UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission File Number 0-22572
OM GROUP, INC.
| Delaware (state or other jurisdiction of incorporation or organization) |
52-1736882 (I.R.S. Employer Identification Number) |
Tower City
50 Public Square
Suite 3500
Cleveland, Ohio 44113-2204
(Address of principal executive offices)
(zip code)
(216) 781-0083
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2002: Common Stock, $0.01 Par Value – 28,182,726 shares.
INDEX
OM GROUP, INC.
| Part I. | Financial Information | |||||||
| Item 1. | Financial Statements (Unaudited) | |||||||
| Condensed consolidated balance sheets – June 30, 2002 and December 31, 2001 | ||||||||
| Condensed statements of consolidated income – Three months ended June 30, 2002 and 2001; Six months ended June 30, 2002 and 2001 | ||||||||
| Condensed statements of consolidated cash flows — Six months ended June 30, 2002 and 2001 | ||||||||
| Notes to condensed consolidated financial statements – June 30, 2002 | ||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||||
| Part II. | Other Information | |||||||
| Item 1. | Legal Proceedings — Not applicable | |||||||
| Item 2. | Changes in Securities and Use of Proceeds — Not applicable | |||||||
| Item 3. | Defaults Upon Senior Securities — Not applicable | |||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | |||||||
| Item 5. | Other Information | |||||||
| Item 6. | Exhibits and Reports on Form 8-K | |||||||
| (4) | Instruments defining rights of security holders, including indentures – Second Amended and Restated Credit Agreement, dated as of June 28, 2002 | |||||||
| (10) | Employment Agreement of Thomas R. Miklich | |||||||
| (12) | Computation of Ratio of Earnings to Fixed Charges | |||||||
| (99.1) | Certification of James P. Mooney | |||||||
| (99.2) | Certification of Thomas R. Miklich | |||||||
| Part I | Financial Information | |
| Item 1 | Financial Statements |
OM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
| June 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
ASSETS |
||||||||||
CURRENT ASSETS |
||||||||||
Cash and cash equivalents |
$ | 36,068 | $ | 78,210 | ||||||
Marketable securities |
44,577 | 38,667 | ||||||||
Accounts receivable |
449,315 | 375,258 | ||||||||
Inventories |
795,439 | 815,503 | ||||||||
Other current assets |
149,149 | 144,414 | ||||||||
Total Current Assets |
1,474,548 | 1,452,052 | ||||||||
PROPERTY, PLANT AND EQUIPMENT |
||||||||||
Land |
15,508 | 15,378 | ||||||||
Buildings and improvements |
228,395 | 219,666 | ||||||||
Machinery and equipment |
705,537 | 651,822 | ||||||||
Furniture and fixtures |
40,115 | 36,964 | ||||||||
| 989,555 | 923,830 | |||||||||
Less accumulated depreciation |
222,604 | 191,816 | ||||||||
| 766,951 | 732,014 | |||||||||
OTHER ASSETS |
||||||||||
Goodwill |
185,468 | 180,402 | ||||||||
Other intangible assets |
49,529 | 46,689 | ||||||||
Other assets |
135,369 | 130,065 | ||||||||
TOTAL ASSETS |
$ | 2,611,865 | $ | 2,541,222 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
CURRENT LIABILITIES |
||||||||||
Current portion of long-term debt |
$ | 4,500 | $ | 20,188 | ||||||
Accounts payable |
179,749 | 176,986 | ||||||||
Deferred income taxes |
71,701 | 73,716 | ||||||||
Other accrued expenses |
159,487 | 151,832 | ||||||||
Total Current Liabilities |
415,437 | 422,722 | ||||||||
LONG -TERM LIABILITIES |
||||||||||
Long-term debt |
1,080,438 | 1,300,507 | ||||||||
Deferred income taxes |
79,573 | 76,366 | ||||||||
Other long-term liabilities |
103,344 | 97,530 | ||||||||
Minority interests |
80,800 | 74,564 | ||||||||
STOCKHOLDERS’ EQUITY |
||||||||||
Preferred stock, $0.01 par value: |
||||||||||
Authorized
2,000,000 shares; no shares issued or outstanding |
||||||||||
Common stock, $0.01 par value: |
||||||||||
Authorized 60,000,000 shares; issued 28,185,085 shares in 2002 and 24,143,267 shares in 2001 |
282 | 241 | ||||||||
Capital in excess of par value |
490,631 | 262,914 | ||||||||
Retained earnings |
360,466 | 316,796 | ||||||||
Treasury stock (2,359 shares in 2002 and 2001, at cost) |
(118 | ) | (118 | ) | ||||||
Accumulated other comprehensive income (loss) |
6,203 | (6,363 | ) | |||||||
Unearned compensation |
(5,191 | ) | (3,937 | ) | ||||||
Total Stockholders’ Equity |
852,273 | 569,533 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 2,611,865 | $ | 2,541,222 | ||||||
See notes to condensed Consolidated Financial Statements
| Part I | Financial Information | |
| Item 1 | Financial Statements |
OM GROUP, INC.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Thousands of dollars, except per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net sales |
$ | 1,261,629 | $ | 216,589 | $ | 2,450,519 | $ | 452,231 | |||||||||
Cost of products sold |
1,138,548 | 155,896 | 2,210,801 | 331,514 | |||||||||||||
| 123,081 | 60,693 | 239,718 | 120,717 | ||||||||||||||
Selling, general and administrative expenses |
68,172 | 22,073 | 132,865 | 43,302 | |||||||||||||
INCOME FROM OPERATIONS |
54,909 | 38,620 | 106,853 | 77,415 | |||||||||||||
OTHER
INCOME (EXPENSE) |
|||||||||||||||||
Interest expense |
(19,250 | ) | (10,990 | ) | (37,887 | ) | (22,548 | ) | |||||||||
Interest and dividend income |
3,850 | 305 | 5,234 | 805 | |||||||||||||
Foreign exchange loss |
(500 | ) | (197 | ) | (1,139 | ) | (745 | ) | |||||||||
| (15,900 | ) | (10,882 | ) | (33,792 | ) | (22,488 | ) | ||||||||||
INCOME BEFORE INCOME TAXES, MINORITY
INTERESTS AND EQUITY INCOME |
39,009 | 27,738 | 73,061 | 54,927 | |||||||||||||
Income taxes |
10,319 | 7,573 | 18,851 | 15,130 | |||||||||||||
Minority interests |
3,700 | 6,473 | |||||||||||||||
Equity in income of affiliates |
(511 | ) | (1,132 | ) | |||||||||||||
NET INCOME |
$ | 25,501 | $ | 20,165 | $ | 48,869 | $ | 39,797 | |||||||||
Net income per common share |
$ | 0.90 | $ | 0.84 | $ | 1.76 | $ | 1.66 | |||||||||
Net income per common share — assuming dilution |
$ | 0.89 | $ | 0.83 | $ | 1.74 | $ | 1.63 | |||||||||
Weighted average shares outstanding (000) |
|||||||||||||||||
Net income per common share |
28,253 | 23,938 | 27,696 | 23,931 | |||||||||||||
Net income per common share — assuming dilution |
28,706 | 24,440 | 28,151 | 24,405 | |||||||||||||
Dividends paid per common share |
$ | 0.14 | $ | 0.13 | $ | 0.28 | $ | 0.26 | |||||||||
See notes to condensed Consolidated Financial Statements
| Part I | Financial Information | |
| Item 1 | Financial Statements |
OM GROUP, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Thousands of dollars)
(Unaudited)
| Six Months Ended | ||||||||||
| June 30, | ||||||||||
| 2002 | 2001 | |||||||||
OPERATING ACTIVITIES |
||||||||||
Net income |
$ | 48,869 | $ | 39,797 | ||||||
Items not affecting cash: |
||||||||||
Depreciation and amortization |
39,938 | 23,829 | ||||||||
Foreign exchange loss |
1,139 | 745 | ||||||||
Deferred income taxes |
(71 | ) | 33 | |||||||
Minority interests |
6,473 | |||||||||
Equity in income of affiliates |
(1,132 | ) | ||||||||
Changes in operating assets and liabilities |
(52,926 | ) | (62,432 | ) | ||||||
NET CASH PROVIDED BY OPERATING
ACTIVITIES |
42,290 | 1,972 | ||||||||
INVESTING ACTIVITIES |
||||||||||
Expenditures for property, plant and equipment, net |
(64,374 | ) | (41,575 | ) | ||||||
Investments in unconsolidated joint venture |
(994 | ) | (4,000 | ) | ||||||
NET CASH USED IN INVESTING ACTIVITIES |
(65,368 | ) | (45,575 | ) | ||||||
FINANCING ACTIVITIES |
||||||||||
Dividend payments |
(7,915 | ) | (6,221 | ) | ||||||
Long-term borrowings |
9,994 | 56,178 | ||||||||
Payments of long-term debt |
(245,851 | ) | (9,750 | ) | ||||||
Purchases of treasury stock |
(5,080 | ) | ||||||||
Issuance of common stock |
225,851 | |||||||||
Proceeds from exercise of stock options |
2,716 | 4,517 | ||||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
(15,205 | ) | 39,644 | |||||||
Effect of exchange rate changes on cash and cash
equivalents |
(3,859 | ) | (176 | ) | ||||||
Decrease in cash and cash equivalents |
(42,142 | ) | (4,135 | ) | ||||||
Cash and cash equivalents at beginning of period |
78,210 | 13,482 | ||||||||
Cash and cash equivalents at end of period |
$ | 36,068 | $ | 9,347 | ||||||
See notes to condensed Consolidated Financial Statements
| Part I | Financial Information | |
| Item 1 | Financial Statements |
OM GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2002
(Thousands of dollars, except per share amounts)
| Note A | Basis of Presentation | |
| The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair financial presentation have been included. Past operating results are not necessarily indicative of the results which may occur in future periods, and the interim period results are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. | ||
| Certain amounts for the prior year have been reclassified to conform to the current year presentation. | ||
| Note B | Acquisitions and Secondary Equity Offering | |
| On August 10, 2001, the Company acquired dmc2 Degussa Metals Catalysts Cerdec (dmc2) for a purchase price of approximately $1.120 billion, including cash acquired and related financing and transaction costs. dmc2 is a worldwide provider of metal-based functional materials for a wide variety of end markets. The acquisition of dmc2 was financed through a combination of debt and equity and the sale of certain assets. On September 7, 2001, the Company completed the disposition of the electronic materials, performance pigments, glass systems and Cerdec ceramics divisions of dmc2 for a cash purchase price of $525.5 million. In both transactions, the purchase price is subject to working capital adjustments, which may ultimately impact the final purchase price. | ||
| The acquired assets and liabilities of dmc2 are recorded at estimated fair values, as determined by the Company’s management, based on information currently available, including its responsibility for any environmental or legal matters at the date of acquisition. Accordingly, the allocation of the purchase price to the acquired assets and liabilities of dmc2 may be revised at a later date as fair value determinations are finalized, including appraisals of property, plant and equipment and intangible assets. | ||
| In April 2000, the Company acquired Outokumpu Nickel Oy for a purchase price of $188.1 million, including related financing and transaction costs. During June 2002, the Company resolved certain matters with the seller related to the net assets acquired, the result of which was a reduction in the original purchase price of approximately $1.1 million. Goodwill associated with this acquisition has been reduced accordingly. | ||
| On January 25, 2002, the Company completed its secondary offering of 4.025 million shares of common stock. The net offering proceeds of $225.9 million were used to repay outstanding indebtedness under the Company’s credit facilities. | ||
| Note C | New Accounting Pronouncement – Adoption of SFAS No. 142 | |
| Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142 “Goodwill and Other Intangible Assets”. Upon adoption, the Company discontinued the |
| amortization of goodwill recorded in connection with previous business combinations. A reconciliation of net income and earnings per common share for the three months and six months ended June 30, 2001, as if SFAS No. 142 had been adopted as of the beginning of that year, follows: |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Reported net income |
$ | 25,501 | $ | 20,165 | $ | 48,869 | $ | 39,797 | ||||||||
Add back amortization of goodwill |
1,664 | 3,328 | ||||||||||||||
Adjusted net income |
$ | 25,501 | $ | 21,829 | $ | 48,869 | $ | 43,125 | ||||||||
Reported net income per common share –
assuming dilution |
$ | 0.89 | $ | 0.83 | $ | 1.74 | $ | 1.63 | ||||||||
Add back amortization of goodwill |
.06 | .14 | ||||||||||||||
Adjusted net income per common share –
assuming dilution |
$ | 0.89 | $ | 0.89 | $ | 1.74 | $ | 1.77 | ||||||||
| SFAS No. 142 changes the accounting for goodwill and indefinite lived intangible assets from an amortization approach to a non-amortization approach requiring periodic testing for impairment of the asset. The Company has completed the required initial impairment test for goodwill as of January 1, 2002, which indicated that there was no impairment of goodwill as of that date. | ||
| A summary of goodwill and other intangible assets follows: |
| June 30, 2002 | December 31, 2001 | |||||||||||||||
| Historical | Accumulated | Historical | Accumulated | |||||||||||||
| Cost | Amortization | Cost | Amortization | |||||||||||||
Goodwill |
$ | 210,285 | $ | 24,817 | $ | 205,219 | $ | 24,817 | ||||||||
Other intangible assets, primarily
patents |
$ | 61,534 | $ | 12,005 | $ | 57,130 | $ | 10,441 | ||||||||
| All of the Company’s other intangible assets have finite lives and will continue to be amortized over their useful lives. Amortization expense related to other intangible assets for the first six months of 2002 was approximately $1,600. Estimated annual pretax amortization expense for intangible assets amortization for each of the next five years is approximately $3,200 per year. | ||
| Note D | Inventories | |
| Inventories consist of the following: |
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
Raw materials and supplies |
$ | 325,937 | $ | 335,706 | ||||
Finished goods |
335,590 | 340,883 | ||||||
| 661,527 | 676,589 | |||||||
LIFO reserve |
133,912 | 138,914 | ||||||
Total inventories |
$ | 795,439 | $ | 815,503 | ||||
| Note E | Contingent Matters | |
| The Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations in the jurisdictions in which it operates. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings involving environmental matters. Although it is very difficult to quantify the potential impact of compliance with or liability under environmental protection laws, management believes that the ultimate aggregate cost to the Company of environmental remediation, as well as other legal proceedings arising out of operations in the normal course of business, will not result in a material adverse effect upon its financial condition or results of operations. | ||
| Note F | Computation of Net Income per Common Share | |
| The following table sets forth the computation of net income per common share and net income per common share — assuming dilution (shares in thousands): |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Net income |
$ | 25,501 | $ | 20,165 | $ | 48,869 | $ | 39,797 | ||||||||
Weighted average number of shares
outstanding |
28,253 | 23,938 | 27,696 | 23,931 | ||||||||||||
Dilutive effect of stock options |
453 | 502 | 455 | 474 | ||||||||||||
Weighted average number of shares
outstanding – assuming dilution |
28,706 | 24,440 | 28,151 | 24,405 | ||||||||||||
Net income per common share |
$ | 0.90 | $ | 0.84 | $ | 1.76 | $ | 1.66 | ||||||||
Net income per common share – assuming
dilution |
$ | 0.89 | $ | 0.83 | $ | 1.74 | $ | 1.63 | ||||||||
| Note G | Comprehensive Income |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Net income |
$ | 25,501 | $ | 20,165 | $ | 48,869 | $ | 39,797 | ||||||||
Unrealized loss on available-for-sale securities
|
(2,869 | ) | (901 | ) | ||||||||||||
Foreign currency translation |
4,363 | (251 | ) | 9,121 | (5 | ) | ||||||||||
Unrealized gain (loss) on cash flow hedges |
1,233 | (611 | ) | 4,346 | (2,844 | ) | ||||||||||
Cumulative effect of adoption of FAS 133 |
(1,558 | ) | ||||||||||||||
Total comprehensive income |
$ | 28,228 | $ | 19,303 | $ | 61,435 | $ | 35,390 | ||||||||
| Note H | Guarantor and Non-Guarantor Subsidiary Information |
| In December 2001, the Company issued $400 million in aggregate principal amount of 9.25% Senior Subordinated Notes due 2011 (the “Notes”). These Notes are guaranteed by the Company’s wholly-owned domestic subsidiaries. The guarantees are full, unconditional and joint and several. | ||
| The Company’s foreign subsidiaries are not guarantors of these Notes. The Company, as presented below, represents OM Group, Inc. exclusive of its guarantor subsidiaries and its non-guarantor subsidiaries. Condensed consolidating financial information for the Company, the guarantor subsidiaries, and the non-guarantor subsidiaries is as follows: |
| June 30, 2002 | |||||||||||||||||||||
| Combined | Combined | ||||||||||||||||||||
| The | Guarantor | Non-guarantor | |||||||||||||||||||
| Balance Sheet Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Assets |
|||||||||||||||||||||
Current assets: |
|||||||||||||||||||||
Cash and cash equivalents |
$ | 1,093 | $ | 4,900 | $ | 30,075 | $ | 36,068 | |||||||||||||
Marketable securities |
44,577 | 44,577 | |||||||||||||||||||
Accounts receivable |
773,263 | 128,998 | 728,325 | $ | (1,181,271 | ) | 449,315 | ||||||||||||||
Inventories |
154,386 | 641,053 | 795,439 | ||||||||||||||||||
Other current assets |
15,384 | 26,399 | 107,366 | 149,149 | |||||||||||||||||
Total current assets |
789,740 | 314,683 | 1,551,396 | (1,181,271 | ) | 1,474,548 | |||||||||||||||
Property, plant and equipment – net |
130,689 | 636,262 | 766,951 | ||||||||||||||||||
Goodwill and other intangible assets |
166,942 | 68,055 | 234,997 | ||||||||||||||||||
Intercompany receivables |
265,783 | 1,172,281 | (1,438,064 | ) | |||||||||||||||||
Investment in subsidiaries |
985,999 | 522,939 | 2,096,357 | (3,605,295 | ) | ||||||||||||||||
Other assets |
24,844 | 27,749 | 82,776 | 135,369 | |||||||||||||||||
Total assets |
$ | 2,066,366 | $ | 1,163,002 | $ | 5,607,127 | $ | (6,224,630 | ) | $ | 2,611,865 | ||||||||||
Liabilities and stockholders’ equity |
|||||||||||||||||||||
Current liabilities: |
|||||||||||||||||||||
Current portion of long-term debt |
$ | 4,500 | $ | 4,500 | |||||||||||||||||
Accounts payable |
128,173 | $ | 350,587 | $ | 408,726 | $ | (707,737 | ) | 179,749 | ||||||||||||
Deferred income taxes |
46 | 1,208 | 70,447 | 71,701 | |||||||||||||||||
Other accrued expenses |
1,387 | 6,228 | 151,872 | 159,487 | |||||||||||||||||
Total current liabilities |
134,106 | 358,023 | 631,045 | (707,737 | ) | 415,437 | |||||||||||||||
Long-term debt |
1,080,438 | 1,080,438 | |||||||||||||||||||
Deferred income taxes |
(451 | ) | 80,024 | 79,573 | |||||||||||||||||
Other long-term liabilities |
16,140 | 87,204 | 103,344 | ||||||||||||||||||
Intercompany payables |
585,916 | 2,065,914 | (2,651,830 | ) | |||||||||||||||||
Minority interests |
442 | 80,358 | 80,800 | ||||||||||||||||||
Stockholders’ equity |
852,273 | 202,481 | 2,662,582 | (2,865,063 | ) | 852,273 | |||||||||||||||
Total
liabilities and stockholders’ equity |
$ | 2,066,366 | $ | 1,163,002 | $ | 5,607,127 | $ | (6,224,630 | ) | $ | 2,611,865 | ||||||||||
| December 31, 2001 | |||||||||||||||||||||
| Combined | Combined | ||||||||||||||||||||
| The | Guarantor | Non-guarantor | |||||||||||||||||||
| Balance Sheet Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Assets |
|||||||||||||||||||||
Current assets: |
|||||||||||||||||||||
Cash and cash equivalents |
$ | 638 | $ | 4,709 | $ | 72,863 | $ | 78,210 | |||||||||||||
Marketable securities |
38,667 | 38,667 | |||||||||||||||||||
Accounts receivable |
733,669 | 102,482 | 482,816 | $ | (943,709 | ) | 375,258 | ||||||||||||||
Inventories |
211,889 | 603,614 | 815,503 | ||||||||||||||||||
Other current assets |
15,375 | 23,468 | 105,571 | 144,414 | |||||||||||||||||
Total current assets |
749,682 | 342,548 | 1,303,531 | (943,709 | ) | 1,452,052 | |||||||||||||||
Property, plant and equipment – net |
135,672 | 596,342 | 732,014 | ||||||||||||||||||
Goodwill and other intangible assets |
166,542 | 60,549 | 227,091 | ||||||||||||||||||
Intercompany receivables |
262,748 | 3,970 | 1,170,574 | (1,437,292 | ) | ||||||||||||||||
Investment in subsidiaries |
908,483 | 522,939 | 2,029,173 | (3,460,595 | ) | ||||||||||||||||
Other assets |
18,127 | 27,373 | 84,565 | 130,065 | |||||||||||||||||
Total assets |
$ | 1,939,040 | $ | 1,199,044 | $ | 5,244,734 | $ | (5,841,596 | ) | $ | 2,541,222 | ||||||||||
Liabilities and stockholders’ equity |
|||||||||||||||||||||
Current liabilities: |
|||||||||||||||||||||
Current portion of long-term debt |
$ | 20,188 | $ | 20,188 | |||||||||||||||||
Accounts payable |
38,146 | $ | 365,410 | $ | 359,124 | $ | (585,694 | ) | 176,986 | ||||||||||||
Deferred income taxes |
46 | 1,208 | 72,462 | 73,716 | |||||||||||||||||
Other accrued expenses |
11,071 | 18,492 | 122,269 | 151,832 | |||||||||||||||||
Total current liabilities |
69,451 | 385,110 | 553,855 | (585,694 | ) | 422,722 | |||||||||||||||
Long-term debt |
1,300,507 | 1,300,507 | |||||||||||||||||||
Deferred income taxes |
(451 | ) | 76,817 | 76,366 | |||||||||||||||||
Other long-term liabilities |
15,664 | 81,866 | 97,530 | ||||||||||||||||||
Intercompany payables |
514,121 | 2,020,371 | (2,534,492 | ) | |||||||||||||||||
Minority interests |
445 | 74,119 | 74,564 | ||||||||||||||||||
Stockholders’ equity |
569,533 | 283,704 | 2,437,706 | (2,721,410 | ) | 569,533 | |||||||||||||||
Total
liabilities and stockholders’ equity |
$ | 1,939,040 | $ | 1,199,044 | $ | 5,244,734 | $ | (5,841,596 | ) | $ | 2,541,222 | ||||||||||
| Three Months Ended June 30, 2002 | ||||||||||||||||||||
| Combined | Combined | |||||||||||||||||||
| The | Guarantor | Non-guarantor | ||||||||||||||||||
| Income Statement Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||
Net sales |
$ | 396,678 | $ | 926,687 | $ | (61,736 | ) | $ | 1,261,629 | |||||||||||
Cost of products sold |
377,238 | 823,046 | (61,736 | ) | 1,138,548 | |||||||||||||||
| 19,440 | 103,641 | 123,081 | ||||||||||||||||||
Selling, general and administrative
expenses |
18,684 | 49,488 | 68,172 | |||||||||||||||||
Income (loss) from operations |
756 | 54,153 | 54,909 | |||||||||||||||||
Interest
expense |
$(17,628 | ) | (4,216 | ) | (12,771 | ) | 15,365 | (19,250 | ) | |||||||||||
Interest
and dividend income |
3,547 | 147 | 15,521 | (15,365 | ) | 3,850 | ||||||||||||||
Foreign exchange (loss) gain |
717 | (543 | ) | (674 | ) | (500 | ) | |||||||||||||
Income (loss) before income taxes,
minority interests and equity
income |
(13,364 | ) | (3,856 | ) | 56,229 | 39,009 | ||||||||||||||
Income tax (benefit) expense |
(2,419 | ) | (1,156 | ) | 13,894 | 10,319 | ||||||||||||||
Minority interests |
3,700 | 3,700 | ||||||||||||||||||
Equity in income of affiliates |
(511 | ) | (511 | ) | ||||||||||||||||
Net (loss) income |
$ | (10,945 | ) | $ | (2,700 | ) | $ | 39,146 | $ | $ | 25,501 | |||||||||
| Three Months Ended June 30, 2001 | ||||||||||||||||||||
| Combined | Combined | |||||||||||||||||||
| The | Guarantor | Non-guarantor | ||||||||||||||||||
| Income Statement Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||
Net sales |
$ | 74,183 | $ | 185,559 | $ | (43,153 | ) | $ | 216,589 | |||||||||||
Cost of products sold |
55,263 | 143,786 | (43,153 | ) | 155,896 | |||||||||||||||
| 18,920 | 41,773 | 60,693 | ||||||||||||||||||
Selling, general and administrative
expenses |
11,582 | 10,491 | 22,073 | |||||||||||||||||
Income (loss) from operations |
7,338 | 31,282 | 38,620 | |||||||||||||||||
Interest
expense |
$ | (10,960 | ) | (3,591 | ) | (18,970 | ) | 22,531 | (10,990 | ) | ||||||||||
Interest
and dividend income |
3,805 | 219 | 18,812 | (22,531 | ) | 305 | ||||||||||||||
Foreign exchange (loss) gain |
(151 | ) | 39 | (85 | ) | (197 | ) | |||||||||||||
Income (loss) before income taxes,
minority interests and equity
income |
(7,306 | ) | 4,005 | 31,039 | 27,738 | |||||||||||||||
Income tax (benefit) expense |
(1,869 | ) | 1,202 | 8,240 | 7,573 | |||||||||||||||
Net (loss) income |
$ | (5,437 | ) | $ | 2,803 | $ | 22,799 | $ | $ | 20,165 | ||||||||||
| Six Months Ended June 30, 2002 | ||||||||||||||||||||
| Combined | Combined | |||||||||||||||||||
| The | Guarantor | Non-guarantor | ||||||||||||||||||
| Income Statement Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||
Net sales |
$ | 810,105 | $ | 1,748,133 | $ | (107,719 | ) | $ | 2,450,519 | |||||||||||
Cost of products sold |
769,385 | 1,549,135 | (107,719 | ) | 2,210,801 | |||||||||||||||
| 40,720 | 198,998 | 239,718 | ||||||||||||||||||
Selling, general and administrative
expenses |
38,804 | 94,061 | 132,865 | |||||||||||||||||
Income (loss) from operations |
1,916 | 104,937 | 106,853 | |||||||||||||||||
Interest expense |
$(33,957 | ) | (8,675 | ) | (28,620 | ) | 33,365 | (37,887 | ) | |||||||||||
Interest and dividend income |
8,164 | 432 | 30,003 | (33,365 | ) | 5,234 | ||||||||||||||
Foreign exchange (loss) gain |
512 | 4 | (1,655 | ) | (1,139 | ) | ||||||||||||||
Income (loss) before income taxes,
minority interests and equity
income |
(25,281 | ) | (6,323 | ) | 104,665 | 73,061 | ||||||||||||||
Income tax (benefit) expense |
(6,794 | ) | (1,896 | ) | 27,541 | 18,851 | ||||||||||||||
Minority interests |
6,473 | 6,473 | ||||||||||||||||||
Equity in income of affiliates |
(1,132 | ) | (1,132 | ) | ||||||||||||||||
Net (loss) income |
$ | (18,487 | ) | $ | (4,427 | ) | $ | 71,783 | $ | $ | 48,869 | |||||||||
| Six Months Ended June 30, 2001 | ||||||||||||||||||||
| Combined | Combined | |||||||||||||||||||
| The | Guarantor | Non-guarantor | ||||||||||||||||||
| Income Statement Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||
Net sales |
$ | 156,510 | $ | 387,066 | $ | (91,345 | ) | $ | 452,231 | |||||||||||
Cost of products sold |
119,752 | 303,107 | (91,345 | ) | 331,514 | |||||||||||||||
| 36,758 | 83,959 | 120,717 | ||||||||||||||||||
Selling, general and administrative
expenses |
25,942 | 17,360 | 43,302 | |||||||||||||||||
Income (loss) from operations |
10,816 | 66,599 | 77,415 | |||||||||||||||||
Interest expense |
$ | (22,466 | ) | (7,648 | ) | (37,202 | ) | 44,768 | (22,548 | ) | ||||||||||
Interest
and dividend income |
8,058 | 404 | 37,111 | (44,768 | ) | 805 | ||||||||||||||
Foreign exchange (loss) gain |
(497 | ) | 325 | (573 | ) | (745 | ) | |||||||||||||
Income (loss) before income taxes,
minority interests and equity
income |
(14,905 | ) | 3,897 | 65,935 | 54,927 | |||||||||||||||
Income tax (benefit) expense |
(4,054 | ) | 1,169 | 18,015 | 15,130 | |||||||||||||||
Net (loss) income |
$ | (10,851 | ) | $ | 2,728 | $ | 47,920 | $ | $ | 39,797 | ||||||||||
| Six Months Ended June 30, 2002 | |||||||||||||||||||||
| Combined | Combined | ||||||||||||||||||||
| The | Guarantor | Non-guarantor | |||||||||||||||||||
| Cash Flow Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net cash provided by operating
activities |
$ | 15,660 | $ | 1,452 | $ | 25,178 | $ | 42,290 | |||||||||||||
Investing activities: |
|||||||||||||||||||||
Expenditures for property, plant
and equipment – net |
(1,427 | ) | (62,947 | ) | (64,374 | ) | |||||||||||||||
Investments in unconsolidated
joint venture |
(994 | ) | (994 | ) | |||||||||||||||||
Net cash used in investing activities |
(1,427 | ) | (63,941 | ) | (65,368 | ) | |||||||||||||||
Financing activities: |
|||||||||||||||||||||
Dividend payments |
(7,915 | ) | (7,915 | ) | |||||||||||||||||
Long-term borrowings |
9,994 | 9,994 | |||||||||||||||||||
Payments of long-term debt |
(245,851 | ) | (245,851 | ) | |||||||||||||||||
Issuance of common stock |
225,851 | 225,851 | |||||||||||||||||||
Proceeds from exercise of stock
options |
2,716 | 2,716 | |||||||||||||||||||
Net cash used in financing
activities |
(15,205 | ) | (15,205 | ) | |||||||||||||||||
Effect of exchange rate changes on
cash and cash equivalents |
166 | (4,025 | ) | (3,859 | ) | ||||||||||||||||
Increase (decrease) in cash and
cash equivalents |
455 | 191 | (42,788 | ) | (42,142 | ) | |||||||||||||||
Cash and cash equivalents at
beginning of period |
638 | 4,709 | 72,863 | 78,210 | |||||||||||||||||
Cash and cash equivalents at end of
period |
$ | 1,093 | $ | 4,900 | $ | 30,075 | $ | $ | 36,068 | ||||||||||||
| Six Months Ended June 30, 2001 | |||||||||||||||||||||
| Combined | Combined | ||||||||||||||||||||
| The | Guarantor | Non-guarantor | |||||||||||||||||||
| Cash Flow Data | Company | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Net cash provided by (used in)
operating activities |
$ | (39,644 | ) | $ | 6,013 | $ | 35,603 | $ | 1,972 | ||||||||||||
Investing activities: |
|||||||||||||||||||||
Expenditures for property plant
and equipment – net |
(5,749 | ) | (35,826 | ) | (41,575 | ) | |||||||||||||||
Investment in unconsolidated joint
ventures |
(4,000 | ) | (4,000 | ) | |||||||||||||||||
Net cash used in investing activities |
(5,749 | ) | (39,826 | ) | (45,575 | ) | |||||||||||||||
Financing activities: |
|||||||||||||||||||||
Dividend payments |
(6,221 | ) | (6,221 | ) | |||||||||||||||||
Long-term borrowings |
56,178 | 56,178 | |||||||||||||||||||
Payments of long-term debt |
(9,750 | ) | (9,750 | ) | |||||||||||||||||
Purchases of treasury stock |
(5,080 | ) | (5,080 | ) | |||||||||||||||||
Proceeds from exercise of stock
options |
4,517 | 4,517 | |||||||||||||||||||
Net cash provided by financing
activities |
39,644 | 39,644 | |||||||||||||||||||
Effect of exchange rate changes on
cash and cash equivalents |
(22 | ) | (154 | ) | (176 | ) | |||||||||||||||
Increase (decrease) in cash and
cash equivalents |
242 | (4,377 | ) | (4,135 | ) | ||||||||||||||||
Cash and cash equivalents at
beginning of period |
1 | 1,694 | 11,787 | 13,482 | |||||||||||||||||
Cash and cash equivalents at end of
period |
$ | 1 | $ | 1,936 | $ | 7,410 | $ | $ | 9,347 | ||||||||||||
| Note I | Business Segment Information | |
| The Company operates in three business segments: base metal chemistry, precious metal chemistry and metal management. |
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Net Sales |
||||||||||||||||||
Base metal chemistry |
$ | 215,320 | $ | 216,589 | $ | 411,612 | $ | 452,231 | ||||||||||
Precious metal chemistry |
361,413 | 744,353 | ||||||||||||||||
Metal management |
746,146 | 1,412,867 | ||||||||||||||||
Inter-segment |
(61,250 | ) | (118,313 | ) | ||||||||||||||
Total Net Sales |
$ | 1,261,629 | $ | 216,589 | $ | 2,450,519 | $ | 452,231 | ||||||||||
Operating Profit |
||||||||||||||||||
Base metal chemistry |
$ | 36,651 | $ | 42,573 | $ | 69,872 | $ | 86,188 | ||||||||||
Precious metal chemistry |
23,374 | 43,873 | ||||||||||||||||
Metal management |
2,210 | 6,414 | ||||||||||||||||
Total Operating Profit |
62,235 | 42,573 | 120,159 | 86,188 | ||||||||||||||
Interest expense, net |
(15,400 | ) | (10,685 | ) | (32,653 | ) | (21,743 | ) | ||||||||||
Corporate and other |
(7,326 | ) | (3,953 | ) | (13,306 | ) | (8,773 | ) | ||||||||||
Foreign exchange loss |
(500 | ) | (197 | ) | (1,139 | ) | (745 | ) | ||||||||||
Income before income taxes, minority
interests and equity income |
39,009 | 27,738 | 73,061 | 54,927 | ||||||||||||||
Income taxes |
10,319 | 7,573 | 18,851 | 15,130 | ||||||||||||||
Minority interests |
3,700 | 6,473 | ||||||||||||||||
Equity in income of affiliates |
(511 | ) | (1,132 | ) | ||||||||||||||
Net income |
$ | 25,501 | $ | 20,165 | $ | 48,869 | $ | 39,797 | ||||||||||
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001 | ||
| Net sales for the three months ended June 30, 2002 were $1.262 billion, an increase of 482.5% compared to the same period in 2001. The increase was the result of the acquisition of dmc2 Degussa Metals Catalysts Cerdec (dmc2) in August 2001 and higher physical sales volumes in the base metal chemistry segment, partially offset by a decline in the Company’s selling prices in the base metal chemistry segment due to lower cobalt prices. | ||
| Gross profit increased to $123.1 million for the three month period ended June 30, 2002, a 102.8% increase over the same period in 2001. The increase in gross profit was due to the acquisition of dmc2. Cost of products sold increased to $1.139 billion from $155.9 million, or to 90.2% from 72.0% of net sales, primarily as a result of the acquisition of dmc2 with its high cost of precious metals relative to revenues. | ||
| Selling, general and administrative expenses increased by $46.1 million in the three month period ended June 30, 2002, from the same period in 2001, resulting primarily from the acquisition of dmc2. | ||
| Other expense – net was $15.9 million for the three month period ended June 30, 2002, compared to $10.9 million for the same period in 2001, due primarily to increased interest expense associated with the additional debt to finance the acquisition of dmc2 , partially offset by the receipt of a $2.2 million dividend from an investment in marketable equity securities. |
| Income taxes as a percentage of income before income taxes, minority interests and equity income were 26.5% compared to 27.3% in the same period in 2001. The effective tax rate in 2002 is lower than the corresponding rate in 2001 due primarily to tax holidays in South Africa and Brazil that relate to former dmc2 operations acquired in August 2001. The overall effective tax rate is lower than the U.S. statutory tax rate due to income earned in the relatively low statutory tax country of Finland and tax holidays in South Africa, Brazil and Malaysia. | ||
| Net income for the three month period ended June 30, 2002 was $25.5 million, an increase of $5.3 million from the same period in 2001, due to the aforementioned factors. | ||
| Base metal chemistry segment The base metal chemistry segment includes the cobalt, nickel, copper and other base metal chemistry manufacturing businesses, which comprised the historical businesses of the Company prior to the acquisition of dmc2. |
||
| The following information summarizes market prices of the primary raw materials used by the base metal chemistry segment: |
| Market Price Ranges per Pound | ||||||||
| Three Months Ended June 30, | ||||||||
| 2002 | 2001 | |||||||
Cobalt - 99.3% Grade |
$6.55 to $8.45 | $9.08 to $12.09 | ||||||
Nickel |
$2.97 to $3.33 | $2.74 to $3.35 | ||||||
Copper |
$.72 to $.78 | $ .70 to $ .79 | ||||||
| The following information summarizes the physical volumes of products sold by the base metal chemistry segment: |
| Three Months Ended June 30, | ||||||||||||
| Percentage | ||||||||||||
| (in millions of pounds) | 2002 | 2001 | Change | |||||||||
Organics |
24.5 | 21.2 | 15.6 | % | ||||||||
Inorganics |
25.3 | 24.8 | 2.0 | % | ||||||||
Powders |
11.1 | 10.7 | 3.7 | % | ||||||||
Metals |
33.7 | 28.5 | 18.2 | % | ||||||||
| 94.6 | 85.2 | 11.0 | % | |||||||||
| Operating profit for the three months ended June 30, 2002 was $36.7 million, a decrease of 13.9% compared to the same period for 2001. The decline was primarily the result of lower cobalt metal prices, resulting in lower refining profits, and product mix. Net sales were essentially flat at $215.3 million compared to $216.6 million during the same period in 2001, due to an increase in physical volumes offsetting a decline in selling prices due to the lower cobalt market price. Physical sales volumes were up overall by approximately 11.0%, primarily reflecting strength in sales of organics to the coatings, petrochemicals and tire industries; higher metals sales of copper cathode to the continuous cast rod, brass mill and plating customers in Europe and North America; increased powders volumes to the automotive and coatings markets; and improvement in inorganic sales to the battery market; all partially offset by slow organic sales to the printing ink and polymer resin industries; slow inorganic sales to the electronics industry; and continued weakness of powder volumes to the hard metal tool industry. | ||
| Precious metal chemistry segment The precious metal chemistry segment includes the platinum group and other precious metals manufacturing businesses that were acquired in the dmc2 acquisition. This segment develops, produces and markets specialty chemicals and related materials, predominantly from platinum group metals such as platinum, palladium and rhodium, and gold and silver. This segment also offers a variety of refining and processing services to users of precious metals. Operating profit was $23.4 million for the period, primarily as a result of |
| continuing strong sales of auto catalysts, partially offset by weaker sales to the electronics industry. Net sales were $361.4 million. | ||
| Metal management segment The metal management segment was acquired in the dmc2 acquisition. This segment acts as a metal sourcing operation for both the Company’s precious metal chemistry segment and non-affiliated customers, primarily procuring precious metals. Metal management centrally manages metal purchases and sales by providing the necessary precious metal liquidity, financing and hedging for the Company’s other businesses. Operating profit was $2.2 million for the period and primarily reflects normal precious metal market activity for customers of the manufacturing business. Net sales were $746.1 million. |
||
| Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001 | ||
| Net sales for the six months ended June 30, 2002 were $2.451 billion, an increase of 441.9% compared to the same period in 2001. The increase was the result of the acquisition of dmc2 in August 2001 and higher physical sales volumes in the base metal chemistry segment, partially offset by lower selling prices in the Company’s base metal chemistry segment due to lower cobalt prices. | ||
| Gross profit increased to $239.7 million for the six month period ended June 30, 2002, a 98.6% increase over the same period in 2001. The increase in gross profit was due primarily to the acquisition of dmc2. Cost of products sold increased to $2.211 billion from $331.5 million, or to 90.2% from 73.3% of net sales, primarily as a result of the acquisition of dmc2 with its high cost of precious metals relative to revenues. | ||
| Selling, general and administrative expenses increased by $89.6 million in the six month period ended June 30, 2002 from the same period in 2001, resulting primarily from the acquisition of dmc2. | ||
| Other expense – net was $33.8 million for the six month period ended June 30, 2002, compared to $22.5 million for the same period in 2001, due primarily to increased interest expense associated with the additional debt to finance the acquisition of dmc2 , partially offset by the interest and dividend income from investments acquired in the dmc2 acquisition. | ||
| Income taxes as a percentage of income before income taxes, minority interests and equity income were 25.8% compared to 27.5% in the same period in 2001. The effective rate in 2002 is lower than the corresponding rate in 2001 due primarily to tax holidays in South Africa and Brazil that relate to former dmc2 operations acquired in August 2001. The overall effective tax rate is lower than the U.S. statutory tax rate due to income earned in the relatively low statutory tax country of Finland and tax holidays in South Africa, Brazil and Malaysia. | ||
| Net income for the six month period ended June 30, 2002 was $48.9 million, an increase of $9.1 million from the same period in 2001, due to the aforementioned factors. | ||
| Base metal chemistry segment The following information summarizes market prices of the primary raw materials used by the base metal chemistry segment: |
| Market Price Ranges per Pound | ||||||||
| Six Months Ended June 30, | ||||||||
| 2002 | 2001 | |||||||
Cobalt - 99.3% Grade |
$6.40 to $8.45 | $9.08 to $12.35 | ||||||
Nickel |
$2.63 to $3.33 | $2.71 to $3.35 | ||||||
Copper |
$ .67 to $ .78 | $ .70 to $ .85 | ||||||
| The following information summarizes the physical volumes of products sold by the base metal chemistry segment: |
| Six Months Ended June 30, | ||||||||||||
| Percentage | ||||||||||||
| (in millions of pounds) | 2002 | 2001 | Change | |||||||||
Organics |
46.8 | 39.7 | 17.9 | % | ||||||||
Inorganics |
49.9 | 50.8 | -1.8 | % | ||||||||
Powders |
21.4 | 23.0 | -7.0 | % | ||||||||
Metals |
68.9 | 58.6 | 17.6 | % | ||||||||
| 187.0 | 172.1 | 8.7 | % | |||||||||
| Operating profit for the six months ended June 30, 2002 was $69.9 million, a decrease of 18.9% compared to the same period for 2001. The decline was primarily the result of lower cobalt prices, resulting in lower refining profits, and product mix. Net sales were $411.6 million, a decline of 9.0% from the comparable period in 2001, reflecting a decline in selling prices due to the lower cobalt market price, partially offset by increased physical volumes. Physical sales volumes were up overall by approximately 8.7%, primarily reflecting strength in sales of organics to the coatings, petrochemicals and tire industries, and higher metals sales of copper cathode to the continuous cast rod, brass mill and plating customers in Europe and North America; partially offset by slow inorganic sales to the electronics industry and continued weakness of powder volumes to the hard metal tool and automotive industries. | ||
| Precious metal chemistry segment Operating profit was $43.9 million for the period, primarily as a result of strong sales of auto catalysts, representing a continuing trend of growth in this area. Net sales were $744.4 million. |
||
| Metal management segment Operating profit was $6.4 million for the period and primarily reflects normal precious metal market activity for customers of the manufacturing business. Net sales were $1.413 billion. |
||
| Liquidity and Capital Resources | ||
| During the six month period ended June 30, 2002, the Company’s net working capital increased by approximately $29.8 million. This increase was primarily the result of an increase in accounts receivable due to higher sales in June 2002 compared to December 2001. Capital expenditures in 2002 were primarily related to capacity expansions at the Company’s base metal chemistry facilities in Finland and at various precious metal chemistry locations. These capital expenditures were funded through cash generated by operations as well as additional borrowings under the Company’s revolving credit facility. | ||
| During June 2002, the Company’s senior secured credit facilities were amended to consist of a $325 million revolving facility (including a $50 million letter of credit sublimit and a $15 million sublimit for swing line loans) and a $600 million term loan. The revolving facility bears interest at a rate of LIBOR plus 1.38% to 3.00% and matures on April 1, 2006, and the term loan bears interest at a rate of LIBOR plus 2.25% to 2.50% and matures on April 1, 2007. The amendment also modifies certain financial covenants in the prior agreement to make them less restrictive. | ||
| During April 2002, the Company also completed the registration of its 9.25% senior subordinated notes due 2011 ($400 million aggregate principal amount outstanding), originally issued on December 12, 2001 under rule 144A. | ||
| On January 25, 2002, the Company completed its secondary offering of 4.025 million |
| shares of common stock. The net offering proceeds of $225.9 million were used to repay outstanding indebtedness under the Company’s credit facilities. | ||
| The Company believes that it will have sufficient cash generated by operations and through its credit facilities to provide for its future working capital and capital expenditure requirements and to pay quarterly dividends on its common stock, subject to the Board’s discretion. Subject to several limitations in its credit facilities, the Company may incur additional borrowings to finance working capital and certain capital expenditures, including, without limitation, the purchase of additional raw materials. | ||
| Critical Accounting Policies | ||
| The consolidated financial statements include accounts of the company and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made their best estimates and judgments of certain amounts included in the financial statements. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. There has been no change in the company’s critical accounting policies as disclosed in Form 10-K filed for the year ended December 31, 2001. In addition, no new critical accounting policies have been adopted in the first six months of 2002. | ||
| Forward Looking Statements | ||
| The Company is making this statement in order to satisfy the “safe harbor” provisions contained in the Private Securities Litigation Reform Act of 1995. This report contains statements that the Company believes may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are not historical facts and generally can be identified by use of statements that include phrases such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “foresee” or other words or phrases of similar import. Similarly, statements that describe the Company’s objectives, plans or goals also are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond the Company’s control and could cause actual results to differ materially from those currently anticipated. Factors that could materially affect these forward-looking statements can be found in this report. | ||
| Important facts that may affect the Company’s expectations, estimates or projections include: |
| • | the price and supply of raw materials, particularly cobalt, copper, nickel, platinum, palladium, rhodium, gold and silver; | ||
| • | the demand for metal-based specialty chemicals and products in the Company’s markets; | ||
| • | the effect of non-currency risks of investing in and conducting operations in foreign countries, including political, social, economic and regulatory factors; | ||
| • | the effects of the substantial debt we have incurred in connection with the Company’s acquisition of the operations of dmc2 and the Company’s ability to refinance or repay that debt; and | ||
| • | the effect of fluctuations in currency exchange rates on the Company’s international operations. |
| The Company does not assume any obligation to update these forward-looking statements. |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | |
| A discussion of market risk exposures is included in Part II, Item 7a, “Qualitative and Quantitative Disclosures About Market Risk”, of the Company’s 2001 Annual Report on Form 10-K. There have been no material changes related to market risk during the six months ended June 30, 2002. | ||
| Part II | Other Information | |
| Item 4 | Submission of Matters to a Vote of Security Holders | |
| The annual meeting of stockholders of OM Group, Inc. was held on May 7, 2002. An election of Directors was held at which Lee R. Brodeur, Thomas R. Miklich and James P. Mooney were nominated and elected for terms which expire in the year 2005. The following votes were cast with respect to each of the nominees: |
| Director | For | Abstain | ||||||
Lee R. Brodeur |
25,802,741 | 429,374 | ||||||
Thomas R. Miklich |
25,811,526 | 420,589 | ||||||
James P. Mooney |
25,206,553 | 1,025,562 | ||||||
| Other directors whose terms of office will continue after the meeting are: |
| Director | Term of Office | |||
John E. Mooney |
2003 | |||
Markku Toivanen |
2003 | |||
Frank E. Butler |
2004 | |||
Edward W. Kissel |
2004 | |||
| Ernst & Young LLP was re-elected as independent auditors: For – 25,371,527; against – 854,543; abstain – 6,045. | ||
| 2002 Stock Incentive Plan was approved: For – 23,274,482; against – 2,908,212; abstain – 49,421. | ||
| Item 5 | Other Information | |
| On June 20, 2002, William J. Reidy was appointed to the Board of Directors, succeeding Thomas R. Miklich, who left the Board to become Chief Financial Officer of the Company during the second quarter of 2002. Mr. Reidy’s term ends in 2005. | ||
| On February 11, 2002, Katharine L. Plourde was appointed to the Board of Directors, with a term ending in 2004. | ||
| Item 6 | Exhibits and Reports on Form 8-K | |
| The following exhibits are included herein: |
| (4) | Second amended and restated credit agreement, dated as of June 28, 2002, among OM Group, Inc. and OMG AG & Co. KG as borrowers; the lending institutions named therein as lenders; Credit Suisse First Boston as a lender, the syndication agent, joint book running manager and a joint lead arranger; National City Bank as a lender, the swingline lender, letter of credit issuer, administrative agent, collateral agent, joint book running manager and a joint lead arranger; and ABN Amro Bank N.V., Credit Lyonnais, New York Branch, and KeyBank National Association, each as a lender and documentation agent. | ||
| (10) | Employment Agreement of Thomas R. Miklich | ||
| (12) | Computation of Ratio of Earnings to Fixed Charges | ||
| (99.1) | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| (99.2) | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| There were no reports on Form 8-K filed during the three months ended June 30, 2002. | |||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| August 9, 2002 | OM GROUP, INC. | |
| /s/ Thomas R. Miklich | ||
|
|
||
|
Thomas R. Miklich Chief Financial Officer (Duly authorized signatory of OM Group, Inc.) |