Cytec Announces Second Quarter 2012 As-Adjusted EPS of $1.55; As-Adjusted Continuing EPS of $0.73, Up 143%; As-Adjusted Discontinued EPS of $0.82 Up 37%;

Cytec Industries Inc. announced today net earnings attributable to Cytec for the second quarter 2012 of $35.7 million or $0.76 per diluted share on net sales from continuing operations of $404 million. For purposes of financial statements presentation, the Coating Resins segment is now classified as discontinued operations. Earnings from continuing operations were $8.6 million or $0.18 per diluted share. Earnings from discontinued operations were $27.5 million or $0.59 per diluted share. Net earnings attributable to noncontrolling interests (which are associated with the discontinued operations) were $0.4 million or $0.01 per diluted share. Included in the quarter are several special items that total $37.3 million of net expense after-tax, or $0.79 per diluted share, and are outlined further in this release ($0.55 attributable to continuing operations and $0.24 attributable to discontinued operations). Excluding these special items, net earnings attributable to Cytec were $73.0 million or $1.55 per diluted share, earnings from continuing operations were $34.3 million or $0.73 per diluted share, and earnings from discontinued operations were $38.7 million or $0.82 per diluted share.
Net earnings for the second quarter of 2011 were $35.1 million or $0.70 per diluted share on net sales of $347 million. Earnings from continuing operations were $14.0 million or $0.28 per diluted share. Earnings from discontinued operations were $21.9 million or $0.44 per diluted share. Net earnings attributable to noncontrolling interests (which are associated with the discontinued operations) were $0.8 million or $0.02 per diluted share. Included in the quarter were several special items that totaled $9.7 million of net expense after-tax or $0.19 per diluted share ($0.01 attributable to continuing operations and $0.18 attributable to discontinued operations). Excluding the special items, earnings attributable to Cytec were $44.8 million or $0.90 per diluted share, earnings from continuing operations were $14.9 million or $0.30 per diluted share, and earnings from discontinued operations were $29.9 million or $0.60 per diluted share.
Shane Fleming, Chairman, President and Chief Executive Officer commented, "We delivered excellent second quarter results in the face of macroeconomic uncertainties. On a consolidated level, excluding Coating Resins, which is now classified as discontinued operations, sales increased across all regions with volume growth of 13% compared to the prior year period. Our In Process Separation business had another record sales and earnings quarter with strong volume and higher margins. Engineered Materials sales increased 21% compared with the prior year quarter, due to robust volume growth across all of the aerospace end markets. In Additive Technologies the European economic environment remained challenging for certain specialty additive products. However, this softness was largely offset by strong demand in North America and Asia Pacific for our higher value polymer additives products. Our second quarter results demonstrate the strength of our continuing businesses and our ability to deliver sustained growth."
Mr. Fleming continued, "We also made excellent progress executing our portfolio transformation strategy to increase our focus on our growth businesses. We announced the sale of our pressure sensitive adhesives product line, initiated the formal sales process for Coating Resins, acquired assets in India to support growth in mining chemicals, and announced the intention to acquire Umeco to strengthen our position in advanced composite materials. I could not be more pleased with our ability to manage these projects while continuing to meet or exceed our earnings targets. We are successfully positioning ourselves as a higher growth and more profitable organization with significant opportunities ahead to deliver long-term value."
Cytec Engineered Materials sales increased 21% to $230 million; Operating Earnings increased to $38.7 million.
In Engineered Materials, selling volumes increased by 17% versus the second quarter 2011 driven primarily by higher build rates across the entire aerospace sector including large commercial aircraft programs, business and regional jet markets, military programs, and rotorcraft markets. Selling prices increased sales by 4%.
Operating earnings of $38.7 million were up versus earnings of $28.1 million in the prior year quarter, principally as a result of the higher selling volumes and selling prices, which were partially offset by higher spending to meet the increased production levels. The higher selling prices more than covered the increased raw material costs of approximately $4.0 million. Earnings were reduced by approximately $3.5 million related to scheduled maintenance work and the associated downtime in our carbon fiber plant. Expenses of approximately $1.0 million were recorded related to successful conclusion of union contract negotiations at one of our U.S. manufacturing sites and bad debt expense of $0.8 million was recorded related to a customer in Spain.
Cytec In Process Separation sales increased 22% to $100 million; Operating Earnings increased to $27.1 million.
In Process Separation selling volumes increased by 16% versus the second quarter 2011, primarily as a result of higher demand in mining chemicals which included two new mine fills in Africa resulting in incremental sales of $6.7 million. The integration of the acquired assets in India is progressing well as we started work on the necessary process and capital upgrades to begin producing our mining technologies in the fourth quarter 2012. Demand was also strong for our phosphine chemical products across all key markets. Selling prices increased by 7% and the impact of changes in exchange rates decreased sales by 1%.
Operating earnings were $27.1 million versus $15.6 million in the prior year quarter principally due to higher selling volumes, and improved margin coming from higher selling prices and better product mix, partially offset by increased operating expenses to support the growth initiatives in this segment.
Cytec Additive Technologies sales decreased 2% to $74 million; Operating Earnings increased to $13.7 million.
In Additive Technologies, overall selling volumes were down 1% versus the second quarter 2011 due to lower demand for specialty additives which was mostly offset by increased selling volumes for higher value polymer additives products. Selling prices increased 2% and the impact of changes in exchange rates decreased sales by 3%.
Operating earnings of $13.7 million were up versus $10.6 million in the second quarter of 2011 mainly as a result of higher selling prices, favorable product mix and lower manufacturing and operating expenses.
Corporate and Unallocated
For the three and six months ended June 30, 2012 continuing costs previously allocated to Coating Resins but now included as part of corporate and unallocated were $17.6 and $34.8 million, respectively. For the three and six months ended June 30, 2011, these costs were $17.5 and $34.6 million, respectively. We have plans in place to eliminate up to two-thirds of stranded costs within 60-90 days of the closing of Coating Resins transaction, and we are committed to further reducing these costs over the next 12-24 months.
Discontinued Operations
In May 2012, we announced the definitive agreement to sell our Pressure Sensitive Adhesives (PSA) product line to Henkel, and separately, the initiation of a formal sale process for our remaining Coating Resins business. Accordingly, all of the Coating Resins segment has been classified as discontinued operations.
The following covers Coating Resins sales and earnings as they would have been reported if they had not been required to be classified as discontinued operations. Sales were $394 million down 13% in the second quarter 2012 versus $451 million in the same period 2011. Selling volumes were down 8% with a portion of this reduction due to our decision to exit certain low margin products. Selling prices remained flat year over year and the impact of changes in exchange rates decreased sales by 5%. Operating earnings would have increased to $39.2 million versus $30.0 million in the second quarter 2011 primarily due to lower raw material costs and the benefit of decreased manufacturing and operating expenses related to cost reduction initiatives taken in 2011.
Coating Resins Sale Process
The formal sale process for Coating Resins is underway and the Company remains on track to complete this transaction by the end of the fourth quarter.
Umeco Acquisition Process
We announced our plan to acquire Umeco Plc on April 12th. The acquisition process continues to progress according to the plan and we expect to close this transaction shortly.
Special Items
In the second quarter of 2012 a number of special items were recorded that resulted in net pre-tax charges of $22.1 million ($15.8 million after-tax) and $21.5 million of income tax expense ($37.3 million net charges on an after-tax basis or $0.79 per diluted share) as follows:
Continuing Operations:
- Included in Corporate and Unallocated as Research and Process Development expense is a pre-tax charge of $0.7 million ($0.4 million after-tax or $0.01 per diluted share) for incremental accelerated depreciation related to the sale-leaseback transaction of our research and development facility in Stamford, Connecticut in the third quarter of 2011.
- Included in Corporate and Unallocated as Administrative and General expense is a pre-tax charge of $2.9 million ($2.9 million after-tax or $0.06 per diluted share) related to Umeco acquisition costs. For tax purposes, these costs will be capitalized as part of the transaction with no related tax benefit.
- Included in Corporate and Unallocated principally in Administrative and General and Manufacturing Cost of Sales are pre-tax net restructuring charges of $11.6 million ($7.9 million after-tax or $0.17 per diluted share) related to future reductions in the stranded costs from a sale of Coating Resins.
- Included in the Income Tax provision is $14.5 million of income tax expense ($0.31 per diluted share) related to the sale process of our Coating Resins segment. Accounting rules require establishing a tax liability on the unrepatriated earnings of foreign subsidiaries if it is management's intention to no longer permanently reinvest such earnings. As a result of the intended sale of Coatings Resins, management's intentions changed with regard to a portion of the unrepatriated earnings of certain foreign subsidiaries.
Discontinued Operations
Included in earnings from discontinued operations are the following.
- A favorable pre-tax net restructuring adjustment of $3.7 million ($2.5 million after-tax or $0.05 per diluted share).
- A net pre-tax charge of $8.9 million ($5.9 million after-tax or $0.12 per diluted share) related to costs associated with the sale process of Coating Resins.
- A pre-tax charge of $1.7 million ($1.2 million after-tax or $0.02 per diluted share) related to an increase in the environmental liability at a certain site for new remedial design requirements.
- A $7.0 million income tax expense ($0.15 per diluted share) related to the requirement of establishing a tax liability on a portion of the un-repatriated earnings of certain foreign subsidiaries to be sold as part of the sale of coating resins.
In the second quarter of 2011 a number of special items were recorded that resulted in net pre-tax charges of $13.7 million ($9.7 million net charges on an after-tax basis or $0.19 per diluted share) as follows:
Continuing Operations:
- Included in Corporate and Unallocated principally in Manufacturing Cost of Sales is a pre-tax restructuring charge of $0.3 million ($0.2 million after-tax or $0.00 per diluted share).
- Included in Other expense, net is a net pre-tax charge of $1.2 million ($0.7 million after-tax or $0.01 per diluted share) related to an increase in the environmental liability at an inactive site for new remedial design requirements.
Discontinued Operations:
- Included in earnings from discontinued operations are pre-tax net restructuring charges of $12.2 million ($8.8 million after-tax or $0.18 per diluted share).