OM GROUP, INC. 2002 ANNUAL REPORT DEAR FELLOW SHAREOWNERS:
In 2002, OM Group confronted the most challenging conditions in its history. An increasingly weak global economy, a depressed cobalt price and various operating issues associated with our nickel business all combined to limit earnings and cash flow from our Base Metals business. As a result, our ability to reduce the significant amount of incremental debt associated with the acquisition of the Precious Metals business in late 2001 was severely impaired in the near term.
We met these challenges by developing and launching an aggressive and broad-based corporate restructuring plan designed to increase profitability, reduce costs, quickly restore our balance sheet strength and reposition OMG for future growth. The key components of our plan include:
( Generating up to $100 million from the sale of non-core assets, including the SCM Powdered Metals business; Tungsten Carbide technology and related assets; and the PVC Heat Stabilizer and other assets, such as the Microbond product lines;
( Reducing workforce expenses by approximately $35 million in 2003, and by approximately $45 million on an annualized basis starting in 2004, through the elimination of approximately 550 positions;
( Lowering other manufacturing and administrative costs by approximately $30 million in 2003, and by approximately $40 million on an annualized basis starting in 2004; and
( Initiating the process to monetize some portion or all of our Precious Metals Businesses through either a strategic or financial partnership.
With this blueprint in hand, the company successfully amended its senior credit facilities. Completing this step provided the access to the capital and liquidity necessary to fully implement our restructuring initiatives which, in the fourth quarter, resulted in restructuring and other charges of approximately $330 million.
Corporate/Management Structure Aligned With Business
Likewise, during the year, we also took steps to ensure our corporate and management structure remained properly aligned with the business.
We named Thomas R. Miklich, who had been a director of the company since 1993, as our new chief financial officer. He had been the chief financial officer, general counsel and corporate secretary of Invacare Corporation, and prior to that, he was CFO at The Sherwin-Williams Company. Since stepping down from the Board to join the management team in May, Tom has quickly established himself as a key architect of our strategic evolution.
Also during the year, your board of directors elected Frank E. Butler to the newly created position of lead independent director. Frank, the retired president and general manager of the Coatings Division of The Sherwin- Williams Company, has been a director of OMG since 1996. In this new role, he presides over meetings of the independent directors.
Finally, we realigned our corporate structure, reducing overhead by almost 30 percent, and established a management team that streamlines the organization and further enhances our performance accountability. We reduced the executive committee from four members to two, myself and Tom Miklich. Reporting to the executive committee is Todd Romance, Vice President and General Manager, Cobalt; Mark Bak, Vice President and General Manager, Nickel; and Rick Adante, Vice President and General Manager, Precious Metals. Each of these proven executives has full responsibility for the manufacturing, marketing and financial functions of their business units. The management structure is now even more closely aligned with our business, and we have in place the leadership to deliver results in the near and long term. Looking Ahead Clearly, we enter 2003 with a keen understanding of the challenges ahead. While we have accomplished a great deal in a short time, I can assure you, no one at OMG has lost sight of the reality of our current situation. We remain focused on the actions that will allow us to complete our strategic transformation successfully and on delivering long-term shareholder value. We know we cannot afford even the slightest misstep as we move forward. As always, we appreciate the hard work and many contributions of the OMG associates. We would also like to thank our customers, shareowners, suppliers and lenders for their continued support over the past year. Our dedicated team will work tirelessly to maintain your confidence in OMG. Sincerely,
James P. Mooney Chairman & Chief Executive Officer
March 24, 2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K (Mark One)