Press Releases
Cytec Announces First
Quarter Results
Full Year 2006 Outlook Updated
May 2, 2006
West Paterson, New Jersey, Cytec Industries Inc. (NYSE:CYT)
announced today net earnings for the first quarter of 2006 of
$38.0 million or $0.79 per diluted share on net sales of $819
million. Included in the quarter is a cumulative effect of
accounting change after-tax charge of $1.2 million or $0.03 per
diluted share related to the adoption of Financial Accounting
Standard No. 123R, “Share Based Payment” (SFAS 123R) and a net
restructuring charge of $0.4 million (after-tax $0.3 million).
Excluding these items, net earnings were $39.5 million or $0.82
per diluted share.
Net loss for the first quarter of 2005 was $6.5 million or $0.16
per basic share on net sales of $564 million. Included in the
net loss were purchase accounting related charges of $10.5
million (after-tax $7.7 million, or $0.18 per basic share),
related to acquired inventories from Surface Specialties being
recorded at fair value which exceeded normal manufacturing cost,
and $37.0 million or $0.88 per basic share related to the
write-off of in-process research and development costs of
Surface Specialties, a restructuring charge of $1.3 million
($1.0 million after-tax, or $0.02 per basic share) related to
employee redundancy costs, a charge of $20.0 million (after-tax
$12.7 million or $0.30 per basic share) related to currency and
interest rate derivative transactions associated with the
Surface Specialties acquisition, a $4.4 million settlement to
resolve a dispute over an environmental matter (after-tax $3.2
million or $0.08 per basic share) and an income tax benefit of
$16.2 million ($0.38 per basic share) resulting from the
completion of prior year tax audits. Excluding these items, net
earnings were $38.9 million or $0.92 per basic share ($0.89 per
diluted share basis).
David Lilley, Chairman, President and Chief Executive Officer
said, “Our first quarter results gave us a positive start to
2006. As expected, we have our share of challenges, such as raw
material costs which remain volatile and are higher than the
year ago period. However, we are encouraged by the continuing
improvement in our Specialty Chemical segments, notably the
Surface Specialties product lines. Cytec Engineered Materials
had a solid quarter while Building Block Chemicals was impacted
by poor margin spreads on acrylonitrile and plant downtime due
to scheduled maintenance work.”
Cytec Performance Chemicals Sales increased 15% to $226
million; Operating Earnings increased to $17.9 million
Mr. Lilley continued, “In Cytec Performance Chemicals, sales of
product lines related to the acquisition of Surface Specialties,
completed on February 28, 2005, added 10% to sales, selling
volumes increased 3%, selling prices increased 4% and exchange
rate changes decreased sales 2%. Strong sales volume in mining
chemicals and specialty additives and phosphines were partially
offset by lower selling volumes in polymer additives resulting
from weak polyolefin market demand and price competition in our
mature products. Also in water treatment chemicals, selling
volumes were lower, primarily into the paper sector.
“Operating earnings increased $10.3 million primarily due to the
addition of the acquired product lines partially offset by
higher raw material costs and expense of $0.6 million for stock
options and stock appreciation rights settled in stock related
to the adoption of SFAS 123R. Included in 2005 and related to
the Surface Specialties acquisition, is a write-off of acquired
in-process research and development costs of $6.9 million and a
charge of $1.3 million for the excess of the fair value of the
finished goods inventory of the acquired business over normal
manufacturing cost.
Cytec Surface Specialties Sales increased 122% to $374
million; Operating Earnings increased to $29.4 million
“In Cytec Surface Specialties, sales of product lines related to
the acquisition of Surface Specialties added 114% to sales,
selling volumes increased 12%, selling prices increased 1% and
exchange rate changes decreased sales 5%. The increase in
selling volumes was strong in Europe particularly in the latter
part of the quarter and Asia also showed good growth. North
American demand also improved towards the latter part of the
quarter.
“Operating earnings of $29.4 million was primarily due to the
addition of the Surface Specialties product lines, increased
selling volumes and selling prices and lower operating costs
partially offset by higher raw material costs, unfavorable
exchange rate changes and expense of $1.1 million for stock
options and stock appreciation rights settled in stock related
to the adoption of SFAS 123R. Included in 2005 and related to
the Surface Specialties acquisition, is a write-off of acquired
in-process research and development costs of $30.1 million and a
charge of $9.2 million for the excess of the fair value of the
finished goods inventory of the acquired business over normal
manufacturing cost.
Cytec Engineered Materials Sales increase 9% to $139 million;
Operating Earnings increase to $23.9 million
“Cytec Engineered Materials selling volumes increased 8%,
selling prices increased 2% and exchange rate changes decreased
sales 1%. The selling volume increase was primarily due to
higher build rates for large commercial aircraft partially
offset by the expected ramp down in volume to a European
high-end automotive program.
“Operating earnings improved slightly to $23.9 million,
primarily due to higher selling volumes and selling prices which
were mostly offset by increased raw material costs and expense
of $0.6 million for stock options and stock appreciation rights
settled in stock related to the adoption of SFAS 123R.
Building Block Chemicals Sales increase 12% to $80 million;
Operating loss of $0.3 million
“Building Block Chemicals selling volumes increased 10%, selling
prices increased 3% and exchange rate changes decreased sales
1%. The volume increase was primarily in Europe, partially
offset by lower selling volumes in Asia.
“The operating loss for the quarter was primarily the result of
poor margin spreads on acrylonitrile sales as well as the impact
of the acrylonitrile plant being down two weeks during the
quarter for scheduled maintenance. In addition, our melamine
manufacturing joint venture partner did not take any production
during the quarter. The resulting operational inefficiencies
associated with the melamine plant being down for about half the
quarter reduced earnings by slightly over $1 million. Also
included is expense of $0.3 million for stock options and stock
appreciation rights settled in stock related to the adoption of
SFAS 123R.”
Earnings in Associated Companies
Earnings in Associated Companies for the first quarter of 2006
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 net
restructuring charge of $0.4 million made up of an additional
restructuring charge of $1.7 million for employee-related
severance costs and a reduction of $1.3 million of the previous
quarter restructuring accrual primarily as a result of incurring
less costs than originally estimated due to personnel leaving
Cytec on their own. Both of these relate primarily to the
formation of Cytec Specialty Chemicals, which was announced in
the fourth quarter of 2005, whereby we combined our specialty
chemicals product lines into one organization under one
leadership team.
“Included in other income (expense), net in the first quarter of
2005 is a net pre-tax loss of $20.0 million ($12.7 million
after-tax) pertaining to currency and interest rate derivative
transactions related to the acquisition of the Surface
Specialties business.”
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 first quarter of
2006 was $14.5 million, or 27%, on the earnings before income
taxes. For the comparable period of 2005, the Company’s
effective tax rate on the loss from continuing operations for
the quarter was a tax benefit of 66%. The 2005 tax rate was
favorably impacted by a reduction in income tax expense of $16.2
million ($0.38 per basic share) in the quarter related to the
completion of exams of prior year tax returns for the years 1999
through 2001 and by losses incurred in the U.S. on the
derivatives related to the financing for the Surface Specialties
acquisition and was unfavorably impacted by the non-deductible
write-off of in-process research and development expenses
related to the Surface Specialties acquisition. Excluding these
items, the underlying rate for the same period of 2005 was 27%.”
Other
Mr. Cronin continued, “In regards to the adoption of SFAS 123R,
operating earnings in the quarter include additional charges for
stock options and stock appreciation rights that are settled in
common stock of $2.6 million pre-tax. We also recorded a
cumulative effect charge of $1.2 million after-tax primarily
relating to the recognition of costs for the fair value of our
cash settled stock appreciation rights which had been issued in
prior years.
Cash Flow
“Cash flow provided by operations was $21 million for the
quarter. Trade accounts receivable dollars were up sequentially
due to higher sales but days outstanding were essentially flat
with year end 2005. Inventory dollars were up as we have built
some inventory in light of stronger demand and raw material
costs increased from year end although our days are flat with
year end 2005. Capital spending for the quarter was $16 million
and our full year estimate of $110 million is unchanged. We
continue to pay down debt in advance of scheduled payment dates
and during the quarter we paid down $53 million of our debt.”
2006 Outlook
Mr. Lilley commented further, “Our first quarter results have
given us momentum in a number of areas and there are a few areas
that need improvement. On the demand side, the story remains the
same, that is, we expect our aerospace markets to 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. Our
forecast for weak industrial demand in North America and Europe,
as it relates to our Cytec Specialty Chemicals segments, remains
the same for now. We did see improvement in the latter part of
the quarter in Europe but we remain cautious until we see a more
sustainable improvement in demand. We continue to expect
Asia-Pacific and Latin America to have good growth in 2006.
Volatile raw material and energy costs continue to make passing
along price increases difficult and we see this continuing
throughout 2006. Oil costs are presently high and we are
assessing whether this is a temporary spike or a new cost level.
Our concern remains primarily propylene derivative costs as they
impact our Specialty Chemicals business. Depending on the view
we take this quarter, we will decide what compensating actions,
such as product price increases, we can initiate.”
Mr. Lilley continued with some additional comments, “In Cytec
Specialty Chemicals we see no change to our overall guidance
with improvement in Cytec Surface Specialties offset by a
reduction in Cytec Performance Chemicals. More specifically, in
Cytec Performance Chemicals, we see continuing strong demand in
our mining chemicals and specialty additives and phosphine
chemicals product lines and more moderate demand in the
remainder with the exception of polymer additives. In polymer
additives, our team has done a good job with our technologically
differentiated products but we are facing a tough operating
environment with severe price competition in certain of the
lower end products. We are looking at all appropriate actions in
light of this operating environment to improve returns in
polymer additives. Taking into account the above, we are
changing our full year guidance for sales to $900 to $925
million from our previous guidance of $900-940 million and for
operating earnings to $65 to $70 million from our previous
guidance of $70 to $75 million.
“In Cytec Surface Specialties, we were encouraged by the
improved demand in the latter part of the quarter in North
America and Europe. We expect to continue to see good progress
in the Asia-Pacific and Latin American regions and from new
global product introductions. There are many opportunities to
improve our manufacturing and supply chain operations and while
these improvement initiatives take time to implement we believe
we are on track to improve earnings in this segment over the
short and medium term. Taking into account the above, we are
changing our full year guidance for sales to $1.48 to $1.52
billion from our previous guidance of $1.46 to $1.51 billion and
for operating earnings to $95 to $105 million from our previous
guidance of $85 to $95 million.
“In Cytec Engineered Materials, we continue to 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 have a strong order book for the year although it
is somewhat back-end loaded. In light of the continuing
opportunities with aircraft manufacturers as they develop new
platforms for the future, we continue to expect a high level of
investment in our selling, technical and research and
development expenses. Taking into account the above, we are
changing our full year guidance for sales to $600 to $620
million from our previous guidance of $590 to $620 million and
for operating earnings to $115 to $120 million from our previous
guidance of $110 to $120 million.
“Building Block Chemicals had a difficult first quarter. Oil
costs are higher and we continue to watch the impact on
propylene costs and acrylonitrile margin spreads. We had
previously expected some margin improvement for the rest of the
year but this now appears unlikely. Our operating team is
focused on what they can control, particularly manufacturing
costs, to offset the weak product selling prices. Taking into
account the above, we are changing our full year guidance for
sales to $310 to $330 million from our previous guidance of $340
to $355 million and for operating earnings to $12 to $15 million
from our previous guidance of $17 to $20 million.
“We forecast no change in our guidance for Corporate and
Unallocated, other income/(expense), equity earnings and
interest expense, net. Our forecast for our underlying annual
effective tax rate for ongoing operations remains at 27%.
“Overall, we remain cautious on the demand side and expect
continuing raw material volatility and as a result we are
reiterating our forecast of overall annual 2006 sales to be in a
range of $3.3 to $3.4 billion and our forecast for full year
diluted earnings per share remains at $3.45 to $3.70. As a
reminder, our reported results for 2005 include only 10 months
of operations from the acquired Surface Specialties business.
Two month pro-forma 2005 sales were $225 million.”
The guidance for the year includes pre-tax expense for stock
options and stock appreciation rights settled in stock of
approximately $10.5 million ($7.7 million after-tax or $0.16 per
diluted share) as a result of adopting SFAS 123R as of January
1, 2006.
Excluded from the full year guidance are the following items.
Approximately $3 million pre-tax for integration expenses
related to the Surface Specialties acquisition and this spending
will begin in the second quarter of 2006. This is reduced from
our previous estimate of $4 to 5 million. These integration
expenses, the majority of which are duplicative in nature, are
anticipated to be incurred primarily as a result of the
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. Also excluded is the cumulative effect of accounting
change after-tax charge of $1.2 million related to the adoption
of SFAS 123R. In addition, we previously estimated restructuring
charges in the first half of the year to be in the range of $3
to $5 million, of which $1.7 million was recorded in the first
quarter and we continue to identify further benefits of the
previously announced organization consolidation of the specialty
chemicals product lines into Cytec Specialty Chemicals. We
continue to look for other restructuring opportunities to
improve our productivity in our chemical manufacturing
operations.
In closing Mr. Lilley commented, “Overall we had a solid start
to 2006 but continue to face rapidly changing market conditions.
We are hopeful the economic momentum we saw in the latter part
of the quarter in North America and Europe will continue.
However, the Cytec team remains focused on what we can control
so we can deliver the highest performance for all our
stakeholders.”
Investor Conference Call to be Held on May 3, 2006 11:00 A.M.
ET
Cytec will host their first quarter earnings release conference
call on May 3, 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 May 3, 2006 until May 24, 2006 at 11:00
p.m. ET by calling 888-203-1112 (U.S.) or 719-457-0820
(International) and entering access code 1726247. 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 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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