UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1999
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COMMISSION FILE NUMBER 0-2413
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MACDERMID, INCORPORATED
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(Exact name of registrant as specified in its charter)
Connecticut 06-0435750
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(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
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NONE
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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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1999
-------------------------- -----------------------------
Common Stock, no par value 25,157,299 shares
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MACDERMID, INCORPORATED
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1999 and March 31, 1999 3-4
Consolidated Condensed Statements of Earnings
and Retained Earnings - Three Months
Ended June 30, 1999 and 1998 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Condensed Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
PART II. Other Information 21
Signatures 22
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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,
1999 1999
------------ ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 9,153 $ 15,486
Available-for-Sale Securities 1,122 968
Accounts and Notes Receivable
(Net of Allowance for Doubtful
Receivables of $5,996 and $6,411) 121,672 108,619
Inventories
Finished Goods 34,712 29,405
Raw Materials 24,916 26,644
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59,628 56,049
Prepaid Expenses 4,645 3,182
Deferred Income Tax Asset 6,038 5,070
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Total Current Assets 202,258 189,374
Property, Plant and Equipment (Net of Accumulated
Depreciation of $51,576 and $49,966) 62,229 59,239
Goodwill (Net of Accumulated Amortization of
$16,646 and $14,604) (Note 2) 179,038 168,991
Intangibles, including Patents/Trademarks
(Net of Accumulated Amortization of
$7,041 and $6,021) 52,648 53,849
Other Assets 33,819 34,826
-------- --------
Total Assets $529,992 $506,279
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
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(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 3,961 $ 3,700
Current Installments of Long-Term Obligations 24,763 27,659
Accounts and Dividends Payable 48,606 44,026
Accrued Expenses (Note 2) 40,545 39,169
Income Taxes 15,439 11,572
-------- --------
Total Current Liabilities 133,314 126,126
Long-Term Obligations 236,599 231,009
Accrued Postretirement and Postemployment Benefits 4,453 6,459
Deferred Income Taxes 614 581
Minority Interest in Subsidiaries 101 65
Shareholders' Equity
Common Stock Stated Value $1 per Share 39,413 39,413
Additional Paid-In Capital 5,483 5,263
Retained Earnings 167,811 158,315
Comprehensive Income Equity Adjustments: (Note 3)
Cumulative Foreign Currency Translation 393 (2,667)
Available-for-Sale Securities Holding Loss (78) (174)
Less: Cost of 14,267,816 Common Shares
in Treasury (Note 4) (58,111) (58,111)
-------- --------
Total Shareholders' Equity 154,911 142,039
-------- --------
$529,992 $506,279
======== ========
<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,
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1999 1998
---- ----
<S> <C> <C>
Net Sales $ 119,067 $ 81,070
Cost and Expenses:
Cost of Sales 58,474 40,173
Selling, Technical and Administrative
Expenses/Amortization 40,437 26,601
Interest Income (730) (183)
Interest Expense 5,497 2,241
Other (Income) Expense - Net 124 (237)
-------- --------
103,802 68,595
-------- --------
Earnings Before Income Taxes 15,265 12,475
Income Taxes 5,266 4,382
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Earnings Available for Common Shareholders 9,999 8,093
Retained Earnings, Beginning of
Period 158,315 124,043
Cash Dividends Declared (503) (503)
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Retained Earnings, End of Period $ 167,811 $131,633
======== ========
Net Earnings Per Common Share - (Note 5):
Basic $0.40 $0.32
===== =====
Diluted $0.39 $0.32
===== =====
Cash Dividends Per Common Share $0.02 $0.02
===== =====
Weighted Average Common Shares
Outstanding:
Basic 25,145,343 24,149,149
========== ==========
Diluted 25,430,215 25,475,820
========== ==========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
Net Cash Flows from Operating Activities $ 2,230 $ 3,098
Cash Flows from Investing Activities:
Capital Expenditures (1,378) (1,394)
Proceeds from Disposition of Fixed Assets 209 -
Acquisitions/Investments of Business(Note 2) (8,334) (15,164)
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Net Cash Flows Used in Investing Activities ( 9,503) (16,558)
Cash Flows from Financing Activities:
Short-Term (Repayments)/Borrowings 2,517 (3,441)
Long-Term Borrowings 9,107 29,206
Long-Term Repayments (9,871) (6,969)
Exercise of Stock Options - 162
Purchase of Treasury Shares - (3,140)
Dividends Paid (503) (503)
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Net Cash Flows from Financing Activities 1,250 15,315
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (310) (35)
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Net Increase/(Decrease) in Cash and
Cash Equivalents (6,333) 1,820
Cash and Cash Equivalents at Beginning of Year 15,486 3,549
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Cash and Cash Equivalents at End of Period $ 9,153 $ 5,369
======= =======
Cash Paid for Interest $ 4,782 $ 2,105
======= =======
Cash Paid for Income Taxes $ 3,023 $ 1,243
======= =======
<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, 1999 condensed consolidated balance sheet amounts
have been derived from the previously audited consolidated balance
sheets of MacDermid, Incorporated (the Corporation). 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, 1999 and 1998
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 the Corporation's 1999 Annual Report.
Note 2. Acquisitions and Investments
On May 3, 1999 a subsidiary of the Corporation increased its interest
in Galvanevet S.P.A., an Italian specialty chemical company, by an
additional 60%, to a total 90% investment. This transaction included
a $7,936 cash payment and a further $7,500 that is deferred for a
year. The Corporation intends to purchase the remaining 10% interest
within the next year with a final payment of $2,659 bringing the
total purchase price to $25,370. The total purchase price
includes inventory, fixed assets and goodwill of approximately
$20,000 which is being amortized over fifteen years, using
purchase accounting. The current year accounts include
the assets and liabilities of Galvanevet in the Condensed
Consolidated Balance Sheet. Operational activity from the
foregoing acquisition was included in the results of operations
in the Condensed Consolidated Statement of Earnings since
May 3, 1999.
The Corporation established additional purchase liabilities
(included in accrued expenses) last fiscal year upon recording
the acquisition of W Canning plc. The following table illustrates
activity charged to this account for the three month period ended
June 30, 1999.
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<TABLE>
<CAPTION>
Beginning Activity June 30,
of Year 1999
--------- -------- --------
<S> <C> <C> <C>
Facilities $ 4,200 72 $ 4,128
Redundancies 2,050 551 1,499
Environmental 2,000 - 2,000
</TABLE>
The reorganization of employees and facilities is proceeding as
planned and as such there were no changes to the original estimated
liability recorded. As of the current reporting period there were 59
employees terminated of the 112 planned. Negotiations are ongoing
regarding the elimination of leased facilities and sale of owned
facilities, none of which have closed at present, however, the
expectation remains that the reorganization will be completed
prior to December 31, 1999.
Note 3. Comprehensive Income
The Corporation has adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standard No. 130, Reporting
Comprehensive Income (SFAS130) as of April 1, 1998. SFAS130
established standards for reporting and display of comprehensive
income and its components in the financial statements. Tax is
provided for at the effective rate of the jurisdiction under which
the other comprehensive income (loss) arises. At June 30, 1999,
accrued income tax liability includes a benefit in the amount of $48.
The Corporation does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such
taxes on undistributed earnings of foreign subsidiaries. The
components of comprehensive income for the three month
periods ended June 30, 1999 and 1998 are as follows:
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<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
Net Earnings $ 9,999 $ 8,093
Other Comprehensive Income:
Cumulative Foreign Currency
Translation Adjustment 3,060 (632)
Available-for-Sale Securities
unrealized (loss)/gain, net of tax 96 -
------- -------
Comprehensive Income $13,155 $ 7,461
------- -------
</TABLE>
Note 4. Stock Repurchase Authorization
On July 22, 1998 the Board of Directors authorized the Corporation to
purchase up to 1,000,000 shares of its common stock. On February 17,
1999, the Board of Directors reduced this authorization to 250,000.
At June 30, 1999, there remained authorization to purchase 234,000
shares. Such additional shares 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).
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Note 5. Earnings Per Common Share
The Corporation has adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standard No. 128, Earnings per
Share (SFAS128), as of December 31, 1997. The computation of basic
earnings per share is based upon the weighted average number of
outstanding common shares. The computation of diluted earnings per
share 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. Earnings per share is calculated
based upon net earnings available for common shareholders after
deduction for preferred dividends, if any.
Note 6. Contingencies
(a) Environmental
The Corporation has been named as a potentially responsible party
(PRP) by the Environmental Protection Agency in connection with two
waste sites. There are many other companies involved at each of
these sites and the Corporation's participation is minor. The
Corporation has recorded its best estimate of liabilities in
connection with site clean-up based upon the extent of its
involvement, the number of PRPs and estimates of the total costs of
the site clean-up that reflect the results of phase I and II
environmental investigations and remediation estimates produced by
remediation contractors. Though it is difficult to predict the final
costs of site remediation, management believes that the recorded
liabilities are reasonable estimates of probable liability and that
future cash outlays are unlikely to be material to its consolidated
financial position, results of operations or cash flows. In respect
of the foregoing two sites the Corporation has reserved $200 as its
estimate of liability, for the Corporation, taking the foregoing
factors into consideration.
The Corporation has established an environmental remediation reserve
with respect to its December 1998 acquisition of W. Canning, plc. A
substantial majority of that reserve is attributable to two U.S.
sites of a W. Canning, plc. U.S. subsidiary that are believed to
require environmental remediation activities. The reserves
established by the Corporation were based upon phase
I and phase II environmental investigations of those sites and
remediation estimates produced by remediation contractors, which
estimates indicated that the reasonable range of the Corporation's
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gross liability is $2,000 to $11,500. Based upon the Corporation's
experience and the facts known to it, as of the date of this filing
the Corporation expects that its gross liability for those two
Canning sites will not exceed $4,500. The Corporation believes that
its Canning subsidiary clearly is entitled under Canning's
acquisition agreement relating those sites to withhold a deferred
purchase price payment of approximately $2,300, which will be applied
to reduce its net liability for those sites. To the extent the
Corporation's liabilities exceed $2,300 it may be entitled to
additional indemnification payments from the previous two
largest shareholders of the prior owner of the two sites. Such
recovery is substantially uncertain, however, and would likely
involve significant litigation expense. As a result, the Corporation
has recorded a net liability of $2,000. The foregoing estimates of
potential gross and net liabilities and recoveries have not been
discounted to reflect the time value of money. The Corporation
expects that the liabilities pertaining to the two Canning sites
will be incurred within the next three years; the Corporation will
recognize the recovery from the purchase price adjustment
contemporaneously with its payment of the underlying expense.
On January 30, 1997, the Corporation was served with a subpoena from
a federal grand jury in Connecticut requesting certain documents.
The Corporation was subsequently informed that it is a subject of the
grand jury's investigation. The subpoena requested information
relating to an accidental spill from the Corporation's Huntingdon
Avenue, Waterbury, Connecticut facility that occurred in November of
1994, together with other information related to operations and
compliance at the Huntingdon Avenue facility. The Corporation has
retained outside law firms to assist in complying with the subpoena.
The Corporation is cooperating with the government's investigation.
Since this matter is currently in very early stages, it is impossible
to determine what the ultimate outcome will be and difficult to
quantify the extent of an exposure to liability. As such, no
assurance can be given that the Corporation will not be found to have
liability. Accruals in this regard are determined in accordance with
the provisions of Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies (SFAS5) which requires an accrual to be
recorded when it is both probable a liability has been incurred and
the cost is reasonably estimable.
(b) Legal Proceedings
On July 26, 1999 the Corporation was named in a civil lawsuit
commenced in the Superior Court of the State of Connecticut. The
action was initiated by the Commissioner of Environmental Protection
alleging various compliance violations at the Corporation's
Huntingdon Avenue and Freight Street locations between the years 1992
through 1998. The complaint contains allegations of permit
<PAGE>
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violations and violations of procedural, notification and other
requirements of Connecticut's environmental regulations over the
foregoing period of time. The Corporation is vigorously defending
this action. It is currently believed that the outcome of the
proceeding will not materially affect the Corporation's business or
financial position, however, the proceeding is in very early stages
and therefore difficult to assess at this time.
(c) Other
The Corporation is a party to a number of lawsuits and claims in
addition to those discussed above arising out of the ordinary conduct
of business. While the ultimate results of the proceedings against
the Corporation cannot be predicted with certainty, management does
not expect that resolution of these matters will have a material
adverse effect upon its consolidated financial position, results of
operations or cash. It is the Corporation's policy to accrue
probable liabilities to the extent that such liabilities can
reasonably be estimated.
The Corporation's business operations, consist principally of
manufacture and sale of specialty chemicals, supplies and related
equipment to customers throughout much of the world. Approximately
60% of the business is concentrated with manufacturers of printed
circuit boards which are used in a wide variety of end-use
applications, including computers, communications and control
equipment, appliances, automobiles and entertainment products. As is
usual for this business, the Corporation generally does not require
collateral or other security as a condition of sale, choosing,
rather, to control credit risk of trade account financial instruments
by credit approval, balance limitation and monitoring procedures.
Management believes that reserves for losses, which are established
based upon review of account balances and historical experience, are
adequate.
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, 1999 to the same period in 1998 and
provides information with respect to changes in financial condition
during the three months then ended.
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SALES
Total sales for the current quarter, $119,067 increased $37,997 or 47% from
$ 81,070 in the same period last year. Proprietary chemical sales were 85% of
total sales for both the current and prior year periods increasing a similar
47% as total sales growth. Canning added $30,214 and Galvanevet added $4,774,
or together, 43% of the 47% increase reported, while business which existed
before the acquisitions added $3,009, or 4% growth. The Corporation has
witnessed softening markets in all geographic regions but managed to produce
increased sales worldwide although primarily from acquired business.
COSTS AND EXPENSES
Gross profits are up 48% for the quarter as compared to the same period
last year. Gross profit as a percentage of sales, 51% this quarter compares
to 50% for the like period last year due to the proprietary business acquired
worldwide. Gross profits as a percentage of sales are approximately 53%
for both the Canning and Galvanevet businesses acquired. Cost awareness
initiatives continue to play an important role towards maintaining the
Corporation's gross profits.
Selling, technical, administrative and amortization (ST&A) expenses increased
52% for the three-month period as compared to the same period last year.
Additional operating expenses from the Canning and Galvanevet businesses
represents 49% of this increase. ST&A as a percentage of sales for the three
month periods is approximately 34% this year compared to 33% last year. The
cost increases in the quarter was principally due to twice the level of
amortization of goodwill and other intangibles. The total amortization charged
to earnings was $3,062 and $1,414 for the three month periods ended June 30,
1999 and 1998, respectively. More than eighty percent, or $1,332 of the $1,648
increase in amortization was due to the Canning and Galvanevet acquisitions.
To a lesser degree, direct selling expenses and research efforts to establish
further market presence also contributed to the increase. Operating profits for
the three month period increased 41% over the corresponding period last year.
The increased operating profit results from increased proprietary sales with a
slightly higher ST&A increase as the effects of cost synergies relating to the
Canning acquisition are not expected to make a significant impact until the
second half of the fiscal year.
As a result, earnings before interest, taxes, depreciation and
amortization (EBITDA) is $25.5 million for the three months ended June
30, 1999.
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 34.5% and 35.1%
for the three month periods ended June 30, 1999 and 1998, respectively.
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NET EARNINGS
Net earnings available to common shareholders increased 24% for the three month
period as compared to the same period last year. Recent acquisitions were
accretive to earnings even as interest expense increased approximately 2.5
times over the same period last year on borrowings to effect those
acquisitions.
FINANCIAL CONDITION
Operating activities during the three months ending June 30, 1999 resulted in a
net cash inflow of $2.2 million. The cash generated was primarily used for
capital improvements and dividends to common shareholders. Working Capital at
June 30, 1999 was $68.9 million as compared to $63.2 million at March 31,
1999.
Capital expenditures were $1.4 million for the three months ended June 30, 1999
and are consistent with the full year total planned expenditures of
approximately $15.0 million for the fiscal year.
MacDermid has a long-term credit arrangement which consists of a combined
revolving loan and two six-year term loans. One of the term loans is
denominated in US Dollars and the other is Pound Sterling denominated.
The outstanding balance on the credit facilities decreased a net $1.3
million during the year. The amounts outstanding on the long-term
credit arrangement at June 30, 1999, consists of $8.2 million for the
revolving loan, $179.7 million on the US Dollar term loan and
$66.3(Pounds 42.1) million on the Pound Sterling term loan.
The revolving loan facility permits borrowings of up to $75 million. The
Corporation's other credit facilities presently total approximately $55
million. These, together with the Corporation's cash flows from operations
are adequate to fund working capital and expected capital expenditures.
The Corporation established additional purchase liabilities last fiscal year
upon recording the acquisition of Canning. The reorganization of employees and
facilities is proceeding as planned and as such there were no changes to the
original estimated liability recorded. As of the current reporting period
there were 59 employees terminated of the 112 planned. Negotiations are
ongoing regarding the elimination of leased facilities and sale of owned
facilities, none of which have closed at present, however, the expectation
remains that the reorganization will be completed prior to December 31, 1999.
As such, it is unlikely this reorganization plan would have any material
effects on the future operations or financial condition.
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New Accounting Pronouncement
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No.133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 replaces existing pronouncements and
practices with a single integrated accounting framework for derivatives and
hedging activities. FASB also issued Statement of Financial Accounting
Standard No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137). SFAS
137 establishes an effective date for SFAS 133 for fiscal years beginning after
June 15, 2000. The Corporation is currently evaluating the requirements of
both SFAS 133 and SFAS 137 and believes that the adoption of these statements,
for its fiscal 2002 financial statements, will not have a material impact on
previously reported information.
Year 2000 Conversion
Introduction. Computer programs which recognize only two digits, rather than
four digits, to define the applicable year will be at risk for possible
miscalculations, classification errors or system failures. This risk is often
referred to as the "Year 2000" issue ("Y2K issue"). The Corporation views the
impact of the Y2K issue as a critical business issue. The Corporation has
implemented a plan for evaluating and minimizing the risks associated with the
Y2K issue and has been addressing these Y2K issues, both on a corporate level
and at each relevant subsidiary, by identifying specific issues and
implementing corrective action in each specific case while instituting a series
of management processes that coordinate and manage this overall process across
business boundaries.
The process includes corporate oversight with periodic reports to our
directors. The Corporation's overall approach has been to subdivide the
program into three distinct areas: Information Systems, Suppliers and
Customers, and Manufacturing and Facilities.
Information Systems. All worldwide computer systems have been inventoried.
The U.S. network systems and personal computer systems are currently being
tested, and on the basis of the testing done to date, the Corporation has no
reason to believe that those systems will not be Y2K compliant in all material
respects. The software package that controls the U.S. supply chain
(purchasing, manufacturing, order processing, billing and shipping) has been
verified by the ITAA*2000 Certification Program to be presently compliant.
The Corporation has received representations from the suppliers of the U.S.
human resource and payroll systems regarding their Y2K compliance, and its
internal personnel are in the process of testing those representations. The
mission critical business systems in use by the Corporation's principal
foreign subsidiaries in England (Canning), Italy (Galvanevet), and Taiwan
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(MacDermid Taiwan) have been tested by internal personnel, and on the basis of
that testing, the Corporation has no reason to believe those systems will not
be Y2K compliant in all material respects. In the U.S., the Corporation's
information systems were taken off line and tested for compliance. In Europe
and Asia, components of each system were individually tested. The
Corporation's corporate information technology personnel are responsible for
monitoring and evaluating the Y2K procedures and remedial actions taken by its
subsidiaries. The Corporation expects that evaluation of its mission critical
business systems throughout the world will be completed by September 30,1999.
The Corporation has developed contingency plans for its business
systems in connection with its ISO 9002 certification. The Corporation's
principal backup is a manual paper system that it believes would allow
its inventory, logistics, billing, manufacturing, scheduling and support
systems to function in all material respects for at least 60 days, if
necessary. The Corporation estimates there would be approximately
between 200 to 300 key suppliers and a similar number of key customers whose
transactions with it would have to be processed manually should that prove
necessary. In addition, the Corporation has contracted in the U.S.
with a disaster recovery service to provide computer systems to it in the
case of a local disaster affecting its facilities.
Suppliers and Customers. The Corporation has identified the material
suppliers to each of its facilities and has contacted each supplier who
supplies more than $10 per year of materials, or who is the only supplier of a
particular material, in order to ascertain the supplier's Y2K readiness.
Approximately 90% of the suppliers contacted have indicated Y2K compliance,
either through individual interviews, in the case of mission critical
suppliers, or through written answers to questionnaires. The Corporation
hopes to complete the confirmation process by July 1, 1999. For any supplier
found not to be Y2K compliant, the Corporation is in the process of
identifying alternate suppliers.
The design of company manufactured equipment that is in operation at customer
locations has been reviewed for date controls. On the basis of
that review, there is no reason to believe that equipment will be adversely
affected in any material respect by the Y2K issue. No major portion of the
Corporation's business is dependent upon a single customer or a few customers,
the loss of which would have a materially adverse effect on its business.
Manufacturing and Facilities. The Corporation's core manufacturing processes
generally are simple, non-automated batch blending operations that are not
materially dependent on computer technology in order to function adequately.
Certain non-material support have computer systems that are
presently being evaluated and tested and are expected to be updated in a
timely manner. None of those support systems is expected to be able to cause
a material disruption to the Corporation's business should a Y2K issue arise
that now is unanticipated.
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All facilities have been reviewed and inventoried for Y2K issues. Some
facilities have systems which use date functions for which upgrades have been
made available through present suppliers. Telephone and voice mail systems at
facilities in the U.S. are believed to be materially compliant. Security,
fire, heating, cooling and related systems in the U.S. are expected to be
compliant in all material respects by September 30,1999. If utility providers
(including electricity and telecommunication suppliers) do not sufficiently
resolve their own Y2K issues, however, there may be a material adverse effect
on the Corporation's operations. The Corporation has no reason to believe that
any utility on which it relies in the U.S. or Europe will experience a Y2K-
related disruption that will have a material adverse effect on its business.
Reasonably likely worst-case Y2K scenario: The most reasonably likely worst-
case Year 2000 scenario would involve a failure of the Corporation's mission
critical computer systems together with the contemporaneous failure of one or
more of its suppliers. With respect to a Corporation systems failure, the
Corporation would implement its contingency plan as noted above. With respect
to supplier failure, the Corporation is single sourced as to very few
materials. As a result, alternate suppliers are generally available. The
Corporation is conducting ongoing planning and testing in order reduce the
need for, and the incremental cost of, those contingency arrangements.
Costs. The Corporation's costs associated with the Y2K compliance have been
immaterial and have been expensed to the ongoing information systems
operations as incurred. The cost of Y2K remediation continues to be absorbed
within the total costs for the general operation of the information systems
which are expected to continue at the historical levels of approximately
$2,000 annually. Based on the present assessment of its systems and those of
its suppliers and customers, the Corporation expects that the cost of
addressing the Y2K issues will not have a material adverse impact on its
financial position, results of operations or cash flows during the year ending
March 31, 2000 or thereafter. If, however, the Corporation or its suppliers
and customers are unable to resolve such issues in a timely manner, the
Corporation's financial condition and results of operations could be adversely
affected.
<PAGE>
-18-
Contingencies
(a) Environmental
The Corporation has been named as a potentially responsible party (PRP) by the
Environmental Protection Agency in connection with two waste sites. There are
many other companies involved at each of these sites and the Corporation's
participation is minor. The Corporation has recorded its best estimate of
liabilities in connection with site clean-up based upon the extent of its
involvement, the number of PRPs and estimates of the total costs of the site
clean-up that reflect the results of phase I and II environmental
investigations and remediation estimates produced by remediation contractors.
Though it is difficult to predict the final costs of site remediation,
management believes that the recorded liabilities are reasonable estimates of
probable liability and that future cash outlays are unlikely to be material to
its consolidated financial position, results of operations or cash flows. In
respect of the foregoing two sites the Corporation has reserved $200 as its
estimate of liability, for the Corporation, taking the foregoing factors into
consideration.
The Corporation has established an environmental remediation reserve with
respect to its December 1998 acquisition of W. Canning, plc. A substantial
majority of that reserve is attributable to two U.S. sites of a W. Canning,
plc. U.S. subsidiary that are believed to require environmental remediation
activities. The reserves established by the Corporation were based upon phase
I and phase II environmental investigations of those sites and remediation
estimates produced by remediation contractors, which estimates indicated that
the reasonable range of the Corporation's gross liability is $2,000 to $11,500.
Based upon the Corporation's experience and the facts known to it, as of the
date of this filing the Corporation expects that its gross liability for those
two Canning sites will not exceed $4,500. The Corporation believes that its
Canning subsidiary clearly is entitled under Canning's acquisition agreement
relating those sites to withhold a deferred purchase price payment of
approximately $2,300, which will be applied to reduce its net liability for
those sites. To the extent the Corporation's liabilities exceed $2,300 it may
be entitled to additional indemnification payments from the previous two
largest shareholders of the prior owner of the two sites. Such recovery is
substantially uncertain, however, and would likely involve significant
litigation expense. As a result, the Corporation has recorded a net liability
of $2,000. The foregoing estimates of potential gross and net liabilities and
recoveries have not been discounted to reflect the time value of money. The
Corporation expects that the liabilities pertaining to the two Canning sites
will be incurred within the next three years; the Corporation will recognize
the recovery from the purchase price adjustment contemporaneously with its
payment of the underlying expense.
<PAGE>
-19-
On January 30, 1997, the Corporation was served with a subpoena from a federal
grand jury in Connecticut requesting certain documents. The Corporation was
subsequently informed that it is a subject of the grand jury's investigation.
The subpoena requested information relating to an accidental spill from
the Corporation's Huntingdon Avenue, Waterbury, Connecticut facility
that occurred in November of 1994, together with other information
related to operations and compliance at the Huntingdon Avenue facility.
The Corporation has retained outside law firms to assist in complying
with the subpoena. The Corporation is cooperating with the
government's investigation. Since this matter is currently in very
early stages, it is impossible to determine what the ultimate outcome
will be and difficult to quantify the extent of an exposure to
liability. As such, no assurance can be given that the Corporation
will not be found to have liability. Accruals in this regard are
determined in accordance with the provisions of Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies (SFAS5) which
requires an accrual to be recorded when it is both probable a liability
has been incurred and the cost is reasonably estimable.
(b) Legal Proceedings
On July 26, 1999 the Corporation was named in a civil lawsuit commenced in
the Superior Court of the State of Connecticut. The action was initiated
by the Commissioner of Environmental Protection alleging various compliance
violations at the Corporation's Huntingdon Avenue and Freight Street locations
between the years 1992 through 1998. The complaint contains allegations of
permit violations and violations of procedural, notification and other
requirements of Connecticut's environmental regulations over the foregoing
period of time. The Corporation is vigorously defending this action. It is
currently believed that the outcome of the proceeding will not materially
affect the Corporation's business or financial position, however, the
proceeding is in very early stages and therefore difficult to assess at
this time.
(c) Other
The Corporation is a party to a number of lawsuits and claims in addition to
those discussed above arising out of the ordinary conduct of business. While
the ultimate results of the proceedings against the Corporation cannot be
predicted with certainty, management does not expect that resolution of these
matters will have a material adverse effect upon its consolidated financial
position, results of operations or cash. It is the Corporation's policy to
accrue probable liabilities to the extent that such liabilities can reasonably
be estimated.
<PAGE>
-20-
The Corporation's business operations, consist principally of manufacture and
sale of specialty chemicals, supplies and related equipment to customers
throughout much of the world. Approximately 60% of the business is
concentrated with manufacturers of printed circuit boards which are used in a
wide variety of end-use applications, including computers, communications and
control equipment, appliances, automobiles and entertainment products. As is
usual for this business, the Corporation generally does not require collateral
or other security as a condition of sale, choosing, rather, to control credit
risk of trade account financial instruments by credit approval, balance
limitation and monitoring procedures. Management believes that reserves for
losses, which are established based upon review of account balances and
historical experience, are adequate.
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>
-21-
PART II. OTHER INFORMATION
ITEM 1 : Legal Proceedings
On July 26, 1999 the Corporation was named in a civil lawsuit
commenced in the Superior Court of the State of Connecticut.
The action was initiated by the Commissioner of Environmental
Protection alleging various compliance violations at the
Corporation's Huntingdon Avenue and Freight Street locations
between the years 1992 through 1998. The complaint contains
allegations of permit violations and violations of procedural,
notification and other requirements of Connecticut's environmental
regulations over the foregoing period of time. The Corporation is
vigorously defending this action. It is currently believed that
the outcome of the proceeding will not materially affect the
Corporation's business or financial position, however, the
proceeding is in the very early stages and therefore difficult to
assess at this time.
ITEM 2 : Changes in the Rights of Security Holders
None.
ITEM 5 : Other Information
None.
ITEM 6(a) : Exhibits
6(a).1 Exhibit 19 - Previously unfiled document: Amendment to the Restated
Certificate of Incorporation, MacDermid, Incorporated, amended as of
December 1, 1997.
6(a).2 On August 12, 1999, the Corporation filed its Form 10-K/A to provide
additional disclosure to certain portions of its annual report to shareholders
attached as exhibit 13. The Form 10-K/A is incorporated by reference herein.
ITEM 6(b) : Reports on Form 8-K
On June 9, 1999, the Corporation filed its Form 8-K/A to disclose the impact
that reconciliation from UK GAAP to US GAAP for pension accounting had on the
historical financial statements and proforma financial information previously
filed. The Form 8-K/A is incorporated by reference herein.
<PAGE>
-22-
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)
/s/ Daniel H. Leever
Date: August 30, 1999 Daniel H. Leever
Daniel H. Leever
Chairman and
Chief Executive Officer
/s/ Gregory M. Bolingbroke
Date: August 30, 1999 Gregory M. Bolingbroke
Gregory M. Bolingbroke
Corporate Controller
CERTIFICATE OF AMENDMENT
STOCK CORPORATION
Office of the Secretary of the State
30 Trinity Street P.O. Box 150470 Hartford, CT 06115-0470 new 1-97
FILING #0001793641 PG 01 OF 04 VOL B-00166
FILED 01/21/1998 02:34 PM PAGE 03073
SECRETARY OF THE STATE
CONNECTICUT SECRETARY OF THE STATE
1. NAME OF CORPORATION:
MacDermid, Incorporated
2. THE CERTIFICATE OF INCORPORATION IS (check A., B. or C.):
x A. AMENDED.
- ---
B. AMENDED AND RESTATED.
- ---
C. RESTATED.
- ---
3. TEXT OF EACH AMENDMENT / RESTATEMENT:
See Attachment "A"
4. VOTE INFORMATION (check A., B. or C.)
x A. The resolution was approved by shareholders as follows:
- ---
(set forth all voting information required by Conn. Gen. Stat. Section 33-
800 as amended in the space provided below)
See Attachment "B"
B. The amendment was adopted by the board of directors without
- --- shareholder action. No shareholder vote was required for adoption.
<PAGE>
C. The amendment was adopted by the incorporators without shareholder
action. No shareholder vote was required for adoption.
5. EXECUTION
Dated this 16th day of January , 1998
----- --------- ---
John L. Cordani Secretary /s/ John S. Cordani
- --------------- --------- -------------------
Print or type name of signatory Capacity of signatory Signature
Certificate of Amendment
of
MACDERMID, INCORPORATED
Attachment A
------------
1. That the Restated Certificate of Incorporation of the Company be amended by
striking out the number "20,000,000" in Section Fourth and replacing such
number with "75,000,000."
2. That the Restated Certificate of Incorporation be amended to provide for
the addition of the following provision:
"Any action required by law to be taken at an annual or special
meeting of the stockholders, or any action which may be taken at an
annual or special meeting of the stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon
were present and voted; provided, however, that in no event shall
-------- -------
such minimum number of votes constitute less than a majority of such
shares."
<PAGE>
Certificate of Amendment
of
MACDERMID, INCORPORATED
Attachment B
------------
RESOLUTIONS APPROVED BY THE SHAREHOLDERS OF
MACDERMID, INCORPORATED IN CONNECTION WITH AMENDMENT
OF RESTATED CERTIFICATE OF INCORPORATION
RESOLVED: That it is advisable and in the best interests of the Company
that its present authorized capital stock consisting of
20,000,000 shares of common stock, no par value and 2,000,000
shares of preferred stock, no par value be amended such that
the number of shares of common stock, no par value be increased
from 20,000,000 to 75,000,000 and that in respect thereby, the
Restated Certificate of Incorporation of the Company be amended
by striking out the number "20,000,000" in Section Fourth and
replacing such number with "75,000,000."
RESOLVED: That it is advisable and in the best interests of the Company
to provide for consent in writing by less than 100% of the
holders of outstanding stock entitled to vote thereon and that
in respect thereof, the Restated Certificate of Incorporation
be amended to provide for the addition of the following
provision: "Any action required by law to be taken at an
annual or special meeting of the stockholders, or any action
which may be taken at an annual or special meeting of the
stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were
present and voted; provided, however that in no event shall such
-------- -------
minimum number of votes constitute less than a majority of such
shares."
RESOLVED: That in connection with the foregoing resolutions, a Certificate
of Amendment be prepared, signed and filed setting forth the
amendments to the Restated Certificate of Incorporation as set
forth herein.
<PAGE>
RESOLVED: That the President, the Executive Vice President and the
Secretary be, and each of them acting singly is hereby,
authorized, empowered and directed in the name of and on
behalf of the Company to take such further action, including
but not limited to the submission of the preceding resolutions
to the shareholders of the Company for approval, the filing of
a Certificate of Amendment with the Connecticut Secretary of
State, and the execution of any instruments or agreements as
they may deem appropriate, necessary or desirable to carry out
the intent of the foregoing resolutions, the appropriateness,
necessity and desirability thereof being conclusively proven by
the actions so taken and the instruments or agreements so
executed.
RESOLVED: That the preceding resolutions be submitted for approval to the
shareholders of the Company.
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