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Serving the needs of the peoples of the world CYANAMID Arnercan Oyanamia Comoany Beport o: :ne Board o` Jirector- _. Contents Letter to stockholders................... 1-2 Serving peoples' needs................. 3-6 Business performance................... 7-15 Litigation......................................... 15 Financial review............................. 16 Consolidated financial statements. 17-19 Independent accountants' opinion. 19 Notes to financial statements........ 20-22 Five-year comparative summary .. 23 Organization units.........................24 Directors, officers, committees... 25 About this report Cyanamid believes that a company's success must be measured as much by how its products and efforts helped to improve peoples' lives as by its financial performance. The theme of this annual report, therefore, is in part an explanation of how Cyanamid helped, in 1974, to serve the needs of the general public as well as the needs of its customers, employees and stockholders. financial : (Dollars in thousands except earnings and dividends per share) 1974 1973 OPERATING RESULTS Net sales.................................................................. . . Earnings of consolidated companies before taxes on income.................................... Taxes on income................................................... Equity in net earnings of associated companies................................. Earnings from continuing operations.................. Net earnings............................................................ Dividends ................................................................ Earnings per share................................................. Dividends per share............................................... Depreciation and depletion................................. Additions to plants, equipment and facilities....................................................... $1,779,872 SI ,472,227 233,618 104,400 209,125 93,300 17,250 146,468 154,724 68,815 3.24 1.45 71,961 8,651 124,476 113,962 63,185 2.37 1.32'/2 69,128 138,776 83,751 YEAR-END POSITION Total assets.............................................................. . . Funded debt............................................................ Stockholders' equity............................................... Shares outstanding at end of year.......................................................... . . Number of stockholders........................................ Number of employees.......................................... $1,602,879 243,615 981,211 SI,441,719 238,510 895,179 47,742,546 47,738,417 110,514 105,309 38,024 39,496 Contributions of Major Segments to Sales & Earnings (from continuing operations) Medical Agriculture Specialty Chemicals Consumer Products Sales 20% 24% 30% 1974 1973 Earnings (Approx.) 50% CY0005505 To Our StocKhoiaers: Cyanamid had an excellent year in 1974. Sales and earnings reached new highs. Sales were $1.78 billion, an increase of 21% over last year. Earn ings per share reached $3.24, a 37% increase over the $2.37 earned in 1973. Agricultural sales and profits boomed, with fertilizers leading the way. Chemicals were strong. Medical and consumer products experienced higher sales, but suf fered lower earnings. International operations contributed 36% of total sales, and our products were sold in 125 countries and ter ritories around the world. We invested approximately $138 million in new capital projects, an increase of 66% over 1973, and spent $59 million on research and development, about 23% more than the previous year. We converted our U.S. inventory accounting method to last-in first-out from first-in first-out or average method. This method achieves better matching of cur rent costs with current revenues. The change in the method of inventory costing reduced annual earnings by 54c per share. We made significant progress in our affirmative action program to ensure equal employment opportunity throughout the company and will increase our efforts in 1975. Cyanamid earnings in 1974 were affected by two major decisions, each beneficial to the long-term goals of the company. First, we sold our 50% interests in the Jefferson Chemi cal group to Texaco, owners of the other 50%, for a total of $80.7 million in cash. This resulted in an after-tax gain of $39.7 million, or 83c per share. Chairman and Chief Executive Officer Clifford D. Siverd (left) chats with President James G. Affleck at the company's world headquarters in Wayne, New Jersey. CY0005506 Jefferson's petrochemicals business is highly capital in tensive, and we were confronted with the need to commit ever-increasing funds to a business which is largely unre lated to the mainstream of Cyanamid's activities. This move further reflects our strategy of concentrating our resources in our main business segments. We will use the proceeds from the disposition of our interests in Jeffer son for aggressive capital investments in these businesses. In another move designed to preserve our resources for our primary businesses, we decided after careful evalua tion to withdraw from the real estate business. This de cision was reached after considering the outlook for this industry, which is presently suffering one of the worst de pressions in its history as a result of the high cost of money, the shortage of funds available for mortgages, and everaccelerating construction costs. Ervin Industries, Inc., our land development and building subsidiary, lost $11.3 million in 1974. However, the major consideration in this decision was the prospect of several more years of heavy cash drain on funds needed to finance the expansion of our main business segments. As a result of this action, we provided for loss of our in vestment in Ervin and established a reserve of $14.6 million net of applicable tax in 1974 to allow Ervin to implement a program of orderly disposition of assets and related debt. This program was developed in cooperation with Ervin's major lending institutions and was designed to minimize the effects of this decision on the institutions and indi viduals involved. The reserve and the provisions for loss of investment and advances reduced earnings by $39.1 mil lion, or82e per share. Excluding the operating results and gains and losses from these discontinued businesses, Cyanamid's earnings from continuing operations were $3.07, an increase of 18% over the earnings from comparable continuing opera tions in 1973. In consideration of increased earnings in 1974, the Board of Directors increased the dividend for the third and fourth quarters from 35c to 37Vat per share. This represents an annual rate of $1.50 per share, rather than the previous $1.40. Cyanamid ended 1974 in a strong financial position with a full complement of investment opportunities. We expect to increase our capital spending in 1975 as much as 80% to a total of $250 million. To ensure the continuing flow of new products, we also plan to increase our spending for R&D in 1975 by 12% to a total of $66 million. While it is difficult to predict when the current economic slowdown will end, we believe that in 1975 we will at least equal 1974's earnings. With some improvement in the world economy, we could do better. We wish to express our sorrow at the deaths in 1974 of former Cyanamid directors Daniel J. O'Conor, Jr. and Sidney C. Moody. Mr. O'Conor, former president of For mica Corporation, was elected executive vice president of Cyanamid in 1964. He resigned at the end of 1967, follow ing a serious accident. He had been with the company for 27 years. Mr. Moody, who retired as a vice president in 1960, had worked for the company since 1919 and was instrumental in the post-World War II growth of our international opera tions. Cyanamid recognizes its obligations to its stockholders, customers, employees and the public. Each plays a vital role in the continued successful operation of the company. In serving their needs, we are serving the needs of the peoples of the world. For the Board ot Directors President Chairman and Chief Executive Officer Wayne, New Jersey February 4, 1975 CY0005507 Serving the needs of the peoples of the world THE PUBLIC There are many ways in which Cyanamid products helped improve life around the world in 1974. We believe that our suc cess during the year must be measured as much by what our products and our efforts achieved as by our financial per formance. In a year when food costs rose steadily and millions went hungry, Cyanamid ag ricultural products helped to increase the available food supply. Phosphate fertilizer production was in creased, and work started on a new phosphate mine which will double our capacity for phosphate rock when mining begins in 1977. Our animal health products aided in the more efficient production worldwide of poultry, cattle and swine, making pos sible more meat from the grain fed. Production of wheat and barley was up in Spain during the year, helped by Avenge, a new herbicide developed by Cyanamid. Our new granular insecticide, Cytrolane 3G, helped increase rice yields in the Philippines. A Cyanamid larvicide, Abate, tested in Upper Volta, gave hope to Equatorial Africa of an escape from the dreaded River Blindness spread by the black fly. In the medical field, our Myambutol ethambutol continued the fight against tuberculosis, and Lederle's other antiinfectives helped treat other respiratory, gastrointestinal and urinary tract dis eases. Loxitane' loxapine succinate, a new antipsychotic drug, reached the final stages of development, and in 1975 will be available to help physicians manage the manifestations of schizophrenia. Through development of an extensive immunization awareness campaign, we played a key role in efforts by the U.S. Center for Disease Control to reverse an alarming trend of declining immunization levels among pre-school age children. Cyanamid Quimica do Brasil Ltda. de veloped a unique form of Gevral protein nutritional supplement to assist the Bra zilian government in improving the diets of children through a special school lunch program. Our industrial products also made their contribution to safety and health and better living in 1974. Flame-retardant chemicals developed by Cyanamid were used on sleepwear, reducing fire haz ards among children. American cities will have cleaner air and motorists will get better mileage be cause of the auto exhaust catalyst pro duced by a Cyanamid affiliate. Air will also be cleaner because our HDS catalysts lowered the sulfur content in fuel oil. Many cities in the United States and abroad reduced water pollution with our polyacrylamide flocculants. Cyanamid's response to public needs goes beyond our products. In 1974 the company contributed more than $815,000 to charitable funds, hospitals, educational institutions and health and welfare or ganizations, with primary emphasis on those communities in which the company has operations. In assistance to education, we con tributed $380,000. This included our pro gram of Faculty Support Grants to se lected colleges, chiefly to departments of chemistry, chemical engineering or business administration. Nine grants or scholarships were made available to mi nority students at various colleges. Protection of the environment in and around our plants has been and con tinues to be an important facet of our re sponsibility to our employees and the public. Cyanamid's cumulative capital ex penditures for pollution control through 1974 amount to $95 million, and we plan to commit another $37 million in 1975. Our operating expenses for these facil ities were $15 million in 1974. * Tr{J*mjrk CY0005508 Serving the needs of the peoples of the world OUR CUSTOMERS To be successful, a corporation must be innovative in meeting the needs of its customers. This calls for a steady flow of new and improved products, processes and services, as well as solving specific customer problems as they arise. Wherever possible, we increased our capacity last year to satisfy customer re quirements and used our worldwide capabilities to find new sources of scarce raw materials. Production was often re scheduled to help customers out of tight situations. Our technical service repre sentatives assisted customers in devel oping processes to minimize costs and improve product performance. To de velop new products for our customers Cyanamid spent $59 million on research and development in 1974, an increase of 23% over 1973, and will spend $66 mil lion in 1975. Our transportation experts, using new techniques, minimized freight increases for our customers while our computers provided more detailed mar keting data for our distributor and retail customer sales people. Innovation took many other forms. In 1974, when U.S. paper companies could not keep up with demand, we developed a dry-strength resin called Accostrength 100 UK-A, which increases production rates for unbleached kraft linerboard by about 10%. Because of new Federal pollution-con trol guidelines, many companies are now beginning to shift to non-polluting, waterbased coatings for products ranging from appliances to automobiles. Traditional organic-solvent based coatings present air pollution problems during applica tion. Cyanamid pioneered the cross-link ing agents that make the non-polluting coatings possible, and in 1974 began construction of a new plant at Kalamazoo, Michigan, to more than double our ca pacity for these agents, called Cymel methylated melamine resins. Our hydrodesulfurization catalysts are being used by the oil refining industry worldwide to remove sulfur from crude oil, a serious source of pollution. We also developed chemically-related products, called Cyrez melamine resins, which improve the durability and performance of today's steel-belted radial tires. Quality, technology, innovation--Cyanamid supplies customers with new and better processes and products such as a new resin to improve production of linerboard at this West Coast paper mill. A synthetic compound called Red Mud Flocculant developed by Cyanamid was used on the island of Jamaica to cut the cost of recovering alumina, the basic raw material for production of aluminum. Agronomists for Cyanamid de Mexico, S.A. de C.V., working with local farm co operatives, developed a program to test pesticide residues to meet the require ments of export markets. A unique insecticide combination sold under the trademark Cygard* has been developed to help cotton farmers in Co lombia and Central America to increase yields by controlling caterpillar-type pests. In September, 1974, Lederle introduced Gest t State, a new two-minute test for pregnancy. Gest State is a slide test which detects in urine the presence of a hormone which is excreted only during pregnancy. Lederle plans to introduce early in 1975 a series of new ophthalmic prep arations using an advanced method of administration. The sprays, to be offered under the trademark Mistura*, deliver precise amounts of medication by gen eration of a mist which contains no chem ical propellants. Also in 1975, West Germany will begin using our TB Tine Test on all of its mil itary recruits to check for the presence of tuberculosis. During 1974, our Lederle Laboratories Division sponsored more than 50 sym posia which received accreditation as continuing educational programs by medical and pharmaceutical associa tions. Seventeen new films were pro duced by Davis & Geek for the American College of Surgeons' Film Library. * Trademark 4 CY0005509 Serving the needs of the peoples of the world OUR EMPLOYEES Cyanamid employees are the heartbeat of the company. The progress being re ported is the sum of their vital contribu tions made on a daily basis. At year-end Cyanamid had a total of 38,024 employees, including 14,026 out side the United States. Our payroll in 1974 was $408 million, an increase of 12% over 1973. Cyanamid's long-standing policy to ward its employees has included en couragement and assistance in career advancement, the provision of safe, func tional working areas, and, of course, com petitive wage and salary rates. The employee benefits package, a sig nificant part of the Cyanamid compensa tion program, is among the best in indus try. In 1 974, the package was improved in three major categories: the maximum benefits for weekly disability payments were increased, the limit on comprehen sive medical benefits was raised, and, recognizing the erosive impact of infla tion, monthly pension payments were in creased by various amounts up to 25% for employees who retired prior to 1974. In its continuing commitment to equal employment opportunity, Cyanamid has a corporate staff department to plan and implement its affirmative action program. And in a move which showed Cyanamid's leadership position in equal employment opportunity, all managers were informed early in 1974 that they would be held ac countable and be judged in part on their achievement in equal employment op portunity. This year's results show Cyanamid with gains in women and minority em ployment in the two major classifications: professional-technical and non-profes sional. Today about 7.5% of our man agers and supervisors are women or minority group members. Nationally, 1974 was marked by fre quent and sometimes prolonged strikes in many industries, but Cyanamid suc cessfully negotiated contracts with 31 local unions in the U.S. We had only two strikes, one of 10 weeks duration at Buchanan, N.Y., and a second, of six weeks, at Azusa, California. During these strikes the company was able to continue production and other operations at both plants with a cadre of salaried employees. With greater emphasis placed on supervisory participation and safety train ing in 1974, Cyanamid achieved a com pany-wide safety performance goal of a disabling accident frequency of one per million-man-hours worked. This repre sented a 24% reduction from our rate of 1.31 in 1973. Cyanamid's 1974 overall safety per formance was approximately 10 times better than the all-industry average and four times better than the chemical in dustry average, based on National Safety Council 1973 statistics. Our employee safety and health programs continue to exceed in many respects requirements of the Federal Occupational Safety and Health Act. While we are pleased with the progress made in 1974, we are still not satisfied with the results. We will, therefore, continue to set challenging safety performance goals and strive to achieve them by introducing new pro grams and improving existing ones. Cyanamid encourages its employees to continue their education with a tuition reimbursement program, and provides scholarships to employees' children who qualify under the National Merit Scholar ship program. Cyanamid considers the skill and ded ication of its employees as the company's most valuable asset, and we will continue our efforts to meet their needs in the years ahead. Challenge, opportunity, advancement -- Cyanamid provides a stimu lating and safe environment tor all of its employees. At the Corporate Data Center in Wayne, Roger Poole, Edith Stover, Arlene Angell, and John Courts (left to right) check computer display. CY000551O Serving the needs of the peoples of the world OUR STOCKHOLDERS At year-end, based on holdings of record, Cyanamid had a total of 110,514 stock holders. They were located in every one of the 50 states and 44 foreign countries. About half of the 47.7 million shares of outstanding Cyanamid stock is held by individual investors, and their average holding is approximately 200 shares. Cyanamid employees may purchase company stock at market value through a monthly investment plan. In 1974, we es tablished an Automatic Dividend Rein vestment Service for stockholders. This program gives our stockholders an op portunity to increase their investment in Cyanamid in a convenient and inexpen sive way by automatically reinvesting their dividends in Cyanamid common stock. Cyanamid has two basic obligations to its stockholders. The first is to manage the company in such a way that our financial performance will provide our stockholders an attrac tive total return on their investment in the form of dividend yield and growth in stock value. Last year, stockholders received a total of $68.8 million in dividends, and despite the severe drop in the securities market, the price of Cyanamid stock in creased. The company has been paying dividends without interruption for 40 years, and the cumulative total of those payments exceeds $1 billion. In each of the last two years, the company has in creased its dividends, and at year's end, the annual dividend rate was 20% higher than at the end of 1972. It is Cyanamid's practice to increase dividends as earn ings grow. The second obligation is to convey in formation about company activities as rapidly and accurately as possible. We do this through such normal communica tion channels as the annual report and interim reports, but we also use other techniques. This past year, for example, Cyanamid held stockholder information meetings at our world headquarters in Wayne, New Jersey, where our past per formance and future plans were reviewed and stockholder questions were an swered. Regularly, we make presentations be fore security analysts groups. This past December we appeared before the Fi nancial Analysts of Philadelphia, and a reprint of our presentation was sent to all stockholders in January, 1975. Cyanamid stockholders learned about company's increased earnings and growth at stockholder information meetings held in Wayne. CY0005511 Business Performance ..... ........ - - w&S iii&l At Lederle's Pearl River, New York, laboratories, Drs. Harriet Kiltie and John F. Noble (right) and techni cian Louis Gorga check print-out of AutoAnalyzer used to test effects of Loxitane. This child's eye shows no disfigurement after surgery and will cause little discomfort during healing thanks to new Dexon sutures developed by Lederle's Davis & Geek Department. Worldwide sales of medical products in creased in 1974 but earnings declined, reflecting higher expenditures in re search and marketing and the inability of prices to keep pace with inflationary in creases in the cost of production. Since new products are the key to future growth of our medical business, expenditures were increased substan tially to launch Lederle into the diagnos tic, oral contraceptive and ophthalmic markets and to expand applications for Dexon sutures. Lederle entered the do mestic oral contraceptive market with the introduction of Zorane, a series of lowestrogen tablets which help meet the dif fering hormonal requirements of women. The Lederle diagnostics line, already making inroads in the U.S., was launched in Germany in 1974 and will be intro duced in 1975 in France, the Benelux countries and the United Kingdom. In 1974, Lederle strengthened its line of products for skin disease treatment with the introduction of a unique formulation, AristocortA with Aquatain* hydrophilic base, which received excellent profes sional acceptance. Continuing r search with Dexon resulted in the introduction of a new suture for use in cataract opera tions and in other eye surgery. Loxitane* loxapine succinate, a new antipsychotic drug to manage the manifestations of schizophrenia, is scheduled for introduc tion in 1975. Sales of medical products in 1974 were led by Myambutol ethambutol, the largest-selling antituberculosis drug in the world, and by Minocin minocycline, our fourth generation antibiotic. Myambutol sales' increased from $40 million in 1973 to $44 million in 1974, while sales of Minocin1 increased from $34 million in 1973 to $43 million in 1974. Sales of Dexon1, the first synthetic ab sorbable suture on the market, increased to $22 million in 1974. A new plant that will double capacity for the manufacture of Dexon is in start-up in Puerto Rico. Joint ventures have been formed in Ger many and France with leading local suture manufacturers to speed the product's 'including sales of associated companies outside the U S introduction in these countries. In 1975, in anticipation of increased product demands, construction will be gin on a new pharmaceuticals plant and headquarters in Germany to replace our existing facilities there, and additional capacity for pharmaceuticals in Brazil will go into production. Construction has already begun on a new pharmaceutical and surgical products plant to replace our current facilities in Canada. The future of our medical business will be shaped by our ability to meet the changing health care environment, in cluding new systems of drug application, pricing, selling practices, and national health insurance programs. We are con fident of our ability to adapt our opera tions to the needs of the marketplace. * Tndtmtrtr Medical 1974 Worldwide sales ($ in millions) *351 % Total sales (approx.) 20 Earnings ($ in millions--approx.)* * 22 % Total earnings (approx.)* 'Includes earnings from Associated Companies. See Finan cial Review section on page 16 for additional information. 15 1973 *309 21 * 36 29 1972 *273 20 * 35 34 1971 *256 20 * 35 41 1970 *243 19 * 33 38 CY0005512 7 Business Performance ' /i ' JfV^ ? ' 1-Y* 5 ! 3 7 . . * WV-> ' ,WC.V Cyanamid's elite in 1974 was its agricul tural business. Sales and earnings were both far above last year's record levels as our products made significant contribu tions to the continuing global effort to in crease food production. We have a strong, and with some prod ucts, a leading position in pesticides, animal feed, health products and ferti lizers. All lines participated in the upward surge of sales and earnings, with fer tilizers setting the pace. Cyanamid's plant food facilities op erated at capacity throughout the year. World demand for our nitrogen and phos phate fertilizers continues to outstrip supply. Price improvements yielded an excellent return on invested capital for the first time in many years. The ex panded crop acreage planted by U.S. farmers last spring broadened the mar ket for Cyanamid's Thimet soil and sys temic insecticide and Cygon* systemic insecticide. There was greatly increased demand for Cyolane and Cytrolane insecticides for use on Middle East cotton. There also was heavy use of Cycocel plant growth regulant by European wheat farmers, and Malathion insecticide was used exten sively in many countries to protect crops and control insect vectors in public health programs. Construction will begin in 1975 on a major Malathion plant in Brazil. Sales of animal feed supplements also rose, particularly Payzone nitrovin, a non-antibiotic growth promoter used principally by European raisers of poultry and swine. Levamisole, a broad-spec trum dewormer for swine, cattle and sheep, sold under the Tramisol and Ripercol* L trademarks, is the leading anthelmintic in the United States and Latin America. A new unit for the produc tion of levamisole is under construction in Puerto Rico, while expansions are un der way in Brazil and Argentina. Research has yielded several prom ising new products that will be marketed in 1975, further strengthening our agri cultural business. Abequito* tickicide will be introduced in Brazil to control ticks on cattle, and avoparcin, an antibiotic growth promoter for animal use only, will be in troduced in Europe. Counter, a new soil insecticide for control of rootworms in corn, has re ceived final registration from the Environ mental Protection Agency. Prowl, a promising new herbicide for corn and cotton, will be registered in a number of foreign markets in 1975, and an application has been filed with the EPA for registration in the United States. Avenge, an herbicide for control of wild oats in wheat, barley and other small grains, has been introduced abroad and a new unit to produce it is under con struction in The Netherlands. U.S. reg istration of Prowl and Avenge is expected in time for the 1976 crop season. In order to build Cyanamid's produc tive capacity to capitalize on our techno logical advances in agriculture, we have begun work on plants and mining facil ities around the world requiring an in vestment of some SI 60 million. These include a new phosphate mine in Florida and seven manufacturing plants for other products. * Trademark Agricultural Worldwide sales ($ in millions) % Total sales (approx.) Earnings ($ in miliions-approx.)* % Total earnings (approx.)* Includes earnings from Associated Companies, See Finan cial Review section on page 16 for additional information. 1974 *425 24 * 73 50 1973 *289 20 * 33 26 1972 *256 19 * 23 23 1971 *228 18 * 15 17 1970 *229 18 * 16 18 CY0005513 Business Performance compounds and textile finishes. An important contribution to increased earnings was also made by Arizona Chemical Company, which we own joint ly with International Paper Company. Arizona Chemical had another record year with worldwide sales sharply above the 1973 level. Although there was a softening in de mand for our specialty chemicals at the year's end due to stagnant economic conditions, the long-term outlook remains most encouraging. We are investing ap proximately $70 million in several new or expanded chemical plants in those prod uct areas where we feel we have our greatest growth potential. This waste acid neutralization facility, currently under construction at Savannah, Georgia, is part of Cyanamid's pollution control program. Significant increases in worldwide spe cialty chemicals sales and earnings for 1974 were spurred by strong customer demand. These lines of high-technology products improve processing efficiency and product quality in a wide range of industries, such as chemicals, mining, paint, papur, petroleum refining, plas tics, rubber and textiles. Our customers, faced with shortages and rising costs of materials, intensified their applications of these products, and prices were good. Ecological concerns in the energy and water-treating fields further enhanced specialty chemicals growth. Through continuing process improve ments and debottlenecking operations, we operated many of our plants beyond original design capacities for most of the year. Our cost-control programs, together with the absence of significant labor dif ficulties, further contributed to profita bility. Another new product, Accostrength 100 UK-A, was introduced during the final quarter of 1974. This dry-strength resin boosts production rates for unbleached kraft linerboard by about 10% and assists in reducing pollution by lowering the need for other additives. Accostrength 100 UK-A is being used successfully in U.S. West Coast mills. Further development work is proceeding to extend its use to Southern mills, where wood pulp -- the basic raw material -- differs in composi tion from that on the West Coast. Since 1964, production of melamine, one of our more important traditional products, had been limited by a consent decree. This production limitation termi nated on November 1,1974, and we can now operate our 70-miliion-pound plant at capacity. Melamine and its derivatives are widely used in coating, paper and laminating resins, adhesives, molding Our Willow Island, West Virginia, facility for beta naphthol and related products is the largest of these new domestic proj ects. This complex, scheduled to begin production in 1975, will have a capacity in excess of 30 million pounds per year. Alphasize* sizing emulsion to be pro duced at this Mobile, Alabama, plant makes paper and paperboard prod ucts more water-resistant and stronger. Noteworthy among new products con tributing to 1974's record results was Aero-Ban auto exhaust catalyst. Produc tion began in April at our Azusa, Califor nia, plant. The product, produced by a joint venture of Cyanamid and Japan Cat alytic International, Inc., is being supplied to General Motors Corporation under a three-year contract for use beginning with 1975 model cars. Specialty Chemicals 1974 1973 1972 1971 Worldwide sales ($ in millions) *530 *419 *388 *372 % Total sales (approx.) 30 28 29 29 Earnings ($ in millions--approx.)* * 37 * 24 * 19 * 13 % Total earnings (approx.)* 25 20 19 `Includes earnings from Associated Companies with the exception of the discontinued Jeffer son Chemical group. See Financial Review section on page 16 for additional information. 15 1970 *372 30 * 20 23 CY0005514 9 A derivative of beta naphthol called beta planning to expand capacity at Bradford, at our titanium dioxide plant in Savannah, oxynaphthoic acid (BON) will also be England, for polyacrylamide, another Georgia, which will solve persistent and produced at this complex in 1975. Both water-treating chemical. Our capacity for difficult air and water pollution problems. products are primarily used in dyes and acrylamide monomer, used in the pro Air quality will be improved, and spent color pigments. The new beta naphthol duction of polyacrylamide, will be ex sulfuric acid will be neutralized, resulting and BON plants will be the world's larg panded at Linden, New Jersey. In the in a clear effluent which will meet all Fed est for these products and will utilize an second half of 1975, we will complete eral and state water quality standards. efficient continuous process developed construction doubling the size of our Other major pollution control projects are by our research. hydrodesulfurization catalyst units at under way at plants in Pensacola, Florida; Among projects scheduled for comple tion in 1976 is a 50% increase in capac ity at Wallingford, Connecticut, for XT Michigan City, Indiana. HDS catalysts are used in the production of low sulfur heat ing oils and fuels. Bound Brook and Linden, New Jersey; and Willow Island, West Virginia. Discussions were begun with Mitsui polymer, used in food packaging and A new plant for production of methyl Toatsu Chemicals, Inc. to explore the feas appliances. Also under construction is a ated resins at Kalamazoo is expected to ibility of organizing a joint venture in Japan 50% expansion of our organic pigment come on-stream in 1976. These cross- for production of specialty chemicals. manufacturing facilities at Bound Brook, linking agents are used in water-based New Jersey. This will increase the supply resins, primarily for appliance coatings. of Cyan amid's azo color pigments used The market for these products is growing in the graphic arts, paint and plastics because they reduce air pollution associ industries. ated with the application of coatings con On the environmental front, we will be taining organic solvents. gin production of organic flocculants at Our construction program is equally j Kalamazoo, Michigan, in 1975. These water-treating chemicals serve both mu concerned with pollution abatement at some of our plants. In a major effort, now nicipal and industrial needs. We are also under way, we are building new facilities 10 CY0005515 Business Performance This business segment includes deco rative laminates, wallcoverings, synthetic fibers, fragrances, hair care products and household products. Sales of Cyanamid's consumer prod ucts were somewhat higher than a year ago, but earnings were depressed. The nation's best-selling liquid cleaner, con tinued to outpace the market. Buoyed by gains early in 1974, sales of Creslan acrylic fibers for carpets, blankets and wearing apparel were above those of 1973, although demand fell sharply toward the year's end. Cyanenka, Consumer Products Worldwide sales ($ in millions) % Total sales (approx.) Earnings ($ in millions--approx.)* % Total earnings (approx.)* Includes earnings from Associated Companies. See Finan cial Review section on page 16 for additional information. 1974 *474 26 * 14 10 1973 *455 31 * 32 25 1972 *442 32 * 25 24 1971 *427 33 * 23 27 1970 *413 33 * 18 21 iower profitability resulted from a sub stantial increase in costs that could not be passed on to the consumer, a poor housing market, and from additional ad vertising and sales promotion expendi tures undertaken to strengthen our market positions. Cyanamid's Shulton subsidiary per formed well during 1974, with sales in creases recorded by its Old Spice brand toiletries, Nina Ricci fragrances for women and Pierre Cardin* toiletries for men. Three new products introduced in 1974 were Old Spice musk and Old Spice Herbal cologne for men, and Farouche, a new Nina Ricci perfume for women. In the Consumer Products Division, Breck shampoo and Breck creme rinse enjoyed increased sales. Miss Breck hair spray increased its market share, maintaining its position as the number one selling hair spray. Market testing of a wide range of personal care products is under way to provide further growth opportunities in the future. Pine-Sol, the S.A., in Barcelona, Spain's leading sup plier of acrylic fibers, .experienced a strong early demand for its products, al though it, too, softened late in the year. Cyanamid holds a 40% interest in this company, with the remainder held by the Dutch firm AKZO and its Spanish affiliates. Our sales of filament polyester for tire cord and industrial applications were only about level with 1973 due to a severe drop in demand toward year-end result ing from curtailed auto and tire pro duction. The drastic downturn in the housing and commercial construction industries severely affected sales of Formica brand products in the United States. * Tridemark Cyanamid's consumer products serve a variety of markets: Breck hair-care products (above): Old Spice musk for men, a new Shulton cologne; and Pine-Sol liquid cleaner. CY0005516 However, sales in Latin America rose sig nificantly, enhanced by building booms in Brazil and Venezuela along with con tinuing strong performance in Argentina and Mexico. Capacity is being increased by a new plant in Colombia now under construction and a major plant expansion in Brazil, both to be completed in 1975. In Canada, sales were higher as a result of increased use in commercial and in dustrial construction. Formica Corporation's new melamine component panels show considerable promise for the future. These panels should achieve major status in the furni ture, kitchen cabinet and mobile home industries since they were engineered for vertical surfacing in competition with wood. Three new plants to produce melamine component panels will be in production in 1975. They are located at Tarboro, North Carolina; Frankfort, Indiana; and St. Jean, Quebec. Formica International Limited, an asso ciated company in which Cyanamid owns 40% and The De La Rue Company of the United Kingdom 60%, is responsible for the manufacture and sale of Formica brand products throughout the Eastern Hemisphere. Formica International Lim ited enjoyed sales increases in 1974 and has launched a major capital program, leading to production of decorative pan els in the United Kingdom, France, Spain and South Africa. Colorful hand-knitting yarns of Creslan acrylic fiber add lus ter to today's fashions. CY0005517 Business Performance Cyanamid continued to set new records in sales and earnings in all product lines outside the United States in 1974, and this growth is expected to continue in 1975. Sales rose to $631 million, and ac counted for 36% of Cyanamid's total. A significant contribution also was made to our business by international associated companies outside the United States. Nine associated companies, in which Cyanamid has 40-50% ownership, operate outside the United States and Canada. Total 1974 sales of such com panies, which are not included in the consolidated revenues of Cyanamid, were almost $307 million, as compared to ap proximately $250 million in 1973. Medical products continue to be the most important business segment out side the United States, although the prod uct mix is broadening rapidly because of accelerated demand for agricultural prod ucts worldwide and for Formica decora tive laminates in Canada and Latin Amer ica. Strong performances have also been registered by specialty chemicals, par ticularly in Canada and Europe. This is a desirable and significant trend because our medical products business is facing a cost-price squeeze in many markets created by rapidly rising produc tion costs and inflexible price ceilings set by government regulation. International markets are often the first to benefit from the introduction of new products and some of these, particularly in the agricultural field, should provide significant new sales in 1975. CY0005518 Avenge herbicide is sprayed on a barley crop in Greece to con trol wild oats. Brazilian youngsters enjoy Gevral "sodas," a Lederle pro tein supplement used in a gov ernment school lunch program to raise nutritional levels. Extensive use of bright, attrac tive Formica laminates in this Latin American supermarket makes shopping a visual plea sure. CYOOQ5519 I While Cyanamid subsidiaries are well established in most major countries, cer tain geographic markets have not yet been developed to their full potential. Groundwork has been established for in creased Cyanamid activity in such places as Eastern Europe, the Andean Common Market, Scandinavia, the Middle East and mid-Africa, where there is growing demand for our products. LITIGATION Antibiotics Litigation On June 26, 1974, the antitrust treble damage suit of the State of North Caro lina and its consumers class against the company and four other drug companies in connection with tetracycline and other broad-spectrum antibiotics was dis missed after trial in the U.S. District Court in North Carolina. This decision is now on appeal. Also during 1974, the settle ments of the suits by purchasers of ani mal feed and veterinary products and the suits by six states covering purchases of antibiotics for human use by govern mental agencies and individual con sumers were approved by the court,and payment of the company's share, ap proximately $40 million before giving effect to related tax reductions, was made. Provisions for these settlements had been made in the 1973 financial statements. These settlements, as with the earlier civil settlements during 1969-1971, were concluded for amounts substantially less than those claimed by plaintiffs' counsel. There are now 33 suits pending. The company's share of the claims asserted in them would be several hundred million dollars, but the company believes the claims are grossly exaggerated. Trial of certain suits, including suits in which the Federal government, certain health bene fit and insurance organizations, and cer tain competitors are plaintiffs, began in the District of Minnesota in November, 1974. This trial is expected to be lengthy. No trial date has yet been set for suits brought by certain other claimants, in cluding the governments of Iran, Vietnam, the Philippines, West Germany, India, Colombia, Spain and Korea. The question of the right of foreign governments to sue under the U.S. antitrust laws is now on appeal to the Court of Appeals for the 8th Circuit. The Minnesota trial also does not include the civil suit brought by the Fed eral government in January, 1974, against Cyanamid alone which asks for cancella tion of four of the company's patents covering antibiotics on the basis of alleged fraud on the Patent Office and for damages based on prices for broadspectrum antibiotics purchased or paid for by the government, over a period going back 25 years. Three of the patents have expired and the fourth has previ ously been made available for license. Due to the uncertainty necessarily in herent in litigated matters of this sort, the eventual cost of this litigation to the com pany, and its disposition, cannot be ac curately predicted, and therefore the company has not accrued any additional amounts with respect thereto despite the possibility that large amounts may even tually be paid. Any additional amounts which may become payable by the com pany with respect to these claims would be charged against earnings of appro priate years prior to 1967, after giving effect to related tax reductions. However, the company believes, on the basis of information and advice presently avail able, that any additional liability with re spect to this litigation will be substantially less than the amounts claimed and will not have a material adverse effect upon the consolidated financial position of the company and its subsidiaries. The company emphatically denies that it has violated the antitrust laws or en gaged in any wrongdoing before the Patent Office. Dyes Litigation In November, 1974, the company and seven other manufacturers pleaded nolo contendere to an indictment which charged them with conspiring to fix dyes prices in December, 1970. The company was fined $43,500. A companion govern ment civil suit for an injunction is still pending in Federal court in Newark, New Jersey. Treble-damage suits with respect to the matters referred to in the criminal case are presently pending. While the eventual cost of this litigation to the com pany cannot be accurately predicted, the company does not believe that any sub stantial amounts will be paid by it as a result of these suits. CY0005520 15 American Cyanamid Company and Subsidiaries Financial Review Sales Volume--Consolidated sales in 1974 were $1,779,872,000 compared with $1,472,227,000 in 1973. Comparative quarterly sales for the two years were: 1974 1973 Amounts % Of Quarter in thousands total Amounts in thousands % of total First Second Third Fourth $ 410,501 448,752 463,471 457,148 23 25 26 26 $ 356,636 372,115 363,190 380,286 24 25 25 26 $1,779,872 100% $1,472,227 100% Capital Stock--As of December 31,1974 there were 47,742,546 shares of common stock outstanding compared to 47,738,417 shares outstanding at the end of 1973 after excluding treasury stock of 1,162,792 shares at December 31,1974 and 1,166,921 shares at December 31,1973. During the year 4,546 such shares were issued to retired participants under the incentive compen sation plan. Earnings--Earnings of consolidated companies for 1974 were $129,218,000 compared with $115,825,000 in 1973. Net earn ings were $154,724,000 in 1974 compared with $113,962,000 in 1973 and (as more fully described in Note 3 to the consoli dated financial statements) include results of discontinued op erations: earnings of $8,256,000 in 1974 (17e per share) and losses of $10,514,000 in 1973 (22e per share). Net earnings 1974 Earnings from continuing operations Net earnings Quarter First Second Third Fourth Amounts in thousands $ 34,880 38,124 39,124 34,340 $146,468 Per share $ .73 .80 .82 .72 $3.07 Amounts in thousands $ 34,885 41,956 42,229 35,654 $154,724 Per share $ .73 .88 .88 .75 $3.24 Business Segment Information-Approximate consolidated earnings and earnings of associated companies by business segment are as follows: Medical ($ in millions) 1974 1973 1972 1971 1970 Consolidated earnings Earnings of assoc, co.'s % Assoc, co.'s to total earnings $ 19 3 14 $ 34 2 6 $ 33 2 6 $ 33 2 6 $ 31 2 6 Agricultural ($ in millions)1 Consolidated earnings Earnings of assoc, co.'s % Assoc, co.'s to total earnings $ 72 1 1 $ 33 0 -- $ 23 0 -- $ 15 0 -- $ 16 0 -- The average number of shares (excluding treasury shares) out standing for 1974 was 47,740,004 compared to 48,090,655 for 1973. Common Stock Prices--Reported comparative high and low sales prices on the New York Stock Exchange and the dividends paid per share of the common stock by quarter for the two years were: 1974 1973 Sales price Dividends Sales price Dividends Quarter High Low paid High Low paid First Second Third Fourth $25 $18% 24% 19% 20% 1 7Vb 23% 17% $ .35 .35 .37% .37% $32% $26% 29% 22% 25% 20% 28% 174 $ .31% .31 % .35 .35 $1.45 $1.32% Cash dividends paid in 1974 and 1973 amounted to $68,815,000 and $63,185,000, respectively. per share for 1974 was $3.24 compared to $2.37 in 1973 based on the average number of shares of common stock (excluding treasury shares) outstanding for each year. After restatement of 1974 amounts for the change in method of inventory pricing made during the fourth quarter (as more fully described in Note 4 to the consolidated financial state ments) comparative data by quarter for the two years were: 1973 Earnings from continuing operations Net earnings Quarter First Second Third Fourth Amounts in thousands $ 29,741 35,133 28,140 31,462 $124,476 Per share $ .61 .73 .59 .66 $2.59 Amounts in thousands $ 29,443 28,808 26,872 28,839 $113,962 Per share $ .61 .60 .56 .60 $2.37 Specialty Chemicals ($ in millions) Consolidated earnings Earnings of assoc, co.'s % Assoc, co.'s to total earnings 1974 $ 27 10 27 1973 $ 22 2 8 1972 $ 19 0 1971 $ 12 1 8 1970 $ 17 3 15 Consumer Products ($ in millions) Consolidated earnings Earnings of assoc, co.'s % Assoc, co.'s to total earnings $ 10 4 29 $ 27 5 16 $ 23 2 8 $ 20 3 13 $ 17 1 6 16 CY0005521 : nsoiidaied Statements of Earnings and Earnings Employed in the Business Vears Ended December 31, 1974 and 1973 NET SALES.................................................................................................................................. Expenses: Manufacturing cost of sales less depreciation and depletion Selling and advertising expenses ........................................... Administrative and general expenses..................................... Depreciation and depletion ..................................................... Research and process development expenses ..................... Employees' benefits (Note 9).................................................... 1974 1973 (Thousands of dollars except per share amounts) $1,779,872 $1,472,227 972,483 303,837 82,788 71,961 58,807 59,399 1,549,275 775,512 270,584 60,683 69,128 47,918 48,919 1,272,744 EARNINGS FROM OPERATIONS............................................................................................. Interest, dividends, royalties and other income, net--less interest expense of $17,894 in 1974 ($16,186 in 1973)..................................................... EARNINGS OF CONSOLIDATED COMPANIES BEFORE TAXES ON INCOME............... Provision for taxes on income (Note 10): Federal ....................................................................................................... Foreign and other....................................... ............................................... EARNINGS OF CONSOLIDATED COMPANIES....................................................... Equity in net earnings of associated companies............................... EARNINGS FROM CONTINUING OPERATIONS ..................................................... DISCONTINUED OPERATIONS (Note 3): Jefferson Chemical Companies: Equity in net earnings ................................................................ Gain on disposal less applicable income taxes ($21,600)____ Unconsolidated real estate subsidiaries: Net loss....................................................................................... Provision for loss on investment and advances less applicable income taxes ($36,200)........................................................ NET EARNINGS (Note 4)........................................................................ EARNINGS EMPLOYED IN THE BUSINESS AT BEGINNING OF YEAR......................... Deduct dividends of $1.45 per share in 1974 ($1.32'/2 per share in 1973) EARNINGS EMPLOYED IN THE BUSINESS AT END OF YEAR 230,597 3,021 233,618 48.600 55.600 104,400 129,218 17,250 146,468 19,025 39,676 (11,345) (39,100) 154,724 643,953 68,815 $ 729,862 199,483 9,642 209,125 49.300 44,000 93.300 115,825 8,651 124,476 3,026 -- (13,540) -- 113,962 593,176 63,185 $ 643,953 PER SHARE OF COMMON STOCK (Note 4): Earnings from continuing operations................................................................................ Net earnings....................................................................................................................... See accompanying Notes to Consolidated Financial Statements $3.07 $3.24 $2.59 $2.37 CY0005522 American Cyanamid Company and Subsidiaries Consolidated Balance Sheets December 31,1974 and 1973 ASSETS CURRENT ASSETS Cash ....................................................................................................... Marketable securities and time deposits, at cost and accrued interest (approximates market) .................... Accounts receivable, less allowance for doubtful accounts of $7,172 ($5,616 in 1973)................................................................................ Inventories (Note 4).............................................................................. TOTAL CURRENT ASSETS .............................................................................. INVESTMENTS AND ADVANCES Equity in net assets of and advances to (Note 3): Associated companies.................................................................... . Unconsolidated real estate subsidiaries......................................... Other investments and advances....................................................... TOTAL INVESTMENTS AND ADVANCES..................................................... PLANTS. EQUIPMENT AND FACILITIES, at COSt (Note 5)........................................... Less accumulated depreciation and depletion............................. NET PLANT INVESTMENT................................................................................ INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS............................................... PREPAID EXPENSES AND DEFERRED CHARGES...................................................................... 1974 1973 (Thousands of dollars) $ 52,358 $ 51,011 127,050 121,455 300,898 322,036 802,342 252,327 244,358 669,151 53,544 43,021 96,565 1,311,145 652,110 659,035 17,709 27,228 $1,602,879 64,464 41,799 34,517 140,780 1,198,557 605,907 592,650 18,695 20,443 $1,441,719 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses .............. Short-term borrowings (Note 11)............................... Funded debt installments due within one year ........ Income taxes................................................................ TOTAL CURRENT LIABILITIES ...................................... FUNDED DEBT NOT DUE WITHIN ONE YEAR (Note 6)..................... DEFERRED INCOME TAXES ......................................................................... OTHER NON-CURRENT LIABILITIES (Note 11)............................... STOCKHOLDERS' EQUITY (Note 7) Common stock--par value $5 per share Authorized--60,000,000 shares Issued --48,905,338 shares............................. Additional paid-in capital ........................................... Earnings employed in the business (Note 6)............ Less cost of 1,162,792 shares of common stock held in treasury (1,166,921 shares in 1973) ................ TOTAL STOCKHOLDERS' EQUITY................................ CONTINGENT LIABILITIES AND COMMITMENTS (Note 8) See accompanying Notes to Consolidated Financial Statements $ 246,869 40,979 2,877 30,520 321,245 243,615 39,600 17,208 244,527 38,940 729,862 1,013,329 32,118 981,211 $1,602,879 $ 214,660 11,500 615 31,884 258,659 238,510 35,600 13,771 244,527 38,940 643,953 927,420 32,241 895,179 $1,441,719 18 CY0005523 Years Ended December 31,1974 and 1973 SOURCES OF WORKING CAPITAL Earnings from continuing operations.................................................................................... Items not requiring the use of funds: Depreciation and depletion............................................................................................... Deferred income taxes....................................................................................................... Equity in undistributed earnings or loss for the year of associated companies.......... Funds derived from continuing operations............................................................................ Net gain (loss) from discontinued operations........................................................... .......... Discontinued operations not requiring the use of funds..................................................... Funds derived from operations.................................................................. :........................ Disposal of associated company less net gain included in discontinued operations Increase in funded debt not due within one year.................................................................. Increase in other non-current liabilities................................................................................ All other--net........................................................................................................................... USES OF WORKING CAPITAL Cash dividends on stock......................................................................................................... Additions to plants, equipment and facilities--net............................................................... Additions to investments and advances--net..................................................................... Purchase of treasury stock..................................................................................................... Increase in prepaid expenses and deferred charges........................................................... INCREASE IN WORKING CAPITAL......................................................................... INCREASES (OECREASES) IN THE COMPONENTS OF WORKING CAPITAL: Cash, marketable securities and time deposits............................... Accounts receivable.......................................................................... Inventories........................................................................................... Accounts payable and accrued expenses....................................... Short-term borrowings...................................................................... Funded debt installments due in one year....................................... Income taxes payable........................................................................ INCREASE IN WORKING CAPITAL......................................................................... See accompanying Notes to Consolidated Financial Statement 1974 1973 (Thousands of dollars) $146,468 71,961 4,000 (6,594) 215,835 8,256 39,474 263,565 18,800 5,105 3,437 1,109 292,016 $124,476 69,128 2,400 (3,026) 192,978 (10,514) 10,514 192,978 1,931 1,992 1,285 198,186 68,815 138,346 7,465 6,785 221,411 $ 70,605 63,185 64,031 27,615 27,144 (2,034) 179,941 $ 18,245 6,942 48,571 77,678 (32,209) (29,479) (2,262) 1,364 $ 70,605 10,865 18,283 16,517 (24,195) (321) 4,797 (7,701) $ 18,245 Opinion .. "dependent Certified Public Accountants THE BOARD OF DIRECTORS AMERICAN CYANAMID COMPANY: We have examined the consolidated balance sheets of American Cyanamid Company and subsidiaries as of December 31, 1974 and 1973 and the related consolidated statements of earnings and earnings employed in the business and changes in financial position for the years then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the aforementioned consolidated financial statements present fairly the financial position of American Cyanamid Com pany and subsidiaries at December 31, 1974 and 1973, and the results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis, except for the change in 1974, with which we concur, in the method of valuing certain inventories as described in Note 4 to the consolidated financial statements. New York, N.Y. February 4, 1975 PEAT, MARWICK, MITCHELL & CO. CY0005524 19 American Cyanamid Company and Subsidiaries (Thousands of dollars) 1. Summary of Accounting Policies Consolidation--The consolidated financial statements include the accounts of American Cyanamid Company and all subsid iaries except real estate subsidiaries (see Note 3). All signifi cant intercompany transactions and balances have been elimi nated upon consolidation. Subsidiaries operating outside the United States and Canada are included on a fiscal-year basis ending November 30. The equity method of accounting is used for investments in associated companies (20% to 50% owned). Aggregate cost of these investments was $26,796 at December 31,1974 ($31,907 at December 31, 1973). Dividends of $10,657 were received from these companies in 1974 ($5,625 in 1973). At December 31, 1974, principal associated companies comprised the fol lowing (% owned): Arizona Chemical Company (50%) Lederle (Japan), Ltd. (50%) B. Braun-Dexon G.m.b.H. (50%) Sherkat Sahami Cyanamid-KBC (50%) Cyanamid-Ketjen Katalysator B.V. Shulton Africa Ltd. (40%) (50%) Societe des Sutures Chirurgicales Cyanaquim, S.A. de C.V. (40%) Robert & Carriere--Lederle (50%) Cyanenka S.A. (40%) TOF Tiofine B.V. (50%) Formica International Limited (40%) Currency translation--Assets, other than plants, equipment and facilities, and liabilities of foreign subsidiaries are included in the consolidated balance sheets at official or prevailing rates of exchange at year-end; foreign plants, equipment and faciL ities are included at the exchange rates in effect at the time of acquisition. Statement of earnings accounts are translated at the average rates of exchange in effect during the year except for depreciation and amortization which are translated at his torical exchange rates. Gains on forward exchange contracts are recognized as contracts are settled. Anticipated losses are recognized currently. Exchange adjustments ($7,200 loss in 1974, $1,800 gain in 1973) are included in earnings of the respective years. Depreciation and amortization--Depreciation is provided on a straight-line composite method over the estimated remaining useful lives of various classes of assets. In view of the variety of plants, equipment and facilities, it is not considered practicable to list the rates used in making the computations. However, the aggregate charge for depreciation was equivalent to 6.6% in both 1974 and 1973, of the average amount of depreciable plants, equipment and facilities. When depreciable assets are sold or otherwise retired from service, their cost, less amounts realized on sale or salvage, is charged or credited to the accumulated depreciation account. Expenditures for mainte nance and repairs are charged to current operating expenses. Acquisitions, additions and betterments for increasing produc tive capacity or prolonging service lives of the plants, equip ment and facilities are capitalized. Intangibles resulting from business acquisitions are carried at cost and amortized over a period of forty years unless, in the opinion of management, their lives are limited, or they have sustained a permanent diminution in value in which case they are amortized over ap propriate periods. Earnings per share--Earnings per share of common stock is based on the average number of shares outstanding during the year; 47,740,004 in 1974 (48,090,655 in 1973). The stock op tions described in Note 7 do not result in dilution of earnings per share. 2. Foreign Operations included in the consolidated financial statements are as follows: 1974 1973 Net current assets ..................................................... $160,600 $136,700 Net other assets (principally plants, equipment and facilities).................................... 118,100 95,400 Net earnings of foreign subsidiaries.................... Equity in undistributed earnings of foreign subsidiaries.............................................. 77,600 202,800 56,000 152,900 The company provides for taxes on the undistributed earn ings of subsidiaries and associates where the remittance of such earnings is not considered to be indefinitely postponed. At December 31,1974, the company has no present intention of remitting undistributed earnings of subsidiaries and associated companies aggregating $212,700 ($166,500 in 1973). 3. Discontinued Operations--As of December 2, 1974, Cyanamid sold its 50% equity interests in the Jefferson Chemi cal Companies for $80,700 in cash.The equity in net earnings of these companies until their sale is included in the results from discontinued operations. In December, 1974, the unconsolidated real estate subsidi aries (Ervin Industries, Inc. and its subsidiaries) commenced a program of orderly disposition of both their assets and related debt. Accordingly, Cyanamid management has considered it appropriate to account for Ervin as a discontinued operation necessitating a provision for the loss of its investment in and advances to these wholly-owned subsidiaries, as well as a pro vision ($14,600, after applicable income taxes of $13,400) for estimated additional funds required by Ervin as advances for operations until anticipated dates of disposition. The net loss of Ervin until December 31, 1974, is included in the results from discontinued operations. The 1973 financial statements have been reclassified to con form with the 1974 presentation. 4. Inventories--Inventories are carried at the lower of cost or market. Cost at December 31, 1974, was determined on the last-in, first-out (LIFO) method for substantially all inventories in the United States with the remainder determined on the first-in, first-out or average method. The LIFO method was adopted in 1974 because the com pany believes it more fairly presents earnings by relating cur rent costs with current revenues. This change in accounting from the first-in, first-out or average method reduced inven tories at December 31, 1974,by approximately $50,000 and net earnings by $26,000 ($.54 per share). Pro forma effects of retro active application of the LIFO method are not determinable and there is no cumulative effect of the change on prior years since the December 31, 1973 inventories are also the beginning in ventories under the LIFO method. 5. Plants, Equipment and Facilities are comprised of the fol lowing: 1974 1973 Land, including mining land Buildings ................................ Machinery and equipment .. Construction in progress ... $ 45,176 253,540 922,114 90,315 $ 42,215 250,605 856,210 49,527 $1,311,145 $1,198,557 20 CY0005525 Notes' ic Consolidated Financial Statements of 1974 and 1973 (continued) (Thousands o> dollars) 6. Funded Debt, excluding the current portion, is as follows: 1974 53/% notes payable in installments of $2,000 on March 1, 1976 and 1977 .................. $ 4,000 3% % promissory notes due 1977 to 1987 ......... 76,000 53/4% sinking lund debentures due 1980 ............ 11,050 S'/2'% Swiss franc debentures due 1987 ............ 39,000 5Vi% pollution control revenue bonds due 1997 9,300 7%% sinking fund debentures due 2001 ........... 100,000 1973 $ 6,000 75,000 12,765 30,500 9,300 100,000 Sundry obligations..................................................... 5,265 4,945 $243,615 $238,510 Annual maturities of funded debt and sinking fund require ments for the four years subsequent to December 31,1975,are as follows: 1976-$3,948; 1977-$9,473; 1978--$7,475; 1979$7,481. The 33A% promissory notes due 1977 to 1987 contain cer tain restrictions including limitations on the payment of divi dends. As a result, the amount of earnings employed in the business at December 31, 1974,which may be applied to the payment of cash dividends,is limited to $120,800. 7. Stockholders' Equity Authorized Capital includes 650,000 shares of preferred stock with a par value of $1 per share, none of which is outstanding. Stock Options--Under the company's stock option plan key employees may be granted five-year and ten-year qualified and non-qualified options to purchase common stock at not less than 100% of market value on the date of grant. 1,500,000 shares were originally reserved for stock options. All options are exercisable in cumulative installments of one-third of the number of shares commencing one year after date of grant and annually thereafter. Details of stock option activity for 1974 and 1973 follow: Number of shares Options granted: 1974 186,365 1973 168,275 Option Price Per share Total $24.00 28.50 $ 4,473 4,796 Market Value Per share Total (at date of grant) $24.00 $ 4,473 28.50 4,796 Options which became exercisable: 1974 157,111 $28.50-37.25 $ 5,052 1973 171,436 31.00-37.25 5,681 (at date exercisable) $19.56-23.88 $ 3,433 18.44-25.00 3,619 Options exercised: 1974 None 1973 210 ---- $25.75-33.50 $ 6 (at date exercised) ---- $21.62-31.19 $ 6 Options outstanding: Dec. 31,1974 828,418 Dec. 31,1973 688,156 $24.00-37.25 $25,011 25.75-37.25 22,001 (at date ot grant) $24.00-37.25 $25,011 25.75-37.25 22,001 At December 31, 1974, options to purchase 475,835 shares (331,739 shares at December 31, 1973) were exercisable, and 486,264 shares (626,524 shares at December 31, 1973) were available for option. In connection with the Shulton, Inc., merger in 1971, the company assumed the obligations under various stock option and purchase plans of Shulton. At December 31, 1974, there were options outstanding to purchase 5,587 shares of Cyana- mid's stock at $37.21 per share. All such options were exer cisable. No such options were exercised during 1974 or 1973. Upon exercise of options, the excess of proceeds over the par value of shares issued or cost of treasury stock (none in 1974 and $5 in 1973) is credited to additional paid-in capital. Additional Paid-in Capital increases during 1973 were attrib utable solely to the issuance of shares under stock options (see above). Treasury Stock is acquired from time to time and used to fulfill obligations under the company's incentive compensation and stock option plans. During 1974, 417 such shares were ac quired (1,000,444 in 1973), and 4,546 shares were issued to retired participants under the incentive compensation plan (5,807 shares in 1973). 8. Contingent Liabilities and Commitments--Rental expense under property and equipment leases in 1974 was $22,734 ($20,184 in 1973). Estimated future rental expense under prop erty and equipment leases expiring between 1975 and 2059 are: 1975--$11,245; 1976--$6,774; 1977-$2,677; 1978-$2,263; 1979--$1,576; 1980 to 1984-$3,552; 1985-1989-$482; 1990 to 1994--$25; and for 1995 to 2059--$156 in the aggregate. The present status of significant litigation is disclosed in the section entitled ''Litigation". As more fully explained therein, certain settlement agreements regarding treble-damage litiga tion were made during 1973. In connection therewith a provi sion in the amount of $21,500 (after taxes of $21,500) was made against earnings employed in the business as such amount relates to years prior to 1967. Included in the above provision are related legal fees and $3,000 representing the excess over amounts previously provided, 9. Employees' Benefits include the cost of pension, group in surance and social security programs. The company and its consolidated subsidiaries have various pension plans covering substantially all their employees including certain employees in foreign countries. The company's policy generally is to accrue and fund pension costs over the service lives of the covered employees. The actuarially computed value of vested benefits at the most recent valuation date under the principal pension plans of the company exceeds the current market value of fund assets and balance sheet accruals by approximately $30,000. The total pension expense was $14,403 for 1974 and $10,386 for 1973. 10. income Taxes--The company files a consolidated Federal income tax return with its domestic subsidiaries. The provision for Federal taxes on income has been reduced by the invest ment tax credit using the flow-through method ($4,000 in 1974 and $3,200 in 1973). Deferred income taxes equal to $4,000 in 1974 ($2,400 in 1973) have been provided to recognize the effect of timing differences between financial statement and income tax accounting, principally differences in depreciation methods and rates. Other taxes on income represent various state and local income taxes aggregating $5,200 in 1974 ($6,400 in 1973). CY0005526 ii American Cyanamid Company and Subsidiaries (Thousands of dollars) Total income tax expense of consolidated companies was $104,400 in 1974 and $93,300 in 1973 (effective rates of 44.7% and 44.6%, respectively). Explanation of the difference between these rates and the U.S. Federal income tax rate of 48% is as follows: 1974 1973 % ot pretax Amount income % of pretax Amount income Computed expected tax expense Foreign income subject to foreign income tax, at less than 48%, but not expected to be subject to U.S. tax in the foreseeable future $112,100 48.0% (4,900) (2.1) $100,400 48.0% (4,400) (2.1) Investment tax credit on assets purchased during the year State income taxes included in other income taxes (net of Federal taxes) Other miscellaneous items (4,000) (1.7) 2,700 1.1 (1,500) (6) (3,200) (1.5) 3,300 1.5 (2.800) (1.3) $104,400 44.7% $ 93,300 44.6% 11. Other financial statement information is as follows: The average interest rate of short-term borrowings was 12% at (continued) December 31, 1974 (11 % at December 31, 1973), and the ap proximate weighted average interest rate was 13% for 1974 (9'4% for 1973). The maximum amount of aggregate short term borrowing outstanding at any month end during 1974 was $42,000 ($13,000 in 1973) and the approximate average aggre gate short-term borrowing outstanding during 1974 was $22,000 ($11,400 in 1973). Maintenance and repairs for 1974 were $67,112 ($59,046 in 1973). Social security taxes for 1974 were $27,765 ($21,703 in 1973). Taxes other than income taxes for 1974 were $22,184 ($18,351 in 1973). Advertising in 1974 was $113,549 ($102,067 in 1973). Other non-current liabilities at December 31, 1974, include incentive compensation to officers and other employees of $8,228 ($6,292 at December 31, 1973). A portion of such amount is not payable currently in cash but is contingently payable in common stock of the company after employment terminates; pending allotment of the amount available for 1974, the portion so contingently payable in common stock is not determinable. Another portion of such amount is similarly con tingently payable Based on the performance of the company over a fo^ -year period. Net Sales for 1974 were $1.78 billion, 21% higher than $1.47 billion a year earlier. Medical sales increased 14%, led by sig nificant increases in such important products as Minocin minocycline, Myambutol ethambutol, and Dexon sutures. Agricultural sales were up 47%, with fertilizers leading the way because of strong worldwide demand and higher selling prices. Chemicals were strong with sales up 27%. Sales of consumer products, which include Formica decorative laminates, wall coverings, synthetic fibers, fragrances, hair care products and household products, increased by 4%. Manufacturing Cost of Sales--Added volume and higher raw material and labor costs were the primary reasons for the 25% increase over 1973. Also see Note 4 to the consolidated finan cial statements regarding the change in 1974 in the method of pricing inventories in the United States. Selling, Administrative, Research and Employees' Benefit Expenses increased by 18% in 1974. Much of this increase re sulted from higher payroll costs. Advertising and sales promo tion expenses were increased in the consumer businesses as the company made a determined effort to strengthen its market position for key products. To ensure the continuing flow of new products, research expenditures rose 23% to $59 million in 1974, with major increases in the medical and agricultural seg ments. The increase in employees' benefits was due to higher costs of pension, group insurance and social security programs. Taxes on Income increased 15% in 1973 and 12% in 1974. Each of these increases was due to higher earnings before taxes. Earnings of Consolidated Companies increased 20% in 1973 and 12% in 1974. In both years this reflected strong perform ances by the agricultural and chemical businesses. The medi cal and consumer businesses had increased earnings in 1973, but lower earnings in 1974. As a result, the approximate per centage contribution to total earnings on a worldwide basis of (See opposite page) the major business segments showed a significant change during the past two years. Agricultural and chemical earnings rose as a percentage of earnings of consolidated companies from 1972 to 1974, while medical and consumer earnings de clined. The change generally reflected increased demand and higher prices in the agricultural and chemical businesses and increased manufacturing costs in the medical and consumer segments. Consumer earnings were also affected by the in crease in advertising and sales promotion, and medical earn ings by higher research expenditures. Equity in Net Earnings of Associated Companies increased 50% in 1973 and 99% in 1974. The increase in 1973 and 1974 was due to an overall higher level of earnings from most asso ciated companies. Discontinued Operations, Less Applicable Income Taxes-- Cyanamid sold its 50% interests in the Jefferson Chemical group to the other stockholder, Texaco, Inc., in December, 1974, realizing an after-tax gain of $39.7 million on the trans action. Also in 1974, the company withdrew from the real estate business and provided for loss of its investment in the uncon solidated real estate subsidiaries (Ervin Industries, Inc. and its subsidiaries). In addition, a reserve of $14.6 million net of appli cable tax was established to allow Ervin to implement a pro gram of orderly disposition of assets and related debt. Also included are Ervin losses of $13.5 million in 1973 and $11.3 mil lion in 1974, as well as equity earnings from Jefferson of $3 million in 1973 and $19 million in 1974. The earnings of Jeffer son and Ervin in 1972 totaled $4 million. Adoption of Last-in, First-out (LIFO) Method of Valuing In ventories--In 1974 the company adopted the UFO method of valuing substantially all the inventories in the United States. This change in accounting reduced net earnings by approx imately $26 million (54c per share). Also see Note 4 to the con solidated financial statements. 22 CY0005527 * u n He:? (Amounts in millions except earnings and dividends per share) 1974 1973 1972 1971 1970 Earnings Net sales...................................... Manufacturing cost of sales less depreciation and depletion ... Depreciation and depletion........ Selling, administrative, research and employees' benefit expenses .................................. Interest expense......................... Taxes on income......................... Earnings of consolidated companies............................... Equity in net earnings of associated companies............. Earnings from continuing operations ............................... Discontinued operations, less applicable income taxes........ Net earnings................................. Per share of common stock Earnings from continuing operations ........................... Net earnings........................... Dividends.................................. Average number of shares of common stock outstanding (used in calculating earnings per share)................................. $1,780 972 72 505 18 104 129 17 146 9 155 3.07 3.24 1.45 47.7 $1,472 $1,359 776 726 69 68 428 16 93 116 9 125 (11) 114 395 16 81 97 6 103 4 107 2.59 2.37 1.32% 2.12 2.19 1.25 48.1 48.6 $1,283 697 64 380 14 66 78 8 86 6 92 1.77 1.90 1.25 48.3 $1,257 671 60 378 9 72 79 8 87 11 98 1.80 2.04 1.25 48.0 Note--The above information has been reclassified to reflect the discontinued operations described in Note 3 to the 1974 consolidated financial statements, and the reclassification in 1970 of an extra ordinary credit as a component of discontinued operations. -3.50 Other Statistics Gross additions to plants, equipment and facilities (includes acquisitions) .......... Current assets............................. Current liabilities......................... Working capita!........................... Plants, equipment and facilities-- at cost........................................ Net depreciated cost................... Funded debt not due within one year................................... Stockholders' equity: Common stock......................... Additional paid-in capital___ Earnings employed in the business............................... Deduct treasury stock............ Total equity................... 139 802 321 481 1,311 659 244 244 39 730 (32) 981 83 669 259 410 1,199 593 238 244 39 644 (32) 895 72 623 231 392 1,176 598 237 244 39 593 (5) 871 111 546 203 343 1,157 596 213 243 35 547 (6) 819 94 506 231 275 1,121 550 118 242 37 518 (13) 784 1970 1971 1972 1973 1974 CY0005528 93 Organizational Units Operations AGRICULTURAL DIVISION Philip G. Connell, Jr., President Animal feed, health and veterinary products, insecticides, fun gicides, herbicides, nitrogen and phosphate fertilizer products. CONSUMER PRODUCTS DIVISION John H. Dietze, President Breck preparations for care of the hair; Pine-Sol cleanerdisinfectant-deodorizer; Formica Floor Shine finish; and other household maintenance and cleaning aids. Markets these and Shulton products in Canada. CYANAMID EUROPE-MIDEAST-AFRICA Harry F. Bliss, Jr., President Manufactures, imports and markets Cyanamid's products, ex cept for Consumer and Shulton products, through subsidiaries and distributors in Europe, Africa and the Middle East. CYANAMID LATIN AMERICA-ASIA William A. Lifters, President Manufactures, imports and markets Cyanamid's products, ex cept for Consumer and Shulton products, through subsidiaries and distributors in Latin America, Asia and the Pacific. CYANAMID OF CANADA LIMITED T. Dean Smith, President Produces for sale in Canada and for export and also imports and markets in Canada the products of Cyanamid and its subsidiaries. FIBERS DIVISION Howard E. Nehms, President Creslan acrylic fibers for apparel, home furnishings and in dustrial applications; filament polyester for tire cord and in dustrial applications. FORMICA CORPORATION Martin B. Friedman, President Formica brand decorative laminates; laminate cabinet surfac ing; laminate-clad doors and compartments; architectural and residential component panels; adhesives; Formica coated wall fabric; Sanitas and Wallclad coated wall fabrics from Standard Coated Products. INDUSTRIAL CHEMICALS AND PLASTICS DIVISION Gerard A. Forlenza, President Industrial products for the paper-making industry and mining industry; flocculants and related chemical agents for industrial and municipal water and waste treatment. Chemical products for the chemical process industry; heavy chemicals, surfac tants, acrylamide, acrylonitrile, melamine and specialty mono mers. Plastics and resins for coatings; thermosetting and acrylic molding compounds; high performance bonding agents and adhesives; and Acrylite acrylic sheet. LEDERLE LABORATORIES DIVISION Jan Dlouhy, President Antibiotics, steroids, biologicals, pharmaceuticals, vitamins and hematinics, vaccines; clinical laboratory diagnostic aids; fine chemicals and bulk pharmaceuticals; Davis & Geek surgi cal sutures and hospital products, including germicides and scrub sponges. ORGANIC CHEMICALS DIVISION Ben H. Loper, President Catalysts, chemical light, dyes, elastomers, intermediates, plastic additives, refinery chemicals, rubber chemicals, textile chemicals, textile resins; industrial safety equipment from Glendale Optical Co., Inc. PIGMENTS DIVISION John Ludden, President Inorganic and organic chemical colors, Unitane titanium dioxide. SHULTON, INC. Albert L. Munsell, President Old Spice men's toiletries; Desert Flower fragrances, skincare and toiletry products; Corn Silk cosmetics; Flowing Velvet skin lotions; imported Nina Ricci and Carven per fumes for women; Pierre Cardin* toiletries for men. Produces and markets Consumer and Shulton products outside the U.S. and Canada. Services Chemical Research Division Jason M. Salsbury, Director Commercial Development Division Kent L. Aldershot, Director Controller's Division Cameron H. Calder, Controller Engineering and Construction Division George P. Ferrigni, Director Investor Relations Wallace G.Taylor, Director Law Division James I. Wyer, Director Personnel Division Clair L. Brandrup, Director Public Affairs Division Joseph C. Calitri, Manager Purchasing Division Philip K. Langford, Director Transportation and Distribution Division Arthur C. Fennimore, Director Treasury Division Leonard T. Murphy, Treasurer Washington Office Don A. Goodall, Corporate Representative CY0005529  c; :c r James G. Affleck James F. Bourland James B. Fisk Thomas P. Forbath L. Emery Katzenbach Ian K. MacGregor Borden R. Putnam George W. Russell George L. Schultz Clifford D. Siverd Nolan B. Sommer William L.Wearly President American Cyanamid Company Senior Vice President American Cyanamid Company Retired Chairman ot the Board Bell Telephone Laboratories, Incorporated Senior Vice President American Cyanamid Company Chairman White, Weld & Co., Incorporated Investment bankers Chairman of the Board and Chiet Executive Officer AMAX Inc. Mining, processing and tabricating ot metals and minerals Senior Vice President American Cyanamid Company Senior Vice President American Cyanamid Company Chairman ot the Board Shulton, Inc. Chairman ot the Board and Chiet Executive Officer American Cyanamid Company Senior Vice President American Cyanamid Company Chairman of the Board and Chiet Executive Officer Ingersoll-Rand Company Diversitied manufacturer ot machinery and equipment Officers Clifford D. Siverd James G. Affleck James F. Bourland Thomas P. Forbath Borden R. Putnam George W. Russell Nolan B. Sommer J. Clifford Blauvelt James 1. Wyer Cameron H. Calder Leonard T. Murphy Chairman of the Board and Chiet Executive Otticer President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Vice President Vice President, Secretary and General Counsel Controller Treasurer "in&nci Committee Ian K. MacGregor Chairman James G. Affleck James B. Fisk Thomas P. Forbath 1. Emery Katzenbach Clifford D. Siverd William L.Wearly Executive Committee Clifford D. Siverd James G. Affleck James F. Bourland Thomas P. Forbath Borden R. Putnam George W. Russell Nolan B. Sommer Chairman Audit Committee Ian K. MacGregor Chairman James B. Fisk L. Emery Katzenbach William L.Wearly Transfer Agent and Registrar The Chase Manhattan Bank, N.A. New York, N.Y. 10015 Form 10-K available to stockholders A copy of the company's 1974 annual report on Form 10-K, including finan cial statements and schedules, as filed with the Securities and Exchange Com mission, will be made available free of charge to Cyanamid stockholders. Copies of exhibits attached to the Form 10-K will also be made available at a charge. Requests should be addressed to the Secretary of the company. Printed in U.S.A. CY0005530 OK Annual Report 1974 CYAN AM ID American Cyanamid Company Wayne, New Jersey 07470 CY0005531