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FORM 10-K

	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2000

	TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                 to                

Commission file number 0-22572

OM GROUP, INC.

216-781-0083

Securities registered pursuant to Section 12 (b) of the Act:

Securities registered pursuant to Section 12 (g) of the Act:

None

  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   No

  The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates (based upon the closing sale price on the NYSE) on March 5, 2001 was approximately $1,252,000,000.

  As of March 5, 2001, there were 23,929,418 shares of Common Stock, par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of stockholders to be held on May 8, 2001 are incorporated by reference.

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PART I

Item 1.  Business

In April 2000 the Company acquired Outokumpu Nickel Oy (OKN). OKN manufacturers, distributes and sells a broad range of nickel products, principally plating and alloy-grade cathodes and briquettes. The Company believes that the acquisition will enhance its current technologies of refining and processing nickel-based specialty chemicals.

Competition

The Company believes that its focus on metal-based specialty chemicals as a core business is an important competitive advantage. Competition in the metal-based specialty chemicals market is based primarily on product quality, supply reliability, price, service and technical support capabilities.

Generally, the Company is able to pass through to its customers increases and decreases in raw material prices by increasing or decreasing, respectively, the prices of its products. The degree of profitability of the Company depends, in part, on the Company’s ability to maintain the differential between its product prices and raw material prices. The timing and amount of such adjustments in its product prices depends upon the type of product sold and the inventories and market share positions of the Company and its competitors.

The Company’s flexibility with respect to the timing of its price adjustments is greater with respect to organic than with inorganic, powder and metal products. Inorganic, powder and metal products prices respond almost immediately to changes in the raw material base metal prices.

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Customers

While customer demand for the Company’s products is generally non-seasonal, supply/demand and price perception dynamics of key raw materials do periodically cause customers to either accelerate or delay purchases of the Company’s products, generating short-term results that may not be indicative of longer-term trends.

Raw Materials

Raw material cost increases and/or contractual commitments can result in higher working capital needs. The Company has had sufficient cash availability and borrowing capacity to finance higher working capital as needed.

Research and Development

The Company’s research staff of 76 full time persons conducts organics, inorganics and powders research and development at the Company’s laboratories located in Cleveland, Ohio; Westlake, Ohio; Research Triangle Park, North Carolina; Newark, New Jersey; and Kokkola, Finland. The Company’s Kokkola facility also maintains a research agreement with Outokumpu Research Oy.

Patents and Trademarks

Environmental Matters

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Annual environmental compliance costs were approximately $5.0 million in 2000. Such ongoing expenses include costs relating to waste water analysis and disposal, hazardous and non-hazardous solid waste analysis and disposal, sea water control, air emissions control, soil and groundwater clean-up and monitoring and related staff costs. The Company anticipates that it will continue to incur costs and make expenditures at moderately increasing levels for the foreseeable future in light of the fact that environmental laws and regulations are becoming increasingly stringent, including the likely lowering of permissible discharge limits.

The Company has also incurred capital expenditures of approximately $2.1 million in 2000 in connection with environmental compliance. The Company anticipates that capital expenditure levels for such purposes will increase to approximately $3.1 million in 2001, as it continues to modify on an ongoing, regular basis, certain of its processes which may have an environmental impact.

Due to the ongoing development and understanding of facts and remedial options and due to the possibility of unanticipated regulatory developments, the amount and timing of future environmental expenditures could vary significantly from those currently anticipated. Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, based on presently available information, the Company believes that the ultimate aggregate cost to the Company of environmental remediation as well as other legal proceedings arising in the normal course of business, will not result in a material adverse effect upon its financial condition or results of operations.

Employees

International Operations

The Company’s products are manufactured at facilities located in Belleville, Canada; Lubumbashi, Democratic Republic of the Congo; Harjavalta, Finland; Kokkola, Finland; Ezanville, France; Kuching, Malaysia; Bangkok, Thailand; Newark, New Jersey; Research Triangle Park, North Carolina; Franklin, Pennsylvania; Johnstown, Pennsylvania; Singapore and St. George, Utah. The Company conducts its marketing and sales primarily from its offices in Espoo, Finland; Düsseldorf, Germany; Research Triangle Park, North Carolina; Westlake, Ohio; Newark, New Jersey; Taipei, Taiwan; and Tokyo, Japan.

Although most of the Company’s raw material purchases and product sales are transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices may affect the Company’s operating results and net income. Specifically, when the

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Item 2.  Properties

The Company’s Kokkola, Finland production facility (KCO) is situated on property owned by Outokumpu Zinc Oy. KCO and Outokumpu Zinc Oy share certain physical facilities, services and utilities under agreements with varying expiration dates. Utilities and raw material purchase assistance contracts provide that KCO jointly purchase with, or pay a fee to, affiliates of Outokumpu Oy for assistance in negotiating contracts and securing bulk quantity discounts. The Company’s Harjavalta, Finland production facility is situated on land owned by Outokumpu Harjavalta Metals Oy. OKN and Outokumpu Harjavalta Metals Oy also share certain physical facilities and have contracts in place for waste disposal, tolling, utilities, laboratory services and raw material supply with varying expiration dates.

Certain information regarding the Company’s primary offices, research and product development and manufacturing facilities is set forth below:

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Item 3.  Legal Proceedings

Item 4.  Submission of Matters to a Vote of Security Holders

Executive Officers of the Registrant

James P. Mooney — 53

•	Chairman and Chief Executive Officer, 1994

Edward W. Kissel — 59

•	President and Chief Operating Officer, 1999
•	Chief Executive Officer, RotoCast Technologies, Inc., 1993
•	Chief Executive Officer, Kissel Group, Ltd., 1993

James M. Materna — 55

•	Chief Financial Officer, 1992

PART II

Item 5.  Market for Registrant’s Common Equity and Related Stockholder Matters

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Item 6.  Selected Financial Data

On April 4, 2000 the Company acquired Outokumpu Nickel Oy (OKN) for a purchase price of $188.1 million, including related financing and transaction costs. (See Note C to the consolidated financial statements).

Set forth below is summary consolidated information of the Company for the years ended December 31, 2000, 1999 and 1998.

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Results of Operations

The following table summarizes market price fluctuations on the primary raw materials used by the Company in manufacturing its products:

The Company sold 307.2 million pounds of product during 2000, an increase of 46.7% compared to 209.4 million pounds in 1999. The increase in physical volume of organic products sold was primarily due to generally stronger cobalt catalyst sales in all geographic regions and increased sales of plastic additives in Asia Pacific. In the inorganics category, the increase in physical volume of products sold reflects increased volume of electronics chemicals, strong demand for nickel catalyst products in the United States and higher sales of battery grade chemicals in Asia Pacific. The increase in physical volume of powder products reflects increases in sales of cobalt powder to the Asia Pacific battery industry, and increased sales of cobalt extra fine, cobalt briquettes and tungsten powders to the hard metal and alloy markets, offsetting a decrease in copper powders used in automotive applications. The increase in physical volume of metal products sold is a result of the acquisition of OKN and the resulting sales of nickel briquettes and cathodes to the European steel industry.

Gross profit increased to $213.9 million in 2000, a 34.1% increase from 1999. The increase in gross profit was primarily the result of the acquisition of OKN and the increased volumes of product sold. Cost of products sold increased to 75.9% of net sales for the year ended 2000 from 68.5% of net sales in 1999 as a result of the acquisition of OKN with lower value-added nickel products and higher sales of lower value-added cobalt containing products.

Selling, general and administrative expenses increased by $14.6 million in 2000 from 1999, resulting primarily from general increases in administrative costs due to the Company’s growth and the OKN acquisition. Due to the relatively low incremental selling, general and administrative expenses required to support OKN and relatively high nickel prices, selling, general and administrative expenses decreased to 8.5% of net sales in 2000 compared to 12.0% of net sales in 1999.

Other expense-net was $38.5 million in 2000 compared to $18.4 million in 1999 due primarily to increased interest expense on higher outstanding borrowings, primarily as a result of the OKN acquisition, and higher interest rates.

Income taxes as a percentage of income before income taxes decreased to 28.5% in 2000 from 30.5% in 1999. The lower effective tax rate was due primarily to a higher percentage of income earned in the relatively low statutory tax country of Finland and a tax holiday in Malaysia.

Net income for 2000 was $71.5 million, an increase of $15.7 million from 1999, primarily due to the aforementioned factors.

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1999 Compared to 1998

The following table summarizes market price fluctuations on the primary raw materials used by the Company in manufacturing its products:

Pounds of product sold by the Company were 209.4 million pounds during 1999, an increase of 10.1% compared to 190.2 million pounds in 1998. The increase in physical volume of organic products sold was primarily the result of an increase in sales of cobalt organics and PVC plastic additives, both in Europe and Asia Pacific. In the inorganic category, the increase in physical volume of products sold reflects higher sales of memory disk and battery grade chemicals in Asia Pacific. The increase in physical volume of powder products reflects continued strong growth in sales of cobalt fine powder to the hard metal tool industry, coarse grade powders to the rechargeable battery market and stainless steel alloy powders in automotive applications.

Gross profit increased to $159.5 million in 1999, a 10.0% increase from 1998. The improvement in gross profit was primarily the result of increased volumes and an improved product mix increasing contribution from higher value-added products. Cost of products sold decreased to 68.5% of net sales for the year ended 1999 from 72.2% of net sales in 1998 as a result of lower cobalt pricing and improved product mix.

Selling, general and administrative expenses increased to 12.0% of net sales in 1999 from 11.1% of net sales in 1998, resulting from general increases in administrative costs due to the Company’s growth.

Other expense-net was $18.4 million in 1999 compared to $15.6 million in 1998 due primarily to increased interest expense on higher outstanding borrowings, primarily as a result of provisional payments made on cobalt-copper concentrate and capital expenditures.

Income taxes as a percentage of income before income taxes decreased to 30.5% in 1999 from 32.2% in 1998. The lower effective tax rate was due primarily to a higher percentage of income earned in the relatively low statutory tax country of Finland and a tax holiday in Malaysia.

Net income for 1999 was $55.8 million, an increase of $7.5 million from 1998, primarily due to the aforementioned factors.

Liquidity and Capital Resources

In conjunction with the acquisition of OKN, the Company entered into a $675 million senior credit facility with a group of financial institutions including a $30 million limit for issuance of letters of credit. This senior secured

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The Company believes that it will have sufficient cash generated by operations and through its credit facilities to provide for its future working capital and capital expenditure requirements and to pay quarterly dividends on its common stock, subject to the Board’s discretion. Subject to several limitations in its credit facilities, the Company may incur additional borrowings under this line to finance working capital and certain capital expenditures, including, without limitation, the purchase of additional raw materials.

The Company has ongoing capital expenditure programs to improve its processing technology and plant and equipment, and to expand capacity to accommodate future growth. The Company anticipates that capital spending, exclusive of acquisitions or joint ventures, will approximate $60 million in 2001.

Although most of the Company’s raw material purchases and product sales are transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices will affect the Company’s operating results and net income (see pages 4 and 5 — International Operations).

Quantitative and Qualitative Disclosures About Market Risk

The primary raw materials used by the Company in manufacturing its products are cobalt, nickel and copper. The Company’s supply of cobalt has historically been sourced primarily from the Democratic Republic of Congo, Australia, Finland and Zambia. Nickel has been sourced primarily from Australia and Chile. Copper is a worldwide commodity and generally available. Although the Company has never experienced a significant shortage of raw materials, production problems and political and civil instability in certain supplier countries may affect their supply and market price. If a substantial interruption should occur in supply from a primary source, there is no assurance that the Company would be able to obtain as much from other sources as would be necessary to satisfy the Company’s requirements or at prices comparable to its current arrangements.

The Company attempts to mitigate changes in prices and availability by maintaining adequate inventories and long-term supply relationships with a variety of producers. The cost of raw materials fluctuates due to both actual and perceived changes in supply and demand. Generally, the Company is able to pass through to its customers increases and decreases in raw material prices by increasing or decreasing, respectively, the prices of its products. In addition, in order to hedge the purchase of nickel raw material and the sale of nickel products, the Company enters into commodity forward contracts. The degree of profitability of the Company principally depends on the Company’s ability to maintain the differential between its product prices and product costs.

Substantial, sustained reductions in the price of raw materials, particularly cobalt and nickel, could also result in the Company’s inventory being written down to a lower market value.

The Company is exposed to interest rate risk primarily through its borrowing activities. The Company predominantly utilizes U.S. Dollar denominated borrowings to fund its working capital and investment needs. The majority of the Company’s borrowings are in variable rate instruments. The Company enters into interest rate swap agreements to convert a portion of the variable rate instruments to fixed rate contracts over typically a three year period. There is an inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest

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In addition to the United States, the Company has manufacturing and other facilities in Africa, Canada, Europe and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices may affect the Company’s operating results and net income. The OKN acquisition increased the Company’s exposure to changes in foreign currency exchange rates through additional euro operating expenses (see pages 4 and 5 — International Operations).

Cautionary Statement for “Safe Harbor” Purposes Under the Private Securities Litigation Reform Act of 1995

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

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Item 8.  Financial Statements and Supplementary Data

Report of Independent Auditors

Board of Directors and Stockholders

We have audited the accompanying consolidated balance sheets of OM Group, Inc. as of December 31, 2000 and 1999, and the related statements of consolidated income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OM Group, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Cleveland, Ohio

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Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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See accompanying notes to consolidated financial statements.

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