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, 1996
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 - 8,190,153 shares as of January 31, 1997.
<PAGE>
-2-
INDEX
PART I. Financial Information
Item 1. Financial Statements
Page No.
Consolidated Condensed Balance Sheets
December 31, 1996 and March 31, 1996 3-4
Consolidated Condensed Statements of Earnings
and Retained Earnings - Nine Months and Three Months
Ended December 31, 1996 and 1995 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended December 31, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. Other Information 12
Signatures 13
<PAGE>
-3-
<TABLE>
PART I. - FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands of dollars except share amounts)
<CAPTION>
December 31, March 31,
1996 1996
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,610 $ 8,833
Accounts and Notes Receivable
(Net of Allowance for Doubtful
Receivables of $4,105 and $4,829) 64,237 64,410
Inventories
Finished Goods 25,510 21,271
Raw Materials 17,612 17,267
-------- --------
43,122 38,538
Prepaid Expenses 3,198 2,911
Deferred Income Tax Asset 4,148 4,045
-------- --------
Total Current Assets 119,315 118,737
Property, Plant and Equipment (Net of Accumulated
Depreciation of $41,202 and $37,916) 41,216 41,316
Goodwill, net 77,572 80,398
Other Assets 24,020 24,305
-------- --------
Total Assets $262,123 $264,756
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-4-
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 5,738 $ 5,219
Current Installments of Long-term Obligations 6,867 7,065
Accounts and Dividends Payable 24,534 21,296
Accrued Expenses 22,667 19,265
Income Taxes 4,759 6,178
-------- --------
Total Current Liabilities 64,565 59,023
Long-term Obligations 88,471 105,189
Accrued Postretirement and Postemployment Benefits 4,117 3,997
Deferred Income Taxes 178 45
Minority Interest in Subsidiaries 87 85
Preferred Stock--6% Redeemable Series A (no par) 31,977 30,600
Shareholders' Equity
Common Stock Stated Value $1 per Share 12,803 4,200
Additional Paid-In Capital 277 3,456
Retained Earnings 105,996 95,564
Equity Adjustment From Foreign Currency
Translation 1,059 1,034
Less Cost of 4,613,186 and 4,217,841 Common
Shares in Treasury (Note 2) (47,407) (38,437)
-------- --------
Total Shareholders' Equity 72,728 65,817
-------- --------
$262,123 $264,756
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-5-
<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,
---------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $221,060 $160,604 $74,367 $58,279
Costs and expenses
Cost of Sales 109,784 81,146 36,002 30,493
Selling, technical and
administrative expenses 77,011 60,491 25,820 20,566
Interest income (492) (268) (145) (111)
Interest expense 5,706 2,265 1,728 1,143
Other expense - net (Note 3) 1,856 1,533 1,159 791
------- ------- ------- -------
193,865 145,167 64,564 52,882
------- ------- ------- -------
Earnings before income taxes 27,195 15,437 9,803 5,397
Income taxes 10,878 6,175 3,921 2,159
------- ------- ------- -------
Net earnings 16,317 9,262 5,882 3,238
Preferred dividends (1,377) (150) (459) (150)
------- ------- ------- -------
Net earnings available for
common shareholders 14,940 9,112 5,423 3,088
Retained earnings, beginning of
period 95,564 84,043 100,983 89,232
Transfer to Common Stock (Note 4) (3,276) - - -
Cash dividends declared (1,232) (1,254) (410) (419)
------- ------- -------- -------
Retained earnings, end of period $105,996 $91,901 $105,996 $91,901
======== ======= ======== =======
Weighted average common shares
Outstanding):
Primary 8,652,490 8,756,298 8,547,552 8,796,426
========= ========= ========= =========
Fully diluted 8,660,785 8,798,639 8,542,004 8,816,295
========= ========= ========= =========
Net earnings per common share -
primary and fully diluted (Note 5) $1.73 $1.04 $0.63 $0.35
===== ===== ===== =====
Cash dividends per common share $0.15 $0.15 $0.05 $0.05
===== ===== ===== =====
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-6-
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
<CAPTION>
Nine Months Ended
December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Net cash flows from operating activities $25,437 $ 8,636
Cash flows from investing activities:
Capital expenditures (5,442) (2,861)
Proceeds from disposition of fixed assets 517 250
Acquisition of business 637 (131,600)
------- -------
Net cash flows used in investing activities (4,288) (134,211)
------- -------
Cash flows from financing activities:
Long-term and short-term borrowings 5,831 135,813
Long-term and short-term repayments (21,887) (9,274)
Exercise of stock options 958 659
Purchase of treasury shares (8,970) (211)
Dividends paid (1,232) (1,255)
------- -------
Net cash flows used in/from financing activities(25,300) 125,732
Effect of exchange rate changes on cash (72) (12)
and Cash Equivalents ------- -------
Net (decrease)/increase in cash and (4,223) 145
cash equivalents
Cash and cash equivalents at beginning of year 8,833 7,630
------- -------
Cash and cash equivalents at end of period $ 4,610 $ 7,775
======= =======
Cash paid for interest $ 5,641 $ 1,839
======= =======
Cash paid for income taxes $11,715 $ 5,295
======= =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
-7-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The March 31, 1996 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 results of operations for the three and nine month periods
ended December 31, 1996 and 1995 are not necessarily indicative of
trends or of the results to be expected for the full year. Certain
amounts in the 1995 Consolidated Condensed Balance Sheets and Statements
of Earnings and Retained Earnings have been reclassified to conform with
the 1996 presentation. The statements should be read in conjunction with
the notes to the consolidated financial statements included in MacDermid's
1996 Annual Report.
Note 2. Stock Repurchase Authorization
The Board of Directors on August 28, 1996 authorized the Corporation to
purchase up to 100,000 shares of its common stock. At December 31, 1996,
there remained authorization to purchase approximately 93,000 shares which
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 3. Sale of Subsidiary in Israel
On October 1, 1996 the Corporation sold its subsidiary in Israel
for an amount which approximated the book value at that date.
However, there was a charge to earnings of nearly $0.7 million
during the three months ended December 31, 1996, as required
under Statement of Financial Accounting Standards number 52,
due to an accumulated equity adjustment from currency translations.
<PAGE>
-8-
Note 4. Common Stock Split
On October 21, 1996 the Board of Directors authorized a
three-for-one stock split that was distributed on November 15, 1996
to common shareholders of record at the close of business on
November 1, 1996. In the financial statements of this report all
per share amounts, dividends per common share and number of common
shares have been restated to give retroactive effect to the stock split
reflecting the increased number of common shares outstanding. In
addition, as of September 30, 1996 an amount equal
to one dollar per common share, the stated value (which remained
unchanged), has been transferred from additional
paid-in capital and retained earnings to common stock with
respect to the additional shares issued as a result of the stock split.
Note 5. 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 common
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.
<PAGE>
-9-
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 and nine month periods which ended December 31, 1996 to the same periods
in 1995 and provides information with respect to changes in financial
condition during the nine months then ended.
SALES
Total sales for the current quarter increased 28% from the same period
last year. The quarter sales increase resulted from inclusion
(for three months) of the printing and imaging business which was
acquired in the third quarter (for one month) of fiscal year 1996
and sales increases overseas, up 11% as certain of the Corporation's
operations, primarily in Asia, are continuing to gain momentum.
Net proprietary chemical sales for the current quarter reached
a record $64.7 million, an increase of 27% from the same period last year.
For the nine month period net proprietary chemical sales increased 35%
while overall sales are up 38% over the same period last year.
The same factors that provided growth in the quarter contributed to
sales growth for the nine months, as the imaging and printing
business has been meeting, and in some cases exceeding, the Corporation's
expectations, while the industrial products division has also produced
excellent results to date. Based upon current performance and market
conditions the Corporation expects continued growth.
COSTS AND EXPENSES
Gross profits were up 38% for the quarter and 40% for the nine months
as compared to the similar periods last year. Gross profit, as a percentage
of sales, for the quarter is improved over the same period last year.
Gross profit growth and improved margins were achieved with the
additional business from the new printing and imaging subsidiary and
enhanced by improved sales and margins overseas.
Overhead efficiencies realized from a 1994 acquisition
were enhanced by cost awareness programs this year, further strengthening
margins for both the three and nine month periods.
Selling, technical and administrative expenses increased 26% for the
quarter and are 27% higher for the nine months period to support
additional business of the new subsidiaries and for costs to support
growing markets overseas. Operating profits for the three and nine month
periods increased 74% and 81%, respectively, over last year's corresponding
periods. The increased operating profit is a result of the
increased sales coupled with a lesser increase in costs and expenses
supporting new business and investment in growth strategies,
in both the three and nine month periods.
<PAGE>
-10-
PROVISION FOR INCOME TAXES
The effective income tax rate was approximately 40% for both the current
nine month period and the same period in 1995. Changes in taxable earnings
among operating units which are taxable at differing rates have had little
affect upon overall tax rates. A dividend repatriation strategy affecting
wholly owned subsidiaries overseas is nearly complete for this fiscal year.
The Corporation expects those dividend payments will result in a significantly
lower tax rate in the fourth quarter.
NET EARNINGS
Net earnings available to common shareholders increased 76% for the
three month period and 64% for the nine month period as compared to the
same periods last year despite increased interest expense and preferred
dividends relating to the printing and imaging business acquired
last December 1995. The sale of a subsidiary in Israel prompted a non-
recurring charge of nearly $0.07 per share; otherwise net earnings
would have been 94% and 70% above the previous year's three and
nine month periods, respectively.
FINANCIAL CONDITION
Operating activities during the nine months ending December 31, 1996
resulted in a net cash inflow of $25.4 million. The
cash generated was primarily used for purchase of 395,345 of the
Corporation's shares and a net $16.1 million reduction of debt.
The balance of cash generated from operations, together with a
portion of cash already on hand, was used for dividends
to common shareholders and capital improvements. Working Capital
at December 31, 1996 was $54.8 million as compared to $59.7 million
at March 31, 1996.
Capital expenditures were $5.4 million for the nine months ended
December 31, 1996 and are in line with total planned expenditures
of about $7.5 million for the fiscal year.
MacDermid has a long-term credit arrangement which consists of
a seven-year term loan which has a balance of $78.9 million
outstanding at December 31, 1996, a five-year revolving credit facility
which permits borrowings of up to $65 million, of which $12.3 million is
outstanding at December 31, 1996, and an additional
$100 million acquisition credit facility. MacDermid's other credit
facilities, which presently total approximately $35 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.
<PAGE>
-11-
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>
-12-
PART II. OTHER INFORMATION
ITEM 2: Changes in the Rights of Security Holders
None.
ITEM 5: Other Information
5.1 As previously reported, the Corporation on October 1, 1996 completed
an agreement to sell the common stock of its subsidiary in Israel to a
retired former officer of MacDermid for approximately the book value of
the subsidiary at closing. The disposal of this subsidiary resulted in
a non-recurring charge for the quarter, as described in Note 3, and is
not expected to have a material impact on the earnings of the Corporation
in the future.
ITEM 6: Exhibits and Reports on Form 8-K
6.1 On October 21, 1996, MacDermid filed its Form 8-K to report the
three-for-one stock split approved by the Board of Directors for
distribution on November 15, 1996 to shareholders of record as of
November 1, 1996. The Form 8-K is incorporated by reference herein.
<PAGE>
-13-
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 03, 1997 Daniel H. Leever
Daniel H. Leever
President and Chief
Executive Officer
Date: February 03, 1997 Arthur J. LoVetere, Jr.
Arthur J. LoVetere, Jr.
Vice President and
Chief Financial Officer
Date: February 03, 1997 Gregory M. Bolingbroke
Gregory M. Bolingbroke
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Dec-31-1996
<PERIOD-TYPE> 9-MOS
<CASH> 4610
<SECURITIES> 0
<RECEIVABLES> 68342
<ALLOWANCES> 4105
<INVENTORY> 43122
<CURRENT-ASSETS> 119315
<PP&E> 82418
<DEPRECIATION> 41202
<TOTAL-ASSETS> 262123
<CURRENT-LIABILITIES> 64565
<BONDS> 95297
31977
0
<COMMON> 12803
<OTHER-SE> 59925
<TOTAL-LIABILITY-AND-EQUITY> 262123
<SALES> 221060
<TOTAL-REVENUES> 221060
<CGS> 109784
<TOTAL-COSTS> 193865
<OTHER-EXPENSES> 84082
<LOSS-PROVISION> 951
<INTEREST-EXPENSE> 5706
<INCOME-PRETAX> 27194
<INCOME-TAX> 10878
<INCOME-CONTINUING> 14940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14940
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
