Press Releases
Contact:
Jodi Allen (Investor Relations)
(973) 357-3283
Cytec
Announces Second Quarter 2012 As-Adjusted EPS of $1.55;
As-Adjusted Continuing EPS of $0.73, Up 143%;
As-Adjusted Discontinued EPS of $0.82 Up 37%;
Increases Full Year As-Adjusted 2012 EPS Guidance
WOODLAND PARK,
N.J., July 19, 2012 -- Cytec Industries Inc. (NYSE: CYT)
announced today net earnings attributable to Cytec for the
second quarter 2012 of $35.7 million or $0.76 per diluted share
on net sales from continuing operations of $404 million. For
purposes of financial statements presentation, the Coating
Resins segment is now classified as discontinued operations.
Earnings from continuing operations were $8.6 million or $0.18
per diluted share. Earnings from discontinued operations were
$27.5 million or $0.59 per diluted share. Net earnings
attributable to noncontrolling interests (which are associated
with the discontinued operations) were $0.4 million or $0.01 per
diluted share. Included in the quarter are several special items
that total $37.3 million of net expense after-tax, or $0.79 per
diluted share, and are outlined further in this release ($0.55
attributable to continuing operations and $0.24 attributable to
discontinued operations). Excluding these special items, net
earnings attributable to Cytec were $73.0 million or $1.55 per
diluted share, earnings from continuing operations were $34.3
million or $0.73 per diluted share, and earnings from
discontinued operations were $38.7 million or $0.82 per diluted
share.
Net earnings for the second quarter of 2011 were $35.1 million
or $0.70 per diluted share on net sales of $347 million.
Earnings from continuing operations were $14.0 million or $0.28
per diluted share. Earnings from discontinued operations were
$21.9 million or $0.44 per diluted share. Net earnings
attributable to noncontrolling interests (which are associated
with the discontinued operations) were $0.8 million or $0.02 per
diluted share. Included in the quarter were several special
items that totaled $9.7 million of net expense after-tax or
$0.19 per diluted share ($0.01 attributable to continuing
operations and $0.18 attributable to discontinued operations).
Excluding the special items, earnings attributable to Cytec were
$44.8 million or $0.90 per diluted share, earnings from
continuing operations were $14.9 million or $0.30 per diluted
share, and earnings from discontinued operations were $29.9
million or $0.60 per diluted share.
Shane Fleming, Chairman, President and Chief Executive Officer
commented, “We delivered excellent second quarter results in the
face of macroeconomic uncertainties. On a consolidated level,
excluding Coating Resins, which is now classified as
discontinued operations, sales increased across all regions with
volume growth of 13% compared to the prior year period. Our In
Process Separation business had another record sales and
earnings quarter with strong volume and higher margins.
Engineered Materials sales increased 21% compared with the prior
year quarter, due to robust volume growth across all of the
aerospace end markets. In Additive Technologies the European
economic environment remained challenging for certain specialty
additive products. However, this softness was largely offset by
strong demand in North America and Asia Pacific for our higher
value polymer additives products. Our second quarter results
demonstrate the strength of our continuing businesses and our
ability to deliver sustained growth.”
Mr. Fleming continued, “We also made excellent progress
executing our portfolio transformation strategy to increase our
focus on our growth businesses. We announced the sale of our
pressure sensitive adhesives product line, initiated the formal
sales process for Coating Resins, acquired assets in India to
support growth in mining chemicals, and announced the intention
to acquire Umeco to strengthen our position in advanced
composite materials. I could not be more pleased with our
ability to manage these projects while continuing to meet or
exceed our earnings targets. We are successfully positioning
ourselves as a higher growth and more profitable organization
with significant opportunities ahead to deliver long-term
value.”
Cytec Engineered Materials sales increased 21% to $230
million; Operating Earnings increased to $38.7 million.
In Engineered Materials, selling volumes increased by
17% versus the second quarter 2011 driven primarily by higher
build rates across the entire aerospace sector including large
commercial aircraft programs, business and regional jet markets,
military programs, and rotorcraft markets. Selling prices
increased sales by 4%.
Operating earnings of $38.7 million were up versus earnings of
$28.1 million in the prior year quarter, principally as a result
of the higher selling volumes and selling prices, which were
partially offset by higher spending to meet the increased
production levels. The higher selling prices more than covered
the increased raw material costs of approximately $4.0 million.
Earnings were reduced by approximately $3.5 million related to
scheduled maintenance work and the associated downtime in our
carbon fiber plant. Expenses of approximately $1.0 million were
recorded related to successful conclusion of union contract
negotiations at one of our U.S. manufacturing sites and bad debt
expense of $0.8 million was recorded related to a customer in
Spain.
Cytec In Process Separation sales increased 22% to $100
million; Operating Earnings increased to $27.1 million.
In Process Separation selling volumes increased by 16% versus
the second quarter 2011, primarily as a result of higher demand
in mining chemicals which included two new mine fills in Africa
resulting in incremental sales of $6.7 million. The integration
of the acquired assets in India is progressing well as we
started work on the necessary process and capital upgrades to
begin producing our mining technologies in the fourth quarter
2012. Demand was also strong for our phosphine chemical products
across all key markets. Selling prices increased by 7% and the
impact of changes in exchange rates decreased sales by 1%.
Operating earnings were $27.1 million versus $15.6 million in
the prior year quarter principally due to higher selling
volumes, and improved margin coming from higher selling prices
and better product mix, partially offset by increased operating
expenses to support the growth initiatives in this segment.
Cytec Additive Technologies sales decreased 2% to $74
million; Operating Earnings increased to $13.7 million.
In Additive Technologies, overall selling volumes were
down 1% versus the second quarter 2011 due to lower demand for
specialty additives which was mostly offset by increased selling
volumes for higher value polymer additives products. Selling
prices increased 2% and the impact of changes in exchange rates
decreased sales by 3%.
Operating earnings of $13.7 million were up versus $10.6 million
in the second quarter of 2011 mainly as a result of higher
selling prices, favorable product mix and lower manufacturing
and operating expenses.
Corporate and Unallocated
For the three and six months ended June 30, 2012 continuing
costs previously allocated to Coating Resins but now included as
part of corporate and unallocated were $17.6 and $34.8 million,
respectively. For the three and six months ended June 30, 2011,
these costs were $17.5 and $34.6 million, respectively. We have
plans in place to eliminate up to two-thirds of stranded costs
within 60-90 days of the closing of Coating Resins transaction,
and we are committed to further reducing these costs over the
next 12-24 months.
Discontinued Operations
In May 2012, we announced the definitive agreement to sell our
Pressure Sensitive Adhesives (PSA) product line to Henkel, and
separately, the initiation of a formal sale process for our
remaining Coating Resins business. Accordingly, all of the
Coating Resins segment has been classified as discontinued
operations.
The following covers Coating Resins sales and earnings as they
would have been reported if they had not been required to be
classified as discontinued operations. Sales were $394 million
down 13% in the second quarter 2012 versus $451 million in the
same period 2011. Selling volumes were down 8% with a portion of
this reduction due to our decision to exit certain low margin
products. Selling prices remained flat year over year and the
impact of changes in exchange rates decreased sales by 5%.
Operating earnings would have increased to $39.2 million versus
$30.0 million in the second quarter 2011 primarily due to lower
raw material costs and the benefit of decreased manufacturing
and operating expenses related to cost reduction initiatives
taken in 2011.
Coating Resins Sale Process
The formal sale process for Coating Resins is underway and the
Company remains on track to complete this transaction by the end
of the fourth quarter.
Umeco Acquisition Process
We announced our plan to acquire Umeco Plc on April 12th. The
acquisition process continues to progress according to the plan
and we expect to close this transaction shortly.
Special Items
In the second quarter of 2012 a number of special items were
recorded that resulted in net pre-tax charges of $22.1 million
($15.8 million after-tax) and $21.5 million of income tax
expense ($37.3 million net charges on an after-tax basis or
$0.79 per diluted share) as follows:
Continuing Operations:
-
Included in
Corporate and Unallocated as Research and Process
Development expense is a pre-tax charge of $0.7 million
($0.4 million after-tax or $0.01 per diluted share) for
incremental accelerated depreciation related to the
sale-leaseback transaction of our research and development
facility in Stamford, Connecticut in the third quarter of
2011.
-
Included in
Corporate and Unallocated as Administrative and General
expense is a pre-tax charge of $2.9 million ($2.9 million
after-tax or $0.06 per diluted share) related to Umeco
acquisition costs. For tax purposes, these costs will be
capitalized as part of the transaction with no related tax
benefit.
-
Included in
Corporate and Unallocated principally in Administrative and
General and Manufacturing Cost of Sales are pre-tax net
restructuring charges of $11.6 million ($7.9 million
after-tax or $0.17 per diluted share) related to future
reductions in the stranded costs from a sale of Coating
Resins.
-
Included in the
Income Tax provision is $14.5 million of income tax expense
($0.31 per diluted share) related to the sale process of our
Coating Resins segment. Accounting rules require
establishing a tax liability on the unrepatriated earnings
of foreign subsidiaries if it is management’s intention to
no longer permanently reinvest such earnings. As a result of
the intended sale of Coatings Resins, management’s
intentions changed with regard to a portion of the
unrepatriated earnings of certain foreign subsidiaries.
Discontinued Operations
Included in earnings from discontinued operations are the
following.
-
A favorable
pre-tax net restructuring adjustment of $3.7 million ($2.5
million after-tax or $0.05 per diluted share).
-
A net pre-tax
charge of $8.9 million ($5.9 million after-tax or $0.12 per
diluted share) related to costs associated with the sale
process of Coating Resins.
-
A pre-tax
charge of $1.7 million ($1.2 million after-tax or $0.02 per
diluted share) related to an increase in the environmental
liability at a certain site for new remedial design
requirements.
-
A $7.0 million
income tax expense ($0.15 per diluted share) related to the
requirement of establishing a tax liability on a portion of
the un-repatriated earnings of certain foreign subsidiaries
to be sold as part of the sale of coating resins.
In the second
quarter of 2011 a number of special items were recorded that
resulted in net pre-tax charges of $13.7 million ($9.7 million
net charges on an after-tax basis or $0.19 per diluted share) as
follows:
Continuing Operations:
-
Included in
Corporate and Unallocated principally in Manufacturing Cost
of Sales is a pre-tax restructuring charge of $0.3 million
($0.2 million after-tax or $0.00 per diluted share).
-
Included in
Other expense, net is a net pre-tax charge of $1.2 million
($0.7 million after-tax or $0.01 per diluted share) related
to an increase in the environmental liability at an inactive
site for new remedial design requirements.
Discontinued Operations:
Income Tax
Expense
Income tax expense related to continuing operations for
the second quarter of 2012 was $25.4 million, compared with a
tax expense of $6.4 million in the second quarter of 2011.
Excluding the impact from the special items previously noted,
the overall underlying annual tax rate for the second quarter of
2012 was 30.8% versus the underlying annual tax rate in the
second quarter of 2011 of 31.0%.
Cash Flow
Due to the complexity of the analysis associated with presenting
the Coating Resins segment as a discontinued operation, the
statement of cash flows providing the separation between
continued and discontinued operations, will be available in our
quarterly 10-Q filing, which is expected to be filed on or about
August 6, 2012. David Drillock, Vice President and Chief
Financial Officer commented, “Total Cytec cash flows provided by
operating activities, if Coating Resins had not been required to
be classified as discontinued operations would have been $47.5
million for the second quarter 2012 versus $15.4 million in the
prior year period. During the quarter, our average net working
capital days were up four days at 70 days compared to the first
quarter of 2012. Average accounts receivable and payable days
were up one day compared with the first quarter of 2012 at 50
and 57 days, respectively. Average inventory days were up five
days to 78 days compared with the first quarter of 2012 mostly
as a result of the higher demand within our growth platforms”
“Capital spending for the quarter was $39 million with over 60%
of the spending attributable to our growth platforms. Our
expectation for capital spending for the full year 2012 remains
approximately $200 million with all of the increase from prior
year related to manufacturing capacity expansions in the
Engineered Materials and In Process Separation segments.”
Mr. Drillock added, “In anticipation of the closing of the Umeco
acquisition, we borrowed approximately $170 million, net on our
previously unused $400 million credit facility. We expect to
reduce this borrowing from our internal cash generation and
anticipated proceeds from the sale of the pressure sensitive
adhesives product line.”
2012 Outlook
Mr. Fleming continued, “In Engineered Materials, demand remains
strong led by large commercial aircraft programs and business
and regional jets. In military, we do anticipate a bit slower
demand in the near term related to the JSF program. A labor
strike at our customer has now concluded but we believe excess
inventory will remain in the supply chain for the balance of the
year. Given the steady demand across all sectors, our full year
forecast remains unchanged with sales projected to be in a range
of $880 to $920 million and operating earnings are projected to
be in a range of $170 million to $180 million, well up from the
2011 operating earnings of $125 million.
“As we announced back in April, Umeco and Cytec remain
independent companies until the transaction closes which we
expect to occur imminently. We anticipate that we will report
the Umeco businesses as a separate reportable segment through
December 31, 2012 and that commencing in first quarter of 2013,
our Engineered Materials segment and the Umeco segment will be
reformed into two new segments, one for aerospace and the second
for industrial materials. This organization will allow us to
maximize the benefits of the combination and drive revenue
growth and value creation. The estimated EPS accretion for the
remainder of 2012 is approximately $0.20 per share for this new
reportable segment.
“For the In Process Separation segment, the level of customer
demand for our mining and phosphine technologies remains strong,
and our penetration into additional geographies is resulting in
higher volumes. We expect production of copper to remain steady
and contribute to our sales growth, but we project alumina
growth to soften given the recent reductions in production rate
at some sites and the potential for additional slowdowns or
closures at higher cost sites. As a result of continued strong
demand across the segment, we are increasing our sales guidance
to $380 million to $390 million from our prior sales guidance of
$375 million to $385 million. As a result of the higher selling
volumes, particularly the sales of newer technologies in the
first half of 2012, we are raising our full year operating
earnings guidance to be in a range of $85 million to $90
million, up from the previous estimate of $78 million to $83
million and up significantly from the 2011 operating earnings of
$70 million.
“In Additive Technologies, polymer additives has enjoyed the
benefit of the additional capacity we brought on stream earlier
this year to support solid demand in North America and Asia
Pacific across all sectors. However, in Europe, after a good
start in the agriculture film season we are seeing some demand
weakness. Specialty Additives experienced growth in both Latin
America and Asia Pacific regions, while Europe was weak across
most product lines and this is expected to continue throughout
the year. Given the optimism by North America and Latin America
customers, demand in these regions should offset the weakness in
Europe. Therefore, our full year forecast remains unchanged with
sales estimate of $290 million to $300 million compared to sales
of $287 million in 2011 and for full year operating earnings to
be in a range of $40 million to $45 million.
“The guidance for Corporate and Unallocated expenses is
approximately $86 to $88 million for the year including
continuing costs previously allocated to Coating Resins. Other
Expense is forecasted to be approximately $2 million, and
interest expense, net is expected to be approximately $34
million which includes the reduction for capitalized interest
related to recently announced capacity expansion projects for
our growth platforms. The forecast for the underlying annual tax
rate is expected to be in a range of 30.5% to 31.5%.
“For Coating Resins, customers remain cautious as they manage
inventory through uncertainties. We have been successful in
offsetting previous increases in raw material costs with higher
pricing. Given the recent reductions across the propylene value
chain we anticipate selling prices to ease, although we expect
to maintain our improved marginal income percentage. Although
Europe fundamentals remain weak across our industrial markets,
the pricing discipline we have demonstrated in the marketplace
coupled with our focus on selling our higher value technologies
has resulted in better first half earnings results. However,
economic activity in Europe continues to be slow and prolonged
uncertainty will put pressures on our end consumers in this
region. Coupled with expected pricing pressures from lower raw
material costs, we are lowering our full year sales projections
to be in a range of $1,520 million to $1,600 million compared to
sales of $1,657 million in 2011. However, due to better than
expected results for the first half of 2012 from our disciplined
value pricing and the benefits of prior year restructuring and
product rationalization initiatives, we are increasing our full
year operating earnings guidance. We now expect operating
earnings to be in a range of $82 million to $87 million, up from
prior estimate of $70 to $75 million which represents a
significant increase versus 2011 operating earnings of $69
million. This guidance is on the basis prior to classifying this
segment as a discontinued operation which includes continuing
costs previously allocated to this segment of approximately $68
million for 2012. Operating earnings excluding the continuing
costs is expected to be in a range of $150 million to $155
million.”
Mr. Fleming continued, “I am extremely pleased with the overall
performance of the businesses and we remain focused on executing
our strategic initiatives to deliver growth and create value for
our shareholders. Our revised guidance for 2012 full year
adjusted diluted earnings per share is now in a range of $4.60
to $4.90. Our guidance for 2012 full year as adjusted diluted
earnings per share for continuing operations is expected to be
in a range of $2.45 to $2.70 on sales from continuing operations
of $1.55 billion to $1.58 billion. Guidance for adjusted
earnings per share for discontinued operations is expected to be
in a range of $2.15 to $2.20. These estimates do not include our
expected earnings accretion from Umeco acquisition of $0.20 per
diluted share. We will update our full year guidance to include
the accretion impact once closing is completed.”
Six Month Results
Net earnings attributable to Cytec for the six months ended June
30, 2012 were $88.8 million or $1.90 per diluted share on net
sales of $782 million. Earnings from continuing operations were
$38.9 million or $0.83 per diluted share. Earnings from
discontinued operations were $50.9 million or $1.09 per diluted
share. Net earnings attributable to noncontrolling interests
(which are associated with the discontinued operations) were
$1.0 million or $0.02 per diluted share.
Special Items
During the six month ended June 30, 2012, a number of special
items were recorded that resulted in net pre-tax charges of
$32.3 million ($22.6 million after-tax) and $21.5 million of
income tax expense ($44.1 million net charges on an after-tax
basis or $0.94 per diluted share) as follows:
Continuing Operations:
-
Included in
Corporate and Unallocated as Research and Process
Development is a pre-tax charge of $1.3 million ($0.9
million after-tax or $0.02 per diluted share) for
incremental accelerated depreciation related to the
sale-leaseback transaction of our research and development
facility in Stamford, Connecticut in the third quarter of
2011.
-
Included in
Corporate and Unallocated as Administrative and General
Expense is a pre-tax charge of $2.9 million ($2.9 million
after-tax or $0.06 per diluted share) related to Umeco
acquisition costs. For tax purposes, these costs will be
capitalized as part of the transaction with no related tax
benefit.
-
Included in
Corporate and Unallocated principally in Administrative and
General and Manufacturing Cost of Sales are pre-tax net
restructuring charges of $11.4 million ($7.8 million
after-tax or $0.17 per diluted share) related to future
reductions in the stranded costs from a sale of Coating
Resins.
-
Included in the
Income Tax provision is $14.5 million of income tax expense
($0.31 per diluted share) related to the sale process of our
Coating Resins segment. Accounting rules require
establishing a tax liability on the unrepatriated earnings
of foreign subsidiaries if it is management’s intention to
no longer permanently reinvest such earnings. As a result of
the intended sale of Coatings Resins, management’s
intentions changed with regard to a portion of the
unrepatriated earnings of certain foreign subsidiaries.
Discontinued Operations:
Included in earnings from discontinued operations are
the following.
-
A net pre-tax
charge of $15.1 million ($9.8 million after-tax or $0.21 per
diluted share) related to costs associated with the sale
process of Coating Resins.
-
A favorable
pre-tax net restructuring adjustment of $0.2 million ($0.0
million after-tax or $0.00 per diluted share).
-
A pre-tax
charge of $1.7 million ($1.2 million after-tax or $0.02 per
diluted share) related to an increase in the environmental
liability at a certain site for new remedial design
requirements.
-
A $7.0 million
of income tax expense ($0.15 per diluted share) related to
the requirement of establishing a tax liability on a portion
of the un-repatriated earnings of certain foreign
subsidiaries to be sold as part of the sale of coating
resins.
Excluding these
special items, net earnings attributable to Cytec were $132.9
million or $2.84 per diluted share, earnings from continuing
operations were $65.0 million or $1.39 per diluted share, and
earnings from discontinued operations were $67.9 million or
$1.45 per diluted share.
Net earnings for the six months ended June 30, 2011 were $118.3
million or $2.36 per diluted share on net sales of $683 million.
Earnings from continuing operations were $28.5 million or $0.57
per diluted share. Earnings from discontinued operations were
$91.3 million or $1.82 per diluted share. Net earnings
attributable to noncontrolling interests (which are associated
with the discontinued operations) were $1.5 million or $0.03 per
diluted share.
For the six months ended June 30, 2011, a number of special
items were recorded that resulted in net pre-tax charges of
$12.9 million ($9.1 million net charges on an after-tax basis or
$0.18 per diluted share) as follows:
Continuing Operations:
-
Included in
Other expense, net is a net pre-tax charge of $4.4 million
($2.7 million after-tax or $0.05 per diluted share) related
to an increase in the environmental liability at inactive
sites for updated estimates of future remedial costs.
-
Included in
Gain on sale of assets is a pre-tax gain of $3.3 million
($2.1 million after-tax or $0.04 per diluted share) related
to a sale of land at our manufacturing site in Colombia
which was shutdown in the second half of 2009.
-
Included
Corporate and Unallocated principally in Manufacturing cost
of sales is a pre-tax net restructuring charge of $0.4
million ($0.3 million after-tax or $0.01 per diluted share).
Discontinued Operations:
Excluding these
special items, net earnings attributable to Cytec were $127.4
million or $2.54 per diluted share, earnings from continuing
operations were $29.4 million or $0.59 per diluted share, and
earnings from discontinued operations were $98.0 million or
$1.95 per diluted share.
Investor Conference Call to be Held on Friday, July 20,
2012 at 11:00am ET
Cytec will host their second quarter earnings release
conference call on July 20, 2012 at 11:00am ET.
The conference call will also be simultaneously webcast for all
investors from Cytec’s website.
Select the Investor Relations page to access the live webcast.
Use of Non-GAAP Measures
Management believes that net earnings from continuing
operations attributable to Cytec and earnings from discontinued
operations, excluding special items and diluted earnings per
share (continuing operations attributable to Cytec and earnings
from discontinued operations) 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’s vision is to deliver specialty chemicals and
materials 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 composites, structural
adhesives, automotive and industrial coatings, electronics,
inks, mining and plastics.
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