| Username | Post: The Daily Magic Formula Stock for 03/02/2009 is OM Group Inc. |
|---|---|
|
DailyStocks_admin maximus Posts 5879 |
03-02-09 03:59 AM - Post#2326
The Daily Magic Formula Stock for 03/02/2009 is OM Group Inc. According to the Magic Formula Investing Web Site, the ebit yield is 53% and the EBIT ROIC is 25-50%. Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company. Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only. BUSINESS OVERVIEW General OM Group, Inc. (the “Company”) 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. The Company believes it is the world’s largest refiner of cobalt and producer of cobalt-based specialty products, and the largest producer of electroless nickel plating chemistry for memory disk applications. The Company is executing a deliberate and aggressive strategy to grow its value-added Specialties businesses through continued product innovation, as well as tactical and strategic acquisitions. The strategy is part of a transformational process to leverage the Company’s core strengths in developing and producing value-added specialty products for dynamic markets while reducing the impact of metal price volatility on financial results. The strategy is designed to allow the Company to deliver sustainable and profitable volume growth in order to drive consistent financial performance and enhance the Company’s ability to continue to build long-term shareholder value. During 2007, the Company completed three important transactions in connection with its long-term strategy: • On March 1, 2007, the Company completed the sale of its Nickel business • On October 1, 2007, the Company completed the acquisition of Borchers GmbH (“Borchers”) • On December 31, 2007, the Company completed the acquisition of the Electronics businesses (“REM”) of Rockwood Specialties Group, Inc. The REM and Borchers acquisitions represent an important step in the Company’s effort to transform itself into a diversified, market-facing global provider of specialty chemicals and advanced materials. These events are discussed further in the “2007 Events” section below. As a result of the acquisition of REM, beginning January 1, 2008, the Company reorganized its management structure and external reporting around two segments: Specialty Chemicals and Advanced Materials (as set forth at the end of the products description below). However, the Company operated only one business segment throughout 2007: Specialties. Since the acquisition of REM was completed on December 31, 2007, the Company’s results of operations for 2007 do not include the results of the REM businesses. Unless indicated otherwise, the discussion contained in Item 1 of this Form 10-K relates solely to the Company’s Specialties business and does not include REM. The Specialties business produces products using unrefined cobalt and other metals including nickel, copper, zinc, manganese and calcium. The Company’s products are essential components in numerous complex chemical and industrial processes, and are used in many end markets, such as rechargeable batteries, coatings, custom catalysts, liquid detergents, lubricants and fuel additives, plastic stabilizers, polyester promoters, adhesion promoters for rubber tires, colorants, petroleum additives, magnetic media, metal finishing agents, cemented carbides for mining and machine tools, diamond tools used in construction, stainless steel, alloy and plating applications. The Company’s products are sold in various forms such as solutions, crystals, cathodes and powders. The Company’s Specialties business is critically connected to both the price and availability of raw materials. The primary raw material used by the Company is unrefined cobalt. Cobalt raw materials include ore, concentrate, slag and scrap. The Company attempts to mitigate changes in availability by maintaining adequate inventory levels and long-term supply relationships with a variety of suppliers. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt reference price and changes in availability from suppliers. Fluctuations in the prices of cobalt have been significant in the past and the Company believes that cobalt price fluctuations are likely to continue in the future. The Company attempts to pass increases in raw material prices through to its customers by increasing the prices of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value. The Company has manufacturing and other facilities in North America, Europe, Africa and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results. The Company has a 55% interest in a smelter joint venture (“GTL”) in the Democratic Republic of Congo (the “DRC”). The GTL smelter is a primary source for cobalt raw material feed. GTL is consolidated in the Company’s financial statements because the Company has a controlling interest in the joint venture. 2007 Events REM Acquisition: On December 31, 2007, the Company acquired the Electronic businesses of Rockwood Specialties Group, Inc., which consist of its Printed Circuit Board (“PCB”) business, its Ultra-Pure Chemicals (“UPC”) business, and its Compugraphics business. The businesses supply customers with chemicals used in the manufacture of semiconductors and printed circuit boards as well as photo-imaging masks primarily for semiconductor and photovoltaic manufacturers. REM employs approximately 700 people, has locations in the United States, the United Kingdom, France, Taiwan, Singapore and China and had combined sales of approximately $200 million in 2007. Borchers Acquisition: On October 1, 2007, the Company acquired Borchers GmbH, a European-based specialty coatings additive supplier, with locations in France and Germany. Borchers had sales in the first nine months of 2007 of approximately $42 million. Sale of the Nickel business: On March 1, 2007, the Company completed the sale of its Nickel business to Norilsk Nickel (“Norilsk”). The Nickel business consisted of the Harjavalta, Finland nickel refinery, the Cawse, Australia nickel mine and intermediate refining facility, a 20% equity interest in MPI Nickel Pty. Ltd. and an 11% ownership interest in Talvivaara Mining Company, Ltd. The Company received cash proceeds of $490.0 million, net of transaction costs, for the Nickel business, including a final purchase price adjustment primarily related to working capital for the net assets sold. In connection with the sale of the Nickel business, the Company entered into five-year supply agreements with Norilsk for cobalt and nickel raw materials, as described under “Raw Materials” below. Redemption of Senior Subordinated Notes: On March 7, 2007, the Company redeemed the entire $400.0 million of its outstanding 9.25% Senior Subordinated Notes due 2011 (the “Notes”) at a redemption price of 104.625% of the principal amount, or $418.5 million, plus accrued interest of $8.4 million. Products Specialties Business The Company’s Specialties business develops, processes, manufactures and markets specialty chemicals, powders, metals and related products from various base metals feeds, primarily cobalt. The Company offers more than 1,300 Specialties products to customers in more than 40 industries, including aerospace, hard metal tools, appliance, rubber, automotive, ceramics, coatings and ink, catalysts, electronics, petrochemicals, magnetic media, rechargeable battery chemicals and other manufacturers who use specialty chemicals. Key technology-based end-use applications include affordable energy, portable power, clean air, clean water and proprietary products and services for the microelectronics industry. The Company’s Specialties products leverage the Company’s production capabilities and bring value to its customers through superior product performance. Typically, these products represent a small portion of the customer’s total cost of manufacturing or processing, but are critical to the customer’s product performance. The products frequently are essential components in chemical and industrial processes where they facilitate a chemical or physical reaction and/or enhance the physical properties of end-products. The Company’s Specialties products are sold in various forms such as solutions, crystals, cathodes and powders. The Specialties business includes products manufactured using cobalt and other metals such as copper, zinc, manganese and calcium. The Specialties business is made up of three business units that represent product line groupings around end markets: Advanced Organics, Inorganics and Electronic Chemicals. Advanced Organics offers products for the tire, coatings and inks, additives and chemical markets. Inorganics serves the battery, powder metallurgy, ceramics and chemicals markets. Electronic Chemicals develops products for the electronic packaging, memory disk, general metal finishing and printed circuit board finishing markets. The Specialties business also includes certain other operations, primarily the DRC smelter operations, which are not classified into one of these groupings. The following table sets forth key applications for the Company’s products in the Specialties business: Product Line Applications Grouping Metals Used Product Attributes Rechargeable Batteries Inorganics Cobalt, Nickel Improves the electrical conduction of rechargeable batteries used in cellular phones, video cameras, portable computers, power tools and hybrid electric vehicles Coatings and paints Advanced Organics Cobalt, Manganese, Calcium, Zirconium, Aluminum Promotes faster drying and other performance characteristics in such products as house paints (exterior and interior) and industrial and marine coatings Printing Inks Advanced Organics Cobalt, Manganese Promotes faster drying in various printing inks Tires Advanced Organics Cobalt Promotes bonding of metal-to-rubber in radial tires Construction Equipment and Cutting Tools Inorganics Cobalt Strengthens and adds durability to diamond and machine cutting tools and drilling equipment used in construction, oil and gas drilling, and quarrying Petrochemical Refining Advanced Organics Cobalt, Nickel Catalyzes reduction of sulfur dioxide and nitrogen emissions Ceramics and Glassware Inorganics Cobalt, Nickel Provides color for pigments, earthenware and glass and facilitates adhesion of porcelain to metal Polyester Resins Advanced Organics Cobalt, Copper, Zinc Accelerates the curing of polyester resins found in reinforced fiberglass boats, storage tanks, bathrooms, sports equipment, automobile and truck components Memory Disks Electronic Chemicals Nickel Enhances information storage on disks for computers and consumer electronics In addition, Borchers, which is included in the Advanced Organics product line grouping, offers products to enhance the performance of coatings and ink systems from the production stage through customer end use. The Borchers business supplies customers with antiskinning agents/antioxidants, catalysts/accelerators, deaeration/antifoaming agents, specialties (moisture scavengers and adhesion promoters), driers, rheological additives, silicone additives, stabilizers and wetting and dispersing agents. These products improve processing options, free-flowing properties, consistency and gloss, control surface drying and drying-out properties, enhance rheology and dispersency, optimize resistance to the most diverse range of stresses and shape the environmental compatibility of contemporary surface hardening. REM Businesses The REM businesses supply customers with chemicals used in the manufacture of printed circuit boards and semiconductors as well as photo-imaging masks primarily for semiconductor and photovoltaic manufacturers. Key products of the REM businesses are described below. Printed Circuit Boards: The PCB business, operated as Electrochemicals, Inc., produces specialty and proprietary chemicals used in the manufacture of printed circuit boards widely used in computers, communications, military/aerospace, automotive, industrial and consumer electronics applications. The PCB business develops and manufactures chemicals for the printed circuit board industry, such as oxide treatments, electroplating additives, etching technology, electroless copper processes, Co-Bra Bond ® , the newer oxide replacement technology and a proprietary direct metallization process known as Shadow ® . Ultra-Pure Chemicals: The UPC business develops and manufactures a wide range of ultra-pure chemicals used in the manufacture of electronic and computer components such as semiconductors, silicon chips, wafers, and liquid crystal displays. These products include chemicals used to remove controlled portions of silicon and metal, cleaning solutions, photoresist strippers, which control the application of certain light-sensitive chemicals, edge bead removers, which aid in the uniform application of other chemicals, and solvents. The UPC business also develops and manufactures a broad range of chemicals used in the manufacture of photomasks and provides a range of analytical, logistical and development support services to the semiconductor industry. These include total chemicals management, primarily offered in Singapore, under which the Company manages the clients’ entire electronic process chemicals operations including providing logistics services, development of application-specific chemicals, analysis and control of customers’ chemical distribution systems and quality audit and control of all inbound chemicals, including third party products. Photomasks: The Photomasks business manufactures photo-imaging masks (high-purity quartz or glass plates containing precision, microscopic images of integrated circuits) and reticles for the semiconductor, optoelectronics and microelectronics industries under the Compugraphics brand name. Photomasks are a key enabling technology to the semiconductor and integrated circuit industries, and perform a function similar to that of a negative in conventional photography. Financial information, including reportable segment and geographic data, is contained in Note 18 to the consolidated financial statements contained in Item 8 of this Annual Report. 2008 Business Segments: As a result of the acquisition of REM, beginning January 1, 2008, the Company reorganized its management structure and external reporting around two reportable segments: Specialty Chemicals and Advanced Materials. The Specialty Chemicals segment will consist of the Electronic Chemicals, Ultra Pure Chemicals, Photomasks and Advanced Organic product line groupings. The Electronic Chemicals product line grouping will include the PCB business. The Advanced Materials segment will consist of the Inorganics product line grouping and the DRC smelter operations. Competition The Company encounters a variety of competitors in each of its product lines, but no single company competes with the Company across all of its existing product lines. For 2007, the Company believes that it was the largest refiner of cobalt and producer of cobalt-based specialty products and the largest producer of electroless nickel plating chemistry for memory disk applications in the world. Competition in these markets is based primarily on product quality, supply reliability, price, service and technical support capabilities. The markets in which the Company participates have historically been competitive and this environment is expected to continue. Customers The Company’s Specialties business serves approximately 1,800 customers, excluding REM customers. During 2007, approximately 48% of the Company’s net sales were in Asia, 31% in Europe and 21% in the Americas. Sales to Nichia Chemical Corporation represented approximately 23%, 19% and 19% of net sales in 2007, 2006 and 2005, respectively. Sales to Luvata Pori Oy were approximately 11% of net sales in 2006. Sales to the Company’s top five customers represented approximately 40% of net sales in 2007. The loss of one or more of these customers could have a material adverse effect on the Company’s business, results of operations or financial position. While customer demand for the Company’s Specialties products is generally non-seasonal, supply/demand and price perception dynamics of key raw materials do periodically cause customers to either accelerate or delay purchases of the Company’s products, generating short-term results that may not be indicative of longer-term trends. Historically, revenues during July and August have been lower than other months due to the summer holiday season in Europe. Furthermore, the Company uses the summer season to perform its annual maintenance shut-down at its refinery in Finland. Raw Materials The primary raw material used by the Specialties business in manufacturing its products is unrefined cobalt. Cobalt raw materials include ore, concentrates, slag and scrap. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in the cobalt reference price and changes in availability from suppliers. The Company attempts to mitigate increases in raw material prices by passing through such increases to its customers in the prices of its products and by entering into sales contracts that contain variable pricing that adjusts based on changes in the price of cobalt. A significant portion of the Company’s supply of cobalt historically has been sourced from the DRC, Australia and Finland. Upon closing the transaction to sell the Company’s Nickel business to Norilsk in the first quarter of 2007, the Company entered into five-year supply agreements with Norilsk for up to 2,500 metric tons per year of cobalt metal, up to 2,500 metric tons per year of crude in the form of cobalt hydroxide concentrate, up to 1,500 metric tons per year of cobalt in the form of crude cobalt sulfate, up to 5,000 metric tons per year of copper in the form of copper cake and various other nickel-based raw materials used in the Company’s Electronic Chemicals business. In addition, the Company entered into two-year agency and distribution agreements for nickel salts. The Norilsk agreements strengthen the Company’s supply chain and secure a consistent source of raw materials for its Specialties business. These agreements provide the Company with a stable supply of cobalt metal through the long-term supply agreements. Complementary geography and operations shorten the supply chain and allow the Company to leverage its cobalt-based refining and chemicals expertise with Norilsk’s cobalt mining and processing capabilities. The Company’s Specialties business will continue to sell Nickel-based specialty products to end markets in the electronic chemicals industry. Production problems and political and civil instability in supplier countries, as well as increased demand in developing countries, have affected and may continue to affect the supply and market price of raw materials. During 2007, the reference price of low grade (formerly 99.3%) cobalt listed in the trade publication, Metal Bulletin, continued the increase which began in 2006, increasing from an average of $25.82 per pound in the first quarter of 2007 to an average of $32.68 per pound in the fourth quarter of 2007. CEO BACKGROUND NOMINEES FOR ELECTION JOHN E. MOONEY, age 46, was appointed as a director of the Company in Mooney Photo 1995 to fill a vacancy. For the past 11 years, Mr. Mooney has been President of Sachem, Inc., a specialty chemical manufacturer. Mr. Mooney received a B.A. in Economics from the University of Toronto. Mr. Mooney is James P. Mooney's brother. MARKKU TOIVANEN, age 56, has been a director of OM Group, Inc. since Toivanen Photo 1991. Since 1996, Mr. Toivanen has served as Senior Vice President, Strategic Development of Outokumpu Oy. From 1993 to 1996, Mr. Toivanen served as President and Chief Executive Officer of Outokumpu Metals & Resources Oy ("OMR"). From 1992 to 1993, Mr. Toivanen served as OMR's Executive Vice President and Chief Operating Officer. From 1991 to 1992, Mr. Toivanen served as Chairman and Chief Executive Officer of Outokumpu Mines Ltd. (Canada), a wholly owned subsidiary of Outokumpu Oy. Mr. Toivanen and Antti Aaltonen, Vice President of Operations for Kokkola Chemicals Oy, are brothers-in-law. MANAGEMENT DISCUSSION FROM LATEST 10K Results for 2007 include a pretax and after-tax gain on the sale of the Nickel business of $77.0 million and $72.3 million, respectively. In addition, 2007 results also include a $21.7 million charge ($14.1 million after tax) related to the redemption of the Notes and income tax expense of $45.7 million related to repatriation of cash from overseas primarily as a result of the redemption of the Notes in March 2007. Results for 2006 include a $12.2 million pre tax gain related to the common shares of Weda Bay Minerals, Inc. The net book value of the investment was zero due to a permanent impairment charge recorded in prior years. Results for 2006 also include a $3.2 million pre tax charge for the settlement of litigation related to the former chief executive officer’s termination. Income tax expense for 2006 includes $14.1 million to provide additional U.S. income taxes on $384.1 million of undistributed earnings of consolidated foreign subsidiaries in connection with the Company’s planned redemption of the Notes in March 2007. Results for 2005 include $27.5 million of pre tax income related to the receipt of net insurance proceeds related to shareholder class action and derivative lawsuits, and $4.6 million of pre tax income related to the mark-to-market of 380,000 shares of common stock issued in connection with the shareholder derivative litigation, both partially offset by an $8.9 million charge related to the former chief executive officer’s termination. Results for 2004 include a charge of $7.5 million for the shareholder derivative lawsuits. Results for 2003 include the sale of the Company’s Precious Metals Group (PMG) for cash proceeds of approximately $814 million, which resulted in a gain on sale of $145.9 million ($131.7 million after tax). Results for PMG are included in discontinued operations. In 2003, cost of products sold includes restructuring charges of $5.8 million. Selling, general and administrative expenses include restructuring charges of $14.2 million and a charge of $84.5 million related to the shareholder class action and derivative lawsuits. In addition, discontinued operations include $5.6 million of restructuring charges. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report. Overview The Company 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. The Company believes it is the world’s largest refiner of cobalt and producer of cobalt-based specialty products and the largest producer of electroless nickel plating chemistry for memory disk applications. The Company is executing a deliberate and aggressive growth strategy to grow its value-added Specialties businesses through continued product innovation, as well as tactical and strategic acquisitions. The strategy is part of a transformational process to leverage the Company’s core strengths in developing and producing value-added specialty products for dynamic markets while reducing the impact of metal price volatility on financial results. The strategy is designed to allow the Company to deliver sustainable and profitable volume growth in order to drive consistent financial performance and enhance the Company’s ability to continue to build long-term shareholder value. During 2007, the Company completed three important transactions in connection with this long-term strategy: • On March 1, 2007, the Company completed the sale of its Nickel business • On October 1, 2007, the Company completed the acquisition of Borchers • On December 31, 2007, the Company completed the acquisition of the REM businesses of Rockwood Specialties Group, Inc. The REM and Borchers acquisitions represent an important step in the Company’s effort to transform itself into a diversified, market-facing global provider of specialty chemicals and advanced materials. These events are discussed further under “2007 Events” below. As a result of the acquisition of REM, beginning January 1, 2008, the Company reorganized its management structure and external reporting around two reportable segments: Specialty Chemicals and Advanced Materials. However, the Company operated only one business segment throughout 2007: Specialties. Since the REM acquisition was completed on December 31, 2007, the Company’s results of operations for 2007 do not include the results of the REM businesses. The assets and liabilities of REM are included in the Company’s consolidated balance sheet at December 31, 2007. Unless indicated otherwise, this Management’s Discussion and Analysis of Financial Condition and Results of Operations relates solely to the Company’s Specialties business and does not include REM. The Specialties business produces products using unrefined cobalt and other metals including nickel, copper, zinc, manganese and calcium. The Company’s products are essential components in numerous complex chemical and industrial processes, and are used in many end markets, such as rechargeable batteries, coatings, custom catalysts, liquid detergents, lubricants and fuel additives, plastic stabilizers, polyester promoters, adhesion promoters for rubber tires, colorants, petroleum additives, magnetic media, metal finishing agents, cemented carbides for mining and machine tools, diamond tools used in construction, stainless steel, alloy and plating applications. The Company’s products are sold in various forms such as solutions, crystals, cathodes and powders. The Company’s Specialties business is critically connected to both the price and availability of raw materials. The primary raw material used by the Company is unrefined cobalt. Cobalt raw materials include ore, concentrate, slag and scrap. The Company attempts to mitigate changes in availability by maintaining adequate inventory levels and long-term supply relationships with a variety of suppliers. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt reference price and changes in availability from suppliers. Fluctuations in the prices of cobalt have been significant in the past and the Company believes that cobalt price fluctuations are likely to continue in the future. The Company attempts to pass through to its customer’s increases in raw material prices by increasing the prices of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value. The Company has manufacturing and other facilities in North America, Europe, Africa and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results. 2007 Events REM Acquisition: On December 31, 2007, the Company acquired the Electronics businesses of Rockwood Specialties Group, Inc., which consist of its PCB business, its UPC business, and its Compugraphics business. The businesses supply customers with chemicals used in the manufacture of semiconductors and printed circuit boards as well as photo-imaging masks primarily for semiconductor and photovoltaic manufacturers. REM employs approximately 700 people, has locations in the United States, the United Kingdom, France, Taiwan, Singapore and China and had combined sales of approximately $200 million in 2007. The purchase price was approximately $315.6 million in cash, subject to customary post-closing adjustments. The Company has incurred fees as of December 31, 2007 of approximately $4.9 million associated with this transaction. Borchers Acquisition: On October 1, 2007, the Company acquired Borchers GmbH, a European-based specialty coatings additive supplier, with locations in France and Germany, for approximately $20.7 million, net of cash acquired. The Company has incurred fees as of December 31, 2007 of approximately $1.2 million associated with this transaction. Borchers had sales in the first nine months of 2007 of approximately $42 million. Sale of the Nickel business: On March 1, 2007, the Company completed the sale of its Nickel business to Norilsk. The Nickel business consisted of the Harjavalta, Finland nickel refinery, the Cawse, Australia nickel mine and intermediate refining facility, a 20% equity interest in MPI Nickel Pty. Ltd. and an 11% ownership interest in Talvivaara Mining Company, Ltd. The Company received cash proceeds of $490.0 million for the Nickel business, net of transaction costs, including a final purchase price adjustment primarily related to working capital for the net assets sold. In connection with the sale of the Nickel business, the Company entered into five-year supply agreements with Norilsk for cobalt and nickel raw materials. The Nickel business has been reclassified to discontinued operations for all periods presented. Redemption of Senior Subordinated Notes: On March 7, 2007, the Company redeemed the entire $400.0 million of its outstanding 9.25% Senior Subordinated Notes due 2011 at a redemption price of 104.625% of the principal amount, or $418.5 million, plus accrued interest of $8.4 million. The Specialties segment is made up of three business units that represent product line groupings around end markets: Advanced Organics, Inorganics and Electronic Chemicals. Advanced Organics offers products for the tire, coatings and inks, additives and chemical markets. Inorganics serves the battery, powder metallurgy, ceramics and chemicals markets. Electronic Chemicals develops products for the electronic packaging, memory disk, general metal finishing and printed circuit board finishing markets. The Specialties business also includes certain other operations, primarily the DRC smelter operations, which are not classified into one of these groupings. Additional product information is contained in Item 1 of this Form 10-K. Net sales increased $361.4 million to $1,021.5 million in 2007 from $660.1 million in 2006, primarily due to increased product selling prices ($291.0 million). The increase in product selling prices was primarily caused by the increase in the average cobalt reference price during 2007 compared with 2006. The resale of cobalt metal resulted in a $72.8 million increase to net sales in 2007 compared with 2006, and increased volume, primarily in the inorganics and electronic chemical product line groupings, contributed an additional $27.0 million. The acquisition of Borchers in October 2007 contributed an additional $12.7 million. These increases were partially offset by a $9.5 million decrease related to copper by-product sales and a $9.1 million unfavorable shift in product mix. The decrease in copper by-product sales was primarily due to a decrease in copper by-product volume partially offset by an increase in copper price. In connection with the sale of the Nickel business to Norilsk, the Company entered into two-year agency and distribution agreements for certain specialty nickel salts products. Under the contracts, the Company now acts as a distributor of these products on behalf of Norilsk and records the related commission revenue on a net basis. Prior to March 1, 2007, the Company, through its Specialties business, was the primary obligor for these sales and recorded the revenue on a gross basis. This change resulted in a $23.5 million decrease in net sales in 2007 compared with 2006. Gross profit increased to $313.2 million in 2007, compared with $184.7 million in 2006, and as a percentage of net sales increased to 30.7% from 28.0%. Gross profit in 2007 was higher due to the impact of both the higher cobalt reference price and the sale into a higher price environment of finished products that were manufactured using cobalt raw material that was purchased at lower prices ($121.7 million), increased volume ($11.7 million) and a $6.7 million unrealized gain on cobalt forward purchase contracts (see discussion of these contracts below). These increases were partially offset by a decrease in profit associated with lower copper by-product sales ($16.1 million). The increase in gross profit as a percentage of sales (30.7% in 2007, 28.0% in 2006) was primarily due to the positive factors discussed above, partially offset by the low margins on the resale of cobalt metal. During 2007, the Company entered into cobalt forward purchase contracts to establish a fixed margin and mitigate the risk of price volatility related to the anticipated sale during the second quarter of 2008 of cobalt-containing finished products that are priced based on a formula that includes a fixed cobalt price component. These forward purchase contracts have not been designated as hedging instruments under SFAS No. 133, “Accounting for Derivative and Hedging Activities.” Accordingly, these contracts are adjusted to fair value at the end of each reporting period, with the gain or loss recorded in cost of products sold. The adjustment to fair value had no cash impact in 2007 as the contracts will be net settled with the counterparty in 2008. As noted above, the Company recorded a $6.7 million gain in 2007 related to these contracts. These contracts will continue to be marked to fair value until settlement, resulting in additional gains or losses based on changes in the cobalt reference price. Selling, general and administrative (“SG&A”) expenses were $117.0 million in 2007 compared with $109.4 million in 2006. The increase was primarily due to increased selling expenses as a result of the increase in sales. SG&A expense in 2007 also includes $3.5 million in legal fees incurred by Specialties for a lawsuit the Company filed related to the unauthorized use by a third-party of proprietary information; and $3.1 million of SG&A expense related to Plaschem Specialty Products Pte Ltd. (“Plaschem”), which was acquired on March 21, 2006, and Borchers, which was acquired on October 1, 2007. Included in SG&A are corporate expenses in 2007 of $35.8 million compared with $40.1 million in 2006. Corporate expenses consist of unallocated corporate overhead, including legal, finance, human resources, information technology, strategic development and corporate governance activities, as well as share-based compensation. The decrease in corporate expenses was primarily due to a $3.2 million charge for the settlement of litigation related to the former chief executive officer’s termination in 2006 and a $2.9 million decrease in corporate legal and other professional fees, partially offset by a $3.0 million increase in employee incentive and share-based compensation expense. Operating profit for 2007 increased to $196.2 million from $75.3 million in 2006 due to the factors impacting gross profit and SG&A expenses discussed above. Other income (expense), net for 2007 was to $2.0 million of income compared with $14.8 million of expense in 2006. The following table summarizes the components of Other income (expense), net: The Company redeemed all $400.0 million of its outstanding Notes on March 7, 2007, at a redemption price of 104.625% of the principal amount, or $418.5 million, plus accrued interest of $8.4 million. The loss on redemption of the Notes was $21.7 million, which includes the premium of $18.5 million plus related deferred financing costs of $5.7 million less a deferred net gain on terminated interest rate swaps of $2.5 million. The loss on redemption of the Notes was offset by a $30.8 million decrease in interest expense due to the redemption of the Notes. Increased interest income in 2007 was primarily due to increased interest earned on the higher average cash balance throughout 2007 and $1.2 million of interest earned on the working capital adjustment related to the Norilsk transaction. In addition, 2007 also includes $4.5 million of interest income related to the notes receivable from the 25% minority shareholder in its joint venture in the DRC (See Note 1 to the Consolidated Financial Statements in this Form 10-K). The $12.2 million gain included in 2006 was related to the sale of the Company’s investment in Weda Bay (See Note 5 to the Consolidated Financial Statements in this Form 10-K). Income tax expense in 2007 was $76.3 million on pre-tax income of $198.3 million, or 38.5%, compared with income tax expense in 2006 of $30.6 million on pre-tax income of $60.5 million, or 50.5%. Income tax expense in 2007 includes $45.7 million of expense for the repatriation of foreign earnings in the first quarter of 2007, partially offset by a $7.6 million income tax benefit related to the $21.7 million loss on redemption of the Notes. Excluding these discrete items, the effective income tax rate would have been 17.3% in 2007. This rate is lower than the U.S. statutory rate (35%) due primarily to income earned in foreign tax jurisdictions with lower statutory tax rates than the U.S., a tax holiday in Malaysia and the recognition of tax benefits for domestic losses in 2007. During the fourth quarter of 2007, the Company was informed by the DRC taxing authority that its tax holiday had expired, resulting in $9.8 million of expense related to income earned in the DRC. In both years, the strengthening Euro compared with the US dollar positively impacted the effective tax rate, as the Company’s statutory tax liability in Finland is calculated and payable in Euros but is remeasured to the US dollar functional currency for preparation of the consolidated financial statements. The 2006 effective tax rate is discussed below under “2006 operating results compared to 2005”. Minority partners’ share of income relates to the Company’s 55%-owned smelter joint venture in the DRC. The increase in the minority partner’s income in 2007 compared with 2006 is primarily due to higher cobalt prices. Income from continuing operations was $111.5 million in 2007 compared with $23.6 million in 2006 due primarily to the aforementioned factors. Income from discontinued operations for 2007 and 2006 was primarily related to the operations of the Nickel business. Total income from discontinued operations for 2007 also included the $72.3 million gain on the sale of the Nickel business. Also included in income from discontinued operations in 2006 was $5.8 million of income from the discontinued operations of the Company’s former Precious Metals Group (“PMG”) primarily due to the reversal of a $4.6 million tax contingency accrual and a $2.4 million gain on the sale of a former PMG building that had been fully depreciated, both partially offset by foreign exchange losses of $1.8 million from remeasuring Euro-denominated liabilities to U.S. dollars. Net income in 2006 includes $0.3 million of income related to the cumulative effect of a change in accounting principle for the adoption of SFAS No. 123R, “Share-Based Payments.” See further discussion of the adoption of SFAS No. 123R in Note 2 to the Consolidated Financial Statements in this Form 10-K. Net income was $246.9 million, or $8.15 per diluted share, in 2007 compared with $216.1 million, or $7.31 per diluted share, in 2006, due primarily to the aforementioned factors. Net sales increased $42.6 million, or 6.9%, to $660.1 million for the year ended December 31, 2006, compared with $617.5 million for the year ended December 31, 2005. The increase in net sales was primarily due to increased copper by-product sales ($40.6 million), sales related to the March 2006 acquisition of Plaschem ($10.8 million) and a favorable shift in product mix ($5.2 million). The increase in copper by-product sales was due to the increase in the average copper price in 2006 compared with 2005 and an increase in copper by-product volume. These increases were partially offset by lower product selling prices ($18.9 million) caused primarily by lower cobalt reference prices in the first half of 2006 compared with 2005. Gross profit increased to $184.7 million in 2006 compared with $101.0 million in 2005. Margins increased to 28.0% from 16.4% primarily due to the sale of cobalt finished goods manufactured using lower cost raw materials that were purchased before the increase in cobalt metal prices which occurred throughout 2006 ($31.2 million). Also impacting gross profit were increased copper by-product sales ($23.9 million) and a favorable shift in product mix ($10.9 million). In addition, 2005 included the $9.4 million negative impact related to the scheduled maintenance shut-down of the smelter in the DRC. SG&A expenses increased to $109.4 million in 2006 compared with $75.9 million in 2005. SG&A expenses in 2006 include $4.7 million of increased employee incentive compensation expense triggered by increased profitability in 2006, a $3.2 million charge for the settlement of litigation related to the former chief executive officer’s termination, a $1.7 million increase in share-based compensation, environmental charges of $4.2 million and an additional $1.0 million reserve against the note receivable from one of our joint venture partners in the DRC. SG&A expenses in 2005 included $27.5 million of income related to the receipt of net insurance proceeds related to the shareholder class action litigation, $4.6 million of income related to the mark-to-market of 380,000 shares of common stock issued in connection with the shareholder derivative litigation and income of $2.5 million related to the collection of a note receivable that had been fully reserved in 2002. In addition, 2005 included an $8.9 million charge related to the former chief executive officer’s departure, a $4.2 million charge to establish a reserve against the notes receivable from one of our joint venture partners in the DRC and environmental charges of $2.8 million. MANAGEMENT DISCUSSION FOR LATEST QUARTER The Company 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. The Company believes it is the world’s largest refiner of cobalt and producer of cobalt-based specialty products. The Company is executing a deliberate and aggressive strategy to grow through continued product innovation, as well as tactical and strategic acquisitions. The strategy is part of a transformational process to leverage the Company’s core strengths in developing and producing value-added specialty products for dynamic markets while reducing the impact of metal price volatility on financial results. The strategy is designed to allow the Company to deliver sustainable and profitable volume growth in order to drive consistent financial performance and enhance the Company’s ability to continue to build long-term shareholder value. During 2007, the Company completed three important transactions in connection with this long-term strategy: • On March 1, 2007, the Company completed the sale of its Nickel business. • On October 1, 2007, the Company completed the acquisition of Borchers GmbH (“Borchers”). • On December 31, 2007, the Company completed the acquisition of the Electronics businesses (“REM”) of Rockwood Specialties Group, Inc. To better align its transformation and growth strategy, which includes the two strategic acquisitions completed in 2007, the Company, effective January 1, 2008, reorganized its management structure and external reporting around two segments: Advanced Materials and Specialty Chemicals. The Advanced Materials segment consists of Inorganics, the Democratic Republic of Congo (the “DRC”) smelter joint venture and metal resale. The Specialty Chemicals segment is comprised of Electronic Chemicals, Ultra Pure Chemicals, Photomasks and Advanced Organics. The Advanced Materials segment manufactures inorganics products using unrefined cobalt and other metals and serves the battery, powder metallurgy, ceramic and chemical end markets by providing functional characteristics critical to the success of our customers’ products. These products improve the electrical conduction of rechargeable batteries used in cellular phones, video cameras, portable computers, power tools and hybrid electrical vehicles, and also strengthen and add durability to diamond and machine cutting tools and drilling equipment use in construction, oil and gas drilling, and quarrying. The Specialty Chemicals segment consists of the following: Electronic Chemicals: Electronic Chemicals develops products for the electronic packaging, memory disk, general metal finishing and printed circuit board finishing markets and includes the REM Printed Circuit Board (“PCB”) business. The acquired PCB business develops and manufactures chemicals for the printed circuit board industry, such as oxide treatments, electroplating additives, etching technology and electroless copper processes used in the manufacturing of printed circuit boards widely used in computers, communications, military/aerospace, automotive, industrial and consumer electronics applications. Memory disk products include electroless nickel solutions and preplate chemistries for the computer and consumer electronics industries and for the manufacture of hard drive memory disks used for memory and data storage applications. Memory disk applications include computer hard drives, digital video recorders, MP3 players, digital cameras and business and enterprise servers. Ultra Pure Chemicals: Ultra Pure Chemicals (“UPC”) develops and manufactures a wide range of ultra-pure chemicals used in the manufacture of electronic and computer components such as semiconductors, silicon chips, wafers and liquid crystal displays. These products include chemicals used to remove controlled portions of silicon and metal, cleaning solutions, photoresist strippers, which control the application of certain light-sensitive chemicals, edge bead removers, which aid in the uniform application of other chemicals, and solvents. UPC also develops and manufactures a broad range of chemicals used in the manufacturing of photomasks and provides a range of analytical, logistical and development support services to the semiconductor industry. These include total chemicals management, under which the Company manages the clients’ entire electronic process chemicals operations, including coordination of logistics services, development of application-specific chemicals, analysis and control of customers’ chemical distribution systems and quality audit and control of all inbound chemicals. Photomasks: Photomasks manufactures photo-imaging masks (high-purity quartz or glass plates containing precision, microscopic images of integrated circuits) and reticles for the semiconductor, optoelectronics and microelectronics industries under the Compugraphics brand name. Photomasks are a key enabling technology to the semiconductor and integrated circuit industries and perform a function similar to that of a negative in conventional photography. Advanced Organics: Advanced Organics offers products for the tire, coating and inks, additives and chemical markets. These products promote adhesion of metal to rubber in tires and faster drying of paints, coatings, and inks. Within the additives and chemical markets, these products catalyze the reduction of sulfur dioxide and other emissions and also accelerate the curing of polyester resins found in reinforced fiberglass. The Borchers acquisition, which has been integrated into Advanced Organics, offers products to enhance the performance of coatings and ink systems from the production stage through customer end use. The Company’s products are sold in various forms such as solutions, crystals, cathodes and powders. The Company’s business is critically connected to both the price and availability of raw materials. The primary raw material used by the Company is unrefined cobalt. Cobalt raw materials include ore, concentrate, slag and scrap. The Company attempts to mitigate changes in availability of raw materials by maintaining adequate inventory levels and long-term supply relationships with a variety of suppliers. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt reference price and changes in availability from suppliers. The Company attempts to pass through to its customers increases in raw material prices by increasing the prices of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Fluctuations in the price of cobalt have been significant in the past and the Company believes that cobalt price fluctuations are likely to continue in the future. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value. The Company has manufacturing and other facilities in North America, Europe, Africa and Asia-Pacific, and markets its products worldwide. Although a significant portion of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the Company’s results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results. Because the Company changed the structure of its internal organization in a manner that caused its reportable segments to change, the corresponding information for prior periods has been reclassified to conform to the current year reportable segment presentation. CONF CALL Troy Dewar Thank you, Katura, and good morning, everyone. Thank you for joining us today for a review of OM Group’s 2008 third quarter results. On the call this morning are Joe Scaminace, Chairman and Chief Executive Officer; Ken Haber, Chief Financial Officer; Steve Dunmead, Vice President and General Manager Specialties; and, Greg Griffith, Vice President Strategic Planning & Development in Investor Relations. If you have not seen a copy of the press release we issued earlier this morning, you can find it as well as the presentation materials that accompany our discussion on the OM Group Web site at www.omgi.com under Investor Relations. Finally, the comments made this morning by any of the participants on the call may include forward-looking statements based upon specific assumptions and subject to uncertainties and factors, which are difficult to predict. Actual results could differ materially from those expressed or implied. A more complete disclosure regarding forward-looking statements can be found at the bottom of our press release and in our Form 10-K, and applies to this call. At this time, I will turn the call over to Joe Scaminace. Joe Scaminace Thank you, Troy, and good morning, everyone. We appreciate you taking the time out of your busy schedules to join us today. By now, you’ve had time to review the release that we issued this morning on our third quarter and nine months performance for 2008. I would like to share with you a few observations on our results. From my perspective, today’s announcement reveals three critical facts about the OM Group. First, our business is strong as evidenced by the fact that we continue to generate strong positive cash flow from operations that serve growing and diverse end markets. Second, our long range growth strategy is working. Among other things, our recent acquisitions are already making meaningful contributions to our revenue. Our top line growth was 70% in the quarter. This helped significantly improve our operating profit. And third, we are clearly managing what’s in our control in a very aggressive fashion. We’re focused on reducing costs while driving our key performance metrics. Over the past two years, we’ve shortened our supply chain and increased the stability and diversity of our cobalt raw material feed sources. We dramatically improved the productivity of our smelter facility in the Democratic Republic of the Congo, along with our working class – our world class refining facility in Kokkola, Finland. And we’re meeting the needs of our customers through operational de-bottlenecking and incremental productivity improvements. Sales volume within our advanced materials segment grew 26% year-over-year this quarter. With the implementation of our ERP system, we’re better able to manage our inventory to optimize our working capital and still improve our customer service. The steps we’ve taken to strengthen our cobalt business have positioned us to better offset the effective cobalt price volatility on our results. We’re also benefiting from greater end market and geographic diversity. We are blessed by being a truly global company. We serve dynamic end markets with broad exposure to various domestic and international customers. These end markets provide a good mix of geographic exposure most evident by our growing presence in Japan, Korea, and China. Finally, we have a growing number of businesses in our portfolio that have no exposure to cobalt price volatility, including our electronic technology business that provides materials for printed circuit boards and semi-conductors. Clearly, our company is strong, and our strategy is working. While we’re pleased with our progress against our strategic agenda, I want to assure you that we have a clear eyed view of reality. We are not immune to a global recession. And while we hope that the effects of the economic downturn to our operations will be minimal, we are preparing for all possibilities. We’re very well aware of the challenges that we face due to this growing economic uncertainty. During this time, we are ever more vigilant on operational excellence, and we’re placing extreme focus on our bottom line performance. We’re working diligently to control our costs and manage through what are likely to be very challenging economic conditions ahead. On a very positive note, our balance sheet is strong and we’ve accumulated a healthy cash balance. This not only provides stability during this troubled economic environment, but also places us in a position to act on opportunities to advance our growth strategy through acquisitions. Through all this, we remain committed to our strategy and plan to stay the course. At this point, I’ll turn the call over to Ken Haber to walk you through the details of our financial performance. Following Ken’s comments, Steve Dunmead will take a few minutes to highlight the trends we’re seeing in our end markets as well as offer his view on the cobalt market. Ken? Ken Haber Thank you, Joe, and good morning to everyone. Please turn to the presentation materials on our Web site and turn to page three. The 70% revenue growth over the prior year quarter is due to the 2007 acquisitions, strong buying growth in key end markets, and higher selling prices in the advanced materials segment along with increased cobalt metal resale volume. Income from continuing operations of $56 million includes a tax benefit of $25 million related to an election the company made to take foreign tax credits on prior year US tax returns. As originally filed, such returns claimed these amounts as deductions rather than foreign tax credits because of its net operating loss carry forward position during those years. However, due to income taxes paid in the US in connection with the 2007 repatriation of foreign cash, the company can now utilize these foreign tax credits previously taken as deductions. The $25 million tax benefit is $0.83 per diluted share. Excluding this benefit, diluted EPS from continuing operations is a $1.01 in the third quarter of 2008, compared to $1.40 in the same period last year as adjusted for a special item showing on page five. A few other comments related to items that impacted the third quarter net income of $56 million, first, excluding the tax benefit just mentioned, the company's effective tax rate would have been 23%, compared to 16% in the third quarter 2007. The major reason for the increase in the effective tax rate is because the third quarter 2008 includes income tax expense related to income earned at the company's joint venture in the DRC, whereas no income tax expense was recorded in the third quarter of 2007. Second, minority partner share of income in the current quarter was $4 million net of tax related to the company's joint venture in the DRC. This compares to $2.5 million reported in the third quarter of 2007, which does not include any tax expense. And finally, net income on a year-over-year comparison was impacted by a drop in other income expense of $8 million, primarily due to a $4 million decrease in interest income and a $4 million decrease in foreign exchange gain as a result of lower average cash balance this year versus last year. Net income for the third quarter of 2008 was $56 million or $1.85 per diluted share versus $1.26 per diluted share in the third quarter of 2007. Excluding discontinued operations, income from continuing operations for the current quarter was $1.84 versus $1.30 in the third quarter of 2007. Page four reflects the consolidated revenue by segment and by region. The key drivers behind the $184 million increase in net sales over last year was primarily due to the 2007 acquisitions completed in the fourth quarter, which contributed to $72 million. Higher selling prices and volumes from the advanced materials segment contributed $68 million and $28 million, respectively, and a $19 million increase in the resale of cobalt metal. The $4 million increase in operating profit in the current quarter versus last year's third quarter was due primarily to the 2007 acquisitions, which contributed $7 million, offset by a reduction in the advanced materials segment profit of $4 million, and a $2.5 million increase in corporate expenses. Also, the third quarter 2007 included a $3.5 million charge to increase an environmental remediation liability and $1.2 million in legal fees for a lawsuit the company filed related to the unauthorized use of proprietary information. Compared to last year, the decrease in the consolidated operating margin percentage was due primarily to the impact of higher cost cobalt raw materials and the effect on selling prices of rapid decline in the cobalt reference price in the third quarter of this year. On page six is the third quarter 2008 operating results for the advanced materials segment. Revenues were up nearly 60% year-over-year on record sales volume in the battery and power metallurgy end markets, higher product selling prices, and increased global metal resale volume. Record production volumes and strong results from the joint venture due to the operations in the current quarter were offset by a steep drop in the cobalt reference price that squeezed gross margins compared to the third quarter of 2007. Also contributing to the decrease in operating profit compared to last year were higher manufacturing, distribution, and other operating expenses, and a weaker dollar. The primary factor for the drop of $35 million in the third quarter profit compared to the second quarter of this year is a combination of a rapid decline in the cobalt reference price effect on selling prices and the sale of finished goods manufactured using higher cost cobalt raw materials purchased prior to or during the price decline. On page seven is the third quarter 2008 operating results for the specialty chemicals segment. Excluding the impact of the 2007 acquisitions on net sales, increased selling prices in advanced organics were offset by lower sales volume in both advanced organics and electronic chemicals, and lower pricing in electronic chemicals. In the third quarter of this year, we saw continued weakness in all the end markets of advanced organics except for additives. Tire volume was down 14% year-over-year as customers are de-stacking based on a global view that has turned bearish. Coatings and chemicals volumes were down 26% and 17%, respectively, due to customers, we believe, reacting quicker to the weakness in the economic conditions in North America and Europe. We believe these decreases reflect the overall weakness of the end markets and are not related to market share losses. The combined revenue of the other end markets, which includes semiconductors, printed circuit boards, memory disks, and general metal finishing were $73 million. This was a $46 million increase over the third quarter of 2007, of which $54 million was related to the electronics acquisition. Net of the acquisition, revenues were down $8 million related to lower pricing, primarily related to a decline in the nickel price and lower sales volume. Memory disk volumes were down over last year by 23%. Operating profit in the third quarter of 2008 of $10 million includes $7 million from the 2007 acquisitions. Excluding the acquired businesses, the impact of favorable pricing of $4 million was offset by decreased sales volume, reduction in inventory value of $1.5 million, and higher distribution administrative expenses. As a reminder, the third quarter 2007 includes the previously mentioned environmental remediation charge and legal fees. On page eight is a summary of the selected financial data and metrics for the current quarter. The financial data metrics, as shown for the third quarter of 2007, exclude the 2007 acquisitions. During the third quarter of this year, operating activities provided $38 million in cash. The cash balance at the end of the third quarter was $145 million, an increase of $30 million from the second quarter of this year. Looking at network and capital days, which reflect the cash cycle of the business, the comparable numbers are 105 days this quarter versus 96 days for the second quarter, and 119 days for the third quarter of 2007. Compared to the second quarter this year, a reduction in account payable days by nine days was the cause for the increase in the net working capital days. The reduction from last year's 119 net working capital days was due primarily to a reduction in inventory days, offset for the most part by a drop by payable days. Turning to page ten, consolidated EBITDA from continuing operations was $56 million for the third quarter of 2008 and $320 million for the last 12 months trailing. At this current level of EBITDA, the company is within its requirement debt covenants under the current $100 million revolver. This completes my review of the company's third quarter 2008 results. I will now turn it over to Steve. Steve Dunmead Thanks, Ken. First, I'll make some comments regarding the cobalt market. In Q3, low grade cobalt prices averaged approximately $32.50 a pound, down more than $13 from Q2. Cobalt prices continued to fall from the unprecedented market peak of approximately $50 a pound in the March/April timeframe through the end of August. Prices reached their 2008 low point at that stage of approximately $24 a pound in mid August. The market rebounded in late August due to tight availability of metal, and continued to move higher throughout September. Prices were poised to move even higher when the financial prices hit and spot demand for metal dried up. As we look forward, we expect demand across all of OMG's major cobalt markets to remain solid. Spot demand for metal, however, is expected to be soft. Predicting cobalt prices is never easy, but the present uncertainty in the market from both supply and demand standpoints makes it even more difficult. From a demand standpoint, clearly, the financial crisis will have some short term negative impact as businesses look to cut costs, reduce inventory, et cetera. From the supply side, the lack of financing and significantly lower copper and nickel prices will certainly delay and/or reduce future supply coming from copper projects in the DRC and large nickel laterite projects elsewhere. We expect the cobalt market to remain soft throughout the balance of the year. However, any good news from the global economic front or renewed demand for spot material could result in a rapid increase in the market. Now, I’d like to cover some of the key end use markets impacting our advanced materials segment. In the rechargeable battery market, even with the recent global economic uncertainty, the lithium ion battery market is expected to grow by 6% to 8% in 2009, about half of the growth rate seen in 2008. This growth is being driven by demand for cylindrical cells going into laptop computers, offset somewhat by lower growth rates for prismatic cells used mostly in cellular phones and other small portable electronic devices. We expect OMG's growth in batteries to be somewhat greater than the market as we continue to gain share and further penetrate the battery precursor market with new products. After approximately two years of strong growth, demand for fine powders and powder metallurgy has begun to show some signs of softening. The softening is being driven by slowdowns in demand from the construction, automotive, and diamond tool markets. Based upon the strong performance in Q3 and the global economic conditions, we expect OMG sales into this market to be flat for the coming couple of quarters. In the chemical market, we expect to see steady consumption of petrochemical related catalysts that – in the petrochemical related catalyst applications such as gas to liquid and hydrodesulphurization. Ceramics and pigments will continue to be impacted by the global slowdown in housing and construction. Now for a few comments on the key markets impacting our specialty chemicals business, as we have discussed in previous conference calls, softness in US housing continues to hurt demand in the coatings and chemicals markets. This softness has also begun to move into Europe. Current expectations are for a slow start to 2009. Global demand for tires is slowing, due to decreased new car sales. Manufacturers have reacted quickly with plant shutdowns in Q4 to adjust inventories. Also, the global financial crisis is further decreasing growth in Asia. For the electronics related markets, the view offers significant cross currents. The deterioration in the global economy has led to a slowdown in both business and consumer spending especially on big ticket items. Many of our customers are focused on reducing inventories and preserving cash because of concerns associated with both demand and credit availability. Although our businesses have not yet been significantly impacted, we started to see some softening in September, and expect that we will feel the impact of extended shutdowns during Christmas and Chinese New Year. For the hard drive market, due to the global economic uncertainty, plated aluminum disk demand is expected to be down approximately 10%. Flash memory continues to make inroads in the consumer electronics markets for portable devices, but is not yet competitive for mass storage. We expect that OMG’s sales will be affected by the structural changes associated with Seagate's shutdown of its Limavady, Ireland facility, and the purchase of Komag by Western Digital last year. The overall general metal finishing market is expected to be up lined with GDP for 2009. Due to market shared gains and new applications, we expect OMG's growth to be approximately twice that of the market. Printed circuit board continues to meet our initial projections. The market is expected, however, to see a 10% to 15% decline for the next couple of quarters, due to weaker demand for electronics amid a slowing world economy. OMG sales should be inline with these expectations. For the semiconductor market, customers and analysts generally anticipate a substantial, approximately, 10% fall in device demand in the coming six to nine months, as the world economy slows and consumer spending declines. Foundries or toll manufacturers, always the first to be affected, are already suffering. From OMG's standpoint, we expect the ultra pure chemical sales to be in line with the overall market. The photo mass market is tied to capital spending and new product introductions in the semiconductor industry. We've already seen a very depressed market thus far in 2008, and we believe there is limited further downside in this market. Photronics' recent announcement of its pending closure of their Manchester, UK facility should help take some of the excess capacity out of the European market. At this point, I would like to turn the call back over to Joe Scaminace. Joe Scaminace Well thank you, Steve and Ken, for your reports. At this time, we'd like to turn the call over for your questions. |