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, 1998
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 - 25,138,068 shares as of August 1, 1998.
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MACDERMID, INCORPORATED
INDEX
PART I. Financial Information
Item 1. Financial Statements
Page No.
Consolidated Condensed Balance Sheets
June 30, 1998 and March 31, 1998 3-4
Consolidated Condensed Statements of Earnings
and Retained Earnings - Three Months
Ended June 30, 1998 and 1997 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 1998 and 1997 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
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<TABLE>
PART I. - FINANCIAL INFORMATION
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
<CAPTION>
June 30, March 31,
1998 1998
------------ ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 5,369 $ 3,549
Accounts and Notes Receivable
(Net of Allowance for Doubtful
Receivables of $3,860 and $3,598) 73,712 72,675
Inventories
Finished Goods 32,831 27,197
Raw Materials 19,600 22,442
-------- --------
52,431 49,639
Prepaid Expenses 2,526 2,255
Deferred Income Tax Asset 3,970 3,970
-------- --------
Total Current Assets 138,008 132,088
Property, Plant and Equipment (Net of Accumulated
Depreciation of $45,482 and $44,847) 41,990 42,946
Goodwill (Net of Accumulated Amortization of
$10,424 and $6,436) 86,965 87,856
Other Assets 52,578 37,370
-------- --------
Total Assets $319,541 $300,260
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 6,533 $ 9,962
Current Installments of Long-term Obligations 22,379 12,442
Accounts and Dividends Payable 25,313 25,105
Accrued Expenses 25,134 32,784
Income Taxes 8,370 5,710
-------- --------
Total Current Liabilities 87,729 86,003
Long-term Obligations 116,119 103,983
Accrued Postretirement and Postemployment Benefits 4,321 4,291
Deferred Income Taxes 386 345
Minority Interest in Subsidiaries 93 93
Shareholders' Equity
Common Stock Stated Value $1 per Share 39,395 39,265
Additional Paid-In Capital 1,401 -
Retained Earnings 131,633 124,043
Equity Adjustment From Foreign Currency
Translation (3,793) (3,160)
Less Cost of 14,256,410 and 14,169,582
Common Shares in Treasury (57,743) (54,603)
-------- --------
Total Shareholders' Equity 110,893 105,545
-------- --------
$319,541 $300,260
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Unaudited)
(Amounts in Thousands Except Share and Per Share Amounts)
<CAPTION>
Three Months Ended
June 30,
---------------
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 81,070 $ 74,720
Cost and Expenses
Cost of Sales 40,173 35,343
Selling, Technical and Administrative
Expenses/Amortization 26,601 25,833
Interest Income (183) (144)
Interest Expense 2,241 1,568
Other (Income) Expense - Net (237) 212
-------- --------
68,595 62,812
-------- --------
Earnings Before Income Taxes 12,475 11,908
Income Taxes 4,382 4,347
-------- --------
Net Earnings 8,093 7,561
Preferred Dividends - (309)
-------- --------
Earnings Available for
Common Shareholders 8,093 7,252
Retained Earnings, Beginning of
Period 124,043 113,632
Cash Dividends Declared (503) (414)
------- --------
Retained Earnings, End of Period $131,633 $120,470
======== ========
Net Earnings Per Common Share - (Note 2):
Basic $0.32 $0.29
===== =====
Diluted $0.32 $0.29
===== =====
Cash Dividends Per Common Share $0.02 $0.0167
===== =======
Weighted Average Common Shares
Outstanding :
Basic 25,149,149 24,674,156
========== ==========
Diluted 25,475,820 25,371,771
========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
<CAPTION>
Three Months Ended
June 30,
--------------------
1998 1997
---- ----
<S> <C> <C>
Net Cash Flows from Operating Activities $ 3,098 $ 7,664
Cash Flows from Investing Activities:
Capital Expenditures (1,394) (959)
Proceeds from Disposition of Fixed Assets - 346
Acquisitions/Investments of Business(Note 3) (15,164) -
------- -------
Net Cash Flows Used in Investing Activities (16,558) (613)
------- -------
Cash Flows from Financing Activities:
Short-Term (Repayments)/Borrowings (3,441) (3,497)
Long-Term Borrowings 29,206 31,120
Long-Term Repayments (6,969) (2,000)
Exercise of Stock Options 162 482
Purchase of Treasury Shares (3,140) -
Dividends Paid (503) (414)
Preferred Stock Redemption - (32,745)
------- -------
Net Cash Flows from/(used in)
Financing Activities 15,315 (7,054)
Effect of Exchange Rate Changes on Cash (35) (113)
and Cash Equivalents ------- -------
Net Increase/(Decrease) in Cash and
Cash Equivalents 1,820 (116)
Cash and Cash Equivalents at Beginning of Year 3,549 6,530
------- -------
Cash and Cash Equivalents at End of Period $ 5,369 $ 6,414
======= =======
Cash Paid for Interest $ 2,105 $ 1,526
======= =======
Cash Paid for Income Taxes $ 1,243 $ 3,210
======= =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</FN>
</TABLE>
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MACDERMID, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The March 31, 1998 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 month periods ended June 30, 1998 and 1997
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 1998 Annual Report.
Note 2. Earnings Per Common Share
The Corporation has adopted the Financial Accounting Standards
Board Statement of Financial Accounting Standard No. 128, Earnings
per Share(SFAS128). Comparative references to earnings per
common share (EPS) and weighted average common shares outstanding
have been restated to conform with the accounting change. The
computation of basic EPS is based upon the weighted average number
of outstanding common shares. The computation of diluted EPS is
based upon the weighted average number of outstanding common shares
plus the effect of all dilutive potential common shares that were
outstanding during the period. EPS is calculated based upon net
earnings available for common shareholders after deduction for
preferred dividends. In addition, all prior year per share amounts
(as well as number of common shares and dividends per common share)
have been restated to give retroactive effect to a stock split
as of March 16, 1998.
<PAGE>
-8-
Note 3. Acquisitions and Investments
On April 28, 1998 a subsidiary of the Corporation acquired a 30%
interest in an Italian specialty chemical company.
Additionally, there was an investment made in a joint venture,
results of which are not expected to be material. These
transactions will be recognized under equity accounting. Also,
a small industrial products company was acquired under purchase
accounting. Collectively, this activity is not material to the
financial position or results of operations of the Corporation.
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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, 1998 to the same period in 1997 and
provides information with respect to changes in financial condition
during the three months then ended.
SALES
Total sales for the current quarter increased 8% from the same period last
year. Proprietary chemical sales for the current quarter, $69 million,
strengthened in all geographic locations worldwide, however, a 4%
unfavorable effect of foreign currency translation cut the reported
proprietary sales growth in half, to an increase of 4% over the same period
last year.
COSTS AND EXPENSES
Gross profits are up 4% for the quarter as compared to the same period last
year. Gross profit as a percentage of sales, this quarter, was somewhat less
than the like period last year due to a larger amount of equipment sales,
this quarter, for which margins are much lower than proprietary business.
Selling, technical and administrative (ST&A) expenses were 3% increased
for the three month period as compared to last year. The cost increases in
the quarter, in all regions worldwide, predominately were direct selling
expenses to support the business growth, and, to a lesser degree to
establish a market presence for the new ViaTek technology. Operating
profits for the three month period increased 6% over the corresponding
period last year. The increased operating profit results from increased
proprietary sales with a lesser increase in ST&A expenses resulting from
cost awareness initiatives and assuaged by foreign currency translation rates.
As a result, earnings before interest, taxes, depreciation and amortization
(EBITDA) is $17.2 million for the three months ended June 30, 1998.
PROVISION FOR INCOME TAXES
Ongoing tax minimization strategies have brought down the effective
income tax rate to approximately 35.5% for the quarter ended June 30, 1998,
from approximately 36.5% for the same period in 1997. To a lesser degree,
equity earnings recorded this quarter have further favorably impacted the
effective tax rate.
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NET EARNINGS
Net earnings available to common shareholders increased 12% for the quarter
when compared to the same period last year. Increased interest expense
(tax deductible) was nearly offset by less preferred dividends (not tax
deductible). There was no measurable impact on earnings from foreign
currency translation between the three month periods.
FINANCIAL CONDITION
Operating activities during the three months ending June 30, 1998
resulted in a net cash inflow of $3.1 million. The cash generated,
together with cash balances on hand, was primarily used for purchases of
86,828 shares of the Corporation's common shares for a total of $3.1
million, capital improvements and dividends to common shareholders.
Working Capital at June 30, 1998 was $50.3 million as compared to $46.1
million at March 31, 1998.
Capital expenditures were $1.4 million for the three months ended June 30,
1998 and are in line with the full year total planned expenditures of
approximately $8.0 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 $66.2 million outstanding
at June 30, 1998, a five-year revolving credit facility which permits
borrowings of up to $65 million and an additional $100 million
acquisition credit facility, of which $72.0 million is outstanding at
June 30, 1998. The outstanding balance on the credit facilities
increased a net $22.1 million during the year, the borrowings were
made for acquisition and investment opportunities.
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.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No.131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No.131). SFAS No.131 establishes standards
for the way public enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected segment information in interim financial reports. SFAS No.131 is
effective for fiscal years beginning after December 15, 1997. The
Corporation is currently evaluating the requirements of SFAS No.131 and
believes that the adoption of the statement, for its 1999 annual financial
statements, will not have a material impact on previously reported
information.
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Year 2000 Conversion
The Corporation has implemented a plan for evaluating the risks and costs
associated with the year 2000 conversion. Based on the Corporation's
ongoing evaluation, management currently believes that the costs to achieve
year 2000 compliance will not result in costs significantly different from
historical levels of expenditure. The Corporation intends to continue
communication with its customers, suppliers, financial institutions and
others which it does business to ensure that the year 2000 issues will be
resolved in a timely manner. If necessary modifications by those with
which the Corporation does business are not completed timely, the year 2000
conversion may have a material adverse effect on the Corporation's
consolidated financial position and results of operations.
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
None.
ITEM 5 : Other Information
None.
ITEM 6 : Exhibits and Reports on Form 8-K
None.
<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: August 14, 1998 Daniel H. Leever
Daniel H. Leever
Chief Executive Officer
Date: August 14, 1998 Gregory M. Bolingbroke
Gregory M. Bolingbroke
Corporate Controller
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<S> <C>
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<PERIOD-START> Apr-01-1998
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<CASH> 5369
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0
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<COMMON> 39395
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</TABLE>
