-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EsEz5UEN2FurwuuIWv3uFAokSy0ymEUO1Prz8qSsgUKbl0xYi4Y5bnRzN8Kleyj4 LSB/o2qrgZhs/55uyFHItA== 0000899723-98-000016.txt : 19981106 0000899723-98-000016.hdr.sgml : 19981106 ACCESSION NUMBER: 0000899723-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OM GROUP INC CENTRAL INDEX KEY: 0000899723 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 521736882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12515 FILM NUMBER: 98738388 BUSINESS ADDRESS: STREET 1: 50 PUBLIC SQ STREET 2: 3800 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113-2204 BUSINESS PHONE: 2167810083 MAIL ADDRESS: STREET 1: 3900 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113 10-Q 1 OM GROUP, INC. FORM 10-Q FOR QUARTER ENDING 09/30/98 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.) 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 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 EX-27 2 FINANCIAL DATA SCHEDULE FOR 3RD QUARTER 1998 10-Q
5 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. 1,000 3-MOS 9-MOS Dec-31-1997 Dec-31-1997 Sep-30-1998 Sep-30-1998 7,300 7,300 0 0 90,087 90,087 0 0 244,303 244,303 364,438 364,438 308,412 308,412 88,956 88,956 782,537 782,537 87,210 87,210 0 0 0 0 0 0 240 240 393,179 393,179 782,537 782,537 124,683 401,935 124,683 401,935 88,522 295,235 88,522 295,235 14,018 42,374 0 0 3,330 11,689 18,586 52,708 5,862 17,279 12,724 35,429 0 0 0 0 0 0 12,724 35,429 .54 1.57 .53 1.52 -----END PRIVACY-ENHANCED MESSAGE-----