UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No.1)
(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.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3268660
---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Garret Mountain Plaza
West Paterson, New Jersey 07424
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 357-3100
--------------
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. |_|
EXPLANATORY NOTE
Cytec Industries Inc. is filing this amendment to Item 8 of its Annual
Report on Form 10-K, for the fiscal year ended December 31, 2001, to correct the
"pro forma" disclosure contained in Note 14 of the Consolidated Financial
Statements. The Note sets forth the Company's net earnings and earnings per
share presented both "as reported" and "pro forma," as if compensation costs had
been determined consistent with the fair value provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." The Company is correcting the "pro forma' disclosure as
originally presented for a computational error primarily involving the
amortization of stock option expense. No other changes to the Consolidated
Financial Statements are being made by means of this filing.
-1-
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
-2-
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
-3-
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
-4-
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
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share amounts, unless otherwise
indicated)
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The financial statements include the
accounts of the Company and its subsidiaries on a consolidated basis. All
significant intercompany transactions and balances have been eliminated. The
equity method of accounting is used for investments in associated companies that
the Company does not control, but over whose operating and financial policies
the Company has the ability to exercise significant influence. Certain
reclassifications have been made to prior years' financial statements in order
to 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.
-6-
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.
-7-
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.
-8-
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.
-9-
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.
-10-
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.
-11-
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).
-12-
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
----------------------------------------------------------------
-13-
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.
-14-
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.
-15-
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.
-16-
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)
-----------------------------------------------------------------
-17-
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.
-18-
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, 2001 and 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.
-19-
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
----------------------------------------------------------------
-20-
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.
-21-
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.
-22-
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 62.2 171.2 111.5
Basic earnings per share:
As reported $1.77 $ 4.34 $ 2.83
Pro forma 1.55 4.18 2.60
Diluted earnings per share:
As reported $1.71 $ 4.15 $ 2.73
Pro forma 1.50 4.02 2.53
-----------------------------------------------------------------
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.
-23-
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.
-24-
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).
-25-
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.
-26-
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
-27-
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
-28-
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.
-29-
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: July 29, 2002 /s/ J.P. Cronin
-------------------------------------------
J. P. Cronin, Executive Vice President,
Chief Financial and Accounting Officer
-30-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23 Consent of KPMG LLP
-31-