S&P may lower OM Group

Standard & Poor's said it placed its ratings on OM Group Inc. on CreditWatch with negative implications in response to the firm's announcement that it had delayed filing its 2003 10-K with the SEC.

The CreditWatch placement reflects S&P's concerns regarding the quality and adequacy of the company's accounting controls and practices and accuracy of financial reporting. The SEC staff has commented on issues regarding the application of accounting standards related to the valuation of inventory. In response, the company expects to restate its 1999 through 2003 financial statements because of inventory issues.

Although the exact amounts of the adjustments are unknown at this time, it is expected that the adjustments will negatively affect earnings in 1999, 2000, and 2001, while positively affecting results for 2002 and 2003.

S&P said the delay in filing the 2003 10-K may also permit the trustee or noteholders to deliver a notice of default under the indenture related to the company's $400 million of public debt. If such a notice is delivered and the company does not file its form 10-K within 60 days of the notice, then the trustee or noteholders would have the right, but would not be obligated, to accelerate the public debt.

On the plus side, the agency said, there are no borrowings under the revolving credit facility, metal prices for cobalt and nickel remain high, and the company expects higher sales, improved margins and increased operating profit for the 2004 first quarter, compared with the year-earlier performance.

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