UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549 - 1004
FORM 10-Q/A
Amendment No 1 to Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
---------------
[ ] TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER 1-13889
-------
MacDermid, Incorporated
-----------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0435750
-------------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 Freight Street, Waterbury, Connecticut 06702
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 575-5700
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- --------
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Act.
Yes X No
--- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 2004
------------------------------ ---------------------------------
Common Stock, no par value 30,297,727 shares
Introductory Note
This Form 10-Q/A is being filed solely for the purpose of making revisions to
Item 4, Controls and Procedures, previously included in our Form 10-Q for the
period ended June 30, 2004. In addition, we have included updated and amended
certifications related to these changes:
- Exhibit 31.1 Principal Financial Officer Certification Under Section 302
of the Sarbanes-Oxley Act of 2002
- Exhibit 31.2 Principal Executive Officer Certification Under Section 302
of the Sarbanes-Oxley Act of 2002
- Exhibit 32 Written Statement of Chief Executive Officer and Chief
Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. Section 1350) and for the purpose of complying with Rule
13a-14(b) of the Securities Exchange Act of 1934
These items are hereby amended and restated to include a statement that our
principal executive and financial officer have evaluated the effectiveness of
our disclosure controls as of the date of this report. The date of our
certifications has been updated to include the amended information.
Except as described above, we have not amended or modified the financial
information or other disclosures contained in our Form 10-Q as originally filed.
This Form 10-Q/A does not reflect events occurring after the filing of the
original Form 10-Q, nor does it modify or update the disclosures therein in any
way other than as required to reflect the amendments described above and set
forth below. The following represents our Form 10-Q in its entirety including
amendments to only those items set forth above.
MACDERMID, INCORPORATED
INDEX
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2004 and
December 31, 2003
Consolidated Statements of Earnings for the three- and six-
month periods ended June 30, 2004, and 2003
Consolidated Statements of Cash Flows for the three-and six-
month periods ended June 30, 2004, and 2003
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II: Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
MACDERMID, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars)
June 30, December 31,
2004 2003
------------ -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 90,919 $ 61,294
Accounts receivable, net of allowance
for doubtful receivables of $12,075
and $11,908, respectively. . . . . . . . . . . . 140,285 137,149
Inventories. . . . . . . . . . . . . . . . . . . 77,039 75,775
Prepaid expenses . . . . . . . . . . . . . . . . 9,290 8,137
Deferred income taxes. . . . . . . . . . . . . . 22,534 22,960
------------ -------------
Total current assets . . . . . . . . . . . . 340,067 305,315
Property, plant and equipment, net
of accumulated depreciation of
$173,252 and $172,741, respectively. . . . . . . 106,907 113,642
Goodwill . . . . . . . . . . . . . . . . . . . . 194,200 194,200
Intangibles, net of accumulated amortization of
$11,144 and $10,266, respectively. . . . . . . . 29,211 30,061
Deferred income taxes. . . . . . . . . . . . . . 32,678 31,759
Other assets, net. . . . . . . . . . . . . . . . 18,202 22,258
------------ -------------
$ 721,265 $ 697,235
============ =============
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars except share and per share amounts)
June 30, December 31,
2004 2003
------------ -------------
(Unaudited)
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable. . . . . . . . . . . . . . $ 51,363 $ 54,061
Accrued compensation. . . . . . . . . . . . 10,138 11,860
Accrued interest. . . . . . . . . . . . . . 12,730 12,732
Accrued income taxes payable. . . . . . . . 7,149 3,220
Other current liabilities . . . . . . . . . 43,217 43,750
------------ --------------
Total current liabilities . . . . . . . 124,597 125,623
Long-term obligations . . . . . . . . . . . 301,127 301,203
Retirement benefits, less current portion . 20,123 20,679
Deferred income taxes . . . . . . . . . . . 7,209 6,232
Other long-term liabilities . . . . . . . . 4,391 4,486
------------ --------------
Total liabilities . . . . . . . . . . . 457,447 458,223
------------ --------------
Shareholders' equity:
Common stock, authorized 75,000,000
shares, issued 46,827,701 at June 30, 2004,
and 46,813,138 shares at December 31,
2003, at stated value of $1.00 per share. . 46,828 46,813
Additional paid-in capital. . . . . . . . . 29,187 25,884
Retained earnings . . . . . . . . . . . . . 302,558 278,705
Accumulated other comprehensive income. . . (42) 2,355
Less - cost of common shares held in
treasury, 16,547,686 at June 30, 2004,
16,548,604 at December 31, 2003.. . . . . . (114,713) (114,745)
------------ --------------
Total shareholders' equity. . . . . . . 263,818 239,012
------------ --------------
Total liabilities and shareholders' equity $ 721,265 $ 697,235
============ ==============
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands of dollars except per share amounts)
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2004 2003 2004 2003
----------------------------- ------------------------ --------- ---------
Net sales . . . . . . . . . . . . . . . $ 165,053 $ 155,320 $327,065 $308,123
Cost of sales . . . . . . . . . . . . . 86,979 81,526 171,465 161,787
----------------------------- ------------------------ --------- ---------
Gross profit. . . . . . . . . . . . 78,074 73,794 155,600 146,336
Operating expenses:
Selling, technical and administrative 46,227 43,499 91,587 86,785
Research and development. . . . . . . 5,196 4,860 10,553 9,726
----------------------------- ------------------------ --------- ---------
51,423 48,359 102,140 96,511
----------------------------- ------------------------ --------- ---------
Operating profit. . . . . . . . . . 26,651 25,435 53,460 49,825
Other income (expense):
Interest income . . . . . . . . . . . 184 321 412 506
Interest expense. . . . . . . . . . . (7,848) (8,046) (15,667) (15,669)
Miscellaneous income. . . . . . . . . 697 132 439 339
----------------------------- ------------------------ --------- ---------
(6,967) (7,593) (14,816) (14,824)
Earnings from continuing operations
before income taxes . . . . . . . . . 19,684 17,842 38,644 35,001
Income taxes. . . . . . . . . . . . . . (6,299) (5,708) (12,366) (11,199)
----------------------------- ------------------------ --------- ---------
Earnings from continuing operations . . 13,385 12,134 26,278 23,802
Discontinued operations, net of tax . . - (4) - (106)
----------------------------- ------------------------ --------- ---------
Net earnings. . . . . . . . . . . . . . $ 13,385 $ 12,130 $ 26,278 $ 23,696
============================= ======================== ========= =========
Basic earnings per common share:
Continuing operations. . . . . . . . $ 0.44 $ 0.38 $ 0.87 $ 0.75
Discontinued operations. . . . . . . - - - (0.01)
----------------------------- ------------------------ --------- ---------
Net earnings per common share . . $ 0.44 $ 0.38 $ 0.87 $ 0.74
============================= ======================== ========= =========
Diluted earnings per common share:
Continuing operations. . . . . . . . $ 0.43 $ 0.38 $ 0.85 $ 0.74
Discontinued operations. . . . . . . - - - -
----------------------------- ------------------------ --------- ---------
Net earnings per common share. . . $ 0.43 $ 0.38 $ 0.85 $ 0.74
============================= ======================== ========= =========
Weighted average common shares
outstanding:
Basic . . . . . . . . . . . . . . . . 30,280 31,526 30,274 31,908
============================= ======================== ========= =========
Diluted . . . . . . . . . . . . . . . 31,014 31,721 31,029 32,091
============================= ======================== ========= =========
Cash dividends per common share . . . . $ 0.04 $ 0.02 $ 0.08 $ 0.04
============================= ======================== ========= =========
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of dollars)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
---------------------------
2004 2003
--------------------------- ---------
Net cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . $ 26,278 $ 23,696
Adjustments to reconcile net income to
net income from continuing operations:
Loss from discontinued operations, net of tax - 106
--------------------------- ---------
Income from continuing operations. . . . . . . 26,278 23,802
Adjustments to reconcile earnings from
continuing operations to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . 8,114 7,943
Amortization . . . . . . . . . . . . . . . . . 1,451 1,620
Provision for bad debts. . . . . . . . . . . . 1,507 2,538
Deferred income taxes. . . . . . . . . . . . . 128 -
Stock compensation expense . . . . . . . . . . 3,032 2,185
Changes in assets and liabilities
(Increase) decrease in receivables. . . . . (6,824) 348
Increase in inventories . . . . . . . . . . (2,269) (1,221)
Decrease in prepaid expenses. . . . . . . . (1,210) (1,370)
Increase (decrease) in accounts payable . . (3,117) 778
Increase (decrease) in accrued expenses . . (1,411) 685
Increase in income tax liabilities. . . . . 3,943 2,201
Other . . . . . . . . . . . . . . . . . . . 4,508 2,988
--------------------------- ---------
Cash provided by continuing operations . . . . 34,130 42,497
Cash provided by discontinued operations . . . - 2,513
--------------------------- ---------
Net cash flows provided by operating
Activities . . . . . . . . . . . . . . . . . . 34,130 45,010
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . (2,981) (2,753)
Proceeds from disposition of fixed assets. . 537 52
--------------------------- ---------
Net cash flows used in investing activities. (2,444) (2,701)
Cash flows from financing activities:
Net repayments of short-term borrowings. . . (498) (5,674)
Proceeds from long-term borrowings . . . . . 25 3,570
Repayments of long-term borrowings . . . . . (267) (3,488)
Issuance from (purchase of) treasury shares. 31 (30,460)
Proceeds from exercise of stock options. . . 285 -
Dividends paid . . . . . . . . . . . . . . . (1,212) (1,293)
--------------------------- ---------
Net cash flows used in financing activities. (1,636) (37,345)
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . (425) 1,320
--------------------------- ---------
Net increase in cash and cash equivalents. . . 29,625 6,284
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . 61,294 32,019
--------------------------- ---------
Cash and cash equivalents at end of period . . $ 90,919 $ 38,303
=========================== =========
Cash paid for interest . . . . . . . . . . . . $ 15,078 $ 16,136
=========================== =========
Cash paid for income taxes . . . . . . . . . . $ 5,355 $ 4,827
=========================== =========
See accompanying notes to consolidated financial statements.
MACDERMID, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except share and per share amounts)
NOTE 1. Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements reflect all normal
and recurring adjustments that are, in the opinion of management, necessary to
present fairly the financial position of MacDermid, Incorporated and its
subsidiary companies as of June 30, 2004, and the results of operations and cash
flows for the three- and six-month periods ended June 30, 2004, and 2003. The
results of operations for these periods are not necessarily indicative of
trends, or of the results to be expected for the full year. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our Annual Report for the year ended December 31, 2003.
Unless otherwise noted in this report, any description of us includes MacDermid,
Inc. (MacDermid) as a consolidated entity, the Advanced Surface Finishing
segment (ASF), the MacDermid Printing Solutions segment (MPS), and our other
corporate entities.
Certain amounts in our 2003 results have been reclassified to conform to the
current year presentation.
NOTE 2. Earnings Per Common Share and Other Common Share Information
Earnings per share ("EPS") is calculated based upon net earnings available for
common shareholders. The computation of basic earnings per share is based upon
the weighted average number of outstanding common shares. The computation of
diluted earnings per share is based upon the weighted average number of
outstanding common shares plus the effect of all dilutive contingently issuable
common shares from stock options, stock awards and warrants that were
outstanding during the period, under the treasury stock method. Options to
purchase 1,287,100 and 1,909,847 shares of common stock were outstanding during
the periods ended June 30, 2004, and 2003, but were not included in the
computation of diluted EPS because those options would be antidilutive based on
market prices as of June 30, 2004.
The following table reconciles basic weighted-average common shares outstanding
to diluted weighted-average common shares outstanding:
Three Months Ended Six months ended
June 30, June 30,
------------------------------------------------------ ----------------------
2004 2003 2004 2003
--------------------------- ------------------------- ---------- ----------
Basic common shares. . . . . . . 30,279,910 31,526,408 30,273,670 31,908,054
Dilutive effect of stock options 734,464 194,551 754, 857 183,091
--------------------------- ------------------------- ---------- ----------
Diluted common shares. . . . . . 31,014,374 31,720,959 31,028,527 32,091,145
=========================== ========================= ========== ==========
On May 7, 2003, we executed a purchase and sale agreement with a third party to
acquire 2,201,720 outstanding shares of MacDermid, Incorporated common shares on
or before November 3, 2003. We purchased 1,350,000 on that date at $22.60 per
share, with the balance of the agreed-upon purchase option being exercised
during the third quarter of 2003. Share purchases are reflected in our treasury
shares balance on our Consolidated Balance Sheets. Refer to our Annual Report
for the year ended December 31, 2003, for more information. No share purchases
of this nature were made in the three or six month periods ending June 30, 2004.
NOTE 3. Stock-Based Plans
We grant stock options to our Board of Directors and to our employees. We also
grant stock award to our Board of Directors. The stock awards are granted at
fair market value and the related expense is recognized at the date of grant.
The amount of expense recognized during the three- and six-month periods ended
June 30, 2004, and 2003, related to the stock awards was immaterial. Effective
April 1, 2001, we adopted the fair value expense recognition provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS 123), prospectively, to all stock options granted, modified
or settled after April 1, 2001. Accordingly, compensation expense is measured
using the fair value at the date of grant for options granted after April 1,
2001. The resulting expense is amortized over the period in which the options
are earned. During the three- and six-month periods ended June 30, 2004, and
2003, we charged $2,962 and $2,071, respectively, to expense related to stock
options. Previously, and since April 1, 1996, we had adopted the
disclosure requirements of SFAS 123 and continued to account for our stock
options by applying the expense recognition provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25").
Had we used the fair value expense recognition method of accounting for all
stock options granted under its plans between April 1, 1996, and April 1, 2001,
net earnings and net earnings per common share for the three- and six-month
periods ended June 30, 2004, and 2003, would have been reduced to the following
pro forma amounts:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------- -------------------
2004 2003 2004 2003
------------------------------ --------------------------- -------- --------
Net earnings available for common
shareholders as reported. . . . . . . . . . $ 13,385 $ 12,130 $26,278 $23,696
------------------------------ --------------------------- -------- --------
Add: stock based employee compensation
expense included in reported net income,
net of related tax effects. . . . . . . . . 1,001 785 2,062 1,486
Deduct: total stock based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects. . . . . . . . . . . (1,001) (863) (2,140) (1,724)
------------------------------ --------------------------- -------- --------
Pro forma net earnings. . . . . . . . . . . $ 13,385 $ 12,052 $26,200 $23,458
============================== =========================== ======== ========
Net earnings per common share:
Basic
As reported . . . . . . . . . . . . . . $ 0.44 $ 0.38 $ 0.87 $ 0.74
Pro forma . . . . . . . . . . . . . . . $ 0.44 $ 0.38 $ 0.87 $ 0.74
Diluted
As reported . . . . . . . . . . . . . . $ 0.43 $ 0.38 $ 0.85 $ 0.74
Pro forma . . . . . . . . . . . . . . . $ 0.43 $ 0.38 $ 0.84 $ 0.73
NOTE 4. Goodwill and Other Intangible Assets
Acquired intangible assets as of June 30, 2004, and December 31, 2003, are as
follows:
As of
June 30, 2004 December 31, 2003
--------------------------------------------- ----------------------------------------
Gross Carrying Accumulated Net Gross Carrying Accumulated Net
Amount Amortization Amount Amount Amortization Amount
--------------- ------------------- ------- --------------- -------------- -------
Patents. . $ 17,581 $ (7,510) $10,071 $ 17,566 $ (6,851) $10,715
Trademarks 20,153 (2,030) 18,123 20,133 (1,951) 18,182
Others . . 2,621 (1,604) 1,017 2,628 (1,464) 1,164
--------------- ------------------- ------- --------------- -------------- -------
Total . $ 40,355 $ (11,144) $29,211 $ 40,327 $ (10,266) $30,061
=============== =================== ======= =============== ============== =======
Included in the table above is the net carrying amount of $16,256 at June 30,
2004, and December 31, 2003, for trademarks which are not being amortized due to
the indefinite life associated with these assets. Amortization expense related
to amortization of intangible assets for the three month periods ending June 30,
2004, and 2003, was $441 and $562, respectively. Amortization expense related
to amortization of intangible assets for the six month periods ending June 30,
2004, and 2003, was $878 and $1,062, respectively.
Useful lives for amortizable patents are approximately 15 years. Other
intangible assets have useful lives of 5 to 30 years.
Amortization expense for intangible assets is expected to approximate $1,756 for
each of the next five years.
Goodwill carrying amounts for the periods ended June 30, 2004, and December 31,
2003, totaled $194,200 and, by segment, were: Advanced Surface Finishing,
$122,070, and Printing Solutions, $72,130.
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), stipulates that we are required to perform
goodwill and other intangible asset impairment tests on at least an annual basis
and more frequently in certain circumstances. We will perform our annual
impairment testing for 2004 during our fourth fiscal quarter. Currently, we are
not aware of any event that occurred since our last impairment testing date that
would have caused our goodwill or intangible assets to become impaired.
NOTE 5. Comprehensive Income
The components of comprehensive income for the three- and six-month periods
ended June 30, 2004, and 2003, are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------- -----------------
2004 2003 2004 2003
------------------------------ -------------------------- -------- -------
Net earnings. . . . . . . . . . . . . . . $ 13,385 $ 12,130 $26,278 $23,696
Other comprehensive income:
Foreign currency translation adjustment (2,997) 6,470 (2,397) 9,315
------------------------------ -------------------------- -------- -------
Comprehensive income. . . . . . . . . . . $ 10,388 $ 18,600 $23,881 $33,011
============================== ========================== ======== =======
NOTE 6. Segment Reporting
We operate on a worldwide basis, supplying proprietary chemicals for two
distinct segments, Advanced Surface Finishing and Printing Solutions. These
segments are managed separately as each segment has differences in technology
and marketing strategies. Chemicals supplied by the Advanced Surface Finishing
segment are used for cleaning, activating, polishing, mechanical plating and
galvanizing, electro-plating, phosphatising, stripping and coating, filtering,
anti-tarnishing and rust retarding for metal and plastic surfaces associated
with automotive and industrial applications. The Advanced Surface Finishing
segment also supplies chemicals for etching copper and imprinting electrical
patterns for various electronics applications and lubricants and cleaning agents
associated with offshore oil and gas operations. The products supplied by the
Printing Solutions segment include offset printing blankets and photo-polymer
plates used in packaging and newspaper printing, offset printing applications,
and digital printers and related supplies. Net sales for all of our
products fall into one of these two business segments.
The results of operations for each business segment include certain corporate
operating costs which are allocated based on the relative burden each segment
bears on those costs. Identifiable assets for each business segment are
reconciled to total consolidated assets including unallocated corporate assets.
Unallocated corporate assets consist primarily of deferred tax assets, deferred
bond financing fees and certain other long term assets not directly associated
with the support of the individual segments. Intersegment loans and accounts
receivable are included in the calculation of identifiable assets and are
eliminated separately.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------------- --------------------
2004 2003 2004 2003
------------------------------ --------------------------- --------- ---------
Results of operations by segment:
Net sales:
Advanced Surface Finishing
Total segment net sales . . . . . . $ 98,377 $ 87,733 $193,932 $174,262
Intersegment sales. . . . . . . . . (2,001) (2,106) (4,068) (3,664)
------------------------------ --------------------------- --------- ---------
Net external sales for the segment 96,376 85,627 189,864 170,598
Printing Solutions. . . . . . . . . 68,677 69,693 137,201 137,525
------------------------------ --------------------------- --------- ---------
Consolidated net sales . . . . . $ 165,053 $ 155,320 $327,065 $308,123
============================== =========================== ========= =========
Operating profit (loss):
Advanced Surface Finishing . . . $ 15,729 $ 12,508 $ 30,466 $ 24,762
Printing Solutions . . . . . . . 10,922 12,927 22,994 25,063
------------------------------ --------------------------- --------- ---------
Consolidated operating profit. $ 26,651 $ 25,435 $ 53,460 $ 49,825
============================== =========================== ========= =========
As of
June 30, December 31,
2004 2003
---------- --------------
Identifiable assets by segment:
Advanced Surface Finishing. . . $ 490,787 $ 513,729
Printing Solutions. . . . . . . 231,002 268,204
Unallocated corporate assets. . 128,056 88,039
Intercompany eliminations . . . (128,580) (172,737)
---------- --------------
Consolidated assets. . . . . $ 721,265 $ 697,235
========== ==============
NOTE 7. Acquisition Reserves
We established acquisition reserves (included in accrued expenses) in fiscal
year 1999 when recording the acquisition of W.Canning, plc. The reorganization
of employees was completed in 2001. The reorganization of facilities is
proceeding as planned. Five facilities have been closed with those activities
assimilated elsewhere. Negotiations are ongoing regarding the elimination of
certain leased facilities and sale of owned facilities. See Note 11,
Contingencies and Legal Matters, regarding environmental activity at these
sites.
At June 30, 2004, reserves of $405 remained in other accrued liabilities on the
consolidated balance sheet, which relates to the facilities. During the three-
and six-months ended June 30, 2004, we made cash payments of $47 and $79,
respectively, relating to these reserves.
NOTE 8. Discontinued Operations
On December 9, 2003, we sold our 60% interest in Eurocir S.A. (Eurocir) to the
40% stakeholders of Eurocir. The Eurocir operations represented substantially
all of the remaining electronics manufacturing segment and as such the sale was
accounted for as discontinued operations in accordance with Statement of
Financial Accounting Standards No.144, Accounting for the Disposal or Impairment
of Long-Lived Assets ("SFAS 144"). The operating results and cash flows from
operations of the electronics manufacturing segment have therefore been
segregated from continuing operations on our consolidated statements of earnings
and consolidated statements of cash flows for all prior periods presented.
The following table presents the amounts segregated from the consolidated
statements of earnings and reflected as discontinued operations:
Three Months Ended Six Months Ended
June 30, 2003 June 30, 2003
-------------------- ------------------
Net Sales. . . . . . . . . . . . . . $ 21,790 $ 42,573
Loss before income taxes . . . . . . (4) (154)
Income tax benefit . . . . . . . . . - 48
-------------------- ------------------
Discountinued operations, net of tax $ (4) $ (106)
==================== ==================
NOTE 9.
The major components of inventory at June 30, 2004 and December 31, 2003 were as
follows:
June 30, 2004 December 31, 2003
-------------- ------------------
Finished goods . . . . . . $ 40,157 $ 37,396
Raw materials and supplies 29,794 30,062
Equipment. . . . . . . . . 7,088 8,317
-------------- ------------------
Inventories. . . . . . . . $ 77,039 $ 75,775
============== ==================
NOTE 10. Postretirement Benefits Plans
The following table shows the components of the net periodic pension benefit
costs we incurred in the three-and six-month periods ending June 30 2004, and
2003:
PENSION BENEFITS
-------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------------------- -------------------
2004 2003 2004 2003
------------------------------ --------------------------- -------- --------
Net periodic benefit cost:
Service Costs . . . . . . . . . . . $ 936 $ 894 $ 1,872 $ 1,788
Interest Costs. . . . . . . . . . . 898 820 1,796 1,640
Expected return on plan assets. . . (876) (716) (1,752) (1,432)
Amortization of prior service costs 6 6 12 12
Recognized actuarial (gain)/loss. . 83 60 166 120
------------------------------ --------------------------- -------- --------
Net periodic benefit cost . . . . . $ 1,047 $ 1,064 $ 2,094 $ 2,128
============================== =========================== ======== ========
The estimated net periodic benefit cost for our other postretirement benefits
was $160 and $320 for the three- and six-months ended June 30, 2004, and 2003,
respectively.
We previously disclosed in our financial statements for the year ended December
31, 2003, that we expected to contribute $3,136 to our pension plans in 2004.
As of June 30, 2004, $1,000 of contributions have been made. We currently
expect to contribute $2,136 to our pension plans during the remainder of 2004.
NOTE 11. Contingencies, Environmental and Legal Matters
Environmental Issues:
The nature of the our operations, as manufacturers and distributors of specialty
chemical products and systems, expose us to the risk of liability or claims with
respect to environmental cleanup or other matters, including those in connection
with the disposal of hazardous materials. As such, we are subject to extensive
U.S. and foreign laws and regulations relating to environmental protection and
worker health and safety, including those governing discharges of pollutants
into the air and water, the management and disposal of hazardous substances and
wastes, and the cleanup of contaminated properties. We have incurred, and will
continue to incur, significant costs and capital expenditures in complying with
these laws and regulations. We could incur significant additional costs,
including cleanup costs, fines and sanctions and third-party claims, as a result
of violations of or liabilities under environmental laws. In order to ensure
compliance with applicable environmental, health and safety laws and
regulations, we maintain a disciplined environmental and occupational safety and
health compliance program, which includes conducting regular internal and
external audits at our plants to identify and categorize potential environmental
exposure.
We are named as a potentially responsible party ("PRP") at two Superfund sites.
There are many other PRPs involved at these sites. We have recorded our 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 environmental investigations and
remediation estimates produced by remediation contractors. While the ultimate
costs of such liabilities are difficult to predict, we do not expect that our
costs associated with these sites will be material.
In addition, some of our facilities have an extended history of chemical
processes or other industrial activities. Contaminants have been detected at
some of these sites, with respect to which we are conducting environmental
investigations and/or cleanup activities. These sites include certain sites
acquired in the December 1998, acquisition of W. Canning plc, such as the
Kearny, New Jersey and Waukegan, Illinois sites. We have established an
environmental remediation reserve, predominantly attributable to those Canning
sites that we believe will require environmental remediation. With respect to
those sites, we also believe that our Canning subsidiary is entitled under the
Acquisition Agreement ("the acquisition agreement") to withhold a deferred
purchase price payment of approximately $1,600. We estimate the range of
cleanup costs at the Canning sites between $2,000 and $5,000. Investigations
into the extent of contamination, however, are ongoing with respect to some of
these sites. To the extent our liabilities exceed $1,600, we may be entitled to
additional indemnification payments. Such recovery may be uncertain, however,
and would likely involve significant litigation expense. We have instituted an
arbitration to enforce the obligations of other parties to the acquisition
agreement concerning the remediation of the Kearney, New Jersey and Waukegan,
Illinois sites. The arbitration has been concluded with a confirmation, in our
favor, that the former primary shareholders of the entity that operated the
Kearney, New Jersey site are responsible for its remediation to applicable state
standards and an order to establish a time line for completion of the
remediation. We expect that the remediation will take several years. We are
continuing to monitor the environmental condition at the Waukegan site.
Significant remediation activities have already been concluded on the Waukegan
site, however, it has not yet been determined whether additional remediation
activities will be required. We are also in the process of characterizing
contamination at our Huntingdon Avenue, Waterbury, Connecticut site which was
closed in the quarter ended September 30, 2003. The extent of required
remediation activities at the Huntingdon Avenue site has not yet been
determined. We do not anticipate that we will be materially affected by
environmental remediation costs, or any related claims, at any contaminated
sites, including the Canning sites and the Huntingdon Avenue, Waterbury,
Connecticut site. It is difficult, however, to predict the final costs and
timing of costs of site remediation. Ultimate costs may vary from current
estimates and reserves, and the discovery of additional contaminants at these or
other sites or the imposition of additional cleanup obligations, or third-party
claims relating thereto, could result in significant additional costs.
Legal Proceedings:
From time to time there are various legal proceedings pending against us. We
consider all such proceedings to be ordinary litigation incident to the nature
of our business. Certain claims are covered by liability insurance. We believe
that the resolution of these claims, to the extent not covered by insurance,
will not individually or in the aggregate, have a material adverse effect on its
financial position or results of operations. To the extent reasonably
estimable, reserves have been established regarding pending legal proceedings.
NOTE 12. Guarantor Financial Statements
MacDermid, Inc. ("Issuer") issued 9 1/8% Senior Subordinated Notes ("Bond
Offering") effective June 20, 2001, for the face amount of $301,500, which pay
interest semiannually on January 15th and July 15th and mature in 2011. The
proceeds were used to pay down existing long-term debt. This Bond Offering is
guaranteed by substantially all existing and future directly or indirectly
wholly-owned domestic restricted subsidiaries of MacDermid, Inc. ("Guarantors").
The Guarantors, fully, jointly and severally, irrevocably and unconditionally
guarantee the performance and payment when due of all the obligations under the
Bond Offering. Our foreign subsidiaries ("Non-Guarantors") are not guarantors
of the indebtedness under the Bond Offering.
The equity method was used by MacDermid, Inc. with respect to investments in
subsidiaries. The equity method also has been used by subsidiary guarantors
with respect to investments in non-guarantor subsidiaries. Financial statements
for subsidiary guarantors are presented as a combined entity. The financial
information includes certain allocations of revenues and expenses based on
management's best estimates, which are not necessarily indicative of the
financial position, results of operations and cash flows that these entities
would have achieved on a stand-alone basis. Therefore, these statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in our Annual Report for the year ended December 31, 2003.
The following financial information sets forth our Condensed Consolidating
Balance Sheets as of June 30, 2004, and December 31, 2003; the Condensed
Consolidating Statements of Earnings for the three- and six-month periods ending
June 30, 2004, and 2003; and the Condensed Consolidating Statements of Cash
Flows for the six months ending June 30, 2004, and 2003.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004
(Unaudited)
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
---------- ------------- -------------- -------------- -----------------
Assets
---------------------------
Current assets:
Cash and cash equivalents . $ 58,128 $ 968 $ 31,822 $ - $ 90,919
Accounts receivables, net . 11,559 17,970 110,756 - 140,285
Due (to) from affiliates. . 23,884 65,573 (89,457) - -
Inventories, net. . . . . . 6,734 23,936 46,369 - 77,039
Prepaid expenses. . . . . . 1,778 2,606 4,907 - 9,290
Deferred income taxes . . . 17,883 - 4,651 - 22,534
---------- ------------- -------------- -------------- -----------------
Total current assets. . . . 119,966 111,053 109,048 - 340,067
Property, plant and
equipment, net. . . . . . 14,071 36,673 56,163 - 106,907
Goodwill. . . . . . . . . . 21,680 68,574 103,946 - 194,200
Intangibles, net. . . . . . - 5,338 23,873 - 29,211
Investments in subsidiaries 441,298 214,385 - (655,683) -
Deferred income taxes . . . 19,745 - 12,933 - 32,678
Other assets, net . . . . . 6,538 4,850 6,814 - 18,202
---------- ------------- -------------- -------------- -----------------
$ 623,298 $ 440,873 $ 312,777 $ (655,683) $ 721,265
========== ============= ============== ============== =================
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 2004
(Unaudited)
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------- -------------- ------------- -------------- ------------------
Liabilities and Shareholders' equity
------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . 10,209 $ 7,082 $ 34,072 $ - $ 51,363
Accrued compensation . . . . . . . . 3,003 1,767 5,368 - 10,138
Accrued interest . . . . . . . . . . 12,723 - 7 - 12,730
Accrued income taxes payable . . . . 1,939 1,728 3,482 - 7,149
Other current liabilities. . . . . . 13,179 5,707 24,331 - 43,217
----------- -------------- ------------- -------------- ------------------
Total current liabilities. . . . . . 41,053 16,284 67,260 - 124,597
Long-term obligations. . . . . . . . 300,323 422 382 - 301,127
Retirement benefits, less
current portion. . . . . . . . . . . 14,690 - 5,433 - 20,123
Deferred income taxes. . . . . . . . - - 7,209 - 7,209
Other long-term liabilities. . . . . 3,414 16 961 - 4,391
----------- -------------- ------------- -------------- ------------------
Total liabilities. . . . . . . . . . 359,480 16,722 81,245 - 457,447
Shareholders' equity:
------------------------------------
Common stock . . . . . . . . . . . . 46,828 (51) 3,747 (3,696) 46,828
Additional paid-in capital . . . . . 29,187 207,561 106,939 (314,500) 29,187
Retained earnings. . . . . . . . . . 302,558 218,262 115,914 (334,176) 302,558
Accumulated other
comprehensive income . . . . . . . (42) (1,621) 4,932 (3,311) (42)
Less cost of common shares
held in treasury . . . . . . . . . (114,713) - - - (114,713)
----------- -------------- ------------- -------------- ------------------
Total shareholders' equity . . . . . 263,818 424,151 231,532 (655,683) 263,818
----------- -------------- ------------- -------------- ------------------
Total Liabilities and
Shareholders' Equity . . . . . . . . $ 623,298 $ 440,873 $ 312,777 $ (655,683) $ 721,265
=========== ============== ============= ============== ==================
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------- ------------- -------------- -------------- -----------------
Assets
----------------------------------
Current assets:
Cash and cash equivalents. . . . . $ 18,295 $ 1,286 $ 41,713 $ - $ 61,294
Accounts receivables, net. . . . . 10,598 16,523 110,028 - 137,149
Due (to) from affiliates . . . . . 89,236 12,554 (101,790) - -
Inventories, net . . . . . . . . . 6,417 23,343 46,015 - 75,775
Prepaid expenses . . . . . . . . . 1,188 1,925 5,024 - 8,137
Deferred income taxes. . . . . . . 17,890 - 5,070 - 22,960
----------- ------------- -------------- -------------- -----------------
Total current assets . . . . . . . 143,624 55,631 106,060 - 305,315
Property, plant and equipment, net 13,962 39,386 60,294 - 113,642
Goodwill . . . . . . . . . . . . . 21,680 68,574 103,946 - 194,200
Intangibles, net . . . . . . . . . - 5,672 24,389 - 30,061
Investments in subsidiaries. . . . 391,289 232,851 - (624,140) -
Deferred income taxes. . . . . . . 19,745 - 12,014 - 31,759
Other assets, net. . . . . . . . . 8,196 6,532 7,530 - 22,258
----------- ------------- -------------- -------------- -----------------
$ 598,496 $ 408,646 $ 314,233 $ (624,140) $ 697,235
=========== ============= ============== ============== =================
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2003
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------- -------------- -------------- -------------- ------------------
Liabilities and Shareholders' equity
------------------------------------------
Current liabilities:
Short-term borrowings. . . . . . . . . . . $ - $ - $ 940 $ - $ 940
Current portion of long-
term obligations. . . . . . . . . . . . - 146 412 - 558
Accounts and dividends payable . . . . . . 8,281 7,267 38,513 - 54,061
Accrued expenses . . . . . . . . . . . . . 29,157 8,511 29,176 - 66,844
Income taxes . . . . . . . . . . . . . . . 3,239 882 (901) - 3,220
----------- -------------- -------------- -------------- ------------------
Total current liabilities. . . . . . . . . 40,677 16,806 68,140 - 125,623
Long-term obligations. . . . . . . . . . . 300,265 524 414 - 301,203
Retirement benefits, less current portion
15,123 - 5,556 - 20,679
Deferred income taxes. . . . . . . . . . . - - 6,232 - 6,232
Other long-term liabilities. . . . . . . . 3,419 27 1,040 - 4,486
----------- -------------- -------------- -------------- ------------------
Total liabilities. . . . . . . . . . . . . 40,677 17,357 81,382 - 458,223
----------- -------------- -------------- -------------- ------------------
Shareholders' equity:
------------------------------------------
Common stock . . . . . . . . . . . . . . . 46,813 (50) 3,747 (3,697) 46,813
Additional paid-in capital . . . . . . . . 25,884 207,561 106,939 (314,500) 25,884
Retained earnings. . . . . . . . . . . . . 278,705 187,362 119,195 (306,557) 278,705
Accumulated other comprehensive income 2,355 (3,584) 2,970 614 2,355
Less cost of common shares
held in treasury . . . . . . . . . . . . (114,745) - - - (114,745)
----------- -------------- -------------- -------------- ------------------
Total shareholders' equity . . . . . . . . 239,012 391,289 232,851 (624,140) 239,012
----------- -------------- -------------- -------------- ------------------
Total liabilities and
stockholders' equity . . . . . . . . . . . $ 598,496 $ 408,646 $ 314,233 $ (624,140) $ 697,235
=========== ============== ============== ============== ==================
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 30, 2004
(Unaudited)
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------- -------------- -------------- -------------- ------------------
Net sales . . . . . . . . . . $ 23,819 $ 42,114 $ 103,525 $ (4,405) $ 165,053
Cost of sales . . . . . . . . 15,374 17,832 58,178 (4,405) 86,979
----------- -------------- -------------- -------------- ------------------
Gross profit. . . . . . . . . 8,445 24,282 45,347 - 78,074
Operating expenses:
Selling, technical and
administrative. . . . . . . . 11,625 7,793 26,809 - 46,227
Research and development. . . 1,622 1,831 1,743 - 5,196
----------- -------------- -------------- -------------- ------------------
13,247 9,624 28,552 - 51,423
----------- -------------- -------------- -------------- ------------------
Operating (loss) profit . . . (4,802) 14,658 16,795 - 26,651
Equity in earnings of
subsidiaries. . . . . . . . . 22,077 11,916 - (33,993) -
Interest income . . . . . . . 94 3 87 - 184
Interest expense. . . . . . . (7,783) 1,226 (1,291) - (7,848)
Miscellaneous income
(expense), net. . . . . . . . 632 (152) 217 - 697
----------- -------------- -------------- -------------- ------------------
15,020 12,993 (987) (33,993) (6,967)
----------- -------------- -------------- -------------- ------------------
Earnings (loss) before taxes. 10,218 27,651 15,808 (33,993) 19,684
Income tax benefit
(expense) . . . . . . . . . . 3,166 (5,574) (3,891) - (6,299)
----------- -------------- -------------- -------------- ------------------
Net earnings (loss) . . . . . $ 13,384 $ 22,077 $ 11,917 $ (33,993) $ 13,385
=========== ============== ============== ============== ==================
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 30, 2003
(Unaudited)
UNRESTRICTED MACDERMID
GUARANTOR NONGUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- ------------------
Net sales . . . . . . . $ 21,991 $ 42,857 $ 94,424 $ - $ (3,952) $ 155,320
Cost of sales . . . . . 13,836 18,561 53,081 - (3,952) 81,526
-------------- -------------- -------------- -------------- -------------- ------------------
Gross profit. . . . . . 8,155 24,296 41,343 - - 73,794
Operating expenses:
Selling, technical and
administrative. . . . . 10,830 8,105 24,564 - - 43,499
Research and
development . . . . . . 1,665 1,678 1,517 - - 4,860
-------------- -------------- -------------- -------------- -------------- ------------------
12,495 9,783 26,081 - - 48,359
-------------- -------------- -------------- -------------- -------------- ------------------
Operating profit (loss) (4,340) 14,513 15,262 - - 25,435
Equity in earnings of . 20,178 9,902 (4) - (30,076) -
subsidiaries
Interest income . . . . 49 90 182 - - 321
Interest expense. . . . (8,370) 1,122 (798) - - (8,046)
Miscellaneous income
(expense), net. . . . . 81 230 (179) - - 132
-------------- -------------- -------------- -------------- -------------- ------------------
11,938 11,344 (799) - - (7,593)
-------------- -------------- -------------- -------------- -------------- ------------------
Earnings (loss) from
continuing operations
before taxes. . . . . . 7,598 25,857 14,463 - (30,076) 17,842
Income tax benefit
(expense) . . . . . . . 4,532 (5,679) (4,561) - - (5,708)
-------------- -------------- -------------- -------------- -------------- ------------------
Earnings from
continuing operations . 12,130 20,178 9,902 - (30,076) 12,134
Discontinued
operations. . . . . . . - - - (4) - (4)
-------------- -------------- -------------- -------------- -------------- ------------------
Net earnings (loss) . . $ 12,130 $ 20,178 $ 9,902 $ (4) $ (30,076) $ 12,130
============== ============== ============== ============== ============== ==================
CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
----------- -------------- -------------- -------------- ------------------
Net sales . . . . . . . . . . $ 47,300 $ 81,929 $ 206,728 $ (8,892) $ 327,065
Cost of sales . . . . . . . . 31,124 34,655 114,578 (8,892) 171,465
----------- -------------- -------------- -------------- ------------------
Gross profit. . . . . . . . . 16,176 47,274 92,150 - 155,600
Operating expenses:
Selling, technical and
administrative. . . . . . . . 21,816 15,096 54,675 - 91,587
Research and development. . . 3,520 3,526 3,507 - 10,553
----------- -------------- -------------- -------------- ------------------
25,336 18,622 58,182 - 102,140
----------- -------------- -------------- -------------- ------------------
Operating profit (loss) . . . (9,160) 28,652 33,968 - 53,460
Equity in earnings of
subsidiaries. . . . . . . . . 42,621 22,550 - (65,171) -
Interest income . . . . . . . 123 10 279 - 412
Interest expense. . . . . . . (15,799) 2,436 (2,304) - (15,667)
Miscellaneous income
(expense), net. . . . . . . . 667 174 (402) - 439
----------- -------------- -------------- -------------- ------------------
27,612 25,170 (2,427) (65,171) (14,816)
----------- -------------- -------------- -------------- ------------------
Earnings (loss) before taxes. 18,452 53,822 31,541 (65,171) 38,644
Income tax benefit
(expense) . . . . . . . . . . 7,825 (11,201) (8,990) - (12,366)
----------- -------------- -------------- -------------- ------------------
Net earnings (loss) . . . . . $ 26,277 $ 42,621 $ 22,551 $ (65,171) $ 26,278
=========== ============== ============== ============== ==================
CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 2003
(Unaudited)
UNRESTRICTED MACDERMID
GUARANTOR NONGUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES
-------------- -------------- -------------- -------------- -------------- ------------------
Net sales . . . . . . . $ 45,071 $ 86,320 $ 185,305 $ - $ (8,573) $ 308,123
Cost of sales . . . . . 28,636 38,659 103,065 - (8,573) 161,787
-------------- -------------- -------------- -------------- -------------- ------------------
Gross profit. . . . . . 16,435 47,661 82,240 - - 146,336
Operating expenses:
Selling, technical and
administrative. . . . . 21,637 17,260 47,888 - - 86,785
Research and
development . . . . . . 3,295 3,429 3,002 - - 9,726
-------------- -------------- -------------- -------------- -------------- ------------------
24,932 20,689 50,890 - - 96,511
-------------- -------------- -------------- -------------- -------------- ------------------
Operating profit (loss) (8,497) 26,972 31,350 - - 49,825
Equity in earnings of
subsidiaries. . . . . . 38,596 20,185 (106) - (58,675) -
Interest income . . . . 80 106 320 - - 506
Interest expense. . . . (16,186) 2,244 (1,727) - - (15,669)
Miscellaneous income
(expense), net. . . . . 263 278 (202) - - 339
-------------- -------------- -------------- -------------- -------------- ------------------
22,753 22,813 (1,715) - (58,675) (14,824)
-------------- -------------- -------------- -------------- -------------- ------------------
Earnings (loss) from
continuing operations
before taxes. . . . . . 14,256 49,785 29,635 - (58,675) 35,001
Income tax benefit
(expense) . . . . . . . 9,440 (11,189) (9,450) - - (11,199)
-------------- -------------- -------------- -------------- -------------- ------------------
Earnings from
continuing operations . 23,696 38,596 20,185 - (58,675) 23,802
Discontinued
operations. . . . . . . - - - (106) - (106)
-------------- -------------- -------------- -------------- -------------- ------------------
Net earnings (loss) . . $ 23,696 $ 38,596 $ 20,185 $ (106) $ (58,675) $ 23,696
============== ============== ============== ============== ============== ==================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)
MACDERMID
GUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES AND SUBSIDIARIES
------------- -------------- -------------- ------------------
Net cash flows (used in)
provided by operating
activities. . . . . . . . . . . $ (9,144) $ 20,493 $ 22,781 $ 34,130
Investing activities:
Capital expenditures. . . . . . (1,260) (623) (1,098) (2,981)
Proceeds from disposition of
fixed assets. . . . . . . . . . 1 512 24 537
------------- -------------- -------------- ------------------
Net cash flows (used in)
provided by investing
activities. . . . . . . . . . . (1,259) (111) (1,074) (2,444)
Financing activities:
Net proceeds from
(repayments of) short-term
borrowings. . . . . . . . . . . 34,584 (18,400) (16,682) (498)
Proceeds from long-term
borrowings. . . . . . . . . . . - - 25 25
Repayments of long-term
borrowings. . . . . . . . . . . - (102) (165) (267)
Proceeds from exercise of
stock options . . . . . . . . . 285 - - 285
Purchase of treasury shares . . 31 - - 31
Dividends paid. . . . . . . . . 15,336 (2,198) (14,350) (1,212)
------------- -------------- -------------- ------------------
Net cash flows provided by
(used in) financing activities. 50,236 (20,700) (31,172) (1,636)
Effect of exchange rate
changes on cash and cash
equivalents . . . . . . . . . . - - (425) (425)
------------- -------------- -------------- ------------------
Net increase (decrease) in
cash and cash equivalents . . . 39,833 (318) (9,890) 29,625
Cash and cash equivalents at
beginning of period . . . . . . 18,295 1,286 41,713 61,294
------------- -------------- -------------- ------------------
Cash and cash equivalents at
end of period . . . . . . . . . $ 58,128 $ 968 $ 31,823 $ 90,919
============= ============== ============== ==================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
(Unaudited)
UNRESTRICTED MACDERMID
GUARANTOR NONGUARANTOR NONGUARANTOR INCORPORATED
ISSUER SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES AND SUBSIDIARIES
-------------- -------------- -------------- -------------- ------------------
Net cash flows (used in)
provided by operating
activities. . . . . . . . . . . $ (22,709) $ 36,899 $ 28,126 $ 2,694 $ 45,010
Investing activities:
Capital expenditures
Proceeds from disposition of. . (785) (227) (1,341) (400) (2,753)
fixed assets. . . . . . . . . . - - 52 - 52
-------------- -------------- -------------- -------------- ------------------
Net cash flows (used in)
provided by investing
activities. . . . . . . . . . . (785) (227) (1,289) (400) (2,701)
-------------- -------------- -------------- -------------- ------------------
Financing activities:
Net proceeds from
(repayments of) short-term
borrowings. . . . . . . . . . . 40,707 (31,801) (12,034) (2,546) (5,674)
Proceeds from long-term
borrowings. . . . . . . . . . . - - - 3,570 3,570
Repayments of long-term
borrowings. . . . . . . . . . . - - (269) (3,219) (3,488)
Purchase of treasury shares . . (30,460) - - - (30,460)
Net activity in investment
and advances (to) from
subsidiaries
Dividends paid. . . . . . . . . 15,189 (5,360) (11,122) - (1,293)
-------------- -------------- -------------- -------------- ------------------
Net cash flows provided by
(used in) financing activities. 25,436 (37,161) (23,425) (2,195) (37,345)
Effect of exchange rate
changes on cash and cash
equivalents . . . . . . . . . . - - 1,307 13 1,320
-------------- -------------- -------------- -------------- ------------------
Net increase (decrease) in
cash and cash equivalents . . . 1,942 (489) 4,719 112 6,284
Cash and cash equivalents at
beginning of period . . . . . . 14,153 2,314 15,268 284 32,019
-------------- -------------- -------------- -------------- ------------------
Cash and cash equivalents at
end of period . . . . . . . . . $ 16,095 $ 1,825 $ 19,987 $ 396 $ 38,303
============== ============== ============== ============== ==================
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSAND OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
CONSOLIDATED OVERVIEW
EXECUTIVE OVERVIEW
Our consolidated business consists of two business segments, Advanced Surface
Finishing and Printing Solutions. The Advanced Surface Finishing (ASF) segment
supplies chemicals used for finishing metals and non-metallic surfaces for
automotive and other industrial applications, electro-plating metal surfaces,
etching, and imaging to imprint electrical patterns on circuit boards for the
electronics industry, and offshore lubricants and cleaners for the offshore oil
and gas markets. The Printing Solutions (MPS) segment supplies a complete line
of offset printing blankets, photo-polymer plates and digital printers for use
in the commercial printing and packaging industries for image transfer. In both
of our business segments, we continue to invest significant resources in
research and development and intellectual properties such as patents,
trademarks, copyrights and trade secrets as our business depends on these
activities for our financial stability and future growth.
Our products are sold in a competitive, global economy, which exposes us to
certain currency, economic and regulatory risks and opportunities. Approximately
60% of our net sales and our identifiable assets in the 2004 period are
denominated in currencies other than the US dollar, predominantly the Euro,
Pound Sterling, Yen, Hong Kong and New Taiwan dollars. We do not manage our
foreign currency exposure in a manner that would eliminate the effects of
changes in foreign exchange rates on our earnings, cash flows and fair values of
assets and liabilities, and as such our financial performance could be
positively or negatively impacted by changes in foreign exchange rates in any
given reporting period. For the second quarter and first six months of 2004, net
sales and net earnings were positively impacted by the effect of foreign
currency translation resulting primarily from the Euro, the British Pound
Sterling and the Japanese Yen strengthening against the US dollar compared to
the second quarter and first six months of 2003, as discussed further below.
We focus on growing revenues and the generation of cash from operations in order
to build shareholder value. Specifically, we plan to improve top line sales
growth over the longer term by focusing on:
- Utilizing our technical service and outstanding products to penetrate
global markets for all products,
- supporting working capital initiatives focused on maximizing cash flows
during a period of continued economic uncertainty in our primary markets,
- emphasizing efficiency improvements throughout the organization,
- adding new products through internal research and development, relying
heavily on our internal knowledge base, and
- acquiring strategically sound companies or products.
Our competitors include many large multi-national chemical firms based in
Europe, Asia, and the US. New competitive products or pricing policies of our
competitors can materially affect demand for and pricing of our products, which
could have a significant impact on our financial results.
Our performance for the second quarter and first six months of 2004 reflects the
results of our key opportunities, philosophies and risks, as outlined above.
Specifically, we experienced a positive impact on our financial results due to
higher sales of proprietary goods in the ASF segment and favorable foreign
currency translation as discussed above. Our printing solutions business
suffered the impacts of a soft sales market, resulting in an offsetting decrease
in consolidated net sales. We also began realizing the benefits of cost-saving
initiatives implemented in 2003.
From a cash flow standpoint, we continue to maintain a high level of liquidity,
with working capital of over $200 million. We generate substantial amounts of
cash from our normal operations, resulting in an increase in cash of
approximately $29 million during the six months ended June 30, 2004.
The following summary of results further explains the results of our operations
during the three- and six-month periods ended June 30, 2004, in addition to an
analysis of our liquidity as of the end of the period.
SUMMARY OF THE CONSOLIDATED RESULTS FOR THE QUARTER AND SIX MONTHS ENDED JUNE
30, 2004
THREE MONTHS ENDED CURRENCY SIX MONTHS ENDED CURRENCY
JUNE 30, ADJUSTED JUNE 30, ADJUSTED
2004 2003 %CHANGE %CHANGE* 2004 2003 %CHANGE %CHANGE*
-------------------- ---------- ----------------- --------- --------- --------- -------- ---------
FAVORABLE FAVORABLE
(UNFAVORABLE) (UNFAVORABLE)
Net sales . . . . . . . $ 165,053 $ 155,320 6.3% 2.9% $327,065 $308,123 6.1% 0.8%
Cost of sales . . . . . 86,979 81,526 (6.7%) (3.1%) 171,465 161,787 (6.0%) (0.3%)
-------------------- ---------- --------- ---------
Gross profit. . . . 78,074 73,794 5.8% 2.6% 155,600 146,336 6.3% 1.4%
Gross profit percentage 47.3% 47.5% ** ** 47.6% 47.5% ** **
Operating expenses. . . 51,423 48,359 (6.3%) (3.1%) 102,140 96,511 (5.8%) (0.9%)
-------------------- ---------- --------- ---------
Operating profit. . 26,651 25,435 4.8% 1.7% 53,460 49,825 7.3% 2.5%
Interest income
(expense), net. . . . . (7,664) (7,725) 0.8% 1.8% (15,255) (15,163) (0.6%) 0.6%
Other income. . . . . . 697 132 ** ** 439 339 ** **
-------------------- ---------- --------- ---------
(6,967) (7,593) 8.2% 9.2% (14,816) (14,824) 0.1% 1.4%
-------------------- ---------- --------- ---------
Earnings from
continuing operations
before income taxes . . 19,684 17,842 10.3% 6.2% 38,644 35,001 10.4% 4.0%
Income taxes. . . . . . (6,299) (5,708) (10.4%) (6.5%) (12,366) (11,199) (10.4%) (3.6%)
-------------------- ---------- --------- ---------
Earnings from
continuing operations . 13,385 12,134 10.3% 6.1% 26,278 23,802 10.4% 4.2%
Discontinued
operations, net of tax. - (4) ** ** - (106) ** **
-------------------- ---------- --------- ---------
Net earnings. . . . . . $ 13,385 $ 12,130 10.3% 6.3% $ 26,278 $ 23,696 10.9% 4.9%
==================== ========== ========= =========
Diluted earnings
per share . . . . . . . $ 0.43 $ 0.38 13.2% 7.5% $ 0.85 $ 0.74 14.9% 7.6%
==================== ========== ========= =========
* Currency adjusted percent change is calculated based on a constant foreign exchange rate period-over-period. Management
believes this more accurately reflects true fluctuation in the business without the effect of changing exchange rates.
** Not a meaningful statistic.
SUMMARY OF KEY SEGMENTED RESULTS FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2004
THREE MONTHS ENDED CURRENCY SIX MONTHS ENDED CURRENCY
JUNE 30, ADJUSTED JUNE 30, ADJUSTED
2004 2003 %CHANGE %CHANGE* 2004 2003 %CHANGE %CHANGE*
-------------------- ---------- ------- -------- --------- --------- --------- -------- ---------
ADVANCED SURFACE
FINISHING
Total net sales. . $ 96,376 $ 85,627 12.6% 7.7% $189,864 $170,598 11.3% 4.4%
Operating profit . $ 15,729 $ 12,508 25.8% 19.1% $ 30,466 $ 24,762 23.0% 14.4%
Operating profit
percentage . . . . 16.3% 14.6% ** ** 16.0% 14.5% ** **
PRINTING SOLUTIONS
Total net sales. . $ 68,677 $ 69,693 (1.5%) (3.3%) $137,201 $137,525 (0.2%) (3.7%)
Operating profit . $ 10,922 $ 12,927 (15.5%) (16.0%) $ 22,994 $ 25,063 (8.3%) (10.0%)
Operating profit
percentage . . . . 15.9% 18.5% ** ** 16.8% 18.2% ** **
CONSOLIDATED TOTAL
Total net sales. . $ 165,053 $ 155,320 6.3% 2.9% $327,065 $308,123 6.1% 0.8%
Operating profit . $ 26,651 $ 25,435 4.8% 1.7% $ 53,460 $ 49,825 7.3% 2.5%
Operating profit
percentage . . . . 16.1% 16.4% ** ** 16.3% 16.2% ** **
* Currency adjusted percent change is calculated based on a constant foreign exchange rate period-over-period. Management
believes this more accurately reflects true fluctuation in the business without the effect of changing exchange rates.
** Not a meaningful statistic.
NET SALES
During the three- and six- month periods ended June 30, 2004, our net sales grew
at approximately 6% compared to the same period in 2003. Our sales growth was
derived from volume increases in our ASF business, particularly in the Americas
and Asia. In the Americas, volume growth was driven by sales of our industrial
products as we experienced the benefits of a healthier economy. In Asia, our
second quarter of 2004 yielded increases in both our electronics and industrial
products, particularly in China. These increases were partially offset by
decreases in overall sales volume in our Printing Solutions segment caused by a
soft market. Also effecting sales was favorable foreign currency rates during
2004 compared to 2003 particularly with the Euro, the British Pound Sterling
(GBP) and the Japanese Yen (Yen).
COST OF SALES AND GROSS PROFIT
Cost of sales during the three- and six-months ended June 30, 2004, increased at
a pace consistent with our increase in net sales over the same periods in the
prior year. Cost of sales was also significantly impacted by the strengthening
of foreign currencies, particularly the Euro, GBP and Yen, over the U.S. dollar.
Our gross profit percentage was consistent year-over-year for both the three-
and six-month periods. We experienced increases in margin as noted in the table
above due to the leveraging of fixed costs in our ASF segment and realization of
the benefits resulting from cost-saving initiatives implemented in 2003 in our
ASF business in the Americas. However, these margin increases were offset by
the de-leveraging of fixed costs in our Printing Solutions segment.
OPERATING EXPENSES
Operating expenses increased during the three months ended June 30, 2004,
compared with the same period in 2003, on a currency-adjusted basis.
Approximately 88% of this increase related to the costs of having additional
personnel and growing facilities in our ASF Segment, particularly in China.
Year-to-date, 2004 operating expenses increased compared to the previous year
almost entirely due to foreign currency fluctuation. On a currency-adjusted
basis, operating expenses increased 1% year-over-year. Increases experienced in
the aforementioned quarterly comparisons were offset by first quarter decreases
in selling, technical and administrative expenses resulting from cost reduction
efforts throughout 2003.
OPERATING PROFIT
During the three- and six-months ended June 30, 2004, operating profit grew
approximately 5% and 7%, respectively. As a percent of sales, operating profit
was approximately 16% for all periods presented. Our operating profit increases
were the result of improved business conditions in ASF as discussed above and
favorable currency exchange rates.
INTEREST INCOME (EXPENSE)
Interest income (expense), net remained relatively constant for the three- and
six-months ended June 30, 2004, when compared to the same periods in the prior
year. This balance consists primarily of interest on our outstanding bonds.
OTHER INCOME
The change in other income for the three months ended June 30, 2004, and 2003
consisted primarily of realized gains and losses associated with our interest
rate swap and foreign currency gains and losses during those quarters.
Year-to-date, 2004 other income included a gain on the sale of land in
California associated with our domestic Printing Solutions business, compared to
losses on sales of various ASF properties for the comparable period in 2003.
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of tax, in the quarter and year-to-date
ended June 30, 2003, relates to the December 9, 2003, sale of our 60% interest
in Eurocir S.A., a printed circuit board manufacturer located in Europe. The
Eurocir operations represented substantially all of our remaining electronics
manufacturing segment. Accordingly, the sale was accounted for as a
discontinued operation and our presentation of our consolidated statements of
earnings and cash flows has been restated to reflect continuing operations, with
a separate presentation of results from discontinued operations. Please refer
to our 2003 Annual Report to Shareholders for further discussion of this sale.
INCOME TAX EXPENSE
Our tax rate for the three- and six-month periods ended June 30, 2004, and 2003
was a consistent 32%.
NET EARNINGS
Net earnings during the quarter and six months ended June 30, 2004, increased by
over 10% compared to the same periods in 2003. As discussed above, this was
primarily the result of increases in sales in our ASF segment and favorable
currency exchange rates.
DILUTED EARNINGS PER SHARE
Diluted earnings per share increased more than 13% during the second quarter and
six months ended June 30, 2004, when compared to the same periods in 2003. This
increase was the result of changes in the number of diluted shares, overall
growth in our operations as discussed above and favorable foreign currency rates
during 2004.
LIQUIDITY AND CAPITAL RESOURCES
The table below summarizes our cash flows for the six months ended June 30,
2004, and 2003:
2004 2003 VARIANCE
-------- --------- ----------
Cash provided by (used in):
Continuing operations . . . . . . . . . $34,130 $ 42,497 $ (8,367)
Discontinued operations . . . . . . . . - 2,513 (2,513)
-------- --------- ----------
Total Operating Activities. . . . . . . 34,130 45,010 (10,880)
Investing Activities. . . . . . . . . . (2,444) (2,701) 257
Financing Activities. . . . . . . . . . (1,636) (37,345) 35,709
Effect of exchange rate changes on cash (425) 1,320 (1,745)
-------- --------- ----------
Net change in cash. . . . . . . . . . . $29,625 $ 6,284 $ 23,341
======== ========= ==========
Cash flow from continuing operations declined for the first six months of 2004
compared to the same period in 2003 primarily as a result of higher accounts
receivable at June 30, 2004, compared to June 30, 2003. The increase in
accounts receivable was the result of an increase in exchange rates and net
sales year-over-year, which were offset somewhat with improved collections in
some parts of our business. The cash flow from discontinued operations in the
2003 quarter related to our Eurocir S.A. operations, which we sold in the fourth
quarter of 2003, as previously noted.
Net cash used in investing activities decreased slightly during the six months
ended June 30, 2004, compared to the same period in 2003. Capital expenditures
were slightly higher in the 2004 period, due in large part to our plant
expansion in China. Capital expenditures for the current year are expected to
total approximately $15,000.
On May 7, 2003, we purchased 1,350,000 shares of our own stock from one of our
shareholders for approximately $30.5 million. As a result, our net cash used in
financing activities decreased significantly when comparing the six months ended
June 30, 2004, to the same period in the prior year. Excluding the effects of
this purchase, net cash used in financing activities were approximately $5.2
million, representing higher net debt repayments during the six months ended
June 30, 2003, than during 2004.
We increased our quarterly dividend from $0.03 to $0.04 in February of 2004,
bringing our annual dividend to $0.16 per share from $0.12 per share in 2003.
However, cash dividends paid during the first half of 2004 were consistent with
the first half of 2003 due to timing of dividend funding.
The Board of Directors from time-to-time authorizes the purchase of issued and
outstanding shares of MacDermid, Inc.'s common stock. Such additional shares may
be acquired through privately negotiated transactions or on the open market.
Any future repurchases by us will depend on various factors, including the
market price of the shares, our business and financial position and general
economic and market conditions. Additional shares acquired pursuant to such
authorizations will be held in our treasury and will be available for us to
issue for various corporate purposes without further shareholder action (except
as required by applicable law or the rules of any securities exchange on which
the shares are then listed). At June 30, 2004, the outstanding authorization to
purchase approximately 1 million shares would cost approximately $33,850.
We have the financial flexibility to deliver shareholder value described above
while meeting our contractual obligations. We currently have $90.9 million in
cash and cash equivalents and working capital of $215.5 million. Excluding our
non-monetary items, prepaid expenses and deferred taxes, our working capital is
approximately $183.6 million. We also have a long-term credit arrangement,
which consists of a combined revolving loan facility that permits borrowings,
denominated in US dollars and foreign currencies, of up to $50 million. There
has been no balance outstanding, or activity on this revolving loan facility for
any of the periods presented. We have other uncommitted credit facilities which
presently total approximately $36 million.
Future estimated contractual cash commitments for the years subsequent to June
30, 2004 are summarized in the following table:
LESS THAN 2-3 4-5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS
-------- ------- -------- ------- --------
Long-term debt . . . . . . . . $300,559 $ 236 $ - $ - $300,323
Semi-annual bond interest. . . 206,339 27,512 55,024 55,024 68,779
Capital leases . . . . . . . . 954 685 106 49 114
Operating leases . . . . . . . 25,309 5,164 9,484 5,157 5,504
Pension funding requirements . 17,136 3,136 7,000 3,500 3,500
Purchase obligations and other 11,708 11,708 - - -
-------- ------- -------- ------- --------
Total contractual cash
commitments. . . . . . . . . . $562,005 $48,441 $ 71,614 $63,730 $378,220
======== ======= ======== ======= ========
The following table reflects our ability to fund both our required obligations
and its shareholder growth initiatives for fiscal 2004:
Cash and cash equivalents as June 30, 2004 . . . . . . . . . . . $ 90,919
Other net current monetary assets as of June 30, 2004. . . . . . 92,727
--------
183,646
Available borrowings under revolving loan facility . . . . . . . 50,000
Availability under other uncommitted credit facilities . . . . . 36,000
--------
Total cash available and potentially available . . . . . . . 269,646
Contractual cash commitments due in next year. . . . . . . . . . 48,441
Expected 2004 capital expenditures for the remainder of the year 12,019
Expected 2004 dividend payments for the remainder of the year. . 4,846
--------
Excess of cash available and potentially available over
requirements . . . . . . . . . . . . . . . . . . . . . . . . . . $204,340
========
CRITICAL ACCOUNTING ESTIMATES:
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
undertake decisions that impact the reported amounts and related disclosures.
Such decisions include the selection of the appropriate accounting principles to
be applied and also assumptions upon which accounting estimates are based.
Management applies judgment based on its understanding and analysis of the
relevant circumstances to reach these decisions. By their nature, these
judgments are subject to an inherent degree of uncertainty. Accordingly actual
results could differ significantly from the estimates applied.
Our critical accounting policies are consistent with those disclosed in our Form
10-K for the year ended December 31, 2003.
New Accounting Standards
The Financial Accounting Standards Board (FASB) finalized Staff Position No. FAS
106-1, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (FAS 106-1), in
January 2004. FAS 106-1 permits the deferral of application of Statement of
Financial Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other than Pensions, to the Medicare Prescription Drug Bill. We
deferred application of FAS106-1 until the issuance of final guidance by the
FASB.
In May 2004, the FASB issued Staff Position No. FAS 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, (FAS 106-2). FAS 106-2 gives guidance on proper
accounting and disclosure treatment for changes in company-sponsored
single-employer defined benefit postretirement health care plans affected by the
Medicare Prescription Dug Bill. FAS 106-2 is effective for the first interim or
annual period beginning after June 15, 2004. We will implement FAS 106-2 during
its third fiscal quarter of 2004 and is currently assessing the impacts, in any,
that this guidance will have on its postretirement health care plans.
FORWARD-LOOKING STATEMENTS
This report and other of our reports include forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information that is based on forecasts
of future results and estimates of amounts not yet determinable. These
statements also relate to future prospects, developments and business
strategies. The statements contained in this report that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties.
The words "anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "will" and similar terms and phrases,
including references to assumptions, have been used to identify forward-looking
statements. These forward-looking statements are made based on management's
expectations and beliefs concerning future events affecting us and are subject
to uncertainties and factors relating to our operations and business
environment, all of which are difficult to predict and many of which are beyond
our control, that could cause actual results to differ materially from those
matters expressed in or implied by these forward-looking statements. The
following factors are among those that may cause actual results to differ
materially from the forward-looking statements: acquisitions and dispositions,
environmental liabilities, changes in general economic, business and industry
conditions, changes in current advertising, promotional and pricing levels,
changes in political and social conditions and local regulations, foreign
currency fluctuations, inflation, significant litigation; changes in sales mix,
competition, disruptions of established supply channels, degree of acceptance of
new products, difficulty of forecasting sales at various times in various
markets, the availability, terms and deployment of capital, and the other
factors discussed elsewhere in this report.
All forward-looking statements should be considered in light of these factors.
We undertake no obligation to update forward-looking statements or risk factors
to reflect new information, future events or otherwise.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are exposed to market risk in the normal course of business activity due to
our operations in different foreign currencies and our ongoing investing and
financing activities. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings. We have
established policies and procedures governing our management of market risks and
the use of financial instruments to manage exposure to such risks. Management
continually reviews the balance between foreign currency denominated assets and
liabilities in order to minimize our exposure to foreign exchange fluctuations.
We operate manufacturing facilities in ten countries and sell products in over
twenty-five countries. Approximately 60% of our net sales and identifiable
assets are denominated in currencies other than the US Dollar, predominantly the
Euro, the Pound Sterling, the Yen, Hong Kong and New Taiwan Dollars. For the
three- and six-month periods ending June 30, 2004, there was a favorable foreign
currency translation effect on earnings of approximately $0.02 per share, or 5%,
and $0.05 per share, or 7%, when compared to the three- and six-months ended
June 30, 2003, respectively. The annual impact on operating cash flows
historically has been insignificant.
Our business operations consist principally of manufacture and sale of specialty
chemicals, supplies and related equipment to customers throughout much of the
world. Approximately 42% of our business is concentrated in the printing
business, used for a wide variety of applications, while 58% of our business is
concentrated on customers supplying a wide variety of chemicals to manufacturers
of automotive, other industrial, electronics and offshore applications. As is
usual for these businesses, we generally do not require collateral or other
security as a condition of sale, rather relying on credit approval, balance
limitation and monitoring procedures to control credit risk of trade account
financial instruments. Management believes that reserves for losses, which are
established based upon review of account balances and historical experience, are
adequate.
We have been exposed to interest rate risk, primarily from our credit facility
which is based upon various floating rates. We entered into interest rate swap
agreements for the purpose of reducing its exposure to possible future changes
in interest rates. A remaining interest rate swap is considered speculative as
there are no outstanding balances under the credit facility. We reduced our
exposure to interest rate risk with a fixed rate bond offering during 2001. For
additional information, see Note 12, Financial Information for Guarantors of the
Corporation's Bond Offering, in Part I, Item 1. Based upon our current debt
structure and expected levels of borrowing in 2004, an increase in interest
rates would not result in an incremental interest expense. We do not enter into
derivative financial instruments for trading purposes but have certain other
supply agreements for raw material inventories and have chosen not to enter into
any price hedging with our suppliers for commodities.
ITEM 4:
CONTROLS AND PROCEDURES
Our principle executive and financial officers have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934) as of June 30, 2004. Based on that
evaluation, they have concluded that our disclosure controls and procedures
are adequate and effective. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls subsequent to the date they completed their evaluation.
PART II. OTHER INFORMATION
ITEM 1 : Legal Proceedings
Refer to the notes to the consolidated condensed financial statements,
Contingencies and Legal Matters, Note 11.
ITEM 2 : Changes in Securities and Use of Proceeds
None.
ITEM 3 : Defaults Upon Senior Securities
None.
ITEM 4 : Submission of Matters to a Vote of Security Holders
None during the fiscal quarter ended June 30, 2004. Refer to our first quarter
Form 10-Q, dated March 31, 2004, for matters submitted to a vote of security
holders during our first fiscal quarter.
ITEM 5 : Other Information
None.
ITEM 6(a) : Exhibits
31.1 Certification of Daniel H. Leever pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Gregory M. Bolingbroke pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
ITEM 6(b) : Reports on Form 8-K
Current Report on Form 8-K dated April 26, 2004, regarding earnings for the
second quarter of fiscal year 2004 ended June 30, 2004.
Current Report on Form 8-K dated April 28, 2004, regarding changes in control of
the registrant.
Current Report on Form 8-K dated June 29, 2004, regarding amendments to the
registrant's code of ethics
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MacDermid, Incorporated
------------------------
(Registrant)
Signed: September 28, 2004 /s/ Daniel H. Leever
------------------ -----------------------
For the amended Form 10-Q/A
certifying the report as of Daniel H. Leever
August 5, 2004, date of original Chairman, President and
filing Chief Executive Officer
Date: September 28, 2004 /s/ Gregory M. Bolingbroke
----------------- -----------------------------
For the amended Form 10-Q/A
certifying the report as of Gregory M. Bolingbroke
August 5, 2004, date of original Senior Vice President, Finance
filing