UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-12515

OM GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		52-1736882 (I.R.S. Employer Identification No.)
127 Public Square 1500 Key Tower Cleveland, Ohio (Address of principal executive offices)		44114-1221 (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 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 þ      No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Act). Yes o      No þ

As of April 30, 2010, there were 30,865,652 shares of Common Stock, par value $.01 per share, outstanding.

 

 

OM Group, Inc.
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.		Unaudited Financial Statements			2
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			41
Item 4.		Controls and Procedures			41
PART II — OTHER INFORMATION
Item 1A.		Risk Factors			42
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 6.		Exhibits			42
		Exhibit 31.1
		Exhibit 31.2
		Exhibit 32
		Signatures			42
EX-31.1
EX-31.2
EX-32

Part I — FINANCIAL INFORMATION

Item 1.		Unaudited Financial Statements

OM Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

		March 31,				December 31,
(In thousands, except share data)		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	365,737			$	355,383
Accounts receivable, less allowances			162,278				123,641
Inventories			279,322				287,096
Refundable and prepaid income taxes			48,193				44,474
Other current assets			42,227				32,394
Total current assets			897,757				842,988
Property, plant and equipment, net			266,243				227,115
Goodwill			302,748				234,189
Intangible assets			154,783				79,229
Notes receivable from joint venture partner, less allowance			13,915				13,915
Other non-current assets			54,769				46,700
Total assets		$	1,690,215			$	1,444,136
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt		$	20,000			$	—
Accounts payable			147,212				139,173
Accrued income taxes			11,292				7,522
Accrued employee costs			25,363				18,168
Other current liabilities			42,325				24,099
Total current liabilities			246,192				188,962
Long-term debt			120,000				—
Deferred income taxes			25,586				27,453
Uncertain tax positions			15,130				15,733
Pension liability			58,638				15,799
Other non-current liabilities			23,733				20,057
Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized 2,000,000 shares, no shares issued or outstanding			—				—
Common stock, $.01 par value:
Authorized 90,000,000 shares; 30,707,577 shares issued in 2010 and 30,435,569 shares issued in 2009			307				304
Capital in excess of par value			575,042				569,487
Retained earnings			607,108				584,508
Treasury stock (202,556 shares in 2010 and 166,672 shares in 2009, at cost)			(7,234	)			(6,025	)
Accumulated other comprehensive income (loss)			(20,505	)			(16,969	)
Total OM Group, Inc. stockholders’ equity			1,154,718				1,131,305
Noncontrolling interest			46,218				44,827
Total equity			1,200,936				1,176,132
Total liabilities and equity		$	1,690,215			$	1,444,136

See accompanying notes to unaudited condensed consolidated financial statements.

OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Operations

		Three Months Ended
		March 31,
(In thousands, except per share data)		2010				2009
Net sales		$	303,197			$	191,706
Cost of products sold (excluding restructuring charge)			230,861				165,091
Restructuring charge			514				—
Gross profit			71,822				26,615
Selling, general and administrative expenses			39,843				34,858
Goodwill impairment, net			—				2,629
Restructuring charge			86				—
Operating profit (loss)			31,893				(10,872	)
Other income (expense):
Interest expense			(669	)			(296	)
Interest income			167				297
Foreign exchange gain (loss)			(3,176	)			1,081
Other expense, net			(9	)			(50	)
			(3,687	)			1,032
Income (loss) from continuing operations before income tax expense			28,206				(9,840	)
Income tax expense			(4,349	)			(2,249	)
Income (loss) from continuing operations, net of tax			23,857				(12,089	)
Income from discontinued operations, net of tax			137				264
Consolidated net income (loss)			23,994				(11,825	)
Net (income) loss attributable to the noncontrolling interest			(1,394	)			3,548
Net income (loss) attributable to OM Group, Inc.		$	22,600			$	(8,277	)
Earnings per common share — basic:
Income (loss) from continuing operations attributable to OM Group, Inc. common shareholders		$	0.74			$	(0.28	)
Income from discontinued operations attributable to OM Group, Inc. common shareholders			0.01				0.01
Net income (loss) attributable to OM Group, Inc. common shareholders		$	0.75			$	(0.27	)
Earnings per common share — assuming dilution:
Income (loss) from continuing operations attributable to OM Group, Inc. common shareholders		$	0.74			$	(0.28	)
Income from discontinued operations attributable to OM Group, Inc. common shareholders			—				0.01
Net income (loss) attributable to OM Group, Inc. common shareholders		$	0.74			$	(0.27	)
Weighted average shares outstanding
Basic			30,303				30,187
Assuming dilution			30,451				30,187
Amounts attributable to OM Group, Inc. common shareholders:
Income (loss) from continuing operations, net of tax		$	22,463			$	(8,541	)
Income from discontinued operations, net of tax			137				264
Net income (loss)		$	22,600			$	(8,277	)

See accompanying notes to unaudited condensed consolidated financial statements.

OM Group, Inc. and Subsidiaries
Unaudited Statements of Consolidated Comprehensive Income (Loss)

		Three Months Ended
		March 31,
(In thousands)		2010				2009
Consolidated net income (loss)		$	23,994			$	(11,825	)
Foreign currency translation adjustments			(2,548	)			(10,623	)
Reclassification of hedging activities into earnings, net of tax			236				(31	)
Unrealized gain (loss) on cash flow hedges, net of tax			(1,224	)			500
Net change in accumulated other comprehensive income (loss)			(3,536	)			(10,154	)
Comprehensive income (loss)			20,458				(21,979	)
Comprehensive (income) loss attributable to noncontrolling interest			(1,391	)			3,550
Comprehensive income (loss) attributable to OM Group, Inc.		$	19,067			$	(18,429	)

See accompanying notes to unaudited condensed consolidated financial statements.

OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Cash Flows

		Three Months Ended March 31,
		2010				2009
(In thousands)
Operating activities
Consolidated net income (loss)		$	23,994			$	(11,825	)
Adjustments to reconcile consolidated net income (loss) to net cash provided by
operating activities:
Income from discontinued operations			(137	)			(264	)
Depreciation and amortization			13,173				13,290
Share-based compensation expense			1,674				1,700
Tax deficiency (excess tax benefit) on exercise/vesting of share awards			(92	)			420
Foreign exchange (gain) loss			3,176				(1,081	)
Goodwill impairment charges, net			—				2,629
Restructuring charges			600				—
Other non-cash items			1,327				3,972
Changes in operating assets and liabilities, excluding the effect of business acquisitions
Accounts receivable			(25,805	)			24,930
Inventories			35,237				30,062
Accounts payable			1,753				(27,939	)
Other, net			(4,682	)			712
Net cash provided by operating activities			50,218				36,606
Investing activities
Expenditures for property, plant and equipment			(4,581	)			(5,590	)
Acquisitions			(171,979	)			—
Expenditures for software			(104	)			(663	)
Net cash used for investing activities			(176,664	)			(6,253	)
Financing activities
Payments of long-term debt and revolving line of credit			(105,000	)			(20	)
Proceeds from the revolving line of credit			245,000				—
Debt issuance costs			(2,483	)			—
Tax deficiency (excess tax benefit) on exercise/vesting of share awards			92				(420	)
Proceeds from exercise of stock options			3,792				—
Payment related to surrendered shares			(1,209	)			(372	)
Net cash provided by (used for) financing activities			140,192				(812	)
Effect of exchange rate changes on cash			(3,394	)			(1,954	)
Cash and cash equivalents
Increase in cash and cash equivalents from continuing operations			10,352				27,587
Discontinued operations — net cash provided by operating activities			2				—
Balance at the beginning of the period			355,383				244,785
Balance at the end of the period		$	365,737			$	272,372

See accompanying notes to unaudited condensed consolidated financial statements.

OM Group, Inc. and Subsidiaries
Unaudited Condensed Statements of Consolidated Total Equity

		Three Months Ended March 31,
(In thousands)		2010				2009
Common Stock — Shares Outstanding, net of Treasury Shares
Beginning balance			30,269				30,181
Shares issued under share-based compensation plans			236				65
			30,505				30,246
Common Stock — Dollars
Beginning balance		$	304			$	303
Shares issued under share-based compensation plans			3				1
			307				304
Capital in Excess of Par Value
Beginning balance			569,487				563,454
Share-based compensation — employees			1,606				1,633
Share-based compensation — non-employee directors			68				67
(Tax deficiency) excess tax benefit from exercise/vesting of share awards			92				(420	)
Shares issued under share-based compensation plans			3,789				—
			575,042				564,734
Retained Earnings
Beginning balance			584,508				602,365
Net income (loss) attributable to OM Group, Inc.			22,600				(8,277	)
			607,108				594,088
Treasury Stock
Beginning balance			(6,025	)			(5,490	)
Reacquired shares			(1,209	)			(372	)
			(7,234	)			(5,862	)
Accumulated Other Comprehensive Income (Loss)
Beginning balance			(16,969	)			(29,983	)
Foreign currency translation			(2,548	)			(10,623	)
Reclassification of hedging activities into earnings, net of tax expense (benefit) of $(83) and $11 in 2010 and 2009, respectively			236				(31	)
Unrealized gain (loss) on cash flow hedges, net of tax expense (benefit) of $430 and $(176) in 2010 and 2009, respectively			(1,224	)			500
			(20,505	)			(40,137	)
Total OM Group Inc. stockholders’ equity			1,154,718				1,113,127
Noncontrolling interest
Beginning balance			44,827				47,429
Net income (loss) attributable to the noncontrolling interest			1,394				(3,548	)
Foreign currency translation			(3	)			(2	)
			46,218				43,879
Total equity		$	1,200,936			$	1,157,006

See accompanying notes to unaudited condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements
OM Group, Inc. and Subsidiaries

(In thousands, except as noted and share and per share amounts)

Note 1 — Basis of Presentation

OM Group, Inc. (“OMG” or the “Company”) is a global solutions provider of specialty chemicals, advanced materials, electrochemical energy storage, and technologies crucial to enabling its customers to meet increasingly stringent market and application requirements. The Company believes it is the world’s largest refiner of cobalt and producer of cobalt-based specialty products.

The consolidated financial statements include the accounts of OMG and its consolidated subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The Company has a 55% interest in a joint venture (“GTL”) that has a smelter in the Democratic Republic of Congo (the “DRC”). The joint venture is consolidated because the Company has a controlling interest in the joint venture. Noncontrolling interest is recorded for the remaining 45% interest.

On January 29, 2010, the Company completed the acquisition of EaglePicher Technologies, LLC. The financial position, results of operations and cash flows of EaglePicher Technologies are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. 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 presentation of the financial position of the Company at March 31, 2010 and the results of its operations, comprehensive income (loss), cash flows and changes in total equity for the three months ended March 31, 2010 and 2009 have been included. The balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements at that date but does not include all of the information or notes required by U.S. generally accepted accounting principles for complete financial statements. Past operating results are not necessarily indicative of the results which may occur in future periods, and the interim period results are not necessarily indicative of the results to be expected for the full year. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Note 2 — Recently Issued Accounting Guidance

Accounting Guidance adopted in 2010:

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on “Consolidation of Variable Interest Entities” to require an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. This guidance requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. The Company adopted this guidance on January 1, 2010 and such adoption did not have any effect on the Company’s results of operations or financial position.

In January 2010, the FASB issued guidance related to fair value measurements and disclosures, which are effective for interim and annual fiscal periods beginning after December 15, 2009, except for disclosures about certain Level 3 activity which will not become effective until interim and annual periods beginning after December 15, 2010. This guidance requires companies to disclose transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers as well as activity in Level 3 fair value measurements. The new standard also requires a more detailed level of disaggregation of the assets and liabilities being measured as well as increased disclosures regarding inputs and valuation techniques of the fair value measurements. See Note 9 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q for disclosures related to the new guidance.

Accounting Guidance Not Yet Adopted

In October 2009, the FASB issued guidance on multiple-deliverable revenue arrangements that addresses the unit of accounting for arrangements involving multiple deliverables. This guidance is effective for annual periods beginning after June 15, 2010. The guidance also addresses how arrangement consideration should be allocated to separate units of accounting, when applicable, and expands the disclosure requirements for multiple-deliverable arrangements. The Company has not determined the effect, if any, the adoption of this guidance will have on its results of operations or financial position.

Note 3 — Acquisition

On January 29, 2010, the Company completed the acquisition of EaglePicher Technologies LLC from EaglePicher Corporation for approximately $172 million in cash. Based in Joplin, Missouri, EaglePicher Technologies is a leader in portable power solutions and energy storage technologies serving aerospace, defense and medical markets and is developing technologies in advanced power storage to serve alternative energy storage markets. EaglePicher Technologies product offerings can be grouped into two broad categories: (i) proprietary battery products and (ii) complementary battery support products that consist of energetic devices, chargers, battery management systems and distributed products. In fiscal year 2009, EaglePicher Technologies recorded revenues of approximately $125 million, of which approximately 60 percent came from its defense business, approximately 33 percent from its aerospace business, and the balance from its medical and other businesses. EaglePicher Technologies is operated and reported within a new segment called Battery Technologies. The acquisition of EaglePicher Technologies furthers the Company’s growth strategy and expands its presence in the battery market. The pro-forma effect of the EaglePicher Technologies acquisition is immaterial to the Company’s results of operations.

The purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. Because information may become available within the measurement period which could result in a potential change to the intangible asset valuations, the purchase price allocation is preliminary and subject to change. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date. The purchase price exceeded the fair value of the net assets acquired, resulting in $67.9 million of goodwill, of which $21.1 million is deductible for tax purposes. The excess purchase price over net assets acquired reflects the Company’s view that this acquisition will add broad technical expertise in battery applications, which will be critical to the Company’s growth in battery materials and technologies. The following represents the preliminary allocation of the purchase price:

Accounts Receivable		$	12,148
Inventory			27,463
Other current assets			1,936
Property, plant and equipment			45,399
Other assets			5,276
Customer relationships			37,000
Know-how			18,600
Developed technology			3,100
Tradename			20,700
Goodwill			67,868
Total assets acquired			239,490
Net pension obligations			42,902
Other liabilities			24,609
Total liabilities assumed			67,511
		$	171,979

Customer relationships represent the estimated value of relationships with customers acquired in connection with the acquisition. Developed technology and know-how represent a combination of processes, patents and trade secrets developed through years of experience in development and manufacturing of EaglePicher Technologies products. Tradename represents the EaglePicher name that the Company will continue to use. The weighted-average amortization periods for customer relationships, know-how and developed technology acquired are 20 years, 20 years and 15 years, respectively. The tradename is an indefinite-lived asset that will be tested for impairment at least annually.

In connection with the EaglePicher Technologies acquisition, the Company incurred a total of $3.5 million in acquisition-related costs, of which $2.2 million was recognized during the three months ended March 31, 2010 and $1.3 million was recognized in the fourth quarter of 2009. Acquisition-related costs are included in Selling, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations. A significant portion of these expenses were related to investment banking and due diligence fees.

Note 4 — Restructuring

During 2009, the Company announced, and began to implement, a restructuring plan for the Company’s Advanced Organics business within the Specialty Chemicals segment to better align the cost structure and asset base to industry conditions, resulting from weak customer demand, commoditization of the products and overcapacity in the European carboxylate business. The restructuring plan includes exiting of the Manchester, England manufacturing facility and workforce reductions at the Company’s Belleville, Ontario, Canada; Kokkola, Finland; Franklin, Pennsylvania and Westlake, Ohio locations. The restructuring plan includes the elimination of 100 employee positions, including two in Westlake, five in Belleville, six in Franklin, 15 in Kokkola and 72 in Manchester. The majority of position eliminations are expected to be completed by mid-2010. The restructuring plan does not involve the discontinuation of any material product lines or other functions.

During the first quarter of 2010, the Company recorded restructuring charges totaling $0.6 million in the Unaudited Condensed Consolidated Statements of Operations. The Company will continue to incur severance, decommissioning and demolition costs, lease termination costs and other exit costs that will be expensed as incurred. The Company has incurred, or expects to incur, the following restructuring charges:

										Charges incurred				Additional
		Total charges				Total charges				in the three				charges
		expected to				incurred through				months ended				expected to
		be incurred				December 31, 2009				March 31, 2010				be incurred
Cash charges
Workforce reductions		$	7,340			$	4,967			$	574			$	1,799
Decommissioning, demolition and lease termination charges			2,427				25				26				2,376
			9,767				4,992				600				4,175
Non-cash charges
Fixed asset impairment			5,536				5,536				—				—
Inventory impairment			1,890				1,890				—				—
Other charges			290				290				—				—
			7,716				7,716				—				—
Total charges		$	17,483			$	12,708			$	600			$	4,175

The following table presents the activity and balances related to the restructuring program:

						Fixed asset
		Workforce				and inventory
		reductions				impairments				Other charges				Total
Balance at December 31, 2009		$	4,859			$	—			$	25			$	4,884
Charges			574				—				26				600
Foreign currency translation adjustment			(268	)			—				—				(268	)
Cash payments			(269	)			—				(48	)			(317	)
Non-cash charges			—				—				—				—
Balance at March 31, 2010		$	4,896			$	—			$	3			$	4,899

The restructuring accrual represents future cash payments and is recorded on the Unaudited Condensed Consolidated Balance Sheets ($4.0 million is included in Other current liabilities and $0.9 million is included in Other non-current liabilities). Workforce reduction

payments, primarily severance, are expected to be completed by the end of 2011, with the majority of payments occurring in the second half of 2010 and the first half of 2011.

Note 5 — Inventories

Inventories consist of the following:

		March 31,				December 31,
		2010				2009
Raw materials and supplies		$	132,525			$	150,113
Work-in-process			40,076				15,952
Finished goods			106,721				121,031
		$	279,322			$	287,096

Note 6 — Debt

On March 8, 2010, the Company entered into a new $250.0 million secured revolving credit facility (the “Revolver”). The Revolver replaced the Company’s prior revolving credit facility that was scheduled to expire in December 2010. The Revolver includes an “accordion” feature under which the Company may increase the Revolver’s availability by $75.0 million to a maximum of $325.0 million, subject to certain customary conditions and the agreement of current or new lenders to accept a portion of the increased commitment. To date the Company has not sought to borrow under the accordion feature. Obligations under the Revolver are guaranteed by the Company’s present and future subsidiaries (other than immaterial subsidiaries, joint ventures and certain foreign subsidiaries) and are secured by a lien on substantially all of the personal property assets of the Company and subsidiary guarantors, except that the lien on the shares of first-tier foreign subsidiaries is limited to 65% of such shares.

The Revolver requires the Company to maintain a minimum consolidated interest coverage ratio of no less than 3.50 to 1.00 and a maximum consolidated leverage ratio of not more than 2.50 to 1.00. At March 31, 2010, the Company’s interest coverage ratio was 85.94 to 1.00 and its leverage ratio was 1.02 to 1.00. Both of the financial covenants are tested quarterly for each trailing four consecutive quarter period. Other covenants in the Revolver limit consolidated capital expenditures to $50.0 million per year and also limit the Company’s ability to incur additional indebtedness, make investments, merge with another corporation, dispose of assets and pay dividends. As of March 31, 2010, the Company was in compliance with all of the covenants under the Revolver.

The Company has the option to specify that interest be calculated based either on a London interbank offered rate (“LIBOR”) or on a variable base rate, plus, in each case, a calculated applicable margin. The applicable margins range from 1.25% to 2.00% for base rate loans and 2.25% to 3.00% for LIBOR loans. The Revolver also requires the payment of a fee of 0.375% to 0.5% per annum on the unused commitment and a fee on the undrawn amount of letters of credit at a rate equal to the applicable margin for LIBOR loans. The applicable margins and unused commitment fees are subject to adjustment quarterly based upon the leverage ratio. The Revolver provides for interest-only payments during its term, with all unpaid principal due at maturity on March 8, 2013. The outstanding Revolver balance was $140.0 million at March 31, 2010 and the outstanding balance under the prior credit facility was $0.0 million at December 31, 2009. At March 31, 2010, the weighted average interest rate for the outstanding borrowings under the Revolver was 2.75%.

The Company incurred fees and expenses of $2.5 million related to the Revolver. These fees and expenses were deferred and are being amortized to interest expense over the three-year term of the Revolver.

During 2008, the Company’s Finnish subsidiary, OMG Kokkola Chemicals Oy (“OMG Kokkola”), entered into a €25 million credit facility agreement (the “Credit Facility”). Under the Credit Facility, subject to the lender’s discretion, OMG Kokkola can draw short-term loans, ranging from one to six months in duration, in U.S. dollars at LIBOR plus a margin of 0.55%. The Credit Facility has an indefinite term, and either party can immediately terminate the Credit Facility after providing notice to the other party. The Company agreed to unconditionally guarantee all of the obligations of OMG Kokkola under the Credit Facility. There were no borrowings outstanding under the Credit Facility at March 31, 2010 or December 31, 2009.

Note 7 — Pension Plans

As a result of the EaglePicher Technologies acquisition, the Company assumed $42.9 million of net pension obligations, which consists of projected benefit obligations of $182.7 million offset by the fair value of plan assets of $139.8 million. The Company also

has a funded, non-contributory, defined benefit pension plan for certain retired employees in the United States related to the Company’s divested SCM business. Pension benefits are paid to plan participants directly from pension plan assets. In addition, the Company has an unfunded obligation to its former chief executive officer in settlement of an unfunded supplemental executive retirement plan (“SERP”). Certain non-U.S. employees are covered under other defined benefit plans. These non-U.S. plans are not material.

The expected long-term rate of return on defined benefit plan assets reflects management’s expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. The Company has established the expected long-term rate of return assumption for plan assets by considering historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans. The historical rates of return for each of the asset classes used by the Company to determine its estimated rate of return assumption were based upon the rates of return earned by investments in the equivalent benchmark market indices for each of the asset classes. The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the defined benefit plans against the corresponding yield of high-quality corporate bonds of equivalent maturities. Actuarial assumptions used in the calculation of the EaglePicher Technologies pension obligations are as follows:

Discount rate			5.5% - 5.8	%
Expected return on pension plan assets			6.75% - 8.25	%
Cash balance interest credit			4.25	%
Rate of compensation increase			3.50	%

Set forth below is a detail of the net periodic expense for the U.S. pension defined benefit plans:

		Three Months Ended
		March 31,
		2010				2009
Pension Benefits
Interest cost		$	1,987			$	342
Service cost			175				—
Amortization of unrecognized net loss			84				54
Expected return on plan assets			(1,788	)			(197	)
Total expense		$	458			$	199

As a result of the assumption of the EaglePicher Technologies pension obligations, the Company expects to contribute an additional $3.1 million to its pension plans in 2010, for a total of $3.9 million.

Note 8 — Derivative Instruments

The Company enters into derivative instruments and hedging activities to manage, where possible and economically efficient, commodity price risk, foreign currency exchange rate risk and interest rate risk related to borrowings. It is the Company’s policy to execute such instruments with creditworthy counterparties and not enter into derivative instruments for speculative purposes. All derivatives are reflected on the balance sheet at fair value and recorded in other current assets and other current liabilities in the Unaudited Condensed Consolidated Balance Sheets. The accounting for the fair value of a derivative depends upon whether it has been designated as a hedge and on the type of hedging relationship. Changes in the fair value of derivative instruments are recognized immediately in earnings, unless the derivative is designated as a hedge and qualifies for hedge accounting. Under hedge accounting, recognition of derivative gains and losses can be matched in the same period with that of the hedged exposure and thereby minimize earnings volatility. To qualify for designation in a hedging relationship, specific criteria must be met and appropriate documentation prepared.

For a fair value hedge, the change in fair value of the hedging instrument and the change in fair value of the hedged item attributable to the risk being hedged are both recognized currently in earnings. For a cash flow hedge, the effective portion of the change in fair value of a hedging instrument is initially recognized in Accumulated other comprehensive income (loss) (“AOCI(L)”) in stockholders’ equity and subsequently reclassified to earnings when the hedged item affects income. The ineffective portion of the change in fair value of a cash flow hedge is recognized immediately in earnings. For a net investment hedge, the effective portion of the change in

fair value of the hedging instrument is reported in AOCI(L) as part of the cumulative translation adjustment, while the ineffective portion is recognized immediately in earnings. The Company does not enter into net investment hedges.

Commodity Price Risk

The Company enters into derivative instruments and hedging activities to manage commodity price risk. The Company, from time to time, employs derivative instruments in connection with certain purchases and sales of inventory in order to establish a fixed margin and mitigate the risk of price volatility. Some customers request fixed pricing and the Company may use a derivative to mitigate price risk. The Company makes or receives payments based on the difference between a fixed price (as specified in each individual contract) and the market price of the commodity being hedged. These payments will offset the change in prices of the underlying sales or purchases and effectively fix the price of the hedged commodity at the contracted rate for the contracted volume. While this hedging may limit the Company’s ability to participate in gains from favorable commodity price fluctuations, it eliminates the risk of loss from adverse commodity price fluctuations.

Derivative instruments employed by the Company to manage commodity price risk include cash flow and fair value hedges as well as some contracts that are not designated as accounting hedges.

Cash Flow Hedges

From time to time, the Company enters into copper forward sales contracts that are designated as cash flow hedges. At December 31, 2009, the notional quantity of open contracts designated as cash flow hedges in accordance with the “Derivatives and Hedging” topic of the ASC was 1.3 million pounds. The Company had no cash flow hedges at March 31, 2010.

Fair Value Hedges

From time to time, the Company enters into certain cobalt forward purchase contracts designated as fair value hedges. The Company had no fair value hedges at March 31, 2010 and December 31, 2009.

Foreign Currency Exchange Rate Risk

The functional currency for the Company’s Finnish operating subsidiary is the U.S. dollar since a majority of its purchases and sales are denominated in U.S. dollars. Accordingly, foreign currency exchange gains and losses related to transactions of this subsidiary denominated in other currencies (principally the Euro) are included in earnings. While a majority of the subsidiary’s raw material purchases are in U.S. dollars, it also has some Euro-denominated expenses. Beginning in 2009, the Company entered into foreign currency forward contracts to mitigate a portion of the earnings volatility in those Euro-denominated cash flows due to changes in the Euro/U.S. dollar exchange rate. The Company had Euro forward contracts with notional values that totaled 33.3 million Euros and 1.5 million Euros at March 31, 2010 and December 31, 2009, respectively. The Company designated these derivatives as cash flow hedges of its forecasted foreign currency denominated expense. The outstanding contracts as of March 31, 2010 had maturities ranging up to nine months. As of March 31, 2010, AOCI(L) included a cumulative loss of $1.0 million, net of tax, related to these contracts, all of which is expected to be reclassified to earnings within the next twelve months.

Interest Rate Risk

The Company is exposed to interest rate risk primarily through its borrowing activities. If needed, the Company predominantly utilizes U.S. dollar-denominated borrowings to fund its working capital and investment needs. There is an inherent rollover risk for borrowings as they mature and are renewed at current market rates. From time to time, the Company enters into derivative instruments and hedging activities to manage, where possible and economically efficient, interest rate risk related to borrowings. The Company had no outstanding interest rate derivatives at March 31, 2010.

The following table summarizes the fair value of derivative instruments designated as hedging instruments in accordance with the “Derivatives and Hedging” topic of the ASC as recorded in the Unaudited Condensed Consolidated Balance Sheets:

		Derivative Assets
		March 31, 2010								December 31, 2009
		Balance sheet location				Fair value				Balance sheet location				Fair value
Euro forward contracts		Other current assets				$	—			Other current assets				$	258
Commodity contracts		Other current assets					—			Other current assets					—
Total						$	—							$	258

		Derivative Liabilities
		March 31, 2010								December 31, 2009
		Balance sheet location				Fair value				Balance sheet location				Fair value
Euro forward contracts		Other current liabilities				$	1,303			Other current liabilities				$	—
Commodity contracts		Other current liabilities					—			Other current liabilities					226
Total						$	1,303							$	226

The following table summarizes the effect of derivative instruments for the three months ended March 31 as recorded in the Unaudited Condensed Consolidated Statements of Operations:

Derivatives in Fair Value Hedging Relationships

Amount of Gain (Loss) on Derivative Recognized

Location of Gain (Loss)

in Income for the

on Derivative

Three Months Ended

Recognized in Income

March 31, 2010

March 31, 2009

Commodity contracts

Cost of products sold

$

—

$

227

Location of Gain (Loss)

Amount of Gain (Loss) on Related Hedged Item

Hedged Items in Fair

on Related Hedged

Recognized in Income for the Three Months

Value Hedging

Item Recognized in

Ended

Relationships

Income

March 31, 2010

March 31, 2009

Commodity contracts

Firm commitment

Cost of products sold

$

—

$

(227

)

Derivatives in Cash Flow Hedging Relationships
						Amount of Gain (Loss) on Derivative Recognized
						in AOCI(L) (Effective Portion) for the Three
						Months Ended
						March 31, 2010				March 31, 2009
Euro forward contracts						$	(1,170	)		$	500
Commodity contracts							(54	)			—
Total						$	(1,224	)		$	500

		Location of Gain (Loss)				Amount of Gain (Loss) Reclassified from
		Reclassified from				AOCI(L) into Income (Effective Portion) for the
		AOCI(L) into Income				Three Months Ended
		(Effective Portion)				March 31, 2010				March 31, 2009
Euro forward contracts		Cost of products sold				$	(15	)		$	31
Commodity contracts		Net sales					(221	)			—
Total						$	(236	)		$	31

Location of Gain (Loss) on

Amount of Gain (Loss) Recognized on Derivative

Derivative Recognized in

in Income (Ineffective Portion) for the Three

Income (Ineffective

Months Ended*

Portion)

March 31, 2010

March 31, 2009

Euro forward contracts

n/a

$

—

$

—

Commodity contracts

n/a

—

—

Total

$

—

$

—

Note 9 — Fair Value Disclosures

The following table shows the Company’s assets and liabilities accounted for at fair value on a recurring basis:

						Fair Value Measurements at Reporting Date Using
						Quoted Prices in
						Active Markets for				Significant Other				Significant
						Identical Assets				Observable Inputs				Unobservable Inputs
Description		March 31, 2010				(Level 1)				(Level 2)				(Level 3)
Liabilities:
Foreign currency forward contracts		$	1,303			$	—			$	1,303			$	—
Total		$	1,303			$	—			$	1,303			$	—

The Company uses significant other observable inputs to value derivative instruments used to hedge foreign currency volatility; therefore, they are classified within Level 2 of the valuation hierarchy. The fair value of these contracts is determined based on foreign exchange rates. There were no transfers into or out of Levels 1, 2 or 3 in the first quarter of 2010.

The Company also holds financial instruments consisting of cash, accounts receivable and accounts payable. The carrying amounts of cash, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The carrying value of the Company’s Revolver approximates fair value due to the variable interest rate terms. Derivative instruments are recorded at fair value as indicated in the preceding disclosures. Fair values for investments held at cost are not readily available, but are estimated to approximate fair value. Cost method investments are evaluated for impairment quarterly. The Company has a $2.0 million investment in Quantumsphere, Inc. (“QSI”) accounted for under the cost method. The Company and QSI have agreed to co-develop new, proprietary applications for the high-growth, high-margin clean-energy and portable power sectors. In addition, the Company has the right to market and distribute certain QSI products.

Note 10 — Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. The Internal Revenue Service is currently examining the Company’s 2007 U.S. federal income tax return. This examination is expected to be completed in 2010.

The Company’s interim income tax provisions are based on the application of an estimated annual effective income tax rate applied to year-to-date income (loss) from continuing operations before income tax expense. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including forecasts of the Company’s projected annual earnings (including specific subsidiaries projected to have pretax income and pretax losses), taxing jurisdictions in which the earnings will be generated, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. The tax effects of discrete items, including the effect of changes in tax laws, tax rates, certain circumstances with respect to valuation allowances or other unusual or non-recurring items, are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated annual effective income tax rate.

Income (loss) from continuing operations before income tax expense consists of the following:

		Three Months Ended March 31,
		2010				2009
United States		$	(7,673	)		$	(15,017	)
Outside the United States			35,879				5,177
		$	28,206			$	(9,840	)

The Company’s effective income tax rates are as follows:

		Three Months Ended March 31,
		2010				2009
Effective income tax rate			15.4	%			-22.9	%

In the first quarter of 2010, the Company recorded discrete tax benefit items totaling $4.0 million. Of this amount, $2.6 million related to GTL, of which the Company’s portion was $1.4 million. The GTL discrete tax item is primarily related to a return—to-provision adjustment as a result of additional depreciation from revaluation of the fixed assets at December 31, 2009. The revaluation is dependent on information provided by the DRC government that was not available at the time of the filing of the Company’s 2009 Form 10-K. The Company also recorded a discrete benefit of $0.9 million related to its prior year uncertain tax positions as a result of a change in estimate based on additional information that became available during the first quarter of 2010. Without the discrete items, the effective tax rate for the three months ended March 31, 2010 would have been 29.6%. This rate is lower than the U.S. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the U.S. (primarily Finland, which has a 26% statutory tax rate) and a tax holiday in Malaysia. This was partially offset by losses in certain jurisdictions (including the U.S.) with no corresponding tax benefit. In the three months ended March 31, 2010, there is no U.S. tax expense related to the planned repatriation of foreign earnings during 2010 due to utilization of foreign tax credits and U.S. losses.

In the first quarter of 2009, the Company recorded discrete tax expense items totaling $4.7 million. Of this amount, $5.9 million related to GTL, which amount was partially offset by a $1.2 million reversal of a liability as a result of settlement of an uncertain tax position. Without these discrete items, the effective tax rate for the three months ended March 31, 2009 would have been 24.9%. This rate is lower than the U.S. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the U.S. (primarily Finland, which has a 26% statutory tax rate). This factor was partially offset by losses in certain jurisdictions with no corresponding tax benefit, and taxes related to the planned repatriation of foreign earnings in 2009.

The Malaysian tax holiday, which results from an investment incentive arrangement and expires on December 31, 2011, reduced income tax expense by $2.0 million and increased net income per diluted share by approximately $0.07 in the three months ended March 31, 2010. The Malaysian tax holiday had no impact on the three months ended March 31, 2009 due to consolidated losses in that period.

As noted above, in the first quarter of 2010, the Company recorded a $0.9 million benefit related to its prior year uncertain tax positions, partially offset by a charge of $0.3 million related to current year uncertain tax positions. If recognized, all uncertain tax positions would effect the effective tax rate.

Note 11 — Earnings Per Share

The following table sets forth the computation of basic and diluted income (loss) per common share from continuing operations attributable to OM Group, Inc. common shareholders:

		Three Months Ended
		March 31,
		2010				2009
(in thousands, except per share amounts)
Income (loss) from continuing operations attributable to
OM Group, Inc. common shareholders		$	22,463			$	(8,541	)
Weighted average shares outstanding — basic			30,303				30,187
Dilutive effect of stock options and restricted stock			148				—
Weighted average shares outstanding — assuming dilution			30,451				30,187
Earnings per common share:
Income (loss) from continuing operations attributable to
OM Group, Inc. common shareholders — basic		$	0.74			$	(0.28	)
Income (loss) from continuing operations attributable to
OM Group, Inc. common shareholders — assuming dilution		$	0.74			$	(0.28	)

The following table sets forth the computation of basic and diluted net income (loss) per common share attributable to OM Group, Inc. common shareholders:

		Three Months Ended
		March 31,
		2010				2009
(in thousands, except per share amounts)
Net income (loss) attributable to OM Group, Inc. common shareholders		$	22,600			$	(8,277	)
Weighted average shares outstanding — basic			30,303				30,187
Dilutive effect of stock options and restricted stock			148				—
Weighted average shares outstanding — assuming dilution			30,451				30,187
Earnings per common share:
Net income (loss) attributable to OM Group, Inc. common
shareholders — basic		$	0.75			$	(0.27	)
Net income (loss) attributable to OM Group, Inc. common
shareholders — assuming dilution		$	0.74			$	(0.27	)

The Company uses the treasury stock method to calculate the effect of outstanding share-based compensation awards, which requires the Company to compute total employee proceeds as the sum of (a) the amount the employee must pay upon exercise of the award, (b) the amount of unearned share-based compensation costs attributed to future services and (c) the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the award. Shares under share-based compensation awards for which the total employee proceeds exceed the average market price over the applicable period have an antidilutive effect on earnings per share, and accordingly, are excluded from the calculation of diluted earnings per share.

In the first quarter of 2010, stock options to purchase 0.2 million shares of common stock were excluded from the calculation of dilutive earnings per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would have been anti dilutive.

As the Company had a loss from continuing operations for the three months ended March 31, 2009, the effect of including dilutive securities in the earnings per share calculation would have been antidilutive. Accordingly, all shares under share-based compensation awards were excluded from the calculation of loss from continuing operations attributable to OM Group, Inc. common shareholders assuming dilution and net loss attributable to OM Group, Inc. common shareholders assuming dilution for the three months ended March 31, 2009.

Note 12 — Commitments and Contingencies

In March 2009, GTL was served in the Jersey Islands with an injunction obtained by FG Hemisphere Associates LLC (“FG Hemisphere”) which is seeking to enforce two arbitration awards made in 2003 by an arbitral tribunal operating under the auspices of the International Court of Arbitration against the DRC and Société Nationale D’Electricité for $108.3 million. FG Hemisphere asserts that Gécamines (a partner in GTL) is an organization of the DRC and that FG Hemisphere is entitled to enforce the arbitral awards in the Jersey Islands against any assets of Gécamines and the DRC located in that jurisdiction (including monies paid or to be paid by GTL to Gécamines or the DRC). GTL has been enjoined from making payments to the DRC and Gécamines under the Long Term Slag Sales Agreement between GTL and Gécamines. The Company does not believe the Royal Court of Jersey has jurisdiction over the assets of GTL, including payments to Gécamines; however, until the Court addresses this issue, which is scheduled for the second quarter of 2010, GTL will continue to comply with the terms of the injunction. As a result, the accounts payable from GTL to Gécamines (included in Accounts Payable on the Unaudited Condensed Consolidated Balance Sheets) has increased to $43.6 million at March 31, 2010 from $23.3 million at December 31, 2009. While there can be no assurances with respect to the final outcome of this process, the Company believes that, based on the information currently available to it, this matter will not have a material adverse effect upon its financial condition, results of operations, or cash flows.

The Company has potential contingent liabilities with respect to environmental matters related to its former Precious Metals Group (“PMG”) operations in Brazil. The Company has been informed by the purchaser of the PMG operations of potential environmental issues at three of the operating locations in Brazil. Environmental cost sharing arrangements are in place between the original owner and operator of those PMG operations, the Company and the subsequent purchaser of the PMG operations. The Company is reviewing information made available to it on the environmental conditions, but cannot currently evaluate whether or not, or to what extent, it will be responsible for any remediation costs.

The Company 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. A number of factors affect the cost of environmental remediation, including the determination of the extent of contamination, the length of time the remediation may require, the complexity of environmental regulations, and the continuing improvements in remediation techniques. Taking these factors into consideration, the Company estimates the undiscounted costs of remediation, which will be incurred over several years, and accrues an amount consistent with the estimates of these costs when it is probable that a liability has been incurred. At March 31, 2010 and December 31, 2009, the Company has recorded environmental liabilities of $2.6 million and $2.8 million, respectively, related to remediation and decommissioning at the Company’s closed manufacturing sites in Newark, New Jersey and Vasset, France. In addition, at March 31, 2010, the Company has a $1.4 million environmental liability associated with the Joplin, Missouri site acquired in the EaglePicher Technologies acquisition. Although it is difficult to quantify the potential impact of compliance with, or liability under, environmental protection laws, the Company believes that any amount it may be required to pay in connection with environmental matters is not reasonably likely to exceed amounts accrued by an amount that would have a material adverse effect upon its financial condition, results of operations or cash flows.

From time to time, the Company is subject to various legal and regulatory proceedings, claims and assessments that arise in the normal course of business. The ultimate resolution of such proceedings, claims and assessments is inherently unpredictable and, as a result, the Company’s estimates of liability, if any, are subject to change and actual results may materially differ from the Company’s estimates. The Company’s estimate of any costs to be incurred as a result of these proceedings, claims and assessments are accrued when the liability is considered probable and the amount can be reasonably estimated. The Company believes the amount of any potential liability with respect to legal and regulatory proceedings, claims and assessments will not have a material adverse effect upon its financial condition, results of operations, or cash flows.

Note 13 — Share-Based Compensation

Under the 2007 Incentive Compensation Plan (the “2007 Plan”), the Company may grant stock options, stock appreciation rights, restricted stock awards and phantom stock and restricted stock unit awards to selected employees and non-employee directors. The 2007 Plan also provides for the issuance of common stock to non-employee directors as all or part of their annual compensation for serving as directors, as may be determined by the board of directors. The Unaudited Condensed Statements of Consolidated Operations include share-based compensation expense for option grants, restricted stock awards and restricted stock unit awards granted to employees as a component of Selling, general and administrative expenses in the amount of $1.8 million and $1.7 million for the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010, there was $8.6 million of total unrecognized compensation expense related to nonvested share-based awards. That cost is expected to be recognized as follows: $3.3 million in the remaining nine months of 2010, $3.1 million in 2011, $2.0 million in 2012 and $0.2 million in 2013. Unearned compensation expense is recognized over the vesting period for the particular grant. Total unrecognized compensation cost will be adjusted for future changes in actual and estimated forfeitures and fluctuations in the fair value of restricted stock unit awards.

Non-employee directors of the Company currently are paid a portion of their annual retainer in unrestricted shares of common stock. For purposes of determining the number of shares of common stock to be issued, shares are valued at the average of the high and low sale price of the Company’s common stock on the NYSE on the last trading day of the quarter. The Company issued 2,124 and 3,240 shares to non-employee directors during the three months ended March 31, 2010 and 2009, respectively.

Stock Options

Options granted generally vest in equal increments over a three-year period from the grant date. Upon any change in control of the Company, as defined in the applicable plan, or upon death, disability or retirement, the stock options become 100% vested and exercisable. The Company accounts for options that vest over more than one year as one award and recognizes expense related to those awards on a straight-line basis over the vesting period. The Company granted stock options to purchase 235,350 and 188,003 shares of common stock during the three months ended March 31, 2010 and 2009, respectively. Included in the 2009 grants are stock

options to purchase 7,703 shares of common stock with a vesting period of one year, which were granted to the Company’s chief executive officer in connection with payment of his 2008 high-performance bonus.

The fair value of options granted during the three months ended March 31, 2010 and 2009 was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions:

		2010				2009
Risk-free interest rate			2.7	%			2.1	%
Dividend yield			—				—
Volatility factor of Company common stock			0.58				0.59
Weighted-average expected option life (years)			6.0				6.0
Weighted-average grant-date fair value		$	17.23			$	11.23

The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the term of the options being valued. The dividend yield assumption is zero, as the Company intends to continue to retain earnings for use in the operations of the business and does not anticipate paying dividends in the foreseeable future. Expected volatilities are based on historical volatility of the Company’s common stock. The expected term of options granted is determined using the simplified method allowed by Staff Accounting Bulletin (“SAB”) No. 110 as historical data was not sufficient to provide a reasonable estimate. Under this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term.

The following table sets forth the number of shares and weighted-average grant-date fair value:

						Weighted
						Average Fair
						Value at Grant
		Shares				Date
Non-vested at January 1, 2010			337,812			$	18.96
Granted during the first three months of 2010			235,350			$	17.23
Granted during the first three months of 2009			188,003			$	11.23
Vested during the first three months of 2010			169,709			$	21.10
Vested during the first three months of 2009			107,631			$	27.09
Forfeited during the first three months of 2010			1,668			$	18.69
Forfeited during the first three months of 2009			2,616			$	20.74
Non-vested at March 31, 2010			401,785			$	17.04
Non-vested at March 31, 2009			385,045			$	18.60

The Company received cash payments of $3.8 million during the three months ended March 31, 2010 in connection with the exercise of stock options. The Company may use authorized and unissued or treasury shares to satisfy stock option exercises and restricted stock awards. The Company does not settle stock options for cash. The total intrinsic value of options exercised was $2.1 million during the three months ended March 31, 2010. The intrinsic value of an option represents the amount by which the market value of the stock exceeds the exercise price of the option. There were no options exercised in the three months ended March 31, 2009.

A summary of the Company’s stock option activity for the three months ended March 31, 2010 is as follows:

(Aggregate Intrinsic Value in thousands)										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Term (Years)				Value
Outstanding at January 1, 2010			1,035,942			$	35.37
Granted			235,350			$	30.66
Exercised			(168,321	)		$	22.53
Expired unexercised			(1,333	)		$	58.57
Forfeited			(1,668	)		$	37.04
Outstanding at March 31, 2010			1,099,970			$	36.30				7.29			$	5,012
Vested or expected to vest at March 31, 2010			1,069,197			$	36.36				7.23			$	4,851
Exercisable at March 31, 2010			698,185			$	39.05				6.12			$	2,510

Restricted Stock — Performance-Based Awards

During the first three months of 2010 and 2009, the Company awarded 120,200 and 87,250 shares, respectively, of performance-based restricted stock that vest subject to the Company’s financial performance. The number of shares of restricted stock that ultimately vest is based upon the Company’s achievement of specific measurable performance criteria. A recipient of performance-based restricted stock may earn a total award ranging from 0% to 100% of the initial grant, with target being 50% of the initial grant. The shares awarded during 2010 will vest upon the satisfaction of established performance criteria based on consolidated EBITDA Margin (defined as operating profit plus depreciation and amortization expense divided by revenue) measured against a predetermined peer group, and average return on net assets, in each case over a three-year performance period ending December 31, 2012. The shares awarded during 2009 will vest upon the satisfaction of the same performance criteria measured, in each case over a three-year performance period ending December 31, 2011. In addition, 60,200 shares were awarded during 2008 and will vest upon the satisfaction of established performance criteria based on consolidated operating profit and average return on net assets, in each case over a three-year performance period ending December 31, 2010.

The performance period for 86,854 shares awarded during 2007 ended on December 31, 2009. A total of 80,600 of the shares awarded during 2007 were subject to vesting based upon the level of satisfaction of established performance criteria based on the Company’s consolidated operating profit and average return on net assets, in each case over the three-year performance period ended December 31, 2009. Based upon the level of satisfaction of the performance objectives as determined by the Compensation Committee in March 2010, 74,676 performance-based shares vested and were issued in the first quarter of 2010. Upon vesting, employees surrendered 26,651 shares of common stock to the Company to pay required minimum withholding taxes applicable to the vesting of restricted stock. The surrendered shares are held by the Company as treasury stock. The remaining 6,254 shares issued in 2007 did not vest as the Company did not meet an established earnings target during any one of the years in the three-year performance period ended December 31, 2009.

The value of the performance-based restricted stock awards was based upon the market price of an unrestricted share of the Company’s common stock at the date of grant. The Company recognizes expense related to performance-based restricted stock ratably over the requisite performance period based upon the number of shares that are anticipated to vest. The number of shares anticipated to vest is evaluated quarterly and compensation expense is adjusted accordingly. Upon any change in control of the Company, as defined in the applicable plan, or upon retirement, the shares become 100% vested at the target level. In the event of death or disability, a pro rata number of shares remain eligible for vesting at the end of the performance period.

A summary of the Company’s performance-based restricted stock awards for the three months ended March 31, 2010 is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Non-vested at January 1, 2010			221,579			$	37.52
Granted			120,200			$	30.66
Vested			(74,676	)		$	41.43
Forfeited			(9,153	)		$	47.18
Non-vested at March 31, 2010			257,950			$	32.85
Expected to vest at March 31, 2010			27,635

Restricted Stock Units — Performance-Based Awards

During the three months ended March 31, 2010 and 2009, the Company awarded 19,850 and 22,480 performance-based restricted stock units, respectively, to employees outside the U.S. that vest subject to the Company’s financial performance for three-year performance periods ending on December 31, 2012 and December 31, 2011, respectively. These awards will be settled in cash based on the value of the Company’s common stock at the vesting date. Since the awards will be settled in cash, they are recorded as a liability award in accordance with the “Stock Compensation” topic of the ASC. Accordingly, the Company records these awards as a component of other non-current liabilities on the Unaudited Condensed Consolidated Balance Sheets. The fair value of the award, which determines the measurement of the liability on the balance sheet, is remeasured at each reporting period until the award is settled. Fluctuations in the fair value of the liability awards are recorded as increases or decreases to compensation expense. Over the life of these awards, the cumulative amount of compensation expense recognized will match the actual cash paid. The number of restricted stock units that ultimately vest is based upon the Company’s achievement of the same performance criteria as the 2010 and 2009 performance-based restricted stock awards described above.

The Company recognizes expense related to performance-based restricted stock units ratably over the requisite performance period based upon the number of units that are anticipated to vest. The number of units anticipated to vest is evaluated quarterly and compensation expense is adjusted accordingly. Upon any change in control of the Company, as defined in the applicable plan, or upon retirement, the units become 100% vested at the target level. In the event of death or disability, a pro rata number of units remain eligible for vesting at the end of the performance period.

A summary of the Company’s performance-based restricted stock unit awards for the three months ended March 31, 2010 is as follows:

		Units
Non-vested at January 1, 2010			19,380
Granted			19,850
Forfeited			—
Non-vested at March 31, 2010			39,230
Expected to vest at March 31, 2010			4,218

Restricted Stock — Time-Based Awards

During the three months ended March 31, 2010 and 2009, the Company awarded 62,400 and 24,850 shares of time-based restricted stock, respectively, that vest three years from the date of grant, subject to the respective recipient remaining employed by the Company on that date. In addition, during the three months ended March 31, 2009, the Company awarded 4,127 shares of time-based restricted stock with a vesting period of one year to its chief executive officer in connection with payment of his 2008 high-performance bonus. The value of the restricted stock awards, based upon the market price of an unrestricted share of the Company’s common stock at the respective dates of grant, was $1.9 million for the 2010 awards and $0.6 million for the 2009 awards. Compensation expense is being recognized ratably over the vesting period. Upon any change in control of the Company, as defined in the applicable plan, or upon retirement, the shares become 100% vested. A pro rata number of shares will vest in the event of death or disability prior to the stated vesting date.

A total of 22,760 shares of time-based restricted stock awarded during 2007 vested during the three months ended March 31, 2010. Upon vesting, employees surrendered 7,923 shares of common stock to the Company to pay required minimum withholding taxes applicable to the vesting of restricted stock. The surrendered shares are held by the Company as treasury stock. The 4,127 shares granted during 2009 to the Company’s chief executive officer, as discussed above, vested during the three months ended March 31, 2010. Upon vesting, the Company’s chief executive officer surrendered 1,310 shares of common stock to the Company to pay required minimum withholding taxes applicable to the vesting of restricted stock.

A summary of the Company’s time-based restricted stock awards for the three months ended March 31, 2010 is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Nonvested at January 1, 2010			65,662			$	40.25
Granted			62,400			$	30.66
Vested			(26,887	)		$	46.40
Forfeited			(450	)		$	41.48
Nonvested at March 31, 2010			100,725			$	32.66
Expected to vest at March 31, 2010			95,625

Restricted Stock Units — Time-Based Awards

During the three months ended March 31, 2010 and 2009, the Company awarded 10,550 and 4,400 time-based restricted stock units, respectively, to employees outside the U.S. These awards will be settled in cash based on the value of the Company’s common stock at the vesting date. Since the awards will be settled in cash, they are recorded as a liability award in accordance with the “Stock Compensation” topic of the ASC. Accordingly, the Company records these awards as a component of other non-current liabilities on the Unaudited Condensed Consolidated Balance Sheets. The fair value of the award, which determines the measurement of the liability on the balance sheet, is remeasured at each reporting period until the award is settled. Fluctuations in the fair value of the liability awards are recorded as increases or decreases to compensation expense. Over the life of these awards, the cumulative amount of compensation expense recognized will match the actual cash paid. The restricted share units vest three years from the date of grant, subject to the respective recipient remaining employed by the Company on that date. Upon any change in control of the Company, as defined in the applicable plan, or upon retirement, the units become 100% vested. A pro rata number of units will vest in the event of death or disability prior to the stated vesting date.

A summary of the Company’s time-based restricted stock unit awards for the first three months of 2010 is as follows:

		Units
Nonvested at January 1, 2010			3,500
Granted			10,550
Forfeited			—
Nonvested at March 31, 2010			14,050
Expected to vest at March 31, 2010			12,445

Note 14 — Reportable Segments

As a result of the EaglePicher Technologies acquisition, the Company is now organized into three operating segments: Advanced Materials, Specialty Chemicals and Battery Technologies. Intersegment transactions are generally recognized based on current market prices. Intersegment transactions are eliminated in consolidation. Corporate is comprised of general and administrative expenses not allocated to the operating segments.

The Advanced Materials segment consists of inorganics, the DRC smelter joint venture and metal resale. The Advanced Materials segment manufactures inorganic products using unrefined cobalt and other metals and serves the battery materials, powder metallurgy,

ceramic and chemical end markets. The Specialty Chemicals segment is comprised of Electronic Chemicals, Advanced Organics, UPC and Photomasks. Electronic Chemicals develops and manufactures chemicals for the printed circuit board, memory disk, general metal finishing and electronic packaging and finishing markets. Advanced Organics offers products for the coating and inks, chemical and tire markets. UPC develops, manufactures and distributes 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. Photomasks manufactures photo-imaging masks (high-purity quartz or glass plates containing precision, microscopic images of integrated circuits) and reticles for the semiconductor, optoelectronics, microelectronics and micro electro mechanical systems industries under the Compugraphics brand name. The Battery Technologies segment, which consists of the EaglePicher Technologies business acquired on January 29, 2010, provides advanced batteries, battery materials, battery management systems and energetic devices for the defense, aerospace and medical markets. In the defense market, Battery Technologies develops battery products for missiles, launch vehicles, weapons, unmanned vehicles, and portable power applications. Battery Technologies engineers battery products for a variety of satellite and aircraft applications within the aerospace market. In the medical market, Battery Technologies provides battery products for medical implantable device applications.

The Company has manufacturing and other facilities in North America, Europe, Africa and Asia-Pacific, and the Company markets its products worldwide. Further, approximately 18% of the Company’s investment in property, plant and equipment is located in the DRC, where the Company operates a smelter through a 55% owned joint venture.

Total assets have increased to $1,690.2 million at March 31, 2010 from $1,444.1 million at December 31, 2009. The $246.1 million increase is primarily the result of assets of the new Battery Technologies segment of $241.8 million at March 31, 2010.

The following table reflects the results of the Company’s reportable segments:

		Three Months Ended March 31,
		2010				2009
Business Segment Information
Net Sales
Advanced Materials		$	169,964			$	108,944
Specialty Chemicals			115,030				83,009
Battery Technologies (a)			18,589				—
Intersegment items			(386	)			(247	)
		$	303,197			$	191,706
Operating profit (loss)
Advanced Materials		$	29,258			$	6,398
Specialty Chemicals			15,341				(7,978	)
Battery Technologies (a)			(1,505	)			—
Corporate (b)			(11,201	)			(9,292	)
Intersegment items			—				—
			31,893				(10,872	)
Interest expense			(669	)			(296	)
Interest income			167				297
Foreign exchange gain (loss)			(3,176	)			1,081
Other income (expense), net			(9	)			(50	)
			(3,687	)			1,032
Income (loss) from continuing operations before income tax expense		$	28,206			$	(9,840	)
Expenditures for property, plant & equipment
Advanced Materials		$	3,133			$	3,493
Specialty Chemicals			736				2,097
Battery Technologies (a)			712				—
		$	4,581			$	5,590
Depreciation and amortization
Advanced Materials		$	5,018			$	6,746
Specialty Chemicals			6,080				6,323
Battery Technologies (a)			1,598				—
Corporate			477				221
		$	13,173			$	13,290

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

OM Group, Inc. is a global solutions provider of specialty chemicals, advanced materials, electrochemical energy storage, and technologies crucial to enabling its customers to meet increasingly stringent market and application requirements. The Company believes it is the world’s largest refiner of cobalt and producer of cobalt-based specialty products.

The Company is executing a 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.

On January 29, 2010, the Company completed the acquisition of EaglePicher Technologies, LLC from EaglePicher Corporation for approximately $172 million in cash. Based in Joplin, Missouri, EaglePicher Technologies is a leader in portable power solutions and energy storage technologies serving aerospace, defense and medical markets, and is developing technologies in advanced power storage to serve alternative energy storage markets. EaglePicher Technologies product offerings can be grouped into two broad categories: (i) proprietary battery products and (ii) complementary battery support products that consist of energetic devices, chargers, battery management systems and distributed products. In fiscal year 2009, EaglePicher Technologies recorded revenues of approximately $125 million, of which 60 percent came from its defense business, 33 percent from its aerospace business and the remainder from its medical and other businesses. EaglePicher Technologies is operated and reported within a new segment called Battery Technologies. The results of operations of EaglePicher Technologies have been included in the results of the Company from the date of acquisition.

Segments

As a result of the EaglePicher Technologies acquisition, the Company is now organized into three operating segments: Advanced Materials, Specialty Chemicals and Battery Technologies. The Advanced Materials segment consists of inorganics, a smelter joint venture, and metal resale. The Specialty Chemicals segment is comprised of Electronic Chemicals, Advanced Organics, Ultra Pure Chemicals (“UPC”) and Photomasks. The Battery Technologies segment is comprised of the EaglePicher Technologies business.

The Advanced Materials segment manufactures inorganic products using unrefined cobalt and other metals and serves the battery materials, powder metallurgy, ceramic and chemical end markets by providing functional characteristics critical to the success of our customers’ products. Among other things, these products improve the electrical conduction of rechargeable batteries used in cellular phones, video cameras, portable computers, power tools and hybrid electrical vehicles. The smelter joint venture, Groupement pour le Traitement du Terril de Lubumbashi Limited (“GTL”), is owned by the Company (55%), Groupe George Forrest (25%) and La Générale des Carrières et des Mines (20%) and operates a smelter in the Democratic Republic of Congo (“DRC”). The GTL smelter is the Company’s primary source of cobalt raw material feed. GTL is consolidated in the Company’s financial statements because the Company has a controlling interest in the joint venture.

The Specialty Chemicals segment consists of the following:

Electronic Chemicals: Electronic Chemicals develops and manufactures chemicals for the printed circuit board, memory disk, general metal finishing and electronic packaging and finishing markets. Chemicals developed and manufactured for the printed circuit board market include 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. Chemicals developed and manufactured for the memory disk market include electroless nickel solutions and preplate chemistries for the computer and consumer electronics industries, for the manufacture of hard drive memory disks used in memory and data storage applications. Memory disk applications include computer hard drives, digital video recorders, MP3 players, digital cameras and business and enterprise servers.

Advanced Organics: Advanced Organics offers products for the coating and inks, chemical and tire markets. Products for the coatings and inks market promote drying and other performance characteristics. Within the chemical markets, the products accelerate the curing of polyester resins found in reinforced fiberglass. In the tire market, the products promote the adhesion of metal to rubber. During 2009, the Company announced, and began to implement, a restructuring plan for the Advanced Organics business to better align the cost structure and asset base to industry conditions resulting from weak customer demand, commoditization of the products and overcapacity in the European carboxylate business. The restructuring plan

includes exiting the Manchester, England manufacturing facility and workforce reductions at the Belleville, Ontario, Canada; Kokkola, Finland; Franklin, Pennsylvania and Westlake, Ohio locations. The majority of position eliminations are expected to be completed by mid-2010. The restructuring plan does not involve the discontinuation of any material product lines or other functions.

Ultra Pure Chemicals: UPC develops, manufactures and distributes 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 developmental support services to the semiconductor industry. These services include Total Chemicals Management, under which the Company manages the clients’ entire electronic process for chemical 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, microelectronics and micro electro mechanical systems 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.

The Battery Technologies segment, which consists of the EaglePicher Technologies business acquired on January 29, 2010, provides advanced batteries, battery materials, battery management systems and energetic devices for the defense, aerospace and medical markets. In the defense market, Battery Technologies develops battery products for missiles, launch vehicles, weapons, unmanned vehicles, and portable power applications. In the aerospace market, Battery Technologies engineers battery products for a variety of satellite and aircraft applications. In the medical market, Battery Technologies provides battery products for medical implantable device applications.

Key Factors Affecting Operations

The Company’s business is critically connected to both the availability and price of raw materials. The primary raw material used by the Advanced Materials segment is unrefined cobalt. Unrefined cobalt is obtained from three basic sources: primary cobalt mining, as a by-product of another metal – typically copper or nickel, and from recycled material. Cobalt raw materials include ore, concentrate, slag, scrap and metallic feed. The availability of unrefined cobalt is dependent on global market conditions, cobalt prices and the prices of copper and nickel. Also, political and civil instability in supplier countries, variability in supply and worldwide demand, including demand in developing countries such as China, have affected and will likely continue to affect the supply and market price of raw materials. 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.

In the first quarter of 2007, the Company entered into five-year supply agreements with Norilsk Nickel 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. The Norilsk agreements strengthen the Company’s supply chain and secure a consistent source of raw materials, providing the Company with a stable supply of cobalt metal. 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 supply of cobalt is principally sourced from the DRC, Russia and Finland. The majority of the Company’s unrefined cobalt is derived from GTL and Norilsk.

The cost of the Company’s raw materials fluctuates due to changes in the cobalt reference price, actual or perceived changes in supply and demand of raw materials and changes in availability from suppliers. The Company attempts to pass through to its customers increases in raw material prices, and 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. Fluctuations in the price of cobalt have historically been significant and the Company believes that cobalt price fluctuations are likely to continue in the future. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods can result in the Company’s inventory carrying value being written down to a lower market value.

The planned maintenance shut-down of the GTL smelter began in February 2010 and is now expected to last approximately four months. The Company expects the shutdown to impact the timing of deliveries from GTL to Kokkola but does not expect the shutdown to impact external sales to customers. As was the case in the previous shutdown in 2005, the Company has adequate raw material inventory on-hand to meet anticipated demand.

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, sales at certain locations, 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. The primary currencies that contribute to the Company’s foreign currency rate exposure are the European Union Euro, the British Pound Sterling, the Japanese Yen, the Taiwanese Dollar and the Congolese Franc. 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.

Executive Overview

The improvement in the global economy has positively impacted the year over year results of the Company’s Advanced Materials and Specialty Chemicals segments. Both segments experienced increased demand in the first quarter of 2010 compared to the first quarter of 2009. This increase in end–market demand resulted in increased product volumes, which together with higher metal prices led to improved operating results during the first quarter of 2010 compared to the first quarter of 2009. As discussed above, the Company completed the acquisition of EaglePicher Technologies on January 29, 2010. The financial position, results of operations and cash flows of EaglePicher Technologies are included in the Unaudited Condensed Consolidated Financial Statements from the date of acquisition.

The increase in the average cobalt reference price and ongoing profit enhancement initiatives have benefitted the Advanced Materials segment. The average cobalt reference price rose from $13.37 in the first quarter of 2009 to $15.90 and $20.11 in the fourth quarter of 2009 and the first quarter of 2010, respectively. As a result, the first quarter of 2010 benefited from higher product selling prices due to the high average reference price for cobalt during this period. Demand for fine powders in powder metallurgy applications has strengthened significantly from the first quarter of 2009. The ceramic and chemical markets also experienced increased demand as compared to 2009. On a sequential basis, Advanced Materials experienced increased or flat demand across all end markets in the first quarter of 2010 compared to the fourth quarter of 2009.

The ongoing market recovery has also positively impacted Specialty Chemicals. Demand in the first quarter of 2010 improved compared to both the first and fourth quarters of 2009 in the key end markets of Electronic Chemicals, Advanced Organics, UPC and Photomasks. Specialty Chemicals experienced an increase in operating profit in the first quarter of 2010 compared with the comparable 2009 period, largely as the result of increased volume due to stronger end-market demand and favorable product mix coupled with the Company’s ongoing profit enhancement initiatives.

Consolidated Results of Operations

Consolidated results of operations are set forth below and are followed by a more detailed discussion of each segment.

First Quarter of 2010 Compared With First Quarter of 2009

		Three Months Ended March 31,
(thousands of dollars & percent of net sales)		2010								2009
Net sales		$	303,197							$	191,706
Cost of products sold (excluding restructuring charges)			230,861								165,091
Restructuring charges			514								—
Gross profit			71,822				23.7	%			26,615				13.9	%
Selling, general and administrative expenses			39,843				13.1	%			34,858				18.2	%
Goodwill impairment, net			—								2,629
Restructuring charges			86								—
Operating profit (loss)			31,893				10.5	%			(10,872	)			-5.7	%
Other income (expense), net			(3,687	)							1,032
Income from continuing operations before income tax expense			28,206								(9,840	)
Income tax expense			(4,349	)							(2,249	)
Income (loss) from continuing operations, net of tax			23,857								(12,089	)
Income from discontinued operations, net of tax			137								264
Consolidated net income (loss)			23,994								(11,825	)
Net (income) loss attributable to the noncontrolling interest			(1,394	)							3,548
Net income (loss)		$	22,600							$	(8,277	)