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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
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(Exact name of registrant as specified in its charter)
Delaware 22-3268660
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Garret Mountain Plaza
West Paterson, New Jersey 07424
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 357-3100
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
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Common Stock, par value which registered
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$.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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.___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
There were 40,310,576 shares of common stock outstanding on February 1, 2001.
Non-affiliates held 40,075,144 of these shares with an aggregate market value of
$1,281,603,105 based on the closing price ( $31.98) of such stock on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Part of Form 10-K
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Portions of Proxy Statement for 2001 Annual Meeting Parts III, IV
of Common Stockholders, dated March 29, 2001.
COMMENTS ON FORWARD-LOOKING STATEMENTS
A number of the statements made by the Company in this Annual Report on
Form 10-K, or in other documents, including, but not limited to, the Company's
Annual Report to Stockholders, its press releases and in its 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 2001 and beyond, the accretiveness of acquisitions, the
financial effects of divestitures, pricing trends, the effects of changes in
foreign exchange rates 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 expectations, 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 global and regional economies; changes
in demand for the Company's products or in the costs and availability of its raw
materials; the actions of competitors; exchange rate fluctuations; 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 unforeseen circumstances. A number of these
factors are discussed in this and other of the Company's filings with the
Securities and Exchange Commission.
PART I
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Item 1. Business
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The Company is a global specialty chemicals and materials company which
focuses on value-added products. The Company serves major markets for water and
wastewater treatment, mining, automotive and industrial coatings, plastics,
chemical intermediates and aerospace adhesives and advanced composites. The
Company has manufacturing facilities in nine countries and sells its products
worldwide. The Company had net sales of $1,492.5 million and earnings from
operations of $176.6 million in 2000. In addition, the Company has a 50%
interest in each of three unconsolidated associated companies, and a one-third
interest in a fourth; and had a 50% interest in a fifth, Criterion Catalyst
Company LP, through July 10, 2000. The associated companies had aggregate net
sales of $496.3 million and gross profit of $99.1 million in 2000. The Company
reported $15.0 million of equity in earnings of associated companies in 2000.
The Company operates in four segments: Water and Industrial Process
Chemicals, Performance Products, Specialty Materials and Building Block
Chemicals. Water and Industrial Process Chemicals principally include water
treating chemicals, mining chemicals and phosphine chemicals and before November
2000, paper chemicals. Performance Products principally include coatings and
performance chemicals and polymer additives. Specialty Materials principally
include aerospace materials and, before January 1999, molding compounds.
Building Block Chemicals principally include acrylonitrile, acrylamide, ammonia,
hydrocyanic acid, melamine and sulfuric acid. Since early 2000 the Company has
characterized its businesses as platform businesses and value businesses.
Platform businesses are those businesses the Company believes have a competitive
advantage to grow organically and by extension through strategic acquisitions.
The Company expects these businesses to have sales growth over a business cycle
considerably in excess of growth in gross domestic product. The Company also
expects its platform businesses will
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need investment in research and development and possibly in capital to increase
global capacity to support sales growth. Value businesses are those businesses
without the same growth characteristics and which are expected to build sales
and profit growth through greater focus on manufacturing productivity. Value
businesses will be expected to provide significant free cash flow and to
increase their economic value with a greater focus on asset management. The
Company's platform businesses are water treating chemicals, mining chemicals,
phosphine chemicals, coating and performance chemicals and specialty materials.
The Company's value businesses are polymer additives and building block
chemicals.
The Company's management regularly reviews the business portfolio of the
Company in terms of strategic fit and financial performance and may from time-
to-time dispose of products or product lines and/or acquire additional products
or technologies. The Company completed two divestitures during 2000 and
completed four acquisitions and one divestiture during 1999. See Note 2 of the
Notes to the Consolidated Financial Statements included in Item 8.
Unless indicated otherwise, the term "Company" refers collectively to Cytec
Industries Inc. and its subsidiaries. Cytec was incorporated as an independent
public company in December 1993.
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Water and Industrial Process Chemicals Segment
The Water and Industrial Process Chemicals segment had net sales to
external customers of approximately $403.1 million in 2000 and $387.5 million in
1999, or approximately 27.0% and 26.8%, respectively, of the Company's net sales
in such years. Sales of the paper chemicals product line are included in these
figures through October 2000.
Set forth below are the Company's primary product lines and major
products in the Water and Industrial Process Chemicals segment, and their
principal applications.
PRODUCT LINE MAJOR PRODUCTS PRINCIPAL APPLICATIONS
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Water treating chemicals/(1)/ flocculants, coagulants, filter - Water and wastewater treatment, oil field
aids, drilling mud additives, drilling
biocides
Mining chemicals/(1)/ Reagents, promoters, - Mineral, sulfide ore, alumina and coal
collectors, frothers, processing
flocculants, defoamers,
depressants, filter aids
Phosphine chemicals Phosphine and phosphine - Metal and mineral separation, catalysts,
derivatives, including mineral electronics, chemical and pharmaceutical
extractants, catalyst ligands, processing and agricultural fumigants
chemical and pharmaceutical
intermediates, electronics, fumigation
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/(1)/ Sales of this product line are also made by Mitsui Cytec, Ltd. ("Mitsui
Cytec"), an unconsolidated associated company owned 50% by Mitsui
Chemicals Inc. See "Associated Companies."
Water Treating Chemicals
Cytec's water treating chemicals product line consists primarily of the
manufacture and sale of flocculants for use as coagulants in the treatment of
municipal drinking water and industrial influent water supplies, as sewage
conditioners for municipal wastewater treatment, as treatments in industrial
waste streams to remove suspended solids and as drilling mud conditioners for
oil service companies. Flocculants are synthetic water soluble polymers utilized
primarily in liquid-solid separation processes (i.e., separating solid waste or
particulate matter from water). Increased demand for clean water, environmental
regulations and regional and global economic development have increased demand
for the Company's water treating chemicals. Although Cytec sold its paper
chemicals product line in two separate transactions in late 2000, it retained
all of its production facilities, which are also used in its water treating and
mining chemicals product lines, and Cytec now produces paper chemicals under
long term supply agreements for the purchasers of its paper chemicals product
line. Cytec also retained its paper waste water treating product line, one of
the segment's fastest growing applications. Cytec expects to complete expansions
at its Mobile, Alabama and Bradford, England plants during the first half of
2001.
Competition is generally intense in wastewater treatment applications,
particularly for municipal accounts, where contracts generally are awarded on a
competitive bid basis, and for those industrial
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applications where technical service is not an important factor. Cytec markets
its water treating chemicals through a specialized sales and technical services
staff and also through distributors and resellers.
Mining Chemicals
Cytec's mining chemicals product line consists principally of reagents,
promoters, collectors, frothers, depressants and flocculants, and are used
primarily in applications to separate minerals from raw ores. The Company has
leading positions in the copper processing industry, particularly in the
flotation of sulfide ores, and in the alumina processing industry, where its
patented HxPams are particularly effective at the flocculation of "red mud". The
Company also manufactures and sells phosphine chemicals specialty reagents with
leading positions in cobalt/nickel separation and copper sulfide recovery
applications. The Company has expanded its product offerings through the
acquisitions of three mining chemicals businesses in the past three years: the
OREPREP minerals processing reagents product line from Baker Petrolite
Corporation and Inspec Mining Chemicals S.A., a subsidiary of LaPorte plc, and
the industrial minerals product line of Nottingham Company. The Company is now
marketing globally products previously offered regionally by the acquired
businesses. Demand for mining chemicals is cyclical and varies with industry
conditions for the particular minerals with respect to which the Company's
products have processing applications. The Company's mining chemicals product
lines are marketed primarily through a specialized sales and technical services
staff.
Phosphine Chemicals
The Company manufactures and sells phosphine gas and phosphine derivatives
for a variety of applications. The Company is the largest supplier of ultra-high
purity phosphine gas, used in semiconductor manufacturing and light emitting
diode applications, and has significant positions in various phosphine
derivative products including phosphonium salts used in pharmaceutical catalysts
and biocides. In 1999, the Company acquired assets of the global phosphine
fumigants product line from BOC Group Inc. Sales of phosphine fumigants are
dependent upon obtaining and maintaining necessary registrations and approvals
from applicable regulatory agencies. The Company received regulatory approvals
from the United States Environmental Protection Agency to market phosphine
fumigants for non-food applications at the end of 1999 and for food applications
in mid-2000. The Company is now marketing phosphine fumigants in the US as an
alternative to methyl bromide, which is required to be phased out by the end of
2004 due to its ozone depleting characteristics. The Company is also seeking
additional registrations in other countries.
Performance Products Segment
The Performance Products segment had net sales to external customers of
approximately $474.0 million in 2000 and $449.8 million in 1999, or
approximately 31.8% and 31.1%, respectively, of the Company's net sales in such
years. Set forth below are the Company's primary performance products product
lines, major products and their principal applications:
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PRODUCT LINE MAJOR PRODUCTS PRINCIPAL APPLICATIONS
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Coatings and performance Melamine and urea - High performance automotive, appliance,
chemicals/(1)/ cross-linkers, urethane metal container and metal coil coatings,
chemicals, surfactants and paint finishes for plastic, wood and metal;
acrylamide-based specialty radial tire adhesion promoters; emulsion
monomers polymers and coatings
Polymer additives Ultraviolet light absorbers - Plastics, coatings, fibers
and stabilizers,
antioxidants
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/(1)/ Sales of this product line are also made by Mitsui Cytec. See "Associated
Companies."
Coatings and Performance Chemicals
The Company believes that it is the largest global supplier of amino
coating resins ("Resins"), which the Company markets primarily for industrial
coatings applications under the CYMEL(R) trademark. Since its acquisition of
Dyno Industrier ASA's 50% interest in Dyno-Cytec in July 1998, the Company sells
Resins worldwide, except in Japan where Resins are manufactured and sold by
Mitsui Cytec, to manufacturers producing coatings for automotive, marine, wood
and metal finishings, and appliances, containers, coils and general industrial
maintenance coatings. The Company further expanded its Resins product line with
the acquisition of the amino coating resins business of BIP Limited in October
1999. In connection with the BIP acquisition, the Company expects to complete
expansion of its Resins production capacity at its Atequiza, Mexico plant in the
first half of 2001 and expansion of its Resins production capacity at its
Lillestrom, Norway plant in the second half of 2001. The Company also
manufactures a line of adhesion promoters under the CYREZ(R) trademark. Adhesion
promoters are used globally in the rubber industry, the major application being
in the manufacture of tires. Many of the Company's Resins and adhesion promoters
are manufactured using melamine, one of the Company's building block chemicals.
The Company is a leading global supplier of acrylamide based specialty
monomers and sulfosuccinate surfactants. These products are used in emulsion
polymers, paints, paper coatings, printing inks, varnishes, agricultural
chemicals, adhesives, textiles, mining chemicals, laundry dry cleaning
compounds, nonwoven binders, laxatives, thermoplastic molded components,
multipurpose cleaning solutions, and antistatic softening agents. The Company
completed a major expansion of its surfactants manufacturing facility at its
Willow Island, West Virgina plant during 1998 which allowed the Company to close
its Linden, New Jersey plant and increase overall surfactants manufacturing
capacity.
The Company also manufactures and markets urethane chemicals and urethane
systems and parts. The Company's urethane chemicals are sold primarily for use
in high performance coating applications and inks and adhesives and urethane
systems and parts are sold primarily for use in electrical applications.
The Company markets coating and performance chemicals through three sales
and technical service staffs which focus on coatings, emulsion polymers and
adhesives, inks and specialties, respectively. Sales are made directly to large
customers and through distributors to smaller customers.
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Polymer Additives
The Company is a significant global supplier to the plastics industry
of specialty additives which protect plastics from the ultraviolet radiation of
sunlight and from oxidation. Typical end use applications of the Company's
products include a wide variety of polyolefins which are used in agricultural
films, toys, lawn furniture and automotive applications, fibers for carpets,
spandex applications, engineered plastics and automotive coatings.
Demand for light stabilizers and high performance antioxidants for
plastics and coatings has been growing primarily due to increasing manufacturer
and consumer expectations for the service life of plastics and coatings and the
replacement of metal and other materials with plastics in certain automotive
applications and in outdoor toys and lawn furniture. Ciba Specialty Chemicals AG
is the dominant competitor in this segment. The Company completed two capacity
expansions in the polymer additives product line in 1998: a new benzotriazole
light stabilizer plant in Botlek, The Netherlands and an expanded hindered amine
light stabilizer plant in Willow Island, West Virginia.
The Company markets polymer additives through a global sales and
technical service staff directly to large customers and through distributors to
smaller customers. The Company owns a one-third interest in
PolymerAdditives.com, LLC, a business-to-business Internet joint venture formed
by the Company, GE Specialty Chemicals, Inc. and Albemarle Corporation.
PolymerAdditives.com offers customers the convenience of purchasing a variety of
brand name polymer additives, including the Company's light stabilizers and
antioxidants, from one source with one order.
Specialty Materials Segment
The Specialty Materials segment had net sales to external customers of
approximately $411.6 million in 2000 and $435.7 million in 1999, or
approximately 27.6% and 30.2%, respectively, of the Company's net sales in such
years. The specialty materials segment principally manufactures and sells
aerospace materials that are used mainly in commercial and military aviation,
satellite and launch vehicles, and aircraft brakes.
Aerospace Materials
The Company is the major global supplier of aerospace structural
adhesives and one of two major suppliers of aerospace advanced composite
materials. Advanced composites are exceptionally strong and lightweight
materials manufactured by impregnating fabrics and tapes made from high
performance fibers with epoxy, bismaleimide, phenolic, polyimide and other
resins formulated or purchased by the Company. Advanced composites accounted for
approximately 22%, 25% and 26% of the Company's 2000, 1999, and 1998 net sales,
respectively.
The primary applications for both aerospace adhesives and advanced
composites are commercial and military aerospace programs. Sales are dependent
to a large degree on the commercial and military aircraft build rate and the
number of applications and aircraft programs for which the Company is a
qualified supplier. Every major commercial and military airframe program in the
Western world has qualified and uses the Company's products. Especially
important are the current programs for the F-16 and F-18 fighters and the C-17
transport aircraft. Sales to The Boeing Company and its subcontractors for
commercial and military aerospace and other components were approximately $153.4
million or 10.3% of consolidated net sales in 2000 and approximately $176.5
million or 12.2% of consolidated net sales in 1999. The decline in sales to
Boeing and its subcontractors was the result primarily of a significant decline
in demand for large commercial airliners and also a shift to less expensive
glass fibers from more expensive carbon fibers in some interior applications.
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Advanced composites generally account for a higher percentage of the
structural weight on military aircraft than on commercial aircraft. They also
account for a higher percentage of the structural weight on newer design
commercial aircraft than older design commercial aircraft as technology
progresses and manufacturers design planes to achieve greater fuel efficiency.
Advanced composites made from carbon fibers and epoxy or bismaleimide resins are
primarily used for structural aircraft applications such as wing, tail and
rudder components, engine housings, and fuselage components while advanced
composites made from fiberglass and phenolic resins are primarily used for
interior aircraft applications such as sidewall, ceiling and floor panels and
storage and cargo bins. The Company's structural adhesives and advanced
composites also have various applications in industrial, high performance
automotive and selected recreational products. In addition, the Company's
ablatives are used in manufacturing rocket nozzles and the Company's
carbon/carbon braking products are used in manufacturing aircraft and other high
performance brakes.
The Company purchases from third parties both the fibers, usually
carbon, aramid or glass, and the base resins used in the manufacture of
composites. See "Customers and Suppliers" and Item 3, "Legal Proceedings."
The Company markets aerospace materials through a global sales and
technical service staff which services commercial aircraft manufacturers and
their subcontractors and also markets to U.S. and European defense programs.
Building Block Chemicals Segment
The Building Block Chemicals segment had net sales to external
customers of approximately $203.8 million in 2000 and $171.5 million in 1999, or
approximately 13.7% and 11.9%, respectively, of the Company's net sales in each
year. The increase in sales resulted primarily from increased selling prices.
Building block chemicals are manufactured primarily at the Company's
world-scale, highly integrated Fortier facility. The Fortier facility is located
on the Mississippi River near New Orleans, Louisiana and has ready access to all
major forms of transportation and supplies of raw materials.
The Company manufactures building block chemicals that can be used as
raw materials in its water and industrial process chemicals and performance
products segments.
Acrylonitrile
The Company anticipates that over the near term it will use internally
approximately 25% of its current acrylonitrile annual production capacity of 475
million pounds to produce acrylamide and that up to approximately 45% will be
sold pursuant to a long term supply-agreement and a long term distribution
agreement, the first of which provides for a cost based price and the second of
which provides for a market based price. The profitability of producing
acrylonitrile is influenced by supply and demand, by the cost of propylene,
which is the largest component of the cost of producing acrylonitrile, and by
manufacturing efficiency (i.e., yield and co-product recovery). Hydrocyanic acid
is produced as a co-product of the acrylonitrile process. Substantially all of
the hydrocyanic acid produced by the Company is sold to CYRO Industries ("CYRO")
as a raw material for methyl methacrylate ("MMA"). Because of poor market
conditions for acrylonitrile, particularly in export markets, the Company is
currently operating the plant at 75% of capacity.
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Acrylamide
The Company anticipates that over the near term it will use internally
approximately 40% of its acrylamide annual production capacity of 200 million
pounds primarily for the production of flocculants for the Companys water
treating and mining chemicals product line. The remainder of the Company's
production is sold to third parties. The Company manufactures acrylamide at its
Fortier facility and also at its Botlek facility in The Netherlands. The Company
is one of the largest producers and users of acrylamide in the world.
Melamine
American Melamine Industries ("AMEL"), a manufacturing joint venture
which is owned 50% by a subsidiary of DSM N.V., operates a melamine
manufacturing plant with annual production capacity of approximately 160 million
pounds at the Fortier facility. DSM, which is the world's leading manufacturer
of melamine, makes its melamine expertise available to AMEL under a license
agreement. The Company anticipates that over the near term it will use
internally up to 80% of its 50% share of AMEL's annual melamine production,
primarily for the production of Resins. The remainder of the Company's share of
production is sold to third parties. AMEL is one of two North American
manufacturers of melamine.
Other Building Block Chemicals
The Company also manufactures and sells ammonia and sulfuric acid. The
Company expects to reacquire 100% of the ammonia plant at the Fortier facility
retroactive to September 1, 2000 by purchasing a half-interest in Avondale
Ammonia Company from its joint venture partner, LaRoche Industries Inc.,
debtor-in-possession. The purchase was approved by the bankruptcy court in March
2001. The ammonia plant has an annual production capacity of 440,000 tons. The
Company anticipates that during 2001, it will use internally up to 40% of the
ammonia production for the production of acrylonitrile by the Company and the
production of melamine by AMEL. The cost to manufacture ammonia is determined
primarily by the price of natural gas, which has increased significantly in the
last year. The Company idled the ammonia plant at the end of 2000 when high
natural gas costs together with relatively low ammonia prices made it
uneconomical to produce ammonia. As economic conditions changed, the plant was
restarted the first week of February 2001, and it is anticipated the plant will
be idled again at the end of March. Due to the volatility of U.S. natural
gas markets, the Company is unable to predict the plant's operating schedule
throughout 2001. See "Customers and Suppliers."
The Company sells sulfuric acid to third parties and also toll converts
substantially all of CYRO's spent sulfuric acid arising from the manufacture of
MMA under a long-term service contract.
Fortier Methanol Company, a manufacturing joint venture which was 70%
owned by Methanex Corporation, operated a methanol plant at the Fortier
facility. The plant was idled in March 1999 for economic reasons and in December
1999, the Company sold its share of the assets of the joint venture to Methanex
Corporation.
Some of the Company's building block chemicals show marked seasonality,
such as ammonia, the prices of which can fluctuate with agricultural planting.
Prices of building block chemicals also are sensitive to the stages of economic
cycles, energy prices and currency exchange rates, as well as to periods of
insufficient and excess capacity. The production of building block chemicals is
generally capital intensive, which may cause strong downward pressure on prices
in poor market environments as producers tend to
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operate their plants at capacity even in poor market environments. The Company
sells building block chemicals to third parties through a direct sales force and
distributors.
Associated Companies
The Company has a 50% interest in each of three unconsolidated
associated companies and a one-third interest in a fourth unconsolidated
associated company.
CYRO Industries
CYRO manufactures and sells acrylic sheet and molding compound
products, primarily under the ACRYLITE(R) trademark and also manufactures and
sells MMA. CYRO operates primarily in North America and
manufactures its acrylic products at four locations in the U.S. and at one
location in Canada. The Company's partner in CYRO, an indirect subsidiary of
Degussa A.G., has an affiliate, Rohm GmbH, which manufactures MMA and acrylic
sheet products and molding compounds in Europe and makes its technological
expertise available to CYRO.
CYRO uses most of the MMA it manufactures as a raw material in the
manufacture of acrylic sheet and molding compounds and it sells the remainder to
third parties. CYRO's world-scale MMA manufacturing facilities are an integrated
part of the Company's Fortier facility, consuming substantially all the
hydrocyanic acid produced by the Company in connection with the manufacture of
acrylonitrile. CYRO expanded its MMA annual production capacity to approximately
278 million pounds at the end of 1997 and to approximately 290 million pounds at
the end of 1999.
Mitsui Cytec
Mitsui Cytec manufactures and sells in Japan specialty resins and
manufactures in Japan and sells throughout Asia certain flocculants. The Company
has licensed certain of its technology to Mitsui Cytec on an exclusive basis in
Japan and on an exclusive and non-exclusive basis in other parts of Asia.
PolymerAdditives.com LLC
Cytec, GE Specialty Chemicals Inc. and Albemarle Corporation each own a
one-third interest in this business-to-business Internet joint venture which
distributes a broad line of polymer additive products. See "Performance Products
Segment--Polymer Additives."
AC Molding Compounds
AC Molding Compounds is the largest manufacturer of amino molding
compounds in North America. Amino molding compounds are mature products, the
primary markets for which are electrical components and dinnerware, where price
competition is intense. AC Molding Compounds relocated and consolidated its
manufacturing operations from the Company's Wallingford facility to a Dallas
plant acquired from Borden Chemicals in September 1999. Large increases in raw
material costs, operational problems from the transition to the Dallas plant,
and a major softening of end-market demand resulted in AC Molding's sales
declining more than 30% in 2000 from 1999 on a pro forma basis giving effect to
the acquisition of the Dallas plant. AC Molding is not in compliance with the
terms of its bank loan agreement and the Company and its joint venture partner
have indicated an unwillingness to invest further in AC Molding Compounds. Cytec
made a $4.8 million dollar provision against receivables due from AC Molding in
the fourth quarter of 2000 and the Company's investment in AC Molding is now
valued at zero. The Company continues to aggressively explore its strategic
options for this joint venture with its partner.
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Criterion Catalyst Company LP
The Company sold its half interest in Criterion Catalyst Company LP to
its joint venture partner CRI International, Inc., a company of the Royal/Dutch
Shell Group of companies, for cash consideration of $63 million on July 10,
2000. Criterion was primarily in the business of manufacture and sale of
hydroprocessing and reforming catalysts.
Competition
The Company operates in a highly competitive marketplace. It competes
against a number of other companies in each of its product lines, although none
of such companies competes with the Company in all of its product lines. The
Company's competitors are both larger and smaller than the Company in terms of
resources and market shares. Competition is generally based on product
performance, reputation for quality, price and customer service and support. The
degree and nature of competition depends on the type of product involved.
In general, the Company competes by maintaining a broad range of
products, focusing its resources on products in which it has a competitive
advantage and fostering its reputation for quality products, competitive prices
and excellent technical service and customer support. Through research and
development, the Company seeks to increase margins by introducing value-added
products and products based on proprietary technologies.
Customers and Suppliers
Due to the diversity of product lines in which the Company competes, no
customer accounts for more than 10% of the Company's net sales other than The
Boeing Company and its subcontractors as discussed under "Specialty Materials -
Aerospace Materials." See also the discussion under "Building Block Chemicals -
Acrylonitrile" above with respect to two long-term contracts for acrylonitrile
and Note 5 of the Notes to the Consolidated Financial Statements in Item 8
regarding sales to CYRO and other associated companies.
With respect to suppliers, the Company's vertical integration (i.e.,
its manufacture of intermediates used to manufacture certain water and
industrial process chemicals and performance products) protects it from being
reliant on other companies for many significant intermediates. The only
significant raw materials required to manufacture the Company's building block
chemicals are natural gas, propylene, and sulfur, which are readily available.
Natural gas is an important raw material for many of the Company's products,
directly in the case of ammonia and indirectly in the case of melamine, Resins
and molding compounds. Because natural gas is not easily transported, the price
may vary widely between geographic regions. The price of natural gas in the
United States more than quadrupled in 2000 and, even after declining in the
first few months of 2001, remains more than twice its price of a year ago and
significantly above the price in many other parts of the world. While the
Company has not had any problems obtaining the natural gas that it needs,
because the Company's products compete with similar products made with less
expensive natural gas available elsewhere, the Company may not be able to
recover any or all of the increased cost of gas in manufacturing its products.
The Fortier facility is served by a single propylene pipeline owned by a
supplier, although the Company has made arrangements to allow other suppliers to
use part of the pipeline's capacity.
The Company generally attempts to retain multiple sources for high volume
raw materials, other than its own building block chemicals, in order to minimize
its reliance on any one supplier. The Company
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sources its requirements of cationic monomers from a single supplier under a
long-term agreement. Cationic monomers are important raw materials in the water
treating and mining chemicals product lines. The Company is dependent on a
limited number of suppliers for carbon fibers which are used in many of the
Company's advanced composite products. Availability of certain carbon fibers has
occasionally been quite limited, although availability has recently been
adequate as suppliers have added capacity.
A number of the Company's customers operate in cyclical industries such
as the aerospace, automotive and paper industries. As a result, demand for the
Company's products from customers in such industries is also cyclical. In
addition, the profitability of sales of certain of the Company's building block
chemicals is cyclical due to the cyclicality typically experienced with respect
to the amount of industry wide capacity dedicated to producing such chemicals.
International
The Company operates on a worldwide basis with manufacturing plants
located in eight countries (other than the United States). Export sales to
unaffiliated customers from the United States were $188.8 million for 2000,
$153.4 million for 1999 and $154.3 million for 1998 or approximately 12.6%,
10.6% and 10.5% of net sales in such years, respectively.
The Company markets its products internationally through Company sales
offices, distributors and one associated company as described above. Foreign
operations (exclusive of United States export sales) accounted for approximately
34%, 33% and 28% in 2000, 1999 and 1998, respectively, of net sales to
unaffiliated customers.
International operations are subject to various risks which are not
present in domestic operations, including political instability, the possibility
of expropriation, restrictions on royalties, dividends and currency remittances,
instabilities of foreign currencies, requirements for governmental approvals for
new ventures and local participation in operations such as local equity
ownership and workers' councils. The Company does not currently believe that it
is likely to suffer a material adverse effect on its results of operations in
connection with its existing foreign operations.
Research and Process Development
During 2000, 1999 and 1998, the Company expended an aggregate of
approximately $38.6 million, $43.8 million and $42.9 million, respectively, on
Company-sponsored research and development activities.
Trademarks and Patents
The Company has more than 2,500 United States and foreign patents and
also has trademark applications and registrations for more than 165 product
names. The Company believes the loss of patent or trademark protection on any
one product or process would not have a material adverse effect on the Company.
While the existence of a patent is prima facie evidence of its validity, the
Company cannot assure that any of the Company's patents will not be challenged,
and it cannot predict the outcome of any challenge.
-12-
Employees
Approximately 4,800 employees are engaged in the operations of the Company,
excluding employees of associated companies. Approximately 2,100 of the
Company's employees are covered by union contracts. The Company believes that
its relations with both employees and the related union leaderships are good.
Union contracts at eight facilities covering more than 40% of the Company's
unionized employees expire in the ordinary course prior to the end of 2001, the
most material of which is the contract at the Company's Fortier facility.
Although the Company expects that it will reach agreement with the unions with
respect to these union contracts, there can be no assurance that this will
occur.
Operating Risks
The Company's revenues are dependent on the continued operation of its
various manufacturing facilities. The operation of chemical manufacturing plants
involves many risks, including the breakdown, failure or substandard performance
of equipment, natural disasters, and the need to comply with directives of, and
maintain all necessary permits from, government agencies. In addition, the
Company's operations can be adversely affected by raw material or energy supply
disruptions, labor force shortages or work stoppages and events impeding or
increasing the cost of transporting the Company's products. The occurrence of
material operational problems, including but not limited to the above events,
may have a material adverse effect on the productivity and profitability of a
particular manufacturing facility, or with respect to certain facilities, the
Company as a whole, during the period of such operational difficulties.
The Company's operations are also subject to various hazards incident to
the production of industrial chemicals, including the use, handling, processing,
storage and transportation of certain hazardous materials. These hazards can
cause personal injury and loss of life, severe damage to and destruction of
property and equipment, environmental damage and suspension of operations.
Claims arising from any future catastrophic occurrence at one of the Company's
locations may result in the Company being named as a defendant in lawsuits
asserting potentially large claims.
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
-13-
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. 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. 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.
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 or the inability of the Company to operate
all or part of the facility.
Note 9 of the Notes to the Consolidated Financial Statements in Item 8 is
incorporated by reference herein.
-14-
Item 2. Properties
----------
The Company operates 23 principal manufacturing and research facilities
located in the United States, the United Kingdom, The Netherlands, Mexico,
Canada, Colombia, Germany, Norway and Chile. Capital spending, exclusive of
acquisitions, for the years ended 2000, 1999 and 1998 was approximately $76.5,
$77.4 million and $103.8 million respectively. Capital expenditures in 1998 were
higher than in 1999 and 2000 due primarily to three larger projects all of which
incurred significant costs in 1998: the benzotriazole light stabilizer plant in
The Netherlands; the expansion of the surfactants plant in West Virginia; and
the expansion of emulsion polyacrylamide capacity at the Mobile plant. Capital
expenditures in 2001 are expected to be in the range of $80 million. Such
capital expenditures are intended to provide increased capacity, to improve the
efficiency of production units, to improve the quality of the Company's
products, to modernize or replace older facilities, or to install equipment for
protection of employees neighboring communities and the environment.
The Company's major facilities and the segments served by each such
facility are as follows:
FACILITY PRINCIPAL SEGMENT
-------------------- ----------------------------
Anaheim, California......................... Specialty materials
Atequiza, Mexico............................ Water and industrial process chemicals; Performance products
Antofogasta, Chile ......................... Water and industrial process chemicals
Avondale (Fortier), Louisiana............... Building block chemicals
Belmont (Willow Island), West Virginia...... Performance products
Bogota, Colombia............................ Performance products
Botlek, The Netherlands..................... Water and industrial process chemicals; Performance products;
Building block chemicals
Bradford, England........................... Water and industrial process chemicals
Greenville, Texas........................... Specialty materials
Havre de Grace, Maryland.................... Specialty materials
Kalamazoo, Michigan......................... Water and industrial process chemicals; Performance products
Lillestrom, Norway.......................... Performance products
Longview, Washington........................ Water and industrial process chemicals
Mobile, Alabama............................. Water and industrial process chemicals
Oestringen, Germany......................... Specialty materials
Olean, New York............................. Performance products
Orange, California.......................... Specialty materials
Stamford, Connecticut....................... Water and industrial process chemicals; Performance products
Wallingford, Connecticut.................... Performance products
Welland, Ontario............................ Water and industrial process chemicals
Winona, Minnesota........................... Specialty materials
Woodbridge, New Jersey...................... Water and industrial process chemicals
Wrexham, Wales.............................. Specialty materials
The Company owns all of the foregoing facilities and their sites except for
the land at the Botlek and Lillestrom facilities which are leased under long
term leases. The Company also leases its corporate headquarters in West
Paterson, New Jersey.
-15-
Item 3. Legal Proceedings
-----------------
The Company is the subject of numerous lawsuits and claims incidental to
the conduct of its or its predecessors' businesses, including lawsuits and
claims relating to product liability, personal injury, environmental,
contractual, employment and intellectual property matters. Many of the matters
relate to the use, handling, processing, storage, transport or disposal of
hazardous materials. The Company believes that the resolution of such lawsuits
and claims, including those described below, 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.
The Company is one of several alleged processors of lead, lead pigments
and/or lead-based paints named as defendants in 12 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 injunctive relief and compensatory and punitive
damages, including for the cost of monitoring, detecting and removing lead-based
paints from buildings; for personal injuries allegedly caused by ingestion of
lead-based paints; and plaintiffs' attorneys' fees. The Company is sued
primarily 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. In some cases there are allegations that the Company
is liable in its own right, but none of the complaint specifies any acts on
which such liability could be based.
In January 1999 the Company received a subpoena to testify before, and
provide documents to, a federal grand jury in California investigating the
carbon fiber and prepreg industry. The Company manufactures prepregs as part of
its advanced composites product line. The Company has no reason to believe that
it is a target of the grand jury investigation. After the grand jury
investigation was commenced, the Company and the other companies subpoenaed to
testify before the grand jury were named as defendants in two civil antitrust
class actions in state and federal courts in California on behalf of purchasers
of carbon fiber, which the complaints defined to include prepregs manufactured
from carbon fiber. In each case 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 believes it has meritorious
defense to the claims asserted in these actions.
See also "Environmental Matters" under "Business" in Item 1, and Note 9 of
the Notes to the Consolidated Financial Statements in Item 8, which are
incorporated by reference herein.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
-16-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Common Stock of the Company is listed on the New York Stock Exchange.
On February 1, 2001, there were approximately 14,500 holders of record of the
Common Stock of the Company.
The high and low stock prices for each quarter during 2000 and 1999 were:
1Q 2Q 3Q 4Q
2000
High $30 11/16 33 34 5/8 41 5/16
Low 22 3/8 23 11/16 24 11/16 29 15/16
1999
High $27 1/8 $31 15/16 $31 1/4 $29
Low 19 1/2 21 3/16 21 7/16 21 1/4
The Company has not paid a cash dividend on its common stock and does not
expect to pay one in the foreseeable future. In addition, the Company is
restricted from paying dividends in excess of certain amounts determined in
accordance with the terms of its Series C Cumulative Preferred Stock. See Note
15 of the Notes to the Consolidated Financial Statements in Item 8, which is
incorporated by reference herein.
From time to time in connection with its stock repurchase program, the
Company has sold unregistered put options entitling the holders to sell shares
of the Company's common stock to the Company. See Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Financial Condition.
-17-
Item 6. Selected Financial Data
-----------------------
Five-Year Summary
(Dollars in millions, except per share data) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Statements of income data:
Net sales $1,492.5 $1,444.5 $1,475.7 $1,323.6 $1,301.4
Manufacturing cost of sales 1,078.7(1) 1,023.6 1,059.2 985.0 960.1
Research and process development 38.6(2) 43.8 42.9 44.7 40.2
Other operating expenses 198.6(3) 192.1 188.1 174.7 165.9
Earnings from operations 176.6 185.0 185.5 119.2(7) 135.2
Other income, net 104.6(4) 9.3 14.5(6) 23.9(8) 9.0
Equity in earnings of
associated companies 15.0 5.6 20.3 12.3 24.8
Interest expense, net 25.1 26.9 22.4 5.7 2.1
Income tax provision 93.5 51.7(5) 73.2 36.1(9) 66.8
Net earnings 177.6 121.3 124.7 113.6 100.1
Net earnings available for
common stockholders $ 177.6 $ 121.3 $ 124.7 $ 113.6 $ 100.1
Net earnings per common share
Basic $ 4.34 $ 2.83 $ 2.79 $ 2.50 $ 2.13
Diluted $ 4.15 $ 2.73 $ 2.68 $ 2.39 $ 2.03
Other data (At end of period, unless otherwise noted):
Additions to plants, equipment
and facilities (annual) $ 76.5 $ 77.4 $ 103.8 $ 91.4 $ 72.5
Current assets 567.8 491.1 477.6 452.8 416.3
Current liabilities 358.9 366.1 394.4 375.0 312.8
Working capital 208.9 125.0 83.2 77.8 103.5
Plants, equipment and facilities 1,326.3 1,352.6 1,363.0 1,278.0 1,339.7
Net depreciated cost 616.2 655.7 667.5 629.7 582.2
Total assets 1,719.4 1,750.5 1,720.2 1,614.1 1,261.1
Long-term debt 311.2 413.1 409.1 324.0 89.0
Other noncurrent liabilities 433.1 465.5 485.7 527.7 544.9
Total stockholders' equity 616.2 505.8 431.0 387.4 314.4
- ---------------------------------------------------------------------------------------------------------------------------
As a result of adopting Emerging Issues Task Force Issue No. 00-10, "Accounting
for Shipping and Handling Fees and Costs," the Company reclassified prior period
shipping costs from net sales to manufacturing cost of sales and handling costs
from other operating expenses to manufacturing costs of sales. These
reclassifications had no effect on previously reported operating profit or net
income. For further information see Note 1 of the Notes to Consolidated
Financial Statements.
(1) Includes net restructuring and other charges of $4.7 recorded in the fourth
quarter of 2000.
(2) Includes net restructuring charges of $1.1 recorded in the fourth quarter of
2000.
(3) Includes net restructuring charges of $5.7 recorded in the fourth quarter of
2000.
(4) Includes gains of $88.3 from the sale of the Paper Chemicals business, $13.3
from insurance settlement agreements and $7.1 from the sale of real estate at a
former plant site. Also includes a charge of $4.8 recorded in the fourth quarter
of 2000 for the write-down of receivables due from AC Molding Compounds joint
venture.
(5) Includes a credit of $8.0 related to the utilization of prior years' tax
credits.
(6) Includes a gain of $4.4 related to the sale of the bulk molding compounds
product line in the fourth quarter of 1998.
(7) Includes restructuring and other charges of $18.6 and $23.8 recorded in the
first and fourth quarters of 1997, respectively.
(8) Includes a gain of $22.3 related primarily to the sale of the acrylic fibers
product line in the first quarter of 1997. In addition to the charges discussed
in Note 7 above, charges of $9.0 were recorded in the fourth quarter of 1997 to
reduce the carrying amount of certain assets.
(9) Includes the reversal of $24.4 of previously established tax valuation
allowance in the fourth quarter of 1997.
-18-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements. Dollars are in millions, except share and per share amounts.
GENERAL
During 2000 the Company completed the following disposition transactions:
On November 1, 2000, the Company completed the sale of its paper chemicals
sizing and strength business to Bayer Corporation and the direct sales portion
of its retention and drainage aids and fixative products business to Ciba
Specialty Chemicals Water Treatments, Inc. The Company also agreed to produce
paper chemicals for Bayer Corporation under a long-term manufacturing agreement
to which the Company allocated proceeds of $11.2 which were recorded as deferred
revenue. This deferred revenue will be recognized over the term of the
manufacturing agreement. The Company received net cash proceeds of $115.5 in
connection with these transactions and recorded in other income, net, a pre-tax
gain of $88.3. Included in the sale were the sales, marketing, research and
development and technical services personnel and the dedicated field and
laboratory equipment associated with the respective businesses. The Company
retained approximately $18.1 of Paper Chemicals accounts receivable and all of
its Water and Industrial Process Chemicals production facilities. Paper
Chemicals sales were $97.9, $106.4 and $111.8 in 2000, 1999 and 1998,
respectively. Approximately $30.5 of taxes due on this divestiture will be paid
in 2001.
On July 10, 2000, the Company completed the sale of two subsidiaries, which
owned its 50% interest in Criterion Catalyst Company LP ("Criterion"), to its
joint venture partner CRI International, Inc., a company of the Royal Dutch
Shell Group, for cash consideration of $63.0. The consideration received
approximated the carrying value of the Company's investment, which was included
in investment in associated companies. The sale resulted in taxes paid of
approximately $7.5.
During 1999 the Company completed the following acquisition and disposition
transactions:
On October 29, 1999, the Company acquired the amino coatings resins
business of BIP Limited (the "BIP business") 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 is being amortized on a straight-line basis over a period of up to
40 years. The acquired business has been integrated into the Company's
Performance Products segment. BIP retained its manufacturing plant in Oldbury,
United Kingdom, where it continues to manufacture certain amino coatings resins
for Cytec under a long-term agreement.
On September 16, 1999, the Company acquired Inspec Mining Chemicals S.A.
("IMC") from Laporte plc for $25.1, net of $0.8 cash received. At the date of
acquisition, the purchase price exceeded the estimated fair value of the
identifiable assets acquired by $19.0. Based on valuation studies completed
during 2000, the fair value of the assets acquired was revised, resulting in a
$2.8 increase to goodwill. The $2.8 adjustment along with the original $19.0
excess of the purchase price over the identifiable net assets acquired is being
amortized on a straight-line basis over a period of up to 40 years from the
original date of acquisition. The acquisition, which included two manufacturing
operations and a research and development center located in Chile, has been
integrated into the Company's Water and Industrial Process Chemicals segment.
On August 11, 1999, the Company acquired assets of the global phosphine
fumigants product line from BOC Group Inc. for $3.5. The purchase price exceeded
the fair value of the identifiable assets acquired by $1.2. The terms of the
acquisition provided for two additional payments aggregating up to $1.0 to be
paid upon approval by the U.S. Environmental Protection Agency of certain
fumigant registrations. The contingencies for these payments were met during
2000, and $1.0 was recorded as additional goodwill. The $1.0 of additional
consideration, along with the original $1.2 excess of the purchase price over
the identifiable net assets acquired, is being amortized on a straight-line
basis over a period of up to 20 years from the original date of acquisition. The
terms of the acquisition also provide for additional consideration to be paid if
the acquired product line's net sales exceed certain targeted levels. All
additional payments are payable in cash and will be recorded as additional
goodwill when the contingencies for such payment have been met. The acquired
business has been integrated into the Company's Water and Industrial Process
Chemicals segment.
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 is being
amortized on a straight-line basis over a period of up to 40 years. The acquired
business has been integrated into the Company's Water and Industrial Process
Chemicals segment.
-19-
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 completed the following acquisition and disposition
transactions:
On October 9, 1998, the Company acquired The American Materials &
Technologies Corporation ("AMT"), a manufacturer of advanced composite
materials, in a stock transaction designed to qualify as a tax-free
reorganization. In the transaction, the Company issued from Treasury Stock
1,243,663 shares of its common stock to AMT shareholders. In addition,
outstanding options and warrants to acquire AMT stock were converted into
335,209 Cytec options and warrants with a weighted average exercise price of
$10.48 per share. The cost of the acquisition was approximately $26.8, including
the shares issued, options and warrants converted and previous shares acquired
plus the assumption of approximately $5.4 in debt. The purchase price exceeded
the fair value of the identifiable assets acquired by $24.4, which is being
amortized on a straight-line basis over a period of up to 40 years. The acquired
business has been integrated into the Company's Specialty Materials segment. On
October 26, 1998, the Company sold the assets of the AMT graphite golf shaft
business for approximately $6.2 in cash.
On July 31, 1998, the Company purchased from Dyno Industrier ASA ("Dyno")
of Oslo, Norway, 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 in cash. The purchase price
exceeded the fair value of the identifiable assets acquired by $32.0, which is
being amortized on a straight-line basis over a period of up to 40 years. The
acquired business has been integrated into the Company's Performance Products
segment.
On June 24, 1998, the Company acquired assets of the OREPREP minerals
processing product line from Baker Petrolite Corporation for approximately $9.0.
The purchase price exceeded the fair value of the identifiable assets acquired
by $8.3, which is being amortized on a straight-line basis over a period of up
to 40 years. The acquired product line has been integrated into the Company's
Water and Industrial Process Chemicals segment.
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. Sales for this product line were
$24.9 in 1998.
All acquisitions have been accounted for 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 (i.e.,
goodwill) are included in Acquisition Intangibles in the Consolidated Balance
Sheets. 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.
During the fourth quarter of 2000, the Company adopted Emerging Issues Task
Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs"
("EITF 00-10"), and upon adoption, the Company reclassified certain prior period
comparative amounts in the Consolidated Statements of Income. EITF 00-10
prohibits the netting of shipping and handling costs against shipping and
handling revenues. EITF 00-10 permits companies to adopt a policy of including
shipping and handling costs in manufacturing cost of sales or other income
statement line items. The Company previously followed the common practice of
netting shipping costs against shipping revenues as a component of net sales,
while handling costs, such as warehousing expenses, were included as a component
of selling and technical services expense. As a result of reclassifying shipping
costs to manufacturing cost of sales, previously reported sales increased $32.0
in 1999 and $31.2 in 1998. As a result of reclassifying handling and warehousing
expenses to manufacturing cost of sales, previously reported selling and
technical service expenses decreased $20.8 in 1999 and $21.4 in 1998. Previously
reported manufacturing costs of sales are commensurately higher. These
reclassifications had no effect on previously reported operating profit or net
income.
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, as
amended, establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative instruments
embedded in other contracts. In general SFAS 133 requires an entity to recognize
all derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. It further provides criteria for derivative
instruments to be designated as "fair value," "cash flow" or "foreign currency"
hedges and establishes accounting standards for reporting changes in the fair
value of derivative instruments. If a derivative is deemed to be an effective
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against changes in fair value of the hedged
assets, liabilities or firm commitments through earnings or be recognized on an
after-tax basis in accumulated other comprehensive
-20-
income within the equity section of the balance sheet until such time that the
hedged item is recognized in earnings. Derivatives that are not hedges, as well
as the ineffective portion of hedges, must be adjusted to fair value through
earnings. In connection with the Company's risk management strategies, the
Company holds certain foreign exchange, commodity and interest rate instruments
that have been deemed derivatives pursuant to the criteria established in SFAS
133. Upon adoption the Company will be required to adjust certain of these
derivatives to fair value in the balance sheet and recognize the offsetting
gains or losses as adjustments to earnings or accumulated other comprehensive
income, as appropriate. SFAS 133 will become effective for the Company beginning
January 1, 2001. The Company does not believe that the implementation of SFAS
133 will have a material effect on the Company's results of operations or
financial position.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship that certain
items in the Company's Consolidated Statements of Income bear to net sales:
Years Ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Manufacturing cost of sales 72.3 70.9 71.8
Gross profit 27.7 29.1 28.2
Selling and technical services 9.3 8.9 8.9
Research and process development 2.6 3.0 2.9
Administrative and general 3.2 3.6 3.2
Amortization of
acquisition intangibles 0.8 0.8 0.6
- ---------------------------------------------------------------------------
Earnings from operations 11.8 12.8 12.6
- ---------------------------------------------------------------------------
Net earnings 11.9 8.4 8.5
- ---------------------------------------------------------------------------
NET SALES BY BUSINESS SEGMENT
The Company has four reportable segments: Water and Industrial Process
Chemicals, Performance Products, Specialty Materials and Building Block
Chemicals.
The Water and Industrial Process Chemicals segment produces water treating,
mining and phosphine chemicals that are used mainly in water and wastewater
treatment and mineral processing and separation. The segment included the Paper
Chemicals business, which was substantially divested on November 1, 2000. The
Performance Products segment produces specialty resins, surfactants and
specialty monomers and polymer additives that are used primarily in coatings,
adhesives and plastics applications. The Specialty Materials segment
manufactures and sells aerospace materials that are used mainly in commercial
and military aviation, satellite and launch vehicles and aircraft brakes. The
segment also included the Bulk and Engineered Molding Compounds businesses,
which were divested in 1997 and 1998, respectively. The Building Block Chemicals
segment manufactures acrylonitrile, acrylamide, ammonia, hydrocyanic acid,
melamine and sulfuric acid. Some of these products are upgraded into Specialty
Chemicals (Water and Industrial Process Chemicals and Performance Products)
products with the remainder sold to third parties. Internal usage is not
reflected in net sales of Building Block Chemicals.
-21-
The Company's net sales by business segment are set forth below.
Years Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------
Water and Industrial
Process Chemicals(1) $ 403.1 $ 387.5 $ 363.3
Performance Products 474.0 449.8 409.7
Specialty Materials(2) 411.6 435.7 493.3
Building Block Chemicals 203.8 171.5 209.2
Other - - 0.2
- -----------------------------------------------------------------------
$1,492.5 $1,444.5 $1,475.7
- -----------------------------------------------------------------------
(1) On November 1, 2000, the Company completed the sale of its Paper Chemicals
business, which had sales of $97.9, $106.4 and $111.8 in 2000, 1999 and 1998,
respectively.
(2) On November 23, 1998, the Company completed the sale of its bulk molding
compounds product line, which had sales of $24.9 in 1998. On January 21, 1999,
the Company completed the sale of its engineered molding compounds product line,
which had sales of $14.1 in 1998.
For more information on the Company's segments see Note 17 to the
Consolidated Financial Statements and further discussions in the Segment Results
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company has a 50% interest in each of three associated companies: CYRO
Industries, Mitsui Cytec, Ltd. and AC Molding Compounds. The Company also had a
50% interest in the former Criterion Catalyst Company L.P. joint venture through
July 10, 2000, and a 50% interest in the former Dyno-Cytec joint venture through
July 31, 1998. The aggregate net sales of unconsolidated associated companies
were $496.3 in 2000, $521.4 in 1999 and $583.0 in 1998.
On October 16, 2000, the formation of PolymerAdditives.com, LLC, a joint
venture between the Company, Albemarle Corporation and GE Specialty Chemicals,
Inc., an operating unit of General Electric Company, was completed.
PolymerAdditives.com, LLC operates a fully functional business-to-business
e-commerce Internet site and provides customers the ability to purchase a
variety of polymer additives from one source. During 2000 the Company invested
an aggregate of $2.5 for a one-third equity interest in the joint venture.
YEAR ENDED DECEMBER 31, 2000, COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Net sales for 2000 were $1,492.5, compared with $1,444.5 for 1999. The increase
was primarily due to sales increases in the Water and Industrial Process
Chemicals, Performance Products and Building Block Chemicals segments of $15.6,
$24.2 and $32.3, respectively. This increase was partially offset by a sales
decrease in the Specialty Materials segment of $24.1. For further information
see Segment Results discussion below.
Net sales in the United States were $798.8 for 2000, compared with $816.0
for 1999. International net sales were $693.7 for 2000, or 46.5% of total net
sales, compared with $628.5, or 43.5% of total net sales, for 1999.
In the North America region (i.e., United States and Canada), net sales
were $866.0 for 2000, down 1.7% from the prior year. Overall, selling volumes
decreased 3.4%. Selling volumes in Water and Industrial Process Chemicals
increased 1.2%, Performance Products increased 2.3%, Specialty Materials
decreased 8.3% and Building Block Chemicals decreased 11.6%. Overall, selling
prices increased 2.0% with the segment breakdown as follows: Water and
Industrial Process Chemicals decreased 0.7%, Performance Products decreased
0.8%, Specialty Materials increased 0.1% and Building Block Chemicals increased
21.0%. For the region overall, the adverse effect of exchange rate changes
reduced sales about 0.3%.
In the Europe/Mideast/Africa region, net sales were $336.5 for 2000, up
0.7% from the prior year. Overall, selling volumes increased 8.1%. Selling
volumes in Water and Industrial Process Chemicals increased 7.1%, Performance
Products increased 16.4%, Specialty Materials increased 4.1% and Building Block
Chemicals decreased 2.8%. Overall, selling prices decreased 0.5% with the
segment breakdown as follows: Water and Industrial Process Chemicals decreased
5.9%, Performance Process Chemicals increased 0.4%, Specialty Materials were
flat and Building Block Chemicals increased 12.0%. For the region overall, the
adverse effect of exchange rate changes reduced sales approximately 6.9%.
In the Asia/Pacific region, net sales were $193.4 for 2000, up 26.5% from
the prior year. Overall, selling volumes increased 13.4%. Selling volumes in
Water and Industrial Process Chemicals increased 15.4%, Performance Products
increased 20.6%, Specialty Materials increased 4.8% and Building Block Chemicals
increased 3.5%. Overall, selling prices increased 13.4% with the segment
breakdown as follows: Water and Industrial Process Chemicals increased 1.5%,
Performance Products decreased 0.6%, Specialty Materials were flat and Building
Block Chemicals increased 54.8%. For the region overall, the adverse effect of
exchange rate changes reduced sales approximately 0.3%.
-22-
In the Latin America region, net sales were $96.6 for 2000, up 26.4% from
the prior year. Overall, selling volumes increased 26.9%. Selling volumes in
Water and Industrial Process Chemicals increased 28.5%, and Performance Products
increased 17.3%. Sales in the Specialty Materials and Building Block Chemicals
segments are relatively small in this region, hence comparisons are not
meaningful. Overall, selling prices increased 2.4%. Water and Industrial Process
Chemicals increased 3.0% and Performance Process Chemicals increased 1.7%. For
the region overall, the adverse effect of exchange rate changes reduced sales
approximately 2.9%.
Manufacturing cost of sales was $1,078.7 for 2000 and included net
restructuring charges of $3.3 and a provision of $1.4 against receivables due to
the Company from its 50% owned ammonia joint venture. Excluding these charges,
manufacturing cost of sales was 72.0% of net sales for 2000. Manufacturing cost
of sales was $1,023.6 for 1999 and included a net restructuring credit of $1.5.
Excluding this credit, manufacturing cost of sales was 71.0% of net sales for
1999. Excluding these special items, manufacturing cost of sales as a percentage
of sales was up in 2000 when compared with the prior year. The combined results
of adverse exchange rate changes and higher raw material costs offset the
benefits from higher selling volumes, increased selling prices and the Company's
manufacturing rationalization and productivity initiative programs.
Selling and technical service expenses were $138.5 for 2000 and included a
net restructuring charge of $5.4. Selling and technical service expenses were
$129.2 for 1999 and included a restructuring charge of $0.3. Excluding these
special items, selling and technical service expenses increased $4.2. This
increase is attributable to the Performance Products segment and reflects costs
from its acquisition of the BIP business in 1999.
Research and process development expenses were $38.6 for 2000 and included
a net restructuring charge of $1.1. Research and process development expenses
were $43.8 for 1999 and included a restructuring charge of $1.7. Excluding these
special items, research and process development expenses decreased $4.6, which
was due primarily to lower patent costs that tend to fluctuate depending on
activity and reduced research expenses in the Performance Products segment.
Administrative and general expenses were $47.7 for 2000 and included a net
restructuring charge of $0.3. Administrative and general expenses were $51.7 for
1999 and included a charge of $2.5 for external costs associated with tax
planning and a net restructuring charge of $0.1. Excluding these special items,
administrative and general expenses decreased $1.5, which reflects the benefits
of the Company's efforts to contain costs in this area.
Amortization of acquisition intangibles was $12.4 for 2000, an increase of
$1.2 from the prior year. The increase was due to the additional intangibles
resulting from the acquisitions of the BOC Gases' global phosphines fumigant
product line in August 1999, IMC in September 1999 and the BIP business in
October 1999.
Other income, net, was $104.6 for 2000 and included several special items.
Those special items were a gain of $88.3 from the sale of the Paper Chemicals
business (for more information about the sale of the Paper Chemicals business,
see Note 2 of the Notes to Consolidated Financial Statements), a gain of $13.3
from insurance settlement agreements entered into with a group of insurance
carriers in an environmental coverage suit and a provision of $4.8 against
receivables due from the AC Moldings Compounds joint venture. Excluding these
special items, other income, net, was $7.8 and included a gain of $7.1 from the
sale of real estate. Other income, net, was $9.3 for 1999 and included gains of
$4.5 from the sale of real estate, $2.2 from royalty income and $1.6 from the
sale of certain product lines.
Equity in earnings of associated companies, which represents the Company's
before-tax share of its associates' earnings, was $15.0 for 2000, an increase of
$9.4 from the prior year. The increase was primarily due to operational
improvements at Criterion relative to its losses in 1999. The Company's interest
in Criterion was sold on July 10, 2000. For more information about the sale of
the Company's interest in Criterion, see Note 2 of the Notes to Consolidated
Financial Statements. CYRO Industries sales were up about 10.0%, but earnings
were relatively flat due to higher raw material costs, principally acetone and
methanol. CYRO Industries also experienced weak demand in December 2000. CYRO
Industries expects to experience weak demand and high raw material costs through
the first half of 2001. PolymerAdditives.com, LLC is expected to experience a
net operating loss in 2001 primarily due to start-up costs.
Interest expense, net, was $25.1 for 2000, a decrease of $1.8 from the
prior year period. The decrease reflects the lower outstanding debt levels
during 2000.
The income tax provision was $93.5 for 2000, which reflects an underlying
effective tax rate of 34.5%. The income tax provision was $51.7 for 1999 and
included a credit of $8.0 related to the utilization of prior years' tax
credits. Excluding the impact of this item, the underlying effective tax rate
for 1999 was 34.5%.
-23-
Net earnings for 2000 were $177.6, or $4.15 per diluted share. Special
items included in 2000 were a gain of $88.3 ($57.8 after-tax, or $1.35 per
diluted share) from the sale of the Paper Chemicals business and a gain of $13.3
($8.7 after-tax, or $0.20 per diluted share) from the environmental remediation
insurance settlements. Also included in 2000 were charges of $11.5 ($7.5
after-tax, or $0.18 per diluted share) from net restructuring and other charges
and a $4.8 ($3.1 after-tax, or $0.07 per diluted share) provision against
receivables due from the AC Moldings Compounds joint venture. Excluding these
special items, net earnings for 2000 were $121.7, or $2.85 per diluted share.
Net earnings for 1999 were $121.3, or $2.73 per diluted share. Included in 1999
was a credit of $8.0 ($0.18 per diluted share) related to the reduction in
income tax expense from the utilization of prior years' tax credits, which is
partially offset by a charge of $2.5 ($1.6 after-tax, or $0.04 per diluted
share) for tax planning expenses. Also included in 1999 was a charge of $0.6
($0.4 after-tax, or $0.01 per diluted share) related to the net effect of
restructuring activities. Excluding these special items, net earnings for 1999
were $115.4, or $2.60 per diluted share. Excluding these special items for both
years, the period-over-period earnings per diluted share growth was 9.6%.
Earnings per diluted share were also favorably impacted by the Company's stock
repurchase program.
SEGMENT RESULTS
Water and Industrial Process Chemicals: Water and Industrial Process
--------------------------------------
Chemicals sales increased 4.0% to $403.1 and earnings from operations decreased
7.6% to $40.2. For the overall segment, selling volumes increased 7.8%. This
includes a 3.5% volume increase due to the acquisition of IMC in September of
1999 and a 3.5% volume decrease due to the divestiture of the Paper Chemicals
business on November 1, 2000. The increase in selling volumes was partially
offset by the adverse effects of exchange rate changes and lower selling prices,
which reduced sales approximately 2.5% and 1.3%, respectively. The lower
earnings from operations were primarily the result of higher raw material costs
of petroleum derivatives, such as propylene, net unfavorable exchange rate
changes, particularly in Europe, and lower selling prices which more than offset
the benefits from higher selling volumes and lower operating costs.
Performance Products: Performance Products sales increased 5.4% to $474.0
--------------------
and earnings from operations increased 10.1% to $56.8. For the overall segment,
selling volumes increased 8.6%, which includes a 3.4% volume increase due to the
acquisition of the BIP business in October of 1999. The higher selling volumes
were partially offset by the adverse effects of exchange rate changes, which
reduced sales by about 2.8% and lower selling prices, which were down about
0.4%. The segment serves a broad range of end markets, and during the fourth
quarter of 2000, demand in these markets began to reflect the slowing in the
U.S. and Asian economies. 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 net unfavorable exchange rate changes.
Specialty Materials: Specialty Materials sales decreased 5.5% to $411.6,
-------------------
while earnings from operations increased 1.2% to $85.9. Selling volumes
decreased 3.2% primarily due to lower Boeing commercial aircraft build rates and
Boeing's 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 1.8% and
0.6%, respectively. Selling prices were up about 0.1%. During the fourth quarter
of 2000, demand from the large commercial airliner market began to improve. The
growth in earnings from operations were primarily the result of lower raw
material costs and the benefits of the Company's manufacturing rationalization
programs.
Building Block Chemicals: Building Block Chemicals sales to external
------------------------
customers were $203.8, an increase of 18.8% from the previous year, and earnings
from operations were $12.7, an increase of 108.2% from the prior year. For the
overall segment, selling prices increased 26.1% and selling volumes decreased
1.6%, excluding a 3.3% volume decrease due to the divestiture of the methanol
plant in December of last year. The adverse effects of exchange rate changes
reduced sales another 2.4%. Sales were favorably impacted by a sharp increase in
acrylonitrile and acrylamide selling prices, although higher propylene and
natural gas costs more than offset the selling price increases. Earnings from
operations were favorably impacted by two major factors. First, improved plant
operations led to significantly higher production volumes of acrylonitrile,
thereby reducing manufacturing cost per unit. This in turn improved the overall
gross profit of the segment. The second factor was reduced plant spending.
During December 2000, the ammonia production facility was idled as high
natural gas costs together with relatively low ammonia prices made it
uneconomical to produce ammonia. The facility was started up again during the
first week of February 2001 as declining gas costs made it economical to produce
ammonia versus purchasing it from third parties. Due to the volatility of U.S.
natural gas markets, the Company is unable to predict with certainty whether the
plant will remain operational throughout 2001. See "Building Block Chemicals -
Other Building Block Chemicals" in Item 1, Business.
-24-
YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales for 1999 were $1,444.5, compared with $1,475.7 for 1998. The
decrease was due mainly to $57.6 of lower sales in the Specialty Materials
segment and $37.7 of lower sales in the Building Block Chemicals segment. This
decrease was partially offset by sales increases in the Water and Industrial
Process Chemicals and Performance Products segments of $24.2 and $40.1,
respectively (see Segment Results discussion below).
Net sales in the United States were $816.0 for 1999, compared with $907.2
for 1998. International net sales were $628.5 for 1999, or 43.5% of total sales,
compared with $568.5, or 38.5% of total sales, in 1998.
In the North America region, net sales were $880.9 for 1999, down 8.6% from
the prior year. The decrease was due mainly to a 4.4% decrease in selling
volumes (primarily in the Building Block Chemicals and Specialty Materials
segments) and lower selling prices, which were down about 4.2%.
In the Europe/Mideast/Africa region, net sales were $334.3 for 1999, up
7.3% from the prior year. The increase was due mainly to a 12.7% increase in
selling volumes. Selling volumes increased in the Performance Products and Water
and Industrial Process Chemicals segments. The increase in the Performance
Products segment was due mainly to the July 1998 acquisition of the Dyno
business and the October 1999 acquisition of the BIP business. The increase in
selling volumes was partially offset by lower selling prices, which reduced
sales about 3.6%, and the adverse effect of exchange rate changes, which reduced
sales by another 1.8%.
In the Asia/Pacific region, net sales were $152.9 for 1999, up 12.1% from
the prior year. The increase was due mainly to a 13.4% increase in selling
volumes (primarily in the Performance Products and Water and Industrial Process
Chemicals segments) and the favorable effect of exchange rate changes, which
increased sales another 2.1%. This increase was partially offset by lower
selling prices, which were down about 3.4%.
In the Latin America region, net sales were $76.4 for 1999, up 19.6% from
the prior year. The increase was due mainly to a 23.2% increase in selling
volumes, of which approximately one-third was from the acquisition of IMC. The
increase in selling volumes was partially offset by the adverse effect of
exchange rate changes, which reduced sales about 2.5%, and lower selling prices,
which reduced sales by another 1.1%.
Manufacturing cost of sales was $1,023.6 for 1999 and included a net
restructuring credit of $1.5. Excluding this credit, manufacturing cost of sales
was 71.0% of net sales, which as a percentage of sales was down slightly when
compared with $1,059.2, or 71.8%, of net sales for 1998. Manufacturing costs as
a percentage of net sales continued to benefit in 1999 from manufacturing
rationalization, restructuring benefits, improved product mix, and lower raw
material costs. Partially offsetting these benefits were the adverse effects of
price and selling volume decreases in the Building Block Chemicals and Specialty
Materials segments as well as price reductions in the Water and Industrial
Process Chemicals and Performance Products segments.
Selling and technical service expenses were $129.2 for 1999 and included a
restructuring charge of $0.3. Excluding this charge, selling and technical
service expenses decreased $3.1, which reflects the benefits of the Company's
efforts to contain costs in this area.
Research and process development expenses were $43.8 for 1999 and included
a restructuring charge of $1.7. Excluding this charge, research and process
development expenses decreased $0.8, primarily reflecting the Company's
decentralization of research to business units and restructuring initiatives at
the Stamford, Connecticut, research facility. Partially offsetting the decrease
were higher patent costs for 1999.
Administrative and general expenses were $51.7 for 1999, an increase of
$5.1 from 1998. Included in 1999 was a charge of $2.5 for external costs
associated with tax planning, higher costs associated with certain litigation
and a net restructuring charge of $0.1.
Amortization of acquisition intangibles increased $1.7 due to the
additional intangibles resulting from the acquisitions of the Nottingham
Company's industrial minerals product line in January 1999, the BOC Gases'
global phosphine fumigants product line in August 1999, IMC in September 1999
and the BIP business in October 1999. In addition, 1999 included a full year of
amortization for the Dyno business and AMT, which were acquired in July and
October 1998, respectively.
Other income, net, was $9.3 for 1999, a decrease of $5.2 from 1998.
Included in 1999 were gains of $4.5 from the sale of real estate, $2.2 from
royalty income and $1.6 from the sale of certain product lines. In 1998, other
income, net, included gains of $4.4 related to the sale of the bulk molding
compounds product line, $3.0 of other investment income and $3.8 on certain
investments in unaffiliated companies.
-25-
Equity in earnings of associated companies, which represents the Company's
before-tax share of its 50% owned associates' earnings, was down $14.7 primarily
due to lower sales and earnings by Criterion Catalyst. Industry over-capacity
and difficult economic conditions in the refining industry affected operations
at Criterion Catalyst. The result has been much lower selling prices and an
adverse product mix for hydrotreating catalysts. CYRO Industries earnings were
also down as selling prices and margins for certain of its products remain low.
In 1998 equity earnings included $2.1, representing the former Dyno-Cytec joint
venture's results prior to the purchase of the remaining 50% ownership in and
subsequent consolidation of the venture in July 1998.
Interest expense, net, was $26.9 for 1999 and increased $4.5 from 1998,
reflecting a full year of interest expense associated with the long-term debt
securities issued during 1998.
The income tax provision was $51.7 for 1999 and included a credit of $8.0
related to the utilization of prior years' tax credits. Excluding the impact of
this item, the Company reduced its underlying effective tax rate for the year to
34.5%, down from the 37.0% rate for 1998.
Net earnings for 1999 were $121.3, or $2.73 per diluted share, compared
with $124.7, or $2.68 per diluted share, for 1998. Diluted earnings per share in
1999 included a credit of $0.18 per diluted share related to the reduction in
income tax expense from the utilization of prior years' tax credits, which is
partially offset by a charge of $0.04 per diluted share for tax planning
expenses. In addition, diluted earnings per share in 1999 included a $0.01
charge related to the net effect of restructuring activities. Excluding these
three items, diluted earnings per share were $2.60 for 1999. Diluted earnings
per share in 1998 included a gain of $0.06 per diluted share from the sale of
the bulk molding compounds business. Excluding this gain, the diluted earnings
per share in 1998 were $2.62.
SEGMENT RESULTS
Water and Industrial Process Chemicals: Water and Industrial Process
--------------------------------------
Chemicals sales increased 6.7% to $387.5, and earnings from operations increased
30.0% to $43.5. The sales increase was primarily in mining chemicals. Overall,
selling volumes were up 10.1%, of which approximately 3.3% were from the
acquisitions of IMC and the Nottingham Company's industrial minerals product
lines. The increase in selling volumes was partially offset by lower selling
prices, which were down about 2.6%, and the adverse effect of exchange rate
changes, which reduced sales another 0.8%. The improved earnings from operations
were primarily the result of leverage from higher sales, lower raw material
prices and reduced operating costs.
Performance Products: Performance Products sales increased 9.8% to $449.8,
--------------------
and earnings from operations increased 24.9% to $51.6. Overall, selling volumes
were up 14.4%, of which approximately 9.5% were from amino coatings resins sales
generated as a result of the July 1998 acquisition of the Dyno business and the
October 1999 acquisition of the BIP business. The remaining 4.9% increase in
selling volumes was due mainly to stronger sales volumes in the polymer
additives product line. The increase in selling volumes was partially offset by
lower selling prices, which were down about 4.4%, and the adverse effect of
exchange rate changes, which reduced sales another 0.2%. The improved earnings
from operations were primarily the result of higher sales volumes and to a
lesser extent lower raw material prices and reduced operating costs.
Specialty Materials: Specialty Materials sales were $435.7, a decrease of
-------------------
11.7% from the previous year. Earnings from operations, however, improved 6.3%
to $84.9. Approximately 8.2% of the sales decrease was due to the divestiture of
the molding compounds and certain other product lines, partially offset by the
acquisition of AMT in the fourth quarter of 1998 which added approximately 3.7%
to sales. Excluding the effect of acquisitions and divestitures, selling volumes
were down 5.2% as a result of the decline in the commercial aircraft build rates
and were partially offset by new product introductions, new applications and new
qualifications for the Company's products. Selling prices decreased 1.8%, but
the decrease was largely offset by lower raw material costs. Earnings from
operations benefited from the rationalization of manufacturing facilities and
the removal of structural costs consistent with reduced commercial aircraft
build rates.
Building Block Chemicals: Building Block Chemicals sales were $171.5, an
------------------------
18.0% decrease. Earnings from operations were $6.1, compared with $34.3 in 1998.
For the segment overall, selling prices, primarily for acrylonitrile, were down
9.4%, and volumes and exchange rates were down another 7.9% and 0.7%,
respectively. Selling prices for acrylonitrile, which were weak for the first
six months of 1999, began to improve during the second half of the year, driven
mostly by unanticipated global acrylonitrile production outages and the growing
demand from Asian acrylic fiber markets. However, costs for propylene, the key
raw material for acrylonitrile, increased at a faster rate, and as a result,
acrylonitrile margins remained low. In addition, lower selling prices and
volumes of acrylamide and melamine, downtime at the acrylonitrile plant and
other operating difficulties negatively impacted earnings. In December 1999, the
Company sold to Methanex Corporation its 30% interest in the methanol
manufacturing joint venture. The methanol plant had been shut down since March
1999 due to poor economics.
-26-
LIQUIDITY AND FINANCIAL CONDITION
At December 31, 2000, the Company's cash balance was $56.8, an increase of
$44.8 from year-end 1999.
Net cash flows provided by operating activities totaled $107.6 for the year
ended December 31, 2000, compared with $199.2 for the year ended December 31,
1999. The decrease in operating cash was primarily due to higher working capital
levels. Trade receivables increased due to a higher mix of international sales.
Other receivables increased due, in part, to the environmental insurance
settlements, which were reached earlier in the year and are being paid in
quarterly installments over two years. Also contributing to the higher
receivables balance were swap receivables, principally related to acrylonitrile,
which increased over last year. Inventory levels increased in the fourth quarter
when economic slowing in some markets reduced customer demand. Included in 2000
net cash flows provided by operating activities were taxes paid of approximately
$7.5 resulting from the sale of the Company's interest in Criterial Catalyst
Company L.P., prefunding to the Company's Voluntary Employees Benefit
Association (VEBA) Trust accounts of $10.0 over 1999 amounts, $7.3 net recovery
of Paper Chemicals receivables and $11.2 of proceeds allocated from the sale of
the Paper Chemicals business for the long-term manufacturing agreement with
Bayer Corporation.
Payments against restructuring reserves were $4.4 in 2000, compared with
$16.6 in 1999. At December 31, 2000, the restructuring liabilities to be paid
were $9.9. The spending is expected to be completed by the end of 2001.
Environmental remediation spending for the years ended December 31, 2000, 1999
and 1998 was $15.3, $18.6 and $23.8, respectively. At December 31, 2000, the
environmental reserve balance was $106.0, of which $20.0 was included in accrued
expenses. Postretirement Benefits Other Than Pension ("OPEB") spending for the
years ended December 31, 2000, 1999 and 1998 was $39.0, $27.7 and $25.2,
respectively. The Company expects spending for environmental remediation and
OPEB (excluding pre-funding, if any), in 2001 to be similar to 2000 levels,
though there can be no assurance that the Company's annual cash expenditures for
environmental remediation or OPEB will not be higher in the future (see Note 9
and Note 12 of the Notes to the Consolidated Financial Statements with respect
to environmental matters and OPEB).
Net cash flows provided by investing activities totaled $97.6 for the year
ended December 31, 2000, compared with net cash flows used for investing
activities of $140.4 for the year ended December 31, 1999. Included in 2000 were
pre-tax proceeds of $104.3 from the sale of the Paper Chemicals business, $63.0
received from the sale of the Company's interest in the Criterion Catalyst joint
venture and funding of $2.5 for the Company's one-third equity interest in
PolymerAdditives.com, LLC.
Included in 1999 was funding of $69.8 for the acquisitions of the
Nottingham Company's industrial minerals product line ($4.0), the BOC Gases'
global phosphine fumigants product line ($3.5), IMC ($25.1) and the BIP business
($37.2) and a $5.0 loan to Criterion Catalyst Company L.P. Also included in 1999
were proceeds of $5.9 received from the sale of the molding compounds product
lines and $5.9 from the sale of other assets. Funding for capital additions was
$76.5 for the year ended December 31, 2000, compared with $77.4 in 1999. The
Company expects capital spending for the year 2001 to be approximately $80.0.
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 in 2001.
Net cash flows used for financing activities totaled $158.5 for the year
ended December 31, 2000, compared with $47.5 for the year ended December 31,
1999. In 2000 the Company purchased 2,161,700 shares of Treasury Stock at a cost
of $63.1, while in 1999 the Company purchased 1,784,045 shares of Treasury Stock
at a cost of $42.5. Also in 2000 the Company paid-down $102.9 of its long-term
debt.
During November 2000 the Company completed the $100.0 share repurchase
program that was announced on January 25, 1999. The Company repurchased a total
of 3,784,254 shares of its outstanding common stock under this program. On
November 2, 2000, the Company announced a new program to spend up to $100.0 to
repurchase shares of the Company's outstanding common stock. The repurchases
will be made from time to time on the open market or in private transactions and
will be utilized for stock option plans, benefit plans and other corporate
purposes. Through December 31, 2000, the Company had repurchased 161,491 shares
at a cost of $5.5 under this new program.
In connection with the Company's stock repurchase program, during the year
ended December 31, 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
entitled the holders 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. Prior to December 31, 2000, the put options expired unexercised. The
Company received premiums of approximately $0.6 on the sale of such put options.
In January 2001 the Company sold an additional 100,000 put options that expire
in July 2001 and 100,000 put options that expire in August 2001 at exercise
prices of $31.528 per share and $31.347 per share, respectively. The Company has
received
-27-
premiums of approximately $0.5 on the sale of such put 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 Company must maintain certain financial covenants contained in its
Series C Cumulative Preferred Stock ("Series C Stock") held by MDP Holdings,
Inc., a wholly owned subsidiary of the American Cyanamid Company ("Cyanamid"),
which in turn is a wholly owned subsidiary of American Home Products
Corporation. The Company must maintain a debt-to-equity ratio of no more than
2-to-1, a minimum fixed charge coverage ratio of not less than 3-to-1 for the
average of the fixed charge coverage ratios for the four consecutive fiscal
quarters most recently ended and must not incur more than $150.0 of debt unless
the Company's equity is in excess of $200.0. If the Company has more than $200.0
in equity, then it may incur additional debt as long as its ratio of
debt-to-equity is not more than 1.5-to-1. At December 31, 2000, the Company had
$320.0 of debt and $616.1 of equity as defined in the Series C Stock covenant
and under the revised terms, would have the ability to incur up to an additional
$604.2 in debt.
On January 22, 1999, the Company signed an agreement with Cyanamid
providing that Cyanamid would irrevocably waive certain financial covenants
contained in the 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
in special restricted payments solely for the purpose of repurchasing its common
stock. During November 2000 the Company completed the share repurchases under
this agreement. The Company repurchased a total of 3,784,254 shares of its
outstanding common stock under this agreement. At December 31, 2000, restricted
payments permitted under the Series C Stock were limited to $109.9.
At December 31, 2000, the Company's Credit Facility provided for unsecured
revolving loans ("Revolving Loans") of up to $200.0. The Revolving Loans are
available for the general corporate purposes of the Company and its
subsidiaries, including, without limitation, for purposes of making acquisitions
permitted under the Credit Facility. There were no borrowings outstanding under
the Credit Facility at December 31, 2000, and $103.0 of outstanding borrowings
under the Credit Facility at December 31, 1999. The Credit Facility, which is
scheduled to mature on July 28, 2002, contains covenants customary for such
facilities. The Company was in compliance with all terms, covenants and
conditions of the Credit Facility at December 31, 2000.
On July 14, 2000, the Company terminated a 364-day credit facility, dated
August 20, 1999, which provided up to $200.0 in unsecured revolving loans for
general corporate purposes. During its term there were no borrowings made under
this credit facility.
At December 31, 2000, $10.0 was available for short-term use under an
uncommitted credit facility and a U.S. dollar equivalent of approximately $14.8
was available under a foreign currency denominated overdraft facility. At
December 31, 1999, an aggregate of $35.0 was available for short-term use under
three uncommitted credit facilities and a U.S. dollar equivalent of
approximately $16.0 was available under a foreign currency denominated overdraft
facility. There were no outstanding borrowings under these facilities at
December 31, 2000 and 1999.
During 1998 the Company sold an aggregate of $320.0 principal amount of
senior debt securities in public offerings, consisting of (i) $100.0 principal
amount of 6.50% Notes due March 15, 2003, (ii) $100.0 principal amount of 6.75%
Notes due March 15, 2008 and (iii) $120.0 principal amount of 6.846% MandatOry
Par Put Remarketed SecuritiesSM (MOPPRSSM) due May 11, 2025. The Company
received an aggregate of approximately $322.0 in proceeds from the sales before
deducting expenses associated with the sales. The proceeds were used primarily
to refinance the acquisition of substantially all the assets of Fiberite Inc.
The Company has on file with the Securities and Exchange Commission an
effective shelf registration statement covering $400.0 of debt securities, which
may be offered by the Company from time to time. Proceeds of any sale will be
used for general corporate purposes, which may include replacement of
indebtedness and other liabilities, share repurchases, additions to working
capital, capital expenditures and acquisitions. The Company has no immediate
plans to offer securities under the registration statement.
At December 31, 2000, the Company was party to four interest rate swap
agreements with an aggregate notional value of $80.0. Two of the swap agreements
with maturity dates during 2001 have virtually offsetting terms. Another swap
agreement effectively converts $20.0 of variable rate interest obligations to
6.25% fixed rate obligations. The maturity date of this swap agreement is
November 1, 2001. The fourth interest rate swap agreement, which effectively
converted $25.0 of the Company's 6.75% fixed rate borrowings due on March 15,
2008, to a floating rate, was terminated during January 2001. Under the terms of
the termination agreement, the Company received approximately $0.5 in cash. The
fair value of the interest swap agreements, which was approximately $(0.2) at
December 31, 2000 and $(1.2) at December 31, 1999, is not recognized in the
financial statements. Interest rate differentials paid or received under the
agreements are recorded as adjustments to interest expense. For
-28-
further discussion about the interest rate swap agreements and other financial
instruments see Note 4 to the Consolidated Financial Statements and further
discussions in the Quantitative and Qualitative Disclosures About Market Risk
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Commencing in September 1997, the Company entered into a series of rate
lock agreements to hedge against the risk of an increase in treasury rates
related to the Company's offering of $300.0 in long-term debt securities. The
Company made payments aggregating approximately $11.2 to settle the rate lock
agreements ($9.6 of which was paid during the first half of 1998 and the
remainder in 1997), which is being amortized over the life of the 6.50% Notes,
6.75% Notes and 6.846% MOPPRSSM as an increase in interest expense of such
Notes. The amount of unamortized rate lock agreements included in long-term debt
was $8.4 at December 31, 2000, and $9.4 at December 31, 1999.
The impact of inflation on the Company is considered insignificant since
the rate of inflation has remained relatively low in recent years and
investments in areas of the world where inflation poses a risk have been
significantly hedged to mitigate the effects of inflation.
Item 7A Quantitative and Qualitative Disclosure 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 exchange 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 exchange 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 does not hold or issue 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.
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 utilizes foreign exchange forward contracts
to hedge accounts receivable, accounts payable, and intercompany loans
denominated in a currency other than the functional currency of the business.
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, 2000, the Company had net foreign exchange contracts to
purchase an aggregate of $32.5 of Dutch guilders, German marks and British
pounds and to sell an aggregate of $2.6 of French francs and Argentine pesos for
U.S. dollars. The Company also had net contracts to sell Dutch guilders with a
value equivalent to $22.2 for British pounds, contracts to purchase Dutch
guilders with a value equivalent to $0.5 for other currencies, contracts to
purchase Norwegian krone with a value equivalent to $2.6 for other European
currencies and contracts to sell euros with a value equivalent to $1.4 for
British pounds. The fair value of foreign exchange contracts, based on exchange
rates at December 31, 2000, exceeded contract values by approximately $0.6.
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 $3.7.
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 correlates highly to the actual
purchases of the commodity and has 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, 2000, there were no natural gas derivative
contracts outstanding.
-29-
Interest Rate Risk: At December 31, 2000, the financial liabilities of the
------------------
Company consisted primarily of fixed rate long-term debt, which had a carrying
value of $311.2 and a fair value of approximately $303.1. Additionally, the
Company was party to four interest rate swap agreements with an aggregate
notional value of $80.0. Two of the swap agreements have virtually offsetting
terms. Another swap agreement effectively converts $20.0 of variable rate
interest obligations to 6.25% fixed rate obligations and has a maturity date of
November 1, 2001. The fourth interest rate swap agreement, which effectively
converted $25.0 of the Company's 6.75% fixed rate borrowings due on March 15,
2008, to a floating rate, was terminated during January 2001. Assuming other
factors are held constant, interest rate changes generally affect the fair value
of fixed rate debt but do not impact earnings or cash flows. Conversely,
interest rate changes generally do not affect the fair value of variable rate
debt but do impact the future earnings and cash flows. The net notional value of
interest rate swap agreements subject to interest rate risk at December 31,
2000, was $5.0. Assuming a hypothetical increase of 1% in interest rates and all
other variables were to remain constant, the net increase in interest expense
would be immaterial and the fair market value of the fixed rate long-term debt
would decrease $11.3.
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, 2000, there were no put options outstanding.
OTHER
2001 Outlook: It is expected that increasing raw material prices and
------------
slowing in parts of the U.S. and Asian economies will negatively impact some
parts of the Company's business in 2001, particularly in the first quarter of
2001. As a result, the Company's sales growth and earnings per share growth
objectives are not expected to be achieved in 2001. The Company has quantified
its earnings expectations for the full year of 2001 to be in a range of $2.60 to
$2.70 per diluted share.
In the Water and Industrial Process Chemicals segment, the Company believes
that its technology, acquisitions and sales volume increases provide the
opportunities to meet its growth goals in 2001. In the Performance Products
segment, the Company believes that slowing economic growth will reduce sales to
the plastics, automotive and industrial coatings markets. Moreover, the Company
believes margins in this segment will also be reduced by the escalation of costs
of natural gas and methanol derivatives, key intermediates that are used in the
manufacture of many of the Company's Specialty Resins products. The Company
believes that these external factors will make it difficult to achieve its 2001
profit growth goals.
In the Specialty Materials segment, the Company believes it will continue
to see solid growth in demand from its military, commuter and business jet
customers. There is also increasing demand for large commercial aircraft. In
2001 this segment may surpass the Company's goals for sales and profit growth.
In the Building Block Chemicals segment, the Company believes that it will be
significantly impacted by the rapid increase in raw material and energy costs,
particularly of natural gas in the United States. A combination of slowing
demand and increased competitive supply of the commodities produced by this
segment has not supported adequate price increases to recover the cost
increases. It is likely that this segment will generate a moderate operating
loss in 2001.
Large increases in raw material costs and operational problems together
with a major softening of end-market demand have led to a dramatic worsening of
the financial condition of AC Molding Compounds. Due to operating losses, the
Company's net investment in Ac Moldings is now valued at zero, and the Company
is no longer recognizing its share of the losses of the joint venture. The
Company and its joint venture partner have indicated an unwillingness to invest
further in AC Molding Compounds. During the fourth quarter of 2000, the Company
recorded a provision of $4.8 against receivables due from the AC Molding
Compounds joint venture. The Company continues to aggressively explore its
strategic options for this joint venture with its partner.
LaRoche Industries Inc. and LaRoche Fortier Inc., the Company's partner in
Avondale Ammonia Company, filed for bankruptcy under Chapter 11 during May 2000.
Although LaRoche Fortier Inc. "rejected" the Avondale Ammonia Company
partnership agreement and related ammonia supply agreement effective September
1, 2000, it retains a 50% interest in the assets of the partnership. The
manufacturing facility was idled in December 2000 and January 2001 due to
excessively high natural gas costs. The facility was restarted in February 2001.
When the facility is operating the Company acts as an agent and purchases from
Avondale Ammonia Company 100% of the plant's output for external needs and sales
to third parties. In the fourth quarter of 2000, the Company recorded a
provision of $1.4 ($0.9 after-tax, or $0.02 per diluted share) against
receivables due from the Avondale Ammonia Company. See "Building Block Chemicals
Segment - Other Building Block Chemicals" in Item 1.
-30-
Euroconversion: On January 1, 19999, 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.
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 2001. The Company does not currently believe that the
euro conversion will have a material operational impact.
-31-
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Consolidated Balance Sheets
December 31,
- ---------------------------------------------------------------------------------------------------
(Dollars in millions, except share and per share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 56.8 $ 12.0
Accounts receivable, less allowance for doubtful accounts of
$8.8 and $9.3 in 2000 and 1999, respectively 271.4 248.5
Inventories 162.7 139.5
Deferred income taxes 42.6 61.7
Other current assets 34.3 29.4
- ---------------------------------------------------------------------------------------------------
Total current assets 567.8 491.1
- ---------------------------------------------------------------------------------------------------
Investment in associated companies 94.8 146.4
Plants, equipment and facilities, at cost 1,326.3 1,352.6
Less: accumulated depreciation (710.1) (696.9)
- ---------------------------------------------------------------------------------------------------
Net plant investment 616.2 655.7
- ---------------------------------------------------------------------------------------------------
Acquisition intangibles, net of accumulated amortization of
$45.2 and $32.7 in 2000 and 1999, respectively 384.4 395.2
Deferred income taxes 36.8 48.8
Other assets 19.4 13.3
- ---------------------------------------------------------------------------------------------------
Total assets $1,719.4 $1,750.5
- ---------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 111.0 $ 118.5
Accrued expenses 179.6 198.4
Income taxes payable 68.3 49.2
- ---------------------------------------------------------------------------------------------------
Total current liabilities 358.9 366.1
- ---------------------------------------------------------------------------------------------------
Long-term debt 311.2 413.1
Other noncurrent liabilities 433.1 465.5
Contingent Liabilities and Commitments (Notes 4 and 9)
Stockholders' equity
Preferred stock, 20,000,000 shares authorized;
issued and outstanding 4000 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 154.7 159.8
Retained earnings 755.1 577.5
Unearned compensation (3.9) (1.9)
Additional minimum pension liability (1.9) -
Accumulated translation adjustments (32.7) (14.3)
Treasury stock, at cost, 7,966,229 shares
in 2000, and 6,522,967 shares in 1999 (255.7) (215.9)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 616.2 505.8
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,719.4 $1,750.5
- ---------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
-32-
Consolidated Statements of Income
Years ended December 31,
(Dollars in millions, except per share amounts) 2000 1999 1998
- -----------------------------------------------------------------------------
Net sales $1,492.5 $1,444.5 $1,475.7
Manufacturing cost of sales 1,078.7 1,023.6 1,059.2
Selling and technical services 138.5 129.2 132.0
Research and process development 38.6 43.8 42.9
Administrative and general 47.7 51.7 46.6
Amortization of acquisition intangibles 12.4 11.2 9.5
- -----------------------------------------------------------------------------
Earnings from operations 176.6 185.0 185.5
Other income, net 104.6 9.3 14.5
Equity in earnings of associated companies 15.0 5.6 20.3
Interest expense, net 25.1 26.9 22.4
- -----------------------------------------------------------------------------
Earnings before income taxes 271.1 173.0 197.9
Income tax provision 93.5 51.7 73.2
- -----------------------------------------------------------------------------
Net earnings $ 177.6 $ 121.3 $ 124.7
- -----------------------------------------------------------------------------
Earnings per common share
Basic $ 4.34 $ 2.83 $ 2.79
Diluted $ 4.15 $ 2.73 $ 2.68
- ------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
-33-
Consolidated Statements of Cash Flows
Years ended December 31,
- --------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Cash flows provided by (used for)
operating activities
Net earnings $ 177.6 $ 121.3 $ 124.7
Noncash items included in net earnings:
Dividends from associated companies
greater (less) than earnings (10.9) 0.2 (13.8)
Depreciation 80.0 81.9 78.0
Amortization 16.6 13.2 9.2
Deferred income taxes 32.1 24.3 19.2
Gain on sale of assets (62.3) (4.2) (6.9)
Other (0.1) (0.5) (0.2)
Changes in operating assets and liabilities:
Accounts receivable (28.7) (8.7) 3.9
Inventories (30.8) 3.3 1.1
Accounts payable (1.3) 19.9 (25.2)
Accrued expenses (11.9) (29.0) (19.5)
Income taxes payable (5.3) 9.8 26.1
Other assets (10.2) (0.6) (8.6)
Other liabilities (37.2) (31.7) (35.7)
- --------------------------------------------------------------------------------
Net cash flows provided by operating activities 107.6 199.2 152.3
- -------------------------------------------------------------------------------
Cash flows provided by (used for)
investing activities
Additions to plants, equipment and facilities (76.5) (77.4) (103.8)
Proceeds received on sale of assets 177.6 11.8 25.9
Acquisition of businesses, net of cash received (1.0) (69.8) (73.8)
Investment in unconsolidated affiliates (2.5) - -
Change in other assets - (5.0) 4.8
- -------------------------------------------------------------------------------
Net cash flows provided by
(used for) investing activities 97.6 (140.4) (146.9)
- --------------------------------------------------------------------------------
Cash flows provided by (used for)
financing activities
Proceeds from the exercise of
stock options and warrants 6.9 1.1 3.3
Purchase of treasury stock (63.1) (42.5) (113.4)
Change in short-term borrowings - (10.3) 10.3
Change in long-term debt (102.9) 3.0 97.7
Debt issuance costs - - (9.4)
Proceeds received on sale of put options 0.6 1.2 1.0
- -------------------------------------------------------------------------------
Net cash flows used for financing activities (158.5) (47.5) (10.5)
- --------------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (1.9) (1.0) 0.4
- -------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 44.8 10.3 (4.7)
Cash and cash equivalents, beginning
of period 12.0 1.7 6.4
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 56.8 $ 12.0 $ 1.7
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
-34-
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
Additional
Additional Unearned Minimum Accumulated
Preferred Common Paid-in Retained Compen- Pension Translation Treasury
(Dollars in millions) Stock Stock Capital Earnings sation Liability Adjustments Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $0.1 $0.5 $203.9 $331.5 $(3.5) $ -- $ (6.9) $(138.2) $ 387.4
Net earnings -- -- -- 124.7 -- -- -- -- 124.7
Other comprehensive income:
Translation adjustments -- -- -- -- -- -- 1.8 -- 1.8
------
Comprehensive income 126.5
Award of, and changes in,
performance and restricted stock -- -- (4.5) -- 2.1 -- -- 1.3 (1.1)
Amortization of performance
and restricted stock -- -- -- -- (0.3) -- -- -- (0.3)
Purchase of treasury stock -- -- -- -- -- -- -- (113.4) (113.4)
Issuance pursuant to acquisition -- -- (29.5) -- -- -- -- 51.8 22.3
Exercise of stock options -- -- (13.8) -- -- -- -- 17.1 3.3
Premiums received on sale of
put options -- -- 1.0 -- -- -- -- -- 1.0
Tax benefit on stock options -- -- 5.3 -- -- -- -- -- 5.3
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $0.1 $0.5 $162.4 $456.2 $(1.7) $ -- $ (5.1) $(181.4) $ 431.0
Net earnings -- -- -- 121.3 -- -- -- 121.3
Other comprehensive income:
Translation adjustments -- -- -- -- -- -- (9.2) -- (9.2)
------
Comprehensive income 112.1
Award of, and changes in,
performance and restricted stock -- -- (0.7) -- (1.6) -- -- 2.6 0.3
Amortization of performance and
restricted stock -- -- -- -- 1.4 -- -- -- 1.4
Compensation costs on variable
stock option award -- -- 0.7 -- -- -- -- -- 0.7
Purchase of treasury stock -- -- -- -- -- -- -- (42.5) (42.5)
Issuance pursuant to acquisition -- -- 0.6 -- -- -- -- (0.2) 0.4
Exercise of stock options and
warrants -- -- (4.5) -- -- -- -- 5.6 1.1
Premiums received on sale of
put options -- -- 1.2 -- -- -- -- -- 1.2
Tax benefit on stock options -- -- 0.1 -- -- -- -- -- 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $0.1 $.0.5 $159.8 $577.5 $(1.9) $ -- $(14.3) $(215.9) $ 505.8
Net earnings -- -- -- 177.6 -- -- -- -- 177.6
Other comprehensive income:
Minimum pension liability
adjustment, net of $(1.0)
deferred income taxes -- -- -- -- -- (1.9) -- -- (1.9)
Translation adjustments -- -- -- -- -- -- (18.4) -- (18.4)
------
Comprehensive income 157.3
Award of, and changes in,
performance and restricted stock -- -- 2.8 -- (5.5) -- -- 2.7 --
Amortization of performance
and restricted stock -- -- -- -- 3.5 -- -- -- 3.5
Compensation costs on variable
stock option award -- -- 0.7 -- -- -- -- -- 0.7
Purchase of treasury stock -- -- -- -- -- -- -- (63.1) (63.1)
Exercise of stock options -- -- (13.7) -- -- -- -- 20.6 6.9
Premiums received on sale
of put options -- -- 0.6 -- -- -- -- -- 0.6
Tax benefit on stock options -- -- 4.5 -- -- -- -- -- 4.5
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $0.1 $0.5 $154.7 $755.1 $(3.9) $(1.9) $(32.7) $(255.7) $ 616.2
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
-35-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share amounts, unless otherwise
indicated)
1) SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation: The financial statements include the accounts
---------------------------
of the Company and its subsidiaries on a consolidated basis. All significant
intercompany transactions and balances have been eliminated. The equity method
of accounting is used for investments in associated companies that the Company
does not control, but over whose operating and financial policies the Company
has the ability to exercise significant influence. Certain reclassifications
have been made to prior years' financial statements in order to make them
conform with the current year's presentation.
Foreign Currency Translation: The results of operations for non-U.S.
----------------------------
subsidiaries are translated from local currencies into U.S. dollars using the
average exchange rate during each period. Assets and liabilities are translated
using exchange rates at the end of the period with translation adjustments
accumulated in stockholders' equity.
Depreciation and Amortization: Depreciation is provided primarily on a
-----------------------------
straight-line composite method over the estimated useful lives of various
classes of assets. When such depreciable assets are sold or otherwise retired
from service, their costs, less amounts realized on sale or salvage, are charged
or credited to the accumulated depreciation account. Expenditures for
maintenance and repairs are charged to current operating expenses. Acquisitions,
additions and betterments, either to provide necessary capacity, improve the
efficiency of production units, modernize or replace older facilities or to
install equipment for protection of the environment, are capitalized.
Intangibles resulting from business acquisitions are carried at cost and
amortized on a straight-line basis over a period of up to 40 years, unless, in
the opinion of management, their lives are limited. The Company capitalizes
interest costs incurred during the period of construction of plant and
equipment. The interest costs capitalized in 2000, 1999 and 1998 were immaterial
to the consolidated financial statements.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of:
-----------------------------------------------------------------------
Long-lived assets and intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to the future undiscounted net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less the cost to sell.
Cash and Cash Equivalents: Securities with maturities of three months or
-------------------------
less when purchased are considered to be cash equivalents.
Financial Instruments: Financial instruments reflected in the consolidated
---------------------
balance sheets include cash and cash equivalents, accounts receivable, certain
other assets, short-term debt, accounts payable, long-term debt and certain
other liabilities. Fair values are determined through a combination of
management estimates and information obtained from independent third parties
using the latest available market data.
The Company also uses derivative financial instruments in accordance with
Company-established policies to manage exposure to fluctuations in interest
rates, foreign exchange rates, certain raw material prices and in connection
with the Company's stock repurchase program. Derivative financial instruments
utilized by the Company include interest rate swaps, interest rate lock
agreements, foreign currency exchange contracts, commodity contracts including
forward contracts and other hedging arrangements (predominantly cash-settled
swap transactions) and put options indexed to the Company's stock. The Company
does not hold or issue derivative 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.
The Company uses fixed and floating interest rate swap agreements to
synthetically obtain lower cost borrowings and to alter its exposure to the
impact of changing interest rates on the consolidated results of operations and
future cash outflows for interest. The fair value of the swap agreements is not
recognized in the financial statements. Interest rate differentials paid or
received under the agreements are recorded as adjustments to interest expense.
Foreign exchange forward contracts are utilized by the Company to hedge
accounts receivable, accounts payable and intercompany loans that are
denominated in a currency other than the functional currency of the business.
The Company's criteria to qualify for hedge accounting is that the instrument
must relate to a foreign currency asset or liability whose terms have been
identified, be in the same currency as the hedged item, have a maturity date
that strongly correlates to the maturity date of the
-36-
underlying transaction and reduce the risk of exchange movement on the Company's
operations. 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.
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 purchase of natural gas used primarily for utilities.
The maturities 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 can 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.
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.
Inventories: Inventories are carried at the lower of cost or market. Cost
-----------
is determined on the last-in, first-out (LIFO) method for substantially all
inventories in the United States with all other inventories determined on the
first-in, first-out (FIFO) or average cost method.
Income Taxes: Income taxes are accounted for under the asset and liability
------------
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment date.
If repatriation of the undistributed earnings of the Company's foreign
subsidiaries and associated companies is anticipated, then income taxes are
provided for such earnings.
Postretirement and Postemployment Benefits: The Company sponsors
------------------------------------------
postretirement and postemployment benefit plans. The net periodic costs are
recognized for these plans as employees render the services necessary to earn
the related benefits.
Revenue Recognition: The Company's revenue-earning activities involve
-------------------
delivering or producing goods, and revenues are considered to be earned when the
Company has completed the process by which it is entitled to such revenues. The
following criteria are used for revenue recognition: persuasive evidence of an
arrangement exists, delivery has occurred, selling price is fixed or
determinable, collection is reasonably assured.
Earnings Per Share: Basic earnings per common share excludes dilution and
------------------
is computed by dividing net earnings less preferred stock dividends 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 less preferred dividends 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 period.
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.
Stock-Based Compensation: The Company continues to account for stock-based
------------------------
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations under which no compensation cost is generally recognized
for stock options granted, since the Company grants options at a price equal to
the market price of the stock at the date of grant. Compensation cost for
restricted stock is recorded based on the market value on the date of grant, and
compensation cost for performance stock is recorded based on the quoted
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market price of the Company's common stock at the end of each period through the
date of vesting. The compensation cost of restricted and performance stock is
charged to Stockholders' Equity and amortized to expense over the requisite
vesting periods.
Current and Pending Accounting Changes: During the fourth quarter of 2000,
--------------------------------------
the Company adopted Emerging Issues Task Force Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs" ("EITF 00-10"), and upon adoption, the
Company reclassified certain prior period comparative amounts in the
Consolidated Statements of Income. EITF 00-10 prohibits the netting of shipping
and handling costs against shipping and handling revenues. EITF 00-10 permits
companies to adopt a policy of including shipping and handling costs in
manufacturing cost of sales or other income statement line items. The Company
previously followed the common practice of netting shipping costs against
shipping revenues as a component of net sales, while handling costs, such as
warehousing expenses, were included as a component of selling and technical
services expense. As a result of reclassifying shipping costs to manufacturing
cost of sales, previously reported sales increased $32.0 in 1999 and $31.2 in
1998. As a result of reclassifying handling and warehousing expenses to
manufacturing cost of sales, previously reported selling and technical service
expenses decreased $20.8 in 1999 and $21.4 in 1998. Previously reported
manufacturing costs of sales are commensurately higher. These reclassifications
had no effect on previously reported operating profit or net income.
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, as
amended, establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative instruments
embedded in other contracts. In general SFAS 133 requires an entity to recognize
all derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. It further provides criteria for derivative
instruments to be designated as "fair value," "cash flow" or "foreign currency"
hedges and establishes accounting standards for reporting changes in the fair
value of derivative instruments. If a derivative is deemed to be an effective
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against changes in fair value of the hedged
assets, liabilities or firm commitments through earnings or recognized on an
after-tax basis in accumulated other comprehensive income within the equity
section of the balance sheet until such time that the hedged item is recognized
in earnings. Derivatives that are not hedges as well as the ineffective portion
of hedges must be adjusted to fair value through earnings. In connection with
the Company's risk management strategies, the Company holds certain foreign
exchange, commodity and interest rate instruments that have been deemed
derivatives pursuant to the criteria established in SFAS 133. Upon adoption the
Company will be required to adjust certain of these derivatives to fair value in
the balance sheet and recognize the offsetting gains or losses as adjustments to
earnings or accumulated other comprehensive income, as appropriate. SFAS 133
will become effective for the Company beginning January 1, 2001. The Company
does not believe that the implementation of SFAS 133 will have a material effect
on the Company's results of operations or financial position.
Risks and Uncertainties: The Company is engaged primarily in the
-----------------------
manufacture and sale of highly diversified lines of chemical products and
materials throughout the world. The Company's revenues are dependent on the
continued operation of its various manufacturing facilities. The operation of
manufacturing plants involves many risks, including the breakdown, failure or
substandard performance of equipment, natural disasters and the need to comply
with directives of government agencies. The occurrence of operational problems,
including, but not limited to, the above events, may have a materially adverse
effect on the productivity and profitability of a particular manufacturing
facility or with respect to certain facilities, on the Company as a whole during
the period of such operational difficulties.
The Company's operations are also subject to various hazards incidental to
the production, use and sale of industrial chemicals and materials, including
the use, handling, processing, storage and transportation of certain hazardous
materials. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, environmental damage and
suspension of operations. Claims arising from any future catastrophic occurrence
involving the Company, or any future exposure to the Company's products, raw
materials or intermediates may result in the Company being named as a defendant
in lawsuits potentially asserting large claims.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The Company
is exposed to credit losses in the event of nonperformance by counterparties on
foreign exchange contracts and other risk management instruments. The
counterparties to these transactions are major financial institutions and, thus,
the Company considers the risk of default to be minimal. The Company does not
require collateral or other security to support the financial instruments with
credit risk.
The Company's international operations are subject to various risks which
are not present in domestic operations, including political instability, the
possibility of expropriation, restrictions on royalties, dividends and currency
remittances and instabilities of foreign currencies. The Company does not
believe that there is currently any material likelihood of a material adverse
effect on the Company in connection with its existing foreign operations.
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In conformity with generally accepted accounting principles, the management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosures of contingent
liabilities and pro forma compensation expense in order to prepare the Company's
consolidated financial statements. Actual results could differ from these
estimates.
2) ACQUISITIONS AND DISPOSITIONS
During 2000 the Company completed the following disposition transactions:
On November 1, 2000, the Company completed the sale of its paper chemicals
sizing and strength business to Bayer Corporation and the direct sales portion
of its retention and drainage aids and fixative products business to Ciba
Specialty Chemicals Water Treatments, Inc. The Company also agreed to produce
paper chemicals for Bayer Corporation under a long-term manufacturing agreement
to which the Company allocated proceeds of $11.2 which were recorded as deferred
revenue. This deferred revenue will be recognized over the term of the
manufacturing agreement. The Company received net cash proceeds of $115.5 in
connection with these transactions and recorded in other income, net, a pre-tax
gain of $88.3. Included in the sale were the sales, marketing, research and
development and technical services personnel and the dedicated field and
laboratory equipment associated with the respective businesses. The Company
retained approximately $18.1 of Paper Chemicals accounts receivable and all of
its Water and Industrial Process Chemicals production facilities. Paper
Chemicals sales were $97.9, $106.4 and $111.8 in 2000, 1999 and 1998,
respectively. Approximately $30.5 of taxes due on this divestiture will be paid
in 2001.
On July 10, 2000, the Company completed the sale of two subsidiaries, which
owned its 50% interest in Criterion Catalyst Company LP ("Criterion"), to its
joint venture partner CRI International, Inc., a company of the Royal Dutch
Shell Group, for cash consideration of $63.0. The consideration received
approximated the carrying value of the Company's investment, which was included
in investment in associated companies. The sale resulted in taxes paid of
approximately $7.5.
During 1999 the Company completed the following acquisition and disposition
transactions:
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 is
being amortized on a straight-line basis over a period of up to 40 years. The
acquired business has been integrated into the Company's Performance Products
segment. BIP retained its manufacturing plant in Oldbury, United Kingdom, where
it continues to manufacture certain amino coatings resins for Cytec under a
long-term agreement.
On September 16, 1999, the Company acquired Inspec Mining Chemicals S.A.
from Laporte plc for $25.1, net of $0.8 cash received. At the date of
acquisition, the purchase price exceeded the estimated fair value of the
identifiable assets acquired by $19.0. Based on valuation studies completed
during 2000, the fair value of the assets acquired was revised, resulting in a
$2.8 increase to goodwill. The $2.8 adjustment along with the original $19.0
excess of the purchase price over the identifiable net assets acquired is being
amortized on a straight-line basis over a period of up to 40 years from the
original date of acquisition. The acquisition, which included two manufacturing
operations and a research and development center located in Chile, has been
integrated into the Company's Water and Industrial Process Chemicals segment.
On August 11, 1999, the Company acquired assets of the global phosphine
fumigants product line from BOC Group Inc. for $3.5. The purchase price exceeded
the fair value of the identifiable assets acquired by $1.2. The terms of the
acquisition provided for two additional payments aggregating up to $1.0 to be
paid upon approval by the U.S. Environmental Protection Agency of certain
fumigant registrations. The contingencies for these payments were met during
2000, and $1.0 was paid and recorded as additional goodwill. The $1.0 of
additional consideration along with the original $1.2 excess of the purchase
price over the identifiable net assets acquired is being amortized on a
straight-line basis over a period of up to 20 years from the original date of
acquisition. The terms of the acquisition also provide for additional
consideration to be paid if the acquired product line's net sales exceed certain
targeted levels. All additional payments are payable in cash and will be
recorded as additional goodwill when the contingencies for such payment have
been met. The acquired business has been integrated into the Company's Water and
Industrial Process Chemicals segment.
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 is being
amortized on a straight-line basis over a period of up to 40 years. The acquired
business has been integrated into the Company's 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.
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During 1998 the Company completed the following acquisition and disposition
transactions:
On October 9, 1998, the Company acquired The American Materials &
Technologies Corporation ("AMT"), a manufacturer of advanced composite
materials, in a stock transaction designed to qualify as a tax-free
reorganization. In the transaction, the Company issued from Treasury Stock
1,243,663 shares of its common stock to AMT shareholders. In addition,
outstanding options and warrants to acquire AMT stock were converted into
335,209 Cytec options and warrants with a weighted average exercise price of
$10.48 per share. The cost of the acquisition was approximately $26.8, including
the shares issued, options and warrants converted and previous shares acquired
plus the assumption of approximately $5.4 in debt. The purchase price exceeded
the fair value of the identifiable assets acquired by $24.4, which is being
amortized on a straight-line basis over a period of up to 40 years. The acquired
business has been integrated into the Company's Specialty Materials segment. On
October 26, 1998, the Company sold the assets of the AMT graphite golf shaft
business for approximately $6.2 in cash.
On July 31, 1998, the Company purchased from Dyno Industrier ASA ("Dyno")
of Oslo, Norway, Dyno's global amino coatings resin business, which consisted
primarily of Dyno's 50% interest in Dyno-Cytec, a European joint venture, for
approximately $55.7 in cash. The purchase price exceeded the fair value of the
identifiable assets acquired by $32.0, which is being amortized on a
straight-line basis over a period of up to 40 years. The acquired business has
been integrated into the Company's Performance Products segment.
On June 24, 1998, the Company acquired assets of the OREPREP minerals
processing product line from Baker Petrolite Corporation for approximately $9.0.
The purchase price exceeded the fair value of the identifiable assets acquired
by $8.3, which is being amortized on a straight-line basis over a period of up
to 40 years. The acquired product line has been integrated into the Company's
Water and Industrial Process Chemicals segment.
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. Sales for this product line were
$24.9 in 1998.
All acquisitions have been accounted for 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 (i.e.,
goodwill) are included in Acquisition Intangibles in the Consolidated Balance
Sheets. 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.
3) RESTRUCTURING OF OPERATIONS
In the fourth quarter of 2000 the Company recorded a restructuring charge
of $10.8 related to a workforce reduction of approximately 110 employees and the
discontinuance of a tolling operation. The restructuring costs were charged to
the Consolidated Statement of Income as follows: manufacturing cost of sales,
$3.5; selling and technical services, $5.3; research and process development,
$1.6 and administrative and general, $0.4. The components of the restructuring
charge included: employee severance costs, $8.8 and asset write-downs, $2.0. As
of December 31, 2000, approximately 71 positions have been eliminated. The
remaining personnel reductions are expected to be completed by the end of 2001.
Cash payments of $1.1 were made for these charges during the fourth quarter of
2000, and at December 31, 2000, the remaining liability to be paid was $7.7.
In the fourth quarter of 1999 the Company recorded a restructuring charge
of $3.6, primarily related to the consolidation of certain Specialty Materials'
manufacturing and research activities, the Fortier methanol plant shutdown and
related personnel reduction of 72 positions worldwide. 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. During the fourth
quarter of 2000, the Company reduced this restructuring accrual as a result of
incurring less cost than originally anticipated. As a result, the Company
recognized a restructuring credit of $0.6 in the Consolidated Statement of
Income as follows: manufacturing cost of sales, $0.2 and research and process
development, $0.4. As of December 31, 2000, payments of $2.3 had been made for
these charges and all personnel reductions requiring severance payments were
completed. At December 31, 2000, the remaining liability to be paid was $0.7,
which primarily relates to long-term employee severance payouts.
In 1997 the Company recorded pretax restructuring charges in the amount of
$38.4 related primarily to (i) restructurings at Botlek, The Netherlands;
Linden, New Jersey; Fortier, Louisiana; and Willow Island, West Virginia,
manufacturing sites; (ii)
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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 the acquisition of substantially all the
assets of Fiberite, Inc. The restructuring costs were charged to the
Consolidated Statement of Income as follows: manufacturing cost 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
included: $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. The Company reduced this restructuring accrual due to incurring lower
than expected costs for the shutdown of the Linden, New Jersey, facility and
incurring fewer personnel reductions by filling unanticipated open positions. As
a result, the Company recognized restructuring credits in the Consolidated
Statement of Income as follows: During the fourth quarter of 1999 the Company
recognized a credit of $2.7 in manufacturing cost of sales and a credit of $0.3
in administrative and general. During the fourth quarter of 2000 the Company
recognized a credit of $0.1 through various classifications in the Consolidated
Statement of Income.
As of December 31, 2000, approximately 373 personnel reductions requiring
severance payments were completed. No additional reductions requiring severance
are anticipated. As of December 31, 2000, payments of $33.5 were made for these
restructuring charges. At December 31, 2000, the liability to be paid was $1.5,
which essentially relates to certain long-term payouts for employee severance in
Europe.
4) FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and certain other assets and liabilities included in the
Company's Consolidated Balance Sheets approximated their fair values at December
31, 2000 and 1999. At December 31, 2000, $10.0 was available for short-term use
under an uncommitted credit facility, and a U.S. dollar equivalent of
approximately $14.8 was available under a foreign-currency-denominated overdraft
facility. At December 31, 1999, an aggregate of $35.0 was available for
short-term use under three uncommitted credit facilities, and a U.S. dollar
equivalent of approximately $16.0 was available under a
foreign-currency-denominated overdraft facility. There were no outstanding
borrowings under these facilities at December 31, 2000 and 1999. The fair value
of the Company's long-term debt was $303.1 at December 31, 2000, and $399.1 at
December 31, 1999.
Commencing in September 1997 the Company entered into a series of rate lock
agreements to hedge against the risk of an increase in treasury rates related to
the Company's offering of $300.0 in long-term debt securities. The Company made
payments aggregating approximately $11.2 to settle the rate lock agreements
($9.6 of which was paid during the first half of 1998 and the remainder in
1997), which are being amortized over the life of the 6.50% Notes, 6.75% Notes
and 6.846% MandatOry Par Put Remarketed Securities(SM) ("MOPPRS(SM)") as an
increase in interest expense of such Notes (see also Note 8).
At December 31, 2000, the Company was a party to four interest rate swap
agreements with an aggregate notional value of $80.0. Two of the swap agreements
with maturity dates during 2001 have virtually offsetting terms. Another swap
agreement effectively converts $20.0 of variable rate interest obligations to
6.25% fixed rate obligations. The maturity date of this swap agreement is
November 1, 2001. The fourth interest rate swap agreement, which effectively
converted $25.0 of the Company's 6.75% fixed rate borrowings due on March 15,
2008, to a floating rate, was terminated during January 2001. Under the terms of
the termination agreement, the Company received approximately $0.5 in cash. The
fair value of the interest rate swap agreements was approximately $(0.2) at
December 31, 2000 and $(1.2) at December 31, 1999.
At December 31, 2000, the Company had net foreign exchange contracts to
purchase an aggregate of $32.5 of Dutch guilders, German marks and British
pounds and to sell an aggregate of $2.6 of French francs and Argentine pesos for
U.S. dollars. The Company also had net contracts to sell Dutch guilders with a
value equivalent to $22.2 for British pounds, contracts to purchase Dutch
guilders with a value equivalent to $0.5 for other currencies, contracts to
purchase Norwegian krone with a value equivalent to $2.6 for other European
currencies and contracts to sell euros with a value equivalent to $1.4 for
British pounds. 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. All
contracts are for periods of six months or less. The fair value of foreign
exchange contracts, based on exchange rates at December 31, 2000 and 1999,
exceeded contract values by approximately $0.6 at December 31, 2000 and
approximated the contract values at December 31, 1999.
At December 31, 2000, there were no natural gas derivatives contracts
outstanding. At December 31, 1999, the Company had an aggregate of $2.8 in
natural gas forward and cash-settled swap contracts outstanding. Based on
year-end prices, the fair value of natural gas derivative contracts was $2.4 at
December 31, 1999.
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In connection with the Company's stock repurchase program (see Note 14),
during the year ended December 31, 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 entitled the holders 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. Prior to December 31, 2000, the put options
expired unexercised. The Company received premiums of approximately $0.6 on the
sale of such put options. In January 2001 the Company sold an additional 100,000
put options that expire in July 2001 and 100,000 put options that expire in
August 2001 at exercise prices of $31.528 per share and $31.347 per share,
respectively. The Company has received premiums of approximately $0.5 on the
sale of such put options.
5) ASSOCIATED COMPANIES
The Company has a 50% interest in each of three associated companies: CYRO
Industries, Mitsui Cytec, Ltd. and AC Molding Compounds. The Company also had a
50% interest in the former Criterion Catalyst Company L.P. joint venture through
July 10, 2000, and a 50% interest in the former Dyno-Cytec joint venture through
July 31, 1998 (see Note 2).
Large increases in raw material costs and operational problems together
with a major softening of end-market demand have led to a dramatic worsening of
the financial condition of AC Molding Compounds. Due to operating losses, the
Company's net investment in AC Molding Compounds is now valued at zero, and the
Company is no longer recognizing its share of the losses of the joint venture.
The Company and its joint venture partner have indicated an unwillingness to
invest further in AC Molding Compounds. The Company continues to aggressively
explore its alternatives for this joint venture with its partner.
On October 16, 2000, the formation of PolymerAdditives.com, LLC, a joint
venture between the Company, Albemarle Corporation and GE Specialty Chemicals,
Inc., an operating unit of General Electric Company, was completed.
PolymerAdditives.com, LLC operates a fully functional business-to-business
e-commerce Internet site and provides customers the ability to purchase a
variety of polymer additives from one source. Each founding member has a
one-third equity interest in the joint venture. The Company accounts for this
investment under the equity method of accounting.
The aggregate cost of investments in associated companies accounted for
under the equity method was $15.7 and $41.8 at December 31, 2000 and 1999,
respectively. Summarized financial information of the Company's associated
companies for the years ended December 31, 2000, 1999 and 1998 and as of
December 31, 2000 and 1999 is as follows:
2000 1999 1998
- ----------------------------------------------------------------------------
Net sales $496.3 $521.4 $583.0
Gross profit 99.1 116.4 153.3
Net earnings 23.8 11.4 44.0
Company's share of earnings 15.0 5.6 20.3
- ----------------------------------------------------------------------------
Current assets 131.5 280.5
Noncurrent assets 204.0 354.9
Total assets 335.5 635.4
- ---------------------------------------------------------
Current liabilities 103.9 206.3
Noncurrent liabilities 45.7 126.1
Equity 185.9 303.0
Total liabilities and equity 335.5 635.4
- ---------------------------------------------------------
Company's share of equity $ 91.9 $151.5
- ---------------------------------------------------------
The above associated companies' information includes the results of the former
Criterion Catalyst Company L.P. and Dyno-Cytec joint ventures through July 10,
2000 and July 31, 1998, respectively.
Sales to associated companies (primarily CYRO Industries) amounted to $27.2,
$25.2 and $34.4 in 2000, 1999 and 1998, respectively. Purchases from associated
companies were immaterial.
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6) INVENTORIES
At December 31, 2000 and 1999, LIFO inventories comprised approximately 62% and
66% of consolidated inventories, respectively.
2000 1999
- ------------------------------------------------------------
Finished goods $115.0 $ 89.0
Work in progress 15.0 17.3
Raw materials and supplies 67.1 65.9
- ------------------------------------------------------------
197.1 172.2
Less reduction to LIFO cost (34.4) (32.7)
- ------------------------------------------------------------
Total inventories $162.7 $139.5
- ------------------------------------------------------------
7) PLANTS, EQUIPMENT AND FACILITIES
At December 31, 2000 and 1999, plants, equipment and facilities consisted of the
following:
2000 1999
- -------------------------------------------------------------------------
Land and land improvements $ 30.4 $ 39.9
Buildings 164.0 167.3
Machinery and equipment 1,066.7 1,093.4
Construction in progress 65.2 52.0
- -------------------------------------------------------------------------
Plants, equipment and facilities, at cost $1,326.3 $1,352.6
- -------------------------------------------------------------------------
8) LONG-TERM DEBT
At December 31, 2000 and 1999, long-term debt consisted of the following:
2000 1999
- ---------------------------------------------------------------
Credit facility $ - $103.0
Public debt 311.2 310.1
- ---------------------------------------------------------------
Long-term debt $311.2 $413.1
- ---------------------------------------------------------------
The weighted average interest rate on long-term debt for 2000 and 1999 was
7.08% and 6.77%, respectively.
At December 31, 2000, the Company's Credit Facility provided for unsecured
revolving loans ("Revolving Loans") of up to $200.0. The Revolving Loans are
available for the general corporate purposes of the Company and its
subsidiaries, including, without limitation, for purposes of making acquisitions
permitted under the Credit Facility. There were no borrowings outstanding under
the Credit Facility at December 31, 2000, and $103.0 of outstanding borrowings
under the Credit Facility at December 31, 1999. The Credit Facility, which is
scheduled to mature on July 28, 2002, contains covenants customary for such
facilities. The Company was in compliance with all terms, covenants and
conditions of the Credit Facility at December 31, 2000.
On July 14, 2000, the Company terminated a 364-day credit facility, dated
August 20, 1999, which provided up to $200.0 in unsecured revolving loans for
general corporate purposes. During its term there were no borrowings made under
this credit facility.
At December 31, 2000, $10.0 was available for short-term use under an
uncommitted credit facility, and a U.S. dollar equivalent of approximately $14.8
was available under a foreign currency denominated overdraft facility. At
December 31, 1999, an aggregate of $35.0 was available for short-term use under
three uncommitted credit facilities, and a U.S. dollar equivalent of
approximately $16.0 was available under a foreign currency denominated overdraft
facility. There were no outstanding borrowings under those facilities at
December 31, 2000 and 1999.
During 1998, the Company sold an aggregate of $320.0 principal amount of
senior debt securities in public offerings, consisting of (i) $100.0 principal
amount of 6.50% Notes due March 15, 2003, (ii) $100.0 principal amount of 6.75%
Notes due March 15, 2008, and (iii) $120.0 principal amount of 6.846% MOPPRSSM
due May 11, 2025. The Company received an aggregate of approximately $322.0 in
proceeds from the sales before deducting expenses associated with the sales. The
proceeds were used primarily to refinance the acquisition of substantially all
the assets of Fiberite Inc.
The amount of unamortized rate lock agreements included in long-term debt
was $8.4 at December 31, 2000 and $9.4 at December 31, 1999.
-43-
Except in limited circumstances, the MOPPRS SM will be subject to mandatory
tender to Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Remarketing
Dealer, at 100% of the principal amount thereof for remarketing on the
Remarketing Date (May 11, 2005). The interest rate on the MOPPRS from the
Remarketing Date to maturity will be 5.951% plus an applicable spread. If the
Remarketing Dealer for any reason does not purchase all tendered MOPPRS on the
Remarketing Date or elects not to remarket the MOPPRS, the Company will be
required to repurchase the MOPPRS from the beneficial owners thereof on the
Remarketing Date at 100% of the principal amount thereof plus accrued interest,
if any.
Under the terms of the Company's Series C Cumulative Preferred Stock
("Series C Stock"), the Company would have the ability to incur up to an
additional $604.2 in debt at December 31, 2000 (see Note 15).
The Company has on file with the Securities and Exchange Commission an
effective shelf registration statement covering $400.0 of debt securities, which
may be offered by the Company from time to time. Proceeds of any sale will be
used for general corporate purposes, which may include replacement of
indebtedness and other liabilities, share repurchases, additions to working
capital, capital expenditures and acquisitions. The Company has no immediate
plans to offer securities under the registration statement.
9) ENVIRONMENTAL MATTERS AND OTHER CONTINGENT LIABILITIES AND COMMITMENTS
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 clean up of approximately 55 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 that 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 estimatable. 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 December 31, 2000 and December
31, 1999, the aggregate environmental related accruals were $106.0 and $122.9,
respectively. Of these amounts, the environmental related accruals included in
accrued expenses were $20.0 with the remainder included in other noncurrent
liabilities. Environmental remediation spending for the years ended December 31,
2000, 1999 and 1998, was $15.3, $18.6 and $23.8, 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 materially 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
have a materially adverse effect on the consolidated financial position of the
Company, but could be material to the results of operations of the Company in
any one accounting period.
-44-
Rental expense under property and equipment leases was $12.0 in 2000, $12.3
in 1999 and $12.8 in 1998. Estimated future minimum rental expenses under
property and equipment leases that have initial or remaining noncancelable lease
terms in excess of one year as of December 31, 2000, are:
Operating Leases
- ----------------------------------------------------------
2001 $10.5
2002 6.0
2003 4.3
2004 2.9
2005 2.4
Thereafter 18.2
- ---------------------------------------------------------
Total minimum lease payments $44.3
- ---------------------------------------------------------
At December 31, 2000 and 1999, the Company had $11.7 and $11.8,
respectively, of letters of credit outstanding for environmental and insurance
related matters.
10) INCOME TAXES
The income tax provision for the years ended December 31, 2000, 1999 and
1998, is based on earnings before income taxes as follows:
2000 1999 1998
- --------------------------------------------------------------------------
Domestic $203.3 $110.1 $154.1
Foreign 67.8 62.9 43.8
- --------------------------------------------------------------------------
Total $271.1 $173.0 $197.9
- --------------------------------------------------------------------------
The components of the provision for the years ended December 31, 2000, 1999 and
1998, are composed of the following:
2000 1999 1998
- --------------------------------------------------------------------------
Current:
Federal $36.8 $ 4.8 $37.0
Foreign 24.4 21.0 18.0
Other, principally state 1.2 1.0 3.4
- -------------------------------------------------------------------------
Total $62.4 $26.8 $58.4
- -------------------------------------------------------------------------
Deferred:
Federal $25.3 $21.9 $13.2
Foreign (1.1) (2.3) (2.1)
Other, principally state 6.9 5.3 3.7
- -------------------------------------------------------------------------
Total $31.1 $24.9 $14.8
- -------------------------------------------------------------------------
Total income tax provision $93.5 $51.7 $73.2
- -------------------------------------------------------------------------
-45-
Domestic and foreign earnings of consolidated companies before income taxes
include all earnings derived from operations in the respective U.S. and foreign
geographic areas, whereas provisions (benefits) for income taxes include all
income taxes payable to (receivable from) U.S., foreign and other governments as
applicable, regardless of the situs in which the taxable income (loss) is
generated. The temporary differences which give rise to a significant portion of
deferred tax assets and liabilities as of December 31, 2000 and 1999, are as
follows:
2000 1999
- ----------------------------------------------------------------------
Deferred tax assets:
Allowance for bad debts $ 2.2 $ 2.3
Employee benefit accruals 7.8 16.7
Insurance accruals 13.5 12.9
Operating accruals 20.0 20.3
Inventory 4.1 5.2
Environmental accruals 37.7 45.2
Postretirement obligations 115.0 126.8
Other 10.5 16.5
- ----------------------------------------------------------------------
Deferred tax assets 210.8 245.9
- ----------------------------------------------------------------------
Deferred tax liabilities:
Plants, equipment and facilities (118.4) (122.7)
Other (13.0) (12.7)
- ----------------------------------------------------------------------
Deferred tax liabilities (131.4) (135.4)
- ----------------------------------------------------------------------
Net deferred tax assets $ 79.4 $ 110.5
- ----------------------------------------------------------------------
Beginning in 1997 no provision has been made for U.S. or additional foreign
taxes on the undistributed earnings of foreign subsidiaries since the Company
intends to reinvest these earnings. Foreign tax credits would be available to
substantially reduce any amount of additional U.S. tax that might be payable on
these earnings in the event of distribution or sale.
The continued positive earnings trend of the Company makes it more likely
than not that the Company will generate sufficient taxable income to realize its
net deferred income tax assets.
In the third quarter of 1999 the Company recognized an $8.0 reduction in
income tax expense related to the utilization of additional prior years' tax
credits. Excluding the impact of this nonrecurring item, the Company's effective
tax rate for 1999 was 34.5%.
A reconciliation between the Company's effective tax rate and the U.S.
federal income tax rate is as follows:
2000 1999 1998
- -----------------------------------------------------------------
Federal income tax rate 35.0% 35.0% 35.0%
Research and
Experimental credit (1.3) (1.8) -
Prior period tax credits - (4.6) -
Income subject to other than
the federal income tax rate (1.4) (2.6) (0.9)
State taxes, net of federal benefits 1.6 2.2 3.1
Other charges, net 0.6 1.7 (0.2)
- -----------------------------------------------------------------
Effective tax rate 34.5% 29.9% 37.0%
- -----------------------------------------------------------------
-46-
11) RETIREMENT PLANS
The Company has defined benefit pension plans that cover employees in the United
States and a number of foreign countries. The following provides a
reconciliation of benefit obligations, plan assets and funded status of the
plans:
2000 1999
- ---------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 $305.2 $321.5
Service cost 8.5 10.1
Interest cost 23.8 21.8
Amendments 0.2 0.1
Translation difference 0.2 0.1
Actuarial (gain) loss 14.2 (37.0)
Employee contributions 0.2 0.2
Benefits paid (14.4) (11.6)
- ---------------------------------------------------------------------------
Benefit obligation at December 31 $337.9 $305.2
- ---------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $346.8 $299.4
Actual return on plan assets (6.0) 44.9
Company contributions 13.6 13.7
Employee contributions 0.2 0.2
Translation difference (1.5) 0.2
Benefits paid (14.4) (11.6)
- ---------------------------------------------------------------------------
Fair value of plan assets at December 31 $338.7 $346.8
- ---------------------------------------------------------------------------
Projected benefit obligation (under) plan assets $ (0.8) $(41.6)
Unrecognized actuarial gain (loss) (9.5) 41.2
Unrecognized prior service cost 1.3 1.4
Unrecognized net transition obligation 1.3 1.4
- ---------------------------------------------------------------------------
Accrued (prepaid) pension cost recognized in the
consolidated balance sheets $ (7.7) $ 2.4
- ---------------------------------------------------------------------------
Assumptions as of December 31:
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Discount rate 7.50% 7.75% 6.75%
Expected return on plan assets 9.25% 9.25% 9.00%
Rate of future compensation increase 3.00-10.00% 4.00-10.00% 3.00-10.00%
- ----------------------------------------------------------------------------------------------------------------------------
Net periodic pension expense includes the following components:
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Service cost $ 8.5 $ 10.1 $ 10.2
Interest cost on projected benefit obligation 23.8 21.8 20.7
Expected return on plan assets (28.3) (24.2) (22.1)
Net amortization and deferral - 1.8 2.7
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 4.0 $ 9.5 $ 11.5
- ---------------------------------------------------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $14.8, $13.6 and $0, respectively, as of December 31,
2000, and $12.2, $9.9 and $0, respectively, as of December 31, 1999. The prepaid
benefit costs recognized in the Consolidated Balance Sheets as of December 31,
2000 and 1999 were $18.0 and $7.2, respectively, and the accrued benefit
liability recognized in the Consolidated Balance Sheets as of December 31, 2000
and 1999 was $10.3 and $9.6, respectively.
The Company sponsors employee savings and profit sharing plans. The U.S.
savings plan portion generally matches 75% of employee contributions up to 4% of
compensation. Profit sharing contributions are based on the Company's
performance and are at the discretion of the Executive Committee. Savings plan
matching contributions were $4.3, $4.6 and $4.2 for 2000, 1999 and 1998,
respectively. Profit sharing contributions were approximately $3.4, $3.6 and
$5.0 in 2000, 1999 and 1998, respectively. Beginning in January 2001, the
Company match for the savings plan was increased to 100% of employee
contributions up to the first 3% of compensation and 50% on the next 2% of
compensation.
-47-
12) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors postretirement and postemployment benefit plans. The
postretirement plans provide medical and life insurance benefits to retirees who
meet minimum age and service requirements. The postemployment plans provide
salary continuation, disability related benefits, severance pay and continuation
of health costs during the period after employment but before retirement.
-48-
The following provides a reconciliation of postretirement benefit
obligations, plan assets and funded status of the plans:
2000 1999
- ----------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 $ 268.1 $ 278.6
Service cost 1.3 1.4
Interest cost 19.8 17.3
Amendments (19.4) (1.2)
Translation difference (0.1) (0.2)
Actuarial (gain) loss 2.8 (5.4)
Employee contributions 1.0 1.0
Benefits paid (24.4) (23.4)
- ---------------------------------------------------------------------------
Benefit obligation at December 31 $ 249.1 $ 268.1
- ---------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 54.4 $ 46.5
Actual return on plan assets 2.8 2.7
Company contributions 39.0 27.7
Employee contributions 1.0 0.9
Benefits paid (24.4) (23.4)
- ---------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 72.8 $ 54.4
- ---------------------------------------------------------------------------
Accumulated postretirement benefit
obligation over fair value of plan assets $ 176.3 $ 213.7
Unrecognized actuarial gain 44.3 50.2
Unrecognized negative prior service cost 71.2 57.2
- ---------------------------------------------------------------------------
Accrued benefit cost $ 291.8 $ 321.1
- ---------------------------------------------------------------------------
The accrued postretirement benefit cost recognized in the Company's
Consolidated Balance Sheets at December 31, 2000 and 1999, includes $20.0 in
accrued expenses and $271.8 and $301.1, respectively, in other noncurrent
liabilities.
Net periodic postretirement benefit costs for the years ended December 31,
2000, 1999 and 1998, included the following components:
2000 1999 1998
- --------------------------------------------------------------------------
Service cost $ 1.3 $ 1.4 $ 1.4
Interest cost 19.8 17.3 18.5
Expected return on plan assets (3.8) (3.2) (2.7)
Net amortization and deferral (7.5) (7.8) (7.4)
- --------------------------------------------------------------------------
Total cost $ 9.8 $ 7.7 $ 9.8
- --------------------------------------------------------------------------
Measurement of the accumulated postretirement benefit obligations ("APBO")
was based on actuarial assumptions, including a discount rate of 7.50%, 7.75%
and 6.75% at December 31, 2000, 1999 and 1998, respectively, and an expected
return on plan assets of 7.0% at December 31, 2000, 1999 and 1998. The assumed
rate of future increases in the per capita cost of healthcare benefits
(healthcare cost trend rate) is 7.5% in 2000, decreasing evenly over five years
to 5.5% and remaining at that level thereafter. The healthcare cost trend rate
has a significant effect on the reported amounts of APBO and related expense.
For example, increasing the healthcare cost trend rate by one percentage point
in each year would increase the APBO at December 31, 2000, and the 2000
aggregate service and interest cost by approximately $23.1 and $2.0,
respectively, and decreasing the healthcare cost trend rate by one percentage
point in each year would decrease the APBO at December 31, 2000, and the 2000
aggregate service and interest cost by approximately $21.0 and $1.8,
respectively.
13) OTHER FINANCIAL INFORMATION
Accrued expenses at December 31, 2000 and 1999, included the following:
2000 1999
- ------------------------------------------------------------------------
Pensions and other employee benefits $ 21.7 $ 34.5
Other postretirement employee benefits 20.0 20.0
Salaries and wages 10.2 9.3
Environmental 20.0 20.0
Restructuring 9.9 6.5
Other 97.8 108.1
- ------------------------------------------------------------------------
$179.6 $198.4
- ------------------------------------------------------------------------
-49-
Cash payments during the years ended December 31, 2000, 1999 and 1998,
included interest of $26.6, $27.8 and $21.0, respectively. Income taxes paid in
2000, 1999 and 1998 were $37.6, $28.7 and $40.2, respectively. Income taxes paid
include foreign taxes of $20.8, $16.8 and $13.4 in 2000, 1999 and 1998,
respectively.
Included in accounts receivable at December 31, 2000 and 1999, are
miscellaneous receivables of approximately $55.2 and $35.5, respectively.
Included in manufacturing cost of sales was a provision of $1.4, which the
Company recorded against receivables due from the Avondale Ammonia Company.
LaRoche Industries Inc. and LaRoche Fortier Inc., the Company's partner in
Avondale Ammonia Company, filed for bankruptcy under Chapter 11 during May 2000.
Although LaRoche Fortier Inc. "rejected" the Avondale Ammonia Company
partnership agreement and related ammonia supply agreement effective September
1, 2000, it retains a 50% interest in the assets of the partnership. The
manufacturing facility was idled in December 2000 and January 2001 due to
excessively high natural gas costs. The facility was restarted in February 2001.
When the facility is operating the Company acts as an agent and purchases from
Avondale Ammonia Company 100% of the plant's output for external needs and sale
to third parties.
Included in interest expense, net, for the years ended December 31, 2000,
1999 and 1998, is interest income of $3.5, $2.0 and $2.3, respectively.
Other income, net, was $104.6, $9.3 and $14.5 for the years ended December
31, 2000, 1999 and 1998, respectively. Included in 2000 was a pre-tax gain of
$88.3 from the sale of the Paper Chemicals business (see also Note 2), a gain of
$13.3 from insurance settlement agreements entered into with a group of
insurance carriers in an environmental coverage suit and a provision of $4.8
against receivables due from the Company's AC Molding Compounds joint venture.
Excluding these items, other income, net, was $7.8 and included a gain of $7.1
from the sale of real estate. Included in 1999 were pre-tax gains of $4.5 from
the sale of real estate, $2.2 from royalty income and $1.6 from the sale of
certain product lines. Included in 1998 were pre-tax gains of $4.4 related to
the sale of the bulk molding compounds product line, $3.0 of other investment
income and $3.8 income on certain investments in unaffiliated companies.
Acquisition intangibles, net of accumulated amortization, at December 31,
2000 and 1999, included the following:
2000 1999
- -----------------------------------------------------------------
Goodwill $374.4 $372.5
Less: accumulated amortization (38.2) (28.6)
- -----------------------------------------------------------------
Goodwill, net 336.2 343.9
- -----------------------------------------------------------------
Other intangibles 55.2 55.4
Less: accumulated amortization (7.0) (4.1)
- -----------------------------------------------------------------
Other intangibles, net 48.2 51.3
- -----------------------------------------------------------------
Acquisition intangibles, net of
accumulated amortization $384.4 $395.2
- -----------------------------------------------------------------
14) COMMON STOCK
The Company is authorized to issue 150 million shares of common stock with
a par value of $.01 per share, of which 40,166,411 shares were outstanding at
December 31, 2000. A summary of changes in common stock issued and treasury
stock for the years ended December 31, 2000, 1999 and 1998, is presented below.
-50-
Common Treasury
Stock Stock
- ------------------------------------------------------------------------------
Balance at December 31, 1997 48,181,264 3,044,589
Purchase of treasury stock 3,561,950
Issuance pursuant to stock option plan - (381,764)
Award of performance stock and
restricted stock - (42,906)
Forfeitures and deferrals of stock awards (38,303) 19,632
Issuance pursuant to acquisition - (1,248,620)
- ------------------------------------------------------------------------------
Balance at December 31, 1998 48,142,961 4,952,881
Purchase of treasury stock - 1,784,045
Issuance pursuant to stock option plan - (148,693)
Award of performance stock and
restricted stock - (84,903)
Forfeitures and deferrals of stock awards (10,321) 22,425
Issuance pursuant to warrant exercise - (7,745)
Adjustment to shares issued
pursuant to acquisition - 4,957
- ------------------------------------------------------------------------------
Balance at December 31, 1999 48,132,640 6,522,967
Purchase of treasury stock - 2,161,700
Issuance pursuant to stock option plan - (636,047)
Award of performance stock and
restricted stock - (114,272)
Forfeitures and deferrals of stock awards - 31,881
- ------------------------------------------------------------------------------
Balance at December 31, 2000 48,132,640 7,966,229
- ------------------------------------------------------------------------------
During November 2000 the Company completed the $100.0 share repurchase
program that was announced on January 25, 1999. The Company repurchased a total
of 3,784,254 shares of its outstanding common stock under this program. On
November 2, 2000, the Company announced a new program to spend up to $100.0 to
repurchase shares of the Company's outstanding common stock. The repurchases
will be made from time to time on the open market or in private transactions and
will be utilized for stock option plans, benefit plans and other corporate
purposes. Through December 31, 2000, the Company had repurchased 161,491 shares
at a cost of $5.5 under this new program (see also Note 15).
Stock Award and Incentive Plan: The 1993 Stock Award and Incentive Plan
------------------------------
(the "1993 Plan") is administered by a committee of the Board of Directors (the
"Committee"). The 1993 Plan provides for grants of a variety of awards, such as
stock options (including incentive stock options and nonqualified stock
options), stock appreciation rights (including limited stock appreciation
rights), restricted stock (including performance shares), restricted stock
units, deferred stock awards and dividend equivalents, deferred cash awards and
interest equivalents and other stock or cash-based awards, to be made to
selected employees and independent contractors of the Company and its
subsidiaries and affiliates at the discretion of the Committee. In addition,
automatic formula grants of restricted stock and nonqualified stock options are
awarded to non-employee directors. At December 31, 2000, the Company had
reserved approximately 9,507,209 shares for issuance under the 1993 Plan.
The stock option component of the 1993 Plan provides for the granting of
nonqualified stock options to officers, directors and certain key employees at
100% of the market price on the date the option was granted. Options are
generally exercisable in cumulative installments of 33 1/3% per year commencing
one year after the date of grant and annually thereafter, with contract lives of
generally 10 years from the date of grant.
As discussed in Note 2, in connection with the 1998 AMT acquisition, the
Company issued from Treasury Stock 1,243,663 shares of its common stock to AMT
shareholders. In addition, outstanding options and warrants to acquire AMT stock
were converted into options and warrants to purchase 335,209 shares of Cytec
common stock at a weighted average exercise price of $10.48 per share.
-51-
A summary of the status of the Company's stock options as of December 31,
2000, 1999 and 1998, and changes during the years ended on those dates is
presented below.
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------
Shares under option:
Outstanding at beginning of year 6,239,406 $20.28 5,276,173 $19.90 4,811,258 $16.30
Granted 981,143 24.70 1,193,409 21.00 631,025 47.61
Issued pursuant to acquisition - - - - 259,308 6.18
Exercised (636,047) 10.86 (148,693) 6.81 (381,764) 8.61
Forfeited (100,202) 33.26 (81,483) 30.30 (43,654) 41.68
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 6,484,300 $21.68 6,239,406 $20.28 5,276,173 $19.90
- ------------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 4,632,637 $20.16 4,434,989 $16.56 3,864,809 $12.48
- ------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Years) Price Exerciseable Price
- ---------------------------------------------------------------------------------------------------------------------------
$ 2.77-10.00 1,812,962 3.27 $ 5.43 1,807,475 $ 5.43
11.66-24.57 2,454,886 7.48 20.14 908,350 15.75
25.08-37.75 836,172 5.77 25.69 719,415 25.29
37.87-47.32 836,005 6.15 40.21 828,904 40.22
47.81-57.44 544,275 7.08 48.11 368,493 48.12
- ---------------------------------------------------------------------------------------------------------------------------
$ 2.77-57.44 6,484,300 5.88 $21.68 4,632,637 $20.16
- ---------------------------------------------------------------------------------------------------------------------------
As provided under the 1993 Plan, the Company has also issued restricted stock
and performance stock. Restricted shares are subject to certain restrictions on
ownership and transferability that lapse upon vesting. Performance share payouts
are based on the attainment of certain performance objectives related to the
Company's financial performance and may vary depending on the degree to which
the performance objectives are met. Performance shares awarded in 1998, 1999 and
2000 relate to the 2000, 2001 and 2002 performance periods, respectively. The
total amount of stock-based compensation expense/(income) recognized for
restricted stock and performance stock was $3.5 in 2000, $1.4 in 1999 and ($0.3)
in 1998. A summary of restricted stock and performance stock activity is as
follows:
2000 1999 1998
--------------------------------------------------------------------------
Outstanding awards - beginning of year 156,386 112,229 151,838
New awards granted 114,272 84,903 42,906
Shares with restrictions lapsed(1) (15,936) (31,368) (53,995)
Restricted shares forfeited (10,561) (9,378) (28,520)
--------------------------------------------------------------------------
Outstanding awards - end of year 244,161 156,386 112,229
--------------------------------------------------------------------------
Weighted average market value of new
awards on award date $ 24.68 $ 20.64 $ 47.61
--------------------------------------------------------------------------
(1) Shares with restrictions lapsed in each period above include shares
deferred by certain participants. The Company issued these participants
equivalent deferred stock awards that will be distributed in the form of
shares of common stock, generally following termination of employment.
-52-
The compensation costs that have been charged against income for restricted
stock and performance stock awards have been noted above. Set forth below are
the Company's net earnings and earnings per share, presented both "as reported"
and "pro forma," as if compensation cost had been determined consistent with the
fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123").
2000 1999 1998
- -------------------------------------------------------------------------
Net earnings:
As reported $177.6 $121.3 $ 124.7
Pro forma 175.9 117.8 120.0
Basic earnings per share:
As reported $ 4.34 $ 2.83 $ 2.79
Pro forma 4.30 2.75 2.68
Diluted earnings per share:
As reported $ 4.15 $ 2.73 $ 2.68
Pro forma 4.12 2.65 2.58
- -------------------------------------------------------------------------
The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of future amounts.
The fair value of each stock option granted during 2000, 1999 and 1998 is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions:
2000 1999 1998
- --------------------------------------------------------------------------
Expected life (years) 6.0 6.0 6.0
Expected volatility 41.47% 43.47% 42.80%
Expected dividend yield - - -
Risk-free interest rate 5.142% 6.58% 5.50%
Weighted average fair value
of options granted
during the year $11.92 $10.95 $23.71
- --------------------------------------------------------------------------
In late 1995 the Company implemented a stock appreciation plan for all
eligible active employees not eligible to participate in the stock option
program. The stock appreciation units represented a potential payout to
employees, in cash, of the difference, after adjusting for stock splits, between
the base price of the Company's stock of $20.00 per share and the lesser of the
price at term, which was December 14, 2000, or $33.33. The stock appreciation
units matured in 50% increments at December 14, 1997, and December 14, 1999. In
December 1996 the plan was amended to provide for the immediate payout of five
hundred dollars per participant, which represented 25% of the total maximum
payout. A second 25% payout was made in December 1997. On August 18, 2000, the
early payout conditions of the plan were met and all eligible active employees
qualified for a final payout of one thousand dollars per participant. The final
payout under the plan was approximately $2.8.
15) PREFERRED STOCK
The Company is authorized to issue 20 million shares of preferred stock
with a par value of $.01 per share in one or more classes or series with rights
and privileges as adopted by the Board of Directors. As of December 17, 1993,
the Company had issued to American Cyanamid Company ("Cyanamid"), a wholly owned
subsidiary of American Home Products Corporation, eight million shares of
preferred stock, of which only the Series C Stock remains outstanding.
The Series C Stock, of which 4,000 shares are issued and outstanding, is
perpetual, has a liquidation and redemption value of $0.1, has an annual
dividend of $1.83 per share (7.32%) and is redeemable at the Company's option
under certain limited circumstances. Shares of Series C Stock are not
transferable except to a subsidiary of Cyanamid. In 2001, Cyanamid transferred
the Series C stock to MPD Holdings, Inc., its wholly owned subsidiary. The
Series C Stock provides Cyanamid with the right to elect one director to the
Company's Board of Directors and contains certain covenants requiring the
Company to satisfy its environmental remediation obligations, retiree healthcare
and life insurance obligations and certain pension contribution obligations in a
timely and proper manner. It also contains certain other covenants requiring the
Company to maintain specified financial ratios and restricting the Company from
taking certain actions, including paying dividends on its common stock in
certain circumstances, merging or consolidating or selling all or substantially
all of the Company's assets or incurring indebtedness in violation of certain
covenants, without the consent of Cyanamid as the holder of the Series C Stock.
In the event that the Company fails to comply with certain of such covenants,
Cyanamid, as the holder of the Series C Stock, will have additional rights which
may include approval of the Company's capital expenditures and in certain more
limited circumstances,
-53-
appointing additional directors to the Company's Board of Directors, which
together with Cyanamid's existing representative, would constitute a majority of
the Company's Board of Directors.
Under the terms of the Series C stock, the Company must maintain a debt-to-
equity ratio of no more than 2-to-1 and a minimum fixed charge coverage ratio of
not less than 3-to-1 for the average of the fixed charge coverage ratios for the
four consecutive fiscal quarters most recently ended and must not incur more
than $150.0 of debt unless the Company's equity is in excess of $200.0. If the
Company has more than $200.0 in equity, then it may incur additional debt as
long as its ratio of debt-to-equity is not more than 1.5-to-1. At December 31,
2000, the Company had $320.0 of debt and $616.1 of equity as defined in the
Series C Stock covenant and under the revised terms, would have the ability to
incur up to an additional $604.2 in debt.
On January 22, 1999, the Company signed an agreement with Cyanamid
providing that Cyanamid would irrevocably waive certain financial covenants
contained in the 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
in special restricted payments solely for the purpose of repurchasing its common
stock. During November 2000 the Company completed the share repurchases under
this agreement. The Company repurchased a total of 3,784,254 shares of its
outstanding common stock under this agreement.
At December 31, 2000, restricted payments permitted under the Series C
Stock were limited to $109.9.
16) EARNINGS PER SHARE
The following represents the reconciliation of the numerators and
denominators of the basic and diluted EPS computations for net earnings
available for common stockholders for the years ended December 31, 2000, 1999
and 1998:
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Basic EPS
- ---------
Net earnings $177.6 40,920,647 $4.34 $121.3 42,890,159 $2.83 $124.7 44,714,788 $2.79
Effect of dilutive
securities
Options - 1,716,746 - 1,507,357 - 1,663,768
Performance/
Restricted stock - 100,853 - 103,353 - 95,954
Put options - - - - - 3,840
Warrants 6,970 - 4,395 - 1,763
Diluted EPS
Net earnings $177.6 42,745,216 $4.15 $121.3 44,505,264 $2.73 $124.7 46,480,113 $2.68
- -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000, there were 1,381,880 options outstanding with weighted
average exercise prices of $43.32 per share that were excluded from the above
calculation because their inclusion would have had an antidilutive effect on
EPS.
17) OPERATIONS BY BUSINESS SEGMENT AND GEOGRAPHIC AREAS
Business Segments: The Company has four reportable segments: Water and
- -----------------
Industrial Process Chemicals, Performance Products, Specialty Materials and
Building Block Chemicals.
The Water and Industrial Process Chemicals segment produces water treating,
mining, and phosphine chemicals that are used mainly in water and wastewater
treatment and mineral processing and separation. The segment includes the Paper
Chemicals business, which was substantially divested on November 1, 2000. For
more information about the sale of the Paper Chemicals business see Note 2. The
Performance Products segment produces specialty resins, surfactants and
specialty monomers and polymer additives that are used primarily in coatings,
adhesives and plastics applications. The Specialty Materials segment
manufactures and sells aerospace materials that are used mainly in commercial
and military aviation, satellite and launch vehicles, and aircraft brakes. The
segment also included the Bulk and Engineered Molding Compounds businesses,
which were divested in 1998 and 1999, respectively. The Building Block Chemicals
segment manufactures acrylonitrile, acrylamide, ammonia, hydrocyanic acid,
melamine and sulfuric acid. Some of these products are upgraded into Specialty
Chemicals (Water and Industrial Process Chemicals and Performance Products)
products with the remainder sold to third parties.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements. All
intersegment sales prices are cost-based. The Company evaluates the performance
of its operating segments based on earnings from operations of the respective
segment.
-54-
Summarized segment information for the years 2000, 1999 and 1998 is as
follows:
Water and
Industrial Building
Process Performance Specialty Block Total
Chemicals Products Materials Chemicals Segments
- ----------------------------------------------------------------------------------------------------------
2000
Net sales to external customers $403.1 $474.0 $411.6 $203.8 $1,492.5
Intersegment net sales - - - 63.4 63.4
- ----------------------------------------------------------------------------------------------------------
Total net sales 403.1 474.0 411.6 267.2 1,555.9
Earnings from operations 40.2 56.8 85.9 12.7 195.6
Percentage of sales 10.0% 12.0% 20.9% 4.8% 12.6%
Total assets 256.3 434.1 487.0 260.3 1,437.7
Capital expenditures 28.3 16.5 8.2 20.1 73.1
Depreciation and amortization 18.9 30.7 17.6 25.6 92.8
- ----------------------------------------------------------------------------------------------------------
1999
Net sales to external customers $387.5 $449.8 $435.7 $171.5 $1,444.5
Intersegment net sales - - - 42.0 42.0
- ----------------------------------------------------------------------------------------------------------
Total net sales 387.5 449.8 435.7 213.5 1,486.5
Earnings from operations 43.5 51.6 84.9 6.1 186.1
Percentage of sales 11.2% 11.5% 19.5% 2.9% 12.5%
Total assets 267.3 436.1 494.4 245.1 1,442.9
Capital expenditures 19.0 18.8 13.9 20.0 71.7
Depreciation and amortization 18.3 30.5 17.7 27.0 93.5
- ----------------------------------------------------------------------------------------------------------
1998
Net sales to external customers $363.3 $409.7 $493.3 $209.2 $1,475.5
Intersegment net sales - - - 38.4 38.4
- ----------------------------------------------------------------------------------------------------------
Total net sales 363.3 409.7 493.3 247.6 1,513.9
Earnings from operations 33.5 41.3 79.9 34.3 189.0
Percentage of sales 9.4% 10.8% 16.4% 14.4% 12.9%
Total assets 220.4 407.0 546.0 247.7 1,421.1
Capital expenditures 28.1 48.6 10.2 16.9 103.8
Depreciation and amortization 17.5 24.3 18.7 26.7 87.2
- ----------------------------------------------------------------------------------------------------------
The following table provides a reconciliation of selected segment
information to corresponding amounts contained in the Company's Consolidated
Financial Statements:
2000 1999 1998
- ------------------------------------------------------------------------------------
Net sales:
Net sales from reportable segments $1,555.9 $1,486.5 $1,513.9
Other revenues - - 0.2
Elimination of intersegment revenue (63.4) (42.0) (38.4)
- ------------------------------------------------------------------------------------
Total consolidated net sales $1,492.5 $1,444.5 $1,475.7
- ------------------------------------------------------------------------------------
Earnings from operations:
Earnings from reportable segments $ 195.6 $ 186.1 $ 189.0
Corporate unallocated(1) (19.0) (1.1) (3.5)
- ------------------------------------------------------------------------------------
Total consolidated earnings from operations $ 176.6 $ 185.0 $ 185.5
- ------------------------------------------------------------------------------------
Total assets:
Assets from reportable segments $1,437.7 $1,442.9
Other assets 281.7 307.6
- ------------------------------------------------------------------------------------
Total consolidated assets $1,719.4 $1,750.5
- ------------------------------------------------------------------------------------
/1/ Includes net restructuring and other charges (see Note 3).
Operations by Geographic Areas: Net sales to unaffiliated customers
------------------------------
presented below are based on the sales destination that is consistent with
management's view of the business. U.S. exports included in net sales are based
upon the sales destination and represent direct sales of U.S.-based entities to
unaffiliated customers outside of the United States. Earnings from operations
are also based on destination and consist of total net sales less operating
expenses. Identifiable assets are those assets used in the Company's operations
in each geographic area. Unallocated assets are primarily miscellaneous
receivables, construction in progress and cash and cash equivalents.
-55-
2000 1999 1998
- -----------------------------------------------------------------------
Net sales
United States $ 798.8 $ 816.0 $ 907.2
Other Americas 163.8 141.3 120.5
Asia/Pacific 193.4 152.9 136.4
Europe, Mideast, Africa 336.5 334.3 311.6
- -----------------------------------------------------------------------
Total $1,492.5 $1,444.5 $1,475.7
- -----------------------------------------------------------------------
U.S. exports included in net sales above
Other Americas $ 47.5 $ 44.2 $ 39.0
Asia/Pacific 95.2 67.0 71.5
Europe, Mideast, Africa 46.1 42.2 43.8
- -----------------------------------------------------------------------
Total $ 188.8 $ 153.4 $ 154.3
- -----------------------------------------------------------------------
Earnings from operations(1)
United States $ 77.3 $ 88.9 $ 109.0
Other Americas 31.1 26.6 18.8
Asia/Pacific 25.3 12.7 12.4
Europe, Mideast, Africa 42.9 56.8 45.3
- -----------------------------------------------------------------------
Total $ 176.6 $ 185.0 $ 185.5
- -----------------------------------------------------------------------
Identifiable assets
United States $ 945.8 $ 958.8 $ 943.9
Other Americas 139.6 144.2 106.2
Asia/Pacific 29.5 30.2 23.3
Europe, Mideast, Africa 204.1 204.7 191.3
- -----------------------------------------------------------------------
Total $1,319.0 $1,337.9 $1,264.7
- -----------------------------------------------------------------------
Investment in associated companies 94.8 146.4 147.4
Unallocated assets 305.6 266.2 308.1
- -----------------------------------------------------------------------
Total assets $1,719.4 $1,750.5 $1,720.2
- -----------------------------------------------------------------------
(1) Earnings from operations in 2000 includes net restructuring and other
charges of $8.4, $0.3 and $2.8 in the United States, Other Americas and
Europe, respectively.
Major Customers: Sales to Boeing Company and its subcontractors for
---------------
commercial and military aerospace and other components were approximately
$153.4, or 10.3% of consolidated net sales, in 2000, approximately $176.5, or
12.2% of consolidated net sales, in 1999 and approximately $200.3, or 13.6% of
consolidated net sales, in 1998. Sales to Boeing Company and subcontractors are
included in the Specialty Materials operating segment.
-56-
MANAGEMENT STATEMENT
Your management has prepared and is responsible for the accompanying
Consolidated Financial Statements. These statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America appropriate in the circumstances and necessarily include some amounts
based on management's estimates and judgments. All financial information in this
annual report is consistent with that in the Consolidated Financial Statements.
The Company's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and the
proper safeguarding and use of its assets. Such controls are based on
established policies and procedures and are implemented by trained, skilled
personnel with an appropriate segregation of duties. The internal controls are
complemented by the Company's internal audit function which conducts regular and
extensive internal audits.
The Company's independent auditors, KPMG LLP, have audited the Consolidated
Financial Statements. They have indicated in their report that their audits were
conducted in accordance with auditing standards generally accepted in the United
States of America.
The Board of Directors exercises its responsibility for these Consolidated
Financial Statements through its Audit Committee, composed solely of
nonmanagement directors, which meets periodically with management, the internal
auditors and the independent auditors to review internal accounting control,
auditing and financial reporting matters. The independent auditors and
representatives of the internal auditor function have full and free access to
the Audit Committee.
David Lilley
Chairman, President and Chief Executive Officer
James P. Cronin
Executive Vice President and Chief Financial Officer
West Paterson, New Jersey
January 22, 2001
-57-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders,
Cytec Industries Inc.:
We have audited the accompanying Consolidated Balance Sheets of Cytec Industries
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
Consolidated Statements of Income, Stockholders' Equity and Cash Flows for each
of the years in the three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cytec Industries
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Short Hills, New Jersey
January 22, 2001
-58-
Quarterly Data (Unaudited)
(Dollars in millions, except share and per share amounts) 1Q 2Q 3Q 4Q Year
- ------------------------------------------------------------------------------------------------------------
2000
Net Sales $368.8 $389.1 $376.2 $358.4 $1,492.5
Gross profit(1) 103.9 108.4 104.1 97.4 413.8
Net earnings 32.1 40.7 27.8 77.0 177.6
Earnings per common share(2)
Basic $ .77 $ .99 $ .68 $ 1.91 $ 4.34
Diluted $ .74 $ .95 $ .65 $ 1.82 $ 4.15
1999
Net Sales $362.8 $367.0 $351.9 $362.8 $1,444.5
Gross profit(1) 99.8 107.1 102.8 111.2 420.9
Net earnings 28.2 28.0 35.2 29.9 121.3
Earnings per common share(2)
Basic $ .65 $ .65 $ .82 $ .71 $ 2.83
Diluted $ .63 $ .63 $ .79 $ .68 $ 2.73
- -----------------------------------------------------------------------------------------------------------
As a result of adopting Emerging Issues Task Force Issue No. 00-10, "Accounting
for Shipping and Handling Fees and Costs," the Company reclassified prior period
shipping costs from net sales to manufacturing cost of sales and handling costs
from selling and technical services to manufacturing cost of sales. These
reclassifications had no effect on previously reported net earnings. For further
information see Note 1 of the Notes to Consolidated Financial Statements.
(1) Gross profit is derived by subtracting manufacturing cost of sales from net
sales.
(2) The sum of the quarters may not equal the full year basic and diluted
earnings per share since each period is calculated separately.
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
-59-
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Executive Officers
Set forth below is certain information concerning the executive officers of
the Company. Each such person serves at the pleasure of the Board of Directors
of the Company.
Name Age Positions
D. Lilley 54 Mr. Lilley is Chairman of the Board, President and Chief Executive Officer of the
Company. He was elected Chairman in January 1999 and President and Chief Executive
Officer of the Company effective May 11, 1998, having previously served as President and
Chief Operating Officer of the Company from January 8, 1997. From 1994 until January 7,
1997, he was a Vice President of American Homes Products Corporation, responsible for
its Global Medical Device business.
J. P. Cronin 47 Mr. Cronin is Executive Vice President and Chief Financial Officer of the Company,
having previously served as Vice President and Chief Financial Officer of the Company
from its inception in 1993 until he was elected an Executive Vice President in
September 1996.
M. S. Andrekovich 39 Mr. Andrekovich was elected Vice President, Human Resources of the Company in September
1999. From 1996 until he joined the Company, Mr. Andrekovich was group vice president,
human resources for the motor and power generation groups of Magnetek Corporation.
W. N. Avrin 45 Mr. Avrin was elected Vice President, Corporate and Business Development of the Company in December
1999, having previously served the same role for one year in a non-officer capacity. From 1997 through
1998, Mr. Avrin was vice president and general manager of Cytec's paper, water treating and mining
chemicals business and from 1994 until 1997, Mr. Avrin was vice president and general manager, Latin
America.
W. F. Cleary 54 Mr. Cleary was elected Vice President, Investor Relations of the Company in July, 1999.
Previous to joining the Company, Mr. Cleary was vice president, investor and corporate
relations for Ametek Corporation for more than four years.
D. M. Drillock 43 Mr. Drillock is Controller of the Company and has held this position for more than
five years.
E. F. Jackman 55 Mr. Jackman is Vice President, General Counsel and Secretary of the Company and has held
this position for more than five years.
T. P. Wozniak 47 Mr. Wozniak is Treasurer of the Company and has held this position for more than five
years.
The remainder of the information required by this Item is incorporated by
reference from the "Election of Directors" section of the Registrant's
definitive Proxy Statement for its 2001 Annual Meeting of Common Stockholders,
dated March 29, 2001.
Item 11. Executive Compensation
----------------------
The information required by this Item is incorporated by reference from the
"Executive Compensation," the "Employment and Severance Arrangements," the
"Compensation under Retirement Plans," the "Compensation of Directors," the
"Compensation and Management Development Committee Report," the Performance
Graph," and the "Compensation Committee Interlocks and Insider Participation"
sections of the Registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Common Stockholders, dated March 29, 2001.
-60-
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by this Item is incorporated by reference from the
"Cytec Stock Ownership by Directors & Officers" and the "Security Ownership of
Certain Beneficial Owners" sections of the Registrant's definitive Proxy
Statement for its 2001 Annual Meeting of Common Stockholders, dated March 29,
2001.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by this Item is incorporated by reference from the
"Certain Relationships and Related Transactions" section of the Registrant's
definitive Proxy Statement for its 2001 Annual Meeting of Common Stockholders,
dated March 29, 2001.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a)(1) List of Financial Statements:
Cytec Industries Inc. and Subsidiaries Consolidated Financial
Statements (See Item 8):
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the Years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Management Statement
Independent Auditors' Report
(a)(2) Cytec Industries Inc. and Subsidiaries Financial Statement
Schedules
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
No schedule other than Schedule II is included in this Annual Report on
Form 10-K because the conditions under which any other schedule is required to
be filed are absent or because the information required is shown in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits.
The Exhibit Index filed with this Annual Report on Form 10-K is
incorporated by reference herein.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
December 31, 2000.
-61-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
---------------------
(Registrant)
DATE: March 28, 2001 By: /s/ D. Lilley
-------------------------------
D. Lilley
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
DATE: March 28, 2001 /s/ D. Lilley
-------------------------------
D. Lilley
Chairman, President and
Chief Executive Officer
DATE: March 28, 2001 /s/ J. P. Cronin
-------------------------------
J. P. Cronin, Executive
Vice President, Chief Financial
and Accounting Officer
*
------------------------------
J. E. Akitt, Director
*
------------------------------
F. W. Armstrong, Director
*
------------------------------
C.A. Davis, Director
*
------------------------------
L. L. Hoynes, Jr., Director * By: /s/ E.F. Jackman
------------------------
Attorney-in-Fact
*
------------------------------
W. P. Powell, Director
*
------------------------------
J. R. Satrum, Director
Date: March 28, 2001
-62-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cytec Industries Inc.:
Under date of January 22, 2001, we reported on the consolidated balance sheets
of Cytec Industries Inc. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2000. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Short Hills, New Jersey
January 22, 2001
-63-
SCHEDULE II
-----------
Valuation Allowances
(Millions of dollars) Years ended December 31, 2000, 1999 and 1998
--------------------------------------------
Addition or (deductions) Other
Balance Charged or (credited) to Additions or Balance
Description 12/31/99 Expenses (deductions) 12/31/00
Reserves deducted from related assets:
Doubtful accounts receivable $ 9.3 $(0.2) $(0.3)/1/ $ 8.8
Total investments and advances and other assets $17.5 $(1.8)/2/ $0.6 /4/ $14.0
$(2.3)/3/
1) Principally bad debts written off, less recoveries.
2) Reversal of provision against unconsolidated equity investments.
3) Liquidation of certain investments held by unconsolidated associated
companies, which had been fully reserved.
4) Reserve against the stated liquidation value of preferred stock received as
a dividend.
-64-
Addition or (deductions) Other
Balance Charged or (credited) to Additions or Balance
Description 12/31/98 Expenses (deductions) 12/31/99
Reserves deducted from related assets:
Doubtful accounts receivable $ 9.2 $ 1.0 $(0.9)/1/ $ 9.3
Total investments and advances and other assets $19.8 $(4.7)/2/ $(2.4)/3/ $17.5
1) Principally bad debts written off, less recoveries.
2) Liquidation of certain investments held by unconsolidated associated
companies, which had been fully reserved.
3) Reclassification of reserve
Addition or (deductions) Other
Balance Charged or (credited) to Additions or Balance
Description 12/31/97 Expenses (deductions) 12/31/98
Reserves deducted from related assets:
Doubtful accounts receivable $10.0 $ 0.2 $(1.0)/1/ $ 9.2
Total investments and advances and other assets $23.0 $ 1.5 /2/ $(1.9)/4/ $19.8
$(2.8)/3/
1) Principally bad debts written off, less recoveries.
2) Provision against unconsolidated equity investments.
3) Liquidation of certain investments in unaffiliated companies, which had
been fully reserved.
4) Reclassification of allowances related to unconsolidated equity investments
and reserve against the stated liquidation value of preferred stock
received as a dividend.
-65-
Exhibit Index
Exhibit No. Description
----------- -----------
2.1(a) Transfer and Distribution Agreement dated as of December 17, 1993
between American Cyanamid Company ("Cyanamid") and the Registrant
(incorporated by reference to exhibit 2.1 to Registrant's annual
report on Form 10-K for the year ended December 31, 1993).
2.1(b) Transfer and Distribution Agreement Amendment, dated April 8, 1997
between Cyanamid and the Registrant (incorporated by reference to
exhibit 2.1(a) to Registrant's quarterly report on Form 10-Q for
the quarter ended March 31, 1997).
2.1(c) Transfer and Distribution Agreement Second Amendment, dated as of
January 22, 1999, between Cyanamid and the Registrant (incorporated
by reference to exhibit 2.1(c) to Registrant's annual report on
Form 10-K for the year ended December 31, 1998).
2.2(a) Preferred Stock Repurchase Agreement, dated as of August 17, 1995,
between Cyanamid and the Registrant (incorporated by reference to
exhibit 2(b) to Registrant's registration statement on Form S-3,
registration number 33-97328).
2.2(b) Amendment No. 1 to Preferred Stock Repurchase Agreement, dated as
of October 10, 1995, between Cyanamid and Registrant (incorporated
by reference to exhibit 2(c) to Registrant's registration statement
on Form S-3, registration number 33-97328).
3.1(a) Certificate of Incorporation (incorporated by reference to exhibit
3.1(a) to Registrant's quarterly report on Form 10-Q for the
quarter ended September 30, 1996).
3.1(b) Certificate of Amendment to Certificate of Incorporation dated May
13, 1997 (incorporated by reference to exhibit 3.1(a) to
Registrant's quarterly report on Form 10-Q for the quarter ended
June 30, 1997).
3.1(c) Conformed copy of the Registrant's certificate of incorporation, as
amended (incorporated by reference to exhibit 3(c) to Registrant's
registration statement on Form S-8, registration number 333-45577).
3.2 By-laws (incorporated by reference to exhibit 3.2 to Registrant's
quarterly report on Form 10-Q for the quarter ended September 30,
1996)
4.1 Form of Common Stock Certificate (incorporated by reference to
exhibit 4.1 to Registrant's registration statement on Form 10).
-66-
4.2 Certificate of Designations, Preferences and Rights of Series C
Preferred Stock (incorporated by reference to exhibit 4.4 to
Registrant's annual report on Form 10-K for the year ended December
31, 1993). Reference is also made to exhibits 2.1(b), 2.1(c),
2.2(a) and 2.2(b).
4.3 Form of Series C Preferred Stock Certificate (incorporated by
reference to exhibit 4.7 to Registrant's registration statement on
Form 10).
4.4(a) Indenture, dated as of March 15, 1998 between the Registrant and
PNC Bank, National Association as Trustee (incorporated by
reference to Exhibit 4.1 of Registrant's current report on Form 8-
K, dated March 18, 1998).
4.4(b) Supplemental Indenture, dated as of May 11, 1998 between the
Registrant and PNC Bank National Association, as Trustee
(incorporated by reference to Exhibit 4.2 to Registrant's quarterly
report on Form 10-Q for the quarter ended March 31, 1998).
4.5 6.50% Global Note due March 15, 2003 (incorporated by reference to
Exhibit 4.2 of Registrant's current report on Form 8-K dated March
18, 1998).
4.6 6.75% Global Note due March 15, 2008 (incorporated by reference to
Exhibit 4.3 of Registrant's current report on Form 8-K dated March
18, 1998).
4.7 6.846% Mandatory Par Put Remarketed Securities due May 11, 2025
(incorporated by reference to Exhibit 4.5 to Registrant's quarterly
report on Form 10-Q for the quarter ended March 31, 1998).
10.1 Environmental Matters Agreement, dated as of December 17, 1993,
between Cyanamid and the Registrant (incorporated by reference to
exhibit 10.1 to Registrant's annual report on Form 10-K for the
year ended December 31, 1993).
10.2 OPEB Matters Agreement, dated as of December 17, 1993, between
Cyanamid and the Registrant (incorporated by reference to exhibit
10.2 to Registrant's annual report on Form 10-K for the year ended
December 31, 1993).
10.3 Intellectual Property Agreements, each dated as of December 17,
1993 and each between Cyanamid and Cytec Technology Corp.
(consisting of (i) Assignment of U.S. Patents, (ii) Assignment of
U.S. Patent Applications, (iii) Assignment of Foreign Patents and
Patent Applications, (iv) Assignment of Records of Invention, (v)
Exclusive Patent and Knowhow License, (vi) Option Agreement for Non-
Exclusive Patent and Knowhow License, (vii) Non-Exclusive Patent
and Knowhow License, (viii) Agreement re access to CL File and (ix)
Assignment of Knowhow)(incorporated by reference to exhibit 10.7 to
Registrant's annual report on Form 10-K for the year ended December
31, 1993).
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10.4 Trademarks and Copyrights Transfer Agreement, Assignment and Bill
of Sale, dated as of December 17, 1993, among Cyanamid, Cytec
Technology Corp. and the Registrant (incorporated by reference to
exhibit 10.8 to Registrant's annual report on Form 10-K for the
year ended December 31, 1993).
10.6 Third Amended and Restated Credit Agreement, dated as of August 21,
1998 among the Registrant, the banks named therein and Citibank
N.A., as Administrative Agent, The Chase Manhattan Bank, as
Syndication Agent, and First Union National Bank, as Documentation
Agent (incorporated by reference to exhibit 10.1 to Registrant's
quarterly report on form 10-Q for the quarter ended September 30,
1998).
10.8(a) Partnership Agreement (the "CYRO Partnership Agreement") between
Cyanamid Plastics, Inc., and Rohacryl, Inc., dated July 1, 1976
(incorporated by reference to exhibit 10.17 to Registrant's
registration statement on Form 10).
10.8(b) Letter amendment, dated February 19, 1993, among CYRO Industries,
Cyanamid Plastics Inc. and Rohacryl Inc. to the CYRO Partnership
Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant's quarterly report on Form 10-Q for the quarter ended
March 31, 1998).
10.9(a) Joint Venture Agreement (the "AMEL Joint Venture Agreement")
between Cyanamid Melamine, Inc., and DCP Melamine North America,
Inc., dated April 15, 1986 (incorporated by reference to exhibit
10.18(a) to Registrant's registration statement on Form 10).
10.9(b) Amendment No. 1 to AMEL Joint Venture Agreement, dated April 30,
1987, by and between Cyanamid Melamine Inc. and DCP Melamine North
America, Inc. (incorporated by reference to Exhibit 10.2 to
Registrant's quarterly report on Form 10-Q for the quarter ended
March 31, 1998).
10.9(c) Amendment No. 2 to AMEL Joint Venture Agreement, dated May 1, 1994,
by and between DSM Melamine Americas, Inc. and Cytec Melamine Inc.
(incorporated by reference to Exhibit 10.3 to Registrant's
quarterly report on Form 10-Q for the quarter ended March 31,
1998).
10.9(d) Amendment No. 3 to AMEL Joint Venture Agreement, dated January 30,
1995 by and between Cytec Melamine Inc. and DSM Melamine Americas,
Inc. (incorporated by reference to Exhibit 10.4 to Registrant's
quarterly report on Form 10-Q for the quarter ended March 31,
1998).
10.9(e) Agreement dated April 15, 1986 between Cyanamid and DSM Chemische
Production BV, as amended October 24, 1994 (incorporated by
reference to exhibit 10.18(b) to Registrant's annual report on Form
10-K for the year ended December 31, 1994.)
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10.12 Executive Compensation Plans and Arrangements
10.12(a) 1993 Stock Award and Incentive Plan, as amended (incorporated by
reference to Exhibit I to the Registrant's definitive Proxy
Statement for its 1997 Annual Meeting of Common Stockholders filed
pursuant to Regulation 14A.)
10.12(b) Form of Performance Stock Award/Performance Cash Award Grant
Letter. (incorporated by reference to exhibit 10.12(b) to
Registrant's annual report on Form 10-K for the year ended December
31, 1999).
10.12(c) Rule No. 1 under 1993 Stock Award and Incentive Plan as amended
through January 22, 2001.
10.12(d) Form of Stock Option Grant Letter (incorporated by reference to
exhibit 10.13(d) of Registrant's annual report on Form 10-K for the
year ended December 31, 1998).
10.12(e) Rule No. 2, as amended through January 27, 1997, under 1993 Stock
Award and Incentive Plan (incorporated by reference to exhibit
10.13(e) to Registrant's annual report on Form 10-K for the year
ended December 31, 1996).
10.12(f) Rule No. 3 under 1993 Stock Award and Incentive Plan, as amended
through March 10, 2000 (incorporated by reference to exhibit
10.12(f) of Registrant's annual report on Form 10-K for year ended
December 31, 1999).
10.12(g) Executive Income Continuity Plan, as amended through January 22,
2001.
10.12(h) Key Manager Income Continuity Plan, as amended through December 15,
2000.
10.12(i) Employee Income Continuity Plan, as amended through May 13, 1996
(incorporated by reference to exhibit 10.13(i) to Registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 1996).
10.12(j) Cytec Excess Retirement Benefit Plan, as amended through May 11,
2000 (incorporated by reference to exhibit 10.12(j) to Registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 2000)
10.12(k) Cytec Supplemental Employees Retirement Plan, as amended through
April 13, 2000 (incorporated by reference to exhibit 10.12(k) to
Registrant's quarterly report on Form 10-Q for the quarter ended
June 30, 2000).
10.12(l) Cytec Executive Supplemental Employees Retirement Plan, as amended
through October 14, 1999 (incorporated by reference to exhibit
10.13(k) to Registrant's quarterly report on Form 10-Q for the
quarter ended September 30, 1999).
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10.12(m) Cytec Compensation Tax Equalization Plan (incorporated by reference
to exhibit 10(G) to Registrant's quarterly report on Form 10-Q for
the quarter ended September 30, 1994).
10.12(n) Cytec Supplemental Savings and Profit Sharing Plan, as amended
through December 29, 1999 (incorporated by reference to exhibit
10.12(n) to Registrant's annual report on form 10-K for the year
ended December 31, 1999).
10.12(o) Consulting Agreement between the Registrant and D.D. Fry, dated
January 25, 1999 as revised and restated March 3, 1999
(incorporated by reference to exhibit 10.13(o) to Registrant's
annual report on Form 10-K for the year ended December 31, 1998).
10.12(p) Amended and Restated Trust Agreement effective as of December 15,
1994 between the Registrant and Vanguard Fiduciary Trust Company,
as successor trustee (incorporated by reference to exhibit 10.12(p)
to Registrant's annual report on Form 10-K for the year ended
December 31, 1999).
10.12(q) Deferred Compensation Plan (incorporated by reference to exhibit
10.13(q) to Registrant's annual report on Form 10-K for the year
ended December 31, 1995).
10.12(r) Restricted Stock Award Agreement - Mark Andrekovich dated August
30, 1999.
10.12(s) Restricted Stock Award Agreement - David Lilley dated January 7,
1997 (incorporated by reference to exhibit 10.13(o) to Registrant's
quarterly report on Form 10-Q for the quarter ended March 31,
1997).
10.12(t) Cytec Industries Inc. Estate Enhancement Plan including form of
agreement, form of death benefit agreement, and form of election to
forego compensation and enrollment form (incorporated by reference
to Exhibit 10.13(u) to Registrant's annual report on Form 10-K for
the year ended December 31, 1997).
10.12(u) Stock option, dated January 25, 1999, issued to D. D. Fry
(incorporated by reference to exhibit 10.13(u) to Registrant's
annual report on Form 10-K for the year ended December 31, 1998).
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company
23 Consent of KPMG LLP
24(a-f) Powers of Attorney of J. E. Akitt, F. W. Armstrong, C.A. Davis, L.
L. Hoynes, Jr., W. P. Powell and J. R. Satrum.
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