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

For the quarterly period ended September 30, 2007

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

OM GROUP, INC.

Delaware		52-1736882
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
127 Public Square,
1500 Key Tower,
Cleveland, Ohio		44114-1221
(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 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer 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 October 31, 2007 there were 30,419,105 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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II — OTHER INFORMATION

Item 1A. Risk Factors

Item 6. Exhibits

Signatures

EX-10.1

EX-10.2

EX-10.3

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

		September 30,				December 31,
		2007				2006
(In thousands, except share data)
ASSETS
Current assets
Cash and cash equivalents		$	435,452			$	282,288
Accounts receivable, less allowances			127,978				82,931
Inventories			314,511				216,492
Other current assets			36,163				30,648
Assets of discontinued operations			—				597,682
Total current assets			914,104				1,210,041
Property, plant and equipment, net			200,662				210,953
Goodwill			140,342				137,543
Notes receivable from joint venture partner, less allowance of $5,200 in 2007 and 2006			24,179				24,179
Other non-current assets			34,342				35,508
Total assets		$	1,313,629			$	1,618,224
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term debt		$	337			$	326
Current portion of long-term debt			191				167
Debt to be redeemed			—				402,520
Accounts payable			147,379				90,768
Accrued income taxes			35,178				17,497
Accrued employee costs			21,466				28,806
Other current liabilities			37,114				42,057
Liabilities of discontinued operations			—				167,148
Total current liabilities			241,665				749,289
Long-term debt			1,131				1,224
Deferred income taxes			3,685				4,118
Minority interests			51,228				43,286
Other non-current liabilities			39,403				38,228
Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized 2,000,000 shares, no shares issued or outstanding			—				—
Common stock, $.01 par value:
Authorized 60,000,000 shares; issued 30,092,869 in 2007 and 29,801,334 shares in 2006			301				297
Capital in excess of par value			551,195				533,818
Retained earnings			419,739				221,310
Treasury stock (61,541 shares in 2007 and 2006, at cost)			(2,239	)			(2,239	)
Accumulated other comprehensive income			7,521				28,893
Total stockholders’ equity			976,517				782,079
Total liabilities and stockholders’ equity		$	1,313,629			$	1,618,224

See accompanying notes to unaudited condensed consolidated financial statements.

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

		Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands, except per share data)		2007				2006				2007				2006
Net sales		$	264,640			$	170,420			$	712,134			$	488,023
Cost of products sold			191,502				117,245				483,075				350,159
Gross profit			73,138				53,175				229,059				137,864
Selling, general and administrative expenses			31,674				23,958				88,276				74,408
Operating profit			41,464				29,217				140,783				63,456
Other income (expense):
Interest expense			(238	)			(9,712	)			(7,523	)			(29,331	)
Interest income			5,041				2,358				15,643				5,412
Loss on redemption of Notes			—				—				(21,733	)			—
Foreign exchange gain			4,178				772				5,962				3,033
Gain on sale of investment			—				—				—				12,223
Other expense, net			(501	)			(515	)			(999	)			(162	)
			8,480				(7,097	)			(8,650	)			(8,825	)
Income from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle			49,944				22,120				132,133				54,631
Income tax expense			(7,926	)			(5,452	)			(57,715	)			(10,498	)
Minority partners’ share of income			(2,511	)			(2,838	)			(9,320	)			(3,474	)
Income from continuing operations before cumulative effect of change in accounting principle			39,507				13,830				65,098				40,659
Discontinued operations
Income (loss) from discontinued operations, net of tax			(1,412	)			74,178				61,511				118,350
Gain on sale of discontinued operations, net of tax			—				—				72,270				—
Total income (loss) from discontinued operations, net of tax			(1,412	)			74,178				133,781				118,350
Income before cumulative effect of change in accounting principle			38,095				88,008				198,879				159,009
Cumulative effect of change in accounting principle			—				—				—				287
Net income		$	38,095			$	88,008			$	198,879			$	159,296
Net income (loss) per common share — basic:
Continuing operations		$	1.32			$	0.47			$	2.18			$	1.39
Discontinued operations			(0.05	)			2.53				4.47				4.03
Cumulative effect of change in accounting principle			—				—				—				0.01
Net income		$	1.27			$	3.00			$	6.65			$	5.43
Net income (loss) per common share — assuming dilution:
Continuing operations		$	1.30			$	0.47			$	2.15			$	1.38
Discontinued operations			(0.04	)			2.50				4.43				4.01
Cumulative effect of change in accounting principle			—				—				—				0.01
Net income		$	1.26			$	2.97			$	6.58			$	5.40
Weighted average shares outstanding
Basic			30,031				29,336				29,902				29,322
Assuming dilution			30,350				29,635				30,235				29,486

See accompanying notes to unaudited condensed consolidated financial statements.

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

		Nine Months Ended September 30,
(In thousands)		2007				2006
Operating activities
Net income		$	198,879			$	159,296
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Income from discontinued operations			(61,511	)			(118,350	)
Gain on sale of discontinued operations			(72,270	)			—
Income from cumulative effect of change in accounting principle			—				(287	)
Gain on sale of investment			—				(12,223	)
Loss on redemption of Notes			21,733				—
Depreciation and amortization			24,652				23,706
Share-based compensation expense			5,180				3,783
Excess tax benefit on exercise of stock options			(1,045	)			—
Foreign exchange gain			(5,962	)			(3,033	)
Minority partners’ share of income			9,320				3,474
Other non-cash items			(7,500	)			(1,040	)
Changes in operating assets and liabilities
Accounts receivable			(45,456	)			(15,682	)
Inventories			(98,019	)			(6,823	)
Accounts payable			56,611				23,541
Other, net			4,146				(3,753	)
Net cash provided by operating activities			28,758				52,609
Investing activities
Expenditures for property, plant and equipment			(12,833	)			(8,876	)
Proceeds from sale of asset			461				—
Net proceeds from the sale of the Nickel business			490,036				—
Proceeds from sale of investment			—				12,223
Proceeds from loans to non-consolidated joint ventures			7,568				—
Loans to non-consolidated joint ventures			—				(5,046	)
Acquisition of businesses, net of cash acquired			—				(5,417	)
Investment in QSI			(2,000	)			—
Expenditures for ERP project			(3,263	)			(2,456	)
Net cash provided by (used for) investing activities			479,969				(9,572	)
Financing activities
Payments of long-term debt			(400,000	)			(17,250	)
Premium for redemption of Notes			(18,500	)			—
Distribution to joint venture partners			(1,350	)			—
Proceeds from exercise of stock options			10,489				897
Excess tax benefit on exercise of stock options			1,045				—
Net cash used for financing activities			(408,316	)			(16,353	)
Effect of exchange rate changes on cash			5,718				3,287
Cash and cash equivalents
Increase from continuing operations			106,129				29,971
Discontinued operations — net cash provided by operating activities			48,575				94,893
Discontinued operations — net cash used for investing activities			(1,540	)			(14,691	)
Balance at the beginning of the period			282,288				114,618
Balance at the end of the period		$	435,452			$	224,791

See accompanying notes to unaudited condensed consolidated financial statements.

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

		Nine Months Ended September 30,
(In thousands)		2007				2006
Common Stock — Shares Outstanding, net of Treasury Shares
Beginning balance			29,740				29,307
Shares issued under share-based compensation plans			291				46
			30,031				29,353
Common Stock — Dollars
Beginning balance		$	297			$	293
Shares issued under share-based compensation plans			4				—
			301				293
Capital in Excess of Par Value
Beginning balance			533,818				516,510
Shares issued under share-based compensation plans			10,485				897
Excess tax benefit on the exercise of stock options			1,045				—
Share-based compensation			5,847				3,938
			551,195				521,345
Retained Earnings
Beginning balance, as originally reported			221,310				6,811
Adoption of FIN No. 48 in 2007 and EITF 04-6 in 2006			(450	)			(1,574	)
Beginning balance, as adjusted for the adoption of FIN No. 48 and EITF 04-6			220,860				5,237
Net income			198,879				159,296
			419,739				164,533
Treasury Stock
Beginning balance			(2,239	)			(2,226	)
Reacquired shares			—				(13	)
			(2,239	)			(2,239	)
Accumulated Other Comprehensive Income
Beginning balance			28,893				15,145
Foreign currency translation			(11,548	)			4,062
Reclassification of hedging activities into earnings, net of tax			(9,824	)			(954	)
Unrealized gain on cash flow hedges, net of tax expense of $3,541			—				7,780
Reclassification of realized gain on available-for-sale securities into earnings			—				(4,745	)
			7,521				21,288
Total Stockholders’ Equity		$	976,517			$	705,220

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 per share amounts)

Note 1 — Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of OM Group, Inc. and its subsidiaries (the “Company”). 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 September 30, 2007 and the results of its operations for the three and nine months ended September 30, 2007 and 2006 and its cash flows and changes in stockholders’ equity for the nine months ended September 30, 2007 and 2006 have been included. The balance sheet at December 31, 2006 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, 2006.

Unless otherwise indicated, all disclosures and amounts in the Notes to Unaudited Condensed Consolidated Financial Statements relate to the Company’s continuing operations.

On November 17, 2006, the Company entered into a definitive agreement to sell its Nickel business to Norilsk Nickel (“Norilsk”). As a result, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Unaudited Condensed Consolidated Financial Statements and accompanying notes reflect the Nickel business as a discontinued operation for all periods presented.

Note 2 — Discontinued Operations and Disposition of Nickel Business

On November 17, 2006, the Company entered into a definitive agreement to sell its Nickel business to Norilsk. The Nickel business consisted of the Harjavalta, Finland nickel refinery, the Cawse, Australia nickel mine and intermediate refining facility, a 20% equity interest in MPI Nickel Pty. Ltd. and an 11% ownership interest in Talvivaara Mining Company, Ltd. The transaction closed on March 1, 2007 and at closing the Company received cash proceeds of $413.3 million. In addition, the agreement provided for a final purchase price adjustment (primarily related to working capital for the net assets sold), which was determined to be $83.2 million, and was received by the Company in the second quarter of 2007.

The following table sets forth the components of the proceeds from the sale of the Nickel business:

Initial proceeds		$	413.3
Final purchase price adjustment			83.2
Transaction costs			(6.5	)
		$	490.0

The agreement also provided for interest on the working capital adjustment from the transaction closing date. For the nine months ended September 30, 2007, the Company recorded interest income of $1.2 million which is included in Other income, net on the Unaudited Condensed Statements of Consolidated Income.

The Company recognized a pretax and after-tax gain on the sale of the Nickel business of $77.0 million and $72.3 million, respectively.

Discontinued operations includes share-based incentive compensation expense related to Nickel management that previously had been included in corporate expenses. No interest expense has been allocated to discontinued operations.

Income (loss) from discontinued operations consisted of the following for the three months ended September 30:

		2007				2006
Net sales		$	—			$	205,352
Income (loss) from discontinued operations before income taxes		$	(319	)		$	91,571
Income tax expense			1,093				17,393
Income (loss) from discontinued operations, net of tax			(1,412	)			74,178
Gain on sale of discontinued operations, net of tax			—				—
Total income (loss) from discontinued operations		$	(1,412	)		$	74,178

Income from discontinued operations consisted of the following for the nine months ended September 30:

		2007				2006
Net sales		$	193,091			$	512,522
Income from discontinued operations before income taxes		$	83,289			$	144,185
Income tax expense			21,778				25,835
Income from discontinued operations, net of tax			61,511				118,350
Gain on sale of discontinued operations, net of tax			72,270				—
Total income from discontinued operations		$	133,781			$	118,350

Assets and liabilities of discontinued operations at December 31, 2006 were as follows:

		December 31,
		2006
Accounts receivable		$	97,050
Inventories			191,380
Property, plant and equipment, net			149,857
Goodwill			46,481
Other current assets			112,914
Assets of discontinued operations		$	597,682
Accounts payable		$	100,644
Other current liabilities			66,504
Liabilities of discontinued operations		$	167,148

Note 3 — Debt

On March 7, 2007, the Company redeemed the entire $400.0 million of its outstanding 9.25% Senior Subordinated Notes due 2011 (the “Notes”) at a redemption price of 104.625% of the principal amount, or $418.5 million, plus accrued interest of $8.4 million. The loss on redemption of the Notes was $21.7 million, and consisted of the premium of $18.5 million plus related deferred financing costs of $5.7 million less a deferred net gain on terminated interest rate swaps of $2.5 million.

Debt consists of the following:

		September 30,				December 31,
		2007				2006
Senior Subordinated Notes		$	—			$	400,000
Notes payable — bank			1,659				1,717
Deferred gain on termination of fair value hedges			—				2,520
			1,659				404,237
Less: Short-term debt			337				326
Less: Current portion of long-term debt			191				167
Less: Debt to be redeemed			—				402,520
Total long-term debt		$	1,131			$	1,224

Note 4 — Inventories

Inventories consist of the following:

		September 30,				December 31,
		2007				2006
Raw materials and supplies		$	162,024			$	138,913
Work-in-process			22,484				17,265
Finished goods			130,003				60,314
		$	314,511			$	216,492

Note 5 — Investments and Acquisitions

During the third quarter of 2007, the Company invested $2.0 million in Quantumsphere, Inc. (“QSI”) through the purchase of 615,385 shares of common stock and warrants to purchase an additional 307,692 shares of common stock. The Company allocated $1.6 million to the common stock and $0.4 million to the warrants. The Company accounts for its investment in QSI 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, OMG will supply QSI with raw materials and has the right to market and distribute certain QSI products.

On March 21, 2006, the Company completed the acquisition of Plaschem Specialty Products Pte Ltd. and its subsidiaries (“Plaschem”). Plaschem develops and produces specialty chemicals for printed circuit board chemistries, semiconductor chemistries and general metal finishing with integrated manufacturing, research and technical support facilities in Singapore and the Shanghai area of China. In connection with the acquisition, the Company paid $5.2 million in cash, net of cash acquired and issued a $0.5 million note payable. The Company incurred fees of approximately $0.2 million associated with this transaction. Additional contingent consideration, up to a maximum of $2.0 million, is due to the seller if certain specified financial performance targets of the acquired business are met over the three-year period following the acquisition. At September 30, 2007, the Company has not recorded any contingent consideration. Goodwill of $1.3 million was recognized as a result of this acquisition. Plaschem is included in the Electronic Chemicals product line grouping results of operations since the date of acquisition.

During the second quarter of 2006, the Company sold the outstanding common shares it held in Weda Bay Minerals, Inc. (“Weda Bay”) and received cash proceeds of $12.2 million. The Company recognized a $12.0 million gain, net of $0.2 million tax expense, upon completion of the sale as the net book value of the investment was zero due to an other-than-temporary impairment charge recorded in prior years. The gain is included in Gain on sale of investment in the Unaudited Condensed Statements of Consolidated Income.

Note 6 — 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 2002.

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 pre-tax income. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including forecasts of the Company’s annual earnings, 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 from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle consists of the following:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
United States		$	(9,855	)		$	(35,680	)		$	(48,484	)		$	(63,320	)
Outside the United States			59,799				57,800				180,617				117,951
		$	49,944			$	22,120			$	132,133			$	54,631

Prior to December 31, 2006, the Company had recorded a valuation allowance against its U.S. net deferred tax assets, primarily related to net operating loss carryforwards, because it was more likely than not that those deferred tax assets would not be realized. However, due primarily to the redemption of the Notes in March 2007, the Company decided to repatriate the undistributed earnings of certain European subsidiaries during the first quarter of 2007. Previously, the Company had planned to permanently reinvest such undistributed earnings overseas. As a result of the plan to repatriate, the Company recorded a deferred tax liability and reversed a portion of the valuation allowance in the fourth quarter of 2006. During the first quarter of 2007, the Company repatriated $528.5 million and recorded an additional tax liability of $38.8 million. The additional $38.8 million tax liability recorded in the first quarter of 2007 was due to the repatriation of the proceeds from the sale of the Nickel business and other cash amounts, which in the aggregate were in excess of undistributed earnings overseas at December 31, 2006.

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
Effective income tax rate			15.9	%			24.6	%			43.7	%			19.2	%

The effective income tax rate for the first nine months of 2007 includes the $38.8 million tax expense to repatriate foreign cash in the first quarter of 2007 as described above. The effective income tax rate for the first nine months of 2007 also includes a tax benefit of $7.6 million associated with the $21.7 million loss on the redemption of the Notes in the first quarter of 2007. These items were treated as discrete items in the first quarter of 2007. Excluding these discrete items, the effective income tax rates for all periods are lower than the United States statutory rate primarily due to a higher proportion of earnings in foreign jurisdictions having lower statutory tax rates than the United States, a tax holiday in Malaysia and the recognition of tax benefits for domestic losses in 2007.

The Malaysian tax holiday, which results from an investment incentive arrangement and expires December 31, 2011, reduced income tax expense by $1.3 million and $4.9 million in the three and nine months ended September 30, 2007, respectively, and $1.8 million and $4.9 million in the three and nine months ended September 30, 2006, respectively. The benefit of the tax holiday on net income per diluted share was approximately $0.04 and $0.16 in the three and nine months ended September 30, 2007, respectively, and approximately $0.06 and $0.17 in the three and nine months ended September 30, 2006, respectively.

The Company adopted the provisions of Financial Accounting Standards Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” on January 1, 2007. As a result of the adoption, the Company recognized a $0.5 million liability which was

accounted for as a reduction to the January 1, 2007 balance of retained earnings. Including reserves for tax contingencies previously recorded, the Company has $2.0 million of uncertain tax positions, all of which would affect the Company’s effective income tax rate if recognized, and of which $1.8 million is included as a component of other non-current liabilities and $0.2 million is recorded in other current liabilities on the Unaudited Condensed Consolidated Balance Sheet at September 30, 2007. There were no material changes to the liability for uncertain tax positions in the three months ended September 30, 2007.

The Company accrues interest related to uncertain tax positions and penalties as a component of income tax expense. The Company had $0.6 million and $0.5 million accrued at September 30, 2007 and December 31, 2006, respectively, for the payment of interest and penalties.

Included in the liability for uncertain tax positions at September 30, 2007 and December 31, 2006, is $0.2 million for which it is reasonably possible that the liability will decrease due to settlement with the tax authorities within the next 12 months.

Note 7 — Pension and Other Postretirement Benefit Plans

The Company sponsors a defined contribution plan covering all eligible U.S. employees. To be eligible for the plan, an employee must be a full-time associate and at least 21 years of age. Company contributions are determined by the board of directors annually and are computed based upon participant compensation. Company contributions are directed by the employee into various investment options. The Company also sponsors a non-contributory, nonqualified supplemental executive retirement plan for certain employees, providing benefits beyond those covered in the defined contribution plan.

The Company 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. The Company also has an unfunded supplemental executive retirement plan (“SERP”) for the former Chief Executive Officer and other unfunded postretirement benefit plans (“OPEB”), primarily health care and life insurance for certain employees and retirees in the United States. The Company uses an October 31 measurement date for both its pension and postretirement benefit plans.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Pension Benefits
Interest cost		$	334			$	306			$	1,002			$	918
Amortization of unrecognized net loss			75				67				227				201
Expected return on plan assets			(197	)			(228	)			(592	)			(684	)
Total expense		$	212			$	145			$	637			$	435
Other Postretirement Benefits
Service cost		$	21			$	33			$	62			$	98
Interest cost			66				60				198				181
Amortization of unrecognized prior service cost			10				10				30				30
Total expense		$	97			$	103			$	290			$	309

Note 8 — Earnings Per Share

The following table sets forth the computation of basic and diluted income per common share from continuing operations before cumulative effect of change in accounting principle:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Income from continuing operations before cumulative effect of change in accounting principle		$	39,507			$	13,830			$	65,098			$	40,659
Weighted average shares outstanding			30,031				29,336				29,902				29,322
Dilutive effect of stock options and restricted stock			319				299				333				164
Weighted average shares outstanding — assuming dilution			30,350				29,635				30,235				29,486
Income per common share from continuing operations before cumulative effect of change in accounting principle — basic		$	1.32			$	0.47			$	2.18			$	1.39
Income per common share from continuing operations before cumulative effect of change in accounting principle — assuming dilution		$	1.30			$	0.47			$	2.15			$	1.38

The following table sets forth the computation of basic and diluted net income per common share:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net income		$	38,095			$	88,008			$	198,879			$	159,296
Weighted average shares outstanding			30,031				29,336				29,902				29,322
Dilutive effect of stock options and restricted stock			319				299				333				164
Weighted average shares outstanding — assuming dilution			30,350				29,635				30,235				29,486
Net income per common share — basic		$	1.27			$	3.00			$	6.65			$	5.43
Net income per common share — assuming dilution		$	1.26			$	2.97			$	6.58			$	5.40

Note 9 — Accumulated Other Comprehensive Income

						Unrealized
						Gains and
						Losses, Net								Accumulated
		Foreign				on Cash Flow				Pension and				Other
		Currency				Hedging				Post-Retirement				Comprehensive
		Translation				Derivatives				Obligation				Income (Loss)
Balance at December 31, 2006		$	29,094			$	9,824			$	(10,025	)		$	28,893
Reclassification adjustment			—				2,465				—				2,465
Current period credit			3,931				—				—				3,931
Disposal of Nickel business			(15,479	)			(12,289	)			—				(27,768	)
Balance at September 30, 2007		$	17,546			$	—			$	(10,025	)		$	7,521

Comprehensive income, net of related tax effects, for the three months ended September 30, 2007 and 2006 was $40.0 million and $91.9 million, respectively. Comprehensive income, net of related tax effects, for the nine months ended September 30, 2007 and 2006 was $177.5 million and $165.4 million, respectively.

Note 10 — Commitments and Contingencies

During the first quarter of 2007, the Company entered into five-year supply agreements with Norilsk for up to 2,500 metric tons per year of cobalt metal, up to 2,500 metric tons per year of cobalt in the form of crude cobalt hydroxide concentrate, up to 1,500 metric tons per year of cobalt in the form of crude cobalt sulfate, up to 5,000 metric tons per year of copper in the form of copper cake and various other nickel-based raw materials used in the Company’s electronic chemicals business. In addition, the Company entered into two-year agency and distribution agreements for nickel salts.

The Division of Enforcement of the Securities and Exchange Commission (the “SEC”) conducted an informal investigation resulting from the self reporting by the Company of the internal investigation conducted in 2003 and 2004 by the audit committee of the Company’s board of directors in connection with the previously filed restatement of the Company’s financial results for periods prior to December 31, 2003. On July 18, 2007, without admitting or denying the nonjurisdictional findings by the SEC, the Company consented to an order to cease-and-desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 under the Securities Exchange Act. The SEC considered remedial acts promptly undertaken by the Company and cooperation afforded the SEC staff and did not assess the Company any financial penalties.

During 2005, the Company reversed a $5.5 million tax contingency accrual that was originally established in July 2003 upon the sale of the Company’s Precious Metals Group (“PMG”) as the liability was no longer considered probable. Such amount had previously been included in Retained Liabilities of Businesses Sold. The contingency relates to a tax matter in Brazil for which the Company has indemnified the PMG buyer under terms of the PMG sale agreement. Although the contingency is no longer probable, the likelihood of an unfavorable outcome of this contingency is reasonably possible based on the length of time expected before the matter is closed and the inherent risk of changes in the political or legal situation in Brazil. If the ultimate outcome of this contingency is unfavorable, the loss, based on exchange rates at September 30, 2007, would be $6.2 million and would be recorded in discontinued operations.

During the first nine months of 2007, the Company became aware of two additional contingent liabilities related to the Company’s former PMG operations in Brazil. The contingencies, which remain the responsibility of OMG to the extent the matters relate to the period from 2001-2003 during which the Company owned PMG, are potential assessments by Brazilian taxing authorities related to duty drawback tax for items sold by PMG during 2001-2003, and certain VAT and/or Service Tax assessments. The Company has assessed the current likelihood of an unfavorable outcome of these contingencies and concluded that they are reasonably possible but not probable. If the ultimate outcome of these contingencies is unfavorable, the loss, based on exchange rates at September 30, 2007, would be up to $25.0 million and would be recorded in discontinued operations.

The Company is a party to various other 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. 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 and the complexity of environmental regulations. Taking these factors into consideration, the Company has estimated the undiscounted costs of remediation, which will be incurred over several years. The Company accrues an amount consistent with the estimates of these costs when it is probable that a liability has been incurred. At September 30, 2007 and December 31, 2006 the Company had recorded environmental liabilities of $7.8 million and $8.0 million, respectively, primarily related to remediation and decommissioning at the Company’s closed manufacturing sites in Newark, New Jersey and Vasset, France. The Unaudited Condensed Statement of Consolidated Income includes expense of $3.5 million and $4.6 million for the three and nine months ended September 30, 2007, respectively, for increases in the estimate to complete the remediation at the Newark, New Jersey site.

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, as well as other legal proceedings arising out of operations in the normal course of business, 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.

Note 11 — Share-Based Compensation

On May 8, 2007, the stockholders of the Company approved the 2007 Incentive Compensation Plan (the “2007 Plan”). The 2007 Plan supersedes and replaces the 1998 Long-Term Incentive Compensation Plan and the 2002 Stock Incentive Plan. The 1998 Plan and 2002 Plan terminated upon stockholder approval of the 2007 Plan, such that no further grants may be made under either the 1998 Plan or the 2002 Plan. The terminations will not affect awards already outstanding under the 1998 Plan or the 2002 Plan, which consist of options and restricted stock awards. All options outstanding under each of the 1998 Plan and the 2002 Plan have 10-year terms and have an exercise price of not less than the per share fair market value, measured by the average of the high and low price of the Company’s common stock on the NYSE, on the date of grant.

Under 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 total number of shares of common stock available for awards under the 2007 Plan (including any annual stock issuances made to non-employee directors) is 3,000,000. The 2007 Plan provides that no more than 1,500,000 shares of common stock may be the subject of awards that are not stock options or stock appreciation rights. In addition, no more than 250,000 shares of common stock may be awarded to any one person in any calendar year, whether in the form of stock options, restricted stock or another form of award. The 2007 Plan provides that all options granted must have an exercise price of not less than the per share fair market value on the date of grant and that no option may have a term of more than ten years.

The Unaudited Condensed Statements of Consolidated Income include share-based compensation expense for option grants and restricted stock awards granted to employees as a component of selling, general and administrative expenses of $1.8 million and $1.3 million for the three months ended September 30, 2007 and 2006, respectively, and $5.2 million and $3.8 million for the nine months ended September 30, 2007 and 2006, respectively. In connection with the sale of the Nickel business, the Company entered into agreements with certain Nickel employees that provided for the acceleration of vesting for all unvested stock options and time-based and performance-based restricted stock previously granted to those employees. The Unaudited Condensed Statements of Consolidated Income include share-based compensation expense as a component of discontinued operations of $0.1 million for the three months ended September 30, 2006 and $0.7 million and $0.4 million for the nine months ended September 30, 2007 and 2006, respectively.

At September 30, 2007, there was $9.7 million of total unrecognized compensation expense related to nonvested share-based awards. That cost is expected to be recognized as follows: $1.6 million in the remaining three months of 2007, $5.1 million in 2008, $2.8 million in 2009 and $0.2 million in 2010. There is no unrecognized compensation expense related to the Nickel business. 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.

The Company adopted SFAS No. 123R on January 1, 2006. An adjustment to apply estimated forfeitures to previously recognized share-based compensation was accounted for as a cumulative effect of a change in accounting principle and increased net income by $0.3 million, or $.01 per basic and diluted share for the nine months ended September 30, 2006.

The Company received cash payments of $10.5 million and $0.9 million in the first nine months of 2007 and 2006, respectively, in connection with the exercise of stock options. SFAS 123R requires that excess tax benefits be recognized as an increase to additional paid-in capital. The exercise of stock options during the first nine months of 2007 resulted in a $1.0 million increase in additional paid-in capital. The Company issues new shares to satisfy stock option exercises and restricted stock awards. The Company does not settle share-based payment obligations for cash.

Stock Options

Options granted generally vest in equal increments over a three-year period from the grant date. 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. During the first nine months of 2007, the Company granted stock options to purchase 184,750 shares of common stock. Upon any change in control of the Company, as defined in the applicable plan, the stock options become 100% vested and exercisable.

The fair value of options granted during the first nine months of 2007 was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions:

Risk-free interest rate			4.7	%
Dividend yield			—
Volatility factor of Company common stock			0.47
Weighted-average expected option life (years)			6.0
Weighted-average grant-date fair value		$	26.24

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 shortcut method allowed by Staff Accounting Bulletin (“SAB”) No. 107. 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 and weighted-average grant-date fair value:

						Weighted-Average
						Fair Value at Grant
		Shares				Date
Non-vested at December 31, 2006			439,008			$	11.60
Non-vested at September 30, 2007			454,923			$	17.44
Granted during the first nine months of 2007			184,750			$	26.24
Vested during the first nine months of 2007			168,833			$	11.88
Forfeited during the first nine months of 2007			—			$	—

The total intrinsic value of options exercised during the first nine months of 2007 was $5.8 million. The intrinsic value of an option represents the amount by which the market value of the stock exceeds the exercise price of the option.

A summary of the Company’s stock option activity for the first nine months of 2007 is as follows:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Term				Value
Outstanding at January 1, 2007			894,703			$	32.40
Granted			184,750				51.16
Exercised			(285,600	)			36.73
Expired unexercised			(11,000	)			54.76
Forfeited			—				—
Outstanding at September 30, 2007			782,853			$	34.93				7.88			$	14,179,397
Vested or expected to vest at September 30, 2007			763,385			$	34.85				7.88			$	13,898,946
Exercisable at September 30, 2007			327,930			$	30.61				7.07			$	7,464,204

Restricted Stock – Performance-Based Awards

During the first nine months of 2007, the Company awarded a total of 86,854 shares of performance-based restricted stock that vest subject to the Company’s financial performance. The total 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. Of the 86,854 shares awarded during the first nine months of 2007, 80,600 shares will vest upon the satisfaction of established performance criteria based on consolidated operating profit and average return on net assets over a three-year performance period ending December 31, 2009. The remaining 6,254 shares will vest if the Company meets an established earnings target for the Specialties business segment during any one of the years in the three-year period ending 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 service 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 plan, the shares become 100% vested. In the event of death or disability, a pro rata number of shares shall remain eligible for vesting at the end of the performance period.

In connection with the sale of the Nickel business, the Company entered into an agreement with a Nickel employee that provided for the acceleration of vesting at the “target” performance level for unvested performance-based restricted stock previously granted to that employee. As a result, during the first nine months of 2007, 3,825 shares of performance-based restricted stock vested and 3,825 shares of performance-based restricted shares were cancelled.

A summary of the Company’s performance-based restricted stock awards for the first nine months of 2007 is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Non-vested at January 1, 2007			95,900			$	28.93
Granted			86,854			$	42.13
Vested			(3,825	)		$	41.57
Cancelled			(3,825	)		$	28.80
Non-vested at September 30, 2007			175,104			$	38.29
Expected to vest at September 30, 2007			124,914

Restricted Stock – Time-Based Awards

During the first nine months of 2007, the Company awarded 24,360 shares of time-based restricted stock that vest three years from the date of grant subject to the respective recipient remaining employed by the Company on that date. The value of the restricted stock awards, based upon the market price of an unrestricted share of the Company’s common stock at the date of grant, was $1.2 million. Compensation expense is being recognized ratably over the vesting period. Upon any change in control of the Company, as defined in the plan, 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.

In connection with the sale of the Nickel business, the Company entered into an agreement with a Nickel employee that provided for the acceleration of vesting, during the first nine months of 2007, of 2,100 shares of unvested time-based restricted stock previously granted to that employee.

A summary of the Company’s time-based restricted stock awards for the first nine months of 2007 is as follows:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Nonvested at January 1, 2006			188,494			$	25.39
Granted			24,360			$	51.16
Vested			(2,100	)		$	41.57
Nonvested at September 30, 2007			210,754			$	29.04
Expected to vest at September 30, 2007			209,741

Note 12 — Reportable Segments

As a result of the sale of the Nickel business on March 1, 2007, the Company’s Unaudited Condensed Consolidated Financial Statements, accompanying notes and other information provided in this Form 10-Q reflect the Nickel segment as a discontinued operation for all periods presented. The Nickel business consisted of the Harjavalta, Finland nickel refinery, the Cawse, Australia nickel mine and intermediate refining facility, a 20% equity interest in MPI Nickel Pty. Ltd. and an 11% ownership interest in Talvivaara Mining Company, Ltd.

After reclassifying the Nickel segment to discontinued operations, the Company has one remaining operating segment — Specialties. The Specialties segment includes products manufactured using cobalt and other metals such as copper, zinc, manganese, and calcium. In late 2005, the Company began a strategic transformation away from commodity-based businesses and markets to value-added, specialty businesses and markets. The sale of the Company’s Nickel business, discussed above, was part of the transformation. Pursuant to the transformation, the Vice President and General Manager of the Specialties segment organized certain product lines around end markets, creating three business units that represent product line groupings around end markets: Advanced Organics, Inorganics and Electronic Chemicals. The Specialties segment also includes certain other operations, primarily the Democratic Republic of Congo (the “DRC”) smelter operations, which are not classified into one of these groupings. The Company’s products are sold in various forms such as solutions, crystals and powders. The Company’s products are essential components in numerous complex chemical and industrial processes and are used in many end markets.

Corporate is comprised of general and administrative expenses not allocated to Specialties.

While its primary manufacturing site is in Finland, the Company also has manufacturing and other facilities in the United States, Europe, Asia-Pacific and Canada, and the Company markets its products worldwide. Further, approximately 36% 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.

The following table reflects the results of the segment:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
Business Segment Information
Net Sales
Specialties		$	264,640			$	170,420			$	712,134			$	488,023
Operating profit
Specialties		$	48,843			$	38,580			$	165,146			$	90,925
Corporate			(7,379	)			(9,363	)			(24,363	)			(27,469	)
		$	41,464			$	29,217			$	140,783			$	63,456
Interest expense		$	(238	)		$	(9,712	)		$	(7,523	)		$	(29,331	)
Loss on redemption of Notes			—				—				(21,733	)			—
Foreign exchange gain			4,178				772				5,962				3,033
Gain on sale of investment			—				—				—				12,223
Other income, net			4,540				1,843				14,644				5,250
		$	8,480			$	(7,097	)		$	(8,650	)		$	(8,825	)
Income from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle		$	49,944			$	22,120			$	132,133			$	54,631
Expenditures for property, plant & equipment
Specialties		$	4,880			$	3,588			$	12,833			$	8,876
Depreciation and amortization
Specialties		$	8,050			$	7,730			$	23,980			$	22,981
Corporate			204				240				672				725
		$	8,254			$	7,970			$	24,652			$	23,706

		September 30,				December 31,
Total assets			2007				2006
Specialties		$	1,054,365			$	826,488
Corporate			259,264				194,054
Assets of discontinued operations			—				597,682
		$	1,313,629			$	1,618,224

Note 13 — Recently Issued Accounting Standards

Accounting Standards adopted in 2007:

FIN No. 48: In July 2006, the Financial Accounting Standards Board (“FASB”) issued FIN No. 48. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 on January 1, 2007. The transition provisions require that the effect of applying the provisions of FIN No. 48 be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The effect of adoption was a $0.5 million reduction to retained earnings at January 1, 2007.

EITF No. 06-3: In June 2006, the FASB ratified the consensus of Emerging Issues Task Force (“EITF”) No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, gross versus net presentation).” EITF No. 06-03 indicates that the income statement presentation of taxes within the scope of the Issue on either a gross basis or a net basis is an accounting policy decision that should be disclosed pursuant to APB No. 22. The Company has historically accounted for such taxes on a net basis and therefore the adoption of EITF No. 06-03 in the first quarter of 2007 had no impact on the Company’s results of operations and financial position.  

Accounting Standards Not Yet Adopted

SFAS No. 157: In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect, if any, the adoption of this statement will have on its results of operations or financial position.

SFAS No. 159: In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). Unrealized gains and losses on items for which the fair value option has been elected are to be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on its results of operations or financial position.

Note 14 – Subsequent Events

On October 1, 2007, the Company acquired Borchers GmbH (“Borchers”), a European-based specialty coatings additive supplier, for €12.7 million (US$18.1 million) in cash, subject to a final working capital adjustment. Borchers, which had sales in 2006 of approximately €36 million (US$45.2 million), offers products to enhance the performance of coatings and ink systems from the production stage through customer end use. The products improve processing options, free-flowing properties, consistency and gloss, control surface drying and drying-out properties, enhance rheology and dispersency, optimize resistance to the most diverse range of stresses and shape the environmental compatibility of contemporary surface hardening. The Borchers operations will be included with OMG’s existing Advanced Organics product line grouping.

On October 7, 2007, the Company entered into a Stock Purchase Agreement with Rockwood Specialties Group, Inc (“Rockwood”). OMG will acquire Rockwood’s Electronics businesses, excluding its French entity, for approximately $265 million in cash. Rockwood’s French electronic chemicals business is subject to a put option, at the discretion of Rockwood, for an additional purchase price of approximately $50 million. The Rockwood Electronics businesses, which had combined sales of $187 million in 2006, consist of its Printed Circuit Board business, Ultra-Pure Chemicals business, and its Photomasks business. The businesses supply customers with chemicals used in the manufacture of semiconductors and printed circuit boards as well as photo-imaging masks primarily for semiconductor and photovoltaic manufacturers, employ approximately 700 people, and have locations in the United States, the United Kingdom, France, Taiwan, Singapore and China. The closing of the transaction is expected to occur in the fourth quarter of 2007 subject to approval by regulatory authorities and the satisfaction of other customary closing conditions.

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

Overview

The Company is a leading, vertically integrated international producer and marketer of value-added, metal-based specialty chemicals and related materials. The Company applies proprietary technology to unrefined cobalt and other raw materials to market more than 775 different product offerings to approximately 1,900 customers in over 40 industries.

The Company’s business is critically connected to both the price and availability of raw materials. The primary raw material used by the Company is unrefined cobalt. Cobalt raw materials include ore, concentrates, slag and scrap. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand, changes in cobalt reference prices and changes in availability from suppliers. The Company attempts to mitigate changes in availability by maintaining adequate inventory levels and long-term supply relationships with a variety of producers. Fluctuations in the price of cobalt have been significant in the past and the Company believes that cobalt price fluctuations are likely to continue in the future. The Company attempts to pass through to its customers increases in raw material prices by increasing the prices of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value.

The Company has manufacturing and other facilities in North America, Europe, Africa and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results.

On March 1, 2007, the Company completed the sale of its Nickel business, as discussed in Note 2 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q. As a result, the Company’s financial statements, accompanying notes and other information provided in this Form 10-Q reflect the Nickel business as a discontinued operation for all periods presented. The Nickel business consisted of the Harjavalta, Finland nickel refinery, the Cawse, Australia nickel mine and intermediate refining facility, a 20% equity interest in MPI Nickel Pty. Ltd. and an 11% ownership interest in Talvivaara Mining Company, Ltd.

After reclassifying the Nickel business to discontinued operations, the Company has one operating segment — Specialties. The Specialties segment includes products manufactured using cobalt and other metals including copper, zinc, manganese, and calcium. In late 2005, the Company began a strategic transformation away from commodity-based businesses and markets to value-added, specialty businesses and markets. Pursuant to the transformation, the Vice President and General Manager of the Specialties segment organized certain product lines around end markets, thereby creating three business units that represent product line groupings around end markets: Advanced Organics, Inorganics and Electronic Chemicals. The Specialties segment also includes certain other operations, primarily the DRC smelter operations, which are not classified into one of these groupings. The Company’s products are sold in various forms such as solutions, crystals and powders. The Company’s products are essential components in numerous complex chemical and industrial processes, and are used in many end markets.

The following table sets forth information regarding the Company’s product line groupings:

Product Line Grouping		End Markets/Applications		Product Attributes
Advanced Organics		Tires		Promotes bonding of metal-to-rubber in radial tires
		Coatings and paints		Promotes faster drying in such products as house paints (exterior and interior) and industrial and marine coatings
		Printing Inks		Promotes faster drying in various printing inks
		Petrochemical Refining		Catalyzes reduction of sulfur dioxide and nitrogen emissions
		Polyester Resins		Accelerates the curing of polyester resins found in reinforced fiberglass boats, storage tanks, bathrooms, sports equipment, automobile and truck components
Inorganics		Rechargeable Batteries		Improves the electrical conduction of rechargeable batteries used in cellular phones, video cameras, portable computers, power tools and hybrid electric vehicles
		Ceramics and Glassware		Provides color for pigments, earthenware and glass and facilitates adhesion of porcelain to metal
		Catalysts		Reduces emissions from petrochemical refining and enables the production of cleaner-burning fuels
		Construction Equipment and Cutting Tools		Strengthens and adds durability to diamond and machine cutting tools and drilling equipment used in construction, oil and gas drilling, and quarrying
Electronic Chemicals		Memory Disks		Enhances information storage on disks for computers and consumer electronics
		General Metal Finishing		Impart corrosion protection and wear resistance to electrical connectors, microwave housings, valves and pump bodies, printer shafts and hard-drive computer components

Subsequent events – Acquisitions

On October 1, 2007, the Company acquired Borchers, a European-based specialty coatings additive supplier, for €12.7 million (US$18.1 million) in cash, subject to a final working capital adjustment. Borchers offers products to enhance the performance of coatings and ink systems from the production stage through customer end use. The products improve processing options, free-flowing properties, consistency and gloss, control surface drying and drying-out properties, enhance rheology and dispersency, optimize resistance to the most diverse range of stresses and shape the environmental compatibility of contemporary surface hardening. The Borchers operations will be included with OMG’s existing Advanced Organics product line grouping.

On October 7, 2007, the Company entered into a Stock Purchase Agreement with Rockwood to acquire Rockwood’s Electronics businesses, excluding its French entity, for approximately $265 million in cash. Rockwood’s French electronic chemicals business is

subject to a put option, at the discretion of Rockwood, for an additional purchase price of approximately $50 million. The Rockwood Electronics businesses consist of its Printed Circuit Board business, Ultra-Pure Chemicals business, and its Photomasks business. The businesses supply customers with chemicals used in the manufacture of semiconductors and printed circuit boards as well as photo-imaging masks primarily for semiconductor and photovoltaic manufacturers and have locations in the United States, the United Kingdom, France, Taiwan, Singapore and China. The closing of the transaction is expected to occur in the fourth quarter of 2007 subject to approval by regulatory authorities and the satisfaction of other customary closing conditions.

Results of Operations

Third Quarter of 2007 Compared With Third Quarter of 2006

		Three Months Ended September 30,
(thousands of dollars & percent of net sales)		2007								2006
Net sales		$	264,640							$	170,420
Cost of products sold			191,502								117,245
Gross profit			73,138				27.6	%			53,175				31.2	%
Selling, general and administrative expenses			31,674				12.0	%			23,958				14.1	%
Operating profit			41,464				15.7	%			29,217				17.1	%
Other income (expense), net (including interest expense)			8,480								(7,097	)
Income tax expense			(7,926	)							(5,452	)
Minority partners’ share of income			(2,511	)							(2,838	)
Income from continuing operations			39,507								13,830
Income (loss) from discontinued operations, net of tax			(1,412	)							74,178
Net income		$	38,095							$	88,008

The following table reflects the sales for the product line groupings in the Specialties segment for the three months ended September 30,

(thousands of dollars)		2007				%				2006				%
Net Sales
Inorganics		$	192,654				73	%		$	110,922				65	%
Advanced organics			44,578				17	%			37,255				22	%
Electronic chemicals			27,408				10	%			22,243				13	%
		$	264,640							$	170,420

The following table reflects the volumes in the Specialties segment for the three months ended September 30,

		2007				2006
Volumes
Inorganics sales volume — metric tons *			6,875				7,742
Advanced organics sales volume — metric tons			6,797				6,904
Electronic chemicals sales volume — gallons (thousands)			1,818				1,753
Cobalt refining volume — metric tons			2,402				2,333

The following table summarizes the percentage of sales dollars by region for the three months ended September 30:

		2007				2006				Change
Americas			22	%			21	%			1	%
Asia			46	%			44	%			2	%
Europe			32	%			35	%			-3	%