-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DW9RoY+p3aDKYtomTDc45Dp/6MvnmGiADz2ngqZC9oPHakUjyeMRW0kyyh878ncz 6eEYzo71UR6HouYKw+mVXw== 0000899723-98-000009.txt : 19980810 0000899723-98-000009.hdr.sgml : 19980810 ACCESSION NUMBER: 0000899723-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OM GROUP INC CENTRAL INDEX KEY: 0000899723 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 521736882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12515 FILM NUMBER: 98678914 BUSINESS ADDRESS: STREET 1: 50 PUBLIC SQ STREET 2: 3800 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113-2204 BUSINESS PHONE: 2167810083 MAIL ADDRESS: STREET 1: 3900 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113 10-Q 1 OM GROUP, INC. FORM 10-Q FOR QUARTER ENDING 06/30/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 Commission File Number 0-22572 OM GROUP, INC. (exact name of registrant as specified in its charter) Delaware 52-1736882 (state or other jurisdiction of (I.R.S., Employer incorporation or organization) Identification Number) Tower City 50 Public Square 3800 Terminal Tower Cleveland, Ohio 44113-2204 (Address of principal executive offices) (zip code) (216) 781-0083 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _____X______ No __________ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 1998: Common Stock, $.01 Par Value - 22,077,783 shares. INDEX OM GROUP, INC. Part I. Financial Information Item 1. Financial Statements Condensed consolidated balance sheets -- June 30, 1998 and December 31, 1997 Condensed consolidated statements of income -- Three months ended June 30, 1998 and 1997; Six months ended June 30, 1998 and 1997 Condensed consolidated statements of cash flows -- Six months ended June 30, 1998 and 1997 Notes to condensed consolidated financial statements -- June 30, 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings - Not applicable Item 2. Changes in Securities - Not applicable Item 3. Defaults upon Senior Securities - Not applicable Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other information - Not applicable Item 6. Exhibits and Reports on Form 8-K (15) Independent Accountants' Review Report (15) Letter re: Unaudited Interim Financial Information (27) Financial Data Schedule Page 1 Part I Financial Information Item 1 Financial Statements OM GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands of dollars) (Unaudited) June 30, December 31, 1998 1997 --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,742 $ 13,193 Accounts receivable 96,065 80,602 Inventories 224,948 219,201 Other current assets 16,297 11,753 -------- -------- Total Current Assets 344,052 324,749 PROPERTY, PLANT AND EQUIPMENT Land 3,930 2,867 Buildings and improvements 70,517 49,939 Machinery and equipment 199,581 162,938 Furniture and fixtures 10,694 8,615 -------- -------- 284,722 224,359 Less accumulated depreciation 84,149 74,112 -------- -------- 200,573 150,247 OTHER ASSETS Goodwill and other intangible assets 181,687 116,751 Other assets 11,786 9,316 -------- -------- TOTAL ASSETS $738,098 $601,063 ======== ======== Page 2 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 157 $ 219 Accounts payable 61,590 67,521 Other accrued expenses 21,487 32,942 -------- -------- Total Current Liabilities 83,234 100,682 LONG-TERM LIABILITIES Long-term debt 309,248 170,334 Deferred income taxes 21,093 20,555 Other long-term liabilities 6,564 8,251 STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value: Authorized 2,000,000 shares; no shares Issued or outstanding Common stock, $0.01 par value: Authorized 30,000,000 shares; issued 22,209,346 shares 222 222 Capital in excess of par value 189,281 189,281 Retained earnings 134,499 117,465 Treasury stock (131,563 shares in 1998 and 142,720 shares in 1997, at cost) (5,004) (4,829) Foreign currency translation adjustments (1,039) (898) -------- -------- Total Stockholders' Equity 317,959 301,241 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $738,098 $601,063 ======== ======== See notes to condensed Consolidated Financial Statements Page 3 Part I Financial Information Item 1 Financial Statements OM GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Thousands of dollars, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------- --------------------- 1998 1997 1998 1997 -------- -------- -------- --------- OPERATIONS Net sales $139,154 $124,334 $277,252 $234,389 Cost of products sold 103,245 94,851 206,713 178,328 ------- ------- ------- ------- 35,909 29,483 70,539 56,061 Selling, general and administrative expenses 14,259 11,614 28,356 22,496 ------- ------- ------- ------- INCOME FROM OPERATIONS 21,650 17,869 42,183 33,565 OTHER INCOME (EXPENSE) Interest expense (4,380) (3,488) (8,359) (7,154) Interest income 72 41 180 62 Foreign exchange (loss) gain (60) 65 118 350 ------- ------- ------- ------- (4,368) (3,382) (8,061) (6,742) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 17,282 14,487 34,122 26,823 Income taxes 5,746 4,908 11,417 9,028 ------- ------- ------- ------- NET INCOME $11,536 $ 9,579 $22,705 $17,795 ======= ======= ======= ======= Net income per common share $0.52 $0.46 $1.03 $0.90 Net income per common share - assuming dilution $0.51 $0.44 $1.00 $0.87 Dividends paid per common share $0.09 $0.08 $0.18 $0.16 See notes to condensed Consolidated Financial Statements Page 4 Part I Financial Information Item 1 Financial Statements OM GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) (Unaudited) Six Months Ended June 30, ------------------- 1998 1997 -------- -------- OPERATING ACTIVITIES Net income $22,705 $17,795 Items not affecting cash: Depreciation and amortization 12,710 10,365 Foreign exchange gain (118) (350) Deferred income taxes 4,042 3,346 Changes in operating assets and liabilities (31,063) (38,708) ------- ------- NET CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES 8,276 (7,552) INVESTING ACTIVITIES Expenditures for property, plant and equipment, net (40,618) (17,602) Acquisition of businesses (106,543) (124,547) ------- --------- NET CASH USED IN INVESTING ACTIVITIES (147,161) (142,149) FINANCING ACTIVITIES Dividend payments (3,973) (3,256) Long-term borrowings 139,000 156,095 Payments of long-term debt (86) (88,400) Purchase of treasury stock (2,415) (798) Proceeds from exercise of stock options 542 64 Sale of common stock 87,239 ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 133,068 150,944 Effect of exchange rate changes on cash (634) (144) ------- ------- (Decrease) increase in cash (6,451) 1,099 Cash and cash equivalents at beginning of period 13,193 7,818 ------- ------- Cash and cash equivalents at end of period $ 6,742 $ 8,917 ======= ======= See notes to condensed Consolidated Financial Statements Page 5 Part I Financial Information Item 1 Financial Statements OM GROUP, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 1998 Note A Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair financial presentation have been included. Past operating results are not necessarily indicative of the results which may occur in future periods. For further information refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. In June, 1997, SFAS No. 130, "Reporting Comprehensive Income", was issued. SFAS No. 130 establishes new standards for reporting comprehensive income and its components. The Company adopted SFAS No. 130 in the first quarter of fiscal year 1998. The Company's comprehensive income for the six months ended June 30, 1998, which includes net income of $22,705 and foreign currency translation losses of $141, did not differ materially from net income. In June, 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", was issued. SFAS No. 131 changes the standards for reporting financial results by operating segments and related products and services, geographic areas, and major customers. The Company must adopt SFAS No. 131 no later than year-end 1998; adoption of this statement is not expected to have a material impact on the Company. In June, 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The Company must adopt SFAS No. 133 no later than the first quarter of fiscal year 2000; adoption of this statement is not expected to have a material effect on earnings or the financial position of the Company. Page 6 Part I Financial Information Item 1 Financial Statements Note B Inventories Inventories consist of the following (in thousands): June 30, December 31, 1998 1997 -------- -------- Raw materials and supplies $104,808 $110,477 Finished goods 113,618 107,989 -------- -------- 218,426 218,466 LIFO reserve 6,522 735 -------- -------- Total inventories $224,948 $219,201 ======== ======== Note C Contingent Matters The Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations in the jurisdictions in which it operates. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings involving environmental matters. Although it is very difficult to quantify the potential impact of compliance with or liability under environmental protection laws, management believes that the ultimate aggregate cost to the Company of environmental remediation, as well as other legal proceedings arising out of operations in the normal course of business, will not result in a material adverse effect upon its financial condition or results of operations. Note D Acquisitions The Company acquired Auric Corporation (Fidelity) and Dussek Campbell Limited (Dussek) in January and February, 1998, respectively, for an aggregate amount of approximately $94 million. These acquisitions, which had combined fiscal 1997 sales aggregating approximately $60 million, have been recorded using the purchase method of accounting. Accordingly, the Company's results of operations reflect the impact of Fidelity and Dussek from their respective dates of acquisition. In April, 1998, the Company acquired the carbothermal reduction technology and assets of Dow Chemical Company for approximately $12.5 million, plus a conditional amount up to $20 million based upon the achievement of certain performance targets, which would be paid at the end of five years. This acquisition will complement the Page 7 Part I Financial Information Item 1 Financial Statements Company's present tungsten recycling capability, allow it to better serve its existing customer base in the hard metal tool industry, and provide for the possibility of expanding this technology to other metal powders and product applications. The acquisitions were initially financed through bank borrowings. In July, 1998, the Company sold 1,750,000 shares of common stock in a public offering; the net proceeds of $68.7 million were used to pay down a portion of the debt incurred in the aforementioned acquisitions. Had these shares been issued at the dates of acquisition, net income per common share assuming dilution for the three and six months ended June 30, 1998 would have been $.50 and $.99 per share, respectively. Note E Computation of Earnings per Share The following table sets forth the computation of net income per common share and net income per common share - assuming dilution (in thousands, except per share data): Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 1998 1997 1998 1997 ------- ------ ------- ------- Net income $11,536 $9,579 $22,705 $17,795 Weighted average number of shares outstanding 22,078 20,921 22,071 19,774 Dilutive effect of stock options 716 708 736 704 ------- ------ ------- ------- Weighted average number of shares outstanding - assuming dilution 22,794 21,629 22,807 20,478 ======= ====== ====== ====== Net income per common share $.52 $.46 $1.03 $.90 ==== ==== ===== ==== Net income per common share - assuming dilution $.51 $.44 $1.00 $.87 ==== ==== ===== ==== Page 8 Part I Financial Information Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997 Net sales for the three months ended June 30, 1998 were $139.2 million, an increase of 11.9% compared to the same period for 1997. The increase in sales resulted principally from an increase in physical volume of cobalt based products sold and the acquisition of Fidelity, which offset a decline in the Company's product prices resulting principally from lower nickel and copper market prices. Cobalt 99.3% grade market prices ranged from $20 to $21 per pound during the three month period ended June 30, 1998 compared to a range of $19 to $22 per pound during the same period in 1997. The market price of nickel ranged from $1.99 to $2.48 per pound during the three months ended June 30, 1998 compared to $3.18 to $3.48 per pound during the same period in 1997. The market price of copper ranged from $0.74 to $0.85 per pound during the three months ended June 30, 1998 compared to $1.07 to $1.20 per pound during the same period in 1997. Pounds of product sold by the Company were approximately 49.2 million pounds in the three month period ended June 30, 1998 compared to 38.3 million pounds in the same period in 1997. The following table sets forth the pounds of carboxylates, salts and powders sold during each period: Three Months Ended June 30, Percentage (in millions of pounds) 1998 1997 Change ---- ---- ------ Carboxylates 16.3 13.1 24.4% Salts 22.4 15.3 46.4% Powders 10.5 9.9 6.1% ---- ---- ----- 49.2 38.3 28.5% ==== ==== ===== The increase in physical volume of carboxylate products sold reflects 1.6 million pounds of product sold as a result of the Dussek acquisition and increased sales of carboxylates in Europe. The increase in physical volume of salt products sold reflects an increase of 8.6 million pounds as a result of the Fidelity acquisition and a decrease of 2.1 million pounds as a result of continuing deemphasis of lower margin nickel sulfate products. The increase in physical volume of powder products sold reflects increases in fine and coarse grade cobalt powders, as well as copper powders. Page 9 Part I Financial Information Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Gross profit increased to $35.9 million for the three month period ended June 30, 1998, a 21.8% increase over the same period in 1997. The improvement in gross profit was primarily the result of the acquisitions of Fidelity and Dussek and higher physical volumes of cobalt based product sold. Cost of products sold decreased to 74.2% of net sales for the three months ended June 30, 1998 compared to 76.3% of net sales during the same period of 1997, primarily because of improved product mix and lower nickel and copper market prices. Selling, general and administrative expenses increased to 10.2% of net sales for the second quarter of 1998 compared to 9.3% of net sales in the same period in 1997, due to the acquisition of Fidelity and its relatively higher selling, administrative, and research expenses per dollar of sales and to the decline in net sales resulting from lower nickel and copper prices. Other expense in 1998 was $4.4 million compared to $3.4 million in 1997, due primarily to increased interest expense on higher outstanding borrowings, primarily as a result of the acquisition of Fidelity. Income taxes as a percentage of income before tax decreased to 33.2% for the second quarter of 1998 from 33.9% in the same period in 1997. As a result of the Fidelity acquisition, a percentage of 1998 pretax income was earned in Malaysia, which granted the Company a pioneer status tax incentive, resulting in a lower effective tax rate than in the prior year. Net income for the three month period ended June 30, 1998 was $11.5 million, an increase of $2.0 million from the same period in 1997, due to the aforementioned factors. Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997 Net sales for the six months ended June 30, 1998 were $277.3 million, an increase of 18.3% compared to the same period for 1997. The increase in sales resulted principally from an increase in physical volume of products sold and the acquisition of Fidelity, which offset a decline in the Company's product prices resulting from lower nickel, copper, and cobalt market prices. Cobalt 99.3% grade market prices ranged from $18 to $21 per pound during the six month period ended June 30, 1998 compared to a range of $19 to $22 per pound during the same period in 1997. The market price of nickel ranged from $1.99 to $2.69 per pound during the six months ended June 30, 1998 compared to $2.88 to $3.66 per pound Page 10 Part I Financial Information Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations during the same period in 1997. The market price of copper ranged from $0.74 to $0.85 per pound during the six months ended June 30, 1998 compared to $1.05 to $1.80 per pound during the same period in 1997. Pounds of product sold by the Company were approximately 96.2 million pounds in the six month period ended June 30, 1998 compared to 72.7 million pounds in the same period in 1997. The following table sets forth the pounds of carboxylates, salts and powders sold during each period: Six Months Ended June 30, Percentage (in millions of pounds) 1998 1997 Change ---- ---- ------ Carboxylates 30.7 24.7 24.3% Salts 44.2 30.2 46.4% Powders 21.3 17.8 19.7% ---- ---- ---- 96.2 72.7 32.3% ==== ==== ==== The increase in physical volume of carboxylate products reflects 2.8 million pounds of product sold as a result of the Dussek acquisition and increased sales of carboxylates in Europe. The increase in physical volume of salt products sold reflects an increase of 14.1 million pounds of nickel salt products sold as a result of the Fidelity acquisition and a decrease of 3.3 million pounds as a result of continuing deemphasis of lower margin nickel sulfate products. The increase in physical volume of powder products sold reflects 2.2 million pounds of copper powder products sold as a result of the acquisition of SCM Metal Products, Inc., which occurred at the end of January, 1997, and for which in 1998 there were six months of sales. Gross profit increased to $70.5 million for the six month period ended June 30, 1998, a 25.8% increase over the same period in 1997. The improvement in gross profit was primarily the result of the acquisitions of Fidelity and Dussek and higher physical volumes of product sold. Cost of products sold decreased to 74.6% of net sales for the six months ended June 30, 1998 compared to 76.1% during the same period of 1997, primarily because of improved product mix and lower nickel, copper, and cobalt market prices. Selling, general and administrative expenses increased to 10.2% of net sales for the first six months of 1998 from 9.6% of net sales for the same period in 1997, due to the acquisition of Fidelity and its relatively higher selling, administrative, and research expenses per dollar of sales and to the decline in net sales resulting from lower nickel, copper, and cobalt market prices. Page 11 Part I Financial Information Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Other expense in 1998 was $8.1 million compared to $6.7 million in 1997, due primarily to increased interest expense on higher outstanding borrowings, primarily as a result of the acquisition of Fidelity. Income taxes as a percentage of income before tax decreased to 33.5% as compared to 33.7% during the same period in 1997. As a result of the Fidelity acquisition, a percentage of 1998 pretax income was earned in Malaysia, which granted the Company a pioneer status tax incentive, resulting in a lower effective tax rate than in the United States. Net income for the six month period ended June 30, 1998 was $22.7 million, an increase of $4.9 million from the same period in 1997, due to the aforementioned factors. Liquidity and Capital Resources During the six month period ended June 30, 1998, the Company's net working capital increased by approximately $37 million, compared to December 31, 1997. This increase was primarily the result of additional working capital associated with the acquisitions of Fidelity and Dussek. Capital expenditures increased in 1998, primarily due to expansion at various plant facilities, acquisition of the Dow product line (Note D), and the smelter construction project in Lumbumbashi, Democratic Republic of Congo. These increased cash needs were funded through cash generated by operations as well as additional borrowings under the Company's revolving credit facility. In July, 1998, the Company sold 1,750,000 shares of common stock in a public offering. The net proceeds of the offering, in the amount of $68.7 million, were used to pay down a portion of the debt incurred in the 1998 acquisitions. The Company believes that it will have sufficient cash generated by operations and through its credit facilities to provide for its future working capital and capital expenditure requirements and to pay quarterly dividends on its common stock, subject to the Board's discretion. Subject to several limitations in its credit facilities, the Company may incur additional borrowings under this line to finance working capital and certain capital expenditures, including, without limitation, the purchase of additional raw materials. Page 12 Part I Financial Information Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Year 2000 The Company presently believes that with modifications to existing computer software and conversions to new software, the Year 2000 Issue will not pose significant operational problems to its normal business activities. The Company anticipates completing its Year 2000 project by December 31, 1998, which is prior to any anticipated impact on its operating systems. This project will be completed using a combination of existing internal and external resources. The total cost of the Year 2000 project is estimated at $2.5 million and is being funded through operating cash flows. Of the total project cost, approximately $0.8 million is attributable to a new software purchase, which will be capitalized. The remaining $1.7 million, which will be expensed as incurred, is not expected to have a material effect on the results of operations of the Company. Forward Looking Statements The Company is making this statement in order to satisfy the "safe harbor" provisions contained in the Private Securities Litigation Reform Act of 1995. The foregoing discussion includes forward- looking statements relating to the business of the Company. Forward looking statements contained herein or in other statements made by the Company are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those matters expressed in or implied by forward- looking statements. The Company believes that the following factors, among others, could affect its future performance and cause actual results of the Company to differ materially from those expressed in or implied by forward-looking statements made by or on behalf of the Company: (a) the price and supply of raw materials, particularly cobalt, nickel and copper; (b) demand for metal-based specialty chemicals in the mature markets in the United States and Europe; (c) demand for metal-based specialty chemicals in Asia Pacific and other less mature markets, which geographic areas are an announced focus of the Company's activities; (d) the effect of non-currency risks of investing in and conducting operations in foreign countries, together with fluctuations in currency exchange rates upon the Company's international operations, including those relating to political, social, economic and regulatory factors; and (e) the availability and cost of personnel trained in Year 2000 modifications and the ability to locate and correct all relevant computer codes. Page 13 Part II Other Information Item 6 Exhibits and Reports on Form 8-K The following exhibits are included herein: Exhibit (15) Independent Accountants' Review Report Exhibit (15) Letter re: Unaudited Interim Financial Information Exhibit (27) Financial Data Schedule There were no reports on Form 8-K filed during the three months ended June 30, 1998. Page 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 6, 1998 OM GROUP, INC. _________________________________________ James M. Materna Chief Financial Officer (Duly authorized signatory of OM Group, Inc.) Independent Accountants' Review Report Stockholders and Board of Directors OM Group, Inc. We have reviewed the accompanying condensed consolidated balance sheet of OM Group, Inc. as of June 30, 1998, and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 1998 and 1997, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of OM Group, Inc. as of December 31, 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended, not presented herein, and in our report dated February 3, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP --------------------- Ernst & Young LLP Cleveland, Ohio August 6, 1998 Acknowledgment of Independent Accountants Stockholders and Board of Directors OM Group, Inc. We are aware of the incorporation by reference in the following Registration Statements of OM Group, Inc. of our reports dated May 5 and August 6, 1998, relating to the unaudited condensed consolidated interim financial statements of OM Group, Inc. which are included in its Form 10-Q for the quarters ended March 31 and June 30, 1998. Registration Number Description Filing Date - -------- ----------- ----------- 33-74674 OM Group, Inc. Long-Term Incentive Compensation Plan - Form S-8 Registration Statement - 1,015,625 Shares January 27, 1994 333-07529 OMG Americas, Inc. Employees' Profit Sharing Plan -- Form S-8 Registration Statement -- 250,000 Shares July 3, 1996 333-07531 OM Group, Inc. Non-Employees Directors' Equity Plan -- Form S-8 Registration Statement -- 250,000 Shares July 3, 1996 Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP --------------------- Ernst & Young LLP Cleveland, Ohio August 6, 1998 EX-27 2 FINANCIAL DATA SCHEDULE FOR 2ND QUARTER 1998 10-Q
5 This schedule contains summary financial information extracted from the OM Group, Inc. Condensed Consolidated Balance Sheets at June 30, 1998 (Unaudited) and the OM Group, Inc. Condensed Consolidated Statements of Income for the three and six months ended June 30, 1998 (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 6-MOS Dec-31-1997 Dec-31-1997 Jun-30-1998 Jun-30-1998 6,742 6,742 0 0 96,065 96,065 0 0 224,948 224,948 344,052 344,052 284,722 284,722 84,149 84,149 738,098 738,098 83,234 83,234 0 0 0 0 0 0 222 222 317,737 317,737 738,098 738,098 139,154 277,252 139,154 277,252 103,245 206,713 103,245 206,713 14,259 28,356 0 0 4,380 8,359 17,282 34,122 5,746 11,417 11,536 22,705 0 0 0 0 0 0 11,536 22,705 .52 1.03 .51 1.00 -----END PRIVACY-ENHANCED MESSAGE-----