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Jodi Allen (Investor Relations)
(973) 357-3283
Cytec Announces Second Quarter
2009 Results
Reaffirms Full Year EPS Outlook
Significant Cash Flow Generation For The Quarter
Woodland Park, New Jersey, July 16, 2009 – Cytec Industries Inc.
(NYSE:CYT) announced today a net loss for the second quarter
2009 of $24.8 million or $0.52 per share on net sales of $685
million. Included in the quarter are several special items that
total $24.2 million of expense after-tax or $0.51 per share and
are outlined further in this release. Excluding these special
items, net loss was $0.6 million or $0.01 per diluted share.
Net earnings for the second quarter of 2008 were $56.5 million
or $1.16 per diluted share on net sales of $1,006 million.
Included in the 2008 quarter were several special items that
totaled $2.0 million of net expense after-tax or $0.04 per
diluted share. Excluding these special items, net earnings were
$58.5 million or $1.20 per diluted share.
Shane Fleming, Chairman, President and Chief Executive Officer
commented, “Sales declined across all specialty chemicals
segments in the second quarter compared with the prior year due
to the weak economy compounded by customer destocking activity.
However, we are encouraged by our specialty chemicals sales
growth of 18% from the first quarter 2009 and month-to month
improvement during the second quarter, which supports our view
that our customers have completed the bulk of their destocking
initiatives. Engineered Materials was also impacted by the
destocking actions that are ongoing within the large commercial
transport sector, as well as significantly reduced build rates
in the business jet and industrial sectors.
“We are making great progress in implementing our structural
cost reduction programs, and these actions will have a greater
favorable impact on our earnings in the second half of this
year. Our actions to improve our cash flow and liquidity
position also continue to move forward, with progress on cash
flow generation and debt reduction exceeding our expectations.
Our earnings and margins were adversely affected as we operated
almost all of our plants at reduced rates due to weak demand and
our own aggressive destocking actions.”
Cytec Coating Resins sales decreased 38% to $295
million; operating loss of $19.2 million.
In Coating Resins, overall selling volumes were down by 30%
versus the second quarter 2008, with continued weak demand in
the industrial coatings markets impacting the segment. Selling
prices decreased by 3% and the impact of exchange rates
decreased sales by 5%.
Operating loss of $19.2 million was down versus earnings of
$21.9 million in the second quarter of 2008 principally due to
the weak global economic conditions impacting volumes across all
product lines in this segment. Sales in the second quarter 2009,
however, are approximately 20% above the first quarter 2009 with
improvements in each product line. Also adversely impacting
earnings in the quarter was the impact of decreased production
rates to reduce finished goods inventory.
Cytec Additive Technologies sales decreased 30% to $63
million; operating earnings decreased to $3.1 million.
In Additive Technologies, overall selling volumes were down by
27% versus the second quarter 2008, attributed mainly to weak
demand in industrial markets and partly due to the exit of
certain low-value product lines. Selling prices increased by 1%
and the impact of exchange rates decreased sales by 4%.
Operating earnings of $3.1 million were down compared to the
$6.9 million in the second quarter of 2008 mainly as a result of
lower selling volumes and production rates.
Cytec In Process Separation sales decreased 23% to $58
million; operating earnings decreased to $2.1 million.
In Process Separation selling volumes were down 24% versus the
second quarter 2008, primarily a result of customer destocking
and lower demand in both the mining and phosphine markets.
Selling prices increased by 3% and the impact of exchange rates
decreased sales by 2%.
Operating earnings of $2.1 million were down compared to $10.9
million in the prior year quarter, mainly as a result of lower
selling volumes and production rates.
Cytec Engineered Materials sales decreased by 21% to
$178 million; operating earnings decreased to $22.1 million.
In Cytec Engineered Materials, selling volumes decreased by 22%,
driven primarily by lower sales as a result of destocking by our
customers who supply the large commercial transport sector,
build rate reductions in business jets, and reduced sales in
high performance industrial markets. Selling prices increased by
3% and the impact of exchange rates reduced sales by 2%.
Operating earnings of $22.1 million were down versus $44.8
million in the second quarter of 2008, mainly as a result of
lower selling volumes and production rates.
Cytec Building Block Chemicals sales decreased by 34% to
$91 million; operating earnings decreased to $1.9 million.
In Building Block Chemicals, selling prices decreased
by 64% as a result of significantly lower propylene costs versus
the second quarter 2008, driving down pricing for Acrylonitrile.
The significant selling price reduction was partially offset by
a 30% increase in selling volumes due to a major acrylonitrile
outage in the prior year.
Operating earnings of $1.9 million were down compared to the
$6.5 million in the prior year second quarter. The reduced
earnings resulted primarily from lower selling prices driven by
reductions in raw material costs.
Special Items
In the second quarter of 2009 a number of special items were
recorded that resulted in a pre-tax charge of $35.6 million
($24.2 million after-tax or $0.51 per share) as follows:
- Included in manufacturing cost of sales and operating expenses
is a pre-tax charge of $34.2 million ($22.8 million after-tax or
$0.48 per diluted share) associated with various restructuring
initiatives across Specialty Chemicals, Engineered Materials,
and Corporate operations.
- Included in Corporate and Unallocated is a pre-tax loss of
$1.4 million ($1.4 million after-tax or $0.03 per diluted share)
related to the exit of the polyurethane product line in Asia.
This completes the sale of this minor product line (as the sale
of the European operations was completed in the first quarter of
2009).
Income Tax Expense
The tax benefit for the second quarter of 2009 was
$11.4 million, compared with a tax provision of $25.8 million in
the second quarter of 2008. Excluding the impact from the
special items previously noted, the overall underlying tax rate
for the second quarter of 2009 was 35%. The increase over the
prior year’s underlying rate of 31.5% is primarily due to a
greater percent of earnings in higher tax jurisdictions and
limitations on certain favorable U.S. tax benefits.
Cash Flow
David Drillock, Vice President and Chief Financial
Officer commented, “Cash flow from operations was $168 million
for the second quarter 2009 reflecting the excellent progress
from our working capital initiative. Trade accounts receivable
increased by $4 million although days outstanding decreased by 5
days versus the end of the first quarter. Inventory decreased by
$105 million and days on hand was reduced by 33 versus the first
quarter as a result of our focused efforts to reduce inventory
levels. Accounts payable increased by $33 million as we are
starting to see the benefits of working in partnership with our
suppliers. Capital spending for the quarter was $53 million,
primarily related to Engineered Materials for both the China
expansion project as well as the Carbon Fiber expansion which,
as previously announced, has been temporarily halted until
market conditions improve. Our capital spending will decline
over the remainder of 2009 due to the completion of the China
expansion project and our plans to delay completion of the
carbon fiber project. Our expectation for capital expenditures
for full year 2009 remains in the range of $180 million to $190
million. ”
Mr. Drillock added, “As a result of the excellent efforts from
our working capital initiative, we have reduced our debt
outstanding by $95 million in the second quarter and our year to
date debt reduction totals $110 million.”
Cytec has taken a number of actions to enhance its liquidity in
the second quarter. We amended our existing revolving credit
agreement to increase the maximum permitted Total Consolidated
Debt to Consolidated EBITDA ratios through March 31, 2010 and
also to exclude up to $100 million of cash restructuring charges
from EBITDA as it pertains to this covenant. The balance on this
revolver at the end of the second quarter was $23 million, down
from $114 million at the beginning of the year. In addition, as
previously announced, we contributed a total of approximately
1.2 million shares of Cytec stock to our four US pension plans.
This contribution increased the funded status of those plans
while significantly reducing future cash contributions from the
company.
More recently, we completed an offering of $250 million
principal amount of 8.95% senior unsecured notes due 2017. We
used most of the proceeds to purchase $235 million principal
amount of our 5.5% notes maturing October 1, 2010 at 103.5% of
par pursuant to a tender offer which expired on July 14, 2009.
We anticipate using the remainder of the proceeds to purchase up
to $15 million principal amount of our 4.6% notes maturing July
1, 2013 at 95% of par pursuant to a tender offer scheduled to
expire July 28, 2009. Mr. Drillock concluded, “We are pleased
with our actions to date which have significantly enhanced our
liquidity and allowed us to maintain an investment grade rating
from both Moody’s and Standard & Poor’s. Our efforts on the
working capital initiative continue with an emphasis on
sustainability.”
2009 Outlook
Mr. Fleming explained, “While the first half of this
year has been extremely challenging, we have begun to see some
positive signs of demand improvement in our specialty chemical
segments.” Based on our current volume projections and the
progress we have made with our cost reduction actions, we affirm
our recently updated guidance for 2009 full year adjusted
diluted earnings per share to be in a range of $0.60 to $0.90
per share.”
In Coating Resins, we have seen demand strengthening over the
first six months of 2009 and our expectation is that customers
are nearing the end of their destocking activity. In addition,
we will realize increasing benefits from our structural and
temporary cost reduction actions in the second half of this
year. As a result of these improvements, our expectations are
for much improved results in the second half of 2009. Our
estimate for this segment is a full year operating loss in a
range of $42 to $50 million.
In Additive Technologies, we also saw volume improvements in the
latter part of the quarter and combined with the continuing
benefit from the prior year’s exit of low-value product lines
our expectation is for full year operating earnings in a range
of $8 to $12 million.
The In Process Separation business experienced significant
destocking activity in the first half of this year in both the
mining and phosphine markets. However, we believe this activity
is near ending and expect to see improved demand in the second
half of the year. Additionally, second half sales will benefit
from several fill orders in the metal extraction product line
and commercialization of our new product technologies in the
alumina and mineral processing product lines. As a result, we
estimate full year operating earnings in this segment to be in a
range of $32 to $40 million.
In Engineered Materials, we are responding to the difficult
market conditions by taking new, aggressive actions to realign
our cost base. We have announced an 8% reduction in the
workforce and initiated furloughs in the manufacturing
facilities to match production with customer demand. We expect
these actions to yield total annualized cost savings of $20
million with half of this achieved in 2009. Taking this into
consideration as well as the continuation of destocking
activities and reduced business jet demand, we expect this
business to deliver full year operating earnings in a range of
$100 to $105 million.
In Building Block Chemicals, we have seen demand improvements in
Europe and Asia for Acrylonitrile, but margin pressures are
expected to continue as propylene pricing escalates. We also
expect melamine demand to remain weak during this recessionary
period. Therefore, we expect full year operating earnings to be
about $5 million for this segment.
Our guidance for Corporate and Unallocated is an expense of
approximately $20 million for the year, and interest expense,
net, is expected to be about $33 million which takes into
account the recently completed debt offering and our
expectations for the tender offer. Our forecast for our
underlying annual tax rate for ongoing operations is expected to
be approximately 34% to 35%.
In closing, Mr. Fleming commented, “Our confidence in the
positive secular growth trends of higher composites and
adhesives content in aerospace applications, increased use of
environmentally friendly coating resins, and increased base
metal demand resulting from global infrastructure build remains
intact. We have been successful in the first half of the year
capturing new business in the coatings, mining and aerospace
markets with our new product and applications technologies that
create enhanced value for our customers. We expect much of this
new business to have a positive impact on our second half sales.
The ongoing restructuring initiatives we have implemented will
benefit operating earnings in the quarters ahead, and our
expectation for the rest of 2009 is for modest demand
improvement in our Specialty Chemicals businesses. We expect our
strong cash flow performance, driven by our working capital
initiatives, to continue throughout 2009 and to be sustainable
going forward. As we work through this challenging period, our
goal, as always, is to deliver increasingly favorable returns
for our shareholders.”
Six Month Results
Net loss for the six months ended June 30, 2009 was
$24.9 million or $0.52 per diluted share on sales of $1,297
million. Included in the results for the six months were (a)
pre-tax net restructuring charges of $37.4 million ($25.0
million after-tax or $0.52 per diluted share), and (b) pre-tax
charges of $1.4 million ($1.9 million after-tax or $0.04 per
diluted share) for the exit of the polyurethanes product line.
Excluding these items, net earnings were $2 million or $0.04 per
diluted share.
Net earnings for the six months ended June 30, 2008 were $105.7
million or $2.17 per diluted share on sales of $1,979 million.
Included in the results for the six months were (a) pre-tax net
restructuring charges of $5.0 million ($3.6 million after-tax or
$0.07 per diluted share), and (b) a pre-tax charge of $2.8
million ($1.8 million after-tax or $0.04 per diluted share) for
accelerated depreciation of our Pampa site. Excluding these
items, net earnings were $111.1 million or $2.28 per diluted
share.
Investor Conference Call to be Held on July 17, 2009 at
11:00am ET
Cytec will host their second quarter earnings release
conference call on July 17, 2009 at 11:00am 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 webcast.
Use of Non-GAAP Measures
Management believes that net earnings and diluted
earnings per share excluding 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 to
non-GAAP measurements 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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