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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
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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 Note 2 to Part I, Item 1 ("Notes to Consolidated
Financial Statements").
During 1999 the Company completed the following acquisition and disposition
transactions:
On January 25, 1999, the Company acquired assets of the Nottingham Company's
industrial minerals product line for $4.0. The purchase price exceeded the fair
value of the identifiable assets acquired by $0.5, which 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 Water and Industrial Process Chemicals segment.
On August 11, 1999, the Company acquired assets of the BOC Gases' global
phosphine fumigants product line for $3.5. The purchase price exceeded the fair
value of the identifiable assets acquired by $1.2, which will be amortized on a
straight-line basis over a period of up to 20 years. The terms of the
acquisition provide for up to two additional payments aggregating up to $1.0 to
be paid upon approval by the U.S. Environmental Protection Agency of certain
fumigant registrations and for additional consideration to be paid if the
acquired product line's net sales exceed certain targeted levels. The
contingency for payment of $0.3 of additional consideration was met during the
first quarter of 2000 and was recorded as additional goodwill. All additional
payments are payable in cash and will be recorded as additional goodwill when
the contingencies for payment have been met. The acquired business was
integrated into the Company's Water and Industrial Process Chemicals segment.
On September 16, 1999, the Company acquired Inspec Mining Chemicals S.A. from
Laporte plc for $25.1, net of $0.8 cash received. The purchase price exceeded
the fair value of the identifiable assets acquired by $19.0, which will be
amortized on a straight-line basis over a period of up to 40 years. The
acquisition, which included two manufacturing operations and a research and
development center located in Chile, was integrated into the Company's Water and
Industrial Process Chemicals segment.
On October 29, 1999, the Company acquired the amino coatings resins business of
BIP Limited for approximately $37.2 in cash plus future consideration with a
value equivalent to approximately $8.3. The purchase price exceeded the fair
value of the identifiable assets acquired by $36.7, which will be
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amortized on a straight-line basis over a period of up to 40 years. The acquired
business was integrated into the Company's Performance Products segment. BIP
will retain its manufacturing plant in Oldbury, United Kingdom, where it will
continue to manufacture certain amino coatings resins for Cytec for at least one
year.
All four acquisitions have been recorded under the purchase method of accounting
with the purchase prices allocated to the assets received and liabilities
assumed, based on their estimated fair values. The results of operations for the
acquired businesses are included from the dates of acquisition in the
Consolidated Financial Statements. Amounts recorded as excesses of the purchase
price over the identifiable assets acquired ("goodwill") are included in
Acquisition Intangibles in the Consolidated Balance Sheet. Goodwill, net of
accumulated amortization, totaled $343.9 at December 31, 1999. Consolidated
results of operations for 1999 or 1998 would not have been materially different
if any of the acquisitions had occurred on January 1, 1998. Accordingly, pro
forma sales, net earnings and earnings per share disclosures have not been
provided.
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.
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, interest rates and equity
price changes. Actual results could differ materially from those projected in
this forward-looking analysis.
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
or speculative purposes. Moreover, the Company enters into financial instrument
transactions primarily with major financial institutions or highly-rated
counterparties, thereby limiting exposure to credit- and performance-related
risks.
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Foreign Exchange Rate Risk
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,
1999, 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, 1999, the Company had net foreign exchange contracts to purchase
$6.5 of various currencies, primarily Dutch guilders and German marks and to
sell $5.8 of various currencies, primarily British pounds for U.S. dollars. The
Company also had contracts to sell Dutch guilders with a value equivalent to
$13.4 for British pounds and contracts to purchase Norwegian krone with a value
equivalent to $4.3 for other European currencies. 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 $3.4. 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.
Commodity Price Risk
The Company selectively utilizes natural gas derivative contracts including
forward contracts, which are principally settled through actual delivery of the
physical commodity, and other hedging arrangements, predominantly cash-settled
swap transactions, to manage its exposure to price risk associated with the
production of ammonia and other building block chemical products. The maturity
of these contracts correlate highly to the actual purchases of the commodity and
have the effect of securing predetermined prices that the Company pays for the
underlying commodity. While these contracts are structured to 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. Realized gains and losses on these contracts are included in
the cost of the commodity upon settlement of the contract, with amounts paid or
received on early termination deferred on the balance sheet until such time.
At December 31, 1999, the Company had $2.8 net natural gas forward commodity and
cash-settled swap contracts outstanding. Based on year-end prices, the Company
had a net unrealized loss of $0.4. Assuming that year-end prices were to
adversely change
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by a hypothetical 10%, the incremental increase in cost of goods sold would be
approximately $0.2.
Interest Rate Risk
At December 31, 1999, the financial liabilities of the Company exposed to
changes in interest rates consisted primarily of long-term debt, which had a
carrying value of $422.5 (fixed rate public debt of $319.5 and variable rate
credit facility borrowings of $103.0) and a fair value of approximately $399.1.
Additionally the Company was party to two interest rate swap agreements that
effectively change the characteristics of the long-term debt. One of the
interest rate swap agreements converts $25.0 of the Company's $319.5 fixed rate
public debt to variable rate debt and the other interest rate swap agreement
converts $20.0 of variable rate credit facility borrowings to fixed rate
interest obligations. For fixed rate debt, interest rate changes affect fair
value but do not impact earnings or cash flows. Conversely, for variable rate
debt, interest rate changes generally do not affect fair value but do impact the
future earnings and cash flows, assuming other factors are held constant.
At December 31, 1999, after adjusting for the effects of interest rate swap
agreements, the Company had fixed rate long-term debt of $314.5 and variable
rate long-term debt of $108.0. Assuming a hypothetical increase of 1% in
interest rates and all other variables (such as debt levels) were to remain
constant, interest expense on variable rate long-term debt would increase $1.1
per year and the fair market value of the fixed rate long-term debt would
decrease $12.5.
Equity Price Risk
In connection with the Company's stock repurchase program, the Company
selectively utilizes freestanding put option contracts that are indexed to the
Company's stock. 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). The put option contracts are initially measured
at fair value and reported in Stockholders' Equity. Subsequent changes in fair
value are not recognized in the financial statements.
At December 31, 1999, the Company had 450,000 put options outstanding that
expire on various dates in February and April 2000 and entitled the holders to
sell an aggregate of 450,000 shares of the Company's common stock to the Company
at exercise prices ranging from $21.00 to $22.125 per share. The Company
received premiums of approximately $0.5 on the sale of such put options. The put
options outstanding at December 31, 1999, had exercise prices that were less
than the Company's stock price as of that date. Assuming that the Company's
stock price were to adversely change by a hypothetical 10% or greater from its
year-end closing price, the Company could be subject to purchasing the 450,000
shares of common stock for a maximum of $9.6, which would be recognized as an
adjustment to Stockholders' Equity.
