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, 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 January 30, 1998.
<PAGE>
-2-
MACDERMID, INCORPORATED
INDEX
PART I. Financial Information
Item 1. Financial Statements
Page No.
Consolidated Condensed Balance Sheets
December 31, 1997 and March 31, 1997 3-4
Consolidated Condensed Statements of Earnings
and Retained Earnings - Nine Months and Three Months
Ended December 31, 1997 and 1996 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended December 31, 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>
December 31, March 31,
1997 1997
------------ ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 3,833 $ 6,530
Accounts and Notes Receivable
(Net of Allowance for Doubtful
Receivables of $3,347 and $3,379) 72,828 61,419
Inventories
Finished Goods 25,238 23,125
Raw Materials 18,487 17,623
-------- --------
43,725 40,748
Prepaid Expenses 2,892 2,207
Deferred Income Tax Asset 4,791 4,808
-------- --------
Total Current Assets 128,069 115,712
Property, Plant and Equipment (Net of Accumulated
Depreciation of $43,812 and $41,424) 39,047 41,544
Goodwill, net 80,641 76,346
Other Assets (Note 2) 44,195 27,376
-------- --------
Total Assets $291,952 $260,978
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
-4-
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 7,765 $ 9,059
Current Installments of Long-term Obligations 10,804 7,816
Accounts and Dividends Payable 24,609 22,181
Accrued Expenses 28,902 23,015
Income Taxes 9,062 6,758
-------- --------
Total Current Liabilities 81,142 68,829
Long-term Obligations 111,854 75,165
Accrued Postretirement and Postemployment Benefits 4,258 4,157
Deferred Income Taxes 340 245
Minority Interest in Subsidiaries 93 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 4,090 959
Retained Earnings 134,625 113,632
Equity Adjustment From Foreign Currency
Translation (2,935) 74
Less Cost of 4,723,194 and 4,613,186 Common
Shares in Treasury (Note 3) (54,603) (47,407)
-------- --------
Total Shareholders' Equity 94,265 80,058
-------- --------
$291,952 $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>
Nine Months Ended Three Months Ended
December 31, December 31,
--------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $233,531 $221,060 $ 83,808 $ 74,367
Cost and Expenses
Cost of Sales 113,776 109,784 42,455 36,002
Selling, Technical and Administrative
Expenses/Amortization 78,558 77,011 27,394 25,820
Interest Income (359) (492) (117) (145)
Interest Expense 5,571 5,706 2,121 1,728
Other Expense - Net 471 1,856 (76) 1,159
-------- -------- -------- --------
198,017 193,865 71,777 64,564
-------- -------- -------- --------
Earnings Before Income Taxes 35,514 27,195 12,031 9,803
Income Taxes 12,962 10,878 4,391 3,921
-------- -------- -------- --------
Net Earnings 22,552 16,317 7,640 5,882
Preferred Dividends (309) (1,377) - (459)
-------- -------- -------- --------
Earnings Available for
Common Shareholders 22,243 14,940 7,640 5,423
Retained Earnings, Beginning of
Period 113,632 92,288 127,403 100,983
Cash Dividends Declared (1,250) (1,232) (418) (410)
------- -------- -------- --------
Retained Earnings, End of Period $134,625 $105,996 $134,625 $105,996
======== ======== ======== ========
Net Earnings Per Common Share - (Note 4):
Basic $2.68 $1.81 $0.91 $0.66
===== ===== ===== =====
Diluted $2.62 $1.76 $0.90 $0.65
===== ===== ===== =====
Cash Dividends Per Common Share $0.15 $0.15 $0.05 $0.05
===== ===== ===== =====
Weighted Average Common Shares
Outstanding :
Basic 8,312,617 8,263,373 8,365,500 8,185,655
========= ========= ========= =========
Diluted 8,497,018 8,482,860 8,473,987 8,386,118
========= ========= ========= =========
<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>
Nine Months Ended
December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Net Cash Flows from Operating Activities $25,570 $25,437
Cash Flows from Investing Activities:
Capital Expenditures (3,205) (5,442)
Proceeds from Disposition of Fixed Assets 639 517
Acquisitions/Dispositions of Business (Note 2)(25,130) 637
------- -------
Net Cash Flows Used in Investing Activities (27,696) (4,288)
------- -------
Cash Flows from Financing Activities:
Short-Term (Repayments)/Borrowings (451) 619
Long-Term Borrowings 53,622 2,000
Long-Term Repayments (13,990) (18,675)
Preferred Stock Redemption (32,745) -
Exercise of Stock Options 1,690 958
Purchase of Treasury Shares (7,196) (8,970)
Dividends Paid (1,250) (1,232)
------- -------
Net Cash Flows Used in
Financing Activities (320) (25,300)
Effect of Exchange Rate Changes on Cash (251) (72)
and Cash Equivalents ------- -------
Net Decrease in Cash and Cash Equivalents (2,697) (4,223)
Cash and Cash Equivalents at Beginning of Year 6,530 8,833
------- -------
Cash and Cash Equivalents at End of Period $ 3,833 $ 4,610
======= =======
Cash Paid for Interest $ 5,177 $ 5,641
======= =======
Cash Paid for Income Taxes $ 9,340 $11,715
======= =======
<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 nine month periods ended
December 31, 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 December 31, 1997. Operational activity from the
foregoing acquisition was included in the results of operations
only since October 1, 1997 and any activity recorded for 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.
In the second quarter, this performance premium was fully
satisfied, by the payment of $4.5 million, increasing the
goodwill balance on the consolidated balance sheets since
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 December 31, 1997, there remained authorization to
purchase approximately 82,000 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
As of this reporting period 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.
<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, 1997 to the same periods in
1996 and provides information with respect to changes in financial condition
during the nine months then ended.
SALES
Total sales for the current quarter increased 16% from the same period last
year from business at both existing and new accounts and were somewhat offset
by a 3% unfavorable effect of foreign currency translation. Proprietary
chemical sales, $71.7 million, a record for any quarter, continue to
strengthen in all regions worldwide.
For the nine month period net proprietary chemical sales and overall sales
both increased 6%. Foreign currency translation had a 3% unfavorable
effect on the nine month period, as well, otherwise sales growth
would have been 9%.
COSTS AND EXPENSES
Gross profits are up 8% for both the quarter and 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 (ST&A) expenses were increased, 6% for
the three month period and 2% for the nine 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.
Operating profits for the three and nine month periods increased 11% and 20%
respectively, over the corresponding period last year. The increased
operating profit results from increased proprietary sales, a lesser
increase in ST&A expenses and enhanced by margin improvement in both
the three and nine month period.
As a result, earnings before interest, taxes, depreciation and amortization
(EBITDA) is $49.3 million for the nine months ended December 31, 1997.
PROVISION FOR INCOME TAXES
Ongoing tax minimization strategies have brought the effective income tax rate
to approximately 36.5% for the nine months ended December 31, 1997, down from
40% for the same period in 1996.
<PAGE>
-10-
NET EARNINGS
Net earnings available to common shareholders increased 41% for the three
month period and 49% for the nine month period as compared to the same
periods last year. Enhanced margins and cost awareness programs, as
discussed above, coupled with lower interest expense and less preferred
dividends as a result of 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 nine month
periods.
FINANCIAL CONDITION
Operating activities during the nine months ending December 31, 1997
resulted in a net cash inflow of $25.6 million. The cash generated was
primarily used for purchases of 110,008 shares of the Corporation's common
shares for a total of $7.2 million and debt repayments of $14.0 million.
Additionally, cash generated from operations was used for dividends to
common shareholders and capital improvements. Working Capital at
December 31, 1997 was $46.9 million as compared to $46.9 million at
March 31, 1997.
Capital expenditures were $3.2 million for the nine months ended
December 31, 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 $72.9 million outstanding at
December 31, 1997, a five-year revolving credit facility which permits
borrowings of up to $65 million, of which $49.5 million is outstanding at
December 31, 1997, and an additional $100 million acquisition credit
facility. The outstanding balance on the five year revolving credit
facility increased a net $42.3 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.
<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
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 has been aggregated
with the existing domestic businesses beginning October 1997.
5.2 On December 1, 1997 there was a special meeting of shareholders held
at Corporate Headquarters. The following matters were approved:
amending MacDermid's Restated Certificate of Incorporation to
increase the authorized number of shares of MacDermid's common stock
from 20 million to 75 million; and
amending 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.
5.3 The Corporation has filed original listing application paperwork with
the New York Stock Exchange (NYSE) for the purposes of listing on the
NYSE and expects the Corporations' shares will be trading on NYSE by
the end of February, as announced with a February 6, 1998 press
release.
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: February 12, 1998 Daniel H. Leever
Daniel H. Leever
Chief Executive Officer
Date: February 12, 1998 Arthur J. LoVetere, Jr.
Arthur J. LoVetere, Jr.
Vice President
Date: February 12, 1998 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> Dec-31-1997
<PERIOD-TYPE> 9-MOS
<CASH> 3833
<SECURITIES> 0
<RECEIVABLES> 76175
<ALLOWANCES> 3347
<INVENTORY> 43725
<CURRENT-ASSETS> 128069
<PP&E> 82859
<DEPRECIATION> 43812
<TOTAL-ASSETS> 291952
<CURRENT-LIABILITIES> 81142
<BONDS> 111854
0
0
<COMMON> 13088
<OTHER-SE> 81177
<TOTAL-LIABILITY-AND-EQUITY> 291952
<SALES> 233531
<TOTAL-REVENUES> 233531
<CGS> 113776
<TOTAL-COSTS> 198017
<OTHER-EXPENSES> 84242
<LOSS-PROVISION> 592
<INTEREST-EXPENSE> 5571
<INCOME-PRETAX> 35514
<INCOME-TAX> 12962
<INCOME-CONTINUING> 22243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22243
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.62
</TABLE>
