35
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 September 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 November 1, 2001
---------------------- -----------------------------------
Common Stock, no par value 32,121,303 shares
MACDERMID, INCORPORATED
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 2001 and March 31, 2001 . . . . . . . 2-3
Consolidated Condensed Statements of Earnings
and Retained Earnings - Six and Three Months Ended
September 30, 2001 and 2000 . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended September 30, 2001 and 2000. . . . 5
Notes to Consolidated Condensed Financial Statements . . 6-22
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23-29
Item 3. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . 29
Part II. Other Information . . . . . . . . . . . . . . . 29
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 30
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
September 30, March 31,
2001 2001
--------------- -----------
Assets . . . . . . . . . . . . . . . . (Unaudited) (Audited)
Current Assets:
Cash and Equivalents . . . . . . . . . $ 21,890 $ 12,546
Accounts and Notes Receivable, (Net
of Allowance for Doubtful
Receivables of $13,133 and $11,758) 181,375 194,764
Inventories
Finished Goods. . . . . . . . . . . 69,102 75,788
Raw Materials . . . . . . . . . . . 58,275 65,725
--------------- -----------
127,377 141,513
Prepaid Expenses . . . . . . . . . . . 8,398 6,365
Deferred Income Tax Asset. . . . . . . 9,100 10,346
--------------- -----------
Total Current Assets . . 348,140 365,534
Property, Plant and Equipment (Net
of Accumulated Depreciation of
$135,722 and $112,278). . . . . . . 171,371 183,578
Goodwill (Net Accumulated
Amortization of $36,062). . . . . . 241,688 236,098
Intangibles, including
Patents/Trademarks (Net of
Accumulated Amortization
of $38,539 and $36,077) . . . . . . 65,654 67,135
Other Assets . . . . . . . . . . . . . 42,080 32,480
--------------- -----------
$ 868,933 $ 884,825
=============== ===========
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
September 30, March 31,
2001 2001
--------------- -----------
Liabilities and Shareholders' Equity (Unaudited) (Audited)
Current Liabilities:
Notes Payable . . . . . . . . . . . . . . $ 18,226 $ 11,748
Current Installments of Long-Term
Obligations. . . . . . . . . . . . . . 4,860 68,517
Accounts & Dividends Payable. . . . . . . 65,646 81,827
Accrued Expenses. . . . . . . . . . . . . 70,889 67,118
Income Taxes. . . . . . . . . . . . . . . 12,822 10,635
--------------- -----------
Total Current Liabilities . 172,443 239,845
Long-Term Obligations . . . . . . . . . . 428,255 392,619
Accrued Post-Retirement &
Postemployment Benefits. . . . . . . . 17,119 17,355
Deferred Income Taxes . . . . . . . . . . 3,195 4,337
Other Long-Term Liabilities . . . . . . . 4,262 --
Minority Interest . . . . . . . . . . . . 2,538 --
Shareholders' Equity
Common Stock Stated Value
$1.00 per Share. . . . . . . . . . . . 46,410 45,408
Additional Paid-In Capital. . . . . . . . 15,651 16,437
Retained Earnings . . . . . . . . . . . . 260,243 249,460
Cumulative Comprehensive
Income Equity Adjustments
(Note 5) . . . . . . . . . . . . . . . (22,876) (22,329)
Less: Cost of 14,277,610 Common
Shares in Treasury (Note 3). . . . . . (58,307) (58,307)
--------------- -----------
Total Shareholders' Equity. 241,121 230,669
--------------- -----------
$ 868,933 $ 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)
Six Months Ended Three Months Ended
September 30, September 30,
2001 2000 2001
-------------------------------- ---------------------------------- ------------
Net Sales. . . . . . . . . . . . . . . . . $ 356,757 $ 385,783 $ 171,663
Cost and Expenses:
Cost of Sales . . . . . . . . . . . . . 207,426 204,384 100,391
Selling, Technical,
Administrative Expenses. . . . . . . . 106,975 116,169 52,329
Amortization. . . . . . . . . . . . . . 4,228 10,435 2,246
Interest Income . . . . . . . . . . . . (558) (906) (319)
Interest Expense. . . . . . . . . . . . 18,734 16,995 10,218
Other Expense (net) . . . . . . . . . . 1,546 2,060 887
-------------------------------- ---------------------------------- ------------
338,351 349,137 165,752
-------------------------------- ---------------------------------- ------------
Earnings Before Taxes and
Minority Interest . . . . . . . . . . . 18,406 36,646 5,911
Income Taxes . . . . . . . . . . . . . . . 6,442 13,486 1,819
Minority Interest. . . . . . . . . . . . . 105 -- 78
-------------------------------- ---------------------------------- ------------
Net Earnings . . . . . . . . . . . . . . . 12,069 23,160 4,170
Retained Earnings,
Beginning of Period . . . . . . . . . . 249,460 217,149 256,716
Cash Dividends Declared. . . . . . . . . . (1,286) (1,246) (643)
-------------------------------- ---------------------------------- ------------
Retained Earnings, End of
Period. . . . . . . . . . . . . . . . . $ 260,243 $ 239,063 $ 260,243
================================ ================================== ============
Net Earnings Per Common Share - (Note 4):
Basic . . . . . . . . . . . . . . . . . $ 0.38 $ 0.74 $ 0.13
================================ ================================== ============
Diluted . . . . . . . . . . . . . . . . $ 0.37 $ 0.72 $ 0.13
================================ ================================== ============
Cash Dividends Per
Common Share. . . . . . . . . . . . . . $ 0.04 $ 0.04 $ 0.02
================================ ================================== ============
Weighted Average Common Shares
Outstanding:
Basic . . . . . . . . . . . . . . . . . 31,813,461 31,132,512 32,132,147
================================ ================================== ============
Diluted . . . . . . . . . . . . . . . . 32,390,137 32,404,722 32,390,933
================================ ================================== ============
2000
------------
Net Sales. . . . . . . . . . . . . . . . . $ 198,720
Cost and Expenses:
Cost of Sales . . . . . . . . . . . . . 108,978
Selling, Technical,
Administrative Expenses. . . . . . . . 60,167
Amortization. . . . . . . . . . . . . . 5,540
Interest Income . . . . . . . . . . . . (403)
Interest Expense. . . . . . . . . . . . 9,312
Other Expense (net) . . . . . . . . . . 290
------------
183,884
------------
Earnings Before Taxes and
Minority Interest . . . . . . . . . . . 14,836
Income Taxes . . . . . . . . . . . . . . . 5,460
Minority Interest. . . . . . . . . . . . . --
------------
Net Earnings . . . . . . . . . . . . . . . 9,376
Retained Earnings,
Beginning of Period . . . . . . . . . . 230,310
Cash Dividends Declared. . . . . . . . . . (623)
------------
Retained Earnings, End of
Period. . . . . . . . . . . . . . . . . $ 239,063
============
Net Earnings Per Common Share - (Note 4):
Basic . . . . . . . . . . . . . . . . . $ 0.30
============
Diluted . . . . . . . . . . . . . . . . $ 0.29
============
Cash Dividends Per
Common Share. . . . . . . . . . . . . . $ 0.02
============
Weighted Average Common Shares
Outstanding:
Basic . . . . . . . . . . . . . . . . . 31,131,411
============
Diluted . . . . . . . . . . . . . . . . 32,404,015
============
See accompanying notes to consolidated condensed financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands of Dollars)
(Unaudited)
Six Months Ended September 30,
2001 2000
-------------------------------- ---------
Net Cash Flows from Operating Activities. . . $ 49,407 $ 31,672
Cash Flows from Investing Activities:
Capital Expenditures . . . . . . . . . . . (4,215) (7,586)
Proceeds from Disposition of Fixed Assets. 269 2,029
Acquisitions of Business . . . . . . . . . -- (57,280)
-------------------------------- ---------
Net Cash Flows from/(used in)
Investing Activities . . . . . . . . . . (3,946) (62,837)
Cash Flows from Financing Activities:
Short-Term (Repayments)/Borrowings . . . . 1,088 (9,114)
Long-Term Borrowings . . . . . . . . . . . 356,695 62,650
Long-Term Repayments . . . . . . . . . . . (384,527) (23,938)
Bond Financing Fees. . . . . . . . . . . . (8,167) --
Purchase of Treasury Shares. . . . . . . . -- (196)
Dividends Paid . . . . . . . . . . . . . . (1,286) (1,246)
-------------------------------- ---------
Net Cash Flows (used in)/from
Financing Activities . . . . . . . . . . . (36,197) 28,156
Effect of Exchange Rate Changes
On Cash and Cash Equivalents . . . . . . . 80 (1,071)
-------------------------------- ---------
Increase/(Decrease) in Cash and
Cash Equivalents. . . . . . . . . . . . . 9,344 (4,080)
Cash and Cash Equivalents at
Beginning of Year. . . . . . . . . . . . . 12,546 20,116
-------------------------------- ---------
Cash and Cash Equivalents
At End of Period . . . . . . . . . . . . . $ 21,890 $ 16,036
================================ =========
Cash Paid for Interest. . . . . . . . . . . . $ 11,142 $ 16,068
================================ =========
Cash Paid for Income Taxes. . . . . . . . . . $ 9,505 $ 9,938
================================ =========
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 six and three month periods ended September 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 September 30, 2001 are as follows:
Gross Carrying Accumulated
Amount Amortization
--------------- --------------
Patents . . . . . . . $ 42,748 $ (9,950)
Trademarks. . . . . . 30,409 (8,540)
Customer Base . . . . 7,063 (667)
Manufacturing Process 5,252 (5,252)
Other . . . . . . . . 18,721 (14,130)
--------------- --------------
Total. . . . . . . $ 104,193 $ (38,539)
Aggregate estimated amortization expense for the year ended December 31, 2001
(nine month transition period): $3,700
Estimated amortization expense is as follows:
For the year ended December 31, 2002 $5,000
For the year ended December 31, 2003 $5,000
For the year ended December 31, 2004 $5,000
For the year ended December 31, 2005 $5,000
For the year ended December 31, 2006 $5,000
The carrying amounts of Goodwill, identified for the following segments;
Advanced Surface Finishes ("ASF"), Graphic Arts ("GA") and Electronics
Manufacturing ("EM"), as of September 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 . 2,322 338 -- 2,660
-------- ------- ------- --------
Balance as of September 30, 2001. $118,200 $96,380 $27,108 $241,688
Additional Transitional Disclosures: Six Months Ended September 30, Three Months Ended
September 30,
2001 2000 2001 2000
------------------------------- --------------------------------- ------ -------
Reported net income. . . . . . . . . $ 12,069 $ 23,160 $4,170 $ 9,376
Add back: Goodwill amortization . . -- 3,359 -- 1,634
------------------------------- --------------------------------- ------ -------
Adjusted net income. . . . . . . . . $ 12,069 $ 26,519 $4,170 $11,010
Basic Earnings Per Share:
Reported net income. . . . . . . . $ 0.38 $ 0.74 $ 0.13 $ 0.30
Goodwill amortization. . . . . . . -- $ 0.11 -- $ 0.05
------------------------------- --------------------------------- ------ -------
Adjusted net income. . . . . . . . $ 0.38 $ 0.85 $ 0.13 $ 0.35
Diluted Earnings Per Share:
Reported net income . . . . . . . $ 0.37 $ 0.72 $ 0.13 $ 0.29
Goodwill amortization . . . . . . -- $ 0.10 -- $ 0.05
------------------------------- --------------------------------- ------ -------
Adjusted net income. . . . . . . . $ 0.37 $ 0.82 $ 0.13 $ 0.34
Note 3. Common Share Data
The following table summarizes common shares issued as of September 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 September 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.
Six Months Ended September 30 , Three Months Ended
September 30,
2001 2000 2001 2000
------------------------------ -------------------------------- ---------- ----------
Basic Common Shares. . . . . . . 31,813,461 31,132,512 32,132,147 31,131,411
Dilutive effect of stock options 257,971 270,858 258,786 271,252
Dilutive effect of warrants. . . 318,705 1,001,352 -- 1,001,352
------------------------------ -------------------------------- ---------- ----------
Diluted Common Shares. . . . . . 32,390,137 32,404,722 32,390,933 32,404,015
Note 5. Comprehensive Income and Cumulative Comprehensive Equity Adjustment
The components of comprehensive income for the six and three month periods ended
September 30, 2001 and 2000 are as follows:
Six Months Ended September 30, Three Months Ended
September 30,
2001 2000 2001 2000
-------------------------------- ---------------------------------- ------ --------
Net Earnings. . . . . . . . . $ 12,069 $ 23,160 $4,170 $ 9,376
Other Comprehensive Income:
Cumulative Foreign Currency
Translation Adjustment . . (547) (3,573) 2,197 (3,467)
Derivative Instruments and
Hedging Activities . . . . -- -- 258 --
-------------------------------- ----------------------------------
Comprehensive Income. . . . . $ 11,522 $ 19,587 $6,625 $ 5,909
================================ ================================== ====== ========
The components of cumulative comprehensive income equity adjustment as of
September 30, 2001 and March 31, 2001 are as follows:
September 30, 2001 March 31, 2001
-------------------- ----------------
Cumulative Foreign Currency
Translation Adjustment . . . . . . $ (13,206) $ (12,659)
Additional Minimum Pension Liability (9,670) (9,670)
-------------------- ----------------
Comprehensive Income . . . . . . . . $ (22,876) $ (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 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:
Six Months Ended September 30, Three Months Ended September 30,
2001 2000 2001 2000
-------------------------------- ---------------------------------- --------- ---------
Net Sales
Advanced Surface Finishes . . . $ 166,502 $ 224,924 $ 79,592 $111,434
Graphic Arts. . . . . . . . . . 148,732 156,855 73,887 83,282
Electronics Manufacturing . . . 41,523 4,004 18,184 4,004
-------------------------------- ---------------------------------- --------- ---------
Consolidated Net Sales. . . . $ 356,757 $ 385,783 $171,663 $198,720
-------------------------------- ---------------------------------- --------- ---------
Operating Income
Advanced Surface Finishes . . . $ 22,781 $ 42,920 $ 8,779 $ 19,235
Graphic Arts. . . . . . . . . . 22,794 26,745 11,393 14,775
Electronics Manufacturing . . . (3,219) (1,988) (1,229) (1,988)
Restructuring Expense . . . . . -- (974) -- (974)
Merger Expense. . . . . . . . . -- (1,473) -- (1,473)
Amortization Expense. . . . . . (4,228) (10,435) (2,246) (5,540)
-------------------------------- ---------------------------------- --------- ---------
Consolidated Operating Income $ 38,128 $ 54,795 $ 16,697 $ 24,035
Interest Income. . . . . . . 558 906 319 403
Interest Expense . . . . . . (18,734) (16,995) (10,218) (9,312)
Other (Expense) Income - net (1,546) (2,060) (887) (290)
Earnings before Income Taxes
-------------------------------- ---------------------------------- --------- ---------
And Minority Interest. . . $ 18,406 $ 36,646 $ 5,911 $ 14,836
-------------------------------- ---------------------------------- --------- ---------
Segment Identifiable Assets:
September 30, 2001 March 31, 2001
------------------- ---------------
Advanced Surface Finishing $ 416,580 $ 426,869
Graphic Arts . . . . . . . 339,752 345,849
Electronics Manufacturing. 92,703 91,665
Corporate-wide . . . . . . 19,898 20,442
------------------- ---------------
Consolidated Assets . . $ 868,933 $ 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 163
employees have severed in accordance with the plan as of September 30, 2001.
The resulting cash payments and other charges, including payments of $1,377 for
the six months ended September 30, 2001, are summarized, cumulative, since
inception, on the following table:
Inception Payments Accrued, end of Period
---------- --------- -----------------------
Severance. . . . . . . $ 6,133 $ 5,265 $ 868
Lease/Asset write-offs 530 455 75
---------- --------- -----------------------
Total . . . . . . . $ 6,663 $ 5,720 $ 943
The Corporation established 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 $198 for the six months ended September 30,
2001:
Inception Adjustments Payments Accrued, end of Period
---------- ----------- -------- -----------------------
Facilities. . $ 4,200 885 3,191 $ 1,894
Redundancies. 2,050 3,100 5,150 0
Environmental 2,000 0 120 1,880
---------- ----------- -------- -----------------------
Total. . . $ 8,250 3,985 8,461 $ 3,774
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 September 30, 2001,
the Corporation had entered into interest rate swaps with an aggregate notional
amount that approximates 97% of its borrowings on this facility. The resulting
weighted-average fixed interest rate is 6.1%. 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 $1.2 million interest
expense. Also, see Notes to Consolidated Condensed Financial Statements, 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 six month period ending September 30, 2001, there was a
negative impact on earnings of approximately $0.02 per share, or approximately
5%. Earnings are generally reinvested locally and the impact on operating cash
flows has been less than $2,600 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 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. The Corporation believes that it has adequately
reserved for the anticipated liability that may arise from any settlement.
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. The Corporation has engaged
in settlement negotiations with the Government and believes that it has
adequately reserved for the anticipated liability that may arise from any
settlement.
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 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. . . . $ 8,111 $ 1,936 $ 10,103
Accounts receivables, net . 16,445 31,505 116,124
Due (to)/from affiliates. . 230,358 (294,917) 86,889
Inventories . . . . . . . . 19,150 43,760 56,309
Prepaid expenses. . . . . . 459 3,204 4,735
Deferred income taxes . . . 4,849 - 3,902
----------------------- ------------------------ --------------------------
Total current asset . . . . $ 279,372 $ (214,512) $ 278,062
Property, plant and
Equipment, net. . . . . . . 24,737 69,257 56,842
Goodwill, net . . . . . . . 16,056 92,028 106,477
Intangibles, net. . . . . . - 32,640 32,886
Investments in subsidiaries 280,194 328,402 8,904
Other assets, net . . . . . 17,959 10,788 12,569
----------------------- ------------------------ --------------------------
$ 618,318 $ 318,603 $ 495,740
======================= ======================== ==========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2001
-------------------------------------- -------------- -----------------------
ASSETS
Current assets:
Cash and equivalents. . . . $ 1,740 $ - $ 21,890
Accounts receivables, net . 17,301 - 181,375
Due (to)/from affiliates. . (22,330) - -
Inventories . . . . . . . . 8,190 (32) 127,377
Prepaid expenses. . . . . . - - 8,398
Deferred income taxes . . . 349 - 9,100
---------------------------------------- -------------- -------------------
Total current asset . . . . $ 5,250 $ (32) $ 348,140
Property, plant and
Equipment, net. . . . . . . 20,535 - 171,371
Goodwill, net . . . . . . . 27,106 21 241,688
Intangibles, net. . . . . . 128 - 65,654
Investments in subsidiaries - (617,500) -
Other assets, net . . . . . 764 - 42,080
---------------------------------------- -------------- -------------------
$ 53,783 $ (617,511) $ 868,933
======================================== ============== ====================
CONSOLIDATED CONDENSED BALANCE SHEET (continued)
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . $ - $ - $ 6,085
Current installments of
Long term obligations . . . . . . - 3 349
Accounts/dividend payable. . . . . . 8,399 13,399 31,646
Accrued expenses . . . . . . . . . . 22,838 18,786 26,743
Income taxes . . . . . . . . . . . . (4,700) 6,907 10,688
------------------------ ------------------------ ---------------------------
Total current liabilities. . . . . . $ 26,537 $ 39,095 $ 75,511
Long-term obligations. . . . . . . . 346,486 73 75,014
Accrued postretirement . . . . . . . 4,174 - 12,945
Deferred income taxes. . . . . . . . - (762) 3,122
Other long term. . . . . . . . . . . - 3 746
Minority interest. . . . . . . . . . - - -
Shareholders' equity:
Common stock . . . . . . . . . . . . 46,410 (99) 3,810
Additional paid-in capital . . . . . 15,651 126,753 204,752
Retained earnings. . . . . . . . . . 260,243 177,291 137,530
Accumulated other
comprehensive income:
Foreign currency
Translation . . . . . . . . . . . (22,876) (23,751) (8,020)
Additional minimum
Pension liability . . . . . . . . - - (9,670)
Less cost common shares
In treasury . . . . . . . . . . . (58,307) - -
------------------------ ------------------------ ---------------------------
Total shareholders' equity . . . . . $ 241,121 $ 280,194 $ 328,402
------------------------ ------------------------ ---------------------------
$ 618,318 $ 318,603 $ 495,740
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2001
-------------------------------------- ------------- -----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . $ 12,141 $ - $ 18,226
Current installments of
Long term obligations . . . . . . 4,508 - 4,860
Accounts/dividend payable. . . . . . 12,202 - 65,646
Accrued expenses . . . . . . . . . . 2,522 - 70,889
Income taxes . . . . . . . . . . . . (62) (11) 12,822
---------------------------------------- -------------- ---------------------
Total current liabilities. . . . . . $ 31,311 $ (11) $ 172,443
Long-term obligations. . . . . . . . 6,682 - 428,255
Accrued postretirement . . . . . . . - - 17,119
Deferred income taxes. . . . . . . . 835 - 3,195
Other long term. . . . . . . . . . . 3,513 - 4,262
Minority interest. . . . . . . . . . 2,538 - 2,538
Shareholders' equity:
Common stock . . . . . . . . . . . . 3 (3,714) 46,410
Additional paid-in capital . . . . . 10,260 (341,765) 15,651
Retained earnings. . . . . . . . . . (1,858) (312,963) 260,243
Accumulated other
comprehensive income:
Foreign currency
Translation . . . . . . . . . . . 499 40,942 (13,206)
Additional minimum
Pension liability . . . . . . . . - - (9,670)
Less cost common shares
In treasury . . . . . . . . . . . - - (58,307)
---------------------------------------- -------------- ---------------------
Total shareholders' equity . . . . . $ 8,904 $ (617,500) $ 241,121
$ 53,783 $ (617,511) $ 868,933
======================================== ============== ======================
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
SIX MONTHS ENDED SEPTEMBER 30, 2001
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Net sales . . . . . . . $ 55,465 $ 110,983 $ 175,484
Costs and expenses:
Cost of sales . . . . . 36,235 65,266 95,058
Selling, technical and
Administrative . . . 23,358 29,658 50,654
Amortization. . . . . . - 1,632 2,593
Equity in earnings of
Subsidiaries . . . . (19,677) (17,920) 846
Interest income . . . . (99) (81) (368)
Interest expense. . . . 10,541 7,398 (662)
Miscellaneous, net. . . 1,048 270 147
------------------------ ------------------------ ---------------------------
$ 51,406 $ 86,223 $ 148,268
------------------------ ------------------------ ---------------------------
Earnings before taxes . 4,059 24,760 27,216
Income taxes benefit
(expense). . . . . . 8,010 (5,083) (9,296)
Minority interest . . . - - -
------------------------ ------------------------ ---------------------------
Net earnings. . . . . . $ 12,069 $ 19,677 $ 17,920
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2001
-------------------------------------- ------------- -----------------------
Net sales . . . . . . . $ 35,533 $ (20,708) $ 356,757
Costs and expenses:
Cost of sales . . . . . 31,576 (20,709) 207,426
Selling, technical and
Administrative . . . 3,305 - 106,975
Amortization. . . . . . 3 - 4,228
Equity in earnings of
Subsidiaries . . . . - 36,751 -
Interest income . . . . (10) - (558)
Interest expense. . . . 1,457 - 18,734
Miscellaneous, net. . . 81 - 1,546
---------------------------------------- -------------- ----------------------------------
$ 36,412 $ 16,042 $ 338,351
---------------------------------------- -------------- ----------------------------------
Earnings before taxes . (879) (36,750) 18,406
Income taxes benefit
(expense). . . . . . (72) (1) (6,442)
Minority interest . . . 105 - 105
---------------------------------------- -------------- ----------------------------------
Net earnings. . . . . . $ (846) $ (36,751) $ 12,069
======================================== ============== ===================================
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 2001
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Net sales . . . . . . . $ 26,418 $ 54,079 $ 85,760
Costs and expenses:
Cost of sales . . . . . 17,411 31,900 47,324
Selling, technical and
Administrative . . . 11,765 13,738 25,339
Amortization. . . . . . - 836 1,409
Equity in earnings of
Subsidiaries . . . . (8,144) (7,811) 470
Interest income . . . . (44) (33) (239)
Interest expense. . . . 5,825 4,247 (554)
Miscellaneous, net. . . 838 106 (42)
------------------------ ------------------------ ---------------------------
$ 27,651 $ 42,983 $ 73,707
------------------------ ------------------------ ---------------------------
Earnings before taxes . (1,233) 11,096 12,053
Income taxes benefit
(expense). . . . . . 5,403 (2,952) (4,242)
Minority interest . . . - - -
------------------------ ------------------------ ---------------------------
Net earnings. . . . . . $ 4,170 $ 8,144 $ 7,811
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2001
-------------------------------------- ------------- -----------------------
Net sales . . . . . . . $ 15,298 $ (9,892) $ 171,663
Costs and expenses:
Cost of sales . . . . . 13,644 (9,888) 100,391
Selling, technical and
Administrative . . . 1,487 - 52,329
Amortization. . . . . . 1 - 2,246
Equity in earnings of
Subsidiaries . . . . - 15,485 -
Interest income . . . . (3) - (319)
Interest expense. . . . 700 - 10,218
Miscellaneous, net. . . (15) - 887
---------------------------------------- -------------- ----------------------------------
$ 15,814 $ 5,597 $ 165,752
---------------------------------------- -------------- ----------------------------------
Earnings before taxes . (516) (15,489) 5,911
Income taxes benefit
(expense). . . . . . (32) 4 (1,819)
Minority interest . . . 78 - 78
---------------------------------------- -------------- ----------------------------------
Net earnings. . . . . . $ (470) $ (15,485) $ 4,170
======================================== ============== ===================================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Cash flows (used in) /
provided by
Operating activities: . $ 9,650 $ (3,270) $ 42,783
Investing activities:
Capital expenditures. . . . (139) (446) (1,565)
Proceeds from disposition
Of fixed assets. . . . . 71 - 86
------------------------ ------------------------ ---------------------------
Net cash flows provided
by / (used in)
Investing activities. . $ (68) $ (446) $ (1,479)
------------------------ ------------------------ ---------------------------
Financing activities:
Short-term (repayments)
Borrowings - net . . . . 8,650 15,231 (24,750)
Long-term borrowings. . . . 310,008 - 46,687
Long-term repayments. . . . (319,810) (9,812) (54,905)
Bond financing fees . . . . (8,167) - -
Dividends paid. . . . . . . (1,286) - -
All other . . . . . . . . . 4,833 (2,000) (2,833)
------------------------ ------------------------ ---------------------------
Net cash flows provided
by / (used in)
Financing activities. . $ (5,772) $ 3,419 $ (35,801)
------------------------ ------------------------ ---------------------------
Effect of exchange rate
changes on
On cash and equivalents . $ - $ - $ 15
------------------------ ------------------------ ---------------------------
Net increase (decrease) in
Cash and equivalents. . . 3,810 (297) 5,518
Cash and cash equivalents
At beginning of year. . . 4,301 2,233 4,585
------------------------ ------------------------ ---------------------------
Cash and cash equivalents
At end of period . . . . $ 8,111 $ 1,936 $ 10,103
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2001
-------------------------------------- ------------- -----------------------
Cash flows (used in) /
provided by
Operating activities: . $ 244 $ - $ 49,407
Investing activities:
Capital expenditures. . . . (2,065) - (4,215)
Proceeds from disposition
Of fixed assets. . . . . 112 - 269
---------------------------------------- ------------- -------------------------------
Net cash flows provided
by / (used in)
Investing activities. . $ (1,953) $ - $ (3,946)
---------------------------------------- ------------- -------------------------------
Financing activities:
Short-term (repayments)
Borrowings - net . . . . 1,957 - 1,088
Long-term borrowings. . . . - - 356,695
Long-term repayments. . . . - - (384,527)
Bond financing fees . . . . - - (8,167)
Dividends paid. . . . . . . - - (1,286)
All other . . . . . . . . . - - -
---------------------------------------- ------------- -------------------------------
Net cash flows provided
by / (used in)
Financing activities. . $ 1,957 $ - $ (36,197)
---------------------------------------- ------------- -------------------------------
Effect of exchange rate
changes on
On cash and equivalents . $ 65 $ - $ 80
---------------------------------------- ------------- -------------------------------
Net increase (decrease) in
Cash and equivalents. . . 313 - 9,344
Cash and cash equivalents
At beginning of year. . . 1,427 - 12,546
---------------------------------------- ------------- --------------- ---------------
Cash and cash equivalents
At end of period . . . $ 1,740 $ - $ 21,890
======================================== ============= ================================
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
SIX MONTHS ENDED SEPTEMBER 30, 2000
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Net sales . . . . . . . $ 86,804 $ 120,052 $ 205,560
Costs and expenses:
Cost of sales . . . . . 56,170 64,137 110,736
Selling, technical and
Administrative . . . 24,588 31,878 59,703
Amortization. . . . . . 500 4,887 5,046
Equity in earnings of
Subsidiaries . . . . (23,142) (17,108) -
Interest income . . . . (253) (486) (167)
Interest expense. . . . 6,503 6,755 3,737
Miscellaneous, net. . . (138) 1,928 270
------------------------ ------------------------ ---------------------------
$ 64,228 $ 91,993 $ 179,325
------------------------ ------------------------ ---------------------------
Earnings before taxes . 22,576 28,059 26,235
Income taxes benefit
(expense). . . . . . 570 (4,917) (9,127)
------------------------ ------------------------ ---------------------------
Net earnings. . . . . . $ 23,146 $ 23,142 $ 17,108
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2000
-------------------------------------- ------------- -----------------------
Net sales . . . . . . . $ - $ (26,633) $ 385,783
Costs and expenses:
Cost of sales . . . . . - (26,659) 204,384
Selling, technical and
Administrative . . . - - 116,169
Amortization. . . . . . - - 10,435
Equity in earnings of
Subsidiaries . . . . - 40,250 -
Interest income . . . . - - (906)
Interest expense. . . . - - 16,995
Miscellaneous, net. . . - - 2,060
--------------------------------------- -------------- -----------------------------------
$ - $ 13,591 $ 349,137
--------------------------------------- -------------- -----------------------------------
Earnings before taxes . - (40,224) 36,646
Income taxes benefit
(expense). . . . . . - (12) (13,486)
--------------------------------------- -------------- -----------------------------------
Net earnings. . . . . . $ - $ (40,236) $ 23,160
======================================= ============== ===================================
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 2000
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Net sales . . . . . . . $ 41,773 $ 65,260 $ 103,744
Costs and expenses:
Cost of sales . . . . . 27,851 36,143 57,059
Selling, technical and
Administrative . . . 12,080 18,598 29,489
Amortization. . . . . . 497 2,468 2,575
Equity in earnings of
Subsidiaries . . . . (9,284) (7,941) -
Interest income . . . . (25) (304) (74)
Interest expense. . . . 3,316 4,113 1,883
Miscellaneous, net. . . (75) 498 (133)
------------------------ ------------------------ ---------------------------
$ 34,360 $ 53,575 $ 90,799
------------------------ ------------------------ ---------------------------
Earnings before taxes . 7,413 11,685 12,945
Income taxes benefit
(expense). . . . . . 1,949 (2,401) (5,004)
------------------------ ------------------------ ---------------------------
Net earnings. . . . . . $ 9,362 $ 9,284 $ 7,941
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2000
-------------------------------------- ------------- -----------------------
Net sales . . . . . . . $ - $ (12,057) $ 198,720
Costs and expenses:
Cost of sales . . . . . - (12,075) 108,978
Selling, technical and
Administrative . . . - - 60,167
Amortization. . . . . . - - 5,540
Equity in earnings of
Subsidiaries . . . . - 17,225 -
Interest income . . . . - - (403)
Interest expense. . . . - - 9,312
Miscellaneous, net. . . - - 290
--------------------------------------- -------------- -----------------------------------
$ - $ 5,150 $ 183,884
--------------------------------------- -------------- -----------------------------------
Earnings before taxes . - (17,207) 14,836
Income taxes benefit
(expense). . . . . . - (4) (5,460)
--------------------------------------- -------------- -----------------------------------
Net earnings. . . . . . $ - $ (17,211) $ 9,376
======================================= ============== ====================================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MACDERMID INCORPORATED GUARANTOR SUBSIDIARIES NONGUARANTOR SUBSIDIARIES
------------------------ ------------------------ ---------------------------
Cash flows (used in) /
provided by
Operating activities: . $ (29,575) $ 7,552 $ 53,695
Investing activities:
Capital expenditures. . . . (647) (1,859) (5,080)
Proceeds from disposition
of fixed assets . . . . . 1,908 (1,955) 2,076
Acquisitions of businesses. - (51,162) (6,118)
------------------------ ------------------------ ---------------------------
Net cash flows used in
Investing activities. . . $ 1,261 $ (54,976) $ (9,122)
------------------------ ------------------------ ---------------------------
Financing activities:
Short-term (repayments)
Borrowings - net. . . . . 25,615 12,519 (47,248)
Long-term borrowings. . . . 8,000 47,000 7,650
Long-term repayments. . . . (10,926) (9,909) (3,103)
Purchase treasury shares. . (196) - -
Dividends paid. . . . . . . (1,246) - -
All other . . . . . . . . . 5,484 (380) (5,104)
------------------------ ------------------------ ---------------------------
Net cash flows provided
by / (used in)
Financing activities. . $ 26,731 $ 49,230 $ (47,805)
------------------------ ------------------------ ---------------------------
Effect of exchange rate
changes on
on cash and equivalents . $ - $ 5 $ (1,076)
------------------------ ------------------------ ---------------------------
Net increase (decrease) in
Cash and equivalents. . . (1,583) 1,811 (4,308)
Cash and cash equivalents
at beginning of year. . . 5,741 2,725 11,650
------------------------ ------------------------ ---------------------------
Cash and cash equivalents
at end of period. . . . . $ 4,158 $ 4,536 $ 7,342
======================== ======================== ===========================
UNRESTRICTED NONGUARANTOR SUBSIDIARIES ELIMINATIONS MACDERMID INCORPORATED
AND SUBSIDIARIES
SEPTEMBER 30, 2000
-------------------------------------- ------------- -----------------------
Cash flows (used in) /
provided by
Operating activities: . $ - $ - $ 31,672
Investing activities:
Capital expenditures. . . . - - (7,586)
Proceeds from disposition
of fixed assets . . . . . - - 2,029
Acquisitions of businesses. - - (57,280)
--------------------------------------- ------------- --------------------------------
Net cash flows used in
Investing activities. . . $ - $ - $ (62,837)
--------------------------------------- ------------- --------------------------------
Financing activities:
Short-term (repayments)
Borrowings - net. . . . . - - (9,114)
Long-term borrowings. . . . - - 62,650
Long-term repayments. . . . - - (23,938)
Purchase treasury shares. . - - (196)
Dividends paid. . . . . . . - - (1,246)
All other . . . . . . . . . - - -
--------------------------------------- ------------- --------------------------------
Net cash flows provided
by / (used in)
Financing activities. . $ - $ - $ 28,156
--------------------------------------- ------------- --------------------------------
Effect of exchange rate
changes on
on cash and equivalents . $ - $ - $ (1,071)
--------------------------------------- ------------- --------------------------------
Net increase (decrease) in
Cash and equivalents. . . - - (4,080)
Cash and cash equivalents
at beginning of period. . - - 20,116
--------------------------------------- ------------- --------------------------------
Cash and cash equivalents
at end of year. . . . . . $ - $ - $ 16,036
======================================= ============= ================================
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 SEPTEMBER 30, 2001 TO THE SAME PERIOD IN 2000.
SALES, COSTS AND EXPENSES
Graphic Arts: Total sales for the current quarter were $73.8 million, a decrease
of $9.5 million, or 11% from $83.3 million in the same period last year. The
underlying sales in all areas of the graphic arts business were below the same
period last year as worldwide economies remain soft.
Costs as a percentage of sales were slighlty higher than the same period last
year as production declined. As a result, gross profit percentage was 41.4% as
compared to 43.5% for the same period last year. Selling, technical and
administrative expenses (ST&A) were $19.2 million for the three month period
ended September 30, 2001, an 11% decrease as compared to $21.5 million for the
same period last year, as a result of the restructuring program undertaken
during the previous fiscal year. ST&A as a percentage of sales for the current
quarter was 26.3% as compared to 26.1% in the same period last year.
Total amortization charged to earnings was $0.2 million for the three month
period ended September 30, 2001. This was $2.2 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 $11.2 million decreased $1.2 million, or 10% from the same
period last year.
Advanced Surface Finishes: Total sales for the current quarter were $79.6
million, a decrease of $31.8 million, or 29% from $111.4 million in the same
period last year. Divestitures of approximately $7.5 million and a $2.0 million
negative effect of foreign currency translation contributed to the decline.
Proprietary sales, excluding the effects of divestiture and foreign currency
translation, were $21.3 million, or 22% less than the same period last year.
The lower proprietary sales was primarily due to lower volume in the electronics
industry as customers reduced inventory and the worldwide electronics markets
remain soft.
Costs as a percentage of sales were about the same for the comparable three
month periods Gross profit percentage was 50.2% as compared to 49.0% for the
same period last year, primarily a result of a greater proprietary sales mix.
Selling, technical and administrative expenses (ST&A) were $31.2 million for the
three month period ended September 30, 2001, a 12% decrease as compared to $35.4
million for the same period last year. Excluding the effects of divestiture and
foreign currency translation, ST&A decreased $2.1 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 39.2% as compared to 31.7% in
the same period last year.
Total amortization charged to earnings was $2.1 million for the three month
period ended September 30, 2001. This was $1.1 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 $6.7 million decreased $9.4 million, or 58% from the same
period last year.
Electronics Manufacturing: Total sales for the current quarter were $18.2
million with a gross profit of $0.7 million. Gross profit as a percentage of
sales was 4.1%. ST&A was $2.0 million, or 11% as a percentage of sales. As a
result, there was an operating loss of $1.2 million for the three month period
ended September 30, 2001. Electronics Manufacturing had $4.0 million sales with
an operating loss of $2.0 million, as Dynacircuits was just beginning in the
same period last year. Towards the end of the current quarter the Dynacircuits
double-sided operations were closed.
Consolidated: Total sales for the current quarter, $171.7 million decreased
$27.0 million or 14% from $198.7 million in the same period last year.
Acquisitions (net of divestitures) added $12.9 million, while foreign currency
translation reduced reported sales by approximately $2.9 million. Without these
effects, reported sales would have decreased 19%. Proprietary sales were
roughly 85% of total sales as compared to 91% of total sales in the same period
last year.
Gross profits decreased 21% for the three month period ended September 30, 2001
as compared to the same period last year as a result of lower proprietary sales.
Gross profit as a percentage of sales was 41.5% for the three month period as
compared to 45.2% for the same period last year, as a result of the lower gross
margin associated with Electronics Manufacturing board sales. ST&A expenses for
the three month period were 9% 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 30.5% as compared to 29.0% for the same period last year.
Total amortization charged to earnings was $2.2 million for the three month
period ended September 30, 2001. This was $3.3 million less than the same
period last year due to the adoption of SFAS142 as identified above. Operating
profit (after amortization) for the three month period ended September 30, 2001
was $16.7 million, a decrease of $7.3 million, or approximately 30% less than
$24.0 million for the same period last year.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 31% for the three month
period ended September 30, 2001 and 37% for the same period in 2000. The lower
rate for the 2001 period is a result of certain favorable tax audits which were
completed this quarter.
NET EARNINGS
Net earnings available to common shareholders for the three month period ended
September 30, 2001 decreased 44% as compared to the same period last year.
Foreign currency translation had the effect of reducing the reported earnings by
approximately 7% for the three month period.
THE FOLLOWING DISCUSSION COMPARES THE RESULTS OF OPERATIONS FOR THE SIX MONTH
PERIOD WHICH ENDED SEPTEMBER 30, 2001 TO THE SAME PERIOD IN 2000.
SALES, COSTS AND EXPENSES
Graphic Arts: Total sales for the six months ended September 30, 2001 were
$148.7 million, a decrease of $8.2 million, or 5% from $156.9 million in the
same period last year. Acquisition added $6.6 million which was partially
offset by a $2.1 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 production declined. As a result, gross profit percentage was 42.4% as
compared to 43.8% for the same period last year. ST&A were $40.2 million for
the six month period ended September 30, 2001, a 4% decrease as compared to
$42.0 million for the same period last year. Excluding the effects of
acquisition and foreign currency translation, ST&A decreased $6.6 million, or
14% 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 27.0% as
compared to 26.8% in the same period last year.
Total amortization charged to earnings was $0.3 million for the six month period
ended September 30, 2001. This was $4.1 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
$22.5 million increased $1.6 million, or 8% from the same period last year.
Advanced Surface Finishes: Total sales for the six months ended September 30,
2001 were $166.5 million, a decrease of $58.4 million, or 26% from $224.9
million in the same period last year. Divestitures of approximately $15.5
million and a $6.5 million negative effect of foreign currency translation was
roughly 40% of the decline. Proprietary sales, excluding the effects of
divestiture and foreign currency translation, were $36.6 million, or 19% less
than the same period last year. The lower proprietary sales was primarily due
to lower volumes in the electronics industry as customers reduced inventory and
the worldwide electronics markets remain soft.
Costs as a percentage of sales stabilized during the year. Gross profit
percentage was 51.0% as compared to 50.6% for the same period last year.
Selling, technical and administrative expenses (ST&A) were $62.1 million for the
six month period ended September 30, 2001, a 12% decrease as compared to $70.8
million for the same period last year. Excluding the effects of divestiture and
foreign currency translation, ST&A decreased $4.1 million, or 6%, primarily from
lower costs of selling associated with the lower sales volume. ST&A as a
percentage of sales for the six months ended September 30, 2001 was 37.3% as
compared to 31.5% in the same period last year.
Total amortization charged to earnings was $3.9 million for the six month period
ended September 30, 2001. This was $2.2 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
$18.9 million decreased $17.9 million, or 51% from the same period last year.
Electronics Manufacturing: Total sales for the six months ended September 30,
2001 were $41.5 million with a gross profit of $1.4 million. Gross profit as a
percentage of sales was 3.4%. ST&A was $4.6 million, or 11% as a percentage of
sales. As a result, there was an operating loss of $3.2 million for the six
month period ended September 30, 2001. Electronics Manufacturing had $4.0
million sales with an operating loss of $2.0 million, as Dynacircuits was just
beginning in the same period last year. Towards the end of the current quarter
the Dynacircuits double-sided operations were closed.
Consolidated: Total sales for the six months ended September 30, 2001, $356.8
million decreased $29.0 million or 8% from $385.8 million in the same period
last year. Acquisitions (net of divestitures) added $34.8 million, while
foreign currency translation reduced reported sales by approximately $8.7
million. Without these effects, reported sales would have decreased 14%.
Proprietary sales were roughly 83% of total sales as compared to 92% of total
sales in the same period last year.
Gross profits decreased 18% for the six month period ended September 30, 2001 as
compared to the same period last year as a result of lower proprietary sales.
Gross profit as a percentage of sales was 41.9% for the six month period as
compared to 47.0% for the same period last year, as a result of increased
Electronics Manufacturing board sales. ST&A expenses for the six month period
were 6% less than the same period last year for the reasons explained above.
ST&A as a percentage of sales for the six month period was 30.0% as compared to
29.5% for the same period last year.
Total amortization charged to earnings was $4.2 million for the six month period
ended September 30, 2001. This was $6.2 million less than the same period last
year due to the adoption of SFAS142 as identified above. Operating profit
(after amortization) for the six month period ended September 30, 2001 was $38.1
million a decrease of $16.7 million, or 30% less than $54.8 million for the same
period last year.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 35% for the six month
period ended September 30, 2001 and 37% for the same period in 2000, primarily a
result of certain favorable tax audits. It is expected that the effective tax
rate will remain at 35% through the remainder of the fiscal year.
NET EARNINGS
Net earnings available to common shareholders for the six month period ended
September 30, 2001 decreased 48% as compared to the same period last year.
Foreign currency translation had the effect of reducing the reported earnings by
approximately 8% for the six month period.
The following discussion provides information with respect to changes in
financial condition during the six months ended September 30, 2001.
Financial Condition
Operating activities during the six months ending September 30, 2001 resulted in
a net cash inflow of $49.4 million. The cash generated was used for bond
financing fees, capital improvements, dividends to common shareholders and debt
repayments. Working Capital at September 30, 2001 was $175.7 million as
compared to $125.7 million at March 31, 2001. This change in working capital is
pricipally due to the current portion of the long-term credit facility at year
end being replaced by long-term bond financing during the six month period ended
September 30, 2001.
Capital expenditures were $4.2 million for the six months ended September 30,
2001 and are in line with the planned ($14.0 million, or approximately $10.5
million for the nine months ended December 31, 2001) expenditures.
The following table contains other data for the six and three month periods
ended September 30, 2001 and 2000. EBITDA is earnings before interest, taxes,
depreciation and amortization. Owner Earnings is cash flow from operations less
net capital spending. Neither EBITDA, nor Owner Earnings are intended to
represent cash flow from operations as defined by generally accepted accounting
principles. These measures should not be used as an alternative to net income
as an indicator of operating performance or to cash flows as a measure of
liquidity.
($millions) Six Months Ended September 30, Three Months
Ended September
30,
2001 2000 2001
-------------------------------- ---------------------------------- --------
Cash provided by operations. . . . . . . . . . . $ 49.4 $ 31.7 $ 30.0
Cash used in investing activities. . . . . . . . ($3.9) ($62.8) ($1.4)
Cash (used in)/provided by financing activities. ($36.2) $ 28.2 ($22.4)
EBITDA . . . . . . . . . . . . . . . . . . . . . $ 52.5 $ 72.8 $ 23.9
Cash provided by operations. . . . . . . . . . . $ 49.4 $ 31.7 $ 30.0
Less: net capital spending . . . . . . . . . . . ($3.9) ($5.6) ($1.5)
-------------------------------- ---------------------------------- --------
Owner Earnings . . . . . . . . . . . . . . . . . $ 45.5 $ 26.1 $ 28.5
($millions)
2000
--------
Cash provided by operations. . . . . . . . . . . $ 21.2
Cash used in investing activities. . . . . . . . ($6.5)
Cash (used in)/provided by financing activities. ($14.7)
EBITDA . . . . . . . . . . . . . . . . . . . . . $ 34.1
Cash provided by operations. . . . . . . . . . . $ 21.2
Less: net capital spending . . . . . . . . . . . ($3.5)
--------
Owner Earnings . . . . . . . . . . . . . . . . . $ 17.7
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 $25.7 million during the six months ended September 30, 2001. The
amounts outstanding on the revolving loan at September 30, 2001, consists of
$44.4 million ( 30.1 million) and $74.2 million (Euro 81.4 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); as well as, Statement of
Financial Accounting Standard No.141, "Business Combinations" (SFAS141) and
Statement of Financial Accounting Standard No.142, "Goodwill and Other
Intangible Assets" (SFAS142) which replace existing pronouncements and practices
for purchase accounting, specifically ending the use of pooling-of-interests and
amortization of goodwill (refer to the Notes to Consolidated Condensed Financial
Statements, Note 2).
In addition, the Financial Accounting Standards Board (FASB) recently issued
Statement of Financial Accounting Standard No. 143, "Accounting for Asset
Retirement Obligations" (SFAS143). This statement addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. Under this statement, the
liability is discounted and the accretion expense is recognized using the
credit-adjusted risk free interest rate in effect when the liability was
initially recognized. SFAS143 is effective for financial statements issued for
fiscal years beginning after June 15, 2002, however,earlier adoption is
permitted. The FASB also recently issued Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment of Disposal of Long-Lived
Assets" (SFAS144). This statement supersedes Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". This statement requires that one
accounting model be used for long-lived assets to be disposed of. SFAS144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The provisions
of this statement are to be applied prospectively. The Corporation does not
expect that the adoption of these statements will have a material impact on its
consolidated financial statements.
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. The
Corporation believes that it has adequately reserved for the anticipated
liability that may arise from any settlement.
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. The Corporation has engaged
in settlement negotiations with the Government and believes that it has
adequately reserved for the anticipated liability that may arise from any
settlement.
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.
5.3 The Corporation issued a press release for second quarter earnings on
October 25, 2001. Closure of the Dynacircuits single-sided business is also
mentioned. The closure is expected to occur by the end of November and will
result in an approximate $7 million non-cash charge to earnings.
ITEM 6(A) : EXHIBITS
None.
ITEM 6(B) : REPORTS ON FORM 8-K
None.
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
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(Registrant)
Date: November 14, 2001 /s/ Daniel H. Leever
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Daniel H. Leever
Chairman, President and
Chief Executive Officer
Date: November 14, 2001 / s / Gregory M. Bolingbroke
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Gregory M. Bolingbroke
Vice President, Treasurer and
Corporate Controller
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