8-K/A 1 l91438ae8-ka.txt OM GROUP, INC. 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 August 10, 2001 Date of Report (Date of earliest event reported) OM GROUP, INC. (Exact Name of Registrant as specified in its charter) Delaware 0-22572 52-1736882 (State or other (Commission IRS-Employer jurisdiction of incorporation) File No.) Identification No.) 50 Public Square 3500 Terminal Tower Cleveland, Ohio 44113-2204 (Address of principal executive offices and zip code) (216) 781-0083 (Registrant's telephone number, including area code) N/A Former name or former address, if changed since last report EXPLANATORY NOTE: Pursuant to Item 7(a) (4) of Form 8-K, this Form 8-K/A amends the Registrant's Form 8-K filed on August 24, 2001, to include the historical financial statements and pro forma financial information required by Item 7(a) and (b) 1 ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS As reported in its Current Report on Form 8-K filed on August 24, 2001, OM Group, Inc. (the Company) acquired all the businesses of dmc(2) Degussa Metals Catalysts Cerdec AG (dmc(2) Group) on August 10, 2001 for a cash purchase price of approximately 1.2 billion euros. On September 7, 2001, the Company completed the disposition of the electronic materials, performance pigments, glass systems and Cerdec ceramics divisions of dmc(2) Group to Ferro Corporation for a cash purchase price of $525.5 million. The Company transferred to Ferro Corporation all the assets and all the capital interests and shares of companies within these divisions. The cash purchase price was negotiated between the Company and Ferro Corporation as the fair market value of the net assets sold. The Company continues to own the metals management, automotive catalysts, fuel cells, precious metal chemistry, technical materials and jewelry and electroplating businesses of dmc(2) Group. ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Businesses Acquired The following financial statements of the dmc(2) Group are filed as part of this Current Report on Form 8-K/A: 1. Combined Statements of Operations for the year ended September 30, 1998, year ended September 30, 1999, three months ended December 31, 1999 and year ended December 31, 2000; 2. Combined Balance Sheets as of September 30, 1999, December 31, 1999 and December 31, 2000; 3. Combined Statements of Shareholder's Equity for the year ended September 30, 1998, year ended September 30, 1999, three months ended December 31, 1999 and year ended December 31, 2000; 4. Combined Statements of Cash Flows for the year ended September 30, 1998, year ended September 30, 1999, three months ended December 31, 1999 and year ended December 31, 2000; 5. Interim Condensed Combined Statements of Operations for the six months ended June 30, 2000 (unaudited) and June 30, 2001 (unaudited); 6. Interim Condensed Combined Balance Sheet as of June 30, 2001 (unaudited); 7. Interim Condensed Combined Statements of Shareholder's Equity for the six months ended June 30, 2000 (unaudited) and June 30, 2001 (unaudited); and 8. Interim Condensed Combined Statements of Cash Flows for the six months ended June 30, 2000 (unaudited) and June 30, 2001 (unaudited). (b) Pro Forma Financial Information 1. Unaudited Pro Forma Combined Statement of Income for the year ended December 31, 2000 2. Unaudited Pro Forma Combined Statement of Income for the nine months ended September 30, 2001 2 (c) Exhibits (23.1) Consent of Independent Auditors 3 SIGNATURES 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 hereunto duly authorized. November 30, 2001 OM GROUP, INC /s/ James M. Materna --------------------- James M. Materna Chief Financial Officer (Duly authorized signatory of OM Group, Inc.) 4 INDEPENDENT AUDITORS' REPORT To the Supervisory Board of dmc(2) Degussa Metals Catalysts Cerdec Aktiengesellschaft: We have audited the accompanying combined balance sheets of dmc(2) Degussa Metals Catalysts Cerdec Aktiengesellschaft and subsidiaries as of December 31, 2000 and 1999, and September 30, 1999, and the related combined statements of operations, shareholder's equity, and cash flows for the year ended December 31, 2000, three months ended December 31, 1999, and the years ended September 30, 1999 and 1998. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of dmc(2) Degussa Metals Catalysts Cerdec Aktiengesellschaft and subsidiaries as of December 31, 2000 and 1999, and September 30, 1999 and the results of their operations and their cash flows for the year ended December 31, 2000, the three months ended December 31, 1999, and the years ended September 30, 1999 and 1998 in conformity with accounting principles generally accepted in Germany. Accounting principles generally accepted in Germany vary in certain respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States of America would have affected shareholder's equity as of December 31, 2000 and 1999 and September 30, 1999 and results of operations for the year ended December 31, 2000, the three months ended December 31, 1999, and the year ended September 30, 1999 to the extent summarized in Note 33 to the combined financial statements. KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftspruefungsgesellschaft Frankfurt, Germany November 30, 2001 5 dmc(2) GROUP COMBINED STATEMENTS OF OPERATIONS GERMAN GAAP (IN DEM THOUSANDS)
Year Year Three Months Year Ended Ended Ended Ended September September December December Note 30, 1998 30, 1999 31, 1999 31, 2000 ---------------------------------------------------------------------- Sales 7 7,509,897 8,144,355 2,230,468 12,127,588 Cost of sales 8 (6,966,900) (7,574,302) (2,078,472) (11,385,746) ---------------------------------------------------------------- GROSS PROFIT 542,997 570,053 151,996 741,842 Selling expenses 8 (279,152) (275,338) (75,003) (296,967) General administrative expenses 8 (149,774) (160,949) (49,697) (158,056) Research and development expenses 8 (67,740) (72,389) (20,849) (117,838) Other operating income 9 75,644 86,452 29,610 115,276 Other operating expenses 10 (67,713) (94,968) (38,937) (80,082) ---------------------------------------------------------------- NET OPERATING INCOME (LOSS) 54,262 52,861 (2,880) 204,175 Income (loss) from investments, net 11 (1,115) 11,612 2,495 17,549 Write-down of investments - - 40 (683) Interest expense, net 12 (15,709) (27,540) (6,577) (53,875) ---------------------------------------------------------------- INCOME (LOSS) FROM ORDINARY ACTIVITIES BEFORE EXTRAORDINARY ITEMS AND INCOME TAXES 37,438 36,933 (6,922) 167,166 Extraordinary income (expenses) 13 119,716 (15,728) (67,107) (36,820) Income taxes (47,654) (9,168) 9,168 (44,655) ---------------------------------------------------------------- NET INCOME (LOSS) 109,500 12,037 (64,861) 85,691 ============== ========== ========== Dividend payment - Minority interests 14 (28,309) Loss brought forward upon Formation (7,042) Transfer to reserves, net (42,340) ------------- PROFIT AVAILABLE FOR DISTRIBUTION 8,000 =============
The accompanying notes are an integral part of the combined financial statements. 6 dmc(2) GROUP COMBINED BALANCE SHEETS GERMAN GAAP (IN DEM THOUSANDS)
September December December Note 30, 1999 31, 1999 31, 2000 -------------------------------------------------------- ASSETS Intangible assets 16 16,682 11,403 11,623 Property, plant and equipment, net 17 524,336 547,662 597,179 Investments 18 88,723 102,697 128,720 ----------------------------------------------- NON-CURRENT ASSETS 19 629,741 661,762 737,522 Inventories, net 20 575,442 680,597 866,851 Trade accounts receivable, net 426,079 444,053 734,363 Accounts receivable from affiliated companies 58,084 23,483 56,678 Other accounts receivable and other assets 54,705 54,706 90,869 ----------------------------------------------- ACCOUNTS RECEIVABLE AND OTHER ASSETS 21 538,868 522,242 881,910 Cash and cash equivalents 22 49,361 70,605 47,146 ----------------------------------------------- CURRENT ASSETS 1,163,671 1,273,444 1,795,907 Deferred charges 23 66,411 61,798 32,995 ----------------------------------------------- TOTAL ASSETS 1,859,823 1,997,004 2,566,424 =============================================== SHAREHOLDER'S EQUITY AND LIABILITIES Issued capital -- -- 50,000 Reserves 25 -- -- 483,885 Profit available for distribution -- -- 8,000 Investments by and advances from Degussa 1,076,675 1,168,391 -- Minority interests 26 -- -- 110,214 ----------------------------------------------- Shareholder's equity 24 1,076,675 1,168,391 652,099 Provisions for pensions and similar obligations 78,125 68,758 126,119 Other accrued liabilities 220,251 252,349 247,967 ----------------------------------------------- Accrued liabilities 27 298,376 321,107 374,086 Liabilities to banks 184,019 184,664 938,726 Advance payments received on orders -- 49 2,102 Trade accounts payable 103,600 106,473 252,442 Liabilities to affiliated companies 121,821 146,785 277,497 Other liabilities 73,335 67,374 67,501 ----------------------------------------------- Liabilities 28 482,775 505,345 1,538,268 Deferred income 1,997 2,161 1,971 ----------------------------------------------- TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES 1,859,823 1,997,004 2,566,424 ===============================================
The accompanying notes are an integral part of the combined financial statements. 7 dmc(2) GROUP COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY GERMAN GAAP (IN DEM THOUSANDS)
Investments Profit by and Available Advances Issued Capital Revenue For Minority from Capital Reserve Reserves Distribution Interest Degussa Total ----------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1997 -- -- -- -- -- 796,459 796,459 Net income -- -- -- -- -- 109,500 109,500 Contribution by Degussa, net -- -- -- -- -- 106,507 106,507 ----------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1998 -- -- -- -- -- 1,012,466 1,012,466 Net income -- -- -- -- -- 12,037 12,037 Contribution by Degussa, net -- -- -- -- -- 52,172 52,172 ----------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1999 -- -- -- -- -- 1,076,675 1,076,675 Net loss -- -- -- -- -- (64,861) (64,861) Contribution by Degussa, net -- -- -- -- -- 156,577 156,577 ----------------------------------------------------------------------------------------- AS OF DECEMBER 31, 1999 -- -- -- -- -- 1,168,391 1,168,391 Formation (former Cerdec AG) 32,000 109,346 2,685 (7,042) -- (136,989) -- Contribution of precious metals and automotive catalysts divisions by Degussa 18,000 149,000 -- -- -- (167,000) -- Conversion of advances to liabilities -- -- -- -- -- (689,269) (689,269) Conversion of advances to reserves -- -- 93,228 -- -- (93,228) -- Conversion of advances to minority interest -- -- -- -- 81,905 (81,905) -- Contribution by Degussa, net -- 100,458 -- -- -- -- 100,458 Net income -- -- -- 57,382 28,309 -- 85,691 Dividends paid -- -- (23,732) -- -- -- (23,732) Foreign currency translation adjustment -- -- 10,560 -- -- -- 10,560 Reclassifications -- -- 42,340 (42,340) -- -- -- ----------------------------------------------------------------------------------------- AS OF DECEMBER 31, 2000 50,000 358,804 125,081 8,000 110,214 -- 652,099 =========================================================================================
The accompanying notes are an integral part of the combined financial statements. 8 dmc(2) GROUP COMBINED STATEMENTS OF CASH FLOWS GERMAN GAAP (IN DEM THOUSANDS)
Three Year ended Year ended Months ended Year ended September 30, September 30, December 31, December 31, 1998 1999 1999 2000 --------------------------------------------------------- NET INCOME (LOSS) 109,500 12,037 (64,861) 85,691 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 94,600 91,369 24,561 100,141 (Gain)/loss on disposal of non-current assets (127,831) (1,265) 1,150 7,639 Provision for deferred taxes (6,147) (8,755) (6,627) 19,726 (Income)/loss from investments, net 1,115 (11,612) (2,495) (17,549) Write-down of non-current assets -- -- 23,507 1,743 CHANGES IN OPERATING ASSETS AND LIABILITIES: Inventories, net (17,358) 7,752 (108,176) (181,411) Trade accounts receivable, net (1,493) (72,862) (20,215) (285,256) Accounts receivable from affiliated companies 13,673 46,728 34,498 (33,256) Other accounts receivable and assets (961) (20,084) (391) (31,108) Deferred charges 24,216 (12,726) 11,807 10,020 Provisions for pensions and similar obligations 3,683 8,759 (9,717) 59,151 Other accrued liabilities 8,032 (5,796) 31,525 (2,147) Advance payments received on orders -- -- 49 2,053 Trade accounts payable (2,465) 17,801 1,999 148,182 Liabilities to affiliated companies (84,867) 19,220 21,916 48,818 Other liabilities (13,969) (9,833) (5,751) 338 Deferred income 13,605 (10,598) 1,065 161 --------------------------------------------------------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 13,333 50,135 (66,156) (67,064) INVESTING ACTIVITIES: Purchase of intangible assets (194) (8,150) -- (2,847) Capital expenditures (150,668) (108,036) (52,547) (152,788) Dividends from investments 9,513 1,457 -- 8,437 Acquisition of business, net of cash acquired -- -- -- (8,745) Proceeds from disposal of non-current assets 154,617 16,593 14,272 11,980 --------------------------------------------------------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,268 (98,136) (38,275) (143,963) FINANCING ACTIVITIES: Borrowings from banks, net (11,653) (2,652) (3,810) 750,515 Net cash from (to) Degussa (43,092) 53,771 125,159 (562,669) --------------------------------------------------------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (54,745) 51,119 121,349 187,846 Effects of exchange rate movements on cash (1,807) (415) 4,326 (278) --------------------------------------------------------- CHANGE IN CASH AND CASH EQUIVALENTS (29,951) 2,703 21,244 (23,459) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 76,609 46,658 49,361 70,605 --------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 46,658 49,361 70,605 47,146 =========================================================
The accompanying notes are an integral part of the combined financial statements. 9 NOTES TO THE COMBINED FINANCIAL STATEMENTS GERMAN GAAP (IN DEM THOUSANDS, UNLESS OTHERWISE NOTED) (1) FORMATION OF dmc(2) GROUP, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION FORMATION OF dmc(2) GROUP Effective January 1, 2000, Degussa-Huels AG ("Degussa") transferred assets and liabilities constituting its precious metals and automotive catalysts businesses to its wholly-owned subsidiary, Cerdec AG, and its subsidiaries (the "Formation"). Following the Formation, Cerdec AG was renamed dmc(2) Degussa Metals Catalysts Cerdec AG ("dmc(2) AG", together with its subsidiaries collectively referred to as "dmc(2) Group"). DESCRIPTION OF BUSINESS dmc(2) Group produces functional materials using mainly precious metals, base metals and ceramic materials. dmc(2) Group refines precious metals from used materials and precious metals management services. dmc(2) Group also engages in proprietary trading of precious metals. BASIS OF PRESENTATION The accompanying combined financial statements were prepared in accordance with the provisions of the German Commercial Code ("Handelsgesetzbuch" - "HGB") and the German Stock Corporation Act ("Aktiengesetz" - "AktG"). The combined financial statements of the dmc(2) Group have been prepared in accordance with German generally accepted accounting principles as if dmc(2) Group had been an established legal group during all periods presented. PRESENTATION OF YEARS PRIOR TO dmc(2) GROUP FORMATION These combined financial statements have been prepared with respect to the sale on August 10, 2001 of all the assets and liabilities of dmc(2) Group to OM Group, Inc. Prior to Formation, dmc(2) Group operations were conducted and accounted for as part of Degussa and of its various subsidiaries. The accompanying combined financial statements as of and for the three month period ended December 31, 1999 and as of and for the years ended September 30, 1999 and 1998 ("carve-out periods") are presented as if dmc(2) Group activities carved out of Degussa had been conducted by separate legal entities for all periods presented. The carve-out periods include the historical assets, liabilities and results of operations allocated to dmc(2) Group prepared from the Degussa historical accounting records and the historical assets, liabilities and results of operations of Cerdec AG. The combined financial statements for the periods presented prior to the Formation may not necessarily be indicative of the results of operations, financial position, and cash flows of dmc(2) Group had it operated as a separate independent company, nor are they an indicator of future performance. During the carve-out periods all revenue and expenses attributable to dmc(2) Group are included in the statements of operations. Prior to Formation, the statements of operations also include allocations from Degussa of general corporate overhead, central organizational costs, and other expenses. In all cases, management believes the allocation methods used were reasonable. INDEBTEDNESS AND INTEREST dmc(2) Group has historically been, and continues to be, dependent upon Degussa for their financing and capital requirements. Financing is provided by Degussa in the form of equity contributions, interest and non-interest bearing intercompany advances and loans. Degussa also guarantees financing obtained from third parties. Additionally, certain legal subsidiaries comprising dmc(2) Group had external indebtedness during the carve-out periods and dmc(2) Group operations incurred interest expense on precious metal lease transactions. Such indebtedness and interest expense is included in the carve-out periods. The capital structure and related interest expense may not necessarily be indicative of the interest expense that dmc(2) Group would have incurred as a separate independent company. 10 TAXATION Income taxes have been calculated as if dmc(2) Group was a stand-alone entity filing separate tax returns during all periods presented. Income taxes as calculated may not be indicative of income tax expense that dmc(2) Group would have incurred had dmc(2) Group been a separate legal entity. In October 2000, the German government enacted new tax legislation which, among other changes, will reduce the dmc(2) Group's statutory corporate tax rate for German companies from 40% on retained earnings and from 30% on distributed earnings to a uniform 25%, effective for dmc(2) Group's year beginning January 1, 2001. The effects of the rate changes were recorded in 2000. SHAREHOLDER'S EQUITY Prior to Formation, the difference between assets and liabilities allocated to dmc(2) Group is shown as investments by and advances from Degussa within the combined statements of shareholder's equity. Investments by and advances from Degussa prior to Formation include indebtedness, provisions for pensions and similar obligations, trade accounts payable, and other liabilities which could not be reasonably allocated to dmc(2) Group because these amounts were managed on a group basis by Degussa. As of the Formation, issued capital, reserves and profit available for distribution are that of dmc(2) AG. CHANGE IN FISCAL YEAR Effective January 1, 2000, dmc(2) Group's fiscal year end was changed from September 30 to December 31 to conform with Degussa's fiscal year end. As a result, the accompanying financial statements present a three month period ended December 31, 1999. CLASSIFICATION To improve clarity, certain balance sheet and statement of operations items have been combined with the detail provided in the footnotes. The statements of operations were prepared using the cost-of-sales format. Under the cost-of-sales format, operating expenses are assigned to one of four areas: manufacturing, selling, research and development, and general administration. AFFILIATION WITH THE DEGUSSA AG AND E.ON AG GROUPS Prior to August 10, 2001, dmc(2) AG was a wholly-owned subsidiary of Degussa, Frankfurt am Main. dmc(2) AG and the companies consolidated are included in the exempting consolidated financial statements of Degussa AG, Frankfurt am Main. The consolidated Degussa group financial statements are on public record with the District Court (Amtsgericht) of Frankfurt am Main. E.ON AG, Duesseldorf, prepared the group financial statements for the largest group of companies of which dmc(2) AG was a part. These group financial statements are on record with the Commercial Registers in Berlin and Duesseldorf and have been published in the Federal Bulletin (Bundesanzeiger). Companies controlled directly and indirectly by E.ON AG are deemed affiliated companies of dmc(2) Group. (2) dmc(2) GROUP STRUCTURE In connection with the Formation of dmc(2) Group as of January 1, 2000, the following precious metals and automotive catalysts businesses of Degussa were transferred to dmc(2) Group:
TRANSFERRING COMPANY RECEIVING COMPANY NAME CHANGED TO -------------------------------------------------------------------------------------------------------------- Degussa-Huels AG, Frankfurt Cerdec AG, Frankfurt dmc(2) AG, Frankfurt Degussa-Huels France S.A. Cerdec France S.A. dmc(2) France S.A. Degussa-Huels Ltda., Brazil Cerdec Produtos Ceramicos dmc(2) Ltda., Brazil Ltda., Brazil Degussa-Huels CEE GmbH Vienna Oegussa GmbH, Vienna Degussa-Huels Corporation, USA Cerdec Corporation, USA dmc(2) Corporation, USA Degussa-Huels Corporation, USA dmc(2) L.P., USA* Degussa-Huels Mexico S.A. de CV. Cerdec Mexico S.A. de C.V. dmc(2) S.A. de C.V., Mexico Degussa-Huels Japan Co., Ltd. Cerdec Japan Co. Ltd. dmc(2) Japan Ltd. Degussa-Huels Ltd., UK Cerdec (UK) Ltd. dmc(2) (UK) Ltd. Degussa-Huels Canada Ltd. dmc(2) Canada Corp.* Algorax (Pty.) Limited, dmc(2) Catalyst Ltd., South Africa South Africa* Degussa-Huels China Ltd., dmc(2) China Ltd., Hong Kong* Hong Kong
* Newly formed company 11 Furthermore, shares in the following companies were transferred to the dmc(2) Group during 2000 in accordance with the transfer and acceptance agreement: Allgemeine Gold- und Silberscheideanstalt AG, Pforzheim Degussa-NA Edelmetall GmbH, Hanau Norddeutsche Affinerie AG, Hamburg Prometron GmbH Produkte fuer Elektronik und Elektrotechnik GmbH, Hanau International Catalyst Technology, Inc., Calvert City/USA Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Guarulhos/Brazil Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina dmc(2)Metals (Thailand), Bangkok/Thailand Nadir Allgemeine Soymetaller, Istanbul/Turkey Allgemeine France S.A.R.L., Brunstatt/France ICT Co. Ltd., Osaka/Japan Schoene Edelmetaal B.V., Amsterdam/Netherlands Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend Clarex S.A., Guarulhos/Brazil Icomeq Industria e Comercio Ltda., Guarulhos/Brazil dmc(2)Electronic Materials B.V., Uden/Netherlands dmc Catalyst Ltd., Port Elizabeth/South Africa dmc(2) L.P. Through a subsidiary, dmc(2) AG owns a 1% interest in dmc(2) L.P. The remaining 99% interest is owned by dmc(2) AG's parent, Degussa. However, pursuant to the transfer and acceptance agreement with Degussa, dmc(2) L.P. is subject to the management authority of dmc(2) AG and thus, control is exercised by dmc(2) AG. Degussa's interest in dmc(2) L.P.'s equity and profits are accordingly shown as minority interests in the combined financial statements as of December 31, 2000. During the carve-out periods, Degussa's interest in dmc(2) L.P.'s equity is included as investments by and advances from Degussa. (3) COMBINED AND ASSOCIATED COMPANIES Besides dmc(2) AG, the dmc(2) Group combined financial statements include three domestic and thirty-two foreign group companies, which include carved-out businesses (September 30, 1998: three domestic, twenty-four foreign; September 30, 1999 and December 31, 1999: three domestic, twenty-five foreign). Inclusion was based on a voting rights majority held either directly or indirectly. dmc(2) L.P., Washington/U.S.A. was an exception in this respect and was included pursuant to ss. 290 (2) no. 2 of HGB. Colorificio Pardo, S.p.A., Corlo/Italy, Degussa Skandinavien Katalysator AB, Karlskoga/Sweden, Cerpart S.R.L., Mailand/Italy, Cerdec Holding Co., Las Vegas/USA and Cerdec Royalty Co., Las Vegas/USA were first included in the scope of consolidation during the year ended September 30, 1998. dmc(2) Electronic Materials B.V., Uden/Netherlands was consolidated following acquisition during the year ended September 30, 1999. Demeca, Mexico was founded in the year ended December 31, 2000. dmc(2) Electronic Components USA was consolidated following acquisition during the year ended December 31, 2000. The 30% minority interest of Cerdec AG, formerly held by Ciba Geigy, was acquired in the year ended September 30, 1999 and the resulting goodwill was offset against investments by and advances from Degussa. Certain carved-out businesses were not established as legal companies prior to fiscal 2000. These businesses included dmc(2) Iberica S.A., dmc(2) Italia S.p.A., Cerdec Ceramics Brasil, Cerdec Ceramics Mexico and Cerdec Ceramics Inc., USA. 12 Twelve subsidiaries and carved-out businesses (September 30, 1998: 12; September 30,1999: 13; December 31, 1999: 13) have not been consolidated as they are not material to the dmc(2) Group's net assets, financial position and operating results. Nine foreign companies, of which three are subsidiaries, (September 30, 1998: two foreign companies; September 30, 1999: five foreign companies, of which one is a subsidiary; December 31, 1999: five foreign companies, of which one is a subsidiary) have been included as equity investments in the combined financial statements in accordance with the regulations on associated companies under ss. 311 ff. HGB in conjunction with ss. 312 (1) no. 1 HGB. No adjustments to comply with uniform Group accounting and valuation guidelines or elimination of intercompany profits were made in relation to these companies. Investments in two companies (September 30, 1998: seven companies; September 30, 1999: seven companies; December 31, 1999: seven companies), were not included as associated companies because they are not material. As of December 31, 2000, Norddeutsche Affinerie AG, Hamburg, is included as an other investment due to the discontinuation of gold and silver refining operations and the decline in mutual business transactions. Norddeutsche Affinerie AG was included as an equity investment as of December 31, 1999 and September 30,1999. (4) PRINCIPLES OF COMBINATION In the process of combination, the acquisition cost of subsidiaries is offset against the book value of the pro rata share of shareholder's equity at the date of acquisition or initial combination. The resulting difference between the cost of acquisition and shareholder's equity is allocated to the relevant assets or liabilities insofar as their fair market value differs from their book value. In general, the excess of the purchase price over the fair value of the net assets acquired is offset against shareholder's equity without impacting the dmc(2) Group operating results. In general, negative goodwill arising from combinations is shown as a component of shareholder's equity except when the particular circumstances indicate that a liability exists, in which case such differences are allocated to liabilities. The initial full combination of subsidiaries and carved-out businesses resulted in positive (debit) differences of DM 0.7 million as of December 31, 2000 (September 30, 1998: positive (debit) differences of DM 8.1 million and negative (credit) differences of DM 1.7 million; September 30, 1999: DM 0.0 million; December 31, 1999: DM 0.0 million). The initial inclusion of equity investments in the year ended December 31, 2000 resulted in positive (asset side) differences of DM 10.1 million which are being amortized as goodwill over 15 years, and negative (equity side) differences of DM 31.0 million (year ended September 30, 1999: DM 4.1 million) which were added to shareholder's equity without impacting earnings. Accounts receivable and accounts payable between combined companies have been eliminated. The valuation of assets has been adjusted to eliminate unrealized intercompany profits. Accordingly, such assets are valued at their cost to the dmc(2) Group as a whole. Intercompany sales and other income from transactions within the dmc(2) Group have been offset against the corresponding expenditure. Deferred taxes are recorded if any difference in the tax charge resulting from combination measures is expected to be reversed in subsequent financial years. In this process, prepaid and deferred taxes have been netted, taking into account the tax adjusting entries in the individual balance sheets. (5) ACCOUNTING AND VALUATION PRINCIPLES The combined financial statements of the dmc(2) Group are prepared on a uniform basis of accounting with respect to combined subsidiaries. INTANGIBLE ASSETS Acquired intangible assets, other than goodwill, are shown at the acquisition cost less scheduled depreciation over a maximum period of 5 years. Goodwill is depreciated over 15 years. Unscheduled depreciation is taken where declines in value are expected to be other than temporary. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at historical cost. The production cost of self-manufactured assets includes an allocation of overhead and depreciation on production plant 13 and equipment in addition to the cost of materials and labor. Depreciation is recorded on a scheduled basis over the useful life that is usual in the relevant industry sector. Where permissible for tax purposes, the declining balance method is used until the residual book value over the remaining useful life of the asset results in a higher straight-line depreciation charge. Unscheduled depreciation is taken where a loss in value is expected to be permanent. Low-value items are expensed in full in the year of acquisition. INVESTMENTS Shares in affiliated companies and investments in other companies are valued at cost of acquisition or at their lower assignable value on the balance sheet date if declines in value are other than temporary. The book values of associated enterprises have been adjusted for the pro rata amount of changes in shareholder's equity. Generally, the accounting policies locally applied by the associated enterprises were kept unchanged. The cost of acquisition was generally netted against pro rata shareholder's equity at the time of acquisition. INVENTORY The valuation of raw materials and supplies is based on the lower of average purchase cost or market price. Write-downs are recorded to reflect declines in value resulting from obsolete and slow moving items. Precious metals have generally been accounted for under the LIFO method. Write-downs are reversed where necessary. Work in progress and finished goods, other than precious metals are valued at cost of production. The cost of production of work in progress and finished goods includes all amounts required to be capitalized for German tax purposes. These include the cost of labor and materials, appropriate overhead costs, and a pro rata share of depreciation. RECEIVABLES Receivables are stated at nominal value less discounts and allowances. dmc(2) Group covers specific risks relating to accounts receivable with valuation allowances. The general credit risk is reflected in a general allowance. For the periods ending September 30, 1998, September 30 and December 31, 1999, the general allowance for receivables not otherwise provided for was 4% of accounts receivable. In the period ended December 31, 2000, the allowance was revised to 1% for certain subsidiaries to conform with internationally accepted accounting practices, which focus more directly on the specific recovery risk. This led to a reduction in the general allowance by approximately DM 4,700 with respect to accounts receivable as of January 1, 2000. DEFERRED TAXES Deferred tax assets and liabilities are calculated for temporary differences between the valuation of assets and liabilities in the financial statements of combined companies and the carrying amounts for tax purposes using the tax rates either in effect or expected to apply in the period of reversal. Deferred tax assets are calculated with respect to tax loss carry forwards if there are offsetting deferred tax liabilities. Deferred tax assets are recognized to the extent they are expected to be realized. PENSION PROVISIONS Pension provisions and similar obligations including health care commitments are actuarially determined utilizing the projected unit credit method customarily used in international accounting. Thus, pension provisions are calculated as the present value of the vested pension rights. Pension provisions are calculated on the basis of local economic conditions. The German pension calculation used the following rates:
------------------------------------------------------------------- September December December 30, 1999 31, 1999 31, 2000 ------------------------------------------------------------------- Interest rate 6.00 % 6.25% 6.25% Annual pension increase 1.00 % 1.25% 1.25% Annual wage and salary increase 2.50 % 2.75% 2.75% Average staff fluctuation rate 2.00 % 2.00% 2.00% Actuarial table Bode & Grabner Bode & Grabner Heubeck PK Chemie 1996 PK Chemie 1996 Richttafeln 1998
ACCRUED LIABILITIES Other accrued liabilities are shown in the balance sheet at the expected payable amount. Liabilities are stated at the higher of nominal value or at the amount repayable. 14 (6) CURRENCY TRANSLATION Accounts receivable and payable in foreign currencies, that are not hedged against changes in exchange rates, are initially recorded at the rates of exchange in force when first entered in the accounts. Unrealized losses due to changes in exchange rates are taken into account as of the balance sheet date. Gains are recognized when realized. The financial statements of foreign subsidiaries and associated companies are translated in the group financial statements using the concept of functional currencies. As a rule, the functional currency is the local currency as these companies conduct their business independently from a financial, economic and organizational point of view. Assets and liabilities are therefore translated at closing rates on the balance sheet date. Shareholder's equity is translated at historical rates, while income and expenses are translated using average reporting period rates. Differences arising from the currency translation of assets and liabilities compared to the previous period and translation differences between the balance sheet and statement of operations are recorded in shareholder's equity. The exchange rates for the more significant currencies for the dmc(2) Group are as follows:
(DEM) Closing rate Average rate ---------------------------------------------------------------------------------------- Year Year Three Year Year Year Three Year Ended Ended Months Ended Ended Ended Months Ended September September December December September September December December 30, 1998 30, 1999 31, 1999 31, 2000 30, 1998 30, 1999 31, 1999 31, 2000 ---------------------------------------------------------------------------------------- 1 USA USD 1.67590 1.83380 1.94690 2.10191 1.78290 1.78030 1.88330 2.11759 1 Brazil BRL 1.40770 0.94510 1.08740 1.07790 1.56790 1.11840 0.98510 1.15872 100 Japan JPY 1.23450 1.74070 1.90390 1.82920 1.35150 1.51770 1.80270 1.96620 100 Mexico MXN 16.8649 19.5192 20.5106 21.9235 20.8920 18.5220 20.0317 22.3865 1 Canada CAD 1.10070 1.24960 1.33890 1.40052 1.23130 1.18580 1.27910 1.42701 1 S. Africa ZAR 0.28500 0.30470 0.31650 0.27770 0.34060 0.29620 0.30880 0.30582
(7) SALES (in DEM million) Year Year Three Months Year Ended Ended Ended Ended September September December December 30,1998 30, 1999 31, 1999 31, 2000 ------------------------------------------------------------------------------------------------------------- SALES BY ACTIVITY Industrial Products 2,769 3,058 873 4,408 Metals Management 4,741 5,086 1,357 7,720 ---------------------------------------------------------------------- TOTAL GROUP 7,510 8,144 2,230 12,128 ====================================================================== SALES BY REGION Germany 4,025 4,455 1,185 5,071 Other European countries 475 489 149 553 NAFTA 2,422 2,657 750 5,330 Latin America 359 262 57 466 Asia 153 195 59 374 Africa, Australia, Oceania 76 86 30 334 ---------------------------------------------------------------------- Foreign 3.485 3,689 1,045 7,057 ---------------------------------------------------------------------- TOTAL GROUP 7,510 8,144 2,230 12,128 ======================================================================
15 Sales are reported according to their nature into business activity: Industrial Products (Advanced Materials, Chemicals & Catalysts) and Metals Management. Advanced Materials consists of the following divisions: Electronic Materials, Technical Materials, Performance Colors and Pigments, Glass Systems, Jewelry and Electroplating, and Cerdec Ceramics. These divisions concentrate primarily on the production of functional materials, multi-layer systems, and surfaces for different markets. Chemicals and Catalysts constitutes the chemical sector of the dmc(2) Group. Its three closely related divisions - Automotive Catalysts, Precious Metals Chemistry, and Fuel Cells - deal primarily with the catalytic effects of precious metals and their recycling. Metals Management includes revenue from precious metals trading. (8) FUNCTIONAL COSTS Costs of sales consist of manufacturing costs and the cost of purchased goods sold including costs associated with precious metal trading. Costs of sales also includes cost of materials, external services and payroll costs, depreciation relating to manufacturing operations, machinery repairs, taxes and write-downs on inventories. Selling expenses include the costs of maintaining sales and distribution departments and advertising expense. Research and development expenses include the cost of maintaining the research departments and product and process development costs. General administrative expenses relate to management and administrative functions which are not included in manufacturing, selling and distribution, or research and development departments. (9) OTHER OPERATING INCOME Other operating income includes insurance reimbursements, release of accrued liabilities, exchange gains, and income related to other accounting periods. Income relating to other accounting periods amounts to DM 10,731 for the year ended December 31, 2000 (September 30, 1998: DM 20,781; September 30, 1999: DM 5,772; December 31, 1999: DM 4,248) and includes primarily income from the disposal of non-current assets, the reversal of write-downs of accounts receivable, and reimbursements for costs incurred in prior years.
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ------------------------------------------------------------------- Other operating income 75,644 86,452 29,610 115,276 ===================================================================
(10) OTHER OPERATING EXPENSES Other operating expenses include expenses arising from allowances and write-downs of accounts receivable, additions to accrued liabilities, and expenses relating to other accounting periods. Expenses relating to other accounting periods amount to DM 5,913 for the year ended December 31, 2000 (September 30, 1998: DM 25,756; September 30, 1999: DM 752; December 31, 1999: DM 10,496).
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ------------------------------------------------------------------- Other operating expenses (67,713) (94,968) (38,937) (80,082) ===================================================================
16 (11) INCOME (LOSS) FROM INVESTMENTS, NET
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ----------------------------------------------------------------- Income from investments 3,513 1,323 - 531 (of which from affiliated companies) (2,764) (611) (-) (354) Equity income (loss) from associated companies (4,628) 10,289 2,495 17,018 ----------------------------------------------------------------- TOTAL (1,115) 11,612 2,495 17,549 =================================================================
(12) INTEREST EXPENSE, NET
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 -------------------------------------------------------------- Interest and similar income 40,216 15,604 7,251 43,771 (of which from affiliated companies) (7,266) (1,204) (311) (5,012) (of which relate to precious metal leases) (16,037) (7,801) (4,997) (31,716) Interest and similar expenses (55,925) (43,144) (13,828) (97,646) (of which from affiliated companies) (8,282) (18,839) (5,279) (29,160) (of which relate to precious metal leases) (28,751) (14,585) (5,777) (24,209) ---------------------------------------------------------- INTEREST EXPENSE, NET (15,709) (27,540) (6,577) (53,875) ==========================================================
The metals management segment is responsible for managing the metal position of dmc(2) Group utilizing forward contracts and metal lease contracts with suppliers, banks, customers and other third parties. Metals management also finances the production needs of dmc(2) Group entities through the use of metal leases. (13) EXTRAORDINARY INCOME (EXPENSES) The extraordinary income in fiscal year 1998 primarily relates to the sale of a 10% interest in Norddeutsche Affinerie AG, Hamburg. The extraordinary expenses shown in the year ended December 31, 2000 reflect primarily the impact of LIFO valuation of precious metals inventories, the costs of forming the dmc(2) Group, unscheduled depreciation and expenses related to the transfer of the Cerdec Ceramics operations. The extraordinary expenses shown in prior periods resulted primarily from restructuring measures which took place at different locations in the dmc(2) Group.
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 -------------------------------------------------------------------- Extraordinary income 123,199 - 944 9,237 Extraordinary expense (3,483) (15,728) (68,051) (46,057) -------------------------------------------------------------------- EXTRAORDINARY INCOME (EXPENSES) 119,716 (15,728) (67,107) (36,820) ====================================================================
17 (14) MINORITY INTERESTS
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 -------------------------------------------------------------------- MINORITY INTERESTS -- -- -- (28,309) ====================================================================
Minority interests primarily relate to dmc(2) L.P., Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Allgemeine Gold- und Silberscheideanstalt AG, Degussa Galvanotechnik GmbH, Degussa Catalyst (Pty.) Ltd., and Schoene Edelmetaal B.V. (15) ADDITIONAL OPERATING INFORMATION COST OF MATERIALS
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ----------------------------------------------------------------- Cost of raw materials, supplies and merchandise purchased 6,484,049 7,023,576 1,863,538 10,640,983 Cost of external services 44,768 43,675 12,460 59,646 ----------------------------------------------------------------- TOTAL 6,528,817 7,067,251 1,875,998 10,700,629 =================================================================
Costs of raw materials, supplies and merchandise purchased includes precious metal trading activity. PAYROLL COSTS
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ----------------------------------------------------------------- PERSONNEL EXPENSES Wages and salaries 343,799 366,987 92,682 453,924 Social security contributions and expenses for pensions and similar obligations 110,838 109,539 31,260 126,050 (of which from pensions) (35,899) (35,874) (10,425) (41,013) ----------------------------------------------------------------- TOTAL 454,637 476,526 123,942 579,974 =================================================================
UNSCHEDULED DEPRECIATION OF INTANGIBLE ASSETS AND PROPERTY PLANT AND EQUIPMENT Unscheduled depreciation of intangible assets and property plant and equipment totaled DM 23,547 for the three months ended December 31, 1999. AVERAGE NUMBER OF EMPLOYEES DURING THE FINANCIAL PERIODS
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ----------------------------------------------------------------- Germany 2,221 2,203 2,165 2,342 Abroad 2,735 2,869 2,867 3,102 ----------------------------------------------------------------- TOTAL 4,956 5,072 5,032 5,444 =================================================================
18 AVERAGE NUMBER OF EMPLOYEES BY PRODUCT LINE DURING THE FINANCIAL PERIODS
Year Year Three Months Year Ended Ended Ended Ended September September December December 30, 1998 30, 1999 31, 1999 31, 2000 ----------------------------------------------------------------- Advanced Materials 3,608 3,690 3,663 4,087 Chemicals and Catalysts 1,318 1,352 1,340 1,304 Metals Management 30 30 29 53 ----------------------------------------------------------------- TOTAL 4,956 5,072 5,032 5,444 =================================================================
(16) INTANGIBLE ASSETS
September December December BOOK VALUE, NET 30, 1999 31, 1999 31, 2000 ------------------------------------------------------ Franchises, licenses and industrial property rights and similar rights and assets 2,603 3,553 3,644 Goodwill 14,061 7,472 7,979 Advance payments 18 378 - ------------------------------------------------------ TOTAL 16,682 11,403 11,623 ======================================================
DEVELOPMENT Year Three Months Year Ended Ended Ended September December December 30, 1999 31, 1999 31, 2000 ------------------------------------------------------ COSTS OF ACQUISITION OR PRODUCTION Opening balance 29,845 32,774 37,284 Exchange differences (828) 859 (277) Changes in scope of combination 1,769 - - Additions 8,150 5,099 5,215 Disposals (6,469) (1,448) (16,414) Reclassifications 307 - 477 ------------------------------------------------------ Closing balance 32,774 37,284 26,285 ACCUMULATED DEPRECIATION Opening balance 18,863 16,092 25,881 Exchange differences (1,078) 333 (210) Additions 2,681 9,820 3,840 Disposals (4,374) (364) (14,723) Reclassifications - - (126) ------------------------------------------------------ Closing balance 16,092 25,881 14,662 ------------------------------------------------------ BOOK VALUE, NET 16,682 11,403 11,623 ======================================================
Depreciation of DM 9,820 for the three months ended December 31, 1999 includes DM 9,176 of unscheduled depreciation of goodwill relating to Colorificio Pardo S.p.A. reducing the related goodwill to zero. (17) PROPERTY, PLANT AND EQUIPMENT BOOK VALUE, NET
September December December 30, 1999 31, 1999 31, 2000 ------------------------------------------ Land, land rights,buildings, including buildings on leased land 200,501 205,284 215,449 Technical equipment and machinery 218,181 220,922 242,805 Other plant, factory and office equipment 49,859 48,250 53,137 Advance payments and construction work in progress 55,795 73,206 85,788 ------------------------------------------ TOTAL 524,336 547,662 597,179 ==========================================
19
DEVELOPMENT Year Three Months Year Ended Ended Ended September December December 30, 1999 31, 1999 31, 2000 ---------------------------------------------------- COSTS OF ACQUISITION OR PRODUCTION Opening balance 1,265,516 1,333,001 1,391,146 Exchange differences (28,463) 38,508 (6,990) Changes in scope of combination 17,231 - 5,881 Additions 108,036 52,547 158,720 Disposals (29,012) (32,910) (54,579) Reclassifications (307) - (477) ---------------------------------------------------- Closing balance 1,333,001 1,391,146 1,493,701 ACCUMULATED DEPRECIATION Opening balance 756,183 808,665 843,484 Exchange differences (20,098) 20,357 (4,012) Additions 88,688 38,288 97,361 Disposals (16,108) (23,826) (40,437) Reclassifications - - 126 ---------------------------------------------------- Closing balance 808,665 843,484 896,522 ---------------------------------------------------- BOOK VALUE, NET 524,336 547,662 597,179 ====================================================
(18) INVESTMENTS
September December December BOOK VALUE, NET 30, 1999 31, 1999 31, 2000 ---------------------------------------------------- Shares in affiliated companies 5,211 9,555 10,173 Loans to affiliated companies - 1,010 2,020 Shares in associated companies 67,240 78,431 59,995 Other investments 9,476 10,773 53,985 Long-term securities held as investments 2,514 1,091 1,198 Other loans 4,282 1,837 1,349 ---------------------------------------------------- TOTAL 88,723 102,697 128,720 ====================================================
DEVELOPMENT
Year Three Months Year Ended Ended Ended September December December 30, 1999 31, 1999 31, 2000 ----------------------------------------------------- COSTS OF ACQUISITION OR PRODUCTION Opening balance 89,574 109,522 123,714 Exchange differences 1,099 1,332 2,044 Additions 19,178 18,114 28,437 Disposals (329) (5,254) (3,786) ----------------------------------------------------- Closing balance 109,522 123,714 150,409 ACCUMULATED DEPRECIATION Opening balance 21,509 20,799 21,017 Exchange differences (710) 258 (11) Additions - (40) 683 ----------------------------------------------------- Closing balance 20,799 21,017 21,689 ----------------------------------------------------- BOOK VALUE 88,723 102,697 128,720 =====================================================
20 (19) NON-CURRENT ASSETS The sum of shareholder's equity, long-term accrued liabilities, and long-term liabilities exceeded non-current assets in all reporting periods. Liabilities are defined as long-term if not maturing within one year. (20) INVENTORIES, NET
September December December Inventories are as follows: 30, 1999 31, 1999 31, 2000 ---------------------------------------------------- Raw material and supplies 151,131 174,790 292,510 Work in progress 123,106 129,888 168,909 Finished products and merchandise 293,788 372,756 395,224 Advance payments 7,417 3,163 10,208 ---------------------------------------------------- TOTAL 575,442 680,597 866,851 ====================================================
Inventory provisions have been established for obsolete and slow moving inventories. Borrowed precious metals and the obligation to return similar metal are excluded from the balance sheet. In connection with dmc(2) Group's precious metal activities, dmc(2) Group pays and receives interest with respect to precious metal leases. (21) ACCOUNTS RECEIVABLE AND OTHER ASSETS
Due within Due after September 30, 1999 1 year 1 year Total ---------------------------------------------------- Trade accounts receivable 425,999 80 426,079 Accounts receivable from affiliated companies 58,084 - 58,084 Accounts receivable from companies in which investments are held and other assets 47,939 6,766 54,705 ---------------------------------------------------- TOTAL 532,022 6,846 538,868 ====================================================
21
Due within Due after December 31, 1999 1 year 1 year Total ---------------------------------------------------- Trade accounts receivable 443,974 79 444,053 Accounts receivable from affiliated companies 23,163 320 23,483 Accounts receivable from companies in which investments are held 6,240 - 6,240 Other assets 39,692 8,774 48,466 ---------------------------------------------------- TOTAL 513,069 9,173 522,242 ====================================================
Due within Due after December 31, 2000 1 year 1 year Total ---------------------------------------------------- Trade accounts receivable 734,326 37 734,363 Accounts receivable from affiliated companies 56,678 - 56,678 Accounts receivable from companies in which investments are held 11,233 - 11,233 Other assets 69,386 10,250 79,636 ---------------------------------------------------- TOTAL 871,623 10,287 881,910 ====================================================
Accounts receivable from affiliated companies relate primarily to trade receivables. Other assets include loans, advance payments, receivables from suppliers, and tax refund claims. (22) CASH AND CASH EQUIVALENTS This item is comprised of checks, cash on hand, and bank balances. (23) DEFERRED CHARGES
September December December 30, 1999 31, 1999 31, 2000 --------------------------------------------------- Deferred taxes 44,485 51,679 30,341 Other deferred charges 21,926 10,119 2,654 --------------------------------------------------- TOTAL 66,411 61,798 32,995 ===================================================
Deferred taxes include charges relating to temporary differences in net income arising from combination entries and interperiod tax allocation in the financial statements of individual companies. The other deferred charges also include prepaid expenses. (24) SHAREHOLDER'S EQUITY ORDINARY SHARE CAPITAL At December 31, 2000 dmc(2) AG had outstanding 1,000,000 shares of bearer stock with a nominal value of DM 50.00 each. At December 31, 2000, Degussa AG owns all of the outstanding shares of dmc(2) AG. CAPITAL TRANSACTIONS Prior to Formation, the difference between all allocable assets and liabilities for the carved-out businesses is treated as investments by and advances from Degussa in the combined statements of shareholder's equity. Cerdec AG, the predecessor to dmc(2) AG, had 640,000 ordinary shares outstanding with a total nominal value of DM 32,000. At the Formation, dmc(2) AG issued 360,000 additional ordinary shares with a nominal value of DM 18,000 to Degussa AG in exchange for the transfer of the precious metals and automotive catalysts divisions. Capital reserves were increased DM 149,000 representing the excess of the historical book value of the transferred assets and liabilities over the nominal value of the issued ordinary shares. 22 (25) RESERVES
The reserve accounts are as follows: September December December 30, 1999 31, 1999 31, 2000 ------------------------------------------------------- Capital reserve -- -- 358,804 Revenue reserves -- -- 125,081 ------------------------------------------------------- TOTAL -- -- 483,885 =======================================================
The dmc(2) Group reserve accounts comprise revenue reserves of the dmc(2) Group companies and the capital reserve of dmc(2) AG. The reserves furthermore include net assets that Degussa has contributed to the shareholder's equity of subsidiaries, the profits available for distribution of the subsidiaries of the dmc(2) Group, differences from currency translation, and combination adjustments. (26) MINORITY INTERESTS Third parties and affiliates hold equity interests in the following, and other, consolidated subsidiaries: dmc(2) L.P., Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Allgemeine Gold- und Silberscheideanstalt AG, Degussa Galvanotechnik GmbH, Degussa Catalyst (Pty.) Ltd., and Schoene Edelmetaal B.V. (27) ACCRUED LIABILITIES
September December December 30, 1999 31, 1999 31, 2000 ----------------------------------------------------- Provisions for pensions and similar obligations 78,125 68,758 126,119 Accrued taxes 27,413 15,556 30,131 (thereof deferred taxes) (9,265) (1,612) - Other accrued liabilities 192,838 236,793 217,836 ----------------------------------------------------- TOTAL 298,376 321,107 374,086 =====================================================
Provision for pensions prior to 2000 includes pensions directly attributable to Cerdec AG and its subsidiaries. In addition, Degussa maintained pension plans for which the provision could not be allocated to the carve-out businesses. The provisions for pensions also include the severance payment commitments of certain foreign subsidiaries. Corresponding with the Formation of dmc(2) Group as a separate legal entity during 2000, certain pension plans were amended to increase employee benefits as well as expand the number of plan participants. Accrued taxes include the estimated liabilities for current year taxes which have not yet been assessed. It also includes deferred taxes for timing differences resulting as a consequence of combination and otherwise existing for combined entities. Other accrued liabilities include provisions for bonuses, guarantee obligations, obligations under early retirement arrangements, restructuring accruals, and future repairs. For employees already covered by semi-retirement employment arrangements or who have already signed contracts, accruals were established in the full amount for supplementary and settlement payments and pro rata for wages and salaries in the permanent leave of absence phase. The obligations were calculated under actuarial principles and discounted at 5.5%. Furthermore, based on the collective bargaining agreement entered into in 2000, liabilities were also established in 2000 up to a 5% workforce maximum limit for potential semi-retirement of employees qualifying as of December 31, 2000. No accruals have been set up for employees that may qualify after December 31, 2000 until December 31, 2009 (expiring date of collective bargaining agreement). As of December 31, 2000 this accrual included future supplementary and settlement obligations and was likewise calculated under actuarial principles and discounted at 5.5%. 23 (28) LIABILITIES
Due after 1 Due within and within Due after As of September 30, 1999 1 year 5 years 5 years TOTAL -------------------------------------------------------- Liabilities to banks 135,971 47,425 623 184,019 Trade accounts payable 88,333 15,267 - 103,600 Liabilities to affiliated companies 121,821 - - 121,821 Liabilities to companies in which investments are held 7,967 - - 7,967 Other liabilities 59,960 1,780 3,628 65,368 (of which relating to taxation) (9,317) ( -) ( -) (9,317) (of which relating to social security) (22,183) ( -) ( -) (22,183) -------------------------------------------------------- TOTAL 414,052 64,472 4,251 482,775 ========================================================
Due after 1 Due within and within Due after As of December 31, 1999 1 year 5 years 5 years Total -------------------------------------------------------- Liabilities to banks 154,150 29,141 1,373 184,664 Advance payments received on orders 49 - - 49 Trade accounts payable 92,291 14,182 - 106,473 Liabilities to affiliated companies 146,785 - - 146,785 Liabilities to companies in which investments are held 3,807 - - 3,807 Other liabilities 58,586 2,588 2,393 63,567 (of which relating to taxation) (10,836) ( -) ( -) (10,836) (of which relating to social security) (25,047) ( -) ( -) (25,047) -------------------------------------------------------- TOTAL 455,668 45,911 3,766 505,345 ========================================================
Due after 1 Due within and within Due after As of December 31, 2000 1 year 5 years 5 years Total -------------------------------------------------------- Liabilities to banks 872,908 62,784 3,034 938,726 Advance payments received on orders 2,102 - - 2,102 Trade accounts payable 252,442 - - 252,442 Liabilities to affiliated companies 277,497 - - 277,497 Liabilities to companies in which investments are held 2,263 84 - 2,347 Liabilities from the acceptance of notes and notes issued 3,769 1,117 - 4,886 Other liabilities 57,040 2,221 1,007 60,268 (of which relating to taxation) (8,721) ( -) ( -) (8,721) (of which relating to social security) (11,823) ( -) ( -) (11,823) -------------------------------------------------------- TOTAL 1,468,021 66,206 4,041 1,538,268 ========================================================
Prior to 2000 the liabilities to affiliated companies relate primarily to trade payables. As of December 31, 2000, liabilities to affiliated companies also include an interest bearing loan of DM 249,833 to Degussa AG. Other liabilities include mainly social security contributions, commissions, and accrued salaries and bonuses. No security in the form of mortgages or other security interests was given for the liabilities. 24 (29) CONTINGENT LIABILITIES
September December December 30, 1999 31, 1999 31, 2000 --------------------------------------------------- Notes receivable discounted 6,417 3,511 2,894 Guarantee commitments 5,096 5,716 11,983 --------------------------------------------------- TOTAL 11,513 9,227 14,877 ===================================================
The liability on discounted notes receivable relates to Allgemeine Gold- und Silberscheideanstalt AG. (30) OTHER FINANCIAL COMMITMENTS
September December December 30, 1999 31, 1999 31, 2000 --------------------------------------------------- Commitments under rent and leasing agreements due for payment in the next financial year 5,789 4,875 4,465 due for payment in 2 to 5 financial years 12,774 10,971 17,712 Non-security repurchase agreement due in next financial year 10,216 - - --------------------------------------------------- TOTAL 28,779 15,846 22,177 ===================================================
The commitments arising from leasing agreements mainly relate to Degussa and its affiliated companies. (31) DERIVATIVE FINANCIAL INSTRUMENTS The dmc(2) Group utilizes derivative financial instruments in the form of futures contracts in order to economically hedge the operating business against risks arising from changes in precious metals prices. The precious metals futures contracts primarily are for gold and silver, but also include platinum and palladium. The dmc(2) Group also makes use of these instruments on a limited scale to optimize the precious metals trading result. The following table summarizes the precious metals futures contracts:
Nominal contract volume Market value ---------------------------------------------------------------------------- September December December September December December 30, 1999 31, 1999 31, 2000 30, 1999 31, 1999 31, 2000 ---------------------------------------------------------------------------- Remaining term up to 1 year 505,386 568,951 1,098,977 (16,038) (17,407) (11,000) Remaining term 1 - 5 years 7,628 4,890 11,067 (978) (391) 820 ---------------------------------------------------------------------------- PRECIOUS METALS FUTURES 513,014 573,841 1,110,044 (17,016) (17,798) (10,180) ============================================================================
To economically hedge against fluctuations in currency exchange rates and interest rates, the dmc(2) Group also employs, on a limited basis, currency futures contracts, currency option contracts, and interest rate swaps. The nominal value of currency futures contracts at December 31, 2000 was DM 162,683 with a market value of DM 1,481. The nominal value of currency option contracts amounted to DM 4,204 as of December 31, 2000 with a market value of DM 239. Interest rate swaps as of December 31, 2000 had a nominal value of DM 19,146 and a market value of DM (799). Nominal value is the sum of all purchase and sale transactions relating to derivative financial instruments. Market value is calculated on the basis of market quotations or customary market prices or the value for derivative financial instruments derived therefrom. Market value shows how closing out the derivatives position (entry into offsetting transactions) would affect earnings (ignoring the underlying transactions). 25 (32) TOTAL COMPENSATION OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD; LOANS GRANTED For the year ended December 31, 2000, the Board of Management's total compensation amounted to DM 3,722 for active board members and DM 1,010 for former board members. The pension accrual for former board members amounted to DM 2,566. An accrual of DM 396 was established for the compensation of the members of the Supervisory Board. No loans or advance payments were made. (33) RECONCILIATION TO U.S. GAAP dmc(2) Group's combined financial statements are presented in accordance with German GAAP, which differ in certain significant respects from U.S. GAAP. The significant differences that affect net income and shareholder's equity of the dmc(2) Group are set forth below:
Reconciliation of net income (loss) from German GAAP Year Three Months Year to U.S. GAAP: Ended Ended Ended September December December Note 30, 1999 31, 1999 31, 2000 --------------------------------------------------------- Net income (loss) as reported in the combined statements of operations under German GAAP: 12,037 (64,861) 85,691 Provisions and loss contingencies a) (14,256) 24,435 (21,945) Valuation of inventory b) 664 (97) 1,695 Deferred taxes c) 28,368 3,093 93,483 Foreign currency revaluation d) 626 (430) 873 Pensions and post retirement benefits e) 0 (372) (7,465) Allowance for doubtful accounts f) 2,119 644 (2,482) Valuation of securities g) 3,291 0 3,072 Valuation fixed assets h) 686 (1,222) 2,229 Financial instruments i) (4,218) 347 3,582 Purchase accounting of dmc(2) Group j) (27,069) (9,594) (40,594) Purchase of minority interest in Cerdec AG k) (1,952) (835) (3,347) Combination of majority-owned subsidiaries l) 6,900 290 8,364 Minority interests m) (931) (1,948) (14,424) Equity method accounting n) (7,272) (6,359) (13,305) Goodwill o) (5,610) 6,910 (5,538) --------------------------------------------------------- NET INCOME(LOSS) IN ACCORDANCE WITH U.S. GAAP (6,617) (49,999) 89,889 =========================================================
26
Reconciliation of shareholder's equity from German GAAP to U.S. GAAP: September December December Note 30, 1999 31, 1999 31, 2000 --------------------------------------------------- Shareholder's equity as reported in the combined statements of shareholder's equity under German GAAP: 1,076,675 1,168,391 652,099 Provisions and loss contingencies a) 39,929 68,025 35,157 Valuation of inventory b) 629 1,292 2,066 Deferred taxes c) (195,176) (221,000) (89,446) Foreign currency revaluation d) 99 616 2,299 Pensions and post retirement benefits e) -- 718 3,597 Allowance for doubtful accounts f) 6,962 7,916 3,118 Valuation of securities g) 77,477 68,062 38,438 Valuation fixed assets h) 3,359 6,990 6,372 Financial instruments i) -- 347 5,046 Purchase accounting of dmc(2) Group j) 658,639 649,045 580,273 Purchase of minority interest in Cerdec AG k) 48,231 47,396 44,049 Combination of majority - owned subsidiaries l) 20,254 22,292 21,303 Minority interests m) (23,330) (27,705) (26,242) Equity method accounting n) (9,451) (15,716) 5,095 Goodwill o) (614) (22,791) 10,370 ------------------------------------------- SHAREHOLDER'S EQUITY IN ACCORDANCE WITH U.S. GAAP 1,703,683 1,753,878 1,293,594 ===========================================
a) PROVISIONS AND LOSS CONTINGENCIES In accordance with German GAAP, dmc(2) Group recognized provisions for expected costs to be incurred for certain restructurings and other anticipated future costs. Under U.S. GAAP, the recognition criteria for such provisions are more stringent and require a number of prescribed conditions be satisfied before a liability can be recorded. b) VALUATION OF INVENTORY Under German GAAP, dmc(2) Group capitalizes overhead costs in accordance with German tax law, which excludes certain indirect and other costs. Under U.S. GAAP, manufacturing overhead costs include all indirect material, labor and overhead costs. Under German GAAP, raw materials inventory is valued at the lower of average purchase cost or market price. For German GAAP purposes, market price is the lower of replacement cost and net realizable value. Differences may arise where sales prices are contracted at period end. In accordance with German GAAP, LIFO layers are created in each period for each metal. A lower of cost or market assessment is performed every period for each metal layer. For U.S. GAAP purposes, the lower of cost or market assessment is applied to an entire metal position. Under U.S. GAAP, the inventory was revalued as a result of the purchase accounting described in Note 33(j). c) DEFERRED TAXES Under German GAAP, deferred tax assets and liabilities are generally recognized for temporary differences between book carrying values and tax bases of assets and liabilities, with the exception of deferred tax assets relating to net operating loss carry forwards which are recognized to the extent of offsetting deferred tax liabilities. Deferred tax assets are recognized to the extent they are expected to be realized. Under U.S. GAAP, deferred tax assets and liabilities for temporary differences using enacted tax rates in effect at period-end are recognized in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, net operating loss carryforwards that are available to reduce future taxes are recognized as deferred tax assets. Such amounts are reduced by a valuation allowance to the extent that it is more likely than not that the deferred tax assets will not be realized. The deferred tax adjustment included in the above reconciliation to U.S. GAAP also contains the income tax effects of the U.S. GAAP adjustments, where appropriate. d) FOREIGN CURRENCY REVALUATION Under German GAAP, foreign currency denominated receivables (payables) are translated at the lower (higher) of the period- end spot rate or contracted rate, respectively. 27 Under U.S. GAAP, assets and liabilities denominated in a foreign currency are recorded at current exchange rates at period-end with any resulting adjustment recognized in operating results. e) PENSIONS AND POST RETIREMENT BENEFITS For German GAAP, certain increases in pension and other similar obligations are recognized immediately in earnings. Under U.S. GAAP, changes in pension and similar obligations (including those resulting from plan amendments) as are not recognized as they occur but are recognized systematically and gradually over subsequent periods. Following the Formation of dmc(2) Group as a legal entity in 2000, certain pension plans were amended to increase benefits as well as expand the number of participants. As part of the Formation of the dmc(2) Group, Degussa assumed the liability for certain dmc(2) Group employees retired as of January 1, 2000. Under German GAAP the pension expense associated with these retired employees is not included in income for the year ended December 2000. For U.S. GAAP, pension costs associated with the retired employees has been reflected in the U.S. GAAP reconciliation. f) ALLOWANCE FOR DOUBTFUL ACCOUNTS In addition to specific reserves, dmc(2) Group also maintains a general allowance as well as a country risk allowance for German GAAP purposes. For U.S. GAAP purposes, these allowances were reversed except for the amounts based upon dmc(2) Group's historical loss experience. g) VALUATION OF SECURITIES Under German GAAP, marketable debt and equity securities are generally carried at the lower of cost or market value. Under U.S. GAAP, marketable debt and equity securities other than investments accounted for by the equity method, are categorized as either trading, available-for-sale, or held to maturity. Securities classified as trading or available-for-sale are reported at fair value at the balance sheet date and held to maturity securities are reported at historical cost. Unrealized gains and losses on trading securities are recorded in net income while unrealized gains and losses on securities categorized as available-for-sale are recorded in shareholder's equity, net of income tax. h) VALUATION OF FIXED ASSETS Under German GAAP, capitalization of certain construction project costs is not required. Under U.S. GAAP, certain project costs are required to be capitalized. Further, capitalization of interest during the construction phase of the project is permitted but not required under German GAAP. Under U.S. GAAP, interest is capitalized during the construction phase of major construction projects. Capitalized interest and other costs are added to the cost of underlying assets and are depreciated over the useful life of the asset. i) FINANCIAL INSTRUMENTS Under German GAAP, the fair values of precious metal futures contracts are netted amongst their respective metal portfolios with any resultant unrealized loss recognized in earnings. Under U.S. GAAP, each metal future contract is marked to market with both positive or negative fair values recognized in earnings. Under German GAAP, negative fair values of foreign currency forwards and interest rate swaps contracted with third parties are recognized in earnings. For U.S. GAAP, positive and negative fair values are recognized in earnings. 28 j) PURCHASE ACCOUNTING OF DMC(2) GROUP E.ON AG (formerly Veba AG) acquired Degussa, including the related assets and liabilities of the dmc(2) Group, in two separate transactions. The initial 36,4 % ownership interest was acquired in December 1997 with the remaining 63,6 % interest acquired in February 1999. For German GAAP purposes, the recorded amounts of dmc(2) Group's assets acquired and liabilities assumed by E.ON AG remained at historical cost basis. For U.S. GAAP purposes, a new basis of accounting is established for dmc(2) Group's assets and liabilities based upon the fair values of the respective assets acquired and liabilities assumed by E.ON AG at each acquisition date as reflected below:
Useful Life Step I Step II (years) December 1997 February 1999 ----------------------------------------------------- Inventory - 53,700 149,605 Property, plant and equipment 5-15 13,989 24,441 Land - 4,897 8,557 Licenses 10 5,159 9,015 Patents and Trademarks 13-20 24,672 43,108 Deferred Taxes - (58,378) (133,794) Goodwill 15 130,652 228,282
As a result of the new basis of accounting, shareholder's equity was increased and additional charges reflected in the reconciliation of net income for the effects of increases in cost of sales, depreciation expense of tangible and intangible assets, and related deferred income tax effects. The deferred tax effects are reflected in Note 33(c). k) PURCHASE OF MINORITY INTEREST IN CERDEC AG In March 1999, Degussa AG purchased the remaining minority interest of 30% in Cerdec AG from Ciba Geigy. In accordance with German GAAP, the excess of the acquisition cost of the minority interest acquired over the fair value of the net assets acquired is offset against shareholder's equity. Under U.S. GAAP, goodwill is capitalized and depreciated over its useful life. dmc(2) Group's policy is to depreciate goodwill over 15 years. l) COMBINATION OF MAJORITY-OWNED SUBSIDIARIES As explained in Note 3, under German GAAP dmc(2) Group does not combine a number of investments in domestic and foreign companies in its combined financial statements under German GAAP. For U.S. GAAP, the number of companies consolidated in the combined financial statements has been increased. The remaining companies not included in the scope of the consolidation for U.S. GAAP purposes are not material to the combined shareholder's equity, financial position and net operating results. Combination of dmc(2) L.P. As discussed in Note 2, dmc(2) L.P. is consolidated under German GAAP with Degussa's 99 % interest in equity and earnings shown as minority interests. As these combined financial statements are prepared with respect to the sale of dmc(2) Group to OMG and OMG has purchased the remaining 99 % interest of dmc(2) L.P. from Degussa as part of this agreement, dmc(2) L.P. has been fully consolidated with no minority interests for U.S. GAAP purposes. m) MINORITY INTERESTS Under German GAAP, minority interest is included as a separate component of shareholder's equity and is not adjusted in determining net income. Under U.S. GAAP, minority interest is not shown as equity and is adjusted in determining net income. 29 n) EQUITY METHOD ACCOUNTING In accordance with German GAAP, investments in associated companies subject to significant influence (generally entities which are 20 - 50 % owned) are not required to be accounted for under the equity method, if certain materiality tests are met, and can be recorded under the cost method (and, if applicable, the lower of cost or market value). Under U.S. GAAP, investments in associated companies are recorded using the equity method of accounting if the investor has significant influence over the operating or financial decisions of the investee. For both German GAAP and U.S. GAAP the balance of each investment is increased or decreased, as appropriate, to account for the investor's proportionate share of the investee earnings, less dividends received. Under German GAAP, based on materiality it is permissible to consolidate foreign associated companies on the basis of their local accounting principles, not restated for German GAAP. Foreign associated companies have been converted to U.S. GAAP for consolidation purposes in the U.S. GAAP reconciliation. For German GAAP, in cases where the associated company's financial year end differs from the investor's year end, the associated company's previous financial information is utilized for consolidation. For U.S. GAAP, financial information of associated companies for periods ended within 90 days of the year end of the associated investor's financial year end is used. o) GOODWILL In accordance with German GAAP, goodwill was either charged directly to shareholder's equity or capitalized and depreciated over 15 years. For U.S. GAAP purposes all goodwill is capitalized and depreciated over 15 years. The effect of goodwill adjustments arising from the E.ON AG acquisition of Degussa and the acquisition of the minority interest in Cerdec AG is included in notes 33(j) and 33(k), respectively. EXTRAORDINARY INCOME (EXPENSE) The items classified as extraordinary income (expense) under German GAAP would not be presented as extraordinary items for U.S. GAAP purposes. (34) SUBSEQUENT EVENTS As discussed in note 1, dmc(2) Group has been sold to OM Group, Inc. on August 10, 2001. In addition, certain assets and liabilities which constitute the electronic materials, performance, pigments and colors, glass systems and Cerdec ceramic businesses of dmc(2) Group have been subsequently sold by OM Group, Inc. to Ferro Corporation on September 7, 2001. As a result of purchase accounting which will be applied to these transactions by OM Group, significant changes can be expected to the recorded assets and liabilities of dmc(2) Group. 30
SHAREHOLDINGS OF THE dmc(2) GROUP AS AT SEPTEMBER 30, 1998 ---------------------------------------------------------------------------------------------------------------------- EQUITY NAME AND LOCATION OF THE COMPANY HOLDINGS EQUITY NET INCOME(LOSS) IN % IN MILL. DM IN MILL. DM ---------------------------------------------------------------------------------------------------------------------- Magmalor GmbH, Colditz/Germany 100.0 5.0 (0.8) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Holding Co., Las Vegas/USA * - - - (formerly: Cerdec Holding Co., Las Vegas/USA) ---------------------------------------------------------------------------------------------------------------------- dmc(2) France S.A., Limoges/France - - - (formerly: Cerdec France S.A., Limoges/France) ---------------------------------------------------------------------------------------------------------------------- Cerdec Iberica S.A., Castellon de la Plana/Spain 100.0 12.8 0.3 ---------------------------------------------------------------------------------------------------------------------- Cerdec Italia S.p.A., Fiorano/Italy 100.0 14.9 (3.9) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Ltda., Americana/Brazil - - - (formerly: Cerdec Produtos Ceramicos Ltda., Americana/Brazil) ---------------------------------------------------------------------------------------------------------------------- dmc(2) S.A. de C.V., Mexico City/Mexico - - - (formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico) ---------------------------------------------------------------------------------------------------------------------- Cerpart S.R.L. Milan/Italy 100.0 23.9 - ---------------------------------------------------------------------------------------------------------------------- Colorificio Pardo S.p.A., Corlo/Italy 100.0 8.9 (1.1) ---------------------------------------------------------------------------------------------------------------------- dmc(2) (UK) Ltd., Stoke-on-Trent/Great Britain - - - (formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Japan Ltd., Tokio/Japan - - - (formerly: Cerdec Japan Co. Ltd., Tokio/Japan) ---------------------------------------------------------------------------------------------------------------------- Degussa Skandinavien Katalysator AB, Karlskoga/Sweden 100.0 1.1 (2.5) ---------------------------------------------------------------------------------------------------------------------- Italbras S.p.A. Vicenza/Italy 100.0 2.2 0.5 ---------------------------------------------------------------------------------------------------------------------- Icomeq Industria e Comercio Ltda., Guarulhos/Brazil 100.0 11.2 (1.1) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Canada Corp., Burlington/Canada - - - ---------------------------------------------------------------------------------------------------------------------- Prometron GmbH Produkte fuer Elektronik und Elektrotechnik Hanau/Germany 30.0 0.3 0.0 ---------------------------------------------------------------------------------------------------------------------- Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina 100.0 1.1 0.6 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Degussa Metals Catalyst Cerdec Southern Africa Ltd., Midrand/South Africa - - - ---------------------------------------------------------------------------------------------------------------------- Oesterreichische Gold- und Silberscheideanstalt GmbH, Vienna/Austria ** - - - ---------------------------------------------------------------------------------------------------------------------- Schilling's Graphics Inc., Galion, Ohio/USA 100.0 1.3 (0.6) ----------------------------------------------------------------------------------------------------------------------
31 dmc(2) Degussa Metals Catalysts Cerdec China Ltd., Hong Kong/China - - - ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst (Thailand) Ltd., Bangkok/Thailand 99.4 0.4 (0.1) ---------------------------------------------------------------------------------------------------------------------- Clarex S.A., Guarulhos/Brazil 100.0 0.6 (0.5) ---------------------------------------------------------------------------------------------------------------------- Degussa-NA Edelmetall GmbH, Hanau/Germany 100.0 0.2 (1.0) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Istanbul Degussa Metal Katalizor Seramik Boyalari Ticaret Limited Sirketi Istanbul/Turkey (formerly: Cerdec Istanbul Seramic Bogalari Ticaret, Istanbul/Turkey) - - - ---------------------------------------------------------------------------------------------------------------------- Schoene Edelmetaal B.V., Amsterdam/Netherlands 90.8 11.6 1.9 ---------------------------------------------------------------------------------------------------------------------- Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend/Germany 90.8 5.0 2.6 ---------------------------------------------------------------------------------------------------------------------- Allgemeine Gold- und Silberscheideanstalt AG, Pforzheim/Germany 90.8 48.5 2.4 ---------------------------------------------------------------------------------------------------------------------- Allgemeine France S.A.R.L Brunstatt/France 90.8 0.3 - ---------------------------------------------------------------------------------------------------------------------- Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Guarulhos/Brazil 78.0 48.4 7.8 ---------------------------------------------------------------------------------------------------------------------- Zibo Cerdec Ceramic Colours Co. Ltd., Zibo City, Shandong/China 60.0 13.4 1.4 ---------------------------------------------------------------------------------------------------------------------- PT Cerdec Indonesia, Sidoarjo/Indonesia 51.0 (3.8) (6.3) ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst Ltd., Port Elisabeth/South Africa 55.0 (0.7) (0.6) ---------------------------------------------------------------------------------------------------------------------- dmc Catalyst Port Elisabeth (Pty) Ltd., Port Elizabeth/South Africa - - - ---------------------------------------------------------------------------------------------------------------------- Thai Ceramic Colors Co. Ltd., Bangkok/Thailand 51.0 0.9 0.2 ---------------------------------------------------------------------------------------------------------------------- dmc(2) L.P., Washington/USA (consolidated pursuant to ss.290 (2) HGB) - - - ----------------------------------------------------------------------------------------------------------------------
* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec Royalty Co., Las Vegas/USA, and dmc(2) Corporation, Washington/USA (formerly: Cerdec Corporation, Washington/USA) ** Constitutes businesses which have been carved out of Degussa 32
---------------------------------------------------------------------------------------------------------------------- Ordeg Co., Limited Seoul/South Korea 50.0 5.3 0.2 ---------------------------------------------------------------------------------------------------------------------- ICT-International Catalyst Technology Inc., Calvert City/USA 50.0 24.1 6.2 ---------------------------------------------------------------------------------------------------------------------- ICT Co. Ltd., Osaka/Japan 50.0 7.0 3.1 ---------------------------------------------------------------------------------------------------------------------- Cerdec (Thailand) Co., Ltd., Bangkok/Thailand 49.0 5.3 1.4 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Metals (Thailand) Bangkok/Thailand 44.5 4.0 (0.1) ---------------------------------------------------------------------------------------------------------------------- Smaltochimica S.R.L., Spezzano di Fiorano M./Italy 40.0 1.4 2.2 ---------------------------------------------------------------------------------------------------------------------- Gardenia-Quimica S.A. Castellon/Spain 36.0 7.0 0.0 ---------------------------------------------------------------------------------------------------------------------- Chilches Materials, S.A. Alcora/Spain 20.0 - - ---------------------------------------------------------------------------------------------------------------------- Nadir Allgemeine Soymetaller, Istanbul/Turkey 13.6 - - ---------------------------------------------------------------------------------------------------------------------- Norddeutsche Affinerie AG Hamburg/Germany 10.0 458.2 (9.0) ----------------------------------------------------------------------------------------------------------------------
33
SHAREHOLDINGS OF THE dmc(2) GROUP AS AT SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------------------- NAME AND LOCATION OF THE COMPANY EQUITY HOLDINGS EQUITY NET INCOME(LOSS) IN % IN MILL. DM IN MILL. DM ---------------------------------------------------------------------------------------------------------------------- Magmalor GmbH, Colditz/Germany 100.0 3.7 (1.3) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Holding Co., Las Vegas/USA * (formerly: Cerdec Holding Co., Las Vegas/USA) - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) France S.A., Limoges/France (formerly: Cerdec France S.A., Limoges/France) - - - ---------------------------------------------------------------------------------------------------------------------- Cerdec Iberica S.A., Castellon de la Plana/Spain 100.0 14.4 (1.6) ---------------------------------------------------------------------------------------------------------------------- Cerdec Italia S.p.A., Fiorano/Italy 100.0 (7.1) (8.1) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Ltda., Americana/Brazil (formerly: Cerdec Produtos Ceramicos Ltda., Americana/Brazil) - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) S.A. de C.V., Mexico City/Mexico (formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico) - - - ---------------------------------------------------------------------------------------------------------------------- Cerpart S.R.L. Milan/Italy 100.0 24.0 (0.3) ---------------------------------------------------------------------------------------------------------------------- Colorificio Pardo S.p.A., Corlo/Italy 100.0 2.8 (6.0) ---------------------------------------------------------------------------------------------------------------------- dmc(2) (UK) Ltd., Stoke-on-Trent/Great Britain (formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain) - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) Japan Ltd., Tokio/Japan (formerly: Cerdec Japan Co. Ltd., Tokio/Japan) - - - ---------------------------------------------------------------------------------------------------------------------- Degussa Skandinavien Katalysator AB, Karlskoga/Sweden 100.0 1.2 0.0 ---------------------------------------------------------------------------------------------------------------------- Italbras S.p.A. Vicenza/Italy 100.0 2.7 0.9 ---------------------------------------------------------------------------------------------------------------------- Icomeq Industria e Comercio Ltda., Guarulhos/Brazil 100.0 8.0 0.2 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Canada Corp., Burlington/Canada - - - ---------------------------------------------------------------------------------------------------------------------- Prometron GmbH Produkte fuer Elektronik und Elektrotechnik Hanau/Germany 100.0 0.3 - ---------------------------------------------------------------------------------------------------------------------- Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina 100.0 0.0 (0.1) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Degussa Metals Catalyst Cerdec Southern Africa Ltd., Midrand/South Africa - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) Electronic Materials B.V., Uden/Netherlands 100.0 8.9 2.3 ---------------------------------------------------------------------------------------------------------------------- Oesterreichische Gold- und Silberscheideanstalt GmbH, Vienna/Austria ** - - - ---------------------------------------------------------------------------------------------------------------------- Schilling's Graphics Inc., Galion, Ohio/USA 100.0 1.5 0.1 ----------------------------------------------------------------------------------------------------------------------
34 dmc(2) Degussa Metals Catalysts Cerdec China Ltd., Hong Kong/China - - - ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst (Thailand) Ltd., Bangkok/Thailand 99.4 1.2 - ---------------------------------------------------------------------------------------------------------------------- Clarex S.A., Guarulhos/Brazil 100.0 0.3 (0.1) ---------------------------------------------------------------------------------------------------------------------- Degussa-NA Edelmetall GmbH, Hanau/Germany 100.0 0.7 0.5 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Istanbul Degussa Metal Katalizor Seramik Boyalari Ticaret Limited Sirketi Istanbul/Turkey (formerly: Cerdec Istanbul Seramic Bogalari Ticaret, Istanbul/Turkey) - - - ---------------------------------------------------------------------------------------------------------------------- Schoene Edelmetaal B.V., Amsterdam/Netherlands 90.8 11.0 1.1 ---------------------------------------------------------------------------------------------------------------------- Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend/Germany 90.8 7.7 2.7 ---------------------------------------------------------------------------------------------------------------------- Allgemeine Gold- und Silberscheideanstalt AG, Pforzheim/Germany 90.8 67.0 7.7 ---------------------------------------------------------------------------------------------------------------------- Allgemeine France S.A.R.L Brunstatt/France 90.8 0.3 - ---------------------------------------------------------------------------------------------------------------------- Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Guarulhos/Brazil 78.0 18.3 (10.7) ---------------------------------------------------------------------------------------------------------------------- Zibo Cerdec Ceramic Colours Co. Ltd., Zibo City, Shandong/China 60.0 15.7 1.9 ---------------------------------------------------------------------------------------------------------------------- PT Cerdec Indonesia, Sidoarjo/Indonesia 59.0 1.3 0.7 ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst Ltd., Port Elisabeth/South Africa 55.0 3.4 (1.5) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Catalyst Port Elisabeth (Pty) Ltd., Port Elizabeth/South Africa - - - ---------------------------------------------------------------------------------------------------------------------- Thai Ceramic Colors Co. Ltd., Bangkok/Thailand 51.0 0.9 0.2 ---------------------------------------------------------------------------------------------------------------------- dmc(2) L.P., Washington/USA (consolidated pursuant to ss.290 (2) HGB) - - - ----------------------------------------------------------------------------------------------------------------------
* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec Royalty Co., Las Vegas/USA, and dmc(2) Corporation, Washington/USA (formerly: Cerdec Corporation, Washington/USA). ** Constitutes businesses which have been carved out of Degussa. 35
---------------------------------------------------------------------------------------------------------------------- Ordeg Co., Limited Seoul/South Korea 50.0 11.8 3.9 ---------------------------------------------------------------------------------------------------------------------- ICT-International Catalyst Technology Inc., Calvert City/USA 50.0 25.8 (1.3) ---------------------------------------------------------------------------------------------------------------------- ICT Co. Ltd., Osaka/Japan 50.0 18.8 1.7 ---------------------------------------------------------------------------------------------------------------------- Cerdec (Thailand) Co., Ltd., Bangkok/Thailand 49.0 6.4 1.3 ------------------------- -------------------------------------------------------------------------------------------- dmc(2) Metals (Thailand) Bangkok/Thailand 44.5 3.3 (0.3) ---------------------------------------------------------------------------------------------------------------------- Smaltochimica S.R.L., Spezzano di Fiorano M./Italy 40.0 2.4 2.5 ---------------------------------------------------------------------------------------------------------------------- Gardenia-Quimica S.A. Castellon/Spain 20.0 8.5 1.8 ---------------------------------------------------------------------------------------------------------------------- Chilches Materials, S.A. Alcora/Spain 20.0 9.4 - ------------------------------------------------------------------------------------ --------------------------------- Nadir Allgemeine Soymetaller, Istanbul/Turkey 13.6 - - ---------------------------------------------------------------------------------------------------------------------- Norddeutsche Affinerie AG Hamburg/Germany 10.0 470.2 60.0 ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDINGS OF THE dmc(2) GROUP AS AT DECEMBER 31, 1999 AMOUNTS IN DM MILLIONS ---------------------------------------------------------------------------------------------------------------------- NAME AND LOCATION OF THE COMPANY EQUITY HOLDINGS EQUITY NET INCOME(LOSS) IN % IN MILL. DM IN MILL. DM ---------------------------------------------------------------------------------------------------------------------- Magmalor GmbH, Colditz/Germany 100.0 3.3 (3.8) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Holding Co., Las Vegas/USA * (formerly: Cerdec Holding Co., Las Vegas/USA) - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) France S.A., Limoges/France (formerly: Cerdec France S.A., Limoges/France) - - - ---------------------------------------------------------------------------------------------------------------------- Cerdec Iberica S.A., Castellon de la Plana/Spain 100.0 15.4 (2.5) ---------------------------------------------------------------------------------------------------------------------- Cerdec Italia S.p.A., Fiorano/Italy 100.0 3.9 (11.6) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Ltda., Americana/Brazil (formerly: Cerdec Produtos Ceramicos Ltda., Americana/Brazil) - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) S.A. de C.V., Mexico City/Mexico (formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico) - - - ---------------------------------------------------------------------------------------------------------------------- Cerpart S.R.L. Milan/Italy 100.0 25.1 (18.9) ---------------------------------------------------------------------------------------------------------------------- Colorificio Pardo S.p.A., Corlo/Italy 100.0 3.4 0.9 ---------------------------------------------------------------------------------------------------------------------- dmc(2) (UK) Ltd., Stoke-on-Trent/Great Britain (formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain) - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) Japan Ltd., Tokio/Japan (formerly: Cerdec Japan Co. Ltd., Tokio/Japan) - - - ---------------------------------------------------------------------------------------------------------------------- Degussa Skandinavien Katalysator AB, Karlskoga/Sweden 100.0 1.3 0.2 ---------------------------------------------------------------------------------------------------------------------- Italbras S.p.A. Vicenza/Italy 100.0 1.6 0.2 ---------------------------------------------------------------------------------------------------------------------- Icomeq Industria e Comercio Ltda., Guarulhos/Brazil 100.0 9.2 0.4 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Canada Corp., Burlington/Canada - - - ---------------------------------------------------------------------------------------------------------------------- Prometron GmbH Produkte fuer Elektronik und Elektrotechnik Hanau/Germany 100.0 0.3 - ---------------------------------------------------------------------------------------------------------------------- Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina 100.0 0.0 (1.1) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Degussa Metals Catalyst Cerdec Southern Africa Ltd., Midrand/South Africa - - - ---------------------------------------------------------------------------------------------------------------------- dmc(2) Electronic Materials B.V., Uden/Netherlands 100.0 9.2 0.2 ---------------------------------------------------------------------------------------------------------------------- Oesterreichische Gold- und Silberscheideanstalt GmbH, Vienna/Austria ** - - - ----------------------------------------------------------------------------------------------------------------------
37 dmc(2) Degussa Metals Catalysts Cerdec China Ltd., Hong Kong/China - - - ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst (Thailand) Ltd., Bangkok/Thailand 99.4 0.7 0.0 ---------------------------------------------------------------------------------------------------------------------- Clarex S.A., Guarulhos/Brazil 100.0 0.3 (0.1) ---------------------------------------------------------------------------------------------------------------------- Degussa-NA Edelmetall GmbH, Hanau/Germany 100.0 0.7 0.5 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Istanbul Degussa Metal Katalizor Seramik Boyalari Ticaret Limited Sirketi Istanbul/Turkey (formerly: Cerdec Istanbul Seramic Bogalari Ticaret, Istanbul/Turkey) - - - ---------------------------------------------------------------------------------------------------------------------- Schoene Edelmetaal B.V., Amsterdam/Netherlands 90.8 11.4 0.4 ---------------------------------------------------------------------------------------------------------------------- Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend/Germany 90.8 5.0 0.6 ---------------------------------------------------------------------------------------------------------------------- Allgemeine Gold- und Silberscheideanstalt AG, Pforzheim/Germany 90.8 79.3 12.3 ---------------------------------------------------------------------------------------------------------------------- Allgemeine France S.A.R.L Brunstatt/France 90.8 0.3 - ---------------------------------------------------------------------------------------------------------------------- Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Guarulhos/Brazil 78.0 29.2 7.3 ---------------------------------------------------------------------------------------------------------------------- Zibo Cerdec Ceramic Colours Co. Ltd., Zibo City, Shandong/China 60.0 16.8 0.5 ---------------------------------------------------------------------------------------------------------------------- PT Cerdec Indonesia, Sidoarjo/Indonesia 59.0 1.9 0.2 ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst Ltd., Port Elisabeth/South Africa 55.0 3.9 0.4 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Catalyst Port Elisabeth (Pty) Ltd., Port Elizabeth/South Africa - - - ---------------------------------------------------------------------------------------------------------------------- Thai Ceramic Colors Co. Ltd., Bangkok/Thailand 51.0 1.1 0.1 ---------------------------------------------------------------------------------------------------------------------- dmc(2) L.P., Washington/USA (consolidated pursuant to ss.290 (2) HGB) - - - ----------------------------------------------------------------------------------------------------------------------
* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec Royalty Co., Las Vegas/USA, dmc(2) Corporation, Washington/USA (formerly: Cerdec Corporation, Washington/USA), and Schilling's Graphics, Inc., Galion, Ohio/USA. ** Constitutes businesses which have been carved out of Degussa. 38
---------------------------------------------------------------------------------------------------------------------- Ordeg Co., Limited Seoul/South Korea 50.0 30.2 1.2 ---------------------------------------------------------------------------------------------------------------------- ICT-International Catalyst Technology Inc., Calvert City/USA 50.0 27.2 (0.2) ---------------------------------------------------------------------------------------------------------------------- ICT Co. Ltd., Osaka/Japan 50.0 20.7 0.1 ---------------------------------------------------------------------------------------------------------------------- Cerdec (Thailand) Co., Ltd., Bangkok/Thailand 49.0 7.7 0.6 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Metals (Thailand) Bangkok/Thailand 44.5 3.8 (0.3) ---------------------------------------------------------------------------------------------------------------------- Smaltochimica S.R.L., Spezzano di Fiorano M./Italy 40.0 2.7 0.3 ---------------------------------------------------------------------------------------------------------------------- Gardenia-Quimica S.A. Castellon/Spain 20.0 0.4 0.2 ---------------------------------------------------------------------------------------------------------------------- Chilches Materials, S.A. Alcora/Spain 20.0 0.9 - ---------------------------------------------------------------------------------------------------------------------- Nadir Allgemeine Soymetaller, Istanbul/Turkey 13.6 - - ---------------------------------------------------------------------------------------------------------------------- Norddeutsche Affinerie AG Hamburg/Germany 10.0 457.0 (13.0) ----------------------------------------------------------------------------------------------------------------------
39 SHAREHOLDINGS OF THE dmc(2) GROUP
AS AT DECEMBER 31, 2000 NAME AND LOCATION OF THE COMPANY EQUITY HOLDINGS EQUITY NET INCOME(LOSS) IN % DM MILL. DM MILL. ---------------------------------------------------------------------------------------------------------------------- Magmalor GmbH, Colditz/Germany 100.0 3.7 0.3 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Holding Co., Las Vegas/USA * 100.0 179.0 (4.7) (formerly: Cerdec Holding Co., Las Vegas/USA) ---------------------------------------------------------------------------------------------------------------------- dmc(2) France S.A., Limoges/France 100.0 21.9 1.1 (formerly: Cerdec France S.A., Limoges/France) ---------------------------------------------------------------------------------------------------------------------- Cerdec Iberica S.A., Castellon de la Plana/Spain ** 100.0 15.5 2.2 ---------------------------------------------------------------------------------------------------------------------- Cerdec Italia S.p.A., Fiorano/Italy 100.0 9.3 0.7 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Ltda., Americana/Brazil *** 100.0 90.1 15.9 (formerly: Cerdec Produtos Ceramicos Ltda., Americana/Brazil) ---------------------------------------------------------------------------------------------------------------------- dmc(2) S.A. de C.V., Mexico City/Mexico **** 100.0 18.0 1.1 (formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico) ---------------------------------------------------------------------------------------------------------------------- Cerpart S.R.L. Milan/Italy 100.0 13.1 (0.4) ---------------------------------------------------------------------------------------------------------------------- Colorificio Pardo S.p.A., Corlo/Italy 100.0 4.8 1.3 ---------------------------------------------------------------------------------------------------------------------- dmc(2) (UK) Ltd., Stoke-on-Trent/Great Britain 100.0 1.8 0.8 (formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Japan Ltd., Tokio/Japan 100.0 18.8 2.5 (formerly: Cerdec Japan Co. Ltd., Tokio/Japan) ---------------------------------------------------------------------------------------------------------------------- Degussa Skandinavien Katalysator AB, Karlskoga/Sweden 100.0 1.9 0.7 ---------------------------------------------------------------------------------------------------------------------- Italbras S.p.A. Vicenza/Italy 100.0 2.7 1.1 ---------------------------------------------------------------------------------------------------------------------- Icomeq Industria e Comercio Ltda., Guarulhos/Brazil 100.0 9.2 - ---------------------------------------------------------------------------------------------------------------------- dmc(2) Canada Corp., Burlington/Canada 100.0 22.3 3.0 ---------------------------------------------------------------------------------------------------------------------- Prometron GmbH Produkte fuer Elektronik und Elektrotechnik Hanau/Germany ***** 100.0 0.3 - ---------------------------------------------------------------------------------------------------------------------- Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina 100.0 0.5 (1.1) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Degussa Metals Catalyst Cerdec Southern Africa Ltd., Midrand/South Africa 100.0 0.7 0.8 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Electronic Materials B.V., Uden/Netherlands 100.0 12.2 3.1 ----------------------------------------------------------------------------------------------------------------------
40 dmc(2) Degussa Metals Catalysts Cerdec China Ltd., Hong Kong/China 100.0 2.5 0.2 ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst (Thailand) Ltd., Bangkok/Thailand 99.4 0.5 0.3 ---------------------------------------------------------------------------------------------------------------------- Clarex S.A., Guarulhos/Brazil 100.0 0.9 (0.2) ---------------------------------------------------------------------------------------------------------------------- Cerdec Ceramics GmbH, Oberursel, Germany 100.0 0.1 - ---------------------------------------------------------------------------------------------------------------------- Braze Tec GmbH, Hanau/Germany 100.0 0.2 - ---------------------------------------------------------------------------------------------------------------------- dmc(2) Italia S.p.A., Fiorano/Italy 100.0 2.8 (0.4) ---------------------------------------------------------------------------------------------------------------------- dmc(2) Pte Ltd., Singapore 100.0 0.4 - ---------------------------------------------------------------------------------------------------------------------- Degussa-NA Edelmetall GmbH, Hanau/Germany 100.0 1.4 0.7 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Istanbul Degussa Metal Katalizor Seramik Boyalari Ticaret Limited Sirketi Istanbul/Turkey 99.0 0.9 0.1 (formerly: Cerdec Istanbul Seramic Bogalari Ticaret, Istanbul/Turkey) ---------------------------------------------------------------------------------------------------------------------- Schoene Edelmetaal B.V., Amsterdam/Netherlands 90.8 10.8 1.2 ---------------------------------------------------------------------------------------------------------------------- Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend/Germany 90.8 12.7 4.4 ---------------------------------------------------------------------------------------------------------------------- Oesterreichische Gold- und Silberscheideanstalt GmbH, Vienna/Austria 90.8 8.2 3.0 ---------------------------------------------------------------------------------------------------------------------- Allgemeine Gold- und Silberscheideanstalt AG, Pforzheim/Germany 90.8 88.4 14.1 ---------------------------------------------------------------------------------------------------------------------- Allgemeine France S.A.R.L Brunstatt/France ****** 90.8 0.3 - ---------------------------------------------------------------------------------------------------------------------- Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda., Guarulhos/Brazil 78.0 23.6 16.5 ---------------------------------------------------------------------------------------------------------------------- Zibo Cerdec Ceramic Colours Co. Ltd., Zibo City, Shandong/China 60.0 21.2 5.0 ---------------------------------------------------------------------------------------------------------------------- PT Cerdec Indonesia, Sidoarjo/Indonesia 59.0 2.7 1.5 ---------------------------------------------------------------------------------------------------------------------- Degussa Catalyst Ltd., Port Elisabeth/South Africa 55.0 21.1 19.5 ---------------------------------------------------------------------------------------------------------------------- dmc Catalyst Port Elisabeth (Pty) Ltd., Port Elizabeth/South Africa 55.0 2.5 2.8 ---------------------------------------------------------------------------------------------------------------------- Thai Ceramic Colors Co. Ltd., Bangkok/Thailand 51.0 0.7 0.3 ---------------------------------------------------------------------------------------------------------------------- dmc(2) L.P., Washington/USA (consolidated pursuant to ss.290 (2) HGB) 1.0 110.1 34.3 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Electronic Components Inc., Newark (Delaware)/USA 100.0 3.2 (5.2) ----------------------------------------------------------------------------------------------------------------------
* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec Royalty Co., Las Vegas/USA, dmc(2) Corporation, Washington/USA (formerly: Cerdec Corporation, Washington/USA), Schilling's Graphics, Inc., Galion, Ohio/USA and Cerdec Ceramics Inc., Dallas/USA ** After consolidation of dmc(2) Degussa Metals Catalysts Cerdec Iberica, S.A., Castellon, Spain *** After consolidation of Cerdec Ceramics do Brasil Ltda., Americana/Brazil **** After consolidation of Cerdec Ceramics Mexico S.A. de C.V., Puebla, Mexico, and Demeca S.A. de C.V. San Juan Xalpa, Mexico ***** Figure as of December 31, 1999 ****** Net result before taxes 41 ---------------------------------------------------------------------------------------------------------------------- Ordeg Co., Limited Seoul/South Korea * 50.0 28.9 5.1 ---------------------------------------------------------------------------------------------------------------------- ICT-International Catalyst Technology Inc., Calvert City/USA 50.0 23.9 (5.4) ---------------------------------------------------------------------------------------------------------------------- ICT Co. Ltd., Osaka/Japan ** 50.0 18.6 (0.2) ---------------------------------------------------------------------------------------------------------------------- Cerdec (Thailand) Co., Ltd., Bangkok/Thailand 49.0 9.6 2.6 ---------------------------------------------------------------------------------------------------------------------- dmc(2) Metals (Thailand) Bangkok/Thailand *** 44.5 4.3 0.4 ---------------------------------------------------------------------------------------------------------------------- Smaltochimica S.R.L., Spezzano di Fiorano M./Italy 40.0 9.0 2.9 ---------------------------------------------------------------------------------------------------------------------- Gardenia-Quimica S.A. Castellon/Spain 36.0 5.7 1.7 ---------------------------------------------------------------------------------------------------------------------- Chilches Materials, S.A. Alcora/Spain 20.0 9.4 (0.1) ---------------------------------------------------------------------------------------------------------------------- Nadir Allgemeine Soymetaller, Istanbul/Turkey **** 13.6 - - ---------------------------------------------------------------------------------------------------------------------- Norddeutsche Affinerie AG Hamburg/Germany ***** 10.0 489.5 79.7 ----------------------------------------------------------------------------------------------------------------------
* Figure as of December 31,1999 ** Financial year from April 1, 1999 to March 31, 2000 *** Net result before taxes **** No other information available ***** Financial year from October 1, 1999 to September 30, 2000 BOARD MANAGEMENT Richard Adante 42 dmc(2) GROUP INTERIM CONDENSED COMBINED STATEMENTS OF OPERATIONS GERMAN GAAP (IN DEM THOUSANDS) (UNAUDITED)
Six Months Ended June 30, ------------------------------------ 2000 2001 ------------------------------------ Sales 5,993,876 6,784,068 Cost of sales (5,607,059) (6,449,300) ------------------------------------ GROSS PROFIT 386,817 334,768 Selling expenses (137,336) (146,705) General administrative expenses (85,659) (118,405) Research and development expenses (47,242) (60,226) Other operating income 46,009 102,102 Other operating expenses (60,258) (48,307) ------------------------------------ NET OPERATING INCOME 102,331 63,227 Income from investments, net 10,152 9,444 Write-down of investments - (252) Interest expense, net (26,128) (35,322) ------------------------------------ INCOME FROM ORDINARY ACTIVITIES BEFORE EXTRAORDINARY ITEMS AND INCOME TAXES 86,355 37,097 Extraordinary expense (2,700) (4,859) Income taxes (36,641) (19,886) ------------------------------------ NET INCOME 47,014 12,352 Dividend payment - (7,953) Minority interests (22,182) 2,035 (Loss) profit brought forward (7,042) 8,000 Transfer to reserves, net (13,790) (4,951) ------------------------------------ PROFIT AVAILABLE FOR DISTRIBUTION 4,000 9,483 ====================================
The accompanying notes are an integral part of the interim condensed combined financial statements. 43 dmc(2) GROUP INTERIM CONDENSED COMBINED BALANCE SHEET GERMAN GAAP (IN DEM THOUSANDS) (UNAUDITED)
June 30, 2001 ---------------- ASSETS Intangible assets 14,622 Property, plant and equipment, net 660,125 Investments 121,409 ---------------- NON-CURRENT ASSETS 796,156 Inventories, net 830,191 Trade accounts receivable, net 803,459 Accounts receivable from affiliated companies 78,638 Other accounts receivable and other assets 69,161 ---------------- ACCOUNTS RECEIVABLE AND OTHER ASSETS 951,258 Cash and cash equivalent 55,133 ---------------- CURRENT ASSETS 1,836,582 Deferred charges 72,264 ---------------- TOTAL ASSETS 2,705,002 ================ SHAREHOLDER'S EQUITY AND LIABILITIES Issued capital 50,000 Reserves 534,198 Profit available for distribution 9,483 Minority interests 129,619 ---------------- SHAREHOLDER'S EQUITY 723,300 Provisions for pensions and similar obligations 130,016 Other accrued liabilities 254,573 ---------------- ACCRUED LIABILITIES 384,589 Liabilities to banks 102,874 Trade accounts payable 290,613 Liabilities to affiliated companies 1,107,633 Other liabilities 93,394 ---------------- LIABILITIES 1,594,514 Deferred income 2,599 ---------------- TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES 2,705,002 ================
The accompanying notes are an integral part of the interim condensed combined financial statements. 44 dmc(2) GROUP INTERIM CONDENSED COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY GERMAN GAAP (IN DEM THOUSANDS) (UNAUDITED)
Investments Profit by and Available Advances Issued Capital Revenue For Minority from Capital Reserve Reserves Distribution Interests Degussa Total ------------------------------------------------------------------------------ AS OF DECEMBER 31, 1999 - - - - - 1,168,391 1,168,391 Formation (former Cerdec AG) 32,000 109,346 2,685 (7,042) - (136,989) - Contribution of precious metals and automotive catalysts divisions by Degussa 18,000 149,000 - - - (167,000) - Conversion of advances to liabilities - - - - - (689,269) (689,269) Conversion of advances to reserves - - 93,228 - - (93,228) - Conversion of advances to minority interest - - - - 81,905 (81,905) - Contribution from Degussa, net - 100,458 - - - - 100,458 Net income - - - 24,832 22,182 - 47,014 Dividends paid - - (18,110) - - - (18,110) Foreign currency translation adjustment - - 20,952 - - - 20,952 Reclassifications - - 13,790 (13,790) - - - ------------------------------------------------------------------------------ AS OF JUNE 30, 2000 50,000 358,804 112,545 4,000 104,087 - 629,436 ==============================================================================
Profit Available Issued Capital Revenue For Minority Capital Reserve Reserves Distribution Interests Total ============================================================================== AS OF DECEMBER 31, 2000 50,000 358,804 125,081 8,000 110,214 652,099 Net income - - - 14,387 (2,035) 12,352 Dividends paid - - - (7,953) - (7,953) Contribution by minority partner - - - - 21,440 21,440 Foreign currency translation adjustment - - 45,362 - - 45,362 Reclassifications - - 4,951 (4,951) - - ------------------------------------------------------------------------------ AS OF JUNE 30, 2001 50,000 358,804 175,394 9,483 129,619 723,300 ==============================================================================
The accompanying notes are an integral part of the interim condensed combined financial statements. 45 dmc(2) GROUP INTERIM CONDENSED COMBINED STATEMENTS OF CASH FLOWS GERMAN GAAP (IN DEM THOUSANDS) (UNAUDITED)
Six months ended June 30, 2000 2001 ------------------------ NET INCOME 47,014 12,352 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 41,146 46,362 (Gain)/loss on disposal of non-current assets 1,326 (255) Provision for deferred taxes 15,573 9,784 Loss from investments, net (10,152) (9,444) Write-down of non-current assets - 252 CHANGES IN OPERATING ASSETS AND LIABILITIES: Inventories, net (52,611) 42,322 Trade accounts receivable, net (193,188) (66,850) Accounts receivable from affiliated companies (118,859) (17,042) Other accounts receivable and assets 495 21,940 Deferred charges 8,170 (26,782) Provisions for pensions and similar obligations 77,366 6,067 Other accrued liabilities (23,397) (13,518) Advance payments received on orders (49) (2,102) Trade accounts payable 87,861 38,979 Liabilities to affiliated companies 49,707 37,194 Other liabilities 17,135 13,567 Deferred income 12,361 636 ------------------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (40,102) 93,462 INVESTING ACTIVITIES: Elimination of goodwill - 30,841 Purchase of intangible assets - (3,804) Capital expenditures (71,714) (107,746) Acquisition of business, net of cash acquired (8,745) - Proceeds from disposal of non-current assets 7,569 22,097 ------------------------ CASH USED IN INVESTING ACTIVITIES (72,890) (58,612) FINANCING ACTIVITIES: Borrowings from banks, net 750,119 (836,716) Net cash from (to) Degussa (636,406) 786,620 Contribution by minority interest - 21,440 ------------------------ CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 113,713 (28,656) Effect of exchange rate movements on cash (803) 1,793 ------------------------ CHANGE IN CASH AND CASH EQUIVALENTS (82) 7,987 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 70,605 47,146 ------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD 70,523 55,133 ========================
The accompanying notes are an integral part of the interim condensed combined financial statements. 46 NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS dmc(2) GROUP (IN DEM THOUSANDS) (UNAUDITED) (1) BASIS OF PREPARATION The accompanying combined financial statements were prepared in accordance with the provisions of the German Commercial Code ("Handelsgesetzbuch" - "HGB") and the German Stock Corporation Act ("Aktiengesetz" - "AktG"). These combined financial statements of the dmc(2) Group have been prepared in accordance with accounting principles generally accepted in Germany (German GAAP) as if the dmc(2) Group had always been an established legal group. (2) RECONCILIATION TO U.S. GAAP The interim combined financial statements are presented in accordance with German GAAP, which differ in certain significant respects from accounting principles generally accepted in the United States of America ("U.S. GAAP"). The significant differences that affect net income and shareholder's equity of dmc(2) Group are set forth below:
Six Months Ended June 30, Reconciliation of net income (loss) to U.S. GAAP: Note 2000 2001 ----------------------------------- Net income as reported in the combined statements of operations under German GAAP 47,014 12,352 Provisions and loss contingencies a) (2,550) (6,190) Valuation of inventory b) 503 (203) Deferred taxes c) 1,096 13,517 Foreign currency revaluation d) 3,652 (2,069) Pensions and post retirement benefits e) (3,240) (4,796) Allowance for doubtful accounts f) 8,541 (4,359) Valuation of securities g) 3,072 10 Valuation of fixed assets h) 24 2,713 Financial instruments i) 1,671 30,188 Purchase accounting of dmc(2) Group j) (17,093) (17,094) Purchase of minority interest in Cerdec AG k) (1,675) (1,672) Combination of majority-owned subsidiaries l) 5,171 4,779 Minority interests m) (7,058) (11,627) Equity method accounting n) (9,697) (3,322) Goodwill o) (2,913) 1,883 ------------------------- NET INCOME IN ACCORDANCE WITH U.S. GAAP 26,518 14,110 =========================
47
Six Months Ended June 30, Reconciliation of shareholder's equity Note to U.S. GAAP: 2000 2001 ------------------------------------------------- Shareholder's equity as reported in the combined statements of shareholder's equity under German GAAP 629,436 723,300 Provisions and loss contingencies a) 47,057 24,691 Valuation of inventory b) 5,009 3,453 Deferred taxes c) (149,579) (137,792) Foreign currency revaluation d) 7,453 (13) Pensions and post retirement benefits e) (3,721) (1,384) Allowance for doubtful accounts f) 17,877 4,497 Valuation of securities g) 92,385 46,114 Valuation of fixed assets h) 3,051 12,065 Financial instruments i) (415) 31,685 Purchase accounting of dmc(2) Group j) 618,200 577,605 Purchase of minority interest in Cerdec AG k) 45,721 42,377 Combination of majority - owned subsidiaries l) 25,162 13,291 Minority interests m) (24,129) (57,189) Equity method accounting n) (19,787) 4,591 Goodwill o) (24,883) (2,268) ----------------------------------------- SHAREHOLDER'S EQUITY IN ACCORDANCE WITH U.S. GAAP 1,268,837 1,285,023 =========================================
a) PROVISIONS AND LOSS CONTINGENCIES In accordance with German GAAP, dmc(2) Group recognized provisions for expected costs to be incurred for certain restructurings and other anticipated future costs. Under U.S. GAAP, the recognition criteria for such provisions are more stringent and require a number of prescribed conditions be satisfied before a liability can be recorded. b) VALUATION OF INVENTORY Under German GAAP, dmc(2) Group capitalizes overhead costs in accordance with German tax law, which excludes certain indirect and other costs. Under U.S. GAAP, manufacturing overhead costs include all indirect material, labor and overhead costs. Under German GAAP, raw materials inventory is valued at the lower of average purchase cost or market price, similar to U.S. GAAP. However, for German GAAP purposes, market price is the lower of replacement cost and net realizable value. Differences may arise where sales prices are contracted at period end. In accordance with German GAAP, LIFO layers are created in each period for each metal. A lower of cost or market assessment is performed every period for each metal layer. For U.S. GAAP purposes, the lower of cost or market assessment is applied to an entire metal position. Under U.S. GAAP, the inventory was revalued as a result of the purchase accounting described in Note 33 (j). c) DEFERRED TAXES Under German GAAP, deferred tax assets and liabilities are generally recognized for temporary differences between book carrying values and tax bases of assets and liabilities, with the exception of deferred tax assets relating to net operating loss carry forwards which are recognized to the extent of offsetting deferred tax liabilities. Deferred tax assets are recognized to the extent they are expected to be realized. Under U.S. GAAP, deferred tax assets and liabilities for temporary differences using enacted tax rates in effect at period-end are recognized in accordance with Statement of Financial Accounting Standards No., 109 "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, net operating loss carryforwards that are available to reduce future taxes are recognized as deferred tax assets. Such amounts are reduced by a valuation allowance to the extent that it is more likely than not that the deferred tax assets will not be realized. The deferred tax adjustment included in the above reconciliation to U.S. GAAP also contains the income tax effects of the above U.S. GAAP adjustments, where appropriate. d) FOREIGN CURRENCY REVALUATION Under German GAAP, foreign currency denominated 48 receivables (payables) are translated at the lower (higher) of the period-end spot rate or contracted rate, respectively. Under U.S. GAAP, assets and liabilities denominated in a foreign currency are recorded at current exchange rates at period-end with any resulting adjustments in operating results. e) PENSIONS AND POST RETIREMENT BENEFITS For German GAAP, certain increases in pension and other similar obligations are recognised immediately in earnings. Under U.S. GAAP, changes in pension and similar obligations (including those resulting from plan amendments) are not recognised as they occur but are recognised systematically and gradually over subsequent periods. Following the Formation of dmc(2) Group as a legal entity in 2000, certain pension plans were amended to increase benefits as well as expand the number of participants. As part of the Formation of the dmc(2) Group, Degussa assumed the liability for certain dmc(2) Group employees retired as of January 1, 2000. Under German GAAP the pension expense associated to these retired employees is not included in income for the year ended December 2000. For U.S. GAAP, pension costs associated with the retired employees has been reflected in the U.S. GAAP reconciliation. f) ALLOWANCE FOR DOUBTFUL ACCOUNTS In addition to specific reserves, dmc(2) Group also maintains a general allowance as well as a country risk allowance for German GAAP purposes. For U.S. GAAP purposes, these allowances were reversed except for the amounts based upon dmc(2) Group's historical loss experience. g) VALUATION OF SECURITIES Under German GAAP, marketable debt and equity securities are generally carried at the lower of cost or market value. Under U.S. GAAP, marketable debt and equity securities other than investments accounted for by the equity method, are categorized as either trading, available-for-sale, or held to maturity. Securities classified as trading or available-for- sale are reported at fair value at the balance sheet date and held to maturity securities are reported at historical cost. Unrealized gains and losses on trading securities are recorded in net income while unrealized gains and losses on securities categorized as available-for-sale are recorded in shareholder's equity, net of income tax. h) VALUATION OF FIXED ASSETS Under German GAAP, capitalization of certain construction project costs is not required. Under U.S. GAAP, certain project costs are required to be capitalized. Further, capitalization of interest during the construction phase of the project is permitted but not required under German GAAP. Under U.S. GAAP, interest is capitalized during the construction phase of major construction projects. Capitalized interest and other costs are added to the cost of underlying assets and are depreciated over the useful life of the asset. i) FINANCIAL INSTRUMENTS Under German GAAP, the fair values of precious metal futures contracts are netted amongst their respective metal portfolios with any resultant unrealized loss recognized in earnings. Under U.S. GAAP, each metal future contract is marked to market with both positive or negative fair values recognized in earnings. Under German GAAP, negative fair values of foreign currency forwards and interest rate swaps contracted with third parties are recognized in earnings. For U.S. GAAP, positive and negative fair values are recognized in earnings. Precious metal leases are treated off balance sheet under German GAAP since title and ownership of the leased metal do not pass to the lessee. Precious metal leases were similarly treated for U.S. GAAP until the adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended on January 1, 2000. After adoption, precious metal leases are treated as derivative instruments. Therefore, changes in fair values are reported in earnings. 49 j) PURCHASE ACCOUNTING OF dmc(2) GROUP E.ON AG (formerly Veba AG) acquired Degussa, including the related assets and liabilities of the dmc(2) Group, in two separate transactions. The initial 36,4 % ownership interest was acquired in December 1997 with the remaining 63,6 % interest acquired in February 1999. For German GAAP purposes, the recorded amounts of dmc(2) Group's assets acquired and liabilities assumed by E.ON AG remained at historical cost basis. For U.S. GAAP purposes, a new basis of accounting is established for dmc(2) Group's assets and liabilities based upon the fair values of the respective assets acquired and liabilities assumed by E.ON AG at each acquisition date. As a result of the new basis of accounting, shareholder's equity was increased and additional charges reflected in the reconciliation of net income for the effects of increases in cost of sales, depreciation expense of tangible and intangible assets, and related deferred taxes. The deferred tax effect is reflected in Note 2(c) above. k) PURCHASE OF MINORITY INTEREST IN CERDEC AG In March 1999, Degussa AG purchased the remaining minority interest of 30% in Cerdec AG from Ciba Geigy. In accordance with German GAAP, the excess of the acquisition cost of the minority interest acquired over the fair value of the net assets acquired is offset against shareholder's equity. Under U.S. GAAP, goodwill is capitalized and depreciated over its useful life. dmc(2) Group's policy is to depreciate goodwill over 15 years. l) COMBINATION OF MAJORITY-OWNED SUBSIDIARIES dmc(2) Group does not combine a number of investments in domestic and foreign companies in its combined financial statements under German GAAP. For U.S. GAAP, the number of companies consolidated in the combined financial statements has been increased. The remaining companies not included in the scope of the consolidation for U.S. GAAP purposes are not material to the combined shareholder's equity, financial position, and net operating results. Combination of dmc(2) L.P. dmc(2) L.P. is consolidated under German GAAP with Degussa's 99 % interest in equity and earnings shown as minority interests. As these combined financial statements are prepared with respect to the sale of dmc(2) Group to OMG and OMG has purchased the remaining 99 % interest of dmc(2) L.P. from Degussa as part of this agreement, dmc(2) L.P. has been fully consolidated with no minority interests for U.S. GAAP purposes. m) MINORITY INTERESTS Under German GAAP, minority interest is included as a separate component of shareholder's equity and is not adjusted in determining net income. Under U.S. GAAP, minority interest is not shown as equity and is adjusted in determining net income. 50 n) EQUITY METHOD ACCOUNTING In accordance with German GAAP, investments in associated companies subject to significant influence (generally entities which are 20 - 50 % owned) are not required to be accounted for under the equity method, if certain materiality tests are met, and can be recorded under the cost method (and, if applicable, the lower of cost or market value). Under U.S. GAAP, investments in associated companies are recorded using the equity method of accounting if the investor has significant influence over the operating or financial decisions of the investee. For both German GAAP and U.S. GAAP, the balance of each investment is increased or decreased, as appropriate, to account for the investor's proportionate share of the investee earnings, less dividends received. Under German GAAP, based on materiality it is permissible to consolidate foreign associated companies on the basis of their local accounting principles, not restated for German GAAP. Foreign associated companies have been converted to U.S. GAAP for consolidation purposes in the U.S. GAAP reconciliation. For German GAAP, in cases where the associated company's financial year end differs from the investor's year end, the associated company's previous financial information is utilized for consolidation. For U.S. GAAP, financial information of associated companies for periods ended within 90 days of the year end of the associated investor's financial year end. o) GOODWILL In accordance with German GAAP, goodwill was either charged directly to shareholder's equity or capitalized and depreciated over 15 years. For U.S. GAAP purposes all goodwill is capitalized and depreciated over 15 years. The effect of goodwill adjustments arising from the E.ON AG acquisition of Degussa and the acquisition of the minority interest in Cerdec AG is included in notes 33(j) and 33(k), respectively. EXTRAORDINARY INCOME (EXPENSE) The items classified as extraordinary income (expense) under German GAAP would not be presented as extraordinary items for U.S. GAAP purposes. (3) Subsequent Event On August 10, 2001, Degussa forgave approximately DM 1,109,427 of affiliate advances due from dmc(2) Group to Degussa AG. 51 OM GROUP, INC. AND dmc(2) GROUP UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements have been prepared by OMG's management in accordance with generally accepted accounting principles in the United States. These pro forma financial statements reflect OMG's acquisition of dmc(2) Group on August 10, 2001 and combine for the periods or date indicated the historical consolidated financial statements of OMG and dmc(2) Group, using the purchase method of accounting. The unaudited pro forma combined statements of income reflect adjustments as if the acquisition had occurred at the beginning of the period presented. These pro forma financial statements should be read in conjunction with the historical financial statements and related notes of OMG and dmc(2) Group. The pro forma financial statements include preliminary estimates and assumptions that OMG's management believes are reasonable. The pro forma results are not necessarily indicative of the results which would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future, and do not include any adjustments or other effects of the planned integration of OMG and dmc(2) Group not calculated or prepared in accordance with Article 11-02 of Regulation S-X. The pro forma financial statements have been prepared using the following facts and assumptions: 1. OMG acquires all the businesses of dmc(2) Group in exchange for a total cash payment of $1.072 billion. 2. OMG sells the electronic materials, performance pigments, glass systems and Cerdec ceramics divisions of dmc(2) Group for a cash purchase price of $525.5 million, the proceeds from which were used to reduce a portion of debt issued in connection with the acquisition. 3. OMG borrows $594.9 million, consisting of $546.5 million to finance the acquisition price, and estimated financing and related transaction costs of $48.4 million. 4. OMG issues 3.5 million additional shares of its common stock and uses the net proceeds of $200 million to retire a portion of the outstanding debt associated with the acquisition. 5. The acquired assets and liabilities of dmc(2) Group are recorded at estimated fair values, as determined by OMG's management, based on information currently available and on current tentative assumptions as to the future operations of dmc(2) Group. OMG is in the process of obtaining independent appraisals of the acquired property, plant and equipment, intangible assets, and estimates of their remaining useful lives. OMG is also reviewing and determining the fair value of the other assets acquired and liabilities assumed. Accordingly, the allocation of the purchase price to the acquired assets and liabilities of dmc(2) Group is subject to revision as a result of the final determination of the purchase price and of appraised and other fair values. The preliminary allocation of the aggregate purchase price of businesses acquired of dmc(2) Group, and the recognition of the excess of aggregate purchase price over the estimated fair value of net assets acquired, is as follows (in millions): Adjust acquired inventories to estimated fair value $124.0 Adjust acquired property, plant and equipment to estimated fair value 22.0 Record preliminary adjustment for acquired intangible assets 18.0 Record preliminary estimate of goodwill 45.1 Elimination of acquired goodwill (46.4) Record estimated financing costs 32.0 Establish environmental accrual (9.0) Establish deferred tax liability resulting from the application of purchase accounting (67.5) Elimination of debt not assumed 446.8 Eliminate net equity acquired 29.9 ----------- Aggregate purchase price and related transaction costs $594.9 ===========
52 OM GROUP, INC. AND dmc(2) GROUP UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Pro Forma Adjustments ------------------------------------ dmc(2) PRO OMG GROUP TRANSACTION DIVISIONS FORMA HISTORICAL HISTORICAL ADJUSTMENTS SOLD COMBINED ------------------------------------------------------------------------------- Net sales $887.7 $6,101.5 $(545.6) $6,443.6 Cost of products sold 673.9 5,765.2 $ 2.2 (1a) (395.2) 6,046.1 ------------ --------------- --------------- ------------ ------------- 213.8 336.3 (2.2) (150.4) 397.5 Selling, general and administrative expenses 75.4 282.8 (5.0)(1b,c) (132.6) 220.6 ------------ --------------- --------------- ------------ ------------- Income from operations 138.4 53.5 2.8 (17.8) 176.9 Other income (expense) Interest expense, net (37.4) (26.1) (12.0) (1d,e) 9.4 (66.1) Other (1.1) (3.7) (2.0) (6.8) ------------ --------------- --------------- ------------ ------------- (38.5) (29.8) (12.0) 7.4 (72.9) Income before income taxes 99.9 23.7 (9.2) (10.4) 104.0 Income taxes 28.4 (18.8) 25.2 (1f,g) (4.7) 30.1 ------------ --------------- --------------- ------------ ------------- Net income $ 71.5 $ 42.5 $(34.4) $ (5.7) $ 73.9 ============ =============== =============== ============ ============= Weighted average number of common shares outstanding (in millions) 23.8 3.5 27.3 Net income per common share $2.99 $2.71 Weighted average number of common shares outstanding (in millions) - assuming dilution 24.3 3.5 27.8 Net income per common share - assuming dilution $2.95 $2.66
53 OM GROUP, INC. AND dmc(2) GROUP NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME The adjustments to give pro forma effect to OMG's acquisition of dmc(2) Group for the year ended December 31, 2000 and the estimated purchase price allocation are as follow: 1. To reflect OMG's acquisition on dmc(2) Group (in millions) a. Adjust depreciation expense of property, plant and equipment over a 10 year life $ 2.2 b. Recognize reduction in goodwill amortization related to acquired goodwill (6.2) c. Adjust amortization expense for acquired intangible assets over a 15 year life 1.2 d. Recognize additional interest expense due to $394.9 million increase in consolidated long-term debt to finance the acquisition and related transaction costs, assuming a weighted average interest rate of 9.1%, reduced by the elimination of interest expense on debt not assumed. An increase in the LIBOR rate of 1/8 of 1% would increase annual pro forma interest expense by approximately $0.1 million. 7.1 e. Amortize the estimated financing costs over the life of the related debt 4.9 f. Record the income tax effect of the previous adjustments assuming a 35% income tax rate 5.4 g. To adjust for the one-time effect of certain non-recurring items, including a reduction in the statutory tax rate in Germany and changes in German tax law regarding unrealized gains on marketable securities (30.6)
54 OM GROUP, INC. AND dmc(2) GROUP UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Pro Forma Adjustments ------------------------------------- dmc(2) PRO OMG GROUP TRANSACTION DIVISIONS FORMA HISTORICAL HISTORICAL ADJUSTMENTS SOLD COMBINED ------------ --------------- --------------- -------- ------------ ------------- Net sales $1,285.5 $3,614.7 $(294.5) $4,605.7 Cost of products sold 1,067.4 3,431.8 $ 1.3 (1a) (220.0) 4,280.5 ------------ --------------- --------------- ------------ ------------- 218.1 182.9 (1.3) (74.5) 325.2 Selling, general and administrative expenses 94.2 144.9 (3.0) (1b,c) (76.7) 159.4 ------------ --------------- --------------- ------------ ------------- Income from operations 123.9 38.0 1.7 2.2 165.8 Other income (expense) Interest expense, net (37.9) (19.9) (1.5) (1d,e) 3.9 (55.4) Other (1.4) 4.5 (0.7) 2.4 ------------ --------------- --------------- ------------ ------------- (39.3) (15.4) (1.5) 3.2 (53.0) Income before income taxes 84.6 22.6 0.2 5.4 112.8 Income taxes 24.3 12.6 (5.6) (1f,g) (0.5) 30.8 ------------ --------------- --------------- ------------ ------------- NET INCOME $ 60.3 $ 10.0 $ 5.8 $ 5.9 $ 82.0 ============ =============== =============== ============ ============= Weighted average number of common shares outstanding (in millions) 24.0 3.5 27.5 Net income per common share $2.51 $2.98 Weighted average number of common shares outstanding (in millions) - assuming dilution 24.4 3.5 27.9 Net income per common share - assuming dilution $2.47 $2.94
55 OM GROUP, INC. AND dmc(2) GROUP NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME The adjustments to give pro forma effect to OMG's acquisition of dmc(2) Group for the nine months ended September 30, 2001 and the estimated purchase price allocation are as follows: 1. To reflect OMG's acquisition of dmc(2) Group (in millions) a. Adjust depreciation expense of property plant and equipment over a 10 year life $1.3 b. Recognize reduction in goodwill amortization related to acquired goodwill (3.7) c. Adjust amortization expense for acquired intangible assets over a 15 year life 0.7 d. Recognize additional interest expense due to $394.9 million increase in consolidated long-term debt to finance the acquisition and related transaction costs, assuming a weighted average interest rate of 8.9%, reduced by elimination of interest expense on debt not assumed, and adjusted for the difference in interest rates between the bridge notes and the permanent financing. An increase in the LIBOR rate of 1/8 of 1% would increase interest expense by $0.1 million. (1.4) e. Amortize the estimated financing costs over the life of the related debt 2.9 f. Record the income tax effect of the previous adjustments assuming a 35% income tax rate 1.3 g. Adjust tax expense for the acquired business to reflect the tax structure of the combined organization 4.3
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