OM Group Inc. (OMG, Financial) filed Quarterly Report for the period ended 2010-06-30.
Om Group Inc. has a market cap of $880.3 million; its shares were traded at around $28.52 with a P/E ratio of 15.8 and P/S ratio of 1. OMG is in the portfolios of David Dreman of Dreman Value Management, John Buckingham of Al Frank Asset Management, Inc., Chuck Royce of Royce& Associates, Kenneth Fisher of Fisher Asset Management, LLC, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors.
Gross profit increased to $68.0 million in the second quarter of 2010 compared with $34.4 million in the second quarter of 2009. The largest factor affecting the $33.6 million increase in gross profit was the increase in the average cobalt reference price that resulted in higher Advanced Materials selling prices and increased gross profit by $15.8 million in the second quarter of 2010 compared with the second quarter of 2009. Also impacting the Advanced Materials segment gross profit was increased cobalt volume ($4.5 million) and lower process-based material costs ($5.9 million) in the second quarter of 2010 compared to the comparable 2009 period. These improvements to gross profit in the Advanced Materials segment were partially offset by a $15.1 million increase in manufacturing and distribution expenses, which includes $4.8 million of expense related to the GTL maintenance shutdown. In the Specialty Chemicals segment, gross profit was favorably affected by volume ($6.7 million) and favorable pricing/mix ($11.5 million). The EaglePicher Technologies acquisition contributed $4.1 million of gross profit in the second quarter of 2010, after a $1.6 million impact related to purchase accounting adjustments, discussed below. The increase in gross profit as a percentage of net sales (22.4% in the second quarter of 2010 versus 16.9% in the second quarter of 2009) was primarily due to the increase in the average cobalt reference price and favorable pricing/mix in Specialty Chemicals in the second quarter of 2010 compared with the second quarter of 2009.
Selling, general and administrative expenses (SG&A) increased to $37.6 million in the second quarter of 2010, compared with $33.6 million in the second quarter of 2009. The $4.0 million increase was primarily due to $3.7 million of EaglePicher Technologies SG&A expenses and increased employee incentive compensation expense related to the anticipated payouts under the 2010 annual bonus program. These increases were partially offset by decreased professional services fees. The decrease in SG&A as a percentage of net sales (12.4% in the second quarter of 2010 versus 16.5% in the second quarter of 2009) was due to SG&A expenses being spread over higher net sales.
The Company recorded income tax expense of $18.3 million on income from continuing operations before income tax expense of $24.3 million for the three months ended June 30, 2010, resulting in an effective income tax rate of 75.3%. The second quarter of 2010 included discrete tax expense items totaling $10.4 million. The Company recorded discrete tax expense related to the GTL joint venture of $11.4 million, of which the Companys 55% share was $6.3 million. In July 2010, certain companies doing business in the DRC, including GTL, received notification from the DRC tax authorities that requests to utilize tax overpayments to offset more than 20% of taxes payable would not be granted. Based on past precedent set by the DRC tax authorities, GTL had previously estimated it would be able to utilize its prepaid tax asset to offset more than 20% of its future tax obligations. In addition, during the second quarter of 2010, it was determined that GTL is no longer subject to certain import taxes that had been assessed through the first quarter of 2010. Given these changes, the Company updated its estimation of the realizability of GTLs prepaid tax asset in the DRC and recorded an allowance of $11.5 million against the prepaid tax asset in the second quarter of 2010. A key factor in the Companys analysis for realization of the prepaid tax asset includes the contractual term of the current smelter feed supply agreement. Additional feed options exist that could potentially extend the recoverability period of the prepaid tax asset. The Company will re-evaluate the allowance quarterly for changes in estimates, including changes in feed supply arrangements, that would indicate a change in the realizability of the prepaid tax asset. During the second quarter of 2010, the Company also recorded a discrete benefit of $0.7 million related to a change in the Taiwanese legislative tax rate enacted during the second quarter 2010. Without the discrete items, the effective tax rate for the three months ended June 30, 2010 would have been 32.5%. This rate is lower than the U.S. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the U.S. (primarily Finland) and a tax holiday in Malaysia. This was partially offset by losses in certain jurisdictions with no corresponding tax benefit (including the U.S.). In the three months ended June 30, 2010, there is no U.S. tax expense related to the planned repatriation of foreign earnings during 2010 due to the ability to utilize foreign tax credits and current year U.S. losses. The Company recorded income tax expense of $3.5 million on pretax losses of $29.8 million for the three months ended June 30, 2009, resulting in a negative effective tax rate. In the three months ended June 30, 2009, the Company recorded discrete tax expense items totaling $1.0 million, which included expense of $1.8 million related to withholding tax on earnings planned to be repatriated from Taiwan, partially offset by a $0.6 million benefit related to GTL in the DRC, of which the Companys share is 55%. Excluding discrete items, the tax rate for the second quarter of 2009 differs from the U.S. statutory tax rate primarily due to the non-deductible $35.0 million goodwill and the $1.2 million intangible asset impairment charges, losses in certain jurisdictions for which there is no tax benefit and income in certain foreign jurisdictions with tax rates lower than the U.S. statutory rate. In the three months ended June 30, 2009, U.S. tax expense related to foreign earnings repatriation is fully offset by foreign tax credits and U.S. losses.
Income (loss) from continuing operations attributable to OM Group, Inc. was income of $13.3 million, or $0.43 per diluted share, in the second quarter of 2010 compared with a loss of $35.0 million, or $1.16 per diluted share, in the second quarter of 2009. The increase was due primarily to the aforementioned factors.
Net income (loss) attributable to OM Group, Inc. was income of $12.8 million, or $0.42 per diluted share, in the second quarter of 2010 compared with a loss of $35.3 million, or $1.17 per diluted share, in the second quarter of 2009. The increase was due primarily to the aforementioned factors.
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Om Group Inc. has a market cap of $880.3 million; its shares were traded at around $28.52 with a P/E ratio of 15.8 and P/S ratio of 1. OMG is in the portfolios of David Dreman of Dreman Value Management, John Buckingham of Al Frank Asset Management, Inc., Chuck Royce of Royce& Associates, Kenneth Fisher of Fisher Asset Management, LLC, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations:
Net sales increased $99.7 million, or 49%, primarily due to increased volume, the increase in the cobalt reference price and the EaglePicher Technologies acquisition. The average cobalt reference price increased from $14.44 in the second quarter of 2009 to $19.36 in the second quarter of 2010, which resulted in higher product selling prices ($29.0 million) in Advanced Materials. Increased end-market demand drove higher product volume in Specialty Chemicals ($15.2 million) and higher cobalt volume in Advanced Materials ($10.0 million). The improvement in demand was partially due to customer re-stocking within the supply chain in certain end markets, as well as timing of orders in Advanced Organics ahead of the Manchester, England manufacturing facility shut-down. Favorable selling prices and mix positively affected Specialty Chemicals in the second quarter of 2010 compared to the second quarter of 2009 ($11.0 million). Advanced Materials also benefited from an increase in cobalt metal resale ($6.5 million) due to the increase in the average cobalt reference price and increased volume. Battery Technologies net sales were $28.4 million for the second quarter of 2010. Excluding the EaglePicher Technologies acquisition, net sales increased $71.3 million, or 35%, in the second quarter of 2010 compared with the second quarter of 2009.Gross profit increased to $68.0 million in the second quarter of 2010 compared with $34.4 million in the second quarter of 2009. The largest factor affecting the $33.6 million increase in gross profit was the increase in the average cobalt reference price that resulted in higher Advanced Materials selling prices and increased gross profit by $15.8 million in the second quarter of 2010 compared with the second quarter of 2009. Also impacting the Advanced Materials segment gross profit was increased cobalt volume ($4.5 million) and lower process-based material costs ($5.9 million) in the second quarter of 2010 compared to the comparable 2009 period. These improvements to gross profit in the Advanced Materials segment were partially offset by a $15.1 million increase in manufacturing and distribution expenses, which includes $4.8 million of expense related to the GTL maintenance shutdown. In the Specialty Chemicals segment, gross profit was favorably affected by volume ($6.7 million) and favorable pricing/mix ($11.5 million). The EaglePicher Technologies acquisition contributed $4.1 million of gross profit in the second quarter of 2010, after a $1.6 million impact related to purchase accounting adjustments, discussed below. The increase in gross profit as a percentage of net sales (22.4% in the second quarter of 2010 versus 16.9% in the second quarter of 2009) was primarily due to the increase in the average cobalt reference price and favorable pricing/mix in Specialty Chemicals in the second quarter of 2010 compared with the second quarter of 2009.
Selling, general and administrative expenses (SG&A) increased to $37.6 million in the second quarter of 2010, compared with $33.6 million in the second quarter of 2009. The $4.0 million increase was primarily due to $3.7 million of EaglePicher Technologies SG&A expenses and increased employee incentive compensation expense related to the anticipated payouts under the 2010 annual bonus program. These increases were partially offset by decreased professional services fees. The decrease in SG&A as a percentage of net sales (12.4% in the second quarter of 2010 versus 16.5% in the second quarter of 2009) was due to SG&A expenses being spread over higher net sales.
The Company recorded income tax expense of $18.3 million on income from continuing operations before income tax expense of $24.3 million for the three months ended June 30, 2010, resulting in an effective income tax rate of 75.3%. The second quarter of 2010 included discrete tax expense items totaling $10.4 million. The Company recorded discrete tax expense related to the GTL joint venture of $11.4 million, of which the Companys 55% share was $6.3 million. In July 2010, certain companies doing business in the DRC, including GTL, received notification from the DRC tax authorities that requests to utilize tax overpayments to offset more than 20% of taxes payable would not be granted. Based on past precedent set by the DRC tax authorities, GTL had previously estimated it would be able to utilize its prepaid tax asset to offset more than 20% of its future tax obligations. In addition, during the second quarter of 2010, it was determined that GTL is no longer subject to certain import taxes that had been assessed through the first quarter of 2010. Given these changes, the Company updated its estimation of the realizability of GTLs prepaid tax asset in the DRC and recorded an allowance of $11.5 million against the prepaid tax asset in the second quarter of 2010. A key factor in the Companys analysis for realization of the prepaid tax asset includes the contractual term of the current smelter feed supply agreement. Additional feed options exist that could potentially extend the recoverability period of the prepaid tax asset. The Company will re-evaluate the allowance quarterly for changes in estimates, including changes in feed supply arrangements, that would indicate a change in the realizability of the prepaid tax asset. During the second quarter of 2010, the Company also recorded a discrete benefit of $0.7 million related to a change in the Taiwanese legislative tax rate enacted during the second quarter 2010. Without the discrete items, the effective tax rate for the three months ended June 30, 2010 would have been 32.5%. This rate is lower than the U.S. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the U.S. (primarily Finland) and a tax holiday in Malaysia. This was partially offset by losses in certain jurisdictions with no corresponding tax benefit (including the U.S.). In the three months ended June 30, 2010, there is no U.S. tax expense related to the planned repatriation of foreign earnings during 2010 due to the ability to utilize foreign tax credits and current year U.S. losses. The Company recorded income tax expense of $3.5 million on pretax losses of $29.8 million for the three months ended June 30, 2009, resulting in a negative effective tax rate. In the three months ended June 30, 2009, the Company recorded discrete tax expense items totaling $1.0 million, which included expense of $1.8 million related to withholding tax on earnings planned to be repatriated from Taiwan, partially offset by a $0.6 million benefit related to GTL in the DRC, of which the Companys share is 55%. Excluding discrete items, the tax rate for the second quarter of 2009 differs from the U.S. statutory tax rate primarily due to the non-deductible $35.0 million goodwill and the $1.2 million intangible asset impairment charges, losses in certain jurisdictions for which there is no tax benefit and income in certain foreign jurisdictions with tax rates lower than the U.S. statutory rate. In the three months ended June 30, 2009, U.S. tax expense related to foreign earnings repatriation is fully offset by foreign tax credits and U.S. losses.
Income (loss) from continuing operations attributable to OM Group, Inc. was income of $13.3 million, or $0.43 per diluted share, in the second quarter of 2010 compared with a loss of $35.0 million, or $1.16 per diluted share, in the second quarter of 2009. The increase was due primarily to the aforementioned factors.
Net income (loss) attributable to OM Group, Inc. was income of $12.8 million, or $0.42 per diluted share, in the second quarter of 2010 compared with a loss of $35.3 million, or $1.17 per diluted share, in the second quarter of 2009. The increase was due primarily to the aforementioned factors.
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