CLEVELAND, May 7 /PRNewswire-FirstCall/ -- OM Group, Inc. (NYSE: OMG)
today announced financial results for its first quarter ended March 31, 2009.
First-quarter summary:
-- Net sales fell 60 percent as lower cobalt prices resulted in lower
product selling prices in Advanced Materials and Advanced Organics,
and the global economic slowdown led to a sharp decline in end-market
demand.
-- Net loss attributable to OM Group, Inc. common shareholders of $0.27
per diluted share included discrete income tax expenses of $0.07 per
diluted share, a non-cash lower of cost or market inventory charge of
$0.17 per diluted share, and a non-cash net goodwill impairment charge
of $0.09 per diluted share.
-- Cash flow from operating activities was $36.6 million, aided largely
by lower net working capital, resulting in a cash balance at the end
of the quarter of $272.4 million.
Net sales for the first quarter of 2009 were $191.7 million compared with
$480.8 million in the corresponding period of 2008. Lower commodity prices,
especially cobalt, resulted in lower selling prices for Advanced Materials and
Advanced Organics. Additionally, the slowdown in global economic activity led
to lower demand across all end markets, resulting in significantly lower sales
volumes.
Net loss attributable to OM Group, Inc. in the first quarter of 2009 was
$8.3 million, or $0.27 per diluted share, compared with net income
attributable to OM Group, Inc. of $55.2 million, or $1.81 per diluted share in
the first quarter of last year. Included in the 2009 period is a non-cash
inventory charge of $6.6 million, or $0.17 per diluted share, to reduce the
carrying value of certain inventory to market value; discrete items impacting
income tax expense of $2.0 million, or $0.07 per diluted share; and a non-cash
charge of $2.6 million, or $0.09 per diluted share, for net goodwill
impairment.
"As expected, conditions in our end markets were extremely challenging
during the first quarter of 2009," said Joseph M. Scaminace, chairman and
chief executive officer. "Despite our quick and decisive action to enhance
profitability - including eliminating 2009 salary increases where permitted,
reducing headcount, reprioritizing capital projects and cutting discretionary
spending across the company - we were unable to fully offset the negative
impact of significantly lower volumes and prices on our revenues and earnings
during the quarter.
"Even with this difficult business climate, we were able to achieve
sequential improvement in operating margins and positive cash flow from our
operations through the determined execution of our business plan," said
Scaminace. "These improvements enhance financial flexibility for us heading
into the second quarter."
Gross profit fell to $26.6 million, or 13.9 percent of sales, in the first
quarter of 2009 versus $136.7 million, or 28.4 percent of sales, in the
comparable 2008 quarter. The decline was attributable primarily to lower
selling prices and lower volumes. Included in the 2009 period was an inventory
charge of $6.6 million to reduce the carrying value of certain inventory to
market value.
Selling, general and administrative (SG&A) expenses decreased to $34.9
million, or 18.2 percent of sales, in the first quarter of 2009 compared with
$42.0 million, or 8.7 percent of sales, in the first quarter of 2008. Included
in the 2009 period is a goodwill impairment charge of $6.8 million to
write-off all of the goodwill associated with Advanced Organics, partially
offset by a $4.1 million adjustment to finalize the estimated goodwill
impairment charge taken in the fourth quarter of 2008 for Ultra Pure
Chemicals.
Operating loss in the first quarter of 2009 was $10.9 million compared
with operating profit of $94.6 million in the prior-year period, driven
primarily by the decline in gross profit.
Loss from continuing operations attributable to OM Group, Inc. was $8.5
million, or $0.28 per diluted share, in the first quarter of 2009, compared
with income from continuing operations attributable to OM Group, Inc. of $55.6
million, or $1.82 per diluted share, in the first quarter of 2008.
Income tax in the first quarter of 2009 included discrete tax expenses
totaling $5.9 million related to the joint venture in the Democratic Republic
of Congo. The impact of this expense on net loss was $3.2 million, after
deducting the minority partners' share. This expense was partially offset by a
$1.2 million benefit for the reversal of a liability in France. The net impact
of all discrete tax items on net loss attributable to OM Group, Inc. was $2.0
million, or $0.07 per diluted share.
Net cash provided by operating activities in the first quarter of 2009 was
$36.6 million compared with use of cash of $53.7 million in the first quarter
of 2008. The increase was the result of lower net working capital.
BUSINESS SEGMENT RESULTS
Advanced Materials
In the first quarter of 2009, net sales for the Advanced Materials segment
were $108.9 million compared with $332.4 million in the first quarter of last
year. The decrease was driven by lower product selling prices due to a
decrease in the cobalt reference price and lower sales volumes. Excluding
metal resale and copper by-product sales, volume fell 19 percent in the first
quarter of 2009 compared with the same quarter last year.
First-quarter operating profit for the segment was $6.4 million, or 5.9
percent of sales, compared with $95.3 million, or 28.7 percent of sales, in
the prior-year quarter. The decline in cobalt prices and lower sales volumes
led to the decline in profitability. For the 2009 first quarter, cobalt prices
averaged $13.37 per pound compared with $20.81 per pound during the fourth
quarter of 2008 and $46.19 per pound during the first quarter of 2008. The
current period includes an inventory charge of $3.3 million to reduce the
carrying value of certain inventory to market value. The first quarter of 2008
was favorably impacted by a $5.8 million unrealized gain on cobalt forward
purchase contracts.
Specialty Chemicals
Net sales from the Specialty Chemicals segment were $83.0 million in the
first quarter of 2009 compared with $149.1 million in the same quarter last
year, driven by lower volumes, unfavorable foreign currency and lower selling
prices.
Operating loss was $8.0 million in the first quarter of 2009 compared with
operating profit of $8.5 million in the prior-year quarter. The decline was
primarily attributable to lower volume, a $3.3 million inventory charge to
reduce the carrying value of certain inventory to market value, and net
goodwill impairment charges of $2.6 million.
OUTLOOK
"We have seen some encouraging signs and positive data points, including
sequential demand improvements in the months of March and April for some of
our end markets," said Scaminace. "However, there is still tremendous
uncertainty in the markets we serve, and we don't expect that to change
anytime soon."
While the company expects demand will show modest improvements compared
with the first quarter, visibility remains limited. Profitability enhancement
initiatives, both announced and under consideration, will help to maintain or
improve margins and strengthen future results. Additionally, absent a rapid
increase in cobalt prices, the company anticipates cash flow from operations
should continue to be positive.
Scaminace said that the company will remain vigilant in maximizing
shareholder value through ongoing advancement of its growth strategy. "Our
financial strength affords us the opportunity to benefit from unique market
opportunities that current global economic conditions create, including taking
additional market share from competition or acquiring attractively valued
assets."
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 www.omgi.com. A copy of management's presentation
materials will be available on OMG's Web site at the time of the call. The
company recommends visiting the Web site 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 Web site three hours after the call.
ABOUT OM GROUP, INC.
OM Group, Inc. is a diversified global developer, producer and marketer of
value-added specialty chemicals and advanced materials that are essential to
complex chemical and industrial processes. Key technology-based end-use
applications include affordable energy, portable power, clean air, clean
water, and proprietary products and services for the microelectronics
industry. 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 the recent 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
March 31, December 31,
2009 2008
(In thousands)
ASSETS:
Current assets
Cash and cash equivalents $272,372 $244,785
Accounts receivable, less allowances 105,557 130,217
Inventories 276,066 306,128
Refundable and prepaid income taxes 47,906 55,059
Other current assets 41,525 59,227
Total current assets 743,426 795,416
Property, plant and equipment, net 238,560 245,202
Goodwill 262,214 268,677
Intangible assets 84,745 84,824
Notes receivable from joint venture
partner, less allowance 13,915 13,915
Other non-current assets 26,106 26,393
Total assets $1,368,966 $1,434,427
LIABILITIES:
Current liabilities
Current portion of long-term debt $75 $80
Accounts payable 61,530 89,470
Accrued income taxes 11,795 17,677
Accrued employee costs 19,663 31,168
Other current liabilities 20,709 21,074
Total current liabilities 113,772 159,469
Long-term debt 25,983 26,064
Deferred income taxes 28,337 26,764
Other non-current liabilities 43,868 44,052
Total liabilities 211,960 256,349
EQUITY:
Total OM Group, Inc. stockholders' equity 1,113,127 1,130,649
Noncontrolling interest 43,879 47,429
Total equity 1,157,006 1,178,078
Total liabilities and equity $1,368,966 $1,434,427
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Operations
Three Months
Ended March 31,
(In thousands, except per share data) 2009 2008
Net sales $191,706 $480,795
Cost of products sold 165,091 344,129
Gross profit 26,615 136,666
Selling, general and administrative expenses 34,858 42,032
Goodwill impairment, net 2,629
Operating profit (loss) (10,872) 94,634
Other income (expense):
Interest expense (296) (360)
Interest income 297 466
Foreign exchange gain 1,081 646
Other income (expense), net (50) 90
1,032 842
Income (loss) from continuing operations before
income tax expense (9,840) 95,476
Income tax expense (2,249) (27,145)
Income (loss) from continuing
operations, net of tax (12,089) 68,331
Income (loss) from discontinued
operations, net of tax 264 (369)
Consolidated net income (loss) (11,825) 67,962
Net (income) loss attributable
to the noncontrolling interest 3,548 (12,742)
Net income (loss) attributable to OM Group, Inc $(8,277) $55,220
Earnings per common share - basic:
Income (loss) from continuing operations
attributable to OM Group, Inc. common
shareholders $(0.28) $1.85
Income (loss) from discontinued operations
attributable to OM Group, Inc. common
shareholders 0.01 (0.01)
Net income (loss) attributable to OM
Group, Inc. common shareholders $(0.27) $1.84
Earnings per common share - assuming dilution:
Income (loss) from continuing operations
attributable to OM Group, Inc. common
shareholders $(0.28) $1.82
Income (loss) from discontinued operations
attributable to OM Group, Inc. common
shareholders 0.01 (0.01)
Net income (loss) attributable to OM
Group, Inc. common shareholders $(0.27) $1.81
Weighted average shares outstanding
Basic 30,187 30,074
Assuming dilution 30,187 30,460
Amounts attributable to OM Group,
Inc. common shareholders:
Income (loss) from continuing operations,
net of tax $(8,541) $55,589
Income (loss) from discontinued operations,
net of tax 264 (369)
Net income (loss) $(8,277) $55,220
OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Cash Flows
Three Months
Ended March 31,
(In thousands) 2009 2008
Operating activities
Consolidated net income (loss) $(11,825) $67,962
Adjustments to reconcile consolidated net
income (loss) to net cash provided by
(used for) operating activities:
(Income) loss from discontinued operations (264) 369
Depreciation and amortization 13,290 13,365
Share-based compensation expense 1,700 2,231
Tax deficiency (excess tax benefit) from
exercise/vesting of share awards 420 (23)
Foreign exchange gain (1,081) (646)
Q1 2009 Goodwill impairment charge 6,768 -
Q4 2008 Goodwill impairment charge adjustment (4,139) -
Unrealized gain on cobalt
forward purchase contracts - (5,782)
Interest income received from
consolidated joint venture partner - 3,776
Other non-cash items 3,972 (2,753)
Changes in operating assets and liabilities
Accounts receivable 24,930 (59,656)
Inventories 30,062 (86,921)
Accounts payable (27,939) 33,080
Other, net 712 (18,652)
Net cash provided by (used for)
operating activities 36,606 (53,650)
Investing activities
Expenditures for property, plant and equipment (5,590) (6,725)
Proceeds from loans to
consolidated joint venture partner - 4,514
Acquisitions - (3,375)
Expenditures for software (663) (601)
Net cash used for investing activities (6,253) (6,187)
Financing activities
Payments of revolving line of
credit and long-term debt (20) (23,046)
Borrowings from revolving line of credit - 70,000
Distributions to joint venture partners - (14,934)
Payment related to surrendered shares (372) -
Proceeds from exercise of stock options - 818
(Tax deficiency) excess tax benefit from
exercise/vesting of share awards (420) 23
Net cash provided by (used for)
financing activities (812) 32,861
Effect of exchange rate changes on cash (1,954) 1,679
Cash and cash equivalents
Increase (decrease) in cash and cash equivalents 27,587 (25,297)
Balance at the beginning of the period 244,785 100,187
Balance at the end of the period $272,372 $74,890
OM Group, Inc. and Subsidiaries
Unaudited Segment Information
Three Months
Ended March 31,
(In thousands) 2009 2008
Net Sales
Advanced Materials $108,944 $332,385
Specialty Chemicals 83,009 149,114
Intersegment items (247) (704)
$191,706 $480,795
Operating profit (loss)
Advanced Materials $6,398 $95,319
Specialty Chemicals (7,978) 8,454
Corporate (9,292) (9,439)
Intersegment items - 300
$(10,872) $94,634
OM Group, Inc. and Subsidiaries
Non-GAAP Financial Measure
Three months ended Three months ended
March 31, 2009 March 31, 2008
(in thousands, except per $ Diluted EPS $ Diluted EPS
share data)
Net income (loss) attributable
to OM Group, Inc. - as
reported $(8,277) $(0.27) $55,220 $1.81
Less:
Total income (loss) from
discontinued operations 264 0.01 (369) (0.01)
Income (loss) from continuing
operations attributable
to OM Group, Inc. - as
reported $(8,541) $(0.28) $55,589 $1.82
Special items -- income
(expense):
Q1 2009 Goodwill
Impairment charge (6,768) (0.22) - -
Q4 2008 Goodwill
impairment charge
adjustment 4,139 0.14 - -
Q1 2009 Discrete tax
items (2,031) (0.07) - -
REM - inventory step-up
(COGS), net of tax - - (1,222) (0.04)
Tax assessment in Canada - - (1,013) (0.03)
Income (loss) from continuing
operations attributable
to OM Group, Inc. - as
adjusted for special items $(3,881) $(0.13) $57,824 $1.90
Weighted average shares
outstanding - diluted 30,187 30,460
Use of Non-GAAP Financial Information:
"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 has used as an important metric in evaluating the
performance of the Company's business for 2009. The above table 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 above table facilitates a comparative
assessment of the Company's operating performance by its management. In
addition, the Company believes that this non-GAAP financial measure will
enhance investors' understanding of the performance of the Company's
operations during 2009 and of the comparability of the 2009 results to the
results of prior periods.
SOURCE OM Group, Inc.
CONTACT:
Troy Dewar, director, investor relations, at +1-216-263-7765.
/Web Site: http://www.omgi.com
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