UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 1997
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 - 8,365,302 shares as of November 1, 1997.
<PAGE>
-2-
MACDERMID, INCORPORATED
INDEX
PART I. Financial Information
Item 1. Financial Statements
Page No.
Consolidated Condensed Balance Sheets
September 30, 1997 and March 31, 1997 3-4
Consolidated Condensed Statements of Earnings
and Retained Earnings - Six Months and Three Months
Ended September 30, 1997 and 1996 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended September 30, 1997 and 1996 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
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands of dollars except share amounts)
<CAPTION>
September 30, March 31,
1997 1997
------------ ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,688 $ 6,530
Accounts and Notes Receivable
(Net of Allowance for Doubtful
Receivables of $3,350 and $3,379) 63,965 61,419
Inventories
Finished Goods 24,006 23,125
Raw Materials 17,356 17,623
-------- --------
41,362 40,748
Prepaid Expenses 2,356 2,207
Deferred Income Tax Asset 4,800 4,808
-------- --------
Total Current Assets 117,171 115,712
Property, Plant and Equipment (Net of Accumulated
Depreciation of $43,109 and $41,424) 39,743 41,544
Goodwill, net 79,354 76,346
Other Assets (Note 2) 43,993 27,376
-------- --------
Total Assets $280,261 $260,978
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-4-
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 9,449 $ 9,059
Current Installments of Long-term Obligations 9,305 7,816
Accounts and Dividends Payable 21,146 22,181
Accrued Expenses 24,933 23,015
Income Taxes 7,218 6,758
-------- --------
Total Current Liabilities 72,051 68,829
Long-term Obligations 114,494 75,165
Accrued Postretirement and Postemployment Benefits 4,224 4,157
Deferred Income Taxes 311 245
Minority Interest in Subsidiaries 96 88
Preferred Stock--6% Redeemable Series A (no par) - 32,436
Shareholders' Equity
Common Stock Stated Value $1 per Share 13,088 12,800
Additional Paid-In Capital 3,843 959
Retained Earnings 127,403 113,632
Equity Adjustment From Foreign Currency
Translation (905) 74
Less Cost of 4,720,194 and 4,613,186 Common
Shares in Treasury (Note 3) (54,344) (47,407)
-------- --------
Total Shareholders' Equity 89,085 80,058
-------- --------
$280,261 $260,978
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-5-
<TABLE>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
(Amounts in Thousands Except Share and Per Share Amounts)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
---------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $149,723 $146,693 $ 75,003 $ 74,038
Cost and Expenses
Cost of Sales 71,321 73,782 35,977 37,342
Selling, Technical and Administrative
Expenses/Amortization 51,164 51,191 25,331 25,374
Interest Income (242) (347) (98) (164)
Interest Expense 3,450 3,978 1,882 1,892
Other Expense - Net 547 697 336 419
-------- ------- -------- --------
126,240 129,301 63,428 64,863
-------- -------- -------- --------
Earnings Before Income Taxes 23,483 17,392 11,575 9,175
Income Taxes 8,571 6,957 4,224 3,669
-------- -------- -------- --------
Net Earnings 14,912 10,435 7,351 5,506
Preferred Dividends (309) (918) - (459)
-------- -------- -------- --------
Earnings Available for
Common Shareholders 14,603 9,517 7,351 5,047
Retained Earnings, Beginning of
Period 113,632 92,288 120,470 96,344
Cash Dividends Declared (832) (822) (418) (408)
------- -------- -------- --------
Retained Earnings, End of Period $127,403 $100,983 $127,403 $100,983
======== ======== ======== ========
Net Earnings Per Common Share -
Primary and Fully Diluted (Note 4) $1.72 $1.10 $0.86 $0.59
===== ===== ===== =====
Cash Dividends Per Common Share $0.10 $0.10 $0.05 $0.05
===== ===== ===== =====
Weighted Average Common Shares
Outstanding :
Primary 8,487,493 8,683,377 8,548,966 8,548,026
========= ========= ========= =========
Fully Diluted 8,492,852 8,684,822 8,548,966 8,584,491
========= ========= ========= =========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-6-
<TABLE>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
<CAPTION>
Six Months Ended
September 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Net Cash Flows from Operating Activities $19,024 $16,275
Cash Flows from Investing Activities:
Capital Expenditures (1,939) (3,132)
Proceeds from Disposition of Fixed Assets 593 163
Acquisitions of Business (Note 2) (22,000) -
------- -------
Net Cash Flows Used in Investing Activities (23,346) (2,969)
------- -------
Cash Flows from Financing Activities:
Short-Term (Repayments)/Borrowings 741 1,648
Long-Term Borrowings 47,940 2,000
Long-Term Repayments (7,245) (12,380)
Preferred Stock Redemption (32,745) -
Exercise of Stock Options 1,690 844
Purchase of Treasury Shares (6,937) (8,942)
Dividends Paid (832) (822)
------- -------
Net Cash Flows From/Used in
Financing Activities 2,612 (17,652)
Effect of Exchange Rate Changes on Cash (132) (86)
and Cash Equivalents ------- -------
Net Decrease in Cash and Cash Equivalents (1,842) (4,432)
Cash and Cash Equivalents at Beginning of Year 6,530 8,833
------- -------
Cash and Cash Equivalents at End of Period $ 4,688 $ 4,401
======= =======
Cash Paid for Interest $ 3,340 $ 3,807
======= =======
Cash Paid for Income Taxes $ 7,395 $ 7,405
======= =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
-7-
MACDERMID, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The March 31, 1997 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 six month periods ended September 30, 1997 and 1996
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 MacDermid's 1997 Annual Report.
Note 2. Acquisitions
On September 29, 1997 the Corporation completed an acquisition of
the Board Fabrication Division of National Starch and Chemical
Company (National) which was only recently acquired by National as
part of their purchase of Grace Specialty Polymers Business. When
final evaluation of the amounts to be recorded for the assets and
liabilities acquired is completed, using the purchase method of
accounting, then the specific amounts will be reclassified within
the balances presented in the Condensed Consolidated Balance Sheet.
Such amounts are not expected to be material to the balances
presented at September 30, 1997. No operational activity from the
foregoing acquisition was included in the results of operations for
the three and six month periods ended September 30, 1997. Any
activity recorded for the remainder of the fiscal year is expected
to be non-material.
As reported in December 1995 there was a further $15 million
contingently payable for the purchase price related to the
acquisition of the Electronics and Printing Division of Hercules
Incorporated that would have been payable in fiscal year 2004.
During the period, this performance premium was fully satisfied, by
the payment of $4.5 million, increasing the goodwill balance on the
consolidated balance sheets at September 30, 1997 and completing the
acquisition.
<PAGE>
-8-
Note 3. Stock Repurchase Authorization
The Board of Directors on July 23, 1997 authorized the Corporation
to purchase up to 100,000 shares of its common stock. At
September 30, 1997, there remained authorization to purchase
approximately 85,000 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 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 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
six month periods which ended September 30, 1997 to the same periods in 1996
and provides information with respect to changes in financial condition during
the six months then ended.
SALES
Total sales for the current quarter increased 1% from the same period last
year. Proprietary chemical sales, up 3%, improved in all regions worldwide
and were somewhat offset by soft equipment and resale business during the
quarter. Net proprietary sales reached a record for a quarter, $66.9 million,
in spite of the negative effect from foreign currency translation. Foreign
currency translation had the effect of reducing reported net sales by $2.5
million for the quarter as compared to the same period last year. Otherwise,
the total sales increase would have been 5% without any exchange rate
influence.
For the six month period net proprietary chemical sales increased 4% while
overall sales are up 2% over the same period last year. Foreign currency
translation had the effect of reducing sales by $4.6 million for the
six month period which would have also been an increase of 5% absent exchange
rate influence.
COSTS AND EXPENSES
Gross profits are up 6% for the quarter and 7% for the six months, as compared
to the like periods last year. Growth was achieved with increased proprietary
sales and enhanced from the continued success of cost awareness programs.
Gross profit as a percentage of sales has improved steadily over the like
periods last year.
Selling, technical and administrative expenses were essentially unchanged for
both the three and six month periods. Increases for sales and technical
support overseas were favorably offset by foreign currency translation of
approximately $0.7 million and $1.3 million for the three and six month
periods, respectively. Ongoing cost awareness programs resulted in shared
administrative savings of approximately $0.3 million for the six month period
somewhat offsetting additional selling costs in domestic markets. Operating
profits for the three and six month periods increased 19% and 23%,
respectively, over the corresponding period last year. The increased
operating profit is a result of the increased proprietary sales, margin
improvement and a lesser increase in selling costs and expenses for growth
strategies, in both the three and six month periods.
As a result, earnings before interest, taxes, depreciation and amortization
(EBITDA) is $32.6 million for the six months ended September 30, 1997.
<PAGE>
-10-
PROVISION FOR INCOME TAXES
Ongoing tax minimization strategies have brought the effective income tax rate
to approximately 36.5% for the six months ended September 30, 1997, down from
40% for the same period in 1996.
NET EARNINGS
Net earnings available to common shareholders increased 46% for the three
month period and 53% for the six month period as compared to the same periods
last year. Enhanced margins and cost reduction awareness, as discussed above,
coupled with lower interest expense and less preferred dividends after the
early redemption of all of the preferred stock, led to these improved results.
There was an approximate 3% unfavorable impact from foreign currency
translation on both the three and six month periods.
<PAGE>
-11-
FINANCIAL CONDITION
Operating activities during the six months ending September 30, 1997 resulted
in a net cash inflow of $19.0 million. The cash generated was primarily used
for purchases of 107,007 shares of the Corporation's common shares for a total
of $6.9 million and debt repayments of $7.2 million. Additionally, cash
generated from operations was used for dividends to common shareholders and
capital improvements. Working Capital at September 30, 1997 was $45.1 million
as compared to $46.9 million at March 31, 1997.
Capital expenditures were $1.9 million for the six months ended September 30,
1997 and the full year total planned expenditures of about $7.6 million for
the fiscal year remains unchanged.
MacDermid has a long-term credit arrangement which consists of a seven-year
term loan which has a balance of $74.4 million outstanding at September 30,
1997, a five-year revolving credit facility which permits borrowings of up to
$65 million, of which $49.6 million is outstanding at September 30, 1997, and
an additional $100 million acquisition credit facility. The outstanding
balance on the five year revolving credit facility increased a net $42.4
million during the year.
The borrowings were made:
to effect the redemption, ahead of schedule, of all of the shares of preferred
stock issued as part payment for a 1995 acquisition;
to exercise an early buy-out of the performance premium relating to the same
1995 acquisition; and
for an acquisition, on September 29, 1997, of the Board Fabrication Division
of National.
MacDermid's other credit facilities, which presently total approximately $33
million, 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>
-12-
PART II. OTHER INFORMATION
ITEM 2 : Changes in the Rights of Security Holders
2.1 The following disclosure was made as of December 1995: in the event that
MacDermid would be in default of it's obligations with respect to
dividends, or redemption of the preferred shares issued to Hercules
Incorporated or with respect to payment of the performance premium,
arising with the December 5, 1995 acquisition, the Corporation may not
pay a dividend on it's common stock.
As a result of the early redemption and full payment to Hercules
Incorporated for the preferred shares and a $4.5 million payment to fully
satisfy the performance premium, there is no longer any potential
restriction on the payment of a dividend on the common stock of the
Corporation.
ITEM 5 : Other Information
5.1 As previously reported, the Corporation on September 29, 1997 completed
an agreement to acquire the Board Fabrication Division of National. A
press release was made August 14, 1997 which first reported that this
acquisition enhances the Corporations leadership position, in
photoimaging, in the Printed Circuit market. However, it is not expected
to have a material impact on the immediate future earnings of the
Corporation. The new business will be aggregated with the existing
domestic businesses beginning October 1997.
5.2 Proxy materials were mailed, on approximately October 27, 1997, to
shareholders entitled to notice and vote, announcing there will be a
special meeting of shareholders, to be held at Corporate Headquarters, on
December 1, 1997 for the following purposes:
to consider and act upon a proposal to amend MacDermid's Restated
Certificate of Incorporation to increase the authorized number of shares
of MacDermid's common stock from 20 million to 75 million;
to consider and act upon a proposal to amend MacDermid's Restated
Certificate of Incorporation to provide for written shareholder action by
less than unanimous consent pursuant to the provisions of Section 33-698
of the Connecticut Business Corporation Act; and
to transact such other business as may properly come before the meeting
or any adjournment thereof.
ITEM 6 : Exhibits and Reports on Form 8-K
None.
<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: November 11, 1997 Daniel H. Leever
Daniel H. Leever
Chief Executive Officer
Date: November 11, 1997 Arthur J. LoVetere, Jr.
Arthur J. LoVetere, Jr.
Vice President
Date: November 11, 1997 Gregory M. Bolingbroke
Gregory M. Bolingbroke
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Apr-01-1997
<PERIOD-END> Sep-30-1997
<PERIOD-TYPE> 6-MOS
<CASH> 4688
<SECURITIES> 0
<RECEIVABLES> 67315
<ALLOWANCES> 3350
<INVENTORY> 41362
<CURRENT-ASSETS> 117171
<PP&E> 82852
<DEPRECIATION> 43109
<TOTAL-ASSETS> 280261
<CURRENT-LIABILITIES> 72051
<BONDS> 114494
0
0
<COMMON> 13088
<OTHER-SE> 75997
<TOTAL-LIABILITY-AND-EQUITY> 280261
<SALES> 149723
<TOTAL-REVENUES> 149723
<CGS> 71321
<TOTAL-COSTS> 126240
<OTHER-EXPENSES> 54919
<LOSS-PROVISION> 442
<INTEREST-EXPENSE> 3450
<INCOME-PRETAX> 23483
<INCOME-TAX> 8571
<INCOME-CONTINUING> 14603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14603
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
</TABLE>
