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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549-1004
Form 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1998.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
For the transition period from to
Commission file number 0-2413
MACDERMID, INCORPORATED
(Exact name of Registrant as specified in its Charter)
Connecticut 06-0435750
(State of incorporation) (I.R.S. Employer I.D. No.)
245 Freight Street, Waterbury, Connecticut 06702-0671
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code (203) 575-5700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class - Common Stock Without Par Value
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. ( )
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 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 the filing requirements for the past 90 days. Yes (X) No ( )
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of May 31, 1998 (based on the closing price on such date
as reported on Nasdaq Stock Market) was $1,032,318,000.
The number of shares of Registrant's Common Stock outstanding as of May
31, 1998 was 25,178,492 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 1998 Annual Report to Shareholders are
incorporated by reference into Parts I and II hereof and filed as Exhibit
13 to this Report. The Proxy Statement mailed on or about June 22, 1998 to
the Corporation's stockholders in connection with the annual meeting
scheduled for July 22, 1998 are incorporated herein by reference into Part
III hereof.
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PART I
Item 1(a) GENERAL DEVELOPMENT OF BUSINESS
Incorporated in Connecticut in 1922, MacDermid, Incorporated and its
subsidiaries (collectively, "MacDermid" or the "Corporation") develops,
produces and markets a broad line of specialty chemical products which are
used in the metal and plastic finishing, electronics and graphic arts
industries. MacDermid offers a line of horizontal processing equipment
used in the production of printed circuit boards and in chemical
machining, through its wholly-owned subsidiary, MacDermid Equipment, Inc.
MacDermid also markets chemical supplies and equipment produced by others.
In December 1995, MacDermid acquired the assets, subject to certain
liabilities of the Electronics and Printing Division of Hercules
Incorporated, forming a new wholly-owned subsidiary, MacDermid Imaging
Technology, Inc., for that purpose. Effective January 1, 1998, the
subsidiary was disolved and all accounts of the business were merged
in with MacDermid, Incorporated. The acquired business consists
principally of the manufacture and sale of proprietary products
including photoresists, used to imprint electrical patterns on circuit
boards, and photopolymer printing, which reproduces quality graphics
on package printing and in-store displays. The acquisition, accounted
for as a purchase transaction, was financed, at closing, through bank
borrowings and the issuance of preferred stock. On May 28, 1997 all
the preferred stock was redeemed by utilizing a portion of a revolving
credit facility.
The Corporation's common shares had traded on the NASDAQ stock market
since 1966. The Corporation's original listing application to the
New York Stock Exchange was accepted on February 26, 1998 and since
that date its common shares now trade on the N.Y.S.E.
On February 6, 1998 the Corporation's Board of Directors authorized a
three for one stock split. The shares were distributed on April 1, 1998
to common shareholders of record at the close of business on
March 16, 1998. In the previous fiscal year, on October 21, 1996,
the Board of Directors authorized a three for one stock split, as
well. The shares were distributed on November 15, 1996 to common
shareholders of record at the close of business on November 1, 1996.
For a description of the Corporation's business, see Item 1(c) on the
following page.
Item 1(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
MacDermid has one primary industry segment which is the manufacture
and sale of specialty chemicals used in finishing metals and
non metallic surfaces, printing and in the marketing of supplies and
equipment related to the use of these chemicals.
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Item 1(c) of this Report provides information concerning MacDermid's
classes of products and Item 1(d) of this report includes financial
information concerning operations by geographic area and on a
consolidated basis. Additional information with respect to the one
primary business is shown in the portions of MacDermid's 1998 Annual
Report to Shareholders, included as Exhibit 13 to this Form 10-K, and
is incorporated by reference.
Item 1(c) NARRATIVE DESCRIPTION OF BUSINESS
(i) MacDermid produces and markets over 1,000 proprietary chemical
compounds. The proprietary chemical compounds are used for the
following purposes: cleaning, activating and polishing, mechanical
plating, mechanical galvanizing, electro-plating and phosphatizing
metal surfaces, stripping of metal and final coating of metal
surfaces, filtering, anti-tarnishing and rust retarding and etching,
imaging, deposition of metal and other chemical processes. Research
in connection with proprietary products is conducted principally in
the United States, with additional research facilities in Japan.
In North America, MacDermid markets its entire line of products in
the United States through more than 130 sales and service personnel
employed by it and, in certain areas of the United States, through
distributors and manufacturing representatives. The Corporation
maintains chemical inventories at more than 20 distribution points
throughout the United States which typically are leased or rented.
In Vermont a wholly owned subsidiary manufactures and markets
equipment in support of the proprietary chemical business. In
Canada the Corporation both manufactures and markets certain
of its products through MacDermid Chemicals, Inc.
In Europe, the Corporation markets its proprietary products
through wholly owned subsidiaries. European sales are made from
inventory stock through more than 50 sales and service
representatives who are employed by the Corporation's subsidiaries
located in France, Germany, Great Britain, Italy, Holland,
Spain and Switzerland. MacDermid owns and operates subsidiary
manufacturing facilities in Spain and Great Britain.
In the Asia/Pacific area, the Corporation markets its proprietary
products through wholly owned subsidiaries in Australia, Hong Kong,
China, Japan, Korea, New Zealand, Singapore, and Taiwan, and sales
are made through more than 50 sales and service representatives
who are employed by local subsidiaries. In addition, sales are
made in India, Thailand, Malaysia and The Philippines directly
or through distributors. MacDermid owns and operates subsidiary
manufacturing facilities in Taiwan, Australia and New Zealand.
In certain other foreign markets, MacDermid manufactures and sells
certain of its proprietary chemicals and conducts research through
wholly or majority owned subsidiaries. In certain countries in
South America, Europe and Asia, MacDermid products are sold
through distributors or manufactured and sold through licensees.
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Chemicals, supplies and equipment manufactured by others and resold
by MacDermid consist of basic chemicals, automatic plating
conveyors, barrel plating and pollution control equipment,
rectifiers, pumps and filters. Resale items are marketed primarily
in conjunction with and as an aid to the sale of proprietary chemicals.
MacDermid's principal products fall into the three following classes:
(A) Chemical compounds produced by MacDermid, most of which are the
result of the Corporation's own research and development and,
therefore, are referred to as proprietary products;
(B) Resale chemicals and supplies; and
(C) Equipment, of which more than 66% is manufactured by the Corporation.
The following table sets forth the classes of MacDermid's products and
the respective percentage of total consolidated revenue for each of the
last three fiscal years:
Class of Products 1998 1997 1996
Proprietary Chemicals 88% 88% 88%
Resale Chemicals
and Supplies 5% 6% 6%
Equipment 7% 6% 6%
(ii) MacDermid made a public announcement of the commercialization of an
important new process technology, ViaTek. A press release, dated
May 18, 1998, is incorporated by reference.
(Iii) MacDermid uses in excess of 700 chemicals as raw materials in the
manufacture of its 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 1998, there were no significant difficulties in
obtaining raw materials essential to its business.
(Iv) During fiscal 1998, approximately 20% of MacDermid's proprietary
sales were derived from products covered by patents owned by the
Corporation or produced under patent license agreements. MacDermid
owns more than 70 unexpired U.S. Patents, for which corresponding
patents have been obtained or are pending in most industrialized
nations, and has more than 20 patent applications pending in the
U.S. The patents owned by Registrant are important to its
business and have varying remaining lives.
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Although certain of MacDermid's patents are increasingly more important to
its business, it believes that its ability to provide technical and testing
services to its customers and to meet the rapid delivery requirements of its
customers is equally, if not more, important. In addition, MacDermid has many
proprietary products which are not covered by patents and which make a large
contribution to its total sales. Further, the Corporation owns a number of
domestic and foreign trade names and trademarks which it considers to be of
value in identifying MacDermid and its products. MacDermid neither holds nor
has granted any franchises or concessions.
(v) No material portion of MacDermid's business is seasonal.
(Vi) It is necessary to maintain finished goods inventory at locations
throughout the United States and in the foreign countries in which
the Corporation operates so that it may meet the rapid delivery
requirements of its customers. This impacts working capital
requirements by requiring a considerable investment in
inventories to service its customers. Customer payment terms,
which vary by country, are generally in accord with local industry
practice.
(Vii) No major portion of MacDermid's business is dependent upon a
single customer or a few customers, the loss of whom would have
a materially adverse effect on its business.
(Viii) Since products are taken from inventory stock to ship against
current orders, there is essentially no backlog of orders for
MacDermid's proprietary chemical products. MacDermid does not
consider the absence of a backlog to be significant.
(Ix) No material portion of MacDermid's business is subject to
renegotiation of profits or termination of contracts or
subcontracts at the election of the Government.
(X) The Corporation provides a broad line of proprietary chemical
compounds and supporting services. MacDermid has 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 the Corporation's knowledge no
single competitor competes with all its proprietary products.
MacDermid maintains extensive supporting technical and testing
services for its customers, and is continuously developing new
products. Management believes that the Corporation's combined
abilities to manufacture, sell, service and develop new products
and applications enables it to compete successfully both locally
and world-wide.
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(Xi) MacDermid spent approximately $12,028,000, $10,850,000 and $10,042,000
during fiscal years 1998, 1997 and 1996, respectively, on research and
development activities. Substantially all research and development
activities were sponsored by the Corporation, the greater percentage of
which related to the development of new products.
(Xii) For many years, MacDermid has developed 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. For this reason,
efforts to comply with Federal, State and local provisions, which have
been enacted or adopted regulating the discharge of materials into the
environment, may have had a positive effect upon the Corporation's
competitive position. Capital expenditures of approximately $8.3
million were made in fiscal 1998 and an estimated $1 million will be
spent for environmental control facilities in fiscal 1999. Though
difficult to predict, future spending for this purpose is likely to
average more than 10% of the capital budget.
(Xiii) MacDermid employed 1,179 and 1,086 full time, regular employees as of
March 31, 1998 and 1997, respectively.
Item 1(d) FOREIGN AND DOMESTIC OPERATIONS
MacDermid's 1998 Annual Report to Shareholders, included as Exhibit 13 to this
Form 10-K and incorporated by reference, provides information with respect to
the Corporation's geographic segments including operating information and the
effect upon shareholder's equity of the translation of foreign currency
financial statements.
Item 2 PROPERTIES
In the United States, MacDermid owns the following properties:
In Waterbury, Connecticut, a 51,700 square foot building, principally used for
executive offices, marketing and corporate support, and a 62,000 square foot
research and customer service facility, both of which are located on a 5.8
acre tract. In addition, a 180,000 square foot wood brick and concrete
building complex is principally used for manufacturing and warehousing but
also includes some offices and laboratories. The complex is located on a 7.2
acre tract. Directly across a street from this property, a 31 acre tract of
land is held for possible future development.
In Middletown, Delaware, a concrete and steel building of 85,520 square feet
consisting of factory, laboratory, warehouse and office facilities located on
a 10.97 acre tract.
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In Wilmington, Delaware, a concrete and steel building of 26,000 square feet
used principally as a technical and administrative services center located on
a 3.8 acre tract. Also on this site is an 18,000 square foot concrete and
steel building which may be used for manufacturing expansion.
In Ferndale, Michigan, a steel frame and steel sided building of 75,000 square
feet consisting principally of factory, warehouse and office facilities,
located on a 6.25 acre tract.
In New Hudson, Michigan, a steel and brick single story building of 15,000
square feet consisting of research laboratories and offices located on a 7
acre tract.
The Corporation also owns property in Vernon, Connecticut, which is being
held for sale or lease but which could be used for manufacturing
should the need arise.
Outside the United States, the Corporation owns additional properties as
follows:
At Barcelona, Spain, a steel and brick building of 31,000 square feet of
factory, warehouse, laboratory and office space.
At Telford, England, two brick, concrete and steel buildings, connected by a
walkway, containing a total of 43,000 square feet of manufacturing
warehouse, laboratory and office space.
At Hsin Chu, Taiwan, Republic of China, two buildings of reinforced
concrete totaling 30,000 square feet, located on a 1.8 acre tract,
used for factory, warehouse and offices.
At Hong Kong, 30,000 square feet of office, laboratory and warehouse
space in a concrete block building.
In addition, MacDermid leases office, laboratory, warehouse and
manufacturing facilities as needed. During the year, such additional
facilities were leased in Vermont, Canada, Holland, Germany, Korea,
Australia, Japan, Singapore, China and several other foreign countries.
All owned and leased facilities are in good condition and are of adequate
size for present business volume.
Item 3 Legal Proceedings
Legal proceedings are contained in MacDermid's 1998 Annual Report to
Shareholders included as Exhibit 13 to this form 10K and incorporated by
reference.
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Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the third quarter of fiscal 1998 there was a special shareholders
meeting, held on December 1, 1997, at which the Corporation's security
holders voted to ammend MacDermid's Restated Certificate of Incorporation
which is included as exhibit 3.1 to this form 10K and incorporated by
reference.
-10-
Item 4A EXECUTIVE OFFICERS OF MACDERMID
The following is a list of the names, offices and ages (as of March 31, 1998)
of all the executive officers of MacDermid, each of whom has been employed in
his respective office(s) for more than five years, except as noted:
Name Age Office with Registrant
Harold Leever 83 Chairman since 1977
Daniel H. Leever 49 President and Chief Executive Officer
since 1990.
Arthur J. LoVetere, Jr. (1) 34 Vice President and Chief Financial Officer
since December 1995. Previously, was
Director of European Operations since 1993.
Gregory M. Bolingbroke 48 Corporate Controller since April 1995.
Previously, was Cost Accounting Manager
since 1993.
John L. Cordani 35 Corporate Secretary since April 1995.
Previously, was General Counsel since May
1993. Prior to that and since 1992, he was
Manager of Patents and Trademarks.
David A. Erdman 55 Vice President since November 1993.
Previously, and since 1988, was Director of
Quality of the Electronics Group of
E.I. Dupont de Nemours, Inc.
Patricia I. Janssen 47 Vice President/Electronics and Printing
since December 1995. Previously, and since
1978 she was with Hercules Incorporated,
serving as general manager of the
E&P Division since 1992.
Peter E. Kukanskis 51 Vice President/Technical since 1986
Gary B. Larson 58 Vice President/Research since 1981
Michael A. Pfaff 54 Vice President/Industrial Products since
1984
Sharon J. Stone (2) 48 Assistant Treasurer since February 1995.
Previously, she was for more than five
years, and continues to be, Manager of
General Accounting
Notes:
(1) Mr. LoVetere became President, ViaTek effective April 1, 1998.
(2) Ms. Stone retired effective April 1, 1998.
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PART II
Item 5 MARKET FOR MACDERMID'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Information with respect to the market for MacDermid's Common Stock,
dividends paid and other related information is contained in its 1998
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 MacDermid's
1998 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 OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is contained in MacDermid's 1998 Annual Report to Shareholders
included as Exhibit 13 to this form 10-K and incorporated by reference.
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, including the notes thereto, of the
Corporation are contained in MacDermid's 1998 Annual Report to Shareholders
included as Exhibit 13 to this form 10-K and incorporated by reference.
Additional financial information is contained in the Financial Data Schedule
appearing as Exhibit 27 to this report.
Item 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10 DIRECTORS AND OFFICERS
The discussion of "Election of Directors" and a portion of the discussion in
the section, "Interest of Management and Others in Certain Transactions and
Family Relationships" contained in MacDermid's Proxy Statement dated June 22,
1998 are incorporated herein by reference thereto. Officers of the
Corporation are listed in Item 4A, above.
Item 11 EXECUTIVE COMPENSATION
The discussion of "Executive Compensation" contained in MacDermid's Proxy
Statement dated June 22, 1998 is incorporated herein by reference thereto.
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Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain beneficial
owners and management contained in MacDermid's Proxy Statement dated June 22,
1998 is incorporated herein by reference thereto.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND FAMILY
RELATIONSHIPS
The discussion of "Interest of Management and Others in Certain Transactions
and Family Relationships" contained in MacDermid's Proxy Statement dated June
22, 1998 is incorporated herein by reference thereto.
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The consolidated financial statements and report thereon of KPMG Peat Marwick
LLP, dated May 14, 1998 are contained in MacDermid's 1998 Annual Report to
Shareholders included as Exhibit 13 to this form 10-K and incorporated herein
by reference. Additional financial information is contained in the Financial
Data Schedule included as Exhibit 27 to this report.
(2) Financial Statement Schedules
The following supplementary financial data should be read in conjunction with
the consolidated financial statements and comments thereto referred to above.
Schedules not included with this supplementary financial data have been
omitted because they are not applicable, are immaterial or the required
information is included in the consolidated financial statements or related
notes to consolidated financial statements.
Schedule II - Valuation and Qualifying Accounts and Reserves
Auditors' Report on Supporting Schedule
(3) Exhibits
An index to the exhibits filed or incorporated by reference immediately
precedes such exhibits.
(c) Reports on Form 8-K
The Corporation filed a report on Form 8-K, dated January 15,1998, during
the fourth quarter of fiscal 1998. This report relates to a three for one
stock split on February 6, 1998 and the third quarter earnings announcement
and is incorporated by reference.
(d) Schedules
The schedules listed above are filed as part of this Annual Report on
Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
MACDERMID, INCORPORATED
(Registrant)
Dated: June 22, 1998
By /s/ Harold Leever By /s/ Daniel H. Leever
Harold Leever Daniel H. Leever
Director, Chairman Director, President and
Chief Executive Officer
By /s/ Arthur J. LoVetere, Jr By /s/ Gregory M. Bolingbroke
Arthur J. LoVetere, Jr. Gregory M. Bolingbroke
Vice President and Controller and Principal
Chief Financial Officer Accounting Officer
Harold Leever, pursuant to powers of attorney which are being filed with this
Annual Report on Form 10-K, has signed below on June 22, 1998 as attorney-in-
fact for the following directors of the Registrant:
Donald G. Ogilvie Thomas W. Smith James C. Smith
/s/ Harold Leever
Harold Leever
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SCHEDULE II
MACDERMID, INCORPORATED AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended March 31, 1998, 1997 and 1996
Balance at Additions Balance
beginning charged to Deductions at end
Description of period earnings of period
1998
Allowance for
doubtful
receivables $3,379,000 $ 817,000 $598,000 $3,598,000
========== ========== ======== ==========
1997
Allowance for
doubtful
receivables $4,829,000 $ 547,000 $ 1,997,000 $3,379,000
========== =========== =========== ==========
1996
Allowance for
doubtful
receivables $2,859,000 $ 1,793,000 $ (177,000) $4,829,000
========== =========== =========== ==========
Bad debts charged off less recoveries and translation adjustments.
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REPORT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP (Logo)
Certified Public Accountants
CityPlace II
Hartford, CT 06103-4103
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MacDermid, Incorporated:
Under date of May 14, 1998, we reported on the consolidated balance sheets
of MacDermid, Incorporated and subsidiaries as of March 31, 1998 and 1997,
and the related consolidated statements of earnings and cash flows for each
of the years in the three-year period ended March 31, 1998, as contained in
the 1998 annual report to shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1998. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed in the
accompanying index under Item 14(a)(2). This financial statement schedule
is the responsibility of the Company's management. Our responsibility is
to express an opinion on this financial statement schedule based on
our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
May 14, 1998
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EXHIBIT INDEX
1998 FORM 10-K ANNUAL REPORT
Exhibit
No.
3.1 Restated Certificate of Incorporation, MacDermid,
Incorporated,amended as of December 1, 1997. By reference
Exhibit 19 to September 30, 1991 Form 10-Q
Quarterly Report is incorporated by reference herein.
3.2 By-Laws, amended as of November, 1984. Exhibit 3b to 1985
Form 10-K Annual Report is incorporated by reference
herein. By reference
4.1 Credit Agreement, amended and restated, dated as of
April 15, 1998, among MacDermid, Incorporated, the
Banks signatory thereto and Chase Manhattan Bank,
N.A., as Agent, is incorporated by reference herein. By reference
10.1 MacDermid, Incorporated Special Stock Purchase Plan,
amended as of November 1, 1992. Exhibit 10 to
1993 Form 10-K Annual Report is incorporated by
reference herein. By reference
10.2 MacDermid, Incorporated 1995 Equity Incentive Plan
Exhibit 10.2 to 1995 Form 10-K Annual Report is
Incorporated by reference herein. By reference
13 Portions of MacDermid's 1998 Annual Report
to Stockholders as required by Item 8 Attached
21 Subsidiaries of MacDermid, Incorporated Attached
23 Independent Auditors' Consent Attached
24 Power of Attorney Attached
27 Financial Data Schedule Attached