MACDERMID CORPORATE PHILOSOPHY
OUR BUSINESS
MacDermid Incorporated is in the international business of researching,
developing, acquiring, manufacturing, marketing, and servicing, for optimum
profit to us and our customers, specialty chemicals and systems for the chemical
treatment, surface preparation and finishing of metals, plastics and other
materials in accordance with accepted ecological and social considerations.
OUR CUSTOMERS
We will create an industry image that automatically causes people in the
industries we serve to think first of MacDermid.
We will justify their action by first thinking of the customers' needs ---
what's right for them makes it right for MacDermid --- by supplying a total
system including processes, know-how and services that assist in meeting all
their needs.
OUR PEOPLE
We continue to believe in the supreme worth of the individual and the
dignity of his or her work for the benefit of all. We will provide the
opportunity for our people to fulfill satisfactorily their own personal
objectives and ambitions and reward them in proportion to their contribution
toward achieving the Corporate objectives.
We will continue to be a place of opportunity where people "have the guts
to fail." We will encourage the entrepreneurs and innovators. We will
continually challenge the goals, objectives, organization and all the operating
and procedural aspects of our business and modify them when needed.
Our progress and your progress, our Company's long-term advantage and your
long-term advantage, lie in our human resources. Other advantages that come
about from technological improvements, the opening of new markets, lower costs,
etc., all prove to be relatively short run. So, basically, it is the initiative,
the will and the motivation that people bring to their work on which we rely for
our survival and growth.
We will continue to try to attract new people who have creative and probing
minds; people who will at times be disturbing -- questioning policy and
procedures. If we are wise, we will welcome it, resolve it, put it to work or
forget it.
We will continue to expand with the best possible talent available and
continue to train them, and ourselves, so that we each increase our ability to
contribute to the Company's progress.
We will each strive to exemplify the MacDermid Spirit of teamwork and
cooperation throughout the organization which has been instrumental to our past
and present growth as a corporation.
WHAT WE CAN EXPECT FROM YOU
First and foremost, we expect of you a fundamental honesty --- honesty with
yourself, with your Company and with all those with whom you interact, whether
they be associates within our organization, our customers or society in general.
Character and strength have always been born of honesty and a willingness to
face up to the truth of each situation as it arises.
Second, we expect and insist on hard work. An easy life, marked by the
absence of difficulty, builds neither character nor happiness. We believe that
self-realization of the individual is founded on accomplishment, which implies a
willingness to make the sacrifices necessary to get the job done the way it
should be done.
Third, we expect you to accept responsibility. Every assignment you will
have carries with it a responsibility for accomplishment. Commit yourself to
achievement which you consider beyond the scope of your talents and then program
your effort to translate it into a reality.
Fourth, we expect of you a loyalty --- loyalty to yourself, your family,
your associates, your organization and our customers. We have always worked
together as an organization and your own personal achievements will be measured
in terms of the contribution you make to our joint effort.
Fifth, we expect you to demonstrate good judgment. Judgment is essentially
an ability to appraise facts. Factual knowledge must come before good judgment.
This means you must continually educate yourself on our Company, our products
and our industry. In this way, you will have the material on which a sound
appraisal of good judgment is based.
This is what we expect of you, and being in an extremely competitive
environment, we have a real urgency in this expectancy.
WHAT YOU CAN EXPECT FROM US
One, you can expect from us the fairest treatment of which we are capable
--- fair in respect to matters of compensation, fair in respect to working
conditions and fair in respect to personnel policies.
Two, you can expect from us, as a Company, complete honesty in whatever we
do. Your assignments will never compromise the principles of honesty and common
decency which we also expect you, as an individual, to uphold.
Three, you can expect that we will provide assignments which will represent
challenges to you --- assignments which will enable you to grow toward your
professional and personal objectives.
Four, you can expect that we will offer opportunities for advancement. Our
desire is to grow from within.
Five, you can expect that we will be a demanding organization --- demanding
of your time, your talents and the best which you as an individual have to
offer. In this way our company will grow and you will grow with it.
Perhaps all this can best be summarized in these words from an unknown
author:
"Create mental pictures of your goals, then work to make those pictures become
realities.
Exercise your God-given power to choose your own direction and influence your
own destiny and try to decide wisely and well.
Have the daring to open doors to new experiences and to step boldly forth to
explore strange horizons.
Be unafraid of new ideas, new theories and new philosophies.
Have the curiosity to experimentto test and try new ways of living and
thinking.
Recognize that the only ceiling life has is the one you give it and come to
realize that you are surrounded by infinite possibilities for growth
and achievement.
Keep your heart young and your expectations high and never allow your dreams to
die".
MACDERMID SHAREHOLDER PRINCIPLES
1.OUR VISION IS TO BUILD ONE OF THE WORLD 'S GREATEST INDUSTRIAL COMPANIES
We believe that the excitement inherent in the culture of ultra high performance
will differentiate us from our competitors, who, while fine companies in their
own right, simply will find it impossible to keep up with the fighting Clan
MacDermid.
2.OUR FORM IS CORPORATE, OUR ATTITUDE IS PARTNERSHIP
Unlike many public companies, our employees and Directors own close to 33% of
the shares, so, we obviously think as owners. We hope that you consider your
investment in MacDermid as being a part owner of a business, much as you would
if you owned a small business in partnership with your close friend or family.
You would not be concerned about the evaluation of that small business weekly or
monthly. Many employees, including your CEO, have the vast majority of our net
worth in MacDermid stock. We intend to be very long term holders, thinking in
generational terms. We desire to partner with like-minded individuals and
institutions. We will not respond to short term pressures from the market.
3.WE FOCUS TO BUILD INTRINSIC VALUE,PER SHARE
We define intrinsic value as the present value of free cash flow, measured per
share. Cash flow will be invested in growth opportunities. We will build in
significant margin for error in investment assumptions. We have no interest in
top line growth for growth's sake. Per share cash flow is what counts. Our goal
is to increase per share intrinsic value by 25% per year. We believe in setting
stretch targets even though sometimes we may fall short of our goals.
4.PERSONAL AND CORPORATE RESPONSIBILITY
MacDermid will demonstrate the highest standards of personal and corporate
ethics and responsibility, with special emphasis on our environment. We take
seriously our leadership commitment to the communities in which we do business.
5.CARE OF OUR PEOPLE IS A TOP PRIORITY
We know to build one of the world's greatest industrial companies requires an
unusual partnership with the people charged with making the vision a reality. We
are guided by the MacDermid philosophy, including our clear statement of
commitment to our people, and our expectations of their commitment to MacDermid.
We maintain policies that encourage long, productive service. We avoid short
term policies like layoffs and restructuring simply to make the current quarter
or year numbers. That's not to say that we will not have reductions in staffing
based on performance, or if we feel the long term health of the business
requires us to do so. But even then we will do so with great reluctance. Our
people are our most important asset. We treat them as such by investing heavily
in training and education and management development.
6.LONG TERM INVESTMENT HORIZON
We will aggressively fund sound internal growth opportunities mostly in research
and market development regardless of short term impact. We will fund these
opportunities when the time is right, not necessarily when it is convenient. Our
internal investment opportunities normally offer an exceptional return, but
often require multi-year horizons. We will avoid the stop-start method of
investing, which is typical of a short term mentality.
7.LOW COST OPERATING STRUCTURE
We know that our ability to invest aggressively requires us to have a cost
structure lower than our competitors. Investing AND lowering our current costs
constantly is a core principle of our company.
8.HIGH OPERATING MARGINS
Growth opportunities will be passed through a margin filter prior to investment.
9.LOW CAPITAL EXPENDITURES
We invest shareholder funds in high return assets after a healthy margin for
error. Bricks and mortar have no attraction if they will not produce a high
return.
10.CAPITAL STRUCTURE
Cost of capital is an important consideration. Our ability to generate
relatively high amounts of cash allows us to carry significant debt while still
maintaining a healthy margin for error. We will issue common stock only when we
receive at least as much in intrinsic value as we give.
11.DIVIDENDS
Our current dividend is a result of history. Increasing our dividend is not a
high priority. We believe we can better serve shareholders by using internally
generated funds to grow the business or purchase shares.
12.ACCOUNTING
We will be candid in our reporting to you. We will tell you the business facts
that we would want to know if the positions were reversed, while safeguarding
information which would aid our competitors.
13.REPORTING
We will be communicating with you in several ways. Through our annual report, we
will try to give all shareholders as much value - defining information as
possible. At our annual meeting we will spend as much time as necessary to
provide information and answer questions. The forum section of our web site,
macdermid.com, provides shareholders the opportunity to submit questions
directly to the CEO. We will answer questions honestly and as promptly as
practicable. In all of our communications, we try to make sure that no
shareholder gets an edge. Our goal is to have all of our shareholders updated at
the same time.
14.FAIR VALUE
To the extent possible, we would like each MacDermid shareholder to record a
gain or loss in market value that is proportional to the gain or loss in
per-share intrinsic value. Obviously we cannot control MacDermid's share price
but by our policies and communications, over time we believe, are likely to
attract long term investors who seek to profit strictly from the progress of the
Company.
MESSAGE TO SHAREHOLDERS
DEAR SHAREHOLDERS,
Fiscal year 2000, our ninth consecutive year of record per share earnings, was
truly a remarkable year. With revenue of almost $800 million and world-leading
market share in each of our three main product lines, Electronic Chemicals,
Metal Finishing Chemicals, and Graphic Arts Specialty Materials, we now have a
much more balanced platform. This strategy was begun some five years ago with
the acquisition of the Hercules Electronics and Graphic Arts business. It was
completed with the W. Canning acquisition in late FY '99, and Polyfibron
Technologies (PTI) in late FY '00.
You will find that the numbers from prior years in this report have been
restated. This is required to reflect the pooling of interests accounting
treatment for the PTI acquisition. In the chart immediately following this
message you will find the numbers broken down with and without Polyfibron. In
addition, we have shown a pro forma cost of stock options. This is the way I
view the results internally.
In fiscal year 2000 revenues were $756 million, reflecting pooling
(revenues not including PTI were $502 million). Last year we reported $382
million (restated to $610 million to reflect pooling). Earnings per share, prior
to the one time acquisition charges, were $1.70 and were $1.40 after these
charges. This is clearly not up to our standards. The lower than expected
earnings resulted from investments in the future and management miscues.
INVESTMENTS IN THE FUTURE:
We firmly believe that the long-term interests of our customers, employees,
and shareholders are best served by investing in the future when the time is
right, not when it happens to be convenient. This can have the effect of
producing uneven results. This year provided a good example. We decided to
accelerate investment spending in our Via Tek operation, an important technology
to produce double-sided printed circuit boards. This lowered fourth quarter
earnings. We experienced significantly higher costs as the main beta site in the
U.S. ramped up to production. We believe our patience will be rewarded. We are
now able to demonstrate what we believe to be the most automated, highly
efficient double-sided printed circuit factory in the world. Much of the
automation has never been done before. Thus, understandably, we experienced
delays and start up problems, but through the efforts of many, most particularly
our dedicated Via Tek team, that is all behind us.
There were other conscious decisions that hurt short-term profitability
this year. In Graphic Arts, as we combined the new Polyfibron team with our
existing liquid imaging unit, we offered positions to virtually every person in
both organizations. Our focus was on growth rather than short-term cost
reduction.
MANAGEMENT MISCUES:
For a company that takes great pride in execution, FY '00 was not our
finest hour. Our execution in the U.S. portion of the Canning acquisition was
terrible, resulting in far higher costs as we jumped through hoops to provide
the service levels our customers are accustomed to and deserve. These supply
chain related problems are now behind us.
I believe we should have reacted faster to a tough business environment in
North America. We took too long to reduce costs. At the end of the year, we took
the necessary steps, the benefit of which will not show until the second quarter
of FY '01.
WHAT WENT RIGHT:
Europe and Asia went right. The majority of the Canning operation is in
Europe where we executed superbly. Because of Europe, Asia, and the outstanding
year in Offshore Fluids, the Canning acquisition was accretive as planned.
Our European and Asian Electronic Chemicals team turned in an excellent
performance. They found ways to meet our expectations even though they faced the
same difficult environment as North America. It can be done, and we are learning
from their success.
Government delays in the closing of the PTI acquisition caused a year of
uncertainty for our Graphic Arts team and yet, not one customer was lost during
this period. This is a real testimony to their professionalism. We now have in
place a fully integrated team focused on exploiting the exciting growth
opportunities in Graphic Arts.
STRUCTURE:
The responsibility for our miscues falls squarely at the feet of your CEO.
We are a much larger company than we were just a short time ago. We want to
continue that growth. I felt to do so, more responsibility needed to be
delegated. That was the right thing to do, but the structure was not organized
adequately to pick up where I left off. Oz Griebel, our President, and I believe
we now have correct approach.
We have long admired our management team in Europe and Asia. The old adage
that management job satisfaction (and performance) is directly proportional to
the distance from headquarters rings truer as time goes by. To replicate their
success, we formed the Advanced Surface Finishing Group in North America, which
comprises the former Industrial Product and Printed Circuit organizations, and
the supply chain. In R&D, we have all the worldwide staff unified under one
structure where we can share resources, which we believe will provide the
maximum innovation.
NEW ASSIGNMENTS FOR SENIOR MANAGEMENT:
Advanced Surface Finishing management will be split between two long-term
experienced executives. Pete Kukanskis, who has successfully run Asia and
Printed Circuit Central R&D, will also assume responsibility for global Advanced
Surface Finishing R&D and product management. Michael Siegmund, who led the
successful Advanced Surface Finishing Europe, will now have responsibilities for
the North American group as well. Dave Beckerman who was the CEO of PTI will now
be responsible for Graphic Arts worldwide. Ray Pickens will have global
responsibilities for Offshore Fluids.
STRATEGY:
Our strategy is to increase our technological understanding of clearly defined
markets. We want to add value to our customers' processes with R&D and with
superior technical service. This is the moat around the MacDermid business that,
when well executed, provides excellent returns for our shareholders.
STRATEGIC REVIEW OF MAJOR BUSINESSES:
ADVANCED SURFACE FINISHES:
----------------------------
- ELECTRONIC CHEMICALS (Printed Circuit Technologies):
Electronic Chemicals is a highly attractive market. Its high growth and
fast moving technology provides excellent opportunities for innovation. Until
recently we were the only full line supplier to printed circuit manufacturers.
The breadth of our product line and the technologies involved gave us an edge in
product development. Recent consolidation of our competitors creates a new
competitive dynamic. Our printed circuit electronics team has responded with
rapid and important technological breakthroughs. We have introduced three
important differentiated products that are gaining market share. The most
important is Via Tek, where we are experimenting with a more vertical approach
to the double-sided portion of the PC market by co-investing with our customers.
I believe, longer-term, our innovation will continue to make this a very
attractive market.
- INDUSTRIAL PRODUCTS (Metal Finishing):
As a result of four acquisitions in Europe, with revenues over $200
million, we have the leading position in the world in industrial metal
finishing. This is the culmination of a strategy begun in 1990 when our revenues
in this product line were approximately $30 million. We believe our scale gives
us competitive advantage, especially when it comes to our ability to invest
significantly more in R&D than our competitors.
GRAPHIC ARTS:
As a result of the PTI acquisition we have gained critical mass in Graphic
Arts. We have a strong team of technical and management talent needed to take
advantage of many niche opportunities. This year we introduced a revolutionary
printing blanket for offset printing called Prism. It promises to materially
improve image reproduction, which we believe is a real breakthrough. In
Flexographic printing, we introduced a new water wash plate that offers speed
and environmental advantages, a series of higher resolution solid plates, a new
plate for selective post print applications, and a series of plates for metal
decorating. We think these constitute the most important series of new products
ever introduced in this market in such a short period.
THE FUTURE:
We think our long-term prospects are excellent. Our mission remains, "to
create one of the worlds greatest industrial companies." Our confidence is based
on the sustained performance of Advanced Surface Finishing in Europe and Asia,
the new structure and improvements in the supply chain in Advanced Surface
Finishing - North America, the exciting opportunities in Graphic Arts, and Via
Tek. Even more importantly, our confidence rests in the Clan MacDermid who share
a fervent determination to deliver superior value to our customers every day.
Three years ago when our earnings per share were $.85 ($.83, as restated
for pooling accounting) we established a goal of $2.74 in FY '02. We stumbled
this year. To get back on track we would have to make $2.15 in FY '01. It looks
difficult, but we aim to get close to our goal over the next two years. Our
long-term target is 25% compounded earnings per share growth. Only a handful of
companies have produced a 25% long-term growth rate. Can we do it? We'll see.
Rest assured, we remain positive and aggressive in our pursuit of a worthy
target rather than compromising on one that might be more easily reached. I
wouldn't bet against us.
I know I speak for all shareholders in thanking the men and women of the
Clan MacDermid for their effort in this tough year, and look forward to sharing
the future success with each of you.
/s/ Daniel H. Leever
Daniel H. Leever
Chairman of the Board and Chief Executive Officer
MESSAGE TO SHAREHOLDERS
<TABLE>
<CAPTION>
SUMMARY OF SELECTED FINANCIAL DATA AS VIEWED BY MANAGEMENT
(In thousands, except per share amounts)
OPERATING RESULTS 2000 1999 1998
-------------------------------- -------- -------- ---------
<S> <C> <C> <C>
NET SALES
MacDermid $502,610 $382,648 $314,058
Polyfibron 253,436 227,956 214,509
-------- -------- ---------
Combined $756,046 $610,604 $528,567
GROSS PROFIT
MacDermid $248,093 $189,687 $161,869
Polyfibron 108,809 103,249 96,092
-------- -------- ---------
Combined $356,902 $292,936 $257,961
OPERATING PROFIT (1)
MacDermid $ 74,478 $ 63,951 $ 55,605
Polyfibron 34,552 42,467 26,680
-------- -------- ---------
Combined $109,030 $106,418 $ 82,285
NET EARNINGS AVAILABLE TO
COMMON SHAREHOLDERS (1)
MacDermid $ 37,189 $ 36,283 $ 30,488
Polyfibron 17,855 19,343 (730)
-------- -------- ---------
Combined $ 55,044 $ 55,626 $ 29,758
DILUTED EARNINGS PER COMMON
SHARE (1)
MacDermid $ 1.45 $ 1.43 $ 1.20
Polyfibron 0.25 0.29 (0.28)
-------- -------- ---------
Combined $ 1.70 $ 1.72 $ 0.92
FINANCIAL POSITION AT
YEAR END
CAPITAL EXPENDITURES
MacDermid $ 12,949 $ 5,442 $ 8,342
Polyfibron 11,090 14,594 5,816
-------- -------- ---------
Combined $ 24,039 $ 20,036 $ 14,158
LONG-TERM DEBT (INCLUDES
SHORT-TERM PORTION)
MacDermid $253,933 $258,668 $116,425
Polyfibron 152,764 147,713 147,142
-------- -------- ---------
Combined $406,697 $406,381 $263,567
PERCENT OF TOTAL CAPITALIZATION
MacDermid 57.7 64.6 52.5
Polyfibron 85.0 92.3 105.9
Combined 65.6 71.3 71.3
OTHER DATA
EBITDA (1)
MacDermid $ 97,231 $ 80,157 $ 66,450
Polyfibron 54,939 55,801 37,986
-------- -------- ---------
Combined $152,170 $135,958 $104,436
PRO FORMA COST OF STOCK
OPTIONS (2) $ 2,018 $ 2,019 $ 78
NET EARNINGS (1) HAD PRO FORMA
COST OF STOCK OPTION BEEN
EXPENSED (2)
$ 53,752 $ 54,334 $ 29,709
DILUTED EARNINGS PER COMON
SHARE (1) HAD PRO FORMA COST OF
STOCK OPTIONS BEEN EXPENSED (2)
$ 1.66 $ 1.68 $ 0.92
<FN>
(1) Excluding one-time merger related charges in 2000.
(2) Pro forma cost stock options as presented above is different from those in
the financial statements, arising from those granted to the Chairman of the
Board and
Chief Executive Officer. The options were a three-year grant and therefore, the
pro forma cost, as viewed by management, is spread over the three years covered
by this grant.
</TABLE>
<TABLE>
<CAPTION>
(Three vertical bar graphs are provided here, net sales, earnings per share, and
return on equity. Each graph depicts one facet of results of operations for the
fiscal years 1996 through 2000.)
GRAPH VALUES
(Net sales in $U.S. millions, earnings per share diluted, in $U.S., return on
equity percentage)
'96 '97 '98 '99 '00
<S> <C> <C> <C> <C> <C>
NET SALES $383.3 $440.3 $528.6 $610.6 $ 756.0
EARNINGS PER SHARE $ 0.36 $ 0.83 $ 0.92 $ 1.72 $1.70(1)
RETURN ON EQUITY 17.4% 31.4% 30.6% 41.3% 29.2%
</TABLE>
MACDERMID, INCORPORATED: PROFILE OF AN INDUSTRIAL LEADER
Founded in 1922 and headquartered in Waterbury, Connecticut, MacDermid,
Incorporated (NYSE:MRD) is a leading worldwide manufacturer of specialty
chemical processes for the metal and plastic finishing, electronics and graphic
arts industries with operating facilities in over 20 countries. The Corporation
employs over 3,200 worldwide, many of whom are shareholders. Our vision is to
build one of the world's greatest industrial companies.
THE OFFICIAL RETIREMENT OF MY MENTOR:
Tom Smith, our lead Director and my mentor for many years, is not standing for
re-election to our Board of Directors. Tom has told us that at 72 years
"young", he believes he has earned the right to have a calendar free of fixed
commitments. He has assured me he will continue my mentorship unabridged.
Whereas we will miss him in our Board meetings, it is a tremendous comfort to
know that I have continued access to his insight and advice. Tom has uncommon
wisdom. He taught me that wisdom comes from experience not wasted, thinking
deeply about alternatives and results, good and bad. Tom and I are as close as
two can be. We all owe him a great deal for his effort on our behalf, which was
far beyond any economic interest. I hope you will join us in celebrating Tom's
retirement at our annual meeting.
Daniel H. Leever
Chairman of the Board and Chief Executive Officer
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
(In thousands, except share and per share amounts)
CONSOLIDATED OVERVIEW
IN FISCAL 2000 MACDERMID, INCORPORATED ("THE CORPORATION") RESHAPED ITS BUSINESS
PORTFOLIO. PREVIOUSLY, THE CORPORATION OPERATED WITHIN A SINGLE BUSINESS SEGMENT
WITH THE MOST SIGNIFICANT CONCENTRATION OF BUSINESS TO PRINTED CIRCUIT BOARD
MANUFACTURERS. THE ACQUISITION OF W. CANNING, PLC ("CANNING") IN FISCAL 1999,
COUPLED WITH THE MERGER WITH PTI INC. ("POLYFIBRON") IN THE LATER PART OF 2000
HAS CONTINUED THE STRATEGIC EXPANSION PLANS OF THE CORPORATION. THESE
TRANSACTIONS HAVE POSITIONED THE CORPORATION AS A WORLDWIDE MARKET LEADER IN TWO
PRINCIPAL BUSINESS SEGMENTS, ADVANCED SURFACE FINISHES AND GRAPHIC ARTS, OF
WHICH THE PRINTING INDUSTRY NOW REPRESENTS THE LARGEST CONCENTRATION OF BUSINESS
FOR THE CORPORATION. THE CORPORATION'S REVENUES AND TOTAL ASSETS HAVE MORE THAN
DOUBLED IN JUST OVER A YEAR'S TIME.
FISCAL 2000 NET SALES OF $756,046 WERE 24% HIGHER THAN THE PREVIOUS YEAR
($610,604, AS RESTATED TO REFLECT POOLING OF INTERESTS ACCOUNTING) AND THIS
MARKS THE SIXTH CONSECUTIVE RECORD YEAR FOR NET SALES. SEVERAL ACQUISITIONS,
PRIMARILY IN EUROPE, CONTRIBUTED SIGNIFICANTLY TO THE INCREASE IN SALES.
WORLDWIDE ECONOMIES WERE VIBRANT AND THE CORPORATION, PARTICULARLY IN ASIA, TOOK
FULL ADVANTAGE TO INCREASE ITS BUSINESS. IN ADDITION TO VOLUME GROWTH,
INCREMENTAL SALES FROM NEW ACCOUNTS AND EXPANDED PRODUCT OFFERINGS FURTHER
INCREASED SALES. DURING THE YEAR, THE DOLLAR STRENGTHENED AGAINST MOST FOREIGN
CURRENCIES RESULTING IN A NEGATIVE AFFECT OF LITTLE MORE THAN 1% ON TRANSLATED
NET SALES.
THE ASIAN AND EUROPEAN REGIONS CONTINUED TO PRODUCE VERY SATISFACTORY
GROWTH IN OPERATING PROFITS FOR 2000. IN NORTH AMERICA, OPERATING PROFITS WERE
LESS THAN COMPARED TO THE PREVIOUS YEAR. THE WEAK PERFORMANCE WAS PRINCIPALLY
DUE TO COMPETITIVE PRICING AND COMPLICATIONS ARISING FROM ACQUISITION
INTEGRATION REQUIREMENTS. AFTER GIVING EFFECT TO ONE-TIME MERGER COSTS,
INCLUDING THE EXTRAORDINARY CHARGE FOR DEBT RESTRUCTURING UNDER THE MERGER,
DILUTED EARNINGS PER COMMON SHARE WERE $1.40 IN 2000. DILUTED EARNINGS PER
COMMON SHARE WERE $1.70 PRIOR TO THE MERGER-RELATED CHARGES. THIS FELL JUST
SHORT OF THE PREVIOUS YEAR, $1.72 PER COMMON SHARE AS RESTATED, DUE TO
DIFFERENCES IN TAXATION. FOREIGN CURRENCY TRANSLATION RESULTED IN LOWER REPORTED
PER SHARE EARNINGS OF $0.01 PER COMMON SHARE.
ACQUISITIONS
During fiscal 2000 the Corporation completed a merger with Polyfibron. On
December 29, 1999, the Corporation issued 6,999,968 shares and share equivalents
of its common stock in exchange for all of the outstanding shares of Polyfibron.
This business positions the Corporation as a worldwide Graphic Arts leader. The
primary products offered to the printing industry include offset blankets,
printing plates, textile blankets and rubber based covers for industrial
rollers. The business combination has been accounted for as a pooling of
interests and accordingly, the consolidated financial statements for the periods
prior to the combination have been restated to include the accounts and results
of operations of Polyfibron.
On May 3, 1999 a subsidiary of the Corporation acquired controlling
interest in Galvanevet S.P.A., an industrial products specialty chemical
manufacturer, in Italy. Consolidated operating results for fiscal 2000 include
the results of Galvanevet S.P.A. since that date. The total purchase price of
approximately $22,500 was accounted for as a purchase transaction and included
inventory, fixed assets and goodwill of approximately $12,800 which is being
amortized over 15 years. The acquisition was financed through bank borrowings
under various installments between April 28, 1998 and June 1, 2000.
During fiscal 1999 the Corporation closed a cash tender offer whereby it
acquired approximately 95% of the outstanding shares of Canning. The Corporation
acquired the remaining shares through a statutory compulsory procedure completed
February 5, 1999. This business significantly enhances the Corporation's
industrial products presence worldwide and includes new product offerings for
offshore fluids, sealants and adhesives and fuel and water additives businesses
primarily in North America and Europe. The total purchase price of
approximately $160,000, including closing costs, was accounted for as a purchase
transaction and included inventory, fixed assets, goodwill and other
intangibles. The goodwill (approximately $87,000) is being amortized over 40
years while the other identifiable intangibles (approximately $36,000) are being
amortized over periods ranging between 6 and 40 years. The acquisition was
financed through bank borrowings. Consolidated operating results for fiscal
1999 include the results of the Canning business from December 2, 1998.
FISCAL 2000 VS.FISCAL 1999
SALES:Net sales of $756,046 increased 24% in fiscal 2000 after giving effect to
the merger with Polyfibron. Sales of proprietary products, approximately 90% of
the business, increased for both Advanced Surface Finishes and Graphic Arts, 32%
and 10%, respectively. The primary increase in Advanced Surface Finishes
resulted from Canning sales for a full year in 2000 as compared to only four
months in 1999. During the year, the dollar strengthened against most foreign
currencies. Had the same rates of exchange been in effect for both years there
would have been roughly $8,000 more sales reported in the US dollar
consolidation. Total net sales would have increased 7% over the previous year,
were the incremental sales related to acquisition and negative effect from
foreign currency exchange to be excluded.
COSTS AND EXPENSES:Costs as a percentage of sales were relatively similar to the
previous year. There was softening pricing for certain products, especially dry
film photoresist, which was largely offset by an improved mix towards newer
products which are more efficient and environmentally friendly. Cost awareness
initiatives continue to play an important role, however, certain factory
integration costs relating to the Canning acquisition more than offset other
savings realized by these initiatives in the fiscal year. These principal
factors resulted in an overall gross profit percentage of 47.2% in 2000 as
compared to 48.0% in 1999.
Selling, technical and administrative ("ST&A") expenses, excluding one-time
merger costs, were $222,692 for 2000 a 28% increase as compared to $174,188 for
1999. ST&A, as a percentage of sales (29.5%), increased approximately 1% over
the previous year. Recent acquisitions brought with them cost synergy
expectations. Certain of these synergies developed slowly pressuring ST&A
expenses higher during 2000. The Corporation continues to increase expenditures
for key research initiatives. Total research and development costs were $22,548
in 2000, an increase of $1,048 over 1999. Total amortization charged to earnings
was $17,563 for 2000 up from $12,330 in 1999. The principal affect on this
increase is the amortization of goodwill and other intangibles from the Canning
acquisition. In addition, the Corporation recorded expenses of $7,617 ($5,924
after taxes) in 2000 as a one-time merger charge to operating expenses in
connection with its merger with Polyfibron. These expenses consisted of fees for
attorneys, accountants, financial printing, as well as severance and other
related charges.
INCOME TAXES:The overall effective income tax rate increased to 36.3% in 2000
from 33.4% in 1999. The rate increase was brought about by the Corporation
incurring costs related to the merger with Polyfibron, which are not deductible
for tax purposes, along with an increase in non-deductible goodwill, resulting
primarily from the Canning acquisition. These charges were somewhat offset by
increased foreign tax credits and the continuing impact of worldwide tax
minimization strategies.
NET EARNINGS:Acquisitions, after the cost of borrowings, were immediately
accretive to earnings in fiscal 2000. Although debt balances at year end are
similar, the level of borrowings during the year were much higher in 2000 as a
result of borrowings late in 1999 to effect the Canning acquisition. Net
interest expense increased 21% over 1999 due to the higher level of borrowings
and from interest rate increases over the past year which resulted in an
approximate one basis point higher cost of borrowing for most of 2000. The
Corporation is investing heavily in the future, particularly through a new Via
Tek facility. The start-up costs associated with this investment depressed
earnings in the short term. Diluted earnings per common share, after giving
effect to the merger with Polyfibron and the related extraordinary charge for
early retirement of debt ($3,762 after tax), decreased in 2000 to $1.40 per
share as compared to $1.72 per share in 1999.
FISCAL 1999 VS.FISCAL 1998
SALES:Net sales of $610,604 increased 16% in fiscal 1999 after giving effect to
the merger with Polyfibron. Proprietary business increased 13% for Advanced
Surface Finishes and 4% for Graphic Arts, primarily a result of acquisitions.
Proprietary volume was basically flat without the effects of purchase
acquisitions, as printed circuit board manufacturers experienced a weakened
climate, worldwide. A large portion of the increase in sales was from increased
equipment business. Foreign currencies devalued, in large part from Asian
economic difficulties, however, a stronger dollar resulted in less than a 1%
negative effect on translated sales for 1999.
COSTS AND EXPENSES:Costs as a percentage of sales increased slightly in 1999
over 1998 significantly due to increased sales in lower margin equipment and
related chemical supplies. Gross profit percentage was 48.0% in 1999 as compared
to 48.8% in 1998. Lower prices for certain products supplied to printed circuit
board manufacturers, for the most part, were offset with savings related to cost
awareness initiatives adopted by the Corporation. Selling, technical and
administrative ("ST&A") expenses were $174,188 for 1999 as compared to $155,182
for 1998. This 12% increase was almost entirely a result of new costs from
purchase acquisitions. ST&A expenses otherwise increased approximately 1% over
the previous year. ST&A, as a percentage of sales decreased approximately 1%
from the previous year to 28.5%. Research and development expenses increased
$882 or 4% over the previous year. Total amortization charged to earnings was
$12,330 for 1999 up from $9,999 in 1998. The increase in amortization is a
result of goodwill increases, throughout both fiscal years, from several
acquisitions. In 1998, the Corporation charged acquired research and development
of $10,495 to operating expenses in connection with its acquisition of NAPP
Systems.
INCOME TAXES:The overall effective income tax rate decreased to 33.4% in 1999
from 47.1% in 1998. The rate decrease was due primarily to the Corporation's
one-time write-off of research and development costs associated with the
acquisition of NAPP Systems, in 1998. In 1999 the Corporation experienced a
further favorable impact on the effective income tax rate from the continuing
application of worldwide tax minimization strategies.
NET EARNINGS:Diluted earnings per common share, after giving effect to the
merger with Polyfibron, for fiscal 1999 were $1.72 per share as compared to
$0.92 per common share for 1998. Included in expenses for 1998 were, acquired
research and development ($10,495) and an extraordinary charge for early
retirement of debt ($1,322 after tax). Sales increased and expenses increased at
a much lesser rate for 1999, while net interest expense increased 15% over 1998
due to additional borrowings to effect the Canning acquisition. These factors,
and the benefit of tax minimization strategies, coupled to further net earnings
growth.
NEW ACCOUNTING STANDARDS
The FASB recently issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities which replaces
existing pronouncements and practices with a single, integrated, accounting
framework for derivatives and hedging activities.
The Corporation is currently evaluating the impact of this standard which
is not expected to have a material effect on the financial position or results
of operations upon adoption, when the reporting requirements become effective,
beginning with fiscal 2002.
LIQUIDITY &CAPITAL RESOURCES
Cash flows from operations are used to fund dividend payments ($0.08 per common
share for fiscal 2000) to shareholders, working capital requirements of the
Corporation and capital projects. The Corporation has paid cash dividends
continuously since 1948. From time to time the Corporation utilizes additional
outside sources to fund overall needs, including major capital projects for new
and upgraded research and technical, manufacturing and administrative facilities
and for business acquisitions.
During fiscal 2000 cash flows provided by operations, $59,834, were 26%
less than the prior year, principally resulting from one-time merger related
costs and working capital increases resulting from the integration of the
worldwide operations of recent acquisitions.
In certain years, the Corporation has embarked on programs which have
required significant amounts of funds in excess of those available from cash
flows from operations. During the third quarter of fiscal 1999, the Corporation
purchased W. Canning, plc for approximately $160,000 (including closing costs).
This purchase is presently financed through bank borrowing under six-year term
loans and a revolving credit agreement with Bank of America. During fiscal 1998
a previous revolving credit facility with Chase Bank was utilized to effect the
redemption ahead of schedule of all of the shares of preferred stock, including
dividends in kind, issued as part of a previous acquisition. In addition, the
revolving credit facility was utilized to exercise an early buy-out of the
performance premium relating to the same acquisition.
New opportunities for business acquisitions, which become available from
time to time, are evaluated individually as they arise based upon MacDermid's
criteria for technological improvement and innovation, potential for earnings
growth and compatibility with existing distribution channels. Management intends
to pursue those opportunities which have strong potential to enhance shareholder
value. One such opportunity was the acquisition of Galvanevet S.P.A. which
improved the Corporation's position in the European Advance Surface Finishes
industrial markets in fiscal 1999. The Corporation made the final of the
deferred payments, totaling $7,334, for this acquisition on June 1, 2000.
New capital spending during fiscal 2000 of approximately $24,039 as
compared with $20,036 in fiscal 1999 and $14,158 in fiscal 1998, included new,
as well as upgraded, manufacturing facilities worldwide and replacement of
technical equipment. For fiscal 2001, planned new capital projects total
approximately $22,000.
The Board of Directors has, from time to time, authorized the purchase of
issued and outstanding shares of the Corporation's common stock for its
treasury. On July 22, 1998 the Board of Directors authorized the purchase of up
to an additional 1,000,000 shares of the Corporation's common stock, then, on
November 16, 1999 the Board of Directors reduced this authorization to 200,000.
Pursuant to this, and previous authorizations, MacDermid acquired 98,234 shares
during fiscal 1999 and 330,024 shares during fiscal 1998 in privately negotiated
purchases. Treasury shares may be used for transfer or sale to employee benefit
plans, business acquisitions or for other Corporate purposes. The outstanding
authorization to purchase up to 184,120 shares, if exercised at the NYSE closing
price on March 31, 2000, would cost approximately $4,879.
The Corporation's financial position remains strong and, other than the
satisfaction of debt obligations, there are no long-range commitments which
would have a significant impact upon results of operations, financial condition
or liquidity. At March 31, 2000 the Corporation had domestic and foreign;
short-term uncommitted credit lines with banks approximating $61,000 in addition
to $125,000 committed revolving credit facility. Management believes that
additional borrowing could be obtained if needed.
<TABLE>
<CAPTION>
The principal sources and uses of cash in fiscal years 2000, 1999 and 1998 were
as follows:
2000 1999 1998
------- --------- ---------
<S> <C> <C> <C>
Cash provided by:
Operations $59,834 $ 80,456 $ 55,610
Proceeds from disposition of
fixed assets, certain business and
available-for-sale securities 13,453 101 665
Option exercises --- 162 1,690
Net increase in borrowings --- 135,325 46,513
------- --------- ---------
$73,287 $216,044 $104,478
Cash used for:
Capital expenditures $24,039 $ 20,036 $ 14,158
Business acquisitions 26,351 175,501 80,788
Purchase of treasury shares --- 3,508 7,196
Dividend payments 2,133 2,011 1,752
Net decrease in borrowings 20,660 --- ---
------- --------- ---------
$73,183 $201,056 $103,894
Other - net $ 2,384 ($345) ($3,568)
Net increase (decrease) in cash
balances $ 2,488 $ 14,643 ($2,984)
======= ========= =========
</TABLE>
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.
ENVIRONMENTAL ACTIVITIES
The Corporation continues its commitment to an active program of environmental
responsibility through its Environmental Initiative 2000 program, research and
development of alternative, environmentally safer products and installation of
equipment to reduce or eliminate emissions. The Corporation sponsors community
clean-up programs and promotes community awareness of environmental issues. An
environmental consultant retained by the Corporation conducts periodic audits
and submits appropriate recommendations to the Corporation.
The Corporation continuously conducts research to formulate products which
are environmentally friendly and which provide superior operating
characteristics in customer applications and many companies have come to it for
assistance in meeting their environmental needs. Environmental expenditures that
relate to current operations are expensed; long-term betterments are
capitalized. The expenditure by the Corporation for these various programs is
estimated to be approximately a million dollars per year.
(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 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.
(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.
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.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share and per share amounts)
YEAR ENDED MARCH 31
---------------------
2000 1999 1998
------------ --------------------- ------------
<S> <C> <C> <C>
Net sales $ 756,046 $ 610,604 $ 528,567
Costs and expenses:
Cost of sales 399,144 317,668 270,606
Selling, technical and administrative 222,692 174,188 155,182
Amortization of intangibles,
primarily goodwill 17,563 12,330 9,999
Merger related costs 7,617 --- ---
Write-off of acquired R&D --- --- 10,495
------------ --------------------- ------------
647,016 504,186 446,282
------------ --------------------- ------------
Operating profit 109,030 106,418 82,285
Other income (expense):
Interest income 2,007 2,221 655
Interest expense (33,050) (27,860) (22,892)
Miscellaneous, net (935) 2,688 (739)
------------ --------------------- ------------
(31,978) (22,951) (22,976)
------------ --------------------- ------------
Earnings before income taxes and
extraordinary charge 77,052 83,467 59,309
Income taxes (note 6) 27,932 27,841 27,920
------------ --------------------- ------------
Earnings before extraordinary charge 49,120 55,626 31,389
Extraordinary charge due to early
retirement of debt, net of tax Benefit
of $2,305 and $806 (3,762) --- (1,322)
------------ --------------------- ------------
Net earnings 45,358 55,626 30,067
Preferred dividends -- --- (309)
------------ --------------------- ------------
Net earnings available for common
shareholders $ 45,358 55,626 29,758
============ ===================== ============
Earnings per common share (note 1)
Basic
Earnings available for common
shareholders before extraordinary
charge $ 1.58 $ 1.79 $ 1.01
Extraordinary charge due to early
retirement of debt, net of tax
benefit $ (0.12) $ -- $ (0.04)
------------ --------------------- ------------
Net earnings available for common
shareholders $ 1.46 $ 1.79 $ 0.97
============ ===================== ============
Diluted
Earnings available for common
shareholders before extraordinary
charge $ 1.52 $ 1.72 $ 0.96
Extraordinary charge due to early
retirement of debt, net of tax
benefit $ (0.12) $ -- $ (0.04)
------------ --------------------- ------------
Net earnings available for common
shareholders $ 1.40 $ 1.72 $ 0.92
============ ===================== ============
Weighted average number of common
shares outstanding (note 1):
Basic 31,155,756 31,140,774 30,675,556
============ ===================== ============
Diluted 32,429,450 32,421,296 32,183,821
============ ===================== ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
YEAR ENDED MARCH 31
---------------------
2000 1999 1998
-------- --------------------- --------
<S> <C> <C> <C>
Net earnings available for common
shareholders $45,358 $ 55,626 $29,758
Other comprehensive income:
Foreign currency translation (449) 3,230 (8,347)
Available-for-sale securities
unrealized loss-net of taxes 174 (174) ---
-------- --------------------- --------
Comprehensive income $45,083 $ 58,682 $21,411
======== ===================== ========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
MARCH 31
---------
2000 1999
--------- --------
<S> <C> <C>
Current assets:
Cash and equivalents $ 20,116 $ 19,436
Available-for-sale securities -- 968
Accounts receivable, less allowance for doubtful
receivables of $10,541 and $10,217 180,628 159,998
Inventories (note 2) 115,602 104,452
Prepaid expenses 6,977 10,560
Deferred income taxes (note 6) 9,115 7,804
--------- --------
Total current asset 332,438 303,218
--------- --------
Net property, plant and equipment (note 3) 154,149 146,473
Goodwill, net of accumulated amortization of
$25,332 and $15,796 206,848 182,415
Patents, trademarks and other intangibles, net of
accumulated amortization of $28,109 and
$19,700 54,891 62,011
Deferred income taxes (note 6) 7,505 3,295
Other assets, net 34,661 39,877
--------- --------
$ 790,492 $737,289
========= ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES & SHAREHOLDERS ' EQUITY
MARCH 31
----------
2000 1999
---------- ---------
<S> <C> <C>
Current liabilities:
Notes payable (note 4) $ 4,561 $ 3,700
Current installments of long-term obligations
(note 8) 46,349 38,279
Accounts payable 62,922 67,297
Dividends payable 623 503
Accrued compensation 18,937 16,134
Accrued expenses, other 51,761 39,449
Income taxes (note 6) 13,967 20,213
---------- ---------
Total current liabilities 199,120 185,575
---------- ---------
Long-term obligations (note 8) 360,348 368,102
Accrued postretirement benefits, less current
portion (note 5) 7,239 9,093
Deferred income taxes (note 6) 10,531 11,104
Minority interest in subsidiary -- 65
---------- ---------
Total liabilities 577,238 573,939
---------- ---------
Shareholders' equity (note 10):
Common stock. Authorized 75,000,000 shares;
issued 45,412,325 shares in 2000 and
45,411,775 shares in 1999 at stated value of
$1.00 per share 45,412 45,412
Additional paid-in capital 13,866 9,096
Retained earnings 217,149 171,740
Accumulated other comprehensive income
Equity adjustment from foreign currency
translation (5,062) (4,613)
Equity adjustment from securities holding loss -- (174)
Less cost of 14,267,816 common shares in
treasury (58,111) (58,111)
---------- ---------
Total shareholders' equity 213,254 163,350
---------- ---------
Contingencies and commitments (notes 1, 11 and
12)
$ 790,492 $737,289
========== =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED MARCH 31
2000 1999 1998
----------- ---------------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings available for common
shareholders $ 45,358 $ 55,626 $ 29,758
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 18,895 14,522 12,892
Amortization of goodwill and other
intangible assets 17,563 12,330 9,999
Provision for bad debts 2,473 1,507 965
Deferred income taxes (3,994) (1,388) 371
Write-off purchased research -- -- 10,495
Write-off deferred financing fees -- -- 2,138
Changes in assets and liabilities net of
effects from acquisitions and
dispositions:
Decrease (increase) in receivables (8,582) (6,508) (16,980)
Decrease (increase) in inventories (6,441) (1,235) (14,489)
Decrease (increase) in prepaid expenses 5,211 (5,353) (1,432)
Increase (decrease) in accounts payable (11,778) 13,831 10,288
Increase (decrease) in accrued Expense 2,395 (9,916) 10,442
Increase (decrease) in income tax
liabilities 1,585 4,497 (407)
Other (2,851) 2,543 1,570
----------- ---------------------- -----------
Net cash flows provided by
operating activities 59,834 80,456 55,610
----------- ---------------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,039) (20,036) (14,158)
Proceeds from disposition of fixed assets 641 101 665
Sale/(purchase) of available-for-sale
securities 1,147 (261) --
Acquisitions of businesses (26,351) (175,501) (80,788)
Dispositions of businesses 11,665 -- --
----------- ---------------------- -----------
Net cash flows used in investing
activities (36,937) (195,697) (94,281)
----------- ---------------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term (repayments) borrowings - net . (1,070) 90,281 101,046
Long-term borrowings 17,350 317,355 53,622
Long-term repayments (36,940) (272,311) (75,410)
Preferred stock redemption -- -- (32,745)
Exercise of stock options -- 162 1,690
Acquisition of treasury stock (note 10) -- (3,508) (7,196)
Dividends paid (2,133) (2,011) (1,752)
--------- -------------------- ---------
Net cash flows provided by (used in)
financing activities (22,793) 129,968 39,255
----------- ---------------------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND EQUIVALENTS 2,384 (84) (3,568)
----------- ---------------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,488 14,643 (2,984)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR $ 17,628 $ 4,793 $ 7,777
--------- -------------------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,116 $ 19,436 $ 4,793
--------- -------------------- ---------
--------- -------------------- ---------
CASH PAID FOR INTEREST $ 32,004 $ 24,705 $ 20,075
--------- -------------------- ---------
--------- -------------------- ---------
CASH PAID FOR INCOME TAXES $ 27,634 $ 19,872 $ 20,889
=========== ====================== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SHAREHOLDERS ' EQUITY
(Note 10)
(In thousands)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
------ ----------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 18,799 4,792 111,448 504 (47,407) 88,136
Stock options 240 1,999 -- -- -- 2,239
Stock awards 48 1,273 -- -- -- 1,321
Net earnings -- -- 29,758 -- -- 29,758
Cash dividends -- -- (1,752) -- -- (1,752)
Non-cash dividends -- -- (1,465) -- -- (1,465)
Tax benefit (note 6) -- 3,621 -- -- -- 3,621
Three for one split 26,177 (7,852) (18,325) -- -- 0
Currency translation -- -- -- (8,347) -- (8,347)
Shares acquired -- -- -- -- (7,196) (7,196)
------ ----------- --------- -------------- --------- --------------
Balance at March 31, 1998 45,264 3,833 119,664 (7,843) (54,603) 106,315
------ ----------- --------- -------------- --------- --------------
Stock options 90 341 -- -- -- 431
Stock awards. 58 1,343 -- -- -- 1,401
Net earnings -- -- 55,626 -- -- 55,626
Cash dividends -- -- (2,011) -- -- (2,011)
Non-cash dividends -- -- (1,539) -- -- (1,539)
Tax benefit (note 6) -- 3,579 -- -- -- 3,579
Currency translation -- -- -- 3,230 -- 3,230
Securities holding loss -- -- -- (174) -- (174)
Shares acquired -- -- -- -- (3,508) (3,508)
------ ----------- --------- -------------- --------- --------------
Balance at March 31, 1999 45,412 9,096 171,740 (4,787) (58,111) 163,350
------ ----------- --------- -------------- --------- --------------
Stock options -- 22 -- -- -- 22
Stock awards -- 831 -- -- -- 831
Net earnings -- -- 45,358 -- -- 45,358
Cash dividends -- -- (2,133) -- -- (2,133)
Change in subsidiary fiscal
year end -- -- 2,184 -- -- 2,184
Tax benefit (note 6) -- 3,917 -- -- -- 3,917
Currency translation -- -- -- (449) -- (449)
Securities holding gain -- -- -- 174 -- 174
------ ----------- --------- -------------- --------- --------------
Balance at March 31, 2000 45,412 13,866 217,149 (5,062) (58,111) 213,254
====== =========== ========= ============== ========= ==============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION. The Corporation's consolidated financial
statements have been prepared to give retroactive effect to the merger between
Polyfibron and the Corporation which has been accounted for as a pooling of
interests. Accordingly, the consolidated financial statements for the periods
prior to the combination have been restated to include the accounts and results
of operations of Polyfibron. The combined results of operations for the years
ending March 31, 1999 and 1998 include Polyfibron for the years ending December
31, 1998 and 1997, respectively. The Corporation issued 6,999,968 shares and
share equivalents of its common stock in exchange for all of the outstanding
shares of Polyfibron on December 29, 1999.
The Polyfibron subsidiaries, in previous years, reported on a calendar year
basis. Their fiscal year was changed beginning with fiscal year 2000, to
coincide with the parent corporation. The results of the quarter ended March 31,
1999, earnings of $3,184, less non-cash dividends of $1,000 on revenues of
$57,086, were credited directly to retained earnings to effect this changeover.
The consolidated statements of cash flows are presented for the year ended March
31, 2000, exclusive of the results of operations for the three months ended
March 31, 1999. During this period, net cash and cash equivalents of $4,800 and
$13,172 was used for operations and investing activities, respectively, and net
cash and cash equivalents of $16,164 was provided by financing activities. The
resulting $1,808 decrease in cash and cash equivalents during the period is
reflected in the cash and cash equivalents at the beginning of the year for
purposes of the consolidated statements of cash flows for the year ended March
31, 2000.
The accompanying consolidated financial statements include the accounts of
the parent corporation and all of its domestic and foreign subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(B) USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS. For the purpose of the consolidated statements of
cash flows, the Corporation considers all highly liquid debt instruments
purchased with an initial maturity of three months or less to be cash
equivalents.
(D) INVENTORIES. Inventories are stated at the lower of cost (average moving
cost) or replacement market.
(E) PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Depreciation and amortization of property, plant and equipment are
provided over the estimated useful lives of the respective assets, principally
on the straight-line basis. Expenditures for maintenance and repairs are charged
directly to expense; renewals and betterments, which significantly extend the
useful lives are capitalized. Costs and accumulated depreciation and
amortization on assets retired or disposed of are removed from the accounts and
the gains or losses resulting therefrom, if any, are credited or charged to
earnings.
(F) INTANGIBLE ASSETS. Various intangible assets are amortized on a straight
line basis over their estimated useful lives as determined by an appropriate
valuation. The present amortization periods range between 15 and 40 years for
patents and trademarks and between 5 and 30 years for other separately
identified intangible assets. Specifically, goodwill is amortized on a straight
line basis over its estimated period of benefit; for smaller businesses
generally no longer than 15 years, for divisions of larger corporations
generally 25 years and for long established companies generally 40 years. The
present goodwill amortization periods range between 5 and 40 years. Accumulated
amortization of goodwill was $25,332 and $15,796 at March 31, 2000 and 1999,
respectively. As required by Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of (SFAS121) the Corporation evaluates the carrying value of
intangible assets at each balance sheet date to determine if impairment exists
based upon estimated undiscounted future cash flows. The impairment, if any, is
measured by the difference between carrying value and estimated fair value and
charged to expense in the period identified. The remaining amortization periods
are periodically evaluated and are revised if considered necessary. The
application of this statement had no impact on the Corporation's financial
position as of March 31, 2000 or 1999 or its results of operations for the years
2000, 1999 or 1998.
(G) EMPLOYEE BENEFITS. The Corporation sponsors a variety of employee benefit
programs, most of which are non-contributory.
RETIREMENT. Pension, profit sharing and other retirement plans generally are
non-contributory and cover substantially all employees. Domestically, the
Corporation funds a defined benefit pension plan and, overseas, maintains a
defined contribution plan. The projected unit credit actuarial method is used
for financial reporting purposes. In addition, the Corporation contributes to
profit sharing and employee stock ownership plans which provide retirement
benefits based upon amounts credited to employee accounts within the plans. The
Corporation's funding policy for qualified plans is consistent with federal or
other regulations and customarily equals the amount deducted for income tax
purposes. Foreign subsidiaries contribute to plans which may be administered
privately or by government agencies in accordance with local regulations.
POSTRETIREMENT. The Corporation currently has accrued postretirement health
care benefits for most U.S. employees. The postretirement health care plan is
unfunded.
POSTEMPLOYMENT. The Corporation currently accrues for postemployment
disability benefits to employees meeting specified service requirements. The
postemployment benefits plan is unfunded.
(H) COMPREHENSIVE INCOME. Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS130) establishes standards for reporting and
display of comprehensive income in the financial statements. In fiscal 1999 the
Corporation adopted SFAS130 with a separate financial statement, consolidated
Statement of Comprehensive Income, which identifies the components of
comprehensive income separately. The accumulated currency translation adjustment
for foreign operations and adjustment for fair value on holding
available-for-sale securities are shown separately on the Consolidated Balance
Sheet. See notes #1 (i) and #1 (j).
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments
(SFAS107) requires that reporting entities provide, to the extent practicable,
the fair value of financial instruments, both assets and liabilities. The
carrying amounts for the Corporation's financial instruments approximate fair
value because of the short maturity of those instruments.
Interest rate swap agreements are employed by the Corporation to optimize
borrowing costs by reducing exposure of possible future changes in interest
rates. Net receipts or payments on the swap are accrued and recognized as
adjustments to interest expense. The estimated fair value of these financial
instruments at March 31, 2000 is $1,516 based on the quoted market price from
the bank holding the instruments.
(J) FOREIGN OPERATIONS. The assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at year-end rates of exchange while revenue and
expense accounts are translated at weighted average rates in effect during the
periods. Translation of the financial statements resulted in a decrease in
equity of $449 in 2000, an increase in equity of $3,230 in 1999 and a decrease
in equity of $8,347 in 1998. Net gains on foreign currency transactions included
in the consolidated statements of earnings are $352, $385 and $465 in 2000, 1999
and 1998, respectively.
(K) REVENUE RECOGNITION. Sales are recorded when products are shipped to
customers. Commissions and royalties are recorded when earned
(L) RESEARCH AND DEVELOPMENT. Research and development costs, charged to
expenses as incurred, were $22,548, $21,500 and $20,618 in 2000, 1999 and 1998,
respectively.
(M) INCOME TAXES. The provision for income taxes includes Federal, foreign,
state and local income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax basis of assets
and liabilities and net operating loss (NOL) carry-forwards. No provision for
deferred income taxes is made with respect to equity adjustments from foreign
currency translation or to undistributed earnings of subsidiaries which, in
management's opinion, will be permanently reinvested or repatriated at a minimal
tax cost to the Corporation. Foreign tax credits are recorded as a reduction of
the provision for Federal income taxes in the year realized.
(N) STOCK-BASED PLANS. Effective April 1, 1996 the Corporation adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (SFAS123). As permitted under SFAS123,
the Corporation continues to apply the recognition provisions of APB25,
Accounting for Stock Issued to Employees. Accordingly, compensation expense is
measured as the difference between the fair value of the shares and the exercise
price on the measurement date. Pro forma net income and per share amounts are
presented in the Employee Stock Incentive Plans note as if the alternative fair
value method of accounting provided for under SFAS123 had been applied to
options granted after March 31, 1995.
(O) COMMON SHARE DATA. Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS128) requires the presentation of basic and diluted
earnings per share. Comparative references to earnings per common share (EPS)
and weighted average common shares outstanding were restated to reflect this
presentation, upon adoption of SFAS128. EPS is calculated based upon net
earnings available for common shareholders after deduction for preferred
dividends. The computation of basic EPS is based upon the weighted average
number of common shares outstanding during the period. Diluted EPS is computed
based upon the weighted average number of common shares outstanding plus the
effect of all dilutive contingently issuable common shares from stock options,
stock awards and warrants that were outstanding during the period.
In addition, net earnings per common share, dividend amounts declared and
share market price have been restated to give retroactive effect to a
three-for-one stock split as of February 6, 1998.
<TABLE>
<CAPTION>
The following table reconciles basic weighted average common shares
outstanding to diluted weighted average common shares outstanding:
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic 31,155,756 31,140,774 30,675,556
Dilutive effect of stock options 272,342 279,170 506,913
Dilutive effect of warrants 1,001,352 1,001,352 1,001,352
---------- ---------- ----------
Diluted 32,429,450 32,421,296 32,183,821
</TABLE>
(P) RECENT ACCOUNTING STANDARDS. In June, 1998, the FASB issued Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS133). This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires reporting entities to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Corporation is currently evaluating the impact of this
standard which is effective beginning fiscal 2002 and is not expected to have a
material effect on the financial statements.
(Q) ACQUISITIONS. On December 29, 1999, the Corporation issued 6,999,968 shares
and share equivalents of its common stock in exchange for all outstanding shares
of Polyfibron, a specialty chemical manufacturer for the graphic arts
industries. This business combination has been accounted for as a
pooling-of-interests combination and, accordingly, the consolidated financial
statements for the periods prior to the combination have been restated to
include the accounts and results of operations of Polyfibron. The results of
operations previously reported by the separate enterprises and the combined
amounts presented in the accompanying consolidated financial statements for the
years ended March 31, are summarized below:
<TABLE>
<CAPTION>
(In thousands)
2000 1999 1998
--------- -------- ---------
<S> <C> <C> <C>
Net Sales:
MacDermid $502,610 $382,648 $314,058
Polyfibron 253,436 $227,956 $214,509
--------- -------- ---------
Combined $756,046 $610,604 $528,567
Extraordinary Charge:
MacDermid $ -- $ -- $ --
Polyfibron (3,762) $ -- (1,322)
--------- -------- ---------
Combined (3,762) $ -- (1,322)
Net Income (Loss):
MacDermid $ 35,541 $ 36,283 $ 30,488
Polyfibron 9,817 $ 19,343 (730)
--------- -------- ---------
Combined $ 45,358 $ 55,626 $ 29,758
</TABLE>
In December 1998 the Corporation closed its cash tender offer whereby it
acquired approximately 95% of the outstanding shares of W. Canning, plc. The
Corporation acquired the remaining shares through a statutory compulsory
procedure completed February 5, 1999, thereby acquiring the international
specialty chemical company. Based in Birmingham, England, the business consists
principally of the manufacture, sale and technical servicing of proprietary
products including surface finishing, offshore fluids, sealants and adhesives
and fuel and water additives. The total purchase price of approximately
$160,000, including closing costs, included inventory, fixed assets, goodwill
(approximately $87,000) and other intangibles (approximately $36,000) and was
accounted for as a purchase transaction. The goodwill is being amortized over 40
years while the other separately identifiable intangibles are being amortized
over periods ranging between 6 and 40 years. The goodwill reflects adjustments
necessary to allocate the purchase price to the fair value of the assets
acquired, liabilities assumed and additional purchase liabilities recorded. The
additional liabilities recorded include approximately $9,000 for reorganization
costs associated with planned eliminations of duplicate staffing and facilities
in the United Kingdom, France, Germany and the United States, and $2,000 for
environmental costs (explained more fully in note #12, Contingencies). At March
31, 2000, liabilities of $2,713 for reorganization and $1,880 for environmental
remained on the Consolidated Balance Sheet.
<TABLE>
<CAPTION>
The following table shows the detail of the acquisition reserves balance
included in other accrued liabilities on the consolidated balance sheets at
March 31:
(In thousands)
Description 1999 Additions Paid 2000
--------------------- ------ ----------- ------ ------
<S> <C> <C> <C> <C>
U.S. facilities $3,550 $ 1,035 $2,629 $1,956
Overseas facilities 650 (150) 73 427
U.S. redundancies 700 500 870 330
Overseas redundancies 1,350 2,600 3,950 0
U.S. environmental 2,000 0 120 1,880
------ ----------- ------ ------
Total $8,250 $ 3,985 $7,642 $4,593
====== =========== ====== ======
</TABLE>
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Q) ACQUISITIONS (continued)
Consolidated operating results for fiscal 1999 include the results of the
Canning business from December 2, 1998. The following unaudited pro forma
summary of consolidated results is presented as if the acquisition had occurred
on April 1, 1998 after giving effect to certain pro forma adjustments, including
recognition of additional interest expense on debt to acquire the business,
amortization of goodwill and other intangibles, the effects of purchase price
allocations and related tax effects.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
(unaudited)
1999 1998
-------- --------
<S> <C> <C>
Net sales $702,936 $652,248
Net earnings 56,035 31,213
Earnings per common share $ 1.73 $ 0.97
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the results which would have occurred
if the acquisition had commenced at that date, nor are they indicative of future
results.
2.INVENTORIES
<TABLE>
<CAPTION>
The major components of inventory at March 31 were as follows:
(In thousands)
2000 1999
---------------- ----------------
<S> <C> <C>
Finished goods $ 65,338 $ 54,477
Raw materials and supplies 50,264 49,975
--------------- ---------------
$ 115,602 $ 104,452
================ ================
</TABLE>
3.PROPERTY,PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
The major components of property, plant and equipment (at cost) at March 31 were as
follows:
(In thousands)
2000 1999
--------------------- ----------------
<S> <C> <C>
Land and improvements $ 14,204 $ 12,328
Buildings and improvements 86,087 78,104
Machinery, equipment and fixtures 153,030 153,398
--------------------- ----------------
253,321 243,830
Less accumulated depreciation and amortization 99,172 97,357
-------------------- ---------------
Net property, plant and equipment $ 154,149 $ 146,473
--------------------- ----------------
</TABLE>
4.NOTES PAYABLE
Notes payable at March 31, 2000 consisted of $4,561 of outstanding borrowings
under available lines of credit aggregating approximately $61,000. The terms of
the lines of credit generally provide for interest rates at or below the prime
rate on the date of borrowing domestically and, for foreign company borrowings,
rates that vary with base rates in each currency. The lines of credit can be
withdrawn at any time at the option of the banks. The weighted average interest
rates on short-term borrowings outstanding were 5.0% and 3.8% at the end of 2000
and 1999, respectively.
5.EMPLOYEE BENEFIT & STOCK OPTION PLANS
PENSION, POSTRETIREMENT & POSTEMPLOYMENT BENEFITS
The Corporation has defined benefit pension, defined contribution profit sharing
and employee stock ownership plans for substantially all its domestic employees.
Aggregate amounts charged to earnings for these plans were $3,175, $3,010 and
$2,726 in 2000, 1999 and 1998, respectively.
PENSION. The domestic pension plan provides retirement benefits based upon years
of service and compensation levels. Plan assets at fair value consist primarily
of listed stocks, bonds and guaranteed investment contracts, and included
393,255 shares of the Corporation's common stock having a market value of
$10,421 and $13,346 at March 31, 2000 and 1999, respectively. The Corporation
also has a retirement and death benefit plan covering employees located in Great
Britain. As of April 6, 1997, this plan converted from a defined benefit to a
defined contribution basis for pensionable service after that date. The
obligation has been recognized for past service benefits which continue on the
defined benefit basis. The Corporation's other foreign subsidiaries maintain
benefit plans that are consistent with statutory practices and are not
significant.
POSTRETIREMENT BENEFITS. The Corporation sponsors a defined benefit
postretirement medical and dental plan (unfunded) that covers all of its
domestic full-time employees, hired prior to April 1, 1997, who retire after age
55 with at least 10 to 20 years of service (depending upon the date of hire).
Employees retiring after March 31, 1998 are required to contribute the full cost
of the plan until they reach age 65. At age 65 the Corporation will contribute a
portion of the cost. The Corporation's subsidy level is subject to a cap which
increases 3% each year. Retirees will be required to contribute the plan cost in
excess of the cap in addition to other required contributions.
The projected benefit obligation for the postretirement plan at March 31,
2000 comprised 26% retirees, 3% fully eligible active participants and 71% other
active participants. The annual increase in cost is 3% for post-retirement
medical benefits (no assumed rate increase for dental benefits since it is a
scheduled plan) since the Corporation's contributions are at the defined cap.
The medical cost trend rate assumption has no effect on the amounts reported due
to the cap on contributions paid by the Corporation.
POSTEMPLOYMENT BENEFITS. The Corporation sponsors a defined benefit
postemployment compensation continuation plan that covers all of its full time
domestic employees. Employees who have completed at least six months of service,
become permanently disabled and are unable to return to work are eligible to
receive a benefit under the plan. The benefit may range from one week to a
maximum of six months of compensation. The estimated ongoing additional
after-tax annual cost is not material.
<TABLE>
<CAPTION>
The following table sets forth the components of the pension and postretirement benefit plans with respect to the
Consolidated Balance Sheets for the years ended March 31:
(in thousands)
<S> <C> <C> <C> <C>
PENSION BENEFITS
------------------
2000 1999
------------------ --------------
DOMESTIC FOREIGN Domestic Foreign
------------------ ------------- -------------- --------------
Reconciliation of Projected Benefit Obligation:
Projected benefit obligation at beginning of year $ 35,226 $ 43,764 $ 31,104 $ 0
Service cost (benefits earned during the period) 1,812 922 1,477 211
Interest cost on the projected benefit obligation 2,341 2,596 2,155 836
Liability increase due to acquisition 0 0 94 43,942
Actuarial (gain)/loss excluding assumption change (9) 0 100 987
Actuarial (gain)/loss due to assumption change (5,106) 0 1,320 0
Benefits paid (1,147) (2,058) (1,024) (656)
Translation difference 0 (1,330) 0 (1,556)
------------ ----------- ------------ ------------
Projected benefit obligation at end of year 33,117 43,894 35,226 43,764
------------ ----------- ------------ ------------
Reconciliation of Fair Value of Plan Assets:
Fair value of plan assets at beginning of year 41,743 46,695 36,210 0
Actual return on plan assets (net of expenses) (535) (48) 4,848 865
Acquisition 0 0 0 48,061
Employer contribution 0 288 1,709 90
Plan participants contribution 0 161 0 60
Benefits paid (1,147) (2,058) (1,024) (655)
Translation difference 0 (852) 0 (1,726)
------------ ----------- ------------ ------------
Fair value of plan assets at end of year 40,061 44,186 41,743 46,695
------------ ----------- ------------ ------------
Funded Status:
Funded status 6,944 292 6,517 2,931
Unrecognized net actuarial (gain)/loss (5,690) 3,039 (4,793) (1,052)
Unamortized prior service cost 211 0 269 0
Unrecognized transition obligation (asset)/obligation (229) 0 (458) 0
------------ ----------- ------------ ------------
Prepaid/(accrued) benefit cost $ 1,236 $ 3,331 $ 1,535 $ 1,879
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Weighted Average Assumptions:
Discount rate 7.75% 8.0% 6.75% 6.0%
Rate of compensation increase 5.0% 4.5% 5.0% 6.0%
Long-term rate of return on assets 9.0% 8.0% 9.0% 8.0%
Annual increase in cost of medical benefits N/A N/A N/A N/A
<S> <C> <C>
Post Retirement Benefits
--------------------------
2000 1999
-------------------------- -------------
DOMESTIC Foreign
-------------------------- -------------
Reconciliation of Projected Benefit Obligation:
Projected benefit obligation at beginning of year $ 4,448 $ 4,218
Service cost (benefits earned during the period) 84 83
Interest cost on the projected benefit obligation 286 296
Liability increase due to acquisition 0 0
Actuarial (gain)/loss excluding assumption change 96 291
Actuarial (gain)/loss due to assumption change (433) 0
Benefits paid (515) (440)
Translation difference 0 0
------------ -----------
Projected benefit obligation at end of year 3,966 4,448
------------ -----------
Reconciliation of Fair Value of Plan Assets:
Fair value of plan assets at beginning of year 0 0
Actual return on plan assets (net of expenses) 0 0
Acquisition 0 0
Employer contribution 515 440
Plan participants contribution 0 0
Benefits paid (515) (440)
Translation difference 0 0
------------ -----------
Fair value of plan assets at end of year 0 0
------------ -----------
Funded Status:
Funded status (3,966) (4,448)
Unrecognized net actuarial (gain)/loss 231 578
Unamortized prior service cost 0 0
Unrecognized transition obligation (asset)/obligation 0 0
------------ -----------
Prepaid/(accrued) benefit cost $ (3,735) $ (3,870)
------------ -----------
------------ -----------
Weighted Average Assumptions:
Discount rate 7.75% 6.75%
Rate of compensation increase N/A N/A
Long-term rate of return on assets N/A N/A
Annual increase in cost of medical benefits 3.0% 3.0%
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the components of the pension and postretirement benefit plans with respect to the Consolidated
Statements of Earnings for the years ended March 31:
(in thousands)
PENSION BENEFITS
------------------
2000 1999 1998 2000 1999 1998
-------------- ---------------- ------------------ -------------- -------------- -------
DOMESTIC FOREIGN Domestic Foreign Domestic Foreign
-------------- ---------------- ------------------ -------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Periodic Benefit Expense:
Service cost (benefits earned
during the period) $ 1,812 $ 761 $ 1,477 $ 211 $ 1,286 N/A
Interest cost on the projected
benefit obligation 2,341 2,596 2,155 836 1,959 N/A
Expected return on plan assets (3,700) (3,735) (3,256) (1,080) (2,145) N/A
Amortization of prior service
cost 58 0 58 0 50 N/A
Amortization of transition
obligation (229) (496) (229) (168) (229) N/A
Recognized actuarial (gain)/loss (47) 172 (87) 15 19 N/A
------------ -------------- ------------ ------------ ------------
Net periodic benefit cost $ 235 $ (702) $ 118 $ (186) $ (940) N/A
------------ -------------- ------------ ------------ ------------
------------ -------------- ------------ ------------ ------------
POST RETIREMENT BENEFITS
-------------------------
2000 1999 1998
-------------- ---------------- ------------------
DOMESTIC Domestic Domestic
------------ ------------------------- ------------
<S> <C> <C> <C>
Net Periodic Benefit Expense:
Service cost (benefits earned
during the period) $ 84 $ 83 $ 64
Interest cost on the projected
benefit obligation 286 296 292
Expected return on plan assets 0 0 0
Amortization of prior service
cost 10 0 0
Amortization of transition
obligation 0 0 0
Recognized actuarial (gain)/loss 0 0 0
----------- ------------ -----------
Net periodic benefit cost $ 380 $ 379 $ 356
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
EMPLOYEE STOCK INCENTIVE PLANS
1992 PLAN: In 1993, the Corporation adopted a non-qualified stock option plan,
approved by shareholders in July 1992 (the 1992 plan), for the issuance of up to
2,700,000 shares under which certain employees have been granted options
totaling 2,545,565. Options granted under the 1992 plan generally are
exercisable, at a price equal to two-thirds of the market price at the grant
date, during a four-year period beginning with the grant date. The options are
exercisable into restricted shares of common stock which cannot be sold or
transferred, except back to the Corporation at cost, during the four-year period
commencing with the exercise date.
Compensation expense, which is equal to the difference between the fair
market value on the date of an option grant and the exercise price of shares
which may be purchased thereunder, is amortized over a six-year period. During
2000, 1999 and 1998, compensation expense relating to this plan was $22, $317,
and $526, respectively.
1995 PLAN: In 1996, the Corporation adopted a non-qualified equity incentive
plan, approved by the shareholders in July 1995 (the 1995 plan), for the
issuance of up to 900,000 shares under which certain employees have been granted
restricted shares totaling 472,947, having market prices of $4 3/4 to $38 5/16
on the dates of grant. All shares of restricted stock issued under the 1995 plan
must be held and cannot be sold or transferred, except to the Corporation for a
period of four years from the date of the award. During 2000, 1999 and 1998,
compensation expense relating to this plan was $831, $1,311 and $1,273,
respectively.
1998 PLAN: In 1999, the Corporation adopted a non-qualified stock option plan,
approved by shareholders in July 1999 (the 1998 plan), for the issuance of up to
1,500,000 shares under which certain employees have been granted options
totaling 741,650. Options granted under the 1998 plan generally are exercisable,
at a price equal to a one-third premium over market price at the date of grant,
during a ten-year period beginning with the grant date. The options are
exercisable into unrestricted shares of common stock, except as otherwise
provided, under the terms of the plan, at the time of grant.
Options issued under the Corporation's stock incentive plans and
outstanding at March 31, 2000 have exercise prices ranging from $1.79 to $55.50,
expiring periodically through fiscal 2009, summarized in the following table as
of March 31:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
OF OPTIONS EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding March 31, 1997 1,327,368 $ 2.04
1998 activity:
Granted 0 -
Exercised (787,368) $ 2.15
Forfeited 0 -
Outstanding at March 31, 1998 540,000 $ 1.89
Exercisable at March 31, 1998 540,000 $ 1.89
1999 activity:
Granted 12,065 $ 21.81
Exercised (90,000) $ 1.79
Forfeited 0 -
Outstanding at March 31, 1999 462,065 $ 2.42
Exercisable at March 31, 1999 462,065 $ 2.42
2000 ACTIVITY:
GRANTED 741,650 $ 47.44
EXERCISED 0 -
FORFEITED 0 -
OUTSTANDING AT MARCH 31, 2000 1,203,715 $ 30.16
EXERCISABLE AT MARCH 31, 2000 1,203,715 $ 30.16
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about fixed stock options outstanding
and exercisable at March 31, 2000:
EXERCISE NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE
------------- ----------- ---------------- -----------------
<S> <C> <C> <C>
1.79-$2.00 450,000 1.1 years $ 1.90
21.81 12,065 2.1 years $ 21.81
45.00-$55.50 741,650 9.1 years $ 47.44
----------- ---------------- -----------------
1,203,715 6.0 years $ 30.16
</TABLE>
Had the Corporation used the fair value-based method of accounting for its stock
option plans (beginning in 1996) and charged compensation cost against income,
over a period consistent with the terms of the grant, based on the fair value at
the date of grant, net earnings and net earnings per common share for 2000, 1999
and 1998 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Net earnings available for common
shareholders
As reported $45,358 $55,626 $29,758
Pro forma $40,377 $55,600 $29,709
Net earnings per common share
Basic
As reported $ 1.46 $ 1.79 $ 0.97
Pro forma $ 1.30 $ 1.79 $ 0.97
Diluted
As reported $ 1.40 $ 1.72 $ 0.92
Pro forma $ 1.25 $ 1.71 $ 0.92
</TABLE>
The pro forma information above includes stock options granted since April 1,
1995. Effects of applying FAS 123, using the fair value-based method of
accounting, is not representative of the pro forma effect on earnings in future
years because it does not take into consideration pro forma compensation expense
related to stock options granted prior to 1996.
The weighted-average grant-date fair value of options for those granted in
2000 was $14.51 and for those granted in 1999 was $7.12 as determined by
utilizing the Black-Scholes option-pricing model and the following key
assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
--------- -------- ----
<S> <C> <C> <C>
Risk-free interest rate 6.21% 5.15% N/A
Expected option life 10 YEARS 6 years N/A
Expected volatility 33.3% 46.3% N/A
Dividend yield 0.3% 0.2% N/A
</TABLE>
6.INCOME TAXES
Income tax expense attributable to income from operations for the years ended
March 31 consisted of:
<TABLE>
<CAPTION>
(In thousands)
CURRENT DEFERRED TOTAL
-------- ---------- -------
<S> <C> <C> <C>
2000
----------
U.S. Federal $ 14,969 $ (4,100) $10,869
State and local 2,078 (883) 1,195
Foreign 14,879 989 15,868
-------- ---------- -------
Totals $ 31,926 $ (3,994) $27,932
======== ========== =======
1999
----------
U.S. Federal $ 15,294 $ (1,958) $13,336
State and local 2,974 (262) 2,712
Foreign 10,961 832 11,793
-------- ---------- -------
Totals $ 29,229 $ (1,388) $27,841
======== ========== =======
1998
----------
U.S. Federal $ 17,220 $ (517) $16,703
State and local 2,678 294 2,972
Foreign 7,651 594 8,245
-------- ---------- -------
Totals $ 27,549 $ 371 $27,920
======== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Income tax expense differed from the amounts computed by
applying the U.S. Federal statutory tax rates to pretax income from
operations for the years ended March 31 as a result of the following:
(In thousands)
2000 1999 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C>
U.S. Federal statutory tax rate 35% 35% 35%
==================== ==================== ====================
Taxes computed at U.S.
statutory rate $ 26,970 $ 29,115 $ 20,898
State income taxes, net of
Federal benefit 777 1,762 1,932
Foreign tax rate differential (1,368) 106 (1,149)
Acquisition costs 1,043 -- --
Reduction of valuation reserve -- (1,107) --
R&D write-off -- -- 3,976
Other, net 510 (2,035) 2,263
------------------ ------------------ ------------------
Actual income taxes $ 27,932 $ 27,841 $ 27,920
==================== ==================== ====================
Effective tax rate 36.3% 33.4% 47.1%
==================== ==================== ====================
</TABLE>
Earnings before income taxes included foreign earnings of $56,283, $31,907
and $25,476 for 2000, 1999 and 1998, respectively.
The Corporation has not recognized a deferred tax liability for the
undistributed earnings of foreign subsidiaries that arose in 2000 and prior
years because the Corporation does not expect to repatriate those earnings in
the foreseeable future. A deferred tax liability will be recognized when the
Corporation expects that it will recover those earnings in a taxable
transaction, such as through receipt of dividends, net of foreign tax credits,
or sale of the investment. At March, 2000, the undistributed earnings of those
subsidiaries were approximately $133,149. A determination of the deferred tax
liability relating to the undistributed earnings of foreign subsidiaries is not
practical.
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities at March 31 are:
(In thousands)
2000 1999
---------------------- ----------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, primarily due to
allowance for doubtful accounts $ 1,675 $ 998
Inventories 3,747 3,955
Accrued liabilities 2,859 2,342
Acquisition accrued liabilities 6,446 7,488
Employee benefits 4,567 5,215
Foreign tax credits 1,896 --
Foreign losses 6,219 --
Other 8,347 4,397
---------------------- ----------------------
Total gross assets 35,756 24,395
Valuation reserve (6,218) --
Total gross deferred tax assets 29,538 24,395
Deferred tax liabilities:
Plant and equipment, primarily due to
depreciation. 2,172 10,509
Purchase accounting 13,622 5,941
Other 7,655 7,950
-------------------- --------------------
Total gross deferred tax liabilities 23,449 24,400
-------------------- --------------------
Net deferred asset/(liability) $ 6,089 $ (5)
====================== ======================
</TABLE>
During fiscal 2000, 1999 and 1998 the lapse of restrictions upon stock
exercised under the stock option and award plans resulted in a tax benefit of
$3,917, $3,579 and $3,621, respectively, which were recorded as increases to
additional paid-in capital. The Corporation has state NOL's of $1,015 and
foreign NOL's of $13,876 available for utilization in the future. The
carry-forward life of these range from 5 years to unlimited.
7.VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The major components of the allowance for doubtful receivables
at March 31 were as follows:
<TABLE>
<CAPTION>
(In thousands)
ADDI- ADDI- BALANCE
BALANCE TIONS TIONS AT
AT CHARGED DUE TO END
BEGINNING TO ACQUISI- DEDUC- OF
OF PERIOD EARNINGS TIONS TIONS* PERIOD
---------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
2000 $ 10,217 $ 2,473 -- $ 2,149 $ 10,541
========== ========= ========= ======= ========
1999 $ 6,756 $ 1,507 $ 2,820 $ 866 $ 10,217
1998 $ 6,280 $ 965 -- $ 489 $ 6,756
========== ========= ========= ======= ========
<FN>
* Bad debts charged off less recoveries and translation adjustments.
</TABLE>
8.LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
2000 1999
-------- --------
<S> <C> <C>
Term loan, unsecured, variable
interest (7.53% at March 31, 2000) due in
quarterly installments to 2005 $166,970 $187,000
Acquisition facility, unsecured, variable
interest (7.47% at March 31, 2000) due
in quarterly installments to 2005 62,379 70,619
Debenture, 3.5% interest due in quarterly
installments to 2004 143 151
Term loan, unsecured, variable interest
(7.53% at March 31, 2000) due to
quarterly installments to 2005 111,864 --
Revolving loan, unsecured, variable
interest due in 2005
4.87% at March 31, 2000 51,596 --
5.07% at March 31, 2000 7,604 --
<PAGE>
Term loan, collaterized, variable interest
due in quarterly installments to 2002
7.0% at March 31, 1999 -- 23,143
5.1% at March 31, 1999 -- 7,410
2.2% at March 31, 1999 -- 3,719
Term loan, collaterized, variable interest
(7.5% at March 31, 1999) due to
quarterly installments to 2004 -- 34,591
Revolving loan, collaterized, variable
interest (8.8% at March 31, 1999) due
to quarterly installments to 2004 -- 13,469
Senior subordinated note, unsecured, 13%
interest at March 31, 1999 due in 2005 -- 40,000
PIK subordinated note, unsecured, 10%
interest at March 31, 1999 due in 2007 -- 24,014
Capitalized lease obligations 1,974 1,538
Other, due in varying amounts to 2005 4,167 727
-------- --------
Total long-term obligations 406,697 406,381
Less current portion 46,349 38,279
-------- --------
Long-term portion $360,348 $368,102
======== ========
</TABLE>
<TABLE>
<CAPTION>
Minimum future principal payments on long-term obligations
subsequent to March 31, 2000 are as follows:
(In thousands)
<S> <C>
2001 $ 46,349
2002 64,435
2003 84,822
2004 86,466
2005 124,155
Thereafter 470
--------
Total $406,697
========
</TABLE>
The term loans, acquisition facility and revolving credit facility bear interest
at a variable rate which is based on a ratio of the Corporation's debt to
earnings before certain expenses. The rates were set on March 31, 2000 at 1.25%
above the London interbank market rate; U.S. LIBOR which was 6.28% for the U.S.
dollar term loans, U.K. LIBOR which was 6.22% for the pound sterling acquisition
facility and EUROBOR which was 3.82% and 3.62% for the Italian Lira and French
Franc borrowings, respectively. The European borrowings are payable in Euros
under the revolving credit facility. At March 31, 2000 the effective interest
rate was 7.53% for the U.S. dollar term loan, 7.47% for the pound sterling
acquisition facility and was between 4.87% and 5.07% for the Euro revolving loan
facility. Under these loans, the most restrictive covenants provide that
earnings before interest and taxes as a ratio to interest expense must be
greater than 2.5 to 1; consolidated net worth must be at least $154,785 and the
total debt must not exceed 400% of net worth.
The $125,000 committed revolving credit facility expires in 2005. The
Corporation can borrow in foreign currencies and U. S. dollars on this facility.
Commitment fees under the revolving credit lines are variable, ranging from 37.5
to 150 basis points on the unused balance.
The Corporation has entered into interest rate swap agreements for the
purpose of reducing its exposure to possible future changes in interest rates
applicable to the term and revolving loans. Pursuant to the terms of certain of
the agreements, the notional amounts of pound sterling 38,571 ($60,992) and
$48,571 are reduced in accordance with applicable schedules until the expiration
dates, December 31, 2001 and June 29, 2001, respectively. The pound sterling
swap compares a fixed rate of 5.418% to the U.K. LIBOR rate every 3 months as a
basis for payment or receipt of the rate differential and the U.S. dollar swap
compares a fixed rate of 5.63% to the U.S. LIBOR rate every three months as a
basis for payment or receipt of the rate differential, as applied to the then
covered notional amount for each. Pursuant to the terms of certain other of the
agreements, the notional amounts of Euro 6,817 ($6,518) and Euro 7,747 ($7,407)
expire June 30, 2004 and June 30, 2005, respectively. The Euro rate swaps
compare a fixed rate of 4.88% and 4.90%, respectively, to the EUROBOR every
three months as a basis for payment or receipt of the rate differential as
applied to the notional amount for each.
9.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 chemicals supplied by Advanced Surface Finishes are used for a
broad range of purposes including finishing metals and non metallic surfaces,
electro-plating metal surfaces, etching, imaging, metallization, offshore fluids
and cleaning. The chemicals supplied by Graphic Arts are used for diverse
purposes including offset blankets, printing plates, textile blankets and
rubber-based covers for industrial rollers used in the printing industry.
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 which follow are reconciled to total consolidated assets
using a corporate-wide line item, which consists primarily of deferred tax
assets, equity method investments and certain other long term assets not
associated with support of the operations.
<TABLE>
<CAPTION>
Worldwide operations are summarized by business segment in the following
tables:
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS:
Graphic Arts $291,425 $264,577 $253,769
Advanced Surface Finishes 464,621 346,027 274,798
--------- --------- ---------
Consolidated Net Sales $756,046 $610,604 $528,567
========= ========= =========
OPERATING PROFIT:
Graphic Arts $ 58,143 $ 59,818 $ 54,624
Advanced Surface Finishes 76,067 58,930 48,155
--------- --------- ---------
134,210 118,748 102,779
Amortization of Intangibles (17,563) (12,330) (9,999)
Merger Costs (7,617) 0 0
Purchased R&D 0 0 (10,495)
--------- --------- ---------
Consolidated Operating Profit $109,030 $106,418 $ 82,285
========= ========= =========
AMORTIZATION:
Graphic Arts $ 7,030 $ 6,445 $ 6,598
Advanced Surface Finishes 10,533 5,885 3,401
--------- --------- ---------
Consolidated Amortization $ 17,563 $ 12,330 $ 9,999
========= ========= =========
DEPRECIATION:
Graphic Arts $ 9,815 $ 8,375 $ 7,937
Advanced Surface Finishes 9,026 6,059 4,870
Corporate-wide 54 88 85
--------- --------- ---------
Consolidated Depreciation $ 18,895 $ 14,522 $ 12,892
========= ========= =========
CAPITAL EXPENDITURES:
Graphic Arts $ 11,826 $ 15,286 $ 6,509
Advanced Surface Finishes 10,108 4,750 7,649
Corporate-wide 2,105 0 0
--------- --------- ---------
Consolidated Capital Spending. $ 24,039 $ 20,036 $ 14,158
========= ========= =========
IDENTIFIABLE ASSETS:
Graphic Arts $314,215 $321,553 $290,948
Advanced Surface Finishes 453,714 392,065 190,312
Corporate-wide 22,563 23,671 16,935
--------- --------- ---------
Consolidated Assets $790,492 $737,289 $498,195
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Worldwide operations are summarized by geographic region in the following table as determined by the
customer location:
(In thousands)
UNITED STATES OTHER AMERICAS EUROPE ASIA PACIFIC CONSOLIDATED
-------------- --------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
2000
-----------------------------------
Net sales to unaffiliated customers $ 359,746 $ 28,687 $246,300 $ 121,313 $ 756,046
Operating profit 53,780 7,804 27,736 19,710 109,030
Identifiable assets 337,332 13,592 365,363 74,205 790,492
1999
-----------------------------------
Net sales to unaffiliated customers $ 342,721 $ 22,946 $156,383 $ 88,554 $ 610,604
Operating profit 71,319 6,207 17,396 11,496 106,418
Identifiable assets 377,830 5,830 292,255 61,374 737,289
1998
-----------------------------------
Net sales to unaffiliated customers $ 307,372 $ 22,513 $107,513 $ 91,169 $ 528,567
Operating profit 50,792 6,388 13,033 12,072 82,285
Identifiable assets 344,346 4,060 100,001 49,788 498,195
</TABLE>
10.SHAREHOLDERS 'EQUITY
The Corporation's Restated Certificate of Incorporation provides for 75 million
authorized common shares.
During fiscal 1998 the Board of Directors authorized a three-for-one stock
split. The shares were distributed on April 1, 1998. As a result, $7,852 was
transferred from additional paid in capital and $18,325 transferred from
retained earnings to the common stock account.
Common shares issued are summarized in the following table at March 31:
<TABLE>
<CAPTION>
SHARES
----------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCK:
Balance - beginning of year 45,411,775 45,264,104 44,399,633
Shares issued - stock options -- 90,000 787,368
Shares issued - stock awards 550 57,671 77,103
---------- ---------- ----------
Balance - end of year 45,412,325 45,411,775 45,264,104
========== ========== ==========
</TABLE>
As of March 31, 2000, there are 1,001,352 shares of the Corporation's
common stock which are issuable upon exercise of warrants held by Citicorp
Mezzanine Partners, L.P. Under terms of the warrants Citicorp Mezzanine
Partners, L.P. may purchase the common shares at an exercise price of
approximately $.001 per share, at any time between December 29,1999 and December
29, 2004, inclusive. On July 22, 1998, the Board of Directors authorized the
purchase of up to 1,000,000 shares of the Corporation's common stock. On
November 16, 1999, the Board of Directors reduced this authorization to 200,000,
to be acquired through open market purchases or privately negotiated
transactions from time to time. Any future repurchases under this authorization
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 without further shareholder action (except as required by applicable law
or the rules of any securities exchange on which the shares are then listed).
Such shares may be used for various Corporate purposes, including contributions
under existing or future employee benefit plans, the acquisition of other
businesses and the distribution of stock dividends. Common stock repurchases of
98,234 shares in 1999, at prices ranging from $32 1/4 to $41 1/8 per share, were
completed pursuant to board authorizations. At March 31, 2000, there was a
balance of such outstanding authorizations totaling 184,120 shares.
11.LEASE COMMITMENTS
The Corporation leases certain warehouse space, transportation, computer and
other equipment which expire at various dates through 2007. In addition, the
Corporation has leased equipment at customers which are generally subject to
sublease agreements. Contingent rentals are paid for warehouse space on the
basis of the monthly quantities of materials stored and for transportation and
other equipment on the basis of mileage or usage. Total rental expense amounted
to $9,044, $7,993, and $7,131 in 2000, 1999 and 1998, respectively, of which
$1,372, $1,296, and $1,169, respectively, were contingent rentals.
Minimum lease commitments under operating leases for the fiscal years
subsequent to March 31, 2000 are as follows:
<TABLE>
<CAPTION>
(In thousands)
COMMITMENTS SUBLEASE NET COMMITMENTS
<S> <C> <C> <C>
2001 $ 7,952 $ 2,397 $ 5,555
2002 4,656 1,412 3,244
2003 3,524 368 3,156
2004 1,108 167 941
2005 301 -- 301
Thereafter 186 -- 186
------------ --------- ----------------
Total $ 17,727 $ 4,344 $ 13,383
============ ========= ================
</TABLE>
12.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.
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 very 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.
MANAGEMENT'S STATEMENT OF FINANCIAL RESPONSIBILITY
MacDermid, Incorporated (Logo)
245 Freight Street
Waterbury, CT 06702
To The Shareholders
MacDermid, Incorporated
The financial information in this report, including the audited
consolidated financial statements, has been prepared by management. Preparation
of consolidated financial statements and related data involves the use of
judgment. Accounting principles used in preparing consolidated financial
statements are those that are generally accepted in the United States.
To safeguard Corporate assets, it is important to have a sound but dynamic
system of internal controls and procedures that balances benefits and costs.
The Corporation employs professional financial managers whose responsibilities
include implementing and overseeing the financial control system, reporting on
management's stewardship of assets entrusted to it by share owners and
performing accurate and proper maintenance of the accounts.
Management has long recognized its responsibility for conducting the
affairs of the Corporation and its affiliates in an ethical and socially
responsible manner. MacDermid, Incorporated is dedicated to the highest
standards of integrity. Integrity is not an occasional requirement, but a
continuing commitment.
KPMG LLP conducts an objective, independent review of management's
fulfillment of its obligations relating to the fairness of reported operating
results and financial condition. Their report for 2000 appears below this
statement.
The Audit Committee of the Board of Directors, consisting solely of
Directors independent of MacDermid, Incorporated maintains an ongoing appraisal
on behalf of the share owners of the effectiveness of the independent auditors
and the Corporation's staff of financial and operating management with respect
to the financial and internal controls.
/s/Daniel H. Leever
Chairman of the Board and Chief Executive Officer
INDEPENDENT AUDITORS' REPORT
KPMG LLP (Logo)
Certified Public Accountants City Place II
Hartford, CT 06103-4103
The Board of Directors and Shareholders
MacDermid, Incorporated
We have audited the accompanying consolidated balance sheets of MacDermid,
Incorporated and subsidiaries as of March 31, 2000 and 1999, and the related
consolidated statements of earnings, comprehensive income, cash flows and
changes in shareholders' equity for each of the years in the three-year period
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
The consolidated financial statements of MacDermid, Incorporated as of and
for the year ended March 31, 2000, have been restated to reflect the
pooling-of-interests transaction with PTI, Inc. as described in Notes 1(a) and
1(q) to the consolidated financial statements. We did not audit the financial
statements of PTI, Inc, as of and for the year ended December 31, 1998 which
statements reflect total assets constituting 31% and total revenues constituting
37% of the related consolidated fiscal year March 31, 1999 totals. We did not
audit the financial statements of PTI Inc. for the year ended December 31, 1997
which financial statements reflect total revenues constituting 41% percent of
the related consolidated fiscal year 1998 totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for PTI, Inc. as of and for the
year ended December 31, 1998, and for the year ended December 31, 1997, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of MacDermid,
Incorporated and subsidiaries as of March 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2000 in conformity with generally accepted accounting
principles.
/s/KPMG LLP
May 12, 2000
<TABLE>
<CAPTION>
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except share and per share amounts)
OPERATING RESULTS 2000 1999 1998 1997 1996
------------------------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 756,046 $ 610,604 $ 528,567 $ 440,297 $ 383,330
Gross Profit $ 356,902 $ 292,936 $ 257,961 $ 212,947 $ 175,169
Income Before Extraordinary Charge $ 49,120 $ 55,626 $ 31,389 $ 28,598 $ 12,383
Net Earnings Available for Common Shareholders $ 45,358 $ 55,626 $ 29,758 $ 26,762 $ 11,783
Diluted Earnings Per Common Share (1) $ 1.40 $ 1.72 $ 0.92 $ 0.83 $ 0.36
FINANCIAL POSITION AT YEAR END
------------------------------------------------
Working Capital $ 133,318 $ 117,643 $ 99,637 $ 73,005 $ 88,752
Current Ratio 1.7 1.6 1.8 1.7 1.9
Capital Expenditures $ 24,039 $ 20,036 $ 14,158 $ 11,669 $ 7,973
Total Assets $ 790,492 $ 737,289 $ 498,195 $ 400,123 $ 416,618
Long-term Debt (Includes Short-term Portion) $ 406,697 $ 406,381 $ 263,567 $ 185,376 $ 214,252
Percent of Total Capitalization
(Excluding Preferred Stock) 65.6 71.3 71.3 67.8 72.2
Redeemable Preferred Stock -- -- -- 32,436 30,600
OTHER DATA
------------------------------------------------
Return On Sales (%) 6.0 9.1 5.6 6.1 3.1
Return On Average Common Equity (%) 24.1 41.3 30.6 31.4 17.4
Cash Provided by Operations 59,834 80,456 55,610 49,087 36,724
Cash Provided By (Used In) Investing Activities (36,937) (195,697) (94,281) (10,161) (115,703)
Cash Provided By (Used In) Financing Activities (22,793) 129,968 39,255 (41,362) 63,020
EBITDA (2) $ 144,553 $ 135,958 $ 104,436 $ 84,691 $ 57,221
SHARE DATA
------------------------------------------------
Common Shareholders' Equity $ 213,254 $ 163,350 $ 106,315 $ 88,136 $ 82,135
Book Value Per Common Share (1) $ 6.85 $ 5.24 $ 3.42 $ 2.88 $ 2.64
Cash Dividends Per Common Share (1) $ 0.08 $ 0.08 $ 0.07 $ 0.0667 $ 0.0667
Common Shares Outstanding (1)
Diluted Average During Year 32,429,450 32,421,296 32,183,821 32,368,481 32,709,295
Outstanding At Year-end 31,155,921 31,155,374 31,094,531 30,560,084 31,146,704
Stock Price (1)
High 46 3/4 42 3/8 37 13 8 1/32
Low 22 3/16 23 3/8 11 19/32 7 5/32 4 10/16
Year-end 26 1/2 33 15/16 28 3/4 11 19/32 7 5/16
<FN>
(1) Share and per share data have been restated to reflect the effects of 3-for-1 stock splits effective; February 6,
1998 and November 15, 1996.
(2) Represents earnings from operations before interest, taxes on earnings, depreciation and amortizations. 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.
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(In thousands, except share and per share amounts)
SELECTED QUARTERLY RESULTS
2000 BY QUARTERS
-----------------
JUNE SEPTEMBER DECEMBER MARCH TOTAL
-------- ---------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $182,157 $ 182,552 $ 201,546 $189,791 $756,046
Gross Profit 87,797 86,523 94,956 87,626 356,902
Net Earnings 14,258 11,939 6,427 12,734 45,358
Diluted earnings per common share $ 0.44 $ 0.37 $ 0.20 $ 0.39 $ 1.40
1999 by Quarters
-----------------
June September December March Total
-------- ---------- ----------------- -------- --------
Net Sales $137,328 $ 143,095 $ 151,407 $178,774 $610,604
Gross Profit 66,469 67,901 72,181 86,385 292,936
Net Earnings 12,582 13,044 12,771 17,229 55,626
Diluted earnings per common share $ 0.39 $ 0.40 $ 0.39 $ 0.53 $ 1.72
</TABLE>
<TABLE>
<CAPTION>
MARKET RANGE TRADING RECORD
FISCAL 2000 Fiscal 1999
<S> <C> <C> <C> <C> <C> <C>
QUARTER HIGH LOW High Low
-------- ------- -------- --------
June 46 1/2 32 42 3/8 27 13/16
September 46 3/4 28 7/8 40 1/2 23 3/8
December 41 7/16 30 9/16 39 1/8 29 7/8
March 41 13/16 22 3/16 41 15/16 32 3/4
Closing price March 31 26 1/2 33 15/16
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND RECORD
FISCAL 2000 Fiscal 1999
<S> <C> <C> <C> <C> <C> <C>
RECORD PAYABLE AMOUNT Record Payable Amount
DATE DATE DECLARED Date Date Declared
-------- ----------- --------- -------- ----------- ---------
QUARTER
June 6/15/99 7/1/99 $ 0.02 6/15/98 7/1/98 $ 0.02
September 9/15/99 10/1/99 $ 0.02 9/15/98 10/1/98 $ 0.02
December 12/15/99 1/10/00 $ 0.02 12/15/98 1/4/99 $ 0.02
March 3/15/00 4/3/00 $ 0.02 3/15/99 4/1/99 $ 0.02
</TABLE>
CORPORATE INFORMATION
DIRECTORS:
DANIEL H. LEEVER, Chairman of the Board and Chief Executive Officer
R. NELSON GRIEBEL, President and Chief Operating Officer
HAROLD LEEVER, Chairman Emeritus
DONALD G. OGILVIE, Executive Vice President,
American Bankers Association
JOSEPH M. SILVESTRI, Vice President of Citicorp Venture Capital Ltd.
JAMES C. SMITH, Chairman of the Board and Chief Executive
Officer, Webster Financial Corporation
THOMAS W. SMITH, General Partner of Prescott Investors
CORPORATE OFFICERS:
DANIEL H. LEEVER, Chairman of the Board and Chief Executive Officer
R. NELSON GRIEBEL, President and Chief Operating Officer
STEPHEN LARGAN, Vice President, Finance
GREGORY M. BOLINGBROKE, Controller and Chief Accountant
MARY ANNE TILLONA, Secretary
CORPORATE HEADQUARTERS:
245 Freight Street
Waterbury, Connecticut 06702
(203) 575-5700
AUDITORS:
KPMG LLP
REGISTRAR OF STOCK AND TRANSFER AGENT:
Harris Trust Company of New York
For more Corporate information, please go to our web site:
WWW.MACDERMID.COM
SEC FORM 10-K:
The Annual Report and the SEC Form 10-K report are available at the
Corporation's website (www.macdermid.com) and also without charge by written
request to:
Corporate Secretary
MacDermid, Incorporated
245 Freight Street
Waterbury, CT 06702
DIVIDEND REINVESTMENT PLAN:
A systematic investment service is available to all MacDermid shareholders. The
service permits investment of MacDermid, Incorporated dividends and voluntary
cash payments in additional shares of MacDermid stock.
Please direct any inquiries to:
Harris Trust Company of New York
c/o Harris Trust and Savings Bank
Dividend Reinvestment Department
P.O. Box A3309
Chicago, IL 60690
SHAREHOLDERS 'QUESTIONS:
Shareholders with questions concerning non-receipt of dividend checks, transfer
requirements, registration and address changes, or who need a duplicate 1099
statement, should write to:
Harris Trust Company of New York
c /o Harris Trust and Savings Bank
111 West Monroe, P.O. Box 755
Chicago, IL 60690
MARKET & DIVIDEND INFORMATION:
The common shares of MacDermid, Incorporated are traded on the New York Stock
Exchange (Symbol: MRD). Price and shares traded are listed in principal daily
newspapers and are supplied by NYSE. Approximate number of Holders as of May 31,
2000 - 800. CUSIP-554273 102.
ANNUAL MEETING:
The Annual Meeting of Shareholders will be held on Wednesday, July 19, 2000 at
3:00 p.m., at Naugatuck Valley Community-Technical College, Fine Arts Center,
750 Chase Parkway, Waterbury, CT.
Shareholders please note that an employee information session will be held at
the annual shareholders meeting site beginning at 1:00 p.m., just prior to the
start of the shareholders meeting on Wednesday July 19, 2000. All shareholders
are cordially invited to attend this information session as well.
