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Contact:
Jodi Allen (Investor Relations)
(973) 357-3283
Cytec Announces Change in Pension
Accounting
Woodland Park, NJ., July 8, 2013 – Cytec Industries Inc.
(CYT) announced it has changed its method of accounting for its
continuing pension and other postemployment benefit (OPEB) plans
to a more preferable method as permitted under generally
accepted accounting principles in the United States (GAAP).
The new accounting method, referred to as mark-to-market (MTM),
was adopted in the second quarter of 2013, and will be
retrospectively applied to the Company’s financial results for
all periods. See the adjusted statements of income on
pages 4, 6-10, and 13-17 in the accompanying Schedules providing
for the effect of the accounting change on the statements of
income for the first quarter of 2013, and for the full year and
each quarter of 2012 and 2011, respectively.
Under the newly adopted method of accounting for actuarial gains
and losses for its pension and OPEB plans, the Company expects
its 2013 pension and OPEB costs to be lower than previously
anticipated by approximately $30 million, pre-tax, excluding any
potential MTM adjustment.
David Drillock, Vice President and Chief Financial Officer said,
“With the excellent funding status of our global pension plans
and our successful Liability Driven Investment strategy, we
believe this accounting change is more appropriate and will
provide greater transparency that will allow investors to more
clearly evaluate the Company’s operating performance by
recognizing actuarial gains and losses in its operating results
in the year in which the gains and losses occur, rather than
amortizing them over future periods. This accounting
change has no impact on benefits received by participants of the
pension and OPEB plans. Additionally, there is no impact
on pension and OPEB plan funding or Cytec’s cash flow.”
Historically, Cytec has recognized pension and OPEB actuarial
gains and losses annually in its Consolidated Balance Sheets as
Accumulated Other Comprehensive Income (Loss) as a component of
Stockholders’ Equity, and then amortized these gains and losses
each quarter in its Statements of Income. The expected
return on assets component of Cytec’s pension expense had been
calculated using a five-year smoothing of asset gains and
losses. In addition, the gain or loss component of pension and
OPEB expense had historically been based on amortization of
actuarial gains and losses that exceed 10 percent of the greater
of plan assets or projected benefit obligations over the average
future service period of active employees.
Under the new method of accounting, Cytec’s pension and OPEB
costs consist of two elements: 1) ongoing costs recognized
quarterly, which are comprised of service and interest costs,
expected returns on plan assets, and amortization of prior
service costs/credits; and 2) MTM gains and losses recognized
annually, in the fourth quarter of each year, resulting from
changes in actuarial assumptions, such as discount rates, and
the differences between actual and expected returns on plan
assets. Any interim remeasurements triggered by a
curtailment, settlement, or significant plan changes will be
recognized as MTM adjustments in the quarter in which such
remeasurement event occurs. MTM adjustments will be recognized
as “special items” and included in the reconciliation of GAAP to
Non-GAAP reported earnings as the company believes this
presentation provides investors with a view of operations
consistent with managements internal reporting.
As a result of the retrospective application of this change,
Cytec’s diluted earnings per share from continuing operations
for the quarter ended March 31, 2013 changed from $0.17 to
$0.19. Excluding the impact of MTM adjustments and other
special items, net, diluted earnings per share from continuing
operations for the first quarter of 2013 would have increased
from $0.75 to $0.85. For the year ended December 31, 2012,
Cytec’s diluted earnings per share from continuing operations
changed from $2.01 to $1.62. Excluding the impact of MTM
adjustments and other special items, net, diluted earnings per
share from continuing operations for 2012 would have increased
from $3.08 to $3.45. For the reconciliation of reported
Company earnings to Non-GAAP net earnings from continuing
operations for the first quarter of 2013, and for 2012 and 2011
under the new accounting method, see pages 5, 11-12, and 18-19,
respectively, in the accompanying Schedules.
Cytec’s operating segment results follow internal management
reporting, which is used for making operating decisions and
assessing performance. Historically, total pension and
OPEB costs have been allocated to each segment. In
conjunction with the change in accounting principle, the service
cost, which represents the benefits earned by active employees
during the period, and amortization of prior service
costs/credits will continue to be allocated to each business
segment. Interest costs, expected return on assets, and
MTM adjustments for actuarial gains and losses will be included
in the Corporate and Unallocated segment and not allocated to
the business segments. Management believes this change in
expense allocation will better reflect the underlying operating
results of each business. See the accompanying Schedules
for the adjusted earnings from operations by business segment
providing for the effect of the accounting change on reported
segment earnings on pages 4, 6-10, and 13-17 for the first
quarter of 2013, and for 2012 and 2011, respectively.
There is no change to Cytec’s method of accounting for certain
related costs included in inventory as a result of the change in
accounting for pension and OPEB costs.
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. Cytec disclaims any
obligation to update or revise any forward-looking statements.
Corporate Profile
Cytec’s vision is to deliver specialty material and chemical
technologies beyond our customers’ imagination. Our focus on
innovation, advanced technology and application expertise
enables us to develop, manufacture and sell products that change
the way our customers do business. Our pioneering products
perform specific and important functions for our customers,
enabling them to offer innovative solutions to the industries
that they serve. Our products serve a diverse range of end
markets including aerospace and industrial materials, mining and
plastics.
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