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Om Group, Inc. 2002 Annual Report Dear Fellow Shareowners

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Om Group, Inc. 2002 Annual Report Dear Fellow Shareowners 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) ࠚ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 2002 OR Ⅺ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EX- CHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-22572 OM GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 52-1736882 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Public Square, 3500 Terminal Tower, Cleveland, Ohio 44113-2204 (Address of principal executive offices) (Zip Code) 216-781-0083 Registrant’s telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ࠚ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ࠚ Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ࠚ No The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates (based upon the closing sale price on the NYSE) on March 14, 2003 and June 30, 2002 was approximately $226 million and $1.75 billion, respectively. As of March 10, 2003 there were 28,354,804 shares of Common Stock, par value $.01 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual meeting of stockholders to be held on May 6, 2003 are incorporated by reference. Table of Contents Page PART I Item 1. Business ******************************************************************** 2 Item 2. Properties ******************************************************************* 6 Item 3. Legal Proceedings ************************************************************ 7 Item 4. Submission of Matters to a Vote of Security Holders******************************** 8 PART II Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters************** 8 Item 6. Selected Financial Data******************************************************** 9 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations*** 10 Item 7a. Quantitative and Qualitative Disclosures about Market Risk************************** 20 Item 8. Financial Statements and Supplementary Data Report of Independent Auditors*********************************************** 21 Consolidated Balance Sheets as of December 31, 2002 and 2001******************** 22 Statements of Consolidated Operations for the years ended December 31, 2002, 2001 and 2000 ***************************************** 23 Statements of Consolidated Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000 ***************************************** 24 Statements of Consolidated Cash Flows for the years ended December 31, 2002, 2001 and 2000 ***************************************** 25 Notes to Consolidated Financial Statements ************************************* 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ******************************************************************* 56 PART III Item 10. Directors and Executive Officers of the Registrant ********************************** 57 Item 11. Executive Compensation ******************************************************* 57 Item 12. Security Ownership of Certain Beneficial Owners and Management ******************* 57 Item 13. Certain Relationships and Related Transactions ************************************ 57 Item 14. Controls and Procedures ******************************************************* 57 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K******************** 58 Signatures ******************************************************************* 62 Management Certification — Principal Executive Officer **************************** 63 Management Certification — Principal Financial Officer ***************************** 64 1 PART I Item 1. Business General OM Group, Inc. (the Company), through its operating subsidiaries, is a leading, vertically integrated international producer and marketer of value-added, metal-based specialty chemicals and related materials. More than 625 different product
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