (8,153)

$  74,925

Specialty Chemicals (e)

24,719

12,409

56,311

47,961

Battery Technologies (a)

3,742

3,068

12,567

1,974

Corporate (d)

(16,720)

(8,964)

(40,341)

(27,809)

$ (45,393)

$  34,845

$     20,384

$  97,051

(a)

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

(b)

Includes activity of Magnetic Technologies since the acquisition of VAC Holding on August 2, 2011 and the Company's existing Advanced Materials business.

(c)

Includes a $62.4 million lower of cost or market charge and a $31.1 million charge as inventory on-hand as of the VAC Holding acquisition date was sold in the ordinary course of business.

(d)

Includes $8.8 million and $12.8 million of acquisition related fees and expenses in the three and nine months ended September 30, 2011.

(e)

Includes a $9.7 million gain for the sale of land at the Manchester, England manufacturing facility in the three and nine months ended September 30, 2011.

Three Months Ended September 30,

Nine Months Ended September 30,

2011

2010

2011

2010

Volumes

Engineered Materials

Product sales volume - Advanced Materials*

3,926

3,672

11,745

10,778

Other sales volume (cobalt metal resale and by-product sales) - Advanced Materials

3,266

2,422

10,943

8,307

Cobalt refining volume - Advanced Materials

2,740

2,578

7,678

6,851

*Excludes cobalt metal resale and by-product sales.

Specialty Chemicals

Advanced Organics sales volume - metric tons

5,463

5,293

16,760

17,423

Electronic Chemicals sales volume - gallons (thousands)

2,658

2,716

8,277

8,330

Ultra Pure Chemicals sales volume - gallons (thousands)

1,635

1,500

4,977

4,325

Photomasks - number of masks

9,503

7,751

27,252

22,201

OM Group, Inc. and Subsidiaries

Non-GAAP Financial Measure

Third Quarter of 2011

(in thousands)

Engineered

Materials

Specialty

Chemicals

Battery

Technologies

Corporate

Consolidated

Operating profit (loss) - as reported

$        (57,134)

$   24,719

$          3,742

$  (16,720)

$      (45,393)

Special items -- (income) expense:

-

  Lower of cost or market charge

62,444

-

-

-

62,444

  Inventory step-up recognized

31,073

-

-

-

31,073

  Acquisition-related fees

2,355

-

-

8,800

11,155

  Gain on sale of land

-

(9,693)

-

-

(9,693)

Operating profit - excluding special items

$         38,738

$   15,026

$          3,742

$   (7,920)

$       49,586

Third Quarter of 2010

(in thousands)

Engineered

Materials

Specialty

Chemicals

Battery

Technologies

Corporate

Consolidated

Operating profit - as reported

$         28,332

$   12,409

$          3,068

$   (8,964)

$       34,845

Special items -- (income) expense:

  Restructuring

-

1,069

-

-

1,069

  Purchase accounting - EaglePicher acquisition

-

-

138

-

138

Operating profit - excluding special items

$         28,332

$   13,478

$          3,206

$   (8,964)

$       36,052

Non-GAAP Financial Measures:

The Company is providing operating profit - adjusted for special items, a non-GAAP financial measure that the Company's management believes is an important metric in evaluating the performance of the Company's business.  The table above presents a reconciliation of the Company's U.S. GAAP operating profit (loss) as reported to non-GAAP operating profit - adjusted for special items. The Company believes that the non-GAAP financial measures presented in the table facilitate 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.

OM Group, Inc. and Subsidiaries

Non-GAAP Financial Measure

Three Months Ended

Three Months Ended

September 30, 2011

September 30, 2010

(in thousands, except per share data)

$

Diluted EPS

$

Diluted EPS

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

$ (68,254)

$        (2.17)

$ 24,201

$       0.79

Less:

  Income from discontinued operations, net of tax

234

0.01

1,003

0.03

Income (loss) from continuing operations attributable

  to OM Group, Inc. - as reported

$ (68,488)

$        (2.18)

$ 23,198

$       0.76

Special items -- income (expense):

  Charges related to VAC inventory step-up, net of tax

(66,181)

(2.10)

-

-

  Effect of applying annual effective income tax rate to actual year-to-date pre-tax income

(45,304)

(1.44)

-

-

  Fees and expenses related to the VAC acquisition, net of tax

(10,045)

(0.32)

-

-

  Gain on sale of land, net of tax

8,568

0.27

-

-

  Restructuring charges, net of tax

-

-

(1,069)

(0.04)

  Purchase accounting, net of tax - EaglePicher Technologies acquisition

-

-

(138)

-

  Adjustment of GTL's prepaid tax allowance (OMG's 55% share)

3,424

0.11

-

-

  Other discrete tax items, net

1,031

0.03

329

0.01

Income from continuing operations attributable

  to OM Group, Inc. - as adjusted for special items

$  40,019

$          1.27

$ 24,076

$       0.79

Weighted average shares outstanding - diluted

31,552

30,560

Nine Months Ended

Nine Months Ended

September 30, 2011

September 30, 2010

(in thousands, except per share data)

$

Diluted EPS

$

Diluted EPS

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

$ (12,982)

$        (0.42)

$ 59,590

$       1.95

Less:

  (Income) loss from discontinued operations, net of tax

(95)

-

622

0.02

Income (loss) from continuing operations attributable

  to OM Group, Inc. - as reported

$ (12,887)

$        (0.42)

$ 58,968

$       1.93

Special items -- income (expense):

  Charges related to VAC inventory step-up, net of tax

(66,181)

(2.14)

-

-

  Effect of applying annual effective rate to actual year-to-date pre-tax income

(45,304)

(1.46)

-

-

  Fees and expenses related to the VAC acquisition, net of tax

(14,045)

(0.45)

-

-

  Gain on sale of land, net of tax

8,568

0.27

-

-

  Restructuring charges, net of tax

(507)

(0.02)

(1,956)

(0.06)

  Purchase accounting, net of tax - EaglePicher Technologies acquisition

-

-

(2,748)

(0.09)

  Adjustment of GTL's prepaid tax allowance (OMG's 55% share)

3,424

0.11

(6,306)

(0.21)

  Other discrete tax items, net

3,050

0.10

4,201

0.14

Income from continuing operations attributable

   to OM Group, Inc. - as adjusted for special items

$  98,108

$          3.17

$ 65,777

$       2.15

Weighted average shares outstanding - diluted

30,993

30,535

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 (loss) attributable to OM Group, Inc. and income (loss) from continuing operations attributable to OM Group, Inc.), to its non-GAAP results after adjusting for the special items shown. The Company believes that the non-GAAP financial measures 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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http://www.omgi.com