Press Releases
Cytec Announces Third Quarter Results
Full Year 2007 Outlook Updated
West Paterson, New Jersey, October 18, 2007 - Cytec
Industries Inc. (NYSE:CYT) announced today net earnings for
the third quarter of 2007 of $52.4 million or $1.06 per
diluted share on net sales of $875 million. Included in the
quarter is an after-tax net restructuring charge of $2.2
million or $0.05 per diluted share and a tax benefit of $3.5
million or $0.07 per diluted share as described later in
this release. Excluding these items, net earnings were $51.1
million or $1.04 per diluted share.
Net earnings for the third quarter of 2006 were $25.1
million or $0.52 per diluted share on net sales of $863
million. Included in that quarter were several special items
as outlined later in this release. Excluding these special
items, net earnings were $42.5 million or $0.87 per diluted
share.
David Lilley, Chairman, President and Chief Executive
Officer said, “Our third quarter results reflect the
continuing improvement in our Surface Specialty segment due
to an improved product mix and the benefits of our
efficiency and improvement initiatives. The Engineered
Materials segment continues to benefit from the higher
selling volumes. As expected, interest expense is lower due
to our reduced debt levels.”
Cytec Performance Chemicals Sales decreased 22% to $181
million; Operating Earnings decreased to $18.3 million
Mr. Lilley continued, “In Cytec Performance Chemicals, the
divestiture of the water treatment chemicals product line
reduced sales by 24%, base selling volumes and selling
prices were flat and exchange rate changes increased sales
2%.
“Operating earnings decreased 12% to $18.3 million primarily
due to the sale of the water treatment business and lower
earnings in the Polymer Additives product line.
Cytec Surface Specialties Sales increased 8% to $413
million; Operating Earnings increased to $31.2 million
“In Cytec Surface Specialties, selling volumes decreased 3%,
selling prices increased 6% and exchange rate changes
increased sales 5%. Higher volumes in water-borne resins
were more than offset by lower volumes primarily in
solvent-borne and amino crosslinking resins. Solvent-borne
sales were impacted by the 2006 shutdown of our unprofitable
manufacturing facility in France which led us to discontinue
certain products and our conversion of certain solvent-borne
manufacturing assets to produce more profitable water-borne
products. We did continue to experience weak demand in North
America and saw a softening in Europe towards the latter
half of the quarter.
“Operating earnings increased 66% to $31.2 million primarily
due to the higher selling prices more than offsetting the
increase in raw material costs, a more favorable product mix
plus the positive impact of our efficiency and improvement
initiatives begun in prior periods.
Cytec Engineered Materials Sales increased 7% to $162
million; Operating Earnings increased to $28.8 million
“Cytec Engineered Materials selling volumes increased 5%,
selling prices increased sales 1% and exchange rate changes
increased sales by 1%. The selling volume increase was
primarily due to higher build rates in the large commercial
aircraft, high performance automotive and business jet
sectors.
“Operating earnings improved 8% to $28.8 million, primarily
due to the higher selling volumes which is partially offset
by higher raw material and manufacturing costs plus planned
increases in selling and technical and research expenses as
we continue to invest in future opportunities.
Building Block Chemicals Sales increased 24% to $119
million; Operating earnings decreased to $9.4 million
“In Building Block Chemicals, the divestiture of the
acrylamide product line decreased sales by 19%. Excluding
the effect of the divestiture, selling volumes increased by
36%, of which 26% is related to the sale of acrylonitrile to
the purchaser of the acrylamide product line. The remainder
is primarily due to higher selling volumes of melamine in
North America and Europe. Selling prices increased by 7% and
the impact of exchange rate changes was neutral.
“Operating earnings decreased to $9.4 million compared to
$10.1 million in the same period of 2006. Included in 2006
is net benefit of approximately $2.7 million related to a
payment from our former melamine joint venture partner for
early termination of the manufacturing joint venture.
Excluding this amount from 2006 operating earnings, the
improvement in 2007 is due to increased margins in
acrylonitrile and melamine.”
Corporate and Unallocated
David M. Drillock, Vice President and Chief Financial
Officer, commented, “During the quarter, we recorded a
pre-tax restructuring charge of $2.8 million, principally in
manufacturing cost of sales, with the breakdown as follows.
- Approximately $1.3 million relates to a restructuring of
our polymer additive manufacturing operations in West
Virginia. The total amount of restructuring expense is
estimated to be approximately $5.5 million and the remaining
amount is expected to occur and recorded over the next three
quarters. This action involves the reduction of 63 positions
and the exit of several mature products in our polymer
additives product line. This initiative is expected to
improve the cost competitiveness of the site and to focus
our efforts on our differentiated products.
- Approximately $0.8 million relates to a restructuring of
our Liquid Coating resins manufacturing facility in
Connecticut. The total amount of restructuring expense is
estimated to be $1.8 million and the remaining amount is
expected to occur and recorded over the next three quarters.
This action involves the reduction of approximately 35
positions and the exit of a mature product line. Our focus
at this site is to improve the cost competitiveness of the
remaining product lines and complete the construction of our
waterborne resins manufacturing facility and begin
manufacturing in the first half of 2008.
- Approximately $0.7 million of this amount is related to
the shutdown of our manufacturing operations in France which
were expected but not accruable under accounting rules as
part of the charge taken in the fourth quarter of 2006.”
Included in Corporate and Unallocated in the third quarter
of 2006 were the following pre-tax amounts:
- An asset impairment charge of $15.4 million related to our
manufacturing site in Dijon, France which produced
solvent-borne alkyds and solvent-borne acrylics primarily
for the European market.
- A restructuring charge of $1.1 million, which was
primarily recorded in cost of sales and selling and
technical services related to headcount reductions in
Specialty Chemicals. Also included in administrative expense
are integration costs of $0.2 million related to the Surface
Specialties acquisition.
- A charge of $2.2 million recorded in manufacturing cost of
sales related to a detailed update of our asbestos
contingent liabilities.
Interest Expense
Mr. Drillock commented, “Interest expense, net was reduced
28% from the prior year quarter reflecting the continued
good progress we have made in reducing our debt levels.”
Income Tax Expense
Mr. Drillock added, “Our tax provision for the third quarter
of 2007 was $18.4 million, or 26.0%, on our earnings before
income taxes. Included in the amount is a benefit of $3.5
million as a result of recently enacted tax legislation that
lowered the German corporate tax rate beginning in 2008,
which led to a corresponding adjustment to our deferred
taxes for this jurisdiction. Also impacting the rate for the
quarter was our inability to recognize any tax benefit on
the French restructuring charge due to continuing losses at
our French entity, similar to the tax treatment of the
French restructuring charges recorded in prior periods.
Excluding these items, our 2007 annual effective tax rate is
30.25%. This is slightly higher than the previously reported
underlying annual effective tax rate of 29.75% due to
changes in our earnings mix by entity.
“Our underlying effective tax rate for the third quarter of
2007 of 30.25% is higher than the underlying rate for the
third quarter of 2006 of 27.5% due to the effect of the
divestiture of the water treatment chemicals and acrylamide
product lines, unfavorable changes in U.S. tax laws
regarding manufacturing export incentives and the
aforementioned change in profitability mix by entity.”
Cash Flow
Mr. Drillock commented further, “Cash flow provided by
operations was $104 million for the quarter and $195 million
year to date. For the quarter, trade accounts receivable
dollars decreased $6 million and days outstanding were
approximately 59, up slightly from the prior quarter end.
Inventory dollars decreased slightly and days in inventory
are 73, flat from the prior quarter end. Capital spending
for the quarter was $26 million bringing our year to date
total to $66 million. We have reduced our full year estimate
for capital spending to be in a range of $100-$110 million
down from a range of $130-140 million partially as a result
of extending the assessment phase of the carbon fiber plant
expansion in Greenville, S.C. Our growth expansion projects
in specialty chemicals are on track and we continue to find
ways to improve our cost effectiveness and capacity through
lean manufacturing and six sigma projects.
“During the quarter we purchased 372 thousand shares of our
common stock for approximately $24.5 million. For the nine
months year to date we have purchased 805 thousand shares of
our common stock for approximately $50 million leaving about
$19 million remaining on our current authorization. We
expect to continue our stock buyback program through year
end.”
Full Year 2007 Outlook
Mr. Lilley commented, “Our results to date strengthen our
convictions that we are on the right track. We are
continuing our efforts to improve the underlying
profitability of the Specialty Chemical segments and the two
restructurings announced this quarter are further evidence
of our path to improved and sustainable profitability. On
the demand side, our expectation is for North America to be
weak and we are watching demand in Europe closely as the
latter part of the third quarter indicated a softening.
Overall, the increasing demand for environmentally friendly
coatings continues. Raw material costs continue as a
headwind. Methanol is spiking again, oil is over $80 per
barrel and propylene is at an all-time high. We are raising
prices to attempt to cover the higher raw material costs. In
Building Block Chemicals, we expect the markets for
acrylonitrile and melamine to remain tight and thus we
retain our ability to pass through much of the higher raw
material costs. In the Engineered Materials segment, we
continue to meet the higher demand levels and work on
projects for future growth.
“Taking into account our strong third quarter results, we
remain on track despite the headwinds of softening demand in
North American and Europe in addition to increasing raw
material costs. The result of our effort is that we are
updating our 2007 full year adjusted diluted earnings per
share estimate to a range of $3.70 to $3.80 from a previous
range of $3.60 to $3.80.”
In closing, Mr. Lilley commented, “While we can’t control
the external economic factors, we are focused on our efforts
to improve our businesses and the momentum continues. We
believe we are creating a strong base for future growth
which should benefit all our stakeholders.”
Nine Month Results
Net earnings for the nine months ended September 30, 2007
were $158.9 million or $3.23 per diluted share on sales of
$2,603 million. Included in the results for the nine months
ended September 30, 2007 were – (a) net restructuring
charges of pre-tax $5.4 million (after-tax $4.8 million or
$0.10 per diluted share), (b) a pre-tax gain of $15.7
million (after-tax $15.3 million or $0.31 per diluted share)
as a result of completing the third phase of the sale of our
water treatment chemicals and acrylamide product lines to
Kemira Group, (c) a tax benefit of $3.5 million or $0.07 per
diluted share related to recently enacted legislation in an
international jurisdiction. Excluding these items, net
earnings were $144.9 million or $2.94 per diluted share.
Net earnings for the nine months ended September 30, 2006
were $111.7 million or $2.30 per diluted share on sales of
$2,536 million. Included in the results for the nine months
ended September 30, 2006 were – (a) asset impairment charge
of pre-tax $15.4 million (after-tax $14.8 million or $0.31
per diluted share), (b) net restructuring charges of pre-tax
$23.4 million (after-tax $16.5 million or $0.34 per diluted
share), (c) a pre-tax $15.7 million (after-tax $12.5 million
or $0.26 per diluted share) gain related to resolution of a
legal dispute, (d) a pre-tax charge of $1.3 million
(after-tax $0.9 million or $0.02 per diluted share) for
integration expenses related to the Surface Specialties
acquisition, (e) a pre tax charge of $2.2 million (after-tax
$1.6 million or $0.03 per diluted share) related to a
contingent liability study/update, (f) a reduction in income
tax expense of $3.5 million or $0.07 per diluted share
relating to the completion of prior years tax audits, and
(g) the cumulative effect of an accounting change after-tax
charge of $1.2 million or $0.02 per diluted share related to
the adoption of SFAS 123R. Excluding these items, net
earnings were $130.7 million or $2.69 per diluted share.
Investor Conference Call to be Held on October 19, 2007
11:00 A.M. ET
Cytec will host their third quarter earnings release
conference call on October 19, 2007 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 October 19, 2007 until
November 9, 2007 at 11:00 p.m. ET by calling 888-203-1112
(U.S.) or 719-457-0820 (International) and entering access
code 3684059. 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 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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