Document k675EoLQJxrRjqy4ge3kZdgnO

"We believe our ability to innovate will be the most important factor in the future growth of Cyanamid." CYANAMID 1980 Annual Report Report of the Board of Directors of American Cyanamid Company, Wayne, New Jersey 07470, for the Year Ended December 31,1980 Contents Financial highlights.......................................... Innovation.......................................................... Letter to stockholders....................................... Agricultural........................................................ Medical.............................................................. Specialty chemicals......................................... Consumer products..............,.......................... Formica brand products................................. Financial review................................................ Management statement, accountants' opinion Consolidated financial statements................. Notes to consolidated financial statements ... Litigation............................................................ Five-year summary.......................................... Discussion and analysis................................... Organization units............................................ Directors, officers, committees ....................... 1 2-3 4-5 6-7 8-9 10-11 12-13 14-15 16 17 18-20 21-29 29 30 31-32 32 33 Annual meeting of stockholders The 1981 annual meeting of stock holders of American Cyanamid Company will be held at 11 a.m, on Monday, April 20, in the Phoenix Room of the Canal National Bank Building, 1 Canal Plaza, Portland, Maine. Form 10-K available to stockholders A copy of the company's 1980 annual report on Form 10-K, including finan cial statements and schedules, as filed with the Securities and Exchange Commission, will be made available free of charge to Cyanamid stock holders. Copies of exhibits attached to the Form 10-K will also be made available at a charge. Requests should be addressed to the Director of Investor Relations of the company. CY0005712 Innovation AVOCIN* ... ASENDIN ... CENTRUM ... PIPRIL* ... AMDRO* . . COUNTER ... PAY-OFF* ... PROWL ... BLUE STRATOS... LADY'S CHOICE* ... BOWL GARD* . . . CYANATROL . .. CYCOM ... 'Trademan The brand names above are in the lex icon of Cyanamid's innovations, the new products that will help increase the company's growth in the '80s. There are others, such as cetaben and mitoxantrone, that are still in clini cal research, but which could be even more important. Innovation is a key word at Cyanamid as we direct our course more and more toward high technol ogy in the belief that those parts of our business based on creative research have the highest promise for the future. The company's reliance upon commodity products is diminishing and, indeed, the report that follows cites our effort to withdraw from sev eral lines where growth is limited. Much has been said and written with respect to high technology in American business. In many instances there are more words than deeds; many U.S. corporations are reducing their research and development activi ties, giving more emphasis to shortrange "portfolio management" in their etforts to survive the debilitating eflects of inflation. The lack of an environment that fos 2 ters research is a national problem in the United States as other nations take over leadership in industries that were once the preserve of American ingenuity. We have seen in recent times evidence that the U.S. govern ment is concerned and that Congress is considering steps which may prove helpful to U.S. industry. The nation is moving in the right direction, and we are hopeful that the new administra tion may speed up the process. Increased support for supply-side economics indicates there is some recognition of the legitimate needs of business for increased profits. Without the prospect of acceptable returns on investment, business cannot take the risks inherent in long-term research. A major concern is with the obsta cles to growth and investment. We are concerned, for example, with the phi losophy that demands there be zero risk to human health and the environ ment from industrial activity. This has resulted in the diversion of significant technological resources from develop mental research to meeting the requirements of high-cost, non productive regulations. It is an unfortunate paradox that in our own company those businesses that offer the greatest benefit to man kind are those that are the most regu lated and thus the most inhibited by government. A prime example is in the develop ment and testing of major new phar maceutical products. The cost and time necessary to put new products on the market in the United States have increased significantly in the past decade, mostly because of our CY0005713 .. we are convinced that inventiveness is essential to long-term growth and have continued to invest heavily in research and development." greater involvement with governmen tal bureaucracy. Our experience has shown that it now takes more than $50 million and 10 years to put a new med ical product on the market in the United States. The problem is compounded by the fact that we must assume that at least half the patent life of our successful products will have expired before we make the first sales. As a hightechnology company, we endorse a proposal to remove some of this disin centive by restoring to the life of pat ents the time required to meet governmental review and regulation. We believe the government must not only recognize but act to revive the spirit of inventiveness that helped build our modern society. Despite the obstacles, we are convinced that inventiveness is essential to long-term growth and have continued to invest heavily in research and development. In the past five years, we have become a leader in the development and manufacture of automobile exhaust catalysts, aerospace com posite and adhesive systems, water treating and purification chemicals, and currently-needed enhanced oil recovery chemicals. Our position as a leading developer and manufacturer of animal feed and health products has been strength ened by the addition of new growth promoters. New products also have strengthened our pesticides opera tions in both the insecticide and herbi cide markets. Cyanamid was one of the first of the major companies in our industry to diversify into the consumer packaged goods business. In the past few years, we have developed several leadership positions for our personal care, toilet ries, fragrances and household prod ucts. Research will play a major role in the growth of this business in the '80s. Our medical business affords us our biggest opportunity. The medical sec tion of this report reviews the status of several major new products that are now in clinical research. We have completed clinical research on Avocin' piperacillin, which is a licensed product, and it is now under going FDA review in the United States. It was introduced in West Germany in 1980 under the trademark Pipril*. Dur ing 1981, we should be able to confirm the clinical efficacy of most of the other compounds. This report shows a changing Cyanamid, a company willing to take the risks involved in innovation. We believe our ability to innovate will be the most important factor in the future growth of Cyanamid. 'Trademark 3 CY0005714 To Our Stockholders 1980 was a year that demanded inno vation in every phase of our business. The list of obstacles to progress was formidable: debilitating inflation, roller coaster interest rates, consumer uncertainty, depressed automotive and housing markets, escalating energy costs, and proliferating government regulation. In responding to these difficulties, we have made changes which we believe have positioned the company for a strong rebound when economic conditions improve. History will be the judge. Despite a slight decline in earn ings, we are convinced that 1980 was a turning point for Cyanamid. While worldwide sales in 1980 increased 8.4% to a record $3.45 bil lion, net earnings declined 5.5%, from $168.5 million to $159.2 million. The comparison in earnings per share, $3.52 in 1979 and $3.32 this year, was affected by unusual charges, gains and credits. The bottom-line effect in 1979 was to add approximately 4<t a share to earnings, while 1980's earnings were reduced by approximately 17$ a share by pro visions for plant consolidations and shutdowns. The plant consolidations and shut downs in both 1979 and 1980 elimi nated product lines which did not fit in with the company's growth objectives. There were several key develop ments during 1980 -- many of which don't show up in the numbers -- which will have a positive effect on growth. Among them: The company spent almost $142 million on research and development, up more than 14% from 1979. Over the past five years, Cyanamid has spent more than half a billion dollars to provide the new products and new technologies to stimulate future profit ability; The payoff on this investment in R&D began to show up in 1980: two new pharmaceutical products were introduced, one domestically and one overseas; a new insecticide was launched; and two new consumer products with promising potential went into U.S. test markets; In the specialty chemicals busi ness, the company strengthened its position in several markets which grew despite the recession, positioned itself in some new growth markets, and announced the withdrawal from certain commodity businesses with limited growth potential; Cyanamid continued in 1980 to maintain a strong financial position, including a prudent level of debt, ade quate working capital, and a stable base from which to secure additional ' financing should it be needed; In 1980, the company strength ened its management development program, which includes use of both in-house and outside training courses, and the establishment of personalized career development programs for managers. Other programs designed to help supervisors communicate bet ter with employees and to help employees develop specialized skills were also expanded last year; and The company's cost reduction program, designed to improve effi ciency and reduce waste, was particu larly effective in 1980. In the program year ended June 30, the projects implemented should reduce costs by $115 million on an annualized basis. Operating earnings, as defined in our financial statements, (page 24, Note 10), were higher for two of our business segments, agricultural and medical, but were down for the other three: Formica brand products, spe cialty chemicals and consumer prod ucts. Several factors helped to boost agricultural sales and operating earn ings. Market demand for the com pany's upgraded phosphates and ni trogen products was excellent. Increased sales of insecticides and herbicides also made a major contri bution. The improvement in the sales of the company's medical business primarily 4 resulted from Davis & Geek sutures, the antibiotic, Minocin minocycline, and Centrum multivitamins. Operat ing earnings, although higher in 1980, were held down by substantial increases in research and develop ment and the costs of launching two important new products in the latter part of the year. Cyanamid's specialty chemicals business, which serves the industrial sector of the U.S. economy, proved especially vulnerable to the recession. Faced with reduced demand, it became increasingly difficult to pass higher raw material and production costs on to customers. In addition, earnings were adversely affected by our withdrawal from the tire yarn business and the closing in August of our polyester yarn facility in Painesville, Ohio. The company also consolidated its dyes business by shutting down almost all of its dyes manufacturing operations at Bound Brook, New Jersey. Selected dyes will still be produced at the Marietta, Ohio, plant. The divestiture in 1979 and early 1980 of two product lines -- melamine component panels and vinyl coated wallcoverings -- accounted for the sales decline of our Formica brand products business. Sales of Formica brand decorative laminates also were affected by major declines in housing starts, residential remodeling, furniture shipments and commercial/industrial construction. Price increases, improvement in manufacturing effi ciency and cost-cutting measures were not sufficient to maintain the his toric levels of profitability of Formica brand products. As a result, earnings of this business were lower than in 1979. Several factors combined to hold down operating earnings of the com pany's consumer products business. Heavy advertising and sales promo tion spending was necessary to launch and test-market new products, and to maintain or improve market share of existing products, competi tion, particularly in the liquid cleaner CY0005715 market, became more intense; and retailers were determined to hold down inventories because of higher interest rates and the uncer tainty of consumer spending. Sales of the company's fine fragrances, men's toiletries and household products, however, were welt ahead of 1979 both domestically and outside the United States. A number of management changes were made in 1980. David Carroll and Fredric E. Detoro, both former operat ing division presidents, were elected group vice presidents. Mr. Carroll has responsibility for the company's medi cal business and Dr. Detoro oversees th& chemicals and fibers operations. J. Clifford Blauvelt, a senior vice president and member of Cyanamid's board of directors, retired from the company on January 31,1981, after a distinguished 40-year career. Two members of the board of direc tors resigned; Ian K. MacGregor, who has become chairman of the British Steel Corporation, and Paul W. MacAvoy, Milton Steinbach Professor of Organization and Management and Economics at Yale University. The company appreciates the many valu able contributions made by Mr. MacGregor, who served on the board for 12 years, and by Dr. MacAvoy, who served for three years. We were particularly pleased to add two members to our board. David M. Culver, president and chief executive officer of Alcan Aluminium Limited, joined the board in December, 1980. Lloyd M. Cutler was reelected to the board in February, 1981. Mr. Cutler originally became a board member in February, 1979, but resigned in October, 1979, to become counsel to the President of the United States. Early in 1980, Cyanamid established a Public Responsibility Committee made up of outside members of the board of directors. This committee is reviewing company policies and prac tices in such areas as occupational safety and health, environmental affairs, equal employment opportunity, philanthropy, consumer issues and government relations. On behalf of the board of directors, we want to express our appreciation to the company's employees for their continuing efforts in what proved to be a challenging and uncertain year. We are confident that, with our dedication to innovation, our experienced per sonnel, a productive research pro gram, efficient manufacturing facilities and quality products, we are entering a new era of growth for the company. Wayne, New Jersey February 3,1981 For the Board of Directors JAMES G. AFFLECK Chairman and Chief Executive Officer GEORGE J. SELLA, JR. President CY0005716 Agricultural Agricultural sales advanced 15.5%, and operating earnings increased 1.4% in 1980. Cyanamid's agricultural business consists of animal feed and health products; insecticides, fungicides and herbicides; and fertilizers. All of these products except fertilizers are made and marketed in the United States by the Agricultural Division, and outside the United States by the Americas/Far East Division and the Europe/Mideast/ Africa Division. Fertilizers are produced in the United States and Canada and marketed worldwide by the Plant Food Division, and include phosphate rock, upgraded phos phates, anhydrous ammonia and upgraded nitrogen prod ucts; the division also markets fertilizers in Canada through a network of retail Farm Supply Centers. The substantial increase in Cyanamid's agricultural sales last year can be attributed to both increased demand for many of the company's traditional products and rising sales of innovative products discovered and developed by Cyanamid. The compar ison between operating earnings in 1979 and 1980 was distorted by the fact that in 1979 operating earnings Agricultural ($ in millions) WORLDWIDE SALES OPERATING EARNINGS 900 800 700 600 500 400 - 300 200 - 100 0- 1976 1977 Total 23 23 Sales 1978 22 1979 23 1980 135 120 105 - 90 75 60 45 30 15 - 0- 1976 % 24 Operating 34 Earnings 1977 29 1978 27 1979 39 1980 41 6 included the non-recurring gain of $11.8 million from the sale of a phos phate rock deposit. Our fertilizer business worldwide had an outstanding year in 1980. Increased sales were registered in all areas, with the largest gains in diammonium phosphates. In 1979, we had enhanced our favorable raw material position for phosphates by adding to our processing capacity for upgraded phosphates. With worldwide usage of upgraded phosphates increasing, and little addi tional capacity added by the industry since 1976, demand forced prices upward by more than 20% last year, more than offsetting sharply higher raw material costs. It is likely that worldwide demand and prices will continue to increase in 1981. How ever, these increases may not fully . offset higher raw material and energy costs, thereby limiting profit growth. CY0005717 "The substantial increase in Cyanamid's agricultural sales ... can be attributed to both increased demand for... traditional products and rising sales of innovative products .. Insecticides and herbicides also were among the company's sales leaders in 1980. Demand for Counter soil insecticide-nematocide, which controls corn rootwnrrns, continued high. In the United oiates, distributor and dealer inventories of Counter were depleted during the 1980 grow ing season, which resulted in large orders late in the year to assure ade quate stocks for the increased corn crop anticipated in 1981. "Insecticides and herbicides also were among the company's sales leaders in 1980." Prowl, our herbicide for cotton, soybeans, corn and barley, also regis tered a substantial sales increase in the United States last year. During the year, Prowl also was registered in the United States for use on tobacco, potatoes and sorghum. The product did well in overseas markets where it is sold under the Stomp and Herbadox trademarks; sales were particularly strong in Brazil, where it is used extensively on rice and soybean crops. We have now completed rebuilding our manufacturing facility for Prowl in Hannibal, Missouri, which will substantially improve the product's profitability. Cycocel plant growth regulant, which improves yields by strengthen ing wheat stalks against the tendency to bend in heavy rain or wind, recorded strong gains in overseas markets, especially in Europe. Avenge wild oat herbicide, used on wheat and barley crops, improved its leadership position in European markets. Sales in the United States also increased. Another excellent example of Cyanamid technology is Amdro* fire ant insecticide. Registration to market Amdro was received from the Envi ronmental Protection Agency in August, and sales were significant in the last four months of the year. Since Amdro has some unique properties, including environmental acceptability and low mammalian toxicity, we are studying other market applications for this new product. Worldwide sales of animal feed and health products were down slightly in 1980. Livestock producers expe rienced a considerable cost/price squeeze for hogs, cattle and poultry, "Our fertilizer business worldwide had an outstanding year in 1980." particularly in the second quarter of 1980, which in turn held down demand for our products. However, improvement in the economics of U.S. livestock production during the last six months of 1980 helped to return demand to more normal levels. In par ticular, the upturn helped increase domestic sales of Cyphos, a phos phate feed supplement for swine, poul try and dairy cows, and of our feed supplements containing the antibiotic Aureomycin chlortetracycline. Avotan avoparcin, a growth pro moter for swine and poultry, is the market leader in Europe. It was suc cessfully launched in Denmark and Italy last year. Plans are underway to extend the use of Avotan to beef cat tle, lambs and rabbits. 'Trademark 7 CY0005718 Medical sales rose 13.4%, while operating earn ings were 3% higher than in 1979. Cyanamid's medical business consists of pharmaceutical products for the treatment of infectious diseases, mental illness, cancer, skin disorders, glaucoma, arthritis, tuber culosis and other disease entities; adult and pediatric vac cines; vitamin and multivitamin/mineral products; Davis & Geek surgical sutures and other hospital products. These products are made and marketed in the United States by the Lederle Laboratories Division, and outside the United States by the Americas/Far East Division, and the Europe/ Mideast/Africa Division. Cyanamid launched the decade of the '80s in the medical business with the introduction of two important products. Both Asendin amoxapine, an anti depressant which acts on most patients faster than competitive prod ucts, and Pipril* piperacillin, a broadspectrum semi-synthetic penicillin for the treatment of life-threatening bacte '1976-1979 restated for comparative purposes. rial infections, were introduced in sev eral markets in 1980. Asendin, which was introduced in the United States, also is available to the medical profession in France and South Africa. Additional foreign intro ductions are anticipated in 1981. Pipril was introduced in West Ger many and Switzerland late in 1980, and a New Drug Application was filed with the U.S. Food and Drug Adminis tration in December. We hope to be able to offer piperacillin to U.S. physi cians, under the Avocin trademark, in 1982. Cinopal fenbufen, our anti inflammatory drug for the treatment of arthritis, continued to make progress in overseas markets. It was introduced successfully in Japan in 1980, and we hope to be able to market this drug in the United States in 1982 Overall, worldwide medical sales increased significantly in 1980, with a CY0005719 ... worldwide, medical sales increased significantly in 1980, with a moderate improvement in earnings." moderate improvement in earnings. The growth in earnings was limited by increased research and development spending and the introduction of new products. Aided by the medical profession's excellent acceptance of Dexon S, our second-generation synthetic absorbable suture, our Davis & Geek sutures business in 1980 recorded its tenth year of uninterrupted sales growth. Sales increases also were regis tered by Minocin minocycline, our fourth-generation antibiotic; Methotrexate, our leading anti-cancer drug; Orimune polio vaccine; and Centrum multivitamin /mineral supple ment. Centrum became America's fastest-growing multivitamin product in 1980 and complements the strong market position of our Stresstabs vitamins. .. our Davis & Geek sutures business recorded its tenth year of uninterrupted sales growth" The progress made by our Medical Research Division in 1980 gives us every expectation that we will have a steady stream of new medical prod ucts through the '80s. We are enthusi astic about the prospects for mitoxantrone, a new anti-cancer com pound which has shown evidence of a wide spectrum of clinical use against both leukemias and solid tumors. Unlike many anti-cancer drugs on the market today, mitoxantrone has dem onstrated only minimal and reversible side effects. It is now being widely tested in the United States, Europe and Japan to assess its effectiveness in man. Several other major medicaf com pounds have made varying degrees of progress through the long and expen sive process of research and clinical testing. Human trials are continuing on an anti-arthritic compound which appears to act through a unique mechanism. There is a possibility that it may be the first anti-arthritic drug to halt the pro gress of the disease. Another com pound, cetaben, has proven its effec tiveness in monkeys in preventing the build-up of atherosclerotic plaque in the arteries, but efficacy in man remains to be demonstrated. This will require extensive clinical testing over a number of years. Tests are underway to determine the effectiveness of an anti-anxiety compound which is structurally unlike any product on the market today. It appears to have a highly selective effect on brain receptor sites, and may have fewer side effects than currentlyavailable anxiolytic products. This compound replaces one described in earlier reports which has been elimi nated from the testing process due to toxicity. While our medical research pro gram yielded several new compounds in 1980, including a vaccine for Hae mophilus influenzae and an anti hypertensive, it is too early in the test ing process to comment on their potential commercialization. "The progress made by our Medical Research Division gives us every expectation that we will have a steady stream of new medical products through the '80s." That testing, however, will be con ducted faster and more efficiently, thanks to Cyanamid's new multimillion-dollar toxicology laboratory at Pearl River, New York, which was ded icated in September. This totally mod ern facility, featuring extensive use of computers, will speed up the pharma ceutical research procedure and reduce the time required tor FDA approval of new drugs. Tiademark 9 CY0005720 Specialty Chemicals Sales of specialty chemicals advanced 5.1%, but operating earnings declined 16.5%. Cyanamid's specialty chemicals business consists of more than 5,000 organic and inorganic chemicals and related products, and involves six different operating divisions. The Industrial Products Division makes and markets industrial water treating, mining and paper chemicals, and molding compounds and resins in the United States, and has world wide responsibility for enhanced oil recovery products. The Chemical Products Division makes and markets aero space products, process chemicals and titanium dioxide in the United States, and has worldwide responsibility for cata lysts. The Organic Chemicals Division makes and markets, in the United States, dyes, elastomers, inter mediates, plastics additives, phosphine chemicals, fine chemicals, rubber chemicals, textile chemicals, textile resins, Cyalume chemical light, inorganic and organic pig ments, and from the Glendale Optical Co., industrial safety equipment. The Fibers Division makes and markets, world wide, Creslan acrylic fibers for apparel, home furnishings and industrial applications. The Americas/Far East Divisio and the Europe/Mideast/Africa Division make or import and market these products outside the United States, excef for catalysts, fibers, and enhanced oil recovery products. Although sales of specialty chemicals, aided by inflation, passed the $1 billion mark in 1980, unit volume and operat ing earnings were down because of the recession in the United States. Of our five businesses, specialty chemicals is the one which historically has been most affected by economic downturns. The recession in 1980, however, affected our chemicals busi ' 1 976 1979 resisted lor comparative purposes. 10 ness more selectively than past recessions. Those of our products used by durable goods industries, such as automotive and housing, suf fered severe setbacks, while other important parts of our business had a good year. As part of the continuing evaluation of our specialty chemicals business, we withdrew in 1980 from the polyes ter tire yarn business and closed our polyester fiber plant in Painesville, Ohio. This action was taken because of the shrinking demand for polyester tire yarn. We also shut down those dyes manufacturing facilities at Bounc Brook, New Jersey, that had limited growth potential. We will continue to produce dyes for the paper, plastics, and writing inks industries, and for some specialty applications, at our plant at Marietta, Ohio. These two consolidations accounted for a reduc tion in operating earnings of $13.6 mil lion in 1980. Operating earnings in CY0005721 "New chemicals, and the technology to employ them, are being developed to supply several of the markets which will grow rapidly during the 1980s." 1979 were reduced by an unusual charge of $10.4 million, which also was the result of plant consolidations and the withdrawal from certain busi nesses. Those parts of our business that had a good year in 1980 included oil and mining chemicals, aerospace products, textile chemicals and fibers. "We are also working intently to develop new chemicals for a number of market applications." We are a market leader in glyoxal and glyoxal reagents, used to provide wrinkle resistance to cotton textiles, and increases in both sales and earn ings of these products helped us to maintain our position. Sales of sul phuric acid, ammonia and titanium dioxide were also higher in 1980. In addition, we increased our market share of aerospace products, includ ing Dura-Core honeycomb, adhe sives, and Cycom advanced composites. Worldwide sales and earnings of acrylic fibers were up dramatically. In the United States, our Creslan acrylic fibers benefited from the grow ing domestic popularity of fleeced garments. In many overseas markets, rising demand for gold and other precious metals helped to raise sales of our mining reagents, particularly in Can ada, South Africa, Mexico, Australia and the Philippines. Later this year we are scheduled to start up a new carbide furnace in Canada. With this new capacity, we will be able to satisfy the increased demand for carbide desulphurization reagents, which increase blast fur nace efficiency and allow steel manu facturers to use cheaper, high-sulphur coke to produce low-sulphur steel. New chemicals, and the technology to employ them, are being developed to supply several of the markets which will grow rapidly during the 1980s. One of these is the enhanced oil recovery business. In recent years, Cyanamid developed Cyanatrol polymers, which are chemicals used to drive residual oil to the surface. "Worldwide sales and earnings of acrylic fibers were up dramatically." While this market has been relatively small to date, it has enormous poten tial, since the oil industry over the next decade will find enhanced oil recovery increasingly profitable. We are also working intently to develop new chemicals for a number of market applications. For the oil industry, we are developing improved catalysts for upgrading high-sulphur and very heavy crude oils. For the automotive industry, we are concen trating on improved auto exhaust cata lysts for smaller-displacement engines. Other chemical R&D projects are aimed at developing new and improved water treating and miningreagent chemicals as well as advanced composites for the aero space industry and industrial adhe sives. 11 CY0005722 Consumer Products Sales of consumer products increased 10.7%, while operating earnings were off 3.4% from 1979. Cyanamid's consumer products business is conducted by four operating divisions. The Shulton, Inc. Toiletries Division makes and markets, in the United States, personal care and grooming products, including Old Spice and Blue Stratos men's toiletries and Breck and Miss Breck hair care products. Jacqueline Cochran, Inc. makes and markets, in the United States, men's and women's prestige fragrances, including Parfums Nina Ricci Paris, Parfums Pierre Cardin*, Geoffrey Beene Grey Flannel and Red* fragrances, Parfums Carven and CIE fragrances. The Household Products Division makes and markets, in the United States, household maintenance and cleaning aids, including Pine-Sol cleaner-disinfectant-deodorizer and Bowl Gard* toilet bowl cleaner. The Shulton, Inc. International Division makes and markets, outside the United States, most of the above products plus Mandate* men's toiletries. `Trademan Our efforts in our consumer products business are designed to provide the basis for long-term growth, both in sales and operating earnings. This involves improving the market position of existing brands, and maintaining market leadership where we have it; the successful test-marketing and introduction of new products; and the generation from our research labora Consumer Products ($ in millions) % Total Sates 1976 1977 1978 1979 1980 1976 1977 1978 1979 1980 16 14 14 14 14 Operating 12 Earnings 12 10 9 9 12 tories of even more new products with distinct competitive advantages. Worldwide consumer products sales were ahead of 1979, but operating earnings were down, primarily because of the high cost of test marketing new products and the one time cost involved in the consolidation of Breck and Shulton manufacturing operations. Despite adverse market conditions in certain product lines, the effects of inflation, and stiffer competition, our four market-leading consumer prod ucts increased sales in 1980 and maintained their number-one positions as well. They are Old Spice men's toiletries, L'Air du Temps fine fra grance, Miss Breck hair spray and Pine-Sol liquid household cleaner. Old Spice toiletries currently account for about 20% of the men's fragrance market. To complement CY0005723 "Our efforts in our consumer products business are designed to provide the basis for long term growth, both in sales and operating earnings." Old Spice, we have completed suc cessful market tests in the United States of a higher-priced line of men's toiletries called Blue Stratos. This .. our four market-leading consumer products increased sales in 1980 and maintained their number-one positions as well." cologne-oriented line will be intro duced nationally in 1981. Blue Stratos was first introduced in England in the mid-1970s, and is now sold in 32 countries, in some under the brand names Blue Sky* and Sky Trail*. The deodorant and anti-perspirant market is one of the fastest growing in the United States, and the company is planning to build on the already strong base provided in this market by Old Spice stick deodorant and sev eral other new products. One of these is Lady's Choice*, a stick antiperspirant developed specifically for women, which is doing well in test markets. Another new product just recently introduced into Western U.S. test markets is Old Spice solid anti- perspirant, a complement to Old Spice stick deodorant. L'Air du Temps, the premier French fragrance, continues to lead all of the company's prestige fragrances in sales volume. Moving up very rapidly, however, is our Pierre Cardin* fra grance for men, now ranked number two in the men's prestige fragrance market in the United States. We acquired Geoffrey Beene fra grances in 1980, and sales to date are most encouraging. We plan to build Grey Flannel, for men, into a leading department store brand, while the stra tegy for Red*, the young women's fra grance, calls for an exclusive distribu tion. We have continued to broaden distribution of CIE, a medium-priced fragrance for the contemporary woman. Pine-Sol liquid cleaner, the best selling brand in both the United States and Brazil, has maintained its leader ship position despite heavy promo tional spending by competitors. In 1980, in the United States, unit sales of the brand increased versus a year ago in every single period of the year. We expanded regional marketing of a new toilet bowl cleaner, Bowl Gard*, in the United States. In overseas markets, sales and operating earnings were well ahead of 1979, with the biggest growth achieved in Canada, South Africa, Argentina, Brazil and Mexico. We have been successful in expanding the market position of both our men's toiletries and our fine fragrances. Mandate*, a new men's fragrance first introduced in England in 1978, was launched in several other markets last year, and will be extended to even more in 1981. CIE fragrance also has been doing well in international markets. "Pine-Sol liquid cleaner, the best-selling brand in both the United States and Brazil, has maintained its leadership position.. " During 1980, as part of the consoli dation of the Breck and Shulton busi nesses that was started in 1979, the Breck and Shulton sales staffs were combined, and the Fort Madison, Iowa, plant was closed. This closing, and the transfer of Breck production and dis tribution operations there to other company locations, resulted in a one time reduction in operating earnings of about $2 million, but it should provide a long-term benefit to the company. Trademark 13 CY0005724 Formica Produc BRAND Sales of Formica brand products declined 5.8%, and operating earnings were off 3.7% 1980. Cyanamid's business in this segment consists of Formi' brand high-pressure decorative laminates which are m< and marketed in the United States by Formica Corpore and outside the United States by the Americas/Far Eas Division and the Europe/Mideast/Africa Division. In i. tion, decorative-faced panels and boards are made and marketed in selected countries by both international divisions. Two factors affected the sales of Formica brand products in 1980. The first was the divestiture, at the end of 1979 and early in 1980, of two product lines: melamine component panels and vinyl coated wallcoverings, both of which had limited long-term profit potential. These divestitures accounted for the sales decline in this business in 1980. Formica Brand Products ($ in millions) WORLDWIDE SALES OPERATING EARNINGS % Total Sale* 1976 1977 13 1976 14 1979 13 1980 1976 % 12 Operating Earning* 4 1977 10 1978 10 1979 8 1980 14 The second factor which affectec operations was the slump in the ecc omies of the United States and the United Kingdom. A sharp decline in housing starts and furniture shipmer in both countries, combined with re stricted industrial and commercial construction, hurt sales of our decor tive laminates. Operating earnings ir 1980 were lower despite price increases and the most stringent co: reduction efforts. In 1979, operating earnings were reduced by $7.7 miliic as a result of plant consolidations an the downward revision of our invest ments in some assets. Continued emphasis on operating efficiency and important new produc designs have positioned this busines for growth as soon as the economy turns upward. Formica Corporation introduced th. Design Concepts group of decorative CY0005725 "Continued emphasis on operat ing efficiency and important new product designs have positioned this business for growth as soon as the economy turns upward." laminates for commercial construction in the United States in 1980, and it is being introduced in Canada and .. the Design Concepts laminates won the prestigious Institute of Business Designers `best-in-show' award." Europe this year. Developed in coop eration with the 17 nationallyrecognized designers and architects who comprise Formica Corporation's Design Advisory Board, the new lami nates feature integrated solid colors and both high-gloss and dimensionalmatte surfaces. In October, the Design Concepts laminates won the presti gious Institute of Business Designers "best-in-show" award. While these developments and oth ers bode well for the future of the Formica decorative laminates busi ness, severe declines in major world markets, combined with flat perfor mance in others, resulted in the earn ings decline. While sales in Europe were about even with last year, worsen ing economic conditions cut profit margins. This was especially true in the United Kingdom, as that nation faced its highest level of unemploy ment since the end of World War II, and interest rates soared under government programs to control infla tion. Our restructuring of the European Formica laminate business is just about completed, as we continue to build the laminate side of the business and to withdraw from less profitable product lines. Recessionary factors affected earnings in most of Latin America, although sales gains were achieved in Argentina and Mexico. Sales also increased in Australia and Canada. We have strengthened our position in Latin American and Far Eastern markets with expanded manufacturing "With modern manufacturing equipment and successful new designs, we are determined to maintain our worldwide leadership position in this business." facilities in Mexico and the start of construction of a new plant in Taiwan. With modern manufacturing equip ment and successful new designs, we are determined to maintain our world wide leadership position in this business. 15 CY0005726 Financial Review Operating Results -- Cyanamid's consolidated sales in 1980 were $3.45 billion, up 8.4% from $3.19 billion in 1979. Sales in 1979 represented a 14.6% increase over the $2.78 billion in 1978. Net earnings of $159.2 million in 1980 were 5.5% below the $168.5 million of 1979 which were 8.1% above the $155.9 million in 1978. Net earnings per share for 1980 were $3.32 compared to $3.52 in 1979 and $3.26 in 1978 based on the average number of shares of common stock (excluding treasury shares) outstanding for each year. Common Stock and Dividends Paid -- Reported comparative high and low market prices on the New York Stock Exchange Composite Tape and dividends paid per share of the common stock by quarter for 1980 and 1979 were: Quarter First Second Third Fourth 1980 Market price High Low $38 32% 33% 34% $20% 22% 26 26% Dividends paid $ .40 .40 .40 .40 $1.60 1979 Market price High Low $26% 27% 32% 36% $24% 25% 24% 23% Dividends paid $ .40 .40 .40 .40 $1.60 As of February 13,1981, the most recent dividend date of record, there were 81,844 holders of the company's common stock. See Note 5 to the Consolidated Financial Statements regarding limitations on the payment of dividends. Quarterly Results -- Quarterly net sales, gross profits, net earnings and net earnings per share for 1980 and 1979 were as follows: Amounts in thousands 1980 Quarter Net sales Gross profit Net earnings Net earnings per share First Second Third Fourth $ 829,987 837,009 869,253 917,685 $3,453,934 $ 323,497 321,042 349,207 375,390 $1,369,136 $ 37,951 32,648 40,217 48,379 $159,195 $ .79 .68 .84 1.01 $3.32 1979 Quarter First Second Third Fourth Net sales $ 753,338 794,616 782,079 856,965 $3,186,998 Gross profit $ 302,814 319,869 316,616 339,525 $1,278,824 Net earnings $ 40,677 43,193 39,145 45,480 $168,495 Net earnings per share $ .85 .90 .82 .95 $3.52 Gross profit is derived by subtracting manufacturing cost of sales from net sales. See Notes 8 and 10 to the Consolidated Financial Statements regarding unusual charges and credits arising in certain of the 1980 and 1979 Quarters. 16 CY0005727 Management Statement Your management has prepared and is responsible for the accompanying consolidated financial statements. These statements have been pre pared in conformity with generally accepted accounting principles appropriate in the circumstances and necessarily include some amounts based on management's best esti mates and judgements. All other financial information in this annual report is consistent with that in the consolidated financial statements. The company maintains a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions are executed in accordance with management's authorization, and accounting records may be relied upon for the preparation of financial statements. The concept of reason able assurance is based upon the premise that the costs of controls should not exceed benefits derived from them. The system is monitored by a corporate staff of traveling inter nal auditors. The consolidated financial state ments have been examined by our independent certified public account ants, Peat, Marwick, Mitchell & Co. Their examination was conducted in accordance with generally accepted auditing standards and included a review of the system of internal accounting controls to the extent necessary to support their report, which appears on this page, as to the fair presentation, in the consolidated financial statements, of the company's financial position, results of operations and changes in financial position. The Audit Committee of the Board of Directors, composed solely of non management directors, meets periodi cally with management, the internal auditors and the independent certified public accountants to review internal accounting control, auditing and financial reporting matters. Both the internal auditors and the independent certified public accountants have full and free access to the Audit Committee. Accountants' Opinion Opinion of Independent Certified Public Accountants The Board of Directors and Stockholders American Cyanamid Company: We have examined the consolidated balance sheets of American Cyanamid Company and subsidiaries as of December 31,1980 and 1979 and the related consolidated state ments of earnings and earnings employed in the business and changes in financial position for each of the years in the three-year period ended December 31,1980. Our exam inations were 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 Company and subsidiaries at December 31,1980 and 1979 and the results of their operations and the changes in their financial position for each of the years in the three-year period ended December 31,1980, in conformity with generally accepted accounting princi ples applied on a consistent basis. PEAT, MARWICK, MITCHELL & CO. New York, NY February 3,1981 17 CY0005728 Earnings Statements American Cyanamid Company and Subsidiaries Consolidated Statements of Earnings and Earnings Employed in the Business Years Ended December 31,1980,1979 and 1978 NET SALES.......................................................................... Expenses: Manufacturing cost of sales less depreciation and depletion.............................................................. Selling and advertising.................................................... Administrative and general............................................. Depreciation and depletion............................................. Research and process development............................. EARNINGS FROM OPERATIONS ................................... Interest, royalties and other income, net........................... Interest expense.................................................................. EARNINGS OF CONSOLIDATED COMPANIES BEFORE TAXES ON INCOME...................................................... Taxes on income (Note 8)................................................ EARNINGS OF CONSOLIDATED COMPANIES.............. Equity in net earnings of associated companies.............. NET EARNINGS.................................................................. EARNINGS EMPLOYED IN THE BUSINESS AT BEGINNING OF YEAR............................................ Deduct dividends of $1.60 per share ($1.60 in 1979 and $1.50 in 1978)................................. EARNINGS EMPLOYED IN THE BUSINESS AT END OF YEAR .......................................................... NET EARNINGS PER SHARE OF COMMON STOCK 1980 1979 1978 (Thousands of dollars except per share amounts) $3,453,934 $3,186,998 $2,780,170 2,084,798 625,349 173,220 156,209 141,831 3,181,407 272,527 40,740 313,267 62,854 250,413 103,800 146,613 12,582 159,195 1,093,598 (76,464) $1,176,329 $3.32 1,908,174 582,954 162,256 140,594 124,135 2,918,113 268,885 43,294 312,179 62,856 249,323 91,600 157,723 10,772 168,495 1,001,347 (76,244) $1,093,598 $3.52 1,647,220 509,837 134,821 120,150 108,148 2,520,176 259,994 29,579 289,573 50,498 239,075 90,000 149,075 6,868 155,943 916,826 (71,422) $1,001,347 $3.26 See accompanying Notes to Consolidated Financial Statements 18 CY0005729 Balance Sheets American Cyanamid Company and Subsidiaries Consolidated Balance Sheets December 31,1980 and 1979 ASSETS CURRENT ASSETS Cash.................................................................................................................... Marketable securities and time deposits, at cost (approximates market)___ Accounts receivable, less allowance for doubtful accounts of $16,376 ($13,649 in 1979)........................................................................................... Inventories (Note 3)........................................................................................... 1980 1979 (Thousands of dollars) $ 66,799 113,843 $ 78,612 67,550 731,622 495,348 689,948 515,379 TOTAL CURRENT ASSETS..................................................................... INVESTMENTS AND ADVANCES Equity in net assets of and advances to associated companies................... Other investments and advances..................................................................... 1,407,612 62,019 54,072 1,351,489 57,740 43,644 TOTAL INVESTMENTS AND ADVANCES.............................................. 116,091 101,384 PLANTS, EQUIPMENT AND FACILITIES, at cost (Note 4)..................................... Less accumulated depreciation and depletion................................................ NET PLANT INVESTMENT....................................................................... INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS......................... 2,443,014 1,114,323 1,328,691 16,274 2,310,485 1,007,177 1,303,308 16,037 PREPAID EXPENSES AND DEFERRED CHARGES.............................................. 47,895 $2,916,563 54,544 $2,826,762 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses...................................................... Short-term borrowings, including commerical paper of $35,752 ($114,614 in 1979)......................................................................................... Funded debt installments due within one year................................................ Income taxes...................................................................................................... TOTAL CURRENT LIABILITIES............................................................... FUNDED DEBT NOT DUE WITHIN ONE YEAR (Note 5)....................................... DEFERRED INCOME TAXES................................................................................... OTHER NON-CURRENT LIABILITIES..................................................................... STOCKHOLDERS' EQUITY (Notes 5 and 6) 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................................................................. Less cost of 954,668 shares of common stock held in treasury (1,089,184 shares in 1979)........................................................................... TOTAL STOCKHOLDERS' EQUITY ........................................................ CONTINGENT LIABILITIES AND COMMITMENTS (Note 7) See accompanying Notes to Consolidated Financial Statements $ 615,477 78,164 11,597 73,781 779,019 545,089 104,000 53,108 244,527 39,985 1,176,329 1,460,841 25,494 1,435,347 $2,916,563 $ 569,739 183,269 17,446 57,380 827,834 522,572 85,500 43,689 244,527 39,139 1.093,598 1,377,264 30,097 1347,167 $2 826.762 IP CY0005730 Changes in Financial Position American Cyanamid Company and Subsidiaries Consolidated Statements of Changes in Financial Position Years Ended December 31,1980,1979 and 1978 SOURCES OF WORKING CAPITAL Net earnings...................................................................................................... Items not requiring the use of funds: Depreciation and depletion......................................................................... Deferred income taxes................................................................................. Equity in undistributed net earnings of associated companies.................. Funds derived from operations....................................................................... Issuance of funded debt not due within one year........................................... Decrease (increase) in prepaid expenses and deferred charges................ Increase (decrease) in other non-current liabilities....................................... Equity arising from common stock transactions - net (including $4,327 relating to the acquisition of a company in 1980)...................................... All others - net.................................................................................................. USES OF WORKING CAPITAL Additions to plants, equipment and facilities.................................................. Cash dividends on stock................................................................................. Reduction in funded debt not due within one year........................................ Increase (decrease) in investments and advances - net............................. INCREASE IN WORKING CAPITAL................................................................ INCREASE (DECREASE) 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 within one year.............................................. Income taxes..................................................................................................... INCREASE IN WORKING CAPITAL...............................:.............................. 1980 $159,195 1979 (Thousands of dollars) $168,495 1978 $155,943 156,209 18,500 (6,858) 327,046 43,951 6,649 9,419 140,594 4,200 (1,988) 311,301 15,865 (20,555) 12,487 120,150 10,500 (2,215) 284,378 160,040 (73) (688) 5,449 13,990 406,504 409 4,395 323,902 1,095 762 445,514 195,819 76,464 21,434 7,849 301,566 $104,938 235,416 76,244 13,477 (5,575) 319,562 $ 4,340 251,034 71,422 82,276 25,929 430,661 $ 14,853 $ 34,480 41,674 (20,031) (45,738) 105,105 5,849 (16,401) $104,938 $ 48,485 119,082 25,651 (109,112) (72,811) 12,026 (18,981) '.$ 4,340 $(13,021) 108,329 50,251 (75,827) (36,717) (13,171) (4,991) $ 14,853 See accompanying Notes to Consolidated Financial Statements 20 CY0005731 Notes American Cyanamid Company and Subsidiaries Notes to Consolidated Financial Statements ot 1980,1979 and 1978 (Thousands of dollars) 1. Summary of Accounting Policies Consolidation -- The consolidated financial statements include the accounts of American Cyanamid Company and ail subsidiaries, except real estate subsidiaries whose opera tions were discontinued in 1974. All significant intercompany transactions and balances have been eliminated. 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). The aggregate cost of these investments was $23,620 at December 31,1980 ($23,580 at December 31,1979). Divi dends of $5,724 were received from these companies in 1980 ($8,784 in 1979 and $4,653 in 1978). At December 31,1980, principal asso ciated companies are (% owned): Arizona Chemical Company (50%) B. Braun-Dexon G.m.b.H. (50%) Cyanamid-Ketjen Katalysator B.V. (50%) Cyanenka S.A. (40%) CY/RO Industries (50%) Lederle (Japan) Ltd. (50%) Societe des Sutures Chirurgicales Robert & Carriere-Lederle (47%) TDF Tiofine B.V. (50%) Currency Translation -- Foreign cur rency financial statements and trans actions are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 8. Earnings before taxes on income were reduced by exchange adjustments of $19,100 in 1980 ($22,800 in 1979 and $600 in 1978). Manufacturing cost of sales included foreign exchange losses of $8,600 in 1980 ($3,400 loss in 1979 and $7,500 gain in 1978) and administrative and general expenses included exchange losses of $10,500 in 1980 ($19,400 in 1979 and $8,100 in 1978). Depreciation and Amortization -- Depreciation is provided on a straightline composite method over the esti mated remaining useful lives of various classes of assets. When depreciable assets are sold or other wise retired from service, their cost, less amounts realized on sale or sal vage, is charged or credited to the accumulated depreciation account. Expenditures for maintenance and repairs are charged to current operat ing expenses. Acquisitions, additions and betterments for increasing pro ductive capacity or prolonging service lives of plants, equipment 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 dim inution in value, in which case they are amortized over appropriate periods. Inventories -- Inventories are carried at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) method for substantially all inventories in the United States with the remainder determined on the firstin, first-out (FIFO) or average method. Taxes on Income -- The provision for Federal taxes on income is reduced by the investment tax credit using the flow-through method. Deferred income taxes are provided to recognize the effect of timing differen ces between financial statement and income tax accounting, principally dif ferences in depreciation methods and rates. The company provides taxes on the undistributed earnings of subsidiaries and associated companies where the remittance of such earnings is not considered to be indefinitely post poned. At December 31,1980, the company has no present intention of remitting undistributed earnings of subsidiaries and associated compan ies aggregating $520,100. Earnings Per Share -- Earnings per share of common stock is based on the average number of shares out standing during the year, 47,926,114 in 1980 (47,813,260 in 1979 and 47,792,323 in 1978). The stock options described in Note 6 do not result in a material dilution of earnings per share. 2. Foreign Operations included in the consolidated financial statements are as follows: I960 Net current assets............................................................................................$379,100 Net other assets (principally plants, equipment and facilities) .......... .. 296200 Equity in undistributed earnings of foreign subsidiaries............................. 438,600 1979 $273,700 320,300 393,000 Net earnings of foreign subsidiaries were $114,700 in 1980 ($118,300 in 1 979 and $78,700 in 1978). 21 CY0005732 3. Inventories -- At December 31, 1980,estimated current cost exceeded the LIFO value of the inventories by approximately $165,900 (1979 $137,500). It is not practicable to determine the major components of inventory under the dollar value LIF( inventory method. 4. Plants, Equipment and Facilities are comprised of the following: Land, including mining land........................................................... Buildings............................................................................................ Machinery and equipment............................................................. Construction in progress.............................. 1980 $ 50,959 444,796 1,842.173 105,086 $2,443,014 1979 $ 49,018 395,902 1,715,296 150,269 $2,310,485 An insignificant amount of interest costs incurred in 1980 has been cap talized in accordance with Statemen of Financial Accounting Standards N 34. Prior to 1980, all interest costs were charged against earnings. 5. Funded Debt, excluding the current portion, is as follows: 1980 Sinking tund debentures 7%% due 2001 ........................................................................... 8%% due 2006 ........................................................................... Promissory notes, 314% due 1982 to 1987............................... Promissory notes, 814% due 1988 to 1998............................... Pollution control bonds 6.8% due 2000 ........................................................................... 6.5% due 2006 ......... 5.5% to 8%% due at various datesthrough 2009.................. Sundry obligations......................................................................... $ 96,000 99,607 52,500 150,000 21,000 22,400 55,193 48,389 $545,089 1979 $100,000 99,585 57.000 150.000 21,000 22,400 44,690 27,897 $522,572 Annual maturities of funded debt and sinking fund requirements for the four years subsequent to December 31, 1981, are as follows: 1982 -$32,877; 1983 -$9,908; 1984 -$11,572; and 1985 -$24,070. The principal ($21,900 at December 31,1980 and $23,500 at December 31,1979) and interest ($1,549 in 1980, $1,520 in 1979, and $1,488 in 1978) on certain parallel loans have been netted against the corresponding assets.and income items in the consolidated financial statements, reflecting the financial consequences in the event of a default by any obligor. Interest rates on these loan arrangements vary according to agreement and are sub ject to adjustment under certain con ditions. Maturity dates of the loans range from 1985 through 1987. The 33/<% and 814% promissory notes contain certain restrictions, including limitations on the payment of dividends. Under the most restric tive of such limitations, the amount o earnings employed in the business a December 31,1980, which may be applied to the payment of such cash dividends, is limited to $154,500. 6. Stockholders' Equity Authorized Capital at December 31,1980, includes 650,000 shares of preferred stock with a par value of $1 per share, none of which is outstand ing. On February 3,1981, the Board of Directors authorized an additional 40,000,000 shares of common stock and 9,350,000 shares of preferred stock, subject to approval by the com pany's stockholders at their annual meeting on April 20,1981. Stock Options -- Under the com pany's stock option plan, key employees may be granted ten-year non-qualified options to purchase common stock at not less than 100% of market value on the date of grant; 22 2,300,000 shares were reserved for stock options under the plan. 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. Upon exercise of options, the differ ence between the proceeds and the par value of shares issued or cost of treasury stock is recorded in addi tional paid-in capital. Selected stock option data are as follows: Options exercised during year: Number of shares Option price per share Options outstanding at December 31: Number of shares Option price per share Options outstanding which were exercisable at December 31 1980 1979 1978 99,102 72,499 118,682 $24.00-31.25 $24.00-31.25 $24.00-28.5C 1.753,213 1,636.111 1,421,422 $24.00-37.25 $24.00-37,25 $24.00-37 25 1,084,534 1.021.561 870.815 CY0005733 Additional Paid-In Capital changes are attributable to the issuance of shares for: Stock options.............. ........................ Acquisition of a company................. Increase in additional paid-in capital Treasury Stock is acquired from time to time and used to fulfill obliga tions under the company's incentive compensation and stock plans. Shares were acquired (issued) as follows: Acquired....................................................... Acquisition of a company......................... Pursuant to stock option plan.................. Pursuant to incentive compensation plan Decrease in treasury stock...................... 1980 $250 596 $846 1979 $124 $124 1978 $117 $117 1980 66.240 (120,634) ( 77.387) ( 2,735) (134,516) 1979 33.121 (31,864) ( 2,829) ( 1.572) 1978 (40,734) ( 2,254) (42,988) 7. Contingent Liabilities and Com mitments -- Rental expense under property and equipment leases in 1980 was $43,300 ($39,300 in 1979 and $35,200 in 1978). Estimated future minimum rental expenses under prop erty and equipment leases that have initial or remaining noncancellable lease terms in excess of one year as of December 31,1980, are: 1981 - $12,200; 1982 - $8,500; 1983 -$6,300; 1984 -$4,900; 1985 -$3,200; later years -$13,100 in the aggregate. The company accounts for leases as operating leases, which in all material respects complies with Statement of Financial Accounting Standards No. 13. The present status of significant lit igation is disclosed in the section entitled "Antibiotics Litigation" else where in this report. 8. Taxes on Income are based on earnings of consolidated companies before taxes on income as follows: Domestic......................................................... Foreign............................................................. 1980 $ 74,614 175,799 $250,413 1979 $ 77,375 171,948 $249,323 1978 $103,670 135.405 $239,075 The components of the provision are: Current Federal............................................................. Foreign....................................................... .. Other ............................................................... Deferred: Federal............................................................. Foreign and other........................................... Total taxes on income............................... Domestic and foreign earnings of consolidated companies before taxes on income include all income gener- 1980 $ 14,100 64,200 7,000 85,300 1979 $ 22,900 59,300 5,200 87,400 1978 $ 13,300 62,400 3,800 79,500 10,800 7,700 18,500 $103,800 4,900 (700) 4,200 $ 91,600 11,200 (700) 10,500 $ 90,000 ated by operations in the respective U.S. and foreign geographic areas, whereas provisions for taxes on income include all income taxes pay able to U.S., foreign and other governments as applicable, regardless of the situs in which the taxable income is generated. The principal component of the 1980 deferred tax provision is the excess of tax over book depreciation ($19,200).In 1979, the principal com ponents of the deferred tax provision are the excess of tax over book depreciation ($9,100) partially offset in the third quarter of 1979 by the rever sal of deferred income tax liabilities ($3,400, approximately 7<C per share) in the United Kingdom, occasioned by a change in U.K. tax laws. In 1978, the principal components of the deferred tax provision are the excess of tax over book depreciation ($20,000) par tially offset by investment tax credit ($8,500) carried forward to subse quent years. 23 CY0005734 A reconciliation between the company's effective tax rate and the U.S. Federal income tax rate is as follows: Federal income tax rate........................................................................... Investment tax credit on assets purchased during the year.............. Income subject to income tax at less than U.S. rates, and not expected to be subject to U.S. tax in the foreseeable future... Reversal of U K deterred taxes............................................................... Other, net .................................................................................................... Effective tax rate............................................................................... 1980 46.0% (4.4) (4.0) -- 3.9 41.5% 1979 46.0% (5.6) (4.3) (1.4) 2.0 36.7% 1978 48.0% (8.4) (1.9) -- (0.1) 37.6% 9. Other Financial Statement Information Included in accounts payable and accrued expenses at December 31, 1980,are trade payables of $282,718 ($267,357 at December 31,1979), pensions and other employee benefits of $75,301 ($69,816 at December 31, 1979), checks outstanding in excess of certain domestic cash balances of $30,981 ($29,289 at December 31, 1979) and other accrued expenses of $226,477 ($203,277 at December 31, 1979). At December 31,1980, the company had $215,000 of domestic short-term lines of credit, of which $200,000 was available without restriction as to use. Maintenance and repairs in 1980 were $176,800 ($155,100 in 1979 and $138,000 in 1978). Taxes other than income and payroll taxes for 1980 were $37,500 ($33,800 in 1979 and $31,700 in 1978). Advertising in 1980 was $211,000 ($198,000 in 1979 and $178,900 in 1978). The company and its consolidated subsidiaries have various pension plans covering substantially all employees in the United States and Canada and certain employees in for eign countries. The company's policy generally is to accrue and fund pen sion costs over the service lives of the covered employees. The total pension expense for 1980 was $47,500 ($40,400 in 1979 and $33,600 in 1978). Using an assumed rate of return of 8.5%, the actuarial present value of accumulated benefits under the principal plans of the company, at the most recent valuation date (Janu ary 1,1 980), was computed to be $413,600. Of this amount, $404,200 represents vested plan benefits and $9,400 represents nonvested plan benefits. The corresponding total of net assets available for plan benefits was $418,700. 10. Information About Operations by Businesses and Geographic Areas The following commentary relates to the tables appearing on pages 25 and 26. The company is engaged primarily in the manufacture and sale of a highly diversified line of agricultural, medical, specialty chemical, consum er and Formica brand products. In 1980, the company made a re classification between the specialty chemicals and medical businesses to more appropriately reflect such opera tions. Prior years' data have been restated for comparability purposes. Total sales between businesses were approximately $91,800 in 1980 ($90,600 in 1979 and $76,400 in 1978). These intersegment sales, which are made at cost, were not sig nificant for any of the businesses except medical ($22,600 for 1980, $31,900 for 1979 and $23,900 for 24 1978) and specialty chemicals ($67,400 for 1980, $57,400 for 1979 and $51,100 for 1978). Operating earnings consist of total net sales less operating expenses. In computing operating earnings, none of the following items has been added or deducted: general corporate expenses, interest expense, interest income, equity in net earnings of associated companies, and income taxes. Identifiable assets are those assets used in the company's operations in each business or geographic area. Corporate assets are primarily cash, marketable securities and construc tion in progress. Intergeographic sales are made at prices which provide reasonable and appropriate returns based upon the respective properties employed and the businesses conducted, and appli cable eliminations have been applied to the intergeographic transactions. Third-quarter 1980 operating earn ings were reduced by $13,600 in the specialty chemicals business as the result of several provisions for curtail ment or withdrawal from certain prod uct lines. Operating earnings of the consumer products business were also reduced in the third quarter of 1980 because of a $2,000 provision for consolidating certain manufactur ing and distribution operations. The agricultural business reflected the non-recurring gain of $11,800 in operating earnings realized from the sale of a Florida phosphate rock de posit in the fourth quarter of 1979. Fourth-quarter 1979 operating earn ings were reduced in the specialty chemicals and Formica brand prod ucts businesses, $10,400 and $7,700, respectively, by provisions for consoli dating certain manufacturing opera tions and a downward revision in the company's investments m some assets. CY0005735 Businesses: Specialty Agricultural Medical Chemicals 1980 Net sales.............................................................................. $837,158 $695,167 $1,023,560 Operating earnings................................................................... 132,301 88,456 48.193 General corporate expenses........................................... Interest expense, net......................................................... Earnings of consolidated companies before taxes on income.............................................................. Equity in net earnings of associated companies.................................................. 482 5,281 6,535 Identifiable assets................................................................ 649,879 426,711 774,586 Equity in net assets of and advances to associated companies.................................................. 2,031 13,189 44,249 Corporate assets................................................................ Total assets......................................................................... Depreciation and depletion................................................ 28,990 20,894 78,462 Capital additions.................................................................. 45,959 35,806 86,951 Consumer Products $492,230 27,830 212,820 4,932 6.849 Formica Brand Products Corporate Consolidated $405,819 25,517 $3,453,934 322,297 $(30,964) (30,964) (40,920) (40,920) 250.413 284 297,473 12,582 2,361,469 2,550 15,803 14,911 493,075 7,128 5,343 62,019 493,075 2,916,563 156,209 195,819 1979 Net sales.............................................................................. Operating earnings.............................................................. General corporate expenses........................................... Interest expense, net......................................................... Earnings of consolidated companies before taxes on income.............................................................. Equity in net earnings of associated companies.................................................. Identifiable assets................................................................ Equity in net assets of and advances to associated companies.................................................. Corporate assets................................................................ Total assets......................................................................... Depreciation and depletion................................................ Capital additions.................................................................. $724,854 130,523 416 598,888 2,098 21,331 59,623 $612,779 85,870 4,315 380,505 12,011 18,405 50,413 $974,073 57,685 5,769 798,302 41,650 75,287 80,520 $444,513 28,820 189,375 4,298 9,158 $430,779 26,485 272 315,377 1,981 15,110 23,337 $3,186,998 329,383 $(31,972) (31,972) (48,088) (48,088) 249,323 10,772 2,282,447 486.575 6.163 12,365 57,740 486,575 2,826.762 140,594 235,416 1978 Net sales............................................................................. Operating earnings.............................................................. General corporate expenses........................................... Interest expense, net......................................................... Earnings of consolidated companies before taxes on income.............................................................. Equity in net earnings of associated companies .................................................. Identifiable assets................................................................ Equity in net assets of and advances to associated companies.................................................. Corporate assets................................................................ Total assets......................................................................... Depreciation and depletion................................................ Capital additions.................................................................. $611,613 82,523 421 535,577 2,159 20,271 41,598 $540,482 81,274 5,857 337.721 14,406 16,338 32,204 $841,026 83,787 661 764,663 39,653 61,378 134,636 $391,254 30,276 135,183 3,772 6,165 $395,795 32,498 $2,780,170 310,358 $(32,062) (32,062) (39,221) (39,221) 239,075 (71) 304,537 6,868 2,077,681 1,792 13.526 23,037 390,458 4,865 13,394 58,010 390.458 2,526,149 120,150 251,034 25 CY0005736 Geographic areas: 1980 Ne! sales to unaffiliated customers.............. Intergeographic sales..................................... Total net sales.............................................. Operating earnings......................................... General corporate expenses......................... Interest expense, net....................................... Earnings of consolidated companies before taxes on income ......................................... Equity in net earnings of associated companies................................ Identifiable assets............................................ Equity in net assets of and advances to associated companies................................ Corporate assets.............................................. Total assets....................................................... 1979 Net sales to unaffiliated customers.............. Intergeographic sales..................................... Total net sales .............................................. Operating earnings......................................... General corporate expenses......................... Interest expense, net....................................... Earnings of consolidated companies before taxes on income ......................................... Equity in net earnings of associated companies................................ Identifiable assets............................................ Equity in net assets of and advances to associated companies............................... Corporate assets.............................................. Total assets....................................................... 1978 Net sales to unaffiliated customers.............. Intergeographic sales..................................... Total net sales.............................................. Operating earnings......................................... General corporate expenses......................... interest expense, net....................................... Earnings ol consolidated companies before taxes on income......................................... Equity in net earnings of associated companies................................ Identifiable assets........................................... Equity in net assets of and advances to associated companies................................ Corporate assets.............................................. Total assets......... ............................................. 26 United States Other Western Hemisphere Eastern Hemisphere Adjustments and Eliminations Consolidated $2,223,794 135,085 2,358,879 154,541 5,559 1,552,309 31,328 $450,134 32,886 483,020 47,023 439 306,697 2,031 $780,006 23,527 803,533 120,733 6,584 502,463 28,660 $(191,498) (191,498) $3,453,934 3.453,934 322,297 (30,964) (40,920) 250,413 12,582 2.361,469 62,019 493,075 2,916,563 $2,061,617 116,319 2,177,936 158,911 5,290 1,515,450 26,082 $422,139 26,605 448,744 52,679 361 295,157 1,952 $703,242 19,039 722,281 117,793 5,121 471,840 29.706 $(161,963) (161,963) $3,186,998 3,186,998 329,383 (31,972) (48,088) 249,323 10,772 2,282,447 57,740 486,575 2,826,762 $1,821,246 111,244 1.932,490 151,412 4,035 1,429,005 22,397 $355,861 32,041 387,902 43,404 $603,063 9,428 612,491 115,542 $(152,713) (152,713) $2,780,170 2,780,170 310,358 (32,062) (39,221) 239,075 358 262,500 2,475 386,176 6,868 2,077,681 1,916 33,697. 58,010 390,458 2,526,149 CY0005737 11. Supplemental Information on Inflation and the Effects of Changing Costs (Unaudited) The United States has experienced rapid inflation in the last decade as contrasted to the relatively low level of inflation existing earlier. This expe rience has led to the general belief that the historical cost measurements used for the financial statements and other financial information included in annual reports to stockholders fail to reflect fully the economic reality of a business' financial condition and operating results. The Financial Accounting Standards Board (FASB), in an effort to produce financial infor mation that discloses the effects of inflation, issued Statement No. 33, Financial Reporting and Changing Prices, which requires that certain supplemental financial data be pro vided to readers of financial state ments. The Statement attempts to deal with the measurement of the effects of general price level changes (purchas ing power) and of changes in specific costs (current costs) of the resources used in manufacturing products. Net earnings adjusted for the effects of inflation illustrates the overstatement of earnings and resulting overpayment of income taxes, whereas historical dollar accounting does not reflect the cumulative effects of increasing costs and changes in the purchasing power of the dollar during times of significant and continued inflation. The effects of inflation are particu larly important to the investment in plants, equipment and facilities, made over an extended period of time, and the related depreciation and depletion expense. Since the purchasing power of the dollar has declined significantly from the time these investments were made, their value on the balance sheet is at a lesser amount than would be required to acquire such invest ments today. The differential may be considered the estimated effect of inflation on the financial statements. Statement No. 33 requires that the effect of general inflation on our oper ations be measured by the U.S. Con sumer Price Index for All Urban Con sumers (CPI-U). This measure of inflation includes many items and, therefore, is not necessarily represen tative of changes in our worldwide manufacturing costs. The effect of specific cost changes on our opera tions is required to be measured by current amounts which are applicable to the company. This measure of costs is highly subjective and, while based on the best judgments of man agement, may not accurately reflect the effects of inflation. Consequently, the company believes that while it is important for financial statement users to develop an understanding of the more significant impacts of inflation, the dominant focus should continue to be on the financial statements based upon historical costs. The required supplemental inflation data must be viewed with caution since, as indi cated above, it is not certain whether it is a fair representation of the impact of inflation upon the company. The condensed consolidated state ments of earnings presented on page 28 are based on historical results of operations adjusted for changing cost factors relating to plants, equipment and facilities and inventories. Except for the adjustment of net-monetary liabilities to arrive at the purchasing power gain, which is not included in adjusted net earnings, no other bal ance sheet or income and expense items have been restated for changes in either general inflation or current costs. In the first instance, the 1980 and 1979 results of operations have been adjusted for the general effects of the change in purchasing power using the CPI-U (constant dollar accounting) required by the FASB. The 1980 results are presented in 1980 average dollars and the 1979 results are pre sented in 1979 average dollars. Depreciation and depletion expense for both years reflects a higher pre sent cost of plant, equipment and facil ities. For both years, the inflationary impact on inventories affects manu facturing cost of sales to a lesser extent since the company uses the LIFO method of costing for a substan tial portion of such inventories and therefore reflects to a large degree present costs in the historical financial statements. It should be recognized that the resultant amounts do not pur port to represent appraised values or any other measure of current value. In the second instance, the 1980 and 1979 results have been adjusted for changes in specific costs. Current costs have been determined by var ious methods. The FIFO method was used to approximate the current cost of inventories. The LIFO method, or methods yielding results approximat ing the LIFO method, were used to estimate the current manufacturing cost of sales. As in the case with con stant dollar adjusted manufacturing cost of sales, the current manufactur ing cost of sales for both 1980 and 1979 only slightly exceed historical costs because the LIFO inventory method is used for a substantial por tion of the company's inventories. The current cost of plants, equipment and facilities was generally determined by use of externally developed construe-' tion and equipment indices. It should be recognized that the resultant amounts are not indicative of the company's results of operations from replacement of its productive capacity because such replacement would contemplate technological improve ments to increase efficiency and reduce costs of operations. Current cost adjustments only contemplate replacing inventories and existing facil ities with identical assets at year end. For both the constant dollar and current cost adjustments, depreciation expense was calculated using the same methods and rates of deprecia tion as used in the historical consoli dated financial statements. Since the company is not permitted deductions for tax purposes of adjustments for inflation in manufacturing cost of sales or depreciation and depletion, taxes on income have not been modified for the effects of changes in purchasing power or specific costs. Because income taxes are not levied solely on economic gain, the effective tax rate is greater than indicated by statutory rates. The five-year table presented on page 29 sets forth a comparison of selected financial data relating to changes in both purchasing power and specific costs. All amounts in the table have been determined in units of common purchasing power using the 1980 average CPI-U. Certain informa tion relating to years prior to 1979 is omitted, as it is impractical to obtain such information. 27 CY000573S Condensed Consolidated Statement of Earnings Adjusted for Changing Costs for the Year Ended December 31,1980 (Unaudited) (Millions of dollars) Net Sales...................................................................................................................... Expenses: Manufacturing cost of sales................................................................................. Selling, administrative and research................................................................... Depreciation and depletion................................................................................... As Reported in Consolidated Statement of Earnings $3,454 2,085 940 156 3,181 Adjusted for General Inflation (Constant Dollar) $3,454 2,132 940 266 3,338 Adjusted for Changes in Specific Costs (Current Costs) $3,454 2,121 940 293 3,354 Earnings from operations........................................................................................... Other expenses, net.................................................................................................... Earnings before taxes on income............................................................................. 273 116 100 22 22 22 251 94 78 Taxes on income........................................................................................................ 104 104 104 Earnings of consolidated companies....................................................................... 147 (10) (26) Equity in net earnings of associated companies................................................... Net earnings (loss)........................................................... .......................................... Effective tax rate.......................................................................................................... Gain from decline in purchasing power of net amounts owed.......................... 12 $ 159 41.5% 12 $2 110.8% $ 62 12 $ (14) 133.7% $ 62 increase in general price level of inventories and plants, equipment and facilities held during the year* ..................................... $ 383 Increase in specific costs (current cost)................................................................. Excess of increase in general price level over increase in specific costs----- 262 $ 121 *At December 31.1980 current cost of inventory was $671 and current cost of plants, equipment and facilities, net of accumulated depreciation was $2,628 Condensed Consolidated Statement of Earnings Adjusted for Changing Costs for the Year Ended December 31,1979 (Unaudited) (Millions of dollars) As Reported in Consolidated Statement of Earnings Adjusted for General Inflation (Constant Dollar) Adjusted for Changes in Specific Costs (Current Costs) Net Sales................................................. Expenses: Manufacturing cost of sales............ Selling, administrative and research Depreciation and depletion.............. Earnings from operations............................................................... Other expenses, net....................................................................... Earnings before taxes on income................................................. Taxes on income........................................................................... Earnings of consolidated companies........................................... Equity in net earnings of associated companies...................... Net earnings................................................................................... Effective tax rate.................. .......................................................... Gain from decline in purchasing power of net amounts owed $3,187 1,908 869 141 2,918 269 20 249 91 158 11 $ 169 36.7% $3,187 1,946 869 214 3,029 158 20 138 91 47 11 $ 58 65,9% $ 66 $3,187 1,931 869 254 3,054 133 20 113 91 22 11 $ 33 80.8% $ 66 Increase in general price level of inventories and plants, equipment and facilities held during the year* ..................................... * 499 Increase in specific costs (current cost)................................................................ Excess of increase in general price level over increase in specific costs----- ---- qj i cq * At December 31,1979 current cost of inventory was $677 and current cost of plants, equipment and facilities, net of accumulated deprecation was $2,527 28 CY0005739 1 Five-Year Comparison of Selected Financial Data Adjusted for Effects of Changing Costs in Average 1980 Dollars (Unaudited) (Millions of dollars except per share amounts) Net Sales......................................................................... Historical cost information adjusted for General inflation: Net earnings........................................................... Net earnings per share of common stock........ Stockholders' equity at year end......................... Current cost information: Net earnings (loss)................................................. Net earnings (loss) per share of common stock Stockholders' equity at year end......................... Excess of increase in general price level over increase in specific costs................................. Gain from decline in purchasing power of net amounts owed..................................... Per share of common stock: Cash dividends........................................................... Market price at year end........................................... Average consumer price index ................................... 1980 $3,454 Years ended December 31 1979 1978 1977 $3,618 $3,511 $3,323 1976 $3,080 2 .05 2,422 (14) (.28) 2,783 121 62 1.60 32.63 246.8 66 1.35 2,429 37 .77 2,927 181 75 1.82 38.60 217.4 1.89 32.05 195.4 2.04 36.37 181.5 2.17 40.35 170.5 Litigation Antibiotics Litigation -- On October 10,1980, the Federal District Court in Philadelphia entered final judgment against the United States government in its civil suit against the company and four other drug manu facturers for damages based upon the government's payments for broadspectrum antibiotics purchases. After a trial that began in 1978, the Court found that the government had'failed to prove the allegations of patent fraud upon which the government's case was based. The government has filed a notice of appeal. The government's separate suit seeking cancellation of four of the company's patents relating to anti biotics on the basis of alleged patent fraud also remains pending. All four of the patents have expired. The Court has fixed June 1,1981, as the trial date for the suits by the governments of Iran, the Philippines, West Germany, India and Colombia against the five drug manufacturers for damages based upon their pay ments for purchases of broadspectrum antibiotics during the period 1953-1975. The claimants have not specified the amount of damages allegedly suffered. Due to the uncertainties necessarily inherent in litigated matters of this sort, the eventual cost of all of the above lit igation to the company, and its dis position, cannot be accurately pre dicted. During 1977, the company made a provision in the amount of $17 million, which was charged to earn ings of appropriate years prior to 1967, after giving effect to related tax reduc tions, based upon the prediction that the cost to the company of achieving an ultimate final disposition of the then pending antibiotics litigation would be at least that amount. Expenses incurred during 1980 were charged against this provision. The company believes that any additional liability with regard to all of this litigation above and beyond the amount of the reserve would not have a material adverse effect upon the financial posi tion of the company and its subsidiar ies. Under present accounting stand ards, any such additional amounts would be charged against current earnings. The company denies that it has vio lated the anti-trust laws or engaged in any wrongdoing before the Patent Office. Formica Trademark Litiga tion -- On June 13.1980. the Fed eral Trade Commission's petition attacking the registration of the Formica trademark on the ground that it was generic was dismissed. 29 CY0005740 Five-Year Summary Five-Year Summary (Millions of dollars except per share amounts) Earnings Net sales................................................................... Manufacturing cost of sales less depreciation and depletion............................. Depreciation and depletion................................... Selling, administrative and research expenses......................................... Interest expense..................................................... Taxes on income..................................................... Earnings of consolidated companies.................. Equity in net earnings of associated companies................................... Net earnings............................................................. Per share of common stock Net earnings......................................................... Dividends............................................................. Average number of shares of common stock outstanding (used in calculating earnings per share)... Other Data Additions to plants, equipment andfacilities____ Current assets......................................................... Current liabilities..................................................... Working capital ............................'........................ Plants, equipment and facilities --at cost............ Net depreciated cost............................................... Total assets............................................................. Funded debt not due within one year................... Stockholders' equity: Common stock..................................................... Additional paid-in capital................................... Earnings employed in the business............ .. Less treasury stock............................................. Total stockholders'equity ............................. 30 1980 $3,454 2,085 156 940 63 104 147 12 159 3.32 1.60 47.9 196 1,408 779 629 2,443 1,329 2,917 545 244 40 - 1,176 (25) 1,435 1979 $3,187 1,908 141 869 63 92 157 11 168 3.52 1.60 47.8 235 1,351 828 523 2,310 1,303 2.827 523 244 39 1,094 (30) 1,347 1978 $2,780 1,647 120 753 51 90 149 7 156 3.26 1.50 47.8 1977 $2,444 1,461 104 653 44 84 132 7 139 2.92 1.50 47.8 251 1.158 639 519 2,123 1,213 2,526 520 244 39 1,001 (30) 1,254 235 1,013 508 505 1,908 1,082 2,222 442 244 39 917 (31) 1.169 CY0005741 1976 $2,12i 1.25 8! 58( 3* 81 125 11 136 2.8^ 1.5. 47.5 232 923 417 506 1,676 917 2,002 418 244 39 849 (31 1,101 Discussion and Analysis American Cyanamid Company and Subsidiaries Discussion and Analysis of Financial Condition and Results of Operations Financial condition -- A company's liquidity may be measured by its liquid asset position, its ability to generate funds from operations, and its ability to arrange external financing. At December 31,1980, the company had available for its operations $180.6 million in cash, marketable securities and time deposits. This significant source of liquidity, combined with accounts receivable of $731.6 million, convertible to cash over a relatively short period of time, provides the company the capability to satisfy normal cash requirements from its own resources. The ratio of current assets to current liabilities is generally perceived to be a useful measure of liquidity. The company's 1.8 to 1 ratio is judged to be very adequate. Funds derived from operations in 1980 totaled $327 million. This amount, combined with funds derived from increases in funded debt of $44 million, provided the company with adequate resources for capital expenditures of $195.8 million, dividend payments to shareholders of $76.5 million and other cash requirements. In addition to the operating cash flow and liquid assets discussed above, the company has $215 million in unutilized lines of credit in the United States. These lines are available to satisfy cash requirements, should such a need arise, or to support commercial paper borrowings and are sup plemented by a variety of other credit facilities maintained by foreign subsidiaries. The company has maintained a relatively consistent level of debt financing. At December 31,1980, aggregate debt financing was $634.9 million equal to 30.7% of total debt and equity and comprised of short term borrowings and commercial paper of $78.2 million and funded debt, including the portion due within one year, of $556.7 million. The company believes it is capable of raising substantial amounts of short term and long-term debt in the United States and other financial markets, if necessary. Based on projected internal cash generation, current levels of liquid assets and the credit capacity to support additional financing, the company expects to continue to be able to competitively finance operating cash requirements and planned capital expenditures for 1981, including the amount already committed at December 31,1980, of about $36 million. All planned capital expenditures are intended to provide necessary capacity to improve efficiency of production units, to modernize or replace older facilities, and to install equipment required for protection of the environment. The company considers its December 31,1980, financial condition and anticipated 1981 operating results to be of the most significance in assessing its liquidity. Importance can also be attached to prior years' data which evidence an ability to maintain liquidity over a period of time. Data for 1979 and 1978 corresponding to the 1980 data discussed above are readily obtainable from the Consolidated Financial Statements included in this annual report. Results of operations -- Consolidated net sales in 1980 were $3.45 billion; sales were $3.19 billion and $2.78 billion in 1979 and 1978, respectively. Net earnings for 1980 were $159.2 million, or $3.32 a share, 5.5% lower than earnings of $168.5 million, or $3.52 a share, in 1979. Net earnings for 1978 were $155.9 million, or $3.26 a share. 1980 earnings reflect certain charges and provisions (before income taxes) of $15.6 million or approximately 17$ a share for plant consolidations and shutdowns. In 1979, earnings before income taxes were reduced by the effect of unusual provisions totaling $18.1 million or approximately 20$ a share for consolidating certain manufacturing operations and the downward revision in the company's investments in some assets. 1979 earnings also included a non-recurring gain of $11.8 million or 17$ a share realized from the sale of a phosphate rock deposit in Florida and an income tax credit of $3.4 million or 7$ a share resulting from a change in the tax laws of the United Kingdom. The net effect of these unusual charges and credits was to increase 1979 net earnings by approximately 4$ per share. Note 10 to the Consolidated Financial Statements sets forth for each of the last three years the net sales, operating earnings and certain other financial data relating to each of the company's five businesses. Agricultural sales and operating earnings increased in both 1980 and 1979 from prior year levels. These increases resulted, in 1980, from increased demands for fertilizers, insecticides and herbicides, and in 1979, from increased sales of animal feed and health products as the rebuilding of livestock herds increased the demand for our products. Increased demand and limited global capacity for fertilizers-resulted in higher prices than in previous years and contributed to the sales and operating earnings gains. 1979 operating earnings reflect the non-recurring gain of $11.8 million referred to above. Medical sales and operating earnings also increased in both 1980 and 1979 from previous year levels. In 1980, sales of synthetic absorbable sutures, antibiotics and multivitamins increased; 1979 sales gains were achieved in the areas of major mature products and by expanding the lines of generics and multivitamins. Increased promotion expense and higher levels of research funding to support the clinical testing of new products had a leveling effect on operating earnings in both 1980 and 1979. Sales of specialty chemicals increased in both 1980 and 1979 over the previous year levels but operating earnings decreased. In 1980, the recession in the durable goods sector of the U.S. economy particularly affect ed this business. Price increases in 1979 lagged behind soaring energy and raw material costs resulting in 31 CY0005742 Discussion and Analysis (con't.) significantly lower profit margins and declining operating earnings. 1980 earnings were reduced $13.6 million as a result of curtailment or withdrawal from certain product lines; 1979 earn ings were reduced $10.4 million by provisions for consolidating certain manufacturing operations. Consumer product sales increased in both 1980 and 1979 as compared to the previous year; 1980 sales increases were inhibited by high inter est rates resulting in retailer inventory reductions. Operating earnings decreased during both periods. Fac tors causing the declines were high costs of test marketing and introduc ing new products; heavy brand main tenance expenditures and intense competition. 1980 results were impacted by relatively weak fourth quarter sales of prestige fragrances, as well as an unusual charge of $2 million resulting from a consolidation of manufacturing and distribution operations. Sales of Breck shampoo and conditioner declined in both 1980 and 1979. Formica brand products sales declined in 1980 from the 1979 levels primarily due to the divestiture in 1979 and 1980 of two product lines. Both sales and operating earnings in 1980 were further held down as a result of sharp declines in housing starts, remodeling and furniture shipments, combined with restricted industrial and commercial construction. During both 1980 and 1979, the adverse effects in the United States of higher interest rates, declining mortgage funds and rising energy and raw material costs caused operating earnings to decline. Operating earnings in 1979 were further depressed $7.7 million by pro visions for consolidating certain manu facturing operations and by a down ward revision in our investments in some assets. 1980 operating earnim also were affected by the lower level of economic activity in the United Kingdom. To properly assess its operations, the company believes that its research and development efforts should be recognized along with its sales and operating earnings perfor mance. A discussion of these efforts appears on page 4 of this annual report. Note 11 to the Consolidated Finar cial Statements presents certain sup plemental information on inflation an changing costs. This information attempts to measure the impact of inflation and changing costs on the company's results of operations and certain other historical financial information. Organization Units Operations Agricultural Division Joseph J. Garbarino, President Chemical Products Division William G. Paxton, President Cyanamid Americas/Far East Division John H. Schriever, President Cyanamid Europe/Mideast/Africa Division Ben H. Loper, President Fibers Division Martin B. Friedman, President Formica Corporation William L. Berry, President Household Products Division Gordon M. Garrett, President Industrial Products Division Edgar E. Standring, President Jacqueline Cochran, Inc. Carlo F. Bilotti, President Lederle Laboratories Division Jack L. Bowman, President Organic Chemicals Division Gordon D. Sterling, President Plant Food Division T. Dean Smith, President 32 Shulton, Inc. International Division William H. Lash, President Shulton, Inc. Toiletries Division Melvin E. Cruger, President Research Divisions Agricultural Research Division Robert H. Becker, Director Chemical Research Division George L. Sutherland, Director Consumer Products Research Division Lantz S. Crawley. Director Formica Products Research Division Leo A. Landers, Director Medical Research Division George L. Sutherland, Director Services Controller's Division Robert D. Reisman, Controller Corporate Development and Planning Division Frederick W. Armstrong, Director Engineering and Construction Division Herbert H. Hofmaier, Director Environmental Services Division Jason M. Salsbury, Director Federal Government Relations Don A. Goodall, Director Information Services Division Edward A. Lustig, Director Investor Relations Wallace G. Taylor, Director Law Division Donald C. Droste, Director Materials Planning and Procurement Division Theodore E. Hazell, Director Personnel Division W. Perry Brown, Director Public Affairs Division Joseph C. Calitri, Director Tax Division Alan M. Breitman, Director Transportation and Distribution Division Arthur C. Fennimore, Director Treasury Division George A. Midwood, Treasurer CY0005743 Directors Officers Committees Board of Directors James G. Affleck David M. Culver Lloyd N. Cutler James B. Fisk L. Emery Katzenbach William A. Liffers Borden R. Putnam Alexander M. Schmidt George L. Schultz George J. Sella, Jr. Clifford D. Siverd William L. Wearly Chairman of the Board and Chief Executive Officer American Cyanamid Company President and Chief Executive Officer Alcan Aluminium Limited Partner Wilmer, Cutler & Pickering Attorneys Retired Chairman of the Board Bell Telephone Laboratories, Incorporated Member of the Investment Banking Committee and Vice President Merrill Lynch, Pierce, Fenner & Smith Incorporated Investment bankers and securities broker/dealers Vice Chairman American Cyanamid Company Senior Vice President American Cyanamid Company Vice Chancellor University of Illinois, Chicago Private investments President American Cyanamid Company Retired Chairman of the Board and Chief Executive Officer American Cyanamid Company Director and Chairman of the Executive Committee Ingersoll-Rand Company Diversified manufacturer of machinery and equipment Officers James G. Affleck George J. Sella, Jr. William A. Liffers Borden R. Putnam Charles E. Austin Paul C. Baker George P. Bywater David Carroll Fredric E. Detoro James 1. Wyer W. Perry Brown Richard L. Martino George A. Midwood Robert D. Reisman John K. Bangs Chairman of the Board and Chief Executive Officer President Vice Chairman Senior Vice President Group Vice President Group Vice President Group Vice President Group Vice President Group Vice President Vice President and General Counsel Vice President Vice President Treasurer Controller Secretary Office of the Chairman James G. Affleck Chairman George J. Sella, Jr. William A. Liffers Finance Committee Clifford D. Siverd Chairman James G. Affleck L. Emery Katzenbach William A. Liffers George L. Schultz George J. Sella, Jr. Audit Committee James B. Fisk Chairman L. Emery Katzenbach William L. Wearly Compensation Committee L. Emery Katzenbach Chairman James B. Fisk Clifford D. Siverd William L. Wearly Nominating Committee William L. Wearly Chairman George t. Schultz Clifford D. Siverd James G. Affleck ex officio Public Responsibility Committee George L. Schultz Chairman Alexander M. Schmidt Transfer Agent and Registrar The Chase Manhattan Bank, N.A. New York, NY 10015 Stock Exchanges Cyanamid's common stock is listed on the New York Stock Exchange as well as on stock exchanges in Amsterdam, Basle, Frankfurt, Geneva. Lausanne and Zurich. Printed in U.S.A. 33 CY0005744 CY0005745