Press Releases
Cytec Announces Fourth Quarter and Full Year Results
Full Year 2007 Outlook Provided
February 1, 2007
West Paterson, New Jersey, Cytec Industries Inc. (NYSE:CYT)
announced today net earnings for the fourth quarter of 2006 of
$83.4 million or $1.70 per diluted share on net sales of $794
million. Included in the quarter are several special items as
outlined further in this release. Excluding these special items,
net earnings were $37.4 million or $0.76 per diluted share.
Net earnings for the fourth quarter of 2005 were $18.4 million,
or $0.39 per diluted share, on net sales of $788 million.
Included in the quarter were several special items as outlined
further in this release. Excluding these special items, net
earnings were $26.4 million or $0.56 per diluted share.
David Lilley, Chairman, President and Chief Executive Officer
said, “Overall, we had a solid quarter with our diluted earnings
per share up 36% after excluding the special items as discussed
further on. The Engineered Materials segment selling volumes
were significantly higher than the prior year particularly in
the large commercial aircraft sector. Similar to the prior
quarters of 2006, our specialty chemicals businesses experienced
higher raw material costs and we continue to raise prices to
compensate. Overall for Specialty Chemicals, taking into account
the water treatment divestiture, volumes were flat with
increases in Europe and Asia offset by lower volumes in North
America. Building Block Chemicals selling volumes had good
growth and they benefited from lower raw material costs for
propylene.”
Cytec Performance Chemicals Sales decreased 20% to $176
million; Operating Earnings decreased to $11.6 million
Mr. Lilley continued, “In Cytec Performance Chemicals, the
effect of the divestiture of the water treatment chemicals
product line decreased sales by 20%, other selling volumes were
flat, selling prices decreased 2% and the impact of exchange
rate changes increased sales by 2%. Mining chemical sales were
down due to order pattern and polymer additives were impacted by
lower sales of older product technologies. These were offset by
higher selling volumes in other product lines principally due to
new business.
“Operating earnings of $11.6 million were down compared to the
$17.0 million in the fourth quarter of 2005. The decrease is
primarily due to the impact of the divestiture of the water
treatment chemicals product line, lower selling prices, higher
raw material costs, a benefit plan curtailment charge of $0.3
million discussed under special items and $0.8 million related
to the application of Statement of Financial Accounting
Standards No. 123R, “Share-Based Payment” (SFAS 123R).”
Cytec Surface Specialties Sales increased 7% to $375 million;
Operating Earnings increased to $17.6 million
“In Cytec Surface Specialties, overall selling volumes were
flat, selling prices increased by 2% and the impact of exchange
rate changes increased sales by 5%. We benefited from higher
selling volumes in Europe and Asia/Pacific but this was offset
by lower selling volumes in North America primarily reflecting
weaker customer demand.
“Operating earnings of $17.6 million were up compared to the
$13.9 million in the fourth quarter of 2005. The benefits of
increased selling prices, improved manufacturing performance
plus the previous restructuring activities were partially offset
by higher raw material costs. Also impacting the quarter was
expense of $0.7 million related to the application of SFAS
123R.”
Cytec Engineered Materials Sales increased 17% to $160
million; Operating Earnings increased to $27.2 million
“In Cytec Engineered Materials, selling volumes increased by
13%, selling prices increased by 3% and the impact of exchange
rate changes on sales increased sales by 1%. The selling volume
increase was primarily in the large commercial aircraft and
business jet sectors.
“Operating earnings of $27.2 million were up compared to the
$26.7 million in the fourth quarter of 2005. The favorable
impact of the higher selling volumes and selling prices was
mostly offset by increased raw material costs, higher
manufacturing period costs as a result of the increased
production volumes, planned increases in selling and technical
and research expenses and a benefit plan curtailment charge of
$2.3 million discussed further under special items. Also
included in operating earnings was expense of $0.6 million
related to the application of SFAS 123R.”
Building Block Chemicals Sales increased 4% to $82 million;
Operating Earnings increased to $3.5 million
“In Building Block Chemicals, the effect of the divestiture of
the acrylamide product line decreased sales by 18% but this was
more than offset by an increase in sales of acrylonitrile to the
purchaser of the divested product line. Acrylonitrile is the key
material used to make acrylamide and in conjunction with the
divestiture we signed a long-term agreement to provide
acrylonitrile to Kemira. Excluding these two factors, selling
volumes decreased by 7% principally due to shipping delays as a
result of poor weather in the Gulf Coast of the U.S. Selling
prices increased by 3% and the impact of exchange rate changes
was neutral.
“Operating earnings increased to $3.5 million compared to a loss
of $3.9 million in the fourth quarter of 2005 when our
manufacturing operations were still adversely impacted by the
hurricanes. The increase was mostly due to higher selling
prices, increased plant production levels and the benefit of
lower raw material costs, due principally to lower costs for
propylene, all of which more than covered the loss of the
earnings from the divested acrylamide product line. Also
included is expense of $0.3 million related to the application
of SFAS 123R.”
Special Items
James P. Cronin, Executive Vice President and Chief Financial
Officer commented, “Included in Corporate and Unallocated in the
fourth quarter of 2006 are several items as follows.
We recorded a pre-tax restructuring charge of $9.7 million
(after-tax $9.4 million or $0.19 per diluted share). Most of the
charge relates to our Cytec Surface Specialties manufacturing
site in France which produces solvent-borne alkyds and
solvent-borne acrylics primarily for the European market. The
products made in France are mature products, in a declining
market with supplier overcapacity and severe price erosion, thus
the operations are generating losses. After the appropriate
consultations with the Works Council concerning the site, we
have commenced shutdown activities and recorded a pre-tax $8.4
million restructuring charge, primarily for severance. The
remaining pre-tax $1.3 million is primarily for net
restructuring charges related to employee severance for our
Cytec Performance Chemicals manufacturing site in New Castle,
Delaware which makes a key polymer for our Engineered Materials
segment. We are exiting the site and the products made in New
Castle will be made in our recently completed manufacturing
plant at our Kalamazoo, Michigan location.
“We changed our pension plan in the U.K. from a defined benefit
to a defined contribution plan and as a result we incurred 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 is included in the Cytec
Engineered Materials segment and the remainder in the Cytec
Performance Chemicals segment.
“We incurred integration costs of $0.5 million ($0.4 million
after-tax or $0.01 per diluted share) related to the Surface
Specialties acquisition. These costs are included in Corporate
and Unallocated and this will be the last quarter where we are
separately tracking and reporting integration costs.
“Finally, included in tax expense for the quarter 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 as
we reduced our cash exposure there.”
Included in Corporate and Unallocated in the fourth quarter of
2005 was a pre-tax charge of $14.1 million ($10.5 million
after-tax or $0.22 per diluted share) for employee related
severance costs principally related to the formation of Cytec
Specialty Chemicals which combined the specialty chemicals
product lines into one organization under one leadership team.
Also included were integration costs of $0.2 million related to
the Surface Specialties acquisition. In addition, included in
2005 income tax expense was a $2.6 million or $0.05 per diluted
share gain related to a favorable tax development in an
international jurisdiction.
Special Items Continued - Sale of Water Treatment and
Acrylamide Product Lines
Mr. Cronin continued, “In October 2006 we completed the first of
three phases of the sale of our water treatment and acrylamide
product lines to Kemira Group. This first phase included the
entire product lines, excluding specific assets covered in the
other two phases as discussed below. We received approximately
$208 million in proceeds for this phase and recorded in
Corporate and Unallocated in the fourth quarter of 2006 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.
“In January 2007, we completed the second phase of the sale of
our water treatment chemicals and acrylamide product lines to
Kemira Group. This second phase completes the transfer of the
Botlek site in the Netherlands to Kemira and adds approximately
$21 million of proceeds to the $208 million received for the
first phase closing. The remaining phase includes certain assets
at various subsidiaries in Asia-Pacific and Latin America which
are expected to close in the next three months and we expect an
estimated $10 million of additional proceeds upon completion.
The remaining closings are subject to certain other conditions
and the amounts could change due to final working capital
transferred.”
Interest Expense
Mr. Cronin commented, “Interest expense decreased primarily due
to the overall lower debt level. In the quarter we used the net
proceeds from the aforementioned divestiture to pay down debt.”
Income Tax Expense
Mr. Cronin added, “Our tax provision for the fourth quarter of
2006 was $28.5 million, or 25.5%, on earnings before income
taxes. Impacting the rate for the quarter was: the fact that no
tax benefit was available on the French restructuring charge;
the 21% tax rate associated with the gain on the divestiture of
the water treatment and acrylamide product lines; the
incremental tax on the capital reduction at one of our Southeast
Asian subsidiaries; and the adjustment for lowering the full
year underlying effective tax rate to 26.8% primarily due to the
renewal of the 2006 research and development tax credit in the
U.S. Our underlying effective tax rate for the fourth quarter of
2005 was 26%.”
Cash Flow
Mr. Cronin commented further, “We are again pleased with our
cash flow generation in the quarter. Cash flow provided by
operations was $39.8 million for the quarter which is net of
additional pension contributions of $26 million to our U.S.
plans and $5 million to our U.K. plan. Trade accounts receivable
dollars decreased $25 million and days outstanding are
essentially flat with the days outstanding at the end of the
third quarter. Inventory dollars increased $6 million and days
on hand are 77, up from the 71 days on hand at the end of the
third quarter. The largest increase in inventory was in Building
Block Chemicals primarily due to weather delayed shipments.
Capital spending for the quarter was $40 million bringing our
full year spending to $103 million. We continue to pay down debt
in advance of scheduled payment dates, primarily from the net
proceeds received from the divestiture, and during the quarter
we paid down $215 million of our debt.
“Our cash flow from operations for the year ended December 31,
2006 is $201 million and year to date we have a net reduction in
our debt of $391 million.”
2007 Outlook
Mr. Lilley commented, “As we begin 2007 we expect our aerospace
markets to continue to grow, particularly in the large
commercial aerospace, business jet and rotorcraft sectors. This
is expected to come from increasing build rates and the
increasing share of composites in newer aircraft programs.
Military aircraft is expected to have modest growth in 2007 as
the F-35 Joint Strike Fighter program production rate will
slowly ramp up. For our Specialty Chemicals segments we expect
demand in North America to be flat to down and our expectation
for Europe and Asia-Pacific is to continue their 2006 growing
demand pattern into 2007. This should lead to only modest growth
despite continuing benefits from new product introductions.
“On the input side, we expect a continuation of high raw
material costs. Through the past quarter, tightness in various
raw material areas has mostly offset the impact of the reduced
costs of oil and natural gas and we expect this situation to
continue. We continue to be concerned about the raw material
price volatility and we are raising selling prices where we can.
“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.”
The following comparisons to 2006 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 continued good growth in mining chemicals with moderate
to low growth in the remainder of the product lines. Our full
year guidance is for sales to be in a range of $700 million to
$720 million, down from the prior years $865 million and for
operating earnings to be in a range of $67 million to $71
million, about flat with the prior year. This reflects the
divestiture of our water treatment chemicals product line in
October of last year, which reduced sales by approximately $185
million. After excluding the divested product line, sales are
increasing in a range of 2% to 5%, with about half of the
forecasted increase due to volume and the remainder due to
selling price.
“In Cytec Surface Specialties, we forecast good growth in our
environmentally friendly, differentiated products although this
is somewhat muted by our expectation of weak North American
demand. Raw material costs continue to be a significant factor
for this segment. We expect no overall relief in 2007 and we are
continuing to raise prices where we can although in some of the
mature product technologies this has proven difficult. Overall,
we are on track with the initiatives we have identified to date
in manufacturing, supply chain and other operational areas but
there is much more to do and our people are diligently working
towards our goal of a 10% operating margin in the next two to
three years. We have begun a number of other improvement
initiatives, including a review of product line profitability,
which led to our decision to shutdown our solvent-borne alkyds
manufacturing plant in France, but the full benefits from this
will not be realized until 2008. We expect to continue these
product line reviews as we seek to improve operating margins
through product line and asset rationalizations. As a result of
all the above, our full year guidance is for sales to be in a
range of $1.58 billion to $1.64 billion, up 4% to 8% from the
prior years $1.52 billion, with about a third of the forecasted
increase due to volume and the remainder due to selling price.
Our forecast for operating earnings is to be in a range of $97
million to $105 million, up from the prior years $95.5 million.
“In Cytec Engineered Materials, demand continues to improve due
to increasing build rates for aircraft, particularly large
commercial and business jet aircraft, and higher use of
composite materials in emerging programs. Our investments in new
products are important for these emerging programs and we will
continue to make investments in product qualifications as the
manufacturers develop these new aircraft platforms for the
future. Taking into account the above, our full year guidance
for sales is to be in a range of $650 million to $660 million,
up 8% to 10% from the prior years $602 million, primarily due to
increases in forecasted selling volumes, and operating earnings
to be in a range of $125 million to $130 million, up from the
prior years $108.4 million.
“For Building Block Chemicals, two events in 2006 will impact
our results for 2007. We divested our acrylamide product line in
October of last year but under a long-term agreement we will
provide acrylonitrile to the purchaser of the acrylamide product
line; although the margins for acrylonitrile are lower than
acrylamide. In addition, we took full ownership of the melamine
plant from our joint venture partner in the third quarter of
last year so we no longer have the benefit of our partner paying
for half of the fixed costs. Our sales and marketing people are
making good progress in marketing the additional melamine
capacity that we now own, although margins have been poor. We
are attempting to raise prices to improve the profitability, but
it will take time to see if we are successful. Acrylonitrile
export margins have improved and our expectation for the cost of
propylene is to be flat with the average for 2006 of about $0.45
per pound. Taking into account the above, our full year guidance
for sales is to be about $390 million, up 15% from the prior
years $339 million, primarily due to increases in forecasted
selling volumes, and operating earnings to be about $12 million,
down from the prior years $19.3 million.
“Our guidance for Corporate and Unallocated is expense of $7
million which is flat with the prior year. Other
income/(expense) is forecast to be expense of $4 million and
equity earnings is forecast to be flat with the prior year at
about $3 million. Our forecast for interest expense, net, is to
be in a range of $42 to $44 million down from the prior year
amount of $56 million and our forecast for our underlying annual
effective tax rate for ongoing operations is a range of 29.5% to
30.5% up from 2006’s underlying annual effective tax rate of
26.8%. The increase in the 2007 tax rate is primarily due to the
effect of the divestiture of the water treatment chemicals and
acrylamide product lines and increased earnings in 2007 in
higher tax jurisdictions.
“Overall, our demand drivers and our improvement initiatives
remain mostly on track. We remain vigilant to take the
appropriate actions given the volatility in raw materials.
Taking all the above into account, our guidance for full year
diluted earnings per share is to be in a range of $3.60 to $3.80
per share up from the 2006 adjusted diluted earnings per share
of $3.45.
“We continue to see growth opportunities for our specialty units
and we expect to increase capital expenditures to a range of
$130 to $140 million in 2007 to support this growth as well as
continue to enhance our infrastructure.”
In closing Mr. Lilley commented, “Looking back at 2006, we put
in place a number of improvement initiatives to benefit
earnings, including a renewed focus on new product
introductions, and we expect to continue this approach in 2007.
As always, our goal is to build a strong growing company and
provide returns we can all be proud of.”
Full Year Results
Net earnings for the full year ended December 31, 2006 were
$194.9 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 – (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 study/update, (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 $167.8 million or $3.45
per diluted share.
Net earnings for the full year ended December 31, 2005 were
$59.1 million or $1.27 per diluted share on sales of $2,926
million. Included in the results for the full year ended
December 31, 2005 were – (a) purchase accounting related charges
of $20.8 million pre-tax (after-tax $15.2 million, or $0.33 per
diluted share) related to acquired inventories from Surface
Specialties being recorded at fair value which exceeded normal
manufacturing cost, (b) a charge of $37.0 million or $0.80 per
diluted share related to the write-off of in-process research
and development costs of Surface Specialties, (c) a pre-tax
charge of $44.2 million (after-tax $28.1 million or $0.60 per
diluted share) related to currency and interest rate derivative
transactions associated with the Surface Specialties
acquisition, (d) a pre-tax charge of $2.4 million (after-tax
$1.8 million or $0.04 per diluted share) related to an
anticipated settlement of a certain litigation matter, (e) a
pre-tax charge of $22.0 million (after-tax $14.0 million or
$0.30 per diluted share) related to the optional redemption of
our MOPPRS prior to their maturity, (f) an income tax benefit of
$28.3 million, or $0.61 per diluted share, reflecting favorable
resolution of tax audits with respect to prior year tax returns,
(g) employee restructuring costs of $16.8 million (after-tax net
$12.4 million or $0.27 per diluted share), (h) a $4.4 million
(after-tax net $3.2 million or $0.07 per diluted share)
settlement to resolve a dispute over an environmental matter and
(i) a pre-tax charge of $0.2 million ($0.1 after-tax) for
integration costs related to the acquired surface specialties
business. Excluding these special items, net earnings were
$142.6 million or $3.07 on a diluted share basis.
Investor Conference Call to be Held on February 2, 2007 11:00
A.M. ET
Cytec will host their fourth quarter earnings release conference
call on February 2, 2007 at 11:00 a.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 February 2, 2007 until February 23, 2007 at
11:00 p.m. ET by calling 888-203-1112 (U.S.) or 719-457-0820
(International) and entering access code 2658400. The conference
call recording will also be accessible on Cytec’s website for 3
weeks after the conference call.
Use of Non-GAAP Measures
Management believes that net earnings, basic 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.
(Click
here for Financial Tables)
Back to All Press Releases
|
