31
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549 - 1004
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2001
--------------
COMMISSION FILE NUMBER 0-2413
-------
MacDermid, Incorporated
-----------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0435750
-------------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 Freight Street, Waterbury, Connecticut 06702
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 575-5700
---------------
March 31st .
----------------------------------------------------
Former name, former address or former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
--- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 2001
---------------------- -----------------------------
Common Stock, no par value 32,153,347 shares
MACDERMID, INCORPORATED
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 2001 and March 31, 2001
Consolidated Condensed Statements of Earnings
And Retained Earnings - Three Months Ended
June 30, 2001 and 2000
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 2001 and 2000
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Part II. Other Information
Signatures
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
June 30, March 31,
2001 2001
------------ -----------
Assets (Unaudited) (Audited)
Current Assets:
Cash and Equivalents $ 15,512 $ 12,546
Accounts and Notes Receivable, (Net
of Allowance for Doubtful
Receivables of $13,100 and $11,758) 182,620 194,764
Inventories
Finished Goods 77,346 75,788
Raw Materials 63,548 65,725
------------ -----------
140,894 141,513
Prepaid Expenses 8,088 6,365
Deferred Income Tax Asset 10,415 10,346
------------ -----------
Total Current Assets 357,529 365,534
Property, Plant and Equipment (Net
of Accumulated Depreciation of
($125,924 and $112,278) 174,139 183,578
Goodwill (Net Accumulated
Amortization of $36,062) 239,139 236,098
Intangibles, including
Patents/Trademarks (Net of
Accumulated Amortization
of $37,340 and $36,077) 66,135 67,135
Other Assets 46,671 32,480
----------- -----------
$ 883,613 $ 884,825
============ ===========
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
June 30, March 31,
2001 2001
------------ -----------
Liabilities and Shareholders' Equity (Unaudited) (Audited)
Current Liabilities:
Notes Payable $ 14,507 $ 11,748
Current Installments of Long-Term
Obligations 4,257 68,517
Accounts & Dividends Payable 78,974 81,827
Accrued Expenses 65,017 67,118
Income Taxes 13,486 10,635
----------- -----------
Total Current Liabilities 176,241 239,845
Long-Term Obligations 444,358 392,619
Accrued Post-Retirement &
Postemployment Benefits 16,879 17,355
Deferred Income Taxes 4,403 4,337
Other Long-Term Liabilities 4,181 --
Minority Interest 2,616 --
Shareholders' Equity
Common Stock Stated Value
$1.00 per Share 46,410 45,408
Additional Paid-In Capital 15,447 16,437
Retained Earnings 256,716 249,460
Cumulative Comprehensive
Income Equity Adjustments
(Note 5) (25,331) (22,329)
Less: Cost of 14,277,610 Common
Shares in Treasury (Note 3) (58,307) (58,307)
----------- -----------
Total Shareholders' Equity 234,935 230,669
------------ -----------
$ 883,613 $ 884,825
============ ===========
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
(Amounts in Thousands of Dollars Except Share and Per Share Amounts)
(Unaudited)
Three Months Ended June 30,
2001 2000
----------------------------- ------------
Net Sales $ 185,094 $ 187,063
Cost and Expenses:
Cost of Sales 107,035 95,407
Selling, Technical, Administrative
Expenses 54,646 56,002
Amortization 1,982 4,895
Interest Income (239) (503)
Interest Expense 8,516 7,684
Other Expense (net) 659 1,768
----------------------------- ------------
172,599 165,253
----------------------------- ------------
Earnings Before Taxes and
Minority Interest 12,495 21,810
Income Taxes 4,623 8,026
Minority Interest 27 --
----------------------------- ------------
Net Earnings 7,899 13,784
Retained Earnings, Beginning of Period 249,460 217,149
Cash Dividends Declared (643) (623)
----------------------------- ------------
Retained Earnings, End of Period $ 256,716 $ 230,310
============================= ============
Net Earnings Per Common Share - (Note 4):
Basic $ 0.25 $ 0.44
============================= ============
Diluted $ 0.24 $ 0.43
============================= ============
Cash Dividends Per Common Share $ 0.02 $ 0.02
============================= ============
Weighted Average Common Shares
Outstanding:
Basic 31,512,474 31,154,826
============================= ============
Diluted 32,389,340 32,415,236
============================= ============
See accompanying notes to consolidated condensed financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands of Dollars)
(Unaudited)
Three Months Ended June 30,
2001 2000
----------------------------- ---------
Net Cash Flows from Operating Activities $ 16,715 $ 10,462
Cash Flows from Investing Activities:
Capital Expenditures (2,579) (2,069)
Proceeds from Disposition of Fixed Assets 173 21
Acquisitions of Business -- (54,280)
Minority Interest 2,616 --
----------------------------- ---------
Net Cash Flows from/(used in)
Investing Activities 210 (56,328)
Cash Flows from Financing Activities:
Short-Term (Repayments)/Borrowings (2,334) (2,555)
Long-Term Borrowings 356,695 59,650
Long-Term Repayments (361,057) (13,542)
Bond Financing Fees (6,500) --
Dividends Paid (643) (623)
----------------------------- ---------
Net Cash Flows (used in)/from
Financing Activities (13,839) 42,930
Effect of Exchange Rate Changes
On Cash and Cash Equivalents (120) (216)
----------------------------- ---------
Increase/(Decrease) in Cash and
Cash Equivalents 2,966 (3,152)
Cash and Cash Equivalents at
Beginning of Year 12,546 20,116
----------------------------- ---------
Cash and Cash Equivalents
At End of Period $ 15,512 $ 16,964
============================= =========
Cash Paid for Interest $ 7,043 $ 7,354
============================= =========
Cash Paid for Income Taxes $ 4,343 $ 3,561
============================= =========
See accompanying notes to consolidated condensed financial statements.
MACDERMID, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Amounts In Thousands of Dollars)
Note 1. Summary of Significant Accounting Policies
The March 31, 2001 condensed consolidated balance sheet amounts have been
derived from the previously audited consolidated balance sheets of MacDermid,
Incorporated (the Corporation). The balance of the condensed financial
information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented and are of a normal
recurring nature unless otherwise disclosed in this report. The results of
operations for the three month periods ended June 30, 2001 and 2000 are not
necessarily indicative of trends or of the results to be expected for the full
year. The statements should be read in conjunction with the notes to the
consolidated financial statements included in the Corporation's 2001 Annual
Report.
The Board of Directors on May 21, 2001 voted to change the Corporation's fiscal
year to December 31st. The next fiscal year end is December 31, 2001.
Accordingly, the first SEC report affected by this change will be the Form 10-K,
covering the nine month transition period.
Note 2. Goodwill and Other Intangible Assets
The Corporation has elected for early adoption of Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS142).
The fair value of goodwill was deemed to be in excess of the carrying value upon
adoption using the expected value of future cash flows.
Acquired intangible assets as of June 30, 2001 are as follows:
Gross Carrying Accumulated
Amount Amortization
--------------- --------------
Patents $ 42,748 $ (9,148)
Trademarks 30,337 (8,305)
Customer Base 7,063 (608)
Manufacturing Process 5,252 (5,252)
Other 18,075 (14,027)
--------------- --------------
Total $ 103,475 $ (37,340)
Aggregate estimated amortization expense for the year ended December 31, 2001
(nine month transition period): $3,680
Estimated amortization expense is as follows:
For the year ended December 31, 2002 $4,900
For the year ended December 31, 2003 $4,900
For the year ended December 31, 2004 $4,900
For the year ended December 31, 2005 $4,900
For the year ended December 31, 2006 $4,900
The carrying amounts of Goodwill, identified for the following segments;
Advanced Surface Finishes ("ASF"), Graphic Arts ("GA") and Electronics
Manufacturing ("EM"), as of June 30, 2001, are as follows:
ASF GA EM Total
--------- ------- ------- --------
Balance as of April 1, 2001 $115,878 $96,042 $24,178 $236,098
Goodwill acquired during the year -- -- 2,930 2,930
Effects of currency translation (82) 193 -- 111
--------- ------- ------- --------
Balance as of June 30, 2001 $115,796 $96,235 $27,108 $236,139
Additional Transitional Disclosures: Three Months Ended June 30,
2001 2000
---------------------------- -------
Reported net income $ 7,899 $13,784
Add back: Goodwill amortization -- 1,725
---------------------------- -------
Adjusted net income $ 7,899 $15,509
Basic Earnings Per Share:
Reported net income $ 0.25 $ 0.44
Goodwill amortization -- $ 0.06
---------------------------- -------
Adjusted net income $ 0.25 $ 0.50
Diluted Earnings Per Share:
Reported net income $ 0.24 $ 0.43
Goodwill amortization -- $ 0.05
---------------------------- -------
Adjusted net income $ 0.24 $ 0.48
Note 3. Common Share Data
The following table summarizes common shares issued as of June 30, 2001 and
2000.
2001 2000
---------- -----------
Balance beginning of year 45,408,464 45,412,325
Shares issued - warrants exercised 1,001,293 --
Shares cancelled - stock awards -- (3,304)
Balance end of period 46,409,757 45,409,021
On July 22, 1998 the Board of Directors authorized the Corporation to purchase
up to 1,000,000 shares of its common stock. On February 17, 1999, the Board of
Directors reduced this authorization to 200,000 shares. At June 30, 2001, there
remained authorization to purchase approximately 174,000 shares. Such
additional shares may be acquired through privately negotiated transactions or
on the open market from time to time. Any future repurchases by MacDermid will
depend on various factors, including the market price of the shares, the
Corporation's business and financial position and general economic and market
conditions. Additional shares acquired pursuant to such authorization will be
held in the Corporation's treasury and will be available for the Corporation to
issue for various corporate purposes without further shareholder action (except
as required by applicable law or the rules of any securities exchange on which
the shares are then listed).
Note 4. Earnings Per Common Share
The computation of basic earnings per share is based upon the weighted average
number of outstanding common shares. The computation of diluted earnings per
share is based upon the weighted average number of outstanding common shares
plus the effect of all dilutive potential common shares that were outstanding
during the period. Earnings per share is calculated based upon net earnings
available for common shareholders.
The following table reconciles basic weighted-average common shares outstanding
to diluted weighted-average common shares outstanding.
2001 2000
---------- ----------
Basic Common Shares 31,491,274 31,143,420
Dilutive effect of stock options 257,155 270,464
Dilutive effect of warrants 640,911 1,001,352
---------- ----------
Diluted Common Shares 32,389,340 32,415,236
Note 5. Comprehensive Income and Cumulative Comprehensive Equity Adjustment
The components of comprehensive income for the three month periods ended June
30, 2001 and 2000 are as follows:
Three Months Ended June 30,
2001 2000
----------------------------- --------
Net Earnings $ 7,899 $13,784
Other Comprehensive Income:
Cumulative Foreign Currency
Translation Adjustment (2,744) (106)
Derivative Instruments and
Hedging Activities (258) --
----------------------------- --------
Comprehensive Income $ 4,897 $13,678
============================= ========
The components of cumulative comprehensive income equity adjustment as of June
30, 2001 and March 31, 2001 are as follows:
June 30, March 31,
2001 2001
---------- -----------
Cumulative Foreign Currency
Translation Adjustment $ (15,403) $ (12,659)
Additional Minimum Pension Liability (9,670) (9,670)
Derivative Instruments
And Hedging Activities (258) --
---------- -----------
Comprehensive Income $ (25,331) $ (22,329)
---------- -----------
Note 6. Segment Reporting
The Corporation provides development, manufacture and technical service for a
large variety of specialty chemical processes and related equipment in two
reportable operating segments: Advanced Surface Finishes and Graphic Arts. In
addition, the Corporation operates a third reportable segment for the design and
manufacture of printed circuit boards. These three segments under which the
Corporation operates on a worldwide basis are managed separately as each segment
has differences in technology and marketing strategies. The chemicals supplied
by Advanced Surface Finishes are used for a broad range of purposes including
finishing metals and non metallic surfaces, electro-plating metal surfaces,
etching, imaging, metalization, offshore fluids and cleaning. The chemicals
supplied by Graphic Arts are used for diverse purposes including offset
blankets, printing plates, textile blankets and rubber-based covers for
industrial rollers used in the printing industry. The Electronics Manufacturing
segment produces a wide variety of single-sided and double-sided printed circuit
boards.
The business segments reported below are the segments of the Corporation for
which separate financial information is available and for which operating
results are reviewed by executive management to assess performance of the
Corporation. The accounting policies of the business segments are the same as
those described in the summary of significant accounting policies, Note 1.
Net sales for all of the Corporation's products fall into one of the three
business segments. The business segment results of operations include certain
operating costs, which are allocated based on the relative burden each segment
bears on those costs. Operating income amounts are evaluated before amortization
of intangible assets and non-recurring charges. The business segment
identifiable assets which follow are reconciled to total consolidated assets
including unallocated corporate assets which consist primarily of deferred tax
assets, equity method investments and certain other long term assets not
directly associated with the support of the individual operations.
Segment Results of Operations:
Three Months Ended June 30,
2001 2000
----------------------------- ---------
Net Sales
Advanced Surface Finishes $ 86,911 $113,490
Graphic Arts 74,845 73,573
Electronics Manufacturing 23,338 --
----------------------------- ---------
Consolidated Net Sales $ 185,094 $187,063
----------------------------- ---------
Operating Income
Advanced Surface Finishes $ 14,002 $ 23,185
Graphic Arts 11,401 12,469
Electronics Manufacturing (1,990) --
Amortization Expense (1,982) (4,895)
----------------------------- ---------
Consolidated Operating Income $ 21,431 $ 30,759
Interest Income 239 503
Interest Expense (8,516) (7,684)
Other (Expense) Income - net (659) (1,768)
Earnings before Income Taxes
----------------------------- ---------
And Minority Interest $ 12,495 $ 21,810
----------------------------- ---------
Segment Identifiable Assets:
June 30, 2001 March 31, 2001
-------------- ---------------
Advanced Surface Finishing $ 427,910 $ 426,869
Graphic Arts 342,976 345,849
Electronics Manufacturing 91,295 91,665
Corporate-wide 21,432 20,442
-------------- ---------------
Consolidated Assets $ 883,613 $ 884,825
============== ===============
Note 7. Restructuring Charges and Acquisition Liabilities
The Corporation embarked on a restructuring program beginning in the second
quarter of fiscal 2001 in order to strategically reposition its operations. In
connection with these actions, there was a $6,663 restructuring charge taken in
fiscal year 2001. This charge represents, primarily, management and office
support redundancies of approximately 165 individuals. Approximately 150
employees have severed in accordance with the plan as of June 30, 2001. The
resulting cash payments and other charges, including payments of $518 for the
three months ended June 30, 2001, are summarized, cumulative, since inception,
on the following table:
Inception Payments Accrued, end of Period
---------- --------- -----------------------
Severance $ 6,133 $ 4,406 $ 1,727
Lease/Asset write-offs 530 455 75
---------- --------- -----------------------
Total $ 6,663 $ 4,861 $ 1,802
The Corporation established purchase liabilities (included in accrued expenses)
in fiscal year 1999 when recording the acquisition of W.Canning, plc. The
reorganization of employees has been completed. The reorganization of
facilities is proceeding as planned. Five facilities have been closed with
those activities assimilated elsewhere. Negotiations are ongoing regarding the
elimination of leased facilities and sale of owned facilities.
The following table summarizes the cumulative activity to this account, since
inception, including payments of $80 for the three months ended June 30, 2001:
Inception Adjustments Payments Accrued, end of Period
---------- ----------- -------- -----------------------
Facilities $ 4,200 885 3,073 $ 2,727
Redundancies 2,050 3,100 5,150 0
Environmental 2,000 0 120 1,880
---------- ----------- -------- -----------------------
Total $ 8,250 3,985 8,343 $ 3,892
Note 8. Market Risk and Contingencies
Market Risk
The Corporation is exposed to market risk in the normal course of its business
operations due to its operations in different foreign currencies and its ongoing
investing and financing activities. The risk of loss can be assessed from the
perspective of adverse changes in fair values, cash flows and future earnings.
The Corporation has established policies and procedures governing its management
of market risks and the use of financial instruments to manage exposure to such
risks.
The Corporation is exposed to interest rate risk primarily from its credit
facility, which is based upon various floating rates. At June 30, 2001, the
Corporation had entered into interest rate swaps with an aggregate notional
amount that approximates 80% of its borrowings on this facility. The resulting
weighted-average fixed interest rate is 6.7%. Based upon expected levels of
borrowing under this facility, in the current year, an increase in interest
rates of 100 basis points would result in an incremental $1.4 million interest
expense. Also, see Note 9 Bond Offering, for additional information.
The Corporation operates manufacturing facilities in ten countries and sells
products in over 25 countries. Approximately 50% of the Corporation's sales are
denominated in currencies other than the US Dollar, predominantly the Pound
Sterling, currencies pegged to the Euro, the Yen, Hong Kong and New Taiwan
Dollars. For the period ending June 30, 2001, there was a negative impact on
earnings of approximately $0.01 per share, or approximately 4%. Those earnings
are generally reinvested locally and the impact on operating cash flows has been
less than $3,500 annually. Management continually reviews the balance between
foreign currency denominated assets and liabilities in order to minimize the
exposure to foreign exchange fluctuations. Approximately 60% of the
Corporation's identifiable assets are denominated in currencies other than the
US Dollar, predominantly the Pound Sterling, currencies pegged to the Euro, the
Yen, Hong Kong and New Taiwan Dollars.
MacDermid does not enter into any derivative financial instruments for trading
purposes. The Corporation has entered into foreign currency forward contracts
covering a Deutsche Mark commitment. This commitment covers an equipment
subsidiary supply of a certain number of machines during fiscal 2001 and the
amounts are immaterial and short-term. The Corporation has certain other supply
agreements for quantities but has chosen not to enter into any price hedging
with its suppliers for commodities.
Contingencies
Environmental: As manufacturers and distributors of specialty chemicals and
systems, the Corporation is subject to extensive U.S. and foreign laws and
regulations relating to environmental protection and worker health and safety,
including those governing: discharges of pollutants into the air and water; the
management and disposal of hazardous substances and wastes; and the cleanup of
contaminated properties.
The Corporation has incurred, and will continue to incur, significant costs and
capital expenditures in complying with these laws and regulations. The
Corporation could incur significant additional costs, including cleanup costs,
fines and sanctions and third-party claims, as a result of violations of or
liabilities under environmental laws. In order to ensure compliance with
applicable environmental, health and safety laws and regulations, the
Corporation maintains a disciplined environmental and occupational safety and
health compliance program, which includes conducting regular internal and
external audits at its plants to identify and categorize potential environmental
exposure.
The Corporation's nature of operations and products (including raw materials)
expose it to the risk of liabilities or claims with respect to environmental
cleanup or other matters, including those in connection with the disposal of
hazardous materials. The Corporation has been named as a potentially
responsible party ("PRP") at three Superfund sites. There are many other PRPs
involved at each of these sites. The Corporation has recorded its best estimate
of liabilities in connection with site clean-up based upon the extent of its
involvement, the number of PRPs and estimates of the total costs of the site
clean-up that reflect the results of environmental investigations and
remediation estimates produced by remediation contractors. While the ultimate
costs of such liabilities are difficult to predict, the Corporation does not
expect that its costs associated with these sites will be material.
In addition, some of the Corporation's facilities have an extended history of
chemical processes or other industrial activities. Contaminants have been
detected at some of these sites, with respect to which the Corporation is
conducting environmental investigations and/or cleanup activities. These sites
include some of the Canning sites acquired in December 1998, such as the Kearny,
New Jersey and Waukegan, Illinois sites. The Corporation has established an
environmental remediation reserve of $2 million, predominantly attributable to
those Canning sites that it believes will require environmental remediation.
With respect to those sites, it also believes that its Canning subsidiary is
entitled under the acquisition agreement to withhold a deferred purchase price
payment of approximately $2 million. The Corporation estimates the range of
cleanup costs at its Canning sites between $2 and $11.5 million. Investigations
into the extent of contamination, however, are ongoing with respect to some of
these sites. To the extent the Corporation's liabilities exceed $2 million, it
may be entitled to additional indemnification payments. Such recovery may be
uncertain, however, and would likely involve significant litigation expense.
The Corporation does not anticipate that it will be materially affected by
environmental remediation costs, or any related claims, at any contaminated
sites, including the Canning sites. It is difficult, however, to predict the
final costs and timing of costs of site remediation. Ultimate costs may vary
from current estimates and reserves, and the discovery of additional
contaminants at these or other sites or the imposition of additional cleanup
obligations, or third-party claims relating thereto, could result in significant
additional costs.
Legal Proceedings: On January 30, 1997, the Corporation was served with a
subpoena from a federal grand jury in Connecticut requesting certain documents
relating to an accidental spill from its Huntingdon Avenue, Waterbury,
Connecticut facility that occurred in November of 1994, together with other
information relating to operations and compliance at the Huntingdon Avenue
facility. The Corporation was subsequently informed that it is a subject of the
grand jury's investigation in connection with alleged criminal violations of the
federal Clean Water Act pertaining to its wastewater handling practices. The
Corporation has retained outside law firms to assist in complying with the
subpoena and the underlying investigation. It has cooperated from the outset
with the investigation and is currently involved in informal negotiations with
the Government with a view towards settling any and all charges in this matter
without resort to trial. At this time of these negotiations it is too
speculative to quantify the precise financial implications to the Corporation.
In addition, two of the Corporation's former employees, who worked at the
Huntington Avenue facility, pled guilty in early 2001 to misdemeanor violations
under the Clean Water Act in connection with the above matter. These
individuals were recently sentenced to fines of $25,000 and $10,000 and 2 years
probation, as well as community service.
In a separate matter, on July 26, 1999, the Corporation was named in a civil
lawsuit commenced in the Superior Court of the State of Connecticut brought by
the Connecticut Department of Environmental Protection alleging various
compliance violations at its Huntingdon Avenue and Freight Street locations
between the years 1992 through 1998 relating to wastewater discharges and the
management of waste materials. The complaint alleges violations of its permits
issued under the Federal Clean Water Act and the Resource Conservation and
Recovery Act, as well as procedural, notification and other requirements of
Connecticut's environmental regulations over the foregoing period of time. The
Corporation is vigorously defending this complaint. It currently believes that
the outcome of this proceeding will not materially affect its business or
financial position, however, the proceeding is in the early stages. Therefore,
at this time it is too speculative to quantify the financial implications to the
Corporation.
Other: The Corporation's business operations, consist principally of
manufacture and sale of specialty chemicals, supplies and related equipment to
customers throughout much of the world. Approximately 38% of the business is
concentrated in the printing industry used for a wide variety of applications,
including offset blankets, printing plates, textile blankets and rubber based
covers for industrial rollers, while 28% of the business is concentrated with
manufacturers of printed circuit boards which are used in a wide variety of
end-use applications, including computers, communications and control equipment,
appliances, automobiles and entertainment products. As is usual for this
business, the Corporation generally does not require collateral or other
security as a condition of sale, choosing, rather, to control credit risk of
trade account financial instruments by credit approval, balance limitation and
monitoring procedures. Management believes that reserves for losses, which are
established based upon review of account balances and historical experience, are
adequate.
Note 9. Bond Offering
The Corporation issued 9 1/8% Senior Subordinated Notes effective June 20, 2001,
for the amount of $301,500, due in 2011. The proceeds were used to pay down
existing long-term debt. The following unaudited financial statements are
presented to give additional disclosures to the Consolidated Condensed Financial
Statements, with respect to the guarantors of this offering. The equity method
has been used by the Corporation with respect to investments in subsidiaries.
The equity method also has been used by subsidiary guarantors with respect to
investments in non-guarantor subsidiaries and by subsidiary non-guarantors with
respect to investments in unrestricted non-guarantor subsidiaries. Financial
statements for subsidiary guarantors are presented as a combined entity.
CONSOLIDATED CONDENSED BALANCE SHEET
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
----------------------- ------------------------ --------------------------
ASSETS
Current assets:
Cash and equivalents $ 7,020 $ 490 $ 7,519
Accounts receivables, net 17,845 31,440 116,683
Due (to)/from affiliates 224,975 (285,279) 79,461
Inventories 27,713 48,874 55,045
Prepaid expenses 155 3,166 4,767
Deferred income taxes 4,849 1,501 3,739
----------------------- ------------------------ --------------------------
Total current asset $ 282,557 $ (199,808) $ 267,214
Property, plant and
Equipment, net 27,464 71,363 56,126
Goodwill, net 16,056 91,450 104,508
Intangibles, net - 33,083 32,933
Investments in subsidiaries 276,872 313,521 10,334
Other assets, net 22,898 13,353 9,708
----------------------- ------------------------ --------------------------
$ 625,847 $ 322,962 $ 480,823
======================= ======================== ==========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND SUBSIDIARIES JUNE
30, 2001
---------------------------------------- -------------- --------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 483 $ - $ 15,512
Accounts receivables, net 16,652 - 182,620
Due (to)/from affiliates (19,157) - -
Inventories 9,284 (22) 140,894
Prepaid expenses - - 8,088
Deferred income taxes 326 - 10,415
---------------------------------------- -------------- --------------------------------------------
Total current asset $ 7,588 $ (22) $ 357,529
Property, plant and
Equipment, net 19,186 - 174,139
Goodwill, net 27,107 18 239,139
Intangibles, net 119 - 66,135
Investments in subsidiaries - (600,727) -
Other assets, net 712 - 46,671
---------------------------------------- -------------- -------------------------------------------
$ 54,712 $ (600,731) $ 883,613
======================================== ============== ============================================
CONSOLIDATED CONDENSED BALANCE SHEET (continued)
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ - $ 2,734
Current installments of
Long term obligations - 3 599
Accounts/dividend payable 10,340 20,141 33,701
Accrued expenses 15,398 18,404 27,969
Income taxes (3,799) 5,964 11,248
------------------------ ------------------------ ---------------------------
Total current liabilities $ 21,939 $ 44,512 $ 76,251
Long-term obligations 364,846 78 75,462
Accrued postretirement 4,130 - 12,749
Other long-term - 1,500 2,124
Deferred income taxes - - 716
Minority interest - - -
------------------------ ------------------------ ---------------------------
Total liabilities $ 390,915 $ 46,090 $ 167,302
------------------------ ------------------------ ---------------------------
Shareholders' equity:
Common stock 46,410 (99) 4,291
Additional paid-in capital 15,447 126,753 204,752
Retained earnings 256,715 175,221 123,421
Accumulated other
comprehensive income:
Foreign currency
Translation (25,075) (25,003) (9,273)
Additional minimum
Pension liability - - (9,670)
Hedging activities (258) - -
Less cost common shares
In treasury (58,307) - -
------------------------ ------------------------ ---------------------------
Total shareholders' equity $ 234,932 $ 279,037 $ 315,686
------------------------ ------------------------ ---------------------------
$ 625,847 $ 325,127 $ 482,988
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND
SUBSIDIARIES JUNE 30, 2001
---------------------------------------- -------------- -----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 11,773 $ - $ 14,507
Current installments of
Long term obligations 3,655 - 4,257
Accounts/dividend payable 14,792 - 78,974
Accrued expenses 3,246 - 65,017
Income taxes 80 (7) 13,486
---------------------------------------- -------------- -----------------------------------
Total current liabilities $ 33,546 $ (7) $ 176,241
Long-term obligations 3,972 - 444,358
Accrued postretirement - - 16,879
Other long-term 779 - 4,181
Deferred income taxes 3,465 - 4,403
Minority interest 2,616 - 2,616
---------------------------------------- -------------- -----------------------------------
Total current liabilities $ 44,378 $ (7) $ 648,678
---------------------------------------- -------------- -----------------------------------
Shareholders' equity:
Common stock 3 (4,195) 46,410
Additional paid-in capital 10,260 (341,765) 15,447
Retained earnings (1,389) (297,252) 256,716
Accumulated other
comprehensive income:
Foreign currency
Translation 1,460 42,488 (15,403)
Additional minimum
Pension liability - - (9,670)
Hedging activities - - (258)
Less cost common shares
In treasury - - (58,307)
---------------------------------------- -------------- -----------------------------------
Total shareholders' equity $ 10,334 $ (605,054) $ 234,935
---------------------------------------- -------------- -----------------------------------
$ 54,712 $ (605,061) $ 883,613
======================================== ============== ===================================
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Net sales $ 29,047 $ 56,904 $ 89,724
Costs and expenses:
Cost of sales 18,824 33,366 47,734
Selling, technical and
Administrative 11,593 15,920 25,315
Amortization - 796 1,184
Equity in earnings of
Subsidiaries (11,533) (10,109) 376
Interest income (55) (48) (129)
Interest expense 4,716 3,151 (108)
Miscellaneous, net 210 164 189
------------------------ ------------------------ ---------------------------
$ 23,755 $ 43,240 $ 74,561
------------------------ ------------------------ ---------------------------
Earnings before taxes 5,292 13,664 15,163
Income taxes benefit
(expense) 2,607 (2,131) (5,054)
Minority interest - - -
------------------------ ------------------------ ---------------------------
Net earnings $ 7,899 $ 11,533 $ 10,109
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND SUBSIDIARIES JUNE 30,
2001
---------------------------------------- -------------- ------------------------------------------------
Net sales $ 20,235 $ (10,816) $ 185,094
Costs and expenses:
Cost of sales 17,932 (10,821) 107,035
Selling, technical and
Administrative 1,818 - 54,646
Amortization 2 - 1,982
Equity in earnings of
Subsidiaries - 21,266 -
Interest income (7) - (239)
Interest expense 757 - 8,516
Miscellaneous, net 96 - 659
---------------------------------------- -------------- ------------------------------------------------
$ 20,598 $ 10,445 $ 172,599
---------------------------------------- -------------- ------------------------------------------------
Earnings before taxes (363) (21,261) 12,495
Income taxes benefit
(expense) (40) (5) (4,623)
Minority interest 27 - 27
---------------------------------------- -------------- ------------------------------------------------
Net earnings $ (376) $ (21,266) $ 7,899
======================================== ============== =================================================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Cash flows (used in) /
provided by
operating activities: $ (3,008) $ 10,619 $ 9,631
Investing activities:
Capital expenditures (19) (227) (1,084)
Proceeds from disposition
of fixed assets 21 - 66
Minority interest - - -
------------------------ ------------------------ ---------------------------
Net cash flows provided
by / (used in)
investing activities $ 2 $ (227) $ (1,018)
------------------------ ------------------------ ---------------------------
Financing activities:
Short-term (repayments)
Borrowings - net 3,070 (823) (2,711)
Long-term borrowings 310,008 - 46,687
Long-term repayments (303,810) (9,812) (47,435)
Bond financing fees (6,500) - -
Dividends paid (643) - -
All other 3,600 (1,500) (2,100)
------------------------ ------------------------ ---------------------------
Net cash flows provided
by / (used in)
financing activities $ 5,725 $ (12,135) $ (5,559)
------------------------ ------------------------ ---------------------------
Effect of exchange rate
changes on
On cash and equivalents $ - $ - $ (120)
------------------------ ------------------------ ---------------------------
Net increase (decrease) in
Cash and equivalents 2,719 (1,743) 2,934
Cash and cash equivalents
At beginning of year 4,301 2,233 4,585
------------------------ ------------------------ ---------------------------
Cash and cash equivalents
At end of year $ 7,020 $ 490 $ 7,519
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND SUBSIDIARIES JUNE
30, 2001
---------------------------------------- ------------- -------------------------------- ------------
Cash flows (used in) / provided by
operating activities: $ (527) $ - $ 16,715
Investing activities:
Capital expenditures (1,249) - (2,579)
Proceeds from disposition
of fixed assets 86 - 173
Minority interest 2,616 - 2,616
---------------------------------------- ------------- ---------------------------------------------
Net cash flows provided
by / (used in)
investing activities $ 1,453 $ - $ 210
---------------------------------------- ------------- ---------------------------------------------
Financing activities:
Short-term (repayments)
Borrowings - net (1,870) - (2,334)
Long-term borrowings - - 356,695
Long-term repayments - - (361,057)
Bond financing fees - - (6,500)
Dividends paid - - (643)
All other - - -
---------------------------------------- ------------- ---------------------------------------------
Net cash flows provided
by / (used in) financing activities $ (1,870) $ - $ (13,839)
---------------------------------------- ------------- ---------------------------------------------
Effect of exchange rate
changes on
On cash and equivalents $ - $ - $ (120)
---------------------------------------- ------------- ---------------------------------------------
Net increase (decrease) in
Cash and equivalents (944) - 2,966
Cash and cash equivalents
At beginning of year 1,427 - 12,546
---------------------------------------- ------------- ---------------------------------------------
Cash and cash equivalents
At end of year $ 483 $ - $ 15,512
======================================== ============= ============================================
CONSOLIDATED CONDENSED BALANCE SHEET
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
ASSETS
Current assets:
Cash and equivalents $ 4,301 $ 2,233 $ 4,585
Accounts receivables, net 21,797 37,009 118,581
Due (to)/from affiliates 230,198 (281,872) 71,343
Inventories 27,718 49,466 54,872
Prepaid expenses (732) 2,532 4,548
Deferred income taxes 4,406 2,366 3,237
------------------------ ------------------------ ---------------------------
Total current asset $ 287,688 $ (188,266) $ 257,168
Property, plant and
Equipment, net 28,483 72,538 62,600
Goodwill, net 16,056 91,450 103,594
Intangibles, net - 32,944 34,073
Investments in subsidiaries 274,656 295,646 10,796
Other assets, net 11,764 20,647 (666)
------------------------ ------------------------ ---------------------------
$ 618,647 $ 324,959 $ 467,565
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND SUBSIDIARIES
MARCH 31, 2001
---------------------------------------- -------------- -----------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 1,427 $ - $ 12,546
Accounts receivables, net 17,377 - 194,764
Due (to)/from affiliates (19,446) (223) -
Inventories 9,482 (27) 141,513
Prepaid expenses 17 - 6,365
Deferred income taxes 337 - 10,346
---------------------------------------- -------------- ------------------------------------------
Total current asset $ 9,194 $ (250) $ 365,534
Property, plant and
Equipment, net 19,957 - 183,578
Goodwill, net 24,747 251 236,098
Intangibles, net 118 - 67,135
Investments in subsidiaries - (581,098) -
Other assets, net 748 (13) 32,480
---------------------------------------- -------------- ------------------------------------------
$ 54,764 $ (581,110) $ 884,825
======================================== ============== =========================================
CONSOLIDATED CONDENSED BALANCE SHEET (continued)
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ - $ 2,167
Current installments of
Long term obligations 62,125 2,299 329
Accounts/dividend payable 14,604 15,284 33,683
Accrued expenses 17,591 18,586 27,824
Income taxes (3,882) 4,430 9,996
------------------------ ------------------------ ---------------------------
Total current liabilities $ 90,438 $ 40,599 $ 73,999
Long-term obligations 293,454 8,564 82,031
Accrued postretirement 4,086 83 13,414
Deferred income taxes - 1,057 2,476
Shareholders' equity:
Common stock 45,408 (99) 4,291
Additional paid-in capital 16,437 129,256 201,346
Retained earnings 249,460 167,289 115,412
Accumulated other
comprehensive income:
Foreign currency
Translation (22,329) (21,790) (15,734)
Additional minimum
Pension liability - - (9,670)
Less cost common shares
in treasury (58,307) - -
------------------------ ------------------------ ---------------------------
Total shareholders' equity $ 230,669 $ 274,656 $ 295,645
------------------------ ------------------------ ---------------------------
$ 618,647 $ 324,959 $ 467,565
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND
SUBSIDIARIES MARCH 31, 2001
---------------------------------------- -------------- --------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 9,581 $ - $ 11,748
Current installments of
Long term obligations 3,764 - 68,517
Accounts/dividend payable 18,256 - 81,827
Accrued expenses 3,117 - 67,118
Income taxes 104 (13) 10,635
---------------------------------------- -------------- ---------------------------
Total current liabilities $ 34,822 $ (13) $ 239,845
Long-term obligations 8,570 - 392,619
Accrued postretirement (228) - 17,355
Deferred income taxes 804 - 4,337
Shareholders' equity:
Common stock 6 (4,198) 45,408
Additional paid-in capital 10,830 (341,432) 16,437
Retained earnings (1,010) (281,691) 249,460
Accumulated other
comprehensive income:
Foreign currency
Translation 970 46,224 (12,659)
Additional minimum
Pension liability - - (9,670)
Less cost common shares
in treasury - - (58,307)
---------------------------------------- -------------- ----------------------------
Total shareholders' equity $ 10,796 $ (581,097) $ 230,669
$ 54,764 $ (581,110) $ 884,825
======================================== ============== ===========================
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Net sales $ 45,031 $ 54,792 $ 101,816
Costs and expenses:
Cost of sales 28,319 27,994 53,678
Selling, technical and
Administrative 12,508 13,280 30,214
Amortization 3 2,421 2,471
Equity in earnings of
subsidiaries (13,858) (9,167) -
Interest income (228) (182) (93)
Interest expense 3,188 2,642 1,854
Miscellaneous, net (64) 1,430 402
------------------------ ------------------------ ---------------------------
$ 29,868 $ 38,418 $ 88,526
------------------------ ------------------------ ---------------------------
Earnings before taxes 15,163 16,374 13,290
Income taxes benefit
(expense) (1,379) (2,516) (4,123)
------------------------ ------------------------ ---------------------------
Net earnings $ 13,784 $ 13,858 $ 9,167
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND SUBSIDIARIES JUNE 30,
2000
--------------------------------------- -------------- ------------------------------------------------
Net sales $ - $ (14,576) $ 187,063
Costs and expenses:
Cost of sales - (14,584) 95,407
Selling, technical and
Administrative - - 56,002
Amortization - - 4,895
Equity in earnings of
subsidiaries - 23,025 -
Interest income - - (503)
Interest expense - - 7,684
Miscellaneous, net - - 1,768
--------------------------------------- -------------- -----------------------------------------------
$ - $ 8,441 $ 165,253
--------------------------------------- -------------- -----------------------------------------------
Earnings before taxes - (23,017) 21,810
Income taxes benefit
(expense) - (8) (8,026)
--------------------------------------- -------------- -----------------------------------------------
Net earnings $ - $ (23,025) $ 13,784
======================================= ============== ===============================================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Cash flows (used in) /
provided by
operating activities: $ (48,169) $ (11,207) $ 69,838
Investing activities:
Capital expenditures (211) 79 (1,937)
Proceeds from disposition
of fixed assets 9 (1,677) 1,689
Acquisitions of businesses - (48,162) (6,118)
------------------------ ------------------------ ---------------------------
Net cash flows used in
investing activities $ (202) $ (49,760) $ (6,366)
------------------------ ------------------------ ---------------------------
Financing activities:
Short-term (repayments)
borrowings - net 44,626 20,447 (67,628)
Long-term borrowings 5,000 47,000 7,650
Long-term repayments (5,463) (4,976) (3,103)
Dividends paid (623) - -
All other 1,403 (342) (1,061)
------------------------ ------------------------ ---------------------------
Net cash flows provided
by / (used in)
financing activities $ 44,943 $ 62,129 $ (64,142)
------------------------ ------------------------ ---------------------------
Effect of exchange rate
changes on
on cash and equivalents $ - $ - $ (216)
------------------------ ------------------------ ---------------------------
Net increase (decrease) in
cash and equivalents (3,428) 1,162 (886)
Cash and cash equivalents
at beginning of year 5,741 2,725 11,650
------------------------ ------------------------ ---------------------------
Cash and cash equivalents
at end of year $ 2,313 $ 3,887 $ 10,764
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED AND SUBSIDIARIES JUNE
30, 2000
--------------------------------------- ------------- -------------------------------------------------------
Cash flows (used in) /
provided by
operating activities: $ - $ - $ 10,462
Investing activities:
Capital expenditures - - (2,069)
Proceeds from disposition
of fixed assets - - 21
Acquisitions of businesses - - (54,280)
--------------------------------------- ------------- --------------------------------------------
Net cash flows used in
investing activities $ - $ - $ (56,328)
--------------------------------------- ------------- --------------------------------------------
Financing activities:
Short-term (repayments)
borrowings - net - - (2,555)
Long-term borrowings - - 59,650
Long-term repayments - - (13,542)
Dividends paid - - (623)
All other - - -
--------------------------------------- ------------- --------------------------------------------
Net cash flows provided
by / (used in)
financing activities $ - $ - $ 42,930
--------------------------------------- ------------- --------------------------------------------
Effect of exchange rate
changes on
on cash and equivalents $ - $ - $ (216)
--------------------------------------- ------------- --------------------------------------------
Net increase (decrease) in
cash and equivalents - - (3,152)
Cash and cash equivalents
at beginning of year - - 20,116
--------------------------------------- ------------- --------------------------------------------
Cash and cash equivalents
at end of year $ - $ - $ 16,964
======================================= ============= =============================================
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the results of operations for the three month
period which ended June 30, 2001 to the same period in 2000 and provides
information with respect to changes in financial condition during the three
months then ended.
SALES, COSTS AND EXPENSES
Graphic Arts: Total sales for the current quarter were $74.9 million, an
increase of $1.3 million, or 2% from $73.6 million in the same period last year.
Acquisition added $6.6 million which was partially offset by a $1.5 million
negative effect of foreign currency translation. The underlying sales in all
areas of the graphic arts business were below the same period last year as
worldwide economies remain soft and customer inventories are reduced to lower
levels.
Costs as a percentage of sales were slighlty higher than the same period last
year as manufacturing costs increased relative to production. As a result,
gross profit percentage was 43.4% as compared to 44.2% for the same period last
year. Selling, technical and administrative expenses (ST&A) were $21.0 million
for the period ended June 30, 2001, a 5% increase as compared to $20.0 million
for the same period last year. Excluding the effects of acquisition and foreign
currency translation, ST&A decreased $4.3 million, or 21% in large part from the
restructuring program undertaken during the previous fiscal year. ST&A as a
percentage of sales for the current quarter was 28.1% as compared to 27.2% in
the same period last year.
Total amortization charged to earnings was $0.1 million for the three month
period ended June 30, 2001. This was $1.9 million less than the same period in
the previous year due to the adoption of SFAS142 which requires that goodwill no
longer be amortized. As a result, operating profit (after amortization) of
$11.3 million increased $1.0 million, or 10% from the same period last year.
Advanced Surface Finishes: Total sales for the current quarter were $86.9
million, a decrease of $26.6 million, or 23% from $113.5 million in the same
period last year. Divestitures of approximately $8.0 million and a $4.3 million
negative effect of foreign currency translation was roughly half the decline.
Proprietary sales, excluding the effects of divestiture and foreign currency
translation, were $15.3 million, or 15% less than the same period last year.
The reduced proprietary sales was primarily due to the electronics industry
which experienced pricing pressures and customer inventory reductions as the
worldwide electronics markets remain soft.
Costs as a percentage of sales were slightly higher than the same period last
year as manufacturing costs increased relative to production. As a result,
gross profit percentage was 51.7% as compared to 52.1% for the same period last
year. Selling, technical and administrative expenses (ST&A) were $31.0 million
for the period ended June 30, 2001, a 14% decrease as compared to $36.0 million
for the same period last year. Excluding the effects of divestiture and foreign
currency translation, ST&A decreased $2.0 million, or 6%, primarily from lower
costs of selling associated with the lower sales volume. ST&A as a percentage
of sales for the current quarter was 35.6% as compared to 31.7% in the same
period last year.
Total amortization charged to earnings was $1.9 million for the three month
period ended June 30, 2001. This was $1.0 million less than the same period in
the previous year due to the adoption of SFAS142 which requires that goodwill no
longer be amortized. The resulting operating profit (after amortization) of
$12.1 million decreased $8.1 million, or 40% from the same period last year.
Electronics Manufacturing: Total sales for the current quarter were $23.3
million with a gross profit of $0.6 million. Gross profit as a percentage of
sales was 2.8%. ST&A was $2.6 million, or 11.4% as a percentage of sales. As a
result, there was an operating loss of $2.0 million for the period ended June
30, 2001. This segment did not exist in the same period last year.
Consolidated: Total sales for the current quarter, $185.1 million decreased $2.0
million or 1% from $187.1 million in the same period last year. Acquisitions
(net of divestitures) added $21.9 million, while foreign currency translation
reduced reported sales by approximately $5.8 million. Without these effects,
reported sales would have decreased 10%. Proprietary sales were roughly 82% of
total sales as compared to 93% of total sales in the same period last year.
Gross profits decreased 15% for period ended June 30, 2001 as compared to the
same period last year as a result of lower Advanced Surface Finishes proprietary
sales. Gross profit as a percentage of sales was 42.2% for this three month
period as compared to 49.0% for the same period last year. The principal factor
to this decrease was the addition of the Electronics Manufacturing segment.
ST&A expenses for the three month period were 2% less than the same period last
year for the reasons explained above. ST&A as a percentage of sales for the
three month period was 29.5% as compared to 29.9% for the same period last year.
Total amortization charged to earnings was $2.0 million for the period ended
June 30, 2001. This was $2.9 million less than the same period last year due to
the adoption of SFAS142 as identified above. Operating profit (after
amortization) for the period ended June 30, 2001 was $21.4 million a decrease of
$9.3 million, or 30% less than $30.7 million for the same period last year.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 37% for both the three
month periods ended June 30, 2001 and 2000.
NET EARNINGS
Net earnings available to common shareholders for the three month period ended
June 30, 2001 decreased 43% as compared to the same period last year. Foreign
currency translation had the effect of reducing the reported earnings by
approximately 5% for the three month period.
FINANCIAL CONDITION
Operating activities during the three months ending June 30, 2001 resulted in a
net cash inflow of $16.7 million. The cash generated was used for bond
financing fees, capital improvements, dividends to common shareholders and debt
repayments. Working Capital at June 30, 2001 was $181.3 million as compared to
$125.7 million at March 31, 2001. This change in working capital is due the
current portion of the long-term credit facility at year end being replaced by
long-term bond financing during the period ended June 30, 2001.
Capital expenditures were $2.6 million for the three months ended June 30, 2001
and are in line with the planned ($14.0 million, or approximately $10.5 million
for the nine months ended December 31, 2001) expenditures.
The following table contains other data for the three months ended June 30, 2001
and 2000. EBITDA is earnings before interest, taxes, depreciation and
amortization. Owners Earnings is cash flow from operations less net capital
spending. Neither EBITDA, nor Owners Earnings are intended to represent cash
flow from operations as defined by generally accepted accounting principles.
These measures should not be used as an alternative to net income as an
indicator of operating performance or to cash flows as a measure of liquidity.
($millions) 2001 2000
-------- --------
Cash provided by operations $ 16.7 $ 10.5
Cash provided by/(used in) investing activities $ 0.2 ($56.3)
Cash (used in)/provided by financing activities ($13.8) $ 42.9
EBITDA $ 28.6 $ 38.7
Cash provided by operations $ 16.7 $ 10.5
Less: net capital spending (2.4) (2.1)
-------- --------
Owners Earnings $ 14.3 $ 8.4
Effective June 20, 2001 MacDermid issued 10 year, 9 1/8% Senior Subordinated
Notes, due in 2011. The face amount is $301.5 million and interest is payable
on January 15 and July 15 of each year, with the first payment due January 15,
2002. The proceeds were used to pay the entire amounts which were then
outstanding on the term loans and a portion of the revolving loan balances under
the Corporation's credit facility.
The Corporation has a long-term credit arrangement, which consists of a combined
revolving loan facility that permits borrowings denominated in US dollars and
foreign currencies. The outstanding balance on the revolving loan facility
decreased $7.3 million during the three months ended June 30, 2001. The amounts
outstanding on the revolving loan at June 30, 2001, consists of $15.5 million,
$46.7 million ( 33.4 million) and $74.8 million (Euro 86.7 million).
The revolving loan facility permits borrowings of up to $215 million. The
Corporation's other uncommitted credit facilities presently total approximately
$75 million. These, together with the Corporation's cash flows from operations
are adequate to fund working capital and expected capital expenditures.
NEW ACCOUNTING PRONOUNCEMENTS
The Corporation adopted the following new accounting pronouncements as of April
1, 2001; Statement of Financial Accounting Standard No.133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) which replaces
existing pronouncements and practices with a single integrated accounting
framework for derivatives and hedging activities (refer to the Notes to
Consolidated Condensed Financial Statements, Note 5); and Statement of Financial
Accounting Standard No.142, "Goodwill and Other Intangible Assets" (SFAS142)
which replaces existing pronouncements and practices for purchase accounting,
specifically ending amortization of goodwill (refer to the Notes to Consolidated
Condensed Financial Statements, Note 2).
EURO CURRENCY CONVERSION
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro"). The transition period for the introduction of
the Euro ends June 30, 2002. Issues that face the Corporation as a result of the
introduction of the Euro include converting information technology systems which
were largely upgraded under the year 2000 compliance review, reassessing
currency risk, negotiating and amending contracts, as well as processing
accounting and tax records. The Corporation is addressing these issues and does
not expect the Euro to have a material effect on its financial condition or
results of operations.
ENVIRONMENTAL MATTERS
As manufacturers and distributors of specialty chemicals and systems, the
Corporation is subject to extensive U.S. and foreign laws and regulations
relating to environmental protection and worker health and safety, including
those governing: discharges of pollutants into the air and water; the
management and disposal of hazardous substances and wastes; and the cleanup of
contaminated properties.
The Corporation has incurred, and will continue to incur, significant costs and
capital expenditures in complying with these laws and regulations. The
Corporation could incur significant additional costs, including cleanup costs,
fines and sanctions and third-party claims, as a result of violations of or
liabilities under environmental laws. In order to ensure compliance with
applicable environmental, health and safety laws and regulations, the
Corporation maintains a disciplined environmental and occupational safety and
health compliance program, which includes conducting regular internal and
external audits at its plants to identify and categorize potential environmental
exposure.
The Corporation's nature of operations and products (including raw materials)
expose it to the risk of liabilities or claims with respect to environmental
cleanup or other matters, including those in connection with the disposal of
hazardous materials. The Corporation has been named as a potentially
responsible party ("PRP") at three Superfund sites. There are many other PRPs
involved at each of these sites. The Corporation has recorded its best estimate
of liabilities in connection with site clean-up based upon the extent of its
involvement, the number of PRPs and estimates of the total costs of the site
clean-up that reflect the results of environmental investigations and
remediation estimates produced by remediation contractors. While the ultimate
costs of such liabilities are difficult to predict, the Corporation does not
expect that its costs associated with these sites will be material.
In addition, some of the Corporation's facilities have an extended history of
chemical processes or other industrial activities. Contaminants have been
detected at some of these sites, with respect to which the Corporation is
conducting environmental investigations and/or cleanup activities. These sites
include some of the Canning sites acquired in December 1998, such as the Kearny,
New Jersey and Waukegan, Illinois sites. The Corporation has established an
environmental remediation reserve of $2 million, predominantly attributable to
those Canning sites that it believes will require environmental remediation.
With respect to those sites, it also believes that its Canning subsidiary is
entitled under the acquisition agreement to withhold a deferred purchase price
payment of approximately $2 million. The Corporation estimates the range of
cleanup costs at its Canning sites between $2 and $11.5 million. Investigations
into the extent of contamination, however, are ongoing with respect to some of
these sites. To the extent the Corporation's liabilities exceed $2 million, it
may be entitled to additional indemnification payments. Such recovery may be
uncertain, however, and would likely involve significant litigation expense.
The Corporation does not anticipate that it will be materially affected by
environmental remediation costs, or any related claims, at any contaminated
sites, including the Canning sites. It is difficult, however, to predict the
final costs and timing of costs of site remediation. Ultimate costs may vary
from current estimates and reserves, and the discovery of additional
contaminants at these or other sites or the imposition of additional cleanup
obligations, or third-party claims relating thereto, could result in significant
additional costs.
LEGAL PROCEEDINGS
On January 30, 1997, the Corporation was served with a subpoena from a federal
grand jury in Connecticut requesting certain documents relating to an accidental
spill from its Huntingdon Avenue, Waterbury, Connecticut facility that occurred
in November of 1994, together with other information relating to operations and
compliance at the Huntingdon Avenue facility. The Corporation was subsequently
informed that it is a subject of the grand jury's investigation in connection
with alleged criminal violations of the federal Clean Water Act pertaining to
its wastewater handling practices. The Corporation has retained outside law
firms to assist in complying with the subpoena and the underlying investigation.
It has cooperated from the outset with the investigation and is currently
involved in informal negotiations with the Government with a view towards
settling any and all charges in this matter without resort to trial. At this
time of these negotiations it is too speculative to quantify the precise
financial implications to the Corporation.
In addition, two of the Corporation's former employees, who worked at the
Huntington Avenue facility, pled guilty in early 2001 to misdemeanor violations
under the Clean Water Act in connection with the above matter. These
individuals were recently sentenced to fines of $25,000 and $10,000 and 2 years
probation, as well as community service.
In a separate matter, on July 26, 1999, the Corporation was named in a civil
lawsuit commenced in the Superior Court of the State of Connecticut brought by
the Connecticut Department of Environmental Protection alleging various
compliance violations at its Huntingdon Avenue and Freight Street locations
between the years 1992 through 1998 relating to wastewater discharges and the
management of waste materials. The complaint alleges violations of its permits
issued under the Federal Clean Water Act and the Resource Conservation and
Recovery Act, as well as procedural, notification and other requirements of
Connecticut's environmental regulations over the foregoing period of time. The
Corporation is vigorously defending this complaint. It currently believes that
the outcome of this proceeding will not materially affect its business or
financial position, however, the proceeding is in the early stages. Therefore,
at this time it is too speculative to quantify the financial implications to the
Corporation.
FORWARD-LOOKING STATEMENTS
This report and other Corporation reports include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements relate to analyses and other information that is based on
forecasts of future results and estimates of amounts not yet determinable. These
statements also relate to future prospects, developments and business
strategies. The statements contained in this report that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties.
The words "anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "will" and similar terms and phrases,
including references to assumptions, have been used to identify forward-looking
statements. These forward-looking statements are made based on management's
expectations and beliefs concerning future events affecting the Corporation and
are subject to uncertainties and factors relating to its operations and business
environment, all of which are difficult to predict and many of which are beyond
its control, that could cause actual results to differ materially from those
matters expressed in or implied by these forward-looking statements. The
following factors are among those that may cause actual results to differ
materially from the forward-looking statements: acquisitions and dispositions,
environmental liabilities, changes in general economic, business and industry
conditions, changes in current advertising, promotional and pricing levels,
changes in political and social conditions and local regulations, foreign
currency fluctuations, inflation, significant litigation; changes in sales mix,
competition, disruptions of established supply channels, degree of acceptance of
new products, difficulty of forecasting sales at various times in various
markets, the availability, terms and deployment of capital, and the other
factors discussed elsewhere in this report.
All forward-looking statements should be considered in light of these factors.
The Corporation undertakes no obligation to update forward-looking statements or
risk factors to reflect new information, future events or otherwise.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Refer to the Notes to Consolidated Condensed Financial Statements, Note 8
"Market Risk and Contingencies".
PART II. OTHER INFORMATION
ITEM 1 : LEGAL PROCEEDINGS
None.
ITEM 2 : CHANGES IN THE RIGHTS OF SECURITY HOLDERS
None.
ITEM 3 : DEFAULTS BY THE CORPORATION ON ITS SENIOR SECURITIES
None.
ITEM 4 : RESULTS OF VOTES OF SECURITY HOLDERS
None.
ITEM 5 : OTHER INFORMATION
5.1 The Corporation filed an amended Form S-4 effective June 27, 2001 for the
purpose of a bond offering, to which the notes were delivered on June 20, 2001.
5.2 The Corporation filed Form S-8 effective August 6, 2001. This shelf
registration is for the purpose of registration of 3 million and 1 million
common shares under the 2001 Key Executive Equity Plan and 2001 All Employee
Option Plan, respectively.
ITEM 6(A) : EXHIBITS
None.
ITEM 6(B) : REPORTS ON FORM 8-K
6(b).1 On July 24, 2001, the Corporation filed its Form 8-K to disclose its
first quarter earnings press release dated July 23, 2001. (The press release is
included as exhibit 99.) The Form 8-K/A is incorporated by reference herein.
6(b).2 On July 18, 2001, the Corporation filed its Form 8-K to supplement its
Form S-4 filing dated June 27, 2001 to file additional financial statement
footnote disclosures to its fiscal 2001 annual report as relating to the
Corporation's bond offering dated June 20, 2001. (These disclosures are
included as exhibit 99.) The Form 8-K is incorporated by reference herein.
6(b).3 On July 16, 2001, the Corporation filed its Form 8-K which announced that
it would hold a conference call on July 24, 2001 to discuss its first quarter
earnings press release of July 23, 2001. The Form 8-K/A is incorporated by
reference herein.
6(b).4 On June 5, 2001, the Corporation filed its Form 8-K to file additional
Regulation FD disclosures related to its planned bond offering. (Included as
exhibit 99 is the Corporation's press release announcing its planned bond
offering.) The Form 8-K/A is incorporated by reference herein.
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 thereunto duly authorized.
MacDermid, Incorporated
-----------------------
(Registrant)
Date: August 14, 2001 /s/ Daniel H. Leever
--------------- --------------------
Daniel H. Leever
Chairman, President and
Chief Executive Officer
Date: August 14, 2001 / s / Gregory M. Bolingbroke
--------------- ----------------------------
Gregory M. Bolingbroke
Vice President, Treasurer and
Corporate Controller
1