CLEVELAND, Feb. 26 /PRNewswire-FirstCall/ -- OM Group, Inc. (NYSE: OMG) announced today financial results for the fourth quarter and full year ended December 31, 2008.
Fourth-quarter and full-year highlights:
-- Full year 2008 net sales grew 70 percent to a record $1.7 billion, despite a 4 percent drop in net sales during the fourth quarter compared to a year ago.
-- Fourth-quarter net loss of $1.08 per diluted share included a non- recurring income tax benefit of $0.71 per diluted share, a non-cash inventory charge of $0.63 per diluted share, and a non-cash goodwill impairment charge of $0.29 per diluted share.
-- Cash flow from operating activities climbed in 2008 to $119.7 million in the fourth quarter, $172.1 million for the full year.
-- Cash balance at year-end was $244.8 million with additional liquidity available from revolvers of $75 million in the US and euro 25 million in Finland.
FOURTH-QUARTER RESULTS
Net sales for the fourth quarter of 2008 were $296.6 million compared with $309.4 million in the corresponding period of 2007. Lower volume across most end markets, a decrease in metal resale and lower pricing in Advanced Materials were partially offset by the benefits from higher revenue from the electronic technologies acquisition and favorable pricing in Advanced Organics.
Net loss in the fourth quarter of 2008 was $32.7 million, or $1.08 per diluted share, compared with last year's fourth-quarter net income of $48.0 million, or $1.58 per diluted share. Included in the 2008 period is a non-cash inventory charge of $26.9 million, or $0.63 per diluted share, to reduce the carrying value of certain inventory to market value; a non-recurring income tax benefit of $21.5 million, or $0.71 per diluted share, related to the company's electing to take foreign tax credits on prior-year U.S. tax returns; and a non-cash $8.8 million charge, or $0.29 per diluted share, for goodwill impairment.
"Like many companies, we faced rapidly deteriorating market conditions in the fourth quarter of 2008, which partially mitigated the significant gains we had made earlier in the year," said Joseph M. Scaminace, chairman and chief executive officer. "The impact on profitability from this unprecedented drop in demand during the fourth-quarter was further compounded by a steep decline in cobalt prices. Despite these negative macroeconomic forces, we were able to generate significant cash from operations. Coupled with our low level of debt, we are pleased with the financial flexibility we created for the company during the year."
Gross profit fell to $3.6 million, or 1.2 percent of sales, in the fourth quarter of 2008 versus $84.2 million, or 27.2 percent of sales, in the comparable 2007 quarter. The decline is attributable primarily to the lower volumes and the rapid decline in the cobalt reference price and its effect on selling prices relative to raw material costs. Included in the 2008 period was an inventory adjustment of $26.9 million to reduce the carrying value of certain inventory to market value.
Selling, general and administrative (SG&A) expenses increased to $40.7 million, or 13.7 percent of sales, in the fourth quarter of 2008 compared with $28.7 million, or 9.3 percent of sales, in the fourth quarter of 2007, due primarily to the acquired electronic technologies businesses that were not included in the 2007 period.
Operating loss in the fourth quarter of 2008 was $46.0 million compared with operating profit of $55.5 million in the prior-year period, driven primarily by the decline in gross profit and an $8.8 million goodwill impairment charge.
Loss from continuing operations was $33.0 million, or $1.09 per diluted share, in the fourth quarter of 2008, compared with income from continuing operations of $46.4 million, or $1.53 per diluted share, in the fourth quarter of 2007. Income tax in the fourth quarter of 2008 was a net benefit of $18.8 million, which includes the foreign tax credit benefit of $21.5 million previously mentioned and income tax expense of $21.1 million related to earlier periods of 2008, due to a change in the effective income tax rate for the full year 2008 made during the fourth quarter.
Net cash provided by operating activities in the fourth quarter of 2008 was $119.7 million compared with $12.2 million in the fourth quarter of 2007. The increase was the result of lower net working capital driven primarily by lower cobalt prices.
FULL-YEAR RESULTS
Net sales for 2008 were a record $1.7 billion compared with $1.0 billion in 2007. The improvement was driven by higher product selling prices, acquisitions, increased cobalt metal resale and sales volume growth. 2008 net income was $135.0 million, or $4.45 per diluted share, compared with $246.9 million, or $8.15 per diluted share, in 2007. Included in the results from 2007 are $63.1 million of income from discontinued operations and a $72.3 million gain on the sale of discontinued operations, both related principally to the Nickel business that was sold in the first quarter of 2007. Income from continuing operations was $134.9 million, or $4.45 per diluted share, for 2008 compared with $111.5 million, or $3.68 per diluted share, in 2007.
Gross profit rose to $352.5 million in 2008 compared with $313.2 million in 2007. As a percentage of net sales, gross profit fell to 20.3 percent from 30.7 percent, due primarily to the rapid decline in the cobalt reference price in the second half of the year and its effect on selling prices relative to raw material costs as well as $27.7 million in adjustments to reduce the carrying value of certain inventory to market value.
SG&A expenses were $166.1 million in 2008 compared with $117.0 million in 2007. The increase was due primarily to expenses from the acquired coatings and electronic technologies businesses. Operating profit fell to $177.6 million, or 10.2 percent of sales, in 2008 versus $196.2 million, or 19.2 percent of sales, in 2007.
Net cash provided by operating activities rose to $172.1 million in 2008 compared with $41.0 million last year. This improved performance was attributable to higher income from continuing operations and cash provided by working capital as cobalt prices fell in the second half of 2008. Cash provided by operations as well as available credit facilities should provide adequate liquidity for OMG's working capital, debt service and capital expenditure requirements in 2009.
BUSINESS SEGMENT RESULTS
Advanced Materials
In the fourth quarter of 2008, net sales for the Advanced Materials segment were $194.1 million compared with $222.3 million in the fourth quarter of last year. The decrease was driven by lower sales volume of metal resale, lower product selling prices due to a decrease in the reference price for cobalt, and lower overall volume. Excluding metal resale and copper by-product sales, volume fell 4 percent in the fourth quarter of 2008 compared with the same quarter last year.
Operating loss for the segment for the fourth quarter was $16.0 million compared with a profit of $64.5 million in the prior-year quarter. The impact of a rapid decline in cobalt reference price, lower volume and higher manufacturing and non-cobalt raw material costs led to the decline in profit. For the 2008 fourth quarter, cobalt prices averaged $20.81 per pound compared with $32.54 per pound during the third quarter of 2008 and $32.68 per pound during the fourth quarter of 2007. The current period includes an inventory charge of $19.9 million to reduce the carrying value of certain inventory to market value.
Full year 2008 net sales for the segment were $1.2 billion, compared with $721.9 million in 2007. Increased product selling prices, higher cobalt metal resale and copper by-product sales, and higher volumes contributed to the increase. Operating profit fell to $203.5 million in 2008 compared with $212.6 million in 2007 due to $20.7 million of inventory charges to reduce the carrying value of certain inventory to market value, an unfavorable currency impact and increased manufacturing and non-cobalt raw material costs. These decreases were partially offset by higher volume, favorable pricing and increased copper by-product sales.
Specialty Chemicals
Net sales from the Specialty Chemicals segment were $102.7 million in the fourth quarter of 2008 compared with $87.2 million in the same quarter last year. The improvement was due primarily to acquisitions and higher selling prices in Advanced Organics, partially offset by lower volumes.
Operating loss was $19.1 million in the fourth quarter of 2008 compared with operating profit of $3.1 million in the prior-year quarter, due to lower volume, a $7.0 million inventory charge to reduce the carrying value of certain inventory to market value, additional expenses from the newly acquired businesses and the goodwill impairment charge.
Full year 2008 net sales for the segment increased to $546.7 million, compared with $303.9 million in 2007. Acquisitions and increased product selling prices were the main factors leading to the sales improvement, partially offset by lower volumes. Operating profit was $11.2 million in 2008 compared with $18.2 million in 2007 as benefits from acquisitions were offset by decreased volume, the charge for goodwill impairment and inventory adjustments.
OUTLOOK
"At the present time, we see no immediate recovery from the prevalent uncertainty and weak end-market demand created in the fourth quarter of 2008," said Scaminace. "Likewise, we expect cobalt prices in 2009 to remain lower on a year-over-year basis, which will further challenge our relative earnings potential. While both will influence the rate at which we can continue to implement our growth strategy in 2009, our focus and resolve to achieve our stated goals of delivering sustainable and profitable volume growth and driving consistent financial performance remain unchanged."
Scaminace noted that the company is dealing with the uncertain economic outlook by implementing a number of additional cost containment measures aimed at further leveraging margin growth and profitability, including eliminating 2009 salary increases where possible, reducing headcount, reprioritizing capital projects and cutting discretionary spending. "With the benefit of a strong, clean balance sheet, we are cautiously optimistic that we are in a sound position to manage through the economic uncertainty ahead," Scaminace concluded.
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
Condensed Consolidated Balance Sheets
December 31, December 31,
2008 2007
(In thousands)
ASSETS
Current assets
Cash and cash equivalents $244,785 $100,187
Accounts receivable 130,217 178,481
Inventories 306,128 413,434
Other current assets 114,286 64,431
Total current assets 795,416 756,533
Property, plant and equipment, net 245,202 288,834
Goodwill 268,677 322,172
Intangible assets 84,824 46,454
Notes receivable from joint venture
partner 13,915 24,179
Other non-current assets 26,393 31,038
Total assets $1,434,427 $1,469,210
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current
portion of long-term debt $80 $513
Accounts payable 89,470 214,244
Accrued income taxes 17,677 32,040
Accrued employee costs 31,168 34,707
Other current liabilities 21,074 25,435
Total current liabilities 159,469 306,939
Long-term debt 26,064 1,136
Deferred income taxes 26,764 29,645
Minority interests 47,429 52,314
Other non-current liabilities 44,052 50,790
Total stockholders' equity 1,130,649 1,028,386
Total liabilities and stockholders'
equity $1,434,427 $1,469,210
OM Group, Inc. and Subsidiaries
Condensed Statements of Consolidated Income
Three Months Ended For the Year Ended
December 31, December 31,
2008 2007 2008 2007
(In thousands, except per
share data)
Net sales $296,599 $309,367 $1,736,849 $1,021,501
Cost of products sold
(excluding lower of cost or
market charge) 266,079 225,182 1,356,573 708,257
Lower of cost or market
inventory charge 26,922 - 27,728 -
Gross profit 3,598 84,185 352,548 313,244
Goodwill impairment 8,800 - 8,800 -
Selling, general and
administrative expenses 40,748 28,733 166,126 117,009
Operating profit (45,950) 55,452 177,622 196,235
Other income (expense):
Interest expense (305) (297) (1,597) (7,820)
Loss on redemption of Notes - - - (21,733)
Interest income 511 8,279 1,920 23,922
Foreign exchange gain
(loss) (4,613) 2,138 (3,744) 8,100
Other income (expense), net (1,348) 550 (1,913) (449)
(5,755) 10,670 (5,334) 2,020
Income (loss) from continuing
operations before income tax
(expense) benefit and
minority interest (51,705) 66,122 172,288 198,255
Income tax (expense) benefit 18,842 (18,596) (16,076) (76,311)
Minority partners' share of
(income) loss (155) (1,085) (21,301) (10,405)
Income (loss) from continuing
operations (33,018) 46,441 134,911 111,539
Discontinued operations:
Income from discontinued
operations, net of tax 303 1,546 92 63,057
Gain on sale of discontinued
operations, net of tax - - - 72,270
Total income from discontinued
operations, net of tax 303 1,546 92 135,327
Net income (loss) $(32,715) $47,987 $135,003 $246,866
Net income (loss) per common
share - basic:
Continuing operations $(1.09) $1.55 $4.48 $3.73
Discontinued operations 0.01 0.05 - 4.52
Net income $(1.08) $1.60 $4.48 $8.25
Net income (loss) per common
share - assuming dilution:
Continuing operations $(1.09) $1.53 $4.45 $3.68
Discontinued operations 0.01 0.05 - 4.47
Net income $(1.08) $1.58 $4.45 $8.15
Weighted average shares
outstanding
Basic 30,180 30,040 30,124 29,937
Assuming dilution 30,180 30,397 30,358 30,276
OM Group, Inc. and Subsidiaries
Condensed Statements of Consolidated Cash Flows
For the Year Ended
2008 2007
(In thousands)
Operating activities
Net income $135,003 $246,866
Adjustments to reconcile net income
to net cash provided by
operating activities:
Total income from discontinued
operations (92) (135,327)
Loss on redemption of Notes - 21,733
Depreciation and amortization 56,116 33,229
Share-based compensation expense 7,621 7,364
Minority partners' share of
income 21,301 10,405
Gain on cobalt forward purchase
contracts (4,002) (6,735)
Interest income receivable from
joint venture partner 3,776 (3,776)
Lower of cost or market inventory
charge 27,728 -
Goodwill impairment 8,800 -
Other non-cash items 7,358 (25,169)
Changes in operating assets and
liabilities, excluding the effect of
business acquisitions:
Accounts receivable 48,641 (38,364)
Inventories 76,985 (165,694)
Accounts payable (124,712) 92,161
Refundable, prepaid and accrued
income taxes (64,455) 17,455
Other, net (27,944) (13,144)
Net cash provided by operating
activities 172,124 41,004
Investing activities
Expenditures for property, plant and
equipment (30,712) (19,357)
Net proceeds from the sale of the
Nickel business - 490,036
Proceeds from settlement of cobalt
forward purchase contracts 10,736 -
Other investing activities 2,042 (335,430)
Net cash provided by (used for)
investing activities (17,934) 135,249
Financing activities
Payments of long-term debt and
revolving line of credit (45,513) (400,000)
Proceeds from the revolving line of
credit 70,000 -
Premium for redemption of notes - (18,500)
Payment of loan from consolidated
joint venture partner (2,657)
Distributions to joint venture
partners (26,184) (1,350)
Payment related to surrendered shares (3,251) -
Proceeds from exercise of stock
options 874 11,344
Excess tax benefit on exercise of
stock options 28 1,744
Net cash used for financing
activities (6,703) (406,762)
Effect of exchange rate changes on
cash (2,889) 1,440
Cash and cash equivalents
Increase (decrease) from continuing
operations 144,598 (229,069)
Discontinued operations - net cash
provided by operating activities - 48,508
Discontinued operations - net cash
used for investing activities - (1,540)
Balance at the beginning of the year 100,187 282,288
Balance at the end of the year $244,785 $100,187
OM Group, Inc. and Subsidiaries
Segment Information
Three Months Ended For the Year Ended
December 31, December 31,
(In thousands) 2008 2007 2008 2007
Net Sales
Advanced Materials $194,122 $222,271 $1,192,423 $721,874
Specialty Chemicals 102,739 87,196 546,675 303,897
Intersegment items (262) (100) (2,249) (4,270)
$296,599 $309,367 $1,736,849 $1,021,501
Operating profit (loss)
Advanced Materials $(16,025) $64,450 $203,545 $212,609
Specialty Chemicals (19,125) 3,132 11,168 18,176
Corporate (8,623) (11,444) (37,540) (35,807)
Intersegment items (2,177) (686) 449 1,257
$(45,950) $55,452 $177,622 $196,235
OM Group, Inc. and Subsidiaries
Non-GAAP Financial Measure
Three months ended Three months ended
December 31, 2008 December 31, 2007
$ Diluted EPS $ Diluted EPS
(in thousands, except
per share data)
Net income (loss) as
reported $(32,715) $(1.08) $47,987 $1.58
Less:
Total income from
discontinued operations 303 0.01 1,546 0.05
Income (loss) from
continuing operations -
as reported $(33,018) $(1.09) $46,441 $1.53
Special items -- income
(expense):
Election to take Foreign
Tax Credits on Prior
Year Returns 21,536 0.71 - -
Goodwill impairment (8,800) (0.29) - -
Interest income on Notes
receivable from JV partner - - 3,776 0.12
Tax expense related to
interest income on Notes
from JV partner - - (982) (0.03)
Tax expense related to
repatriation of foreign
cash - - (6,911) (0.22)
Income (loss) from continuing
operations - as adjusted
for special items $(45,754) $(1.51) $50,558 $1.66
Weighted average shares
outstanding - diluted 30,180 30,397
Year ended Year ended
December 31, 2008 December 31, 2007
$ Diluted EPS $ Diluted EPS
(in thousands except per
share data)
Net income as reported $135,003 $4.45 $246,866 $8.15
Less:
Total income from
discontinued operations 92 - 135,327 4.47
Income from continuing
operations - as reported $134,911 $4.45 $111,539 $3.68
Special items -- income
(expense):
Election to take
Foreign Tax Credits on
Prior Year Returns 46,636 1.54 - -
Goodwill impairment (8,800) (0.29) - -
REM - inventory step-up
(COGS), net of tax (1,222) (0.04) - -
Tax assessment in Canada (763) (0.03) - -
Environmental charges at
closed New Jersey site - - (3,857) (0.13)
Loss on redemption of Notes - - (21,733) (0.72)
Tax benefit related to
redemption of Notes - - 7,607 0.25
Tax expense related to
repatriation of foreign
cash - - (45,700) (1.51)
Interest income on Notes
receivable from JV partner - - 4,526 0.15
Tax expense related to
interest income on Notes
from JV partner - - (1,177) (0.04)
Income from continuing
operations - as adjusted
for special items $99,060 $3.26 $171,873 $5.68
Weighted average shares
outstanding - diluted 30,358 30,276
Use of Non-GAAP Financial Information:
"Income from continuing operations - 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 2008. The above table presents a reconciliation of the Company's GAAP results, as reported (both net income and income from continuing operations), 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 2008 and of the comparability of the 2008 results to the results of prior periods.
