<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- -------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-------- SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
--------- ------------
Commission file number 1-12372
CYTEC INDUSTRIES INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3268660
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Garret Mountain Plaza
West Paterson, New Jersey 07424
-------------------------------
(Address of principal executive offices)
973-357-3100
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 42,774,917 shares of Common
Stock, par value $.01 per share, were outstanding March 31, 1999.
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
INDEX
Page
Part I - Financial Information
Item 1. Consolidated Financial Statements 3
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II - Other Information 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Exhibit Index 23
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Consolidated Financial Statements
---------------------------------
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions of dollars, except per share amounts)
Three Months
Ended
March 31,
1999 1998
---- ----
Net sales $355.3 $368.2
Manufacturing cost of sales 249.9 258.4
Selling and technical services 37.1 38.2
Research and process development 10.3 10.9
Administrative and general 11.4 12.3
Amortization of acquisition intangibles 2.8 2.2
------ ------
Earnings from operations 43.8 46.2
Other income, net 2.3 2.9
Equity in earnings of associated companies 4.2 5.1
Interest expense, net 6.9 4.7
------ ------
Earnings before income taxes 43.4 49.5
Income tax provision 15.2 18.3
------ ------
Net earnings $28.2 $31.2
====== ======
Earnings per common share $ 0.65 $ 0.69
Basic $ 0.63 $ 0.66
Diluted
See accompanying Notes to Consolidated Financial Statements.
3
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CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1999 1998
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 10.7 $ 1.7
Accounts receivable, less allowance for doubtful
accounts of $9.2 in 1999 and 1998 239.4 241.3
Inventories 138.1 140.5
Deferred income taxes 72.1 72.9
Other current assets 28.1 21.2
--------- --------
Total current assets 488.4 477.6
Equity in net assets of and advances to associated
companies 150.0 147.4
Plants, equipment and facilities, at cost 1,352.8 1,363.0
Less: accumulated depreciation (691.8) (695.5)
--------- --------
Net plant investment 661.0 667.5
Acquisition intangibles,
net of accumulated amortization 350.3 349.5
Deferred income taxes 67.6 62.6
Other assets 26.7 26.0
--------- --------
Total assets $1,744.0 $1,730.6
========= ========
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ - $10.3
Accounts payable 102.7 99.9
Accrued expenses 226.3 243.9
Income taxes payable 64.1 40.3
--------- --------
Total current liabilities 393.1 394.4
Long-term debt 431.5 419.5
Other noncurrent liabilities 479.4 485.7
Stockholders' Equity
Preferred stock, 20,000,000 shares authorized; issued
and outstanding 4,000 shares, Cumulative Series C,
$.01 par value at liquidation value of $25 share 0.1 0.1
Common stock, $.01 par value per share, 150,000,000
shares authorized, issued 48,132,640 in 1999 and
48,142,961 in 1998 0.5 0.5
Additional paid-in capital 161.2 162.4
Retained earnings 484.3 456.2
Unearned compensation (3.0) (1.7)
Accumulated translation adjustments (13.1) (5.1)
Treasury stock, at cost, 5,357,723 shares in 1999 and
4,952,881 shares in 1998 (190.0) (181.4)
--------- --------
Total stockholders' equity 440.0 431.0
--------- --------
Total liabilities and stockholders' equity $1,744.0 $ 1,730.6
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows provided by (used for) operating activities
Net earnings $28.2 $31.2
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Equity in undistributed net earnings of associated companies (3.8) (5.1)
Depreciation 20.3 19.1
Amortization 2.8 3.3
Deferred income taxes (4.4) (12.9)
Gain on sale of assets (2.4) -
Other (0.3) (0.5)
Changes in operating assets and liabilities
Accounts receivable (4.6) (15.7)
Inventories 0.6 (3.6)
Accounts payable 5.1 (8.4)
Accrued expenses (13.8) (5.4)
Income taxes payable 23.8 37.8
Other assets (10.0) (9.5)
Other liabilities (6.4) (4.6)
-------- ---------
Net cash flows provided by operating activities 35.1 25.7
-------- ---------
Cash flows provided by (used for) investing activities
Additions to plants, equipment and facilities (17.8) (24.7)
Proceeds from sale of assets 5.7 -
Acquisition of business (4.0) -
-------- ---------
Net cash flows used for investing activities (16.1) (24.7)
-------- ---------
Cash flows provided by (used for) financing activities
Proceeds from the exercise of stock options 0.4 2.1
Purchase of treasury stock (12.8) -
Change in short-term borrowings (10.3) -
Change in long-term debt 12.0 19.4
Proceeds received on sale of put options 0.6 0.5
-------- ---------
Net cash flows (used for) provided by financing activities (10.1) 22.0
-------- ---------
Effect of exchange rate changes on cash and cash equivalents 0.1 (0.1)
-------- ---------
Increase in cash and cash equivalents 9.0 22.9
Cash and cash equivalents, beginning of period 1.7 6.4
-------- ---------
Cash and cash equivalents, end of period $10.7 $29.3
======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
(1) Basis of Presentation
---------------------
The unaudited consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be read in
conjunction with the consolidated financial statements and notes to the
consolidated financial statements contained in the Company's 1998 Annual Report
on Form 10-K.
In the opinion of management, the consolidated financial statements included
herein reflect all adjustments necessary for a fair statement of the information
presented as of March 31, 1999 and for the three months ended March 31, 1999 and
1998. Such adjustments are of a normal, recurring nature. The consolidated
statement of income for the three months ended March 31, 1999 is not necessarily
indicative of the results to be expected for the full year.
(2) Acquisitions and Dispositions
-----------------------------
On January 25, 1999, the Company acquired assets of the Nottingham Company's
industrial minerals product line for $4.0. The acquisition was recorded under
the purchase method of accounting and resulted in an excess of the purchase
price over the assets acquired of $3.5 which is included in Acquisition
Intangibles in the Consolidated Balance Sheet and will be amortized on a
straight-line basis over a period of up to 40 years. The acquired business was
integrated into the Company's existing Water and Industrial Process Chemicals
segment.
On January 21, 1999, the Company sold substantially all of the assets of its
engineered molding compounds business excluding land, buildings and one product
line to Rogers Corporation of Manchester, Connecticut for $4.3.
During 1998 the Company acquired assets of the OrePrep minerals processing
product line ("OrePrep"), Dyno Industrier's global amino coating resins business
(the "Dyno Business"), which consisted primarily of Dyno's 50% interest in the
former Dyno-Cytec joint venture, and The American Materials and Technologies
Corporation ("AMT"). All three acquisition have been accounted for under the
purchase method of accounting and consolidated results of operations have been
included from the date of acquisition. In addition, on November 23, 1998, the
Company completed the sale of its bulk molding compounds business. For a more
detailed description of the 1998 acquisitions and disposition refer to the first
six paragraphs of Note 2 to the consolidated financial statements contained in
the Company's 1998 Annual Report on Form 10-K, which is incorporated by
reference herein.
(3) Restructuring of Operations
---------------------------
Cash payments related to the $38.4 of pre-tax restructuring charges incurred
during 1997 were $3.4 and $4.2 for the three months ended March 31, 1999 and
1998,
6
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CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
respectively. At March 31, 1999, the remaining liability to be paid was
$14.4, essentially all of which is for employee related costs. The payouts and
personnel reductions related to the restructuring plan are expected to be
substantially completed by the end of 1999 with the exception of certain
long-term payouts for employee severance.
(4) Earnings Per Share (EPS)
------------------------
Basic earnings per common share excludes dilution and was computed by dividing
net earnings by the weighted-average number of common shares outstanding for the
period. Diluted earnings per common share was computed by dividing net earnings
by the sum of the weighted-average number of common shares outstanding for the
period plus (i.e., increased) all additional common shares that would have been
outstanding if potentially dilutive common shares had been issued and any
proceeds thereof used to repurchase common stock.
The following represents the reconciliation of the numerators and denominators
of the basic and diluted EPS computations for net earnings for the three months
ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
Weighted Avg. Per Weighted Avg. Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ----- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net earnings $28.2 43,186,176 $0.65 $ 31.2 45,457,981 $ 0.69
Effect of dilutive securities
Options - 1,430,359 - - 1,912,197 -
Performance/Restricted stock - 70,368 - - 42,160 -
Warrants - 7,694 - - - -
Diluted EPS
Net earnings divided by the
weighted average shares plus
assumed conversions $28.2 44,694,597 $0.63 $ 31.2 47,412,338 $ 0.66
</TABLE>
(5) Recently Issued Statements Of Financial Accounting Standards
------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement, which becomes
effective for the Company beginning January 1, 2000, establishes accounting and
operating standards for hedging activities and derivative instruments, including
certain derivative instruments embedded in other contracts. The Company is
reviewing the potential impact, if any, of SFAS 133 on its consolidated results
of operations, financial position or cash flow.
7
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
(6) Inventories
-----------
The components of inventories at March 31, 1999 and December 31, 1998 were as
follows:
March 31, December 31,
1999 1998
---- ----
Finished goods $ 83.9 $ 87.6
Work in process 18.1 16.0
Raw materials & supplies 74.6 75.4
------- -------
176.6 179.0
Less reduction in LIFO cost (38.5) (38.5)
------- -------
$ 138.1 $ 140.5
======= =======
(7) Equity in Earnings of Associated Companies
------------------------------------------
Summarized financial information for the Company's equity in earnings of
associated companies is as follows:
Three Months
Ended
March 31,
1999 1998
---- ----
Net sales $131.1 $154.3
Gross profit 32.9 43.1
Net income 8.4 15.6
------ ------
The Company's equity in earnings
of associated companies $ 4.2 $ 5.1
====== ======
The above associated companies information for 1998 includes the results of the
former Dyno-Cytec joint venture.
(8) Long-Term Debt
--------------
At March 31, 1999 and December 31, 1998, the Company's long-term debt consisted
of the following:
March 31, December 31,
1999 1998
---- ----
Credit Facility $112.0 $100.0
364-Day Facility - -
Public Debt 319.5 319.5
------ ------
$431.5 $419.5
====== ======
8
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
(9) Contingent Liabilities
----------------------
The Company is subject to substantial costs arising out of environmental laws
and regulations, which include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites. Liability for investigative, removal and remedial costs under
certain federal and state laws is retroactive, strict and joint and several. The
Company is currently a party to, or otherwise involved in, legal proceedings
directed at the cleanup of approximately 60 Superfund sites. Since the laws
pertaining to these sites provide for joint and several liability, a
governmental plaintiff could seek to recover all remediation costs at a waste
disposal site from any of the potentially responsible parties ("PRPs") for such
site, including the Company, despite the involvement of other PRPs. In some
cases, the Company is one of several hundred identified PRPs, while in others it
is the only one or one of only a few. Generally, where there are a number of
financially solvent PRPs, liability has been apportioned, or the Company
believes, based on its experience with such matters, that liability will be
apportioned based on the type and amount of waste disposed by each PRP at such
disposal site and the number of financially solvent PRPs. The Company is also
conducting remediation at, or is otherwise responsible for, a number of
non-Superfund sites. Proceedings involving environmental matters, such as
alleged discharge of chemicals or waste material into the air, water or soil,
are pending against the Company in various states. In many cases, future
environmental-related expenditures cannot be quantified with a reasonable degree
of accuracy. In addition, from time to time in the ordinary course of its
business, the Company is informed of, and receives inquiries with respect to,
new sites which may contain environmental contamination for which the Company
may be responsible.
It is the Company's policy to accrue and charge against earnings, environmental
cleanup costs when it is probable that a liability has been incurred and an
amount is reasonably estimable. As assessments and cleanups proceed, these
accruals are reviewed periodically and adjusted, if necessary, as additional
information becomes available. These accruals can change substantially due to
such factors as additional information on the nature or extent of contamination,
methods of remediation required, and other actions by governmental agencies or
private parties. Cash expenditures often lag behind the period in which an
accrual is recorded by a number of years.
In accordance with the above policies, as of March 31, 1999 and December 31,
1998, the aggregate environmental related accruals were $133.7 and $136.1,
respectively, of which $25.0 was included in accrued expenses as of both dates,
with the remainder included in other noncurrent liabilities. Environmental
remediation spending for the three months ended March 31, 1999 and 1998 was $3.4
and $3.2, respectively. All accruals have been recorded without giving effect to
any possible future insurance proceeds.
While it is not feasible to predict the outcome of all pending environmental
suits and claims, it is reasonably possible that there will be a necessity for
future provisions for environmental costs that, in management's opinion, will
not have a material adverse effect on the consolidated financial position of the
Company, but could be material to the consolidated results of operations of the
Company in any one accounting period. The Company cannot estimate any additional
amount of loss or range of loss in excess of the recorded amounts. Moreover,
environmental liabilities are paid over an extended period and the timing of
such payments cannot be predicted with any confidence.
9
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
The Company is also a party to various other claims and routine litigation
arising in the normal course of its business. Based on the advice of counsel,
management believes that the resolution of such claims and litigation will not
have a material adverse effect on the financial position of the Company, but
could be material to the results of operations of the Company in any one
accounting period.
(10) Comprehensive Income
--------------------
The components of comprehensive income, which represents the change in equity
from non-owner sources, for the three months ended March 31, 1999 and 1998, were
as follows:
Three Months Ended
March 31,
1999 1998
---- ----
Net earnings $28.2 $31.2
Other comprehensive income:
Foreign currency translation adjustments (8.0) (0.3)
----- -----
Comprehensive income $20.2 $30.9
===== =====
(11) Other Financial Information
---------------------------
Taxes paid for the three months ended March 31, 1999 and 1998 were approximately
$5.7 and $1.8, respectively. Interest paid for the three months ended March 31,
1999 and 1998 was approximately $8.2 and $5.6, respectively.
On January 25, 1999, the Company announced a program to spend up to $100.0 to
repurchase shares of outstanding common stock. Through March 31, 1999, the
Company had repurchased 510,800 shares at a cost of $12.8 under this program.
The Company expects, based on current market conditions and other factors, to
complete this repurchase program by the end of 2000. Depending on the level,
price and timing of repurchases, additional borrowings may be required.
During the first three months of 1999, in connection with the Company's stock
repurchase program, the Company sold put options to two institutional investors
in a series of private placements exempt from registration under Section 4(2) of
the Securities Act of 1933. The put options entitle the holders to sell an
aggregate of 300,000 shares of the Company's common stock to the Company. The
300,000 put options outstanding at March 31, 1999 expire on various dates in
July 1999 and have exercise prices ranging from $21.68 to $21.99. The Company
received premiums of approximately $0.6 on the sale of such options. In lieu of
purchasing the shares from the put option holders, the Company has the right to
elect settlement by paying the holders of the put options the excess of the
strike price over the then market price of the shares in either cash or
additional shares of the Company's common stock, (i.e., net cash or net share
settlement).
10
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CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
(12) Segment Information
-------------------
Summarized segment information for the Company's four reportable segments for
the three months ended March 31, 1999 and 1998 was as follows:
Three Months Ended March 31,
1999 1998
---- ----
Net sales
---------
Water and Industrial Process Chemicals $ 87.5 $ 82.3
Performance Products 106.9 97.0
Specialty Materials 120.1 131.9
Building Block Chemicals
Sales to external customers 40.7 56.8
Intersegment sales 10.0 10.0
------- -------
Net sales from reportable segments 365.2 378.0
Other revenues 0.1 0.2
Elimination of intersegment revenue (10.0) (10.0)
------- -------
Total consolidated net sales $355.3 $368.2
======= =======
% of % of
Sales Sales
----- -----
Earnings from operations
- ------------------------
Water and Industrial Process Chemicals $ 9.5 11% 6.6 8%
Performance Products 12.4 12% 11.1 11%
Specialty Materials 21.5 18% 21.3 16%
Building Block Chemicals 2.6 5% 8.9 13%
------ -----
Earnings from reportable segments 46.0 13% 47.9 13%
Corporate and Unallocated (2.2) (1.7)
------ -----
Total consolidated earnings from operations $ 43.8 12% 46.2 13%
====== =====
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
First Quarter of 1999 versus First Quarter of 1998
- --------------------------------------------------
Net sales for the first quarter of 1999 were $355.3 as compared to $368.2 in the
first quarter of 1998. The decrease is principally attributable to a decline in
sales of $16.1 in the Building Block Chemicals segment and inclusion in the
first quarter of 1998 of $7.2 in sales from the divested molding compound
product line. This decrease was partially offset by stronger Latin America
sales, as well as sales generated as a result of acquisitions, namely: the
OrePrep minerals processing product line; Dyno Industrier's global amino coating
resins business (the "Dyno Business"), which consisted primarily of Dyno's 50%
interest in the former Dyno-Cytec joint venture; The American Materials and
Technologies Corporation ("AMT"); and the Nottingham Company's industrial
minerals product line.
Sales for the first quarter of 1999 outside of the United States represented
42.0% of total revenue compared to 36.3% last year. The increase was mainly due
to an increase of mining product sales in Latin America, the Dyno Business sales
in Europe, and inclusion of molding compound product line sales in the first
quarter of 1998, which are principally U.S. based.
Sales in the Asia/Pacific region represented 9.2% of total consolidated sales in
the first quarter of 1999. The Company's sales in the region were up 1.6% from
the prior year period due mainly to increased sales volume in Water and
Industrial Process Chemicals and Performance Products partially offset by lower
selling prices of Building Block Chemicals products.
Segment Results
Water and Industrial Process Chemicals sales increased 6.3% to $87.5 and
earnings from operations increased 43.9% to $9.5. The sales increase was
primarily in mining chemicals and phosphine chemicals, while the other product
lines were essentially flat. Selling volumes were up 6.9%, with the acquisitions
of the OrePrep and Nottingham industrial mineral product lines accounting for
approximately one-third of the improved volume. Selling prices were down 0.6%.
The improved operating earnings were the result of the higher mining chemical
sales, lower raw material purchase costs, and a reduction in operating expenses
as a percentage of sales.
Performance Products sales increased 10.2% to $106.9 and operating earnings
increased 11.7% to $12.4. The sales increase was due to the acquisition of the
Dyno Business in July of last year, which added about $8.5 to sales for the
quarter and higher sales in the polymer additives and surfactant and specialty
monomers product lines. Sales volumes were up 15.6% of which 8.8% was due to the
Dyno Business acquisition. For the segment, selling prices declined 5.4% with
the largest decrease in polymer additives. The improved operating earnings were
attributable to higher sales and lower manufacturing costs.
Specialty Materials sales were $120.1, a decrease of 8.9% although operating
earnings improved 0.9% to $21.5 million, largely the result of initiatives
started late last year. The benefits of the manufacturing rationalization
12
<PAGE>
programs are now beginning to be realized. Approximately $9.8 of the sales
decrease was due to lower sales of the molding compounds product line of which
$7.2 is the result of the divestiture of polyester molding compounds, while the
acquisition of AMT in the fourth quarter of last year added about $8.7 to sales
for this quarter. Excluding the effect of acquisitions and divestitures, selling
volumes were down 5.8% as a result of the expected reductions in demand in the
U.S. commercial aerospace market. The commercial aerospace market should
continue to trend downward but we expect this to be offset somewhat by new
product introductions, new applications and qualifications for our products and
an improving military aerospace market. Selling prices decreased 1.4% but the
decrease was offset by lower raw material costs.
Building Block Chemicals sales to external customers were $40.7, a 28.3%
decrease. Operating earnings were $2.6 compared to $8.9 for the same quarter
last year. Acrylonitrile selling prices remain depressed and the production
facility continues to run at a 65% rate. Methanol selling prices were also below
the prior year levels. The methanol plant was idled as a result of the low
selling prices in February and it is expected to remain down for the entire
second quarter. Raw material costs, primarily propylene and natural gas, were
down from the year ago period offsetting some of the reduction in selling
prices. For the segment overall, selling prices were down 15.1% and selling
volumes declined 13.2%.
Manufacturing cost of sales were 70.3% of net sales in the first quarter of 1999
and were essentially flat when compared to 70.2% in 1998. Manufacturing costs in
1999 continued to benefit from plant efficiencies, the result of restructuring
initiatives undertaken in 1997, and improved product mix. Offsetting these
benefits were the adverse effects of price reductions in the Performance
Products segment as well as price and selling volume declines in the Building
Block Chemicals segment.
Selling and technical service expenses decreased $1.1 reflecting the benefits
from business consolidations.
Research and process development expenses decreased $0.6 primarily reflecting
the Company's business focused efforts and cost reduction initiatives at the
Stamford, Connecticut research facility.
Administrative and general expenses decreased $0.9 reflecting the Company's
continued cost reduction efforts.
Amortization of acquisition intangibles expense increased $0.6 due to the
additional intangibles resulting from the acquisition of the Dyno Business, AMT,
and the OrePrep and Nottingham industrial minerals product lines.
Other income, net was $2.3 for the first quarter of 1999 and included
approximately $2.6 of gains from divested product lines.
Equity in earnings of associated companies was down $0.9, as a result of the
purchase of the remaining 50% ownership in and subsequent consolidation of the
Dyno Business. Also, Criterion Catalyst's sales were down due to lower volume
and price in hydrotreating catalysts as customers idled several refining units.
The Company expects this market to remain difficult for the remainder of 1999.
Excluding this, earnings from associated companies were relatively flat.
Interest expense, net was $6.9 and increased $2.2 in 1999 reflecting the
increase in long-term debt.
13
<PAGE>
The income tax provision was reduced to a rate of 35% from 37% in 1998. This was
primarily due to improved tax planning in the foreign and state tax areas as
well as benefits from increased sales through the Company's foreign sales
corporation.
Net earnings decreased to $28.2 down 9.6% from the $31.2 for the same period
last year. Diluted earnings per share decreased from $0.66 in 1998 to $0.63 in
1999, a 4.5% decrease.
Liquidity and Financial Condition
- ---------------------------------
At March 31, 1999, the Company's cash balance was $10.7, an increase of $9.0
from year-end 1998.
Net cash flows provided by operating activities totaled $35.1, compared to $25.7
for the three months ended March 31, 1998. The most significant factor affecting
this increase was the Company's lower working capital levels in the first
quarter of 1999.
Net cash flows used for investing activities totaled $16.1 compared to $24.7 in
1998. Included in 1999 was funding for the Nottingham acquisition of $4.0,
offset by proceeds of $5.7 associated with the sale of the molding compounds
product lines. Capital additions were $17.8 compared to $24.7 in 1998. Capital
additions in 1998 included two large construction projects in the Performance
Products segment - the Benzotriazole light stabilizer plant in Botlek, The
Netherlands and the expansion of the surfactants plant in the Willow Island,
West Virginia facility. For the full year 1999, the Company estimates capital
spending to be in the range of $80.0 to $85.0.
The Company believes that, based on internal cash generation and current levels
of liquid assets, it will be able to fund operating cash requirements and
planned capital expenditures through the end of 1999.
Net cash flows used for financing activities totaled $10.1 for the three months
ended March 31, 1999. This compares to $22.0 of net cash flows provided by
financing activities for the same period in 1998. In connection with the stock
repurchase program discussed below, during the first three months of 1999, the
Company purchased 510,800 shares of treasury stock at a cost of $12.8. No
purchases of treasury stock were made during the comparable period of 1998.
Also, during the first three months of 1999, $10.3 of foreign currency
denominated short-term borrowings were paid off. Partially offsetting these uses
of cash was an increase in long-term debt of $12.0.
During the first three months of 1999, in connection with the Company's stock
repurchase program, the Company sold put options to two institutional investors
in a series of private placements exempt from registration under Section 4(2) of
the Securities Act of 1933. The put options entitle the holders to sell an
aggregate of 300,000 shares of the Company's common stock to the Company. The
300,000 put options outstanding at March 31, 1999 expire on various dates in
July 1999 and have exercise prices ranging from $21.68 to $21.99. The Company
received premiums of approximately $0.6 on the sale of such options. In lieu of
purchasing the shares from the put option holders, the Company has the right to
elect settlement by paying the holders of the put options the excess of the
strike price over the then market price of the shares in either cash or
additional shares of the Company's common stock, (i.e., net cash or net share
settlement).
14
<PAGE>
The Company on January 22, 1999 signed an agreement with Cyanamid providing that
Cyanamid would irrevocably waive certain financial covenants contained in the
Company's Series C Cumulative Preferred Stock ("Series C Stock") so that, in
addition to restricted payments otherwise permitted under the Series C Stock,
which at March 31, 1999, were limited to $13.4, Cytec may make up to $100.0 in
special restricted payments solely for the purpose of repurchasing Cytec's
common stock. On January 25, 1999, the Company announced a program to spend up
to $100.0 to repurchase shares of outstanding common stock. Through March 31,
1999, the Company had repurchased 510,800 shares at a cost of $12.8 under this
program. The Company expects, based on current market conditions and other
factors, to complete this repurchase program by the end of 2000. Depending on
the level, price and timing of repurchases, additional borrowings may be
required.
OTHER
Year 2000
- ---------
The Company has conducted a comprehensive review of its information technology
systems ("IT Systems") and its process control and other systems that use
micro-controllers ("Non-IT Systems") to identify the systems that could be
affected by the "Year 2000" issue. The Year 2000 issue results from computer
programs using two digits rather than four to define the applicable year. Any of
the Company's systems that have time-sensitive software features may recognize a
date using "00" in the last two places as the year 1900 rather than the year
2000. If not addressed, this could result in a system failure or
miscalculations, and in the case of Non-IT systems that are non-compliant, could
have a material adverse impact on the integrity and safety of the Company's
chemical manufacturing processes.
The Company has developed a phased program to address its Year 2000 issues. The
first phase, which consisted of identifying the Company's IT and Non-IT Systems,
has been completed. The second phase consisted of determining whether those
systems were Year 2000 compliant, primarily based on certifications from the
vendors of such systems, and developing cost estimates to remediate noncompliant
systems. The second phase is also complete. The Company's current estimate is
that it will incur external costs in the range of $5.0 to $6.0 to remediate
noncompliant systems, of which $2.6 has been spent to date, and of which the
remaining funds mostly consist of: (i) funds committed but not yet spent; (ii)
the cost of non-mission critical systems and equipment; and (iii) the cost of
testing. This estimate may change materially as the Company reviews the results
of its work in the first two phases on a plant- by-plant basis using both
internal and external resources and as the Company continues to implement
required remediation. The Company does not track its internal costs in
connection with Year 2000 issues, but does not believe they are material. The
third phase of the Company's program is ongoing and consists of remediating
noncompliant systems that are critical to the Company's operations. The Company
has largely completed the third phase. The Company now plans to remediate the
remaining mission critical systems, complete the testing of mission critical
systems and to remediate, if appropriate, noncritical systems by the end of the
second quarter of 1999, although in several cases the actual installation of
previously-prepared corrections will be scheduled to occur later in order to
coincide with previously-scheduled plant "maintenance-turnarounds".
The Company is developing contingency plans for addressing any problems in
completing implementation of all necessary remediation by the Year 2000. The
Company has begun to address the Year 2000 status of its material customers and
15
<PAGE>
suppliers by seeking verification that their systems and processes are, or by
December 31, 1999, will be, Year 2000 compliant. These efforts may need to be
refined as more information becomes available. The Company also is reviewing the
Year 2000 compliance efforts of the four associated companies in which it has a
50% equity interest.
Failure to complete any necessary remediation by the Year 2000 may have a
material adverse impact on the operations of the Company. Failure of third
parties, such as customers, suppliers or government agencies to remediate Year
2000 problems in their IT and Non-IT Systems (which cannot be controlled or
corrected by the Company) or any general economic slowdown due to Year 2000
problems could also have a material adverse impact on the operations of the
Company. Although more serious problems could occur (including but not limited
to events affecting the safety of the Company's production process, many of
which involve hazardous materials), the Company believes that the "most
reasonably likely worst case scenario" as a result of the Company, customers,
suppliers or government agencies not being fully Year 2000 compliant include
temporary plant closings, delays in the delivery of finished products, delays in
the receipt of raw materials and invoice and collection errors. These
consequences could have a material adverse impact on the Company's results of
operation, financial condition and cash flows. As part of its contingency plan,
the Company plans to address these potential consequences and mitigate the
adverse effect any such disruptions may have on the Company's operations.
Euro Conversion
- ---------------
On January 1, 1999, 11 of the 15 member countries of the European Union (the
"participating countries") established fixed conversion rates between their
existing sovereign currencies (the "legacy currencies") and the euro. The
participating countries adopted the euro as their common legal currency on that
date. Effective January 1, 1999, a newly created European Central Bank assumed
control of monetary policy, including money supply and interest rates for the
participating countries. The legacy currencies are scheduled to remain legal
tender in the participating countries as denominations of the euro between
January 1, 1999, and January 1, 2002 (the "transition period"). During the
transition period, public and private parties may pay for goods and services
using either the euro or the participating country's legacy currency on a "no
compulsion, no prohibition" basis. The Company's principal plants in Europe are
in The Netherlands, the United Kingdom and Norway, and the Company has sales
offices and generates sales throughout Europe. The Netherlands is a
participating country, whereas the United Kingdom and Norway are not currently
participating countries.
Since January 1, 1999, the Company has been in a position to trade in euros. The
Company has initiated and is evaluating on an ongoing basis the effects, if any,
of the euro conversion upon its business. Factors being considered include, but
are not limited to: the possible impact of the euro conversion on revenues,
expenses and income from continuing operations; the impact on cash management
and treasury management functions; the competitive implications of increased
price transparency; the ability to adapt information technology to accommodate
euro-denominated transactions; the market risks with respect to financial
instruments; the continuity of material contracts; and the potential tax
consequences.
The Company does not believe that the initial remeasurement of the euro as the
functional currency for those operations within the participating countries will
16
<PAGE>
result in any gains or losses since conversion rates to the euro for
participating countries will be irrevocably fixed as of January 1, 1999. The
Company believes that some information systems modifications are required in
order for them to be euro compliant. The Company, however, does not currently
believe that the euro conversion will have a material operational or financial
impact.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
For a discussion of market risks at year-end, refer to Item 7a of the Form 10-K
for the year ended December 31, 1998, filed with the Securities and Exchange
Commission on March 31, 1999.
During the first three months of 1999, in connection with the Company's stock
repurchase program, the Company sold put options in connection with the
Company's stock repurchase program. For a further discussion, see Note 11 of the
Notes to Consolidated Financial Statements.
Comments on Forward-Looking Statements
- --------------------------------------
A number of the statements made by the Company in Quarterly Report on Form 10-Q,
or in other documents, including but not limited to the Company's Annual Report
to Stockholders, its press releases and other periodic reports to the Securities
and Exchange Commission, may be regarded as "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, among others, statements concerning the
Company's outlook for 1999 and beyond, the accretiveness of acquisitions,
pricing trends and forces within the industry, the completion dates of, and
expenditures for, capital projects, expected sales growth, cost reduction
strategies and their results, long-term goals of the Company, the effects of and
the timing for remediation of the Year 2000 issue, and other statements of
expectation, beliefs, future plans and strategies, anticipated events or trends,
and similar expressions concerning matters that are not historical facts.
All predictions as to future results contain a measure of uncertainty and,
accordingly, actual results could differ materially. Among the factors that
could cause a difference are: changes in the general economy; the rate of
recovery of the Asian economies from the financial crisis that began in 1997;
changes in demand for the Company's products or in the costs and availability of
its raw materials; the actions of competitors; the success of our customers'
demands for price decreases; technological change; changes in employee
relations, including possible strikes; government regulations; litigation,
including its inherent uncertainty; difficulties in plant operations and
materials transportation; environmental matters; and other unforseen
circumstances. A number of these factors are discussed in the Company's filings
with the Securities and Exchange Commission.
17
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
-----------------
In connection with the Spin-off, the Company assumed from Cyanamid substantially
all liabilities for legal proceedings relating to Cyanamid's chemicals
businesses, other than any legal proceedings related to remediation of
Cyanamid's Bound Brook Facility. In connection with the Fiberite Acquisition,
the Company assumed responsibility for certain liabilities relating to
Fiberite's business. As a result, although Cyanamid or Fiberite is the named
defendant in cases relating to events prior to the Spin-off or the Fiberite
Acquisition, respectively, the Company is the party in interest and is herein
described as the defendant.
The Company is a defendant in twenty-six cases pending in state courts in
Brazoria, Jefferson and Tarrant counties, Texas and in the U.S. District Court
for the Eastern District of Texas in which many plaintiffs seek damages for
injuries allegedly due to exposure to benzene, butadiene, asbestos or other
chemicals. Four of the cases involve several hundred plaintiffs, while the
remainder involve substantially fewer plaintiffs. All of these cases involve
multiple defendants. The Company is also one of multiple defendants in one case
(originally brought in Texas by multiple plaintiffs who claimed they were
injured due to exposure to asbestos) which has been transferred by the Judicial
Panel for Multi-District Litigation to the United States District Court for the
Eastern District of Pennsylvania, for coordination of pretrial activities,
primarily discovery. The Company believes that its involvement in all but five
of these cases results from its former 50% ownership of Jefferson Chemical
Company, which the Company disposed of in 1975. It is not known at this time how
many plaintiffs eventually will assert claims against the Company.
The Company is a defendant in four suits pending in California Superior Court in
San Francisco and Alameda counties, which were filed by or on behalf of
individuals allegedly injured as a result of exposure to asbestos containing
products. Another suit in which the Company is a defendant has been removed to
Federal Court and transferred by the Judicial Panel for Multi-District
Litigation to the United States District Court for the Eastern District of
Pennsylvania. These cases involve multiple defendants.
The Company is the defendant in a class action filed in Jefferson Parish Court,
Louisiana on behalf of persons residing in the city of Kenner, Louisiana
claiming damages allegedly caused by a sulfur dioxide emission from the
Company's Fortier facility in 1992. Prior to consolidation and certification of
the class, the original 29 cases had been remanded to state court following a
federal court ruling that the plaintiffs did not individually assert damages in
excess of the federal jurisdictional amount of $50,000. Trial of the claims of
six plaintiffs (out of 32 randomly selected members of the class) was completed
in July 1998. In December, 1998 the trial court signed a Judgement recalling the
Court's prior Class Action Certification Order and dismissing all Class Action
claims in the case. The Judgment also dismissed, with prejudice, the claims of
the six named plaintiffs whose cases had been tried in July. The case continues
as a non-class action on behalf of the other named plaintiffs. Plaintiffs have
appealed the Court's Judgment.
The Company is also the defendant in two class actions filed in Jefferson Parish
Court, Louisiana, on behalf of persons who allegedly sustained injury as a
result of an explosion and fire at the Company's Fortier facility on February
18
<PAGE>
21, 1996. The Company has conducted limited discovery in these cases and,
therefore, has little information on whether, or to what extent, most members of
the alleged class actually suffered any injury.
The Company is also the defendant in three class actions filed in St. Charles
Parish Court, Louisiana on behalf of persons who allegedly sustained injury as a
result of an exotherm and fire at the Company's Fortier facility on January 5,
1999. The Company has little information on whether, or to what extent, most
members of the alleged class actually suffered any injury.
The Company is one of several alleged processors of lead, lead pigments and/or
lead-based paints named as defendants in four cases pending in state courts in
the states of New York and Ohio. In the first suit, pending in New York State
Supreme Court, New York County, the plaintiff, the New York City Housing
Authority, seeks damages for the cost of removing lead-based paints from
buildings in two public housing projects operated by the Housing Authority. The
second and third suits, also filed in New York State Supreme Court (Erie and
Bronx Counties, respectively), were brought on behalf of minor children, who
seek damages for personal injuries allegedly caused by ingestion of lead-based
paints. In all three cases, the Company is named a defendant as the alleged
successor to the MacGregor Lead Company, from which the Company purchased
certain assets in 1971. The fourth suit is a class action brought against the
Company and ten other defendants in the Court of Common Pleas in Cuyahoga
County, Ohio on behalf of children with blood levels of lead greater than 20
micrograms per deciliter. The plaintiffs seek compensatory and punitive damages
for injuries allegedly caused by exposure to lead-based paints.
The Company is one of several defendants in five suits filed in New Jersey State
Court in Middlesex County by, or on behalf of the estates of, individuals who
allegedly contracted cancer as a result of exposure to chemicals constituting,
or contained in products sold by the Company. Two of these cases involve
individuals who worked at the Allied Textile Printers Plant in Paterson, New
Jersey, and who allegedly contracted bladder cancer as a result of exposure to
benzidine dyes. A third case involving the Allied Textile site has been brought
in New Jersey Superior Court, Middlesex County, against the Company and several
other defendants on behalf of a class consisting of former employees of Allied
Textile. Plaintiffs in this action seek to compel defendants to establish a
medical monitoring program for the benefit of former employees of Allied Textile
who may have been exposed to benzidine containing dyes or other carcinogenic
chemicals in the course of their employment. Defendants are alleged to have
supplied such dyes and/or chemicals to Allied Textile.
The Company also has been named as one of several defendants in twenty-four
suits filed in Louisiana State Courts in St. Bernard and Orleans Parishes by
individuals who claim that they, or those whom they represent, were injured as a
result of exposure to asbestos while working at various sites, including the
Company's Fortier, Louisiana plant.
In January 1999 the Company received a subpoena to testify before, and provide
documents to, a grand jury in the U.S. District Court for the Central District
of California. The subpoena relates to a Grand Jury Investigation of the carbon
fiber and prepeg industry. The Company has no reason to believe that it is a
target of a grand jury investigation.
See also the first four paragraphs of "Environmental Matters" under Item 1 of
the Company's 1998 Annual Report on Form 10-K, and Note 9 of the Notes to
19
<PAGE>
Consolidated Financial Statements (unaudited) in Part I, item (1), which are
incorporated by reference herein.
In addition to liabilities with respect to the specific cases described
previously, because the production of certain chemicals involves the use,
handling, processing, storage and transportation of hazardous materials, and
because certain of the Company's products constitute or contain hazardous
materials, the Company has been subject to claims of injury from direct exposure
to such materials and from indirect exposure when such materials are
incorporated into other companies' products. There can be no assurance that, as
a result of past or future operations, there will not be additional claims of
injury by employees or members of the public due to exposure, or alleged
exposure, to such materials.
Furthermore, the Company also has exposure to present and future claims with
respect to workplace exposure, workers' compensation and other matters, arising
from events both prior to and after the spin-off. There can be no assurance as
to the actual amount of these liabilities or the timing thereof.
Item 2. Changes in Securities
---------------------
During the first three months of 1999, in connection with the Company's stock
repurchase program, the Company sold put options to two institutional investors
in a series of private placements exempt from registration under Section 4(2) of
the Securities Act of 1933. The put options entitle the holders to sell an
aggregate of 300,000 shares of the Company's common stock to the Company. The
300,000 put options outstanding at March 31, 1999 expire on various dates in
July 1999 and have exercise prices ranging from $21.68 to $21.99. The Company
received premiums of approximately $0.6 on the sale of such options. In lieu of
purchasing the shares from the put option holders, the Company has the right to
elect settlement by paying the holders of the put options the excess of the
strike price over the then market price of the shares in either cash or
additional shares of the Company's common stock, (i.e., net cash or net share
settlement).
See also item 4 below.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
In January 1999, the Company signed an agreement with Cyanamid providing that
Cyanamid would irrevocably waive certain financial covenants contained in the
Company's Series C Cumulative Preferred Stock ("Series C Stock") so that, in
addition to restricted payments otherwise permitted under the Series C Stock,
the Company may make up to $100.0 million in special restricted payments solely
for the purpose of repurchasing Company stock.
(a) The Company held its annual meeting of Common Stockholders on May 10,
1999. At this meeting, the stockholders voted on the election of
Directors.
(b) The only substantive matter voted on at the annual meeting was the
election of directors.
Messrs. D. D. Fry and J. R. Satrum were each elected Directors at the Annual
Meeting for a three-year term ending in 2002 by the following margins:
20
<PAGE>
Name Votes For Votes Withheld
- ---- --------- --------------
D. D. Fry 39,396,115 388,733
J. R. Satrum 39,385,659 399,189
In addition, Mr. L. L. Hoynes, Jr. was re-elected to the Board by the unanimous
written consent of the sole holder of the Company's Series C Cumulative
Preferred Stock.
The terms of office as a Director of Messrs F. W. Armstrong, G. A. Burns, D.
Lilley and W. P. Powell continue after the meeting.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a). Exhibits
--------
See Exhibit Index on page 23 for exhibits filed with this Quarterly Report on
Form 10-Q.
(b). Reports on Form 8-K
-------------------
The Company has not filed a current report on Form 8-K during the first quarter
of 1999.
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYTEC INDUSTRIES INC.
By:/s/ James P. Cronin
-------------------
James P. Cronin
Executive Vice President and Chief Financial
Officer
May 14, 1999
22
<PAGE>
Exhibit Index
- -------------
10.13 (l) Cytec Executive Supplemental Employees' Retirement Plan (As
amended through January 25, 1999)
12 Computation of Ratio of Earnings to Fixed Charges for the three
months ended March 31, 1999 and 1998
27 Financial Data Schedule
99 Material Incorporated by reference from Annual Report on
Form 10-K
23
<PAGE>
EXHIBIT 10.13(1)
CYTEC EXECUTIVE SUPPLEMENTAL EMPLOYEES' RETIREMENT PLAN
-------------------------------------------------------
(As amended January 25, 1999)
Effective as of January 1, 1994, Cytec Industries Inc. (the "Company")
hereby establishes the Cytec Executive Supplemental Employees" Retirement Plan
(the "Plan"). The Plan is intended to constitute an unfunded pension plan
maintained primarily for a select group of management or highly compensated
employees which is exempt from Parts 2, 3, and 4 of Title I of the Employee
Retirement Income Security Act of 1974, as amended. The Plan is not a qualified
plan under the Code and benefits are paid by or on behalf of the Company.
The Plan replaces the American Cyanamid Company and Subsidiaries
Supplemental Employees' Retirement Plan (the "Cyanamid SERP") for those
employees of the Company who were covered by the Cyanamid SERP on December 31,
1993. Pursuant to the Transfer and Distribution Agreement dated December 17,
1993 between American Cyanamid Company and Cytec Industries Inc., the Plan
assumes the liabilities such attributable to employees of the Company covered by
the Cyanamid SERP on December 31, 1993 who became employees of the Company on
January 1, 1994.
<PAGE>
ARTICLE I
Definitions
1.1 "Actuarial Equivalent" means an amount or benefit of equal value
--------------------
based on the interest rate used by the Pension Benefit Guaranty Corporation for
purposes of determining the present value of lump sum distributions on plan
terminations, as the same is in effect from time to time, and the 1971 TPF&C
Forecast Mortality Table (or, at the discretion of the Pension Administration
Committee, the most recent version of such table) with employee ages set back
one year and beneficiary ages set back five years.
1.2 "Company" means Cytec Industries Inc.
-------
1.3 "Board of Directors" means the Board of Directors of
------------------
Cytec Industries Inc.
1.4 "Cause" means (a) the willful and continued failure by a Member
-----
substantially to perform his duties with the Employer (other than any such
failure resulting from his incapacity due to physical or mental illness) after a
demand for substantial performance is delivered to him by the Employer which
specifically identifies the manner in which the Employer believes that he has
not substantially performed his duties, or (b) the willful engaging by him in
conduct demonstrably injurious to the Employer. For purposes of this definition,
no act, or failure to act, on the part of the Member shall be considered
"willful" unless done, or omitted to be done, by him without reasonable
-2-
<PAGE>
belief that his
action or omission was in the best interests of the Employer and was lawful.
1.5 "Change in Control" has the same meaning as under the Employees'
-----------------
Retirement Plan.
1.6 "Compensation Committee" means the Compensation and Management
----------------------
Development Committee of the Board of Directors.
1.7 "Compensation" means base compensation as defined in the Employees'
------------
Retirement Plan plus actual cash bonuses paid to a Member pursuant to the IC
Plan up to 1/3 of base Compensation, except to the extent Section 3.1 requires
use of Target ICP, without consideration of the limit on compensation under
Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, and
including all Compensation which would have otherwise been paid but for the fact
that receipt is deferred to a subsequent year; provided, however, that deferred
Compensation paid in a subsequent year shall not again be included as
Compensation for purposes of computing benefits hereunder and; provided further
that for purposes of determining Compensation for the year of a Member's
termination of employment, for the year that the Member commences Plan Benefits
on account of Total and Permanent Disability, and for any projected Years of
Service, reference to a Member's "salary or wages" (in Section 1.14 of the
Employees' Retirement Plan) at September 1 or at the "prior September 1"
shall be deemed to refer, instead, to a Member's final salary
-3-
<PAGE>
rate immediately prior to termination of employment.
-4-
<PAGE>
1.8 "Cyanamid Excess Plan" means the American Cyanamid
--------------------
Company and Subsidiaries ERISA Excess Retirement Plan as in
effect on December 31, 1993.
1.9 "Cyanamid SERP" means the American Cyanamid Company and
-------------
Subsidiaries Supplemental Employees Retirement Plan as in effect
on December 31, 1993.
1.10 "Eligible Employee" means any officer or other key employee
-----------------
employed by an Employer who is a participant in the Employees' Retirement Plan
and has at least ten Years of Service.
1.11 "Employees" Retirement Plan" means the Cytec Salaried and
--------------------------
Nonbargaining Employees' Retirement Plan, as amended from time to time.
1.12 "Employer" means the Company, D Aircraft Products, Inc., Cytec
--------
Fiberite Inc., any successor thereto, and any of the Company's subsidiaries
which adopts the Plan with the consent of the Board of Directors.
1.13 "Excess Plan" means the Cytec Excess Retirement Benefit
-----------
Plan.
1.14 "Executive Committee" means the Executive Committee of the Company
-------------------
as provided for in the resolutions adopted by the Board of Directors.
1.15 "Good Reason" has the same meaning as under the Executive Income
-----------
Continuity Plan.
-5-
<PAGE>
1.16 "Grandfathered Participant" means an Eligible Employee included on
-------------------------
the Grandfathered Participant Schedule adopted by the Compensation Committee who
(a) had an accrued benefit under the Cyanamid SERP on December 31, 1993, or (b)
the Compensation Committee elects to grandfather status and grants an accrued
benefit under this Plan equal to the benefit the Eligible Employee would have
had under the Cyanamid SERP on December 31, 1993 if the Eligible Employee had
been a member of the Cyanamid SERP on such date.
1.17 "IC Plan" means the existing system of annual cash bonuses payable
-------
to Company employees pursuant to which annual target bonuses are established
based upon job levels and payments of bonuses as a percentage of such targets
are made based upon Company, business group and individual performance.
1.18 "Member" means an Eligible Employee who becomes a Member pursuant
------
to Article II.
1.19 "Normal Retirement Date" means the Normal Retirement Date as
----------------------
defined in the Employees" Retirement Plan.
1.20 "Officer" means the Chairman, any Vice Chairman, President, and
-------
any Vice President, Treasurer and Controller of Cytec Industries Inc. chosen by
its Board of Directors.
1.21 "Past Service Plan" means the Cytec Past Service
-----------------
Retirement Plan.
-6-
<PAGE>
1.22 "Pension Administration Committee" means the Pension
--------------------------------
Administration Committee created by the Board of Directors, and any successor
thereto.
1.23 "Pension Plan Benefit" means the aggregate annual retirement
--------------------
benefit payable to or on account of a Member from the Retirement Plans.
1.24 "Plan" means this Cytec Executive Supplemental Employees'
----
Retirement Plan, as set forth herein, as amended from time to time.
1.25 "Plan Benefit" means the amount of a Member's annual retirement
------------
benefit computed in accordance with the terms of this Plan.
1.26 "Plan Year" means each twelve (12) consecutive month period
---------
commencing each January 1 and ending on the following December 31.
1.27 "Retirement Plans" means the Past Service Plan and the Employees'
----------------
Retirement Plan.
1.28 "SERP" means the Cytec Supplemental Employees' Retirement Plan.
----
1.29 "Special Change in Control" shall have the same meaning as "Change
-------------------------
in Control", except that the reference to "20%" in subsection (i) of the
definition of "Change in Control" in the Employees' Retirement Plan shall be
replaced with "50%".
-7-
<PAGE>
1.30 "Target ICP" shall mean target incentive compensation under the IC
----------
Plan applicable to the job level of such Member, irrespective of the amount, if
any, of such compensation actually received by the Member, utilizing target
incentive compensation as of the date the Member retires (in lieu of the prior
September 1 rate) for purposes of determining compensation for the year of a
Member"s termination of employment, for the year a Member commences Plan
Benefits on account of Total and Permanent Disability, and for any projected
Years of Service.
1.31 "Total and Permanent Disability" means that a Member has been
------------------------------
found Totally and Permanently Disabled under the Past Service Plan and/or the
Employees' Retirement Plan.
1.32 "Years of Service" means Years of Service as defined under the
----------------
Employees' Retirement Plan, which includes Years of Service credited for
purposes of the Past Service Plan.
1.33 For purposes of this Plan, unless the context requires otherwise,
the masculine includes the feminine, the singular the plural, and vice-versa.
Any reference to a "Section" or "Article" shall mean the indicated section or
article of this Plan unless otherwise specified.
-8-
<PAGE>
ARTICLE II
Participation
2.1 Election
--------
An Eligible Employee will become a Member effective as of the date the
Compensation Committee approves the election of the Eligible Employee to
participate in the Plan. A Grandfathered Participant will become a Member
effective as of the date the Compensation Committee approves his election to
Grandfathered Participant status; provided, however, a Grandfathered Participant
-------- -------
will not accrue any benefits under this Plan in excess of those set forth on the
Grandfathered Participant Schedule. If the Compensation Committee approves the
election of a Grandfathered Participant to participate in the Plan as a full
Member, the Grandfathered Participant shall cease to be a Grandfathered
Participant and shall not be entitled to the benefit set forth on the
Grandfathered Participant Schedule, but shall instead accrue benefits in
accordance with the formula set forth in Section 3.1 for Members who are not
Grandfathered Participants.
2.2 Change in Control
-----------------
Upon the occurrence of a Change in Control, each Officer (including an
Officer who has not yet completed ten (10) Years of Service) shall become,
automatically, a full Member, and any Officer who was previously a Grandfathered
Participant shall cease to be a Grandfathered Participant and shall be entitled
to
-9-
<PAGE>
the Plan Benefit under Section 3.1 to Members who are not Grandfathered
Participants.
2.3 Continuance of Participation
----------------------------
After an individual becomes a Member of this Plan, his membership shall
continue until his death, the termination by the Member of his employment other
than by retirement hereunder, the termination by the Company of his employment
for Cause, or the date his Employer ceases to be a member of the controlled
group of corporations which includes the Company; provided that after a Change
in Control his membership shall continue until his death or until the
termination of his employment for Cause.
ARTICLE III
Plan Benefit
3.1 Amount of Plan Benefit
----------------------
The amount of a Member's Plan Benefit shall be equal to A plus B plus
C, except that a Member who is only a Grandfathered Participant shall be
entitled only to the Plan Benefit specified in D, as follows:
A. 1.33% x the Member's Compensation for each Year of Service
after December 31, 1993, including (subject to F, below) Target
ICP for those years that Target ICP exceeded 1/3 of base
Compensation, and which is in excess of the amount payable
under Section 3.1(b)(2) of the Employees' Retirement
-10-
<PAGE>
Plan and under the provisions of the Excess Plan and the SERP
which provide for the related excess and supplemental benefits;
plus
B. 1.33% x the number of projected Years of Service to age 65 (not
to exceed 5) x the Member"s final year of Compensation,
including (subject to F, below) Target ICP; plus
C. 1.67% x Years of Service credited under the American Cyanamid
Company Employees" Retirement Plan as of December 31, 1993 x
final average Compensation, including (subject to F, below)
Target ICP, where final average Compensation equals the
Member"s average annual Compensation including (subject to F,
below) Target ICP based on the three calendar years out of the
last ten calendar years prior to January 1, 2004 which yields
the highest average; minus the sum of the Member"s accrued
benefits under the Past Service Plan and under the "roll-up"
formula of Section 3.1(b)(1) of the Employees" Retirement Plan
(including any portion of such "roll-up" benefit which is
payable under the Excess Plan and/or the SERP), before Social
Security offset; or
D. In the case of a Member who is only a Grandfathered
Participant, the Grandfathered
-11-
<PAGE>
Participant"s accrued benefit, if any, as reflected on the
Grandfathered Participant Schedule.
E. In the case of a Member whose employment terminates on or after
January 1, 1999, if for any year (commencing with the year
which is five years prior to the later of the year in which the
Member (x) first becomes a Member, including a Grandfathered
Participant, or (y) attains [or, but for his death would have
attained] age 55) Target ICP is less than 1/3 of base
Compensation, the ICP-based component of the Plan Benefit for
such year under paragraph A, B and C above, shall be computed
using the higher of (x) Target ICP or (y) actual ICP up to 1/3
of base Compensation.
There is no reduction under paragraphs A, B, C or D above for early
commencement for benefits commencing on or after a Member"s attainment of age 60
or commencing at any earlier date if a Member"s employment is terminated within
two years after a "Change in Control" as defined in the Employees" Retirement
Plan; provided that such Member"s employment is terminated either (i) by the
--------
Employer or (ii) by the Member for Good Reason. The amounts payable pursuant to
paragraphs A, B, C or D are subject to reduction for commencement prior to age
60 in accordance with
-12-
<PAGE>
the terms of the Employees" Retirement Plan, except as provided in the prior
sentence in the case of a Change in Control, or unless the Committee, in its
discretion, decides not to apply the early retirement reduction factors to all
or any component of the Member"s benefit. For purposes of preventing a reduction
for early commencement of benefits when and as provided above, there shall be
added to the amounts payable to a Member (other than a Grandfathered
Participant) under paragraph A, B, or C above, or to the amounts payable to a
Grandfathered Participant under Paragraph D, above, respectively, the amount of
any reduction for early commencement in such Member"s benefits under the related
provisions of the Past Service Plan, the Employees" Retirement Plan, the Excess
Plan and the SERP, as the case may be, which occurs at an age where such a
reduction does not occur under this Section 3.1.
For purposes of Paragraphs A, B and C above, a Member shall have five
projected Years of Service (except that service shall not be projected beyond
age 65), except that prior to a "Change in Control", in the case of a Member who
is an executive officer of the Company at the time of his retirement, the
Compensation Committee may, in its discretion, decrease the number of projected
Years of Service to be taken into account, and in the case of any other Member,
the Executive Committee may, in its discretion, decrease the number of projected
Years of Service to be taken into account.
-13-
<PAGE>
3.2 Benefits Upon Reemployment
--------------------------
If a Member is rehired after he is entitled to a Plan Benefit, his Plan
Benefit shall not be paid during such period of reemployment prior to Normal
Retirement Date, but shall commence or resume not sooner than the first day of
the month following his subsequent retirement or separation and the Plan Benefit
payable after his subsequent retirement or separation shall be the benefits
earlier applicable, plus any additional benefits computed in accordance with
Section 3.1 insofar as additional employment entitled him to additional
benefits.
3.3 Total and Permanent Disability Benefit
--------------------------------------
An Officer who ceases active employment as a result of Total and
Permanent Disability shall automatically become a Member hereunder. A Member who
ceases active employment as a result of Total and Permanent Disability shall be
entitled to a Plan Benefit computed in accordance with Section 3.1(A), (B), and
(C) if applicable, reduced by the amount of any loss-of-time payments to which
the Member might be entitled under workers" compensation laws, and excluding any
portion of a Plan Benefit based on projected Years of Service unless approved by
the Committee or after a Change in Control. Plan Benefits hereunder shall not be
reduced on account of early commencement. The Plan Benefit under this Section
3.3 shall be paid beginning at the same time and in the same form as the
Member"s disability retirement benefit under the Employees" Retirement Plan;
provided, however, that upon the later of the Member"s (i) date of retirement or
(ii) the first
-14-
<PAGE>
day of the month following the Member"s attainment of age 60, the Member may
select an optional form of payment as set forth in Section 6.2 of this Plan.
ARTICLE IV
Vesting
A Member"s Plan Benefit shall be fully vested at all times; provided,
however, that Plan Benefits hereunder are subject to divestment and shall be
forfeited if the Member"s employment with the Employer is terminated for Cause.
ARTICLE V
Death Benefits
5.1 Standard Death Benefit
----------------------
A Member may elect any preretirement survivor annuity option pursuant
to Article VII of the Employees" Retirement Plan. If a Member does not make a
separate preretirement annuity election under this Plan, the preretirement
survivor annuity election of the Member under the Employees" Retirement Plan
shall determine how the Plan Benefit hereunder is paid in the event of the
Member"s death prior to retirement.
If a Member dies prior to retiring and at such time has a preretirement
survivor annuity election in effect under this Plan, (or under the Employees"
Retirement Plan if no election is made under this Plan), the Member"s surviving
spouse or contingent annuitant as designated in the preretirement survivor
-15-
<PAGE>
annuity election shall receive a benefit calculated pursuant to Section 3.1
adjusted in accordance with the option elected by the Member, as if such Member
had retired on the date of his death (irrespective of whether such Member was
eligible to retire on such date) and had survived to the first day of the month
immediately following his 60th birthday (if such date is subsequent to his
actual date of death).
5.2 Special Death Benefit
---------------------
If a Grandfathered Participant, an Officer or an Eligible Employee
designated by the Compensation Committee or the Executive Committee as eligible
for benefits pursuant to this Section dies, and if, on the date of the death of
such Employee, (i) the sum of his age and Years of Service under the Employees"
Retirement Plan equal 65, (ii) there is in effect with respect to such Employee
a payment option under the Employees" Retirement Plan pursuant to which payments
are to be made, on account of the death of such Employee while an Employee, to
the surviving spouse of such Employee, and (iii) such spouse survives such
Employee, there shall be payable to such surviving spouse a benefit calculated
in accordance with Section 3.1 as if the Employee had elected a joint and 50%
survivor annuity option under the Employees" Retirement Plan, had retired on the
date of his death (irrespective of whether such Employee was eligible to retire
on such date) and had survived to the first day of the month immediately
following his 60th birthday (if such date is subsequent to his actual date of
death).
-16-
<PAGE>
ARTICLE VI
Form and Time of Payment
6.1 Time of Payment
---------------
A Member"s Plan Benefit payable under Sections 3.1 or 3.2 of this Plan
will be paid beginning at the same time as the Member"s Pension Plan Benefit
under the Employees" Retirement Plan, except as provided in Section 6.3. A
Member may retire under this Plan on the first day of any month following the
date he becomes a Member, provided that his employment with the Employer has
been terminated for other than Cause. Except as provided in Section 6.3, payment
of the Member"s Plan Benefit shall commence on the later of (i) the date of his
retirement, or (ii) the first day of the month following his 60th birthday (55th
birthday if the Member"s employment is terminated within two years after a
Change in Control, either by the Member for Good Reason or by the Employer) or
such earlier date (but not prior to attainment of age 55) as shall have been
approved by the Compensation Committee for any Member who is an executive
officer of the Company at any time during the calendar year in which he retires
or by the Executive Committee for any other Member.
6.2 Form of Payment
---------------
Except as provided in Section 6.3, a Member may elect to have his Plan
Benefit paid in any of the optional forms offered under Article VI of the
Employees" Retirement Plan. For such purpose, the Member may designate a
different form of payment, joint annuitant and/or beneficiary under this Plan
than under the
-17-
<PAGE>
Employees" Retirement Plan. The amount of the Plan Benefit shall
be adjusted and determined in accordance with those provisions of the Employees"
Retirement Plan governing optional forms.
6.3 Special Change in Control
-------------------------
If there occurs a Special Change in Control, then notwithstanding any
election hereunder or under the Employees" Retirement Plan, the Company shall
pay forthwith to the Member in a single lump sum an amount equal to the full
amount of the Actuarial Equivalent as of the date of such payment of such
Member"s (i) Plan Benefit hereunder, (ii) SERP Benefit under the SERP, and (iii)
Excess Benefit under the Excess Plan, such payments under clause (ii) and (iii)
being made in consideration of the relinquishment by the Member of the related
benefits under the SERP and the Excess Plan. Notwithstanding Section 1.1 of this
Plan, or of the SERP or of the Excess Plan, as the case may be, "Actuarial
Equivalent," for purposes of this Section 6.3 shall be based on a single life
using (A) an interest rate (on the day preceding the Member"s last day of
employment) equal to sixty (60%) percent of the average of (i) the 10-year
Treasury Bond yield plus eight-tenths of one percent per annum, and (ii) the 30-
ye Treasury Bond yield plus 1.5% per annum; and (B) the mortality table
(including the set back of ages) specified in Section 1.1.
-18-
<PAGE>
ARTICLE VII
Administration
7.1 Pension Administration Committee
--------------------------------
The Pension Administration Committee shall supervise the daily
management and administration of the Plan. The members of the Pension
Administration Committee shall serve without compensation.
7.2 Responsibilities and Powers of the Pension Administration
---------------------------------------------------------
Committee and Compensation Committee
- ------------------------------------
(a) The Pension Administration Committee shall have the responsibility:
(i) To administer the Plan in accordance with the terms hereof, and to
exercise all powers specifically conferred upon the Pension
Administration Committee hereby or necessary to carry out the
provisions thereof; and
(ii) To keep all records relating to Members of the Plan and such other
records as are necessary for proper operation of the Plan.
(b) The Compensation Committee shall be responsible for construing this
Plan, which construction shall be conclusive, correcting any defects,
supplying omissions, and reconciling inconsistencies to the extent necessary
to effectuate the Plan.
7.3 Operation of the Pension Administration Committee
-------------------------------------------------
In carrying out the Pension Administration Committee"s functions
hereunder:
(a) The Pension Administration Committee may adopt rules and
regulations necessary for the administration of the Plan and which are
consistent with the provisions hereof.
-19-
<PAGE>
(b) All acts and decisions of the Pension Administration Committee shall
be approved by a majority of the members of the Pension Administration Committee
and shall apply uniformly to all Members in like circumstances. Written records
shall be kept of all acts and decisions.
(c) The Pension Administration Committee may authorize one or more of
its members to act on its behalf. The Pension Administration Committee may also
delegate, in writing, any of its responsibilities and powers to an individual(s)
who is not a Pension Administration Committee member.
(d) The Pension Administration Committee shall have the right to hire,
at the expense of the Employer, such professional assistants and consultants as
it, in its sole discretion, deems necessary or advisable, including, but not
limited to, accountants, actuaries, consultants, counsel and such clerical
assistance as is necessary for proper discharge of its duties.
7.4 Indemnification
---------------
In addition to any other indemnification that a fiduciary, including
but not limited to a member of the Pension Administration Committee, the
Compensation Committee or the Executive Committee, is entitled to, the Employer
shall indemnify such fiduciary from all claims for liability, loss or damage
(including payment of expenses in connection with defense against such claim)
arising from any act or failure to act which constitutes a breach of such
individual"s fiduciary responsibilities with respect to this Plan under any
aspects of
-20-
<PAGE>
the law.
ARTICLE VIII
Miscellaneous
8.1 Benefits Payable by the Employer
--------------------------------
All benefits payable under this Plan constitute an unfunded obligation
of the Employer. Payments shall be made, as due, from the general funds of the
Employer. The Employer, at its option, may maintain one or more bookkeeping
reserve accounts to reflect its obligations under the Plan and may make such
investments as it may deem desirable to assist it in meeting with obligations.
Nothing contained in this Section 8.1 shall limit the ability of the Employer to
pay benefits hereunder through a Rabbi Trust. Any such investments shall be
assets of the Employer subject to claims of its general creditors. No person
eligible for a benefit under this Plan shall have any right, title to interest
in any such investments.
8.2 Amendment or Termination
------------------------
(a) The Board of Directors reserves the right to amend, modify, or
restate or terminate the Plan; provided, however, that no such action by the
Board of Directors shall reduce a Member"s Plan Benefit accrued as of the time
thereof. The provisions of this Section prohibiting an action by the Board of
Directors which would reduce a Member"s accrued Plan Benefit cannot be amended
without the consent of all Members (including those who have retired). Any
amendment to the Plan shall be made in
-21-
<PAGE>
writing by the Board of Directors, with or without a meeting, or shall be made
in writing by the Pension Administration Committee, the Compensation Committee,
or the Executive Committee, to the extent that Board of Directors has
specifically delegated the authority to make such amendment to the Plan the
Pension Administration Committee, the Compensation Committee or the Executive
Committee.
(b) If the Plan is terminated, a determination shall be made of each
Member"s Plan Benefit as of the Plan termination date (determined in accordance
with Section 8.2(a)). The amount of such benefits shall be payable to the Member
at the time it would have been payable under Article VI if the Plan had not been
terminated. No interest shall be credited on a Plan Benefit.
(c) No amendment or termination made within one year before a Change in
Control and made while a Prospective Change in Control is pending may adversely
affect any benefit that might at any time be or become owing hereunder to a
person who, immediately prior to the commencement of such Prospective Change in
Control, was an Officer, a Grandfathered Participant or a Member without the
consent of such person (other than a benefit to any such person who is the
person, or part of the group, making the offer, or negotiating to make the
offer, which constitutes the Prospective Change in Control).
As used herein, the term "Prospective Change in Control" means (i) any
offer presented, directly or indirectly, to the Board of Directors of the
Company which, if consummated, would
-22-
<PAGE>
constitute a Change in Control or (ii) any negotiation with the Board of
Directors or any committee or representative thereof to make such an offer
(including the unilateral announcement of the terms on which such an offer would
be made).
8.3 Status of Employment
--------------------
Nothing herein contained shall be construed as conferring any rights
upon any Member or any person for a continuation of employment, nor shall it be
construed as limiting in any way the right of the Employer to discharge any
Member or to treat him without regard to the effect which such treatment might
have upon him as a Member of the Plan.
8.4 Payments to Minors and Incompetents
-----------------------------------
If a Member or beneficiary entitled to receive any benefits hereunder is
a minor or is deemed by the Pension Administration Committee or is adjudged to
be legally incapable of giving valid receipt and discharge for such benefits,
they will be paid to the duly appointed guardian of such minor or incompetent or
to such other legally appointed person as the Pension Administration Committee
might designate. Such payment shall, to the extent made, be deemed a complete
discharge of any liability for such payment under the Plan.
8.5 Authorized Payments
-------------------
The Pension Administration Committee may at any time and from time to
time require, as a condition precedent to making or authorizing the payment of
any benefit hereunder, evidence of the prospective payee"s right to receive such
payment. Without
-23-
<PAGE>
limiting the generality of the foregoing, the Pension Administration Committee
may require evidence of the date of birth of any Member, contingent annuitant or
beneficiary, or of survival of a contingent annuitant or beneficiary.
8.6 Inalienability of Benefits
--------------------------
The right of any person to any benefit or payment under the Plan shall
not be subject to voluntary or involuntary transfer, alienation or assignment,
and, to the fullest extent permitted by law, shall not be subject to attachment,
execution, garnishment, sequestration or other legal or equitable process. In
the event a person who is receiving or is entitled to receive benefits under the
Plan attempts to assign, transfer or dispose of such right, or if an attempt is
made to subject said right to such process, such assignment, transfer or
disposition shall be null and void.
8.7 Adjustment of Benefits
----------------------
If the date of birth or other data deemed by the Pension Administration
Committee to be vital, with respect to any Member, contingent annuitant or
beneficiary shall be misstated, the Pension Administration Committee may limit
the amount and date of payment of benefits to any such person, his contingent
annuitant and/or other beneficiary (whether or not such person shall have
theretofore retired in accordance with the Plan) to the reduced benefits which
would be payable in accordance with the correct information. In such case,
payments of benefits made subsequent to the date of discovery of any such
misstatement shall be
-24-
<PAGE>
adjusted for any excess or deficiency (based upon the correct facts) in the
amount of benefits theretofore paid to such person, his contingent annuitant
and/or other beneficiary.
8.8 Commuting of Benefits
---------------------
Notwithstanding any other provision of the Plan, the Pension
Administration Committee may, in its sole discretion, commute into one or more
payments the Plan Benefit of any Member (i) the present value of which,
calculated by using the interest rate then used by the Pension Benefit Guaranty
Corporation for purposes of determining the present value of the lump sum
distribution on plan terminations, is not more than $3,500, or (ii) to any
Member"s contingent annuitant or other beneficiary upon the request of and the
showing of need by such contingent annuitant or other beneficiary.
8.9 Governing Law
-------------
Except to the extent pre-empted by federal law, the provisions of the
Plan will be construed according to the laws of the State of New Jersey.
-25-
<PAGE>
EXHIBIT 12
Cytec Industries Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
Three Months Ended
March 31,
---------
1999 1998
---- ----
Earnings before income taxes and equity in
earnings of associated companies 39.2 44.4
Add:
Distributed income of associated companies 0.1 -
Amortization of capitalized interest - -
Fixed Charges 8.7 6.5
Less:
Capitalized interest - -
---- ----
Earnings as adjusted 48.0 50.9
Fixed Charges:
Interest on indebtedness including
Amortized premiums, discounts and
Deferred financing costs 7.5 5.1
Portion of rents representative of the
Interest factor 1.2 1.4
---- ----
Fixed charges 8.7 6.5
---- ----
Ratio of earnings to fixed charges 5.5 7.8
---- ----
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form-10Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,700
<SECURITIES> 0
<RECEIVABLES> 239,400
<ALLOWANCES> 9,200
<INVENTORY> 138,100
<CURRENT-ASSETS> 488,400
<PP&E> 1,352,800
<DEPRECIATION> (691,800)
<TOTAL-ASSETS> 1,744,000
<CURRENT-LIABILITIES> 393,100
<BONDS> 319,500
0
100
<COMMON> 500
<OTHER-SE> 439,400
<TOTAL-LIABILITY-AND-EQUITY> 1,744,000
<SALES> 355,300
<TOTAL-REVENUES> 355,300
<CGS> 249,900
<TOTAL-COSTS> 311,500
<OTHER-EXPENSES> (2,300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,900<F1>
<INCOME-PRETAX> 43,400<F2>
<INCOME-TAX> 15,200
<INCOME-CONTINUING> 28,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,200
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.63
<FN>
<F1>This number represents interest expense, net
<F2>This number includes equity in net income of associated companies of
$4,200 for the three months end March 31, 1999.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
Pursuant to Rule 12b-23 under the Securities and Exchange Act, the text below
from the Company's Annual Report on Form 10-K is filed as to matters
incorporated by reference in Part II, Item 1 ("Legal Proceedings").
Environmental Matters
The Company is subject to various federal, state and foreign laws and
regulations which impose stringent requirements for the control and abatement of
air and water pollutants and contaminants and the manufacture, transportation,
storage, handling and disposal of hazardous substances, hazardous wastes,
pollutants and contaminants.
In particular, under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and various other federal and state laws, a current or
previous owner or operator of a facility may be liable for the removal or
remediation of hazardous materials at the facility. Such laws typically impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous materials. In addition, pursuant
to the Resource Conservation and Recovery Act ("RCRA") and state laws governing
the generation, transportation, treatment, storage or disposal of solid and
hazardous wastes, owners and operators of facilities may be liable for removal
or remediation, or other corrective action at areas where hazardous materials
have been released at a facility. The costs of removal, remediation or
corrective action may be substantial, and the presence of hazardous materials in
the environment at any of the Company's facilities, or the failure to abate such
materials promptly or properly, may adversely affect the Company's ability to
operate such facilities. CERCLA and analogous state laws also impose liability
for investigative, removal and remedial costs on persons who dispose of or
arrange for the disposal of hazardous substances at facilities owned or operated
by third parties. Liability for investigative, removal and remedial costs under
such laws is retroactive, strict, and joint and several.
The Clean Air Act and similar state laws govern the emission of pollutants into
the atmosphere. The Federal Water Pollution Control Act and similar state laws
govern the discharge of pollutants into the waters of the United States. RCRA
and similar state laws govern the generation, transportation, treatment,
storage, and disposal of solid and hazardous wastes. Finally, the Toxic
Substances Control Act regulates the manufacture, processing, and distribution
of chemical substances and mixtures, as well as the disposition of certain
hazardous substances. The costs of compliance with such laws and regulations
promulgated thereunder may be substantial, and regulatory standards under such
statutes tend to evolve towards more stringent requirements, which might, from
time to time, make it uneconomic or impossible to continue operating a facility.
Non-compliance with such requirements at any of the Company's facilities could
result in substantial civil penalties
<PAGE>
or the inability of the Company to operate all or part of the facility.
In addition, certain state and federal laws govern the abatement, removal, and
disposal of asbestos-containing materials and the maintenance of underground
storage tanks and equipment which contains or is contaminated by polychlorinated
biphenyls.
Pursuant to Rule 12b-23 under the Securities and Exchange Act, the text below
from the Company's Annual Report on Form 10-K is filed as to matters
incorporated by reference in footnote 2 to Part I, Item 1 ("Notes to
Consolidated Financial Statemnts").
During 1998 the Company completed the following acquisitions and dispositions:
On June 24, 1998, the Company acquired assets of the OrePrep minerals processing
product line ("OrePrep") from Baker Petrolite Corporation for approximately
$9.0. The acquisition resulted in an excess of the purchase price over the
assets acquired of $8.3, which is included in Acquisition Intangibles in the
Consolidated Balance Sheet and will be amortized on a straight-line basis over a
period of up to 40 years. OrePrep supplies mineral processing reagents and
services to the mining industry. The acquired product line was integrated into
the Company's existing mining chemicals product line.
On July 31, 1998, the Company completed the purchase from Dyno Industrier ASA of
Oslo, Norway, of Dyno's global amino coatings resin business (the "Dyno
Business"), which consisted primarily of Dyno's 50% interest in Dyno-Cytec, a
European joint venture, for approximately $55.7. Payment of the purchase price
was funded under the Company's Credit Facility. The acquisition resulted in an
excess of the purchase price over the assets acquired of $40.7, which is
included in Acquisition Intangibles in the Consolidated Balance Sheet and will
be amortized on a straight-line basis over a period of up to 40 years. The
acquired business produces and sells cross-linking resins for coating
applications primarily in Europe from a single manufacturing plant in
Lillestrom, Norway. The acquired business was integrated into the Company's
existing specialty resins product line.
On October 9, 1998, the Company completed its acquisition of The American
Materials & Technologies Corporation ("AMT") in a stock transaction designed to
qualify as a tax-free reorganization. Under the terms of the transaction, each
AMT share was converted into the right to receive 0.3098 of a share of Cytec
common stock. In the transaction, the Company issued from Treasury 1,248,620
shares of common stock. In addition, outstanding options and warrants to acquire
AMT stock were converted into a total of 259,308 incentive and non- qualified
stock options, at a weighted average exercise price of $10.07 per share, and
75,901 warrants that allow the holders to purchase the Company's common stock at
a weighted average price of $25.14 per share. The cost of the acquisition was
<PAGE>
approximately $26.8, including the shares issued, options and warrants converted
and previous shares acquired, plus the assumption of approximately $5.4 in debt.
AMT manufactures and markets advanced composite materials for customers in the
aerospace, defense, transportation and other industries. The acquisition
resulted in an excess of the purchase price over the assets acquired of $23.6,
which is included in Acquisition Intangibles in the Consolidated Balance Sheet
and will be amortized on a straight-line basis over a period of up to 40 years.
The acquired business was integrated into the Company's existing specialty
materials product line. On October 26, 1998, the Company sold the assets of the
AMT graphite golf shaft business for approximately $6.2 in cash.
All three acquisitions have been accounted for under the purchase method of
accounting. Consolidated results of operations have been included from the date
of acquisition. Consolidated results of operations for 1998 or 1997 would not
have been materially different if any of the acquisitions had occurred on
January 1, 1997. Accordingly, pro forma sales, net earnings and earnings per
share disclosures have not been provided.
On November 23, 1998, the Company completed the sale of its bulk molding
compounds business to Bulk Molding Compounds, Inc. of West Chicago, Illinois for
$17.0 in cash, resulting in a pretax gain of $4.4. The business acquired by Bulk
Molding Compounds, Inc. included Cytec's manufacturing, laboratory and sales
facility located at Perrysburg, Ohio.
Pursuant to Rule 12b-23 under the Securities and Exchange Act, the text below
from the Company's Annual Report on Form 10-K is filed as to matters
incorporated by reference in Part I, Item 3 ("Quantitative and Qualitative
Disclosures About Market Risk").
The following discussion provides forward-looking quantitative and qualitative
information about the Company's potential exposures to market risk arising from
changes in foreign currency rates, commodity prices and interest rates. Actual
results could differ materially from those projected in this forward-looking
analysis. The Company's exposure to market risk from equity price changes was
immaterial at December 31, 1998.
Market risk represents the potential loss arising from adverse changes in the
value of financial instruments. The risk of loss is assessed based on the
likelihood of adverse changes in fair values, cash flows or future earnings.
In the ordinary course of business, the Company is exposed to various market
risks, including fluctuations in foreign currency rates, commodity prices and
interest rates. To manage the exposure related to these risks, the Company may
engage in various derivative transactions in accordance with Company-established
policies. The Company neither holds nor issues financial instruments for trading
purposes. Moreover, the Company enters into financial instrument transactions
either
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through regulated future exchanges or with major financial institutions, thereby
limiting exposure to credit- and performance-related risks.
Foreign Exchange Rate Risk
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The risk of adverse exchange rate fluctuations is mitigated by the fact that
there is no concentration of foreign currency exposure. In addition, the Company
enters into foreign exchange forward contracts primarily to hedge currency
fluctuations of transactions denominated in foreign currencies. At December 31,
1998, the principal transactions hedged were short-term intercompany loans and
intercompany trade accounts receivable and payable. The maturity dates of the
foreign exchange contracts are less than six months and strongly correlate to
the maturity date of the underlying transaction. The foreign exchange gains or
losses and the offsetting losses or gains of the hedged transaction are marked
to market and reflected in net earnings.
At December 31, 1998, the Company had net foreign exchange contracts to purchase
various currencies, principally British pounds and Dutch guilders, for $21.4 and
to sell various currencies, principally Dutch guilders and German marks for
$11.3. The differences between fair value of all outstanding contracts at
year-end and the contract amounts were immaterial. Assuming that year-end
exchange rates between the underlying currencies of all outstanding foreign
exchange contracts and the various hedged currencies were to adversely change by
a hypothetical 10%, the change in the fair value of all outstanding contracts at
year-end would be a decrease of approximately $2.8. However, since these
contracts hedge foreign currency denominated transactions, any change in the
fair value of the contracts would be offset by changes in the underlying value
of the transaction being hedged.
At December 31, 1998, non-derivative financial instruments subject to foreign
exchange rate risk consisted primarily of $10.3 in foreign currency denominated
short-term debt. Assuming that year-end exchange rates were to adversely change
by a hypothetical 10%, the increase in the fair value would be approximately
$1.0.
Commodity Price Risk
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Occasionally, the Company utilizes futures contracts, predominately involving
natural gas, to manage its exposure to price risk associated with the production
of ammonia, methanol and other building block chemical products. The maturity of
these contracts correlate highly to the actual purchases of the commodity. The
contracts are principally settled through actual delivery of the physical
commodity and have the effect of securing predetermined prices that the Company
pays for the underlying commodity. Accordingly, while these contracts limit the
Company's exposure to increases in commodity prices, they also limit the
potential benefit the Company might have otherwise received from decreases in
commodity prices.
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At December 31, 1998, the Company had $4.6 net natural gas futures contracts
with January, February and March 1999 delivery dates outstanding. Based on
year-end prices, the Company had a net unrealized loss of $1.0. Assuming that
year-end prices were to adversely change by a hypothetical 10%, the incremental
increase in cost of goods sold would be approximately $0.4.
Interest Rate Risk
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At December 31, 1998, the financial liabilities of the Company exposed to
changes in interest rates consisted mainly of $10.3 in foreign currency
denominated short-term borrowings and $100.0 variable rate borrowings
outstanding under the Credit Facility. The Company is also party to an interest
rate swap agreement that converts $20.0 of variable rate interest obligations on
the Company's Credit Facility to fixed rate interest obligations. Assuming that
a hypothetical increase of 1% in interest rates and all other variables, i.e.,
foreign exchange rates and debt levels, were to remain constant, interest
expense would increase $0.9 per year. Included in long-term debt is also $319.5
of fixed rate public debt, which is not subject to interest rate risk.
