##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
    20549
  FORM 10-K
  x

ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the fiscal year ended
    December 31, 2006

Commission file number 001-12515   OR
  o

TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   OM GROUP,
    INC.(Exact name of Registrant as
    specified in its charter)
  Delaware

52-1736882(State or other jurisdiction of

(I.R.S. Employerincorporation 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
  Securities
    registered pursuant to Section 12(b) of the Act:
  Title of each class

Name of each exchange on which registeredCommon Stock, par value
    $0.01 per share

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
   o x
  o x
  x o
  Regulation S-K Form 10-K Form 10-K. x
  Rule 12b-2
 x o o
  Rule 12b-2 o x
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



OM Group,
    Inc.
  TABLE
    OF CONTENTS
  PART IItem 1.


Business

2Item 1A.


Risk Factors

7Item 1B.


Unresolved Staff
    Comments

12Item 2.


Properties

12Item 3.


Legal Proceedings

12Item 4.


Submission of
    Matters to a Vote of Security Holders

13PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities

15Item 6.


Selected Financial
    Data

17Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations

18Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk

31Item 8.


Financial
    Statements and Supplementary Data

33Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure

80Item 9A.


Controls and
    Procedures

80Item 9B.


Other Information

81PART IIIItem 10.


Directors and
    Executive Officers of the Registrant and Corporate Governance

82Item 11.


Executive
    Compensation

82Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters

82Item 13.


Certain
    Relationships and Related Transactions, Director Independence

83Item 14.


Principal
    Accountant Fees and Services

83PART IVItem 15.


Exhibits and
    Financial Statement Schedules

84Signatures

89EX-4.4EX-4.5EX-12EX-21EX-23EX-24EX-31.1EX-31.2EX-32   1




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##### Table of Contents



PART I  Item 1.
    Business General
            2




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##### Table of Contents



non-U.S. operating
    Significant
    Events
 Planned Sale of the Nickel business:
  Form 10-K.
    Senior Subordinated Notes:
  Products
  3




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##### Table of Contents



and/or
    Applications

Metals Used

OMGs Product AttributesRechargeable Batteries

Cobalt, Nickel

Improves the electrical conduction
    of rechargeable batteries used in cellular phones, video
    cameras, portable computers, power tools and hybrid electric
    vehiclesCoatings and paints

Cobalt,
    Manganese,
    Calcium,
    Zirconium,
    Aluminum

Promotes faster drying in such
    products as house paints (exterior and interior) and industrial
    and marine coatingsPrinting Inks

Cobalt, Manganese

Promotes faster drying in various
    printing inksTires

Cobalt

Promotes bonding of
    metal-to-rubber
    in radial tiresConstruction Equipment and Cutting
    Tools

Cobalt

Strengthens and adds durability to
    diamond and machine cutting  tools and drilling equipment used
    in construction, oil and gas drilling, and quarryingPetrochemical Refining

Cobalt, Nickel

Catalyzes reduction of sulfur
    dioxide and nitrogen emissionsCeramics and Glassware

Cobalt, Nickel

Provides color for pigments,
    earthenware and glass and facilitates adhesion of porcelain to
    metalPolyester Resins

Cobalt, Copper, Zinc

Accelerates the curing of
    polyester resins found in reinforced fiberglass boats, storage
    tanks, bathrooms, sports equipment, automobile and truck
    componentsMemory Disks

Nickel

Enhances information storage on
    disks for computers and consumer electronics     Competition
   Customers
    4




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##### Table of Contents



Raw
    Materials
             
  Research
    and Development
  5




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##### Table of Contents



Patents
    and Trademarks
   Environmental
    Matters
 and/or
        Employees
  6




---



##### Table of Contents



SEC
    Reports
 Forms 10-K, 10-Q 8-K
  Item 1A.
    Risk
    Factors   WE ARE
    UNDERGOING A STRATEGIC TRANSFORMATION.
   THE
    PROPOSED SALE OF THE NICKEL BUSINESS COULD HAVE AN ADVERSE
    EFFECT ON OUR OPERATING RESULTS OR FINANCIAL
    CONDITION.
     WE MAY
    EXPAND OUR OPERATIONS THROUGH ACQUISITIONS THAT COULD DIVERT
    MANAGEMENTS ATTENTION AND EXPOSE US TO UNANTICIPATED COSTS
    AND LIABILITIES. WE MAY EXPERIENCE DIFFICULTIES INTEGRATING THE
    ACQUIRED OPERATIONS, AND WE MAY INCUR COSTS RELATING TO
    POTENTIAL ACQUISITIONS THAT ARE NEVER CONSUMMATED.
  7




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##### Table of Contents



EXTENDED
    BUSINESS INTERRUPTION AT OUR FACILITIES COULD HAVE AN ADVERSE
    IMPACT ON OPERATING RESULTS.
 day-to-day and/or
  WE ARE AT
    RISK FROM FLUCTUATIONS IN THE PRICE OF OUR PRINCIPAL RAW
    MATERIALS.
     WE ARE AT
    RISK FROM UNCERTAINTIES IN THE SUPPLY OF SOME OF OUR PRINCIPAL
    RAW MATERIALS.
   WE ARE
    EXPOSED TO FLUCTUATIONS IN FOREIGN EXCHANGE RATES, WHICH MAY
    ADVERSELY AFFECT OUR OPERATING RESULTS.
 non-U.S. operating
 8




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##### Table of Contents



OUR
    SUBSTANTIAL INTERNATIONAL OPERATIONS SUBJECT US TO RISKS, WHICH
    MAY INCLUDE UNFAVORABLE POLITICAL, REGULATORY, LABOR AND TAX
    CONDITIONS IN OTHER COUNTRIES.
   
    potential supply disruptions as a result of political
    instability or civil unrest in countries in which we have
    operations, especially the DRC and surrounding countries;
    agreements may be difficult to enforce and receivables difficult
    to collect through a foreign countrys legal system;
    foreign customers may have longer payment cycles;
    foreign countries may impose additional withholding taxes or
    otherwise tax our foreign income, impose tariffs or adopt other
    restrictions on foreign trade or investment, including currency
    exchange controls;
    general economic conditions in the countries in which we operate
    could have an adverse effect on our earnings from operations in
    those countries;
    unexpected adverse changes in foreign laws or regulatory
    requirements may occur, including with respect to export duties
    and quotas; and
    compliance with a variety of foreign laws and regulations may be
    difficult.    WE ARE
    SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION AND MAY INCUR
    UNANTICIPATED COSTS OR LIABILITIES ARISING OUT OF ENVIRONMENTAL
    MATTERS.
     CHANGES
    IN ENVIRONMENTAL, HEALTH AND SAFETY REGULATORY REQUIREMENTS
    COULD AFFECT SALES OF THE COMPANYS PRODUCTS.
  9




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##### Table of Contents



and/or
  SEC
    INVESTIGATION.
   ADVERSE
    RESOLUTION OF LITIGATION MAY HARM OUR OPERATING RESULTS OR
    FINANCIAL CONDITION.
   IMPLEMENTATION
    OF AN ENTERPRISE RESOURCE PLANNING (ERP) PROJECT HAS
    THE POTENTIAL FOR BUSINESS INTERRUPTION AND ASSOCIATED ADVERSE
    IMPACT ON OPERATING RESULTS.
   WE MAY
    NOT BE ABLE TO RESPOND EFFECTIVELY TO TECHNOLOGICAL CHANGES IN
    OUR INDUSTRY OR IN OUR CUSTOMERS PRODUCTS.
   WE
    OPERATE IN VERY COMPETITIVE INDUSTRIES.
  10




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##### Table of Contents



INDUSTRY
    CONSOLIDATION MAY LEAD TO INCREASED COMPETITION AND MAY HARM OUR
    OPERATING RESULTS.
   FAILURE
    TO RETAIN AND RECRUIT KEY PERSONNEL WOULD HARM OUR ABILITY TO
    MEET KEY OBJECTIVES.
   CHANGES
    IN EFFECTIVE TAX RATES OR ADVERSE OUTCOMES RESULTING FROM
    EXAMINATION OF OUR INCOME TAX RETURNS COULD ADVERSELY AFFECT OUR
    RESULTS.
   INADEQUATELY
    PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS MAY ALLOW OTHER
    COMPANIES TO COMPETE DIRECTLY AGAINST US, OR WE MIGHT BE FORCED
    TO DISCONTINUE SELLING CERTAIN PRODUCTS.
       OUR STOCK
    PRICE MAY CONTINUE TO BE VOLATILE.
  11




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##### Table of Contents



Item 1B.
    Unresolved Staff
    Comments   Item 2.
    Properties       Facility

ApproximateLocation

Segment

Function*

Square Feet


Leased/OwnedAfrica:Lubumbashi, DRC

Specialties

M


116,000


joint venture (55% owned)North America:Cleveland, Ohio

Corporate

A


24,500


leasedWestlake, Ohio

Specialties

A, R


35,200


ownedBelleville, Ontario

Specialties

M


38,000


ownedFranklin, Pennsylvania

Specialties

M


331,500


ownedNewark, New Jersey

Specialties

A, R


32,000


ownedSouth Plainfield, New Jersey

Specialties

A, R


18,400


leasedAsia-Pacific:Kuching, Malaysia

Specialties

M, A, R, W


55,000


leasedTokyo, Japan

Specialties

A


2,300


leasedTaipei, Taiwan

Specialties

A


2,350


leasedSuzhou, China

Specialties

M, A W


85,530


ownedSingapore

Specialties

M, A, R


5,375


leasedEurope:Manchester, England

Specialties

M, A, R


73,300


ownedKokkola, Finland

Specialties

M, A, R


470,000


owned     *
    
    M  Manufacturing/refining; A 
    Administrative; R  Research and Development;
    W  Warehouse  Item 3.
    Legal
    Proceedings  12




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##### Table of Contents



Item 4.
    Submission of
    Matters to a Vote of Security Holders   Executive
    Officers of the Registrant
 Form 10-K.
      
    Chairman and Chief Executive Officer, August 2005
    Chief Executive Officer, June 2005
    President, Chief Operating Officer and Board Member, The
    Sherwin-Williams Company
    1999-2005    
    Chief Financial Officer, March 2006
    Interim Chief Financial Officer, November 2005  March
    2006
    Owner and President, G&H Group Company, dba Partners in
    Success, May 2000  March 2006    
    Vice President, General Counsel and Secretary, September 2005
    Executive Vice President, General Counsel and Secretary, Jo-Ann
    Stores, Inc.,
    2003-2005
    General Counsel, Marconi plc,
    2002-2003.
    Executive Vice President and General Counsel, Marconi
    Communications, Inc., the operating company for Marconi, plc in
    the Americas, April 2001 to March 2002, and Vice President and
    General Counsel, November 2000 to April 2001.    
    Vice President and General Manager, Nickel Group, January 2003
    President, OMG Harjavalta Nickel Oy, October 2002 
    January 2003
    Vice President and General Manager, OMG Powdered Metals, January
    2000  October 2002 13




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##### Table of Contents




    Vice President and General Manager, Specialties Group, January
    2006
    Vice President and General Manager, Cobalt Group, August
    2003  January 2006
    Corporate Vice President of Technology, 2000  August
    2003    
    Vice President, Strategic Planning, Development and Investor
    Relations, February 2007
    Vice President, Corporate Affairs and Investor Relations,
    October 2005  February 2007
    Director of Investor Relations, July 2002  October
    2005
    Director, Corporate Communications, Great Lakes Chemical
    Corporation 1999  2002 14




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##### Table of Contents



PART II  Item 5.
    Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities     2006Sales Price


CashHigh


Low


DividendFirst quarter

$
23.85


$
17.12


$
Second quarter

$
34.32


$
23.14


$
Third quarter

$
44.70


$
30.13


$
Fourth quarter

$
59.75


$
43.28


$
   2005Sales Price


CashHigh


Low


DividendFirst quarter

$
33.36


$
27.47


$
Second quarter

$
31.36


$
19.35


$
Third quarter

$
24.95


$
18.62


$
Fourth quarter

$
20.42


$
12.35


$
  15




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##### Table of Contents



Performance
    Comparisons
   Comparison
    of Five-Year Cumulative Total Return among OM Group, Inc.,
    the S&P 500 Index and the S&P Specialty Chemicals
    Index
  
  12/31/2001


12/31/2002


12/31/2003


12/31/2004


12/31/2005


12/31/2006OM Group, Inc.

$
100.00


$
11.03


$
39.57


$
48.98


$
28.34


$
68.41S&P 500 Index


100.00



78.03



98.36



107.25



110.66



125.70S&P Specialty Chemicals Index


100.00



112.56



131.47



149.10



152.53



183.74  16




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##### Table of Contents



Item 6.
    Selected
    Financial Data Year Ended December 31,2006


2005


2004


2003


2002(In millions, except per share data)Income Statement
    Data:Net sales

$
660.1


$
617.5


$
689.5


$
417.4


$
385.7Cost of products sold


475.4



516.5



468.9



304.4



376.3Gross profit


184.7



101.0



220.6



113.0



9.4Selling, general and
    administrative expenses


109.4



75.9



116.2



185.6



122.1Income (loss) from operations

$
75.3


$
25.1


$
104.4


$
(72.6
)

$
(112.7
)Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle

$
23.6


$
(12.4
)

$
40.1


$
(102.6
)

$
(140.2
)Income (loss) of discontinued
    operations, net of tax


192.2



49.0



88.5



186.3



(68.6
)Cumulative effect of a change in
    accounting principle


0.3



2.3











Net income (loss)

$
216.1


$
38.9


$
128.6


$
83.7


$
(208.8
)Net income (loss) per common
    share  basic:Continuing operations

$
0.80


$
(0.43
)

$
1.41


$
(3.62
)

$
(5.00
)Discontinued operations


6.55



1.71



3.11



6.57



(2.45
)Cumulative effect of change in
    accounting principle


0.01



0.08











Net income (loss)

$
7.36


$
1.36


$
4.52


$
2.95


$
(7.45
)Net income (loss) per common
    share  assuming dilution:Continuing operations

$
0.80


$
(0.43
)

$
1.40


$
(3.62
)

$
(5.00
)Discontinued operations


6.50



1.71



3.09



6.57



(2.45
)Cumulative effect of a change in
    accounting principle


0.01



0.08











Net income (loss)

$
7.31


$
1.36


$
4.49


$
2.95


$
(7.45
)Dividends declared and paid per
    common share

$



$



$



$



$
0.42Ratio of earnings to fixed
    charges(a)


2.5
x






2.5
x






Balance Sheet Data:Total assets

$
1,618.2


$
1,220.3


$
1,334.7


$
1,211.4


$
2,105.3Long-term debt, excluding current
    portion(b)

$
1.2


$
416.1


$
24.7


$
430.5


$
1,195.6     (a)
    
    The ratio of earnings to fixed charges has been recalculated for
    all periods presented to reflect the Nickel business as
    discontinued operations. Earnings were inadequate to cover fixed
    charges by $16.6 million, $96.1 million and
    $162.8 million in 2005, 2003 and 2002, respectively.(b)
    
    Amount in 2006 excludes the $400.0 million of outstanding
    Notes. On February 2, 2007, the Company notified its
    noteholders that it had called for redemption all
    $400.0 million of its outstanding Notes. The Notes will be
    redeemed on March 7, 2007. Amount in 2004 excludes the
    $400.0 million of Notes, which were then in default and
    classified as current. 17




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##### Table of Contents



mark-to-market
        Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations   Overview
      18




---



##### Table of Contents



non-U.S. operating
        Overall
    operating results for 2006, 2005 and 2004
   (Millions of dollars & percent of net sales)

2006





2005





2004Net sales

$
660.1






$
617.5






$
689.5Cost of products sold


475.4







516.5







468.9Gross profit


184.7



28.0%



101.0



16.4%



220.6



32.0%Selling, general and
    administrative expenses


109.4



16.6%



75.9



12.3%



116.2



16.9%Income (loss) from operations


75.3



11.4%



25.1



4.1%



104.4



15.1%Other expense, net (including
    interest expense)


(14.8
)






(42.9
)






(42.3
)Income tax expense


(30.6
)






(1.7
)






(20.6
)Minority interest share of
    (income) loss


(6.3
)






7.1







(1.4
)Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle


23.6







(12.4
)






40.1Income from discontinued
    operations, net of tax


192.2







49.0







88.5Income before cumulative effect of
    change in accounting principle


215.8







36.6







128.6Cumulative effect of change in
    accounting principle


0.3







2.3







Net income

$
216.1






$
38.9






$
128.6  19




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##### Table of Contents



2006
    operating results compared to 2005
     mark-to-market
  Form 10-K)
   20




---



##### Table of Contents



Form 10-K.
    2005
    operating results compared to 2004
    21




---



##### Table of Contents



mark-to-market
           22




---



##### Table of Contents



No. 04-6
    Segment
    Information
 2006
    operating results compared to 2005
 Specialties
   2006


2005


ChangeFirst Quarter

$
12.43


$
17.26


$
(4.83
)Second Quarter

$
14.43


$
15.03


$
(0.60
)Third Quarter

$
15.59


$
13.41


$
2.18Fourth Quarter

$
18.66


$
12.51


$
6.15Full Year

$
15.22


$
14.55


$
0.67     2006


2005


ChangeBatteries


25%



26%



−1%Chemical


16%



15%



1%Electronic Chemical


13%



10%



3%Tire


8%



9%



−1%Powder Metallurgy


9%



12%



−3%Coatings


7%



8%



−1%Other


22%



20%



2%      23




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##### Table of Contents



Corporate
    expenses
 mark-to-market
  2005
    operating results compared to 2004
 Specialties
   2005


2004


ChangeFirst Quarter

$
17.26


$
24.63


$
(7.37
)Second Quarter

$
15.03


$
24.91


$
(9.88
)Third Quarter

$
13.41


$
23.17


$
(9.76
)Fourth Quarter

$
12.51


$
18.38


$
(5.87
)Full Year

$
14.55


$
22.76


$
(8.21
)     2005


2004


ChangeBatteries


26
%


35
%


−9
%Chemical


15
%


17
%


−2
%Electronic Chemical


10
%


7
%


3
%Tire


9
%


8
%


1
%Powder Metallurgy


12
%


12
%


Coatings


8
%


7
%


1
%Other


20
%


14
%


6
%      24




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##### Table of Contents



Corporate
    expenses
 mark-to-market
  Liquidity
    and Capital Resources
   Cash Flow
    Summary
 2006


2005


changeNet cash provided by (used for):Operating activities

$
95.0


$
(7.4
)

$
102.4Investing activities


(18.0
)


(8.9
)


(9.1
)Financing activities


(5.7
)


(5.6
)


(0.1
)Effect of exchange rate changes on
    cash


4.6



(5.3
)


9.9Discontinued
    operations-net
    cash used for operating activities


107.4



123.8



(16.4
)Discontinued
    operations-net
    cash used for investing activities


(15.6
)


(8.8
)


(6.8
)Net change in cash and cash
    equivalents

$
167.7


$
87.8


$
79.9      25




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##### Table of Contents



Debt and
    Other Financing Activities
   Form 10-K).
           26




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##### Table of Contents



Capital
    Expenditures
     Contractual
    Obligations
   Payments due by period2007


2008


2009


2010


2011


Thereafter


TotalPurchase and other obligations(1)

$
56,546


$
18,680


$
1,356


$
1,312


$



$



$
77,894Debt obligations(2)


400,493



156



75



79



84



830



401,717Premium on Notes redemption(2)


18,500























18,500Interest payment on Notes(2)


8,428























8,428Operating lease obligations


3,518



3,103



2,823



2,562



845



8,143



20,994Total

$
487,485


$
21,939


$
4,254


$
3,953


$
929


$
8,973


$
527,533     (1)
    
    For 2007 through 2012, purchase
    obligations include raw material contractual obligations
    reflecting estimated future payments based on committed tons of
    material per the applicable contract multiplied by the reference
    price of each metal. The price used in the computation is the
    average daily price for the last week of December 2006 for each
    respective metal. Commitments made under these contracts
    represent future purchases in line with expected usage.(2)
    
    The Company has called for
    redemption all $400.0 million of the Notes on March 7,
    2007. In connection with the redemption, the Company will pay a
    premium of $18.5 million as stipulated in the indenture
    plus accrued interest up to but excluding the redemption date
    ($8.4 million).   27




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##### Table of Contents



Off
    Balance Sheet Arrangements
   Critical
    Accounting Policies
   Revenue Recognition
  Inventories first-in,
  Long-Lived Assets
  Income Taxes
 28




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##### Table of Contents



Share-Based Compensation
    Recently
    Issued Accounting Standards
 SFAS No. 123R:
    EITF
    No. 04-6: No. 04-6, No. 04-6, No. 04-6 04-6, No. 04-6,
 29




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##### Table of Contents



No. 04-6
  SFAS No. 158:
    SFAS No. 154:
  SFAS No. 151:
  Effects
    of Foreign Currency
 non-U.S. operating
  Environmental
    Matters
 and/or
 30




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##### Table of Contents



Cautionary
    Statement for Safe Harbor Purposes Under the Private
    Securities Litigation Reform Act of 1995
 Form 10-K.
 Item 7A.  Quantitative
    and Qualitative Disclosures About Market Risk Quantitative
    and Qualitative Disclosures About Market Risk
 and/or
     31




---



##### Table of Contents



non-U.S. operating
 32




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data   Report of
    Independent Registered Public Accounting Firm
  The Board of
    Directors and Stockholders of OM Group, Inc.
        No. 04-6,
    Ernst &
    Young LLP
    33




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  The Board of
    Directors and Stockholders of OM Group, Inc.
            
    The Company did not maintain effective controls over its
    accounting for income taxes. Specifically, the Company did not
    maintain effective internal controls over the assessment and
    review of deferred income tax assets in the United States and
    the related deferred income tax provision. This material
    weakness resulted in adjustments during the year-end audit
    process to deferred income tax assets and deferred income tax
    expense.   34




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##### Table of Contents



Ernst &
    Young LLP
    35




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##### Table of Contents



OM Group, Inc.
    and Subsidiaries
  Consolidated
    Balance Sheets
  December 312006


2005(In thousands, except share data)ASSETSCurrent assetsCash and cash equivalents

$
282,288


$
114,618Accounts receivable, less allowance
    of $1,137 in 2006 and $1,348 in 2005


82,931



74,962Inventories


216,492



187,067Other current assets


30,648



33,315Assets of discontinued operations


597,682



195,146Total current assets


1,210,041



605,108Property, plant and equipment,
    net


210,953



223,134Goodwill


137,543



132,642Notes receivable from joint
    venture partner,less
    allowance of $5,200 in 2006 and $4,200 in 2005


24,179



25,179Other non-current
    assets


35,508



19,374Assets of discontinued
    operations






214,836Total assets

$
1,618,224


$
1,220,273LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilitiesShort-term debt

$
326


$
Current portion of long-term debt


167



5,750Debt to be redeemed


402,520



Accounts payable


90,768



48,722Accrued employee costs


28,806



16,786Retained liabilities of businesses
    sold


2,158



6,020Other current liabilities


57,396



23,856Liabilities of discontinued
    operations


167,148



66,905Total current
    liabilities


749,289



168,039Long-term debt


1,224



416,096Deferred income taxes


4,118



4,688Minority interests


43,286



36,994Other non-current
    liabilities


38,228



37,701Liabilities of discontinued
    operations






20,222Stockholders
    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 29,801,334 in 2006 and 29,368,519 shares
    in 2005


297



293Capital in excess of par value


533,818



516,510Retained earnings


221,310



6,811Treasury stock (61,541 shares
    in 2006 and 61,235 shares in 2005, at cost)


(2,239
)


(2,226
)Accumulated other comprehensive
    income


28,893



15,145Total stockholders
    equity


782,079



536,533Total liabilities and
    stockholders equity

$
1,618,224


$
1,220,273   See accompanying notes to consolidated financial
    statements.
 36




---



##### Table of Contents



OM Group, Inc.
    and Subsidiaries
  Statements of
    Consolidated Income
  Year Ended December 312006


2005


2004(In thousands, except per share data)Net sales

$
660,104


$
617,527


$
689,537Cost of products sold


475,437



516,566



468,894Gross profit


184,667



100,961



220,643Selling, general and
    administrative expenses


109,408



75,849



116,211Income from
    operations


75,259



25,112



104,432Other income
    (expense):Interest expense


(38,659
)


(41,064
)


(39,536
)Interest income


8,566



1,904



1,522Foreign exchange gain (loss)


3,661



(4,580
)


(4,421
)Gain on sale of investments


12,223







Other income (expense), net


(582
)


860



206(14,791
)


(42,880
)


(42,229
)Income (loss) from continuing
    operations before income taxes, minority interest and cumulative
    effect of change in accounting principle


60,468



(17,768
)


62,203Income tax expense


(30,554
)


(1,710
)


(20,635
)Minority interest share of
    (income) loss


(6,291
)


7,128



(1,442
)Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle


23,623



(12,350
)


40,126Income from discontinued
    operations, net of tax


192,163



48,989



88,518Income before cumulative effect
    of change in accounting principle


215,786



36,639



128,644Cumulative effect of change in
    accounting principle


287



2,252



Net income

$
216,073


$
38,891


$
128,644Net income (loss) per common
    share  basic:Continuing operations

$
0.80


$
(0.43
)

$
1.41Discontinued operations


6.55



1.71



3.11Cumulative effect of change in
    accounting principle


0.01



0.08



Net income

$
7.36


$
1.36


$
4.52Net income (loss) per common
    share  assuming dilution:Continuing operations

$
0.80


$
(0.43
)

$
1.40Discontinued operations


6.50



1.71



3.09Cumulative effect of change in
    accounting principle


0.01



0.08



Net income

$
7.31


$
1.36


$
4.49Weighted average shares
    outstanding:Basic


29,362



28,679



28,470Assuming dilution


29,578



28,679



28,622   See accompanying notes to consolidated financial
    statements.
 37




---



##### Table of Contents



OM Group, Inc.
    and Subsidiaries
  Statements of
    Consolidated Comprehensive Income
  Year Ended December 31(In thousands)

2006


2005


2004Net income

$
216,073


$
38,891


$
128,644Foreign currency translation
    adjustments


10,394



(6,365
)


7,662Reclassification of hedging
    activities into earnings, net of tax


(954
)


(3,475
)


(6,689
)Unrealized gain on cash flow
    hedges, net of tax expense of
    $3,117 in 2006, $335 in 2005 and $1,157 in 2004


9,824



954



3,475Realized gain on
    available-for-sale
    securities


(4,745
)


(930
)


Unrealized gain on
    available-for-sale
    securities






4,745



930Additional pension and
    post-retirement obligation


(199
)


(1,071
)


(1,177
)Net change in accumulated other
    comprehensive income


14,320



(6,142
)


4,201Comprehensive income

$
230,393


$
32,749


$
132,845   See accompanying notes to consolidated financial
    statements.
 38




---



##### Table of Contents



OM Group, Inc.
    and Subsidiaries
  Statements of
    Consolidated Cash Flows
  Year Ended December 31(In thousands)

2006


2005


2004Operating activitiesNet income

$
216,073


$
38,891


$
128,644Adjustments to reconcile net income
    to net cash provided by (used for) operating activities:Income from discontinued operations


(192,163
)


(48,989
)


(88,518
)Income from cumulative effect of
    change in accounting principle


(287
)


(2,252
)


Depreciation and amortization


31,841



32,593



35,441Share-based compensation expense


5,227



3,509



3,463Foreign exchange (gain) loss


(3,661
)


4,580



4,421Payment for termination of swap
    agreement


(2,877
)






Gain on sale of investments


(12,223
)






Gain on collection of notes
    receivable






(2,500
)


Provision for receivables from
    joint venture partner


1,000



4,200



Deferred income taxes


13,864



(3,300
)


4,158Minority interest share of income
    (loss)


6,291



(7,128
)


1,442Other non-cash items


(67
)


(3,736
)


715Changes in operating assets and
    liabilitiesAccounts receivable


(3,879
)


(2,440
)


(7,392
)Inventories


(27,613
)


67,418



(121,100
)Notes receivable from joint venture
    partners










21,808Accounts payable


39,310



(23,625
)


26,289Shareholder litigation accrual






(74,000
)


7,500Other, net


24,131



9,436



(1,505
)Net cash provided by (used for)
    operating activities


94,967



(7,343
)


15,366Investing activitiesExpenditures for property, plant
    and equipment


(14,547
)


(13,386
)


(9,282
)Proceeds from MPI note receivable






3,035



Proceeds from collection of notes
    receivable






2,500



Proceeds from sale of investments


12,223







Loans to non-consolidated joint
    ventures


(6,888
)






Acquisition of businesses, net of
    cash acquired


(5,418
)






Expenditures for software


(3,329
)


(1,007
)


Net cash used for investing
    activities


(17,959
)


(8,858
)


(9,282
)Financing activitiesLong-term borrowings










23,000Payments of long-term debt and
    revolving line of credit


(17,250
)


(55,622
)


(22,919
)Proceeds from the revolving line of
    credit






49,872



Proceeds from exercise of stock
    options


11,558



117



Net cash provided by (used for)
    financing activities


(5,692
)


(5,633
)


81Effect of exchange rate changes on
    cash


4,569



(5,293
)


1,068Cash and cash
    equivalentsIncrease (decrease) from continuing
    operations


75,885



(27,127
)


7,233Discontinued operations 
    net cash provided by (used for) operating activities


107,379



123,769



(19,323
)Discontinued operations 
    net cash used for investing activities


(15,594
)


(8,803
)


(15,850
)Balance at the beginning of the year


114,618



26,779



54,719Balance at the end of the
    year

$
282,288


$
114,618


$
26,779   See accompanying notes to consolidated financial
    statements
 39




---



##### Table of Contents



OM Group, Inc.
    and Subsidiaries
  Statements of
    Consolidated Stockholders Equity
  Year Ended December 31,(In thousands)

2006


2005


2004Common Stock 
    Shares Outstanding, net of Treasury SharesBeginning balance


29,307



28,480



28,480Shares issued under share-based
    compensation plans


433



40



Shares issued for settlement of
    shareholder litigation






787



29,740



29,307



28,480Common Stock 
    DollarsBeginning balance

$
293


$
285


$
285Shares issued under share-based
    compensation plans


4







Shares issued for settlement of
    shareholder litigation






8



297



293



285Capital in Excess of Par
    ValueBeginning balance


516,510



498,250



495,107Shares issued under share-based
    compensation plans


11,555



845



Settlement of shareholder litigation






13,375



Non-employee directors
    compensation










190Share-based compensation


5,753



4,040



2,953533,818



516,510



498,250Retained Earnings
    (Deficit)Beginning balance, as originally
    reported


6,811



(32,080
)


(160,724
)Adoption of EITF
    No. 04-6


(1,574
)






Beginning balance, as adjusted for
    the adoption of EITF
    04-6


5,237



(32,080
)


(160,724
)Net income


216,073



38,891



128,644221,310



6,811



(32,080
)Treasury StockBeginning balance


(2,226
)


(710
)


(710
)Reacquired shares


(13
)


(1,516
)


(2,239
)


(2,226
)


(710
)Accumulated Other Comprehensive
    IncomeBeginning balance


15,145



21,287



17,086Foreign currency translation


10,394



(6,365
)


7,662Reclassification of hedging
    activities into earnings, net of tax


(954
)


(3,475
)


(6,689
)Unrealized gain (loss) on cash flow
    hedges, net of tax expense (benefit)
    of $(3,541) in 2006 and $286 in 2005


9,824



954



3,475Reclassification of realized gain
    on
    available-for-sale
    securities into earnings


(4,745
)


(930
)


Unrealized gain on
    available-for-sale
    securities






4,745



930Additional pension and
    post-retirement obligation


(199
)


(1,071
)


(1,177
)Adoption of SFAS No. 158


(572
)






28,893



15,145



21,287Unearned compensationBeginning balance










(592
)Restricted stock compensation










592







Total Stockholders
    Equity

$
782,079


$
536,533


$
487,032   See accompanying notes to consolidated financial
    statements
 40




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and Subsidiaries
  (In thousands, except as noted and per share amounts)
  Note 1 
    Significant Accounting Policies
 Principles of Consolidation
      Use of Estimates
  Cash Equivalents
  Revenue Recognition
  Cost of Products Sold
  Concentrations of Credit Risk
  Allowance for Doubtful Accounts
  Marketable securities
 41




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    Inventories first-in,
  Receivables from Joint Venture Partners and Minority
    Interests
          Property, Plant and Equipment
 42




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   No. 98-1,
      Goodwill
  Retained Liabilities of Businesses Sold
  Research and Development
  Repairs and Maintenance
  Accounting for Leases
  Income Taxes
 43




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   Foreign Currency Translation
    Derivative Instruments
    Reclassifications
  Note 2 
    Recently Issued Accounting Standards
 Accounting
    Standards adopted in 2006:
 SFAS No. 123R:
   44




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   EITF
    No. 04-6: No. 04-6, No. 04-6, No. 04-6 04-6, No. 04-6, No. 04-6
  SFAS No. 158: ®
    SFAS No. 154:
  SFAS No. 151:
 45




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   Accounting
    Standards adopted in 2005:
 FIN No. 47: and/or
          Accounting
    Standards Not Yet Adopted
 SFAS No. 157:
  FIN No. 48:
  EITF
    No. 06-3: No. 06-03, No. 06-03
 46




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  No. 06-03 No. 06-3
  EITF
    No. 06-4: No. 06-4, No. 06-4 No. 06-4
  Note 3 
    Inventories
   2006


2005Raw materials and supplies

$
138,913


$
120,446Work-in-process


17,265



11,008Finished goods


60,314



55,613$
216,492


$
187,067   Note 4 
    Property, Plant and Equipment
   2006


2005Land

$
5,792


$
5,492Buildings and improvements


119,714



116,069Machinery and equipment


355,670



340,565Furniture and fixtures


17,087



16,266Property, plant and equipment, at
    cost


498,263



478,392Less accumulated depreciation


287,310



255,258$
210,953


$
223,134     Note 5 
    Acquisition
  47




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    Note 6 
    Discontinued Operations
             Year Ended December 312006


2005


2004Net sales

$
790,939


$
632,082


$
657,802Income before income taxes,
    minority interest and cumulative effect of change in accounting
    principle

$
230,527


$
48,655


$
100,057Income tax expense


44,162



9,025



14,433Income from Nickel discontinued
    operations

$
186,365


$
39,630


$
85,624Income from non-Nickel
    discontinued operations


5,798



9,359



2,894Total income from discontinued
    operations

$
192,163


$
48,989


$
88,518  48




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    December 312006


2005Accounts receivable

$
97,050


$
53,317Inventories


191,380



117,490Property, plant and equipment, net


149,857



Goodwill


46,481



Other current assets


112,914



24,339Total current assets


597,682



195,146Property, plant and equipment, net






145,995Goodwill






46,481Other non-current assets






22,360Total non-current assets






214,836Total assets

$
597,682


$
409,982Accounts payable

$
100,644


$
54,675Other current liabilities


66,504



12,230Total current liabilities


167,148



66,905Other non-current liabilities






20,222Total liabilities

$
167,148


$
87,127     Note 7 
    Goodwill and Other Intangible Assets
  49




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
      Balance at January 1, 2005

$
135,390Foreign currency translation
    adjustments


(2,748
)Balance at December 31, 2005


132,642Plaschem acquisition


1,295Foreign currency translation
    adjustments


3,606Balance at December 31,
    2006

$
137,543     Gross Carrying


AccumulatedAmount


Amortization


Net BalanceCustomer list

$
4,584


$
(3,590
)

$
994Capitalized software


4,336







4,336Other intangibles


2,184



(1,915
)


269Balance at December 31,
    2006

$
11,104


$
(5,505
)

$
5,599Customer list

$
4,584


$
(3,285
)

$
1,299Capitalized software


1,007







1,007Other intangibles


2,162



(1,790
)


372Balance at December 31, 2005

$
7,753


$
(5,075
)

$
2,678    50




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   Note 8 
    Debt and Other Financial Instruments
   2006


2005Senior Subordinated Notes

$
400,000


$
400,000Notes payable  bank


1,717



17,250Deferred gain on termination of
    fair value hedges


2,520



5,984Fair value of interest rate swaps
    (fair value hedges)






(1,388
)404,237



421,846Less: Short-term debt


326



Less: Current portion of long-term
    debt


167



5,750Less: Debt to be redeemed


402,520



Total
    long-term debt

$
1,224


$
416,096            51




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
       2007

$
400,4932008


1562009


752010


792011


84thereafter


830$
401,717           Note 9 
    Income Taxes
   Year Ended December 312006


2005


2004United States

$
(72,018
)

$
(48,325
)

$
(72,236
)Outside the United States


132,486



30,557



134,439$
60,468


$
(17,768
)

$
62,203  52




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    Year Ended December 312006


2005


2004Current tax provision (benefit):United States:Federal

$
422


$
365


$
769State and local


150



(105
)


Outside the United States


16,118



4,750



15,708Total current


16,690



5,010



16,477Deferred tax provision (benefit):United States


14,077







Outside the United States


(213
)


(3,300
)


4,158Total deferred


13,864



(3,300
)


4,158$
30,554


$
1,710


$
20,635     Year Ended December 312006


2005


2004Income (loss) from continuing
    operations before income taxes, minority interest and cumulative
    effect of change in accounting principle

$
60,468


$
(17,768
)

$
62,203Income taxes at the United States
    statutory rate (35%)

$
21,164


$
(6,219
)

$
21,771Effective tax rate differential on
    earnings/losses outside of the United States


(22,236
)


(1,974
)


(14,092
)Repatriation of foreign earnings


92,841



46,900



52,690Malaysia tax holiday


(8,693
)


(5,986
)


(6,697
)Change in Finland tax rate










(609
)Adjustment of worldwide tax
    liabilities


(219
)


841



(692
)Reversal of valuation allowance


(53,026
)






Income (loss) with no related tax
    (expense) benefit






(30,769
)


(24,944
)Other, net


723



(1,083
)


(6,792
)Income tax expense

$
30,554


$
1,710


$
20,635Effective income tax rate


50.5
%


−9.6
%


33.2
%  53




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    December 312006


2005Current asset 
    operating and litigation accruals

$
7,892


$
12,251Current asset 
    operating loss and credit carryforwards


71,812



Current liability 
    earnings repatriation


(95,840
)


(42,000
)Current liability 
    prepaid expenses


(2,503
)


(1,782
)Non-current asset 
    employee benefit and other accruals


17,843



25,647Non-current asset 
    operating loss carryforwards


10,697



83,031Non-current liability 
    accelerated depreciation


(9,394
)


(4,770
)Non-current liability 
    pensions


(1,559
)


Valuation allowance


(18,762
)


(78,021
)Net deferred tax liability

$
(19,814
)

$
(5,644
)     December 312006


2005Other current assets

$



$
13Other non-current assets


5,648



Other current liabilities


(21,344
)


(969
)Deferred income taxes 
    Other non-current liabilities


(4,118
)


(4,688
)$
(19,814
)

$
(5,644
)        54




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
          Note 10 
    Pension and Other Postretirement Benefit Plans
       2006


2005Discount rate


5.50%



5.50%Return on pension plan assets


8.75%



8.75%Projected health care cost trend
    rate


10.00%



11.00%Ultimate health care cost trend
    rate


6.00%



6.00%Year ultimate health care trend
    rate is achieved


2011



2011    55




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
     Target


TargetAllocation


Allocation


December 31,2006/2007


2005


2006


2005Equity securities


50%



65%



47%



63%Debt securities


50%



35%



53%



37%Total assets


100%



100%



100%



100%       Pension Benefits2006


2005


2004Interest cost

$
1,272


$
1,246


$
1,200Amortization of unrecognized net
    loss


269



214



31Expected return on plan assets


(922
)


(575
)


(854
)Amortization of unrecognized net
    transition (asset) obligation


9



(369
)


(117
)SERP expense related to former CEO


1,413



3,091



857$
2,041


$
3,607


$
1,117   Other Postretirement Benefits2006


2005


2004Service cost

$
131


$
69


$
61Interest cost


242



252



251Net amortization


40



40



40$
413


$
361


$
352  56




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
     Pension Benefits


Other Postretirement Benefits2006


2005


2006


2005Change in benefit
    obligationProjected benefit obligation at
    beginning of year

$
(22,737
)

$
(21,917
)

$
(4,514
)

$
(4,341
)Service cost










(131
)


(69
)Interest cost


(1,272
)


(1,246
)


(242
)


(252
)Participant contributions










(141
)


(131
)Actuarial loss


(673
)


(464
)


(391
)


(128
)Benefits paid


997



890



431



407SERP increase related to former CEO


(1,217
)










Projected benefit obligation at
    end of year

$
(24,902
)

$
(22,737
)

$
(4,988
)

$
(4,514
)Change in plan assetsFair value of plan assets at
    beginning of year

$
9,951


$
10,093


$



$
Actual return on plan assets


922



575







Employer contributions


1,064



173



290



276Participant contributions










141



131Benefits paid


(997
)


(890
)


(431
)


(407
)Fair value of plan assets at end
    of year

$
10,940


$
9,951


$



$
Funded status  plan
    assets less than benefit obligations

$
(13,962
)

$
(12,786
)

$
(4,988
)

$
(4,514
)Recognized in accumulated other
    comprehensive income (loss):Net actuarial gain

$
9,453


$



$
301


$
Prior service cost










271



Unrecognized actuarial gain (loss)






9,254







(120
)Unrecognized prior service cost














341Amounts not yet recognized as a
    component of net postretirement benefit cost

$
9,453


$
9,254


$
572


$
221Amounts recorded in the balance
    sheet consist of:Accrued benefit liability

$
(13,962
)

$
(12,786
)

$
(4,988
)

$
(4,293
)Accumulated other comprehensive
    income


9,453



9,254



572



Net amount recognized

$
(4,509
)

$
(3,532
)

$
(4,416
)

$
(4,293
)  57




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
            OtherPostretirementExpected benefit payments

Pension


Benefits2007

$
1,713


$
2612008

$
1,732


$
2442009

$
1,758


$
2582010

$
1,762


$
2572011

$
1,748


$
2342012-2016

$
8,774


$
940       OtherPostretirementPension


BenefitsNet loss

$
307


$
Prior service cost






40Total

$
307


$
40     1% Increase


1% Decrease2006 benefit cost

$
100


$
(73
)Recorded liability at
    December 31, 2006

$
792


$
(616
)    58




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    Pre SFAS No. 158


SFAS No. 158


Post SFAS No. 158Adoption


Adjustment


AdoptionLiabilities:Other non-current liabilities

$
37,656


$
572


$
38,228Stockholders Equity:Accumulated other comprehensive
    (income) loss

$
9,453


$
572


$
10,025   Note 11 
    Accumulated Other Comprehensive Income (Loss)
  UnrealizedGains andLosses, Net


Unrealized


Pension and


AccumulatedForeign


on Cash Flow


Gain on


Post 


OtherCurrency


Hedging


Available for 


Retirement


ComprehensiveTranslation


Derivatives


Sale Securities


Obligation


Income (Loss)Balance at January 1, 2004

$
17,403


$
6,689


$



$
(7,006
)

$
17,086Reclassification adjustments






(6,689
)










(6,689
)Current period credit (charge)


7,662



4,632



930



(1,177
)


12,047Deferred taxes






(1,157
)










(1,157
)Balance December 31, 2004


25,065



3,475



930



(8,183
)


21,287Reclassification adjustments


(723
)


(3,475
)


(930
)






(5,128
)Current period credit (charge)


(5,642
)


1,289



4,745



(1,071
)


(679
)Deferred taxes






(335
)










(335
)Balance December 31, 2005


18,700



954



4,745



(9,254
)


15,145Reclassification adjustments






(954
)


(4,745
)






(5,699
)Current period credit (charge)


10,394



12,941







(199
)


23,136Deferred taxes






(3,117
)










(3,117
)Adoption of SFAS No. 158














(572
)


(572
)Balance December 31,
    2006

$
29,094


$
9,824


$



$
(10,025
)

$
28,893      59




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   Note 12 
    Earnings Per Share
   2006


2005


2004Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle

$
23,623


$
(12,350
)

$
40,126Weighted average shares outstanding


29,362



28,679



28,470Dilutive effect of stock options
    and restricted stock


216







152Weighted average shares
    outstanding  assuming dilution


29,578



28,679



28,622Income (loss) per common share
    from continuing operations before cumulative effect of change in
    accounting principle

$
0.80


$
(0.43
)

$
1.41Income (loss) per common share
    from continuing operations before cumulative effect of change in
    accounting principle  assuming dilution

$
0.80


$
(0.43
)

$
1.40       2006


2005


2004Net income

$
216,073


$
38,891


$
128,644Weighted average shares outstanding


29,362



28,679



28,470Dilutive effect of stock options
    and restricted stock


216







152Weighted average shares
    outstanding  assuming dilution


29,578



28,679



28,622Net income per common share

$
7.36


$
1.36


$
4.52Net income per common
    share  assuming dilution

$
7.31


$
1.36


$
4.49   Note 13 
    Share-Based Compensation
 10-year
 60




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
       Stock
    Options
         2006


2005


2004Risk-free interest rate


4.9
%


4.0
%


3.5
%Dividend yield










Volatility factor of Company
    common stock


0.47



0.44



0.45Weighted-average expected option
    life (years)


6.1



5.0



5.0Weighted-average grant-date fair
    value

$
14.97


$
9.61


$
14.21    61




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
      Weighted-AverageFair Value atShares


Grant DateNon-vested at December 31,
    2005


651,629


$
10.61Non-vested at December 31,
    2006


439,008


$
11.60Granted during 2006


144,700


$
14.97Vested during 2006


324,316


$
11.12Forfeited during 2006


27,450


$
11.60       WeightedWeighted


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term


ValueOutstanding at January 1, 2006


1,252,817


$
30.71Granted


144,700



28.83Exercised


(440,364
)


27.14Expired unexercised


(35,000
)


31.29Forfeited


(27,450
)


22.42Outstanding at December 31,
    2006


894,703


$
32.40



7.57


$
12,944,226Vested or expected to vest at
    December 31, 2006


868,891


$
32.47



7.54


$
12,533,172Exercisable at December 31,
    2006


455,695


$
35.73



6.54


$
5,772,402   Restricted
    Stock  Performance-Based Awards
  62




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
     WeightedAverageGrant DateShares


Fair ValueOutstanding at January 1, 2006





$
Granted


99,520



28.93Forfeited


(3,620
)


28.93Outstanding at December 31,
    2006


95,900


$
28.93Expected to vest at
    December 31, 2006


84,259   Restricted
    Stock  Time-Based Awards
       WeightedAverageGrant DateShares


Fair ValueOutstanding at January 1, 2006


166,194


$
24.89Granted


23,300


$
29.10Forfeitures


(1,000
)

$
28.76Outstanding at December 31,
    2006


188,494


$
25.39Expected to vest at
    December 31, 2006


185,494   Note 14 
    Commitments and Contingencies
    63




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
             64




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
    Note 15 
    Lease Obligations
     2007

$
3,5182008


3,1032009


2,8232010


2,5622011


8452012 and thereafter


8,143Total minimum lease payments

$
20,994   Note 16 
    Reportable Segments and Geographic Information
 Form 10-K
     65




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
     2006


2005Net SalesInorganics

$
418,762


$
376,228Advanced organics


151,114



157,195Electronic chemicals


86,494



59,411Other


3,734



24,693$
660,104


$
617,527       66




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  2006


2005


2004Business Segment
    InformationNet SalesSpecialties

$
660,104


$
617,527


$
689,537Income (loss) from operationsSpecialties

$
115,349


$
36,124


$
158,735Corporate(a)


(40,090
)


(11,012
)


(54,303
)75,259



25,112



104,432Interest expense


(38,659
)


(41,064
)


(39,536
)Foreign exchange gain (loss)


3,661



(4,580
)


(4,421
)Investment and other income, net


20,207



2,764



1,728(14,791
)


(42,880
)


(42,229
)Income (loss) from continuing
    operations before income taxes, minority interest and cumulative
    effect of change in accounting principle

$
60,468


$
(17,768
)

$
62,203Expenditures for property,
    plant & equipmentSpecialties

$
14,547


$
13,386


$
9,282Depreciation and amortizationSpecialties

$
30,867


$
30,676


$
32,841Corporate


974



1,917



2,600$
31,841


$
32,593


$
35,441Total assetsSpecialties

$
826,488


$
739,332Corporate


194,054



70,959Assets of discontinued operations


597,682



409,982$
1,618,224


$
1,220,273   67




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Property, PlantandNet Sales(b)


Equipment, netGeographic Region
    Information2006Finland

$
209,603


$
75,257United States


147,395



32,347Japan


189,493



77Other


113,613



23,047Democratic Republic of the Congo






80,225$
660,104


$
210,9532005Finland

$
171,190


$
80,635United States


177,275



31,392Japan


178,887



89Other


90,175



20,630Democratic Republic of the Congo






90,388$
617,527


$
223,1342004Finland

$
173,933United States


175,830Japan


265,301Other


74,473Democratic Republic of the Congo


$
689,537     (a)
    
    In 2006, the Corporate loss includes a $3.2 million charge
    related to the settlement of litigation with the Companys
    former CEO. In 2005, the Corporate loss includes
    $27.5 million of income related to the receipt of net
    insurance proceeds after legal expenses, charges totaling
    $9.6 million related to the departure of the Companys
    former CEO and former CFO and $4.6 million of income
    related to the
    mark-to-market
    of 380,000 shares of common stock issued in connection with
    the shareholder derivative litigation. Corporate loss in 2004
    includes a charge of $7.5 million related to the
    shareholder lawsuits. All periods presented reflect the
    reallocation of share-based compensation expense related to
    Nickel management from corporate to discontinued operations.(b)
    
    Net sales attributed to the geographic area are based on the
    location of the manufacturing facility, except for Japan, which
    is a sales office. 68




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   Note 17 
    Guarantor and Non-Guarantor Subsidiary Information
   December 31, 2006Combined


CombinedGuarantor


Non-guarantorBalance Sheet Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalCurrent assets:Cash and cash equivalents

$
49,977


$
(325
)

$
232,636


$



$
282,288Accounts receivable, less
    allowances


561,854



117,145



339,858



(935,926
)


82,931Inventories






53,689



162,803







216,492Other current assets


8,541



3,135



18,972







30,648Assets of discontinued operations










597,682







597,682Total current assets


620,372



173,644



1,351,951



(935,926
)


1,210,041Property, plant and equipment,
    net






36,768



174,185







210,953Goodwill


75,830



68,908



(7,195
)






137,543Intercompany
    receivables


414,060







696,218



(1,110,278
)


Investment in
    subsidiaries


98,728







2,279,825



(2,378,553
)


Other non-current
    assets


427



14,692



44,568







59,687Total assets

$
1,209,417


$
294,012


$
4,539,552


$
(4,424,757
)

$
1,618,224Current liabilities:Short-term debt

$



$



$
326


$



$
326Current portion of long-term debt










167







167Debt to be redeemed


402,520















402,520Accounts payable


4,114



458,104



464,817



(836,267
)


90,768Other current liabilities


7,040



27,865



53,455







88,360Liabilities of discontinued
    operations










167,148







167,148Total current
    liabilities


413,674



485,969



685,913



(836,267
)


749,289Long-term debt










1,224







1,224Deferred income taxes










4,118







4,118Other non-current liabilities
    and minority interest


13,442



16,193



51,879







81,514Intercompany payables


222



182,808



1,026,832



(1,209,862
)


Stockholders
    equity


782,079



(390,958
)


2,769,586



(2,378,628
)


782,079Total liabilities and
    stockholders equity

$
1,209,417


$
294,012


$
4,539,552


$
(4,424,757
)

$
1,618,224   69




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Year Ended December 31, 2006Combined


CombinedGuarantor


Non-guarantorIncome Statement Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalNet sales

$



$
215,572


$
859,189


$
(414,657
)

$
660,104Cost of products sold






162,007



728,087



(414,657
)


475,437Gross profit






53,565



131,102







184,667Selling, general and
    administrative expenses






66,641



42,767







109,408Income (loss) from
    operations






(13,076
)


88,335







75,259Interest expense


(38,241
)


(12,452
)


(54,777
)


66,811



(38,659
)Foreign exchange gain


107



73



3,481







3,661Gain on sale of investments










12,223







12,223Other income, net


14,949



2,368



57,478



(66,811
)


7,984Income (loss) from continuing
    operations before income taxes, minority interest and cumulative
    effect of change in accounting principle


(23,185
)


(23,087
)


106,740







60,468Income tax expense


(14,649
)






(15,905
)






(30,554
)Minority interest share of
    (income) loss










(6,291
)






(6,291
)Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle


(37,834
)


(23,087
)


84,544







23,623Income from discontinued
    operations, net of tax


2,828



7,322



182,013







192,163Income (loss) before cumulative
    effect of change in accounting principle


(35,006
)


(15,765
)


266,557







215,786Cumulative effect of change in
    accounting principle


287















287Net income (loss)

$
(34,719
)

$
(15,765
)

$
266,557


$



$
216,073   70




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Year Ended December 31, 2006Combined


CombinedGuarantor


Non-guarantorCash Flow Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalNet cash provided by operating
    activities

$
25,878


$
5,700


$
63,389


$



$
94,967Investing activities:Expenditures for property plant
    and equipment






(3,425
)


(11,122
)






(14,547
)Proceeds from sale of investments










12,223







12,223Loans to non-consolidated joint
    ventures










(6,888
)






(6,888
)Expenditures for software






(3,329
)










(3,329
)Acquisition of business, net of
    cash acquired










(5,418
)






(5,418
)Net cash used for investing
    activities






(6,754
)


(11,205
)






(17,959
)Financing activities:Payments of long-term debt and
    revolving line of credit










(17,250
)






(17,250
)Proceeds from exercise of stock
    options


11,558















11,558Net cash provided by (used for)
    financing activities


11,558







(17,250
)






(5,692
)Effect of exchange rate changes on
    cash










4,569







4,569Cash and cash
    equivalentsIncrease (decrease) from
    continuing operations


37,436



(1,054
)


39,503







75,885Discontinued
    operations  net cash provided by (used for) operating
    activities


(1,745
)






109,124







107,379Discontinued
    operations  net cash used for investing activities










(15,594
)






(15,594
)Balance at the beginning of the
    year


14,286



729



99,603







114,618Balance at the end of the
    year

$
49,977


$
(325
)

$
232,636


$



$
282,288   71




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  December 31, 2005Combined


CombinedGuarantor


Non-guarantorBalance Sheet Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalCurrent assets:Cash and cash equivalents

$
14,286


$
729


$
99,603


$



$
114,618Accounts receivable, less
    allowances


521,724



104,655



210,096



(761,513
)


74,962Inventories






46,953



140,114







187,067Other current assets


2,813



6,925



23,577







33,315Assets of discontinued operations










195,146







195,146Total current assets


538,823



159,262



668,536



(761,513
)


605,108Property, plant and equipment,
    net






35,212



187,922







223,134Goodwill


75,830



68,908



(12,096
)






132,642Intercompany
    receivables


255,830







986,463



(1,242,293
)


Investment in
    subsidiaries


92,347







2,160,527



(2,252,874
)


Other non-current
    assets


6,541



11,571



26,441







44,553Assets of discontinued
    operations










214,836







214,836Total assets

$
969,371


$
274,953


$
4,232,629


$
(4,256,680
)

$
1,220,273Current liabilities:Current portion of long-term debt

$



$



$
5,750


$



$
5,750Accounts payable


4,000



90,040



270,306



(315,624
)


48,722Other current liabilities


8,658



19,522



18,482







46,662Liabilities of discontinued
    operations










66,905







66,905Total current
    liabilities


12,658



109,562



361,443



(315,624
)


168,039Long-term debt


404,596







11,500







416,096Deferred income taxes










4,688







4,688Other non-current liabilities
    and minority interest


15,584



15,195



43,916







74,695Intercompany payables






530,435



1,157,951



(1,688,386
)


Liabilities of discontinued
    operations










20,222







20,222Stockholders
    equity


536,533



(380,239
)


2,632,909



(2,252,670
)


536,533Total liabilities and
    stockholders equity

$
969,371


$
274,953


$
4,232,629


$
(4,256,680
)

$
1,220,273   72




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Year Ended December 31, 2005Combined


CombinedGuarantor


Non-guarantorIncome Statement Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalNet sales

$



$
235,645


$
706,934


$
(325,052
)

$
617,527Cost of products sold






199,298



642,320



(325,052
)


516,566Gross profit






36,347



64,614







100,961Selling, general and
    administrative expenses






36,479



39,370







75,849Income (loss) from
    operations






(132
)


25,244







25,112Interest expense


(39,697
)


(9,036
)


(49,861
)


57,530



(41,064
)Foreign exchange loss






(36
)


(4,544
)






(4,580
)Other income, net


8,307



4,358



47,629



(57,530
)


2,764Income (loss) from continuing
    operations before income taxes, minority interest and cumulative
    effect of change in accounting principle


(31,390
)


(4,846
)


18,468







(17,768
)Income tax expense










(1,710
)






(1,710
)Minority interest share of
    (income) loss










7,128







7,128Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle


(31,390
)


(4,846
)


23,886







(12,350
)Income from discontinued
    operations, net of tax


9,076



4,635



35,278







48,989Income (loss) before cumulative
    effect of change in accounting principle


(22,314
)


(211
)


59,164







36,639Cumulative effect of change in
    accounting principle










2,252







2,252Net income (loss)

$
(22,314
)

$
(211
)

$
61,416


$



$
38,891   73




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Year Ended December 31, 2005Combined


CombinedGuarantor


Non-guarantorCash Flow Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalNet cash provided by (used for)
    operating activities

$
12,054


$
4,765


$
(24,162
)

$



$
(7,343
)Investing activities:Expenditures for property plant
    and equipment






(4,226
)


(9,160
)






(13,386
)Expenditures for software






(1,007
)










(1,007
)Proceeds from MPI note receivable










3,035







3,035Gain on collection of note
    receivable










2,500







2,500Net cash used for investing
    activities






(5,233
)


(3,625
)






(8,858
)Financing activities:Payments of long-term debt and
    revolving line of credit


(49,872
)






(5,750
)






(55,622
)Proceeds from revolving line of
    credit


49,872















49,872Proceeds from exercise of stock
    options


117















117Net cash provided by (used for)
    financing activities


117







(5,750
)






(5,633
)Effect of exchange rate changes on
    cash










(5,293
)






(5,293
)Cash and cash
    equivalentsIncrease (decrease) from
    continuing operations


12,171



(468
)


(38,830
)






(27,127
)Discontinued
    operations  net cash provided by (used for) operating
    activities


(6,418
)






130,187







123,769Discontinued
    operations  net cash used for investing activities










(8,803
)






(8,803
)Balance at the beginning of the
    year


8,533



1,197



17,049







26,779Balance at the end of the
    year

$
14,286


$
729


$
99,603


$



$
114,618   74




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##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Year Ended December 31, 2004Combined


CombinedGuarantor


Non-guarantorIncome Statement Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalNet sales

$



$
217,458


$
969,485


$
(497,406
)

$
689,537Cost of products sold






160,036



806,264



(497,406
)


468,894Gross profit






57,422



163,221







220,643Selling, general and
    administrative expenses






75,775



40,436







116,211Income (loss) from
    operations






(18,353
)


122,785







104,432Interest expense


(37,835
)


(6,021
)


(55,340
)


59,660



(39,536
)Foreign exchange gain (loss)


(375
)


49



(4,095
)






(4,421
)Other income, net


7,271



690



53,427



(59,660
)


1,728Income (loss) from continuing
    operations before income taxes and minority interest


(30,939
)


(23,635
)


116,777







62,203Income tax expense










(20,635
)






(20,635
)Minority interest share of
    (income) loss










(1,442
)






(1,442
)Income (loss) from continuing
    operations


(30,939
)


(23,635
)


94,700







40,126Income from discontinued
    operations, net of tax


1,019



2,984



84,515







88,518Net income (loss)

$
(29,920
)

$
(20,651
)

$
179,215


$



$
128,644   75




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##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  Year Ended December 31, 2004Combined


CombinedGuarantor


Non-guarantorCash Flow Data

The Company


Subsidiaries


Subsidiaries


Eliminations


TotalNet cash provided by (used for)
    operating activities

$
19,511


$
(302
)

$
(3,843
)

$



$
15,366Investing activities:Expenditures for property plant
    and equipment






(3,054
)


(6,228
)






(9,282
)Net cash used for investing
    activities






(3,054
)


(6,228
)






(9,282
)Financing activities:Long-term borrowings










23,000







23,000Payments of long-term debt and
    revolving line of credit










(22,919
)






(22,919
)Net cash provided by financing
    activities










81







81Effect of exchange rate changes on
    cash










1,068







1,068Cash and cash
    equivalentsIncrease (decrease) from
    continuing operations


19,511



(3,356
)


(8,922
)






7,233Discontinued
    operations  net cash provided by (used for) operating
    activities


(19,817
)






494







(19,323
)Discontinued
    operations  net cash used for investing activities










(15,850
)






(15,850
)Balance at the beginning of the
    year


8,839



4,553



41,327







54,719Balance at the end of the
    year

$
8,533


$
1,197


$
17,049


$



$
26,779   Note 18 
    Subsequent events
    76




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
   Note 19 
    Quarterly Results of Operations (Unaudited)
   2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full YearNet sales  as originally
    reported

$
294,609


$
330,164


$
375,772


$



$
Reclass Nickel business to
    discontinued operations


(152,162
)


(155,008
)


(205,352
)






Net sales

$
142,447


$
175,156


$
170,420


$
172,081


$
660,104Gross profit  as
    originally reported

$
55,094


$
90,033


$
145,317


$



$
Reclass Nickel business to
    discontinued operations


(20,940
)


(39,498
)


(92,142
)






Gross profit

$
34,154


$
50,535


$
53,175


$
46,803


$
184,667Income from continuing operations
    before cumulative effect of change in accounting
    principle  as originally reported

$
18,160


$
53,514


$
86,765


$



$
Reclass Nickel business to
    discontinued operations


(15,416
)


(29,429
)


(72,935
)






Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle


2,744



24,085



13,830



(17,036
)


23,623Income (loss) from discontinued
    operations, net of tax - as originally reported


(274
)


(399
)


1,243







Reclass Nickel business to
    discontinued operations


15,416



29,429



72,935







Income from discontinued
    operations, net of tax


15,142



29,030



74,178



73,813



192,163Cumulative effect of a change in
    accounting principle


287















287Net income

$
18,173


$
53,115


$
88,008


$
56,777


$
216,073Net income per common
    share  basicContinuing operations 
    as originally reported

$
0.62


$
1.82


$
2.96


$



$
Reclass Nickel business to
    discontinued operations


(0.53
)


(1.00
)


(2.49
)






Continuing operations

$
0.09


$
0.82


$
0.47


$
(0.58
)

$
0.80Discontinued operations 
    as originally reported

$
(0.01
)

$
(0.01
)

$
0.04


$



$
Reclass Nickel business to
    discontinued operations


0.53



1.00



2.49







Discontinued operations


0.52



0.99



2.53



2.51



6.55Cumulative effect of a change in
    accounting principle


0.01















0.01Net income

$
0.62


$
1.81


$
3.00


$
1.93


$
7.36 77




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full YearNet income per common
    share  assuming dilutionContinuing operations 
    as originally reported

$
0.62


$
1.81


$
2.93


$



$
Reclass Nickel business to
    discontinued operations


(0.53
)


(0.99
)


(2.46
)






Continuing operations

$
0.09


$
0.82


$
0.47


$
(0.58
)

$
0.80Discontinued operations 
    as originally reported

$
(0.01
)

$
(0.01
)

$
0.04


$



$
Reclass Nickel business to
    discontinued operations


0.53



0.99



2.46







Discontinued operations

$
0.52


$
0.98


$
2.50


$
2.51


$
6.50Cumulative effect of a change in
    accounting principle


0.01















0.01Net income

$
0.62


$
1.80


$
2.97


$
1.93


$
7.31           78




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
  2005First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full YearNet sales  as originally
    reported

$
351,932


$
314,709


$
306,586


$
276,382


$
1,249,609Reclass Nickel business to
    discontinued operations


(179,776
)


(166,477
)


(160,973
)


(124,856
)


(632,082
)Net sales

$
172,156


$
148,232


$
145,613


$
151,526


$
617,527Gross profit  as
    originally reported

$
55,851


$
40,573


$
32,144


$
28,953


$
157,521Reclass Nickel business to
    discontinued operations


(29,516
)


(14,371
)


(8,752
)


(3,921
)


(56,560
)Gross profit

$
26,335


$
26,202


$
23,392


$
25,032


$
100,961Income from continuing operations
    before cumulative effect of change in accounting
    principle  as originally reported

$
11,780


$
10,474


$
3,228


$
1,798


$
27,280Reclass Nickel business to
    discontinued operations


(19,503
)


(10,208
)


(8,020
)


(1,899
)


(39,630
)Income (loss) from continuing
    operations before cumulative effect of change in accounting
    principle


(7,723
)


266



(4,792
)


(101
)


(12,350
)Income from discontinued
    operations, net of tax  as originally reported


784



841



139



7,595



9,359Reclass Nickel business to
    discontinued operations


19,503



10,208



8,020



1,899



39,630Income from discontinued
    operations, net of tax


20,287



11,049



8,159



9,494



48,989Cumulative effect of a change in
    accounting principle














2,252



2,252Net income

$
12,564


$
11,315


$
3,367


$
11,645


$
38,891Net income per common
    share  basicContinuing operations 
    as originally reported

$
0.41


$
0.37


$
0.11


$
0.06


$
0.95Reclass Nickel business to
    discontinued operations


(0.68
)


(0.36
)


(0.28
)


(0.06
)


(1.38
)Continuing operations

$
(0.27
)

$
0.01


$
(0.17
)

$



$
(0.43
)Discontinued operations 
    as originally reported

$
0.03


$
0.03


$
0.01


$
0.26


$
0.33Reclass Nickel business to
    discontinued operations


0.68



0.36



0.28



0.06



1.38Discontinued operations


0.71



0.39



0.29



0.32



1.71Cumulative effect of a change in
    accounting principle














0.08



0.08Net income

$
0.44


$
0.40


$
0.12


$
0.40


$
1.36Net income per common
    share  assuming dilutionContinuing operations 
    as originally reported

$
0.41


$
0.37


$
0.11


$
0.06


$
0.95Reclass Nickel business to
    discontinued operations


(0.68
)


(0.36
)


(0.28
)


(0.06
)


(1.38
)Continuing operations

$
(0.27
)

$
0.01


$
(0.17
)

$



$
(0.43
)Discontinued operations 
    as originally reported

$
0.03


$
0.03


$
0.01


$
0.26


$
0.33Reclass Nickel business to
    discontinued operations


0.68



0.36



0.28



0.06



1.38Discontinued operations

$
0.71


$
0.39


$
0.29


$
0.32


$
1.71Cumulative effect of a change in
    accounting principle














0.08



0.08Net income

$
0.44


$
0.40


$
0.12


$
0.40


$
1.36  79




---



##### Table of Contents



Notes to
    Consolidated Financial Statements
    OM Group, Inc. and
    Subsidiaries  Continued
      mark-to-market
  mark-to-market
    Item 9.
    Changes in and
    Disagreements with Accountants on Accounting and
    Financial Disclosure  Item 9A.  Controls
    and Procedures Evaluation
    of Disclosure Controls and Procedures
 Rule 13a-15(e)
    Managements
    Report on Internal Control over Financial Reporting
 Rules 13a-15(f) 15d-15(f).
 80




---



##### Table of Contents




    The Company did not maintain effective controls over its
    accounting for income taxes. Specifically, the Company did not
    maintain effective internal controls over the assessment and
    review of deferred income tax assets in the United States and
    the related deferred income tax provision. This material
    weakness resulted in adjustments during the year-end audit
    process to deferred income tax assets and deferred income tax
    expense.     Changes
    in Internal Controls
   Item 9B.  Other
    Information
  81




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers of the Registrant and Corporate
    Governance Form 10-K.
      44114-1221
   Item 11.  Executive
    Compensation   Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  82




---



##### Table of Contents



Equity
    Compensation Plan Information
   Number of securities





Number of securitiesto be issued upon


Weighted-average


remaining available forexercise of


exercise price of


future issuance underoutstanding options


outstanding options


equity compensation plansEquity Compensation Plans Approved
    by the Stockholders


805,769


$
32.26



(a
)Equity Compensation Plans Not
    Approved by the Stockholders(b)


88,934


$
33.67



     (a)
    
    The Company maintains two equity compensation plans approved by
    stockholders. The 2002 Stock Incentive Plan permits the issuance
    of up to 1,400,000 shares of the Companys common
    stock, of which 1,104,100 shares were available at
    December 31, 2006 for awards under the plan. The 1998
    Long-Term Incentive Compensation Plan provides that awards may
    be granted annually in the amount of 1.5% of the Companys
    common stock outstanding on the prior December 31, plus
    unused shares and shares relating to terminated awards from
    prior years, subject to an overall annual maximum of 2% of
    outstanding common stock. At December 31, 2006, there were
    29,739,793 outstanding shares of common stock of the Company.(b)
    
    As an inducement to join the Company, on June 30, 2005, the
    CEO was granted options to purchase 88,934 shares of common
    stock that are not covered by the equity compensation plans
    approved by the Companys stockholders. These options have
    an exercise price of $33.67 per share (the market price of
    Company stock on the grant date was $24.89) and will become
    exercisable on May 31, 2008 if the CEO remains employed by
    the Company on that date. The options have an expiration date of
    June 13, 2015. Item 13.  Certain
    Relationships and Related Transactions, Director
    Independence  Item 14.  Principal
    Accountant Fees and Services  83




---



##### Table of Contents



PART IV  Item 15.
    Exhibits and
    Financial Statement Schedules   Consolidated Balance Sheets at December 31, 2006 and 2005Statements of Consolidated Income for the years ended
    December 31, 2006, 2005 and 2004Statements of Consolidated Comprehensive Income for the years
    ended December 31, 2006, 2005 and 2004Statements of Consolidated Cash Flows for the years ended
    December 31, 2006, 2005 and 2004Statements of Consolidated Stockholders Equity for the
    years ended December 31, 2006, 2005 and 2004Notes to Consolidated Financial Statements        Form 10-K:
 (3) Articles of Incorporation
    and By-laws3.1

Amended and Restated Certificate
    of Incorporation of the Company.

3.2

Amended and Restated Bylaws of the
    Company (incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    filed on August 14, 2006).(4) Instruments defining
    rights of security holders including indentures.4.1

Form of Common Stock Certificate
    of the Company.

4.2

Indenture, dated as of
    December 12, 2001, among OM Group, Inc., the Guarantors (as
    defined therein) and The Bank of New York, as Trustee
    (incorporated by reference to Exhibit 4.3 to the
    Companys Registration Statement on
    Form S-1/A
    (No. 333-74566)
    filed on January 14, 2002).4.3

Revolving Credit Agreement, dated
    as of December 20, 2005, among OM Group, Inc. as the
    borrower, the lending institutions named therein as lenders;
    National City Bank, as a Lender, the Swing Line Lender, the
    Letter of Credit Issuer, the Administrative Agent, the
    Collateral Agent, the Lead Arranger, and the Book Running
    Manager (incorporated by reference to Exhibit 4.6 to the
    Companys Annual Report on Form
    10-K filed
    March 9, 2006).4.4

First Amendment to the Revolving
    Credit Agreement, dated as of November 10, 2006, among OM
    Group, Inc. as the borrower, the lending institutions named
    therein as lenders; National City Bank, as a Lender, the Swing
    Line Lender, the Letter of Credit Issuer, the Administrative
    Agent, the Collateral Agent, the Lead Arranger, and the Book
    Running Manager.4.5

Second Amendment to the Revolving
    Credit Agreement, dated as of January 31, 2007, among OM
    Group, Inc. as the borrower, the lending institutions named
    therein as lenders; National City Bank, as a Lender, the Swing
    Line Lender, the Letter of Credit Issuer, the Administrative
    Agent, the Collateral Agent, the Lead Arranger, and the Book
    Running Manager. 84




---



##### Table of Contents



(10) Material Contracts10.1

Technology Agreement among
    Outokumpu Oy, Outokumpu Engineering Contractors Oy, Outokumpu
    Research Oy, Outokumpu Harjavalta Metals Oy and Kokkola
    Chemicals Oy dated March 24, 1993.

*10.2

OM Group, Inc. 1992 Long-Term
    Incentive Compensation Plan.

*10.3

Amendment to OM Group, Inc. 1992
    Long-Term Incentive Compensation Plan (filed as
    Exhibit 99(b) to the Companys Registration Statement
    on
    Form S-8
    filed on February 1, 1994, and incorporated herein by
    reference).*10.4

Amendment to OM Group, Inc. 1992
    Long-Term Incentive Compensation Plan (filed as Exhibit 99
    to the OM Group, Inc.
    Form S-8
    Registration Statement filed on July 3, 1996, and
    incorporated herein by reference).*10.5

Mooney Chemicals, Inc. Welfare
    Benefit Plan.

*10.6

Mooney Chemicals, Inc. Profit
    Sharing Plan.

*10.7

Amendment to Mooney Chemicals,
    Inc. Profit Sharing Plan.

*10.8

OMG/Mooney Chemicals, Inc.
    Employee Profit Sharing Plan, as amended (incorporated by
    reference to Exhibit 10.8 to the Companys
    Registration Statement on
    Form S-4
    (No. 333-84128)
    filed on March 11, 2002).*10.9

OM Group, Inc. Benefit Restoration
    Plan, effective January 1, 1995 (incorporated by reference
    to Exhibit 10.9 to the Companys Registration Statement on
    Form S-4
    (No. 333-84128)
    filed on March 11, 2002).*10.10

Trust under OM Group, Inc. Benefit
    Restoration Plan, effective January 1, 1995 (incorporated
    by reference to Exhibit 10.10 to the Companys
    Registration Statement on
    Form S-4
    (No. 333-84128)
    filed on March 11, 2002).*10.11

Amendment to OMG Americas, Inc.
    Profit-Sharing Plan (filed as Exhibit 99 to the OM Group,
    Inc.
    Form S-8
    Registration Statement filed on July 3, 1996, and
    incorporated herein by reference).10.12

Reserved*10.13

OM Group, Inc. Bonus Program for
    Key Executives and Middle Management.

+10.14

Joint Venture Agreement among OMG
    B.V., Groupe George Forrest S.A., La Generale Des Carrieres
    Et Des Mines and OM Group, Inc. to partially or totally process
    the slag located in the site of Lubumbashi, Democratic Republic
    of Congo (incorporated by reference to Exhibit 10.17 to the
    Companys Annual Report on
    Form 10-K
    filed on March 31, 2005).++10.15

Agreement for Sale of concentrate
    production between Kokkola Chemicals Oy and La Generale Des
    Carriers Et Des Mines dated April 21, 1997, including
    amendments dated August 27, 2003 (incorporated by reference
    to Exhibit 10.18 to the Companys Annual Report on
    Form 10-K
    filed on March 31, 2005).+10.16

Long term Slag Sales Agreement
    between La Generale Des Carriers Et Des Mines and J.V.
    Groupement Pour Le Traitement Du Terril De Lubumbashi (filed as
    an Annex to Exhibit 10.17).+10.17

Long Term Cobalt Alloy Sales
    Agreement between J.V. Groupement Pour Le Traitement Du Terril
    De Lubumbashi and OMG Kokkola Chemicals Oy (filed as an Annex to
    Exhibit 10.17).+10.18

Tolling Agreement between
    Groupement Pour Le Traitement Du Terril De Lubumbashi and
    Societe De Traitement Due Terril De Lubumbashi (filed as an
    Annex to Exhibit 10.17).*10.19

OM Group, Inc. 1998 Long-Term
    Incentive Compensation Plan, Including form of stock option
    agreement (incorporated by reference to Exhibit 10.22 to
    the Companys Annual Report on
    Form 10-K
    filed on March 31, 2005). 85




---



##### Table of Contents



10.20

Lease agreement between Outokumpu
    Harjavalta Metals Oy and Outokumpu Nickel Oy (filed as
    Exhibit 10.27 to the Companys Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2000 and
    incorporated herein by reference).10.21

Reserved*10.22

Separation Agreement by and
    between OM Group, Inc. and Thomas R. Miklich dated
    October 17, 2003 (incorporated by reference to
    Exhibit 10.33 to the Companys Annual Report on
    Form 10-K
    filed on March 31, 2005).*10.23

Supplemental Retirement Plan for
    James P. Mooney (incorporated by reference to Exhibit 10.36
    to the Companys Annual Report on
    Form 10-K
    filed on March 31, 2005).*10.24

Form of Stock Option Agreement
    between OM Group, Inc. and Joseph M. Scaminace (incorporated by
    reference to Exhibit 10.37 to the Companys Annual
    Report on
    Form 10-K
    filed on August 22, 2005).*10.25

Form of Restricted Stock Agreement
    between OM Group, Inc. and Joseph M. Scaminace (incorporated by
    reference to Exhibit 10.38 to the Companys Annual
    Report on
    Form 10-K
    filed on August 22, 2005).*10.26

Employment Agreement by and
    between OM Group, Inc. and Joseph M. Scaminace dated
    May 26, 2005 (incorporated by reference to Exhibit 99
    to the Companys Current Report on
    Form 8-K
    filed on June 2, 2005).*10.27

Form of Indemnification Agreement
    between OM Group, Inc. and its directors and certain officers
    (incorporated by reference to Exhibit 10.42 to the
    Companys Annual Report on
    Form 10-K
    filed on August 22, 2005).*10.28

Employment Agreement by and
    between OM Group, Inc. and Valerie Gentile Sachs dated
    September 8, 2005 (incorporated by reference to
    Exhibit 10.43 to the Companys Quarterly Report on
    Form 10-Q
    filed on November 8, 2005).*10.29

Severance Agreement by and between
    OM Group, Inc. and Valerie Gentile Sachs dated November 7,
    2005 (incorporated by reference to Exhibit 10.44 to the
    Companys Quarterly Report on
    Form 10-Q
    filed on November 8, 2005).*10.30

Form of Non-Incentive Stock Option
    Agreement under the 1998 Long-Term Incentive Compensation Plan
    (incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    filed on December 21, 2005).*10.31

Consulting Agreement by and
    between OM Group, Inc. and G+H Group, dba, Partners in Success
    dated November 14, 2005 (incorporated by reference to
    Exhibit 10.46 to the Companys Annual Report on Form
    10-K filed
    on March 9, 2006).*10.32

Employment Agreement by and
    between OM Group, Inc. and Daniel K. Lewis dated
    January 30, 2006 (incorporated by reference to
    Exhibit 10.47 to the Companys Annual Report on
    Form 10-K
    filed on March 9, 2006).10.33

OM Group, Inc. 2002 Stock
    Incentive Plan (incorporated by reference to Exhibit 99 to
    the Companys Current Report on
    Form 8-K
    filed May 5, 2006).*10.34

Form of Restricted Stock Agreement
    for Joseph M. Scaminace under the 1998 Long-Term Incentive
    Compensation Plan, as amended (incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K
    filed on August 11, 2006).*10.35

Form of Restricted Stock Agreement
    (time-based) under the 1998 Long-Term Incentive Compensation
    Plan and the 2002 Stock Incentive Plan (incorporated by
    reference to Exhibit 99.2 to the Companys Current
    Report on
    Form 8-K
    filed on August 11, 2006).*10.36

Form of Restricted Stock Agreement
    (performance-based) under the 1998 Long-Term Incentive
    Compensation Plan and the 2002 Stock Incentive Plan
    (incorporated by reference to Exhibit 99.3 to the
    Companys Current Report on
    Form 8-K
    filed on August 11, 2006). 86




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##### Table of Contents



*10.37

Employment Agreement by and
    between OM Group, Inc. and Kenneth Haber dated March 6,
    2006 (incorporated by reference to Exhibit 10.1 to the
    Companys Quarterly Report on
    Form 10-Q
    filed on May 9, 2006).*10.38

Form of Severance Agreement
    between OM Group, Inc. and certain executive officers
    (incorporated by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    filed on November 14, 2006).*10.39

Form of Amended and Restated
    Change in Control Agreement between OM Group, Inc. and certain
    executive officers (incorporated by reference to
    Exhibit 99.2 to the Companys Current Report on
    Form 8-K
    filed on November 14, 2006).*10.40

Amendment No. 1, effective
    November 13, 2006, to Employment Agreement dated
    May 26, 2005 between Joseph M Scaminace and OM Group, Inc.
    (incorporated by reference to Exhibit 99.3 to the
    Companys Current Report on
    Form 8-K
    filed on November 14, 2006).*10.41

Amended and Restated Change in
    Control Agreement dated as of November 13, 2006 between OM
    Group, Inc. and Joseph M. Scaminace (incorporated by reference
    to Exhibit 99.4 to the Companys Current Report on
    Form 8-K
    filed on November 14, 2006).*10.42

Amended and Restated Severance
    Agreement dated as of November 13, 2006 between OM Group,
    Inc. and Valerie Gentile Sachs (incorporated by reference to
    Exhibit 99.5 to the Companys Current Report on Form
    8-K filed on
    November 14, 2006).*10.43

Retention and Severance Agreement
    by and between OM Group, Inc. and Marcus P. Bak dated
    February 9, 2007 (incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K
    filed on February 15, 2007).12

Computation of Ratio of Earnings
    to Fixed Charges21

List of Subsidiaries23

Consent of Ernst & Young
    LLP24

Powers of Attorney31.1

Certification of Principal
    Executive Officer Pursuant to
    Rule 13a-14(a)/15d-14(a)31.2

Certification of Principal
    Financial Officer Pursuant to
    Rule 13a-14(a)/15d-14(a)32

Certification of Principal
    Executive Officer and Principal Financial Officer Pursuant to
    18 U.S.C. 1350      *
    
    Indicates a management contract, executive compensation plan or
    arrangement.+
    
    Portions of Exhibit have been omitted and filed separately with
    the Securities and Exchange Commission in reliance on
    Rule 24b-2
    and an Order from the Commission granting the Companys
    request for confidential treatment dated June 26, 1998.++
    
    Portions of Exhibit have been omitted and filed separately with
    the Securities and Exchange Commission in reliance upon the
    Companys request for confidential treatment pursuant to
    Rule 24b-2.
    
    These documents were filed as exhibits to the Companys
    Form S-1
    Registration Statement (Registration
    No. 33-60444)
    which became effective on October 12, 1993, and are
    incorporated herein by reference. 87




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##### Table of Contents



OM Group,
    Inc.
    Schedule II  Valuation and Qualifying
    Accounts
    Years Ended December 31, 2006, 2005 and 2004
    (Dollars in Millions)
  Balance


Charged


Chargedat


to


to





Balance atBeginning


Costs and


Other





End ofClassifications

of Year


Expenses


Accounts


Deductions


Year2006:Allowance for doubtful
    accounts

$
1.4



0.5
(1)


(0.1
)(7)


(0.7
)(5)

$
1.1Income tax valuation
    allowance


78.0











(59.2
)(2)


18.8Environmental reserve


8.8



4.2
(3)


(.5
)(7)


(4.5
)(6)


8.0$
88.2


$
4.7


$
(0.6
)

$
(64.4
)

$
27.92005:Allowance for doubtful accounts

$
2.0


$
0.6
(1)

$
(0.2
)(7)

$
(1.0
)(5)

$
1.4Income tax valuation allowance


123.1











(45.1
)(2)


78.0Environmental reserve


9.5



2.8
(3)


(0.4
)(7)


(3.1
)(6)


8.8Shareholder litigation accrual


92.0











(92.0
)(8)


$
226.6


$
3.4


$
(0.6
)

$
(141.2
)

$
88.22004:Allowance for doubtful accounts

$
2.0


$
1.4
(1)

$



$
(1.4
)(5)

$
2.0Income tax valuation allowance


132.2











(9.1
)(2)


123.1Environmental reserve


14.2



0.3
(3)


0.5
(7)


(5.5
)(6)


9.5Shareholder litigation accrual


84.5



7.5
(4)










92.0$
232.9


$
9.2


$



$
(16.0
)

$
226.6     (1)
    
    Provision for uncollectible accounts included in selling,
    general and administrative expenses.(2)
    
    Decrease in valuation allowance is recorded as a component of
    the provision for income taxes.(3)
    
    Provision for environmental costs included in selling, general
    and administrative expenses.(4)
    
    Provision for shareholder class action and shareholder
    derivative lawsuits.(5)
    
    Actual accounts written-off against the allowance 
    net of recoveries.(6)
    
    Actual cash expenditures charged against the accrual.(7)
    
    Foreign currency translation adjustment.(8)
    
    Settlement of shareholder class action and shareholder
    derivative lawsuits. 88




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##### Table of Contents



Signatures  Form 10-K
    By:
    /s/ Kenneth
    Haber     Form 10-K
  Signature

Title/s/  Joseph
    M. ScaminaceJoseph
    M. Scaminace

Chairman and Chief Executive
    Officer
    (Principal Executive Officer)/s/  Kenneth
    HaberKenneth
    Haber

Chief Financial Officer
    (Principal Financial and Accounting Officer)/s/  Richard
    W. Blackburn*Richard
    W. Blackburn

Director/s/  Steven
    J. Demetriou*Steven
    J. Demetriou

Director/s/  Katharine
    L. Plourde*Katharine
    L. Plourde

Director/s/  David
    L. Pugh*David
    L. Pugh

Director/s/  William
    J. Reidy*William
    J. Reidy

Director/s/  Gordon
    A. Ulsh*Gordon
    A. Ulsh

Director*By:

/s/  Kenneth
    HaberKenneth
    HaberAttorney-in-Fact  89