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*Jodi Allen
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Cytec Announces Fourth Quarter 2007 and Full Year Results
Full Year 2008 Outlook Provided
West Paterson, New Jersey, January 30, 2008 – Cytec
Industries Inc. (NYSE:CYT) announced today net earnings for
the fourth quarter 2007 of $47.6 million or $0.97 per
diluted share on net sales of $901 million. Included in the
quarter are several special items that total $0.5 million
income after-tax or $0.01 increase per diluted share and are
outlined further in this release. Excluding these special
items, net earnings were $47.1 million or $0.96 per diluted
share.
Net earnings for the fourth quarter of 2006 were $83.4
million, or $1.70 per diluted share, on net sales of $794
million. Included in that quarter were several special items
that total $46.0 million income after-tax or $0.94 increase
per diluted share and are outlined further in this release.
Excluding these special items, net earnings were $37.4
million or $0.76 per diluted share.
David Lilley, Chairman, President and Chief Executive
Officer said, “We are pleased with our fourth quarter
results, which surpassed our expectations with diluted
earnings per share, after excluding special items discussed
later in this release, up 26% versus same period 2006.
Engineered Materials continued to benefit from higher
selling volumes in the commercial aircraft sectors. In our
Performance Chemicals segment, sales volume growth in the
quarter was led by Mining Chemicals and Polymer Additives.
In the Surface Specialties segment selling volumes were down
due to the impacts of reduced demand in North America and in
Europe, and our decision to exit certain low profit
solvent-borne business. In addition, Building Block
Chemicals showed significant increase in higher selling
volumes and selling prices.”
Cytec Performance Chemicals Sales increased 9% to $192
million; Operating Earnings increased to $16.2 million.
Mr. Lilley continued, “In Cytec Performance Chemicals,
overall selling volumes increased by 5% primarily due to
higher mining volumes as our new technologies gain
acceptance and our focus on selling more value-added
products in Polymer Additives. Selling prices increased by
1% and the impact of exchange rates increased sales by 3%.”
“Operating earnings of $16.2 million were up compared to the
$11.6 million in the fourth quarter of 2006. The increase is
due to improved volumes in Mining Chemicals, and also due to
the increased earnings in the Polymer Additives product line
resulting from the higher selling volumes and the favorable
benefits of a restructuring initiative taken at the end of
2006.”
Cytec Surface Specialties Sales increased 7% to $403
million; Operating Earnings increased to $20 million.
“In Cytec Surface Specialties, overall selling volumes were
down by 3% with weak demand in North America and in Europe.
Sales were also reduced by a decision to exit certain low
profit solvent-borne products and close the Dijon
manufacturing facility. However, we achieved good volume
growth in Asia and Latin America. Selling prices increased
by 2% and the impact of exchange rate changes increased
sales by 8%.”
“Operating earnings of $20 million were up compared to the
$17.6 million in the fourth quarter of 2006 and this is
primarily attributable to the favorable impact of higher
selling prices.”
Cytec Engineered Materials Sales increased 11% to $178
million; Operating Earnings increased to $36.1 million.
“In Cytec Engineered Materials, selling volumes increased by
9%, selling prices increased 1%, and the impact of exchange
rates benefited sales by 1%. The selling volume increase was
primarily in the large commercial transport, regional and
business jet sectors.”
“Operating earnings of $36.1 million were up compared to the
$27.2 million in the fourth quarter of 2006. The favorable
impact of the higher production volumes and selling prices
was partially offset by increased raw material costs and
higher manufacturing costs as a result of the increased
production volumes. The business also had planned increases
in research and technical service expenses related to
technology investments.”
Building Block Chemicals Sales increased 57% to $129
million; Operating Earnings increased to $7.2 million.
“In Building Block Chemicals, selling volumes increased by
34% and selling prices increased by 23%. The increase in
selling volumes came primarily from acrylonitrile and
melamine. The increase in selling prices was to recover the
large cost increases in both propylene and ammonia.”
“Operating earnings increased to $7.2 million compared to
$3.5 million in the fourth quarter of 2006. The increase was
mostly due to the increased selling volumes and higher
selling prices which more than offset higher raw material
costs.”
Special Items
David M. Drillock, Vice President and Chief Financial
Officer commented, “We recorded a number of special items in
the fourth quarter of 2007 that total to a pre-tax charge of
$2.9 million ($0.5 million income after-tax or $0.01
increase per diluted share) as follows:
- Included in Corporate and Unallocated is a
net pre-tax loss on the sale of assets of $2.1 million ($2.0
million after-tax or $0.04 per
diluted share) related to the final phase of the sale of the
Water Treatment and acrylamide product lines to Kemira. This
included a loss on the sale of our Venezuelan subsidiary and
a net reduction to the final proceeds for adjustments to
certain liabilities previously transferred.
- Included in manufacturing cost of sales in Corporate and
Unallocated is a pre-tax charge of $1.4 million ($0.9
million after-tax or $0.02 per diluted share) for additional
restructuring costs associated with our Polymer Additives
manufacturing operations in West Virginia. These expenses
were not accruable but anticipated when the plan was
announced in the third quarter of 2007 and we expect similar
charges to be recognized over the next two quarters.
- Manufacturing cost of sales in Corporate and Unallocated
also includes a pre-tax charge of $0.6 million ($0.4 million
after-tax or $0.01 per diluted share) for additional
restructuring costs associated with our Liquid Coating
Resins manufacturing facility in Connecticut. These expenses
were not accruable but anticipated when the plan was
announced in the third quarter of 2007 and we expect an
additional $0.4 million of expenses to be recorded over the
next two quarters.
- Included in manufacturing cost of sales and administrative
expenses of Corporate and Unallocated is a pre-tax credit of
$1.2 million ($1.1 million after-tax or $0.02 per diluted
share) primarily related to a reduction in the estimated
costs for the shutdown of our Dijon, France manufacturing
location.
- Included in income tax expense for the quarter is a net
benefit of $2.7 million ($0.06 per diluted share) primarily
related to tax legislation enacted in late 2007 in a number
of jurisdictions that lowered their corporate tax rate
beginning in 2008, which led, under the accounting rules, to
a corresponding adjustment to our deferred taxes in the
fourth quarter 2007.”
"We recorded a number of special items in the
fourth quarter of 2006 that total pre-tax income of $62.6
million ($46.0 million income after-tax or $0.94 increase per
diluted share) as follows:
- Included in manufacturing cost of sales in
Corporate and Unallocated was a pre-tax restructuring charge
of $9.7 million (after-tax $9.4 million or $0.19 per diluted
share). Approximately $8.4 million of the pre-tax charge
related to the closure of our Cytec Surface Specialties
manufacturing site in Dijon, France which produced
solvent-borne alkyds and solvent-borne acrylics primarily
for the European market. The remaining pre-tax $1.3 million
was primarily for net restructuring charges related to our
exit from a manufacturing site in New Castle, Delaware.
- We changed a U.K. pension plan from a defined benefit to a
defined contribution plan and as a result we recorded a
pre-tax curtailment charge of $2.6 million ($1.9 million
after-tax or $0.04 per diluted share). Approximately $2.3
million of the pre-tax amount was included in the Cytec
Engineered Materials segment and the remainder in the Cytec
Performance Chemicals segment primarily as adjustments to
manufacturing cost of sales.
- Administrative and general in Corporate and Unallocated
includes integration costs of $0.5 million pre-tax ($0.4
million after-tax or $0.01 per diluted share) related to the
Surface Specialties acquisition.
- Included in tax expense is a charge of $1.7 million or
$0.04 per diluted share related to a taxable capital
reduction in one of our Southeast Asian subsidiaries.
- Included in the sale of assets in Corporate and
Unallocated is a pre-tax gain of $75.5 million (after-tax
$59.6 million or $1.22 per diluted share) related to the
first phase closing of the Water Treatment Acrylamide
product line.
Interest Expense
Mr. Drillock continued, “Interest expense decreased in 2007
reflecting the continued good progress we have made in reducing
our debt level.”
Income Tax Expense
Mr. Drillock added, “Our tax provision for the fourth quarter of
2007 was $17.6 million, or 27%, on our earnings before income
taxes. Included in the amount is the aforementioned net tax
benefit of $2.7 million principally for adjusting our deferred
taxes primarily for recently enacted tax legislation that
lowered the corporate tax rate in a number of jurisdictions
beginning in 2008. Also impacting the rate for the quarter was
the lack of a tax expense related to the $1.0 million reduction
in the French restructuring costs, similar to the tax treatment
of the French restructuring charges recorded in prior periods.
In addition, the rate for the quarter was unfavorably impacted
by the limited tax benefit on the charge recorded for the final
phase of the previously discussed divestiture. Excluding these
items, our 2007 annual underlying tax rate is approximately
30.3% versus 2006’s underlying rate of 26.8%. The increase in
the 2007 annual underlying tax rate compared to 2006 is
primarily due to the effect of the divestiture of the water
treatment chemicals and acrylamide product lines, unfavorable
changes in U.S. tax laws regarding manufacturing export
incentives and changes in earnings mix by jurisdiction.”
Cash Flow
Mr. Drillock further commented, “We are again pleased with our
cash flow generation in the quarter. Cash flow provided by
operations was approximately $76 million for the quarter. Trade
accounts receivable dollars decreased $13 million and days
outstanding are flat versus the end of the third quarter.
Inventory dollars increased $17 million and days on hand are 73,
equal to the days on hand at the end of the third quarter.
Capital spending for the quarter was $49 million, bringing our
full year spending to $115 million. Our cash flow from
operations for the year ended December 31, 2007 is $270 million,
an increase of about $70 million from the prior year. For the
full year, we reduced our outstanding debt by $99 million.”
“During the quarter we purchased 448 thousand shares of our
common stock for approximately $27.7 million. For the full year,
we have purchased 1.25 million shares of our common stock for
approximately $77.3 million. During December 2007, we completed
a $100 million stock repurchase authorization and initiated a
new $100 million authorization under which we began repurchasing
stock. The remaining amount on the new authorization is $92
million and we expect to continue our stock repurchase program
in 2008.”
2008 Outlook
Mr. Lilley commented, “As we begin 2008 we look forward to the
continued growth of our businesses as we drive to increase
earnings per share this year. Despite uncertain economic
conditions and increased raw material costs, we remain
optimistic on our improvement opportunities and our guidance for
full year diluted earnings per share is to be in a range of
$4.15 to $4.35 per share, up from the 2007 adjusted diluted
earnings per share of $3.90.”
“On the input side, we expect a continuation of high raw
material costs. Our expectation is that cost of crude oil will
be in the range of $85 to $95 per barrel and this will have an
impact on propylene derivatives, some of which are in tight
supply. We have also experienced a considerable rise in methanol
cost, which has an impact on the formaldehyde we purchase for
our amino resin products. We expect to continue to implement
price increases where necessary to minimize the impact of rising
raw material costs.”
“We expect some change in currencies year on year but our
overall mix of business is such that changes in currencies have
a relatively small impact on our overall results although within
the segments it is mixed. A weak dollar benefits our Specialty
Chemical segments and negatively impacts our Engineered
Materials segment.”
The following comparisons to 2007 are exclusive of the special
items as noted in this press release.
Mr. Lilley continued with some additional comments on the
individual segments, “In Cytec Performance Chemicals, we
forecast continuing volume growth across all product lines with
the exception of Polymer Additives due to the recent
discontinuation of some mature product lines. Raw material
impact should be modest in this sector, and we plan to offset
any impact by applying price increases where needed. Our full
year guidance is for sales to increase in this segment by 4%
which should improve operating earnings by about 10% versus
2007.”
“In Cytec Surface Specialties, we expect the demand from our
coating chemical customers to be impacted by the economic
environment. We forecast that conditions in the U.S. will be
similar to that of 2007 and we project Europe to have modest
growth of about 2%, and continued growth in Asia similar to 2007
levels. As a result, we expect sales in this segment to increase
approximately 6%, with two-thirds from volume and the remainder
from price. The primary growth will be driven by waterborne and
environmentally friendly technologies. There will be some
adverse impact on sales as a result of the exit of some smaller
product lines in 2007. However, we will benefit later in the
year from additional Radcure production in China as well as our
new waterborne capacity in the U.S. We do have to expect
continued escalation of raw material costs, and plan to offset
these impacts with price increases. We remain committed to the
operational excellence initiatives that are underway that will
continue to contribute to our earnings improvement. The segment
is expected to deliver a 10-15% increase in operating earnings
versus 2007 as we drive toward our margin improvement targets.”
“In Cytec Engineered Materials, demand continues to improve due
to increased aircraft production and higher usage of composite
materials. We expect growing demand from the commercial aircraft
of over 10%, and more modest demand growth from military,
regional, and business jet. We do anticipate continued growth in
demand for the next ten years, and to ensure we have the proper
capacity to meet these demands we are making significant expense
and capital investments in 2008. The expense investments include
increased R&D and engineering staffing, start-up expenses for
new units, and qualification costs for new programs and
manufacturing resites to improve our ability to meet the
increasing demand levels. These investments will help position
us for sustained growth. Taking all the above into account, we
expect sales and operating earnings to each grow by about 10% in
2008.”
“In Building Block Chemicals, we forecast a similar business
environment in 2008 to 2007. The market for acrylonitrile should
remain balanced and we expect to continue to benefit from
improved melamine prices. In operations, we plan to take a four
week maintenance outage in the acrylonitrile unit in the second
quarter, which will impact our full year earnings, but otherwise
we expect all production units to run at full rate. Overall our
expectations for operating earnings in this segment are about
$18 to $20 million in 2008.”
“Our guidance for Corporate and Unallocated is an expense of $12
million, other income/(expense) is forecasted to be expense of
$2 million and equity earnings are expected to be about $4
million. We anticipate that interest expense, net, is expected
to be about $37 million down from the prior year amount of $42
million and our forecast for our underlying annual tax rate for
ongoing operations is a range of 30.25% to 31.0% up from 2007’s
underlying annual tax rate of 30.3%. The change in the 2008 tax
rate is primarily due to higher earnings in 2008 in higher tax
jurisdictions, and that the U.S. has not renewed the R&D tax
credit for 2008.”
“We expect to continue our strong cash flow and to maintain
similar priorities for our use of cash. In order to capture our
growth opportunities, we have planned more capital investments
in 2008. In China, we expect to startup in the second quarter
the Radcure resin product line which we began in 2007 in
addition to beginning work on a composite prepreg line which
will startup in 2009. In Connecticut, we are on schedule for a
second quarter startup of our waterborne resin product line, and
of course in South Carolina we are anticipating a three year
investment in adding new carbon capacity. In addition, we have
some safety and environmental projects to complete. Combining
all these investments, we expect overall Capital Expenditures to
rise to $180-200 million in 2008. We have $100 million of notes
due this March, which we intend to repay using a combination of
our cash and, if necessary, part of our unused revolver.
Furthermore, we have increased our annual dividend 25% to $0.50
per share indicating our confidence in our future and to
increase returns to our shareholders.”
In closing, Mr. Lilley commented, “Overall, our improvement
initiatives remain on track and we are confident in the long
term trends for our businesses. We will continue to be vigilant
in monitoring economic conditions and raw material volatility,
and will take appropriate actions to minimize their impact. We
have made good progress in 2007 with our operational excellence
programs to improve earnings and in our efforts to create
value-added technologies for our customers. We expect to
continue this approach in 2008 in order to continue to enhance
shareholder value.”
Full Year Results
Net earnings for the full year ended December 31, 2007 were
$206.5 million or $4.20 per diluted share on sales of $3,504
million. Included in the results for the full year ended
December 31, 2007 were special items that total pre-tax income
of $7.4 million ($14.6 million income after-tax or $0.30
increase per diluted share) as follows:
(a) $13.6 million pre-tax for the net gain on the sale of the
water treatment product line to Kemira (after-tax $13.3 or $0.27
per diluted share) (b) a $6.3 million benefit for tax
adjustments primarily related to tax rate changes in various
jurisdictions ($0.13 per diluted share), (c) a $2.2 million
pre-tax charge primarily for the restructure of Dijon, France
manufacturing site (after-tax $2.3 million or $0.05 per diluted
share), (d) a $2.6 million pre-tax charge for the restructuring
of the Willow Island, West Virginia manufacturing site
(after-tax $1.8 million or $0.03 per diluted share), (e) a $1.4
million pre-tax charge for restructuring of the Wallingford,
Connecticut manufacturing facility (after-tax $0.9 million or
$0.02 per diluted share). Excluding these special items, net
earnings were $191.9 million or $3.90 per diluted share.
Net earnings for the full year ended December 31, 2006 were
$195.2 million or $4.01 per diluted share on sales of $3,330
million. Included in the results for the full year ended
December 31, 2006 were special items that total pre-tax income
of $36.2 million ($27.1 million income after-tax or $0.56
increase per diluted share) as follows:
(a) asset impairment charges of pre-tax $29.3 million (after-tax
$24.6 million or $0.51 per diluted share), (b) net restructuring
charges of pre-tax $19.2 million (after-tax $16.1 million or
$0.33 per diluted share), (c) a pre-tax gain of $15.7 million
(after-tax $12.4 million or $0.26 per diluted share) related to
resolution of a legal dispute, (d) a pre-tax charge of $1.7
million (after-tax $1.3 million or $0.03 per diluted share) for
integration expenses related to the Surface Specialties
acquisition, (e) a pre-tax charge of $2.2 million (after-tax
$1.6 million or $0.03 per diluted share) related to a contingent
liability updated study, (f) a pre-tax charge of $2.6 million
(after-tax $1.9 million or $0.04 per diluted share) for a
benefit plan curtailment, (g) a pre-tax gain on divestiture of
two product lines of $75.5 million (after-tax $59.6 million or
$1.23 per diluted share) (h) a reduction in income tax expense
of $3.5 million or $0.07 per diluted share relating to the
completion of prior years tax audits, (i) a charge of $1.7
million or $0.04 per diluted share related to a taxable capital
reduction in one of our Southeast Asian subsidiaries and (j) the
cumulative effect of an accounting change after-tax charge of
$1.2 million or $0.02 per diluted share related to the adoption
of SFAS 123R. Excluding these special items, net earnings were
$168.1 million or $3.45 per diluted share.
Investor Conference Call to be Held on January 31, 2008 at
11:00A.M. ET
Cytec will host their fourth quarter earnings release conference
call on January 31, 2008 at 11:00a.m. ET. The conference call
will also be simultaneously webcast for all investors from
Cytec’s website www.cytec.com. Select the Investor Relations
page to access the live conference call.
A recording of the conference call may be accessed by telephone
from 2:00 p.m. ET on January 31, 2008 until 11:00 p.m. ET on
February 22, 2008 by calling 888-203-1112 (U.S.) or 719-457-0820
(International) and entering access code 1595418. The conference
call recording will also be accessible on Cytec’s website for 3
weeks following the conference call.
Use of Non-GAAP Measures
Management believes that net earnings and diluted earnings per
share before special items, which are non-GAAP measurements, are
meaningful to investors because they provide a view of the
Company with respect to ongoing operating results. Special items
represent significant charges or credits that are important to
an understanding of the Company’s overall operating results in
the period presented. Such non-GAAP measurements are not
recognized in accordance with generally accepted accounting
principles (GAAP) and should not be viewed as an alternative to
GAAP measures of performance. A reconciliation of GAAP
measurements to non-GAAP can be found at the end of this
release.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this release may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Achieving the results
described in these statements involves a number of risks,
uncertainties and other factors that could cause actual results
to differ materially, as discussed in Cytec’s filings with the
Securities and Exchange Commission.
Corporate Profile
Cytec Industries Inc. is a global specialty chemicals and
materials company focused on developing, manufacturing and
selling value-added products. Our products serve a diverse range
of end markets including aerospace, adhesives, automotive and
industrial coatings, chemical intermediates, inks, mining and
plastics. We use our technology and application development
expertise to create chemical and material solutions that are
formulated to perform specific and important functions in the
finished products of our customers.
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