<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 June 30, 2000
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: 40,527,163 shares of Common
Stock, par value $.01 per share, were outstanding at June 30, 2000.
<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 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
Part II - Other Information 24
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 26
Item 4. Submission of Matters to a Vote of
Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
Exhibit Index 29
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)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 380.5 $ 359.1 $ 740.9 $ 714.4
Manufacturing cost of sales 267.1 246.9 518.4 496.9
Selling and technical services 39.3 37.3 78.7 74.5
Research and process development 9.3 9.6 18.9 19.8
Administrative and general 12.2 13.2 23.6 24.6
Amortization of acquisition intangibles 3.1 2.6 6.1 5.3
------- ------- ------- -------
Earnings from operations 49.5 49.5 95.2 93.3
Other income, net 16.2 0.6 20.3 2.9
Equity in earnings (losses) of associated companies 3.5 (0.2) 10.0 4.0
Interest expense, net 7.1 6.8 14.4 13.6
------- ------- ------- -------
Earnings before income taxes 62.1 43.1 111.1 86.6
Income tax provision 21.4 15.1 38.3 30.3
------- ------- ------- -------
Net earnings $ 40.7 $ 28.0 $ 72.8 $ 56.3
======= ======= ======= =======
Earnings per common share
Basic $ 0.99 $ 0.65 $ 1.76 $ 1.31
Diluted $ 0.95 $ 0.63 $ 1.69 $ 1.26
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7.4 $ 12.0
Accounts receivable, less allowance for doubtful accounts
of $8.7 and $9.3 in 2000 and 1999, respectively 283.0 248.5
Inventories 143.5 139.5
Deferred income taxes 43.9 61.7
Other current assets 32.2 29.4
-------- --------
Total current assets 510.0 491.1
Equity in net assets of and advances to associated companies 150.3 146.4
Plants, equipment and facilities, at cost 1,348.1 1,352.6
Less: accumulated depreciation (714.9) (696.9)
-------- --------
Net plant investment 633.2 655.7
Acquisition intangibles, net of accumulated amortization 391.2 395.2
Deferred income taxes 46.1 48.8
Other assets 28.9 22.7
-------- --------
Total assets $1,759.7 $1,759.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 0.1 $ --
Accounts payable 114.2 118.5
Accrued expenses 192.4 198.4
Income taxes payable 46.6 49.2
-------- --------
Total current liabilities 353.3 366.1
Long-term debt 425.6 422.5
Other noncurrent liabilities 446.7 465.5
Stockholders' equity
Preferred stock, 20,000,000 shares authorized;
issued and outstanding 4,000 shares, Series C Cumulative,
$.01 par value at liquidation value of $25 per share 0.1 0.1
Common stock, $.01 par value per share, 150,000,000
shares authorized; issued 48,132,640 shares 0.5 0.5
Additional paid-in capital 157.2 159.8
Retained earnings 650.2 577.5
Unearned compensation (3.6) (1.9)
Accumulated translation adjustments (27.0) (14.3)
Treasury stock, at cost, 7,605,477 shares in 2000 and
6,522,967 shares in 1999 (243.3) (215.9)
-------- --------
Total stockholders' equity 534.1 505.8
-------- --------
Total liabilities and stockholders' equity $1,759.7 $1,759.9
======== ========
</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>
Six Months Ended
June 30,
2000 1999
----- -----
<S> <C> <C>
Cash flows provided by (used for) operating activities
Net earnings $72.8 $56.3
Noncash items included in earnings:
Dividends from associated companies, greater (less)
than equity in earnings (5.9) 0.8
Depreciation 40.9 40.5
Amortization 7.4 6.1
Deferred income taxes 20.9 3.8
Gain on sale of assets (7.1) (2.9)
Other 0.6 0.4
Changes in operating assets and liabilities
Accounts receivable (39.1) (13.5)
Inventories (7.1) 4.4
Accounts payable (2.7) 1.4
Accrued expenses 1.9 (9.7)
Income taxes payable -- 16.3
Other assets (14.4) (3.8)
Other liabilities (18.5) (14.6)
----- -----
Net cash flows provided by operating activities 49.7 85.5
----- -----
Cash flows provided by (used for) investing activities
Additions to plants, equipment and facilities (32.6) (37.6)
Proceeds received on sale of assets 9.9 8.0
Acquisition of businesses, net of cash received -- (4.0)
----- -----
Net cash flows used for investing activities (22.7) (33.6)
----- -----
Cash flows provided by (used for) financing activities
Proceeds from the exercise of stock options and warrants 3.0 0.8
Purchase of treasury stock (37.5) (13.0)
Change in short-term borrowings 0.1 (10.3)
Change in long-term debt 3.0 (3.0)
Proceeds received on sale of put options 0.6 0.6
----- -----
Net cash flows used for financing activities (30.8) (24.9)
----- -----
Effect of exchange rate changes on cash and cash equivalents (0.8) (1.0)
----- -----
Increase in cash and cash equivalents (4.6) 26.0
Cash and cash equivalents, beginning of period 12.0 1.7
----- -----
Cash and cash equivalents, end of period $ 7.4 $27.7
===== =====
</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 1999 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 June 30, 2000 and for the three and six months ended June 30,
2000 and 1999. Such adjustments are of a normal, recurring nature. The
consolidated statements of income for the three and six months ended June
30,2000 are not necessarily indicative of the results to be expected for the
full year.
(2) Acquisitions and Dispositions
During 1999, the Company acquired assets of the Nottingham Company's industrial
minerals product line, assets of the BOC Gases global phosphine fumigant product
line, Inspec Mining Chemicals S.A. and the amino coatings resins business of BIP
Limited. All four acquisitions were accounted for under the purchase method of
accounting and results of operations have been included from the date of
acquisition. In addition, on January 21, 1999, the Company sold substantially
all the assets of its engineered moldings compounds business. For a more
detailed description of the 1999 acquisition and disposition transactions, refer
to note 2 to the consolidated financial statements contained in the Company's
1999 Annual Report on Form 10-K, which is incorporated by reference herein.
At the date of the Inspec Mining Chemicals S.A. acquisition in September 1999,
the purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the time. The purchase price exceeded
the fair value of the identifiable assets acquired and liabilities assumed by
$19.0, which was recorded as goodwill and included in Acquisition Intangibles in
the Consolidated Balance Sheet. Based on further valuation studies, during May
2000, the fair value of the fixed assets acquired was revised, which resulted in
a $2.0 increase to goodwill. The $2.0 adjustment along with the original $19.0
excess of the purchase price over the identifiable net assets acquired will be
amortized on a straight-line basis over a period of up to 40 years from the
original date of acquisition.
(3) Restructuring of Operations
In 1997 the Company recorded pretax restructuring charges in the amount of $38.4
related primarily to (i) restructuring at Botlek, The Netherlands; Linden, New
Jersey; Fortier, Louisiana and Willow Island, West Virginia, manufacturing
sites; (ii) restructuring at its corporate headquarters; (iii) costs to realign
its legal entity structure in Europe and (iv) costs associated with redundant
manufacturing sites after integrating Fiberite. The restructuring costs were
charged to the Consolidated Statement of Income as follows: manufacturing cost
6
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
of sales, $32.6; selling and technical services, $2.2; research and process
development, $1.0 and administrative and general, $2.6. The components of the
restructuring charges include: $28.6 for employee related costs; $3.8 for fixed
asset write-offs at the Company's facility in Botlek, The Netherlands; $1.2 for
plant closure costs and $4.8 for other actions. The employee related costs
primarily represent severance costs associated with the elimination of
approximately 415 positions worldwide. In the fourth quarter of 1999, the
Company reduced this restructuring accrual due to incurring lower than expected
costs for the shutdown of the Warner's, NJ facility and incurring fewer
personnel reductions by filling unanticipated open positions. As a result,
during the fourth quarter of 1999 the Company recognized a restructuring credit
of $3.0 in the Consolidated Statement of Income as follows: manufacturing cost
of sales, $2.7 and administrative and general, $0.3.
As of June 30, 2000, approximately 370 eliminations requiring severance payments
were completed and 3 additional reductions requiring severance are planned and
will be substantially completed by December 31, 2000. As of June 30, 2000,
payments of $32.7 were made for these restructuring charges. At June 30, 2000,
the liability to be paid was $2.6, essentially all of which is for the remaining
personnel reductions and for certain long-term payouts for employee severance,
primarily in Europe. The Company anticipates that, except for these long-term
payouts, all of the remaining restructuring costs will be paid in 2000.
Also in the fourth quarter of 1999, the Company recorded restructuring charges
of $3.6, primarily related to the consolidation of certain Specialty Materials'
manufacturing and research activities and the Fortier methanol plant shutdown
and related personnel reductions. The restructuring costs were charged to the
Consolidated Statement of Income as follows: manufacturing cost of sales, $1.2;
selling and technical services, $0.3; research and process development, $1.7 and
administrative and general, $0.4. The personnel reduction primarily represents
severance costs associated with the elimination of approximately 72 positions
worldwide. As of June 30, 2000, approximately 66 positions were eliminated and
the remainder will be substantially completed by the end of 2000. As of June 30,
2000, payments of $2.2 were made for these charges. At June 30, 2000, the
liability to be paid was $1.4.
(4) Earnings Per Share (EPS)
Basic earnings per common share excludes dilution and is computed by dividing
net earnings by the weighted-average number of common shares outstanding (which
includes shares outstanding, less performance and restricted shares for which
vesting criteria have not been met) plus deferred stock awards, weighted for the
period outstanding. Diluted earnings per common share is computed by dividing
net earnings by the sum of the weighted-average number of common shares
outstanding for the period adjusted (i.e., increased) for all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued and any proceeds of the issuance had been used to repurchase
common stock at the average market price during the quarter. The proceeds used
to repurchase common stock are assumed to be the sum of the amount to be paid to
the Company upon exercise of options, the amount of compensation cost attributed
to future services and not yet recognized and the amount of income taxes that
would be credited to or deducted from capital upon exercise.
7
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
The following represents the reconciliation of the numerators and denominators
of the basic and diluted EPS computations for net earnings for the three and six
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
---- ----
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 $40.7 41,134,774 $0.99 $28.0 42,971,313 $0.65
Effect of dilutive securities
Options -- 1,643,377 -- -- 1,665,072 --
Performance/Restricted stock -- 129,736 -- -- 78,036 --
Warrants -- 2,728 -- -- 5,426 --
Diluted EPS
Net earnings divided by the
weighted average shares plus
effect of dilutive securities $40.7 42,910,615 $0.95 $28.0 44,719,847 $0.63
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
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 $72.8 41,393,258 $1.76 $56.3 43,074,257 $1.31
Effect of dilutive securities
Options -- 1,582,782 -- -- 1,547,716 --
Performance/Restricted stock -- 93,063 -- -- 74,202 --
Warrants -- 2,577 -- -- 6,560 --
Diluted EPS
Net earnings divided by the
weighted average shares plus
effect of dilutive securities $72.8 43,071,680 $1.69 $56.3 44,702,735 $1.26
</TABLE>
(5) Recently Issued Statements Of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for hedging activities and derivative
instruments, including certain derivative instruments embedded in other
contracts. As originally issued, SFAS 133 would have been effective for the
Company beginning January 1, 2000. However, in July 1999 the FASB issued SFAS
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133,"which delays the effective date of
SFAS 133 by one year. SFAS 133 will now become effective for the Company
beginning January 1, 2001. The Company is reviewing the potential impact, if
any, of SFAS 133 on its consolidated results of operations and financial
position.
8
<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 June 30, 2000 and December 31, 1999 consisted
of the following:
June 30, December 31,
2000 1999
---- ----
Finished goods $ 91.5 $ 89.0
Work in process 16.5 17.3
Raw materials & supplies 68.4 65.9
------ ------
176.4 172.2
Less reduction in LIFO cost (32.9) (32.7)
------ ------
$143.5 $139.5
====== ======
(7) Equity in Earnings of Associated Companies
Summarized financial information for the Company's equity in earnings of
associated companies for the three and six months ended June 30, 2000 and 1999
was as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $148.6 $128.1 $312.6 $259.2
Gross profit 33.7 24.6 75.0 57.5
Net income (loss) 6.9 (2.0) 26.7 6.4
------ ------ ------ ------
The Company's equity in earnings (losses) of
associated companies $ 3.5 $ (0.2) $ 10.0 $ 4.0
====== ====== ====== ======
</TABLE>
On May 18, 2000, the Company announced that it had reached a definitive
agreement to sell its 50% interest in Criterion Catalyst Company LP
("Criterion"). For further discussions about the sale of Criterion see Note 14
of the Notes to Consolidated Financial Statements.
(8) Long-Term Debt
At June 30, 2000 and December 31, 1999, the Company's long-term debt consisted
of the following:
June 30, December 31,
2000 1999
---- ----
Credit Facility $106.0 $103.0
Public Debt 319.6 319.5
------ ------
$425.6 $422.5
====== ======
(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
9
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
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 51 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 June 30, 2000 and December 31,
1999, the aggregate environmental related accruals were $118.0 and $122.9,
respectively, of which $20.0 was included in accrued expenses as of both dates,
with the remainder included in other noncurrent liabilities. Environmental
remediation spending for the six months ended June 30, 2000 and 1999 was $6.1
and $7.5, respectively. All accruals have been recorded without giving effect to
any possible future insurance proceeds (see Note 13).
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.
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
10
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
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 and six months ended June 30, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net earnings $40.7 $28.0 $72.8 $56.3
Other comprehensive loss:
Foreign currency translation adjustments 8.7 1.5 12.7 9.5
----- ----- ----- -----
Comprehensive income $32.0 $26.5 $60.1 $46.8
===== ===== ===== =====
</TABLE>
(11) Other Financial Information
Taxes paid for the six months ended June 30, 2000 and 1999 were approximately
$11.2 and $14.8, respectively. Interest paid for the six months ended June 30,
2000 and 1999 was approximately $14.5 and $14.2, respectively.
On January 25, 1999, the Company announced a program to spend up to $100.0 to
repurchase shares of its outstanding common stock. Through June 30, 2000, the
Company had repurchased 3,171,345 shares at a cost of $80.0 under this program
(for further discussions about the share repurchase program see the Liquidity
and Financial Condition section of Management's Discussion and Analysis of
Financial Condition and Results of Operations). The Company expects the timing
of its share repurchase program to be balanced with the related financing
requirements of its long-term growth strategies, including research and
development, global expansion, capital expenditures and opportunities for
acquisitions arising from consolidation in the specialty chemicals and specialty
materials industries.
In connection with the Company's stock repurchase program, during the six months
ended June 30, 2000 the Company sold an aggregate of 400,000 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 holder to sell an aggregate of 400,000 shares of the Company's
common stock to the Company at exercise prices ranging from $23.083 to $24.553
per share. During July and August 2000, 200,000 of the put options expired
unexercised. The remaining 200,000 put options expire in September and December
2000. 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). The 450,000 put options that were outstanding at
December 31, 1999 expired unexercised in February and April 2000.
11
<PAGE>
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 segments for the three and
six months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
Water and Industrial Process Chemicals $102.3 $ 94.4 $198.0 $181.9
Performance Products 123.0 112.4 242.1 219.3
Specialty Materials 107.2 114.6 206.7 234.7
Building Block Chemicals
Sales to external customers 48.0 37.7 94.1 78.4
Intersegment sales 15.2 8.9 28.6 18.9
------ ------ ------ ------
Net sales from segments 395.7 368.0 769.5 733.2
Other revenues -- -- -- 0.1
Elimination of intersegment revenue (15.2) (8.9) (28.6) (18.9)
------ ------ ------ ------
Total consolidated net sales $380.5 $359.1 $740.9 $714.4
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
% of % of % of % of
Earnings from operations Sales Sales Sales Sales
----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Water and Industrial Process Chemicals $11.2 11% $12.3 13% $21.1 11% $21.8 12%
Performance Products 16.0 13% 14.1 13% 31.0 13% 26.0 12%
Specialty Materials 23.6 22% 22.8 20% 42.2 20% 44.3 19%
Building Block Chemicals (0.1) 0% 2.5 5% 3.9 3% 5.1 5%
----- ----- ----- -----
Earnings from segments 50.7 13% 51.7 14% 98.2 13% 97.2 13%
Corporate and Unallocated (1.2) (2.2) (3.0) (3.9)
----- ----- ----- -----
Total consolidated earnings from operations $49.5 13% $49.5 14% $95.2 13% $93.3 13%
===== ===== ===== =====
</TABLE>
(13) Insurance Settlement and Real Estate Sale
During April 2000, the Company entered into a settlement agreement with a group
of insurance carriers in an environmental remediation coverage suit originally
filed in the early 1990's by American Cyanamid Company ("Cyanamid"), a
wholly-owned subsidiary of American Home Products. In December 1993, the Company
was spun off from Cyanamid and later became a plaintiff in the suit.
In connection with the settlement, the Company recorded in the quarter ended
June 30, 2000, in other income, net a pretax gain of $9.1, discounted and net of
expenses, ($5.9 after tax). Payments are expected to be received in eight equal
quarterly installments, with the first payment having already been received
during May 2000. This settlement, together with the settlement of $4.2, net of
expenses, included in this year's first quarter other income, net brings the
total pretax gain from environmental insurance litigation to $13.3, ($8.7 after
tax).
During the quarter ended June 30, 2000, the Company sold real estate at a former
plant site for cash proceeds of approximately $8.3, net of expenses. The sale
resulted in a pre-tax gain of $7.1 ($4.7 after tax), which was recorded in other
income, net.
12
<PAGE>
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except share and per share amounts)
(14) Subsequent Events
During July 2000, the Company sold two subsidiaries, which owned its 50%
interest in Criterion, to its joint venture partner CRI International, Inc., a
company of the Royal Dutch Shell Group, for cash consideration of $60.0. The
proceeds approximate the carrying value of the Company's investment, which is
included in equity in net assets of and advances to associated companies in the
June 30, 2000 and December 31, 1999 Consolidated Balance Sheets.
13
<PAGE>
(Millions of dollars, except share and per share amounts)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Second Quarter of 2000 versus Second Quarter of 1999
Net sales for the second quarter of 2000 were $380.5, compared with $359.1 for
the second quarter of 1999. The increase was primarily due to sales increases in
the Water and Industrial Process Chemicals, Performance Products and Building
Block Chemicals segments of $7.9, $10.6 and $10.3, respectively. This increase
was partially offset by a sales decrease in the Specialty Materials segment of
$7.4.
Net sales in the United States were $206.3 for the second quarter of 2000,
compared with $203.8 for the second quarter of 1999. International net sales
were $174.2 for the second quarter of 2000, or 45.8% of total net sales,
compared with $155.3, or 43.2% of total net sales for the second quarter of
1999.
In the North America region, (i.e., United States and Canada) net sales were
approximately $224.0 for the second quarter of 2000, up 2.1% from the prior year
period. The increase was mainly due to a 2.4% increase in selling prices
(primarily in the Building Blocks Chemicals segment), partially offset by the
adverse effect of exchange rate changes, which reduced sales 0.2% and lower
selling volumes, which reduced sales another 0.1%.
In the Europe/Mideast/Africa region, net sales were $86.5 for the second quarter
of 2000, up 2.2% from the prior year period. Selling volumes, which were up in
all business segments, increased 8.5% and selling prices, which were up in the
Building Blocks Chemicals segment, increased 0.5%. Partially offsetting these
increases were the adverse effect of exchange rate changes, which reduced sales
by about 6.8%.
In the Asia/Pacific region, net sales were $47.0 for the second quarter of 2000,
up 26.0% from the prior year period. Selling volumes, which were up in the Water
and Industrial Process Chemicals, Performance Products and in the Building Block
Chemicals segment, increased 13.2% and selling prices, which were up in the
Building Blocks Chemicals segment, increased 13.0%. Partially offsetting these
increases were the adverse effects of exchange rate changes, which reduced sales
approximately 0.2%.
In the Latin America region, net sales were $23.0 for the second quarter of
2000, up 27.8% from the prior year period. The increase was primarily due to an
increase of approximately 28.4% in selling volumes. Selling volumes increased in
the Water and Industrial Process Chemicals and Performance Products segments.
The increase in the Water and Industrial Process Chemicals segment was mainly
due to the September 1999 acquisition of Inspec Mining Chemicals S.A. ("IMC").
Selling prices increased 3.2%, while the adverse effect of exchange rate changes
reduced sales by about 3.8%.
Manufacturing cost of sales was $267.1 or 70.2% of net sales in the second
quarter of 2000, which as a percentage of sales was up slightly when compared
with $246.9 or 68.8% of net sales for the prior year period. The combined
results of higher raw material costs and unfavorable exchange rate changes
combined to offset the benefits from an increase in selling volumes.
14
<PAGE>
(Millions of dollars, except share and per share amounts)
Selling and technical services expenses were $39.3 for the second quarter of
2000, an increase of $2.0 from the prior year period. The increase was primarily
due to higher selling expenses in the Performance Products segment.
Research and process development expenses were $9.3 for the first quarter of
2000, a decrease of $0.3 from the prior year period. The decrease was due to
lower patent costs, which tend to fluctuate quarter to quarter depending on
activity.
Administrative and general expenses were $12.2 for the second quarter of 2000, a
decrease of $1.0 from the prior year period. The decrease was primarily due to
the inclusion of certain litigation costs last year.
Amortization of acquisition intangibles was $3.1 for the second quarter of 2000,
an increase of $0.5 from the prior year period. The increase was due to the
additional intangibles resulting from the acquisitions of the BOC Gases' global
phosphines fumigant product line, IMC and the amino coatings resins business of
BIP Limited (the "BIP Business").
Other income, net was $16.2 for the second quarter of 2000 and included a pretax
gain of $9.1, discounted and net of expenses, received from an insurance
settlement agreement entered into with a group of insurance carriers in an
environmental coverage suit. The proceeds are expected to be received in eight
equal quarterly installments, with the first payment having already been
received during May 2000. Also, recorded in other income, net during the second
quarter of 2000 was a pretax gain of $7.1 related to the sale of real estate at
a former plant site. For further discussions about the insurance settlement
agreement and the real estate sale see Note 13 of the Notes to Consolidated
Financial Statements.
Equity in earnings of associated companies, which represents the Company's
before-tax share of its 50% owned associates' earnings, was $3.5 for the second
quarter of 2000, an increase of $3.7 from the prior year period. The increase
was primarily due to operational improvements at Criterion Catalyst, relative to
its loss last year. CYRO Industries sales were up, but higher raw material
costs, primarily acetone, offset the benefits of the higher sales volumes.
Interest expense, net was $7.1 for the second quarter of 2000, an increase of
$0.3 from the prior year period. The increase was primarily due to a higher
outstanding debt balance from borrowings to finance acquisitions.
The income tax provision was $21.4 for the second quarter of 2000, which
reflects an underlying effective tax rate of 34.5%, down from 35.0% utilized for
the second quarter of 1999.
Net earnings for the second quarter of 2000 were $40.7, or $0.95 per diluted
share, compared with $28.0, or $0.63 per diluted share for the prior year
period. Included in the second quarter of 2000 was an after-tax gain of $5.9, or
$0.14 per diluted share from an environmental remediation insurance settlement
and an after-tax gain of $4.7, or $0.11 per diluted share from the sale of real
estate at a former plant site. Excluding these items diluted earnings per share
were $0.70 for the second quarter of 2000, an increase of $0.07, or 11.1% from
the prior year period. The period-over-period increase in diluted earnings per
share reflects the sales and earnings growth as well as the favorable effect of
the Company's stock repurchase program.
15
<PAGE>
(Millions of dollars, except share and per share amounts)
Segment Results
Water and Industrial Process Chemicals:
Water and Industrial Process Chemicals sales increased 8.4% to $102.3 and
earnings from operations decreased 8.9% to $11.2.
Sales increased within all four product lines of the segment. For the segment,
selling volumes increased 11.5%, with approximately 4.6 percentage points of the
increase due to the acquisition of IMC. The increase in selling volumes was
partially offset by lower selling prices, which were down about 0.5%, and the
adverse effects of exchange rate changes, which reduced sales by about 2.6%.
The lower earnings from operations were primarily the result of higher raw
material costs, primarily propylene, and unfavorable exchange rate changes,
particularly in Europe, more than offsetting the benefits from higher selling
volumes and lower operating costs. As previously announced, the Company is
reviewing strategic options for the paper chemicals product line.
Performance Products:
Performance Products sales increased 9.4% to $123.0 and earnings from operations
increased 13.5% to $16.0.
Sales increased within all three product lines of the segment. For the segment,
selling volumes increased 12.4%, with approximately 4.9 percentage points of the
increase due to the acquisition of the BIP Business. The increase in selling
volumes was partially offset by lower selling prices, which were down about
0.1%, and the adverse effects of exchange rate changes, which reduced sales by
about 2.9%.
The improved earnings from operations were primarily the result of higher
selling volumes, increased manufacturing productivity and certain licensing
fees, partially offset by higher raw material costs, lower selling prices and
the adverse effects of exchange rate changes.
Specialty Materials:
Specialty Materials sales decreased 6.5% to $107.2 and earnings from operations
increased 3.5% to $23.6.
Selling volumes decreased 5.0% primarily due to lower Boeing commercial aircraft
build rates and the transition from carbon to glass fiber composites for certain
aircraft interiors. The divestiture of the engineered molding compounds product
line and the adverse effects of exchange rate changes reduced sales another 1.0%
and 0.5%, respectively.
The improved earnings from operations were primarily the result of a favorable
product mix, lower raw material costs and the continuing benefits of
manufacturing rationalization programs, partially offset by the negative impact
from lower selling volumes.
Building Block Chemicals:
Building Block Chemicals sales to external customers were $48.0, an increase of
27.3% from the previous year period. Sales were favorably impacted by a sharp
increase in acrylonitrile selling prices, as improved demand and lower global
production due to plant turnarounds have caused a tight acrylonitrile market.
16
<PAGE>
(Millions of dollars, except share and per share amounts)
However, the cost of propylene, the key raw material for acrylonitrile, has
risen faster than selling prices. As a result, earnings from operations were
essentially breakeven, (i.e., a negative $0.1), for the quarter, compared to
$2.5 for the same period last year.
For the segment overall, selling prices increased 31.4%, while the adverse
effects of exchange rate changes and lower selling volumes reduced sales 2.6%
and 1.5%, respectively. Selling volumes were lower primarily due to the
divestiture of the Company's methanol business during the fourth quarter of
1999.
First Half of 2000 versus First Half of 1999
Net sales for the first half of 2000 were $740.9, compared with $714.4 for the
first half of 1999. The increase was primarily due to sales increases in the
Water and Industrial Process Chemicals, Performance Products and Building Block
Chemicals segments of $16.1, $22.8 and $15.7, respectively. These increases were
partially offset by a sales decrease in the Specialty Materials segment of
$28.0.
Net sales in the United States were $401.6 for the first half of 2000, compared
with $410.0 for the first half of 1999. International net sales were $339.3 for
the first half of 2000, or 45.8% of total net sales, compared with $304.4, or
42.6% of total net sales for the first half of 1999.
In the North America region, (i.e., United States and Canada) net sales were
approximately $435.3 for the first half of 2000, down 1.6% from the prior year
period. The decrease was primarily due to a 2.5% decrease in selling volumes and
the adverse effect of exchange rate changes, which reduced sales 0.2%. The
decrease in selling volumes was in the Specialty Materials and Building Block
Chemicals segments. This decrease was partially offset by an increase in selling
prices, which were up about 1.1%.
In the Europe/Mideast/Africa region, net sales were $169.6 for the first half of
2000, up 1.6% from the prior year period. Selling volumes, which were up in the
Water and Industrial Process Chemicals, Performance Products and Building Block
Chemicals segments, increased 8.5%. The increase in selling volumes was
partially offset by lower selling prices, which were down about 0.1%, and the
adverse effect of exchange rate changes, which reduced sales another 6.8%.
In the Asia/Pacific region, net sales were $92.0 for the first half of 2000, up
31.4% from the prior year period. Selling volumes, which were up in the Water
and Industrial Process Chemicals, Performance Products and in the Building Block
Chemicals segments, increased approximately 19.6% and selling prices, which were
up in the Building Blocks Chemicals segment, increased 11.1%. The favorable
effects of exchange rate changes also increased sales by approximately 0.7%.
In the Latin America region, net sales were $44.0 for the first half of 2000, up
25.0% from the prior year period. The increase was primarily due to a 25.5%
increase in selling volumes. Selling volumes were up in the Water and Industrial
Process Chemicals and Performance Products segments. The increase in the Water
and Industrial Process Chemicals segment was mainly due to the September 1999
acquisition of Inspec Mining Chemicals S.A. ("IMC"). Selling prices increased
1.8%, while the adverse effect of exchange rate changes reduced sales by about
2.3%.
Manufacturing cost of sales was $518.4 or 70.0% of net sales in the first half
of 2000, which as a percentage of sales was up slightly when compared with
17
<PAGE>
(Millions of dollars, except share and per share amounts)
$496.9 or 69.6% of net sales for the prior year period. The combined results of
higher raw material costs and unfavorable exchange rate changes slightly offset
the benefits of increased production due to an increase in selling volumes,
plant productivity improvements and manufacturing rationalization programs.
Selling and technical services expenses were $78.7 for the first half of 2000,
an increase of $4.2 from the prior year period. The increase was primarily due
to higher selling expenses in the Performance Products segment.
Research and process development expenses were $18.9 for the first half of 2000,
a decrease of $0.9 from the prior year period. The decrease was due to lower
patent costs, which tend to fluctuate depending on activity.
Administrative and general expenses were $23.6 for the first half of 2000, a
decrease of $1.0 from the prior year period. The decrease was primarily due to
the inclusion of certain litigation costs last year.
Amortization of acquisition intangibles was $6.1 for the first half of 2000, an
increase of $0.8 from the prior year period. The increase was due to the
additional intangibles resulting from the acquisitions of the BOC Gases' global
phosphines fumigant product line, IMC and the BIP Business.
Other income, net was $20.3 for the first half of 2000 and included a pretax
gain of $13.3, discounted and net of expenses, received from insurance
settlement agreements entered into with a group of insurance carriers in an
environmental coverage suit. Part of the proceeds are scheduled to be received
in eight equal quarterly installments, with the first payment having already
been received during May 2000. Also, recorded in other income, net during the
first half of 2000 was a pretax gain of $7.1 related to the sale of real estate
at a former plant site. For further discussions about the insurance settlement
agreements and the real estate sale see Note 13 of the Notes to Consolidated
Financial Statements. Other income, net was $2.9 for the first half of 1999 and
included approximately $3.8 of gains from divested product lines.
Equity in earnings of associated companies, which represents the Company's
before-tax share of its 50% owned associates' earnings, was $10.0 for the first
half of 2000, an increase of $6.0 from the prior year period. The increase was
primarily due to operational improvements at Criterion Catalyst, relative to its
loss last year. CYRO Industries sales were up, but higher raw material costs,
primarily acetone, offset the benefits of the higher sales volumes.
Interest expense, net was $14.4 for the first half of 2000, an increase of $0.8
from the prior year period. The increase was primarily due to a higher
outstanding debt balance from borrowings to finance acquisitions.
The income tax provision was $38.3 for the first half of 2000, which reflects an
underlying effective tax rate of 34.5%, down from 35.0% utilized for the first
half of 1999.
Net earnings for the first half of 2000 were $72.8, or $1.69 per diluted share,
compared with $56.3, or $1.26 per diluted share for the prior year period.
Included in the first half of 2000 was an after-tax gain of $8.7, or $0.20 per
diluted share from environmental remediation insurance settlements and an
after-tax gain of $4.7, or $0.11 per diluted share from the sale of real estate
at a former plant site. Excluding these items diluted earnings per share were
$1.38 for the first half of 2000, an increase of $0.12, or 9.5% from the prior
year period. The period-over-period increase in diluted earnings per share
reflects
18
<PAGE>
(Millions of dollars, except share and per share amounts)
the sales and earnings growth as well as the favorable effect of the Company's
stock repurchase program.
Segment Results
Water and Industrial Process Chemicals:
Water and Industrial Process Chemicals sales increased 8.9% to $198.0 and
earnings from operations decreased 3.2% to $21.1.
Sales increased within all four product lines of the segment. For the segment,
selling volumes increased 12.3%, with approximately 4.9 percentage points of the
increase due to the acquisition of IMC. The increase in selling volumes was
partially offset by lower selling prices, which were down about 1.1%, and the
adverse effects of exchange rate changes, which reduced sales by about 2.3%.
The lower earnings from operations were primarily the result of higher raw
material costs, primarily propylene, lower selling prices and unfavorable
exchange rate changes, particularly in Europe, slightly offset by the benefits
from higher selling volumes and lower operating costs.
Performance Products:
Performance Products sales increased 10.4% to $242.1 and earnings from
operations increased 19.2% to $31.0.
Sales increased within all three product lines of the segment. For the segment,
selling volumes increased 13.9%, with approximately 4.8 percentage points of the
increase due to the acquisition of the BIP Business. The increase in selling
volumes was partially offset by lower selling prices, which were down about
0.9%, and the adverse effects of exchange rate changes, which reduced sales by
about 2.6%.
The improved earnings from operations were primarily the result of higher
selling volumes, increased manufacturing productivity and certain licensing
fees, partially offset by higher raw material costs, lower selling prices and
the adverse effects of exchange rate changes.
Specialty Materials:
Specialty Materials sales decreased 11.9% to $206.7 and earnings from operations
decreased 4.7% to $42.2.
Selling volumes decreased 10.6% primarily due to lower Boeing commercial
aircraft build rates and the transition from carbon to glass fiber composites
for certain aircraft interiors. Lower selling prices, the divestiture of the
engineered molding compounds product line and the adverse effects of exchange
rate changes reduced sales another 0.3%, 0.7% and 0.3%, respectively.
The lower earnings from operations were primarily the result of lower sales
volumes and slightly lower selling prices, partially offset by favorable product
mix, lower raw material costs and the continuing benefits of manufacturing
rationalization programs.
Building Block Chemicals:
Building Block Chemicals sales to external customers were $94.1, an increase of
20.0% from the previous year period. Sales were favorably impacted by a sharp
19
<PAGE>
(Millions of dollars, except share and per share amounts)
increase in acrylonitrile selling prices, as improved demand and lower global
production due to plant turnarounds have caused a tight acrylonitrile market.
However, the cost of propylene, the key raw material for acrylonitrile, has
risen faster than selling prices. As a result, earnings from operations
decreased 23.5% to $3.9.
For the segment overall, selling prices increased 22.8%, while the adverse
effects of exchange rate changes and lower selling volumes reduced sales
approximately 2.4% and 0.4%, respectively. Selling volumes were lower primarily
due to the divestiture of the Company's methanol business during the fourth
quarter of 1999.
Liquidity and Financial Condition
At June 30, 2000, the Company's cash balance was $7.4, a decrease of $4.6 from
year-end 1999.
Net cash flows provided by operating activities totaled $49.7 for the six months
ended June 30, 2000, compared with $85.5 for the six months ended June 30, 1999.
The decrease in operating cash was due primarily to higher working capital
levels, partially offset by higher net earnings. Trade receivables increased due
to higher net sales and other receivables increased $9.6 due to the
environmental remediation insurance settlements, which is payable over the next
two years. Inventory increased as a result of the timing of certain production
campaigns and inventory build-ups in anticipation of ending certain tolling
arrangements, as well as in anticipation of summer-month maintenance shutdowns
at certain plants.
Net cash flows used for investing activities totaled $22.7 for the six months
ended June 30, 2000, compared with $33.6 for the six months ended June 30, 1999.
Included in 2000 were proceeds received of $9.9 from the sale of former plant
sites. Included in 1999 was funding of $4.0 for the acquisition of assets from
the Nottingham Company's industrial minerals product line, offset by proceeds
received of $8.0 from the sale of the molding compounds product line and from
the sale of other assets. Capital additions for the six months ended June 30,
2000 were $32.6, compared with $37.6 for the same period last year. For the full
year 2000, the Company expects capital spending to be in the range of $100.0 to
$105.0.
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 2000.
Net cash flows used for financing activities totaled $30.8 for the six months
ended June 30, 2000, compared with $24.9 for the six months ended June 30, 1999.
In connection with the stock repurchase program discussed below, during the six
months ended June 30, 2000, the Company purchased 1,387,300 shares of treasury
stock at a cost of $37.5. This compares with the purchase of 518,545 shares of
treasury stock at a cost of $13.0 during the six months ended June 30, 1999.
Also, during the six months ended June 30, 1999, $10.3 of foreign currency
denominated short-term borrowings were paid-off.
The Company has $106.0 of outstanding borrowings under its $200.0 Credit
Facility. On July 14, 2000, the Company terminated a second credit facility
dated August 20, 1999. The credit facility also provided up to $200.0 in
unsecured revolving loans for general corporate purposes. During its term, no
borrowings were made under the second credit facility.
20
<PAGE>
(Millions of dollars, except share and per share amounts)
Through June 30, 2000, the Company had repurchased 3,171,345 shares at a cost of
$80.0 under its $100.0 stock repurchase program. At June 30, 2000, $100.1 was
available for stock repurchases under the terms of the Company's Series C
Cumulative Preferred Stock ("Series C Stock") and a January 1999 agreement with
American Cyanamid Company ("Cyanamid"), a wholly-owned subsidiary of American
Home Products Corporation and holder of the Series C Stock, by which Cyanamid
irrevocably waived certain financial covenants contained in the Series C Stock.
The Company expects the timing of its share repurchase program to be balanced
with the related financing requirements of its long-term growth strategies,
including research and development, global expansion, capital expenditures and
opportunities for acquisitions arising from consolidation in the Specialty
Chemicals and Specialty Materials industry. In connection with the Company's
stock repurchase program, the Company periodically sells put options entitling
the holder to sell shares of the Company's common stock to the Company. For
further information about the put options see Part II, Item 2, Changes in
Securities and Use of Proceeds.
During July 2000, the Company sold two subsidiaries, which owned its 50%
interest in Criterion Catalyst Company LP, to its joint venture partner CRI
International, Inc., a company of the Royal Dutch Shell Group, for cash
consideration of $60.0. The proceeds approximate the carrying value of the
Company's investment, which is included in equity in net assets of and advances
to associated companies in the June 30, 2000 and December 31, 1999 Consolidated
Balance Sheets. The total value of the transaction, including 50% of Criterion's
debt and other future considerations, is approximately $100.0.
Management of AC Moldings Compounds, a partnership between a subsidiary of the
Company and Creative Moldings Ltd., is preparing a restructuring plan to reduce
the Partnership's expenses in line with the substantial reduction in the
Partnership's sales. The Company cannot predict when the restructuring plan will
be implemented or whether it will be successful.
LaRoche Industries Inc. and LaRoche Fortier Inc., the Company's partner in
Avondale Ammonia Company, filed for bankruptcy under Chapter 11 during May 2000.
The Company is evaluating the effect of LaRoche's bankruptcy filing on the joint
venture operations.
OTHER
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.
21
<PAGE>
(Millions of dollars, except share and per share amounts)
The Company does not believe that the introduction of the euro notes and coins
as well as the withdrawal of participating currency notes and coins, which is
scheduled to begin January 1, 2002, will result in any gains or losses since
conversion rates to the euro for participating countries were irrevocably fixed
as of January 1, 1999. The Company believes that some information systems
modifications are required by the end of the transition period in order for them
to be euro compliant. The Company's current estimate is that it will incur
system modification costs of approximately $0.3 and that the modifications will
be completed by the end of the third quarter of 2001. The Company does not
currently believe that the euro conversion will have a material operational
impact.
Comments on Forward-Looking Statements
A number of the statements made by the Company in the 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 2000 and beyond, the accretiveness of acquisitions, the
financial effects of divestitures, 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 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; changes in demand
for the Company's products or in the costs and availability of its raw
materials; the actions of competitors; the financial condition of joint venture
partners; 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; the results of and recoverability of investments in associated
companies and other unforseen circumstances. A number of these factors are
discussed in the Company's filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of market risks at year-end, refer to Item 7a of the Company's
1999 Annual Report on Form 10-K for the year ended December 31, 1999, filed with
the Securities and Exchange Commission on March 30, 2000 and incorporated by
reference herein. During 2000, the Company executed various financial instrument
transactions which do not give rise to significant market risk and thereby do
not materially alter the market risk assessment performed as of December 31,
1999. Included among those transactions are the following:
In connection with the Company's stock repurchase program, during the six
months ended June 30, 2000 the Company sold an aggregate of 400,000 put
options. The put options entitle the holder to sell an aggregate of
400,000 shares of the Company's common stock to the Company at exercise
prices
22
<PAGE>
(Millions of dollars, except share and per share amounts)
ranging from $23.083 to $24.553 per share. During July and August 2000,
200,000 of the put options expired unexercised. The remaining 200,000 put
options expire in September and December 2000. The Company received
premiums of approximately $0.6 on the sale of such options. In addition,
the 450,000 put options that were outstanding at December 31, 1999 expired
unexercised in February and April 2000. For a further discussion, see Note
11 of the Notes to Consolidated Financial Statements and further
discussion in the Liquidity and Financial Condition section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A").
23
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In connection with the 1993 Spin-off from American Cyanamid Company
("Cyanamid"), a wholly-owned subsidiary of American Home Products Corporation,
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 related to Fiberite's business. As a result, although
Cyanamid or Fiberite is the named defendant in cases commenced 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 37 cases pending in state courts in Brazoria,
Galveston, Jefferson and Nueces 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. Two of the cases involves several hundred plaintiffs, while the
remainder involve substantially fewer plaintiffs. All of these cases involve
multiple defendants. The Company believes that its involvement in all but seven
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 13 suits pending in California Superior Court in
Orange, Alameda, Los Angeles and San Francisco 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 a group of 32 randomly selected members of the class) was
completed in July 1998. In December, 1998 the trial court signed a Judgment
recalling the Court's prior Class Action Certification Order and dismissing all
Class Action claims. The Judgment also dismissed, with prejudice, the claims of
the six named plaintiffs whose cases had been tried in July. That decision was
affirmed on appeal. The case continues as a non-class action on behalf of the
other named plaintiffs.
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
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 six class actions filed in St. Charles
Parish Court, Louisiana on behalf of persons who allegedly sustained injury as a
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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 classes 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 13 cases pending in state and federal
courts in the states of New York, Ohio, Maryland, Rhode Island, Missouri,
California, Texas, Illinois and Wisconsin. The suits have been brought by
governmental entities and individual plaintiffs, on behalf of themselves and
others. The suits variously seek damages for the cost of removing lead-based
paints from buildings; for personal injuries allegedly caused by ingestion of
lead-based paints; the cost of monitoring, detecting and abating lead paint; the
cost of educating the public about lead paint; compensatory and punitive
damages; the cost of providing health care and special education to children
harmed by lead poisoning; and plaintiffs' attorneys' fees. The Company is named
a defendant as the alleged successor to MacGregor Lead Company from which the
Company purchased certain assets in 1971. The Company denies it is a successor
to MacGregor Lead Company.
The Company is one of several defendants in six suits filed in New Jersey State
Courts in Essex and Middlesex Counties 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 35 suits filed
in Louisiana state courts in St. Bernard, Orleans, Webster and Jefferson
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 prepreg industry. The Company has no reason to believe that it is a
target of the grand jury investigation. As a result of the Grand Jury
Investigation, the Company and the other companies subpoenaed to testify before
the grand jury, are defendants in an antitrust class action filed in the U.S.
District Court for the Central District of California on behalf of purchasers of
carbon fiber, which the complaint defined to include prepregs manufactured from
carbon fiber. The complaint alleges that the defendants, manufacturers of carbon
fiber and/or prepregs manufactured therefrom, conspired to fix the prices of
their products.
The Company is a party to an arbitration arising out of an agreement pursuant to
which the Company licensed certain technology. The Licensor alleges that the
Company is obligated to commercialize the licensed technology and compensate the
Licensor with royalty payments set forth in the agreement. The Company
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maintains that commercialization is not feasible and that it has met all its
obligations.
See also the first four paragraphs of "Environmental Matters" under Item 1 of
the Company's 1999 Annual Report on Form 10-K, which is incorporated by
reference herein, and Note 9 of the Notes to the Consolidated Financial
Statements (unaudited) on Part I, item (1).
In addition to liabilities with respect to the specific cases described
previously, because the production of certain chemicals involves the use,
handling, processing, storage, transportation and disposal 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 past events.
Item 2. Changes in Securities and Use of Proceeds
In connection with the Company's stock repurchase program, during the six months
ended June 30, 2000 the Company sold an aggregate of 400,000 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 holder to sell an aggregate of 400,000 shares of the Company's
common stock to the Company at exercise prices ranging from $23.083 to $24.553
per share. During July and August 2000, 200,000 of the put options expired
unexercised. The remaining 200,000 put options expire in September and December
2000. 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). The 450,000 put options that were outstanding at
December 31, 1999 expired unexercised in February and April 2000.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of Common Stockholders on May 8, 2000. At
this meeting, the only substantive matter voted on was the election of
Directors.
J. E. Akitt and F. W. Armstrong were each elected Directors at the Annual
Meeting for a three-year term ending in 2003 by the following margins:
Name Votes For Votes Withheld
---- --------- --------------
J. E. Akitt 36,992,426 384,082
F. W. Armstrong 36,989,671 386,837
In addition, 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.
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The terms of office as a Director of C. A. Davis, D. D. Fry, D. Lilley, W. P.
Powell and J. R. Satrum continued after the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
See Exhibit Index on page 29 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 second quarter
of 2000.
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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
August 11, 2000
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Exhibit Index
-------------
10.12(j) Cytec Excess Retirement Benefit Plan, as amended through May 11,
2000.
10.12(k) Cytec Supplemental Employees' Retirement Plan, as amended through
April 13, 2000.
12 Computation of Ratio of Earnings to Fixed Charges for the three and
six months ended June 30, 2000 and 1999
27 Financial Data Schedule
99 Material Incorporated by reference from Annual Report on Form 10-K
29
