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, 2000
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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
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(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, 2000
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Common Stock, no par value 31,152,611 shares
<TABLE>
<CAPTION>
MACDERMID, INCORPORATED
INDEX
<S> <C>
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 2000 and March 31, 2000 2
Consolidated Condensed Statements of Earnings
and Retained Earnings - Three Months Ended
June 30, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended June 30, 2000 and 1999 4
Notes to Consolidated Condensed Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
Part II. Other Information 12
Signatures 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands of Dollars Except Share Amounts)
June 30, March 31,
2000 2000
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Assets (Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 16,964 $ 20,116
Accounts and Notes Receivable (Net of
Allowance for Doubtful Receivables of
$11,254 and $10,541) 194,970 180,629
Inventories
Finished Goods 72,097 65,338
Raw Materials 54,544 50,264
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126,641 115,602
Prepaid Expenses 8,439 6,976
Deferred Income Tax Asset 5,816 9,115
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Total Current Assets 352,830 332,438
Property, Plant & Equipment (Net of Accumulated
Depreciation of $100,426 and $99,172) 153,570 154,149
Goodwill (Net of Accumulated Amortization of
$28,318 and $25,332) 229,515 206,848
Intangibles, including Patents/Trademarks (Net of
Accumulated Amortization of $30,018 and $28,109) 69,873 54,891
Other Assets 36,626 42,166
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$ 842,414 $790,492
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Liabilities and Shareholders' Equity
Current Liabilities:
Notes Payable $ 4,479 $ 4,561
Current Installments of Long-Term Obligations 49,445 46,349
Accounts & Dividends Payable 67,923 63,545
Accrued Expenses 64,672 70,698
Income Taxes 16,410 13,967
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Total Current Liabilities 202,929 199,120
Long-Term Obligations 400,039 360,348
Accrued Postretirement & Postemployment Benefits 7,942 7,239
Deferred Income Taxes 5,187 10,531
Shareholders' Equity
Common Stock Stated Value $1 per Share 45,409 45,412
Additional Paid-In Capital 13,877 13,866
Retained Earnings 230,310 217,149
Comprehensive Income Equity Adjustments: (Note 5)
Cumulative Foreign Currency Translation (5,168) (5,062)
Less: Cost of 14,267,816 Common Shares
in Treasury (Note 3) (58,111) (58,111)
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Total Shareholders' Equity 226,317 213,254
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$ 842,414 $790,492
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<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
(Amounts in Thousands of Dollars Except Share and Per Share Amounts)
(Unaudited)
Three Months Ended June 30,
2000 1999
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<S> <C> <C>
Net Sales $ 186,505 $ 182,157
Cost and Expenses:
Cost of Sales 95,406 94,360
Selling, Technical, Administrative Expenses 55,444 53,510
Amortization 4,895 4,375
Interest Income (503) (480)
Interest Expense 7,684 8,910
Other Expense (Income) - net 1,769 (660)
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164,695 160,015
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Earnings before Income Taxes 21,810 22,142
Income Taxes 8,026 7,884
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Net Earnings 13,784 14,258
Retained Earnings, Beginning of Period 217,149 171,740
Cash Dividends Declared (623) (503)
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Retained Earnings, End of Period $ 230,310 $ 185,495
============ ============
Net Earnings Per Common Share (Note 4):
Basic $ 0.44 $ 0.46
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Diluted $ 0.43 $ 0.44
============ ============
Cash Dividends Per Common Share $ 0.02 $ 0.02
============ ============
Weighted Average Common Shares Outstanding:
Basic 31,154,826 31,155,374
============ ============
Diluted 32,415,236 32,430,192
============ ============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MACDERMID, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts In Thousands of Dollars)
(Unaudited)
Three Months Ended June 30,
2000 1999
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<S> <C> <C>
Net Cash Flows from Operating Activities $ 10,462 $ 6,421
Cash Flows from Investing Activities:
Capital Expenditures (2,069) (4,506)
Proceeds from Disposition of Fixed Assets 21 209
Acquisitions of Business (Note 2) (54,280) ( 8,334)
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Net Cash Flows used in Investing Activities (56,328) (12,631)
Cash Flows from Financing Activities:
Short-Term (Repayments) / Borrowings (2,555) 1,430
Long-Term Borrowings 59,650 9,107
Long-Term Repayments (13,542) (9,871)
Dividends Paid (623) (503)
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Net Cash Flows from Financing Activities 42,930 163
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (215) (280)
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Net Decrease in Cash and Cash Equivalents (3,151) (6,327)
Cash and Cash Equivalents at Beginning of Year 20,116 17,628
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Cash and Cash Equivalents at End of Period $ 16,964 $ 11,301
========= =========
Cash Paid for Interest $ 7,354 $ 7,646
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Cash Paid for Income Taxes $ 3,561 $ 4,000
========= =========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
MACDERMID, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Amounts In Thousands of Dollars)
Note 1. Summary of Significant Accounting Policies
The March 31, 2000 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, 2000 and 1999 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 2000 Annual
Report.
Note 2. Acquisitions
On June 13, 2000, the Corporation acquired the assets, subject to certain
liabilities, of the digital graphics business unit of VirtualFund.com, Inc. The
purchase price of $47,000 was paid at closing by borrowing on an existing credit
facility with Bank of America, N.A. A further $3,000 is contingently payable
before the end of the fiscal year in the event that certain cost reductions are
achieved within nine months. There is activity for one-half month included in
the Condensed Consolidated Statement of Earnings and Retained Earnings for the
three month period ended June 30, 2000 for the acuqired business. The related
Condensed Consolidated Balance Sheet at June 30, 2000 displays increased assets
and liabilities primarily due to this transaction. The amounts recorded for the
assets and liabilities acquired, using purchase accounting, include goodwill and
other intangibles of approximately $42,000 which are being amortized over
fifteen years and are subject to adjustment whenever final evaluations are
completed. Any such adjustments are not expected to be material.
The Corporation established purchase liabilities (included in accrued
expenses) in fiscal year 1999 when recording its acquisition of W.Canning, plc.
The following table illustrates the activity to this account for the three month
period ended June 30, 2000.
<TABLE>
<CAPTION>
Beginning of Year Reductions End of Period
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<S> <C> <C> <C>
Facilities $2,383 90 $2,293
Redundancies 330 112 218
Environmental 1,880 0 1,880
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Total $4,593 202 $4,391
</TABLE>
The reorganization of employees and facilities is proceeding as planned.
As of the current reporting period there were 90 employees terminated. Five
facilities have been closed with those activities assimilated elsewhere.
Negotiations are ongoing regarding the elimination of leased facilities and sale
of owned facilities, none of which have closed at present.
Note 3. 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 200,000 shares. At June 30,
2000, there remained authorization to purchase approximately 184,000 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).
<PAGE>
Note 4. Earnings Per Common Share
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 5. Comprehensive Income
The components of comprehensive income for the three month periods ended June
30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
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<S> <C> <C>
Net Earnings $13,784 $14,258
Other Comprehensive Income:
Cumulative Foreign Currency
Translation Adjustment (106) (1,751)
Available-for-Sale Securities
Unrealized Holding Gain(net of tax) - 96
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Comprehensive Income $13,678 $12,603
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</TABLE>
<PAGE>
Note 6. Segment Reporting
The Corporation provides development, manufacture and technical service for a
large variety of specialty chemical processes and related equipment in two
reportable operating segments: Advanced Surface Finishes and Graphic Arts. These
two segments under which the Corporation operates on a worldwide basis are
managed separately as each segment has differences in technology and marketing
strategies. The business segments reported below are the segments of the
Corporation for which separate financial information is available and for which
operating results are reviewed by executive management to assess performance of
the Corporation. The accounting policies of the business segments are the same
as those described in the summary of significant accounting policies, Note 1.
Net sales for all of the Corporation's products fall into one of the two
business segments. The business segment results of operations include certain
operating costs which are allocated based on the relative burden each segment
bears on those costs. Operating income amounts are evaluated before
amortization of intangible assets and non-recurring charges. The business
segment identifiable assets exclude deferred tax assets, equity method
investments and certain other long term assets not associated with support of
the operations.
Segment Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
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<S> <C> <C>
Net Sales
Advanced Surface Finishes $113,490 $109,272
Graphic Arts 73,015 72,885
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Consolidated Net Sales $186,505 $182,157
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Operating Income
Advanced Surface Finishes $ 23,185 $ 20,401
Graphic Arts 12,470 13,886
Amortization Expense (4,895) (4,375)
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Consoliated Operating Income $ 30,760 $29,912
Interest Income 503 480
Interest Expense (7,684) (8,910)
Other (Expense) Income - net (1,769) 660
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Earnings before Income Taxes $ 21,810 $ 22,142
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</TABLE>
<PAGE>
Note 6. Segment Reporting (continued)
Segment Identifiable Assets:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
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<S> <C> <C>
Advanced Surface Finishing $ 456,626 $ 453,714
Graphic Arts 366,041 314,215
Corporate-wide 19,747 22,563
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Consolidated Assets $ 842,414 $ 790,492
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</TABLE>
Note 7. Market Risk and Contingencies
Market Risk
The Corporation is exposed to market risk in the normal course of its business
operations due to its operations in different foreign currencies and its ongoing
investing and financing activities. The risk of loss can be assessed from the
perspective of adverse changes in fair values, cash flows and future earnings.
The Corporation has established policies and procedures governing its management
of market risks and the use of financial instruments to manage exposure to such
risks.
The Corporation is exposed to interest rate risk primarily from its credit
facility which is based upon various floating rates. At June 30, 2000, the
Corporation had entered into interest rate swaps with an aggregate notional
amount that approximates one-third of its borrowings. The resulting
weighted-average fixed interest rate is approximately 7%. Based upon expected
levels of borrowing under this facility for the remainder of fiscal year 2001,
an increase in interest rates of 100 basis points would result in an incremental
$3.2 million annual interest expense and would not have a material adverse
affect on the Corporation's consolidated financial position, results of
operations or cash flows.
The Corporation operates manufacturing facilities in eight countries and sells
products in over 25 countries. Approximately 45% of the Corporation's sales are
denominated in currencies other than the US Dollar. Historically, the
Corporation returns slightly less than 10% on sales and foreign exchange
fluctuations have not had any significantly measurable effect on earnings.
Furthermore, those earnings are generally reinvested locally and the impact on
operating cash flows has been less than $3.5 million annually. Management
continually reviews the balance between foreign currency denominated assets and
liabilities in order to minimize the exposure to foreign exchange fluctuations.
The Corporation does not enter into any derivative financial instruments for
trading purposes, nor does it enter into any foreign currency hedging. The
Corporation has certain supply agreements for quantities but has chosen not to
enter into any price hedging with its suppliers for commodities.
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. Though it is difficult to predict the final costs of site
remediation, management believes that the recorded liabilities of $200 at March
31, 2000 and 1999 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.
<PAGE>
The Corporation has established an environmental remediation reserve with
respect to its December 1998 acquisition of Canning. A substantial majority of
that reserve is attributable to two U.S. sites of a Canning 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 deferred purchase
price payment 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 the early stages, it is impossible to determine what the ultimate outcome
will be and difficult to quantify the extent of 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 (SFAS 5) which requires an accrual to be recorded when it is both
probable a liability has been incurred and the cost is reasonably estimable.
(b) 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 flows. 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 38% of the business is concentrated
in the printing industry used for a wide variety of applications, including
offset blankets, printing plates, textile blankets and rubber based covers for
industrial rollers, while 28% 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.
<PAGE>
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, 2000 to the same period in 1999 and provides
information with respect to changes in financial condition during the three
months then ended.
SALES
Total sales for the first quarter of fiscal year 2001, $186.5 million, increased
$4.3 million or 2% from $182.2 million in the same period last year. An
acquisition in the Graphic Arts segment added sales of $4.6 million. Total
sales were flat for Graphic Arts and increased 4% for Advanced Surface Finishes.
Proprietary sales increased approximately 7%. With the Graphic Arts business
flat, this growth was achieved by a 12% proprietary sales increase in Advanced
Surface Finishes. Total sales increased by a lesser rate than proprietary as
equipment and resale chemical supplies were significantly lower for the current
quarter. As a result, proprietary sales as a percent of total sales were 93%
for the current quarter as compared to 89% for the same period last year.
Foreign currency translation reduced reported sales approximately $6.1 million
or roughly 2% for the three month period. Total sales, excluding the effects
from acquisitions and currency translation would have increased 3% over the
similar period last year.
COSTS AND EXPENSES
Gross profits are up 4% for the three month period as compared to the same
period last year. This growth was enhanced by the continued advancement of
proprietary chemical sales. Gross profit has been consistant as a percentage of
sales, 48.8% for the three month period as compared to 48.2% for the same period
last year.
Selling, technical and administrative (ST&A) expenses are 4% increased for the
three month period as compared to the same period last year. Approximately half
of the increase is due to additional expenses from the acquisition. Expenses
also increased in support of business growth and product development while cost
awareness initiatives have held administrative expenses flat. As a result, ST&A
as a percentage of sales for the three month period is 29.7% this year as
compared to 29.4% for the same three month period last year.
Total amortization charged to earnings was $4.9 million for the three month
period ended June 30, 2000. The increase of approximately $0.5 million is due
to the amortization of goodwill and other intangibles from recent Graphic Arts
acquisitions.
Operating profits for the three month period increased 3% over the same period
last year. This operating profit improvement is a result of increased
proprietary sales which has attracted higher margin business coupled with ST&A
and amortization of intangibles which increased in line with sales. Advanced
Surface Finishes increased 14% more than offsetting a 10% decrease in Graphic
Arts.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is $40.5
million for the three months ended June 30, 2000. EBITDA is not intended to
represent cash flow from operations as defined by generally accepted accounting
principles. It should not be used as an alternative to net income as an
indicator of operating performance or to cash flows as a measure of liquidity.
<PAGE>
PROVISION FOR INCOME TAXES
The Corporation's effective income tax rate approximates 37% and 36% for the
three month periods ended June 30, 2000 and 1999, respectively. The difference
is due to a limitation on the utilization of foreign tax credits for the period
ended June 30, 2000.
NET EARNINGS
Net earnings available to common shareholders decreased 3% for the three month
period as compared to the same period last year. Foreign currency translation
had the effect of reducing the reported earnings by approximately 2%. The
current period earnings are suppressed by increased costs supporting the newest
Viatek facility.
Financial Condition
Operating activities during the three months ending June 30, 2000 resulted in a
net cash inflow of $10.5 million. The cash generated was primarily used for
capital improvements, dividends to common shareholders and payment to acquire
increased interest in a subsidiary. Working Capital at June 30, 2000 was $149.9
million as compared to $133.3 million at March 31, 2000.
Capital expenditures were $2.1 million for the three months ended June 30, 2000
and are in line with the total planned expenditures of approximately $22.0
million for the fiscal year.
MacDermid has a long-term credit arrangement, which consists of a combined
revolving loan and three six-year term loans. Two of the term loans are
denominated in US Dollars and the other is Pound Sterling denominated. The
outstanding balance on the credit facilities increased $47.0 million to effect
the acquisition of the digital graphics business unit of VirtualFund.com, Inc.
In addition, the remaining outstanding balance on the credit facilities
decreased a net $0.9 million during the year. The amounts outstanding on the
long-term credit arrangement at June 30, 2000, consists of $117.7 million for
the revolving loan, $270.2 million on the US Dollar term loans and $57.7( 38.0)
million on the Pound Sterling term loan.
The revolving loan facility permits borrowings of up to $125 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 purchase liabilities, in fiscal year 1999, upon the
acquisition of Canning. The reorganization of employees and facilities is
proceeding as planned. As of the current reporting period there were 90
employees terminated. Negotiations are ongoing regarding the elimination of
leased facilities and sale of owned facilities, none of which have closed at
present. It is unlikely this reorganization plan would have any material
effects on the future operations or financial condition.
New Accounting Pronouncements
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 later issued two other statements that amend SFAS133.
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. Statement of Financial
Accounting Standard No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" (SFAS 138). SFAS 138 addresses a limited number of
issues that had been cause for implementation difficulties as established by
SFAS 133. The Corporation is currently evaluating the requirements of these
three statements and believes that the adoption of these statements, for its
fiscal 2002 financial statements, will not have a material impact on previously
reported information.
<PAGE>
Euro Currency Conversion
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro"). The transition period for the introduction of
the Euro ends June 30, 2002. Issues that face the Corporation as a result of the
introduction of the Euro include converting information technology systems which
were largely upgraded under the year 2000 compliance review, reassessing
currency risk, negotiating and amending contracts, as well as processing
accounting and tax records. The Corporation is addressing these issues and does
not expect the Euro to have a material effect on its financial condition or
results of operations.
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.
The Corporation has established an environmental remediation reserve with
respect to its December 1998 acquisition of Canning. A substantial majority of
that reserve is attributable to several sites of Canning 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 million to $11.5 million. 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 Canning sites will not
exceed $4.5 million. The Corporation believes that its Canning subsidiary is
entitled under its acquisition agreement relating certain sites to withhold a
deferred purchase price payment of approximately $2.3 million, which will be
applied to reduce its net liability for those sites. To the extent the
Corporation's liabilities exceed $2.3 million it may be entitled to additional
indemnification payments. Such recovery may be uncertain, however, and would
likely involve significant litigation expense. As a result, the Corporation has
recorded a net liability of $2 million. The foregoing estimates of potential
gross and net liabilities and recoveries represent our best estimates of the
fair value of these obligations. The Corporation expects that the liabilities
pertaining to the Canning sites will be incurred within the next five years; the
Corporation will recognize the recovery from the deferred purchase price payment
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 the 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.
(b) Legal Proceedings / Other. 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 complaint. 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.
<PAGE>
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 flows. It is the Corporation's policy to accrue
liabilities in this regard when it is both probable a liability has been
incurred and the cost is reasonably estimable in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies."
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. Readers
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 various times in various markets.
The Corporation operates throughout the world in areas generally considered
stable. Sales are mainly to companies whose outputs become components in
consumer and industrial products having wide application and demand and no one
customer accounts for a material proportion of sales. Management believes that
inflation, generally, has had little overall impact upon the Corporation's
operations and reported earnings. While there may be temporary disruptions of
economic stability, management believes that their long-term effects will not be
significant to the Corporation.
PART II. OTHER INFORMATION
ITEM 1 : Legal Proceedings
None.
ITEM 2 : Changes in the Rights of Security Holders
None.
ITEM 3 : Defaults by the Corporation on its Senior Securities
None.
ITEM 4 : Results of Votes of Security Holders
None.
ITEM 5 : Other Information
None.
ITEM 6(a) : Exhibits
None.
ITEM 6(b) : Reports on Form 8-K
None.
<PAGE>
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 11, 2000 /s/ Daniel H. Leever
----------------- -----------------------
Daniel H. Leever
Chairman and
Chief Executive Officer
Date: August 11, 2000 / s / Gregory M. Bolingbroke
----------------- ---------------------------------
Gregory M. Bolingbroke
Corporate Controller and
Chief Accountant
