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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
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OR
[ ] 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
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MacDermid, Incorporated
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(Exact name of registrant as specified in its charter)
Connecticut 06-0435750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 Blake Street, Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (720) 479-3060
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Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
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Common Stock without Par Value New York Stock Exchange
9.125% Senior Subordinated Notes due 2011 New York Stock Exchange
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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
--- ---
The aggregate market value of voting common stock held by non-affiliates of the
registrant at the close of business on June 30, 2004, was $1,025,578,059 based
upon the last sales price reported for such date on the New York Stock Exchange.
The number of shares of the Registrant's Common Stock outstanding as of March 1,
2005, was 30,313,697 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 2004 Annual Report to Shareholders are
incorporated herein by reference into Parts I and II hereof and filed as Exhibit
13 to this Report. The definitive proxy statement to be filed and mailed to the
Corporation's stockholders on or before 30 days prior to the Corporation's
annual meeting scheduled for May 12, 2005, is incorporated herein be reference
into Part III hereof.
MACDERMID, INCORPORATED
INDEX
PART I
Item 1: Business
Item 2: Properties
Item 3: Legal Proceedings
Item 4: Submission of Matters to a Vote of Security Holders
PART II
Item 5: Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Item 6: Selected Financial Data
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Item 8: Financial Statements and Supplementary Data
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A: Controls and Procedures
Item 9B: Other Information
PART III
Item 10: Directors and Executive Officers of the Registrant
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners and Management
Item 13: Certain Relationships and Related Transactions
Item 14: Principal Accountant Fees and Services
PART IV
Item 15: Exhibits, Financial Statement Schedules
Signatures
PART I
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 Printing Solutions segment (MPS), and our other corporate
entities.
Item 1. Description of Business
Item 1(a) General Development of Business
Established in Waterbury, Connecticut in 1922, MacDermid researches, develops,
acquires, manufactures, markets and services specialty chemicals and systems for
the metal and plastic finishing, electronics, graphic arts and offshore oil
industries. Our products, which are used worldwide, are supplied to the metal
and plastic finishing markets for automotive and other industrial applications,
markets within the electronics industry to create electrical patterns on circuit
boards, the offshore oil and gas markets as lubricants and cleaning agents for
oil drilling and exploration and also to the commercial printing, newspaper and
packaging industries for image transfer using offset or flexographic printing
applications, photopolymer plates and digital printers.
Our common shares have traded on the New York Stock Exchange under the symbol
MRD since 1998. Prior to that, and since 1966, our common shares were traded on
the NASDAQ stock exchange.
Significant developments
In December 2003, we sold our interest in Eurocir S.A. back to the minority
shareholders for $5 million cash and other consideration. During the period we
held Eurocir S.A. we included its operations in a separate Electronics
Manufacturing segment. The sale of Eurocir S.A. substantially terminated all of
our operations in electronic manufacturing business. As such, those operations
have been reclassified as discontinued operations in our consolidated statement
of earnings.
Item 1(b). Financial Information About Segments
MacDermid has two distinct segments, Advanced Surface Finishing and Printing
Solutions. See the Notes to Consolidated Financial Statements within our 2004
Annual Report to Shareholders, which is incorporated by reference as Exhibit 13
to this Form 10-K, for further description of the segments and related financial
information.
Item 1(c) Narrative Description of Business
Some of the following statements may describe our expectations of future
products and business plans, financial results, performance and events. Actual
results may differ materially from these forward-looking statements. Please see
Item 7,Management's Discussion and Analysis - Cautionary Statement Pursuant to
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995,
for factors that may negatively impact our performance. The following
statements are expressly made subject to those and other risk factors.
MacDermid develops, produces and markets a broad line of specialty chemical
products that are used worldwide. We employ over 2,300 people in more than 15
different countries. Approximately 60% of our sales and net assets are outside
the United States.
Our Products
We have the following two classes of principal products:
(a) chemical compounds, printing plates and blankets produced by us, most of
which are the result of our own and acquired research and development and,
therefore, are referred to as proprietary products; and
(b) resale non-proprietary chemicals and supplies.
We provide our products to our customers via two business segments: Advanced
Surface Finishing and Printing Solutions. The Advanced Surface Finishing
segment produces and sells proprietary chemical compounds that are primarily
used for automotive, other industrial, electronics and offshore applications.
In automotive and other industrial applications, our products are used for
cleaning, activating, polishing, mechanical plating, mechanical galvanizing,
electro-plating, phosphatizing, stripping and coating, filtering,
anti-tarnishing and rust retarding for metal and plastic surfaces. In
electronics applications, our products are used to etch copper and create
electrical patterns on circuit boards. In offshore oil and gas exploration, our
chemicals and fluids are used in hydraulic systems as lubricants and corrosion
inhibitors to assist in drilling and production operations. Chemicals, supplies
and equipment manufactured by others and resold by us consist of basic
chemicals, automatic plating conveyors, barrel plating and pollution control
equipment, rectifiers, pumps and filters. We also offer a line of horizontal
processing equipment primarily for the production of printed circuit boards and
chemical machining applications used in conjunction with certain of our chemical
products.
The Printing Solutions segment offers a complete line of offset printing
blankets and photo-polymer plates that are used by commercial printing and
packaging industries. These products allow for both image transfer in
flexographic applications and in offset printing applications. Our products are
used to improve print quality and productivity for commercial printing. We also
manufacture and market a complete line of digital printers with color graphics
and other features.
Manufacturing
We use in excess of 1,100 chemicals as raw materials in the manufacture of our
proprietary products. With few exceptions, several domestic sources of supply
are available for all such raw materials and for resale chemicals, supplies and
equipment. During fiscal year 2004, there were no significant difficulties in
obtaining raw materials essential to our business.
We own and operate manufacturing facilities in the United States, Spain, Great
Britain, Italy, France, Taiwan, China, Australia and New Zealand. We also own
and operate six manufacturing facilities and maintain chemical inventories at
more than 10 leased or rented distribution points within the United States.
It is necessary to maintain finished goods inventory at locations throughout the
United States and in the foreign countries in which we operate so that it may
meet the rapid delivery requirements of our customers. This impacts working
capital requirements by requiring a considerable investment in inventories to
meet this demand. Since products are taken from inventory stock to ship against
current orders, there is no backlog of orders for our proprietary chemical
products. Customer payment terms, which vary by country, are generally in
accord with local industry practice.
Sales, Marketing and Distribution
The following table sets forth the classes of our products and the respective
percentage of total consolidated revenue for fiscal year 2004 and the previous
two fiscal periods:
CLASS OF PRODUCTS FISCAL YEAR 2004 FISCAL YEAR 2003 FISCAL YEAR 2002
Proprietary chemicals 619,135,000 94% 581,744,000 94% 574,860,000 94%
Resale chemicals
and supplies 26,374,000 4% 19,523,000 3% 16,920,000 3%
Equipment and other 15,276,000 2% 18,619,000 3% 19,710,000 3%
Proprietary sales are generated from manufactured chemical compounds produced
from our own research and development laboratories and manufacturing facilities.
In many cases, these products are protected with patents or trademarks.
Proprietary products have higher gross margins than non-proprietary products and
are viewed by management as more critical to our overall performance.
Methods for selling and marketing our proprietary products vary slightly by
geographic region. In total, we generate business through the efforts of sales
and service personnel and regional distributors and manufacturing
representatives.
In the Americas, we market our entire line of proprietary products by way of
more than 275 sales and service personnel. In certain areas of the United
States, distributors and manufacturing representatives also sell and service
many of our products. We market certain of our products through
wholly-owned subsidiaries in Canada, Mexico and Brazil.
Our European business is generated through distributors and by way of more than
350 sales and service representatives who are employed by our subsidiaries
located in France, Germany, Great Britain, Italy, Holland, Spain, Belgium, and
Scandinavia. In this region, we market our proprietary products principally
through wholly-owned subsidiaries.
Our Asia-Pacific business is generated by way of more than 300 sales and service
representatives who are employed by those local subsidiaries. In this region,
we market our proprietary products through either wholly owned subsidiaries or
branch in Australia, China/Hong Kong, Japan, Korea, New Zealand, Singapore, and
Taiwan.
In addition to the countries where we have wholly-owned subsidiaries, some of
our proprietary chemicals are sold in other countries throughout South America,
Europe and Asia through distributors. Resale items are marketed in conjunction
with and as an aid to the sale of proprietary chemicals.
Revenue from product sales, including freight charged to customers, is recorded
upon shipment to the customer if the collection of the resulting receivable is
probable. Our stated shipping terms are customarily FOB shipping point and do
not include customer inspection or acceptance provisions. Equipment sales
arrangements may include right of inspection or acceptance provisions in which
case revenue is deferred until these provisions have been satisfied. Where
circumstances arise where title has not passed, or revenue is not earned, we
defer revenue recognition in accordance with criteria set forth in Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.
No material portion of our business is seasonal. Likewise, no major portion of
our business is dependent upon a single customer or a few customers, the loss of
whom would have a materially adverse effect on our business.
Research and Development
Research in connection with proprietary products is performed principally in the
United States, Great Britain, Spain, France, and Japan. We spent approximately
$21,916,000 during fiscal year 2004, $19,955,000 during fiscal year 2003, and
$19,202,000 during fiscal year 2002 on research and development activities.
Substantially all research and development activities were performed internally.
Intellectual Property
We own approximately 190 non-expired U.S. Patents, for which corresponding
patents have been obtained or are pending in most industrialized nations. In
addition, we own approximately 445 non-expired foreign patents. The patents we
own are important to our business and have varying remaining lives. Although
certain of these patents are increasingly more important to our business, we
believe that our ability to provide technical and testing services to its
customers and to meet the rapid delivery requirements of our customers is
equally, if not, more important. In addition, we have many proprietary products
which are not covered by patents and which make a large contribution to our
total sales. Further, we own a number of domestic and foreign trade names and
trademarks which we consider to be of value in identifying MacDermid and our
products. We do not hold nor have we granted any franchises or concessions.
Government and Environmental Regulation
We are subject to numerous federal, state, and local laws in the countries in
which we operate, including tax, environmental and other laws that govern the
way we conduct our business. However, no portion of our business is subject to
re-negotiation of profits or termination of contracts or subcontracts at the
election of the governments in the countries in which we operate.
In response to increased government attention to environmental matters
worldwide, we continue to develop proprietary products designed to reduce the
discharge of pollutant materials into the environment and eliminate the use of
certain targeted raw materials while enhancing the efficiency of customer
chemical processes.
Competitive Environment
We provide a broad line of proprietary chemical compounds and supporting
services. We have many competitors, estimated to be in excess of 100 in some
proprietary product areas. Some large competitors operate globally, as does
MacDermid, but most operate locally or regionally. To the best of our
knowledge, no single competitor competes with all our proprietary products. We
maintain extensive support, technical and testing services for our customers,
and are continuously developing new products. Aforementioned efforts to comply
with Federal, State and Local provisions, which have been enacted or adopted
regulating the discharge of materials into the environment, are expected to have
a positive effect upon our competitive position in the future. Management
believes that MacDermid's combined abilities to manufacture, sell, service and
develop new products and applications, enables it to compete successfully both
locally and worldwide.
People
As of December 31, 2004, MacDermid had 2,362 full time employees as compared to
2,403 full time employees as of December 31, 2003.
Item 1(d) FOREIGN AND DOMESTIC OPERATIONS
See our Annual Report to Shareholders, incorporated by reference to this Form
10-K and attached as Exhibit 13, for discussion of our sales, long-lived assets
and other geographical information as it relates to our country of domicile and
our foreign operations.
Item 1(e) AVAILABLE INFORMATION
Our internet website is http://www.macdermid.com. Through this website we make
available, free of charge, our Annual Reports to Shareholders. Our annual
reports on 10-K quarterly reports on Form 10-Q current reports on Form 8-K and
amendments to those reports are not provided on this website; however, paper
copies of these reports are available free of charge by writing to MacDermid
Annual Reports, 1401 Blake Street, Denver, Colorado, 80202.
ITEM 2: PROPERTIES
Management believes that MacDermid's production facilities are suitable for
their purpose and adequate to support its businesses. The extent of utilization
of individual facilities varies, but they generally have sufficient capacity to
meet our near-term growth expectations. The following table lists our principal
facilities by segment and gives a brief description of the activities performed
at each facility:
LOCATION PRINCIPAL USE OWNERSHIP STATUS
Corporate & other support functions
Denver, Colorado Executive offices Owned
Waterbury, Connecticut ASF and MPS segment Owned
administration offices,
marketing offices,
corporate service,
customer support
and research labs
Advanced Surface Finishing
Middletown, Delaware Factory Owned
Ferndale, Michigan Factory Owned
New Hudson, Michigan Labs and offices Owned
Pasadena, Texas Warehouse and offices Owned
Hsin Chu, Taiwan Factory, warehouse, Owned
labs and offices
Panyu, China Factory, warehouse, Owned
labs and offices
Yokohama, Japan Labs and offices Leased
Birmingham, England Factory, warehouse, Owned
labs and offices
Wigan, England Factory, warehouse and offices Owned
Villemeux, France Warehouse and offices Owned
Novara, Italy Factory, warehouse, Leased
lab and offices
Eitten-Leur; Netherlands Warehouse and offices Leased
Barcelona, Spain Factory, warehouse, Owned
lab and offices
Printing Solutions
Morristown, Tennessee Factory Owned
Atlanta, Georgia Offices and labs Owned
San Marcos, California Factory Owned
Eden Prairie, Minnesota Factory, warehouse, Leased
labs and offices
Cernay, France Factory, warehouse, Owned
labs and offices
Evreux, France Warehouse and offices Owned
Mirambeau, France Factory and offices
Campbellfield, Victoria,
Australia Factory, warehouse and offices Leased
Hoofddorp, The Netherlands Plant and warehouse Leased
Piotello, Italy Warehouse and offices Leased
We also own property in Franklin Park and Waukeegan, Illinois; Adams,
Massachusetts; Vernon, Connecticut; and Steinbach and Dormans, France. These
properties are vacant and could be used for manufacturing should the need arise,
or could be leased or sold should an opportunity arise.
In addition, we are currently in the process of constructing a factory, a
technology center and office space in Suzhou, China. This construction is
expected to be completed in mid-2005.
All owned and leased facilities are in good condition and are of adequate size
for present business volume.
ITEM 3: LEGAL PROCEEDINGS
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,
Fike-Artel in Nitro, West Virginia and Solvent Recovery Service in Southington,
Connecticut. There are many other PRPs involved at these sites. With respect
to both of these sites, we have entered into cost sharing agreements with the
applicable PRP groups and our allocated cost share with regard to each of these
sites is deminimus at 0.2%. Our ongoing costs with respect to each site
generally range from about $2-$4 thousand dollars per quarter. As a result of
the deminimus nature of the costs no specific reserve has been established. We
have also been contacted with requests for information with regard to two
additional sites, Whitney Barrel in Massachusetts and the Lake Calumet Cluster
site in Illinois. We have found no information connecting us or our subsidiaries
to these sites and have not received a PRP notice regarding these two additional
sites. As a result no reserve is deemed appropriate in this regard at this
time. 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 of $1,700,000, 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 $1,600,000. We
estimate the range of cleanup costs at the Canning sites between $2,000,000 and
$5,000,000 and have recorded a $3,300,000 accrual (comprised of the foregoing
$1,700,000 reserve and the $1,600,000 deferred purchase price) related to these
costs, representing management's best estimate of total costs within this range.
Investigations into the extent of contamination, however, are ongoing with
respect to these sites. To the extent our liabilities exceed the $1,600,000
deferred purchase price, 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 have recorded a reserve
of $650,000 with regard to this remediation. 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:
On January 30, 1997, we were served with a subpoena from a federal grand jury in
Connecticut requesting certain documents relating to an accidental spill from
our Huntingdon Avenue, Waterbury, Connecticut facility that occurred in November
of 1994, together with other information relating to operations and compliance
at the Huntingdon Avenue facility. We were subsequently informed that we were
subject to the grand jury's investigation in connection with alleged criminal
violations of the federal Clean Water Act pertaining to out wastewater handling
practices. In addition, two of our former employees who worked at the
Huntingdon Avenue facility pled guilty in early 2001 to misdemeanor violations
under the Clean Water Act in connection with the above matter. These
individuals were sentenced to fines of $25,000 and $10,000 and two years of
probation as well as community service. In a separate matter, on July 26, 1999,
we were named in a civil lawsuit commenced in the Superior Court of the State of
Connecticut brought by the Connecticut Department of Environmental Protection
alleging various compliance violations at our Huntingdon Avenue and Freight
Street locations between the years 1992 through 1998 relating to wastewater
discharges and the management of waste materials. The complaint alleged
violations of our permits issued under the Federal Clean Water Act and the
Resource Conservation and Recovery Act as well as procedural, notification and
other requirements of Connecticut's environmental regulations over the foregoing
period of time.
We voluntarily resolved these matters in November 28, 2001. As a result, we
were required to pay fines and penalties totaling $2,500,000 over six quarterly
installments, excluding interest. In addition, we were required to pay
$1,550,000 to various local charitable and environmental organizations and
causes. As of June 30, 2003, we had paid the full amounts for both of these
arrangements. We have performed certain environmental audits and other
environmentally related actions and were placed on a two-year probation which
ended November 28, 2003. We had recorded liabilities during the negotiation
period and therefore our results of operating and financial position were not
affected by these arrangements.
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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of MacDermid's security holders during the
fourth quarter of fiscal year 2004.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Information with respect to the market for our common stock, dividends paid and
other related information is contained in its 2004 Annual Report to Shareholders
included as Exhibit 13 to this form 10-K and incorporated by reference.
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data (Five Year Summary) is contained in our 2004 Annual
Report to Shareholders included as Exhibit 13 to this Form 10-K and incorporated
by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations is contained in our 2004 Annual Report to Shareholders included as
Exhibit 13 to this Form 10-K and incorporated by reference.
ITEM 7(A): 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. While we do not
currently actively hedge any of our foreign currency risk on the open market, we
have created natural hedges through the use of intercompany
foreign-currency-denominated loans.
We operate manufacturing facilities in more than ten countries and sell products
in approximately 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, and the Hong Kong Dollar. For the
years ended December 31, 2004, and 2003, foreign currency translation increased
diluted earnings per share year-over year by approximately $0.08. The annual
impact of foreign currency on operating cash flows historically has been
consistent with the impact on earnings.
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.
In the past, we were exposed to interest rate risk, primarily from our floating
interest rate credit facilities. At the time, we entered into interest rate
swap agreements for the purpose of reducing our exposure to possible future
changes in interest rates on these facilities. On June 20, 2001, we refinanced
these facilities with 9 1/8% Senior Subordinated Notes, which reduced our
exposure to changing interest rates and is currently unhedged. However, there
is still one interest rate swap outstanding which expires in December of 2005.
This swap formerly hedged our floating rate debt, but because we refinanced
these obligations, the swap is now considered speculative. For additional
information, see Note 18, Guarantor Financial Information, in Part I, Item 1.
Based upon our current debt structure and expected levels of borrowing for the
remainder of 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 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, including the notes thereto, are
contained in our 2004 Annual Report to Shareholders included as Exhibit 13 to
this Form 10-K and incorporated by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9(A): CONTROLS AND PROCEDURES
Disclosure 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 December 31, 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. Our management's
assessment regarding internal control over financial reporting under the
Sarbanes-Oxley Act of 2002 is incorporated herein by reference to our Annual
Report to Shareholders, attached hereto as Exhibit 13.
MacDermid's independent auditors have issued an audit report on our assessment
of MacDermid's internal control over financial reporting. This report also
appears in our Annual Report to Shareholders, attached hereto as Exhibit 13.
Item 9(B): OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10(A) DIRECTORS
Members of and nominees for our Board of Directors are identified in the section
of our 2005 Proxy Statement captioned "Item 1: Election of Directors" and are
incorporated in this Item 10 by reference pursuant to Regulation 14A.
Item 10(B) EXECUTIVE OFFICERS
Information regarding the executive officers of MacDermid, each of whom has been
employed in their respective offices for more than 5 years, except as noted, are
as follows:
DANIEL H. LEEVER (Age 56): Mr. Leever joined MacDermid originally in 1972,
where he worked in sales for 2 years before leaving and rejoining the company in
1982 as a financial analyst. Over the succeeding 16 years, he held the
positions of assistant to the President, International Manager, Director of
MacDermid Asia, and Director of International Business. In 1988, he was
promoted to Senior Vice President and in 1989 was appointed as Chief Operating
Officer. In 1990 he was appointed President and Chief Executive Officer and was
named Chairman of the Board in 1998. He currently serves as Chairman of the
Board and Chief Executive Officer of MacDermid, Inc.
STEPHEN LARGAN (Age 37): Mr. Largan joined MacDermid in 1999, when he was
appointed Vice President of Finance for MacDermid, Inc. In 2001, he was
appointed as President of our MacDermid Printing Solutions segment. In December
2003, Mr. Largan was appointed Executive Vice President of Operations, a
position he held until April 2004, when he was appointed as President. He
currently serves as President of MacDermid, Inc. Prior to joining MacDermid, he
served as the Director of Finance for a multinational subsidiary of the Ford
Motor Company.
JOHN L. CORDANI (Age 41): Mr. Cordani joined MacDermid in 1986 and was appointed
Corporate Counsel in 1993. In 1994, he was appointed Corporate Secretary. He
served as Corporate Counsel and Secretary until May 2000. In May of 2000, he
became a partner in the law firm of Carmody and Torrance, LLP. In May 2002, he
returned to MacDermid and was reinstated as Corporate Secretary and General
Counsel and was given the title of Vice President; these are the offices he
serves in currently. Mr. Cordani is also counsel to Carmody & Torrance, LLP.,
and an adjunct professor of law at Quinnipiac University School of Law. Mr.
Cordani serves on the Boards of the United Way of Greater Naugatuck and the
Waterbury Chamber of Commerce.
GREGORY M. BOLINGBROKE (Age 55): Mr. Bolingbroke joined MacDermid in 1993 as a
Cost Accountant in Waterbury, Connecticut, prior to which he practiced business
as a Chartered Accountant in South Africa. He was promoted to Corporate
Controller in 2000 and appointed Vice President and Treasurer in 2001. He
currently serves as Senior Vice President of Finance and Treasurer, a position
he was appointed to in 2002.
FRANK MONTEIRO (Age 34): Mr. Monteiro joined MacDermid in 1998 as a General
Accounting Manager for our Advanced Surface Finishing - Americas business unit.
In 2000, he was promoted to Assistant Controller of Advanced Surface Finishing -
Americas and in 2001 was promoted to Treasury Risk Manager for our corporate
business. In 2002, Mr. Monteiro was appointed as Assistant Treasurer and
thereby became an officer of the company. He currently service as Assistant
Treasurer and Risk Manager.
Based upon our review of Forms 3, 4 and 5 filed by certain beneficial owners of
our Class B common stock, we are not aware of any failure by the Section 16
reporting persons to timely file a required form pursuant to Section 16.
We have for several years maintained a code of ethics (formally named the
MacDermid, Inc. Ethics Policy and Corporate Compliance Manual) ("the Code")
applicable to our Board of Directors, principal executive officer, principal
financial officer and principal accounting officer as well as all our other
employees. The code of ethics is filed by reference with this report as Exhibit
14. A copy of the Code may be found on our website at www.macdermid.com under
the Corporate Governance section. Shareholders may also obtain manual copies of
the Code by submitting a written request to John Cordani, Corporate Secretary,
245 Freight Street, Waterbury, CT. 06702-0671.
Richard Boehner was Vice President of Corporate Development from 2001 until his
resignation in July 2004. At that time, Salim Haji was named Vice President of
Corporate Development until his resignation in December 2004. This position is
currently vacant.
ITEM 11: EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference from
our 2004 Proxy Statement to be filed pursuant to Regulation 14A for the 2004
annual meeting of shareholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated by reference from
our 2004 Proxy Statement to be filed pursuant to Regulation 14A for the 2004
annual meeting of shareholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by reference from
our 2004 Proxy Statement to be filed pursuant to Regulation 14A for the 2004
annual meeting of shareholders.
ITEM 14: PRINCIPLE ACCOUNTING FEES AND SERVICES
The information called for by this item is hereby incorporated by reference from
our 2004 Proxy Statement to be filed pursuant to Regulation 14A for the 2004
annual meeting of shareholders.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements
Our consolidated financial statements and report thereon of KPMG LLP, dated
March 15 2005, are contained in our 2004 Annual Report to Shareholders included
as Exhibit 13 to this Form 10-K and incorporated herein by reference.
(2) Financial Statement Schedules
Schedule II is filed as part of this Form 10-K and should be read in conjunction
with the financial statements. All other schedules have been omitted because
they are not applicable to us.
(3) Exhibits
The following exhibits are filed as part of, or incorporated by reference into,
this report on Form 10-K.
EXHIBIT INDEX TO 2004 FORM 10-K ANNUAL REPORT
----------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Restated Certificate of Incorporation, MacDermid, By reference
Incorporated amended as of January 16, 1998, is
incorporated by reference to our December 31, 2003,
Form 10-K, exhibit 3.1.
3.2 Restated By-Laws of MacDermid, Incorporated By reference
amended as of February 26, 2005. Incorporated by
reference to our Current Report on Form 8-K furnished
March 3, 2005, Exhibit 99.1
4 Credit Agreement, amended, dated as of April 28, By reference
2004 among MacDermid, Incorporated, the banks signatory
thereto and Bank of America, N.A. as agent, letter of
credit issuing bank and swing line lender. Incorporated
by reference to Form 10-Q quarterly report for the
period ended March 30, 2003, Exhibit 4.
10.1 MacDermid, Incorporated 1992 Special Stock Purchase By reference
Plan, amended as of November 1, 1992. Incorporated by
reference to December 31, 1993, Form 10-K Exhibit 10.
10.2 MacDermid, Incorporated 1995 Equity Incentive Plan. By reference
Incorporated by reference to December 31, 2003,
Form DEF 14A Definitive proxy statement filed
March 15, 2004, Appendix B.
10.3 MacDermid, Incorporated 1998 Equity Incentive Plan. By reference
Incorporated by reference to December 31 1999,
Form 10-K Exhibit 10.3.
10.4 MacDermid, Incorporated 2001 Equity Incentive Plans. By reference
to December 31, 2003, Form DEF 14A Definitive proxy
statement filed March 15, 2004, Appendix B.
10.5 Severance Agreement. Incorporated by reference to By reference
December 31, 2002 Form 10-K Exhibit 10.5.
10.6 Employment Agreement. Incorporated by reference to By reference
December 31, 2003, Form 10-K Exhibit 10.6.
11 Computation of per share earnings. See Notes to By reference
Consolidated Financial Statements from MacDermid's
2004 Annual Report to Shareholders, attached to this
report as Exhibit 13.
12 Computation of ratio of earnings to fixed charges Attached
13 MacDermid's 2004 Annual Report to Shareholders, as Attached
required by Item 8.
14 Code of Ethics of MacDermid, Incorporated. By reference
Incorporated by reference to Current Report on
Form 8-K filed June 29, 2004, Exhibit 99.1.
21 Subsidiaries of MacDermid, Incorporated. Attached
23 Independent Auditors' Consent. Attached
24 Powers of Attorney. Attached
31.1 Principle Financial Officer Certification under Attached
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Principle Executive Officer Certification under Attached
Section 302 of the Sarbanes-Oxley Act of 2002
32 Corporate Officers' Certification under Section Attached
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 28, 2004, regarding expected earnings
for the third quarter of fiscal year 2004 ended September 30, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MacDermid, Incorporated
------------------------
(Registrant)
Date: March 15, 2005 /s/ Daniel H. Leever
-----------------------
Daniel H. Leever
Chairman and
Chief Executive Officer
Date: March 15, 2005 /s/ Gregory M. Bolingbroke
-----------------------------
Gregory M. Bolingbroke
Senior Vice President, Finance
Daniel H. Leever, pursuant to powers of attorney, which are being filed with
this Annual Report on Form 10-K, has signed below on March 4, 2005 as
attorney-in-fact for the following directors of the Registrant:
Robert L. Ecklin
Donald G. Ogilvie
Joseph M. Silvestri
James C. Smith
T. Quinn Spitzer, Jr.
/s/ Daniel H. Leever
- -----------------------
Daniel H. Leever
Chairman of the Board
and Chief Executive Officer
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
The Board of Directors and Shareholders of
MacDermid, Incorporated:
Under date of March 15, 2005, we reported on the consolidated balance sheets of
MacDermid, Incorporated and subsidiaries (MacDermid) as of December 31, 2004 and
2003, and the related consolidated statements of earnings and other
comprehensive income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 2004, which reports are incorporated
by reference in the December 31, 2004 annual report on Form 10K of MacDermid,
Incorporated. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule II. This financial statement schedule is the responsibility
of the Macdermid's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG, LLP
Hartford, Connecticut
March 15, 2005
SCHEDULE II:
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002.
(AMOUNTS IN THOUSANDS)
BALANCE AT BALANCE
BEGINNING OF AT
DESCRIPTION YEAR ADDITIONS DEDUCTIONS END OF YEAR
- ----------- ------------ --------- ---------- -----------
Allowance for doubtful receivables:
December 31, 2004 $11,908 $3,562 $3,648 $11,822
=========== ========= ========== ===========
December 31, 2003 $12,743 $2,606 $3,441 $11,908
=========== ========= ========== ===========
December 31, 2002 $14,642 $4,773 $6,672 $12,743
=========== ========= ========== ===========