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 December 31, 1995
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
NONE
Former name, former address and 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.
Common Stock, no par value - 2,795,794 shares as of January 31, 1996.
<PAGE>
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INDEX
PART I Financial Information
Item 1. Financial Statements
Page No.
Consolidated Condensed Balance Sheets
December 31, 1995 and March 31, 1995 3-4
Consolidated Condensed Statements of Earnings and
Retained Earnings - Nine Months and Three Months
Ended December 31, 1995 and 1994 5-6
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended December 31, 1995 and 1994 7
Notes to Consolidated Condensed Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II Other Information 12
Signatures 13
<PAGE>
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<TABLE>
PART I. - FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands of dollars except share amounts)
<CAPTION>
December 31, March 31,
1995 1995
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,775 $ 7,630
Accounts and notes receivable
(Net of allowance for doubtful
receivables of $4,358 and $2,859) 65,067 45,559
Inventories
Finished goods 22,113 16,074
Raw materials 17,180 6,727
-------- --------
39,293 22,801
Prepaid expenses 2,564 2,052
Deferred income taxes 3,162 3,155
-------- --------
Total Current Assets 117,861 81,197
Property, plant and equipment (Net of
accumulated depreciation and amortization
of $38,350 and $35,721) 41,773 27,035
Goodwill, net 93,361 4,541
Other assets 12,623 10,532
-------- --------
$265,618 $123,305
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 38,156 $ 4,720
Current installments of long-term obligations 190 4,413
Accounts and dividends payable 21,256 18,475
Accrued expenses 17,873 13,347
Income taxes 5,208 5,531
-------- --------
Total current liabilities 82,683 46,486
Long-term obligations 85,346 18,229
Accrued postretirement and postemployment
benefits 3,959 3,899
Deferred income taxes 899 960
Minority interest in subsidiary 86 77
Preferred stock - 6% redeemable Series A (no par) 30,150 -
Shareholders' Equity
Common stock, stated value $1 per share 4,194 4,136
Additional paid-in capital 3,214 1,676
Retained earnings 91,901 84,043
Equity adjustment from foreign currency
translation 1,149 1,551
Less cost of 1,398,547 and 1,393,547 common
shares in treasury (37,963) (37,752)
-------- --------
Total shareholders' equity 62,495 53,654
-------- --------
$265,618 $123,305
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
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<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
(Amounts in Thousands Except Share and Per Share Amounts)
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
----------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $160,604 $133,632 $58,279 $44,547
Costs and expenses
Cost of Sales 81,145 68,907 30,056 22,863
Selling, technical and
administrative expenses 58,814 49,065 20,380 16,341
Interest income (268) (96) (111) (35)
Interest expense 2,265 1,408 1,143 648
Other expense - net 3,211 612 1,414 116
-------- -------- ------- -------
145,167 119,896 52,882 39,933
-------- -------- ------- -------
Earnings before income taxes
and cumulative effect of
accounting change 15,437 13,736 5,397 4,614
Income taxes 6,175 5,261 2,159 1,977
-------- -------- ------- -------
Earnings before cumulative
effect of accounting change 9,262 8,475 3,238 2,637
Cumulative effect of accounting
change - (372) - -
-------- -------- ------- -------
Net earnings 9,262 8,103 3,238 2,637
Preferred dividends (150) - (150) -
-------- -------- ------- -------
Net earnings-available for
common shareholders 9,112 8,103 3,088 2,637
Retained earnings, beginning of
period 84,043 75,039 89,232 79,559
Cash dividends declared (1,254) (1,354) (419) (408)
-------- -------- ------- -------
Retained earnings, end of period $ 91,901 $ 81,788 $91,901 $81,788
======== ======== ======= =======
Average common shares Outstanding:
Primary 2,918,759 3,222,625 2,932,139 2,876,569
========= ========= ========= =========
Fully diluted 2,932,875 3,242,283 2,938,765 2,875,603
========== ========= ========= =========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
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<TABLE>
EARNINGS AND CASH DIVIDENDS PER SHARE
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings per common share
Primary:
Before cumulative effect of
accounting change $3.12 $2.63 $1.05 $0.92
Cumulative effect of accounting
change - (0.12) - -
----- ----- ----- -----
$3.12 $2.51 $1.05 $0.92
===== ===== ===== =====
Fully diluted:
Before cumulative effect of
accounting change $3.11 $2.62 $1.05 $0.92
Cumulative effect of acounting
change - (0.12) - -
----- ----- ----- -----
$3.11 $2.50 $1.05 $0.92
===== ===== ===== =====
Cash dividends per common share $0.45 $0.45 $0.15 $0.15
===== ===== ===== =====
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
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<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
<CAPTION>
Nine Months Ended
December 31,
--------------------
1995 1994
---- ----
<S> <C> <C>
Net cash flows from operating activities $ 8,636 $13,193
Cash flows from investing activities:
Capital expenditures (2,861) (2,725)
Proceeds from disposition of fixed assets 250 3,285
Acquisition of business (131,600) (9,141)
Other investments - 671
-------- -------
Net cash flows used in investing activities (134,211) (7,910)
-------- -------
Cash flows from financing activities:
Long-term and short-term borrowings 135,813 25,452
Long-term and short-term repayments (9,274) (4,989)
Exercise of Stock Options 659 600
Purchase of treasury shares (211) (26,152)
Dividends paid (1,255) (1,543)
-------- -------
Net cash flows from financing activities 125,732 (6,632)
Effect of exchange rate changes on cash and
cash equivalents (12) 126
-------- -------
Net increase (decrease) in cash and
cash equivalents 145 (1,223)
Cash and cash equivalents at beginning of year 7,630 6,484
-------- -------
Cash and cash equivalents at end of period $ 7,775 $ 5,261
======== =======
Cash paid for interest $ 1,839 $ 928
======== =======
Cash paid for income taxes $ 5,295 $ 3,730
======== =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
-8-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The March 31, 1995 condensed consolidated balance sheet amounts
have been derived from the previously audited consolidated balance
sheets of MacDermid, Incorporated. 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 statements should
be read in conjunction with the notes to the consolidated financial
statements included in MacDermid's 1995 Annual Report.
Note 2. Trends of Results of Operations
The results of operations for the three and nine month periods ended
December 31, 1995 and 1994 are not necessarily indicative of trends or
of the results to be expected for the full year.
Note 3. Acquisition
There is activity for one month included in the results of
operations for the three and nine month periods ended December 31,
1995 from MacDermid Imaging Technology, Inc. ("MIT"). Those amounts
are not material to the figures presented in the Consolidated Condensed
Statements of Earnings and Retained Earnings. The related Condensed
Consolidated Balance Sheet displays increased assets and liabilities,
primarily a result of the amounts for MIT. MIT was formed for the
purpose of acquiring the assets, subject to certain liabilities, of the
Electronics and Printing Division of Hercules Incorporated. The
purchase price of $130 million was paid at closing. A further $15
million is contingently payable in fiscal year 2004 in the event that
the consolidated cumulative earnings, before interest, taxes on earnings,
depreciation, and amortization, exceed $250 million for the first four
full fiscal years following December 5, 1995. The amounts recorded for
the assets and liabilities acquired, using the purchase method of
accounting, are subject to adjustment whenever final evaluations are
completed. Any such adjustments are not expected to be material.
Note 4. Earnings Per Common Share
The computation of primary earnings per common share is based
upon the weighted average number of outstanding common shares plus (in
periods in which they have a dilutive effect) the effect of common
shares contingently issuable from stock options. The fully diluted
per share computations may also reflect additional dilution related to
stock options due to the use of the market price at the end of the
period, when higher than the average price for the period. Earnings
per common share are calculated based upon net earnings available for
common shareholders after deduction for preferred dividends.
Note 5. Long-term Obligations
Long-term obligations consist principally of a seven year term
loan from a bank in the principal amount of $85 million. The term loan
bears interest at a variable rate based on a ratio of the Corporation's
debt to earnings before certain expenses and which falls within a range
<PAGE>
-9-
of 0.5% to 1.25% above the December 5, 1995 London interbank market rate
(LIBOR) which was 5.63%. At December 31, 1995 the effective interest
rate was 6.63%. Under the term loan, the most restrictive covenants
provide that: earnings before interest and taxes as a ratio of interest
must be greater than 2.5 to 1; consolidated net worth and the preferred
stock must be at least $80 million; and the total debt must not exceed
200% of net worth and the preferred stock. Commitment fees are variable,
ranging from 18.75 to 37.5 basis points.
The term loan principal is to be paid in quarterly installments over a
seven year period beginning March 31, 1996. Annual repayments by
fiscal year are as follows:
1996 $ 1,518,000
1997 6,071,000
1998 7,589,000
1999 12,143,000
2000 12,143,000
Thereafter 45,536,000
-----------
Total $85,000,000
===========
Further details are in the Credit Agreement which has been filed with
the Corporation's Form 8-K filed on December 20, 1995.
Note 6. Redeemable Preferred Stock
30,000 shares of unregistered 6% redeemable Series A preferred
stock were issued on December 5, 1995 by MacDermid Imaging Technology,
Inc., a wholly-owned subsidiary of MacDermid, to Hercules Incorporated
in part payment for the purchase of its Electronics and Printing
Division. Dividends in kind are payable on March 31 each year by the
issuance of Series A preferred stock at the rate of one share per $1,000
of dividends. Transfer of the preferred stock is restricted for a period
of ten years and Hercules Incorporated has the right, under certain
conditions, to appoint one person to be a director of MacDermid,
Incorporated. Cumulative payments for redemption of preferred stock and
dividends paid in kind are to be paid out of cumulative net earnings
which accrue beginning with the December 1, 1995 effective date and
continuing through the payment dates, as follows:
March 31, 2000 $12,877,000
March 31, 2001 13,650,000
March 31, 2002 14,469,000
-----------
$40,996,000
===========
Cumulative redemption payments may not exceed 50% of the cumulative net
earnings through the payment date. Any preferred stock or dividends not
so redeemed because of this limitation will be redeemed in the year(s)
following 2002. The preferred stock may be redeemed earlier at the
option of MacDermid. In the event that MacDermid is in default of its
obligations with respect to the preferred dividend or redemption, it may
not pay a dividend on its common stock.
<PAGE>
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Note 7. Reclassification
Certain amounts in the 1994 Consolidated Condensed Balance Sheets,
Statements of Earnings and Retained Earnings and Statements of Cash
Flows have been reclassified to conform with the 1995 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion compares the results of operations for the
three and nine month periods which ended December 31, 1995 to the
same periods in 1994 and provides information with respect to changes
in financial condition during the nine months then ended.
SALES
Net proprietary chemical sales for the current quarter increased 27%
from the same period last year as business conditions continued to
strengthen in European and Asian Pacific markets. Overall sales,
are up 31% over the same quarter last year, substantially a result of
inclusion of a new equipment manufacturing subsidiary, which was formerly
a 50% owned joint venture, and from newly acquired imaging business as of
December 1, 1995.
For the nine month period, net proprietary chemical sales increased 19%,
while overall sales are up 20% over the same period last year.
COSTS AND EXPENSES
Gross profits are up 30% and 23% for the quarter and nine months as
compared to the like periods last year despite the recognition of
temporarily higher costs of sales in connection with inventories
included in the acquired business. Improved sales and margins
overseas, as well as additional business from the new subsidiaries,
contributed to the growth. Gross profit, as a percentage of sales,
is improved as proprietary sales growth more than offset additional
lower margin equipment sales.
Selling, technical and administrative expenses increased because of
the new business and for performance incentives. Operating profits
overseas increased substantially due to increased sales, improved
margins and expenses, which increased at a lesser rate to support
increased business, in both the three and nine month periods.
PROVISION FOR INCOME TAXES
The effective income tax rate was approximately 40% for the current
nine month period, up from approximately 38% for the same period in
1994. This increase reflects the effects of changes in taxable
earnings among operating units which are taxable at differing rates.
NET EARNINGS
Net earnings, before the cumulative effect of an accounting change
in the first quarter of last year, increased 17% for the three month
<PAGE>
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period and 8% for the nine month period, as compared to the same
periods last year, despite the cumulative effects of: a one-time
non-taxable profit on a property sale recorded in the first quarter
of last year; acceleration of certain goodwill amortization this year;
and an increase in interest expense related to the financing of
last year's stock tender offer and this year's business acquisition.
FINANCIAL CONDITION
Operating activities during the nine months ending December 31, 1995
resulted in a net inflow of cash amounting to $8.6 million. The cash
generated was primarily used for capital improvements, purchase of a
modest number of the Corporation's shares and dividends to
shareholders. The balance of cash generated from operations was used
to pay down certain previously existing debt. The acquisition of the
Electronics and Printing Division of Hercules Incorporated was
financed by bank borrowings including $85 million of long-term debt
and $15 million of revolving credit and the issuance of $30 million
redeemable preferred stock. Additional borrowings of approximately
$3 million were used to finance the purchase of a partner's interest
in an equipment joint venture. Working Capital at December 31, 1995
was $35.2 million, roughly the same as the $34.7 million at March 31,
1995.
Capital expenditures increased in the third quarter to $2.9 million
to date and are expected to be near $5 million for the fiscal year.
MacDermid has a credit arrangement under which a long-term balance
of $85 million remains outstanding at December 31, 1995 under a
seven-year term loan and which permits borrowings of up to $65
million under a five-year revolving credit facility. MacDermid's
other credit facilities, which presently total approximately $38
million, together with the $65 million revolving credit facility
and the Corporation's cash flows from operations, are adequate to
fund working capital and expected capital expenditures.
OUTLOOK: ISSUES AND RISKS
This report and other Corporation reports and statements describe
many of the positive factors affecting the Corporation's future
business prospects. Investors should also be aware of factors which
could have a negative impact on those prospects. These include
political, economic or other conditions such as currency exchange
rates, inflation rates, recessionary or expansive trends, taxes and
regulations and laws affecting the business; competitive products,
advertising, promotional and pricing activity; the degree of
acceptance of new product introductions in the marketplace; and the
difficulty of forecasting sales at certain times in certain markets.
<PAGE>
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PART II
OTHER INFORMATION
ITEM 2: CHANGES IN THE RIGHTS OF SECURITY HOLDERS
Unregistered 6% redeemable Series A preferred stock was issued to
Hercules Incorporated as described in Note 6 on page 9 of this report.
In the event that MacDermid is in default of its obligations with
respect to the preferred dividend or redemption, it may not pay a
dividend on its common stock.
ITEM 5: OTHER INFORMATION
5.1 On June 29, 1995, MacDermid acquired the remaining 50% share of
its Hollmuller America joint venture for equipment manufacture from
Hollmuller GmbH. The former joint venture company, which was
renamed, MacDermid Equipment, Inc. ("MEI"), is now a wholly-owned
subsidiary of MacDermid. The accounts of MEI were included in the
consolidated balance sheets as of June 30, 1995 and results of
operations have been included in consolidated results beginning July
1, 1995.
5.2 On December 5, 1995 MacDermid acquired the Electronics and
Printing Division of Hercules Incorporated, forming a new subsidiary,
MacDermid Imaging Technology ("MIT"). The accounts of MIT were
included in the consolidated balance sheets as of December 31, 1995
and results of operations have been included in consolidated results
beginning December 1, 1995.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
6.1 On December 20, 1995, MacDermid filed its Form 8-K to report the
completion of acquisition of the Electronics and Printing Division of
Hercules Incorporated. The Form 8-K is incorporated by reference
herein.
<PAGE>
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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: February 14, 1996 Daniel H. Leever
Daniel H. Leever
President and Chief
Executive Officer
Date: February 14, 1996 Arthur J. LoVetere, Jr.
Arthur J. LoVetere, Jr.
Vice President and
Chief Financial Officer
Date: February 14, 1996 Gregory M. Bolingbroke
Gregory M. Bolingbroke
Corporate Controller
<TABLE> <S> <C>
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<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> 9-MOS
<CASH> 7775
<SECURITIES> 0
<RECEIVABLES> 65067
<ALLOWANCES> 4358
<INVENTORY> 39293
<CURRENT-ASSETS> 117861
<PP&E> 80123
<DEPRECIATION> 38350
<TOTAL-ASSETS> 265618
<CURRENT-LIABILITIES> 82683
<BONDS> 85346
30150
0
<COMMON> 4194
<OTHER-SE> 58301
<TOTAL-LIABILITY-AND-EQUITY> 265618
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<TOTAL-REVENUES> 160604
<CGS> 81145
<TOTAL-COSTS> 145167
<OTHER-EXPENSES> 64022
<LOSS-PROVISION> 1039
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<INCOME-PRETAX> 15437
<INCOME-TAX> 6175
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<EPS-DILUTED> 3.11
</TABLE>
