CLEVELAND, Feb. 28 /PRNewswire-FirstCall/ -- OM Group, Inc. today announced record results for the fourth quarter and full year periods ended December 31, 2007.
Net sales for the fourth quarter of 2007 were $309.4 million, compared with $172.1 million in the corresponding period of 2006. Excluding the impact of the Borchers acquisition, which added $12.7 million in the fourth quarter of 2007, revenue grew 72 percent. Increased product selling prices, strong demand across most of the company's end markets, and the re-sale of cobalt metal drove the increase in sales. The average cobalt reference price in the fourth quarter of 2007 was $32.68 compared with $18.66 in the 2006 period.
"We are quite pleased with the company's financial performance in 2007," said Joseph M. Scaminace, chairman and chief executive officer. "As was the case consistently throughout the year, we enjoyed strong customer demand for our products in nearly every end market we serve, most notably battery, chemical, powder metallurgy, and tire. Similarly, we benefited from favorable pricing for our products, which resulted in higher gross profit. And, thanks to our ongoing operational excellence initiatives, we were able to leverage operating expenses to achieve operating profit nearly five times greater than the same period last year."
Gross profit increased to $84.2 million in the fourth quarter of 2007 versus $46.8 million in the comparable 2006 quarter. The increase was primarily attributable to a higher cobalt reference price, greater volume, and an unrealized gain on cobalt forward purchase contracts. As a percentage of net sales, gross margin was flat due to an increase in low-margin cobalt metal resale. Operating profit in the fourth quarter of 2007 was $55.5 million versus $11.8 million in the prior-year quarter.
Income from continuing operations was $46.4 million, or $1.53 per diluted share, in the fourth quarter of 2007, compared with a loss of $17.0 million, or $0.58 per diluted share, in the 2006 period. The significant increase is attributable to the higher operating profit, lower interest expense due to the redemption of the company's long-term Notes earlier this year, higher interest income as a result of the company's higher cash balance, and favorable foreign currency exchange gains.
Income from discontinued operations was $1.5 million in the 2007 fourth quarter, compared to income from discontinued operations in the 2006 period of $73.8 million, related primarily to the operations of the Nickel business that was sold in the first quarter of 2007.
Net income in the fourth quarter of 2007 was $48.0 million, or $1.58 per diluted share, compared to last year's fourth quarter net income of $56.8 million, or $1.93 per diluted share. The decrease was due to the income of the discontinued Nickel business in the 2006 period.
Selling, general and administrative (SG&A) expenses fell to $28.7 million in the fourth quarter of 2007, compared with $35.0 million in the fourth quarter of 2006. Corporate expenses, a component of overall SG&A expenses, declined to $11.4 million in the 2007 fourth quarter from $12.6 million in the comparable quarter a year ago. The overall decline in SG&A was due primarily to expenses in the fourth quarter of 2006 that did not repeat in 2007 such as $4.2 million in environmental charges and $3.2 million related to the former CEO's termination.
FULL-YEAR RESULTS
Net sales for 2007 were $1.02 billion versus $660.1 million for 2006. Income from continuing operations was $111.5 million, or $3.68 per diluted share, compared to $23.6 million, or $0.80 per diluted share, a year ago. Net income was $246.9 million, or $8.15 per diluted share, in 2007 compared with net income of $216.1 million, or $7.31 per diluted share, in 2006.
Gross profit rose to $313.2 million in 2007, compared with $184.7 million in 2006. As a percentage of net sales, gross profit increased to 31 percent from 28 percent. Operating profit increased to $196.2 million in 2007 from $75.3 million in 2006. The increases reflected higher cobalt prices and higher-priced sales of finished products manufactured with cobalt raw materials purchased at lower prices. Higher sales volumes across all three product line groupings also contributed to the more favorable 2007 results.
SG&A expenses were $117.0 million in 2007, compared with $109.4 million one year-ago. The increase was due to higher selling expenses as a result of higher net sales and SG&A expenses of the acquired businesses that were not included in full-year results for 2006.
OUTLOOK
"While the company's record-setting financial performance is impressive, I believe it was our operational success during the year that makes 2007 a watershed year in the transformation of OM Group," said Scaminace. "From the acquisitions of the electronics businesses of Rockwood Holdings and Borchers to our unwavering financial discipline, this is already a much different company from even one year ago. We enter 2008 with tremendous momentum, a portfolio more appropriately balanced, true financial flexibility and exciting, long-term growth opportunities before us."
According to Scaminace, despite the mixed opinions and indicators concerning global economies, "We remain resolute that the company is on the right track. We continue to believe that our efforts will result in a company with consolidated revenues of $2 billion to $4 billion by 2010 and a ranking in the top quartile of specialty chemicals and specialty materials companies in terms of EBITDA margins and other financial metrics."
WEBCAST INFORMATION
The company has scheduled a conference call and live audio broadcast on the Web for today at 10 a.m. (ET). Investors may access the live audio broadcast by logging on to http://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. Also, a webcast audio replay will be available on the "Investor Audio Archive" page of the company's Web site, commencing 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 direction and pace of our strategic transformation, including our use of proceeds from the sale of our Nickel business on March 1, 2007 and identification of potential acquisitions; the successful integration of certain Electronics businesses of Rockwood Holdings, Inc.; 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 risk that new or modified internal controls, implemented in response to the Company's examination of its internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, are not effective and need to be improved; 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,
2007 2006
(In thousands)
ASSETS
Current assets
Cash and cash equivalents $100,187 $282,288
Accounts receivable, less allowances 178,481 82,931
Inventories 413,434 216,492
Other current assets 64,431 30,648
Assets of discontinued operations - 597,682
Total current assets 756,533 1,210,041
Property, plant and equipment, net 288,834 210,953
Goodwill 322,172 137,543
Notes receivable from joint venture
partner, less allowances 24,179 24,179
Other non-current assets 77,492 35,508
Total assets $1,469,210 $1,618,224
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current
portion of long-term debt $513 $493
Debt to be redeemed - 402,520
Accounts payable 214,244 90,768
Accrued income taxes 32,040 17,497
Accrued employee costs 34,707 28,806
Other current liabilities 25,435 42,057
Liabilities of discontinued
operations - 167,148
Total current liabilities 306,939 749,289
Long-term debt 1,136 1,224
Deferred income taxes 29,645 4,118
Minority interests 52,314 43,286
Other non-current liabilities 50,790 38,228
Total stockholders' equity 1,028,386 782,079
Total liabilities and stockholders'
equity $1,469,210 $1,618,224
OM Group, Inc. and Subsidiaries
Condensed Statements of Consolidated Income
Three Months Ended For the Year Ended
December 31, December 31,
(In thousands, except per share
data) 2007 2006 2007 2006
Net sales $309,367 $172,081 $1,021,501 $660,104
Cost of products sold 225,182 125,278 708,257 475,437
Gross profit 84,185 46,803 313,244 184,667
Selling, general and
administrative expenses 28,733 35,000 117,009 109,408
Operating profit 55,452 11,803 196,235 75,259
Other income (expense):
Interest expense (297) (9,328) (7,820) (38,659)
Loss on redemption of Notes - - (21,733) -
Interest income 8,279 3,154 23,922 8,566
Foreign exchange gain 2,138 628 8,100 3,661
Gain on sale of investment - - - 12,223
Other income (expense), net 550 (420) (449) (582)
10,670 (5,966) 2,020 (14,791)
Income from continuing
operations before income taxes,
minority interest and
cumulative effect of change in
accounting principle 66,122 5,837 198,255 60,468
Income tax expense (18,596) (20,056) (76,311) (30,554)
Minority partners' share of
income (1,085) (2,817) (10,405) (6,291)
Income (loss) from continuing
operations before cumulative
effect of change in accounting
principle 46,441 (17,036) 111,539 23,623
Discontinued operations:
Income from discontinued
operations, net of tax 1,546 73,813 63,057 192,163
Gain on sale of discontinued
operations, net of tax - - 72,270 -
Total income from
discontinued operations, net of
tax 1,546 73,813 135,327 192,163
Income before cumulative effect
of change in accounting
principle 47,987 56,777 246,866 215,786
Cumulative effect of change in
accounting principle - - - 287
Net income $47,987 $56,777 $246,866 $216,073
Net income (loss) per common
share - basic:
Continuing operations $1.55 $(0.58) $3.73 $0.80
Discontinued operations 0.05 2.51 4.52 6.55
Cumulative effect of change in
accounting principle - - - 0.01
Net income $1.60 $1.93 $8.25 $7.36
Net income (loss) per common
share - assuming dilution:
Continuing operations $1.53 $(0.58) $3.68 $0.80
Discontinued operations 0.05 2.51 4.47 6.50
Cumulative effect of change in
accounting principle - - - 0.01
Net income $1.58 $1.93 $8.15 $7.31
Weighted average shares
outstanding
Basic 30,040 29,480 29,937 29,362
Assuming dilution 30,397 29,480 30,276 29,578
OM Group, Inc. and Subsidiaries
Condensed Statements of Consolidated Cash Flows
For the Year Ended December 31,
(In thousands) 2007 2006
Operating activities
Net income $246,866 $216,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Total income from discontinued
operations (135,327) (192,163)
Loss on redemption of Notes 21,733 -
Depreciation and amortization 33,229 31,841
Other non-cash items (17,911) 7,267
Changes in operating assets and
liabilities
Accounts receivable (38,364) (3,879)
Inventories (165,694) (27,613)
Accounts payable 92,161 39,310
Other, net 4,311 24,131
Net cash provided by operating
activities 41,004 94,967
Investing activities
Expenditures for property, plant and
equipment (19,357) (14,547)
Net proceeds from the sale of the
Nickel business 490,036 -
Acquisitions of businesses, net of
cash acquired (336,976) (5,418)
Other investing activities 1,546 2,006
Net cash provided by (used for)
investing activities 135,249 (17,959)
Financing activities
Payments of long-term debt (400,000) (17,250)
Premium for redemption of Notes (18,500) -
Other financing activities 11,738 11,558
Net cash used for financing
activities (406,762) (5,692)
Effect of exchange rate changes on cash 1,440 4,569
Cash and cash equivalents
Increase (decrease) from continuing
operations (229,069) 75,885
Discontinued operations - net cash
provided by operating activities 48,508 107,379
Discontinued operations - net cash
used for investing activities (1,540) (15,594)
Balance at the beginning of the year 282,288 114,618
Balance at the end of the year $100,187 $282,288
OM Group, Inc. and Subsidiaries
Segment Information
Three Months Ended For the Year Ended
December 31, December 31,
(In thousands) 2007 2006 2007 2006
Net Sales
Specialties $309,367 $172,081 $1,021,501 $660,104
Operating profit (loss)
Specialties $66,896 $24,424 $232,042 $115,349
Corporate (11,444) (12,621) (35,807) (40,090)
$55,452 $11,803 $196,235 $75,259
OM Group, Inc and Subsidiaries
Non-GAAP Financial Measure
Amounts in thousands except per Three months ended Three months ended
share data Dec 31, 2007 Dec 31, 2006
Diluted Diluted
$ EPS $ EPS
Net income as reported $47,987 $1.58 $56,777 $1.93
Less:
Income from discontinued
operations 1,546 0.05 73,813 2.51
Income (loss) from continuing
operations before accounting
changes - as reported $46,441 $1.53 $(17,036) $(0.58)
Special items:
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 18,380 0.63
Environmental charges - - 4,200 0.14
Executive transition - - 3,206 0.11
Income from continuing operations
before accounting changes - as
adjusted for special items $50,558 $1.66 $8,750 $0.30
Weighted average shares outstanding -
diluted 30,397 29,480
Amounts in thousands except per Year ended Year ended
share data Dec 31, 2007 Dec 31, 2006
Diluted Diluted
$ EPS $ EPS
Net income as reported $246,866 $8.15 $216,073 $7.31
Less:
Income from discontinued
operations 135,327 4.47 192,163 6.50
Cumulative effect of accounting
changes - - 287 0.01
Income from continuing operations
before accounting changes - as
reported $111,539 $3.68 $23,623 $0.80
Special items:
Loss on redemption of Notes 21,733 0.72 - -
Tax benefit related to loss on
redemption of Notes (7,607) (0.25) - -
Tax expense related to repatriation
of foreign cash 45,700 1.51 18,380 0.62
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 - -
Gain on sale of shares in Weda Bay
Minerals, Inc. - - (12,223) (0.41)
Environmental charges 3,857 0.13 4,200 0.14
Executive transition - - 3,206 0.11
Income from continuing operations
before accounting changes - as
adjusted for special items $171,873 $5.68 $37,186 $1.26
Weighted average shares outstanding -
diluted 30,276 29,578
Use of Non-GAAP Financial Information:
"Income from continuing operations before accounting changes - 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 2007. The above table presents a
reconciliation of the Company's GAAP results, as reported (both net income
and income from continuing operations before accounting changes), 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 2007 and of the
comparability of the 2007 results to the results of prior periods.
OM Group, Inc.
