UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 0-22572
OM GROUP, INC.
(exact name of registrant as specified in its charter)
Delaware 52-1736882
(state or other jurisdiction of (I.R.S., Employer
incorporation or organization) Identification Number)
Tower City
3800 Terminal Tower
Cleveland, Ohio 44113-2204
(Address of principal executive offices)
(zip code)
(216) 781-0083
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes_____X_____ No___________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1998: Common Stock, $.01 Par Value -
23,696,999 shares.
<PAGE>
INDEX
OM GROUP, INC.
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- September 30, 1998 and
December 31, 1997
Condensed consolidated statements of income - Three months ended
September 30, 1998 and 1997; Nine months ended September 30, 1998
and 1997
Condensed consolidated statements of cash flows - Nine months ended
September 30, 1998 and 1997
Notes to condensed consolidated financial statements - September
30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
Item 5. Other information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(15) Independent Accountants' Review Report
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
Page 1
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
September 30, December 31,
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,300 $ 13,193
Accounts receivable 90,087 80,602
Inventories 244,303 219,201
Other current assets 22,748 11,753
-------- --------
Total Current Assets 364,438 324,749
PROPERTY, PLANT AND EQUIPMENT
Land 3,615 2,867
Buildings and improvements 72,024 49,939
Machinery and equipment 221,808 162,938
Furniture and fixtures 10,965 8,615
-------- --------
308,412 224,359
Less accumulated depreciation 88,956 74,112
-------- --------
219,456 150,247
OTHER ASSETS
Goodwill and other intangible assets 183,740 116,751
Other assets 14,903 9,316
-------- --------
TOTAL ASSETS $782,537 $601,063
======== ========
Page 2
<PAGE>
Part I Financial Information
Item 1 Financial Statements
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 142 $ 219
Accounts payable 62,904 67,521
Other accrued expenses 24,164 32,942
-------- --------
Total Current Liabilities 87,210 100,682
LONG-TERM LIABILITIES
Long-term debt 274,226 170,334
Deferred income taxes 21,009 20,555
Other long-term liabilities 6,673 8,251
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value:
Authorized 2,000,000 shares; no shares
issued or outstanding
Common stock, $0.01 par value:
Authorized 60,000,000 shares;
issued 23,959,346 shares in 1998
and 22,209,346 shares in 1997 240 222
Capital in excess of par value 257,951 189,281
Retained earnings 144,943 117,465
Treasury stock (262,347 shares in 1998
and 142,720 shares in 1997, at cost) (9,200) (4,829)
Accumulated other comprehensive income (515) (898)
-------- --------
Total Stockholders' Equity 393,419 301,241
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $782,537 $601,063
======== ========
See notes to condensed Consolidated Financial Statements
Page 3
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- ---------
OPERATIONS
Net sales $124,683 $126,317 $401,935 $360,706
Cost of products sold 88,522 96,368 295,235 274,696
-------- -------- ------- --------
36,161 29,949 106,700 86,010
Selling, general and
administrative expenses 14,018 11,629 42,374 34,125
-------- -------- ------- --------
INCOME FROM OPERATIONS 22,143 18,320 64,326 51,885
OTHER INCOME (EXPENSE)
Interest expense (3,330) (3,132) (11,689) (10,286)
Interest income 19 21 199 83
Foreign exchange (loss) gain (246) 210 (128) 560
-------- -------- -------- --------
(3,557) (2,901) (11,618) (9,643)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 18,586 15,419 52,708 42,242
Income taxes 5,862 5,204 17,279 14,232
-------- -------- -------- --------
NET INCOME $ 12,724 $ 10,215 $ 35,429 $ 28,010
======== ======== ======== ========
Net income per common share $0.54 $0.46 $1.57 $1.36
Net income per common share -
assuming dilution $0.53 $0.45 $1.52 $1.32
Dividends paid per common share $0.09 $0.08 $0.27 $0.24
See notes to condensed Consolidated Financial Statements
Page 4
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Nine Months Ended
September 30,
-------------------
1998 1997
-------- --------
OPERATING ACTIVITIES
Net income $35,429 $28,010
Items not affecting cash:
Depreciation and amortization 19,507 14,855
Foreign exchange loss (gain) 128 (560)
Deferred income taxes 1,497 1,561
Changes in operating assets and liabilities (49,858) (48,895)
------- -------
NET CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES 6,703 (5,029)
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (65,017) (24,036)
Acquisition of businesses (107,780) (124,547)
------- ---------
NET CASH USED IN INVESTING ACTIVITIES (172,797) (148,583)
FINANCING ACTIVITIES
Dividend payments (6,113) (5,024)
Long-term borrowings 160,917 172,250
Payments of long-term debt (56,131) (100,462)
Purchase of treasury stock (7,071) (1,688)
Proceeds from exercise of stock options 604 442
Sale of common stock 68,670 87,231
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 160,876 152,749
Effect of exchange rate changes on cash and
cash equivalents (675) (189)
------- -------
Decrease in cash and cash equivalents (5,893) (1,052)
Cash and cash equivalents at beginning of period 13,193 7,818
------- -------
Cash and cash equivalents at end of period $ 7,300 $ 6,766
======= =======
See notes to condensed Consolidated Financial Statements
Page 5
<PAGE>
Part I Financial Information
Item 1 Financial Statements
OM GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
Note A Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair financial
presentation have been included. Past operating results are not
necessarily indicative of the results which may occur in future
periods. For further information refer to the consolidated
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
In June, 1997, SFAS No. 130, "Reporting Comprehensive Income", was
issued. SFAS No. 130 establishes new standards for reporting
comprehensive income and its components. The Company adopted SFAS
No. 130 in the first quarter of fiscal year 1998. The Company's
comprehensive income for the nine months ended September 30, 1998,
which includes net income of $35,429 and foreign currency
translation gains of $383, did not differ materially from net
income.
In June, 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", was issued. SFAS No. 131
changes the standards for reporting financial results by operating
segments and related products and services, geographic areas, and
major customers. The Company must adopt SFAS No. 131 no later than
year-end 1998; adoption of this statement is not expected to have a
material impact on the Company.
In June, 1998, SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" was issued. SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. The Company must
adopt SFAS No. 133 no later than the first quarter of fiscal year
2000; adoption of this statement is not expected to have a material
effect on earnings or the financial position of the Company.
Page 6
<PAGE>
Part I Financial Information
Item 1 Financial Statements
Note B Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
1998 1997
-------- --------
Raw materials and supplies $100,429 $110,477
Finished goods 126,707 107,989
-------- --------
227,136 218,466
LIFO reserve 17,167 735
-------- --------
Total inventories $244,303 $219,201
======== ========
Note C Contingent Matters
The Company is a party to various legal proceedings incidental to
its business and is subject to a variety of environmental and
pollution control laws and regulations in the jurisdictions in which
it operates. As is the case with other companies in similar
industries, the Company faces exposure from actual or potential
claims and legal proceedings involving environmental matters.
Although it is very difficult to quantify the potential impact of
compliance with or liability under environmental protection laws,
management believes that the ultimate aggregate cost to the Company
of environmental remediation, as well as other legal proceedings
arising out of operations in the normal course of business, will not
result in a material adverse effect upon its financial condition or
results of operations.
Note D Acquisitions
The Company acquired Auric Corporation (Fidelity) and Dussek
Campbell Limited (Dussek) in January and February, 1998,
respectively, for an aggregate amount of approximately $94 million.
These acquisitions, which had combined fiscal 1997 sales aggregating
approximately $60 million, have been recorded using the purchase
method of accounting. Accordingly, the Company's results of
operations reflect the impact of Fidelity and Dussek from their
respective dates of acquisition.
Page 7
<PAGE>
Part I Financial Information
Item 1 Financial Statements
In April, 1998, the Company acquired the carbothermal reduction
technology and related assets of Dow Chemical Company for
approximately $12.5 million, plus a conditional amount up to $20
million based upon the achievement of certain performance targets,
which would be paid at the end of five years. This acquisition will
complement the Company's present tungsten recycling capability,
allow it to better serve its existing customer base in the hard
metal tool industry, and provide for the possibility of expanding
this technology to other metal powders and product applications.
The acquisitions were initially financed through bank borrowings.
In July, 1998, the Company sold 1,750,000 shares of common stock in
a public offering; the majority of the net proceeds of $68.7 million
were used to pay down a portion of the debt incurred in the
aforementioned acquisitions. Had these shares been issued at the
dates of acquisition, net income per common share assuming dilution
for the three and nine months ended September 30, 1998 would have
been $.53 and $1.51 per share, respectively.
Note E Computation of Earnings per Share
The following table sets forth the computation of net income per
common share and net income per common share - assuming dilution (in
thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1998 1997 1998 1997
------- ------ ------- -------
Net income $12,724 $10,215 $35,429 $28,010
======= ====== ====== ======
Weighted average number
of shares outstanding 23,602 22,087 22,587 20,551
Dilutive effect of stock
options 630 757 701 721
------- ------ ------- -------
Weighted average number of
shares outstanding -
assuming dilution 24,232 22,844 23,288 21,272
======= ====== ====== ======
Net income per common share $.54 $.46 $1.57 $1.36
==== ==== ===== ====
Net income per common share -
assuming dilution $.53 $.45 $1.52 $1.32
==== ==== ===== ====
Page 8
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net sales for the three months ended September 30, 1998 were $124.7
million, a decrease of 1.3% compared to the same period for 1997.
The decrease in sales resulted principally from a decline in cobalt,
nickel, and copper raw material prices, which resulted in lower
product selling prices, offset by the acquisition of Fidelity.
The following table summarizes market price fluctuations on the
primary raw materials used by the Company in manufacturing its
products:
Market Price Ranges per Pound
Three Months Ended September 30,
----------------------------------------
1998 1997
---- ----
Cobalt - 99.3% Grade $17.50 to $19.83 $19.18 to $20.43
Nickel $ 1.83 to $ 2.05 $ 2.89 to $ 3.09
Copper $ 0.72 to $ 0.80 $ 0.94 to $ 1.14
The following table sets forth the pounds of carboxylates, salts and
powders sold during each period:
Three Months Ended September 30, Percentage
(in millions of pounds) 1998 1997 Change
---- ---- ------
Carboxylates 15.6 13.4 16.4 %
Salts 21.1 15.9 32.7 %
Powders 9.7 10.3 (5.8)%
---- ---- ------
46.4 39.6 17.2 %
==== ==== ======
The increase in physical volume of carboxylate products sold
primarily reflects 1.6 million pounds of product sold as a result of
the Dussek acquisition and increased sales of PVC additives. The
increase in physical volume of salt products sold primarily reflects
an increase of 8.0 million pounds as a result of the Fidelity
acquisition and a decrease of 2.5 million pounds as a result of
continuing deemphasis of lower margin nickel sulfate products. The
decrease in physical volume of powder products sold reflects a
decline in copper powders.
Page 9
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Gross profit increased to $36.2 million for the three month period
ended September 30, 1998, a 20.7% increase over the same period in
1997. The improvement in gross profit was primarily the result of
the acquisitions of Fidelity and Dussek. Cost of products sold
decreased to 71.0% of net sales for the three months ended September
30, 1998 compared to 76.3% of net sales during the same period of
1997, primarily because of lower cobalt, nickel, and copper market
prices, and improved product mix.
Selling, general and administrative expenses increased to 11.2% of
net sales for the third quarter of 1998 compared to 9.2% of net
sales in the same period in 1997, due to the acquisition of Fidelity
and its relatively higher selling, administrative, and research
expenses per dollar of sales, and to the decline in net sales
resulting from lower cobalt, nickel, and copper prices.
Other expense for the third quarter of 1998 was $3.6 million
compared to $2.9 million in 1997, due primarily to increased
interest expense on higher outstanding borrowings, primarily as a
result of the acquisition of Fidelity.
Income taxes as a percentage of income before tax decreased to 31.5%
for the third quarter of 1998 from 33.8% in the same period in 1997.
The lower effective tax rate than in the prior year was due
primarily to higher pretax income earned in the relatively low
statutory tax countries of Finland and Malaysia.
Net income for the three month period ended September 30, 1998 was
$12.7 million, an increase of $2.5 million from the same period in
1997, due to the aforementioned factors.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Net sales for the nine months ended September 30, 1998 were $401.9
million, an increase of 11.4% compared to the same period for 1997.
The increase in sales resulted principally from an increase in
physical volume of products sold and the acquisition of Fidelity,
which offset a decline in the Company's product prices resulting
from lower cobalt , nickel, and copper market prices.
The following table summarizes market price fluctuations on the
primary raw materials used by the Company in manufacturing its
products:
Page 10
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Market Price Ranges per Pound
Three Months Ended September 30,
----------------------------------------
1998 1997
---- ----
Cobalt - 99.3% Grade $17.50 to $21.18 $17.50 to $22.23
Nickel $ 1.83 to $ 2.69 $ 2.88 to $ 3.66
Copper $ 0.72 to $ 0.85 $ 0.94 to $ 1.20
The following table sets forth the pounds of carboxylates, salts and
powders sold during each period:
Nine Months Ended September 30, Percentage
(in millions of pounds) 1998 1997 Change
---- ---- ------
Carboxylates 46.3 38.1 21.5%
Salts 65.3 46.0 42.0%
Powders 31.0 28.1 10.3%
----- ----- -----
142.6 112.2 27.1%
===== ===== =====
The increase in physical volume of carboxylate products reflects 4.4
million pounds of product sold as a result of the Dussek
acquisition. The increase in physical volume of salt products sold
reflects an increase of 22.4 million pounds of nickel salt products
sold as a result of the Fidelity acquisition and a decrease of 5.8
million pounds as a result of continuing deemphasis of lower margin
nickel sulfate products. The increase in physical volume of powder
products sold reflects 2.2 million pounds of copper powder products
sold as a result of the acquisition of SCM Metal Products, Inc.,
which occurred at the end of January, 1997, and for which in 1998
there were nine months of sales.
Gross profit increased to $106.7 million for the nine month period
ended September 30, 1998, a 24.1% increase over the same period in
1997. The improvement in gross profit was primarily the result of
the acquisitions of Fidelity and Dussek and higher physical volumes
of product sold. Cost of products sold decreased to 73.5% of net
sales for the nine months ended September 30, 1998 compared to 76.2%
during the same period of 1997, primarily because of lower cobalt,
nickel, and copper market prices and improved product mix.
Page 11
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Selling, general and administrative expenses increased to 10.5% of
net sales for the first nine months of 1998 from 9.5% of net sales
for the same period in 1997, due to the acquisition of Fidelity and
its relatively higher selling, administrative, and research expenses
per dollar of sales, and to the decline in net sales resulting from
lower cobalt, nickel, and copper market prices.
Other expense in 1998 was $11.6 million compared to $9.6 million in
1997, due primarily to increased interest expense on higher
outstanding borrowings, as a result of the acquisition of Fidelity.
Income taxes as a percentage of income before tax decreased to 32.8%
as compared to 33.7% during the same period in 1997. The lower
effective tax rate than in the prior year was due primarily to
higher pretax income earned in the relatively low statutory tax
countries of Finland and Malaysia.
Net income for the nine month period ended September 30, 1998 was
$35.4 million, an increase of $7.4 million from the same period in
1997, due to the aforementioned factors.
Liquidity and Capital Resources
During the nine month period ended September 30, 1998, the Company's
net working capital increased by approximately $53 million, compared
to December 31, 1997. This increase was primarily the result of
additional working capital associated with acquisitions and the
timing in payment or receipt of certain payables and receivables.
Capital expenditures increased in 1998, primarily due to expansion
at various plant facilities, acquisition of the Dow product line
(Note D), and the smelter construction project in Lumbumbashi,
Democratic Republic of Congo. These increased cash needs were
funded through cash generated by operations as well as additional
borrowings under the Company's revolving credit facility.
In July, 1998, the Company sold 1,750,000 shares of common stock in
a public offering. The net proceeds of the offering, in the amount
of $68.7 million, were used to pay down a portion of the debt
incurred in connection with the 1998 acquisitions.
The Company believes that it will have sufficient cash generated by
operations and through its credit facilities to provide for its
future working capital and capital expenditure requirements and to
pay quarterly dividends on its common stock, subject to the Board's
discretion. Subject to several limitations in its credit
Page 12
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
facilities, the Company may incur additional borrowings under this
line to finance working capital and certain capital expenditures,
including, without limitation, the purchase of additional raw
materials.
Year 2000
The Company presently believes that with modifications to existing
computer software and conversions to new software, the Year 2000
Issue will not pose significant operational problems to its normal
business activities.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and
implementation. The following table summarizes the Company's
progress on these Year 2000 phases, with respect to 1) the nature
and potential effects of the Year 2000 on information (IT) and non-
IT systems; 2) status of progress in becoming Year 2000 ready for
both IT and non-IT systems, including estimated timetable for
completion of each phase; and 3) nature and level of importance of
third parties and their exposure to the Year 2000.
Exposure Type Resolution Phases
---------------------- -----------------------------------------
Assess Remedi- Imple-
-ment ation Testing mentation
-------- -------- -------- ---------
INFORMATION SYSTEMS
------------------------
% Complete at 9/30/98 95% 80% 75% 75%
Expected Completion Date Dec 1998 Jun 1999 Jul 1999 Sep 1999
NON-INFORMATION SYSTEMS
------------------------
Production and
Manufacturing Systems
% Complete at 9/30/98 100% 90% 75% 60%
Expected Completion Date Sep 1998 Jun 1999 Jul 1999 Sep 1999
Products
% Complete at 9/30/98 100% N/A N/A N/A
Expected Completion Date Sep 1998
Page 13
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIRD PARTIES
------------------------
System Interface
% Complete at 9/30/98 95% N/A N/A N/A
Expected Completion Date Dec 1998
Other Material Exposures
% Complete at 9/30/98 100% N/A N/A N/A
Expected Completion Date Sep 1998
This project will be completed using a combination of existing
internal and external resources. The total cost of the Year 2000
project is estimated at $2.5 million and is being funded through
operating cash flows. Of the total project cost, approximately $.8
million is attributable to a new software purchase, which has been
capitalized. The remaining $1.7 million, which is being expensed as
incurred, is not expected to have a material effect on the results
of operations of the Company.
Management of the Company believes it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted
above, the company has not yet completed all necessary phases of the
Year 2000 program. In the event that the Company does not complete
any additional phases, the Company may not be able to take customer
orders, manufacture and ship products, invoice customers and collect
payments. Disruptions in the economy generally resulting from Year
2000 issues could also materially adversely affect the Company.
The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
The Company currently has no contingency plans in place in the event
it does not complete all phases of the Year 2000 program. The
Company plans to evaluate the status of completion in March 1999 and
determine whether such a plan is necessary.
Euro Conversion
The Company presently believes that with modifications to existing
computer software and conversions to new software, the Euro
Conversion Issue will not pose significant operational problems to
its normal business activities.
Page 14
<PAGE>
Part I Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
The Company is making this statement in order to satisfy the "safe
harbor" provisions contained in the Private Securities Litigation
Reform Act of 1995. The foregoing discussion includes forward-
looking statements relating to the business of the Company.
Forward-looking statements contained herein or in other statements
made by the Company 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, that could cause actual results of the
Company to differ materially from those matters expressed in or
implied by forward-looking statements. The Company believes that
the following factors, among others, could affect its future
performance and cause actual results of the Company to differ
materially from those expressed in or implied by forward-looking
statements made by or on behalf of the Company: (a) the price and
supply of raw materials, particularly cobalt, nickel and copper;
(b) demand for metal-based specialty chemicals in the mature markets
in the United States and Europe; (c) demand for metal-based
specialty chemicals in Asia Pacific and other less mature markets,
which geographic areas are an announced focus of the Company's
activities; (d) the effect of non-currency risks of investing in and
conducting operations in foreign countries, together with
fluctuations in currency exchange rates upon the Company's
international operations, including those relating to political,
social, economic and regulatory factors; and (e) the availability
and cost of personnel trained in Year 2000 modifications and the
ability to locate and correct all relevant computer codes.
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
The following exhibits are included herein:
Exhibit (15) Independent Accountants' Review Report
Exhibit (15) Letter re: Unaudited Interim Financial Information
Exhibit (27) Financial Data Schedule
There were no reports on Form 8-K filed during the three months
ended September 30, 1998.
Page 15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 5, 1998 OM GROUP, INC.
____________________________________
James M. Materna
Chief Financial Officer
(Duly authorized signatory of OM Group, Inc.)
<PAGE>
Independent Accountants' Review Report
Stockholders and Board of Directors
OM Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of OM
Group, Inc. as of September 30, 1998, and the related condensed consolidated
statements of income for the three-month and nine-month periods ended September
30, 1998 and 1997, and the condensed consolidated statements of cash flows for
the nine-month periods ended September 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of OM Group, Inc. as of December 31,
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for the year then ended, not presented herein, and in our report
dated February 3, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1997,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Cleveland, Ohio
November 5, 1998
<PAGE>
Acknowledgment of Independent Accountants
Stockholders and Board of Directors
OM Group, Inc.
We are aware of the incorporation by reference in the following Registration
Statements of OM Group, Inc. of our reports dated May 5, August 6, and November
5, 1998, relating to the unaudited condensed consolidated interim financial
statements of OM Group, Inc. which are included in its Form 10-Q for the
quarters ended March 31, June 30, and September 30, 1998:
Registration
Number Description Filing Date
- -------- ----------- -----------
33-74674 OM Group, Inc. Long-Term Incentive
Compensation Plan - Form S-8
Registration Statement - 1,015,625 Shares January 27, 1994
333-07529 OMG Americas, Inc. Employees' Profit
Sharing Plan -- Form S-8 Registration
Statement -- 250,000 Shares July 3, 1996
333-07531 OM Group, Inc. Non-Employees Directors'
Equity Plan -- Form S-8 Registration
Statement -- 250,000 Shares July 3, 1996
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Cleveland, Ohio
November 5, 1998
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the OM
Group, Inc. Condensed Consolidated Balance Sheets at September 30, 1998
(Unaudited) and the OM Group, Inc. Condensed Consolidated Statements of Income
for the three and nine months ended September 30, 1998 (Unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> Dec-31-1997 Dec-31-1997
<PERIOD-END> Sep-30-1998 Sep-30-1998
<CASH> 7,300 7,300
<SECURITIES> 0 0
<RECEIVABLES> 90,087 90,087
<ALLOWANCES> 0 0
<INVENTORY> 244,303 244,303
<CURRENT-ASSETS> 364,438 364,438
<PP&E> 308,412 308,412
<DEPRECIATION> 88,956 88,956
<TOTAL-ASSETS> 782,537 782,537
<CURRENT-LIABILITIES> 87,210 87,210
<BONDS> 0 0
0 0
0 0
<COMMON> 240 240
<OTHER-SE> 393,179 393,179
<TOTAL-LIABILITY-AND-EQUITY> 782,537 782,537
<SALES> 124,683 401,935
<TOTAL-REVENUES> 124,683 401,935
<CGS> 88,522 295,235
<TOTAL-COSTS> 88,522 295,235
<OTHER-EXPENSES> 14,018 42,374
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,330 11,689
<INCOME-PRETAX> 18,586 52,708
<INCOME-TAX> 5,862 17,279
<INCOME-CONTINUING> 12,724 35,429
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,724 35,429
<EPS-PRIMARY> .54 1.57
<EPS-DILUTED> .53 1.52
