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, 2002
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COMMISSION FILE NUMBER 0-2413
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MacDermid, Incorporated
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(Exact name of registrant as specified in its charter)
Connecticut 06-0435750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 Freight Street, Waterbury, Connecticut 06702
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 575-5700
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.
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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 .
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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, 2002
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Common Stock, no par value 32,246,830 shares
MACDERMID, INCORPORATED
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 2002 and December 31, 2001. . . . . . . . . . . . 2-3
Consolidated Condensed Statements of Earnings
and Retained Earnings - Six and Three Months Ended
June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001. . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . 6-22
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 23-30
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
Part II. Other Information. . . . . . . . . . . . . . . . . . . . 30
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Statement Under Section 906 of the Sarbanes-Oxley Act of 2002 . . . 32-33
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
June 30, December 31,
2002 2001
------------ --------------
Assets (Unaudited) (Audited)
Current assets:
Cash and equivalents. . . . . . . . . . . $ 15,693 $ 17,067
Accounts and notes receivable, (net
of allowance for doubtful receivables
of $16,550 and $14,642). . . . . . . . 163,034 164,230
Inventories
Finished goods . . . . . . . . . . . . 55,148 57,882
Raw materials. . . . . . . . . . . . . 52,153 53,152
------------ --------------
107,301 111,034
Prepaid expenses. . . . . . . . . . . . . 9,697 8,068
Deferred income tax asset . . . . . . . . 14,164 13,831
------------ --------------
Total current assets. . . . 309,889 314,230
Property, plant and equipment (net
of accumulated depreciation of
$143,718 and $140,234) . . . . . . . . 146,098 152,482
Goodwill (Note 2) . . . . . . . . . . . . 224,635 222,571
Intangibles, (net of accumulated
amortization of $17,963
and $36,585) (Note 2). . . . . . . . . 36,262 37,425
Other assets. . . . . . . . . . . . . . . 64,080 64,177
------------ --------------
$ 780,964 $ 790,885
============ ==============
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
June 30, December 31,
2002 2001
------------ --------------
Liabilities and shareholders' equity (Unaudited) (Audited)
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . $ 7,540 $ 12,961
Current installments of long-term obligations. 6,554 5,614
Accounts and dividends payable . . . . . . . . 67,497 62,031
Accrued expenses (Note 7). . . . . . . . . . . 78,377 82,886
Income taxes . . . . . . . . . . . . . . . . . 11,613 10,468
------------ --------------
Total current liabilities. . . . 171,581 173,960
Long-term obligations. . . . . . . . . . . . . 358,680 393,788
Accrued post-retirement and
postemployment benefits . . . . . . . . . . 12,777 12,308
Deferred income taxes. . . . . . . . . . . . . 4,099 4,364
Other long-term liabilities. . . . . . . . . . 1,177 281
Minority interest. . . . . . . . . . . . . . . 3,189 2,753
Shareholders' equity:
Common stock stated value
$1.00 per share (Note 3). . . . . . . . . . 46,540 46,410
Additional paid-in capital . . . . . . . . . . 18,815 16,923
Retained earnings. . . . . . . . . . . . . . . 234,334 218,619
Cumulative comprehensive
income equity adjustments (Note 5). . . . . (11,183) (19,579)
Less: cost of treasury shares (Note 3) . . . . (59,045) (58,942)
------------ --------------
Total shareholders' equity . . . 229,461 203,431
------------ --------------
$ 780,964 $ 790,885
============ ==============
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
June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales . . . . . . . . . . . . . . . . . . . $ 343,678 $ 396,887 $ 176,722 $ 185,094
Cost and expenses:
Cost of sales. . . . . . . . . . . . . . . . 189,177 231,926 96,365 107,035
Selling, technical, administrative expenses. 107,495 120,050 55,710 54,646
Amortization . . . . . . . . . . . . . . . . 3,138 6,850 1,570 1,983
Interest income. . . . . . . . . . . . . . . (277) (834) (136) (239)
Interest expense . . . . . . . . . . . . . . 17,944 18,180 8,743 8,516
Other expense (net). . . . . . . . . . . . . 553 1,054 359 658
------------ ------------ ------------ ------------
318,030 377,226 162,611 172,599
------------ ------------ ------------ ------------
Earnings before taxes and
minority interest. . . . . . . . . . . . . . 25,648 19,661 14,111 12,495
Income taxes. . . . . . . . . . . . . . . . . . (8,208) (7,177) (4,169) (4,623)
Minority interest . . . . . . . . . . . . . . . (435) 27 (269) 27
------------ ------------ ------------ ------------
Net earnings. . . . . . . . . . . . . . . . . . 17,005 12,511 9,673 7,899
Retained earnings, beginning of period. . . . . 218,619 245,471 225,306 249,460
Cash dividends declared . . . . . . . . . . . . (1,290) (1,266) (645) (643)
------------ ------------ ------------ ------------
Retained earnings, end of period. . . . . . . . $ 234,334 $ 256,716 $ 234,334 $ 256,716
============ ============ ============ ============
Net earnings per common share - (Note 4):
Basic. . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.40 $ 0.30 $ 0.25
============ ============ ============ ============
Diluted. . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.39 $ 0.30 $ 0.24
============ ============ ============ ============
Cash dividends per common share . . . . . . . . $ 0.04 $ 0.04 $ 0.02 $ 0.02
============ ============ ============ ============
Weighted average common shares outstanding
Basic. . . . . . . . . . . . . . . . . . . . 32,224,787 31,312,059 32,228,064 31,491,274
============ ============ ============ ============
Diluted. . . . . . . . . . . . . . . . . . . 32,503,828 32,392,104 32,514,702 32,389,340
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands of Dollars)
(Unaudited)
Six Months Ended June 30,
2002 2001
Net cash flows from operating activities. . . $ 49,953 $ 36,120
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . (2,579) (14,483)
Proceeds from disposition of fixed assets. 299 2,366
Acquisitions of businesses . . . . . . . . - (15,141)
Dispositions of businesses . . . . . . . . - 9,415
--------------------------- ----------
Net cash flows used in
investing activities . . . . . . . . . . (2,280) (17,843)
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings. . . . . . . . . . (9,626) (7,134)
Long-term borrowings . . . . . . . . . . . 68,451 377,795
Long-term repayments . . . . . . . . . . . (107,138) (381,338)
Bond financing fees. . . . . . . . . . . . - (6,500)
Purchase of treasury shares. . . . . . . . (103) -
Dividends paid . . . . . . . . . . . . . . (1,290) (1,266)
--------------------------- ----------
Net cash flows used in
financing activities . . . . . . . . . . (49,706) (18,443)
Effect of exchange rate changes
on cash and cash equivalents . . . . . . . 659 (2,054)
--------------------------- ----------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . (1,374) (2,220)
Cash and cash equivalents at
beginning of period. . . . . . . . . . . . 17,067 17,732
--------------------------- ----------
Cash and cash equivalents
at end of period . . . . . . . . . . . . . $ 15,693 $ 15,512
=========================== ==========
Cash paid for interest. . . . . . . . . . . . $ 20,854 $ 15,441
=========================== ==========
Cash paid for income taxes. . . . . . . . . . $ 5,390 $ 9,731
=========================== ==========
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Note 1. Summary of Significant Accounting Policies
The December 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 June 30, 2002 and 2001 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 transition year
2001 Annual Report.
Note 2. Goodwill and Other Intangible Assets
Goodwill carrying amounts, identified for the following segments; Advanced
Surface Finishes "ASF", Printing Solutions (formerly Graphic Arts) "PS" and
Electronics Manufacturing "EM", are as follows:
ASF PS EM Total
-------- ------- ------- --------
Balance as of December 31, 2001 $123,052 $72,130 $27,389 $222,571
Effects of currency translation 1,665 399 - 2,064
-------- ------- ------- --------
Balance as of June 30, 2002 . . $124,717 $72,529 $27,389 $224,635
======== ======= ======= ========
Acquired intangible assets June 30, 2002 December 31, 2001
--------------- -------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
--------------- ------------------- --------------- --------------
Patents. . . . . . . . . . $ 19,698 $ (7,527) $ 20,865 $ (8,357)
Trademarks . . . . . . . . 27,475 (8,549) 28,281 (8,093)
Others . . . . . . . . . . 7,052 (1,887) 24,864 (20,135)
--------------- ------------------- --------------- --------------
Total . . . . . . . . . $ 54,225 $ (17,963) $ 74,010 $ (36,585)
=============== =================== =============== ==============
Aggregate estimated amortization expense is expected to approximate $2,700 for
each of the fiscal years ended December 31, 2002 - 2006.
Six Months Ended Three Months Ended
Additional transitional disclosures: June 30, June 30,
2002 2001 2002 2001
----------------- ------------------- ------ ------
Reported net income. . . . . . . . . $ 17,005 $ 12,511 $9,673 $7,899
Add back: goodwill amortization . . - 1,913 - -
----------------- ------------------- ------ ------
Adjusted net income. . . . . . . . . $ 17,005 $ 14,424 $9,673 $7,899
================= =================== ====== ======
Basic earnings per share:
Reported net income. . . . . . . . $ 0.53 $ 0.40 $ 0.30 $ 0.25
Goodwill amortization. . . . . . . - $ 0.06 - -
----------------- ------------------- ------ ------
Adjusted net income. . . . . . . . $ 0.53 $ 0.46 $ 0.30 $ 0.25
================= =================== ====== ======
Diluted earnings per share:
Reported net income . . . . . . . $ 0.52 $ 0.39 $ 0.30 $ 0.24
Goodwill amortization . . . . . . - $ 0.06 - -
----------------- ------------------- ------ ------
Adjusted net income. . . . . . . . $ 0.52 $ 0.45 $ 0.30 $ 0.24
================= =================== ====== ======
Note 3. Common Share Data
The following table summarizes common shares issued as of June 30, 2002 and
2001.
2002 2001
---------- ----------
Balance beginning of period. 46,409,757 45,408,464
Shares issued - stock awards 130,000 1,001,293
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Balance end of period. . . . 46,539,757 46,409,757
========== ==========
The Board of Directors has from time-to-time authorized the purchase of issued
and outstanding shares of the Corporation's common stock. Common shares held in
treasury, were 14,314,127 at June 30, 2002 and 14,309,654 at December 31, 2001.
There remained authorization to purchase approximately 138,000 common shares at
June 30, 2002. 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 contingently issuable common shares from stock
options, stock awards and share warrants 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 June 30, Three Months Ended June 30,
2002 2001 2002 2001
------------------------- --------------------------- ---------- ----------
Basic common shares . . . . . . . 32,224,787 31,312,059 32,228,064 31,491,274
Dilutive effect of stock options. 279,041 259,909 286,638 257,155
Dilutive effect of share warrants - 820,136 - 640,911
------------------------- --------------------------- ---------- ----------
Diluted common shares . . . . . . 32,503,828 32,392,104 32,514,702 32,389,340
========================= =========================== ========== ==========
Note 5. Comprehensive Income and Cumulative Comprehensive Equity Adjustment
The components of comprehensive income for the six and three month periods ended
June 30, 2002 and 2001 are as follows:
Six Months Ended June 30, Three Months Ended June 30,
2002 2001 2002 2001
--------------------------- ----------------------------- -------- --------
Net earnings. . . . . . . . . . . . . . . $ 17,005 $ 12,511 $ 9,673 $ 7,899
Other comprehensive income:
Foreign currency translation adjustment 8,397 (5,907) 8,807 (2,744)
Minimum pension liability . . . . . . . - (9,670) - -
Hedging activities. . . . . . . . . . . (1) (258) (251) (258)
--------------------------- ----------------------------- -------- --------
Comprehensive Income. . . . . . . . . . . $ 25,401 $ (3,324) $18,229 $ 4,897
=========================== ============================= ======== ========
The components of cumulative equity adjustments for comprehensive income as of
June 30, 2002 and December 31, 2001 are as follows:
June 30, 2002 December 31, 2001
--------------- -------------------
Cumulative equity adjustments for:
Foreign currency translation . . . . $ (7,952) $ (16,349)
Additional minimum pension liability (2,954) (2,954)
Hedging activities . . . . . . . . . (277) (276)
--------------- -------------------
Cumulative comprehensive income . . . . $ (11,183) $ (19,579)
=============== ===================
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 Finishing and Printing
Solutions, which was previously referred to as Graphic Arts. In addition, the
Corporation operates a third reportable segment, Electronics Manufacturing, 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 Finishing are used for a broad range of
purposes including finishing metals and non metallic surfaces, electro-plating
metal surfaces, etching, imaging, metalization, high pressure fluids and
cleaning. The chemicals supplied by Printing Solutions 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 both single 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 and certain other long term assets not directly associated
with the support of the individual operations.
Segment results of operations: Six Months Ended June 30, Three Months Ended June 30,
2002 2001 2002 2001
--------------------------- ----------------------------- --------- ---------
Net sales
Advanced surface finishing. . . . . . $ 158,989 $ 195,035 $ 80,558 $ 86,911
Printing solutions. . . . . . . . . . 141,851 151,911 73,498 74,845
Electronics manufacturing . . . . . . 42,838 49,941 22,666 23,338
--------------------------- ----------------------------- --------- ---------
Consolidated net sales. . . . . . . $ 343,678 $ 396,887 $176,722 $185,094
--------------------------- ----------------------------- --------- ---------
Operating income (loss)
Advanced surface finishing. . . . . . $ 20,899 $ 30,267 $ 10,805 $ 14,002
Printing solutions. . . . . . . . . . 23,822 24,398 12,554 11,401
Electronics manufacturing . . . . . . 2,285 (3,880) 1,288 (1,990)
Restructuring and impairment expense. - (5,874) - -
Amortization expense. . . . . . . . . (3,138) (6,850) (1,570) (1,983)
--------------------------- ----------------------------- --------- ---------
Consolidated operating income . . . $ 43,868 $ 38,061 $ 23,077 $ 21,430
Interest income. . . . . . . . . . 277 834 136 239
Interest expense . . . . . . . . . (17,944) (18,180) (8,743) (8,516)
Other (expense) income, net. . . . (553) (1,054) (359) (658)
Earnings before income taxes
--------------------------- ----------------------------- --------- ---------
and minority interest. . . . . . $ 25,648 $ 19,661 $ 14,111 $ 12,495
=========================== ============================= ========= =========
Segment identifiable assets: June 30, 2002 December 31, 2001
-------------- ------------------
Advanced surface finishing . $ 153,350 $ 177,253
Graphic arts . . . . . . . . 430,893 431,353
Electronics manufacturing. . 138,063 132,296
Corporate-wide . . . . . . . 58,658 49,983
-------------- ------------------
Consolidated assets . . . $ 780,964 $ 790,885
============== ==================
Note 7. Restructuring Charges and Acquisition Liabilities
The Corporation initiated restructuring programs (included in accrued expenses)
each of the two previous fiscal years in order to reduce its manufacturing and
operating cost structures.
Transition year ended December 31, 2001 included a $21,264 restructuring charge,
representing management and office support redundancies. The resulting cash
payments and other charges, including cash payments of $1,948 for the six months
ended June 30, 2002, are summarized, cumulative, since inception, on the
following table:
Cash Non-cash
Inception Payments Charges Balance
---------- --------- --------- --------
Severance. . . . . . . $ 2,918 $ 2,004 $ - $ 914
Lease/asset write-offs 18,346 - 15,644 2,702
---------- --------- --------- --------
Total . . . . . . . $ 21,264 $ 2,004 $ 15,644 $ 3,616
========== ========= ========= ========
Fiscal year ended March 31, 2001 included a $6,663 restructuring charge,
primarily representing management and office support redundancies. The
resulting cash payments and other charges, including cash payments of $22 for
the six months ended June 30, 2002, are summarized, cumulative, since inception,
on the following table:
Cash Non-cash
Inception Payments Charges Balance
---------- --------- --------- --------
Severance. . . . . . . $ 6,133 $ 5,798 $ 335 $ -
Lease/asset write-offs 530 106 424 -
---------- --------- --------- --------
Total . . . . . . . $ 6,663 $ 5,904 $ 759 $ -
========== ========= ========= ========
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. See market risk and contingencies,
Note 8, regarding environmental activity.
The following table summarizes the cumulative activity to this account, since
inception, including cash payments of $60 for the six months ended June 30,
2002:
Inception Adjustments Payments Balance
---------- ----------- -------- --------
Facilities. . $ 4,200 885 3,365 $ 1,720
Redundancies. 2,050 3,100 5,150 -
Environmental 2,000 - 120 1,880
---------- ----------- -------- --------
Total. . . $ 8,250 3,985 8,635 $ 3,600
========== =========== ======== ========
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. The Corporation has
entered into interest rate swaps, a portion of which have been designated as
hedging instruments under the provisions of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
At June 30, 2002, the aggregate notional amount covers 85% of its borrowings on
this credit facility. The resulting weighted-average fixed interest rate is
5.6% under this facility. The Corporation further reduced its exposure to
interest rate risk with a fixed rate bond offering during transition year 2001.
For additional information, see the financial information for guarantors of the
Corporation's bond offering, Note 9. Based upon expected levels of borrowing in
2002 and providing for swap protection, an increase in interest rates of 100
basis points would result in an incremental interest expense of less than $100.
The Corporation operates manufacturing facilities in ten countries and sells
products in over twenty-five countries. Approximately 55% 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 June 30, 2002, there was a negative
impact on earnings of approximately $0.01 per share, or approximately 2%. 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 raw material
inventories 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.
Note 8. Market Risk and Contingencies (continued)
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, 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 $2,000. The Corporation estimates the range of cleanup costs at
its Canning sites between $2,000 and $11,500. Investigations into the extent of
contamination, however, are ongoing with respect to some of these sites. To the
extent the Corporation's liabilities exceed $2,000, it may be entitled to
additional indemnification payments. Such recovery may be uncertain, however,
and would likely involve significant litigation expense. See restructuring
charges and acquisition liabilities, Note 7.
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 June 25, 2002, the U.S. Environmental Protection Agency
brought an administrative complaint against the Adams, Massachusetts
manufacturing facility owned by MacDermid Graphic Arts, Inc., alleging that the
facility violated certain regulations and permit requirements regarding air
emissions and related record keeping matters. The allegations arise primarily
out of conduct that allegedly occurred prior to the Corporation's acquisition of
the facility through its December 1999 acquisition of Polyfibron Technologies,
Inc. The complaint seeks $0.3 million in penalties. The Corporation's
subsidiary has responded to the complaint and will engage a defense to the
allegations. The Corporation currently believes that this matter will not have
a material impact on its future results of operations and financial position.
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. 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 sentenced to fines of $25 and $10 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 voluntarily resolved both of these matters on November 28, 2001.
As a result, MacDermid will be required to pay fines and penalties totaling
$2,500, without interest, over six quarterly installments. In addition, $1,550
will be paid to various local charitable and environmental organizations and
causes. The Corporation will be placed on probation for two years and will
perform certain environmental audits, as well as other environmentally related
actions. The Corporation had recorded liabilities during the negotiation period
and therefore future results of operations and financial position will not be
affected by these arrangements.
Note 8. Market Risk and Contingencies (continued)
Other Concentrations: 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 40% 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 30% of the business is
concentrated in the electronics industry, between 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 well as the manufacture of printed
circuit boards. As is usual for this business, the Corporation generally does
not require collateral or other security as a condition of sale rather relying
on credit approval, balance limitation and monitoring procedures to control
credit risk of trade account financial instruments. Management believes that
reserves for losses, which are established based upon review of account balances
and historical experience, are adequate.
Note 9. Financial Information for Guarantors of the Corporation's Bond
Offering
The Corporation issued 9 1/8% Senior Subordinated Notes ("bond offering")
effective June 20, 2001, for the face amount of $301,500, which pay interest
semiannually on January 15th and July 15th and mature in 2011. The proceeds
were used to pay down existing long-term debt. This bond offering is guaranteed
by substantially all existing and future directly or indirectly wholly-owned
domestic restricted subsidiaries of the Corporation ("guarantors"). The
guarantors, fully, jointly and severally, irrevocably and unconditionally
guarantee the performance and payment when due of all the obligations under the
bond offering. The Corporation's unrestricted subsidiaries that result from the
January 2001 Eurocir acquisition and its foreign subsidiaries are not guarantors
of the indebtedness under the bond offering. The following financial
information is presented to give additional disclosures to the Corporation's
consolidated condensed financial statements, with respect to: a) the parent
(MacDermid, Incorporated as the issuer), b) the guarantors, c) the non-guarantor
subsidiaries, d) the unrestricted non-guarantor subsidiaries, e) elimination
entries and f) the Corporation on a consolidated basis for and as of the the
fiscal periods ended June 30, 2002 and 2001 and December 31, 2001. 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. The financial information includes certain allocations of
revenues and expenses based on management's best estimates which is not
necessarily indicative of financial position, results of operations and cash
flows that these entities would have achieved on a stand-alone basis and should
be read in conjunction with the consolidated financial statements and notes to
consolidated financial statements included in the Corporation's transition year
2001 annual report of the Corporation.
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2002
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
------------- -------------- -------------- -------------- -------------- -------------
ASSETS
Current assets:
Cash and equivalents. . . . $ 818 $ 1,428 $ 13,006 $ 441 $ - $ 15,693
Accounts receivables, net . 12,890 28,765 103,722 17,657 - 163,034
Due (to) from affiliates. . 175,424 (102,216) (46,895) (26,313) - -
Inventories . . . . . . . . 15,384 29,718 52,619 9,580 - 107,301
Prepaid expenses. . . . . . 611 3,828 5,079 179 - 9,697
Deferred income taxes . . . 9,781 - 3,717 666 - 14,164
------------- -------------- -------------- -------------- -------------- -------------
Total current assets. . . . 214,908 (38,477) 131,248 2,210 - 309,889
Property, plant and
equipment, net. . . . . . 15,428 54,843 55,431 20,396 - 146,098
Goodwill. . . . . . . . . . 13,240 67,972 116,316 27,107 - 224,635
Intangibles, net. . . . . . - 10,548 25,615 99 - 36,262
Investments in subsidiaries 325,995 240,049 7,680 - (573,724) -
Other assets. . . . . . . . 40,574 9,041 11,440 3,025 - 64,080
------------- -------------- -------------- -------------- -------------- -------------
$ 610,145 $ 343,976 $ 347,730 $ 52,837 $ (573,724) $ 780,964
============= ============== ============== ============== ============== =============
CONSOLIDATED CONDENSED BALANCE SHEET (CONTINUED)
JUNE 30, 2002
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- -------------- -------------- -------------- -------------- --------------
LIABILITIES AND . . . . . . SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . $ - $ - $ 2,612 $ 4,928 $ - $ 7,540
Current installments of
Long-term obligations. . - 146 405 6,003 - 6,554
Accounts, dividend payable. 7,416 9,174 34,944 15,963 - 67,497
Accrued expenses. . . . . . 35,111 14,908 24,652 3,706 - 78,377
Income taxes. . . . . . . . 10,722 (6,320) 6,831 380 - 11,613
--------------- -------------- -------------- -------------- -------------- --------------
Total current liabilities . 53,249 17,908 69,444 30,980 - 171,581
Long-term obligations . . . 318,286 771 29,607 10,016 - 358,680
Accrued postretirement. . . 9,149 - 3,628 - - 12,777
Deferred income taxes . . . - (760) 4,051 808 - 4,099
Other long-term liabilities - 62 951 164 - 1,177
Minority interest . . . . . - - - 3,189 - 3,189
Shareholders' equity:
Common stock. . . . . . . . 46,540 (99) 3,809 3 (3,713) 46,540
Additional paid-in capital. 18,815 186,804 96,476 10,260 (293,540) 18,815
Retained earnings . . . . . 234,334 148,353 142,766 (1,858) (289,261) 234,334
Cumulative comprehensive
income equity
adjustment, net. . . . . (11,183) (9,063) (3,002) (725) 12,790 (11,183)
Less cost common shares
in treasury. . . . . . . (59,045) - - - - (59,045)
--------------- -------------- -------------- -------------- -------------- --------------
Total shareholders' equity. 229,461 325,995 240,049 7,680 (573,724) 229,461
--------------- -------------- -------------- -------------- -------------- --------------
$ 610,145 $ 343,976 $ 347,730 $ 52,837 $ (573,724) $ 780,964
=============== ============== ============== ============== ============== ==============
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 2002
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- --------------
Net sales . . . . . . . . $ 50,212 $ 93,842 $ 165,504 $ 42,838 $ (8,718) $ 343,678
Costs and expenses:
Cost of sales . . . . . . 29,297 45,784 86,270 36,544 (8,718) 189,177
Selling, technical,
administrative . . . . 29,111 22,626 51,749 4,009 - 107,495
Amortization. . . . . . . 1,730 821 573 14 - 3,138
Equity in earnings of
subsidiaries . . . . . (28,465) (16,550) (33) - 45,048 -
Interest income . . . . . (40) (52) (171) (14) - (277)
Interest expense. . . . . 8,391 5,246 2,989 1,318 - 17,944
Other expense
(income), net. . . . . 788 (160) (93) 18 - 553
-------------- -------------- -------------- -------------- -------------- --------------
40,812 57,715 141,284 41,889 36,330 318,030
-------------- -------------- -------------- -------------- -------------- --------------
Earnings before taxes
And minority interest. 9,400 36,127 24,220 949 (45,048) 25,648
Income taxes benefit
(expense). . . . . . . 7,605 (7,662) (7,670) (481) - (8,208)
Minority interest . . . . - - - (435) - (435)
-------------- -------------- -------------- -------------- -------------- --------------
Net earnings (loss) . . . $ 17,005 $ 28,465 $ 16,550 $ 33 $ (45,048) $ 17,005
============== ============== ============== ============== ============== ==============
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 30, 2002
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- --------------
Net sales . . . . . . . . $ 25,416 $ 47,551 $ 85,584 $ 22,666 $ (4,495) $ 176,722
Costs and expenses:
Cost of sales . . . . . . 14,744 22,564 44,295 19,257 (4,495) 96,365
Selling, technical,
administrative . . . . 14,789 11,590 27,209 2,122 - 55,710
Amortization. . . . . . . 864 411 288 7 - 1,570
Equity in earnings of
subsidiaries . . . . . (15,369) (8,980) (84) - 24,433 -
Interest income . . . . . (18) (19) (91) (8) - (136)
Interest expense. . . . . 4,375 2,240 1,459 669 - 8,743
Other expense
(income), net. . . . . 330 20 5 4 - 359
-------------- -------------- -------------- -------------- -------------- --------------
19,715 27,826 73,081 22,051 19,938 162,611
-------------- -------------- -------------- -------------- -------------- --------------
Earnings before taxes
And minority interest. 5,701 19,725 12,503 615 (24,433) 14,111
Income taxes benefit
(expense). . . . . . . 3,972 (4,356) (3,523) (262) - (4,169)
Minority interest . . . . - - - (269) - (269)
-------------- -------------- -------------- -------------- -------------- --------------
Net earnings (loss) . . . $ 9,673 $ 15,369 $ 8,980 $ 84 $ (24,433) $ 9,673
============== ============== ============== ============== ============== ==============
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- -------------- -------------- -------------- ------------- --------------
Net cash flows (used in)
provided by
operating activities: . . $ 10,778 $ 9,873 $ 26,524 $ 2,778 $ - $ 49,953
Investing activities:
Capital expenditures . . . . (526) (522) (636) (895) - (2,579)
Proceeds from disposition
of fixed assets . . . . . - - 147 152 - 299
Net cash flows used in
-------------- -------------- -------------- -------------- ------------- --------------
investing activities. . . (526) (522) (489) (743) - (2,280)
-------------- -------------- -------------- -------------- ------------- --------------
Financing activities:
Net proceeds from
(repayments of)
short-term borrowings . . (31,490) (2,432) 27,636 (3,340) - (9,626)
Long-term borrowings . . . . 65,500 - - 2,951 - 68,451
Long-term repayments . . . . (58,000) - (47,392) (1,746) - (107,138)
Purchase of treasury shares. (103) - - - - (103)
Dividends paid . . . . . . . 10,240 (7,372) (4,158) - - (1,290)
-------------- -------------- -------------- -------------- ------------- --------------
Net cash flows provided
by / (used in)
financing activities. . . (13,853) (9,804) (23,914) (2,135) - (49,706)
-------------- -------------- -------------- -------------- ------------- --------------
Effect of exchange rate
changes on
cash and equivalents. . . - - 624 35 - 659
-------------- -------------- -------------- -------------- ------------- --------------
Net (decrease) increase in
cash and equivalents. . . (3,601) (453) 2,745 (65) - (1,374)
Cash and cash equivalents
at beginning of period. . 4,419 1,881 10,261 506 - 17,067
-------------- -------------- -------------- -------------- ------------- --------------
Cash and cash equivalents
at end of period. . . . . $ 818 $ 1,428 $ 13,006 $ 441 $ - $ 15,693
============== ============== ============== ============== ============= ==============
CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 2001
(audited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
------------- -------------- -------------- -------------- -------------- -------------
ASSETS
Current assets:
Cash and equivalents. . . . $ 4,419 $ 1,881 $ 10,261 $ 506 $ - $ 17,067
Accounts receivables, net . 14,361 28,107 106,645 15,117 - 164,230
Due (to) from affiliates. . 246,066 (184,474) (39,295) (22,297) - -
Inventories, net. . . . . . 17,442 35,849 49,314 8,429 - 111,034
Prepaid expenses. . . . . . 779 2,707 4,582 - - 8,068
Deferred income taxes . . . 9,781 - 3,451 599 - 13,831
------------- -------------- -------------- -------------- -------------- -------------
Total current assets. . . . 292,848 (115,930) 134,958 2,354 - 314,230
Property, plant and
equipment, net. . . . . . 20,231 57,730 54,702 19,819 - 152,482
Goodwill. . . . . . . . . . 16,056 80,221 99,187 27,107 - 222,571
Intangibles, net. . . . . . - 11,219 26,106 100 - 37,425
Investments in subsidiaries 231,820 224,640 9,192 - (465,652) -
Other assets. . . . . . . . 40,529 9,325 12,273 2,050 - 64,177
------------- -------------- -------------- -------------- -------------- -------------
$ 601,484 $ 267,205 $ 336,418 $ 51,430 $ (465,652) $ 790,885
============= ============== ============== ============== ============== =============
CONSOLIDATED CONDENSED BALANCE SHEET (CONTINUED)
DECEMBER 31, 2001
(audited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
--------------- -------------- -------------- -------------- -------------- --------------
LIABILITIES AND . . . . . . SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . $ - $ - $ 5,898 $ 7,063 $ - $ 12,961
Current installments of
Long-term obligations. . - 148 482 4,984 - 5,614
Accounts, dividend payable. 9,273 9,091 28,649 15,018 - 62,031
Accrued expenses. . . . . . 37,955 18,250 24,138 2,543 - 82,886
Income taxes. . . . . . . . (2,533) 7,785 5,214 2 - 10,468
--------------- -------------- -------------- -------------- -------------- --------------
Total current liabilities . 44,695 35,274 64,381 29,610 - 173,960
Long-term obligations . . . 349,140 802 34,733 9,113 - 393,788
Accrued postretirement. . . 4,218 - 8,055 35 - 12,308
Deferred income taxes . . . - (762) 4,399 727 - 4,364
Other long-term liabilities - 71 210 - - 281
Minority interest . . . . . - - - 2,753 - 2,753
Shareholders' equity:
Common stock. . . . . . . . 46,410 (99) 3,809 3 (3,713) 46,410
Additional paid-in capital. 16,923 125,936 100,248 10,260 (236,444) 16,923
Retained earnings . . . . . 218,619 126,625 135,166 (1,891) (259,900) 218,619
Cumulative comprehensive
income equity
adjustment, net. . . . . (19,579) (20,642) (14,583) 820 34,405 (19,579)
Less cost common shares
in treasury. . . . . . . (58,942) - - - - (58,942)
--------------- -------------- -------------- -------------- -------------- --------------
Total shareholders' equity. 203,431 231,820 224,640 9,192 (465,652) 203,431
--------------- -------------- -------------- -------------- -------------- --------------
$ 601,484 $ 267,205 $ 336,418 $ 51,430 $ (465,652) $ 790,885
=============== ============== ============== ============== ============== ==============
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 2001
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- --------------
Net sales. . . . . . . $ 68,503 $ 117,577 $ 193,160 $ 42,213 $ (24,566) $ 396,887
Costs and expenses:
Cost of sales. . . . . 45,658 71,719 100,890 38,225 (24,566) 231,926
Selling, technical,
Administrative. . . 30,392 31,753 54,118 3,787 - 120,050
Amortization . . . . . 955 3,389 2,135 371 - 6,850
Equity in earnings of
Subsidiaries. . . . (21,745) (23,890) 1,386 - 44,249 -
Interest income. . . . (109) (383) (328) (14) - (834)
Interest expense . . . 8,659 7,179 859 1,483 - 18,180
Other expense
(income), net . . . 122 528 596 (192) - 1,054
-------------- -------------- -------------- -------------- -------------- --------------
63,932 90,295 159,656 43,660 19,683 377,226
-------------- -------------- -------------- -------------- -------------- --------------
Earnings before taxes. 4,571 27,282 33,504 (1,447) (44,249) 19,661
Income taxes benefit
(expense) . . . . . 7,940 (5,537) (9,614) 34 - (7,177)
Minority interest. . . - - - 27 - 27
-------------- -------------- -------------- -------------- -------------- --------------
Net earnings (loss). . $ 12,511 $ 21,745 $ 23,890 $ (1,386) $ (44,249) $ 12,511
============== ============== ============== ============== ============== ==============
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 30, 2001
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- --------------
Net sales. . . . . . . $ 29,047 $ 56,904 $ 89,724 $ 20,235 $ (10,816) $ 185,094
Costs and expenses:
Cost of sales. . . . . 18,819 33,366 47,734 17,932 (10,816) 107,035
Selling, technical,
Administrative. . . 11,593 15,920 25,315 1,818 - 54,646
Amortization . . . . . - 796 1,185 2 - 1,983
Equity in earnings of
Subsidiaries. . . . (11,533) (10,109) 376 - 21,266 -
Interest income. . . . (55) (48) (129) (7) - (239)
Interest expense . . . 4,716 3,151 (108) 757 - 8,516
Other expense
(income), net . . . 210 164 188 96 - 658
-------------- -------------- -------------- -------------- -------------- --------------
23,750 43,240 74,561 20,598 10,450 172,599
-------------- -------------- -------------- -------------- -------------- --------------
Earnings before taxes. 5,297 13,664 15,163 (363) (21,266) 12,495
Income taxes benefit
(expense) . . . . . 2,602 (2,131) (5,054) (40) - (4,623)
Minority interest. . . - - - 27 - 27
-------------- -------------- -------------- -------------- -------------- --------------
Net earnings (loss). . $ 7,899 $ 11,533 $ 10,109 $ (376) $ (21,266) $ 7,899
============== ============== ============== ============== ============== ==============
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001
(unaudited)
MACDERMID
UNRESTRICTED INCORPORATED
MACDERMID GUARANTOR NONGUARANTOR NONGUARANTOR AND
INCORPORATED SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- --------------
Net cash flows provided
by (used in)
operating activities:. . $ (51,501) $ 61,321 $ 8,857 $ 17,443 $ - $ 36,120
Investing activities:
Capital expenditures. . . . (4,246) (2,284) (3,922) (4,031) - (14,483)
Proceeds from disposition
of fixed assets. . . . . 21 - 2,186 159 - 2,366
Acquisitions of businesses. - 15,333 (13,432) (17,042) - (15,141)
Dispositions of businesses. - - 9,415 - - 9,415
-------------- -------------- -------------- -------------- -------------- --------------
Net cash flows (used in)
provided by
investing activities . . (4,225) 13,049 (5,753) (20,914) - (17,843)
-------------- -------------- -------------- -------------- -------------- --------------
Financing activities:
Net proceeds from
(repayments of)
short-term borrowings. . 49,339 (61,415) 791 4,151 - (7,134)
Long-term borrowings. . . . 317,008 3,000 57,787 - - 377,795
Long-term repayments. . . . (311,094) (20,645) (49,599) - - (381,338)
Bond financing fees . . . . (6,500) - - - - (6,500)
Dividends paid. . . . . . . 9,014 766 (11,046) - - (1,266)
-------------- -------------- -------------- -------------- -------------- --------------
Net cash flows provided
by (used in)
financing activities . . 57,767 (78,294) (2,067) 4,151 - (18,443)
-------------- -------------- -------------- -------------- -------------- --------------
Effect of exchange rate
changes on
Changes on
cash and equivalents . . - (412) (1,445) (197) - (2,054)
-------------- -------------- -------------- -------------- -------------- --------------
Net (decrease) increase in
cash and equivalents . . 2,041 (4,336) (408) 483 - (2,220)
Cash and cash equivalents
at beginning of period . 4,979 4,826 7,927 - - 17,732
-------------- -------------- -------------- -------------- -------------- --------------
Cash and cash equivalents
at end of period . . . . $ 7,020 $ 490 $ 7,519 $ 483 $ - $ 15,512
============== ============== ============== ============== ============== ==============
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, 2002 TO THE SAME PERIOD IN 2001.
SALES, COSTS AND EXPENSES
Advanced Surface Finishing: Total sales for the current quarter were $80.6
million, a decrease of $6.3 million, or 7% from $86.9 million in the same period
last year. This is net of a positive foreign currency translation effect of
$1.1 million. Proprietary sales, excluding the effects of foreign currency
translation, were 6% below the same period last year. The proprietary sales
decline resulted from lower consumer volume in the worldwide electronics
industry.
Costs as a percentage of sales were well below the same period last year. Lower
costs were significantly influenced by the closure of a North American
production facility. Gross profit percentage was 55.8% as compared to 51.7% for
the same period last year, in a large part, the result of the previously
mentioned facility closure and other cost reduction efforts. Selling, technical
and administrative expenses (ST&A) were $34.2 million this quarter, a 10%
increase as compared to $31.0 million for the same period last year. The
increase is primarily from higher insurance costs and an additional provision
for bad debts due to increased customer receivable risk with the current
electronics business conditions, as well as, a $0.6 million foreign currency
translation effect. ST&A as a percentage of sales for the current quarter was
42.4% as compared to 35.6% in the same period last year.
Total amortization charged to earnings was $1.4 million for the three month
period ended June 30, 2002. This was $0.4 million less than the same period
last year.
As a result of the factors discussed above, advanced surface finishing operating
profit (after amortization) decreased 23% from $12.1 million to $9.3 million.
Printing Solutions: Printing solutions is the Corporation's business segment
that has previously been referred to as graphic arts. Total sales for the
current quarter were $73.5 million, a decrease of $1.3 million, or 2% from $74.8
million in the same period last year. This is net of a positive foreign
currency translation effect of $0.7 million. The underlying sales in all areas
of the printing solutions business were weak as compared to the same period last
year as worldwide economies remain soft.
Costs as a percentage of sales were slightly below the same period last year
even as production overheads in the Americas increased. Gross profit percentage
was 43.5% as compared to 43.4% for the same period last year. ST&A expenses
were $19.4 million this quarter, an 8% decrease as compared to $21.0 million for
the same period last year, as a result of the elimination of certain management
and office support redundancies. ST&A as a percentage of sales for the current
quarter was 26.4% as compared to 28.1% in the same period last year.
Total amortization charged to earnings was $0.2 million for the three month
period ended June 30, 2002, similar to the same period last year.
As a result of the factors discussed above, printing solutions operating profit
(after amortization) increased 10% from $11.3 million to $12.4 million.
Electronics Manufacturing: Total sales for the current quarter were $22.7
million, a decrease of $0.6 million, or 3% from $23.3 million in the same period
last year. This is net of a positive effect of foreign currency translation of
$1.1 million. The decrease is due to the closure of Dynacircuits, for which
sales of $3.1 million were included in the same period last year.
Costs as a percentage of sales decreased with the removal of the Dynacircuits
operation. Gross profit percentage was 15.0% as compared to 2.8% for the same
period last year, as a result. ST&A expenses were $2.1 million this quarter, a
20% decrease as compared to $2.7 million for the same period last year,
primarily due to the closure of Dynacircuits.
As a result of the factors discussed above, electronics manufacturing had
operating income (after amortization) of $1.3 million for the three month period
ended June 30, 2002 as compared to an operating loss (after amortization) of
$2.0 million for the same period last year.
Consolidated: Total sales for the current quarter, $176.7 million decreased $8.4
million or 5% from $185.1 million in the same period last year. This is net of
a $2.9 million positive effect from foreign currency translation which resulted
in higher reported sales. Without this effect, reported sales would have
decreased 6% and proprietary sales, which were roughly 82% of total sales as
compared to 81% in the same period last year, would have decreased 4%.
Gross profits increased 3% for the three month period ended June 30, 2002 as
compared to the same period last year, in spite of less proprietary sales, due
to the closure of production facilities in each of the three business segments.
Gross profit as a percentage of sales was 45.5% for the three month period as
compared to 42.2% for the same period last year. ST&A expenses were similar to
the same period last year. The resulting ST&A as a percentage of sales for the
three month period was 31.5% as compared to 29.5% for the same period last year.
Total amortization charged to earnings was $1.6 million for the three month
period ended June 30, 2002. This was $0.4 million less than the same period
last year.
Operating profit (after amortization) for the three month period was $23.0
million, an increase of $1.6 million, or approximately 7% more than $21.4
million for the same period last year.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 30% for the three month
period ended June 30, 2002 and 37% for the same period in 2001. The rate
difference is mainly a result of a change in earnings mix from higher to lower
taxed jurisdictions during fiscal 2002.
NET EARNINGS
Net earnings available to common shareholders for the three month period ended
June 30, 2002 increased 22% as compared to the same period last year. Foreign
currency translation, although favorable, did not have a measurable effect on
reported earnings for the three month period.
THE FOLLOWING DISCUSSION COMPARES THE RESULTS OF OPERATIONS FOR THE SIX MONTH
PERIOD WHICH ENDED JUNE 30, 2002 TO THE SAME PERIOD IN 2001.
SALES, COSTS AND EXPENSES
Advanced Surface Finishing: Total sales for the six months ended June 30, 2002
were $159.0 million, a decrease of $36.0 million, or 18% from $195.0 million in
the same period last year. The disposition of certain business at the end of
February 2001 resulted in $2.1 million less sales as compared to the same period
last year. A negative effect of foreign currency translation of $1.2 million
also contributed to the decline in sales. Proprietary sales, excluding the
effects of foreign currency translation, were 14% below the same period last
year. The proprietary sales decline resulted from lower consumer volume, as the
worldwide electronics industry remains soft.
Costs as a percentage of sales for the six month period were below the same
period last year. The closure of a North American production facility and
certain other cost reductions contributed. Gross profit percentage was 54.6% as
compared to 50.9% for the same period last year, primarily a result of the
previously mentioned cost reductions. ST&A expenses were $66.0 million for the
six month period, a 4% decrease as compared to $69.1 million for the same period
last year, primarily from lower costs of selling associated with the lower sales
volume and reduced administrative costs due to the previous years restructuring.
ST&A as a percentage of sales for the six month period was 41.5% as compared to
35.4% in the same period last year.
Total amortization charged to earnings was $2.8 million for the six month period
ended June 30, 2002. This was $2.2 million less than the same period last year,
due to the adoption of SFAS142 which requires that goodwill not be amortized.
As a result of the factors discussed above, advanced surface finishing operating
profit (after amortization) decreased 29% from $25.3 million to $18.1 million.
Printing Solutions: Total sales for the six months ended June 30, 2002 were
$141.9 million, a decrease of $10.0 million, or 7% from $151.9 million in the
same period last year. The underlying sales in all areas of the printing
solutions business were below the same period last year as worldwide economies
remain soft. A negative effect of foreign currency translation of $0.3 million
did not materially impact the reported decline in sales.
Costs as a percentage of sales were below the same period last year as costs
have recently started to decline due to the closure of a North American
production facility, while otherwise production overheads remained constant. As
a result, gross profit percentage for the six month period was 43.2% as compared
to 42.4% for the same period last year. ST&A expenses were $37.5 million for
the six month period, a 6% decrease as compared to $40.0 million for the same
period last year, as a result of the elimination of certain management and
office support redundancies. ST&A as a percentage of sales for the six month
period was 26.4% as compared to 26.3% in the same period last year.
Total amortization charged to earnings was $0.3 million for the six month period
ended June 30, 2002. This was $1.2 million less than the same period last year,
due to the adoption of SFAS142 which requires that goodwill not be amortized.
As a result of the factors discussed above, printing solutions operating profit
(after amortization) increased 3% from $22.9 million to $23.5 million.
Electronics Manufacturing: Total sales for the six months ended June 30, 2002
were $42.8 million, a decrease of $7.1 million, or 14% from $49.9 million in the
same period last year. The decrease is due to the closure of Dynacircuits, for
which sales of $7.7 million were included in the previous year.
Costs as a percentage of sales decreased with the removal of the Dynacircuits
operation. Gross profit percentage was 14.7% as compared to 2.5% for the same
period last year, as a result. ST&A expenses were $4.0 million for the six
month period, a 21% decrease as compared to $5.1 million for the same period
last year, primarily due to the closure of Dynacircuits.
As a result of the factors discussed above, electronics manufacturing had
operating income (after amortization) of $2.3 million for the six month period
ended June 30, 2002 as compared to an operating loss (after amortization) of
$4.3 million for the same period last year.
Consolidated: Total sales for the six months ended June 30, 2002, $343.7 million
decreased $53.2 million or 13% from $396.9 million in the same period last year.
Disposition of business resulted in $2.1 million less sales as compared to the
same period last year. There was a $1.5 million negative effect from foreign
currency translation which resulted in lower reported sales. These effects
combined reduced sales by approximately 1% as compared to the same period last
year. Without these effects, reported sales would have decreased 12% and
proprietary sales, which were roughly 82% of total sales as compared to 80% in
the same period last year, would have decreased 10%.
Gross profits decreased 6% for the six month period ended June 30, 2002 as
compared to the same period last year, as a result of less proprietary sales.
Gross profit as a percentage of sales was 45.0% for the six month period as
compared to 41.6% for the same period last year, in large part due to
manufacturing cost reductions, including plant closures. In addition, ST&A
expenses for the six month period were 6% less than the same period last year,
excluding restructuring and impairment costs. The resulting ST&A as a
percentage of sales for the six month period was 31.3% as compared to 28.8% for
the same period last year.
In the six month period ending June 30, 2001, there was $1.1 million for
restructuring and $4.8 million for impairment charged to earnings. Total
amortization charged to earnings was $3.1 million for the six month period ended
June 30, 2002. This was $3.7 million less than the same period last year due to
the adoption of SFAS142 as previously mentioned.
Operating profit (after amortization) for the six month period was $43.9
million, an increase of $5.8 million, or approximately 15% more than $38.1
million for the same period last year. When excluding the effects of
restructuring and impairment charges in the prior year, operating profit for the
six month period was flat to the prior year.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 32% for the six month
period ended June 30, 2002 and 37% for the same period in 2001. This reduction
in the income tax rate is mainly a result of the change in earnings mix from
higher to lower taxed jurisdictions, during the six months ended June 30, 2002.
NET EARNINGS
Net earnings available to common shareholders for the six month period ended
June 30, 2002 increased 36% as compared to the same period last year. Foreign
currency translation had the effect of reducing the reported earnings by
approximately 2% for the six month period.
THE FOLLOWING DISCUSSION PROVIDES INFORMATION WITH RESPECT TO CHANGES IN
FINANCIAL CONDITION DURING THE SIX MONTHS ENDED JUNE 30, 2002.
Financial Condition
Operating activities during the six months ending June 30, 2002 resulted in a
net cash inflow of $50.0 million, primarily through reductions of trade accounts
receivable and inventory balances. This cash generation was used for dividends
to shareholders ($1.3 million, or $0.04 per common share), debt repayments
($38.7 million) and capital improvements ($2.6 million). In addition, the
Corporation made the first semi-annual interest payment, of $15.7 million, on
its senior subordinated bonds Working Capital at June 30, 2002 was $138.3
million as compared to $140.3 million at December 31, 2001. The change in
working capital is principally due to inventory reductions somewhat offset by
movements in other accrued items during the period.
Capital expenditures of $2.6 million for the six months ended June 30, 2002
compares with total planned expenditures of approximately $14.0 million for the
full year.
The Corporation's financial position remains strong and, other than the debt
obligations in the following table, there are no long-range commitments which
would have a significant impact upon results of operation, financial condition
or liquidity.
($millions) . . . . . . . . . . . . This Year 2-4 Years 5 or More Years Total
---------- ---------- ---------------- ------
Long-term debt. . . . . . . . . . . $ 5.3 $ 55.6 $ 301.4 $362.3
Capital leases. . . . . . . . . . . 1.3 1.0 0.6 2.9
Operating leases. . . . . . . . . . 9.8 10.8 4.2 24.8
---------- ---------- ---------------- ------
Total contractual cash commitments. $ 16.4 $ 67.4 $ 306.2 $390.0
The Corporation issued 9 1/8% senior subordinated notes effective June 20, 2001,
for the face amount of $301.5 million, which pay interest semiannually on
January 15th and July 15th and mature in 2011. The Corporation also has a
long-term credit arrangement, which consists of a combined revolving loan
facility that permits borrowings, denominated in US dollars and foreign
currencies, of up to $175 million. The outstanding balance on the revolving
loan facility decreased $35.7 million during the six months ended June 30, 2002.
The amounts outstanding on the revolving loan at June 30, 2002, consists of
$16.5 million and $28.7 million (Euro 28.9 million). The Corporation's other
uncommitted credit facilities presently total approximately $64 million. These,
together with the Corporation's cash flows from operations are adequate to fund
working capital and expected capital expenditures.
The following table contains other data for the six and three month periods
ended June 30, 2002 and 2001. EBITDA is earnings before interest, taxes,
depreciation and amortization. Owner earnings is cash flow from operations less
net capital spending. Neither EBITDA nor owner earnings are intended to
represent cash flow from operations as defined by generally accepted accounting
principles. These measures should not be used as an alternative to net income
as an indicator of operating performance or to cash flows as a measure of
liquidity.
($millions) Six Months Ended June 30, Three Months Ended June 30,
2002 2001 2002 2001
--------------------------- ----------------------------- -------- --------
Cash provided by operations. . . . . . . . . . . $ 50.0 $ 36.1 $ 37.1 $ 16.7
Cash (used in)/provided by investing activities. ($2.3) ($17.8) ($1.1) $ 0.3
Cash used in financing activities. . . . . . . . ($49.7) ($18.4) ($35.4) ($13.8)
EBITDA (before one-time costs) . . . . . . . . . $ 57.2 $ 61.9 $ 29.7 $ 28.6
Cash provided by operations. . . . . . . . . . . $ 50.0 $ 36.1 $ 37.1 $ 16.7
Less: net capital spending . . . . . . . . . . . (2.3) (12.1) (1.1) (2.4)
--------------------------- ----------------------------- -------- --------
Owner earnings . . . . . . . . . . . . . . . . . $ 47.7 $ 24.0 $ 36.0 $ 14.3
CRITICAL ACCOUNTING POLICIES and NEW ACCOUNTING STANDARDS
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
undertake decisions that impact the reported amounts and related disclosures.
Such decisions include the selection of the appropriate accounting principles to
be applied and also assumptions upon which accounting estimates are based.
Management applies judgement based on its understanding and analysis of the
relevant circumstances to reach these decisions. However, actual results could
differ significantly from the estimates applied.
The Corporation's critical accounting policies include the following:
The Corporation records sales, including freight charged to customers, when its
products are shipped. In addition, commissions and royalties are recorded when
earned.
The Corporation values inventory at lower of average cost or replacement market.
Management regularly reviews obsolescence to determine that inventories are
appropriately reserved. In making any determination historical write-offs,
product evolution, usage rates and quantities of stock on hand are considered.
The Corporation records property, plant and equipment at cost. Depreciation and
amortization of property, plant and equipment are provided over the estimated
useful lives of the respective assets, principally on the straight-line basis.
Expenditures for maintenance and repairs are charged directly to expense;
renewals and betterments which significantly extend the useful lives are
capitalized. Costs and accumulated depreciation and amortization on assets
retired or disposed of are removed from the accounts and any resulting gains or
losses are credited or charged to earnings.
The Corporation performs periodic review of the carrying value of long-lived
assets for impairment in accordance with SFAS121 and SFAS142. In many
instances, projected future cash flows are used to assess the recoverability of
long-lived assets of the Corporation. Estimation factors, including but not
limited to, the timing of new product introductions, market conditions and
competitive environment could affect previous projections.
The Corporation is subject to environmental remediation and also has been
identified as a potentially responsible party by the Environmental Protection
Agency. In addition, the Corporation has been a party to a number of claims and
lawsuits that arise out of the ordinary conduct of business. It is the
Corporation's policy to review these environmental issues in light of historical
experience and to reserve for those that both a liability has become probable
and the cost is reasonably estimable, in accordance with Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies.
The Corporation adopted the fair value expense recognition provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS123) for its stock options effective April 1, 2001. On April
1, 1996, the Corporation had adopted the disclosure requirements of SFAS123 and
accounted for its stock options by applying the expense recognition provisions
of APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB25"). As a
result of this change, compensation expense is measured using the fair value for
options granted after April 1, 2001. The resulting expense is amortized over
the period in which it is earned. In the six and three month periods ended June
30, 2002 there was $1,544 and $815, respectively, charged to expense.
The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standard No. 143, "Accounting for Asset Retirement
Obligations" (SFAS143), Statement of Financial Accounting Standard No. 145,
"Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections" (SFAS145) and Statement of Financial Accounting
Standard No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" (SFAS146). The Corporation is currently evaluating the impact of
these standards and does not expect that adoption of these standards will have a
material impact on its results of operation or financial position. The FASB
also issued Statement of Financial Accounting Standard No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" (SFAS144). The Corporation has
adopted SFAS144 effective January 1, 2002 and adoption of this standard did not
materially impact its results of operation or financial position.
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)
exposes 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 cleanup based upon the extent of its
involvement, the number of PRPs and estimates of the total costs of the site
cleanup 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 Corporations 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 June 25, 2002, the U.S. Environmental Protection Agency brought an
administrative complaint against the Adams, Massachusetts manufacturing facility
owned by MacDermid Graphic Arts, Inc., alleging that the facility violated
certain regulations and permit requirements regarding air emissions and related
record keeping matters. The allegations arise primarily out of conduct that
allegedly occurred prior to the Corporation's acquisition of the facility
through its December 1999 acquisition of Polyfibron Technologies, Inc. The
complaint seeks 318 in penalties. The Corporation's subsidiary has responded to
the complaint and will engage a defense to the allegations. The Corporation
currently believes that this matter will not have a material impact on its
future results of operations and financial position.
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. 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 sentenced to fines of $25 thousand and $10
thousand 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 voluntarily resolved both of these matters on November 28, 2001.
As a result, MacDermid will be required to pay fines and penalties totaling $2.5
million, without interest, over six quarterly installments. In addition, $1.5
million will be paid to various local charitable and environmental organizations
and causes. The Corporation will be placed on probation for two years and will
perform certain environmental audits, as well as other environmentally related
actions. The Corporation had recorded liabilities during the negotiation period
and therefore future results of operations and financial position will not be
affected by these arrangements.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.
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
None.
ITEM 6(a) : Exhibits
None.
ITEM 6(b) : Reports on Form 8-K
On August 5, 2002, the Corporation filed its Form 8-K to report the release of a
mid-year letter to shareholders of the Corporation. The Form 8-K 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 8, 2002 /s/ Daniel H. Leever
---------------- -----------------------
Daniel H. Leever
Chairman, President and
Chief Executive Officer
Date: August 8, 2002 / s / John P. Malfettone
---------------- -----------------------------
John P. Malfettone
Executive Vice President and
Chief Financial Officer
STATEMENT UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of MacDermid, Incorporated (the "Corporation") hereby
certify that, as of the date of this statement, the Corporation's quarterly
report on Form 10Q for the period ended June 30, 2002 (the "Report") fully
complies with the requirements of section 13(a) of the Securities Exchange Act
of 1934 and that information contained in the Report fairly presents, in all
material respects, the financial condition and results of the Corporation as of
and for the three and six month periods ended June 30, 2002.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002. This statement is not "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Act or any other federal or state law or regulation.
Date: August 8, 2002 / s / John P. Malfettone
---------------- -----------------------------
Name: John P. Malfettone
Title: Chief Financial Officer
STATEMENT UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officers of MacDermid, Incorporated (the "Corporation") hereby
certify that, as of the date of this statement, the Corporation's quarterly
report on Form 10Q for the period ended June 30, 2002 (the "Report") fully
complies with the requirements of section 13(a) of the Securities Exchange Act
of 1934 and that information contained in the Report fairly presents, in all
material respects, the financial condition and results of the Corporation as of
and for the three and six month periods ended June 30, 2002.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002. This statement is not "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Act or any other federal or state law or regulation.
Date: August 8, 2002 /s/ Daniel H. Leever
---------------- -----------------------
Name: Daniel H. Leever
Title: Chief Executive Officer