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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, 2001
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
------------------- which registered
Common Stock, par value -------------------------
$.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(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 |_|.
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 39,659,897 shares of common stock outstanding on February 1, 2002.
Non-affiliates held 39,423,982 of these shares with an aggregate market value of
$931,194,455 based on the closing price ($23.62) of such stock on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Part of Form 10-K
- --------- -----------------
Portions of Proxy Statement for 2002 Annual Meeting Parts III, IV
of Common Stockholders, dated March 28, 2002.
-1-
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 (including its segments) outlook for 2002 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; customer inventory destocking; the actions of competitors; exchange
rate fluctuations; the success of our customers' demands for price decreases;
technological change; our ability to renegotiate expiring long-term contracts;
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; energy
costs; war, terrorism or sabotage; 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
The Company is a global specialty chemicals and specialty materials
company which focuses on value-added products. The Company serves major markets
for aerospace, water treatment and mining, automotive and industrial coatings,
plastics and chemical intermediates. The Company has manufacturing facilities in
nine countries and sells its products worldwide. The Company had net sales of
$1,387.1 million and earnings from operations of $112.7 million in 2001. In
addition, the Company has a 50% interest in each of three unconsolidated
associated companies, and a one-third interest in a fourth. The associated
companies had aggregate net sales of $306.9 million and gross profit of $52.0
million in 2001. The Company reported $.1 million of equity in earnings of
associated companies in 2001.
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 advanced composites and adhesives. Building Block Chemicals principally
include acrylonitrile, acrylamide, 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
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 or withdraw certain product lines and/or acquire
additional product lines or technologies. Additionally, regular reviews are
performed of the cost effectiveness and profitability of plant sites or
individual facilities within such sites. In management's opinion, the financial
impact of a disposal or withdrawal of certain product
-2-
lines together with the impact on plant sites 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 completed three acquisitions during 2001; 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 terms "Company" and "Cytec" each refer
collectively to Cytec Industries Inc. and its subsidiaries. Cytec was
incorporated as an independent public company in December 1993.
WATER AND INDUSTRIAL PROCESS CHEMICALS SEGMENT
The Water and Industrial Process Chemicals segment had net sales to
external customers of approximately $335.0 million in 2001 and $403.1 million in
2000, or approximately 24.2% and 27.0%, respectively, of the Company's net sales
in such years. The decrease in sales was primarily caused by the divestiture of
the paper chemicals product line in November 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
----------------- -------------------- ------------------------------
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 for mineral electronics, chemical and pharmaceutical
recovery and metals processing, processing and agricultural fumigants
solvent extractants, catalyst ligands,
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. To support this growing demand,
Cytec completed significant expansions at its Mobile, Alabama and Bradford,
England plants during 2001. 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 wastewater treating product line.
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 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. The Company also emphasizes sales to global
full-service water treatment companies.
-3-
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 which
have leading positions in cobalt/nickel separation and copper sulfide recovery
applications. The Company has expanded its product offerings through the
acquisition of three mining chemicals businesses in 1998 and 1999. The Company
also strives to develop new technologies as well as new formulations tailored
for specific applications. Early results suggest that the Company's recently
introduced synthetic depressants may have promise in the platinum processing
industry. 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. In 2001, mining chemicals sales reflected
the soft global economy. The Company's mining chemicals product lines are
marketed primarily through a specialized sales and technical services staff.
Cytec expects to continue expanding its sales presence in South America, Asia
and Australia, the growth markets for the Company's mineral processing
chemicals.
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. The Company acquired a phosphine fumigants product line
in 1999. After the Company received regulatory approvals from the United States
Environmental Protection Agency to market phosphine fumigants in 1999 and 2000,
the Company commenced marketing phosphine fumigants in the United States as an
alternative to methyl bromide, which is required to be phased out by the end of
2004 due to its ozone depleting characteristics. Sales of phosphine fumigants
are dependent upon obtaining and maintaining necessary registrations and
approvals from applicable regulatory agencies and the Company is seeking product
registrations for its fumigants in additional countries. The Company also seeks
to broaden its product line through development of additional proprietary
technologies for pharmaceuticals, specialty chemicals catalysis and reactive
intermediate applications. The Company is considering increasing its plant
capacity to meet future growth opportunities.
PERFORMANCE PRODUCTS SEGMENT
The Performance Products segment had net sales to external customers of
approximately $434.7 million in 2001 and $474.0 million in 2000, or
approximately 31.3% and 31.8%, 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:
PRODUCT LINE MAJOR PRODUCTS PRINCIPAL APPLICATIONS
----------------- -------------------- ------------------------------
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
(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. The Company achieved its
current position partly through the acquisitions of Dyno Industrier ASA's 50%
interest in Dyno-Cytec in 1998 and BIP Limited's amino coating resins business
in 1999. 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
-4-
and general industrial maintenance coatings. As part of the project to
consolidate and increase the flexibility of the Company's global Resins
production, the Company completed an 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 Virginia 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.
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. Ciba
Specialty Chemicals AG is the dominant competitor in this product line. The
Company seeks to enhance its position with new products based on proprietary
chemistries and solutions-based technical support. In 2001, the Company launched
its CYASORB THT family of light stabilizers based on the Company's proprietary
hindered amine light stabilizer and triazine chemistries. These chemistries
provide much higher efficiency as ultraviolet light stabilizers than previous
technologies. The Company completed two significant 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. More recently the Company has focused on
manufacturing cost reduction and process efficiency improvements.
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 $450.2 million in 2001 and $411.6 million in 2000, or
approximately 32.5% and 27.6%, 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 25%, 22% and 24% of the Company's 2001, 2000, and 1999 net sales,
respectively. The Company acquired two complementary businesses in 2001 to
support the long-term growth of this segment. The acquisition of 3M's composites
business provided additional customer qualifications and new products and the
purchase of BP's carbon fibers business enhances the Company's ability to
maintain a high quality, low cost supply of carbon fiber for its composite
products. The acquisitions accounted for approximately $9.0 million of the
Company's 2001 sales.
-5-
The primary applications for both aerospace adhesives and advanced
composites are commercial airliners, regional and business jets, military
aircraft, satellites and launch vehicles, high performance automotive and
specialty applications. 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-22
and F-18 fighters and the C-17 transport aircraft. In 2001, the Company was also
named as the sole source provider of structural composites to Lockheed for the
recently approved F-35 Joint Strike Fighter. Sales to The Boeing Company and its
subcontractors for commercial and military aerospace and other components were
approximately $149.5 million or 10.8% of consolidated net sales in 2001 and
approximately $153.4 million or 10.3% of consolidated net sales in 2000. The
reduction in air passenger traffic after September 11, 2001 has caused financial
problems for the airline industry with a consequential reduction in demand for
large aircraft from Boeing and Airbus. The Company anticipates, however, that
the long-term trend of growth in passenger air miles will continue.
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. In addition, the Company's ablatives are used in
manufacturing rocket nozzles and the Company's carbon/carbon products are used
in manufacturing aircraft and other high performance brakes.
The Company's structural adhesives and advanced composites also have
various applications in industrial, high performance automotive and selected
recreational products. The Company is seeking to leverage its advanced materials
portfolio with customers in these and other new markets.
The Company purchases from third parties all of the aramid and glass
fibers and most of the carbon fibers and 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 $167.2 million in 2001 and $203.8 million in 2000, or
approximately 12.1% and 13.7%, respectively, of the Company's net sales in each
year.
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.
ACRYLONITRILE AND HYDROCYANIC ACID
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 through mid-2005
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"), an unconsolidated associated company, as a raw
material for methyl methacrylate ("MMA") under two long-term contracts. Because
of poor market conditions for acrylonitrile, particularly in export markets, and
fluctuating spreads over raw material prices, the Company has been operating the
plant at rates ranging from approximately 75% of capacity to full capacity.
OTHER BUILDING BLOCK CHEMICALS
The Company also manufactures and sells acrylamide, melamine and
sulfuric acid. 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 Company's
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.
-6-
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 the only North American
manufacturer of melamine.
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.
The Company mothballed its ammonia plant in 2001. The methanol plant at
Fortier was idled in March 1999 and in December 1999, the Company sold its share
of the plant to Methanex Corporation. Both the ammonia plant and the methanol
plant had been using higher cost, domestic natural gas as a raw material and
consequently were not competitive with foreign sourced material.
Prices of building block chemicals 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 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 PolymerAdditives.com, 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. CYRO closed its Canadian manufacturing
plant in 2001 in order to enhance its overall manufacturing efficiency. 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 technologies 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
Large increases in raw material costs, operational problems from its
transition to a new location, and a major softening of end-market demand
resulted in AC Molding's sales declining substantially over the past two years.
AC Molding was not able to regain compliance with its bank loan covenants or
find a buyer for its assets at a price satisfactory to its lender. Accordingly,
AC Molding shut down its operations in November 2001 and filed for bankruptcy
under Chapter 11 in December 2001. The Company does not believe that AC
Molding's bankruptcy will have a material impact on the Company's results of
operations or financial position as the net investment was already valued at
zero.
-7-
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 and its manufacture of
carbon fibers for advanced composites) helps protect 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 indirect raw material for many of the Company's products, including
melamine and Resins. Because natural gas is not easily transported, the price
may vary widely between geographic regions. The price of natural gas in the
United States has been volatile during the past few years and is 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 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. The risk of
future carbon fiber supply limitations is reduced now that the Company
manufactures some of its own carbon fibers.
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 varies due to the cyclicality typically experienced with respect to
the amount of industry wide capacity dedicated to producing such chemicals and
the amount of end user demand.
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 $185.3 million for 2001,
$188.8 million for 2000 and $153.4 million for 1999 or approximately 13.4%,
12.6% and 10.6% 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
33.5%, 33.8% and 32.9% in 2001, 2000 and 1999, respectively, of net sales to
unaffiliated customers.
The Company's identifiable assets located outside of the United States,
by geographical region, at year end 2001, 2000 and 1999 are set forth in Note 17
of the Notes to the Consolidated Financial Statements in Item 8 and are
incorporated by reference herein.
-8-
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 2001, 2000 and 1999, the Company expended an aggregate of
approximately $32.4 million, $38.6 million and $43.8 million, respectively, on
Company-sponsored research and process development activities. Company research
and process development expenses declined in 2001 primarily as the result of the
divestiture of the Company's paper chemicals business in late 2000.
TRADEMARKS AND PATENTS
The Company has approximately 1,800 United States and foreign patents
and also has trademark applications and registrations for approximately 150
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.
EMPLOYEES
Approximately 4,450 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
generally good. Union contracts at four facilities covering approximately 5% of
the Company's unionized employees expire in the ordinary course prior to the end
of 2002. 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.
The Company obtains insurance to cover portions of these risks to the
extent the coverage is available and can be obtained on terms the Company
believes are economically justifiable. After September 11, 2001, the
availability of property insurance in particular became much tighter. The
Company declined to obtain coverage for terrorist acts since it was not
available at economic rates, and in response to an approximate tripling in
proposed rates, the Company increased certain of its deductibles and
self-retention amounts.
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
-9-
remediation of hazardous materials at the facility. Such laws typically impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous materials. In addition, pursuant
to the Resource Conservation and Recovery Act ("RCRA") and state laws governing
the generation, transportation, treatment, storage or disposal of solid and
hazardous wastes, owners and operators of facilities may be liable for removal
or remediation, or other corrective action at areas where hazardous materials
have been released at a facility. The costs of removal, remediation or
corrective action may be substantial, and the presence of hazardous materials in
the environment at any of the Company's facilities, or the failure to abate such
materials promptly or properly, may adversely affect the Company's ability to
operate such facilities. CERCLA and analogous state laws also impose liability
for investigative, removal and remedial costs on persons who dispose of or
arrange for the disposal of hazardous substances at facilities owned or operated
by third parties. Liability for investigative, removal and remedial costs under
such laws is retroactive, strict, and joint and several.
The Clean Air Act and similar state laws govern the emission of
pollutants into the atmosphere. The Federal Water Pollution Control Act and
similar state laws govern the discharge of pollutants into the waters of the
United States. RCRA and similar state laws govern the generation,
transportation, treatment, storage, and disposal of solid and hazardous wastes.
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.
Item 2. PROPERTIES
The Company operates 25 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 2001, 2000 and 1999 was approximately $63.9
million, $76.5 million, and $77.4 million, respectively. Capital expenditures in
2002 are expected to be in the range of $75.0-80.0 million. The anticipated
increase in spending from 2001 levels is due primarily to the commencement of a
multi-year project to upgrade and modernize the Stamford, Connecticut specialty
chemicals research facility. The Company's 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, South Carolina.................. Specialty materials
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
-10-
Rock Hill, South Carolina................... 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.
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.
American Cyanamid Company ("Cyanamid") is one of several alleged
processors of lead, lead pigments and/or lead-based paints named as defendants
in 36 cases pending in state and federal courts in the states of California,
Illinois, Maryland, Mississippi, Missouri, New Jersey, New York, Ohio, Rhode
Island, Texas, and Wisconsin. The Company has an agreement to indemnify Cyanamid
in connection with such suits and, accordingly, for purposes of this paragraph
only, the Company means Cytec and Cyanamid, collectively. 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 Cyanamid purchased certain assets in 1971. MacGregor Lead
manufactured and sold white lead pigments, the predominant lead pigment used in
paints. The Company denies it is a successor to MacGregor Lead Company. The
Company has won summary judgment motions in three cases in Maryland and
Wisconsin requiring dismissal of the claims against the Company which were based
on the theory that the Company was a successor to MacGregor Lead Company. In
some cases there are allegations that the Company is liable in its own right.
Cytec has no information that lead pigments made by Cyanamid were sold by
Cyanamid for any use at issue in these cases.
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 denies that it conspired to fix
prices. In connection with its acquisition of BP's carbon fibers business, the
Company was indemnified by BP from any liabilities BP's carbon fibers business
may have in these proceedings. The indemnity does not cover any liability the
Company may have in its own right and not as a successor to BP's carbon fibers
business.
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
-11-
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, 2002, there were approximately 13,800 holders of record
of the Common Stock of the Company.
The high and low stock prices for each quarter during 2001 and 2000
were:
1Q 2Q 3Q 4Q
2001
High $39 1/2 $38.01 $38.13 $27.63
Low 28 3/8 30.85 19.00 22.55
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
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.
-12-
Item 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
(Dollars in millions, except per share amounts) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Statements of income data:
Net sales 1,387.1 $1,492.5 $1,444.5 $1,475.7 $1,323.6
Manufacturing cost of sales 1,068.8(1) 1,078.7(4) 1,023.6 1,059.2 985.0
Research and process development 32.4 38.6(5) 43.8 42.9 44.7
Other operating expenses 173.2(2) 198.6(6) 192.1 188.1 174.7
Earnings from operations 112.7 176.6 185.0 185.5 119.2(10)
Other income, net 7.9 104.6(7) 9.3 14.5(9) 23.9(11)
Equity in earnings of associated companies 0.1(3) 15.0 5.6 20.3 12.3
Interest expense, net 19.6 25.1 26.9 22.4 5.7
Income tax provision 34.9 93.5 51.7(8) 73.2 36.1(12)
Earnings before extraordinary item 66.2 177.6 121.3 124.7 113.6
Extraordinary gain, net of taxes 4.9 --- ---
Net earnings 71.1 177.6 121.3 124.7 113.6
Net earnings available for common stockholders $ 71.1 $ 177.6 $ 121.3 $ 124.7 $ 113.6
Net earnings per common share before extraordinary item
Basic $ 1.65 $ 4.34 $ 2.83 $ 2.79 $ 2.50
Diluted $ 1.59 $ 4.15 $ 2.73 $ 2.68 $ 2.39
Extraordinary item per common share
Basic $ 0.12 --- --- --- ---
Diluted $ 0.12 --- --- --- ---
- ---
Net earnings per common share
Basic $ 1.77 $ 4.34 $ 2.83 $ 2.79 $ 2.50
Diluted $ 1.71 $ 4.15 $ 2.73 $ 2.68 $ 2.39
Other data (at end of period, unless otherwise noted):
Additions to plants, equipment and facilities (annual) $ 63.9 $ 76.5 $ 77.4 $ 103.8 $ 91.4
Current assets 509.9 567.8 491.1 477.6 452.8
Current liabilities 282.0 358.9 366.1 394.4 375.0
Working capital 227.9 208.9 125.0 83.2 77.8
Plants, equipment and facilities, at cost 1,344.5 1,326.3 1,352.6 1,363.0 1,278.0
Net plant investment 598.0 616.2 655.7 667.5 629.7
Total assets 1,650.4 1,721.6 1,752.6 1,722.1 1,614.1
Long-term debt 314.7 313.4 415.2 411.0 324.0
Other noncurrent liabilities 416.8 433.1 465.5 485.7 527.7
Total stockholders' equity 636.9 616.2 505.8 431.0 387.4
- -----------------------------------------------------------------------------------------------------------------------
(1) Includes a restructuring charge of $4.6.
(2) Includes a restructuring charge of $0.8.
(3) Includes a restructuring charge of $2.3 related to the Company's 50% share
of restructuring charges recorded by CYRO Industries Inc.
(4) Includes a net restructuring charge of $3.3 and a charge of $1.4 for
receivables due the Company from its former ammonia joint venture.
(5) Includes net restructuring charges of $1.1.
(6) Includes net restructuring charges of $5.7.
(7) Includes a gain of $88.3 from the divestiture of the Paper Chemicals
business, a gain of $13.3, discounted and net of expenses, from an environmental
remediation insurance settlement, a gain of $7.1 from the sale of real estate at
a former plant site and a charge of $4.8 for the write-down of receivables from
the AC Moldings Compounds joint venture.
(8) Includes a credit of $8.0 related to the utilization of prior years' tax
credits.
(9) Includes a gain of $4.4 related to the sale of the bulk molding compounds
product line.
(10) Includes restructuring charges of $18.6 and other charges of $23.8.
(11) Includes a gain of $22.3 related primarily to the sale of the acrylic
fibers product line. In addition to the charges discussed in footnote 10 above,
charges of $9.0 were recorded to reduce the carrying amount of certain assets.
(12) Includes the reversal of the remaining $24.4 of a previously established
tax valuation allowance.
-13-
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 per share amounts.
GENERAL
During 2001 the Company completed the following acquisition
transactions:
On August 31, 2001, the Company acquired certain assets of the carbon
fiber business of BP plc ("BP"). The BP carbon fiber business had sales for the
first half of 2001 of approximately $17 of which approximately 50% were sales to
Cytec Engineered Materials ("CEM"), formerly known as Cytec Fiberite. CEM uses
carbon fiber to reinforce engineered resin matrices and produce composites for a
diverse range of commercial and military aerospace applications and other
emerging applications. The acquisition enhances CEM's ability to maintain an
uninterrupted supply of certain classes of carbon fiber. The acquisition, which
includes manufacturing sites in Greenville and Rock Hill, SC, is reported as
part of the Company's Specialty Materials segment.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 141, "Business Combinations," after reducing to zero the amounts that would
otherwise have been assigned to certain assets acquired, the remaining "negative
goodwill" was recognized as an extraordinary gain of $4.9, net of taxes, which
related to the fair value of the inventories acquired less liabilities assumed.
Taxes recorded related to the extraordinary gain were $2.6.
On March 30, 2001, the Company acquired the composite materials
business of Minnesota Mining and Manufacturing Company ("3M") for cash
consideration of $8.2. The acquisition resulted in goodwill of $3.5, which the
Company has been amortizing on a straight-line basis over a period of 25 years.
The acquired business has been integrated into the Company's Specialty Materials
segment.
On March 27, 2001, the Company acquired the remaining 50% interest in
the assets of the Avondale Ammonia Company manufacturing joint venture effective
as of September 1, 2000, from the Company's partner, LaRoche Industries Inc.
("LaRoche"). The Company paid cash consideration of $0.8 and released certain
claims against LaRoche relating to LaRoche's rejection of the partnership
agreements. No goodwill was recognized as a result of this transaction. In the
second quarter of 2001, the ammonia manufacturing facility was indefinitely
mothballed.
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 five year 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 net sales were $97.9 and $106.4 in 2000 and 1999, respectively. Taxes
of approximately $26.6 were paid in 2001 related to this divestiture.
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
acquisition resulted in goodwill of $36.7, which the Company has been amortizing
on a straight-line basis over a period of 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 will continue 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. The
acquisition resulted in goodwill of $20.1, which the Company has been amortizing
on a straight-line basis over a period of 40 years. 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.
-14-
On August 11, 1999, the Company acquired assets of the global phosphine
fumigants product line from BOC Group Inc. for $3.5 plus two additional payments
aggregating $1.0, which were paid during 2000 upon approval of certain fumigant
registrations by the U.S. Environmental Protection Agency. The acquisition
resulted in goodwill of $2.2, which the Company has been amortizing on a
straight-line basis over a period of 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, which has not yet occurred. 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 acquisition resulted in
goodwill of $0.3, which the Company has been amortizing on a straight-line basis
over a period of 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.
All acquisitions have been accounted for under the purchase method of
accounting with the purchase prices allocated to the assets acquired 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 excess
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 the years ended 2001, 2000 or 1999 would
not have been materially different if any of the acquisitions had occurred on
January 1 of the respective preceding years. Accordingly, pro forma sales, net
earnings and earnings per share disclosures have not been provided.
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 143, "Asset Retirement Obligations" ("SFAS 143"). SFAS 143
addresses the accounting and reporting requirements for legally unavoidable
obligations associated with the retirement of tangible long-lived assets. In
general, SFAS 143 requires entities to capitalize asset retirement costs of
related long-lived assets in the period in which they meet the definition of a
liability and to allocate those costs to expense using a systematic and rational
method. SFAS 143 will become effective for the Company beginning January 1,
2003. The Company is reviewing the potential impact of SFAS 143 on its
consolidated results of operations and financial position, which is expected to
be immaterial.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires business combinations consummated after June 30, 2001,
to be accounted for using the purchase method of accounting. It also specifies
the criteria that intangible assets must meet to be recognized apart from
goodwill. SFAS 142 requires the use of a non-amortization approach to account
for purchased goodwill and intangibles with indefinite useful lives. Under this
approach, goodwill and intangibles with indefinite useful lives are not
amortized, but instead are reviewed for impairments at least annually and
written down only in the periods in which it is determined that the recorded
value is greater than the fair value. SFAS 142 also requires that intangible
assets with determinable useful lives be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS 142 will become effective for the Company
beginning January 1, 2002. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001, have been amortized through December
31, 2001, in accordance with the appropriate pre-SFAS 141 and 142 accounting
literature.
The Company has evaluated its goodwill and intangible assets using the
new criteria in SFAS 141, and as a result, certain intangibles that no longer
met the criteria for recognition apart from goodwill were reclassified as
goodwill effective January 1, 2002. The Company has also re-evaluated the
remaining useful lives and residual values of all intangible assets with
determinable useful lives and has made all necessary amortization period
adjustments effective January 1, 2002.
-15-
The Company's acquisition intangibles, net of accumulated amortization,
before and after such reclassifications were as follows:
- ----------------------------------------------------------------
Goodwill Intangibles Total
- ----------------------------------------------------------------
Before reclassifications:
Water and Industrial
Process Chemicals $ 31.3 $ 3.8 $ 35.1
Performance Products 49.1 26.7 75.8
Specialty Materials 250.2 15.0 265.2
Building Block Chemicals - - -
- ----------------------------------------------------------------
Total $330.6 $45.5 $376.1
- ----------------------------------------------------------------
After reclassifications:
Water and Industrial
Process Chemicals $ 31.1 $ 4.0 $ 35.1
Performance Products 50.1 25.7 75.8
Specialty Materials 252.6 12.6 265.2
Building Block Chemicals - - -
- ----------------------------------------------------------------
Total $333.8 $42.3 $376.1
- ----------------------------------------------------------------
In connection with the transitional goodwill impairment test, SFAS 142
requires the Company to assess whether there is any indication that goodwill is
impaired as of January 1, 2002. To accomplish this, the Company has defined its
business segments as its SFAS 142 reporting units and has determined the
carrying value of those reporting units as of January 1, 2002. The Company has
until June 30, 2002, to determine the fair value of each reporting unit and
compare it to the reporting unit's carrying value. If a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired, and the Company must then perform the second
step of the transitional impairment test. In the second step, the Company must
compare the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to its assets and liabilities in a
manner similar to a purchase price allocation, to its carrying value. This
second step, if required, must be completed by December 31, 2002, and any
transitional impairment loss will be measured as of January 1, 2002, and
recognized as the effect of a change in accounting principle. Although further
evaluation is still needed to complete the transitional goodwill impairment test
provisions of SFAS 142, the Company does not currently believe that adoption of
the new standards will result in a material charge to earnings.
Overall, these new standards will have the impact of reducing
amortization expense. However, future annual impairment reviews may result in
future write-downs. Amortization expense related to goodwill and intangible
assets, which was $12.8, $12.4 and $11.2 for the years ended December 31, 2001,
2000 and 1999, respectively, is expected to be approximately $3.1 for the year
ending December 31, 2002, based on intangible assets existing at January 1,
2002, with the segment breakdown as follows: Water and Industrial Process
Chemicals, $0.4; Performance Products, $1.6 and Specialty Materials, $1.1. The
change in amortization expense related to the adjustment of remaining useful
lives and residual values was immaterial.
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). In general under
SFAS 133, as amended, all derivative instruments must be recognized on the
balance sheet at fair value. SFAS 133 also 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 be either offset against
changes in fair value of the hedged item 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 do not qualify for hedge accounting as well as the
ineffective portion of hedges must be adjusted to fair value through earnings.
Under certain exceptions, SFAS 133 permits derivative instruments to be
accounted for as executory contracts because physical delivery of the underlying
commodity is probable. In those circumstances, SFAS 133 does not require
derivative instruments to be recognized on the balance sheet at fair value. See
Notes 1 and 4 of the Notes to the Consolidated Financial Statements for a
discussion of the impact of SFAS 133 on the Company's derivative accounting
policies.
The American Institute of Certified Public Accountants has issued a
proposed Statement of Position ("SOP"), "Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment." If enacted, this SOP
would, among other things, require the Company to change its method of
depreciation.
The Company primarily utilizes the composite method of depreciation in
the United States and Canada, applied on a straight-line basis over the
estimated useful lives of various classes of assets. Under the composite method,
depreciation is taken on the class of asset as a whole rather than on an
individual asset basis. Depreciation continues until the entire asset class is
fully depreciated. Upon disposition or retirement, the cost of such assets plus
demolition costs less amounts realized on sale or salvage, is charged or
credited to the accumulated depreciation account.
The Company is evaluating the impact of the proposed SOP. If enacted,
excluding any cumulative effect of a change in accounting principle, it is
expected that depreciation expense will decrease as depreciation on individual
assets will cease as such assets are fully depreciated. On the other hand, upon
disposition or retirement of assets, the net book value of such assets plus
demolition costs less amounts realized from sale or salvage, will be charged or
credited to earnings.
-16-
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, 2001 2000 1999
- --------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Manufacturing cost
of sales 77.1 72.3 70.9
Gross profit 22.9 27.7 29.1
Selling and
technical services 8.3 9.3 8.9
Research and
process development 2.3 2.6 3.0
Administrative and general 3.2 3.2 3.6
Amortization of
acquisition intangibles 0.9 0.8 0.8
- ------------------------------------------------------------
Earnings from operations 8.1 11.8 12.8
- ------------------------------------------------------------
Net earnings 5.1 11.9 8.4
- ------------------------------------------------------------
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 coatings and performance
chemicals and polymer additives that are used primarily in coatings, adhesives
and plastics applications. The Specialty Materials segment manufactures and
sells materials that are used mainly in commercial and military aviation and
launch vehicles, satellite and aircraft brakes. The Building Block Chemicals
segment manufactures acrylonitrile, acrylamide, 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.
The Company's net sales by business segment are set forth below.
Years ended December 31, 2001 2000 1999
- --------------------------------------------------------------
Water and Industrial
Process Chemicals(1) $ 335.0 $ 403.1 $ 387.5
Performance Products 434.7 474.0 449.8
Specialty Materials 450.2 411.6 435.7
Building Block Chemicals 167.2 203.8 171.5
- --------------------------------------------------------------
$1,387.1 $1,492.5 $1,444.5
- --------------------------------------------------------------
(1) On November 1, 2000, the Company substantially divested its Paper Chemicals
business, which had sales of $32.0, $97.9 and $106.4 in 2001, 2000 and 1999,
respectively.
For more information on the Company's segments, see Note 17 of the
Notes 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.
YEAR ENDED DECEMBER 31, 2001, COMPARED WITH YEAR ENDED DECEMBER 31, 2000
Net sales for 2001 were $1,387.1, compared with $1,492.5 for 2000. The
decrease was due to sales decreases in the Water and Industrial Process
Chemicals, Performance Products and Building Block Chemicals segments of $68.1,
$39.3 and $36.6, respectively, that were partially offset by a sales increase in
the Specialty Materials segment of $38.6. Excluding the effects of the November
1, 2000, Paper Chemicals business divestiture, sales in the Water and Industrial
Process Chemicals segment decreased $2.2.
Net sales in the United States were $736.9 for 2001, compared with
$798.8 for 2000. International net sales were $650.2 for 2001, or 46.9% of total
net sales, compared with $693.7, or 46.5% of total net sales, for 2000.
-17-
In the North America region (i.e., United States and Canada), net sales
were approximately $796.9 for 2001, down 8.0% from the prior year. Overall,
selling volumes decreased 4.8% in the region, excluding a 4.2% volume decrease
resulting from the divestiture of the Paper Chemicals business. Selling volumes
in Water and Industrial Process Chemicals decreased 1.9%, excluding an 18.7%
volume decrease resulting from the divestiture of the Paper Chemicals business,
Performance Products decreased 14.0%, Specialty Materials increased 10.6% and
Building Block Chemicals decreased 27.7%. Overall, selling prices increased 1.3%
in the region with the segment breakdown as follows: Water and Industrial
Process Chemicals increased 0.1%, Performance Products increased 2.1%, Specialty
Materials increased 0.4% and Building Block Chemicals increased 3.7%. For the
region overall, the adverse effect of exchange rate changes reduced sales
approximately 0.3%.
In the Europe/Mideast/Africa region, net sales were $328.5 for 2001,
down 2.4% from the prior year. Overall, selling volumes increased 1.6% in the
region, excluding a 3.4% decrease resulting from the divestiture of the Paper
Chemicals business. Selling volumes in Water and Industrial Process Chemicals
increased 4.8%, excluding a 12.1% volume decrease resulting from the divestiture
of the Paper Chemicals business, Performance Products decreased 5.1%, Specialty
Materials increased 6.5% and Building Block Chemicals decreased 1.3%. Overall,
selling prices increased 1.0% in the region with the segment breakdown as
follows: Water and Industrial Process Chemicals increased 0.8%, Performance
Products increased 3.6%, Specialty Materials was flat and Building Block
Chemicals decreased 4.4%. For the region overall, the adverse effect of exchange
rate changes reduced sales approximately 1.6%.
In the Asia/Pacific region, net sales were $170.7 for 2001, down 11.7%
from the prior year. Overall, selling volumes increased 1.1% in the region,
excluding a 5.6% decrease resulting from the divestiture of the Paper Chemicals
business. Selling volumes in Water and Industrial Process Chemicals decreased
4.9%, excluding a 21.5% volume decrease resulting from the divestiture of the
Paper Chemicals business. Performance Products decreased 1.5%, Specialty
Materials increased 4.5% and Building Block Chemicals increased 8.3%. Overall,
selling prices decreased 4.6% in the region with the segment breakdown as
follows: Water and Industrial Process Chemicals increased 3.0%, Performance
Products increased 1.6%, Specialty Materials was flat and Building Block
Chemicals decreased 19.7%. For the region overall, the adverse effect of
exchange rate changes reduced sales approximately 2.6%.
In the Latin America region, net sales were $91.0 for 2001, down 5.8%
from the prior year. Overall, selling volumes increased 3.0% in the region,
excluding a 7.5% decrease resulting from the divestiture of the Paper Chemicals
business. Selling volumes in Water and Industrial Process Chemicals increased
4.0%, excluding an 11.4% volume decrease resulting from the divestiture of the
Paper Chemicals business and Performance Products increased 1.4%. 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 4.3% in the region with the segment breakdown as follows: Water and
Industrial Process Chemicals increased 4.3% and Performance Products increased
8.1%. For the region overall, the adverse effect of exchange rate changes
reduced sales approximately 5.6%.
Manufacturing cost of sales was $1,068.8, or 77.1% of net sales, for
2001 and included a restructuring charge of $4.6 related to the mothballing of
the Fortier ammonia plant and the Company's share of the related personnel
reduction at the Fortier facility. Excluding these charges, manufacturing cost
of sales was $1,064.2, or 76.7% of net sales, for 2001. Manufacturing cost of
sales was $1,078.7, or 72.3% of net sales, for 2000 and included net
restructuring charges of $3.3 and a charge of $1.4 against receivables due the
Company from its 50%-owned ammonia joint venture. Excluding these charges,
manufacturing cost of sales was $1,074.0, or 72.0% of net sales, for 2000.
Manufacturing costs as a percentage of sales increased primarily due to lower
production levels resulting from weaker demand in the Performance Products and
Building Block Chemicals segments, the net adverse effects of exchange rate
changes and higher raw material prices, particularly in the first quarter,
partially offset by the benefits from higher selling prices.
Selling and technical services expenses decreased $22.9, research and
process development expenses decreased $6.2 and administrative and general
expenses decreased $2.9 primarily as a result of the divestiture of the Paper
Chemicals business and the Company's continuing cost control efforts.
Amortization of acquisition intangibles increased $0.4 due to the additional
amortization expense resulting from the acquisition of the composite materials
business of 3M on March 30, 2001. Included in selling and technical services
expenses for 2001 was a restructuring charge of $0.8 related to the Company's
share of the personnel reductions at the Fortier facility. Excluding this
charge, selling and technical services expenses were $114.8 for 2001. Included
in selling and technical service expenses for 2000 was a net restructuring
charge of $5.4 primarily related to a workforce reduction and the discontinuance
of a tolling operation. Excluding this charge, selling and technical services
expenses were $133.1 for 2000. Excluding these items from both years, selling
and technical service expenses decreased $18.3 year over year.
Other income, net, was $7.9 for 2001 and included gains of $7.0 related
to the sale of reclaimed land in Florida and the favorable settlement of a
royalty issue concerning mineral rights associated with a former phosphate rock
mining joint venture also in Florida. Other income, net, was $104.6 for 2000 and
included a gain of $88.3 from the divestiture of the Paper Chemicals business, a
gain of $13.3, discounted and net of expenses, from an insurance settlement with
a group of insurance carriers for an environmental remediation coverage suit and
a charge of $4.8 for the write-down of receivables due from the AC Moldings
Compounds joint venture. Excluding these items, other income, net, was $7.8 for
2000 and included a gain of $7.1 from the sale of real estate.
-18-
Equity in earnings of associated companies was $0.1 for 2001 and
included a charge of $2.3 for the Company's 50% share of the CYRO Industries
restructuring charges, which included $3.7 related to the shutdown of CYRO's
manufacturing facility in Niagara Falls, Ontario, Canada, and $0.8 related to
CYRO's share of the infrastructure restructuring at the Company's Fortier
facility. Excluding this charge, equity in earnings of associated companies was
$2.4 for 2001, down $12.6 from 2000. The decrease was due to lower sales at
associated companies, primarily CYRO, and the fact that 2000 included earnings
of $4.2 from the Criterion Catalyst joint venture, which was divested on July
10, 2000. Associated company sales were $306.9 in 2001, compared with $496.3 in
2000. Excluding sales of the divested Criterion Catalyst joint venture, 2001
sales of associated companies decreased 15.0% from 2000. Sales at CYRO
Industries, which sells acrylic sheet and molding compounds across a broad range
of industrial markets, primarily in North America, where demand has been weak as
a result of the soft economy, decreased 13.9%, primarily due to lower selling
volumes resulting from weaker demand. For 2001, CYRO Industries posted a small
loss due to the restructuring charges previously mentioned. Excluding the
restructuring charges, CYRO Industries' 2001 earnings decreased 73.4% from 2000.
However, earnings in the second half of 2001 improved relative to the first half
of 2001 as the restructuring benefits began to be realized. For further
information about the Company's associated companies, see Note 5 of the Notes to
Consolidated Financial Statements.
Interest expense, net, was $19.6 for 2001, a decrease of $5.5 from
2000. The decrease reflects the lower outstanding debt levels during 2001.
The income tax provision was $34.9 for 2001 and $93.5 for 2000, which
reflects an underlying effective tax rate of 34.5% for both years.
Earnings before extraordinary item were $66.2, or $1.59 per diluted
share, for 2001, compared with $177.6, or $4.15 per diluted share, for 2000.
Included in 2001 was $7.7 ($5.0 after-tax, or $0.12 per diluted share) from
restructuring charges. Excluding these charges, adjusted earnings before
extraordinary item for 2001 were $71.2, or $1.71 per diluted share. Included in
2000 was a gain of $88.3 ($57.8 after-tax, or $1.35 per diluted share) from the
divestiture of the Paper Chemicals business and a gain of $13.3 ($8.7 after-tax,
or $0.20 per diluted share) from an insurance settlement with a group of
insurance carriers for an environmental remediation coverage suit. 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 charge of $4.8 ($3.1 after-tax, or
$0.07 per diluted share) for the write-down of receivables due from the AC
Moldings Compounds joint venture. Excluding these items, adjusted earnings
before extraordinary item for 2000 were $121.7, or $2.85 per diluted share. The
adjusted year-over-year decline in earnings before extraordinary item of $50.5,
or $1.14 per diluted share, was primarily due to lower sales volumes in the
Performance Products and Building Block Chemicals segments, the adverse effects
of unfavorable exchange rate changes and higher raw material prices,
particularly in the first quarter. This was partially offset by increased sales
volumes in the Specialty Materials segment, the benefits from higher selling
prices in the Specialty Chemical segments (i.e., Water and Industrial Process
Chemicals and Performance Products) and the favorable effect of the Company's
stock repurchase program.
During 2001, the Company recognized an extraordinary gain, net of
taxes, of $4.9, or $0.12 per diluted share, related to its August 31, 2001,
acquisition of the BP carbon fibers business. Taxes recorded on the transaction
were $2.6. For further information, see Note 2 of the Notes to Consolidated
Financial Statements.
SEGMENT RESULTS
WATER AND INDUSTRIAL PROCESS CHEMICALS: Water and Industrial Process
Chemicals net sales were $335.0 in 2001, which, excluding a 16.4% decrease due
to the Paper Chemicals divestiture, was a decrease of 0.5% from 2000. Selling
volumes increased approximately 0.2%, excluding a 16.4% decrease related to the
divestiture of the Paper Chemicals business. The adverse effects of exchange
rate changes reduced sales 2.0%, while selling prices favorably affected sales
1.3%. Overall, sales in water treatment and phosphine chemicals grew, primarily
due to increased selling volumes that partially offset the sales declines in
mining chemicals.
Earnings from operations were $25.7, or 7.7% of net sales, in 2001,
compared with $40.2, or 10.0% of net sales, in 2000. The decrease in earnings
from operations was primarily the result of lower selling volumes, higher raw
material costs and the net adverse effects of exchange rate changes, slightly
offset by the benefits from higher selling prices and lower operating costs.
PERFORMANCE PRODUCTS: Performance Products net sales were $434.7 in
2001, a decrease of 8.3% from 2000. The effects of weak economies around the
world impacted demand from the broad base of industrial markets (e.g.,
automotive, industrial and plastic markets) served by the Performance Products
segment. As a result, selling volumes, particularly in the North America region,
were down significantly. For the segment overall, selling volumes decreased
9.3%, and the adverse effects of exchange rate changes decreased sales
approximately 1.7%, while increased selling prices favorably affected sales
2.7%.
Earnings from operations were $16.3, or 3.7% of net sales, in 2001,
compared with $56.8, or 12.0% of net sales, in 2000. The decrease in earnings
from operations reflects the impact of reduced sales and production levels
resulting from weak demand, higher raw material costs and the net adverse
effects of exchange rate changes, partially offset by the benefits from higher
selling prices.
-19-
SPECIALTY MATERIALS: Specialty Materials net sales were $450.2 in 2001,
an increase of 9.4% from 2000. Selling volumes increased 9.5%, of which
approximately 2.2% were from sales generated as a result of the March 30, 2001,
acquisition of the 3M composite materials business and the August 31, 2001,
acquisition of the BP carbon fibers business (for further information on these
acquisitions, see Note 2 of the Notes to Consolidated Financial Statements and
further discussions contained in this Management's Discussion and Analysis). The
remaining increase in selling volumes was attributable to strong demand in
aerospace applications (i.e., large commercial aircraft, regional jets and
military aircraft). Selling prices increased 0.3%, while the adverse effects of
exchange rate changes decreased sales 0.4%.
Earnings from operations were $95.9, or 21.3% of net sales, in 2001,
compared with $85.9, or 20.9% of net sales, in 2000. The increase in earnings
from operations reflects the increase in selling volumes and lower fixed costs
per unit, which resulted from leveraging the segments manufacturing operations.
BUILDING BLOCK CHEMICALS: Building Block Chemicals were impacted by
poor demand, particularly for acrylonitrile, and narrowing profit margins. As a
result, net sales to external customers were $167.2 in 2001, a decrease of 18.0%
from 2000. For the segment overall, selling volumes decreased 13.0%, selling
prices decreased 4.7% and the adverse effects of exchange rate changes decreased
sales 0.3%. Acrylonitrile accounted for the majority of the decline in selling
volumes and price.
Losses from operations were $18.7 in 2001, compared with earnings from
operations of $12.7 in 2000. Earnings (losses) from operations were negatively
impacted by reduced production volumes in response to lower demand, lower
selling prices, the adverse effect of exchange rate changes and reduced
acrylonitrile margin spreads as declines in selling prices more than offset
decreases in overall raw material costs.
In the second quarter of 2001, the Company announced a restructuring at
its Fortier facility, which included the indefinite mothballing of its ammonia
manufacturing facility. For further information on this restructuring charge,
see Note 3 of the Notes to Consolidated Financial Statements and further
discussions contained in this Management's Discussion and Analysis.
On March 27, 2001, the Company acquired the remaining 50% interest in
the assets of the ammonia manufacturing joint venture, effective as of September
1, 2000, from the Company's partner, LaRoche Industries Inc. For further
information on this acquisition, see Note 2 of the Notes to Consolidated
Financial Statements and further discussions contained in this Management's
Discussion and Analysis.
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 Products 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%.
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 Products increased 1.7%. For
the region overall, the adverse effect of exchange rate changes reduced sales
approximately 2.9%.
-20-
Manufacturing cost of sales was $1,078.7 for 2000 and included net
restructuring charges of $3.3 and a charge of $1.4 against receivables due 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 the Company's 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, a gain of $13.3, discounted and net of expenses, received
from insurance settlement agreements entered into with a group of insurance
carriers in an environmental coverage suit 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 was $15.0 for 2000, an
increase of $9.4 from the prior year. The increase was primarily due to the
operational improvements at Criterion, relative to its losses in 1999. The
Company's interest in Criterion was sold on July 10, 2000. 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.
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%.
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, or $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.
-21-
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 was 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 1999. 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.
LIQUIDITY AND FINANCIAL CONDITION
At December 31, 2001, the Company's cash balance was $83.6, an increase
of $26.8 from year-end 2000. Net cash flows provided by operating activities
totaled $142.3 for the year ended December 31, 2001, compared with $107.6 for
the year ended December 31, 2000. Despite the overall slowdown of the economy
and the corresponding impact on net earnings, net cash flows provided by
operating activities increased $34.7, or 32.2%. Working capital reductions more
than offset taxes paid of approximately $26.6 related to the gain on the
divestiture of the Paper Chemicals business. Inventory levels in 2001 were
reduced in line with lower production levels. Also, accounts receivable were
down in 2001, particularly in the fourth quarter and in line with lower sales
levels. In terms of days outstanding, inventory and accounts receivable levels
remained flat with 2000. Accounts payable and accrued expenses also declined in
line with lower sales and production levels. The decrease in accounts payable
was compounded by exceptionally high raw material prices, particularly natural
gas and propylene, reflected in the December 31, 2000, balance.
Payments against restructuring reserves for the years ended December
31, 2001, 2000 and 1999 were $8.9, $4.4 and $16.6, respectively. At December 31,
2001 and 2000, the restructuring liabilities to be paid were $4.4 and $9.9,
respectively. The spending related to the remaining liabilities at December 31,
2001 is expected to be completed during the first half of 2002. Environmental
remediation spending for the years ended December 31, 2001, 2000 and 1999 was
$13.7, $15.3 and $18.6, respectively. The environmental reserve balance at
December 31, 2001 and 2000 was $93.9 and $104.7, respectively, of which $20.0
was included in accrued expenses for both periods, with the remainder included
in other noncurrent liabilities. Total cash disbursements for Postretirement
Benefits Other Than Pension ("OPEB"), including Voluntary Employee Benefit
Association (VEBA) Trust funding and Company paid benefits for the years ended
December 31, 2001, 2000 and 1999 were $21.5, $39.0 and $27.7, respectively. The
fair value of OPEB plan assets at December 31, 2001 and 2000 was $73.3 and
$72.8, respectively, and the accrued OPEB liabilities at December 31, 2001 and
2000 were $277.9 and $291.8, respectively, of which $20.0 was included in
accrued expenses for both periods, with the remainder included in other
noncurrent liabilities. The Company expects spending for environmental
remediation and OPEB in 2002 to be similar to 2001 levels, though there can be
no assurance that the Company's
-22-
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 used for investing activities totaled $71.0 for 2001,
compared with net cash flows provided by investing activities of $97.6 for 2000.
Included in 2001 was capital spending of $63.9, proceeds received from the sale
of assets of $2.9, funding of $9.0 to acquire 3M's composite materials business,
the remaining 50% interest in the assets of the ammonia manufacturing joint
venture and one other minor acquisition, and an additional investment in the
PolymerAdditives.com joint venture of $1.0. Included in 2000 was capital
spending of $76.5, proceeds received from the sale of assets of $177.6, which
included $104.3 (pre-tax) from the sale of the Paper Chemicals business and
$63.0 received from the sale of the Company's interest in the Criterion Catalyst
joint venture, contingency related acquisitions payments of $1.0 and funding of
$2.5 for the Company's one-third equity interest in the PolymerAdditives.com
joint venture. The Company currently expects capital spending to be in the range
of $75.0 to $80.0 in 2002. The anticipated increase is due primarily to a
multi-year project to upgrade and modernize the Stamford, Connecticut, specialty
chemicals research facility.
The Company believes that, based on its expected operating results for
2002 and further reductions in working capital levels, it will be able to fund
operating cash requirements and planned capital expenditures in 2002 from its
internal cash generation. For further discussion on risks, see Qualitative and
Quantitative Disclosures About Market Risk, Significant Accounting Estimates and
Comments on Forward-Looking Statements below.
Net cash flows used for financing activities totaled $42.2 for 2001,
compared with $158.5 for 2000. In connection with the stock repurchase program
discussed below, in 2001 the Company purchased 1,711,300 shares of Treasury
Stock at a cost of $52.3, while in 2000 the Company purchased 2,161,700 shares
of Treasury Stock at a cost of $63.1. Also in 2000, the Company paid-down $102.9
of its long-term debt.
During November 2000, the Company completed the $100.0 authorization to
repurchase shares that was announced on January 25, 1999. The Company
repurchased a total of 3,784,254 shares of its outstanding common stock under
this authorization. On November 2, 2000, the Company announced an authorization
of $100.0 to repurchase shares of its 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, 2001, the Company had repurchased 1,872,791
shares at a cost of $57.8 under this authorization. Current and expected
economic conditions will be considered in future share repurchases.
In connection with the Company's stock repurchase program, during 2001
the Company sold an aggregate of 300,000 put options to an institutional
investor in a series of private placements exempt from registration under
Section 4(2) of the Securities Act of 1933. The put options entitled the holder
to sell an aggregate of 300,000 shares of the Company's common stock to the
Company at exercise prices ranging from $31.35 to $32.49 per share. The Company
received premiums of approximately $0.6 on the sale of such options. Prior to
December 31, 2001, 140,000 of the put options expired unexercised, 100,000 put
options were exercised and resulted in the Company buying back 100,000 shares of
its common stock at an exercise price of $32.49 per share and the holder elected
to exercise the remaining 60,000 put options, which were settled by the Company
purchasing 60,000 shares of its common stock at an exercise price of $31.347 per
share, which was slightly "out of the money" at the time. At December 31, 2001,
no put options remained outstanding. During 2000, the Company sold an aggregate
of 400,000 put options 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 lieu of purchasing the shares from the put option holder, the Company has the
right to elect settlement by paying the holder of the put options the excess of
the strike price over the then market price of the shares in either cash or
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 Wyeth, formerly known as 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,
2001, the Company had $321.1 of debt and $636.8 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 $634.1 in debt. Additionally, at December 31, 2001,
restricted payments permitted under the Series C Stock, excluding any special
restricted payments, were limited to $88.5. Restricted payments include, but are
not limited to, payments of dividends on common stock, payments for the
repurchase of common stock outstanding and payments on certain classes of debt.
-23-
At December 31, 2001, 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, 2001 and 2000. 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, 2001, and expects to replace
the credit facility on or before its expiration. If the Company does not replace
its existing credit facility, the Company expects that it will have sufficient
liquidity from operating cash flows to fund the operating needs of the Company.
The Company does not guarantee the debt of its unconsolidated
associated companies.
At December 31, 2001 and 2000, $10.0 was available for short-term use
under an uncommitted credit facility and a U.S. dollar equivalent of
approximately $18.4 and $14.8, respectively, was available under foreign
currency denominated overdraft facilities. There were no outstanding borrowings
under these facilities at December 31, 2001 and 2000.
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 (MOPPRS(SM)) due May 11, 2025. The
securities were offered under the Company's shelf registration statement, which
has now been fully utilized. The Company received an aggregate of approximately
$322.0 in proceeds from the sales before deducting expenses associated with the
sales.
Except in limited circumstances, the MOPPRS(SM) will be subject to
mandatory tender to Merrill Lynch, as Remarketing Dealer, at 100% of the
principal amount thereof, for remarketing on May 11, 2005 (the "Remarketing
Date"). The interest rate on the MOPPRS(SM) 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(SM) on the Remarketing Date or
elects not to remarket the MOPPRS(SM) the Company will be required to repurchase
the MOPPRS(SM) from the beneficial owners thereof on the Remarketing Date at
100% of the principal amount thereof plus accrued interest, if any.
On December 15, 2000, the Company filed with the Securities and
Exchange Commission a 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. The
registration statement became effective December 22, 2000.
At December 31, 2001, there were no interest rate swap agreements
outstanding. 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 matured during 2001 and had virtually offsetting terms. Another swap
agreement, which converted $20.0 of variable rate interest obligations to 6.25%
fixed rate obligations, matured on November 1, 2001. The fourth interest rate
swap agreement, which 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.
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. During
1997 and 1998, the Company made payments aggregating approximately $11.2 to
settle the rate lock agreements, which is being amortized over the life of the
6.50% Notes, 6.75% Notes and 6.846% MOPPRS(SM) as an increase in interest
expense of such Notes. The amount of unamortized rate lock agreements included
in long-term debt was $7.3 at December 31, 2001, and $8.4 at December 31, 2000.
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 are limited.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion provides forward-looking quantitative and
qualitative information about the Company's potential exposures to market risk
arising from changes in foreign currency 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 with either major financial institutions
or highly-rated counterparties and makes reasonable attempts to diversify
transactions among counterparties, thereby limiting exposure to credit- and
performance-related risks.
-24-
FOREIGN EXCHANGE RATE RISK: The risk of adverse exchange rate
fluctuations is mitigated by the fact that there is no concentration of foreign
currency exposure. In addition, the Company enters into foreign exchange forward
contracts primarily to hedge currency fluctuations of transactions denominated
in foreign currencies. At December 31, 2001, the principal transactions hedged
were accounts receivable, accounts payable and inter-company loans denominated
in a currency other than the functional currency of the business. The Company's
practice is to hedge foreign currency exposures with foreign exchange forward
contracts denominated in the same currency and with similar critical terms as
the underlying exposure, and therefore, the instruments are effective at
generating offsetting changes in the fair value, cash flows or future earnings
of the hedged item or transaction. Foreign exchange forward contracts are
reported as either assets or liabilities on the balance sheet with changes in
their fair value recorded in other income, net, together with the offsetting
gain or loss on the hedged asset or liability.
At December 31, 2001, the Company had net foreign exchange contracts to
purchase an aggregate of 20.0 Euros, 10.7 British pounds and 1.2 Norwegian krone
for U.S. dollars. The Company also had net contracts for the following U.S.
dollar equivalent aggregate amounts: contracts to purchase 1.3 Norwegian krone
for other European currencies, primarily British pounds; contracts to purchase
18.3 British pounds for Euros; contracts to purchase 10.3 Norwegian krone for
Euros and contracts to sell 0.3 of other currencies for Euros. The fair value of
foreign exchange contracts, based on forward exchange rates at December 31,
2001, 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 $6.3. 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
forward contracts to hedge its exposure to price risk associated with the
purchase of natural gas primarily for utility purposes. The maturity of these
contracts correlate highly to the actual purchases of the commodity and have the
effect of securing predetermined prices that the Company pays for the underlying
commodity. While these contracts are structured to limit the Company's exposure
to increases in commodity prices, they can also limit the potential benefit the
Company might have otherwise received from decreases in commodity prices.
Because the Company takes actual delivery of the physical commodity, natural gas
forward contracts are not required to be recognized on the balance sheet at fair
value, instead realized gains and losses on these contracts are included in the
cost of the commodity upon settlement of the contract. To the extent that the
Company's strategy for managing commodity price risk changes, including the use
of financially settled derivative instruments, the accounting methods used to
record those transactions may differ from the policies described above.
At December 31, 2001, the Company had $6.8 notional value of natural
gas forward contracts with January through October, 2002, delivery dates
outstanding. Based on year-end NYMEX prices, the Company had a net unrealized
loss of $0.7. Assuming that year-end prices were to adversely change by a
hypothetical 10%, the incremental increase in cost of goods sold would be
approximately $0.6.
INTEREST RATE RISK: At December 31, 2001, the financial liabilities of
the Company consisted primarily of fixed rate long-term debt, which had a
carrying value of $314.7, a principal balance of $320.0 and a fair value, based
on dealer quoted values, of approximately $321.9. 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. Accordingly, assuming a
hypothetical increase of 1% in interest rates and all other variables were to
remain constant, interest expense would not change, and the fair market value of
the fixed rate long-term debt would decrease approximately $9.5.
EQUITY PRICE RISK: In connection with the Company's stock repurchase
program, the Company selectively utilizes freestanding put option contracts that
are indexed to the Company's stock and entitle the holder to sell shares of the
Company's common stock to the Company at specified exercise prices. 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 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, 2001, there were no put options
outstanding.
OTHER
2002 OUTLOOK: In its January 22, 2002, earnings press release, the
Company set forth its assumptions and management's best current estimate of
first quarter and full year 2002 earnings at that time. The Company stated that,
overall it expected first quarter 2002 net earnings to be in the range of $0.25
to $0.30 per diluted share, which includes approximately $0.04 as a result of
applying SFAS 141 and 142, and full year 2002 net earnings to be in the range of
$1.50 to $1.70 per diluted share, which includes approximately $0.15 as a result
of applying SFAS 141 and 142. Although management believes that the January 22,
2002, earnings projections, as well as the analysis on which it was based,
continues to reflect the current thinking of management, there can be no
assurance that sales or earnings will develop in the manner projected or if the
analysis were to be redone on the date hereof there would be no change to the
outlook. Actual results may differ materially.
-25-
Fourth quarter 2001 results reflected a global economy in recession and
low levels of industrial chemicals production. Overall, the Company expects
these conditions to continue in 2002 and believes some markets, such as the
automotive industry, may experience further declines. In addition, it expects
the U.S. dollar to continue strengthening through 2002, thereby reducing
specialty chemicals (Water and Industrial Process Chemicals and Performance
Products) international sales by about one percent. Furthermore, in the
Specialty Materials segment, a significant reduction in airline passenger
traffic has led to excess capacity and a deterioration in the financial
condition of the airline industry. The Company expects a significant reduction
in demand from the large commercial aircraft sector in 2002 with some continuing
decline in demand for 2003, reducing sales of Specialty Materials' aerospace
materials.
In the Water and Industrial Process Chemicals segment, 2002 sales are
expected to be flat when compared to 2001 sales. Increased sales to the
municipal and industrial markets should slightly offset lower demand for waste
treatment chemicals from the paper and the oil sectors, which have reduced
capacity. The Company expects demand for mining chemicals to decline in 2002,
reflecting weak global economic conditions and high inventories of aluminum and
copper. However, the Company expects to benefit from penetration into new mining
applications and the continuing growth of the phosphine chemicals business.
Lower raw material costs and new, more cost effective capacity in Europe and the
United States are expected to enhance operating margins. As a result, the
Company expects this segment to achieve flat sales and a single-digit percentage
increase in operating earnings in 2002, compared with 2001.
In the Performance Products segment, soft economic conditions are
expected to impact sales to the plastics, automotive, housing and general
industrial markets. The weak economic conditions are creating downward price
pressure in the polymer additives sector, particularly from global and Asian
suppliers. However, lower raw material costs and operational excellence
initiatives are expected to increase the operating margins of this segment. As a
result, the Company expects sales to be relatively flat to slightly down in 2002
with a significant increase in operating earnings compared with 2001 results.
In the Specialty Materials segment, sales to the 100 plus passenger
seat commercial airliner sector are expected to be down sharply in 2002, based
on the commercial airliner delivery schedules published by Boeing and Airbus.
The Company expects a smaller reduction in sales to the regional jet and
aircraft brake markets. Sales to business and military aircraft, satellite and
launch vehicles and high performance markets should continue to grow in 2002.
Overall, 2002 sales in the Specialty Materials segment are expected to be 10% to
15% lower, with operating earnings 30% to 35% lower, compared with 2001.
In the Building Block Chemicals segment, weak economic conditions are
expected to reduce demand for acrylonitrile and its co-products in 2002. The
Company expects to operate its Fortier plant at a reduced utilization rate.
Despite some plant shutdowns, however, the supply of acrylonitrile is expected
to continue to exceed demand, continuing the trend of lower acrylonitrile
selling prices partially offset by lower raw material costs, resulting in tight
spreads. The Company does, however, expect the Building Block Chemicals segment
to benefit from significantly lower energy and raw material costs in 2002 and to
realize the full year benefits of the Fortier plant restructuring that was
initiated in the second quarter of 2001. As a result, the Building Block
Chemicals segment is expected to post a moderate operating loss in 2002,
compared with a $18.7 operating loss in 2001.
SIGNIFICANT ACCOUNTING ESTIMATES
Accounting principles generally accepted in the United States of
America require management to make certain estimates and assumptions. These
estimates and assumptions affect the reported amounts in the financial
statements and the notes thereto. The areas discussed below involve the use of
significant judgment in the preparation of the Company's financial statements
and changes in the estimates and assumptions used may impact future results of
operations and financial condition.
ENVIRONMENTAL: It is the Company's policy to accrue, and charge against
earnings, environmental cleanup costs when it is probable that a liability has
been incurred and an amount is reasonably estimable. As assessments and cleanups
proceed, these accruals are reviewed periodically and adjusted, if necessary, as
additional information becomes available. These accruals can change
substantially due to such factors as additional information on the nature or
extent of contamination, methods of remediation required, changes in the
apportionment of costs among responsible parties 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.
POSTRETIREMENT BENEFITS: The Company sponsors postretirement benefit
plans. The postretirement plans provide medical and life insurance benefits to
retirees who meet minimum age and service requirements. The accrued
postretirement benefit cost at December 31, 2001 and 2000, includes $20.0 in
accrued expenses and $257.9 and $271.8, respectively, in other noncurrent
liabilities. The key determinants of the accumulated postretirement benefit
obligations ("APBO") are discount rate, expected return on plan assets and
healthcare cost trend rate. 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, 2001, and the 2001 aggregate service and
interest cost by approximately $22.9 and $1.8, respectively, and decreasing the
healthcare cost trend rate by one percentage point in each year would decrease
the APBO at December 31, 2001 and the 2001 aggregate service and interest cost
by approximately $20.8 and $1.7, respectively. For further information, see Note
12 of the Notes to the Consolidated Financial Statements and further discussions
included in this Management's Discussion and Analysis.
-26-
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 and would be charged to earnings. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less the cost to sell. Several
estimates are made when reviewing for impairments such as market and revenue
growth, cost estimates and technological changes. These factors are reviewed
annually. For goodwill, beginning in 2002 the Company will applySFAS142, which
requires that goodwill be reviewed for impairments at least annually and written
down in the periods in which it is determined that the recorded value is greater
than the fair value. To accomplish this, the Company has to determine the fair
value of each reporting unit and compare it to the reporting unit's carrying
value. If a reporting unit's carrying amount exceeds its fair value, an
indication exists that the reporting unit's goodwill may be impaired and the
Company must then compare the implied fair value of the reporting unit's
goodwill, determined by allocating the reporting unit's fair value to its assets
and liabilities in a manner similar to a purchase price allocation, to its
carrying value.
-27-
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
December 31,
(Dollars in millions, except share and per share amounts) 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 83.6 $ 56.8
Accounts receivable, less allowance for doubtful accounts of
$7.8 and $8.8 in 2001 and 2000, respectively 211.6 271.4
Inventories 147.3 162.7
Deferred income taxes 22.1 42.6
Other current assets 45.3 34.3
- ------------------------------------------------------------------------------------------------------------------
Total current assets 509.9 567.8
- ------------------------------------------------------------------------------------------------------------------
Investment in associated companies 92.6 94.8
Plants, equipment and facilities, at cost 1,344.5 1,326.3
Less: accumulated depreciation (746.5) (710.1)
- ------------------------------------------------------------------------------------------------------------------
Net plant investment 598.0 616.2
- ------------------------------------------------------------------------------------------------------------------
Acquisition intangibles, net of accumulated amortization of
$55.4 and $42.7 in 2001 and 2000, respectively 376.1 384.4
Deferred income taxes 48.4 36.8
Other assets 25.4 21.6
- ------------------------------------------------------------------------------------------------------------------
Total assets $1 ,650.4 $1,721.6
- ------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 75.8 $ 111.0
Accrued expenses 157.8 179.6
Income taxes payable 48.4 68.3
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 282.0 358.9
- ------------------------------------------------------------------------------------------------------------------
Long-term debt 314.7 313.4
Other noncurrent liabilities 416.8 433.1
Contingent Liabilities and Commitments (Notes 4 and 9)
Stockholders' equity
Preferred stock, 20,000,000 shares authorized; issued and outstanding
4,000 shares, Series C Cumulative, $.01 par value at liquidation value
of $25 per share 0.1 0.1
Common stock, $.01 par value per share, 150,000,000 shares authorized;
issued 48,132,640 shares 0.5 0.5
Additional paid-in capital 136.7 154.7
Retained earnings 826.2 755.1
Unearned compensation (4.0) (3.9)
Additional minimum pension liability (5.4) (1.9)
Accumulated translation adjustments (46.5) (32.7)
Treasury stock, at cost, 8,511,532 shares in 2001,
and 7,966,229 shares in 2000 (270.7) (255.7)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 636.9 616.2
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,650.4 $1,721.6
- ------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
-28-
Consolidated Statements of Income
Years ended December 31,
(Dollars in millions, except per share amounts) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net sales $1,387.1 $1,492.5 $1,444.5
Manufacturing cost of sales 1,068.8 1,078.7 1,023.6
Selling and technical services 115.6 138.5 129.2
Research and process development 32.4 38.6 43.8
Administrative and general 44.8 47.7 51.7
Amortization of acquisition intangibles 12.8 12.4 11.2
- ----------------------------------------------------------------------------------------------------------------
Earnings from operations 112.7 176.6 185.0
Other income, net 7.9 104.6 9.3
Equity in earnings of associated companies 0.1 15.0 5.6
Interest expense, net 19.6 25.1 26.9
- ----------------------------------------------------------------------------------------------------------------
Earnings before income taxes and extraordinary item 101.1 271.1 173.0
Income tax provision 34.9 93.5 51.7
- ----------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 66.2 177.6 121.3
Extraordinary gain, net of taxes of $2.6 4.9 - -
- ----------------------------------------------------------------------------------------------------------------
Net earnings $ 71.1 $ 177.6 $ 121.3
- ----------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item per common share
Basic $ 1.65 $ 4.34 $ 2.83
Diluted $ 1.59 $ 4.15 $ 2.73
- ----------------------------------------------------------------------------------------------------------------
Extraordinary item per common share
Basic $ 0.12 $ - $ -
Diluted $ 0.12 $ - $ -
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share
Basic $ 1.77 $ 4.34 $ 2.83
Diluted $ 1.71 $ 4.15 $ 2.73
- ----------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
-29-
Consolidated Statements of Cash Flows
Years ended December 31,
(Dollars in millions 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used for) operating activities
Net earnings $ 71.1 $ 177.6 $ 121.3
Noncash items included in net earnings:
Dividends from associated companies greater (less) than earnings 2.3 (10.9) 0.2
Depreciation 78.4 80.0 81.9
Amortization 11.9 16.6 13.2
Deferred income taxes 9.6 32.1 24.3
Gain on sale of assets (2.5) (62.3) (4.2)
Extraordinary gain, net of tax (4.9) - -
Other (4.6) (0.1) (0.5)
Changes in operating assets and liabilities:
Accounts receivable 53.5 (28.7) (8.7)
Inventories 24.7 (30.8) 3.3
Accounts payable (28.3) (1.3) 19.9
Accrued expenses (17.7) (11.9) (29.0)
Income taxes payable (12.7) (5.3) 9.8
Other assets (15.4) (10.2) (0.6)
Other liabilities (23.1) (37.2) (31.7)
- -------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 142.3 107.6 199.2
- -------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used for) investing activities
Additions to plants, equipment and facilities (63.9) (76.5) (77.4)
Proceeds received on sale of assets 2.9 177.6 11.8
Acquisition of businesses, net of cash received (9.0) (1.0) (69.8)
Investment in unconsolidated affiliates (1.0) (2.5) -
Change in other assets - - (5.0)
- -------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used for) investing activities (71.0) 97.6 (140.4)
- -------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used for) financing activities
Proceeds from the exercise of stock options and warrants 9.5 6.9 1.1
Purchase of treasury stock (52.3) (63.1) (42.5)
Change in short-term borrowings - - (10.3)
Change in long-term debt - (102.9) 3.0
Proceeds received on sale of put options 0.6 0.6 1.2
- -------------------------------------------------------------------------------------------------------------------
Net cash flows used for financing activities (42.2) (158.5) (47.5)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (2.3) (1.9) (1.0)
- -------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 26.8 44.8 10.3
Cash and cash equivalents, beginning of period 56.8 12.0 1.7
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 83.6 $ 56.8 $ 12.0
- -------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
-30-
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999
Additional Unearned Minimum Accumulated
Preferred Common Paid-in Retained Compen- Pension Translation Treasury
(Dollars in millions) Stock Stock Capital Earnings sation Liability Adjustment Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
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 & restricted stock - - (0.7) - (1.6) - - 2.6 0.3
Amortization of performance &
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 & restricted stock - - 2.8 - (5.5) - - 2.7 -
Amortization of performance
& 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 sales
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
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - 71.1 - - - - 71.1
Other comprehensive income:
Minimum pension liability
adjustment, net of ($1.8)
deferred income taxes - - - - - (3.5) - - (3.5)
Translation adjustments - - - - - - (13.8) - (13.8)
Comprehensive income $ 53.8
Award of, and changes in,
performance & restricted stock - - (2.0) - 0.6 - - 1.4 -
Amortization of performance
& restricted stock - - - - (0.7) - - - (0.7)
Compensation costs on variable
stock option award - - (0.1) - - - - - (0.1)
Purchase of treasury stock - - - - - - - (52.3) (52.3)
Exercise of stock options - - (26.4) - - - - 35.9 9.5
Premiums received on sales
of put options - - 0.6 - - - - - 0.6
Tax benefit on stock options - - 9.9 - - - - - 9.9
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $0.1 $0.5 $ 136.7 $826.2 $(4.0) $(5.4) $(46.5) $(270.7) $636.9
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share amounts, unless otherwise
indicated)1.
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 conform to 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, with rates periodically reviewed and adjusted if necessary.
When such depreciable assets are sold or otherwise retired from service, their
costs plus demolition 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 (see "Current and Pending
Accounting Changes" below for discussion about recent accounting pronouncements
that impact the Company's acquisition intangibles accounting policies). The
Company capitalizes interest costs incurred during the period of construction of
plant and equipment. The interest costs capitalized in 2001, 2000 and 1999 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 and would be charged to earnings. 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, accounts payable, long-term debt and certain
other liabilities. Fair values were determined through a combination of
management estimates and information obtained from third parties using the
latest available market data.
The Company uses derivative instruments in accordance with
Company-established policies to manage exposure to fluctuations in foreign
exchange rates, certain commodity (e.g., natural gas) prices and interest rates.
Those policies require that derivatives utilized by the Company relate to an
underlying exposure whose terms have been identified, have an amount and a
maturity date that does not essentially exceed the amount or maturity date of
the underlying exposure, be structured as a hedge with a very high degree of
correlation and be formally documented at the inception of each derivative
transaction and evaluated throughout the term of the derivative. Derivative
instruments utilized by the Company include foreign exchange forward contracts,
natural gas forward contracts, interest rate swaps, interest rate lock
agreements 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
with either major financial institutions or highly-rated counterparties and
makes reasonable attempts to diversify transactions among counterparties,
thereby limiting exposure to credit- and performance-related risks.
Foreign exchange forward contracts are utilized by the Company to hedge
accounts receivable, accounts payable and inter-company loans that are
denominated in a currency other than the functional currency of the business.
The Company's practice has been to hedge foreign currency exposures with foreign
exchange forward contracts denominated in the same currency and with similar
critical terms as the underlying exposure, and therefore, the instruments are
effective at generating offsetting changes in the fair value, cash flows or
future earnings of the hedged item or transaction. Foreign exchange forward
contracts are reported as either assets or liabilities on the balance sheet with
changes in their fair value recorded in other income, net, together with the
offsetting gain or loss on the hedged asset or liability. To the extent that the
Company's strategy for managing foreign exchange risk changes, including the use
of derivative instruments other than forward contracts or hedging other than
recognized assets or liabilities, the accounting methods used to record those
transactions may differ from the policies described above.
-32-
The Company selectively utilizes natural gas forward contracts to hedge
its exposure to price risk associated with the purchase of natural gas primarily
for utility purposes. The maturity of these contracts correlate highly to the
actual purchases of the commodity and have the effect of securing predetermined
prices that the Company pays for the underlying commodity. While these contracts
are structured to limit the Company's exposure to increases in commodity prices,
they can also limit the potential benefit the Company might have otherwise
received from decreases in commodity prices. Because the Company takes actual
delivery of the physical commodity, natural gas forward contracts are not
required to be recognized on the balance sheet at fair value. Instead, realized
gains and losses on these contracts are included in the cost of the commodity
upon settlement of the contract. To the extent that the Company's strategy for
managing commodity price risk changes, including the use of financially settled
derivative instruments, the accounting methods used to record those transactions
may differ from the policies described above.
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 and entitle the holder to sell shares of the Company's common
stock to the Company at specified exercise prices. 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 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.
The Company may use 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 flows. Interest rate swap agreements used to convert fixed rate
interest obligations to variable rate obligations will generally be reported on
the balance sheet with changes in fair value recorded in interest expense, net,
together with changes in the fair value of the hedged portion of the obligation.
Interest rate swap agreements used to convert variable rate interest obligations
to fixed rate obligations will generally be reported on the balance sheet with
changes in fair value attributable to the portion of the instrument considered
to be effective, recorded in other comprehensive income (loss) on an after-tax
basis. Amounts reported in other comprehensive income (loss) will be
reclassified into earnings in the period that the hedged exposure impacts
earnings.
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.
ENVIRONMENTAL: It is the Company's policy to accrue and charge against
earnings, environmental cleanup costs when it is probable that a liability has
been incurred and an amount is reasonably estimable. As assessments and cleanups
proceed, these accruals are reviewed periodically and adjusted, if necessary, as
additional information becomes available. These accruals can change
substantially due to such factors as additional information on the nature or
extent of contamination, methods of remediation required and other actions by
governmental agencies or private parties. Cash expenditures often lag behind the
period in which an accrual is recorded by a number of years.
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 for
postretirement plans are recognized as employees render the services necessary
to earn the related benefits. The postemployment costs are recognized when a
probable decision of a termination requiring employee severance is made.
REVENUE RECOGNITION: Revenue is generally recognized upon shipment of
goods to customers. 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.
-33-
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 stock 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 market price of the Company's common stock at the end of each
period through the date of vesting.
The fair value of restricted and performance stock is charged to Stockholders'
Equity and amortized to expense over the requisite vesting periods.
CURRENT AND PENDING ACCOUNTING CHANGES: In August 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 143, "Asset Retirement Obligations" ("SFAS 143"). SFAS
143 addresses the accounting and reporting requirements for legally unavoidable
obligations associated with the retirement of tangible long-lived assets. In
general, SFAS 143 requires entities to capitalize asset retirement costs of
related long-lived assets in the period in which they meet the definition of a
liability and to allocate those costs to expense using a systematic and rational
method. SFAS 143 will become effective for the Company beginning January 1,
2003. The Company is reviewing the potential impact of SFAS 143 on its
consolidated results of operations and financial position, which is expected to
be immaterial.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires business combinations consummated after June 30, 2001,
to be accounted for using the purchase method of accounting. It also specifies
the criteria that intangible assets must meet to be recognized apart from
goodwill. SFAS 142 requires the use of a non-amortization approach to account
for purchased goodwill and intangibles with indefinite useful lives. Under this
approach, goodwill and intangibles with indefinite useful lives are not
amortized, but instead are reviewed for impairments at least annually and
written down only in the periods in which it is determined that the recorded
value is greater than the fair value. SFAS 142 also requires that intangible
assets with determinable useful lives be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS 142 will become effective for the Company
beginning January 1, 2002. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001, have been amortized through December
31, 2001, in accordance with the appropriate pre-SFAS 141 and 142 accounting
literature.
The Company has evaluated its goodwill and intangible assets using the
new criteria in SFAS 141, and as a result, certain intangibles that no longer
met the criteria for recognition apart from goodwill were reclassified as
goodwill effective January 1, 2002 (see Note 13). The Company has also
re-evaluated the remaining useful lives and residual values of all intangible
assets with determinable useful lives and has made all necessary amortization
period adjustments effective January 1, 2002. The change in amortization expense
related to the adjustment of remaining useful lives and residual values was
immaterial.
In connection with the transitional goodwill impairment test, SFAS 142
requires the Company to assess whether there is any indication that goodwill is
impaired as of January 1, 2002. To accomplish this, the Company has defined its
business segments as its SFAS 142 reporting units and has determined the
carrying value of those reporting units as of January 1, 2002. The Company has
until June 30, 2002, to determine the fair value of each reporting unit and
compare it to the reporting unit's carrying value. If a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired, and the Company must then perform the second
step of the transitional impairment test. In the second step, the Company must
compare the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to its assets and liabilities in a
manner similar to a purchase price allocation, to its carrying value. This
second step, if required, must be completed by December 31, 2002, and any
transitional impairment loss will be measured as of January 1, 2002, and
recognized as the effect of a change in accounting principle. Although further
evaluation is still needed to complete the transitional goodwill impairment test
provisions of SFAS 142, the Company does not currently believe that adoption of
the new standards will result in a material charge to earnings as of January 1,
2002.
-34-
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). In general under
SFAS 133, as amended, all derivative instruments must be recognized on the
balance sheet at fair value. SFAS 133 also 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 be either offset against
changes in fair value of the hedged item 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 do not qualify for hedge accounting, as well as
the ineffective portion of hedges, must be adjusted to fair value through
earnings. Under certain exceptions, SFAS 133 permits derivative instruments to
be accounted for as executory contracts because physical delivery of the
underlying commodity is probable. In those circumstances, SFAS 133 does not
require derivative instruments to be recognized on the balance sheet at fair
value.
As discussed more thoroughly under Financial Instruments and in Note 4,
the Company uses foreign exchange forward contracts, natural gas forward
contracts, interest rate swap agreements and other derivative instruments. The
carrying amounts of the foreign exchange forward contracts and interest rate
swap agreements at January 1, 2001, approximated their fair values. SFAS 133, as
amended, permits the Company to continue recognizing gains and losses on
commodity contracts in the cost of the commodity upon settlement of the
contracts. In addition, the MandatOry Par Put Remarketed SecuritiesSM
(MOPPRS(SM)) and written put options that are indexed to the Company's stock are
excluded from the scope of SFAS 133. As a result, a cumulative effect of a
change in accounting principle was not required to be presented upon adoption of
SFAS 133.
The American Institute of Certified Public Accountants has issued a
proposed Statement of Position ("SOP"), "Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment." If enacted, this SOP
would, among other things, require the Company to change its method of
depreciation. The Company primarily utilizes the composite method of
depreciation in the United States and Canada applied on a straight-line basis
over the estimated useful lives of various classes of assets. Under the
composite method, depreciation is taken on the class of asset as a whole rather
than on an individual asset basis. Depreciation continues until the entire asset
class is fully depreciated. Upon disposition or retirement, the cost of such
assets plus demolition costs less amounts realized on sale or salvage, is
charged or credited to the accumulated depreciation account.
The Company is evaluating the impact of the proposed SOP. If enacted,
excluding any cumulative effect of a change in accounting principle, it is
expected that depreciation expense will decrease, as depreciation on individual
assets will cease as such assets are fully depreciated. On the other hand, upon
disposition or retirement of assets, the net book value of such assets plus
demolition costs less amounts realized from sale or salvage, will be charged or
credited to earnings.
RISKS AND UNCERTAINTIES: The Company is engaged primarily in the
manufacture and sale of a highly diversified line 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, terrorist acts, and the
need to comply with directives of governmental 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, 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, 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 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 risk management instruments. The counterparties to these
transactions are major financial institutions, 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.
-35-
USE OF ESTIMATES: Financial statements prepared in conformity with
accounting principles generally accepted in the United States of America require
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities and pro forma compensation expense at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used for, but not limited to:
allowance for doubtful accounts, inventory valuations, useful lives of tangible
and intangible assets, accrued expenses, environmental liability assumptions,
pension and postretirement benefits other than pension assumptions, general
liability and workers compensation accruals and income tax valuation allowances.
Future events and their effects cannot be estimated with certainty. Accordingly,
accounting estimates require the use of judgment, which may change as additional
information is obtained.
2. ACQUISITIONS AND DISPOSITIONS
2001 TRANSACTIONS: On August 31, 2001, the Company acquired certain
assets of the carbon fiber business of BP plc ("BP"). The BP carbon fiber
business had sales for the first half of 2001 of approximately $17 (unaudited)
of which approximately 50% were sales to Cytec Engineered Materials ("CEM"),
formerly known as Cytec Fiberite. CEM uses carbon fiber to reinforce engineered
resin matrices and produce composites for a diverse range of commercial and
military aerospace applications and other emerging applications. The acquisition
enhances CEM's ability to maintain an uninterrupted supply of certain classes of
carbon fiber. The acquisition, which includes manufacturing sites in Greenville
and Rock Hill, SC, is reported as part of the Company's Specialty Materials
segment.
In accordance with SFAS No. 141, "Business Combinations," after
reducing to zero the amounts that would otherwise have been assigned to certain
assets acquired, the remaining "negative goodwill" was recognized as an
extraordinary gain of $4.9, net of taxes, which related to the fair value of the
inventories acquired less liabilities assumed. Taxes recorded related to the
extraordinary gain were $2.6.
On March 30, 2001, the Company acquired the composite materials
business of Minnesota Mining and Manufacturing Company ("3M") for cash
consideration of $8.2. The acquisition resulted in goodwill of $3.5, which the
Company has been amortizing on a straight-line basis over a period of 25 years.
The acquired business has been integrated into the Company's Specialty Materials
segment.
On March 27, 2001, the Company acquired the remaining 50% interest in
the assets of the Avondale Ammonia Company manufacturing joint venture effective
as of September 1, 2000, from the Company's partner, LaRoche Industries Inc.
("LaRoche"). The Company paid cash consideration of $0.8 and released certain
claims against LaRoche relating to LaRoche's rejection of the partnership
agreements. No goodwill was recognized as a result of this transaction. In the
second quarter of 2001, the ammonia manufacturing facility was indefinitely
mothballed.
2000 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 five year
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 net sales were $97.9 and $106.4 in 2000 and 1999, respectively. Taxes
of approximately $26.6 were paid in 2001 related to this divestiture.
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.
1999 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 acquisition resulted in goodwill of $36.7, which the Company has been
amortizing on a straight-line basis over a period of 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 will
continue 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. The
acquisition resulted in goodwill of $20.1, which the Company has been amortizing
on a straight-line basis over a period of 40 years. 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.
-36-
On August 11, 1999, the Company acquired assets of the global phosphine
fumigants product line from BOC Group Inc. for $3.5 plus two additional payments
aggregating $1.0, which were paid during 2000 upon approval of certain fumigant
registrations by the U.S. Environmental Protection Agency. The acquisition
resulted in goodwill of $2.2, which the Company has been amortizing on a
straight-line basis over a period of 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, which has not yet occurred. 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 acquisition resulted in
goodwill of $0.3, which the Company has been amortizing on a straight-line basis
over a period of 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.
All acquisitions have been accounted for under the purchase method of
accounting with the purchase prices allocated to the assets acquired 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 excess
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 the years ended 2001, 2000 or 1999 would
not have been materially different if any of the acquisitions had occurred on
January 1 of the respective preceding years. Accordingly, pro forma sales, net
earnings and earnings per share disclosures have not been provided.
3. RESTRUCTURING OF OPERATIONS
In the second quarter of 2001, the Company recorded a restructuring
charge of $5.4 related to the mothballing of the Fortier ammonia plant and the
Company's share of the related personnel reduction of 67 positions at the
Fortier facility. The restructuring costs were charged to the Consolidated
Statement of Income as follows: manufacturing cost of sales, $4.6; and selling
and technical services, $0.8. The components of the restructuring charge
included: employee severance costs, $4.3; asset write-downs, $0.9 and other
costs of $0.2. As of December 31, 2001, approximately 53 positions have been
eliminated. The remaining personnel reductions are expected to be completed by
mid-2002. As of December 31, 2001, cash payments of $2.9 had been made for these
charges. At December 31, 2001, the remaining liability to be paid was $1.6. In
addition, during the second quarter of 2001 the Company recorded charges of $2.3
in equity in earnings of associated companies for its 50% share of CYRO
Industries' restructuring charges, which included $3.7 related to the shutdown
of CYRO's manufacturing facility in Niagara Falls, Ontario, Canada, and $0.8
related to CYRO's share of the infrastructure restructuring at the Company's
Fortier facility.
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, 2001, approximately 104 positions have
been eliminated. As of December 31, 2001, cash payments of $6.0 had been made
for these charges. At December 31, 2001, the remaining liability to be paid was
$2.8, which is expected to be substantially completed during the first quarter
of 2002.
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, 2001, payments of
$2.8 had been made for these charges and all personnel reductions requiring
severance payments were completed. At December 31, 2001, the remaining liability
to be paid was $0.2, which primarily relates to long-term employee severance
payouts.
In connection with its 1997 restructuring plan, the Company reduced the
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.
-37-
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, 2001 and 2000.
At December 31, 2001, there were no interest rate swap agreements
outstanding. 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 matured during 2001 and had virtually offsetting terms. Another swap
agreement, which converted $20.0 of variable rate interest obligations to 6.25%
fixed rate obligations, matured on November 1, 2001. The fourth interest rate
swap agreement, which 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.
At December 31, 2001, the Company had net foreign exchange contracts to
purchase an aggregate of 20.0 Euros, 10.7 British pounds and 1.2 Norwegian krone
for U.S. dollars. The Company also had net contracts for the following U.S.
dollar equivalent aggregate amounts: contracts to purchase 1.3 Norwegian krone
for other European currencies, primarily British pounds; contracts to purchase
18.3 British pounds for Euros; contracts to purchase 10.3 Norwegian krone for
Euros and contracts to sell 0.3 of other currencies for Euros. 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 franc 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 forward exchange rates at December 31, 2001 and
2000, exceeded contract values by approximately $0.6.
At December 31, 2001, the Company had $6.8 notional value of natural
gas forward contracts with January through October 2002 delivery dates
outstanding. Based on year-end NYMEX prices, the Company had a net unrealized
loss of $0.7. At December 31, 2000, there were no natural gas forward contracts
outstanding.
In connection with the Company's stock repurchase program, during 2001
the Company sold an aggregate of 300,000 put options to an institutional
investor in a series of private placements exempt from registration under
Section 4(2) of the Securities Act of 1933. The put options entitled the holder
to sell an aggregate of 300,000 shares of the Company's common stock to the
Company at exercise prices ranging from $31.35 to $32.49 per share. The Company
received premiums of approximately $0.6 on the sale of such options. Prior to
December 31, 2001, 140,000 of the put options expired unexercised, 100,000 put
options were exercised and resulted in the Company buying back 100,000 shares of
its common stock at an exercise price of $32.49 per share and the holder elected
to exercise the remaining 60,000 put options, which were settled by the Company
purchasing 60,000 shares of its common stock at an exercise price of $31.347 per
share, which was slightly "out of the money" at the time. At December 31, 2001,
no put options remained outstanding. During 2000, the Company sold an aggregate
of 400,000 put options 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 lieu of purchasing the shares from the put option holder, the Company has the
right to elect settlement by paying the holder of the put options the excess of
the strike price over the then market price of the shares in either cash or
shares of the Company's common stock (i.e., net cash or net share settlement).
5. ASSOCIATED COMPANIES
The Company has a 50% interest in each of three associated companies:
CYRO Industries, Mitsui-Cytec and AC Molding Compounds and a one-third interest
in the PolymerAdditives.com, LLC joint venture. The Company also had a 50%
interest in the former Criterion Catalyst joint venture through July 10, 2000
(see Note 2).
-38-
The aggregate cost of investments in associated companies accounted for
under the equity method was $16.7 and $15.7 at December 31, 2001 and 2000,
respectively. Summarized financial information for the Company's investments in
associated companies as of December 31, 2001 and 2000 and for the years ended
December 31, 2001, 2000 and 1999, is as follows:
2001 2000 1999
- ----------------------------------------------------------------
Net sales $306.9 $496.3 $521.4
Gross profit 52.0 99.1 116.4
Net earnings (losses) (2.2) 23.8 11.4
Company's share of earnings 0.1 15.0 5.6
- ----------------------------------------------------------------
Current assets 105.8 131.5
Noncurrent assets 189.4 204.0
Total assets 295.2 335.5
- ---------------------------------------------------
Current liabilities 78.9 103.9
Noncurrent liabilities 29.0 45.7
Equity 187.3 185.9
Total liabilities and equity 295.2 335.5
- ---------------------------------------------------
Company's share of equity $ 92.6 $ 91.9
- ---------------------------------------------------
The above associated companies' information includes the results of the former
Criterion Catalyst joint venture through July 10, 2000.
The Company does not guarantee the debt of its unconsolidated
associated companies.
At December 31, 2001 and 2000, the Company's net investment in AC
Moldings Compounds was valued at zero, and the Company ceased recognizing its
share of the losses of the joint ventures once its investment was reduced to
zero. The Company and its joint venture partner were unwilling to invest further
in AC Moldings. As a result of AC Moldings' inability to sustain its operations,
in November 2001, the joint venture was shut down. Subsequently, AC Moldings
filed for bankruptcy under Chapter 11 in December 2001. The Company does not
believe that the AC Moldings Compounds bankruptcy filing will have a material
impact on the Company's results of operations or financial position as the net
investment was already valued at zero.
Fees received from associated companies, primarily CYRO Industries,
were $7.8, $7.5 and $7.5 in 2001, 2000 and 1999, respectively. These fees are
recorded in manufacturing cost of sales and are related to CYRO's use of the
Company's Fortier, Louisiana, manufacturing complex. Approximately 65% of the
fees received are scheduled to contractually expire December 31, 2003. However,
the Company is in the process of renegotiating these agreements. To the extent
that the agreements are not renewed, it will result in a corresponding increase
in CYRO's earnings of which the Company's share is 50%.
Sales to associated companies (primarily CYRO Industries) amounted to
$26.9, $27.2 and $25.2 in 2001, 2000 and 1999, respectively. Purchases from
associated companies were immaterial.
At December 31, 2001, CYRO Industries had $25.0 of short-term
borrowings outstanding, which expires March 31, 2002, and Mitsui-Cytec had $13.9
of short-term bank obligations, which expires March 31, 2002, and $3.6 of
long-term debt, which expires February 25, 2004.
6. INVENTORIES
At December 31, 2001 and 2000, LIFO inventories comprised approximately
59% and 62% of consolidated inventories, respectively.
2001 2000
- ----------------------------------------------------------------
Finished goods $ 96.0 $115.0
Work in progress 18.0 15.0
Raw materials and supplies 65.1 67.1
- ----------------------------------------------------------------
179.1 197.1
Less reduction to LIFO cost (31.8) (34.4)
- ----------------------------------------------------------------
Total inventories $147.3 $162.7
- ----------------------------------------------------------------
-39-
7. PLANTS, EQUIPMENT AND FACILITIES
At December 31, 2001 and 2000, plant, equipment and facilities
consisted of the following:
2001 2000
- ----------------------------------------------------------------
Land and land improvements $ 30.5 $ 30.4
Buildings 172.2 164.0
Machinery and equipment 1,108.2 1,066.7
Construction in progress 33.6 65.2
- ----------------------------------------------------------------
Plants, equipment and facilities, at cost $1,344.5 $1,326.3
- ----------------------------------------------------------------
8. LONG-TERM DEBT
At December 31, 2001 and 2000, long-term debt consisted of public debt
in the amounts of $314.7 and $313.4, respectively. The fair value of the
Company's long-term debt, based on dealer quoted values, was $321.9 at December
31, 2001, and $303.1 at December 31, 2000.
During the third quarter of 2001, the Company reclassified certain
deferred financing charges from other noncurrent assets to long-term debt. The
reclassification was also made to the prior year's Consolidated Balance Sheet in
order to make it conform to the current year's presentation.
The weighted average interest rate on long-term debt for 2001, 2000 and
1999 was 7.15%, 7.08% and 6.77%, respectively.
At December 31, 2001, 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, 2001 and 2000. 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, 2001, and expects to replace
the credit facility on or before its expiration, although there is no guarantee
that it will be renewed.
At December 31, 2001 and 2000, $10.0 was available for short-term use
under an uncommitted credit facility and a U.S. dollar equivalent of
approximately $18.4 and $14.8, respectively, was available under foreign
currency denominated overdraft facilities. There were no outstanding borrowings
under these facilities at December 31, 2001 and 2000.
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%
MOPPRS(SM) due May 11, 2025. The securities were offered under the Company's
shelf registration statement, which has now been fully utilized. The Company
received an aggregate of approximately $322.0 in proceeds from the sales before
deducting expenses associated with the sales.
Except in limited circumstances, the MOPPRS(SM) will be subject to
mandatory tender to Merrill Lynch, as Remarketing Dealer, at 100% of the
principal amount thereof, for remarketing on May 11, 2005 (the "Remarketing
Date"). The interest rate on the MOPPRS(SM) 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(SM) on the Remarketing Date or
elects not to remarket the MOPPRS(SM) the Company will be required to repurchase
the MOPPRS(SM) from the beneficial owners thereof on the Remarketing Date at
100% of the principal amount thereof plus accrued interest, if any.
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. During
1997 and 1998, the Company made payments aggregating approximately $11.2 to
settle the rate lock agreements, which is being amortized over the life of the
6.50% Notes, 6.75% Notes and 6.846% MOPPRS(SM) as an increase in interest
expense of such Notes. The amount of unamortized rate lock agreements included
in long-term debt was $7.3 at December 31, 2001, and $8.4 at December 31, 2000.
Under the revised 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 $635.2 in debt at December 31, 2001 (see Note 15).
On December 15, 2000, the Company filed with the Securities and
Exchange Commission a 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. The
registration statement became effective December 22, 2000.
-40-
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 or to pay compensation to others for doing so. The
Company's most significant environmental liabilities relate to remediation and
regulatory closure obligations at manufacturing sites now or formerly owned by
the Company. The Company is also involved in legal proceedings directed at the
cleanup of various other sites, including a number of federal or state Superfund
sites. Since the laws pertaining to Superfund sites generally impose
retroactive, strict, joint and several liability, a governmental plaintiff could
seek to recover all remediation costs at any such 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. In many cases, the nature of future environmental
expenditures cannot be quantified with 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, additional sites that may be environmentally impaired
and for which the Company may be responsible.
As of December 31, 2001 and 2000, the aggregate environmental related
accruals were $93.9 and $104.7, respectively, of which $20.0 was included in
accrued expenses as of both dates, with the remainder included in other
noncurrent liabilities. Environmental remediation spending for the years ended
December 31, 2001, 2000 and 1999 was $13.7, $15.3 and $18.6, respectively. All
accruals have been recorded without giving effect to any possible future
insurance proceeds.
While it is not feasible to predict the outcome of all pending
environmental suits and claims, it is reasonably possible that there will be a
necessity for future provisions for environmental costs that, in management's
opinion, will not have a material adverse effect on the consolidated financial
position of the Company, but could be material to the consolidated results of
operations of the Company in any one accounting period. The Company cannot
estimate any additional amount of loss or range of loss in excess of the
recorded amounts. Moreover, environmental liabilities are paid over an extended
period, and the timing of such payments cannot be predicted with any confidence.
The Company is also a party to various other claims and routine
litigation arising in the normal course of its business. Based on the advice of
counsel, management believes that the resolution of such claims and litigation
will not have a material adverse effect on the financial position of the
Company, but could be material to the results of operations of the Company in
any one accounting period.
Rental expense under property and equipment leases was $10.7 in 2001,
$12.0 in 2000 and $12.3 in 1999. 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, 2001, are:
Operating
Leases
- ----------------------------------------------
2002 $ 7.4
2003 5.1
2004 3.9
2005 2.5
2006 1.9
Thereafter 16.5
- ----------------------------------------------
Total minimum lease payments $37.3
- ----------------------------------------------
At December 31, 2001 and 2000, the Company had $10.9 and $11.7,
respectively, of letters of credit outstanding for environmental and insurance
related matters.
-41-
10. INCOME TAXES
The income tax provision for the years ended December 31, 2001, 2000
and 1999, is based on earnings before income taxes and extraordinary item as
follows:
2001 2000 1999
- ----------------------------------------------------------------
Domestic $ 51.6 $203.3 $110.1
Foreign 49.5 67.8 62.9
- ----------------------------------------------------------------
Total $101.1 $271.1 $173.0
- ----------------------------------------------------------------
The components of the income tax provision for the years ended December 31,
2001, 2000 and 1999, are composed of the following:
2001 2000 1999
Current:
Federal $ (9.5) $36.8 $ 4.8
Foreign 17.2 24.4 21.0
Other, principally state 1.9 1.2 1.0
- ----------------------------------------------------------------
Total $ 9.6 $62.4 $26.8
- ----------------------------------------------------------------
Deferred:
Federal $22.3 $25.3 $21.9
Foreign 1.0 (1.1) (2.3)
Other, principally state 2.0 6.9 5.3
Total $25.3 $31.1 $24.9
- ----------------------------------------------------------------
Total income tax provision $34.9 $93.5 $51.7
- ----------------------------------------------------------------
Tax benefits on stock option exercises of $9.9, $4.5 and $0.1 were
allocated directly to shareholders' equity for 2001, 2000 and 1999,
respectively.
In 2001, $2.6 million of tax expense was allocated to an extraordinary
gain.
Domestic and foreign earnings of consolidated companies before income
taxes and extraordinary item 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 that give rise to
a significant portion of deferred tax assets and liabilities as of December 31,
2001 and 2000, were as follows:
2001 2000
- ----------------------------------------------------------------
Deferred tax assets:
Allowance for bad debts $ 2.2 $ 2.2
Employee benefit accruals - 7.8
Insurance accruals 13.6 13.5
Operating accruals 12.6 20.0
Inventory 0.7 4.1
Environmental accruals 34.2 37.7
Postretirement obligations 112.9 115.0
Other 17.5 10.5
- ----------------------------------------------------------------
Deferred tax assets 193.7 210.8
- ----------------------------------------------------------------
Deferred tax liabilities:
Plants, equipment and facilities (106.3) (118.4)
Employee benefit accruals (3.6) -
Other (13.3) (13.0)
- -----------------------------------------------------------------
Deferred tax liabilities (123.2) (131.4)
- -----------------------------------------------------------------
Net deferred tax assets $ 70.5 $ 79.4
- ----------------------------------------------------------------
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.
-42-
The long-term earnings trend of the Company makes it more likely than
not that the Company will generate sufficient taxable income to realize its net
deferred 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:
2001 2000 1999
- -----------------------------------------------------------------
Federal income tax rate 35.0% 35.0% 35.0%
Research and
experimental credit (3.6) (1.3) (1.8)
Prior period tax credits - - (4.6)
Income subject to other
than the federal income
tax rate (0.7) (1.4) (2.6)
State taxes, net of
federal benefits 3.5 1.6 2.2
Other charges, net 0.3 0.6 1.7
- -----------------------------------------------------------------
Effective tax rate 34.5% 34.5% 29.9%
- -----------------------------------------------------------------
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:
2001 2000
- ----------------------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 $337.9 $305.2
Service cost 8.3 8.5
Interest cost 25.2 23.8
Amendments - 0.2
Translation difference (1.1) 0.2
Actuarial (gain) loss 14.8 14.2
Employee contributions 0.2 0.2
Benefits paid (17.2) (14.4)
- -----------------------------------------------------------------
Benefit obligation at December 31 $368.1 $337.9
- ----------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $338.7 $346.8
Actual return (losses) on plan assets (18.3) (6.0)
Company contributions 16.9 13.6
Employee contributions 0.2 0.2
Translation difference (1.1) (1.5)
Benefits paid (17.2) (14.4)
- -----------------------------------------------------------------
Fair value of plan assets at December 31 $319.2 $338.7
- ----------------------------------------------------------------
Projected benefit obligation over
(under) plan assets 48.9 (0.8)
Unrecognized actuarial loss (73.0) (9.5)
Unrecognized prior service cost 1.4 1.3
Unrecognized net transition obligation 1.1 1.3
- -----------------------------------------------------------------
Prepaid pension assets recognized
in the consolidated balance sheets $ (21.6) $ (7.7)
- -----------------------------------------------------------------
-43-
Assumptions as of December 31:
2001 2000 1999
- --------------------------------------------------------------------------------
Discount rate 7.25% 7.50% 7.75%
Expected return on
plan assets 9.25% 9.25% 9.25%
Rate of future
compensation increase 3.0-10.0% 3.0-10.0% 4.0-10.0%
- --------------------------------------------------------------------------------
Net periodic pension expense includes the following components:
2001 2000 1999
- --------------------------------------------------------------------------------
Service cost $ 8.3 $ 8.5 $ 10.1
Interest cost on projected
benefit obligation 25.2 23.8 21.8
Expected return on
plan assets (31.1) (28.3) (24.2)
Net amortization
and deferral 0.4 - 1.8
- --------------------------------------------------------------------------------
Net periodic
pension expense $ 2.8 $ 4.0 $ 9.5
- --------------------------------------------------------------------------------
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 $195.6, $180.1 and $146.5, respectively, as of
December 31, 2001, and $116.4, $108.5 and $92.3, respectively, as of December
31, 2000. The prepaid benefit costs recognized in the consolidated balance
sheets as of December 31, 2001 and 2000 were $39.0 and $18.0, respectively, and
the accrued benefit liability recognized in the consolidated balance sheets as
of December 31, 2001 and 2000 was $17.4 and $10.3, respectively.
The Company sponsors employee savings and profit sharing plans. Prior
to 2001, the savings plan portion generally matched 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 Board of
Directors. Savings plan matching contributions were $5.7, $4.3 and $4.6 for
2001, 2000 and 1999, respectively. Profit sharing contributions were
approximately $0, $3.4 and $3.6 in 2001, 2000 and 1999, respectively. Beginning
in January 2001, the Company match for the savings plan was increased to 100% of
employee contribution up to the first 3% of compensation and 50% on the next 2%
of compensation for employees not covered by collective bargaining agreements.
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.
-44-
The following provides a reconciliation of postretirement benefit obligations,
plan assets and funded status of the plans:
2001 2000
- ----------------------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 $249.1 $268.1
Service cost 1.4 1.3
Interest cost 18.1 19.8
Amendments (9.4) (19.4)
Translation difference (0.1) (0.1)
Actuarial loss 11.5 2.8
Employee contributions 1.5 1.0
Benefits paid (24.4) (24.4)
- ----------------------------------------------------------------
Benefit obligation at December 31 $247.7 $249.1
- ----------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 72.8 $ 54.4
Actual return on plan assets 1.9 2.8
Company contributions 21.5 39.0
Employee contributions 1.5 1.0
Benefits paid (24.4) (24.4)
- ----------------------------------------------------------------
Fair value of plan assets at December 31 $ 73.3 $ 72.8
- ----------------------------------------------------------------
Accumulated postretirement benefit
obligation over fair value of plan assets 174.4 $176.3
Unrecognized actuarial gain 30.4 44.3
Unrecognized negative prior service cost 73.1 71.2
- ----------------------------------------------------------------
Accrued postretirement benefit cost $277.9 $291.8
- ----------------------------------------------------------------
The accrued postretirement benefit cost recognized in the Company's
Consolidated Balance Sheets at December 31, 2001and 2000, includes $20.0 in
accrued expenses and $257.9 and $271.8, respectively, in other noncurrent
liabilities.
Net periodic postretirement benefit costs for the years ended December
31, 2001, 2000 and 1999, included the following components:
2001 2000 1999
- ------------------------------------------------------------------------------
Service cost $ 1.4 $ 1.3 $ 1.4
Interest cost 18.1 19.8 17.3
Expected return on
plan assets (5.2) (3.8) (3.2)
Net amortization
and deferral (8.6) (7.5) (7.8)
- ------------------------------------------------------------------------------
Total cost $ 5.7 $ 9.8 $ 7.7
- ------------------------------------------------------------------------------
Measurement of the accumulated postretirement benefit obligations
("APBO") was based on actuarial assumptions, including a discount rate of 7.25%,
7.50% and 7.75% at December 31, 2001, 2000 and 1999, respectively, and an
expected return on plan assets of 7.0% at December 31, 2001, 2000 and 1999. The
assumed rate of future increases in the per capita cost of healthcare benefits
(healthcare cost trend rate) is 7.0% in 2002, decreasing to ultimate trend of
5.5% in 2005. 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, 2001, and the 2001 aggregate service and interest cost
by approximately $22.9 and $1.8, respectively, and decreasing the healthcare
cost trend rate by one percentage point in each year would decrease the APBO at
December 31, 2001 and the 2001 aggregate service and interest cost by
approximately $20.8 and $1.7, respectively.
-45-
13. OTHER FINANCIAL INFORMATION
Accrued expenses at December 31, 2001 and 2000, included the following:
2001 2000
- ----------------------------------------------------------------
Pensions and other employee benefits $ 7.8 $ 21.7
Other postretirement employee benefits 20.0 20.0
Salaries and wages 11.1 10.2
Environmental 20.0 20.0
Restructuring 4.6 9.9
Other 94.3 97.8
- ----------------------------------------------------------------
Total $157.8 $179.6
- ----------------------------------------------------------------
Cash payments during the years ended December 31, 2001, 2000 and 1999,
included interest of $21.3, $26.6 and $27.8, respectively. Income taxes paid in
2001, 2000 and 1999 were $33.1, $37.6 and $28.7, respectively. Income taxes paid
include foreign taxes of $16.8, $20.8 and $16.8 in 2001, 2000 and 1999,
respectively.
Included in accounts receivable at December 31, 2001and 2000, are
miscellaneous receivables of approximately $32.3 and $55.2, respectively.
Included in interest expense, net, for the years ended December 31,
2001, 2000 and 1999, is interest income of $3.0, $3.5 and $2.0, respectively.
Other income, net, was $7.9, $104.6 and $9.3 for the years ended
December 31, 2001, 2000 and 1999, respectively. Included in 2001 were gains of
$7.0 related to the sale of reclaimed land in Florida and the favorable
settlement of a royalty issue concerning mineral rights associated with a former
phosphate rock mining joint venture also in Florida. Included in 2000 was a gain
of $88.3 from the divestiture of the Paper Chemicals business (see also Note 2),
a gain of $13.3, discounted and net of expenses, from an insurance settlement
with a group of insurance carriers for an environmental remediation coverage
suit and a gain of $7.1 related to the sale of real estate at a former plant
site. Also included in 2000 is a charge of $4.8 for the write-down of
receivables due from the AC Moldings Compounds joint venture. Included in 1999
were pre-tax gains of $4.5 from the sale of land, $2.2 from royalty income and
$1.6 from the sale of certain product lines.
Acquisition intangibles, net of accumulated amortization, at
December 31, 2001 and 2000, included the following:
2001 2000
- ----------------------------------------------------------------
Goodwill $376.1 $374.4
Less: accumulated amortization (45.5) (38.2)
- ----------------------------------------------------------------
Goodwill, net 330.6 336.2
- ----------------------------------------------------------------
Other intangibles 55.4 55.2
Less: accumulated amortization (9.9) (7.0)
- ----------------------------------------------------------------
Other intangibles, net 45.5 48.2
- ----------------------------------------------------------------
Acquisition intangibles, net of
accumulated amortization $376.1 $384.4
- ----------------------------------------------------------------
Amortization expense related to goodwill and intangible assets was
$12.8, $12.4 and $11.2 for the years ended December 31, 2001, 2000 and 1999,
respectively. On January 1, 2002, the Company adopted SFAS 142 and certain
transition provisions of SFAS 141 (see Note 1). Application of these standards
required that the Company assess its recorded intangibles, and effective January
1, 2002, reclassify to goodwill those intangibles which no longer meet the
criteria for recognition apart from goodwill. The Company's acquisition
intangibles, net of accumulated amortization, before and after such
reclassifications was as follows:
GOODWILL INTANGIBLES TOTAL
- ----------------------------------------------------------------
Before reclassifications:
Water and Industrial
Process Chemicals $ 31.3 $ 3.8 $ 35.1
Performance Products 49.1 26.7 75.8
Specialty Materials 250.2 15.0 265.2
Building Block Chemicals - - -
- ----------------------------------------------------------------
Total $330.6 $45.5 $376.1
- ----------------------------------------------------------------
-46-
After reclassifications:
Water and Industrial
Process Chemicals $ 31.1 $ 4.0 $ 35.1
Performance Products 50.1 25.7 75.8
Specialty Materials 252.6 12.6 265.2
Building Block Chemicals - - -
- ----------------------------------------------------------------
Total $333.8 $42.3 $376.1
- ----------------------------------------------------------------
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 39,621,108 shares were outstanding
at December 31, 2001. A summary of changes in common stock issued and treasury
stock for the years ended December 31, 2001, 2000 and 1999, is presented below.
Common Treasury
Stock stock
- ----------------------------------------------------------------------------------------
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
Purchase of treasury stock - 1,711,300
Issuance pursuant to stock option plan - (1,118,634)
Award of performance stock and
restricted stock - (81,278)
Forfeitures and deferrals of stock awards - 33,915
- ----------------------------------------------------------------------------------------
Balance at December 31, 2001 48,132,640 8,511,532
- ----------------------------------------------------------------------------------------
On November 2, 2000, the Company announced an authorization of $100.0
to repurchase shares of its 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, 2001, the Company had repurchased 1,872,791 shares at a
cost of $57.8 under this authorization. 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, 2001, the Company had
reserved approximately 8,412,213 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 is 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.
-47-
In the event of a "change of control" (as defined in the 1993 Plan),
(i) any award under that Plan carrying a right to exercise that was not
previously exercisable and vested will become fully exercisable and vested, (ii)
the restrictions, deferral limitations, payment conditions and forfeiture
applicable to any other award granted under the 1993 Plan will lapse and such
awards will be deemed fully vested and (iii) any performance conditions imposed
with respect to awards shall be deemed to be fully achieved.
In connection with the acquisition of The American Materials
&Technologies Corporation ("AMT") in 1998, outstanding options and warrants to
acquire AMT stock were converted into options and warrants to purchase 335,209
shares of the Company's common stock at a weighted average exercise price of
$10.48 per share.
A summary of the status of the Company's stock options as of December
31, 2001, 2000 and 1999, and changes during the years ended on those dates is
presented below.
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------
Shares under option:
Outstanding at beginning of year 6,484,300 $21.68 6,239,406 $20.28 5,276,173 $19.90
Granted 938,655 33.54 981,143 24.70 1,193,409 21.00
Exercised (1,118,634) 8.50 (636,047) 10.86 (148,693) 6.81
Forfeited (53,587) 31.72 (100,202) 33.26 (81,483) 30.30
- ------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 6,250,734 25.73 6,484,300 $21.68 6,239,406 $20.28
- ------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 4,382,219 $24.59 4,632,637 $20.16 4,434,989 $16.56
- ------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2001:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------
$ 2.77-10.00 960,076 2.17 $ 5.46 959,533 $ 5.45
11.66-24.57 2,233,566 5.91 20.45 1,350,523 18.75
25.08-37.75 1,679,472 4.48 29.93 704,583 25.45
37.87-47.32 837,045 5.14 40.20 827,005 40.22
47.81-57.44 540,575 6.08 48.11 540,575 48.11
- ------------------------------------------------------------------------------------------------------------------
$ 2.77-57.44 6,250,734 4.74 $25.73 4,382,219 $24.59
- ------------------------------------------------------------------------------------------------------------------
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 1999, 2000 and 2001 relate to the 2001, 2002 and 2003 performance
periods, respectively. The total amount of stock-based compensation expense
(income) recognized for restricted stock and performance stock was ($0.7) in
2001, $3.5 in 2000 and $1.4 in 1999. A summary of restricted stock and
performance stock activity is as follows:
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Outstanding awards - beginning of year 244,161 156,386 112,229
New awards granted 81,278 114,272 84,903
Shares with restrictions lapsed(1) (45,402) (15,936) (31,368)
Restricted shares forfeited (14,714) (10,561) (9,378)
- -------------------------------------------------------------------------------------------------------------
Outstanding awards - end of year 265,323 244,161 156,386
- -------------------------------------------------------------------------------------------------------------
Weighted average market value of new awards on award date $33.44 $24.68 $20.64
- -------------------------------------------------------------------------------------------------------------
(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.
-48-
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").
2001 2000 1999
- -----------------------------------------------------------------
Net earnings :
As reported $71.1 $177.6 $121.3
Pro forma 66.5 $175.9 117.8
Basic earnings per share:
As reported $1.77 $ 4.34 $ 2.83
Pro forma 1.65 4.30 2.75
Diluted earnings per share:
As reported $1.71 $ 4.15 $ 2.73
Pro forma 1.60 4.12 2.65
- -----------------------------------------------------------------
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 2001, 2000 and 1999
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
2001 2000 1999
- ----------------------------------------------------------------
Expected life (years) 5.7 6.0 6.0
Expected volatility 44.14% 41.47% 43.47%
Expected dividend yield - - -
Risk-free interest rate 4.672% 5.142% 6.58%
Weighted average fair
value of options granted
during the year $16.07 $11.92 $10.95
- ----------------------------------------------------------------
In 1995, the Company implemented a stock appreciation plan for all
eligible active employees not eligible to participate in the stock option
program. In December 1996 a payout of 25% of the total maximum payout was made
and a second 25% payout was made in December 1997. In August 2000, a final
payout of one thousand dollars per participant ($2.8 in aggregate) was made.
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 Wyeth, formerly known as 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 MDP Holdings, Inc., its wholly owned subsidiary. The
Series C Stock provides MDP Holdings, Inc. 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 health
care 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 MDP Holdings, Inc. as the holder of
the Series C Stock. In the event that the Company fails to comply with certain
of such covenants, MDP Holdings, Inc., 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, appointing additional
directors to the Company's Board of Directors, which together with MDP Holdings,
Inc.'s existing representative, would constitute a majority of the Company's
Board of Directors.
-49-
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, 2001, the Company had $321.1 of debt and $636.8 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 $634.1 in debt.
On January 22, 1999, the Company signed an agreement with Cyanamid
providing that Cyanamid and its transferees 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 authorization. The Company repurchased a total of
3,784,254 shares of its outstanding common stock under this authorization.
At December 31, 2001 and 2000, restricted payments permitted under the
Series C Stock were limited to $88.5 and $109.9, respectively. Restricted
payments include, but are not limited to, payments of dividends on common stock,
payments for the repurchase of common stock outstanding and payments on certain
classes of debt.
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, 2001, 2000
and 1999:
2001 2000 1999
Weighted Weighted Weighted
Average Per Average Per Average Per
Income Shares Share Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Earnings before
extraordinary item $66.2 $1.65 $177.6 $4.34 $121.3 $2.83
Extraordinary gain,
net of tax 4.9 40,203,975 0.12 - 40,920,647 - - 42,890,159 -
----- ----- ------ ----- ------ -----
Net earnings $71.1 $1.77 $177.6 $4.34 $121.3 $2.83
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of dilutive
securities
Options 1,240,592 1,716,746 1,507,357
Performance/
Restricted stock 139,921 100,853 103,353
Warrants 5,593 6,970 4,395
Put options 657 - -
Diluted EPS
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before
extraordinary item $66.2 $1.59 $177.6 $4.15 $121.3 $2.73
Extraordinary gain,
net of tax 4.9 41,590,738 0.12 - 42,745,216 - - 44,505,264 -
----- ----- ------ ----- ------ -----
Net earnings $71.1 $1.71 $177.6 $4.15 $121.3 $2.73
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2001, there were 2,418,087 options outstanding with weighted
average exercise prices of $38.83 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 manufacturing. 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 coatings and
performance chemicals and polymer additives that are used primarily in coatings,
adhesives and plastics applications. The Specialty Materials segment
manufactures and sells materials that are used mainly in commercial and military
aviation and launch vehicles, satellites and aircraft brakes. The Building Block
Chemicals segment manufactures acrylonitrile, acrylamide, hydrocyanic acid,
melamine and sulfuric acid. Some of these chemical intermediates are used in the
manufacture of the Company's specialty chemicals, with the remainder sold to
third parties.
-50-
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 and cash flows of
the respective segment.
Summarized segment information for the years 2001, 2000 and 1999 is as
follows:
- -------------------------------------------------------------------------------------------------------
Water and
Industrial Building
Process Performance Specialty Block Total
Chemicals Products Materials Chemicals Segments
2001
Net sales to external customers $335.0 $434.7 $450.2 $167.2 $1,387.1
Intersegment net sales - - - 48.6 48.6
- -------------------------------------------------------------------------------------------------------
Total net sales 335.0 434.7 450.2 215.8 1,435.7
Earnings (loss) from operations 25.7 16.3 95.9 (18.7) 119.2
Percentage of sales 7.7% 3.7% 21.3% (8.7)% 8.3%
Total assets 241.5 384.8 487.3 226.2 1,339.8
Capital expenditures 22.0 16.0 8.5 13.3 59.8
Depreciation and amortization 17.5 29.2 16.9 27.3 90.9
- -------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------
The following table provides a reconciliation of selected segment information to
corresponding amounts contained in the Company's Consolidated Financial
Statements:
2001 2000 1999
- ----------------------------------------------------------------
Net sales:
Net sales from
reportable segments $1,435.7 $1,555.9 $1,486.5
Elimination of
intersegment revenue (48.6) (63.4) (42.0)
- -----------------------------------------------------------------
Total consolidated net sales $1,387.1 $1,492.5 $1,444.5
- ----------------------------------------------------------------
Earnings from operations:
Earnings from
reportable segments $ 119.2 $ 195.6 $ 186.1
Corporate unallocated(1) (6.5) (19.0) (1.1)
- -----------------------------------------------------------------
Total consolidated
earnings from operations $ 112.7 $ 176.6 $ 185.0
- ----------------------------------------------------------------
Total assets:
Assets from
reportable segments $1,339.8 $1,437.7
Other assets 310.6 283.9
- ---------------------------------------------------
Total consolidated assets $1,650.4 $1,721.6
- ---------------------------------------------------
(1) Includes net restructuring and other charges (see Note 3).
-51-
OPERATIONS BY GEOGRAPHIC AREAS: Net sales to unaffiliated customers
presented below are based upon 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 upon 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.
2001 2000 1999
- ----------------------------------------------------------------
Net sales
United States $ 736.9 $ 798.8 $ 816.0
Other Americas 151.0 163.8 141.3
Asia/Pacific Rim 170.7 193.4 152.9
Europe, Mideast, Africa 328.5 336.5 334.3
- ----------------------------------------------------------------
Total $1,387.1 $1,492.5 $1,444.5
- ----------------------------------------------------------------
U.S. exports included in
net sales above
Other Americas $ 50.7 $ 47.5 $ 44.2
Asia/Pacific Rim 80.6 95.2 67.0
Europe, Mideast, Africa 54.0 46.1 42.2
- ----------------------------------------------------------------
Total $ 185.3 $ 188.8 $ 153.4
- ----------------------------------------------------------------
Earnings from operations(1)
United States $ 26.3 $ 77.3 $ 88.9
Other Americas 29.6 31.1 26.6
Asia/Pacific Rim 20.1 25.3 12.7
Europe, Mideast, Africa 36.7 42.9 56.8
- ----------------------------------------------------------------
Total $ 112.7 $ 176.6 $ 185.0
- ----------------------------------------------------------------
Identifiable assets
United States $ 904.4 $ 945.8 $ 958.8
Other Americas 128.5 139.6 144.2
Asia/Pacific Rim 25.6 29.5 30.2
Europe, Mideast, Africa 210.0 204.1 204.7
- ----------------------------------------------------------------
Total $1,268.5 $1,319.0 $1,337.9
- ----------------------------------------------------------------
Investment in
associated companies 92.6 94.8 146.4
Unallocated assets 289.3 307.8 266.2
- ----------------------------------------------------------------
Total assets $1,650.4 $1,721.6 $1,750.5
- ----------------------------------------------------------------
(1) Earnings from operations in 2001 includes restructuring charges of $5.4 in
the United States. 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
$149.5, or 10.8% of consolidated net sales, in 2001; approximately $153.4, or
10.3% of consolidated net sales, in 2000 and approximately $176.5, or 12.2% of
consolidated net sales, in 1999. Sales to Boeing Company and subcontractors are
included in the Specialty Materials operating segment.
-52-
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, 2002
-53-
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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Notes 1 and 2 to the consolidated financial statements,
effective July 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 141, "Business Combinations."
KPMG LLP
Short Hills, New Jersey
January 22, 2002
-54-
QUARTERLY DATA (UNAUDITED)
(Dollars in millions, except per share amounts) 1Q 2Q 3Q 4Q Year
- -------------------------------------------------------------------------------------------------------------------
2001
Net Sales $376.1 $354.1 $342.1 $314.8 $1,387.1
Gross profit (1) 81.9 84.9 85.0 66.5 318.3
Earnings before extraordinary item 17.2 20.9 21.3 6.8 66.2
Extraordinary item, net of taxes - - 4.9 - 4.9
Net earnings 17.2 20.9 26.2 6.8 71.1
Basic net earnings per common share(2)
Earnings before extraordinary item $ .43 $ .52 $ .53 $ .17 $ 1.65
Extraordinary item - - .12 - .12
Basic net earnings per common share $ .43 $ .52 $ .65 $ .17 $ 1.77
Diluted net earnings per common share(2)
- -------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item $ .41 $ .50 $ .51 $ .17 $ 1.59
- -------------------------------------------------------------------------------------------------------------------
Extraordinary item - - .12 - .12
Diluted net earnings per common share $ .41 $ .50 $ .63 $ .17 $ 1.71
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
Basic net earnings per common share(2) $ .77 $ .99 $ .68 $ 1.91 $ 4.34
Diluted net earnings per common share(2) $ .74 $ .95 $ .65 $ 1.82 $ 4.15
- -------------------------------------------------------------------------------------------------------------------
(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.
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 55 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 Home
Products Corporation, responsible for its Global Medical Device business.
J. P. Cronin 48 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 40 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.
-55-
W. N. Avrin 46 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.
W. F. Cleary 55 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 44 Mr. Drillock is Controller of the Company and has held this position for more
than five years.
R. Smith 43 Mr. Smith was elected Vice President, General Counsel and Secretary of the
Company effective January 1, 2002, having previously served as Assistant General
Counsel since December 1998 and Senior Counsel for more than two years before
that.
T. P. Wozniak 48 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 2002 Annual Meeting of Common Stockholders,
dated March 28, 2002.
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," and the "Performance
Graph" sections of the Registrant's definitive Proxy Statement for its 2002
Annual Meeting of Common Stockholders, dated March 28, 2002.
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 2002 Annual Meeting of Common Stockholders, dated March 28,
2002.
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 2002 Annual Meeting of Common Stockholders,
dated March 28, 2002.
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, 2001 and 2000
Consolidated Statements of Income for the Years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Management Statement
Independent Auditors' Report
-56-
(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, 2001.
-57-
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 22, 2002 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 22, 2002 /s/ D. Lilley
-------------------------------------------
D. Lilley
Chairman, President and Chief Executive
Officer
DATE: March 22, 2002 /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/ R. Smith
--------------------------------------
Attorney-in-Fact
*
-----------------------------
W. P. Powell, Director
*
-----------------------------
J. R. Satrum, Director
*
-----------------------------
J. R. Stanley, Director
Date: March 22, 2002
-58-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cytec Industries Inc.:
Under date of January 22, 2002, we reported on the consolidated balance sheets
of Cytec Industries Inc. and subsidiaries as of December 31, 2001 and 2000, 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, 2001. 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, 2002
-59-
SCHEDULE II
-----------
VALUATION ALLOWANCES
(MILLIONS OF DOLLARS) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------
Addition or (deductions) Other
Balance Charged or (credited) to Additions or Balance
Description 12/31/00 Expenses (deductions) 12/31/01
Reserves deducted from related assets:
Doubtful accounts $8.8 $0.1 $(1.1)(1) $7.8
receivable
Total investments
and advances and
other assets $14.0 $1.4(2) $15.4
Environmental $104.7 ($10.8)(3) $93.9
accruals
1) Principally bad debts written off, less recoveries.
2) Payment-in-kind preferred stock dividend received from a company currently
in bankruptcy.
3) Environmental remediation spending.
-60-
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 $9.3 $(0.2) $(0.3)(1) $8.8
receivable
Total investments
and advances and
other assets $17.5 $(1.8)(2) $0.6(4) $14.0
$(2.3)(3)
Environmental $122.9 ($3.3)(5) $(14.9)(6) $104.7
accruals
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) Payment-in-kind preferred stock dividend received from a company currently in
bankruptcy.
5) Includes the elimination of a reserve related to the sale of land.
6) Environmental remediation spending.
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 $9.2 $1.0 $(0.9)(1) $9.3
receivable
Total investments
and advances and
other assets $19.8 $(4.7)(2) $2.4(3) $17.5
Environmental $136.1 $(13.2)(4) $122.9
accruals
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.
4) Environmental remediation spending.
-61-
-62-
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, as amended through January 22, 2002.
4.1 Form of Common Stock Certificate (incorporated by
reference to exhibit 4.1 to Registrant's
registration statement on Form 10).
-63-
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).
-64-
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).
10.8(c) Letter amendment, dated as of March 27, 2002
between Cytec Plastics Inc. and Rohacryl Inc., to
the CYRO Partnership Agreement.
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
(incorporated by reference to exhibit 10.12(c) to
Registrant's annual report on Form 10-K for the
year ended December 31, 2000).
10.12(d)(i) 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(d)(ii) Form of Stock Option Grant Letter used for grants
to officers from January 21, 2002.
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 (incorporated by
reference to exhibit 10.12(g) to Registrant's
annual report on Form 10-K for the year ended
December 31, 2000).
10.12(h) Key Manager Income Continuity Plan, as amended
through December 15, 2000 (incorporated by
reference to exhibit 10.12(h) to Registrant's
annual report on Form 10-K for the year ended
December 31, 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).
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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).
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) 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(p) 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(q) Restricted Stock Award Agreement - Mark
Andrekovich dated August 30, 1999 (incorporated by
reference to exhibit 10.12(r) to Registrant's
annual report on Form 10-K for the year ended
December 31, 2000).
10.12(r) 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(s) Letter Agreement, dated October 24, 2001 between
the Registrant and E. F. Jackman.
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company (incorporated by
reference to exhibit 21 to Registrant's annual
report on Form 10-K for the year ended December
31, 2000).
23 Consent of KPMG LLP
24(a-g) Powers of Attorney of J. E. Akitt, F. W.
Armstrong, C.A. Davis, L. L. Hoynes, Jr., W. P.
Powell, J. R. Satrum and J. R. Stanley.
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