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OM Group Reports Third-Quarter Revenue and Earnings Growth

- Net income climbs to $24.2 million from $11.4 million last year -

- Income from continuing operations improves to $0.76 per share -


News provided by

OM Group, Inc.

Nov 04, 2010, 07:30 ET

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CLEVELAND, Nov. 4, 2010 /PRNewswire-FirstCall/ -- OM Group, Inc. (NYSE: OMG) today announced financial results for the third quarter ended September 30, 2010.

Net sales increased 26 percent to $297.2 million on a year-over-year comparison, due to the Battery Technologies acquisition, higher selling prices, mix and cobalt volume in Advanced Materials and volume growth in Specialty Chemicals. Net income was $24.2 million, or $0.79 per diluted share, compared with $11.4 million, or $0.38 per diluted share, during the third quarter of 2009. Income from continuing operations was $0.76 per diluted share compared with $0.32 per diluted share last year.

“Our third-quarter results demonstrate the positive organic growth in both sales and earnings we can harness from favorable end market trends,” said Joseph M. Scaminace, chairman and chief executive officer. “This organic growth, combined with the solid financial contributions of our acquired Battery Technologies business and our ability to continue to control costs has allowed us to continue to generate profitable growth for our shareholders. Furthermore, by maintaining our balance sheet strength, we ensure we have the financial flexibility needed to fund our strategic expansion and enhance our long-term value creation.”

Gross profit and operating profit grew 74 percent and 243 percent, respectively. Improvement was driven by positive price and mix and cobalt volumes in Advanced Materials, volume growth in Specialty Chemicals, the acquisition in Battery Technologies and lower restructuring expense in Specialty Chemicals. Partially offsetting these were lower price and mix in Specialty Chemicals and higher manufacturing and distribution expense in Advanced Materials. As a percent of sales, gross profit and operating profit improved to 25.0 percent and 11.7 percent, respectively.

Selling, general and administrative expenses were up 23 percent, but lower as a percent of sales, compared with the same period in 2009 due to the Battery Technologies acquisition and an increase related to performance-based employee incentive compensation.

During the third quarter, cash provided by operating activities was $65.8 million compared with $36.9 million last year, and total debt was reduced by $20 million to $120 million. Cash balance at the end of the quarter was $446.8 million.

BUSINESS SEGMENT RESULTS (all comparisons with the third quarter of 2009)

Advanced Materials

  • Net sales were $148.5 million, up 17 percent
  • Excluding metal resale and by-product sales, product volumes were flat as growth in powder metallurgy, ceramics and chemicals was offset by slight decreases in battery materials
  • Operating profit was $28.3 million (19.1 percent of sales), up 77 percent
  • Average quarterly reference price of low grade cobalt was $18.10 per pound, up from $17.30

Specialty Chemicals

  • Net sales were $113.3 million, up 4 percent
  • Demand was higher in electronic technologies end markets while volumes fell in Advanced Organics due to the closure of the Manchester, England facility
  • Operating profit was $12.4 million (10.9 percent of sales), up $10.7 million due mostly to higher restructuring expense in 2009

Battery Technologies

  • Net sales were $35.7 million
  • Operating profit was $3.1 million
  • Note: This segment is comprised of EaglePicher Technologies, which was acquired on January 29, 2010. Comparison to previous year not provided.

OUTLOOK

“We have seen growth across nearly all our end markets through the first nine months of 2010 as we have benefited from the global economic recovery,” commented Scaminace. “Although we anticipate markets will follow typical seasonal trends during the fourth quarter, we expect continued growth across our portfolio of businesses in 2011. This is based on our view that long-term demand trends are favorable across the end markets we serve, particularly within our growth platforms of portable power and electronic chemicals. We also expect to benefit from organic growth from market share gains and new product introductions.”

In the near term, Scaminace noted that Advanced Materials volumes should be flat in the fourth quarter compared with the third quarter as growth in battery materials will be offset by seasonal softness in powder metallurgy, chemicals and ceramics. Specialty Chemicals is expected to be down in the fourth quarter with seasonal declines in the electronic technologies and Advanced Organics markets. Battery Technologies is seeing stable demand from its principal markets, with some decline in the fourth quarter due to timing of deliveries.

“I remain extremely confident in OM Group’s ability to achieve the long-term strategic vision we have articulated,” Scaminace concluded. “We are growing within sectors that are not reliant upon volatile metal prices. We have reduced our cost structure, including restructuring our Advanced Organics business. And our recent acquisitions are performing well. Coupled with our strong and flexible balance sheet, we continue to make progress toward our objective to create meaningful market value for our customers, employees and shareholders.”

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 shareholders.

PRESENTATION OF NON-GAAP FINANCIAL INFORMATION

The Company is including certain non-GAAP financial measures, including Income (loss) from continuing operations attributable to OM Group, Inc. and Earnings per share common share – assuming dilution, both as adjusted for special items. “Income (loss) 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 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 2010 and of the comparability of the 2010 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 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, and medical devices. Headquartered in Cleveland, Ohio, OM Group operates manufacturing facilities in the Americas, Europe, Asia and Africa. For more information, visit the company's Web site at http://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 potential impact that global economic and financial market crisis may have on our business and operations, including future goodwill impairments; the direction and pace of our strategic transformation, including identification of and the ability to finance potential acquisitions; the operation of our critical business facilities without interruption; 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 availability of competitively priced supplies of raw materials, particularly cobalt; 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; the effect of fluctuations in currency exchange rates on the Company's international operations; the effect of non-currency risks of investing and conducting operations in foreign countries, including political, social, economic and regulatory factors; the effect of changes in domestic or international tax laws; 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)

2010


2009

ASSETS




Current assets





Cash and cash equivalents

$          446,756


$      355,383


Accounts receivable, less allowances

158,877


123,641


Inventories

284,163


287,096


Refundable and prepaid income taxes

48,154


44,474


Other current assets

44,879


32,394


   Total current assets

982,829


842,988






Property, plant and equipment, net

256,260


227,115

Goodwill

301,874


234,189

Intangible assets

153,866


79,229

Notes receivable from joint venture partner, less allowance

13,915


13,915

Other non-current assets

52,875


46,700


   Total assets

$       1,761,619


$   1,444,136






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities





Current portion of long-term debt

$            30,000


$               -


Accounts payable

175,585


139,173


Accrued income taxes

17,946


7,522


Accrued employee costs

31,257


18,168


Other current liabilities

44,798


24,099


   Total current liabilities

299,586


188,962






Long-term debt

90,000


-

Deferred income taxes

32,504


27,453

Uncertain tax positions

14,961


15,733

Pension liability

55,160


15,799

Other non-current liabilities

24,808


20,057






EQUITY:




Total OM Group, Inc. stockholders' equity

1,204,935


1,131,305

Noncontrolling interest

39,665


44,827

Total equity

1,244,600


1,176,132

Total liabilities and equity

$       1,761,619


$   1,444,136

OM Group, Inc. and Subsidiaries

Unaudited Condensed Statements of Consolidated Operations












Three Months Ended


Nine Months Ended



September 30,


September 30,

(In thousands, except per share data)

2010


2009


2010


2009

Net sales


$ 297,222


$ 235,239


$ 903,518


$ 630,297

Cost of products sold (excluding restructuring charges)

221,835


181,183


687,512


515,192

Restructuring charges

1,106


11,377


1,913


11,377

Gross profit

74,281


42,679


214,093


103,728

Selling, general and administrative expenses

39,473


32,103


116,901


100,542

Goodwill impairment, net

-


(125)


-


37,504

Restructuring charges (reversals)

(37)


551


141


551

Gain on termination of retiree medical plan

-


-




(4,693)

Operating profit (loss)

34,845


10,150


97,051


(30,176)

Other income (expense):








  Interest expense

(1,481)


(76)


(3,794)


(608)

  Interest income

255


193


641


726

  Foreign exchange gain (loss)

(688)


(215)


(8,088)


650

  Other expense, net

183


(25)


(210)


(235)



(1,731)


(123)


(11,451)


533

Income (loss) from continuing operations before income tax expense

33,114


10,027


85,600


(29,643)

Income tax expense

(9,159)


(921)


(31,791)


(6,650)

Income (loss) from continuing operations, net of tax

23,955


9,106


53,809


(36,293)

Income from discontinued operations, net of tax

1,003


1,846


622


1,785

Consolidated net income (loss)

24,958


10,952


54,431


(34,508)

Net (income) loss attributable to the noncontrolling interest

(757)


473


5,159


2,325

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

$   24,201


$   11,425


$   59,590


$ (32,183)










Earnings per common share - basic:









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









 common shareholders

$       0.76


$       0.32


$       1.94


$     (1.12)


Income from discontinued operations attributable to OM Group, Inc.









 common shareholders

0.03


0.06


0.02


0.06


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









 shareholders

$       0.79


$       0.38


$       1.96


$     (1.06)

Earnings per common share - assuming dilution:









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









 common shareholders

$       0.76


$       0.32


$       1.93


$     (1.12)


Income from discontinued operations attributable to OM Group, Inc.









 common shareholders

0.03


0.06


0.02


0.06


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









 shareholders

$       0.79


$       0.38


$       1.95


$     (1.06)










Weighted average shares outstanding - basic

30,474


30,265


30,417


30,236

Weighted average shares outstanding - assuming dilution

30,560


30,436


30,535


30,236










Amounts attributable to OM Group, Inc. common shareholders:









Income (loss) from continuing operations, net of tax

$   23,198


$     9,579


$   58,968


$ (33,968)


Income from discontinued operations, net of tax

1,003


1,846


622


1,785


Net income (loss)

$   24,201


$   11,425


$   59,590


$ (32,183)

OM Group, Inc. and Subsidiaries

Unaudited Condensed Statements of Consolidated Cash Flows












Three Months Ended September 30,


Nine Months Ended September 30,

(In thousands)

2010


2009


2010


2009

Operating activities








Consolidated net income (loss)

$   24,958


$   10,952


$   54,431


$ (34,508)

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









Income from discontinued operations

(1,003)


(1,846)


(622)


(1,785)


Depreciation and amortization

13,340


14,355


40,186


41,110


Share-based compensation expense

1,372


1,458


4,151


4,586


Tax deficiency (excess tax benefit) on exercise/vesting of share awards

-


2


(93)


424


Foreign exchange (gain) loss

688


215


8,088


(650)


Goodwill impairment charges, net

-


(125)


-


37,504


Restructuring charges

1,069


11,928


2,054


11,928


Gain on termination of retiree medical plan

-


-


-


(4,693)


Other non-cash items

(3,416)


(1,146)


576


5,051

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









Accounts receivable

9,090


(14,386)


(22,654)


4,183


Inventories

(17,755)


3,388


30,393


40,804


Accounts payable

26,183


17,528


30,127


11,111


Other, net

11,274


(5,401)


15,037


(10,509)

Net cash provided by operating activities

65,800


36,922


161,674


104,556










Investing activities








Expenditures for property, plant and equipment

(5,201)


(6,765)


(16,003)


(22,128)

Acquisitions

-


-


(171,979)


-

Other, net

(427)


(60)


(777)


(2,451)

Net cash used for investing activities

(5,628)


(6,825)


(188,759)


(24,579)










Financing activities








Payments of long-term debt and revolving line of credit

(20,000)


-


(125,000)


(26,141)

Proceeds from the revolving line of credit

-


-


245,000


-

Debt issuance costs

-


-


(2,596)


-

(Tax deficiency) excess tax benefit on exercise/vesting of share awards

-


(2)


93


(424)

Proceeds from exercise of stock options

-


11


3,802


11

Payment related to surrendered shares

-


(11)


(1,209)


(535)

Net cash provided by (used for) financing activities

(20,000)


(2)


120,090


(27,089)










Effect of exchange rate changes on cash

5,183


2,106


(1,599)


2,801










Cash and cash equivalents








Increase in cash and cash equivalents from continuing operations

45,355


32,201


91,406


55,689

Discontinued operations - net cash used for operating activities

(35)


-


(33)


-

Balance at the beginning of the period

401,436


268,273


355,383


244,785

Balance at the end of the period

$ 446,756


$ 300,474


$ 446,756


$ 300,474

OM Group, Inc. and Subsidiaries

Unaudited Segment Information














Three Months Ended September 30,


Nine Months Ended September 30,

(In thousands)

2010


2009


2010


2009









Net Sales









Advanced Materials

$148,455


$126,668


$468,685


$339,650


Specialty Chemicals

113,337


109,400


352,786


292,664


Battery Technologies (a)

35,720


-


82,723


-


Intersegment items

(290)


(829)


(676)


(2,017)




$297,222


$235,239


$903,518


$630,297









Operating profit (loss)









Advanced Materials

$  28,332


$  15,984


$  74,925


$  27,386


Specialty Chemicals (b) (c)

12,409


1,710


47,961


(38,097)


Battery Technologies (a)

3,068


-


1,974


-


Corporate (d)

(8,964)


(7,544)


(27,809)


(19,465)




$  34,845


$  10,150


$  97,051


$ (30,176)





















(a)

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


(b)

includes a $37.5 million non-cash goodwill impairment charge in the nine months ended September 30, 2009


(c)

includes a $1.1 million and $2.1 million restructuring charge in the three and nine months ended September 30, 2010, respectively, and an $11.9 million restructuring charge in the three and nine months ended September 30, 2009.


(d)

includes $2.2 million of fees related to the EaglePicher Technologies acquisition in the nine months ended September 30, 2010 and a $4.7 million gain on the termination of the Company's retiree medical plan in the nine months ended September 30, 2009.




Three Months Ended September 30,


Nine Months Ended September 30,




2010


2009


2010


2009

Volumes









Advanced Materials









Product sales volume - metric tons*

3,672


3,682


10,778


9,803


Other Volume (cobalt metal resale and by-product sales)

2,422


3,353


8,307


10,581


Cobalt refining volume - metric tons

2,578


2,429


6,851


6,618


*excludes cobalt metal resale and by-product sales.












Specialty Chemicals









Advanced Organics sales volume - metric tons

5,293


5,897


17,423


16,784


Electronic Chemicals sales volume - gallons (thousands)

2,716


2,387


8,330


6,274


Ultra Pure Chemicals sales volume - gallons (thousands)

1,500


1,205


4,325


3,334


Photomasks - number of masks

7,751


6,645


22,201


20,076

OM Group, Inc. and Subsidiaries

Non-GAAP Financial Measure














Three months ended


Three months ended


September 30, 2010


September 30, 2009

(in thousands, except per share data)

$

Diluted EPS


$

Diluted EPS







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

$ 24,201

$          0.79


$  11,425

$       0.38







Less:






  Income (loss) from discontinued operations, net of tax

1,003

0.03


1,846

0.06







Income from continuing operations attributable






  to OM Group, Inc. - as reported

$ 23,198

$          0.76


$    9,579

$       0.32







Special items -- income (expense):






  Discrete tax items - OMG portion

329

0.01


1,680

0.06

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

(138)

-


-

-

  Restructuring charges, net of tax

(1,069)

(0.04)


(10,028)

(0.33)

  Goodwill impairment charge

-

-


125

-







Income from continuing operations attributable






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

$ 24,076

$          0.79


$  17,802

$       0.58







Weighted average shares outstanding - diluted


30,560



30,436


























Nine months ended


Nine months ended


September 30, 2010


September 30, 2009

(in thousands, except per share data)

$

Diluted EPS


$

Diluted EPS







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

$ 59,590

$          1.95


$ (32,183)

$      (1.06)







Less:






  Income (loss) from discontinued operations, net of tax

622

0.02


1,785

$       0.06







Income (loss) from continuing operations attributable






  to OM Group, Inc. - as reported

$ 58,968

$          1.93


$ (33,968)

$      (1.12)







Special items -- income (expense):






  Discrete tax items - OMG portion

(2,105)

(0.07)


(1,679)

(0.06)

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

(2,748)

(0.09)


-

-

  Restructuring charges, net of tax

(1,956)

(0.06)


(10,028)

(0.33)

Goodwill impairment charge

-

-


(37,504)

(1.24)

Intangible asset impairment charge

-

-


(1,229)

(0.04)

Gain on termination of retiree medical plan

-

-


4,693

0.16







Income from continuing operations attributable






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

$ 65,777

$          2.15


$  11,779

$       0.39







Weighted average shares outstanding - diluted


30,535



30,364

























Presentation of Non-GAAP Financial Information


The Company is including certain non-GAAP financial measures, including Income (loss) from continuing operations attributable to OM Group, Inc. and Earnings per share common share – assuming dilution, both as adjusted for special items. "Income (loss) 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 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 2010 and of the comparability of the 2010 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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