Press Releases
Cytec Announces Fourth Quarter and Full Year Results
Full Year 2006 Outlook Provided
February 9, 2006
West Paterson, New Jersey, Cytec Industries Inc. (NYSE:CYT)
announced today net earnings available to common stockholders
for the fourth quarter of 2005 of $18.4 million or $0.39 per
diluted share on net sales of $788 million. Included in the
quarter is a $2.6 million or $0.05 per diluted share gain
related to a favorable tax development in an international
jurisdiction and restructuring charges and integration costs of
$14.1 million and $0.2 million, respectively (after-tax $10.6
million or $0.22 per diluted share). Excluding these items, net
earnings available to common stockholders were $26.4 million or
$0.56 per diluted share.
Net earnings available to common stockholders for the fourth
quarter of 2004 were $46.2 million or $1.13 per diluted share on
net sales of $451 million. This includes an after tax net gain
of $17.1 million or $0.42 per diluted share related to foreign
currency and interest rate hedging transactions associated with
the acquisition of the Surface Specialties business of UCB Group
which was completed on February 28, 2005. Excluding this special
item, net earnings available to common stockholders for the
fourth quarter of 2004 were $29.1 or $0.71 per diluted share.
David Lilley, Chairman, President and Chief Executive Officer
said, “The fourth quarter presented many challenges to Cytec and
the chemical industry. Raw material and energy costs spiked
early in the quarter and our people did a good job of increasing
our product prices, passing along much of the cost increases. On
the demand side, selling volumes in heritage Cytec Specialty
Chemicals were generally flat with the year ago period with
declines in North America offset by gains in Europe and Latin
America while Asia was up slightly. On a pro-forma basis, the
acquired Surface Specialties businesses selling volumes were up
year on year. Building Block Chemicals volume was down in North
America and Asia. Cytec Engineered Materials had higher volumes
in the large commercial aircraft, commercial rotorcraft and
military aircraft sectors. In light of the headwinds faced, this
was a solid performance for Cytec.”
The segment results discussed below have been restated to
reflect the transfer of the specialty adhesives and urethanes
product lines from Cytec Surface Specialties to Cytec
Performance Chemicals as outlined in our press release dated
January 31, 2006. A brief summary of our reportable segments
reflecting the realigned product lines is as follows:
-
Cytec Performance Chemicals – Includes
the water treatment chemicals, mining chemicals, specialty
additives and phosphine chemicals, polymer additives,
specialty adhesives and urethanes.
-
Cytec Surface Specialties – Includes
radcure resins, powder coating resins and liquid coating
resins.
-
Cytec Engineered Materials is unchanged.
-
Building Block Chemicals is unchanged.
Cytec Performance Chemicals Sales
increased 21% to $221 million; Operating Earnings decreased to
$17 million
Mr. Lilley continued, “In Cytec Performance Chemicals, sales of
product lines related to the acquisition of Surface Specialties
added 15% to sales. In our heritage product lines, selling
prices increased 6%, selling volumes increased 1% and exchange
rate changes decreased sales 1%. The selling price increases
were across all product lines and covered most but not all of
the much higher raw material and energy costs. Volumes increased
in the mining chemicals and specialty additives and phosphine
chemicals due to improving demand and new business. Water
treatment chemicals and polymer additives selling volumes
declined due to the impact on demand from the hurricanes and
continuing sluggish industrial demand in North America. For the
acquired product lines, on a pro-forma basis, volumes were
essentially flat, selling prices increased 10% and exchange rate
changes decreased sales 5%.
“The decrease in operating earnings of $2.6 million was
primarily due to the impact of higher raw material and energy
costs which were not fully offset by selling price increases as
well as lower fixed cost absorption as we ran certain of our
plants at reduced levels to bring inventory levels in-line with
demand.
Cytec Surface Specialties Sales increased 450% to $351
million; Operating Earnings increase to $14 million
“Almost all of the sales increase in Cytec Surface Specialties
is due to sales of product lines related to the acquisition of
Surface Specialties. In our heritage product lines selling
prices increased 1%, exchange rate changes decreased sales 2%
while volumes were down 1% principally in North America where
demand remains weak, partially offset by higher volumes in
Asia-Pacific. For the acquired product lines, on a pro-forma
basis, selling volumes were up 6% due to recovery of business,
selling prices increased 6% and exchange rate changes decreased
sales 5%.
“Operating earnings increased $8.9 million primarily due to the
addition of results from the Surface Specialties product lines.
Cytec Engineered Materials Sales increase 17% to $137
million; Operating Earnings increase to $27 million
“Cytec Engineered Materials sales volumes increased 14% and
selling prices were up 3% and the impact of exchange rate
changes was flat. The volume increases were primarily due to
increased aircraft build rates for large commercial aircraft,
commercial rotorcraft and military aircraft.
“The increase of $12.9 million in operating earnings primarily
reflects the impact of increased selling volumes, the related
leverage on costs from the higher volumes, improving
manufacturing performance and good expense controls.
Building Block Chemicals Sales decrease 9% to $79 million;
Operating loss of $4 million
“Building Block Chemicals selling volumes were down 18% and
exchange rate changes reduced sales another 1% but these
declines were partially offset by higher selling prices of 10%.
Our sales of acrylonitrile in Asia-Pacific and North America
were impacted by customers reducing their purchases caused by
higher selling prices in the regions and high inventories. The
increase in acrylonitrile selling prices was driven primarily by
higher raw material costs as producers attempted to recover
costs and improve margins.
“As a result of the lower demand, the acrylonitrile plant ran at
less than capacity for part of the quarter. Selling prices were
not able to catch up to the raw material and energy cost
increases experienced in the quarter as propylene and natural
gas increased 23% and 35%, respectively, versus the same period
of last year. In addition, the operating loss reflects the
impact from repairs of damage from the hurricanes of about $1.1
million with some minor work still to be completed in the first
quarter of 2006.”
Earnings in Associated Companies
Earnings in Associated Companies for the fourth quarter of 2005
decreased from the prior year period as a result of the May 2005
sale of our 50% interest in CYRO Industries to our former
partner, Degussa.
Corporate and Unallocated
James P. Cronin, Executive Vice President and Chief Financial
Officer commented, “During the quarter, we recorded a charge of
$14.1 million ($10.5 million after tax or $0.22 per diluted
share) for employee-related severance costs principally related
to our recently announced formation of Cytec Specialty Chemicals
whereby we combined our specialty chemicals product lines into
one organization under one leadership team. We anticipate that
most of the restructuring related to this reorganization will be
completed in the first half of this year. In connection with the
Surface Specialties acquisition we have begun projects which are
primarily related to the elimination of the transition service
agreements with the former owner for our information technology
hardware infrastructure and incurred integration costs of $0.2
million.”
Interest Expense
Interest expense is significantly higher than the prior year
quarter primarily due to the higher average levels of debt
outstanding resulting from the Surface Specialties acquisition.
Income Tax Expense
Mr. Cronin added, “Our tax provision for the quarter was $2.9
million, or 13.5%, on the earnings before income taxes. Included
in the tax provision is a credit of $2.6 million related to a
further reduction in income tax expense concerning a tax audit
in Norway with respect to prior year’s tax returns. Excluding
this item, our underlying effective tax rate for the quarter was
26 %. This compares to an underlying rate of 25% for the same
period of 2004.”
Cash Flow
Cash flow provided by operations was $59.0 million for the
quarter. Trade accounts receivable dollars were up sequentially
due to higher sales but days outstanding were essentially flat.
Inventory dollars and days were down slightly as we reduced
production at certain facilities to bring inventories more in
line with demand but this was mostly offset by higher raw
material and energy costs. Capital spending for the quarter was
$30 million bringing our full year total to $105 million.
2006 Outlook
Mr. Lilley commented further, “We expect 2006 to be another
challenging year as we anticipate raw material and energy costs
to remain high but volatile. We have been doing a good job at
recovering the value for our products but the volatility of raw
materials and energy costs also increases the difficulty of
passing along spikes in these costs. On the demand side, our
aerospace markets continue to grow as the build rates for large
commercial aircraft, business jets, military aircraft and
commercial rotorcraft continue to increase and our customers
utilize more advanced composites. We are forecasting weak
industrial demand in Cytec Specialty Chemicals in North America
and Europe with the largest impact on our Cytec Surface
Specialties segment and certain of our Cytec Performance
Chemicals product lines. While there were some signs of
improvement in the European region in the fourth quarter of
2005, we remain cautious until we see a more sustainable
improvement in demand. We expect Asia-Pacific and Latin America
to have good growth in 2006. Please note that our reported
results of 2005 include only 10 months of operations from the
acquired Surface Specialties business. Two month pro-forma 2005
sales were $225 million. Our exchange rate assumptions for 2006
include the dollar to euro rate averaging $1.25.
“Our guidance for the year includes pre-tax incremental
share-based employee compensation expense of approximately $
10.5 million ($7.7 million after tax or $0.16 per diluted share)
which is the estimated impact of our adopting Statement of
Financial Accounting Standards No. 123(R), “Share Based
Payment”, (FAS 123R) as of January 1, 2006.
Excluded from our guidance is $4 to $5 million pre-tax for
integration expenses related to the Surface Specialties
acquisition. These integration expenses, the majority of which
are duplicative in nature, are anticipated to be incurred
primarily as a result of our elimination of transition service
agreements currently in place with the former owner regarding
the information technology hardware infrastructure and are
expected to be completed in 2006. In addition, as we continue to
identify further benefits of our previously announced
organization consolidation of our specialty chemicals product
lines into Cytec Specialty Chemicals and we expect to announce
further restructuring charges in the first half of the year in
the range of $3 to $5 million. These potential charges are
excluded from our guidance.
“Cytec’s specific segment detail for the full year is as
follows:
“In Cytec Performance Chemicals, our guidance is for sales to
increase to a range of $900 to $940 million from $856 million
with about a third of the increase due to increased selling
prices, about a quarter related to the additional two months of
sales from the acquired product lines and the remainder due to
volume increases. Two month pro-forma sales in 2005 for the
acquired product lines included in this segment were $20
million. We see continuing strong demand in our mining chemicals
product line and more moderate demand in the remainder.
Operating earnings are expected to increase to a range of $70 to
$75 million due primarily to the higher sales and supported by
continuing manufacturing productivity improvements and good
expense controls. Included in operating earnings is
approximately $2.3 million of incremental share-based
compensation expense due to the adoption of FAS 123R in 2006.
“In Cytec Surface Specialties, our guidance is for sales to
increase to a range of $1.46 to $1.51 billion from $1.24 billion
with about 85% of the increase due to the additional two months
of sales from the acquired product lines and the remainder due
to selling price and modest volume increases. Two month
pro-forma sales in 2005 for the acquired product lines included
in this segment were $205 million. We anticipate continuing weak
demand in North America and Europe but we expect to continue to
see good progress in the Asia-Pacific and Latin American regions
and from new global product introductions. Operating earnings
are expected to increase to a range of $85 to $95 million and
this includes approximately $4.5 million of incremental
share-based compensation expense related to FAS 123R. We
continue to see many opportunities to improve our manufacturing
and supply chain operations and with our new organization for
Specialty Chemicals in place we expect the improvement
initiatives to continue.
“In Cytec Engineered Materials, our guidance is for sales to
increase to a range of $590 to $620 million from $542 million
with about a quarter of the increase due to increased selling
prices and the remainder due to volume increases. We anticipate
increased aircraft production spurred by the recent orders and
the rising backlog at the large aircraft manufacturers, and
continuing development of new applications for advanced
composites. We expect a continuing high level of investment in
our selling, technical and research and development expenses in
light of the continuing opportunities with aircraft
manufacturers as they develop new platforms for the future.
Operating earnings are expected to increase to a range of $110
to $120 million and includes approximately $2.2 million of
incremental share-based compensation expense related to FAS
123R.
“In Building Block Chemicals, our guidance is for sales to
increase to a range of $340 to $355 million of which selling
price increases account for about 40% and the remainder is due
to volume increases. The full year average forecast for the
price of propylene is a range of $0.42-$0.44 per pound and our
price for US natural gas is $9 per MMBTU. Also, we expect a
negative impact on Cytec of approximately $5 million in 2006 due
to operating inefficiencies in the melamine plant as we expect
our partner will be taking little, if any volumes from that
plant this year. In 2005, our partner took their full share of
50% of the plant’s output. Including the melamine impact,
operating earnings are expected to be in a range of $17 to 20
million and includes approximately $1.5 million of incremental
share-based compensation expense related to FAS 123R.
“In Corporate and Unallocated, our guidance for 2006 is a loss
of about $7 million which is similar to 2005. Our guidance for
other income(expense), net is expense of about $3 million and
our guidance for equity earnings is about $2 million. Our 2006
guidance for interest expense, net is a range of $54 to $56
million and our estimated underlying annual effective tax rate
for ongoing operations is 27%.
In closing Mr. Lilley commented, “Based on all of the above our
forecast of overall annual 2006 sales is now in a range of $3.29
to $3.42 billion and our forecast for full year diluted earnings
per share is $3.45 to $3.70 an increase of 12% to 20% over
2005’s $3.07 per diluted share excluding items as discussed
under the full year results below.
“We begin 2006 cautiously, but with momentum and optimism that
by focusing on what we can control and being flexible to react
to rapidly changing market conditions, we believe we can deliver
the highest performance for all our stakeholders.”
Full Year Results
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 full year ended December 31, 2005 were
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, a charge
of $37.0 million or $0.80 per diluted share related to the
write-off of acquired in-process research and development costs
of Surface Specialties, 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, 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, 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, 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, employee restructuring costs of $16.8 million
(after tax net $12.4 million or $0.27 per diluted share),
integration costs related to the acquired business of pre-tax
$0.2 million (after tax $0.1 million) and a $4.4 million
settlement to resolve a dispute over an environmental matter
(after tax $3.2 million or $0.07 per diluted share). Excluding
these items, net earnings were $142.6 million or $3.07 per
diluted share.
Net earnings available to common stockholders for the full year
ended December 31, 2004 were $121.1 million or $2.96 per diluted
share on sales of $1,721 million. Included in full year earnings
are the following special items: a pre-tax charge of $6.1
million ($4.8 million after tax or $0.12 per diluted share) in
connection with the settlement of several environmental and
toxic tort lawsuits, a pretax charge of $8.0 million ($6.2
million after tax or $0.15 per diluted share) relating to
settlements of carbon fiber litigation matters, a pretax charge
of $2.0 million ($1.6 million after tax or $0.04 per diluted
share) relating to the settlement of disputed matters with the
holder of the Company’s Series C, a charge to net earnings
available to common stockholders of $9.9 million ($0.24 per
diluted share) related to the redemption of the Company’s Series
C, a $2.4 million tax credit, or $0.06 per diluted share, from a
favorable outcome of a completed international tax audit and a
net pre-tax gain of $26.8 million ($17.1 million after tax or
$0.42 per diluted share) pertaining to hedging anticipatory
transactions related to the then expected purchase of the
Surface Specialties business. Excluding these items net earnings
were $124.1 million or $3.03 per diluted share.
Investor Conference Call to be Held on February 10, 2006
11:00 A.M. ET
Cytec will host their fourth quarter earnings release conference
call on February 10, 2006 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 10, 2006 until March 3, 2006 at
11:00 p.m. ET by calling 888-203-1112 (U.S.) or 719-457-0820
(International) and entering access code 2676454. 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 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 manufacturing and selling
value-added products with pro forma sales in 2005 of
approximately $3.2 billion. Our products serve a diverse range
of end markets including aerospace, adhesives, automotive and
industrial coatings, chemical intermediates, inks, mining,
plastics and water treatment. 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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