EXHIBIT 13
PORTIONS OF MACDERMID'S 1995 ANNUAL REPORT TO STOCKHOLDERS.
Except for the pages and information expressly incorporated by
reference, the financial and other information included in this Exhibit
13 is provided solely for the information of the Securities and Exchange
Commission and is not deemed "filed."
FINANCIAL HIGHLIGHTS
(In thousands, except share and per share data)
1995 1994 % Change
-----------------------------------
Net Sales, North America $ 93,867 $ 73,861 27
Overseas 88,233 76,165 16
-----------------------------------
Total Revenues $ 182,100 $ 150,026 21
===================================
Net Earnings* $ 11,142 $ 7,771 43
Return on Sales* 6.1% 5.2% -
Return on Average Equity* 18.3% 11.7% -
Net Cash Provided by Operations $ 20,733 $ 15,766 32
Research and Development Expense $ 9,644 $ 6,687 44
Capital Expenditures $ 3,990 $ 7,526 (47)
Long-term Debt
(Includes Short-term Portion) $ 22,535 $ 1,157 1,848
Average Shares Outstanding 3,141,855 3,567,875 (12)
Shareholders' Equity $ 53,654 $ 68,169 (21)
Per Common Share
Net Earnings* $3.55 $2.18 63
Cash Dividends $0.60 $0.60 -
Book Value $19.56 $19.11 2
GRAPHIC PRESENTATION
(Three horizontal bar graphs are provided here, proprietary net sales,
net earnings and earnings per share. Each graph depicts one facet of
results of operations for the fiscal years 1991 through 1995. The graph
for proprietary net sales indicate a decline in sales in 1992, an
increase in 1993, followed by a marginal increase in 1994 and a large
increase in 1995. The graphs for both net earnings and earnings per
share indicate increases in each year since 1991 with a substantial
increase in 1995.)
GRAPH VALUES
(Amounts in thousands except per share data)
1991 1992 1993 1994 1995
------------------------------------------------
Proprietary net sales $120,937 $115,595 $130,132 $130,601 $163,315
Net earnings $ 6,784 $ 7,244 $ 7,687 $ 7,771 $ 11,142
Earnings per share $1.90 $2.03 $2.16 $2.18 $3.55
* Before the cumulative effect of accounting changes which resulted
in one-time after tax charges of $371,000 ($0.12/share) in 1995 and
$2,082,000 ($0.58/share) in 1994. Fiscal 1995 indicates primary
earnings per share.
FIVE YEAR FINANCIAL REVIEW
(In thousands, except share and per share data)
OPERATING RESULTS 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
Net Sales $ 182,100 $ 150,026 $ 156,324 $ 144,984 $ 151,359
Net Earnings<F1> $ 11,142 $ 7,771 $ 7,687 $ 7,244 $ 6,784
Net Earnings Per Share <F1> <F2> $3.55 $2.18 $2.16 $2.03 $1.90
Return On Sales (%)<F1> 6.1 5.2 4.9 5.0 4.5
Return On Average Equity (%)<F1> 18.3 11.7 12.1 12.7 12.9
FINANCIAL POSITION AT YEAR END
- -------------------------------------------------------------------------------------------------------
Working Capital $ 34,711 $ 34,959 $ 31,050 $ 27,620 $ 23,301
Current Ratio 1.7 2.0 1.8 1.7 1.5
Capital Expenditures $ 3,990 $ 7,526<F3> $ 4,594 $ 4,453 $ 3,198
Total Assets $ 123,305 $ 105,867 $ 107,173 $ 101,214 $ 103,252
Long-Term Debt (Includes Short-Term Portion) $ 22,642 $ 1,157 $ 2,684 $ 2,812 $ 4,199
Percent of Total Capitalization 29.7 1.7 4.0 4.4 7.0
SHARE DATA
- -------------------------------------------------------------------------------------------------------
Shareholders' Equity $ 53,654 $ 68,169 $ 65,181 $ 61,050 $ 55,848
Per Share $19.56 $19.11 $18.27 $17.12 $15.67
Cash Dividends Per Share $0.60 $0.60 $0.60 $0.60 $0.60
Payout as Percent of Net Earnings <F1> 15.9 27.6 27.8 29.5 31.5
Shares Outstanding
Average During Year 3,141,855 3,567,875 3,565,371 3,565,000 3,565,000
At Year End 2,742,533 3,567,882 3,567,382 3,565,000 3,565,000
Stock Price
High 44 1/2 31 29 1/2 29 26 1/2
Low 24 24 1/2 23 3/4 21 16 1/2
Year End 43 26 27 28 1/8 24 1/2
<FN>
<F1> Before cumulative effect of accounting changes which resulted in one-time after tax charges of
$371,000 ($0.12/share) in 1995 and $2,082,000 ($0.58/share) in 1994.
<F2> For 1995 indicates primary earnings per share. Fully diluted earnings per share were $3.50 for
1995, the first period during which the dilutive effect was large enough to report.
<F3> Includes cost attributable to a new Hong Kong warehouse and office facility and is not offset by
proceeds from disposal of the previous facilities which occurred in fiscal 1995 and 1994.
MESSAGE TO SHAREHOLDERS
Fiscal 1995 was the third consecutive year of record earnings for
MacDermid.
Sales increased to $182.1 million from $150 million in 1994, up
21%. Earnings* increased to $11,142,000 from $7,771,000 in 1994, up
43%. Earnings per share* increased to $3.55 from $2.18 in 1994, up
63%. The significantly greater percentage increase in earnings per
share was largely a result of our repurchase in August of 24% of our
outstanding shares.
MacDermid is an international specialty chemical company
serving the metal finishing and electronics industries. Our focus
is to increase the per share intrinsic value of the business by the
combination of careful cost control, internal growth and
acquisitions. We are ever mindful of our responsibilities as a
corporate citizen. We know our source of sustainable competitive
advantage is our employees.
In 1995 we enjoyed growth across all product lines and in all
markets, both domestic and international. This was the result of
our on-going effort to run our business more efficiently, the
improved economy worldwide, and the Allied-Kelite acquisition. 1995
was better than we expected.
This year's annual report is evidence of our increased
attention to cost within MacDermid. The simple black and white
format resulted in lower cost. We know that elaborate reports do
not lower cost or increase revenues - our clearly understood
objectives.
Our effort to improve efficiency is Company-wide in all markets
and in all functions. In Europe we completed restructuring in a
number of countries, reducing costs and improving effectiveness. As
a result, today we are not only more competitive but more
profitable. The same is true in every country in which we operate.
This is important since some 52% of sales are outside the United
States.
Our effort to improve effectiveness is not focused solely on
costs. We believe effectiveness is also measured in terms of
customer satisfaction. We place a high priority not only on product
quality but on the quality of service we give to our customers. We
are committed to Total Quality Management, and teams are in place
throughout the Company. For example:
.CUSTOMER SATISFACTION TEAM
This team, in its second year, is charged with understanding
what our customers think of MacDermid and helping us respond
to their suggestions. The team's actions are supported with
hard data gathered through formal survey procedures.
.ISO 9002
We received this international certification in all major
manufacturing plants: England, Spain, Taiwan, Connecticut and
Michigan.
.ON TIME DELIVERY TEAM
This team is charged with monitoring and improving our
performance in meeting our customers' shipment requirements.
We have made considerable progress and we expect more.
.PRODUCT DEVELOPMENT PROTOCOL TEAM
We are working to reduce the cycle time and improve the
success ratio in new product development.
Research and development has always been an important priority
for MacDermid. We do not look upon R&D as a discretionary
expenditure. In 1995, our R&D investment was $9.6 million compared
with $6.7 million in 1994. R&D, like our acquisition effort, is
focused not only on broadening and improving our product line
serving current markets, but also on new products in new markets, all
within our core competencies. This is a long-term, on-going effort.
* Before the effects of accounting changes
In May of 1994 MacDermid acquired the metal finishing business
of Allied-Kelite (A.K.). We thought it a perfect fit for our metal
finishing business as they were strong in markets we were not.
Their product line complements ours. Importantly, with A.K. came
outstanding people. Because of the competent people within A.K. and
within MacDermid, the merger of the two businesses went smoothly,
and the results were better than expected.
In August of 1994 we repurchased, through a tender offer,
approximately 852,000 shares, 24% of our outstanding stock. The
tender offered shareholders who wished to sell a price substantially
higher than the market. It gave shareholders who wished to remain
shareholders, in essence, a dividend. The reduced number of share
outstanding gave each remaining shareholder 31% more of our future.
Because of our improved cash flow and improved balance sheet,
we were able to finance the acquisition of Allied-Kelite and the
tender offer with added debt. Our cash flow is at record levels.
Our debt/capital ratio is 34%. Our total debt is little more today
than it was in 1990 when our earnings were $1.49 per share and our
cash flow was considerably less. Nevertheless, at this juncture, a
dividend increase is not planned by your Board of Directors. The
Board believes shareholders are better served by utilizing excess
cash flow to reduce our debt and/or to grow the Company internally
and through acquisitions. We are aware that each dollar invested
should produce at leas one added dollar of intrinsic value to our
business.
While a lot of things have been changing at MacDermid, one
thing has not - our Corporate Philosophy. It is published, as
usual, on the inside cover of our annual report. Everyone at
MacDermid is dedicated to conducting our business in accordance with
that Philosophy.
At MacDermid, we know we work for our shareholders. We know
our stewardship will be measured, over the years, in per share
terms. This is encouraged by the widespread and significant stock
ownership within the Company. Through our ESOP and other plans, we,
your employees, own 24% of the outstanding shares.
This year, three of our senior Directors are not standing for
reelection, having reach Board retirement age. Walter Torrance,
Robert Welzien and Francis White have served your Company with
distinction. Their advice, judgment and support will be missed. We
know all shareholders join us in thanking them and wishing them
well.
We begin fiscal 1996 in the best shape ever. While fiscal 1995
results have undoubtedly been helped by the economy here in the
United States and internationally, they are also the result of a
four-year effort to reorganize and refocus our business.
Our effort to improve and grow is an everyday effort. We are
working to make what has been accomplished but a beginning.
We want to thank all of our associates at MacDermid who have
worked hard and effectively to produce an outstanding fiscal 1995,
and our shareholders for their confidence.
/s/ Harold Leever /s/ Daniel H. Leever
Harold Leever Daniel H. Leever
Chairman of the Board President and Chief Executive Officer
MACDERMID, INCORPORATED AND SUBSIDIARIES
FIVE YEAR OPERATIONS REPORT
(In thousands, except per share amounts) Year Ended March 31
--------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------
Net Sales:
Proprietary chemicals $163,315 $130,601 $130,132 $115,595 $120,937
Equipment, chemicals and supplies resale 18,785 19,425 26,192 29,389 30,422
---------------------------------------------------------
182,100 150,026 156,324 144,984 151,359
Cost of sales 94,059 76,914 83,900 79,908 82,175
---------------------------------------------------------
Gross profit 88,041 73,112 72,424 65,076 69,184
Selling, technical and administrative expenses 67,904 60,063 56,880 54,038 55,938
---------------------------------------------------------
Operating profit 20,137 13,049 15,544 11,038 13,246
Other income (expense):
Interest income 185 300 364 384 368
Interest expense (2,029) (1,403) (1,870) (1,576) (2,021)
Foreign exchange (291) (683) (472) (392) (189)
Other, net 145 1,161 (1,228) 1,531 (71)
---------------------------------------------------------
(1,990) (625) (3,206) (53) (1,913)
---------------------------------------------------------
Earnings before income taxes and
cumulative effect of accounting change 18,147 12,424 12,338 10,985 11,333
Income taxes 7,005 4,653 4,651 3,741 4,549
---------------------------------------------------------
Earnings before cumulative effect
of accounting change 11,142 7,771 7,687 7,244 6,784
Cumulative effect of accounting change (371) (2,082) - - -
---------------------------------------------------------
Net earnings $ 10,771 $ 5,689 $ 7,687 $ 7,244 $ 6,784
=========================================================
Earnings per share before cumulative effect
of accounting change $3.55<F1> $2.18 $2.16 $2.03 $1.90
Cumulative effect of accounting change (0.12) (0.58) - - -
---------------------------------------------------------
Net earnings per common share $3.43 $1.60 $2.16 $2.03 $1.90
=========================================================
Average number of shares 3,141,855 3,567,875 3,565,371 3,565,000 3,565,000
=========================================================
<FN>
<F1> For 1995 indicates primary earnings per share. Fully diluted earnings per share for 1995, the first
period during which the dilutive effect was large enough to report, was $3.50 before the cumulative
effect of an accounting change and $3.38 after such change.
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
FIVE YEAR SUMMARY
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
--------------------------------------------------------
Net Sales:
North America $ 93,867 $ 78,861 $ 74,068 $ 73,119 $ 79,881
Overseas 88,233 76,165 82,256 71,865 71,478
--------------------------------------------------------
$182,100 $150,026 $156,324 $144,984 $151,359
========================================================
Net Earnings<F1> $ 11,142 $ 7,771 $ 7,687 $ 7,244 $ 6,784
Net Earnings per Common Share<F1><F2> $3.55 $2.18 $2.16 $2.03 $1.90
Cash Dividends Declared per Share $0.60 $0.60 $0.60 $0.60 $0.60
Total Assets $123,305 $105,867 $107,173 $101,214 $103,252
Long Term Obligations - non current $ 18,229 $ 922 $ 983 $ 1,348 $ 1,940
<FN>
<F1> Before cumulative effect of accounting changes which resulted in one-time after tax charges of
$371,000 ($0.12/share) in 1995 and $2,082,000 ($0.58/share) in 1994.
<F2> For 1995 indicates primary earnings per share. Fully diluted earnings per share were $3.50 for
1995, the first period during which the dilutive effect was large enough to report.
NET SALES & OPERATING PROFITS
OVERVIEW
Worldwide proprietary chemical sales were $163.3 million, an
increase of 25% in fiscal 1995 over the previous year's record
levels. This increase reflects the effects of new accounts in
every geographic segment, improving business conditions and a
business acquisition in the U.S. Total sales of $182.1 million,
which increased 21%, were affected by a change during fiscal 1994
to an agency basis for certain products previously resold.
Net earnings increased for the fifth consecutive year to
$11,142,000, $3.55 per share, as compared to fiscal 1994 net
earnings of $7,771,000, $2.18 per share (before deducting for
the cumulative effect of accounting changes in each year).
NORTH AMERICA
1995 vs 1994
Total net sales increased in North America 27% because of a
strengthening economic climate strongly enhanced by the effects
of the purchase of Allied-Kelite's proprietary chemical business
during the first quarter of fiscal 1995 and despite reduced
direct sales of process equipment.
During the transition period following the acquisition of
assets,costs of sales were affected by inventory purchased from
Allied-Kelite at prices higher than MacDermid's normal replacement
costs.
Selling, technical and administrative expenses increased
principally as a result of additional sales and research
personnel hired in connection with the Allied-Kelite business,
continuing development of imaging products, and employee
incentives related to higher earnings levels.
An increase in interest expense resulting from borrowings
to finance a common stock repurchase was more than offset by an
increase in the Corporation's share of earnings from Hollmuller
America, a joint venture manufacturer of high quality,
precision, modular, horizontal production equipment used by
printed circuit and chemical machining industries, plus the
effects of higher royalties received on overseas sales and
reduced foreign exchange losses.
During the first quarter of fiscal year 1995, the
Corporation acquired certain assets of the Allied-Kelite Company
(a subsidiary of Witco Corporation), a major supplier of plating
surface preparation proprietary chemical products to automotive and
electronics hardware industries. The business, located primarily in
the United States, includes licenses of technology to companies in
several other countries. The acquisition cost (approximately $8.9
million), financed through short-term borrowings, included
inventories,a research facility and technology. The acquisition,
accounted for as a purchase, is producing consolidation cost
benefits in addition to improved domestic sales coverage.
During fiscal 1995, the Corporation adopted the provisions
of Statement of Financial Accounting Standards No. 112,
Employers' Accounting for Postemployment Benefits (SFAS 112).
SFAS 112 requires accrual accounting for recognition of the
postemployment cost of salary continuation benefits rather than
the previously used cash basis accounting. Adoption of SFAS 112
resulted in a one-time $371,000 charge against earnings, net of
income taxes. The ongoing expense effects are not material to
the consolidated financial statements.
1994 vs 1993
In fiscal 1994, sales of proprietary chemical products began a
recovery from the U.S. recession which started in fiscal 1990.
Operating profits increased despite additional spending for
research and market development in support of new programs. Net
earnings in North America reflect the effects of a decline in
royalty income because of lower covered sales overseas.
Hollmuller America, Inc., a joint venture with a German partner,
reported profits for the first time in fiscal 1994 reflecting
aggressive cost reductions and standardization of certain
equipment offerings. End of year sales backlogs were greatly
improved over the previous year.
During fiscal 1994, the Corporation adopted the provisions
of Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other than
Pensions (SFAS 106). Adoption of the accrual accounting,
required by SFAS 106, resulted in a one-time charge against
earnings, net of income taxes, of $2,082,000 in recognition of
the postretirement cost of health benefits. The effect upon
ongoing expense is not material.
EUROPE
1995 vs 1994
Net sales for the European group (which includes operations in
Israel and South Africa) increased almost 9% despite a change
in the marketing of certain resale products to an agency basis
which was completed during fiscal 1994. (MacDermid now receives
a commission on the covered products.) Proprietary chemical
product sales, which account for 84% of the group's business,
were generally improved throughout the area.
Selling, technical and administrative expenses were reduced
overall by over 6% from fiscal 1994 to size the operations more
appropriately for the level of sales achieved. Operating
profits in fiscal 1995 were almost double those of the previous
year reflecting, in large measure, the effects of proprietary
chemical sales increases and the expense reductions made in
Germany during fiscal years 1994 and 1995.
1994 vs 1993
The group's net sales for fiscal 1994 were $38 million compared
to $45 million for fiscal 1993. The sales decline was
principally the result of changing currency exchange rates,
which accounted for $4.8 million, and the change in marketing of
certain resale products which accounted for another $1.1
million. Actual proprietary chemical sales were little changed
overall, in terms of local currency, despite the effects of
severe recession in Germany.
Net earnings for the group were marginal in fiscal 1994
because no tax benefit was recorded in connection with 1994
losses in Germany and because of expenses incurred to make group
operations more efficient.
ASIA/PACIFIC
1995 vs 1994
Total net sales for the Asia/Pacific group increased 23% to $47
million in fiscal year 1995 and earnings before income taxes
increased 31%. The sales increase was principally due to new
business in expanding markets, enhanced by economic recovery in
certain areas, with only a small effect late in the fiscal year
from a rapidly strengthening Japanese yen. Costs of sales
percentages were down 2% as sales of proprietary chemical
products grew much faster than sales of equipment and resale
chemicals.
Selling, technical and administrative expenses rose
8% as a new research and technical center in Japan was fully
operational throughout the year and some additional expenses
were incurred to support the higher sales levels. Other income
and expense for fiscal 1995 includes profit on the sale of
certain office and warehouse property following expansion into
new quarters. This income, however, was offset by additions to
reserves to cover losses by a joint venture operation, higher
levels of foreign exchange losses on transactions and increased
royalties paid to the parent company due to increased sales.
Profits recorded in fiscal 1994 on sales of a minority interest
in a Hong Kong company were not repeated in fiscal 1995.
1994 vs 1993
Total net sales of $38.2 million in fiscal 1994 were about 3%
above the previous year. The group achieved real proprietary
chemical sales growth with some benefit from favorable currency
changes. Profits from sales of a minority interest in a Hong
Kong company and profits from sales of property more than offset
increased costs related to a new research group in Japan and a
charge against earnings for a bad debt loss. Net earnings were
14% above fiscal year 1993.
INTEREST EXPENSE
Interest expense, net of interest income, in fiscal 1995,
increased by $741,000 over fiscal 1994 following a decrease of
$403,000 from the previous year. The increase in 1995 was due
principally to U.S. borrowings in August 1994 to finance the
purchase of treasury stock pursuant to a self-tender offer and
to an increase in short-term borrowings to finance the Allied-
Kelite business acquisition. The 1994 decrease was attributable
to repayments of borrowings and generally lower interest rates
than in 1993.
INCOME TAXES
Overall effective income tax rates increased slightly to 38.6%
in fiscal 1995 from 37.5% in fiscal 1994 as compared to 37.7%
in fiscal 1993. The 1995 increase and the 1994 decrease were
principally attributable to changes in the amounts included in
each year's earnings before income taxes for non taxable one-
time profits on sales of property and minority equity interests,
a 1995 non tax-deductible charge for losses in a joint venture
and 1994 losses in a subsidiary where tax benefits were not
recognized until 1995.
DIVIDENDS
MacDermid has paid cash dividends out of accumulated earnings
continuously since 1948. The total dividend paid for fiscal
1995 was $0.60 per share or approximately 16% of net earnings
before the cumulative effect of an accounting change.
LIQUIDITY & CAPITAL RESOURCES
Cash flows from operations are used to fund dividend payments to
shareholders, other working capital requirements of the
Corporation and most capital projects. From time to time
MacDermid 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 the last
several years, most of the funds previously provided by such
outside sources have been repaid utilizing cash flows from
operations and from disposition of certain business and
properties no longer required after consolidation of
manufacturing and other operations. Total borrowings, which
were over $26 million at March 31, 1990, were reduced to $9
million by the end of fiscal 1994. Early during fiscal 1995,
MacDermid purchased certain assets used in Allied-Kelite's metal
finishing business for approximately $8.9 million, financed
through short-term loans. Subsequently (August 1, 1994), the
Corporation completed the purchase of approximately 852,000
shares of MacDermid's common stock under a self-tender offer at
a price of $30 per share. The total cost of this purchase,
including commitment fees, professional costs, etc., was
approximately $26.2 million, financed through a six-year term loan
with a group of banks. (This loan is further discussed in note
7 to the Consolidated Financial Statements.) Because of the
strong cash flows generated by operations and sales of certain
assets, total debt at March 31, 1995 is approximately $27
million.
New capital spending during fiscal 1995 of approximately $4
million, as compared with $7.5 million in fiscal 1994 and $4.5
million in fiscal 1993, included upgrades to manufacturing
facilities and new equipment to provide for the transfer of
Allied-Kelite manufacturing operations to existing facilities
and technical equipment. For fiscal 1996, planned new capital
projects total approximately $5 million.
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 manufacturing capability and
distribution channels. Management intends to pursue those
opportunities which have strong potential to enhance shareholder
value.
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. Following the
August 1, 1994 completion of the self-tender offer, the
directors authorized the purchase of up to an additional 148,000
shares of MacDermid's common stock. Pursuant to this
authorization, MacDermid acquired 11,000 shares in December
1994 in a privately negotiated purchase. 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 137,000 shares, if exercised at
the Nasdaq Stock Market closing price on March 31, 1995, would
cost approximately $5.9 million.
The principal sources and uses of cash in fiscal years 1995
and 1994 were as follows:
(In Thousands) 1995 1994
------------------------
Cash provided by:
Operations $20,733 $15,766
Proceeds from dispositions of
fixed assets and certain
business 3,376 2,998
Net increase in borrowings 17,718 -
------------------------
$41,827 $18,764
========================
Cash used for:
Capital expenditures $ 3,990 $ 7,526
Business acquisitions 8,910 -
Purchase of treasury shares 26,152 -
Dividend payments 1,767 2,141
Net decrease in borrowings - 7,295
Other - net (138) 1,149
------------------------
$40,681 $18,111
========================
MacDermid's financial position is strong and, other than
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,
1995 the Corporation had unused domestic and foreign short-term
credit lines with banks approximating $43 million and management
believes that additional borrowing could be obtained if needed.
INFLATION AND CHANGING PRICES
MacDermid operates principally in stable areas throughout the
world. 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, therefore, 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.
ENVIRONMENTAL ACTIVITIES
MacDermid 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. The terms of
a State of Connecticut permit require MacDermid to have periodic
environmental compliance and environmental management audits
performed at its Waterbury, Connecticut facility. These audits take
place over a five-year period which commenced in 1993. An
environmental consultant retained by MacDermid conducts the audits
and submits appropriate recommendations.
MacDermid continuously conducts research to formulate products
which are environmentally friendly and which provide superior
operating characteristics in customer applications. Many companies
have come to MacDermid for assistance in meeting their environmental
needs.
Environmental expenditures that relate to current operations
are expensed; long-term betterments are capitalized. The
expenditure by MacDermid for these various programs is estimated to
be in excess of $1 million per year. MacDermid 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 MacDermid'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 are reasonable estimates of probable
liability and that future cash outlays are unlikely to be material
to financial condition, results of operations or cash flows.
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended March 31
-------------------------------------
(In thousands, except share and per share amounts) 1995 1994 1993
-------------------------------------
Net sales:
Proprietary chemicals $163,315 $130,601 $130,132
Equipment, chemicals and supplies resale 18,785 19,425 26,192
-------------------------------------
182,100 150,026 156,324
Cost of Sales 94,059 76,914 83,900
-------------------------------------
Gross profit 88,041 73,112 72,424
Selling, technical and administrative expenses 67,904 60,063 56,880
-------------------------------------
Operating profit 20,137 13,049 15,544
Other income (expense):
Interest income 185 300 364
Interest expense (2,029) (1,403) (1,870)
Foreign exchange (291) (683) (472)
Miscellaneous, net 145 1,161 (1,228)
-------------------------------------
(1,990) (625) (3,206)
-------------------------------------
Earnings before income taxes and cumulative
effect of accounting change 18,147 12,424 12,338
Income taxes (note 5) 7,005 4,653 4,651
-------------------------------------
Earnings before cumulative
effect of accounting change 11,142 7,771 7,687
Cumulative effect of accounting change (note 4) (371) (2,082) -
-------------------------------------
Net earnings $ 10,771 $ 5,689 $ 7,687
=====================================
Net earnings per share (note 1):
Primary
Before cumulative effect of
accounting change $3.55 $2.18 $2.16
Cumulative effect of accounting change (note 4) (0.12) (0.58) -
---------------------------------------
$3.43 $1.60 $2.16
=======================================
Fully diluted
Before cumulative effect of
accounting change $3.50 $2.18 $2.16
Cumulative effect of accounting changes (note 4) (0.12) (0.58) -
---------------------------------------
$3.38 $1.60 $2.16
=======================================
Weighted average number of shares outstanding (note 1)
Primary 3,141,855 3,567,875 3,565,371
=======================================
Fully Diluted 3,179,832 3,567,875 3,565,371
=======================================
<FN>
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
ASSETS March 31
-----------------------------
(In thousands) 1995 1994
-----------------------------
Current assets:
Cash and equivalents $ 7,630 $ 6,484
Accounts receivable, less allowance for doubtful receivables
of $2,859 and $2,317 45,559 39,738
Inventories (note 2) 22,801 17,744
Prepaid expenses 2,052 1,380
Deferred income taxes 3,155 3,069
-----------------------------
81,197 68,415
Total current assets -----------------------------
Property, plant and equipment, at cost:
Land and improvements 2,829 2,590
Buildings and improvements 26,346 26,190
Machinery, equipment and fixtures 33,581 31,699
-----------------------------
62,756 60,479
Less accumulated depreciation and amortization 35,721 32,690
-----------------------------
Net property, plant and equipment 27,035 27,789
-----------------------------
Other assets 15,073 9,663
-----------------------------
$123,305 $105,867
=============================
LIABILITIES & SHAREHOLDERS' EQUITY March 31
-----------------------------
(In thousands, except share and per share data) 1995 1994
-----------------------------
Current liabilities:
Notes payable (note 3) $ 4,720 $ 7,609
Current installments of long-term obligations (note 7) 4,413 429
Accounts payable 18,064 12,961
Dividends payable 411 535
Accrued compensation 6,089 2,588
Accrued expenses, other 7,258 6,663
Income taxes (note 5) 5,531 2,671
-----------------------------
Total current liabilities 46,486 33,456
-----------------------------
Long-term obligations (note 7) 18,229 922
Accrued postretirement benefits (note 4) 3,899 3,214
Deferred income taxes (note 5) 960 106
Shareholders' equity (note 9):
Preferred stock, authorized 2,000,000 shares; none issued - -
Common stock. Authorized 20,000,000 shares; issued
4,136,080 and 4,098,530 shares at stated value of
$1.00 per share (note 4) 4,136 4,099
Additional paid-in capital (note 4) 1,676 834
Retained earnings 84,043 75,039
Equity adjustment from foreign currency translation 1,551 (203)
Less cost of 1,393,547 and 530,648 common shares in treasury (37,752) (11,600)
------------------------------
Total shareholders' equity 53,654 68,169
------------------------------
Contingencies and commitments (notes 8 and 10)
$123,305 $105,867
==============================
<FN>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31
---------------------------------------
(In thousands) 1995 1994 1993
---------------------------------------
Cash flows from operating activities:
Net earnings $ 10,771 $ 5,689 $ 7,687
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 4,349 4,596 4,745
Effect of change in accounting (note 4) 371 2,082 -
Amortization of goodwill and other intangible assets 685 1,011 911
Provision for bad debts 664 1,792 1,797
Deferred income taxes (1,420) (422) (518)
Changes in assets and liabilities net of effects
from acquisitions and dispositions:
Decrease (increase) in receivables (4,685) 1,090 (7,822)
Decrease (increase) in inventories (265) 931 1,870
Decrease (increase) in prepaid expenses (713) (111) (362)
Increase (decrease) in accounts payable 4,453 (1,697) (989)
Increase (decrease) in accrued expenses 3,505 2,094 2,171
Increase (decrease) in income tax liabilities 2,860 596 (26)
Other 158 (1,885) (122)
---------------------------------------
Net cash flows provided by operating activities 20,733 15,766 9,342
---------------------------------------
Cash flows from investing activities:
Capital expenditures (3,990) (7,526) (4,594)
Proceeds form disposition of fixed assets 3,376 2,998 916
Acquisitions of business (8,910) - (2,259)
Other investments (216) (1,062) (662)
---------------------------------------
Net cash flows used in investing activities (9,740) (5,590) (6,599)
---------------------------------------
Cash flows from financing activities:
Long-term and short-term borrowings 26,609 1,943 5,814
Long-term and short-term repayments (8,891) (9,238) (5,003)
Acquisition of treasury stock (note 9) (26,152) - -
Dividends paid (1,767) (2,141) (2,139)
---------------------------------------
Net cash flows used in financing activities (10,201) (9,436) (1,328)
---------------------------------------
Effect of exchange rate changes on cash
and equivalents 354 (87) (216)
---------------------------------------
Net increase in cash and equivalents 1,146 653 1,199
Cash and equivalents at beginning of year 6,484 5,831 4,632
---------------------------------------
Cash and equivalents at end of year $ 7,630 $ 6,484 $ 5,831
=======================================
Cash paid for interest $ 2,182 $ 1,627 $ 1,823
=======================================
Cash paid for income taxes $ 4,226 $ 4,398 $ 4,768
=======================================
<FN>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation. The accompanying consolidated
financial statements include accounts of the parent corporation and
all of its domestic and foreign subsidiaries. Certain foreign
subsidiaries, for practical purposes, are included on a calendar
year basis. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(b) Acquisition. In May 1994 the Corporation acquired certain
assets of the U.S. based Allied-Kelite Company from Witco
Corporation. Chemical products produced by Allied-Kelite include
plating and surface preparation proprietary chemical products which
are sold to customers in the aerospace, automotive and electronics
hardware industries. Certain technology was also acquired which is
licensed to several customers in specific overseas markets. The
total purchase price for the acquisition was approximately $8.9
million including inventory, fixed assets, goodwill (being amortized
over 15 years) and other intangibles. Total assets and pretax
earnings resulting from the purchase were less than 10% of the
Corporation's consolidated total assets and pretax earnings before
acquisition. The acquisition was accounted for as a purchase
transaction. Consolidated operating results for fiscal 1995 include
the results of the Allied-Kelite business from May 2, 1994.
(c) Inventories. Inventories are stated at the lower of cost
(average moving cost) or replacement market.
(d) 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, in general 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.
(e) 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 pension plan based
upon plan costs accrued in accordance with the principles of
Statement of Financial Accounting Standards No. 87. The projected
unit credit actuarial method is used for financial reporting
purposes. The pension plan provides retirement benefits based upon
years of service and compensation levels. 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 has postretirement health care
benefits for most employees. Effective April 1, 1993, the
Corporation adopted Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other than
Pensions (SFAS 106), for its domestic plan. For its foreign plans
the effect was immaterial. SFAS 106 requires accrual accounting for
all postretirement benefits other than pensions rather than the
previously used pay-as-you-go method. The postretirement health
care plan is unfunded.
Postemployment. The Corporation provides postemployment
disability benefits to employees meeting specified service
requirements. Effective April 1, 1994, the Corporation adopted
Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Post Employment Benefits (SFAS 112). SFAS 112
requires accrual for such benefits if the obligation is attributable
to employees' services already rendered, employees' rights to those
benefits accumulate or vest, payment of the benefits is probable,
and the amount of the benefits can be reasonably estimated.
(f) Research and Development. Research and development costs,
charged to expenses as incurred, were $9,644,000, $6,687,000 and
$5,796,000 in 1995, 1994 and 1993, respectively.
(g) Income Taxes. In fiscal year 1993 the Corporation adopted
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109), which requires the use of the liability
method of accounting for deferred income taxes. Pursuant to SFAS
109, 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
bases of assets and liabilities. 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.
(h) Foreign Operations. The balance sheet accounts 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 balance sheets resulted in an increase in equity of $1,754,000
in 1995 and decreases in equity of $781,000 and $1,569,000 in 1994
and 1993, respectively. Gains and losses on foreign currency
transactions are included in the consolidated statements of
earnings.
(i) Cash and Equivalents. For the purpose of the consolidated
statements of cash flows, the Corporation considers all highly
liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
(j) Fair Value of Financial Instruments. Statement of Financial
Accounting Standards No. 107 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. The carrying
values of other financial instruments approximate fair value or are
not material to the balance sheets.
(k) Earnings Per Common Share. The computation of primary earnings
per share is based upon the weighted average number of outstanding
shares plus (in periods in which they have a dilutive effect) the
effect of common shares contingently issuable from stock options.
The fully diluted per share computations also reflect additional
dilution related to stock options due to the use of the market price
at the end of the period, when higher than the average price for the
period. Fiscal 1995 is the only year presented for which the
dilutive effect was large enough to report.
2. INVENTORIES
The major components of inventory at March 31 were as follows:
(In thousands) 1995 1994
----------------------
Finished goods $16,074 $13,091
Raw materials and supplies 6,727 4,653
----------------------
$22,801 $17,744
======================
3. NOTES PAYABLE
Notes payable at March 31, 1995 consisted primarily of $4,720,000 of
outstanding borrowings under available lines of credit aggregating
approximately $48,000,000. 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. With
the exception of a $10 million committed revolving credit line, 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 5.1% and 7.9% at the end of 1995 and 1994,
respectively.
4. EMPLOYEE RETIREMENT & WELFARE PLANS
The Corporation has defined benefit pension, defined contribution
profit sharing and employees' stock ownership plans, each of which
is funded annually, as required, for substantially all its domestic
employees. Aggregate amounts charged to earnings for these plans
were $1,791,000, $1,194,000 and $971,000 in 1995, 1994 and 1993,
respectively.
Pension. Net pension cost of the Corporation's defined benefit plan
included the following components for the years ended March 31:
(In thousands) 1995 1994 1993
---------------------------------
Service cost $ 581 $ 557 $ 564
Interest cost 1,158 1,119 1,012
Actual return on investment (1,879) (238) (1,511)
Net amortization and deferrals 341 (1,320) 36
---------------------------------
Net periodic pension cost $ 201 $ 118 $ 101
=================================
The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit
obligation was 5% for 1995, 4% for 1994 and 5% for 1993. The
expected long-term rate of return on assets was 9% for 1995, 1994
and 1993, and the weighted average settlement rate was 8% for 1995,
7.5% for 1994 and 8.25% for 1993.
The following table sets forth the plan's funded status at March
31, 1995 and 1994 and the amount recognized in the Corporation's
consolidated balance sheet at March 31:
(In thousands) 1995 1994
-----------------------
Actuarial present value of
benefit obligation:
Accumulated benefit obligation
including vested benefits of
$11,989 and $11,780 $12,588 $12,421
=======================
Projected benefit obligation $15,947 $15,115
Plan assets at fair value (primarily
listed stocks, bonds and guaranteed
investment contracts) 16,685 15,130
-----------------------
Plan assets in excess of
projected benefits obligation 738 15
Unrecognized portion of transition
asset (being amortized over 14 yrs) (1,145) (1,314)
Unrecognized net loss 311 1,146
Accrued pension cost $ (96) $ (153)
=======================
Plan assets included 43,695 and 58,695 shares of the
Corporation's common stock having a market value of $1,879,000 and
$1,526,000 at March 31, 1995 and 1994, respectively.
Postretirement benefits. The Corporation sponsors a defined
benefit postretirement medical and dental plan that covers all of
its domestic full-time employees. Employees who retire after age 55
with at least 10 to 20 years of service (depending upon the date of
hire) are eligible. Current retirees are required to contribute
toward the cost of the plan until they attain age 65. All future
retirees will be required to contribute. The Corporation's subsidy
level is subject to a cap which increases by 3% each year. Retirees
will be required to contribute the plan cost in excess of the cap in
addition to other required contributions.
During fiscal 1994 adoption of SFAS 106 resulted in a one-time
charge against earnings for the transition obligation for past
services of $2,082,000 (net of a $1,382,000 deferred income tax
benefit). The ongoing additional after tax annual cost to the
Corporation is not material.
The Corporation's postretirement medical and dental plan is
unfunded. The accumulated postretirement benefit obligation,
covering both active and retired employees, was $3,882,000 and
$3,749,000 at March 31, 1995 and 1994, respectively. The
Corporation's accrued postretirement medical and dental benefit
liability at March 31, 1995 was $3,502,000 consisting of the
unfunded postretirement benefit obligation of $3,882,000 less the
unrecognized net loss of $380,000 and at March 31, 1994 was
$3,419,000 consisting of the unfunded postretirement benefit
obligation of $3,749,000 less the unrecognized loss of $330,000.
For measurement purposes, a 10.5% annual rate of increase in the
per capita cost of covered medical benefits was assumed for fiscal
1994; the rate is assumed to decrease gradually down to 6% for
fiscal 2002 and remain at that level thereafter. No annual rate
increase is assumed for the dental benefit cost since it is a
scheduled plan. The medical cost trend rate assumption has only a
small effect on the amounts reported due to the cap on contributions
paid by the Corporation. Increasing the assumed health care cost
trend rate one percentage point in each year would increase the
accumulated postretirement benefit obligation as of March 31, 1995
by approximately $200,000 (5%). The aggregate of the service and
interest cost components of the net periodic postretirement benefit
cost for fiscal 1995 would increase by approximately $12,000 (4%).
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8%, 7.5% and 8.25%
at March 31, 1995, 1994 and 1993, respectively. Since the plan is
unfunded, no assumption is needed as to the long-term rate of return
on assets.
The net periodic postretirement benefit costs for the years ended
March 31 were as follows:
(In thousands) 1995 1994
--------------------
Service cost $ 62 $ 47
Interest cost 292 279
Net amortization 11 -
Recognition of transition obligation
at April 1, 1993 - 3,464
--------------------
Net periodic postretirement benefit cost $ 365 $3,790
====================
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.
During fiscal 1995 adoption of SFAS 112 resulted in a one-time
charge against earnings for the transition obligation for past
services of $371,000 (net of a $248,000 deferred income tax benefit)
which was recorded on April 1, 1994. The estimated ongoing
additional after-tax annual cost of this plan is not material.
The postemployment salary continuation plan is unfunded. The
expected net periodic postemployment benefit cost for salary
continuation for fiscal 1995 included approximately $2,000 for
service cost (benefits attributed to service during the period),
$6,000 for interest cost and $619,000 for recognition of the
transition obligation at April 1, 1994 for a total net periodic
postemployment benefit cost of $627,000. The rate of increase in
future compensation levels used in determining the actuarial present
value of the projected benefit obligation was 5% and the weighted
average settlement rate was 8%.
Stock option plan. Under a non-qualified stock option plan
approved by the Shareholders in July 1992 (the 1992 Plan), certain
employees have been granted options to purchase up to an aggregate
294,500 shares of common stock. During fiscal 1995 there were
96,500 options granted having an exercise price of $16.1505 and
8,500 options were canceled upon termination of employment of the
grantees; during fiscal 1994 there were 73,500 options granted
having exercise prices from $16.983 to $18.315; and during fiscal
1993 there were 68,500 options granted having exercise prices from
$17.649 to $17.982. Options granted under the 1992 Plan generally
are exercisable during a four-year period beginning with the grant
date. Options for 37,550, 500 and 2,382 shares were exercised during
fiscal years 1995, 1994 and 1993, respectively, at prices ranging
from $14.652 to $17.982 per share. At March 31, 1995, there were
254,068 options outstanding with exercise prices from $14.652 to
$18.315 per share.
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 an estimated combined period from the
date of grant through the end of the four-year period during which
purchased shares must be held or resold to the Corporation. The
amounts of such compensation expense charged to results of
operations following the date of grant for the years ended March 31,
1995, 1994 and 1993 were $370,000, $213,000, and $117,000,
respectively.
5. INCOME TAXES
As discussed in Note 1, the Corporation adopted SFAS 109 at the
beginning of fiscal year 1993. The cumulative effect of this change
in accounting for income taxes was immaterial.
Earnings before income taxes included foreign earnings of
$11,896,000, $7,864,000 and $7,141,000 for 1995, 1994 and 1993,
respectively.
Income tax expense attributable to income from operations for the
years ended March 31 consisted of:
(In thousands) Current Deferred Total
-------------------------------------
1995
----
U.S. Federal $ 3,887 $ (504) $ 3,383
State and local 500 36 536
Foreign 4,038 (952) 3,086
-------------------------------------
Totals $ 8,425 $(1,420) $ 7,005
=====================================
1994
----
U.S. Federal $ 2,272 $ (434) $ 1,838
State and local 590 (86) 504
Foreign 2,213 98 2,311
-------------------------------------
Totals $ 5,075 $ (422) $ 4,653
=====================================
1993
----
U.S. Federal $ 2,044 $ (44) $ 2,000
State and local 663 (12) 651
Foreign 2,462 (462) 2,000
-------------------------------------
Totals $ 5,169 $ (518) $ 4,651
=====================================
Income tax expense for the years ended March 31, 1995, 1994 and
1993 differed from the amounts computed by applying the U.S. Federal
statutory tax rates to pretax income from operations as a result of
the following:
(In thousands, except tax rates) 1995 1994 1993
------------------------------------
U.S. Federal statutory tax rate 35% 34% 34%
====================================
Computed "expected"
Federal income tax $6,351 $4,224 $4,195
State income taxes, net of
Federal tax benefit 354 333 429
Adjustment of prior years
tax accruals 1,251 (24) 177
Foreign tax rate differential (132) (442) (405)
Change in the beginning of
the year balance of the
valuation allowance for
deferred income taxes
allocated to income tax
expense (872) 482 34
No tax benefit for (gain) loss of
unconsolidated corporate
joint venture (172) (10) 200
Other, net 225 90 21
--------------------------------------
Actual income taxes $7,005 $4,653 $4,651
======================================
Effective tax rate 38.6% 37.5% 37.7%
======================================
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) 1995 1994
------------------
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 228 $ 277
Inventories, principally due to additional
costs inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 and non-
deductible inventory reserves 607 420
Accrued liabilities 3,527 2,169
Foreign net operating loss carry forwards 1,198 1,345
Other 1,248 308
------------------
Total gross deferred tax assets 6,808 4,519
Less valuation allowance - 872
------------------
Net deferred assets 6,808 3,647
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation 773 550
Other 187 166
------------------
Total gross deferred tax liabilities 960 716
------------------
Net deferred asset $5,848 $2,931
==================
The deferred tax asset of $1,198,000 and $1,345,000 at March 31,
1995 and 1994, respectively, which relate to foreign net operating
loss carry forwards, results primarily from prior year losses
incurred by a foreign subsidiary. The valuation allowance in 1994
was related to those losses. The valuation allowance decreased
$872,000 in 1995 and increased $482,000 in 1994. Management now
believes the deferred tax asset is more likely than not to be
realized from future taxable income generated by the subsidiary.
The net operating loss carry forward has an indefinite expiration
period.
The Corporation has not recognized a deferred tax liability for
the undistributed earnings of subsidiaries that arose in 1995 and
prior years because the Corporation currently does not expect those
unremitted earnings to reverse and become taxable to the Corporation
in the foreseeable future. A deferred tax liability will be
recognized when the Corporation expects that it will recover those
undistributed earnings in a taxable manner, such as through receipt
of dividends, net of available foreign tax credits, or sale of the
investments. At March 31, 1995, the undistributed earnings of those
subsidiaries were approximately $22,000,000.
6. SEGMENT REPORTING
The Corporation is engaged in the business of developing,
manufacturing and marketing industrial chemicals, supplies and
related equipment.
The following table is a summary of the Corporation's operations
by geographic area:
North Asia-
(In thousands) America Europe Pacific Consolidated
--------------------------------------------
1995
----
Net sales to unaffiliated
customers:
Proprietary $90,177 $34,490 $38,648 $163,315
========================================
Total Sales $93,866 $41,196 $47,038 $182,100
Cost of goods sold 47,544 24,200 22,315 94,059
Selling, technical and
administrative expense 40,308 12,311 15,285 67,904
----------------------------------------
Operating profit 6,014 4,685 9,438 20,137
Other income (expense) 1,532 (1,488) (2,034) (1,990)
----------------------------------------
Earnings before
income taxes <F1> 7,546 3,197 7,404 18,147
Income taxes 3,476 1,458 2,071 7,005
----------------------------------------
Net earnings <F1> $ 4,070 $ 1,739 $ 5,333 $ 11,142
========================================
Identifiable assets $67,780 $21,943 $33,582 $123,305
========================================
1994 <F2>
----
Net sales to unaffiliated
customers:
Proprietary $68,864 $31,469 $30,268 $130,601
========================================
Total Sales $73,861 $37,951 $38,214 $150,026
Cost of goods sold 35,538 22,416 18,960 76,914
Selling, technical and
administrative expense 32,785 13,118 14,160 60,063
----------------------------------------
Operating profit 5,538 2,417 5,094 13,049
Other income (expense) 268 (1,478) 585 (625)
----------------------------------------
Earnings before
income taxes <F1> 5,806 939 5,679 12,424
Income taxes 2,843 683 1,127 4,653
----------------------------------------
Net earnings <F1> $ 2,963 $ 256 $ 4,552 $ 7,771
========================================
Identifiable assets $56,708 $19,942 $29,217 $105,867
========================================
1993 <F2>
----
Net sales to unaffiliated
customers:
Proprietary $66,822 $35,406 $27,904 $130,132
========================================
Total Sales $74,068 $45,042 $37,214 $156,324
Cost of goods sold 38,363 27,372 18,165 83,900
Selling, technical and
administrative expense 30,472 14,197 12,211 56,880
----------------------------------------
Operating profit 5,233 3,473 6,838 15,544
Other income (expense) 880 (2,637) (1,449) (3,206)
----------------------------------------
Earnings before
income taxes 6,113 836 5,389 12,338
Income taxes 3,076 177 1,398 4,651
----------------------------------------
Net earnings $ 3,037 $ 659 $ 3,991 $ 7,687
========================================
Identifiable assets $53,645 $24,796 $28,732 $107,173
========================================
<FN>
<F1> Before the cumulative effect of accounting changes which
resulted in one-time after tax charges of $371,000 ($0.12/share) in
1995 and $2,082,000 ($0.58/share in 1994).
<F2> Certain amounts in the 1994 and 1993 geographic segment
presentations have been reclassified to conform with the 1995
presentation.
7. LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consisted of the following:
(In thousands) 1995 1994
----------------------
Term loan, variable interest
(7.5% at March 31, 1995), due
in quarterly installments to 2,001 $21,875 $ -
Note payable, variable interest - 450
Debenture, 3.5% interest due in
annual installments to 1999 607 649
Other, due in varying amounts
to 1999 160 252
-----------------------
Total long-term obligations 22,642 1,351
Less current portion 4,413 429
-----------------------
Long-term portion $18,229 $ 922
=======================
Minimum future principal payments on long-term obligations
subsequent to March 31, 1995 are as follows:
(In thousands)
1996 $ 4,413
1997 4,385
1998 4,349
1999 4,288
2000 4,166
2001 1,041
-------
Total $22,642
=======
The term loan bears interest at a variable rate, which initially
was equal to the London interbank market rate (LIBOR) plus 1.25
percentage points. The Corporation has purchased an interest rate
cap which limits the LIBOR interest rate payable on the outstanding
portions of the debt, except for the last $3.1 million. The maximum
payable rates increase gradually from 5.81%, initially, to 8.97%
when the interest rate cap expires. At March 31, 1995 the 7.5%
effective interest rate included a LIBOR rate of 6.5% plus 1%. The
maximum payable LIBOR rate under the interest rate cap was 6.98%.
The maximum effective interest rate payable would have been 7.98%.
Under the term loan, the most restrictive covenants provide that
dividends to shareholders cannot exceed 50% of net earnings; a
future business acquisition cannot cause consolidated debt to exceed
three hundred percent of earnings before interest, taxes,
depreciation and amortization; the ratio of earnings before income
taxes to interest expense must be at least 2.5 to 1; the minimum
consolidated net worth shall be at least $37 million plus one-half
of consolidated net earnings after October 6, 1994; and the ratio of
total debt to net worth shall be no greater than 1.2 to 1 during
calendar year 1995 and .9 to 1 thereafter.
8. LEASE COMMITMENTS
The Corporation leases certain warehouse space, transportation,
computer and other equipment. 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 $4,968,000 in
1995, $4,126,000 in 1994, and $4,427,000 in 1993 of which $821,000,
$587,000 and $610,000, respectively, were contingent rentals.
Minimum lease commitments under operating leases for the fiscal
years subsequent to March 31, 1995 are as follows:
(In thousands)
1996 $2,648
1997 766
1998 261
1999 143
2000 31
------
Total $3,849
======
9. SHAREHOLDERS' EQUITY
The following summarizes the changes in shareholders' equity accounts
for each of the three years in the period ended March 31,1995:
(In thousands, except share data)
Common Stock Total
------------ Additional Cumulative Treasury Stock Share-
Stated Paid-in Retained Translation -------------- holders
Shares Value Capital Earnings Adjustment Shares Cost Equity
- -------------------------------------------------------------------------------------------------------
Balance March 31, 1992 4,095,648 $4,096 $ 464 $65,943 $2,147 530,648 $(11,600) $61,050
Stock options
exercised 2,382 2 150 152
Net earnings 7,687 7,687
Cash dividends
$.60 per share (2,139) (2,139)
Foreign currency
translation
adjustment (1,569) (1,569)
-------------------------------------------------------------------------------
Balance March 31, 1993 4,098,030 4,098 614 71,491 578 530,648 (11,600) 65,181
Stock options
exercised 500 1 220 221
Net earnings 5,689 5,689
Cash dividends
$.60 per share (2,141) (2,141)
Foreign currency
translation
adjustment (781) (781)
--------------------------------------------------------------------------------
Balance March 31, 1994 4,098,530 4,099 834 75,039 (203) 530,648 (11,600) 68,169
Stock options
exercised 37,550 37 842 879
Net earnings 10,771 10,771
Cash dividends
$.60 per share (1,767) (1,767)
Foreign currency
translation
adjustment 1,754 1,754
Treasury stock purchase 862,899 (26,152) (26,152)
--------------------------------------------------------------------------------
Balance March 31, 1995 4,136,080 $4,136 $1,676 $84,043 $1,551 1,393,547 $(37,752) $53,654
================================================================================
Effective August 1, 1994, the Corporation purchased 851,899
shares of its common stock at a price of $30 per share pursuant to a
"Dutch Auction" self tender offer that commenced on June 23, 1994
(the Offer). Under the terms of the Offer, the Corporation had
sought to purchase up to 1,000,000 shares at prices not greater than
$30 nor less than $25 per share, as specified by the tendering
shareholders. The shares purchased pursuant to the Offer represent
approximately 23.8% of the shares outstanding immediately prior to
the commencement of the Offer. The total cost of the Offer,
including all related fees and expenses, of approximately $26.2
million was funded primarily by borrowing $25 million on an
unsecured basis under a six-year term loan which is discussed under
Note 7 to these consolidated financial statements.
Separately, the Board of Directors authorized the purchase of up
to 148,000 shares of the Corporation's common stock to be acquired
through open market purchases or privately negotiated transactions
from time to time. During the third quarter of fiscal 1995, 11,000
shares of common stock were repurchased at $35 per share pursuant to
this authorization. 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 share 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. At March 31, 1995, there was a balance of such
outstanding authorizations totaling 137,000 shares.
10. CONTINGENCIES
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 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 is a party to a number of lawsuits and claims
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.
The Corporation's business operations, consist principally of
manufacture and sale of specialty chemicals, supplies and related
equipment to customers throughout much of the world. Approximately
60% of the business is concentrated with manufacturers of printed
circuit boards which are used in a wide variety of end-use
applications, including computers, communications and control
equipment, appliances, automobiles and entertainment products. As
is usual for this business, the Corporation generally does not
require collateral or other security as a condition of sale,
choosing, rather, to control credit risk of trade account financial
instruments by credit approval, balance limitation and monitoring
procedures. Management believes that reserves for losses, which are
established based upon review of account balances and historical
experience, are adequate.
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 Peat Marwick 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 1995 appears adjacent to this statement.
The Audit Committee of the Board of Directors, consisting solely
of Directors independent of MacDermid, 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
Daniel H. Leever
President and Chief Executive Officer
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick 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, 1995 and
1994, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended March 31,
1995. 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.
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 provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of MacDermid, Incorporated and subsidiaries at March 31,
1995 and 1994 and the results of their operations and their cash
flows for each of the years in the three-year period ended March 31,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements,
the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" in 1995,
and Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" in 1994.
/s/KPMG Peat Marwick LLP
/s/KPMG Peat Marwick LLP
May 12, 1995
SELECTED FINANCIAL DATA
SELECTED QUARTERLY RESULTS
(UNAUDITED)
(In thousands, except per share amounts)
1995 by Quarters
----------------------------------------------
June September December March Total
----------------------------------------------
Net sales $42,587 $46,498 $44,547 $48,468 $182,100
Gross profit 21,262 21,779 21,684 23,316 88,041
Net earnings 2,799<F2> 2,667 2,637 2,668 10,771<F2>
Primary earnings
per share<F1> $0.78<F2> $0.85 $0.92 $0.92 $3.43<F2>
1994 by Quarters
----------------------------------------------
June September December March Total
----------------------------------------------
Net sales $39,850 $37,755 $34,814 $37,607 $150,026
Gross profit 19,500 17,979 16,806 18,827 73,112
Net earnings (184)<F2> 1,860 1,477 2,536 5,689<F2>
Earnings per share $(0.05)<F2> $0.52 $0.42 $0.71 $1.60<F2>
<FN>
<F1> Fiscal 1995 was the first year in which the dilutive effect of
options granted was large enough to report.
<F2> After cumulative effect of accounting changes which resulted
in one-time after tax charges of $371,000 ($0.12/share) in 1995 and
$2,082,000 ($0.58/share) in 1994.
- ---------------------------------------------------------------------------
MARKET RANGE TRADING RECORD
Fiscal 1995 Fiscal 1994
------------------ -----------------
High Low High Low
QUARTER ------------------ -----------------
June 29 1/2 24 31 25 1/4
September 36 1/2 29 28 1/2 26 3/4
December 42 34 28 3/4 24 1/2
March 44 1/2 36 1/2 27 1/4 24 1/2
Closing price March 31 43 26
<FN>
Source: Nasdaq Stock Market Monthly Statistical Report
DIVIDEND RECORD
Fiscal 1995 Fiscal 1994
--------------------------- ----------------------------
Record Payable Amount Record Payable Amount
QUARTER Date Date Declared Date Date Declared
--------------------------- ----------------------------
June 6/15/94 7/1/94 $0.15 6/15/93 7/1/93 $0.15
September 9/15/94 10/3/94 $0.15 9/15/93 10/1/93 $0.15
December 12/15/94 1/3/95 $0.15 12/15/93 1/3/94 $0.15
March 3/15/95 4/3/95 $0.15 3/15/94 4/1/94 $0.15
CORPORATE INFORMATION
DIRECTORS:
Harold Leever, Chairman of the Board
Daniel H. Leever, President and Chief Executive Officer
Donald G. Ogilvie, Executive Vice President,
American Bankers Association
James C. Smith, Chairman of the Board and Chief Executive Officer,
Webster Financial Corporation
Thomas W. Smith, President of Prescott Investors, Inc.
Walter F. Torrance, Jr., Partner, Carmody & Torrance, Attorneys
Robert F. Welzien, Chairman and Chief Executive Officer of
LISA Products Corporation
Francis M. White, Retired Chairman of the Board,
Bank of Boston Connecticut
OFFICERS:
Harold Leever, Chairman of the Board
Daniel H. Leever, President and Chief Executive Officer
VICE PRESIDENTS:
Charles T. Cobb
Terrence C. Copeland
David A. Erdman
John J. Grunwald
Peter E. Kukanskis
Gary B. Larson
Michael A. Pfaff
OTHER OFFICERS:
Gregory M. Bolingbroke, Corporate Controller
John L. Cordani, Corporate Secretary
Sharon J. Stone, Assistant Treasurer
CORPORATE HEADQUARTERS:
245 Freight Street
Waterbury, Connecticut 06702
(203) 575-5700
AUDITORS:
KPMG Peat Marwick LLP
REGISTRAR OF STOCK AND TRANSFER AGENT:
Harris Trust Company of New York
SEC FORM 10-K:
The Annual Report and the SEC Form 10-K report are
available 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 Saving 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 Nasdaq Stock Market (Symbol: MACD). Price and shares
traded are listed in principal daily newspapers and are
supplied by Nasdaq. Approximate number of Holders as of
May 31, 1995 - 800. CUSIP-554273 102.
ANNUAL MEETING:
The Annual Meeting of Shareholders will be held on Thursday,
July 20, 1995 at 3:30 p.m., at the Holiday Inn Waterbury,
63 Grand Street, Waterbury, CT.
LOCATIONS IN THE AMERICAS:
United States: Waterbury, CT; New Hudson, MI; Cincinnati, OH; Ferndale,
Dallas, TX
Canada: MacDermid Chemicals, Inc.
LOCATIONS WORLDWIDE:
Australia: MacDermid Australia Branch
Benelux: MacDermid Benelux, B.V.
England: MacDermid G.B., Ltd.
France: MacDermid France, S.A.
Germany: MacDermid GmbH
Hong Kong: MacDermid Asia Ltd; MacDermid Hong Kong, Ltd.
Israel: MacDermid Israel Ltd.
Italy: MacDermid Italiana SRL
Japan: Nippon MacDermid Co. Ltd.
Korea: MacDermid Korea Ltd.
New Zealand: MacDermid New Zealand, Ltd.
Rep. of South Africa: MacDermid S.A. (PTY) Ltd.
Singapore: MacDermid Singapore, Pte Ltd.
Spain: MacDermid Espanola, S.A.
Switzerland: MacDermid Suisse, S.A.
Taiwan: MacDermid Taiwan, Ltd.
AFFILIATE:
Hollmuller America, Inc.: Waterbury, CT