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UNITED STATES SECURITIES AND EXCHANGE COMMISSION







FORM 10-K






|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934







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




Commission file number 001-12515


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 No.)
|                                                          
|127 Public Square,
    1500 Key Tower,
    Cleveland, Ohio |  | 44114-1221         
|(Address of principal executive offices)                   |  | (Zip Code)         

216-781-0083




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


|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|                                        |  |                                          
|Common 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 o








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Table of Contents


|                                                                  |  |                                                                                                                      |                                                                                                              |      |    |    | 
|----------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ---- | -- | -- | 
|                                                                  |  |                                                                                                                      |                                                                                                              | Page |   
|                                                                  |  |                                                                                                                      |                                                                                                              |      |   
|PART I                                                           
|Item 1.                                                           |  | Business                                                                                                             |                                                                                                              |      | 2  |   
|Item 2.                                                           |  | Properties                                                                                                           |                                                                                                              |      | 8  |   
|Item 3.                                                           |  | Legal Proceedings                                                                                                    |                                                                                                              |      | 9  |   
|Item 4.                                                           |  | Submission of Matters to a Vote of Security
    Holders                                                              |                                                                                                              |      | 10 |   
|                                                                 
|PART II                                                          
|Item 5.                                                           |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |                                                                                                              |      | 11 |   
|Item 6.                                                           |  | Selected Financial Data                                                                                              |                                                                                                              |      | 11 |   
|Item 7.                                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |                                                                                                              |      | 14 |   
|Item 7A.                                                          |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |                                                                                                              |      | 25 |   
|Item 8.                                                           |  | Financial Statements and Supplementary
    Data                                                                      |                                                                                                              |      | 27 |   
|                                                                  |  |                                                                                                                      | Report of Independent Registered Public
    Accounting Firm                                                  |      |    | 27 | 
|                                                                  |  |                                                                                                                      | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                             |      |    | 28 | 
|                                                                  |  |                                                                                                                      | Statements of Consolidated Operations for
    the years ended December 31, 2003, 2002 and 2001               |      |    | 29 | 
|                                                                  |  |                                                                                                                      | Statements of Consolidated Cash Flows for
    the years ended December 31, 2003, 2002 and 2001               |      |    | 30 | 
|                                                                  |  |                                                                                                                      | Statements of Consolidated
    Stockholders Equity for the years ended December 31,
    2003, 2002 and 2001 |      |    | 31 | 
|                                                                  |  |                                                                                                                      | Notes to Consolidated Financial
    Statements                                                               |      |    | 33 | 
|Item 9.                                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |                                                                                                              |      | 79 |   
|Item 9A.                                                          |  | Controls and Procedures                                                                                              |                                                                                                              |      | 79 |   
|Item 9B.                                                          |  | Other Information                                                                                                    |                                                                                                              |      | 80 |   
|                                                                 
|PART III                                                         
|Item 10.                                                          |  | Directors and Executive Officers of the
    Registrant                                                               |                                                                                                              |      | 81 |   
|Item 11.                                                          |  | Executive Compensation                                                                                               |                                                                                                              |      | 83 |   
|Item 12.                                                          |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |                                                                                                              |      | 86 |   
|Item 13.                                                          |  | Certain Relationships and Related
    Transactions                                                                   |                                                                                                              |      | 87 |   
|Item 14.                                                          |  | Principal Accountant Fees and Services                                                                               |                                                                                                              |      | 88 |   
|                                                                 
|PART IV                                                          
|Item 15.                                                          |  | Exhibits, Financial Statement Schedules and
    Signatures                                                           |                                                                                                              |      | 89 |   
|EX-10.17 Joint Venture Agreement                                 
|EX-10.18 Agreement For Sale of Concentrate Product               
|EX-10.22 OM Group, Inc. 1998 Long-Term Incentive Plan            
|EX-10.23 Separate Agreement OM Group and Edward W. Kissel        
|EX-10.32 Agreement of OM Group and Michael J. Scott              
|EX-10.33 Separation Agreement of OM Group & Thomas R. Miklich    
|EX-10.34 Employment Agreement of R. Louis Schneeberger           
|EX-10.36 Supplemental Retirement Plan  of James P. Mooney        
|EX-12 Computation of Earnings                                    
|EX-18 Letter of Ernst & Young                                    
|EX-21 List of Subsidiaries                                       
|EX-23 Consent of Ernst & Young LLP                               
|EX-24 Powers of Attorney                                         
|EX-31.1 Certification of Principal Executive Officer             
|EX-31.2 Certification of Principal Financial Officer             
|EX-32 Certification of Principal Executive and Financial Officers



1



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PART I





Item 1. Business


General










Accounting Issues




2



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Dispositions and Restructuring






3



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Products




4



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|                                         |  |                                                 |  |                                                                                                                                                                          
|---------------------------------------- |  | ----------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Applications                             |  | Metals Used                                     |  | Product Attributes                                                                                                                                                       
|                                         |  |                                                 |  |                                                                                                                                                                          
|Stainless Steel                          |  | Nickel                                          |  | Improves rust resistance in demanding applications; improves
    corrosion resistance in aggressive high temperatures or
    corrosive environments                      
|Rechargeable Batteries                   |  | Cobalt, Nickel                                  |  | Improves the electrical conduction of rechargeable batteries
    used in cellular phones, video cameras, portable computers,
    power tools and hybrid electric vehicles
|Coatings and paints                      |  | Cobalt, Manganese, Calcium, Zirconium, Aluminum |  | Promotes faster drying in such products as house paints
    (exterior and interior) and industrial and marine coatings                                                   
|Printing Inks                            |  | Cobalt, Manganese                               |  | Promotes faster drying in various printing inks                                                                                                                          
|Tires                                    |  | Cobalt                                          |  | Promotes bonding of metal-to-rubber in radial tires                                                                                                                      
|Construction 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 quarrying            
|Petrochemical Refining                   |  | Cobalt, Nickel                                  |  | Reduces sulfur dioxide and nitrogen emissions                                                                                                                            
|Ceramics and Glassware                   |  | Cobalt, Nickel                                  |  | Provides color for pigments, earthenware and glass and
    facilitates adhesion of porcelain to metal                                                                    
|Polyester Resins                         |  | Cobalt, Copper, Zinc                            |  | Accelerates the curing of polyester resins found in reinforced
    fiberglass boats, storage tanks, bathrooms, sports equipment,
    automobile and truck components     
|Memory Disks                             |  | Nickel                                          |  | Enhances information storage on disks for computers                                                                                                                      



Competition




Customers






5



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Raw Materials












6



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Research and Development






Patents and Trademarks




7



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Environmental Matters










Employees




SEC Reports









|        |           
|------- | ----------
|Item 2. | Properties



8



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|                       |  |           |  |           |         |  |             |  |         |              |  |                    
|---------------------- |  | --------- |  | --------- | ------- |  | ----------- |  | ------- | ------------ |  | -------------------
|                       |  |           |  | Facility  |         |  | Approximate |  |         |             
|Location               |  | Segment   |  | Function* |         |  | Square Feet |  |         | Leased/Owned
|                       |  |           |  |           |         |  |             |  |         |             
|Africa:                |  |           |  |           |         |  |             |  |         |              |  |                    
|Lubumbashi, DRC        |  | Cobalt    |  |           | M       |  |             |  | 116,000 |              |  | joint venture (55%)
|                      
|North America:         |  |           |  |           |         |  |             |  |         |              |  |                    
|Cleveland, Ohio        |  | Corporate |  |           | A       |  |             |  | 24,500  |              |  | leased             
|Westlake, Ohio         |  | Cobalt    |  |           | A, R    |  |             |  | 35,200  |              |  | owned              
|Belleville, Ontario    |  | Cobalt    |  |           | M       |  |             |  | 38,000  |              |  | owned              
|Franklin, Pennsylvania |  | Cobalt    |  |           | M       |  |             |  | 331,500 |              |  | owned              
|Newark, New Jersey     |  | Nickel    |  |           | A, R    |  |             |  | 32,000  |              |  | owned              
|                      
|Asia-Pacific:          |  |           |  |           |         |  |             |  |         |              |  |                    
|Kalgoorlie, Australia  |  | Nickel    |  |           | M       |  |             |  | 294,400 |              |  | leased             
|Kuching, Malaysia      |  | Nickel    |  |           | M, A, R |  |             |  | 25,000  |              |  | owned              
|Tokyo, Japan           |  | Cobalt    |  |           | A       |  |             |  | 2,300   |              |  | leased             
|Taipei, Taiwan         |  | Cobalt    |  |           | A       |  |             |  | 4,000   |              |  | leased             
|Singapore              |  | Nickel    |  |           | W, A    |  |             |  | 4,700   |              |  | leased             
|                      
|Europe:                |  |           |  |           |         |  |             |  |         |              |  |                    
|Manchester, England    |  | Cobalt    |  |           | M, A, R |  |             |  | 73,300  |              |  | owned              
|Espoo, Finland         |  | Nickel    |  |           | A       |  |             |  | 3,000   |              |  | leased             
|Harjavalta, Finland    |  | Nickel    |  |           | M, A, R |  |             |  | 591,000 |              |  | leased             
|Kokkola, Finland       |  | Cobalt    |  |           | M, A, R |  |             |  | 470,000 |              |  | leased             



|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
|* | M  Manufacturing and refining; A 
    Administrative; R  Research and Development;
    W  Warehouse




Item 3. Legal Proceedings






9



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




10



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PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity Securities






Item 6. Selected Financial Data


|                                             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |         |       |   |   |       |       |  
|-------------------------------------------- | ----------------------- | ----------------------- | ------- | ---------- | ---- | - | ------- | ----- | - | - | ------- | ----- | - | ---- | ------- | ----- | - | - | ----- | ----- | -
|                                             |                         | Year Ended December 31, |        
|                                             |                         |                         |        
|                                             |                         |                         |         | (Restated) |     
|                                             |                         |                         |         |            |     
|                                             |                         | 2003                    |         |            | 2002 |   |         | 2001  |   |   | 2000    |       |   | 1999 |        
|(In millions, except per share data)         |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |        
|Income Statement Data:                       |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |         |       |   |   |       |      
|Net sales                                    |                         | $                       | 912.1   |            |      | $ | 738.9   |       |   | $ | 681.6   |       |   | $    | 764.4   |       |   | $ | 395.1 |      
|Cost of products sold                        |                         |                         | 732.1   |            |      |   | 690.8   |       |   |   | 578.0   |       |   |      | 630.8   |       |   |   | 307.6 |      
|                                             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |        
|Gross profit                                 |                         |                         | 180.0   |            |      |   | 48.1    |       |   |   | 103.6   |       |   |      | 133.6   |       |   |   | 87.5  |      
|Selling, general and administrative expenses |                         |                         | 197.0   |            |      |   | 136.0   |       |   |   | 81.3    |       |   |      | 70.7    |       |   |   | 51.5  |      
|                                             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |        
|Income (loss) from operations                |                         |                         | (17.0   | )          |      |   | (87.9   | )     |   |   | 22.3    |       |   |      | 62.9    |       |   |   | 36.0  |      
|Other expense  net                          |                         |                         | (25.6   | )          |      |   | (44.6   | )     |   |   | (36.5   | )     |   |      | (36.6   | )     |   |   | (30.6 | )    
|Income (loss) from continuing operations     |                         |                         | (56.3   | )          |      |   | (110.7  | )     |   |   | (13.1   | )     |   |      | 1.0     |       |   |   | 28.8  |      
|Income (loss) of discontinued operations     |                         |                         | 140.0   |            |      |   | (98.1   | )     |   |   | (22.1   | )     |   |      | (13.9   | )     |   |   | (23.7 | )    
|                                             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |        
|Net income (loss)                            |                         | $                       | 83.7    |            |      | $ | (208.8  | )     |   | $ | (35.2   | )     |   | $    | (12.9   | )     |   | $ | 5.1   |      
|Basic earnings per common share:             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |         |       |   |   |       |      
|                                             | Continuing operations   |                         | $       | (1.99      | )    |   | $       | (3.95 | ) |   | $       | (0.55 | ) |      | $       | 0.04  |   |   | $     | 1.21  |  
|                                             | Discontinued operations |                         |         | 4.94       |      |   |         | (3.50 | ) |   |         | (0.91 | ) |      |         | (0.58 | ) |   |       | (1.00 | )
|                                             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |        
|                                             | Net income (loss)       |                         | $       | 2.95       |      |   | $       | (7.45 | ) |   | $       | (1.46 | ) |      | $       | (0.54 | ) |   | $     | 0.21  |  
|Diluted earnings per common share:           |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |         |       |   |   |       |      
|                                             | Continuing operations   |                         | $       | (1.99      | )    |   | $       | (3.95 | ) |   | $       | (0.55 | ) |      | $       | 0.04  |   |   | $     | 1.18  |  
|                                             | Discontinued operations |                         |         | 4.94       |      |   |         | (3.50 | ) |   |         | (0.91 | ) |      |         | (0.58 | ) |   |       | (0.97 | )
|                                             |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |        
|                                             | Net income (loss)       |                         | $       | 2.95       |      |   | $       | (7.45 | ) |   | $       | (1.46 | ) |      | $       | (0.54 | ) |   | $     | 0.21  |  
|Dividends declared and paid per common share |                         |                         |        |            |      | $ | 0.42    |       |   | $ | 0.52    |       |   | $    | 0.44    |       |   | $ | 0.40  |      
|Ratio of earnings to fixed charges(a)        |                         |                         |        |            |      |   |        |       |   |   |        |       |   |      | 1.5     | x     |   |   | 1.2   | x    
|Balance Sheet Data:                          |                         |                         |         |            |      |   |         |       |   |   |         |       |   |      |         |       |   |   |       |      
|Total assets                                 |                         | $                       | 1,211.4 |            |      | $ | 2,105.3 |       |   | $ | 2,074.0 |       |   | $    | 1,055.1 |       |   | $ | 827.3 |      
|Long-term debt (excluding current portion)   |                         |                         | 430.5   |            |      |   | 1,195.6 |       |   |   | 1,299.7 |       |   |      | 551.1   |       |   |   | 384.9 |      



|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Earnings were inadequate to cover fixed charges by
    $42.9 million, $134.5 million, and $18.5 million
    in 2003, 2002 and 2001, respectively.







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Goodwill and Other Intangible Assets








|                                                       |                                            |      |       |       |      |   |       |          |   |   |       |       |   |   |        |       |  
|------------------------------------------------------ | ------------------------------------------ | ---- | ----- | ----- | ---- | - | ----- | -------- | - | - | ----- | ----- | - | - | ------ | ----- | -
|                                                       |                                            | 2000 |       |       | 1999 |   |       | Pre-1999 |   |   | Total |      
|                                                       |                                            |      |       |       |      |   |       |          |   |   |       |      
|Increase (decrease) results of operations              |                                            |      |       |       |      |   |       |          |   |   |       |       |   |   |        |      
|Adjustments related to continuing operations, pre-tax: |                                            |      |       |       |      |   |       |          |   |   |       |       |   |   |        |      
|                                                       | Audit Committee Investigation              |      | $     | (10.0 | )    |   | $     | (47.8    | ) |   | $     | (27.2 | ) |   | $      | (85.0 | )
|                                                       | Procedures Subsequent to the Investigation |      |       | (28.5 | )    |   |       | (26.6    | ) |   |       | (7.7  | ) |   |        | (62.8 | )
|                                                       | Lower of Cost or Market Adjustments        |      |       | (10.7 | )    |   |       | 2.8      |   |   |       | (26.1 | ) |   |        | (34.0 | )
|                                                       |                                            |      |       |       |      |   |       |          |   |   |       |      
|                                                       |                                            |      | (49.2 | )     |      |   | (71.6 | )        |   |   | (61.0 | )     |   |   | (181.8 | )    
|Tax effect/adjustments                                 |                                            |      | (7.0  | )     |      |   | 43.5  |          |   |   |      |       |   |   | 36.5   |      
|                                                       |                                            |      |       |       |      |   |       |          |   |   |       |      
|Adjustments related to continuing operations           |                                            |      | (56.2 | )     |      |   | (28.1 | )        |   |   | (61.0 | )     |   |   | (145.3 | )    
|Adjustments related to discontinued operations         |                                            |      | (9.7  | )     |      |   | (24.9 | )        |   |   | 3.0   |       |   |   | (31.6  | )    
|                                                       |                                            |      |       |       |      |   |       |          |   |   |       |      
|Total adjustments, net of tax                          |                                            | $    | (65.9 | )     |      | $ | (53.0 | )        |   | $ | (58.0 | )     |   | $ | (176.9 | )    
|                                                       |                                            |      |       |       |      |   |       |          |   |   |       |      



Adjustments Resulting from the Audit Committee
Investigation




|  |                                                                                                                                                                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Numerous top-side adjustments to inventory and related accounts
    that, in the aggregate, understated pre-tax income in 2000 by
    $5.4 million, and overstated pre-tax income in 1999 and
    years prior to 1999 by $18.4 million and
    $24.6 million, respectively.
| 
| | $3.0 million of expenses at the Companys Harjavalta
    facility, acquired in April 2000, that were improperly
    capitalized to goodwill in acquisition accounting and should
    have been recorded in the Companys results of operations
    for 2000.               

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Supplier receivables of $6.5 million, $21.7 million
    and $1.5 million were recorded in 2000, 1999 and years
    prior to 1999, respectively, related to contractual disputes
    with suppliers regarding metal content of purchased raw material
    feedstock. In 2000 and 1999, amortization expense of
    $4.0 million and $1.0 million, respectively, was
    recorded related to these assets. As part of the audit committee
    investigation, the Company concluded the Company waived its
    claim to these recoverable amounts in its dispute negotiations
    with the suppliers, or otherwise did not adequately document its
    position to support recording these assets. Therefore, these
    top-side adjustment amounts should not have been recorded.
| 
| | Corporate accounting made various top-side adjustments in 2000
    and 1999 to capitalize costs that were expensed at the operating
    unit level for certain fixed asset projects, software
    implementation projects and miscellaneous other assets. The
    Company has since concluded that amounts recorded at the
    operating unit level properly accounted for these expenses, and
    the related top-side adjustments (including all corresponding
    depreciation and amortization of the related assets) should be
    reversed. Pre-tax income as originally reported for 2000, 1999
    and years prior to 1999, was overstated by $7.5 million,
    $6.9 million and $0.7 million, respectively.                                                           
| 
| | The Company capitalizes interest on certain fixed asset
    construction projects. The Company has since concluded that
    previous calculations were not in accordance with
    SFAS No. 34, Capitalization of Interest Cost.
    The Company re-calculated capitalized interest, resulting in
    restatement adjustments to correct pre-tax income that was
    overstated by $2.1 million, $1.3 million and
    $0.3 million in 2000, 1999 and years prior to 1999,
    respectively.                                                                                                                                                                                                                                                                                     
| 
| | In 1999, the Company improperly accounted for a purchase of
    cobalt raw material  bifurcating the total contract
    into two equal tranches, and assigning different costs to each
    tranche. As part of the audit committee investigation, the
    Company concluded the entire amount should have been costed at
    the same value. As a result of this issue, pre-tax income was
    understated in 2000 by $8.4 million and overstated in 1999
    by $9.1 million.                                                                                                                                                                                                                                                                                                
| 
| | The Company improperly valued inventory at its locations in St.
    George, Utah and Midland, Michigan. These locations were closed
    in 2002, and are reported as discontinued operations for all
    periods presented. As a result, pre-tax income from discontinued
    operations in 2000, 1999 and years prior to 1999 for these
    locations was overstated by $10.5 million,
    $1.7 million and $19.2 million, respectively.                                                                                                                                                                                                                                                                                                                                      

Adjustments Resulting from Procedures Subsequent to the Audit
Committee Investigation




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company determined the fair value of inventory acquired as
    of the April 4, 2000 acquisition date for Harjavalta was
    understated by $32.0 million. At December 31, 2000,
    $26.8 million should have remained in inventory due to the
    use of LIFO, and the remaining $5.2 million should have
    been charged to cost of products sold. As a result, pre-tax
    income as originally reported for 2000 was overstated by
    $5.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| | In 2000, the Company recorded an asset of $4.5 million for
    anticipated recovery of contributions by the Company to a
    settlement trust and related legal fees for product liability
    litigation. The asset was reduced by $2.0 million in 2001,
    resulting in a recorded asset of $2.5 million at
    December 31, 2001. Based on a review of the facts and
    circumstances, including a legal judgment against the
    Companys position in May 2000, the Company now believes
    that this asset should not have been recorded. Pre-tax income as
    originally reported for 2000 was overstated by $4.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
| | During construction of the Companys joint venture smelter
    in years prior to 2001, the Company advanced $27.6 million
    to its joint venture partners. The Company recorded a receivable
    for such amount, which was fully collected by December 31,
    2004. Although there was no agreement between the Company and
    the joint venture partners providing for interest on the
    advance, the Company recorded interest income on these advances
    in 2000, 1999 and years prior to 1999 of $6.0 million,
    $3.2 million and $0.7 million, respectively. Although
    a written agreement was ultimately finalized with one of the
    partners in 2003, resulting in interest income of
    $6.9 million in 2003 (see Note B to the consolidated
    financial statements included in Item 8 of this Annual
    Report), the Company has concluded that the original receivables
    represent contingent assets that should not have been recorded
    until a written agreement was finalized. Therefore, these assets
    have been reversed.

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company identified several errors in the remeasurement
    process of the results of operations of its two subsidiaries in
    Finland. These entities are both US-dollar functional currency
    entities. The impact on pre-tax income of these errors, which
    have been corrected in the restatement, are an overstatement of
    pre-tax income in 2000 of $7.4 million and in 1999 of
    $18.1 million. 
| 
| | In years prior to 1999, Corporate accounting reversed certain
    inventory reserves recorded at the operating units. Such
    reserves amounted to $6.5 million as of January 1,
    1999. We have concluded that the reserves at the operating units
    were appropriately recorded and should not have been reversed.
    As a result, pre-tax income for years prior to 1999 was
    overstated by $6.5 million.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview








Accounting issues




14



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Dispositions and restructuring






15



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##### Table of Contents









Overall operating results for 2003, 2002 and 2001




|                                             |  |      |       |   |  |          |      |    |  |   |        |      |  |  |       |    |  |   |       |   |  |  |      |  
|-------------------------------------------- |  | ---- | ----- | - |  | -------- | ---- | -- |  | - | ------ | ---- |  |  | ----- | -- |  | - | ----- | - |  |  | ---- | -
|                                             |  |      |       |   |  | Restated |      |    | 
|                                             |  |      |       |   |  |          |      |    | 
|                                             |  | 2003 |       |   |  |          | 2002 |    |  |   |        | 2001 |  |  |      
|(Millions of dollars & percent of net sales) |  |      |       |   |  |          |      |    |  |   |        |      |  |  |      
|Net sales                                    |  | $    | 912.1 |   |  |          |      |    |  | $ | 738.9  |      |  |  |       |    |  | $ | 681.6 |   |  |  |      |  
|Cost of products sold                        |  |      | 732.1 |   |  |          |      |    |  |   | 690.8  |      |  |  |       |    |  |   | 578.0 |   |  |  |      |  
|                                             |  |      |       |   |  |          |      |    |  |   |        |      |  |  |       |    |  |  
|Gross profit                                 |  |      | 180.0 |   |  |          | 19.7 | %  |  |   | 48.1   |      |  |  | 6.5   | %  |  |   | 103.6 |   |  |  | 15.2 | %
|Selling, general and administrative expenses |  |      | 197.0 |   |  |          | 21.6 | %  |  |   | 136.0  |      |  |  | 18.4  | %  |  |   | 81.3  |   |  |  | 11.9 | %
|                                             |  |      |       |   |  |          |      |    |  |   |        |      |  |  |       |    |  |  
|Income (loss) from operations                |  |      | (17.0 | ) |  |          | (1.9 | )% |  |   | (87.9  | )    |  |  | (11.9 | )% |  |   | 22.3  |   |  |  | 3.3  | %
|Other expense, net                           |  |      | (25.6 | ) |  |          |      |    |  |   | (44.6  | )    |  |  |       |    |  |   | (36.5 | ) |  |  |      |  
|Income tax expense (benefit)                 |  |      | 14.5  |   |  |          |      |    |  |   | (13.6  | )    |  |  |       |    |  |   | 0.1   |   |  |  |      |  
|Loss from continuing operations              |  |      | (56.3 | ) |  |          |      |    |  |   | (110.7 | )    |  |  |       |    |  |   | (13.1 | ) |  |  |      |  
|Income (loss) from discontinued operations   |  |      | 140.0 |   |  |          |      |    |  |   | (98.1  | )    |  |  |       |    |  |   | (22.1 | ) |  |  |      |  
|                                             |  |      |       |   |  |          |      |    |  |   |        |      |  |  |       |    |  |  
|Net income (loss)                            |  | $    | 83.7  |   |  |          |      |    |  | $ | (208.8 | )    |  |  |       |    |  | $ | (35.2 | ) |  |  |      |  
|                                             |  |      |       |   |  |          |      |    |  |   |        |      |  |  |       |    |  |  

2003 operating results compared to 2002






16



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17



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Cobalt segment













Nickel segment









18



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Corporate expenses




2002 operating results compared to 2001














19



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Cobalt segment













Nickel segment









20



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Corporate expenses




Liquidity and Capital Resources


Operating Activities




Investing and Financing Activities






21



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Shareholder Litigation Obligation




22



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##### Table of Contents





Contractual Obligations




|                               |       |       |           |           |           |   |           |           |  |   |           |         |  |            |         |         |  |   |         |         | 
|------------------------------ | ----- | ----- | --------- | --------- | --------- | - | --------- | --------- |  | - | --------- | ------- |  | ---------- | ------- | ------- |  | - | ------- | ------- | 
|                               |       | Total |           |           | 2004-2005 |   |           | 2006-2007 |  |   | 2008-2009 |         |  | After 2009 |        
|                               |       |       |           |           |           |   |           |           |  |   |           |         |  |            |        
|Purchase obligations(1)        |       | $     | 1,940,307 |           |           | $ | 1,178,052 |           |  | $ | 482,210   |         |  | $          | 280,045 |         |  |   | NCD     |        
|Long-term debt obligations(2)  |       |       | 422,900   |           |           |   |          |           |  |   |          |         |  |            | 22,900  |         |  | $ | 400,000 |        
|Interest payments on debt      |       |       | 300,477   |           |           |   | 75,791    |           |  |   | 75,791    |         |  |            | 74,895  |         |  |   | 74,000  |        
|Operating lease obligations    |       |       | 21,612    |           |           |   | 8,160     |           |  |   | 6,074     |         |  |            | 5,368   |         |  |   | 2,010   |        
|Other long-term liabilities(3) |       |       | 14,650    |           |           |   | 2,575     |           |  |   | 2,750     |         |  |            | 2,950   |         |  |   | 6,375   |        
|                               |       |       |           |           |           |   |           |           |  |   |           |         |  |            |        
|                               | Total |       | $         | 2,699,946 |           |   | $         | 1,264,578 |  |   | $         | 566,825 |  |            | $       | 386,158 |  |   | $       | 482,385 | 
|                               |       |       |           |           |           |   |           |           |  |   |           |         |  |            |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The amount for 2004 is the actual payments made for raw material
    and other contractual obligations purchased during the year. For
    2005 through 2009, the raw material contractual obligations
    reflect estimated future payments based on committed tons of
    material per the applicable contract multiplied by the
    reference/market price of each metal. The price used in the
    computation is the average daily price for the last week of
    December 2004 for each respective metal. Commitments made under
    these contracts represent future purchases in line with expected
    usage. The contractual cash obligations after 2009 are not
    currently determinable (NCD).
|   
|(2) | At March 31, 2004, the $400 million of 9.25% Senior
    Subordinated Notes due 2011 were in default under the indenture
    governing the notes due to the delay of the Company in filing
    its 2003 Form 10-K with the SEC (see Note H to the
    consolidated financial statements contained in Item 8 of
    this Annual Report).                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | Represents future pension and other post-employment benefit
    payments to comply with funding requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Critical Accounting Policies






23



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Accounting for Stock-Based
Compensation  Transition and Disclosure, Accounting for Stock-Based Compensation, Accounting for Stock Issued to
Employees, Accounting
for Stock-Based Compensation.


24



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Item 7A. Quantitative and Qualitative Disclosures About
Market Risk


Quantitative and Qualitative Disclosures About Market Risk








25



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|                                          |                       |                   |  |   |        |  |  |      |  |      |      |   |  |      |  |   |       |  |   |        |   |  |       |         |   |  |   |         |  |  |   |         | 
|----------------------------------------- | --------------------- | ----------------- |  | - | ------ |  |  | ---- |  | ---- | ---- | - |  | ---- |  | - | ----- |  | - | ------ | - |  | ----- | ------- | - |  | - | ------- |  |  | - | ------- | 
|                                          |                       | December 31, 2003 |  |   |        |  |  |      | 
|                                          |                       |                   |  |   | There- |  |  |      |  | Fair |     
|                                          |                       | 2004              |  |   | 2005   |  |  | 2006 |  |      | 2007 |   |  | 2008 |  |   | after |  |   | Total  |   |  | Value |        
|(Thousands of dollars)                    |                       |                   |  |   |        |  |  |      |  |      |      |   |  |      |  |   |       |  |   |        |   |  |       |        
|Long-term debt, including current portion |                       |                   |  |   |        |  |  |      |  |      |      |   |  |      |  |   |       |  |   |        |   |  |       |         |   |  |   |         |  |  |   |        
|                                          | Fixed rate(1)         |                   |  |  |        |  |  |     |  |      |      |  |  |      |  |  |       |  |   |       |   |  | $     | 400,000 |   |  | $ | 400,000 |  |  | $ | 416,000 | 
|                                          | Average interest rate |                   |  |   |        |  |  |      |  |      |      |   |  |      |  |   |       |  |   |        |   |  |       | 9.25    | % |  |   |         |  |  |   |         | 
|                                          | Variable rate         |                   |  |  |        |  |  |     |  |      |      |  |  |      |  |  |       |  | $ | 22,900 |   |  |       |        |   |  | $ | 22,900  |  |  | $ | 22,900  | 
|                                          | Average interest rate |                   |  |   |        |  |  |      |  |      |      |   |  |      |  |   |       |  |   | 3.91   | % |  |       |         |   |  |   |         |  |  |   |         | 

|                                          |                       |                   |   |        |      |  |   |       |      |  |      |       |   |      |   |         |   |  |       |   |  |       |   |         |   |  |   |         |  |  |   |         | 
|----------------------------------------- | --------------------- | ----------------- | - | ------ | ---- |  | - | ----- | ---- |  | ---- | ----- | - | ---- | - | ------- | - |  | ----- | - |  | ----- | - | ------- | - |  | - | ------- |  |  | - | ------- | 
|                                          |                       | December 31, 2002 |   |        |      |  |   |      
|                                          |                       |                   |   | There- |      |  |   |       | Fair | 
|                                          |                       | 2003              |   |        | 2004 |  |   | 2005  |      |  | 2006 |       |   | 2007 |   | after   |   |  | Total |   |  | Value |  
|(Thousands of dollars)                    |                       |                   |   |        |      |  |   |       |      |  |      |       |   |      |   |         |   |  |       |   |  |       |  
|Long-term debt, including current portion |                       |                   |   |        |      |  |   |       |      |  |      |       |   |      |   |         |   |  |       |   |  |       |   |         |   |  |   |         |  |  |   |        
|                                          | Fixed rate            |                   |   |       |      |  |   |      |      |  |      |      |   |      |   |        |   |  |       |  |  |       | $ | 400,000 |   |  | $ | 400,000 |  |  | $ | 225,000 | 
|                                          | Average interest rate |                   |   |        |      |  |   |       |      |  |      |       |   |      |   |         |   |  |       |   |  |       |   | 9.25    | % |  |   |         |  |  |   |         | 
|                                          | Variable rate         |                   | $ | 6,750  |      |  | $ | 7,000 |      |  | $    | 7,000 |   |      | $ | 773,650 |   |  | $     |  |  |       | $ |        |   |  | $ | 794,400 |  |  | $ | 794,400 | 
|                                          | Average interest rate |                   |   | 6.8    | %    |  |   | 6.8   | %    |  |      | 6.8   | % |      |   | 6.7     | % |  |       |   |  |       |   |         |   |  |   |         |  |  |   |         | 






|    |                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | At March 31, 2004, the $400 million of 9.25% Senior
    Subordinated Notes due 2011 were in default under the indenture
    governing the notes due to the delay of the Company in filing
    its 2003 Form 10-K with the SEC (see Note H to the
    consolidated financial statements contained in Item 8 of
    this Annual Report).





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Item 8. Financial Statements and Supplementary
Data





Report of Independent Registered Public Accounting Firm
















Accounting for Stock-Based Compensation Goodwill and
Other Intangible Assets, Accounting for the Impairment or Disposal of Long-Lived
Assets,




| |                            
| | ---------------------------
| | -s- ERNST & YOUNG SIGNATURE





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Consolidated Balance Sheets


|                                           |                                                                              |                                                                                                  |           |          |      |   |           |           |     | 
|------------------------------------------ | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------- | -------- | ---- | - | --------- | --------- | --- | 
|                                           |                                                                              | December 31                                                                                      |          
|                                           |                                                                              |                                                                                                  |          
|                                           |                                                                              |                                                                                                  |           | Restated |     
|                                           |                                                                              |                                                                                                  |           |          |     
|                                           |                                                                              | 2003                                                                                             |           |          | 2002 |  
|(Thousands of dollars, except share data)  |                                                                              |                                                                                                  |           |          |      |  
|Assets                                     |                                                                              |                                                                                                  |           |          |      |   |           |          
|Current assets:                            |                                                                              |                                                                                                  |           |          |      |   |           |          
|                                           | Cash and cash equivalents                                                    |                                                                                                  | $         | 54,719   |      |   | $         | 12,470    |    
|                                           | Accounts receivable, less allowance of $2,022 in 2003 and $2,415
    in 2002 |                                                                                                  |           | 136,700  |      |   |           | 100,226   |    
|                                           | Inventories                                                                  |                                                                                                  |           | 269,201  |      |   |           | 211,987   |    
|                                           | Advances to suppliers                                                        |                                                                                                  |           | 19,400   |      |   |           | 7,128     |    
|                                           | Other                                                                        |                                                                                                  |           | 45,669   |      |   |           | 44,420    |    
|                                           |                                                                              |                                                                                                  |           |          |      |  
|Total current assets                       |                                                                              |                                                                                                  | 525,689   |          |      |   | 376,231   |          
|Property, plant and equipment, at cost     |                                                                              |                                                                                                  |           |          |      |   |           |          
|                                           | Land                                                                         |                                                                                                  |           | 5,511    |      |   |           | 5,410     |    
|                                           | Buildings and improvements                                                   |                                                                                                  |           | 157,738  |      |   |           | 156,095   |    
|                                           | Machinery and equipment                                                      |                                                                                                  |           | 470,435  |      |   |           | 466,508   |    
|                                           | Furniture and fixtures                                                       |                                                                                                  |           | 16,287   |      |   |           | 18,189    |    
|                                           |                                                                              |                                                                                                  |           |          |      |  
|                                           |                                                                              |                                                                                                  | 649,971   |          |      |   | 646,202   |          
|                                           | Less accumulated depreciation                                                |                                                                                                  |           | 238,611  |      |   |           | 203,200   |    
|                                           |                                                                              |                                                                                                  |           |          |      |  
|                                           |                                                                              |                                                                                                  | 411,360   |          |      |   | 443,002   |          
|Other assets:                              |                                                                              |                                                                                                  |           |          |      |   |           |          
|                                           | Goodwill                                                                     |                                                                                                  |           | 178,678  |      |   |           | 174,899   |    
|                                           | Receivables from joint venture partners                                      |                                                                                                  |           | 51,187   |      |   |           | 32,070    |    
|                                           | Other                                                                        |                                                                                                  |           | 44,524   |      |   |           | 54,644    |    
|                                           | Assets of discontinued operations                                            |                                                                                                  |           |         |      |   |           | 1,024,461 |    
|                                           |                                                                              |                                                                                                  |           |          |      |  
|Total assets                               |                                                                              | $                                                                                                | 1,211,438 |          |      | $ | 2,105,307 |          
|                                           |                                                                              |                                                                                                  |           |          |      |  
|Liabilities and stockholders equity       |                                                                              |                                                                                                  |           |          |      |   |           |          
|Current liabilities:                       |                                                                              |                                                                                                  |           |          |      |   |           |          
|                                           | Current portion of long-term debt                                            |                                                                                                  | $         |         |      |   | $         | 6,750     |    
|                                           | Accounts payable                                                             |                                                                                                  |           | 136,190  |      |   |           | 99,955    |    
|                                           | Accrued employee costs                                                       |                                                                                                  |           | 15,623   |      |   |           | 7,724     |    
|                                           | Accrued restructuring costs                                                  |                                                                                                  |           | 4,545    |      |   |           | 7,813     |    
|                                           | Retained liabilities of businesses sold                                      |                                                                                                  |           | 41,654   |      |   |           |          |    
|                                           | Accrued interest                                                             |                                                                                                  |           | 1,896    |      |   |           | 10,346    |    
|                                           | Other                                                                        |                                                                                                  |           | 45,218   |      |   |           | 39,727    |    
|                                           |                                                                              |                                                                                                  |           |          |      |  
|Total current liabilities                  |                                                                              |                                                                                                  | 245,126   |          |      |   | 172,315   |          
|                                           | Long-term debt                                                               |                                                                                                  |           | 430,466  |      |   |           | 1,195,637 |    
|                                           | Deferred income taxes                                                        |                                                                                                  |           | 29,042   |      |   |           | 15,021    |    
|                                           | Shareholder litigation accrual                                               |                                                                                                  |           | 84,500   |      |   |           |          |    
|                                           | Minority interests                                                           |                                                                                                  |           | 42,726   |      |   |           | 43,940    |    
|                                           | Other                                                                        |                                                                                                  |           | 29,126   |      |   |           | 26,028    |    
|                                           | Liabilities of discontinued operations                                       |                                                                                                  |           |         |      |   |           | 371,526   |    
|Stockholders equity:                      |                                                                              |                                                                                                  |           |          |      |   |           |          
|                                           | Preferred stock, $.01 per value:                                             |                                                                                                  |           |          |      |   |           |           |    
|                                           |                                                                              | Authorized 2,000,000 shares, no shares issued or outstanding                                     |           |          |      |   |           |           |     | 
|                                           | Common stock, $.01 par value:                                                |                                                                                                  |           |          |      |   |           |           |    
|                                           |                                                                              | Authorized 60,000,000 shares; issued 28,494,098 shares
    in 2003 and 28,466,025 shares in 2002 |           |          | 285  |   |           |           | 284 | 
|                                           | Capital in excess of par value                                               |                                                                                                  |           | 495,107  |      |   |           | 494,546   |    
|                                           | Retained deficit                                                             |                                                                                                  |           | (160,724 | )    |   |           | (244,388  | )  
|                                           | Treasury stock (14,025 shares in 2003 and 2002, at cost)                     |                                                                                                  |           | (710     | )    |   |           | (710      | )  
|                                           | Accumulated other comprehensive income                                       |                                                                                                  |           | 17,086   |      |   |           | 34,058    |    
|                                           | Unearned compensation                                                        |                                                                                                  |           | (592     | )    |   |           | (2,950    | )  
|                                           |                                                                              |                                                                                                  |           |          |      |  
|Total stockholders equity                 |                                                                              |                                                                                                  | 350,452   |          |      |   | 280,840   |          
|                                           |                                                                              |                                                                                                  |           |          |      |  
|Total liabilities and stockholders equity |                                                                              | $                                                                                                | 1,211,438 |          |      | $ | 2,105,307 |          
|                                           |                                                                              |                                                                                                  |           |          |      |  

See accompanying notes to consolidated financial
statements.


28



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Statements of Consolidated Operations


|                                                                                     |                         |                        |         |          |      |   |          |       |   |   |         |       |  
|------------------------------------------------------------------------------------ | ----------------------- | ---------------------- | ------- | -------- | ---- | - | -------- | ----- | - | - | ------- | ----- | -
|                                                                                     |                         | Year Ended December 31 |        
|                                                                                     |                         |                        |        
|                                                                                     |                         |                        |         | Restated |     
|                                                                                     |                         |                        |         |          |     
|                                                                                     |                         | 2003                   |         |          | 2002 |   |          | 2001  |  
|(Thousands of dollars, except per share data)                                        |                         |                        |         |          |      |   |          |       |  
|Net sales                                                                            |                         | $                      | 912,145 |          |      | $ | 738,928  |       |   | $ | 681,557 |      
|Cost of products sold                                                                |                         |                        | 732,148 |          |      |   | 690,854  |       |   |   | 577,988 |      
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|                                                                                     |                         |                        | 179,997 |          |      |   | 48,074   |       |   |   | 103,569 |      
|Selling, general and administrative expenses                                         |                         |                        | 197,023 |          |      |   | 136,022  |       |   |   | 81,279  |      
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Income (loss) from operations                                                        |                         |                        | (17,026 | )        |      |   | (87,948  | )     |   |   | 22,290  |      
|Other income (expense):                                                              |                         |                        |         |          |      |   |          |       |   |   |         |      
|Interest expense                                                                     |                         |                        | (41,052 | )        |      |   | (39,690  | )     |   |   | (35,135 | )    
|Foreign exchange gain (loss)                                                         |                         |                        | 3,023   |          |      |   | (6,517   | )     |   |   | (1,425  | )    
|Investment and other income, net                                                     |                         |                        | 12,392  |          |      |   | 1,616    |       |   |   | 49      |      
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Other income (expense)                                                               |                         |                        | (25,637 | )        |      |   | (44,591  | )     |   |   | (36,511 | )    
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Loss from continuing operations before income taxes and minority
    interest losses |                         |                        | (42,663 | )        |      |   | (132,539 | )     |   |   | (14,221 | )    
|Income tax expense (benefit)                                                         |                         |                        | 14,534  |          |      |   | (13,591  | )     |   |   | 129     |      
|Minority interest losses                                                             |                         |                        | (914    | )        |      |   | (8,215   | )     |   |   | (1,245  | )    
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Loss from continuing operations                                                      |                         |                        | (56,283 | )        |      |   | (110,733 | )     |   |   | (13,105 | )    
|Discontinued operations:                                                             |                         |                        |         |          |      |   |          |       |   |   |         |      
|Income (loss) from operations, net of tax                                            |                         |                        | 8,199   |          |      |   | (98,023  | )     |   |   | (22,059 | )    
|Gain on disposal of Precious Metals Group, net of tax                                |                         |                        | 131,748 |          |      |   |         |       |   |   |        |      
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Income (loss) from discontinued operations, net of tax                               |                         |                        | 139,947 |          |      |   | (98,023  | )     |   |   | (22,059 | )    
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Net income (loss)                                                                    |                         | $                      | 83,664  |          |      | $ | (208,756 | )     |   | $ | (35,164 | )    
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Basic earnings (loss) per common share:                                              |                         |                        |         |          |      |   |          |       |   |   |         |      
|                                                                                     | Continuing operations   |                        | $       | (1.99    | )    |   |          | (3.95 | ) |   |         | (0.55 | )
|                                                                                     | Discontinued operations |                        |         | 4.94     |      |   |          | (3.50 | ) |   |         | (0.91 | )
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|                                                                                     | Net income (loss)       |                        | $       | 2.95     |      |   | $        | (7.45 | ) |   | $       | (1.46 | )
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Diluted earnings (loss) per common share:                                            |                         |                        |         |          |      |   |          |       |   |   |         |      
|                                                                                     | Continuing operations   |                        | $       | (1.99    | )    |   |          | (3.95 | ) |   |         | (0.55 | )
|                                                                                     | Discontinued operations |                        |         | 4.94     |      |   |          | (3.50 | ) |   |         | (0.91 | )
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|                                                                                     | Net income (loss)       |                        | $       | 2.95     |      |   | $        | (7.45 | ) |   | $       | (1.46 | )
|                                                                                     |                         |                        |         |          |      |   |          |       |  
|Cash dividends paid per common share                                                 |                         | $                      |        |          |      | $ | 0.42     |       |   | $ | 0.52    |      
|                                                                                     |                         |                        |         |          |      |   |          |       |  

See accompanying notes to consolidated financial
statements.


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Statements of Consolidated Cash Flows


|                                                                                    |                                              |                        |          |          |      |   |          |         |   |   |            |         |  
|----------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------- | -------- | -------- | ---- | - | -------- | ------- | - | - | ---------- | ------- | -
|                                                                                    |                                              | Year Ended December 31 |         
|                                                                                    |                                              |                        |         
|                                                                                    |                                              |                        |          | Restated |     
|                                                                                    |                                              |                        |          |          |     
|                                                                                    |                                              | 2003                   |          |          | 2002 |   |          | 2001    |  
|(Thousands of dollars)                                                              |                                              |                        |          |          |      |   |          |         |  
|Operating activities                                                                |                                              |                        |          |          |      |   |          |         |   |   |            |        
|Loss from continuing operations                                                     |                                              | $                      | (56,283  | )        |      | $ | (110,733 | )       |   | $ | (13,105    | )      
|Adjustments to reconcile net loss to net cash provided by
    operating activities: |                                              |                        |          |          |      |   |          |         |   |   |            |        
|                                                                                    | Depreciation and amortization                |                        |          | 56,442   |      |   |          | 50,131  |   |   |            | 43,750  |  
|                                                                                    | Foreign exchange (gain) loss                 |                        |          | (3,023   | )    |   |          | 6,517   |   |   |            | 1,425   |  
|                                                                                    | Restructuring charges, less cash spent       |                        |          | 7,678    |      |   |          | 78,695  |   |   |            |        |  
|                                                                                    | Deferred income taxes                        |                        |          | 25,923   |      |   |          | (20,553 | ) |   |            | (1,532  | )
|                                                                                    | Minority interest losses                     |                        |          | (914     | )    |   |          | (8,215  | ) |   |            | (1,245  | )
|Changes in operating assets and liabilities:                                        |                                              |                        |          |          |      |   |          |         |   |   |            |        
|                                                                                    | (Increase) decrease in accounts receivable   |                        |          | (37,681  | )    |   |          | (12,658 | ) |   |            | 38,081  |  
|                                                                                    | Increase in inventories                      |                        |          | (58,128  | )    |   |          | (15,412 | ) |   |            | (4,822  | )
|                                                                                    | (Increase) decrease in advances to suppliers |                        |          | (12,272  | )    |   |          | 288     |   |   |            | (365    | )
|                                                                                    | Increase (decrease) in accounts payable      |                        |          | 36,235   |      |   |          | 13,029  |   |   |            | (8,054  | )
|                                                                                    | Increase in shareholder litigation accrual   |                        |          | 84,500   |      |   |          |        |   |   |            |        |  
|                                                                                    | Other, net                                   |                        |          | (14,212  | )    |   |          | 18,310  |   |   |            | (48,044 | )
|                                                                                    |                                              |                        |          |          |      |   |          |         |  
|Net cash provided by (used in) operating activities                                 |                                              |                        | 28,265   |          |      |   | (601     | )       |   |   | 6,089      |        
|Investing activities                                                                |                                              |                        |          |          |      |   |          |         |   |   |            |        
|Expenditures for property, plant and equipment, net                                 |                                              |                        | (10,910  | )        |      |   | (61,510  | )       |   |   | (76,770    | )      
|Acquisitions of businesses  net of cash acquired                                   |                                              |                        | (11,151  | )        |      |   | (13,275  | )       |   |   | (1,124,944 | )      
|Proceeds from sales of businesses                                                   |                                              |                        | 871,281  |          |      |   | 4,000    |         |   |   | 525,473    |        
|Investment in Australian nickel company                                             |                                              |                        |         |          |      |   | (3,566   | )       |   |   |           |        
|                                                                                    |                                              |                        |          |          |      |   |          |         |  
|Net cash provided by (used in) investing activities                                 |                                              |                        | 849,220  |          |      |   | (74,351  | )       |   |   | (676,241   | )      
|Financing activities                                                                |                                              |                        |          |          |      |   |          |         |   |   |            |        
|Long-term borrowings                                                                |                                              |                        | 22,919   |          |      |   | 99,910   |         |   |   | 1,648,751  |        
|Payments of long-term debt                                                          |                                              |                        | (794,400 | )        |      |   | (226,205 | )       |   |   | (900,000   | )      
|Proceeds from exercise of stock options                                             |                                              |                        | 406      |          |      |   | 3,808    |         |   |   | 6,433      |        
|Proceeds from sale of common shares                                                 |                                              |                        |         |          |      |   | 226,205  |         |   |   |           |        
|Dividend payments                                                                   |                                              |                        |         |          |      |   | (11,899  | )       |   |   | (12,494    | )      
|Purchase of treasury stock                                                          |                                              |                        |         |          |      |   |         |         |   |   | (5,331     | )      
|                                                                                    |                                              |                        |          |          |      |   |          |         |  
|Net cash (used in) provided by financing activities                                 |                                              |                        | (771,075 | )        |      |   | 91,819   |         |   |   | 737,359    |        
|Effect of exchange rate changes on cash and cash equivalents                        |                                              |                        | 6,238    |          |      |   | 1,092    |         |   |   | (647       | )      
|                                                                                    |                                              |                        |          |          |      |   |          |         |  
|Cash provided by (used in) continuing operations                                    |                                              |                        | 112,648  |          |      |   | 17,959   |         |   |   | 66,560     |        
|Cash used in discontinued operations                                                |                                              |                        | (70,399  | )        |      |   | (25,046  | )       |   |   | (59,722    | )      
|                                                                                    |                                              |                        |          |          |      |   |          |         |  
|Increase (decrease) in cash and cash equivalents                                    |                                              |                        | 42,249   |          |      |   | (7,087   | )       |   |   | 6,838      |        
|Cash and cash equivalents at beginning of year                                      |                                              |                        | 12,470   |          |      |   | 19,557   |         |   |   | 12,719     |        
|                                                                                    |                                              |                        |          |          |      |   |          |         |  
|Cash and cash equivalents at end of year                                            |                                              | $                      | 54,719   |          |      | $ | 12,470   |         |   | $ | 19,557     |        
|                                                                                    |                                              |                        |          |          |      |   |          |         |  

See accompanying notes to consolidated financial
statements


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Statements of Consolidated Stockholders Equity


|                                                   |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |        |   |   |        |   |  |   |          |         |  
|-------------------------------------------------- | ----------------------------------------------------------------------------- | ------------ | ------ | ------- | --------- | - | --- | -------- |  | - | ----------- | - | ----- | ------------- | -------- | ------- | ------------- | - | ------ | ------------ |  | - | ------- | ------ | - | - | ------ | - |  | - | -------- | ------- | -
|                                                   |                                                                               |              |        | Capital |           |   |     |          |  |   | Accumulated |   |       |               |          |        
|                                                   |                                                                               | Common Stock |        |         | in Excess |   |     | Retained |  |   |             |   | Other |               |          |         |               |  
|                                                   |                                                                               |              |        |         | of Par    |   |     | Earnings |  |   | Treasury    |   |       | Comprehensive |          |         | Unearned      |   |        |             
|                                                   |                                                                               | Shares       |        |         | Dollars   |   |     | Value    |  |   | (Deficit)   |   |       | Stock         |          |         | Income (Loss) |   |        | Compensation |  |   | Total   |       
|(Dollars in thousands)                             |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |       
|Balance at January 1, 2001, as originally reported |                                                                               |              | 23,974 |         |           | $ | 240 |          |  | $ | 258,913     |   |       | $             | 256,183  |         |               | $ | (4,853 | )            |  | $ | (3,967  | )      |   | $ | (386   | ) |  | $ | 506,130  |        
|Restatement adjustments                            |                                                                               |              |       |         |           |   |    |          |  |   | (400        | ) |       |               | (176,888 | )       |               |   |       |              |  |   | 477     |        |   |   |       |   |  |   | (176,811 | )      
|                                                   |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |       
|Balance at January 1, 2001                         |                                                                               |              | 23,974 |         |           |   | 240 |          |  |   | 258,513     |   |       |               | 79,295   |         |               |   | (4,853 | )            |  |   | (3,490  | )      |   |   | (386   | ) |  |   | 329,319  |        
|Change in accounting method from LIFO to FIFO      |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               | (51,736  | )       |               |   |       |              |  |   |        |        |   |   |       |   |  |   | (51,736  | )      
|                                                   |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |       
|Balance at January 1, 2001, as restated            |                                                                               |              | 23,974 |         |           |   | 240 |          |  |   | 258,513     |   |       |               | 27,559   |         |               |   | (4,853 | )            |  |   | (3,490  | )      |   |   | (386   | ) |  |   | 277,583  |        
|Other comprehensive loss:                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |        |   |   |        |   |  |   |          |        
|                                                   | Net loss                                                                      |              |        |        |           |   |     |         |  |   |             |  |       |               |          | (35,164 | )             |   |        |             |  |   |         |       |   |   |        |  |  |   |          | (35,164 | )
|                                                   | Unrealized losses on marketable securities                                    |              |        |        |           |   |     |         |  |   |             |  |       |               |          |        |               |   |        |             |  |   |         | 1,243  |   |   |        |  |  |   |          | 1,243   |  
|                                                   | Unrealized gains and losses, net on effective portion of cash
    flow hedges |              |        |        |           |   |     |         |  |   |             |  |       |               |          |        |               |   |        |             |  |   |         | (1,019 | ) |   |        |  |  |   |          | (1,019  | )
|                                                   | Minimum pension liability adjustment                                          |              |        |        |           |   |     |         |  |   |             |  |       |               |          |        |               |   |        |             |  |   |         | (5,331 | ) |   |        |  |  |   |          | (5,331  | )
|                                                   | Foreign currency translation adjustment                                       |              |        |        |           |   |     |         |  |   |             |  |       |               |          |        |               |   |        |             |  |   |         | (5,775 | ) |   |        |  |  |   |          | (5,775  | )
|                                                   |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |       
|Total other comprehensive loss                     |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |         |               |   |       |              |  |   |        |        |   |   |       |   |  |   | (46,046  | )      
|Dividends paid                                     |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               | (12,494  | )       |               |   |       |              |  |   |        |        |   |   |       |   |  |   | (12,494  | )      
|Exercise of employee stock options                 |                                                                               |              | 184    |         |           |   | 2   |          |  |   |            |   |       |               | (3,634   | )       |               |   | 10,065 |              |  |   |        |        |   |   |       |   |  |   | 6,433    |        
|Restricted stock grants                            |                                                                               |              | 65     |         |           |   |    |          |  |   | 3,848       |   |       |               |         |         |               |   |       |              |  |   |        |        |   |   | (3,848 | ) |  |   |         |        
|Restricted stock compensation                      |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |         |               |   |       |              |  |   |        |        |   |   | 297    |   |  |   | 297      |        
|Treasury stock purchased                           |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |         |               |   | (5,331 | )            |  |   |        |        |   |   |       |   |  |   | (5,331   | )      
|Non-employee directors compensation               |                                                                               |              |       |         |           |   |    |          |  |   | 153         |   |       |               |         |         |               |   |       |              |  |   |        |        |   |   |       |   |  |   | 153      |        
|                                                   |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |         |               |   |        |              |  |   |         |       
|Balance at December 31, 2001, as restated          |                                                                               |              | 24,223 |         |           |   | 242 |          |  |   | 262,514     |   |       |               | (23,733  | )       |               |   | (119   | )            |  |   | (14,372 | )      |   |   | (3,937 | ) |  |   | 220,595  |        

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Statements of Consolidated Stockholders
Equity 


|                                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |         |   |   |        |   |  |   |          |          |  
|----------------------------------------- | ----------------------------------------------------------------------------- | ------------ | ------ | ------- | --------- | - | --- | -------- |  | - | ----------- | - | ----- | ------------- | -------- | -------- | ------------- | - | ---- | ------------ |  | - | ------ | ------- | - | - | ------ | - |  | - | -------- | -------- | -
|                                          |                                                                               |              |        | Capital |           |   |     |          |  |   | Accumulated |   |       |               |          |         
|                                          |                                                                               | Common Stock |        |         | in Excess |   |     | Retained |  |   |             |   | Other |               |          |          |               |  
|                                          |                                                                               |              |        |         | of Par    |   |     | Earnings |  |   | Treasury    |   |       | Comprehensive |          |          | Unearned      |   |      |             
|                                          |                                                                               | Shares       |        |         | Dollars   |   |     | Value    |  |   | (Deficit)   |   |       | Stock         |          |          | Income (Loss) |   |      | Compensation |  |   | Total  |        
|(Dollars in thousands)                    |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |        
|Other comprehensive loss:                 |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |         |   |   |        |   |  |   |          |         
|                                          | Net loss                                                                      |              |        |        |           |   |     |         |  |   |             |  |       |               |          | (208,756 | )             |   |      |             |  |   |        |        |   |   |        |  |  |   |          | (208,756 | )
|                                          | Unrealized losses on marketable securities                                    |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | (1,243  | ) |   |        |  |  |   |          | (1,243   | )
|                                          | Unrealized gains and losses, net on effective portion of cash
    flow hedges |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | 1,860   |   |   |        |  |  |   |          | 1,860    |  
|                                          | Minimum pension liability adjustment                                          |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | (5,783  | ) |   |        |  |  |   |          | (5,783   | )
|                                          | Foreign currency translation adjustment                                       |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | 53,596  |   |   |        |  |  |   |          | 53,596   |  
|                                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |        
|Total other comprehensive loss            |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | (160,326 | )       
|Dividends paid                            |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               | (11,899  | )        |               |   |     |              |  |   |       |         |   |   |       |   |  |   | (11,899  | )       
|Exercise of employee stock options        |                                                                               |              | 183    |         |           |   | 2   |          |  |   | 3,806       |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | 3,808    |         
|Restricted stock grants                   |                                                                               |              | 31     |         |           |   |    |          |  |   | 1,883       |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   | (1,883 | ) |  |   |         |         
|Restricted stock forfeitures              |                                                                               |              | (10    | )       |           |   |    |          |  |   |            |   |       |               |         |          |               |   | (591 | )            |  |   |       |         |   |   | 591    |   |  |   |         |         
|Restricted stock compensation             |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   | 2,279  |   |  |   | 2,279    |         
|Non-employee directors compensation      |                                                                               |              |       |         |           |   |    |          |  |   | 178         |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | 178      |         
|Sale of common stock                      |                                                                               |              | 4,025  |         |           |   | 40  |          |  |   | 226,165     |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | 226,205  |         
|                                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |        
|Balance at December 31, 2002, as restated |                                                                               |              | 28,452 |         |           |   | 284 |          |  |   | 494,546     |   |       |               | (244,388 | )        |               |   | (710 | )            |  |   | 34,058 |         |   |   | (2,950 | ) |  |   | 280,840  |         
|Other comprehensive income:               |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |         |   |   |        |   |  |   |          |         
|                                          | Net income                                                                    |              |        |        |           |   |     |         |  |   |             |  |       |               |          | 83,664   |               |   |      |             |  |   |        |        |   |   |        |  |  |   |          | 83,664   |  
|                                          | Unrealized gains and losses, net on effective portion of cash
    flow hedges |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | 5,848   |   |   |        |  |  |   |          | 5,848    |  
|                                          | Minimum pension liability adjustment                                          |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | 4,108   |   |   |        |  |  |   |          | 4,108    |  
|                                          | Foreign currency translation adjustment                                       |              |        |        |           |   |     |         |  |   |             |  |       |               |          |         |               |   |      |             |  |   |        | (26,928 | ) |   |        |  |  |   |          | (26,928  | )
|                                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |        
|Total other comprehensive income          |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | 66,692   |         
|Exercise of employee stock options        |                                                                               |              | 28     |         |           |   | 1   |          |  |   | 536         |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | 537      |         
|Restricted stock compensation             |                                                                               |              |       |         |           |   |    |          |  |   |            |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   | 2,358  |   |  |   | 2,358    |         
|Non-employee directors compensation      |                                                                               |              |       |         |           |   |    |          |  |   | 25          |   |       |               |         |          |               |   |     |              |  |   |       |         |   |   |       |   |  |   | 25       |         
|                                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |        
|Balance at December 31, 2003              |                                                                               |              | 28,480 |         |           | $ | 285 |          |  | $ | 495,107     |   |       | $             | (160,724 | )        |               | $ | (710 | )            |  | $ | 17,086 |         |   | $ | (592   | ) |  | $ | 350,452  |         
|                                          |                                                                               |              |        |         |           |   |     |          |  |   |             |   |       |               |          |          |               |   |      |              |  |   |        |        

See accompanying notes to consolidated financial
statements


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Notes to Consolidated Financial Statements


OM Group, Inc. and Subsidiaries


(Amounts related to 2002 and 2001 have been restated)


A. Significant Accounting Policies


Principles of Consolidation 




Consolidation of Variable Interest
Entities


Cash Equivalents 


Revenue Recognition 


Cost of Products Sold 


Concentrations of Credit Risk 


Allowance for Doubtful Accounts 


Inventories 


Receivables from Joint Venture Partners and Minority
Interests 




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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




Advances to Suppliers 


Depreciation and Amortization 


Accounting for the Impairment or Disposal of Long-Lived
Assets


Goodwill  Goodwill and Other
Intangible Assets


Retained Liabilities of Businesses Sold 


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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Research and Development 


Repairs and Maintenance 


Income Taxes 


Foreign Currency Translation 




Derivative Instruments 








Stock Options and Compensation Plans 


Accounting for
Stock-Based Compensation  Transition and Disclosure, Accounting for Stock-Based
Compensation, Accounting for
Stock Issued to Employees,


35



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued






|                                         |                                                                                                                    |                        |         |          |      |   |          |          |   |   |         |         |  
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---------------------- | ------- | -------- | ---- | - | -------- | -------- | - | - | ------- | ------- | -
|                                         |                                                                                                                    | Year Ended December 31 |        
|                                         |                                                                                                                    |                        |        
|                                         |                                                                                                                    |                        |         | Restated |     
|                                         |                                                                                                                    |                        |         |          |     
|                                         |                                                                                                                    | 2003                   |         |          | 2002 |   |          | 2001     |  
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  
|Net loss from continuing operations      |                                                                                                                    | $                      | (56,283 | )        |      | $ | (110,733 | )        |   | $ | (13,105 | )      
|                                         | Add: Stock-based employee compensation expense included in net
    loss from continuing operations, net of tax     |                        |         | 2,476    |      |   |          | 2,431    |   |   |         | 3,339   |  
|                                         | Deduct: Total stock-based employee compensation expense using
    the fair value method for all awards, net of tax |                        |         | (2,662   | )    |   |          | (5,464   | ) |   |         | (3,768  | )
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  
|                                         | Pro forma loss from continuing operations                                                                          |                        | $       | (56,469  | )    |   | $        | (113,766 | ) |   | $       | (13,534 | )
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  
|Basic loss from continuing operations:   |                                                                                                                    |                        |         |          |      |   |          |          |   |   |         |        
|                                         | As reported                                                                                                        |                        | $       | (1.99    | )    |   | $        | (3.95    | ) |   | $       | (0.55   | )
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  
|                                         | Pro forma                                                                                                          |                        | $       | (1.99    | )    |   | $        | (4.06    | ) |   | $       | (0.56   | )
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  
|Diluted loss from continuing operations: |                                                                                                                    |                        |         |          |      |   |          |          |   |   |         |        
|                                         | As reported                                                                                                        |                        | $       | (1.99    | )    |   | $        | (3.95    | ) |   | $       | (0.55   | )
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  
|                                         | Pro forma                                                                                                          |                        | $       | (1.99    | )    |   | $        | (4.06    | ) |   | $       | (0.56   | )
|                                         |                                                                                                                    |                        |         |          |      |   |          |          |  



|                                              |  |             |     |   |      |  |     |      |  |  |     |  
|--------------------------------------------- |  | ----------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                              |  | Year Ended  |    
|                                              |  | December 31 |    
|                                              |  |             |    
|                                              |  | 2003        |     |   | 2002 |  |     | 2001 | 
|                                              |  |             |     |   |      |  |     |      | 
|Risk-free interest rate                       |  |             | 3.2 | % |      |  | 2.7 | %    |  |  | 4.3 | %
|Dividend yield                                |  |             |    |   |      |  |    |      |  |  | 1.2 | %
|Volatility factor of Company common stock     |  |             | .42 |   |      |  | .67 |      |  |  | .24 |  
|Weighted-average expected option life (years) |  |             | 5   |   |      |  | 5   |      |  |  | 5   |  



36



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued








Use of Estimates 


B. Restatement




|                                                                                           |  |   |        |  
|------------------------------------------------------------------------------------------ |  | - | ------ | -
|Increase in net income for the nine months ended
    September 30, 2003                    |  | $ | 111.3  |  
|Increase in 2002 net income                                                                |  |   | 125.1  |  
|Decrease in 2001 net income                                                                |  |   | (123.5 | )
|Decrease in net income for years prior to 2001                                             |  |   | (176.9 | )
|                                                                                           |  |   |       
|Cumulative net decrease in previously reported retained earnings
    at September 30, 2003 |  | $ | (64.0  | )
|                                                                                           |  |   |       



37



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Overall Impact on Previously Filed Consolidated Financial
Statements




|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |       |        |   |        |       |        |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------- | ------ | ------ | ----- | - | ------ | -------- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | -
|                                               |                                                                                           | Year Ended              |        |        |       |   |       
|                                               |                                                                                           | December 31             |        |        |       |   |       
|                                               |                                                                                           |                         |        |        |       |   |       
|                                               |                                                                                           | 2002                    |        |        | 2001  |   |        | Pre-2001 |        |   | Total  |      
|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |      
|Net income (loss) as originally reported       |                                                                                           | $                       | (327.9 | )      |       | $ | 75.6   |          |        |   |        |       |        |   |        |      
|Pre-tax adjustments  continuing operations    |                                                                                           |                         |        |        |       |   |        |          |        |   |        |       |        |   |        |      
|                                               | Adjustments Resulting From the Audit Committee Investigation                              |                         |        | 56.3   |       |   |        | (21.5    | )      |   | $      | (85.0 | )      |   | $      | (50.2 | )     
|                                               | Adjustments Resulting From Procedures Subsequent to the Audit
    Committee Investigation |                         |        | 16.5   |       |   |        | (5.6     | )      |   |        | (62.8 | )      |   |        | (51.9 | )     
|                                               | Lower of Cost or Market Adjustments                                                       |                         |        | 66.6   |       |   |        | (99.0    | )      |   |        | (34.0 | )      |   |        | (66.4 | )     
|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |      
|                                               |                                                                                           | Subtotal of adjustments |        |        | 139.4 |   |        |          | (126.1 | ) |        |       | (181.8 | ) |        |       | (168.5 | )
|Tax effect/adjustments                         |                                                                                           |                         | (16.0  | )      |       |   | 33.7   |          |        |   | 36.5   |       |        |   | 54.2   |      
|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |      
|Adjustments related to continuing operations   |                                                                                           |                         | 123.4  |        |       |   | (92.4  | )        |        |   | (145.3 | )     |        |   | (114.3 | )    
|Adjustments related to discontinued operations |                                                                                           |                         | 1.7    |        |       |   | (31.1  | )        |        |   | (31.6  | )     |        |   | (61.0  | )    
|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |      
|Total adjustments, net of tax                  |                                                                                           |                         | 125.1  |        |       |   | (123.5 | )        |        | $ | (176.9 | )     |        | $ | (175.3 | )    
|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |      
|Net loss, as restated                          |                                                                                           | $                       | (202.8 | )      |       | $ | (47.8  | )        |        |   |        |       |        |   |        |      
|                                               |                                                                                           |                         |        |        |       |   |        |          |        |   |        |      
|Net income (loss) per common share  basic:    |                                                                                           |                         |        |        |       |   |        |          |        |   |        |       |        |   |        |      
|                                               | As originally reported                                                                    |                         | $      | (11.69 | )     |   | $      | 3.15     |        |   |        |       |        |   |        |       |       
|                                               | As restated                                                                               |                         | $      | (7.24  | )     |   | $      | (1.99    | )      |   |        |       |        |   |        |       |       
|Net income (loss) per common share  diluted:  |                                                                                           |                         |        |        |       |   |        |          |        |   |        |       |        |   |        |      
|                                               | As originally reported                                                                    |                         | $      | (11.69 | )     |   | $      | 3.09     |        |   |        |       |        |   |        |       |       
|                                               | As restated                                                                               |                         | $      | (7.24  | )     |   | $      | (1.99    | )      |   |        |       |        |   |        |       |       





38



---



##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued






Adjustments Resulting From the Audit Committee
Investigation




|                                                  |  |                                    |       |   |      |   |       |          |  |   |       |   |  |   |       |  
|------------------------------------------------- |  | ---------------------------------- | ----- | - | ---- | - | ----- | -------- |  | - | ----- | - |  | - | ----- | -
|                                                  |  | Increase (decrease) pre-tax income |      
|                                                  |  |                                    |      
|                                                  |  | 2002                               |       |   | 2001 |   |       | Pre-2001 |  |   | Total |  
|                                                  |  |                                    |       |   |      |   |       |          |  |   |       |  
|Inventories/cost of products sold                 |  | $                                  | 25.5  |   |      | $ | (11.7 | )        |  | $ | (37.6 | ) |  | $ | (23.8 | )
|Harjavalta purchase accounting/operating expenses |  |                                    | (10.8 | ) |      |   | (5.4  | )        |  |   | (3.0  | ) |  |   | (19.2 | )
|Supplier receivables/cost of products sold        |  |                                    | 14.2  |   |      |   | 2.7   |          |  |   | (24.7 | ) |  |   | (7.8  | )
|Miscellaneous operating expenses                  |  |                                    | (3.0  | ) |      |   | (9.1  | )        |  |   | (18.8 | ) |  |   | (30.9 | )
|Goodwill impairment charge reversal               |  |                                    | 30.2  |   |      |   |      |          |  |   |      |   |  |   | 30.2  |  
|Other                                             |  |                                    | 0.2   |   |      |   | 2.0   |          |  |   | (0.9  | ) |  |   | 1.3   |  
|                                                  |  |                                    |       |   |      |   |       |          |  |   |       |  
|                                                  |  | $                                  | 56.3  |   |      | $ | (21.5 | )        |  | $ | (85.0 | ) |  | $ | (50.2 | )
|                                                  |  |                                    |       |   |      |   |       |          |  |   |       |  

Inventories/cost of products sold






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with the financial statement close process,
    Corporate accounting capitalized additional overhead costs
    related to certain of its operating units. The Company has since
    concluded that these adjustments, made in 2002 and prior years,
    were duplicative of amounts recorded at the operating unit
    level. These adjustments resulted in an overstatement of
    inventory at December 31, 2002 and 2001 of
    $17.2 million and $27.5 million, respectively. Pre-tax
    income as originally reported for 2002, 2001 and periods prior
    to 2001 was overstated/(understated) by $(10.2 million),
    $8.7 million and $18.8 million, respectively.
| 
| | In years prior to 2002, the Company had unsupported amounts of
    work-in-process inventories and finished goods inventory
    in-transit to Company warehouses from its facility in Franklin,
    Pennsylvania. These issues resulted in an overstatement of
    inventory at December 31, 2002 and 2001 of $0 and
    $10.2 million, respectively. Pre-tax income as originally
    reported for 2002, 2001 and periods prior to 2001 was
    overstated/(understated) by $(10.2 million),
    $(0.3) million and $10.5 million, respectively.                                                                                                                                        
| 
| | The Company determined that there were errors in and unsupported
    adjustments to the valuation of inventory full absorption at the
    Companys facility in Franklin, Pennsylvania. These errors
    resulted in an overstatement/ (understatement) of inventory at
    December 31, 2002 and 2001 of $(0.8 million) and
    $1.5 million, respectively. Pre- tax income as originally
    reported for 2002, 2001 and years prior to 2001 was
    overstated/(understated) by $(2.3 million),
    $2.0 million and $(0.5 million), respectively.                                                                                                                                    

39



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Corporate accounting previously adjusted the cobalt inventory
    recovery yields realized from the refining process at its
    facility in Kokkola, Finland to estimated or expected
    recoveries. The Company has since concluded that these
    adjustments were not appropriate. These adjustments resulted in
    an overstatement of inventory at December 31, 2002 and 2001
    of $0 million and $4.9 million, respectively. Pre-tax
    income as originally reported for 2002, 2001 and years prior to
    2001 was overstated/ (understated) by $(4.9 million),
    $2.6 million and $2.3 million, respectively.
| 
| | The Company anticipated a decline in nickel prices in early 2002
    and recorded a top-side adjustment to decrease accounts payable
    and cost of sales by $3.0 million, as certain of its raw
    material contracts price in the month after delivery. The
    Company subsequently determined that this adjustment was not
    appropriate. This adjustment resulted in an understatement of
    accounts payable at December 31, 2002 of $3.0 million.
    Pre-tax income as originally reported for 2002 was overstated by
    $3.0 million.                                                                         
| 
| | Previously reported inventory balances related to the
    Companys Franklin facility included estimates for
    inventory containers, packaging and lab inventory. The estimates
    were inaccurate and unsupported. These amounts resulted in an
    overstatement of inventory/ other assets at December 31,
    2002 and 2001 of $1.4 million and $2.7 million,
    respectively. Pre-tax income as originally reported for 2002,
    2001 and years prior to 2001 was overstated/ (understated) by
    $(1.3 million), $0 million and $2.7 million,
    respectively.                                                  
| 
| | The Company identified other inappropriate top-side adjustments
    to inventory, which resulted in an overstatement of inventory at
    December 31, 2002 and 2001 of $2.9 million and
    $2.5 million, respectively. Pre-tax income as originally
    reported for 2002, 2001 and years prior to 2001 was overstated/
    (understated) by $0.4 million, $(1.3 million), and
    $3.8 million, respectively.                                                                                                                                                                                                              

Harjavalta purchase accounting/operating expenses


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with its acquisition of Harjavalta, the Company
    established accruals or otherwise charged to goodwill certain
    amounts for a future maintenance shut-down; certain
    environmental and legal issues; a contract assumed in the
    acquisition which ultimately required the Company to pay amounts
    to the seller for operating costs of a nickel mine that the
    seller owned; and certain inventory issues. During 2002, 2001
    and 2000, the Company incurred operating costs that should have
    been recorded as period costs in the Statement of Consolidated
    Operations, but were instead recorded as part of purchasing
    accounting, as they did not relate to conditions that existed at
    the date of the acquisition or were the result of operating
    decisions made subsequent to the acquisition date. The
    restatement includes these expenses in the consolidated
    statements of operations, with a corresponding reduction in
    goodwill. The amounts in 2002, 2001 and 2000, which resulted in
    an overstatement of pre-tax income, were $10.8 million,
    $5.4 million and $3.0 million, respectively.

Supplier receivables/cost of products sold


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In years prior to 2001, the Company recorded receivables
    aggregating $26.9 million from three cobalt raw material
    suppliers. These receivables were recorded as top-side
    adjustments by Corporate accounting, on the basis of contractual
    disputes related to the metal content of purchased raw
    materials. The receivables were treated as prepaid inventory
    representing advance payments for future inventory shipments. A
    portion of such prepaid inventory was amortized to cost of sales
    as the inventory was sold  $1.1 million in 2002,
    $4.7 million in 2001, and $5.0 million in years prior
    to 2001. With the Harjavalta acquisition in 2000,
    $3.0 million was capitalized as part of the purchase price
    allocation (i.e., added to goodwill). We have since concluded
    that the Company waived its claim to these recoverable amounts
    in its dispute negotiations with the suppliers, or otherwise did
    not adequately document its position to support recording these
    assets. Accordingly, these amounts should have been charged to
    expense when the original inventory was consumed, rather than
    recorded as prepaid inventory attributable to future shipments.
    These amounts resulted in an overstatement of assets at
    December 31, 2002 and 2001 of $0 million and
    $14.2 million, respectively. Pre-tax income as originally

40



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | reported for 2002, 2001 and years prior to 2001 was
    overstated/(understated) by $(14.2 million),
    $(4.7 million) and $21.9 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
| | In 2000, the Company purchased nickel raw material that was
    off-specification and incurred incremental costs to process this
    material to a usable form of approximately $2.0 million in
    2001 and $2.8 million in 2000. The combined amount of
    $4.8 million was recorded as a receivable from the supplier
    by Corporate. However, the raw material contract included
    provisions for financial remedy for off-specification raw
    material, and the remedy properly was accounted for at the
    operating unit level. Therefore, the $4.8 million recorded
    at Corporate was duplicative of amounts recorded at the
    operating unit. This top-side receivable was reclassified to
    goodwill in 2002, when the Company acquired an interest in the
    mine that supplied this raw material. There is no documentation
    that this improperly recorded receivable was related to the
    purchase price for the mine. These amounts resulted in an
    overstatement of assets at December 31, 2002 and 2001 of
    $4.8 million. Pre-tax income as originally reported for
    2002, 2001 and years prior to 2001 was overstated by $0,
    $2.0 million and $2.8 million, respectively.

Miscellaneous operating expenses


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Corporate accounting made various top-side adjustments in 2002,
    2001 and years prior to 2001 to capitalize costs that were
    expensed at the operating unit level for certain fixed asset
    projects, software implementation projects and miscellaneous
    other assets. The Company has since concluded that amounts
    recorded at the operating unit level properly accounted for
    these expenses, and the related top-side adjustments (including
    all corresponding depreciation and amortization of the related
    assets) should be reversed. These amounts resulted in an
    overstatement of assets at December 31, 2002 and 2001 of
    $22.8 million and $25.2 million, respectively. Pre-tax
    income as originally reported for 2002, 2001 and years prior to
    2001 was overstated/(understated) by $(2.4 million),
    $10.1 million and $15.1 million, respectively.                                                                                                                                                                                                                              
| 
| | In 2002, Corporate accounting recorded a $3.0 million
    contingent receivable as a top-side adjustment for an
    engineering design dispute with a third party related to
    construction of the Companys joint venture smelter in the
    Congo. In July 2003, the Company settled this dispute and
    received a cash settlement from the third party. When the
    settlement was agreed to, the local operating unit recorded a
    receivable from the third party. Further, the cash was received
    and recorded at the operating unit level in 2003. Considering
    the amount recorded at the operating unit and by Corporate, the
    ultimate amount of the settlement was approximately
    $3.0 million less than the receivable recorded by the
    Company. The Company has since concluded that recording a
    contingent receivable/gain in 2002 at Corporate for this amount
    was not supportable based on the facts and circumstances. This
    adjustment resulted in an overstatement of assets at
    December 31, 2002 of $3.0 million, with a
    corresponding overstatement of 2002 pre-tax income.
| 
| | The Company capitalizes interest on certain fixed asset
    construction projects. The Company has since concluded that the
    calculations were not in accordance with SFAS No. 34,
    Capitalization of Interest Cost. The Company
    re-calculated capitalized interest, resulting in restatement
    adjustments to correct both the capitalization of interest, and
    the corresponding depreciation expense. These amounts resulted
    in an overstatement of assets at December 31, 2002 and 2001
    of $5.1 million and $2.7 million, respectively.
    Pre-tax income as originally reported for 2002, 2001 and years
    prior to 2001 was overstated/(understated) by $2.4 million,
    $(1.0 million) and $3.7 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                 

Goodwill impairment charge reversal


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2002, the Company computed and recorded a goodwill impairment
    charge of $30.2 million in connection with the adoption of
    FAS No. 142, Goodwill and Other Intangible Assets.
    As part of the restatement, the Company has re-calculated
    whether goodwill was impaired in 2002, after considering the
    restatement adjustments and their impact on the net book value
    of the base metals reporting unit. Based on the revised

41



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | calculation, the Company has concluded that no goodwill
    impairment existed in 2002, and therefore the impairment charge
    is being reversed as part of the restatement.

Adjustments Resulting from Procedures Subsequent to the Audit
Committee Investigation




|                                                     |  |                                    |      |   |      |   |      |          |  |   |       |   |  |   |       |  
|---------------------------------------------------- |  | ---------------------------------- | ---- | - | ---- | - | ---- | -------- |  | - | ----- | - |  | - | ----- | -
|                                                     |  | Increase (decrease) pre-tax income |     
|                                                     |  |                                    |     
|                                                     |  | 2002                               |      |   | 2001 |   |      | Pre-2001 |  |   | Total |  
|                                                     |  |                                    |      |   |      |   |      |          |  |   |       |  
|Harjavalta purchase accounting/cost of products sold |  |                                    |     |   |      |   |     |          |  | $ | (5.2  | ) |  | $ | (5.2  | )
|Harjavalta purchase accounting/depreciation expense  |  | $                                  | 1.6  |   |      | $ | 1.6  |          |  |   | 1.2   |   |  |   | 4.4   |  
|Litigation                                           |  |                                    | 2.5  |   |      |   | 2.0  |          |  |   | (4.5  | ) |  |   |      |  
|Interest receivables                                 |  |                                    | 12.0 |   |      |   | (5.5 | )        |  |   | (9.9  | ) |  |   | (3.4  | )
|Foreign currency remeasurement                       |  |                                    | (4.2 | ) |      |   | (0.3 | )        |  |   | (25.5 | ) |  |   | (30.0 | )
|Derivative accounting                                |  |                                    | 1.3  |   |      |   | (1.4 | )        |  |   |      |   |  |   | (0.1  | )
|Intercompany profit elimination                      |  |                                    | 0.4  |   |      |   | 1.8  |          |  |   | (3.7  | ) |  |   | (1.5  | )
|Other                                                |  |                                    | 2.9  |   |      |   | (3.8 | )        |  |   | (15.2 | ) |  |   | (16.1 | )
|                                                     |  |                                    |      |   |      |   |      |          |  |   |       |  
|                                                     |  | $                                  | 16.5 |   |      | $ | (5.6 | )        |  | $ | (62.8 | ) |  | $ | (51.9 | )
|                                                     |  |                                    |      |   |      |   |      |          |  |   |       |  

Harjavalta purchase accounting/cost of products sold


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company determined the fair value of inventory acquired as
    of the April 4, 2000 acquisition date of Harjavalta was
    understated by $32.0 million. At December 31, 2000,
    $26.8 million should have remained in inventory due to the
    use of LIFO, and the remaining $5.2 million should have
    been charged to cost of products sold. As a result, pre-tax
    income as originally reported for 2000 was overstated by
    $5.2 million.

Harjavalta purchase accounting/depreciation expense


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result of the adjustments to the purchase price allocation
    of Harjavalta, including inventory valuation as described in the
    preceding bullet point and the adjustments disclosed in the
    section above entitled Harjavalta purchase accounting/
    operating expenses, the revised computation of goodwill
    resulted in an excess of fair value of assets acquired over
    purchase price (i.e., negative goodwill) of $32.0 million.
    Such amount has been applied against the acquired long-term
    assets, resulting in lower depreciation expense. As a result of
    these issues, pre-tax income as originally reported for 2002,
    2001 and years prior to 2001 was overstated/(understated) by
    $(1.6 million), $(1.6 million) and
    $(1.2 million), respectively.

Litigation


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2000, the Company recorded $4.5 million for anticipated
    recovery of contributions by the Company to a settlement trust
    and related legal fees for product liability litigation. The
    asset was reduced by $2.0 million in 2001, resulting in a
    recorded asset of $2.5 million at December 31, 2001.
    In December 2002, the $2.5 million balance was written-off.
    Based on a review of the facts and circumstances, including a
    legal judgment against the Companys position in May 2000,
    the Company now believes that this asset should not have been
    recorded. These amounts resulted in an overstatement of assets
    at December 31, 2002 and 2001 of $0 million and
    $2.5 million, respectively. Pre-tax income as originally
    reported for 2002, 2001 and years prior to 2001 was
    overstated/(understated) by $(2.5 million),
    $(2.0 million) and $4.5 million, respectively.

42



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Interest receivables


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During construction of the smelter by the Companys joint
    venture in years prior to 2001, the Company advanced
    $27.6 million to its joint venture partners. The Company
    recorded a receivable for such amount. Although there was no
    agreement between the Company and the joint venture partners
    providing for interest on the advance, the Company recorded
    interest income on the advances in 2001 and years prior to 2001
    of $5.5 million and $9.9 million, respectively. In
    2002, the Company established a reserve of $12.0 million
    against the interest receivable of $15.4 million. In 2003,
    the Company finalized a written agreement with one of the
    partners, which provided for the Company to receive
    $6.9 million of interest income. Such interest income,
    along with the related advance, were ultimately collected in
    2003 and 2004.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with the restatement, the Company concluded that
    the original interest recorded represented a contingent asset
    that should not have been recorded until a written agreement was
    finalized. Therefore, the interest receivable and the 2002
    reserve have been reversed as part of the restatement
    adjustments. These amounts resulted in an overstatement of
    assets at December 31, 2002 and 2001 of $3.4 million
    and $15.4 million, respectively. Pre-tax income as
    originally reported for 2002, 2001 and years prior to 2001 was
    overstated/(understated) by $(12.0 million),
    $5.5 million and $9.9 million, respectively.

Foreign currency remeasurement


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company identified several errors in the foreign currency
    remeasurement process of the results of operations from its two
    subsidiaries in Finland. These entities are US-dollar functional
    currency entities, as explained more fully in Note A. As a
    result of these errors, pre-tax income as originally reported
    for 2002, 2001 and years prior to 2001 was
    overstated/(understated) by $(7.8 million),
    $0.3 million and $25.5 million, respectively. The
    Company also identified an additional foreign currency issue
    related to one of its foreign holding companies which resulted
    in an overstatement of pre-tax income in 2002 of
    $12.0 million, representing foreign currency exchange gains
    recorded in the Statements of Consolidated Operations that
    should have been recorded in accumulated other comprehensive
    income.

Derivative accounting


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company determined that appropriate hedging documentation as
    required by SFAS No. 133, Accounting for Derivative
    Instruments and Hedging Activities, was not in place at the
    time certain derivative instruments were executed. As a result,
    certain financial instruments should have been marked-to-market
    through operations. Pre-tax income as originally reported for
    2002 and 2001 was overstated/ (understated) by
    $(1.3 million) and $1.4 million, respectively.

Intercompany profit elimination


|  |                                                                                                                                                                                                                                                                                                                                                                                 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company determined that intercompany profit in inventories
    was not eliminated for US GAAP purposes on certain purchases of
    material between its two Finnish operating units. Pre-tax income
    as originally reported for 2002, 2001 and years prior to 2001
    was overstated/(understated) by $(0.4 million),
    $(1.8 million) and $3.7 million, respectively.

Other


|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Numerous other adjustments have been recorded as part of the
    restatement. Such adjustments typically represent expenses
    charged in a period that should have been taken in an earlier
    period. As a result of these items, pre-tax income as originally
    reported for 2002, 2001 and periods prior to 2001, in the
    aggregate, was overstated/(understated) by $(2.9 million),
    $3.8 million and $15.2 million, respectively.

43



---



##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Restatement Adjustments Related to Discontinued Operations




Restated Balance Sheet (Prior to the Change from LIFO to
FIFO)




|                                          |                                                    |               |           |           |            |   |           |           | 
|----------------------------------------- | -------------------------------------------------- | ------------- | --------- | --------- | ---------- | - | --------- | --------- | 
|                                          |                                                    | As Originally |           |           | As         |  
|                                          |                                                    | Reported     |           |           | Restated  |  
|                                          |                                                    | LIFO Basis(a) |           |           | LIFO Basis |  
|                                          |                                                    |               |           |           |            |  
|(Thousands of dollars, except share data) |                                                    |               |           |           |            |   |           |          
|Assets                                    |                                                    |               |           |           |            |   |           |          
|Current assets:                           |                                                    |               |           |           |            |   |           |          
|                                          | Cash and cash equivalents                          |               | $         | 11,650    |            |   | $         | 12,470    | 
|                                          | Accounts receivable                                |               |           | 99,632    |            |   |           | 100,226   | 
|                                          | Inventories                                        |               |           | 304,654   |            |   |           | 259,958   | 
|                                          | Other                                              |               |           | 90,365    |            |   |           | 51,548    | 
|                                          |                                                    |               |           |           |            |  
|Total current assets                      |                                                    |               | 506,301   |           |            |   | 424,202   |          
|Property, plant and equipment, net        |                                                    |               | 505,229   |           |            |   | 443,002   |          
|Other assets:                             |                                                    |               |           |           |            |   |           |          
|                                          | Goodwill                                           |               |           | 182,208   |            |   |           | 174,899   | 
|                                          | Receivables from joint venture partners            |               |           | 32,070    |            |   |           | 32,070    | 
|                                          | Other                                              |               |           | 66,351    |            |   |           | 54,644    | 
|                                          | Assets of discontinued operations                  |               |           | 1,046,977 |            |   |           | 1,024,461 | 
|                                          |                                                    |               |           |           |            |  
|Total assets                              |                                                    | $             | 2,339,136 |           |            | $ | 2,153,278 |          
|                                          |                                                    |               |           |           |            |  
|Liabilities and stockholders equity      |                                                    |               |           |           |            |   |           |          
|Current liabilities:                      |                                                    |               |           |           |            |   |           |          
|                                          | Current portion of long-term debt                  |               | $         | 6,750     |            |   | $         | 6,750     | 
|                                          | Accounts payable                                   |               |           | 95,685    |            |   |           | 99,955    | 
|                                          | Other accrued expenses                             |               |           | 53,518    |            |   |           | 68,611    | 
|                                          |                                                    |               |           |           |            |  
|Total current liabilities                 |                                                    |               | 155,953   |           |            |   | 175,316   |          
|                                          | Long-term debt                                     |               |           | 1,187,650 |            |   |           | 1,195,637 | 
|                                          | Deferred income taxes                              |               |           | 64,136    |            |   |           | 12,163    | 
|                                          | Minority interests and other long-term liabilities |               |           | 64,820    |            |   |           | 69,968    | 
|                                          | Liabilities of discontinued operations             |               |           | 396,691   |            |   |           | 371,526   | 
|Total stockholders equity                |                                                    |               | 469,886   |           |            |   | 328,668   |          
|                                          |                                                    |               |           |           |            |  
|Total liabilities and stockholders equity |                                                    | $             | 2,339,136 |           |            | $ | 2,153,278 |          
|                                          |                                                    |               |           |           |            |  






|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  Amounts are as presented in the 2002 Form 10-K,
    reclassified to present PMG as a discontinued operation and
    Fidelity Newark as a continuing operation (see Note D).

44



---



##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Restated Statements of Consolidated Operations (Prior to the
Change from LIFO to FIFO)




|                                                        |  |               |          |   |            |   |          |               |  |   |            |   |  |   |         |  
|------------------------------------------------------- |  | ------------- | -------- | - | ---------- | - | -------- | ------------- |  | - | ---------- | - |  | - | ------- | -
|                                                        |  | 2002          |          |   | 2001       |  
|                                                        |  |               |          |   |            |  
|                                                        |  | As Originally |          |   | As         |   |          | As Originally |  |   | As         |  
|                                                        |  | Reported     |          |   | Restated  |   |          | Reported     |  |   | Restated  |  
|                                                        |  | LIFO Basis(a) |          |   | LIFO Basis |   |          | LIFO Basis(a) |  |   | LIFO Basis |  
|(In thousands, except share data)                       |  |               |          |   |            |   |          |               |  |   |            |  
|Net sales                                               |  | $             | 739,143  |   |            | $ | 738,928  |               |  | $ | 681,091    |   |  | $ | 681,557 |  
|Cost of products sold(b)                                |  |               | 726,004  |   |            |   | 683,904  |               |  |   | 461,202    |   |  |   | 596,338 |  
|Selling, general and administrative expenses(c)         |  |               | 242,572  |   |            |   | 136,022  |               |  |   | 82,865     |   |  |   | 81,279  |  
|                                                        |  |               |          |   |            |   |          |               |  |   |            |  
|Income (loss) from operations                           |  |               | (229,433 | ) |            |   | (80,998  | )             |  |   | 137,024    |   |  |   | 3,940   |  
|Other income (expense), net                             |  |               | (26,952  | ) |            |   | (44,591  | )             |  |   | (42,197    | ) |  |   | (36,511 | )
|Income tax benefit (expense)                            |  |               | 28,707   |   |            |   | 12,552   |               |  |   | (28,166    | ) |  |   | 5,540   |  
|Income (loss) from continuing operations                |  |               | (227,462 | ) |            |   | (104,822 | )             |  |   | 66,631     |   |  |   | (25,786 | )
|Income (loss) from discontinuing operations, net of tax |  |               | (100,449 | ) |            |   | (98,023  | )             |  |   | 9,009      |   |  |   | (22,059 | )
|                                                        |  |               |          |   |            |   |          |               |  |   |            |  
|Net income (loss)                                       |  | $             | (327,911 | ) |            | $ | (202,845 | )             |  | $ | 75,640     |   |  | $ | (47,845 | )
|Net income (loss) per common share  basic              |  | $             | (11.69   | ) |            | $ | (7.24    | )             |  | $ | 3.15       |   |  | $ | (1.99   | )
|Net income (loss) per common share  diluted            |  | $             | (11.69   | ) |            | $ | (7.24    | )             |  | $ | 3.09       |   |  | $ | (1.99   | )






|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  Amounts are as presented in the 2002 Form 10-K,
    reclassified to present PMG as a discontinued operation and
    Fidelity Newark as a continuing operation (see Note D).                                                                                              
|   
|(b) |  In 2002, cost of products sold as originally
    reported included restructuring charges of $46.4 million.
    Cost of products sold as restated includes restructuring charges
    of $37.8 million.                                                                    
|   
|(c) |  In 2002, selling, general and administrative
    expenses as originally reported included restructuring and other
    unusual charges of $162.7 million. Selling, general and
    administrative expenses as restated include restructuring
    charges of $44.7 million.
|   
|(d) |  In 2002, loss from discontinued operations as
    originally reported included restructuring charges of
    $120.6 million. Loss from discontinued operations as
    restated includes restructuring charges of $73.5 million.                                           

C. Inventories and Change in Accounting Principle




|                           |  |      |         |          |      |   |         | 
|-------------------------- |  | ---- | ------- | -------- | ---- | - | ------- | 
|                           |  |      |         | Restated |     
|                           |  |      |         |          |     
|                           |  | 2003 |         |          | 2002 |  
|                           |  |      |         |          |      |  
|Raw materials and supplies |  | $    | 158,112 |          |      | $ | 112,188 | 
|Work-in-process            |  |      | 43,109  |          |      |   | 31,599  | 
|Finished goods             |  |      | 67,980  |          |      |   | 68,200  | 
|                           |  |      |         |          |      |  
|                           |  | $    | 269,201 |          |      | $ | 211,987 | 
|                           |  |      |         |          |      |  



45



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued






|                                                                                    |                                                                                         |      |          |       |      |   |         |       |  
|----------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---- | -------- | ----- | ---- | - | ------- | ----- | -
|                                                                                    |                                                                                         | 2002 |          |       | 2001 |  
|                                                                                    |                                                                                         |      |          |       |      |  
|Loss from continuing operations, as restated using the LIFO
    method              |                                                                                         | $    | (104,822 | )     |      | $ | (25,786 | )    
|Effect of change in accounting method to the FIFO method,
    applied retroactively |                                                                                         |      | (5,911   | )     |      |   | 12,681  |      
|                                                                                    |                                                                                         |      |          |       |      |  
|Loss from continuing operations, as adjusted using the FIFO
    method              |                                                                                         | $    | (110,733 | )     |      | $ | (13,105 | )    
|                                                                                    |                                                                                         |      |          |       |      |  
|Income (loss) from continuing operations per common
    share  diluted:            |                                                                                         |      |          |       |      |   |         |      
|                                                                                    | Loss from continuing operations per common share, as restated
    using the LIFO method |      | $        | (3.74 | )    |   | $       | (1.08 | )
|                                                                                    | Effect of change in accounting method to the FIFO method                                |      |          | (0.21 | )    |   |         | 0.53  |  
|                                                                                    |                                                                                         |      |          |       |      |  
|                                                                                    | Loss from continuing operations per common share, as adjusted
    using the FIFO method |      | $        | (3.95 | )    |   | $       | (0.55 | )
|                                                                                    |                                                                                         |      |          |       |      |  



|                                                                                    |                                                              |      |          |       |      |   |         |       |  
|----------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---- | -------- | ----- | ---- | - | ------- | ----- | -
|                                                                                    |                                                              | 2002 |          |       | 2001 |  
|                                                                                    |                                                              |      |          |       |      |  
|Net loss, as restated using the LIFO method                                         |                                                              | $    | (202,845 | )     |      | $ | (47,845 | )    
|Effect of change in accounting method to the FIFO method,
    applied retroactively |                                                              |      | (5,911   | )     |      |   | 12,681  |      
|                                                                                    |                                                              |      |          |       |      |  
|Net loss, as adjusted using the FIFO method                                         |                                                              | $    | (208,756 | )     |      | $ | (35,164 | )    
|                                                                                    |                                                              |      |          |       |      |  
|Net income (loss) per common share  diluted:                                       |                                                              |      |          |       |      |   |         |      
|                                                                                    | Net loss per common share, as restated using the LIFO method |      | $        | (7.24 | )    |   | $       | (1.99 | )
|                                                                                    | Effect of change in accounting method to the FIFO method     |      |          | (0.21 | )    |   |         | 0.53  |  
|                                                                                    |                                                              |      |          |       |      |  
|                                                                                    | Net loss per common share, as adjusted using the FIFO method |      | $        | (7.45 | )    |   | $       | (1.46 | )
|                                                                                    |                                                              |      |          |       |      |  



D. Divestiture of Precious Metals Group and Other
Discontinued Operations




46



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued












|                             |  |      |         |          |      |   |         |      |  |   |         |  
|---------------------------- |  | ---- | ------- | -------- | ---- | - | ------- | ---- |  | - | ------- | -
|                             |  |      |         | Restated |     
|                             |  |      |         |          |     
|                             |  | 2003 |         |          | 2002 |   |         | 2001 | 
|                             |  |      |         |          |      |   |         |      | 
|Net sales                    |  | $    | 2,415.6 |          |      | $ | 4,294.8 |      |  | $ | 1,687.3 |  
|Operating income (loss)      |  |      | 48.0    |          |      |   | (18.9   | )    |  |   | 42.5    |  
|Interest expense             |  |      | 38.8    |          |      |   | 51.7    |      |  |   | 30.9    |  
|Income tax (benefit) expense |  |      | (15.3   | )        |      |   | 23.4    |      |  |   | 26.4    |  
|Income (loss)                |  |      | 8.2     |          |      |   | (98.0   | )    |  |   | (22.1   | )





|                                            |  |   |         | 
|------------------------------------------- |  | - | ------- | 
|Current assets                              |  | $ | 884.6   | 
|Property, plant and equipment               |  |   | 107.5   | 
|Other long-term assets                      |  |   | 32.4    | 
|                                            |  |   |        
|Total assets                                |  | $ | 1,024.5 | 
|                                            |  |   |        
|Accounts payable and other accrued expenses |  | $ | 236.8   | 
|Long-term liabilities                       |  |   | 134.7   | 
|                                            |  |   |        
|Total liabilities                           |  | $ | 371.5   | 
|                                            |  |   |        

47



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




E. Restructuring and Other Charges




|                                      |  |   |      | 
|------------------------------------- |  | - | ---- | 
|Exit of facilities                    |  | $ | 10.7 | 
|Workforce reductions                  |  |   | 3.7  | 
|Inventory and other asset write-downs |  |   | 1.2  | 
|Other                                 |  |   | 4.4  | 
|                                      |  |   |     
|                                      |  | $ | 20.0 | 
|                                      |  |   |     







48



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued






|                                 |  |           |     |   |            |               |      |             |  |   |                    |   |  |       |       |   |  |   |       |  
|-------------------------------- |  | --------- | --- | - | ---------- | ------------- | ---- | ----------- |  | - | ------------------ | - |  | ----- | ----- | - |  | - | ----- | -
|                                 |  |           |     |   |            | Inventory and |      |             |  |   |                   
|                                 |  | Number of |     |   | Workforce  |               |      | Other Asset |  |   | Exit of Facilities |   |  |      
|                                 |  | Employees |     |   | Reductions |               |      | Write-downs |  |   | and Other(b)       |   |  | Total |      
|                                 |  |           |     |   |            |               |      |             |  |   |                    |   |  |       |      
|2002 Charges, as restated(a)     |  |           | 110 |   |            | $             | 8.5  |             |  | $ | 34.7               |   |  | $     | 39.3  |   |  | $ | 82.5  |  
|Utilized in 2002, as restated(c) |  |           | (42 | ) |            |               | (3.3 | )           |  |   | (34.7              | ) |  |       | (36.7 | ) |  |   | (74.7 | )
|                                 |  |           |     |   |            |               |      |             |  |   |                    |   |  |       |      
|Balance at year-end              |  |           | 68  |   |            |               | 5.2  |             |  |   |                   |   |  |       | 2.6   |   |  |   | 7.8   |  
|2003 charges                     |  |           | 19  |   |            |               | 3.7  |             |  |   | 1.2                |   |  |       | 15.1  |   |  |   | 20.0  |  
|Utilized in 2003(c)              |  |           | (87 | ) |            |               | (5.8 | )           |  |   | (1.2               | ) |  |       | (16.3 | ) |  |   | (23.3 | )
|                                 |  |           |     |   |            |               |      |             |  |   |                    |   |  |       |      
|Balance at year-end              |  |           |    |   |            | $             | 3.1  |             |  | $ |                   |   |  | $     | 1.4   |   |  | $ | 4.5   |  
|                                 |  |           |     |   |            |               |      |             |  |   |                    |   |  |       |      






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Amounts for 2002 have been reclassified to include the
    restructuring activity of the electroless nickel Newark
    business, which was reclassified to continuing operations from
    discontinued operations, and to exclude the restructuring
    activity of the PMG business, which was reclassified to
    discontinued operations (see Note D). Amounts for 2002 have
    also been adjusted for the restatement items (see Note B).
|   
|(b) |  | 2002 amounts for Facility Exit and Other include severance costs
    for 42 associates at the electroless nickel Newark business.                                                                                                                                                                                                                                                                                                             
|   
|(c) |  | The amounts utilized in 2003 and 2002 include cash paid in 2003
    and 2002 of $12.3 million and $3.8 million,
    respectively. The accrual at December 31, 2003 was paid
    during 2004.                                                                                                                                                                                                                                                  



|   |             
|-- | ------------
|F. | Acquisitions





|                          |       |   |      |       | 
|------------------------- | ----- | - | ---- | ----- | 
|Assets acquired           |       | $ | 854  |      
|Liabilities assumed       |       |   | (278 | )    
|Fair value of assets sold |       |   | 525  |      
|                          |       |   |     
|                          | Total |   | $    | 1,101 | 
|                          |       |   |     

Business
Combinations




49



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




Business Combinations


G. Goodwill and Other Intangible Assets


Goodwill and Other Intangible
Assets


|                                                                                               |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | - | ------- | -
|Restated net loss from continuing operations                                                   |  | $ | (13,105 | )
|Add back amortization of goodwill                                                              |  |   | 6,133   |  
|                                                                                               |  |   |        
|Adjusted restated net loss from continuing operations                                          |  | $ | (6,972  | )
|                                                                                               |  |   |        
|Restated net loss per common share from continuing
    operations  assuming dilution          |  | $ | (0.55   | )
|Add back amortization of goodwill                                                              |  |   | 0.25    |  
|                                                                                               |  |   |        
|Adjusted restated net loss per common share from continuing
    operations  assuming dilution |  | $ | (0.30   | )
|                                                                                               |  |   |        



50



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|                                                 |  |      |         |          |      |   |         | 
|------------------------------------------------ |  | ---- | ------- | -------- | ---- | - | ------- | 
|                                                 |  |      |         | Restated |     
|                                                 |  |      |         |          |     
|                                                 |  | 2003 |         |          | 2002 |  
|                                                 |  |      |         |          |      |  
|Balance at January 1                             |  | $    | 174,899 |          |      | $ | 155,550 | 
|Finalization of Rhodia purchase price allocation |  |      |        |          |      |   | 18,619  | 
|Other, primarily foreign exchange                |  |      | 3,779   |          |      |   | 730     | 
|                                                 |  |      |         |          |      |  
|Balance at December 31                           |  | $    | 178,678 |          |      | $ | 174,899 | 
|                                                 |  |      |         |          |      |  



|                                                         |  |      |        |          |      |   |        |  
|-------------------------------------------------------- |  | ---- | ------ | -------- | ---- | - | ------ | -
|                                                         |  |      |        | Restated |     
|                                                         |  |      |        |          |     
|                                                         |  | 2003 |        |          | 2002 |  
|                                                         |  |      |        |          |      |  
|Historical cost                                          |  | $    | 11,932 |          |      | $ | 11,721 |  
|Accumulated amortization                                 |  |      | (6,929 | )        |      |   | (5,586 | )
|                                                         |  |      |        |          |      |  
|Intangible assets (recorded in other non-current assets) |  | $    | 5,003  |          |      | $ | 6,135  |  
|                                                         |  |      |        |          |      |  



H. Debt and Other Financial Instruments




|                                                      |                      |      |         |          |      |   |           |           | 
|----------------------------------------------------- | -------------------- | ---- | ------- | -------- | ---- | - | --------- | --------- | 
|                                                      |                      |      |         | Restated |     
|                                                      |                      |      |         |          |     
|                                                      |                      | 2003 |         |          | 2002 |  
|                                                      |                      |      |         |          |      |  
|Senior Secured Credit Facilities                      |                      | $    |        |          |      | $ | 794,400   |          
|Senior Subordinated Notes                             |                      |      | 400,000 |          |      |   | 400,000   |          
|Note payable  bank                                   |                      |      | 22,919  |          |      |   |          |          
|Deferred gain on termination of cash flow hedges      |                      |      | 7,377   |          |      |   | 7,987     |          
|Fair value of interest rate swaps (fair value hedges) |                      |      | 170     |          |      |   |          |          
|                                                      |                      |      |         |          |      |  
|                                                      |                      |      | 430,466 |          |      |   | 1,202,387 |          
|Less: Current portion                                 |                      |      |        |          |      |   | 6,750     |          
|                                                      |                      |      |         |          |      |  
|                                                      | Total long-term debt |      | $       | 430,466  |      |   | $         | 1,195,637 | 
|                                                      |                      |      |         |          |      |  



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OM Group, Inc. and
Subsidiaries 
Continued
















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OM Group, Inc. and
Subsidiaries 
Continued










I. Metals Financial Instruments








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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


J. Income Taxes




|                          |  |                        |          |          |      |   |          |      |  |   |         |  
|------------------------- |  | ---------------------- | -------- | -------- | ---- | - | -------- | ---- |  | - | ------- | -
|                          |  | Year Ended December 31 |         
|                          |  |                        |         
|                          |  |                        |          | Restated |     
|                          |  |                        |          |          |     
|                          |  | 2003                   |          |          | 2002 |   |          | 2001 | 
|                          |  |                        |          |          |      |   |          |      | 
|United States             |  | $                      | (192,915 | )        |      | $ | (116,090 | )    |  | $ | (71,288 | )
|Outside the United States |  |                        | 150,252  |          |      |   | (16,449  | )    |  |   | 57,067  |  
|                          |  |                        |          |          |      |   |          |      | 
|                          |  | $                      | (42,663  | )        |      | $ | (132,539 | )    |  | $ | (14,221 | )
|                          |  |                        |          |          |      |   |          |      | 



|          |                           |                        |         |          |       |   |         |         |    |   |        |        |   | 
|--------- | ------------------------- | ---------------------- | ------- | -------- | ----- | - | ------- | ------- | -- | - | ------ | ------ | - | 
|          |                           | Year Ended December 31 |        
|          |                           |                        |        
|          |                           |                        |         | Restated |      
|          |                           |                        |         |          |      
|          |                           | 2003                   |         |          | 2002  |   |         | 2001    |   
|          |                           |                        |         |          |       |   |         |         |   
|Current:  |                           |                        |         |          |       |   |         |         |    |   |        |       
|          | United States:            |                        |         |          |       |   |         |         |    |   |        |        |  
|          |                           | Federal                |         | $        | 1,385 |   |         | $       |   |   |        | $      |  | 
|          |                           | State and local        |         |          | 3     |   |         |         | 95 |   |        |        |  | 
|          | Outside the United States |                        |         | (12,777  | )     |   |         | 6,867   |    |   |        | 1,661  |  
|          |                           |                        |         |          |       |   |         |         |   
|          |                           |                        | (11,389 | )        |       |   | 6,962   |         |    |   | 1,661  |       
|Deferred: |                           |                        |         |          |       |   |         |         |    |   |        |       
|          | United States             |                        |         |         |       |   |         |        |    |   |        |       |  
|          | Outside the United States |                        |         | 25,923   |       |   |         | (20,553 | )  |   |        | (1,532 | )
|          |                           |                        |         |          |       |   |         |         |   
|          |                           |                        | 25,923  |          |       |   | (20,553 | )       |    |   | (1,532 | )     
|          |                           |                        |         |          |       |   |         |         |   
|          |                           | $                      | 14,534  |          |       | $ | (13,591 | )       |    | $ | 129    |       
|          |                           |                        |         |          |       |   |         |         |   

|                                                                             |  |                        |         |          |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------- |  | ---------------------- | ------- | -------- | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                             |  | Year Ended December 31 |        
|                                                                             |  |                        |        
|                                                                             |  |                        |         | Restated |     
|                                                                             |  |                        |         |          |     
|                                                                             |  | 2003                   |         |          | 2002 |   |         | 2001 | 
|                                                                             |  |                        |         |          |      |   |         |      | 
|Income taxes at the United States statutory rate                             |  | $                      | (14,932 | )        |      | $ | (46,389 | )    |  | $ | (4,977  | )
|Effective tax rate differential of earnings outside of the
    United States |  |                        | (24,657 | )        |      |   | (9,194  | )    |  |   | (19,642 | )
|Repatriation of foreign earnings                                             |  |                        | 23,345  |          |      |   | 21,000  |      |  |   | 21,000  |  
|Benefit of Malaysia tax holiday                                              |  |                        | (4,560  | )        |      |   | (2,564  | )    |  |   | (2,622  | )
|Adjustment of worldwide tax liabilities                                      |  |                        | (2,614  | )        |      |   | 968     |      |  |   | 701     |  
|Non-deductible goodwill                                                      |  |                        |        |          |      |   |        |      |  |   | 685     |  
|Losses without tax benefits                                                  |  |                        | 37,528  |          |      |   | 20,702  |      |  |   | 3,968   |  
|Other, net                                                                   |  |                        | 424     |          |      |   | 1,886   |      |  |   | 1,016   |  
|                                                                             |  |                        |         |          |      |   |         |      | 
|                                                                             |  | $                      | 14,534  |          |      | $ | (13,591 | )    |  | $ | 129     |  
|                                                                             |  |                        |         |          |      |   |         |      | 

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OM Group, Inc. and
Subsidiaries 
Continued




|                                                    |                            |             |          |          |      |   |         |        |  
|--------------------------------------------------- | -------------------------- | ----------- | -------- | -------- | ---- | - | ------- | ------ | -
|                                                    |                            | December 31 |         
|                                                    |                            |             |         
|                                                    |                            |             |          | Restated |     
|                                                    |                            |             |          |          |     
|                                                    |                            | 2003        |          |          | 2002 |  
|                                                    |                            |             |          |          |      |  
|Current asset  operating accruals                  |                            | $           | 28,802   |          |      | $ | 28,280  |       
|Current liability  prepaid expenses                |                            |             | (2,646   | )        |      |   | (2,615  | )     
|Non-current asset  benefit and litigation accruals |                            |             | 55,951   |          |      |   | 27,021  |       
|Non-current asset  operating loss carryforwards    |                            |             | 106,399  |          |      |   | 128,164 |       
|Non-current liability  accelerated depreciation    |                            |             | (62,989  | )        |      |   | (97,252 | )     
|Valuation allowance                                 |                            |             | (154,129 | )        |      |   | (91,155 | )     
|                                                    |                            |             |          |          |      |  
|                                                    | Net deferred tax liability |             | $        | (28,612  | )    |   | $       | (7,557 | )
|                                                    |                            |             |          |          |      |  



|                                              |  |             |         |          |      |   |         |  
|--------------------------------------------- |  | ----------- | ------- | -------- | ---- | - | ------- | -
|                                              |  | December 31 |        
|                                              |  |             |        
|                                              |  |             |         | Restated |     
|                                              |  |             |         |          |     
|                                              |  | 2003        |         |          | 2002 |  
|                                              |  |             |         |          |      |  
|Other non-current assets                      |  | $           | 588     |          |      | $ | 8,724   |  
|Other current liabilities                     |  |             | (158    | )        |      |   | (1,260  | )
|Deferred income taxes  long-term liabilities |  |             | (29,042 | )        |      |   | (15,021 | )
|                                              |  |             |         |          |      |  
|                                              |  | $           | (28,612 | )        |      | $ | (7,557  | )
|                                              |  |             |         |          |      |  











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OM Group, Inc. and
Subsidiaries 
Continued


K. Pension and Other Postretirement Benefit Plans




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OM Group, Inc. and
Subsidiaries 
Continued




|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |        |        |   |        |        |        |  
|------------------------------------------------- | -------------------------------------- | ------------------------------ | ------- | -------------------- | -------- | - | ------- | ------ | ----- | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                  |                                        |                                |         | Other Postretirement |         
|                                                  |                                        | Pension Benefits               |         |                      | Benefits |  
|                                                  |                                        |                                |         |                      |          |  
|                                                  |                                        | 2003                           |         |                      | 2002     |   |         | 2003   |       |   | 2002   |       
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Benefit obligation at beginning of year           |                                        | $                              | (13,365 | )                    |          | $ | (12,528 | )      |       | $ | (6,118 | )      |        | $ | (6,390 | )     
|Service cost                                      |                                        |                                |        |                      |          |   |        |        |       |   | (169   | )      |        |   | (288   | )     
|Interest cost                                     |                                        |                                | (867    | )                    |          |   | (879    | )      |       |   | (324   | )      |        |   | (466   | )     
|Participant contributions                         |                                        |                                |        |                      |          |   |        |        |       |   | (165   | )      |        |   | (250   | )     
|Actuarial (loss) gain                             |                                        |                                | (663    | )                    |          |   | (712    | )      |       |   | (1,082 | )      |        |   | 60     |       
|Benefits paid                                     |                                        |                                | 839     |                      |          |   | 754     |        |       |   | 425    |        |        |   | 440    |       
|Curtailment                                       |                                        |                                |        |                      |          |   |        |        |       |   | 3,300  |        |        |   | 776    |       
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Benefit obligation at end of year                 |                                        |                                | (14,056 | )                    |          |   | (13,365 | )      |       |   | (4,133 | )      |        |   | (6,118 | )     
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Fair value of plan assets at beginning of year    |                                        |                                | 8,777   |                      |          |   | 10,469  |        |       |   |       |        |        |   |       |       
|Actual return on plan assets                      |                                        |                                | 1,465   |                      |          |   | (963    | )      |       |   |       |        |        |   |       |       
|Employer contributions                            |                                        |                                | 25      |                      |          |   | 25      |        |       |   | 260    |        |        |   | 190    |       
|Participant contributions                         |                                        |                                |        |                      |          |   |        |        |       |   | 165    |        |        |   | 250    |       
|Benefits paid                                     |                                        |                                | (839    | )                    |          |   | (754    | )      |       |   | (425   | )      |        |   | (440   | )     
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Fair value of plan assets at end of year          |                                        |                                | 9,428   |                      |          |   | 8,777   |        |       |   |       |        |        |   |       |       
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Benefit obligations in excess of plan assets      |                                        |                                | (4,628  | )                    |          |   | (4,588  | )      |       |   | (4,133 | )      |        |   | (6,118 | )     
|Unamortized:                                      |                                        |                                |         |                      |          |   |         |        |       |   |        |        |        |   |        |       
|                                                  | Net loss                               |                                |         | 6,993                |          |   |         | 6,937  |       |   |        | (452   | )      |   |        | (1,567 | )     
|                                                  | Post measurement date contributions    |                                |         |                     |          |   |         |       |       |   |        | 73     |        |   |        | 48     |       
|                                                  | Prior service cost                     |                                |         |                     |          |   |         |       |       |   |        | 421    |        |   |        | 676    |       
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Prepaid (accrued) benefit cost                    |                                        | $                              | 2,365   |                      |          | $ | 2,349   |        |       | $ | (4,091 | )      |        | $ | (6,961 | )     
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|Amounts recorded in the balance sheet consist of: |                                        |                                |         |                      |          |   |         |        |       |   |        |        |        |   |        |       
|                                                  | Other non-current liabilities          |                                | $       | (4,628               | )        |   | $       | (4,588 | )     |   | $      | (4,091 | )      |   | $      | (6,961 | )     
|                                                  | Accumulated other comprehensive income |                                |         | 6,993                |          |   |         | 6,937  |       |   |        |       |        |   |        |       |       
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       
|                                                  |                                        | Prepaid (accrued) benefit cost |         | $                    | 2,365    |   |         | $      | 2,349 |   |        | $      | (4,091 | ) |        | $      | (6,961 | )
|                                                  |                                        |                                |         |                      |          |   |         |        |       |   |        |       

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OM Group, Inc. and
Subsidiaries 
Continued




|                                      |  |                  |        |   |      |   |        |      |  |   |        |  
|------------------------------------- |  | ---------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                      |  | Pension Benefits |       
|                                      |  |                  |       
|                                      |  | 2003             |        |   | 2002 |   |        | 2001 | 
|                                      |  |                  |        |   |      |   |        |      | 
|Service cost                          |  | $                |       |   |      | $ |       |      |  | $ |       |  
|Interest cost                         |  |                  | 867    |   |      |   | 879    |      |  |   | 853    |  
|Amortization of unrecognized net loss |  |                  | 176    |   |      |   | 79     |      |  |   | (31    | )
|Expected return on plan assets        |  |                  | (1,033 | ) |      |   | (1,123 | )    |  |   | (1,129 | )
|                                      |  |                  |        |   |      |   |        |      | 
|                                      |  | $                | 10     |   |      | $ | (165   | )    |  | $ | (307   | )
|                                      |  |                  |        |   |      |   |        |      | 

|                 |  |                      |        |   |      |   |     |      |  |   |     | 
|---------------- |  | -------------------- | ------ | - | ---- | - | --- | ---- |  | - | --- | 
|                 |  | Other Postretirement |       
|                 |  | Benefits             |       
|                 |  |                      |       
|                 |  | 2003                 |        |   | 2002 |   |     | 2001 | 
|                 |  |                      |        |   |      |   |     |      | 
|Service cost     |  | $                    | 169    |   |      | $ | 288 |      |  | $ | 245 | 
|Interest cost    |  |                      | 324    |   |      |   | 466 |      |  |   | 418 | 
|Net amortization |  |                      | (18    | ) |      |   | 15  |      |  |   | 17  | 
|Curtailment gain |  |                      | (3,085 | ) |      |   |    |      |  |   |    | 
|                 |  |                      |        |   |      |   |     |      | 
|                 |  | $                    | (2,610 | ) |      | $ | 769 |      |  | $ | 680 | 
|                 |  |                      |        |   |      |   |     |      | 



|                                                 |  |      |       |   |      |  |      |  
|------------------------------------------------ |  | ---- | ----- | - | ---- |  | ---- | -
|                                                 |  | 2003 |       |   | 2002 | 
|                                                 |  |      |       |   |      | 
|Discount rate                                    |  |      | 6.25  | % |      |  | 6.75 | %
|Return on pension plan assets                    |  |      | 8.75  | % |      |  | 9.00 | %
|Rate of compensation increase                    |  |      |      |   |      |  | 2.75 | %
|Projected health care cost trend rate            |  |      | 14.00 | % |      |  | 7.50 | %
|Ultimate health care cost trend rate             |  |      | 6.00  | % |      |  | 5.50 | %
|Year ultimate health care trend rate is achieved |  |      | 2011  |   |      |  | 2006 |  





|                  |              |            |    |     |              |  |    |      |   |  |    |     |  
|----------------- | ------------ | ---------- | -- | --- | ------------ |  | -- | ---- | - |  | -- | --- | -
|                  |              | Target     |    |     |             
|                  |              | Allocation |    |     | December 31, | 
|                  |              |            |    |     |              | 
|                  |              | 2004       |    |     | 2003         |  |    | 2002 |  
|                  |              |            |    |     |              |  |    |      |  
|Equity securities |              |            | 65 | %   |              |  | 65 | %    |   |  | 60 | %  
|Debt securities   |              |            | 35 | %   |              |  | 35 | %    |   |  | 39 | %  
|Other             |              |            |   |     |              |  |   |      |   |  | 1  | %  
|                  |              |            |    |     |              |  |    |      |  
|                  | Total Assets |            |    | 100 | %            |  |    | 100  | % |  |    | 100 | %
|                  |              |            |    |     |              |  |    |      |  



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OM Group, Inc. and
Subsidiaries 
Continued






|                          |  |         |       |  |      |   |       | 
|------------------------- |  | ------- | ----- |  | ---- | - | ----- | 
|Expected benefit payments |  | Pension |       |  | OPEB |  
|                          |  |         |       |  |      |  
|2004                      |  | $       | 850   |  |      | $ | 425   | 
|2005                      |  |         | 875   |  |      |   | 425   | 
|2006                      |  |         | 900   |  |      |   | 450   | 
|2007                      |  |         | 925   |  |      |   | 475   | 
|2008                      |  |         | 950   |  |      |   | 500   | 
|2009-2013                 |  |         | 5,125 |  |      |   | 2,750 | 



|                                        |  |             |     |  |             |   |      |  
|--------------------------------------- |  | ----------- | --- |  | ----------- | - | ---- | -
|                                        |  | 1% Increase |     |  | 1% Decrease |  
|                                        |  |             |     |  |             |  
|2003 benefit cost                       |  | $           | 67  |  |             | $ | (54  | )
|Recorded liability at December 31, 2003 |  | $           | 606 |  |             | $ | (528 | )

Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003


L. Stockholders Equity






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OM Group, Inc. and
Subsidiaries 
Continued




M. Accumulated Other Comprehensive Income (Loss)


|                                          |                                                     |             |        |             |              |   |            |                 |   |            |           |        |             |               |         |        |   |   |         |         |  
|----------------------------------------- | --------------------------------------------------- | ----------- | ------ | ----------- | ------------ | - | ---------- | --------------- | - | ---------- | --------- | ------ | ----------- | ------------- | ------- | ------ | - | - | ------- | ------- | -
|                                          |                                                     |             |        | Unrealized  |              |   |            |                 |   |            |          
|                                          |                                                     |             |        | Gains and   |              |   |            |                 |   |            |          
|                                          |                                                     |             |        | Losses, Net |              |   | Unrealized |                 |   | Additional |           |        | Accumulated |              
|                                          |                                                     | Foreign     |        |             | on Cash Flow |   |            | Loss on         |   |            | Minimum   |        |             | Other         |        
|                                          |                                                     | Currency    |        |             | Hedging      |   |            | Available for  |   |            | Pension   |        |             | Comprehensive |        
|                                          |                                                     | Translation |        |             | Derivatives  |   |            | Sale Securities |   |            | Liability |        |             | Income (Loss) |        
|(in thousands)                            |                                                     |             |        |             |              |   |            |                 |   |            |           |        |             |               |        
|Balance at December 31, 2000, as restated |                                                     | $           | (3,490 | )           |              | $ |           |                 |   | $          |          |        |             | $             |        |        |   | $ | (3,490  | )      
|                                          | Cumulative effect of accounting changeSFAS No. 133 |             |        |            |              |   |            | (1,558          | ) |            |           |       |             |               |         |       |   |   |         | (1,558  | )
|                                          | Reclassification adjustments                        |             |        |            |              |   |            | 856             |   |            |           |       |             |               |         |       |   |   |         | 856     |  
|                                          | Current period (credit) charge                      |             |        | (5,775      | )            |   |            | (487            | ) |            |           | 1,912  |             |               |         | (5,331 | ) |   |         | (9,681  | )
|                                          | Deferred taxes                                      |             |        |            |              |   |            | 170             |   |            |           | (669   | )           |               |         |       |   |   |         | (499    | )
|                                          |                                                     |             |        |             |              |   |            |                 |   |            |           |        |             |               |        
|Balance at December 31, 2001, as restated |                                                     |             | (9,265 | )           |              |   | (1,019     | )               |   |            | 1,243     |        |             |               | (5,331  | )      |   |   | (14,372 | )      
|                                          | Reclassification adjustments                        |             |        |            |              |   |            | 1,019           |   |            |           | (1,243 | )           |               |         |       |   |   |         | (224    | )
|                                          | Current period (credit) charge                      |             |        | 53,596      |              |   |            | 1,294           |   |            |           |       |             |               |         | (7,371 | ) |   |         | 47,519  |  
|                                          | Deferred taxes                                      |             |        |            |              |   |            | (453            | ) |            |           |       |             |               |         | 1,588  |   |   |         | 1,135   |  
|                                          |                                                     |             |        |             |              |   |            |                 |   |            |           |        |             |               |        
|Balance December 31, 2002, as restated    |                                                     |             | 44,331 |             |              |   | 841        |                 |   |            |          |        |             |               | (11,114 | )      |   |   | 34,058  |        
|                                          | Reclassification adjustments                        |             |        | (74,297     | )            |   |            | (841            | ) |            |           |       |             |               |         | 2,484  |   |   |         | (72,654 | )
|                                          | Current period charge                               |             |        | 47,369      |              |   |            | 10,291          |   |            |           |       |             |               |         | 1,624  |   |   |         | 59,284  |  
|                                          | Deferred taxes                                      |             |        |            |              |   |            | (3,602          | ) |            |           |       |             |               |         |       |   |   |         | (3,602  | )
|                                          |                                                     |             |        |             |              |   |            |                 |   |            |           |        |             |               |        
|Balance December 31, 2003                 |                                                     | $           | 17,403 |             |              | $ | 6,689      |                 |   | $          |          |        |             | $             | (7,006  | )      |   | $ | 17,086  |        
|                                          |                                                     |             |        |             |              |   |            |                 |   |            |           |        |             |               |        

N. Earnings Per Share




|                                                          |  |      |         |          |      |   |          |      |  |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | -------- | ---- | - | -------- | ---- |  | - | ------- | -
|                                                          |  |      |         | Restated |     
|                                                          |  |      |         |          |     
|                                                          |  | 2003 |         |          | 2002 |   |          | 2001 | 
|(in thousands except per share amounts)                   |  |      |         |          |      |   |          |      | 
|Loss from continuing operations                           |  | $    | (56,283 | )        |      | $ | (110,733 | )    |  | $ | (13,105 | )
|Weighted average shares outstandingbasic and diluted     |  |      | 28,354  |          |      |   | 28,039   |      |  |   | 24,021  |  
|Basic loss per common share from continuing operations    |  | $    | (1.99   | )        |      | $ | (3.95    | )    |  | $ | (0.55   | )
|                                                          |  |      |         |          |      |   |          |      | 
|Dilutive loss per common share from continuing operations |  | $    | (1.99   | )        |      | $ | (3.95    | )    |  | $ | (0.55   | )
|                                                          |  |      |         |          |      |   |          |      | 



60



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|                                                        |  |      |        |          |      |   |          |      |  |   |         |  
|------------------------------------------------------- |  | ---- | ------ | -------- | ---- | - | -------- | ---- |  | - | ------- | -
|                                                        |  |      |        | Restated |     
|                                                        |  |      |        |          |     
|                                                        |  | 2003 |        |          | 2002 |   |          | 2001 | 
|(in thousands except per share amounts)                 |  |      |        |          |      |   |          |      | 
|Net income (loss)                                       |  | $    | 83,664 |          |      | $ | (208,756 | )    |  | $ | (35,164 | )
|Weighted average shares outstanding                     |  |      | 28,354 |          |      |   | 28,039   |      |  |   | 24,021  |  
|Dilutive effect of stock options and restricted stock   |  |      | 14     |          |      |   |         |      |  |   |        |  
|                                                        |  |      |        |          |      |   |          |      | 
|Weighted average shares outstanding  assuming dilution |  |      | 28,368 |          |      |   | 28,039   |      |  |   | 24,021  |  
|                                                        |  |      |        |          |      |   |          |      | 
|Basic net income (loss) per common share                |  | $    | 2.95   |          |      | $ | (7.45    | )    |  | $ | (1.46   | )
|                                                        |  |      |        |          |      |   |          |      | 
|Dilutive net income (loss) per common share             |  | $    | 2.95   |          |      | $ | (7.45    | )    |  | $ | (1.46   | )
|                                                        |  |      |        |          |      |   |          |      | 



O. Stock Plans






|                                                               |           |         |           |          |       |   |       |         |          |  |           |          |   |          |       |       |       |  |           |          |   |   |       |       | 
|-------------------------------------------------------------- | --------- | ------- | --------- | -------- | ----- | - | ----- | ------- | -------- |  | --------- | -------- | - | -------- | ----- | ----- | ----- |  | --------- | -------- | - | - | ----- | ----- | 
|                                                               |           | 2003    |           |          | 2002  |   |       | 2001    |         
|                                                               |           |         |           |          |       |   |       |         |         
|                                                               |           |         |           | Weighted |       |   |       |         | Weighted |  |           |          |   | Weighted |      
|                                                               |           |         |           | Average  |       |   |       |         | Average  |  |           |          |   | Average  |      
|                                                               |           |         |           | Exercise |       |   |       |         | Exercise |  |           |          |   | Exercise |      
|                                                               |           | Options |           |          | Price |   |       | Options |          |  | Price     |          |   | Options  |       |       | Price | 
|                                                               |           |         |           |          |       |   |       |         |          |  |           |          |   |          |       |       |       | 
|Outstanding at January 1                                       |           |         | 1,596,561 |          |       | $ | 40.31 |         |          |  | 1,725,045 |          |   | $        | 37.53 |       |       |  | 1,850,263 |          |   | $ | 30.33 |      
|                                                               | Granted   |         |           | 322,409  |       |   |       | 18.18   |          |  |           | 54,700   |   |          |       | 62.83 |       |  |           | 265,276  |   |   |       | 57.33 | 
|                                                               | Exercised |         |           | (27,910  | )     |   |       | 14.57   |          |  |           | (183,184 | ) |          |       | 20.81 |       |  |           | (390,494 | ) |   |       | 16.48 | 
|                                                               | Cancelled |         |           | (562,369 | )     |   |       | 44.44   |          |  |           |         |   |          |       |      |       |  |           |         |   |   |       |      | 
|                                                               |           |         |           |          |       |   |       |         |          |  |           |          |   |          |       |       |       | 
|Outstanding at December 31                                     |           |         | 1,328,691 |          |       | $ | 33.82 |         |          |  | 1,596,561 |          |   | $        | 40.31 |       |       |  | 1,725,045 |          |   | $ | 37.53 |      
|Exercisable at end of year                                     |           |         | 1,006,282 |          |       |   |       |         |          |  | 1,541,861 |          |   |          |       |       |       |  | 1,472,933 |          |   |   |       |      
|Weighted-average fair value of options granted during the year |           |         |           |          |       | $ | 8.20  |         |          |  |           |          |   | $        | 36.68 |       |       |  |           |          |   | $ | 14.86 |      



61



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|                          |               |             |  |           |             |  |          |          |  |  |           |          |  |          |  |         |  |  |   |       | 
|------------------------- | ------------- | ----------- |  | --------- | ----------- |  | -------- | -------- |  |  | --------- | -------- |  | -------- |  | ------- |  |  | - | ----- | 
|                          |               | Outstanding |  |           | Exercisable | 
|                          |               |             |  |           |             | 
|                          |               |             |  | Weighted  |             |  |          |          | 
|                          |               |             |  | Average   |             |  | Weighted |          |  |  |           | Weighted | 
|                          |               |             |  | Remaining |             |  | Average  |          |  |  |           | Average  | 
|                          |               | Number of   |  |           | Contractual |  |          | Exercise |  |  | Number of |          |  | Exercise | 
|                          |               | Shares      |  |           | Life        |  |          | Price    |  |  | Shares    |          |  | Price    | 
|                          |               |             |  |           |             |  |          |          |  |  |           |          |  |          | 
|Range of exercise prices: |               |             |  |           |             |  |          |          |  |  |           |          |  |          |  |         |  |  |   |      
|                          | $11.06-$16.59 |             |  | 72,266    |             |  |          | 1.1      |  |  | $         | 12.88    |  |          |  | 72,266  |  |  | $ | 12.88 | 
|                          | $16.60-$24.90 |             |  | 403,610   |             |  |          | 8.4      |  |  | $         | 18.47    |  |          |  | 81,201  |  |  | $ | 19.64 | 
|                          | $24.91-$37.37 |             |  | 383,503   |             |  |          | 5.2      |  |  | $         | 33.54    |  |          |  | 383,503 |  |  | $ | 33.54 | 
|                          | $37.38-$56.07 |             |  | 298,312   |             |  |          | 6.2      |  |  | $         | 44.64    |  |          |  | 298,312 |  |  | $ | 44.64 | 
|                          | $56.08-$66.45 |             |  | 171,000   |             |  |          | 8.3      |  |  | $         | 60.62    |  |          |  | 171,000 |  |  | $ | 60.62 | 

P. Commitments and Contingencies




|      |  |   |           | 
|----- |  | - | --------- | 
|2004  |  | $ | 635,401   | 
|2005  |  |   | 518,298   | 
|2006  |  |   | 256,697   | 
|2007  |  |   | 201,268   | 
|2008  |  |   | 193,320   | 
|2009  |  |   | 40,262    | 
|      |  |   |          
|Total |  | $ | 1,845,246 | 
|      |  |   |          







62



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued












Q. Lease Obligations




63



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|Year Ending December 31      |  |  
|                             |  |  
|2004                         |  | $ | 4,357  | 
|2005                         |  |   | 3,803  | 
|2006                         |  |   | 3,134  | 
|2007                         |  |   | 2,940  | 
|2008                         |  |   | 2,777  | 
|2009 and thereafter          |  |   | 4,601  | 
|                             |  |   |       
|Total minimum lease payments |  | $ | 21,612 | 
|                             |  |   |       

R. Investment and Other Income, Net


|                                           |  |      |        |  |      |   |       |      |  |   |        |  
|------------------------------------------ |  | ---- | ------ |  | ---- | - | ----- | ---- |  | - | ------ | -
|                                           |  | 2003 |        |  | 2002 |   |       | 2001 | 
|(in thousands)                             |  |      |        |  |      |   |       |      | 
|Interest income from joint venture partner |  | $    | 6,895  |  |      | $ |      |      |  | $ |       |  
|Gain on sale of businesses                 |  |      | 4,609  |  |      |   | 1,213 |      |  |   |       |  
|Loss on ineffective interest rate swaps    |  |      |       |  |      |   |      |      |  |   | (2,996 | )
|Other, net                                 |  |      | 888    |  |      |   | 403   |      |  |   | 3,045  |  
|                                           |  |      |        |  |      |   |       |      | 
|Total                                      |  | $    | 12,392 |  |      | $ | 1,616 |      |  | $ | 49     |  
|                                           |  |      |        |  |      |   |       |      | 



S. Reportable Segments and Geographic Information








64



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued






|                                                                               |                                     |      |           |          |      |   |           |           |   |   |         |         |  
|------------------------------------------------------------------------------ | ----------------------------------- | ---- | --------- | -------- | ---- | - | --------- | --------- | - | - | ------- | ------- | -
|                                                                               |                                     |      |           | Restated |     
|                                                                               |                                     |      |           |          |     
|                                                                               |                                     | 2003 |           |          | 2002 |   |           | 2001      |  
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Business Segment Information                                                   |                                     |      |           |          |      |   |           |           |   |   |         |        
|Net Sales                                                                      |                                     |      |           |          |      |   |           |           |   |   |         |        
|                                                                               | Cobalt                              |      | $         | 379,890  |      |   | $         | 354,042   |   |   | $       | 336,418 |  
|                                                                               | Nickel                              |      |           | 567,897  |      |   |           | 428,336   |   |   |         | 391,060 |  
|                                                                               | Intercompany sales between segments |      |           | (35,642  | )    |   |           | (43,450   | ) |   |         | (45,921 | )
|                                                                               |                                     |      |           |          |      |   |           |           |  
|                                                                               |                                     | $    | 912,145   |          |      | $ | 738,928   |           |   | $ | 681,557 |        
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Segment operating profit (loss)                                                |                                     |      |           |          |      |   |           |           |   |   |         |        
|                                                                               | Cobalt(a)                           |      | $         | 55,036   |      |   | $         | (40,776   | ) |   | $       | 3,012   |  
|                                                                               | Nickel(b)                           |      |           | 58,263   |      |   |           | 22,701    |   |   |         | 39,491  |  
|                                                                               | Corporate(c)                        |      |           | (130,325 | )    |   |           | (69,873   | ) |   |         | (20,213 | )
|                                                                               |                                     |      |           |          |      |   |           |           |  
|                                                                               |                                     |      | (17,026   | )        |      |   | (87,948   | )         |   |   | 22,290  |        
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Interest expense                                                               |                                     |      | (41,052   | )        |      |   | (39,690   | )         |   |   | (35,135 | )      
|Foreign exchange gain/(loss)                                                   |                                     |      | 3,023     |          |      |   | (6,517    | )         |   |   | (1,425  | )      
|Investment and other income, net                                               |                                     |      | 12,392    |          |      |   | 1,616     |           |   |   | 49      |        
|                                                                               |                                     |      |           |          |      |   |           |           |  
|                                                                               |                                     |      | (25,637   | )        |      |   | (44,591   | )         |   |   | (36,511 | )      
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Loss from continuing operations before income taxes and minority
    interests |                                     | $    | (42,663   | )        |      | $ | (132,539  | )         |   | $ | (14,221 | )      
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Total assets                                                                   |                                     |      |           |          |      |   |           |           |   |   |         |        
|                                                                               | Cobalt                              |      | $         | 647,615  |      |   | $         | 642,075   |   |   |         |         |  
|                                                                               | Nickel                              |      |           | 539,008  |      |   |           | 413,270   |   |   |         |         |  
|                                                                               | Corporate                           |      |           | 24,815   |      |   |           | 25,501    |   |   |         |         |  
|                                                                               | Discontinued operations             |      |           |         |      |   |           | 1,024,461 |   |   |         |         |  
|                                                                               |                                     |      |           |          |      |   |           |           |  
|                                                                               |                                     | $    | 1,211,438 |          |      | $ | 2,105,307 |           |   |   |         |        
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Expenditures for property, plant & equipment                                   |                                     |      |           |          |      |   |           |           |   |   |         |        
|                                                                               | Cobalt                              |      | $         | 5,713    |      |   | $         | 23,378    |   |   | $       | 46,290  |  
|                                                                               | Nickel                              |      |           | 5,197    |      |   |           | 37,856    |   |   |         | 30,480  |  
|                                                                               | Corporate                           |      |           |         |      |   |           | 276       |   |   |         |        |  
|                                                                               |                                     |      |           |          |      |   |           |           |  
|                                                                               |                                     | $    | 10,910    |          |      | $ | 61,510    |           |   | $ | 76,770  |        
|                                                                               |                                     |      |           |          |      |   |           |           |  
|Depreciation and amortization                                                  |                                     |      |           |          |      |   |           |           |   |   |         |        
|                                                                               | Cobalt                              |      | $         | 35,458   |      |   | $         | 33,536    |   |   | $       | 27,440  |  
|                                                                               | Nickel                              |      |           | 18,674   |      |   |           | 16,376    |   |   |         | 16,103  |  
|                                                                               | Corporate                           |      |           | 2,310    |      |   |           | 219       |   |   |         | 207     |  
|                                                                               |                                     |      |           |          |      |   |           |           |  
|                                                                               |                                     | $    | 56,442    |          |      | $ | 50,131    |           |   | $ | 43,750  |        
|                                                                               |                                     |      |           |          |      |   |           |           |  

65



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|                             |  |                             |         |     |        |   |        |              |  |   |         | 
|---------------------------- |  | --------------------------- | ------- | --- | ------ | - | ------ | ------------ |  | - | ------- | 
|                             |  | Carrying Amount of Goodwill |        
|                             |  |                             |        
|                             |  |                             |         | OMG |       
|                             |  | Cobalt                      |         |     | Nickel |   |        | Consolidated | 
|                             |  |                             |         |     |        |   |        |              | 
|Balance at January 1, 2003   |  | $                           | 110,186 |     |        | $ | 64,713 |              |  | $ | 174,899 | 
|Foreign currency translation |  |                             | 3,779   |     |        |   |       |              |  |   | 3,779   | 
|                             |  |                             |         |     |        |   |        |              | 
|Balance at December 31, 2003 |  | $                           | 113,965 |     |        | $ | 64,713 |              |  | $ | 178,678 | 
|                             |  |                             |         |     |        |   |        |              | 

|                              |  |          |         |           |           |   |         | 
|----------------------------- |  | -------- | ------- | --------- | --------- | - | ------- | 
|                              |  |          |         | Property, |          
|                              |  | Net      |         |           | Plant and |  
|                              |  | Sales(d) |         |           | Equipment |  
|                              |  |          |         |           |           |  
|Geographic Region Information |  |          |         |           |           |   |         | 
|2003                          |  |          |         |           |           |   |         | 
|Finland                       |  | $        | 608,007 |           |           | $ | 218,957 | 
|United States                 |  |          | 136,814 |           |           |   | 33,489  | 
|Japan                         |  |          | 105,989 |           |           |   | 141     | 
|Other                         |  |          | 61,335  |           |           |   | 52,789  | 
|Democratic Republic of Congo  |  |          |        |           |           |   | 105,984 | 
|                              |  |          |         |           |           |  
|                              |  | $        | 912,145 |           |           | $ | 411,360 | 
|                              |  |          |         |           |           |  

|                             |  |          |         |  |  |   |         | 
|---------------------------- |  | -------- | ------- |  |  | - | ------- | 
|                             |  | Restated |        
|2002                         |  |          |        
|Finland                      |  | $        | 484,896 |  |  | $ | 229,637 | 
|United States                |  |          | 145,437 |  |  |   | 48,042  | 
|Japan                        |  |          | 48,057  |  |  |   | 210     | 
|Other                        |  |          | 60,538  |  |  |   | 47,441  | 
|Democratic Republic of Congo |  |          |        |  |  |   | 117,672 | 
|                             |  |          |         |  |  |  
|                             |  | $        | 738,928 |  |  | $ | 443,002 | 
|                             |  |          |         |  |  |  

|              |  |          |         |  |  |  |  | 
|------------- |  | -------- | ------- |  |  |  |  | 
|              |  | Restated |         |  | 
|2001          |  |          |         |  | 
|Finland       |  | $        | 470,307 |  |  |  |  | 
|United States |  |          | 147,721 |  |  |  |  | 
|Other         |  |          | 63,529  |  |  |  |  | 
|              |  |          |         |  |  | 
|              |  | $        | 681,557 |  |  |  |  | 
|              |  |          |         |  |  | 






|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Cobalt segment operating profit (loss) in 2003 and 2002 includes
    restructuring charges of $9.6 million and
    $39.1 million, respectively.                                                                                     
|   
|(b) | Nickel segment operating profit (loss) in 2003 and 2002 includes
    restructuring charges of $4.1 million and
    $6.4 million, respectively.                                                                                      
|   
|(c) | Corporate expenses in 2003 include a charge of
    $84.5 million related to the shareholder litigation and
    restructuring charges of $6.3 million. Corporate expenses
    in 2002 include restructuring charges of $37.0 million.
|   
|(d) | Net sales attributed to the geographic area based on the
    location of the manufacturing facility, except for Japan, which
    is a sales office.                                                                                 

T. Guarantor and Non-Guarantor Subsidiary Information




66



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |            |          |   |   |           |         | 
|------------------------------------------------- | ------------------------- | ----------------- | ------- | -------- | ------------ | - | -------- | ------------- |  | - | ------------ | ------- |  | ----- | ---------- | -------- | - | - | --------- | ------- | 
|                                                  |                           | December 31, 2003 |        
|                                                  |                           |                   |        
|                                                  |                           |                   |         | Combined |              |   | Combined |               |  |  
|                                                  |                           | The               |         |          | Guarantor    |   |          | Non-guarantor |  |   |             
|                                                  |                           | Company           |         |          | Subsidiaries |   |          | Subsidiaries  |  |   | Eliminations |         |  | Total |           
|Balance Sheet Data                                |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           
|Current assets:                                   |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |            |          |   |   |           |        
|                                                  | Cash and cash equivalents |                   | $       | 8,839    |              |   | $        | 4,553         |  |   | $            | 41,327  |  |       | $          |         |   |   | $         | 54,719  | 
|                                                  | Accounts receivable       |                   |         | 424,455  |              |   |          | 45,979        |  |   |              | 511,343 |  |       |            | (845,077 | ) |   |           | 136,700 | 
|                                                  | Inventories               |                   |         |         |              |   |          | 33,151        |  |   |              | 236,050 |  |       |            |         |   |   |           | 269,201 | 
|                                                  | Other assets              |                   |         | 166      |              |   |          | 4,712         |  |   |              | 60,191  |  |       |            |         |   |   |           | 65,069  | 
|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           
|Total current assets                              |                           |                   | 433,460 |          |              |   | 88,395   |               |  |   | 848,911      |         |  |       | (845,077   | )        |   |   | 525,689   |        
|Property, plant and equipment  net               |                           |                   |        |          |              |   | 37,606   |               |  |   | 373,754      |         |  |       |           |          |   |   | 411,360   |        
|Goodwill                                          |                           |                   | 75,830  |          |              |   | 68,908   |               |  |   | 33,940       |         |  |       |           |          |   |   | 178,678   |        
|Intercompany receivables                          |                           |                   | 287,620 |          |              |   |         |               |  |   | 1,027,343    |         |  |       | (1,314,963 | )        |   |   |          |        
|Investment in subsidiaries                        |                           |                   | 55,124  |          |              |   |         |               |  |   | 2,160,526    |         |  |       | (2,215,650 | )        |   |   |          |        
|Other assets                                      |                           |                   | 11,711  |          |              |   | 9,804    |               |  |   | 74,196       |         |  |       |           |          |   |   | 95,711    |        
|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           
|Total assets                                      |                           | $                 | 863,745 |          |              | $ | 204,713  |               |  | $ | 4,518,670    |         |  | $     | (4,375,690 | )        |   | $ | 1,211,438 |        
|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           
|Current liabilities:                              |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |            |          |   |   |           |        
|                                                  | Accounts payable          |                   | $       | (5,290   | )            |   | $        | 76,677        |  |   | $            | 571,427 |  |       | $          | (506,624 | ) |   | $         | 136,190 | 
|                                                  | Other accrued expenses    |                   |         | 14,513   |              |   |          | 28,303        |  |   |              | 66,120  |  |       |            |         |   |   |           | 108,936 | 
|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           
|Total current liabilities                         |                           |                   | 9,223   |          |              |   | 104,980  |               |  |   | 637,547      |         |  |       | (506,624   | )        |   |   | 245,126   |        
|Long-term debt                                    |                           |                   | 407,547 |          |              |   |         |               |  |   | 22,919       |         |  |       |           |          |   |   | 430,466   |        
|Deferred income taxes                             |                           |                   | 5,265   |          |              |   |         |               |  |   | 23,777       |         |  |       |           |          |   |   | 29,042    |        
|Other long-term liabilities and minority interest |                           |                   | 91,258  |          |              |   | 15,415   |               |  |   | 49,679       |         |  |       |           |          |   |   | 156,352   |        
|Intercompany payables                             |                           |                   |        |          |              |   | 419,566  |               |  |   | 1,220,445    |         |  |       | (1,640,011 | )        |   |   |          |        
|Stockholders equity                              |                           |                   | 350,452 |          |              |   | (335,248 | )             |  |   | 2,564,303    |         |  |       | (2,229,055 | )        |   |   | 350,452   |        
|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           
|Total liabilities & stockholders equity          |                           | $                 | 863,745 |          |              | $ | 204,713  |               |  | $ | 4,518,670    |         |  | $     | (4,375,690 | )        |   | $ | 1,211,438 |        
|                                                  |                           |                   |         |          |              |   |          |               |  |   |              |         |  |       |           

67



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |          |   |  |   |         |  
|------------------------------------------------------- |  | ----------------- | ------- | -------- | ------------ | - | -------- | ------------- |  | - | ------------ | - |  | ----- | -------- | - |  | - | ------- | -
|                                                        |  | December 31, 2003 |        
|                                                        |  |                   |        
|                                                        |  |                   |         | Combined |              |   | Combined |               |  |  
|                                                        |  | The               |         |          | Guarantor    |   |          | Non-guarantor |  |   |             
|                                                        |  | Company           |         |          | Subsidiaries |   |          | Subsidiaries  |  |   | Eliminations |   |  | Total |         
|Income Statement                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         
|Net sales                                               |  | $                 |        |          |              | $ | 166,462  |               |  | $ | 1,008,933    |   |  | $     | (263,250 | ) |  | $ | 912,145 |  
|Cost of products sold                                   |  |                   |        |          |              |   | 128,806  |               |  |   | 866,592      |   |  |       | (263,250 | ) |  |   | 732,148 |  
|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         
|                                                        |  |                   |        |          |              |   | 37,656   |               |  |   | 142,341      |   |  |       |         |   |  |   | 179,997 |  
|Selling, general and administrative expenses            |  |                   |        |          |              |   | 159,338  |               |  |   | 37,685       |   |  |       |         |   |  |   | 197,023 |  
|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) from operations                           |  |                   |        |          |              |   | (121,682 | )             |  |   | 104,656      |   |  |       |         |   |  |   | (17,026 | )
|Interest expense                                        |  |                   | (69,116 | )        |              |   | (12,031  | )             |  |   | (31,214      | ) |  |       | 71,309   |   |  |   | (41,052 | )
|Investment and other income, net                        |  |                   | 14,202  |          |              |   | 6,268    |               |  |   | 63,231       |   |  |       | (71,309  | ) |  |   | 12,392  |  
|Foreign exchange gain (loss)                            |  |                   | (4,236  | )        |              |   | 194      |               |  |   | 7,065        |   |  |       |         |   |  |   | 3,023   |  
|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) before income taxes and minority interest |  |                   | (59,150 | )        |              |   | (127,251 | )             |  |   | 143,738      |   |  |       |         |   |  |   | (42,663 | )
|Income tax expense                                      |  |                   |        |          |              |   |         |               |  |   | 14,534       |   |  |       |         |   |  |   | 14,534  |  
|Minority interest losses                                |  |                   |        |          |              |   |         |               |  |   | (914         | ) |  |       |         |   |  |   | (914    | )
|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) from continuing operations                |  |                   | (59,150 | )        |              |   | (127,251 | )             |  |   | 130,118      |   |  |       |         |   |  |   | (56,283 | )
|Income (loss) from discontinued operations, net of tax  |  |                   | 120,042 |          |              |   | (47,155  | )             |  |   | 67,060       |   |  |       |         |   |  |   | 139,947 |  
|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         
|Net income (loss)                                       |  | $                 | 60,892  |          |              | $ | (174,406 | )             |  | $ | 197,178      |   |  | $     |         |   |  | $ | 83,664  |  
|                                                        |  |                   |         |          |              |   |          |               |  |   |              |   |  |       |         

68



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |   |   |  |   |          |          |  
|------------------------------------------------------------ | --------------------------------------------------- | ----------------- | -------- | -------- | ------------ | - | -------- | ------------- | - | - | ------------ | ------ | ----- | - | - | - |  | - | -------- | -------- | -
|                                                             |                                                     | December 31, 2003 |         
|                                                             |                                                     |                   |         
|                                                             |                                                     |                   |          | Combined |              |   | Combined |               |   |  
|                                                             |                                                     | The               |          |          | Guarantor    |   |          | Non-guarantor |   |   |             
|                                                             |                                                     | Company           |          |          | Subsidiaries |   |          | Subsidiaries  |   |   | Eliminations |        | Total |  
|Cash Flow Data                                               |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |  
|Net cash provided (used) by operating activities             |                                                     | $                 | (57,964  | )        |              | $ | 7,919    |               |   | $ | 78,310       |        |       | $ |  |   |  | $ | 28,265   |         
|Investing activities:                                        |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |   |   |  |   |          |         
|                                                             | Expenditures for property plant and equipment  net |                   |          |         |              |   |          | (5,074        | ) |   |              | (5,836 | )     |   |   |  |  |   |          | (10,910  | )
|                                                             | Acquisition of businesses                           |                   |          | (11,151  | )            |   |          |              |   |   |              |       |       |   |   |  |  |   |          | (11,151  | )
|                                                             | Proceeds from sale of businesses                    |                   |          | 871,281  |              |   |          |              |   |   |              |       |       |   |   |  |  |   |          | 871,281  |  
|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |  
|Net cash provided (used) by investing activities             |                                                     |                   | 860,130  |          |              |   | (5,074   | )             |   |   | (5,836       | )      |       |   |  |   |  |   | 849,220  |         
|Financing activities:                                        |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |   |   |  |   |          |         
|                                                             | Long-term borrowings                                |                   |          |         |              |   |          |              |   |   |              | 22,919 |       |   |   |  |  |   |          | 22,919   |  
|                                                             | Payments of long-term debt                          |                   |          | (794,400 | )            |   |          |              |   |   |              |       |       |   |   |  |  |   |          | (794,400 | )
|                                                             | Proceeds from exercise of stock options             |                   |          | 406      |              |   |          |              |   |   |              |       |       |   |   |  |  |   |          | 406      |  
|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |  
|Net cash provided (used) by financing activities             |                                                     |                   | (793,994 | )        |              |   |         |               |   |   | 22,919       |        |       |   |  |   |  |   | (771,075 | )       
|Effect of exchange rate changes on cash and cash equivalents |                                                     |                   |         |          |              |   |         |               |   |   | 6,238        |        |       |   |  |   |  |   | 6,238    |         
|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |  
|Cash provided by continuing operations                       |                                                     |                   | 8,172    |          |              |   | 2,845    |               |   |   | 101,631      |        |       |   |  |   |  |   | 112,648  |         
|Cash used by discontinuing operations                        |                                                     |                   |         |          |              |   |         |               |   |   | (70,399      | )      |       |   |  |   |  |   | (70,399  | )       
|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |  
|Increase in cash and cash equivalents                        |                                                     |                   | 8,172    |          |              |   | 2,845    |               |   |   | 31,232       |        |       |   |  |   |  |   | 42,249   |         
|Cash and cash equivalents at beginning of the year           |                                                     |                   | 667      |          |              |   | 1,708    |               |   |   | 10,095       |        |       |   |  |   |  |   | 12,470   |         
|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |  
|Cash and cash equivalents at end of the year                 |                                                     | $                 | 8,839    |          |              | $ | 4,553    |               |   | $ | 41,327       |        |       | $ |  |   |  | $ | 54,719   |         
|                                                             |                                                     |                   |          |          |              |   |          |               |   |   |              |        |       |   |  

69



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |            |            |   |   |           |         | 
|------------------------------------------ | --------------------------------- | ------------------------------ | --------- | -------- | ------------ | - | -------- | ------------- |  | - | ------------ | ------- |  | ----- | ---------- | ---------- | - | - | --------- | ------- | 
|                                           |                                   | December 31, 2002, as restated |          
|                                           |                                   |                                |          
|                                           |                                   |                                |           | Combined |              |   | Combined |               |  |  
|                                           |                                   | The                            |           |          | Guarantor    |   |          | Non-guarantor |  |   |             
|                                           |                                   | Company                        |           |          | Subsidiaries |   |          | Subsidiaries  |  |   | Eliminations |         |  | Total |           
|Balance Sheet Data                         |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           
|Current assets:                            |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |            |            |   |   |           |        
|                                           | Cash and cash equivalents         |                                | $         | 667      |              |   | $        | 1,708         |  |   | $            | 10,095  |  |       | $          |           |   |   | $         | 12,470  | 
|                                           | Accounts receivable               |                                |           | 752,800  |              |   |          | 94,587        |  |   |              | 334,290 |  |       |            | (1,081,451 | ) |   |           | 100,226 | 
|                                           | Inventories                       |                                |           |         |              |   |          | 39,315        |  |   |              | 172,672 |  |       |            |           |   |   |           | 211,987 | 
|                                           | Other assets                      |                                |           | 5,904    |              |   |          | 4,279         |  |   |              | 41,365  |  |       |            |           |   |   |           | 51,548  | 
|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           
|Total current assets                       |                                   |                                | 759,371   |          |              |   | 139,889  |               |  |   | 558,422      |         |  |       | (1,081,451 | )          |   |   | 376,231   |        
|Property, plant and equipment  net        |                                   |                                | 652       |          |              |   | 47,345   |               |  |   | 395,005      |         |  |       |           |            |   |   | 443,002   |        
|Goodwill                                   |                                   |                                | 75,703    |          |              |   | 68,668   |               |  |   | 30,528       |         |  |       |           |            |   |   | 174,899   |        
|Intercompany receivables                   |                                   |                                | 829,356   |          |              |   |         |               |  |   | 1,323,936    |         |  |       | (2,153,292 | )          |   |   |          |        
|Investment in subsidiaries                 |                                   |                                | (143,762  | )        |              |   | 360,631  |               |  |   | 2,220,700    |         |  |       | (2,437,569 | )          |   |   |          |        
|Assets of discontinued operations          |                                   |                                |          |          |              |   | 253,935  |               |  |   | 770,526      |         |  |       |           |            |   |   | 1,024,461 |        
|Other assets                               |                                   |                                | 14,426    |          |              |   | 11,973   |               |  |   | 60,315       |         |  |       |           |            |   |   | 86,714    |        
|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           
|Total assets                               |                                   | $                              | 1,535,746 |          |              | $ | 882,441  |               |  | $ | 5,359,432    |         |  | $     | (5,672,312 | )          |   | $ | 2,105,307 |        
|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           
|Current liabilities:                       |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |            |            |   |   |           |        
|                                           | Current portion of long-term debt |                                | $         | 6,750    |              |   | $        |              |  |   | $            |        |  |       | $          |           |   |   | $         | 6,750   | 
|                                           | Accounts payable                  |                                |           | 56,079   |              |   |          | 339,388       |  |   |              | 418,234 |  |       |            | (713,746   | ) |   |           | 99,955  | 
|                                           | Other accrued expenses            |                                |           | (11,688  | )            |   |          | 24,072        |  |   |              | 53,226  |  |       |            |           |   |   |           | 65,610  | 
|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           
|Total current liabilities                  |                                   |                                | 51,141    |          |              |   | 363,460  |               |  |   | 471,460      |         |  |       | (713,746   | )          |   |   | 172,315   |        
|Long term debt                             |                                   |                                | 1,195,637 |          |              |   |         |               |  |   |             |         |  |       |           |            |   |   | 1,195,637 |        
|Deferred income taxes                      |                                   |                                |          |          |              |   |         |               |  |   | 15,021       |         |  |       |           |            |   |   | 15,021    |        
|Other long-term liabilities                |                                   |                                | 8,128     |          |              |   | 11,873   |               |  |   | 49,967       |         |  |       |           |            |   |   | 69,968    |        
|Intercompany payables                      |                                   |                                |          |          |              |   | 405,951  |               |  |   | 1,331,616    |         |  |       | (1,737,567 | )          |   |   |          |        
|Liabilities of discontinued operations     |                                   |                                |          |          |              |   | 56,830   |               |  |   | 314,696      |         |  |       |           |            |   |   | 371,526   |        
|Stockholders equity                       |                                   |                                | 280,840   |          |              |   | 44,327   |               |  |   | 3,176,672    |         |  |       | (3,220,999 | )          |   |   | 280,840   |        
|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           
|Total liabilities and stockholders equity |                                   | $                              | 1,535,746 |          |              | $ | 882,441  |               |  | $ | 5,359,432    |         |  | $     | (5,672,312 | )          |   | $ | 2,105,307 |        
|                                           |                                   |                                |           |          |              |   |          |               |  |   |              |         |  |       |           

70



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |          |   |  |   |          |  
|------------------------------------------------------- |  | ------------------------------ | ------- | -------- | ------------ | - | -------- | ------------- |  | - | ------------ | - |  | ----- | -------- | - |  | - | -------- | -
|                                                        |  | December 31, 2002, as restated |        
|                                                        |  |                                |        
|                                                        |  |                                |         | Combined |              |   | Combined |               |  |  
|                                                        |  | The                            |         |          | Guarantor    |   |          | Non-guarantor |  |   |             
|                                                        |  | Company                        |         |          | Subsidiaries |   |          | Subsidiaries  |  |   | Eliminations |   |  | Total |         
|Income Statement Data                                   |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Net sales                                               |  | $                              |        |          |              | $ | 163,746  |               |  | $ | 783,979      |   |  | $     | (208,797 | ) |  | $ | 738,928  |  
|Cost of products sold                                   |  |                                |        |          |              |   | 133,226  |               |  |   | 766,425      |   |  |       | (208,797 | ) |  |   | 690,854  |  
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|                                                        |  |                                |        |          |              |   | 30,520   |               |  |   | 17,554       |   |  |       |         |   |  |   | 48,074   |  
|Selling, general and administrative expense             |  |                                |        |          |              |   | 102,222  |               |  |   | 33,800       |   |  |       |         |   |  |   | 136,022  |  
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Loss from operations                                    |  |                                |        |          |              |   | (71,702  | )             |  |   | (16,246      | ) |  |       |         |   |  |   | (87,948  | )
|Interest expense                                        |  |                                | (77,964 | )        |              |   | (13,273  | )             |  |   | (15,781      | ) |  |       | 67,328   |   |  |   | (39,690  | )
|Investment and other income, net                        |  |                                | 15,910  |          |              |   | 527      |               |  |   | 52,507       |   |  |       | (67,328  | ) |  |   | 1,616    |  
|Foreign exchange gain (loss)                            |  |                                | 819     |          |              |   | 4        |               |  |   | (7,340       | ) |  |       |         |   |  |   | (6,517   | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) before income taxes and minority interest |  |                                | (61,235 | )        |              |   | (84,444  | )             |  |   | 13,140       |   |  |       |         |   |  |   | (132,539 | )
|Income tax benefit                                      |  |                                |        |          |              |   |         |               |  |   | (13,591      | ) |  |       |         |   |  |   | (13,591  | )
|Minority interest losses                                |  |                                |        |          |              |   |         |               |  |   | (8,215       | ) |  |       |         |   |  |   | (8,215   | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) from continuing operations                |  |                                | (61,235 | )        |              |   | (84,444  | )             |  |   | 34,946       |   |  |       |         |   |  |   | (110,733 | )
|Income (loss) from discontinued operations, net of tax  |  |                                | (14,073 | )        |              |   | 37,667   |               |  |   | (121,617     | ) |  |       |         |   |  |   | (98,023  | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Net loss                                                |  | $                              | (75,308 | )        |              | $ | (46,777  | )             |  | $ | (86,671      | ) |  | $     |         |   |  | $ | (208,756 | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         

71



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |   |   |  |   |         |          |  
|------------------------------------------------------------ | --------------------------------------------------- | ------------------------------ | ------- | -------- | ------------ | - | -------- | ------------- | - | - | ------------ | ------- | ----- | - | - | - |  | - | ------- | -------- | -
|                                                             |                                                     | December 31, 2002, as restated |        
|                                                             |                                                     |                                |        
|                                                             |                                                     |                                |         | Combined |              |   | Combined |               |   |  
|                                                             |                                                     | The                            |         |          | Guarantor    |   |          | Non-guarantor |   |   |             
|                                                             |                                                     | Company                        |         |          | Subsidiaries |   |          | Subsidiaries  |   |   | Eliminations |         | Total |  
|Cash Flow Data                                               |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |  
|Net cash provided (used) by operating activities             |                                                     | $                              | (78,949 | )        |              | $ | 7,452    |               |   | $ | 70,896       |         |       | $ |  |   |  | $ | (601    | )       
|Investing activities:                                        |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |   |   |  |   |         |         
|                                                             | Expenditures for property plant and equipment  net |                                |         |         |              |   |          | (6,151        | ) |   |              | (55,359 | )     |   |   |  |  |   |         | (61,510  | )
|                                                             | Acquisitions of businesses                          |                                |         | (13,275  | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |         | (13,275  | )
|                                                             | Proceeds from sale of businesses                    |                                |         | 4,000    |              |   |          |              |   |   |              |        |       |   |   |  |  |   |         | 4,000    |  
|                                                             | Investments in nonconsolidated joint ventures       |                                |         | (3,566   | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |         | (3,566   | )
|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |  
|Net cash used by investing activities                        |                                                     |                                | (12,841 | )        |              |   | (6,151   | )             |   |   | (55,359      | )       |       |   |  |   |  |   | (74,351 | )       
|Financing activities:                                        |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |   |   |  |   |         |         
|                                                             | Long-term borrowings                                |                                |         | 99,910   |              |   |          |              |   |   |              |        |       |   |   |  |  |   |         | 99,910   |  
|                                                             | Payments of long-term debt                          |                                |         | (226,205 | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |         | (226,205 | )
|                                                             | Proceeds from exercise of stock options             |                                |         | 3,808    |              |   |          |              |   |   |              |        |       |   |   |  |  |   |         | 3,808    |  
|                                                             | Proceeds from sale of common shares                 |                                |         | 226,205  |              |   |          |              |   |   |              |        |       |   |   |  |  |   |         | 226,205  |  
|                                                             | Dividend payments                                   |                                |         | (11,899  | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |         | (11,899  | )
|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |  
|Net cash provided by financing activities                    |                                                     |                                | 91,819  |          |              |   |         |               |   |   |             |         |       |   |  |   |  |   | 91,819  |         
|Effect of exchange rate changes on cash and cash equivalents |                                                     |                                |        |          |              |   |         |               |   |   | 1,092        |         |       |   |  |   |  |   | 1,092   |         
|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |  
|Cash provided (used) by continuing operations                |                                                     |                                | 29      |          |              |   | 1,301    |               |   |   | 16,629       |         |       |   |  |   |  |   | 17,959  |         
|Cash used by discontinuing operations                        |                                                     |                                |        |          |              |   | (1,241   | )             |   |   | (23,805      | )       |       |   |  |   |  |   | (25,046 | )       
|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |  
|Increase (decrease) in cash and cash equivalents             |                                                     |                                | 29      |          |              |   | 60       |               |   |   | (7,176       | )       |       |   |  |   |  |   | (7,087  | )       
|Cash and cash equivalents at beginning of the year           |                                                     |                                | 638     |          |              |   | 1,648    |               |   |   | 17,271       |         |       |   |  |   |  |   | 19,557  |         
|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |  
|Cash and cash equivalents at end of the year                 |                                                     | $                              | 667     |          |              | $ | 1,708    |               |   | $ | 10,095       |         |       | $ |  |   |  | $ | 12,470  |         
|                                                             |                                                     |                                |         |          |              |   |          |               |   |   |              |         |       |   |  

72



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |          |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------ | ------- | -------- | ------------ | - | -------- | ------------- |  | - | ------------ | - |  | ----- | -------- | - |  | - | ------- | -
|                                                        |  | December 31, 2001, as restated |        
|                                                        |  |                                |        
|                                                        |  |                                |         | Combined |              |   | Combined |               |  |  
|                                                        |  | The                            |         |          | Guarantor    |   |          | Non-guarantor |  |   |             
|                                                        |  | Company                        |         |          | Subsidiaries |   |          | Subsidiaries  |  |   | Eliminations |   |  | Total |         
|Income Statement Data                                   |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Net sales                                               |  | $                              |        |          |              | $ | 171,459  |               |  | $ | 911,161      |   |  | $     | (401,063 | ) |  | $ | 681,557 |  
|Cost of products sold                                   |  |                                |        |          |              |   | 157,337  |               |  |   | 821,714      |   |  |       | (401,063 | ) |  |   | 577,988 |  
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|                                                        |  |                                |        |          |              |   | 14,122   |               |  |   | 89,447       |   |  |       |         |   |  |   | 103,569 |  
|Selling, general and administrative expense             |  |                                |        |          |              |   | 47,839   |               |  |   | 33,440       |   |  |       |         |   |  |   | 81,279  |  
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) from operations                           |  |                                |        |          |              |   | (33,717  | )             |  |   | 56,007       |   |  |       |         |   |  |   | 22,290  |  
|Interest expense                                        |  |                                | (37,006 | )        |              |   | (18,660  | )             |  |   | (68,404      | ) |  |       | 88,935   |   |  |   | (35,135 | )
|Investment and other income, net                        |  |                                | 18,877  |          |              |   | 3,158    |               |  |   | 66,949       |   |  |       | (88,935  | ) |  |   | 49      |  
|Foreign exchange gain (loss)                            |  |                                | (289    | )        |              |   | 1,724    |               |  |   | (2,860       | ) |  |       |         |   |  |   | (1,425  | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) before income taxes and minority interest |  |                                | (18,418 | )        |              |   | (47,495  | )             |  |   | 51,692       |   |  |       |         |   |  |   | (14,221 | )
|Income tax expense                                      |  |                                |        |          |              |   |         |               |  |   | 129          |   |  |       |         |   |  |   | 129     |  
|Minority interest losses                                |  |                                |        |          |              |   |         |               |  |   | (1,245       | ) |  |       |         |   |  |   | (1,245  | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Income (loss) from continuing operations                |  |                                | (18,418 | )        |              |   | (47,495  | )             |  |   | 52,808       |   |  |       |         |   |  |   | (13,105 | )
|Income (loss) from discontinued operations, net of tax  |  |                                |        |          |              |   | (4,777   | )             |  |   | (17,282      | ) |  |       |         |   |  |   | (22,059 | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         
|Net income (loss)                                       |  | $                              | (18,418 | )        |              | $ | (52,272  | )             |  | $ | 35,526       |   |  | $     |         |   |  | $ | (35,164 | )
|                                                        |  |                                |         |          |              |   |          |               |  |   |              |   |  |       |         

73



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |   |   |  |   |          |            |  
|------------------------------------------------------------ | --------------------------------------------------- | ------------------------------ | -------- | ---------- | ------------ | - | -------- | ------------- | - | - | ------------ | ------- | ----- | - | - | - |  | - | -------- | ---------- | -
|                                                             |                                                     | December 31, 2001, as restated |         
|                                                             |                                                     |                                |         
|                                                             |                                                     |                                |          | Combined   |              |   | Combined |               |   |  
|                                                             |                                                     | The                            |          |            | Guarantor    |   |          | Non-guarantor |   |   |             
|                                                             |                                                     | Company                        |          |            | Subsidiaries |   |          | Subsidiaries  |   |   | Eliminations |         | Total |  
|Cash Flow Data                                               |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |  
|Net cash provided (used) by operating activities             |                                                     | $                              | (137,251 | )          |              | $ | 5,966    |               |   | $ | 137,374      |         |       | $ |  |   |  | $ | 6,089    |           
|Investing activities:                                        |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |   |   |  |   |          |           
|                                                             | Expenditures for property plant and equipment  net |                                |          |           |              |   |          | (6,528        | ) |   |              | (70,242 | )     |   |   |  |  |   |          | (76,770    | )
|                                                             | Acquisitions of businesses                          |                                |          | (1,124,944 | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |          | (1,124,944 | )
|                                                             | Proceeds from sale of businesses                    |                                |          | 525,473    |              |   |          |              |   |   |              |        |       |   |   |  |  |   |          | 525,473    |  
|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |  
|Net cash used by investing activities                        |                                                     |                                | (599,471 | )          |              |   | (6,528   | )             |   |   | (70,242      | )       |       |   |  |   |  |   | (676,241 | )         
|Financing activities:                                        |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |   |   |  |   |          |           
|                                                             | Long-term borrowings                                |                                |          | 1,648,751  |              |   |          |              |   |   |              |        |       |   |   |  |  |   |          | 1,648,751  |  
|                                                             | Payments of short-term debt                         |                                |          | (900,000   | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |          | (900,000   | )
|                                                             | Proceeds from exercise of stock options             |                                |          | 6,433      |              |   |          |              |   |   |              |        |       |   |   |  |  |   |          | 6,433      |  
|                                                             | Dividend payments                                   |                                |          | (12,494    | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |          | (12,494    | )
|                                                             | Purchase of treasury stock                          |                                |          | (5,331     | )            |   |          |              |   |   |              |        |       |   |   |  |  |   |          | (5,331     | )
|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |  
|Net cash provided by financing activities                    |                                                     |                                | 737,359  |            |              |   |         |               |   |   |             |         |       |   |  |   |  |   | 737,359  |           
|Effect of exchange rate changes on cash and cash equivalents |                                                     |                                |         |            |              |   |         |               |   |   | (647         | )       |       |   |  |   |  |   | (647     | )         
|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |  
|Cash provided (used) by continuing operations                |                                                     |                                | 637      |            |              |   | (562     | )             |   |   | 66,485       |         |       |   |  |   |  |   | 66,560   |           
|Cash provided (used) by discontinuing operations             |                                                     |                                |         |            |              |   | 1,193    |               |   |   | (60,915      | )       |       |   |  |   |  |   | (59,722  | )         
|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |  
|Increase in cash and cash equivalents                        |                                                     |                                | 637      |            |              |   | 631      |               |   |   | 5,570        |         |       |   |  |   |  |   | 6,838    |           
|Cash and cash equivalents at beginning of the year           |                                                     |                                | 1        |            |              |   | 1,017    |               |   |   | 11,701       |         |       |   |  |   |  |   | 12,719   |           
|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |  
|Cash and cash equivalents at end of the year                 |                                                     | $                              | 638      |            |              | $ | 1,648    |               |   | $ | 17,271       |         |       | $ |  |   |  | $ | 19,557   |           
|                                                             |                                                     |                                |          |            |              |   |          |               |   |   |              |         |       |   |  

74



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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued




|   |                                                                               
|-- | ------------------------------------------------------------------------------
|U. | Quarterly Data (Unaudited)(Amounts in thousands, except
    per share amounts)

|                                                      |                                          |               |          |             |         |  |          |              |  |  |             |               |  |       |          |               |   |  |          |        |  
|----------------------------------------------------- | ---------------------------------------- | ------------- | -------- | ----------- | ------- |  | -------- | ------------ |  |  | ----------- | ------------- |  | ----- | -------- | ------------- | - |  | -------- | ------ | -
|                                                      |                                          | Restated      |          |             |         |  |         
|                                                      |                                          |               |          |             |         |  |         
|                                                      |                                          | Quarter Ended |          |             |        
|                                                      |                                          |               |          |             |        
|                                                      |                                          | March 31      |          |             | June 30 |  |          | September 30 |  |  | December 31 |               |  | Total |         
|                                                      |                                          |               |          |             |         |  |          |              |  |  |             |               |  |       |         
|2003                                                  |                                          |               |          |             |         |  |          |              |  |  |             |               |  |       |          |               |   |  |          |       
|Net sales                                             |                                          |               | $214,456 |             |         |  | $200,814 |              |  |  | $238,505    |               |  |       | $258,370 |               |   |  | $912,145 |       
|Gross profit                                          |                                          |               | 33,012   |             |         |  | 35,676   |              |  |  | 50,908      |               |  |       | 60,401   |               |   |  | 179,997  |       
|Income (loss) from continuing operations              |                                          |               | 1,802    |             |         |  | 3,974    |              |  |  | 7,261       |               |  |       | (69,320  | )             |   |  | (56,283  | )     
|Net income (loss)                                     |                                          |               | (2,969   | )           |         |  | 2,959    |              |  |  | 154,817     |               |  |       | (71,143  | )             |   |  | 83,664   |       
|Basic and diluted net income (loss) per common share: |                                          |               |          |             |         |  |          |              |  |  |             |               |  |       |          |               |   |  |          |       
|                                                      | Income (loss) from continuing operations |               |          | $0.06       |         |  |          | $0.14        |  |  |             | $0.26         |  |       |          | $(2.44        | ) |  |          | $(1.99 | )
|                                                      | Net income (loss)                        |               |          | $(0.10      | )       |  |          | $0.10        |  |  |             | $5.46         |  |       |          | $(2.51        | ) |  |          | $2.95  |  
|Market price:                                         |                                          |               |          |             |         |  |          |              |  |  |             |               |  |       |          |               |   |  |          |       
|                                                      | High-low                                 |               |          | $9.90-$6.27 |         |  |          | $16.83-$9.16 |  |  |             | $15.73-$12.00 |  |       |          | $26.55-$14.85 |   |  |          |        |  
|Dividends paid per share                              |                                          |               | $       |             |         |  | $       |              |  |  | $          |               |  |       | $       |               |   |  |          |       

|                                                      |                                          |                        |          |             |         |  |          |              |  |  |          |               |   |  |  |  |  |  |  |  | 
|----------------------------------------------------- | ---------------------------------------- | ---------------------- | -------- | ----------- | ------- |  | -------- | ------------ |  |  | -------- | ------------- | - |  |  |  |  |  |  |  | 
|                                                      |                                          | Quarter Ended          |          |             |         |  |         
|                                                      |                                          |                        |          |             |         |  |         
|                                                      |                                          | As Originally Reported |          |             |         |  |         
|                                                      |                                          |                        |          |             |         |  |         
|                                                      |                                          | March 31               |          |             | June 30 |  |          | September 30 |  |  |          |               |  
|                                                      |                                          |                        |          |             |         |  |          |              |  |  |          |               |  
|2003                                                  |                                          |                        |          |             |         |  |          |              |  |  |          |               |   |  |  |  |  |  |  | 
|Net sales                                             |                                          |                        | $213,787 |             |         |  | $200,795 |              |  |  | $240,567 |               |   |  |  |  |  |  |  | 
|Gross profit                                          |                                          |                        | 30,437   |             |         |  | 30,534   |              |  |  | 29,787   |               |   |  |  |  |  |  |  | 
|Income (loss) from continuing operations              |                                          |                        | (5,554   | )           |         |  | 3,163    |              |  |  | (2,616   | )             |   |  |  |  |  |  |  | 
|Net income (loss)                                     |                                          |                        | (6,623   | )           |         |  | 2,154    |              |  |  | 62,022   |               |   |  |  |  |  |  |  | 
|Basic and diluted net income (loss) per common share: |                                          |                        |          |             |         |  |          |              |  |  |          |               |   |  |  |  |  |  |  | 
|                                                      | Income (loss) from continuing operations |                        |          | $(0.20      | )       |  |          | $0.11        |  |  |          | $(0.09        | ) |  |  |  |  |  |  |  | 
|                                                      | Net income (loss)                        |                        |          | $(0.23      | )       |  |          | $0.08        |  |  |          | $2.19         |   |  |  |  |  |  |  |  | 
|Market price:                                         |                                          |                        |          |             |         |  |          |              |  |  |          |               |   |  |  |  |  |  |  | 
|                                                      | High-low                                 |                        |          | $9.90-$6.27 |         |  |          | $16.83-$9.16 |  |  |          | $15.73-$12.00 |   |  |  |  |  |  |  |  | 
|Dividends paid per share                              |                                          |                        | $       |             |         |  | $       |              |  |  | $       |               |   |  |  |  |  |  |  | 

75



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Effect of restatement adjustments on OM Groups
previously issued 2003 quarterly financial statements


|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  |  |  |  |  |  |  | 
|----------------------------------------------------- | --------------------------------------------- | ------------- | ------ | ------ | ------- | - | ----- | ------------ | - | - | ------- | ------ | - |  |  |  |  |  |  |  | 
|                                                      |                                               | Quarter Ended |        |        |         |   |      
|                                                      |                                               |               |        |        |         |   |      
|                                                      |                                               | March 31      |        |        | June 30 |   |       | September 30 |   |   |         |        |  
|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |  
|Net income (loss) as originally reported              |                                               | $             | (6,623 | )      |         | $ | 2,154 |              |   | $ | 62,022  |        |   |  |  |  |  |  |  | 
|Adjustments:                                          |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  |  |  |  |  |  | 
|                                                      | Restatement adjustments                       |               |        | 10,403 |         |   |       | 6,801        |   |   |         | 94,062 |   |  |  |  |  |  |  |  | 
|                                                      | Change in accounting principle (LIFO to FIFO) |               |        | (6,749 | )       |   |       | (5,996       | ) |   |         | (1,267 | ) |  |  |  |  |  |  |  | 
|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  | 
|Total Adjustments                                     |                                               |               | 3,654  |        |         |   | 805   |              |   |   | 92,795  |        |   |  |  |  |  |  |  | 
|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  | 
|Net income (loss) as restated                         |                                               | $             | (2,969 | )      |         | $ | 2,959 |              |   | $ | 154,817 |        |   |  |  |  |  |  |  | 
|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  | 
|Basic and diluted net income (loss) per common share: |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  |  |  |  |  |  | 
|                                                      | Income (loss)  as originally reported        |               | $      | (0.23  | )       |   | $     | 0.08         |   |   | $       | 2.19   |   |  |  |  |  |  |  |  | 
|                                                      | Effect of net adjustments                     |               |        | 0.13   |         |   |       | 0.02         |   |   |         | 3.27   |   |  |  |  |  |  |  |  | 
|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  | 
|                                                      | Income (loss)  as restated                   |               | $      | (0.10  | )       |   | $     | 0.10         |   |   | $       | 5.46   |   |  |  |  |  |  |  |  | 
|                                                      |                                               |               |        |        |         |   |       |              |   |   |         |        |   |  | 

76



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##### Table of Contents



Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


|                                         |                                          |               |          |               |         |  |          |               |  |  |             |               |  |       |           |              |  |  |           |              | 
|---------------------------------------- | ---------------------------------------- | ------------- | -------- | ------------- | ------- |  | -------- | ------------- |  |  | ----------- | ------------- |  | ----- | --------- | ------------ |  |  | --------- | ------------ | 
|                                         |                                          | Restated      |         
|                                         |                                          |               |         
|                                         |                                          | Quarter Ended |          |               |        
|                                         |                                          |               |          |               |        
|2002                                     |                                          | March 31      |          |               | June 30 |  |          | September 30  |  |  | December 31 |               |  | Total |          
|                                         |                                          |               |          |               |         |  |          |               |  |  |             |               |  |       |          
|Net sales                                |                                          |               | $172,022 |               |         |  | $187,918 |               |  |  | $186,532    |               |  |       | $192,456  |              |  |  | $738,928  |             
|Gross profit                             |                                          |               | 27,576   |               |         |  | 31,430   |               |  |  | 12,046      |               |  |       | (22,978)  |              |  |  | 48,074    |             
|Income (loss) from continuing operations |                                          |               | 4,604    |               |         |  | 10,550   |               |  |  | (21,184)    |               |  |       | (104,703) |              |  |  | (110,733) |             
|Net income (loss)                        |                                          |               | 6,846    |               |         |  | (4,051)  |               |  |  | (20,133)    |               |  |       | (191,418) |              |  |  | (208,756) |             
|Basic net income per common share:       |                                          |               |          |               |         |  |          |               |  |  |             |               |  |       |           |              |  |  |           |             
|                                         | Income (loss) from continuing operations |               |          | $0.17         |         |  |          | $0.37         |  |  |             | $(0.75)       |  |       |           | $(3.69)      |  |  |           | $(3.95)      | 
|                                         | Net income (loss)                        |               |          | $0.25         |         |  |          | $(0.14)       |  |  |             | $(0.71)       |  |       |           | $(6.75)      |  |  |           | $(7.45)      | 
|Diluted net income per common share:     |                                          |               |          |               |         |  |          |               |  |  |             |               |  |       |           |              |  |  |           |             
|                                         | Income (loss) from continuing operations |               |          | $0.17         |         |  |          | $0.37         |  |  |             | $(0.75)       |  |       |           | $(3.69)      |  |  |           | $(3.95)      | 
|                                         | Net income (loss)                        |               |          | $0.25         |         |  |          | $(0.14)       |  |  |             | $(0.71)       |  |       |           | $(6.75)      |  |  |           | $(7.45)      | 
|Market price:                            |                                          |               |          |               |         |  |          |               |  |  |             |               |  |       |           |              |  |  |           |             
|                                         | High-low                                 |               |          | $72.30-$61.00 |         |  |          | $73.00-$61.86 |  |  |             | $62.75-$42.50 |  |       |           | $43.50-$4.06 |  |  |           | $73.00-$4.06 | 
|Dividends paid per share                 |                                          |               | $0.14    |               |         |  | $0.14    |               |  |  | $0.14       |               |  |       | $        |              |  |  |           |             

|                                         |                                          |                        |               |          |               |              |               |             |              |           |             
|---------------------------------------- | ---------------------------------------- | ---------------------- | ------------- | -------- | ------------- | ------------ | ------------- | ----------- | ------------ | --------- | ------------
|                                         |                                          | As Originally Reported
|                                         |                                          |                       
|                                         |                                          | Quarter Ended          |               |         
|                                         |                                          |                        |               |         
|2002                                     |                                          | March 31               |               | June 30  |               | September 30 |               | December 31 |              | Total    
|                                         |                                          |                        |               |          |               |              |               |             |              |          
|Net sales                                |                                          | $172,022               |               | $187,918 |               | $186,532     |               | $192,671    |              | $739,143 
|Gross profit                             |                                          | 49,186                 |               | 52,294   |               | (54,874)     |               | (33,467)    |              | 13,139   
|Income (loss) from continuing operations |                                          | 11,622                 |               | 27,531   |               | (76,315)     |               | (190,300)   |              | (227,462)
|Net income (loss)                        |                                          | 23,368                 |               | 25,501   |               | (71,166)     |               | (305,614)   |              | (327,911)
|Basic net income per common share:       |                                          |                        |               |          |               |              |               |             |              |          
|                                         | Income (loss) from continuing operations |                        | $0.43         |          | $0.97         |              | $(2.70)       |             | $(6.71)      |           | $(8.11)     
|                                         | Net income (loss)                        |                        | $0.86         |          | $0.90         |              | $(2.52)       |             | $(10.78)     |           | $(11.69)    
|Diluted net income per common share:     |                                          |                        |               |          |               |              |               |             |              |          
|                                         | Income (loss) from continuing operations |                        | $0.42         |          | $0.96         |              | $(2.70)       |             | $(6.71)      |           | $(8.11)     
|                                         | Net income (loss)                        |                        | $0.85         |          | $0.89         |              | $(2.52)       |             | $(10.78)     |           | $(11.69)    
|Market price:                            |                                          |                        |               |          |               |              |               |             |              |          
|                                         | High-low                                 |                        | $72.30-$61.00 |          | $73.00-$61.86 |              | $62.75-$42.50 |             | $43.50-$4.06 |           | $73.00-$4.06
|Dividends paid per share                 |                                          | $0.14                  |               | $0.14    |               | $0.14        |               | $          |              |          

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Notes to Consolidated Financial Statements


OM Group, Inc. and
Subsidiaries 
Continued


Effect of restatement adjustment on OM Groups
previously issued 2002 quarterly financial statements


|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |          |         |   |   |          |         |  
|------------------------------------------ | --------------------------------------------- | ------------- | -------- | -------- | ------- | - | -------- | ------------ |  | - | ----------- | ------ | - | ----- | -------- | ------- | - | - | -------- | ------- | -
|                                           |                                               | Quarter Ended |          |          |        
|                                           |                                               |               |          |          |        
|                                           |                                               | March 31      |          |          | June 30 |   |          | September 30 |  |   | December 31 |        |   | Total |         
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|Net income (loss) as originally reported   |                                               | $             | 23,368   |          |         | $ | 25,501   |              |  | $ | (71,166     | )      |   | $     | (305,614 | )       |   | $ | (327,911 | )      
|Adjustments:                               |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |          |         |   |   |          |        
|                                           | Restatement adjustments                       |               |          | (11,172) |         |   |          | (26,329)     |  |   |             | 36,292 |   |       |          | 126,275 |   |   |          | 125,066 |  
|                                           | Change in accounting principle (LIFO to FIFO) |               |          | (5,350)  |         |   |          | (3,223)      |  |   |             | 14,741 |   |       |          | (12,079 | ) |   |          | (5,911  | )
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|Total Adjustments                          |                                               |               | (16,522) |          |         |   | (29,552) |              |  |   | 51,033      |        |   |       | 114,196  |         |   |   | 119,155  |        
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|Net income (loss) as restated              |                                               | $             | 6,846    |          |         | $ | (4,051)  |              |  | $ | (20,133     | )      |   |       | (191,418 | )       |   | $ | (208,756 | )      
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|Basic net income (loss) per common share:  |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |          |         |   |   |          |        
|                                           | Income (loss)  as originally reported        |               | $        | 0.86     |         |   | $        | 0.90         |  |   | $           | (2.52  | ) |       | $        | (10.78  | ) |   | $        | (11.69  | )
|                                           | Effect of net adjustments                     |               |          | (0.61)   |         |   |          | (1.04)       |  |   |             | 1.81   |   |       |          | 4.03    |   |   |          | 4.24    |  
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|                                           | Income (loss)  as restated                   |               | $        | 0.25     |         |   | $        | (0.14)       |  |   | $           | (0.71  | ) |       | $        | (6.75   | ) |   | $        | (7.45   | )
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|Diluted net income (loss) per common share |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |          |         |   |   |          |        
|                                           | Income (loss)  as originally reported        |               | $        | 0.85     |         |   | $        | 0.89         |  |   | $           | (2.52  | ) |       | $        | (10.78  | ) |   | $        | (11.69  | )
|                                           | Effect of net adjustments                     |               |          | (0.60)   |         |   |          | (1.03)       |  |   |             | 1.81   |   |       |          | 4.03    |   |   |          | 4.24    |  
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         
|                                           | Income (loss)  as restated                   |               | $        | 0.25     |         |   | $        | (0.14)       |  |   | $           | (0.71  | ) |       | $        | (6.75   | ) |   | $        | (7.45   | )
|                                           |                                               |               |          |          |         |   |          |              |  |   |             |        |   |       |         









78



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Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure







Item 9A. Controls and Procedures






















79



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##### Table of Contents






















Item 9B. Other Information




80



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##### Table of Contents






PART III





Item 10. Directors and Executive Officers of the
Registrant






|  |                                                                                              
|- | ---------------------------------------------------------------------------------------------
| | Interim Chief Executive Officer, January 2005                                                
| | Chairman, July 2004                                                                          
| | President and General Manager, Coatings Division, The
    Sherwin-Williams Company, 1992-1997



|  |                                                                       
|- | ----------------------------------------------------------------------
| | Chief Financial Officer, February 2004                                
| | Chairman, Royal Appliance, 1995-2003                                  
| | Chief Financial Officer and Board Member, Olympic Steel,
    1987-2000



|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
| | 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
| | Vice President-Operations, OMG Americas December
    1997  January 2000                



|  |                                                                  
|- | -----------------------------------------------------------------
| | Vice President and General Manager, Cobalt Group, August 2003    
| | Corporate Vice President of Technology,
    2000  August 2003   
| | Director of Research & Development, OMG Americas,
    1998  2000

Directors












81



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Audit Committee and Financial Expert




Section 16(a) Beneficial Ownership Reporting
Compliance






Code of Conduct and Ethics, Governance Principles and
Committee Charters




82



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##### Table of Contents






Item 11. Executive Compensation


Executive Compensation




Summary Compensation Table


|                            |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|--------------------------- |  | ---- | ---- | ------------------- | ------ | ------------ | ---------- | ---------- | ---------- | ---------------------- | --------------- | ------- | ------- | --------- | ------- |  | --------- | - | --------- | --------- |  | --------------- | ------ |  |  | - | - |  |  | - | --------- | 
|                            |  |      |      |                     |        |              |            |            |            | Long-Term Compensation |                 |        
|                            |  |      |      |                     |        |              |            |            |            |                        |                 |        
|                            |  |      |      |                     |        |              |            |            |            | Awards                 |                 |         | Payouts |           |        
|                            |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |        
|                            |  |      |      |                     |        |              |            | Securities |            |                        |                 |         |        
|                            |  |      |      | Annual Compensation |        |              |            |            | Underlying |                        |                 |         |         |          
|                            |  |      |      |                     |        |              | Restricted |            |            | Stock                  |                 |         |         |           |        
|                            |  |      |      |                     |        | Other Annual |            |            | Stock      |                        |                 | Options |         |           | LTIP    |  | All Other |  
|Name and Principal Position |  | Year |      |                     | Salary |              |            | Bonus(1)   |            |                        | Compensation(2) |         |         | Awards(3) |         |  | (Shares)  |   |           | Payouts $ |  | Compensation(4) |       
|                            |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |       
|James P. Mooney             |  |      | 2003 |                     |        | $            | 1,140,000  |            |            | $                      | 570,000         |         |         | $         | 86,145  |  |           | $ | 570,000   |           |  |                 |       |  |  | $ |  |  |  | $ | 179,456   | 
|Chairman & CEO(5)           |  |      | 2002 |                     |        |              | 1,140,000  |            |            |                        |                |         |         |           | 68,323  |  |           |   |          |           |  |                 | 30,000 |  |  |   |  |  |  |   | 12,600    | 
|                            |  |      | 2001 |                     |        |              | 785,500    |            |            |                        | 1,140,000       |         |         |           |        |  |           |   | 1,776,000 |           |  |                 | 10,000 |  |  |   |  |  |  |   | 274,200   | 
|Thomas R. Miklich           |  |      | 2003 |                     |        |              | 475,000    |            |            |                        |                |         |         |           | 41,906  |  |           |   |          |           |  |                 |       |  |  |   |  |  |  |   | 2,523,750 | 
|CFO(5)                      |  |      | 2002 |                     |        |              | 316,667    |            |            |                        | 156,000         |         |         |           | 106,254 |  |           |   | 1,860,600 |           |  |                 | 21,000 |  |  |   |  |  |  |   | 107,840   | 
|Marcus P. Bak               |  |      | 2003 |                     |        |              | 243,008    |            |            |                        | 120,000         |         |         |           |        |  |           |   |          |           |  |                 | 30,000 |  |  |   |  |  |  |   | 36,645    | 
|Vice President and          |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|General Manager            |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|Nickel(5)                   |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|Stephen D. Dunmead          |  |      | 2003 |                     |        |              | 189,827    |            |            |                        | 105,000         |         |         |           |        |  |           |   |          |           |  |                 | 30,000 |  |  |   |  |  |  |   | 28,474    | 
|Vice President and          |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|General Manager            |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|Cobalt(5)                   |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|Michael J. Scott            |  |      | 2003 |                     |        |              | 253,333    |            |            |                        |                |         |         |           | 974     |  |           |   |          |           |  |                 |       |  |  |   |  |  |  |   | 959,744   | 
|Former Vice President,      |  |      | 2002 |                     |        |              | 380,000    |            |            |                        | 95,000          |         |         |           |        |  |           |   |          |           |  |                 |       |  |  |   |  |  |  |   | 2,100     | 
|General Counsel &           |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 
|Secretary(5)                |  |      |      |                     |        |              |            |            |            |                        |                 |         |         |           |         |  |           |   |           |           |  |                 |        |  |  |   |   |  |  |   |           | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount awarded to the named executive officer under the
    Companys bonus program for key executives and middle
    management.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | For 2003, the amounts in this column reflect
    Mr. Mooneys, Mr. Miklichs and
    Mr. Scotts personal use of the Companys
    aircraft. For 2002, the amounts in this column reflect
    Mr. Mooneys personal use of the Companys
    aircraft and a tax gross-up related to an inducement payment
    made to Mr. Miklich in connection with entering into his
    employment agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | For 2003, the Company awarded Mr. Mooney 21,789 shares of
    restricted stock. The dollar amount shown for Mr. Mooney
    equals the 21,789 shares granted multiplied by the stock price
    on the grant date ($26.16). Mr. Mooneys restricted
    stock vested on January 11, 2005, the date upon which he
    ceased to be chief executive officer of the Company. For 2002,
    pursuant to Mr. Miklichs employment agreement with
    the Company, the Company awarded him 28,000 shares of restricted
    stock in connection with the commencement of his employment. The
    dollar amount shown for Mr. Miklich equals the 28,000
    shares granted multiplied by the stock price on the grant date
    ($66.45). All of Mr. Miklichs restricted stock vested
    on July 31, 2003. The dollar amount shown in this column
    for Mr. Mooney for 2001 equals the number of shares of
    restricted stock granted (30,000 shares) multiplied by the stock
    price on the grant date ($59.20). One-third of the restricted
    stock awards granted in 2001 to Mr. Mooney vested on each
    of December 31, 2002, December 31, 2003, and
    December 31, 2004. As of December 31, 2003,
    Mr. Mooney held 10,000 shares of restricted stock with a
    value of $592,000.
|   
|(4) | For 2003, this column includes amounts contributed under the
    Companys qualified Profit-sharing Plan
    (Mr. Mooney  $30,000;
    Mr. Miklich  $30,000; Mr. Bak 
    $30,000; and Mr. Dunmead  $28,474), amounts
    accrued under the OM Group, Inc. Benefit Restoration Plan
    (Mr. Mooney  $141,000 and
    Mr. Bak  $6,451) and the insurance premiums paid
    by the Company with respect to supplemental life insurance
    (Mr. Mooney  $8,456 and Mr. Bak 
    $194). For Mr. Miklich, this column also includes
    $2,493,750 payable under a separation agreement in connection
    with his cessation of employment with the Company effective
    April 30, 2004. For Mr. Scott, this column reflects
    amounts payable under a separation agreement in connection with
    his cessation of employment with the Company effective
    August 5, 2003. These separation agreements are summarized
    under Employment and Separation Agreements below.                                                                                                                                                                                                                                                                                                     
|   
|(5) | Messrs. Bak and Dunmead became executive officers of the
    Company on October 23, 2003. Mr. Scott became an
    executive officer of the Company on February 11, 2002, and
    he continued as an executive officer until his cessation of
    employment with the Company on August 5, 2003.
    Mr. Miklich joined the Company as an executive officer of
    the Company on May 1, 2002 and ceased to be employed by the
    Company effective April 30, 2004. Mr. Mooney ceased to
    be employed by the Company effective January 11, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

83



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Option Grants in 2003


|                   |  |                   |        |  |                      |  |                       |             |  |                  |            |  |  |    |           |  |     |   |         |  |  |   |         | 
|------------------ |  | ----------------- | ------ |  | -------------------- |  | --------------------- | ----------- |  | ---------------- | ---------- |  |  | -- | --------- |  | --- | - | ------- |  |  | - | ------- | 
|                   |  | Individual Grants |        |  | Potential Realizable | 
|                   |  |                   |        |  | Value at Assumed     | 
|                   |  | Number of         |        |  |                      |  | Annual Rates of Stock |            
|                   |  | Securities        |        |  | Percentage of Total  |  |                       |             |  | Appreciation for |           
|                   |  | Underlying        |        |  | Options Granted      |  |                       |             |  | Option Term      |           
|                   |  | Options           |        |  | to Employees in      |  |                       | Exercise or |  |                  | Expiration |  |  |    |          
|Name               |  | Granted           |        |  | 2003                 |  |                       | Base Price  |  |                  | Date       |  |  | 5% |           |  | 10% |  
|                   |  |                   |        |  |                      |  |                       |             |  |                  |            |  |  |    |           |  |     |  
|James P. Mooney    |  |                   |       |  |                      |  |                      |             |  |                  |           |  |  |    |          |  |     |   |        |  |  |   |        | 
|Thomas R. Miklich  |  |                   |       |  |                      |  |                      |             |  |                  |           |  |  |    |          |  |     |   |        |  |  |   |        | 
|Marcus P. Bak      |  |                   | 30,000 |  |                      |  | 10                    | %           |  | $                | 18.22      |  |  |    | 11/3/2013 |  |     | $ | 343,800 |  |  | $ | 871,200 | 
|Stephen D. Dunmead |  |                   | 30,000 |  |                      |  | 10                    | %           |  | $                | 18.22      |  |  |    | 11/3/2013 |  |     |   | 343,800 |  |  |   | 871,200 | 
|Michael J. Scott   |  |                   |       |  |                      |  |                      |             |  |                  |           |  |  |    |          |  |     |   |        |  |  |   |        | 

Aggregated Option Exercises During 2003 and


Fiscal Year-End Option Value


|                   |  |             |       |  |             |                        |                     |             |                         |             |               |     |  |             |        |  |               |   |           |  |  |   |         | 
|------------------ |  | ----------- | ----- |  | ----------- | ---------------------- | ------------------- | ----------- | ----------------------- | ----------- | ------------- | --- |  | ----------- | ------ |  | ------------- | - | --------- |  |  | - | ------- | 
|                   |  |             |       |  |             | Number of Securities   |                     |             | Value of Unexercised    |            
|                   |  |             |       |  |             | Underlying Unexercised |                     |             | In-the-Money Options at |            
|                   |  | Shares      |       |  |             |                        | Options at 12/31/03 |             |                         | 12/31/03(2) |              
|                   |  | Acquired on |       |  | Value       |                        |                     |             |                         |             |               |    
|Name               |  | Exercise    |       |  | Realized(1) |                        |                     | Exercisable |                         |             | Unexercisable |     |  | Exercisable |        |  | Unexercisable |  
|                   |  |             |       |  |             |                        |                     |             |                         |             |               |     |  |             |        |  |               |  
|James P. Mooney    |  |             |      |  |             |                        |                    |             |                         |             | 532,554       | (3) |  |             |       |  |               | $ | 1,107,751 |  |  |   |        | 
|Thomas R. Miklich  |  |             |      |  |             |                        |                    |             |                         |             | 11,633        | (4) |  |             | 14,000 |  |               |   |          |  |  |   |        | 
|Marcus P. Bak      |  |             |      |  |             |                        |                    |             |                         |             | 33,440        |     |  |             | 30,000 |  |               |   |          |  |  | $ | 239,100 | 
|Stephen D. Dunmead |  |             |      |  |             |                        |                    |             |                         |             | 6,000         |     |  |             | 30,000 |  |               |   |          |  |  |   | 239,100 | 
|Michael J. Scott   |  |             | 4,692 |  |             | $                      | 16,422              |             |                         |             |              |     |  |             |       |  |               |   |          |  |  |   |        | 






|    |                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Market value of shares at date of exercise less exercise price.                                                                                                                                                                                                                                  
|   
|(2) | An option is considered in-the-money when the fair market value
    of the shares is greater than the exercise price of the option.                                                                                                                                                              
|   
|(3) | Includes 392,554 shares subject to stock options that were
    transferred in accordance with the terms of the Companys
    Long-Term Incentive Compensation Plan to a limited partnership
    in which Mr. Mooney is the general partner.                                                      
|   
|(4) | Includes 4,622 shares subject to options granted under the
    Companys Non-Employee Director Equity Compensation Plan
    when Mr. Miklich was a non-employee director of the
    Company. All of Mr. Miklichs stock options terminated
    upon his cessation of employment with the Company.

Compensation of Directors




84



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Employment and Separation Agreements








Supplemental Executive Retirement Plan




85



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##### Table of Contents








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



Amount and Nature of Beneficial Ownership(1)


|                                                                               |  |                    |        |  |                |  |       |             |  |  |         |  |  |  |         | 
|------------------------------------------------------------------------------ |  | ------------------ | ------ |  | -------------- |  | ----- | ----------- |  |  | ------- |  |  |  | ------- | 
|                                                                               |  | Direct or Indirect |        |  | Profit-Sharing |  |       | Exercisable |  |  |        
|Name of Beneficial Owner                                                       |  | Ownership(2)       |        |  | Plan           |  |       | Options(3)  |  |  | Total   | 
|                                                                               |  |                    |        |  |                |  |       |             |  |  |         | 
|Marcus P. Bak                                                                  |  |                    | 360    |  |                |  | 1,670 |             |  |  | 43,440  |  |  |  | 45,470  | 
|Lee R. Brodeur                                                                 |  |                    | 7,183  |  |                |  |      |             |  |  | 26,248  |  |  |  | 33,431  | 
|Frank E. Butler                                                                |  |                    | 400    |  |                |  |      |             |  |  | 28,019  |  |  |  | 28,419  | 
|Stephen D. Dunmead                                                             |  |                    | 2,000  |  |                |  | 210   |             |  |  | 16,000  |  |  |  | 18,210  | 
|Thomas R. Miklich                                                              |  |                    | 21,000 |  |                |  |      |             |  |  |        |  |  |  | 21,000  | 
|James P. Mooney                                                                |  |                    | 33,042 |  |                |  | 1,723 |             |  |  | 532,554 |  |  |  | 567,319 | 
|John E. Mooney                                                                 |  |                    | 11,682 |  |                |  |      |             |  |  | 8,987   |  |  |  | 20,669  | 
|Katherine L. Plourde                                                           |  |                    | 1,000  |  |                |  |      |             |  |  | 2,700   |  |  |  | 3,700   | 
|William J. Reidy                                                               |  |                    |       |  |                |  |      |             |  |  | 3,220   |  |  |  | 3,220   | 
|Michael J. Scott                                                               |  |                    |       |  |                |  | 4,030 |             |  |  |        |  |  |  | 4,030   | 
|Markku Toivanen                                                                |  |                    |       |  |                |  |      |             |  |  | 11,598  |  |  |  | 11,598  | 
|All Directors and Executive Officers as a Group (consisting of
    12 persons) |  |                    | 76,667 |  |                |  | 7,633 |             |  |  | 672,766 |  |  |  | 757,066 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each person has sole voting and investment power with respect to
    all shares shown, except as indicated below.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | James P. Mooneys shares include 7,630 shares held in a
    private foundation, of which Mr. Mooney is president.
    Mr. Mooney has shared voting and investment power with
    respect to these shares.                                                                                                                                                                                                                                                                                                
|   
|(3) | Represents shares subject to stock options that were exercisable
    at December 31, 2004, or within 60 days of that date.
    For James P. Mooney, the number of shares subject to exercisable
    options includes 392,554 shares covered by options transferred
    to a limited partnership in accordance with the terms of the
    Companys Long-Term Incentive Compensation Plan.
    Mr. Mooney is the general partner of the limited
    partnership to which the options have been transferred.



|                                     |                                |                      |           |  |                  |  |       |   | 
|------------------------------------ | ------------------------------ | -------------------- | --------- |  | ---------------- |  | ----- | - | 
|                                     |                                | Amount and Nature of |           |  |                 
|Name and Address of Beneficial Owner |                                | Beneficial Ownership |           |  | Percent of Class | 
|                                     |                                |                      |           |  |                  | 
|FMR Corporation                      |                                |                      | 2,750,000 |  |                  |  | 9.699 | %
|                                     | 82 Devonshire Street           |                      |           |  |                  |  |       |   | 
|                                     | Boston, Massachusetts 02109(1) |                      |           |  |                  |  |       |   | 
|LSV Asset Management                 |                                |                      | 1,744,822 |  |                  |  | 6.15  | %
|                                     | 1 North Wacker Dr. Suite 4000  |                      |           |  |                  |  |       |   | 
|                                     | Chicago, Illinois 60606(2)     |                      |           |  |                  |  |       |   | 
|Barclays Global Investors, N.A       |                                |                      | 1,735,042 |  |                  |  | 6.11  | %
|                                     | 45 Fremont Street              |                      |           |  |                  |  |       |   | 
|                                     | San Francisco, CA 94105(3)     |                      |           |  |                  |  |       |   | 






|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Information regarding share ownership was obtained from the
    Schedule 13G filed jointly on February 14, 2005 by FMR
    Corp., Edward C. Johnson 3d, Abigail P. Johnson, Fidelity
    Management & Research Company (Fidelity) and
    Fidelity Low Priced Stock Fund. The

86



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | ownership of Fidelity Low Priced
    Stock Fund amounted to 2,750,000 shares or 9.699% of the common
    stock outstanding. Fidelity Low Priced Stock Fund has its
    principal business office at 82 Devonshire Street, Boston,
    Massachusetts 02109. Edward C. Johnson 3d, FMR Corp., through
    its control of Fidelity, and the Fidelity Funds each has sole
    power to dispose of the 2,750,000 shares owned by the Fidelity
    Funds. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of
    FMR Corp., has the sole power to vote or direct the voting of
    the shares owned directly by the Fidelity Funds, which power
    resides with the Funds Boards of Trustees. Fidelity
    carries out the voting of the shares under written guidelines
    established by the Funds Boards of Trustees. Members of
    the Edward C. Johnson 3d family are the predominant owners of
    Class B shares of common stock of FMR Corp., representing
    approximately 49% of the voting power of FMR Corp.
    Mr. Johnson 3d owns 12.0% and Abigail Johnson owns 24.5% of
    the aggregate outstanding voting stock of FMR Corp.
    Mr. Johnson 3d is Chairman of FMR Corp. and Abigail P.
    Johnson is a Director of FMR Corp. The Johnson family group and
    all other Class B shareholders have entered into a
    shareholders voting agreement under which all Class B
    shares will be voted in accordance with the majority vote of
    Class B shares. Accordingly, through their ownership of
    voting common stock and the execution of the shareholders
    voting agreement, members of the Johnson family may be deemed,
    under the Investment Company Act of 1940, to form a controlling
    group with respect to FMR Corp.
|   
|(2) | Information regarding share
    ownership was obtained from the Schedule 13G filed on
    February 11, 2005 by LSV Asset Management, which is an
    investment advisor registered under the Investment Advisors Act
    of 1940. LSV Asset Management has sole voting power with respect
    to 1,134,522 of the shares listed above and has sole dispositive
    power with respect to all 1,744,822 shares shown.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(3) | Information regarding share
    ownership was obtained from the Schedule 13G filed jointly
    on February 14, 2005 by Barclays Global Investors, NA.,
    Barclays Global Fund Advisors, Barclays Global Investors,
    Ltd., Barclays Global Investors Japan Trust and Banking Company
    Limited, Barclays Life Assurance Company Limited, Barclays Bank
    Plc, Barclays Capital Securities Limited, Barclays Capital Inc.,
    Barclays Private Bank & Trust (Isle of Man) Limited,
    Barclays Private Bank and Trust (Jersey) Limited, Barclays Bank
    Trust Company Limited, Barclays Bank (Suisse) SA, Barclays
    Private Bank Limited, Bronco (Barclays Cayman) Limited, Palomino
    Limited, and HYMF Limited. Barclays Global Investors, NA. has
    sole voting power with respect to 760,628 of the shares shown
    above and sole dispositive power with respect to 933,169 of the
    shares shown. Barclays Global Fund Advisors, which has its
    principal business address at 45 Fremont Street, San Francisco,
    CA 94105, has sole voting power with respect to 760,106 of the
    shares shown above and sole dispositive power with respect to
    763,673 of the shares shown. Barclays Bank Plc, which has its
    principal business address at 54 Lombard Street, London, England
    EC3P 3AH, has sole voting and dispositive power with respect to
    17,100 of the shares shown above. Palomino Limited, which has
    its principal business address at Walker House Mary Street, P.O.
    Box 908 GT, George Town, Grand Cayman (Cayman Islands), has sole
    voting and dispositive power with respect to 21,100 of the
    shares shown above.                                                                             

Equity Compensation Plan Information




|                                                           |  |                      |           |  |                     |   |                      |                           |  |  |    |  
|---------------------------------------------------------- |  | -------------------- | --------- |  | ------------------- | - | -------------------- | ------------------------- |  |  | -- | -
|                                                           |  | Number of Securities |           |  |                     |   | Number of Securities |                          
|                                                           |  | to be Issued Upon    |           |  | Outstanding Options |   |                      | Remaining Available for   | 
|                                                           |  | Exercise of          |           |  | Exercise Price of   |   |                      | Future Issuance Under     | 
|                                                           |  | Outstanding Options  |           |  | Weighted-Average    |   |                      | Equity Compensation Plans | 
|                                                           |  |                      |           |  |                     |   |                      |                           | 
|Equity Compensation Plans Approved by the Shareholders     |  |                      | 1,328,691 |  |                     | $ | 33.82                |                           |  |  | (a | )
|Equity Compensation Plans Not Approved by the Shareholders |  |                      |          |  |                     |   |                     |                           |  |  |   |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Company maintains two equity compensation plans approved by
    shareholders. The 2002 Stock Incentive Plan permits the issuance
    of up to 1,400,000 shares, all of which were available at
    December 31, 2003 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, 2003, there were
    28,454,000 outstanding shares of common stock of the Company.




Item 13. Certain Relationships and Related
Transactions






87



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Item 14. Principal Accountant Fees and Services




|                   |  |      |            |  |      |   |           | 
|------------------ |  | ---- | ---------- |  | ---- | - | --------- | 
|                   |  | 2003 |            |  | 2002 |  
|                   |  |      |            |  |      |  
|Audit Fees         |  | $    | 6,595,300  |  |      | $ | 3,403,407 | 
|Audit-Related Fees |  |      | 1,762,851  |  |      |   | 348,966   | 
|Tax Fees           |  |      | 2,219,534  |  |      |   | 1,993,193 | 
|All Other Fees     |  |      |           |  |      |   |          | 
|                   |  |      |            |  |      |  
|Total              |  | $    | 10,577,685 |  |      | $ | 5,745,566 | 
|                   |  |      |            |  |      |  



Audit Fees




Audit-Related Fees




Tax Fees




All Other Fees




88



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##### Table of Contents






PART IV





Item 15. Exhibits and Financial Statement
Schedules






| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets at December 31, 2003 and 2002                                               
|
| | Statements of Consolidated Operations for the years ended
    December 31, 2003, 2002 and 2001          
|
| | Statements of Consolidated Cash Flows for the years ended
    December 31, 2003, 2002 and 2001          
|
| | Statements of Consolidated Stockholders Equity for the
    years ended December 31, 2003, 2002 and 2001
|
| | Notes to Consolidated Financial Statements                                                              









| |                                          
| | -----------------------------------------
| | (3) Articles of Incorporation and By-laws

| |     |  |  |                                                                   |  |  
| | --- |  |  | ----------------------------------------------------------------- |  | -
| | 3.1 |  |  | Amended and Restated Certificate of Incorporation of the Company. |  | 
| | 3.2 |  |  | Amended and Restated Bylaws of the Company.                       |  | 



| |                                                                              
| | -----------------------------------------------------------------------------
| | (4) Instruments defining rights of security holders
    including indentures.

| |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  
| | --- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
| | 4.1 |  |  | Form of Common Stock Certificate of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 
| | 4.2 |  |  | Stockholder Rights Agreement dated as of November 5, 1996
    between OM Group, Inc. and National City Bank (incorporated by
    reference to Exhibit 4.2 to the Companys Registration
    Statement on Form S-4 (No. 333-84128) filed on
    March 11, 2002).                                                                                                                                                                                                                                                                                                                                                            |  |  
| | 4.3 |  |  | 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).                                                                                                                                                                                                                                                                                                                      |  |  
| | 4.4 |  |  | Purchase Agreement, dated as of December 7, 2001, among OM
    Group, Inc., the Guarantors (as defined therein) and Credit
    Suisse First Boston Corporation, as the representatives of the
    Several Purchasers (as defined therein) (incorporated by
    reference to Exhibit 4.4 to the Companys Registration
    Statement on Form S-1/ A (No. 333-74566) filed on
    January 14, 2002).                                                                                                                                                                                                                         |  |  
| | 4.5 |  |  | Registration Rights Agreement, dated as of December 12,
    2001, among OM Group, Inc., the Guarantors (as defined therein)
    and Credit Suisse First Boston Corporation, as the
    representatives of the Several Purchasers (as defined therein)
    (incorporated by reference to Exhibit 4.5 to the
    Companys Registration Statement on Form S-1/ A
    (No. 333-74566) filed on January 14, 2002).                                                                                                                                                                                                             |  |  
| | 4.6 |  |  | Revolving Credit Agreement, dated as of August 1, 2003,
    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, KeyBank National Association and
    LaSalle Bank National Association as Co-Syndication Agents
    (filed as Exhibit(4) to the Companys Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2003
    and incorporated herein by reference). |  |  



| |                        
| | -----------------------
| | (10) Material Contracts

| |       |  |  |                                                                                                                                                                                             |  |  
| | ----- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
| | 10.1  |  |  | 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.                                                                                                                                  |  | 

89



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| |         |  |  |                                                                                                                                                                                                                                                     |  |  
| | ------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
| | *10.3   |  |  | Amendment to OM Group, Inc. 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. 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   |  |  | OM Group, Inc. Non-employee Directors Equity Compensation
    Plan (incorporated by reference to Exhibit 10.12 to the
    Companys Registration Statement on Form S-4
    (No. 333- 84128) filed on March 11, 2002).                              |  |  
| | *10.13  |  |  | OM Group, Inc. Bonus Program for Key Executives and Middle
    Management.                                                                                                                                                                          |  | 
| | *10.14  |  |  | Employment Agreement between Mooney Acquisition Corporation and
    James P. Mooney dated September 30, 1991.                                                                                                                                       |  | 
| | *10.15  |  |  | Amendment to Employment Agreement between OM Group, Inc. and
    James P. Mooney dated August 19, 1992.                                                                                                                                             |  | 
| | *10.16  |  |  | Employment Agreement between OM Group, Inc. and Michael J. Scott
    (incorporated by reference to Exhibit 10.17 to the
    Companys Registration Statement on Form S-4
    (No. 333- 84128) filed on March 11, 2002).                             |  |  
| | +10.17  |  |  | 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. |  |  
| | ++10.18 |  |  | 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.                                                   |  |  
| | +10.19  |  |  | 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).                                                           |  |  
| | +10.20  |  |  | 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).                                                                |  |  
| | +10.21  |  |  | 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).                                                                    |  |  
| | *10.22  |  |  | OM Group, Inc. 1998 Long-Term Incentive Compensation Plan,
    Including form of stock option agreement.                                                                                                                                            |  |  

90



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| |        |  |  |                                                                                                                                                                                                                                                                                           |  | 
| | ------ |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| | *10.23 |  |  | Separation Agreement between OM Group, Inc. and Edward W. Kissel
    dated July 2, 2003.                                                                                                                                                                                                  |  | 
| | 10.24  |  |  | 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).                                     |  | 
| | 10.25  |  |  | Purchase Agreement (as amended and restated) as of
    August 10, 2001 by and between dmc2 Degussa Metals
    Catalysts Cerdec AG, Degussa AG and OM Group, Inc. (incorporated
    by reference to Exhibit 2.1 to the Companys Current
    Report on Form 8-K filed on August 24, 2001). |  | 
| | 10.26  |  |  | Heads of Agreement as of April 23, 2001 between OM Group,
    Inc. and Ferro Corporation (incorporated by reference to
    Exhibit 2.2 to the Companys Current Report on
    Form 8-K filed on August 24, 2001).                                                                         |  | 
| | 10.27  |  |  | OMG-Ferro Purchase Agreement dated as of August 31, 2001 by
    and between OM Group, Inc. and Ferro Corporation (incorporated
    by reference to Exhibit 2.1 to the Companys Current
    Report on Form 8-K filed on September 21, 2001).                                              |  | 
| | *10.28 |  |  | Employment Agreement between OM Group, Inc. and Thomas R.
    Miklich dated May 1, 2002 (filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2002 and incorporated herein by
    reference).                                      |  | 
| | *10.29 |  |  | OM Group, Inc. 2002 Stock Incentive Plan (incorporated by
    reference to Appendix A to the Companys Proxy
    Statement filed April 5, 2002).                                                                                                                                          |  | 
| | *10.30 |  |  | Amendment to Employment Agreement between OM Group, Inc. and
    James P. Mooney dated December 20, 2002 (incorporated by
    reference to Exhibit 10.29 to the Companys Annual Report
    on Form 10-K filed on March 25, 2003).                                                        |  | 
| | *10.31 |  |  | Amendment to Employment Agreement between OM Group, Inc. and
    Thomas R. Miklich dated December 1, 2002 (incorporated by
    reference to Exhibit 10.30 to the Companys Annual Report
    on Form 10-K filed on March 25, 2003).                                                       |  | 
| | *10.32 |  |  | Agreement by and between OM Group, Inc. and Michael J. Scott
    dated September 11, 2003.                                                                                                                                                                                                |  | 
| | *10.33 |  |  | Separation Agreement by and between OM Group, Inc. and Thomas R.
    Miklich dated October 17, 2003.                                                                                                                                                                                      |  | 
| | *10.34 |  |  | Employment Agreement by and between OM Group, Inc. and R. Louis
    Schneeberger dated February 16, 2004.                                                                                                                                                                                 |  | 
| | *10.35 |  |  | Employment Agreement by and between OM Group, Inc. and Frank E
    Butler dated February 9, 2005 (incorporated by reference to
    Exhibit 1 to the Companys Current Report on Form 8-K filed
    on February 5, 2005).                                                                  |  | 
| | *10.36 |  |  | Supplemental Retirement Plan for James P. Mooney.                                                                                                                                                                                                                                         |  | 



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | (12) Computation of Ratio of Earnings to Fixed Charges                                       
|
| | (18) Letter from Ernst & Young LLP regarding
    change in accounting principle              
|
| | (21) List of Subsidiaries                                                                    
|
| | (23) Consent of Ernst & Young LLP                                                            
|
| | (24) Powers of Attorney                                                                      
|
| | (31.1) 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)/15-d-14(a)



| |      |                                                                                                            
| | ---- | -----------------------------------------------------------------------------------------------------------
| | (32) | Certification of Principal Executive Officer and Principal
    Financial Officer Pursuant to 18 U.S.C. 1350

91



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| |    |  |  |                                                                                                                                                                                                                                                                  |  | 
| | -- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| | *  |  |  | 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.                                            |  | 

92



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Signatures






| |               
| | --------------
| | OM GROUP, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ Frank E. Butler

| |                                
| | -------------------------------
| |                                
| | Frank E. Butler                
| | Interim Chief Executive Officer



|                                                    |  |                                                                                                          |  | 
|--------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | 
|Signature                                           |  | Title                                                                                                   
|                                                    |  |                                                                                                         
|                                                   
|/s/ Frank E. Butler*Frank
    E. Butler             |  | Interim Chief Executive Officer and Chairman of the Board of
    Directors (Principal Executive Officer)
|                                                   
|/s/ R. Louis Schneeberger*R.
    Louis Schneeberger |  | Chief Financial Officer (Principal Financial and Accounting
    Officer)                                
|                                                   
|/s/ Lee R. Brodeur*Lee
    R. Brodeur               |  | Director                                                                                                
|                                                   
|James
    P. Mooney                                 |  | Director                                                                                                
|                                                   
|/s/ John E. Mooney*John
    E. Mooney               |  | Director                                                                                                
|                                                   
|/s/ Katharine L. Plourde*Katharine
    L. Plourde   |  | Director                                                                                                
|                                                   
|/s/ William J. Reidy*William
    J. Reidy           |  | Director                                                                                                
|                                                   
|/s/ Markku Toivanen*Markku
    Toivanen             |  | Director                                                                                                
|                                                   
|*By                                                 |  | /s/ R. Louis SchneebergerR.
    Louis Schneeberger
    Attorney-in-Fact                                  |  | 

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##### Table of Contents



OM Group, Inc.


Schedule II  Valuation and Qualifying
Accounts


Years Ended December 31, 2003, 2002 and 2001


(Dollars in Thousands)


|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |      |      |  |   |       | 
|------------------------------- |  | ---------- | ----- |  | ---------- | - | ----- | ---------- |  | - | ---------- | --- | ---------- | ---- | ---- | ---- |  | - | ----- | 
|                                |  | Balance at |       |  | Charged to |   |       | Charged to |  |   |            |     | Balance at |     
|                                |  | Beginning  |       |  | Costs and  |   |       | Other      |  |   |            |     | End of     |     
|Classifications                 |  | of Year    |       |  | Expenses   |   |       | Accounts   |  |   | Deductions |     |            | Year |     
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     
|2003:                           |  |            |       |  |            |   |       |            |  |   |            |     |            |      |      |      |  |   |       | 
|                               
|Allowance for doubtful accounts |  | $          | 2.4   |  |            | $ | 1.2   | (1)        |  |   |           |     |            | $    | (1.6 | )(6) |  | $ | 2.0   | 
|Income tax valuation allowance  |  |            | 91.2  |  |            |   | 39.8  | (2)        |  | $ | 23.1       | (5) |            |      |     |      |  |   | 154.1 | 
|Environmental reserve(8)        |  |            | 12.5  |  |            |   | 3.7   | (3)        |  |   |           |     |            |      | (2.0 | )(7) |  |   | 14.2  | 
|Shareholder litigation accrual  |  |            |      |  |            |   | 84.5  | (4)        |  |   |           |     |            |      |     |      |  |   | 84.5  | 
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     
|                                |  | $          | 106.1 |  |            | $ | 129.2 |            |  | $ | 23.1       |     |            | $    | (3.6 | )    |  | $ | 254.8 | 
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     
|2002, as restated:              |  |            |       |  |            |   |       |            |  |   |            |     |            |      |      |      |  |   |       | 
|                               
|Allowance for doubtful accounts |  | $          | 2.7   |  |            | $ | 1.0   | (1)        |  |   |            |     |            | $    | (1.3 | )(6) |  | $ | 2.4   | 
|Income tax valuation allowance  |  |            | 73.0  |  |            |   | 18.2  | (2)        |  |   |           |     |            |      |     |      |  |   | 91.2  | 
|Environmental reserve(8)        |  |            | 3.2   |  |            |   | 10.8  | (3)        |  |   |           |     |            |      | (1.5 | )(7) |  |   | 12.5  | 
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     
|                                |  | $          | 78.9  |  |            | $ | 30.0  |            |  |   |           |     |            | $    | (2.8 | )    |  | $ | 106.1 | 
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     
|2001, as restated:              |  |            |       |  |            |   |       |            |  |   |            |     |            |      |      |      |  |   |       | 
|                               
|Allowance for doubtful accounts |  | $          | 2.4   |  |            | $ | 1.6   | (1)        |  |   |            |     |            | $    | (1.3 | )(6) |  | $ | 2.7   | 
|Income tax valuation allowance  |  |            | 54.3  |  |            |   | 18.7  | (2)        |  |   |           |     |            |      |     |      |  |   | 73.0  | 
|Environmental reserve(8)        |  |            |      |  |            |   | 3.2   | (3)        |  |   |           |     |            |      |     |      |  |   | 3.2   | 
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     
|                                |  | $          | 56.7  |  |            | $ | 23.5  |            |  |   |           |     |            | $    | (1.3 | )    |  | $ | 78.9  | 
|                                |  |            |       |  |            |   |       |            |  |   |            |     |            |      |     






|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Provision for uncollectible accounts included in selling,
    general and administrative expenses.                                                                              
|   
|(2) | Increase in valuation allowance is recorded as a component of
    the provision for income taxes.                                                                               
|   
|(3) | Provision for environmental costs included in expenses.                                                                                                                         
|   
|(4) | Provision for shareholder class action lawsuits. See Note P
    to the Consolidated Financial Statements included in Item 8
    of this Annual Report.                          
|   
|(5) | Valuation allowance for deferred tax assets previously
    classified in discontinued operations. Related deferred tax
    asset was also reclassified to continuing operations.
|   
|(6) | Actual accounts written-off against the allowance  net of
    recoveries.                                                                                                      
|   
|(7) | Actual cash expenditures charged against the accrual.                                                                                                                           
|   
|(8) | Includes reserves related to the Companys continuing and
    discontinued operations.                                                                                          

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##### Table of Contents



ANNUAL REPORT OF FORM 10-K


OM GROUP, INC.


For the year Ended December 31, 2003


EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1         |  | Amended and Restated Certificate of Incorporation of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 3  | .2         |  | Amended and Restated Bylaws of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4  | .1         |  | Form of Common Stock Certificate of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4  | .2          |  | Stockholder Rights Agreement dated as of November 5, 1996
    between OM Group, Inc. and National City Bank (incorporated by
    reference to Exhibit 4.2 to the Companys Registration
    Statement on Form S-4 (No. 333-84128) filed on
    March 11, 2002).                                                                                                                                                                                                                                                                                                                                                           
|        | 4  | .3          |  | 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  | .4          |  | Purchase Agreement, dated as of December 7, 2001, among OM
    Group, Inc., the Guarantors (as defined therein) and Credit
    Suisse First Boston Corporation, as the representative of the
    Several Purchasers (as defined therein) (incorporated by
    reference to Exhibit 4.4 to the Companys Registration
    Statement on Form S-1/ A (No. 333-74566) filed on
    January 14, 2002).                                                                                                                                                                                                                         
|        | 4  | .5          |  | Registration Rights Agreement, dated as of December 12,
    2001, among OM Group, Inc., the Guarantors (as defined therein)
    and Credit Suisse First representatives of the Several
    Purchasers (as defined therein) (incorporated by reference to
    Exhibit 4.5 to the Companys Registration Statement on
    333-74566) filed on January 14, 2002).                                                                                                                                                                                                                                                            
|        | 4  | .6          |  | Revolving Credit Agreement, dated as of August 1, 2003,
    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, KeyBank National Association and
    LaSalle Bank National Association as Co-Syndication Agents
    (filed as Exhibit(4) to the Companys Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2003
    and incorporated herein by reference).
|        | 10 | .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. 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. 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).                                                                                                                                                                                                                                                                                                                                                                                  

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|        |    |       |             |                                                                                                                                                                                                                                                                                          
|------- | -- | ----- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 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   |             | OM Group, Inc. Non-employee Directors Equity Compensation
    Plan (incorporated by reference to Exhibit 10.12 to the
    Companys Registration Statement on form S-4
    (No. 333-84128) filed on March 11, 2002).                                                                    
|        | 10 | .13* |             | OM Group, Inc. Bonus Program for Key Executives and Middle
    Management.                                                                                                                                                                                                               
|        | 10 | .14* |             | Employment Agreement between Mooney Acquisition Corporation and
    James P. Mooney dated September 30, 1991.                                                                                                                                                                            
|        | 10 | .15* |             | Amendment to Employment Agreement between OM Group, Inc. and
    James P. Mooney dated August 19, 1992.                                                                                                                                                                                  
|        | 10 | .16*  |             | Employment Agreement between OM Group, Inc. and Michael J. Scott
    (incorporated by reference to Exhibit 10.17 to the
    Companys Registration Statement on Form S-4
    (No. 333-84128) filed on March 11, 2002).                                                                   
|        | 10 | .17+  |             | 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.                                      
|        | 10 | .18++ |             | 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.                                                                                        
|        | 10 | .19+  |             | 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 | .20+  |             | Long Term Cobalt Alloy Sales Agreement between J.V. Groupement
    Pour Le Traitement Du Terril De Lubumbashi and IMG Kokkola
    Chemicals Oy (filed as an Annex to Exhibit 10.17).                                                                                                     
|        | 10 | .21+  |             | Tolling Agreement betterave 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 | .22*  |             | OM Group, Inc. 1998 Long-Term Incentive Compensation Plan,
    including form of stock option agreement.                                                                                                                                                                                 
|        | 10 | .23*  |             | Separation Agreement between OM Group, Inc. and Edward W. Kissel
    dated July 2, 2003.                                                                                                                                                                                                 
|        | 10 | .24   |             | 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 | .25   |             | Purchase Agreement (as amended and restated) as of
    August 10, 2001 by and between dmc2 Degussa Metals
    Catalysts Cerdec AG, Degussa AG and OM Group, Inc. (incorporated
    by reference to Exhibit 2.1 to the Companys Current
    Report on Form 8-K filed on August 24, 2001).
|        | 10 | .26   |             | Heads of Agreement as of April 23, 2001 between OM Group,
    Inc. and Ferro Corporation (incorporated by reference to
    Exhibit 2.2 to the Companys Current Report on
    Form 8-K filed on August 24, 2001).                                                                        
|        | 10 | .27   |             | OMG-Ferro Purchase Agreement dated as of August 31, 2001 by
    and between OM Group, Inc. and Ferro Corporation (incorporated
    by reference to Exhibit 2.1 to the Companys Current
    Report on Form 8-K filed on September 21, 2001).                                             
|        | 10 | .28*  |             | Employment Agreement between OM Group, Inc. and Thomas R.
    Miklich dated May 1, 2002 (filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2002 and incorporated herein by
    reference).                                     
|        | 10 | .29*  |             | OM Group, Inc. 2002 Stock Incentive Plan (incorporated by
    reference to Appendix A to the Companys Proxy
    Statement filed April 5, 2002).                                                                                                                                         
|        | 10 | .30*  |             | Amendment to Employment Agreement between OM Group, Inc. and
    James P. Mooney dated December 20, 2002 (incorporated by
    reference to Exhibit 10.29 to the Companys Annual
    Report on Form 10-K filed on March 25, 2003).                                                       
|        | 10 | .31*  |             | Amendment to Employment Agreement between OM Group, Inc. and
    Thomas R. Miklich dated December 1, 2002 (incorporated by
    reference to Exhibit 10.30 to the Companys Annual
    Report on Form 10-K filed on March 25, 2003).                                                      

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|        |    |      |             |                                                                                                                                                                                                                          
|------- | -- | ---- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|        | 10 | .32* |             | Agreement by and between OM Group, Inc. and Michael J. Scott
    dated September 11, 2003.                                                                                                                               
|        | 10 | .33* |             | Separation Agreement by and between OM Group, Inc. and Thomas R.
    Miklich dated October 17, 2003.                                                                                                                     
|        | 10 | .34* |             | Employment Agreement by and between OM Group, Inc. and R. Louis
    Schneeberger dated February 16, 2004.                                                                                                                
|        | 10 | .35* |             | Employment Agreement by and between OM Group, Inc. and Frank E.
    Butler dated February 9, 2005 (incorporated by reference to
    Exhibit 1 to the Companys Current Report on
    Form 8-K filed on February 5, 2005).
|        | 10 | .36* |             | Supplemental Retirement Plan for James P. Mooney.                                                                                                                                                                        
|        | 12 |      |             | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                       
|        | 18 |      |             | Letter from Ernst & Young LLP regarding change in
    accounting principle                                                                                                                                               
|        | 21 |      |             | List of Subsidiaries                                                                                                                                                                                                     
|        | 23 |      |             | Consent of Ernst & Young LLP                                                                                                                                                                                             
|        | 24 |      |             | Powers of Attorney                                                                                                                                                                                                       
|        | 31 | .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)/15-d-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 for
    confidential treatment dated June 26, 1998.



|   |                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|++ | Portions of Exhibit have been omitted and filed separately with
    the Securities and Exchange Commission in reliance on Rule 24b-2
    and the Companys request for confidential treatment.                       
|  
|  | 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.

97